A. Foreign Bank ADRs

Looking towards 2010 we continue to live under a heavy burden of worry following the credit and economic malaise of 2008 and 2009. Invariably during times of heightened worry investors, lacking the appetite or the wherewithal to buy small undervalued stocks, gravitate towards large cap stocks. However, during 2010, especially in the second half of the year as the economy enters a period of definitive healing, investors will move more and more funds into undervalued small stocks. Getting ahead of the crowd and investing early in a selection of deeply undervalued well-chosen stocks should produce excellent returns during the next 12 months.

The 5 Best Performing Foreign Bank Stocks YTD:

Overnight US equities closed at 14-month highs, boosted by Abu Dhabi’s decision to make a $10 billion payment to Dubai World to help it as it negotiates its debt standstill arrangement and Exxon Mobil’s (XOM) belated move into gas in a $31 billion deal move for XTO Energy (XTO). Visa (V) climbed 4.2% to an 18-month high on its addition to the S&P 500, while Sun Microsystems (JAVA) added 11% after Oracle (ORCL) offered proposals to win approval to buy the company. Citigroup (C) slid 6.3% after striking a deal with regulators to repay $20bn in rescue funds as some investors questioned whether they are in any shape to exit the TARP.

Early New York trading has been cautious with talks of rights issues hurting the prices of insurer Conseco (CNO) and spacecraft parts maker GenCorp (GY), while Best Buy (BBY) is on the back foot after saying Q4 profits will be lower than expected. The early economic data Stateside has not helped the tone with PPI (wholesale inflation) coming is at a much stronger than expected 1.8% (versus 0.8%) and the Empire Manufacturing survey collapsing to 2.55 (against an expected print of 24.00). That’s said it developing into a bit of a curates egg of a day with news at 14.00 that both US industrial production and capacity utilization figures were better than the Street had pencilled in. The closely watched NAHB index is due at 18.00 (a read of 18 is the consensus) and Adobe Systems (ADBE) is due to report after the closing bell tonight.

The BOJ aims to "encourage a further decline in longer-term interest rates “

After the extreme rally in financial shares over the last six months (XLF as a proxy has outperformed SPY by a little over 100bps in the last six months), the term seems to have faded into the ether. Well, look no further than Allied Irish Banks (AIB) to fill the void. While the problems with Ireland's second largest lender have been well known (hence the 1.52 euro price), there have been two new develoments which confirm the diagnosis.

On Monday, the Dubai crisis lost its grip on global markets. Risk aversion cooled down, allowing US equities to close in positive territory as financials led a late advance on hopes that possible fallout for US banks will be contained. Earlier, the market was trading cautiously on news of Iran’s ongoing nuclear ambitions and their seizing of a UK yacht, while a better than expected Chicago PMI was countered by mixed holiday-shopping results which sparked concerns about consumer spending. Outperforming sectors were Reits +4.4%, Banks +3.6% and Airlines +3.4 while Hospitals (1.9%), Tobaccos (1.6%) and Retail (1.4%) underperformed. How long before we hear talk of a Santa Claus rally?

Today’s Market Moving Stories

Risk market started the week on a brighter note in Asia overnight with major Asian equities making solid gains of 2-3% as the panic over Dubai debt problem abated with the help of the statement by UAE central bank over the weekend, where the bank pledged to offer additional liquidity support to banks in the emirates. But just when the dust, or indeed the sand, looked like it was starting to settle the European markets took a second look at what had been offered and were more sceptical. The UAE Central Bank said that “the UAE banking system is more sound and liquid than a year ago.” However, an unnamed senior Abu Dhabi official said that “we will look at Dubai’s commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts.” The trouble is that the statement was vague and elusive. Its aim is to prevent a run on deposits. This is not an asset side of the balance sheet (loan) bail out. Abu Dhabi will not bailout Dubai without extracting a pound of flesh from them and seeking to loosen their very strong Iranian ties.

And during the European morning we learned that Dubai World’s real estate unit Nakheel asked for NASDAQ Dubai to suspend the trading of all three of its listed sukuk, or Islamic Bonds. The Dubai five year credit default swap is up to 594.6 BP (5.665%) today from 566.5 so the market are far from convinced and shares in RBS (RBS) and Lloyds (two of the banks that potentially have the largest exposure) are off 4-5% today.

Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P’s list of 45 global lenders fails the 8pc safety level under the agency’s risk-adjusted capital (RAC) ratio. Most fall woefully short.

Wednesday will be remembered more for incompetent visually impaired Swedish officials and Messieur “Thieving” Henry than any price action on the markets. For the record, U.S. Stocks fell as profit forecasts dragged tech shares lower. Equities slipped, pulling the S&P 500 down from a 13-month high, as technology companies slid after profit forecasts at Autodesk (ADSK) and Salesforce.com (CRM) trailed some analyst estimates. Autodesk, the biggest maker of engineering-design software, slid 10% after saying job losses in core markets are making the company’s recovery “challenging.” Salesforce.com, the largest seller of Web-based customer-management software, tumbled 3.1%.

The market’s decline was limited as Bank of America (BAC) rallied after John Paulson’s hedge fund said the shares may almost double, while takeover speculation lifted Colgate-Palmolive (CL) and E*Trade Financial (ETFC). The S&P 500 fell 0.1% to 1,109.8. The Dow Jones Industrial Average lost 11.11 points, or 0.1%, to 10,426.31. About three stocks dropped for every two that rose on the NYSE. The dollar weakened and gold climbed to a record $1,153.40 an ounce.

By Tara Perkins

The rumors are back. The Irish Independent reported Thursday that “Allied Irish Banks (AIB), which needs to raise billions of euro to bolster its capital reserves over the next few years, is continuing to be circled by Canadian Imperial Bank of Commerce (CM), according to sources.”

Equities gained for a third day Tuesday as a rebound in metal prices boosted commodity producers, overshadowing a smaller-than-forecast increase in industrial production. The Dollar Index, which tracks the US Dollar against six US trading partners, rose for the first time in three days and Treasury 30-year bonds climbed for a fourth. Wal-Mart (WMT) and Exxon Mobil (XOM) gained after Warren Buffett disclosed buying their shares. Sprint Nextel (S) rallied after saying it paid down $1 billion in debt. Caterpillar (CAT) and ITT (ITT) declined as the Federal Reserve said industrial output was restrained in October by less auto manufacturing and demand for business equipment. In the end, the S&P 500 added 0.1% to 1,110.32, its highest close since October 2, 2008.

US equity markets seem to have been supported by a number of comments by Fed policymakers (notably Kohn and Yellen) – in particular, the assertion that US asset markets do not appear to be unfairly valued. We seem to be at the beginning of a new campaign as the Fed seeks to justify the maintenance of its very easy policy stance. The initial phase of that campaign was to assure the market that the Fed has the tools available to reverse the policy stance in a timely fashion so as to prevent an undesirable outbreak of generalized inflation. Now the Fed seems to be defending itself against the charge that the liquidity that it is providing is simply stoking another asset price bubble that will ultimately prove even more destabilising.

The theme over the past 24 hours has been one of a remarkable harmonious dove commentary from the world’s Central Banks, rallying front ends and thus providing a degree of support to equity markets. European bourses closed with solid gains, while the S&P500 also closed higher, albeit well off the highs for the session. Gold is now worth its weight in gold.

Starting in the US, Dallas Fed President Fisher opined that we could see a pause in the US recovery (or at least several quarters of weak growth) while Richmond Fed President Lacker told his audience that it was too soon to say when the Fed would lift rates (he said it could be 2010, but it could take longer). In Europe the ECB’s Wellink said that the world economy was still fragile, a comment that was seconded by ECB colleague Weber. Weber also said that it was presently too early to reverse the Bank’s expansionary measures although he also warned that the right time for exit must not be missed.

Risk markets continue to trade in the sweet spot on a flock of Fed comments (after someone let the doves out) and a slew of bullish Chinese economic data. Looking across markets, most prices are sitting not too far from where they were this time yesterday. Clearly, investors have seen, on balance, little surprise in the latest data and information flow. This included a wall of Fed speakers, several whom took the time to point out that neither inflation nor unemployment were presently indicating a need for the Fed to exit its ultra-easy policy stance. The Dallas Fed’s Fisher did indicate a worry that the Fed’s policy would stoke a destabilising Dollar Carry Trade. Talk is cheap but Treasury Secretary Geithner did say that he “deeply believes” a strong Dollar is important for the US and he has responsibility to implement policies to shore up confidence.

Some US stocks to watch Wednesday include GE (GE), Caterpillar (CAT), Alcoa (AA), Barrick Gold (ABX) (with the yellow metal trading at $1,117) and Exxon Mobil (XOM), all of whom look likely to benefit from the equity friendly news from China overnight. Other stocks likely to be active include Adobe Systems (ADBE) who are shedding 9% of their workforce, and builder Toll Bros. (TOL) who said that Q4 contracts have risen.

The following is a list of Foreign Bank ADRs that closed at under $10 as of 1/05/2009:

The reaction of markets to what most regarded as a dovish Fed statement was disappointing. The Dow was up 156 points at one stage but ended almost unchanged with selling heavily into the close. Financials were the big losers after a House vote limited credit card rates which would impact bank earnings. I still feel the equity market is being very complacent about tomorrows US non-farm payrolls number report (consensus forecast -175k). Reading through the entrails of the employment components of yesterdays ISM services report, the number should be around -300k.

Data wise from the US thus far Thursday has been unambiguously positive with much better than expected non-farm productivity numbers and lower than expected unit labor costs. This combined with a bigger than forecast fall in the weekly jobless claims to their lowest level since January should give an early boost to risk assets

The S&P 500 managed to eek out a 0.2% gain overnight Tuesday, largely thanks to the industrials and basic materials sectors, together with an M&A-driven jump in the transport sector as Warren B. plays Texas Hold’em and goes all in on the future of the US economy. Considering the pressure that the US equity market was under at the open, many investors will see this price action as somewhat encouraging.

Stocks have started on the front foot Wednesday with insurer Hartford Financial (HIG) lifting its profit forecast after beating Q3 expectations. Alcoa (AA) is also on the rise, and Time Warner (TWX) is up on reported EPS of 61c versus Street estimates of 54c

Ah, I love Fed days!

Hope springs eternal and the pre-markets are already up half a point (7:30), which suits us just fine because the level I set to flip bullish in Monday’s first Alert to Members (and mentioned again in yesterday’s morning post for those of you who don’t need to know these things on time), 9,775, was perfectly tracked by the Dow yesterday and we even adjusted for the extra 5 points at 10:04, after we tested 9,980 at 9:57. The 9,780 line was tested 5 times in yesterday’s trading but, rather than stay more bearish, as we did on Monday’s failure, we took the DDM $39 calls (which I also mentioned in yesterday’s post) for $1.15 in anticipation of a nice pre-Fed move up.

Just two weeks ago, on October 17th, I warned in the Weekly Wrap-Up that it was "Dow 10,000 or Bust" for the next week and we failed that one and last Wednesday we were looking to hold NYSE 6,900 and that failed too. Now we enter into the second phase of our limbo game where the deep-voiced guy asks the question "how low can you go?" and we’ll be setting our next bar at our long-standing 9,650 target for the Dow, which we are already hitting in pre-market trading. If that fails, we’ll have to look down to S&P 1,000. As you can see from Jesse’s Chart above (click to enlarge), we took a nice bounce off serious resistance yesterday but we’re just not feeling it yet, even though the market is now as technically oversold as it was in March.

Data dumped a few inches of reality rain on the earnings plastic surgery laden beauty parade Tuesday. Further positive “earnings” results failed to sustain a move higher in risky assets (equities). We seem to have reached a point where traders have become so saturated with high expectations (which are miles north of what the laggard “analysts” had projected) that even “good” numbers are greeted with a poor reaction.

Thus far Wednesday, on a hump day, the earnings reports have been a far more mixed bag with the biggest drag being Boeing (BA), after reporting chunky charges of $3.5 billion due to delays in the unfortunately named 787 Dreamliner and 747-8 jumbo jets, while Eli Lilly (LLY) beat estimates. The big banks again have profited courtesy of the taxpayer giving them free money to play with as Wells Fargo (WFC) and Morgan Stanley (MS) (despite a 94% drop in profits) both beating analysts dumb and dumber’s (guess)timates. They’d have been closer using a dart board.