April 1, 2009: Morning Call

April 1, 2009: Morning Call

Fair Value: SP500 – 795.03; NDX: 1237.77; DOW: 7564.07

Technical Levels:

SPX: 676, 719, 765 support/ 823, 898 resistance

Events:

Pre-market EPS: WOR (.05/583.8M)
04:00: Euro-zone PMI Manufacturing (March): 34.0 (actual: 33.9)
05:00: Euro-zone Unemployment Rate (Feb.): 8.3% (actual: 8.5%)
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (March): -648,000 (actual –742,000)
10:00: ISM Manufacturing (March): 36.0; Prices Paid: 33.0
10:00: Pending Home Sales (Feb): -2.0%
10:00: Construction Spending (Feb): -1.6%
10:30: DOE Crude Oil and Gasoline Inventories
13:00: Fed’s Pianalto speaks at Ohio’s Bankers Day - Topic to be determined
13:00: F March 2009 Sales and Revenue Call
14:00: GM March 2009 Vehicle Sales conference call
16:00: WMT presents at Morgan Stanley Conference


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 11 points below fair value while the NASDAQ futures are trading 16 points below fair value at 8:20am ET. The S&P futures have moved back toward the overnight session lows following the weaker ADP employment change number. Markets are also under pressure on concerns about the potential ramifications of a prepackaged bankruptcy at GM, general concerns about the global economy due to weaker economic data in Europe over the last three days, and sporadic violence at the G20 meeting in London. European markets are down 0.50% to 1.0% with energy and technology stocks leading the decline. Asian markets closed mostly higher (Japan up 3.0%, Hong Kong down 0.42%, Australia down 0.07%, Shanghai up 1.6%, India up 1.9%). Markets in Asia shrugged off a weaker Japanese Tankan Sentiment survey, which hit a record low of –58 compared to expectations of a decline of –54. China Unicom (762.HK) fell after earnings missed estimates.

Research Calls/Market Moving News:

Global Slump Seen Deepening – Page One – WSJ: The outlook for the global economy worsened on the eve of a summit of the world's 20 biggest economic powers, as two international agencies warned that global output will fall in 2009 for the first time since World War II. Fresh evidence of the deepening slowdown came from around the world. Euro-zone data Tuesday showed inflation at 0.6% in Europe's single-currency area for the year through March, the lowest level since official records began in 1996. In the U.S., home prices fell 19% in January compared with a year earlier. Japan's business-confidence fell to an all-time low in data released by its central bank early Wednesday, a day after the jobless rate there rose to a three-year high. All together, the world economy will shrink by 2.75% this year, the Organization for Economic Cooperation and Development said. The 30 industrialized countries it tracks now face a far bigger slump than it forecast just four months ago, the OECD said, at 4.3%. The World Bank issued a slightly smaller downgrade of the global economic outlook Tuesday, projecting a contraction of 1.7%. Both institutions forecast a steep and damaging plunge in 2009 world trade, the World Bank at 6.1% and the OECD more than double that.

Proposed mark-to-market accounting change may run counter to Treasury's efforts to clean up banks' balance sheets – WSJ: The Journal notes that the Financial Accounting Standards Board, or FASB, is proposing changes to its mark-to-market accounting rules that would allow hard-to-value assets to be marked down only by expected losses, rather than market prices as is now the case. However, the paper adds that there is a good deal of concern surrounding the proposal, which is scheduled for a vote this Thursday, as it seemingly incentivizes banks to keep assets on their balance sheets.

President Obama has determined that prepackaged bankruptcy best way for GM to restructure – Bloomberg: Bloomberg cites people familiar with the matter, including members of Congress briefed on the subject. The article notes that Obama is also prepared to let Chrysler go into bankruptcy and be sold off in pieces if it cannot form an alliance with Fiat. Of interest, Bloomberg also pointed that Obama personally signed off on asking GM CEO Rick Wagoner to step down. Recall that the WSJ reported on 30-Mar that the Obama administration is pushing bankruptcy as the lead option for GM and Chrysler.

Government may seek to split General Motors into good car company, bad car company – NYT: People briefed on the matter say the government could try to get at least some creditors to agree to the idea, which the potential of offering or withholding taxpayer funding would serve as a powerful carrot and stick for parties to fall in line for. Under its current format, the plan calls for GM to file for a prearranged bankruptcy and then sell its desirable assets like Cadillac and Chevrolet to a new, good car company financed by the government. Assets like Hummer and underperforming factories would be left for the old, bad car company. The UAW would need to give up some health care benefits, and its pension obligations would probably end up with the bad car company.

Missed mortgage payments adding another woe to Fannie Mae (FNM), Freddie Mac (FRE) performance – WSJ: Borrowers skipping payments are shooting up: Fannie said this week that 2.77% of the single-family loans held in its $785 billion investment portfolio were delinquent in January, up a record 35 basis points m/m, and more than twice the year-ago 1.06%. Freddie's delinquency rate is 2.13%. A research firm expects the rate to climb to 4%, meaning $28B in losses for Freddie.

APOL (78.33): Apollo Group reports Q2 EPS $0.77 vs Reuters $0.65: Company reports revenues of $876.1M vs Reuters $865.3M. Apollo Group downgraded to neutral from outperform at RW Baird. Target cut to $85 from $100. The firm sees tougher comps and the potential for higher bad debt.

CME (246.39): CME Group downgraded to market perform from outperform at Wachovia: Valuation cited. Valuation range, $270-290

CHU (10.41): CHU is trading down 6% after reporting profit that was slightly below expectations. Goldman downgrades the shares to neutral. Citigroup downgrades the shares to sell from buy.

DHR (54.22): Danaher downgraded to neutral from overweight at JPMorgan. JP Morgan believes the earnings expectations are too high.