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Seeking Alpha

Friday, November 09, 2007

Morning Report: Run on Bank Stocks


(Stocks in this article: NYSE: WB, NYSE: BCS, NYSE: VLO, NYSE: DIS, Nasdaq: QCOM, Nasdaq: NVDA, NYSE: MRK, NYSE: BHP, NYSE: RTP)

Equity futures indicate a lower open this morning, as more banking charges and rumors continue to drive concern. The long-term downtrend will likely continue to be driven the Fed's neutral stance in combination with market expectations for economic slowing. However, a short term intraday rally today does not seem out the question to me today on value seeking, and I believe oil could weaken today as well.


  1. Wachovia Signals Commercial Banks Next - Wachovia announced that it has another $1.1 billion in losses to book from October credit market asset value decline, plus another $500-$600 million of loan loss provisions to report in Q4. This should shift some focus from the large investment banks to smaller banks that are very likely to write off assets in "kitchen sink" fourth quarter fashion as well. I suggest surveying the group for charge off candidates. Barclays (NYSE: BCS) denied a rumor of a $10 billion write down of its own, but I expect BCS to report a large charge eventually, so I would use any bounce today to further short BCS.

  2. Economic Data Trio - October Import Prices rose 1.8%, exceeding estimates for a 1.0% increase, on higher imported oil prices. I continue to pound the table on the serious inflation repercussions I see coming from higher food and energy. In absolute terms, this data would be bearish for Bernanke's market, as it would reduce the chances of an ease in my view. However, September International Trade showed the deficit unexpectedly narrowed to 56.45$ billion, which has the effect of adding to GDP (in Q3 mind you). Still, be careful, because net of price changes, the impact was not nearly as strong. What happens to GDP forecasts going forward will depend on the global economy and where economists see the dollar going versus oil, and both seem extended to me. In any event, global economic growth should not drop off a cliff, so this data would seem net bullish. In contrast to this statement, we must note that the EU revised its '08 GDP growth forecast lower today... At 10:00 AM, the University of Michigan's consumer sentiment measure for November is expected to mark a new low for the year. This comes one day after retailers posted weak October same-store sales results. These factors and next week's retail sales report should provide a short term long trade opportunity for some retail stocks that could benefit from sales seekers on Black Friday.

  3. Oil, Dueling Factors - A North Sea storm (which seems to have fizzled out) duels a Brazilian oil find for the right to drive oil price direction today. Seems oil prices will drift lower in the short-term. However, the longs may be fielding a ringer to sway trade, with ex-Pakistani PM Bhutto being held under house arrest so that she could not attend her own scheduled rally. I suspect Pervez Musharraf is about to learn you can only go so far. A large protest is likely in planning now, with the intent of overrunning Musharraf. Pakistanis will likely take from the experiences of Georgia and Ukraine in this effort, and there are also rumors that the army is losing confidence in Musharraf. Oil likely continues trading in large swings but without direction until geopolitical concerns fizzle out. I still refiners like Valero (NYSE: VLO), especially on the short-term weakness from its refinery fire on Thursday. Initial estimates place repair time at 2-4 weeks. As gasoline prices rise, margins will improve for refiners.

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