March 31, 2008
Some weeks are more interesting than others and this may well be one of them.
Later in the week we’ll get a Ben Bernanke speech or two, auto sales figures and the March Jobs Report. But today we’ll kick it off at 10 o’clock with the Chicago Purchasing Managers Index, and more importantly, with Treasury Secretary Paulson’s speech outlining the Administration’s proposal for increasing regulation of the financial markets.
Evidently they’ve hit upon the novel idea that if the federal government is going to be available to bail out and lend money to the investment banking firms, then the government maybe should know a little bit about what the firms are doing with that money. The initial reaction is that the proposal is a lot less severe than it could have been. However, this is just the first step for an idea that has to make its way through Congress in an election year. To say that this proposal will become law is like saying that the best team in Spring Training will win the World Series. Possible, but not likely.
Merck and Schering Plough are getting plowed under in the pre-market. Bad new about the effectiveness of cholesterol drugs Vytorin and Zetia have the stocks of those companies off more than 10%.
March 24, 2008
The battle of Bear Stearns moves into another phase this morning. According to the New York Times, JP Morgan will offer 10 dollars per share for Bear Stearns rather than the original price of 2 dollars. Why quintuple the price when you’re bidding against yourself? Outside of trying to mollify some rather disgruntled Bear employees who are about to become your employees, there is reportedly a sentence that somehow worked its way into the buyout agreement that would leave Morgan on the hook for Bear losses even if the deal collapsed. Nevertheless, the price is going up and everyone else will be relieved when the deal gets done.
In about eight minutes we’ll get the February existing home sales data. Expect sales at an annualized rate of 4.85 million, down just slightly from January.
Tiffany released better than expected revenue and earnings this morning. Oil is all the way back down to that magical 100 dollar level this morning.
March 20, 2008
Not all that glitters is gold. Sometimes, that glitter is just a reflection of borrowed dollars. A couple of days ago, an ounce of gold on the futures market was going for $1,032. This morning, we’re talking 917 dollars. That’s a drop of about 11 percent in two days. Word is that some hedge funds, long suspected as the drivers of gold’s parabolic move up are de-leveraging in a big way. We’ll soon see just how much of that glittering $1,032 price was really gold. Oil’s down another 3 plus dollars per barrel as well.
FedEx announced quarterly earnings that were three cents per share better than expected. But, they warned that even if gas prices stay the same and the economy doesn’t soften, they’ll only make $1.70 this quarter, versus the expected $1.95.
General Electric with a broker upgrade this morning, 3M was downgraded.
The weekly unemployment numbers are due at 8:30. At 10 o’clock, the Philadelphia fed Survey and the February Leading Economic Indicators will be announced.
Our stock and bond markets will be closed in observance of Good Friday tomorrow, Happy Easter everyone!
Overseas markets are mixed, but absent a big surprise with the unemployment data, we’ll head higher at 9:30. Adjusted for fair value, futures on the S&P 500 are up 4½ points, the Dow futures are up 52 and the NASDAQ futures are about 5 ½ points above fair value.
March 19, 2008
Yesterday was another breath of fresh air, with the Dow up over 400 points and the S&P 500 regaining the ground it’s lost since the January low and then some. Unfortunately, that breath of fresh air didn’t wipe away the bad breath of bad debt that’s still hanging around.
Big initial public offerings have been fewer and farther between of late, but there’s a monster on tap today. VISA has gone public in the biggest domestic IPO ever. 406 million shares have been sold at 44 bucks apiece – that’s almost 18 billion dollars. Investors may well bid VISA shares even higher. Mastercard, that came public in 2006, is up about 350% since then.
Carlyle Capital was reported to be on life support last week. Well, the patient didn’t make it. The official pronouncement of bankruptcy just came within the past hour.
Morgan Stanley posted better than expected results this morning, but that’s not going to be enough to prevent some profit taking after yesterday.
March 18, 2008
Well, we’ll see. Yesterday may prove to be a turning point in a stock market that definitely needs one. While we haven’t had a traditional “throw the baby out with the bathwater” type of day that traditionally signals a bottom, Sunday’s Federal Reserve intervention to prevent the outright collapse of Bear Stearns may be enough to give the market confidence that the Fed will arrest any run on the investment banks before it gains steam.
A lot of those big investment banks will report earnings this week, with Goldman Sachs and Lehman Brothers both checked in with better than expected reports within the past 20 minutes. Goldman announced earnings about 15 minutes ago and earned about 65 cents more than expected. Goldman Sachs stock should open about 8 or 9 dollars higher. Lehman is indicated about 12 percent higher in the pre-market.
The next big step will come at 2:15 this afternoon when the Fed announces their latest cut in short term interest rates. A half-point, three-quarters and a full one percent cut are all possibilities. There’s even been some chatter about an unprecedented 1 ¼ percent cut. However, most expect a three-quarters of a percent cut as the Fed continues its campaign to allow everyone who possible can to refinance out of any bad mortgage they may have been sold.
Major overseas markets are 1 to 2 percent higher at this point, and we will get off to a very strong start. Adjusted for fair value, futures on the S&P 500 are up about 20 points, the Dow futures are up 160, and the NASDAQ futures are about 23 points above fair value.
March 14, 2008
Yesterday’s market was pretty much a disaster until a report was released from Standard & Poors, claiming that the end may be in sight for the write-down of sub prime debt. The irony, of course, is that Standard & Poors is one of the rating agencies that blessed much of that garbage debt with triple-A ratings until the music stopped. No matter, stock prices turned around to finish the day with a modest gain.
This morning, fear has returned, and the boogie-man behind the curtain is the February Consumer Price Index. At 8:30 we’ll find out how much the Federal Government says prices rose in February. Expect a three-tenths of a percent increase in the headline rate and a core rate increase of two-tenths of a percent.
At 10 o’clock the University of Michigan’s preliminary number on March Consumer Sentiment is expected to dip to a reading of 69, down from 70.8 in February.
National City Bank’s debt was downgraded yesterday and according to the Wall Street Journal, Nat City is looking for a buyer. Unfortunately, the market is really not hot for a bank with a lot of residential real estate exposure.
Bernanke will give a speech a little later. Genentech and Gannett each will hold analyst meetings.
March 13, 2008
The ability to borrow cheaply and invest richly is a beautiful thing, as long as those rich investments get richer. However, it’s pretty ugly when the portfolio goes south and the debt comes due. This morning, it’s becoming apparent that Carlyle Capital, a big leveraged bond fund will be going bye-bye. Carlyle is facing another 100 million of margin calls today, adding to last week’s 400 million. Given that the firm’s equity is only 670 million and there are still billions and billions of loans outstanding, (they reportedly borrowed 30 dollars for each dollar of equity) Carlyle Capital is facing liquidation.
That news and the possible shuttering of a big hedge fund run by Drake Management LLC has the futures taking the express elevator down this morning.
In less than 4 minutes we’ll get the weekly Jobless Claims data, which are being more closely watched in the wake if the recently weaker monthly numbers. February Retail Sales figures will also be announced, and are expected to have increased two-tenths of a percent year over year, after a three-tenths of a percent increase in January.
Microsoft holds an analyst meeting today. Don’t look now, but thee dollar fell below the 100 yean mark this morning for the first time in 13 years. Oil is up nearly a half-dollar, now over 110 dollars per barrel.
Gold is up about 17 bucks at 997 dollars per ounce, but the stock market will NOT be heading in an upward direction at 9:30.
At this point, adjusted for fair value, futures on the S&P 500 are down nearly 18 points, the Dow futures are down 153, and the NASDAQ futures are about 20 points below fair value.
March 12, 2008
Capitalism works. But it can’t work without capital.
The Federal Reserve went on the attack with a new weapon in the battle of the frozen credit markets yesterday and for a day, anyway, stock prices responded with gusto.
Up to now, the Fed’s campaign of rapid interest rate cuts has done little, except to trash the value of the U.S. dollar. Yesterday’s action, which brings the total liquidity the Fed has made available to 400 billion dollars, may be a better step in the right direction. Under the new program, the Fed will accommodate not only the banks, but also the primary dealers in the mortgage market.
Humana stock, which fell 24 percent yesterday, is heading even lower this morning. Humana cut their 2008 estimated earnings from $5.45 cent per share to $4.25 per share. The stock is bid another 12 percent lower in the pre-market. That news will also put pressure on other health insurers once again today.
Major overseas markets are 1 to 2 percent higher after our 3 percent-plus gain yesterday.
March 11, 2008
Maybe we just needed something to take traders’ mind off of how badly stock prices have fallen. Whether the Eliot Spitzer news is the reason Wall Street is in a better mood this morning or not, we’ll take it. The futures are pointing to a solidly higher open.
New Yorkers will of course be transfixed on the developing Spitzer story today. For the rest of us, watching another self-absorbed and very vocal “moral crusader” exposed for his true moral character is a movie we’ve seen before. The take-away, of course, that whenever someone expounds about his honesty – keep your hand on your wallet.
If there are some shares of Texas Instruments in your wallet, you may feel a little shrinkage at the open. TI lowered their revenue and earnings estimates for the current quarter. Revenue now looks to be 3.28 billion, down from the estimate of 3.41 and earnings should be 3 cents lower than the earlier 46 cent estimate.
Wellpoint also warned about their outlook, but Aetna reaffirmed their 2008 estimate of four dollars per share of earnings.
Asian markets turned positive after a rough start overnight. Europe is slightly positive. Our futures are down from where we were an hour or so ago, but we’re still looking at a positive open. At this point, adjusted for fair value, futures on the S&P 500 are up 7 ½ points, the Dow futures are up 90 points, and the NASDAQ futures are about a point above fair value.
March 10, 2008
Monday mornings certainly have changed. Remember the days of available capital when Mondays were filled with news of companies buying companies? Well that was then and this is now. However, there is one proposed deal this morning, and Nationwide Mutual is offering to buy Nationwide Financial. Granted, they already owned 60 percent of the company. Still, it’s a throwback to happier times.
Earnings reports are on the way from homebuilder Hovnanian, Foot Locker and the Blackstone Group, but there’s not a lot of big economic news on the docket until Friday.
You know, leverage is terrific on the upside, but the downside is not pretty. Carlyle Capital, which is the mortgage bond affiliate of private-equity firm The Carlyle Group, is facing 400 million dollars in margin calls and is attempting to put in place measures to prevent a fire-sale of assets.
March 7, 2008
It may be a rockin’ and rollin’ Friday in the stock market. First off, it is the first Friday of the month, and that means that at 8:30 we’ll get the monthly Unemployment Report. Expect an increase in the Unemployment Rate to 5 percent and a total 25,000 new non-farm jobs. That’s pretty weak job creation, but would be an improvement over last month’s decline of 17,000 jobs.
But it may again be a day when the market trades on rumors. For the past week, prices have risen on rumors that a consortium of banks would ride to bond insurer Ambac’s rescue. Then yesterday, Ambac announced a new equity offering of a billion and a half dollars, which they completed last night. That’s an 800 million dollar company raising a billion and a half which is pretty amazing stuff. Although stock prices fell after the bailout rumor died, Ambac today has retained their Triple A rating and that should be helpful today.
There were other rumors floating this morning about an emergency Fed meeting and another emergency rate cut. The last time that happened was also on a Friday, so we’ll have to wait and see. One thing that we will see is a continued de-leveraging of investment funds like mortgage-REITS, whose investment assets have fallen in value.
March 6, 2008
The Fed’s Open Market Committee meets in twelve days to decide how big our next short-term interest rate cut will be. Most everyone expects at least a half-percent cut. However, across the old pond interest rates aren’t going anywhere fast. This morning, both the Bank of England and the European Central Bank decided to hold interest rates steady, which of course, is more bad news for the relative value of all those dollars in your pocket.
Good news, though, from most retailers that have reported February same-store-sales this morning. The Limited and Ann Taylor reported declines in sales, but they were smaller declines than expected. Children’s Place sales were up 5% versus the expectation of 3 percent. But more importantly, giant Walmart said that February sales were up 2.6%. An increase of only 1.1 percent was expected.
The weekly jobless claims number rolls at 8:30.
Major Asian markets rose 1 to 2 percent overnight. Europe is slightly lower and pending the jobs number, we’ll head a little lower at the open as well.
March 5, 2008
It’s an interesting technical picture for stock market. Yesterday, the S&P 500 Index opened around 1320 and quickly went lower to match the January closing low of 1310. That proved to be the firewall, as prices very quickly bounced off that January low, and although we closed lower on the day, holding that January firewall was a positive sign for stock prices.
A positive sign for Costco shareholders this morning; February same store sales were up 7 percent and second quarter income matched estimates.
A little later today we’ll get the ISM non-manufacturing index, We’ll see if we get another sub-50 reading, which indicates a contraction of business activity. The Federal Reserve will also release its twice-quarterly Beige Book which is a survey of regional economic activity.
The big story of the day, however, is the potential bailout of bond-insurer Ambac by a consortium of big banks. The economy clearly needs the credit markets to start functioning again. If a deal is struck, look for stock prices to pop.
March 4, 2008
We’re up against a couple bits of bad news this morning. Last night Intel warned that pressure on flash memory chip margins will result is a lower 1st quarter profit than everyone expected.
However, the bigger news of the morning is word from Dubai international Capital. You may remember that the Dubai Investment Authority as a major investor in Citigroup, coming to the rescue last November after the first wave of mortgage write-downs. Word from Dubai is that that bailout won’t cut it, and that even more investment capital will be needed to save Citigroup from write-downs yet to come. To add insult to injury, Merrill Lynch has lowered its estimate for Citi’s earnings this year from $2.74 to 24 cents and estimates another 18 billion dollar sub-prime and commercial real estate loan writedown. Citigroup stock, by the way is down by a third since the first bailout in November.
Ben Bernanke is giving a speech later today, but in front of that we’ll open with lower stock prices.
A lot of traders have theorized that the market is headed for a re-test of the January lows before any convincing drop or rally attempt would be meaningful. Well, if the futures are any indication, the S&P 500 should open at about the 1320 level this morning. The January low was 1310. We’re getting close. At this point, adjusted for fair value, futures on the S&P 500 are down about 11 points, the Dow futures are down 92, and the NASDAQ futures are about 14 points below fair value.
March 3, 2008
A week ago, we were expecting five days of pretty lousy economic news. By the end of the week, well, we had a week’s worth of bad economic news and stock prices reflected it, with the Dow diving more than 300 points on Friday.
But, it’s a new week and the first big number we’ll get is the February ISM Index. That’s a measure of whether the manufacturing sector is expanding or contracting. The index is expected to read 48. That would indicate manufacturing contraction for the second out of the last three months.
February car sales data will also be announced. Those are expected to be little changed from January.
Overseas markets are pretty much a mess after our Friday swoon. The Nikkei in Japan lost 4 ½ percent overnight. The Hang Seng is off 3 percent. European markets are generally between one and two percent lower. The Australian market had the good judgment to be closed overnight.
Our futures are negative, but are improving, and are in much better shape than they were a couple of hours ago. At this point, adjusted for fair value, futures on the S&P 500 are down about 3½ points, the Dow futures are down 33, and the NASDAQ futures are less than 4 points below fair value.
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