Daily Archives: March 16, 2008

Asia Opens To A Terrible Beating, Some Shares Off Over 4% Early

The news that Bear Stearns (NYSE: BSC) was sold to JP Morgan (NYSE: JPM) and that the Fed would increase liquidity for primary dealers was too much for the Japanese market to bear. It sold off 3.4% in the opending minutes and is likely to be followed by drops in exchanges in China and other Asian countries as they open for Monday morning trading.

Hitachi opend down 8.3% to 623 yen. Mazda was down 4.8% to 341. NEC was off 5.1% to 376. Toyota (NYSE: TM) traded off 3.3% to 4920.

If US exchanges give up similar numbers, the Dow could easily open down over 300 points with some financial shares suffering sharper losses.

Douglas A. McIntyre

Posted on: March 16, 2008 – 7:57 pm in International Markets, ,

Federal Reserve Acts To Avert A Panic

The Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent. The Fed also authorized the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.

With Bear Stearns (NYSE: BSC) being sold to JP Morgan (NYSE: JPM) Wall St. is certain to be near panic. The 85-year sold investment bank was worth 30 times what it is being sold for less than a weak ago.

The central bank is making certain that financial firms can turn over paper that may be worth well under $1 for $1 worth of capital.

The Fed has become the lender of only as well as last resort.

Douglas A. McIntyre

Posted on: March 16, 2008 – 7:29 pm in Financial Stocks, ,

Bear Stearns (BSC) Wiped Out, JP Morgan (JPM) Takes Over

Most on Wall St. thought it would come to this, but few thought the price would be so low. JP Morgan (NYSE: JPM) will take over Bear Stearns (NYSE: BSC) for $2 a share.

A year ago Bear Stearns traded at nearly $170. The question now is whether the deal will cause a panic in the markets and pull down the shares of other brokerages and banks at the open.

Douglas A. McIntyre

Posted on: March 16, 2008 – 7:23 pm in Financial Stocks, ,

Bear Stearns (BSC) Will Probably Disappear Into JP Morgan (JPM)

According to The Wall Street Journal, JP Morgan (NYSE: JPM) is close to buying Bear Stearns (NYSE: BSC), just days after providing financial aid, which was backed by the Fed, to the brokerage.

The paper writes that "Reflecting the dire situation at Bear, the company is likely to fetch considerably less on a per-share basis than its stock price of $30 in New York Stock Exchange composite trading Friday at 4 p.m."

In other words, investors who bought the stock at $90 last month may end up with $9, or less, tomorrow.

Douglas A. McIntyre

Posted on: March 16, 2008 – 4:53 pm in Financial Stocks, ,

Financial News From Around The World 3/16/2008

According to Reuters, the head of the World Bank sees the US moving into recession and a slowdown in Europe but believes that developing countries are not being hurt by the current economic situation.

Reuters writes that the CEO of Merrill Lynch (NYSE: MER) does not think the company will have to raise more money and that its worst risks are behind it.

Bloomberg reports that housing starts probably hit a 17-year low last month and that factory output probably fell.

The Wall Street Journal reports that Alitalia’s board unanimously accepted Air France-KLM’s bid to takeover the troubled airline.

The Associates Press reports that wheat prices have tripled in the last ten months.

Douglas A. McIntyre

Posted on: March 16, 2008 – 12:05 pm in Press Digest,

Bleak House: Despair On The 52-Week Low List (GE)(VZ)(GOOG)(C)

Those rummaging through the garbage of 52-week low lists are usually bottom-fishing investors or desperate CEOs. But, the list is so broad that it has become a tableau of the market as a whole, especially the breadth of the market’s decline across almost every industry.

Not a single person in the world is surprised that financials like Bear Stearns (NYSE: BSC), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), and Cigna (NYSE: CI) hit bottoms last weak. Over in the car business both Ford (NYSE: F) and GM (NYSE: GM) dropped to lows. Perhaps more surprising Toyota (NYSE: TM), the world’s most successful car company, came close. Given its vast resources and cash position, that news said more than the GM or Ford numbers did.

Airlines, as expected, were crushed. AMR (NYSE: AMR) was at the front of the Charge of the Light Brigade. Retail would also expected to be down and many stocks in that sector were at bottom including the previously popular Best Buy (NYSE: BBY).

The newspaper industry, the dying art of people reading information off something other than a computer screen, also had a number of lows, led by Gannett (NYSE:GCI) and McClatchy NYSE: MNI).

If the painful trend ended here, with these sectors, it would at least be in line with what might be expected in troubled industries in a slowing economy. But, it does not.

Communications companies, in both telecom and cable, hit bottoms. Verizon (NYSE: VZ) did the limbo. So did Comcast (NYSE: CMCSA). These firms are known for the breadth of their businesses, astonishing cash flow, and iron-clads balance sheets. By the market’s logic, that data meant little.

Tech also was sucked under. That included some of the first class companies in the sector like Adobe (NYSE: ADBE), Nvidia (NASDAQ: NVDA), and Infosys (NASDAQ: INFY). This is worth some analysis. NVDA is expected to have a 37% increase in revenue this quarter and EPS that will move from $.28 last year to $.39. The company is down almost 50% from its 52-week high. Analysts expect Infosys revenue to be up 32% for the current period. Wall St.’s whirlpool is taking under strong companies as it pulls down the weak.

The same might be said for Big Pharma. Bristol-Myers (NYSE: BMY), Pfizer (NYSE: PFE), and Merck (NYSE: MRK) all posted lows. The markets have been worried about their product pipelines, but that issue has not become more acute recently and these companies are still, for the time being, cash machines. Most have yields above 1.5% and some are much higher.

Deep trouble has also extended to the internet content business which has done well since the tech crash of 2000. Last week TheStreet.com (NASDAQ: TSCM), CNET (NASDAQ: CNET), and IACI (NASDAQ: IACI) dropped to 52-week lows. Given the low fixed costs that these companies sport along with pristine balance sheets, they would seem to be due some break.

Older line media companies, which have said they are not seeing any profound slowing in their businesses we sold off in a near panic dropping CBS (NYSE: CBS) and Time Warner (NYSE: TWX) to the lowest end of their charts.

Alternative energy stocks, not so long ago darlings, pushed to new bottoms. Verasun (NYSE: VSE) and Trina Solar (NYSE: TSL) could not hold on. Even the high cost of oil could not give them buoyancy

The most stunning part of all of this is the capitulation of the blue chips. Boeing (NYSE: BA) hit a 52-week low. The Air Force contract it lost is not worth enough spread over its life to do any real damage. Google (NASDAQ: GOOG) bottomed telling Wall St. that a company with 60% market share and 50% earnings growth was not worth some premium.

And, General Electric (NYSE: GE), the market’s poster boy for American services and industry, hit its low for 52-weeks. It has not backed off its robust projections for EPS improvement. It credit ratings remain the envy of almost every other company in the world. Its business and geographic diversity are supposed to make it the business equivalent of Plato’s ideal of the perfect state.

To look for investor concern about how deep and long the recession will be, the 52-week low list may be the most telling set of numbers available. It is an unusually broad and deep data-base. It is about money, and without emotion.

The list is saying that things are worse off than they seem.

Douglas A. McIntyre

Posted on: March 16, 2008 – 11:49 am in HI/LOW, , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

E*Trade’s (ETFC) Hidden Value

Because of its exposure to mortgage-related securities, shares in E*Trade (NASDAQ: ETFC) have fallen from a 52-week high of $25.79 to $3.63. Over the last six months, shares of rivals Schwab (NASDAQ: SCHW) and TDAmeritrade (NASDAQ:AMTD) are relatively flat.

The value of the discount brokerage arm of E*Trade may be more greater than many investors think.

In the most recent Barron’s survey of the best online brokers, E*Trade received a better total score that either Schwab or TDAmeritrade and did substantially better than those companies in the categories of "range of offerings", "trading technology", and "costs". Those things are worth a great deal to retail customers. They are great leverage for the eventually value of the firm if one of its rivals wants to make an offer.

Douglas A. McIntyre

Posted on: March 16, 2008 – 8:08 am in Brokerage Firms, , ,

What If The Fed Only Cuts Half A Point?

"If wishes were horses, all the beggars would ride."

The market expects the Fed to take rates down .75% this week. According to MarketWatch "After the Bear Stearns news, market bets that the central bank will cut interest rates by 75 basis points next Tuesday jumped, pricing in a 100% chance of such as move, compared with 88% previously. The market also sees over 50% odds of an additional 25 basis points — which would bring short-term interest rates to 2% from the current 3%."

But, the tooth fairy left Wall St. last summer and is not likely to be back this year.

The Fed has a number of reasons to cut rates only .5%. Anything less than that would send markets down hundreds of points. But, governors of the agency still speak individually about concerns over inflation.

The inflation card has not been entirely trumped by other, equally valid concerns about the economy. But, the body of evidence that prices could spike up in the late part of this quarter is growing. Oil is at $110 and the effects of that are likely to hit gas and other petroleum products in the next several months. Wheat prices are now up three-fold in ten months. The price of food is going to be troublesome.

Metal commodities prices are also rising. Operations like car companies are seeing rising costs of goods which they cannot pass on to their customers.

If the Fed only cuts .5%, the markets are indeed likely to shudder. It still may be the best thing for all concerned.

Douglas A. McIntyre

Posted on: March 16, 2008 – 7:57 am in Economy

Goldman Sachs (GS) Earnings May Crush Wall St. Further

Shares in Goldman Sachs (NYSE GS): are only down about 12% over the last six months. That is about the same as the S&P. But, shares in peers Morgan Stanley (NYSE: MS) and Merrill Lynch (NYSE: MER) are off closer to 40%.

That makes Goldman’s earnings this week a critical bell-weather, perhaps more for other brokers than for itself. The firm still has the strongest balance sheet on Wall St. and is likely to make it through almost any downturn in the economy.

Goldman may do much worse than Wall St. expects. The Telegraph reports that the firm’s write-offs could hit $3 billion. That would halve earnings from the same quarter a year ago. The company is expected to writes down a large portion of its investment in the Industrial & Commercial Bank of China. "Goldman will also take a hit of about $1.6bn in its leveraged loans business, which has seen a marked decline in recent months amid a dearth in demand for trading bank debt. A further $1.1bn will be written down in connection with assets owned by Goldman’s principal investment area."

If the news out of GS is that bad, where does that leave its competitors?

Goldman Sachs may be able to handle these kinds of tough financial problems without raising more capital. The same is not likely to be true for the rest of the companies in the industry. And, new capital is hard to come by, as Bear Stearns (NYSE: BSC) found out last week. Private equity and sovereign funds may not be so ready to put money into a sector of the economy where they cannot see a bottom.

If the numbers at Goldman are bad, the real fall-out will be among the less hardy companies on Wall St.

Douglas A. McIntyre

Posted on: March 16, 2008 – 7:37 am in Brokerage Firms, , , ,

This week on Stockhouse March 10-14

Fed’s actions lead to extreme highs and lows in the markets this week.

The Fed and other central banks’ announced plan to ease subprime woes and S&P’s optimistic outlook for the financial sector couldn’t bring the Dow back from last week’s lows. The TSX was pulled down by commodities and energy, though a surge in gold stocks provided a short-lived boost on Thursday as gold hit the $1,000 mark.

Read More »

Posted on: March 16, 2008 – 7:17 am in Uncategorized

Bear Stearns (BSC) Investor Loses $800 Million

Joe Lewis, a British billionaire, has lost $800 million from investing in Bear Stearns (NYSE: BSC). Lewis has almost 10% of the brokerage company’s shares.

According to the Times ‘The huge paper losses could force Lewis to sell out of some of his other positions, according to traders, in order to meet margin calls from his lending banks."

Lewis still has the money to buy a tin cup.

Douglas A. McIntyre

Posted on: March 16, 2008 – 5:51 am in Brokerage Firms,

With New Dubai Project, Number Of Sovereign Funds Grows

Sovereign equity funds are huge pools of capital controlled by foreign governments. Most countries have one. Dubai is so rich is has decided it needs two.

The country currently has one large fund, Dubai Holdings. According to the Telegraphs "It is believed that unlike Dubai Holdings and its most high-profile investment vehicle, Dubai International Capital (DIC), the new fund is backed by state money and not just the personal wealth of the Maktoum family."

Perhaps the country got a new toaster at its bank for opening the second account.

Douglas A. McIntyre

Posted on: March 16, 2008 – 5:45 am in Private Equity

Goldman Sachs (GS) To Write-Down $3 Billion According To Media Report

Goldman Sachs (NYSE: GS) will take a $3 billion write-down when its announces its quarterly results, according to the Telegraph. That will cut the firm’s first quarter earnings by 50%.

"Goldman will also take a hit of about $1.6bn in its leveraged loans business, which has seen a marked decline in recent months amid a dearth in demand for trading bank debt. A further $1.1bn will be written down in connection with assets owned by Goldman’s principal investment area, the bank’s private equity arm."

If the numbers are that bad, brokerage and bank stocks are in for another substantial correction this week.

Douglas A. McIntyre

Posted on: March 16, 2008 – 5:31 am in Brokerage Firms,