Tuesday, September 23, 2008

September 23, 2008: Morning Call

September 23, 2008: Morning Call

Fair Value: SP500 – 1209.76; NDX: 1776.90; DOW – 11026

Technical Levels:

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

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


Pre-market EPS: LEN (-.52/1.06B); FDS (.64/153.3M)
09:30: Paulson and Bernanke testify on credit turmoil at Senate Panel
09:45: GRMN presents at Thomas Weisel Consumer Conference
10:00: Richmond Fed Manufacturing Index (Sep): -12
10:00: House Price Index (July): -0.2% MoM
10:30: GOOG Android powered handset to be launched at T-Mobile Press Conf.
11:00: LEN Earnings Call
11:00: SEE Investor Day
12:00: JOYG Analyst Day
17:00: ABC Consumer Confidence

Foreign Market Summary/Key Macro News/Commentary:

SP futures are trading 2 points above fair value while the NASDAQ futures are trading 5 points below fair value at 7:30 am ET. Treasury Secretary Paulson, Fed Chairman Bernanke, SEC Chairman Cox and OFHEO director Lockhart will testify before the Senate Banking Committee on the financial crisis and the bailout plan at 9:30 ET. The Sep Richmond Fed Manufacturing Index and the Jul House Price Index will be reported at 10 ET. Asian markets declined overnight with financial related stocks among the weakest sectors. Hong Kong dropped 3.7%. Shanghai dropped 3.8%. India dropped 3.0%. Energy shares outperformed due to stronger commodity prices. European markets are down 1.5% in light volume on weak economic data and concerns surrounding the US government bailout package. Banks and insurance companies are among the weakest with declines of 2.5%-3.5%. The dollar is flat against the Euro after getting hammered in Monday’s trading session. November Crude Oil is down 2 bucks to 107.40 after stunning gains yesterday in October Crude (October Crude expired yesterday). Expiration, thin trading, and apparent manipulation fueled Monday’s rally in October crude oil.

Impact Research Calls/Market Moving News

Banking Sector: Oppenheimer's Meredith Whitney reduces estimates on banking group, Wachovia (WB), Bank of America (BAC), others: The firm cites deteriorating credit and charges in the quarter as rationale for the reduction in estimates.
· JPM: Oppenheimer lowers their Q308 estimate by $0.19 to $0.21, their FY08 estimate by $0.30 to $1.65, and their FY09 estimate by $0.35 to $1.45.
· BAC: Oppenheimer lowers their Q308 estimate by $0.35 to $0.40, their FY08 estimate by $0.63 to $1.85, and their FY09 estimate by $0.95 to $1.95.
· C: Oppenheimer lowers their Q308 estimate by $0.44 to ($0.36), their FY08 estimate by $0.87 to ($2.30), and their FY09 estimate by $1.65 to ($1.20).
· WFC: Oppenheimer lowers their Q308 estimate by $0.04 to $0.13, their FY08 estimate by $0.04 to $1.37, and their FY09 estimate remains at $1.50.
· WB: Oppenheimer lowers their Q308 estimate by $0.16 to ($0.31), their Q408 estimate by $0.02 to ($0.32), and their FY08 estimate by $0.18 to ($5.18).

GE (26.15): General Electric downgraded to neutral from buy at Merrill Lynch: Price target decreased to $28 from $37.50. The firm cites fundamental pressures and says its estimates are now significantly below consensus.

WSJ comments on Fed move to loosen rules for investing in banks
The decision to allow buyout firms and private investors to take larger stakes in banks has been brewing for at least two years and should encourage private-equity firms, government investment funds, and others to buy stakes in banks, "transferring capital from those that have it to those that need it." Investors can now take a 33% equity and 15% voting interest without being deemed controlling investors; they can also take two (vs. one) board seats. Washington Mutual (WM) is not affected by the change, because it is governed by the Treasury Department's Office of Thrift Supervision. The article largely praises the Fed's willingness to be flexible in trying to deal with the current situation, but notes the flexibility will need to turn taut on a moment's notice to prevent activist investors from taking advantage of the system.

GS (120.78); MS (27.09): WSJ looks at future for Goldman Sachs (GS), Morgan Stanley (MS): A "Heard on the Street" column runs through the pluses and minuses of the firms' becoming Fed-regulated bank holding companies. It notes that MS's sale of a stake to Mitsubishi UFJ Financial (MTU) essentially acknowledges the days of operating on thin capital cushions are over. The stocks risks and returns are headed permanently lower.

Moratorium on market-value accounting not a good idea - WSJ: In a "Heard on the Street" column, the Journal notes that some banks want the government to suspend market-value accounting as part of its bailout plan. These banks believe that such overly pessimistic marks fail to reflect the true long-term value of the assets and cause more problems for the beleaguered banking system as firms are forced to take additional writedowns. According to the column however, such a move would leave investors even more clueless than they are now about bank balance sheets, a dynamic that could serve to exacerbate the credit crisis. Of interest, the article notes that added confusion may also lead investors to stop lending to banks, or charge them more to borrow if they are unable to determine what the institutions are actually worth.

NTRS (71.00): Northern Trust upgraded to buy from neutral at Merrill Lynch

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