Monday, September 14, 2009

September 14, 2009: Morning Call

September 14, 2009: Morning Call

Fair Value: SP500 – 1038.09; NDX: 1684.25; DOW: 9544

Technical Levels:

SPX: 875-880, 910, 953, 986 support/ 1044, 1110 resistance


05:00: Euro-zone Industrial Production (July): -0.4% MoM; -16.9% YoY
12:00: President Obama speech to Wall Street executives about financial regulation
12:30: Fed’s Lacker speaks on financial regulation
12:45: SPWRA presents at Deutsche Bank Technology Conference
13:55: CSIQ presents at Deutsche Bank Technology Conference
15:50: Fed’s Yellen speaks on economic outlook

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 10 points below fair value and the NASDAQ futures are trading 15 points below fair value at 7:30am ET. Asian markets closed lower except for Shanghai, which rallied 1.2% (Japan down 2.32%, Hong Kong down 1.08%, Australia down 1.4%, South Korea down 1.0%, India down 0.31%). European markets are down 0.73% to 1.2% despite a better than expected Euro-zone Industrial production number (-15.9% YoY vs. –16.7% expected). Energy and mining co’s weaker, mirroring falls in their underlying commodities, with industrial metals under pressure as stockpiles grow, and speculation a possible dispute between the US and China on trade could escalate. Gold has pulled back 8 bucks, falling below 1000 as the dollar rebounds. Classic defensive sectors outperform with media, h/care, telco, food & bev all fairing better.

Research Calls/Market Moving News:

China starts "anti-dumping and anti-subsidy" probe into imports of some US car products and chicken meat – wires: The Ministry of Commerce announced the examination, which appears to be retaliatory against the US's decision to impose a 35% tariff on Chinese-made tires.

FSLR (136.75): Soleil Securities downgrades FSLR to sell from hold: * We are reducing our rating on First Solar from Hold to Sell; price target being reduced from $170 to $96 (17X our 2010 estimate of $5.65 per share - current consensus estimate is $7.40 per share). * We believe the environment in which First Solar massively beats expectations each (and every) quarter has come to an end. 1) Industry capacity is now too large (approaching 20 GW in mid-2010) for government subsidy programs to lead to supply shortages and higher prices; 2) Module pricing is now under intense downward pressure for all producers due to massive industry over-capacity; 3) First Solar has completed its capacity build-out and will no longer be starting up significant amounts of capacity each quarter helping to beat expectations.

S (3.77): Deutsche Telecom considering bid for Sprint Nextel reports the London Telegraph: The paper says the company has called in bankers and could submit a bid for Sprint within the next few weeks. The CEO of DT had promised to fix T-Mobile UK and T-Mobile US, with the deal for T-Mobile UK arranged, he is believed to be focusing on the U.S. unit. A combined company of T-Mobile U.S. and Sprint would challenge AT&T for the second place spot among wireless carriers in the U.S

BIDU (369.95): Baidu 6-month target increased to $455 from $376 at Goldman Sachs: The firm expects coverage ratios can improve and raises estimates. BIDU remains on Goldman's Conviction Buy List.

POT (89.80); MOS (52.26): Citi downgrades MOS, POT: Mosaic (MOS) downgraded to hold from buy. Potash (POT) downgraded to hold from buy Following checks, firm expects fall potash applications to be likely weaker. Citi adds that the Chinese contract delay creates price risk.

Stiglitz Says Bank Problems Bigger Than Pre-Lehman: Joseph Stiglitz, the Nobel Prize-winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc. “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview yesterday in Paris. “The problems are worse than they were in 2007 before the crisis.” Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

YHOO (15.59): Yahoo! sells 57.5M Alibaba (1688.HK) shares for HK$19.80-20.30 ($2.54-2.60) each – Reuters: The wire cites a term sheet

Barron's Cover says the ad market looks to be bottoming but not for traditional media: Advertising dollars are starting to be spent once more but not on traditional media, they are going to cable TV and movie media. Notes the various indications from many of the large advertisers of a change in outlook or spending plans and the improving outlook from several advertising firms. However, things are not yet positive and some observers do not see any meaningful growth in total advertising until 2011. Investors should not confuse good year over year numbers with a strong rebound. In the environment of a shift into alternative forms of advertising, the winners will be companies like CRM, DISCA, CVC, TWX, VIA, DIS and GOOG. The Internet now holds a greater sway over advertising budgets than radio, and is on a path to overtake magazines this year. Highlights the show Mad Men where there was a sponsor for the first show of the new season, free iTunes downloads of the show at a retailer, a website, an iPhone application and a Facebook page. Annual ad revenues for cable should climb 7.1% on average through 2013 according to one analyst. 'Out of home media' (billboards, elevators, media video screens, etc.) could see growth of 4.9% annually while pure Internet could climb 10.6% a year. Broadcast television is expected to fall 2% a year, radio to drop by 3.6% and newspapers to fall 8.9%.

Moving out of business more difficult than US government imagined - NYTIn his speech from Wall Street today, President Obama will argue that government intrusions on business will be temporary, and yet he will finesse an argument that the financial system requires increased government oversight to protect consumers and prevent a repeat of the financial crisis. A senior official says that no government figure has pulled rank on American International Group (AIG) CEO Robert Benmosche, despite his abrasive comments, and the auto task force has not returned, making oversight of General Motors (MTLQQ) and Chrysler next-to-non-existent. But the government's ownership stakes will probably remain for years. Support programs for banks have largely been successfully downsized, but the government is propping up the entire mortgage market, and therefore, housing industry. Nobody knows how the government can step away from its role without upsetting the industry. And in any case, the moral hazard created by the government's having been willing to step in this time will remain for the foreseeable future.

Barron's summary (source: StreetAccount):
· Cover: The ad market looks to be bottoming but not for traditional media.
· Interview: David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates.
· Lead Articles:
o Electric utilities are stable companies with cheap stocks and fat dividends.
o The longest serving member of the FOMC thinks the 'too big to fail' policy must be ended.
o Cablevision (CVC) divestments should unlock value.
o Positive on Nalco Holding (NLC) saying bulls see the stock in the $20s within a year.
o Other Voices argues that the TSA has spent too much money and has not made us safer.
o Editorial says President Obama's speech championed implausible health care reform principles.
· Columns:
o The Trader is negative on Winnebago Industries (WGO).
o Asia Trader is positive on BYD (1211.HK), one of Berkshire Hathaway's investments.
o Euro Trader says Barclays (BARC.LN) still has room to run.
o Current Yield says credit seems available to all except consumers.
o Commodities Corner says the outlook for wheat prices is weak even with a possible drought in Australia.
o The Striking Price notes the ebbing VIX and suggests out of the money calls and protective puts, an upside / downside strategy.
o Preview points to the ING Direct report predicting a bad holiday shopping season.
· Follow Up is cautious on Starbucks (SBUX) and positive on Consol Energy (CNX)
o Up and Down Wall Street questions what lies behind the market's strength.
o Streetwise is negative on Realty Income (O) pointing to speculation that many of its larger tenants have big debt and / or a tough operating environment which could place stress on the dividend.
o D.C. Current says accountants have yet to share in the blame for their part in the financial troubles.
o Economic Beat notes the upbeat tone of the Blue Chip Economic Indicators forecast based on a polling of 50 economists.
o Technology Trader says the new products released last week from Palm (PALM), Apple (AAPL) and Motorola (MOT) were all disappointing in some manner.
o Plugged In says Motorola (MOT) is back on the right track, though far from back.

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