TheStreet.com's Jim Cramer says this administration's hallmark is coming too late to the party.
A headline came over the wires yesterday, and it caused me to throw my hands up in shock: The SEC is debating new short-selling rules for the market.
I said to myself, "They have to be kidding."
How can they be so obtuse?
How can they not get what is going on?
When the market bottomed on July 15, three things occurred:
the Congress got religion on the housing bill, and the president went along;
gasoline and oil peaked; and
the SEC finally decided to crack down on the reckless bear raids that were making it impossible for our financials to refinance.
The financials then rallied huge, just huge, and the prudent ones, like Merrill's (NYSE: MER) (Cramer's Take) John Thain, took advantage of the short-selling crackdown and first, brilliantly, said he didn't need capital, exacerbating the plight of the shorts, and then jammed on a gigantic equity offering that will let Merrill get through this period.
Lehman Brothers Holdings Inc. (NYSE: LEH) is poised to lose $2.6 billion and it's trying to dump $40 billion worth of real estate from its books. The Wall Street Journal reports that Guy Moszkowski, a Merrill Lynch & Co., Inc. (NYSE: MER) analyst thinks Lehman could lose $2.6 billion -- while others expect a mere $1.8 billion loss. Lehman normally reports in mid-September but it may pre-announce earnings this month.
I always find it interesting when analysts -- particularly those who work for banks with their own problems -- offer bearish earnings outlooks for their competitors. But I have met Moszkowski and I found him to be both very smart and a straight shooter. The Journal reports that he "more than doubled his loss projection to $2.6 billion and predicts that Lehman will take a $4.5 billion hit from write-downs." It quotes him as saying that an additional markdown up to 20% related to Lehman's remaining $64 billion in mortgage and commercial real-estate exposure "seems like a lot but can't be ruled out." If that were to happen, Lehman might need to raise more capital.
Speaking of that real estate, FT.com reports that Lehman is in talks to dump $40 billion worth of commercial real estate assets and securities. FT.com reports that there is a wide gap in what the potential buyers -- Blackstone Group (NYSE: BX) and BlackRock (NYSE: BLK) -- and Lehman think those assets are worth. It also reports that the assets in question consist of mortgages and mortgage-backed securities that Lehman valued at $29.4 billion at the end of May and real estate assets then valued at $10.4 billion.
Investment banks are beginning to rethink their commitments to doing business in Russia. The New York Times reports that many investors believe the risks of doing business in Russia are beginning to exceed the benefits. Maybe that is what Russia intends. Once western investors have put their money in, why not push them out and take their property?
Here are some examples:
Mechel - The Times reports that Vladimir Putin's criticism of the CEO of Mechel, a coal mining and steel company, wiped out billions of dollars of its stock market value
BP-TNK - The CEO and other western executives of BP-TNK, BP's (NYSE: BP) joint venture in Russia, were shoved out under pressure from the government and BP's Russian partners.
Declining stock market - The Russian stock market is down 25% in the last two months, alone.
Evaporating investment banking business - According to the Times, "Investment banking revenue from Russia was $148 million from mid-July to now. That is down from $260 million from mid-June to mid-July."
U.S. stock futures were higher Friday morning, indicating stock markets could possibly extend Thursday's rally as the dollar rose and oil prices fell further. The dollar continues to make gains on the back of growing evidence of global economic softness. Still, several economic readings are due out today, including the New York Empire State manufacturing index , capacity utilization and industrial production -- all before the opening bell.
Kohl's Corp shares could start higher as premarket indication has them trading 2.3% higher, while Nordstrom's are trading 4% lower in premarket action. Kohl's quarterly profit fell 12% from a year ago, but the retailer lifted its fiscal year profit forecast. Meanwhile, upper scale Nordstrom, reported a 21% drop in second-quarter profits and cut full year outlook.
ANF said second-quarter profit fell on lower sales of jeans and T-shirts and forecast full-year earnings per share that trailed some analysts' estimates. JCP also saw profit decline but beat estimates and issued lower guidance.
Autodesk (NASDAQ: ADSK) shares are trading 10% higher in premarket action after the design software maker reported stronger-than-forecast second-quarter earnings Thursday after the close.
In a move that underscores how badly things are going on Wall Street, Merrill Lynch & Co. (NYSE: MER) has announced a freeze on new hires through the end of the year.
The freeze, which excludes retail brokers, extends to previously budgeted posts as well as replacement hires, according to Bloomberg News, which broke the story. Any exceptions to the policy need to be approved by a member of the management committee.
Merrill Chief Executive John Thain clearly is looking to save money; racking up $19 billion in losses will do that to a person. Though Thain has vowed to maintain the firm's dividend, options traders are betting that he will break his promise, according to a separate Bloomberg account. Heck, anyone who can read a balance sheet has reached the same conclusion.
Thain has already eliminated 4,200 jobs this year, which he says will result in more than $900 million in annual savings, Bloomberg notes, adding that "Merrill slashed compensation and benefits, the firm's biggest expenses, by 20 percent this year to about $7.7 billion. Reducing headcount by attrition may be a cheaper way of cutting costs than mass layoffs."
Merrill has what investors like to call a "credibility problem," which is not getting resolved anytime soon. Holders of the stock, including one of my relatives who ignored my advice to dump it months ago, are in for a tough slog.
Headhunters of the world be prepared, your email in-boxes are about to overflow.
Citigroup (NYSE: C) has come close to saying it will not cut its dividend under any circumstances. Merrill Lynch (NYSE: MER) has not cut its dividend in almost four decades. But there are signs cuts will come.
According toBloomberg, options traders think a Merrill dividend reduction is coming. "The market is pricing in a significant cut, roughly 50 percent or more,'' said Steve Sosnick, who trades options at Interactive Brokers Group Inc.," the news service reported.
Leaving options traders aside, there may be strong financial reasons for Merrill, Citi and other banks to make the cuts. Many analysts believe that total mortgage-backed securities losses will come to over $1 trillion. Only about 50% of that has passed through financial firm P&Ls. That means more losses and a need to raise more capital. Dividend cuts could do that.
For shareholder in the banks, dividends are almost all they have left. Merrill has a high dividend of 5.6%, which means it pays out more like a corporate bond. But that is $1.40 a share and the broker has a float of almost 1.4 billion shares. Citi's numbers are similar.
Is a dividend cut already priced into the stocks? Who knows? Merrill trades at $25.60, near its 52-week low of $22. A heavy set of losses could take it well below $20. For investor who got in at much higher prices, the dividend is cold comfort.
Financial firms will cut their dividends. With capital hard to come by, it is their most efficient way to "raise" money.
Douglas A. McIntyre is an editor at 247wallst.com.
Stock futures were higher Thursday morning, as bulls tried to answer to two bear days. Wal-Mart reported this morning, beating estimates and boosting guidance as well as Street sentiment. Still, coming ahead is inflation data at 8:30 a.m. Economists expect CPI to rise 0.4% in July, and could very well impact markets. Meanwhile, oil prices rose and the EU reported that euro-zone economy contracted 0.2% in the second quarter.
Wal-Mart Stores Inc. (NYSE: WMT), the world's largest retailer,reported a second-quarter earnings growth of 17% to of $3.4 billion, or 87 cents a share, beating analyst estimates of profit of 84 cents a share. Revenue rose 10% to $101.6 billion, slightly below estimates. The company also boosted its full-year earnings forecast. The company benefited from the challenging economic conditions as shoppers looked for lower prices. Its cost cutting measures also helped. WMT shares are gaining nearly 1.5% in premarket trading.
As Apple Inc. (NASDAQ: AAPL) shares rose in recent years, many have tracked its progress as it surpassed one major company after another in market capitalization. Well, All Things Digital noticed that Apple can put another check mark, this time as it passed Google Inc. (NASDAQ: GOOG). Yes, Apple is now larger than Google.
TheStreet.com's Jim Cramer says struggling banks can be shorted to oblivion now that the rules won't be enforced.
Memo to the FDIC: Watch your back. The SEC just flipped its allegiance to the bad guys, the guys who want to break not just certain banks, but your bank! That's right, with the scrapping of the emergency rule that eliminated naked shorting, where you don't have to find the stock, and with the end of the vigilance against bear raiding, the SEC may have just caused a run at the FDIC.
I had hoped that the SEC would see that these financials have been manipulated to unreasonable levels, making the confidence in all institutions so low that nobody wanted to give them money. The rule change -- which when you think of it, wasn't much of a rule change as much as an enforcement of the way things are supposed to be, where you actually have to find the stock you sold short first so you don't fail to deliver -- worked!
It gave the system some breathing room. I think the rule change might have saved Merrill Lynch (NYSE: MER) (Cramer's Take) from being shorted into oblivion so it couldn't have done its deal. Lehman (NYSE: LEH) (Cramer's Take) didn't do a deal, those bad boys be back on the griddle now for unknown European exposure. AIG (NYSE: AIG) (Cramer's Take) wasn't protected in the first place and I believe will need to raise $10 billion to $15 billion in the teens to cover its European exposure. Now there's little hope at all for Fannie (NYSE: FNM) (Cramer's Take) or Freddie (NYSE: FRE) (Cramer's Take), as their stocks will be blitzed into oblivion and Hank Paulson will have to start the planning of cash infusions as opposed to what he said last Sunday -- why did he say that, for heaven's sake? Maybe he's too close to John "We don't need capital" Thain from their Goldman (NYSE: GS) (Cramer's Take) days.
DealBook reports that Frank Quattrone, the former First Boston high tech banker who spent four years fighting charges of obstruction of justice, is trying to change the role of analysts on Wall Street to make them glorified sales people for small, high-tech company IPOs.
That's what they were for Quattrone and they helped make him wealthy. But thanks to people like former Merrill Lynch & Co., Inc. (NYSE: MER) analyst and current Silicon Alley Insider blogger Henry Blodget, who famously trashed companies in e-mails to colleagues while boosting them in his reports, the role of Wall Street analysts has been permanently transformed. They can no longer get paid out of investment banking revenues. Instead, their compensation comes from trading revenues. And analysts are not supposed to talk to bankers unless a lawyer is present.
Quattrone makes two good points though. First, there is no career upside for analysts to cover small companies. That's because only the big companies can generate the trading or banking revenues needed to pay the analysts. Second, the most talented analysts went to work for hedge funds and private equity firms. The result is that individual investors can't get analysis for free. Quattrone fails to point out that the quality of that analysis is worth what individuals pay for it -- nothing directly and a modest sum indirectly (through trading commissions).
CNNMoney notes that Morgan Stanley said it would offer to repurchase all ARS "held by individuals, charities and small and medium-sized business with accounts of $10 million or less at the bank." Morgan Stanley will begin to start buying back $4.5 billion worth of ARS on September 30th and will "make its best effort to provide liquidity solutions" for institutional investors by the end of 2009. But New York attorney general Andrew Cuomo is not satisfied with Morgan Stanley's proposal.
Meanwhile, the list of big ARS issuers that have not settled grows shorter. Here are six holdouts (with their 2007 municipal ARS issuance in parentheses):
The poor souls at the Swiss bank UBS (NYSE: UBS) are having trouble fixing what they have broken. The bank posted a loss of $329 million in the second quarter and took write-offs of $5.1 billion for bad assets.
Some sources say that UBS will now break off its investment bank from its wealth management division. Wealth management has healthy earnings while the investment side of the house is responsible for most of the big losses. Now nervous investors, troubled by rising mayhem, are pulling money out of the firm.
According toThe Wall Street Journal, "Bowing to shareholder pressure, the Zurich-based bank said its main units will be separated, backing away from its integrated model." It may be a model for other large financial companies facing balance sheet troubles, especially Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C), which also have big operations meant to handle individual investors.
The lesson from UBS is that there appears to be little advantage and a lot of risk to keeping private client and investment banking services under one umbrella. Shareholders in some of the largest U.S. financial companies can watch for UBS-style break-ups, which will probably push share prices in these companies higher. Walling off risk will become necessary as mortgage-paper related write-offs grow.
Douglas A. McIntyre is an editor at 247wallst.com.
Yesterday the Dow Jones Industrial Average was down 225, so I decided to peg the financial stocks I wrote about investing in as a pool. We are often accused of bragging on the good days and having memory loss on the bad so I wanted to be transparent and forthright on the downside.
To my surprise the financial stock pool is actually up 9.96% on average. Six stocks increased in value, two were down and two stocks were even money. The big winner was MBIA Inc (NYSE: MBI) up over 68%!
In the same time frame the DJIA has gone from 11,397.56 to 11,431.43 (even) and the S&P has gone from 1263.2 to 1266.06 last night, for basically no change either.
The market is rebounding as I write so I expect the news is even better. Although, this pool of stocks beat the market so far in the short run, I hope to track this group for a year, or at least until Major League Baseball's spring training opens in 2009.
After nearly six months of stalemate, things are finally starting to happen for holders of Auction Rate Securities (ARS) -- the $330 billion of long-term debt whose yield used to reset in weekly auctions. This morning, The Boston Globe reports that UBS AG (NYSE: UBS) is poised to announce that it will redeem $19.4 billion worth of ARS and pay $150 million in fines, split between Massachusetts and New York. UBS follows Citigroup, Inc. (NYSE: C) and Merrill Lynch & Co., Inc. (NYSE: MER), which yesterday announced plans to redeem over $17 billion worth of ARS.
Why should you care? If you have money frozen in these securities, the reason is obvious. If not, what's happening here suggests three lessons for investors:
Don't buy without knowing. Before you buy anything a broker is trying to sell you, read the prospectus, find out how the broker will be compensated for the sale, and if you don't understand what you're buying, don't buy it. Many people bought based on broker pitches that ARSs were cash equivalents, highly liquid, and yielded slightly more than money market funds. It turns out that ARS auctions started failing publicly last September.
If your money becomes illiquid, make alot of noise. ARS investors contacted government officials and the media in an organized way. The public attention led to investigations by legal officials. That attention uncovered UBS e-mails demonstrating that brokerage firms decided to dump the toxic waste from their own books to the accounts of their individual customers -- even as their executives dumped the securities from their own portfolios.
Merrill Lynch & Co., Inc. (NYSE: MER) announced that it would follow Citigroup, Inc. (NYSE: C) in redeeming its Auction Rate Securities (ARS). Unlike Citi -- which plans to redeem $7 billion worth of ARS by November -- Merrill will take its sweet time. According to MarketWatch, from January 15, 2009, and through January 15, 2010, Merrill will "offer to buy at par" $10 billion worth of ARS it sold to 30,000 retail clients.
This is good news and it should get the ball rolling. But there are still at least $300 billion ARS which are not yet redeemed. The list of issuers reads like a who's who of the banking world. For instance, the Wall Street Journal reports that the top 10 municipal ARS issuers at the end of 2007 were as follows:
The Washington Post reports that Citigroup, Inc. (NYSE: C) has agreed to buy back $7 billion worth of Auction Rate Securities (ARS) it sold to its clients. Citi will also pay a $100 million civil fine. This is a great move for individuals and companies that bought this toxic waste. The question is -- will the rest of the $330 billion ARS industry follow Citi's lead?
Citi will buy back the debt from 40,000 customers around the U.S. by November 5. And the $100 million fine will be split -- $50 million to New York and $50 million to the North American Securities Administrators Association. Cuomo had accused Citi of "wrongly telling customers that auction-rate debt was safe, liquid and the equivalent of cash." It looks like current CEO Vikram Pandit wanted to clear the decks of a problem he inherited and in so doing help to clear Citi's name.
But the question is whether Cuomo -- having achieved this considerable victory for defrauded ARS customers -- will have the clout to clear the rest of the $330 billion worth of ARSs that were frozen. There are many other firms -- including Merrill Lynch & Co., Inc. (NYSE: MER) and UBS AG (NYSE: UBS) which have their own frozen ARS problems. And until all of these firms make their investors whole, a dark cloud will hang over their reputations.
This cloud could seriously damage their future prospects when the industry recovers a few years hence. The sooner the rest of the industry follows Citi's lead, the better.
TheStreet.com's Jim Cramer says this administration's hallmark is coming too late to the party. 
Investment banks are beginning to rethink their commitments to doing business in Russia. The 
U.S. stock futures were higher Friday morning, indicating stock markets could possibly extend Thursday's rally as the dollar rose and oil prices fell further. The dollar continues to make gains on the back of growing evidence of global economic softness. Still, several economic readings are due out today, including the New York Empire State manufacturing index , capacity utilization and industrial production -- all before the opening bell.
In a move that underscores how badly things are going on Wall Street
Yesterday the 
After nearly six months of stalemate, things are finally starting to happen for holders of Auction Rate Securities (ARS) -- the $330 billion of long-term debt whose yield used to reset in weekly auctions. This morning, 
Cramer on BloggingStocks: The SEC's waffling will be deadly
How Fannie and Freddie will fail
Stupid question: Can the U.S. handle more housing stress?
