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Seeking Alpha

Wednesday, November 28, 2007

Morning Report: Kohn Demands Attention

To see today's morning report and analysis of financial market news, visit our FRONT PAGE.

(Stocks in this article: NYSE: WFC, NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: FRE, NYSE: PBY, NYSE: C, Nasdaq: MRVL, NYSE: BBL, NYSE: RTP, Nasdaq: CALD), NYSE: MON, NYSE: MOS, NYSE: POT)

Don Kohn has the market abuzz this morning. Perhaps he has felt like a side show, as relative youngsters, Mishkin and Bernanke, have risen in popularity. His comments have caused some eyebrows to raise regarding the Fed's current view of the economy and need for rate action. Futures are looking higher as a result.

  1. Wells Fargo (NYSE: WFC) Joins the Fray - WFC said Tuesday evening that it will recognize $1.4 billion in home equity loan losses when it reports its fourth quarter. The company is also packaging $11.9 billion of its riskiest assets for sale. Good luck with that dump! The shares were down in after hours trading and are lower again this morning by about 1%. However, putting a number to the risk might open WFC up to our buy list soon. Estimates will likely be revised lower for this year and next, and the stock's recent price movement is reflective of that. Before recommending the shares, we'll have to study how much analysts discount the risk related to troubled assets. I might be on the same boat as banking analyst Richard Bove, but for the media's ill-conceived expectations for a December rate cut. It's clear the market does not wholeheartedly agree given recent trend, so it befuddles me that the media keeps naively pounding the table and exposing its misunderstanding.

  2. Petroleum Status - At 10:30, all eyes will find the EIA Petroleum Status Report. Last week's report showed a crude oil draw of 1.1 million barrels from inventory. This morning, futures found a floor considering the direction of inventory flow last week. An OPEC production boost gets slowly slid off the table by the slight of hand of the savvy ministers if oil stays in the low $90s this week. At this point, we look too far off the century mark for this data alone to move us there in one swoop, especially with the market so focused now on the most important fundamental driver, economic activity.

  3. Durable Goods Orders (October) - Expectations for a 0.3% month-to-month increase were let down this morning by the report of a 0.4% decline in durable goods orders in October. This is no surprise considering the nature of the goods, the state of housing and the economy, and other current events. Ordering activity would naturally slow in this environment. Excluding transportation and defense, orders were even worse, and the proxy for business investment showed a 2.3% decline. The overall 0.4% drop compares to September's revised decrease of 1.4%.

  4. Fed's Kohn Catching Media Attention - CNBC is abuzz this morning with the comments of Donald Kohn at a prescheduled address. Call me crazy, but saying the market needs to be "nimble" does not signify to me that the Fed will cut in December. In fact, to me it says that the Fed is staying put in December, but would act if it viewed the economy in need. His comment that caused the most stir was that the situation has changed since the last Fed meeting (paraphrasing). So, this would imply that maybe the Fed's position had changed as well. I doubt it, but I expect the next vote to be less than a consensus decision. I still expect the Fed to hold pat in December and let the market down; stocks could discount this fully into price ahead of the event, so that comments about the outlook and Fed willingness to act could actually offer upside to stocks on that day. We'll keep an eye on it for you.

  5. Existing Home Sales (October) - At 10:00 AM, look for the pace of Existing Home Sales to have slipped again in October. Bloomberg's consensus forecast expects an annual pace of 4.95 million sales, compared to 5.04 million in the month just prior.

  6. Beige Book - At 2:00 pm, the Federal Reserve releases its Beige Book survey of regional economic conditions.

    Market-Moving News

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