IMF Forecast & John Paulson

Today's Coffee

Our daily take of the most market-moving events includes coverage of economic reports, government actions and corporate activity. Today's Coffee covers the IMF Global Economic Forecast, John Paulson's efforts to keep capital in place, and the regular Mortgage Activity and Petroleum Status Reports.

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.

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IMF Forecast & John Paulson Key

The market took off in a decidedly positive direction to start the day, thanks to the IMF's upward adjustment to global growth prospects for this year. Solid earnings reports from Apple (Nasdaq: AAPL), Morgan Stanley (NYSE: MS), and United Technologies (NYSE: UTX) helped the cause as well, but less enthusiasm followed the reports of McDonalds (NYSE: MCD), Wells Fargo (NYSE: WFC) and AT&T (NYSE: T). NYU Professor Nouriel Roubini warned that sovereign debt crises threatened to spread, and stocks took to second guessing direction by midday. Also in the ruckus, hedge fund maven John Paulson took to defending himself, after his good name was dirtied up a bit on the SEC's charge of Goldman Sachs (NYSE: GS). So, despite the slow economic data day, we have quite enough to discuss here.

IMF Global Economic Outlook

Let's cover the most positive news first, and perhaps the greatest weight holding down paper profits today. The International Monetary Fund, the same organization now engaged in the salvation of Greek relics, publish its Global Economic Outlook this morning and offered jolly good news for American investors and Chinese and Indian industrialists. As for Europe, well at least it's got a place to hide now, with its head in the clouds (of ash).

To be quite honest, the IMF's report seems to simply restate the statements of central bankers and sovereign directors across the world. I find little insight in the organization's report, but it's worth a read in case you've forgotten everything Ben Bernanke, Jean-Claude Trichet and Chinese leaders have addressed over the past few months. Out-of-work American strategists who have recently been discovered as knowledge deficient might try to get a job there as well (I always try to be helpful). In any event, their charts are awfully colorful.

Basically, the most important information for market participants is the growth breakout to the left here. The IMF has raised its global growth forecast by three-tenths of a percentage point, to 4.2%; and within that change, the US economy has been boosted 0.4 percentage points. The United States economy is now seen growing by 3.1% in 2010, better than developed world peers Japan (+1.9%), Europe (+1.0%) and the UK (+1.3%). Still, the best news is for China and India, where growth is seen at 10% and 8.8%, respectively. India received the best news of all, as its revision was up by 1.1 percentage points. Italy, Germany and the ex-Soviet states excluding Russia were only the sad markets where decline is seen. Brazil looks hotter than its national soccer team, with its 2010 growth forecast up 0.8%, to 5.5% in 2010.

US Economic Data

Mortgage activity finally came to life last week. This followed two weeks of decline that occurred during a period in which most were expecting mortgage activity to benefit from the typical spring seasonal upswing and the First-Time Homebuyer Tax Credit.

The Mortgage Bankers Association published its Mortgage Activity Report for the week ended April 16 this morning in the premarket. The Market Composite Index of mortgage activity gained 13.6%. Let's not forget that this represents a recovery of ground lost in recent measurement periods and not an environment of robust activity. Still, we were pleased to at least see movement in the right direction.

Contracted rates on fixed rate mortgages of 30-year and 15-year duration fell during the period to 5.04% (from 5.17%) and 4.34% (4.45%), respectively. This helped the Refinance Index recover 15.8% versus the prior week's doldrums. Purchase activity gained ground as well in the latest reported period, as the Purchase Index improved by 10.1%. There's thought that Easter's absence in this latest week helped activity as well. It seems the MBA tailors its reasoning to fit the data, as last week it told us that a hike in FHA mortgage insurance premiums killed activity. Well, we are assuming that those premiums stuck another week, so what gives? It is possible that the initial reaction of prospective buyers who were perhaps unaware of the pending premium hike were paralyzed for a short time, and have moved forward now with the long-term investment of home purchase. It's a long-term investment again, in case you missed the memo.

Petroleum Storage

The EIA reports petroleum storage activity like clockwork every Wednesday morning, except after a three-day weekend. Given that the New York City Greek Independence Day Parade did not qualify as a national holiday (nor the after party), the EIA came back to the table again today. We are currently in a favorable seasonal period for petroleum buyers, as storage tends to build ahead of the start of the summer driving season. For that matter, it is also a favorable secular period for petroleum storage, ahead of war with Iran. Hey though, the strategic petroleum reserve has been full for a good year now; I think we're just letting China fill up its spare tanks at this point.

In any event, oil storage continued to build, with stocks rising by 1.9 million barrels this time. Gasoline storage also grew by 3.6 million barrels, and both oil and gasoline stocks were measured above the upper limit of the average range for this time of year.

Paulson Stands Up

A hedge fund lives and dies by its investment capital flows. Investment returns simply reinforce the stability of captive capital and help to draw new funds. So, when you are mentioned as part of the reason the SEC is charging Goldman Sachs (NYSE: GS) and one of its employees with fraud, that's not good for business. Faced with the possibility that his investors might start looking for the door while their profits were still intact, John Paulson had to consult his PR people and get active.

Paulson held a conference call with 100 investors late Monday in order to prevent an exodus. Investors are worried that another shoe might drop though, and that the investigation might turn up more information detrimental to Paulson & Co. There's also the risk that an international organization might not prove as kind as the US in not including Paulson in with the Goldman charge. Since a German organization was hurt by the dealing, folks are looking toward Angela Merkel for something like this. Word is that Germany might do any business with Goldman until everything is sorted out (if then). Holding Goldman shares seems silly here, and I do not care how much ground it's given back. If the EU stops doing business altogether...

Paulson also sent a letter out to investors Tuesday evening that focused attention to the fund manager's relatively unknown status before making a killing on the housing downturn. He reminded his financial supporters that there was more than enough smart money willing to bet against him in those days, and they gladly took counterparty position. Still, a sort of prisoner's dilemma might put the whole lot in the poor house. This Friday will prove critical to Paulson & Company, as it marks the deadline to make capital withdrawal requests for June 30 receipt.

Corporate News Drivers

We will cover notable earnings reports in a follow up article on the day's most active stocks.

Walter Energy (NYSE: WLT) held a shareholders meeting today, while earnings news was due from Abbott Labs (NYSE: ABT), Affymetrix (Nasdaq: AFFX), AirTran (NYSE: AAI), Alliance Data (NYSE: ADS), Altria Group (NYSE: MO), AMB Property (NYSE: AMB), AmeriCredit (NYSE: ACF), Amgen (Nasdaq: AMGN), AMR Corp. (NYSE: AMR), Astoria Fin'l (NYSE: AF), AT&T (NYSE: T), ATMI (Nasdaq: ATMI), Banner (Nasdaq: BANR), Berkshire Hills Bancorp (Nasdaq: BHLB), Chipotle Mexican Grill (NYSE: CMG), Citrix Systems (Nasdaq: CTXS), CNH Global (NYSE: CNH), Cohen & Steers (NYSE: CNS), Cohu (Nasdaq: COHU), Comerica (NYSE: CMA), Community Health (NYSE: CYH), CoStar Group (Nasdaq: CSGP), Covanta (NYSE: CVA), Covidien (NYSE: COV), CyberOptics (Nasdaq: CYBE), DST Systems (NYSE: DST), E*Trade Financial (Nasdaq: ETFC), eBay (Nasdaq: EBAY), Elan (NYSE: ELN), EMC Corp. (NYSE: EMC), EnCana (NYSE: ECA), Equinix (Nasdaq: EQIX), Exponent (Nasdaq: EXPO), F5 Networks (Nasdaq: FFIV), FBR Capital Markets (Nasdaq: FBCM), Fidelity National Financial (NYSE: FNF), First Cash (Nasdaq: FCFS), First Commonwealth (NYSE: FCF), First Midwest Bancorp (Nasdaq: FMBI), Forward Air (Nasdaq: FWRD), Freeport-McMoRan Copper & Gold (NYSE: FCX), Genzyme (Nasdaq: GENZ), Graco (NYSE: GGG), Gulf Island Fabrication (Nasdaq: GIFI), Hanesbrands (NYSE: HBI), Health Grades (Nasdaq: HGRD), Hub Group (Nasdaq: HUBG), Hudson City Bancorp (Nasdaq: HCBK), Huntington Bancshares (Nasdaq: HBAN), Intersil (Nasdaq: ISIL), KeyCorp (NYSE: KEY), Kinder Morgan Energy (NYSE: KMP), Knight Capital (Nasdaq: NITE), Knight Transportation (NYSE: KNX), Laboratory Corp. (NYSE: LH), Lam Research (Nasdaq: LRCX), LaSalle Hotel Properties (NYSE: LHO), Leggett & Platt (NYSE: LEG), LG Display (NYSE: LPL), Lockheed Martin (NYSE: LMT), Lufkin Industries (Nasdaq: LUFK), Manpower (NYSE: MAN), Massey Energy (NYSE: MEE), Mattson Technology (Nasdaq: MTSN), McDonald's (NYSE: MCD), Media General (NYSE: MEG), Mellanox Technologies (Nasdaq: MLNX), Moody's (NYSE: MCO), Morgan Stanley (NYSE: MS), Netflix (Nasdaq: NFLX), Netgear (Nasdaq: NTGR), New York Community Bancorp (NYSE: NYB), NewMarket (NYSE: NEU), Noble Corp. (NYSE: NE), NovaGold Resources (AMEX: NG), Novellus Systems (Nasdaq: NVLS), NVR, Inc. (NYSE: NVR), Pactiv (NYSE: PTV), Pick 'n Pay Stores (Nasdaq: PIKJ), Piper Jaffray (NYSE: PJC), Platinum Underwriters (NYSE: PTP), Polaris Industries (NYSE: PII), Polycom (Nasdaq: PLCM), Qualcomm (Nasdaq: QCOM), Quest Diagnostics (NYSE: DGX), RC2 Corp. (Nasdaq: RCRC), Ryder System (NYSE: R), SanDisk (Nasdaq: SNDK), Select Comfort (Nasdaq: SCSS), SLM Corp. (NYSE: SLM), St. Jude Medical (NYSE: STJ), StanCorp Financial (NYSE: SFG), Starbucks (Nasdaq: SBUX), SunTrust (NYSE: STI), Temple-Inland (NYSE: TIN), Teradyne (NYSE: TER), Terex (NYSE: TEX), Texas Capital Bancshares (Nasdaq: TCBI), The Boeing Co. (NYSE: BA), Theravance (Nasdaq: THRX), Thomas & Betts (NYSE: TNB), Tractor Supply (Nasdaq: TSCO), TrueBlue (NYSE: TBI), Tupperware (NYSE: TUP), Union Bankshares (NYSE: UNB), United Community Bankshares (Nasdaq: UCFC), United Development Co. (Nasdaq: UDCD), United Rentals (NYSE: URI), United Technologies (NYSE: UTX), Vertex Pharmaceuticals (Nasdaq: VRTX), Vitamin Shoppe (NYSE: VSI), Washington Trust (Nasdaq: WASH), Wells Fargo (NYSE: WFC), Westwood Holdings (NYSE: WHG) and Zenith National Insurance (NYSE: ZNT).


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