David Moenning's Daily State of the Markets: 8/26

August 26, 2008 10:04 AM EDT

They’re Learning

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

Foreign bankers and sovereign wealth funds may quickly be learning that we need them more than they need us. Exhibit A for the argument would be the recent on-again, off-again deal between Lehman Brothers (LEH) and the Korean Development Bank.

Think back for a moment to the early days of the credit crisis and recall the billions of dollars that were put up by Middle Eastern and Asian sovereign wealth funds. Now ask yourself, how do those investments look right about now? The answer is, in short, not so hot. While they haven’t fared quite as badly as those brave souls who decided to keep buying Bear Stearns all the way down, the early investments in US banks and brokers have NOT performed well at all. Thus, it would appear that the sovereign wealth funds, like just about everybody else, misjudged the severity of the problems with Wall Street’s banks and brokers.

So, from our perch anyway, it looks like the Koreans are perhaps doing a little hard core negotiating instead of just handing over billions of dollars to Lehman. And the jockeying back and forth seems to be taking its toll on Wall Street.

On Friday, stocks rallied in response comments from the Korean Development Bank that they were weighing all of their acquisition options – options that INCLUDED Lehman. However, just as most of the street has been balking at the asking price for Lehman’s assets, on Saturday, the Koreans reversed course and said they actually had no interest in buying LEH. And then this morning, there is word that Governmental officials are telling the Korean Bank not to bid for Lehman as a purchase would represent “too great a risk at a difficult time.�

Stocks tanked on Monday at least partially in response to the Lehman news as the options for one of Wall Street’s biggest firms appear to be fading quickly. It also didn’t help that the FDIC was forced to seize Columbian Bank and Trust of Topeka Kansas over the weekend, making it the ninth bank failure this year and the fifth since early July.

So, despite a solid bond auction by Freddie Mac (FRE), which one analyst likened to finding a $20 bill in your pocket on the way to bankruptcy court, the concerns about the banks and brokers continue to take center stage. Another example of these concerns comes from Bloomberg this morning, who reported that domestic securities firms have $871 billion in bonds maturing between now and the end of 2009. According to the report, investors are currently seeking yields that are 4.14% higher than treasuries, which is just a smidge higher than the 0.76% premium that was sought a year ago. And putting a pencil to the numbers, Bloomberg estimates that this will cost Wall Street firms an additional $23 billion in interest annually.

Thus, it would appear that until investors can become fairly confident that we have indeed seen the worst in the credit crisis and that there are no more big shoes to drop, the situation might just remain a little tenuous.

Turning to this morning, we don’t have any economic data to review before the bell. However, we will get reports on the housing market and consumer confidence at 10:00 am eastern.

Running through the rest of the pre-game indicators, the foreign markets are mostly lower. Crude futures are moving down a bit with the latest quote showing oil trading lower by $0.71 to $114.40. Interest rates are moving up a smidge this morning with the yield on the 10-yr currently trading at 3.80%. And finally, with about 60 minutes before the bell, stock futures in the U.S. are pointing to a slightly lower open. The Dow futures are currently off by about 17 points; the S&P’s are down by about 2 points, while the NASDAQ looks to be about 6 points below fair value at the moment.

Stocks “In Play� This Morning:

Today’s Earnings Before the Bell:

American Eagle Outfitters (NYSE: AEO) – Reported $0.29 vs. $0.28
Big Lots (NYSE: BIG) – Reported $0.32 vs. $0.27

News, Upgrades/Downgrades/Brokerage Research:

EOG Resources (NYSE: EOG) – Upgraded at Bernstein
Salesforce.com (NYSE: CRM) – Upgraded at Citi
Arthur Gallagher (NYSE: AJG) – Estimates reduced at Goldman
Aon Corp (NYSE: AOC) – Estimates and target reduced at Goldman
Marsh & McLennan (NYSE: MMC) – Estimates and target reduced at Goldman
Grey Wolf (NYSE: GW) – Downgraded at Jefferies
Nortel (NYSE: NT) – Downgraded at Lehman
Broadcom (Nasdaq: BRCM) – Downgraded at Oppenheimer

Disclosure: Mr. Moenning and/or related firms hold long positions in: GS

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.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700 Direct: 303-670-9761
email: DMoenning@HeritageCapitalManagement.com

Related Categories

Contributors

Stocks Mentioned

Related Entities

• Citi
• Bear Stearns
• Jefferies & Co
• Lehman Brothers
• Standard & Poor's
• David Moenning
• Consumer Confidence Index
• Crude Oil

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?