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From Briefing.com
Periodicals Wrap-Up for Tuesday, October 14th
WALL STREET JOURNAL: The Wall Street Journal reported that the U.S. government is expected to buy preferred equity stakes in Goldman Sachs (GS), JP Morgan (JPM), Morgan Stanley (MS), Bank of America (BAC), Citigroup (C), Bank of New York Mellon (BK), Wells Fargo (WFC) and State Street Corp (STT) as part of a plan to restore confidence to the U.S. banking system…Indian bank ICICI Bank (IBN) has taken steps to reassure anxious investors in recent days, the Wall Street Journal reported, including sending text messages to hundreds of thousands of depositors telling them it was healthy. Standard & Poor’s analysts said that while ICICI’s UK subsidiary has a $3.5B international investment portfolio, of which nearly $80M was invested in Lehman Brothers, the bank has “more than enough assets” to cover any future losses…FINANCIAL TIMES: Former AIG (AIG) CEO Hank Greenberg is expected to file a blueprint with U.S. securities regulators on his alternative plan for rescuing the insurer as early as today. The Financial Times reported that the former CEO’s plan is likely to include changes to the terms of the government’s takeover of AIG…The Financial Times also reported that in order to encourage greater cooperation and minimize internal battles, Citigroup will change the way it pays top executives in its securities and investment banking division. Division head John Havens said a large part of executive bonuses will depend on “how well they interact” with colleagues during meetings…NEW YORK TIMES: An equities trader at Russian investment bank Renaissance Capital cost the bank $10M by making unauthorized trades just as the stock market dropped sharply, the New York Times reported…
Asia Markets Wrap-Up for Tuesday, October 14
Stocks in Asian continued to advance in response to the U.S. and European governments’ agreement to purchase stakes in banks to help ease the financial crisis…JAPAN: The Nikkei soared 1,171.14, or 14.2%, to 9,447.57, while the broader Topix index was up 115.44, or 14%, to 956.30. Sumitomo Mitsui surged 17% to Y645,000. Mizuho Financial Group (MFG) leapt to its 15% daily limit to Y380,000. Mitsubishi UFJ Financial group (MTU) gained 14% to Y810. Sony (SNE) soared 17% to Y2,785. Canon (CAJ) jumped 16% to Y3,600. Mitsubishi Motors Corp.increased 26% to Y140…CHINA: The CSI 300 Index lost 2.6% to 1,934.62. Baoshan Steel dropped 3.7% to 5.70 yuan. Angang Steel Co. was down 1.4% to 6.55 yuan. Citic Securities slid 10% to 20.41 yuan. Citigroup’s (C) Chinese partner Shanghai Pudong Development Bank Co. fell 1.5 percent to 13.33 yuan. China Southern Airlines Co. (ZNH) declined 0.12 yuan, or 3.3%, to 3.54. TCL Corp. tumbled 0.12 yuan, or 4.6%, to 2.47…AUSTRALIA: The S&P/ASX 200 Index advanced 3.7% to 4,335.20. National Australia Bank (NABZY) jumped 7.3%. Babcock & Brown surged 39%. BHP Billiton (BHP) added 3.3%. Fortescue Metals Group jumped 55% to A$4.37. Woodside Petroleum (WOPEY) was up 9.8% to A$40.42. Nexus Energy surged 25%. Newcrest Mining (NCMGY) dropped 3.1% to A$26.65.
U.S. expected to buy stakes in nine banks-WSJ
As a part of its plan to restore confidence in the U.S. banking system, the U.S. government is expected to buy stakes–preferred equity stakes– in nine U.S. banks, including Goldman Sachs Group (GS), Morgan Stanley (MS), J.P. Morgan Chase (JPM), Bank of America (BAC) and Merrill Lynch (MER), Citigroup (C), Wells Fargo (WFC), Bank of New York Mellon (BK) and State Street Corp. (STT). Not all of the banks were happy about the governments involvement, reports the Wall Street Journal.
Goldman Sachs to apply for New York state charter-WSJ
While many major commercial banks are applying for charters from federal regulators, Goldman Sachs Group (GS) has applied for a New York state charter, according to the Wall Street Journal. The application may mean that Goldman doesn’t have immediate plans to buy or build a large, multi-state retail-banking franchise.
Some top hedge funds move into cash-WSJ
Steven Cohen runs the $14B hedge fund SAC Capital Advisors and recently cut his investment in the stock market by $7B, and moved into money market and other short term securities. Also moving out of the market are Israel Englander of Millennium Partners and John Paulson of Paulson & Co. These recent moves by Wall Street’s “smart money” reflects hedge funds efforts to move up to $400B into cash equivalents, says Goldman Sachs analyst David Kostin. “There is a lot of uncertainty out there and some people may be saying from a timing point of view they are more comfortable on the sidelines,” says Kostin, according to the Wall Street Journal.
U.S. equity futures surge
U.S. equity futures are at their highest levels of the morning following President Bush’s comments in which he outlined details of the government’s rescue package. The president said $250B of the package will be used to buy shares in banks in the latest move to calm the turmoil in the financial markets. He also said the plan calls for the government to insure new debt issued by banks and that the FDIC will immediately, but temporarily, expand their insurance to non-interest bearing accounts. These announcements were met with investor enthusiasm.
Federal Reserve issues additional details on Commercial Paper Funding Facility
The Board authorized the CPFF on October 7, 2008 under Section 13(3) of the Federal Reserve Act to provide a liquidity backstop to U.S. issuers of commercial paper. The CPFF is intended to improve liquidity in short-term funding markets and thereby increase the availability of credit for businesses and households. Under the CPFF, the Federal Reserve Bank of New York will finance the purchase of unsecured and asset-backed commercial paper from eligible issuers through its primary dealers. The CPFF will finance only highly rated, U.S. dollar-denominated, three-month commercial paper.
Joint Statement by Treasury, Federal Reserve and FDIC
“Today we are taking decisive actions to protect the U.S. economy, to strengthen public confidence in our financial institutions, and to foster the robust functioning of our credit markets. These steps will ensure that the U.S. financial system performs its vital role of providing credit to households and businesses and protecting savings and investments in a manner that promotes strong economic growth in the U.S. and around the world. The overwhelming majority of banks in the United States are strong and well-capitalized. These actions will bolster public confidence in our system to restore and stabilize liquidity necessary to support economic growth.”
FDIC announces plan to free up bank liquidity
The Federal Deposit Insurance Corporation announces a new program�the Temporary Liquidity Guarantee Program�to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount.
Analysts Initiation Summary for Tuesday, October 14th
MOST NOTEWORTHY: Google (GOOG), Employers Holdings (EIG) and BancTrust (BTFG) were today’s noteworthy initiations: Friedman Billings re initiated Google with an Outperform rating and $530 target. The firm finds the risk/reward attractive given GOOG’s leverage to the ongoing shift in advertising dollars online and its growing natural monopoly in search. Suntrust assumed coverage of Employers Holdings with a Buy rating and $19 target and expects the dynamics in the workers’ comp area to improve in the coming quarters due to balance sheet disruptions at sector leaders AIG (AIG) and Hartford Financial (HIG) as well as a potential firming in rates. BancTrust was initiated at Keefe Bruyette with a Market Perform rating and $10 target and believes the company’s Florida loan exposure will likely weigh on the stock in the near term…OTHER INITIATIONS: Progress Software (PRGS) was initiated at KeyBanc with a Hold rating. Barclays started Aeropostale (ARO) with an Equal Weight rating and $30 target. Scripps (SNI) was initiated at Morgan Stanley with an Underweight rating and $27 target.
Analysts Downgrade Summary for Tuesday, October 14th
MOST NOTEWORTHY: Monotype Imaging (TYPE), GSI Commerce (GSIC) and Philips Electronics (PHG) were today’s noteworthy downgrades: Jefferies downgraded shares of Monotype Imaging to Hold from Buy and lowered its target to $10 from $16 on expectations IT spend will slow in 2009 with the weakening economy. Oppenheimer downgraded GSI Commerce to Perform from Outperform partly due to valuation, macroeconomic factors, slower than expected movement to online distribution channels, and increased competition. ING Group cut Philips Electronics to Sell from Hold after the company’s Q3 results missed estimates…OTHER DOWNGRADES: Westar Energy (WR) was downgraded to Hold from Buy at Citigroup. Wachovia lowered Franklin Resources (BEN) to Neutral from Outperform. Deutsche Bank downgraded Infineon (IFX) and SAP AG (SAP) to Hold from Buy.
Analysts Upgrade Summary for Tuesday, October 14th
MOST NOTEWORTHY: Air Products (APD), the U.S. Insurance Brokers sector and Covanta (CVA) were today’s noteworthy upgrades: Jefferies upgraded shares of Air Products to Buy from Hold and raised its target to $79 from $63 on valuation as they believe the stock is oversold at current levels and that the company is well positioned to outperform in a slowing demand environment. Goldman upgraded the U.S. Insurance Brokers sector to Attractive from Cautious and upgraded AON Corp (AOC) and Marsh & McLennan (MMC) to Buy from Neutral. Covanta was upgraded to Outperform from Perform at Oppenheimer. The firm recommends buying shares because they believe that its business model is defensive and its long-term contracts provide stability…OTHER UPGRADES: First Solar (FSLR) was raised to Market Perform from Underperform at Friedman Billings. Baird upgraded IMS Health (RX) to Outperform from Neutral. Progressive (PGR) was lifted to Neutral from Sell at UBS.
Google-GOOG should report slightly weaker than expected results at Oppenheimer
Oppenheimer expects the company’s Q3 results to be slightly below the consensus estimates due to reduced growth in U.S. paid clicks. The firm reduced their target to $485 from $570 but maintained their Outperform rating.
Research in Motion-RIMM upgraded to Hold from Underperform at Needham
Needham upgraded the stock because they believe its share price now reflects any possible slowdown in BlackBerry sales.
First Solar-FSLR upgraded to Market Perform from Underperform at Friedman Billings
Friedman Billings upgraded shares into the Solar Power Conference on valuation with the stock below their $210 target
Google-GOOG Q3 results likely to be in-line or below consensus, says Jefferies
Jefferies expects GOOG’s Q3 results to be in-line to slightly below consensus estimates, but still strong when compared to peers. The firm expects EPS of $4.72, below the $4.80 consensus, but maintains a Buy rating with a $600 target.
Jim Cramer’s “Mad Money”
Despite the 926-point rally in the DJIA on Monday, Cramer offered words of caution saying “this stock market still cannot be trusted.” He called the enormous rise just a logical response to incredibly oversold conditions. The other “positive” news of the day came when it appeared Morgan Stanley (MS) won’t be going out of business. According to Cramer, the pressing issues of the day still remain. He has yet to see details on how anything the federal government has done to get credit flowing to consumers and help small businesses get financing. The chances of a severe recession still remains on the table, said Cramer. Cramer continued to advise investors to exercise caution and invest only in recession stocks with large, safe dividends and those whose beaten down value is almost equal to that of the cash they have on hand. He noted Kinder Morgan (KMP) as one such beaten-down stock with great fundamentals. Cramer said the time is right to buy wind power plays, after last week’s sell-off by hedge fund redemptions. Names he highlighted were: Trinity Industries (TRN) and Broadwind Energy (BWEN). With the recent passage by Congress of an extension for wind tax credits, he said the bull market in wind continues to improve. Next, when it comes to Chesapeake Energy (CHK), Cramer told viewers not to be concerned with CEO Aubrey McClendon’s recent sale of company stock. He said the natural gas provider is still a buy. Then Cramer spoke with David Steiner, CEO of Waste Management (WMI), to get more details on the company’s decision to withdraw its bid to acquire competitor Republic Services (RSG). Steiner said that while he still likes what Republic can offer the company, he was not prepared to take on the financial risk during uncertain times. Steiner said he’s considering a stock repurchase plan and boosting the company’s dividend with the cash on the balance sheet. Cramer reiterated his buy on Waste Management, with its 3.5% dividend yield and consistent management. LIGHTNING ROUND: (Bullish) AAPL; RIMM; SYY; PZE; EPD; CY; SCI. (Bearish) MSFT; GOOG; CX; MTW; PCP; DELL.
Fast Money position recap- Macke Owns (C), (WMT), (MCD), (BNI), (MSFT); Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), (NUE); Finerman Owns (GS); Finerman’s Firm Owns (DELL), (MSFT); Finerman’s Firm Owns (MS) Calls; Finerman’s Firm Is Short (USO), (IJR), (MDY), (SPY), (IWM), (USO), (BBT), t (COF); Seymour Owns (AAPL), (F), (GE), (MER); Seygem Asset Management Owns (EEM); GE Is The Parent Company Of CNBC; NBC Universal Is The Parent Company Of CNBC; Finerman’s firm owns (MRK).
Looking for another leg up and a possible consolidation for the rest of the day…it will be about stock picking again right now so look to the financials, basic materials, energy, and industrials to outperform in the short term due to forced selling. Just like when they eliminate short selling when there was forced selling last week those prices were on the extreme low and are not reflective of true value. Start looking at the biggest underperformers. See you in the trading room where we present many different trading ideas and thoughts in real time on the market. We like using the trading room format since you can read all the messages at anytime and also if you missed the trading day, get a great recap of real time events as they happen and on review.
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