David Moenning's Daily State of the Markets: 1/29
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Is a Bad Bank a Good Thing?
Stocks rallied strongly yesterday on the buzz that the Obama administration would soon announce a “bad bank” structure as the latest effort to put an end to the banking and credit crisis. Financial stocks soared with many bank stocks blasting higher by 30% or more and the major indices cut through their respective 10-day moving averages like a hot knife through butter. The action pushed the Dow to a gain of +2.46% while the rest of the major indices all enjoyed gains of +3.4% or more.
If you will recall, the original idea of the TARP was to buy up the toxic assets from banks so as to get them off bank balance sheets. The thinking was that banks would undoubtedly start lending money again if they didn’t have to worry about plunging values and illiquid assets. So, the plan was to get the CMO’s, CDO’s, and any other acronym that might be a problem off the books so that capital ratios could be restored.
However, what the Paulson, Bernanke gang didn’t count on was the fact that the banks were in much worse shape than anyone realized. The point here was the mere $700 billion in TARP money, with only $350 billion available at the outset, was literally a drop in the bucket of the problem and wouldn’t have had much of an impact. Therefore, the powers-that-be wisely decided to inject capital directly into the banks to try and keep them, and the U.S. financial system, from collapsing.
If you look closely at what this so-called “bad bank” is supposed to be, it may sound vaguely familiar. The plan is for the government sponsored institution to buy up the assets that have been dragging the banks down, which would allow the banks to return to their primary business – lending money. Then, at some point down the road, after things have calmed down, the plan is for the bad bank to sell off the assets for a nice little profit.
Why didn’t we just do this to begin with? In short, because the government, the Fed, the public, and the global community were not yet in the mode of dealing with a problem in the trillions of dollars. As a country, we weren’t ready to accept that we would have to borrow a mind boggling amount of money to avoid economic calamity. Don’t forget the political wrangling that took place over the passing of the TARP… which was a measly $350 billion. But nowadays, everyone recognizes that the government is going to have to do whatever it takes to fix this problem.
So, with the end of the problem possibly in sight, the bulls put on a show. But before we break into a chorus of “happy days are here again,” let’s remember that the financials have been beaten to a pulp thus far in 2009. At the recent low, the BKX (the banking index) was down more than 42% on the year and many of the big name banks had dropped by another 50%. The point here is that there was probably a fair amount of short-covering happening yesterday. And until real buyers step in for a real reason – such as things actually improving on the economic front – there is little chance that the bulls are likely to be in control for long.
Turning to this morning, not surprisingly, there is some profit taking happening in the bank stocks. On the economic front, the data was once again pretty dismal as Durable Goods came in down -2.6% versus the consensus estimates for a decline of -2%. When you strip out transportations, orders fell by -3.6%, which again was greater than the consensus for a drop of -2.7%. In addition, Jobless Claims came in a bit higher than expected, but with the growing number of layoffs being reported lately, this isn’t exactly surprising.
Running through the rest of the pre-game indicators, the major foreign markets all are split by region with Asia up and Europe down. Crude futures are a down again with the latest quote showing oil trading down by $1.29 to $40.87. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.67%, while overnight LIBOR is at 0.22%, and the yield on the 3-month T-Bill is rising to 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 100 points; the S&P’s are down by about 11 points, while the NASDAQ looks to be about 15 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Adaptec (Nasdaq: ADPT) – Reported $0.00 vs. $0.02
Allstate (NYSE: ALL) – Reported $0.97 vs. $1.35
Ameriprise Financial (NYSE: AMP) – Reported $0.80 vs. $0.44
Airgas (NYSE: ARG) – Reported $0.76 vs. $0.75
Boston Scientific (NYSE: BSX) – Reported $0.21 vs. $0.21
Compuware (Nasdaq: CPWR) – Reported $0.14 vs. $0.15
Cirrus Logic (Nasdaq: CRUS) – Reported $0.04 vs. $0.04
Citrix Systems (Nasdaq: CTXS) – Reported $0.48 vs. $0.47
Covance (NYSE: CVD) – Reported $0.72 vs. $0.70
Dun & Bradstreet (NYSE: DNB) – Reported $1.87 vs. $1.82
DST Systems (NYSE: DST) – Reported $1.08 vs. $1.06
Flextronics (Nasdaq: FLEX) – Reported $0.16 vs. $0.20
Knight Transportation (NYSE: KNX) – Reported $0.19 vs. $0.17
Lam Research (Nasdaq: LRCX) – Reported -$0.09 vs. -$0.05
LSI Corp (NYSE: LSI) – Reported $0.06 vs. $0.04
Landstar System (Nasdaq: LSTR) – Reported $0.47 vs. $0.47
Murphy Oil (NYSE: MUR) – Reported $0.83 vs. $0.80
Owens-Illinois (NYSE: OI) – Reported $0.45 vs. $0.39
Qualcomm (Nasdaq: QCOM) – Reported $0.42 vs. $0.47
Ryland Group (NYSE: RYL) – Reported -$1.40 vs. -$1.19
Starbucks (Nasdaq: SBUX) – Reported $0.15 vs. $0.17
Sepracor (Nasdaq: SEPR) – Reported $0.92 vs. $0.57
Symantec (Nasdaq: SYMC) – Reported $0.42 vs. $0.32
Teradyne (NYSE: TER) – Reported -$0.19 vs. -$0.13
Western Digital (NYSE: WDC) – Reported $0.55 vs. $0.31
Today’s Earnings Before the Bell:
Arkansas Best (Nasdaq: ABFS) – Reported -$0.17 vs. $0.19
American Electric Power (NYSE: AEP) – Reported $0.59 vs. $0.52
Autonation (NYSE: AN) – Reported $0.12 vs. $0.10
Alliant Techsystems (NYSE: ATK) – Reported $1.96 vs. $1.94
AstraZeneca (NYSE: AZN) – Reported $1.25 vs. $1.11
Black & Decker (NYSE: BDK) – Reported $0.97 vs. $0.70
Celgene (Nasdaq: CELG) – Reported $0.43 vs. $0.42
Colgate Palmolive (NYSE: CL) – Reported $1.00 vs. $0.98
Dominion (NYSE: D) – Reported $0.72 vs. $0.68
Eastman Kodak (NYSE: EK) – Reported -$0.08 vs. $0.19
Equitable Resources (NYSE: EQT) – Reported $0.26 vs. $0.48
Ford (NYSE: F) – Reported -$1.37 vs. -$1.23
Fortune Brands (NYSE: FO) – Reported $0.68 vs. $0.86
Starwood Hotels (NYSE: HOT) – Reported $0.49 vs. $0.35
Illinois Tool (NYSE: ITW) – Reported $0.54 vs. $0.48
International Paper (NYSE: IP) – Reported $0.21 vs. $0.20
Lancaster Colony (LANC) – Reported $1.02 vs. $0.48
US Airways (LLC) – Reported -$1.93 vs. -$2.15
Lear Corp (NYSE: LEA) – Reported -$8.91 vs. -$1.31
L-3 Communications (NYSE: LLL) – Reported $2.04 vs. $1.80
Eli Lilly (NYSE: LLY) – Reported $1.07 vs. $1.05
3M (NYSE: MMM) – Reported $0.97 vs. $0.93
Altria (NYSE: MO) – Reported $0.37 vs. $0.37
Newell Rubbermaid (NYSE: NWL) – Reported $0.11 vs. $0.08
Occidental Petroleum (NYSE: OXY) – Reported $1.18 vs. $0.94
Petro-Canada (NYSE: PCZ) – Reported $1.07 vs. $0.92
Raytheon (NYSE: RTN) – Reported $1.13 vs. $1.11
Smith Intl (NYSE: SII) – Reported $1.00 vs. $1.02
T Rowe Price (Nasdaq: TROW) – Reported $0.31 vs. $0.24
Textron (NYSE: TXT) – Reported $0.40 vs. $0.51
Under Armour (NYSE: UA) – Reported $0.17 vs. $0.17
Xcel Energy (NYSE: XEL) – Reported $0.35 vs. $0.36
Zimmer Holdings (NYSE: ZMH) – Reported $1.00 vs. $1.00
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Citrix Systems (Nasdaq: CTXS) – Downgraded at Bank of America Merrill Lynch, Credit Suisse
Chubb (NYSE: CB) – Upgraded at Bank of America Merrill Lynch
London Stock Exchange (NYSE: LSE) – Downgraded at Citi
Lam Research (Nasdaq: LRCX) – Downgraded at Credit Suisse
CIGNA (NYSE: CI) – Added to Conviction Buy list at Goldman
United Health (NYSE: UNH) – Removed from Conviction Buy list at Goldman
Exxon Mobil (NYSE: XOM) – Downgraded at Goldman
Neustar (NYSE: NSR) – Downgraded at JP Morgan
Air Products (NYSE: APD) – Downgraded at JP Morgan
Wells Fargo (NYSE: WFC) – Target reduced at Ladenburg Thalmann
Colonial BancGroup (NYSE: CNB) – Senior debt downgraded at Moody’s to junk
Dryships (Nasdaq: DRYS) – Downgraded at Oppenheimer
NYSE Euronext (NYSE: NYX) – Downgraded at Piper Jaffray
NTELOS Holdings (Nasdaq: NTLS) – Downgraded at RBC Capital
Disclosure: Mr. Moenning and/or related firms hold long positions in: LANC
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.
Stocks rallied strongly yesterday on the buzz that the Obama administration would soon announce a “bad bank” structure as the latest effort to put an end to the banking and credit crisis. Financial stocks soared with many bank stocks blasting higher by 30% or more and the major indices cut through their respective 10-day moving averages like a hot knife through butter. The action pushed the Dow to a gain of +2.46% while the rest of the major indices all enjoyed gains of +3.4% or more.
If you will recall, the original idea of the TARP was to buy up the toxic assets from banks so as to get them off bank balance sheets. The thinking was that banks would undoubtedly start lending money again if they didn’t have to worry about plunging values and illiquid assets. So, the plan was to get the CMO’s, CDO’s, and any other acronym that might be a problem off the books so that capital ratios could be restored.
However, what the Paulson, Bernanke gang didn’t count on was the fact that the banks were in much worse shape than anyone realized. The point here was the mere $700 billion in TARP money, with only $350 billion available at the outset, was literally a drop in the bucket of the problem and wouldn’t have had much of an impact. Therefore, the powers-that-be wisely decided to inject capital directly into the banks to try and keep them, and the U.S. financial system, from collapsing.
If you look closely at what this so-called “bad bank” is supposed to be, it may sound vaguely familiar. The plan is for the government sponsored institution to buy up the assets that have been dragging the banks down, which would allow the banks to return to their primary business – lending money. Then, at some point down the road, after things have calmed down, the plan is for the bad bank to sell off the assets for a nice little profit.
Why didn’t we just do this to begin with? In short, because the government, the Fed, the public, and the global community were not yet in the mode of dealing with a problem in the trillions of dollars. As a country, we weren’t ready to accept that we would have to borrow a mind boggling amount of money to avoid economic calamity. Don’t forget the political wrangling that took place over the passing of the TARP… which was a measly $350 billion. But nowadays, everyone recognizes that the government is going to have to do whatever it takes to fix this problem.
So, with the end of the problem possibly in sight, the bulls put on a show. But before we break into a chorus of “happy days are here again,” let’s remember that the financials have been beaten to a pulp thus far in 2009. At the recent low, the BKX (the banking index) was down more than 42% on the year and many of the big name banks had dropped by another 50%. The point here is that there was probably a fair amount of short-covering happening yesterday. And until real buyers step in for a real reason – such as things actually improving on the economic front – there is little chance that the bulls are likely to be in control for long.
Turning to this morning, not surprisingly, there is some profit taking happening in the bank stocks. On the economic front, the data was once again pretty dismal as Durable Goods came in down -2.6% versus the consensus estimates for a decline of -2%. When you strip out transportations, orders fell by -3.6%, which again was greater than the consensus for a drop of -2.7%. In addition, Jobless Claims came in a bit higher than expected, but with the growing number of layoffs being reported lately, this isn’t exactly surprising.
Running through the rest of the pre-game indicators, the major foreign markets all are split by region with Asia up and Europe down. Crude futures are a down again with the latest quote showing oil trading down by $1.29 to $40.87. On the interest rate front, we’ve got the yield on the 10-yr currently at 2.67%, while overnight LIBOR is at 0.22%, and the yield on the 3-month T-Bill is rising to 0.18%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 100 points; the S&P’s are down by about 11 points, while the NASDAQ looks to be about 15 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Adaptec (Nasdaq: ADPT) – Reported $0.00 vs. $0.02
Allstate (NYSE: ALL) – Reported $0.97 vs. $1.35
Ameriprise Financial (NYSE: AMP) – Reported $0.80 vs. $0.44
Airgas (NYSE: ARG) – Reported $0.76 vs. $0.75
Boston Scientific (NYSE: BSX) – Reported $0.21 vs. $0.21
Compuware (Nasdaq: CPWR) – Reported $0.14 vs. $0.15
Cirrus Logic (Nasdaq: CRUS) – Reported $0.04 vs. $0.04
Citrix Systems (Nasdaq: CTXS) – Reported $0.48 vs. $0.47
Covance (NYSE: CVD) – Reported $0.72 vs. $0.70
Dun & Bradstreet (NYSE: DNB) – Reported $1.87 vs. $1.82
DST Systems (NYSE: DST) – Reported $1.08 vs. $1.06
Flextronics (Nasdaq: FLEX) – Reported $0.16 vs. $0.20
Knight Transportation (NYSE: KNX) – Reported $0.19 vs. $0.17
Lam Research (Nasdaq: LRCX) – Reported -$0.09 vs. -$0.05
LSI Corp (NYSE: LSI) – Reported $0.06 vs. $0.04
Landstar System (Nasdaq: LSTR) – Reported $0.47 vs. $0.47
Murphy Oil (NYSE: MUR) – Reported $0.83 vs. $0.80
Owens-Illinois (NYSE: OI) – Reported $0.45 vs. $0.39
Qualcomm (Nasdaq: QCOM) – Reported $0.42 vs. $0.47
Ryland Group (NYSE: RYL) – Reported -$1.40 vs. -$1.19
Starbucks (Nasdaq: SBUX) – Reported $0.15 vs. $0.17
Sepracor (Nasdaq: SEPR) – Reported $0.92 vs. $0.57
Symantec (Nasdaq: SYMC) – Reported $0.42 vs. $0.32
Teradyne (NYSE: TER) – Reported -$0.19 vs. -$0.13
Western Digital (NYSE: WDC) – Reported $0.55 vs. $0.31
Today’s Earnings Before the Bell:
Arkansas Best (Nasdaq: ABFS) – Reported -$0.17 vs. $0.19
American Electric Power (NYSE: AEP) – Reported $0.59 vs. $0.52
Autonation (NYSE: AN) – Reported $0.12 vs. $0.10
Alliant Techsystems (NYSE: ATK) – Reported $1.96 vs. $1.94
AstraZeneca (NYSE: AZN) – Reported $1.25 vs. $1.11
Black & Decker (NYSE: BDK) – Reported $0.97 vs. $0.70
Celgene (Nasdaq: CELG) – Reported $0.43 vs. $0.42
Colgate Palmolive (NYSE: CL) – Reported $1.00 vs. $0.98
Dominion (NYSE: D) – Reported $0.72 vs. $0.68
Eastman Kodak (NYSE: EK) – Reported -$0.08 vs. $0.19
Equitable Resources (NYSE: EQT) – Reported $0.26 vs. $0.48
Ford (NYSE: F) – Reported -$1.37 vs. -$1.23
Fortune Brands (NYSE: FO) – Reported $0.68 vs. $0.86
Starwood Hotels (NYSE: HOT) – Reported $0.49 vs. $0.35
Illinois Tool (NYSE: ITW) – Reported $0.54 vs. $0.48
International Paper (NYSE: IP) – Reported $0.21 vs. $0.20
Lancaster Colony (LANC) – Reported $1.02 vs. $0.48
US Airways (LLC) – Reported -$1.93 vs. -$2.15
Lear Corp (NYSE: LEA) – Reported -$8.91 vs. -$1.31
L-3 Communications (NYSE: LLL) – Reported $2.04 vs. $1.80
Eli Lilly (NYSE: LLY) – Reported $1.07 vs. $1.05
3M (NYSE: MMM) – Reported $0.97 vs. $0.93
Altria (NYSE: MO) – Reported $0.37 vs. $0.37
Newell Rubbermaid (NYSE: NWL) – Reported $0.11 vs. $0.08
Occidental Petroleum (NYSE: OXY) – Reported $1.18 vs. $0.94
Petro-Canada (NYSE: PCZ) – Reported $1.07 vs. $0.92
Raytheon (NYSE: RTN) – Reported $1.13 vs. $1.11
Smith Intl (NYSE: SII) – Reported $1.00 vs. $1.02
T Rowe Price (Nasdaq: TROW) – Reported $0.31 vs. $0.24
Textron (NYSE: TXT) – Reported $0.40 vs. $0.51
Under Armour (NYSE: UA) – Reported $0.17 vs. $0.17
Xcel Energy (NYSE: XEL) – Reported $0.35 vs. $0.36
Zimmer Holdings (NYSE: ZMH) – Reported $1.00 vs. $1.00
Today’s Corporate News, Upgrades/Downgrades/Brokerage Research:
Citrix Systems (Nasdaq: CTXS) – Downgraded at Bank of America Merrill Lynch, Credit Suisse
Chubb (NYSE: CB) – Upgraded at Bank of America Merrill Lynch
London Stock Exchange (NYSE: LSE) – Downgraded at Citi
Lam Research (Nasdaq: LRCX) – Downgraded at Credit Suisse
CIGNA (NYSE: CI) – Added to Conviction Buy list at Goldman
United Health (NYSE: UNH) – Removed from Conviction Buy list at Goldman
Exxon Mobil (NYSE: XOM) – Downgraded at Goldman
Neustar (NYSE: NSR) – Downgraded at JP Morgan
Air Products (NYSE: APD) – Downgraded at JP Morgan
Wells Fargo (NYSE: WFC) – Target reduced at Ladenburg Thalmann
Colonial BancGroup (NYSE: CNB) – Senior debt downgraded at Moody’s to junk
Dryships (Nasdaq: DRYS) – Downgraded at Oppenheimer
NYSE Euronext (NYSE: NYX) – Downgraded at Piper Jaffray
NTELOS Holdings (Nasdaq: NTLS) – Downgraded at RBC Capital
Disclosure: Mr. Moenning and/or related firms hold long positions in: LANC
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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