Taking Stock of Wall Street 2008-09-10

Today, it was almost a Lehman Brothers' show who so monopolized the market that the market forgot to make any headway beyond the recent levels.

To preempt too much speculation, LEH advanced their third quarter earnings announcement by one week.

Lehman (LEH) reported a $3.9 bln loss during the third quarter ($5.92 per share). The company has a $15bln cash surplus and liquid assets worth $42 bln. Write-downs to cover losses cost $7.8 bln including $5.3 bln on residential mortgage assets and $1.7 bln on commercial real estate.

Clean-up plan for their messy stables was outlined today:
- spin-off of commercial real estate assets into a new, separate public company
- reduction in residential exposure
- sale of 55% stake in its investment management business
- sale of $4 bln worth UK residential mortgage portfolio

LEH claims their Book Value per share is about $27.29. Yesterday, the price of the rumored Goldman Sachs bid was around $11.00 - a far cry.

What was more interesting was the excuse now being floated for the lower valuation of their stock. Yeah, the public are blamed for looking too much at and into LEH that they magnified their losses and masked the real value of LEH!!!!

But blaming the public is OK for politicians but not for doyens of the industry. Because, business valuations are not done by the public but by peers in the industry who were granted Mastery in Business Administration by their mentors.

It is ridiculous even to think that Koreans asked the man on the street before refusing to rescue LEH. An Average Joe walking through Manhattan cannot just cast his eyes on Lehman's buildings and then immediately undervalue it. Nor is he privy to what happens inside.

Bloomberg survey on U.S. consumer spending sees spending diminishing as long as unemployment advances unabated.

MBA Report on Weekly Mortgage Applications saw increase of 9.5% from last week's 7.5%, at the same time as the interest rates on the benchmark 30-year fixed mortgage fell from 6.39% to 6.06%.

EU

Most European markets were facing selling pressures from their domestic economic problems. EU cut its growth forecast for 2008 from 2% to 1.4%. Germany, Spain and UK are threatened by recession.

US Dollar rose in the aftermath of the report by 0.8%.

Gold fell by 3.72% to $762.50.

OIL:

Yesterday, OPEC declared a cut back in each member's production quota by 520,000 barrels per day. So each member will now lower their production from the present 29.67 million bls per day to 28.8 million bls per day. Oil is up 0.7% to $103.95 per barrel.

The IEA forecasts lower global oil demand for 2008-2009 period due to economic downturn and change in lifestyles by Americans. It also thinks the demand changes are more likely to be permanent.

Weekly inventory report showed more declines than expected in US crude and gasoline reserves. Crude oil inventory levels fell by 5.8 million bls against the forecast shortage of -3.5 mln. Gasoline reserves fell by 6.5 million bls against the expected-4.5 million.

Market Indices rose and fell, somehow managing to keep their heads in the positive territory at the end of the day.

Dow UP by 38.19 (0.34%) 11268.92
Nasdaq UP by 18.89 (0.85%) 2228.70
SP&500 UP by 7.53 (0.61%) 1232.04

NYSE
Out of the total 3284 stocks trades today, 1727 advanced against 1455 declined. Only 17 stocks rose above their 52-week Highs. 267 stocks did fall below their 52-week Lows. Total trade volume was 1.5 bln.

Nasdaq
Out of the total of 2994 stocks traded, 1610 advanced against 1269 declined. Only 25 stocks topped their 52-week Highs while 210 stocks hit new 52-week Lows. Total trades came to 2.3 bln.

Financial stocks were constantly changing from positive to negative territory and back as several regional banks were handed downgrades by analysts.

Lehman's (LEH) euphoric rise of 19% was pared and finally settled for a loss of 7%.

Washington Mutual (WM) had bad news today. Standard & Poor's revised WM's credit rating to negative from stable. As if this was not enough,there was the report that three bidders interested in acquiring (WM) had backed off.

Invigorated by the government bailout, Fannie Mae (FNM) raised more than double the expected $3 bln in senior debt. The auction brought in a clean $7 bln, at times bettering auctions for similar U.S. Treasury securities.

Fannie Mae (FNM) and Freddie Mac (FRE) will be delisted from the S&P 500 Index after Wednesday. These two no longer satisfy the minimum market cap requirement for inclusion in the Index.

According to Warren Buffet, the government bailout of the two could ultimately cost taxpayers hundreds of billions of dollars.

Sallie Mae (SLM) is seeking to securitize private loans and increase broker deposits to tide over the difficult phase of the economy.

Texas Instruments (TXN) announced a better third quarter stunning analysts who had downgraded the stock yesterday.

FedEx (FDX) posted higher first quarter and yearly earnings expectations due to the unexpected drop in fuel costs. But, that also means fete may not be repeated in future.

Continental (CAL) is laying off some 363 pilots, close on the heels of some of the other airlines in the industry.

Bank of America (BAC) intends to buy back $4.5 bln in auction-rate securities sold by them. Many major banks are being investigated by the NY Attorney General's office over the complaint that they sold these risky securities through misrepresentation of facts.

ImClone (IMCL) rejected the $60 per share bid from Bristol-Myers'(BMY). Also, announced a higher bid of $70 from another "unnamed" rival of BMY.

Sanofi-Aventis (SNY) replaced its CEO Gerard Le Fur with Chris Viehbacher, formerly of GlaxoSmithKline (GSK).

Nokia (NOK) plans to make more mobile phones with Microsoft (MSFT) corporate e-mail capability to wrest more smartphone market share from the leader, Research in Motion (RIMM).

RIMM also was in the news with their plans to issue a flip version of Pearl BlackBerry soon. RIMM is targeting to sell around 6 mln units in the first year.

Infosys Technologies (INFY) intends expand to Europe, Arabian Gulf region and emerging markets. Possibly, as US market is very sensitive to outsourcing issue now. That may open new avenues for people who are interested in expatriate IT work.

BlackRock (BLK) is reported to be interested in Lehman's $4.0 bln UK residential mortgage portfolio.

The Pentagon is canceling the bidding for $40 bln in-flight refueling tanker contract as it doesn't want to make any decisions on the eve of a change in the White House. Stocks of both contenders, Boeing (BA) and Northrop Grumman (NOC), fell.

Upgraded stocks include:

Aetna Inc (AET), American Eagle Outfitters (AEO), BJ Restaurants (BJRI), Burlington Northern Santa Fe (BNI), Covidien Ltd (COV), Ferro Corp (FOE), Inter Parfums Inc (IPAR), Norfolk Southern (NSC), Nucor (NUE), Regions Financial Corp (RF) and Ultra Petroleum Corp(UPL).

Downgraded stocks are:

Bank of America (BAC), BB&T Corp (BBT), Cepheid (CPHD), Cheesecake Factory (CAKE), Comerica Inc (CMA), Fifth Third Bancorp (FITB), Foundry Networks Inc (FDRY), Fundtech Ltd(FNDT), GFI Group (GFIG), Huntington Bancshares (HBAN), Lamar Advertising (LAMR), Igate Corp (IGTE), Marshall & Ilsley Corp (MI), Martin Marietta Materials (MLM), Merck & Co (MRK), Pearson Plc (PSO), SunTrust Banks Inc(STI), Synovus Financial Corp (SNV), Thomson Reuters Plc (TRIN), Valley National Bancorp (VLY) and Vulcan Materials Co (VMC).

Today it was a draw between the bull and the bear.

The market opened with a bang with the bold announcements by LEH; but, gave up most of its gains in the afternoon session.

Oil will continue to be the focus this week too. OPEC's production cuts are in place firming up oil prices.

Now, while Hurricane Hanna shied away bringing in some complacency on the Gulf Coast, Hurricane Ike is menacingly approaching the area with its concentration of oil installations!

Oil prices can be expected to go up, if Ike gathers strength before striking the mainland and causes havoc.