10 December, 2007

Markets head higher Monday, ahead of Fed Rate Meeting

The last Federal Reserve decision of this calendar year comes tomorrow, Tuesday Dec 11, and the markets produced another bullish day ahead of the expected rate cut. Investors have priced in a 25 basis point cut already and the Fed has signalled that is exactly what it will deliver. The Dow was up over 100 points to lead the major indices higher.

More bad news on the financial front as UBS (UBS) said it will write-down more than $10Billion in sub-prime exposure. A hefty number that would've had shares tumbling if it wasn't for the news that the company is getting an over $11Billion cash infusion for outside investors, mainly the government of Singapore and Middle East investors. When a government is investing, you know its for the long term!

Washington Mutual (WM), while up 4% in the regular session, fell almost 9% after hours on news of another write-down of over $1.5Billion. This coupled with the news that the company is cutting over 2600 jobs, cutting its dividend, and discontinuing business in sub-prime dealt the big after hours blow.

On a slightly better note in sub-prime, battered NovaStar Financial (NFI), which recently received a waiver from Wachovia Bank, basically giving the company more time to come up with cash, before it would have to face bankruptcy, was up big today. Now NovaStar's stock has been a complete mess virtually all year, yet the daily fluctuations here have momentum traders jumping. NFI has moved between 2 and 4 dollars regularly over the course of the last 2 weeks and today's 25% move to the upside seems more like the rule than the exception. It has come from a low of $1.12 to almost $4 within the last month, so: Potential turnaround play? This is far from it but hope remains that in the long run NovaStar could bring itself out of its current doldrums. At this point it is still a stock that I would stay away from.

Disclosure: Author holds no position in the above mentioned stocks

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