Wall Street Breakfast: Must-Know News

• Morgan Stanley bond losses higher. Reports that, thanks to good ol' accounting methods, Morgan Stanley (MS) will post larger than expected losses on certain bonds, though it is described as a "relatively high-quality problem to have." The bonds have rallied recently and are marked to market, making them a more expensive liability on the firm's balance sheets. MS is expected to post its second consecutive down quarter when it reports Q109 on April 20.
• Inside the stress tests: NYT is reporting that the almost 200 bank examiners conducting the Federal 'stress tests' find most banks are healthier than people think - but that the largest banks will need more bailing out.
• Short-selling rules up for comment. The SEC announced it will put 5 variations on short-selling rules up for public comment for 60 days. Two are versions of the uptick rule; three are ways to introduce circuitbreakers. One of the circuitbreakers would kick in with a 'bid test' if a stock dropped by a set percentage; another, once triggered, would ban short selling of a stock for the rest of the day; the third would trigger the uptick rule for the rest of the day.
  
• Japan announced a record $154 billion stimulus plan. The stimulus will focus on the jobs, credit to businesses, energy-efficient technology, regional support and public welfare. Included in the plan are about 1.6 trillion yen in incentives to consumers to buy energy-efficient appliances and automobiles, and solar panels.It's the largest one-year stimulus in Japan's history; the government will issue as much as 11 trillion yen of debt to fund the plan.
• Moody's cuts Berkshire Hathaway from Aaa to Aa2, its third-highest grade, leaving only 4 U.S. companies rated Aaa. Moody's also cut Berkshire's bond insurance arm, Berkshire Hathaway Assurance, to Aa1; it had been the last of the bond insurers to hang onto the Aaa rating.
• Costco sales drop. Costco Wholesale (COST), the largest 'warehouse club' in the U.S., reported a 3% drop in net sales for March, to $6.39B from $6.57B in the year-ago month. Same-store sales were down 5% and revenue dropped 9% (2% in the U.S., 13% international), attributed primarily to lower gas prices and the stronger U.S. dollar. Shopper numbers rose by half a percent, but spend per customer dropped 10%.
• Microsoft loses patent suit. In Federal court, a Rhode Island jury has ordered Microsoft (MSFT) to pay $388 million in damages for infringing on an anti-piracy patent owned by Uniloc. Uniloc's patent was confirmed in the case, which dates back 5-1/2 years. Not surprisingly, Microsoft will appeal.
• Bank of America raises credit card rates. Bank of America (BAC) joins the list of banks raising rates for customers who carry balances over from month to month, regardless of their payment history. As of June, BofA credit card customers who currently carry a rate lower than 10% will jump into double digits. Citigroup (C), JPMorgan Chase (JPM) and American Express (AXP) have already enacted similar rate changes. BofA claims that fewer than 10% of its U.S. customers will be affected.
• Oil supplies near multi-year highs. The weekly EIA petroleum status report issued Wednesday [.pdf] showed another build in oil inventories - less than expected, but enough to put a damper on crude oil futures prices that had risen more than 3% earlier in the day.
• FOMC minutes were released for March. Fed officials saw downside risk predominating. The Federal Open Market Committee voted unanimously to buy an additional $1.15 trillion in bonds on the open market due to substantial concerns that the U.S. faced a cycle of rising unemployment and lower consumer spending that would further tighten credit.
  

Earnings: Wednesday After Close

• Pep Boys (PBY) Q4 EPS of -63 cents misses by 37 cents. Revenue of $465.54M beats by $2.01M. [PR]

Today's Markets

Asian markets rallied on the Japanese stimulus proposal and some positive manufacturing data. FTSE has so far shrugged off the BoE's decision to hold interest rates steady.

• Asia: Nikkei +3.7% to 8,916. Hang Seng +2.95% to 14,901. Shanghai +1.4% to 2,379. BSE +0.57% to 10,803.
• Europe at midday: London +1.22%. Paris +1.22%. Frankfurt +1.97%.
• Futures: Dow +1.5% to 7721. S&P +1.8% to 811. Nasdaq +1.3%. Crude +3.2% to $50.95. Gold -0.6% to $880.6.

Thursday's Economic Calendar

• Thursday's economic calendar:
  6:00 Chain Store Sales
  8:30 International Trade
  8:30 Jobless Claims
  8:30 Import/Export Prices
  9:00 RBC CASH Index
  10:30 EIA Natural Gas Report
  12:00 PM Lawrence Summers speaks to the Economic Club of Washington
  4:30 PM Money Supply

• Notable earnings after Thursday's close: CVX
• Notable earnings before Friday's open: none.

Seeking Alpha editor Mary Hunt contributed to this post.

Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

After you finish reading Wall Street Breakfast Seeking Alpha's Market Currents will keep you current all day long.

Comments

[CautiousInv...:]

Outcomes of the stress tests will be interesting to watch for a variety of reasons, including the politically challenging task of simultaneously declaring the banks to be in good shape but at the same time needing more capital.

Critics of the stress test, of which there are many, are challenging anyone to produce an econometric model that will take a couple of macroeconomic data variables and drive the analysis.....with credible linkage.... through a balance sheet to determine the health of various loan classifications. Because this cannot be done, results will be viewed with justified suspicion.

Stress testing of banks is not the invention of Treasury; stress testing as referred to in the 2001 Basel Capital Accord uses quantitative approaches--methods where assumptions can be empirically evaluated. The goal is to link dramatic changes in the economic environment to the bank's portfolio.

Unfortunately, Basel has not yet established specific guidelines on how to do this, which is not surprising given the range of issues to be covered, such as data availability, portfolio diversity, and standardization of model inputs and outputs

Apr 09 09:11 AM

[bobbobwhite:]

By the time the gov't "fully studies" the uptick rule and makes a decision on its form of reinstatement, we will probably be in the next recession or later. What is there to study?....this rule obviously stabilizes the market and makes it overall less volatile. Just reinstate it and get it done! Perfect example of typical gov't analysis paralysis. Actually, I suspect way more paralysis(typical gov't performance) than any real and thoughtful analysis, in anything.

But, of course, asking the gov't to make a decison and then expecting a timely and proper result is like asking your 2 year old during a temper tantrum to act like a grownup and then expect him to do it immediately and prove it by getting a job.

Apr 09 10:57 AM

[sticktoitiv...:]

"Moody's cuts Berkshire Hathaway from Aaa to Aa2, its third-highest grade, leaving only 4 U.S. companies rated Aaa. Moody's also cut Berkshire's bond insurance arm, Berkshire Hathaway Assurance, to Aa1; it had been the last of the bond insurers to hang onto the Aaa rating. "

I suppose CDOs still carry a AAA rating.

Just ignore those idiots.

Apr 09 01:13 PM

[sticktoitiv...:]

bobbobwhite
We could have used some analysis paralysis on the stimulus plan they didn't read.

Apr 09 01:15 PM

[eddie6442:]

SEC can show they are serious about correcting "their created problems" with Shorting stocks by:
[1] Making it mandatory that shares be borrowed "before" the trade confirmation;
[2] Prosecuting everyone on their SHO report immediately following a five day notice period to comply.......either borrow shares or cover;
[3] Demonstrate an automated system, while identifying those "responsible" for compliance to new rules going forward.......

Since Obama is for CHANGE, these would definitely be changes at the SEC...........

IMHO

Apr 10 08:59 AM

[notsosmart:]

just ignore the rating cos.forget the sec.think for yourself.

Apr 10 10:06 AM

[bbowen7:]

Wells Fargo reflects the intersection of the real economy and the financial industry. They make money by borrowing at a low rate, and lending to consumers and small businesses at a higher rate - not by packaging CDO's, and doing deals. There may be some questions about the impact of the Wachovia acquisition and the affect of increasing unemployment, but a $3 billion quarterly profit ain't bad, and the broader implications for similar banks is great. A big ray of sunshine.

Apr 10 11:24 AM

[eieinli:]

Don't hold your breath! Between people withdrawing their deposits, people not paying their mortgages and credit cards, or unable to, I won't trust their quarterly reports of huge profits; just another way to snooker you!

Apr 10 11:54 AM

[long_on_oil:]

Two things have always amazed me; one is why anyone would be allowed to short a stock they don't hold and two, how the market cap of a company changes based on a small number of shares trading at an unrealistic rate.
The second effects the entire market and basically is the reason markets crash. Stocks, homes and all expenditures of a nation eventually come back to the total money supply. Credit is just postponement of payback.
Example I have a company with 1 billion outstanding shares. The value of the shares should be $30 each but at closing one share trades at $31 thus increasing the market cap of the entire company by $1 billion. This madness increases until the price of the shares is twice what they should be then boom the crash comes and the shares trade at what they should have all along. This is what has happened to all of us since the last quarter of 2008.
Determining the actual value of a company is next to impossible so this madness will continue forever, it is called cycles.

Apr 10 12:27 PM

[woodsey:]

Why decry wrongheadedness? The wrongheaded government reflects the wrongheaded people (i.e. the mob). Friend, suppose you are the government dealing with four pirates. You can solve this? Just shoot a pirate? No?

Now suppose you are dealing with thousands of retired auto workers. Just shoot a few thousand auto workers? Yes?

The auto workers have a union. Try to destroy the union, Mr. Obama?

The pirates have a union. Try to destroy the union, Mr. Obama?

Apr 10 01:09 PM

[slipperyrazor:]

I would really like to see the method by which banks say that raising the rates on people carrying a balance on their credit cards,which the banks say is only 10%,is computed. Of all the banks that are using this scam, BANK OF AMERICA is the one that concerns me the most. As a receipient of TARP,imho they have blatantly abused the peoples largess every way conceivable. They amplify the word GREED!

Apr 10 02:15 PM

[Long US stockS:]

Write your Congress person, I do


On Apr 10 02:15 PM slipperyrazor wrote:

> I would really like to see the method by which banks say that raising
> the rates on people carrying a balance on their credit cards,which
> the banks say is only 10%,is computed. Of all the banks that are
> using this scam, BANK OF AMERICA is the one that concerns me the
> most. As a receipient of TARP,imho they have blatantly abused the
> peoples largess every way conceivable. They amplify the word GREED!

Apr 10 03:46 PM

[Allan Frain:]

It is telling that Costco sales are down. In the earlier phase of the downturn the discount stores fared well as consumers looked for more value. The retail downturn is maturing.

Apr 10 08:54 PM