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Forget AIG, Weep for Citi

There's no avoiding it: economic data has been consistently below expectations for two weeks. Consistently: not just today's April Durable Orders, but the regional manufacturing reports (Philly, Chicago, Richmond, Empire), Housing Starts, Existing Home Sales, Leading Indicators, Industrial Production, and Capacity Utilization have all been below expectations.

  • Rick Santelli & Steve Liesman Dissect Economic Data

There are, of course, excuses: bulls are already noting that today's Durable Orders were hit by big swings in transportation and defense orders, but "core" durable goods remain strong. And March was revised upward.

True, but it's getting hard to dismiss the notion that at the very least we have hit some kind of "soft patch."

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The S&P is at its lowest level this month, but even with that poor showing we are still only 3.5 percent from the multiyear highs we hit at the end of April.

AIG did get its deal done, but at $29 it was just barely above the government break-even price of $28.70, and is trading below the break-even price pre-open. The good news, as I noted yesterday, is that more shares are now available to the public (a little over 20 percent). The bad news is that there is still too much in the government's hands, and as you can see by the stock performance this year that is a serious overhang for any investor.

Another financial to weep over is Citigroup post-split: miserable, as feared. Since Citi's 1-10 stock split on May 9th, it is down 10 percent, dramatically underperforming both the Bank Index (down 3 percent) and the S&P 500 (down 2 percent).

The good news: like other banks, they are benefiting from improved credit trends. The bad news: 1) the credit card portfolios are shrinking, 2) like other banks, trading revenues are under pressure, 2) housing values are not stabilizing in many parts of the country, and 3) loan growth remains anemic.

Elsewhere:

1) IPO market shows cracks: Yandex was yesterday...late last night discount airline Spirit Airlines delayed its IPO without explanation, but I'll give you the obvious answer: demand was weak. Wrong sector, wrong time.

Speaking of weak demand, keep your eye on Freescale Semiconductor, which is also attempting to raise $1 billion (43.5 million shares at $22 to $24), supposed to price tonight. According to Bloomberg, that is well below the average price of $36 that investors like Blackstone , Carlyle and others have paid.

2) Retailers with news:

Costco (COST) reported earnings below expectations, including a large LIFO (last in first out, an accounting method) charge. The good news is that sales were strong: U.S. comps up 11 percent (up 6 percent ex-gasoline sales). But the LIFO accounting method increases income taxes when inflation is high.

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Zale (ZLC) reported a loss much less than consensus; revenues were higher than expected. Same store sales were strong: up 15.2 percent.

Polo Ralph Lauren (RL) drops 8 percent after significantly missing Q4 estimates ($0.74 vs. $0.79 consensus). Revenues were inline, as comps at its retail stores rose 7 percent and online sales jumped 21 percent. However, cost inflation put a squeeze on margins for the apparel maker/retailer in the latest quarter. COO Roger Farah notes that the company faces "real sourcing cost pressure during the year and the impending inflationary pressure on the consumer is unknown."

American Eagle (AEO) rises 1 percent after reporting inline Q1 earnings. However, revenues fell significantly short of expectations as comps fell 8 percent. But the teen retailer's bottom line was helped by widening product margins and further cuts in general expenses. The company notes sales in the current quarter have improved from the disappointing sales last quarter, but guidance of $0.10-$0.13 falls mostly below Street estimates of $0.13.

Shares of California Pizza Kitchen (CPKI) jump 10 percent after agreeing to be acquired by private equity firm Golden Gate Capital for $477 million in cash. Shareholders will receive $18.50 per share, an 11 percent premium to yesterday's close and a 32 percent premium to where the restaurant company traded last year when it announced it was exploring a possible sale.

3) More dividend and buyback news:

a) HMO UnitedHealth (UNH) boosts its quarterly dividend by 30 percent to $0.1625 per share and increases its buyback program to 110 million shares (about 10 percent of all shares outstanding).

b) Department store Dillard's (DDS) raises its dividend by 25 percent to $0.05 per share and announces a $250 million stock buyback program.

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