Taking Stock of Wall Street 2008-09-17

Stocks fell today despite all that the US Government's financial clout did for the AIG bailout. You can't blame the investors for that.

Americans always believed that the precepts under which this country's systems were built are just and right. That is why even when their Presidents told them utter lies, they believed them. Those leaders were occupying the hallowed seat occupied by greats like George Washington and Abraham Lincoln. But lesser mortals didn't show the same sense of responsibility as that of those illustrious predecessors.

That dishonesty percolated down to other seats of leadership.

Now that the people's faith and trust are bruised, it will take time for those wounds to heal and for their return to the market.

Remember, a significant number of the population have lost their jobs and/or homes. And now, even their pension funds too. Asking them
to prop up highly paid errant CEOs is preposterous.

In fact, just two day's before the fall of Lehman a top gun had the gall to blame American investor's close scrutiny of the company for its slide in the market. So
that means he not only expected Americans to keep quite while financial losses were accumulated on dubious ventures of the company but also wanted them to stay put while they saw their hard earned money reduced to zero!

The allegation that government did not help LEH is not correct. Today NY Fed refunded to JP Morgan the $75 bln loan that the latter paid to Lehman Bros, which means that loan was guaranteed by the government if LEH failed!

Foreign markets were mixed in their reactions early today. While Asian markets could curtail their slide, European markets turned slightly positive. Does that mean we can expect a ultra-short-term reversal in the market? We will wait and see for the remaining two days of the week.

The Fed and the Treasury received kudos from a foreign counterpart today. Bank of Japan showered praises on the U.S. government's quick moves to rescue AIG (AIG).

Economic data:

MBA Mortgage Applications - soared by 33.4% last week against the mere 9.5% rise seen in the previous week. Also 30-year fixed mortgage rates fell from 6.06% to 5.82%. That means governments takeover of Fannie Mae and Freddie Mac had a beneficial effect though it is still early to look for a housing market reversal.

Current Account - The current account deficit was $183.1 bln in the second quarter of the year. That also accounts for 5.1% of our GDP. It exceeded the consensus figure of $180 bln.

August Housing Starts - New housing starts declined by 6.5% to 895,000,the lowest since early 1991. That is less than the economists' forecasts of 950,000 starts. Building permits fell by 8.9% to 854,000 against the estimated 928,000.

One significant finding was that single-family starts were down by mere 1.9% from July. So, multi-family units now contribute more to the shortfall than single-
family units.

Governmental Actions:

Federal Housing Agency (FHA) will be starting its Hope for Homeowners program from Oct 1. FHA believes it will ease the foreclosure situation in the country.

The Federal Reserve Bank of New York has established a two-year revolving credit for AIG (AIG) amounting to $85 bln secured by AIG's assets. The price for this liquidity boost is: (1) the Fed gets a 79.9% stake in AIG. (2) The credit carries an interest of 8.5% over and above the three-month Libor rate, about 11.5%.
So that means the current investors will find their stake shrinking!

The Fed needs more funds and Treasury will be auctioning a fresh series of Treasury bills for that. But yields on 3-month notes dropped to 0.16%. Recent commitments of the Fed in the current debacle amounts to 900 bln.

The SEC tightened rules on short-selling of stocks. Short-sellers will now have to deliver securities by the close of business on the settlement date,that is within three days of the sale. There won't be any market-maker exception for the closing out out agreement. Any short-selling activity that is proved as market deception can be charged as fraud. This applies to all publicly traded companies.

The U.S. House of Representatives lifted the ban on offshore drilling, allowing drilling from 50 miles and beyond in our coastal waters.

EIA Weekly Petroleum Report- During the week ended Sept 12, our crude reserves fell by 6.3 mln barrels, against a forecast shortfall of 3.5 mln. Gasoline inventories were short by 3.3 mln barrels.

Oil prices rose by 6% to $96.61 at the close.Interestingly, Goldman Sachs (GS) forecasts the crude oil prices in 2009 to range from $75/barrel and $123/barrel.
Gold rose by $70.00 (8.97%) to $850.50.

Market Indices:

Dow was DOWN by -449.36 (-4.06%) to 10609.66
S&P 500 DOWN by -57.21 -4.71% to 1156.39
Nasdaq DOWN by -109.05 -4.94% to 2098.85

NYSE-
Volume: 2.10 bln
A/D Ratio: 231 stocks advanced v. 3053 declined
52-week New Hi/Lo: 16 stocks topped new Highs while 1089 broke down to new Lows.

Nasdaq-
Volume: 3.12 bln
A/D Ratio: 428 stocks advanced v. 2452 declined
52-week New Hi/Lo: 9 stocks set new Highs while 405 went down to new Lows.

The market fell without offering any worthwhile resistance, with almost all sectors contributing to the slide.

Market News:

Credit rating agencies are again doing their somersaults. Standard & Poor's revised AIG's (AIG) credit rating to "developing" level. S&P believes the Fed credit of $85 bln more than covers the near-term liquidity requirement.

Wachovia (WB) has made a merger offer to Morgan Stanley (MS).

JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C) and HSBC (HBC) are rumored to be interested in buying out Washington Mutual (WM). Goldman Sachs (GS) is managing an auction for the sale of WM.

Time Warner (TWX) claims that 75% its revenue comes from recession proof streams.

In all the news in the media nothing was said about the profitable ILFC, AIG's (AIG) aircraft leasing division. May be AIG's resurgence may be spearheaded by this unit.

M&A NEWS

Walgreen's (WAG) offer for buying Longs Drug Stores (LDG) ran into rough weather despite upstaging the CVS offer.

Bristol-Myers Squibb (BMY) seems to be fed up with ImClone's (IMCL) "we-are-worth-more-than-your-$60/share" response.

SanDisk (SNDK) rejected Samsung's $5.85 bln bid.

Money market funds are under scrutiny now as Reserve Primary Fund froze redemptions for a week. The money market fund's net asset value shrunk below $1/share due a $785 mln exposure to Lehman. May be that is why Vanguard, one of the largest mutual fund managers had to announce the stability of their money market funds today.

Guidance eports:

ArcelorMittal (MT), VeraSun Energy (VSE) and Nortel (NT) published disappointing outlooks for the next quarter.

Company Results:

General Mills (GIS), Herman Miller (MLHR) and Dress Barn (DBRN) beat analysts' earning forecasts.

Analysts' Ratings:

After many days we saw a lot of upgrades today.

Alcoa (AA), Alkermes (ALKS), Apria Healthcare Group (AHG), Axcelis Technologies (ACLS), BioMed Realty Trust(BMR),Cameron International (CAM),Evergreen Solar (ESLR), GFI Group (GFIG), Goldman Sachs (GS), Hoku Scientific (HOKU), IDEX Corp (IEX), Iac InterActive (IACI), Investment Technology Group (ITG), Kroger (KR), Monsanto (MON), NASDAQ (NDAQ),Perrigo (PRGO), Union Pacific (UNP) and Western Refining (WNR).

Down graded stocks include:

Ballantyne of Omaha (BTN), BB&T Corp (BBT), Big 5 Sporting Goods (BGFV), CME Group (CME), Nara Bancorp (NARA), Penske Automotive Group (PAG), Quality Systems (QSII), UPS (UPS), Vera Sun Energy (VSE) and Zions Bancorporation (ZION).

Stock market seems to have lost faith in the credit market and has been in a near free-fall for the second straight day.

The interbank three-month Libor rose to 3.06%. Overnight rate went down slightly from 6.03% to 5.03%. If banks don't trust fellow banks, how can a small guy trust them? So more confidence building measures are needed to bring the small investor back. And that will surely need more than the $900 bln already spent from the taxpayers' money.