April 8, 2009: Morning Call

April 8, 2009: Morning Call

Fair Value: SP500 – 812.90; NDX: 1276.08; DOW: 7746.79

Technical Levels:

SPX: 676, 719, 765 support/ 845, 898 resistance

Events:

Pre-market EPS: FDO (.60/1.94B); STZ (.22/790.3M)
08:30: Pulte and Centex conference call to discuss merger
09:00: MOS earnings call
09:30: SLB Annual Meeting
10:00: Wholesale Inventories (February): -0.5%
10:30: DOE Crude Oil and Gasoline Inventories
14:00: PBR Shareholders Meeting
14:00: Fed releases Minutes from the March 17-18 FOMC Meeting
16:00: Select US Retailers Release March 2009 Same Store Sales
17:00: SGR earnings call
Post-market EPS: PBY (-.32/466.4M); SMSC (-.44/46.6M); SGR (.61/1.73B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 4 points above fair value. The S&P futures have rallied 7 points since 6am following news that the Treasury department has agreed to assist a number of life insurance companies with TARP funds. Merger news in the housing sector (PHM offers 10.50 for CTX) also helped the futures. Concerns about Q1 earnings and yesterday’s weak TALF auction results remain the primary headwinds in the near-term. European markets were down as much as 2% but have pared the losses to 0.30% as markets have recovered in the last two hours. Basic material and energy stocks are the weakest sectors. Market participants await the BOE interest rate decision tomorrow. Decliners on the FTSE 100 lead advancers 3-2. Irish banks fell as investors digested details of the Irish government rescue plan to remove toxic loans from their books. UK Mar Nationwide Cons Conf 41 vs. con 45. Bank of France Mar Business Sentiment index 73 vs. prior 71. Germany Feb Factory Orders (38.2%) y/y vs con (36.5%). Asian market closed sharply lower with India being the only major Asian market to post gains (Japan down 2.69%, Hong Kong down 3.04%, Australia down 2.34%, Shanghai down 3.8%, South Korea down 3.54%, India up 1.97%). Exporters were hit in Japan as the yen strengthened and trading companies fell on lower oil prices. Profit taking ahead of tomorrow’s start to the earnings season pushed the market down further. Banks led China down on a report that regulators may restrict lending.

Research Calls/Market Moving News:

US of Offer Aid to Life Insurers – WSJ: “The Treasury Department has decided to extend bailout funds to a number of struggling life-insurance companies, helping an industry that is a lynchpin of the U.S. financial system, people familiar with the matter said. The department is expected to announce the expansion of the Troubled Asset Relief Program to aid the ailing industry within the next several days, these people said. The life-insurance companies will have access to Treasury's Capital Purchase Program, which injects funds into banks. How much money would now be available to the insurers, and which particular insurers would be beneficiaries, remains unclear. The Treasury says it has about $130 billion remaining in TARP money.” HIG, LNC, and PRU have confirmed that they have applied to TARP for federal funds.

CTX (7.62): Pulte Homes agreed to buy Centex in a deal valued at 1.3 billion. PHM offers 0.975 shares of PHM for each share of CTX. The deal values CTX shares at 10.50 and represents a 38% premium over Tuesday’s closing price.

TALF Loan Demand fell to 1.7 billion from 4.7 billion last month – Bloomberg: The auction results were down 64% month over month as private investors expressed concern about the scope of potential government intervention and how that could impact TALF deals in the future. TALF investors are also subject to a provision in the stimulus package that makes it more difficult for recipients of federal bailout funds to hire skilled workers from abroad.

GS (116.08); MS (23.32); JPM (27.25); C (2.76): Oppenheimer lowers estimates for MS, JPM, and BAC, increases estimates for GS: The firm continues to believe that investment banking businesses are further through the cycle than commercial banking businesses, and that they will recover first. GS and MS are rated outperform and BAC, C, and JPM are rated perform. Oppenheimer lowers their estimates for MS, JPM, and BAC primarily due to write-downs, charge-offs, and provisions. The firm increases their GS 1Q09 EPS estimates, due to more robust trading and lowers their 2010 estimate for C primarily due to higher loan loss provisions.

Meredith Whitney remains bearish on banking stocks – Bloomberg: Bloomberg cites comments from Whitney in Toronto. She said that investors should avoid financial stocks, adding that banks will be selling a lot of assets and the credit-card industry is contracting as consumers have their credit limits cut. According to Whitney, US home prices are likely to be down 50% from peak levels. She does not expect the economy to reach a trough until the end of 2010 or 2011

BBBY (25.51): Bed Bath & Beyond reports Q4 EPS $0.55 vs Reuters $0.44. Company reports revenues of $1.92B vs Reuters $1.92B. Bed Bath & Beyond says comfortable with Q1 estimates in the range of $0.23-0.24 - conf. Call. Reuters and First Call consensuses are both at $0.23. Management also says that the full year consensus of $1.50 is reasonable. BBBY shares are up over 10% in the pre-market.

MOS (42.94): Mosaic reports Q3 EPS $0.13 including items: Earnings included an inventory valuation write-down of $28.3M, or $0.05 per share. Reuters consensus is $0.23. Company reports revenues of $1.38B vs Reuters $1.67B. Potash sales volumes in Q4 of fiscal 2009 are expected to be roughly comparable with Q3 levels. Phosphate sales volumes in Q4 of fiscal 2009 are expected to be above Q3 levels, but below the prior year level.

PLD (6.82): ProLogis (PLD) to offer 115M shares through Merrill. Citi and Deutsche Bank, expects secondary to have a $0.38 to $0.40/sh dilutive effect. PLD is going to use to the proceeds of the secondary to restructure debt.

WYNN (26.71); MGM (4.45): Citi reiterates sell rating on MGM, WYNN: Firm cites February Las Vegas strip revenue data, which indicated a 14th consecutive month of declines, and trends that indicate f09 levels will be below year ago levels. Firm also cited Feb convention attendance that was significantly lower y/y.

UBS comments on global steel market: Firm sees a severe looming export threat from Russia and its neighbors given the devaluation of the ruble, the fall in domestic demand, and that the region is among the lowest cost producers and is running at ~65% capacity utilization. UBS believes the worst-case scenario of a global market share battle is emerging. Firm maintains a cautious view on the sector. Top global picks are NLMK (NLMK.RU), China Steel (2002.TT), Steel Dynamics (STLD), SAIL, and Gerdau (GGB).

Politics hindering global accounting reconciliation – WSJ: In a "Heard on the Street" column, the Journal notes that calls out of the recent G20 meeting in London for a global set of accounting standards have already been dampened by FASB's recent decision to succumb to political pressure in the US. According to the article, FASB's move to water down its definition of an asset "other than temporarily impaired" - a designation that requires a bank to mark certain losses through income and not just shareholders' equity- gives US banks significantly more discretion than is allowed under IASB rules. The column goes on to argue that accounting rules on both sides of the Atlantic should be overhauled, simplified and reconciled.

STT (32.38): State Street downgraded to neutral from buy at Bank of America Merrill Lynch

BBBY (25.51): Bed Bath & Beyond upgraded to neutral from underweight at JPMorgan: Target is $28.

COP (39.69): ConocoPhillips downgraded to neutral from buy at UBS: Target is lowered to $42 from $56. Firm notes a lower crude price forecast and a below peer average growth outlook. Estimates are lowered.