David Moenning's Daily State of the Markets: 6/04

June 4, 2008 9:58 AM EDT

The Next Bear Stearns?

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

Looking at yesterday, stocks basically muddled through Tuesday morning and appeared to lack direction. Then just about the time traders started heading out to lunch, all of a sudden, we got one of those nasty plunges that were so prevalent in the first quarter of the year. And before you could remember what a credit default swap actually was, the Dow had plunged to a loss of 160 points.

While most everyone was looking around and wondering what was going on, the media was busy telling us that there had been no catalyst for the move. However, one of the pillars to my stock market philosophy is that when markets move in relatively swift fashion, there is ALWAYS a reason. Sometimes, the reason is obvious and other times you have to dig for it. And yesterday, you had to do a little digging.

So, forget about the GM news. Disregard the chatter about the changes to who can buy how much of what in the futures markets. And simply ignore the economic news. Sure, this was all fairly interesting stuff. But, the real reason that stocks suddenly got smacked around was the rumor that Lehman Brothers (LEH) was on their way to the Fed – aka the lender of last resort.

The Wall Street Journal had started stirring this pot early on with a story that LEH was out shopping for about $4 billion in additional capital. But once the rumor mill got wind of the Fed having a stern talk with Lehman about the state of their balance sheet, well, it didn’t take much for people to start yapping about LEH becoming the next Bear Stearns (BSC).

So, with concerns about another high profile brokerage meltdown following Ben Bernanke’s suggestion that the FOMC isn’t likely to cut rates again, it is little wonder that traders leaned hard on the sell button for a while. But, by the end of the day the Lehman rumors had been squelched – mainly because Lehman stated that it had NOT borrowed any cash from the Fed – and it wound up being just another run-of-the-mill bad day at the office for the Dow.

Thus, it would appear that we’ve got a case of déjà vu all over again. Traders are once again very concerned with anything relating to credit problems and will be on high alert for any sign that Lehman is going the way of Bear.

Turning to this morning, word is that Lehman is currently looking overseas for capital including places like South Korea. On the economic front, the ADP Employment report showed that payrolls grew by 40,000 in May, which was far better than the expectations for a drop of -30,000. In addition, the government reported that U.S. Nonfarm Productivity grew by 2.6% in the first quarter, which was better than expectations and a very good thing in terms of the state of the economy. However, Unit Labor Costs also increased at a rate of 2.2%, which was a bit hotter than the preliminary numbers and will lead to discussions of inflation.

Running through the rest of the pre-game indicators; with the exception of Japan, the foreign markets are down hard across the board. Crude futures are moving down again with the latest quote showing oil trading lower by $0.63 to $123.68. Interest rates are down a smidge this morning as the yield on the 10-yr is currently trading at 3.89%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a lower open at the moment. The Dow futures are currently off by about 25 points; the S&P's are down by about 5 points, while the NASDAQ looks to be about 9 points below fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Vail Resorts (NYSE: MTN) – Initiated Buy at Bank of America
Eli Lilly (NYSE: LLY) – Downgraded at Cowen
Bristol Myers Squibb (NYSE: BMY) – Downgraded at Cowen
General Motors (NYSE: GM) – Target reduced at Credit Suisse
Nabors Industries (NYSE: NBR) – Upgraded at Goldman
Marriott Intl (NYSE: MAR) – Downgraded at Oppenheimer
Choice Hotels (NYSE: CHH) – Downgraded at Oppenheimer
Crown Castle (NYSE: CCI) – Downgraded at RBC Capital
American Tower (NYSE: AMT) – Downgraded at RBC Capital
SBA Communications (Nasdaq: SBAC) – Downgraded at RBC Capital
Tyson Foods (NYSE: TSN) – Upgraded at Wachovia
Morgan Stanley (NYSE: MS) – Upgraded at Wachovia

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.

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

Related Categories

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Related Entities

• Credit Suisse
• ADP Employment Report
• Ben S. Bernanke
• Morgan Stanley
• Bear Stearns
• Lehman Brothers
• Wachovia
• Banc of America
• RBC Capital
• Federal Open Market Committee

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