David Moenning’s Daily State of the Markets: 07/29

July 29, 2008 10:06 AM EDT

Another One Bites the Dust

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

Like the Energizer Bunny, the credit crisis just keeps going and going and going. It seems that no matter how many different programs, laws, or new securities the government comes up with, the difficulties in the financials just keep coming. For example, before you could figure out how a “covered bond� was supposed to help anyone, stocks were down another 240 points yesterday.

The problem is really two-fold at this point. First, the mortgage market is still not functioning very well. As a result, mortgage rates continue to climb, which, of course, is not helping the housing market. The other big problem – and one that is just starting to come to light – is that we are now seeing banks actually begin to go under. For example, over the past weekend, banks number 6 and 7 bit the dust. And although everyone knew that this would start to happen, it still causes concern as the “who’s next?� game gets pushed to the forefront of investors’ minds.

So, with the worry about financials refusing to go away, the shorts remained in business, the buyers stayed on the sidelines, and the “retest the low� theory seemed to gain momentum on an hourly basis yesterday.

Another part of story here is that the credibility of last week’s sigh-of-relief rally associated with the better-than-expected bank earnings is beginning to be called into question. As we reported last week, the bottom line is that the accounting in some of these reports was questionable at best. Want your defaults and credit problems to look better? No problem, just lengthen the time-frame you’re looking at on the books.

Next up, while Merrill is being lauded by some for “doing the right thing� with the most recent round of writedowns and capital raising, there still seems to be a big problem looming out there with regard to the valuation of assets on balance sheets. For example, last night we learned that Merrill (MER) sold a chunk of collateralized debt obligations (CDO’s) at about $0.22 on the dollar and will raise an additional $8 billion of capital. The catch here is that the Merrill’s CDO’s were apparently valued at $0.36 cents on the dollar just two weeks ago. And if you will recall, it was also at about that time when Mr. Thain told us that Mother Merrill would not need any additional capital. Hmmm…

But, yesterday’s dive wasn’t just about the financials as we saw a bump up in crude prices courtesy of another attack on a Nigerian pipeline. And if you’re keeping score at home, the attacks have cut Nigerian production by more than one-third.

Turning to this morning, once again we don’t have any economic data to review before the bell. However, oil is down and the thinking is that Merrill’s latest move may mark an end to the writedowns and capital raising, so the market has a better tone.

Running through the rest of the pre-game indicators; the major foreign markets are mostly lower with the UK bucking the downward trend at the moment. Crude futures are moving down with the latest quote showing oil trading lower by $0.91 to $123.82. Interest rates are higher this morning with the yield on the 10-yr currently trading at 4.05%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a better open. The Dow futures are currently ahead by about 48 points; the S&P’s are up about 5 points, while the NASDAQ looks to be about 10 points above fair value at the moment.

Stocks “In Play� This Morning:

Yesterday’s Earnings After the Bell:

Amgen (AMGN) – Reported $1.14 vs. $1.02
CF Industries (CF) – Reported $5.02 vs. $3.62
Choice Hotels (CHH) – Reported $0.49 vs. $0.47
Electronic Data Sys (EDS) – Reported $0.33 vs. $0.26
Hartford Financial (HIG) – Reported $2.22 vs. $2.10
Mosaic (MOS) – Reported $1.93 vs. $1.64
Manitowoc (MTW) – Reported $0.99 vs. $0.89
Universal Health Svcs (UHS) – Reported $1.07 vs. $0.91

Today’s Earnings Before the Bell:

AGCO (NYSE: AG) – Reported $1.34 vs. $0.98
Alexion Pharmaceuticals (Nasdaq: ALXN) – Reported $0.06 vs. -$0.14
Alpha Natural Resources (NYSE: ANR) – Reported $1.04 vs. $0.52
Colgate NYSE: (NYSE: CL) – Reported $0.98 vs. $0.94
Coach (NYSE: COH) – Reported $0.50 vs. $0.50
Lear Corp (NYSE: LEA) – Reported $0.66 vs. $0.72
Masco (NYSE: MAS) – Reported $0.21 vs. $0.19
National Oilwell Varco (NYSE: NOV) – Reported $1.20 vs. $1.13
Rogers Communications (NYSE: RCI) – Reported $0.57 vs. $0.53
Sony (NYSE: SNE) – Reported $0.32 vs. $0.53
Teva Pharmaceuticals (Nasdaq: TEVA) – Reported $0.65 vs. $0.64
Valero (NYSE: VLO) – Reported $1.37 vs. $1.35
Waste Management (NYSE: WMI) – Reported $0.63 vs. $0.59
U.S. Steel NYSE: (X) – Reported $5.68 vs. $3.84

News, Upgrades/Downgrades/Brokerage Research:

AFLAC (NYSE: AFL) – Upgraded at Citi
Amgen (Nasdaq: AMGN) – Upgraded at Citi, Merrill
Citigroup (NYSE: C) – Estimates reduced at Deutsche Bank
Aeropostale (NYSE: ARO) – Initiated buy at Goldman
Urban Outfitters (Nasdaq: URBN) – Initiated buy at Goldman
Constellation Energy (NYSE: CEP) – Upgraded at Lehman
Ralcorp Holdings (NYSE: RAH) – Upgraded at Lehman
Energizer Holdings (NYSE: ENR) – Upgraded at Morgan Stanley
Clorox (NYSE: CLX) – Estimates and target reduced at UBS
Merrill Lynch (NYSE: MER) – Target reduced at UBS
Intl Game Technology (NYSE: IGT) – Downgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: CF, MOS, ALXN, ANR, X

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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: DMoenning@HeritageCapitalManagement.com

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• Deutsche Bank
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