Daily Investment Interpretations
August 12, 2008
In spite of the fact that crude oil closed at $113 a barrel today, the
Dow and the S&P 500 were thrown for a loss. The Nasdaq fell 9.34 points to
2,430.61. The Dow tumbled about 140 points to 11,642.47, while the S&P gave
up 15.73 points to close at 1,289.59. The VIX rose to 21.13. The reason lay in
further massive financial company losses. (For some reason, the U. S. trade
deficit was down 4% last month.) Goldman Sachs was downgraded from
"Buy" to "Hold" by Deutsche Bank. J. P. Morgan Chase
announced a further $1.5 billion write-off for the quarter. Morgan Stanley is
buying back $4.5 Billion in auction-rate securities, while Wachovia Bank revised
its second-quarter loss lower to reflect a $500,000,000 pretax hit on
auction-rate securities. UBS revealed that its clients withdrew $40 billion
during the quarter.
Todd Ashbaugh has released a new public technical discussion, "Clearing the hurdles: Ashbaugh", pointing out that the indices have made substantive gains over and above their volatile ups and downs.
Todd Harrison is suggesting that the S&P might make it to the 1,325-1,350 range before encountering a sudden, sharp sell-off. "Monday Morning Quarterback: Perception and Reality", "Random Thoughts: Recipe for a Perfect Storm", "Set-Up Into Turnaround Tuesday, Answers I Really Wanna Know: Turnaround Tuesday?", Random Thoughts: Is a Commodity Bounce Coming? Todd Harrison also asks, Have you read Professor Sedacca’s three-part series on the tale of two markets and what it means for stocks? . Among the topics discussed in Professor Sedacca's three-part series is the example of Freddie Mac. Freddie Mac is a private company that sells stock and issues dividends. The mortgages it holds exceed (I believe) more than $1 trillion in value. During the last few years, the company got a little adventuresome, so the federal regulators who monitor the company insisted that Freddie Mac maintain a capital surplus as a protection against mortgage defaults. Then came the mortgage meltdown. Freddie Mac had to sell more than $50 billion in preferred stock to raise reserve capital, culminating last June in the need to raise another $5.5 billion to replenish their reserves. Freddie Mac common stock was selling for $25 a share in June, down from $60 a share a year ago. There are 750,000,000 shares of common stock outstanding. At $25 a share, the company was worth about $18.75 billion, so selling $5.5 billion more would have diluted the shareholders' value about 25%. The company management decided to wait a few weeks to see if the stock price wouldn't recover. Bad idea! Instead, the price has dropped to $5 a share, lowering the company's capitalization to less than $4 billion, making it impractical to sell $5.5 billion in additional stock.
Credit card debt continues to rise as desperate consumers, no longer eligible to tap their houses for low-rate loans, rely on credit cards to make it month-by-month. Then there's this: China to top U.S. in manufacturing in 2009: analysts.