Wednesday, November 26, 2008

November 26, 2008: Morning Call

November 26, 2008: Morning Call

Fair Value: SP500 – 856.81; NDX: 1143.58; DOW – 8476.34


Technical Levels:

SPX: 685 support/ 848, 908, 998, 1098-1100 resistance


Events:

Pre-market EPS: DE (.99/6.8B); TIF (.27/659.01M)
07:00: MBA Mortgage Applications
08:30: Durable Goods Orders (Oct): -2.6%; Ex-Transportation: -1.5%
08:30: Personal Income (October): 0.1%; Personal Spending: -1.%
08:30: PCE Core (October): 0.0% MoM; 2.2% YoY
08:30: Initial Jobless Claims (w/e Nov 22): 533,000; Cont. Claims: 4.0m
09:45: Chicago Purchasing Manager (November): 37.3
10:00: University of Michigan Confidence (November Final): 57.7
10:00: New Home Sales (October): 443,000; -4.5% MoM
10:00: DE earnings call
10:35: DOE/API Crude Oil and Gasoline Inventories
10:45: President-elect Obama holds a press conference
12:00: EIA Natural Gas Storage Change
18:30: BHP Annual Meeting

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 17 points below fair value while the NASDAQ futures 14 points below fair value at 7:40am ET
. Asian markets closed higher (South Korea up 5%, India up 3.2%, Hong Kong up 3.8%) excluding Japan (down 1.3%) and Australia (down 2.3%). China lowered its lending rate by 108 basis points to 5.58% to prevent a more serious economic slowdown; the World Bank cuts its forecast for China’s economic growth next year to 7.5% from 9.2%. Financials broadly advanced after the Fed’s $800B plan to lower borrowing costs for consumers was unveiled. Australia dropped as Rio Tinto (RIO.AU) plunged 34% after BHP Billiton (BHP.AU) abandoned its takeover bid. Hong Kong rose as HSBC Holdings (5.HK) and exporters rallied on the Federal Reserve plan. Metal producers surged on the failed BHP-Rio Tinto merger, as they did in China, where Baoshan Iron & Steel Co (600019.CH), Angang Steel Co (000898.CH), and Wuhan Iron & Steel Co (600005.CH) gained. Financials like Woori Finance Holdings (053000.KS), KB Financial Group (105560.KS), and Hana Financial Group (086790.KS) all advanced 15% and led Korea higher. The chairman of the Financial Services Commission ruled out injecting public funds into banks, which boosted confidence that Korean banks were strong enough to raise capital on their own. Fitch lowered their credit rating on TM to AA from AAA and this news weighted on Japanese stocks. European markets are down 2%, falling for the first time in three days. ECB President Trichet said there might be “negative figures” fore economic growth in the Euro-zone next year. Basic resource and financial shares are among the weakest in Europe. T-bond futures are up another point this morning driving yields down to near record lows. Yields on the 10-year note have plummeted 100 basis points in November to 3% from 4% at the beginning of the month. Risk aversion, fears of deflation, and macroeconomic concerns continues to lend an unusually strong bid to Treasury bonds.



Impact Research Calls/Market Moving News:

Oppenheimer's Meredith Whitney remains cautious on financial industry: Oppenheimer believes that during Q408, banks under their coverage will incur ~$44B in write-downs and loss provisions. The firm also says that due to accounting rule changes effective over the next year, banks will have to post an additional $25B in loss reserves over the next 12 months. Whitney does not believe capital raises will spur meaningful growth for the industry and thus remains cautious on the financial institutions.


BCE (31.28): BCE says KPMG does not expect to be in a position to say on 11-Dec whether BCE would meet solvency tests to go private. BCE shares down nearly 40%
. BCE has received a preliminary view from KPMG that, based on current market conditions, its analysis to date and the amount of indebtedness involve in the LBO financing, it does not expect to be in a position to deliver on the scheduled effective date of BCE's privatization, 11-Dec-08, an opinion that BCE would meet the solvency tests as defined in the definitive agreement, as amended.

DE (33.100: Deere & Company reports Q4 EPS $0.81 including items vs Bloomberg $0.99. Q4 revenues of 7.5 billion compared to 7.03B consensus. Excluding a charge for plant shut downs, EPS was .89 cents vs. consensus of .99 cents. DE guides Q1 to .65 cents vs. street consensus of .82 cents.

TIF (20.83): Tiffany & Company reports Q3 EPS $0.35 vs Reuters $0.24: Company reports revenues of $618.2M vs Reuters $643.0M. The effective tax rate in Q3 was 31.7% (versus 33.9% a year ago) and 35.7% in the year-to-date (versus 36.2% a year ago). Guides full year EPS to $2.30-2.50 vs Reuters $2.60.

CSCO (15.42): Cisco Systems plans to close its US and Canadian offices from 29-Dec to 2-Jan – WSJ: The shutdown, which Cisco spokesman Terry Alberstein says is the company's first in at least a decade, is in response to the slowdown in business-technology spending.

TM (65.73): Fitch downgrades Toyota Motor's long-term foreign and local IDRs and senior unsecured debt ratings to 'AA' from 'AAA'

BX (6.14): Blackstone Group downgraded to equal-weight from overweight at Morgan Stanley: Firm cites risk of writedowns as rationale.

M (6.46): Macy's hopes size will allow it to survive current crisis – WSJ: In an interview, CEO Terry Lundgren says having 856 doors gives the chain an advantage over smaller retailers. Macy's has been able to run a national ad campaign and strike exclusive deals with high-level brands. Other initiatives and line-by-line capital-budget cuts are also paying off. But while the downturn is nobody's friend, it poses a particular problem for Macy's, which needs to deal with $950M in debt coming due next year. It looks as though Macy's will need to use its $2B revolving credit facility to pay some debt down if credit markets don't open up by the due dates in April and July.

XOM (78.11); CVX (76.53); COP (51.23): Oil firms increasingly focused on conserving cash – WSJ: The Journal reports that if oil prices do not bounce significantly in the next few weeks, industry experts expect oil companies to begin paring back their aggressive share repurchase programs. Citing a cash-flow analysis by credit analysts at Barclays Capital, the paper adds that if oil averages $50 a barrel next year, giants such as Exxon (XOM), Chevron (CVX) and ConocoPhillips (COP) will need to take on debt, spend their cash balances or cut other costs to fund their budgets and maintain their dividends.

Tuesday, November 25, 2008

November 25, 2008: Morning Call

November 25, 2008: Morning Call

Fair Value: SP500 – 850.94; NDX: 1155.21; DOW – 8433.80


Technical Levels:

SPX: 685 support/ 848, 908, 998, 1098-1100 resistance


Events:

Pre-market EPS: DLTR (.44/1.1B); DHI (-1.88/1.7B); TECD (.63/6.1B)
04:45: BOE’s King testifies to House of Commons Treasury Committee
08:00: JEC Analyst Meeting
08:30: US Q3 GDP (1st Revision): -0.5%; Personal Consumption: -3.2%
08:30: GDP Price Index (Q3): 4.2%; Core PCE QoQ: 2.9%
09:00: S&P/Case Schiller Home Price Index (Sep): -16.9%
10:00: Consumer Confidence (November): 38.1
10:00: Richmond Fed Manufacturing Index (November): -27
10:00: House Price Index (Sep): -0.8%
10:00: DHI earnings call
17:00: ABC Consumer Confidence
Post-market EPS: BCSI (.17/115.8M); JCG (.27/352.7M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 13 points below fair value at 7:45 am ET.
The S&P futures have pared earlier declines following a rebound in European markets. Asian markets surged higher excluding India (down 2.3%) and Shanghai (down 0.18%). Australia and Japan paced the gains with rallies of 5.8% and 5.2% respectively. The Citibank bailout and rally in US markets were the primary catalysts for the overnight advance in Asia. Financial and commodity leveraged sectors were the biggest percentage gainers in Asia. European markets are unchanged but have rallied 2.5% off the early session lows. Better than expected UK Q3 total business investment helped the market reverse the early losses at 4:30am ET. Advancers on the FTSE 100 lead decliners 7-3. Rio Tinto (RIO.LN) fell after BHP (BLT.LN) dropped its bid. BHP rose. Axa (CS.FP) fell after reducing FY underlying earnings guidance and Volkswagen (VOW.GR) is trading lower on reports its planning a three week shut down at its largest plant.

Impact Research Calls/Market Moving News:

C (5.95): Deutsche Bank analyst Mike Mayo comments on the government bailout of Citibank. “ With the new govt. plan, Citi gets a $40B capital benefit, a cap for some losses, less extreme tail risk, and likely more confidence w/depositors and debt holders that should protect against a downward spiral. Yet, it does so with more gov't. involvement (comp plan), remaining loan risk (cards, int'l. consumer), no changes in corporate governance, and dilution on est. normalized EPS. We lower our '09 est. by 40 cents to -70 cents and our '10 est. by 25 cents to $1.15. We have a downward bias to our ests. Maintain Hold. Government protection helps Citi avoid extreme loss scenarios but otherwise does not seem to change our cum loss estimates much (est. $80B - $60B on loans, $20B capital markets - detail below), esp. since only 15% of total assets are covered. For instance, cards and int'l consumer are not covered, both which are likely to get stressed as economies slow. Nevertheless, it helps increase the Tier 1 capital ratio by reducing risk weighting on the covered assets (frees up $16B of capital), reflecting more cushion for possible losses.

WSJ article highlights the Goldman Sachs 2 billion FDIC backed bond issue – there is chatter demand is so strong that the issue has been raised to 5 billion: (My take: This program has certainly alleviated concerns in the market about funding pressure but obviously this program has potential unintended consequences. For example, there are initial indications that these GS bonds could have tighter spreads to treasuries than GSE debt. Will the flood of financial companies rushing to issue FDIC backed bonds reduce demand for FNM and FRE mortgage debt? Also, further erosion in the economy and credit quality could expose the taxpayer to substantial losses). WSJ reports banks, brokers and other financial companies are poised to issue tens and possibly hundreds of billions of dollars in debt backed by the U.S. government, following the lead of Goldman Sachs, which received strong interest from investors Monday for $2 billion to $3 billion in bonds it is issuing under a government program. The Goldman bond offering is expected to be completed Tuesday and is the first major sale in the plan, which was designed to bolster financial cos by letting them borrow easily and cheaply by giving their debt a U.S. guarantee. Citigroup (C), General Electric (GE), and other companies have signed up to sell bonds under the plan, which could help them resume lending to consumers and businesses and allow them to rebuild capital. For investors, the bonds offer a free lunch -- they are backed by the government, just like Treasuries, but pay higher interest rates. The Goldman bonds, which mature in three years, are likely to yield about two-percentage points more than three-year Treasury bonds, or around 3.5%. Goldman's outstanding debt trades at yields of 7% or higher.

RTP (145.99); BHP (33.42): BHP Billiton (BLT.LN) withdraws offer for Rio Tinto: RTP is trading down 50 points. BHP is trading up 4.50. The BHP board has decided the offer is no longer in the best interests of BHP shareholders. The company says that in normal economic conditions, it would have been prepared to offer acceptable, manageable remedies to satisfy what it expects to be the European Commission’s objections to the takeover. But in the current climate, it thinks the remedies would add to the cost and risk of the transaction, so it will not offer them, and it therefore expects the EC to deny clearance.

C (5.95): Regulators considered buying Citi stock on the open market - FT The FT cites people involved in the talks who say that US regulators considered a proposal to buy Citi shares on the secondary market before deciding to provide another $20B in capital and ring-fence $306B in distressed assets. The article notes that the government considered investing as much as $30B, equally split between preferred and common stock. The paper also points out that regulators talked about replacing the bank's senior management, but ultimately decided against the move due to a lack of obvious successors.

DHI (5.00): DR Horton reports Q4 EPS ($2.53) vs Reuters ($2.73): Company reports revenues of $1.54B vs Reuters $1.78B. Homes closed 6,961 vs year-ago 11,733; company owned approximately 99,000 lots at 30-Sep; backlog 5,297 homes ($1.2B) vs year-ago 10,442 ($2.7B); net sales orders 3,977 homes ($852.3M) vs year-ago 6,374 ($1.3B); cancellation rate 47%.

C (5.95): Citi issuer default rating downgraded to 'A+' from 'AA-' by Fitch: The rating outlook is stable. The downgrade recognizes future pressures from an expected U.S. recession and continued economic difficulties globally.

C (5.95): Citi needs to get smaller – WSJ: The article really does not cover a whole lot of new ground, noting that despite the reprieve from the government, the bank is expected to reduce its appetite for risk and explore strategic alternatives such as a breakup of the company. The Journal also discusses the role of CEO Vikram Pandit, noting that government officials decided to keep him around in an effort to avoid sending a bad signal to the markets and potentially destabilizing the company. Of interest, the paper also notes speculation that American Express CEO Kenneth Chenault could replace Pandit

Some lawmakers want to rescind tax break on bank mergers - NY Times DealBook: Recall that in late-September, the IRS and Treasury tweaked tax rules to allow firms to use up the tax losses of banks they acquire. The Times now reports that several members of Congress are working to reverse the move, a dynamic that could lead to an unraveling of some deals that have already been reached, while others under consideration could be scrapped all together. According to the article, the opposition is largely a function of concern that TARP money is being used to fund banking sector consolidation, rather than to spur lending

X (27.85): U.S. Steel target lowered to $25 from $30 at UBS: Firm believes that mills have lost leverage in contract price negotiations with auto and appliance makers. '09/'10 EPS estimates are lowered and the firm sees a loss in Q1. Rating is sell.

Monday, November 24, 2008

November 24, 2008: Morning Call

November 24, 2008: Morning Call

Fair Value: SP500 – 799.09; NDX: 1086.52; DOW – 8037.52


Technical Levels:

SPX: 685 support/ 848, 908, 998, 1098-1100 resistance


Events:

Pre-market EPS: CPB (.76/2.3B)
05:00: BCS Extraordinary General Meeting
05:00: Euro-zone Industrial New Orders (Sep): -2.8% MoM; -1.5% YoY
10:00: New Home Sales (October): 5.0 million; -3.5% MoM
11:00: President-elect Obama announces his economic team
14:00: PBR analyst meeting
17:00: HPQ earnings call
Post-market EPS: ATW (1.13/156.7M); HPQ (1.01/33.3B)



Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 13 points above fair value while the NASDAQ futures are trading 22 points above fair value at 8:00 am ET.
The US Government has provided Citibank with 300 billion in guarantees for troubled mortgages and other toxic assets. Citibank is also getting an additional 20 billion in capital in addition to the 25 billion that the company just received under the TARP. In exchange, the government will receive 27 billion of preferred shares paying an 8% dividend with a warrant to purchase 254 million common shares at 10.61. In addition, President-elect Obama signaled that the stimulus package could approach 500 to 700 billion. Asian markets declined despite the strength in US markets on Friday and the Citibank news (Hong Kong down 1.6%, Shanghai down 4.3%, South Korea down 3.7%, India down 0.14%). European markets are up 3.5% on light volumes. Basic Resources (up 6.8%), Financials (up 4.3%), and Industrials (up 4%) are the leading sectors in Europe. The only sector in the red is the Auto’s (down 2.9%). Dollar weakness (Euro up 1.5%) is contributing to some early strength in commodities this morning (Crude up 2.2%, Gold up 2%, Silver up 5.3%).

Impact Research Calls/Market Moving News:

C (3.77): Citibank announces that it has reached an agreement with the U.S. Treasury, the Federal Reserve Board, and the FDIC on a series of steps to strengthen capital ratios, reduce risk, and increase liquidity. The U.S. Treasury will invest $20 bln in Citi preferred stock under the TARP. Citi will issue an incremental $7 bln in preferred stock to the U.S. Treasury and the FDIC as payment for a government guarantee on $306 bln of securities, loans, and commitments backed by residential and commercial real estate and other assets. As a result of the asset guarantee, the $306 bln portfolio will have a new risk weighting of 20%, thus freeing up an additional $16 bln of capital to the co. Citi will issue warrants to the U.S. Treasury and the FDIC for approx 254 mln shares of the common stock at a strike price of $10.61. Citi also has agreed not to pay a quarterly common stock dividend exceeding $0.01/share for three years effective on the next quarterly common stock dividend payment. Citi's Tier 1 capital ratio for the third quarter ended September 30, 2008, on a pro forma basis, for the October TARP capital injection and the new capital generated by today's announcement, subject to Federal Reserve Board approval, is expected to be approx 14.8% and its TCE/RWMA ratio would be approx 9.3%.

The Wall Street Journal reports President-elect Barack Obama will introduce Monday his National Economic Council director, Lawrence Summers, and his Treasury secretary nominee, Timothy Geithner, two men from the same ideological wing of the Democratic Party but with different roles in the new administration. Mr. Geithner will take over a Treasury Dept. already shouldering big, new responsibilities. It will administer the Bush administration's $700 bln financial-sector rescue fund. As Mr. Geithner assembles his team, Mr. Summers is likely to make the administration's early decisions on budget and tax policy, according to Democrats familiar with the team's thinking. Treasury will still be an important entity, but will likely have less clout than it did during the Bush administration when the White House seemed to defer to Treasury Secretary Henry Paulson on economic policy, according to a person familiar with the incoming administration's plans.

BRK (90,000): Barron's reports now may be a good time to buy shares in Berkshire Hathaway (BRK.A). Looking out to 2009, Berkshire's earnings could get a lift from improving conditions in the insurance market, and from some new high-yielding investments, including $8 bln of 10% preferred stock of Goldman Sachs (GS) and General Electric (GE). If the market rallies in 2009, Berkshire probably will see record profits. Its operating profits this year could be about $5,400 per Class A share, excluding losses on equity and junk-bond derivatives that may cause a fourth-quarter loss. One big investor says earnings could hit $7,000 a share by 2010, a modest 13x the current stock price. Berkshire now trades below 1.4x estimated book value, vs an average of around 1.5 in the past decade -- and current book is depressed. If the stock market rallies 25% in the next year, the stock could hit $110,000, or 1.4x potential year-end '09 book value of $80,000 a share.

AAPL (82.58): Oppenheimer trims their iPhone estimates to reflect the global slowdown in consumer spending. For Q109, they target 4.8 mln iPhones vs their prior 7.5 mln. FY09 unit estimate drops to 21.3 mln from 27.0 mln. Firm also cuts their Q109 iPhone ASP estimate to reflect the impact of the stronger dollar on international sales. They believe the new MacBook portfolio is seeing strong demand, despite focusing squarely on the high end of the notebook market. As a result, firm raises their Q109 unit estimate to 1.61 mln from 1.54 mln. Finally, they believe Apple could materially outperform its gross margin target for the quarter (30%-31%) as well as for they year as LCD panel and many other components have seen unprecedented price declines.

DB (24.58): Bloomberg.com reports Deutsche Bank Chief Executive Officer Josef Ackermann said Germany's largest bank will scale back unprofitable businesses, bolster capital and cut debt following a plunge in its stock. "In the last few days, confidence has eroded significantly across financial markets, and consequently our operating environment has significantly deteriorated,'' Ackermann said. "We have agreed a number of immediate initiatives which address the near- term challenges of our current market.'' Deutsche Bank's stock fell last week to the lowest level in at least 16 years in Frankfurt trading as confidence in financial markets worsened. Ackermann said "nothing'' justifies Deutsche Bank's low share price, while acknowledging that investors are concerned about the bank's capital base, the size of its balance sheet, the potential for further writedowns and the outlook for operating performance

Friday, November 21, 2008

The Elephant in the Room

In this morning’s New York Times, Wilbur Ross is worried about the leadership vacuum in Washington: “We really need somebody to step in and show leadership. Every day that’s wasted and that we stay in freefall is going to make the recession that much deeper and longer.” The Time’s Floyd Norris also wonders “whose in charge” in a Page One article. “Cries are being heard for a new government intervention to prop up financial institutions before President-elect Barack Obama takes office.” In the op-ed page, Paul Krugman worries about a “Lame-Duck Economy” and warns about the risks of a “power vacuum at the height of the crisis.” All three articles were focused on what the President-elect can and should do to address the crisis. None of the articles addressed the elephant in the room – namely, George W. Bush. The question of the day is whether George W. Bush should resign? A “pre-packaged” Bush resignation would certainly restore confidence to a shattered market. Obviously, this is a huge long shot because a Bush resignation would be an admission of failure. But, nothing can be completely ruled out during these extremely chaotic times.

Wednesday, November 19, 2008

November 19, 2008: Morning Call

November 19, 2008: Morning Call

Fair Value: SP500 – 858.26; NDX: 1157.06; DOW – 8414.89


Technical Levels:

SPX: 848-850 support/ 908, 998, 1098-1100 resistance

NASDAQ: 1423 support / 1650, 1890 resistance

Events:

Pre-market EPS: LDK (.71/512.3M); ROST (.43/1.58B)
04:30: Bank of England Minutes of Interest Rate Decision
07:00: MBA Mortgage Applications
08:30: Consumer Price Index (Oct): -0.8% MoM; Ex-Food/Energy: 0.2% MoM
08:30: Consumer Price Index (Oct): 4.1% YoY; Ex-Food/Energy: 2.4% YoY
08:30: Housing Starts (Oct): 780,000; Building Permits: 773,000
10:35: DOE/API Crude Oil and Gasoline Inventories
11:00: MSFT Annual Meeting
11:30: CSCO presents at Morgan Stanley TMT Conference
13:30: Fed’s Lacker speaks on subprime crisis
14:00: FOMC Minutes from the October 28-29 Meeting
Post-market EPS: GYMB (1.03/276.7M); INTU (-.12/485.6M); MW (.25/477.5M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 4 points below fair value at 7:30am. Asian markets closed lower with the exception of Shanghai, which rallied 6.2%. Indian markets fell 1.8%, Japan dropped 0.66%, and Hong Kong fell 0.77%. Evidence of further economic slowing in the region pressured commodity and technology shares, while banks were also lower still hurt by Mitsubishi UFJ Financial Group's (8306.JP) weak H1 earnings yesterday. Sumitomo Mitsui Financial Group dropped 7.9% on plans to raise capital. Automakers were lower after Nissan (7201.JP) said H2 profits will fall to zero and Toyota (7203.JP) further cut production in the US. Telecom equipment makers and service providers outperformed the market after China Mobile (0941.HK) confirmed it had awarded contracts worth $4B to build the second phase of the country's third generation network. Australian Oct new motor vehicles sales fell (10.6%) y/y and (0.5%) q/q. European markets are down 1.52% led by financial and mining stocks. LloydsTSB (LLOY.LN) is little changed ahead of its shareholders vote on its proposed HBOS (HBOS.LN) acquisition and capital raising. HBOS shares rose. Irish banks rose on speculation that the Irish government may inject capital to boost capital ratios. BOE November Minutes voted 9-0 for BOE rate cut to 3.0%. BOE forecasts implied cut to lower than 2.5% maybe needed


Impact Research Calls/Market Moving News:

RIMM (47.25): Research In Motion added to the Conviction Buy List at Goldman Sachs

CSCO (16.45): Cisco Systems removed from Conviction Buy List at Goldman Sachs
Shares remain buy rated
.

GE (16.06): General Electric may delay wind turbine deliveries as clients are cautious – Bloomberg: Comments are from company's head of Power and Water, Steve Bolze. Says wind order backlogs remain "healthy" through 2010, but that some wind clients are looking to delay amid the credit crisis. No wind, gas turbine orders have been cancelled.

C (8.36): Citi liquidating hedge fund that lost 53% in October – FT: The FT reports that the move related to the Corporate Special Opportunities ("CSO") hedge fund marks the ninth time in recent months that the bank has had to shut down or rescue a fund in its alternative investment unit. Citing people familiar with the matter, the paper adds that CSO, which managed nearly $4.2B at its peak, has an NAV of about $58M and debt of roughly $880M. Investors are likely to receive no more than 10 cents on the dollar following liquidation. The fund largely invested in European private equity deals.

BBY (20.97): Best Buy corporate credit rating downgraded to BBB- from BBB by S&P: Outlook is stable; ratings are now one notch above junk status.

FNM (.62); FRE (.47): WSJ discusses the debate surrounding the future of Fannie and Freddie: The Journal notes that some banks would like to see Fannie and Freddie ultimately disappear, at least in their current form, a transformation that is vehemently opposed by home builders and the National Association of Realtors. The article notes that BofA CEO Ken Lewis recently called for scrapping the business model of the two firms, and instead moving in the direction of a system that relies more on private-sector institutions, without government guarantees. That said, Lewis has argued that over the near-term, the government should make its backing of the firms more explicit to bolster investor confidence and push down mortgage rates.

JBX (15.21): Jack In The Box reports Q4 EPS from cont ops $0.46 vs Reuters $0.45: Guides Q1 EPS to $0.50-0.55 vs Reuters $0.61. Diluted EPS are expected to be lower than prior year results due to higher commodity costs and continued volatility in the financial markets, which is expected to impact SG&A and the tax rate. Company expects flat to 2% same-store sales increase at Jack in the Box company restaurants on top of a 1.5% increase in the year-ago quarter. Approximately flat same-store sales at Qdoba system restaurants on top of a 4.5% increase in the year-ago quarter. Overall commodity costs are expected to increase in the 7 to 8% range, including an approximate 20% increase in beef costs. Restaurant operating margin is expected to be between 15.0 and 15.5%

Tuesday, November 18, 2008

November 18, 2008: Morning Call

November 18, 2008: Morning Call

Fair Value: SP500 – 849.99; NDX: 1153.56; DOW – 8261.31


Technical Levels:

SPX: 848-850 support/ 908, 998, 1098-1100 resistance

NASDAQ: 1423 support / 1650, 1890 resistance

Events:

Pre-market EPS: HD (.39/17.82B); MDT (.71/3.72B); SKS (-.03/710.1M)
08:00: CF Investor Day
08:00: WMT presents at Morgan Stanley Consumer Conference
08:30: US Producer Price Index (Oct): -1.8% MoM; Ex-Food/Energy: 0.1% MoM
08:30: US Producer Price Index (Oct): 6.2% YoY; Ex-Food/Energy: 4.0% YoY
08:30: UNP presents at the Citibank Transportation Conference
09:00: Net Long-term TIC Flows
09:30: CSX presents at the Citibank Transportation Conference
09:30: Bernanke and Paulson testify to House hearing on TARP implementation.
11:15: BNI presents at the Citibank Transportation Conference
11:30: WFR presents at UBS Tech Conference
13:00: NAHB Housing Market Index (Nov): 14
17:00: ABC Consumer Confidence (Nov 16): -49
Post-market EPS: JBX (.45/687.5M); LZB (.02/333.6M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 15 points below fair value while the NASDAQ futures are trading 17 points below fair value at 7:50am. Asian markets closed lower with Chinese stocks pacing the decline (Hong Kong down 4.5%, Shanghai down 7.4%). Semiconductor stocks in Asia were weak after an industry group lowered growth to –2.2% from a prior estimate of +5.8%. European markets are down 1.8% after opening modestly higher. European banks are at new 12 year lows with BNP down 9% on speculation the company needs to raise additional capital; BCS is down 6% despite amending a recent capital raise to placate existing shareholders.


Impact Research Calls/Market Moving News:

HPQ (29.34): HPQ guides Q4 above consensus and reiterates forward guidance: SP Futures cut the pre-market losses in half (now 8 points below from fair value vs. 16 below prior to the HPQ news) on positive preannouncement from HPQ: HPQ reports preliminary non-GAAP Q4 EPS of $1.03 vs. Reuters $0.99; First Call $1.00: Q4 revenues $33.6B vs. Reuters $33.11B. HPQ guides Q1 non-GAAP diluted EPS $0.93-$0.95 vs. Reuters $0.94; guides Q1 revenues $32.0-$32.5B vs. Reuters $33.77B; First Call $33.93B. F09 non-GAAP diluted EPS guided to $3.88-$4.03 vs. Reuters $3.88; First Call $3.92. F09 revenues guided to $127.5-$130.0B vs. Reuters $135.65B. HPQ shares are trading 10% higher in the pre-market.

C (8.89): Deutsche Bank’s Mike Mayo takes numbers down sharply and lowers the price target to 9 a share: “We lowered our '09 estimate from $1.50 to negative 30 cents to reflect Citi's view that it may have $1-$2B higher consumer credit losses per quarter (vs. 3Q08) in 1H09 and our assumption that revenues will decline by 20% from core 3Q08 levels, mitigated by new aggressive expense targets of $50-52B in '09. Our '09 estimate, which still has a downward bias, does not yet reflect additional corporate credit losses, reserve builds, or capital market write-downs. Noteworthy, Citi is moving $80B of assets (some which may include CDOs) away from mark-to-market, which can reduce write-downs after the assets are transferred (but reduces transparency, in our view).” Mayo also notes that the stock “could almost get cut in half” if “trends toward half of tangible book value where some financials have traded recently” or close to 20 “based on 8x normalized EPS of 2.70”. Mayo maintains a negative bias and notes “that risks are skewed near-term whereas any recovery earnings scenario is back-ended.”

FCX (23.14): Freeport-McMoRan estimates reduced at Morgan Stanley: New production guidance and continued deterioration in molybdenum prices is cited. Shares, however, remain overweight rated with a $48 target.

RIMM (42.24): Research In Motion estimates reduced further below consensus at BMO Capital: The firm sees sub adds as light this quarter vs. mgmt guidance and reduces f2010 revenue and EPS estimates further below Street consensus. BMO says estimates for the company are still too high and though Storm will be well received, it will not match current estimates. Shares are market perform rated. Target lowered to $53 from $55.

FSLR (115.55): First Solar initiated overweight at JPMorgan

YHOO (10.63): Jerry Yang to step down as CEO of Yahoo! – Shares are indicated higher on speculation that this Yang’s departure may open the door to a new MSFT proposal.

BAC (15.03): Bank of America facing resistance in mortgage modification effort – WSJ (this is a big problem because reducing foreclosures is a key aspect to stabilizing house prices): The Journal reports that under the terms of a settlement with attorneys general from 15 states earlier this year related to its acquisition of Countrywide, BofA agreed to modify the mortgages of as many as 400K borrowers by refinancing loans, lowering interest rates and reducing principal amounts. BofA said that it owns about 12% of the roughly 400K loans at issue and can modify another 75% based on the "delegated authority" provided in its contracts with investors. However, the paper adds that some investors believe that they should have been contacted first. In addition, others have argued that the bank is shifting the cost of the settlement to investors when it should be footing the bill itself. These investors say that while they do not oppose modifying loans if the process can increase returns and keep borrowers in their homes, they believe that BofA should repurchase the loans before modifying them, as many of the modifications have violated representations and warranties made when the mortgages were packaged into securities. The article goes on to discuss the entanglements surrounding the securitization process.

C (8.89): Citi still needs to focus on reducing leverage - WSJ (nothing particularly new here): In a "Heard on the Street" column, the Journal discusses Citi's recent announcement that it plans to cut 50K employees. According to the article, while the layoffs are a step in the right direction given that they will reduce the bank's cost base and eventually filter down to earnings, investors remain concerned about the firm's leverage. The paper points out that tangible assets are still 55x tangible equity, versus multiples of 31.4x at JPMorgan (JPM) and 31.3x at Bank of America (BAC). In addition, the Journal notes that in the wake of proposed accounting rule changes that could be adopted in 2010, Citi's leverage would jump to 59x if it is forced to bring roughly $120B in credit card assets back onto its books. Even more concerning is the fact that leverage would surge to 63x if the bank also has to consolidate 20% of the some $670B in mortgage assets currently held by off -balance-sheet vehicles.

WFR (13.39): MEMC Electronic Materials sees Q4 gross margin of 46-50% vs prior guidance of 50%. WFR guides Q4 revenue to $475-525M vs prior $540-600M and Reuters $569.7M.

Monday, November 17, 2008

November 17, 2008: Morning Call

November 17, 2008: Morning Call

Fair Value: SP500 – 872.48; NDX: 1180.91; DOW – 8484.19


Technical Levels:

SPX: 848-850 support/ 908, 998, 1098-1100 resistance

NASDAQ: 1423 support / 1650, 1890 resistance


Events:

Pre-market EPS: LOW (.28/11.60B); TGT (.48/15.19B)
08:25: LNC Investor Meeting
08:30: Empire Manufacturing (Nov): -26.1
09:00: Fed’s Hoenig speaks on regulation
09:00: LOW earnings call
09:15: Industrial Production (Oct): 0.2%; Capacity Utilization (Oct): 76.4%
10:30: TGT earnings call
13:00: WYNN presents at Deutsche Bank Gaming Conference
13:30: MGM presents at Deutsche Bank Gaming Conference
15:00: ADBE Investor Meeting
16:30: LVS presents at Deutsche Bank Gaming Conference
18:30: Treasury’s Paulson speaks on the economy and markets

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 20 points below fair value while the NASDAQ futures are trading 36 points below fair value at 7:36am ET. Global stocks continue to reel from risk aversion and increased fears that the global economy is rapidly decelerating. Asian stocks closed lower on the session but rallied into the close (Australia down 2.5%, South Korea down 1.3%, India down 1.01%). Japan bucked the trend lower with a gain of 0.71%; the Nikkei traded in a 550 point range after the GDP report came in weaker than expected at –0.40% vs. consensus of +0.1% growth. European markets are down 2.7% moving in tandem with US Index futures over the last two hours. Autos (-5.6%) and financials (-3.5%) were amongst the leading decliners. The major indices are trading close to session lows. Decliners on the FTSE 100 lead advancers 4-1.

Impact Research Calls/Market Moving News:

FCX (24.34): Freeport-McMoRan downgraded to neutral from overweight at JPMorgan

LOW (18.23): Lowe's reports Q3 EPS $0.33 vs Reuters $0.28: Company reports revenues of $11.73B vs Reuters $11.61B. Q3 comps (5.9%) vs StreetAccount consensus (6.9%). Guides Q4 EPS to $0.08-0.16 vs Reuters $0.18. The company expects to open 33 to 38 new stores reflecting square footage growth of 7 to 8% in Q4. Total sales are expected to range from (3%) to +2%, with comps (5%)-(10%). The company said that while falling energy prices and initial signs of stabilization in housing turnover should aid the consumer, it saw a decline in sales trends in the last week of October that continued into November.

GS (66.73): Top Goldman Sachs executives to forgo bonuses reports the WSJ: The 7 top executives at the firm asked the compensation committee to grant them no bonuses for '08. The board approved the request this Sunday. The move may be followed across Wall Street as this may make it difficult for any other firm to pay its top people anything over their base pay. The executives are only eligible for their base salaries, $600K each. One senior executive said that if CEO Blankfein did not take a bonus, no top people on the Street would. Sources say distinctions are being made between the top people and lower level employees who performed well during '08.

C (9.52): Citi to announce job cuts at town hall meeting this morning at company town hall meeting, says CNBC's Gasparino: Gasparino said that the job cuts will be appx 50K.

JPM (34.47): JPMorgan Chase's target reduced at Ladenburg Thalmann: Following comments from CEO, Jaime Dimon, Ladenburg decreases the company's target to $37 from $45 (shares rated neutral). Ladenburg says Dimon's message was unremittingly negative. The firm notes that JPM's investment bank is expected to produce more losses and lower earnings and there should be pressure on retail financial services, credit cards, and commercial banking from bad credit results. Ladenburg also says asset values may fall harming the asset management division; there could be less volume in the Treasury management sector; and higher losses may emerge in the private equity sector.

C (9.52): WSJ says doubts still linger about Citi: A Heard on the Street column says that one reason for the drop in Citi shares since the Lehman bankruptcy may be that investors may believe they deserve a lower valuation. It trades about in line with Bank of America. But Citi's issues seem greater at this point as it has higher leverage and more at-risk assets. One measure of confidence is a bank's ability to refinance borrowings. Citi's last big bond offering was in August and the bank's CDS spread is higher than before the Lehman collapse. The market is not yet convinced that Citi can be rebuilt.

Foreign companies would pick up the slack if U.S. car makers go into bankruptcy says the NY Times: Many industry experts and economists say that if one of the Big Three car makers were to declare bankruptcy, in time foreign car makers, many with plants in the U.S., would pick up the slack and market share. The paper says whether Washington should let this play out is the big question this week for politicians. The companies and the UAW claim there would be a tremendous disruption but industry experts say the big foreign companies are established enough to take up the slack at suppliers much more quickly than believed. One analyst says the reorganization of the industry after a GM bankruptcy would take about a year.

Warren Buffett 13F filing: Berkshire Hathaway discloses new positions in Eaton (ETN), Conoco (COP): Other changes: BAC reduced to 5.0M from 9.1M; KMX reduced to 18.44M from 21.3M; HD reduced to 3.7M from 4.18M; LOW reduced to 6.5M from 7.0M; NRG increased to 5.0M from 3.24M; USB increased to 72.9M from 68.6M.

MER (13.20); BAC (16.42): Bank of America may have overpaid for Merrill Lynch says the WSJ: A 'Heard on the Street' column says that BAC CEO Ken Lewis has to make money from the Merrill deal and he probably has mixed feelings over it these days. B of A was paying to acquire Merrill for 1.8x tangible book value. Morgan and Goldman are now trading for 0.4x and 0.8x tangible book value. The dollar value of the deal has fallen with B of A's stock price but B of A shareholders will be diluted about 23%. Writedowns at the investment bank could still be large, making it hard to gauge the unit's future profitability. The wealth management unit is the most dependable source of earnings but even that could disappoint.

Barron's suggests 8 steps for President-Elect Obama to restore confidence and bolster the markets: The Cover story is an open letter to President-Elect Obama. In order of importance, the steps he should take now to address the financial crisis are: 1. Back a bold stimulus plan, a $100B plan plan and be ready to back another of similar size after inauguration; 2. Support aid for GM and Ford, $25B in special preferred stock for each that pays a dividend, encourage Chrysler to merger or sell its valuable units; 3. Help Homeowners, the government put up $100B to reduce the principal on mortgages and get the participating banks to add another $50B, the government would get a portion of any price appreciation from the reduced principal level; 4. Delay tax increases, for at least a year; 5. Don't impede free trade; 6. Improve financial regulation, deal with credit default swaps and force greater disclosure when shorting stocks; 7. Change fuel efficiency rules, repeal the two-fleet rule and allow the importation of smaller Big Three cars; 8. Keep union ballots secret, the President is elected by secret ballot, unions should face the same type of elections.

DELL (10.89): Dell downgraded to neutral from buy at Merrill Lynch

Barron's summary

Cover: Barron's suggests 8 steps for President-Elect Obama to restore confidence and bolster the markets. Interview: Howard Marks, chairman of Oaktree Capital Management sees some opportunities in financials, debt of buyouts and convertible bonds. Lead Articles: Colgate-Palmolive (CL) is being unfairly punished for its international exposure; Honda Motor (HMC) is the best positioned of any car maker for a recovery; Charles Schwab (SCHW) is healthier than many competitors and could gain share; American Express (AXP) is misunderstood and has plenty of cash; The mess of credit default swaps may be defusing itself and probably was never all that large to begin with; Editorial argues that even Google came to realize the promise of capitalism. Columns: The Trader notes the large market swings and is positive on Oil-Dri Corp. of America (ODC); Current Yield says that the yield curve may be indicating that the prodigious borrowing by the U.S. government may finally be catching up with it; The Striking Price notes the fear trading in Citigroup (C) options, the puts are exceedingly expensive which reflects a real concern about its future; Asia Trader notes the selloff of Asian currencies as investors look to preserve capital, the winners have been the Japanese Yen and the U.S. dollar, many suggest staying away from emerging Asia until at least 3Q09; Euro Trader is positive on FirstGroup (FGP.LN); Commodities Corner says any food bargains this Thanksgiving will be in Turkey, not red-meat; Preview suggests that factors could move corn prices higher in the near term; Follow Up is still positive on food stocks and Starbucks (SBUX); Up and Down Wall Street considers the market action, doubts that stocks are 'cheap' and is positive on the prospects for Gold and Oil; Streetwise says that some smart investors are preparing for a bottom, though not yet willing to say one is here; Technology Trader recounts the slowdown in tech, cautious on Microsoft (MSFT); Plugged In says tech stocks are not cheap enough yet, positive on VMware (VMW) and EMC (EMC).

Friday, November 14, 2008

November 14, 2008: Morning Call

November 14, 2008: Morning Call

Fair Value: SP500 – 910.58; NDX: 1242.42; DOW – 8824.42


Technical Levels:

SPX: 848-850 support/ 908, 998, 1098-1100 resistance

NASDAQ: 1423 support / 1650, 1890 resistance

Events:

Pre-market EPS: A (.58/1.54B); ANF (.74/922.8M); JCP (.54/4.34B)
08:30: Import Price Index (October): -4.2%
08:30: US Retail Sales (October): -1.5%; Less Autos: -1.0%
08:30: Bernanke/Trichet speak at ECB Conference
09:30: JCP earnings call
10:00: University of Michigan Confidence (Nov): 56.0
10:00: Business Inventories (Sep): 0.2%
10:00: Treasury’s Kashkari to testify to House on use of bailout funds
10:35: EIA Natural Gas Storage Change

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 21 points below fair value while the NASDAQ futures are trading 25 points below fair value following weak earnings news from FRE, JCP, and a warning from NOK. Asian markets: Most Asian markets followed Wall Street up in somewhat muted fashion. Property developers led China up on news the government is seeking to stabilize the country’s property market. A weaker yen led exporters in Japan higher. Nippon Steel (5401.JP) and other steelmakers rose after the Nikkei reported Vale (RIO) dropped its bid for a second iron-ore price hike this year. Inpex Corp (1605.JP) climbed 9% as it won the rights to explore an Indonesian oil field. Hong Kong rose on speculation the Bank of China might cut interest rates as soon as this evening. European markets are up 2.5% but have pulled off their highs of the session following the NOK warning. Overall, gains in foreign markets have been far more muted than Wall Street was discounting on the close of trading Thursday.



Impact Research Calls/Market Moving News:

NOK (14.15): Nokia cuts Q4 guidance; sees f09 industry mobile device volumes down in 2009

FRE (.73): FRE reports a stunning 25.3 billion dollar loss in the third quarter. Collectively, FNM, FRE, and AIG have lost 78.3 billion dollars in the third quarter. This is truly hard to comprehend particularly since lots of taxpayer money is being thrown into this abyss.

JCP (19.28): Penney reports Q3 EPS $0.55 vs Reuters $0.53; guided to $0.51-0.53 on 6-Nov: Company reports revenues of $4.32B vs Reuters $4.34B. Guides Q4 EPS to $0.90-1.05 vs Reuters $1.33; guides revenues to (7%)-(9%); guides Q4 comps (9%)-(11%) vs previously reported Q3 comps of (10.1%) and Oct comps of (13

C (9.45): Citi to cut more jobs, raise credit-card interest rates – WSJ: People familiar with the matter say the company is firing at least 10K workers this week, in an effort to cut employee compensation by at least 25%. The company is also raising interest rates an average of three percentage points for less than 20% of its portfolio. American Express (AXP) similarly raised rates to some customers recently. Despite Citi's denials, the article says the paper stands by yesterday's article saying some directors are considering replacing Win Bischoff as chairman.

RIMM (43.80): Canaccord Adams cuts their price target to 60 a share and lowers estimates following weaker channel checks. “Our survey and checks with global carriers suggest that RIM has been unable to escape the worst of the macro malaise hampering both consumer and enterprise markets. We believe the company is tracking to about 6.5 million shipments for Q3, which is below guidance of 7+ million units and our prior forecast of 6.9 million. The shortfall, in our view, was driven by: i) the delayed launches of the Bold and Storm; ii) the anticipation for these new devices has stalled RIM’s upgrade cycle; iii) inroads by iPhone in the consumer market; and iv), general spending slowdown prompting enterprises and consumers to defer upgrades.

Paul Krugman editorial in the NY Times titled “Depression Economics Returns” is a must read (copy and paste):
http://www.nytimes.com/2008/11/14/opinion/14krugman.html?_r=1&oref=slogin

BAC (17.10); MER (13.80): 90% of Merrill brokers who were offered bonuses to join Bank of America (BAC) have accepted deal – WSJ: No major surprise here considering most people employed on Wall Street are just happy to have a job.

WYNN (44.76): Wynn Resorts 8M share secondary priced at $43.50 a share through Deutsche Bank, BofA: The size of the offering was increased from an originally expected 5M shares.

GOOG (312.08): Google vulnerable to consumer retrenchment – WSJ: In a "Heard on the Street" column, the Journal reports that Google's consumer-driven business model is not immune to an economic slowdown. The article points out that, according to Majestic Research, consumers are cutting back on spending so much that they are even showing a dampened interest in searching for new products, much less buying them. The Journal also notes that even consumers that are still in the market are increasingly shopping around for bargains, a dynamic that leads to reduced returns on individual clicks as marketers pay less for keywords. The article goes on to highlight the Street's recent assault on Google's growth estimates.

CF (60.45): CF Industries Holdings completes $500M stock repurchase: The company had announced the repurchase authorization on October 27, 2008. The company purchased 8.5M common shares, representing 14.9% of its outstanding stock at September 30, at an average price of $58.96

Thursday, November 13, 2008

Goldman - Panic in Goldman Options

Take a look at the GS December 20 and 22.50 puts - the prices are fking insane (1.25 for the December 20 put and 1.55 for the December 22.50 put). Traders are discounting a small but legitimate chance that this stock could drop another 67% by expiration. These options would be worthless even in highly stressed environments. Over the last year, option prices this high have been a good contrarian indicator for the broader markets because it signals that rampant fear is built into prices. But, these prices are making me very nervous this time around and I will watch from the sidelines. Clearly, the desired goal of these put buyers is to create a market panic because nobody would hedge long shares at those strike prices. I would never sell these puts because I rule nothing out in this market. Talk to the put sellers in AIG, FNM, FRE, BSC, and LEH. They thought they were getting a ridiculously high price before the trade caused them to go out of business.

November 13, 2008: Morning Call

November 13, 2008: Morning Call

Fair Value: SP500 – 851.28; NDX: 1166.62; DOW – 8265.13


Technical Levels:

SPX: 848-850, 908 support/ 998, 1098-1100 resistance

NASDAQ: 1423, 1650 support / 1890 resistance

Events:

Pre-market EPS: WMT (.76/97.78B); FIG (.09/168.5M)
04:00: ECB Publishes November Monthly Report
07:30: Indian Wholesale Price Index (November): 10.50%
08:00: FIG earnings call
08:30: US Trade Balance (Sep): -57.0B
08:30: Initial Jobless Claims
09:00: MSFT presents at BMO Capital Interactive Entertainment Conference
09:20: EOG presents at the Bank of America energy conference
10:00: BHI presents at the Bank of America energy conference
10:00: House oversight committee hearing on hedge funds
11:00: DOE/API Crude Oil and Gasoline Inventories
11:00: RIMM presents at RBC Capital Markets Conference
12:00: Fed’s Plosser speaks on the economy
12:30: QCOM Analyst Meeting
14:00: Monthly Budget Statement (October): -89.0B
14:00: Fed’s Stern speaks on the economy
Post-market EPS: CRM (.17/273.6M); JWN (.32/1.83B); KSS (.51/3.87B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading flat with fair value while the NASDAQ futures are trading 18 points below fair value at 7:45am ET, despite reduced guidance from INTC. The resilient tone is a little surprising because the market has acted terrible following bad news all year. A sustained rally despite the INTC news and the terrible jobless claims (516,000 vs. 480,000) would mark a positive shift in the character of the market. Each recovery rally this year (Jan 22-Feb 1; March 17-May 19; July 15-Aug 11; Sep 18-Sep 22; Oct 10-Oct 14; Oct 27-Nov 4) was triggered by government intervention, technical factors and the absence of bad company specific news. Weaker guidance from a major S&P 500 company has not been the primary catalyst for any of the recovery rallies this year. Bear market rallies are primarily triggered after market participants recognize that weaker guidance has already been discounted so a higher close would be a very constructive sign.

That said, traders should not utilize leverage and maintain a modest risk profile simply because the range of potential outcomes remains unprecedented. The consensus appears to have ruled out the possibility that the market could drop an additional 20-30%. This is a big mistake. Portfolios should be stress tested factoring in additional declines of 20-30% given the collapse in confidence, terrible macroeconomic and company specific news, and the erratic response from the government and regulatory agencies. Truly hedged participants and nimble short-term traders with a disciplined risk management system will survive this financial hurricane. Leveraged participants and traders reckless enough to “hang on” will continue to go out of business. I have been repeating this for over a year because it remains true.


Asian markets: The majority of markets closed lower by 5%, led by commodity companies, banking shares and tech stocks. China was the sole index to advance despite a deceleration in industrial production. Chinese stocks in Hong Kong dropped and China’s rise was attributed to speculation the government would add more measures to boost growth. Mizuho Financial Group (8411.JP) dropped after reports the bank is considering issuing preferred securities in an effort to raise new capital. European markets are flat ahead of the US open. UK markets are weaker (down 1.4%) than other major Continental European markets. The OECD's downward revision to growth expectations and erratic trading in US futures has contributed to the volatility. Russian exchanges have again been temporarily halted as shares continued to decline. Decliners on the FTSE 100 lead advancers 4-1. Zurich Financial (ZURN.VX) and London Stock Exchange (LSE.LN) fell after reporting results. Germany 3Q preliminary GDP (0.5%) q/q vs consensus (0.2)%.

Impact Research Calls/Market Moving News:

INTC (13.52): Intel guides Q4 revenues to $9B, +/- $300M vs. Reuters $10.34B; First Call $10.42B: Prior guidance was $10.1-$10.9B. Other Q4 guidance: Q4 gross margins guided to 55% +/- a couple of points, below prior 59%, +/- a couple of points.

WMT (52.62): Wal-Mart reports Q3 EPS $0.77 cont. ops. vs Reuters $0.76: Company previously reported revenues of $97.63B. Guides Q4 EPS to $1.03-$1.07 vs Reuters $1.11. WMT guides Q4 comps. in the US to between +1 to +3%.

UBS downgrades '09 global mobile phone volume forecasts to a 9% decline from 3% growth: Firm notes a lengthening European replacement cycle, weakening economic outlook, and weakness in some emerging markets due to the currency movements. Firm removes Nokia (NOK) from global top picks list in devices.

INTC (13.52): Piper Jaffray expects inventory replenishment in 1H09 at INTC: “In our view, inventory was already in reasonable shape and the drop in Intel's gross margin guidance speaks to the company reducing wafer starts in order to keep internal inventories in check. As has historically been the case, the PC supply chain periodically builds too much inventory or gets caught short on inventory. We think this revision to estimates is likely an over reaction driven by the supply chain trying to conserve cash, difficulty obtaining credit, significant drops in currency exchange rates in emerging markets and fear of demand destruction. Moreover, we estimate that it takes Intel 12 – 14 weeks to produce a chip and given the diminished output by Intel, lead times are likely to stretch and double ordering is likely to occur sometime in the first half of 2009. We believe that this sets up the likelihood of, at a minimum, a relatively strong sequential comparison in Q1 as well as a potentially violent inventory snap back as the channel will need to replenish inventory in the first half of 2009.”

INTC (13.52): Oppenheimer comments on semiconductors following preannouncement: Following yesterday's negative preannouncement from INTC, the firm says that checks indicate the lack of visibility and orders is endemic across the semi landscape. Oppenheimer anticipates negative announcements in abundance this quarter due to the combination of anemic demand and increasingly difficult collections. In the current environment, the firm sees few Semi safe-havens and recommends avoiding the group near term.

DELL (10.50): Dell downgraded to market perform from outperform at BMO Capital: Price target decreased to $11 from $14. The firm reduces PC unit and revenue forecasts for c09 and cites limited upside for DELL over the next 12 months. HPQ remains top pick, followed by IBM and AAPL.

LVS (5.10): Las Vegas Sands upgraded to neutral from sell at Bank of America: Though the stock is upgraded, the target is reduced to $5 from $12.

HK (14.55): Petrohawk Energy guides f09 capex to $1.0B, reduced from prior $1.5B -- slide presentation: HK guides f09 production growth of 25-35% over full year 2008

ENER (25.92): Energy Conversion price target decreased to $25 from $40 at Barclays Capital: Firm says credit market weakness and solar industry fundamentals may impact the company's earnings power. Shares rated equal weight. Firm also reduced its target on First Solar (FSLR), overweight rated, to $140 from $180.

Wednesday, November 12, 2008

SPX 865 is a HUGE LEVEL!

On October 16, the SPX bottomed at 865 btwn 10:45-11am ET. The index then had a huge high-volume reversal, rallying 100 points to 965 by 2pm the following day. The bulls need to defend 865 because a break below could cause a whoosh down (large sell programs) and possible break of the October 27 closing low at 848.

November 12, 2008: Morning Call

November 12, 2008: Morning Call

Fair Value: SP500 – 897.95; NDX: 1226.98; DOW – 8677


Technical Levels:

SPX: 848-850 support/ 953, 998, 1098-1100 resistance

NASDAQ: 1423 support /1650, 1890 resistance

Events:

Pre-market EPS: M (-.19/5.49B); JASO (.23/305.1M)

05:30: Bank of England inflation report: (BOE’s King signals that he will continue to cut interest rates as inflationary threats have receded).

08:00: CMI Analyst Day
10:15: GOOG presents at Piper Jaffray Internet Summit
10:30: M earnings call
10:50: TOL presents at UBS Building Products CEO Conference
11:00: Fed’s Kohn speaks on financial services
11:20: NYB presents at the Merrill Banking and Financial Services Conference
11:40: TEX presents at Robert Baird Industrials Conference
12:50: JPM presents at the Merrill Banking and Financial Services Conference
13:00: Fed’s Stern speaks on the economy
13:45: USB presents at the Merrill Banking and Financial Services Conference
14:00: MSFT Analyst Meeting
14:20: MTW presents at Robert Baird Industrials Conference
14:55: BUCY presents at Robert Baird Industrials Conference
17:00: ABC Consumer Confidence
21:00: Chinese Industrial Production (October): 11.2%

Post-market EPS: AMAT (.14/1.94B); CSC (.75/4.28B); SINA (.42/103.3M); LVS (.11/1.16B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points below fair value at 892 while the NASDAQ futures are trading 10 points below fair value at 7:45 am ET. The futures have weakened 10 points in the last hour following European markets lower. European markets are still up 0.50% but have weakened 1.5%-2.0% off the opening highs. Basic material and mining stocks are among the weakest sectors in Europe. Advancers on the FTSE 100 lead decliners 3-2. Swiss Life (SLHN.VX) fell after it lowered 2008 guidance and cut it's dividend payout and Natixis (KN.FP) is also lower after press reports that it had suffered large trading losses in Oct, the extent of which were denied by the company. Natixis reports Q3 tomorrow. ING Group (INGA.NA) reversed early gains and UniCredit (UCG.IM) pared gains after Q3 results. UK Septmeber ILO 3-month Unemployment rate 5.8% vs consensus 5.8% EuroZone Sep industrial production fell a larger than expected (2.4%) y/y. Asian markets declined in cautious trading (Japan down 1.29%, Hong Kong down 0.75%, India down 3.08%, Australia down 0.85%). Developers and real estate companies dropped on concerns that property prices will continue to decline in Hong Kong. Markets in Shanghai bucked the trend lower with a gain of 1.0% on continued optimism caused by the large stimulus plan announced earlier this week. Chinese October retail sales also came in-line with expectations at 22.0%. Commodities are trading lower by 2.0% on increasing worries that the global economy is getting appreciably worse.

Impact Research Calls/Market Moving News:

GS (74.68): Deutsche Bank’s Mike Mayo comments on the Goldman presentation at the Merrill Conference in NYC: “Mgmt at a NYC conf said that it has not changed its business model, 20% target ROE (tangible) through a cycle, or intention to expand outside the U.S., in asset management or in private wealth management. It does, however, look to increase deposits and the firm plans to transfer $130-150B of assets to its bank. The CEO said he is open to all possibilities in terms of strategic moves but that decisions should not be based on short-term considerations for long-term value. In any event, the door seems left open for mergers with banks. To us, the jury is out in terms of the need to change the model. Also, Goldman did not comment on the quarter except that the market is down in terms of stocks (down 30 percent), leveraged loans (20%), and CRE (20-30%). Some of the historical data and perspective gave additional comfort, as well as lack of consumer exposure, but lack of details given the current environment leads to ongoing uncertainty, in our view. GS is transitioning from a broker to a bank in a very short period of time, raising questions about its future earnings power (will the Fed require some scaling back of activities in trading = 2/3rd of revenues) and risk. The result is that we accord a lower than historical price-to-book ratio of 1.0x on est. year-end 2009 book. Value to get a price target of $108 (was $113). Risks include a worse/better than expected economy, a rebound in the housing market, a steeper yield curve, increases in unemployment and bankruptcies (in the U.S. and abroad), and, as a regulated bank holding company, changes in U.S. and foreign laws and regulations. There is upside potential to our price target given volatility in GS shares (shares have traded btwn $71 and $170 FQTD).”

GM (2.92): Democrats make plans to rescue carmakers – WSJ: Aides to Barack Obama and Nancy Pelosi say separately that federal aid, likely from the $700B TARP fund, will have significant conditions, involving equity stakes or warrants for the government, and rules on executive compensation. Carmakers will also have to accept strict rules aimed at building environmentally friendly cars. Senator Barbara Mikulski will unveil a proposal to make interest on car loans tax deductible today

Treasury considering requiring companies seeking TARP aid to raise private capital – WSJ: People familiar with the matter say the condition would not apply to the current $250 bailout program, but rather to future capital investments. They say Treasury has no plans to purchase bad loans or troubled assets, choosing instead to continue injecting capital directly into the financial sector. Treasury Secretary Hank Paulson may outline some of these changes today. Requiring companies to raise capital was an early idea that was discarded partially because of the belief the market would make doing so hard. But Treasury officials now think conditions have improved enough that such a condition would not be overbearing.

Buying Binge Slams to a halt for the US Consumer – New York Times: Another good read by David Leonhardt even though there is nothing particularly new in the article. He has been worth a read for the last year as he has consistently adopted a cautious and correct view on the downside risks to the economy (copy and paste link): http://www.nytimes.com/2008/11/12/business/economy/12leonhardt.html?_r=1&hp&oref=slogin

GS (74.68): Goldman Sachs target price reduced to $70 from $80 at Ladenburg Thalmann: Shares maintained sell. Firm's analyst Dick Bove noted that the company might produce a 'tiny' profit in the quarter; as a result of it’s changing its reporting dates from a November fiscal year to a December year now, as the company is now a bank holding company.

AIG (2.26): Revised AIG bailout will benefit banks – WSJ: The Journal reports that many banks that purchased protection from AIG on securities backed by risky mortgage assets (i.e. CDOs) are likely to recoup a large chunk of their investments under the revised rescue plan, which will see the New York Fed acquire roughly $70B of the securities via a new investment vehicle. The article notes that such banks include Goldman Sachs (GS), Merrill Lynch (MER), UBS (UBS), Deutsche Bank (DB) and others. Under the terms of the plan, the banks will keep the collateral they received from AIG, and will also sell the CDOs to the new facility at market prices averaging around 50 cents on the dollar. The banks that participate will be compensated for the securities at par in exchange for allowing AIG to unwind the credit-default swaps its wrote. The contract cancellations will free AIG from additional collateral calls on the swaps.

LVS (5.34): Las Vegas Sands target reduced to $13 from $25 at Thomas Weisel; rating remains overweight: Valuation: Our 12-month price target is $13. We get to a fair value range for LVS of $17-20 based on several assumptions: 1) 2012 EBITDAR of $2.4-2.8bn, 2) Multiples of 9-10x, 3) Net debt of $8bn, 4) Discount rate of 10%. Breaking that down, we assess existing operations at $8-10, with projects adding $9-10. Using LVS' own projections would yield a present value of $24-28. Our price target of $13 represents a discount of 24% to the low end of the fair value range on the view that market is not yet ready to pay full value for projects. Risks include: (1) ability to obtain funding for projects; (2) ability to deliver projects on time and budget; (3) sustainability of same-store EBITDA against significant industry capacity growth; ($) political
and legislative risk in Macau.

Macau will not help Las Vegas Sands - South China Morning Post (5.34): Macau Chief Executive Edmund Ho tells a press briefing the SAR has no plan to help Sands with financing. He says if the company collapses, the government will take over running its casinos until a buyer is found. He predicts casino revenues in Macau will average MOP7B a month next year, (25%) down from this year, and says there is no plan to cut the gaming tax rate.

INTC (13.93): Intel estimates reduced, target at Goldman Sachs: The firm estimates Q4 revenues (5%) seq compared to company guidance of (1%) to +7%. Goldman sees Q4 margins at ~56% vs. co. guidance of 59% +/- a couple of points. The firm reduces c09 EPS to further below Reuters consensus of $1.27; First Call $1.29, and reduces f10 estimates. Rating remains neutral; 6-month target reduced to $17 from $18.

Citibank downgrades European steelmakers to hold from buy: SSAB Svenskt Stal (SSABA.SS), Voestalpine (VOE.AV), Salzgitter (SZG.GR) (pre European Open).

Streamline Modification Program fraught with moral hazard – WSJ: A "Heard on the Street" column says the mass loan modification plan could result in borrowers who are now able to stay current on their mortgages deciding to fall behind to get a cut of the bailout. The government has shown no inclination to stop adding to its list of companies it is willing to bail out, and if the SMP is effective, individuals may test Capitol Hill. Removing pressure from housing prices will help borrowers and mortgage-backed securities investors. But consequences of actions taken to solve this crisis have proven hard to predict thus far.

AXP (22.40): American Express seeks $3.5B in TARP aid – WSJ

PRU (27.61):Prudential cuts annual dividend by 49.6% to $0.58 from $1.15

Tuesday, November 11, 2008

November 11, 2008: Morning Call

November 11, 2008: Morning Call


Fair Value: SP500 – 918.05; NDX: 1252.55; DOW – 8850


Technical Levels:

SPX: 848-850, 908 support/ 998, 1098-1100 resistance

NASDAQ: 1423, 1650 support / 1890 resistance

Events:

Pre-market EPS: LIZ (.37/1.01B); TYC (.74/5.3B)
05:00: ZEW Economic Sentiment Survey (Nov): -60.5 (better than expected at –50.4; German ZEW Survey also better at –53.5 vs. consensus of –63).
08:30: MER presents at the Merrill Banking and Financial Services Conference
09:40: BX presents at the Merrill Banking and Financial Services Conference
10:30: BK presents at the Merrill Banking and Financial Services Conference
11:40: JOYG presents at Robert Baird Industrials Conference
12:50: BLK presents at the Merrill Banking and Financial Services Conference
14:00: TOL Q4 2008 Guidance Call
14:00: CTX presents at UBS Building Products CEO Conference
16:15: GS presents at the Merrill Banking and Financial Services Conference
16:40: CAT presents at Robert Baird Industrials Conference
21:00: Chinese Retail Sales (October): 22.0%
Post-market EPS: HOLX (.30/438.7M); SPC (.15/685.9M); PBR (1.50/36.8B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 13 points below fair value while the NASDAQ futures are trading 15 points below fair value. The stunning quarterly losses that FNM and AIG reported yesterday morning coupled with a restructuring of the AIG bailout have rekindled fears that the credit crisis is deepening. The S&P futures are currently testing the 908-support level after bouncing 4 times off this level in the last hour of trading on Monday. Traders should not aggressively buy at this level given that the fundamental backdrop has significantly eroded in the last few sessions. The risk of a hard test of the October 27 lows (848) has increased so traders should adjust their risk profiles accordingly. Asian markets finished the day lower, though some came off early lows as investors continued to buy steelmakers and commodity stocks after the 9-Nov announcement of China’s CNY4T economic stimulus package (Nikkei down 3.0%, Hong Kong down 4.7%, India down 6.6%). Lenders tumbled in Australia (down 3.5%) after National Australia Bank (NAB.AU) sold A$3B worth of shares at a discount. European markets are down 3.1% on fears that the global economy and earnings outlook is rapidly deteriorating. Basic material, energy, and financial stocks are leading the decline.

Impact Research Calls/Market Moving News:

CHK (23.67): StatoilHydro (STL.NO) buys 32.5% of Chesapeake Energy's Marcellus shale assets for initial $1.25B, plus a further $2.13B between 2009-12.

WYNN (46.82): S&P announces changes to S&P 500: Wynn Resorts Ltd. (WYNN) will replace Ashland Inc. (ASH) in the S&P 500.

GOOG (318.78): Goldman Sachs cuts their Q4 estimate on GOOG: “We are trimming our 4Q2008 revenue growth forecast for Google from 4% qoq to 1% qoq (2% constant currency) given: (1) Poor macroeconomic and consumer data in October; paid search is typically a real time media sale, so revenue should react rapidly to macro deterioration. (2) Declining average order values, noted by eBay, Amazon, and Blue Nile et al., which likely reduce theoretical threshold bids per keyword. (3) Negative commentary on search trends in Sep / Oct from Ask and AOL, who cited declining consumer propensity to click on paid links and declining advertiser willingness to bid up paid links. Consensus estimates call for ~7% qoq revenue growth. Google grew revenue 14% qoq in 4Q2007, but its latest 10-Q notes that the malaise may adversely “affect the increase in commercial queries that we typically experience in the fourth quarter. Our 6-month target price is $475 (down from $520 as we trim earnings estimates) is based on P/E to normalized growth and DCF analysis.”

PRU (30.95); LNC (19.25): Goldman Sachs rates domestic life insurance sector as cautious as part of a transfer of coverage; downgrades PRU, LNC: The sector is rated cautious vs. prior neutral view. Prudential Financial (PRU) and Lincoln National (LNC) downgraded to sell from neutral. Hartford Financial (HIG) reinstated with sell. Principal (PFG) is rated sell and MetLife (MET) is rated neutral.

AXP (23.98): American Express confirms that it has been granted bank holding company status: Recall that the Fed issued a press release earlier this evening highlighting the move (see comments). Company notes that qualifying as a bank holding company will provide American Express maximum flexibility and stability in this challenging economic environment. Adds that the decision to become a bank holding company does not fundamentally change American Express' core focus on the payments industry, nor will it require any significant divestitures.

GOOG (318.78): Citi reduces US advertising forecast for 2008, 2009: Sees total ad expenditure for 2008 (1.8%) vs prior +0.2%, and for 2009, Citi sees (3.6%) vs prior forecast of (0.3%). Citi said that ad recovery is likely to lag the broader economy, and that Internet advertising is also materially exposed to a recession.

LVS (8.00): Las Vegas Sands reports Q3 EPS ($0.09); company is reporting that ex-items adjusted EPS is .02 cents vs. consensus of $0.11 cents. But, the company is excluding losses on disposal of assets, pre-opening expense, development expenses, and loss on early retirement of debt. Company reports revenues of $1.21B vs Reuters $1.16B. LVS announces suspension of construction of a portion of Sands Bethlehem due to difficulties in the capital markets and the overall decline in general economic conditions. LVS is in the process of raising appx $2B in capital.

HPQ (34.17); DELL (11.86); INTC (14.35): Barclays reduces estimates for PC and related vendor: The firm reduces its global PC forecast and revenue estimates for both HPQ and DELL. 2009 PC market revenue estimates reduced to (4%) from +2%. Barclays believes Intel (INTC) will reduce guidance at its mid-quarter update on 4-Dec.

GE (18.45): WSJ Heard on the Street article looks at problems confronting GE Capital: “Right now, one of the big reasons GE's shares trade around 11-year lows is that investors need convincing that GE Capital's borrowings can be recast so that the unit can fund itself smoothly amid rocky credit markets. GE Capital's heavy use of a type of short-term debt called commercial paper seemed to make sense when times were good, because it was cheaper. But it left the unit exposed when investors' demand for corporate debt recently dried up. Seeing investors step back, the Federal Reserve last month set up a special vehicle to buy commercial paper. GE has registered to sell as much as $98 billion of CP to the government. Also, GE Capital may soon be able to gain access to the government guarantee on new debt issuance that banks now enjoy. With $66 billion of debt maturing next year, according to Barclays Capital, that could give GE Capital breathing room to sort out its balance sheet. But any restructuring by the company needs to be big -- and to happen soon. Even with the debt guarantees in place, the market is showing little tolerance for financials that try to hang on to outdated business models…. Acknowledging the realities of the crunch, GE is planning to cut CP and increase deposits. But if it doesn't go far enough, GE risks getting brusque treatment from the markets. And as things stand, GE's plans probably don't go far enough. By the end of this year, the company aims to reduce CP to $80 billion from $88 billion at Sept. 30 and wants it to be between 10% and 15% of total borrowings "going forward." Given that it is now just more than 16% of its $536 billion in total borrowings, GE Capital would have to slash CP as much as $34 billion to get it to the lower end of that range. That is a lot of debt to find elsewhere now. GE Capital can pay some of it down with cash it generates from allowing loans to roll off. And it does have backup credit lines, as well as assets it can borrow against, but those moves could be expensive and weigh on GE's credit rating.”

Barack Obama asks George W. Bush to provide immediate emergency aid for automakers – NYT: People familiar with the discussion say Bush indicates he might support some aid and a broader overall stimulus package if Democrats will support a free-trade agreement with Colombia.

More government help for troubled homeowners on the way - Reuters: Reuters cites sources familiar with the matter who say that leading US housing agencies will on Tuesday announce new efforts to loosen terms for troubled borrowers. According to the article, HUD will make it easier for borrowers to qualify for a loan guarantee under the "Hope for Homeowners" program, which is designed to refinance as much as $300B in troubled loans. Reuters goes on to note that Fannie and Freddie are also expected to unveil new measures that will make home loans more for affordable for borrowers struggling to make monthly payments.

Monday, November 10, 2008

November 10, 2008: Morning Call

November 10, 2008: Morning Call


Fair Value: SP500 – 929.95; NDX: 1273.38; DOW – 89255


Technical Levels:

SPX: 848-850, 908 support/ 998, 1098-1100 resistance

NASDAQ: 1423, 1650 support / 1890 resistance

Events:

Pre-market EPS: ACAS (.69/274.7M); DISH (.58/2.91B); GLG(.07/103.0M); SRE (1.08/2.34B); AIG (-1.37/22.47B
08:30: AIG Earnings call
10:00: Treasury’s Kashkari speaks on the TARP program
21:00: Chinese Consumer Price Index (Oct): 4.1%
Post-market EPS: ROK (.98/1.49B); SBUX (.14/2.59B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 22 points above fair value while the NASDAQ futures are trading 38 points above fair value at 7:30 am ET. China announced a 586 billion dollar economic stimulus package and the Group of 20 nations recommended that central banks cut interest rates. Asian markets closed sharply higher on the Chinese stimulus news (Shanghai +7.2%, Japan + 5.8%, India + 5.74%, Hong Kong 3.52%). Resource stocks, steelmakers, and construction companies led the advance (MT, BHP, FCX are all trading 10-15% higher). European markets are up 2.4% with commodity and energy leveraged sectors leading the advance. Advancers on the FTSE 100 lead decliners 9-1.

Impact Research Calls/Market Moving News:

AIG (2.11): Fed, Treasury announced restructuring plan for American International Group bailout; Treasury to purchase $40B in AIG shares under TARP: The U.S. Treasury announced that it will purchase $40B of newly issued AIG preferred shares under the TARP. This purchase will allow the Federal Reserve to reduce from $85B to $60B the total amount available under the credit facility established by the Federal on 16-Sep. Certain other terms of the existing New York Fed credit facility, established on 16-Sep, will be modified to help achieve the objectives described above. In particular, the interest rate on the facility will be reduced to three-month Libor plus 300 basis points from the current rate of three-month Libor plus 850 basis points, and the fee on undrawn funds will be reduced to 75 basis points from the current rate of 850 basis points. The length of the facility will be extended from two years to five years. The other material terms of the facility remain unchanged

GOOG (331.14): Google estimates reduced at Barclays Capital: Recent industry checks and other data points indicate a weaker search environment QTD, and the firm now sees Q4 net revenue flat on a sequential basis, down from prior +3.4%. Rating remains overweight

AIG (2.11): American International Group reports Q3 EPS ($3.42) ex-items: Reuters is ($1.37); First Call ($0.90). Insurance premiums and other considerations grew nearly 7%. Net premiums written $11.73B vs. $11.82B y/y; net premiums earned $11.73B vs. $11.43B y/y.

GS (77.78): Goldman Sachs may post its first quarterly loss says the WSJ: A 'Heard on the Street' column says that several analysts believe the firm may post a Q4 loss because of its exposure to the equity markets. The average among analysts is for a profit of $1.62 a share but several analysts, because of the firm's positions in private equity and principal investments in stocks, believe the firm could post a loss. Notes expectations of a loss from Barclays Capital, Morgan Stanley, UBS and Merrill Lynch analysts.

LVS (7.03): Las Vegas Sands to detail financing plans early next week – AP: The AP story appears to have been published late Friday. Citing a source close to the company, the AP reports that LVS will detail its plans to handle its debt crisis early next week. The plan is not finalized, but is expected to include a capital infusion by Sheldon Adelson, as the company has previously announced on October 24.

GOOG (331.14): NY Times Saturday interview with Google CEO Eric Schmidt: He says Google is better positioned than other advertising companies to survive a recession. Since they do not know how long the economic crisis will last, they are controlling costs by watching hiring. They are also doing a fairly detailed expense review to make sure they are not wasting money. The company will continue to 'invest certainly in small teams to do wacky things.' Even in today's environment, the company would still have gone forward with things like Chrome and Android. Google decided that a long court battle over a Yahoo (YHOO) deal would be in its best interests, even though they believe they would have ultimately prevailed. They do not see any change in antitrust moves towards the company and Google will not think differently about deals in the future. He has no interest in serving as a government employee in the incoming administration.

FSLR (149.67); SPWRA (33.86): SunPower (SPWRA), First Solar (FSLR), ENER, CSIQ downgraded at Deutsche Bank: “As we assess 2009 we reiterate our view of (1) deteriorating fundamentals which have been largely, but not entirely discounted, (2) an industry shake-out precipitated by an adequate supply of c-Si modules and significant module ASP declines, (3) a strengthening dollar with respect to the Euro, and (4) restricted access to capital y/y driving a near term negative change to order patterns. These issues are not new, and although there have been opportunities to step out of solar PV stocks, we believe now is appropriate to do so as well to reset the bar. Quality is important: All companies will continue to see negative repercussions from the issues we highlight. Some will weather the storm far better than others. We believe a clearer bifurcation in company quality is apparent in stocks, and will likely become more pronounced in 2009. Consequently, we are partial to industry leaders like First Solar and SunPower - companies that have long-term, sustainable competitive advantages. And, while we are no longer recommending pure play solar PV stocks for purchase over the near term, we believe that 2009 will offer opportunity to move back into what we believe will be the higher quality, long-term winners. Timing our present exit: While there were arguably better spots to step out of solar PV company stocks earlier in the fall, several factors, the least of which is not market driven volatility, have helped spur appreciation in some names off of recent lows. We were lax to step out of solar PV stocks recently anticipating an Obama win in early November, and while timing may not be perfect (i.e. despite potential volatility driven appreciation in 4Q08), we believe appropriate positioning for 1H09 would be reduced exposure to the group. This report changes ratings on four stocks from Buy to Hold, as well as price targets, and/or estimates for several companies under coverage.

CC (0.25): Circuit City files for Chapter 11 bankruptcy protection in Virginia -- Bloomberg (0.25)

Friday, November 7, 2008

November 7, 2008: Morning Call

November 7, 2008: Morning Call

Fair Value: SP500 – 903.77; NDX: 1243.77; DOW – 8677.49


Technical Levels:

SPX: 848-850, 908 support/ 998, 1098-1100 resistance


Events:

Pre-market EPS: F (-.93/27.67B); S (.03/8.86B)
08:30: Change in Nonfarm Payrolls (October): -180,000
08:30: Unemployment Rate (October): 6.3%
08:30: Change in Manufacturing Payrolls (October): -62,000
08:30: Average Hourly Earnings (October): 0.2%
10:00: Wholesale Inventories (Sep): 0.4%
10:00: Pending Home Sales (Sep): -3.5%
12:00: Fed’s Lockhart speaks on the US economic outlook
14:30: President-elect Obama holds press conference
15:00: Consumer Credit (Sep): 0.0 billion
Post-market EPS: BRK/A (1429.00/5.97B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 10 points above fair value while the NASDAQ futures are trading 18 points above fair value at 7:30 ahead of the key October employment data. European markets are currently trading up 0.20% off the highs of the session (+1.5%). Advancers on the FTSE 100 lead decliners 4-1. Munich Re (MUV2.GR) traded higher despite Q3 earnings missing estimates and cutting full year forecasts. The company said it would maintain its dividend. British Airways (BAY.LN) jumped after reporting its Q3 interim management statement and saying it's still on track to achieve a small profit in the financial year. Germany Sep Industrial production fell by a greater than expected (3.6%) m/m (2.1%) y/y. European leaders meet in Brussels today to decide on a common approach to fighting the credit crisis. Asian markets closed mixed with markets paring a sharp decline on the open. India, Hong Kong and South Korea closed higher by 2.3%-3.4%. Japan fell 3.5% after being down as much as 6.0%. Financials led a rebound in South Korea after the central bank cut interest rates by 25bps to 4.0%. Hong Kong reversed early declines after HSBC Holdings (5.HK) lowered its lending rate by 25bps. CNOOC (883.HK) went against the downward trend of energy stocks after assuring investors it had not been affected by the financial crisis. Japan pared early losses on bargain hunting in financials. Toyota Motor (7203.JP) tumbled after slashing its earnings forecast yesterday.



Impact Research Calls/Market Moving News:

WFC (28.77): Wells Fargo prices 407.5 million shares at 27 dollars.

DIS (22.81): Walt Disney says domestic bookings have fallen off considerably in the past month - conf. call: Management says they began to see the drop about the time of the Lehman bankruptcy. Domestic rooms reservations for quarters 1-2 are running a little under down 10%, with the decline in Q1 (Dec) less than that currently seen in Q2 (Mar); the bookings window is said to have contracted a bit, which is contributing further to uncertainty. Separately, management says they are not executing share repurchases at this time due to the macro environment; they do believe the shares offer a lot of value and will resume the buybacks when they once again decide to dispense capital to shareholders above the dividend.

GS (80.72); MS (15.39): JP Morgan cuts their numbers on GS and MS. Q4 EPS is cut to a loss of .58 cents from a prior estimate of 2.02. 2009 EPS are cut to 12.47. MS Q4 EPS is cut to .28 cents from a prior .77 cents.

JPM (38.26); C (11.52): Fox-Pitt Kelton cuts numbers on JPM and C: “JPM - We are cutting our 4Q08 est. from $0.90 to $0.65, due to: (a) -$0.18 from impact of weak equity mkts; (b) -$0.20 from the steeper credit reserve build offset by; (c) +$0.13 gain from sale of Paymentech. Our 2009 est. declines from $3.81 to $3.35 due to: (a) -$0.29 from lower activity levels in Wealth Mgmt. & Securities Svcs; (b) -$0.28 from credit reserve build offset by; and (c) +0.12 yield from CPP injection. We continue to believe that JPM will be a major mkt. share beneficiary (customer flight to quality), although weak equity markets and a tougher consumer credit environment will weigh on near-term results. C - We are cutting our 4Q08 est. from $0.00 to -$0.08 as follows: (a) -$0.06 for the impact of difficult equity mkts; and (b) -$0.02 from CPP-related dilution. Our 2009 est. drops from $1.61 to $0.69: (a) -$0.16 from lower Wealth Mgmt. & Secs Svcs; and (b) -$0.76 from higher credit costs. We are cutting our target from $25 to $20, which represents 2.2x TBV. Our 4Q08/2009 ests do not include write-downs as it is too early in the quarter for visibility on problem asset valuations, so there is downward bias. Any major incremental hits could require more business/property asset sales to regenerate equity capital without a dilutive raise. While the stock appears cheap, we are maintaining our In Line rating, given the wide range of risks including still-large problem asset exposures, big international consumer credit exposures, conditional off-balance sheet exposures, operational challenges, etc. We believe Citi will need a significant amount of time to work out these issues.”

DIS (22.81): Walt Disney reports Q4 EPS $0.43 ex-items vs Reuters $0.49: Company reports revenues of $9.45B vs Reuters $9.33B. Walt Disney reports Q4 consolidated segment operating income $1.744B vs StreetAccount $1.95B: Cash from operations was (21%) to $1.245B and free cash flow was (38%) to $616M. Revenue and segment operating income by division: Media Networks: revenue +4% to $4.212B and income flat at $1.058B. Includes - Cable revenue $2.927B vs SA $3.02B and income $1.208B vs SA $1.17B; and Broadcasting revenue $1.285B vs SA $1.23B and income ($150M) vs SA ($23M). Parks and Resorts: revenue $2.969B vs SA $2.88B and income $412M vs SA $430M. Studio: revenue $1.452B vs SA $1.53B and operating income $98M vs SA $168M. Consumer: revenue $812M vs SA $691M and operating income $176M vs SA $151M.

AIG (1.87): AIG: American Intl: U.S. weighs options to ease strain on AIG – WSJ: WSJ reports federal officials are considering ways to ease the financial pressure on American International Group, including changing the terms of the $85 billion loan extended to the insurer. Negotiations remain fluid, but one option under examination is to have the government backstop AIG's credit-default-swap contracts. It also may reduce the interest rate or extend the duration of the two-year loan facility, the people familiar with the matter said... AIG's role in the credit-default-swap market remains a sensitive issue for the government. AIG counterparties have demanded billions of dollars in collateral to ensure AIG stands behind its commitments to make payments in the event of defaults. If it were unable to meet those obligations, it would prove to be a systemic risk to the global economy, said people involved in the matter. This has become a concern for foreign governments, who are pressuring U.S. officials to find a solution... Those monitoring the sale of AIG's units are aware of the changed circumstances. The market upheaval has been "unfortunate timing," New York state Insurance Department Superintendent Eric Dinallo said in an interview. Natural potential buyers "are having a harder time getting the funding," Mr. Dinallo said. The scarcity is in turn giving potential buyers more pricing leverage, making it harder for AIG to raise the sums it needs. "Asset valuations are dropping and they're drawing down more money," said one person close to the insurer. "You don't need to be a rocket scientist to see that there could be some issues here."

EOG (77.17); SWN (32.90); KWK (9.47): EOG Resources (EOG), Southwestern Energy (SWN), Quicksilver (KWK) upgraded to buy from hold at Citi: The firm notes that US nat'l gas represents 80-95% of production exposure for the three. Despite the upgrade, the targets for EOG and KWK are reduced to $95 and $18, from $106 and $27, respectively. Target for SWN is unchanged at $41.

S (3.68): Sprint Nextel amends terms of credit agreements: The amended credit agreement provides a $4.5B revolving credit facility, replacing the $6B revolving credit facility. The company also paid down $1.0B of the outstanding loan amount under the amended credit agreement.

House Speaker Pelosi open to providing new support to beleaguered US auto industry – WSJ: The Journal cites an interview with Representative Pelosi, who says that fresh assistance could come as soon as this month. Of interest, Pelosi suggested that such assistance should be linked to continued efforts to improve the competitiveness of US automakers and the fuel efficiency of their vehicles

FSYS (26.71): Fuel Systems Solutions reports Q3 EPS $0.73 ex-items vs Reuters $0.26: Results exclude a $0.2M gain associated with the purchase of the 49% minority interest in the company's Netherlands subsidiary. Company reports revenues of $105.5M vs Reuters $85.5M. Guides full year revenues to $385M vs prior $350M and Reuters $369.1M.

PCLN (47.07): priceline.com reports Q3 EPS $2.39 ex-items vs Reuters $2.10: Company reports revenues of $561.6M vs Reuters $544.9M. Q4 guidance: Gross bookings +7.5-17.5% vs +19%, including international +0-10% Revenue growth +12-14%. Gross profit growth +12.5-17.5. Pro forma EBITDA $60-66MM vs Reuters $72.9M. Pro forma net income of between $1.00 -$1.10 per diluted share vs Reuters $1.12.

QCOM (33.05): Qualcomm provides Q1, f09, updates calendar year: Guides Q1 EPS to $0.46-0.50 vs Reuters $0.60; guides revenues to $2.3-2.5B vs Reuters $2.92B. Q1 MSM shipments targeted at 60-65M and CDMA/WCDMA (shipped in Sept quarter) expected 121-126M at an ASP of $205. Guides f09 EPS to $2.00-2.10 vs Reuters $2.57; guides revenues to $10.2-10.8B vs Reuters $12.11B. Guides f09 CDMA/WCDMA ASP to $195 vs $219in f08.

LVS (7.85): Las Vegas Sands CEO Adelson held casino talks with Singapore – Bloomberg: Bloomberg reports that LVS and the Singapore government are committed to completing the Las Vegas Sands Singapore casino.