David Moenning's Daily State of the Markets: 11/26

November 26, 2008 9:40 AM EST
I’d Like an ‘S’ Please

Although I fully recognize that yesterday’s warm and fuzzy session was sponsored by the government’s latest acronym, I will have to admit that I am less than enamored with the name. Think about it; when Hank Paulson announced the Troubled Asset Relief Program, the name “TARP” made perfect sense. At that time, the plan was to round up $700 Billion of those nasty mortgage-backed securities and hide them under “the TARP” in order to keep the bad assets away from the good assets on bank and brokerage firm balance sheets. Then once the government tied down the corners and the loose ends – boom, everything was supposed to be fine.

And while I also recognize that the TARP isn’t exactly being used as it was originally intended, you have to give the powers-that-be some credit for coming up with not only what was a decent idea at the time, but also a VERY catchy name.

However, yesterday’s announcement that team Paulson-Bernanke (or should it be Bernanke-Paulson?) had come up with a plan to get money flowing to Main Street again lacked the same creative inspiration. The idea of the latest bowl of alphabet soup is to have the New York Fed lend up to $200 billion to holders of securities backed by education, credit card, auto, and SBA loans.

In English, this means that institutions holding these types of asset-backed securities can come to the Fed and exchange their tarnished assets for bright and shiny T-Bills. How does this help you ask? The thinking is that by upgrading the assets that can’t be sold to something infinitely more liquid, the very same companies might be encouraged to take their shiny new T-Bills and start lending again.

But, despite the fact that this plan actually makes an awful lot of sense, let’s face it; the name is simply a disaster from a marketing perspective. Everybody knows what a TARP is and what it is designed to do; but a TALF? And for the record, how do you get TALF out of Term Asset-Backed Securities Loan Facility anyway – shouldn’t there be a couple more letters in there somewhere? I know, I know, they probably left out the “B” (for “backed”) and the “S” (for securities!) because TABSLF doesn’t make any sense at all.

Reeling it back in a bit, I am pleased to report that although the TALF moniker isn’t likely to be adorned by bumper stickers or T-shirts anytime soon, the Fed’s latest effort did help the DJIA finish in the green for an unheard of third straight session. From the bulls’ perspective, the fact that stocks didn’t instantly turn tail and run the other way yesterday after the big two-day blast suggests that maybe, just maybe, the worst may be over.

Turning to this morning, we don’t have any new acronyms to decipher which could explain the downbeat mood. We do have some news to report as China has cut its one-year lending rate to 5.58% from 6.66% and President-elect Obama will appoint former Fed Chairman Paul Volcker as Chairman of his newly created President’s Economic Recovery Advisory Board.

On the Economic front, the reports on Durable Goods and Personal Income and Spending have just come in. Orders for Durable Goods in the month of October fell by -6.2%, which was significantly higher than expectations for a drop of -2.7%. Ex-Transportations, orders fell by almost three times the consensus at -4.4% versus -1.5%. Personal Incomes for the month of October came in at +0.3%, which was higher than the consensus projection of +0.1% while the spending side of the equation was dead on with expectations, but fell by -1.0%. The PCE Core (a measure of inflation) was unchanged while the PCE Deflator rose one-tenth less than expectations at 3.2%.

Running through the rest of the pre-game indicators, the major overseas markets are mostly lower. Crude futures are up with the latest quote showing oil trading higher by $0.99 to $51.76 On the interest rate front, we’ve got the yield on the 10-yr currently trading at 3.06%, the yield on the 3-month T-Bill is at 0.12%, and overnight LIBOR has jumped to 0.99%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 150 points; the S&P’s are down about 21 points, while the NASDAQ looks to be about 17 points below fair value at the moment.

Stocks “In Play” This Morning:

Yesterday’s Earnings After the Bell:

Coldwater Creek (Nasdaq: CWTR) – Reported -$0.01 vs. -$0.08
TiVo (Nasdaq: TIVO) – Reported $0.98 vs. -$0.06

Today’s Earnings Before the Bell:

Deere (NYSE: DE) – Reported $0.81 vs. $0.99
Tiffany’s (NYSE: TIF) – Reported $0.35 vs. $0.24

News, Upgrades/Downgrades/Brokerage Research:

Liz Claiborne (NYSE: LIZ) – Downgraded at Argus Research
Campbell Soup (NYSE: CPB) – Downgraded at Argus Research
Conagra (NYSE: CAG) – Target reduced at Barclays
McCormick & Co (NYSE: MKC) – Target reduced at Barclays
Sara Lee (NYSE: SLE) – Target reduced at Barclays
Deutsche Telecom (NYSE: DT) – Downgraded at Bernstein
Dollar Tree Inc (Nasdaq: DLTR) – Target increased at Deutsche Bank
Berry Petroleum (NYSE: BRY) – Downgraded at Merrill
Quicksilver Resources (NYSE: KWK) – Downgraded at Merrill
Anadarko Petroleum (NYSE: APC) – Downgraded at Merrill
St Mary Land & Exploration (NYSE: SM) – Downgraded at Merrill
PG&E Corp (NYSE: PCG) – Upgraded at Merrill
Blackstone Group (NYSE: BX) – Downgraded at Morgan Stanley
Cooper Industries (NYSE: CBE) – Downgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: DLTR

Note: All earnings reports compared to Reuter’s consensus estimates

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The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of 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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