Traders Watching Saudis Nervously

Is Saudi Arabia in play or not? That's the main issue on the minds of two hedge fund traders I met with last night. They were referring to the political system. The Saudi stock market was down another 3.9 percent overninght and has dropped more than 15 percent in the past five or six trading sessions.

Violent demonstrations in Bahrain, a conservative cleric in Yemen calling for the government's ouster, are all adding to the jitteriness. A number of points were made: the security of the oil supply is high, and the king is well regarded.

On the negative side, it was argued that if Libya comes offline (1.7 m barrels per day), and then someone else comes offline — say, Oman (800,000 barrels per day), it is unlikely Saudi Arabia could take up the slack for both of them. Certainly, Bahrain would be a tipping point, with a Shiite majority (70 percent of the population) under a Sunni leadership.

Elsewhere: ?

1) the minute oil went decisively over $100, about 8:15 AM ET, S&P futures sunk about 5 points.

2) Higher oil is going to be a big problem for airlines, if prices stay here. That's what the International Air Transport Association said--they see global airline profit halving in 2011 on rising costs, which will offset increasing demand. Net profit margins will be only 1.4 percent, half the 2.9 percent seen in 2010.

3) oil drilling firm Weatherford International is the most actively traded stock pre open at the NYSE, down 14 percent pre-open as it disclosed errors in its tax accounting--they are adjusting previously reported results.

4) BJ's Wholesale beats estimates ($0.95 vs. $0.93 consensus). Although traffic rose 2 percent, the average transaction remained flat in the quarter. Q4 comps rose 3.8 percent, and that strength continued last month, with comps rising a much greater-than-expected 5.5 percent.

5) BJ's guidance tops estimates. Continuing a recent trend of strong retail outlooks (think Limited, JCPenney, Kohl's, TJX, Chico's), the wholesale club's guidance for the current quarter of $0.54-$0.58 tops estimates of $0.52. Most major retailers will release their February comps tomorrow, and estimates have been rising due to the recent string of strong guidance and sales commentary.

5) AIG announced it will be selling its nearly $10 billion stake in MetLife earlier than planned. Having attained MetLife's approval, AIG will now accelerate the sale of the common shares and common equity units that it received upon last year's sale of its American Life Insurance unit to MetLife.

Meanwhile, MetLife falls 5 percent after announcing it will sell 68.6 million shares to the public. The proceeds from that secondary offering will help pay for the preferred convertibles that it is buying back from AIG.

6) Texas Instruments rises 1 percent after being upgraded to "overweight" at JPMorgan. The analyst believes demand will improve as Texas Instruments' supply chain will have to replenish its inventory in the second half. Concurrently, JPMorgan is also less bearish on the sector as a whole, raising the chip sector to "constructive" from "cautious."

7) Down, but not out. The markets haven't had many 1 percent declines recently. But when they have occurred, stocks have remained fairly resilient, avoiding hefty losses the day after.

In the 6 times the S&P has been down more than 1% since November (that's excluding yesterday's decline), the S&P has managed to turn in a gain the next day half the time. On the other 3 times, it has only posted very small losses (declines of 0.12%, 0.13%, and 0.61%) on day after its big drop.

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