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.
Henry Paulson is maneuvering himself into the history books by forcing Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) into a spiral of doom from which they can't recover. He had plenty of help from the directors and executives who sit atop them. But it's becoming clear that since Saturday's Barron's article, laying out the path to failure, events are spiraling out of Fannie and Freddie's control.
The anonymous senior government source in the Barron's article said that unless Fannie and Freddie could raise at least $10 billion each, the government would bail them out while wiping out common shareholders and eliminating the preferred dividend. This would lead to a sell off of bad loans, a split into smaller pieces, and maybe selling those pieces back to the public. All these activities are a government gift to Wall Street, which will get to do all these deals.
Events are following this predicted pattern as Fannie and Freddie struggle to raise capital. The New York Times reports that investors are not enthusiastic about the most recent efforts to raise capital by Freddie Mac. It reports that on Tuesday, Freddie Mac raised $3 billion in five-year debt but the "1.13 percentage points [premium] over the rate the federal government pays for comparable borrowing" was more than double the "0.6 points" premium it paid earlier in the year.
U.S. stock futures were higher Wednesday morning, indicating markets could start on a positive note after two days of declines. Good results from Hewlett-Packard helped lift sentiment, overshadowing financial sector concerns, despite new worries over Fannie and Freddie. Oil remained steady ahead of inventory report later today.
Hewlett-Packard (NYSE: HPQ) shares are rising over 3% in premarket trading after the computer maker reported a 14% rise in fiscal third-quarter earnings and issues current-quarter earnings guidance that exceeded analyst estimates. Tech shares could get a boost from H-P.
Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) remain in focus due to concerns that a government bailout of the two firms is inevitable and would mean wiping out investors. Freddie Mac on Tuesday was forced to pay its steepest borrowing premium in 10 years, which is raising fresh concerns about its ability to withstand the housing and credit crisis without government help.
eBay Inc. (NASDAQ: EBAY) is cutting fixed-price seller listing fees. eBay will now charge 35 cents to list any number of the same types of fixed-price items. This is a dramatic change from charging fees based on item price.
TheStreet.com's Jim Cramer says there's a big disconnect between the trade, orchestrated by the funds, and the real-world demand.
How can anyone actually own oil or natural gas through this relentless assault on price? I know when it was going up, the talk was that all of these new funds were indexing trillions to commodities and it was just going to stay there, and that's why there was a new level of oil demand.
Can those same accounts come in every day and take this relentless pasting no matter what the news? And do they believe the news, that they are losing money today because some storm went to Daytona and not to New Orleans?
Yesterday, I had Jim Hackett, the CEO of Anadarko Pete (NYSE: APC) (Cramer's Take) on "Mad Money at the Half," and he was flabbergasted at the activity in the futures pit and how unrealistic it has become. He's focused on natural gas, where he says the demand at $8 by industry -- the glass makers and chemical companies and steel and aluminum users -- is voracious. But the futures themselves just keep going down, regardless of the demand.
U.S. stock futures were lower Tuesday morning, indicating stocks would likely start the same. Investors' concerns about the financial sector dampened sentiment, but oil prices continued to decline and could offset some of the negative mood. Still, housing and inflation data are on tap before the market opens today. And of course earnings with The Home Depot already beating investors' expectations this morning but with Staples issuing a warning.
A day after smaller Lowe's (NYSE: LOW) reported a profit drop, The Home Depot (NYSE: HD) followed suit, reporting a 24% profit decline for the second quarter. It held onto its earnings outlook as second-quarter net fell 24% to $1.2 billion, or 71 cents per share. Sales declined 5.4% to $21 billion. Analysts had projected earnings per share of 61 cents on revenue of $20.58 billion. Home Depot shares rose 2% in premarket trading.
Other retailers scheduled to release earnings include discounter Target (NYSE: TGT) -- could it follow Wal-Mart's results? -- while Hewlett-Packard (NYSE: HPQ) is to report after the close -- AP preview.
Meanwhile, Staples, Inc. (NASDAQ: SPLS) issued a profit warning, saying that "Challenging market conditions continued during the company's second quarter, resulting in weaker than anticipated results in Staples' pre-acquisition business." Staples said sales increased approximately 3% and earnings per share decreased approximately 15% yoy. Shares of Staples declined nearly 6.5% in premarket trading.
Investors in shares of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) went wild on speculation today that the government would put new funds into the mortgage agencies and wipe out common shareholders. The market was dragged down over 200 points at some point on a ripple of concerns about the financial sector:
Early in the day, the chance of a hurricane moving into the Gulf of Mexico pushed oil up and knocked equities down. Once the storm moved over Florida and away from deep-water rigs, oil went back down.
The trading was so bleak and depressing that most traders probably went home to watch the last few events of the Olympics. Those who stayed saw a few notable moves:
TheStreet.com's Jim Cramer says lower gas prices mean the numbers are too low.
People are missing this retail move. They are missing it because the market is deciding right now that the guidance companies are giving is just plain wrong given the $3.50 at the pump (although premium's a lot more expensive). They are also recognizing that the strong are surviving and thriving and taking share in a radical fashion -- witness Lowe's (NYSE: LOW) (Cramer's Take), which must be killing Sears (NASDAQ: SHLD) (Cramer's Take) and the mom-and-pop shops out there.
When I met with Lowe's last year, they told me that they have picked up share in every downturn. They did not know when the downturn would end or when you would see the results, but they were confident that the longer the downturn lasted, the more likely they would be to have pulled away from their competition.
U.S. stock futures turned higher Monday morning despite a dip in the dollar and oil prices rising somewhat. Investors may focus on the financial sector again following some news while they await housing data later today. More inflation data is due Tuesday.
UnionBanCal (NYSE: UB) accepted a sweetened bid from Mitsubishi UFJ Financial Group (NYSE: MTU). After rejecting two previous offers, UB accepted MTU's offer to pay $3.5 billion, or $73.50 a share, for the remaining 35% portion of the California bank that it doesn't already own. UB shares are trading 11.85% higher in premarket action.
Staying in financials, Lehman Brothers (NYSE: LEH) may see some action after The Wall Street Journal said some analysts believe it could lose $1.8 billion during the quarter. LEH shares are 2% lower in premarket trading. Meanwhile, Barron's said a government recapitalization of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) is almost inevitable, wiping out investors -- and management. Shares are 2% and 6% lower respectively in premarket trading.
Lowe's (NYSE: LOW), the home improvement retail chain, reported results this morning. Lowe's profit fell for the fourth straight quarter as the biggest U.S. housing slump since the Great Depression slowed spending. Net income declined 7.9% to $938 million, or 64 cents a share, exceeding analysts' estimates by 8 cents. Sales rose to $14.5 billion from $14.2 billion. Lowe's raised guidance, but stayed within estimates.
Barron's (subscription required) cites a government source who warns that absent raising at least $10 billion in capital each, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) common and preferred shareholders will be wiped out or severely wounded in a government takeover of the two government-sponsored entities (GSEs).
The problem with Fannie and Freddie is that depending on how you count the beans, their liabilities are worth more than their assets. Using so-called fair value accounting -- which marks their assets and liabilities to immediate market value -- Fannie is worth $12.5 billion (a sliver of equity supporting $2.8 trillion in assets) and Freddie has a negative net worth of $5.6 billion. Others calculate that both have a negative net worth of $50 billion.
The Bush administration wants to gut these GSEs (they're Democratic strongholds). How will the GSEs perish? Barron's reports that if Fannie and Freddie fail to raise at least $10 billion in fresh capital, the administration is "likely to mount its own recapitalization, with Treasury infusing taxpayer money into the enterprises. The infusion would take the form of a preferred stock with such seniority, dividend preference and convertibility rights that Fannie's and Freddie's existing common shares effectively would be wiped out, and their preferred shares left bereft of dividends." But wait, there's more.
TheStreet.com's Jim Cramer wonders why no one's cheering about this -- the headwinds are gone.
This is an epic collapse of commodities, one that is cutting every investor to the core. It is as if whoever was actually buying them -- not trading them, not speculating in them -- has vanished. That's how little demand there is. It is as if everyone in the world who was being paid in dollars now actually wants those dollars. It is as if all demand leading up to this moment for the last several years was all phony and disappeared. It is as if any country that was hoarding minerals and oil and grain no longer needs them. And it is as if every hedge fund in the world had purchased everything to sell into that demand and is now long the stuff and dying.
To me, all you need to watch is gold. The fact that gold could not hold that long-term trend line, that it sliced through $790, tells me that we are not done with this great unwind.
What's amazing is how silent it all is. We heard about how horrible this commodity rally was for the world every step of the way. With each dollar up of each commodity, we heard how it would destroy the Western world. How many times did you hear that the weak dollar would be the end of us?
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.
There was a double play in economic reports this morning, and the news was not good. CPI and Initial Jobless Claims both came in higher than expected. Equity futures turned negative across the board after the news was released.
CPI was expected to come in at 0.4% but came in at 0.8% for July. This was still less than the 1.1% number for June. The problem is that Core CPI was 0.3%, ahead of the 0.2% that was expected. This was the same as the 0.3% reported for June and indicates that inflation is not limited only to oil and is working its way into the system.
There was no relief on the employment front either. Initial jobless claims for the week came in at 450,000, which were ahead of expectations. This was down slightly from the prior week but still indicates an extremely weak employment situation.
The focus now shifts to oil, which has recently experienced a substantial decline from its recent peak price. If oil prices continue to decrease, or at least stabilize at this lower price, it takes pressure of the Federal Reserve to raise interest rates. The Fed realizes that the U.S. economy is far too fragile to raise rates. As long as oil prices remain tame, the Fed can minimize the recent CPI numbers and claim inflationary pressures are easing.
However, if oil rallies again, the Fed is in a very uncomfortable position. In addition, a rise in oil prices would not only increase inflationary pressures but also weaken an already battered consumer. For these reasons, the focus is now on oil!
TheStreet.com's Jim Cramer says that as consumers try to stretch their dining dollar, Darden, Yum! and McDonald's will benefit.
We all know we are overstored in this country and over-restauranted. There are tons of players -- so many that the competition got too hard. Now they collapse. That Uno might miss a payment, that Bennigan's and Steak & Ale are going away, that Bakers Square and Village Inn have filed for bankruptcy: All say the industry is in big trouble.
We read all of these horrible articles every day about restaurants, and yet we see that the stocks of Yum! and Darden hang in great, particularly the first, which gave hideous guidance and yet is now higher than it was before it told people commodity costs were hurting it. McDonald's? How many stocks just hit their 52-week high?
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.
Today was another very volatile day with stocks posting triple-digit DJIA losses. Shares opened and traded lower, then recovered sharply before falling back down at the end of the day. Oil and commodities rose. Oil was up over $3.00 to over the $116 a barrel mark on soft inventory levels and reports Russia is seizing a Georgian pipeline. With gold rising almost $17.00 and the dollar falling, it almost felt like the commodity trades were coming back on. There was a drop in import prices, but that wasn't enough to keep the bears from roaring today.
Here are Wednesday's unofficial closing bell numbers:
Google Inc. (NASDAQ: GOOG) saw shares down marginally today as the stock was down 0.8% at $498.53 in the final minutes before the close. Jim Cramer interviewed Google's CEO & Chairman on CNBC today and he brought back that $750 Target.
TheStreet.com's Jim Cramer says this administration's hallmark is coming too late to the party. 
Henry Paulson is maneuvering himself into the history books by forcing 
U.S. stock futures were higher Wednesday morning, indicating markets could start on a positive note after two days of declines. Good results from Hewlett-Packard helped lift sentiment, overshadowing financial sector concerns, despite new worries over Fannie and Freddie. Oil remained steady ahead of inventory report later today.
U.S. stock futures were lower Tuesday morning, indicating stocks would likely start the same. Investors' concerns about the financial sector dampened sentiment, but oil prices continued to decline and could offset some of the negative mood. Still, housing and inflation data are on tap before the market opens today. And of course earnings with The Home Depot already beating investors' expectations this morning but with Staples issuing a warning.
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?
