March 10, 2009: Morning Call

March 10, 2009: Morning Call

Fair Value: SP500 – 676.31; NDX: 1044.18; DOW: 6542.41

Technical Levels:


SPX: 639, 667 support/741, 752, 778, 800 resistance

Events:

Pre-market EPS: DKS (.52/1.23B); KR (.51/18.4B); JASO (-.03/121.0M)
05:50: AGU presents at Credit Suisse Global Ag Conf.
07:50: MOS presents at Credit Suisse Global Ag Conf
08:05: NYB presents at Raymond James Institutional Investor Conf
08:30: Bernanke speaks on Bank regulation
09:00: CVX Analyst Meeting
09:50: ALL presents at Raymond James Institutional Investor Conf
10:00: Wholesale Inventories (Jan): -1.0%
10:00: IBD/TIPP Economic Optimism
14:00: AMAT analyst meeting
16:00: NDAQ presents at Raymond James Institutional Investor Conf
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: HOV (-1.58/412.4M); JCG (-.27/370.9M); TTWO (-.73/208.4M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 13 points above fair value while the NASDAQ futures are trading 18 points above fair value. Stronger foreign markets and “positive” guidance from Citigroup is triggering a bounce in the futures. Asian markets closed mostly higher (Japan down 0.44%, Hong Kong up 3.08%, Australia up 0.95%, Shanghai up 1.74%, South Korea up 2.04%, India closed). HBC led financial shares higher in Asia with a gain of 12%. South Korea reversed early losses as banks rallied. Shipping lines and energy producers led China higher. China Eastern Airlines (600115.CH) rallied after its parent got an additional CNY2B in bailout aid from the government. European markets are up 1.5% reversing initial modest declines following the Citibank news (which hit the tape around 4:10am). European financial sectors are up 6-10%.

Impact Research Calls/Market Moving News:

C (1.05): Citigroup CEO says the company is having its best quarter since Q307. In an internal memo, Pandit said “we are profitable through the first two months of 2009.” At this point, it is unclear if Pandit is excluding certain write-downs or other charges. But, the vague news is having a significant impact in the financial sector, which is looking up about 5%. C shares are trading 20% higher. SKF is trading down 10% to 220.55.

C (1.05): Government already looking at next measures that could be necessary for Citi – WSJ: People familiar with the matter say the discussions are contingency plans to be taken if Citi suddenly needs more help, which they aren't expecting. The discussions include the Treasury Department, Office of the Comptroller of the Currency, Federal Reserve, and Federal Deposit Insurance Corp, but no new rescue is imminent. The talks are taking place partially because the government simply does not have a formula to use to wind down a huge, complicated company like Citi or American International Group (AIG).

Credit cards are the next credit crunch – WSJ: In an editorial in the WSJ, Meredith Whitney says the contraction in credit card debt availability is more severe than prior estimates: “Just six months ago, I estimated that at least $2 trillion of available credit-card lines would be expunged from the system by the end of 2010. However, today, that estimate now looks optimistic, as available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone. My revised estimates are that over $2 trillion of credit-card lines will be cut inside of 2009, and $2.7 trillion by the end of 2010. Inevitably, credit lines will continue to be reduced across the system, but the velocity at which it is already occurring and will continue to occur will result in unintended consequences for consumer confidence, spending and the overall economy. Lenders, regulators and politicians need to show thoughtful leadership now on this issue in order to derail what I believe will be at least a 57% contraction in credit-card lines.”

BIDU (155.08): Baidu's target increased at Goldman Sachs: The shares are rated buy and the target is increased to $185 from $153.

WMT (47.51): Wal-Mart downgraded to hold from buy at Citi: Target cut to $48 from $53. The firm notes EFCA/card check legislation as early as today, which could make it easier to form unions, and be an overhang for the stock

TXN (14.69): Texas Instruments provides mid-quarter update: The midpoint of the new revenue guidance is $1.92B, which is above the $1.87B of the initial outlook; $1.92B represents a sequential decline of 23% versus prior 25%. The earnings midpoint is unchanged at ($0.04). While noting several times that fourth quarter trends were very weak, he says that orders have trended up throughout the quarter; January was up from December and February was up from January. Book/bill should improve from Q4's 0.75, but no specific figure was provided. Lead times are said to be short and stable, and product availability is not an issue. Looking at the broader demand picture, he says that there has not been the level of broad-based strength that would normally be associated with the end of an inventory depletion cycle. They believe that demand continues to deteriorate and they do not see any signs of stabilization at this time.

AAPL (83.11): Apple plans to launch netbook, possibly as soon as H2 - Dow Jones: People close to the situation say Apple is working with Wintek (2384.TT) and Quanta Computer (2382.TT) to assemble the new netbooks. One says the mini laptop computers will likely have monitor screens that are between 9.7-inches and 10-inches, while another says specifications and functions are still under evaluation.

HPQ (25.53): Hewlett-Packard removed from the Conviction Buy List at Goldman: Shares remain buy rated

NUE (31.58): Nucor upgraded to buy from neutral at UBS: Target decreased however to $45 from $50. The firm reduces its f09 US hot-rolled coil forecast to $465/short ton and also reduces targets on: STLD to $16 from $20; X to $16 from $23; AKS to $6.50 from $10; GNA to $3.50 from $5.75; CMC to $20 from $24; RS to $25 from $28; SCHN to $28 from $42

SLB (36.67); NBR (8.77); HAL (15.72): HAL, NBR, SLB downgraded to sector perform from outperform. SLB target reduced to 42 from 58. NBR target reduced to 12. HAL price target reduced to 17.

Morgan Stanley downgrades the Aerospace and Defense group to cautious from in-line: The firm recommends reducing exposure to Defense given President Obama's intention to lower spending