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Thursday, January 28, 2010 – my comments are in italics

Initial Jobless Claims: Survey 450k Actual 470 Prior 482 Revised 478

Earnings Announcements:

• Danaher (DHR) earns $1.12 vs estimates of $1.08. the company reaffirms full year guidance of
$3.80 to $4.10 and .77 to .82 for Q1. Stock is flat in pre-market
• Procter & Gamble (PG) earns $1.49 vs estimates of $1.43. The world’s largest consumer
products company (they make Olay skin cream, Charmin toilet paper, etc.) was helped by price
cuts which boosted volumes. Stock is trading up ~1% in pre-market
• AT&T (T) earns .51 vs estimates of .51 cents (yawn). The stock is trading up slightly although
probably not due to earnings but Apple’s announcement that T would be the sole wireless
provider for its tablet, the iPad. (Apple further endorsed T a few days ago saying that the
company had been great to work with)
• Norfolk Southern (NSC) earns .82 vs estimates of .84. However, comments on demand outlook
and pricing were constructive (also - note that expectations for NSC were probably somewhat
lower following the CSX report from last week)

State of the Union – overall theme consistent w/press previews over last 48 hours; big focus was on job
creation and stimulating economy, in addition to providing financial assistance for middle class. He
urged Congress to pass his key policy initiatives, inc. financial regulatory overhaul and HC (although
important to note he didn’t mention HC until 30+ minutes into the speech). On financial regulatory
front, language was benign as far as Wall St is concerned (no incremental bashing) and some think he
backed off of some of the harsher rhetoric on banks. There was talk about fighting deficits (this wasn’t
as major a theme as some in the press had previewed). When it came to raising revenue, he discussed
imposing a fee on the biggest banks or not continuing tax cuts for oil companies, investment fund
managers and those making over $250,000 a year

Mortgage worries overstated – growing number of mortgage investors think fears of spiking mortgage
once the Fed purchases end in Mar are overstated. Experts think investors seeking out higher-yielding
investors will be attracted to MBS and provide a pool of demand once the Fed exits the market. WSJ –
there is definitely demand for yield, but it’s tough to imagine institutions jumping back into mortgage
securities in a meaningful manner.

Greece: Our economist for Europe David Mackie published a note yesterday laying out the case that the
challenges for Greece and the other small European countries are liquidity, not solvency, and therefore
the default risk is very low. The extent of fiscal cuts necessary is large but not too large to be unrealistic,
and other countries such as the Scandinavians and Turkey have achieved similar adjustments when
required in past crises. Liquidity issues can be resolved with loans from the IMF as well as the EU
(balance of payments assistance program), EIB, EBRD and World Bank, as Latvia, Hungary and Romania
have received recently (Beinstein).
Jobs - After weeks of tense negotiations with his fellow Democrats, Senate Majority Leader Harry Reid
(Nev.) is expected to announce as soon as today a plan to move a series of jobs bills this year with the
first piece of legislation focusing heavily on tax breaks – Roll Call

Experts foresee double dip in economy – WSJ takeaways from Davos – says some financial experts think
the economy could sink lower in the second half of ’10. WSJ

AIG hearings failed to reveal any “smoking guns”; there was some worry that the hearing today would
unveil some incriminating piece of info that could jeopardize Geithner – this didn’t happen. Rep
Cummings even said that based on all the information, its hard to see how another course of action
could have been taken concerning AIG – that’s encouraging. Once we get the Bernanke vote behind us
and resolve the bank regulations, then perhaps we can put away the pitchforks for a while.

SP500 technical update – from M Krauss - Stage an important 1083.11 upside reversal day (UR week >
1092), substantially holding key 1085-1080 medium term support. If 1085-1080 is decisively violated on
a daily & weekly basis, then we’d target the 1029 Nov and 1019 Oct lows. Jan saw persistent breadth
and momentum divergences. Await pessimistic sentiment.

S&P 500 daily chart

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