AnomaLee (29.32)

Economic Report: Market Up on Jobs / WTO talks collapse / Christmas in July

July 30, 2008 – Comments (1) | RELATED TICKERS: MER , POT , WYE.DL

Oh no! What is going on?!

Let's start off with funny...
U.S. Marshals Sell Off Hedge-Fund Portfolios as Corporate Crime Escalates

July 30 (Bloomberg) -- Samuel Israel, convicted of fraud in the collapse of his Bayou Group LLC hedge fund, had the U.S. Marshals on his tail long before he faked his own suicide last month to avoid a 20-year sentence.

In one of its lesser-known roles, the Marshals Service helped recover $115 million by selling Bayou's failed investments. That is almost all that was left from the hedge fund turned Ponzi scheme.

``You can't believe some of the stupid investments these people made,'' said Leonard Briskman, the Marshals' deputy chief for business management who is supervising Bayou's liquidation sale. ``The Bayou guys lost money during the late '90s when almost everybody was making money in the market without even trying.'' 

Finally some good news:
Wall St seen opening higher on positive ADP data (Reuters)
Wednesday July 30, 9:25 am ET By Walter Brandimarte
NEW YORK (Reuters) - Wall Street was poised to rise at the open on Wednesday after a report showed private employers unexpectedly added jobs in July and the Federal Reserve announced it would extend a measure to boost liquidity in turbulent financial markets. Another slide in the price of oil, following Tuesday's drop of $2.54 for the barrel of U.S. crude, further reduced fears about inflation and the impact of high energy prices on consumer spending.

The Fed said it was extending a credit facility that it provides for primary dealers in another step to help financial sector companies struggling with credit losses
---------------

This is much better than expected and the market will undoubtedly begin to take this as signs of the economy turning and continue to try and hammer the shorts positions which are at historically high levels. I'd still wait to see what the government says. 

Double-Article - Deal or No Deal?

Trade failure clouds climate talks and beyond (Reuters)
"If we cannot even manage trade, how should we then find ourselves in a position to manage new challenges like climate change?" said European agriculture chief Mariann Fischer Boel after talks at the World Trade Organization (WTO) in Geneva fell apart on Tuesday.

World Trade Likely to Grow Even as WTO Talks Sputter (Bloomberg)
``World trade will be the same as it was before,'' said Andrew Freris, chief Asia economist at BNP Paribas SA in Hong Kong. ``The talks aren't going anywhere. There's always going to be an issue of subsidies from the U.S. and European sides.''

The average tariff on manufactured goods among developed nations dropped to less than 5 percent today from 40 percent in 1947, according to the International Monetary Fund.
``The impact on our farmers will be very grave,'' Mamadou Sanou, Burkina Faso's trade minister, said today. ``There is a risk that the whole system will collapse in our countries.''

The breakdown is ``a very bad sign to give at this time to the world economy,'' said Shada Islam, a trade specialist at the European Policy Centre in Brussels. ``People had been looking to the WTO for a sign of confidence at this very critical time.''
---------------

I won't go into much detail here. I've been writing extensively about this recently. Several weeks or months(I forget now) I sold my remaining shares in Syngenta for a small profit because I believed these same talks would change the current trade barriers, but with Congress blocking billateral trade agreements and WTO talks collapsing I can safely assume the probability that nothing will change in terms of trade -- and that the problems today will likely grow. (See below)

North Korea food crisis worst in a decade: U.N. (Reuters)

I think the biggest winners are Potash(POT) and Yara International from these dealings as these barriers to trade increase their power over certain markets.

'Christmas in July' and How Merrill represents financials:
Merrill Management: Disregard Everything We Say (Bespoke Investment)

"While they didn't come right out and say it last night, the message coming out of Merrill Lynch's management (MER) is clear: Disregard everything we say.  Below we highlight some of the comments that MER's CEO has made in 2008 regarding the company and its capital position.  In January, the company was "well positioned," and then in April the company still had "plenty of capital" for the "foreseeable future."  But by the end of April, the company went to the markets and raised $9.5 bln in capital.  After raising the $9.5 bln the company said, "We have no intention of raising any more capital."  So instead they sold their stake in Bloomberg and tried to sell Blackrock before the ratings agencies put the kibosh on that.

Less than two weeks ago, the CEO of MER said that in response to low ball offers for their fixed income assets, the company didn't "want to do dumb things...We have not liquidated stuff at any prices we could get."  Then last night the company comes out and sells $30 billion of its CDO portfolio for 22 cents on the dollar.  We can only imagine what the low ball offers were.

Since MER management has repeatedly gone back on its word through the course of 2008, last night's capital raise announcement was accompanied by a statement that management would buy 750K shares of stock.  While these actions are meant to sound like a vote of confidence in the stock, let's just remember that in today's prices, 750K shares of stock works out to about $18 million.  To put that in perspective, the company paid its top four current executives over $50 million in salary and bonuses for what they 'accomplished' in 2007."
---------------

I couldn't sum anything up better. Although, Merrill Lynch has fallen over 60% from its 52-wk highs I still believe in the words of intelligent analysts such as Meredith Whitney over misleading CEO John Thain and believe a fair value for MER is destined for the teens. I'd maintain an obvious SELL rating with a target below $19 based upon a Forward P/E around 8 on current projections -- that's my reasoning. This is my watchdog stock for financials and I figure the financials will be closest to its significant fair value by the time Merrill is sorted and Thain stops lying.

It's kind of funny... that I couldn't find any financial stocks to play in the 'Christmas in July' contest. They've been outperforming quite well and I'd expect them to continue to do so for the timeframe of the Motley Fool contest. 

FYI: I'm stinking it up...

Miscellaneous News:

Profits in U.S. May Drop the Most in Decade, Led by Lehman, Merrill Lynch
(Bloomberg) - Oh no! Not more negative news!

Moody's profit down 48 percent, ratings demand shrinks
(Reuters) - Punch in the face....

Government announces plans to borrow $27 billion
AP - From you?

Zimbabwe devalues currency; 10B becomes 1 dollar AP
I'm rich!!! -- Proof that money is paper and loses faith

Gold options point to $1,200
(Reuters) Deep out-of-the-money calls and other bullish plays in the gold options market indicate bullion has a shot at rallying to an all-time peak of $1,200 an ounce

Elan, Wyeth plunge as Alzheimer's drug disappoints
(Reuters) - I had high hopes as well and wished they succeeded, I closed my pick on Wyeth before the market because the 'Drugs Don't Work'...

I posted this video a while ago, but here it is again... (These guys made that song Bittersweet Symphony -- which I like even tho I don't listen to 'soft' music)

(Lyrics)
And the drugs don't work...
They just make your worse...