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Buzz Bits: Dow, Nasdaq Close in the Red


Your daily Buzz highlights...


Editor's Note: This is a small sample of the content available on the Buzz and Banter.

Earnings Report - MV News

  • Red Hat (RHT) reported 3Q EPS of $0.14 vs $0.12 cons on revs of $105.8 mln vs $104.1 mln cons.
  • Solectron (SLR) reported 1Q EPS of $0.05 (in-line) on revs of $3.00 bln vs $2.78 bln cons.
  • Research in Motion (RIMM) reported 3Q EPS of $0.93 vs (in-line) on revs of $835.1 mln vs $815.4 mln cons.
  • Micron (MU) reported 1Q EPS of $0.25 vs $0.21 cons on revs of $1.58 bln vs $1.66 bln cons. Gross margin was 31% vs 23.6% q/q.

Stephanie Pomboy Presents: CDS Spreads - MV Respect - 2:46 PM

Hope springs eternal among those of us who worship at the altar of The Fundamentals that the flight to risk we've witnessed in recent weeks is simply part of the year-end revelry. However, the possibility that the markets have turned godless…and we are witnessing the emergence of a financial Sodom and Gomorrah…seems high. Today, there is a new investment gospel and it is devoid of any reference to risk. In a world where liquidity abounds, this market, Beelzebub no longer exists.

Thanks to the myriad 'puts' being unfurled under the markets (from the M&A put to the global central bank 'put') there will always be a buyer for US financial assets. As for sellers…well, financial innovation has taken care of that. Thanks to the divine miracle of derivatives, even those who can't let go of The Fundamentals need not sell. If things begin to deteriorate, they can just buy some insurance in the mushrooming $26 trln CDS market.

The degree to which this has become the new market mantra was driven home for me last week. Perusing an article on Bloomberg describing how speculation about increased LBO activity in the energy sector was pushing up CDS spreads it struck me: shouldn't this same phenomenon be occurring across the entire corporate credit market? Given the whole M&A/LBO craze and resulting increase in bond issuance, one would expect credit spreads and CDS to be rising in unison.

As I feared might be the case, however, CDS spreads have been drifting away from their underlying asset mooring post in recent weeks. This divergence --between the cost of insurance and the perceived value of the assets being insured-- speaks to a whole new level of complacency about risk. This, as such reckless behavior always does, is sure to be punished by the market gods. See the chart here.

Buzz in the Afternoon - Todd Harrison - 2:35 PM

I return from a mid-morning downtown meld--and ready for yet another one --to find Boo chewing through the Thursday dew. A few top-line obvservations as I strap myself into my turret:
  • The semis are testing important support at SOX 200ish, which is the 200-day and the right shoulder of reverse dandruff. With the nets numb (Google is off another $7), the tech rally needs CHiPs that hang like Ponch and John.

  • The trannies? Yep, they failed through TRAN 4600 (200-day) and have confirmed their head and shoulders pattern. This isn't what the year-end rally crowd wants to see.

  • The saving grace of today's race? Those pesky piggies, as the BKX is flat on the day. We're seeing supply on the brokerage side (GS is under $200 and I continue to feel that the NY Post cover jinx will be obvious in hindsight) but the money centers are well bid.

  • Crude down 1.5% and equities down? Yep, it's the other side of a green dollar. The whole notion that lower crude is negative for stocks (asset class deflation vs. dollar devaluation) is widely shunned in mainstream circles. I think it's spot on.

  • What did the ringleader say when his human cannonball died? "We're gonna have a hard time finding someone else of his caliber."

  • As always, I hope this finds you well.


Position in financials

Copper and Gold Divergence, CRB Unchanged - Lance Lewis - 1:57 PM

Note the continued divergence between copper and gold as copper has now blown through its June lows as increasing concern about the slowdown in the US economy has negatively impacted investment demand, as well as real world demand. That same negative sentiment on the US economy is also continuing to weigh on the dollar (as well as encourage the Fed to pump in more liquidity), which should propel gold to new highs even as GDP sensitive metals, like copper (which has far outperformed gold over the last couple years during the growth phase of the current cycle), could continue to weaken...

Also note that despite the 3% decline in copper and 2% slide in crude today, the equal-weighted CRB is virtually unchanged and still just off an all-time high, due to strength in wheat, cotton, corn, and soybeans. What does it mean? It means the upward trend of broad commodity inflation continues unabated despite corrections of individual commodities, and that means the Fed will continue to be boxed in by a weakening economy and increasing inflation.

What you need to know... - Jon Doctor J Najarian - 8:14 AM

Accenture (ACN) Earnings Boffo! ACN reported 1Q net earnings of $284.2 million, or 46 cents a share, compared with $214.9 million, 36 cents a share, in the same period last year, on the back of strong sales. One of the partners was so excited he took my radio co-host out for a big night on the town last night!

JPM Upgrades Circuit City (CC), Downgrades Conseco (CNO) – The broker said it sees "positive catalysts" for fiscal '08 for the consumer electronics retailer. It wasn't so kind to the insurance and financial services firm (Conseco), which they took to neutral from overweight, saying it expects weak underwriting margins in the long-term care business because of rising claims costs.

What If The Buyer Is Bought? You've heard me say that medical device maker Smith & Nephew (SNN) was looking at Biomet (BMET), well now the the private equity group that has just acquired Biomet could also be lining up a bid for Smith & Nephew!

Nike Profits Up 8% - A triple set of catalysts, 1) demand from China, 2) Tax break from the Dutch and 3) Converse helped the world's #1 athletic shoe company earn $325.6 million, or $1.28 per share, from $301.1 million, or $1.14 per share, during the same period last year.

Positions in NKE, CC

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