Thursday, February 8, 2007

Morning Market Comment 2/8/2007

Stocks futures are drifting lower this morning, with the S&P down by a little more than 3 points.
Some of the weakness is being chalked up to a mere 2% same store sales gain at at retailing powerhouse Costco (COST), though double digit sales gains were racked up at American Eagle (AEOS) and Limited (LTD) as the clothing retailers thanked Old Man Winter for the winter apparel clearing cold weather.

Eastman Kodak was long ago kicked out the Dow, but is going to move a bit higher as it expands its restructuring plan to include up to 3,000 job cuts. Their best days were back in the days of the Instamatic and the Paul Anka - Times of Your Life ad campaign... over 30 years ago.

How much of a problem will subprime be for the market? To put this is some perspective. HSBC warned last night that it would set aside $10 bln in loan loss provisions, or 20% more than expected. But HSBC is a $213 bln company by market cap, so its stock in UK trading slipped a mere quarter percent on the news.

That isn't to say that subprime isn't a major problem, especially for lenders whose primary business has been loaning to riskier borrowers. New Century (NEW) is having its head handed to it for restating results and warning of a surprise loss. Other subprime companies like LEND and NFI are poised to sell off on NEW's woes this morning. NEW is down a whopping 22% this morning. LEND is down 8% and NFI is down 10%. Wells Fargo is actually the largest subprime lender, but here again, those operations are just a small part of what otherwise seems to the pristine balance sheet. WFC indicated to open little changed.

By the way, the 10 year treasury up another tick, yield down to 4.74%. The curve is sure looking inverted once again. It's out there for all to see, that subprime and housing are leading to less than nice things for Mr. Economy.

Incidentally, I bought 10 (as I said small position) in BRLC Feb 10 calls because it looked risky (after all it's a company in the cutthroat television-set business), but still a cheap shot based on the good January pre announcement. The stock is getting hammered by 17% this morning - something about falling prices, also earnings that were below the most optimistic of expectations. I bought 100 NFI March 17-1/2 puts yesterday, which will more than offset the BRLC loss of $550, though that loss is still an annoyance. As usual analysts who cover the stock were completely out to lunch in spite of claiming to have done channel checks (must have been watching the Playboy 'channel').

I also talked about Akamai ahead of earnings last night and just stayed away. That would have been worthy of a much larger bet, but the options premiums were just too expensive and that stock has already had an extended run. Sure enough, AKAM numbers were just a little above expectations and the stock is down $1, which is just a small enough move to badly burn both the Feb 50, 55 and 60 call and put holders.

My crude oil short remains open with a target back to the 10 moving average at just below $57.

Gold - just haven't been doing anything there as the dollar remains stuck (eg, EuroFX remaining right around $1.30). ECB and BOE both were on hold today, but the pundits say it almost a sure thing the ECB will lift rates again next month.

I think I need a vacation. My wife said I was talking in my sleep last night about some stock that I thought was going to drop by 90%!

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