TheStreet.com's Jim Cramer says this administration's hallmark is coming too late to the party.
A headline came over the wires yesterday, and it caused me to throw my hands up in shock: The SEC is debating new short-selling rules for the market.
I said to myself, "They have to be kidding."
How can they be so obtuse?
How can they not get what is going on?
When the market bottomed on July 15, three things occurred:
the Congress got religion on the housing bill, and the president went along;
gasoline and oil peaked; and
the SEC finally decided to crack down on the reckless bear raids that were making it impossible for our financials to refinance.
The financials then rallied huge, just huge, and the prudent ones, like Merrill's (NYSE: MER) (Cramer's Take) John Thain, took advantage of the short-selling crackdown and first, brilliantly, said he didn't need capital, exacerbating the plight of the shorts, and then jammed on a gigantic equity offering that will let Merrill get through this period.
Today felt like a mini-me version of yesterday's 180-point DJIA sell-off. Again, thin volume persisted. Perhaps the oil traders got an upper hand on some weather forecasting models, putting Tropical Storm Fay back into the Gulf of Mexico with a very promising 25% chance of happening. This would put the oil infrastructure at risk. A super-high PPI report put wholesale inflation up 1.2% (double estimates) at the highest level since late 2006.
Below are the unofficial closing bell levels: DJIA 11,348.47 (-130.92) S&P500 1,266.86 (-11.74) NASDAQ 2,383.52 (-33.46) 10YR T-Note 3.842% (+0.026%) 52-WEEK LOWS Top Analyst Calls
Home Depot Inc. (NYSE: HD) showed a 24% decline in earnings with results at $0.71 EPS on a 5.4% drop in revenues to $21 billion. Estimates were $0.61 EPS and $20.6 billion. The home repair supplies and hardware retail beast shares were actually down almost 4% at $25.95 in today's final minutes after the sellers overpowered the bulls at the open.
Lehman Brothers Holdings Inc. (NYSE: LEH) felt the wrath of traders after reports that it would also sell a stake in its Neuberger Berman money management unit and on reports that CEO Dick Fuld was passing down some responsibilities to his #2. Shares were down 13% in today's final minutes.
The troubled Wall Street bank, which reportedly is set to take a $4 billion write down in the third quarter, is desperate to raise capital. The Wall Street Journal says it's shopping around its investment management business, which includes Neuberger Berman. During the second quarter, the business reported net revenue of $800 million, down from $1 billion a year earlier. Its assets under management were $277 billion. Though these results were hardly spectacular, they stood in contrast to the Capital Markets business, which reported negative revenue of $2.4 billion.
Selling the asset management business would bring in between $8 billion and $10 billion, according to analysts cited by the Journal. Lehman's market capitalization now stands at about $10.4 billion thanks to the 77% decline in the stock price this year.
"Any change in the unit's ownership structure would be bittersweet for Lehman," according to the Journal. "The division has been a strong performer ever since Lehman bought it in 2003, holding up well despite the mortgage crisis. While a sale would give Lehman a cash infusion, the investment bank would lose a steady source of revenue."
Lehman acquired Neuberger for $2.6 billion in 2003, and some unhappy Neuberger executives are eager to dump their shares, the paper said.
Not all investors, however, believe that all hope is lost. Lehman's shares rose Friday on a report that billionaire George Soros boosted his stake in the company.
If the sale goes through, there is no way that Lehman will be able to remain independent.
U.S. stock futures were lower Tuesday morning, indicating stocks would likely start the same. Investors' concerns about the financial sector dampened sentiment, but oil prices continued to decline and could offset some of the negative mood. Still, housing and inflation data are on tap before the market opens today. And of course earnings with The Home Depot already beating investors' expectations this morning but with Staples issuing a warning.
A day after smaller Lowe's (NYSE: LOW) reported a profit drop, The Home Depot (NYSE: HD) followed suit, reporting a 24% profit decline for the second quarter. It held onto its earnings outlook as second-quarter net fell 24% to $1.2 billion, or 71 cents per share. Sales declined 5.4% to $21 billion. Analysts had projected earnings per share of 61 cents on revenue of $20.58 billion. Home Depot shares rose 2% in premarket trading.
Other retailers scheduled to release earnings include discounter Target (NYSE: TGT) -- could it follow Wal-Mart's results? -- while Hewlett-Packard (NYSE: HPQ) is to report after the close -- AP preview.
Meanwhile, Staples, Inc. (NASDAQ: SPLS) issued a profit warning, saying that "Challenging market conditions continued during the company's second quarter, resulting in weaker than anticipated results in Staples' pre-acquisition business." Staples said sales increased approximately 3% and earnings per share decreased approximately 15% yoy. Shares of Staples declined nearly 6.5% in premarket trading.
Lehman Brothers Holdings Inc. (NYSE: LEH) is poised to lose $2.6 billion and it's trying to dump $40 billion worth of real estate from its books. The Wall Street Journal reports that Guy Moszkowski, a Merrill Lynch & Co., Inc. (NYSE: MER) analyst thinks Lehman could lose $2.6 billion -- while others expect a mere $1.8 billion loss. Lehman normally reports in mid-September but it may pre-announce earnings this month.
I always find it interesting when analysts -- particularly those who work for banks with their own problems -- offer bearish earnings outlooks for their competitors. But I have met Moszkowski and I found him to be both very smart and a straight shooter. The Journal reports that he "more than doubled his loss projection to $2.6 billion and predicts that Lehman will take a $4.5 billion hit from write-downs." It quotes him as saying that an additional markdown up to 20% related to Lehman's remaining $64 billion in mortgage and commercial real-estate exposure "seems like a lot but can't be ruled out." If that were to happen, Lehman might need to raise more capital.
Speaking of that real estate, FT.com reports that Lehman is in talks to dump $40 billion worth of commercial real estate assets and securities. FT.com reports that there is a wide gap in what the potential buyers -- Blackstone Group (NYSE: BX) and BlackRock (NYSE: BLK) -- and Lehman think those assets are worth. It also reports that the assets in question consist of mortgages and mortgage-backed securities that Lehman valued at $29.4 billion at the end of May and real estate assets then valued at $10.4 billion.
U.S. stock futures turned higher Monday morning despite a dip in the dollar and oil prices rising somewhat. Investors may focus on the financial sector again following some news while they await housing data later today. More inflation data is due Tuesday.
UnionBanCal (NYSE: UB) accepted a sweetened bid from Mitsubishi UFJ Financial Group (NYSE: MTU). After rejecting two previous offers, UB accepted MTU's offer to pay $3.5 billion, or $73.50 a share, for the remaining 35% portion of the California bank that it doesn't already own. UB shares are trading 11.85% higher in premarket action.
Staying in financials, Lehman Brothers (NYSE: LEH) may see some action after The Wall Street Journal said some analysts believe it could lose $1.8 billion during the quarter. LEH shares are 2% lower in premarket trading. Meanwhile, Barron's said a government recapitalization of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) is almost inevitable, wiping out investors -- and management. Shares are 2% and 6% lower respectively in premarket trading.
Lowe's (NYSE: LOW), the home improvement retail chain, reported results this morning. Lowe's profit fell for the fourth straight quarter as the biggest U.S. housing slump since the Great Depression slowed spending. Net income declined 7.9% to $938 million, or 64 cents a share, exceeding analysts' estimates by 8 cents. Sales rose to $14.5 billion from $14.2 billion. Lowe's raised guidance, but stayed within estimates.
The Wall Street Journal reports that Wachovia Corporation (NYSE: WB) is now the sixth major Auction Rate Securities (ARS) issuer to agree to buy back these long-term securities whose interest rates formerly reset in weekly auctions -- until those auctions failed in February. There seems to be a difference of opinion -- between New York's attorney general and the SEC and Missouri -- regarding the terms of Wachovia's deal.
Andrew Cuomo of New York thinks Wachovia will redeem $8 billion worth of ARS in November and will pay a $50 million fine. The SEC and Missouri Secretary of State Robin Carnahan said that Wachovia will buy back $5.7 billion by November 28th. The SEC said Wachovia will buy back an additional $3.1 billion in ARS in June 2009 according to the Journal. Wachovia seems to be leaning more to the two-step process outlined by Carnhan and the SEC.
Meanwhile, today's announcement leaves unredeemed the customers from the following top 10 municipal ARS issuers (their 2007 municipal ARS totals are in parentheses):
Bloomberg News reports that two more big banks -- JPMorgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS) have made offers of $7 billion to 30,000 holders of Auction Rate Securities (ARS) -- those long-term securities whose yields reset in weekly auctions until the auctions failed this February. JPMorgan and Morgan Stanley also agreed to $60 million worth of fines. This brings to five the number of large firms that have settled so far. The Wall Street Journal reports that of the big firms that have yet to settle, Goldman Sachs (NYSE: GS) is proving to be among the most unhelpful to its clients.
Meanwhile, the Wall Street Journal's James Stewart, who first got me writing about the ARS catastrophe, has finally broken his silence. And he seems to think that the ARS mess is much worse than he originally thought back in February. Stewart was shocked that brokers were unloading this toxic waste on customers so they could get it off of their books and out of the accounts of their executives. Stewart's reaction struck me as surprisingly naive -- particularly considering his long track record of reporting on Wall Street misdeeds.
Nevertheless, the problems with the frozen ARS continue to stress out investors who fell victim to Wall Street's chicanery. Among the top 10 municipal ARS issuers, the following have yet to offer any restitution to ARS holders (the value of their 2007 ARS issuance is in parentheses):
TheStreet.com's Jim Cramer says struggling banks can be shorted to oblivion now that the rules won't be enforced.
Memo to the FDIC: Watch your back. The SEC just flipped its allegiance to the bad guys, the guys who want to break not just certain banks, but your bank! That's right, with the scrapping of the emergency rule that eliminated naked shorting, where you don't have to find the stock, and with the end of the vigilance against bear raiding, the SEC may have just caused a run at the FDIC.
I had hoped that the SEC would see that these financials have been manipulated to unreasonable levels, making the confidence in all institutions so low that nobody wanted to give them money. The rule change -- which when you think of it, wasn't much of a rule change as much as an enforcement of the way things are supposed to be, where you actually have to find the stock you sold short first so you don't fail to deliver -- worked!
It gave the system some breathing room. I think the rule change might have saved Merrill Lynch (NYSE: MER) (Cramer's Take) from being shorted into oblivion so it couldn't have done its deal. Lehman (NYSE: LEH) (Cramer's Take) didn't do a deal, those bad boys be back on the griddle now for unknown European exposure. AIG (NYSE: AIG) (Cramer's Take) wasn't protected in the first place and I believe will need to raise $10 billion to $15 billion in the teens to cover its European exposure. Now there's little hope at all for Fannie (NYSE: FNM) (Cramer's Take) or Freddie (NYSE: FRE) (Cramer's Take), as their stocks will be blitzed into oblivion and Hank Paulson will have to start the planning of cash infusions as opposed to what he said last Sunday -- why did he say that, for heaven's sake? Maybe he's too close to John "We don't need capital" Thain from their Goldman (NYSE: GS) (Cramer's Take) days.
CNNMoney notes that Morgan Stanley said it would offer to repurchase all ARS "held by individuals, charities and small and medium-sized business with accounts of $10 million or less at the bank." Morgan Stanley will begin to start buying back $4.5 billion worth of ARS on September 30th and will "make its best effort to provide liquidity solutions" for institutional investors by the end of 2009. But New York attorney general Andrew Cuomo is not satisfied with Morgan Stanley's proposal.
Meanwhile, the list of big ARS issuers that have not settled grows shorter. Here are six holdouts (with their 2007 municipal ARS issuance in parentheses):
Yesterday the Dow Jones Industrial Average was down 225, so I decided to peg the financial stocks I wrote about investing in as a pool. We are often accused of bragging on the good days and having memory loss on the bad so I wanted to be transparent and forthright on the downside.
To my surprise the financial stock pool is actually up 9.96% on average. Six stocks increased in value, two were down and two stocks were even money. The big winner was MBIA Inc (NYSE: MBI) up over 68%!
In the same time frame the DJIA has gone from 11,397.56 to 11,431.43 (even) and the S&P has gone from 1263.2 to 1266.06 last night, for basically no change either.
The market is rebounding as I write so I expect the news is even better. Although, this pool of stocks beat the market so far in the short run, I hope to track this group for a year, or at least until Major League Baseball's spring training opens in 2009.
After nearly six months of stalemate, things are finally starting to happen for holders of Auction Rate Securities (ARS) -- the $330 billion of long-term debt whose yield used to reset in weekly auctions. This morning, The Boston Globe reports that UBS AG (NYSE: UBS) is poised to announce that it will redeem $19.4 billion worth of ARS and pay $150 million in fines, split between Massachusetts and New York. UBS follows Citigroup, Inc. (NYSE: C) and Merrill Lynch & Co., Inc. (NYSE: MER), which yesterday announced plans to redeem over $17 billion worth of ARS.
Why should you care? If you have money frozen in these securities, the reason is obvious. If not, what's happening here suggests three lessons for investors:
Don't buy without knowing. Before you buy anything a broker is trying to sell you, read the prospectus, find out how the broker will be compensated for the sale, and if you don't understand what you're buying, don't buy it. Many people bought based on broker pitches that ARSs were cash equivalents, highly liquid, and yielded slightly more than money market funds. It turns out that ARS auctions started failing publicly last September.
If your money becomes illiquid, make alot of noise. ARS investors contacted government officials and the media in an organized way. The public attention led to investigations by legal officials. That attention uncovered UBS e-mails demonstrating that brokerage firms decided to dump the toxic waste from their own books to the accounts of their individual customers -- even as their executives dumped the securities from their own portfolios.
Merrill Lynch & Co., Inc. (NYSE: MER) announced that it would follow Citigroup, Inc. (NYSE: C) in redeeming its Auction Rate Securities (ARS). Unlike Citi -- which plans to redeem $7 billion worth of ARS by November -- Merrill will take its sweet time. According to MarketWatch, from January 15, 2009, and through January 15, 2010, Merrill will "offer to buy at par" $10 billion worth of ARS it sold to 30,000 retail clients.
This is good news and it should get the ball rolling. But there are still at least $300 billion ARS which are not yet redeemed. The list of issuers reads like a who's who of the banking world. For instance, the Wall Street Journal reports that the top 10 municipal ARS issuers at the end of 2007 were as follows:
Today's markets started out strong and got stronger.
If you were a conspiracy theorist you might even make a crack noting that Wall Street had already seen the dovish FOMC comments which signaled that rate hikes are not a certainty until after the election. Throw in a substantial drop in oil to new recent lows of under $119.00 per barrel, and the rest is all gravy.
Here are today's unofficial closing bell levels: D.J.I.A. 11,615 (+331) S&P500 1,283.28 (+34) NASDAQ 2,347.36 (+62) 10YR T-NOTE 4.007% (+0.035%) 52-Week Lows Top Analyst Downgrades Top Analyst Upgrades
Archer-Daniels Midland Company (NYSE: ADM) saw shares down over 5% in today's final minutes. Despite the stock being close to new fresh lows, traders were very unenthusiastic after the company missed earnings expectations.
Lehman Bros. (NYSE: LEH) has battled hard against allegations of improper accounting as well as rumors (and evidence, but hey) the company is facing severe problems that could threaten its viability. The firm accused short sellers of spreading malicious rumors designed to bring the company down.
Now Bloomberg reports that Lehman has stopped covering Japan's consumer lenders. It has also retracted past research on the industry after Aiful Corp. threatened to sue Lehman over a report by an analyst suggesting that the company could be insolvent.
Lehman issued a statement saying that "all previous ratings and forecasts should no longer be relied upon,'' which has to be seen as an admission of poor research.
The irony here is just priceless: Lehman is battling short-sellers raising questions about its solvency while its own analysts over in Japan are raising questions about the solvency of consumer lenders there. Then Lehman basically admits that its analysts screwed up and just stops covering the entire industry.
It makes you wonder whether Lehman's people just don't really know much about solvency. If they can't tell whether Japanese lenders are OK, and admit that, how much faith can you have in the company's reassurances about its own balance sheet?
TheStreet.com's Jim Cramer says this administration's hallmark is coming too late to the party. 
Today felt like a mini-me version of yesterday's 180-point DJIA sell-off. Again, thin volume persisted. Perhaps the oil traders got an upper hand on some weather forecasting models, putting Tropical Storm Fay back into the Gulf of Mexico with a very promising 25% chance of happening. This would put the oil infrastructure at risk. A super-high PPI report put wholesale inflation up 1.2% (double estimates) at the 
Lehman Brothers Holdings Inc.
U.S. stock futures turned higher Monday morning despite a dip in the dollar and 
The 
Yesterday the 
After nearly six months of stalemate, things are finally starting to happen for holders of Auction Rate Securities (ARS) -- the $330 billion of long-term debt whose yield used to reset in weekly auctions. This morning, 
Today's markets started out strong and got stronger. 
Slow approach to raising bank capital loses the race against write-offs
Cramer on BloggingStocks: The SEC's waffling will be deadly
How Fannie and Freddie will fail
