Long TBTF/Short Regional Banks Pair Trade Blowing Up

One of the more popular trades - pushed by too big to fail firms like Goldman Sachs -has been to buy money center banks and short regionals due primarily to the TBTF funding advantage and concern about CRE exposure at regional banks. The trade is totally unraveling as we speak. You can be sure this move is creating major P&L dislocations at hedge funds and prop desks that have been piling into this theme. The trade is down 10% in a few hours and the correlation between regionals and TBTF banks has plunged. JPM, JPM, GS and MS have been the favorite longs in this trade while STI, FITB, HBAN, CMA, HBAN, RF, NYB have been among the favorite shorts. Like I said on Tuesday, Wall Street should have been careful what it wished for related to the Mass. Senate race as the death of healthcare made Wall Street an easy target and complicates the political and legislative landscape. A second stimulus package is less likely to pass without a Democratic Supermajority and what congressman is going to want to vote against restricting risk-taking at the major banks? This type of move in a "risk averse" pair trade strategy will dampen the risk appetite on Wall Street trading desks even if you are not exposed to the trade or even on the right side. Significant correlation breakdowns like this usually empower the risk managers.

Morning Call: January 20, 2010

January 20, 2010: Morning Call

Fair Value: SP500 – 1146.69; NDX: 1893.84; DOW: 10,676.06

Technical Levels:

SPX: 986, 1003, 1039-1044, 1067-1075, 1098, 1122 support/ 1153 resistance

Detailed Daily Calendar of Events:
Pre-market EPS: BAC (-.52/26.8B); BK (.51/3.2B); EAT (.22/770M); COH(.72/1.0B); HCBK (.28/339M); MTB (.88/847M); MS (.37/7.8B); STT (.99/2.1B); WFC(-.02/21.9B)
02:00: German PPI (Dec): 0.2% MoM; -5.1% YoY
04:30: BOE releases monetary policy committee minutes
07:00: MBA Mortgage Applications
08:00: BK earnings call
08:30: US PPI (Dec): 0.0% MoM; 4.3% YoY; Ex-Food/Energy: 0.1% MoM; 1.1% YoY
08:30: US Housing Starts (Dec): 574,000; Building Permits: 580,000
09:30: BAC earnings call
10:30: WFC earnings call
11:00: MS earnings call
16:30: API Crude Oil Inventories
21:00: Chinese Q4 GDP (Q4): 10.5% YoY; PPI (Dec): 0.7% YoY
21:00: Chinese Retail Sales (Dec): 16.3% YoY; Industrial Production: 19.6% YoY
Post-market EPS: EBAY (.40/2.2B); FFIV (.49/185.5M); SLM (.44/626M); SBUX(.27/2.5B); XLNX (.35/491.5M)

3-Day Outlook of Key Events:

Today: BAC, BK, MS, USB, WFC, STT all report before the open. German PPI. US PPI. US Housing Starts

Thursday: GS, FCX, and PNC report before the open. Jobless Claims, Leading Indicators, Philly Fed. GOOG, AXP report after the close.

Friday: UK Retail Sales, Euro-zone Industrial New Orders, GE and SLB report before the market opens.

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 8 points below fair value and the NASDAQ futures are trading 15 points below fair value at 7:15am ET. European markets are down 0.70% to 0.90% on concerns that China is moving aggressively to reign in monetary stimulus and a sharp break lower in Greek government bonds. China's Chief banking regulator said overnight that Chinese banks have been "asked" to reduce lending. The Euro has also broken the key 1.42-support area this morning and this can be considered a red flag for the commodity fueled reflation trade. Commodities are down 0.80% to 2% on the dollar and yen strength. Healthcare stocks are up 0.50% to 1.0% with financial, industrials, and basic material sectors down 1% to 2.5%. The Euro weakness is being exacerbated by a huge sell-off in Greek government bonds; the Greek two-year note is up 62 bp to 4.38% and the spread between German bunds is the widest since March. Greek equities are down 10% in the last week. BAC is down 1.5%% on their earnings release, which is hitting the tape as I type this. IBM down 1.7% in the pre-market and CSX is down 3% so the "sell the news" theme continues following earnings. Republican Scott Brown won the race in Massachusetts and the market better be careful what is wishes for (market rallied in part on the theme that gridlock is good and the healthcare legislation may be dead) because the loss of the Democratic super-majority in the Senate decreases the odds that a second stimulus package would pass the Congress. Market participants shouldn't need to be reminded that stimulus and monetary driven liquidity has been the key driver of equities so gridlock may not be a bullish development as yesterday's price action seemed to imply. Asian markets closed lower on renewed efforts by China to decrease lending (Japan down 0.25%, Kong Kong down 1.8%, Australia up 0.14%, Shanghai down 3.2%, South Korea up 0.40%, India down 0.07%). Australia gave up early gains although higher commodity prices left materials stocks in positive territory. Resource shares rose in Japan on higher commodity prices but the broader market fell. China and Hong Kong were spooked by newspaper reports suggesting lending may be limited in China. Hong Kong’s fall was exacerbated when the Shanghai government said a report it may allow individuals to invest abroad was a fabrication.


Research Calls/Market Moving News:

IBM (134.14): IBM reports Q4 EPS $3.59 vs Reuters $3.47, guides f10 EPS to at least $11 vs prior guidance of $10-11, expects Q1 rev growth to improve by 4-5 pts from Q4. IBM is trading down 1.8% in the pre-market.

AAPL (215.04): AAPL outperforms on two stories: 1. Increasing speculation that a 4G iPhone will be sold through Verizon starting in June. Canaccord Adams has a note out this morning saying that "We believe there is a good chance that the “One more thing...” part of next week’s presentation may include two iPhone-related announcements: namely, the release of iPhone OS 4.0 and the unveiling of iPhone 4G coming to Verizon in June." This would give a huge boost to domestic iPhone unit shipments in the 2H10. 2. Apple and Microsoft are in talks to replace the Google default browser on iPhone. Bottom line, Google is a bigger threat to Apple than Microsoft so this likely makes business sense right now. Details below.

AAPL (215.04): Apple talking with Microsoft (MSFT) about making Bing iPhone's default search engine - Business Week: People familiar with the matter say talks have been going on for weeks. A move would mean Google (GOOG)'s search engine would be bumped. Microsoft may also want Bing to become an alternative on Apple's Safari web browser, which currently offers a choice between Google and Yahoo (YHOO) search. A source familiar with Apple's thinking says the company is looking at a search function of its own, and says if it arrives at a deal with Microsoft, it would only be to buy it some time.

AAPL (215.04): Canaccord Adams says iPhone 4G likely coming to Verizon (VZ): Firm believes next week's announcement from Apple may include the release of iPhone OS 4.0 and the unveiling of iPhone 4G to Verizon in June. Canaccord sees this as being very positive for Apple, neutral for Research in Motion (RIMM), and negative for Palm (PALM). Recall, Apple Insider suggested an iPhone for Verizon would be available by Q3'10. AAPL is rated buy with a target of $250

GOOG (587.62): Google maintained outperform at Oppenheimer after channel checks: Target is $650. Firm says mixed data points suggest investors will get a better entry point in GOOG shares after the company reports 4Q earnings tomorrow. Oppenheimer says their channel checks indicate pricing remains pressured in some verticals. Firm suggests investors wait for the company to report earnings, and let management discuss implications of its China decision and the risk to its relationship with Apple.

GOOG (587.62): Google would like to retain business unit in China – NYT: It seems unlikely that the company's Chinese-language search engine will remain. But Google would like to keep its Chinese engineers, sales force, and small piece of real estate in mobile phones. Experts say arriving at a solution that allows the company to do so while saving face for the government will be difficult. But the government may actually find a solution desirable, because China's educated class puts a high value on Google. People with knowledge of the company’s finances put GOOG revenues from China at about $150M per quarter.

BAC (16.32): Bank of America reports Q4 EPS ($0.60), ex-items: Reuters is ($0.53); First Call ($0.52). Company reports total revenues of $25.08B vs Reuters $27.04B.

IBM (134.14): IBM upgraded to buy from hold at Canaccord Adams: Target increased to $150 from $130.

QCOM (49.32): Qualcomm target raised to $55 from $50 at ThinkEquity: Checks by the firm indicate good sell through and healthy inventories. The firm believes March quarter consensus estimates are conservative. ThinkEquity sees incremental upside from NOK and a potential 2H pickup with MediaFLO and Google into Verizon. Shares are buy rated.

GOOG (587.62): Computer security researcher finds what he thinks is strong evidence that attacks on Google were authored by Chinese – NYT: Evidence to this point has been circumstantial, but Joe Stewart says the main program used in the attack has a module based on an unusual algorithm from a paper that has been published exclusively on Chinese-language websites. He concedes programmers could have deliberately placed the code there in an effort to implicate the Chinese, but thinks that possibility is unlikely.

FSLR (123.94): Hapoalim Securities sees German solar PV cap in C11: Firm says support of solar by blue chip German companies may be waning, and less expensive alternative energy sources may be sought in the near term. Hapoalim notes that industry demand models assume solar generation in Germany to increase perpetually to appx 6-7GW in 2011, but the firm assumes that a solid cap of ~3GW may emerge in the coming 6-12 months as the economics of subsidized solar become less compelling.

GS (166.86): Goldman Sachs to delay news on bonuses until after earnings reports the WSJ: The firm said it wants to delay the bonus news until after it releases its earnings report because "It is important to have context of earnings" for the bonus numbers. In the past, employees were told about their bonuses in the days leading up to the earnings report

WSJ comments on the win by Republican Scott Brown in Massachusetts: Several papers are all carrying essentially the same commentary, the Brown win has made the passage of a health care bill much more complicated and difficult. But other elements of the current legislative agenda are also now at risk. Senator Dodd will face pressure to negotiate with Republicans over the financial reform measures (Note the weekend report of his possible willingness to drop the Consumer Financial Protection Agency). Several strategists say the Democrats should now focus solely on jobs and the economy.

STT (43.20): State Street reports Q4 EPS $1.00 vs Reuters $0.99: Company reports revenues of $2.28B vs Reuters $2.24B.

The Technology Sector is Overbought

There appears to be pretty substantial resistance right above current levels given the NDX is the only major index that is at the top of the LEH Waterfall decline; no other major sector is close to capturing all the post-LEH losses. The fundamental story in technology is better than any other sector and this sector is likely to generate the most significant earnings beats during Q4 earnings season. But, I expect to see the technology sector lag through the earnings season and take a pause given the overhead resistance at 1900-1920. Typically, financial stocks see a strong "sell the news" reaction on postive earnings and technology usually has momentum. I think that relationship could reverse in the upcoming quarter. I like PSQ long (NDX Short ETF) and trading banks with a long bias.

Morning Call: Janury 4, 2010

January 4, 2010: Morning Call

Fair Value: SP500 – 1110.79; NDX: 1858.81; DOW: 10,365.37

Technical Levels:

SPX: 986, 1003, 1039-1044, 1067-1075, 1098 support/ 1133 resistance

Detailed Daily Calendar of Events:

***09:00: BAC CEO Moynihan speaks to North Carolina Bankers Association. (timing not certain)
10:00: ISM Manufacturing (Dec): 54.0; Prices Paid: 60
10:00: US Construction Spending (Nov): -0.5%
10:15: Fed’s Lockhart moderates financial crisis panel
13:15: Fed’s Duke speaks on the US economic outlook

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 7 points above fair value and the NASDAQ futures are trading 22 points above fair value at 7:15am ET. European markets started the year on a positive note with gains of between 0.50% and 1.0%, inline with US futures. M&A activity made the headlines early this morning with Novartis (NOVN.VX) announcing it will acquire 52% Alcon (ACL) stake from Nestle (NESN.VX). The London Times reported Kraft Foods (KFT) is preparing to increase bid for Cadbury (CBRY.LN). European PMI data came in better than expected on balance: UK Dec Final Manf PMI 54.1 vs prelim 52.0. Eurozone Dec Final Manf PMI 51.6 vs prelim 51.6. Germany Dec Final Manf PMI 52.7 vs prelim 53.1 . France Dec Final Manf PMI 54.7 vs prelim 54.4. Asian markets closed mostly higher (Japan up 1.03%, Hong Kong down 0.23%, Australia up 0.12%, Shanghai down 0.46%, South Korea up 0.77%, India up 0.54%). Japanese exporters advanced after the yen weakened to the lowest since 7-Sep before recovering. South Korea went up after exports increased. China developers took Hong Kong down slightly after strong manufacturing data from the country raised fears monetary policy might be tightened sooner than expected. Developers declined in China as the country passed new tax and mortgage rules making a tightening of the sector appear more likely. The market was also hurt by profit-taking and concerns about inflation. Banks were weak as people feared pending fundraising. China Dec HSBC Manf PMI 56.1 vs prior 55.7.

Research Calls/Market Moving News:

CBY (51.39): Kraft Foods preparing to increase bid for Cadbury reports the London Times: Without citing sources or by how much the offer will be raised, the paper says the offer will be raised within the next 2 weeks. If it waits until after 19-Jan, it can only make a higher bid if a rival takeover bid is made.

AAPL (210.73): Apple COO Tim Cook rumored to be a target of search firm seeking GM CEO candidates - Silicon Alley Insider: Citing a tip from an unnamed reader, Silicon Alley Insider reported last Thursday afternoon that Apple COO Tim Cook is executive search firm Spencer Stuart's first choice for the open CEO spot at General Motors. The reader claims to have an inside source at Spencer Stuart, and does not know if Cook has been contacted yet. As the article notes, GM recently hired former Microsoft CFO Chris Liddell as its new CFO.

GOOG (619.98): Barron's The Trader reviews the Google Nexus One smartphone: The Google Nexus One smartphone is slim, fast and has a nice big screen. The iPhone has more spit and polish and far more apps but the Nexus One is a fine choice for many users. One problem is it feels very similar to other Android smartphones. The phone is unlikely to move Google's stock or those of rivals. The phone faces a tough fight to differentiate itself among the growing field of competitors.

Barron's Cover says Cloud Computing will be as revolutionary as the internet itself The importance and hyperbole surrounding cloud computing echoes what surrounded the internet just about a decade ago. There are skeptics, such as Oracle's Larry Ellison and HP's Mark Hurd, but each company is still working on cloud stories because of the obvious benefits that include flexibility, cost savings and higher performance. It is much too early to pick winners and losers from the trend. For investors today, there are some areas to focus on. Companies that sell the technology to build clouds include RVBD, PAR and VMW. There are cloud service providers like T, AMZN, SVVS or TMRK. Major names like GOOG, AAPL and MSFT could be winners, or losers, as each is expected to enter one or more aspects of cloud computing (see Apple's recent purchase of Lala Media). The current technology consolidation among the majors is largely in anticipation of cloud computing. Some companies that have already succeeded include Salesforce.com (CRM) and NetSuite (N) but they will face increasing competition from names like SAP and Oracle.

MS (29.60): Morgan Stanley upgraded to buy from neutral at UBS:
Target is $37. Firm believes the company is nearing a turning point with EPS/ROE will start to show some improvement.

MS (29.60): Morgan Stanley upgraded to outperform from neutral at Credit Suisse: Target raised to $38 from $32. Shares were also upgraded at UBS this morning

PCLN (218.41): priceline.com estimates and target raised at Piper: The firm raises their target to $272 given conviction that the company can continue to take share and post upside to consensus estimates. Piper believes the Street continues to underestimate the earnings power of PCLN. F10 EPS is raised to $10.63 vs. Reuters $10.27. F11 EPS is initiated at $13.20.

CHK (25.88): Total (FP.FP) and Chesapeake (CHK) sign JV for Total to purchase 25% stake in Barnett Shale assets: Total and Chesapeake sign agreement for a $2.25B joint venture to acquire a 25% interest in Chesapeake’s upstream Barnett Shale assets. Total will pay $800M in cash and pay an additional $1.45B by funding 60% of Chesapeake’s share of drilling and completion expenditures until the $1.45B obligation has been funded, which Chesapeake expects to occur by year-end 2012.

LVS (14.93): Las Vegas Sands upgraded to buy from neutral at UBS: Target increased to $20 from $19. Firm notes Macau growth and sees a potential upside to its Q4 estimate.

WYNN (58.23): Wynn Resorts upgraded to buy from neutral at UBS: Target is $76. Firm cites valuation.

INTC (20.40): Intel upgraded to outperform from neutral at RW Baird: Target increased to $26 from $24. The firm sees an upcycle for enterprise in 2010 and says its checks indicate tier-one PC OEMs raising procurement forecasts for 1H10.

FSLR (135.40): First Solar reiterated sell at Hapoalim Securities: Firm checks indicate that a significant percentage of solar 'pipeline' projects acquired from Optisolar have been rejected by the Bureau of Land Management, or will not receive U.S. grant funds. Target price, $90.

Morning Call: December 17, 2009

December 17, 2009: Morning Call

Fair Value: SP500 – 1104.20; NDX: 1799.22; DOW: 10378.63

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044, 1067-1075 support/ 1110, 1133 resistance

5-Day Event Outlook:

Today: Ireland Q3 GDP, Initial Jobless Claims, Leading Indicators, Philly Fed, Bernanke confirmation vote in Senate Banking Committee, RIMM earnings

Friday: German IFO Business Climate, BOE Lending report.

Next Monday: BOJ Monthly Report, Hong Kong CPI, US Chicago Fed National Activity Index.

Next Tuesday: Q3 UK GDP revision, US Q3 GDP revision, Personal Consumption, Richmond Fed Manufacturing Index, House Price Index, Existing Home Sales

Detailed Daily Calendar of Events:

Pre-market EPS: DFS (.10/1.7B); FDX (1.04/8.45B)
4:30: BOE Releases Quarterly Inflation Attitudes Survey
05:00: Euro-zone Construction Output
06:00: Irish GDP (Q3):
08:30: Initial Jobless Claims (Dec 12): prior 474,000
10:00: US Leading Indicators (Nov): 0.7%
10:00: US Philly Fed (Dec): 15.8
10:00: Bernanke Confirmation Vote held in Senate Banking Committee
10:30: EIA Natural Gas Storage Change
11:00: DFS earnings call
13:00: JAVA Annual General Meeting
17:00: RIMM earnings call
17:00: NKE earnings call
Post-market EPS: NKE (.71/4.3B); ORCL (.36/5.68B); PALM (-.32/265.6M); RIMM(1.04/3.79B)

Foreign Market Summary/Key Macro News/Commentary:

The story of the morning is the continued sharp decline in the Euro, which is tumbling to 3-month lows against the dollar (1.4364). Standard and Poors downgraded their sovereign debt rating of Greece to BBB+ yesterday afternoon. The Euro barely budged on the S&P headline when it hit yesterday at 12:23pm ET. Once Asian markets began opening last night the Euro started getting hit hard as traders scrambled to unwind carry trades. Also, The sell-off appears driven in part by technical factors. 1.425-1.43 is a key level of support and a breach of these levels would likely have more substantial spillover effects in commodity and equity markets. A break of that level could rattle confidence and may suggest a disorderly unwind of the dollar carry trade (One of the preferred long assets in the short dollar carry trade is the Euro). At this point, the pace of the Euro decline is more problematic than the magnitude of the decline. Traders will begin worrying about the magnitude of the decline if the Euro support areas discussed above do not hold. The equity market reaction is fairly muted and remains incredibly resilient with the S&P futures 5 below fair value (significant short dollar/long ES1 correlation breakdown). Gold, though, is down 16 to 1122 and just above the relative lows and 50 day SMA at 1111. European markets are down 0.50% to 0.80% following weaker than expected UK retail sales and concerns about potential spillover effects from the Greece debt crisis. The S&P debt downgrade obviously reflects market skepticism regarding Greece's willingness to enact austerity measures. Greek labor unions are opposed to the austerity measures and plan a nationwide strike today. Thus far, the problems appear contained to Greece as other high-deficit countries across the region have avoided the substantial widening of credit spreads that Greece has seen because market participants appear more confident that those countries have better economic prospects or will be more disciplined on fiscal restraint. Asian markets declined (Japan down 0.13%, Hong Kong down 1.22%, Australia up 0.18%, Shanghai down 2.2%, South Korea down 1.1%, India down 0.11%). South Korea slipped as institutional investors dumped large-caps on economic uncertainty. Hong Kong was hit when its central bank said the city risked “sharp corrections” in asset prices.

Research Calls/Market Moving News:

GS (164.99); MS (30.34): Goldman Sachs (GS) and Morgan Stanley (MS) estimates reduced at Meredith Whitney Advisory Group-- CNBC, Bloomberg:
· GS
o f09 to $19.57 from $19.95; Reuters is $19.12; First Call $19.29
o f10 to $19.65 from $21.73; Reuters is $18.22; First Call $18.78
o f11 to $20.60 from $24.04
· MS
o f10 reduced to $2.60 from $2.63; Reuters is $3.32
o f11 reduced to $2.75 from $3.28

BAC (15.28): Bank of America initiated buy at UBS -- wires

BAC (15.28): Bank of America names Brian Moynihan president/CEO: Moynihan, who will assume his new post upon the 31-Dec retirement of Kenneth Lewis, is currently the bank's president of Consumer and Small Business Banking.

C (3.15): Citi confirms that it priced 5.4B common shares at $3.15 per share. US Treasury has decided not to sell any Citi shares along side Citi offering: Reuters reports that the Treasury has agreed to a lock-up prohibiting sales of any of its shares of C for 90 days, according to a source

FSLR (136.74): First Solar guides f10 EPS $6.05-$6.85 vs Reuters $6.60; sales $2.7-$2.9B vs Reuters $2.41B: The company also says it plans to invest $365M of capital to add two production plants, consisting of four manufacturing lines each, and the expansion is expected to increase the company’s annual capacity by 424 megawatts (MW), assuming Q3 2009 reported annual line run rate of 53 MW. Additionally, with the announced expansion in Malaysia and the previously announced two-line factory in France, First Solar expects to add 10 production lines during 2010 and 2011, increasing capacity by over 48% from current levels, bringing First Solar’s annual or announced production capacity to approximately.

PNC (52.00): PNC Bank initiated overweight at JPMorgan: Target is $70.

FDX (89.95): FedEx reports Q2 EPS $1.10 vs Reuters $1.10: First Call is $1.06. Company reports revenues of $8.60B vs Reuters $8.51B. Guides Q3 EPS to $0.50-$0.70 vs Reuters $0.85. Guides full year EPS to $3.45-$3.75 vs Reuters $3.61.

December 11, 2009: Morning Call

December 11, 2009: Morning Call

Fair Value: SP500 – 1097.34; NDX: 1797.91; DOW: 10343.49

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044, 1067-1075 support/ 1110, 1133 resistance

5-Day Event Outlook:

Today: US Retail Sales, University of Michigan Confidence, and US Import Price Index

Next Monday: Hong Kong Industrial Production, Euro-zone Employment, Euro-zone Industrial Production

Next Tuesday: French CPI, UK CPI, German ZEW Economic Sentiment, Credit Card Companies release November Master Trust Data, US PPI, US Net TIC Flows, US Industrial Production, US Capacity Utilization

Next Wednesday: German PMI Manufacturing/Services, Euro-zone PMI Manufacturing/Services, UK Jobless Claims, UK Unemployment Rate, Euro-zone CPI, US CPI, US Housing Starts, FOMC Rate Decision

Next Thursday: Ireland Q3 GDP, Initial Jobless Claims, Leading Indicators, Philly Fed, Bernanke confirmation vote in Senate Banking Committee, RIMM earnings

Detailed Daily Calendar of Events:

08:30: US Import Price Index (Nov): 1.2% MoM; 2.9% YoY
08:30: US Retail Sales (Nov): 0.6%; Less Autos: 0.4%; Less Autos/Gas: 0.5%
10:00: House oversight panel will convene a hearing entitled “Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a Federal Bailout?
10:00: University of Michigan Confidence (Dec): 68.3
10:00: Business Inventories (Oct): -0.2%


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 6 points above fair value and the NASDAQ futures are trading 10 points above fair value at 8am ET. Chinese Industrial Production came in stronger than expected (19.2% vs. 18.2%). New loans also topped forecasts (290.8B vs. 250B estimate) as the government continues to encourage banks to aggressively extend credit. Retail sales were short of expectations (15.8% vs. 16.5% estimate) but the better industrial production number appears to be trumping the weaker retail sales in early trading. Asian markets mostly rose on the Chinese data (Japan up 2.4%, Hong Kong up 0.90%, Australia up 0.62%, Shanghai down .06%, India down 0.41%). Chinese developers rebounded in Hong Kong after having been sold off yesterday, and Chinese banks broke a losing streak on news that lending grew m/m, when a decline had been expected. India erased early gains when it was revealed that October industrial output went up by less than expected. Declines were led by Bharti Airtel (BHARTI.IN), ICICI Bank (ICICIBC.IN), and ITC (ITC.IN). European markets are up 0.80% to 1.0%. Best performing sectors include Basic Resources and Chemicals, weakest are Banks and Healthcare. Moodys have said they have no current plans to lower their top debt ratings on the US and UK after a report earlier in the week said the sovereigns "may test the AAA boundaries.

Research Calls/Market Moving News:

BAC (15.21): Bank of New York Mellon (BK) CEO Robert Kelly back in mix as candidate to become Bank of America CEO – WSJ: People familiar with the matter say Kelly told BK directors this week that he is talking with BAC. His candidacy re-emerged after BAC got approval to repay its TARP funds, thus freeing it from pay restrictions and federal scrutiny. People familiar with the process say internal candidates Gregory Curl and Brian Moynihan are still being considered, and an announcement could be made next week.

AAPL (196.43); GOOG (591.50): Apple (AAPL), Google (GOOG) going mano a mano to buy Silicon Valley start-ups – WSJ: People familiar with the matters say Google was in serious discussions to buy Lala Media before Apple won it last week, and Apple chased AdMob before Google agreed to buy it in November. The overlapping hunts indicate that the titans plan to expand into each other's strengths, in contrast with their years of having had separate business fields. Recall the companies now compete in mobile phones, with the introduction of Google's Android system. People familiar with the matters say Google is talking to handset manufacturers about raising the prominence of Google branding on its phones, and Apple would like to buy iPhone technologies that it does not currently have.

UTX (67.93): United Technologies provides guidance: The company also guides f09 EPS to $4.10, which represents the midpoint of the company's $4.00-$4.20 range, as well as f09 revenues of $53B. Reuters consensus is $4.10 and $52.72B. First Call is $4.11 for f09. United Technologies guides f10 EPS to range $4.40-$4.65: F10 revenues guided to $54-$55B. Reuters consensus is $4.52 and $53.29B, respectively. First Call is $4.53 for f10 EPS. The slides are associated with UTX's analyst meeting.

C (3.87): Citigroup's TARP payback could cheer institutional investors – WSJ: WSJ reports the government's expected exit from Citigroup could trigger the re-entry of institutional investors like mutual and pension funds. Institutional ownership in Citi is roughly 20%, the bank calculates. That makes Citigroup "one of the least owned banks" by institutional investors such as mutual funds and pension funds, J.P. Morgan Chase analyst Vivek Juneja wrote in a research report. Normally, institutions hold 70% or more of large companies' shares. David Trone, an analyst with Macquarie Capital, whose co's customers are institutional investors, says, "A lot of clients I talk to are afraid" of the government ownership. Should those investors lose their fear -- and should index funds, for technical reasons, start buying more Citigroup stock -- the shares could rise, offsetting downward pressure of the dilution expected when Citigroup issues some large amount of stock as part of its exit from the government's Troubled Asset Relief Plan investment. Some hedge funds appear to have positioned themselves long in Citigroup's common stock to benefit.

Sales lull has retailers worried – WSJ: WSJ reports who will blink first: retailers or shoppers? Chain-stores are holding bigger markdowns in reserve trying to gauge how long shoppers will wait for better deals to emerge. The standoff, which experts say could be decided in favor of shoppers as soon as this weekend, could help determine whether or not this holiday season marks the second year in a row of sales declines. Nine of 10 people waiting to finish their holiday shopping are doing so to get discounts of at least 50%, according to a survey released Thursday by UBS and market researcher America's Research Group. A third of respondents said they are holding out for a 70% discount. Retailers are reluctant to hit the panic button. So far, they have avoided drastic price cuts by hewing to carefully planned promotions and limiting inventories. But if shoppers aren't out in force this weekend, many mall-based clothing retailers have arranged contingency plans for additional sales and markdowns.

China's curbs on tech purchases draw ire – WSJ: WSJ reports China has rolled out regulations that could curb billions of dollars worth of sales of high-tech gear to government agencies, raising cries from companies across the globe and from the U.S. government. More than 30 industry groups from North America, Europe and Asia -- representing most of the world's major technology companies -- sent a letter Thursday to Chinese ministries saying they were "deeply troubled" by a new Chinese rule they say discriminates against their products. The companies were responding to a notice the Chinese government posted on a Web site in late October, but didn't immediately publicize, requiring vendors to gain accreditation for their products before they can be included in a government procurement catalog of products containing "indigenous innovation." Companies that aren't listed in the catalog will theoretically be allowed to sell products to government agencies. But preference will apparently go to those listed.

Morning Call: November 20, 2009

November 20, 2009: Morning Call

Fair Value: SP500 – 1093.48; NDX: 1772.72; DOW: 10314.84

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/ 1110 resistance

5-Day Outlook:
Today: ANN and DHI report earnings.

Next Monday: French, German, and Euro-zone PMI Manufacturing data, US Existing Home Sales.

Next Tuesday: German GDP, US GDP Revision, S&P CaseShiller Home Price Index, US Consumer Confidence, Richmond Fed Manufacturing Index

Next Wednesday: UK GDP, US Personal Income/Spending, US Durable Goods, US Initial Jobless Claims, University of Michigan Confidence, US New Home Sales

Next Thursday: Thanksgiving Holiday- Markets Closed.

Notable Earnings: Monday Pre-Market: BJS, CPB, LDK. Monday Post-Market: HPQ, BRCD. Tuesday Pre-market: AEO, HNZ. Tuesday Post-Market: JCG

Detailed Daily Calendar of Events:

Pre-market EPS: ANN (.06/475.9M); DHI (-.25/1.15B); SJM (1.04/1.24B)
10:00: DHI earnings call

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 9 points below fair value and the NASDAQ futures are trading 13 points below fair value at 7:45am ET. There are a few developments that have contributed to sell-off in the futures market over the last 2 hours. European markets reversed modest gains on the open and are down 1% led by financial and basic material stocks after ECB President Trichet said the ECB would begin to absorb liquidity to ensure price stability and that banks must strengthen their balance sheets. Zhang Ping, chairman of the Chinese National Development and Reform Commission, said at 7am ET that domestic demand growth is not strong enough and that China's economic recovery is not solid. Also, said that China still has an industrial overcapacity problem. Zhang says China's external and domestic situation is complicated. There are also rumors circulating that Ukraine is on the verge of defaulting on their sovereign debt - this Ukraine news story is weighing on the Euro, which is trading down 0.75% against the dollar, right at the short-term uptrend line at 1.48. Gold is trading down 10 to 1134 and other commodities are down 1% to 1.25%. Asian markets closed mostly lower as DELL's disappointing results weighted on technology shares and resource stocks fell on lower commodity prices (Japan down 0.54%-4th down day in a row; Hong Kong down 0.83%, Australia down 1.33%, Shanghai down 0.31%, India up 1.4%). India reversed early declines led by banking and technology shares as traders moved to cover short positions. South Korea was flat as chipmakers weighed on the market. Gainers outnumbered losers in China, but the market still turned down by the end of the day on concerns about the country’s monetary policy.


Research Calls/Market Moving News:

DELL (15.87): Dell reports Q3 EPS $0.23 ex-items vs Reuters $0.28Company reports revenues of $12.90B vs Reuters $13.20B. For Q4, Dell expects seasonal demand improvement in its Consumer business, while demand in Public is typically lower during the quarter. The company expects Q4 revenue to improve over Q3; Reuters consensus is $13.58B. DELL shares are trading down 6.7% in the pre-market.

Fed Makes Monitoring Capital Foremost Concern Amid Bubble Talk- Bloomberg: -- “Federal Reserve officials are stepping up scrutiny of the biggest U.S. banks to ensure the lenders can withstand a reversal of soaring global-asset prices, according to people with knowledge of the matter. Supervisors are examining whether banks such as JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. have enough capital for the risks they take, how much they know about the strength of their counterparties and whether risk managers have authority to influence bank practices and policies. Lawmakers led by Senator Christopher Dodd have criticized the Fed for failing to prevent a decline in lending standards that contributed to the credit crisis. The central bank’s monitoring takes on renewed urgency as Chairman Ben S. Bernanke’s pledge to keep the benchmark interest rate near zero for “an extended period” is helping to fuel a surge in assets. The MSCI AC World stock index is up 71 percent since hitting a recession low on March 9. Gold reached an all-time high of $1,145.50 an ounce Nov. 18. The policy is raising the “systemic risk” of new asset bubbles, Bill Gross, who runs the world’s largest bond fund at Pacific Investment Management Co., said in a note posted on the Newport Beach, California-based company’s Web site yesterday. Finance officials in Asia say a bubble fueled by the Fed’s low rates has already arrived.”

RIMM (58.84): Research In Motion downgraded to neutral from buy at FTN Equity :Firm notes a decline in market share due to greater than expected competitive pressure.

GPS (21.84): Gap reports Q3 EPS $0.44 vs guidance $0.42-0.44 vs Reuters $0.44: Company previously reported revenues of $3.59B. Gross margin increased 380 basis points to 42.5%; operating margin increased to 13.9% compared with 11.1% last year. inventory per square foot was down 9% y/y. GPS shares are trading up 1.6%.

Treasury announces plans to sell warrants from JPM, COF, TCB in modified Dutch auctions: The auctions will be held during the next month. The warrants were obtained from the companies as part of the TARP program.

Dallas Fed President Fisher comments on too big to fail problem - wires: Fisher says that it is unrealistic to expect the government not to help systemically important firms get "out of the fire". But Fisher added that banks that are considered too big to fail might need to divest some businesses such as proprietary trading.

GS (172.83): Some of Goldman Sachs' largest investors say more profits should go to shareholders reports the WSJ: Sources familiar with the situation say that some of the firm's largest shareholders are saying the firm should reduce its bonus pool and pass along more of the earnings to shareholders. Shareholders point to expectations that the record net income and compensation that will result in EPS about 22% lower than '07 because of the 100M shares issued in the past year as the bank sought to bolster its financial position and capital. The shareholders say reigning in the bonus pool would give a boost to EPS and the share price. Some investors point to the change in the financials that now includes consultants and temp workers in the total worker count so that total pay per worker appears lower.

Morning Call: November 18, 2009

November 18, 2009: Morning Call

Fair Value: SP500 – 1108.72; NDX: 1811.79; DOW: 10416.35

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/ 1110 resistance

5-Day Outlook:
Today: BOE Meeting Minutes, Euro-zone Construction Output, US CPI, US Housing Starts.

Thursday: UK Retail Sales, US Initial Jobless Claims, US Leading Indicators, US Philly Fed.

Friday: ANN and DHI report earnings.

Next Monday: French, German, and Euro-zone PMI Manufacturing data, US Existing Home Sales.

Next Tuesday: German GDP, US GDP Revision, S&P CaseShiller Home Price Index, US Consumer Confidence, Richmond Fed Manufacturing Index

Notable Earnings: Tuesday Pre-market: HD, TGT. Tuesday Post-Close: CRM, ADSK. Wednesday Pre-Market: BJ, CHS, SLF. Wednesday Post-Close: NTES, LTD. Thursday Pre-market: STP, SHLD, TSL. Thursday Post-Close: DELL. Friday Pre-market: ANN, DHI

Detailed Daily Calendar of Events:

Pre-market EPS: BJ (.45/2.48B); CHS (.06/414.7M); SOLF (.15/148.3M)
08:30: US Consumer Price Index (Oct): 0.2% MoM; Ex-Food/Energy: 0.1%
08:30: US Consumer Price Index (Oct): -0.3% MoM; Ex-Food/Energy: 1.6% YoY
08:30: US Housing Starts (Oct): 598,000; Building Permits: 580,000
09:00: PHM presents at UBS Building Conference
09:15: Fed’s Bullard speaks on the economy
10:30: DOE Crude Oil and Gasoline Inventories
10:40: DVN presents at Bank of America Energy Conference
11:25: ECA presents at Bank of America Energy Conference
14:00: MSFT Analyst and Investor Meeting
15:15: HGSI presents at Lazard Capital Healthcare Conference
Post-market EPS: DCI (.34/408.7M); HOTT (.13/191.9M); JACK (.55/548.6M); LTD(-.02/1.78B); NTAP (.30/881.6M); NTES (.50/140.0M); PETM (.28/1.29B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading flat with fair value and the NASDAQ futures are trading 2 points above fair value at 7:30am ET. The Euro bounced off the uptrend line in Tuesday’s session and is trading up 0.60% against the dollar, nearing the 1.50 level once again. European markets are up 0.30% to 0.70%, as basic resource, autos, and technology stocks advance. Markets rallied from unchanged at 5:45am ET after Lloyds (unch’d), ING (+1.2%) & KBC (suspended) gained EU approval for their restructuring plans. The knee jerk higher represents relief that any uncertainty has been removed over the approval, while KBC remains suspended as we gather more detail on its disposals. Sterling dropped in early trade after the BoE mins showed one MPC member voted for and increase in QE of £40bn, whilst all but one other voted for +£25bn. The committee will reassess proceedings in Feb’10. Cadburys benefit from Hershey saying they are reviewing their options regarding the co in response to Kraft’s bid. Copper hit a 14 month high as the dollar declined, with other precious & base metals advancing. ITV +5.5% appointed a new chairman, and Wolseley drop 3.6% as profits slump. Asian markets closed mixed in a tranquil trading session (Japan down 0.55%, Hong Kong down 0.32%, Australia up 0.20%, Shanghai up 0.05%, India down 0.30%) South Korea outperformed up 1.25%. Brokerages outperformed in South Korea. Chipmakers gained on a broker report that PCs and Windows 7 will remain robust through next year. Utilities performed well in China on expectations they will see a huge increase in demand over the winter and aided by a broker upgrade of Shanghai Electric (601727.CH). Solar energy stocks rallied in Taiwan on a report that they won orders from a Chinese trade delegation. Most miners rose again in Australia, and banks were mixed. HSBC (5.HK) fell in Hong Kong after saying new capital rules may reduce credit in the economy. Weakness in real estate and financial stocks pushed Japan to reverse an early rise.

Research Calls/Market Moving News:

BAC (15.77): Paulson & Co., the hedge fund firm run by billionaire John Paulson, expects Bank of America Corp.’s stock to almost double in the next two years as writedowns abate, according to a letter sent to investors. The bank, ranked first by assets and deposits in the U.S., may rise to $29.81 by the end of December 2011, Paulson said in a quarterly letter sent to investors. Paulson expects “banks will have passed the current writedown cycle and have visibility for growth in 2012,” the letter said.

MON (77.33): Cramer Positive on Ag Sector: Featured Positive: Cramer says that agriculture is the next sector that's ready to break out to the upside, noting that the Department of Agriculture raised its spot price forecast last week citing production shortfalls. Cramer is positive on MON, POT, AGU, MOS, TNH and DE.

MON (77.33): UBS says Monsanto maintains corn yield lead: Firm's analysis of Univ of Illinois field trials indicates that MON has maintained its corn yield advantage over Pioneer in the number two corn growing state. UBS believes that a growing yield advantage plus the refuge-reduction advantages of SmartStax over Pioneer's AcreMax are likely to result in renewed MON corn share gains in 2010

CRM (65.61): Salesforce.com reports Q3 EPS $0.16 vs Reuters $0.16: Company reports revenues of $330.5M vs Reuters $324.4M. Guides Q4 EPS to $0.14-0.15 vs Reuters $0.15; guides revenues to $340-342M vs Reuters $334.7M. Initial fiscal 2011 revenue outlook is for growth of +15-16%.

CRM (65.61): Salesforce.com target increased to $72 from $66 at ISI Group: Analyst Heather Bellini sees company guidance as conservative and believes if the economy continues to improve, the company will beat f11 revenue guidance. The buy rating is reiterated

RIMM (61.40): Research In Motion downgraded to market perform from outperform at BMO Capital: “We are lowering estimates, price target, and our rating to MARKET PERFORM from OUTPERFORM. While we believe the November quarter is tracking to plan, we have a number of concerns that could impact FY2011 earnings and we see a number of other overhangs for the stock. We are modeling share loss at RIM's largest customer, we think the move into the mid-tier will hurt the operating model, and cash flow needs to improve. We are less concerned about a CDMA iPhone, monthly ARPU going away, and RIM's operating system and browser, but we think each represents an overhang on the stock. We don't believe that the success of the Bold 2 and new international markets will be enough to stimulate the shares.”

AAPL (207.00): China Mobile chairman says company is still in talks with Apple (AAPL) about iPhone for China – wires:

BIDU (441.50): Baidu removed from the Conviction Buy List at Goldman Sachs: Buy rating retained. Target increased to $500 from $435.

CBY (54.00); HSY (38.41); KFT (27.64): Hershey (HSY) confirms that it is considering a potential bid for Cadbury: Hershey confirms that it is reviewing its options and at this stage there can be no assurance that any proposal or offer from Hershey will be forthcoming. A further announcement will be made in due course if appropriate. Ferrero confirms it is in the preliminary stages of evaluating its options with respect to Cadbury

FSLR (123.99): First Solar mentioned positively at RBC, recommends purchase into the 16-Dec guidance call: The firm recently met with the company's IR team in Texas and recommends purchase of the stock into the company's 16-Dec 2010 guidance conference call. RBC believes new plant details will be more important than 2010 ASP and margin erosion expectations, which are already baked into shares. FSLR remains sector perform rated with a $136 target.

November 10, 2009: Morning Call

November 10, 2009: Morning Call

Fair Value: SP500 – 1090.92; NDX: 1766.35; DOW: 10193.82

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/1081, 1110 resistance

5-Day Outlook:

Today: Bank of America Financial Conference – GS, BAC, STT, COF, AXP, MS, BK among the companies presenting. RW Baird Industrial Conference (ETN, PH, CAT, SWK, ITW among the companies presenting. MON analyst day. 3 Fed officials (Lockhart, Yellon, Rosengren) speak on the US economic outlook. Tuesday night: Chinese Economic Data releases: PPI, CPI, Retail Sales, Industrial Production.

Wednesday: UK Unemployment, Bank of America Banking Conference, TOL Q4 Guidance at 2pm ET.

Thursday: Euro-zone Industrial Production, WMT earnings, Initial Jobless Claims,

Friday: Euro-zone GDP, US Trade Balance, University of Michigan Confidence, Fed’s Evans speaks on asset-price bubbles.

Monday: Euro-zone CPI, US Retail Sales, Empire Manufacturing, Business Inventories

Notable Earnings: Tuesday Pre-market: BZH. Tuesday Post-Close: AONE. Wednesday Pre-market: M. Wednesday Post-Close: AMAT. Thursday Pre-market: WMT, KSS, ECA. Thursday Post-Close: JWN, DIS. Friday Pre-market: ANF, A, JCP. Monday Pre-Market: LOW

Detailed Daily Calendar of Events:

Pre-market EPS: ARM (-.31/1.0B); BZH (-1.24/338M); JASO (.03/136M); TYC(.54/4.3B)
02:00: AEM presents at Thomas Weisel Conference
05:00: Euro-zone ZEW Economic Sentiment Survey (Nov): 58 (weaker at 51.8)
08:00: BAC presents at Bank of America banking conference
08:50: GS presents at Bank of America banking conference
09:15: Fed’s Lockhart to speak on the US Economic Outlook
10:00: Fed’s Yellon speaks on the US Economic Outlook
10:30: COF presents at Bank of America banking conference
11:15: Fed’s Rosengren speaks on the US economy
12:10: AXP presents at Bank of America banking conference
13:30: FSYS presents at Thomas Weisel conference
13:45: MS presents at Bank of America banking conference
14:30: MON Investor Meeting
14:35: BK presents at Bank of America banking conference
14:55: CAT presents at Robert Baird Conference
16:15: NYX presents at Bank of America banking conference
16:30: API Crude Oil and Gasoline Inventories
16:30: TSO Analyst and Investor Conference
17:00: ABC Consumer Confidence
19:30: Fed’s Fisher speaks on the US economic outlook
21:00: Chinese Producer Price Index (Oct): -5.2% YoY
21:00: Chinese Consumer Price Index (Oct): -0.4% YoY
21:00: Chinese Retail Sales (Oct): 15.7% YoY
21:00: Chinese Industrial Production (Oct): 15.2% YoY
Post-market EPS: AONE (-.36/19.2M); PAAS (.21/116M); WTW (.64/318M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 2 below fair value and the NASDAQ futures are trading 4 below fair value in very light overnight trading. European markets are flat after fluctuating on either side of unchanged for the early morning session. Earnings met with a mixed response as HSBC (HSBA.LN), Schroders (SDR.LN) and Imperial Tobacco (IMT.LN) rising whilst Barclays (BARC.LN), Trygvesta (TRYG.DC) and Vodafone (VOD.LN) fell. Euro-zone and German sentiment surveys came in weaker than expected, as did the French Industrial production number. Asian markets closed higher but many weakened into the close (India moved down 200 points from the opening session highs). A weaker US dollar pushed commodities prices and their associated stocks higher. Axa Asia Pacific (AXA.AU) rose again in the wake of rejecting a takeover bid yesterday and AMP (AMP.AU) rose on speculation it might become a takeover target. Trading firms rose in Japan with banks also up after the banking minister suggested the country might not strictly enforce capital requirements.

Research Calls/Market Moving News:

PCLN (173.73): priceline.com reports Q3 pro-forma EPS $3.45 vs Reuters $2.92:
Company reports revenues of $730.7M vs Reuters $699.9M. priceline.com reports Q3 gross bookings $2.72B vs StreetAccount consensus $2.56B: Represents y/y growth of +32.8% vs guidance for +20-26%. Q4 guidance: Gross bookings growth +30-40% vs SA +32%. International +50-60% vs SA +39% (local currency +37-46%). Domestic +15% vs SA +21%. PCLN shares are up 7%.

AIG (36.18): American International Group may be able to pay back Fed loan, says Moody's: Moody's says that AIG will be able to repay its credit line from the Federal reserve and "much or all" of Treasury's investment should financial markets stabilize. AIG shares are up 7.5%.

HMIN (32.89): HMIN Q3 profit .40 cents vs. street at .24 cents. Sales of 106 million exceeded consensus of 94.7 million. Guides revenues to between 98.9-101.8 million. Street at 89.4 million. Shares are indicated up 11% on tiny volume.

HBC (58.30): HBC up 4.5% after the company releases their Q3 interim management statement: Profitability for the first nine months of 2009 was stronger than expectations at the start of the year, as positive trends experienced in H1 continued into Q3. Year to date pre-tax profit was ahead of the comparable period in 2008 on an underlying basis, excluding movements in fair value on the company's own debt related to credit spreads. In the US consumer finance run-off portfolio, loan impairment allowances declined in the quarter.

BCS (23.17): BCS is trading down 3.5% following its Q3 interim management statement. The company reports it has maintained strong income momentum in Q3, particularly in Barclays Capital and across the international activities of GRCB, enabling the company to achieve consistent profitability across the first three quarters of 2009. Guides impairment for the full year currently expected to be around the bottom end of the previously referenced 2009 consensus range of £9.0-9.6B.

JASO (4.12): JA Solar reports Q3 EPADS $0.10 unclear if comparable to Reuters Reuters $0.03: Company reports revenues of $193.0M vs Reuters $137.2M. Q3 shipments: 177MW. Gross margin: 16.7% vs 11.4% seq. Mgmt expects Q4 shipments of 170-200MW. JASO shares are up 4.5%.

FLR (48.01): Fluor (FLR) reports Q3 EPS $0.89 vs Reuters $0.90, guides FY EPS to $3.75-3.90 vs prior $3.80-4.10 and Reuters $3.86. FLR is trading down 6%.

AAPL (201.46); GOOG (562.51): WSJ looks at the cooperation between Google and Verizon Wireless to take on the iPhone: Before the Droid, neither company had worked closely with the other before but now there is a growing friendship between the CEOs of the 2 companies. The largest marketing campaign in Verizon Wireless's history is backing the Droid. Argues that the deal that created the Droid was essentially the result of the growing friendship between the CEOs and that things like Verizon Wireless going with Microsoft for its phone search did not derail the deal because of the friendship.

ENER (10.93): Energy Conversion downgraded to sell from hold at Citi: Target cut to $7 from $12

WYNN (63.54); LVS (16.79): Water rationing may begin in Macau this weekend - London Times: Casino operators have not been told what to do. A drought has exacerbated what the article terms "years of mismanagement" at reservoirs that Macau relies on just across the Chinese border in Zhuhai.

November 5, 2009: Morning Call

Fair Value: SP500 – 1043.70; NDX: 1679.44; DOW: 9758.71

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/1066, 1110 resistance

5-Day Outlook:

Today: Jobless Claims, Productivity, October Same Store comps
Friday: Change in US Payrolls (-175k), Unemployment Rate: 9.9%. Consumer Credit
Next Week: Multiple Fed speakers address the economic outlook, Chinese Retail Sales and Industrial Production.

Notable Earnings: Thursday Post-close: EOG, PSA, CROX, SUN. Friday Pre-market: AIG. Monday Pre-market: DISH, WCRX. Monday Post-Close: FLR. Tuesday Pre-market: BZH, JASO. Tuesday Post-Close: AONE

Key Macro Trends: Will the highly accommodative/dovish Fed statement reinforce the “risk/reflation trade?” Or will investors “sell the news” and take profits in the near-term given the substantial relative outperformance vs. the S&P 500? Key proxies are Crude Oil, Gold, Euro, high beta technology/commodity stocks, and commodity currencies (Real, Australian Dollar, Canadian Dollar). Financial sector underperformance is another important trend. Fears about government intervention and persistently high credit costs are weighing on the sector, particularly the weaker balance sheet companies. M&A and other corporate actions: Is the BRK for BNI a one-off blockbuster deal or does this signal more mega-deals? RIMM announces a 1.2 billion dollar share buyback this morning. CSCO added 10 billion dollars to its share repurchase authorization last night. Key Short term resistance stands at 1060. Short-term support stands at 1039-1044. Intermediate/Long-term support at 998-1003. Resistance at 1098-1103.


Daily Calendar of Events:

Pre-market EPS: ALD (.07/79M); CAH (.42/24.04B); CI (1.03/4.64B); CNQ(1.23/2.51B); CVS (.64/24.57B); DTV (.40/5.42B); FSYS (.42/104.3M); HOC(.45/1.48B); KIM (.31/194.2M); NDAQ (.42/653.8M); OCR (.60/1.55B); SLE(.15/3.17B); TRI (.40/3.26B)
05:00: Euro-zone Retail Sales (Sep): 0.4% MoM; -2.1% YoY
07:00: Bank of England Announces Interest Rate Decision
07:00: Select Retailers release October Same Store Sales
07:45: ECB Announces Interest Rate Decision
08:00: GE presents at Goldman Sachs Industrials Conference
08:30: US Productivity (Q3): 6.0%; Unit Labor Costs: -3.5%
08:30: Initial Jobless Claims: 519,000; Cont. Claims: 5.8 million
10:00: CNO earnings call
10:00: JPM presents at BancAnalysts Association of Boston
10:30: EIA Natural Gas Storage Change
11:00: ICSC Chain Store Sales
18:00: G20 Finance Ministers and Central Bankers meet in Scotland
Post-market EPS: CBS (.23/3.18B); CHH (.52/168.6M); CROX (-0.08/156.4M); CSTR(.59/326.3M); EOG (.66/1.11B); NVDA (.10/834.1M); PSA (1.25/370.7M); SBUX(.21/2.39B); SUN (.03/7.83B); VRSN (.32/258.8M);

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 4 points above fair value and the NASDAQ futures are trading 8 points above fair value at 8:00am ET. Asian markets fell led by consumer companies and banks (Japan down 1.3%, Hong Kong down 0.63%, South Korea down 1.7%, Shanghai up 0.30%, India up 0.95%). South Korea said it was unlikely that the economic recovery will be sustained. India reversed early losses on a report saying the government may lower telecom license fees. China fluctuated before ending higher with transportation stocks up after China Eastern (600115.CH) got approval for a share sale, and commodity producers fell on speculation stimulus measures may be withdrawn. Hong Kong saw profit taking. New Zealand reported its highest quarterly unemployment rate in nine years. Retailers fell in Australia after David Jones (DJS.AU) reported Q1 sales growth that missed forecasts. European markets are down 0.35% but have pared opening losses of nearly 1%. Decliners on the FTSE 100 lead advancers 7-3. Technology and basic material stocks are lagging.

Research Calls/Market Moving News:

RIMM (57.61): Research In Motion announces common share repurchase program: RIMM announced that its board has authorized a share repurchase program to purchase for common shares having an aggregate purchase price of up to $ 1.2B, or approximately 21M common shares based on current trading prices (representing approximately 3.6% of the currently outstanding common shares of RIM). The share repurchase program may commence on 9-Nov and will remain in place for up to 12 months or until the purchases are completed or the program is terminated by RIM. RIM has not repurchased any shares within the past twelve months.

CSCO (23.29): Cisco Systems reports Q1 EPS $0.36 ex-items vs Reuters $0.31: Company reports revenues of $9.02B vs Reuters $8.75B. Cisco Systems increases share repurchase program by $10B. stock. Cisco's board had previously authorized up to $62B in stock repurchases. There is no fixed termination date for the repurchase program. The remaining authorized amount for stock repurchases under this program, including the additional authorization, is approximately $13.1B. Cisco Systems guides Q2 (Jan) revenue to be up 1-4% y/y - conf. call: Implies a range of $9.18-9.45B vs Reuters $8.98B.

GS (169.50): Goldman Sachs has benefited more than most from low interest rates says the WSJ: A 'Heard on the Street' column notes that Goldman's interest rate on its long term borrowings was only 0.92% in Q3 compared to 3.53% a year ago. This is lower than many competitors but costs may be computed differently. Most of the Street uses interest-rate derivatives to effectively convert long term debt to floating rate. If the Fed keeps rates low for as long as it says, this advantage should accrue to Goldman's benefit for some time to come.

RIMM (57.61): Research In Motion is the company at risk from the Droid says the WSJ: A 'Heard on the Street' column says that the Motorola Droid from Verizon Wireless appears to be a strong competitor to the iPhone but the real loser in this fight might be RIMM and its BlackBerry phones. As long as the iPhone was the only phone with a good web browser, the BlackBerry's lack of a solid web experience was not an issue. But now there are several phones offering a robust browsing experience including the Palm Pre and the Droid. RIMM could see some defections in coming months with consumers now representing the majority of new subscribers and satisfaction with BlackBerry's dropping among both consumers and IT departments. Even if it turns things around, margins have been dropping as devices become more complex and the increased competition may lead to price competition. Even after the recent selloff, the shares may still be pricey.

COST (58.81): Costco reports Oct comps +5% vs StreetAccount +4.2: Company reports October net revenues +7% to $5.68B. US comps were +2%; international comps +17%. US comps (excluding the impact from gasoline deflation) were +3%; international (excluding the effects of foreign exchange) +7%; total comps (excluding aforementioned effects) +4%.

FSYS (33.80): Fuel Systems Solutions reports Q3 EPS $0.77 ex-$0.11 gain vs Reuters $0.43: Shares are up 10% in the pre-market. Company reports revenues of $116.2M vs Reuters $104.3M. Gross profit for Q3 2009 was $39.4M, or 34% of revenue, compared to $30.7M, or 29% of revenue a year ago, reflecting increased operating efficiencies. Operating income for the period totaled $23.1M, or 20% of revenue, compared to $18.2M, or 17% of revenue, in Q3 of 2008. Guides full year revenues to $415-425M vs Reuters $379.7M. The company is targeting 2009 gross margin between 30% and 32% and 2009 operating margin to be between 14% and 16%.

GG (39.88): Goldcorp reports Q3 adj. EPS $0.19 vs Reuters $0.16; increases full-year production guidance: Company reports revenues of $691.9M vs Reuters $614.5M . Q3 gold production was 621,100 ounces, +11% y/y. Total cash cost was $295 was $295 an ounce on a by-product basis and $297 per ounce year to date. Total cash costs on a co-product basis were $384 an ounce compared to $380 an ounce year to date. Company increases F09 gold production guidance to ~2.4M ounces from 2.3M ounces. Adds that guidance on total cash costs has also changed in light of its stronger operating performance. Total cash costs for 2009 are now expected to be ~$300 per ounce on a by-product basis compared with previous guidance of $365 per ounce. On a co-product basis, total cash costs are now expected to be less than $400 per ounce compared to previous guidance of $400 per ounce.

CF (86.38): Agrium (AGU) makes "best and final offer" for CF Industries Holdings of $45/share in cash plus 1 share AGU: The cash and stock offer totals $92.99 at yesterday's AGU close of $47.99. The offer was consistent with the report form the WSJ this morning. Also as noted by the WSJ, AGU said that it has received a "No-Action" letter from Canadian Competition Bureau and has re-filed notification under Hart-Scott-Rodino. AGU has extended the expiration of the offer to midnight on 18-Nov. CF is trading down 6 points as AGU appears willing to walk on November 18 if CF does not come to the table.

November 4, 2009: Morning Call

November 4, 2009: Morning Call

Fair Value: SP500 – 1042.50; NDX: 1677.99; DOW: 9728.58

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/1066, 1110 resistance

Events:

Pre-market EPS: ADP (.50/2.05B); BDX (1.25/1.84B); BHI (.35/2.23B); CMCSA(.25/8.83B); DVN (.89/2.01B); FWLT (.66/1.29B); GRMN (.69/706.6M); MMC(.27/2.59B); PHM (-.61/1.1B); RDN (-1.25/263.4M); RIG (2.63/2.83B); TWX(.53/7.11B)
04:00: Euro-zone PMI Services (Oct): 52.3; Composite: 53.0
05:00: Euro-zone PPI (Sep): -0.4% MoM; -7.7% YoY
07:00: MBA Mortgage Applications
08:15: ADP Employment Change (October): -190,000
08:30: PHM earnings call
08:45: JOYG presents at Goldman Sachs Industrials Conference
09:00: Treasury Announces Quarterly Refunding
09:30: PCAR presents at Goldman Sachs Industrials Conference
10:00: RIG earnings call
10:00: FWLT presents at Goldman Sachs Industrials Conference
10:30: GRMN earnings call
10:30: DOE Crude Oil and Gasoline Inventories
13:30: BNI presents at Goldman Sachs Industrials Conference
14:15: FOMC Rate Decision: 0.25%
14:15: CSX presents at Goldman Sachs Industrials Conference
15:00: UNP presents at Goldman Sachs Industrials Conference
16:00: KLAC Annual Meeting
16:30: CSCO earnings call
17:00: Select Retailers release October Same Store Sales
Post-market EPS: ALL (1.01/6.51B); CSCO (.30/8.74B); CNO (.22/1.12B); MUR(.97/4.74B); NWS (.18/7.15B); PRU (1.34/6.66B); QCOM (.52/2.72B); WFMI(.18/1.84B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points above fair value and the NASDAQ futures are trading 2 points above fair value at 7:45am ET. The ADP Employment Change and the FOMC statement will be a key focus today. European markets are up 0.70% to 1.4% led by a 5% gain in Marks and Spencer (MKS LN) after the company’s earnings exceeded expectations. Basic material stocks are also stronger in Europe led by continued momentum in gold. The US dollar is slightly lower on expectations that the Fed will repeat the key phrase in the policy statement that rates will say on hold for an “extended period.” France and Germany Oct Final Services PMI were revised below prelim readings at 57.7 and 50.7 respectively, whilst Eurozone Oct Final Services PMI 52.6 topped prelim estimate. UK Oct Services PMI 56.9 vs con 55.5. Eurozone Sep PPI (7.7%) y/y vs con (7.7%). Advancers on the FTSE 100 lead decliners 4-1. Asian markets closed higher led by India, which reversed 3.3% higher, snapping a 6-day losing streak. India’s finance minister said the government would maintain the stimulus measures propelling basic material and energy stocks 4.5% to 9% higher. Financials led South Korea higher following strong earnings reports. Hong Kong rebounded on bargain hunting with property developers and commodity stocks leading the way. Westpac Bank (WBC.AU) led banks up in Australia after releasing FY results. Property shares fell on a report that banks have tightened their mortgage lending on expectations Beijing may raise interest rates. Australia Sep retail sales (0.2%) m/m vs survey +0.5%.

Research Calls/Market Moving News:

WFC (27.74): Wells Fargo bets on a recovery when helping mortgage holders reports the WSJ: The bank has about $107B in debt tied to option adjustable rate mortgages. Many borrowers own homes worth less than the balances and can't afford to pay an amount that would reduce their loan principal. In response, the bank is gambling on a recovery by issuing thousands of interest only loans that defer borrowers' balances for as long as 6-19 years. It is wagering that a housing recovery and consumer income recovery will eventually cover their underwater debt. As a result, the bank is avoiding large write-downs from foreclosures but it holds billions in debt tied to distressed properties in battered markets.

MA (219.20): MasterCard target increased to $275 from $240 at Deutsche Bank: The firm recommends purchase on the weakness following Q3 earnings, which it attributes to the relative lack of visibility into 2010. F10 estimates are increased to $13.80 and $5.51B; Reuters is $13.12 and $5.55B, respectively. The rating remains buy.

GRMN (31.41): Garmin reports Q3 EPS $1.02 ex-items vs Reuters $0.69; Company reports revenues of $781.3M vs Reuters $706.6M. Net sales: Auto/Mobile $546M vs StreetAccount consensus $489M Outdoor/Fitness $132M vs SA $113M. Aviation $58M vs SA $62M. Marine $45M vs SA $42M. GRMN is trading up 5.6% in the pre-market.

STEC (23.15): STEC reports Q3 EPS $0.50 ex-items vs Reuters $0.47: Company reports revenues of $98.3M vs Reuters $94.1M; reports non-GAAP gross profit margin of 49.8% vs 34.1% y/y. Guides Q4 EPS to $0.51-0.53 ex-items vs Reuters $0.52; guides revenues to $101-103M vs Reuters $106.0M. Shares are down 30%.

STEC (23.15): Think Equity downgrades STEC to hold from buy. “STEC reported September-quarter results ahead of the Street. But, revenue guidance for F4Q09(Dec) at $102M is below the consensus of $106M. STEC attributed weak guidance to Zeus Inventory at EMC. Also, STEC said it will probably take through 1Q10 to clear out inventory. We believe new competing solutions in 1Q/1H10 could make ZeusIOPs a tougher sell, with solutions at SAS, PCIe from Seagate, Micron, SMOD, Pliant, FusionIO, Samsung, and Intel and alternative solutions from the storage OEMs Sun, NetApp. We got this one wrong, and lower our rating from Buy to Hold. STEC guiding December quarter to $101-103M versus consensus of $106M. Company saying weaker guidance due to inventory of ZeusIOPS storage solutions at EMC as it has not been able to sell through all the solutions. STEC saying the slower sell through on the ZeusIOPS has been due to customer perception of a longer payback period on the more expensive SSD investment. STEC is therefore setting up a sales team to jointly market the SSD solutions with EMC and other storage OEMs to potential customers. We believe 1) the fact that the ZeusIOPs SSD has not been able to sell through on its lower cost of ownership merits could imply more pricing pressure on the Zeus solutions, which combined with higher marketing expense make for a less profitable enterprise opportunity. 2) STEC also saying could take through 1Q10 to clear out the ZeusIOPs SSD at EMC, which could enable the competition to close the technology gap. 3) By 1Q/1H10, we believe there would be multiple solutions in the market from Seagate, Micron, SMOD, Intel, Pliant, FusionIO and Samsung for both the Server and storage markets in SAS and PCIe to compete with ZeusIOPS FC SSDs. 4) We believe the competitive offerings could imply market share and pricing risk for STEC, also 5) other Storage OEMs not as keen on SSDs. Given the increasing competitive pressures and risk of pricing, market share, inventory risk, continuous pressures on lowering cost of ownership from competing solutions the risk to the downside.”

RIG (85.91): Transocean reports Q3 EPS $2.65 ex-items vs Reuters $2.65: First Call is $2.67. Company reports revenues of $2.82B vs Reuters $2.84B. Total drilling fleet dayrate $283,800 vs. $255,900 seq. and $242,200 y/y Total drilling fleet utilization 75% vs. 84% seq. and 89% y/y.

WYNN (56.13); LVS (15.14): Macau casino revenue rises 42% y/y in October to MOP12.6B ($1.58B), says Macao Daily News – Bloomberg: The paper cites the news agency Lusa.

BAC (14.80): Bernstein comments on Bank of America, continues to rate the shares outperform: The firm believes the market's fear of an imminent capital raise ahead of an announcement regarding the CEO position is premature and notes most reasonable capital raise scenarios are not EPS dilutive given the extinguishing of TARP dividends.

November 3, 2009: Morning Call

November 3, 2009: Morning Call

Fair Value: SP500 – 1039.69; NDX: 1671.43; DOW: 9740.68

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/1066, 1110 resistance

Events:

Pre-market EPS: ABC (.40/17.85B); ANR (.35/756.2M); ADM (.55/16.96B); AMT (.17/430.9M); CTSH(.41/805.6M); EMR (.60/5.29B); ENR (1.16/1.06B); ICE (1.14/255.6M); MA(2.92/1.34B); MRO (.57/13.24B); MLM (1.20/483.6M); VIA (.56/3.28B); VNO(1.14/604.1M); UBS (.18/6.5B)
09:00: MA earnings call
10:00: US Factory Orders (Sep): 1.0%
13:00: Domestic Vehicle Sales (Oct): F, GM should release sales stats
15:00: UBS earnings call
16:30: API Crude Oil and Gasoline Inventories
Post-market EPS: CNW (.53/1.14B); DVA (.99/1.53B); HIG (1.15/6.13B); KFT(.48/10.3B); STEC (.47/96.7M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 8 points below fair value and the NASDAQ futures are trading 12 points below fair value at 8am ET. Warren Buffett’s Berkshire Hathaway announces a blockbuster $34 billion dollar offer for BNI. I find it surprising that the S&P futures have only moved 3 points higher since the Berkshire for Burlington transaction news was announced. I would have predicted a much sharper gain given the size of the transaction and signal of confidence from Buffett. The muted reaction is the result of weakness in European markets, which are down 2% following poor earnings from UBS (down 7%). The Euro and British pound are under pressure following news that RBS and Lloyds will receive 31.3 billion pounds in a second bailout from the UK government. There is a building narrative in the market that global financial stocks will face serious headwinds in the form of government orders and or legislation; this storyline is particularly strong in Europe, where the government has forced asset sales and have taken a much harder line on compensation practices than in the US. Asian markets closed lower with India the weakest major market in the region (Japan closed, India down 3.1%, Shanghai up 1.2%, Hong Kong down 1.8%). India fell on disappointing earnings from Hindalco and Reliance Communications. Hindalco, India’s largest aluminum company, fell 11% and Reliance Communications, India’s second largest mobile phone operator, fell 5.7%. China rose in active trade as growth in bank lending raised expectations of sustained economic growth. Gold stocks rose in Australia, but banks fell as the central bank raised interest rates for the second time in a month. Banks in Indonesia were hurt when the IMF said it expects the economy to grow at a lower rate in 2010 than the government had targeted. IMF raised its 2009 and 2010 forecasts for Hong Kong.


Research Calls/Market Moving News:

BNI (76.70): Berkshire Hathaway agrees to acquire Burlington Northern for $100/share in cash and stock: The boards of Berkshire Hathaway (BRK.A) and Burlington Northern Santa Fe announced a definitive agreement for Berkshire Hathaway to acquire for $100 per share in cash and stock the remaining 77.4% of outstanding BNI shares not currently owned. Based on the number of outstanding BNI shares, the transaction is valued at approximately $44B, including $10B of outstanding BNSF debt.

UBS (16.78): UBS reports Q3 EPS (CHF 564M) vs Bloomberg (CHF 345.0M) and year-ago CHF283M: Results include charges totaling CHF 2,150M. Company reports operating income of CHF5.77B vs year-ago CHF5.54B.

MA (222.65): MasterCard reports Q3 EPS $3.48 ex-items vs Reuters $2.93: First Call is $2.94. Company reports revenues of $1.36B vs Reuters $1.35B.

Federal reserve regulators want banks to begin to overhaul compensation before rules are finalized reports the WSJ: The Federal Reserve has informed top bankers that they should start to overhaul employee compensation as soon as possible, even before the Federal Reserve finishes the proposed rules on compensation. Executives at the top 28 domestic and foreign banks were told to turn over by 1-Feb a list of the changes they will make to align their compensation practices with the Fed's rules. The rules will be finalized by year's end. The Federal Reserve wants the banks to consider the rules when they decide on 2009 bonuses. Several Federal Reserve branches held talks with bank officials from their areas.

AAPL (189.31): Apple wants TV networks to join it in iTunes service to let subscribers download unlimited TV shows for $30/month - NY Post: Sources familiar with the talks say they are still at an early phase, although Apple has been trying to sell the idea to cable and broadcast networks for months. A source familiar with Apple's plans says it is trying to sell broadcasters on a revenue-sharing structure based on usage, meaning it would pay more for popular shows and less for less popular ones. Network sources say the idea offers no support for niche shows.

ANR (34.29): Alpha Natural Resources reports Q3 EPS $0.47 ex-items vs Reuters $0.35: Company reports revenues of $729.2M vs Reuters $758.6M. ANR increased guidance for metallurgical coal shipments in 2010 to a range of 10 to 12M tons, a one million ton increase from the previous guidance range of 9 to 11M tons.

November 2, 2009: Morning Call

November 2, 2009: Morning Call

Fair Value: SP500 – 1033.01; NDX: 1665.66; DOW: 9664.03

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1039-1044 support/1066, 1110 resistance

Events:

Pre-market EPS: CLX (.95/1.37B); F (-.13/27.41B); HUM (1.77/7.77B); SYY(.45/9.18B)
04:00: Euro-zone PMI Manufacturing (Oct. Final): 50.7
08:15: HGSI BENLYSTA Pivotal Phase 3 Trial Results
10:00: ISM Manufacturing (Oct): 53.0; Prices Paid: 64.0
10:00: Pending Home Sales (Sep): 0.4% MoM
10:00: Construction Spending (Sep): -0.3%
11:00: F earnings call
11:45: SPWRA presents at Wedbush Clean Technology Conference
15:15: Fed’s Tarullo speaks on executive pay
16:30: STP presents at Wedbush Clean Technology Conference
Post-market EPS: APC (-.34/1.92B); CHK (.65/1.81B); KGC (.12/562.8M); PFG(.65/2.49B); VMC (.38/808M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 5 points above fair value at 7:30am ET. The Euro is bouncing against the dollar after trading lower 5 of the previous six sessions. Basic material, energy, and gold stocks are rallying in Europe following a better than expected Chinese PMI report (55.2 vs. 54.7). The Australian dollar is also trading higher on expectations the central bank will raise interest rates tomorrow. European markets are trading modestly higher (up 0.20% to 0.50%) after opening down 0.25% to 0.50%. Strength in commodities and the Euro is offsetting weakness in some financial stocks; RBS is trading down 7% on concerns that the EU will force the bank to sell more assets than previously planned. Asian markets closed lower with the exception of Shanghai, which rallied 3% (Japan down 2.3%, Hong Kong down 0.61%, South Korea down 1.3%). Markets in China bucked the trend lower due to the strong PMI data. HSBC (5.HK) fell on a report the bank’s provisions for bad debts in the US may stay high for the near future, and Hong Kong fell as home sales dropped. Steelmaker, technology, and automobile sectors all took South Korea lower. Most financial and resources stocks led Australia lower. The yen’s strength and a desire to avoid risk took Japan down in advance of tomorrow’s holiday. India was closed for Gurunanak Jayanti.

Research Calls/Market Moving News:

AAPL (188.50): Chinese reception of Apple's iPhone is tepid says the WSJ: There were no signs of the sort of sellout reception that met the launch of the phone in other countries. As of Sunday night, many stores still had the phone in stock. Apple and China Unicom declined to disclose sales figures.

F (7.00): Ford reports Q3 EPS $0.26 ex-items vs Reuters ($0.12): Company reports revenues of $30.90B vs Reuters $27.62B.

RIMM (58.73); PALM (11.61); MOT (8.57): Citi upgrades MOT; downgrades PALM, RIMM: Upgrade: Motorola (MOT) upgraded to buy from hold; target increased to $10.50 from $9. Shares area also added to Top Picks Live List. Downgrade: Palm (PALM) downgraded to sell from hold; target cut to $10 from $19.50. Research In Motion (RIMM) downgraded to sell from hold; target cut to $50 from $100.

TRA (31.77): CF Industries Holdings (CF) offers to acquire Terra Industries for more than $40.50/share: The offer of $32 in cash and 0.1034 of a CF share, including a $7.50 per share dividend declared by Terra, is worth $40.61/share based on CF's 30-Oct closing price

EAC (37.07): Denbury Resources (DNR) to acquire Encore Acquisition (EAC) for $50/share.

CIT (0.72): CIT Group files for bankruptcy; no operating subsidiaries, including Utah bank, will be included in the filings: The company will proceed with the prepackaged plan of reorganization. All operating entities are expected to continue normal operations. The company has filed in the U.S. Bankruptcy Court for the Southern District of New York and expects to reduce total debt by approx $10B.

HGSI (18.69): Human Genome (HGSI), GlaxoSmithKline (GSK.LN) announce positive results in Phase 3 trial of Benlysta (belimumab): The 819-patient BLISS-76 study met its primary efficacy endpoint by achieving a statistically significant improvement in patient response rate vs placebo plus standard of care at Week 52. Study results also showed that the drug was generally well tolerated.

HGSI (18.69): Human Genome fair value estimate raised to $40 from $30 at Leerink: The firm sees probability of approval for Benlysta of 95%, up from 85% previously. Leerink says the drug continues to show a nice response and does not believe the 1mg/kg does will be approved, removing a potential concern that physicians would use the lower dose to save money. Shares reiterated outperform.

HGSI (18.69): Bernstein comments on Human Genome following BLISS 76 interim data: The firm expects controversy about the data as it was not the unconditional success seen in the BLISS 52 trial. Bernstein does believe there is enough for the company to proceed to filing and presumably approval and launch in 2011. Though shares will likely be volatile, the firm believes the overall trend is higher. Shares remain outperform rated with a $32 target.

Barron's latest Big Money Poll is still bullish: Almost 60% are bullish or very bullish with a mean prediction of 10,187 on the Dow by the end of the year and 10,771 by the middle of 2010. They see the S&P ending the year at 1121 and 1190 by the middle of next while the Nasdaq will rise to 2371 by the middle of 2010. But almost 80% see stocks are fairly valued or overvalued today. They see three sectors outperforming in the next 6-12 months: technology, energy and health care. Expected poor performers are financials and consumer cyclicals. Favorite stock: MSFT, ABT, BAC, BRK.A, CVS, GE, GS, LM and QCOM. Most overvalued: AIG, AAPL, GOOG, CAT, AMZN, C, GE, GMCR, VZ and YHOO.

GOOG (536.12): Google seeks profit from YouTube by convincing rights holders to monetize rather than remove their copyrighted content – Guardian: The company is trying to get rights holders to use ContentID, a fingerprinting system that allows them to identify their material even when it has been altered. Rights holders can either block the rest of the world from using their content or put ads alongside it, generating revenue that YouTube takes a small piece of. They can also link to sites that sell DVDs or CDs. Without being more specific, Google says the majority of rights holders are choosing to monetize their content. Roughly 333M of 7B videos streamed per week on YouTube use ContentID.

GS (170.17): Goldman Sachs in talks to buy millions in tax credits from Fannie Mae reports the WSJ: The talks are running into opposition from the Treasury Department which may block any deal. The administration is leery of approving a deal that would allow Goldman to reduce its tax bill even though a deal would bring some respite to Fannie. Goldman is hopeful it will win approval this week. Exact details were not learned but some on Wall Street believe Goldman is seeking to buy $1B in credits.

C (4.09): NY Times wonders if Citi can stand on its own without government help: The government has bailed out the entity now known as Citigroup at least 4 times in the past. CEO Pandit says it is not a troubled bank but they have received a lot of government assistance. The bank hopes to sell off or get rid of the asset management unit, consumer lending and some companies recently acquired. With government help, the financial cushion at the bank has increased significantly. But the bank is not generating the profits to cover the potentially devastating write-downs to come. Says Citi was managed horribly over the last decade and regulators missed the many problems. Generally cautious article.

WSJ notes the large amount of cash on the books of U.S. companies: The cash level on balance sheets is the highest in 40 years. There is more cash and more as a percentage of assets. Nothing particularly new, the large amount of cash on the books of U.S. companies has been frequently mentioned for several months now. In Q2, at the 500 largest nonfinancial firms, there was about $994B in cash and short term investments totaling 9.8% of assets compared to $846B or 7.9% a year before. In Q3, of the 248 of those companies that have reported, cash has increased to 11.1% of assets from 10.1% in Q2. The increase has happened at a diverse selection of companies from Alcoa to Google to PepsiCo to Texas Instruments.

October 28, 2009: Morning Call

October 28, 2009: Morning Call

Fair Value: SP500 – 1060.13; NDX: 1720.87; DOW: 9833.78

Technical Levels:

SPX: 875-880, 910, 953, 986, 1003, 1041 support/ 1110 resistance

Events:
Pre-market EPS: COP (.93/37.63B); GD (1.40/7.74B); GT (.40/4.26B); HES (.50/7.1B); IP (.24/5.92B); NYB (.26/244.4M)
07:00: MBA Mortgage Applications
08:30: Durable Goods Orders (Sep): 1.0%; Ex-Transportation: 0.7%
10:00: New Home Sales (Sep): 440,000; 2.6% MoM
10:30: DOE Crude Oil and Gasoline Inventories
11:00: MEE earnings call
16:30: FSLR Earnings Call
Post-market EPS: AFL (1.20/4.75B); ASIA (.21/62.4M): AKAM (.34/199.2M); AVB (1.08/216.0M); CBG (.10/1.04B); CERN (.59/420.4M); DNB (1.10/394.8M); FLS (2.02/1.11B); FSLR(1.69/525.3M); LNC (.80/2.42B); ORLY (.56/1.22B); RYL (-.95/351.7M); VALE(.32/6.12B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both 6 below fair value. The USD is stronger for the 3rd day in a row, weighing on commodities (down 1% across the board; Gold down 8 to 1032). Market sentiment also appears to be shifting toward risk aversion - VIX up to 25 from 20 a few days ago, AIG is down nearly 30% in the last 10 days, and Treasury bond auctions continue to see remarkable demand considering the yields. SAP is down 7.7% on weaker guidance. GMAC is in talks with the Treasury regarding another 3-6 billion dollar bailout. Irish banks are down 15% on concerns about potential requirements the EU may impose in return for government aid (ING ripple effect). European markets are down 1.5% with financials, technology, and basic material sectors among the weakest. Asian markets closed broadly lower for the 2nd session in a row. Keep an eye on AAPL and AMZN as they are important "risk proxies". AAPL and AMZN are clearly best of breed and both have scarcity value considering that virtually no other companies are exhibiting the same kind of secular growth. But, both stocks will be subject to increased risk aversion given that momentum investors are quick to sell. That said, I expect both stocks will continue to outperform the S&P 500 and other technology stocks given the scarcity value.

Research Calls/Market Moving News:

MEE (31.31): Massey Energy reports Q3 EPS $0.19 vs Reuters $0.18: Company reports revenues of $641.6M vs Reuters $686.4M. Q3 EBITDA $112.1M vs. Reuters $110.7M. produced coal shipments to be between 37.5 and 38.5M tons, down from prior 38.5-40.5 tons. MEE is trading down 4% in the pre-market.

GMAC in talks with the Treasury about additional financial support – WSJ: The Journal cites people familiar with the matter who say that GMAC and the Treasury are in advanced talks regarding additional financial support. These sources say that the government is likely to inject $2.8B to $5.6B into GMAC, on top of the $12.5B that the lender has already received since December of 2008. The new funds are expected to come in the form of preferred stock. Recall that the government currently owns a 34% stake in the company. The article also notes that the FDIC told GMAC on Tuesday that it will guarantee an additional $2.9B in debt in an effort to make it easier for the company to sell debt to investors. The agency backed $4.5B in GMAC-issued debt earlier this year.

AAPL (197.37): Apple says they intend to defend the Nokia patent case vigorously in 10-K filing: “Plaintiff Nokia Corporation filed this action against the Company on October 22, 2009 in the United States District Court for the District of Delaware, alleging infringement of U.S. Patent No. 5,802,465, U.S. Patent No. 5,862,178, U.S. Patent No. 5,946,651, U.S. Patent No. 6,359,904, U.S. Patent No. 6,694,135, U.S. Patent No. 6,755,548, U.S. Patent No. 6,882,727, U.S. Patent No. 7,009,940, U.S. Patent No. 7,092,672, and U.S. Patent No. 7,403,621. The complaint alleges that these patents are essential to one or more of the GSM, UMTS and 802.11 wireless communications standards, and that the Company has the right to license these patents from plaintiff on fair, reasonable, and non-discriminatory (“FRAND”) terms and conditions. Plaintiff seeks unspecified FRAND compensation and other relief. The Company’s response to the complaint is not yet due. The Company intends to defend the case vigorously.”

MT (35.56): ArcelorMittal reports Q3 EPS $0.60 vs Bloomberg $0.00 and year-ago $2.78: Company reports revenues of $16.17B vs Bloomberg $18.85B and year-ago $35.20B; reports EBITDA of $1.59B vs Bloomberg $1.96B and year-ago $8.58B. Shipments totaled 18.2M tons vs year-ago 25.6M. Guides Q4 EBITDA to $2.0-2.4B vs Bloomberg $2.62B. ArcelorMittal's CFO says 2009 not expected to be a break-even year, net loss likely.

Visa (V) reports Q4 EPS $0.74 ex-items vs Reuters $0.72, authorizes $1B share repurchase plan.

AKS (17.18); X (37.41): KeyBanc downgrades AKS, X: AK Steel (AKS) downgraded to hold from buy. U.S. Steel (X) downgraded to hold from buy. Firm notes concern that the rate of real economic recovery in NA is occurring too slowly relative to current market expectations.

City minister pressuring investment banks to reduce underwriting fees for Lloyds Banking Group's rights issue – Guardian: The article says that six unnamed investment banks have reduced their fees by £100M after lobbying by the Treasury, but says that Lord Myners is pressuring them to lower their charges even more.

ING (12.96): ING Group upgraded to buy at Bank of America Merrill Lynch -- Bloomberg

WSJ discusses latest developments surrounding "too big to fail" legislation: Citing people familiar with the matter, the Journal reports that under a deal hashed out between the Treasury and House Financial Services Committee Chairman Barney Frank (D., Mass.), financial firms with more than $10B of assets would have to pay for the rescue or unwinding of a collapsed competitor. The paper adds that while the agreement fits with efforts on the part of Democrats to shift the burden of future financial crises away from taxpayers and toward the financial industry, it would not prohibit government funds from being injected into failing firms. The Journal goes on to note that roughly 120 banks currently have more than $10B of assets.

BAC (15.45): Bank of America CEO search hits a snag – WSJ: Citing people familiar with the process, the Journal reports that the BofA's search for a new CEO has slowed as directors have been frustrated by what they view as a shortage of high-profile financial executives who are right for the job. The paper adds that while the company had hoped to choose a successor to retiring CEO Ken Lewis in time for the full board to vote on the matter at its regularly scheduled meeting on Wednesday, committee members have indicated that they need additional time. According to the article, Chief Risk Officer Gregory Curl, and Brian Moynihan, the bank's consumer and small-business banking chief, remain the leading internal candidates for the job. However, some large shareholders are pushing hard for the board to seriously consider outside CEO candidates. Of interest, BlackRock (BLK) Chairman and CEO Larry Fink, who is being backed by some executives inside of BofA, has had no conversations with the board and has reportedly told people close to him that he is not interested in the job.

WYNN (56.13): Wynn Resorts upgraded to outperform from perform at Oppenheimer: Target is $73.. Recent weakness offers an attractive entry point.

BX (14.39): Blackstone Group is talks to reduce Hilton's debt load reports the WSJ: Sources say Blackstone has begun talks with lenders to cut up to $5B from the $20B debt load of Hilton Worldwide, the single biggest investment of Blackstone. The firm is considering contributing another $800M in equity to buy back debt at a discount as well as seeking to extend some debt maturities. Talks are in the preliminary stages. One complication is that about $4B in debt is held by the Federal Reserve from the Bear Stearns deal.