Tuesday, October 16, 2007

More Reality Checks

US equity markets suffered through a second straight losing session on Tuesday, amid skyrocketing oil prices and mixed earnings reports.

Dow 13,912.94 -71.86; NASDAQ 2,763.91 -16.14; S&P 500 1,538.53 -10.18; NYSE Composite 10,125.40 -90.89

It was another dose of reality for the largely-overpriced markets. Fed Chairman Ben Bernanke and Secretary of the Treasury Hank Paulson both jawboned about the continuing housing and credit crises. Bernanke chided bankers from expecting a "bailout" from the Fed on Monday night, while Paulson encouraged the same bankers to figure out ways to save strapped homeowners from falling into foreclosure.

In effect, they both told the banking segment that they were on their own, as it should be. The actual condition is that Fed and Treasury have both been supplying assistance to the banks. These men aren't stupid. They know a banking failure could be catastrophic, however, reading into their words, one wonders what they really know, and whether they actually believe the situation to be much worse than it appears.

Obviously, the bankers know the fix they're in, but they're not telling either. The best they can come up with is a joint fund to repurchase their own lousy paper, which they are unable to unload at this time. I don't know the technical term for their off-the-books repurchasing of faulty investment paper, but it certainly smells a lot like Enron. It's entirely possible that a very big name or two in the financial business could find itself in deep, deep water as early as the first quarter of '08.

As the markets churned in negative territory all day long, declining issues outdistanced advancers by better than a 2-1 margin and the new highs-lows finally rolled over, with 221 new lows appearing against 168 new highs. That particular indicator has been trending lower over the past week and finally is giving a clear signal that more losing sessions are ahead for stocks.

In other words, in a series of shouting headlines I'd like to see, SELL! EVERYTHING! NOW!

Commodity prices continued to dog stocks. Oil was up to another record high, up $1.48 to $87.61. Experts are now calling for 20-30% higher heating bills throughout the winter. God bless Al Gore for giving us GLOBAL WARMING!

Oddly enough, gold lost 20 cents while silver declined by the same amount, closing at $13.36. BUY PRECIOUS METALS

Stocks are offering a mixed picture.

Before the open: Delta Air Lines (DAL) reported better than expected third quarter earnings of $0.56 per share, compared with the consensus estimate of $0.41.

Wells Fargo missed by $0.02, misses on earnings of $0.68 per share, $0.02 worse than the Reuters Estimates consensus of $0.70. Shares of the bank's stock were hammered down to 34.55, -1.40 by the close.

Johnson and Johnson earned 88 cents per share, compared with 94 cents per share during the same period a year ago. Analysts sought .90 cents per share. The stock fell 58 cents to 65.07.

After the market closed on Wednesday, IBM beat estimates by a penny. Apparently, this was not good enough for investors, as the stock was being punished - down nearly 2% - in after-hours trading.

Holders of Yahoo (YHOO) were treated to the first quarterly results with co-founder Jerry Wang as CEO and they were pleasantly surprised when the company announced earnings of 11 cents per share, beating the street estimate by 3 cents. The stock price was down 1.17 prior to the announcement. Shares traded nearly 10% higher in after-hours activity, up 2.59 to 29.28.

Intel (INTC) reported a 43% rise in profits after the close and investors sent it soaring after hours, up more than 5%.


Actually, I've been recommending techs over financials and just about everything else for most of 2007. This market, as a whole, however, is headed lower.

CIT Group (CIT), Coca-Cola (KO) and United Technologies (UT) report before the market open on Wednesday, and their reports should influence early trading.

NYSE Volume 3,181,638,250
NASDAQ Volume 2,093,682,500

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