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The Pain in Spain Falls Mainly...

Daily State of the Markets 
Tuesday Morning – May 25, 2010

Good morning. Is it just me, or is anybody else beginning to get annoyed by the triple-digit moves in the last fifteen minutes of the day? For those of you keeping score at home, the Dow's dive of just about 100 points in the last fifteen minutes of the session was the third such event in as many days. Sure, Friday's version of the game was more enjoyable. But seriously, if the end result is going to continue to be decided by a couple of guys and their nifty new computers, I may start sleeping in.

I'd like to be able to tell you that the late-day dance to the downside was tied to the latest pain in Spain. Unfortunately though, the news of the difficulties relating to Spanish banks was well know before the program-driven dive began. But to review, Spain's central bank was forced to buck up 530 million Euro's Monday to bail out CajaSur, a regional bank that fell victim to property loans as merger plans fell through at the last minute.

Speaking of the pain falling on Spain, CajaSur wasn't the only casualty of the problems in the Spanish banking system. Apparently the government decided to be proactive and not-so gently encouraged four other Spanish banks to merge ala Bank of America/Merrill Lynch. With credit tightening up rather precipitously in the region, Spanish officials and stock market investors alike are worried about a repeat of our credit crisis where banks didn't lend to each other and the credit markets ultimately froze up.

While we're on the topic of credit markets, investors couldn't be blamed for their trepidation in front of today's 3.5 billion Euro auction of 3- and 6-month bills in Spain. Although the recent auction of 10-year notes went well, the yield did rise 20 basis points from the previous auction and was the highest since last April. In addition, last week's 12- and 18-month auctions saw yields jump 70 and 79 basis points respectively. As such, investors may be bracing for another big jump in yields on Spanish debt, or worse.

Before we leave the theme of the day and move on to more encouraging items such as Asia's stellar day, the jump in existing home sales, and the surprisingly strong Chicago Fed National Activity Index, we should probably also mention the social unrest that is developing in Spain. And with union leaders talking openly about a national strike in response to the government's decision to do something as rash as spending only what they earn; it is a safe bet that we may not have seen the last of the pain in Spain.

So, with a big test for the Eurozone on the docket for Tuesday, it wasn't exactly surprising to see buyers head out to the golf course early Monday afternoon. And with the buyers working on their short games, that left only the boys and their toys at the corner of Broad and Wall. And by now, we all know how that tends to turn out.

Turning to this morning... we don't have any economic data to review before the bell. However the news flow has been tough on the bulls as North Korea is readying its army for combat, Germany is proposing further bans on short selling (which has been seen by the market as a sign of panic), and the credit situation appears to worsening in terms of the tightness of credit and the spreads.

Finally, be sure to take time to breathe today...

Pre-Game Indicators

Here are the important indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: -2.87%
    • Shanghai: -1.90%
    • Hong Kong: -3.47%
    • Japan: -3.06%
    • France: -3.35%
    • Germany: -2.79%
    • London: -2.64%


  • Crude Oil Futures: -$2.36 to $67.85
  • Gold: -$1.900 to $1192.10
  • Dollar: Higher against Yen, Euro, and Pound
  • 10-Year Bond Yield: Currently trading at 3.13%


  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -25.90
    • Dow Jones Industrial Average: -200
    • NASDAQ Composite: -32

Wall Street Research Summary


  • Nike (NYSE:NKE) - Argus Research
  • Career Education (NASDAQ:CECO) - Argus Research
  • AK Steel (NYSE:AKS) - BofA/Merrill, Citi
  • RTI International Metals (NYSE:RTI) - BofA/Merrill
  • Progress Energy (PGN) - BofA/Merrill
  • ADTRAN (NASDAQ:ADTN) - Barclays
  • Murphy Oil (NYSE:MUR) - Benchmark
  • Deere & Company (NYSE:DE) - Estimates increased at Bernstein
  • General Dynamics (NYSE:GD) - Citi
  • US Airways (LCC) - JPMorgan
  • NetApp (NASDAQ:NTAP) - JPMorgan
  • Werner Enterprises (NASDAQ:WERN) - KeyBanc
  • Gilead Sciences (NASDAQ:GILD) - Morgan Joseph
  • PPL Corp (NYSE:PPL) - Morgan Stanley
  • LM Ericsson (NASDAQ:ERIC) - RBC Capital
  • AvalonBay (NYSE:AVB) - RW Baird
  • Essex Property (NYSE:ESS) - RW Baird
  • Mid-America Apartment (NYSE:MAA) - RW Baird
  • Mirant (MIR) - UBS
  • RRI Energy (RRI) - UBS



  • Arkansas Best (ABFS) - Target reduced at FBR Capital
  • EMC (EMC) - - JPMorgan


    Long positions in stocks mentioned: none

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