September 29, 2008
They are voting this morning in the House of Representatives on the mortgage bailout bill. The Senate will presumably vote on Wednesday. The bill, which started out as a three-page proposal from the Treasury is now a 110 page document. It includes provision for $250 billion dollars of immediate funding, a hundred billion if authorized by the President and another 350 million in the future that requires Congressional approval. It also includes expanded powers for the FDIC, restrictions on executive compensation at companies that directly benefit and several taxpayer protection mechanisms.
In fact, one of the stated purposes of the Act, Section 2 (2) (C) is to “maximize returns to the taxpayer.” To paraphrase Will Rogers, we’re not sure if they mean a return ON our money, or a return OF our money. In any event, this is a long way from the $700 billion “blank check” that we were talking about a week ago.
However, overshadowing the bill this morning are a flurry of bailouts overseas. The UK has nationalized mortgage firm Bradford & Bingley. Elsewhere in Europe Fortis and Hypo Real Estate are also being rescued this morning and our futures are lower on the news.
Wachovia stock is bid about 60 percent lower this morning, as Wells Fargo and Citigroup are bidding for pieces of the potential remains.
Overseas markets are lower, mostly on the order of 3 percent or so. At this point, adjusted for fair value, the S&P 500 futures are down 20 points, the Dow futures are down 147 and the NASDAQ futures are just about 38 points below fair value.
September 25, 2008
At 8:30, the August Durable Goods report is expected to reflect a decline of 1.3 percent and at 10 o’clock, the August New Home sales report is expected to show a modest decline to an annualized rate of 510,000 units. But neither of those reports can be expected to move stock prices nearly as much as word regarding progress on the financial restructuring package in Congress.
General Electric warned that earnings for the quarter and the whole year will be a little bit lower than expected. They are also restructuring to de-empha>
Light sweet crude is a couple of dollars lower at about $104 dollars per barrel.
Asian markets were mixed over night. European markets are mixed this morning. Our markets will be mixed-up all day until we get some word on the progress of out of Congress, although some would say that those two terms are antonyms.
In any event, our stock futures, which have been pretty volatile this morning, took a turn for the upside within the past half hour. At this point, adjusted for fair value, the S&P 500 futures are up 11½ points, the Dow futures are up 79 points and the NASDAQ futures are just about 9½ points above fair value.
Warren Buffett put up 5 billion dollars in both a vote of confidence in Goldman Sachs and a desire to get a 10 percent preferred dividend yesterday. While that investment gave the futures a boost overnight, that positive momentum may have a tough time overcoming another day of Congressional hearings today.
Yesterday’s hearings with the good cop bad cop team of Bernanke and Paulson spooked the markets as it became apparent that 1) the Treasury Secretary is trying to impose financial martial law, 2) the plan will not be rubber-stamped by Congress and 3) we still have a lot of Senators that are long on political bravado and short on financial education.
In any event, Mr. Bernanke will chat with the Joint Economic Committee today. We’ll see if things go a bit better. Nevertheless, expect some sort of agreement on some sort of plan by Sunday.
August existing home sales are due out at 10 o’clock this morning.
Asia was a bit higher overnight, but Europe is a little lower. At this point, adjusted for fair value, the S&P 500 futures are up 4 points, the Dow futures are up 51 points and the NASDAQ futures are just about 5 points above fair value.
September 23, 2008
As our favorite old hockey announcer says, “This ain’t no place for a nervous person.”
Unfortunately, there ARE a lot of nervous equity investors out there, and today may be a big day for all of us. The specifics of the big federal financial bailout package are under debate with a non-specific deadline that is likely to be best measured in hours rather than weeks.
Trying to write some protections for the taxpayer into the package is the sticking point. Granted, that complicates matters. However, taxpayers, who by the way may be voting in six weeks, would like to see some specific help for themselves, and not just the big investment houses that got us in this soup in the first place.
To heighten the drama, Ben Bernanke, SEC Chairman Christopher Cox, Treasury Secretary Henry Paulson and housing-finance-agency head James Lockhart will all testify before the Senate Banking Committee.
Oil futures are down a buck and a half or so at around $108 per barrel after some technical anomalies caused a huge run up in prices for the October contract yesterday.
Japanese stocks didn’t trade overnight, but other overseas markets are lower after our downdraft of yesterday.
This morning’s U.S. futures were mildly positive until the last half-hour and are now indicating slightly lower stock prices at 9:30. Adjusted for fair value, S&P futures are down a point, the Dow futures are flat and the NASDAQ futures are about 11 points below fair value.
Rearrangement of the moving parts that make up the American financial machine continued full speed over the weekend.
While Congress and the Administration debated the provisions of the toxic debt bailout, the last two big independent investment banks have decided to become bank holding companies. Goldman Sachs and Morgan Stanley will be fast-tracked for approval to become commercial banks. That kills the potential for a merger of Morgan and Wachovia. It also demonstrates how broken the Wall Street investment banking model has become. Dialed-down risk-taking and more regulation for Wall Street is clearly the trend of the future.
The major economic reports of the week will come out Thursday and Friday. There are a smattering of earnings announcements due today. But let’s >
Asian markets rose overnight on the tail of our rally Friday. Europe, however, is slightly lower and we will likely head lower as well.
At this point, adjusted for fair value, the S&P 500 futures are down about 19 points, the Dow futures are down 136 points and the NASDAQ futures are about 29 points below fair value.
September 19, 2008
If you have any money or investments and you weren’t scared yesterday, you just weren’t paying attention. The meltdown in financial stocks was one thing, but there were all the signs of a developing run on money market funds, which are the modern day equivalent in many people’s minds of a bank deposit account. The yield on the one-month Treasury bill actually went negative at one point yesterday. Yes, the demand was so high that buyers were paying more for T-bills than the interest they would have collected.
You may remember a bank run as something from the depression. Well, this morning Congress is digging yup some Depression-era tools to stabilize the system. For the next year, regulated money market funds (known as 2A-7 funds will, for a fee to be paid by the fund, be backed by the U.S. Government.
Also, the Fed will buy mortgage related securities from the banks to unburden their balance sheets AND the SEC has temporarily banned the practice of any short selling on the stocks of 799 financial institutions for the next two weeks.
These are still unfinished plans, they are extraordinary plans, but they were necessary plans as we really were looking into the abyss early on yesterday.
On the news, financial stocks are bid higher, some by almost 50 percent this morning. Overseas markets are generally up anywhere from 4 to 8 percent this morning. The Red Chip index in China closed up almost 14 percent.
The buying will continue in the U.S. at 9:30. At this point, adjusted for fair value, the S&P 500 futures are about 42 points higher, the Dow futures are up 300 points and the NASDAQ futures are about 64 points above fair value.
September 18, 2008
If you’re a long-haul investor, it was Baron Rothschild who advised to “buy when blood runs in the street.” Sir John Templeton said “buy at the point of maximum pessimism.”
After an 800 point drop in the Dow Jones Industrial Average this week, a 16 percent drop in the AMEX broker dealer index, and a loss of 109 points of the NASDAQ yesterday alone, blood is certainly running. Pessimism is certainly abundant as well. Whether we’re at a maximum level of that pessimism or wether more landmines await is the big question.
Two big developments overnight are helping the mood this morning. In a coordinated move among central banks, the liquidity in the system is being enhanced by hundreds of billions of dollars. The system is called capitalism, and you can’t run it without capital.
Secondly, the SEC has finally stepped up, effective today, and barred naked short selling of all publicly traded stock. They did this back in July with respect to 16 specific financial stocks and those stocks went on a substantial run higher. We’ll see what happens this time.
Morgan Stanley is reportedly in official merger talks with Wachovia this morning.
Oil’s up around 4 dollars per barrel, gold is up another 30 after a 70 dollar gain yesterday. Stock futures have been firmly higher all morning, although they are not as strong as they were very early on. At this point, adjusted for fair value, the S&P 500 futures are about 12 points higher, the Dow futures are up 87, and the NASDAQ futures are about 15 points above fair value.
September 17, 2008
We side-stepped a giant mess last night when the Government stepped in to effectively take over insurer AIG. Yes, technically it’s a bridge loan. However, the next steps will involve the sale of AIG assets, little or no equity value left for AIG shareholders as the taxpayers appear to be pretty well protected by the terms of the deal, as the government will effectively own almost 80 percent of the company. AIG shares are indicated down to about $2.75 this morning down about a buck from yesterday’s closing price.
There’s also chatter this morning that one of the last remaining big investment banks, Morgan Stanley, may consider seeking a partner.
In summary, the government is engaged, as it has to be at this point, but the system is still very fragile.
After falling in almost a straight line from 147.50 to 91 bucks, a barrel of oil is going for about 95 bucks this morning, up over three dollars.
On the flip side of the news, new mortgage applications and refi applications were way up oin the past week, as mortgage interest rates continue to drop. That is a trend that you have to root for as a key to stabilizing housing prices.
Asian markets were mixed, Europe is higher, but we’re probably headed a bit lower at 9:30. At this point, adjusted for fair value, the S&P 500 futures are down about 6 points, the Dow futures are down 39 points, and the NASDAQ futures are about 7 points below fair value.
September 16, 2008
Some days are more interesting than others. This is shaping up to be some day.
Shares of the giant insurer AIG closed at around 12 bucks on Friday, finished at $4.76 last night. They were bid a little higher earlier this morning, but are now hovering around $3 per share. We will get more AIG news before the end of the day, hopefully a private bailout will save the day.
At 2:15 this afternoon, if not sooner, we’ll get a statement from the Federal Reserve Open Market Committee. The likely course will be to hold short term interest rates steady at 2 percent, but there is a chance that a rate cut is in the offing.
Treasury Secretary Paulson testifies to the Senate Banking Committee this morning. Goldman Sachs beat their earnings estimate for last quarter by 10 cents per share on lower than expected revenue. Goldman stock is bid about 10 bucks per share lower. Best Buy announced earnings of 48 cents versus the expected profit of 57 cents per share.
On top of everything, Dell warned this morning that worldwide demand for PCs is slowing even more than they warned about when they released last quarter’s results.
Add it all up, it will be another volatile day with a lot of moving parts. Oh, did I mention that oil is down another 4 bucks per barrel?
Futures have been fluctuating a lot this morning. At this point, adjusted for fair value, the S&P 500 futures are down about 15 points, the Dow futures are down 52 points, and the NASDAQ futures are about 5 points below fair value.
September 15, 2008
They say that the third time is the charm. Evidently that’s because the fourth time, you’re out of luck. When Bear Stearns neared failure, the government said, “we’ll back you.” When Fannie Mae and Freddie Mac raised the white flag, the government backed them up. When push came to shove for Lehman Brothers over the weekend, the Feds said “enough, already.”
Lehman Brothers Holdings is filing for Chapter 11 bankruptcy. Merrill Lynch will lose its independence and be taken over by Bank of America. Ten of the remaining investment banks will create a 70 billion dollar fund to help avoid a run on troubled financial institutions. Speak of the devil, AIG is scrambling for about 40 billion of additional capital and its stock is down almost 50 percent in the pre-market. In short, Wall Street is under reconstruction and it will be a very volatile day.
If you’re looking for good news, light sweet crude oil is off over 5 dollars a barrel and is right around 96 dollars per barrel. We also have a Federal Reserve Open Market Committee meeting tomorrow and will certainly not get an interest rate hike, in fact there’s some speculation of a rate cut.
European markets are approximately 4 to 5 percent lower. Our futures are off their worst level of the morning, but we’ll be off to a rough start at 9:30. Adjusted for fair value, the S&P 500 futures are down about 38 points, the Dow futures are down 325 points, and NASDAQ futures are about 44 points below fair value.
September 11, 2008
There’s not a lot of financial news due out today, and it would probably be better if there was. A little something to take our thoughts off the events of seven years ago, the state of the credit markets and the continuing saga of Lehman Brothers and other financial institutions.
Shares of Lehman, which had spiked up to 10 bucks a share yesterday after their pre-announced earnings, are down around 6 bucks this morning..
We will get earnings from Campbell Soup, which are expected to be 25 cents per share. We’ll also get the weekly Jobless Claims which are expected to be unchanged from last week’s 444,000. But the big numbers of the week, the PPI and U 0f M’s Consumer Sentiment Index won’t come until tomorrow.
The good news of the morning is that it looks like Saudi Arabia is telling OPEC to shove off with their production cut plans. Light sweet crude is off another dollar this morning and is now under 102 dollars per barrel.
Overseas markets are off anywhere between 1 to 3 percent, and our futures have been on the slide as well. Adjusted for fair value, the S&P 500 futures are down about 13 points, the Dow futures are down 108 points, and NASDAQ futures are about 19 points below fair value
Today will be the tie-breaker. Monday was a wonderful day if you are invested in stocks. Yesterday, Monday’s gains went bye-bye. So far this morning, the futures were very strong early on, but are now pointing toward a mixed open at best.
The news of the morning came from Lehman Brothers. The short sellers piled on Lehman yesterday, dropping the stock’s price by 45 percent. That forced Lehman, which wasn’t due to announce earnings until next week, to report this morning, and it’s basically the report of a firm that has lost a lot of money and is in the process of disassembling itself. Lehman lost 3.9 billion on the quarter. That’s $5.92 per share, versus the expected $3.35. They’ll cut the dividend from 68 cents to 5 cents, spin off most real estate assets, sell a majority stake in asset management and shop whatever’s left.
Mortgage applications rose over 9 percent last week, with re-financings up 15 percent on lower interest rates. And that’s before the Fannie and Freddie conservatorship, which has dropped mortgage rates even more.
Overseas markets are all lower after our wipeout yesterday, and our futures, which indicated the Dow up well over 100 points just an hour ago are now pointing lower. Adjusted for fair value, the S&P 500 futures are down about 2 points, the Dow futures are down 29 points, although NASDAQ futures are about 14 points above fair value.
Employment firm Manpower issued its report on the job outlook for the fourth quarter, and it’s not a pretty picture. On a net basis, 9 percent of firms expect to hire in the fourth quarter, which is down from 16 percent a year ago and 12 percent last quarter. It amounts to the tenth consecutive quarter of declining sentiment, which is the longest in about 20 years.
If you’re looking for some good news, it looks like Hurricane Ike will take a path that runs south of many major oil drilling platforms in the Gulf. As a result, light sweet crude is down another 2 bucks per barrel or so in the neighborhood of $104 dollars per barrel.
It’s another strong month for Mickey D’s. McDonald’s same store sales world-wide were up over 8 percent. In the U.S. they were up 4½ percent.
A little later on we’ll get a report on existing home sales and a speech from Ben Bernanke. But outside of that, there’s not much on the docket.
Chine was flat overnight, Most other Asian markets were off one to two percent, but Europe is trending a bit higher, and so are the U.S. futures, although they’ve been sliding a bit during the last 10 minutes or so.
Adjusted for fair value, the S&P 500 futures are up about 3 points, the Dow futures are up 37 points and NASDAQ futures are about 6 points above fair value.
Obviously, the government’s takeover of Fannie Mae and Freddie Mac is the big story in the financial markets this morning. The Treasury will provide up to 200 billion dollars of funding and have put Fannie and Freddie under conservatorship. That doesn’t mean that taxpayers will lose 200 billion. In fact, there may be no loss at all. But let’s play our little number game to lend some perspective to that number. If you owed someone 200 billion dollars, and paid them a dollar every second, and had started doing so at the beginning of recorded history, about 3500 BC, you’d currently have about 800 years to go.
Like it or not, this move by Treasury HAD to happen. As with most really big economic problems, this one was started and exacerbated by Congress. Allowing a quasi-government guarantee to private companies and at the same time allowing those companies to lobby Congress to look the other way while they goosed their earnings with questionable practices – well, you get what we got.
The CEOs of Fannie and Freddie will be joined in the unemployment line soon by the CEO of Washington Mutual and the head of Lehman Brothers Asian and European operations as financial firms continue to clean house.
Fannie and Freddie stocks are indicated down 75% or so in the pre-market, but stock markets overseas are higher, and we’re talking 3 to 5 percent higher. We will rally at 9:30 as well. Adjusted for fair value, the S&P 500 futures are up about 36 points, the Dow futures are up 258 points and NASDAQ futures are about 40 points above fair value.
Traders sold everything in sight yesterday, on no apparently horrible news. Presumably, it may not have been yesterday’s news they were trading, but today’s. Ten minutes from now, the August Unemployment Report is almost uniformly expected to be a stinker.
The average estimate calls for a loss of 75,000 non-farm jobs and an unchanged Unemployment Rate of 5.7 percent. A job loss of 100,000 or more or a tick up in the Unemployment Rate would justify some of yesterday’s sell off. However, if we get better than expected numbers at 8:30, we should recoup some of yesterday’s dive.
It looks like Altria, is looking to buy smokeless tobacco producer UST. That would be a 10 billion dollar deal. Samsung is also said to be eyeing Sandisk, but no offer has yet been made.
Goldman Sachs downgraded Merrill Lynch from neutral to sell this morning, expecting more asset write-downs.
Adjusted for fair value, the S&P 500 futures are down about 6½ points, the Dow futures are down 43 points and NASDAQ futures are about 9 points below fair value.
September 4, 2008
September 3, 2008
September 2, 2008
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For an explanation of "fair value" please click here.