Monday, December 29, 2008

December 29, 2008: Morning Call

December 29, 2008: Morning Call

Fair Value: SP500 – 869.51; NDX: 1186.94; DOW – 8469.84

Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

No Events

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 2 points above fair value while the NASDAQ futures are trading 10 points above fair value at 7:10 am ET. Crude Oil is up 7% to 40.50 due to escalating violence in the Gaza strip between Israel and Hamas. The dollar is down 2.0% against the Euro to 1.43 due to the rally in crude. Asian markets closed higher (Japan up 0.09%, Hong Kong up 1.02%, Australia up 1.09%, Indi up 2.19%). Energy and commodity leveraged sectors rose on a strong rebound in commodity prices, bolstered by the unsettled situation in the Gaza Strip. Hong Kong rose as declines in banks and property stocks failed to outweigh gains in China Mobile (941.HK) and oil companies. CITIC Pacific (267.HK) added 7% on news that its parent secured a majority stake. European markets are higher in thin trading led by energy and commodity stocks. London is up 2.4%. Shares have remained range bound following the initial gains, slightly below the highs of the session. Advancers on the FTSE 100 lead decliners 4-1.

Impact Research Calls/Market Moving News:

ROH (63.56): Kuwait ends deal with Dow Chemical-Kuwait Petroleum Corporation (KPC) and Petrochemicals Industries Company (PIC) have informed Dow Chemical that the Kuwait Supreme Petroleum Council (SPC) has decided to reverse its approval of the agreement over joint venture K-Dow Petrochemicals. Dow is in the process of evaluating its options. The WSJ reports that the agreement would have provided Dow with $9B that it was going to use to complete its purchase of Rohm & Haas (ROH).

CSCO (16.27): Cisco Systems is making a push into digital entertainment reports the NY Times: At the Consumer Electronics Show, the company will introduce a new line of products, including a wireless digital stereo system. The company aims to take on Apple, Sony and other consumer electronics giants. It is working on a means of getting Internet video onto TV screens more easily and has a big bet on consumers using a version of its Telepresence for high-definition video chat through TV screens. The company says consumer electronics are only now beginning to take advantage of broadband connections and home networks. The company says it is trying to get media companies to take a more expansive view of digital rights and relax some of the restrictions tying content to a device. If services such as consumer video conferencing takes off, Cisco would stand to profit not just from the technology but also because video is a bandwidth hog and the internet access providers would need to buy more Cisco equipment to meet the increased bandwidth demand.

China official says 2008 GDP growth will exceed 9% - Dow Jones: In a speech 27-Dec, National Bureau of Statistics chief economist Yao Jingyuan said despite downward pressure in Q4 and declining growth rates in the year's first three quarters, the annual growth rate will remain above 9%. He said the country will maintain "stable economic growth" for next year, and he expects the CNY4T economic stimulus plan to start having an effect in H2/09. Recall there is worry that China will be unable to keep 2009 growth above 8%, which some experts consider to be the minimum necessary to avoid social unrest in the country

HPQ (34.97): Barron's Cover is positive on Hewlett-Packard and CEO Mark Hurd: CEO Hurd can't offer any predictions as to when the current financial mess will end but does predict that HP will have modest earnings growth through next year. He says he is even more focused on profitability now. Under Hurd, the company has diversified its revenue and profits. He is known for cost-cutting but also for gaining market share. Barclays Ben Reitzes thinks the shares could climb to $47 once the broader market settles down. Recurring revenue accounts for about a third of revenue and about half of estimated '09 earnings. About 60% of sales are overseas. HP trades for 8.18x estimated '10 earnings while Dell (DELL) trades for 8.32x estimated '10 numbers and IBM (IBM) trades for 9x expected '09 numbers. Chuck Jones of Atlantic Trust thinks the shares could go into the low $50s when the market returns to normalcy. Bernstein's Toni Sacconaghi thinks the concerns over consumer exposure are overblown since inkjet supplies account for about 98% of the consumer profits. He sees the shares going to $40. The biggest help for margins and profits should come from the EDS acquisition where the long-term contracts and high operating margins should take some of the pressure off printing supply sales. HP says no material customer has exited after the acquisition.

AAPL (85.81): Barron's Technology Trader notes the risks to Palm and RIMM with the iPhone now selling at Wal-Mart: The move by Wal-Mart (WMT) to start selling the Apple (AAPL) iPhone seems to be a bet that all types of consumers will buy relatively complex pieces of computing. The move could drive a wedge between Apple and competitors RIMM, Nokia and Palm.


Barron's summary:
Cover: Positive on Hewlett-Packard (HPQ) and CEO Mark Hurd, shares could climb into the $40s. Interview: Mark Roberts, founder of Off Wall Street Consulting Group, likes BRS, PHH and ASML and would short HRC, SYK and PSYS. Lead Articles: Conditions are worse for credit card issuers than investors realize, COF is the best positioned of the pure plays for funding; The concerns over Linn Energy LLC (LINE) seem misplaced, stock could go into the $20s; Streetwise notes that reversion to mean plays are no longer sure things, suggests going long RIG and shorting NE; the selloff in Millicom (MICC) seems overdone, stock could rise by more than 25%; positive on preferred stocks, especially adjustable rate preferreds from financials; Other Voices says it is time that Americans stopped lying about correctly timing the market and admit that they were caught just like everyone else; Editorial suggests ways to exit the current financial mess including ending tax subsidies or specialized treatment, except for an energy tax to make the U.S. frugal energy consumers, and opening up all markets to true competition. Columns: The Trader is positive on Saks Fifth Avenue (SKS), cautious on '09; Asia Trader looks at the current state of Asia and recounts the past year; Euro Trader recounts the many issues that seemed important in '08 but weren't; Current Yield sees a further contraction in corporate bond spreads, suggests LQD, FSICX, LSBRX and RPSIX as a way to play it; The Striking Price considers the merits of covered call writing; Commodities Corner notes the speculative frenzy that gripped many markets in '08; Preview notes the selling of oil and gas leases by Pennsylvania to companies like COG and XTO; Follow Up notes the systemic risks in China; Up and Down Wall Street considers the past year and notes the Dogs of the Dow for 2009 are BAC, GE, PFE, AA, DD, T, VZ, MRK, JPM and KFT with yields ranging from 4.32%-9.31%; Economic Beat suggests spending the Obama economic stimulus on infrastructure repair and helping out state and local budgets and not adding in an economic stimulus element; D.C. Current suggests that President Bush can restore some dignity to the Oval Office by not crassly profiteering once he leaves office; Speaking of Dividends is positive on REITs because of an IRS ruling to let them pay a significant portion of their dividends in stock, thereby conserving cash; Technology Trader notes the risks to Palm and RIMM with the iPhone now selling at Wal-Mart.

Wednesday, December 24, 2008

December 24, 2008: Morning Call

December 24, 2008: Morning Call

Fair Value: SP500 – 859.67; NDX: 1184.80; DOW – 8374.31

Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Shortened Trading Day
08:30: Personal Income (November): 0.0%; Personal Spending: -0.8%
08:30: PCE Deflator (YoY): 1.2%; PCE Core: 0.1% MoM; 2.0% YoY
08:30: Durable Goods Orders (November): -3.0%; Ex-Trans: -3.0%
08:30: Initial Jobless Claims
10:35: DOE/API Crude Oil and Gasoline Inventories
12:00: EIA Natural Gas Storage Change

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 2 points below fair value while the NASDAQ futures are flat with fair value at 7:45 am ET. The majority of Asian markets closed lower in very light volume (Japan down 2.3%, Hong Kong down 0.25%, India down 1.2%). Automakers were among the leading decliners in Asia overnight. Markets in London and France are down 0.75% and 0.85% respectively while most other European markets are closed for a two-day Christmas break. February Crude Oil is down 2 bucks to 37 ahead of the 10:35 supply data.

Impact Research Calls/Market Moving News:

Retailers now looking to government for help – WSJ: The Journal reports that the country's largest retail trade association, the National Retail Federation, asked President-Elect Obama on Tuesday to add several tax-exempt shopping days to his upcoming economic stimulus package. According to the article, the group wants three periods of sales tax-free shopping that would last 10 days each in March, July and October 2009. The group estimates that the tax reprieve would save consumers roughly $20B, or about $175 per family. Under the terms of the proposal, which excludes alcohol and tobacco sales, the government would reimburse states for the lost tax revenues.

TM (60.37): Toyota Motor November worldwide production (24.8%) y/y to 665,583 vehicles: For all brands, including Toyota, Daihatsu, and Hino: Overseas production (25.6%) y/y to 308,821 vehicles. Domestic production (24.1%) y/y to 356,762 vehicles.

PBR (21.71): Barron's Weekday Trader is positive on Petrobras: Barron's argues that the recent weakness in oil prices does not alter the world's long-term energy needs or Petrobras' vast reserves (which the company estimates at 11.7B boe), most of which sits off the coast of Brazil. The article also notes that the Petrobras figure excludes 2007 and 2008 discoveries in the pre-salt region off the cost of Brazil. The company believes that recoverable volumes in these fields could total another 14B barrels, the bulk of which is under its control. Barron's says that valuation is attractive at just 7.2x forward earnings, vs 12x for Exxon (XOM) and 10.8x for Chevron (CVX).

AMZN (51.08); COST (51.47): S&P 500 constituent Amazon.com Inc. (AMZN) will replace Merrill Lynch & Co. Inc. (MER) in the S&P 100. S&P 500 constituent Costco Wholesale Corp. (COST) will replace Wachovia Corp. (WB) in the S&P 100.

FLIR (26.77): Systems Inc. (FLIR) will replace National City Corp. (NCC) in the S&P 500.

Tuesday, December 23, 2008

December 23, 2008: Morning Call

December 23, 2008: Morning Call

Fair Value: SP500 – 867.77; NDX: 1190.82; DOW – 8472.79

Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

08:30: US Q3 GDP QoQ: -0.5%; Personal Consumption: -3.7%
08:30: GDP Price Index: 4.2%; Core PCE QoQ: 2.6%
09:30: PNC Shareholder’s Meeting
10:00: University of Michigan Confidence (Dec): 58.6
10:00: New Home Sales (November): 420,000; -3.0% MoM
10:00: Existing Home Sales (November): 4.93 million; -1.0% MoM
10:00: House Price Index (October): -1.3%
10:00: Richmond Fed Manufacturing Index (Dec): -40
17:00: ABC Consumer Confidence
Post-market EPS: MU (-.41/1.35B)

Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 8 points above fair value at 7:45 am ET. Economic data will be a focus today with US Q3 GDP at 8:30 ET, University of Michigan Dec Consumer Confidence, Nov New Home Sales and Existing Home Sales at 10:00 ET. Asian markets closed mostly lower in thin trading (Hong Kong down 2.75%, Shanghai down 4.8%, India down 2.4%, Japan closed). European markets are up 0.25% in very light trading.

Impact Research Calls/Market Moving News:

GS (77.00): JP Morgan cuts their FY 2009 estimates on GS. The firm sees the 2009 outlook for almost every business as challenging putting pressure on core revenues at GS even though the writedowns should moderate. They continue to avoid the brokerage sector. The firm cuts their 09 GS EPS est to $6.25 from $7.00 (consensus is $7.88).

GOOG (297.11): Jefferies says acceleration of paid clicks in November bodes well for Q4 earnings. Jefferies notes that comScore released ad-coverage data for Nov after market close yesterday. Firm reiterates their Buy rating on GOOG following positive ad-coverage data for the month of Nov. which shows a record 460bps m/m increase in ad-coverage and a 22.4% y/y growth in searches with paid ads. Firm's proprietary regression points to a 16% y/y growth in Nov paid clicks.


CAT (41.78): Caterpillar estimates reduced at Wachovia following checks: Firm lowers Q4'08 and '08 estimates are lowered below consensus following negative channel check feedback. Wachovia notes that NAFTA and European construction equipment continues to decline and that pricing opportunities appear to be decreasing. '09 and '10 estimates are also lowered, with '09 below consensus, on continued demand weakness in NAFTA and EAME and lack of pricing power. Valuation range is $42-45. Rating is market perform.

EBAY (14.10): eBay having a rough holiday season – WSJ:The Journal reports that in its first holiday season under CEO John Donahoe, eBay is suffering a decline in visitor traffic and deteriorating sales. The paper adds that customers are fleeing for fixed-price sites, and remain concerned about shady sellers. Citing data from comScore, the Journal points out that eBay's traffic fell 16% between 3-Nov and 14-Dec from the year earlier period, while Amazon had 6% more unique visitors during the same period. According to the article, the changes implemented by Donahoe, which have focused on more fixed-price sales and higher selling fees, have failed to have a meaningful financial impact and have angered may of the site's loyalists.


Record number of M&A deals canceled in 2008 - FTCiting data from Dealogic, the FT reports that companies scrapped 1,309 transactions valued at a total of $911B in 2008. The paper adds that in 2007, there were 870 withdrawn deals valued at $1.16T. According to Dealogic, the total volume of global mergers and acquisitions hit $3.28T in the year to date, down 29% from the full year 2007.

MSFT (19.18): Microsoft maintained outperform at Oppenheimer: Target is $22. The firm notes market speculation that MSFT could initiate a 10% headcount reduction in early January. Oppenheimer says their analysis indicates such a move could generate ~$1.2B in annual savings. Oppenheimer believes this initiative would be utilized in the event management anticipated a meaningful reduction in revenue near term and these potential headcount cuts could offset a ~$3B decline in revenue. The firm believes such cuts would be viewed favorably by the market. Oppenheimer says MSFT is facing a difficult 2009, however the shares reflect this bad news, and they would be buyers at current levels.

WYNN (42.16): Wynn Resorts estimates reduced further below consensus at Thomas Weisel: The firm reduces estimates based on continued poor trends in Las Vegas as well as expectations for the Encore opening. Q4 EBITDA is reduced to $147M from $149M with f09 reduced to $756M from $785M. Shares of WYNN remain outperform rated, however. Target reduced to $60 from $65.

Monday, December 22, 2008

December 22, 2008: Morning Call

December 22, 2008: Morning Call

Fair Value: SP500 – 884.02; NDX: 1219.24; DOW – 8531.09


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Pre-market EPS: WAG (.46/15.04B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value while the NASDAQ futures are trading flat with fair value at 7:45 am ET. The futures have bounced 10 points off the 5:30 am lows on news that the Chinese central bank cut the benchmark rate by 27 bps. Asian markets closed mostly lower (India down 1.7%, Hong Kong down 3.3%, Australia down 1.6%, Japan up 1.5%) with the exception of Japan, which was pushed higher by strength in automakers. The Japanese government lowered its assessment of the economy for a third month saying conditions were the most severe since 2002. European markets are down 0.75% in a light volume session. The session lows occurred shortly after the EuroZone Oct Industrial New Orders data since when the major indices have pared losses after the Bank of China cut its benchmark rates. Decliners on the FTSE 100 lead advancers 7-3. Irish banks rallied strongly on the news the Irish government will invest €5.5B in the countries' three largest banks. Commodities and bonds are trading modestly higher.


Impact Research Calls/Market Moving News:

MON (71.63): POT (72.26); CF (47.92); AGU (31.05); IPI (18.77): Monsanto (MON), Potash (POT) downgraded to neutral from buy at Goldman Sachs: POT tp $60 vs prior $73. MOS tp $30 vs prior $37. Agrium (AGU) tp $28 vs prior $33. CF Industries (CF) tp $44 vs prior $49. Intrepid Potash (IPI) tp $19 vs prior $17

AAPL (90.00): Apple estimates adjusted at Thomas Weisel Partners: Following checks and industry data points, firm raises Q4 EPS estimates above consensus, but lowers FY'09 EPS estimates. Thomas Weisel notes an increase in Dec quarter unit estimates for iPod and notebooks, but decreases in iPhone and desktop estimates for the same period. '09 estimates are lowered to reflect more conservative iPhone estimates. Rating is maintained overweight with a target of $160.

MON (71.63): Monsanto target lowered to $98 from $140 at UBS: Firm's Seed Dealers survey suggest that momentum may be turning for the company's market share and pricing. Estimates are lowered. Rating is buy.

X (37.13); NUE (42.55): Deutsche Bank downgrades US Steel (X), upgrades Nucor (NUE): The firm downgrades X to hold from buy with the target reduced to $40 from $48. NUE is upgraded to buy from hold with the target raised to $53 from $35.

PCLN (69.25): Thomas Weisel raises estimates and target for priceline.com: The firm says the domestic business continues to grow rapidly and gain share with some evidence that UK travel may be getting a boost from recent currency moves. Q4 EPS is raised to $1.08 from $1.05 vs. Reuters $1.05. F09 EPS is raised to $6.10 from $5.45 vs. Reuters $5.83. Target for the shares is raised to $85 from $65. PCLN remains overweight rated

WSJ looks at the funding cushion at some homebuilders: A 'Heard on the Street' column says that some of the homebuilders were able to lock in long-term debt before the current crisis fully blossomed and have managed to provide themselves with a financial cushion to survive the current downturn. Plus, the early hit to the housing sector gave the companies a head start on switching to conservative operational and financial practices. Toll Brothers (TOL) has $1.6B in cash and $2.1B in debt. It has sufficient cash to retire obligations through 2014. MDC Holdings (MDC) was another company that was able to tap the long-term markets early. As a result the companies are unlikely to be forced to sell land at rock-bottom prices. Both companies are cash flow positive.


Barron’s Summary:
Cover: Wall Street strategists see the market beginning to recover in 2009 and while downside may be limited, so probably will be any upside. Interview: Rob Arnott, founder and chairman of Research Affiliates likes investment grade bonds, convertible debt, emerging markets stocks and bonds and TIPS. Lead Articles: Barron's rates retailers based on balance sheets; the best bet on General Motors (GM) may be the unsecured debt; Nomura Holdings (NMR) purchase of Lehman assets could make investors forgive past mistakes, stock could be 30% undervalued; Barron's pats itself on its back for a 2001 cautionary article on Bernie Madoff; Editorial says any sure from zero interest rates will be worse than the problem and notes the many Ponzi schemes run by the government, such as Social Security, Medicare and Medicaid. Columns: The Trader notes the change in the fiscal year for Goldman and Morgan Stanley and their opportunity to improve their balance sheets; Commodities Corner says agricultural commodities are a buy for 2009 including coffee, wheat, corn and livestock, mixed on base metals, gold could be range bound in the next 6 months or so and crude oil will struggle with demand; The Striking Price notes the possibility that risk-aversion has made cash a bubble and that if it bursts, significant money could flow back into the markets; Euro Trader says the big question is when it will be time to get out of defensive names and into cyclicals, a contrarian play may be banks like Banco Bilbao (BBV); Asia Trader is positive on Asia in '09, positive on HNP, 00270.HK, EWJ, 0576.HK and 600.SP; Current Yield sees rates climbing only slightly in '09; Follow Up is positive on Best Buy (BBY) and Huntsman (HUN); Up and Down Wall Street does not understand how zero interest rates will entice banks to lend or people to save and is positive on oil in the early new year; Streetwise suggests that the next bull market will not be as strong as the recent past with leverage gone, stricter regulation and higher taxes; D.C. Current notes the reluctance of Rahm Emanuel to answer questions about his work history; Technology Trader is pessimistic on 2009

Thursday, December 18, 2008

December 18, 2008: Morning Call

December 18, 2008: Morning Call

Fair Value: SP500 – 900.82; NDX: 1228.30; DOW – 8779.90


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Pre-market EPS: CCL (.40/3.31B); FDX (1.58/9.75B); LEN (-1.16/1.06B); WOR(.16/802.1M); DFS (.18/1.09B)
05:00: Euro-zone Trade Balance
05:00: Euro-zone Construction Output
08:30: Initial Jobless Claims
08:30: FDX Earnings Call
08:30: AG Analyst Meeting
10:00: Philly Fed (December): -40.0
10:00: Leading Indicators (November): -0.5%
10:35: EIA Natural Gas Storage Change
11:00: LEN Earnings Call
11:00: DFS Earnings Call
12:00: WFC Q4 2008 Guidance Call
13:30: Fed’s Fisher speaks on current economic crisis
17:00: RIMM Earnings Call
17:00: ORCL Earnings Call
Post-market EPS: DRI (.30/1.66B); ORCL (.34/5.87B); RIMM (.79/2.77B)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 3 points above fair value while the NASDAQ futures are trading flat with fair value at 7:30am ET
. Asian markets closed modestly higher (Hong Kong up 0.24%, Nikkei up 0.64%, Australia up 0.30%) with Indian markets the best performing region with a gain of 3.7% (Sensex closed above 10,000 for the first time since November 10). In China, banks rallied on speculation the government would cut their 5% business tax. A strong yen pushed exporters down again in Japan, but banking and property shares gained on speculation the Bank of Japan will lower borrowing costs tomorrow. Automakers and component manufacturers declined in the wake of Honda (7267.JP)’s forecast cuts yesterday. European markets are unchanged and in a tight intra-day range. Commodity shares are amongst the leading fallers. Advancers on the FTSE 100 lead decliners 7-3. BNP Paribas extended yesterday declines after saying its planned acquisition of assets from Fortis (FORB.BB) can't go ahead following the recent court ruling and it has cancelled its shareholder meeting. Carrefour (CA.FP) fell following a trading statement after yesterdays close.

Impact Research Calls/Market Moving News:

RIMM (40.67): Deutsche Bank previews RIMM earnings
. RIM still under pressure We are currently modeling RIM to report Q3 revenue of $2.8 b and EPS of $0.81, versus consensus of $2.8 b and $0.83. We are modeling 6.7m units with 2.6m net adds. We are modeling them to deliver Q4 revenue of $2.8 b and $0.79 (FC $3.0 b and $0.83). However, we think RIM will have a difficult time meeting these numbers. In particular, we think Street expectations for a sequential increase need to come down in light of the current economy. Long-term concerns beyond the consumer: Beyond macro concerns, we think RIM faces significant challenges. Their entry into mass consumer devices has revealed cracks in their model. In particular, the poor showing of the Blackberry Storm indicate to us that launching four new products in a year is more than they are capable of. The company is now dependent on producing hit products; not only is the Storm not a hit, but there is nothing in their pipeline for the foreseeable future. Reiterate Sell rating and $30 target: We believe RIM will continue to see pressure on its revenue growth rate as channel fill for the new products ebbs and the consumer shies away from purchases this holiday season. We also think the gross margin is at risk due to industry-wide pricing pressure and quality concerns/return rates for new products. Finally, advertising expenses likely remain high given the holiday media campaign. (My take: Although I am currently neutral on RIMM shares given that the risk/reward appears balanced, there appears to be downside related to gross margins. The bears on RIMM stock believe that the recent gross margin weakness will continue in coming quarters. Given the headwinds facing the consumer, I think it is reasonable to conclude that ASP’s will be under pressure particularly if AAPL and/or NOK start a full-blown price war. Most analysts seem to expect RIMM to maintain 45% gross margins and this appears far too aggressive.)

X (42.12): U.S. Steel downgraded to neutral from buy at Goldman Sachs: The firm recommends taking profits. The Goldman Sachs analyst has changed his rating on X shares 4 times since September 4 and 2 times in the last month.

AAPL (89.16): Apple has a deep bench - WSJ: Citing people familiar with the company's internal workings, the Journal notes that based on the evolution of the team that develops Apple's hardware, software and services, the company is now strong enough (barring an exodus of top talent) to continue producing innovative products even without current CEO Steve Jobs. The paper adds that Jobs does not design products such as the iMac, iPod and iPhone himself, but instead acts an "editor in chief" by helping to refine and improve ideas for the company's gadgets. According to the article, the day-to-day work of driving Apple's innovations is far more dependent on the likes of Jonathan Ive, an Apple senior vice president who oversees the company's industrial design team, as well as Scott Forstall, another senior vice president, who heads the team responsible for the iPhone's operating system and other software. The Journal goes on to highlight some of the other internal talent at Apple, while also pointing out some instances in which Jobs probably made things more difficult than needed.

C (7.84): Citi price target lowered to $14 from $17 at Ladenburg Thalmann: Analyst Dick Bove also increases his Q4 loss estimate to $1.00 a share from $0.61 a share. Bove cites the likelihood that the significant writedowns in capital markets operations seen at Morgan Stanley and Goldman Sachs will also weigh on Citi. Stock remains buy-rated.

AAPL (89.16); NOK (16.51); PALM (2.20): Apple (AAPL), NOKIA (NOK), and Palm (PALM) initiated at Canaccord: AAPL ($80 PT) initiated hold. NOK ($12 PT initiated sell. PALM ($0 PT) initiated sell

WFR (16.66): MEMC Electronic Materials guides Q4 revenue to $400-425M vs prior $475-525M and Reuters $490.1M: The company now anticipates Q4 gross margin of approximately 46%, plus or minus one percentage point. This compares to the company’s previously announced target gross margin of 48% plus or minus two percentage points. Expectations for operating expenses remain unchanged at approximately $27M. “The revised outlook is primarily a result of a continued deterioration in end demand for semiconductor products amid the weak macroeconomic environment. MEMC Electronic Materials (WFR) downgraded to underperform from buy at Merrill Lynch

MA (148.68): MasterCard maintained buy at UBS following checks: Following checks, firm believes the company will be implementing a fairly meaningful price increase to acquirers in Q2'09, which UBS sees as being favorably received. Target is $240.

TTWO (12.07): Take-Two (TTWO) reports Q4 EPS $0.02 ex-items vs Reuters $0.04, guides Q1 EPS to ($0.70)-($0.85), ex-items vs Reuters $0.22, guides f09 EPS to $0.00-0.20, ex-items vs Reuters $1.21. TTWO shares are trading down nearly 20%.

MT (26.26): ArcelorMittal downgraded to equal-weight from overweight at Barclays Capital

BUCY (22.57); JOYG (25.51): Bucyrus (BUCY), Joy Global (JOYG) downgraded to underweight from neutral at JPMorgan

CPT (31.91); EQR (33.29); BRE (32.69): Camden Property (CPT) upgraded, Equity Residential (EQR) and BRE Properties (BRE) downgraded at Merrill Lynch: CPT is upgraded to neutral from underperform. EQR and BRE are downgraded to underperform from neutral

Tuesday, December 16, 2008

December 16, 2008: Morning Call

December 16, 2008: Morning Call

Fair Value: SP500 – 865.53; NDX: 1185.36; DOW – 8528.31


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Pre-market EPS: BBY (.24/11.1B); GS (-3.48/1.26B); FDS (.63/155.4M)
05:00: Euro-zone PMI Manufacturing (December): 34.5; Services: 41.5 (better than expected)
08:30: Consumer Price Index (November MoM): -1.3%; Ex-Food/Energy: 0.1%
08:30: Consumer Price Index (November YoY): 1.5%: Ex-Food/Energy: 2.1%
08:30: Housing Starts (November): 730,000; Building Permits: 700,000
10:00: BBY Earnings Call
11:00: GS Earnings Call
14:15: FOMC Rate Decision: 0.50%
15:00: GE Investor Meeting
17:00: ABC Consumer Confidence
17:00: ADBE Earnings Call
Post-market EPS: ADBE (.57/919.1M); HOV (-1.63/711.6M


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 11 points above fair value while the NASDAQ futures are trading 16 points above fair value at 7:45 am ET.
The 10-year Treasury note yield is at 2.48%, the lowest level since the beginning of the Fed’s daily data in 1962. European markets are up 1.2% after reversing modest declines on the open. Euro-zone PMI Manufacturing and Services came in slightly ahead of expectations. Tech and automakers are outperforming while mining and steel are underperforming. Asian markets closed mixed in a quiet session ahead of the FOMC decision at 2:15 ET today. Japan was dragged down by a report that Toyota Motors (7203.JP) will ask steelmakers to cut prices sharply. Other exporters were hurt as investors showed concern about a strong yen. Resource stocks fell in Australia on broker downgrades and concerns about the outlook for coal prices. Macarthur Coal (MCC.AU) fell after slashing its profit forecast, suspend its dividend.


Impact Research Calls/Market Moving News:

BIDU (118.09): Baidu.com is upgraded to buy from neutral and added to Conviction Buy List at Goldman Sachs: “1) We expect concern that the China government has targeted Baidu for punishment will diminish; we doubt the government seeks to disadvantage Baidu to the extent it loses substantial query share to foreign rivals. (2) We believe paid search will outgrow China’s GDP given low penetration, rising query volumes on increasing broadband penetration, and secular demand from consumer-facing companies. (3) Baidu is trading at multiples comparable to slower-growing, more-cyclical businesses such as Alibaba.com and Ctrip, and its 2009 P/E multiple is about one-third above Google’s, while its growth rate is about double Google’s.”

GM (4.08): Treasury Department leaning toward granting GM, Chrysler $10B loan package - Detroit News: The amount would allow the companies to survive into February. No announcement of a deal is expected until tomorrow at the earliest.

AAPL (94.75): WSJ discusses slowing Mac sales at Apple: Citing data from NPD Group, the Journal notes that sales of Macs in US stores fell 1% y/y in November, while industry-wide PC sales were up 2%. NPD analyst Steve Baker cited a 35% drop in sales of desktop Macs for the weakness, as growth in the company's laptops continued to outperform rivals. According to the article, the November data suggest that competitor price cuts may finally be weighing on Apple (which has largely avoided meaningful discounting), particularly when considering heightened consumer price sensitivity.

POT (69.25); AGU (30.77); CF (47.83); TRA (14.73); IPI (18.67): Select fertilizer stocks upgraded at Merrill Lynch: AGU, POT, CF: upgraded to buy from underperform: Potash (POT), target raised to $90 from $80; Terra (TRA), target raised to $25 from $19; Intrepid Potash (IPI), target raised to $30 from $28; Mosaic (MOS), target raised to $49 from $45. CF upgraded to neutral from underperform: CF target raised to $57 from $50

House Speaker Pelosi suggests Congress will force Treasury to aid homeowners -- WSJ : Pelosi suggests the move would come if Treasury requests the second half of TARP.

APD (48.54): APD guides Q1 EPS lower to between .95 cents and 1 dollar vs. prior estimate of 1.15 to 1.21. Current consensus is 1.11.

UPS (51.85): UPS downgraded to underperform from neutral at Merrill Lynch

LEN (8.80): Lennar (LEN) downgraded to neutral from buy at UBS.

PGR (14.74): Progressive downgraded to sell from hold at Citi: Price target is lowered $12 from $13.50. The firm cites valuation.

Explosives disarmed in large Paris store, reports Reuters, citing French TV, which is quoting a police source.

WFR (14.75): MEMC Electronic Materials Q4 estimates reduced below consensus at Citi: Firm reduced its Q4 and Q1:09 estimates below consensus, citing ongoing semiconductor unit weakness, and reduced its target price to $30, but maintained its buy rating

BHI (31.08); WFT (10.31): Baker Hughes (BHI), Weatherford (WFT) downgraded to market perform from outperform at Bernstein: BHI target reduced to $39 from $66. WFT target reduced to $16 from $35. The firm expects EPS to be down 15% in each of 2009 and 2010. Halliburton (HAL) remains rated outperform

GPS (12.85): Gap Inc downgraded to market perform from outperform at Friedman Billings Ramsey: Firm cites macro concerns and valuation as rationale.

Monday, December 15, 2008

December 15, 2008: Morning Call

December 15, 2008: Morning Call

Fair Value: SP500 – 876.85; NDX: 1210.42; DOW – 8595.09


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Post-market EPS: TITN (.23/163.8M)
05:00: Euro-zone Employment
08:30: Empire Manufacturing (December): -27
09:00: Net Long-term TIC Flows (October): 40.0B
09:15: Industrial Production (November): -0.8%; Capacity Utilization: 75.7%
13:00: NAHB Housing Market Index (December): 9
22:00: BIDU Annual Meeting


Foreign Market Summary/Key Macro News/Commentary:


The S&P futures and NASDAQ futures are both trading 5 points above fair value at 8am ET. Optimism for a swift rescue of the automakers is mitigating financial concerns over exposures to beleaguered Madoff Securities. Asian markets closed higher (Nikkei up 5.2%; Hong Kong up 1.9%, Australia up 2.3%, South Korea up 4.7%, India up 1.4%) with shippers and automakers among the strongest sectors. European markets are up 0.40% but off the highs of the session. Mining and Energy shares were amongst the leading groups. Advancers on the FTSE 100 lead decliners 7-3. Electrolux (ELUXB.SS) fell after cutting 2008 outlook and announced a further 3000 job cuts. DSM (DSM.NA) cuts full year operating profit guidance. H&M (HMB.SS) trades lower after reporting Nov same store sales (4%).


Impact Research Calls/Market Moving News:

AAPL (98.27): Apple downgraded to neutral from buy at Goldman Sachs: Price target decreased to $115 from $125. “We downgrade Apple to Neutral from Buy on concerns about consumer spending in the seasonally softer 1H’09 and Apple’s valuation premium. Although our checks in Asia for the December quarter were better for Apple than for the other PC and smartphone vendors, some nicks have started to emerge. Specifically, shipments of MacBooks, iPod nanos, and iPhone were all slightly lower than what was expected going into the quarter and Apple should face a tougher environment in the March and June quarters as consumer demand takes another leg down. Since adding Apple to the Buy List on 7/20/06, it is up 62% versus the S&P 500’s -30%.”

GOOG (315.76): ThinkEquity lowers estimates and price target on GOOG shares: “We are lowering our estimates and reducing our price target from $450 to $350 following conversations with leading search engine marketers in the United States and Europe that suggest the global search market is slowing faster than we anticipated. We are now forecasting 3% Q/Q net revenue growth (down from 7%) for 4Q08 and 10% Y/Y growth (down from 16.5%) for 2009. We are lowering our 4Q08 pro-forma EPS estimate from $5.15 to $5.01 and from $21.35 to $20.40 for 2009. While our sensitivity analysis suggests more upside than downside from here, we recommend buying shares in the $250 range.”

JPM (30.94): JPMorgan Chase downgraded to underperform from neutral at Merrill Lynch: Price objective reduced to $27 from $44.

T (28.18): AT&T downgraded to neutral from buy at Goldman Sachs

DVN (68.05); RRC (36.15); SWN (28.78): Devon Energy (DVN), Range Resources (RRC), Southwestern Energy (SWN) downgraded to hold from buy at Deutsche Bank

MS (13.85): GS (67.74): Morgan Stanley (MS) and Goldman Sachs (GS) Q4 loss expectations discussed by NY Post: MS is expected to report losses of about $1B when it reports on 17-Dec. Emerging markets and interest rates were particularly impactful. GS is expected to report losses in the range of $2-3B. The article also cites many are predicting further writedowns for both in 1H09

BIDU (114.00): Baidu.com initiated sell at Pali Reseach: Target is $90.

BBY (24.42): Best Buy downgraded to sell from hold at Rochdale Research: Price target decreased to $16 from $25. Firm notes a narrow margin of safety in the event of declining same store sales and deleveraging of SG&A.

Friday, December 12, 2008

The Madoff Fraud

The criminal complaint against Bernard Madoff is truly a stunning indictment on the American financial system. How is it possible for any single individual or investment firm to perpetrate a 50 billion dollar fraud? Although the actual losses are not known at this point, Bloomberg news has been reporting numbers in the range of $20 to $50 billion. The Madoff news is sending shockwaves through the asset management and hedge fund business because redemption requests were already extremely high. How can the American people be expected to have confidence in the institutions and individuals that have been entrusted to run their money? I would expect a further escalation of redemption requests at all asset managers and hedge funds. Middle market firms are particularly susceptible because many of these firms have weak compliance structures. Most of the profits the financial sector reported over the last few years have been derived from blatant manipulation and outright fraud. In that regard, the Madoff news should be a wake up call for everyone that remains in denial.

Thursday, December 11, 2008

December 11, 2008: Morning Call

December 11, 2008: Morning Call

Fair Value: SP500 – 899.12; NDX: 1222.87; DOW – 8763.17


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Pre-market EPS: CIEN (.05/198.3M); COST (.62/16.81B); GIL (.44/341.5M)
04:00: ECB Publishes December Monthly Report
04:30: Bank of England Quarterly Inflation Attitudes Survey
07:15: V presents at the Goldman Sachs Financial Services Conference
08:00: FWLT presents at KeyBanc Capital Markets Conference
08:30: US Trade Balance (October): -53.5B
08:30: Import Price Index (November): -4.0% MoM; -1.5% YoY
08:30: Initial Jobless Claims (December): 525,000; Cont. Claims: 4.02 million
10:30: NDAQ presents at the Goldman Sachs Financial Services Conference
10:35: EIA Natural Gas Storage
11:00: COST earnings call
11:15: COF presents at the Goldman Sachs Financial Services Conference
12:00: BLK presents at the Goldman Sachs Financial Services Conference
14:00: MDR presents at Keybanc Capital Markets Conference
14:30: CSCO presents at Barclays Tech Conference
21:00: Chinese Retail Sales (November): 20.7% YoY


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points below fair value while the NASDAQ futures are trading flat with fair value
. Crude oil is trading 5% higher on hints that OPEC will cut production more than expected. The USD is also sharply lower against the Euro (down 1.6% to 1.3232), which is triggering a better bid to commodities. Asian markets closed mixed (Japan +0.70%, Hong Kong up 0.25%, Australia down 1.1%, Shanghai down 2.3%) on concerns about whether the auto bailout package would pass the Senate; the House approved the bill last night. European markets are flat in a quiet trading day. Energy and commodity stocks are among the leading gainers.


Impact Research Calls/Market Moving News:

BIDU (104.54): Baidu.com guides Q4 revenue to $131-133M vs prior $151-155M and Reuters $145.7M: The company noted that several factors contributed to the guidance revision. First, the economic slowdown in China is having a greater than expected impact on online marketing particularly in machinery and franchising; second, Baidu recently removed the paid search listings of customers in the medical and pharmaceutical sectors without licenses on file with Baidu; and third, after a thorough inspection of its customer base, the company removed a number of questionable paid search listings outside of the medical and pharmaceutical sectors. The company noted that a portion of its customers in the medical and pharmaceutical sectors have returned to its paid search listings following the submission of required licenses.

V (53.16): Visa expects to achieve f09 EPS, margin guidance, sees revenue growth at low end of +11-15% for 2009

PG (59.12): Procter & Gamble reaffirms Q2 EPS guidance of $1.58-1.63 and full year EPS $4.28-4.38

AIG (1.75): AIG unlikely to generate $15B worth of asset sales by year-end - Bloomberg

AXP (21.56); COF (32.08): Charge-offs Start to Shred Card Issuers – WSJ: "Card-industry executives are worried about escalating "roll rates," a term that refers to the percentage of cardholders who go from merely late on their payments to not making them at all. Among cardholders who are between 60 days and 89 days overdue, about 20% of such card balances eventually are being charged off by card issuers as uncollectible, according to Auriemma Consulting Group Inc., a Westbury, N.Y., financial-services consulting firm. The percentage is up by about a third from last year, before the U.S. economy tipped into recession. The problem can be even worse for bundles of outstanding credit-card balances that are securitized by some of the largest issuers. For example, American Express Co.'s roll rate worsened to 47% in the third quarter from 35% a year earlier, says investment bank Keefe, Bruyette & Woods Inc., which calculated the figures from securities filings. At Capital One Financial Corp., known for its cheeky ads and mass-market strategy, the roll rate has reached 34%, up from 28% in last year's third quarter. Those figures don't reflect credit-card loans that the issuers keep on their books. Card issuers are scrambling to reverse the trend, with moves that include cutting credit lines to some customers and contacting cardholders before they become delinquent. In a report last week, Meredith Whitney, a banking analyst at Oppenheimer & Co., estimated that card issuers will reduce credit lines by more than $2 trillion in the next 18 months."

Libya says supply cuts that were previously agreed to by OPEC members are not enough – Bloomberg. Saudi Arabia also indicated that that they pumped 287,000 barrels a day less than estimated by the IEA. The comments from Libya and Saudi Arabia suggest that OPEC will cut production for a second time when it meets next week in Algeria.

COST (53.69): Costco reports Q1 EPS $0.65 ex-items vs Reuters $0.62:Company reports revenues of $16.39B vs Reuters $16.59B. Q1 same store sales were +1%; US +3% and International (7%). On a local currency basis, international comparable store sales increased +7% in Q1.

Paul Volcker being pushed for Car Czar - WSJ: A person close to Volcker says that he would "probably" fill the role with enough persuasion, but no one has asked him yet, and he doesn't actually want to do it. The current and incoming administrations are working together, meaning the White House may look to strengthen criteria that carmakers would need to meet to qualify for federal help. The article says the need for an experienced figure in the position increases Volcker's chances and diminishes others', specifically those of Kenneth Feinberg. A person familiar with the matter at General Motors says the company would have no problem with his appointment

Wednesday, December 10, 2008

December 10, 2008: Morning Call

December 10, 2008: Morning Call

Fair Value: SP500 – 888.36; NDX: 1213.04; DOW – 8689.12


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

07:00: MBA Mortgage Applications (w/e Dec. 5)
08:00: WFC presents at the Goldman Sachs Financial Services Conference
08:45: NTRS presents at the Goldman Sachs Financial Services Conf.
09:00: YUM Analyst Conference
10:00: Wholesale Inventories (October): -0.2%
10:35: DOE/API Crude Oil and Gasoline Inventories
14:00: Monthly Budget Statement (November): -189.0B
15:45: MSFT presents at Barclays Tech Conference
21:00: Chinese Consumer Price Index (November): 3.0% YoY


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 13 points above fair value while the NASDAQ futures are trading 20 points above fair value at 7:30am ET.
Asian markets closed sharply higher (Nikkei up 3.1%, Hong Kong up 5.6%, India up 5.3%) on strength in automakers, commodities, and Chinese banks. Automakers surged on speculation that Congress will pass the auto bailout agreement: Mahindra & Mahindra (MM.IN) +11%, Honda (7267.JP) +10%, Hyundai (005380.KS) +9%, Kia Motors (000270.KS) +9%, Daihatsu (7262.JP) +8%, Toyota (7203.JP) +7%, Nissan (7201.JP) +5%, Mitsubishi (7211.JP) +5%, Tata Motors (TTMT.IN) +4%. European markets are currently trading up 0.42% in choppy trading. Rio Tinto (RIO.LN) is a notable gainer pushing the Metals and Mining sector higher after announcing it will eliminate 14,000 jobs by cutting 5,500 employees and 8,500 contractor positions due to "the unprecedented rapidity and severity of the global economic downturn". Rio Tinto will also reduce 2009 capital expenditure from $9B to $4B and review capex for 2010.

Impact Research Calls/Market Moving News:

AIG (1.93); GS (72.77): AIG facing $10B in losses on trades that have gone bad – WSJ: The Journal cites people familiar with the matter who say that AIG owes Wall Street's biggest firm roughly $10B for speculative trades that have gone bad. The paper adds that the losses are particularly concerning given that the they are not covered under the government's $150B rescue package for the insurer. According to the article, the IOUs stem from market bets on the performance of bundles of derivatives linked to subprime residential mortgages, commercial real estate bonds and other types of debt. The Journal points out that there are no actual securities backing these speculative trades. The article implies that Goldman Sachs has significant exposure to the 10 billion in question: “Some of AIG's speculative bets were tied to a group of collateralized debt obligations named "Abacus," created by Goldman Sachs. The Abacus deals were investment portfolios designed to track the values of derivatives linked to billions of dollars in residential mortgage debt. In what amounted to a side bet on the value of these holdings, AIG agreed to pay Goldman if the mortgage debt declined in value and would receive money if it rose." Goldman has said their exposure to AIG s “immaterial.”

AAPL (100.06): Apple target reduced to $95 from $105 at Morgan Stanley, estimates reduced further below consensus: F09 and f10 EPS estimates are further reduced below Reuter’s consensus of $5.27 and $6.43. C09 iPhone unit forecasts are reduced. Shares remain equal weight rated with Morgan Stanley saying AAPL should meet the guidance range provided in Oct.

PX (56.95): Praxair guides Q4 EPS to $0.95-1.00 ex-items vs prior $$1.03-1.08 and Reuters $1.04; to cut 1600 jobs. The company has seen a fall-off in demand in November and is expecting additional customer plant closings in December, which will further reduce volumes for the quarter.

WFC (30.50): Wells Fargo downgraded to neutral from buy at Merrill Lynch. Price target decreased to 32 from 35.

GE (17.78): General Electric downgraded to neutral from buy at UBS: The downgrade comes as part of a transfer of coverage. Price target decreased to $18 from $27. The firm sees risk that GE will reduce 2009 EPS guidance at meeting on 16-Dec.

WFC (30.50): Proposed legislation aims to end "Wells Fargo ruling" tax break – WSJ: Wells Fargo (WFC)'s purchase of Wachovia (WB) and PNC Financial (PNC)'s acquisition of National City (NCC) were encouraged by a break allowing a buyer to use a larger portion of a target's built-in losses to reduce taxable income. HR 7300, proposed by Rep. Lloyd Doggett, is intended to eliminate the break, which amounted to billions in the two aforementioned cases. HR 7300 would not revoke the break for Wells Fargo or PNC.

ERTS (19.35): Electronic Arts says Q3 (Dec) revenue and EPS will be significantly below expectations and cuts f09 outlook: While not providing specific targets for the quarter, management says revenue and earnings will be significantly below their plan for the quarter. ERTS says f09 net revenue and EPS will be below guidance given on 30-Oct and cites primarily lower than expected sales across North America and Europe. ERTS does not expect to provide updated financial guidance for fiscal 2009 prior to reporting its third quarter results in early February. ERTS says it continues to pursue cost savings initiatives, including a reduction of its product portfolio for fiscal year 2010 with additional associated headcount reductions and facility consolidations. ERTS says its holiday slate is not meeting its sales expectations. ERTS says it will be launching several new titles and online games in fiscal 2010. At least 4 brokerage firms have downgrades ERTS shares.

EK (7.20): Eastman Kodak withdraws 2H08 guidance due to economic weakness and currency: EK has withdrawn H2 guidance for revenue growth, digital revenue growth, earnings from continuing operations, and cash generation because of the deepening global recession and changes in the value of the dollar

GM (4.70): F (3.23): Details on Big Three bailout – WSJ: The bill, which was still being written late last night, although the basics had been decided, will provide about $15B in short-term funds and will kick off discussions about longer-term public financing. A car czar is to oversee the program. Companies could qualify for a 30-day extension beyond their 31-Mar deadline to provide restructuring plans, but after that, the President would have to call the loans. Deals of $100M or more would be subject to government review. The legislation could be voted on today. Passage appears likely in the House but problematic in the Senate, where 60 votes will be required.

Tuesday, December 9, 2008

December 9, 2008: Morning Call

December 9, 2008: Morning Call

Fair Value: SP500 – 909.50; NDX: 1225.93; DOW – 8933.91


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Pre-market EPS: AZO (2.19/1.49B); KR (.38/17.54B); MTN (-.78/154.0M)
05:00: Euro-zone ZEW Economic Sentiment (December0: -59 (better than expected at –46.1)
09:00: MOS presents at Canaccord Adams Ag Conference
09:30: MON presents at Canaccord Adams Ag Conference
09:30: BOE’s Sentence speaks in London
10:00: IBD/TIPP Economic Optimism (December): 45.0
11: 15: HPQ presents at Barclays Capital Tech Conference
17:00: ABC Consumer Confidence
21:00: Chinese Producer Price Index (November0: 4.5% YoY

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading flat with fair value while the NASDAQ future are trading 10 points below fair value despite EPS warnings from multiple companies across various sectors. Obviously, lower guidance is discounted in many stocks even though analysts have not lowered their official estimates. On the surface, the warnings look significant but that is primarily because most analysts have not adjusted their estimates despite the carnage in the financial markets and economy over the last 3 months. For example, consensus estimate on TXN has not changed since the company provided Q4 guidance 2 months ago. Traders need to focus on the magnitude of an EPS miss and the detail embedded in the press release because comparisons to consensus are kind of ridiculous since current estimates were predicated on a different business environment. Asian markets closed mixed (Nikkei up 0.80%; Hong Kong down 1.9%, Shanghai down 2.59%, India markets were closed). Commodity stocks advanced on substantial overnight gains in oil and metals prices, and shippers went up as the Baltic Dry Index broke a three-week losing streak. Sony (SNE) announced it would cut 8,000 jobs and aims to cut ¥100b in costs by end of 09/10-business year. Machinery shares continued yesterday’s surge on expectations of infrastructure spending in the US. Banks led Australia down after Westpac Banking Corp (WBC.AU) launched an A$2.5B institutional share placement. Commonwealth Bank of Australia (CBA.AU) and National Australia Bank (NAB.AU) slumped. China declined as it awaits economic data later this week. European markets have reversed an early 1% decline and are currently up 1.3%. Solar stocks are under pressure after Q-cells (QCE.GR) cut forecast. Solarworld (SWV.GR), Nordex (NDX1.GR) and Repower (RPW.GR) confirmed guidance. Better than expected Euro-zone economic sentiment helped reverse the market.

Impact Research Calls/Market Moving News:

FDX (74.43); TXN (14.82); NSM (10.29); ALTR (14.04); CNW (25.77); DHR (51.96): EPS Warnings Overnight: FedEx (FDX) guides Q2 EPS to $1.58 vs prior $1.40-1.60 and Reuters $1.51. Texas Instruments(TXN) lowers Q4 EPS to between .10-.16 cents vs. prior EPS of .30-.36 cents and expects Q4 gross margin to be in the 37-42% range. National Semi (NSM) and Altera (ALTR) also reduce guidance. Con-way (CNW) guides full year EPS to $2.20-2.35 vs. prior $2.60-2.80 and consensus of 2.78. Danaher (DHR) guides Q4 EPS to $1.03-1.10 vs. prior $1.17-1.25 and Reuters $1.19

GS (77.15); MS (16.30): Goldman Sachs (GS), Morgan Stanley (MS) estimates lowered ahead of Q4 results at Keefe Bruyette & Woods: Firm notes the worsening of the credit and equity markets in the last two weeks of November. Q4 estimates are lowered for both companies, with GS estimates lowered below consensus. Goldman estimate is decreased to a loss of 3.81 a share from a prior loss estimate of 2.10 a share. MS EPS is lowered to a loss of .19 cents from a prior estimate of .33- cent profit. Firm estimates writedowns of $3.05B at GS and $2.57B at MS. Both are rated outperform. GS target is lowered to $108 from $115. MS target is $32.

Putin Deputy to attend 17-Dec OPEC meeting – Bloomberg: Bloomberg reports that Putin deputy Igor Sechin is to attend an OPEC meeting scheduled for 17-Decin Algeria, citing an Interfax report, which cited an unidentified official in the Russian government. Energy Minister Sergei Shmatko will accompany Sechin, and will bring a delegation of Russian oil producers, and propose crude output coordination between OPEC nations and Russia.

UPS (58.62): UPS downgraded to neutral from overweight at JPMorgan

ITW (32.84): Illinois Tool downgraded to underweight from equal-weight at Barclays Capital: Firm says it may be too early to play a recovery in the name.

MMM (57.38): 3M downgraded to underweight from equal-weight at Barclays Capital: Firm sees margin compression continuing into 2009.

TROW (36.64): T. Rowe Price downgraded to sell from neutral at Goldman Sachs

NSM (10.29): National Semiconductor downgraded to equal-weight from overweight at Morgan Stanley

NOK (14.34): Nokia upgraded to neutral from sell at Goldman Sachs

Monday, December 8, 2008

December 8, 2008: Morning Call

December 8, 2008: Morning Call

Fair Value: SP500 – 875.87; NDX: 1178.42; DOW – 8635.52


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:


04:30: Euro-zone Sentix Investor Confidence (December): -40 (weaker at –42.3)
11:00: BRCM Analyst Day
13:45: Fed’s Fisher speaks on the financial crisis
15:00: RIG shareholder meeting
15:30: YHOO presents at UBS Media Conference
17:30: TXN Q4 2008 Guidance
Post-market EPS: HRB (-.40/401.0M); NSM (.21/421.2M); PBY (.01/490.6M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 20 points above fair value while the NASDAQ futures are trading 27 points above fair value at 7:45am ET. Foreign markets surged higher overnight after President-elect Barack Obama pledged the largest spending on infrastructure since the 1950’s in an effort to revive the US economy
. Obama also signaled that more aggressive steps need to be taken to stem foreclosures and the decline in housing prices. “If it is not done during the transition, it will be done by me,” Obama said. There were also signs that the size of the economic recovery package may increase from the 500 billion to 700 billion after VP Biden’s chief economist said, “it’s fair to assume the upper bound on a stimulus package is going up, not down.” Asian markets: Most markets rose as investors took US President-elect Barack Obama’s stimulus package as an indication China might take more measures to bolster its own economy (Hong Kong surged 8.6%, Japan +5.2%, South Korea up 7.8%, India up 2.2%). Lenders advanced as the cost of protecting Australian and Japanese bonds against default went down. Property stocks led gainers in Hong Kong. China Mobile (941.HK) rose 8% on a ratings upgrade from Merrill Lynch. Hong Kong Exchanges and Clearing (388.HK) jumped 16% when the city’s Financial Secretary said a plan to allow Chinese citizens to invest in shares traded on the market remains on track. Banks in China climbed after a report said the government is considering cutting a tax on their revenue from 5% to 3%. In Japan, construction-machinery-maker Komatsu (6301.JP) jumped 11% on news of the American spending package. European markets are up 6.25% with energy and mining stocks the best performers. Treasuries are trading lower, commodities are 5% higher and the US dollar and yen are weaker against most other currencies as investor appetite for the safest assets has decreased.



Impact Research Calls/Market Moving News:

Congressional Democrats, White House reach deal on automaker rescue plan – Reuters: Citing a senior Congressional aide, Reuters reports that the package totals $15-17B. The House will meet again on Tue, 9-Dec to decide whether to proceed on auto rescue—Bloomberg.

MMM (59.85): MMM guides 2009 EPS to between 4.50-4.95. Street consensus is 5.39.

BKX Index (47.32): Goldman Sachs report says US banks have only recognized half their estimated 1.8 trillion of credit-related losses. “We believe the ultimate turn for bank stocks will come when nonperforming asset growth decelerates, which is clearly not in the fourth quarter,” said analysts led by Richard Ramsden.

AAPL (94.00): Apple's iPhone to be sold at Wal-Mart; report cites WMT employee confirming 4 GB version rumors - San Jose Mercury News

COST (55.58): Costco estimates reduced below consensus at Bernstein following disappointing Nov comps: The firm reduces their Q1 EPS estimate to $0.58 from $0.62 vs. Reuters $0.62. Shares remain market perform with the target for the shares reduced to $61 from $67.

X (28.76): Goldman upgrades X to buy from sell and adds the stock to the conviction buy list. Goldman says steel prices are near bottom.

China may ask miners for 82% price cut for iron ore - Bloomberg: In an interview, an official of the China Iron and Steel Association says that iron ore prices should fall in the same time ratio in which steel prices have fallen, to their 1994 levels. Bloomberg calculates that that means an 82% price cut. Any price cut would be the first in seven years. The official also says Chinese steelmakers want annual pricing to begin from 1-Jan rather than 1-Apr, and high stockpiles mean some mills may delay taking deliveries.

NYX (21.39); DB1 GR (54.78 +4.57): Deutsche and NYSE(NYX) may merge says Der Spiegel, talks ended without result says FT – wires: Per wires, citing Der Spiegel report Deutsche Boerse and NYSE Euronext (NYX) plan to merge into what would be the world's biggest exchange group. The report comes two days before the German exchange group's supervisory board is scheduled to meet. Deutsche Boerse and NYSE Euronext would set up a holding co in the Netherlands, which then would make a takeover offer to Deutsche Boerse shareholders, the magazine said. But the FT reported the talks with NYSE had been ended without any result. NYSE Euronext declined to comment.

Cyber Monday average transaction declined 12% to $51.62 - NYT: The figure is reported by Chase Paymentech’s Cyber Holiday Pulse Index, which found an overall spending increase of less than 1% in revenue

NYX (21.39): NYSE Euronext reports November transaction activity: European cash products ADV decreased 4% to 1.5M transactions. U.S. cash products average daily volume increased 26% to 4.1B shares. U.S. derivatives products (equity options) ADV increased 1% to 2.0M contracts, driven by the addition of NYSE Amex equity options.

NYX (21.39); NDAQ (23.35); CME (194.57); ICE (71.62): Barron's says it's a good time to buy US exchange stocks: In this week's cover story, Barron's notes that US exchange stocks, including NYSE Euronext (NYX), Nasdaq OMX Group (NDAQ), CME Group (CME), and IntercontinentalExchange (ICE), have lost 50% to 75% of their value while profits continue to grow, making this a good time to buy. The article points out that the exchanges are the utilities of the financial sector, earning cash flow tied to trading fees, and notes there is a regulatory push to list on exchanges products currently traded OTC. Further noted, the futures markets trade at a premium because volume could hold up as traders continue to hedge risk, even as demand for the underlying securities falls, though Barron's points out that NYSE and Nasdaq are also inoculated against trading declines as a bulk of their revenue comes from listings and data, as opposed to trading.

Barron's Summary: Cover: It's a good time to buy US exchange stocks. Interview: Barry Ritholz, CEO and Director of Equity Research, FusionIQ, is getting ready for a significant rally. Lead Articles: Leucadia National's (LUK) savvy management and cheap assets are an enviable combination; The bear market and new regulations have left many pensions underfunded; Barron's plan to end the foreclosure market includes offering everyone a 4.5% mortgage; The decline of China's renminbi could dampen enthusiasm of foreign speculators, though the biggest China-linked ADRs listed in New York are domestic plays; Packaging companies are fairly recession resistant and are among the most defensive plays in today's market; Telstra' (TLS.AU) transformation under CEO Sol Trujillo is discussed. Columns: The Trader asks if investors can no longer count on profit growth, what can they count on? Euro Trader notes that central bank rate cuts aren't helping equities as investors realize they reflect the poor macro environment; Asia Trader discusses the possible reemergence in Japan of the PKO, or Price Keeping Operation, in which banks would fund a new government-owned fund which invests in strategically important companies that have trouble borrowing; Commodities Corner says cocoa prices could rise with equities and the US dollar; The Striking Price discusses the use of "buy-writes" to profit from volatility; Current Yield discusses global rate cutting; Follow Up discusses the Big 3's return to Capitol Hill, says Goldman Sachs (GS) still has little downside; Up and Down Wall Street comments that jobs are vanishing at an alarming rate and the end is nowhere in sight, discusses Henry Kaufman being negative on the consolidation in Wall Street; Streetwise discusses "quicksilver" trading, noting that short-term jumpiness is contributing to the markets' extreme volatility; D.C. Current says deflationary pressures will keep the threat of inflation at bay, for now; Technology Trader says the tech downturn seems to be reaching capitulation; Plugged In notes there are few candidates for next year's "Next Big Thing."

Friday, December 5, 2008

December 5, 2008: Morning Call

December 5, 2008: Morning Call

Fair Value: SP500 – 844.90; NDX: 1128.32; DOW – 8376.60


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Pre-market EPS: BIG (.16/1.0B)
08:00: MER Extraordinary Shareholders Meeting
08:30: Change in Nonfarm Payrolls (November): -325,000
08:30: Unemployment Rate (November): 6.8%; Avg. Hourly Earnings: 0.2%
11:00: BAC Extraordinary Shareholders Meeting
15:00: Consumer Credit (October): 1.5 billion


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 5 points below fair value while the NASDAQ futures are indicated 7 points below fair value at 7:30am ET.
Treasury bonds are modestly higher ahead of the jobs report; risk aversion and aggressive quantitative easing by the Federal Reserve has propelled bonds higher in 13 of the last 15 trading sessions. Commodities are currently flat after moving to multi-year lows in Thursday’s session on concerns about a deep global recession. Asian markets closed mixed with Hong Kong up 2.4% and India down 2.8%. Commodity leveraged sectors were weak overnight after copper declined for a 7th straight day, its longest losing streak in 10 years. . European markets are currently at the lows of the session, down 3%. Metals and Energy shares are amongst the leading decliners. Market participants await the release of the US jobless data. Decliners on the FTSE 100 lead advancers 7-3. BMW Group (BMW.GR) said November sales fell (25%). German factory orders were weaker than expected with a decline of 17.2% y/y vs. street consensus of a decline of 12.1% y/y.




Impact Research Calls/Market Moving News:

GS (67.53):Goldman Sachs estimates reduced below consensus at Morgan Stanley: Though the firm has reduced Q4 EPS estimates below Reuters consensus ($2.92), shares remain overweight rated with a $137 target.

BAC (14.34): Bank of America estimates lowered at UBS: Firm lowers Q4'08 and '09 estimates materially below consensus. UBS sees nearly $9B of credit and mark to market hits, additional NIM pressure, weak capital markets revenue, and accrual of TARP preferred dividends. Firm believes another dividend cut is possible. Target is lowered to $14 from $15. Rating is neutral

BHP (34.81); RIO (9.65); RTP (60.72): China Iron & Steel Association (CISA) wants an early end to 2008 iron ore contracts, says Steel Business Briefing -- Dow Jones: Per Dow Jones, China Iron and Steel Association has informed iron ore producers Companhia Vale do Rio Doce (RIO), BHP Billiton (BLT.LN) and Rio Tinto (RTP) that it wants to end their 2008 contract three months ahead of schedule, from 1-Jan instead of 1-Apr, a Steel Business Briefing report said. In the 2008 contract, Australian Rio Tinto and BHP won 85% price increases from the Chinese; Brazilian Vale received a 65%-71% increase in earlier negotiations. Talks to set the 2009-benchmark prices between ore producers and Chinese steelmakers have yet to begin.

INTC (12.77): Intel estimates and target lowered at UBS: Firm notes read-through of AMD's revised guidance and industry checks that suggest a further steep decline in Q1'09. Q4'08, '09, and '10 estimates are lowered. Target is lowered by $1 to $17. Rating is buy.

BG (37.29): Bunge Ltd downgraded to underperform from neutral at Merrill Lynch: Price target is decreased to $36 from $42.

ENER (25.81): Energy Conversion downgraded to underweight from equal-weight at Barclays Capital

BIG (16.28): Big Lots reports Q3 EPS $0.15, vs guidance of near or slightly below low end of prior $0.15-$0.19 range, and Reuters $0.14. Big Lots reports Q3 EPS $0.15, vs guidance of near or slightly below low end of prior $0.15-$0.19 range, and Reuters $0.14

V (50.81): MA (133.27): Visa (V), Mastercard (MA) initiated neutral at Bank of America: V price target is $59; MA price target is $150.

Thursday, December 4, 2008

Hedge Funds and the 10-year note yield

The November collapse in the 10-year note yield has been nothing short of remarkable (3.9% on 10/31 to 2.64% this morning). The press has cited Fed announcements (Fed/Treasury buying Treasuries and Agency MBS), concerns about the economy, fears of deflation, global rate cuts, and a general flight to quality spawned by the financial panic. Very few press reports have explored the role of hedge fund redemptions. 4 major hedge funds have limited client withdrawals in the last few days due to a flood of redemption requests (DE Shaw, Farallon, Fortress, Paul Tudor Jones). Bloomberg is reporting that more than 80 hedge fund managers have recently imposed restrictions on client redemptions. What hedge fund investor is going to keep their assets with a fund once the gate is lifted? Most of these funds will be effectively out of business in the next 12 months. The managers understand this and have been liquidating as quickly as they can to meet the current requests. The liquidated funds are effectively forced into Treasuries because the managers are not in a position to take any risk. Note that the 10-year bond yield really began sliding after November 15, which happens to be the deadline many hedge funds required for redemption requests. A modest easing in any of the factors I cited above will trigger a big sell-off in Treasury bonds. As a result, I would put TBT on the radar as a tactical long candidate. The upside move in bonds looks extended. I believe the risk/reward for TBT looks favorable. The downside risk to holding TBT is that the current panic is exacerbated by the barrage of bad news that is still in the pipeline. Yields could potentially drop below 2% if equities break sharply below the recent lows. But, you would probably lose less money being long TBT than being long equities on a break of the lows.

December 4, 2008: Morning Call

December 4, 2008: Morning Call

Fair Value: SP500 – 870.47; NDX: 1166.88; DOW – 8592.80


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Pre-market EPS: TOL (-.39/681.3M); WSM (-.11/749.9M)
05:00: Euro-zone GDP (Q3): -0.2% QoQ; 0.7% YoY
07:00: Select Retailers release November Same Store Sales
07:00: Bank of England Interest Rate Decision
07:45: ECB Interest Rate Decision
08:00: SBUX Analyst Meeting
08:30: Initial Jobless Claims (Nov. 29): 540,000
08:30: PRU Investor Day
09:00: NOK Capital Markets Day
09:15: Fed’s Fisher speaks on the economy
10:00: Factory Orders (October): -4.5%
10:30: EIA Natural Gas Storage Change
10:45: Fed’s Evans speaks on the economy
11:15: Bernanke speaks on housing at a Fed Conference
16:30: Fed’s Kroszner speaks on mortgage-backed securities

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 15 points below fair value while the NASDAQ futures are trading 25 points below fair value at 8am ET. The futures have weakened over the last 20 minutes on weaker November comps and an earnings warning from DD
. European markets reversed earlier declines and are currently trading up 0.9% following a 100 bp rate cut by the BOE and a 75bp rate cut by the ECB. European markets had been up 2.0% on the initial kneejerk reaction to the BOE/ECB rate cuts. Advancers on the FTSE 100 lead decliners 7-3. Credit Suisse (CSGN.VX) reversed an early decline after a Q4 update estimated a net loss CHF 3B as of end Nov, will cut 5,300 jobs approx. 11% of total headcount. Asian markets were mixed with commodity shares boosted by merger activity Nippon Oil (5001.JP) and Nippon Mining Holdings (5016.JP) rallied on news they were in merger talks. Japan ended lower as investors were frightened by a report that General Motors (GM) and Chrysler are considering accepting a bankruptcy plan in exchange for a government bailout and plunging US car sales weighted on the sector.





Impact Research Calls/Market Moving News:

WSJ provides additional details on potential Treasury plans to lower mortgage rates: Citing people familiar with the matter, the Journal now reports that the Treasury's plan, which is in the development stage, would temporarily use the influence of Fannie and Freddie to encourage banks to lend at rates as low as 4.5%. The paper adds that the Treasury views the plan as having the ability to halt the slide in home prices by allowing borrowers to afford bigger mortgages, thus boosting demand for homes and pushing up housing values. The article notes that the lower interest rate would be available only to borrowers who are buying a home, not those refinancing a mortgage (recall that there has been some confusion regarding eligibility). Borrowers would also have to qualify for a mortgage guaranteed by Fannie, Freddie or the FHA, and the guarantees would only apply to loans where borrowers can document their income and afford their monthly mortgage payments. Under the plan the Treasury is considering, it would encourage banks to issue new mortgage loans at lower rates by offering to purchase the securities underpinning the loans at a price equivalent to the 4.5% rate. The Treasury would fund the purchases by issuing Treasury debt at 3%, meaning that the government could capture the spread.

DD (23.61): DuPont guides Q4 EPS to ($0.20)-($0.30) ex-items versus consensus of .24 cents profit. DD to cut 2,500 jobs.

ADBE (22.54): Adobe Systems reduces Q4 (Nov) revenue guidance to $912-915M vs prior $925-955M, Reuters $933M: Adobe guides non-GAAP EPS to $0.54-0.55 excluding $0.05 in favorable items, vs prior guidance of $0.51-0.53 and Reuters $0.51. Regarding the reduced revenue guidance, the company cited weaker-than-expected demand for its new Creative Suite 4 family of products that began shipping in Q4. Adobe guides Q1 revenues to $800-850M vs Reuters $944.3M, with non-GAAP operating margin of 37-38%. Finally, Adobe announced the implementation of a restructuring program, and has taken steps to reduce its headcount by approximately 600 full-time positions globally

WMT (54.38): Wal-Mart reports Nov comps +3.4% vs First Call +2%

NOK (13.30): Nokia lowers Q4 industry outlook: The mobile device market slowdown has continued more rapidly than previously expected since Nokia issued an update on 14-November. As a result, Nokia is revising its Q4 2008 outlook as follows: Nokia now estimates that Q4 2008 industry mobile device volumes will be lower than the previous estimate of approximately 330M units, which would result in full year 2008 industry mobile device volumes below the earlier estimate of 1.24B units. Nokia believes there is insufficient visibility in the marketplace to confirm its prior estimate for its Q4 2008 mobile device market share, which was expected to be at the same level or slightly up from an estimated 38% in Q3 2008.

AMZN (45.21): Amazon.com upgraded to overweight from equal-weight at Barclays Capital: Firm cites improvements in the company's competitive position, and sees the company gaining share in present environment. Barclays also upgraded its rating on the Internet Sector to positive from neutral.

COST (51.42): Costco reports Nov comps (5%) vs First Call (1.7%):
The company reports November Net Sales of $5.55B, (3%) y/y. US November comps were (2%); int'l (15%). US November comps (excluding the impact from gasoline deflation and foreign exchange were +1%; int'l +6%

GS (68.95): Another Goldman Sachs hedge fund facing big losses – FT: Citing investors, the FT reports that Goldman Sachs Liquidity Partners 2007, which received $1.8B in initial funding during the summer of 2007 to invest in the credit markets, is down more than 55% for the year through the end of October. The fund is understood to have invested in high-yield senior secured bank loans, high-yield debt, mortgages, emerging-market debt and CLOs.

ADBE (22.54): Adobe Systems downgraded to neutral from outperform at RW Baird: Price target decreased to $27 from $33. The firm cites guidance and the lack of a catalyst.

ADBE (22.54): Adobe Systems maintained perform at Oppenheimer after pre-announcement: Following yesterday's pre-announcement, the firm remains concerned about ADBE's demand in FY09, but believes ADBE's long-term fundamentals remain solid and expect the company to focus on maintaining operating margins in the high 30s range. Oppenheimer says fair value for the shares should be in the high teens and would look to build a position in the stock if the shares drop materially below these levels.

Wednesday, December 3, 2008

December 3, 2008: Morning Call

December 3, 2008: Morning Call

Fair Value: SP500 – 848.53; NDX: 1130.72; DOW – 8420.26


Technical Levels:

SPX: 685, 752-755 support/848-852, 899-908, 998-1002 resistance


Events:

04:00: Euro-Zone PMI Services (Nov. Final): 45.3 (weaker: 42.5) ; Composite: 39.7 (weaker 38.9)
05:00: Euro-zone Retail Sales (October): -0.4% MoM (weaker: -0.8%) ; -1.5% YoY (weaker: -2.1%)
08:15: ADP Employment Change (November): -200,000
08:15: AGU presents at the Citibank Chemical Conference
08:30: Non-Farm Productivity (Q3 Final): 0.9%; Unit Labor Costs: 3.6%
08:50: CF presents at the Citibank Chemical Conference
10:00: ISM Non-Manufacturing (November): 42
10:00: FCX presents at the FBR Capital Markets Conference
10:35: DOE/API Crude Oil and Gasoline Inventories
11:00: MSFT presents at Credit Suisse Tech Conference
11:10: MOS presents at the Citibank Chemical Conference
12:30: Fed’s Lacker, BofA’s Lewis, and WB’s Steel speak on the economy
14:00: Fed’s Beige Book
14:20: BTU presents at the FBR Capital Markets Conference
17:00: Select Retailers release November Same Store Sales
Post-market EPS: SNPS (.38/351.1M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 12 points below fair value while the NASDAQ futures are trading 22 points below fair value at 8am ET. Weak economic data in Europe and an earnings warning from RIMM are the primary reasons for the lower futures
. Asian markets: Most markets rose though gains were muted with an exception being China. The financial sector advanced for the first time this week as the Fed extended an emergency loan program and the BOJ eased lending terms. China advanced on a newspaper report the government spent CNY10B buying shares to support the market last month. European markets opened down 2.0% on weak economic data but have bounced modestly off the early session lows and are currently trading down 1.3%. Market participants await the BOE and ECB interest rate decisions tomorrow. Decliners on the FTSE 100 lead advancers 3-2.


Impact Research Calls/Market Moving News:

RIMM (37.32): RIMM guides Q3 2009 EPS to between .81-.83 cents versus street consensus of .90 cents. GAAP EPS, which will reflect a higher tax rate, is projected to be $0.67-0.71. The company guides Q3 revenue to $2.75-2.78B vs prior $2.95-3.10B and Reuters $2.95B. Gross margin for the quarter is expected to be 45-46%. Company now expects new subscriber accounts to be 2.6M vs prior 2.9M. Company cites currency issues and lower shipments as reason for reducing forecast. (My take: I have been bearish on RIMM shares since the company reported Q1 results in June because it was clear that gross margins had peaked. During the June quarter conference call, the CEO also quickly discounted the competitive threat posed by the iPhone which I considered absurd. But, I am now moving to a neutral position and would cover shorts and bearish option positions. I find it impressive that RIMM is going to earn around .80 cents given that the economy has fallen off the proverbial cliff during their fiscal third quarter (I thought the EPS miss could be more significant). That said, I would not be long for anything other than a quick trade because I am worried that demand will continue to weaken and the new product release catalyst is pretty much in the rear-view mirror. RIMM earned 2.26 in 2008, 1.10 in 2007, 82 cents in 2006, and .70 cents in 2005. RIMM is a much different company now than in 2005 and has a very impressive enterprise and consumer product portfolio. I doubt earnings will recede to 2005 levels or worse unless there is a borderline Depression. But, I could see earnings easily falling to 2007 levels and the stock is not cheap based on EPS of 1.10).

GS (65.00): Fox-Pitt Kelton lowers numbers again on GS to a loss of 3.65 vs. prior estimate of a loss of 1.55 (Fox-Pitt cut their numbers on November 10 to a loss of –1.55). Fox-Pitt says the reason for the second downward revision is the “meaningful deterioration in global equity and credit prices.”

TOT (50.26); NXY (18.85): FT Total (TOT) board meeting to approve offer for up to C$19.7B for Nexen (NXY)

RIMM (37.32): Research In Motion maintained outperform at Oppenheimer despite pre-announcement: Target reduced to $50 from $55. The firm says RIMM is still well positioned in the industry due to a strong product portfolio and an increased focus by carriers on smart phone.

RIMM (37.32): Research In Motion removed from Conviction Buy List at Goldman Sachs: Shares remain buy rated. Target reduced to $62

WYNN (37.58): Wynn Resorts initiated sell at Citi: Target price, $29

GS (65.00): Goldman Sachs thinks about establishing internet bank to widen funding sources – WSJ: People familiar with the situation say if the venture goes ahead, it will probably offer a range of savings products. Sources say GS has not ruled out the possibility of buying a bank with substantial retail operations, even though it has sought and received a state-banking license for New York. Turning away from retail, the company is also thinking about using its wealth-management operation and large corporate clients to attract deposits.

GOOG (275.11): Google cutting ancillary projects, sharpening its focus as revenue growth slows – WSJ: The Journal cites comments from Google CEO Eric Schmidt, who says that given the uncertainty surrounding the economic slowdown, the search giant will curtail the "dark matter", or projects that have yet to catch on and are not really that exciting. Schmidt says that the company's investment priorities include display ads, advertising on mobile phones and online business software. The article goes on to highlight the culture shift taking place inside the firm.


GS (65.00): MS (12.04): "Heard on the Street" reminds investors that Goldman Sachs (GS), Morgan Stanley (MS) face greater regulation – WSJ: The column notes that the companies' recent use of the government guarantee on new debt issues to borrow cheaply is attractive and could boost profits. But regulation by the Federal Reserve means leverage will probably need to be lowered further. The column estimates MS's leverage ratio stands at around 15 times, with Goldman's around 17 times. But both remain above JPMorgan Chase (JPM)'s estimated 13 times. Though GS CEO Lloyd Blankfein disagrees, Bernstein Research recently argued GS's leverage and returns are closely correlated. (My take: Sanford Bernstein is correct. Goldman’s ROE performance is directly tied to their gross leverage. Normalized earnings will be significantly lower because Goldman’s earnings power is derived from putting their own capital to work on a principle basis).

Tuesday, December 2, 2008

December 2, 2008: Morning Call

December 2, 2008: Morning Call

Fair Value: SP500 – 815.52; NDX: 1091.93; DOW – 8141.94


Technical Levels:

SPX: 685, 752-755 support/848-852, 899-908, 998-1002 resistance


Events:

Pre-market EPS: BZH (-2.10/593.4M); SHLD (-.50/10.9B); SPLS (.41/7.03B)
05:00: Euro-zone PPI (October): 7% YoY; 0.3% MoM
08:55: CVX presents at Merrill Lynch Energy Large Cap Conference
09:45: EOG presents at Merrill Lynch Energy Large Cap Conference
10:00: DELL presents at Credit Suisse Tech Conference
11:00: BRCM presents at Credit Suisse Tech Conference
11:00: BZH earnings call
11:30: Paulson to speak on US-China Strategic Economic Dialogue
12:30: Fed’s Plosser speaks on the economy
12:30: XOM presents at Merrill Lynch Energy Large Cap Conference
12:55: MON presents at Citibank’s Chemicals Conference
14:00: AMAT presents at Credit Suisse Tech Conference
15:30: TXN presents at Credit Suisse Tech Conference
17:00: ABC Consumer Confidence
17:30: NVDA presents at Credit Suisse Tech Conference
Post-market EPS: MRVL (.21/793.8M); SIGM (.29/47.55M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 16 points above fair value while the NASDAQ futures are trading 22 points above fair value at 8:00am ET. The current bounce in the futures can be attributed to a reversal in European markets, which are currently trading 1.2% higher after opening down 2%.
Tesco, the largest UK supermarket company, is up 7% after reporting better than expected November comps (2% increase in same-store sales vs. consensus of 1.6%). Financials and mining shares are lagging in Europe while retailers and technology are outperforming. Most Asian markets closed sharply lower (3-6%) following the 9% sell-off in US markets. India’s Sensex index closed down 1.2% with mining and industrial stocks leading the move the lower. Shanghai was the region’s best performer, closing unchanged due to strength in consumer electronic and tech shares. The Reserve Bank of Australia cut its main interest rate more than expected, to 4.25% from 5.25%. Australia’s Oct retail sales trend rose 0.2% vs 0.1% m/m. The Bank of Japan unanimously left its target rate at 0.30%.

Impact Research Calls/Market Moving News:

GS (65.76): Goldman Faces Loss of 2 billion for Quarter – WSJ: “The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate. Though analysts and investors already were bracing for Goldman's first quarterly loss since it went public in 1999, the pessimism has grown sharply. "The last two weeks have been nothing short of horrible, with asset prices coming under ever more pressure than before," said Susan Katzke, an analyst at Credit Suisse Group, who on Monday reduced her Goldman estimate to a fiscal fourth-quarter loss of $4 a share. Previously, she projected a profit of $2.47 a share. Goldman is expected to report its financials in a few weeks. One area that is thought to have given Goldman particular problems in the just-ended quarter is its "book" of so-called distressed investments. Over the years, Goldman has invested in everything from troubled auto loans in Thailand to the debt of a liquor maker in South Korea to struggling golf courses in Japan. This business was once a big profit center. It isn't known whether these specific investments contributed to the write-downs in this portfolio, and Goldman doesn't disclose the size of its book of distressed investments, which is housed in its fixed-income department. But the business is substantial. In 2005, a blowout year for the group, Goldman bet $24 billion of its own money on this type of investing, according to people familiar with the matter.”

MOS (25.40): MOS cuts forecast: Due to soft market conditions, phosphate sales volumes for Q2 were approximately 1.3M tonnes, or about 800,000 tonnes lower than the volume sold during the company's Q1 in fiscal 2009. The average selling price for DAP during the quarter was within the company's estimated guidance range of $1,020 to $1,080 per tonne. However, phosphate gross margins are expected to be weaker due to high cost raw materials used to produce phosphates in Q2. The average MOP selling price was approximately $525 per tonne compared to the company's estimated guidance range of $560 to $620 per tonne during Q2, primarily due to the mix of products sold internationally. In addition, the company announced that it is prepared to further reduce phosphate production by up to an additional one million tonnes during the remainder of fiscal 2009 if market conditions continue slower than normal. Fertilizer stocks are indicated lower this morning in reaction to the MOS news.

MMM (62.35): MMM downgraded to sell from hold at Citibank. Price target is decreased to $57 from $66.

PRU (17.15): Fitch downgrades Prudential senior debt rating to 'A-' from 'A': Fitch also downgrades the insurer financial strength (IFS) ratings of PRU's life insurance subsidiaries to 'AA-' from 'AA'. The Rating Outlook is Negative. According to Fitch, the downgrades reflect higher than expected volatility in earnings and capital, as well as liquidity needs at the holding company level to both meet large debt maturities through year-end 2009, and address subsidiary capital needs, in an environment of capital markets volatility and diminished financial flexibility.

SHLD (31.84): Sears Holdings reports Q3 EPS ($0.90) ex-items vs Reuters ($0.49): Company reports revenues of $10.66B vs Reuters $10.93B. Domestic comps. (9.0%) vs. consensus (6.8%). Q3 adjusted EBITDA $148M vs. one estimate of $225M. SHLD says due to the economy its EBITDA forecast to generate higher EBITDA in H2 of this year is no longer relevant given its assumption of flat to modest comparable store sales declines in the third and Q4s.

SOX Index (183.24): Oppenheimer comments on semiconductors after Asia channel checks: The firm says their Q4 Asia channel checks indicate that already compromised visibility has deteriorated further. Oppenheimer says companies are tracking below Q4 guidance while rising inventories and DSOs are a growing concern. The firm notes that macro headwinds and a lack of obvious near-term catalysts continue to support avoiding the semi sector.

NOK (13.08); RIMM (39.80): Oppenheimer reduces handset forecasts following a round of checks at Nokia: The firm believes sell in trends in Q4 are underperforming NOK's recently reduced target of 330M units. Along with industry shipment cuts, Opco reduces estimates for NOK, MOT, SWKS, RFMD, RIMM, CELL, and ANAD below Street expectations.

BZH (1.50): Beazer Homes reports Q4 EPS cont. ops. ($12.32) vs Reuters ($2.30): Company reports revenues of $712.6M vs Reuters $590.7M. Home closings: 2,441 homes, a decrease of 38.2% from 3,949 in Q4 of the prior year. New orders: 1,083 homes, an increase of 10.3% from 982 in Q4 of the prior year. Cancellation rate: 45.7% vs. 68.1% y/y.

Monday, December 1, 2008

December 1, 2008: Morning Call

December 1, 2008: Morning Call

Fair Value: SP500 – 895.70; NDX: 1186.71; DOW – 8825


Technical Levels:

SPX: 685, 848-852 support/ 899-908, 1098-1100 resistance


Events:
10:00: ISM Manufacturing (November): 37; Prices Paid: 32.0
10:00: Construction Spending (October): -1.0%
11:30: Paulson speaks about the US Economy and Markets
11:45: President-elect Obama introduces National Security team
13:45: Bernanke speaks on the economic outlook
15:00: Paulson speaks on the US Economy and Markets

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 21 points below fair value while the NASDAQ futures are trading 26 points below fair value at 7:30am ET. Foreign markets are lower due to weak manufacturing data in Europe and China
. Treasury bonds are sharply higher as economic concerns and risk aversion drive the 10-year note yield to a record low of 2.87%. Crude oil is down 5.2% after OPEC deferred a decision to cut output for another two weeks. Asian markets closed lower (Nikkei down 1.3%, Australia down 1.6%, India down 2.8%) excluding Hong Kong and Shanghai, which rallied 1.6% and 1.8% respectively. European markets are down 2.7% on weak economic data (German Retail Sales down 1.5% vs. consensus of –0.3%; Euro-zone PMI 35.6 vs. 36.2; UK November Manufacturing at 34.4 vs. 39.7). Mining, energy, and financial sectors are the biggest decliners and breadth is 9 to 1 negative.


Impact Research Calls/Market Moving News:

Oppenheimer's Meredith Whitney continues cautious stance on US Banks: The firm says they are beginning to see evidence of broad-based declines in overall consumer liquidity and believe there will be expanded forced consumer de-leveraging, with a pronounced downshift in consumer spending in the coming months. In the credit card industry, Oppenheimer believes that well over $2 trillion of lines will be pulled over the next 18 months, due to risk aversion and funding challenges as well as regulatory and accounting changes. Oppenheimer views the credit card as the second key source of consumer liquidity, behind jobs.

AAPL (92.67): Apple shares reiterated overweight at Thomas Weisel, checks show strong Black Friday: The firm is incrementally more positive on the company and December quarter estimates following a round of Black Friday checks at AAPL stores, BBY, and WMT. Weisel remains below consensus for December quarter revenue and EPS. The firm reiterates their overweight rating and $160 target.

Oil Services/Drillers: Merrill Lynch downgrades NBR, HP, PDS, others, upgrades DO: NBR, PDS, BJS, CPX, and HERO downgraded to underperform from buy. HP, SLB, NE, and BHI are downgraded to neutral from buy. ESI.CN is downgraded to underperform from neutral. DO is upgraded to buy from neutral

BIDU (135.88): Baidu.com faces mass complaint about business practices – FT:: A group of lawyers says it has more than 50 companies who are willing to sue Baidu for brand infringement, fraud, and unfair competition, and the suit will be filed when the number grows to 100. Earlier this month, state TV accused Baidu of blocking websites that refused to pay for listings and giving top listings to unlicensed medical websites. The company, which denies blocking non-paying companies, says it plans to stick to its business model centered on keyword auctions.

PRU (21.70): Prudential upgraded to buy from hold at Citi: Though upgraded, the price target is decreased to $30 from $80. Valuation cited. Firm suspects that management will temper the company's outlook during an investor meeting on 4-Dec

LTD (9.31): Citibank downgrades LTD to hold from buy. Target price is 9.50. Valuation is cited.