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Inaugural "at the open" post

Hi, for those of you who read this post today, I spend the majority of my workday slogging through the US equity market as head trader at a small hedge fund in CT. I send this e-mail out every morning during the week. it's dual purpose is to provide my friends and colleagues (past and present) with a quick overview of what went on overnight and what could go on today to effect the markets. I also am prone to throw in a chart or two for gravitas. Unfortunately those don't necessarily transfer well into the domain of HTML so if any readers out there would like to be put on the direct distribution list for my e-mail please forward your e-mail address to me @ ppennell@turnberrycapital.net. Also, I'm always looking for feedback on topics of interest that readers would like to have explored in more detail. my thanks to Sandy for inviting me to post and good hunting.

Phil

The debt ceiling, deficit reduction and who controls the process – no matter your view of the President I believe that in the end he will act in a manner consistent with 99.9% of all politicians (humans too for that matter) which is in his own best interests which in turn means that he’ll act so as to get re-elected. Ok, you say “so what…I know this already”…well my point here is that we’re coming up on an up/down vote on the debt ceiling…

And with Congress split between the two parties this will not go along ideological lines, in other words, the likely outcome will conform with what mainstream America is anticipated to want. After the fall elections, it has become apparent that the President believes that mainstream America wants smaller government. Now we can argue infinitum about the desire to reduce specific programs (which is ultimately where any of these discussions breaks down, witness Greece) but in general Americans want less debt and lower taxes which means they want smaller government. So, the President is scheduled to come out with his “new” budget plan today…the State of the Union “budget” (long on talk and short on specifics as all State of the Union talking points are) appears to be off the table…and many expect it to draw heavily from last year’s Simpson/Bowles Commission findings. If this is true then there is a deal to be struck between the President and the House which is expected to push forward Paul Ryan’s “Roadmap for America” plan. If there is a deal to be struck then there is the expectation that the debt ceiling will be raised, at least for a period of time which it will take to reduce spending, cut the deficit an begin to reduce the national debt. We’ll see what happens but at this point I’m hopeful that the two sides don’t start at opposite poles with no way to get to a middle ground…I’m counting on pragmatic self-interest.

Where we stand…markets were higher across the board in overnight trading in Asia…European indices are at their highs for the day…US index futures point to a roughly flat opening at this time

News –

• In US economic news releases today we get Advance retail sales for March @ 8:30 (the expectation is for a 0.5% increase after a 1% increase in February); Business inventories for February (looking for a +0.8% increase in inventories following a +0.9% change in January).
• In signs that the situation in Japan is worsening for many manufacturing companies, Toyota announced plant closures in Europe due to supply chain difficulties…in other Japanese news, the Sendai airport opened for traffic today with help from the US Air Force and Marines…while not on hand for the celebrator reopening their presence was crucial to the job getting done, their objective is to help but not be noticed.
• European banking regulators say that this year’s stress test of the banking system will include sovereign debt holdings. This is a clear nod to the fact that a Greek restructuring is coming and everyone knows it…recall that the last set of bank stress tests ignored all sovereign debt as it was assumed that there would be no defaults/restructuring events take place and as such all sovereign debt was “money good”…obviously, this is no longer the prevailing assumption. We’ll have to watch the prices of Greek, Irish and Portuguese debt as the banks may decide that discretion is the better part of valor and start selling now…the question is who’s going to be a buyer.
• JPMorgan will report earnings today with the market looking for $1.15 in earnings per share (excluding any extraordinary items) and a Q1 revenue of $25.1 billion. Q2 revenue is expected to be $24.9 billion so if the company comes out with a compelling story for why Q2 revenue will be $25 billion or higher (it was $25.1 billion in 2010) then the stock should move higher, perhaps back to the February high of $48.36. If the projection is for a big miss in Q2 revenue then the stock could retrace back under $44. This will set the stage for all of the banking names to follow.
• Libyan opposition forces are being squeezed by the pro-Qaddafi forces in Misrata…the rebels are asking the UN for additional help as they seek to have Misrata declared a “internationally protected zone” whatever that’s supposed to mean…at this rate it won’t be long before they are begging for NATO troops to be sent in at which point there will be a real decision to make.
• Countries in Asia could be next in line for the “Cairo Spring” of protests over energy and food prices as soaring oil prices swell deficits in energy dependent economies…this is especially true for the big fuel subsidizer countries like India, Indonesia, Malaysia and Thailand. In turn the result of the higher fuel prices is slowing global growth which of course will reign in fuel prices ultimately…the other hope here is a coordinated effort on deficit reduction in the US which will have a positive impact on the US dollar which will in turn reduce oil prices.
• Bank of Canada opts not to raise interest rates as the Canadian Dollar climbs to a 3 ½ year high.
• S&P revises Ireland’s outlook to “stable” citing the credibility of the latest round of stress tests for the banking system…as a result, 2 year Irish debt now yields 8.6% vs. 9.02% for Portugal and 16.4% for Greece…giving Ireland a chance, perhaps, to figure a way out of their current predicament.
• South Africa is considering changing its laws to allow banks to issued “covered bonds”…bonds collateralized by bank assets…in order to reduce interest costs.

Phillip Pennell, CFA
Turnberry Capital Management
(203) 861-2708 (Direct)
(203) 861-2700 (Trading)
(203) 917-2255 (Mobile)

Today is: April 23, 2017 - 9:39pm
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