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Stock Market - Pre Open Report May 12th 2008

Futures have begun to drop back down after running up to resistance in the early pre dawn hours. Earnings reports this morning have been less than stellar, and in some cases just terrible. This week there is a Federal Reserve ‘talking tour’ (see schedule posted yesterday).

 

From Reuters this morning:

April retail sales barely budged: SpendingPulse

Mon May 12, 2008 5:25am EDT

NEW YORK (Reuters) - Retail sales barely rose in April, as a relentless surge in gasoline prices made consumers cut back other types of spending, according to a report released on Monday.

Consumer spending excluding autos grew only 0.1 percent last month on a seasonally adjusted basis, less than the 0.6 percent increase in March, said SpendingPulse, the retail data service of MasterCard Advisors, which is a unit of MasterCard Worldwide.

"In general, consumers are spending less. Without gasoline, they are spending a lot less," said Kamalesh Rao, director of economic research at MasterCard Advisors.

Retail sales excluding cars and gasoline fell 0.7 percent in April versus March. [...]

 

From Bloomberg this morning: (the bond insurer soap opera continues)

MBIA Posts Loss of $2.4 Billion as CDO Slump Deepens

By Christine Richard

May 12 (Bloomberg) — MBIA Inc., the bond insurer that lost 87 percent of its market value in the past year, posted a net loss of $2.4 billion as the slump in mortgage securities deepened.

The first-quarter net loss was $13.03 a share, compared with a profit of $198.6 million, or $1.46 a share, a year earlier, Armonk, New York-based MBIA said in a regulatory filing today. Unrealized losses from derivatives were $3.58 billion.

The loss was MBIA’s third straight and comes less than three months after the bond insurer successfully retained its AAA credit rating. MBIA, Ambac Financial Group Inc. and the rest of the industry have posted record losses after misjudging the value of collateralized debt obligations and securities backed by home- equity loans they guaranteed. MBIA, once a dominant provider of municipal bond insurance, had 2.5 percent of the market in the quarter, according to Thomson Financial data.

“We’re not out of the woods yet,” said Richard Larkin, senior vice president at Herbert J. Sims & Co. in Iselin, New Jersey. “I’m not sure AAA bond insurers will ever be viewed the same way as in the past.”

MBIA raised $2.6 billion in capital to help convince Moody’s Investors Service and Standard & Poor’s to preserve its AAA rating. Chief Executive Officer Jay Brown said this week the company won’t need to raise more.

“We have adequate equity capital to get through this crisis,” Brown wrote in a letter to shareholders published May 6.

MBIA fell 21 cents to $9.22 in early New York Stock Exchange composite trading. The stock traded above $70 a year ago. MBIA’s book value slumped to $8.70 a share on March 31 from $29.16 at Dec. 31, in part because of new shares sold in the capital raising.

`No Longer’ AAA

MBIA estimates it will have $827 million of actual losses from paying claims on nine CDO transactions.

“Earnings pressure will remain for several quarters as writedowns continue,” Peter Plaut, senior vice president at Imperial Capital, wrote in an e-mail today. “This is no longer a AAA industry for the players that diversified into volatile financial derivatives.”

MBIA took $3.5 billion of writedowns in the fourth quarter of last year, mainly on CDOs it guaranteed through derivative contracts. Those contracts, backed by the repayment of subprime mortgages, have contributed to $323 billion of losses at banks since the beginning of 2007. Derivatives are financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather.

`Mere Mortals’

“This valuation task is clearly one that stretches the ability of mere mortals,” Brown said in the letter.

New York-based Ambac, the second-largest bond insurer, reported on April 23 a first quarter net loss of $1.66 billion, wider than analysts estimated, after $3.1 billion of charges related to mortgage securities. New business at Ambac slumped 87 percent after municipalities balked at buying its insurance and sales of CDOs dried up. Ambac shares tumbled 43 percent on the day of the announcement.

The bond insurers faltered after expanding beyond municipal debt into subprime-mortgage securities and CDOs, which package pools of debt into new pieces with varying ratings and risk. As subprime defaults soared to records, MBIA and Ambac were forced to write down their value.