Today's Market Review: Feb-26-09

By The Greek - Economy & Markets:

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

The President's expensive budget combined with a climate of inhospitable economic reports this morning to turn today's technically driven rally sour before the close. Obama told us he would halve the budget deficit by the end of his term, and Republican voices immediately tried to paint him a snake by saying he meant he would do so after running it up higher. Today, a representative of the Administration cleared the air, stating the budget deficit was targeted to reach $533 billion by 2013. That means that the starting point is the inherited deficit point, not the '09 level. We are still hearing this reported both ways, and so Obama needs to spell it out. What does halving mean!?

Either way, people are really starting to worry about all this spending, and especially about the execution risk tied to fiscal stimulus spending and other outreach efforts. Obama has promised accountability and responsible supervision, but it's a monumental task we are talking about... let's not understate that. We hope and pray the effort plays out to plan, and we support the outreach here. As a matter of fact, if the President wanted to enlist The Greek to help out, I would be there in a minute. Execution is now key to making this work.

Economic Data Analysis

The President's Budget

President Obama released his budget this morning. All this spending is adding up, and though we've been warned, seeing it on paper is still concerning. Obama sees the budget deficit reaching $1.75 trillion in '09, and that would put it at its highest level since WWII (measured as a percentage of GDP 12+%). If you have not gotten a grip on how bad things really are, and are going to be, maybe that helps. However, the $1.75 trillion level would be higher, if not for budget cuts in some areas. Obama is already looking for fat to cut away, even as he is increasing spending for our today and tomorrow.

The details of the plan highlight a $634 billion allocation over a ten year period, set forth to overhaul health care. Health insurance companies that participate in Medicare are going to bear that cost.

Taxes are going up for those couples making more than $250K a year, and deductibles are getting a trim as well for the higher income folks. Green house gas polluters are going to have to buy a license to pollute now, and that money will be put toward funding an alternative energy push.

Finally, more money is being allocated to the financial sector, nearly doubling TARP. Hedge Funds and Private Equity Managers are going to see ordinary income tax rates replace lower capital gains rates, and internationally earned income tax rates will rise for American multinationals. Some of this stuff is damaging to American industry on the surface. I'll have to take a closer look for you to see if the Administration is trying to encourage more domestic production or is just plain making a bonehead move on this one.

Weekly Initial Jobless Claims Reach Unimaginable Level

Weekly Jobless Claims reached a nightmarish level last week. Today's report showed new claims filers mounted to an enormous 667K. That was up from the 627K reported last week, and above the consensus estimate for 625K this week. It was a frightening jump, and offers an omen for February unemployment levels (7.6% in January). The four-week moving average moved up to 639K new claims, and total insured unemployment rose a tenth of a percentage point again, to 3.8%. People are not finding jobs as all these new claims filers mount.

The highest insured unemployment rates in the week ending Feb. 7 were in Michigan (7.5 percent), Oregon (7.3), Idaho (7.0), Wisconsin (6.4), Pennsylvania (6.2), Nevada (5.9), Montana (5.7), Rhode Island (5.7), Alaska (5.6), Indiana (5.5), and New Jersey (5.5).

The largest increases in initial claims for the week ending Feb. 14 were in New Jersey (+2,093), Virginia (+912), Rhode Island (+493), Vermont (+106), and South Dakota (+22), while the largest decreases were in California (-16,550), Kentucky (-7,741), Pennsylvania (-6,547), Illinois (-6,248), and New York (-3,955).

Durable Goods Orders Sink More than Expected

Durable Goods Orders dropped for the sixth month in a row, declining 5.2% in January after a 4.6% fall in December. Excluding transportation, orders fell 2.5%, versus a 2.1% expectation. Defense new orders dropped dramatically, falling 35.3% or $8 billion. Orders for new aircraft for defense purposes were especially impacted. This fits in with our recent advice to avoid the defense sector at the start of the Obama Administration (until the war with Iran sparks).

New Home Sales Pace Slips Below Anticipated

New Home Sales reached a record low in December and then broke it in January. The further slippage was foreseen, but not to the extent to which it occurred. January's annual pace of new home sales measured 309K, short of the expected 330K, which would have been one thousand lower than December's pace. As we mentioned in our analysis of Existing Home Sales earlier this week, the pending status of the fiscal stimulus bill kept many would be home buyers at bay. "Many" is a relative term of course, and means a handful in this case.

Commodity Markets

Oil was on the rise again today, and we're surprised the popular press has not connected the dots. All the excitement about the Iranian regime's nuclear progress, with Bibi about to take the wheel in Israel at the same time, has got oil bulls giddy. WTI Crude was up another 4+% today, to about $44.31 on the closest futures contract.

Corporate Drivers

Dell Reported After the Bell

Dell (Nasdaq: DELL) shares were up about 3% after hours, as the company learned how to make lemonade from lemons. Despite posting a revenue shortfall versus analysts' consensus view, Dell surprised investors with excellent operations management. The company said revenues were down on economic related spending cuts by both business and retail customers, not to mention an increase in the share of lower cost computer sales. Still DELL boasted of market share gain, and posted EPS of $0.29, after one-time items, beating the analysts view for $0.28. Despite pointing toward an ongoing tough operating environment, Dell said it saw more opportunities for cost cutting than it had previously identified. The market is rightly enthused by this value creation effort.

The Gap - After the Bell

Gap (NYSE: GPS) shares, down 2% on the day, were down fractionally after hours as well. GPS posted results after the close today. A recurring theme ran true at Gap as well, as the company managed its inventory and cost controls well enough to exceed analysts' consensus despite sharply lower sales. Same-store sales fell 14% in the company's most critical quarter ended January. However, 6% lower inventory per square foot and other cost controls allowed the company to earn $0.34 per share, compared to the $0.32 analysts were looking for. Gap runs its namesake stores, as well as Old Navy and Banana Republic. The company boasts of $2 billion in cash with little debt, and plans to cut capital spending sharply in the current fiscal year. We expect the news will help the shares solidify footing and maybe even rise tomorrow. Gap still has a significant current to work against though in a deteriorating operating environment.

Today's Full EPS Report List:

J.P. Morgan Chase (NYSE: JPM) held its investor day, while the earnings schedule highlighted news from Akeena Solar (Nasdaq: AKNS), Allianz SE (NYSE: AZ), American Dental Partners (Nasdaq: ADPI), Ansys (Nasdaq: ANSS), Autodesk (Nasdaq: ADSK), Bare Escentuals (Nasdaq: BARE), Biovail (NYSE: BVF), Blue Coat Systems (Nasdaq: BCSI), Boyd Gaming (NYSE: BYD), Cablevision (NYSE: CVC), Checkpoint Systems (NYSE: CKP), Churchhill Downs (Nasdaq: CHDN), Cinemark Holdings (NYSE: CNK), CommScope (NYSE: CTV), Cooper Tire & Rubber (NYSE: CTB), Deckers Outdoor (Nasdaq: DECK), Dell (Nasdaq: DELL), DPL, Inc. (NYSE: DPL), Dynegy (NYSE: DYN), El Paso (NYSE: EP), EMCOR (NYSE: EME), Employers Holdings (NYSE: EIG), Ensco Int'l (NYSE: ESV), Easterline Technologies (NYSE: ESL), Federal Signal (NYSE: FSS), Frontier Oil (NYSE: FTO), Frontline (NYSE: FRO), Gap (NYSE: GPS), Genco Shipping (NYSE: GNK), Global Cash (NYSE: GCA), Hansen Natural (Nasdaq: HANS), Hughes Communications (Nasdaq: HUGH), Human Genome Sciences (Nasdaq: HGSI), Huntsman (NYSE: HUN), Internet Gold (Nasdaq: IGLD), Iron Mountain (NYSE: IRM), Key Energy Services (NYSE: KEG), King Pharma (NYSE: KG), Kohl's (NYSE: KSS), Leap Wireless (Nasdaq: LEAP), Macquarie Infrastructure (NYSE: MIC), Mentor Graphics (Nasdaq: MENT), Met-Pro (NYSE: MPR), Mine Safety (NYSE: MSA), Novatel (Nasdaq: NVTL), Omnicare (NYSE: OCR), Pioneer Drilling (NYSE: PDC), Quanex (NYSE: NX), Repsol (NYSE: REP), Rowan Cos. (NYSE: RDC), Royal Bank of Canada (NYSE: RY), Safeway (NYSE: SWY), Sanderson Farms (Nasdaq: SAFM), Scientific Games (Nasdaq: SGMS), Senior Housing (NYSE: SNH), Ship Finance Int'l (NYSE: SFL), Sotheby's (NYSE: BID), First American (NYSE: FAF), Nasdaq OMX (Nasdaq: NDAQ), U.S. Cellular (NYSE: USM), Universal Health (NYSE: UHS), Vonage (NYSE: VG) and more.


(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK). Please see our disclosures at the Wall Street Greek website and author bio pages found there.