I was very busy most of the day, and when I finally could sit down and check on the market fireworks were in full effect! The DOW closed up about 2.5% and the Nasdaq shot up a cool 3.5%! Quite a rally. On days when I cannot see any news or read any headlines, it is always interesting to go over the final wrap-up and see what was perceived as a catalyst.
Bank of America and Goldman Sachs: Rays of Sunshine
Bank of America was out today with just a 3 Billion dollar writeoff. Such a minuscule amount is nothing compared to the whoppers that have been showing up from some other firms. CEO Joe Price was at an investor conference had this to say: http://www.forbes.com/2007/11/13/investment-bank-writedowns-markets-equity-cx_ra_1113markets43.html?partner=yahootix
"Price said Bank of America has approximately $11.7 billion in subprime exposure in its CDO’s, with $9.8 billion in liquidity support and $1.9 billion in cash positions. Its loss estimates will not be updated before the announcement of fourth-quarter results in early January."
So 3 Billion dollar write down out of 11.7 Billion in subslime CDO exposure? That's a 25% move down that BAC is expecting. Special notice should be paid to the fact that no additional information will be provided on the CDO's until next year. Seems to me like BAC is stalling for time.
Goldman Sachs came out and said they are not taking any write downs, thank you very much. They even said they are actively shorting mortgage backed securities, a theme I have opined on in the past. I wonder when a savvy bank is going to start selling this stuff real cheap in small amounts while they short the heck out of it and make a bundle. As far as Level III assets at Goldman:
"Blankfein (CEO)also said Goldman is comfortable standing behind its valuations for some $50 billion of risky and illiquid assets that it holds. They include private-equity, real-estate and leveraged-buyout loans.
"We are confident that we know how to evaluate these assets," Blankfein told his audience at the conference, which was sponsored by Merrill Lynch."
Well I for one am glad he is so confident!
FED Surprise Scheduled for Thursday Afternoon
While the BAC and Goldman news could have been a catalyst for the markets firing up the ion drives and going up, by far the most talked about possibility I came across was a surprise FED rate cut of 50 basis points scheduled for Thursday afternoon. This tidbit was running rampant on all the stock message boards I follow, and it made its way into some small outlets. I could not find any mainstream media reporting the rumor, which makes me think it just might be true. Last time the FED telegraphed the move to major banks, and the mainstream media was on it as well. I think the FED would want this one kept quiet. If the FEC is going to cut rates, the Dollar (75.8 on index) and Gold (about $800) had no idea or do not believe that to be the case. If you are a conspiracy nut, here's one:
The FED in concert with some central banks and the US banks were aggressively selling gold and buying dollars over the past few day. As the dollar went up a bit, and gold went down pretty hard a rate cut may not cause a currency panic! Hows that for conspiracy!
I doubt that's the case but the rumor is prevalent enough to make Thursday afternoon interesting to watch. If the rate cut does not show up, what happens to the market?
In short (pun intended) I could not find a real solid reason for the jump today. Nothing on a Macro scale was changed today. The market wanted to go up and it did. Thursday will be the day to watch this week.
I have a new poll up as to whether the cut will happen, please vote! I know Kevin and AnonG will!
Have a good night.