June 15, 2009- Morning Call

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: 08:45: 09:00: 09:00: 09:30: 13:00: 18:00:

US Empire Manufacturing (June): -6.00 Fed’s Tarullo speaks on banking Treasury Secretary Geithner participates in panel on the economy Net Long-term TIC Flows (April): 60.0B Fed’s Evans speaks on the financial crisis NAHB Housing Market Index (June): 17 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: •

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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: 6month 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.