- Global markets rejoice. Overseas markets and U.S. futures posted unprecedented gains overnight (see below) on cross-border measures to halt short sales in financials, and on news Congress is ready to legislate some sort of comprehensive mechanism to help faltering U.S. banks and financial houses purge their sickliest assets (see below). Gold and precious metals tumbled as the recent 'flight-to-safety' motif that boosted gold prices an unheard-of 15% over the past two days lost its shine (see below).
- SEC stops shorts. The SEC joined the UK's FSA in banning short sales on 799 (list (.pdf)) financial stocks. "The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," SEC chief Christopher Cox says. The halt will initially last for 10 days, with an option to extend up to 30. Other steps taken include a temporary requirement that money managers report new short sales of certain securities, and easing restrictions on securities issuers to repurchase their stock. "Under normal market conditions, short selling contributes to price efficiency and adds liquidity to the markets," the SEC noted. "At present, it appears that unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation."
- No more putzing around. Worn down by endless one-off crises, Congress says it's committed to fasttracking an $800B-1.2T comprehensive framework designed to unburden U.S. financials from their most toxic holdings. Described as "a giant dumpster for illiquid assets," the measure may also rescue faltering money-market funds. The effort is a recognition Treasury Secretary Paulson's and Fed Chairman Bernanke's steps thus far have failed to adequately address faltering housing and credit markets. The big question: With the government embracing even more devalued assets, will its own balance sheet be called into question.
- Morgan Stanley weighs options. Morgan Stanley (NYSE:MS), searching for answers to its recent stock price plunge, and the loss of 15-20% of the balances in its prime-brokerage division this week, continues to talk to Wachovia (NASDAQ:WB) about a possible deal. One possible footnote to a deal is spinning off its troubled mortgage portfolio using a so-called good bank/bad bank restructuring - which may appease Wachovia shareholders reluctant to expose themselves to even more mortgage debt not-yet having digested the $24B 2006 acquisition of Golden West. Besides a full merger, MS may look for a large minority investment to restore Street confidence. Sources say CEO John Mack has talked to Goldman Sachs (NYSE:GS) CEO Lloyd Blankfein five or six times in the past few days, and was a major force behind the push to blockade short sellers.
- Smaller, leaner AIG. Edward Liddy, AIG's (NYSE:AIG) new CEO, says he hopes to keep as many of the company's largest insurance operations as possible intact in a publicly traded company - after selling off some assets to pay back the government's $85B loan at a 'loan-sharkish rate of interest.' "There will be a company at the end of this," he said. "It'll be smaller; it'll be a lot nimbler." He's giving himself four weeks to tool the turnaround. Shares gained 31% Thursday and are up 15% in the premarket.
- WaMu sale generates interest. WaMu (NYSE:WM), which put itself up for sale this week, has attracted several potential bidders for all or part of the bank, Bloomberg says. Financial Times insists it's attracted none. While stopping short of commenting on WaMu, Citigroup (NYSE:C) CFO Gary Crittenden said it may be "a source of the solution" - not part of the problem - a new role he seems to like. Sources say Citi, eager to expand its U.S. retail-banking business, is considering a bid.
- Buck breaking spurs mass money-market cash-outs. Putnam Investments shuttered its $12.3B Putnam Prime Money Market Fund, while a money-market fund run by Bank of New York Mellon (NYSE:BK) fell to below $1/share - ominously known as 'breaking the buck' - something that until this week hadn't occurred since 1994. Recent turmoil has led money-market investors to withdraw their funds en-masse, further weakening the battered funds' positions.
- Credit crunch ebbs. The Fed injected another $50B into cash-strapped credit markets Thursday, after receiving $77.65B in bids. Demand was less than a day earlier, which drew $102B in bids. The same was true overseas: On Friday, 64 banks bid for $96.7B in ECB funding, down from over $100B Thursday.
- State Street scare. Shares of State Street (NYSE:STT) went on a wild roller-coaster ride Thursday, falling as much as 40%+ on fears of its exposure to the newly-toxic money-market market and concerns it would be unable to roll over its outstanding debt. The stock rebounded to close down a mere 8.8% ($59) after STT issued a statement claiming its money market funds are stable and that it has ample liquidity.
- Sick and sicker. Freddie Mac (FRE) disclosed Thursday it hasn't received principal payments of $1.2B plus interest on short-term loans to Lehman (OTC:LEHMQ) that were due Monday. The disclosure demonstrates just why Freddie fell apart: "It's obvious Freddie didn't exercise reasonable safeguards," Egan-Jones Ratings' Sean Egan said. Why else would it have exposed itself so heavily to an I-bank teetering on the brink?
- Barclays wants more of Lehman. Barclays (NYSE:BCS) is in talks to acquire at least some of Lehman's (OTC:LEHMQ) French assets, sources say.
- Initial jobless claims for the past week were 455,000, higher than the 440K, and up 10K from last week. The four-week average rose 5K to 445,000.
- The Leading Indicators index fell 0.5% in August, worse than the -0.2% consensus. Building permits, supplier deliveries and unemployment claims made large negative contributions.
- The Philly Fed's manufacturing survey soared into positive territory for the first time in ten months, reaching 3.8 in September vs. -12.7 in August, suggesting manufacturers expect sector growth over the next six months. "Overwhelmingly exports are helping," NCC chief economist Richard DeKaser said. "Inventories are at relatively healthy levels and are no longer a weight on the factory sector."
- Russia joins global bailout lineup. Russian President Dmitry Medvedev unveiled an expanded $120B rescue package for the country's battered financial system. The package includes up to $20B in government purchases of blue-chip stocks, $60B in bank deposits, and another $30B in repo loans. Meanwhile, Russia's bourses were shuttered once again - this time due to a sudden surge in share prices.
Earnings: Thursday After Close
- Cintas (NASDAQ:CTAS): FQ1 EPS of $0.51 misses by $0.01. Revenue of $1B in-line. Shares -1.8%. [PR]
- Oracle (NASDAQ:ORCL): FQ1 EPS of $0.29 beats by $0.02. Revenue of $5.42B (+18%) in-line. Shares +6.7%. [PR]
- Palm (PALM): FQ1 EPS of -$0.12 beats by $0.06. Revenue of $367M vs. $325M. Shares -9.4%. [PR]
- Asia market strength was exceptional. Nikkei +3.76% to 11,921. Hang Seng +9.61% to 19,327. Shanghai +9.46% to 2,075. BSE +5.46% to 14,042.
- Europe surged higher. London +7.2%. Paris +6.6%. Frankfurt +4.1% at midday.
- U.S. futures are up big. Dow +2.53%. S&P +3.35%. Nasdaq +2.25%.
- Treasurys retreated as stocks surged: 30-year -1.55%. 10-year -1.35%. 5-year -1.18%. 2-year -0.65%.
- Precious metals lost their 'flight-to-safety' shine. Gold -6% to $842.90. Silver -4.7% to $12.10. Platinum -2.8% to $1,105. Crude +2.6% to $100.40.
Friday's economic calendar:
0:00 Quadruple Witching
9:15 Treasury's Kashkari Speaks On Covered Bonds
1:00 PM Fed's Evans Speaks on Economy
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