Wall Street Breakfast: Must-Know News

• New 2009 highs. U.S. stocks hit fresh 2009 highs Tuesday, the first day of a two-day FOMC interest rate meeting. Financial, energy and materials stocks led the way as investors returned to betting on a global recovery after a brief pullback. Over 200 stocks hit new 52-week highs, including Google (GOOG), which traded above $500 for the first time since Aug. 2008.
• FDIC wants banks to prepay fees. Sources say the FDIC will likely ask banks to prepay future fees in order to replenish its depleted deposit insurance fund. Officials played down recent reports that the FDIC was considering borrowing money from healthy banks, saying that while it's an option, it is not under serious consideration. The FDIC had just $10.4B in its fund at the end of June to protect more than $6.2T in deposits, though it does have another $32B already earmarked for expected losses in the next year.
• All eyes on the FOMC. Fed officials are expected to say the U.S. economy has started to recover, but maintain their pledge to keep target lending rates at the current record low of 0-0.25% for an extended period. Officials might weigh in on whether the Fed will extend its emergency purchases of $1.45T in mortgage debt into 2010. Economists currently project 2.9% growth for Q3, far more than the 1% growth they expected in July. FOMC decision and statement due out at about 2:15 p.m.
• Geithner to push for broad reforms. Lawmakers must take advantage of the current crisis to initiate broad reforms of the financial industry, Tim Geithner will tell a House committee today. "We simply cannot walk away from the worst financial crisis since the Great Depression and not do everything in our power to reform the system." In a strong message to opponents of a proposed consumer financial protection agency, Geithner will say, "Without a strong framework of regulation, banks and other providers compete to take advantage of consumer confusion... This must end." (read Geithner's full remarks (.pdf))
• Same old same old. Despite months of scrutiny and some internal changes, a recently departed Moody's (MCO) analyst says ratings firms continue to issue inflated ratings. The whistleblower - Eric Kolchinsky - cites one case in which Moody's gave a complicated debt security a high rating in early 2009, even though it was planning to (and subsequently did) downgrade the underlying assets. Kolchinsky is scheduled to testify on ratings-firm reform before a House committee on Thursday.
• Towns backs down. Rep. Edolphus Towns said Bank of America (BAC) agreed to hand over more documents to a Congressional committee investigating its questionable takeover of Merrill Lynch - but not those it claims are protected by attorney-client privilege. For those documents, BofA will provide a 'privilege log' that Towns says Congress "will review and use to determine which documents are critical to the committee’s ongoing investigation." Towns called yesterday's meeting with BofA officials "constructive." (read Towns' statement)
• Intel's Otellini grows even more bullish. The global PC market is rebounding more quickly than expected, and could defy predictions by growing this year, Intel (INTC) chief Paul Otellini told investors on Tuesday. Since declaring PC sales had bottomed in April, Otellini has been more aggressive in his forecasts than even Intel's biggest customers. Research firm Gartner predicts a 2% decline in PC shipments for 2009, which is still far better than the 6% drop it forecast a few months ago.
• Dark shadows over housing market. Well-meaning efforts to keep families in their homes and bureaucracy are slowing the flow of properties headed toward foreclosure sales, creating a growing 'shadow' inventory of pent-up supply that analysts warn could stop the feeble housing recovery in its tracks when it hits the market.
• Mortgage apps jump to a 4-month high. U.S. mortgage applications jumped to their highest since late May as interest rates on the benchmark 30-year fixed mortgage dropped below 5%, according to the MBA's weekly survey. MBA's composite index increased by 12.8%, while rates fell 0.11 points to 4.97%, the first trip below 5% since May. Refinancings were up an even more robust 17.4%, with the refinance share of applications increasing to 63.8% from 61% a week ago.
• Consumer confidence builds. ABC's consumer confidence index moved up to -46 this week from -49. Of those surveyed, only 10% rate the national economy positively; 26% say it's a good time to buy things, and 45% rate their personal finances as positive.
• Home prices edge higher. FAHA's index of U.S. home prices rose 0.3% in July, short of consensus estimates of a 0.5% gain, but building on June's 0.1% increase (revised from +0.5%). Pacific region saw the strongest pickup, +1.6%, while East South Central was the weakest at -0.9%.
• Manufacturing a recovery. The Richmond Fed's index of manufacturing activity in the Atlantic region was unchanged in August at 14, just short of the 16 economists forecast. It was the fifth straight month of expansion (above 0), with all broad indicators (shipments, new orders and employment) in positive territory. Manufacturers also reported the first increase in worker numbers since Dec. 2007.

Earnings: Wednesday Before Open

• AutoZone (AZO): FQ4 EPS of $4.43 misses by $0.02. Revenue of $2.23B (+1%) in-line. Same-store sales were up 5.4%. Inventory was 2.7% higher than a year ago. (PR)
• General Mills (GIS): FQ1 EPS of $1.28 beats by $0.25. Revenue of $3.52B (+0.6%), in-line. Sees full-year EPS of $4.40-4.45 vs. $4.26 consensus. "We're seeing continuing strong consumer demand for our products." (PR)

Earnings: Tuesday After Close

• AAR (AIR): FQ1 EPS of $0.27 beats by $0.02. Revenue of $342M (-5%) vs. $336M. Shares +0.4% AH. (PR)
• H. B. Fuller Company (FUL): FQ3 EPS of $0.48 beats by $0.12. Revenue of $315M (-13%) in-line. Shares +5.7% AH. (PR)

Today's Markets

Asia markets moved lower on Wednesday, including another day of heavy losses in China. Europe stocks and U.S. futures are showing modest gains.

• Asia: Hang Seng -0.49% to 21,596. Shanghai -1.89% to 2,843. BSE -0.99% at 16,719.
• Europe at midday: London +0.3%. Paris +0.15%. Frankfurt +0.2%.
• Futures at 6:45 a.m.: Dow flat at 9775. S&P +0.1% to 1,068. Nasdaq +0.1%.
  Nov. crude -0.72% to $71.24. Dec. gold -0.1% to $1,014.50.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  9:30 Geithner Testifies on Proposals for Financial Regulatory Reform
  10:00 Mass Layoffs
  10:00 Transparency International's Global Corruption Report 2009
  10:30 EIA Petroleum Inventories
  1:00 PM $40B 5-Year Note Auction
  2:00 PM Sheila Bair, John Dugan, John Bowman Testify on Financial Regulatory Reform Proposals
  2:15 PM FOMC Interest Rate Decision and Statement
• Notable earnings before Wednesday's open: AZO, GIS
• Notable earnings after Wednesday's close: BBBY, CTAS, PAYX, RHT

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Comments

[doubleguns:]

"a growing 'shadow' inventory of pent-up supply that analysts warn could stop the feeble housing recovery in its tracks when it hits the market."

Not to mention ARM resets, continued foreclosures and cancellation of $8,000 hands outs in November to name a few "other" issues.

Cramer said the housing market bottomed in June. Guess I am not the only scheptical one.

Sep 23 08:14 AM

[Old Trader:]

Re: same old same old,
If there's to be ANY sort of meaningful financial reform, the issue of the ratings agencies needs to be towards the top of the list, in terms of issues to be addressed.

Sep 23 09:03 AM

[Shaggieman:]

Now with CD's paying next to nothing POOR retires trying to make it on a fixed income might as well just die. I say the rates need to raise now to defend what few dollars long term savers have left. Disgusted retiree!

Sep 23 09:40 AM

[notsosmart:]

nobody cares about retired people.old people dont matter in this society.the young dont think about getting old. nobody thinks they are going to die or get old.if you lived conservatively & saved all your life & you need a nursing home you get wiped out quickly(80-90,000 $ A year).if you spent your money & are broke due to vacations,trips, etc.the state will pay for your care.so who lived the better life?dont mention ltc insurance.its out of reach for most average people.geezers-dont get sick-just die!.

Sep 23 10:07 AM

[Joseph L. S...:]

A man's most important possession is his good name. Shouldn't it be the same for a rating agency? When I can't trust Moody's to give an honest appraisal, what possible value can they have? What possible reason to stay in business?

Sep 23 11:39 AM

[Buckoux:]

I agree, in part. The Fed's obfuscation in it's rate is an additional uncertainty in ALL markets, not just forex and securities. The Fed should announce that it's pegging its interest rate at .25% for the next quarter and will raise it .25% per quarter until an economic stability is realized. This would be a comment and commitment by the Fed of its confidence in the markets and a peremptory, "shot across the bow" to any real or imagined fears of inflation. It's the right thing to do.


On Sep 23 09:40 AM Shaggieman wrote:

> Now with CD's paying next to nothing POOR retires trying to make
> it on a fixed income might as well just die. I say the rates need
> to raise now to defend what few dollars long term savers have left.
> Disgusted retiree!

Sep 23 11:57 AM

[ebworthen:]

Eli - Good work, thank you.

Despite seemingly different headlines, I see common threads in each story:

1. New 2009 high's = investor on top step of teetering ladder

2. FDIC wants banks to prepay fees = they know the shi* is going to hit the fan, and want a slow draw of capital (i.e. depositors cash) to pay for collapses. Hey, they can always get backstopped by the FED but this way it looks legit and is "non-panic" promoting.

3. All eyes on FOMC - FED will continue artificially low rates which will perpetuate the debt bubble, and they will continue socializing private debt and kicking the can down the road.

4. Geithner to push for reforms - a tax dodger will insist that financial reforms are needed in an attempt to rebuild trust, even though current regulations and laws were ignored and not enforced and the perpetrators of fraud and malfeasance have been rewarded with taxpayer dollars. Good luck with that Timmy. No doubt Congress will play the foil for him since they are in on the game as well.

5. Same old same old - who butters Moody's bread? certainly not the average investor, Moody's knows though.

6. Towns backs down - Representative Towns got a phone call or "visit" that he will never publicly acknowledge during his lifetime. "Back off or else" they said, "you can't handle the truth" or something along those lines.

7. Intel's Otellini grows bullish - PC sales have been boosted by stimulus money and spending on equipment rather than people, it's the unseen "cash for clunkers" for Tech. that will have it's backlash come Spring.

8. Dark shadows over housing market - yet another compress bandage on a bleeding artery. "How'm I doin'?" says the near terminal patient, "Just great" lies the EMT to bolster chances of survival via perception versus reality.

9. Mortgage apps jump to 4 month high - see item # 3, also, FHA socializing risk and risk appetites, expiring tax credit, cash for clunkers redo except with houses and securitized mortgage obligations (deja vu all over again?).

10. Consumer confidence builds - Only in cancer wards and dog pounds is -49 to -46 a good thing. Considering the cotton candy markets and full court press of positive media spin; you would think it would be better.

11. Home prices edge higher - ditto #10 and see #9. A 0.6% increase in the Summer months with tax credits, FHA guarantees, and FED funded mortgage rates, not surprising and should be better if things were really improving.

12. Manufacturing a recovery - I suppose it's possible. It's also possible that orders were slashed Oct.-March of last year, and this uptick is simply compensation, that may end up as unsold inventory this Christmas/Winter.

I want to believe that this is a recovery, really. My gut tells me that our current circumstance is a historic case of groupthink.

Sep 23 01:35 PM

[bbowen7:]

It seems as if business / financial reporting is now "all government ; all the time". Perhaps the G-20 meetings will amount to nothing concrete, and the government will get out of the way for awhile.

Sep 23 02:26 PM

[carey_jim:]

Unemployment reaches 60 year high in the United States.

Sep 23 04:03 PM

[BullnBear:]

The FDIC data is very concerning and I’m surprised how this seems to fly under the radar in the mainstream media from a detail perspective, in all fairness I’ve seen this reported “in a nutshell” but without much detail.

Sep 24 01:46 AM