Oversold markets rebound

After some brutal days, buyers are returning. Dow is up 83, but decliners are 2-1 over advancers and NAZ is down. The important S&P 500 FINANCIALS INDEX rebounded 7 to 260, still dreary but better. Oil is down in the 92s. The Alerian MLP index is down 10 to 226, a new 3 year low.

My computer is giving me a hard time today, so this will be a shorter post. But economic new continues grim (sorry, very rushed & didn't have time to get more bad news from Dell down 1.73).

• Goldman Sachs 3Q Net Plunges- Reuters
• AIG Shares Plummet as Cash Crisis Mounts- Reuters
• Dell sees further signs of weak tech spending- Reuters
• Oil plunges to $92 in Asia on US credit fears- AP

But here is a ray of hope on this gloomy day.

• Barclays confirms interest in Lehman Bros. assets- AP

The possibility some salvage value for Lehman is always encouraging. Soon we'll find out if the FED cuts the interest rate by 25 or 50 basis points. Given confused markets, that should be good for a 200 point pop at least. However big problems remain.

My article at Seekingalpha was just posted:

Why Buy High Yield Bond Funds? by Avi Morris

Hope my computer is better very soon!

Stocks plunge on confusion & chaos!!

Dow sold off big, down 504 to close at 10917, below the July 15 low. S&P 500 was down 59 to 1192. Can you spell "uh-oh?" 1200 was a critical support line which gave way with selling at the close. All 30 Dow stocks declined, led by American International Group (AIG), Bank of America (BAC), Citigroup (C) & General Motors (GM). Decliners were ahead of advancers 15-1. NYSE volume was 1.9B, very good but short of exceptional. For the bulls, this was supposed to show climactic selling aimed at washing out all the sellers. This volume level does not tell us that story! The very large volume for AIG, now a low priced stock even though it's in the Dow, contributed to the high volume. This was one of those days when it's hard to find a winner. The Yahoo finance badge on the right shows all red!

S&P 500 FINANCIALS INDEX is down 29 to 253 below the post July 15 low of 267 as financials got hammered. This has to be one their largest declines in its history. The next test for the index is the July 15 low of 232. AIG closed at 4.76 on a volume over 737MM shares leading the way down. Bank of America was down 7 (20%) on 273MM shares. Confusion and chaos carried the day as stocks plunged on confusion & chaos, especially for financials!!

Oil was down 5½ to the 95s, first close below 100 in 7 months. Following oil down was the Alerian MLP index (shown on the right) down 13 (one of its biggest daily declines in history) to 236, back to price levels 3 years ago.

What's there to say? Words fail on a day like today. Most Asian markets were closed yesterday for a holiday. The Australian market was open, suffering a big decline. Tonight Asian markets are expected to continue selling off with this very negative tone.

With the FED meeting approaching, a rate cut of 25 points is widely expected (that's called spinning on a dime). However, financials need a lot more than a rate cut. After a day like today, it may seem like the world is coming to an end. Not so!! But we are in very tough times where new rules for financial markets have to be made up on the fly! This is time for research to prepare for buying opportunities as securities sell off to attractive values. Dividends and yields are important to me, helping me get through these tough times.

One ugly day for financials

Last night, Bloomberg.Asia TV was all about Lehman going under & Merrilll Lynch being bought out. All kinds of experts gave lots of opinions, but they are just guesses. New rules are being written which will change markets & nobody knows how this will play out. Very scary!

Pre-trading Dow was down 300 overnight. This morning in pre-markets, Dow was down about 350 & S&P was down over over 40. Maybe that's not so bad given all the confusion in the markets. After the initial plunge, there has been some recovery (as noted on my widget from Bigcharts on the right). Indices have halved their losses, but Dow is still down 270 as the recovery suffered a setback. Decliners are over advancers 7-1, one rough market. The S&P 500 FINANCIALS INDEX is down 14 to 284, near the morning lows. A big drag is Bank of America down 5 on the Merrill Lynch buyout.

From Bloomberg, here are a ton of articles, this is a very bad day for news, all grim:

•Lehman Files for Record Bankruptcy, Victim of Meltdown Firm Helped Create
•Stocks in U.S. Drop as Lehman Bankruptcy Deepens Turmoil in Credit Markets
•AIG Slumps After Insurer Rejects Buyout Offers, Seeks $40 Billion Fed Loan
•Bank of America Will Buy Merrill for $50 Billion as Credit Crisis Broadens
•Oil, Gasoline Tumble as Lehman Fails, Hurricane Ike Spares U.S. Refineries
•Pimco, Vanguard, Franklin Are Biggest Bond Fund Losers in Lehman Collapse
•Emerging-Market `Panic' Masks Record Profits, May End With 20% Stock Rally
•Houston Struggles to Recover From Hurricane Ike as Midwest Hit by Flooding

The financials continue in center stage as Lehman is history & Merrill Lynch is being bought out by Bank of America (BAC). American International Group (AIG), Dow stock, is officially shaky as its stock plunged into the 6s. They used to be the largest insurance company in the world. Insurance companies own stocks, chances are they may be selling a lot to raise cash. Washington Mutual (WM) is also shaky, heading back down to the low 2's.

Oil is getting clobbered (down 4 to 97 after falling to 95) despite the infrastructure damage in east Texas. Prices at the pumps around the country are spiking up on ugly thoughts about their supplies. That's a punch the economy does not need. The Alerian MLP index, in sympathy to lower oil prices, sold off 5 remaining near levels last seen 3 years ago.

The S&P 500 at 1225, is holding above 1200, a key support level (the July 15 low). If that floor does not hold, look out below! At the FED meeting this week, all of a sudden it is now assumed that they will cut rates again. That's a short term reaction, but may haunt the economy in the longer term. Amidst the chaos, it is best to try to stay cool. Use these trying times to prepare for buying opportunities in oversold stocks.

S&P 500 continues to hold

The irresistible force is meeting the immovable object, one will have to blink. The continuing force is the constant stream of negative news about the financial biggies. The immovable object is the S&P 500 which has held pretty well around 1250 as show in the chart below:

S&P 500 -- one year





This week may be the breaking point with the apparent breakup of Lehman. Upon a break up, there may be a relief rally in the markets, however more dreary from other major financial players will not stop coming.

•Banks, Brokerages Prepare for Possible Lehman Bankruptcy Before Midnight

The S&P 500 FINANCIALS INDEX has been in a fairly narrow sideways channel for a couple of months, taking all the negative news very well. After dropping early last week, it remained flat near 280. The Alerian MLP index had a very tough week, with a relief rally on Fri. REITs, also beaten up a lot in recent times with some yielding in double digits, was up a little last week. The junk bond funds still, can't get no respect. They fell back again last week sending yields towards 13%, a whopping 900 basis point premium over the Treasury bond.

We are in Sep, toughest month for the markets followed by Oct which is known for the most memorable market days.



Last night while working on my friend's computer, she was away working, the very fraidy cat came out to see me. He was only about 8 feet away, generally he hides under the futon. His mother is in the background, is also a fraidy cat but has learned to accept me. Maybe all this brave behavior by both cats should be inspiring. However, they're not involved in trying to figure out what should be done with Lehman. After that is Washington Mutual (WM). Then maybe American International Group (AIG). And Merrill Lynch (MER) doesn't seem far behind.

I'm a little afraid at these times, preferring to continue to keep my powder dry. If I had to bet, I would bet the immovable object (S&P 500 line) will move downward.

Markets little changed on a very confusing day

Dow is down only 11, advancers are slightly ahead of decliners & NAZ is essentially even. NYSE volume was low at 1.1B. The 4 biggies in trouble, AIG, MER, WM & LEH, traded 700MM in total volume. S&P 500 FINANCIALS INDEX is soggy, down 3 to 282 as financials try to make sense out of the financial mess out there. Merrill Lynch (MER) & American International Group (AIG), are off sharply again to new multi year lows (MER is at a 12 year low). Washington Mutual (WM) was even at 2.80. AIG is under pressure to announce their turnaround plan prior to Sep 25. With their stock heading for zero, that announcement is desperately needed.

•AIG May Announce Turnaround Plan Before Sept. 25 Deadline as Shares Slump

In this unusually confusing world of big finance, here's more thoughts about LEH & its future:

•Bank of America Leads Talks for Lehman as Paulson Opposes Providing Funds
•Greenspan Says Sale of Lehman Should Be Resolved Without Government Help
•Paulson, Fed Stand Against Lehman Funding Signals Attempt to Draw the Line
•Lehman Is No Bear Stearns as Money Markets Show Little Panic Amid Meltdown

It's amazing all the confusion surrounding LEH & how relatively well the markets are taking it.

Oil was about even (although it dropped one penny below 100 during the day) as IKE approaches the Texas coast. This is quite a change form a couple of months ago when this threat could be worth at least 5 points. The Alerian MLP index is having a relief rally. After being greatly oversold, it's up 5 points to 250. Many of the big name players are up 1+ from oversold conditions. However, this is the region it traded at 3 years ago.

I just returned from a meeting with top financials execs. They were guessing about what will happen to LEH, down to 3½, probably this weekend. Their stock is probably history & preferred may also lose out. The problem is making the bond holders whole. Hopefully the gov can stay on the sidelines. A takeover or bailout should bring a stock market relief rally, but bigger problems with financials are not going away soon. Just ask stockholders of AIG, MER & WM.

Fannie Mae & Freddie Mac stories are not over. They still have trillions in debts which have to be be made whole. That's where gov help may be needed, costing taxpayers billions.

Markets weak but hanging in there

Lehman (LEH), Merrill Lynch (MER), Washington Mutual (WM) & American International Group (AIG), all huge financials in various degrees of shakiness, have not been able to rattle markets seriously. The aftermath of the gov bailout for Fannie Mae/Freddie Mac is still not clear, but, again, markets are digesting this fairly well. Dow is down 67, decliners over advancers 2-1 and NAZ is down 14. The S&P 500 FINANCIALS INDEX is down only 3 to 283 in what qualifies as a very mild reaction to what is going on in the financial world.

Oil is up pennies in the 101s, again not too bad considering a couple of months ago hurricane fears could have sent oil up 5+. The Alerian MLP index which lately tags along with movements in oil prices even though they have little influence on their business, is up 4 to 248. This is probably an oversold rally, the index remains near its 3 year low.

Lehman still is on the front burner. Last night in Asian markets, they were discussing about how LEH might be bailed out & if the Federal Reserve should get involved. The truth is nobody knows but there was a feeling that an announcement might be made over the weekend. After all, they're running out of time. There was a general agreement that gov involvement should be minimal, preferably none. Today LEH stock sunk below 4. All kinds of speculation is going on about LEH, but nobody really knows what's going on, including those on the inside.

• Lehman Shares Fall Amid Race to Find Buyer- AP

•Lehman's Fuld Pursues Talks Amid Signals Fed, Treasury Won't Fund Takeover

Speaking of the shaky group, AIG is down again, this time 3+ to 14. Much of yesterday's late day rally which recovered morning losses, evaporated today. AIG, a Dow stock & the largest insurer in the world, has clearly gotten in over its head, and, looks like it may need its own bailout. Meanwhile Merill Lynch (MER) is down 1½ on more wild speculation.

•AIG Slides, Bond Risk Rises to Record on Speculation Insurer Lacks Capital

Washington Mutual (WM) will need to sell off assets to stay alive, down fractionally to 2.74.

•Washington Mutual May Be Forced to Sell Deposits, Branches to Stay Afloat

Macro economic news continues & it's generally not pretty:

• Wholesale Prices Plunge 0.9 Percent in August- AP
• Retail Sales Unexpectedly Drop in August- AP
• Consumer Mood Hits 8-month High in September- Reuters
• Foreclosure Filings Increase, but at Slower Rate- AP

The decline in wholesale prices was double the rate expected. Retail sales in Aug were disappointing. Excluding autos, sales declined 0.7% as back-to-school season was dreary. Consumer sentiment rose again due to lower fuel prices & expectations of more moderate inflation for the next year. The news on lower foreclosure filings was welcome but the inventory of unsold home will continue to be a drag on the housing industry

For the bullish argument, markets are taking ugly news & thoughts very well.

Markets up after late day rally

General Motors (GM), Caterpillar (CAT), JP Morgan Chase (JPM) & Microsoft (MSFT) led the Dow higher, up 164. Also helping, American International Group (AIG) recovered its almost 4 point loss earlier in the day, fighting its way back to a tiny gain. NYSE volume was a decent 1½B. But decliners were ahead of advancers 5-4 and NAZ was up 29. S&P 500 FINANCIALS INDEX rose 4 to 286 (up 16 from the low earlier in the day). Hope springs eternal for Lehman (LEH), however financials were selling off in after hours trading:

Bankers Say Lehman Approaching Rivals for Lifeline- AP

Congress is getting into the act of saving Fannie Mae (FNM)/Freddie Mac (FRE). Maybe that's why financials are selling off after hours:

•Fannie Mae, Freddie Mac Should Freeze Mortgage Foreclosures, Senators Say

Even though financials recovered, Merrill Lynch (MER) dropped almost 4 on nervousness. Washington Mutual (WM) was up about 50¢ to 2.83 (more than a point above its earlier low) as buyers rushed back into the stock, but, after hours, that gain vanished.

Financials Hit As Worries Spread Beyond Lehman

Confusion reigns in financials. Enormous mistakes & bad investments have been made, now they're coming home to roost. Try not to panic, it's better to remain cool on the sidelines & let day traders sort out the current mess.

Oil fell almost 2 to just over 100, even on worries about Ike hitting Texas. This is oil's lowest price in about 5 months as it continues playing defense. The Alerian MLP index is in its own bear market falling another 5 to 244 (shown in the Yahoo widget on the right). This brings it 98 points below the peak reached in the middle of last year (after a very pretty 9 month run).

A story just breaking, will leave today's post on an optimistic note:

BofA in Talks to Buy Lehman: WSJ Citing Source- Reuters

Stay tuned!

Financial worries continue to drag down markets

Dow is down 83, decliners over advancers a big 5-1 & NAX is down a more mild 9. Financials are leading the way down on more worries about Lehman (LEH), now at $4, & its ability to survive. The vultures keep circling:

•Lehman Plummets as Goldman, Merrill, Citigroup Analysts Cite Credit Risks

S&P 500 FINANCIALS INDEX

Value...273.00___Change.. (8.39)___ %Change ... (3.0%)

Washington Mutual (WM), the largest S&L in the country is down to 1.90, fearing they may need to raise a lot more capital to help cover $19B in losses from mortgage writedowns.

•WaMu Plunges on Concern It May Have to Raise Capital; Short Positions Rise

Do you want more headaches? American International Group (AIG), a Dow stock & until recently the largest insurer in the world, is down over 3 to 14 (a 15 year low). The stock's decline has been reviewed here & it looks like their financial condition is going from bad to worse. They get credit for knowing the insurance business, but wandered far afield which has brought them billions in losses. Now there are increasing doubts about their ability to recovery.

American International Group



The US is not alone in stock market suffering. Markets are falling around the world. Asian markets are taking big beatings. They worry about weaker demand from customers, with the US being their biggest customer. Strength in the dollar is making matters worse bringing up more talk about demand destruction.

Back to routine economic news, while jobless claims fell slightly to 445K last week, the number on jobless rolls climbed to 3½MM, highest number in 5 years. Times remain tough.

•Jobless Benefit Rolls in U.S. Reach 3.52 Million, Highest Level Since 2003

A back-burner news story is oil, down pennies to the 102s as the hurricane approaches Texas. Once again, demand destruction is reducing demand for oil & related fuel products limiting worries about potential storm damage.

S&P 500 declines are becoming very serious. Earlier this year, many were talking about 1270 being a key support level. It's been living under that for a few months. Now they are watching the Jul 15 low, 1200. We're just inches away at 1223 (as with Dow retesting the 10,962 closing low). Markets are all playing defense & it looks like dreary results will continue.