Wall Street Breakfast: Must-Know News
- How low can they go? A end-of-day selloff pinned U.S. markets with brutal losses as investor pessimism continues to outdo the bleakest of forecasts. The Dow fell 678.91 points (-7.33%) to 8579.19, S&P's 500 index dumped 72.02 points (-7.62%) to 909.92, while the Nasdaq fell a 'milder' 95.2 points (-5.47%) to 1645. Global markets followed suit overnight, with Tokyo's Nikkei falling 9.6% to its lowest level since 2003, and deep losses in early European trading. The severe downturn is rapidly destroying global wealth: U.S. stocks shed $872B in market value on Thursday, $2.5T over the last seven trading sessions, and $8.4T since all-time highs exactly one year ago. Although the specific problems differ, the slump is already triggering comparisons to the extended bear markets of the 1930s and 1970s.
- Bank trio becomes duo. Wells Fargo (WFC) will become the largest U.S. bank by branches with its bid for Wachovia (WB), after Citigroup (C) withdrew from compromise negotiations late yesterday on concerns about the quality of some of Wachovia's assets. Wells Fargo, with a bid valued at $11.4B, expects the purchase to be completed by the end of the year, and denies it will have to absorb assets shakier than originally thought. The deal, unlike Citigroup's offer, will not need any financial assistance from the government. It is unclear whether Citigroup will drop its legal claims of up to $60B in damages from Wells Fargo and Wachovia. In after-hours trading, Wachovia +35.6%, Wells Fargo +2.7%, Citigroup +0.4%.
- Government considers next steps. As the financial crisis continues to worsen, the U.S. government is considering two dramatic steps to turn around, or at least slow, the damage: guaranteeing billions of dollars in bank debt and temporarily insuring all U.S. bank deposits. The moves, which would mark the government's most extensive intervention to date, are in discussion stages only. Full coverage for bank deposits would closely resemble plans recently unveiled by several European countries, including Germany and Ireland, and would likely extend to both corporate and retail accounts. Also, the Treasury is considering a plan to inject capital directly into banks, possibly by taking equity stakes, and wants to develop a voluntary program that would encourage healthy institutions to participate. The Treasury's plan could be activated within weeks.
- G7 actions betray unity partyline. French officials rebuffed the UK's plan to provide medium-term guarantees for interbank lending, which UK PM Gordon Brown hoped would become a blueprint for the G7, saying EU interbank lending is not paralyzed to the extent it is in Britain. The U.S. response was equally lukewarm, with Treasury Secretary Paulson stressing different nations have different needs. G7 finance ministers gather today in Washington. While they dearly wish to convey the impression of a unified response, in-fighting indicates that with the notable exception of a coordinated interest-rate drop, governments are determined to stick to their own rescue plans.
- AIG turns to buyers and borrowing. AIG (AIG) drew down another $9B from its government credit line, bringing its three-week Federal Reserve borrowing total to $70.3B. The bulk of the loan has so far gone to providing collateral to AIG trading partners on credit default swaps and covering losses in AIG's securities-lending program. As the threat of lending program losses grew, the Fed stepped in earlier this week and raised the original $85B emergency bailout loan to $122.8B. Meanwhile, AIG is racing to sell assets to pay off the Fed's loan, as frozen capital markets and falling stock prices 'put AIG in a severe cash bind,' but buyers have been hard to come by as financial markets continue to tumble. Down 25% yesterday, AIG's shares are down 5.9% in pre-market trading [5:52am].
- GE gives futures shot in the arm. U.S. equity futures rose from previous lows after bellwether GE (GE) met its EPS and revenue guidance, which it revised Sept. 25 "to reflect the current volatile environment" (see below). CEO Jeff Immelt was cautiously optimistic in his comments. While noting its financial arm, GE Capital, is not immune from the current credit market turmoil, he noted it continues to outperform financial services peers: "We are improving our margins and focusing these businesses on the right products and markets. GE Capital is on track to earn over $9 billion for the year." He said the firm's recent $15B capital raise makes it more secure, "consistent with being one of six Triple-A-rated industrial companies in the U.S.," but that it "could be used to play offense in the long term."
- Economists expectations: Almost as bad as reality. Economists surveyed by the WSJ now put recession odds at 89%, up from 60% a month ago. Starting in Q3, they predict three straight quarters of contracting GDP, which would be the first nine-month GDP contraction in half a century. "We're in the middle of a very dark tunnel," BNP Paribas' Brian Fabbri said. "Each day we see another crack in the system." 54% think the incoming President should launch an economic-stimulus package in January, up from 34% a month ago. While 98% think the $700B rescue plan will have a stabilizing effect, 33% say major problems will persist.
- Investors sour on Morgan outlook. Morgan Stanley's (MS) shares fell 26% yesterday as concerns grew among investors about the bank's future. Down 77% this year to a 10-year low, hedge-fund clients have recently pulled one-third of their money from the firm, the cost of protecting against a Morgan default has risen dramatically, and the firm is unable to issue new debt. Perhaps worse yet, Moody's Investors Service is considering a credit-ratings downgrade for Morgan, and market mayhem has forced the firm to turn to contingency funding plans including asset sales and pledging collateral to government lending programs. Morgan is counting on Mitsubishi UFJ's (MTU) $9B investment in the firm to calm investor fears and help ease balance sheet pressures. Though Mitsubishi UFJ's purchase price of $25/share is roughly double Morgan's current trading price, spokesmen from both companies say the deal is still on track.
- Credit stays frozen. As frozen credit markets refuse to thaw, the cost of default protection on corporate bonds reaches new global records amid investor concerns the credit crisis will trigger corporate failures as companies struggle to finance their businesses. Interbank lending remains limited, and borrowing from the Fed's expanded discount window continued its trend of setting new highs every week, as the total daily average rose to $420.2B vs. $367.8B last week.
- Oil demand withers. The International Energy Agency warned Friday worldwide oil demand growth is set drop to 15-year lows, and to remain anemic through 2009. It its monthly report, IEA said global consumption will rise by just 0.5% (400K barrels/day, down from 640K), and by just 0.8% next year. "We are seeing a substantial weakening in demand as gross domestic product estimates have come down in the face of the current economic problems," David Fyfe, the report's editor, wrote. Amid the uncertainty, one thing's for sure: "Prices remain very volatile, with unprecedented daily swings."
- Retailers fall short. The takeaway from September's same-store sales figures: With the exception of discounters, retailers are hurting. 71% of stores missed analyst expectations, while overall retail sales growth fell to just 0.8% - the worst since at least 2000. Abercrombie & Fitch (ANF), among the missers, said retail softness will likely continue unless "notable improvement in the macroeconomic environment and a return of consumer confidence." Kohl's (KSS) called demand 'need based,' shown by "stronger performance in children's and in more weather-sensitive regions." The Retail HOLDRS ETF (RTH) fell 5.2% Thursday, slightly less than the general market (Dow -7.33%), possibly indicating investors had feared even worse.
- Jobless claims. Initial jobless claims declined to 478,000 from last week's revised figure of 498,000 - better than economists's 480K consensus. The four-week moving average was 482,500, an increase of 8,250.
- Wholesale inventories. Wholesale inventories rose 0.8% in August, vs. +1.5% in July - better than the +0.5% consensus. Wholesale sales were down 1.0% M/M from a revised 0.8% drop in July, but up 13.4% from a year ago.
- RBC CASH Index. Consumer confidence took a nosedive: the RBC Consumer Attitudes and Spending by Households [CASH] Index dropped 32 points in October - the largest-single month drop since the index began in 2002. The current level stands at 37, vs. 69.2 in September.
Earnings: Friday Before Open
- GE (GE): Q3 EPS of $0.45 in-line. Revenue of $47.23B vs. $47.34B. Maintains dividend at $1.24. [PR]
- Host Hotels (HST): Q3 FFO of $0.31 beats by $0.03. Revenue of $1.17B in line. [PR]
- Infosys Technologies (INFY): FQ2 EPS of $0.56 beats by $0.01. Revenue of $1.22B (+19%) in-line. Says its liquidity position is strong. [PR]
Earnings: Thursday After Close
Today's Markets
- Asia markets closed heavily down. Nikkei -9.6% to 8,276. Hang Seng -7.2% to 14,797. Shanghai -3.6% to 2001. BSE -7.1% to 10,528.
- Europe mid-morning is deep in the red. London -7.5%. Paris -8.2%. Frankfurt -9.1%.
- U.S. futures: Dow -3.2% S&P -3.6%. Nasdaq -2.0%. Crude -4.9% to $82.38. Gold +4.3% to $924.80.
Friday's Economic Calendar
- 8:30 Import/Export Prices
8:30 International Trade
2:00 PM Treasury Budget - Notable earnings before Friday's open: GE, HST, INFY, PGR
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 33 comments:
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Jersey
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57 Comments
Oct 10 08:07 AM-
PennyPower
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2 Comments
Oct 10 08:13 AM-
Jersey
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57 Comments
Oct 10 08:13 AM-
Jersey
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57 Comments
Oct 10 08:15 AM-
pockyclips 2020
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154 Comments
Oct 10 08:27 AMIt would have been far easier to buy the 1 million mortgage defaults for $200 K each, give the deed to the occupiers of said homes, and tell the banks to wipe their a** with their credit default swaps.
I got my 401k statement yesterday; it sits on the coffee table unopened.
If W and the other jackasses on the hill don't pull any more stupid stunts, I'm probably out only 40% of my retirement savings.
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sieraromero
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90 Comments
Oct 10 08:36 AM-
sieraromero
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90 Comments
Oct 10 08:39 AM-
ping kong
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3 Comments
Oct 10 08:45 AMA colleague of mine asked me: "How related are bank reserves with the fall in the stock market?"
Specialists and stock dealers use to banks to finance purchases of shares being sold in the stock market.
However, given the current circumstances, banks are accumulating reserves at the Central Bank (The Fed).
Interest on these, are motivating greater accumulation.
This generates a brutal monetraria shrinkage and credit in the system.
Less money to buy or finance.
Here is an example:
Number of shares: 100
Size of the liquidity $ 100.00
Share price $ 1.00
Now, suppose there is nervousness in the market; people exits to sell, but there are monetary contracion
Number of shares: 130
Size of the liquidity $ 90.00
Share price $ 0.69
If there is panic:
Number of shares: 800
Size of the liquidity $ 90.00
Share price $ 0.11
This is what would be happening now in the market
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short WFC
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13 Comments
Oct 10 08:53 AM-
Jersey
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57 Comments
Oct 10 08:56 AM-
PennyPower
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2 Comments
Oct 10 08:57 AMSure beats workin'.
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ping kong
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3 Comments
Oct 10 09:02 AM-
long_on_oil
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104 Comments
Oct 10 09:12 AMIf that same company mentioned above had one share trade at $11 the market cap would increase $1billion (if only for an instant).
The bad thing is when you sell and take the cash you are helping the government reduce the money supply by the amount of your loss. Good for the government ...bad for you. It sure controls inflation. Heck, we can buy shares now at 1980's prices. How's that for controlling inflation.
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eddie64
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72 Comments
Oct 10 09:14 AM[1] Why would the SEC not reimpose the UPTICK RULE and indict NAKED SHORT SELLERS???? Assuming they do enforce the laws and are entrusted to ensure a fair market?
[2] Why didn't the Treasury propose INVESTING $300 Billion directly into banks, so @ the 10-1 loan-to-capital ratio creates $3 Trillion to lend, liquidity would be solid and credit/lending would have become normal again? Costing the taxpayers 33% of Bailout????
[3] What is the Governments plan to deal with countries no longer lending to US to fund our debt?
[4] What is goverment's plan to deal with oil production being cut by our "less friendly" suppliers causing prices to spike back towards $200/barrel?????
[5] What is Justice Dept doing to investigate, and indict all the Wall Street folks who caused this financial collapse, by exploiting enabling Legislation by their subserviant Congress????
Let me guess: THEY HAVE NO ANSWERS!!!!!!!!!
IMHO
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Jersey
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57 Comments
Oct 10 09:16 AM-
Jersey
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57 Comments
Oct 10 09:20 AM-
axelrod608
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312 Comments
Oct 10 09:21 AMSo what is happening in DC, NY and around the world is nothing more than a great experiment, based on assumptions that have never been proved.
Is it a double blind experiment that will provide statistical significance of its outcome ? No. The only double blind are the ringmasters running the show.
Can you fix a ?$40Trillion-in-losses problem wih a few $Trillion of taxpayers funds ? Unfortunately, we're going to find out. All of us. Whether we want to or not. Everyone on earth is being asked to pay for the greed and corruption of a handful of perps. And the folks running this experiment don't even want to put the perps in jal.
Hello Dow 5 000. Goodbye retirement.
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yolosetodo
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6 Comments
Oct 10 09:46 AMInfrastructure & renewable energy is the only way to do it.
Lets improve our roadways & bridges, put all overhead utilities underground when possible, kick off wind generating power plants & solar plants in strategic states. Nationalize the airlines & auto industry & revamp them. Tax payers are subsidizing them anyways, may as well own them.
Yes, a little socialism would not hurt. The same socialism we use for our police force, firemen, post office & teachers. Tax payer owned.
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Strike
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55 Comments
Oct 10 10:37 AMYolosetodo, the fundamental problem since time immemorial (or at least for the past century) has been the arrogance of the American capitalist elite in continually claiming that theirs is the most beneficial form of capitalism in existence. It is as if Europe, with its free education, universal health care, superior infrastructure and superior products (Germany sells exports more than America despite having only one-third of the U.S. work force) didn't exist. The same applies to the U.S. financial system which is a giant Ponzi-scheme that depends solely on selling the nation's mounting debt to other gullible nations. The U.S. manufacturing base has shrunk 60 % since the end of WWII, and GM/Ford are both bankrupt.
The problem is that Americans have gotten so used to flag-waving, anthem-singing and cheerleading that they actually believe their own B.S.. The sooner America learns from Europe the better.
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axelrod608
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312 Comments
Oct 10 10:47 AMConsider - a man closes his bank account , walks out with the cash. A man closes his hedge fund account and waits while the contractual time period elapses within which the hedge fund is required t pay - 4, 6, 8 weeks.
Now, look at the hedge fund selling this week. They are raising the cash to pay back depositors who closed out 4, 6, 8 weeks ago. Guess what the selling will look like in November ad December.
Happy Holidays !!
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Richard Collins; Claremont, CA
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158 Comments
Oct 10 10:49 AMDaniel Kowkabany
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notsosmart
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1255 Comments
Oct 10 10:53 AM-
Roy M.
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355 Comments
Oct 10 11:10 AM-
Econ 101
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56 Comments
Oct 10 11:27 AM-
axelrod608
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312 Comments
Oct 10 11:58 AMI have friends and relatives that are getting wiped out. My old friends in my chevy hometown are probably going to see their pensions and benefits disappear. All because a handful of greedy politicians and financiers couldn't do business using sound business principles. They belong in jail.
Unfortunately, it looks like the bystanders are going to take the hit, while the crashers walk away unscathed. It's not right. It's not fair. Then again, either is life. Only people can make it right, do the right thing. Too bad we don't have any of those kind of people in our Congres.
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User 276915
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2 Comments
Oct 10 12:10 PMOn Oct 10 11:58 AM axelrod608 wrote:
> Peppio - have a heart. Yes, the individual investor, on average,
> is way over their head. Sure, a few of us are still up 30% year-to-date,
> but most people who put their money, but more importantly, their
> FAITH in the system have been flushed down the drain. And while that
> is the logical consequence of playing a game one doesn't understand,
> it should not be construed that they are dumb. They have been defrauded.
> They are going to pay for the incompetence, greed, avarice and downright
> stupidity of a bunch of casino gamblers masquerading as financiers.
>
>
> I have friends and relatives that are getting wiped out. My old friends
> in my chevy hometown are probably going to see their pensions and
> benefits disappear. All because a handful of greedy politicians and
> financiers couldn't do business using sound business principles.
> They belong in jail.
>
> Unfortunately, it looks like the bystanders are going to take the
> hit, while the crashers walk away unscathed. It's not right. It's
> not fair. Then again, either is life. Only people can make it right,
> do the right thing. Too bad we don't have any of those kind of people
> in our Congres.
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Richard Collins; Claremont, CA
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158 Comments
Oct 10 12:12 PMDaniel Kowkabany
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long_on_oil
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104 Comments
Oct 10 12:24 PMWell we are now enjoying the results of the change. Lower gas prices - yes, country close to bankruptcy was the price we paid.
We are focusing on electing the president and we should be focusing on throwing the democrats out of congress.
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Unke AL
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21 Comments
Oct 10 03:14 PM