The Ticker
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Apple Bruised by the Economy
Continue reading… 5 CommentsApple (AAPL) isn't immune to worries about consumer spending. With its shares off more than a third over the last month, and yesterday's 18 percent drop on this week's spate of new analyst downgrades, it looks like most parts of the business are feeling the pinch.
Here's a rundown of the latest analyst opinion:
Morgan Stanley: PC shipments show a shift to cheaper sub-$1,000 computers, away from Mac's higher price point. Some 70 percent of Mac sales are above $1,500. Lower iPhone and Mac orders were also a problem. Morgan cut its rating to equal weight from overweight.
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Swedish-Style Bailout More Likely
Continue reading… 0 CommentsOpponents of the stalled $700 billion bailout plan keep tossing out charges of "creeping socialism" as a legitimate reason to block the bill. (We're looking your way, Senator Bunning.)
Merrill Lynch says the pain caused in the credit markets could mean more government intervention, even a Swedish-style bank takeover.
This from Michael Hartnett, Merrill's emerging markets equity strategist:
The Good Looking Swedish Model
The failure of TARP legislation worsens the short-term credit situation. But in so doing it increases the likelihood of a Swedish-style recapitalization of the banking sector in the US. This chemotherapeutic event marked the September 1992 equity low in Sweden. In stark contrast, the Japanese preference for the morphine of a "Price Keeping Operation (PKO)" at exactly the same time condemned Japanese equities to a multi-year bearish trading range.
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Bailout Rejected
Continue reading… 16 Comments"Idiots, idiots, idiots. You just guaranteed a recession."
That's Jeff Saut, chief investment strategist at Raymond James, who, like many market watchers, is furious at Congress's latest failure to pass the proposed $700 billion bailout for the financial sector. The House of Representatives rejected the measure 228 to 205.
Credit markets seized up, and stocks plunged on the news of the worst possible outcome today for an already dysfunctional Wall Street.
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The Economy: Getting Weaker
Continue reading… 0 CommentsSunny pundits were chanting a special number over the past few months: 3.3 percent.
That's how fast the economy grew in the second quarter from a year ago. Except it didn't. Today, revisions to the data show gross domestic product grew more slowly, at an annualized 2.8 percent rate. Upward momentum is welcome, but there are lots of worrying signs. Gross private investment fell 11.5 percent, accelerating from a 5.8 percent decline in the first quarter. The biggest revision was consumption—1.7 percent from 1.2 percent—which bodes poorly for the current pace of consumer spending.
A couple of points from Bank of New York currency strategist Michael Woolfolk:
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Top 10 Bank Failures: WaMu Heads the List
Continue reading… 6 CommentsHere's a list of the top 10 bank failures of all time from Reuters. WaMu is No. 1.
1. Washington Mutual of Henderson, Nev., and Park City, Utah: Seized September 25 with $307 billion in assets as of June 30.
2. Continental Illinois of Chicago: Collapsed in 1984 with $40.0 billion in assets.
3. First RepublicBank Corp. of Dallas: Failed in 1988 with $32.5 billion in assets.
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Washington Mutual: Not the Last Domino
Continue reading… 0 CommentsWhat sort of week would it be without a massive failure in the financial system?
Washington Mutual's failure, seizure by the government, and subsequent $1.9 billion fire sale to JPMorgan Chase & Co. could hardly come at a worse time.
As Congress, the White House, and regulators continue to dither over the proposed $700 billion bailout, the decline and fall of another of America's most storied lenders is a road map for how this crisis will continue to unfold until some sort of relief is offered up (though a bailout still won't stop the damage in its tracks).
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Bush: Rescue Plan Will Pass
Continue reading… 2 CommentsHere are a few highlights from President Bush's brief speech this morning. (Below is pretty much the entire thing; it was less than five minutes long):
We need a rescue plan.
We've got a big problem.
We also need to move quickly.
There is no disagreement that something substantial must be done.
The legislative process is sometimes not very pretty, but we are going to get a package passed.
Not pretty and hardly reassuring. The speech does nothing to comfort markets. They're lower today, with bank stocks leading the way down.
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A Bailout Deal Gets Done
Continue reading… 4 CommentsAfter a nearly weeklong deliberation, Congress has reportedly reached an agreement on the $700 billion financial sector bailout.
Early reports say the bailout will come in installments, starting with $250 billion available immediately and an additonal $100 billion block to follow if needed, the WSJ is reporting.
The Journal quotes Republican Sen. Bob Corker of Tennessee as saying, "I believe that we will pass this legislation before the markets open on Monday."
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Fortress Likes Financials
Continue reading… 2 CommentsPrivate-equity firm Fortress Investment Group (FIG) says it won't pay a third-quarter dividend so it can invest in...the financial sector.
"Given the significant dislocations in the world's financial markets, we see tremendous opportunities for the firm to invest capital and to grow and diversify our business. In particular, we are focused on potential investments in banks, insurance companies and other asset-management businesses," CEO and Chairman Wesley Edens said.
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Bailout Video Roundup!
Continue reading… 1 CommentCNN goes for the newly popular "What's $700 billion look like?" meme.
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Ike, Gustav, and the Bailout
Continue reading… 1 CommentThe financial meltdown may be getting all the attention this week, but a third of Houston is still without power and the economic costs of hurricanes Ike and Gustav are mounting, adding more pressures on an economy that was muddling along even before the latest storms—real or on paper—slammed the Gulf and Lower Manhattan.
The combined costs of Hurricane Ike and Hurricane Gustav will be second only to Katrina. Damage from this month's storms will reach $42 billion (Katrina cost about $81 billion), according to Action Economics, which writes:
This is still a sizable jolt that will have large effects on the reported economic data over the next few months, even though markets are clearly now much more focused on the Treasury bailout plan.
The fallout could include lower personal income growth, slower retail sales, and slower third-quarter growth in the gross domestic product—all headwinds the markets don't need right now.
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Goldman, Buffett, and Congress
Continue reading… 0 CommentsWarren Buffett's $5 billion investment in Goldman Sachs stock and his nod of approval for the Treasury Department's bailout plan offer one vote of confidence for the markets. The Oracle of Omaha told CNBC he describes the threat as an "economic Pearl Harbor" that makes a government bailout "absolutely necessary."
Goldman raised a total of $10 billion in funding, and Buffett has an option to buy another $5 billion in common stock over the next five years (the first $5 billion is in preferred shares).
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The Crude Fake-Out
Continue reading… 3 CommentsShort sellers may be banned in much of the rest of the world, but it appears they're still playing in the oil patch.
Yesterday's meteoric rise in crude prices cooled right back down this morning. Was the $16-a-barrel jump caused by a short squeeze? Fear of failure of the government's financial bailout plan?
Probably the former, analysts say. It works like this: Short sellers bet the price of oil is going down and agree to sell their contracts at a lower price than the market is offering. If oil prices go up, they can face calls for big capital infusions to insure their bets. If they're still on the wrong side of the trade when monthly contracts expire (as they did on Monday, for delivery of October crude), shorts are forced to unwind their bad bets or take physical delivery of the oil. A frantic scramble to get out of those contracts boosts short-term market prices. By the next morning, markets digest the trades and return to more normal levels.
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Google Takes on the iPhone
Continue reading… 0 CommentsToday's release of the G1 handset marks the start of a major new opportunity for Google, and it's less about selling phones than about expanding Google's mobile platform.
The G1 basics: offered by T-Mobile for $179 with a two-year contract, touch-screen, Amazon.com music store access, full keyboard
Walt Mossberg calls it "the first real competitor to the iPhone."
Ahead of the launch, analysts told Bloomberg that the Dream rollout probably won't match the hype surrounding the iPhone, and most analysts expect fewer than 500,000 of the phones to sell over the next three months.
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Oil Soars: Is the Rally for Real?
Continue reading… 2 CommentsOil prices skyrocketed today by more than $25 a barrel to $130, the single-largest intraday gain ever, before falling back to close up $16 a barrel— still the biggest one-day gain since oil began trading on the New York Mercantile Exchange in 1984.
The jump is even more striking because it comes on the first trading day following this weekend's move to craft a $700 billion financial sector bailout.
Whether you think this rally will continue says a lot about how you see the current economy.
A few thoughts:
Bailout spurs demand—in theory. If investors believe $700 billion will be enough to keep the economy on track, an increase in the price of crude makes sense. But if you believe the government bailout is just the start of more problems for the economy as Wall Street's woes spread, this rally looks a little less convincing.
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Requiem for Investment Banks
Continue reading… 1 CommentThe market's loss of confidence in the abilities of broker-dealers to stay independent marks a historic moment on Wall Street. The end of independence for its most storied names concluded Sunday night when Goldman Sachs and Morgan Stanley asked to be regulated like other banks (i.e. they'll need deposits to back lending).
Right now, that is for the best. The I-banks will look more credible; their worst excesses contained by government oversight and hammered share prices. Still, in the years to come, we may miss them (even Bear Stearns and independent Merrill Lynch, and, yes, Lehman Bros.)
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Short Selling Ban Backlash
Continue reading… 4 CommentsAs you've heard, the SEC is banning short selling in nearly 800 financial stocks to help "restore equilibrium to markets."
That's code for market manipulation, but if it can stop bank shares from free-falling, the trade-off seems worthwhile—at least for regulators.
Later, I'll bet we'll worry that the government picked one of the most reckless bits of the market and decided to protect it from traders trying to reconcile banking sector abuses with reality. Nobody likes shorts, and there will undoubtedly be some signs of manipulation among bank shares, but blaming shorts for this week's stock market mania is beside the point. The punishment doled out to banks this week is extreme, but so were their inflated risk appetites that spawned reckless lending behavior for the better part of a decade.
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Paulson Determined to Keep Credit Flowing
Continue reading… 1 CommentThe government's new agency to buy up illiquid mortgage debt will need to be "sufficiently large" to have the "maximum impact" on frozen credit and lending markets.
That's the latest from Treasury Secretary Henry Paulson, who said more details will come next week.
"We're talking hundreds of billions of dollars," he said.
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Stocks Rebound on Word of Government Fix
Continue reading… 0 CommentsIt can't be a good long-term sign that the government is creating a new agency to dig the country out of its bad debts, but Sen. Charles Schumer's proposal to do just that has bank stocks rallying hard this afternoon.
The Dow is soaring now, up more than 400 points in late trade, further boosted by a proposed curb on short-selling in the United States and Great Britain.
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McCain to Cox: You're Fired!
Continue reading… 3 CommentsI was carping about SEC Chairman Chris Cox earlier today along with a whole lot of other people. Now, the WSJ is reporting that John McCain would toss him.
"The chairman of the SEC serves at the appointment of the president and has betrayed the public's trust. If I were president today, I would fire him," McCain says, according to excerpts for a speech on reforming the ailing U.S. financial markets he will deliver today in Cedar Rapids, Iowa.
