April 13th 2011

Goldman Pulled the Rug

A day after Goldy advised their clients to book profits on their commodity baskets; the firm said that
the Brent crude price at $127 did not reflect fundamentals and that it would see $105 in a few
months ahead. Well, Goldy’s hitting the reverse surely crashed the party at the commodities market.

US light crude futures for May delivery fell $3.67 a barrel to settle at $106.25 a barrel, while the
Brent crude futures for May delivery also tumbled $3.06 a barrel, ending the day at $120.92 a
barrel. Consequently, gold prices also headed south with spot gold settled at $1,449.66/oz. after on
Monday hitting the peak at $1,476. Interestingly enough, on mid-March Goldy forecast gold prices to
hit $1,480/oz. in three-month time.

Dow Jones Industrial Average slumped 117.53 points or 0.95% down to 12,263.58, the S&P 500
index slipped 10.30 points or 0.78% to 1,314.16, while the tech-heavy NASDAQ Composite
dropped 26.72 points or 0.96% to end the day at 2,744.79.

As major commodities plunged, AA which was slapped by less-than-expected revenue in Q1’11 a

day earlier, led the Dow losers to nosedive 6.02%. Oil producers CVX and XOM followed at second
and third from the bottom with losses of 3.34% and 2.33%, respectively. Heavy machinery giant CAT
also squeezed by 2.29% while DD fell 2.01%.

Who got all the benefits from declining commodities? Of course, the retailers and consumer goods
producers such as WMT (+1.33%), PG (+1.13%), MCD (+0.54%), and KFT (+0.34%). These are the
companies that got hit pretty hard should the commodity prices continue to soar.

The big question mark now is on whether the commodities peaks have been formed on Monday. My
thought is that the rally is not over yet. Yes, there are concerns that there will be demand destruction
on high commodity prices, but eventually demand will return and put the upside pressure back up.

Another big negative on Tuesday was the upgrading of Japan’s nuclear crisis level from level 5 to 7,
at par now with the Chernobyl disaster. Its impact may be limited for now, but the uncertainties
surrounding the issue remain, especially as Japan still experiencing aftershocks ranging from 6 to 7 on
the Richter scale.

On industrial outlook, the rise of tablets is seen sapping the PC market as the usage of PCs declined.
Google’s AdMob survey indicated that 77% have reduced PC usage in exchange for tablets. On how
users use their tablets, 84% use them for gaming, 78% for information search and 74% for email.

1 .DJI 12,263.60 (-117.53.06 ● -0.95%) .SPX 1,314.16 (-10.30 ● -0.78%) .IXIC 2,744.79 (-26.72 ● -0.96%)
 April 13th 2011

Fed Watch
After Yellen’s statement on Monday, the next Fed talk came from James Bullard the St. Louis Federal
Reserve Governor. Bullard hinted that the Fed may not necessarily raise rates immediately after the
QE2 ends in June. Rather, according to Bullard, the Fed may want to wait until the fourth quarter or
the first quarter of 2012 before deciding to start raising the rates. I must say that among all Fed
chatters, Bullard’s statement is the most logical at the moment. The Fed would want to see what will
happen after QE2 end? Will the economy stabilize? Or will it fall back? If the latter is the case, then
raising rates will not be a bright idea after all. If the economy stabilizes, the Fed will surely raise
rates conveniently even if the inflationary threat is muted. We must remember that the ECB which
already raised rates a while ago has a mandate to keep inflation in check. Federal Reserve has a
different pillar of monetary policy and that is promoting growth. Thus, inflation seems to be of
secondary importance for the Fed.

Corporate News
CSCO was a newsmaker on Tuesday when it announced the dismantling of its Flip video camera.
In a bid to consolidate and realigning its businesses, CSCO aims to exit consumer businesses and
to refocus its efforts to home networking businesses which it considers as offering better
profitability. The company’s umi will be integrated into the Business TelePresence product line. As
a part of its restructuring program CSCO aims to reduce headcount by 550 in the current fiscal
year and for this the company may need $300M for restructuring cost in the second half of this
year.
CVX is seen beating earnings estimate which lies at $2.84. UBS said that favorable mix, long-term
growth and valuation should see net profit reaching $2.99 in Q1. Buy is recommended with PT at
$123.
IBM combined its WebSphere technology with Akamai’s application delivery network. The
combined applications will be able to speed the delivery of Web and cloud apps to employees,
partners and customers.
INTC and China’s Tencent collaborate in developing chips and services for tablets and other
mobile gadgets for the China market.
JPM is scheduled to report its earnings for Q1 before the market opens on Wednesday.
Consensus lies at $1.16 with revenue of $25.48B. The range for the consensus is 93c-$1.28 and
$23.95B-$26.99B. Recently Goldman slashed Morgan Stanley’s trading revenue and investment
banking revenue estimates to $1B from $1.7B and by $100M, respectively. Recent decision by
JPM to raise dividend from 5c to 25c and to authorize share buyback worth $15B have been
seen as reflecting strong financial position of the company and hence led to Sterne Agee’s Buy
rating of the stock with PT at $55. Still, weak lending may lead to better than expected net profit
but less than expected revenue. Should this happens, JPM just like AA will be under pressure.
KFT is seen posting EPS at $2.16 for 2011 and $2.43 for 2012, down by 10c each. The view
from Soleil is based from the loss of KFT’s coffee business with Starbucks.
KO fell 0.74% or 50c after UBS removed it from its US Key Call List.

2 .DJI 12,263.60 (-117.53.06 ● -0.95%) .SPX 1,314.16 (-10.30 ● -0.78%) .IXIC 2,744.79 (-26.72 ● -0.96%)
 April 13th 2011

Stock Focus: Caterpillar, Inc.

CAT
Last Mar 12th Resistances 108.15 109.25 110.15 111.05 112.15
$106.57 2.29% Supports 106.15 105.47 104.35 103.15 102.59
WTD MTD Outlook
2.96% 4.29%
NEUTRAL
YTD 12-Month BUY dips to $106.15-$105.47, PT $110.15-
13.78% 56.51% Strategy 111.05, risk < $104.35

Since our last update on CAT, the stock had fallen to as low as $97.01 but subsequently rebounded
to as high as $113.93. Afterwards, the rally ran out of steam and the stock slipped to as low as
$106.34. Technical indicators are mixed at the moment with RSI pointing south, MACD flipped to
negative and still falling, but the EMAs are still rising. We also have seven consecutive declining
candles pattern which usually signals a pending bounce. Look to buy into this weakness around
$105.47-$106.15, aiming at $110.13-$111.03. It is likely that we’re in a large consolidation pattern
which once over, will be followed by another new peak above $113.93. Watch out though, should
the stock fell below $104.35, the stock may face a more severe pullback.

3 .DJI 12,263.60 (-117.53.06 ● -0.95%) .SPX 1,314.16 (-10.30 ● -0.78%) .IXIC 2,744.79 (-26.72 ● -0.96%)
 April 13th 2011

Analysts' Upgrades & Downgrades

Ratings Price Target
Code House
Previous Current Previous Current
AA BMO Capital Outperform Neutral - -
AA Argus Buy Buy - -
AA UBS AG Neutral Neutral $18.00 $19.50
AA Goldman Sachs - Neutral - $17.00
CAT Buckingham Neutral Buy - $135.00
CVX UBS AG - Buy - $123.00
DIS Lazard Capital - Neutral - -
GE Deutsche Bank - - $22.00 $23.00
KFT Soleil Buy Buy - -
n Reiterate n Upgrade n Downgrade n Initiation
US Economic Calendar
Date Time Report Period Actual Forecast Previous
12-Apr 8:30 AM Trade balance Feb -$45.8B -$42.9B -$47.0B
12-Apr 8:30 AM Import prices Mar 2.7% 2.0% 1.4%
12-Apr 2:00 PM Federal budget Mar n/a -$65B
13-Apr 8:30 AM Retail sales Mar 0.5% 1.0%
13-Apr 8:30 AM Retail sales ex-autos Mar 0.7% 0.7%
13-Apr 10:00 AM Inventories Feb 0.7% 0.9%
13-Apr 10:00 AM Job openings Feb n/a 2.8M
13-Apr 2:00 PM Beige book
14-Apr 8:30 AM Jobless claims 9-Apr 382K
14-Apr 8:30 AM Producer price index Mar 0.7% 1.6%
14-Apr 8:30 AM Core PPI Mar 0.2% 0.2%
15-Apr 8:30 AM Consumer price index Mar 0.4% 0.5%
15-Apr 8:30 AM Core CPI Mar 0.2% 0.2%
15-Apr 8:30 AM Empire state index Apr 17.0 17.5
15-Apr 9:15 AM Industrial production Mar 0.6% 0.0%
15-Apr 9:55 AM Consumer sentiment Apr n/a 67.5

Disclaimer: This report is provided for information purposes only. It is not an offer to sell or to buy any securities. This
report has been prepared based on sources believed to be reliable, but there is no assurance or guarantee regarding its
completeness and accuracy. The author accepts no responsibility or liability arising from any use of the report.

4 .DJI 12,263.60 (-117.53.06 ● -0.95%) .SPX 1,314.16 (-10.30 ● -0.78%) .IXIC 2,744.79 (-26.72 ● -0.96%)