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WJR October 2008 Reports

October 31, 2008

The Bank of Japan served up an expected two-tenths of a percent cut in their short-term interest rate overnight, and selling on the news, the Nikkei index dropped 5 percent. However, keep in mind that since Monday, the Japanese stock market had been up 26 percent.

It is worth mentioning the LIBOR rate again this morning. The 3 month LIBOR is down another 17 basis points this morning to just over 3.02 percent. That follows a 25 basis point decline yesterday and is a very good sign.

September personal income and consumption data is one the way at 8:30. At 9:45 the Chicago Purchasing Managers Index is expected to come in at 48, which would indicate actual contraction in Midwestern Business activity. Not a surprise, but certainly unwelcomed news. Then just before 10 comes the final Consumer Sentiment Reading from the University of Michigan.

Ben Bernanke will speak about the mortgage crisis at 2 o’clock this afternoon.

Keep an eye on insurance company stocks today, especially those that sell variable annuities. Shares of the Hartford Insurance Group lost over half of their value yesterday on fears that their capital is insufficient to back their obligations.

Overseas markets are generally lower, but most are down just 1 or 2 percent, which used to be a lot – but not so much recently. At this point, adjusted for fair value, futures on the S&P 500 are down 10, the Dow futures are down 91 points and the NASDAQ futures are 23 points below fair value.
 
October 30, 2008

The Fed’s Open Market Committee didn’t surprise anyone yesterday, cutting the target rate for short term funds to one percent and leaving the door wide open to more cuts if necessary. Hopefully, they won’t be. As implementation of the rescue packages started this week, we’re starting to see some hopeful signs.

The 3 month LIBOR rate is down for the 13th consecutive session, this morning at 3.19 percent versus yesterday’s 3.42 percent. In case you don’t have a calculator handy, that’s a full quarter of one percent. That’s big and that’s a very good thing, especially if you are a debtor on a LIBOR-based loan.

In about fifteen minutes, we may hear about a negative Gross Domestic Product for the first time in years. The preliminary estimate of 3rd quarter GDP is expected to come in at a negative one half of one percent. The classic definition of a recession is two quarters of negative GDP.

Earnings reports this morning have been pretty good, especially considering that so many people have been telling us that the world is falling apart. Meeting or beating earnings estimates are CVS, the drug store, CBS, the media conglomerate, Colgate Palmolive, Kodak, Motorola, ExxonMobil and Waste Management. The morning’s big disappointments were Cigna and Avon Products.

Our futures are off their highs of the morning, but if we were to open right now, we’d get off to a good start. At this point, adjusted for fair value, futures on the S&P 500 are up 26, the Dow futures are up 152 points and the NASDAQ futures are 29 points above fair value.
 
October 29, 2008

We came pretty close to testing that October 10th intra-day low yesterday, and boy of boy, did we bounce. After a furious rally in the last fifteen minutes of trading, we wound up with the second biggest point gain in the Dow’s history. While we can expect some pullback today after the Fed announcement at 2:15, the Dow futures, which earlier this morning were lower by a couple hundred points have actually turned positive.

Procter & Gamble beat earnings estimates and maintained guidance at the high end of estimates. Kellogg also beat estimates. Kraft matched expectations and actually raised their earnings estimate for the remainder of the year.

The 3-month LIBOR, that key lending rate is down again today to 3.42 percent, which is good news. This afternoon, of course, we’re expecting a half-point interest rate cut in the short term rate target from the Federal Reserve Open Market Committee. The real open market has been at that one percent or lower level for a while now. However, anything higher or lower than a 1 percent target will likely not be viewed kindly by traders.

After out 10 percent rally yesterday, Japan jumped 7 percent overnight, oin fact most Asian and European markets are higher. Germany is a bit lower as the Volkswagen silliness continues. We are now looking for a higher start in the U.S. At this point, adjusted for fair value, futures on the S&P 500 are up 6, the Dow futures are up 127 points and the NASDAQ futures are 16 points above fair value.
 
 
The blood continues to run in stock markets around the world.
 
The Dow Jones Industrial Average closed Friday about 600 points above the intra-day low set October 10th and a lot of traders are looking at that as a line in the sand for the current hysteria.   The next line in the sand may be the 2002 lows, which are another 11 percent down from here.
 
Odds are pretty good that we’ll see more interest rate cuts this week.  The Fed starts their regularly scheduled two-day meeting tomorrow and they are widely expected to cut their official target for short term rates to one percent.  Add to that the pretty strong likelihood that we’ll get some further rate cuts in Europe.  South Korea cut their rates by three-quarters of a percent overnight, but they are still at 4¼ percent.
 
The government has been talking about flooding the markets with money for weeks now.  After the talk, of course, the lawyers get involved to work out the gory details.  Today, finally, the Fed will launch its commercial paper funding facility, so that some of that cash starts to flow out to business.  The TARP will also be rolled out to banks later this week.
 
Good news?  Well, light sweet crude is off another 2 bucks per barrel.
 
The best thing that you can say about our futures is that they aren’t as bad as they were at this time Friday, but that’s not saying much.  At this point, adjusted for fair value, futures on the S&P 500 are down 33, the Dow futures are down 289 points and the NASDAQ futures are 40 points below fair value.
 
October 24, 2008

A lot of people looking for the end of this bear market have sought a “capitulation day,” when selling is so severe that it exhausts itself. This may or may not be it, but the selling pressure around world markets is intense this morning. Futures on our major indexes are all just about limit-down levels which means we really don’t know their value and won’t until the market opens at 9:30.

The Dow Jones Industrials’ inta-day low of around 7,800 will be tested this morning as hedge funds continue to de-leverage, forcing their most liquid assets on to the market at fire-sale prices.

OPEC announced their production quota this morning. They will shoot for an output cutback of 1.5 million barrels per day but not even that announcement is helping the price of oil, which is down about 4½ dollars per barrel to just over 63 dollars per barrel.

The September Existing Home Sales Report at 10 o’clock is expected to reflect a slight uptick in sales, but either way it won’t be a game-changer for the market.

Overseas markets are lower on the order of 5 to 10 percent. Our futures aren’t giving us an indication of the opening value of stocks other than they will be sharply lower. The Dow, S&P 500 and NASDAQ futures are all just about limit-down, which is down roughly about 6 percent. Further circuit-breakers would kick in at about a 10 percent drop once the market opens. It actually works out to a little more than 10 percent. However, once trading does begin, expect a lot of volatility as we find out how many panicked sellers will be matched with value buyers.
 
October 23, 2008

Well, here we go again. It looks as if stock prices may try to test the intra-day lows we hit a couple of Fridays ago as traders look to see if those levels will hold, or whether we can expect another leg lower.

RealtyTrac, which is an online marketplace for forclosures says that forclosure listings actually slowed by 12 percent in September, but are still 21 percent higher than a year ago.

The good news/bad news story of the day comes from Amazon. Profit was 48% higher than last year. However, Amazon shares are more than 10 percent lower in Europe as they admit that they don’t know HOW bad the Christmas season will be – but that it WILL be bad.

UPS announced much better than expected earnings, at 96 cents per share versus the expected 89 cents. Evidently decreasing fuel prices are having an impact. OPEC meets tomorrow to decide what to do with production quotas in the >
General Motors just announced a round of involuntary white-collar layoffs due to the global slowdown in demand. GM is also suspending payments into its stock saving plan.

Overseas markets are generally 2 to 4 percent lower. Our futures were positive earlier this morning, until the 3 month LIBOR rates posted basically unchanged from yesterday. Traders were expecting another decline in the LIBOR rate and futures have been slumping ever since. At his point, adjusted for fair value, S&P 500 futures are down 8, the Dow futures down 54, and the NASDAQ futures are 13 points below fair value.
 
 
It looks like we have a rough morning on tap.
 
Earnings reports continue to be a mixed bag.  But more importantly, projections of future earnings have been very guarded, as companies brace for recession.
 
Beating their estimates for last quarter this morning are McDonalds, Merck, Philip Morris, EMC and Wyeth.  Missing their numbers were Boeing, AT&T, Northern Trust and a big miss from Wachovia.  Wachovia lost $2.23 cents per share on an operating basis.  A profit of 2 cents per share was expected.
 
The bright spot of the morning is, once again, the overnight and 3 month LIBOR rates are lower.  The 3 month, which was around 4 ½ percent a week or so ago, is close to 3 ½ percent this morning.  Seeing a LIBOR around 2 percent or so would be a very good sign in the credit markets.
 
Oversea markets are lower by anywhere from 3 to nearly 7 percent.
 
The story in our futures has been bleak all morning and we’re currently slipping back toward our lows of the morning.  At this point, adjusted for fair value, the S&P 500 futures are down 28 points, the Dow futures are down 204 and the NASDAQ futures are just about 14 points below fair value.
 
 
Corporate earnings reports are flooding in this morning in an attempt to wash away the general sense of fear that has gripped the stock market for the past three weeks.
 
Companies reporting better than expected earnings are Pfizer, Lockheed Martin, Coach, American Express, 3M and Dupont, although most companies are issuing cautious guidance for the future.
 
Caterpillar missed by a couple of cents per share.  National City lost 729 million dollars, which was about double the expected loss.
 
To add insult to injury in the insurance space, Prudential has evidently entered the investment “red-zone” at Goldman Sachs.  Goldman put Prudential on its “conviction sell” list.  Goldman also lowered the rating on MetLife to “neutral” from “buy.” 
 
Traders are keeping a wary eye on credit default swaps today.  The swaps that supposedly insured Lehman Brothers debt come due today.  Let’s hope all the losers on that bet are able to pay up.
 
Hong Kong and China were lower overnight, but most overseas markets are a bit higher. Our futures are lower, but they aren’t as bad as they look.  At this point, adjusted for fair value, the S&P 500 futures are down 15 points, the Dow futures are down 105 and the NASDAQ futures are just about 24 points below fair value.
 
 
Lots going on overseas over the weekend.  The Dutch government has decided to pump 13 billion dollars into banking and insurance fund ING.  ING will have to pay 8 ½ percent for the money and have to put up with a couple of outsiders on the firm’s advisory board.  But, uncomfortable times require uncomfortable actions.  ING is also selling of its insurance business in Taiwan.
 
China’s Gross Domestic Product is still growing at 9 percent.  However, that’s down from 11 percent, and is likely to far further if exports tail off – and that is a near certainty as we look ahead.
 
India cut interest rates by 1 full percent.
 
The three moth LIBOR rate is down to 4.059 percent as it keeps moving tin the right direction.  But expect trading to be pretty wild again today as traders look forward to tomorrow, when the credit default swaps on Lehman Brothers debt come due.  Estimates of how big a problem that may be are all over the board.  Suffice it to say that if no one defaults on their CDS obligation tomorrow, it will be a very good thing.
 
Overseas markets are higher, and that’s where we’re likely to go at the open. At this point, adjusted for fair value, the S&P 500 futures are up 11 points, the Dow futures are up 72 and the NASDAQ futures are just about 15½ points above fair value.
 
October 17, 2008

We actually had a little surge in stock prices in the last hour of trading yesterday, which is a rather refreshing change from the late-day meltdowns to which we’ve grown uncomfortably accustomed. But, as you might suspect, we’ll give a little back off the open today.

A couple of big companies are out with earnings this morning. IBM matched its recently improved guidance although revenue was a little on the light side. Revenue was also a little light at Honeywell, but earnings beat estimates by 2 cents.

Last night, AMD reported far less of a loss than was anticipated, and Google’s earnings were far better than expected. Both stocks are bid higher in the pre-market.

September Housing states are on the way at 8:30 and just before 10 o’clock, the University of Michigan will report their preliminary Consumer Sentiment number. Analysts expect a reading of 65, down from over 70 last month. But given what’s been going on, any number above zero won’t be too much of a surprise.

Overseas markets are mixed. Our futures are in better shape than a couple of hours ago. However, At this point, adjusted for fair value, the S&P 500 futures are down 15 points, the Dow futures are down 106 and the NASDAQ futures are just about 20 points below fair value.
 
October 16, 2008

Third quarter earnings reports really start to flow today, although what companies say about the future will weigh more heavily than what happened over the last 90 days.

This morning, Southwest Airlines beat estimated earnings, Citigroup only lost 60 cents per share versus the expected 70. However, PNC Financial and Bank of New York Mellon posted results that were significantly worse than expected.

The Swiss National Bank is moving to to rescue of UBS. They will pump in 5 billion dollars and wind up with a more than 9 percent ownership stake. Perhaps more significantly, the Swiss government is taking 60 billion in mortgage paper off the books at UBS.

The September Consumer Price Index is expected to show only a one-tenth of a percent increase at 8:30. At 10 o’clock, the Philadelphia Fed Survey is expected to report a 10 percent decline in activity in the Eastern U.S.

Japan followed out worst day since 1987 with their worst day since 1987, losing 11 percent overnight. Our futures have bounced around quite a bit once again this morning and right now are pointing modestly lower.

At this point, adjusted for fair value, the S&P 500 futures are down 3 points, the Dow futures are down 49 and the NASDAQ futures are just about 21 points below fair value.
 
October 15, 2008

Stock prices finished the day moderately lower after another 700 point intra-day swing on the Dow. Sill we only finished 70 lower on the Dow. Prior to yesterday, we’d seen 18 of the last 21 trading days produce a Dow 30 average that was more than 100 points different than the day before.

This morning, we’re still living in the shadow of Monday’s big rally, as the futures are slightly lower even though the earnings and credit market news has been pretty positive.

Coca-Cola, JP Morgan, Abbott Labs and CSX are all out with better than expected result for the quarter gone by. Coke’s news was a little surprising, given yesterday’s weaker guidance from Pepsico.

We’re also seeing a small but potentially important shift in the credit market. The overnight and the three-month LIBOR rates, that’s the benchmark interest rates on which a whole lot of lending is based, are both down a bit. That’s a trend we need to see continue.

Japan finished one percent higher overnight, but major markets elsewhere are lower. We’ll get September Retail sales and the Produced Price Index at 8:30. But absent any earth-shattering news we should head lower at the open. At this point, adjusted for fair value, the S&P 500 futures are down 14 points, the Dow futures are down 99 points, and the NASDAQ futures are just about 15 points below fair value.
 
October 14, 2008

The cavalry arrived yesterday in the form of European governments. This morning the reinforcement are checking in. The first phase of implementation of the $700 billion dollar rescue package is being fleshed out. $250 billion will be directly invested in banks. All new bank debt will be temporarily guaranteed and non-interest bearing bank deposits will be guaranteed above the current $250 billion dollar limit.

This isn’t the end of the story, of course. Once commercial lending starts up again, direct help in re-working bad mortgages will still be required. But this is a start, and equity traders like what they hear.

Johnson & Johnson shareholders also liked what they heard this morning. J&J beat estimates and raised their full year guidance. Pepsico just barely missed earnings estimates and announced that 3,000 of their employees will soon be looking for work elsewhere.

Japan was 14 percent higher overnight after out 11 percent rally yesterday. Europe is up another 5 percent or so right now, and we are headed higher at the open, as our futures have been holding at significantly higher levels all morning. At this point, adjusted for fair value, the S&P 500 futures are up 46 points, the Dow futures are up 338 points and the NASDAQ futures are just about 54 points above fair value.
 
October 13, 2008

Well, here comes the cavalry.

Governments across Europe have followed Great Britain’s lead. We may find out this morning if the United States will official change direction and follow along. Great Britain announced a plan to inject 63 billion dollars directly into three major banks. Fifteen European governments decided on wide-ranging plans to shore up the banking system.

The man in charge of the TARP program in the U.S. (that’s the 700 billion dollar rescue plan the Congress almost couldn’t bring itself to approve a couple of weeks ago) started explaining what he’s been up to about 15 minutes ago. So far, his comments are explaining the team they are putting in place, rather than announcing any bold moves.

Banks are closed and bonds won’t trade today. But, fortunately, it has nothing to do with the markets – it’s Columbus Day.

Oil is trading 4½ dollars higher and overseas markets are higher by anywhere between 4 to 8 percent.

Our futures have been solidly higher all morning, but hang on to your hats. At this point, adjusted for fair value, the S&P 500 futures are up 29 points, the Dow futures are up 219 points and the NASDAQ futures are just about 49 points above fair value.
 
 
We’ve had seven trading days this month, and so far, we are “oh-for-October.”  Things are looking any better in the futures today.
 
At 10:25 this morning, President Bush will address the nation.  It could be just another pep talk, but everyone is hoping for a little more substance.  Perhaps news on the government backstopping bank lending, perhaps a modification or suspension of mark-to-market accounting, perhaps the government will recapitalize the banks. Maybe the TARP program is ready to roll.  Whatever the President says, he’ll have a tall order in trying to change the negative investor mood.
 
One promising factor this morning – the overnight LIBOR rate – the London Interbank Offered Rate plummeted overnight to 2.469% from over 5 percent yesterday.
 
General Electric reported earnings a couple of hours ago that met earnings estimates of 45 cents per share on slightly lighter than expected revenue.  GE says that their dividend is secure through 2009.  At current prices, that’s about a 6½ percent yield.
 
Trading in a half-dozen foreign markets were halted overnight.  Overseas markets that are open are down on the order of 7 to 10 percent as the panic selling continues.  The President’s speech at 10:25 this morning could provide a sentiment shift, but for now we’re heading lower once again.  At this point, adjusted for fair value, the S&P 500 futures are down 21 points, the Dow futures are down 156 points and the NASDAQ futures are just about 30 points below fair value.

 

October 9, 2008

 

World markets stabilized somewhat overnight after yesterday’s round of interest rate cuts, but we’re probably looking at another volatile day.

 

On the bright side, IBM announced earnings well ahead of schedule last night and the report was a good one.  IBM beat estimates for profit and reaffirmed estimates for the remainder of the year. 

 

However, unless someone else pre-announces today or tomorrow, reports for major firms will start to roll out in volume next week.  General Electric will report tomorrow.

 

Financial stocks will be interesting to watch today as the temporary ban on selling them short expired at midnight last night.  Since the day after the ban was imposed, financials have really not fared any better than other major industry sectors.  

 

Asian markets were mixed overnight.  European markets are up 1 to 2 percent at this point.

 

Our futures are well off their highs of the morning price, and fluctuations have been so volatile of late, anything could happen by 9:30.  Nevertheless, if the market were to open right now, we’d have a relatively decent open. Adjusted for fair value, S&P futures are up 4 points, the Dow futures are up 46 but the NASDAQ futures are about a point below fair value.

 
 
The world-wide financial turmoil continued overnight.  Japan’s Nikkei dropped over 9 percent, Iceland is pretty much bankrupt and Great Britain is bailing out its banks to the tune of about 87 billion dollars.
 
Trying to ride to the proverbial rescue, the European Central Bank evidently had the wakey-wakey I mentioned yesterday as in a coordinated move, for the first time ever, central banks worldwide, including the ECB and the Fed here in the U.S., lowered interest rates by one-half of one percent. 
 
Walmart and Costco chimed in with earnings and sales reports this morning.  Both were solid, but a little lower than expected.  Costco made 90 cents per share for the quarter gone by.  Analysts expected 92 cents, but still it’s a 7% increase from last year on a  9% rise in same store sales.  Walmart’s September sales rose 2.4 percent, just shy of the expected 2.5 percent.
 
Four hours ago, futures on the Dow Jones Industrials were indicating about a 350 point decline.  They have improved by almost 600 points since then.  European markets are narrowly mixed after big declines earlier. 
 
Who knows where we’ll be by 9:30, but as of now, adjusted for fair value, the S&P 500 futures are up 28 points, the Dow futures are up 212 points and the NASDAQ futures are just about 17 points above fair value.

October 7, 2008

After being closed yesterday, the Australian market came out swinging overnight, as their central bank cut interest rates by one full percent. That may serve as a little wakey-wakey to European central bankers to smell the potential deflation and take some rate-cutting action of their own.

Here in the U.S., the Fed announced a number of new initiatives yesterday to backstop the U.S. financial system. Of greatest impact will be payment of interest on required bank reserves and a purported plan to set up a Special Purpose Entity to allow the Fed to buy commercial paper directly. In effect, that would give non-financial companies similar access to Federal funding that the financial companies have been granted.

Citigroup, Wells Fargo and the FDIC continue their three-way dance over what will happen to Wachovia. At least the 60 billion dollar lawsuit the Citi talked of bringing yesterday has been parked for now.

Earnings season officially kicks off later today with Alcoa, but last night Bank of America announced earnings way ahead of schedule and they fell way short of expectations.

Japan and Hong Kong were lower overnight, but Europe is trading higher. Our futures are higher at this hour, but not by much. At this point, adjusted for fair value, the S&P 500 futures are up 5 points, the Dow futures are up 70 points and the NASDAQ futures are just about 2 points above fair value.

 

October 6, 2008

Major companies will begin to report third quarter earnings this week, and it’s safe to say that they have never been so overshadowed. Markets around the world were hit with selling overnight on fears of a global recession.

Of course, if there’s a crisis, it must be time for a Congressional inquiry. Lehman Brothers’ CEO will be on Capitol Hill today to answer some polite questions on just what killed the golden goose.

Imclone, whose stock became a household name when Martha Stewart got involved, is being acquired by Eli Lilly at 70 dollars per share. If memory serves me correctly, I believe that Ms. Stewart’s famous ‘sell’ order was at 60 dollars per share. So, as it turns out, Imclone would have been a pretty good ‘buy and hold.’

Unfortunately, just about any stocks that are held this morning will be held at lower prices at 9:30. Oil is right around 90 bucks this morning, lower by almost 4 dollars per barrel.

The good news in Australia is that the stock market was unchanged overnight. The bad news is that’s because they were closed for a holiday. Everyone else overseas is lower. Our futures are in better shape than earlier this morning, when the Dow was indicated about 300 points lower. At this point, adjusted for fair value, the S&P 500 futures are down 20 points, the Dow futures are down 179 points and the NASDAQ futures are just about 33 points below fair value.

October 3, 2008

In normal times, traders would be focused on the Labor Department’s Jobs Report at 8:30. Of course, these aren’t normal times and today’s vote in the House will overshadow everything else. But, since I brought it up, the September Non-farm Payrolls are expected to reflect a decline of 105,000 jobs.

And, just when we thought that life couldn’t get any stranger – it has. Earlier this week, Citigroup had a deal to buy Wachovia with help from the FDIC. All of a sudden, Wells Fargo has stepped out from behind the curtain and will buy Wachovia in a stock swap worth 7 dollars per Wachovia share without any help from the Government. On the news, Citigroup stock is indicated about 10 percent lower this morning. Wells Fargo, and of course Wachovia are indicated higher.

UBS is cutting another 2,000 jobs at their investment banking unit and is getting out of the commodities trading business, outside of precious metals.

Asian markets fell after our latest swoon yesterday. European markets are relatively flat as everyone waits for the House of Representatives to vote.

At this point, adjusted for fair value, the S&P 500 futures are up 9 points, the Dow futures are up 52 and the NASDAQ futures are just about 9½ points above fair value.

October 1, 2008

Lots of moving parts this morning as we head toward another couple of votes on the financial refinancing - or bailout - or whatever you want to call it - bill.

It looks as if the Senate will now grab the cow by the tail. With an alternative minimum tax cut, some business tax cuts and a hike in the FDIC insurance limit pasted on, the Senate may vote today on the package. If it passes with a sizable majority, thinking is that the House may feel some pressure to play ball.

We also got statements from the SEC and the Financial Accounting Standards Board. They are not rescinding FAS 157, the mark-to-market accounting rule. However, they appear to be loosening the rule quite a bit. Financial institutions will now not have to use “last sale” valuations to value their mortgage assets. Management estimates of future cash flows can now be considered. That should alleviate some of the write-down pressure of the sort that drove Wachovia into the arms of Citigroup last week.

Challenger, Gray and Christmas reports that year-to-date job cuts in the U.S. are up 30% from last year and that since May, 75,000 jobs have been eliminated in the automotive industry.

Our one-day-up, next day down stock market looks to start the day solidly in red numbers. At this point, adjusted for fair value, the S&P 500 futures are down 13 points, the Dow futures are down 107 and the NASDAQ futures are just about 22 points below fair value.

WJR November 2008 Reports
WJR September 2008 Reports

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