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.