December 22, 2008: Morning Call

December 22, 2008: Morning Call

Fair Value: SP500 – 884.02; NDX: 1219.24; DOW – 8531.09


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Pre-market EPS: WAG (.46/15.04B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value while the NASDAQ futures are trading flat with fair value at 7:45 am ET. The futures have bounced 10 points off the 5:30 am lows on news that the Chinese central bank cut the benchmark rate by 27 bps. Asian markets closed mostly lower (India down 1.7%, Hong Kong down 3.3%, Australia down 1.6%, Japan up 1.5%) with the exception of Japan, which was pushed higher by strength in automakers. The Japanese government lowered its assessment of the economy for a third month saying conditions were the most severe since 2002. European markets are down 0.75% in a light volume session. The session lows occurred shortly after the EuroZone Oct Industrial New Orders data since when the major indices have pared losses after the Bank of China cut its benchmark rates. Decliners on the FTSE 100 lead advancers 7-3. Irish banks rallied strongly on the news the Irish government will invest €5.5B in the countries' three largest banks. Commodities and bonds are trading modestly higher.


Impact Research Calls/Market Moving News:

MON (71.63): POT (72.26); CF (47.92); AGU (31.05); IPI (18.77): Monsanto (MON), Potash (POT) downgraded to neutral from buy at Goldman Sachs: POT tp $60 vs prior $73. MOS tp $30 vs prior $37. Agrium (AGU) tp $28 vs prior $33. CF Industries (CF) tp $44 vs prior $49. Intrepid Potash (IPI) tp $19 vs prior $17

AAPL (90.00): Apple estimates adjusted at Thomas Weisel Partners: Following checks and industry data points, firm raises Q4 EPS estimates above consensus, but lowers FY'09 EPS estimates. Thomas Weisel notes an increase in Dec quarter unit estimates for iPod and notebooks, but decreases in iPhone and desktop estimates for the same period. '09 estimates are lowered to reflect more conservative iPhone estimates. Rating is maintained overweight with a target of $160.

MON (71.63): Monsanto target lowered to $98 from $140 at UBS: Firm's Seed Dealers survey suggest that momentum may be turning for the company's market share and pricing. Estimates are lowered. Rating is buy.

X (37.13); NUE (42.55): Deutsche Bank downgrades US Steel (X), upgrades Nucor (NUE): The firm downgrades X to hold from buy with the target reduced to $40 from $48. NUE is upgraded to buy from hold with the target raised to $53 from $35.

PCLN (69.25): Thomas Weisel raises estimates and target for priceline.com: The firm says the domestic business continues to grow rapidly and gain share with some evidence that UK travel may be getting a boost from recent currency moves. Q4 EPS is raised to $1.08 from $1.05 vs. Reuters $1.05. F09 EPS is raised to $6.10 from $5.45 vs. Reuters $5.83. Target for the shares is raised to $85 from $65. PCLN remains overweight rated

WSJ looks at the funding cushion at some homebuilders: A 'Heard on the Street' column says that some of the homebuilders were able to lock in long-term debt before the current crisis fully blossomed and have managed to provide themselves with a financial cushion to survive the current downturn. Plus, the early hit to the housing sector gave the companies a head start on switching to conservative operational and financial practices. Toll Brothers (TOL) has $1.6B in cash and $2.1B in debt. It has sufficient cash to retire obligations through 2014. MDC Holdings (MDC) was another company that was able to tap the long-term markets early. As a result the companies are unlikely to be forced to sell land at rock-bottom prices. Both companies are cash flow positive.


Barron’s Summary:
Cover: Wall Street strategists see the market beginning to recover in 2009 and while downside may be limited, so probably will be any upside. Interview: Rob Arnott, founder and chairman of Research Affiliates likes investment grade bonds, convertible debt, emerging markets stocks and bonds and TIPS. Lead Articles: Barron's rates retailers based on balance sheets; the best bet on General Motors (GM) may be the unsecured debt; Nomura Holdings (NMR) purchase of Lehman assets could make investors forgive past mistakes, stock could be 30% undervalued; Barron's pats itself on its back for a 2001 cautionary article on Bernie Madoff; Editorial says any sure from zero interest rates will be worse than the problem and notes the many Ponzi schemes run by the government, such as Social Security, Medicare and Medicaid. Columns: The Trader notes the change in the fiscal year for Goldman and Morgan Stanley and their opportunity to improve their balance sheets; Commodities Corner says agricultural commodities are a buy for 2009 including coffee, wheat, corn and livestock, mixed on base metals, gold could be range bound in the next 6 months or so and crude oil will struggle with demand; The Striking Price notes the possibility that risk-aversion has made cash a bubble and that if it bursts, significant money could flow back into the markets; Euro Trader says the big question is when it will be time to get out of defensive names and into cyclicals, a contrarian play may be banks like Banco Bilbao (BBV); Asia Trader is positive on Asia in '09, positive on HNP, 00270.HK, EWJ, 0576.HK and 600.SP; Current Yield sees rates climbing only slightly in '09; Follow Up is positive on Best Buy (BBY) and Huntsman (HUN); Up and Down Wall Street does not understand how zero interest rates will entice banks to lend or people to save and is positive on oil in the early new year; Streetwise suggests that the next bull market will not be as strong as the recent past with leverage gone, stricter regulation and higher taxes; D.C. Current notes the reluctance of Rahm Emanuel to answer questions about his work history; Technology Trader is pessimistic on 2009