On Friday, the 30-share Dow Jones industrial average fell 14 points, or 0.1%, to close at 10,318.16.  The broader S&P 500 index closed 0.3% lower at 1091.38 and the tech-heavy Nasdaq finished the day at 2146.04, off 0.5%.  On the week, the Dow average managed to hang on to gains, registering a paltry 0.5% advance.  The S&P 500 and the Nasdaq fell 0.2% and 1%, respectively.  On the New York Stock Exchange, 1.1 billion shares exchanged hands, with declining issues ahead of those that advanced in price by a three-to-two margin.

Last week’s disappointing reports on housing and weak forecasts from technology companies had antsy investors swooping up safe haven investments like Treasury bonds and dollar.  The demand for safe havens also spiked after European Central Bank President Jean-Claude Trichet remarked that the bank is planning to unwind some of its stimulus measures.  A higher dollar pushed crude prices lower and pressured stocks.

Nevertheless, at the center of the activity on the Wall Street is the ascending price of such physical assets as gold, which touched its fresh highs of $1146.80 on Friday, and a declining dollar.  The metal, although lacking fundamental valuation measures, has surged 29.7% so far this year.  Since India's central bank bought 200 tons from the IMF, the metal has jumped 11.5% on its dollar-alternative, safe-haven, inflation-resistant appeal.

Meanwhile, the decline in the US dollar has raised valuation expectations for the major industrial companies, with offshore sales expected to boost revenues.  Nevertheless, this week’s highlight remains today’s after-market-close earnings from Hewlett-Packard (NYSE:HPQ).  Last week the company preannounced strong quarterly numbers, anticipating record sales results of $30.36 billion, and earnings of $1.13, and also lifted its 2010 guidance.

Last week, the 1% decline in the technology shares came after weaker-than-expected guidance from two software companies, Autodesk (NASDAQ:ADSK) and Salesforce.com (NYSE:CRM), was compounded by disappointing numbers from Dell (NASDAQ:DELL).  Technology companies felt the heat after Dell (NASDAQ:DELL) reported quarterly earnings that were well below analysts’ expectations.  The company said sales of its computers to big businesses remain weak.  Shares in the company plunged 10% to $14.29.  So far in November, the NASDAQ has advanced 5%, and is up 36.1% year-to-date. 

The 0.2% pullback in S&P500 was caused by declines in oil and gas (-1.4%) and tech (-1.3%) sector shares that offset gains in health care issues (+1.5%) and basic materials (+1.2%).

The earnings calendar has slowed, but companies still due to report include: Campbell Soup (NYSE:CPB) on Monday; American Eagle (NYSE:AEO), Barnes and Noble (NYSE:BKS), Dollar Tree (NASDAQ:DLTR) on Tuesday, with Deere (NYSE:DE), J Crew (NYSE:JCG) and Tiffany (NYSE:TIF) on Wednesday.

Chicago, IL – November 18, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: PNC Financial Services (PNC), Bank of America (BAC), Bank of New York Mellon Corp (BK), MasterCard (MA) and JPMorgan Chase (JPM).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Tuesday’s Analyst Blog:

BofA Continues CEO Hunt

Recently, William Demchak of the PNC Financial Services (PNC) was offered the position of the next CEO of the Bank of America (BAC). However, the offer was turned down by Demchak.

We suspect Demchak declined the offer as the pay package is likely to be among the least competitive in the industry, especially since the Obama administration's pay czar took the axe to seven institutions' pay plans, chopping the average high-end salary by 50%. Moreover, the bank is also operating under a memorandum of understanding with regulators, who are scrutinizing the top gun's every decision.

The present CEO of the Bank of America, Mr. Ken Lewis, is set to leave the position, stepping down at the end of the year. It may be noted that he succumbed to the pressure to resign after his company’s Merrill Lynch acquisition.

Earlier this month, Robert Kelly of the Bank of New York Mellon Corp (BK) was offered the role of CEO by the bank. Former Bear Stearns CEO Alan Schwartz is among those reportedly approached who turned down the CEO job offer, as did MasterCard (MA) President Ajay Banga. Others may include Moffett and Charlie Scharf, who runs JPMorgan Chase’s (JPM) retail operations, among others.

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The U.S. government injected $45 billion in bailout funds into the bank and currently has a 34% equity ownership stake. Citigroup has been selling its assets as part of its restructuring efforts. In October, the company completed the sale of its Japanese brokerage business to Sumitomo Mitsui Banking for $8.7 billion.
 
We expect Citigroup to incur higher credit losses in the upcoming quarters as its restructuring process continues. However, such strategic sell-out bodes well for the company.

The table at the right summarizes the percent change between January 6 and November 11 in the cash prices of 19 commodities reported in the Wall Street Journal (downloaded via Webstract). The average commodity in this list has appreciated 37% since the start of the year.

A recent paper by Ke Tang and Wei Xiong documents an increasing tendency for commodity prices to move together over the last few years. A decade ago, what happened to oil prices was largely unrelated to movements in most other commodity prices. The graphs below show how the correlations between oil prices and the prices of four representative commodities have increased significantly over time.

Correlation (using a rolling sample beginning one year before indicated date) between returns on oil and specified commodity. Source: Tang and Xiong (2009).

One explanation I often see in the popular press is that movements in commodity prices are driven by changes in the value of the dollar relative to other currencies. However, the magnitude of movements in commodity prices greatly exceeds the size of changes in the exchange rate. For example, the table above shows that since the start of this year oil prices have increased five times as much as the dollar price of a euro; see also Steve Gordon's graphs. While the depreciation of the dollar is part of the story, most of the explanation must be found elsewhere.

Another important factor is resurging real economic growth outside the United States, which produces pressures for both the dollar to depreciate and the real price of commodities to appreciate. According to this theory, the increasing correlations between commodity prices results from the fact that countries like China are so much more important for the world economy today than they were a decade ago.

A third explanation is that investors are making increasing use of commodities as an investment class. Although Treasury Inflation Protected Securities offer a hedge against an increase in the U.S. consumer price index, they don't offer protection for foreign investors against depreciation of the dollar. Insofar as increases in the prices of commodities like oil may depress real economic activity, holding commodities as an investment also offers useful diversification against risks to equities. Particularly when interest rates are low, there is an incentive to hoard physical commodities as an investment vehicle.

The paper by Tang and Xiong proposes that the increased use of commodities as a financial investment accounts for the increasing correlation among commodity price changes over time. In support of that claim, they note the growing popularity of investment strategies based on the Goldman Sachs Commodity Index or the Dow Jones Commodity Index. Tang and Xiong document that correlations among commodities included in the indexes have increased faster than those not included. For example, one of the regressions they estimate relates the return on commodity i to equity returns, bond yields, the value of the dollar, and oil prices, where the coefficients are allowed to grow with time at different rates before and after 2004, and with different trends on these coefficients estimated for commodities included in indexes as for those excluded. The figure below shows their estimated time path for the coefficient on oil prices comparing the indexed and non-indexed groups.

Coefficient relating return on average commodity to return on oil as a function of time for commodities included in the GS or DJ indexes (top curve) and those excluded (bottom curve). Source: Tang and Xiong (2009).

For any of the explanations in this third class, one of the important challenges is to reconcile the story of commodity speculation with supply and demand for the underlying physical commodity. If we propose that speculators have driven the price of the commodity up, the physical quantity demanded should decline as a result. In order to be sustained, a coherent speculation-based theory of commodity price appreciation requires increased physical storage of the commodity.

The solid black curve in the figure below plots the typical U.S. crude oil stocks (excluding those held in the Strategic Petroleum Reserve) for each week of the year, based on the average over 1990-2007. The red line gives the actual values for 2008, which were significantly below the historical average, particularly in the spring of 2008 when oil prices were rising so dramatically. Those below-normal inventories were one reason I focused on what was going on to the fundamentals of supply and demand in trying to understand the behavior of oil markets in the first half of 2008.

Weekly U.S. crude oil ending stocks, excluding SPR, in thousands of barrels, from EIA. Black line: average over 1990-2007. Red: 2008. Green: 2009.

On the other hand, inventories of crude oil this year, shown in green above, have been substantially above normal, meaning that in the absence of that oil going into storage, we would have expected to see lower oil prices than we currently have.

Moreover, much of the current stockpiling may be taking place outside the United States. For example, Yves Smith noted this story from Bloomberg last August:

Copper, nickel and other base metals stockpiled by speculative Chinese investors including pig farmers may be sold when "market sentiment turns," said Scotia Capital Inc.

A price surge and easy bank credit this year encouraged pig farmers, stock brokers and businessmen to buy copper and nickel for speculation, Liu Na, an analyst with Scotia Capital, wrote in a note dated Aug. 17, citing reports from the state-owned China Central Television....

"These stockpiles are in 'weak hands' as speculators have no real use for base metals," Liu wrote. "When the market sentiment turns, they are very likely to turn into quick sellers, especially when the bank's money is involved."

I also found this November 3 story from the Financial Times of interest:

Gold prices continued to rise on Wednesday extending the all-time highs which followed India's central bank bought 200 tonnes of the precious metal, swapping dollars for bullion as the country's finance minister warned the economies of the US and Europe had "collapsed".

India's decision to exchange $6.7bn for gold equivalent to 8 per cent of world annual mine production sent the strongest signal yet that Asian countries were moving away from the US currency.

Policy-makers in the Federal Reserve have traditionally thought of inflation as a broad movement in all wages and prices, which to some extent is under their control, and viewed changes in relative commodity prices as outside their control. I believe that this is not the correct understanding of the current situation. Concerns about inflation, particularly on the part of foreign dollar-holders, are likely to show up first in the relative prices of internationally traded commodities. Insofar as these relative price changes can be destabilizing in themselves, it cannot be wise for U.S. policy-makers to ignore them.

Chicago, IL – November 12, 2009 – Zacks Equity Research highlights Cisco Systems (CSCO) as the Bull of the Day and Potash Corporation (POT) the Bear of the Day. In addition, Zacks Equity Research provides analysis on JPMorgan Chase & Company (JPM), Citigroup Inc.(C) and Bank of America (BAC).

Full analysis of all these stocks is available at http://at.zacks.com/?id=5506

Here is a synopsis of all five stocks:

Bull of the Day:

Cisco Systems (CSCO) is a leading provider of IP-based networking and other products. The company's first quarter results were a significant improvement over prior quarters, with both revenue and earnings exceeding our expectations.

Of particular note is the growth in orders, which indicates continued business momentum. Improving operating performance, solid financials, a sound restructuring policy and new growth initiatives are the drivers behind our Outperform rating.

However, we caution investors about the increasing competition, market share losses, complicated decision-making process and integration risks.

Bear of the Day:

We downgrade Potash Corporation (POT), the world's leading producer of potash and fertilizer, to Underperform. The company has been hit hard by the global economic crisis, leading to weak demand and prices as farmers reduce their use of fertilizers. This has induced a sharp fall in profits for fertilizer producers.

Potash Corp.'s earnings declined 79% in the third quarter of 2009. The company expects fertilizer demand to remain weak for the rest of 2009, and plans to cut potash production. Potash Corp. has also lowered its expected earnings and slashed 2010 global potash demand expectations.

About 40% of global potash production capacity stands idle since the second half of 2008. The company also expects some of its capacity to remain curtailed in 2010.

Latest Posts on the Zacks Analyst Blog:

JPMorgan to Lift Salary Freeze

According to an internal memo to all employees, JPMorgan Chase & Company (JPM) will lift a salary freeze it put in place last year. The salary freeze was applicable for employees making more than $60,000 a year.

The decision to lift the salary freeze is a part of JPMorgan’s compensation review process, following its profits for last several quarters in its investment-banking operations.

The bank also intends to pay a $500 special award globally to employees who receive less than $60,000 a year.

Additionally, the bank also plans to add more than 300 staff to its branches to support a $4 billion increase in small business lending in an effort to help revive the U.S economy. Also, to boost new loans and refinancing, JPMorgan will hire 1,200 mortgage loan officers by the end of 2010. This addition will increase the company’s sales force by approximately 60%.

According to the company, lifting the salary freeze and hiring new employees will help it to increase access to working capital, term loans for expansion, commercial mortgages, lines of credit and business credit cards.

JPMorgan is among the large financial institutions that have already repaid government funds. In the second quarter of 2009, the company repaid the full $25 billion in preferred capital received as part of the Troubled Asset Relief Program (TARP). In fact, this has partly enabled it to take the recent decision to lift the salary freeze.

However, for many other firms, like Citigroup Inc.(C) and Bank of America (BAC), the full repayment of TARP money is uncertain at this point as they are facing a difficult situation.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5508.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5509.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
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Web Content Editor
312-265-9380
Visit: www.zacks.com

Chicago, IL – November 11, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Enzon (ENZN), Merck (MRK), OSI Pharmaceuticals (OSIP), Pfizer (PFE) and Bank of America Corporation (BAC).

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Here are highlights from Tuesday’s Analyst Blog:

Enzon Beats, Announces Sell-off

Enzon (ENZN) achieved break-even earnings during the third quarter of 2009, better than the Zacks Consensus Estimate of loss of 7 cents but below the year-ago earnings of 1 cent. The company reported revenues of $44.6 million, a decline of 9% compared to $48.8 million reported in the third quarter of 2008.

Enzon records revenues from three sources -- products, royalties and contract manufacturing. The three segments recorded a decline of 1%, 6% and 56%, respectively, compared to the year-ago period.

Enzon has four marketed products -- Oncaspar for the treatment of acute lymphoblastic leukemia (ALL); DepoCyt for lymphomatous meningitis; Abelcet for antifungal infection related to cancer and Adagen used to treat severe combined immunodeficiency disease (SCID), commonly known as the "bubble boy" disease. Apart from Oncaspar, whose sales remained unchanged from the year-ago period, the other three recorded a decline of 4%, 15% and 10%, respectively.

Enzon earns royalties from several products, which have been manufactured using its proprietary PEGylation technology -- Pegintron, marketed by Merck (MRK); Macugen, marketed by OSI Pharmaceuticals (OSIP) and Pfizer (PFE); Pegasys, marketed by Hoffmann-La Roche; and Cimzia, marketed by UCB Pharma. The company earns a majority of royalty revenue from sales of Pegintron, which is approved for the treatment of hepatitis C. Unfavorable movement of the foreign exchange brought down royalty revenues during the quarter.

Additionally, cancelled shipments and discontinuation of customer schedules were responsible for lower contract manufacturing revenues. We expect contract manufacturing revenues to suffer going forward since many of the current contracts are to expire in the next two years.

R&D expenses during the quarter were $15.8 million, unchanged from the year-ago period. The company has several pipeline candidates: PEG-SN38, the HIF-1 alpha antagonist, Survivin (antagonist) and other LNA- and PEGylation- based programs.

The company’s financial position continues to worry us. At the end of the reported quarter, total cash reserves including investments were $201.3 million, down compared to $206.9 million at the end of December 2008, primarily due to the repurchase of $20.4 million of notes in 2009 offset by the cash provided by operating activities.

Shortly after announcing its third quarter results, Enzon announced that it has decided to sell its specialty pharmaceutical business to the Sigma-Tau group of Italy for $300 million. In addition, the company is eligible to receive another $27 million based on success milestones and royalties of 5% - 10% on incremental net sales above a 2009 baseline amount from its four marketed products through 2014.

BofA Extends $184B in Credit

In its latest quarterly Lending & Investing Initiative report, Bank of America Corporation (BAC) said on Monday that it has extended about $184 billion in credit during the third quarter of 2009 to support households and communities.

The report makes obvious how BofA is utilizing the bailout money to support the U.S. economy. According to the report, since the fourth quarter of 2008 when the Troubled Asset Relief Program (TARP) was initiated, BofA had extended $759 billion in new credit. This represents almost $17 for every dollar of the $45 billion it received under the TARP. BofA also continues to provide a significant return on investment to the U.S. taxpayers. The bank is expected to pay more than $2.5 billion in dividend to the U.S. Treasury through Nov 16, 2009.

The extension of home loans continues to be among BofA’s priorities. The company extended $96 billion alone in first mortgages during the reported quarter. The loans helped nearly 450,000 people purchase a home or refinance an existing mortgage.

BofA is also extending credit to the municipalities and non-profits and has already provided $7 billion to help meet local needs and serve communities across the country.

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Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Contact:
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312-265-9380
Visit: www.zacks.com

Chicago, IL – October 30, 2009 – Zacks Equity Research highlights CarMax (KMX) as the Bull of the Day and Genomic Health Inc. (GHDX) the Bear of the Day. In addition, Zacks Equity Research provides analysis on J.C. Penney (JCP), Macy’s (M) and Bank of America (BAC).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676

Here is a synopsis of all five stocks:

Bull of the Day:

CarMax (KMX) focuses on penetrating new markets through store openings. The company has kept its inventories closely aligned with sales trends, which has allowed it to optimize gross profit per unit besides offering great value to customers. These have helped the company to maintain a favorable position among its peer group.

CarMax has reported profit in the second quarter, reflecting a significant improvement from the Zacks Consensus Estimate. It has experienced a significant rebound in CarMax Auto Finance income to $72 million in the quarter versus a loss of $7 million in the prior year quarter.

These lead us to upgrade the stock to an Outperform recommendation with a target price of $25.

Bear of the Day:

Genomic Health Inc.’s (GHDX) lead product is Oncotype DX, which is used for early stage breast cancer patients to predict the likelihood of cancer recurrence.

Even though sales of Oncotype remain robust and the company remains optimistic about its prospects, we are highly concerned about the company's reliance on the product for growth. We believe that Genomic needs to expand its product portfolio in order to sustain growth.

Furthermore, we are also concerned about the company's weak pipeline. These concerns have caused us to downgrade the stock to Underperform.

Latest Posts on the Zacks Analyst Blog:

Continuing Jobless Claims Fall

Continuing jobless claims dropped by 148,000 to 5.797 million, which is the biggest drop we have seen in this cycle. Even extended claims dropped by 71,000 to 3.893 million. Thus combined, there are now 9.69 million people getting unemployment benefits.

However, even extended benefits don’t last forever, and an estimated 7,000 people a day are losing that last lifeline. In Congress, the House has passed an extension, but the Senate continues to dither as the extension is being filibustered. After cloture is invoked, those senators who think that having millions of Americans suffering is a good thing (builds character, you know) plan to offer all sorts of unrelated amendments related to Acorn to further delay the bill.

This delay is not only callous as a humanitarian matter, but it is very stupid economic policy. If people have no income, and they have already run down their savings, they can either starve or turn to "extra-legal" ways of getting income. They certainly can’t be spending a lot of money at J.C. Penney (JCP) or Macy’s (M). The bank that becomes important to them is the local food bank, not Bank of America (BAC).

Extended unemployment benefits are among the best targeted stimulus dollars there are. They go directly to people who are in the most need, and to people who are likely to spend them quickly, thus creating a multiplier effect.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5508.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5509.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Contact:
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Web Content Editor
312-265-9380
Visit: www.zacks.com

(1) Capital adequacy. The key principle for preventing the "bank run" dynamics of the recent financial turmoil is to make sure that financial institutions have a sufficient cushion of equity capital to be able to absorb liquidation and delinquency losses on assets without sacrificing the institution's ability to repay short-term creditors. Equity capital is also a critical tool for addressing the core incentive problems arising from gambling with other people's money. As Chair Bernanke observed:

Through the course of the crisis, it became increasingly clear that many firms lacked adequate capital and liquidity to protect themselves as well as the financial system as a whole.

Professor Blinder elaborated:

the real leverage problems arose with (a) investment banks that operated (under a different regulatory regime [from commercial banks]) with 30 times leverage and more, and (b) gimmicks such as thinly-capitalized SIVs and conduits that (legally) avoided capital requirements...

Both Bernanke and Blinder further called attention to the problems with procyclical capital requirements. Standard capital requirements become looser when times are good, but that is exactly when it's most feasible and desirable for them to strengthen the equity cushion. Blinder advocated reverse convertible debentures proposed by Mark Flannery and the Squam Lake Working Group on Financial Regulation as a way to implement countercyclical capital requirements.

Though a conceptually different issue from equity capital, Blinder also favored requiring both mortgage originators and mortgage securitizers to retain 5% of any assets they create.

(2) Compensation. Blinder observed: "Pay plans that are structured in such a 'heads I win, tails I don't lose' way create powerful incentives for traders to go for broke gambling with OPM ('other people's money')." In his spoken remarks he added, "They did go for broke, and a lot of them achieved that objective."

Here were Bernanke's observations on the subject:

flawed compensation practices at financial institutions also contributed to the crisis. Compensation, not only at the top but throughout a banking organization, should appropriately link pay to performance and provide sound incentives. In particular, compensation plans that encourage, even inadvertently, excessive risk-taking can pose a threat to safety and soundness. The Federal Reserve has just issued proposed guidance that would require banking organizations to review their compensation practices to ensure they do not encourage excessive risk-taking, are subject to effective controls and risk management, and are supported by strong corporate governance including board-level oversight.

(3) Derivatives. Though Bernanke did not say much about the explosion of financial instruments such as credit default swaps and their role in propagating the crisis, Blinder highlighted the desirability of changes:

While the regulation of derivatives is fraught with peril, it is not hard to improve upon what we have now-- which is practically nothing. I have argued for years that the most important step the government could take would be to push as much derivatives trading as possible into organized exchanges....

The Treasury White Paper (p. 48) proposes to subject OTC derivatives to a "robust regime" of regulation that includes "conservative capital requirements," margins, reporting requirements, and "business conduct standards."

(4) Resolution mechanism. Finally, both Bernanke and Blinder stressed the need for a mechanism to supervise the liquidation of failing systemically important financial institutions. Blinder advocated:

we could develop a new resolution mechanism, perhaps patterned on what the FDIC now does with small banks (often before the bank's net worth goes negative), that would enable the authorities to wind down a systemically-important financial institution (including a non-bank) in an orderly fashion-- rather than just throwing it to the Chapter 11 wolves. This last idea is among the key ingredients of the Treasury's reform plan, has substantial support in Congress, and may well become law. If so, it would have several desirable effects.

• The TBTF doctrine would morph into “too big to be put into Chapter 11," but not "too big to be seized and its management thrown out." That change alone would go a long way toward reducing moral hazard.
• Taxpayers would (mostly) be relieved of the burdens of costly bailouts....
• Regulators would no longer have to keep large "zombie banks" (and non-banks) on life support for fear of the systemic consequences of shutting them down.

Bernanke endorsed this reform as well:

the Congress should create a new set of authorities to facilitate the orderly resolution of failing, systemically important financial firms.... In light of the experience of the past year, it is clear that we need an option other than bankruptcy or bailout for such firms.

A new resolution regime for nonbanks, analogous to the regime currently used by the Federal Deposit Insurance Corporation for banks, would permit the government to wind down a failing systemically important firm in a way that reduces the risks to financial stability and the economy. Importantly, to restore a meaningful degree of market discipline and to address the too-big-to-fail problem, it is essential that there be a credible process for imposing losses on the shareholders and creditors of the firm. Any resolution costs incurred by the government should be paid through an assessment on the financial industry and not borne by the taxpayers.

One detail I'd stress is the need for integration of the approaches to items (3) and (4) above. One of the problems that makes bankruptcy messy for these institutions is that outstanding derivatives contracts can assume a life of their own, sucking assets out of the firm as the market moves against the firm's bets and in practice giving these contracts seniority over conventional debt. From the perspective of society's best interests I don't think such seniority can be justified. I agree with the assertion in Blinder's spoken remarks that the economic costs of the latest recession exceed the cumulative potential efficiency benefits of what he referred to as "fancy finance."

I would propose that instruments such as the credit default swaps entered into by any systemically important financial institution should be subject to a regulatory stop-loss provision. In a standard clearinghouse mechanism, each party delivers collateral against the possibility of the market moving against their original bet. If the market moves too much, the loser either must add collateral or their position is wiped out. If the institution continues to deliver new margin capital, it can become like the compulsive gambler doubling down as the firm's equity cushion essential for financial stability bleeds away. Like the referee protecting a staggering boxer, the regulator needs the authority to declare "no mas" on an institution's commitment of new capital to such positions.

Bernanke concluded with the following:

we cannot lose sight of the need to reorient our supervisory approach and to strengthen our regulatory and legal framework to help prevent a recurrence of the events of the past two years.

To which I would only add, Amen!

According to the National Stock Exchange, U.S. ETNs had $6.9 billion in assets at the end of September. ETFs were literally 100 times more prevalent, with $697 billion in assets. That included $62 billion just in long commodity ETFs.

That’s just crazy. And it highlights investors’ irrational fear of the ETN product structure.

I remember when ETNs first came to market in 2006: Investors couldn’t get enough of them. Barclays Capital launched the iPath Dow Jones-UBS Commodity Index ETN (NYSEArca: DJP) and it quickly gathered assets.

The reason was simple: ETNs offered two huge advantages over commodity ETFs.

First, they promised perfect tracking. If you bought an ETN, you would receive the full return of the benchmark, minus the fund’s expenses. Period. That’s handy, since commodity ETFs have been more prone to tracking error than most equity funds.

But the real advantage of commodity ETNs was (and remains) their tax treatment. The prospectus said (and still says) that ETNs can be treated basically like zero-dividend stocks for tax purposes. If you hold a commodity ETN for longer than a year, you only pay 15 percent long-term capital gains taxes when you sell. What’s more, you don’t have to pay any taxes until you sell.

By comparison, futures-based commodity ETFs like the PowerShares DB Commodity ETF (NYSEArca: DBC) are treated like futures by the IRS. That means that gains are marked-to-market each year, and investors must pay taxes on those gains at a blended 60 percent/40 percent long-term/short-term capital gains tax rate. For a high-earning investor, that puts the blended tax rate at 23 percent, payable every year.

That’s a huge difference. An ETN investor pays a 15 percent tax rate, deferrable until the ETN is sold; the ETF investor pays a 23 percent tax rate, due annually.

Risk Factor

Why don’t we see more assets flow into ETNs? The only possible reason (short of simple ignorance) is the credit risk.

The N in ETN stands for note, and that’s what they are: unsecured debt notes. Like any other uninsured promise-to-pay, their entire value depends on the credit of the issuing bank. If you buy a Deutsche Bank ETN and Deutsche Bank goes bankrupt, you lose all your money.

It’s not a theoretical fear. The very few people who held the three Lehman Brothers ETNs to the bitter end lost their money when the firm went bankrupt. It’s obvious, looking at the numbers, that the credit crisis stopped the growth of ETNs in their tracks.

But let’s be honest: For an investor who is paying attention, the likelihood of losing money in an ETN is vanishingly small. Most ETNs offer daily redemptions at net asset value, meaning that (even ignoring the quoted market) an investor of size (50,000 shares in the case of iPath) can sell out of the product within 48 hours and get the full net asset value of the note from the issuer.

So ask yourself: How likely is it that Barclays Capital or Deutsche Bank, or whomever is underwriting a particular ETN, will go bankrupt with less than 48 hours’ warning? Or to put a margin of safety on it, how likely is it that they will go bankrupt in the next week?

The answer right now is: not very.

For taxable investors who pay attention to the market, read the newspaper, monitor stock quotes, etc., the likelihood of being caught out on an ETN is tiny. Meanwhile, the risk of overpaying the IRS if you buy and hold a commodity ETF is 100 percent.

ETNs don’t make sense for all investors. In nontaxable accounts, I actually prefer ETFs. If you want a truly fire-and-forget investment, where you can walk away for a year or two, ETFs are the way to go. But for taxable investors who pay close attention to their accounts, there’s a lot to be said for the ETN structure.

(One caveat here: There is a risk that the CFTC’s plan to enact new regulations in the commodities market will force some ETNs to shut down. If that happens, investors would get their money back, but they could be hit with short-term capital gains if they’ve held a note for less than a year. It’s tough to gauge how large a risk this is, but it’s legitimate.)

Perspective 1: Everybody just panicked

The first interpretation of what went wrong is that financial markets were pricing risk correctly in 2006 but began to overprice risk in 2007. Keister and McAndrews analyzed a situation in which banks out-of-the-blue stop lending to each other, while Gorton interpreted events in terms of a classic bank run, in which the liquidation value of entities is feared to have fallen below their short-run liabilities, creating an incentive for lenders to refuse to renew short-term credit. In the benign version of this theory, the troubled entities would in fact be solvent if it were not for the "fire-sale" prices at which distressed assets must be sold in such an environment. If allowed to proceed unchecked, these fears could prove self-fulfilling and result in a rapid collapse of credit.

In terms of appropriate policy responses to this problem, I would distinguish between actions that might have helped if implemented earlier in the decade and options that were available if we begin the analysis in the fall of 2007. If we are looking at what might have been done years earlier that could have helped, the obvious answer is to consider regulatory reforms that might have prevented financial markets from reaching a point at which the liquidation spiral could be set off in the first place. Bank panics are not an inevitable result of private financial intermediation. The key principle for avoiding them is to ensure that the liabilities of financial institutions consist not just of short-term borrowing, but also of equity contributed by the owners. As long as this equity cushion exceeds potential liquidation losses, there is no incentive for short-run creditors to rush to get their cash back, and no insolvency for the bank in the event that the bank does experience a run. It was a regulatory failure to allow an explosion of off-balance sheet entities that borrowed short and lent long but were immune from bank capital requirements.

On the other hand, if we ask what policy options were available after we had entered the fall of 2007, this particular policy prescription is of no help, as the horses were already out and the barn had no capital. Since there are profound negative externalities from simply watching asset prices and lending collapse, there would seem to be a clear case for the Fed to fulfill the function of lender of last resort, lending and buying assets where others won't until the panic subsides and rational valuations return, and trying to do so in such a way that otherwise solvent enterprises were shielded from a panic bankruptcy.

Perspective 2: The core problem in credit markets preceded the crisis

An alternative perspective is that risk was incorrectly priced in the years leading up to the crisis with rationality only returning in 2007-2008. During 2004-2006 there was $2.7 trillion in new subprime and alt-A mortgage debt generated; (Ashcraft and Schuermann). Much of this was extended without documentation of the borrowers' income, little or no money down, negative amortization, and called for huge increases in the borrowers' monthly payments a few years into the loan. Yet somehow through the magic of securitization, this debt was repackaged into tranches that overwhelmingly received AAA credit ratings.

Such massive capital flows only made sense if one believed that house prices would continue to expand rapidly. Because this process was funneling such huge sums into the U.S. housing market, for a while house prices did just that, more than doubling between 2000 and 2005 according to the Case-Shiller 20-city house price index. U.S. household mortgage debt tripled in a little over a decade. According to this second interpretation, when house prices inevitably came crashing down, they brought with them defaults not just on the hybrid subprime and alt-A mortgages, but also put many otherwise sound borrowers underwater.

If it is claimed that the run-up in house prices and mortgage debt were a horrible miscalculation, what were the market failures that produced it? There is a long list of contributing factors. The originate-to-distribute model left the loan originators and securitizers with profits and lesser-informed buyers with the losses, creating agency problems; (Ashcraft and Schuermann). Intra-firm compensation schemes left decision-makers personally with the upside and stockholders with the downside, inducing excessive risk-taking; (Diamond and Rajan; Bebchuk and Spamann). The public-private GSEs Fannie Mae and Freddie Mac were woefully undercapitalized, giving private players the upside and the taxpayers the downside, and perhaps emboldening private securitizers to take even bigger risks (Hamilton). Both the compensation and procedures of the ratings agencies may have contributed to inaccurate perception of the safety of MBS (Ashcraft and Schermann), as did the mistaken perception that entities like AIG had the ability to insure against aggregate default risk. Moral hazard problems induced from the (ex post correct) belief that the U.S. government would absorb the downside on such gambles may have been another factor inducing excessive risk-taking.

If this perspective is the correct one, we can again distinguish between policies that would have made sense earlier in the decade and policies that were realistic options once we entered the crisis phase in 2008. If the above list of contributing market failures is correct, obviously addressing these with regulatory reforms before we reached the crisis point would have been the first-best option. On the other hand, if we condition on previous policy mistakes and ask what could have been done with options available in the fall of 2008, I disagree with those who reason that the way to correct the moral hazard problem is to hang tough in this situation and simply watch the losers go down. There are huge macroeconomic externalities from the resulting collapse of credit, which is why the government claiming it will not bail out the gamblers is not a credible strategy. Instead, this perspective suggests that the key policy question once we find ourselves in the fall of 2008 is how to allocate the necessary capital losses among lenders, stockholders, and the taxpayers in a way that minimizes the disruptive externalities of a credit collapse. If this is the correct perspective, the primary effect of targeted liquidity measures is simply to allocate these potential losses to the Federal Reserve. It is far from clear that this is the appropriate way for a democratic society to answer the question of who should bear the losses.

Finding the middle ground

I laid out the two perspectives above as diametrically opposed views. I nevertheless believe that the correct interpretation of events would acknowledge that each account contains some truth. It is hard to deny that there was some degree of misallocation of capital in the explosion of house prices and mortgage debt or that the resulting real estate price collapse was a key cause of the devaluation of securities and loss of bank equity that precipitated the banking panic phase. The remarks I presented at the Jackson Hole conference in August 2007 laid out precisely this scenario. We might disagree on how much of that $2.7 trillion in new subprime and alt-A debt represented a malfunctioning capital market, and characterize the middle ground between the two views in terms of choice of a number between 0 and 2.7. If that number is big enough, it may be that no realistically feasible level of bank equity would have been sufficient to assure solvency in the face of a deterioration of confidence, and there is certainly the potential for fire-sale asset price deterioration and a necessary role for the Federal Reserve to fulfill its role of lender of last resort. But obviously from this hybrid perspective, the Fed is performing a combination of liquidity provision and residual loss absorption through these operations, and would want to undertake the latter only with extreme care and thoughtfulness.

Conclusions

Participants in this session were asked to address two basic questions. The first is whether the Fed's targeted liquidity operations were necessary and effective. My answer is probably yes, though I would have a hard time persuading someone if they were not already convinced of that. The second question is whether such operations should be considered an important part of central banks' arsenal of tools in the future. To that my answer is categorically no. From virtually any perspective of our current problems, it would have made far more sense to address these problems with proper regulatory supervision prior to the crisis instead of targeted liquidity operations after the crisis unfolds.

You can view my complete set of comments prepared for the conference here.

Bove of Rochdale Securities said earnings at Well Fargo (NYSE:WFC) were helped by mortgage-servicing fees rather than improving business trends, and trimmed his rating on the bank to “sell" from “hold."  However, Well Fargo and Morgan Stanley (NYSE:MS), which reported its first quarterly profit in a year, were behind the market’s strength earlier in the session.  Bove also cited accelerating loan losses at the firm for the downgrade.  After Bove’s cut, FBR slashed its rating on the firm to "underperform," questioning Well Fargo's earnings quality.

The Dow Jones industrial average fell below the psychologically important 10,000 level, declining 92.12 points, or 0.9%, to close at 9949.36.  Earlier in the session, the index had risen to as high as 10,119.47.  The broader S&P 500 index declined 9.66 points, or 0.9%, to 1081.40 and the tech-laden Nasdaq was off 12.74 points, or 0.6%, to 2150.73.  The Treasury’s 10-year note fell 12/32, to 101 31/32. The yield rose to 3.39%, from 3.34% late Tuesday.

Meanwhile, China said its economy grew 8.9% during the third quarter, up from 7.9% in the second quarter and 6.1% in the first.

Eight of the ten S&P500 sectors finished lower, led by declines in consumer services (-1.8%), financials (-1.8%), health care (-1.4%) and industrials (-0.9%). Utilities remained flat, and telecommunications edged up 0.01%.  Selling was broad-based.  The weakness in financial sector saw shares of JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp. (NYSE:BAC) and Goldman Sachs Group Inc. (NYSE:GS) each declining at least 2.9%.  Merck & Co. (NYSE:MRK) led the Dow average lower, declining 3.1% to $32.68. 

The greenback fell to fresh 12-month lows against a basket of currencies, falling through $1.50 against the euro for the first time in 14 months.  The greenback's fall sent crude prices higher, with prices touching an intraday high of $82 yesterday, its highest since October 9, 2008.  Government inventory figures showed a large drawdown in US gasoline stockpiles to 2.3 million barrels last week - more than the 800,000 anticipated.  Price cuts from Wal-Mart (NYSE:WMT) also dampened holiday sales hopes.  Wal-Mart declined 2.1% to $50.63.

Today's calendar covers another heavy dose of corporate reports including before-the-open releases from: 3M (NYSE:MMM), Black & Decker (NYSE:BDK), Bristol-Myers Squibb (NYSE:BMY), Dow Chemical (NYSE:DOW), McDonald's (NYSE:MCD), Schering-Plough (NYSE:SGP), and UPS (NYSE:UPS). Also reporting are American Express (NYSE:AXP), Amazon.com (NASDAQ:AMZN), and AT&T (NYSE:T).

Chicago, IL – October 22, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Eli Lilly & Co. (LLY), Wells Fargo (WFC), Bank of America Corporation (BAC), Citigroup, Inc. (C) and JPMorgan Chase & Co. (JPM).

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Here are highlights from Wednesday’s AnalystBlog:

Eli Lilly Beats, Raises Guidance

This morning, Eli Lilly & Co. (LLY) reported strong third quarter financials. The company’s earnings per share of $1.20 surpassed the Zacks Consensus Estimate of $1.02 and 98 cents reported in the year-ago period. Revenues recorded a 7% year on year increase to $5.56 billion, driven by an increase in both volume and prices, partially offset by unfavorable impact of foreign exchange.

Of total revenues, while product sales were $5.4 billion (an increase of 6%), collaboration and other revenues accounted for the remaining $176.5 million (an increase of 51%), primarily due to the inclusion of Erbitux revenue as a result of the ImClone acquisition.

The company’s other products recorded robust growth during the quarter compared to the year-ago period – Zyprexa (3% growth to $1.2 billion), Cymbalta (10% growth to $790.2 million), Humalog (16% growth to $500 million), Alimta (47% growth to $462 million).

Wells Fargo Surprises Yet Again

Before the market opened Wednesday morning, Wells Fargo (WFC) reported third quarter 2009 diluted earnings of 56 cents per common share, compared with 57 cents in the second quarter 2009 and 49 cents in the third quarter 2008.

Net income applicable to common shareholders came in at $2.6 billion, almost flat compared with the prior quarter and up 61.1% year-over-year. The results were substantially ahead of the Zacks Consensus Estimate of 35 cents per share.

Results were aided by strong top-line growth across all key business segments, strong deposits and a robust loan growth rate. Unlike its major peers, Wells Fargo witnessed strong growth in its traditional banking operations, especially in its mortgage business acquired from Wachovia. Net interest income of $11.7 billion climbed 83.1% year-over-year.

However, credit quality deteriorated further and losses rose sharply during the quarter. The bank expects credit losses and non-performing assets to increase further, though some moderation was visible. Net charge-offs rose to $5.1 billion (2.50% of average loans) from $4.4 billion (2.11%) in the prior quarter and $2.0 billion (1.96%) in the prior-year quarter. Non-performing assets grew to $23.5 billion (2.93% of loans) from $18.3 billion (2.23%) in the prior quarter and $6.2 billion (1.53%) in the prior-year quarter.

Credit-loss provisions were $6.1 billion, up 144.9% from a year earlier and 20.2% from the prior quarter. The allowance for credit losses totaled $24.5 billion at Sept. 30, 2009, compared with $23.5 billion at June 30, 2009 and $8.0 billion at Sept. 30, 2008.

Large banks including Wells Fargo, Bank of America Corporation (BAC), Citigroup, Inc. (C) and JPMorgan Chase & Co. (JPM) have suffered from the increase in loan losses which were offset by strong growth in trading operations.

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Chicago, IL – October 20, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: CVB Financial (CVBF), JP Morgan Chase (JPM), Fifth Third Bancorp (FITB), U.S. Bancorp (USB) and Zions Bancorp (ZION).

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Here are highlights from Monday’s AnalystBlog:

U.S. Bank Failures Reach 99 in ‘09

The failure of San Joaquin Bank represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts as it has been appointed receiver for the bank. The bank failure is expected to cost the deposit insurance fund an estimated $103 million.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of financial institution failures has significantly stretched the regulator’s deposit insurance fund. At June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

Ontario, California-based Citizens Business Bank, a subsidiary of CVB Financial (CVBF), will assume all of the deposits of San Joaquin Bank. So there will be no losses to any depositor.

In order to replenish the declining fund, the FDIC board recently proposed that the U.S. banks should pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government as soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.

In the second quarter of 2009, the number of banks on the FDIC's list of problem institutions grew to 416 from 305 in the first quarter. This is the highest since the savings and loan crisis in 1994. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $70 billion over the next five years.

The failure of Washington Mutual last year was the largest in the U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION) and several others.

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Chicago, IL – October 19, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Qualcomm Inc. (QCOM), MetroPCS Communications Inc. (PCS), NTT DoCoMo (DCM), Nokia Corp. (NOK) and Motorola Inc. (MOT).

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Here are highlights from Friday’s AnalystBlog:

Qualcomm Wins M-Banking Deal

Qualcomm Inc. (QCOM) recently entered into an agreement with MetroPCS Communications Inc. (PCS), through which the latter will offer mobile banking services to its customers using Qualcomm’s mobile banking applications. Qualcomm provides mobile banking solutions through its subsidiary Firethorn Holding LLC. MetroPCS subscribers will now be able to freely download Firethorn’s mobile banking solutions from the Metro store.

Firethorn’s mobile banking platform will provide a complete picture of an individual’s personal finances on his/her mobile handset. Subscribers of MetroPCS will be able to view their bank and credit card balances and history, make transfers between their accounts, and pay their bills securely from their mobile phones using a single PIN. Furthermore, customers can also check rewards information and review targeted, timely offers from their financial institutions using Firethorn’s mobile commerce capabilities.

The acquisition of Firethorn has diversified Qualcomm into a new wireless market segment - mobile banking solutions. Mobile financial service has high growth potential. Various industry researches estimate that currently there are approximately 4 billion mobile phone users throughout the world but only around 1.6 billion individual bank accounts. This indicates that a large population of mobile phone users does not have access to basic financial services.

Firethorn’s mobile banking platform is targeting to narrow this gap combining wireless handsets and secured financial services. Citi-Card entered into an agreement with Firethorn for its real-time secured access gateway to be used by card members for account information retrieval using their wireless handsets. Four of the top ten banks in the U.S. are now Firethorn customers.

According to our assessment, Qualcomm’s entry into mobile financial service is a welcome move as this market is getting crowded gradually. NTT DoCoMo (DCM) has decided to launch an innovative on-line money transfer service in Japan. The company will extend this service globally later. Nokia Corp. (NOK) has established a business tie-up with Obopay, a global leader for developing mobile payment solutions, to launch an innovative wireless financial service called “Nokia Money". Motorola Inc. (MOT) has also developed a new mobile phone SIM card called “I-SIM NFC Lite" card that can be used for mobile money transfer. The company is currently testing the m-wallet card in Taiwan and plans to launch it in China in the near future.

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Chicago, IL – October 14, 2009 – Zacks.com announces the latest Industry Outlook. Today, Zacks Equity Research discusses the U.S. Banks sector, including Fannie Mae (FNM), Freddie Mac (FRE), Commerce Bancshares Inc. (CBSH), Wilmington Trust Corporation (WL) and Zions Bancorp (ZION).

While the state of the economy is showing signs of recovery, a lot remains to be done. The Treasury continues to have huge direct investments in institutions like Fannie Mae (FNM) and Freddie Mac (FRE).

We expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans. Also, as a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting their profitability. We think that the financial crisis is far from over and we have to wait for a while to write the end line of the crisis story.

The Treasury’s requirement of focusing banking institutions towards higher-quality capital will help banks absorb big losses. Though this would somewhat limit the profitability of banks, a proper implementation would bring stability to the overall sector and hopefully address bank failures.

We favor Commerce Bancshares Inc. (CBSH) in this space since this company is one of the few names that did not report losses even during the current financial crisis. We believe that Commerce is one of the best capitalized banks in the industry and will generate positive earnings throughout the credit cycle. While the bank had a decent growth in deposits in the most recent quarter, trends in its credit metrics were in the negative direction.

The financial system is going through massive de-leveraging. Banks in particular have lowered leverage. The implication for banks is that the profitability metrics (like returns on equity and return on assets) will be lower than in recent years. Furthermore, the current crisis has dramatically accelerated the consolidation trend in the industry. As a result, failure of a large financial institution will be a major concern in the upcoming quarters as weaker entities are absorbed by larger ones.

We think banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL) and Zions Bancorp (ZION), will remain under pressure.

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The Dow Jones industrial average, which rose as high as 9931.82 points in the morning, gained 20 points to close at 9885.80.  The broad S&P 500 index rose 4.70 points, or 0.44%, to close at 1,076.19 and the tech-heavy Nasdaq ended the day little changed.  Bond markets were closed for the Columbus Day holiday.  On the New York Stock Exchange, 16 stocks were higher in price for every 14 that fell.

Eight of the ten S&P500 sectors finished higher in yesterday's session. Oil and gas shares led the gainers, adding 1.2% following a 2.1% rise in crude prices to $73.55, its highest since August 24.  DJIA components Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) rose 1.3% and 1.2%, respectively.

Meanwhile, equity prices appear to be taking into consideration upside surprises in last quarter's numbers.  The National Association for Business Economics' survey of its members showed majority believed the recovery has begun, but concerns remain over federal debt and rising unemployment.  Nevertheless, the greenback’s decline is expected to help results of multinational firms with significant overseas exposure.

Also, news emerging from the geopolitical front appears to be less motivating as the head of Homeland Security noted Al-Qaeda members likely within US borders and North Korea reportedly shot off five missiles off its east coast; the reports said the country is preparing to fire more.  Although stocks have had their steepest rally in more than 70 years, doubts remain over an exit strategy from simulative policies amid increasing unemployment levels and housing worries.

Black & Decker (NYSE:BDK) jumped 7.6% Monday after the company's raised its third quarter earnings guidance to 91 cents a share from 35- 45 cents a share on better-than-expected sales, operating margins and tax rate. UBS (NYSE:UBS) downgraded SanDisk (NASDAQ:SNDK) shares to "sell" from "neutral," on concerns of peaking chip demand leaving little scope for price increases.  Ford (NYSE:F) shares jumped 7% after the automaker reported that European sales jumped 12% on strong sales of its subcompact models Ka and Fiesta. Google (NASDAQ:GOOG) shares rose 1.5% after Goldman Sachs (NYSE:GS) raised its price and earnings target, saying the firm will benefit from next year's recovery in online activity.

Financial shares continued their upward run, adding 0.7%.  A number of banks report their earnings in the coming sessions, including JP Morgan (NYSE:JPM), Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C).  According to analyst Dick Bove, large-cap banks are expected to perform well, helped by strong trading activity, but Bove noted regional banks could be under pressure due to commercial real estate losses. 

Meanwhile, shares of Deutsche Bank (NYSE:DB) fell 1.6% yesterday after the company’s CEO Ackermann’s comments raised concerns of a capital raising.  This morning influential analyst Meredith Whitney took a cautious stance on Goldman Sachs (NYSE:GS) and lowered her rating on the bank to "neutral" from "buy" with a $186 price target. 

Today's list of releases includes quarterly earnings reports from companies such as Altera (NASDAQ:ALTR), CSX (NYSE:CSX), Intel (NASDAQ:INTC), and Johnson & Johnson (NYSE:JNJ).

1. UNDERSTANDING STOCK MARKET MOVING AVERAGES WITH THE CROSSHAIRS TRADER and FORREST GUMP
2. THE DEVELOPMENT OF THE CROSSHAIRS FOR STOCK AND OPTIONS TRADERS
3. THE STOCK MARKET IS WAITING. AND YOU?

Australia's decision dented demand for the U.S. dollar, which, in turn, raised commodities prices.  US energy and materials stocks moved up, oil also rose, and gold reached a record high.  Stock investors cheered the drop in the dollar because it boosts corporate profits by making U.S. goods cheaper for overseas buyers. Companies can also get a bump in profits when they convert sales made in foreign currencies to dollar terms. The dollar has been falling for months so that added to expectations for positive corporate profit reports.

Five stocks rose for each that fell on the NYSE.  Producers of energy and raw materials had the two biggest advances in the S&P among 10 industries, rising about 2.1% and 1.9% respectively.

Financial sector shares (up 1.1%) received another boon, over and above Goldman's (NYSE:GS) upgrade of large-cap banks on Monday, as Bank of America/Merrill (NYSE:BAC) upgraded European banks to "overweight".  Gains in the financial sector included a 2.5% increase in JP Morgan (NYSE:JPM), 3.2% in Morgan Stanley (NYSE:MS) and 2% in Wells Fargo (NYSE:WFC).

Deal activity has also picked up steam, lifting confidence in financial markets.  Banco Santander (NYSE:STD) raised over $8 billion in an IPO of its Brazilian subsidiary.  ExxonMobil (NYSE:XOM) announced its has agreed to pay $4 billion for Kosmos Energy's 23.49% stake in the Jubilee oil field off the coast of Ghana.  Societe Generale said it intends to raise $7.1 billion in new shares to repay the French government, buy the 20% of Credit Nord it doesn't currently own, and improve its Tier 1 ratio.

Gold futures advanced as high as $1,045 an ounce in New York, topping the 18 month record of $1,033.90, on speculation that anticipated accelerating inflation will spur demand for the precious metal as a store of value.

The U.S. dollar index was off 0.31 at 76.33 in late trading, but up from its 76.22 session low after the Saudi Arabian central bank chief denied an Independent newspaper report that the Saudis and other Arab producers planned to price oil on a basket of currencies, instead of the dollar.

Observers believe that the decline of just over 4% on the S&P 500 prior to this week’s stellar stock movement seemed to give investors the entry point they were looking for to build positions on stocks.  "I think that most people believe that stocks are going to generally keep drifting higher for the next few months," said Gary Webb, CEO at Webb Financial Group. "So while nothing fundamental has changed this week, investors are taking opportunities to buy on the lows."

Nobel Prize winning economist Joseph Stiglitz added that US unemployment will keep rising and should be the focus for policy makers.  Gains in the stock market show that investors have been “irrationally exuberant" about a recovery.  

New York Fed President William Dudley said a tepid economic recovery should allow the Fed to keep interest rates at rock-bottom lows for a prolonged period.  Because the U.S. economy faces many headwinds, including an anemic labor market and a fragile banking system, Dudley said, inflation will not become a problem in the foreseeable future. "The recovery will turn out to be moderate by historical standards," Dudley said in a speech at Fordham Law School. He added that "the banking system has still not fully recovered."

Earnings are due today from Costco (NASDAQ:COST), Family Dollar (NYSE:FDO) and Alcoa (NYSE:AA).