Archive for March, 2008
Wednesday, March 19th, 2008
The stock markets look ready to open down this morning after Wall Street digests yesterday’s key events. The Federal Reserve once again lowered the Fed Funds rate about 3/4 of a percentage point to 2.25%, disappointing investors who were looking for a full point rate cut. According to The Wall Street Journal, the move was a sign that the Fed is looking to rely on other options besides interest rates to stimulate the market (in order to keep inflation in check).
The Stock Market & Bank Stocks Rise
Also making headlines were better than expected earnings at major banks such as Morgan Stanley (NYSE: MS), Lehman Brothers (NYSE: LEH) and Goldman Sachs (NYSE: GS). All three stocks had suffered over the past year from uncertainty surrounding the subprime lending fiasco. The market reacted positively to both major news items, as the Dow closed up about 3.5%.
Posted in Economic Indicators, Large Cap Stocks | No Comments »
Monday, March 17th, 2008
There’s nothing quite like a fire sale in the stock market - except, of course, when even the buyer (who just swapped a dime for a dollar) feels ill at ease with the transaction. Unfortunately, that seems to be the case now, as JP Morgan Chase (NYSE: JPM) announced yesterday that it was purchasing ailing giant Bear Stearns (NYSE: BSC) for the rock bottom price of 2 bucks a share.
Why So Cheap?
Bear Stearns is a product of the mortgage backed security implosion that has unfolded over the past year. The amount of mortgage securities it holds (which are essentially worthless) is in the billions - making bankruptcy certain in the absence of a buyout or government intervention.
The Fed, fearing a domino effect on Wall Street if the firm were to fold quickly, has been working hard to secure JP Morgan Chase as a buyer. They have even gone as far as putting up an unprecedented $30 billion in capital to finance Bear’s illiquid assets (i.e., mortgage backed securities). However, despite the Fed’s backing, management at JP Morgan is still sweating all of the uncertainty behind the deal. This was the key driver behind the firm’s per share offer price of $2.
Shareholder Mutiny Brewing
According to an article in The Wall Street Journal, Bear stockholders are extremely displeased with the buyout price. They argue that filing for bankruptcy is a much better option, as book value of the firm is believed to be far greater than $2 per share. Still, management position is that stockholders will agree to the deal (which is expected to close in June).
The Stock Market Reaction
All of this uncertainty and panic will send the major stock market indices lower. Even with an additional move by the Fed to lower the discount rate (which was also announced yesterday), the economy and the US dollar are in trouble. So, buckle up - I think we are in for a rough ride.
Posted in Large Cap Stocks | No Comments »
Saturday, March 15th, 2008
Despite an initially positive reaction by the stock market to CPI data yesterday, the market headed into negative territory after a heavy dose of bad news from the Fed and Bear Stearns (NYSE: BSC).
Take One for the Team
The Federal Reserve announced it would work with JP Morgan Chase (NYSE: JPM) to float a cash-strapped Bear Stearns funds in order to keep the company in business. Their concern is that, given an already air-tight credit market, the entire economy would collapse if Bear were to suddenly go out of business. Why? Because nobody really knows how enmeshed Wall Street is when it comes to lending between firms. If one giant falls, several more may unexpectedly collapse as well. Even though it has been given a brief reprieve, most expect that the company will be sold to a larger bank or private-equity firm within a matter of weeks. After the news, BSC stock quickly lost about half of its value…ouch.
Enter the 2nd Bear
Or, I guess I should say the market has already entered the second bear market of the millennium (irrespective of how the Bear Stearns issue pans out) . Now the question is, will it be long or short? In my opinion, you have to hope for the best and expect the worst right now. Especially because I fear a larger problem with consumer credit (i.e., credit cards) could sneak up on the economy if we’re not careful.
Posted in Investing, Large Cap Stocks | No Comments »
Friday, March 14th, 2008
The US Bureau of Labor Statistics released February ‘08 Consumer Price Index (CPI) numbers this morning, showing that price levels remained relatively flat vs. January. Both the overall CPI and the CPI less food and energy showed a 0% increase vs. the prior month (in January, the CPI increased 0.4% and 0.3% respectively vs. December ‘07).
The Stock Market Reaction
The stock market is looking for a positive open on the heels of the announcement, as futures are up ahead of the bell. However, many question the decrease in energy prices that the report factors in (i.e., a 2% decrease in gasoline prices), so we may see stocks move lower by market close.
Related Links:
US BLS Site
Posted in Economic Indicators | 1 Comment »
Friday, March 7th, 2008
The US Bureau of Labor Statistics announced this morning that nonfarm payrolls fell by 63,000 in February, leaving unemployment at approximately 4.8%. This comes on the heels of a loss of 22,000 jobs in January, making it two straight months of job decreases.
As Steve Liesman noted on CNBC this morning, we’ve never had two straight months of decreases in a row outside of a recession.
Related Links:
US Department of Labor - Bureau of Labor Statistics
Posted in Economic Indicators, Investing | No Comments »
The stock markets look ready to open down this morning after Wall Street digests yesterday’s key events. The Federal Reserve once again lowered the Fed Funds rate about 3/4 of a percentage point to 2.25%, disappointing investors who were looking for a full point rate cut. According to The Wall Street Journal, the move was a sign that the Fed is looking to rely on other options besides interest rates to stimulate the market (in order to keep inflation in check).