David Moenning's Daily State of the Markets: 9/12

September 12, 2008 9:36 AM EDT

Tied To The Wires

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

All you needed in order to understand the volatility seen during Thursday’s trading session was a close watch of the news wires for any story related to Lehman Brothers (LEH). In short, when something negative regarding the future of the firm came across, LEH and the market worked lower and then, when something hopeful crossed the wires, stocks moved up.

And so it went for the entire day. The bottom line is if you weren’t interested in the Lehman saga, you missed the impetus for the big moves in both directions.

At the nadir, the Dow was seen down -171 and was within spitting distance of the July lows. But, by the time the closing bell rang, we had a gain of +165. And in an effort to drive home this point, we’ve prepared a sampling of the news flow (all times are Eastern). As a point of reference, LEH closed at $7.25 on Wednesday.

5:37 am – Estimates reduced at Oppenheimer
6:39 am – LEH downgraded at Goldman
6:46 am – Downgraded at Citi
8:55 am – Downgraded at Deutsche Bank
9:36 am – Downgraded at Buckingham: LEH opens at $4.35, down -$2.90 or -40%, DJIA -120
11:08 am – Fed declined to comment on rumor of a Bear Stearns-like rescue: DJIA -33
11:56 am – Goldman Sachs says it continues to trade with Lehman: LEH $5.14, DJIA +21
12:06 pm – CNBC says Lehman is shopping the entire firm, likely buyers include Bank of America (BAC), Nomura (NMR), and HSBC (HBC).
1:38 pm – DealBreaker reports Fed, Treasury scrambling to find buyer: LEH $4.53, DJIA -71
2:57 pm – NY Times reports Lehman has increased efforts to sell entire company: DJIA flat
3:57 pm – WSJ reports Bank of America (BAC) in talks to buy Lehman
4:30 pm – Dow closes up +165
5:28 pm – Washington Post reports Treasury and Fed engineering a sale

So in sum, with a rescue plan in the works, it appeared that Wall Street might just avoid another brush with financial ruin and some hope was returned to the market.

Turning to this morning, the song remains the same. Word is that the Treasury and Fed are engineering a sale of Lehman, which is expected to be completed and announced this weekend before Asian markets open on Monday morning. However, there are many unanswered questions at this point and in the early going at least; there is not much in the way of celebration occurring in the pits.

We’ve also got some economic data to review this morning. The government reported that the Producer Price Index came in with a drop of -0.9%, which was well below than the expectations for a decline of -0.5%. When you strip out food and energy (which, for the record, is still a dumb idea), the so-called Core PPI rate increased by 0.2%, which was in line with the consensus guesstimates.

We also got a look at what the consumer’s been up to via the Retail Sales report from August. Sales fell by -0.3%, which was below the estimates for an increase of +0.1%. And when you strip out the sales of autos, the numbers were weak as well, coming in with a drop of -0.7%

Running through the rest of the pre-game indicators, the foreign markets are mostly higher. Crude futures are moving up as Ike approaches the Gulf of Mexico and the latest quote shows oil trading up by $0.98 to $101.85. Interest rates are up a little with the yield on the 10-yr currently trading at 3.64%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a down open. The Dow futures are currently off by about 70 points; the S&P’s are down by about 8 points, while the NASDAQ looks to be about 7 points below fair value at the moment.

Stocks “In Play� This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Pepsi Bottling Group (NYSE: PBG) – Upgraded at Bank of America
Diamond Offshore (NYSE: DO) – Started with Buy at Citi
Noble Corp (NYSE: NE) – Started with Buy at Citi
Transocean (NYSE: RIG) – Started with Buy at Citi
Washington Mutual (NYSE: WM) – Downgraded at Fitch, Moody’s, Upgraded at Goldman
Intel (Nasdaq: INTC) – Estimate reduced at Friedman Billings
Yahoo! (Nasdaq: YHOO) – Estimates reduced at Jefferies
Ericsson (Nasdaq: ERIC) – Downgraded at JP Morgan
Campbell Soup (NYSE: CPB) – Target increased at Lehman
Caterpillar (NYSE: CAT) – Target reduced at UBS
MEMC Electronic Materials (NYSE: WFR) – Target reduced at UBS
Best Buy (NYSE: BBY) – Downgraded at UBS

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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• Deutsche Bank
• UBS
• JPMorgan
• Goldman Sachs
• Citi
• Bear Stearns
• Jefferies & Co
• Lehman Brothers
• Banc of America
• Friedman, Billings, Ramsey
• David Moenning
• Nomura
• HSBC
• Crude Oil

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