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Pisani: Banks Riskier Than Retail? (Updated)

Update:

Retail. Strong Easter sales have created positive analyst commentary in the past 3 days, based on the perfect storm of warm weather, easy comps, and the Easter shift into March. A sampling:

Needham: "most retailers will positively surprise"

Atlantic Equities: "we expect a number of earnings guidance raises."

Wedbush: "March traffic was consistently strong except week three" (storms)

Brean Murray: "probably the strongest month in recent memory for our group and the entire retailing universe"

Weak loan demand: the Achilles heel for banks? Wells Fargo made positive comments on big cap banks yesterday. Today Goldman Sachs raising price targets on a number of big-cap banks this morning, as well as upgrading KeyCorp , noting that "Liquidity stood out as the common theme with better than modeled deposit flows and increased ability to sell nonperforming assets."

All the big names are sitting at or near 52-week highs; the Bank Index (BKX) is up over 25 percent this year.

Here's the problem: while there are signs that nonperforming assets are levelling off, Goldman admits that:

"loan demand remains weak."

Not just weak, but down: loans are DOWN 3 percent year to date. That is not the direction we need to be going in.

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Yikes! The Mortgage Bankers Association reported that 30-year fixed rate mortgages jumped a quarter point to 5.31 percent (!!) last week, the highest level level since August. Little wonder the volume of mortgage applications fell 11 percent.

Elsewhere:

1) Family Dollar rises 4 percent after its Q2 earnings and full-year outlook were above expectations. The discount retailer reported Q2 earnings of $0.81 (vs. $0.78 consensus) on improving margins and a 3.6 percent rise in same-store sales as a result of higher store traffic.

Earnings guidance for both the current quarter and full year exceeds the current consensus estimates too. The company sees comps rising 6 percent-8 percent this quarter, thanks in large part to a very strong start in March, when comps rose 11 percent.

Other retailers will report their March sales tomorrow morning, with optimism on the Street for strong comps.

2) CKE Restaurants (think Carls Jr., Hardees) rises 6 percent on word that it has received another offer, possibly leading to a potential bidding war for the company. The fast food giant had agreed to a $619 million deal with private equity firm Thomas H. Lee Partners pack in February. The bidder's name and terms of the new competing offer were not disclosed

3) Monsanto falls fractionally after Q2 earnings missed estimates ($1.70 vs. $1.73 consensus). As traders had expected, earnings were pressured by continued pricing pressures in herbicides, causing disappointing sales and lower margins.

Looking ahead, the seed provider warned that its full-year earnings would be towards the low end of a previously announced range and that it wouldn't meet its long-term goal of doubling profits over the 5 years ending in 2012.

4) Australian miner Macarthur Coal rejected a $3.27 billion raised bid by U.S. coal miner Peabody Energy saying it undervalues the firm. Unless Peabody raises its bid again, Macarthur will likely proceed with a shareholder vote on its own offer to acquire a smaller Australian miner Gloucester Coal.

5) Reality check: bank stocks have had a huge run this year, with the Bank Index (BKX) up 25 percent, but it's getting tougher to get outperformance...Dick Bove of Rochdale Securities, on our air this morning: "In the 1st quarter you are going to see weak loan volume, you are going to see stress margins, you are going to see continuous problems with the loan loss provision and i think you are even going to see problems with non-interest income, so this is not going to be a good quarter earnings wise"

Yesterday Wells Fargo upgraded the entire banking sector, citing "greater clarity on asset-quality trends, less fear of pending regulatory changes, and still-reasonable valuation for most of our coverage compared to "normalized" multiples."

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