June 8, 2009: Morning Call

June 8, 2009: Morning Call

Fair Value: SP500 – 939.80; NDX: 1493.41; DOW: 8759.79

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance

Events:

04:30: Euro-zone Sentix Investor Confidence (June): -31.0 (actual: -27)
10:15: MSFT presents at UBS Tech Conference
12:30: Fed’s Tarullo speaks on financial regulation
13:00: AAPL Worldwide Developers Conference Keynote
17:00: TXN Q2 2009 Guidance Call
Post-market EPS: PLL (.42/562.5M); ZQK (.06/502.4)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 9 points below fair value while the NASDAQ futures are trading 15 points below fair value at 7:45am ET. The US dollar is almost 1% higher against the Euro (1.385) after S&P downgraded Ireland’s sovereign credit rating for a second time this year; the dollar is also being underpinned by increased expectations that the Federal Reserve will raise interest rates later this year (Fed Fund futures are currently expecting a 30% chance that the Fed will raise rates 25 basis points by the September meeting. The odds in the beginning of last week were 15%). European markets are down 1.25% to 1.5% with financial and mining shares leading the decline. Irish markets are down 3% on the S&P downgrade. Early European Parliament election results showed that conservative center right and nationalist parties on the extreme right, held or gained support. In the UK Prime Minister Brown faces increased pressure as a disappointing showing in the European election compounded the poor results of the UK's local elections. Decliners on the FTSE 100 lead advancers 4-1. Barclays (BARC.LN) confirms it's held talks with a number of parties including Blackrock (BLK) about both iShares and BGI and says talks on going. Asian markets closed mixed (Japan up 1.0%, Hong Kong down 2.2%, Australia up 0.93%, Taiwan down 3.3%, India down 2.9%). A weaker yen, as well as better-than-expected US jobs figures, lifted automotive shares in Japan while shipping shares fell after a fall in the Baltic Dry Index. Toyota (7203.JP) gained on a report it plans ¥100B in production cuts by 2012.


Research Calls/Market Moving News:

Republic of Ireland downgraded to AA from AA+; outlook negative at Standard & Poor's

GOOG (444.32): Google downgraded to hold from buy at Benchmark Company LLC: Target is unchanged at $430. Firm cites checks, which indicate softening in online ad market. “Our channel checks reveal a softening in online advertising trends. There was a spurt of activity from March through mid-May. But visibility remains low and indicators for June through August are negative, implying at least a pause. Large advertisers appear to be reducing commitments heading into the summer. This pause could be due to advertisers awaiting the results of the TV upfront, exaggerated seasonal softness, or both. We are hearing that April and May were solid relative to expectations but indications for June through August are poor, thus tempering recent momentum.”

AAPL (144.67): Apple's Steve Jobs rumored for an early comeback to unveil the company's new iPhone - London Times: The article notes that technology blogs have speculated Jobs will appear for the software developers conference in San Francisco keynote speech scheduled for tomorrow (8-Jun) where the new version of the company's iPhone is expected to be unveiled. The article does not provide any details, but simply notes the widespread speculation of an appearance. Apple has reportedly said that Jobs in not expected back until the end of June.

GS (149.01); MS (30.97): Barron's Follow Up positive on Goldman (GS) and Morgan Stanley (MS): Barron's notes that shares of Wall Street's two surviving independent brokers are thriving and Goldman could be having its best quarter since 2007, with profits exceeding $5/share per Barclays' analyst Roger Freeman's new estimates.

BLK (163.74); BX (10.92): BlackRock added to Conviction Buy List; Blackstone (BX) upgraded at Goldman Sachs: the target on BLK is increased to $190 from $185. BX is upgraded to buy from neutral; target remains $13

BAC (11.86): Bank of America repayment of TARP expected in Q3, Q4, says Morgan Stanley: The firm expects the banks which will be allowed to repay first will be JPMorgan (JPM), processor banks, and possibly BB&T (BBT) and US Bancorp (USB). The rating on BAC remains overweight; target remains $32.

HDB (102.50): Citi may sell $1.71B stake in HDFC - Economic Times:
The bank continues to deny it will sell its 11.73% stake in India's largest mortgage company, and the article does not cite sources who say otherwise. But most people feel the bank's reason for its strategic stake is gone, and India is unlikely to allow Citi to own a substantial part of HDFC Bank. Nonetheless, some people say Citi will likely keep it’s holding because Asia is its only growth engine

US to allow some big banks to repay aid - Washington Post: JPMorgan Chase (JPM), Goldman Sachs (GS), American Express (AXP), and other large institutions expect to be on the list when it is announced, perhaps as soon as 8-Jun. But some officials point out the permission is only being granted with multiple layers of less visible government support in the form of cheap loans, debt guarantees, and a promise that big banks will not be allowed to fail. The government will no longer share the banks' profits, but will remain ready to absorb losses, leading some to question the systemic wisdom of the action.

WYNN (40.60): Wynn Resorts fair value reduced to $36 from $45 at Janney Montgomery Scott: Shares maintained neutral. Firm says high-end properties on the Vegas Strip may be impacted on new supply.

Cable operators attractive at current prices - WSJ: A "Heard on the Street" column notes that Comcast (CMCSA) and Time Warner Cable (TWC) are trading at less than five times projected 2009 EBITDA, vs seven times for media conglomerates, which "have been bid up too much." Cable operators have seen growth in the last two quarters, and while the long-term threat posed by market-share takers Verizon (VZ) and AT&T (T) is real, cable companies have room to grow in the short term. Internet video can be viewed as more of a threat to companies owning cable channels than to cable operators.