The spike in bond prices came even as the Treasury announced plans to auction a record $118 billion in new notes next week – an auction schedule of $44 billion 2-year notes on Monday, $42 billion 5-year notes Tuesday, and $32 billion 7-year notes on Wednesday.

The Dow, which had plunged as much as 170 points during the session, ended down 93.87 points, or 0.9%, to 10,332.44.  The broader Standard & Poor's 500 index fell 14.90 points, or 1.3%, to 1,094.90, while the tech-heavy Nasdaq composite index dropped 36.32 points, or 1.7%, to 2,156.82.  Wall Street’s fear gauge, the CBOE Vix, jumped more than 4%.  Crude prices dropped $1.93 to $77.46. Gold prices rose to their fifth straight record close, up 70 cents to $1141.90.

As glimmers of a full-blown economic recovery fade, investors have increasingly become intolerant, locking in profits at every opportunity.  Also, a lack of conviction on part of the market to push beyond the current rally has been a dampener and concerns of an asset bubble build-up due to accommodative monetary policies have diminished risk appetites, sending daily average volume to levels of only about 1 billion.   

Nevertheless, to show not all is bad, the OECD raised its growth estimates for its 30-country members to 1.9% in 2010 from June's estimate of a 0.7% growth, and to a 2.5% GDP expansion in 2011.

Tech shares, already up 54.3% year-to-date, fell 1.7% Thursday, after Merrill's analyst slashed 2010 global growth targets, and downgraded ten companies in the semiconductor sector.  Intel (NASDAQ:INTC) shares fell 4.1%, and Texas Instruments (NYSE:TXN) retreated 3.4% after the downgrade.  Dell (NASDAQ:DELL) shares plunged 6.1% in premarket trading, after the company reported earnings that missed analysts’ projections.

Among the S&P 500 industry groups, energy producers, off 2.1%, were the biggest decliners.  ConocoPhillips (NYSE:COP) fell 1.9% and Chevron Corp. (NYSE:CVX) dropped 2% as crude prices fell for the first time in four days. Schlumberger Ltd. (NYSE:SLB) shares fell 3.3%.

The Dow Jones industrial average, which hit an intraday high of 10,341, advanced 44 points, or 0.4%, to close at 10,291.26. The S&P 500 added 6 points, or 0.5%, to close at 1,098.51, and the tech-laden Nasdaq composite rose 16 points, or 0.7%, to end the day at 2,166.90.  On the New York Stock Exchange, 19 stocks were higher in price for every 11 that declined

Nine of the ten S&P500 industry groups ended in the green, with financials (+1.3%), basic materials (+1.0%) and technology (+0.7%) leading the gainers.  Utilities fell 0.2%.  On the DJIA, Bank of America (NYSE:BAC) led the advancing issues as the firm’s CEO noted the integration of Merrill was running ahead of schedule, and will result in greater-than-anticipated cost savings in 2009.  Wal-Mart (NYSE:WMT) advanced 1.3% ahead of this morning's results.

Shares in home building companies rose after Toll Brothers (NYSE:TOL) said late Tuesday that signed contracts for new homes in its latest quarter jumped 42%.  Toll rose $3.02, or 16.4%, to $21.41.  Pulte Homes Inc. (NYSE:PHM) advanced 77 cents, or 8.1%, to $10.23, while Beazer Homes (NYSE:BZH) advanced 63 cents, or 12.4%, to $5.73.

Meanwhile, the greenback plunged to its lowest level since 2008 and ended the day just below $1.50 against the euro.  The steady decline in the greenback has been precipitated by continuing suggestions from the Fed that interest rates will remain low for an extended period as the recovery strengthens.  Across the globe, markets have interpreted this language as suggesting a mid-2010 timetable for raising rates. 

However, gold prices steered clear of wavering sentiment and hit an all-time high Wednesday at $1114.60 per troy ounce, up $12.10.  China reported greater-than-expected industrial output and retail sales, sending resource-related shares higher. Commodity prices also rose, with the broad-based, DJ-UBS index up 0.6% to 133.408. Crude prices gained, up 0.3% to $79.28.

Today's retailers' results will be an indication of consumers' appetites for goods.  Although the third quarter is seasonally slow, the current quarter numbers will be closely watched as the holiday season approaches.  Yesterday's reported loss at Macy's (NYSE:M) was less than anticipated; however, its raised fourth quarter guidance failed to meet expectations. Companies reporting results today include: Kohl's (NYSE:KSS), Nordstrom (NYSE:JWN), Urban Outfitters (NASDAQ:URBN) and another key consumer-driven firm, Disney (NYSE:DIS).
 

Last month, the SEC and BofA had reached a settlement on the charges that required the bank to pay a $33 million fine. But US District Judge Jed Rakoff condemned the deal, saying the corporate fine would further unfairly penalize the shareholders instead of the people actually guilty of misleading investors.

Both the SEC and BofA have defended the earlier settlement proposal as appropriate. But after Rakoff's ruling, the SEC weighed its options - to go to trial, drop the charges or attempt to renegotiate the deal with BofA.

The SEC also said that it could bring additional charges against BofA on the basis of evidence that might develop in course of the trial. This indicates that regulators may draft civil fraud charges against top bank executives in the coming weeks.

Bank of America, however, continues to defend itself by proclaiming that disclosures on the Merrill deal met all legal requirements. The bank had earlier agreed to pay a fine to avoid legal hassles with the SEC at a time of market uncertainty.

The SEC lawsuit comes as an added blow to Bank of America. The New York Attorney General's office is carrying out its own investigation into the Merrill deal and has been drafting what are likely to be civil fraud charges against top bank executives in the coming weeks. The bank also missed a Monday noon deadline to provide additional information about the deal to a congressional committee.

Separately, Bank of America agreed to pay $425 million to government agencies, including the Treasury Department, to exit an arrangement under which public funds might have been used to shoulder losses on risky assets worth $118 billion associated with the Merrill takeover.

This step was part of the bank’s broader effort to loosen various forms of government support. While the option was never used, the government has argued that the bank benefited from the promise of protection.BofA has been one of the largest beneficiaries of the federal bailout program, receiving $45 billion from a total of the $700 billion.

Bank of America did overpay for Merrill but the deal makes strategic sense now. BofA gained a global investment-banking platform, profitable retail brokerage addition and significant equity-underwriting capacity, all of which it lacked earlier. For the first half of 2009, Merrill contributed $1.84 billion.

We anticipate continued synergies from the company’s large scale operation and balance sheet restructuring. However, higher credit costs, various legal issues and worsening credit quality will be a drag on BofA’s upcoming results. As such, we are maintaining a Neutral recommendation on the stock.

The 30-share Dow Jones industrial average finished higher by 51 points, or 0.52%, at 9,829.87. The broad Standard & Poor's 500-stock index gained 7 points, or 0.66%, at 1,071.66 and the technology-laden Nasdaq composite index gained 8.26 points, or 0.39%, to 2,146.30.  Treasury prices rallied after the government’s successful auction of $43 billion in two-year notes.

Meanwhile, dollar continued its downward spiral against other major currencies, sending energy and material shares higher.  Gold and crude prices also advanced.  Gold reached $1014 per ounce, up $12.50, and oil, after a 3.3% plunge Monday, went above the $70 level, rising 2.6% to $71.55.  Volume on the NYSE was a modest 1.27 billion shares, with advancing shares ahead of decliners by a seven-to-three margin.

Among the ten S&P500 industry sectors, seven closed higher, led by financial shares (+2.2%), basic materials (+1.9%), industrials (+0.8%).  On the downside, telecommunication shares fell 0.6%, health care stocks eased 0.3%, and utilities edged 0.1% lower.

Twenty of the DJIA's thirty components finished higher yesterday.  On the Dow average, JP Morgan (NYSE:JPM) was the leading gainer, rallying 4.3% to $46.47 after analysts at Bank of America (NYSE:BAC) lifted their third-quarter earnings estimate on the firm to 49 cents per share from 46 cents per share.  Caterpillar (NYSE:CAT) shares jumped 3.6%, following the expected weak dollar benefit to foreign sales.  Bank of America (NYSE:BAC) rose 2.1% after Rochdale Securities’ Richard Bove raised the shares' price target to $25 from $19 due to the firm's recent moves to exit two federal guarantee programs.  However, rumors that CEO Ken Lewis might resign over the Merrill bonus saga kept the stock’s move in check.  Alcoa (NYSE:AA) rose 2.3% after analysts at Goldman Sachs (NYSE:GS) raised price target on the firm, citing projections for higher aluminum prices.

Analyst upgrades also benefited shares of Macy's (NYSE:M) (+5.1%); Citigroup (NYSE:C) lifted its rating on the shares to "buy" from "hold" on higher revenue expectations.  US Steel (NYSE:X) shares increased 4.6% after Bank of America (NYSE:BAC) changed its recommendation on the stock to "neutral" from "underperform," citing expectations the firm should return to profitability in 2010. Clorox (NYSE:CLX) shares gained 2.6% on speculation of a potential Procter & Gamble (NYSE:PG) bid.  AIG (NYSE:AIG) shares fell 5.4% in a late-session sell-off on talks of a possible secondary offering.  Goldman (NYSE:GS) shares rose 1.7% to $185.52, closing at its highest level since July 2008.

Of key interest today would be the much-expected FOMC policy report, due out at 2:15 ET.  Expectations that the Fed will maintain record low interest rate levels of zero to 0.25% are intact. Most expect the Fed language to support an ongoing accommodative stance.  Moreover, President Obama cautioned that unemployment could even get a little worse in coming months. Therefore, the Fed's $1.75 trillion asset purchase program is likely to remain in place to encourage the recovery's traction.

Following advances in the overseas markets, US stocks are expected to gain at the opening.  The DJIA futures added 79 points for a gain to 9496; the S&P500 increased 9.9 points heading toward a 1023.80 open.  Markets were closed yesterday for the Labor Day holiday.

On Friday, the 30-stock Dow Jones industrial average rose 96.66 points, or 1.03%, to 9,441.27.  The S&P 500 index rose 13.16 points, or 1.31%, to 1,016.40.  The technology-laden NASDAQ advanced 35.58 points, or 1.79%, to 2,018.78.  However, all three indexes ended the week lower.  During the week, the DJIA retreated 1.1% and the S&P 500 was off 1.2%; NASDAQ was comparatively better, easing only 0.5%.   

As stock prices gained, Treasury bonds lost ground.  The yield on the benchmark 10-year note rose 0.09% to 3.44% and the 30-year bond yield rose 0.11 to 4.27%.  On Tuesday $38 billion in 3-year notes is slated for auction, on Wednesday $20 billion of 10-years, and on Thursday $12 billion in 30-years.

Last week, Tax preparer (NYSE:HRB) saw its shares fall after the firm reported a wider-than-expected loss of 39 cents a share.  Apple (NASDAQ:AAPL) shares rose ahead of its media event next week where it is expected to introduce iPod Nano and Touch models that include digital cameras.  Societe Generale sharply raised its price target on the iPhone maker.

Traders return to their desks in a holiday-shortened week with last September’s collapse of Lehman Brothers absorption of Merrill and a government bailout of AIG still fresh in their minds.  Although a lot of water has passed under the bridge since then, traders still remain skeptical about the prospects of a full blown economic recovery.

This week, healthcare and insurance stocks may take a cue from President Obama's attempt to garner support for his much-talked-about healthcare initiative in a rare joint session of Congress Wednesday.  Remarks from Saudi Arabia's oil minister that crude markets are "in good shape" indicate further production cuts are not expected at this week's OPEC meeting.

Moreover, a Credit Suisse (NYSE:CS) report noting, "This is the ideal phase of the economic cycle...There is more of a positive growth surprise to come over the next three to six months," could be viewed in positive light.  Credit Suisse projected a 13% gain in the S&P500 to 1150 by mid-2010.

The preliminary approval of the settlement, granted by US District Judge Jed Rakoff on Aug. 21, was made public yesterday.

Two Louisiana pension funds were the major applicants for the lawsuit. About 20 former Merrill executives and directors were named as defendants. The company was accused of issuing false and misleading prospectuses and registration statements in the offerings between 2006 and 2008.

Bank of America acquired Merrill Lynch on Jan. 1, creating the largest U.S. bank by assets.

We think that Bank of America is in relatively good shape from a capital perspective. During this delicate period of market stress, the availability of significant private-sector capital is very limited. As a result, management remains focused on managing asset-levels efficiently, ensuring the deployment of TARP funds in core lending businesses and trimming other assets in non-core businesses.

We also think that the management is quite confident about its capital position as it has recently indicated that it is in discussion with regulators for paying back a material amount of TARP funds.

We anticipate continued synergies from the company’s large-scale operation and balance sheet restructuring. However, higher credit costs and worsening credit quality will be a drag on upcoming results.

This will follow BAC CEO Kenneth Lewis' statements before the committee that both Paulson and Federal Reserve Chairman Ben Bernanke threatened to oust BAC's CEO and the bank's board members if they abandoned the takeover after discovering losses at Merrill.

In September 2008, BAC agreed to acquire Merrill Lynch, which resulted in the government supplying an additional $20 billion to BAC in order to cope with rising losses following the acquisition. This was on top of the $25 billion from the government's bailout program.

We would be surprised if the story behind the headlines is ever revealed.

Although Fed noted that the economic contraction is slowing, its decision to maintain the status quo was widely expected and unanimous.  The Fed also sounded a cautious tone, noting the economy "likely to remain weak for a time," as the consumer remains constrained and employment weak. Nevertheless, at the end of the two-day meeting in Washington, no plans for additional quantitative easing were announced.  At the same time, the central bank reiterated that it is likely to keep the interest rates at low levels for an extended period. 

Among S&P sector grouping, technology stocks led the gainers with a 1.4% rise, after Apple Inc. (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) advanced.  Oracle (NASDAQ:ORCL) jumped 7% to $21.26 after reporting better-than-expected results.  Legg Mason (NYSE:LM) jumped 11% and was the leading gainer on the S&P 500 after media reports said billionaire Nelson Peltz bough a stake in the company and would be looking for a breakup or sale.  On the downside, Supervalu Inc. (NYSE:SVU) led the decliners on the S&P 500 after it said first quarter earnings will be "substantially below" Street estimates.

Meanwhile, data continued to suggest that recession may be ending.  Durable goods orders unexpectedly rose for the second month in a row, up 1.8% in May, and up 1.1% excluding transportation. Estimates were for a 0.9% decline in total orders, and a 0.5% drop excluding transportation. Of greatest note, nondefense capital orders jumped 4.8%, rallying from the prior two months' falls of 2.9% in April and 1.4% in March.

Thursday sees Fed Chairman Ben Bernanke testifying before a House of Representatives Committee regarding Bank of America's (NYSE:BAC) acquisition of Merrill.  Companies reporting their results include ConAgra (NYSE:CAG), McCormick (NYSE:MKC), Micron Tech (NYSE:MU) and Lennar (NYSE:LEN).

Pre-market futures suggest a flat opening as traders look for concrete signs of an economic recovery, amid fears of increased government interventions and a crushed economic rebound.

Commodities and financial shares led the decliners yesterday, but healthcare stocks rose after Democratic leaders began working on a healthcare overhaul that would make it mandatory for all Americans to have health insurance coverage.  Shares traded in a narrow range, swinging between gains and losses.  Among S&P industry groups, financials led the declining issues with a 2.2% fall.  Oil and basic materials both recorded a 1.6% fall.  Stocks of consumer services companies gained 1.1%, with drug retailers rising 2.3%.

Among financial sector issues, Bank of America (NYSE:BAC) fell 3.4%, Citigroup (NYSE:C) plunged 5.2% and Wells Fargo (NYSE:WFC) recording a 5.4% decline.  JP Morgan (NYSE:JPM), Goldman Sachs (NYSE:GS), State Street (NYSE:STT) and Morgan Stanley (NYSE:MS) repaid funds borrowed under the government's TARP program.  The Obama Administration's proposed plan for a major financial system overhaul to counter the "cascade of mistakes and missed opportunities of the past decade," however, could not boost sentiments, even as $68 billion of TARP funds were repaid on Wednesday.  S&P, on its part, cited less favorable conditions industry-wide and greater volatility in financial markets for its decision to lower ratings on banks. Banks mentioned included Regions Financial (NYSE:RF), Wells Fargo (NYSE:WFC), Capitol One Financial (NYSE:COF) and PNC (NYSE:PNC).

Technology stocks, nevertheless, showed some resistance, riding high on a number of analyst upgrades and a better-than-expected forecast from Adobe Systems (NASDAQ:ADBE). Merrill/BoA upended its rating on Texas Instruments (NYSE:TXN) from "underperform" to its US I Focus List with a $27 target, noting its expected margin expansion even as the firm faces only modest cyclical recovery prospects. Qualcomm (NASDAQ:QCOM) rose after Goldman Sachs (NYSE:GS) added the firm to its conviction buy list, citing a raised global handset forecast along with an undervalued royalty business.

Chevron (NYSE:CVX) shares declined 1.5% after weekly crude stockpiles showed a larger-than-expected decline of 3.87 million barrels.

Among corporate releases slated for today are JM Smucker (NYSE:SJM) and Discover Financial Services (NYSE:DFS); Research in Motion (NASDAQ:RIMM) is expected to report results after today's close. Treasury Secretary Geithner is scheduled to testify in a House committee hearing on financial regulation. Jefferies' Healthcare Conference continues for its third and final session.

* Goldman Sachs' (NYSE:GS) removed Gap Stores (NYSE:GPS) from its conviction buy list, and downgraded the stock to "neutral."

* Dupont (NYSE:DD) was downgraded by Merrill's analysts as being fully priced

* Rio Tinto (NYSE:RTP) initiated a deeply-discounted $15.2 billion rights issue as well as a joint venture with BHP Billiton (NYSE:BHP), walking away from its $19.5 billion Chinalco (NYSE:ACH) deal

The fate of embattled Bank of America Corp.'s (BAC) Chief Executive Kenneth Lewis remained a matter of speculation on Wednesday afternoon after the company asked for more time to count the votes from its annual meeting in Charlotte.

Meanwhile, Lewis defended his decisions before shareholders who had criticized the largest U.S. bank's acquisition of Countrywide Financial Corp. and Merrill Lynch & Co. At the annual meeting, investors voted on a proposal to separate the posts of chairman and CEO at the firm.

"This has been an incredibly difficult and painful year for all of us," Lewis told shareholders, "But we are building this company for the long term." Lewis had earlier indicated that regulators did not allow him to back out of the deal that required $20 billion in federal loans.

Bank of America believes Merrill would help the bank in the long run due to the strength of its financial advisers.

While some investors complained about not being informed about the state of Merrill's losses, others backed the management for its decisions made during the worst financial downturn since the Great Depression. Some news sources claim that all 18 directors were re-elected to the board by shareholders but the vote tally on Lewis' chances of reclaiming the chairman's title were too close to call.

Bank of America might release the final results later on Wednesday. Shares of the company were up more than 4% to $8.52 in New York trading.

* Halliburton (NYSE:HAL) bettered estimates by 3 cents, reporting first quarter earnings of 44 cents a share versus 64 cents a year ago

* GlaxoSmithKline (NYSE:GSK) announced plans to acquire US skincare provider Stiefel Labs for up to $3.6 billion

* UBS (NYSE:UBS) said it will sell its Brazilian I-bank, Banco Pactual, for about $2.5 billion

* PepsiCo (NYSE:PEP) offered $29.50 in cash and stock for Pepsi Bottling (NYSE:PBG) and $23.27 per share for PepsiAmericas (NYSE:PAS), valuing the companies at about $6.4 billion and $2.9 billion, respectively

* Oracle (NASDAQ:ORCL) announced plans to acquire Sun Microsystems (NASDAQ:JAVA) for $9.50 per share, or about $7.4 billion

Key Points:

• Earnings reports remain ugly, total net income running 37.9% below a year ago
• Surprise ratio of 1.70:1 and median surprise of 2.22% are both below "normal"
• Fourth-quarter total net income expected to be 32.7% below year ago
• Financials red ink is $18.9 billion versus $6.0 Billion black ink last year
• Excluding Financials, total earnings down 20.5% so far
• Still heading south as 2009 expectations fall 2.22% in a week
• More than 1/3 of all 2009 consensus earnings estimates down more than 10%; 1/6 down more than 25% over the last month
• Total net income in 2009 now expected to fall 10.0%, following 13.3% 2008 decline
• P/Es based on 2009 estimates will prove to be to low as "E" plunges
• Bottom up estimate for S&P 500 now $65.12 in 2009, down from $66.60 a week ago; I expect it to be less than $60.

Total Net Income Growth

For those that desperately search for silver linings in the earnings expectations data, the best that can be said is that the rate of decline has slowed somewhat.

The bottom-up consensus earnings estimate declined 2.2% over the last week, but at least that is a much slower decline than the 6.6% decline the week before. However, anyone who thinks that the earnings for the S&P 500 in 2009 will come in at anything close to the current figure of $65.12 is an absolute fool.

When looking at this data, the trend is always more significant than the level at any given date. While down 2.2% is better than down 6.6%, it is still awful any way you cut it. We are talking weekly changes here, not monthly.

If the rate of decline were to slow to 1.0% per week for the rest of the year, that would mean that earnings for the year would be only $41.01. I suspect that it will end up being somewhat higher than that, since I am optimistic that the economic stimulus package will get passed and will start to have some limited impact in the second half. Even so, earnings of $55 for the year seem like a fairly optimistic forecast, but in the right ball park.

The question then becomes, what sort of multiple should one put on those earnings. As of Friday lunchtime, the S&P 500 (SPX) was trading at 868.10, which based on earnings of $55 would put the P/E at 15.8x. To make money holding the S&P 500 then one of two things has to happen. Either I have to be all wet about the $55 earnings level, or the multiple has to expand from this level. Granted interest rates are low and they are depressed earnings, but north of 16x is a pretty princely multiple.

The earnings declines are very widespread. When we combine those that have already reported with the expectations for those yet to report (implicitly assuming no surprises for the yet to report group), 8 of the 10 economic sectors are expected to earn less in the fourth quarter of 2008 than they did in the fourth quarter of 2007, and 7 of those sectors have expected declines of over 19%. The outlook for the first quarter is just as bad, with an expected drop of 28.5% and nine sectors down and one essentially unchanged.

Total Net Income Growth (Reported)
Sector	Q2 '08 A	Q3 '08 A	Q4 '08 A	Q1 '09 E	2007 A	2008 A	2009 E	2010 E
Health Care	8.80%	6.06%	8.07%	-4.81%	20.11%	8.99%	-0.47%	11.61%
Utilities	3.13%	-8.96%	4.41%	-1.18%	8.44%	2.70%	2.29%	12.13%
Cons. Stap.	10.02%	13.74%	-4.52%	-10.49%	2.80%	9.53%	6.75%	6.20%
Telecom	7.03%	-5.85%	-10.07%	-25.47%	24.79%	3.24%	-15.61%	7.02%
Industrials	5.92%	0.48%	-20.54%	-32.13%	10.29%	0.99%	-18.29%	7.82%
Technology	21.06%	10.73%	-23.31%	-34.38%	10.84%	15.29%	-16.25%	22.25%
Energy	14.58%	57.43%	-25.36%	-53.83%	8.93%	19.49%	-45.51%	35.18%
Cons. Disc.	-30.06%	-39.34%	-79.33%	-54.75%	-3.35%	-37.48%	7.03%	65.20%
Materials	5.35%	5.50%	-86.21%	-66.46%	12.46%	-10.17%	-43.05%	39.59%
Financials	-50.17%	-65.39%	-416.79%	-47.22%	-18.90%	-75.50%	68.66%	72.40%
S&P	-5.77%	-3.68%	-37.87%	-34.26%	2.89%	-10.36%	-14.27%	25.26%

Total Net Income (Reported)
Sector	Q4 '08	Q4 '07	Q3 '08	Q3 '07
Energy	$22,803	$30,549	$41,794	$26,547
Health Care	$22,702	$21,008	$22,904	$21,596
Technology	$18,446	$24,051	$20,909	$18,882
Industrials	$18,051	$22,719	$21,048	$20,948
Cons. Stap.	$10,140	$10,620	$11,889	$10,453
Telecom	$5,634	$6,265	$5,908	$6,275
Utilities	$3,496	$3,349	$5,121	$5,625
Cons. Disc.	$1,319	$6,379	$4,654	$7,672
Materials	$673	$4,883	$5,869	$5,563
Financials	($18,904)	$5,967	$11,818	$34,150
S&P	$84,361	$135,788	$151,915	$157,712

Total Net Income Growth (Not Reported)
Sector	Q2 '08 A	Q3 '08 A	Q4 '08 E	Q1 '09 E	2007 A	2008 E	2009 E	2010 E
Financials	-69.07%	-186.93%	636.57%	1926.89%	-13.08%	-90.34%	483.10%	9.89%
Health Care	9.07%	14.69%	12.56%	7.27%	17.17%	7.44%	9.86%	14.36%
Utilities	5.50%	-1.40%	11.07%	-7.59%	14.04%	4.64%	3.89%	7.97%
Industrials	9.51%	7.84%	1.90%	17.24%	7.43%	11.54%	-10.26%	-0.06%
Cons. Stap.	-6.10%	13.11%	-1.44%	11.67%	12.43%	14.28%	5.29%	9.48%
Technology	7.86%	-2.37%	-23.80%	-26.68%	14.21%	12.07%	-11.74%	13.78%
Energy	32.54%	47.46%	-32.20%	-32.32%	10.67%	19.11%	-29.06%	24.18%
Materials	13.01%	-16.31%	-54.85%	-26.94%	-3.67%	-3.98%	-15.00%	30.70%
Cons. Disc.	-80.17%	-48.21%	-61.14%	-53.30%	4.70%	-62.10%	3.48%	116.18%
Telecom	-40.48%	-63.43%	-66.71%	-41.87%	-6.35%	-49.52%	-28.00%	-11.34%
S&P	-28.45%	-39.27%	-13.71%	-7.54%	4.56%	-23.24%	7.39%	21.23%

Total Net Income Growth (Not Reported)
Sector	Q2 '08 A	Q3 '08 A	Q4 '08 E	Q1 '09 E	2007 A	2008 E	2009 E	2010 E
Health Care	8.84%	7.07%	8.60%	-3.40%	19.76%	8.81%	0.72%	11.96%
Utilities	4.11%	-5.99%	7.22%	-3.70%	10.62%	3.48%	2.94%	10.43%
Cons. Stap.	2.04%	13.45%	-3.14%	0.04%	7.23%	11.82%	6.03%	7.81%
Telecom	-1.11%	-15.97%	-19.08%	-27.00%	18.24%	-5.56%	-16.72%	5.61%
Industrials	6.23%	1.08%	-19.11%	-28.63%	10.07%	1.75%	-17.65%	7.14%
Technology	17.37%	7.46%	-23.42%	-32.32%	11.67%	14.48%	-15.14%	20.09%
Energy	16.25%	56.44%	-26.09%	-51.51%	9.12%	19.45%	-43.78%	33.72%
Cons. Disc.	-58.72%	-43.68%	-69.01%	-53.80%	1.06%	-51.47%	5.45%	87.40%
Materials	6.18%	2.03%	-80.94%	-61.98%	10.15%	-9.40%	-39.33%	37.94%
Financials	-53.87%	-89.80%	-324.04%	-22.16%	-17.78%	-78.53%	106.81%	56.18%
S&P	-10.95%	-11.57%	-32.67%	-28.53%	3.26%	-13.26%	-9.95%	24.30%

Scorecard and Median EPS Growth Rates

• Median EPS growth of 326 firms reporting so far is -6.8%
• Surprise ratio 1.70, median surprise 2.2%, both below normal
• Health Care still healthy with 10.1% growth, others anemic or down
• Health Care, Industrials doing well on Surprise front
• Nine sectors expected to be negative in 1Q
• Remaining firms expected to be down 9.5% in 4Q

Positive surprises still out number disappointments, but at only about half the ratio that we became accustomed to seeing during the good times. CEOs learned long ago that it is better to under promise and over deliver, and thus keep the guidance to the analysts conservative.

The overall picture when we measure earnings based on median year-over-year EPS growth is not quite as bleak as on a total net income basis. During the first three quarters of 2008, firms were still buying back stock at a fairly aggressive pace (although not as aggressively as in 2007, fourth-quarter data is not out yet), which helps boost EPS by shrinking the denominator, where that effect is not present in the total net income data. Also the decline in total net income is in part been driven by some huge losses at some mega firms, most notably in the financial sector.

Fourth-Quarter Scorecard (Reported)
Sector	4Q '08 Growth (A)	1Q '09 Growth (E)	2008 Growth (A)	2009 Growth (E)	2010 Growth (E)	% Report	Median % Surprise	# Pos Surprise	# Neg Surprise	# Match
Healthcare	10.13%	6.36%	13.73%	4.37%	10.84%	68.52%	4.11%	25	4	8
Utilities	2.45%	-1.81%	3.60%	3.10%	8.46%	41.18%	3.12%	8	4	2
Energy	1.81%	-24.88%	20.30%	-37.69%	20.43%	66.67%	3.04%	14	10	2
Industrial	0.89%	-18.53%	13.32%	-11.29%	9.12%	81.36%	2.39%	30	8	10
Tech	-6.00%	-26.60%	19.09%	-15.15%	11.04%	76.00%	4.00%	35	17	5
Cons. Stap.	-6.98%	-3.13%	11.11%	3.28%	8.31%	55.00%	2.24%	14	6	2
Telecom	-9.86%	-11.11%	3.03%	-5.10%	3.16%	33.33%	-1.61%	0	2	1
Cons. Disc.	-31.13%	-17.39%	-7.88%	-7.58%	9.01%	52.50%	3.83%	26	14	2
Financial	-39.83%	-38.86%	-21.79%	-0.91%	11.99%	69.14%	-12.13%	17	35	4
Materials	-55.00%	-60.99%	-4.89%	-27.83%	16.80%	72.41%	6.45%	13	7	1
S&P 500	-6.82%	-15.47%	7.25%	-5.79%	10.39%	65.20%	2.22%	182	107	37

Fourth-Quarter EPS Growth (Yet-to-Report)
Sector	4Q '08 Growth (E)	1Q '09 Growth (E)	2008 Growth (E)	2009 Growth (E)	2010 Growth (E)
Healthcare	5.13%	4.44%	17.86%	16.89%	13.75%
Cons. Stap.	3.95%	0.40%	10.10%	12.56%	7.30%
Utilities	3.41%	5.62%	-0.78%	9.18%	8.19%
Telecom	-1.23%	-10.09%	29.51%	5.31%	4.79%
Industrial	-3.70%	0.00%	9.71%	15.29%	10.62%
Energy	-11.05%	-28.21%	30.91%	13.31%	25.57%
Financial	-13.28%	-13.10%	11.52%	6.87%	12.97%
Cons. Disc.	-26.10%	-21.45%	15.09%	10.61%	12.68%
Tech	-28.35%	-10.17%	8.71%	22.02%	11.93%
Materials	-42.18%	-29.84%	11.72%	4.80%	13.58%
S&P 500	-9.51%	-6.06%	12.27%	12.89%	11.71%

The Zacks Revisions Ratio: 2009

• Revisions ratio for full S&P 500 up to 0.19, unchanged from last week
• Health Care the "strongest" as positive surprises help it
• 9 sectors have at least 3 cuts for every increase
• 34.4% of all firms see consensus earnings estimate decline by more than 10%, 22.4% more than 20%
• Ratio of firms with rising to falling consensus earnings estimates at 0.18, unchanged
• Total number of revisions (4 week total) up to 3,594 from 2,626 last week (36.8%)
• Increases up to 578 from 410 (40.9%), cuts up to 3,016 from 2,216 (36.1%)
• Estimate activity picking up sharply, nearing seasonal peak

Despite five of the sectors recording at least twice as many positive surprises as disappointments, it is not translating into upward estimate revisions for 2009. Granted, unlike the other quarters, there is no automatic reason for 2009 estimates to rise due to a positive surprise in the fourth quarter of 2008, the way there is if there is a positive surprise in the first quarter of 2009. However, the disparity is pretty stark.

The Health Care sector is the best of the bunch, but even there, estimate cuts are running at almost 2x estimate increases despite positive surprises outnumbering disappointments more than five to one. There are a few names where positive surprises have translated into higher estimates, like McKesson Corporation (MCK) and Forest Laboratories (FRX), but they are the exception, rather than the rule.

While the revisions ratio has improved from what we were seeing a month ago, it is still in horrendously negative territory. Furthermore, negative revisions are occurring on a far higher overall volume of estimates.

The size of the estimate cuts is awful, with more than one third of all S&P 500 firms seeing their consensus earnings estimate fall by more than 10% over the last month and more than one-fifth seeing greater than a 20% decline. The economy is still accelerating to the downside, so it seems unlikely that the cutting will stop anytime soon.

Not surprisingly the relatively defensive Health Care and Consumer Staples sectors are holding up better than the cyclical sectors like the Industrials and Materials. Financials they are in their own separate hell.

SECTOR	Avg. 4wk Change FY1	Revisions Ratio: #ests up/# ests dn 4 wk	# Of Firms with FY1 EPS 4wk Increase	# Of Firms with FY1 EPS 4wk Decrease
Health Care	-2.76%	0.52	17	37
Consumer Staple	-4.33%	0.28	9	30
Technology	-12.41%	0.26	11	62
Consumer Disc	-10.30%	0.21	11	68
Utilities	-3.56%	0.21	8	26
Energy	-20.68%	0.14	2	37
Telecom	-4.65%	0.11	1	8
Materials	-18.64%	0.11	2	26
Financial Services	-12.97%	0.10	10	71
Industrials	-11.65%	0.08	5	51
S&P 500	-10.56%	0.19	76	416

The Zacks Revisions Ratio: 2010

• Revisions ratio rises to 0.22 from 0.20 last week
• More than 3 cuts per increase for 9 sectors, more than 4 per increase in 6 sectors
• Telecom, Health Care the "strongest"; Industrials, Energy, Materials, Financials and Tech all very weak
• Only 21 total revisions in Telecom
• Ratio of rising to falling consensus earnings estimates falls to 0.20 from 0.26
• Total number of revisions rises to 1,479 from 1,127 (31.2%)
• Estimate increases rise to 264 from 184 (43.5%), cuts rise to 1215 from 943 (28.8%)
• Sample size of 2010 revisions is thin, but starting off weak
• Mean estimates to be affected by new estimates as much as revisions

While the total net income table above shows expectations of a very healthy rebound in profits in 2010 of 24.3%, don't start counting those chickens. Analysts are cutting their 2010 estimates at almost the same pace that they are cutting their 2009 estimates. If the two fall in tandem, the growth rate will not change, but it will be off a much lower base.

As with 2009, the estimate cuts are widespread, with Health Care being the only place where cuts are running at less than 2:1 over increases, in every other sector they are running at more than 3:1.

The size of the cuts is also very substantial. In 5 sectors, the average change in the consensus earnings estimate over the last month is in the double digits, and that is after we have removed all the declines of greater than 100%. The declines in the Energy sector look particularly bad, with major firms like Exxon Mobil Corporation (XOM), Chevron Corporation (CVX) and ConocoPhillips (COP) all registering double digit declines. Given the scale of their operations that translates to billions of dollars of lower expected earnings.

SECTOR	4wk Change FY2	(Sum[FY2 Rev 4wk Increase]) / (Sum[FY2 Rev 4wk Decrease)	# Of Firms with FY2 EPS 4wk Increase	# Of Firms with FY2 EPS 4wk Decrease
Health Care	-2.92%	0.54	12	39
Telecom	-5.69%	0.31	2	6
Consumer Discr	-10.02%	0.31	15	58
Consumer Staples	-2.94%	0.29	7	25
Utilities	-3.37%	0.23	7	20
Materials	-15.20%	0.22	6	22
Technology	-14.88%	0.18	7	62
Energy	-16.25%	0.13	3	35
Financial Services	-15.42%	0.11	10	67
Industrials	-9.36%	0.08	7	47
S&P 500	-10.44%	0.22	76	381

Earnings Shares and P/Es

• P/Es are too low since earnings estimates are too high
• Earnings Shares, including historical, based on current make up of S&P 500
• Disappearance of losers like Merrill, Wachovia and National City distorts Financials 2008 earnings share, with them it is under 4%.
• Health Care expected to take earnings crown from Energy in 2009, keep it in 2010
• Energy's earnings share expected to plunge to 14.2% from 21.4%
• Financials expected to dramatically grow earnings share in 2009 from depressed 2008 levels, but more write-offs are likely, and expected share is shrinking
• Consumer Discretionary market cap share far above earnings shares (overvalued?)
• S&P 500's P/E of 12.99 equates to earnings yield of 7.69%, very attractive relative to 10 year T-note yield of 2.98%.
• T-note rates are rising and more realistic earnings yields of near 6.50% based on lower earnings means the spread, while still attractive is not overwhelming.

Earnings Shares and P/Es
Sector	2008%	2009%	2010%	Market Cap%	P/E 08	P/E 09	P/E 10
Technology	15.13%	14.72%	14.23%	17.30%	13	15.27	12.73
Health Care	14.80%	17.22%	15.54%	15.63%	12.01	11.79	10.53
Energy	21.35%	13.93%	15.02%	13.80%	7.35	12.86	9.62
Cons Staple	11.83%	14.19%	12.33%	13.72%	13.19	12.56	11.65
Industrials	12.75%	12.08%	10.35%	10.09%	9	10.85	10.21
Financials	8.13%	11.69%	14.72%	9.90%	13.84	11	7.04
Cons Disc.	4.29%	5.02%	7.58%	8.47%	22.46	21.92	11.7
Utilities	4.17%	4.91%	4.32%	4.44%	12.12	11.75	10.77
Telecom	3.97%	3.76%	3.20%	3.59%	10.3	12.43	11.77
Materials	3.59%	2.47%	2.71%	3.06%	9.7	16.09	11.82
S&P 500	100.00%	100.00%	100.00%	100.00%	11.37	12.99	10.47

Neil Malkin contributed significantly to this report.

Data in this report, unless stated otherwise, is through the close on Thursday 1/29/2009

"CVX" Free Stock Analysis: Buy? Sell? Hold?
"COP" Free Stock Analysis: Buy? Sell? Hold?
"XOM" Free Stock Analysis: Buy? Sell? Hold?
"FRX" Free Stock Analysis: Buy? Sell? Hold?
"MCK" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

JPMorgan to cut prop desk

JPMorgan Chase is to scrap its standalone proprietary trading desk, highlighting how the dearth of investment opportunities is prompting banks to retreat from in-house hedge funds that had thrived before the turmoil. People close to the situation said the decision to fold the 80-strong global proprietary trading unit into JPMorgan’s other trading operations could result in job losses.

This entry was posted by Sam Jones on Wednesday, November 5th, 2008 at 5:28

September was a disaster for the stock market in general, but not necessarily ETFs.

Exchange-traded funds continued to grow in prominence as part of the overall U.S. equities market in September, reaching 35% of all trading, up from the previous record-level of 31%, just reached in August, according to National Stock Exchange data. The biggest part of that trading story has been State Street Global Advisors' SPDRs family of ETFs, which for the month of September represented approximately 50% of all ETF trading volume, with close to $1.4 trillion of the nearly $2.8 trillion in ETF trading volume. Year-to-date, the SPDRs also represent approximately 50% of ETF trading volume ($8.8 trillion), with Barclays Global Investors' iShares family a distant-second at $3.75 trillion.

But in a month of massive market turmoil, the news was not all good for ETFs. The iShares lost ground versus the SPDRs in terms of overall industry market share, and recent industry darling ProShares, which has received mounds of press for its rapid rise to above $20 billion in assets, saw major outflows in September, outflows at a level far surpassing any other ETF provider.

SPDR portfolios, such as its S&P 500 ETF (AMEX: SPY), saw much of the short-term market trading action, and its gold portfolio (NYSE: GLD), has been amassing considerable assets as the equities markets freefall. However, SSgA has not only led the race in terms of trading volumes, but has also gained considerable ground on Barclays Global Investors in terms of overall assets year-to-date. The SSgA ETF family had close to $169.6 billion in assets at the end of September, up from $144 billion in August, whereas BGI fell from $295 billion in August to $280 billion.

On a year-over-year basis, there has been an approximate $30 billion asset flip-flop between the two top ETF providers. In September 2007, BGI had $312 billion and SSGA $133 billion. And in terms of year-to-date cash flow, SSGA has net cash flow of $38.5 billion, while BGI stands at $22.7 billion. In terms of the worst asset story in September, ProShares was far and away the ETF industry loser in this respect, down $2.4 billion in cash flow. No ETF provider even came close to that level of net outflows for the month. The second-largest outflows were experienced by WisdomTree, which had net outflows of $119 million.

SPDRs has been buoyed by trading on the SPY, which in September had close to $20 billion in net cash flow. That is twice its year-to-date net cash flows of near $10 billion. Investors piling into gold also helped the SPDRs: GLD had net inflows of close to $3 billion in September.

Barclays suffered mostly in its broad international ETF portfolio. In fact, among the top ten largest ETF portfolios, only the iShares MSCI EAFE (NYSE: EFA) had net outflows in September, dropping $285 million. For the year-to-date period, the EFA has hemorrhaged more than $4 billion in assets. What's more, year-to-date among the top-ten largest ETFs, EFA is the only fund with net outflows of more than $1 billion, and the second-worst asset story is a distant-second. Unfortunately for iShares, it's also one of its own: the iShares Russell 1000 Growth Index Fund (NYSEArca: IWF) has had year-to-date outflows of $773 million.

Overall, only three of the top-ten ETFs have had net outflows year-to-date, and all three are iShares, the third being the iShares MSCI Emerging Markets (NYSEArca: EEM), which lost $129 million for the year. While BGI still has six of the top 10 industry ETFs in terms of assets, only two of those ETFs have larger asset bases than they did one year ago-the iShares Lehman Aggregate Bond Fund (NYSEArca: AGG) and the iShares Russell 2000 Index Fund (NYSEArca: IWM). And its largest ETFs are off considerably from a year ago: EFA is down from $48 billion in September 2007 to $32 billion as of the end of September. A silver lining for EEM is that, while it is still down year-to-date, it was actually fourth in net inflows in September among the largest ETFs, with a little more than $3 billion gained.

Notable, but not surprising among the September data is the poor performance of exchange-traded notes, the sister-product to ETFs, which have been hard hit by their unsecured debt structure amidst the worsening credit crisis. While there has been debate as to whether the unsecured-debt nature of these investments would cause a direct hit on their marketing, the answer from the September data seems to be a ‘yes.' The ETN industry had net outflows of $443 million in September, with Barclays' iPath family, in particular, accounting for almost all of that unwanted movement, down $474 million in net inflows for the month. Only three among the 12 ETN providers had net inflows in September, and at levels that would were nothing to get overly excited about: PowerShares' ETNs (co-branded with Deutsche Bank) had $68 million in ETN inflows; UBS' family has $1 million; and HSBC's ETNs saw $6 million in inflows. All of the other providers were either flat or negative, and with nine of the 12 ETN providers having $100 million or less in total assets, and marketing efforts hamstrung during the credit crisis, the situation does not look promising in the short-term for these investments.

Among the major exchange-traded product categories, the only dollar loser in September was currency, which had net outflows of $239 million. It was a minor recovery for currency ETFs and ETNs, which in August, had larger outflows of $513 million. The two worst category performers from August found better fortunes in September. Commodity portfolios, which had outflows of $542 million in August, had net cash flow of $3.6 billion in September, but that was primarily buoyed by investors migrating to GLD. The global/international category, which had close to $2 billion in negative net cash flow in August, had positive cash flow of $3.88 billion in September, the second-most among categories, but still far behind domestic equity net cash flow of $47 billion for the month.

Dirk van Dijk, CFA, Director of Zacks Equity Research: I'm not sure how many accounting principals are more fundamental than "lower of cost or market."  There are some transactions being done between willing buyers and sellers.  That is the best way of finding out what the "true" value of something is.  Suspending mark-to-market is just an attempt to hide the real condition of the banks -- it allows them to pretend that the garbage on their books is really gold. 

Isn't misrepresenting the values on your books the very core of the idea of securities fraud?  That is all that doing away with mark to market would be, legalizing and legitimatizing securities fraud.

Jason Napodano, CFA, senior drug industry analyst: I'm not sure what transactions you're talking about, Dirk, but from what I've heard the market for these types of securities is completely illiquid.

It's impossible to mark-to-market when you have absolutely no idea what the market is.  There's got to be a better option than, "No one is buying it, so it must be worth zero" mentality.  Bernanke and Paulson both stated they would probably buy many of these securities at prices above what is being marked on banks' balance sheets right now.  If we can come up with a reasonable pricing mechanism for the value of stock options, then a similar formula should be able to be put into place to calculate the value of mortgage-backed securities.

Prices are artificially low due to a combination of fear and illiquidity. I suspect that if all these funds were held to maturity, they would return far greater value then their current mark-to-market price.

Sean P. Smith, senior travel & leisure industry analyst: There has been a market for these securities, just not one to which the banks have been willing to mark their assets.

At the end of July, Merrill (MER) agreed to sell $30.6 billion gross notional amount of CDOs [collateralized debt obligations] to Lone Star Funds for $6.7 billion. That would equate to roughly $0.22 on the dollar. However, to complete the deal, Merrill had to provide financing to Lone Star for 75% of the purchase (approximately $5 billion).

The loan was non-recourse, meaning Lone Star could put the CDOs back to Merrill should the CDOs deteriorate, and Lone Star would only be out the $1.7 billion in equity it put up. In essence, Lone Star paid about $0.055 on the dollar.

I doubt things have improved in the last two months.

Ann Northrop, CFA, senior communications and restaurant industries analyst: I thought Jeff Diermeier,  CEO of the CFA Institute, summed it up well in his September 23rd letter to legislators and regulators. He argued for mark-to-market accounting with optional disclosure of alternative valuation criteria, such as companies that report certain cash flow metrics or EBITDA do now. 

He went on to posit that it is capital adequacy and not reporting requirements that should be flexible in chaotic financial times. Here is an excerpt and the link to the letter follows:

"Complaints about fair value arise largely in the context of their impact on capital adequacy. Rather than suspending fair value and thereby the transparency and relevance of financial information, perhaps the focus should instead be on flexibility in capital adequacy requirements in times of distress. This is a much more direct and transparent means of dealing with the capital issues."

http://www.cfainstitute.org/centre/topics/comment/2008/080923.html

Eric Rothmann, senior financials and insurance industries analyst: The one place that we should never be "flexible" is capital adequacy.  If there was more emphasis on the quality and quantity of capital, the taxpayers would in all likelihood be on the hood for a lot less.

Ann Northrop: Looks like the SEC has eased mark-to-market accounting.

http://news.yahoo.com/s/nm/20081001/bs_nm/us_usa_accounting_sec

Dirk van Dijk: "By clarifying how to treat assets in an uncertain market, the SEC is continuing to provide transparency to investors and helping institutions to provide credit in periods of market stress."

Yeah, the best way to provide transparency is to paint over the windows with black paint and then hang heavy curtains in front of them.

Ann Northrop: Looks like they're paving the road to the next disaster.  In the meantime, I would imagine this will greatly reduce the multiple investors are willing to pay for bank stocks. How can anyone know what they are really buying? (Thanks, Ann, for passing this along to all of us.)

Source: Chart of the Day/Bloomberg

“Despite all the rhetoric, with the rally in the dollar index, OPEC is still saying `thank you very much,''' Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland, said. “For OPEC, $80 now is the same as $100 two months ago.''

Loss of Merrill, Lehman Signals `Tectonic' Shift in Wall Street Landscape In the biggest reshaping of the financial industry since the Great Depression, two of Wall Street's most storied firms, Merrill Lynch & Co. and Lehman Brothers Holdings Inc., headed toward extinction.

Chance of Rate Cut at Fed Meeting Now Set at 88%

Fed funds futures contracts attached an 88 percent chance the Fed will lower rates by 25 basis points at or before Tuesday's Federal Open Market Committee meeting.

URANIUM

Western Australia Set for Uranium Mines as Liberals Win State Government Western Australia's uranium-related companies are set for a boost after the Liberal Party, which favors ending a ban on mining the nuclear fuel, yesterday won the backing of the Nationals to form government.

Toro, Energy Rise on Optimism Western Australia Will Open Uranium Mining Toro Energy Ltd. and Energy & Minerals Australia Ltd. led gains in shares of Western Australian uranium explorers as the Liberal Party, which has indicated it will allow mining of the fuel in the state, won the right to govern.

CRUDE OIL

Crude Oil Falls Below $97 as Ike Spares Texas Refineries, Lehman Collapses Crude oil fell below $97 a barrel to the lowest in seven months as refineries along the Gulf of Mexico coast escaped major damage from Hurricane Ike and Lehman Brothers Holdings Inc. filed for bankruptcy.

Emerging-Market `Panic' Masks Record Profits, May End With 20% Stock Rally Emerging-market companies, earning more for shareholders than ever before, are getting no respect just as their stocks drop to levels that preceded rallies.

It wouldn't be overstating it to say that this is a true American disaster.  That it comes at the peak of hurricane season elsewhere in the U.S., one can easily bring to mind the image of a slow-motion Category 5 still wreaking havoc on Wall Street.  From the beginning of the year with Bank of America, or BofA (BAC) buying out Countrywide through the collapse of Bear Stears into JP Morgan's (JPM) arms, 2008 will mark a negative touchstone in the history of U.S. finance. 

Speaking of BofA, the now-colossal Charlotte-based bank has just purchased another American icon in the investment world: Merrill Lynch & Co. (MER), for a reported $50 billion, or $29 per share.  But in light of BofA paying far too much for Countrywide -- in retrospect, and hindsight is always 20/20 -- investors may be concerned BofA overpaid for Merrill, which had been experiencing hardships of its own lately.  This may explain BAC shares falling 12% in early Monday trading, while MER is up close to 30%.

It wouldn't be overstating it to say that this is a true American disaster.  That it comes at the peak of hurricane season elsewhere in the U.S., one can easily bring to mind the image of a slow-motion Category 5 still wreaking havoc on Wall Street.  From the beginning of the year with Bank of America, or BofA (BAC) buying out Countrywide through the collapse of Bear Stears into JP Morgan's (JPM) arms, 2008 will mark a negative touchstone in the history of U.S. finance. 

Speaking of BofA, the now-colossal Charlotte-based bank has just purchased another American icon in the investment world: Merrill Lynch & Co. (MER), for a reported $50 billion, or $29 per share.  But in light of BofA paying far too much for Countrywide -- in retrospect, and hindsight is always 20/20 -- investors may be concerned BofA overpaid for Merrill, which had been experiencing hardships of its own lately.  This may explain BAC shares falling 12% in early Monday trading, while MER is up close to 30%.