Friday, February 27, 2009

February 27, 2009: Morning Call

February 27, 2009: Morning Call

Fair Value: SP500 – 752.24; NDX: 1127.63; DOW: 7174.49

Technical Levels:


SPX: 685 support/742-746, 778, 800, 848-852 resistance

Events:

Pre-market EPS: IPG (.29/1.92B); FRO (1.05/315.8M); DT (.23/20.18)
05:00: Euro-zone CPI (Jan): -0.9% MoM; 1.1% YoY
05:00: Euro-zone Core CPI (Jan): 1.8% YoY
05:00: Euro-zone Unemployment Rate (Jan): 8.1%
08:30: US GDP QoQ (Annualized): -5.4% (revised from preliminary –3.8%)
09:45: Chicago Purchasing Manager (Feb): 34.0
10:00: University of Michigan Confidence (Feb): 56.5
13:00: QCOM presents at Goldman Sachs Tech and Internet Conference
13:20: BRCM presents at Goldman Sachs Tech and Internet Conference

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 18 points below fair value while the NASDAQ futures are trading 20 points below fair value. The S&P futures are currently trading below the November 21 intra-day lows (741) following the official details of the Citibank rescue package. Although the media is widely reporting this transaction as another give-away for Citibank shareholders, the terms are punitive and private stakeholders in Citibank will be effectively required to participate. The Obama administration is clearly unwilling to rescue financial institutions without taking the appropriate pound of flesh from the stakeholders. Financial stocks are trading down 7% with Citibank down 40% and BAC down 22.0%. GDP was also revised sharply lower to –6.2% versus consensus of –5.4%, the steepest contraction since 1982. European markets are trading down 3.5% extending the losses 2% in reaction to the Citibank news and weak GDP.

Impact Research Calls/Market Moving News:

C (2.46): The US government agrees to convert 25 billion of preferred securities into common equity at 3.25 a share a share so long as private holders agree to convert 27.5 billion in preferred shares into common on the same terms. The press release is complicated but it looks like the “private holders” are going to be incentivized to convert because the dilution would be even worse if the current deal was voted down (If shareholders do not approve the transaction, warrants will be issued at 1 penny). Citibank will also suspend dividends on preferred shares. The US government will own approximately 36% of Citi’s outstanding common stock. Shares outstanding will move to 21 billion from 5 billion. Citibank shares are down 38% to 1.50.

FNM (0.49): FNM reports a Q4 loss of 25.2 billion or 4.47 per share. At December 31, 2008, the company's total liabilities exceeded its total assets by $15.2B. FNM's mortgage credit book of business increased to $3.1 trillion as of December 31, 2008 from $2.9 trillion as of December 31, 2007. The company expect that the current crisis in the U.S. and global financial markets will continue, which will continue to adversely affect financial results throughout 2009. Following a decline of approximately 9% in 2008, FNM expects that home prices will decline another 7% to 12% on a national basis in 2009. The company continues to expect its credit loss ratio in 2009 will exceed its credit loss ratio in 2008.

FDIC may more than double fees it charges banks – WSJ: The Journal cites people familiar with the matter. The move is intended to replenish the government's deposit-insurance fund. The article notes that the FDIC had $18.8B in its deposit-insurance fund at the end of Q4 to protect roughly $4.8T in insured deposits, the lowest level since the S&L crisis. According to the paper, the FDIC is required by law to develop a plan to restore the fund any time its falls below 1.15% of insured deposits. It was 0.4% at the end of Q4. While banks typically pay between 12 cents and 14 cents for every $100 of insured deposits, sources tell the Journal that the government is considering an additional 20 cent charge.

ADBE (16.70): Adobe Systems downgraded to market perform from outperform at Wachovia

Goldman Sachs downgrades European mining stocks: NHY.NO, RIO.LN, KAZ.LN (pre-European open): Norsk Hydro (NHY.NO) downgraded to sell from neutral. Rio Tinto (RIO.LN) downgraded to sell from neutral. Kazakmys (KAZ.LN) downgraded to neutral from buy

DELL (8.21): Dell reports Q4 EPS $0.29 ex-items vs Reuters $0.28: First Call $0.26. Company reports revenues of $13.43B vs Reuters $14.06B; First Call $14.25B.

SNDA (31.90): Shanda Interactive downgraded to underperform from neutral at Credit Suisse: Target increased however to $25.60 from $23.10. The firm cites concerns on growth sustainability, new product contribution, and unattractive valuation.

CHK (15.44): Chesapeake Energy upgraded to outperform from underperform at Calyon Securities: Target remains $19.00. Firm believes yesterday's selloff was an overreaction and thinks operations will not be materially impacted

Thursday, February 26, 2009

February 26, 2009: Morning Call

February 26, 2009: Morning Call

Fair Value: SP500 – 764.34; NDX: 1161.42; DOW: 7263.61

Technical Levels:


SPX: 685, 741-755 support/ 778, 800, 848-852, 899-908 resistance

Events:

Pre-market EPS: AMT (.14/407.5M); BYD (.14/426.2M); CKP (.40/241.0M); CVC(.31/2.07B); DYN (-.02/809.4M); EP (.21/1.17B); ESV (2.07/615.1M); FTO(.41/1.61B); NDAQ (.51/1.02B); RDC (1.10/580.4M); SWY (.81/14.44B); SHLD(2.68/13.99B)
05:00: Euro-zone Consumer Confidence (Feb): -31 (weaker at –33)
08:00: NDAQ earnings call
08:30: Durable Goods Orders (Jan): -2.3%: Ex-Transportation: -2.0%
08:30: Initial Jobless Claims (w/e Feb 21)
08:30: JPM Investor Day
10:00: New Home Sales (Jan): 329,000; -0.3% MoM
10:30: EIA Natural Gas Storage Change
12:00: V presents at Goldman Sachs Tech and Internet Conference
16:15: MSFT presents at Goldman Sachs Tech and Internet Conference
Post-market EPS: ADSK (.21/485.4M); DELL (.28/14.5B); GPS (.32/4.28B); KSS(1.02/5.19B); PSA (1.27/440.6M); RSG (.42/1.06B); SNDA (.67/146.0M); SGMS(.23/277.0M)

****Potential Events: INTC may revise quarterly guidance given that the company’s quiet period begins after the close of business tomorrow until their Q1 earning’s release on April 13.

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 12 points above fair value while the NASDAQ futures are trading 10 points above fair value. The EuroStoxx 50 index is up 2.5% snapping an 8-day losing streak. Financial stocks are surging 7% following the UK asset protection plan. The most distressed financial stocks in Europe are up 10%-25%. Asian markets closed mixed (Japan unchanged, Hong Kong down 0.80%, Shanghai down 4.95% -three day decline of almost 10%, India up 0.60%, Australia up 0.54%, South Korea down 1.08%). A weaker yen continued to support exporters in Japan, but the overall market ended the day lower. China Mobile (CHL) was weak in Hong Kong. China was the region’s biggest loser, declining after a rumor surfaced that regulators will restrict financial companies’ investments in equities.


Impact Research Calls/Market Moving News:

UK Government presents its Asset Protection Plan: Under the plan, in return for a fee, the Treasury will provide to each participating institution protection against credit losses incurred on one or more portfolios of defined assets to the extent that credit losses exceed a "first loss" amount to be borne by the institution. The plan aims to target those assets where there is the greatest amount of uncertainty about their future performance. The Treasury protection will cover 90%. of the credit losses, which exceed this "first loss" amount, with each participating institution retaining a further residual exposure of 10%. of any credit losses exceeding this amount. Both the "first loss" amount and the residual exposure provide an appropriate incentive for participating institutions to endeavour to keep losses to a minimum on those assets included in the Scheme. Protection under the plan is offered, in the first instance, to those UK incorporated authorized deposit-takers (including UK subsidiaries of foreign institutions) with more than £ 25B of eligible assets. Affiliated entities of those deposit-takers will also be considered by the Treasury for participation under the plan. The Treasury will consider extending the plan more widely to other UK incorporated authorized deposit-takers (including UK subsidiaries of foreign institutions). Eligible institutions are entitled to request to participate in the Scheme until 31 March 2009. European banks, particularly UK banks, are surging higher on the plan.

RBS (6.59); LLOY LN (57.40): Reports a full year loss of 24.1 billion pounds versus expectations of a 25.9 billion pound loss. RBS shares are surging 25% after the UK announced an asset insurance plan for RBS that will backstop 300 billion of RBS assets. LLOY is also up 25% on speculation the company is set to announce an asset insurance plan with the UK Treasury. The government stake in RBS now approximately 84% according to the UK Finance minister.

JPM (21.73): Ahead of their investor day, JPM says Q1 forecast “roughly in line with analyst estimates.” JPM also said “Wamu home lending hasn’t had losses beyond view” and that credit card defaults have been in-line with expectation. Recall that on Monday, Jamie Dimon said the first two months of the quarter were “solidly profitable” and that Q1 outlook “roughly in line with analyst estimates.”

UBS (8.76): UBS shares are up 13% after the CEO was replaced with the former head of Credit Suisse, Oswald Gruebel.

C (2.52): Citi deal with government may come as soon as Thursday – WSJ: Recall that it has been widely reported that Citi is on the verge of a deal that would boost the government's stake in the bank to as much as 40%. Citing people familiar with the situation, the Journal says that a deal could be announced as soon as Thursday. The article goes on to discuss some of the complications that are likely to arise from the government owning such a large stake, particularly when it comes to Citi's prized Mexican operations. The Journal points out that Mexican law bars any institution that is more than 10%-owned by a foreign government from running a bank in that country. According to the paper, some Citi executives are worried that the bank may be forced to unload Banamex, which is loathe to do. However, sources say that the issue is likely to be resolved through diplomatic channels between the US and Mexico.

BAC (5.16): Bank of America looking to sell First Republic – WSJ: The Journal cites people familiar with the situation. First Republic, a private bank, was purchased by Merrill Lynch for $1.8B in September of 2007. Potential buyers include Goldman Sachs (GS) and Morgan Stanley (MS). The article goes on to note that BofA executives are considering other non-core assets and businesses for divestment.

White House sees US deficit to reach $1.75T in f09 -- Dow Jones, citing an administration official: The figure includes a $250B placeholder for possible bank rescue, which could fund $750B in assets. The White House leaves Fannie (FNM) and Freddie Mac (FRE) operations off the budget. The deficit is expected to be 12% of GDP this year. The budget will also propose raising taxes on investment managers' "carried interest." The budget is officially to be released at 11 ET.

CRM (28.10): Salesforce.com reports Q4 GAAP EPS $0.11 vs First Call $0.07: Company reports revenues of $289.6M vs Reuters $285.3M. Guides Q1 GAAP EPS to $0.10-0.11 vs First Call $0.10; guides revenues to $304-305M vs Reuters $306.9M. Guides f10 EPS to $0.54-0.55 vs First Call $0.51; guides revenues to $1.30-1.33B vs prior $1.35-1.36B and Reuters $1.33B.

AVB (44.47): Bank of America upgrades AVB to buy from neutral.

Government offers details of bank stress test – NYTimes: The NYTimes reports the Obama administration ordered the nation's 19 biggest banks on Wednesday to undergo stress tests to check whether they could hold up if the economy deteriorated further. But analysts say the administration's worst projections, which it describes as unlikely, are not much more dire than what many private forecasters already expect. According to the new Treasury Department guidelines, the banks would have to assume that the economy contracts by 3.3% this year and remains almost flat in 2010. They would also have to assume that housing prices fall another 22% this year and that unemployment would shoot to 8.9% this year and hit 10.3% in 2010. "I don't think they are harsh enough," said David Hendler, an analyst at CreditSights, who said the dire projection was too optimistic about the growth that would be generated from President Obama's stimulus program. "That would be a pleasant outcome, but you have to plan for the worst." The average outlook of private-sector forecasters envisions the economy shrinking by 2% this year and unemployment peaking just below 9% in 2010. The average forecast for housing prices is a decline of 14% this year and an additional 4% next year

GM (2.55): General Motors reports Q4 adjusted EPS ($9.65) vs Reuters ($7.40): Company reports revenues of $30.80B. End of year cash equivalents were $14B. General Motors says cash flow burn in Q1 is "significant" but is consistent with its internal plans.

AGU (36.57): Agrium downgraded to neutral from buy at UBS: Target cut to $40.00 from $43.00. The firm cites valuation and the implications from the bid for CF Industries (CF).

Wednesday, February 25, 2009

February 25, 2009: Morning Call

February 25, 2009: Morning Call

Fair Value: SP500 – 772.44; NDX: 1172.03; DOW: 7339.97

Technical Levels:


SPX: 685, 741-755 support/ 778, 800, 848-852, 899-908 resistance

Events:

Pre-market EPS: CMS (.24/1.64B); ABK (-.68/406.1M); CNP (.27/2.86B); DISCA(.29/937.4M); DLM (.22/953.3M); GRMN (.96/1.12B); HK (.02/226.7M); KBR (.41/2.96B); DLTR (1.13/1.42B); RRD (.56/2.71B); TJX (.52/5.42B)
07:00: MBA Mortgage Applications
08:35: ALL presents at Merrill Lynch Insurance Conference
10:00: Existing Home Sales (Jan): 4.81M; 1.4% MoM
10:30: DOE Crude Oil and Gasoline Inventories
11:45: CSCO presents at Goldman Sachs Tech and Internet Conference
14:00: AFL presents at Merrill Lynch Insurance Conference
15:20: INTC presents at Goldman Sachs Tech and Internet Conference
16:00: YHOO presents at Goldman Sachs Tech and Internet Conference
20:20: GOOG presents at Goldman Sachs Tech and Internet Conference
Post-market EPS: CRM (.18/285.4M); ESRX (.83/5.48B); FLR (.92/5.87B); FLS(1.92/1.31B); GEF (.35/698.9M); LTD (.64/3.05B); TEG (1.60/3.78B); URI(.45/792.1M)

*****Potential Events: Treasury could make an announcement on the “stress test” plan details/metrics. Citibank capital injection plan also rumored to potentially occur today.

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5.50 points below fair value while the NASDAQ futures are trading 12 points below fair value at 7:45am ET. US equity futures have been closely tracking the intra-day pattern in European markets this morning. European markets are up 0.50% but off the opening highs of 1.5%-2.0%. The pullback in Europe seemed to be caused by weakness in the British pound, which reversed early gains at around 6am following a report that EU officials are concerned by a “very rapid” drop in the pound that “raises questions about the financial stability of the British economy.” Asian markets closed higher (Japan up 2.65%, Hong Kong up 1.61%, Australia down 0.12%, Shanghai up 0.10%, India up 0.91%). Exporters rose in Japan on a weaker yen. Honda (7267.JP) jumped after an official said it had vastly exceeded its sales target for Insight hybrid cars. But investors remained wary of news the government might expand share buying to support the stock market. Hong Kong pared gains when the city’s Financial Secretary predicted the economy would shrink (2-3%) this year.

Impact Research Calls/Market Moving News:

FSLR (137.68): First Solar trades lower: FSLR guided f09 GAAP revenue to $1.8-$1.9B. FSLR also guided Q1 revenues flat to slightly down. Q4 reported revenues were $433.7M. Reuters consensus for Q1 is $408.1M; First Call $405.8M. FSLR says that 10-15% of 2009 volumes are at risk of default, says inventory may increase in 1H09, and sees serious risk from oversupply conditions. FSLR also said it is lowering module pricing on a "selective basis." FSLR shares are trading down 23 dollars to 114. Other solar stocks moved lower after hours in reaction to the FSLR decline.

FSLR (137.68): First Solar downgraded to sell from source of funds at ThinkEquity: Target reduced to $60. Kaufman Brothers also downgraded the shares to sell from hold.

WYNN: Wynn Resorts reports Q4 adjusted EPS $0.07 vs Bloomberg .43 cents: Wynn says that it experienced a dramatic deceleration in business from the casino and non-gaming departments starting in October. In addition, the 15.3% table games hold was the lowest experienced by its Las Vegas properties since Wynn Las Vegas' opening in April 2005. Average Daily Rate (ADR) was $281 compared to $298 in Q4 of 2007 and occupancy was 79.7% compared to 94.3%, generating RevPAR of $224, (20.3%) y/y. Wynn Resorts says it is seeing changing behavior patterns at the gaming tables - conf call : Chairman and CEO Steve Wynn notes that gamblers are playing for shorter amounts of time and are less inclined to let winners run. Also points out that casinos catering to lower-end customers seem to be holding up better, fitting with the consumer trade-down theme. Wynn extremely concerned about rhetoric out of Washington towards Las Vegas as Obama administration seems to be looking for a pound of flesh from business. Only good news out of Las Vegas is the fact that the company controls $5B worth of assets, but only owes $2.8B against them, leaving its balance sheet under-leveraged. Company much more upbeat about China, where Macau volumes have been decent. Company concedes that it has not been able to hold room rates, but does point out that it has found ways to save up to $45M in costs in Macau. WYNN shares are trading down 4 dollars to 21.75.

C (2.60): Citi's relationship with the government off to a rocky start – WSJ: One government official says Citi is so huge as to be "unmanageable." Executives are having trouble pleasing the government while simultaneously trying to rebound from five consecutive quarterly losses. But it's not obvious whom they should be trying to please: No single person or entity is in charge of the federal oversight of the bank, and the government is trying to be neither an active nor a passive investor. The article details frustrations arising from government directives that can be either conflicting or inscrutable. Officials told regulators the bank was profitable in January.

Housing downturn spurs increase in all-cash sales – WSJ: Citing a report from Raymond James, the Journal notes that homes financed with cash comprised one-third of sales in Phoenix last moth, up from 19% in the year-earlier period. According to the Sacramento Association of Realtors, all-cash sales accounted for 24% of home sales in Sacramento last month, up from 8% in January 2008 and 3% in January 2007. The paper adds that cash sales are up even more in many Florida markets. The Journal suggests that this trend is an indication that bargain hunters have descended on some of the most severely depressed housing markets in search of great deals.

ALL (18.64): Allstate cuts quarterly dividend to .20 cents from .41 cents.

LNC (13.04): LNC cuts quarterly dividend to .01 cent from .21 cents.

T (23.25): AT&T (T) upgraded to overweight from neutral at JPMorgan.

WFC (13.05): WSJ encourages Wells Fargo to cut its dividend: A "Heard on the Street" column notes the stock yields 10% now, and the bank has a Tier 1 capital ratio of only 7.9%. The column wonders why Wells Fargo has not already followed JPMorgan Chase's lead when it slashed its dividend 87% yesterday.

MSFT (17.17): Microsoft estimates and target lowered at UBS: Target lowered to $21 from $23. Firm lowers FY10 estimates below consensus to reflect lower revenue growth and share buyback assumptions. Rating is buy

Tuesday, February 24, 2009

February 24, 2009: Morning Call

February 24, 2009: Morning Call

Fair Value: SP500 – 742.49; NDX: 1129.27; DOW: 7104.33

Technical Levels:


SPX: 685, 741-755 support/ 778, 800, 848-852, 899-908 resistance

Events:

Pre-market EPS: DAKT (.11/124.4M); FE (1.04/3.36B); FWLT (.97/1.81B); HD(.15/14.64B); HNZ (.65/2.58B); HSIC (.88/1.77B); M (1.01/7.86B); RSH(.73/1.38B); TGT (.83/19.6B); BX (-.27/-566.0M)
05:00: Euro-zone Industrial New Orders (Dec)
09:00: S&P/CaseShiller Home Price Index (Dec): -18.25%
09:00: HD earnings call
10:00: US Consumer Confidence (Feb): 35
10:00: US House Price Index (Dec.): -1.7%
10:00: Richmond Fed Manufacturing Index: -47
10:00: Bernanke Report on the Economy and Fed Policy/Testifies before Senate
10:30: TGT earnings call
11:00: BX earnings call
11:30: Fed’s Fisher speaks on the financial crisis
12:00: Fed’s Duke speaks about the Community Reinvestment Act
14:00: House hearing on TARP oversight and accountability
14:30: FDIC’s Bair news conference to announce bank and thrift industry results for Q4
16:30: API Crude Oil and Gasoline Inventories
16:30: FSLR earnings call
21:00: President Obama addresses joint session of Congress
Post-market EPS: DWA (.66/232.0M); FSLR (1.29/408.8M); NBR (.83/1.45B); RRC(.22/260.0M); WYNN (.41/696.4M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points above fair value while the NASDAQ futures are trading 12 points above fair value at 7:15 am ET. Asian markets closed lower (Japan down 1.46%, Hong Kong down 2.86%, Australia down 0.58%, Shanghai down 4.51%, South Korea down 3.47%, India down 0.24%). Banks were big losers. In Japan, Nomura Holdings (8604.JP) fell on dilution worries after announcing plans to raise ¥291.2B in share sales and Modec Inc (6269.JP) plunged on forecast of lower profits. Hong Kong was hurt by expectations of a conservative budget’s being announced tomorrow and worsening Q4 GDP figures. Earnings concerns dragged on all sectors in South Korea. Commodities producers and financials led China down. European markets are down 1.5%. Mining and insurance shares are leading the move lower and auto companies were particularly weak following broker downgrades (Daimler (DAI.GR) was downgraded at Bernstein and BMW Group (BMW.GR) downgraded at Morgan Stanley). Indices fell as much as (3%) on the open.

Impact Research Calls/Market Moving News:


JPM (19.51): JPMorgan Chase cuts quarterly dividend by 86.8% to $0.05 from $0.38. JPMorgan Chase says Q1 financial performance quarter-to-date is solidly profitable: First-quarter 2009 financial performance quarter-to-date is solidly profitable even after significant additions to reserves, and the outlook for the quarter is roughly in line with analyst expectations. The company said it hopes to re turn to a more normalized dividend payout ratio as soon as feasible after the environment has stabilized. JPMorgan says dividend cut is not directly related to TARP: The company says that while its performance and capital are already strong, today's action provides it with maximum flexibility to protect our company in a more highly stressed environment, and is not directly related to TARP. JPM says that the decision to retain additional common equity does, however, help position it to repay TARP as soon as is prudent. Repayment of TARP will ultimately be worked out in consultation with the Treasury and other regulators, and in consideration of the best interests of the banking system overall.

Washington Post discusses announcement by Obama administration regarding terms financial institutions will receive: The Obama administration has changed the terms of the emergency aid banks have received, allowing them to repay the government with common stock instead of cash. Officials say the adjustment is supposed to give banks more capital, not nationalize the banking system. Converting the government's holdings to common stock will allow the industry to save billions of dollars in dividends.

AAPL (86.95): Apple downgraded to underperform from outperform at Calyon Securities -- Dow Jones

GS (80.07): Goldman Sachs mentioned positively at Morgan Stanley: Firm says that shares may rebound in Q1, on the potential for a more rational market and improved competitive dynamics. Further, Goldman management stressed to the firm that it plans to be very mindful in its cost cutting, and not underestimate its ability to capture competitive opportunities.

COF (9.13): Capital One downgraded to neutral from overweight at JPMorgan

HD (18.71): Home Depot reports Q4 EPS $0.19 ex-items vs Reuters $0.15: Company reports revenues of $14.61B vs Reuters $14.63B. Q4 comps. (13.0%) vs. consensus (12.2%). HD sees f09 total sales ~(9%) and comps. in the negative high single digits.

JWN (11.33): Nordstrom reports Q4 EPS $0.31 vs Reuters $0.30. Total sales in Q4 were $2.30B as reported on 5-Feb. Guides 2009 EPS to $1.10-1.40 vs Reuters $1.24. For the 2009 fiscal year, Nordstrom expects same-store sales to decrease 10 to 15%

BIDU (131.76): Google China hopes to "eat up" Baidu (BIDU)'s 33% market share this year, says China Business News - JLM Pacific Epoch :Google China president Lee Kai Fu says two third of Chinese search engine users use both Baidu and Google.

GM (1.77): General Motors to release Q4 results 26-Feb at 07:00: Conference call will be at 08:30

MS (18.82): Morgan Stanley's CEO John Mack tells Charlie Rose the U.S. is "ahead in deleveraging" – Bloomberg: Mack adds that he thinks China will keep lending to the U.S. The statements were reportedly made in an interview set to air this evening on PBS.

BRCD (2.80): Brocade downgraded to hold from buy at Argus Research

Friday, February 20, 2009

February 20, 2009: Morning Call

February 20, 2009: Morning Call

Fair Value: SP500 – 778.17; NDX: 1168.19; DOW: 7456.34

Technical Levels:


SPX: 685, 745-755 support/800, 848-852, 874, 899-908 resistance

Events:

Pre-market EPS: JCP (.92/5.83B); ABX (.32/1.83B); LOW (.13/10.11B)
04:00: Euro-zone PMI Manufacturing (Feb): 35.0; Services: 42.5; Composite: 38.5
08:30: US Consumer Price Index (Jan): 0.3% MoM; Ex-Food/Energy 0.1% MoM
08:30: US Consumer Price Index (Jan): -0.1% YoY; Ex-Food/Energy: 1.5% YoY
09:30: JCP earnings call

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 12 points below fair value while the NASDAQ futures are trading 14 points below fair value. European markets are down 3.0% with the insurance and bank stocks moving to 17-year lows (down 5%). Credit spreads are wider, emerging market currencies are lower, and risk aversion is accelerating (Gold up 20 to 994; Treasury Bonds up, Dollar up) on fear that the global economic downturn is deepening and that several “too big to fail” banks are going to be nationalized. Economic data in Europe also came in weaker than expected. There are just 4 stocks higher in the FTSE 100. Asian markets closed lower (Japan down 1.8%-Topix hits a 25-year low; Hong Kong down 2.5%; South Korea down 3.6%, India down 2.2%; Shanghai up 2.0%). Financial and basic material stocks led the markets lower. China was the lone exception, rising on the government’s announcement of stimulus plans for light industry and petrochemicals


Impact Research Calls/Market Moving News:

BAC (3.93); C (2.51): Bank of America (BAC), Citi (C) trading lower on fears of nationalization: The stocks are both weaker in Europe and in pre-market trading on renewed fears they will be nationalized. Both stocks are trading down 10%

Some banks in talks with regulators about additional capital injections - FTThe FT cites people familiar with the matter who say that some banks have been in talks with regulators over plans that would provide them with another capital injection, but would stop short of an outright nationalization. The paper adds that one option being discussed, at least in the case of Citi (C), would be for the government to convert some or all of its $45B worth of preferred shares, along with the $35B in preferred shares held by sovereign wealth founds and other investors, into common stock. The move would come in combination with an offering at a discount to the current share price. However, the FT, notes that it remains unclear as to whether the government will accept such a deal, as the Treasury wants to complete its new stress-tests before determining the best options for individual banks.

BAC (3.93): NY AG Andrew Cuomo subpoenas Bank of America chairman/CEO Kenneth Lewis – WSJ: People familiar with the matter say investigators also questioned former Merrill Lynch CEO John Thain yesterday to determine whether the bank withheld information from investors in violation of state law. One source says regulators are looking at Lewis's telling Congress that he had no authority over Merrill bonuses, given that they were set out in the banks' merger agreement and partially paid in BAC

Steel companies want higher tariffs – WSJ: Fitting with the protectionist concerns that have received a good deal of attention as of late, the Journal cites people familiar with the matter who say that US steelmakers are preparing a wave of complaints against foreign steel imports. The paper adds that the move could result in significant tariff increases later this year (trade lawyers say the duties could total more than 100% of final prices) and exacerbate trade tensions with China. The article notes that the companies believe that the higher tariffs will help them survive the global recession and nasty restructuring in the auto industry

BRCD (3.38): Brocade lowers F09 (Oct) non-GAAP diluted EPS guidance to $0.40-0.50 - conf. Call: Prior guidance was $0.57-$0.60 (prior to Foundry acquisition). Reuters is $0.52, First call is $0.49

T (23.19); VZ (27.99): Goldman Sachs upgrades T, VZ: AT&T (T) upgraded to buy from neutral, target is $30. Verizon (VZ) upgraded to buy from neutral, target is $33

AFL (16.32): Aflac upgraded to overweight from equal-weight at Morgan Stanley. The firm believes credit losses are unlikely to exceed $1B in 09 and that AFL could absorb that amount without a need to raise capital. Target is $36

MON (78.87): Crop scientists worried biotech seed companies stifling research - NY Times: The Times reports that university scientists say that biotech seed companies are preventing them from fully researching the effectiveness and environmental impact of genetically modified crops. The biotechs have a tight grip on the ultimate distribution of their products, and prohibit growing the crops for research purposes. The article notes that while the companies contend that such strict controls are a function of their relationship with the regulating government agencies, an EPA spokesman says the government requires only management of the crops' insect resistance and not the other prohibitive measures in the growers' agreement

RIO (14.72): Companhia Vale do Rio Doce (CVRD) downgraded to neutral from overweight at JPMorgan

Thursday, February 19, 2009

February 19, 2009: Morning Call

February 19, 2009: Morning Call

Fair Value: SP500 – 787.51; NDX: 1189.14; DOW: 7542.72

Technical Levels:


SPX: 685, 745-755 support/800, 848-852, 874, 899-908 resistance

Events:

Pre-market EPS: APA (1.27/2.19B); CVS (.65/23.35B); EXPE (.24/635.1M); GG (.12/626.9M); NEM (.23/1.37B); PDCO (.44/807.4M); PDE (1.05/618.5M); S (-.03/8.55B); PQ (.09/73.2M); XTO (.79/2.08B)
08:30: US Producer Prices (Jan): 0.2% MoM; Ex-Food/Energy: 0.1% MoM
08:30: US Producer Prices (Jan): -2.6% YoY; Ex-Food/Energy: 3.8% YoY
08:30: Initial Jobless Claims (Feb 14): 615,000; Cont. Claims: 4.8 million
08:30: SPWRA presents at Piper Jaffray Clean Tech. Conference
09:30: AMAT presents at Piper Jaffray Clean Tech. Conference
10:00: Leading Indicators (Jan): 0.0%
10:00: Philly Fed (Feb): -25.0
10:30: EIA Natural Gas Storage Change
11:00: DOE Crude Oil and Gasoline Inventories
13:15: Fed’s Lockhart speaks on the US economy
Post-market EPS: BRCD (.15/413.9M); CECO (.26/437.0M); FFH (14.27/1.57B); GFIG (.13/235.0M); INTU (.27/795.4M); SPN (.97/479.4M); TSO (.98/5.16B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are trading flat with fair value at 7:15am despite weakness in HPQ shares following a disappointing earnings report. Equity futures were 10 below fair value after the HPQ earnings report last night but have bounced back to fair value following a rally in Eastern European stock markets. European markets are modestly lower (down 0.25%) and have been in a tight trading range all morning; Eastern European markets are seeing a nice bounce from the sharp selling after Germany signaled they will assist other euro-zone countries that are at risk of economic collapse (Poland up 3.3%, Austria up 2.1%, Hungary up 2.5%, Romania up 4.2%, Russia up 3.0%, Czech Republic up 3.0%). The Euro is up 1.2% against the dollar (1.27) snapping a 3-day losing streak and bouncing off a 3 month low. Asian markets closed mixed (Japan up 0.30%, Hong Kong up 0.06%, Australia up 1.05%, India up 0.30%).

Impact Research Calls/Market Moving News:

BIDU (128.09): Baidu reports Q4 EPS $1.31 ex-items vs First Call 1.32: Company reports revenues of $132.2M vs Reuters $133.1M. Guides Q1 revenues to $114-117M vs Reuters 119.5M.

HPQ (34.08): Hewlett-Packard reports Q1 results; lowers full year guidance: Company reports revenues of $28.80B vs Reuters $31.87B. Guides Q2 EPS to $0.84-0.86 vs Bloomberg .88 cents. Guides full year EPS to $3.76-3.88 vs Bloomberg 3.77, and lowered from previous $3.88-4.03. Q2 guidance: revenue is expected to be down 2-3%, which implies a range of $27.45-27.73B vs Reuters $30.97B. Full year 2009 guidance: revenue is now expected to be down 2-5%, which implies a range of $112.48-116.03B vs Reuters $126.49B and is lowered from the previous target of $127.5-130.0B. The currency impact is now expected to be 7-8 points for the year versus 6-7 points previously.

AAPL (94.37): Premium pricing may be weighing on Apple's computer sales – WSJ: Citing data from market research firm NPD Group, the Journal notes that Apple's unit sales of computers through US retail channels fell 6% y/y in January, the first decline in three years. The dollar value of those sales fell an even greater 11% during the month. According to the article, this dynamic suggests that Apple's premium pricing strategy may be hurting the company as consumers increasingly look to trade down. NPD notes that the average price of Apple computers stood at $1,480 for its laptops and $1,500 for desktops in January - more than twice as high as computers based on Microsoft's Windows operating system.

PCLN (68.74): priceline.com reports Q4 EPS $1.29 ex-items vs Reuters $1.06: Company reports revenues of $406.0M vs Reuters $377.5M. Guides Q1 EPS to $0.85-0.95 vs Reuters $0.80; guides revenues to increase 5-10% y/y. Given the current macro-economic conditions, the company stated that it would not provide earnings guidance beyond Q1 and noted that its actual performance during Q1'09 against the guidance above is subject to greater variability than it had been in the past.

XOM (71.94): Two Downgrades: Barclays Capital and Sanford Bernstein downgrade Exxon Mobil (XOM): XOM downgraded to equal-weight from overweight; target remains $92. Sanford Bernstein downgraded XOM to market perform from outperform.

ADBE (20.39): Adobe Systems estimates reduced below consensus at RBC following checks: Checks by the firm indicate that end markets of enterprises, knowledge workers, designers, OEM partners and developers remain under pressure. F09 revenue and EPS estimates are reduced to $3.09B and $1.69 vs. Reuters $3.29B and $1.76. F10 revenue and EPS is reduced to $3.205B and $1.76 vs. Reuters $3.55B and $1.96. Shares remain sector perform rated. Target is reduced to $21 from $24.

NEM (42.76): Newmont Mining reports Q4 EPS $0.26 ex-items vs Reuters $0.25: Company reports revenues of $1.34B vs Reuters $1.37B. Equity gold sales of 1.35M ounces; copper sales of 40M pounds. Equity gold sales in 2009 are expected to increase to between 5.2 and 5.5M ounces at lower costs applicable to sales of between $400 and $440 per ounce.

USO (22.86): WSJ discusses oil ETF's move to tweak its rolling policy: On Wednesday, the $3.4B US Oil Fund LP, which allows investors trade oil prices like a stock, announced that it will renew expiring crude futures positions over the course of four days each month, scrapping its traditional practice of rolling its entire oil futures position in a single day. The Journal notes that the shift comes amid a barrage of criticism that the fund's size has distorted oil prices and allowed traders to front-run the widely known days it rolls front-month oil futures, weighing on the price the fund's investors receive. The fund's roll has also been negatively impacted by the severe contango in the market, a condition in which front-month crude trades at a discount to outer-month futures contracts

Wednesday, February 18, 2009

February 18, 2009: Morning Call

February 18, 2009: Morning Call

Fair Value: SP500 – 787.76; NDX: 1187.56; DOW: 7537.48

Technical Levels:


SPX: 745-755 support/800, 848-852, 874, 899-908 resistance

Events:

Pre-market EPS: ACGY (.36/785.6M); ALD (.22/110.6M); CEG (1.21/4.29B); CMCSA (.22/8.63B); DE (.63/4.62B); GT (-.93/4.94B); HST (.47/1.6B); IMA (.59/451.0M); JACK (.52/767.4M); PDC (.40/159.6M)
07:00: MBA Mortgage Applications
08:30: Import Price Index (Jan): -1.5% MoM; -11.8% YoY
08:30: Housing Starts (Jan): 530,000; Building Permits: 525,000
08:30: CMCSA earnings call
09:00: Fed’s Pianalto speaks in Ohio - Topic to be determined
09:00: AMAT analyst day
09:15: Industrial Production (Jan): -1.4%; Capacity Utilization: 72.5%
10:00: DE earnings call
10:30: AGU presents at the Morgan Stanley Basic Materials Conference
12:15: MON presents at Morgan Stanley Basic Materials Conference
12:15: President Obama unveils mortgage foreclosure/housing plan
12:30: Fed’s Bernanke speaks on Fed programs and balance sheet
13:20: Fed’s Evans speaks on the economic outlook
14:00: FOMC Minutes from the January 28 meeting
14:20: MOS presents at the Morgan Stanley Basic Materials Conference
15:10: CF presents at the Morgan Stanley Basic Materials Conference
16:30: API Crude Oil and Gasoline Inventories
17:00: HPQ earnings call
20:00: BIDU earnings call
Post-market EPS: ADI (.16/475.0M); CBS (.26/3.59B); HPQ (.93/31.94B); DBRN (.01/341.5M); KGC (.10/505.8M); PCLN (1.03/377.5M); WFMI (.17/2.48B); BIDU (1.44/130.5M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 2 points above fair value while the NASDAQ futures are 2 points below fair value at 8am ET. European markets have pared their losses to 0.50% from a 1.5% decline at 5am. The modest bounce in Euro-zone markets helped the S&P futures bounce 5 points off the overnight session low (784). Energy and mining shares are amongst the leading decliners in Europe. Decliners on the FTSE 100 lead advancers 3-2. Asian markets closed mixed (Japan down 1.5%; Hong Kong up 0.55%, Australia down 1.48%, Shanghai down 4.6%, India down 0.22%). Hong Kong reversed initial declines after the city’s Chief Executive said the government will do more to address the economy if it sees “major stress” in banking, business, or unemployment. Taiwan edged up led by tech exporters. The continued fall of the won against the dollar hurt shares in South Korea, which dropped 1.8%. Real estate and insurance stocks went down in Japan.

Impact Research Calls/Market Moving News:

WSJ discusses latest details surrounding mortgage relief plan: The Journal reports that the focal point of the plan, which will be unveiled on Wednesday, is making loans more affordable by providing a government subsidy to help mortgage companies modify certain troubled loans. The paper adds that the administration is expected to detail a program that will allow homeowners in a position of negative equity to refinance their mortgages, something that is not currently possible. The GSEs, Fannie and Freddie, are expected to assist borrowers who are still current on their payments but at risk of default. Citing people familiar with the plans, the Journal also notes that in an effort to make loans more affordable, the administration is expected to support a variety of approaches, including lowering interest rates or lengthening the terms of such loans. To determine who qualifies for a more-affordable mortgage, the administration is expected to focus on homeowners' debt-to-income ratio. The plan may also require homeowners to eventually pay back the difference between the original payment and reduced rate. Of particular interest, the article notes that the administration's plan doesn't appear to include reducing the size of homeowners' loans.

Former Fed Chief Alan Greenspan and other Republicans are increasingly focusing on nationalization to help banking crisis – FT: Speaking to the FT ahead of a speech to the Economic Club of New York on Tuesday, Mr Greenspan said that “in some cases, the least bad solution is for the government to take temporary control” of troubled banks either through the Federal Deposit Insurance Corporation or some other mechanism. The former Fed chairman said temporary government ownership would ”allow the government to transfer toxic assets to a bad bank without the problem of how to price them.” The article notes that Lindsay Graham, the Republican senator for South Carolina, said that many of his colleagues, including John McCain, agreed with his view that the nationalization of some banks should "be on the table." In an interview with the paper, Graham said that many Americans have already accepted his argument that the government should stop throwing money into institutions such as Citi and BofA, both of which have market caps below the amount of public funds they have received. According to Graham, “In limited circumstances the Swedish model makes sense for the US." The article notes that even President Obama has recently begun to move towards the Swedish model.

NYT looks at who housing bailout will probably help: The article notes that there are about 3M households that cannot afford their mortgages, and 10M others who are "underwater," meaning they can afford their mortgage payments, but their homes are worth less than they owe. The article says the plan will evidently focus on the first group, which is enormously cheaper than helping the second. But if a large proportion of the second group starts to leave their homes (which they don't really need to; remember, these are the people that can afford their payments), the housing bust and financial crisis will be aggravated. A Federal Reserve economist predicts the nationwide foreclosure rate over the next few years will be not radically higher than 1-2%; other economists predict the rate will be much higher.

GOOG (342.66): Piper Jaffray reiterates his buy rating and 419 price target on GOOG shares following the comScore data. “Conclusion: Google's total U.S. queries ended up 6% m/m and 38% y/y in January. The year on year growth is the second highest rate since October 2007. We are expecting a 2% q/q U.S. revenue decline in Q1. The bottom line is that the comScore query data makes us incrementally more positive that there will be growth in paid clicks; however, we continue to believe sequential CPC rates could suffer given a tough comp of the December holiday quarter in addition to adjustments made to account for the consumer spending slow down (falling conversion rates). We continue to like Google on our belief that search is the most defensible form of online advertising in a difficult ad environment. Next Data Points, What To Expect. The next data points for Google will be comScore Worldwide query data followed by paid click data. We believe it's likely the m/m growth in Worldwide queries is more muted than that of the U.S. given the Presidential Inauguration in January. Regarding paid clicks, for Q1 we are modeling for 3% q/q growth in U.S. paid clicks and 2% q/q paid click growth overall. However, we are modeling for a 5% sequential decline in CPC rates in Q1.

DE (33.49): Deere & Company reports Q1 EPS $0.48 vs Reuters $0.62: Company reports revenues of $4.56B vs Reuters $4.54B. Guides full year equipment sales to be down about 8%; guides Q2 equipment sales to be down about 9%. The company is suspending its practice of providing a quarterly net income forecast in light of highly uncertain conditions in the global economy, including volatility in foreign exchange rates.

GM (2.18): General Motors releases highlights of its progress update: GM is increasing its loan request by $4.5B; needing an additional $16.5B if conditions stay the same, for a total of $30B in financial assistance from the government. GM says it will run out of money by next month without more aid. Will cut 47K hourly, salaried jobs by the end of the year. GM will cut 10K salaried and 37K hourly workers and plans to close 5 additional US factories to 33 in 2012 from 47 in 2008. GM has considered and rejected 3 bankruptcy scenarios as part of the plan. GM says bankruptcy would cost more than a larger bailout.

GS (85.71): Goldman Sachs confirms in press release the retirement of President and co-COO Jon Winkelreid

Gold (970.25): Canaccord Adams raises gold price forecast to $1,100/oz from $950/oz: Firm believes the safe haven flight to gold will continue and notes the continued weakness in the financial markets, high credit risk, and the eventual devaluation of paper currencies from monetary and fiscal policies to reflate the global economy

NYX (18.01): NYSE Euronext upgraded to neutral from sell at Goldman Sachs: Target remains $19. The firm cites valuation.

Wilbur Ross says interested in govt's troubled asset fund if low-cost leverage is provided – Reuters: Reuters reports that Ross also said that a "loss-sharing formula" with the government is needed to entice private investors, but that private equity in various countries is flush with capital and would be huge buyers.

Bullish sentiment declines 31.1% from 32.3% in the latest Investor's Intelligence poll

Private equity firm Lone Star Fund seen raising additional $20B for troubled assets - Reuters, citing sources: Reuters, citing sources, reports roughly half will be spent for commercial real estate, including commercial mortgage-backed securities, and the other half will go towards other distressed debt, including residential mortgages and corporate debt

Steel stocks crushed on Tuesday – WSJ: The Journal recaps Tuesday's rout in the steel space, noting that the stocks were hit by worries about the global nature of the economic slowdown and fears about pricing. The article also points out that several sell-side notes appeared to contribute to the selloff. UBS noted that while companies are nearing the end of their destocking, demand could still be down 25% to 30% from the year-earlier period, and possibly worse. In addition, analysts at Dahlman Rose said US Steel (X) was facing a slowdown in tubular goods and has idled a plant in Texas to curb production. In addition, Longbow Research analyst Bob Richard slashed his earnings estimate on Schnitzer Steel (SCHN) by 85%, as channel checks have revealed weakness in scrap-metal fundamentals.

Tuesday, February 17, 2009

February 17, 2009: Morning Call

February 17, 2009: Morning Call

Fair Value: SP500 – 825.40; NDX: 1237.46; DOW: 7829.27

Technical Levels:


SPX: 752-755, 800 support/ 848-852, 874, 899-908 resistance

Events:

Pre-market EPS: GPC (.56/2.55B); HSP (.76/989.1M); MDT (.70/3.53B); STO (.61/25.9B); RIG (3.70/3.29B); RAIL (.34/195.7M); TCK (.38/1.72B); VCI (.26/615M); WMT (.97/106.95B); ZBRA (.30/220.7M
08:30: Empire Manufacturing (Feb): -24.00
09:00: Net Long-Term TIC Flows (Dec): 20.0B
10:00: RIG earnings call
11:00: INTC Shareholders Meeting
13:00: NAHB Housing Market Index (Feb): 8
13:00: Fed’s Bullard speaks on the economy
17:00: ABC Consumer Confidence (Feb 15): -53
Post-market EPS: A (.28/1.26B); CHK (.75/2.45B); WYNN (.42/701.0M-date not confirmed); UPL (.48/244.8M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 23 points below fair value while the NASDAQ futures are trading 37 points below fair value following sharp declines in European markets. European markets are down 4% in the last two sessions (US markets were closed Monday for President’s Day). Financial stocks are among the hardest hit after Moody’s put banks with units in eastern Europe on review for possible downgrade. Mining, steel, and technology names are also underperforming with 9 issues declining for every advancing issue in London. Asian stocks closed sharply lower last night (Hong Kong down 3.8%, Japan down 1.3%, Australia down 1.5%, Shanghai down 3.1%, South Korea down 3.9%, India down 2.9%). In Japan, Finance Minister Shoichi Nakagawa announced he would resign amid widespread accusations that he was drunk at a G7 press conference. Banks led Hong Kong lower, though Bank of East Asia (23.HK) went against the trend. Oil-related stocks fell on lower crude-oil futures. A slumping won hurt shares in South Korea.

Impact Research Calls/Market Moving News:

WMT (46.53): Wal-Mart reports Q4 EPS $0.96 vs guidance of $0.91-$0.94: Excluding items, WMT reports EPS from cont. ops of $1.03 vs. Reuters $0.99. Company reports revenues of $108.0B vs Reuters $106.95B. Guides Q1 EPS to $0.72-$0.77 vs Reuters $0.77. Guides full year EPS to $3.45-$3.60 vs Reuters $3.57; First Call $3.59

GOOG (357.68): Google downgraded to source of funds from accumulate at ThinkEquity: Target reduced to $300 from $350. “GOOG shares are up 27% in the past three weeks (versus S&P up 3%) and are currently reflecting a 2H09 recovery that we believe is unlikely to materialize. Our research suggests that paid clicks and CPCs have continued to deteriorate in the first half of Q1. We are now expecting 3.8% Y/Y growth in net revenue (0.6% for gross) versus the Street consensus at 10.3%. Our PF EPS estimate is now $19.85 versus consensus at $21.20. As investors come around to our point of view, we expect to see multiples contract and the stock to fall into the $300 range.”

Wall Street to lobby for reconsideration of rescue plan – FT: People close to the situation say banks wanted detailed talks before the $2T financial rescue plan was announced. They hope to throw off the yoke of stringent financial health reviews and aren't crazy about the capital injections that could make the government a large shareholder, either. They would like the government to make clear that its "stress test" is not a pass-fail exercise

BIDU (128.20): RBC reduces f09 Baidu estimates below consensus: The firm notes the economic backdrop and limited visibility and reduces f09 EPS and revenue estimates to $596M and $5.69 vs. Reuters $629.73M and $6.12. Target for the shares is reduced to $182 from $242. Shares remain outperform rated. You may recall that Pali Capital took numbers below consensus on Thursday of last week.

GE (11.44): UBS remains cautious on General Electric: Firm believes expectations for finance remain too high and expects some combination of a dividend cut, credit rating downgrade and/or capital raise over the next several months. UBS maintains short-term sell rating.

NY Times columnist argues in favor of nationalizing the banking system: Columnist Joe Nocera says some industry observers have begun arguing that the government should just go ahead and nationalize bad banks already. He argues that government can successfully manage banks, as it supposedly did during the S&L crisis by finding qualified bankers to run them. Quotes a former member of the IMF as saying government taking over failing banks is best practices. He concludes with, "As we run out of possibilities, nationalization is looking more and more like the right thing."

NY Times says new car council to be led by Geithner and Summers: The panel, The Presidential Task Force on Autos, will replace the idea of a car czar and will also be composed of restructuring expert Ron Bloom, an advisor to the industry's labor unions. The paper says a task force instead of a czar will retain for President Obama the final word on the viability of GM and Chrysler

GM (2.50): General Motors bondholders propose debt-swap deal – Reuters: A person with knowledge of the talks says representatives have outlined specific proposals on how to carry out the plan to swap debt for equity in a restructured company. The source says the idea encourages high participation among bondholders and addresses a key concern about fairness in the parallel debt-reduction deal that GM has been negotiating with the UAW. GM has not yet accepted the proposals, specific terms of which were not disclosed.

RIG (60.15): Transocean reports Q4 EPS $3.69 ex-items vs Reuters $3.69: Revenues of 3.27 billion versus 3.29 billion. Average total drilling fleet dayrate $251.5K vs year-ago $224.0K.

DE (36.11): Deere & Company downgraded to sell from neutral at Goldman Sachs: The firm reduces target to $32 from $39 and expects the weakness in agriculture equipment to persists through 2010.

DO (63.41): Diamond Offshore Drilling Inc. (DO) will replace Weatherford International Ltd. (WFT) in the S&P 500 on a date TBA

SIRI (.10): Liberty Media to invest 530 million dollars in Sirius/XM radio via preferred stock. John Malone and Greg Maffei are going to join the SIRI board.


Barron's summary

Cover: Most Respected Companies: Top Ten are: JNJ, BRK.A, PG, AAPL, WMT, XOM, MCD, TM, KO and CSCO. Interview: Robert Albertson, principal and chief strategist of Sandler O'Neill & Partners, sees the financial crisis lasting for another 2-3 years. Lead Articles: Editorial suggests using $200B in TARP funds to reduce the balances of subprime mortgages by about 25%; Abbott Labs (ABT) could do even better over the next few years; Considers the 20 best dividend plays for 2009 and 10 that look iffy; A look at companies vulnerable to goodwill impairments; Activist investors are likely to find more support in this tough market environment; A discussion of the pros and cons of mark to market accounting, maybe a solution is to re-evaluate what banks are allowed to hold and how to calculate reserves; Cemig (CIG) may be the hottest play on a Brazilian recovery, stock could go to $18; Editorial says economics is not a hard science and that Keynesians won the election and now have to prove their theory works. Columns: The Trader is cautiously positive on tech, cautious on Hershey's (HSY) and American Italian Pasta (AIPC); Euro Trader is positive on Munich Re, cautious on Swiss Re; Asia Trader discusses Hyundai's (005380.KS) coming recapitalization of its auto-financing unit, notes some positive sentiment towards China Yuchai (CYD) though there are still plenty of concerns; The Striking Price discussions option strategies for General Electric (GE); Current Yield notes the reactions of Treasuries to recent events and sale efforts; Commodities Corner says the normal moves in heating oil futures compared to gasoline may not occur again this year, last year the lack of the trade was called the widow maker; Follow Up says a recovery could start in Q3, cautious on Abercrombie & Fitch (ANF); Up and Down Wall Street discusses the bailout and stimulus efforts in Washington; Streetwise says HSBC has a new international list of Nifty Fifty names including WMT, DIS, KO, JNJ, SLB, NTDOY, NSRGY, RR.LN and CAJ; D.C. Current wonders if Treasury Secretary Geithner will remain in his post for very long; Technology Trader is positive on IAC (IACI) on the potential to return cash to shareholders sometime this year, cautious outlook for solar names due to falling demand and polysilicon prices; Plugged In says Dell and Acer will have a tough time in the smartphone market and notes that NetApp (NTAP) missed revenue targets but still looks positive long term

Thursday, February 12, 2009

February 12, 2009: Morning Call

February 12, 2009: Morning Call

Fair Value: SP500 – 832.10; NDX: 1227.09; DOW: 7979.92

Technical Levels:


SPX: 752-755, 800, 816 support/848-852, 874, 899-908 resistance

Events:

Pre-market EPS: AET (.95/8.01B); ECA (.81/5.87B); FCL (.48/448.3M); GLG(.07/90.0M); KO (.62/7.58B); MAR (.41/3.67B); MAS (-.05/2.11B); MLM(.83/423.8M); NXY (.39/1.51B)VIA (.79/4.23B); WMI (.49/3.16B)
05:00: Euro-zone Industrial Production (Dec): -2.5% MoM; -9.5% YoY
08:00: UNP presents at BB&T Transport Conference
08:30: US Retail Sales (Jan): -0.8%; Less Autos: -0.4%
08:30: Initial Jobless Claims (Feb 7): 610,000; Cont. Claims: 4.8 million
09:30: NSC presents at BB&T Transport Conference
10:00: Business Inventories (Dec.): -0.9%
10:15: CSX presents at BB&T Transport Conference
10:30: EIA Natural Gas Storage Change
Post-market EPS: CEPH (1.37/525.9M); COG (.42/242.6M); EQ (1.23/1.49B); MFE(.52/420.9M); PNRA (.84/351.9M);


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 8 points below fair value while the NASDAQ futures are trading 10 points below fair value at 7:45 am ET. Asian markets closed lower (Japan down 3.03%, Hong Kong down 2.3%, Australia up 1.1%, India down 1.6%) and European markets are currently down 1.7% on weak economic data (Indian and Euro-zone Industrial Production came in weaker than expectations), disappointing earnings in Europe (EDF and DEO), and concerns that US retail sales are going to be weaker than expectations. Companies trading lower in Europe after earnings include BT Group (BT.A.LN) Cap Gemini (CAP.FP), EdF (EDF.FP), Smith & Nephew (SN.LN), and Diageo (DGE.LN). after EPS and Swiss Re (RUKN.VX) advanced after announcing its CEO resigned

Impact Research Calls/Market Moving News:

BIDU (133.86): Baidu consensus estimates may be aggressive, says Pali: Firm says Q1 and Q2 consensus estimates may be overly aggressive, as state owned businesses will be the first to benefit from Chinese gov't stimulus, and the trickle down effect will take time to make an impact on entities such as BIDU. Shares rated sell, target price, $90.

MAR (15.15): Marriott (MAR) reports Q4 EPS $0.34 ex-items vs Reuters $0.40, guides f09 EPS to $0.86-$1.04 vs Reuters $1.14. MAR says it cannot forecast results with any certainty. For Q1 of 2009, the company expects North American comparable company-operated REVPAR to decline roughly 17%, including the benefit of the shifting fiscal calendar, and comparable company-operated REVPAR outside North America to decline roughly 15%.

TEX (13.62): Terex says it may likely be in violation of a covenant in its credit agreement by the end of 1Q09: Due to deteriorating business conditions in certain of its operating segments and the impact of historical fixed charges incurred on a trailing twelve months basis, TEX may likely be in violation of the consolidated fixed charge coverage ratio covenant under its credit agreement as early as the end of Q1 of 2009. As a result, TEX has initiated discussions with its lead banks seeking to obtain a consent and/or amendment to its credit agreement and will attempt to get the consent and/or amendment during Q1

CMG (47.42): Chipotle Mexican Grill reports Q4 EPS $0.52 vs Reuters $0.48: Company reports revenues of $345.3M vs Reuters $340.9M. Comps for the quarter were +3.5% vs. StreetAccount +1.4%. CMG sees full year f09 comps in the low single digits.

RTP (110.94): Rio Tinto confirms partnership with Chinalco; Rio to receive $19.5B cash: The Boards of Rio Tinto plc and Rio Tinto Limited announce that they are unanimously recommending to shareholders a transaction with Aluminium Corporation of China ("Chinalco"). Investment by Chinalco in certain aluminium, copper and iron ore joint ventures totalling $12.3B. The issue of subordinated convertible bonds in two tranches with conversion prices of $45 and $60 in each of Rio Tinto plc and Rio Tinto Limited for a total consideration of $7.2B. If converted, the subordinated convertible bonds would increase Chinalco's current shareholding to 19.0% in Rio Tinto plc and 14.9% in Rio Tinto Limited, equivalent to an 18.0% interest in the Rio Tinto Group.

BHP (42.44): BHP Billiton (BHP) may look to trump Chinalco for some of Rio Tinto's assets - London Times: The Times reports that BHP is expected to approach the Rio Tinto board with a counter-offer for some of the mine stakes that are expected to be acquired by the Chinese. According to the article, BHP is understood to be particularly interested in Escondida, the Chilean copper mine that is the world's largest.

X (30.75): X will temporarily stop production at its East Texas plant, idling as many as 1200 workers.

ECA (43.10): EnCana reports Q4 operating EPS $0.60 vs Reuters $0.77: Company reports revenues of $6.36B vs Reuters $5.87B. Natural gas production increased 4% to 3.9 Bcf/d; Oil and natural gas liquids production in the quarter was flat at 136,000 bbls/d. Total production increased 3% to 4.7 Bcfe/d. Cash flow per share decreased 32% to $1.73.

PBR (29.22): Petrobras downgraded to hold from buy at Citi: Price target is $34. The firm cites valuation.

NYX (20.60): NYSE Euronext downgraded to hold from buy at Citi: Price target decreased to $21 from $24. The firm cites the current state of capital markets, lack of catalysts, and concern about expenses, among the rationale.

KSS (37.93): Kohl's downgraded to Conviction Sell from neutral at Goldman Sachs: Price target is $32. The firm cites valuation and believes 2009 EPS consensus is too high

LVS (3.98): Las Vegas Sands reports Q4 EPS ($0.04) ex items vs Reuters $0.03: Company reports revenues of $1.09B vs Reuters $1.18B.

JASO (3.01): JA Solar guides f09 revenue to $830-$952M vs Reuters $956.5M: F09 target for total production output is now 500 MW to 550 MW, below prior 800 MW, given on 12-Nov, though note the company cut Q4 guidance on 10-Dec without updating f09. The nameplate production capacity by year-end 2009 is now expected to be 875 MW. JASO says worldwide macro economic conditions; tight credit markets and resulting issues with project financing are negatively impacting the solar industry

Wednesday, February 11, 2009

February 11, 2009: Morning Call

February 11, 2009: Morning Call

Fair Value: SP500 – 825.35; NDX: 1229.36; DOW: 7862.27

Technical Levels:


SPX: 752-755, 800, 816, 848 support/ 874, 899-908 resistance

Events:

Pre-market EPS: AYE (.52/1.13B); BCE (.50/4.52B); DF (.39/3.22B); GENZ (1.03/1.19B); IR (.26/3.69B); JNY (-.05/820.6M); MICC (1.18/942.5M); MMC(.33/2.98B); SF (.56/214.0M); MT (.46/20.4B)
05:30: Bank of England releases Quarterly Inflation report
07:00: MBA Mortgage Applications
07:00: Bloomberg Global Confidence
08:00: BBT Analyst Day
08:30: Trade Balance (Dec): -36.0B
08:30: NYX Investor Day
09:30: MT earnings call
09:30: BNI presents at BB&T Transport Conference
09:50: Fed’s Duke speaks on stabilizing the Housing Market
10:00: Treasury’s Geithner testifies on TARP at Senate Budget Panel
10:00: Bank Executives testify on their use of funds from TARP: CEO’s from BAC, C, JPM, STT, BK, WFC, MS, and GS are expected to testify)
10:30: DOE Crude Oil and Gasoline Inventories
11:00: YRCW presents at BB&T Transport Conference
11:00: BRCM presents at Thomas Weisel Tech Conference
12:45: MSFT presents at Thomas Weisel Tech Conference
13:00: Fed’s Evans speaks on the US economic outlook
14:00: US Monthly Budget Statement (Jan): -78.0B
14:00: INTC provides 4G WiMax Mobile Broadband Update
14:00: TOL Q1 2009 Guidance Call
15:15: INTC presents at Thomas Weisel Tech. Conference
Post-market EPS: ATVI (.29/2.15B); CMG (.48/340.9M); GIL (.04/216.8M); PAA(.74/8.56B); TEX (.60/2.23B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading flat with fair value. Equity futures have been closely tracking the intra-day pattern in Europe, which is down 0.50% this morning. European markets are being lead lower by the financial sector. Advancers just edge decliners on the FTSE 100. Trading lower post results were Credit Suisse (CSGN.VX), Peugeot Citroen (UG.FP) and Groupe Danone (BN.FP). Trading higher were Sanofi-Aventis (SAN.FP), ArcelorMittal (MT.NA). Asian markets mostly declined due to weakness in financial and industrial stocks (Japan down 0.29%, Hong Kong down 2.4%, Australia down 0.40%, India down 0.30%).

Impact Research Calls/Market Moving News:

RIMM (57.03): Research In Motion guides fQ4 gross margin and EPS to be at the low end of prior ranges: Recall RIMM had guided Q4 EPS to $0.83-$0.91 and Q4 gross margins to 40-41% on 18-Dec vs. the 45.6% in fQ3. Reuters consensus for EPS is $0.86; First Call $0.85. RIMM guides Q4 revenues to be at or near the midpoint of the previously guided range of $3.30-$3.50B. Reuters is $3.40B; First Call $3.41B. RIMM cites a variety of factors, including product mix, lowered channel inventory levels and an increased ratio of new subscriber sales to upgrade and replacement sales, for the outperformance in subscriber growth relative to revenue and earnings performance in Q4 (My take: As I have pointed out several times in this blog over the last year, gross margin compression continues to hurt RIMM’s growth. The pace of commoditization in the smartphone market appears to be accelerating rapidly and a $99 dollar iPhone would be a negative catalyst for RIMM. Although AAPL could potentially grow iPhone unit shipments fast enough to offset the margin pressure, the shares will be weak in the short-term on gross margin concerns. AAPL is down 1 dollar to 96.80. RIMM Is down 4 to 53).

AMAT (9.69): Applied Materials (AMAT) reports Q1 EPS ($0.02) ex-items vs Reuters $0.00, says Q2 (Apr) revenue will be down more than 30%

CF (53.60): CF Industries Holdings reports Q4 EPS $3.59 including items, EPS excluding items was $3.87

MS (20.79): GS (90.40): Bernstein believes Morgan Stanley (MS) and Goldman Sachs (GS) are less likely to need additional capital relative to the others: The firm believes that GS and MS have less pressure from the government to lend than do other banks such as JPM, C and BAC. Bernstein believes more clarity is needed into the bank rescue plan before investing in the banking sector.

TOL (18.58): Toll Brothers reports preliminary Q1 home building revenues of ~$409.3M vs. Reuters $446.7M: First Call is $442.6M

WSJ discusses criticism of the Public-Private Investment Fund: The Journal points out that some investors fear that program will be too small to stimulate purchases of toxic assets, while other investors complain that the plan is far too vague to get them to come off the sidelines. Citing people familiar with the matter, the paper adds that one possibility being considered involves the government and private investors putting up equal amounts of capital, with the Fed lending money to the fund, allowing it to significantly increase is purchasing power. Any profits would be divided between taxpayers and investors.

Technology companies to benefit from stimulus package – NYT: Without naming which ones, the article says President Obama recently had a dozen CEOs, seven from technology and energy companies, to the Oval Office to discuss the plan. Tech and clean energy companies have been helping shape the bill since as early as September. The Senate version of the bill provides $7B to expand high-speed Internet access, $20B to build a smart-grid power network, and $20B to digitize health records

European banks may need to file weekly reports on portfolio values – NYT: European finance ministers have agreed to produce guidelines within the next two weeks that will allow governments to use different means of dealing with banks' bad debt. The European Commission is suggesting weekly reporting and a six-month deadline to accept help. The commission is also suggesting that governments be allowed to choose from a bad bank, asset-management programs, an insurance plan, or a combination. Mandatory participation or at least mandatory disclosure is under consideration.

Tuesday, February 10, 2009

It's the "Uniform Stress Test" Stupid!!!

The morons on CNBC are in a full tilt panic to explain why the market sold off following the Geithner speech at 11am ET. CNBC is reporting that the "lack of details" in the package has caused the selling pressure. Wrong! Larry Kudlow, who has been permanently wrong for the last 10 years, even suggested that the speech was a "total disaster" and that the only way to turn the market around is to do nothing but cut taxes more. Wrong!

The financial stocks were weak ahead of the of speech on concerns that the "uniform stress test" could end up triggering a government seizure and liquidation of several large banks. Remember, the heart of the problem in the banking sector is not simply that a lot of the banks are technically insolvent. The problem is that most bank executives and shareholders have not been willing to admit it and government regulators are not forcing the point. The uniform stress test may be a way for the Obama Administration to force the point and provide political cover from the morons on the rightwing that claim the end of the world will arrive if Shittybank is nationalized and liquidated.

Private capital is extremely fearful of a zombie financial sector because it will be more difficult to establish a floor on the toxic assets if institutions that need to be liquidated are kept alive on the taxpayer’s dime. Establishing price discovery without inflicting pain on the stakeholders of the deeply troubled institutions will be impossible. The key question investors are currently asking is which institutions are likely to fail the “uniform stress test?”

February 10, 2009: Morning Call

February 10, 2009: Morning Call

Fair Value: SP500 – 867.88; NDX: 1281.72; DOW: 8242.44

Technical Levels:


SPX: 752-755, 800, 816, 848 support/ 874, 899-908 resistance

Events:

Pre-market EPS: DTV (.34/5.34B); HCP (.55/291.3M); ICE (.83/209.9M); MDC(-1.40/370.9M); Q (.10/3.31B); UBS (-.64/2.87B); TRA (1.09/544.0M)
08:30: ICE earnings call
09:00: Fed’s Dudley speaks about inflation
09:20: MOS presents at the Goldman Sachs Ag Forum
10:00: Wholesale Inventories (Dec): -0.7%
10:00: IBD/TIPP Economic Optimism (Feb): 44.0
10:00: Treasury Secretary Geithner testifies on TARP to Senate Banking Panel
11:00: Treasury Secretary Geithner speaks on Financial Rescue Package
10:30: GE presents at Barclays Industrial Select Conference
10:50: POT presents at Goldman Sachs Ag Forum
11:30: INTC Business Update Call
12:00: Geithner interview on CNBC
12:30: V presents at CLSA Asia Investors Forum
13:00: Fed Chairman Bernanke testifies on Fed programs at House panel
13:30: MA presents at CLSA Asia Investors Forum
13:55: MTW presents at Barclay’s Industrial Select Conference
14:30: MON presents at the Goldman Sachs Ag Forum
15:00: TRA earnings call
16:30: TXN presents at Thomas Weisel Tech Partners
16:30: AMAT earnings call
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
Post-market EPS: AMAT (.00/1.36B); CBG (.27/1.40B); CF (2.34/892.4M); CSC(1.02/4.14B); CHH (.37/143.6M); NVDA (-.11/489.1M); XL (.52/1.16B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 6 points below fair value while the NASDAQ futures are trading 8 points below fair value as investors await the details of the financial rescue plan. Last night, equity futures moved 13 points lower right before President Obama’s 8pm press conference. Futures are recovering off the lows on several news leaks about the rescue plan. But, I would expect that the Geithner speech at 11am will be short on details and will focus more on the “big picture.” I would not expect any details on how the rescue plan will be specifically implemented. Clearly, the goal is to create incentives for private capital to come off the sidelines through attractive financing and government stop-loss protection. The key question that will remain going forward is how the price discovery mechanism is going to work? Will the highly distressed banks be forced to liquidate if they fail the government “uniform stress test? If the answer is yes, then the rescue package could work because a “liquidation event” would likely be a catalyst for establishing a floor on the toxic assets. Of course, a government-sponsored liquidation of banks that fail the stress test would likely trigger serious short-term selling pressure because the stakeholders (equity and debt holders) would be wiped out. In this scenario, the S&P could break the November 20 lows. But, I would expect private institutional investors and sovereign wealth funds to come off the sidelines in a liquidation event. Private capital is extremely fearful of a zombie financial sector because it will be more difficult to establish a floor on the toxic assets if institutions that should be liquidated are kept alive on the taxpayer’s dime. Establishing price discovery without inflicting pain on the stakeholders of the deeply troubled institutions will be impossible. The key question investors should ask themselves is which institutions are likely to fail the “uniform stress test?”

Impact Research Calls/Market Moving News:

Banks will have to undergo "stress test" if they want additional capital from government – WSJ: Citing people familiar with the matter, the Journal reports that many US banks will be subject to rigorous stress tests to determine if they are healthy enough to lend before receiving additional federal bailout funds. The stress tests will be part of the revised banking rescue plan to be announced on Tuesday. The Journal also points out that the Obama administration plans to invest between $100B and $200B more into banks. According to the article, federal regulators are expected to require large banks to undergo a stress test to determine what they would look like under the "worst case scenario" in two years. Smaller institutions will be able to voluntarily go through the test. The paper also points out that in addition to the capital injections, the rescue fund will spend $100B to help the Fed expand the TALF and $50B to help homeowners. The Treasury is also expected to commit a small portion of the bailout funds to facilitate a public/private partnership to purchase toxic assets.

Geithner Said to Have Prevailed on the Bailout- NYT: The New York Times article mostly addresses the debate inside the Obama administration as they crafted the financial rescue plan. The most important part of the article is at the end when they discuss how the plan is going to attract private institutional investors: “For private institutional investors, the question of whether to invest alongside the government will depend on what kinds of carrots and sticks Treasury officials offer. Managers of hedge funds and private equity funds are closely watching to see how much the government pushes banks to write down the value of troubled mortgages and mortgage-backed securities they want to sell. There is no market value for most of those troubled assets because they are not trading. Investors want to buy them at the lowest price possible, but banks want to avoid selling them at rock-bottom prices and realizing huge losses. The impasse is particularly serious for whole mortgages, which are loans that banks have kept on their own books instead of selling them to Wall Street firms, which bundle them into pools and resell them as mortgage-backed securities. Under current accounting rules, financial institutions have already been required to write down the value of mortgage-backed securities to reflect their current market value. But banks do not have to write down the value of whole mortgages if the borrowers are still current, and many regional banks collectively hold vast numbers of those loans. Under the category of sticks, private investment managers are closely watching how the Treasury rolls out its “uniform stress test” for grading the health of banks. If the government takes a tougher line with more banks, it could force them to sell off more of their loans and take their lumps sooner rather than later.”

TALF could be increased from original $200B to between $500B and $1T - Dow Jones: Dow Jones cites comments from two congressional staff members following briefings by the Treasury. According to the article, Treasury employees did not suggest the administration would have to ask Congress for funds beyond the second $350B they already have available (CNBC had a similar report earlier this evening). As has also been hinted at in earlier reports, Dow Jones says that the plan to deal with illiquid assets on the balance sheets of banks would likely combine low-interest financing provided by the Fed with some form of guarantee on assets provided by the FDIC. The program will initially be between $250B and $500B, but could expand to as much as $1T. As was the case with the TALF expansion, Dow Jones says that the Treasury did not explain how much of the TARP funds would be used for the program.

WSJ discusses constraints surrounding public/private partnership for purchases of toxic assets: In a "Heard on the Street" column, the Journal notes that public/private partnerships in banking do not have a great history. The paper adds that a lot depends on how such partnerships are structured going forward. According to the article, investors may balk at participating in an aggregator bank that only allows them to take minority equity stakes in an entity they can't control. The paper also points out that private sector participation does not guarantee improved transparency given that pricing will likely be determined by the amount of loss-sharing offered by the government, as well as the cost of funding. The article goes on to discuss some of the additional complications surrounding the way different assets are valued on bank balance sheets.

Corporate debt market thawing for highest-rated issuers – WSJ: Citing research from Dealogic, the Journal notes that since the beginning of the year, US companies have sold $78.3B of investment-grade corporate bonds that are not guaranteed through a government program, up significantly from Q4 when companies sold on average $21B of non-government-backed debt a month. The article largely focuses on Cisco's $4B, 10-year note offering, which was sold on Monday at two percentage points above comparable Treasuries for a yield of 4.979%, while a 30-year tranche sold for 5.916%. The Journal notes that back on 2-Dec, H-P (HPQ) had to pay roughly 4.6 percentage points over Treasuries to borrow $2B for five years.

TRA (23.23): Terra Industries reports Q4 EPS $1.65 vs Reuters $1.09: Company reports revenues of $683.5M vs a single estimate of $544.0M.

ICE (62.26): IntercontinentalExchange reports Q4 adjusted EPS $0.82 vs Reuters $0.83: Company reports revenues of $207.3M vs Reuters $209.9M.

FT discusses record bullion sales: The FT reports that the US mint sold 92K ounces of its popular American Eagle coin last month, nearly 4x the amount sold a year ago, and more than it shipped during the entire first half of 2007. The paper also notes that inflows into gold-backed ETFs surged in January, boosting their holdings to a record high of 1,317 tons. According to Barclays Capital, last month's inflows of 105 tons were above September's previous high of 104 tons, and absorbed roughly half the world's gold mine output for January.

Tuesday, February 3, 2009

February 3, 2009: Morning Call

February 3, 2009: Morning Call

Fair Value: SP500 – 822.44; NDX: 1195.61; DOW: 7894.22

Technical Levels:


SPX: 752-755, 800, 816 support/848-852, 899-908 resistance

Events:

Pre-market EPS: ADM (.68/17.64B); ADP (.56/2.16B); AVP (.60/2.87B); CAM(.75/1.52B); CME (3.53/695.6M); CMI (.41/3.23B); DHI (-.56/893.9M); DOW(.04/13.07B); KSU (.39/436.3M); MOT (-.02/7.07B); MRO (.91/17.81B); NOC(.84/8.87B); PNC (.63/1.91B); UPS (.86/13.09B)
05:00: Euro-zone PPI (Dec): -1.2% MoM; 2.1% YoY
07:45: UPS earnings call
08:30: CME earnings call
09:00: PNC earnings call
10:00: DHI earnings call
10:00: Pending Home Sales (Dec): 0.0% MoM
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
18:15: BHP earnings call
20:00: Chinese PMI Manufacturing
Post-market EPS: ACE (1.88/3.22B); CTX (-4.25/887.0M); DIS (.52/10.13B); ERTS(.89/1.91B); FISV (.86/1.07B); MEE (.79/822.6M); MET (.14/12.23B); PXD(.20/475.8M); YUM (.45/3.4B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points below fair value while the NASDAQ futures are trading 6 points below fair value moving in lockstep with European markets, which reversed initial gains and are now down 0.25%. European trading is subdued ahead of the interest rate decisions on Thursday. Mixed earnings reports from Vodafone (better) and BP (worse) and mixed economic data have contributed to the lackluster trade. Advancers and decliners on the FTSE 100 are about even. Vodafone (VOD.LN) reaffirmed FY underlying ranges guidance though increased guidance to reflect FX environment. BP (BP.LN) reports its first quarterly loss in 7 years. Germany Dec Retails sales (0.3%) y/y vs con +0.5%. EuroZone Dec PPI +1.8% y/y vs con +2.1%. Banks (down 1.4%) and Insurance (down 0.70%) sectors are the weakest while Telecom and Tech are the strongest. Asian markets closed mixed (Japan down 0.62%, Hong Kong down 0.66%, Australia up 0.32%, India up 0.91%, Shanghai up 2.5%). Government stimulus plans in Japan and Australia buoyed sentiment, and technology stocks gained. Australia cut interest rates lowering its cash target rate 100bps to 3.25% and also planning an additional A$41.5B fiscal stimulus. Resource stocks rose as Chinalco confirmed it was discussing cooperating with Rio Tinto (RIO.AU). PetroChina (601857.CH) rose on reports the Chinese government may submit a stimulus plans for the energy industry.


Impact Research Calls/Market Moving News:

BP (41.57): BP reports Q4 EPS ($0.18) vs Bloomberg consensus $0.17 and year-ago $0.23: Company reports revenues of $60.94B vs Bloomberg consensus $61.45B and year-ago $81.22B . Reported production for Q4 was 3,945mboe/d vs year-ago 3,907mboe/d.

DOW (11.05): Dow Chemical reports Q4 EPS ($0.62), ex-items: DOW also says Q4 earnings were reduced by a much higher effective tax rate, which produced a negative impact of $0.32. Reuters is $0.00; First Call $0.07. Company reports revenues of $10.90B vs Reuters $13.01B. Volume declined 17%, and was down in all operating segments and in all geographic areas. Price was down 6% in the quarter, as a 4% increase in the Performance segments was more than offset by a 15% decline in the Basics segments.

AFL (23.03): AFLAC reports Q4 EPS $0.98 ex-items vs Reuters $1.00: Company reports revenues of $4.26B vs Reuters $4.64B. Reaffirms f09 EPS guidance of $4.51-$4.59 vs Reuters $4.70. AFL says the yen is currently stronger to the dollar than it was in 2008. If the stronger yen persists and averages 90 to 95 for the full year, it would expect reported earnings to be in the range of $4.73 to $4.96 per diluted share. (Note: Of AFL’s 68.9 billion in investments and cash in Q4, hybrid securities exposure is 8 billion. AFL did not take any writedowns on the hybrid investments because they use a debt impairment model following comments from the SEC. Capital concerns are a major issue for AFL because the investment portfolio is heavily weighted toward the financial sector – approx. 40% of assets.)

PNC (32.18): PNC Bank reports Q4 EPS $0.32 ex-items vs Reuters $0.78: PNC issued a press release on January 21, indicating that Q4 results would be below expectations. Company reports revenues of $1.68B vs Reuters $1.91B. The estimated tier 1 risk-based capital ratio was 9.7% at December 31, 2008 vs. 21-Jan guidance of 9.5-10%.

AMZN (61.15): Amazon.com maintained hold at Citi: Firm speculates that the company will rollout its Kindle 2.0 reader on 9-Feb, and says that data indicates that the company sold 500K Kindles in 2008, vs the firm's prior estimate of 380K, likening its sales ramp to that of the iPod. Target price, $65

QCOM (35.29): Qualcomm downgraded to neutral from buy at Goldman Sachs: Price target remains $35. The firm cites valuation.

CME (168.26): CME Group reports Q4 EPS $3.58 ex-items vs Reuters $3.46: Company reports revenues of $692.0M vs Reuters $687.6M.

CAM (21.98): Cameron International reports Q4 EPS $0.75 ex-items vs Reuters $0.74: EPS excludes a non-cash, after-tax charge of $0.08, associated with the previously announced termination of the company's U.S. pension plans. Company reports revenues of $1.52B vs Reuters $1.52B. Company guides Q1 EPS to $0.59-0.62 vs Reuters $0.60. Guides f09 EPS to $1.75-2.00 vs Reuters $2.47.

ADM (27.50): Archer-Daniels reports Q2 EPS $0.91 vs Reuters $0.68: Company reports revenues of $16.67B vs Reuters $17.09B.

MGM (8.13): MGM Mirage initiated with sell at Citi: Target is $2.50. The firm cites concern about the potential default rate at CityCenter and thinks MGM may have to sell at least one other property in 2009 to raise cash.

M (8.59): Moody's places Macy's on review for possible downgrade: The review was prompted by concern that Macy's significantly lower 2009 earnings guidance would result in the company maintaining credit metrics that are more appropriate for a Ba rating level over the medium term.

Monday, February 2, 2009

February 2, 2009: Morning Call

February 2, 2009: Morning Call

Fair Value: SP500 – 822.88; NDX: 1180.11; DOW: 7958.74

Technical Levels:


SPX: 752-755, 800, 816 support/848-852, 899-908 resistance

Events:

Pre-market EPS: HUM (1.07/7.34B); MAT (.72/2.2B); ROK (84/1.26B)
04:00: Euro-zone PMI Manufacturing (January Final): 34.5
08:30: Personal Income (Dec): -0.3%; Personal Spending: -0.9%
08:30: PCE Deflator (Dec): 1.1% YoY; PCE Core: 0.0% MoM; 1.7% YoY
09:00: PBR Analyst Meeting
10:00: ISM Manufacturing (Jan): 33.0; Prices Paid: 19.0
10:00: Construction Spending (Dec): -1.2%
Post-market EPS: AFL (1.00/4.6B); APC (.26/2.38B); PCL (.43/455.3M); PBI(.74/1.61B); SNDK (-.60/769.4M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are currently trading 11 below fair value to 812 (session low 806) while the NASDAQ futures are trading 20 points below fair value. The S&P has sold off 7% in the last three trading days. Financials are down 6% in Europe with BCS among the weakest financial stocks after Moody's cut their debt rating. BNP is down 12%, as the revised Fortis deal will not increase their capital ratios. The German government is also signaling that bank nationalization is a possibility with Hypo Real Estate currently in focus (down 8%). Asian markets closed lower due to profit warnings from HIT and Mitsubishi Electric. (Japan down 1.5%, Hong Kong down 3.1%, Australia down 1.2%, India down 3.8%, Shanghai up 1.2). European markets are down 2% extending the 3-day sell off to 6%. CNBC is reporting that Obama's "bad bank" plan will not be announced until next week and will instead address the issue of Wall Street compensation this week. Paul Krugman's editorial in the New York Times this morning reflects some of outrage that is starting build against a continuation of the blank check bank policy – copy/paste: http://www.nytimes.com/2009/02/02/opinion/02krugman.html?_r=1


Impact Research Calls/Market Moving News:

BCS (5.71): Moody’s cuts Barclay’s debt rating to AA3 citing potential credit writedowns.

Mitsubishi Electric (6503 JT): Shares closed down 9% after the company cut its full year profit forecast. The company expects profit will decline 94% to 10 billion yen (112 million). The company expected 120 billion yen profit in October. Analyst consensus was for a profit of 72 billion yen.

HIT (30.16): Hitachi falls 18% in Tokyo on the earnings warning from Friday. HIT announced an annual loss of 700 billion yen (7.8 billion dollars). Moody’s downgraded HIT debt to A2 and S&P put the company on watch negative.

SOX Index (208.26): SIA says Global Semiconductor sales were down 16.6% in December versus November sales. The sales were down 22% versus a year ago.

NYX (22.00); NDAQ (21.82): NYSE Euronext (NYX), Nasdaq OMX Group (NDAQ) downgraded at Goldman Sachs: NYX downgraded to sell from neutral; target is now $19. NDAQ downgraded to neutral from buy; target reduced to $23 from $25.

NYX (22.00): NYSE Euronext downgraded to market perform from outperform at Keefe, Bruyette & Woods: Price target is $25. Firm cites industry headwinds and unfavorable pricing trends and exchange rates in its downgrade

CNBC reports that Obama's "bad bank" plan is expected next week: Citing an industry source, CNBC reports that in the coming week the Obama administration will address the issue of Wall Street bonuses and executive compensation through the TARP plan. An industry aid package, including the introduction of the "bad bank" concept, will be announced next week. Though some reports last week indicated that the Administration's industry aid plans might be announced this week, the Administration itself had indicated that a "comprehensive" solution would be rolled out "systematically in the coming weeks".

NY Times discusses the trouble valuing troubled assets: Article notes the very large problem of trying to value some of the assets on banks' balance sheets. It mentions on mortgage-backed bond rated by S&P. The financial institution that owns the bond values it at 97 cents on the dollar, S&P estimates it at 87 cents based on current conditions and 53 cents under a worse scenario but it trades at 38 cents on the dollar. Valuing the bonds too low will force crushing losses onto the banks while inflated values bails out the banks, executives and shareholders at the expenses of taxpayers. Some experts think the government should only buy assets already marked down and then guarantee the rest.

WSJ looks at who might benefit or lose from a government bad bank
A 'Heard on the Street' column looks at the valuations banks have been carrying financial assets on their balance sheets to see who might be helped or harmed by the government buying up assets. Morgan Stanley (MS) and Goldman Sachs (GS) have big holdings that could benefit since they use mark-to-market for their financial assets. But the vast majority of regular bank loans are not marked-to-market but have reserves booked against them. And in many cases the reserves appear inadequate.

Barron's Cover questions the future of LBOs: Considering the deals made by the private equity houses at the height of the boom, it is unclear if any financing will be available for the firms once lending restarts or if corporate boards will be willing to deal with them anymore. And the firms have not had much success investing in distressed debt or equity. Many bonds issued by highly leveraged companies trade for less than 50 cents on the dollar. It may take time to come to fruition, but the firms face a wipeout of their investments in companies like Harrah's, Clear Channel, Hilton Hotels, Freescale Semiconductor, Realogy and Claire's Stores. Barron's believes that many of these companies only have an option value, about 15%-20% of the original value, based on the hope of an eventual recovery. The buyout companies argue that the debt is unfairly depressed and that their portfolio companies are worth more. Apollo and KKR are better on disclosure of valuations than Blackstone. Barron's remains bearish on Blackstone.

Verizon shares could rise by 30% over the next two years says Barron's (29.87)The company offers reliable, business as usual results, keeps its focus and offers the promise of market beating returns. Profits jumped 15% in Q4 due to demand for wireless services and taking share from cable companies. The company had its negatives but has shown that it can handle these tough times. And investors couldn't ask for a better chance to buy as it trades around 12x estimated '09 earnings and 11.5x '10 estimates. There is stable free cash flow and a 6% dividend yield.

NY Times says this is the last year that Wall Street bonuses will be out of line with reality: Columnist Joe Nocera says the reason that bonuses will come down is because the government will not allow them to be so big in the foreseeable future and the banks will realize the PR aspect of bonuses. He notes the criticism of Wall Street bonuses from President Obama where the bonuses were called the height of irresponsibility. Mr. Nocera admits that the amounts for the corporate jet or the renovation of an office are usually too small to make a difference in companies as large as Citigroup or Bank of America. This is about symbolism, the symbolism of spending $1.2M to renovate an office or millions on a jet as the banks are receiving billions in government assistance. Also, the business models will change and the profit levels will be smaller.

WSJ also discusses pay on Wall Street: Industry executives admit that Wall Street pay could shrink from its already much-lowered levels, especially as the industry wants to avoid government intervention. It is likely that expectations will be lowered, at least until the crisis has passed. Some of the banks and securities firms expressed no problem with the talk about lowering compensation levels because it would bring expenses in line with the lower risk and profit profile spreading on Wall Street. The problem is that the compensation system is woven into the fabric of the financial system. Plus, many employment contracts cannot be unwound and lower pay does not guarantee that problems will not occur in the future. Base salaries may increase and payouts may be based on longer term metrics.