Futures came off their lows for the morning as February housing starts and permits were much stronger than expected.
Kill me now: I was at a dinner last night with 15 hedge fund traders. Bearishness was so prevalent I felt like we were attending a meeting of the Hemlock Society.
Most alarming was the discussion about AIG. One of the guys had attended a meeting of other hedge fund people who were considering participating in the TALF program, which will lend up to $1 trillion in loans to buyers of asset-backed securities like car and student loans.
Several said they were less likely to participate in the program, because they were concerned that the government would try to dictate compensation to anyone who participated in the program.
That is the fallout from AIG. It has dramatically increased political risk.
1) Alcoa down 11 percent, has cut its annual dividend to $0.03 from $0.17 per quarter, reduced annual capital expenditures to $850 million, and is raising $1.1 billion in common stock and convertible notes. This will increase the number of shares outstanding from about 800 million to about 1 billion.
Fundamentals are not good right now for aluminum. All major participants are cutting production and capital expenditures. With current aluminum prices at well below $1 a pound, the entire industry is unprofitable.
2) The recent runup in financials may be over, according to several analysts this morning. UBS, reviewing the runup in Goldman and Morgan Stanley , says "our concern is that the stocks could now give back some of the gains as we're not sure how profitable 1Q will be." KBW lowered Goldman's 2009 earnings estimates, saying "we don't see catalyst for significant multiple expansion." BofA Merrill Lynch has also cut its rating on Morgan Stanley.
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