Credit Market Update: Meet Me in St. Louis

Includes: AHBIF, BA, MON
by: Jim Delaney

If there was any indication needed whether or not the market is still practicing the denial that pushed the S&P 98.39 points higher last September when Hank’s initial idea for TARP was leaked, it was all too evident yesterday.

Ignoring a “nucular” detonation and the firing of three missiles by one of the world’s biggest Elvis fans, albeit certainly not in a physical sense, and the man that runs things north of the 38th parallel in Korea along with a number of indicators from the people who bring us the S&P/Case Schiller indexes, the market instead chose to focus on the increase in consumer confidence which was said to have experienced its last move of that magnitude in 2003 when things were turning around from the bubble that made {your idea here} a ticket to at least temporary riches. Easy come, easy go, as they say.

In conjunction with the confidence number that must have been tied to one of KJI’s missiles there was an article in the St. Louis Business Journal, a paper from a city that brings us a few things other than a team of Clydesdales, namely cars from Chrysler and some military products from Boeing (NYSE:BA) and is also the home of one of Monsanto’s (NYSE:MON) facilities. As it turns out MON is one of the few companies hiring in the town and a notice that 89 people might find work there brought no fewer than 20,000 applications. “We’re definitely experiencing an increase in our candidate tracking system,” said Melissa Harper, Monsanto’s director of talent acquisition. (Ya think!)

Now back when just a few people had phones, Dewey beat Truman for a few short hours, but we’re in the digital age now so I’m not sure just how this happened but the people at the Conference Board must have polled those 89 folks that just heard back that they got jobs and somehow missed the 19,911 that didn’t.

MON stock had been performing pretty well up until May 20th [$91.83 close], having risen from a low of 66.29 on December 22nd of ‘08. The CDS for MON peaked just a tad earlier at 135bps on December 5th. The stock traded in a fairly choppy sideways pattern until breaking above its 3/26/2009 high of $87.64 on 5/4/2009 and going on to set the new high close for the move on 5/20/2009 mentioned above.

The CDS has moved lower in a more deliberate fashion closing as low as 59bps on 5/7/2009 and has not moved much higher; 65bps last night. The stock has not faired as well since the 20th losing $6.58 or about 7.17% in the process.

Rains across the Midwest have prevented a lot of the planting in the heartland and with one of MON’s major money makers being genetically engineered seeds the reasoning for the drop off seems to be in place. It will be interesting to see how the CDS/equity relationship moves from here.

The travails of Chrysler are documented in the paper every day and the stock is no longer publicly traded so we’ll leave that one to the UAW to figure out.

BA seems to holding up well and the CDS/equity relationship there looks solidly intact as the $29.36 low in the stock on 3/3/2009 was put in just days before the CDS peaked at 295bps on 3/5/2009. Since then the CDS has moved down to a low of 129bps on 5/7/2009 with the stock hitting its high for this move at $45.83 one day later. Things have retreated a bit but were heading back in the right direction (up for the stock, down for CDS) in trading yesterday.

Not to leave the horses in the barn; what was BUD is now ABI BB and is traded in Brussels; meaning also that it is priced in Euro’s. Maybe the “King of Beers” couldn’t take living in a democracy anymore. Regardless of where it resides it looks like it had been a good place for investors’ cash to hide out.

A low of E10.31 around Thanksgiving last year was also the last time the stock flirted with a single digit handle and had since risen to E25.10 on 5/20/2009, a nice 1.5 bagger! The CDS, which are still traded under the BUD symbol, as it’s the US debt the American market appears concerned with, peaked at 230bps on 12/5/2009 and moved as low as 95bps on 2/11/2009. What is curious here is that since that early February date the stock has climbed from E20.89 to E24.10 last night and off the recent highs, while the CDS has moved higher closing at 123.21 yesterday.

If the CDS is any indication a lot more people might be returning their empty “long necks” for the deposit. With just a 3.98% pull back in the stock and CDS off their recent highs of 133bps (5/14/2009), it’s too early to tell whether this Bud’s still for you.

Enjoy the “holiday shortened” week.