March 20, 2009: Morning Call

March 20, 2009: Morning Call

Fair Value: SP500 – 781.02; NDX: 1205.44; DOW: 7356.32

Technical Levels:


SPX: 639, 676, 719 support/ 800, 823 resistance

Events:

06:00: Euro-zone Trade Balance
06:00: Euro-zone Construction Output
10:00: House hearing on investor protection laws
11:00: Goldman Sachs CFO discusses relationship with AIG
12:00: Bernanke speaks on panel with FDIC chair Shelia Bair about the financial crisis

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading flat with fair value at 8am ET. The futures have bounced 10 points off the morning lows (741) session following news that EU leaders agreed to double the crisis fund for non-Eurozone members to 50 billion euros. European markets are unchanged bouncing 1.5% off the early morning lows. The dollar immediately reversed higher on the news (USD up 0.80% against the Euro) alleviating some of the concerns about the pace of the dollar decline over the last two sessions following the Fed announcement. Asian markets closed lower (Japan down 0.33%, Hong Kong down 2.26%, Australia down 0.41%, India down 0.39%). Banks followed their Wall Street counterparts down as euphoria over the plan for the Federal Reserve to buy longer-dated US Treasuries subsided. Commodity prices rallied, bringing related stocks up with them. Hong Kong lost early gains as investors showed disappointment with China Mobile (941.HK)’s results and a report a large investor is trying to sell shares, sending it down 5%.


Research Calls/Market Moving News:

GE (10.13): UBS comments on General Electric's finance analyst day: Firm notes that the company's underlying economic assumptions tend to be overly optimistic and that it seems increasingly possible that '10 could be worse than '09. Rating is remains neutral with a target of $9.50.

GE (10.13): General Electric EPS estimates reduced at Citi: Firm says the company's earnings power and the quality of its earnings are declining, and includes tax credits, but that the company's capital and liquidity are likely adequate. Firm reduced Q1 EPS and f09 below consensus. Shares rated hold. Target price, $9.

GE (10.13): GE Capital likely needs to increase reserves – WSJ: In a "Heard on the Street" column, the Journal discusses some of the recently released details of GE Capital's $637B worth of assets. The paper notes that 81% of the $55B of equipment leased in the Americas is to borrowers with ratings below investment grade. In addition, when it comes to the $38B leveraged loan book, 76% is to borrowers rated below B+, with 28% to those below B-. According to the article, management is expecting $333M of credit losses on its leveraged loans in 2009, less than 1% of the total amount. The Journal goes on to highlight GE Capital's exposure to lower-grade consumer borrowers.

SPG (34.38): Simon Properties to offer 15M shares through Goldman Sachs, Deutsche and UBS: All shares are being offered by the company. If the 15% over-allotment is exercised in full, the newly issued shares increase the shares outstanding by 7.5%. SPG is also offering ~$500M in senior notes through Goldman Sachs and JPMorgan. The completion of either offering is not conditioned on the success of the other.

Eurozone Jan Industrial Production (17.3%) y/y vs consensus (15.5%) and prior revised (11.8%). Eurozone Jan Industrial Production (3.5%) m/m vs consensus (4.0%) and prior revised (2.7%)

MHP (19.64); MCO (19.06): Credit-rating companies set to hit jackpot with latest government effort to heal credit markets – WSJ: The latest round features bond issues, each of which needs to be blessed by at least two of Moody's Investors Service (MCO), Standard & Poor's Ratings Services (MHP), and Fitch Ratings (FIM.FP). So while the argument can be made that these companies' wildly bad ratings on mortgage securities caused this problem, the latest solution is set to reward them. Officials at all three companies say steps have been taken to avoid repeating past mistakes in assigning ratings. Given typical charges, if TALF goes to the planned $1T, the three companies' fees for rating the securities will be $400M-1.2B.

FSLR (124.80): First Solar repeats it will have the capacity to produce more than 1GW per year: FSLR also announced it has producted 1GW of its advanced solar modules since beginning commercial production in early 2002.

TGT (31.43): Target reports February net charge-offs 12.88% vs. Jan 12.28%: Delinquencies were 8.94% vs. 8.91% in Jan. Trust portfolio yield was 25.49% vs. 24.63% in Jan. The payment rate was 12.61% vs. 12.47% in Jan

XRX (5.34): Xerox guides Q1 EPS to $0.03-0.05 vs prior $0.16-0.20 and Reuters $0.17: The reduction includes a $0.06 impact from Xerox's share of Fuji Xerox's restructuring and a lower than expected Fuji Xerox profit contribution with the balance resulting from an industry-wide slowdown in technology spending, putting pressure on revenue and earnings. Xerox's total revenue in January and February declined 18% including a 5 point currency impact, largely due to lower sales of equipment and printer-based supplies.