TheStreet.com's Jim Cramer says he has no confidence in these hated names, and neither should you.
The financials are flying -- there are finally bids for most of them underneath. Many, including Lehman (NYSE: LEH) (Cramer's Take), are running. What a great time to put the negative cards on the table and put the negatives in perspective. That's right, let's look at the financial Achilles' heels. What could go wrong? In other words, here's the companion piece to Doug Kass' positive conversion. Here's what I am worried about even as Doug thinks everyone's too worried and the bottom is being put in.
To get started, let's look at what's not causing the endless declines in the stocks -- don't worry, we will get to the financial dirty dozen when I finish this preamble.
First, it ain't earnings. Earnings aren't going to be that great. But that's why the S&P is at 14 times. It can go to 12 or 11, or most likely stays at 13-14, but the E goes down (earnings).
Second, it ain't oil. The stocks sensitive to the increase in oil have room to go down, but the price of oil is being factored in slowly but surely.
Third, it isn't inflation or recession. Those two are being baked in each day.
Stock futures were mixed early Thursday morning, the last and shortened day of trading this week -- markets will close at 1 p.m. EDT. Oil, again, has reached new highs as investors awaited the ECB decision on interest rate. Wall Street is also anxious about the upcoming jobs report, especially after Wednesday the ADP employment figures were worse than expected. Today's session will likely be choppy.
Despite starting the day on a positive note Wednesday, U.S. stocks ended sharply lower after the ADP employment figures damped mood on the Street. Also, crude oil prices rose sharply and an analyst warned that General Motors (NYSE: GM) may have to consider bankruptcy at some point; GM stock closed below $10 a share. The Dow industrials tumbled 166 points, or 1.46%, entering bear territory -- down over 20%, the Nasdaq Composite lost 53 points, or 2.32%, and the S&P 500, fell 23 points, or 1.82% - the only major index still not in bear territory.
Soon, at 7:45 a.m. EDT, the European Central Bank will announce its decision on interest rates. The ECB is widely expected to increase rates, which in turn could further weaken the dollar, driving oil prices higher.
Then, at 8:30 a.m., the Labor Department will release the June payroll figures. Economists expect the unemployment rate to fall to 5.4% from 5.5% last month, but job losses are expected to rise to 60,000 positions, up from 49,000 in May, according to Briefing.com.
At 10:00 a.m., the June ISM services index will be released, and another decline is expected.
Let's just say that if the Dow Jones Industrial Average on Thursday closes down 200 points, we'll call it a moral victory. The Dow Wednesday closed down 166.75 points to 11,215.75.
"What was that famous Bette Davis line about a bumpy night? Well, Thursday could be a bumpy day," economist Peter Dawson told BloggingStocks Wednesday.
Thursday could be very bumpy for the stock market because a series of data points -- all expected to be negative -- are converging at a traditionally difficult time of the year for the market - the start of summer.
Three data points of significance
First up is the European Central Bank's interest rate decision at 7:45 a.m. EDT, at which the bank is expected to increase its key, short-term interest rate, the refinance rate, by a quarter-point to 4.25%. The ECB is trying to check inflation, Dawson said, but it may end up hurting the dollar. If the markets believe the already-weak dollar will fall further, that will increase commodity prices, including oil, "which will not be good news for stocks," he said.
TheStreet.com's Jim Cramer says it'll be a huge, bizarre investment that sticks -- not a bid for Wachovia.
Why is there so much chatter about Wachovia (NYSE: WB) (Cramer's Take) getting a bid? Why do people think that its deposit base is worth the heartache of dealing with its mortgage portfolio?
We have all heard the chatter about a potential bid for Wachovia, and it sure would be sweet, because the stock has been one of the worst of the group. It doesn't have a CEO, so that fits the scenario of a company that could be for sale. The franchise was always a solid one until now. And I will admit that the secret to the bulls' case for a better second half is a bid for Wachovia, a premium bid that takes everyone's breath away and causes a short panic.
My problem is that if you wanted to buy Wachovia, why not wait? What's the hurry? Is it that you might miss a chance at a bottom? Is there someone else out there who might want it? Do you perceive a bidding war, for instance, between JPMorgan (NYSE: JPM) (Cramer's Take) and Wells Fargo (NYSE: WFC) (Cramer's Take) for WB? How about USB (NYSE: USB) (Cramer's Take)?
It was only last week that Goldman Sachs (NYSE: GS) caused havoc in the stock market (or at least lead the charge) downgrading Citigroup Inc.(NYSE: C), and General Motors (NYSE: GM) among others, but now they have started to express concern that some of the defense sector stocks may be vulnerable to the next president's ax.
It was only a few weeks ago I posted Chasing Value: General Dynamics & Raytheon: The defense does not rest and things continued to look bright until a few days later, perhaps after the GS behind the scenes warning started to have an impact on the market that the sector took a mysterious swoon -- now I know why.
If Goldman Sachs, one of the few investment houses with any credibility left, makes a move everyone else seems to want to get out of the way.
I have viewed the defense sector favorably this year and will not abandon ship because GS is getting cold feet. They have been rather negative on everything lately and I do not think the (stock) world is coming to an end.
The Bloomberg article notes that while some programs will be cut others will be added. It is all a guessing game as either presidential candidate will want to review the entirety of defense expenditures in a new administration.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of GD.
The New York Times reports that Massachusetts secretary William Galvin has subpoenaed some revealing e-mails from UBS AG (NYSE: UBS) that illustrate its decision to stick retail investors with its worthless ARS inventory.
I've been following the $330 billion ARS market since February when the weekly auction market for resetting their yields seized up. Since then 4,852 comments have been posted from individual investors whose money is frozen in ARS limbo.
The e-mails reveal that UBS's corporate customers did not want to buy the ARS on UBS's books. So UBS tried to unload the worthless securities onto its individual customers. Absent dumping the ARS, UBS would need to take the hit itself. Rather than do that, UBS decided to let those foolish enough to fall for the ARS sales pitch to take the losses. The Times illustrates this decision clearly in an e-mail from Joe Gallichio, a managing director in the municipal finance department at UBS, on February 21, after the ARS market had frozen.
TheStreet.com's Jim Cramer says forget calling a financial bottom -- everything you need is right in front of you.
Do you think this week will finally end the oil inventory nonsense? Do you think this week could be the breakout where oil doesn't trade on the slight build or the "heavier than expected" chatter?
I sure hope so.
Yesterday was a horrible market, but midday, when the market was really beginning to roll over, the whole complex turned. This was quite an achievement given the overwhelming collapse of the futures and the propensity of the bears to push things down.
Today with the futures breaching $140 -- remember, I think they're on the way to $150 -- we can see the error of relying on these numbers, which I have said for years now are meaningless. Witness how many times the inventories have been more full than expected and yet oil has doubled.
I want to go back to the cheaper-than-oil stocks, though. Natural gas. Oil has to go down $65 to get to where natural gas is right now. Meaning that historically oil trades at six times the price of natural gas. So natural gas -- forget the season, which is supposed to be bad for nat gas -- needs to come higher.
TheStreet.com's Jim Cramer says with few exceptions, the landscape is littered with corpses.
Sell everything. Nothing's working. Revisit when the prices are adjusted for a big recession, soaring inflation and a crushed consumer. Sell at 12,000 and come back at 10,000. Even better: short it.
Are you going to argue with any of that? Do you have a case against it? What's the counter? Takeovers? We've had a couple: Anheuser-Busch (NYSE: BUD) (Cramer's Take), Wrigley (NYSE: WWY) (Cramer's Take). Good if you owned them.
Lower rates? Can the Fed help? We assume the Fed is done. The odds favor higher rates. Bank turnarounds? How, with short-rates going up? With housing prices going down?
Can oil go down? Only with a worldwide crash, and with a worldwide crash, why would we come back at 10,000?
Can the consumer get more liquid? How? Unemployment's going higher. Wages won't go up in that environment.
That's the environment. It's pretty bulletproof when it comes to its logic.
U.S. futures were mixed to lower early Friday morning, a day after stock markets sold off, ending at their lowest level in nearly two years. Still, with oil prices reaching another record in Asia, it's questionable whether stocks could indeed stage a recovery.
On Thursday, U.S. stocks sank to lows not seen in nearly two years after Goldman Sachs (NYSE: GS) downgraded investment banks including Citigroup (NYSE: C) and General Motors Corp. (NYSE: GM) to Sell and as Wall Street was also worried about the outlook for tech stocks as both RIM (NASDAQ: RIMM) and Oracle (NASDAQ: ORCL) reported quarterly results Wednesday, giving a tepid outlook. Topping it all were oil prices reaching $140 a barrel. The Dow Jones Industrial Average fell 358 points, or 3.03%, the S&P 500 lost 38 points, or 2.94%, and the Nasdaq Composite dropped 79 points, or 3.33%.
Usually, a day after such a selloff, buyers tend to come in, this morning we also woke up to news that oil prices climbed to a record above $141 a barrel in Asian trading, which may dampen the mood on Wall Street again. Light, sweet crude for August delivery rose as high as $141.71 a barrel before pulling back to $141.10. The previous trading record for a front-month contract was $139.89, set on June 16.
What the fundamentals couldn't help with, the charts did.... on selling. If you don't want to blame the charts, you could always point to Goldman Sachs downgrades and a myriad of everything else. The DJIA and S&P 500 Index broke early-year support levels. We even saw oil cross above $140.00 per barrel in electronic trading. Thankfully, there's no speculation driving up oil, because the speculators buying say they aren't driving up prices.
Q1 GDP was revised up 0.1% to 1.0%, although the data is now as old as the hills. While existing home sales posted a gain, we saw yet another median housing price drop. If this sounds overly pessimistic, it is simply because this is the sort of day it was. It even feels like Dr. Pangloss took the summer off.
Citigroup Inc. (NYSE: C) was the first casualty on a Goldman Sachs downgrade accompanies by a note that the company may cut the dividend or need cash. Those shares were down 6% at $17.70 in today's final minutes.
GM stock closed yesterday at $12.81 but today traded down to a new 52-week low of $11.21; as of 1:15, it is at $11.51, down nearly 10%.
GM is trading at a 30 year low. "Today's drop came after a Goldman Sachs analyst cut his rating for GM to "Sell" from "Neutral" and his price target to $11 from $16, saying things could still get worse for the North American automotive industry as a whole."
I wonder if he read my post yesterday . . . probably not. I am not a big fan of analysts as a group but this did not take a crystal ball. Barron's should do a follow-up story explaining how their crystal ball got so fogged up.
No sooner than we got used to the huge writeoffs and thought most of the fallout is behind us, that Goldman came today and whacked us on the head. "Over?" it laughed, "you wish!" It then proceeded to downgrade investment banks from Attractive to Neutral. Specifically, it downgraded Citigroup (NYSE: C) to Sell, urging investors to short sell it!
Citigroup will have another $8.9 billion in writedowns, William Tanona, the Goldman analyst said, and added Citigroup to Goldman's "Americas conviction sell" list, cutting his price target on the stock to $16 from $20. Citi shares are down 5.5%.
Merrill Lynch (NYSE: MER) has already been subject to rumors last week it would have to write down more assets. Today, the same Goldman analyst said it will likely incur $4.2 billion of write-downs in the second quarter. MER stock is down 4.5%.
At least Goldman shares have not been immune and are declining nearly 2.7% along with the rest of the investment banks and the market.
TheStreet.com's Jim Cramer says recent downgrades are killing whole industries, and they're coming at a terrible time.
You can't lose autos and aerospace. Yet that's what's happening. The devastating aerospace downgrade by Goldman yesterday had pin action galore, wrecking everything from United Tech (NYSE: UTX) (Cramer's Take) and Parker-Hannifin (NYSE: PH) (Cramer's Take) to BE Aerospace (NASDAQ: BEAV) (Cramer's Take). It took the whole frame down with it and made everything toxic. And it happens at a terrible time. It isn't like Honeywell (NYSE: HON) (Cramer's Take), which with a few days left in the quarter can come out defending itself. Goldman rolled a perfect strike.
U.S. stock futures were lower early Thursday, a day after the Federal Reserve announced rates will be kept steady. Investors this morning are mostly concerned about financials following Goldman Sachs downgrades of several banks. Wall Street is also worried about the outlook for tech stocks after both RIM and Oracle reported quarterly results Wednesday and gave a tepid outlook.
On Wednesday, U.S. stocks managed to end the session with moderate gains as oil prices declined. The Federal Reserve held interest rates at 2%, saying inflation has become a higher risk to U.S. economy. The Dow industrials rose 4 points, or 0.04%, the S&P 500 added 7 points, or 0.58%, and the Nasdaq Composite rose nearly 33 points, or 1.39%.
In economic news, final first quarter GDP will be reported at 8:30 a.m. EDT, with economists expecting a slight revision upward. At the same time, weekly jobless claims is due out. Finally, at 10:00 a.m., May existing home sales figures will be released, and economists expect a small growth in sales.
Meanwhile, oil prices rose Thursday after a steep decline Wednesday following a report showing increase in U.S. inventories. Crude is back above $135 a barrel this morning as buyers came back to the market.
The Federal Open Market Committee issued its decision on interest rates Wednesday. It kept rates unchanged as expected but increased the hawkishness of the accompanying statement. It maintained its credentials on combating inflation but was careful not to cause any trauma to the financial markets that would require reversing this position. If this were to occur, the Fed would lose credibility.
The Fed wants to maintain its credentials on inflation control. This is necessary for it to protect the dollar from an uncontrolled spiral downward and an increase in core inflation. However, there is very little that the Fed can do to limit total inflation in the short term. The current inflation is really being primarily driven by the rise in oil prices. This is being caused primarily by the increase in demand in emerging markets, such as China and India. Fed policy has little effect on this. Oil prices rose throughout the last Fed tightening cycle despite the rise in the yield on short-term Treasury Bills.
Oil actually began its rise as the Fed began to increase interest rates in 2004. Prices doubled as the Fed substantially tightened monetary policy. Europe also has some of the same inflation issues that we face despite the refusal of the European Central Bank (ECB) to lower rates.
Stock futures were mixed early Thursday morning, the last and shortened day of trading this week -- markets will close at 1 p.m. EDT. Oil, again, has reached new highs as investors awaited the ECB decision on interest rate. Wall Street is also anxious about the upcoming jobs report, especially after Wednesday the ADP employment figures were worse than expected. Today's session will likely be choppy.
Let's just say that if the 
It was only last week that 
The 
U.S. futures were mixed to lower early Friday morning, a day after stock markets sold off, ending at their lowest level in nearly two years. Still, with oil prices reaching another record in Asia, it's questionable whether stocks could indeed stage a recovery.
It was only yesterday that I posted 
Wal-Mart's launch of $20 slimming jeans will be a huge success
Why I spent some of my stimulus check on GE
Why the dollar will keep falling
