Stocks were up big in early trading today, but gradually sold off as the day progressed; the Dow finished up 1% while the Nasdaq was flat. Apple and Research in Motion (RIMM) – maker of the BlackBerry – were the main laggards in technology. People were mostly likely taking profits in Apple (normal trading volume and no news) because it had run up 10% off its recent lows and 8 million BlackBerry users were out of service yesterday due to a nationwide outage.
We opened higher this morning thanks to a variety of positive reports. Monsanto raised its profit forecast $0.20 for 2008. Schering-Plough (drug company) was up 6% because they reported earnings of $0.27/share when analysts were expecting only $0.24/share (excluding one time items). Schlumberger (oil and gas company) was up after an upgrade from Bear Sterns. Not really a market-move, but intriguing to some (DLight), Molson Coors reported better than expected sales and earnings and the stock was up big. Here’s the link to the Bloomberg.com article if you’d like to read more.
General Motors reported mixed results. They reported a net loss of $722M, but excluding one-time items they made $0.08/share. Analysts were looking for a loss of $0.64/share. This profit was because of a $1.6B, or $2.82/share, tax credit. Here’s the article that discusses GM’s domestic and international sales as well as the new CEO’s objectives.
Yesterday, the Fed auctioned $30B in their Term Auction Facility (28-day loans) and results came out today. $30B was auctioned off at 3.01%. This was the first time the interest rate was above the Fed funds target rate, a signal that demand is not as great as it was in the previous three auctions were the interest rates were all below the Fed funds target rate. The total bids received were $58.4B. Here’s a finance.yahoo.com article describing the auction.
Probably the most important news on the day came from Warren Buffet. He announced that he would like to take on $800B in municipal bond liabilities from the troubled insurers, specifically MBIA, Ambac, and FGIC. Because of this news, the financial stocks were rallying; however Ambac and MBIA were down 15% each. According to Bloomberg.com, “MBIA and Ambac dropped on concern Buffett's proposal would leave them with mortgage securities that caused more than $5 billion of losses last quarter.”
Also, the 6 largest American banks decided to put a 30-day freeze on foreclosure proceedings in an attempt to give lenders ample time to work out delinquencies. This cnnmoney.com article describes the current housing slump and how this freeze might help homeowners that are struggling to make their payments.
Buffett's offer was a great combination of genius and hilarious, and he knew it. These bond insurers have one good part of their business, it's their rock, it used to be all they did before they got greedy and starting insuring CDOs and mortgage backed securities, it is insuring municipal bonds. For example, they insure the bonds issued by municipalities (such as the ones just issued by U of I to build the new 6 pack), the issuer gets to pay a lower rate on the debt, and the insurer takes part of the difference in the rate. Buffett came in and said, I'll buy only your municipal bond insurance business at a big discount, I don't want your other stuff (which is mostly worthless). Of course they rejected, municipals are all these guys have going for them, and Buffett knew they would reject. But it opened the market's eyes and the bond insurers got pummeled. So why did Buffett offer if he knew they would reject? A lot of Buffett's success came through insurance companies, if you ask me, within a year, probably less, he will have bought one, or at least part of one of these insurers. He made the offer cause he knew the market would punish them and make it cheaper for him at a later date. That's my opinion, but even if that's not his strategy, it was hilarious to watch him mess with them.
ReplyDeleteA month pause on foreclosures is a big deal. That will help some people refinance and keep their homes which will help the consumer.
I DO love good numbers from a beer company. If you want a stealth beer play, read my Bull Stocks post going up soon.