Mario Marciano lead SMF Pro Trader at www.StockMarketFunding.com will be showing new SMF Pro Traders who are currently enrolled in the SMF PRO TRADERS SCHOOL how to trade around the earnings in the first half of 2009. SMF was telling traders this in March 2007 long before hitting the news wires as SMF is always one step ahead of the street and that is how SMF has survived the blood bath most traders and firms took in 2008. 

 

We are telling our traders how to trade around the bad news and how stock markets will discount the news as earnings estimates have come down to match our current economy going into 2009 as Mario Marciano will be going strong on looking for buys during the earning season that have good yielding stocks and free cash flow. We understand how markets can and will put in the bottoms through out 2009, SMF will be finding the hottest balance sheets of good publicly trading companies that have managed the down turn very well. We are looking forward to our SMF Pro Power Investing models we use at SMF to take advantage of the stimulus package moving forward when setting up our new SMF Growth Stock Plays. Our professional staff at SMF understands all tricks surrounding the earnings game therefore we are going put what we can to work and bank profits.   

 

1-05-09 SMF Pro Traders Update
 

Jan. 5 (Bloomberg) -- Corporate earnings will continue to slump into the first half of 2009 amid the first simultaneous recessions in the U.S., Japan and Europe since World War II. 
 

Earnings at Standard & Poor’s 500 companies will probably fall in the first half, marking eight straight quarters of declines. In Europe and Asia, the outlook may be even worse as the recession curbs demand for retail goods and exports. 
 

“It’s going to be a miserable ride,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $30 billion. Earnings probably won’t rebound until the end of 2009, he said. “The market recovers, then the economy recovers, then finally the earnings recover.” 
 

Companies are battling falling consumer demand and dwindling cash flows after banks tightened lending to cope with billions of dollars of real-estate losses. The U.S. Federal Reserve has cut interest rates to as low as zero percent, while governments worldwide have taken stakes in banks and companies to prevent a collapse of the global financial system. 
 

“We hit the peak in earnings in 2007, and in 2009 we’re going to see continued deterioration,” said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Ltd. in New York. Analysts’ earnings estimates are “still way too optimistic.” 
 

In the U.S., profit at Standard & Poor’s 500 companies will fall 11 percent in the first quarter, followed by a 6.2 percent drop in the following three months, according to data compiled by Bloomberg. Earnings should improve in the second half, driven by a rebounding financial industry, the data show. 
 

Europe, Asia 
 

While profits will rise 4.3 percent for the full year in the U.S., earnings in Europe are projected to decline for all of 2009 and analysts predict worsening reports out of Asia because the recession hasn’t fully hit there yet. 
 

The energy industry will lead U.S. declines, with earnings estimated to drop 29 percent in 2009. Profit at Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, will probably fall after the recession sapping fuel demand, spurring a 78 percent drop in crude-oil prices from July’s record. 
 

At Irving, Texas-based Exxon Mobil, the world’s biggest publicly traded company, earnings will probably tumble 39 percent to $28.2 billion, the first decline since 2002, according to a Bloomberg survey of analysts. 
 

“We expect industry earnings to be down sharply, especially in exploration and production,” said Gene Pisasale, who helps manage $13 billion at PNC Capital Advisors in Baltimore. 
 

Retailers Close 
 

Earnings at U.S. retailers will fall 20 percent this year, according to analysts’ estimates. The International Council of Shopping Centers in New York predicts 73,000 U.S. stores may shut in the first half of 2009 after what may have been the worst holiday-shopping season in 40 years. That’s after about 148,000 stores closed last year, the most since the 2001 recession, according to the trade group. 
 

“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains -- either multi- regionally or nationally -- go out,” said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York. 
 

AnnTaylor Stores Corp., Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations as consumers tighten budgets. More than a dozen U.S. retailers filed for bankruptcy in 2008, including Circuit City Stores Inc., Linens ‘n Things Inc. and Sharper Image Corp. 
 

Wal-Mart Stores Inc., the largest retailer, may report a 6 percent profit increase this year by offering lower prices to consumers seeking bargains, according to estimates. 
 

‘Very Difficult’ 
 

JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. banks, will probably post higher profits this year compared with 2008, when finance companies wrote down more than $720 billion of losses. 
 

“For the large financials, it’s going to be a very difficult year,” said David Burg, a Purchase, New York-based analyst at Alpine Woods Capital Investors LLC, which manages about $6.5 billion, including JPMorgan shares. “The story for 2009 continues to be radical transformation -- companies fundamentally changing their business model.” 
 

Goldman Sachs and Morgan Stanley, which were the two biggest U.S. securities firms before converting into banks, will suffer from a 15 percent decline in mergers and acquisitions and slowing underwriting fees, Kenneth Worthington, an analyst at JPMorgan in New York, said last month in a note. 
 

Autos, Technology SMF PRO TRADERS WILL LEARN HOW TO TRADE AROUND THE EARNING SEASON

U.S. automakers will show some improvements in 2009 after sales plummeted last year, forcing the government to lend $13.4 billion to General Motors Corp. and Chrysler LLC to keep them out of bankruptcy. 
 

GM’s loss may narrow to $12.8 billion from $19.6 billion last year, according to analysts’ estimates. Ford Motor Co. may report a loss of $6.38 billion, compared with $9.2 billion last year, the estimates show. 
 

Technology will be one of the best-performing sectors in the second half as customers start to increase budgets, said Pete Sorrentino, senior portfolio manager for Cincinnati-based Huntington Asset Management, which oversees $16.5 billion. Earnings at software and services companies may rise 8.1 percent in 2009, while profits at hardware makers may slip 6.7 percent, according to analysts’ estimates. 
 

Apple, Google 
 

Consumers may continue to curb spending in the first half, dragging down sales at Apple Inc., maker of the iPhone and Macintosh computers, David Bailey, an analyst at Goldman Sachs in New York, said last month. Google Inc., owner of the most popular search engine, will probably post a 14 percent increase in profit in 2009 as it clamps down on spending, according to the estimates. 
 

Health care will be one bright spot, as sick people still need medical treatment, said Les Funtleyder, an analyst with Miller Tabak & Co. in New York. Profit at Standard & Poor’s 500 drug companies and medical equipment makers, such as Johnson & Johnson and Pfizer Inc., may increase 6.8 percent in 2009. 
 

“Health care tends to be recession-resistant,” Funtleyder said. “Some people may use fewer drugs, so that’s obviously a bad thing, but it’s less cyclical than other industries.” 
 

In Europe, profits at Dow Jones Stoxx 600 Index companies may fall less than 1 percent this year, compared with a 17 percent decline in 2008. Oil and gas companies face the heaviest declines, according to analysts’ estimates. 

Wild Card 
 

“The biggest near-term risk is how tough it’s getting overseas,” said McCain at Key Private Bank. “That’s the wild card.” 

Earnings at European oil companies may drop 21 percent in 2009, compared with a 4.7 percent gain last year, according to estimates. Profit at Royal Dutch Shell Plc, Europe’s largest oil company, may drop 27 percent. The company postponed projects in Canada and Australia as demand for oil declined. 
 

European retailers may post a 12 percent drop in earnings this year. Discounts of 70 percent or more during the holiday shopping season by U.K. stores hurt profit margins and may lead to a raft of bankruptcies, said Nick Hood at Begbies Traynor. 
 

Nokia Oyj, the largest mobile-phone maker, said last month the global handset market may contract this year for the first time since 2001. Earnings at Espoo, Finland-based Nokia could decline 14 percent in 2009, according to analysts’ estimates. 
 

Asia Recession 
 

Half of Asia will probably be in recession this year as a $700 billion drop in export earnings causes economies in Japan, Hong Kong, Singapore, South Korea and Taiwan to shrink, according to Macquarie Group Ltd. 
 

Japanese corporate earnings may extend their slump after the yen rose against all major currencies in 2008 and eroded the value of exports. Credit Suisse Group AG estimates earnings will be weakest in the first half at carmakers, machinery producers and technology companies. 
 

Japanese automakers are slashing output, jobs and profit forecasts as the global recession deters consumers from buying new cars and sport-utility vehicles. Toyota Motor Corp., Japan’s biggest automaker, last month predicted its first operating loss in 71 years for this fiscal year because of the slump and a stronger yen. 
 

Vehicle demand from emerging markets, where automakers had counted on sales shoring up collapsing demand in the U.S., Europe and Japan, is also likely to decline as fallout from the credit crunch and economic slump spread, said Song Sang Hoon, a Seoul- based analyst at Kyobo Securities Co. 
 

No Immunity 
 

“No one will be immune from this downturn. It’s time to see who’s losing least, not who’s winning more,” he said. 

Among technology companies, Tokyo-based Sony Corp. will begin eliminating 16,000 jobs as the slump undermines sales of Bravia televisions and Cyber-shot digital cameras. Panasonic Corp. is projecting profit in the year ending March 31 will be 90 percent lower than previously anticipated. 
 

Asian banks will grapple with falling earnings and rising defaults on loans this year as economies from China to Australia slow, prompting central banks to slash interest rates, said Tim Rocks, an Asian equities strategist at Macquarie in Hong Kong. 
 

Lenders in Japan, Australia, Singapore and South Korea raised money in the final quarter of 2008 after they escaped most of the initial writedowns and credit losses that forced U.S. and European rivals into government takeovers. 
 

“This quarter and the first quarter ‘09 are just going to be really ugly quarters,” said Frederic Dickson, who helps manage about $19 billion at D.A. Davidson & Co. in Lake Oswego, Oregon. “It’s just going to take a long time to get confidence restored.” 


12/12/2008- GS Goldman, once warning of $200 oil, sees $45

Reuters reports Goldman Sachs' (GS) energy equity research team, which predicted earlier this year that crude oil could spike as high as $200 a barrel, slashed its forecast for 2009 on Friday to $45 as demand deteriorates. The team led by Arjun Murti also said prices had entered the "bottoming phase" of the current cycle and would hit a trough in the first quarter, while a shift from "demand destruction" to "supply destruction" should ultimately revive oil's rally. "While global oil demand is very weak and the duration of demand weakness is unclear at this time, we believe oil supply will collapse if prices remain below $40 a barrel for an extended period of time (6-12 months or longer) suggesting we are likely to have entered the bottoming phase of the cycle," the analysts wrote in a report dated December 11. But in the longer-term it said a return to positive demand growth and shrinking non-OPEC supply should lift prices to $70 a barrel by 2010 and to $105 by 2012. "We do not believe oil markets are on-track for a decade-plus period of weakness like seen in the 1980s and 1990s," it wrote. In a separate report from Goldman Sach's commodity research group led by Jeffrey Currie, the bank predicted oil could fall to $30 a barrel, down more than $100 from a peak of $147 in July. "We expect that an additional 2 million barrels per day (bpd) of OPEC supply cuts will be required in 2009, along with a 600,000 bpd reduction in Non-OPEC production, in order to rebalance the market," it said in the note.


12/12/2008- Asset Managers ests and tgts cut due to revisions to AuM and compensation expectations at Credit Suisse

Credit Suisse is lowering their estimate for 2009 EPS for AB to $2.35 from $2.70 (vs $2.23 consensus), FII to $2.16 from $2.35 (vs $2.19 consensus), and for JNS to $0.62 from $0.90 (vs $0.61 consensus), while their DCF-derived target prices are reduced by a similar magnitude (AB to $28 from $35; FII to $27 from $30; JNS to $7 from $12). The major driver of estimate changes were (1) compensation assumption refinements, and (2) AuM forecast revisions and the derivative impact to the fee rate. Additionally, they modestly increased their estimate for fee waivers at FII for 4Q08 - 2Q09. Global equity markets are now down about 25 to 30% in 4Q08 following a 6 to 9% rise in December.

12/12/2008- White House weighing options after failure of auto bailout 
 

 

DJ reports the White House is weighing its options to help the U.S. auto sector after a proposed bailout plan failed in the Senate late Thursday, but declined to comment Friday on its gameplan to keep General Motors (GM) and Chrysler from a near-term bankruptcy. White House spokesman Tony Fratto wouldn't say whether the administration would revisit its opposition to using funds from the Treasury Department's $700 billion financial rescue package for the auto makers. "It's disappointing that Congress failed to act," Fratto said. "We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable." "We will evaluate our options in light of the breakdown in Congress."

 
12/11/2008- TrimTabs estimates all equity mutual funds post outflow of $2.8 billion in week ended Wednesday, December 10th

TrimTabs Investment Research estimates that all equity mutual funds posted an outflow of $2.8 billion in the week ended Wednesday, December 10, versus an outflow of $12.1 billion in the previous week. Equity funds that invest primarily in U.S. stocks posted an outflow of $1.7 billion, versus an outflow of $8.3 billion in the previous week. Equity funds that invest primarily in non-U.S. stocks had an outflow of $1.1 billion, versus an outflow of $3.8 billion in the previous week. In addition, bond funds had an outflow of $10.6 billion, versus an outflow of $6.8 billion in the previous week, and hybrid funds had an outflow of $3.5 billion, versus an outflow of $2.2 billion in the previous week. Separately, TrimTabs reports that exchange-traded funds that invest in U.S. stocks posted an inflow of $8.4 billion, versus inflow of $920 million in the previous week. ETFs that invest in non-U.S. stocks had an inflow $2.9 billion, versus inflow $643 million in the previous week.

12/11/2008- CSCO Cisco Systems: Technology Conference Summary

On call the co says the "big killer app" on the internet is video... The co highlights their 6 point plan of: 1. focus on vision, strategy, and execution, 2. rapid expansion of collaborative technologies, 3. aggressive investments for the recovery, 4. invest in select high growth mkts, 5. manage and realign resources to execute effectively, 6. focus on goal of evolving into the top communications and IT company enabled by the expanding role of the network as a platform... The co sees viral adoption within their Wiki pages; growing to 181K page count in Q2 from 172K in Q1... The co sees network security growth in large businesses, citing the creation of an entire network within a battleship and the Macau City of Dreams network... In Q&A, when asked about the adoption of the GOOG model of cloud computing, the co says they certainly see uptake of that in the mkt. They see the data storage mkt becoming a hybrid model going forward, in which they say the network becomes the enabler between the 2 data storage areas, because it is one of the constants. They warn that CIOs will then have to worry abt backend security and control issues with data, so policy mgmt will be key.

12/11/2008- BAC Bank of America plans to reduce work force; 30,000 to 35,000 positions over the next three years 

Co is working on a plan to eliminate a significant number of positions over the next three years reflecting the pending merger with Merrill Lynch & Co., Inc. and the weak economic environment, which is affecting the level of business activity. While both factors will result in the elimination of positions, the company has not completed its analysis. Bank of America expects to have a final plan early in 2009 and estimates it will project the reduction of approximately 30,000 to 35,000 positions over the next three years. A final number will not be determined until early 2009. The reductions are coming from both companies and affect all lines of business and staff units. Details as to specific reductions in communities or by business line have not been determined. As many reductions as possible will be made through attrition. Severance and other benefits will be provided for those associates whose jobs are eliminated and who cannot be offered another position. The reductions are designed to eliminate redundancies created as a result of the merger with Merrill Lynch and to reflect the current recessionary environment.

12/4/2008- GM General Motors, Chrysler may accept bankruptcy to receive bailout

Bloomberg.com reports the co and Chrysler executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions. Auto executives have warned bankruptcy would lead to liquidation as customers abandoned the companies. Staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation, a person familiar with that matter said.

12/01/2008- Several countries are rethinking the euro

NY Times reports the deepest financial crisis since the Great Depression has prompted countries that had snubbed the euro to take a fresh look at the virtues of the common European currency. After turmoil in the currency markets nearly destroyed the Icelandic krona and undermined the Polish zloty, those two countries are rethinking their opposition to the euro. More surprisingly, Denmark — a nearly picture-perfect model of economic management — looks more likely to embrace the euro, after rejecting it twice in the past. Denmark was forced to use high interest rates to defend its currency, the krone, against speculative attack. The effects of those higher rates are now rippling through the Danish economy, contributing to a change in attitudes. "Denmark is so extremely sound by all macroeconomic standards," said Thomas Mirow, president of the European Bank for Reconstruction and Development. Its changing stance on the euro "says a lot about stand-alone options in difficult times."

12/01/2008-
Hedge funds hit by fresh wave of withdrawals


FT reports hedge funds have been hit by a fresh wave of withdrawals as investors search for cash, prompting more funds to impose emergency measures to block repayments. London Diversified Fund Management, one of Britain's best-known fixed- income managers, on Friday suspended both its hedge funds as trading conditions in the derivatives markets created valuation difficulties ahead of redemptions. LDFM, founded by former JPMorgan bankers David Gorton and Rob Standing, manages close to $3 bln, down from a peak of $8 bln after its main fund fell 23% this year and investors pulled out. LDFM is joining a roster of hundreds of hedge funds in restricting withdrawals, with investors and prime brokers estimating as many as a fifth have suspended or limited what investors can get back as they have their worst year on record. This week CQS, a London convertible bond specialist run by former Credit Suisse banker Michael Hintze, began canvassing investors on whether it should change the terms of its main fund to allow it to restrict withdrawals if markets worsen next year.


 

Reuters.com reports short selling of financial and automaker stocks has fallen sharply since July, as traders balk at the dimming prospects to profit from these battered shares and the U.S. government increases control over the economy. Traders and experts expect the trend to continue, and caution that it could exacerbate volatility and weaken a key safeguard against stocks becoming overvalued... Since July 10, short interest on financial companies has fallen nearly 40% to an average of 3.68% on November 14, according to Short Alert Research data released this week. Among brokerages, the decline in short interest - the ratio of stocks sold short to overall shares - was an even greater 43.5%. Short interest in automakers has declined 32% in the past five months to roughly 11.5%, with short calls on General Motors (GM) halving since August.


11/28/2008-
Japanese manufacturers reduced production in October

Bloomberg reports Japanese manufacturers reduced production in October and plan further cutbacks as a worsening global financial crisis weakens exports. Factory output fell 3.1 percent from September, when it rose 1.1 percent, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg estimated a 2.5 percent drop. Exports fell last month at the fastest pace in almost seven years and companies are responding to the slump by cutting everything from production to jobs and investment. Sharp Corp. said last week it may have to reduce output of televisions and fire some of the people who work on production lines; Toyota Motor Corp. will get rid of half its temporary employees; and Canon Inc. has postponed construction of a new factory.

“The production drops aren’t over yet,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. The global slowdown has spread to the emerging markets that Japan’s exporters depended on as the financial crisis crippled demand in the U.S. and Europe, she said. Companies surveyed planned to reduce output 6.4 percent this month and 2.9 percent in December, the ministry said. The government downgraded its assessment of production, saying it’s on a “downward trend.” Separate reports showed the unemployment rate unexpectedly fell to 3.7 percent in October from 4 percent as people stopped looking for work. Household spending declined 3.8 percent, the eighth consecutive drop. Consumer prices excluding fresh food rose 1.9 percent from a year earlier, the second month of slower inflation, as commodity costs tumbled.

Yen’s Gains

The Nikkei 225 Stock Average slipped 0.1 percent as of 9:09 a.m. in Tokyo. The yen was little changed, trading at 95.42 per dollar from 95.41 before the figures were published. Japan’s currency has risen 11 percent against the dollar since September, adding to exporters’ woes by eroding their profits earned abroad. Japan’s economy shrank for a second quarter in the three months ended Sept. 30, entering the first recession since 2001. Figures have shown further deterioration: exports tumbled 7.7 percent last month, and shipments to Asia, where Japanese companies make about half of their overseas sales, fell for the first time since 2002. The International Monetary Fund predicts the U.S., Europe and Japan will all shrink next year, the first simultaneous recession since World War II. Goldman Sachs Group Inc. said last week the slump in the U.S., Japan’s biggest market, would be deeper than previously predicted, with gross domestic product likely to fall at an annual 5 percent rate this quarter.

Emerging Markets

The slowdown in the world’s top three economies is also taking a toll on developing markets. Sagging growth yesterday compelled China’s central bank to cut its benchmark interest rate by the most in 11 years. Toyota, whose profit may fall this fiscal year by about 70 percent, said yesterday it cut production 17 percent in October. Honda Motor Corp., which forecasts it may not turn a profit in the second half of the year, said last week it will reduce production of some sedans by 40,000 units and fire 270 contract workers.
“Pressure on the labor market is building,” said Tetsuro Sugiura, chief economist at Mizuho Research Institute Ltd. in Tokyo. “Companies have to cope with sharp slowdowns in sales an orders and they have to cut costs.” Still, although output has fallen every quarter this year, the declines are less dramatic than they were during the last recession of 2001. Production slid an average of 0.9 percent in the past three quarters compared with 3.4 percent in the previous downturn.

11/26/2008- Groups in Lehman asset trap

FT reports several companies reliant on four US hedge funds face collapse because the funds cannot access shares and loans held at the London arm of Lehman Brothers, the collapsed bank. The four funds -- whose names were kept secret in a High Court ruling this week -- claimed that they were likely to close in mid-December if they failed to get access to information about their assets frozen at Lehman. The funds made an unsuccessful effort to force the administrators of Lehman, four PwC partners, to give them details of their assets and how much they owe to ¬Lehman. The funds are likely to be followed by "numerous" others of the 1,000 former clients of the Lehman prime brokerage, Lehman Brothers International (Europe), according to PwC. The warnings from the funds follow several cases of funds closing or blocking withdrawals because they cannot access holdings at Lehman, even though they expect to recover them. In his ruling, Mr Justice Blackburne said the funds argued that, if they could not get information on their assets by mid-December, "it is likely that the funds will be wound down forthwith". As well as job losses, "the funds' inability to engage in restructuring will probably lead to the collapse of at least four companies in which securities are held".



11/25/2008- New facility targets consumer lending


WSJ reports Treasury Secretary Henry Paulson, seeking to ease strains in the consumer credit market, plans to announce Tuesday the formation of a program to increase the availability of auto loans, student loans and credit cards, according to people familiar with the matter. The lending facility, which will be operated by the Federal Reserve, is expected to provide loans to investors who want to buy securities backed by credit cards, auto loans and student loans, these people said. Treasury will contribute between $25 billion to $100 billion to the facility from its $700 billion Troubled Asset Relief Program. The program is aimed at making it easier for consumers to borrow money. Government officials, including Mr. Paulson, have grown concerned about "distress" in the consumer finance market, as the availability of household loans has ground to halt amid a broader credit crunch. While the initial focus will be on consumer loans, the facility could eventually be expanded to cover all manner of assets, including mortgages.


11/25/2008- MT ArcelorMittal warns of U.S. layoffs


The Wall Street Journal reports ArcelorMittal (MT) told its steelworkers union that it could eliminate 16% of its U.S. work force, beginning in January, due to lower demand for automobiles, appliances and machinery. It would be the largest single layoff of steelworkers in the U.S. in the current downturn, the paper said. ArcelorMittal said that layoffs are not yet imminent but alerted the United Steelworkers that it has targeted 2,444 indefinite layoffs at its Burns Harbor steel plant just outside Gary, IN. "Potential work-force reductions are a direct result of the extraordinary economic environment we are facing," spokesman William Steers told the paper.

 


11/25/2008- GOOG Google to cut contract workers


The Wall Street Journal reports Google (GOOG) said Monday that it is "significantly" reducing the number of contract workers it uses, but the co said it has no plans at this time to lay off employees. "We have been thinking for some time, before the acute phase of the economic crisis, about significantly reducing the number contract workers," said spokeswoman Jane Penner. Google declined to specify how many contract workers might be cut, nor would Ms. Penner discuss the pace at which Google would terminate contractors.

 


11/25/2008- Federal Reserve Announces Program to Buy GSEs and other Mortgage-backed Securities

The Federal Reserve announces that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--and mortgage-backed securities backed by Fannie Mae (FNM), Freddie Mac (FRE), and Ginnie Mae. Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late. This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally. Purchases of up to $100 bln in GSE direct obligations under the program will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 bln in MBS will be conducted by asset managers selected via a competitive process with a goal of beginning these purchases before year-end. Purchases of both direct obligations and MBS are expected to take place over several quarters. Further information regarding the operational details of this program will be provided after consultation with market participants.

 


11/25/2008- GS Goldman Sachs' massive bond sale goes well


WSJ reports banks, brokers and other financial cos are poised to issue tens and possibly hundreds of billions of dollars in debt backed by the U.S. government, following the lead of Goldman Sachs, which received strong interest from investors Monday for $2 billion to $3 billion in bonds it is issuing under a government program. The Goldman bond offering is expected to be completed Tuesday and is the first major sale in the plan, which was designed to bolster financial cos by letting them borrow easily and cheaply by giving their debt a U.S. guarantee. Citigroup (C), General Electric (GE), and other companies have signed up to sell bonds under the plan, which could help them resume lending to consumers and businesses and allow them to rebuild capital. For investors, the bonds offer a free lunch -- they are backed by the government, just like Treasurys, but pay higher interest rates. The Goldman bonds, which mature in three years, are likely to yield about two percentage points more than three-year Treasury bonds, or around 3.5%. Goldman's outstanding debt trades at yields of 7% or higher.

 


11/25/2008- OECD says U.S. economy contracting, slow recovery seen

Reuters.com reports the U.S. economy has probably slipped into a recession that will last through the middle of 2009, and recovery will be slow as consumers cut spending to rebuild lost wealth, the OECD said. Another fiscal stimulus package may be needed soon if financial conditions do not quickly improve, but once the crisis has passed the focus should shift to reducing the budget deficit and addressing rising entitlement spending. The Organization for Economic Cooperation and Development, based in Paris, also said the United States needed an overhaul of financial regulation and supervision, a process which should be started soon to boost investor confidence and help revive the economy. "The U.S. economy is likely to have already entered a recession and the near-term prospect is for further weakness," the OECD said. It repeated a forecast it gave on November 13 that the economy would likely contract 0.9 percent next year, after 1.4% growth in 2008. "As financial conditions normalize and the housing downturn bottoms out, the economy is projected to grow again in the third quarter of 2009, albeit at a moderate pace since consumer spending is likely to be restrained by reduced confidence and loss of wealth," the OECD said.

 

11/25/2008- Bank of England's King says British banks may still need more capital

 

Bloomberg.com reports that the Bank of England Governor Mervyn King said U.K. financial institutions may still need more capital and the "single most pressing challenge" facing policy makers is to revive the flow of credit through the economy. "We may not have come to the end of recapitalization. We should not shy away from that if that proves to be necessary." The Bank of England and Prime Minister Gordon Brown's government are trying to revive lending and shore up economic growth with interest-rate cuts, the biggest budget giveaway since the late 1980s and a multi-billion pound bailout for the financial system. Royal Bank of Scotland Group (RBS), Lloyds TSB Group (LYG) and HBOS have taken 37 bln pounds ($56 bln) of government funds as part of a plan to stabilize the banking industry. King said failing to get banks lending again could raise the risk of deflation and stoking credit growth is "more important than anything else at present." He also said the Bank of England would have to cooperate closely with the Treasury if it was forced to cut its benchmark interest rate to zero.


11/24/2008- C Citigroup: Fitch: Citigroup's rating outlook now stable after downgrade to 'A+'


Fitch Ratings has downgraded C's Issuer Default Rating (IDR) to 'A+' from 'AA-' and removed the rating from Rating Watch Negative. Fitch has also affirmed Citi's short-term IDR at 'F1+'. The Rating Outlook is Stable. C's agreement with the US Treasury provides for long term support for a portfolio of challenged assets. U.S. government support will include a capital injection of $27 bln of new government preferred stock, a loss cap guarantee from the government on $306 bln of C's assets and expanded government liquidity support in the event of need. As part of the government's loss cap guarantee, Citi will absorb the first $29 bln of pre-tax losses on the segregated portfolio. Thereafter, the government will absorb 90% of losses, while C will recognize an additional 10%. The downgrade of Citi's long-term IDR recognizes future pressures from an expected U.S. recession and continued economic difficulties globally. The magnitude of demonstrated U.S. government support is the overarching reason for the Stable Rating Outlook. Citi's importance to the global financial system and the demonstrated U.S. government support drive an upgrade of the support floor to A+ for both Citigroup Inc. and Citibank N.A.

11/24/2008- Treasury announces extension of Temporary Guarantee Program for Money Market Funds

The U.S. Treasury Department announces an extension of Treasury's Temporary Guarantee Program for Money Market Funds until April 30, 2009 to support ongoing stability in this market. All money market funds that currently participate in the program and meet the extension requirements are eligible to continue to participate. Funds that currently are not participating in the program are not eligible to enter the program. The temporary guarantee program will continue to provide coverage to shareholders up to amounts that they held in participating money market funds as of the close of business on September 19. Funds must make a program extension payment and submit the extension notice by December 5. The amount of the payment for the extension period will be based on a fund's net asset value as of September 19. For funds that had a market-based net asset value greater than or equal to 99.75% of their stable share price, the payment will be 0.015%, 1.5 basis points, multiplied by the number of shares outstanding on September 19. For funds that had a market-based net asset value less than 99.75 percent of their stable share price but greater than or equal to 99.50% of their stable share price, the payment will be 0.022%, 2.2 basis points, multiplied by the number of shares outstanding on September 19. While the program protects the accounts of investors, each money market fund makes the decision to sign-up for the program. Investors cannot sign-up for the program individually. The program currently covers over $3 trillion of assets. The Secretary may extend the program until September 18, 2009; however, no decision has been made to extend the program beyond April 30, 2009. If a fund does not participate in this extension, that fund will not be eligible to participate in any potential further extension of the program.

11/24/2008- Goldman cuts S&P 500 EPS view

DJ reports Goldman Sachs cuts its estimate for S&P 500's operating EPS for 2008 to $55 from $65, its fourth estimate cut from $76/share less than three months ago. "The pace of economic deterioration has been sharp and startingly fast," co says. "The speed and magnitude of contraction in domestic business activity, consumer spending and foreign demand has shocked even veteran market observers." The bottom-up forecasts for S&P 500's 2008 earnings, which are habitually too optimistic, stand at $69/share.