TUES. SEP. 23 - Effects of Government Action

It is time to really reflect on what is going on. The entire face of Wall Street has officially totally changed as the designation ‘investment bank’ was removed from the facades of Goldman (GS) and Morgan Stanley (MS) as their new moniker is now ‘bank holding company.’ The repo market was so frozen last week that at one point, there was no overnight activity whatsoever between banks. Articles like this one are being published in The New York Post:

NY POST: "Almost Armageddon"

So, the government’s solution to this is to simply try to bail out the bad debts from the banks and let the banks feel free to start all over again. Of course, this is more than a bit of an oversimplification as such a plan requires the approval of both the executive and legislative branches of the government. What exactly will happen is not yet known, but there is little doubt that Treasury Secretary Paulson is committed to doing something. What this “something” will involve will be a ratcheting up of the printing presses. The government effectively has no spare cash lying around as indeed, they’ve already issued bonds to fund the AIG bailout. We began seeing true evidence of this in the last day or so as the value of the American dollar has fallen dramatically, longer-term bonds had one of their biggest descents in history, oil had its biggest tone-day gain ever yesterday intra-day, and equities came right back to Earth. Trading this week will be Dominanted by this story as discussed in Friday’s blog so be ready as the swings will be wild in a relatively illiquid market thus caution and a paring back of trade size are a must this week yet stick around because there will be constant action.

Overnight, markets in Asia were lower with Hong Kong particularly weak, down almost 4%. European bourses are solidly lower as well. Today will be more of the same state-side; there are several conferences planned by various government officials today with trading likely driven by what they say along with a stream of random rumors. Be very nimble as conditions will likely remain thinner than normal due to the inability of some of the ‘short’ players to enter the market.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified



Good-

AIG- strong all day yesterday; in a stronger tape, may be worth watching if any rumors of dissident buyouts come in

UNP- raised earnings guidance

Bad-

MGM,LVS- among other casinos ,very weak yesterday

AGM- drubbed amid rumors it will follow in footsteps of FNM and FRE. If it gets there, looking to short thru yesterday’s low of about 7.20.

GGP, BPO- among others, property stocks hit hard yesterday; looking for follow through in weak market or strong rebound in up market.

JPM, RJF, PRU- among others, major financials weak yesterday. Cannot short them, but if they open lower and market look to rebound, all buys thru unch much less A-B-A2 in strength

SPF/KBH – major homebuilders very weak yesterday; same story…look to buy in strength in particular.

EWBC, COBZ, FMER – among other regional banks, closed way off their Friday morning highs. If they open down and cross thru unch if market holding, they will all likely get short covering.

LEN- neutral earnings, but did not issue guidance; instead, they said that the government has to do more to prop up the housing market. Seriously.

FDS_ beat on earnings marginally, but warned slightly for future earnings in noting that that their income may be adversely affected due to AIG, WM, et al.

Earnings-

TUES SEP 23 BEF

FDS .64/154M .63/156M 2.46/576M 2.73/672M

LEN -.52/1.07B -.40/1.18B -2.34/4.44B -.17/4.18B

TUES SEP 23 AFT

FUL .35/360M .42/372M 1.53/1.41B 1.83/1.47B
WOR .55/916M .43/890M 1.80/3.57B 1.57/3.50B

Good luck today.

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