May 13, 2009: Morning Call

May 13, 2009: Morning Call

Fair Value: SP500 – 906.80; NDX: 1377.28; DOW: 8449.25

Technical Levels:

SPX: 765, 788, 875-880 support/ 935-943 resistance

Events:

Pre-market EPS: DPS (.28/1.25B); TDW (1.95/348.5M)
05:00: Euro-zone Industrial Production (March): -1.0% MoM; -17% YoY (weaker: -2.0% MoM; -20.2% YoY; February revised lower-European markets moved lower after the report hit the tape)
05:30: Bank of England Quarterly Inflation Report
08:30: US Import Price Index (April): 0.4% MoM; -14.9% YoY
08:30: US Retail Sales (April): -0.1% MoM; Less Autos: 0.0%
08:50: MET presents at UBS Financial Services Conference
09:00: MA Investor Meeting
09:00: COP Shareholders Meeting
09:00: Treasury Secretary Geithner speaks to Independent Community bankers.
09:45: TDW presents at Calyon Energy Forum
10:00: Business Inventories (March): -1.1%
10:30: DOE Crude Oil and Gasoline Inventories
12:00: Fed’s Lockhart delivers closing remarks at Atlanta Fed’s Financial Markets Conference.
12:15: MON presents at BMO Capital Agriculture conference
15:00: CPO presents at BMO Capital Agriculture conference
Post-market EPS: CA (.29/1.03B); JACK (.44/587.5M); WFMI (.18/1.87B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 9 points below fair value due to weakness in European markets (down 1.0%-1.5%), which declined after weaker than expected Euro-zone industrial production was released at 5am ET. Financial and material stocks are down 4.5%. Decliners on the FTSE 100 lead advancers 7-3. Trading lower post results or updates are ING Group and Allianz whilst Sainsbury reversed declines. E.ON (EOAN.GR) and K+S (SDF.GR) rose after results. Asian markets closed mixed to lower (Japan up 0.45%, Hong Kong down 0.55%, Australia down 0.54%, Shanghai up 0.91%, India down 1.1%). Forecasts from Olympus (7733.JP) and Nissan (7201.JP) boosted confidence in Japan, but Hitachi (6501.JP) fell having reported a record loss. Australia declined, with Rio Tinto (RIO.AU) lower on a report it may initiate a £5B rights issue. Hong Kong finished down led by banks. Hong Kong Exchanges & Clearing (388.HK) reported Q1 net HKD$834.2M vs a consensus of HK$848.5M (2 est) and vs. HK$1.65B y/y.

Research Calls/Market Moving News:

April foreclosures rise 32 percent-RealtyTrac reports: The number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year, with Nevada, Florida and California showing the highest rates, according to data released Wednesday. More than 342,000 households received at least one foreclosure-related notice in April, RealtyTrac Inc. said. That means one in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since the Irvine, Calif.-based foreclosure listing firm began its report in January 2005. April was the second straight month with more than 300,000 households receiving a foreclosure filing, as the number of borrowers with mortgage troubles failed to abate. The April number, however, was less than one percent above that posted in March, when more than 340,000 properties were affected. The March data was up 17 percent from February and 46 percent from a year earlier. "We've never seen two consecutive months like this," said Rick Sharga, RealtyTrac's senior vice president for marketing. "It's the volume that's surprising." While total foreclosure activity was up, the number of repossessions by banks was down on a monthly and annual basis to their lowest level since March of last year, RealtyTrac said. But that's far from positive news. Because much of the foreclosure activity in April was in the default and auction stages -- the first parts of the foreclosure process -- it's likely that repossessions will increase in coming months, RealtyTrac said.

Capital Raises/Secondary pricing (CLF, MGM, F, KRG, NAT, BBT): Cliffs Natural Resources (CLF) announces 12M share offering through JPMorgan and Merrill Lynch, cuts quarterly dividend by 54.3% to $0.04 from $0.0875. MGM Mirage announces 81M-share stock offering through Merrill Lynch, Deutsche Bank, JPMorgan, Morgan Stanley, and UBS. Tracinda Corp has indicated it will purchase 8.1M shares in the offering. Company expects the offering to have gross proceeds of $1B. Ford 300M share secondary priced at $4.75 a share through Citi, Goldman Sachs, JPMorgan and Morgan Stanley. Kite Realty (KRG) announces 25M common share secondary through Merrill Lynch, KayBanc and Wachovia, cuts quarterly cash distribution by 60.7% to $0.06 from $0.1525. NAT prices 4 million shares at 32. BBT prices 75 million shares at 20.

POT (100.87); AGU (46.05); TRA (26.54); MOS (47.67): Goldman reduces current year estimates for POT, AGU, TRA, and MOS: The firm continues to see anemic demand for potash given high prices and cautious reordering. Goldman believes short term results will be weak for NA producers such as POT, MOS, AGU, and IPI. Current year POT and AGU EPS estimates have been reduced below Reuters consensus $7.37 and $5.00, respectively. TRA and MOS EPS estimates have also been reduced in the current year and next.

POT (100.87): Potash upgraded to outperform from sector perform at Scotia Capital: Target is C$150. Valuation as well as better corn and soybean pricing are cited.

POT (100.87): Potash target raised to $150 from $110 at RBC Capital: The firm cites the outlook for potash prices going forward and says improving economic conditions and increased risk tolerance should positively impact multiples. Shares remain outperform rated.

GOOG (399.01): Google target increased to $471 from $424 at Piper Jaffray: Rating is buy. Firm notes a higher target multiple due to the multiple expansion in the group over the last two months

M (12.35): Macy's reports Q1 EPS ($0.16) ex-items vs guidance ($0.19-0.21) and Reuters ($0.20): Reaffirms full year sales to be down 6-8% y/y; reaffirms full year EPS guidance of $0.40-$0.55, ex-costs, vs Reuters $0.62

SOLR (7.22): GT Solar (SOLR) reports Q4 EPS $0.13 ex-items vs Reuters $0.18, sees f10 EPS of $0.45-0.60 vs Reuters $0.82.

TDW (46.26): Tidewater reports Q4 EPS $2.13 vs Reuters $1.96: Company reports revenues of $341.6M vs Reuters $348.0M. Total worldwide fleet utilization on Q4 was 72.1%, with an average dayrate of $12,626.

INTC (15.21): EU fines Intel $1.45B in antitrust case for using rebates to thwart competition: Intel will appeal the decision. Separately, INTC CEO said last night that Q2 orders were better than expected and that the quarter was ahead of plan so far.

Bank of China not interested in US banks for now, says CNBC - Dow Jones: In an interview, an executive says Chinese lenders do not want to invest in their American peers partly because US banks still have too many toxic assets. He adds that until details on the Public-Private Partnership Investment Program are disclosed, Chinese banks will be unlikely to buy stock in US ones.

Obama administration in serious talks to change financial-services industry compensation practices – WSJ: People familiar with the matter say the effort will include aligning pay with long-term performance, and the administration would like to include companies that did not receive bailout money in its revamp. Officials are looking at what might be accomplished both through regulation and legislatively. The effort may go beyond banks into the mortgage industry.

Treasury expected to notify firms selected to oversee PPIP funds on Wednesday – WSJ: Citing a Treasury official, the Journal reports that the Treasury is expected to notify a group of asset managers on Wednesday that they have been selected from the 104 that applied to oversee the initial wave of PPIP funds. According to the article, the firms will then negotiate with the Treasury over the structure of their proposed funds before they are formally qualified. Once they are formally qualified, which is expected in early June, the fund managers will have up to three months to raise $500M or more to purchase the legacy assets clogging banks' balance sheets.

C (3.66): Citi Primerica Financial Services unit executives said to be seeking bids for unit – Bloomberg: Executives have approached JC Flowers, Blackstone (BX) and TPG to test interest in purchasing the Primerica division, according to 4 people with knowledge of the situation. The discussions began after C failed to locate a buyer for the entire life insurance company during the last year, and Citi has not endorsed the plan, according to the report. According to one plan being discussed, Primerica's marketing arm would be split from Citi and begin selling policies backed by a new insurer, while Citi would keep assets and liabilities from existing Primerica policies.