David Moenning's Daily State of the Markets: 08/13
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Bernanke's Cavalry Rides
With the August 15th deadline for hedge fund redemptions looming and more bad news in the credit markets, stocks continued to melt down in the early going on Friday. The move took the Dow below its recent low water mark and with the common thinking being that no one would want to hold over the weekend, it looked like things might get ugly in a hurry.
Although the news wasn't exactly surprising, Countrywide Financial (NYSE: CFC) announced early Friday that it was experiencing "unprecedented disruptions" due to reduced investor demand for mortgage loans and mortgage-backed securities. In short, the company was saying they were having trouble finding buyers for the packages of loans they were making and that they were going to have to hold on to significantly more of the product than they had intended.
Next, we got word that more hedge funds were having trouble. Reports showed that Goldman was having a tough go of it lately with its quant fund (a fund run by sophisticated computer modeling) and Deutsche Bank revealed that one of its mortgage-backed securities funds had declined 30% since the end of July.
And with a market that was already jittery, these headlines sparked a selloff in Europe and were enough for the bears to once again attack the futures here in the U.S.
But a funny thing happened on the way to the wipeout - it just didn't happen. Stocks actually wound up recovering the entire early drop and moved into positive territory after both the ECB and Fed jumped on their white horses and rode to the rescue.
The story of the day on Friday was the FOMC's open market operations in which it injected more liquidity into the banking system than at any time since 9/11. The key to this story is that the Fed did indeed come to the rescue when needed and this, all by itself, gave stock traders the sign they needed that Ben Bernanke and Co. are unlikely to let the credit crisis get out of hand.
At issue here is the pricing of these mortgage-backed securities. Since there are no buyers at the present time, everyone - including many banks - is having a problem putting a fair price on these securities. And since banks have reserve requirements that must be met on a daily basis, the fact that pricing is difficult for an entire class of securities meant that the banking system was experiencing technical difficulties. But with the Fed and the ECB providing liquidity specifically to anyone with these problem-securities, a crisis was averted.
Turning to this morning, the Fed has said it will be watching closely again, which is providing the market with a warm and fuzzy feeling. We also got word that Retail Sales in July came in a tenth better than expected, which is also reassuring from an economic perspective.
Running through the rest of the pre-game indicators, the overseas markets are higher across the board. Crude futures are higher by $0.75 with the latest quote at $72.22. Interest rates are moving up this morning as the 10-yr is trading with a yield of 4.82% right now. And finally, with about 45 minutes before the bell, stock futures in the U.S. are looking to open up strong. The Dow futures are currently ahead by about 60 points; the S&Ps are about 8 points above breakeven, and the NASDAQ looks to be about 16 points ahead fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Pactiv (NYSE: PTV) - Upgraded at Banc of America
Sealed Air (NYSE: SEE) - Upgraded at Banc of America
Lockheed Martin (NYSE: LMT) - Upgraded at Banc of America
BEA Systems (NASDAQ: BEAS) - Upgraded at Banc of America, Bear Stearns, UBS
BMC Software (NYSE: BMC) - Upgraded at Banc of America
CIT Group (NYSE: CIT) - Upgraded at CIBC
Prologis (NYSE: PLD) - Downgraded at Citi
Avnet (NYSE: AVT) - Upgraded at Citi
Overseas Shipholding Group (NYSE: OSG) - Upgraded at Credit Suisse
JP Morgan (NYSE: JPM) - Upgraded at Deutsche Bank
Marathon Oil (NYSE: MRO) - Upgraded at Friedman
Sonic Automotive (NYSE: SAH) - Downgraded at Goldman Sachs
Transocean (NYSE: RIG) - Upgraded at Jefferies
DR Horton (NYSE: DHI) - Downgraded at JP Morgan
Valueclick (NASDAQ: VCLK) - Upgraded at JP Morgan
China Unicom (NYSE: CHU) - Upgraded at Morgan Stanley
Astrazeneca (NYSE: AZN) - Downgraded at Morgan Stanley
Electronic Data Systems (NYSE: EDS) - Upgraded at UBS
Schering Plough (NYSE: SGP) - Upgraded at UBS
Research In Motion (NASDAQ: RIMM) - Target increased at UBS
Mr. Moenning holds Long positions in stocks mentioned: CHU, RIMM
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.
With the August 15th deadline for hedge fund redemptions looming and more bad news in the credit markets, stocks continued to melt down in the early going on Friday. The move took the Dow below its recent low water mark and with the common thinking being that no one would want to hold over the weekend, it looked like things might get ugly in a hurry.
Although the news wasn't exactly surprising, Countrywide Financial (NYSE: CFC) announced early Friday that it was experiencing "unprecedented disruptions" due to reduced investor demand for mortgage loans and mortgage-backed securities. In short, the company was saying they were having trouble finding buyers for the packages of loans they were making and that they were going to have to hold on to significantly more of the product than they had intended.
Next, we got word that more hedge funds were having trouble. Reports showed that Goldman was having a tough go of it lately with its quant fund (a fund run by sophisticated computer modeling) and Deutsche Bank revealed that one of its mortgage-backed securities funds had declined 30% since the end of July.
And with a market that was already jittery, these headlines sparked a selloff in Europe and were enough for the bears to once again attack the futures here in the U.S.
But a funny thing happened on the way to the wipeout - it just didn't happen. Stocks actually wound up recovering the entire early drop and moved into positive territory after both the ECB and Fed jumped on their white horses and rode to the rescue.
The story of the day on Friday was the FOMC's open market operations in which it injected more liquidity into the banking system than at any time since 9/11. The key to this story is that the Fed did indeed come to the rescue when needed and this, all by itself, gave stock traders the sign they needed that Ben Bernanke and Co. are unlikely to let the credit crisis get out of hand.
At issue here is the pricing of these mortgage-backed securities. Since there are no buyers at the present time, everyone - including many banks - is having a problem putting a fair price on these securities. And since banks have reserve requirements that must be met on a daily basis, the fact that pricing is difficult for an entire class of securities meant that the banking system was experiencing technical difficulties. But with the Fed and the ECB providing liquidity specifically to anyone with these problem-securities, a crisis was averted.
Turning to this morning, the Fed has said it will be watching closely again, which is providing the market with a warm and fuzzy feeling. We also got word that Retail Sales in July came in a tenth better than expected, which is also reassuring from an economic perspective.
Running through the rest of the pre-game indicators, the overseas markets are higher across the board. Crude futures are higher by $0.75 with the latest quote at $72.22. Interest rates are moving up this morning as the 10-yr is trading with a yield of 4.82% right now. And finally, with about 45 minutes before the bell, stock futures in the U.S. are looking to open up strong. The Dow futures are currently ahead by about 60 points; the S&Ps are about 8 points above breakeven, and the NASDAQ looks to be about 16 points ahead fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Pactiv (NYSE: PTV) - Upgraded at Banc of America
Sealed Air (NYSE: SEE) - Upgraded at Banc of America
Lockheed Martin (NYSE: LMT) - Upgraded at Banc of America
BEA Systems (NASDAQ: BEAS) - Upgraded at Banc of America, Bear Stearns, UBS
BMC Software (NYSE: BMC) - Upgraded at Banc of America
CIT Group (NYSE: CIT) - Upgraded at CIBC
Prologis (NYSE: PLD) - Downgraded at Citi
Avnet (NYSE: AVT) - Upgraded at Citi
Overseas Shipholding Group (NYSE: OSG) - Upgraded at Credit Suisse
JP Morgan (NYSE: JPM) - Upgraded at Deutsche Bank
Marathon Oil (NYSE: MRO) - Upgraded at Friedman
Sonic Automotive (NYSE: SAH) - Downgraded at Goldman Sachs
Transocean (NYSE: RIG) - Upgraded at Jefferies
DR Horton (NYSE: DHI) - Downgraded at JP Morgan
Valueclick (NASDAQ: VCLK) - Upgraded at JP Morgan
China Unicom (NYSE: CHU) - Upgraded at Morgan Stanley
Astrazeneca (NYSE: AZN) - Downgraded at Morgan Stanley
Electronic Data Systems (NYSE: EDS) - Upgraded at UBS
Schering Plough (NYSE: SGP) - Upgraded at UBS
Research In Motion (NASDAQ: RIMM) - Target increased at UBS
Mr. Moenning holds Long positions in stocks mentioned: CHU, RIMM
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.
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