David Moenning's Daily State of the Markets: 9/16

September 16, 2008 10:06 AM EDT

One For the Books

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

It is always difficult to comprehend the historical importance of events when you are living through them. However, make no mistake about it; the current credit crisis is one for the history books and has forever altered the landscape of Wall Street.

For example, at the beginning of the year, I’m guessing most people would have laughed at the idea of Bear Stearns being bought for $2, Lehman Brothers (LEH) going belly up, and Merrill Lynch (MER) being forced to accept an acquisition by a bank – with two of the three events happening on the same Sunday afternoon!

But the bigger problem – and the primary reason for the acceleration of yesterday’s plunge – is that there are more big names in line to fall. So, when you consider that both Lehman and Merrill were taken out, AIG (AIG) appears to be in deep trouble, the Fed took action on Sunday and is meeting today, we’ve got earnings coming from both Goldman Sachs (GS) and Morgan Stanley (MS), and a quadruple-witch expiration event this week, it is little wonder that the bears enjoyed one of their best days in years yesterday.

As expected, stocks followed the lead of the foreign markets and opened down hard – to the tune of about 300 points – on the heels of the jaw-dropping events from Sunday. However, from there, the market stabilized and spent much of the day waffling between down -250 and -320.

With the Lehman saga now having come to a close, traders were watching the next domino in line – AIG (AIG). With the stock of one of the country’s largest insurance companies falling -60% yesterday and having dropped -80% in the last week alone, the market would appear to be questioning the ongoing viability of the company. So, with AIG scrambling to line up cash, the question of the day was if another major U.S. financial institution was about to bite the dust due to their inability to meet their capital requirements.

Stocks actually rallied mid-morning on word that New York governor Paterson would allow AIG to access $20 Billion from its subsidiaries. But then the market fell on a report that the Fed had hired Morgan Stanley (MS) to negotiate a bridge loan. Next, stocks were encouraged when a report hit the wires that the Government had asked Goldman (GS) and JP Morgan (JPM) to lead a $70 - $75 Billion lending facility for AIG. But unfortunately, stocks accelerated lower into the close on questions if such a group could be put together in time.

Turning to this morning, the day is going to be all about liquidity and the system’s ability to handle the dramatic demands for cash. So far we’ve seen China cut rates, the Bank of England add liquidity as well as the ECB, the Swiss central bank, Japan, and India. And here in the U.S., the Fed has also conducted a large liquidity injection.

And in what is likely to wind up as a footnote on the day, we’ve seen Best Buy (BBY) miss earnings as well as Goldman Sachs report earnings that were actually better than expected.

Next, we’ve got the CPI report to review. The government just announced that the CPI for August came in with a drop of -0.1%, which was dead-on with the consensus estimate. When you strip out food and energy, the Core Rate came in at +0.2%, which was also in line with expectations.

And lest we forget, the Fed is meeting today and as usual, we will hear their plans today at 2:15 pm eastern. But in reality, all eyes will be on AIG today as NY Governor Paterson has just said that the company basically has a day to get a deal done to meet their capital requirements.

Running through the rest of the pre-game indicators, the foreign markets followed Wall Street’s lead and are again down hard across the board. Crude futures are moving down again and the latest quote shows oil trading off by $3.87 to $91.84. Interest rates are continuing to fall on a flight to quality with the yield on the 10-yr currently trading at 3.31%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to another tough open. The Dow futures are currently off by about 100 points; the S&P’s are down by about 20 points, while the NASDAQ looks to be about 19 points below fair value at the moment.

Stocks “In Play� This Morning:

Today’s Earnings Before the Bell:

Best Buy (NYSE: BBY) – Reported $0.48 vs. $0.57
Goldman Sachs (NYSE: GS) – Reported $1.81 vs. $1.74

News, Upgrades/Downgrades/Brokerage Research:

Chubb (NYSE: CB) – Upgraded at Citi
Travelers (NYSE: TRV) – Upgraded at Citi
SAP (NYSE: SAP) – Upgraded at Credit Suisse
American Intl Group (NYSE: AIG) – Fitch reduced rating to ‘A’, Moody’s cuts ratings, S&P downgrades
Merrill Lynch (NYSE: MER) – Upgraded at Goldman Sachs
Apple (Nasdaq: AAPL) – Removed from Conviction Buy list at Goldman
Consolidated Edison (NYSE: ED) – Upgraded at Goldman
Watson Pharmaceuticals (NYSE: WPI) – Downgraded at Goldman
Big Lots (NYSE: BIG) – Downgraded at JP Morgan
Eli Lilly (NYSE: LLY) – Downgraded at JP Morgan
CA Inc (NYSE: CA) – Upgraded at JP Morgan
Unilever (NYSE: UN) – Downgraded at Merrill
General Motors (NYSE: GM) – Upgraded at Merrill
Ford (NYSE: F) – Upgraded at Merrill
Washington Mutual (NYSE: WM) – Downgraded at S&P
Meritage Homes (NYSE: MTH) – Downgraded at UBS
Lam Research (Nasdaq: LRCX) – Downgraded at UBS
Broadcom (Nasdaq: BRCM) – Downgraded at UBS
Micron Technology (NYSE: MU) – Downgraded at UBS
Analog Devices (NYSE: ADI) – 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.

Related Categories

Contributors

Stocks Mentioned

Related Entities

• Goldman Sachs Conviction Buy List
• Credit Suisse
• UBS
• JPMorgan
• Goldman Sachs
• Citi
• Morgan Stanley
• Bear Stearns
• Merrill Lynch
• Lehman Brothers
• David Moenning
• Crude Oil

Add Your Comment

Name

Subject

Body

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