September 3, 2008: Morning Call

September 3, 2008: Morning Call

Fair Value: SP500 – 1277.71; NDX: 1852.12; DOW – 11523

Technical Levels:

SPX: 1205, 1235, 1250, 1262 support/1298-1300, 1337, 1365 resistance

NASDAQ: 2210, 2341, 2386 support / 2456, 2479, 2521, 2553 resistance:

Events:

Pre-market EPS: JOYG (.88/883.7M); SPLS (.22/4.64B)
05:00: Euro-zone Q2 preliminary GDP-slightly weaker at 1.4% vs. consensus of 1.5%
05:00: Euro-zone Q2 preliminary Retail Sales: weaker at -2.8% vs. consensus of –2.1%
07:45: DVN presents at Lehman CEO Energy Conference
08:00: QCOM presents at Kaufman Brothers Investor Conference
08:25: RIG presents at Lehman CEO Energy Conference
08:45: HD presents at Goldman Sachs Global Retailing Conference
09:15: CSCO presents at Citibank Tech Conference
09:45: OXY presents at Lehman CEO Energy Conference
09:50: NVLS presents at Citibank Tech Conference
10:00: US July Factory Orders (July): 0.5%
10:00: AIG presents at KBW Insurance Conference
10:25: JCP presents at Goldman Sachs Global Retailing Conference
10:25: CDNS presents at Citibank Tech Conference
11:00: AMAT presents at Citibank Tech Conference
11:00: JOYG earnings call
12:30: Fed’s Rosengren speaks on the economy
12:55: DELL presents at Citibank Tech Conference
13:45: TXN presents at Citibank Tech Conference
13:45: FSLR presents at Citibank Tech Conference
14:00: Fed’s Beige Book Economic Report will be released
14:55: BRCM presents at Citibank Tech Conference
16:00: Select Retailers will release August Same-Store-Sales Comps
Post-market EPS: HOV (-1.67/669.4M); GES (.49/461.0M); HRB (-.35/381.2M)

Foreign Market Summary/Key Macro News/Commentary:

SP futures are trading 7 points below fair value while the NASDAQ futures are trading 15 points below fair value at 7:50 am ET. The S&P 500 has failed at the 1298resistance area on 8 trading sessions since August 8. Near-term support stands at 1262, which is the fourth higher low during the recovery rally off the July 15 lows. Although there was a brief respite from the awful global economic data in the middle of last week(CaseShiller, Home Sales, GDP Revision were slightly better than expected), risks to the global economy appear skewed to the downside and most of the data over the last month show a substantial weakening trend. Current consensus expectations for S&P 500 earnings in the second half also look too high. The bias in equities continues to be to the downside. The Ospraie news just reinforces the need for market participants to have a highly disciplined risk management system in these extraordinarily volatile markets. European markets are down 1.4% with London leading the decline with a drop of 2.2% (only 3 components in the FTSE 100 are higher). Cable is down 1% against the USD on weak consumer confidence, fears that the UK economy is in a recession and concerns that the Housing aid package in the UK is falling short of what is required. Banks are off 1.7% and Basic materials and miners continue to trade very heavy in Europe (BHP is down 5% after dropping 8.2% on Tuesday; MT is also weaker). Asian markets closed mostly lower with Chinese stocks pacing the decline. Hong Kong fell on worries about a global economic slowdown, though China Huiyuan Juice Group (1886.HK) surged after Coca-Cola (KO) offered to buy it for 195% more than yesterday’s close.

Impact Research Calls/Market Moving News:

GS (165.32): Goldman Sachs estimates reduced at Credit Suisse for a second time in the last month. We have now seen a number of firms cut their numbers twice on Goldman Sachs in the last few weeks. The risk/reward is significantly skewed to the downside if the consensus for Q3 drops below 2 dollars a share; current Q3 consensus is 2.16 down from 3.60 a month ago. The firm cites the cost of asset price declines/spread widening across all products through the end of August with weaker trading volumes and little in the way of investment banking activity for the reduction to estimates. Q3 and f08 EPS estimates are reduced to $1.50 and $13.50 vs. Reuters $2.30 and $14.89. The firm continues to see a target price range of $225-$250. Shares are outperform rated.

COST (68.26): Costco reports August comps +9%
Consensus +10.6%. US comps were +9%; int'l +6%. Total net sales for the period increased 12% y/y to $5.41B. Net sales for Q4 rose 12% to $22.60B, and net sales for FY07-08 went up 12% to $70.95B.

Ospraie shutting down its largest fund - WSJ
The Journal cites a letter to investors on Tuesday from Ospraie fund manager Dwight Anderson. The paper notes that the fund fell 27% in August alone due to its bets on oil, natural gas and structured products. Recall that Lehman Brothers acquired 20% of Ospraie for an undisclosed amount back in 2005

LEH (16.13): CNBC's Charlie Gasparino talks about the impact to Lehman Brothers from Ospraie shutting down its largest fund. The WSJ reported that Ospraie was shutting its largest fund, noting that Lehman Brothers acquired 20% of Ospraie for an undisclosed amount back in 2005. Gasparino says that a potential deal for Neuberger is getting more difficult by the day, as LEH is getting squeezed on price, and that the Osparie revelation will not make a sale any easier.

MON (109.34): Monsanto removed from Conviction Buy List at Goldman Sachs
Target is $162. The shares retain their buy rating.

ETH (27.20): Ethan Allen warns. Sees Q1 EPS of .20-.26 cents vs. street consensus of .49 cents.

LEH (16.13): Chosun Ilbo says Lehman Brothers may have other suitors besides KDB – Reuters: Citing a financial industry source, South Korea's Chosun Ilbo newspaper reports that HSBC (HBC) and an unidentified Chinese bank are among the firms interested in acquiring a stake in Lehman. However, the paper adds that Lehman prefers KDB to the other suitors given the Korean bank's plans to retain current management after acquiring a 25% stake in the beleaguered firm. However, the article also notes that Lehman still considers KDB's offer price too low.

POT (162.26): Potash mentioned positively at RBC Capital, shares remain outperform rated: The firm believes POT is trading at an implied flat realized potash price of $430/ton, well below spot market prices which currently range between $900 and $1.1K per ton. RBC believes potash prices could rise significantly in China. Target for the shares is $375.

ABK (7.07): AMBAC Financial has received Wisconsin approval to reactivate Connie Lee Insurance Company: the Commissioner of Insurance in the state gave the approval. Connie Lee will conduct business under a new name and will focus on the U.S. municipal and global public purpose financing markets. Ambac Assurance will inject $850M into Connie Lee which will operate as a separate corporate and legal entity within Ambac Financial Group, Inc. Ambac is seeking to obtain stand-alone triple-A ratings for Connie Lee, and has worked extensively with Moody’s and Standard and Poor’s towards that goal. Connie Lee expects to write new insurance policies no later than Q4 of 2008.

FNM (7.43); FRE (5.18): Chinese banks paring GSE exposure - WSJ
Recall that shares of Fannie (FNM) and Freddie (FRE) sold off sharply last Friday in the wake of reports that the Bank of China had pared its exposure to agency debt by nearly 30% over the last month on heightened concerns surrounding a government bailout. According to the Journal, in earnings conferences over the last four days, a number of other Chinese banks have also said that they have reduced their Fannie and Freddie portfolios since June. Along with Bank of China, the paper notes that China Construction Bank revealed that it cut its GSE position to just above $2B by the end of July, down from $3.2B a month earlier, while Bank of Communications unloaded all of its $27M in holdings early last month.

HK (30.67): Barron's Inside Scoop looks at insider selling at Petrohawk Energy
Barron's Inside Scoop column reports that Petrohawk Energy CEO Floyd Wilson sold $8.9M worth of stock last Wednesday and Thursday for an average price of $35.45 a share. The article notes that Wilson paid just $11.60 a share for the 100K shares he purchased back in March of 2007. Wilson still owns about 1.7% of Petrohawk. Of interest, Barron's also points out that earlier this month, six insiders at Petrohawk combined to acquire $888K worth of stock