January 12, 2009: Morning Call

January 12, 2009: Morning Call

Fair Value: SP500 – 887.12; NDX: 1223.44; DOW – 8599

Technical Levels:

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

Events:

Pre-market EPS: SCHW (.26/1.29B); MTB (1.15/771.6M)
09:15: President Bush to hold press conference
11:00: CELG presents at the JPM Healthcare Conference (note: JP Morgan Healthcare Conference is Monday through Wednesday of this week. Most major biotech and pharmaceutical companies will be presenting).
12:40: Fed’s Lockhart speaks on US Economic Outlook
Post-Market EPS: AA (-0.06/5.20B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading flat with fair value at 7:30am ET. Crude Oil is trading down almost 5% to 38.92 on concerns that demand may decline faster than OPEC is able to cut output. Two top Chinese officials also indicated that economic growth in the country could fall short of the 8% target. Asian markets closed lower (Hong Kong down 2.8%, Australia down 1.4%, India down 3.1%, Japan closed). Commodity and Industrial companies lead the decline in Asia (PTR dropped 4.8%, RTP fell 6%). Macau casino stocks pulled back as investors were disappointed that travel restrictions for Chinese visitors were not eased (this could impact WYNN and LVS). India continued to struggle, even though Satyam (SCS.IN) surged +44% on hopes the company's new board will draw up a rescue plan. Wipro (WPRO.IN) slumped (9%) after announcing it was barred from World Bank contracts for four years in June 2007. European markets are down 0.25% and have traded in a very tight trading range all morning. Decliners on the FTSE 100 lead advancers 7-3. UBS (UBS) traded lower on press reports it may post ($7.2B) loss for Q4.

Impact Research Calls/Market Moving News:

C (6.75): Citi may book $10B pretax gain by forming brokerage JV with Morgan Stanley (MS) – Bloomberg: A person familiar with the talks says the gain would result from writing up the value of Citigroup’s Smith Barney brokerage unit to the new price set by the deal. Another source says talks progressed over the weekend, and a deal may be announced by mid-week.

C (6.75): Citi maintained underperform by Oppenheimer's Meredith Whitney after reports of MS deal: The firm cites reports that Citi was near a deal to enter a joint venture with Morgan Stanley (MS). Whitney notes that based upon C's exposures to higher risk assets and the regulatory-capital demands on those assets, capital remains the focus of C's challenges. Whitney believes the deal would provide some near-term capital relief, however says more capital will likely be needed. Whitney also notes that she views this transaction as a positive for MS.

C (6.75): Page One article says Citi board backs CEO Vikram Pandit – WSJ: The article echoes what the New York Times reported earlier, that Richard Parsons is expected to replace Win Bischoff as Citi's chair this month. In an interview, Parsons utters platitudes about Pandit's performance. People familiar with the matter say Citi is expected to post a Q4 operating loss of at least $10B, and one says December was particularly unkind to the bank. The net loss will be closer to $6B (Bloomberg: loss of $3.52B). People familiar with the talks say federal officials told Pandit to downsize the company in December, feeling his integration strategy wasn't far-reaching enough.

AA (10.81): Alcoa downgraded to sell from hold at Deutsche Bank, target cut to $8 – Bloomberg

XOM (77.57): Investors speculate if Exxon Mobil is ready to make a deal says the WSJ: Exxon has made no sizable acquisitions since the 1999 deal for Mobil. It is one of the few companies with the financial firepower necessary for a major deal because it did not chase the recent bull market in oil and exercised restraint. One analyst believes the company could gap away from competitors in 2009 through a major deal. CEO Tillerson says the company monitors opportunities all the time. DB's Paul Sankey says sitting still during the down cycle would not make much sense and would frustrate shareholders. One scenario speculated upon is that Exxon would buy Royal Dutch Shell (RDS.A) in order to gain more access to West African oil and greater presence in the international gas market though such a deal would face regulatory scrutiny and likely entail issuing billions in new shares to institutional foreign holders that might have to sell if they are not allowed U.S. exposure. Other speculation is a deal for BG Group (BG.LN) or a partnership with Petrobras (PBR).

SAY (1.00): Major clients preparing to abandon Satyam Computer - Economic Times: A source familiar with the matter says General Electric (GE), Satyam's largest client, is talking with other vendors about merging the existing Satyam team with their resources to ensure continuity of work. Spokesmen for Nestle (NESN.VX) and British Petroleum (BP.LN) say their companies are considering alternative solutions.

Barron's summary
Cover: First installment of the Investment Roundtable: Meryl Witmer likes KALU, AYE, AIZ and DFS; Fred Hickey likes MSFT, CDNS, GDX, AEM, DBA and FXI. Barron's Mutual Fund Quarterly. Lead Articles: American Physicians Capital (ACAP) is practically recession-proof; Positive on high dividend European companies such as PP.FP, BP, RDS.A, ADM.LN, AKZOY, BAS.GR, PSON.LN, AZN.LN, GSK.LN, NOK, DTE.GR, TEF, VOD, RWE.GR; Nuclear energy should prosper under an Obama Administration; Some banking stocks could rally from currently depressed levels; Other Voices suggests removing the corporate income tax and tariffs as a stimulus for the 21st century; Editorial suggests trying to keep the government out of the banking system and is glad that the music companies are finally agreeing to get rid of DRM in digital downloads. Columns: The Trader suggests taking some profits, positive on FTI Consulting (FCN), positive on a Morgan / Smith Barney deal; Euro Trader is positive on ASML Holding's (ASML) bonds; Asia Trader notes the concern that there may be more scandals to be uncovered in India; Commodities Corner says South American conditions could cause a continued rally in soybeans; Current Yield reviews last week in the credit markets; The Striking Price suggests that options will likely grow in popularity as buy and hold decreases as the primary stock investing option; Follow Up is cautious on Intel (INTC), positive on Linn Energy (LINE) and Intuitive Surgical (ISRG); Up and Down Wall Street considers the pronouncements from president-elect Obama, the coming budget deficits and the jobs report; Streetwise says the great unknowns is how far consumer spending will decrease and how much saving will increase and says the immediate money may have been made in the corporate bond market, positive on Thermo Fisher Scientific (TMO); D.C. Current says the Obama stimulus proposal is too big to oppose and while the economy needs help, it doesn't need this much help, much of it seems to be an attempt to buy popularity; Technology Trader reviews the Consumer Electronics Show; Plugged In is a tribute to money manager Eric Von der Porten; Gadget of the Week is the HP Touchsmart tx2z tablet PC.