JP Morgan (NYSE: JPM)'s CEO Jamie Dimon recently stated that the recession in the American economy is "just starting."
As if to confirm Dimon's pessimistic view, the news is that JP Morgan will soon fire 4,000 employees, according to a Bloomberg report. The layoffs are being driven by two major factors: the "slowing environment" (try 'snowballing recession') and the sudden acquisition of 14,000 Bear Stearns (NYSE: BSC) employees.
Amazingly, Dimon reports that JP Morgan had found positions for 6,000 of the Bear employees. That seems like an awful lot of people to take on during a slowdown, but Dimon stated that Morgan was keeping only the very best Bear people and hoping to take on some of the firm's business as well.
Unfortunately for (some of) the people at JP Morgan, about 2,000 of the layoffs at JPM will be of Morgan people who are being replaced by Bear people. The other 2,000 will be Morgan employees who won't be able to blame Bear for their problems. (I'm not sure which is worse.)
Dimon did offer two bits of more optimistic news. He said that the integration of bear Stearns and Morgan is going smoothly -- although it's hard to know how much you can trust that statement, since what else is he going to say about that? And he said that in his view, the credit crunch is 75% over.
So that may offer a hint of brighter days ahead -- for his bank at least. For the broader economy, though, it still looks like dark days ahead.
Former Fed Chairman Paul Volcker gave testimony today before a Joint Economic Committee of Congress. He addressed the current financial and economic environment and the role of the Federal Reserve.
He discussed how the financial market environment has changed considerably since his tenure as Fed Chairman in the early and mid 1980's. He pointed out that financial institutions like investment banks and hedge funds, whose failure can have tremendous effects on the financial system, are lightly regulated. "Systemically important investment-banking institutions should be regulated and supervised" in a similar manner to commercial banks.
Chairman Volcker stressed the need to update the entire regulatory framework, saying "It's not simply a matter of inexperience or technical failures." He also discussed the need to update regulations on a global basis because of the increasing coordination between world central banks.
D. R. Horton (NYSE: DHI) shares are down over 6% in premarket trading after the homebuilder has swung to a loss for its fiscal second quarter of $1.31 billion, or $4.14 per share. With the continued housing slump, the company took hefty charges to write down the value of its inventory. Revenue plunged to $1.62 billion from $2.62 billion a year ago.
Fannie Mae (NYSE: FNM) shares are slumping over 9% this morning after the mortgage lender said it lost $2.2 billion or $2.57 a share in the first quarter due to mounting home-loan delinquencies as the housing slump continued. The results were below, far below that of estimates.
Vodafone Group (NYSE: VOD) said Tuesday that it's signed an agreement with Apple Inc. (NASDAQ: AAPL) to sell the iPhone in ten of its markets including Australia, the Czech Republic, Italy and India.
When the CEO of one of the world's largest money center banks says things in the credit market will be bad for a long time, it is at least worth a listen.
James Dimon, head of JP Morgan (NYSE: JPM) told German publication Welt am Sonntag that he thinks the financial crisis in the U.S. could go on for much longer, according to a report by Reuters. Because Dimon's bank is in fairly good shape and has not had to level of write-offs that many of his peers have suffered, the long cold Winter of finance may not harm his company too badly. That does not go for other banks.
If the stock market is a fairly good proxy for which financial firms are likely to be OK in a prolonged crisis and which are not, then Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C) have to be the top candidates for more trouble. Over the past year, JPM's shares are off about 5%. Citi is down 50% and Merrill is off by over 40%.
If Dimon is right, many big banks and brokerages are in for more write-offs as mortgage defaults move up, LBO debt loses more of its value, and consumer credit card paper gets hit by delinquencies. More write-offs mean raising more capital, something which Merrill and Citi have been doing with regularity.
If the two weak firms need to raise another $10 billion each, it is not hard seeing their shares slide by 15% or more. They almost certainly will survive, but not without shareholders paying a big price.
Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 letter.
With the current challenging market conditions probably many of us are wondering which are those reliable stocks that could offer us a big profit in the next coming years. In the light of those questions, Gene Marcial's new book, 7 Commandments of Stock Investing, reveals his perspective over seven stocks that are considered to be worth buying and holding for the next seven years (check out BusinessWeek's slideshow of his seven picks).
Taking advantage of the experience he gained over the past 30 years, BusinessWeek's Gene Marcial shares his opinions related to investors' strategy to use market meltdowns for their own benefit, being able to turn the stock market panic into success.
Connecticut Senator Chris Dodd has joined the baloney brigade -- the term Gary Weiss coined for the tinfoil hat crowd of conspiracy theorists who blame corporate problems on short-sellers.
Referring to the collapse of Bear Stearns, which some have blamed on shorts, Senator Dodd said that "This goes beyond rumors. This is about collusion."
Hold up. So Bear Stearns didn't collapse because of massive losses and a balance sheet like something out of a 1950s horror movie? No, apparently not. Bear Stearns collapsed because short sellers were betting it would collapse.
But isn't that like saying that the Patriots lost the Super Bowl because people bet against them in Las Vegas? The soaring short interest in Bear Stearns was an indicator of the company's problems, not a cause of them. The fact that JPMorgan needed guarantees from the Federal Reserve to acquire the company is proof of that.
The former head of monetary policy at the Fed called the agency's action on Bear Stearns (NYSE: BSC) the "worst policy mistake in a generation." To some extent, the comments by Vincent Reinhart reflect his opinion that the Fed did not look at a number of other alternatives for saving the investment bank. According toThe Wall Street Journal, "seeking other suitors, removing certain assets from Bear's portfolio or quickly implementing its previously announced offer to temporarily swap Treasury securities for dealers' less liquid assets" were all options.
The comments beg the question of what would have happened to the financial markers if Bear Stearns failed. The answer the Fed gives is that assets of other firms could have been destroyed or at least might have lost some of their value.
Rienhart may have a point. The Fed has made funds available to banks in exchange for paper, some of it with little value, which is, in many cases backed by mortgage-related securities. More recently it has let primary brokers have access to money on a similar basis. That mechanism was not in place when Bear Stearns was sold to JP Morgan (NYSE: JPM) with Fed backing. Reinhart's real question is whether it was necessary to wipe our the investment bank's shareholders in exchange for saving its customers.
The Fed probably did act too fast. How many days would it have taken to ask for other bids for the investment house? Could the Fed have kept Bear afloat during that period? The answer is almost certainly "yes".
Douglas A. McIntyre is an editor at 247wallst.com and writes the Ten Stocks Under $10 Letter.
JP Morgan Chase (NYSE: JPM) May option implied volatility of 33 is below its 26-week average of 38 according to Track Data, suggesting decreasing price movement.
Wells Fargo (NYSE: WFC) May option implied volatility of 33 is below a level of 52 from April 14 and below its 26-week average of 40, suggesting decreasing price movement.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
TheStreet.com's Jim Cramer says the good stuff out there -- and there's a lot of it -- will keep us going up.
How high can we go? That's pretty much the only question worth asking after you put in a bottom, as we did after the Bear Stearns (NYSE: BSC) (Cramer's Take) collapse.
Nobody's talking about a new bull market. But let me give you some thoughts about what has happened in the past few weeks to make it so that you could become more positive.
First, we went down so much because the systemic risk in the biggest part of the S&P, the financials, was overwhelming. It is why we "overcorrected" because the market feared -- and shorts pressed their bets -- that the following institutions could go under: Bear Stearns, Washington Mutual (WM) (Cramer's Take), Wachovia (WB) (Cramer's Take) -- yes, Wachovia, because of the miserable buy of what turned out to be a really reckless lender, Golden West -- Lehman Brothers (LEH) (Cramer's Take), Merrill Lynch (MER) (Cramer's Take), Citigroup (C) (Cramer's Take), National City (NCC) (Cramer's Take), Capital One (COF) (Cramer's Take) and even Wells Fargo (WFC) (Cramer's Take). Fannie (FNM) (Cramer's Take) and Freddie (FRE) (Cramer's Take), too.
With Citigroup's (NYSE: C) quarterly report, many investors hoped that the bank had gotten most of its bad news out. It wrote off a great deal of its mortgaged-backed inventory and LBO-debt. The firm also said it would fire 9,000 people. That number will likely rise. Citi has pledged that it will cut nearly 20% of its total operating costs.
Some of the gloom around the stock lifted. It traded over $25. It was as low as $17.99 recently.
But, many still view the future of Citi as grim. In an odd way, the quarterly report showed the bank as weaker than investors thought. According to Bloomberg, "The writedowns burned through much of the $30 billion of capital Citigroup has raised since late last year, leaving it vulnerable to further charges and loan-loss provisions." In other words, the bank may have to raise more money, or sell one of its successful divisions. Smith Barney often comes up in that conversation.
Or, if matters get worse quickly and there is not ready capital to bail out the bank, it could still be dismantled in a fire sale. Whether the Fed would turn to JP Morgan (NYSE: JPM) or Goldman Sachs (NYSE: GS) to buy Citi and handle the decisions of which parts must go or whether the firm's board would do it, the alternatives would ruin one of the world's largest financial companies. But, it did get into the mess all on its own.
Douglas A. McIntyre is an editor at 247wallst.com.
Some of the smartest investors, or at least ones who made a lot of money in the past, are buying financial stocks. Big time. They're the ones who bought a large chunk of Washington Mutual (NYSE: WM) and Wachovia Bank (NYSE: WB). Some $7 billion worth in WaMu, $8 billion in Wachovia coming soon. (Wachovia raised $3.5 billion through preferred stock only two months prior.) But these sharp investors didn't buy stock on the open market. They got theirs in negotiated deals with each bank. And they're not done buying.
Banks are teetering on the edge of a precipice. Without new capital their losses threaten to wipe out the capital base required to stay open. That forces many of them to consider selling to another, stronger bank or raise more capital to replace the losses. While not strictly a bank, Bear Stearns (NYSE: BSC), an investment bank, was leaning heavily over the edge when JP Morgan Chase (NYSE: JPM) threw it a rope and reeled it in. Originally at $2 a share, now at $10. The building that Bear owns is said to be worth at least $2 a share, so JP Morgan's life line came at a very high cost.
Since I have been a shareholder of Berkshire Hathaway (NYSE: BRK.A), I have enjoyed reading with great interest the musings of company chairman Warren Buffett as he gives almost a play-by-play review of the year in his letter to shareholders. He writes in a tone I would compare to Will Rogers, the writer, actor, comedian, cowboy and former mayor of Beverly Hills.
"My pal Warren" highlights both the triumphs and disasters of the year and his own perspective of the State of the Union and the economy like only he can. I strongly recommend investors take the time to read his letter(s).
One of the most often referred to items in Buffett's letters is regarding the quality of the management at each of the companies that Berkshire owns, or has major stock holdings in. There are many shrewd investors who will make a convincing argument that the quality of management is the highest priority.
He glowingly speaks of the wisdom, integrity and hard work of his management partners. He openly states that one reason that most of Berkshire acquisitions tend to work so well is the mutual appreciation of these character traits they all share. Unlike many companies that look to make money by shaking up the management structure, Buffett bases his investment strategy on keeping the strong management that built the enterprise in place.
While bank stocks aren't exactly hot, they triggered yesterday's rally because when J.P. Morgan Chase & Co (NYSE: JPM) and Wells Fargo & Company (NYSE: WFC) reported, there were no unexpected surprises, according to the Wall Street Journal's "Heard on the Street". The ups and downs in the sector are expected to continue.
According to people familiar with the matter, the Wall Street Journal reported that Yahoo! Inc (NASDAQ: YHOO) may be moving closer to outsourcing its search advertising to Google Inc (NASDAQ: GOOG) after an initial test yielded what they considered to be positive results.
OTHER PAPERS:
The New York Times reported that AT&T Inc (NYSE: T) is planning today to make an announcement that they will gift $100M to improve the skills of the nation's work force and fight the problem of high school dropouts.
WEB SITES:
Celgene Corporation (NASDAQ: CELG) is best known for its blockbuster drug Revlimid which is used treat multiple myeloma, a cancer which attacks blood and bones. For patients, it can prolong their lives about 2.9 years, or longer, according to Investor's Business Daily's "The New America".
Futures eased slightly this morning as the market sought to catch its breath after sprinting higher Wednesday. All indices had strong gains after better-than-expected first-quarter earnings reports from JPMorgan Chase, Coca-Cola Co., and Intel Corp. The Dow industrials finished up 257 points, or 2.08%, the S&P 500 rose 30 points or 2.27% and the Nasdaq Composite closed up 64 points or 2.8%.
IBM (NYSE: IBM) reported very strong Q1 figures after the close Wednesday. The company had income from continuing operations of $2.3 billion, or $1.65 a share, up from $1.8 billion, or $1.21 a share, a year ago. IBM was aided by the weakness of the U.S. dollar, with some 65% of revenue coming from overseas. eBay also had a good quarter, with profit climbing 22%.
However, there was a disappointing earnings report from Merrill Lynch (NYSE: MER) this morning. The company lost $1.96 billion, or $2.19 a share, compared with net income of $2.16 billion, or $2.26 a share, a year ago, after billions of dollars of writedowns related to the subprime crisis. Merrill plans to cut about 4,000 jobs, or 10% of its workforce. Nokia (NYSE: NOK)'s quarterly income rose 25% to 1.22 billion euros, up from 979 million euros a year earlier, but missing analysts expectations of 1.38 billion euros, according to Bloomberg News. Pfizer (NYSE: PFE) also missed analysts' estimates for the quarter, with profit falling 18%.
The U.S. dollar hit another all-time low against the euro, while oil prices hit an all-time high of more than $115 a barrel. According to the U.S. Energy Department, inventories of gasoline fell 5.5 million barrels last week. Related to the ongoing increase in oil prices, Continental Airlines reported a loss for the first quarter, while Southwest Airlines earnings declined. However, American Airlines yesterday posted a smaller-than-expected loss.
In the news today, Yahoo! moves closer to deal with Google on outsourcing search advertising, according to the Wall Street Journal.Google (NASDAQ: GOOG) is expected to release earnings this afternoon.
In economic data, unemployment claims for the week ending April 5 will be released at 8:30 a.m. EST; the Philadelphia Fed report will be out at 10:00 a.m.
JP Morgan (NYSE: JPM)'s CEO Jamie Dimon recently stated that the recession in the American economy is "just starting."
Former Fed Chairman Paul Volcker gave testimony today before a Joint Economic Committee of Congress. He addressed the current financial and economic environment and the role of the Federal Reserve.
With the current challenging market conditions probably many of us are wondering which are those reliable stocks that could offer us a big profit in the next coming years. In the light of those questions, Gene Marcial's new book, 7 Commandments of Stock Investing, reveals his perspective over seven stocks that are considered to be worth buying and holding for the next seven years (check out BusinessWeek's 
Hyperbole? Maybe.
JP Morgan Chase
TheStreet.com's Jim Cramer says the good stuff out there -- and there's a lot of it -- will keep us going up.
Here are some highlights from this past week's 
Ted Allrich is the founder of 
Since I have been a shareholder of .gif){kind=logo}
Oil hits record $127.43 on supply concerns, raised Goldman forecast
Icahn's 'shock and awe' on Yahoo -- a gutsy play
Housing starts surprisingly rise in April on apartment construction
