Stock Market News & Stocks to Watch from StraightStocks » Lehman Brothers Inc.

Understanding Counter Party Risk

Jeffrey Miller — Mon, 15 Sep 2008 01:50:44 +0000

Understanding Counter Party Risk As we write this, CNBC is reporting that Lehman Brothers, Inc. (LEH) has a notional amount of outstanding OTC positions of nearly $800 billion. Since Lehman is going into bankruptcy, what does that mean for the rest of the financial markets? Each of these trades has a counter party, an [...]

Thursday Saw a Comeback – Closing Market Commentary

Alex Kolb — Thu, 11 Sep 2008 00:00:00 +0000

It was another whipsaw session on the Street as stocks staged a late-day rally to pare early losses and finish deep in the green. The Dow climbed 165 points to close at 11,434.

The big surge came in response to word that Lehman Brothers, Inc. (LEH), the beleaguered investment bank, had entered into conversations with possible suitors after Moody's Investors Services said the company needs to find a "stronger financial partner." Lehman has been aggressively pursuing additional capital support as the company suffers from a portfolio of deteriorating assets and mounting losses.

Adding to the gloomy macro-level economic picture was the Commerce Department's report that the national trade deficit grew to its highest level in 16 months in July, climbing 5.7% to $62.2 billion. The reading was worse than analyst projections of $58 billion, driving the deficit between imports and exports to its highest level since March of 2007.

The gap was fueled by higher oil prices, which accounted for $51.4 billion of the $230.3 billion of total imports, a clear indication that our domestic energy policy is a serious threat to the financial prosperity of this country.

Hurricane Ike unexpectedly strengthened and tripled in size as it spiraled through the Gulf of Mexico, pushing wholesale gasoline prices higher to between $4 and $5 per gallon, up from the previous range between $3 and $3.30. Ike is now on a direct path towards major coastal installations in Texas, where residents are being evacuated in anticipation of 100 mph winds and major storm surges.

And finally, the dollar advanced to a one-year high against the Euro as investors positioned themselves in anticipation of a slowdown in global growth.

The Focus List

The Focus List ended Thursdays session 0.86% higher.

Accenture Ltd. (ACN) kept the Focus List from advancing further today as it logged in a loss of 4%, making it the biggest portfolio decliner for the day. It is uncertain why the stock sold off as it did.

The company made an announcement today that, if anything, should have helped ACN trade higher. The company announced that it signed a 10-year contract, worth $550 million, to provide finance, accounting and application development services for Bristol-Myers Squibb Co., a pharmaceutical name. Accenture added that the deal provides dedicated global IT and financial support services to Bristol-Myers Squibb to help achieve operational cost savings and flexibility.

We are watching ACN, looking for a reversal from recent declines. The stock remains in positive territory since being added to the Focus List.

One of todays stronger Focus List performers was Praxair Inc. (PX), which gained 2.5% for the day.

The company said that its Praxair Electronics division announced a 15% price increase on tantalum products. Praxair explained that this action was implemented as a response to rapidly escalating raw material costs related to the mining and recycling of tantalum and tantalum ore. The company added that, in some circumstances, price adjustments may be higher or lower and that PX will be working with worldwide customers to expand tantalum recycling programs and other productivity measures in order to mitigate the effect of the price increase.

Thursdays Focus List biggest gainers were Columbus Mckinnon Corp. (CMCO) and Fomento Economico Mexicano (FMX), each of which picked up 4% for the day.

CMCO is in the red since being added to the Focus List. We are watching it closely, looking for a reversal into positive territory.

FMX is trading higher since being added to the portfolio. We are expecting this one to keep climbing, especially considering the recent boost in the consensus estimate for this year and next. During the past week, analysts upped earnings estimates from $2.39 per share to $2.41 for the 2008 year and from $2.68 per share to $2.71 for 2009.

"PX2" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

The Market Plunged on Financial Sector Concerns – Closing Market Commentary

Alex Kolb — Tue, 09 Sep 2008 00:00:00 +0000

It was a brutal day for stocks as the euphoria from the Fannie and Freddie bailout dissipated in response to renewed concerns about weakness in the financial sector. The Dow dropped 280 points to close at 11,231.

Lehman Brothers Inc. (LEH) spooked the market when word spread that the troubled investment bank's negotiations with Korea Development Bank had stalled. Lehman has been aggressively pursuing additional capital in order to provide protection against deteriorating assets and strengthen its balance sheet. Lehman shares were down more than 40% on the day.

The downtrend in the overall market and financial sector was hastened by American Insurance Group, Inc (AIG), as investors speculated that the world's largest insurer would also need to raise more capital to protect itself from exposure to mortgage related assets. AIG has already posted $20 billion in losses over the last three quarters and raised $20 billion in new capital.

On a more upbeat note, oil prices retreated below $104 for the first time since April as Hurricane Ike's trajectory veered away from sensitive, energy infrastructure in the Gulf. Also helping drive prices lower were comments from OPEC President Chakib Khelil, who insinuated that the organization will hold production at current levels. Crude dropped $3.08 on the day to close at $103.26 a barrel.

And finally, the dollar ended a solid 2-week run against the Euro in today's session, as financial sector weakness eroded confidence in the Greenback.

The Focus List

The Focus List portfolio saw declines in todays bearish market, averaging a loss of 4.43% for the day.

The commodities sell off environment has weighed on commodities related Focus List holdings. While many of these stocks continue to offer great fundamentals, falling commodity prices has caused us to execute a few deletions from the portfolio today.

The indiscriminate selling in the commodity sector has hit CF Industries Holdings (CF). Given the current backdrop and a recent trimming of Q3 estimates, we locking in a gain on CF in the Focus List. We hope to add the stock back at a later date.

Earnings estimates have been cut by 3 out of the 10 covering analysts recently on ConocoPhillips (COP). We continue to like the valuation, but cannot justify holding onto COP given the current anti-commodity sentiment.

The indiscriminate selling that is occurring in commodity-related stocks is leading us to initiate a quick stop-loss on Fluor Corporation (FLR). The market is clearly ignoring the company s positive fundamentals right now. We hope to add FLR back at a later date.

Though we continue to like the fundamentals on Genco Shipping &Trading Ltd. (GNK), the indiscriminate selling in commodity-related stocks and a recent trimming of 2008 earnings estimates is causing us to close our position.

The indiscriminate selling that is occurring in commodity-related stocks is leading us to initiate a quick stop-loss on Metalico Inc. (MEA). The market is clearly ignoring the companys positive fundamentals right now. We hope to add MEA back at a later date.

In order to maintain sound diversification, we did not completely close off exposure to commodities and held on to such names as Bunge (BG). Though, this pick was one of Tuesdays bigger Focus List decliners, analysts remain bullish on the farm and fertilizer stock as evidenced by the higher forecasts for this year and next.

It was not all doom and gloom today. McDonalds Corp. (MCD) was up 1.2% for the day as the fast food giant reported worldwide same-store sales surging 8.5% in August.

"P" Free Stock Analysis: Buy? Sell? Hold?
"MCD" Free Stock Analysis: Buy? Sell? Hold?
"GSTL" Free Stock Analysis: Buy? Sell? Hold?
"CF" Free Stock Analysis: Buy? Sell? Hold?
"AQI" Free Stock Analysis: Buy? Sell? Hold?
"BG" Free Stock Analysis: Buy? Sell? Hold?
"FLR2" Free Stock Analysis: Buy? Sell? Hold?
"LEHH" Free Stock Analysis: Buy? Sell? Hold?
"MLAO" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Washington Mutual Chimes In on the Mortgage Mess

Trader Mark — Mon, 10 Sep 2007 21:06:29 +0000

The market is cheap on earnings. The subprime issue is contained. That’s been the mantra. I think the mantra is wrong. While the overall market is not expensive on earnings, certain parts are a lot more expensive than they look. Why? Well the earnings growth estimates are a hoax right now, specifically in the financial sector. Do [...]

Bank of Korea Raises Rates

Claus Vistesen — Thu, 09 Aug 2007 06:36:00 +0000

The Financial Times this morning:

Bank of Korea surprises with rate increase

By Song Jung-a in Seoul

Published: August 9 2007 06:48 | Last updated: August 9 2007 06:48

The Bank of Korea unexpectedly raised its benchmark interest rate by a quarter point to a six-year high of 5 per cent on Thursday to absorb excessive market liquidity and contain growing inflationary pressure.

The rate hike, the first ever to follow just a month after a previous hike, surprised South Korea’s financial markets, driving bond prices down and pushing the won higher.

Lee Seong-tae, the BoK governor, said strong economic growth and increasing price pressure prompted the central bank to raise interest rates again as financial markets showed signs of instability amid explosive growth in the money supply.

South Korea’s economy grew 4.9 per cent in the second quarter, the fastest pace in over a year, beating economists’ expectations. The strong growth was propelled by robust exports, which jumped 20 per cent in July from a year earlier, and industrial output rose 7.6 per cent in June.

Mr Lee hinted that further tightening is unlikely this year, saying that ”the degree of financial accommodation will be markedly reduced” with the two consecutive rate hikes. And he cautioned that inflationary pressure would increase in the second half, due to a recovery in domestic demand and higher oil prices.

Bank loans to households increased by Won1,770bn in July from June, the biggest monthly gain in five months. Lending to small and mid-sized companies rose by Won3,100bn in July, increasing the risk of an asset bubble. Inflation remained stable at 2.5 per cent but Mr Lee predicted that upward pressure would grow in coming months.

Kwon O-kyu, the finance minister, supported the BoK’s move, saying the economy was showing ”clearer signs” of a recovery on the back of stronger consumption and brisk exports. ”The economic recovery, which started gradually from the beginning of the year, is becoming clearer,” he told reporters.

Both Mr Lee and Mr Kwon maintained their upbeat economic outlook, saying that the upward trend will continue in the second half, although higher oil prices and the stronger won still pose risks to economic growth. The BoK has forecast Asia’s third-largest economy to grow 4.5 per cent this year after expanding by 5 per cent last year.

Financial markets showed a sharp reaction to the surprise rate hike Thursday. The yield on the benchmark five-year government bond surged 7 basis points to a two-week high of 5.4 per cent and the won rose 0.2 per cent to 922.15 against the dollar in morning trading. The Kospi benchmark stock index pared gains to 0.6 per cent after being up as much as 1.3 per cent before the announcement.

and Bloomberg:

Bank of Korea Unexpectedly Raises Key Rate to 5%

The Bank of Korea unexpectedly raised its benchmark interest rate for a second time in as many months to curb lending that may fuel asset-price bubbles.

Governor Lee Seong Tae and his board increased the overnight call rate by a quarter point to 5 percent, the highest since July 2001, the central bank said in Seoul today. None of the 14 economists surveyed by Bloomberg News predicted the move.

Finance Minister Kwon Okyu said the decision was ``appropriate.'' He and Lee want to avoid a repeat of a debt bubble that burst in 2004 and stunted economic growth. Lending to households rose at the fastest pace in five months in July.

``The tipping point is likely to have been the explosion in household borrowing over July,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. ``The crippling debt overhang of 2001-03 remains clear in the mind of the central bank.''

In 2004, borrowers who had used credit cards to amass debt defaulted in record numbers, slowing the economy's expansion.

The yield on the benchmark five-year government bond surged 10 basis points to 5.43 percent as of 1:50 p.m. in Seoul, the biggest jump since October 2005. The won rose 0.2 percent to 922.32 per dollar. The Kospi stock index pared gains to 0.3 percent after rising as much as 1.3 percent before the decision.

Economists had expected the bank to keep rates on hold to assess the effect of the July increase and monitor whether a U.S. subprime mortgage slump will affect global growth. Today's move was the bank's first-ever back-to-back rate increase.

Urgent Task

``Concerns over soaring money growth outweighed U.S. sub- prime woes,'' said Kim Jae Eun, an economist at SK Securities Co. in Seoul. ``The most urgent task for the Bank of Korea is to put a lid on rising money growth and ensure fast growth won't cause asset-price bubbles and inflation.''

The Bank of Korea also raised the rate on so-called aggregate loans, which are offered to local banks to spur lending to smaller firms, to 3.25 percent from 3 percent.

``With a series of accumulated rate hikes, the degree of monetary easing that was supportive of the economic recovery has lessened considerably,'' Governor Lee told reporters in Seoul.

Lending by commercial banks to households surged 1.77 trillion won ($1.9 billion) in July from June, the central bank said yesterday. Loans to small and mid-sized businesses rose 3.1 trillion won, slowing from June's 8.1 trillion won gain, which was the biggest increase since December 2000.

Further Moves

``Given the hawkish tone of the central bank, a further tightening move before year-end cannot be ruled out,'' said Frederic Neumann, an economist with HSBC Markets Ltd. in Singapore. ``However, this will become dependent on trends in credit and liquidity growth over the next few months.''

Neumann maintained his prediction that lending and money supply will slow in response to credit-tightening measures and the key rate will stay at 5 percent for the rest of the year.

Central banks globally are battling to curb inflation as booming world economic growth forces up food and commodity prices. Australia raised its key rate to an 11-year high of 6.5 percent yesterday, and England, Canada and New Zealand all increased borrowing costs in the past month. European Central Bank President Jean-Claude Trichet said last week he may raise his benchmark rate from 4 percent next month.

South Korea's consumer-price inflation advanced 0.4 percent in July from June, when it was unchanged. The annual inflation rate remained at 2.5 percent. Consumer prices will climb 2.6 percent in the second half of 2007, accelerating from 2.2 percent in the first half, the central bank said last month.

Economic Revival

Growing signs of economic revival strengthened the case for a rate increase.

Consumer confidence climbed to the highest in 16 months in July, the National Statistical Office said today, signaling shoppers may help to sustain the economy's longest expansion in a decade. Consumer spending is showing a mild recovery, the central bank said today.

The economy expanded 1.7 percent in the three months to June 30, the quickest rate in 18 months. Exports gained 20 percent in July, while in June, service companies expanded at the quickest rate in almost five years and industrial production climbed for a third month.

``The Bank of Korea might think that hiking rates sooner than expected gives them room for a rainy day in the future,'' said Kwon Young Sun, an economist with Lehman Brothers Inc. in Hong Kong. ``Without any significant upside risks to growth, the bank should stay on hold for the rest of the year.''

Today's rate increase came even as South Korea's currency, the won, has strengthened. The won has surged to a 10-year high against the yen, the currency of its major export competitor.

Governor Lee said today that the won's strength will have little effect on easing inflationary pressure. Finance Minister Kwon said last week that the yen's weakness isn't justified. Borrowing in yen to buy higher-yielding assets -- the so-called carry trade -- threatens to destabilize global markets, he said.

The central bank last week introduced measures to restrict companies from borrowing in foreign currencies as it seeks to reduce the won's gains.