David Moenning's Daily State of the Markets: 10/02

October 2, 2008 9:43 AM EDT

What, No Financing For Botox?

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

Sometimes it takes a piece of anecdotal evidence to make a situation really hit home. I’m not talking about the average homebuyer’s inability to get a mortgage here. And I won’t bore you again with the fact that AT&T (T) can’t seem to sell commercial paper with a maturity longer than a day, or even the troubles at GM (GM) and Ford (F) – No, I’m talking about the REALLY important stuff here.

Yesterday, as I was leaving my daughter’s final plastic surgery follow-up appointment (as explanation, her cheekbone and eye orbital were broken playing softball this summer but she has since fully recovered, thanks in no small part to the tremendous skill of this doctor) I overheard the receptionist telling a patient that the company they had used to provide financing for Botox procedures is no longer doing so because of “this credit mess we’re in.” Imagine that; now you can’t even get a loan to look younger anymore – oh, the horror!

Please accept my apology for this brief digression from the D.C. bailout plan vigil, but it was interesting to see firsthand just how far the subprime slime has spread – and the extent of the potential damage on the economy. Sure, this type of financing plan probably doesn’t impact the same number of people trying to buy a car. However, it never dawned on me that a doctor’s practice could be negatively impacted due to the frozen credit market.

Since stocks are basically waiting for Friday’s House’s vote on the revised bailout plan and didn’t do much yesterday, I’d like to skip the post mortem on the market action and spend the rest of my time this morning on another couple of stories that help put the impact of the credit mess in perspective.

First, was I the only one that was surprised to learn that General Electric (GE) needed a helping hand from none other than the Oracle of Omaha in order to break the vicious credit cycle? The Wall Street Journal reported that GE's move to raise capital from Warren Buffet wasn’t so much about protecting their balance sheet but about protecting its credit rating and staving off any potential funding problems. According to the article, if GE had experienced any trouble when trying to roll over commercial paper, its stock would have been hit hard. This would have undoubtedly spooked the credit ratings firms, which, in turn, would have caused more selling in the stock and more troubles when trying to access the credit market. So in short, GE needed to show it could raise money even if it didn’t need to in order to make sure it could continue to get credit. Hmmm.

Next up, the New York Times reported that more than $100 billion has been withdrawn from money market funds since September 19th. At issue here is the problem that without new money coming in, money funds cannot purchase commercial paper and other short-term credit instruments because they too need to be selling to raise cash. And then when Congress raises the limits on FDIC insurance on deposits at banks, these accounts may look more attractive than money market funds, which up until this point, were to considered to be on par with bank accounts from a risk perspective. And while I don’t expect to see a run on MMF’s, this is a situation that definitely bears watching.

Finally, we must continue to pay close attention to the interbank lending rates, which are currently at record levels. The real problem right now is that although there is cash in the banking system to lend, banks don’t trust anyone – even other banks – right now because no can be sure where the next shoe might drop in terms of the fallout from situations such as the Lehman bankruptcy.

Turning to this morning, as expected the ECB has left its benchmark lending rate unchanged for now. On the economic front, yesterday’s weak data is being confirmed by this morning’s report on jobless claims. The weekly report showed that 497K people filed for initial unemployment claims, which was much higher than the estimate for 475K.

Running through the rest of the pre-game indicators, the foreign markets are mostly higher. Crude futures are moving down with the latest quote showing oil trading lower by $1.44 to $97.17. Interest rates are lower again with the yield on the 10-yr currently trading at 3.71%. And finally, with about 60 minutes before the bell, the futures are pointing to another down open as investors are now fretting about the economy. The Dow futures are currently off by about 102 points; the S&P’s are down by about 13 points, while the NASDAQ looks to be about 17 points below fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Intl Business Machines (NYSE: IBM) – Estimates reduced at Barclays
KLA Tencor (Nasdaq: KLAC) – Downgraded at Barclays
Lear Corp (NYSE: LEA) – Upgraded at Citi
Iron Mountain (NYSE: IRM) – Upgraded at Citi
UBS (NYSE:UBS) – Upgraded at Deutsche Bank
Con-Way (NYSE:CNW) – Downgraded at Goldman, JP Morgan
Alcoa (NYSE:AA) – Downgraded at Goldman
Freeport McMoRan (FCX) – Removed from Buy list at Goldman
Oracle (Nasdaq: ORCL) – Added to Buy list at Goldman
AngloGold Ashanti (NYSE: AU) – Upgraded at Goldman
Agrium (NYSE: AGU) – Downgraded at Merrill
Potash (NYSE: POT) – Downgraded at Merrill
CF Industries (NYSE: CF) – Downgraded at Merrill
Mosaic (NYSE: MOS) – Downgraded at Merrill, Goldman
Pactiv (NYSE: PTV) – Upgraded at Merrill
Aptar Group (NYSE: ATR) – Downgraded at Merrill
Denbury Resources (NYSE: DNR) – Downgraded at Merrill
Total (NYSE: TOT) – Downgraded at Merrill
Wynn Resorts (WYNN) – Downgraded at Morgan Stanley
EBay (EBAY) – Downgraded at Morgan Stanley
Principal Financial (NYSE: PFG) – Downgraded at Morgan Stanley
Las Vegas Sands (NYSE: LVS) – Downgraded at Morgan Stanley

Disclosure: Mr. Moenning and/or related firms hold long positions in: FCX, POT

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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