Taking Stock of Wall Street 2008-10-09

Market appears to be in a free fall with no economic or corporate fundamentals to support it. Dow dived into the 8000s, the lowest level in five years.

Treasury Secretary Paulson's promise of capital infusion into financial institutions in return for partial ownership should have catapulted the market in ordinary times. But, the statement that some banks could still fail proved a damper.

GLOBAL PICTURE

Central Banks of South Korea, Hong Kong and Taiwan cut benchmark interest rates.

As for Asian market indices, Japan's Nikkei and Taiwan's Taiex fell while Hong Kong's Hang Seng and Korea's Kospi went up. European markets were marginally better.

Iceland's government nationalized Kaupthing Bank, a large lending institution and guaranteed its deposits.

US GOVERNMENTAL ACTIONS

The NY Regional Fed is providing more liquidity to the stricken insurer AIG with loans up to $37.8 bln in exchange for investment grade fixed income securities in the hands of their lenders and investors who want to cash them.

This is in addition to the $85 bln credit it was already granted in September.

AIG's problem seems to be of short-term liquidity as it has assets worth $1 tln. This explains why it stockholders are confident of paying off the government. This is also why government is only happy to give more to AIG as it is sure that it can get taxpayers' money back.

SEC's ban on short-selling was not renewed in keeping with the terms of the bailout legislation.

US ECONOMIC DATA

RBC Consumer Attitudes and Spending by Households (CASH) Index - dropped 32 points to 37 in October. In September, it was 69.2.

EIA Natural Gas Inventories Report for the week ended Friday, October 3 - up by 88 bcf at 3,1987 from previous week. Still, it was 117 bcf less than the same period last year.

Weekly Unemployment Claims for the week ended Thursday, October 4 - decreased by 20,000 to 478,000 from the previous week's 498,000. Recent hurricanes Gustav and Ike accounted for 17,000 claims.
-The four-week moving average of 482,500 was higher by 8,250 from the previous week's 474,250.
-Continuing claims increased by 56,000 to 3.659 mln from the previous week's 3.603 mln. That means no new jobs are being created for those already registered while more people have lost jobs.

US Census Bureau's Wholesale Inventories and Sales for August - Wholesale inventories for August were up 0.8% against analyst's forecast of 0.4%. In July, the same was 1.5%.
-Wholesale sales were down by 1% to $404.9 bln.

Oil fell again by -$2.36 (-2.65%) to $86.59.

Gold continued the rally up by -20.00 (-2.21%) to $886.50.

CBOE Volatility Index (VIX) rallied by 6.39 to 63.92 from 57.58 from 53.68. This is the first time in its history that it broke the 60 level. Before, market mavens used to predict a reversal when it reached the highs of 40 and above. Now, it is in the sixties and still no market reversal.

Or, will the reversal be abrupt and violent following Newton's laws of physics? At this time there is no proof of any such fundamental strength in the market that can match the present free fall action with an equally forceful upward reaction in the foreseeable days ahead.

MARKET INDICES

Dow went DOWN -675.97 (-7.30%) to 8579.19
S&P 500 DOWN by -75.02 (-7.62%) to 909.92
Nasdaq DOWN by -95.21 (-5.47%) to 1645.12

NYSE

Daily Volume: 1.93 bln
A/D Ratio: 317 stocks advanced against 2946 declined
52-week Hi/Lo: -0- stocks climbed to new Highs while 1667 went down to new Lows

Nasdaq

Daily Volume: 2.97 bln
A/D Ratio: 490 stocks advanced against 2496 declined
52-week Hi/Lo: 3 stocks climbed to new Highs while 1045 went down to new Lows

Nasdaq's OMX division suspended trading until Monday.

MARKET NEWS

The immediate victim of the withdrawal of short-sale ban was GM.

Standard & Poor's placed GM and GMAC were placed on the CreditWatch List.

Early euphoric mood in the market was due to IBM's confident announcement the promised earnings per share despite reduced revenues. That didn't last for the whole session.

M&A NEWS

Citigroup (C) withdrew from its acrimonious acquisition talks with Wells Fargo (WFC) for Wachovia (WB). Though it will not contest the WFC-WB merger, it will continue the breach of contract suit against WB.

Will MetLife (MET ) and Hartford Financial (HIG) merge? Recently, Germany's Allianz SE (AZ)had invested $2.5 bln in HIG.

Walgreens (WAG) withdrew its bid on Longs Drug Stores (LDG) as the latter's management is favoring CVS (CVS).

PNC Financial (PNC) and Bank of Novascotia (BNS) are reportedly interested in bidding for National City (NCC).

Sanderson Farms (SAFM) denied reports of its buying interest in Pilgrim's Pride (PPC).

COMPANY RESULTS

Today it was the turn of the clothing chain retailers - Gap (GPS) and Abercrombie & Fitch (ANF) reported double digit slide while it was slightly better for discount stores like TJX Companies (TJX). All three sat their earnings will be lower than market expectations.

IBM (IBM) surprised the market with its bold announcement of keeping up its earnings promises, which exceeded the market's expectation, though revenues were falling.

Chordiant Software(CHRD) and Men's Wearhouse (MW) disappointed the market with reduced earnings.

ANALYSTS' RATINGS

The company stocks upgraded include:

American Eagle Outfitters Inc (AEO), Autoliv Inc (ALV), Bank of America Corp (BAC), Camden Property Trust (CPT),
Chordiant Software Inc (CHRD), Corn Products International Inc (CPO), Dentsply International Inc (XRAY),
Fidelity National Information Services Inc (FIS), FPL Group Inc (FPL), IberiaBank Corp (IBKC), Nationwide Financial Services Inc (NFS),
Provident Financial Services Inc (PFS), RightNow Technologies Inc (RNOW), Saks Inc (SKS), Scripps Networks Interactive Inc(SNI),
Sepracor Inc (SEPR), Sirona Dental Systems Inc (SIRO), Stoneridge Inc (SRI), Taiwan Semiconductor Manufacturing ADR (TSM),
TCF Financial Corp (TCB), TomoTherapy Inc(TOMO), UST Inc (UST), WW Grainger Inc (GWW).

Company stocks downgraded are:

Alcoa Inc (AA), Brown Shoe Co Inc(BWS), CBS Corp (CBS), CEMEX SA ADR (CX), Clear Channel Outdoor Holdings Inc (CCO),
ConAgra Foods Inc (CAG), Dynegy Inc (DYN), Eli Lilly & Co (LLY), Google Inc (GOOG), Lamar Advertising Co (LAMR),
Orbitz Worldwide Inc (OWW), Reliant Energy Inc (RRI) and Ruby Tuesday Inc (RT).

HOW MUCH FAITH BANKS HAVE IN EACH OTHER?

The overnight loan rate has climbed back to 5.09% too high considering the fed funds rate of 1.75%, the rate at which US Treasury lends them. Meanwhile, the 3-month Libor rate is also at a high 4.75%.

POINTERS TO THE FUTURE

* Economist forecast:
Chances for recession are now nearly 90%. Last month it was only 60%.

* For the first time in a half-century , we had GDP contracting in nine consecutive months!