Monday, May 10, 2010 

 
• European bailout - There were a series of announcements out of Europe and the US Fed Sunday
night that will most likely exceed the expectations of investors heading into the weekend on Friday.
There are three pieces of the plan – a EU720B plan from European governments, substantial promises
from the ECB, and the re-opening of FX swap lines. The ECB made a dramatic u-turn and said it would
participate in euro area public and private debt markets (recall that Trichet said last Thurs that the ECB
hadn’t even considered this option at its last meeting), although the purchases will be “sterilized” and so
stops short of being true quantitative easing. The EU720B promise from the various European
governments will probably take some time to flesh out and there are still some details to be answered, but
the ECB debt purchases could commence at any time and is probably the most unexpected component of
the Sun night announcement
France’s CAC 40

up ~8.5% today

•          A few positive headlines out of Spain & Portugal w/Portugal's PM saying it will cut the budget
further than planned this yr to 7.3% of GDP and Spain's PM saying it will cut the budget further to
9.3%/6.5% of GDP in '10/'11 (vs. previously pledged 9.8%/7.5%).
•          Gulf oil spill - BP’s first attempt to divert oil from GOM leak fails – the co’s efforts to lower a 4-
story containment tank on top of the spewing well failed after ice-like crystals formed at the top of the
structure, which is now resting a few hundred yards from the leak site on the ocean floor. Engineers are
said to be now considering a “junk shot”, whereby debris is shot into the blowout preventer w/the
intention of staunching the outflow and are also preparing to lower a second, smaller containment dome
on the main leak point; separately, shifting weather patterns will cause the oil slick to move towards
Louisiana in the next few days. BP said today its costs-to-date have totaled $350MM.
•          OPEC officials over the weekend didn’t seem too alarmed w/$75 oil but noted that another $10 drop
could force them to take action.

West Texas Intermediate (WTI) Cushing Crude Oil Spot Price – Daily Chart

• Obama to nominate Solicitor General Elana Kagan to the Supreme Court; her nomination will be
unveiled Monday (WSJ)
•         Technical Update - We see a new ceiling at 1150 and 1180. Near term gauges are oversold. Watching
sentiment gauges closely next wk. Big picture: At 1220, the S+P 500 just missed our 1225-1240 “pre-
Summer” targets, to get defensive for a 6-10% correction. Thought it would take weeks, not 30 minutes
on Thurs! Monthly and Weekly momentum have now bearishly peaked. We think we’ve seen the highs
for several months, and arguably the first leg of the March 2009 cycle bull. The S+P 500 this year sees a
2004-style range between 950-1000 on the downside, and 1150-1200 on the upside. In our view, that
would create a base for the next leg of the 666 bull market later in 2010 and in 2011.Krauss
• GS – the co has opened informal settlement talks w/the SEC and is prepared to admit to negligence
and pay a fine although will not acknowledge wrong doing and wants the main charges dropped.
• Bank failures – 4 over the weekend; now up to 68 YTD – 1) 1st Pacific Bank of California, San
Diego, CA ($335MM assets; CYN is buying the bank from the FDIC); 2) Towne Bank of Arizona, Mesa,
AZ ($120MM in assets; Commerce Bank of Arizona is the buyer); 3) Access Bank, Champlin, MN
($32MM in assets; PrinsBank is the buyer); 4) The Bank of Bonifay, Bonifay, FL ($242.9MM in assets;
First Federal Bank of Florida is the buyer).