Morning Market Comment

Stock futures are little changed to trying to drift higher in dead cat bounce fashion after 3 down days even as bonds continue to slip. The 10 year yield is up to 5.17%. One of my concerns about the recent bond market jolt is what it might do to leveraged buyouts, both those that have yet to occur and to some deals that have already been completed. The LBO has been a key driver of the recent stock market bull run. The Wall Street Journal this morning is reporting,

"Even as the buyout boom rolls on, a number of recent high-profile deals are already showing signs of strain. Among them: the $1.3 billion purchase of retailer Linens 'n Things Inc. by a group led by Apollo Management LP; Avista Capital Partners' $530 million buyout of the Star Tribune newspaper in Minneapolis; and the $17.6 billion deal for Freescale Semiconductor Holdings by several buyout specialists. Apollo's $6.7 billion purchase of Realogy Corp. also is raising questions among some investors." Click Here To Read More.

The Journal story only covers the realm of some troubled completed deals. What I'm curious to see is what happens to some deals that have been announced but not yet consummated and whether the changing landscape in the fixed income market keeps other deals from happening altogether. If troubles do broaden in LBO world, that would mean big trouble for the equities market. But whether this is that time, it's too soon to know. It's one thing to dismiss the recent selling in the stock market as a blip, or garden variety correction, but what's going on in the bond market is historic and far reaching when overall leverage and derivatives, swaps and spreads, etc., are considered. As we saw yesterday, the fixed income woes very easily spread into other assets, especially the stock market.

Lest you think I'm getting carried away over the bond market rout, a report from Goldman Sachs this morning says, "The bear steepening move in US fixed income markets amounted to a 3 standard deviation event." And therein lies the problem for the stock market imho, not so much that we're back above a 5% ten year yield, though that can be problematic unto itself for the bulls, but the speed at which we've arrived at present yields is what has spooked the street. Until we get a sense of where bond market yields are going to level out, it's likely that the stock market action will remain choppy and sloppy (read, volatile). I'd be very wary of being too quickly to declare that bonds are oversold.

The trade deficit contracted in April... makes no difference in the bond market this morning: Treasurys under pressure even after record export fall.

One positive on the equities front, declines have been fairly mild in European markets (down around .5%) while major Asian markets were down around 1.5%.

How is this shaking out in the markets this morning? Qualcomm punished with phone import ban... QCOM is up 3% as analysts say the ban will have a limited impact. BRCM also scratching out a gain of around 1%. Apple (AAPL) is being declared a winner by some analysts who say its iPhone won't be affected, same for Nokia (NOK). But some analysts say phones slated for release by Verizon (VZ) and Sprint (S) will be impacted by QCOM's adverse ruling.

This headline may be a big help to Wall Street today... some tech leadership: National Semiconductor Shares Surge on Profit, Buyback Plan. A variety of analysts have raised price targets on NSM this morning.

I sold my SPY puts at the close yesterday going from $1.25 to $1.95... may jump back into those later today if we revisit 1490 and it doesn't hold. We'll see.