October 1, 2008: Morning Call

October 1, 2008: Morning Call

Fair Value: SP500 – 1170.62; NDX: 1606.93; DOW – 10874


Technical Levels:


SPX: 1063, 1090, 1136-1142 support/ 1250, 1298-1300, 1337 resistance

NASDAQ: 1890, 1921, 2020 support / 2210, 2264 resistance


Events:

04:00: Euro-zone PMI Manufacturing (Se): 45.3 (45.0 vs. 45.3 consensus)
05:00: Euro-zone Unemployment Rate (August): 7.3% (7.5% vs. 7.3% consensus)
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (Sep): -50,000
10:00: ISM Manufacturing (Sep): 49.8; ISM Prices Paid (Sep): 72.3
10:00: Construction Spending (August): -0.5%
10:35: DOE/API Crude Oil and Gasoline Inventories
14:00: GM releases September 2008 Sales Results
22:30: Chinese CLSA Manufacturing PMI
Post-market EPS: MOS (2.93/4.0B)


Foreign Market Summary/Key Macro News/Commentary:


SP futures are trading 11.50 points below fair value while the NASDAQ futures are trading at 13 points below fair value at 7:36 am ET. The SEC and FASB are currently signaling that they will resist serious modifications in the mark-to-market accounting rules. Last night, the SEC issued clarifications on how the financial institutions should interpret existing rules. But, Bloomberg is reporting, “a moratorium isn’t being considered.”

Eurostoxx are up 0.20% in thin trading ahead of a Senate vote tonight on the amended TARP legislation. Eurozone PMI and Unemployment data was slightly weaker than expectations. Daimler is down 9% (DAI GR) after the company said the “market is more difficult since the July 24 revised forecast.” German markets are down 0.25% on the DAI news. Worst sectors in Europe include Auto’s and Retail while the Mining; Telecom and bank sectors are among the best performing groups. Irish banks are up 10%-15% after the government guaranteed deposits. Asian markets closed mostly higher with Australia rallying 4.2% on strength in the commodity and basic material sectors. The Nikkei was up around 1% despite the quarterly Tankan survey showing business sentiment turning negative for the first time in five years.



Impact Research Calls/Market Moving News:

WSJ Heard on the Street article titled “Don’t Let Bankers Run the Asylum” examines the implications of amending or suspending FASB 157. It is a must read and basically reiterates my view that any significant changes to FASB 157 would damage confidence in the markets and the veracity of financial statements. Here is a synopsis: “The ostrich brigade is on the march. Some bankers, financial executives and members of Congress believe the financial crisis will abate if banks don't have to use market prices to value holdings. Put another way, if banks could just pretend there isn't a problem, maybe there wouldn't be one. That has led to a push for language in any bailout legislation to possibly suspend or modify rules for mark-to-market accounting. The argument is that this practice has unfairly whipsawed bank balance sheets, especially because seized-up markets often mean there aren't prices to which banks can mark to market. The Securities and Exchange Commission and Financial Accounting Standards Board also have come under pressure. On Tuesday, they issued additional guidance on the use of market-value accounting. This didn't reverse the practice, as some had hoped, but may give management more leeway in determining market prices. Any move to abandon, or soften the impact of, mark-to-market accounting ignores the reality of the credit crunch. It was brought on by bad lending, coupled with insufficient capital. An accounting "fix" won't change that. It may make matters worse. The freezing up of credit markets is largely because investors and banks don't trust one another's books. As Federal Reserve Chairman Ben Bernanke noted in congressional testimony last week, eliminating mark-to-market accounting could further undermine investor confidence.”

Wealthy investors hoarding physical gold - FT
The FT cites comments from industry executives and bankers at the London Bullion Market Association annual meeting. Jeremy Charles, chairman of the LBMA, tells the paper that "gold refineries cannot produce enough bars".

Window dressing likely fueled last-minute surge - NY Times: The Times reports that quarter-end window dressing may have been responsible for the spikes in share prices in the final five minutes of trading on Tuesday. The paper adds that this dynamic was likely exacerbated by the fact that investors are no longer allowed to short financial shorts. Of interest, the article notes that Sallie Mae (SLM) rose 10% in the last few minutes, accounting for more than half of the day's gain, while Charles Schwab (SCHW) and KeyCorp (KEY) each surged 7% in the final minutes, moves that accounted for more than one-third of their gains for the day.

NY Times Page One article titled “Lessons From a Crisis: When Trust Vanishes, Worry” is a good read. Copy and paste the following link to gain access to the Times website: http://www.nytimes.com/2008/10/01/business/economy/01leonhardt.html?_r=1&ref=todayspaper&oref=slogin

Investor’s Intelligence Poll: Bullish sentiment declines to 33.7% from 37.5% in the latest poll.

CMI (43.72): Cummins upgraded to buy from hold at Citigroup

LVS (36.11): Las Vegas Sands announces investment from Sheldon G. Adelson family: Las Vegas Sands announced that Sheldon G. Adelson, its chairman, CEO and principal stockholder, and his family, have completed an investment in the company of $475M in convertible senior notes in a private transaction. The convertible senior notes mature on 1-October 2013, pay cash interest at 6.5% and are convertible into common stock at a price of $49.65

GOOG (400.52): NASDAQ says it will cancel trades on behalf of Google due to erroneous executions on the close of trading that sent GOOG shares 10% lower. NASDAQ, on its own motion, has determined to cancel all trades in security Google Inc - "GOOG" at or above $425.29 and at or below $400.52 that were executed in NASDAQ between 15:57:00 and 16:02:00 ET. Nasdaq will adjust the closing price to $400.52 from the previously reported $341.43.


President Bush approves $25B loan package for auto makers - WSJ
The article notes that under the approved legislation, the Energy Department now has 60 days to write regulations, establishing who qualifies for the loans and when. The paper adds that Congressional leaders have asked the department to follow that timeline in an effort to provide companies with access to the loans by the middle of 2009. However, an Energy Department spokeswoman says that Congress failed to lift several restrictions on the process, making it more difficult to meet the timeline. She earlier estimated that it could take between six and 18 months to complete.

Problems getting worse for auto industry - NY Times: The Times notes that the paralysis in the credit markets is hurting the Big Three and other auto makers at every level. Along with the fact that more consumers cannot get auto loans, dealers are running into trouble securing financing for new inventories, while the auto makers themselves are bleeding cash and cannot really afford to borrow more at interest rates as high as 20% in some cases. Citing data from CNW Marketing Research, the Times points out that nearly 83% of applications for auto loans in the US were approved in 2007, but so far this year, that figure has plunged to 63%. In addition, while 67% of subprime auto loans were approved last year, the approval rate stands at just 22% this year. The article also discusses the bleak outlook for September vehicle sales, which will be reported on Wednesday