Markets Point to Slightly Higher Openings - No Real Bullish Catalysts in Place Though

May 1, 2009 – The futures are indicating modestly higher openings this morning for the broader markets as the Street contemplates the implications of a delay in releasing the so-called ‘stress-test’ results for the banking sector so banks can debate the findings. The results were originally scheduled for release on May 4. T

he dollar is slightly weaker this morning against the euro, which is getting $1.3284. Our outlook for the dollar remains bleak, long-term. Traders have been overlooking the implications of the massive amount of debt and money printing from the Treasury on the greenback while focusing on geographical reasons for other peer currencies like the euro, pound and yen to be softer in the current global financial crisis, as well as interest rate cuts in these regions. If the perception continues to widen that the worst is over for the global economy, we think focus will have to turn back to the increase in US money supply and debt, which will drive the dollar to sharply lower ranges relative to peer currencies.

Gold is down $7.40 to $863.80. We think the current weakness in gold remains a terrific buying opportunity, based on our thesis for the dollar. The weakness is primarily a function about perception of improvements in the economy, and strengthening in the equities markets. Keep in mind that gold has had a bull market concurrently with the US stock market at the expense of a weakening dollar from 2003 to late 2008 while the Bush administration racked up the US debt. Since October, 2008, the trends for gold and the dollar have diverged because the focus has turned to the global economy. When it turns back to the dollar and underlying fundamentals being eroded in this currency, gold will resume its bull move. In the meanwhile, we strongly recommend accumulating some SDPR Gold shares (NYSE:GLD).

Oil prices are down $0.21 this morning. Prices had rallied in the past two days back over $50 as pundits, traders and the Street in general shifted to a more optimistic view on global recovery. Prices have been consolidating in the $48-$50 range and a base is getting built here, which should serve as a strong point for break-out at some point in the not too distant future, we think.

On the corporate front,

·         Credit Cards – MasterCard reported a 2% Y/Y decline in revenue to $1.16 billion, and an 18% Y/Y decline in profit to $367.3 million, or $2.80 per share. Expectations were for earnings of $2.61 per share on revenue of $1.21 billion in revenue.

·         Major Integrated Oil & Gas – Chevron (NYSE:CVX) reported a 45% Y/Y decline in Q1 revenue to $36.1 billion, and a 64% Y/Y decline in profit to $1.84 billion, or $0.92 per share. Expectations were for earnings of $0.81 per share.

In international markets, Japan’s unemployment rate increased to 4.8%, while its core consumer price index fell 0.1% in March on a Y/Y basis and industrial production increased 1.6% from February. The outlook for exports is improving with expectations of a 4.3% increase this month and another 6.1% in May. This should help buoy the yen relative to peer currencies.  In Austria, the unemployment rate eased to 7.1% from 7.5% in March. In Mexico, GDP fell 6.9% in the Q1 on a 22.8% decline in export business. Its central bank is forecasting a contraction between 3.8% and 4.8% for this year.

We have been commenting on the credit card legislation being considered on Capitol Hill. Yesterday, the legislation, which would rein in usurious and predatory lending practices from credit card companies – like changing up your rates overnight – passed the House yesterday. Now it is heading to the Senate. We are huge advocates of the legislation, other than the fact that it will take nine months to a year to get enacted if it passes, which should give the credit companies one last opportunity to go on a hunting trip.

This is ridiculous. When it comes to protecting the banking sector, Congress can act overnight and on weekends. When it comes to the consumer, which has been counted on by our nation’s politicians and economists to drive 70% of GDP, largely through debt spending, the timing is a little less of a priority. Meanwhile, consumers are drowning in debt.

In terms of what we expect in today’s session, we just don’t see any catalysts to drive stocks higher heading into the weekend. The earnings ‘beats’ which we have been seeing are not impressive, since the expectations are just so dismal in the first place. We have been bearish, all things being equal on stocks at current level, until we see more evidence that certain negative trends in the economy are reversing – like job losses, and based on some of this week’s we don’t see that pace slowing, let along reversing:

GM (cutting 21,000 factory jobs), Nokia (450 jobs), Lockheed Martin (225 jobs), Bristol-Myers Squibb (cut 100 jobs), Baltimore Sun (laid off 61 workers), Sycamore Networks (cutting about 30% of workforce), Zymogenics (161 jobs, or 32% of employees), Acushnet (169 jobs), Sotheby’s (cutting workforce another 5%), Atmel (266 jobs), Cessna (2,300 layoffs), Shaw Process Fabricators (200 jobs), Principal Financial (75 jobs)….

This is just a snapshot.

We get the fact that much of the slashing in inventories has been done by businesses and only the slightest uptick in consumer demand will spark production, but consumers remain, in our opinion, in bad shape. We are pleased to see that consumer savings rates have picked up in recent months, which indicates that consumers are getting off the debt crack pipe that our government has been encouraging them to smoke from to shoulder the burden over driving this overweight economy.

In light of the fact that there are significant obstacles ahead – banking stress tests data, rising unemployment, massing and growing debt which will weigh on the dollar, unresolved $40 trillion+ liabilities in Social Security and Medicare, we will remain cautious with our investment strategy from the standpoint of picking entrance points. That being said, we think there are some terrific opportunities to invest in some pretty explosive growth, if you remain disciplined.

We like commodities, alternative energy, clean tech, oil, utilities and think there remain some interesting opportunities for consolidation in biotech. We would not chase stocks at current levels. We have been advocating hedging against downside risk here. Yesterday we were writing some out of the money calls against stocks that were buying at market lows which are now well in the profit.

Channel Check

·         The SIA reported that March chip sales were up 3.3% over the prior month to $14.7 billion in March. Sales for the Q1 were $44 billion, down 29.9% Y/Y, and down 15.7% from the prior quarter. The number for March on a month-over-month basis is further anecdotal evidence that the pace of erosion in the global economy may have slowed.