September 16, 2009: Morning Call

September 16, 2009: Morning Call

Fair Value: SP500 – 1047.92; NDX: 1698.15; DOW: 9621.08

Technical Levels:

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

Events:

Pre-market EPS: ZLC (-.72/363.4M)
05:00: Euro-zone CPI (August): 0.3% MoM; -0.2% YoY
07:00: Bloomberg Global Confidence Index
07:30: WFC presents at Barclay’s Financial Services Conference
08:15: DE presents at JP Morgan Diversified Industries Conference
08:30: US CPI (August): 0.3% MoM; Ex-Food/Energy: 0.1% MoM
08:30: US CPI (August): -1.7% MoM; Ex-Food/Energy: 1.4% YoY
08:30: US Current Account Balance (Q2): -91.0B
09:00: Net Long-term TIC Flows (July): estimate not available yet
09:15: US Industrial Production (August): 0.7%; Capacity Utilization: 69.1%
10:30: DOE Crude Oil and Gasoline Inventories
11:00: CMCSA presents at Goldman Sachs Communacopia Conference
12:00: V presents at Barclay’s Financial Services Conference
12:15: MTW presents at JP Morgan Diversified Industries Conference
13:00: NAHB Housing Market Index (September): 19
14:15: COF presents at Barclay’s Financial Services Conference
15:25: LH presents at Bank of America Healthcare Conference
17:00: ORCL earnings call
Post-market EPS: APOG (.24/187.0M); CKR (.21/340.8M); DBRN (.37/400.7M); ORCL (.30/5.2B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading 3 points above fair value at 7:45am ET. Asian markets closed higher excluding Shanghai (Japan up 0.52%, Hong Kong up 2.57%, Australia up 2.42%, Shanghai down 1.34%, South Korea up 2.1%, India up 1.35%). News Corp (NWS.AU) rose on reports it would start charging for access to WSJ stories on mobile devices. Exporters and banks gained in South Korea. Gainers led losers in Taiwan almost 3-to-1. A halt in the yen’s rise vs. the US dollar helped exporters in Japan, but the market turned down late in the day when the incoming financial services minister said he would consider allowing small companies to postpone repaying bank loans for three years. Financials and steelmakers made China miss out on the region’s gains, dropping on overcapacity concerns. European markets are up 1.0% to 1.4% near the highs of the session. Basic materials and financials are leading the rally while healthcare and technology are lagging. SAP is trading down 1.0% in Germany.

Research Calls/Market Moving News:

AAPL (175.16): Cramer says he is raising his price target on Apple (AAPL) to $264 from $200, noting that if FASB rule changes allow the company to recognize revenue from some of its products immediately rather than over a 24-month period (as is now the case), earnings will surge from an estimated $9 a share in 2011 to $12 a share. Cramer says that the potential change, which is now being considered by FASB, is not reflected in consensus estimates. (Note: I am bullish on AAPL shares but am trying to take some off at the 178-179 level. I find it remarkable that Jim Cramer is once again moving stocks - especially large cap stocks - given that he bankrupted tens of thousands of his "viewers" in 2008.)

AAPL (175.16): Apple reiterated overweight at Barclays Capital: The firm says AAPL remains top pick due to its pipeline and the FCF outlook

LH (68.43): Laboratory Corp downgraded to neutral from outperform at Credit Suisse – Bloomberg: Target is $71. Credit Suisse removes LH from the US Focus List.

Warren Buffett sees some stability in housing prices, notably in mid-low price range activity – CNBC: The comment was made in response to a question during an interview

ADBE (35.62): Adobe (ADBE) to acquire Omniture (OMTR) for $21.50/sh in cash, Adobe Systems reports Q3 non-GAAP EPS $0.35 vs. Reuters $0.34, guides Q4 non-GAAP EPS to $0.33-0.39 vs. Reuters $0.39.

ADBE (35.62): Adobe Systems downgraded to hold from buy at Jefferies: The firm cites valuation, embedded CS expectations, and additional potential risk due to the OMTR acquisition. Jefferies says that the deal, while accretive, won't produce much synergy near term

WFC (28.58): Wells Fargo CEO says Fannie Mae (FNM) and Freddie Mac (FRE) should increase the size of the mortgages they buy – FT: The FT cites an interview with Wells Fargo CEO John Stumpf, who says that the government should allow Fannie and Freddie to increase the size of the mortgages that they buy. Stumpf believes that such a move would help reduce interest rates on jumbo mortgages and revive the market for higher-end housing that has been devastated by the credit crunch. Recall that Fannie and Freddie can currently buy or guarantee mortgages worth up to $417,000. The stimulus plan last year allowed the companies to raise their limits to $729,750 in certain high-cost areas until the end of 2009. Any extension of the higher limits will have to be approved Congress. The article goes on to highlight the paralysis in the securitization market, particularly for jumbo mortgages, which according to Bankrate.com are as much as 200 bp over conforming mortgage rates.

WFC (28.58): Wells Fargo says Wachovia deposit retention is better than forecast – Bloomberg: Regarding the Wachovia purchase, WFC says merger costs are lower than predicted. WFC expects non-performing assets to increase from the $18.3B reported in Q2. WFC expects consumer loan losses for the next 12 months. Other comments attributable to the wire, regarding the repayment of TARP and losses from the Wachovia acquisition are similar to those reported in interviews by the WSJ and FT.

C (4.12): More disclosure from management could help Citi shares – WSJ: In a "Heard on the Street" column, the Journal notes that when it comes to shares of Citi, investors may be too focused on how fast the government will sell down its 34% stake in the bank. The paper adds that a bigger question for Citi is whether to pay off the government's $27B of trust-preferred securities, which cost around $2B a year to service. In addition, the article notes that investors should be asking why the bank's management is not highlighting a more positive message: That it does not need to further dilute investors and believes it has the medium-term profitability to pay off the government trust preferreds with capital generated internally. The Journal, which highlights Citi's attractive relative valuation on a TCE per share basis, goes on to note note that management needs to explain more clearly where it expects the bank to generate its profits and focus its resources in the future.

AMZN (83.55): Amazon.com upgraded to buy from neutral at Bank of America Merrill Lynch: Price objective increased to $103 from $95