Taking Stock of Wall Street 2008-09-18

International Monetary Fund (IMF) issued a a cautionary advice today as major central banks pumped billions of eurodollars into global money markets. They were asked to do it in a balanced way not to worsen inflationary pressures.

That is true. Too many dollars chasing the same or reduced quantity of goods and services will increase the price levels until demands are controlled due to high prices.

The central banks' effort is a massive one among the US Fed, Bank of England, Europe's ECB, Swiss National Bank, Bank of Canada and Bank of Japan each pumping 50 billions dollars daily into their banking systems until the present global crisis is over.

While the decision came too late for the Asian markets, the European markets were all rising today.

Trading in Russian stocks remains suspended until further notice.

China's central bank, warned its financial institutions to learn from USA 's mistakes and to promptly control risk. The Chinese government started investing in their major financial institutions after Shanghai's market index fell by nearly 70%. It withdrew the stock purchase tax.

India's stock market was a study in contrast. While their markets did fall with their global counterparts initially, they progressively reversed and went up when their government declared that their Banks' exposure to American banking system are limited and none to Lehman Brothers. We don't usually hear about their markets because their rules restrict foreign participation to 25%-40%. Traditionally, their bond holdings are skewed towards British Sterling.

Still three US companies got a foothold there decades ago: GE, Citi and Boeing. That is paying rich dividends now, especially to GE who is now the front-runner in the shortlist for some 30 Indian nuclear power plants. GE is likely to benefit as a supplier for almost half-century.The other American company to benefit is Westinghouse.

Another "unlikely investor" in India is our navy's Pacific Command who have secured non-cash refueling rights in their ports in the west and the east. This means our Pacific Command ships can make quick refueling stops on their long journey from the Suez Canal to the Malacca Straits without immediate payment formalities. Bills need to be adjusted at the end of the year only.

Governor of the Bank of Thailand also said that the present US crisis will not affect its financial institutions though it may have some trade impact.

Britain's Financial Services Authority banned new short sales in financial stocks until Jan. 16, 2009. UK's mortgage problems are deteriorating. Lloyds TSB Group (LYG) is acquiring the stricken mortgage lender HBOS for 12.2 bln. The deal was mediated through their government. HBOS covers nearly one fifth of the UK mortgage industry. The combined company will be a behemoth with about 1 tln pounds in assets.

US Economic Data:

Initial jobless claims for the week ended September 13 - were up from the previous week by 10,000 at 455,000 against the forecast of 440,000. The four-week average rose by 5000 to 445,000, a bit high compared to July's average of 378,000.

September Philly Fed manufacturing survey - turned positive for the first time in ten months to 3.8. It was a vast improvement over August's disappointing figure of -12.7. Also it beat the consensus figure of -10.

August Leading Indicators index - fell 0.5%, more than the expected decrease of -0.2% . The fall in building permits and supplier deliveries and the rise unemployment claims were cited as the reasons for the excess decline.

Governmental Actions:

It is reported that Treasury Secretary Paulson may revive the Resolution Trust Corporation that was used to counter the recession of the 1980s, if approved by the Congress.

The Fed pumped another $50 bln into the US banking system by an overnight repurchase agreement. The bids submitted were actually more than double at $102 bln.

New York State attorney general's office is launching an investigation into illegal short selling. They even suggest a temporary freeze on all short selling, as done in UK.

Probably to discourage short-selling, managers of the California pension fund Calpers, announced they will no longer lend shares of Goldman Sachs (GS) or Morgan Stanley (MS) to brokers.

US Natural Gas reserves - were up, 67 bcf against a forecast 63 bcf.

Crude oil price went up by $0.72 (0.74%). Gold also rose by $46 (5.47%) to $897.00.

Market Indices:

Dow went UP by 410.03 (3.8%) to 11019.69
S&P 500 UP by 50.12 (4.3%) to 1206.51
Nasdaq UP by 100.25 (4.8%) to 2199.10

NYSE
Daily Volume: 2.34 bln
A/D Ratio: 2361 stocks advanced v. 905 declined
52-week Hi/Lo: 69 stocks hit new Highs. 1041 hit new Lows.

NASDAQ
Volume: 3.88 bln
A/D Ratio: 2205 stocks advanced v. 766 declined
52-week Hi/Lo: 84 stocks topped new Highs. 380 stocks broke new Lows.

Market started on a positive note invigorated by the bans on short-selling in both sides of the Atlantic. Except for a short time in the middle of the session when the market retracted, all major sectors including the stricken financial sector contributed to the bullishness.

Kraft Foods (KFT) was the center of attention today as it was selected to replace the fallen insurer AIG as a component of the Dow Jones Industrial Average. It is already a major component of the S&P 500. In the food and beverage sector it occupies the second position after Pepsi.

Banking sector news still managed to hop in and out during the session:

Parleys to buy Morgan Stanley (MS) are still hectic with the list of interested bidders lenghthening day by day:
Wachovia (WB), HSBC (HBC), Banco Santander (STD) and Nomura Holdings (NMR). Foreign government institutions include of Investment Corporations of Singapore and China. The China Investment Corporation (CIC) has the added benefit that they already hold nearly 10% stake in MS.

Washington Mutual (WM) also is yet to finalize a deal. Bidders include JPMorgan Chase (JPM), Wells Fargo (WFC), and HSBC (HBC). Reports also abound that it may be broken up among interested buyers.

After Reserve Premier Fund's freezing of redemptions, the spotlight has fallen on money market funds with exposure to Lehman's securities that have fallen in value to zero:

Bank of New York Mellon (BK) institutional money fund's net asset value also has fallen below $1 per share.

State Street (STT) another such fund manager saw a reduction in its price by 40%.

Putnam is liquidating their institutional prime money market fund as redemption requests soared.

M&A News:

American Energy Holdings Company, part of Warren Buffett's Berkshire Hathaway (BRK.A), is buying Constellation Energy (CEG) for $4.7 bln. Earlier it was rumored that CEG's majority shareholder, Electricite de France was to buy out the whole company.

Kellogg (K) is acquiring Australia's Specialty Cereals.

Company Results:

UAL (UAUA) predicts a potential $544 mln quarterly loss through aircraft fuel hedging activity.

Toshiba (TOSBF) sees an operating loss for the first half of the year.

Carnival (CCL) and ConAgra Foods (CAG) saw quarterly earnings exceeding market's expectations.

FedEx's (FDX) earnings fell due to fuel costs.

Pier1 Imports' (PIR) earnings fell below the forecasts.

Analysts' Ratings:

Stock Upgrades:

ADTRAN (ADTN), Idearc (IAR), National Oilwell (NOV) and Petro China (PTR).

Stock Downgrades:

Constellation Energy (CEG), Dynamex (DDMX), Harsco Corp (HSC), Kohl's (KSS), Mack-Cali Realty (CLI), ProLogis (PLD), Sl Green Realty (SLG), Town Sports International Holdings (CLUB), Vornado Reallty Trust (VNO) and WABCO Holdings (WBC).

Standard & Poors expects further write downs in the financial industry to the tune of $500 bln.

The volatility index, VIX is at multi-year highs ranging below 40. May be, market will see wide gyrations in the immediate future.