Today's Meal: TARP 2A, SEC Uptick Rule, Mortgage Demand Rise, Wholesale Trade & Pulte's Deal

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(Related Tickers: PHM, CTX, GM, AA, LNC, HIG, PRU, STZ, MOS, FDO, EXM, MERX, SGR, WDFC, DIA, DOG, SDS, SPY, QQQQ, QLD)

What started out as a quiet day ended up offering a satisfactory meal of data and dialogue. The Treasury is modifying TARP once again, call it TARP 2A. The SEC made a logical and thoughtful decision in not deciding just yet what to do about short rules. Mortgage application activity got an unexpected lift and wholesale trade data offered a positive note to economic flow. Meanwhile, housing firms reported something other than greater losses. Pulte announced its acquisition of rival Centex, perplexing more than one analyst. Chew on that...

The Economy

TARP 2A

The Treasury Department today announced a decision to open up the Troubled Asset Relief Program (TARP) to include some insurers, as reported by the Wall Street Journal. A formal announcement is expected over the next few days, so save yourself the trip to the Treasury's website. The extension will be logically made to include insurers organized as bank holding companies and/or those who own a bank or thrift. It seems the Treasury opened the door to keep the spread of failures contained the same way it did to save Wall Street (Read JPM, BAC, GS, MS). This allows these non-banks a way to gain federal aid. Companies in trouble have applied, including Lincoln Financial (NYSE: LNC), Hartford Financial (NYSE: HIG) and Prudential (NYSE: PRU), and we expect to see a list of initially approved parties with, or near, the announcement in a day or two.

TARP Oversight Committee Takes Harsh Stance

The TARP Oversight Panel issued a report yesterday, within which it had some harsh suggestions. While two panel members dissented from endorsing the recommendations and two alternative suggestions were offered, the main message of the group led by Harvard Law School Professor Elizabeth Warren was a bit rough. It noted a commonly held viewpoint regarding the possibility the Treasury had underestimated the degree of banking trouble; more specifically, that related to the valuation of toxic assets. The panel suggested that allowing troubled banks to fail in a structured manner, and/or replacing executives within them, might bring faster closure to the issue and bring swifter recovery. However, at least one dissenting view noted risks related to nationalizing banks, particularly, building a broad perception of a banking system failure and the further fallout that would ensue (read American run on the banks and Chinese disinterest in our debt). I think this report might prove useful in helping Geithner to vet potential problems with his plan, and help him perfect it, but given the ire it will inspire in American taxpayers and their Congressmen, it's probably going to prove an obstacle for progress on the net.

SEC Considers the Uptick

The Securities and Exchange Commission today decided to put five different short sale restriction options up for public debate. In a smart move, this will allow the market to vet all concerns and to lobby for the least costly and potentially also most effective way to prevent short sale momentum from driving securities to unnatural lows. Much debate might ensue due to my use of the word "unnatural" here. We have 60 days to offer our two cents and to ensure a fair decision though. We welcome the approach the SEC is adopting, as it will allow for clarity of thought, and a thoughtful end decision... hopefully.

Mortgage Activity

Mortgage activity rose slightly today, but the way it rose was quite surprising (dare I say enthusing). In our weekly copy, we anticipated refinancing activity would lull after fixed 30-year mortgage rates steadied and rose. That occurred, but what happened in the Purchase Index was NOT expected... not her nor anywhere. The Purchase Index increased 11.1%! Could the housing industry have finally found bottom? We think we're seeing the benefit of seasonal benefit, because despite seasonal adjustment, we're working off of historical lows now. Any seasonal lift might not be accounted for via normal adjustment considering such unnatural lows we are working off of. The overall composite index increased 4.7%, while refinancing activity increased 3.2%.

Fed Meeting Minutes Release

The Fed's March meeting minutes were released at the time of publishing and so a link is included here for your review of the original material.

Oil Market Data

Oil prices drifted lower into the weekly Petroleum Report but rose after it. Traders had gotten use to inventory builds and went too far with short position trades. When the data came in for the week ended April 3rd, it showed a 1.7 million barrel build in oil stocks. This was less than was expected by analysts, and with betting imbalanced, those on the short bet sought to unwind.

Wholesale Trade

February's Wholesale Trade Report contributed a slightly positive note to trading today. The pace of decline in inventories has finally caught up with sales (though sales actually rose in February), leading to a modest improvement in the inventory-to-sales ratio to 1.31, from 1.34 in January. This reversed the recent deterioration trend, however, we can't call a bottom just yet. At least stabilization seems near though. Sales rose by 0.6%, driven by increases in durables and motor vehicles and parts. That motor vehicle boost might disappear from March's data, given the uncertainty currently surrounding General Motors (NYSE: GM) and Chrysler. Inventories were down 1.5%, driven by lower stocks of durables and motor vehicles (benefiting again from sales there and destocking).

Stock Specific Drivers

Pulte Buying Centex

Low and behold, Pulte Homes (NYSE: PHM) agreed to buy Centex (NYSE: CTX) for $1.3 billion in an all stock deal. This creates the nation's largest homebuilder by revenues, and gives Pulte diversification into the resilient regions of Texas and the Carolinas. It also diversifies Pulte's market by demographics, since it produces property largely geared to older clients and Centex sells largely to first time home buyers. There are also some cost consolidation benefits expected.

GM Preparing for Worst

General Motors has reportedly come to terms with the possibility of bankruptcy and is planning for that contingency. While still shooting to meet the June 1st deadline set by President Obama, the company is now reportedly aggressively preparing for the possibility that its creditors will not come to the table. GM and the government would like the creditors to exchange debt for equity, but you can see their dilemma. Meanwhile, GM reported today that its sales within China soared 24.6% in March, to 137K vehicles. That's still far short of offsetting GM's weak U.S. sales, in case you were thinking...

Alcoa Starts the Season

Alcoa kicked off earnings season last evening, reporting an operating loss of $0.59 a share, versus analyst expectations for a loss $0.51 to $0.54 depending on which source you checked. The stock drifted in the after-market, but given its shedding of more than 70% over the last year, an analyst note offered lift. The Merrill Lynch analyst reportedly was enthused with the company's improved liquidity position following a new offering and cost cutting efforts. Alcoa has suffered as a result of declining prices and demand for aluminum resulting from this great recession.

EPS Schedule

The earnings slate includes news from Constellation Brands (NYSE: STZ), Mosaic (NYSE: MOS), Excel Maritime Carriers (NYSE: EXM), Family Dollar (NYSE: FDO), Global Crossing (Nasdaq: GLBC), Merix (Nasdaq: MERX), Richardson Electronics (Nasdaq: RELL), RPM Int'l (NYSE: RPM), Shaw Communications (NYSE: SJR), Shaw Group (NYSE: SGR), Standard Microsystems (Nasdaq: SMSC), Greenbrier Cos. (NYSE: GBX), Tortoise Capital Resources (NYSE: TTO) and WD-40 (Nasdaq: WDFC).


Please see our disclosures at the Wall Street Greek website and author bio pages found there. (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).