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April 4, 2008 – 6:59 am | by BizIntel
The Bureau of Labor Statistics announced unemployment jumped to 5.1% in March this morning, confirming investor fears that the US is in the throes of a recession. Per the data, non-farm payrolls fell by 80,000 in March, led by further declines in manufacturing, construction, and employment services.
Bad News Gets Worse
Of particular note is a decline of 35,000 jobs in professional and business services. This is unsettling for Wall Street, as these jobs had remained resistant to the declining job market until now.
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April 3, 2008 – 6:49 am | by BizIntel
Jobless claims announced this morning grew to 407,000 (week-end 3/29) vs. the consensus estimate of 365,000 and prior period claims of 366,000. The markets already show signs of weakness on the heels of the news, as investors typically put significant weight on employment data when evaluating the health of the economy.
Tags: The Stock Market
March 19, 2008 – 6:47 am | by BizIntel
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%.
March 17, 2008 – 6:21 am | by BizIntel
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.
Tags: bear stearns
March 15, 2008 – 8:18 am | by BizIntel
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.