Taking Stock of Wall Street 2008-10-10

Has the market reached the bottom of the abyss? We cannot be sure of that. But, the market did show a bit of its past resilience by springing back and regaining a few hundred lost points.

GLOBAL PICTURE

Fear and panic is reigning high throughout the world's stock exchanges. Most of them fell by -7% to -8%. While Brazil halted trading on Friday, Israel had to do it on Sunday.

G-7 leaders have met in the White House for troubleshooting the present crisis. No concrete decisions came out of it, other than broad consensus for concerted action. May be the meeting was of only symbolic significance as joint actions were already taken by the central banks.

Leaders of the 15 Euro-zone nations finally came together to chart out bailout strategies. Still, a unified EU umbrella is lacking under the aegis of the European Central Bank (ECB).

Germany announced its 300-400 bln euro bailout plan, which includes liquidity injections and government investments in the banking sector.

After seven years, Japanese heard a financial insurer filing for bankruptcy protection - the Yamato Life Insurance Company.

US GOVERNMENTAL ACTIONS

SEC is reportedly considering a proposal from NYSE and Nasdaq for new rules on short sales. Both exchanges want a ban on short sales for 3 days, if a stock's closing price falls by 20% in one day.

US ECONOMIC DATA

The U.S. Trade Deficit for August - fell to $59.1 bln, in line with the economists' consensus. In July, it was $61.3 bln .

Exports fell by $3.4 bln to $168.1 bln, while imports too fell by -$5.5 bln to $229.4 bln.

Import prices for September - dropped by -3.0%, higher than the forecast of -2.8%. On annual basis, prices are up 14.5%, more than the expected increase of 12.2%.

Export prices for September - fell by -1.0%. It is also up by 6.8% from last year.

Oil fell substantially by -$8.89 (-10.27%) to $77.70.

Gold retreated by -$27.50 (3.10%) to $859.00.

CBOE Volatility Index (VIX) was higher by 6.03 to 69.95 from 57.58.

Dollar is still buoyant and up by 1.8% against a basket of global currencies - not because of own merits; but rivals are faltering.

MARKET INDICES

Dow went DOWN by -128.00 (-1.49%) to 8,451.19
S&P 500 DOWN by -11.29 (-1.13%) to 984.94
Nasdaq DOWN by +4.39 (+0.27%) to 1,649.51

NYSE

Daily Volume: 2.85 bln
A/D Ratio: 1081 stocks advanced against 1471 declined
52-week Hi/Lo: 4 stocks climbed to new Highs while 2559 went down to new Lows

Nasdaq

Daily Volume: 4.18 bln
A/D Ratio: 2198 stocks advanced against 1567 declined
52-week Hi/Lo: 3 stocks climbed to new Highs while 1702 went down to new Lows

MARKET NEWS

Morgan Stanley (MS) and Mitsubishi UFJ Financial (MTU) continue to negotiate their $9 bln. Lately government too is taking an active interest in consummating the deal. MTUis hopeful of a deal by Tuesday.

Ailing US auto manufacturers are very vehement in denying any prospects of declaring bankruptcy. First it was GM (GM). Now it is Ford(F).

Biogen (BIIB) is abandoning further development of baminercept failed Phase II clinical trials.

M&A NEWS

GM (GM) is in talks with Cerberus for a swap of their respective holdings: GM gets Cerberus' 80% stake in Chrysler while Cerebrus gets full control of GMAC.

COMPANY RESULTS

While Eastman Chemcal (EMN) and Chevron (CVX) issued better than expected guidances, Best Buy (BBY) and Brinker International (EAT) warned of reduced earnings.

As for quarterly earnings, GE (GE) declared earnings that confirmed market's expectations.

Host Hotels (HST) and Infosys Technologies (INFY) produced earnings that exceeded the forecasts

ANALYSTS RATINGS

The company stocks upgraded include:

Abercrombie & Ftch Co (ANF), Adaptec Inc (ADPT), Advanta Corp (ADVNB), Aeropostale Inc (ARO), Amazon.com Inc (AMZN), Bank of America Corp (BAC), Boston Properties Inc (BXP), Chico's FAS Inc (CHS), Community Bank Systems Inc (CBU), Del Monte Foods Co (DLM), DISH Network Corp (DISH), Donegal Group Inc (DGICA),Dreamworks Animation SKG Inc (DWA), Erie Indemnity Co (ERIE), First Niagara Financial Group Inc (FNFG), Frontier Financial Corp (FTBK), Huntsman Corp (HUN), Kraft Foods Inc (KFT), M&T Bank Corp (MTB), Martek Biosciences Corp (MATK), Micromet Inc (MITI), Morgans Hotel Group Co (MHGC), Philip Morris International Inc (PM), Prospect Energy Corp (PSEC),Public Storage REIT (PSA), State Auto Financial Corp (STFC), UDR REIT (UDR), Union Bankshares Corp (UBSH), Volcom Inc (VLCM) and Wells Fargo & Co (WFC)

Company stocks downgraded are:

Advanced Medical Optics Inc (EYE), Align Technology Inc (ALGN), Boyd Gaming (BYD), Brinker International Inc (EAT), Freeport McMoRan Copper & Gold Inc (FCX0, Imation Corp (IMN), Isle of Capri Csinos Inc (ISLE), Maguire Properties REIT (MPG), MasterCard Inc (MA), MGM Mirage (MGM), Olympic Steel Inc (ZEUS) and U.S. Steel Corp (X).

FED TALK

Two ex-Fed chairpersons opened their mouths today:

Paul Volcker: We have the tools. Now, we need the brains to use them. (Sir, you mean the same old brains of Goldman Sachs, JP....)
Greenspan: U.S. housing recovery will begin next year. (Any hope for the jobless and foreclosed until that time?)

WEEKLY CHANGES IN MARKET INDICES

Whatever be the daily heroics, on a weekly basis, markets are down by another 15%-18%
Dow -18%
S&P 500 -18%
Nasdaq -15%

HOW MUCH FAITH THE BANKS HAVE IN EACH OTHERS' LIQUIDITY?

Interbank overnight interest rate fell from 5.09% to 2.47%, may be since they are flooded with taxpayers' money. Three-month Libor rate rose from 4.75% to 4.82%.

POINTERS TO THE FUTURE

What are the chances of a market bottom? We can only say it is possible, unless the government can pump in money continuously until lost jobs return.

What are the chances of a temporary pullback? It is more probable compared to an imminent bottom. Some economic data, soon to be published are not likely to be encouraging enough for a consistent rise in the market.

Apart from the investors dumping stocks in panic , there were two groups who indulged in massive liquidation of stocks: (1) hedge funds and mutual funds (2) corporate top brass.

If these two categories are finished with their sell-offs, may be a temporary respite can be expected.

As early Monday morning reports are trickling in from the east, Asian stocks are showing some rebound.