Market Close

A sideways trading day with no conviction in either direction. However at the end of the day there were more nervous holders who sold off before the day ended.

The day started with more write downs, this time from Morgan Stanley (MS) who announced their losses have now added up to $9.4 Billion. And have in an attempt to get much needed cash they have accepted a $5 Billion Dollar investment from China. There is much discussion about the recent investments by foreign countries into our financial institutions. A discussion that perhaps we will tackle on another post, but for now the American financial institutions are hurting for cash.

And another sign of the dire need for liquidity in the banks came today in the results of the $20 Billion credit facility auction that the Fed’s had put into place. Now mind you this, the government had set aside $20 Billion, and they ended up with 93 bids for money, I said 93. And the amount of money banks were knocking on the door asking for amounted to $61.6 Billion Dollars, three times as much as was being made available. I hope you see the significance of this, this is no small event. It means that banks went begging for $61.1 Billion dollars in order to maintain liquidity. Do you know what happens when a bank does not have liquidity? It means a bank will close and not be able to provide money to account holders and provide lending. Every time you read that liquidity is being added to the financial system you must be aware of the significance of the event.

Sallie Mae (SLM) had some dire news today about it’s health going forward and they got cut at the knees. In a very unusual event during the conference call today, the CEO said that next month the analysts will need to "pass through a metal detector" before entering the meeting. Not the kind of things you want to hear from the CEO of a financial company. The "reading between the lines" is that they will have some very bad news in the future and is why they got cut down substantially today.

Standard & Poors today cut the outlook on the bond insurers, MBIA (MBI) and Ambac (ABK) by lowering the outlook to ‘negative’.

In the nightly commentary to be posted later tonight, I will go over the charts which I was unable to do last night due to a network outage. And we will present a chart that does not get talked about very much.

After hours Oracle (ORCL) had nice earnings and tomorrow we will need to see if it sells off on the news or not. If we see a lot of selling on their upside earnings then we have additional reasons to be concerned about the markets.

See you later tonight…

Mid-day Update

The Fed’s accepted $20B in the Term Auction Facility (TAF).  $61B in bids were submitted, with 93 institutions bidding.  That doesn’t instill confidence in the health of banks, but at least this may be a way to keep things under control for awhile.  Usually only 20 institutions borrow from the discount window, so this opens up the borrowing to others in need.  They’ll be offering another $20B on Thursday, with a 35-day term.

Hovnanian (HOV) homebuilder CEO say new home prices are now lower than existing home prices.

The markets are range trading, nothing real exciting, so just trying to catch some quick in/out trades.  Low pre-holiday volume.  Options expiration is Friday, could be interesting but I’m staying out.

I heard someone on CNBC say that with all of the write-downs and SIV exposure being brought out into the open, that the worst is probably over. (Not his exact words).  I still say this is only the beginning.  Some broker/banks will do better than others, but this is far from over.

Pre-Market Update

Good morning.  (MS) Morgan Stanley’s Q4 shows a loss of $3.61/share and write-downs around $9.4Billion. China Investment Corp. has invested $5 Billion, as well.   Bear Stearns (BSC) reports tomorrow.

 There are no economic data reports today, but the results of the auction (Bernanke/central banks plan) will be released.   Futures are fairly flat, so if we get a direction in the markets today, it may not be until after the first hour.  I expect things are going to continue to slow down going into the Christmas and New Year’s holiday.  All of this volatility and worry has traders pretty worn out, in my opinion.  There isn’t much enthusiasm to propel the markets over the top, but on the other hand, there isn’t enough pessimism to push it too far south. 

The Day that Was-December 18, 2007

Well, as bad luck would have it, poor Chuck is disconnected from the world!  His internet is down and he’s waiting on the repair crews to reconnect him to the outside world.  So, just a quick wrap here from me. 

The indices ended on a positive note, but honestly, tomorrow’s action is anybody’s guess.  It’s a wait and see, then trade the day.  Morgan Stanley reports in the morning, followed by a conference call at 11A ET.  I don’t think anyone is expecting great news from them, so bad news might not impact the market.  Really bad news may, though.

Bill Gross from Pimco Bonds says we may see a recession and the Fed’s may need to lower interest rates to 1%.  The Fed’s can’t afford to lower to 1%, that would be political and financial suicide, but he’s entitled to his opinion.

Sorry, that’s all for tonight.  There will be more news tomorrow before the open.  Chuck has just told me that a chunk of the eastern seaboard is without their cable service.  Funny how much we’ve come to rely on the internet to keep us in touch with the world, we feel so isolated without it! See you tomorrow.