European Banks Borrow $639 Billion From ECB; Oracle Tanks Techs

Santa Claus came and went. Apparently, his next stop was in Europe, where today, 523 struggling banks on the continent grabbed for $639 billion (489 billion euros) from the ECB's newest lending facility, which offered a sweetheart of a deal: 1% interest over three years. We should all be so lucky.

The huge amount of borrowing was frowned upon in the US. As the news hit America's shores, futures went into the tank on the perception that the amount borrowed was much higher than originally forecast and the sneaking suspicion that although the European banking system was obviously weak, it actually was in much worse shape than originally thought.

Stocks sent almost the entire day underwater, as poor results from Oracle last night after the close sent shock waves through the tech sector. Though the Dow, which was down as many as 104 points, and the S&P finished marginally positive, the NASDAQ ended the day with a serious loss, though it too cut its losses roughly in half by day's end.

In Washington, there was still no progress on the bill which would keep the current social security payroll deduction at current levels and also extend unemployment benefits to about two million people, as the House of Representatives announced their work for the week completed.

The bill was soundly passed in the Senate, and rejected by the House, mostly along party lines.

Also in Washington today, the Justice Department announced a $335 million settlement with Bank of America (BAC), stemming from a DofJ claim that Countrywide - since acquired by Bank of America - discriminated against over 200,000 black and Hispanic mortgage borrowers by charging them higher rates and fees than white homeowners.

While the settlement was the largest of its kind ever, the amount is a mere pittance in comparison to the economic damage wrought by Countrywide and other lenders during the mortgage and housing bust. BofA will pay the money directly to the government and the DofJ will supposedly dole out the proceeds to individuals and families affected by the discriminatory practices.

Attorney General Eric Holder, who seems to only show up after his department settles a case, said, "With today’s settlement, the federal government will ensure that the more than 200,000 African-American and Hispanic borrowers who were discriminated against by Countrywide will be entitled to compensation.”

It should be amusing to track exactly where that money goes.

There are just two more trading sessions before Christmas, three shopping days and a total of seven trading sessions remaining in 2011. Most investors can't wait for the year to end, as stocks have flat-lined for the most part and actually are well off the highs set in late April.

Dow 12,107.74, +4.16 (0.03%)
NASDAQ 2,577.97, -25.76 (0.99%)
S&P 500 1,243.72, +2.42 (0.19%)
NYSE Composite 7,388.52, +27.55 (0.37%)
NASDAQ Volume 1,866,553,125
NYSE Volume 3,574,281,500
Combined NYSE & NASDAQ Advance - Decline: 3153-2488
Combined NYSE & NASDAQ New highs - New lows: 194-95
WTI crude oil: 98.67, +1.43
Gold: 1,613.60, -4.00
Silver: 29.25, -0.29

Stocks Up, Outlook Still Cloudy; Retail Sales Horrible

Investors took little time this morning putting stocks back on a positive path, after initial jobless claims came in lower for the 4th consecutive week. Gains were broad-based, though marginal in most cases, with all indices trading in very narrow ranges. The Dow, for instance, traversed just 116 points from the morning low to the afternoon high, finishing close to the top and near recent highs.

Without much to move the markets, stocks were fairly settled as investors seem to be on hold for now, at least awaiting word from the Labor Dept. on May job losses, released tomorrow at 8:30 am EDT. That number should not be much of a surprise, as there's little to indicate that job losses are going to narrow appreciably. The consensus estimate is for about 525,000 more jobs being shed from the pool in the prior month.

Financials led the way again, with Bank of America and Citigroup both gaining more than 5% by the close, providing a significant boost to the Dow Jones Industrials. General Motors was officially removed at the end of the day, as it will now trade over the counter, under the symbol, GMGMQ.PK. Citigroup will also exit as of Monday. The two Dow components will be replaced by Cisco Systems (CSCO) and Travelers Insurance (TRV).

Apparently of less importance to investors were the ugly retail sales figures released by a number of America's largest chain stores. Same-store sales for a group of 30 retailers fell 4.8% from a year ago. The numbers for some of the nation's best-known stores were horrific, reflecting the reality of a declining economy in a deflationary environment. Limited Brands fell 7%; Gap, down 6%; Abercrombie and Fitch collapsed 28%; Dillard's was down 12%; Macy's fell 9.1%; Nordstrom's sales were of 13.1%; Sak's was down 26.6%. even discounters Target and Costco were off by 6.1% and 7%, respectively.

The retail figures underscore the disconnect between Washington, Wall Street and Main Street. While the pols in D.C. and the monied financiers in New York continue to preach that the economy is recovering, real life experience is posting a different message altogether. The condition is becoming particularly acute, and can be seen in the strain for stocks to gain further momentum. Add to the retail woes the coming closure of nearly 4000 auto dealerships by Chrysler and GM and the condition can only deteriorate over the near term.

Dow 8,750.24, +74.96 (0.86%)
NASDAQ 1,850.02, +24.10 (1.32%)
S&P 500 942.46, +10.70 (1.15%)
NYSE Composite 6,110.76, +76.86 (1.27%)

Advancing issues finished well ahead of decliners, 4769-1643, a rather large bias considering the paucity of gains. New highs barely beat new lows, 66-65, so the indicator remains poised to signal either a renewal of the rally or the beginning of a precipitous decline. Volume was a touch higher than Wednesday's, though still not remarkable and thus, not signaling anything.

NYSE Volume 1,358,776,000
NASDAQ Volume 2,488,895,000

Commodities completely reversed yesterday's performance, with nearly everything gaining in value. Oil rose $2.69, to $68.81. Gold was higher by $16.70, to $982.30, with silver up 59 cents to $15.90.

Tomorrow's non-farm payroll report could be significant, no matter which way the numbers are interpreted, though it's becoming increasingly clear that stocks cannot go much higher without support from the real world. Investors are either living in a dream world or seeing a different new reality, obscure to most Americans.

In the best news of the day, former Countrywide CEO, Angelo Mozillo and two other top executives were formally charged with fraud and insider trading by the SEC. It is a civil lawsuit, but may pave the way for the Justice Department to file criminal charges. Mozilo is the first and only executive to be charged with any crimes stemming from the subprime and general banking crisis.

Countrywide "PROTECT OUR HOUSE" Wrist Band on eBay

With the current malaise in the mortgage and credit industry, Countrywide Financial, the nation's largest mortgage lender (and sub-prime abuser), recently initiated a PR campaign designed to improve employee morale and boost the company's image.

The plan included a pledge, to be signed by loyal employees and a cheap rubber wristband with the Protect Our House slogan.

Some employees are taking advantage of the public's fascination with the sleazy, rah-rah tactics by Countrywide management and have decided to auction their wristbands on eBay. This one has already rung up bids of $165.00 and nearly 10,000 hits and ends on Saturday. There are at least 6 more available on the popular auction site.

Acting like pirates

Ahoy, maties! It's time investors shed the wool that's been pulled over their collective eyes and now covers most of their bodies, put on an eye-patch and begin swinging swords at stocks.

Today's rescue of Countrywide Financial by Bank of America failed to ignite the rally hounds on Wall Street. While the stock of Countrywide - which faced a serious bank run last week (see story) - gained in after-hours and pre-market trading, the $2 billion injected by BofA is actually nothing more than a thinly-veiled takeover move.

The "loan", which is, in reality, convertible preferred securities priced at 7.5% which can be converted into common stock at $18 a share. If exercised, that would give BofA a 17% stake in the company, but the nation's largest bank would be unable to sell those shares for a period of 18 months.

So, is BofA really thinking "takeover" as opposed to "bailout"? And why was Countrywide so eager to accept money at 7.5% when the Fed just lowered the discount rate to 5.25% and extended the loan period for member banks to from 24 hours to 30 days.

Countrywide obviously cannot access that Fed money, but the 2.25% spread between what BofA is loaning them and the discount rate is the cost of doing business these days.

With a borrowing cost of 7.5%, Countrywide will have to either charge customers somewhere upwards of 9% to customers in order to remain even marginally profitable or sell off a chunk of the company to a "rival" at a discount. It's not a pretty world Countrywide is looking at these days.

In a few words, they're doomed. The larger banks will take the better loans, offering lower rates than Countrywide, who will be forced into a position of sick sister, having to deal with jumbos, home equities, and lenders of less-than-impeccable quality.

This comes at a time when the screws have been tightened considerably already and Moody's is still considering whether or not to lower Countrywide's bond rating to junk status.

By mid-day the markets had turned to mush. Countrywide, up as much as 2.50 early on, was ahead less than 1 point. By 2:00, the earlier gains had all but disappeared, with Countrywide trading as low as 21.98, only 16 cents better than its previous close. The stock closed up a mere 20 cents, at 22.02.

Dow 13,235.88 -0.25; NASDAQ 2,541.70 -11.10; S&P 500 1,462.50 -1.57; NYSE Composite 9,478.62 +1.49

Surely, savvy investors weren't buying the we're out of the woods story being circulated by the banks, the Fed and various shills in the financial press.

All of which brings me to the pirate analogy. Investors, or at least people with an eye on not getting killed in this market, should be looking at short-selling or buying puts on vulnerable companies. Obviously, those in the financial sector are ripe for plunder, though some have already been slashed to pieces.

Like good pirates, traders should look for shifts in opportunities as conditions on the financial seas change. Companies with high debt levels and shaky balance sheets will be prone to suffer some of the more dire circumstances.

As events warrant, I'll be posting some of the better-looking short stories and puts plays right here. For the time being, I'm keeping a close eye on Wells Fargo (WFC), which suffered a two-day computer "glitch" over the weekend which pretty much shut down online operations.

In the aftermath of the 1929 stock market crash, various states and eventually the United States government ordered banks closed due to a liquidity crisis. At the time, they used the innocuous terminology of bank "holidays" to lessen the impact on the American psyche. Might Wells Fargo's "glitch" auger more such technology-related failures as a cover for systemic financial failure? Time will tell, but it's almost certain that soon, cash will again be king.

On the day, declining issues held a 5-4 edge over advancers with the bulk of the losers on the NASDAQ. There were 128 new lows and 79 new highs on lower-than-average volume. So much for volatility. People are afraid to trade in this environment and the risk that hordes of investors might cash out far outweigh the potential for a meaningful recovery in stock values.

Oil crept up 57 cents to $69.83, while gold lost 30 cents and silver added 7 cents. If a credit and cash crunch is upon us, an implosion in commodity prices may be just a warning shot of what lies ahead.

Gentle PPT nudging

Lest we all believe that 13,000 on the Dow is a number beneath which we dare not tread, today's positive close bears little resemblance to the underlying market realities.

About 2:15 pm ET, the Dow was resting comfortably at the magic 13,000 mark, when all of a sudden buying broke out like a spreading fire. A little over an hour later, the Dow had risen to its high of the day, 13,181.66 - a gentle nudge (no doubt by our friends at the President's Working Group on Financial Markets, otherwise known as the Plunge Protection Team or PPT) of 181 points to the good.

While the market pared off some 60 points of froth over the final 30 minutes, the volume tells much of the story. Nobody was actively trading. In fact, today's action was among the slowest of the year. Fewer shares were traded today than any other since July 3rd, a half-session at that. Apparently, the 600-point boost given to the market between Thursday afternoon and Friday was not enough to quell the fears of traders, other than the most intrepid (or stupid).

The ongoing mess that is the world banking and credit system has recently come within a whisker of complete collapse and Wall Street has taken notice. Either that, or half the brokers and fund managers in the world decided to begin their summer vacation today.

Dow 13,121.35 +42.27; NASDAQ 2,508.59 +3.56; S&P 500 1,445.55 -0.39; NYSE Composite 9,326.21 +11.22

Indicators were not encouraging. Advancing issues led decliners by a narrow 5-4 margin and new lows outnumbered new highs once again, 198-59.

Light crude priced lower, closing 86 cents lower at $71.12. Gold and silver took marginal losses, remaining at somewhat attractive buying levels.

The credit woes that beset Wall Street for much of the past four weeks persist, as stocks in the financial sector were hit once again.

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Merrill Lynch (MER), Bear Stearns (BSC), Bank of America (BAC), Lehman Bros. (LEH) and Citigroup (C) all took on water, with the brokerages all down at least 1.5%. Mortgage lender Countrywide (CFC) was absolutely whacked, losing 1.62 to 19.81, a 7.56% decline.

Countrywide, the nation's largest home mortgage financier, last week said it had to tap an $11 billion line of credit, since they were unable to raise funds in the market. Alongside that message was the disclosure that Countrywide originated more than $40 billion in sub-prime loans in 2006. Lenders have become so skeptical of packaged mortgage instruments that Countrywide finds itself without much support in financial markets. As highly leveraged as it is, a continuation of the credit squeeze could foster even more declines in its stock price and possibly even more serious circumstances, including forced liquidation.

That a company as robust as Countrywide could be facing bankruptcy within months is a startling development. The company is the undisputed leader in originating home mortgages, and its collapse - which was narrowly averted last week - could have far-reaching effects, both financial and psychological.

There is no antidote for non-performing loans. The solutions for lenders are somewhere between horror and catastrophe. Despite all the interventions and happy talk from Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke, this crisis is nowhere near an end.