Tuesday, March 3, 2009

March 3, 2009: Morning Call

March 3, 2009: Morning Call

Fair Value: SP500 – 700.17; NDX: 1077.17; DOW: 6754.93

Technical Levels:

SPX: 685 support/752, 778, 800, 848-852 resistance


Pre-market EPS: AZO (1.84/1.38B); CHS (-.17/370.9M); MBI (-.47/393.3M); TSL (-0.01/220.2M)
08:00: Fed’s Lockhart speaks on the US economy
10:00: Fed’s Bernanke speaks before Senate Budget Committee
10:00: Pending Home Sales (Jan): -3.5%
10:00: MDR earnings call
10:30: DELL presents at Morgan Stanley Tech Conference
11:15: MSFT presents at Morgan Stanley Tech Conference
11:25: PNC presents at Sandler O’Neill Financial Services Conf.
11:30: DE presents at ISI Industrial Investor Conference
12:30: QCOM Annual General Meeting
12:30: Treasury Secretary Geithner testifies at House panel on Federal Budget
12:45: TXN presents at Morgan Stanley Tech Conference
14:10: HIG presents at Association of Insurance Financial Analysts Conf.
15:00: GOOG presents at Morgan Stanley Tech Conference
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
20:00: Chinese PMI Manufacturing
Post-market EPS: ADCT (-.11/274.4M);

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 8.50 points above fair value while the NASDAQ futures are trading 13 points above fair value at 7:30 am ET. Asian markets declined but the losses were smaller than US listed ADRs were implying when US markets closed on Monday (Japan down 0.69%, Hong Kong down 2.3%, Australia down 0.95%, India down 2.0%, South Korea up 1.1%). Japan pared initial declines of as much as (2.6%) after the country’s Finance Minister said the government could not ignore excessive declines in stock prices. European markets are up 0.60% in volatile trading. Markets in London are still down 1% underperforming the rest of the Euro-zone. Basic material, energy, and banking sectors are all down more than 1.5%.

Impact Research Calls/Market Moving News:

Obama administration considering creating multiple investment funds to purchase toxic assets – WSJ: The Journal cites people familiar with the matter. The paper adds that while no final decision has been made when it comes to the structure of a private-public financing partnership, one leading idea is to establish separate funds run by private investment managers. The managers would have to put up a certain amount of capital, while additional financing would come from the government, which would share in any profit or loss. According to the article, the private investment managers would run the funds, and have the power to decide what assets to buy and what prices to pay. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans

JPM (21.16): JPMorgan Chase made $5B in profit from over-the-counter fixed-income derivatives last year – Bloomberg: The wire cites people with knowledge of the results. JPM's total profit was $5.6B in 2008. In a separate story, the wire reports that Goldman Sachs (GS) and JPMorgan Chase have hiked their average underwriting fees by 50% y/y, from 1.9% to 2.9%.

MGM (3.05): MGM Mirage at risk of Chapter 11, reports Las Vegas Sun: The article notes the news last week that MGM had requested the remaining $842M under its $4.5B line of credit, which has created a risk of bankruptcy filing, according to analysts, noting that major loans are coming due over the next 2 years. A spokesman for the company declined to comment on the bankruptcy concerns or elaborate on the 27-Feb announcement. One source indicated that a delay to completion of CityCenter is one of many possibilities being considered by MGM until credit eases.

GE (7.60):UBS continues to expect a credit rating downgrade on General Electric:While the firm believes the dividend cut was necessary, it continues to expect a rating downgrade sometime shortly before or after Q1 results. UBS thinks that GE may need to raise additional capital and still sees downside to share prices over the next few months. Firm maintains Short-Term Sell rating. 12-month rating remains neutral with a target of $12.

GE (7.60): Investors likely to start worrying about GE's exposure to Eastern Europe – WSJ: In a "Heard on the Street" column, the Journal notes that in a presentation last year, GE said it had $26B of financial assets in central and eastern Europe at the end of 2007, up significantly from the $15B at the end of 2005. The paper adds that current exposure could be even higher, as GE noted in its 2008 annual report that 11% of its financial receivables were in developing markets, mainly Eastern Europe and Mexico. According to the article, if 9% of the total were in Eastern Europe, which could amount to more than $30B. The Journal goes on to point out that many of GE's loans in the region are consumer loans, which are typically not made against collateral.

FNM (.38); FRE (.38): Fannie, Freddie unlikely to fully return to private hands - NY Times: The Times reports that lawmakers and company executives are beginning to quietly acknowledge that Fannie Mae and Freddie Mac will most likely never fully return to private hands. The article notes that the biggest constraint is the fact that in order to become independent, the companies must repay public funds, with interest. However, even if the firms become profitable again, it could take them more than 100 years to pay back the government. The paper also points out that in just the last six weeks, the Obama administration has essentially transformed the GSEs into arms of the federal government, with regulators mandating that the companies oversee a sweeping new mortgage modification program, purchase greater numbers of loans, refinance millions of at-risk borrowers and loosen internal standards. The Times also cites low pay and the burden of second-guessing by government officials as a factor in the exodus of talent from the companies, including Monday's announcement of the unexpected departure of Freddie CEO David Moffett. The article goes on to note that lawmakers are discussing a number of possible options for Fannie and Freddie, ranging from outright nationalization to public-private hybrids.

Dividend cuts this year expected to be worst since 1938 – FT: According to S&P, S&P 500 dividends fell 36.3% in 1938. Thus far in 2009, dividend pay-outs are forecast to contract at least 22.6%. The S&P's current trailing dividend yield is 4%, with the FT noting that the consensus estimate for the 2009 S&P 500 dividend pay-out is 3.49%.

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