Wall Street Greek: Morning Report: Bouncing Dollar

(Stocks in this article: NYSE: MS, NYSE: WMT, Nasdaq: CSCO, NYSE: F, NYSE: AIG, NYSE: RTP, NYSE: BHP, NYSE: WM, NYSE: TOL, NYSE: GS, NYSE: MER, Nasdaq: COST, NYSE: C)

Futures are indicating a lower open for the Dow and Nasdaq, but show some signs of life in the S&P 500 Index.

Dollar Bounce - This morning, both the European Central Bank and Bank of England kept their target rates unchanged. While the intent was to preserve local and regional economic health, the effect today for U.S. investors should be evident. I expect the dollar to bounce thanks to the indirect support of these foreign banks; and as concern about the Chinese official's comment yesterday fades a bit. A rebounding dollar, and lighter concern for inflation are positive factors for U.S. stocks today, potentially helping to support a near-term floor. My medium-term equities forecast remains negative, however, as the Fed's neutral bias dictates that direction.

Morgan's Charge - Morgan Stanley (NYSE: MS) contributed its bit to the investment bank write-off pool, noting last night that it would likely charge-off $3.7 billion in the fourth quarter. While some banks may be overshooting logical bottom, I still view Goldman Sachs (NYSE: GS) as an island target for shorts. I would sell GS, despite yesterday's falloff, as I still find it hard to believe it will not write off anything in the classic fourth quarter kitchen sink scenario. I think a good pair trade to match a GS short with would be a long position in Morgan Stanley, which added helpful clarity to investors' understanding of its own situation by noting its remaining total exposure at $6 billion. Merrill Lynch (NYSE: MER) could sink some more today on news of an SEC probe. Meanwhile, MER also provided clarity to its previously and relatively uncertain outlook, by noting its total exposure at $27 billion, quite a bit more than MS. I view Citigroup's (NYSE: C) model for business not flawed, and any effort to break up the operation an overreaction. These companies all partook in the sins of the day, and all of them were guilty to different degrees as they sought to put up competitive results. Thus, the heroes of yesterday are now goats of today.

October Retail Sales - As a result of one of the warmest October's in a century, individual retailers are reporting generally weak chain store sales today. Clearly, consumer softening, on inarguable stresses, played a role as well, since this is evident in the International Council of Shopping Centers (ICSC-UBS) weekly trends. Wal-Mart (NYSE: WMT) noted monthly same-store sales up 0.4%, versus estimates for a 1.0% rise. Costco (Nasdaq: COST) continued to justify its premium valuation by growing monthly results by 9%, beating estimates. There's a company specific driver here, but the valuation is not showing me a bargain. Considering economic and consumer concerns are likely to persist, I would not be a buyer (of retail) now of anything but a deeply undervalued company specific story, and I do not view COST as one of those. Still, this kind of continued performance can draw institutional capital to the stock, since other winning options may be limited, and not owning a price performer like this could pressure some portfolio managers into paying up.

Bernanke - I expect Ben to stick to the game plan today as he testifies before Congress. I believe Fred Mishkin's somewhat hawkish comments earlier this week gave insight into the Fed's future likely stone faced reaction to economic woes, which I also view likely. I see Ben resembling Clint Eastwood at a noon showdown, as he recalls recent economic strength and the importance of dollar stability to inflation. Thus, I do not see Ben's comments acting to support stocks, but I see him measured enough not to injure stocks either.