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

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.

Markets Slide Lower Thursday for 2nd Straight Day, NovaStar faces further Problems

Bearish sentiment gains strength for the 2nd straight day in the North American markets. The Dow closed down over 100 points, and is down about 250 points from highs seen earlier this week. The Nasdaq and The S&P indices followed the Dow's 1% loss with the similar percentage losses.

The selling was broad Thursday led by Energy and the Financials. Big US banks continued declining, with the major names dropping between 3 and 4%. The credit crisis reared its head again as NovaStart Financial (NFI) dropped its REIT (Investment Trust) status as it could not afford to pay out its required yearly dividend. The ramifications of this move are not clear yet as in prior reports the company was trying to shift its dividend from cash into preferred shares and try to drop its REIT status for next year. The problems in NovaStar are clear and Investors headed for the exits. The shares dropped over 50% and after hours fell below $2/share. Will the company have enough resources to continue operations while the market for its services is as fragile as it currently is? Investors seem to not have much hope. The company's share price was over $30 late last year, actually $120/share if you include the recent 1 for 4 reverse split. With a market cap of under $20 Million it'll be interesting to see if the company has any flexibility whatsoever to try and survive through trying times. Other risky loan players such as Country Wide Financial (CFC), down 8%, and Washington Mutual (WM), down 4% were also lower on renewed fears.

Starbucks (SBUX) was in focus after hours as it reported its quarter with a mixed bag of results. The premium coffee provider delivered earnings ($0.21/share) and revenue numbers ($2.45Billion) in-line with forecasts but the company lowered its new store openings plan for next year and remained cautious with its outlook. The stock was hit 7% after hours but is a great North American brand that is expanding furiously Internationally. The stock is down 45% from its 52-week high, and now it's worth a closer look after tonight's after market decline.

Disclosure: Author holds no position in the stocks mentioned

Fear over Financials drags Markets lower Wednesday

North American markets were broadly lower Wednesday as investor fear in the Financials and further credit crisis write-downs caused massive selling. Major indices across America were off between 2 and 3%, with the biggest loser being the S&P 500.

The US Dollar continued to weaken against other major currencies setting a new record low against the Euro. For us Canucks (Canadians, for those not from North of the border), we saw our Loonie hit $1.10 before settling back to $1.07 and change. Great if you're planning a loot shopping session in Buffalo on the weekend, not so nice if you're holding American investments.

The Financials were the biggest victims, whether they deserved it or not. Fear of further write-downs and losses spurred selling that carried throughout the entire day.

The list of victims is as follows:
Citigroup (C) - Down 4.5%
Bank Of America (BAC) - Down 5%
Wachovia (WB) - Down 6.5%
JP Morgan (JPM) - Down 4.25%
Morgan Stanley (MS) - Down 6%
Goldman Sachs (GS) - Down 4%
Lehman Brothers (LEH) - Down 5.75%
Novastar Financial (NFI) - Down 2.75%
Washington Mutual (WM) - Down 17.25%
Countrywide Financial (CFC) - Down 9.25%

Not even high flying Technology could save this session as selling was seen across the board. The amount of trader fear that exists over further credit losses, makes this a scary time as yet to go bargain hunting. If trying to buy on the cheap, do it in blocks and stagger the purchases because this pent up fear carries with it more potential downside.

Cisco Systems (CSCO) reported after the bell, a strong profit quarter, in line with forecasts but their guidance and words sparked further after hours selling. The US Bank debacle has starting to creep into the technology sector according to Cisco, as orders for networking equipment from the Financials were much weaker and comments form Cisco management only stroked further fears. Shares were off 4% in trading and another 9% in after-hours trading, leading major tech futures lower going into tomorrow's trading session.

Disclosure: Author owns and has covered calls in C, BAC, WB, GS

Markets Drift Lower Day Before Fed Announcement

North American markets took a breather today drifting steady but lower throughout the day. The major indices were all off less than 0.8% in both American and Canadian Trading. All eyes are going to be on the Fed announcement tomorrow as market watchers prepare for anticipated interest rate cuts.

Of note in today's session was the early news out of Europe that the EU (European Union) upheld previous court ruling against Microsoft (MSFT) in their anti-competitive practices case. The software giant was accused of bundling Windows Media Player with its Operating System thus shutting out competitors. It was also accused of not allowing competition in the server space by not allowing competitors to properly design software so Servers and Computers could communicate as well as Microsoft only solutions.

The ruling was a big loss for Microsoft and it included over $600Million in fines. It also opens a door of precedent for other big firms who dominate their industries, especially in technology, to potentially be caught in the EU sights.

Bad News came after the market closed for investors of NovaStar Financial (NFI) as the firm deleted its dividend for this calendar year. The company is set up as a Real Estate Income Trust and had to pay shareholders but it has now lost that REIT status and shocked investors by totally cutting off this year's payout. This poses a dire outlook for the company as it tries to stay in business being a mortgage lender at a time when companies in its industry seem to be cutting jobs and falling left and right by the wayside. Shares of NFI were down almost 20% after hours.

While the Federal Reserve rate decision remains the focal point of trading this week, Apple (AAPL) its own special event in London. Most rumors suggest that the company is ready to unveil its partners in Europe for the iPhone. The announcement is taking place well before American markets open tomorrow and will be another catalyst for a company that is itching to break out to new highs as soon as the credit crisis subsides. All that comes from this announcement may be lost if the market perceives any Fed action as negative.

Investor should stay on the sidelines till the market can find a direction either way after the Fed announcement. While analysts and stock market experts are predicting a fall no matter what the Fed does, I am cautiously optimistic that the markets will recover from this rather quickly and would use dips as buying opportunities in fundamentally solid growth companies.

Disclosure: Author owns AAPL, NFI

Could Novastar be a Sign of Life in Sub-Prime?

To see the most battered investments over the last couple of months, one need look no further than the companies who gave out risky loans. A quick look at that charts of NovaStar Financial (NFI) and American Home Mortgage (AHM) one can see the disaster that has plagued the industry.

With defaults rising, and credit problems seemingly spreading throughout the entire market its easily to let fire, get out and watch the world burn, while these companies struggle to stay afloat and remain in business. New Century Financial was not so lucky as it went bankrupt earlier in the year, and with AHM filing for Chapter 11 it seems like it won't be far behind. AHM's high for the year is $36 and now the stock sits at about $0.40! Yes that's right 40 cents for this mortgage player. Investors actions are speaking volumes as AHM tries to shield itself with bankruptcy protection. Seemingly days after it announced that it was laying off a vast majority of its workforce. No stop-gap measures could save this play it seems.

NFI was also in a lot of trouble even though it managed to work out a deal to get $150Million in funding recently. Trouble persisted as analysts came out saying even that wasn't enough and the company was doomed. Add to that the spreading word that more hedge funds invested in this industry are now worthless or close to worthless and you've got a fire sale spreading throughout the investment banking community.

Goldman Sachs stepped up and announced a new fund that will be going into the industry and it is to be valued at $20Billion. A sign of life? Maybe, but there's a lot of work to be done here. NFI also had problems last week announcing that it will suspend some loans that have not yet been processed. This news made the stock fall further as it dipped to about $4/share. A reverse 4 for 1 split went into effect last week and since then the stock has not drifted but been battered to the downside. That is until news today from the company that it will indeed be going back into the business of giving sub-prime loans. Now is this a sign that the winds are changing or is this a desperate ploy from a company that is still on the hook for a paying out a trust dividend this year? That much is not clear yet as it may take months and maybe years for this industry to climb out of this hole. However on the news NFI stock shot from the low $4/share to over $7/share. Volatile trading that reaped glorious rewards for day traders of the stock. However for NFI to think of coming back to earlier year highs it must do a lot more business in a lot longer period of time. Only the most patient of investors will probably stick with this company until, if ever, the institutional players see the market leveling and signs of undisputed life and profitability emerging.

Till then stay away from the chaos that is risky lending.

Disclosure: Author is long NFI