David Moenning's Daily State of the Markets: 2/13

February 13, 2008 9:43 AM EST

Buffett Breeds Confidence


Here's a link to listen to an Audio Version of the report:

Warren Buffett's offer to provide a second level of municipal bond insurance to Ambac Financial (ABK), MBIA Inc (MBI), and FGIC Corp. helped the bulls gain some much needed confidence yesterday. Although the offer was hardly magnanimous and Ambac actually turned Mr. Buffett down flat, the fact that someone with deep pockets was willing to step up to the plate suggests that the doomsday scenario in the space being promoted by the bears is not likely to occur.

Our heroes in horns got some additional help in the financial sector yesterday, which helped the blue chip indices finish with nice gains on the day. In addition to the Buffett deal, investors were treated to the announcement of a mortgage lender deal, which would freeze foreclosures for 30 days while those needing assistance could work out a solution, a report from Credit Suisse (CS) that spoke of a smaller-than expected writedown, and word late in the day that Citigroup (C) would inject up to $3.5 billion in capital to their troubled SIV investments so as to avoid writing them down to $0.

The bulls also got a little help on the economic front yesterday as the Philly Fed report suggested that the U.S. economy would actually avoid a recession this year. Although the Fed hasn’t exactly been in front of the curve on the outlook for the economy, economists now expect growth of +0.7% in the first quarter, an increase in GDP of +1.8% for calendar year 2008, and an increase in the growth rate to+ 2.8% in 2009.

However, as is the case these days, the day wasn’t all good as trouble in tech pushed the NASDAQ into the red by the close. And then rumors about Citigroup’s capitalization plan as well as worries about the potential for a contagion in credit knocked the indices off their best levels. And while the Dow did finish with a gain of 133, it wasn’t the type of big win the bulls were looking for.

One of the big fears that is holding the bulls back right now is that the credit mess will spread from the world of CDO’s and SIV’s into credit cards, auto loans and the like. And it is this fear that there will be more shoes to drop that is keeping the shorts in business and the big fund buyers on the sidelines.

Turning to this morning, we finally have some economic data to review before the bell. Retail Sales for January actually came in better than expected at +0.3% versus unchanged. Although the big-picture story of the consumer slowing down remains intact, this number is a positive for stocks in the early going as there is talk that the first round of rate cuts might be starting to work their way through the economy.

Running through the rest of the pre-game indicators; the overseas markets are mixed by region as Asian markets were higher while those in Europe are lower across the board. Crude futures are lower so far this morning with the latest quote down $0.21 to $92.57. Interest rates are moving up with the 10-yr trading at a yield of 3.71% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently up about 75 points; the S&Ps are higher by about 10 points, while the NASDAQ looks to be about 22 points above fair value at the moment.

Stocks "In Play" This Morning:

Yesterday's Earnings After the Bell:

Applied Materials (Nasdaq: AMAT) – Reported $0.23 vs. $0.20
Choice Hotels (NYSE: CHH) – Reported $0. 44 vs. $0.42
Developers Diversified Realty (NYSE: DDR) – Reported $0.82 vs. $0.83
Panera Bread (Nasdaq: PNRA) – Reported $0.56 vs. $0.55
Wynn resorts (Nasdaq: WYNN) – Reported $0.72 vs. $0.68

Today’s Earnings Before the Bell:

Deere & Co. (NYSE: DE) – Reported $0.83 vs. $0.77
Jones New York (NYSE: JNY) – Reported $0.09 vs. $0.07
Coca Cola (NYSE: KO) – Reported $0.58 vs. $0.55
Waste Management (NYSE: WMI) – Reported $0.54 vs. $0.51


News, Upgrades/Downgrades/Brokerage Research:

Schering Plough (NYSE: SGP) – Upgraded at Bank of America
Dynegy (NYSE: DYN) – Upgraded at Citi
Ensco Intl (NYSE: ESV) – Upgraded at Credit Suisse
T Rowe Price (TROW) – Downgraded at Credit Suisse
Qwest (NYSE: Q) – Upgraded at Credit Suisse
SLM Corp (NYSE: SLM) – Upgraded at Friedman Billings
Diamond Offshore (NYSE: DO) – Upgraded at JP Morgan
Brown Forman (NYSE: BF.B) – Downgraded at JP Morgan
Brasil Telecom (NYSE: BTM) – Downgraded at JP Morgan
Morgan Stanley (NYSE: MS) – Downgraded at Oppenheimer
HSBC Holdings (NYSE: HBC) – Upgraded at UBS
Masco Corp (NYSE: MAS) – Downgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: KO, AMAT

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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