November 3, 2009: Morning Call

November 3, 2009: Morning Call

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

Technical Levels:

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

Events:

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

Foreign Market Summary/Key Macro News/Commentary:

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


Research Calls/Market Moving News:

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

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

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

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

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

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