Today's Key News - Googlemania!

Major U.S. equity indices have opened broadly higher with conviction this morning, after solid earnings reports from Google (GOOG) overnight and Caterpillar (CAT) and Schlumberger (SLB) this morning. The Dow broke through into record territory almost immediately at the open, despite weakness in Pfizer (PFE) and McDonald's (MCD). We should clarify our China call from yesterday for those of you who may be thinking, "hey Greek! what the hell?!" Remember, Wall Street Greek believes a Chinese government reactionary response intended to quell growth will be the catalyst to drive a global market correction. We expect that near future response will include a steeper interest rate hike than most anticipate.

Asia:
Hang Seng Index +1.31%; Shanghai/Shenzhen CSI 300 +4.41%; NIKKEI 225 +0.46%; S&P/ASX 200 +0.69%; Taiwan TAIEX +0.69%; BSE SENSEX 30 +2.04%; KRX 100 +1.32%; Ho Chi Minh -2.93%

U.K., Europe & Middle East:
DJ STOXX 50 Index +1.59%; FTSE 100 +0.89%; CAC 40 +1.86%; DAX +1.55%; Russian RTS Index +2.35%; ASE General +1.41%; Tel Aviv 25 NA; Tadawul All Share NA; DFM General NA

Our value-added take on today's key news:

• *** Earnings and options expiration are driving Spring fever this morning in equities.
• *** Google (GOOG) reported earnings overnight that exceeded analysts' estimates. Google reported quarterly earnings growth of 69%. Revenues soared 63%, and the company took approximately 48% share of the Internet search market in March, according to comScore Media Metrix. Yahoo! (YHOO) reported earlier this week and disappointed investors betting on the whisper of a solid quarterly impact from its new Pajama offering.
• *** McDonald's (MCD) reported first quarter profit growth of 22%, driven by strength in Europe and the popularity of new U.S. menu items. We would look closely at the restaurant sector, as unhedged players may not be able to raise menu prices in line with the pace of component food prices. Since Wall Street Greek believes rising food prices are a secular trend, the margins of restaurants on the whole should be squeezed over the long term, unless price pressure is transferred to consumers. In that event, we anticipate the overall market would see weakness and consolidation within the industry would follow. The market would no longer be able to support the same amount of players, in our independent research view.
• *** H&R Block (HRB) is selling its subprime lending unit, Option One Mortgage, to an affiliate of a private equity firm. There are two things we want to point out regarding developments within subprime lending. Diversified lenders are selling out of the sector while those remaining must still contend with a difficult operating environment. While consolidation is likely to reduce competition within subprime, sales of subprime units simply shift the risk to a new firm, typically at a discounted price. Thus, we would sell short the shares of those players remaining in operation within the subprime sector and without significant diversification of risk. Those firms' shares are seeing appreciation on news of these sales by peers, but we contend that the earnings reports of still at risk firms will shed light on the subprime specific weakness that remains. So, the share rise offers opportunity for short entry into subprime pure plays. Clearly, firms that have or can sell subprime operations, may offer upside opportunity, but remember you don't get the best price on forced/pressured sales, so the value add may be questionable. For some of these firms, like perhaps Fremont General (FMT), the alternative was bankruptcy risk, so the sale made sense in our view.

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