Thursday, September 18, 2008

September 18, 2008: Morning Call

September 18, 2008: Morning Call

Fair Value: SP500 – 1158.84; NDX: 1643.59; DOW – 10618

Technical Levels:

SPX: 1136-1142 support/1235, 1250, 1298-1300, 1337, 1365 resistance

NASDAQ: 2020 support /2210, 2264, 2303 resistance:


Pre-market EPS: CCL (1.58/4.84B); CAG (.24/2.8B); FDX (1.18/9.8B)
08:30: FDX Earnings Call
08:30: Initial Jobless Claims (w/e Sep 13): 440,000; Cont. Claims: 3.525 million
08:45: MCO presents at Goldman Communicopia Conference
09:30: AT&T presents at Goldman Communicopia Conference
10:00: Philly Fed (Sep): -10.0
10:00: Leading Indicators (August): -0.2%
10:15: S presents at Goldman Communicopia Conference
10:15: MHP presents at Goldman Communicopia Conference
10:30: EIA Natural Gas Storage Change
10:55: MDR, SGR,FWLT, FLR, JEC all present at DA Davidson Engineering and Construction Conference between 10:55am and 13:10pm ET.
13:00: MON presents at Credit Suisse Chemicals Conference
Post-market EPS: ORCL (.27/5.4B); PALM (-.18/324.1M); CTAS (.52/1.0B)

Foreign Market Summary/Key Macro News/Commentary:

The SP futures moved sharply higher at 3am in the overnight session as global central banks announced their most aggressive concerted effort to pump liquidity into the financial system. The Fed and other central banks announced a plan to pump 247 billion dollars into the US dollar short-term funding markets in an attempt to ease what is perceived to be the worst financial crisis since the Great Depression. S&P futures are trading 18 points above fair value while the NASDAQ futures are trading 22 points above fair value at 7:30am. Also of note, UBS is saying that Goldman Sachs has not seen a material movement in client balances, according to the Goldman’s CFO David Viniar. Energy, investment banks, fertilizer, and pockets of technology are the strongest sectors in the pre-market while the airlines are indicated lower. Asian markets got crushed on the open and saw a big reversal on the coordinated central bank announcement. Hong Kong tumbled (7.4%) as investors dumped Chinese financial stocks, but rallied to close little changed. China’s Shanghai Composite also rebounded from session lows (6.5%) closing down only (1.7%) as bank shares rebounded. In Taiwan, the government said conditions are right for the National Stabilization Fund to buy stocks. European markets have seen extremely volatile and hectic trading as well and the initial knee-jerk move on the concerted central bank action was 2% lower before a sharp recovery. Euro-zone markets are up 1.5% at 7:30am. The rumor mill continues to work overdrive with vague chatter about counter-party issues and hedge fund/bank problems. Crude is trading near the $100/bbl level this morning, and December gold nearly hit $900/oz in the overnight session, on continued weakness in the dollar.

Impact Research Calls/Market Moving News:

GS (114.50): UBS comments on Goldman Sachs following meeting with CFO: Firm thinks that while the company is not immune to the ongoing crisis in confidence, GS is in a much better position to deal with the situation than BSC, LEH, and MER were. UBS notes that if reality were to catch up with perception, the firm is confident that management would protect the franchise and do the right thing for shareholders. Firm does not see any material movement of client balances. UBS adds that it is pretty confident that management is lining up all viable options and the firm thinks there are many global institutions that would team up with GS in several forms. Rating is neutral. Target is $145. (My comment: A press release from Goldman giving more specifics on client balance flows would do more to mitigate the rumor mongering).

MS (21.75): WSJ summarizes Morgan Stanley situation: People familiar with the matter say the firm may strike a deal with HSBC Holdings (HBC), Banco Santander (STD), Nomura Holdings (8604.JP), a Chinese financial institution, or a domestic partner such as Bank of New York Mellon Corp (BK). Sources say a phone call yesterday between CEO John Mach and Goldman Sachs (GS) CEO Lloyd Blankfein did not involve talks about a merger, but rather about how to stop short-sellers betting against the two firms. Deutsche Bank (DB), UBS (UBS), Credit Suisse (CS), and others worked to take hedge-fund clients from MS as the stock slid yesterday.

MS (21.75): Morgan Stanley seeks merger despite being in good shape - WSJ
A "Heard on the Street" column says that investment banks live by confidence, and since the market is rapidly losing it in the Wall Street business model, finding a buyer may be preferable to doing nothing. Goldman Sachs (GS) and MS mange their leverage well, but at the moment, credit markets may simply view their ratios (23.7 times shareholder equity for GS, 27.6 for MS) as unacceptable. But the column notes that confidence is only helped by strong partners, which Wachovia (WB) isn't. The column also notes that if MS finds a deal, GS could be left to twist in the wind with no decent partner available as the market beats it.

Regulators changing rules on the fly - NYT
Regulators at four federal agencies -- FDIC, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve -- quietly proposed significant changes in accounting rules 15-Sep and 16-Sep to encourage consolidation by making banks more attractive to purchasers. The changes largely relate to more favorable treatment of goodwill, and stand to be adopted after 30 days of public comment.

GOOG (414.49): Lehman says comScore Aug US data shows accelerating y/y search growth for Google: GOOG's US queries rose 33.4% y/y, up from the high-20s % y/y growth in H1 and compare to the 1.7% aggregate growth for YHOO, AOL (TWX), MSFT's MSN and Ask (IACI). GOOG's Aug share was 63% vs. 61.9% in Jul.

GOOG (414.49): Bernstein comments on Google, sees the shares as cheap relative to other tech shares: The firm believes that concerns over the economy are generating excessive pessimism about GOOG. Even in a worst case economic scenario, Bernstein sees GOOG worth $660/share with no further dollar appreciation and $535 if there is. The firm sees shares as cheap vs. other tech shares such as AAPL and reiterates their outperform rating.

FDX (88.07): FedEx reports Q1 EPS $1.23 vs preannouncement of $1.23 and Reuters $1.23: Company reports revenues of $9.97B vs. Reuters $9.87B. Total combined average daily package volume in the FedEx Express and FedEx Ground segments grew 1% year over year for the quarter. Guides Q2 EPS to $1.40-$1.60 vs. Reuters $1.35. Reaffirms full year EPS guidance of $4.75-$5.25 vs. Reuters $5.20.

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