David Moenning's Daily State of the Markets: 3/18
Tweet
Share
E-mailGet Alerts GS Hot Sheet
Join SI Premium – FREE
The Deal of a Lifetime
Here's a link to listen to an Audio Version of the report:
There is no doubt about it; yesterday ride on Wall Street was a wild one. Stocks appeared to be in big trouble at the open in response to the jaw-dropping $2 per share price that JP Morgan (JPM) had offered to Bear Stearns (BSC) in order to keep the firm out of bankruptcy. And given the thrashing seen in the world markets, the Dow followed suit and opened down about 200 points. But instead of the wipeout expected from there, strangely enough, the sentiment and the market indices improved as the day wore on.
At first, the question on everyone’s mind was who was going to be the next victim? After all the value of Bear Stearns had dropped from an $84 book value to just $2 in the blink of an eye, or, shall we say, a run on the bank. Yes, Bear might have been too big to fail, but there were many others on the street that too had levered up their balance sheet to the tune of 30 to 1 who probably were not likely to be spared the humiliation of bankruptcy.
As analysts dug into the balance sheets of Wall Street firms, there were rumors that Lehman (LEH) was having liquidity problems and that next to Bear, Merrill Lynch (MER) had the most exposed book.
But, within minutes of the opening bell a couple of things started to dawn on traders. First, every which way you did the math; it appeared that JP Morgan had gotten the deal of a lifetime. Yes, the price tag of $2 was indicative of the fact that Bear was headed to bankruptcy without the deal and unlikely to survive. But with the Fed backstopping $30 billion in debt and assets valued at roughly $8 billion, it became obvious that JPM had picked up Bear for a song, or more accurately, $240 million to be exact.
The fact that JP Morgan, which is a Dow component, popped up 11% on the day was part of the reason that the market managed to reverse course. But another part of the formula was the realization that since the Fed had found an obscure clause in their charter that allowed them to open up the Discount Window to Primary Dealers (banks that aren’t technically banks such as brokerage firms), it became clear that with liquidity available, there were unlikely to be any more Wall Street debacles.
So, with the Fed pulling out all the stops and likely to cut rates by as much as 1% today at 2:15 pm eastern, investors recognized that while Bear couldn’t be saved, the financial system had been. So, without a massive banking collapse to worry about, traders covered their shorts in the financials and the much feared market meltdown was thwarted.
Turning to this morning, the Fed will take center stage this afternoon. But in the meantime, we’ve got some inflation data to review, so let’s get to it. February PPI was reported to have increased by +0.3%, which was a bit lower than the expectations for an increase of +0.4%. But, when you strip out food and energy, the so-called Core rate was a little hotter than expected at +0.5% vs. +0.2%.
On the housing front, housing starts in February came in at 1.065 million units, which, surprisingly, was better than expected. However, Permits did come in below the consensus.
Running through the rest of the pre-game indicators; foreign markets are up nicely across the board. Crude futures are moving higher after yesterday’s bout of profit taking with the latest quote up $2.52 to $108.80. Interest rates are moving up with the 10-yr trading at a yield of 3.36% 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 higher by about 140 points; the S&Ps are up by about 19 points while the NASDAQ looks to be about 17 points above fair value at the moment.
Stocks “In Play” This Morning:
Today’s Earnings Before the Bell:
Goldman Sachs (NYSE: GS) – Reported $3.23 vs. $2.57
Lehman Brothers (NYSE: LEH) – Reported $0.81 vs. $0.73
News, Upgrades/Downgrades/Brokerage Research:
SAP (NYSE: SAP) – Upgraded at Bernstein
Overseas Shipholding Group (NYSE: OSG) – Upgraded at Citi
Telmex (NYSE: TMX) – Downgraded at Goldman
Coca Cola Femsa (NYSE: KOF) – Downgraded at Merrill
Intl Paper (NYSE: IP) – Downgraded at JP Morgan
Telecom Italia (NYSE: TI) – Downgraded at Merrill
Amgen (Nasdaq: AMGN) – A2 long term credit rating under review at Moody's
Micron Technology (NYSE: MU) – Estimates reduced at UBS
Goldman Sachs (NYSE: GS) – Upgraded at Wachovia
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: [email protected]
Here's a link to listen to an Audio Version of the report:
There is no doubt about it; yesterday ride on Wall Street was a wild one. Stocks appeared to be in big trouble at the open in response to the jaw-dropping $2 per share price that JP Morgan (JPM) had offered to Bear Stearns (BSC) in order to keep the firm out of bankruptcy. And given the thrashing seen in the world markets, the Dow followed suit and opened down about 200 points. But instead of the wipeout expected from there, strangely enough, the sentiment and the market indices improved as the day wore on.
At first, the question on everyone’s mind was who was going to be the next victim? After all the value of Bear Stearns had dropped from an $84 book value to just $2 in the blink of an eye, or, shall we say, a run on the bank. Yes, Bear might have been too big to fail, but there were many others on the street that too had levered up their balance sheet to the tune of 30 to 1 who probably were not likely to be spared the humiliation of bankruptcy.
As analysts dug into the balance sheets of Wall Street firms, there were rumors that Lehman (LEH) was having liquidity problems and that next to Bear, Merrill Lynch (MER) had the most exposed book.
But, within minutes of the opening bell a couple of things started to dawn on traders. First, every which way you did the math; it appeared that JP Morgan had gotten the deal of a lifetime. Yes, the price tag of $2 was indicative of the fact that Bear was headed to bankruptcy without the deal and unlikely to survive. But with the Fed backstopping $30 billion in debt and assets valued at roughly $8 billion, it became obvious that JPM had picked up Bear for a song, or more accurately, $240 million to be exact.
The fact that JP Morgan, which is a Dow component, popped up 11% on the day was part of the reason that the market managed to reverse course. But another part of the formula was the realization that since the Fed had found an obscure clause in their charter that allowed them to open up the Discount Window to Primary Dealers (banks that aren’t technically banks such as brokerage firms), it became clear that with liquidity available, there were unlikely to be any more Wall Street debacles.
So, with the Fed pulling out all the stops and likely to cut rates by as much as 1% today at 2:15 pm eastern, investors recognized that while Bear couldn’t be saved, the financial system had been. So, without a massive banking collapse to worry about, traders covered their shorts in the financials and the much feared market meltdown was thwarted.
Turning to this morning, the Fed will take center stage this afternoon. But in the meantime, we’ve got some inflation data to review, so let’s get to it. February PPI was reported to have increased by +0.3%, which was a bit lower than the expectations for an increase of +0.4%. But, when you strip out food and energy, the so-called Core rate was a little hotter than expected at +0.5% vs. +0.2%.
On the housing front, housing starts in February came in at 1.065 million units, which, surprisingly, was better than expected. However, Permits did come in below the consensus.
Running through the rest of the pre-game indicators; foreign markets are up nicely across the board. Crude futures are moving higher after yesterday’s bout of profit taking with the latest quote up $2.52 to $108.80. Interest rates are moving up with the 10-yr trading at a yield of 3.36% 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 higher by about 140 points; the S&Ps are up by about 19 points while the NASDAQ looks to be about 17 points above fair value at the moment.
Stocks “In Play” This Morning:
Today’s Earnings Before the Bell:
Goldman Sachs (NYSE: GS) – Reported $3.23 vs. $2.57
Lehman Brothers (NYSE: LEH) – Reported $0.81 vs. $0.73
News, Upgrades/Downgrades/Brokerage Research:
SAP (NYSE: SAP) – Upgraded at Bernstein
Overseas Shipholding Group (NYSE: OSG) – Upgraded at Citi
Telmex (NYSE: TMX) – Downgraded at Goldman
Coca Cola Femsa (NYSE: KOF) – Downgraded at Merrill
Intl Paper (NYSE: IP) – Downgraded at JP Morgan
Telecom Italia (NYSE: TI) – Downgraded at Merrill
Amgen (Nasdaq: AMGN) – A2 long term credit rating under review at Moody's
Micron Technology (NYSE: MU) – Estimates reduced at UBS
Goldman Sachs (NYSE: GS) – Upgraded at Wachovia
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: [email protected]
You May Also Be Interested In
- Citigroup set to join top banks in Anthropic IPO - Bloomberg
- Anthropic wants to match or beat SpaceX’s record IPO size - report
- After-Hours Movers: AMAT, DLO, GLOB, YSS, ETON
Create E-mail Alert Related Categories
Contributors, Special ReportsRelated Entities
UBS, JPMorgan, Goldman Sachs, Citi, Bear Stearns, Lehman Brothers, WachoviaSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
