David Moenning's Daily State of the Markets: 3/11

March 11, 2008 10:34 AM EDT

The Fed Gets Creative

Here’s a link to listen to an Audio Version of the report: http://PlayAudioMessage.com/play.asp?m=489086&f=LYDSNY&ps=13&c=FFFFFF&pm=2&h=25

With the Dow down almost 1000 points in just the past eight sessions, the losses of 150 points a day are beginning to feel like just another day at the office. And from the bears' perspective, yesterday was indeed just another workman-like effort as there was plenty of bad news to keep the bulls at bay.

In the early going, it looked like the bulls might have a shot at making some sort of a stand as the rumors swirled that the Fed was about to cut interest rates. The talk of an intra-meeting rate cut got started from economists at Goldman Sachs, who, while they weren’t necessarily making a prediction, did say that such a move was possible.

But, as the time for Fed intervention came and went, the attention turned back to the matter at hand: the crisis in the financial markets. There were plenty of news stories on the topic to keep the now well-oiled bear machine humming. For example, over the weekend, Barron's speculated that Fannie Mae (FNM) could face losses of up to $50 billion. The earnings from Blackstone Group (BX) were abysmal and highlighted by the CEO labeling the financial crisis as “severe.� Next, we got word that the FBI was looking at Countrywide (CFC) for alleged securities fraud. And there was lots of talk about hedge funds facing both collateral and margin calls.

But what really got the bears fired up was the rumor that Bear Stearns was facing liquidity problems. This stemmed from a report that Moody’s had downgraded some of the firm’s Alt-A loan deals and put the fear of the unknown back into the market. Although the rumors were vehemently denied by Bear, the idea of the domino effect hitting the big brokerage firms was enough to keep any and all buyers on the sidelines.

Now toss in the fact that oil hit yet another record high at $107.90 and it was easy to get the feeling yesterday that the Fed is in a box and the economy is in a pickle.

On the other side of the aisle, the bulls could be heard going on about the fact that the intraday lows of January 22 have held up thus far during the recent barrage of selling. However, with the closing charts having rolled over, it is beginning to look like it is going to take a great deal of work for the bulls to get this thing turned around.

Turning to this morning however, a turnaround appears to be the order of the day as the Fed has gotten creative again in their efforts to shore up the ongoing liquidity problems in the financial markets. The FOMC has created something called a Term Securities Lending Facility for primary dealers and will lend up to $200 billion of Treasury securities in return for collateral such as mortgage backed securities. The keys to this deal are (1) Institutions other than banks can go to the Fed and borrow the necessary funds to keep balance sheets in order. (2) The TSLF is longer-term oriented. And (3) the TSLF has been created in conjunction with foreign central banks.

Needless to say, stocks have blasted higher in response as this move goes directly to the source of the problem.

Running through the rest of the pre-game indicators; foreign markets are higher across the board. Crude futures are moving up again with the latest quote higher by $1.42 to $109.32. Interest rates are moving up with the 10-yr trading at a yield of 3.58% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a strong open. The Dow futures are currently ahead by about 200 points; the S&Ps are up by about 25 points while the NASDAQ looks to be about 24 points above fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

Dick’s Sporting Goods (NYSE: DKS) – Reported $0.62 vs. $0.60

News, Upgrades/Downgrades/Brokerage Research:

Anheuser Busch (NYSE: BUD) – Mentioned positively at Bear Stearns
WellPoint Inc (NYSE: WLP) – Downgraded at Bear Stearns, Goldman, JP Morgan
Corning (NYSE: GLW) – Mentioned positively at Bernstein
Lehman Brothers (NYSE: LEH) – Estimates and Target reduced at Deutsche Bank, Oppenheimer
Bear Stearns (NYSE: BSC) – Estimates and Target reduced at Deutsche Bank
Goldman Sachs (NYSE: GS) – Estimates and Target reduced at Deutsche Bank
Vornado Realty Trust (NYSE: VNO) – Upgraded at Goldman
Prologis (NYSE: PLD) – Downgraded at Goldman
Cardinal Health (NYSE: CAH) – Added to Conviction Buy list at Goldman
Vodafone (NYSE: VOD) – Added to Conviction Buy list at Goldman
VeriSign Inc (Nasdaq: VRSN) – Downgraded at Jefferies
Moody's (NYSE: MCO) – Downgraded at Lehman
Texas Instruments (NYSE: TXN) – Downgraded at Piper Jaffray
Level 3 Com (Nasdaq: LVLT) – Downgraded at Thomas Weisel
Weyerhaeuser (NYSE: WY) – Upgraded at UBS
Potash (NYSE: POT) – Target increased at UBS

Mr. Moenning holds Long positions in stocks mentioned: AMAT

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

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: http://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 Managemen
Main: 630-250-4700
Direct: 303-670-9761
email: DMoenning@HeritageCapitalManagement.com

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