Friday, March 13, 2009

March 13, 2009: Morning Call

March 13, 2009: Morning Call

Fair Value: SP500 – 748.01; NDX: 1166.63; DOW: 7129.21

Technical Levels:

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


06:00: Euro-zone Retail Sales (Jan): 0.2% MoM; -2.3% YoY
08:30: Trade Balance (Jan): -38.1B
08:30: Import Price Index (Feb): -0.8%
10:00: University of Michigan Confidence (March): 55.5
10:30: Lawrence Summers speaks on the US economy and financial crisis

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points above fair value while the NASDAQ futures are trading 4 points above fair value at 7:45am ET. Asian markets closed sharply higher (Japan up 5.15%, Hong Kong up 4.37%, Australia up 3.39%, India up 4.95%, South Korea down 0.57%, Shanghai down 0.46%). Exporters rose again in Japan on a weaker yen and Canon (7751.JP) jumped on a 2010-profit forecast while Sony (6758.JP) and Seiko Epson (6724.JP) moved up on plans to form an alliance. European markets are up 2.3% with financial and material stocks pacing the advance. Technology stocks are lagging with both SAP and NOK both trading down 2%.

In my March 5 morning call, I recommended that traders get long below 700 and especially between 650-680 in order to position for a 10% move higher. I would be booking gains (at 757 on the S&P) and adopting a neutral posture because the “easy money” has been made on this rally. I am also surprised by the strength in the futures despite some of the negative/bearish headlines this morning. Over the intermediate term, I continue to favor trading with a long bias especially if the market breaks below 700 again.

Research Calls/Market Moving News:

Chinese Premier Wen Jiabao expresses concern about the safety of US Treasuries – wires: Speaking earlier today, Jiabao said that China has "lent a massive amount of money to the U.S." and says he "request the US to maintain its good credit, to honor its promises and to guarantee the safety of China's assets." Jiabao says China is concerned about the security of its assets. Jiabao also reaffirmed China's commitment to keeping the yuan broadly steady and noted that the yuan had been rising in value. As reported earlier, Jiabao said that the country could come up with new stimulus packages when necessary. The comments have caused weakness in US Treasuries, which have been broadly lower during the overnight.

BRK/A (85,700): Fitch downgrades Berkshire Hathaway's IDR to 'AA+" from 'AAA'; senior unsecured debt to 'AA" from 'AAA': Fitch says that it has concurrently affirmed its 'AAA' Insurer Financial Strength (IFS) ratings on BRK's insurance and reinsurance subsidiaries. The Rating Outlook for all entities is Negative. Fitch notes that the actions are part of a broader review of insurance financial services company ratings, which includes taking a fresh look at various risk factors and criteria application in light of the current stressful economic environment. Fitch says that it does not believe that 'AAA' ratings are appropriate for financial-oriented enterprises given significant market volatility and correlation of risks under stress, recently observed throughout the global economy.

Goldman Sachs lowers growth forecast for the global economy: In the second time in eight days, Goldman Sachs lowers their 2009 Global economic forecast to minus 1% from a previous estimate of a 0.6% decline.

UK to call for radical powers for financial regulators to prevent banks from taking on too much risk - London Times: Alistair Darling will suggest 13-Mar that the Financial Services Authority and its counterparts should preempt irresponsible behavior, intervening to prevent overleveraging if banks' capital reserves are not large enough to balance the loans they have made. The plan, under which banks' overall positions are monitored rather than having different parts assessed by different regulators, is one of the UK's main proposals for the 2-Apr G20 summit, and Darling believes international agreement will be required to make it effective.

C (1.67): Citi Chairman Parsons says bank does does not need more capital injections from the government: Citi Chairman Richard Parsons said yesterday that the bank does not need any more capital injections from the government and expressed confidence that Citi would remain in private hands. Parsons also told Reuters that "Citi is actually one of the better capitalized banks in the world." Parsons went on to say that he did not think the administration is heading in the direction of the government nationalizing the bank and stated that he has a lot of confidence in the future viability and strength of a privately held Citi. Parsons made the comments on the sidelines of a Business Roundtable event where President Obama addressed business executives.

GE (9.57): GE likely to face further downgrades – WSJ: In a "Heard on the Street" column, the Journal notes that GE will have trouble staving off further downgrades if a deepening recession weighs on the cash flows of its industrial business at the same time as its finance unit continues to suffer from its lofty exposure to troubled assets such as commercial real estate. The article also expresses concern about the company's industrial balance sheet, with the bulk of its capital already supporting the finance business.

AAPL (96.35): Apple estimates reduced below consensus at BMO Capital, shares remain outperform rated: Weak CPU and iPhone demand is noted with f09 and f10 EPS estimates reduced to $5.05 and $5.30 from $5.13 and $5.47 vs. Reuters $5.14 and $5.89. Shares remain outperform rated, however, with the target maintained at $105.

FWLT (17.62): Foster Wheeler upgraded to Conviction Buy from neutral at Goldman Sachs: 6-month target increased to $23 from $18. The firm doesn't see any negative catalysts until the next round of earnings.

DVN (44.11): Devon Energy upgraded to overweight from equal-weight at Barclays Capital. The firm cites valuation.

SPWRA (23.10): SunPower downgraded to market perform from outperform at William Blair

WMT (48.94): Wal-Mart removed from Conviction Buy List at Goldman Sachs: The rating remains buy; target $55.

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