June 15, 2009: Morning Call

Fair Value: SP500 – 942.36; NDX: 1489.99; DOW: 8747.43

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance

Events:

08:30: US Empire Manufacturing (June): -6.00

08:45: Fed’s Tarullo speaks on banking
09:00: Treasury Secretary Geithner participates in panel on the economy
09:00: Net Long-term TIC Flows (April): 60.0B
09:30: Fed’s Evans speaks on the financial crisis
13:00: NAHB Housing Market Index (June): 17
18:00: Fed’s Duke speaks on financial-crisis responses

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 13 points below fair value while the NASDAQ futures
are trading 20 points below fair value at 7:30am ET. The US dollar is sharply higher
against the Euro (up 1.2% to 1.3846) after Russia’s finance minister said the dollar is in
“good shape” and that “it’s too early to speak of an alternative.” The G-8 also signaled
they have begun developing plans to withdraw the fiscal and monetary stimulus if the
economy continues to stabilize and recover. Crude oil is down 1.3% to 71 and Copper is
down 3% on concerns about growing Chinese stockpiles. Treasury bonds are modestly
higher (up 11/32). European markets are down 1.5% to 2.0% with mining and energy
shares leading the decline. German industry body warned that credit conditions are
getting worse across much of the country's manufacturing base. Decliners on the FTSE
100 lead advancers 19-1. CEMEX (CX) agreed to sell it's Australian unit to Holcim
Group (HOLN.VX) and Holcim announced a capital raising of CHF2B. Also trading
lower is TomTom (TOM2.NA), which confirmed press reports of a €430M equity issue
as well as providing a brief trading update. TomTom's CEO said there has been no
approach by Apple (AAPL) on potential stake. Asian markets closed lower (Japan down
0.95%, Hong Kong down 2.07%, Australia down 0.75%, Taiwan down 3.4%, Shanghai
up 2.0%, India down 2.3%). Markets in Shanghai reversed initial losses, as banks rallied
when the government signaled it would continue to follow a moderately loose monetary
policy. Shenzhen Development Bank (000001.CH) rose when Ping An Insurance
(2318.HK) said it would buy a stake.
Research Calls/Market Moving News:

Geithner, Summers provide some detail on Obama's financial reorganization plan in

Washington Post op-ed:

• The proposal will seek to address the liquidity problem in times of system-wide
stress by raising capital and liquidity for all institutions, with the most
difficult requirements for the largest and most interconnected firms. All
large, interconnected firm whose failure could threaten the stability of the system
would be subject to consolidated supervision by the Fed, which will establish a
council of regulators to coordinate broader responsibility across the financial
system
• To address the problem of eroding lending standards due to growth in activity
outside of the traditional banking system, the administration proposes to impose
tougher reporting requirements on the issuers of asset-backed securities;
reduce investors' and regulators' reliance on credit-rating agencies; and require the
originator, sponsor or broker of a securitization to retain a financial interest in its
performance. The plan also calls for aligning the regulation of futures and
securities and for tougher safeguards of payment and settlement systems and
strong oversight of "over the counter" derivatives. All derivatives contracts will
be subject to regulation, all derivatives dealers subject to supervision, and
regulators will be empowered to enforce rules against manipulation and abuse.
• To increase protection for consumers and investors, the administration proposes to
build on the recent measures taken to battle predatory lending and unfair practices
in the credit card industry, the administration will offer a stronger framework
for consumer and investor protection across the board.
• To enhance the ability of the government to be able to contain and manage
financial crises, the administration proposes to establish a resolution mechanism
that allows for the orderly resolution of any financial holding company whose
failure might threaten the stability of the financial system. The authority will
be available only in extraordinary circumstances.
• To enhance security on a global basis, the administration will seek to improve
regulation and supervision around the world.

Financial-regulation reorganization expected to be unveiled 17-Jun - WSJ

People involved in the process say President Obama will allow the Fed to oversee the
biggest financial players, let the government unwind and break up important companies
as the FDIC does with banks, and create a new regulator for consumer-oriented financial
products. Banks will continue to be supervised by different agencies, and no limits will
be placed on banks' size, though it will become harder for larger companies to over
leverage themselves to the point that they threaten the entire economy. The proposals
will need to be passed by Congress, where smooth passage is far from guaranteed. The
SEC and Commodity Futures Trading Commission will both be left in place, though
there will be an effort for the two agencies to harmonize their efforts.
Barron's The Trader says stocks have reached a key inflection point: Barron's says
that how the deadlock is broken between investors who say the markets have run up 40%
in three months and are pricing in a heady economic rebound many don't yet see as
businesses and consumers are still paying off debts, and rising oil prices and mortgage
rates threaten to derail the nascent recovery, and investors who point to unmistakable
signs the global financial crisis has passed and consumer confidence has been restored to
the strongest level in nine months, could determine the market's next big move.

Barron's says it's not too late to find bargains among preferred issues from large
financial companies: Barron's says the preferred market is in much sounder shape than
it was six months ago, and investors shouldn't expect a return to the fat yields of two to
three years ago. But Bank of America's (BAC) preferred seems to offer good value, and
Citi's (C) provides an attractive route into a beleaguered company that could look good
again in a few years. Barron's notes that preferred issues from JPMorgan (JPM) and
Wells Fargo (WFC), now yielding around 8%, looks fairly valued.

GOOG (424.84): Google's Sergey Brin leading team to respond to Microsoft's Bing
- NY Post: Citing sources inside Google, the Post reports that co-founder Sergey Brin "is
so rattled by the launch of Microsoft's rival search engine" Bing that he has assembled a
team of engineers to determine how Bing's algorithm differs from Google's, and to work
on upgrades to Google's search engine. A Google spokesman declined to comment on
Brin's involvement, but said that Google always has a team working on improving search

KBH (14.09): KB Home downgraded to sell from neutral at Goldman Sachs: 6-

month target cut to $12 from $15. The firm notes the exposure to California and
expectations its balance sheet will worsen.

DELL (13.39): Dell upgraded to neutral from sell at Goldman Sachs: Target
increased to $14 from $9.25. The firm's checks indicate a rebound in PC shipments in
Jun, and expectations of more seasonal activity in H2.