Monday, March 16, 2009

March 16, 2009: Morning Call

March 16, 2009: Morning Call

Fair Value: SP500 – 753.81; NDX: 1170.37; DOW: 7182.85

Technical Levels:

SPX: 639, 676 support/ 778, 800 resistance


Pre-market EPS: PMI (-1.61/226.8M)
06:00: Euro-zone CPI (Feb): 0.4% MoM; 1.2% YoY (in-line with consensus)
07:00: Expect major credit card issuers to release trust data sometime today (AXP, COF, DFS, ect.)
08:30: Empire Manufacturing (March): -32
09:00: Net Long-term TIC Flows
09:15: Industrial Production (Feb): -1.2%; Capacity Utilization: 71.1%
13:00: NAHB Housing Market Index (March): 9
13:40: GILD presents at Cowen Healthcare conference
13:40: JNJ presents at Cowen Healthcare conference
Post-market EPS: IDT (-.32/450.0M); SINA (.45/99.2M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 10 points above fair value while the NASDAQ futures are trading 8 points above fair value at 7:53am ET. Strength in European markets, which are up 2.5%, is the primary reason for the strength in US futures. Bank and insurance shares are among the leading groups. Economic data and earnings news is on the light side. Although there was no reaction in the futures market during Bernanke’s 60 Minutes appearance, overall sentiment toward the current fiscal and monetary policies has improved. Crude oil is down 4% to 44.40 after OPEC left output quotas unchanged. Energy shares are among the worst performing sectors. Advancers on the FTSE 100 lead decliners 9-1. Asian markets closed higher (Japan up 1.78%, Hong Kong up 3.6%, Australia up 0.10%, Shanghai up 1.64%, India up 2.13%). In Japan the largest banks jumped 5-6% on easing fears over the health of US financial institutions, combined with a report the Bank of Japan might buy subordinated debt. Pioneer (6773.JP) soared on a report – even though it was denied – that it was in talks with Mitsubishi Electric (6503.JP) on a possible tie-up in car-equipment operations. Mazda (7261.JP) rose on a weekend report it would resume full production at two plants in July.

Research Calls/Market Moving News:

BCS (4.42): BCS shares are trading up 15% in London. Barclay’s is exploring the sale of its iShares exchange traded fund unit in order to bolster their capital position. The company confirms that they are in talks on an asset protection plan with the UK government. The iShare unit sale (price talk has ranged from 2-4 billion pounds) is an attempt to limit the dilution caused by joining the asset protection plan. BCS also says they had a “strong start to 2009.”

Bernanke says biggest risk to an economic recovery is the lack of political will – 60 Minutes: In an interview last night on 60 Minutes, the Fed Chairman repeated that “recovery is not going to happen until the financial markets and the banks are stabilized.” Bernanke also said that “we’ve averted” the risk of a depression.

US to implement stricter financial-market oversight – WSJ: The administration wants to unveil its proposals before the 2-Apr G-20 meeting. People familiar with the matter say the Fed will get broad, clearly defined new powers including authority to monitor and address risks across the economy. Big banks are going to se tougher capital requirements, and regulators are expected to get authority to take over large, failing financial firms. It is not clear if the changes will include letting state attorneys general prosecute national banks or restricting compensation for bank executives. Treasury Secretary Timothy Geithner is expected to seek comprehensive government authority over all financial products marketed to consumers. He wants to institute changes with a degree of global coordination, though it will probably need to be done piecemeal. Germany and France, for example, want much stricter government control of hedge funds than the US does.

AIG (0.50): American International Group publishes counterparty list reports the FT: The company has relented to political pressure and released a list of some of counterparties that benefited from the government bailout. The company has paid out $22.4B of collateral related to credit default swaps, $27.1B to help cancel swaps and $43.7B to satisfy the obligations of its securities lending operation, all between 16-Sept and the end of last year. Recipients include Goldman: $12.9B; SocGen: $11.9B; Deutsche $11.8B; Barclays $7.9B. Others include: UBS, JPM, STD, HBC, MS, BAC, RBS.LN and C.

OPEC decides to keep production at current levels reports the WSJ:
The cartel has decided instead to seek better compliance with existing production reductions as it fears any threat to global recovery that would be caused by higher energy prices. One analyst point out that while OPEN may wish for prices in the $50-$60 a barrel range, it knows that such prices in today's environment might damage the global economy.

GS (98.80); MS (25.43): Barron's Cover is positive on Goldman Sachs and Morgan Stanley: The shares have risen this year and both appear to be on track for a profitable Q1 and full year. Debt underwriting has surged and Goldman and Morgan Stanley both value virtually all their assets at market prices, making them less vulnerable to write-downs. Goldman noted that many of its competitors are no longer there and the others are inward focused. In a year the dozen or so heavyweights competing for the U.S. debt, equity and advisory business has been reduced to just three, Goldman, Morgan Stanley and JP Morgan. There are problem areas. Institutional and retail client activity is down. M&A and IPO deals are off sharply and asset management units are being hurt by market declines. There is also a brain drain as compensation is reduced. Further upside this year could have Morgan going over $30 and Goldman topping $110, and both could possibly go a lot higher if conditions and earnings rebound.

COF (12.56): Capital One reports Feb charge-off and delinquency data. Fox-Pitt notes that credit deterioration is “leveling off.” : All comparisons are month/month. US Card: net principal charge-offs $466.1M vs $459.2M; annualized net charge-off rate 8.06% vs. 7.82%; 30 days + delinquencies $3.51B vs. $3.51B for a rate of 5.10% vs. 5.02%. Auto finance: net principal charge-offs $78.2M vs. $108.5M; annualized net charge-off rate 4.44% vs. 6.09%; 30 days + delinquencies $1.58B vs. $1.95B for a rate of 7.52% vs. 9.18%. International: net principal charge-offs $50.6M vs. $43.9M; annualized net charge-off rate 7.20% vs. 6.10%; 30 days + delinquencies $505.5M vs. $496.2M for a rate of 6.16% vs. 5.81%. Fox-Pitt says the credit stats show “credit deterioration is leveling off for national lending. The actual weighted average net charge-off rate for National Lending (excludes local banking) for the month of February came in at 7.21% (down from 7.30% in 1/09 and 5.10% in 2/08), 69 bps below our estimate of 7.90%. With actual charge-offs for National Lending coming in 69 bps below our expectations, we believe our previous charge-off assumptions were too high. As a result, we are lowering our 1Q09 net charge-off rate assumption from 7.98% to 7.51% for National Lending (this is consistent with a March 2009 National Lending net charge-off rate of 8.0%). We are raising our 1Q09 EPS estimate to $0.09 (from $0.02). Our 2009 EPS estimate goes to a loss of $0.30 (from a loss of $0.40) and 2010 goes to $1.67 (from $1.24)”

GE (9.62): UBS removes Short-Term Sell rating on General Electric: Target lowered to $9.50 from $12. Rating is neutral. Firm believes the likelihood of further negative catalysts in the near-term is now much lower. Estimates for '09/'10 are lowered.

PCLN (78.34): reiterated buy at Citi: The firm attributes the recent weakness to the new promotional activity from Expedia (EXPE), though reiterates its buy based on positive online traffic trends and new industry forecasts it says are positive for online travel agencies. Target is $105

Steelmakers anticipating increased orders from stimulus and are increasing production reports the WSJ: Some steelmakers, looking to cash in on stimulus spending in the U.S., China and Europe, are increasing production. But the move has caused some prices to drop again. The companies, and others in the construction trades, face the difficult task of wanting to have products to sell ready to go but not too early before they are needed. Prices in China for steel have started to drop after the recent increase in utilization rates at its mills. Some analysts point out that a few of the companies have failed to consider exactly what types of steel the infrastructure stimulus projects will be buying.

Barron's summary
Cover: Positive on Goldman Sachs (GS) and Morgan Stanley (MS). Interview: Kathleen Shanley, senior bond analyst / finance at Gimme Credit likes the debt at BAC, GE Capital, JPM and C, negative on AXP and KEY. Lead Articles: Each brokerage with a Focus List posted a loss, often worse than the market; Barron's rates the top 25 online brokers; positive on the bonds of General Electric's financial services arm, GE Capital; Avon Products (AVP) could double over the next year; CONSOL Energy (CNX) looks like a real bargain; DirecTV Group (DTV) may continue to outpace the market for the next 18 months; Editorial argues that financials should be able to buy their way out of a credit default swap for the original purchase price. Columns: The Trader is positive on Dolby Laboratories (DLB); Asia Trader is positive on Standard Chartered (STAN.LN); Euro Trader is positive on British American Tobacco (BTI); Current Yield says we are now in the middle of a global, real-time experiment in reflation; Commodities Corner comments on the growing global carbon cap and trade markets; The Striking Price says traders are using options to offset their lack of faith in financials; Follow Up is still positive on oil, Hartford Financial (HIG), cautious on New York Community Bancorp (NYB); Up and Down Wall Street notes some cautionary thoughts on China; Streetwise suggests resisting the urge to call a bottom in the market and points to suspicion of any financials rally; D.C. Current says President Obama is on the wrong side of the card-check labor legislation; Economic Beat notes the relatively strong retail sales numbers and their positive impact on GDP; Technology Trader says eBay (EBAY) is still not a buy; Plugged In says a break up of Nortel (NT) makes sense; Gadget of the Week gives its highest praise to the new Kindle 2 from Amazon (AMZN).

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