With the Congressional rejection of the Treasury bailout package lending from banks to small businesses has ground to a halt.
According to Forbes,"The Discover Small Business Watch index of economic confidence slipped to 74.6, down by 12.3 points from the prior month, representing the index’s second-lowest level since its inception in August 2006."
CMGI Inc. (NASDAQ: CMGI) is about to go through an investor transformation. The former Internet incubator is now mostly ModusLink and will reflect that change. It also released its quarterly earnings with its net revenue was $276.3 million, up 9.4% over the same period last year. On a non-GAAP basis its operating income was $6.3 million, down from $7.2 million in the same period last year. We don’t really have any great estimates from analysts to use for a comparison right now as it looks like the old figures were not updated. The company is also changing its name and stock ticker effective tomorrow.
Wachovia Corporation (NYSE: WB) has just resumed trading after its FDIC-led Citigroup Inc. (NYSE: C) "take-under" came in. By now you’ve already heard enough about the merger news and how ugly this was going to be for shareholders. In less than ten minutes of re-opening, Wachovia shares have traded more than 120 million shares of stock. The last print we saw was $1.94, down over 80% from Friday’s $10.00 close. The open print is being listed as $1.26 and so far the lowest print we saw was $0.98.
Interestingly enough, there is actually some value for common shareholders here. The remaining Wachovia is being given a payment by Citigroup. The remaining entity will also still hold A.G. Edwards and Evergreen Asset Management. What the actual value of those combined will be, well that is where the debate is.
Jon C. Ogg
September 29, 2008
Now that the Congress has voted against the Treasury bailout and the Dow has dropped700 points, the important question is whether they system can save itself before the market moves toward 9,000. That would wipe out over five years in gains.
The Treasury may move into the market with a combination of a rapid rates cut and an even larger increase in its commitment to buy Treasuries. That purchase program would have to move into the hundreds of billions of dollars very quickly.
Without private capital driven by low interest rates, it is hard to imagine the situation improving before early next year.
If Congress was worried that the bailout package was or wasn’t going to help, the failure out of the House of Representatives to pass the new bailout package just killed the stock market. As it stands right now, the tally came to 207 in favor and 226 votes against. Republican votes were 66 yes votes to 132 no votes. Democratic votes were 141 yes votes to 94 votes. The vote is still open to change so technically it isn’t on the funeral pyre yet. The vote is being kept open right now and votes can be changed. Until the gavel is hit, this result can be changed. Stocks briefly reached far worse levels than this snapshot at 1:55 PM EST.
DJIA 10,747.60 (-395.53; -3.55%)
NASDAQ 2,068.80 (-114.54; -5.25%)
S&P500 1,147.13 (-65.88; -5.43%)
10YR T-Bond 3.716% (-0.111%)
Jon C. Ogg
September 29, 2008
You know it’s a rough day in the market when even defensive stocks are weak or mixed. We are at least seeing a mixed bag from some of these. But the trend is a pretty easy one to see. Even defensive stocks aren’t acting as a safe haven as they have in prior months. Beer is up, tobacco is down. Food is up to mixed, but consumer products are mixed. Below you will see how our list of "go-to defensive stocks" is showing a mixed bag:
South African gold miner Gold Fields Limited (NYSE:GFI) posted its fiscal year 2008 earnings today. The company has been hit hard by higher costs, lower production, and a cave-in that killed eight miners. The company reported net profit for the year of $662.6 million on production of about 3.64 million ounces of gold. What is most interesting here is that the issues inside the company may offer some great insight to the problems inside other global gold miners.
In an SEC filing this morning, Grand Canyon Education sets its IPO terms. In the first indications, it looks like 10.5 million shares are being planned for sale in a range of $18.00 to $20.00 per share share. The company has the ticker of "LOPE" on NASDAQ.
It appears that a US-led bailout package may only be part of an effort to calm market fears. The Federal Reserve has announced a massive coordinated liquidity package to provide U.S. dollar liquidity. The Federal Reserve announced today several initiatives to support financial stability and to maintain a stable flow of credit to the economy during this period of significant strain in global markets. It says it will continue to adapt these liquidity facilities as necessary and, more importantly, will keep them in place as long as circumstances require.
In a sign that the entire market has gone under the sword, Apple (AAPL), Google (GOOG), and RIM (RIMM) have all breached their 52-week lows.
Apple dropped to $109, down from a 52-week high of $202.96.
Google hit $401.13, down from its 52-week high of $747. 24.
RIM (RIMM) broke down to $65.87 against a 52-week high of $148.13.
This weekend in Barron’s, the weekly publication published an article defending the valuation of Starbucks Corp. (NASDAQ: SBUX). Its article titled "Something Good Is Brewing" defened the company’s share price at current levels. We have our own thoughts on this one and this will follow up on our analysis back when shares were in the low $20’s. Now, its $18 target seems like the next stop on the way up…. if it makes it there.
Nouriel Roubini, economist and dark knight of the current crisis, today savaged the Paulson bailout in an article posted at his website.
Among his points: "purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system."
And "the claim by the Fed and Treasury that spending $700 billion of public money is the best way to recapitalize banks has absolutely no factual basis or justification."
"This way of recapitalizing financial institutions is a total rip-off that will mostly benefit – at a huge expense for the US taxpayer – the common and preferred shareholders and even unsecured creditors of the banks."
Douglas A. McIntyre
Wachovia Corporation (NYSE: WB) is the newest big bank that is being taken over in a government-sponsored deal. Citigroup (NYSE: C) is acquiring the bulk of the bank’s assets and liabilities in an FDIC-facilitated transaction. Citigroup will assume the senior and subordinated debt of Wachovia, and will absorb the first $42 billion in losses on a $312 billion loan pool. The FDIC is quick to say that Wachovia didn’t fail, yet it is also going to share in the losses.
Cardinal Health, Inc. (NYSE: CAH) is going to shuffle things up. The healthcare products and services company plans a tax-free spin-off of its clinical and medical products businesses as a separate public company. The new company will be led by current vice chairman David L. Schlotterbeck. Cardinal expects the deal to be completed by the middle of 2009.
These are some of the top analyst upgrades we have seen this Monday morning with about two hours to the open:
Jon C. Ogg
September 29, 2008
These are not all of the analyst downgrades this Monday morning, but these are some of the standout calls we have seen affecting shares early with more than two hours to the open:
Jon C. Ogg
September 29, 2008
The attention of the markets is focused in the wrong direction. The Treasury will probably get its $700 billion bailout bill. A number of banks and other financial firms will have their balance sheets buttressed. Credit availability may improve, but banks may hold on to a lot of the capital to shore up reserves against more write-offs due to a failing housing market.
Because the system is so badly damaged, it is unlikely that the economy will be suddenly awash in capital.
The Fed, working quietly, is building an insurance policy into the system and it may do more than the new "Emergency Economic Stabilization Act of 2008."
Congress has built all kinds of protections into the $700 billion bailout to keep the average citizen from having to foot the bill. If assets sold to the Treasury by financial companies have not regained their value in five years, the firms must pay the government back. That only works if the banks are still in business.
There will be oversight of the program so that Treasury cannot draw down the entire $700 billion all at once and use the money for a vacation in Mexico.
The package of salvation has been named the "Emergency Economic Stabilization Act of 2008." It may stabilize some big banks and a portion of the credit markets and may or may not cost taxpayers money over time. It almost certainly gives the troubled homeowner nothing.
The bailout plan proposed by Treasury and likely to pass Congress this week has not been nearly enough to calm world markets. The Heng Seng fell over 4%.
In Europe, at 5.35 AM, the FTSE is off 2.1%. The DAXX is down 2.7% and the CAC 40 is off by 2.6%.
Douglas A. McIntyre
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