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Keystone Morning Quickie$


Keystone Morning Quickie        July 14th 2009

Market Commentary


 Goldman Sachs reported that its second quarter net income rose to $3.44 billion or $4.93 a share. Analysts had expected the company to earn $3.54 a share. Retail sales rise 0.6% in June which was also better than expected. The SPY are up .25 pre-market , at $90.34. The 200MA on The SPY is $90.36. The market certainly has an upward bias, however after the big move yesterday , we will watch the 200MA on the SPY and we will keep the old saying in mind “Buy the rumor sell the news”.  Many had expected Goldman to beat, so it is quite possible that we dip now that the news is out.  Keep an eye on Goldman at the $150 level. A psychological number, yet significant.

Technical Levels

50 Day          200 Day

S&P                                                                      911                 878
DOW                                                                     8462              8357
NASDAQ                                                               1778              1625

Keystone’s Trades
Proctor Gamble (PG) –has been relatively strong and yesterday broke out of a tight consolidation pattern. If it holds $52.20. we would expect it to test the $54 level. Long entry around the $52.75 level


Price target: $54.00


Stop Loss: $51.74

AIG– Still having trouble unloading assets. Big sell off after the reverse split. It has squeezed some of the shorts over the last few days. We would expect another move up to get some more shorts to cover. We will be looking to short the stock around the $20 level.

Price target  $12.50
 Stop Loss:  $22.00



Economic Numbers 


7:45 ICSC Retail Store Sales
8:30 Producer Price Index
8:30 Retail Sales
8:55 Redbook
10:00 Business Inventories
10:00 SEC’s Schapiro testifies on SEC oversight

Top News Stories


CIT yo-yos on default risk, rescue rumors. Reports that the government is in advanced talks to help lender CIT Group (CIT) sent shares up nearly 26% after hours, following a drop of 11.8% during regular trading, but shares may trade lower again today as sources say a regulatory battle between government agencies is delaying any potential rescue. CIT isn’t large enough to be considered system-critical or too-big-to-fail but it is a lender to nearly 1M companies and is struggling in the face of serious liquidity problems and a wave of maturing debt. S&P gave CIT’s counterparty credit rating a hefty four-notch cut, to CCC+ from BB-, and said bankruptcy is possible. Moody’s also downgraded CIT’s credit rating by four notches, to B3 from Ba2.
Buoyant banks. Bank stocks fared well yesterday (BAC +9.3%, AXP +5.6%, WFC +8.4%, COF +6%, JPM +7.3%, GS +5.3%, MS +7.6%, C +7.3%) after Meredith Whitney released a bullish note on the sector and gave Goldman Sachs (GS) a Buy rating one day ahead of its Q2 earnings release. Whitney expects bank shares to gain at least 15% short-term, but her bullish view of Goldman is related to her overall bearish outlook for the U.S. economy; she thinks Goldman will benefit from a ‘tsunami of debt issuance’ as governments try to fill budget shortfalls. GS +1% premarket (7:00 ET) ahead of Q2 earnings report. (FT Alphaville highlights some key points in Whitney’s report)
Rattner packs his bags. Steven Rattner is stepping down as head of the auto task force after six months on the job, following the emergence of both Chrysler and General Motors from bankruptcy protection. Ron Bloom, an adviser to the task force, will assume Rattner’s role. Rattner likely won’t rejoin his former firm, Quadrangle, which is being scrutinized by New York Attorney General Andrew Cuomo for links to a pension industry corruption probe, though there was no indication that Rattner’s departure from the auto task force was connected to the investigation.
Facebook valued at $6.5B. Digital Sky Technologies agreed to buy $100M of Facebook common shares from employees for $14.77/share, valuing the company at $6.5B. Digital Sky had invested a previous $200M in Facebook in May, and the new purchase raises its stake to 3.5% of the company.
SEC targets rating agencies. The SEC is increasing supervision of credit rating agencies and subjecting them to ‘special’ examinations over their role in the financial crisis. The SEC’s Schapiro has also directed staff members to consider new regulations to prevent companies from shopping around for favorable credit ratings and will re-examine the issuer-paid model in which rating agencies are paid by the banks whose products they rate. Schapiro will testify in Congress at 10:00 ET about the SEC’s oversight agenda. (Read Schapiro’s prepared testimony (.pdf))
Exxon sees green in green. In partnership with biotech firm Synthetic Genomics, Exxon Mobil (XOM) is expected to announce a $600M investment in the production of biofuel from algae. Exxon has been publicly criticized for its reluctance to develop renewable fuels, and the announcement may not satisfy some of Exxon’s environmental critics who will wait to see “whether companies are simply paying lip service to something or whether they are putting their weight and power behind it.” Exxon says it will be 5-10 years before large-scale commercial plants produce fuel from algae.
Netflix buyout rumors. Netflix (NFLX) got an unexpected bump yesterday as takeover rumors circulated, with Amazon (AMZN) pegged as a potential buyer. However, a Netflix acquisition would force Amazon to collect sales tax in several states, raising costs and making a potential takeover unlikely, especially considering Amazon recently stopped doing business with affiliates in Hawaii, Rhode Island and North Carolina to avoid collecting sales tax there.
MSFT, RIMM feel the beat. Microsoft (MSFT) will launch its own streaming music service later this month, which will offer both ad-supplemented free streaming with an option for downloads and a premium service. Despite the heavy competition, Microsoft’s Peter Bale thinks the company can bring ‘scale and a quality of product’ to the music streaming scene. Not to be left out, Research In Motion (RIMM) announced it’s also launching an online music service, similar to the model used by Apple (AAPL) and Nokia (NOK).
Fortress plays lender/borrower in loan talks. Fortress Investment Group (FIG) is in discussions with lenders to refinance a critical $1.6B loan on Florida East Coast Industries but faces the peculiar problem of being one of the lenders as well. Fortress has a $2B equity position in the real estate and railroads company, but separate investment funds managed by Fortress have also bought up large portions of Florida East Coast’s debt, becoming the company’s largest lender. Fortress, which has only until July 27 to refinance the loan, is taking a backseat in the lending group’s negotiations in an effort to speed the process along and avoid potential conflicts.
More help for jobless homeowners. The White House is considering new mortgage aid for unemployed homeowners falling behind on monthly payments, including options to allow borrowers to delay or skip payments. The potential policy is still evolving, but some officials are worried it will create perverse incentives that further distort the housing market.
Ballooning budget deficit (.pdf). The U.S. budget deficit for June came in at $94.3B, bringing the total to a whopping $1.086T so far this fiscal year and breaking the $1T mark for the first time. In comparison, the U.S. had a $33.55B budget surplus in June 2008, and a shortfall of only $285.85B in the comparable year-ago period. Economists expect the deficit to head higher, intensifying fears about higher interest rates, inflation and the strength of the dollar.
Europe wants bigger say on pay. The European Commission proposed new rules on Monday that would give bank regulators increased say over compensation at financial firms, including the ability to force changes to pay practices. The commission wants the rules to take effect in 2011.





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  1. July 14, 2009 at 6:14 pm

    this post gave me reason to think, thanks…

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