Friday, October 10, 2008

October 10, 2008: Morning Call

October 10, 2008: Morning Call

Fair Value: SP500 – 913.13; NDX: 1284.92; DOW – 8594

Technical Levels:

SPX: 800, 848 support/1007, 1090, 1142, 1250 resistance

NASDAQ: 1640 support /1890 resistance:


Pre-market EPS: GE (.48/47.9B)
08:30: GE Earnings Call
08:30: Trade Balance (August): -59.0B
08:30: Import Price Index (September): -2.5% MoM; 12.2% YoY
10:25: Bush speaks on the markets – He better have something important to say – Reassuring the country is not going to cut it!
13:00: ORCL Annual Meeting

Foreign Market Summary/Key Macro News/Commentary:

SP futures are trading 23 points below fair value while the NADAQ futures are trading 21 points below fair value at 7:30am ET. Asian markets plunged overnight continuing the crash in global equities. The MSCI World Index plunged 19% this week, the most since record keeping began in 1970. Forced selling by leveraged hedge funds and massive mutual fund withdraws continue to be the primary causes of the brutal sell-off. Trying to figure out when this forced selling will end is an impossible task. For the first time this year, I started getting net-long US equities with a wide scale on Wednesday and Thursday and feel like a total idiot. But, I am going to hang tight with my exposures for now because I still have a substantial cash position. The system has to be stabilized very soon otherwise Great Depression 2 will become a self-fulfilling prophecy. European markets are down 8.6%, led by financial and metal shares. The Netherlands announced late yesterday that €20B would be made available to boost capital and provide liquidity for the country's financial sector. Iceland’s stock market remains closed and there were total or partial trading suspensions across Europe including in Russia, Austria and the Czech Republic. Shares rebounded from the lows, before drifting back towards the days lows. All stocks on the FTSE 100 are trading lower.

Impact Research Calls/Market Moving News:

U.S. considers guaranteeing bank debt, temporarily insuring all bank deposits – WSJ: The WSJ notes that under the U.K.'s recently announced plan to guarantee bank debt maturing up to 36 months, which it is now pitching to the G-7 members. People familiar with the matter tell the WSJ that the British concept to expand its proposal to other countries has a lot of support from Wall Street and is being considered by U.S. officials. The move to insure all U.S. bank deposits is said to be only in the discussion stage. U.S. officials reportedly downplayed expectations of any announcement this weekend.

GS (101.35): Moody's changes outlook for Goldman Sachs to negative: Moody's assigned a negative outlook to the long-term ratings of Goldman Sachs (senior debt at Aa3) and its subsidiaries. The outlook reflects Moody's expectation of an extended downturn in capital market activity, which will reduce Goldman Sachs' revenue and profit potential in 2009, if not beyond this period. (Note: The ratings agency downgrades today are ridiculous. Moody’s and S&P encouraged egregious lending during the boom with their absurd analysis. Now, they are fostering the panic. The ratings agencies should be dissolved and new entities with credibility should be created to rate corporate debt).

MS (12.45): Moody's places Morgan Stanley's long-term debt ratings on review for downgrade: Moody's placed the long-term debt ratings of Morgan Stanley (senior debt at A1) and its subsidiaries on review for downgrade. The review is based upon its expectation that an extended downturn in global capital market activity will reduce Morgan Stanley's revenue and profit potential in 2009, and perhaps beyond this period

Morgan Stanley confirms its prime brokerage business experienced significant outflows after 31-Aug: In its 10-Q, filed just before the close yesterday, MS says: "Subsequent to August 31, 2008, the company’s prime brokerage business experienced significant outflows as clients withdrew some of their cash balances and reallocated positions. These outflows will negatively impact prime brokerage’s operating results in Q4 of fiscal 2008.

Fed discount window loans rise to $98.1B on Wednesday and averaged $75.0B from $44.5B in the prior week: Primary dealer borrowings rose to $122.9B on Wednesday and averaged $134.1B for week, from $147.7B in the prior week. Lending for the asset-backed commercial paper/money market mutual fund liquidity facility was $139.5B on Wednesday $152.1B on the prior Wednesday. AIG's drawdown from the Fed rose to $70.3B from $61.3B in the prior week.

WSJ provides latest update on the financial rescue plan: The Journal reports that the Treasury has begun soliciting feedback from financial executives to gauge their interest in participating in a program that would inject capital into banks. The paper adds that the Treasury is trying to figure out how to structure such infusions into healthy banks so that they can begin lending again. According to the article, one possible option is to take equity stakes under terms that are still favorable to the institution. The Journal also notes that while details are still being hammered out, the program would most likely be voluntary and aimed at enticing healthy firms to participate.

MA (155.70): MasterCard downgraded to hold from buy at Deutsche Bank

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