Markets fading to start December. What's in store for Christmas?

The first week of December has been one dominated by the sordid affairs of Professional Golf's most notorious figure, and as the rumor mill churns to fill gossip websites and supermarket rags, critical economic, fiscal and international issues are bumped to Page 2. So let's take a look back at what's been making the rounds.

The President of the United States, Barack Obama, always seemingly juggling several critical agendas, has his work cut out for him as he steers the US Senate in the Health Care debate behind closed doors, outlines a plan to send 30,000 more troops to support the War in Afghanistan and holds a Jobs Summit to deal with unemployment. The administration hopes to deploy unused or paid back Financial Bailout Money to support small businesses in lending and hiring and to ignite country wide infrastructure and energy efficiency projects, and to top that all off, newest laid out plans call for the creation of the biggest government transparency project in the Nation's history.

Certainly an ambitious agenda that is sparking controversy from either side of the American political aisle, but as Health Care is being actively debated in the floor of the Senate a passage of a reform bill seems ultimately likely. As for jobs, a very positive report for November had the US losing only 11,000 jobs in that month, with further reductions in previous month loss estimates. A far cry from the over 700,000 per month that were lost in the early parts of the recession. Still, with unemployment sitting at 10% of Americans something more has to be announced and followed through by the Administration.

On the market's side, the recent rally in Gold finally hit a bit of a stumbling block as the US Dollar found some fitting via comments from Ben Bernanke and the Federal Reserve. An interesting trade on gold has been a double gold short fund, PowerShares Double Gold Short (DZZ), posting a 15% gain over the last 5 trading sessions, including a 4% gain Tuesday. As economic footing returns and the possibility of rising Interest Rates in the US into next year this is a really interesting speculation play on a breather in Gold's record rally.

Bank Of America (BAC) has indicated its intention of paying back $45Billion in financial rescue money it had received from the Government as part of the Troubled Asset Relief Program (TARP), leaving its banking brethren Citigroup (C) and Wells Fargo (WFC) still without plans for re-payment.

Technology news of the day has several firms in the spotlight. Google (GOOG) has recently hosted an event in which it showcased several new search initiatives including real-time search, which include public updates from social spaces such as Twitter and Facebook, a Google Goggles tongue-twister project, which allows mobile phones running Android, and soon other platforms to take photographs of virtually anything and get legions of information back to the smartphone.

Apple (AAPL) has purchased music streaming service Lala, which for all intensive purposes seems to likely fit into the mold of furthering a cloud based iTunes architecture and perhaps a streaming alternative to the pay for download model the company has currently been enjoying. With all eyes on a potential tablet offering from the electronics company, several publishers are already lining up to create a joint venture that will put the likes of Sports Illustrated and Time magazine in specific new tablet formats with advanced interactive and connectivity features.

In the entertainment world Activision Blizzard (ATVI) set all sorts of records with the release of Call of Duty: Modern Warfare 2, selling pretty much a bazillion copies of the popular franchise video game and making more money in 24 hours than any other release in the history of entertainment.

As Christmas comes around the corner, in the retail and tech space it'll be interesting to see what the must-have gadget of the year is to be. Will the iPhone dominate again, will console wars push to new sales highs, will consumer spending continue to rise as the jobs picture improves on a bedrock of subtle economic growth?

This time of year always seems to set traders into a bullish mood, and that will be especially true if reports of record bonuses from the financial industry continue to ring true. But just remember, Goldman Sachs (GS) can't be blamed for everything, or can it?

Disclosure: Author owns C, GS, AAPL, GOOG

For Bank Of America, $34Billion, what $34Billion?

Bank Of America (BAC) has been surging the last few days, up 56% the last 5 days, despite leaked information from the Federal Government Stress Test results. Even though the leaked details of BAC's capital needs seem ludicrously high, the number could have been a lot worse. Analysts have been on BAC's high horse, upgrading the stock, despite the need for $34Billion in capital! And here's why.

Despite the fact that $34Billion seems high, you've got to remember this is Wall Street thinking. The same Wall Street thinking that applauded a government move to secure defaults on over $300Billion in debt of Citigroup (C). Both banks have been surging lately as Investors jump back into an industry that was decimated by the credit crunch losses and prolonged recession.

For Bank Of America, and several other banks requiring more capital, the easiest thing to do would be to convert preferred shares into common equity. In BAC's case, doing so would add approximately $28Billion in capital, according to an analyst from Morgan Stanley. The comprehensive analyst report from Morgan's Betsy Graseck details other potential asset sales that would raise the remainder of the required capital. All in all, a situation for BAC, that looks much brighter compared to several weeks ago. It was very recently that Goldman Sachs (GS) made a splash by raising $5Billion in a stock offering, in order to use the money to repay the government's TARP funds.

Ken Lewis having his role of Chairman and CEO separated has given shareholders a new life, and recent gains certainly helped cement realistic rebound expectations. All this, despite the the financial sector still on what can be described as slightly thicker ice.

What Investors are still most weary of is government control of the financial sector, and despite the new Administrations repeated denials of Nationalization the potential of having the US government as the largest shareholder of several major banks will do nothing to quell the argument.

For now though, When the Stress Test results are made public investors will await word of what exactly Bank Of America will do to raise capital. Till then, what $34Billion?

Disclosure: Author owns C, GS

A Tale of Two Cities: Easter News and Notes

A tale of two cities, screams to be profoundly appropriate in describing the current climate of the American markets. Those two cities of course would be Detroit and New York. Symbols representing two pillars of the American workforce and economic prosperity. Both the auto and financial industries have been decimated by losses, layoffs, and market indifference, producing for some, the biggest market fall since the crash associated with the Great Depression.

Detroit's auto stocks are still in tatters, and the news did not get much better. The US Treasury has provided General Motors (GM) with a specific set of instructions for the preparation of Bankruptcy on June 1. It looks less and less likely that GM will be able to avoid that scenario and Investors showed no confidence in any alternative as Monday's trade saw GM give back 16% to the $1.70s.

To counter that, New York was having a fantastic session as the optimism from the Wells Fargo Corp (WFC) pre-announcement of profitability sustained financial momentum. With important earnings announcements upcoming, Goldman Sachs (GS) and Citigroup (C) Investors are seeing a renewed confidence in not only profitability, but the ability of the government to do what it has set out to do. Rid the financial books of terrible assets.

Analysts estimate Goldman to earn about $1.30/share, but the street has begun its whisper-practice and with Goldman still seen as the strongest of the Wall Street brands the company is expected to beat its own number and handily. Citigroup, having alerted the market to profitable months in January and February is looking to continue, despite the accumulated average estimate of a $0.37/share loss (according to Yahoo finance). Goldman will likely set the tone for the banks, and if others in the sector can surpass their estimates it will go a long way to support this current market rally, and instill the type of institutional confidence that is needed to make the latest gains sustainable.

Also in the news over the weekend, besides a thrilling Masters golf finish, was reporting from the Wall Street Journal (Link) that Apple's (AAPL) iconic CEO Steve Jobs, is in fact still very much in the picture and involved in design and business decisions. Word is that Jobs was very much involved in the interface of the latest iPhone OS, version 3.0, and is also involved in the creation of the much-heralded Mac tablet/netbook device. The return of Steve Jobs, from a 6-month medical leave has been a cloud over Apple's stock despite sales growth and product innovation from the company. The recession may have curbed consumer spending habits severely, and Apple's premium brand did suffer, according to market research statistics, but with the company continually improving its Mac Computer and iPods lines recently and an upcoming iPhone announcement surely in June, Investors have begun to set aside worries about Jobs.

Should Jobs return on schedule and lead the next phase of iPhone evolution, expect resonant cheers and analyst upgrades on the anticipation of the next phase of Apple's product road-map. In fact Kaufman Bros. Shaw Wu conceded Apple's value in his latest report, bumping his price target to $150/share.

News reports of the rally's sustainability have been mixed, with some expecting negative trends to overshadow any glimmers of recovery. Thsoe glimmers however, are due to get brighter if the financial sector continues on this path of pre-announced profitability.

Market Rally continues on Day 3 on Banking and Retail sectors

10 to 11% gains for the S&P, Nasdaq and Dow since the start of trading Tuesday as markets focused on positive news coming out of the banking and retail sectors. With the S&P up about 80 points (12%) since the 660s bottom, Traders must be wondering is it sustainable?

According to many in the banking community it just might be! Why? It's simple, profitability. After quarterly losses multiplying not contracting, increased write-downs and more government backed dollars, some of the biggest American banks by name have issued relatively strong operational statements. Citigroup (C) and Bank Of America (BAC), both of whom have seen share prices disintegrate before their very eyes over 15 months appear to have turned the tide of losses. Both companies have pre-announced profitability in the first two months of 2009 and both expect continued operations in the black.

What does that even mean? Well shares of both banks have rallied 70% and 90%, respectively, from most recent lows, and for taxpayers who now own a 36% stake in Citigroup, maybe there's a way out of that mess. But just a few days ago there was talk of Citigroup being replaced in the Dow Jones Index and its value as a "penny stock" weakening an already battered corporate reputation. Confidence in the banking sector, even the sliver that there is now, is crucial to returning people to the markets and jump-starting a cycle of economic expansion and price increases.

Can two months of operations at these banks be a real guiding light for the rest of year? It is of course premature to label the banks as stabilized and past their major losses, and in fact the market is full of Investors waiting for another shoe to drop, so market participants still need to exercise caution, for which quarterly results should provide additional clarity.

On the retail side, a sector that was labeled disastrous just weeks ago, has found itself well into newly renewed confidence after posting some surprising February numbers. Retail sales dropped 0.1% (up 0.7% excluding cars) over the month, which was better than the 0.4% expected by economists, assuring to some that some stabilization in this sector is occurring. This was on top of a revised January which saw an increase of 1.8% instead of the 1.0% estimate and following 5 months of Auto sales declines, January saw a slight uptick in that segment. Maybe its not as bad out there as every headline makes it out to be?

Who would think this market would be ripe for mergers and acquisitions? Roche (RHHBY) does, as it, after months of wheeling and dealing, finally found a friendly takeover number with Genentech (DNA) at $95 per share.

Markets, the economy and overall sentiment is still decidedly bearish which puts great scrutiny on any extended rally so expect some profit taking soon. At the very least, the S&P's ability to roar back past 700 is a psychological stabilizer for many traders, and given that there was talk very recently of the S&P earning multiples falling to the 5-8 range, in line with previous grave recessions, potentially pushing the index lower than 500, the 700 number is good to see. While there are no psychologists here, that is definitely reassuring.

Disclosure: Author owns C

Citigroup unveils TARP plans, public gets some transparency

Leading the pack of news stories in the category of "Things that should have been public months ago" is today's gem about Citigroup (C) and their official plans for using government funds as part of the TARP bailout. Finally the company is unveiling how it has structured the use of funds it received as part of the Federal Government's Troubled Asset Relief Program - TARP.

In a report out today, Citi outlines how it earmarked for use the $45Billion it received in aid. Taxpayers, and in turn, the press have become more adamant in recent weeks about getting more transparency from the companies receiving TARP funds. President Barack Obama has released statements and given speeches recently on the same subject matter, and has in fact made transparency, regulation and executive pay limitations cornerstones of the next step of TARP and in the ongoing legislative stimulus package that is reportedly approaching $880Billion.

It is certainly high time for this kind of disclosure, with the latest stimulus package the United States government has essentially printed close to $2Trillion in economic aid, as taxpayers have been left scratching their heads. The public has demanded these programs become more transparent and informative, and with media and political pressure now being placed on the companies that receive funds, Citigroup appears the first to play ball.

With Citi stock hovering around the $3.50 range, the company really has no other choice but to do everything in its power to regain some Investor confidence. The selling of assets that it began late last year and early this year, including the brokerage deal with Morgan Stanley (MS), is only the beginning of the end of Citi as a stand-alone banking conglomerate. There are many legitimate fears in the marketplace that Citi's common shareholders will be left holding the bag as assets are sold to cover losses and Government aid comes in the form of more control.

For Citi Investors, the question to ask is whether, for the sake of the United States and the country's new mantra of Hope and Change, can one of the big American financial institutions afford to be seen as dissolving? Citigroup stock has seen support around the $3 range and has been caught in the bullish and bearish short-term trends of the market over the last 3 months. Initial sentiment to the report was positive boosting Citi by nearly 6% at the open to $3.80, however this waned quickly leaving Citi stock down by nearly 2% in early trade.

With this TARP report, Citi hopes to instill confidence to the mass media, that money being given isn't only used to cover bad investment bets. A bank of its size and stature is one of the few institutions that can get the media writing about new loans and new business instead of plummeting housing starts and production capacity. For the sake of a fragile American economy, that should be seen as a positive. According to the plan, Citi has approved $36.5Billion for loans and other related commitments to other businesses. Citi also made a big push into the secondary mortgage market, by taking $27.5Billion of its approved use dollars and buying up mortgages and other troubles mortgage related assets.

The important part here is that Citi is making a valiant effort to boost lending in America, and if similar reports come out from other institutions the public and the press will start to get what they were clamoring for, TARP transparency.

Disclosure: Author owns C

Dow slide continues in 5th straight session of losses

For a fifth consecutive day the Dow Jones Industrials posted negative returns leading their slide from the 9000 point mark early last week. The 600 point slide during the sell-off was caused by continued US economic concern, the weakening of the domestic job picture and the sustained struggles of banks and automakers.

News makers and headliners over the past week have been significantly negative as company quarterly losses and job cuts continue to rule the front pages. Alcoa (AA), one of the main culprits of the bearish trading tone, reporting a loss far wider than analysts expected along with a 35% decline in revenues. Whether in North America or across the world the story seems the same as Sony (SNE), the electronics giant is rumored to be looking at steep job cuts amidst a rumored loss of $1.1Billion for the year, a first in the history of the company.

Citigroup (C), a bank with its well-known fair share of troubles, has confirmed talks with Morgan Stanley (MS) to combine investment banking units. The troublesome news here for Citi is that just months ago the executive branch was adamant about not wanting to sell its brokerage unit Smith Barney. The supposed deal would net Citi group anywhere from $2.5Billion to $3Billion in gains and give Morgan Stanley 51% control over the combined brokerage partnership. It doesn't help either that estimates for the bank's quarterly loss have risen to as high as $10Billion and renewed talks of another capital infusion from the Federal Government will likely be needed.

On a counter-note, left for dead and unprofitable smart phone maker Palm (PALM) was the star of the show at the Consumer Electronics Show in Las Vegas, reviving hopes that the company can turn the corner as it announced a new platform and phone to Apple-like fanfare. The Palm Pre will be available later this year, sports an intuitive interface and sleek design, and has set web bloggers ablaze with its style and functionality. Traders have taken note as well, sending Palm shares almost 100% higher since the device was first revealed.

Disclosure: Author owns C

Markets find 3rd day in the green. Thrice a trend?

For Wall Street the last month has been a mixed bag somewhere between bearish disaster and depression era sell-off, so when some optimism floats in Traders are left to revel within themselves whether the terms "turnaround" or "dead-cat bounce" are most appropriate.

On the heels of some optimistic news, which the market has used to bid up stocks, the Dow finished in positive territory for the 3rd day. It began with President-elect Barack Obama naming members of his economic team, initially naming New York Federal Reserve head Timithy Geithner as Treasury Secretary. This followed a weekend of talks that led to the $300Billion-plus Government guarantee of Citigroup (C) assets, sending Citi shares up 60% yesterday, finally culiminating in a subdued, yet rebound worthy, day for the markets as a new Fed stimulus plan hit the news-wires.

The Technology-laden Nasdaq was the only major to finish in the red, down about half a percentage point capping its 2 day rally to 11%, while the Dow and S&P extended their gains to 12% and 14% respectively over the 3 day period. So are traders seeing thrice as a trend and these extended government backed plans as a sign of turnaround hope? That's the question of the hour, and if the "bleeds it leads" media is to be believed it could very well be. To be sure the major media outlets aren't producing nearly as many gloomy headlines as in the past, however the news story is still mixed to say the least.

The Associated Press (Link) reported American consumer spending fell to the worse levels in 28 years during October, which was even worse than expected and initially extimated (3.7% spending decline versus an expected of a 3.1% fall). GDP was also worse than economists expected (0.5% drop in GDP versus an expected 0.3% decline), however initial reports of consumer confidence metrics for November were on the rise after all-time lows in October.

This is a significantly better sign to everyday market participants, compared to the non-stop bearish headlines that flew across magazines and newspaper for most of October and early November. Now can this translate into a December Santaesque Rally? While opportunities are certainly there for gains on over-sold stocks, to say this is a Bullish trend yet remains to be seen.

But with Obama capturing headlines for plans, partners and policies on "recovery", the mindset of the everyday consumer/investor will begin to shift from profoundly bearish to slightly bullish, and that's where the opportunity will lie. Notice how there's no more American Auto Industry on the verge of failure headlines just like that?

Citigroup brings out a bigger Ax

A shell of its former cash-loaded banking self, Citigroup (C) delivered another blow to its workforce today with the announcement of over 50,000 job cuts. The cuts are all part of an effort to reduce costs by 1/5th at the bank, which has seen its shareholders lose 67% of their value year-to-date.

CEO Vikram Pandit told reports of the plans to reduce company headcount to 300,000 in the "near-term". This latest round of cuts come on the heels of a worsening economic climate and an already slashed workforce by 23,000. The company which has struggled to capitalize itself amidst massive write-downs and losses paid only a $0.16/share dividend at the end of October. For comparison, the company paid $0.54/share in 2007 and $0.32/share earlier this year.

On the bright side for Citi, its situation is not unlike most other major banks over the course of the year. If that can even be considered a bright side. The turbulence in the credit markets and the sub-prime mortgage meltdown has left its fair share of well documented casulties. With Citi shares hovering under the $10 barrier Investors are sending a powerful message that something has to be done and soon or they will completely lose faith in the turn-around story Citigroup wants to champion in the years to come. If these drastic cuts are any indiciation, its that Citigroup is doing as much as it can to shore up its books, remain afloat, and capitalized enough to continue doing business well into the future.

Disclosure: Author owns C

US House defeats Bailout Bill. Markets plunge.

The controversial $700Billion bailout plan being pushed into the House today was to be the tipping point for the US economy and financial markets. With optimism swirling on the weekend that agreements had been finally reached on the bill, the one thing left to do was the most important. Vote on it.

The vote they did, the elected House narrowly defeated the bill, sending markets into a selling frenzy by mid-day. As traders learned of the tallying votes against the bill, sellers rushed through the electronic order desks and buyers were heading for the exits. The Dow fell 700 points during the early afternoon while the Nasdaq led all decliners (off about 7% at the bottom of the session).

With politicians on both sides of the spectrum resonating the importance of the bailout package with regards to the fragile nature of the US economy, it is crucial lawmakers do something substantial soon. President George W. Bush urged for the passing of the bill, as did Federal Reserve Chairman Ben Bernanke, but their pleas fell on a deaf House. Democrats did not get the overwhelming show of support they needed and Republicans held firm with their ideas and showed virtually little support even when implored by their President and House leaders. The final tally stood at about 60% of Democratics voting to pass the bill, along with about 30% of Republicans. Pitting the vote at 228 against, 205 for. Ending a tumultuous debating session in Washington that will surely leave politicians scrambling to draft a more "commonly-acceptable" solution soon.

The key is of course, that chances to rescue the financial system in America are few, and with another bank on the bubble, having to sell its banking assets, the focus has shifted from Bailout optimism to, who is next on the chopping block.

JP Morgan Chase (JPM) salvaged Washington Mutual in what became the biggest banking failure in US history, and today Citigroup (C) bought the banking assets of Wachovia (WB). Citigroup has insurance from the FDIC against Wachovia losses if they exceed $42Billion. A truly remarkable number, that will stretch Citi's already thin resources in the coming quarters. The company had to issue another set of preferred shares to the FDIC, as well as slash its own dividend down to $0.16/share.

As the day drew up a close the Dow continued to drift lower falling over 600 points just after 3pm. The Nasdaq continued to be the biggest decliner of over 160 points and the S&P followed suit down 90 points.

Markets eye huge open as SEC bans Short Selling Financials

Following Thursday afternoon rally, which led the Dow to a 400 point gain, the US SEC stepped in announcing a temporary ban on short selling 799 Financial stocks. A move that had been called for by Investors and members of the industry for the last few days. A move that is certainly seen by Investors as curbing the tide of massive profiteering by manipulators betting with the Financial collapse.

The news, along with the Federal Reserve's talking points about a sweeping plan to fix things in the tumbling financial sector, gave traders a renewed optimism. On this day the bull wins in the morning. The usual finance suspects are making the most waves as buyers are coming back in full force in pre-market trading.

Before the open some of the big names in the sector were looking well up.
Citigroup (C) up 34%
Goldman Sachs (GS) up 32%
Bank Of America (BAC) up 26%
Morgan Stanley (MS) up 49%
JP Morgan Chase (JPM) up 19%
Wachovia (WB) up 65%
Washington Mutual (WM) up 58%

An incredible buying turnaround from where these companies were just a few days ago.

Uncertainty remains within Brokers Morgan & Goldman

Last of a dying breed? Morgan Stanley (MS) & Goldman Sachs (GS) remain Wall Street's 2 independent brokerage houses, and for that fact, their shares are being sold off heavily day in and day out. Despite the fact that both companies beat reduced earnings expectations for the quarter, they are being lumped into the same selling frenzy as their industry com padres due to their heavy reliance on leveraged investments.

Goldman profit fell 70% year-over year but the company still managed to make ends meat. The yearly comparisons are not pretty considering Goldman's record 2007 financial year. $810Million in profit ($1.81/share) vs. $2.81Billion ($6.13/share) last year. Overall revenue was down also from $12.3Billion to $6.04Billion.

Morgan Stanley, which had its own set of difficulties over the year reported profit that fell 3% year over year, $1.43Billion vs $1.47Billion, which translates into $1.32/share this quarter. With net revenue reaching $8Billion, a 1% year over year increase, Morgan showed it can still deliver results, however the pressure on the company to make a deal with a bank is staggering.

The old leverage issue again, as Investors feel the only way to shore up capital and assure broker survival is to pair up with a bank and the giant vault of deposits that go along with it. When Merrill Lynch (MER) made the deal with Bank Of America (BAC), followed by Lehman Brothers (LEH) bankruptcy, both of which followed JP Morgan Chase (JPM) rescue of Bear Stearns the Street was down to 2 stand-alone investment houses.

The rumor-mill has run wild of late regarding Morgan, with reports of conversations with Citigroup (C), Wachovia (WB) and China Investment Corporation, which if done would leave Goldman Sachs as the sole big name brokerage left on Wall Street. Investor publications have held a positive opinion so far on BAC's deal for Merrill, so for Citigroup or Wachovia picking up Morgan Stanley on the cheap would also feel like a win.

However, in the turbulent times that are continuing, with a financial crisis unseen in most Investors lifetimes, the "Let's make a deal" talks are very cautious to say the least. If Morgan does join with a bank, and signs are pointing more likely recently that they will, Goldman will find itself in a unique position, having its main competitors under the corporate shells of some of the largest financial institutions in the country. The optimist finds that this will allow Goldman to thrive as the economy strengthens and underwriting and M&A advisory work become more prevalent, but the pessimist finds a single brokerage model struggling to survive in these economic tidal waves.

As Markets see-saw between down 400 point and up 400 point days, the successful trade is being on the optimist/pessimist part of the see-saw on the correct day. Lately though, the pessimism has run rampant.





Disclosure: Author owns GS, C

Finance Fails Again! Dow Drops 500 points

Monday started poorly and ended worse for Markets as the weekend turmoil of Lehman Brothers (LEH) and AIG (AIG) weighed heavily on the financial sector and stocks as a whole. As hope for a bailout of Lehman, or at least heavy asset sales dwindled Sunday, leading suitors heading for the exits, the company had no choice but to file for the bankruptcy protection.

Still standing, but sharing the negative spotlight is AIG, the insurance giant, which said that it may need $40Billion to keep moving forward. A remarkable number, when considering the company is reportedly backing nearly $60Billion ($57.8Billion according to Bloomberg) in sub-prime mortgages. AIG is looking to raise about $20Billion in capital and sell off another $20Billion in assets. New York has allowed the company special permission to access $20Billion in an effort to shore up some liquidty. The mathematics are still working heavily against AIG as shares plunged 60%, cutting half of AIG's market cap. Still not as bad as Lehman though, which lost 95% of its value due to its bankruptcy plans.

As Bank Of America (BAC) and Barclays (BCS) walked away from Lehman bailout talks on the weekend, BAC was busy getting another deal done as it agreed to purchase Merrill Lynch (MER) for about $50Billion, valuing the firm at $29/share. While Merrill jumped at the open the market's selling sentiment dragged it down to $17 from a high of $22.

And the rest of the financial doghouse followed:

Citigroup (C): down 13%
Bank Of America: down 21%
Wachovia (WB): down 25%
Washington Mutual (WM): down 26%
JP Morgan Chase (JPM): down 10%
Goldman Sachs (GS): down 12%
Morgan Stanley (MS): down 13%

The markets have seen down days like this before, albeit not to this extent, and many traders start talking themselves into the so-called bargains, but as former Fed chariman Alan Greenspan put it, and I paraphrase, 'This is the worst economic situation I've ever seen'.

Even the strongest of financials can still go lower from here, but for the ones who can ride it out, show they can stay afloat and show they can stay profitable, bargain basement prices wont be around for that long. That's a big reason why the Street will be looking so closely at Morgan and Goldman earnings.

Disclosure: Author owns C, GS

Bernanke comments lead to rally in Financials

Comments by Ben Bernanke, Fed Chairman, today lifted markets, especially for those battered companies in the Financial sector. In what could be called a "relief" rally, the worst 3 to 6 month performers in the sector received today the biggest lift in months.

Bernanke's comments sought for the Fed to increase its oversight ability and its power/resources in order to prevent future financial turmoil. In essence Bernanke wants to Fed to have new regulatory responsibilities and supervisory oversight of the Financial markets and Financial companies.

In light of the commentary and an almost $6 drop in Oil Futures, The Financial sector posted a board of green.
Bank Of America (BAC) up 8%
Washington Mutual (WM) up 15%
Citigroup (C) up 5%
Wachovia (WB) up 10%
Lehman Brothers (LEH) up 4.5%
Goldman Sachs (GS) up 3%
JPMorgan Chase (JPM) up 4.5%

While today's rally definitely was a relief for longer term holders of these companies, the industry as a whole, is by no means out of the woods. The Financials will still feel the pressure of the lingering sub-prime and mortgage troubles, and it wont be till the losses and write-downs fully subside can it become business-as-usual for some of America's most recognized corporate names.

Disclosure: Author owns C, GS

Banks continue decline, Job cuts at Citigroup, QMNM Day Trade

Markets Monday couldn't hold onto opening gains and slide lower before finishing roughly flat, as Energy was the only real green sector and continued pressure was put on the Financials. The Dow Jones and S&P ended flat while the Nasdaq was lower by almost 1%.

Energy's rise made up for further weakening Financials today as Banks and Brokerages were mainly to the red between 2 and 5%. Bank Of America (BAC) was hit with selling as it closes in on finalizing its purchase of troubled Mortgage lender Countrywide Financial (CFC). Continued worries at Citigroup (C) grew as reports surfaced of potential job cuts in the bank's Investment Banking division. As much as 10% of that workforce could be getting walking papers. With the stock already under pressure, Citi dropped another 4% to rest just 50 cents shy of its 52-week low.

On a brighter note, Investors buying in now are sitting on a 7% yield, provided no further dividend cuts are in store, and there's certainly no guarantees on that front.

A very interesting and lucrative day trade also was developing today with Quest Minerals & Mining (QMNM), a penny stock listed as an OTC issue. The company virtually doubled at the open to $0.03/share as the Kentucky based firm over the weekend announced its plan to get into production imminently with some of its energy and mineral properties, specifically its location at Pond Creek. The stock stayed around the $0.02/$0.03 levels as volume surged in the security, however towards the end of the session, a secondary flood of bidding pushed the issue to close at $0.07/share, making the day's gain over 400%!

Trading and Investing in penny stocks is certainly not the recommended path for those just starting out or learning the investing ropes, but it can be a lucrative proposition at times, and with the volatility inherent in the energy and materials sectors, it can not be overlooked that in this day in age, an increasing amount of small companies can truly make market-noticing breakthroughs specifically in these areas of business.

Disclosure: Author owns C

Wachovia posts Loss, brings down banking sector further

Wachovia (WB) joins the list of Financials that promise one thing and deliver another as it reports a quarterly loss and tries to raise more cash, $7Billion worth, with a further offering. The 4th largest bank in America gave Wall Street a loss of $0.20/share vs. an expected $0.40/share profit.

Revenue was also weak at $7.89Billion vs. $7.98 expected. The numbers do in fact speak for themselves and when you've got the CEO coming out and saying that he's very disappointed in the results it's not a good look for another Financial name. But wait! Wasn't this the same CEO that months prior promised that things would be better, promised that the dividend is safe, promised a turnaround? In fact it is! But good things aren't meant to last and Wachovia's $0.64/share dividend (a yield of almost 9% at current valuations) wasn't meant to last either.

With losses, come jobs cuts and dividend slashes. Much like it's bigger sibling in the banking world, Citigroup (C), Wachovia was forced, by this credit and mortgage mess, to cut its dividend by about 40% to $0.375/share. While still a respectable 5% yield, bringing it in-line with banking peers, the move comes as a blow to shareholders hoping for a turnaround in the near turn. Investors would hope in the best case that the high yield would correct itself based on a higher stock price, not on a dividend cut.

So what about the promises of the dividend being safe, made not too long ago? Can any Investor really know whether that was genuine or a 'buy some time' gesture? The fact remains that in the Financial Sector, throughout this Credit Crisis traders have seen many executives promise to hold the fort, then be unable to deliver. Most recently that was seen with Bear Stearns (BSC), where the executives relayed to Wall Street their 'solid as a rock' liquidity position, only to require a bailout days later by JP Morgan Chase (JPM) and the New York Federal Reserve.

Bright spots for Wachovia seem to be few and far between as the company took a further $2Billion in write-downs and set aside another $2.8Billion for future loan losses. One such bright spot, for the capital position of the bank is its new stock offering. While traders punished the company today, sending shares lower by almost 10%, selling almost $7Billion in stock (common and preferred) has to be seen as a longer term positive. Shoring up the balance sheet is priority number 1 for Wachovia, and once that's taken care of the bank can begin its rebound, its stock climb based on solid earnings, and it's return to higher dividend yields.

Disclosure: Author does not own any of the companies mentioned

Markets Experience Rebound Rally as Government pledges $200 Billion

Well that good old trusty Government in the United States decided to up the ante in the credit recovery debacle. The US will pump upwards of $200Billion to ease liquidity worries throughout the Financial sector. Is this too late? Maybe, but traders didn't seem to think so as major indices jumped much higher on the news.

The Dow jumped over 400 points, closing up 3.5% while the Nasdaq up 4% and the S&P up 3.7% followed suit. The Financial sector was especially active today as Citigroup (C) up 9%, Bank Of America (BAC) up 7% and Wachovia (WB) up 13%, experienced hefty gains.

Several recent battered technology names also staged recoveries on the day, with one of the most notable being Google (GOOG) up $26 or 6.3% as news surfaced from the European Union blessing its acquisition of DoubleClick. This clearance allows the search giant to finally start to integrate DoubleClick into its own operations and being to expand DoubleClick display advertising technology in an attempt to supplement its market leading position in search based textual advertising.

Bank Of America & Wachovia see Profits Diminish but not Evaporate

The latest major US Financials to report earnings saw first hand the engulfing losses that have plagued many of their peers. Bank Of America (BAC) and Wachovia (WB) proved to be just as culpable in the US mortgage and credit mess as many of the other US banks and Investment Houses. Earnings for these two firms fell 95% and 98%, respectively.

Bank Of America, which till now, hadn't been hit by selling as hard as major competitor Citigroup (C), acknowledged a multitude of mortgage based losses and set liquidity provisions on its balance sheet to absorb even more. Now, while not as headline grabbing as the bigger losses of its peers, BAC managed to rack up over $5Billion in mortgage related write-downs and a further $5.5Billion in related trading losses. Even so, the company managed to eek out a small profit. $0.05/share vs. last year's mark of $1.16/share (Profits of $268Million vs. last year's $5.26Billion).

Revenue falling was also a concern as a 31% top line dive for any type of company can not be seen as healthy. Bank Of America also set aside over $3Billion for future related troubles (read: more losses due to bad loans), but it seems to have seen the worst for now. Analysts still expect somewhere over $4/share in earnings in FY2008, pegging a forward P/E for the battered bank at just under 9. In-line with what the markets expect to pay for the big Financials. BAC's cause was helped today by a 4% run-up (over 11% reversal from the open) in its stock.

If there's a less greedy bank option in the US, and one ripe for ownership for a longer haul reversal, it is probably BAC.

Another financial competitor, Wachovia, also posted a drastic decline in profit, but like BAC-and unlike others in the sector-it in fact still reported a profit! Profit numbers were minuscule at $51Million ($0.03/share) vs. a year ago result of $2.3Billion ($1.20/share). That's a spectacular 98% drop. However, it does show that Wachovia had some wits about itself to not completely jump in with both feet into a saturated sub-prime market. The revenue slide was not as great as most peers, coming in only 19% lower than a year ago at $6.3Billion.

Now, that's not to say all is well here, as in fact Wachovia increased its provisions for more losses many times over, 7 times in fact, to $1.5Billion, as well as recording a loss of $1.7Billion on loan related investments. That is a future provision of almost 1x current reported losses. This number is far more worrisome when compared to larger competitor BAC, which set provisions of only 0.3x current reported losses. Management however, reiterated that while poor results were in fact delivered today, the goals for the future and the expectations on those goals, remain very much in tact.

The Major Financials in this market-climate seem like a laundry list of the heaviest hit securities, and deservedly so, but some more than others, and a quick glance at profit declines and loan loss provisions shows which were in fact the greediest. While Citigroup tries to dig itself out of massive losses, others are simply dealing with profit cuts and slightly larger provisions. JPMorgan Chase (JPM) is an example of the latter, and along with BAC and WB seems to be the better candidate for a recovery into the later stages of this year and next.

Disclosure: Author is long BAC, WB

Citigroup Loses It's Hat in Latest Quarter

Citigroup (C) started a new trading day for Wall Street with what traders had feared for months now. Enormous credit losses. For the bank, it was the biggest loss in its 196 year history as a company. Almost $10Billion to be exact. Catastrophic? I think so.

With about $18Billion in write-downs to assets related to mortgage and credit, Citigroup was plagued by its "both-feet" in approach to the sub-prime market which has over the course of the last 6 months completely collapsed under its own weight; scratch that, greed. Citi lost $1.99/share compared to the expected $1.03/share but even some traders expected worse, so they asked questions about further losses. Citigroup has been by far hit the hardest of the major US banks and by and large it has deserved every licking. The icing on the cake in this quarter was the recently foreshadowed risk of dividend cuts. Citi in fact, cut its dividend by 40%. Four-Zero Percent!

Management tried its best to tap dance around the "unacceptable" and staggering loss metrics but the dividend cut was the stocks undoing today. The company prays that Investors hope that now the worst is surely over. It might just be, but it will take a long while for Citi to right the ship again. The dividend cut was the last straw for many Investors and Citi's stock fell over 7% in regular trading and stands down another 1% in extended hours.

Citi's problems plagued the entire market today as all major Indices were heavy to the negative side. The whispers of the credit crisis spilling over into spending, whispers of dividend cuts, whispers of massive losses, all turned into yells, and it seems no one was screaming louder than those saying "Sell Citigroup".

Can newly minted CEO Vikram Pandit give life and convince investors of new found confidence in the major Financial Institution that is Citigroup? That's the big question Investors are asking themselves and until the stock shows some life, they're probably looking for their own hats and the door.

Disclosure: Author owns C

2007 Ends with a Bearish Tone, Dow loses 100 points

The Dow ends the year down 101 points, and while the average is in positive return territory for the year (about 6.5%) the latter part of the year has become increasing volatile and negative. The credit crisis dominated the market headlines over the last few months and Big Finance has endured billions upon billions of losses in their asset valuations.

These bad bets have cost the big banks plenty as the hit list is broad and plentiful. Since Mid Year highs, there have been nothing but bad news from the Financial sector. (Apart from consistent blowout quarters at Goldman Sachs (GS))

• Citigroup (C) is down 48%
• Bank Of America (BAC) down 24%
• Wachovia (WB) down 34%
• Merrill Lynch (MER) down 46%
• JPMorgan Chase (JPM) down 19%
• Morgan Stanley (MS) down 31%
• Lehman Brothers (LEH) down 24%
• Bear Stearns (BSC) down 38%
• Goldman Sachs down 14%

These numbers are staggering and many analysts are painting an even bleaker picture for the Financials in 2008. While I think there's the potential for big rebound gains into the 2nd half of the year for these companies my major worry is that once Dividends start getting cut, more investors will flee to other safe havens. The rumors of Citigroup needing to cut its dividend by 40% certainly have hurt the stock over the past couple of weeks.

There will be opportunities in 2008 for the Investor, as I feel the recession fears are overblown and selling based on those fears is overdone. The selling was done consistently throughout the past couple months, timed with the Federal Reserve Interest rate moves.

2007 will go down as the year of the iPhone from Apple (AAPL), and the popular mobile phone gadget has helped the technology company to another breakout year by more that doubling since the device's unveiling. Look for Apple to extend its reach with iPhone in the coming months (Europe, Asia etc.). Technology and Oil were the leaders for better parts of the year in 2007 and this will likely continue going into 2008. I believe there is tremendous commodity and trader pressure to get and keep oil above the $100 mark. Should this happen it will continue to put pressure on the consumer and big ticket spending (Homes, Cars) will soften still, putting further pressure on the overall market and North American economy.

Luckily though, all metrics the market has gotten lately have pointed to a stable and growing US economy, and consumers seem to be taking high gas prices in stride. All signs point to a strong Christmas season, led broadly by Technology (Gaming & gadgets), and with this the chip makers should see continued strong demand, specifically Intel (INTC).

It's the first end of year trading session for the WC Power Tech Fund Blog and I'd like to thank all the readers throughout the first few months here.

Markets extend Recovery Effort to 2nd day Wednesday

Major Market indices got another substantial boost Wednesday as stocks across the board rose higher led by Technology and the Financials. The Dow rose more than 330 points while the Nasdaq rose over 80 points. On the Canadian side the TSX rose more than 260 points.

Investors seemed to rekindle hopes for another Rate Cut as the Federal Reserve statements hinted at the possibility. On the recovery path were major and sub-prime financial players such as Citigroup (C), Bank Of America (BAC), Washington Mutual (WM), NovaStar Financial (NFI) and Countrywide Financial (CFC). Traders were keying on news tidbits that helped ease doubts about liquidity problems for the Financial companies particularly from CFC, which said that its "Cash Lines" are intact. That didn't help the embattled lender on the day very much but it spurred the thinking that the bigger players will turn the ship around soon enough, given their sizable asset and normal banking customer base. Citigroup and WM were among the big turnarounds today, moving almost 7%, while BAC was up 4.5%.

The Canadian markets saw a big rebound in the banking sector as well as the major Canadian Financial Institutions like Royal Bank (TSE:RY), CIBC (TSE:CM), Bank Of Nova Scotia (TSE:BNS) and TD Bank (TSE:TD) were all high percentage gainers.

The bigger news on the day, sparking the rally was talk of the Federal Reserve and its plans, going into the next Rate meeting. That meeting is set to take place in early December and Investors hope comments of "offsetting policy" and the rise of commodities such as Oil and Gold will lead to another cut. The long term effects of a rate cut will also produce negatives but at this point Traders are concerned about having the necessary shorter-term buying catalysts going into the end of the year.