David Moenning's Daily State of the Markets: 3/20

March 20, 2008 10:31 AM EDT

Here We Go Again?

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

http://PlayAudioMessage.com/play.asp?m=491327&f=QRPLUB&ps=13&c=FFFFFF&pm=2&h=25

Just about the time we were feeling that the brokerage firms were safe – well, safe from imminent bankruptcy, that is – new rumors of liquidity sank the market yesterday. Yep, just a single day after Tuesday’s 420 point blast higher, stocks got tagged for losses of nearly 300 points on worries about more writedowns and fear of what might be on tap for a little firm called Merrill Lynch (MER).

Although there were no formal reports of problems at Mother Merrill, the story sounds eerily familiar to one we heard just about this time a week ago. And the next thing we knew, the firm of trust-me-we-don't-have-any-liquidity-problems, or better known at the time as Bear Stearns, was out of business by Friday.

So, with worries about Merrill Lynch bringing down the financials (and btw, Merrill is said to have the worst balance sheet on the street next to Bear), and a rare dollar rally sending commodities and material stocks down hard, we were suddenly back to a look-out-below type of market.

Speaking of commodities, the complex defined the term "ugly" yesterday. Gold, energy, grains, you-name-it – they were ALL spanked hard yesterday. And while the popular press talks about the dollar being the culprit for the river of red pixels in the commodities; it was really a case of the credit crisis spreading.

You see, hedge funds tend to borrow money in order to enhance their returns. But with banks and brokers becoming more than a little skittish about the amount of money they’ve loaned out for questionable securities, the word “de-levering” has become the theme of the day. So, if you’re a fund that is suddenly faced with having to cough up collateral on that big loan, you probably will look to sell the things you can. And with anything related to commodities up big and worries about global growth beginning to crop up; your best bet is to sell your winners. Now toss in several thousand funds that like to play both ways and you’ve got a boatload of trend-followers shorting gold, oil, and wheat. The end result was a massive decline in the CRB, which included a drop of $59 in gold and $5 for oil.

Not even another positive earnings report from Morgan Stanley (MS) or word that OFHEO had finally decided to reduce the excess capital requirement for Fannie Mae (FNM) and Freddie Mac (FRE) could keep the bears at bay yesterday. And it didn’t help that banks across the pond are having liquidity problems of their own.

Thus, with the action becoming wild and wooly again, it is becoming apparent that this market has a bad case of ADD as traders have no memory of the market’s action from one day to the next.

Turning to this morning, news that Credit Suisse was forced to write down another 2.9 billion is getting some attention. However, the company blamed the writedown on “intentional misconduct” on the part of traders, which is taking some of the sting out of the story.

Running through the rest of the pre-game indicators; foreign markets are mostly lower on economic worries and the decline in commodity prices. Crude futures are moving down hard again with the latest quote off $3.29 to $99.25. Interest rates are moving lower with the 10-yr trading at a yield of 3.33% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a modestly positive open. The Dow futures are currently ahead by about 20 points; the S&Ps are up by about 3 points while the NASDAQ looks to be about 6 points above fair value at the moment.

Stocks "In Play" This Morning:

Today’s Earnings Before the Bell:

FEDEX (NYSE: FDX) – Reported $1.23 vs. $1.23

News, Upgrades/Downgrades/Brokerage Research:

Genzyme (Nasdaq: GENZ) – Estimates increased at Bernstein
Discover Financial (NYSE: DFS) – Upgraded at Calyon Securities
US Steel (NYSE: X) – Upgraded at Goldman
Siemens (NYSE: SI) – Removed from Conviction Buy list at Goldman
Federal Nat’l Mortgage (NYSE: FNM) – Goldman cautious on FNM and FRE after recent run
Panera Bread (Nasdaq: PNRA) – Downgraded at JP Morgan
First Horizon (NYSE: FHN) – Downgraded at JP Morgan
SanDisk (Nasdaq: SNDK) – Downgraded at JP Morgan
Zimmer Holdings (NYSE: ZMH) – Upgraded at Lehman
General Electric (NYSE: GE) – Upgraded at Merrill
3M Co (NYSE: MMM) – Downgraded at Merrill
Nike (NYSE: NKE) – Target and estimates increased at UBS

Mr. Moenning holds Long positions in stocks mentioned: 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.

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

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Related Entities

• Goldman Sachs Conviction Buy List
• Credit Suisse
• UBS
• JPMorgan
• Morgan Stanley
• Bear Stearns
• Merrill Lynch
• Calyon Securities

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