David Moenning's Daily State of the Markets: 9/24

Dragging Their Feet?

Here’s a link to listen to an Audio Version of the report:�

Traders fretted on Tuesday that politics would get in the way of the proposed $700 billion bailout of the financial system and stocks dove another -162 points in response.

In what was described as an often contentious discussion, members of the Senate Banking Committee grilled the bailout plan’s supporters yesterday, namely Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and SEC Chairman Christopher Cox. While the administration’s view is that financial Armageddon will ensue if Congress does not approve the plan in a prompt fashion, lawmakers weren’t convinced and spent a good deal of the day exploring ways to drag their feet.

However, make no mistake about it; what the markets need right now is action – and FAST! Although the members of the banking committee may not comprehend the urgency of the situation, any investor who has watched this drama unfold over the last couple of weeks can readily attest that bankers are simply out of options right now. These now-famous mortgage securities have damaged bank balance sheets to the point where bankers are unable to make loans because their assets are tied up satisfying the capital requirements needed to stay in business.

And lest we forget, Lehman, Merrill, and AIG all went away over a single weekend. And then the very next weekend, we came to work to find that Morgan Stanley (MS) and Goldman Sachs (GS) had suddenly morphed into banks in order to stick around.

So, contrary to the senators’ belief, this situation isn’t about bailing out the now not-so fat cats on Wall Street. No, this is about keeping the U.S. financial system functioning.

Another bone of contention during yesterday’s hearings was the price the government would wind up paying for all of this distressed debt. If a ‘market value’ approach is used, which would arguably be a good deal for the taxpayers, it is hard to see how it would help the banking problem. After all, the current pennies-on-the-dollar valuation is what is causing the big financials to close their doors right now. However, the ever creative Ben Bernanke has come up with a nifty solution. Gentle Ben has proposed a ‘hold-to-maturity’ pricing plan that sounds like it just might work for all involved.

Unfortunately however, the politicians are not jumping on the bandwagon and talked a lot yesterday about delaying approval and dragging out the process of buying the assets. So, with the prospect that the usual political bickering would hold up the deal, traders have been voting with their feet so far this week as the Dow has now given back 500 points of last week’s sigh-of-relief rally.

Turning to this morning, we’ve got some good news to report as the markets are feeling a little better after learning that the Oracle of Omaha has agreed to step up to the plate with $5 billion for Goldman Sachs.

Running through the rest of the pre-game indicators, the foreign markets are fractionally mixed. Crude futures are moving up with the latest quote showing oil trading higher by $2.52 to $109.13. Interest rates are down with the yield on the 10-yr currently trading at 3.79%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a better open. The Dow futures are currently ahead by about 85 points; the S&P’s are up by about 8 points, while the NASDAQ looks to be about 11 points above fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Goldman Sachs (NYSE: GS) – To double size of common stock offering to $5 billion
Gilead Sciences (Nasdaq: GILD) – Mentioned positively at Citi
Hershey (NYSE: HSY) – Added to Conviction Sell list at Goldman
NASDAQ OMX Group (Nasdaq: NDAQ) – Upgraded at Goldman
NYSE Euronext (NYSE: NYX) – Downgraded at Goldman
Knight Capital (Nasdaq: NITE) – Upgraded at Goldman
Hertz Global (NYSE: HTZ) – Downgraded at Goldman
Merrill Lynch (NYSE: MER) – Downgraded at HSBC
Chubb (NYSE: CB) – Downgraded at JP Morgan
Coeur D’Alene Mines (NYSE: CDE) – Downgraded at JP Morgan
Southern Copper (NYSE: PCU) – Downgraded at Merrill
AmerisourceBergen (NYSE: ABC) – Upgraded at Merrill
Juniper Networks (JNPR) – Downgraded at Merrill
Starwood Hotels (NYSE: HOT) – Downgraded at Morgan Stanley
Exelon (NYSE: EXC) – Upgraded at Wachovia
PPL Group (NYSE: PPL) – Downgraded at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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