Wall Street Breakfast: Must-Know News
- Strong financials hide broader weakness. Equities closed down slightly Tuesday after a volatile session during which Dow futures spanned more than 800 points. Nasdaq fell 3.54% to 1,779. Dow -0.82% to 9,314. S&P -0.54% to 998. The Treasury's plan to buy stakes in nine of the largest U.S. banks (see below) bolstered financials, and masked some of the weakness in other sectors - which explains the Nasdaq discrepancy. The Financial Select Sector SPDR (XLF) rose 6.5%. Meanwhile PepsiCo (PEP) lost 12% after it lowered its profit forecast, sending Coca-Cola (KO) down 7.5%. Microsoft (MSFT) dropped 5.5% on concerns over weaker PC sales.
- Banks welcome deep-pocketed investor. The government unveiled a plan to buy $250B (which will come from its $700B rescue cache) of preferred stock in banks, including $125B in... Bank of America (BAC) ($25B), JPMorgan (JPM) ($25B), Citigroup (C) ($25B), Wells Fargo (WFC) ($25B), Goldman Sachs (GS) ($10B), Morgan Stanley (MS) ($10B), Bank of New York Mellon (BK) ($3B) and State Street (STT) ($2B). The other $125B will be made available to small-to-medium size banks. The shares pay a 5% dividend for the first five years, and 9% after that. Participating firms can't raise dividends for three years and must ask for permission to buy back their own stock. Some saw the deal as skewed in favor of the recipients, giving taxpayers the short end of the stick.
- FDIC backs up banks. Details of the FDIC's new liquidity guarantee program: The government insurer will cover $1.4T in senior unsecured debt and $400-500B in transaction deposit accounts, which businesses use to meet payrolls and pay vendors. It also boosted its retail-account guarantee to $250K from $100K. "The FDIC is taking this unprecedented action because we have faith in our economy, our country, and our banking system," Chairman Sheila Bair said. "The overwhelming majority of banks are strong, safe, and sound. A lack of confidence is driving the current turmoil, and it is this lack of confidence that these guarantees are designed to address." Bair says the program "definitely would have made a difference" for Wachovia (WB).
- Unlimited liquidity hits $250B. The ECB, Bank of England and Swiss National Bank loaned banks $254B in their first tenders of unlimited dollar funds, led by the ECB's $171B. Central bankers are trying to unfreeze credit markets and get banks lending to each other again (see next item) after a crisis of confidence led to last week's stock-market selloff, the biggest since 1933, threatening to send the world into a global recession.
- Frozen credit markets thaw a bit. Helped by global moves to solidify the banking system and create almost unlimited liquidity, credit market pressures eased slightly Tuesday, but lending remains tight. Yields on both corporate bonds and commercial paper fell sharply, although market participants say it could still be weeks or months until funds once-again flow freely. The government rescue "was important in removing the immediate panic," Gimme Credit's Kathleen Shanley said, "but there's still going to be a sense of vigilance in the credit markets." Overnight dollar Libor fell to 2.18% from 2.47%, but three-month Libor remained at an elevated 4.6% which could spell bad news for homeowners in coming months; residential mortgage rates are often tied to the three-month rate.
- Tech giant reports growth; outlook uncertain. Intel (INTC) posted a 12% jump in Q3 profit and 1% growth in revenue (see below), but warned the outlook on technology spending is uncertain. Though the company is experiencing continued sales growth in the current period, it will schedule a midquarter update due to the difficulty of predicting the effects of the financial crisis. Intel's projections were generally seen as a positive sign amid fears of a negative surprise from the tech giant.
- CPFF takes shape; Pimco, State Street at helm. The Fed chose Pimco (a unit of Allianz (AZ)), the world's largest bond fund, to manage commercial-paper assets for its Commercial Paper Funding Facility (CPFF) program, while State Street (STT) gets the go-ahead as custodian and administrator. CPFF will allow the government to bring stability to the commercial-paper market, which is used by corporations to fund day-to-day operations. Fed chief Bernanke pledged Tuesday officials will not stand down until markets return to normal, and said he's confident the government's moves "will help restore confidence to our financial system and place our economy back on a path to vigorous, healthy growth."
- New Macs, slight discounts. Apple (AAPL) introduced upgraded versions of its laptops with aluminum models and a glass track pad which responds to multitouch gestures, similar to the iPhone. The laptops also have faster graphics performance. However, Apple didn't lower its prices as much as expected, dropping the entry-level MacBook only $100 to $999. The reluctance to price too far down may signal Apple's confidence in its ability to sustain sales despite an economic downturn. Shares are down 45% this year on worries the company will be hurt by slowdowns in North America and Europe.
- Strong sales help drugmaker. Genentech's (DNA) posts Q3 net income of $731M (+6.7%) on double-digit sales gains for its top cancer and arthritis drugs. Earnings rose to $0.81 from $0.73, and revenue increased 17% to $3.41B. Genentech executives declined to comment on Roche Holding's (RHHBY.PK) unsolicited bid, which it had previously called too low. The bid, at $89/share, is around $10 higher than Genentech's current share price.
- CDS market an easy, unfair scapegoat. Credit-default swaps [CDS] have gotten a bad wrap during the financial crisis, undeservedly so according to Robert Pickel, CEO of the International Swaps and Derivatives Association. In testimony before the Senate, Pickel said the role of CDS in the crisis is 'greatly exaggerated' and 'to say that CDS were the cause, or even a large contributor, to that turmoil is inaccurate.' Lawmakers have called for greater oversight of the $54.6T CDS market since Lehman Brothers, one of the top ten backers of the contracts, went bankrupt.
Earnings: Before Open
- Coca-Cola (KO): Q3 EPS of $0.83 beats by $0.06. Revenue of $8.39B (+9.1%) vs. $8.54B. [PR]
- JPMorgan (JPM): Q3 EPS of $0.11 beats by $0.30. Revenue of $14.74B (-8.5%) vs. $16.01B. [PR]
- State Street (STT): Q3 EPS of $1.24 beats by $0.04. Revenue of $2.54B (+12.4%) in-line. [PR]
Earnings: Tuesday After Close
- Altera (ALTR): Q3 EPS of $0.31 beats by $0.01. Revenue of $357M (-0.9%) in-line. Shares +5.8%. [PR]
- Genentech (DNA): Q3 EPS of $0.81 misses by $0.07. Revenue of $3.41B (+17.3%) in-line. Shares +2.2%. [PR]
- Intel (INTC): Q3 EPS of $0.35 beats by $0.01. Revenue of $10.22B (+1.3%) in-line. Shares +2.9% AH after falling 6.2% during regular hours. [PR]
- USANA Health Sciences (USNA): FQ3 EPS of $0.54 misses by $0.06. Revenue of $107M (+0.9%) vs. $112M. [PR]
Today's Markets
- Asia drifted lower Wednesday, with the exception of Nikkei, +1.1% to 9,547. Hang Seng -5% to 15,998. Shanghai -1.12% to 1,995. BSE Sensex -5.9% to 10,809.
- In Europe, markets are all down at midday. London -2.65%. Paris -1.9%. Frankfurt -1.9%.
- U.S. futures are lower at 7:15 AM. Dow -0.88%. S&P -0.77%. Nasdaq +0.46%. Crude -3.05% to $76.22. Gold +0.88% to $846.90.
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
8:05 Fed's Rosengren speaks on economic outlook
8:30 Empire State Mfg Survey
8:30 Producer Price Index
8:30 Retail Sales
10:00 Business Inventories
10:35 EIA Petroleum Status
12:15 PM Fed's Bernanke speaks on the economic outlook and financial markets
2:00 PM Fed's Beige Book - Notable earnings before Wednesday's open: ABT, DAL, DRH, JPM, KO, MI, STJ, WFC
- Notable earnings after Wednesday's close: CCK, EBAY, NVLS, PLCM, SPSN, STLD, XLNX
Seeking Alpha editor Rachael Granby contributed to this post.
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This article has 16 comments:
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chinooking
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65 Comments
Oct 15 08:48 AM-
Right in San Francisco
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196 Comments
My Website
Oct 15 08:53 AM1. The toxic mortgage stuff that the investment banks created, Fannie/Freddie supported, and AIG insured.
2. Bank and money market deposits. Thanks Sheila.
3. Bank capitalization. Thanks. Gordon Brown.
4. Bank overnight lending. Not important to an investment banker.
Where was the contingency planning?
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Jersey
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57 Comments
Oct 15 09:25 AM-
notsosmart
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1263 Comments
Oct 15 09:49 AM-
Jersey
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57 Comments
Oct 15 10:11 AM-
Zooey
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786 Comments
Oct 15 10:36 AMThe financial problems started with Congress (true of most national problems), not the White house, and Congress (which is corrupt to the last degree of its being) will stall any Presidential initiatives regardless of purpose or office holder. As a nation we are in chains and can not help ourselves. The notion of a national congress serving the public interests was an illusion and we are only now seeing its limits. We need new gold backed money, a new constitution in which Congress is limited in its powers to enter into any activity not having to do with taxation, war powers/defense, and the post roads. Yow retrograde!
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brandoneggar
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2 Comments
My Website
Oct 15 11:03 AM-
brandoneggar
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2 Comments
My Website
Oct 15 11:03 AM-
User 27072
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1 Comment
Oct 15 11:18 AMWith four dollar gas, the general public is more receptive to Drilling for oil Off Shore and in Alaska. :
Drilling for oil is an integral part of our National Defense, where newly produced U.S.oil will stock our STRATEGIC OIL RESERVE . We can know longer rely on Foreign oil to stock our STRATEGIC OIL RESERVE . In addition, the new USA produced oil supply will be safe and guarantee a oil supply to our military stationed around world .By selling our oil, buying oil from our friends around around to satisfy our military needs where ever they are stationed around the world. Also, this will reduce the cost of supporting our military. This action will also removes millions of barrels of oil from World Market; thus, reducing the commodity price of oil.
This new initiative, "Oil for America " will be owned by the American people. Domestic oil drillers will be contracted to extract the oil and an American oil management company will manage and refine the oil for the America . Refiners will be built on moth-balled military base. Profits from Oil For America will used to support research and incentives for WIND, SOLAR Geothermal , Ocean technology and Coal. These incentives will be structured like Oil depletion tax benefits, granted to Oil company. This a trial starting point to receive the American people 's acceptance for Drilling in the USA for oil
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Robert Sare/ Decker2
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12 Comments
Oct 15 11:48 AMObama is smarter than all this concoction. He is liberal in
his convictions. Those leaderless people need self esteame and pride.
Alternative schools are not new. This is not the only one that gets
into Anti-American issues. Like a lot of immigrants, these Blacks
use their children as shelter in a hostile world.
I would let Obama off the hook. Being a church member and
overseer is not grounds for divorce! Education is always
important.
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Jersey
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57 Comments
Oct 15 11:53 AM-
Econ 101
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56 Comments
Oct 15 11:54 AMHowever, has anyone noticed the oil people got their right to drilling opened up thru and no one is complaining? Everyone is focused upon the financial mess. A great slight of hand achievement! Now the price of gas has fallen by 50% and demand has dropped.
WHIDBEY, It is the congress that keeps the corruption going.
HBADGER, racism is a big part of this election. Anti amerrican sentiments by BHO arent allowed because he is a minority. After January your freedom to criticize BHO will deminish because he is for repression of those who oppose his socialist agenda. Enjoy beoing a part of the gulag
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Jersey
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57 Comments
Oct 15 12:17 PM-
CrisisTheory
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13 Comments
Oct 15 01:51 PMconservatism was always racist. now it is dead. good riddance.
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axelrod608
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323 Comments
Oct 15 01:58 PMDivided we fall. Just keep pointing those fingers and calling loyal Americans who disagree with you names. It will surely hasten our demise.
Back on subject, the breakfast had one indigestible tidbit - the one by the talking head in charge of CDS's saying CDS's are being unfairly blamed for the mess. CDS's ARE the mess.
First, they are stupid, highly leveraged "securities" with no security, no requiremets for security. Backed by nothing, worth no more than a rube will pay for them. They sell at market somewhere between 16 cents and 65 cents on the dollar and there's 1,000 TRILLION dollars of them globally.
Second, they are held off the books, totally negating any transparency the holder may have in its other assets.
No amount of money will make their holders solvent. The "bailout" is akin to bailing out the Titanic with a teaspoon.
Dishonest "leadership" is too afraid to level with the American people. They'd rather keep us busy pointing fingers at and calling each other names. Sadly, many Americans buy in to this charade.
Newsflash - it matters not who "wins" the election. The minor differences are dwarfed by the immensity of the underlying problem.
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axelrod608
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323 Comments
Oct 15 02:41 PMThe CDS's are not 1,000 Trillion - that's the total of all derivatives. The CDS problem is that they were invented to be an alternative to insurance with no requirements for sequestering funds to cover them. The companies that sold the CDS's cannot cover the losses, so the "insurance" buyers of derivatives were counting on to cover losses doesn't exist. The losses are uninsured. So the holders of all those derivatives just have to eat the losses.
Real, regulated insurance requires funds to be safely held to cover losses. CDS's aren't worth the paper they're written on.
THAT's the problem.