Taking Stock of Wall Street 2008-10-01

The market was almost stagnating, hesitant to make any move as the investors were slowly exposed to the greater picture of the mess surrounding them. With politicians and bankers saying they have the ultimate panacea for today's ills and the economist s saying it is too late to ward off an ensuing decade of complications, the taxpayers are between the proverbial devil and the deep sea.

They are even more vexed by the preposterous idea that some highly paid strangers sitting in Manhattan's high rise offices were surreptitiously able to make telephonic contracts worth billions with accomplices hiding in offshore money laundering havens - all guaranteed on the humble mortgage payments of a few hundreds they were making to their neighborhood banks.

As if that ignominy is not enough, now their money is to be used to compensate for such speculative misadventures of not only American investment banks but of whoever bought into those dubious schemes from beyond the oceans too.

No wonder the European Central Bank's (ECB) chief Trichet wants the American Congress to pass the bailout bill "for the sake of the U.S. and for the sake of global finance." But, he also rules out a European bailout plan on the excuse that Europe doesn't have a central budget. Then, what is the job of the organization ECB he is heading? The truth is that Germany and France are torpedoing a 300 bln euro plan suggested by other members of EU.

Economic Data:

Institute for Supply Management's (ISM) Manufacturing Index for September - fell by 6.4 to 43.5 from 49.9, the lowest in seven years. The consensus was for 49.5. ISM prices paid excluding crude oil fell by 23.5 to 53.5 against a consensus figure of 73. The first reading shows that manufacturing activity is contracting. The second indicates that people have made a sharp cut back in spending on purchases, though some may claim it shows inflation is disappearing! However, if prices were easing, people should be buying more.

The ADP employment index of private sector jobs for September - showed a loss of 8000 jobs in the private non-farm sector against the forecast of 60,000-job loss. It was 37,000 in August. Unfortunately, ADPs figures usually are far off the mark compared to government employment report on non-farm payrolls data to be announced on Friday.

Challenger Jobless Report - at the same time, announced 95,094 layoffs during that period.

The U.S. Census Bureau's (Department of Commerce) Construction Spending for August - stood unchanged at $1,072 billion against a forecast figure of 0.5%. That shows a halt, even if temporary, in the relentless slide witnessed throughout 2008.

The Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey - showed a 23% drop last week. The refinance index also fell 34.7%. The Conventional Purchase Index decreased 9.7 percent while the Government Purchase Index decreased 14.1 percent. This entire shortfall, despite interests on 30-year and 15-year fixed-rate mortgages decreasing week by week!

Senate's deliberations on the bailout:

Senate voted on its version of the $700 bln plan this evening. Salient clauses include:
*provisions for an increase in the FDIC's deposit insurance limit to $250,000 from the present $100,000
*tax breaks for businesses and especially to alternative energy ventures
*Removal of $30 bln limit on FDIC enabling it to borrow an unlimited funds from the Treasury
*authorized the Treasury Secretary to buy bad assets of companies to clean up their account books
*requires government agencies to make modifications to troubled mortgages.

The bill now goes to the House of Representatives for their concurrence, expected by Friday.

SEC ban on short sales is likely to be extended to October 18, beyond the current expiration on October 2.

Weekly EIA petroleum reserves report - Crude oil inventories were up by 4.28 mln barrels far exceeding the forecast of 2.75 mln. Gasoline reserves increased by 901,000 against a consensus shortfall of -2.05 mln.

Oil retreated by -$2.11 (-2.10%) to $98.53

Gold rose by $6.50 (0.74%) to $887.30

CBOE Volatility just made it to 39.81, shy of the 40 mark by 0.42.

Uncertainty over stocks back in the air, investors again made a beeline for Treasury securities.

Market indices

Dow went UP by -19.59 (-0.18%) to 10831.07
S&P 500 UP by -3.68 (-0.32%) to 1161.06
Nasdaq UP by -22.48 (-1.09%) to 2069.40

NYSE

Daily Volume: 1.29 bln
A/D Ratio: 1591 stocks advanced against 1614 declined
52-week Hi/Lo: 10 stocks scaled new Highs while 191 slid new Lows

NASDAQ

Daily Volume: 1.91 bln
A/D Ratio: 1068 stocks advanced against 1820 declined
52-week Hi/Lo: 7 stocks achieved new Highs while 153 dipped to new Lows

The first half of the trading session saw the market falling due to uncertainty surrounding the bailout legislation and the negative economic data. Then came the news on GE in quick succession and pepped the market up disappointing manufacturing reading and news that Warren Buffett is making another major investment.

Trading in GE was temporarily halted as the news of their $12 bln in a public offering started coming in. Then came the encouraging news of Warren Buffet's purchase of $3 bln worth of 10% preferred stock. His holding company Berkshire Hathaway (BRK) also have rights to $3 bln in 5-year warrants to purchase GE at $22.25 per share.

Then the market heard the "Oracle's prophesies" on GE's good prospects. This was added to by the credit rating agency Standard & Poor's who re-affirmed GE's credit rating of AAA.

That was the shot in the arm the market needed. GE was languishing recently due to liabilities from the debts of GE Capital.

Still blue chip IBM (IBM) fell by more than 6% based on rumors of the company issuing further reduced guidance on its earnings.

President Bush finally approved the $25 bln loan package for automobile manufacturers for meeting the new fuel economy standards. Now the ball passes to the Energy Department to work out the rules and regulations to be presented to the Congress sometimes next year for approval.

Monthly sales of car-makers are declining:

Lexus -37%
Ford -35%
Toyota -32%
Hyundai -25%
Honda -24%
GM -16%

ImClone (IMCL) finally revealed the name of its mysterious bidder. It is Eli Lilly with a $6+ bln offer on ImClone @$70 per share.

JNJ won their $1.2 bln patent infringement cases against Boston Scientific (BSX) and Medtronic (MDT).

Marathon Oil (MRO) is disposing off its 50% stake in Pilot Travel Centers.

Xstrata (XSRAF) is ending its $9 bln bid on Lonmin Plc (LNMI.Y).

Chicago's Midway airport is to be leased to a private consortium led by Citigroup (C) for a 99-year period .

When most businesses are looking for ways to downsize, consumer retailer Kohl's Corporation (KSS) is opening 47 new stores in addition to the 31 already opened this year.

Company results:

Wolverine World Wide could bring out 15% increased earnings.

Micron Technology (MU) earnings were disappointing.

Analyst's ratings:

Company stocks upgraded include:

Allied Capital Corp (ALD), CA Inc (CA), Children's Place Retail (PLCE), eHealth Inc (EHTH), Energy Solutions Inc (ES),
F5 Networks Inc (FFIV), Force Protection Inc(FRPT) and Informatica Corp (INFA).

Downgraded stocks are:

Brown Shoe Inc (BWS), California Pizza Kitchen (CPKI), Coleman Cable Inc (CCIX), Community Health System (CYH),
CSG Systems International (CSGS), Mortons Restaurant (MRT), Network Engines Inc (NENG), RC2 Corporation (RCRC),
Reliant Energy Inc (RRI), RLI Corp (RLI), Ruth'S Hospitality Group (RUTH), Tenet Healthcare Corp (THC), Tupperware Corp (TUP),
Universal Health Services (UHS) and Xyratex Ltd (XRTX).

Fortunately for the banks and their customers, the 28-day repo funding by the government is showing its beneficial effect:
The interbank overnight loan rate has fallen to 3.79% and is holding. Availability of more funds has loosened the credit situation a bit.

Pointers to the future:

* The U.S. national debt broke through the $10 tln mark today.

* Unemployment is expected to touch 7% by the middle of next year, unless the next administration can work magic or miracles.