Taking Stock of Wall Street 2008-08-22

Yes, Dow went up but volume was listless (NYSE 889 mln & Nasdaq 1.38 bln). That shows whatever was achieved today was not supported by the
faith of the investors.

Compared to last week, market is still down by 0.7%.

How market-men try to latch on even to the flimsiest straw was evident from the way Lehman Bros (LEH) traded following a Reuters report that South Korean Development Bank is looking into buying LEH.

Remember, yesterday the Koreans rejected a 50% ownership proposal. According to them, they cannot afford to share 50% of an "insolvent"
company. So they are trying to see whether they can buy it at a lesser price - may be for a song like JP Morgan bought Bear Sterns.

Will Koreans pay the target price of $20 per share? Lehman's loan write-downs so far were $7 billions and according to JP Morgan, another quarterly write-down of $4 billions may be required.

Write-downs or not, marketmen, on seeing the slightest gap for pushing up prices, went full steam ahead and raised the price of LEH shares by 14% by mid-morning. God alone knows how many unwary innocents may have been "sucked up" into that draft. By mid-afternoon it fell down to 9% and at close it
was around 5%. After-hours saw it at around 4%! From a session high of $15.50, now LEH is back to $14.15 in the after-hours. You see how news and rumours can be manipulated and how an unwary small investor can be caught up in the middle!

Today's Major indices:

Dow up by 197.85 (1.70%) to 11628.06
Nasdaq up by 34.33 (1.42%) to 2414.71
S&P 500 up by 14.48 (1.12%) to 1292.20

Both markets showed nearly more than twice as many stocks advancing as those that declined.

NYSE 2237 v. 874 Nasdaq 1983 v. 797

The bright spot was the strong show by underdogs the financials, especially the much-beaten investment banks, moving higher along with LEH.

But then Moody's downrating of FannieMae and FreddieMac (their preferred shares this time) came out and dampened the enthusiasm for the financials.

Why does the market shudder each time somebody utters the names of Fannie and Freddie? Because, many financial institutions have invested considerably in the shares of those two. Now, a government bailout of the two will erode their holdings and lead to further losses.

Crude oil eased to a more comfortable $114.43 from yesterday's highs of $122.01. So oil and energy sector went down with it. This, in turn, pushed up airline, transportation and consumer sector stocks too.

Two VIPs opened their mouths today in support of the greenback:

Oracle of Omaha,Warren Buffet considers the current prices as sufficiently undervalued and doesn't find anything adverse for the dollar.

Chairman Ben Bernanke feels dollar's lower values will help to slow down inflation.

But the second part of his statement was disturbing: decreasing growth potential of the US economy will further help to control inflation. So, that means for some time our growth potential will be diminishing.

Doesn't that lack of growth mean continued, if not more, unemployment? Media always picks what is soothing to the ears conveniently discarding the big picture!

One news today was interesting:

Remember the protracted deals for USAF'S refueling tanker aircraft? Boeing (BA) is considering withdrawal from that bid. They are asking six months to submit a new bid. Their competitors are a consortium between Northrop Grumann and the European EADS.

With economy in shambles, it is not the time for large-scale cash outflows to foreign countries.

Morning also heard about the possible tie-up Verizon (VZ) may have with Google (GOOG) as its default search provider for Verizon mobile services. Some ethical concerns regarding allowing Google to analyze customer's search behavior is to be sorted out, according to reports.

M&A

Insurance has been one sector that suffered recently. But, today we saw insurer Aon Corp(AOC) announcing the acquisition of Benfield Group for approximately $1.75 billion.

Elsewhere, Alpharma (ALO) rejected the $1.4 billion offer buyout bid from King Pharmaceuticals (KG).

From Europe comes the news that United Parcel Service (UPS) may make a bid for TNT,its Dutch rival.

QUARTERLY RESULTS

Gap (GPS) bettered the forecast quarterly earnings per share. Pacific Sunwear (PSUN) and Aeropostale (ARO) were in-line with their forecasts. Nordson Corp.'s (NDSN) results were disappointing.

ANALYSTS' RATINGS

Today's analyst upgrades:

Blue Coat (BCSI), Concur Tech (CNQR), Salesforce.com(CRM) and Telus (TU).

There were more downgrades:

Avanex (AVNX), Burger King (BKC), Cost Plus (CPWM), Las Vegas Sands (LVS),Logitech Intl SA (LOGI), Noah Education (NED), Pacific Sunwear (PSUN), Physicians Formula (FACE),Shoretel (SHOR), Symmetry Medical (SMA), and Talbots (TLB)

Nordson (NDSN) had the dubious distinction of being downgraded by one analyst while getting upgraded by another!

As for who won, the bull. Was it a convincing win? No. Because, it was not supported by enough volume. After all, that is what you expect when prices are pushed up artificially just on the hot air provided by rumors, news and VIP statements. Nothing changed fundamentally.