Around the world, governments are flooding the market with new currency in order to stem the tide of bank collapses and slippery stock market slopes. They are taking over financial institutions, absorbing debt, lowering interest rates, nationalizing some private companies, investing in others, and rebating taxes through stimulus packages to increase liquidity and spending.
So far all we can say is that the world is still open for business, but it is a different world. Even gold and oil are down significantly.
In concert with world markets, the stocks in my daring (maybe fool hardy) story I posted a few months ago Serious Money: Tempting fate with 10 financials -- buying into a pool of financial stocks at a time when the "hate 'em" factor was at a peak, or so I thought -- are down even more. I think I am turning into the web's leading glutton for punishment by posting such stories. However, while my stock ideas have taken a beating now and then, I hope my integrity has remained intact.
Nine of the ten financial stocks I wrote about are down or out at this point. When I last reported, the portfolio was losing 4.8%, and now it is losing 47% to date, not counting dividends. Only MBIA Inc. (NYSE: MBI) is up and there are question marks about this company too.
With a turn of the calendar page, we drift into the middle portion of the current quarter, but the earnings season rolls on. Among the many companies scheduled to report quarterly results this coming week are Time Warner Inc. (NYSE: TWX), Cisco Systems Inc. (NASDAQ: CSCO), News Corp. (NYSE: NWS), and Whole Foods Market International (NASDAQ: WFMI). Let's take a look at which companies Wall Street analysts are expecting to be among the top earnings gainers and decliners this week.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
Several of my editors and colleagues have commented about me sticking my neck out calling the bottom of the market two weeks ago and then suggesting it's time to buy the financial sector, (see: Serious Money: Tempting fate with 10 financials) however, I stand by this theme and this morning MBIA Inc. (NYSE: MBI) is lending support to the idea.
MBIA closed yesterday to end the month at $5.93 and is up 24% to $7.36 as I write at 9:04 AM, PST. The stock is down 90% from it's 52-week high of $68.98. They have announced an earnings conference call for August 8, 2008.
The company is still losing money giving it a negative P/E. However, it is maintaining a substantial dividend cut the dividend in February (Yahoo and AOL still show TTM) and Barron's has repeatedly noted that if this company does not get crushed by it's leverage, it's projected revenue based on existing book with no new business might make this a $40 dollar stock. I have not done their level of analysis so my recommendation was based on the pool of ten stocks and only a few of them bouncing back.
The story is worth following so look for an update later and another report next week. UPDATE: Today's closing numbers $7.67, up $1.74 +29.34%
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 MBI.
After the market closed last night, with the Dow Jones Industrial Average rebounding from Monday's notable drop and ending the trading day at 11,397.56, up 266.48 (+2.39%), I posted Serious Money: 10 finance stocks as the market bounces. This is the follow-up post listing the full pool of speculative stocks that as a group I believe will beat the overall market in the next 12 months.
The prediction business is thankless and the speculative business is even worse; it is often painful. I usually refrain from this activity but today I play the contrarian in a Sir John Templeton (RIP) sort of way, jumping into the stock market's worst performing sector with both feet. I believe the market is at or near a bottom and this summer is the time to buy.
Looking for a break in the clouds, yesterday I started choosing ten stocks knowing that three or four may go to zero, a few more will survive with modest gains, and three or four will rise, not returning to their old glory soon but more than covering the ones that fail. The first four picks have been bleeding all over Wall Street for a year now and the blood-letting is not done yet.
Initially I was looking for stocks that had fallen at least 70%. After reviewing my figures, I have compromised and changed that to 63% so that I could include some of the major companies like Citigroup Inc. (NYSE: C) that are broadly held and have strong reader interest. Prices are as of July 29, 2008.
TheStreet.com's Jim Cramer says Fannie and Freddie aren't the true culprits here.
The blowhards and bluff artists and the Gang of Four -- Ambac (NYSE: ABK) (Cramer's Take), MBIA (NYSE: MBI) (Cramer's Take), MGIC (NYSE: MTG) (Cramer's Take) and PMI (NYSE: PMI) (Cramer's Take) -- truly have blood on their hands for this moment. So do the ratings agencies, the mortgage insurers and the salespeople who packaged undocumented loans and pushed buying homes with no money down.
The whole apparatus stinks and we are now seeing the unwinding, but I think that the false assurances created by the Gang of Four and their insistence to not worry made everyone way too complacent. Their glib promises as well as the incredibly lax work of the ratings agencies, S&P and Moody's, enabled the whole edifice to be propped up.
And once it was clear to them that they needed more capital, they chose to forgo the window and attack the shorts. Had they raised the capital they needed and had the ratings agencies said they can't bless any more of this junk, we might have never been in this spot.
The good news is that we saw a Monday buying interest spree after a horrible prior week. Sellers did come in late in the day after the markets traded higher earlier, putting the markets on the verge of a negative day. The bad news is that today was the end of the quarter and it looks like we have now finished down three consecutive quarters in the U.S. stock market. Whether or not it is a bear market seems to depend on whom you consult, but things are tough for the public investor right now. This morning oil was around $143.00 on fresh Iran-Israel tensions and here were the unofficial closing bell levels today:
General Electric Company (NYSE: GE) did finally see a bounce after a research analyst came out showing anecdotal evidence that the current discount to the market is very close to major inflection points. Shares of GE were up 1.7% at $26.69 in today's final minutes.
Moody's Investor Services' recent downgrade of MBIA Inc. (NYSE: MBI) from Aaa to A2, a five notch drop, will cost MBIA more than $7 billion. MBIA is the country's leading insurer for municipal bonds and stable corporate bonds such as utility bonds. Due to increasing uncertainty regarding MBIA's mortgage related investments, Moody's judged MBIA to have only limited financial flexibility to address continued deterioration of its mortgage related portfolio, which has already taken a cumulative loss in excess of $2 billion.
MBIA must come up with $2.9 billion to cover potential termination payments in Guaranteed Investment Contracts (GICs). The company must also pony up $4.5 billion more to meet collateral posting requirements for these GICs. MBIA senior management insists it has more than $25 billion in assets, of which $15 billion is available to satisfy these collateral requirements.
So who do you believe? Both Moody's and S&P downgraded MBIA. The company's senior management says things are more or less fine. Clearly investors are backing Moody's and S&P. The stock closed on 6/25 at $4.91, and may be headed to its 52-week low of $4.25. MBIA's 52-week high was $68.98, but we shall not see numbers like that for many a day.
When word started circulating that hedge fund manager and renowned short-seller William Ackman was set to make public a new short position, a friend and I discussed it with some anticipation. We both hoped that it would be something new and exciting -- ideally a non-financial stock and, at the very least, something other than a bond insurer. Ackman has made headlines with his prescient calls -- and publicity-generating antics -- warning of trouble at Ambac (NYSE: ABK) and MBIA (NYSE: MBI).
Well the name of the company is out and it is indeed another bond insurer. And making it even less interesting, it isn't even a short. He's betting against Financial Security Assurance which, since it's owned by French bank Dexia, can't be shorted. Instead he is buying credit default swaps on the company's bonds.
A Fortune piece discussing Ackman's claims somewhat snidely points out that his long picks aren't doing well lately. Sears Holdings (NYSE: SHLD) and Target (NYSE: TGT) have been weak performers this year. But I think analyzing a stock's performance over a few months completely misses the point -- Ackman does higher quality research than just about anyone else on Wall Street, and it can take the market years to catch up with him. In the case of Amback and MBIA, an analysis of stock charts would made Ackman look like a buffoon for years after he started raising red flags. If Ackman's research is sound -- historically, it generally has been -- patient investors should do quite well following him into Target and Sears. Impatient investors probably won't do well no matter what.
According to Yahoo! Inc (NASDAQ: YHOO), the Wall Street Journal reported that a severance plan investor Carl Icahn said is "excessively expensive" would come into play if Icahn is successful in his plan to take control of the company's board; Yahoo! maintained that the plan is structured to prevent Yahoo! from altering or dismantling it while under a proxy challenge.
The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) almost reached a strategic deal with a group of Korean financial institutions as part of its recent capital raising initiative, and the investment bank may still sign an agreement with the Korean companies this year, inside sources said.
A source familiar with the matter told dealReporter that Barnes & Noble Inc (NYSE: BKS) is conducting due diligence, but has not established whether it will competitively bid for Borders Group Inc (NYSE: BGP). Should Barnes & Noble indicate real interest, the biding process could be delayed, the source said.
OTHER PAPERS:
The Detroit News reported that Ford Motor Company (NYSE: F), in an effort to keep up with changing consumer demand in the U.S., is assembling a plan that will shift entire truck plants to car production.
TheStreet.com's Jim Cramer says hedge funds that short stocks are speaking up -- get used to it.
I wrestled with this thought all night: What happens tonight if I could own or short individual stocks, and then came out and said that I had thoroughly researched the last quarter of Wachovia (NYSE: WB) (Cramer's Take) after the firing of Ken Thompson. Mercy, mercy, why did that take so long? Let's say I said the dividend was too high and that the company needed to do an equity offering of at least $5 billion that would no doubt have to be priced in the teens because of all the misstatements about the pick-and-pay loans the bank inherited from the smartest institution in the world, Golden West, which was sold to them by those two saints, the Sandlers. Now let's say that I have researched those loans and recognize that as many as half of them could be conceivably overstated in worth.
Do you have any doubt that I could take that stock down to $16 to $17? Any? Do you think I could even cause that bank to have to raise equity despite its deposit base?
I don't think you would. Let's say I was short 5 million shares in stock and derivatives. I think I would easily clear $25 million in a day. I am so confident that I could that I probably would put out more than 5 million shares short.
Now, heaven forbid, I were to do it to a non-deposit-base institution, an institution like Lehman Brothers (NYSE: LEH) (Cramer's Take)? No deposits? Down even more. I could make it be a foregone conclusion!
MBIA (NYSE: MBI) is recently down 87 cents to $5.82.
Moody's Investors Service said it will likely cut the insurance ratings of MBI because of its credit profile and constrained new business prospects.
MBI call option volume of 7,099 contracts compares to put volume of 19,095 contracts. MBI June option implied volatility of 140 is above its five-month average of 118 according to Track Data, suggesting larger price risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Bloomberg News reports that Moody's (NYSE: MCO) may downgrade municipal bond insurer MBIA (NYSE: MBI) after it reported deepening losses from the mortgage-market slump. MBIA's insurance financial strength rating may fall to the Aa range, although a drop to the A category is possible. MBIA's stock is down 91% since the end of May 2007.
That's when I first suggested that investors consider selling MBIA shares short. William Ackman had already shorted MBIA because he thought it lacked the capital needed to support its obligations. Back then, MBIA traded at $66.59 a share -- today it's down to $5.88. His bet proved prescient.
Meanwhile, investors are wagering that MBIA won't make it. Credit-default swaps tied to MBIA's insurance unit rose to a record as investors hedged against the risk the company's guarantees will sour. Sellers of five-year contracts demanded 23% upfront and 5% a year. That's up from 18.5% initially and 5% a year yesterday.
TheStreet.com's Jim Cramer says the mortgage problem is in the process of cresting, which is why the stocks have largely bottomed.
We are in the heart of default country, and we knew we would be. This is the toughest moment. You need to go back and look at the calendar to realize the astonishing acceleration in defaults. It's simple: This moment two years ago is when the underwriting standards were the lowest, and this is the moment when the defaults will be the highest because the loans are resetting at high levels and most of the lenders, lenders like Countrywide (NYSE: CFC) (Cramer's Take), are more interested in getting as much out of a borrower as possible before kicking him out than working out the loan.
Think about it.
In the second quarter of 2006, the housing industry was going strong. We were in the 7-million-homes-changing-hands mode, and the vast majority of those homes required little money down, with home equity loans being taken out immediately to pay whatever little interest was being charged. These were the moments of the ultimate no-doc-high-fee loans by New Century Financial, Ameriquest, Resmed (Ditech), American Home Mortgage, Novastar, and of course, Countrywide. This was when the homebuilders' mortgage arms lent the most terribly.
Around the world, governments are flooding the market with new currency in order to stem the tide of bank collapses and slippery stock market slopes. They are taking over financial institutions, absorbing debt, lowering interest rates, nationalizing some private companies, investing in others, and rebating taxes through stimulus packages to increase liquidity and spending.
With a turn of the calendar page, we drift into the middle portion of the current quarter, but the earnings season rolls on. Among the many companies scheduled to report quarterly results this coming week are 
Several of my editors and colleagues have commented about me sticking my neck out 
After the market closed last night, with the 
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MBIA
GM and Ford ready weak pitches for taxpayer bucks
Cramer on BloggingStocks: A troika of opportunity and trouble 
Before the bell: Wall Street headed higher; automakers, retailers in focus
