Wednesday, January 14, 2009

January 14, 2009: Morning Call

January 14, 2009: Morning Call

Fair Value: SP500 – 868.58; NDX: 1202.69; DOW: 8403.80

Technical Levels:

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


Pre-market EPS: AMR (-.60/5.55B); NITE (.36/258.4M)
05:00: Euro-zone Industrial Production (November): -1.9% MoM; -5.8% YoY
07:00: MBA Mortgage Applications
08:30: US Import Price Index (December): -5.3% MoM
08:30: US Retail Sales (December): -1.2%; Less Autos: -1.4%
08:30: Fed’s Plosser speaks on the economic outlook
09:20: BZH presents at Credit Suisse Homebuilder Conference
10:00: US Business Inventories (November): -0.5%
10:00: OXY presents at Goldman Sachs Energy Conference
10:00: MUR presents at Goldman Sachs Energy Conference
10:00: PBR presents at Goldman Sachs Energy Conference
10:10: TOL presents at Credit Suisse Homebuilder Conference
10:30: DOE/API Crude Oil and Gasoline Inventories
11:00: NOV presents at Goldman Sachs Energy Conference
11:00: CAM presents at Goldman Sachs Energy Conference
11:40: DHI presents at Credit Suisse Homebuilder Conference
13:00: Fed’s Sterns speaks on Fed policy
13:30: APA, DVN, TLM CN present at Goldman Energy E&P panel
14:00: Fed’s Beige Book
14:30: BJS, HP, and NBR present at Goldman Energy Oil Service panel
15:20: HOV presents at Credit Suisse Homebuilder Conference
Post-market EPS: XLNX (.31/441.5M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 8 points below fair value in response to weakness in European banks after DB preannounced weaker Q4 earnings. European markets are down 1.5%-2.0% extending the losing streak to 6 sessions. Banks are leading the decline with a 6% sell-off. Mining stocks are also on the weak side. Decliners on the FTSE 100 lead advancers 9-1. Barclays (BARC.LN) fell after yesterdays news of job cuts in its investment mangagement and investment banking units with additional reports of job cuts in it's UK units. Euro-zone Industrial production also came in weaker than expected at –7.7% vs. street consensus of –6.1%. Asian markets closed higher (Japan up 0.29%, Hong Kong up 0.27%, Australia up 0.89%, India up 3.3%, Shanghai up 4.2%). Energy stocks followed oil higher. Shippers rose after the Baltic Dry Index registered a sixth consecutive rise. China was bouyed by speculation that the central bank will lower interest rates again.

Impact Research Calls/Market Moving News:

DB (31.90): Deutsche Bank pre-announced a loss of $6.3 billion in Q4. The shares are trading down about 10%. The company had been scheduled to report in early February and did not provide results for individual units. Bloomberg is reporting that people familiar with the earnings are saying DB lost about 1 billion in CDS and 500 million in equity trading during the quarter. European banks are down about 6% with BCS down 12% and HBC down 8.25%.

Geithner Nomination: SEC Chairman Arthur Levitt says the Geithner nomination could be jeopardy over the failure to pay taxes but that he will likely get through “wounded which is a shame.” Questions about the Geithner nomination seem to rising despite assurances by Senator Harry Reid and Hatch that he has the necessary support.

C (5.90): Citi (C) and Morgan Stanley (MS) confirm wealth management joint venture: Citi will exchange 100% of its Smith Barney, Smith Barney Australia and Quilter units for a 49% stake in the joint venture and an upfront cash payment of $2.7B. Morgan Stanley will exchange 100% of its Global Wealth Management business for a 51% stake in the joint venture. After year three, Morgan Stanley and Citi will have various purchase and sale rights for the joint venture, but Citi will continue to own a significant stake in the joint venture at least through year five. At closing, Citi will recognize a pre-tax gain of approximately $9.5B, or approximately $5.8B on an after-tax basis, and will create approximately $6.5B of tangible common equity. The joint venture is expected to achieve cost savings of approximately $1.1B - in part by rationalizing and consolidating key functions $1.1B - in part by rationalizing and consolidating key functions including technology, operations, sales support, product development and marketing.

C (5.90): Citi maintained underperform by Meredith Whitney at Oppenheimer after Morgan Stanley (MS) announcement: Whitney says there is no way to view the MS move other than as a way for C to raise cash prior to its Q4 earnings release. The firm also notes that they anticipate further advances toward asset monetization/unwind due to C's ongoing challenge of asset deflation.

C (5.90): CNBC's Charlie Gasparino reports Citigroup CEO Vikram Pandit may leave soon: Gasparino cites Wall Street executives who say that Citi board members are growing impatient with Pandit. He also notes that while Pandit cannot be blamed for Citi's downfall, he can be blamed for a lack of vision and in particular, failing to see that the supermarket model would likely never work.

OIH (76.81); RIG (52.01); SII (24.64); PDE (16.57): Oil services stocks downgraded at JPMorgan: SII, RIG, NOV, PDE: Smith Int'l (SII), Transocean (RIG) downgraded to neutral from overweight. National Oilwell (NOV), Pride International (PDE) downgraded to underweight from neutral. The firm notes relative valuation and also expectations that of a later earnings recovery.

BG (48.17): Bunge Ltd guides full year EPS to $7.70 vs Reuters $10.53 – the guidance implies a loss of 53 cents in Q4. Weak Q4 results were impacted by soft demand for soybean meal and oil due to challenging economic conditions in end markets and substitutions of other agricultural commodity products. Fertilizer segment performance was also impacted by foreign exchange losses of approximately $225M from the 18% devaluation of the Brazilian real on U.S. dollar-denominated financing of working capital during Q4. BG's preliminary expectation for 2009 earnings is in the range of $6.90 to $7.60 per share vs Reuters $8.00.

LLTC (22.60): Linear Technology guides Q3 revenues to $199.4M-$211.8M vs. Reuters $243.8M

WSJ discusses overseas cash constraints: In a "Heard on the Street" column, the Journal notes that a large chunk of the cash on corporate balance sheets (particularly in the pharma and tech sectors) cannot be brought home without paying an extra tax charge of as much as 30%. The article also points out that such constraints have forced cash-rich companies like Johnson & Johnson (JNJ) to issue debt to make dividend payments, while others may be disadvantaged in their efforts to pursue consolidation at depressed valuations. The Journal goes on to discuss the possibility of another tax amnesty like the one in 2005 that allowed companies to repatriate billions of dollars at a tax rate of just 5.25%.

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