As had been expected, The Treasury will begin to take equity positions in major U.S. banks. According toMarketWatch, "The plan calls for banks to be recapitalized with public and private funds, but makes no specific mention of another common suggestion."
The part of the plan that is rarely mentioned is that the government could end up owning huge percentages of very large banks. Citigroup (NYSE: C) has a market cap of $76 billion. What if the Treasury has to put $25 billion of equity into the big bank? The agency might not want to have a board seat, but it would need to have a substantial say in what happens with the financial firm. Otherwise, how are the shareholders protected?
It would be better for the Treasury to give banks very long-term loans. It would be less risky for taxpayers if the debt was senior to all other debt and common shares. And, someone in the government would not have to look over management's shoulders to make sure the average citizen was likely to get his money back.
Douglas A. McIntyre is an editor at 247wallst.com.
As the Economy Sinks So Do the Odds of a Tax Cut One of the riskiest financial moves you make this year could be listening to the presidential candidates-and banking on a tax cut after the November elections. John McCain and Barack Obama both promise that widespread tax cuts will be one major way they'll revive the economy and help lift consumers' sagging spirits. But here's what you're not likely to hear either candidate say before Election Day on November 4: There's no money left for tax cuts. http://www.usnews.com/blogs/flowchart/2008/10/9/as-the-economy-sinks-so-do-odds-of-a-tax-cut.html
TheStreet.com's Jim Cramer says the safety theme will come back if only because these companies' earnings will be good in six months.
Editor's note: Jim Cramer will present his 2009 stock outlook for the first time at TheStreet.com Investment Conference on Saturday, Oct. 25. Click for details.
Now they come after the Procter & Gambles (NYSE: PG) (Cramer's Take) and the General Mills (NYSE: GIS) (Cramer's Take) and the like, betting that the action will be better in the cyclicals with all of this money being printed worldwide.
Commodities are also coming back because of reflation. And we have to feel that many of the infra and ag names are finally sold out by the hedge fund redemptions.
Here I am speaking of a Freeport McMoRan (NYSE: FCX) (Cramer's Take), with its good yield and a belief that the hedge funds are at last done.
I don't buy it. I like a balanced portfolio, but I want to buy the GIS/PG all the way down because we are going into a recession, not going out of one. These companies pay dividends, raise dividends and have great commodity tailwinds.
Citigroup (NYSE: C) has dropped out of the bidding for damaged bank Wachovia (NYSE: WB). It may be glad it did. According toThe Wall Street Journal, "Wells Fargo & Co. (NYSE: WFC) won the battle for Wachovia Corp. as rival suitor Citigroup Inc. walked away from compromise negotiations because of worries about the quality of some of Wachovia's assets."
Citi wanted the FDIC to put a safety net under the value of some of Wachovia's assets. Investors and analysts viewed the Wells Fargo bid as better because it valued Wachovia's share price at a higher level and did not involve any government guarantees at all.
The lack of government guarantees and the likelihood that Wachovia's balance sheet is getting worse each day could cause Wells Fargo to pass on a buyout just as Citi did. In a credit crisis as severe as this one, it is almost certain that the value of bank assets is dropping due to mortgage-backed paper and weak loans. Wachovia has been viewed as having a balance sheet that is worse than any other large American banks. That would make it likely that its situation has gone from being troubled to being desperate.
At this point, the odds have to be 50/50 that Well Fargo will either disappear or sharply drop the value of its offer.
U.S. stock futures were significantly lower Friday morning, a day after the Dow industrials had already plunged 678 points. The Dow dropped 21% in the past 10 days. U.S. stock markets are looking to join the plunge in global markets as Japan's Nikkei 225 fell 9.6%, Hong Kong Hang Seng dropped 7%, London's FTSE 100 declined 5.5% and the German DAX 30 was down 8% to name but a few that have managed to remain open. Some global markets actually had to close today, prompting the name "Black Friday."
Wednesday's coordinated rate cut didn't seem to loosen frozen credit markets as investors seem to completely lose confidence in the world's financial system. Finance officials from the G7 are meeting in Washington Friday to address the financial meltdown. On the economic front, August trade data and September import prices will be released. Oil prices plummeted to a one-year low of $82 a barrel.
General Electric (NYSE: GE) -- meanwhile this morning, GE reported results that met the lowered expectations. GE's profit fell 22% to $4.3 billion, or 43 cents per share, compared with $5.56 billion, or 54 cents, a year earlier. GE's revenue climbed 11% to $47.23 billion. Analysts polled by Thomson Reuters forecast earnings of 45 cents a share on revenue of $47.34 billion. GE recently got a $3 billion infusion from Buffett's Berkshire and raised $12.2 billion through a stock offering. Shares of GE are down about 1% in pre-market trading.
This afternoon, Citigroup (NYSE: C) chose to walk away from its discussions to acquire Wachovia (NYSE: WB) but Citi will revive its $60 billion lawsuit against Wells Fargo (NYSE: WFC). Meanwhile, with its $122 billion portfolio of toxic option ARM mortgages -- which add gaps in borrowers' monthly payments to the loan principal -- Wachovia may be too radioactive for Wells Fargo to buy.
How did we get here? On September 29th, Citi thought it had a deal to buy Wachovia's banking operations for $2.2 billion -- Citi would absorb the first $42 billion in losses and stick the FDIC with the rest. In exchange, the FDIC would get $12 billion worth of Citi preferred stock. Last Thursday, Wells Fargo announced a deal to buy all of Wachovia for $15 billion without costing the FDIC anything. Citi sued, the FDIC encouraged the three parties to split the baby, and this afternoon Citi decided to withdraw.
But now that the field is open for Wells Fargo, should it continue with the deal or has it learned that Wachovia's bad assets will make the deal too costly? Although Wachovia would give Wells $448 billion in deposits in 3,300 branches in 21 states, it also has $122 billion worth of option ARM mortgages. These mortgages are likely to default in huge numbers over the next few years. That's because the average option ARM holder will see a 63% rise in monthly payments -- for an additional $1,053 per month. With the economy likely to deteriorate, that could burn a big hole in Wells' $48 billion in capital.
What an interesting time, my friends. Seriously, we're going to look back on this period and laugh about it (maybe, depends on how much you lost, I guess). Not only has the government become one huge hedge fund as the new cliche goes, but perhaps the oddest thing about this entire episode was the ban on short-sellers.
Well, they weren't totally banned. There was a list of stocks that couldn't be shorted, and they were tied to financial businesses. For instance, General Electric (NYSE: GE), a stock I own, was on the list. Why? You see, even though it makes everything from movies to healthcare equipment, a large chunk of the conglomerate deals with financial transactions. Now, the short-selling ban is gone, and financial stocks are once again subject to the whim of the trading technique.
I hated, absolutely hated, the restriction on short-sellers. It never made any sense (check out Tom Taulli's perspective on this subject).
Look, I can understand and appreciate the fact that the government had to get into the business of capitalism. At some point, there was no choice. If we all could choose, we would choose capitalism over helping a bunch of Wall Street goofballs who became intoxicated on noxious greed and who are laughing at us right now for being bleeding-heart enough to do it. We would. But, there was no choice, sad to say.
TheStreet.com's Jim Cramer says that as in '87, nothing seems to work, whether it's the rate cut or positive technical readings.
This market is so much like 1987, it freaks me out. In that market, in the week leading up to the crash and the crash week itself, you would enter an order to buy a stock when it was up 2, get the report that you bought it up 3, and then it would be down 2. That's exactly what happened with Goldman Sachs (NYSE: GS) (Cramer's Take) today. Exactly.
In that market you felt ripped off like you wouldn't believe. Every day. You would try to buy when the market sold off and never get the low or even lower prices, and you would feel like you could do nothing right.
It ground you up and spit you out. In that market you would get good news, and it would last long enough to draw you in, and then it would spit you out -- like Morgan Stanley (NYSE: MS) (Cramer's Take).
Now, I have to admit that I thought the market would finish up today. I figured it almost had to, because in the end it is still a big deal that we got a coordinated cut, even if it wasn't bigger.
Didn't matter.
I also figured that with credit markets actually beginning to thaw -- and I am talking about what Tony Crescenzi talks about -- we could catch a break. And the trade where hedge funds hedge their individual stock names with and S&P future shorts, the one Doug outlined, should have been good for more of a squeeze than we got. That seemed like a reasonable reason to go up, not to mention the minus 10 reading on the oscillator and only 25% bulls.
You didn't get those kinds of readings very often in the last 20 years and not bounce.
A settlement may be close in the battle of whether Citigroup (NYSE: C) or Wells Fargo (NYSE: WFC) ends up owning Wachovia (NYSE: WB). Wells Fargo came in with what was considered a winning bid after Citi thought it already had a deal.
An appellate court has ruled against a stay requested by Citi. Most investors and the Wachovia board appear to think the Wells Fargo deal is better for investors. It also does not involve money from the FDIC which the Citi purchase did. That has to be attractive to the government.
To get the fighting over, it appears that Wells Fargo will get about 75% of the WB deposits and Citi will get the rest. According toReuters, "Analysts said it may make sense for Citigroup to get at least some assets in the transaction because the bank worked with the FDIC on the deal and supported Wachovia financially last week."
But, with the banking industry falling apart, does either bank want Wachovia? Its assets, especially mortgage-backed paper, could be falling in value every day. Some bank stocks were down as much as 20% yesterday on concerns about their liquidity and ability to stay in business.
Citi and Wells Fargo may be better off letting Wachovia fail and picking up the pieces at a fire sale. It has become that dangerous to be a big US bank taking on assets which could potentially have huge problems. Honoring deals has become a thing of the past. Fear has trumped honor
Douglas A. McIntyre is an editor at 247wallst.com.
TheStreet.com's Jim Cramer says you can use the bounce today to sell names with earnings troubles.
A suggestion: If you know that your company has earnings problems, you are going to get a lift today that will allow you to get out at a better price. What do I mean about earnings problems? Let's consider Alcoa (NYSE: AA) (Cramer's Take). That was a dismal quarter. The stock would not be up if it weren't for the rate cuts.
Or how about the financials? We learned last night that MetLife (NYSE: MET) (Cramer's Take) needed a lot more capital. We have to presume all insurance companies need more capital. So get ready or sell and buy lower. Citigroup (NYSE: C) (Cramer's Take) is in the same boat. It is not going to have a good quarter and it needs to do a capital raise. You are going to get a terrific opportunity to sell today.
I also feel the same for most retailers. We have to be very careful here because unless you are in a retailer that picks up share in hard times, you need to use the strength to sell.
What can be held? I think that you can keep the stocks with good dividends that are able to pay them. You can certainly buy stocks that are trading near their cash.
Citigroup (NYSE: C) and Wells Fargo & Co. (NYSE: WFC) have reached a temporary cease-fire in the battle to acquireWachovia Corporation (NYSE: WB). Late Monday, federal officials urged the dueling suitors to lay down their legal weapons and attempt a compromise in hopes of avoiding a protracted standoff in court. According to reports, new discussions between the banks and the Fed could lead to a division of Wachovia's assets between the two sparring suitors.
For those of you just joining this banking soap opera in progress: Citigroup agreed last Monday to acquire Wachovia's banking operations, with a little help from the Federal Deposit Insurance Corporation (FDIC). However, last Friday, Wells Fargo emerged with a financially superior bid to acquire Wachovia in its entirety, which eventually prompted Citigroup to file suit against its rival.
Today's news has sparked heavy volume on Wachovia's October 5 put option. This contract has seen 22,371 contracts cross the tape today on open interest of 57,273. This could indicate that many speculators are betting that the Wells Fargo bid won't go through -- at least, not in its entirety. That bid priced Wachovia at approximately $7 per share, compared to $1 per share under the terms of the Citigroup deal, according to Bloomberg.
Short selling sounds un-American -- hey, it's about making money when securities fall. Yet, it has been a part of markets for centuries.
But when markets undergo periods of extreme stress, then people look for villains. Of course, short selling is an easy target.
It should not be surprising then that the Securities and Exchange Commission recently banned short selling for hundreds of financial stocks. Somehow, the hope was that it would stem the market slide.
Well, the markets have continued to crash.
Interestingly enough, one of the top investors in the world -- Pershing Square's William Ackman, speaking at Value Investing Congress in New York – thinks that the ban was one of the main factors for the loss of investor confidence.
Keep in mind that hedge funds have become a dominant player in the financial markets. They have come to rely on short selling and without the ability to make such trades, hedge funds got squeezed. As a result, there was a massive unwinding of positions.
Although, there is a silver lining. The plunge has resulted in a disconnection between fundamentals and pricing. In other words, there appear to be some compelling opportunities in the markets.
In fact, it looks like Ackman is already capitalizing on his savvy purchase of 180 million shares of Wachovia (NYSE: WB) when it got an offer from Citigroup (NYSE: C) last week. It was one of his first longs on financials in the past five years.
7 Great Companies for $7 or Less These battered stocks are ripe for a rebound. They include Animal Health International, Build-a-Bear Workshop, Blockbuster, Global Cash Access Holdings, Great Wolf Resorts, Hackett Group and Spansion. http://www.kiplinger.com/magazine/archives/2008/11/7_cheap_stocks.html Biggest Losers: 15 Stocks That Have Plummeted This Year The following list is of selected familiar names and large stocks that have plunged significantly over these time periods. It does not include the obvious names such as AIG, Wachovia, GM and the likes, but decent stocks we all liked and knew over the years. Among them are Alcoa, American Express, Apple, Boeing, Citigroup, Dell, eBay, General Electric, Google, Merck, Motorola, Sprint Nextel, Research in Motion, Sirius XM and Whole Foods are all down significantly more than 25% which is what the Dow is off in 2008. http://www.bloggingstocks.com/2008/10/06/big-losers-15-large-stocks-that-have-plummeted/
After Monday, there are probably no more doubters left. We are in a bear market and we are in a recession and anyone arguing otherwise is living in a made-up world. The only thing left to argue over is how to get out of this dire situation, and how long it will last. Looking at stocks since the beginning of the year, and over the past month since the feds seized Fannie and Freddie, the picture isn't pretty. Many familiar names have vanished, many -- luckily -- have just seen their market value cut about in half. What once were some large stocks are now some of the smaller ones, including some DJIA components.
The following list is of selected familiar names and large stocks that have plunged significantly over these time periods. It does not include the obvious names such as AIG, Wachovia, GM and the likes, but decent stocks we all liked and knew over the years. By comparison, the Dow industrials is down 25% year-to-date, the S&P 500 down 28% during the same time and the Nasdaq Composite down nearly 30%. Over the past month (since the Fannie/Freddie rescue), the Dow declined over 11%, the S&P 500 declined nearly 15% and the Nasdaq declined over 17%.
Alcoa (NYSE: AA) -- aluminum giant Alcoa is feeling the pains of a global economic slowdown and higher costs even as aluminum prices remain high. Alcoa shares hit a 10-year low Monday. YTD, AA market value has been cut in half, and over the past month alone Alcoa lost 36% of its value.
American Express (NYSE: AXP) -- the credit card company had large exposure to bad loans that affected its results. With analysts expecting credit card debt to be the next shoe to drop, AXP may see its stock fall more than the 42.2% it already has YTD. It plunged 23.68% this past month.
Apple (NASDAQ: AAPL) -- even this consumer tech darling couldn't escape the claws of the bears as worries over demand for its products increased. AAPL, one of the stocks that actually had a positive day Monday and closed at $98.14, is down 50.45% YTD, 38.73% this past month.
On October 24 2003, the Dow closed at 9,582.46. It was the last time the Dow Jones Industrial Average closed below 9,600. Today, it revisited that territory when it plunged 753 points to 9,572.08, and came within striking distance of its biggest one-day point decline from last week -- 778.
While last week blue chips suffered from fears Congress wouldn't pass the bailout package, this week stocks plunge despite the approved -- and enlarged -- rescue plan. As the global financial crisis deepens, its effects cascade to more areas and over more industries.
Fears of a global economic slowdown further aggravated mood on the Street and markets are seeing stocks in a free-fall. It seems that realization has hit for how long it would take for the bailout to allow some relief, how long it would take for the housing market to recover, while all along economic fundamentals such as the job market are deteriorating.
All 30 of the Dow's components were in the red, with Alcoa (NYSE: AA) taking the dubious title of the Dow stock that's declining most -- down over 12%. Following closely are Citigroup (NYSE: C), American Express (NYSE: AXP) and Boeing (NYSE: BA) -- each down more than 10%.
The Nasdaq composite is meanwhile down nearly 160 points, or over 8%, to 1,787. The S&P 500 down nearly 7.5%, or over 81 points to 1,016.
As had been expected, The Treasury will begin to take equity positions in major U.S. banks. According to MarketWatch, "The plan calls for banks to be recapitalized with public and private funds, but makes no specific mention of another common suggestion."
U.S. stock futures were significantly lower Friday morning, a day after the Dow industrials had already plunged 678 points. The Dow dropped 21% in the past 10 days. U.S. stock markets are looking to join the plunge in global markets as Japan's Nikkei 225 fell 9.6%, Hong Kong Hang Seng dropped 7%, London's FTSE 100 declined 5.5% and the German DAX 30 was down 8% to name but a few that have managed to remain open. Some global markets actually had to close today, prompting the name "Black Friday."
This afternoon, 
What an interesting time, my friends. Seriously, we're going to look back on this period and laugh about it (maybe, depends on how much you lost, I guess). Not only has the government become one huge hedge fund as the new cliche goes, but perhaps the oddest thing about this entire episode was the ban on short-sellers.
TheStreet.com's Jim Cramer says that as in '87, nothing seems to work, whether it's the rate cut or positive technical readings.
Short selling sounds un-American -- hey, it's about making money when securities fall. Yet, it has been a part of markets for centuries. 
and 
. He is also the founder of 
After Monday, there are probably no more doubters left. We are in a bear market and we are in a recession and anyone arguing otherwise is living in a made-up world. The only thing left to argue over is how to get out of this dire situation, and how long it will last. Looking at stocks since the beginning of the year, and over the past month since the feds seized Fannie and Freddie, the picture isn't pretty. Many familiar names have vanished, many -- luckily -- have just seen their market value cut about in half. What once were some large stocks are now some of the smaller ones, including some DJIA components.
Comfort Zone Investing: How this all might play out
Stock picks and pans for troubled times: AAPL, COST, EWBC, IBM, YUM, PG ...
NYU's Roubini: 'All fronts' approach necessary to end global financial crisis 
