- GSE rescue props markets. Equity markets around the globe rallied Monday on the Treasury's move to take over giant mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE). Domestically, the Dow closed up 2.58% to 11,511; the S&P rose 2.05% to 1,268; and the Nasdaq tacked on a more modest 0.62% to 2,270. Some analysts were skeptical the move will cure credit market woes and woo banks to lend, given that weak fundamentals (unemployment, soft housing prices) persist. "It's a hard time to be bullish even if this is a watershed event in history," one said. Still, with a promise of as much as $200B in liquidity, many hope lower mortgage rates may soon prevail. "Is this a cure to the global growth doldrums?" SEI's Jim Smigiel asks. "No. But it's a good step to get the mortgage market functioning again."
- Bailout triggers CDS cascade. The government's GSE bailout qualifies as a so called "credit event," thus triggering what will likely be the biggest credit-default swap settlement ever. "The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown," one credit strategist says. Still, the government's now-explicit guarantee of their debt should limit the value of claims, assuming the move causes bonds to move closer to par - but the settlement may erase market-value gains brokerage houses were banking on.
- Ad alliance attack gathers momentum. The Justice Department took the rare move of reaching out to an outsider, hiring premier U.S. litigator Sanford Litvack for a possible antitrust challenge to the Google (NASDAQ:GOOG)/Yahoo (NASDAQ:YHOO) web-ad alliance. It isn't clear whether a challenge, if launched, would address only the ad deal, or "take on broader aspects of Google's conduct in the growing online-advertising business." On Monday, the powerful advertising group ANA complained to the department about the deal, which, not surprisingly, is also opposed by Microsoft (NASDAQ:MSFT).
- Pfizer looking at Bayer? Shares of Bayer (OTCPK:BAYRY) rose almost 4% Tuesday on rumors Pfizer (NYSE:PFE) may make a bid for the company. Pfizer has a history of doing mega-deals, but past acquisitions have disappointed investors who want to see Pfizer rely less on aging blockbusters. A deal for Bayer and its strong over-the-counter lineup would also be questionable, given PFE's recent sale of its non-prescription drug business to Johnson & Johnson (NYSE:JNJ).
- Let the GSE writedowns begin. Wells Fargo (NYSE:WFC) said it's taking a $500M writedown on its holdings of Fannie and Freddie preferred shares. Last month JPMorgan (NYSE:JPM) disclosed a potential $600M writedown, which has likely since grown after the government's explicit takeover this past weekend. E*TRADE Financial (NASDAQ:ETFC) and Sovereign Bancorp (SOV) also recently disclosed stakes.
- Google to broker NBC ads. Google (GOOG) will begin brokering TV ads on cable networks owned by NBC (NYSE:GE) - including Sci-Fi, Oxygen, MSNBC and CNBC - the first time Google is acting in this capacity. The high-profile partnership could give Google's effort to break into the TV-ad market, whose executives have been leery of Google's ad-auctions, some momentum.
- KDB and Lehman - not to be. Talks between state-run Korea Development Bank [KDB] and Lehman (LEH) are officially over, a government official says. Shares of LEH fell 12.65% Monday after the government cautioned KDB against buying a stake in the troubled Wall Street firm.
- Better than nothing = AAA. Moody's said Monday America's AAA sovereign debt rating is not at risk despite the government's takeover of Fannie and Freddie. "Not intervening would not have left public finances in any better shape," it says, which apparently in some way justifies the rating.
- Hedge funds struggle to grow. 35% of hedge funds lost assets in H1. Combined, U.S. hedge funds took in just 4.3% - their slowest growth in six years. JPMorgan (JPM) tops the list of hedge-fund firms, with $48.1B under management, up 7.6% from January. On a more positive note, volatility hedge funds, that profit from market turbulence, are up 7.3% YTD - vs. losses of 8.4% for equity funds, 4% for fixed income funds, and 6.4% for basic-materials funds. Many expect recent volatility to continue.
- Smart-phone shine dims in Q2. Smart-phone sales growth slowed in Q2 - up 16% vs. a year ago, compared with Q1 growth of 55%. Research In Motion (RIMM) and Taiwan's HTC posted 100%+ gains. Nokia (NYSE:NOK) still leads the pack, but will need to innovate if it wants to stay there.
- To cut or not to cut. Meeting Tuesday, OPEC ministers face a quandary: With the global economy teetering, do they really want to be seen slashing oil production in an effort to keep prices above $100 a barrel? Ministers are widely expected to keep output targets steady.
- Consumer credit outstanding increased by $4.6B in July - the smallest increase of the year, and short of a $6.2B consensus. Revolving debt rose at an annual rate of 4.8% - as Americans subsidize their living standards with credit-cards.
- Housing market intervention goes global. U.K. Chancellor of the Exchequer Alistair Darling says he's ready to intervene to revive the slumping U.K. housing market, and will likely present his proposals next month. U.K. realtors are selling just one house a week on average, the weakest sales rate since tracking began in 1978. Possible moves include the renewal or extension of the BofE's Special Liquidity Scheme, and a proposal to create a government guarantee for high-quality mortgage securities.
- U.K. manufacturing production fell in July for the fifth consecutive month, reaching an 18 month low, as rising oil prices further slowed economic growth. Factory output was down 0.2% on the previous month, vs. an expected -0.1%.
Earnings: Monday After Close
- Pep Boys (NYSE:PBY): Q2 EPS of $0.11 beats by $0.04. Revenue of $500M (-9.4%) vs. $515M. Shares +0.1% [PR]
- Asia markets on Tuesday gave back some of Monday's strong gains. Nikkei -1.77% to 12,401. Hang Seng -1.46% to 20,491. Shanghai +0.11% to 2,146. BSE -0.3% to 14,901.
- In Europe, markets are broadly higher at midday. London +1.2%. Paris +0.6%. Frankfurt +0.8%.
- U.S. equity futures are up, lead by Nasdaq. Dow +0.2%. S&P +0.3%. Nasdaq +0.65%.
- Crude -1.07% to $105.20 (low: $104.23). Gold +0.49% to $806.50.
Tuesday's Economic Calendar
7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
10:00 Pending Home Sales
10:00 Wholesale Inventories
2:30 PM OPEC Conference
- 5:00 PM ABC Consumer Confidence Index
Seeking Alpha editor Rachael Granby contributed to this post.
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