David Moenning's Daily State of the Markets: 3/24

March 24, 2009 10:10 AM EDT

More Than The Plan

In an impressive display, the bulls powered stocks higher yesterday in response to Mr. Geithner finally making good on his promise for more details on his plan to deal with toxic assets still sitting on bank balance sheets. While reciting statistics doesn’t usually make for a good read, yesterday’s numbers were indeed worthy of note as the Dow advanced nearly 500 points or +6.84%, while the S&P soared +7.08%, the NASDAQ spiked higher by +6.76%, and the Russell 2000 jumped an eye popping +8.4%.

Most everyone on the planet pegged the Geithner plan as the catalyst for the blast skyward. However, as someone who tends to be borderline obsessed with the reasons why things happen the way they do on Wall Street, this answer didn’t seem to be quite enough. After all, while there was a great deal of angst over what the new kids on the block were going to do with the banks, since the details had been thoroughly leaked, the actual report didn’t really contain anything new.

To review, Geithner’s plan is to create at least five P-PIF’s or public-private investment funds to buy at least $500 billion of toxic securities from the banks. The funds will be funded with $75 to $100 billion from the TARP, with the private managers matching the capital put in by the government. The FDIC will then guarantee financing up to a maximum of 6X the capital provided. Thus the PPIF’s will put up 50% of the capital, be allowed to leverage it up to six times, and have their losses limited to the capital they put in. All in all, not a bad deal for those greedy Wall Street types.

Which brings us to the “other” reasons why stocks soared yesterday. For starters, the Obama administration appears to have figured out that if they plan to keep their agenda for change moving forward, they can’t have the bank crisis sucking up all the available cash. So, all of a sudden those greedy, reckless bastards on Wall Street have been pegged as “the good guys in white hats” who are going to ride to the rescue of the country. All of a sudden there is talk that the legislation to retroactively tax bonuses that were legally paid may be put on the back burner. And all of a sudden you have the administration making nice with the big boys on Wall Street. So, while this isn’t really a game changer, it does remove some of the uncertainty from the Street.

The other big news yesterday that was very helpful to the bull camp came from the report on existing home sales. The National Association of Realtors reported that home sales rose by +5.1% in February, which was just a smidge better than the expectations for a decline of -0.2%. Sure, distressed sales accounted for 40%+ of the total sales. But, it was encouraging to see that first-time buyers accounted for one-half of the sales. The point here is that while prices have fallen, they are finally to the point where buyers are interested, which is an important first step in the bottoming/recovery process.

Other items that may have added fuel to the fire yesterday included Atlanta Fed President Dennis Lockhart saying that the Geithner plan appears to be big enough to solve the problem; China’s top foreign exchange official supporting US Treasuries by saying US debt forms an important part of his country’s investment strategy; Goldman Sachs saying it is anxious to pay off the TARP loan and could do so as early as next month; and finally, the S&P 500 blasting through its 50-day moving average, which is viewed as an indicator of the market’s intermediate-term technical health – and this most assuredly brought in some buyers.

Turning to this morning, we don’t have any economic news before the bell but we will get reports on US home prices and the Richmond Fed index at 10:00. In the early going, it looks like we’ve got some profit taking occurring on the back of weak economic data out of London. On the news front, NYSE, NASDAQ, and BATS Exchanges have proposed a modified uptick rule which would limit short sales to price above current best bid.

Running through the rest of the pre-game indicators, the overseas markets are mixed with Asia following Wall Street higher and Europe in decline. Crude futures are moving down with the latest quote showing oil trading off $0.66 to $53.14. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.71%, while 3-month LIBOR is at 1.22% and the yield on the 3-month T-Bill is trading at 0.21%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing lower at the moment. The Dow futures are currently off by about 80 points; the S&P’s are down by about 10 points, while the NASDAQ looks to be about 16 points below fair value at the moment.

Stocks “In Play” This Morning:

Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:

Blue Nile (Nasdaq: NILE) – Target increased at Citi
Philips Van Heusen (NYSE: PVH) – Upgraded at Citi
AutoZone (NYSE: AZO) – Mentioned positively at Citi
Advance Auto Parts (NYSE: AAP) – Mentioned positively at Citi
Tenaris (NYSE: TS) – Downgraded at Citi
Marvell Technology (Nasdaq: MRVL) – Initiated Buy at Deutsche Bank
Baidu (Nasdaq: BIDU) – Initiated Buy at Deutsche Bank
CBS Corp (NYSE: CBS) – Upgraded at Goldman
SK Telecom (NYSE: SKM) – Upgraded at Goldman
Walt Disney (NYSE: DIS) – Downgraded at Goldman
Under Armour (NYSE: UA) – Downgraded at Morgan Stanley
LDK Solar (NYSE: LDK) – Downgraded at Morgan Stanley
Lukoil (NYSE: LUK) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: AZO
Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopStockPortfolios.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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• Deutsche Bank
• UBS
• Existing-Home Sales
• Goldman Sachs
• Dennis Lockhart
• Citi
• Morgan Stanley
• David Moenning
• Crude Oil
• FDIC
• Barack Obama

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