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.
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.
MOST NOTEWORTHY: Assured Guaranty, Limelight Networks and Monotype Imaging were today's noteworthy initiations:
UBS expects Assured Guaranty (NYSE: AGO) to increase shares in the public finance guaranty market and take advantage of reinsurance opportunities. Shares were initiated with a Buy rating and $31 target.
Merriman assumed Limelight Networks (NASDAQ: LLNW) with a Neutral rating. The firm believes investors should remain cautious until a ruling in the company's patent infringement trial is handed down.
Monotype Imaging (NASDAQ: TYPE) was initiated at Banc of America with a Buy rating and $16 target. The firm highlighted the company's strong revenue visibility and attractive valuation. Shares were also initiated at JP Morgan with an Overweight rating, citing TYPE's discounted valuation and solid IP licensing franchise.
Farm Stocks: Pick of the Crop Millions of acres of farmland may be under water, but some agricultural outfits stand to benefit as higher prices lead to demand for seeds, equipment, and fertilizer. They include Archer Daniels Midland, Mosiac, Potash Corp., Agriam, Monsanto and John Deere. Ag Stocks: Farm Favorites Millions More Could Get a Rebate If They File a Return Even as the IRS has sent out nearly 77 million tax rebates, more than 5 million retirees and disabled veterans who may qualify for a rebate haven't received one because they haven't filed a tax return. Millions more could get a rebate if they file a return - USATODAY.com
Ambac Inc. (NYSE: ABK) and MBIA Inc. (NYSE: MBI) are trading much lower in premarket trading after Moody's Investors Service cut their Aaa ratings. Moody's downgraded Ambac's insurance financial strength rating to Aa3, and MBIA's insurance financial strength rating was downgraded to A2.
Wachovia Corp (NYSE: WB) shares are trading over 3.5% lower in premarket trading after its investment unit has liquidated a fund that specialized in mortgage-backed securities worth $403 million, the Journal reported.
FORTUNE writer wonder how Apple Inc. (NASDAQ: AAPL) could target business customers next. Meanwhile, Tech Trader Daily writes that according to Oppenheimer, AT&T (NYSE: T) is paying a subsidy of $325 for the new 3G iPhone. The typical smartphone subsidy is about $200.
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!
Today was a very mixed trading day on the economic and news front. Ben Bernanke said that inflation was far higher than he was comfortable with, but he also said he doesn't expect this scenario to become like the one in the 1970s. Oil also slid again to under $123.00 per barrel. Today may have looked better had it not been for some additional downgrade warnings from Moody's on bond insurers. These are the unofficial closing bell levels:
Lear Corp. (NYSE: LEA) was actually rather impressive today. Shares were up 1.2% in the final minutes at $25.05, despite the company issuing an earnings warning this morning.
Verizon Communications Inc. (NYSE: VZ) was trading down about 1.1% at $36.9 in the final minutes on reports that it was going to pay some $27 billion to acquire Alltel and its 13+ million wireless subscribers from TPG and GSCP.
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.
TheStreet.com's Jim Cramer says some segments are doing well, but the losses in Britain show how bad it is.
If you think the disclosure is bad for these financial insurers here, it is every bit as poor over there in the U.K., where we just learned that housing prices dropped the most ever on record.
Most of the major monoline insurers, and of course AIG (NYSE: AIG) (Cramer's Take), have exposure to Britain in ways that we are all too familiar with over here. The only difference is that I believe the trajectory was considered far more certain over there than here. AIG in particular bragged about this business in December, to show their diversification away from the U.S. Kind of like how Bear (NYSE: BSC) (Cramer's Take) bragged that by putting a lot of different mortgages together from Florida and California and the rest of the country and varying their ratings you have created a wondrous, diversified instrument called a CDO.
Moody's Investor Services' .gif){kind=logo}
MBIA
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
