Thursday, March 12, 2009

March 12, 2009: Morning Call

March 12, 2009: Morning Call

Fair Value: SP500 – 721.43; NDX: 1126.28; DOW: 6930.39

Technical Levels:

SPX: 639, 676 support/741, 752, 778, 800 resistance


Pre-market EPS: SFD (-.27/3.40B)
06:00: Euro-zone PPI (Jan): -0.2% MoM; 0.5% YoY(declined 0.8% MoM; -0.5% yoy)
08:30: US Retail Sales (Feb): -0.5%; Less Autos: -0.2%
08:30: Initial Jobless Claims (w/e March 7): 640,000; Cont. Claims: 5.17m
10:00: House financial services committee holds hearing on mark to market accounting
10:00: Business Inventories (Jan): -1.1%
10:30: EIA Natural Gas Storage Change
14:30: BOE’s Barker to make speech
Post-market EPS: ARO (1.00/678.9M); PSUN (-.50/345.2M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 6 points below fair value while the NASDAQ futures are trading 11 points below fair value at 7:45am ET. European markets are down 1.8% following weak earnings from K+S and BMW (at 6:15am ET, European markets were down almost 3%). Mining, steel, and bank shares are among the weakest sectors. Decliners on the FTSE 100 lead advancers 4-1. Credit spreads are wider this morning unwinding yesterday’s tighter spreads, but not back to the worst levels seen on Monday’s close. Asian markets closed mostly lower (Japan down 2.4%, Hong Kong up 0.59%, Australia down 0.27%, South Korea up 0.22%, India up 2.25%) but losses were pared late in the session. Japan’s Q4 GDP shrank 12.1% versus consensus of a decline of 12.7%. In Japan, exporters slid on a stronger yen, and insurers dropped on news of a merger between Nipponkoa (8754.JP) and Sompo Japan (8755.JP) necessitated by waning demand. China’s year-to-date retail sales +15.2% y/y vs survey 17.0%, year-to-date industrial production +3.8% vs survey 6.0%.

Research Calls/Market Moving News:

SDF GY (34.02): German fertilizer company, K+S, is trading down 9% after reporting weaker than expected Q4 earnings. The company also said they “expect significantly lower sales in 2009 and sees 2009 revenue down markedly versus last year.” K+S previously said it saw an “opportunity” for profit growth this year. US Fertilizer stocks (POT, MOS, AGU, CF, TRA) are all indicated lower in sympathy.

Warren Buffett to resume potential domestic deals-Bloomberg: In an interview to be aired today and tomorrow on Bloomberg TV, Warren Buffett signaled that the “odds favor” a domestic deal but that “I could get a call tomorrow about some company in the UK or Germany.” Bloomberg notes that the statement is a reversal for Buffett who previously indicated that buyout opportunities in the US were “scarce.”

STLD (8.55): STLD guides Q1 to a loss of between 40 and 45 cents versus prior guidance of 5 to 10 cents. Bloomberg Q1 consensus is 9 cents. Steel stocks are trading down in sympathy.

BMW GY (22.93): BMW shares are trading down 4.3% after he reported a wider than expected loss in Q4 and 2008 net income of 330 million Euros – consensus was at 1.0 billion Euros. BMW shares were down as much as 12.5% but have bounced back.

Regulator opposes suspension of mark-to-market accounting rules - Reuters: Reuters reports that in prepared testimony for a Congressional hearing on Thursday, Kevin Bailey, deputy comptroller of the currency, said that "While additional steps can and should be taken to enhance existing standards, the OCC believes that it is inappropriate to suspend current fair value measurement." Recall that Fed Chairman Bernanke suggested earlier this week that regulators need to address accounting methods for periods when assets can be illiquid and difficult to value, though he added that he does not favor suspending mark-to-market rules.

Life insurers await word on TARP aid – WSJ: Mounting investment losses are eating into companies' capital, but the industry still doesn't know if it will be allowed to tap TARP funds. The reasons are myriad: Insurers have cash coming in from premiums; they hold substantially fewer risky assets than banks do; they generally do not need to recognize short-term dips in asset values on their bottom lines; few have sizable debts maturing this year; some states have afforded insurers relief from certain capital requirements; and there is no federal agency that's in charge of them. Nonetheless, an industry trade group says insurers hold 18% of outstanding corporate bonds, and they bought 63% less in Q4 than they did in Q3, choosing instead to park more money in safe havens. Capital markets may not recover if life insurers stop buying bonds altogether. And at the end of 2008, MetLife (MET) had $29.8B in unrealized losses, Hartford Financial (HIG) had $14.6B, and Prudential (PRU) had $11.3B.

SPWRA (24.05): JP Morgan downgrades Sunpower to underweight from overweight after the cautious comments at the Merrill Lynch conference yesterday.

Andrew Cuomo says Merrill Lynch misled Congress about timing of 2008 bonus plans – NYT: In a state court filing, the New York Attorney General disclosed portions of testimony witnesses have given thus far in his investigation. Former Merrill CEO John Thain's attempt to wangle himself a generous payout is detailed, and witnesses say bonuses were decided upon in early December. Cuomo says traders mismarked their books around that time to appear more profitable and therefore bonus-worthy, and Bank of America did little if anything to prevent the payouts.

FRE (0.42): Freddie Mac warns of increasingly negative cash flows – Bloomberg: The company's 10-K filed post-close yesterday notes that by adding $30.8B worth of preferred stock to the government's holding, FRE's annual dividend payment to Treasury will be $4.6B, an amount that exceeds its annual historical earnings in most periods. Failing to make good on dividends may force Treasury to raise the interest, write off the debt, or assume full control of Freddie. The company also says more capital may be needed.

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