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Wall Street Breakfast: Must-Know News

by: SA Editor Rachael Granby October 10, 2008 | about stocks: AIG / ANF / C / DIA / GE / GLD / HST / INFY / KSS / MS / MTU / QQQQ / RTH / SABA / SPY / USO / WB / WFC    
Rachael Granby

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Rachael Granby

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  • 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

  • Saba Software (SABA): FQ1 EPS of $0.00 misses by $0.02. Revenue of $25.3M vs. $26.6M. [PR]

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

Seeking Alpha editor Eli Hoffmann contributed to this post.


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This article has 33 comments:

  •  
    Oct 10 08:07 AM
    It seems inconceivable, but given the fact that all logic and traditional rules have gone out the window is it possible for the Dow to actually go to zero? If not how close to zero might it come? Is contrarian investing absolutely insane at this point or is it possible it might have a huge pay off? I just don't know what to think anymore, I don't even know what to imagine anymore.
    Reply
  •  
    Oct 10 08:13 AM
    Now that nearly everyone is out of the pool I'm ready for a swim.
    Reply
  •  
    Oct 10 08:13 AM
    I guess it's just that when some of the best and brightest economist start talking about end of the world scenario's one begins to wonder if people are starting to jump out of windows again. Like I said, I don't know what to think any longer and hope someone can put things in perspective or a better light at least. All the cash that has been tossed into this fire seems to have only made things worse.
    Reply
  •  
    Oct 10 08:15 AM
    You have quit a set on you penny, I'll give you that much.
    Reply
  •  
    Oct 10 08:27 AM
    Over $8 trillion in American wealth lost over the last year, along with our good name? How pathetic. Some one should be hung. I'm not kidding. They used to hang people for stealing horses. They should punish these fat bast**d MBAs for creating this disaster. All golden parachutes should have their ripcords cut!

    It 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.
    Reply
  •  
    Oct 10 08:36 AM
    AIG executives i have heard are taking another $440,000.00 retreat for their top executives. They don't have to worry about expenses though, as the american taxpayer just provided them with another 9 Billion.
    Reply
  •  
    Oct 10 08:39 AM
    The market is rigged! I wonder if this is happening because baby boomers were getting close to retireing or worse yet retireing early. This meltdown has certainly delayed the Social Security problem for awhile, as many people that I know are putting off their retirement plans for now.
    Reply
  •  
    Oct 10 08:45 AM

    A 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
    Reply
  •  
    Oct 10 08:53 AM
    u left out ibm announced good earnings yesterday
    Reply
  •  
    Oct 10 08:56 AM
    Ping, To clarify, by "size of liquidity" are you referring to market cap? I need to try to understand as much as I can right now. Thanks.
    Reply
  •  
    Oct 10 08:57 AM
    I feel like I'm at a garage sale and all the "good stuff" is offered at a quarter. I'll just take it home and have my own sale in a month or two.

    Sure beats workin'.
    Reply
  •  
    Oct 10 09:02 AM
    size liquidity= dealers and specialist cash on bank
    Reply
  •  
    Oct 10 09:12 AM
    It all boils down to market cap. If a company has 1 billion shares at $10 each it has a $10 billion market cap. If someone sell one share at $9 the entire market cap drops $1billion. This insanity is creating just that. If all of us would hold our shares and not be willing to sell at these low prices this thing would turn around. Don't let the shorts borrow your shares because when you do you are financing your own destruction.
    If 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.
    Reply
  •  
    Oct 10 09:14 AM
    Questions to Government:
    [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
    Reply
  •  
    Oct 10 09:16 AM
    I haven't sold a single share but I am considering buying a position in fruit of the lome
    Reply
  •  
    Oct 10 09:20 AM
    Damn, 9:20 and futures are down 411 ... take a breath and hold on tight guys
    Reply
  •  
    Oct 10 09:21 AM
    Bernanke is "a student of the Great Depression". Students like him are fond of pronouncing what was done wrong then and of THEORIZING what actions woulda/coulda/shoulda/... have made the situaton better (less worse ?).

    So 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.
    Reply
  •  
    Oct 10 09:46 AM
    In order to stop this depression, whoever gets elected, Is going to have to produce 3 million good paying jobs within the first 6 months or we are done.
    Infrastructure & 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.
    Reply
  •  
    Oct 10 10:37 AM
    Sorry, Seeking Alpha moderators, I hit the wrong button and reported yolosetodo for abuse instead of responding to his extremely logical and valuable recommendations.

    Yolosetodo, 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.
    Reply
  •  
    Oct 10 10:47 AM
    Right on, Strike. And the terminally destructive actions being taken by B & P to reinflate the credit bubble will pop what's left of the financial ifrastructure like a balloon meeting a pin.

    Consider - 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 !!
    Reply
  •  
    Oct 10 10:49 AM
    If there is any good news, then it would have to be that Morgan Stanley took a hit yesterday. They have been downgrading everybody else for the last month. I don't know why anybody would listen to a company that can't manage their own business. Unfortuantly the Cramers and Morgan Stanley's do more damage than good. Example: The Market was going up yesterday until some jackass downgraded General Motorist credit rating and the market turned around and went down almost 800 points. Was that necessary? Everybody and their brother knew GM was in trouble.
    Daniel Kowkabany
    Reply
  •  
    Oct 10 10:53 AM
    the new motto printed on our monopoly money should read"TOO BIG TO FAIL,TOO MANY TO JAIL".I think the world learned a hard lesson about the good old usa as this toxic paper will hurt many & will be remembered for a long while.
    Reply
  •  
    Oct 10 11:10 AM
    hey, pockyclips, you are one of those who blame everything except yourself. Trading stocks is just like going into business yourself, if you do not manage your business well, you take the loss, how can you blame others for your failure ? If you can't take the heat, get out of the kitchen.
    Reply
  •  
    Oct 10 11:27 AM
    When all the economists are saying we are headed for armagedon it might be a good thing. What other group has been more wrong?

    Reply
  •  
    Oct 10 11:58 AM
    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.
    Reply
  •  
    Oct 10 12:10 PM
    Excellent Post! My sentiments exactly. We as AMERICANS need to stand up and say "Enough is Enough". Please vote the BUMS OUT this November.


    On 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.
    Reply
  •  
    Oct 10 12:12 PM
    Good comment axelrod608, I couldn't agree more. We should pick our politicians the way the Pros pick their coaches and assistant coaches. They don't pick inexperenced coaches out of High School.
    Daniel Kowkabany
    Reply
  •  
    Oct 10 12:24 PM
    If the so called experts don't have a clue as to what to do how in the heck is a candidate with 143 days experience in the US Senate going to fix this mess. Wake up people the closer Obama gets to the presidency the more the markets fall. The market was at an all time high and everything was going great until the democrats promised to lower gas prices and change things 2 years ago.
    Well 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.
    Reply
  •  
    Oct 10 03:14 PM
    Let's put the blame for this fiasco where it rightly belongs-- at Alan Greenspan's doorstep. While he was in office he either allowed or personally devised many of these "creative" financial (no money required) instruments to function. As long as bankers were raping the public - that was O.K.-- but once they began passing the hot potato to each other then the game had to stop. Now Alan's running around saying "no-one could have foreseen this debacle". Such performance must have been sanctioned by the administration looking to stay in power. Will our "leaders (?)" also now allow the company officers responsible for promoting these schemes to go retire wealthy or will some of them finally be put in jail.

    Just think of it this way--If you took all of the bank robberies that have occurred worldwide in the last 2000 yrs. the robbers would have taken less than 1% of what is now being taken from the public by these officials with their clouded transparencies and unethical actions -- proving once again that the pen is mightier than the sword !
    Reply
  •  
    Oct 10 04:14 PM
    From these comments it dose'nt appear there are many , if any, off in left fleld.
    If we are the only observers viewing these comments then the full effect we try to make is not hitting the mark. I believe these comments belong
    in media everyone can view, or be quoted, by Commentators of all news media.

    The unamerican attitude I see, ie, the national debates "do not disply the American Flag on the debate floor. Is this another example of how Americanism is being ignored. I would think one od the debaters would insist the Flag be displayed, but it appears the more powerfull debater is winning that argument as well. Just another direction I see us going with out . I hope we don't arrive to early.
    Reply
  •  
    Oct 10 05:19 PM
    all the yak,yak. too late.they got away.
    Reply
  •  
    Oct 10 07:24 PM
    Awe Shucks – What’s the Matter – That Golden Calf – Not Coming Through?

    You see – It was simple and easy – Greed always proceeded a fall – Of all the most powerful Nations through out History.

    Even less then a Hundred years ago – There was also a great fall – But did anybody learn – Greed was the cause – NOPE – Now here we go again – Hitler was born out of that last – Golden Calf Builders greed.

    So now we must ask ourselves – What – Have we planted – and - What will grow out of this greed – Planted seed?

    Through out History – You have been warned – Countless times.

    When you go to sleep – ask yourself – What have you planted – For your children to bear – Will that cross be heavy or shall it be light – But either way – It might be - a trip to the hill.
    Reply
  •  
    Oct 12 05:39 AM
    "long on oil" , you are 100% correct. The problems are those numheads at the Congress.
    "pockclips", my apology to you. Got over the line there. Sorry.
    Reply
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