Since early May, the share price of Merrill Lynch & Co. (NYSE: MER) has plunged, going from $52 to $31.12. Basically, various Wall Street analysts have turned negative on the company as there may be a need to seek more capital to deal with write-downs.
Of course, a strategy to deal with this is to unload some key assets. In fact, according to a piece in the New York Times, it looks like Merrill is trying to sell off its 20% stake in Bloomberg LP.
It was in the early 1980s that Merrill Lynch invested $30 million in Bloomberg. And since then, Bloomberg has become a global powerhouse in financial analytics. Currently, its community comprises about 250,000 subscribers.
As for Merrill Lynch, it looks like its negotiations are in the first stages -- such as with putting out feelers and sending out pitch books.
Yet, it's never easy to sell a minority position. After all, such a stake provides little control. Moreover, it's tough to resell the position. Keep in mind that Michael Bloomberg still owns 72% of the firm.
Plus, he has a right of first refusal on any purchase. This is a powerful tool and is likely to diminish the ultimate valuation of a possible deal. In other words, the logical buyer for the 20% stake is likely to be Michael Bloomberg himself.
TheStreet.com's Jim Cramer says he has no confidence in these hated names, and neither should you.
The financials are flying -- there are finally bids for most of them underneath. Many, including Lehman (NYSE: LEH) (Cramer's Take), are running. What a great time to put the negative cards on the table and put the negatives in perspective. That's right, let's look at the financial Achilles' heels. What could go wrong? In other words, here's the companion piece to Doug Kass' positive conversion. Here's what I am worried about even as Doug thinks everyone's too worried and the bottom is being put in.
To get started, let's look at what's not causing the endless declines in the stocks -- don't worry, we will get to the financial dirty dozen when I finish this preamble.
First, it ain't earnings. Earnings aren't going to be that great. But that's why the S&P is at 14 times. It can go to 12 or 11, or most likely stays at 13-14, but the E goes down (earnings).
Second, it ain't oil. The stocks sensitive to the increase in oil have room to go down, but the price of oil is being factored in slowly but surely.
Third, it isn't inflation or recession. Those two are being baked in each day.
Six months of 2008 are now behind us and the stock market has not been a friendly place to most investors. Stability that was once found in household names that were industry giants is gone, and they have now been brought to their knees.
Many of them were the stocks we might have looked to in the past for stability, so you can be sure I put forward my five candidates with a little trepidation, but forward I go anyway. First a little review is in order.
Citigroup Inc. (NYSE: C) dropped from around $53 per share last year to around $30 in January and we can buy it today for around $17. Even at that price Goldman Sachs (NYSE: GS) has downgraded it to a sell and thinks there is more bad news to come. Citigroup was the largest bank in the world. Not any more.
General Motors (NYSE: GM) was the largest car maker in the world. That was before the stock tumbled from $43 to its current $11 range. A crushing blow to long time investors hoping that someone in the company could stop the ship from sinking.
No matter what any CEO, analyst, "guru", "market expert", strategist, fund manager, trader or message board poster says (few show all their trades and investments like me, nor are they up 60% in 2008, see details here), never try to catch a falling knife. Before I list all the current ones, I really have to pound it into your heads that buying these things in hugely uncertain -- and possibly disastrous -- times like these is not only dangerous, it's just plain irresponsible.
Now, I don't want to hear those "I'm a long-term investor in blue-chip stocks" and "these are quality companies trading at discount prices"-type comments. While it's possible these stocks will bounce, the risk-reward ratio is downright awful here, just as its been for the past several months (as I've been warning in posts like this and this).
TheStreet.com's Jim Cramer says forget calling a financial bottom -- everything you need is right in front of you.
Do you think this week will finally end the oil inventory nonsense? Do you think this week could be the breakout where oil doesn't trade on the slight build or the "heavier than expected" chatter?
I sure hope so.
Yesterday was a horrible market, but midday, when the market was really beginning to roll over, the whole complex turned. This was quite an achievement given the overwhelming collapse of the futures and the propensity of the bears to push things down.
Today with the futures breaching $140 -- remember, I think they're on the way to $150 -- we can see the error of relying on these numbers, which I have said for years now are meaningless. Witness how many times the inventories have been more full than expected and yet oil has doubled.
I want to go back to the cheaper-than-oil stocks, though. Natural gas. Oil has to go down $65 to get to where natural gas is right now. Meaning that historically oil trades at six times the price of natural gas. So natural gas -- forget the season, which is supposed to be bad for nat gas -- needs to come higher.
This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them.
The expression was good for decades: "Wall Street to Main Street," as Merrill Lynch (NYSE: MER) was indeed the nation's premier brokerage firm to individual investors. That mantle is in serious jeopardy as "Mother Merrill" has encountered a horrible period in its illustrious history. Many wonder if Merrill Lynch will be able to survive as an independent company or be acquired by a larger bank.
Merrill Lynch replaced inept CEO Stanley O'Neal back in October 2007 "after one bad quarter." One rule of investing is there is rarely just one bad quarter for a troubled company and Merrill is proving this. The company actually lost over $10 in earnings per share in 2007, and 2008 will be lucky to break even. The subprime mortgage and other riskier credit strategies have been the undoing of Merrill Lynch.
Coming up fast and preparing to take the title of "Main Street's firm" for individual investors is Charles Schwab (NASDAQ: SCHW). This San Francisco-based firm has stayed true to its business model since its founding in 1971 by Charles Schwab. He firmly believed then and still does, that investors need choices and a low price of execution. Schwab offers several investment products primarily to individual investors and small institutions. The firm has migrated these past 10 years to an outstanding web-based model, allowing investors to access their account information 24/7. Transaction costs are among the lowest and advice is available. The advice is not pressure-packed, but rather informative.
Oil was again the headline event today with the price per barrel near $142.00 and talk of $150.00 sooner rather than later. But all in all this day was far "less bad" than it could have been, especially if you consider the selloff yesterday, and consider that this was a Friday ahead of a shortened work week where traders are leery of holding positions. To top it off, the June quarter ends on this coming Monday.
The University of Michigan posted consumer confidence today at a 28-year low as inflationary pressures and fears remain high. The final June reading fell down to 56.4 from 59.8 in May and down from the prior June preliminary release of 56.7.
TheStreet.com's Jim Cramer says with few exceptions, the landscape is littered with corpses.
Sell everything. Nothing's working. Revisit when the prices are adjusted for a big recession, soaring inflation and a crushed consumer. Sell at 12,000 and come back at 10,000. Even better: short it.
Are you going to argue with any of that? Do you have a case against it? What's the counter? Takeovers? We've had a couple: Anheuser-Busch (NYSE: BUD) (Cramer's Take), Wrigley (NYSE: WWY) (Cramer's Take). Good if you owned them.
Lower rates? Can the Fed help? We assume the Fed is done. The odds favor higher rates. Bank turnarounds? How, with short-rates going up? With housing prices going down?
Can oil go down? Only with a worldwide crash, and with a worldwide crash, why would we come back at 10,000?
Can the consumer get more liquid? How? Unemployment's going higher. Wages won't go up in that environment.
That's the environment. It's pretty bulletproof when it comes to its logic.
The Wall Street Journal reported that is is not yet certain whether Merrill Lynch & Co Inc (NYSE: MER) will need to raise money. If it does, selling common stock could be expensive due to a 12-month protection the bank offered the investors that bought $12B in common and preferred shares earlier this year and selling assets like its interest in Bloomberg may present a different problem.
The Wall Street Journal also reported that investigators from the European Union are probing deeper into the pharmaceutical industry in an effort to determine whether drug companies have used unfair tactics to increase prices and block competition. Investigators have reportedly ask for views on direct-to-pharmacy distribution channels, which Pfizer Inc (NYSE: PFE) and AstraZeneca Plc (NYSE: AZN) recently established in Britain.
After Anheuser-Busch Companies Inc (NYSE: BUD) said it would reject InBev's $46B bid as "financially inadequate," InBev said it would launch a hostile bid. According to court documents, the Financial Times reported that InBev is preparing to launch a proxy battle seeking the removal of Anheuser's entire board.
The Financial Times also reported that soaring energy prices are forcing U.S. consumer goods company The Procter & Gamble Company (NYSE: PG) to rethink how it distributes products. The company may consider shifting manufacturing sites closer to consumers in order to lower its transport bill.
No sooner than we got used to the huge writeoffs and thought most of the fallout is behind us, that Goldman came today and whacked us on the head. "Over?" it laughed, "you wish!" It then proceeded to downgrade investment banks from Attractive to Neutral. Specifically, it downgraded Citigroup (NYSE: C) to Sell, urging investors to short sell it!
Citigroup will have another $8.9 billion in writedowns, William Tanona, the Goldman analyst said, and added Citigroup to Goldman's "Americas conviction sell" list, cutting his price target on the stock to $16 from $20. Citi shares are down 5.5%.
Merrill Lynch (NYSE: MER) has already been subject to rumors last week it would have to write down more assets. Today, the same Goldman analyst said it will likely incur $4.2 billion of write-downs in the second quarter. MER stock is down 4.5%.
At least Goldman shares have not been immune and are declining nearly 2.7% along with the rest of the investment banks and the market.
U.S. stock futures were lower early Thursday, a day after the Federal Reserve announced rates will be kept steady. Investors this morning are mostly concerned about financials following Goldman Sachs downgrades of several banks. Wall Street is also worried about the outlook for tech stocks after both RIM and Oracle reported quarterly results Wednesday and gave a tepid outlook.
On Wednesday, U.S. stocks managed to end the session with moderate gains as oil prices declined. The Federal Reserve held interest rates at 2%, saying inflation has become a higher risk to U.S. economy. The Dow industrials rose 4 points, or 0.04%, the S&P 500 added 7 points, or 0.58%, and the Nasdaq Composite rose nearly 33 points, or 1.39%.
In economic news, final first quarter GDP will be reported at 8:30 a.m. EDT, with economists expecting a slight revision upward. At the same time, weekly jobless claims is due out. Finally, at 10:00 a.m., May existing home sales figures will be released, and economists expect a small growth in sales.
Meanwhile, oil prices rose Thursday after a steep decline Wednesday following a report showing increase in U.S. inventories. Crude is back above $135 a barrel this morning as buyers came back to the market.
The Wall Street Journal's "The Game" column speculates that one of the results of the Bear Stearns crash could be the push of investment banks and commercial ones closer together, which could result in better handling of volatility with more stability. Some observers think Merrill Lynch & Co (NYSE: MER), Morgan Stanley (NYSE: MS) or The Goldman Sachs Group Inc (NYSE: GS) could go that route by buying a commercial bank. Any move would force them to adhere to better reserve ratios, affect short term bank funding, and shrink balance sheets.
The Wall Street Journal reported that Google Inc (NASDAQ: GOOG) will soon make available a new service that measure hits on the Internet with the intent of helping advertisers decide where to buy ads online and would directly compete with comScore Inc (NASDAQ: SCOR) and Nielsen Online. Ad executives said Google's method could make targeting markets more efficient.
A Manhattan judge dismissed four claims made by American International Group Inc (NYSE: AIG) in its fight to regain control of a block of its shares held by Starr International, a company that once founded a lucrative compensation plan for AIG executives. AIG believes the shares held by Starr should continue to be used to fund employee compensation, the Financial Times reported.
WEB SITES:
According to Scorpio Partnership, Bloomberg reported that UBS AG (NYSE: UBS) and Merrill Lynch had slower growth in assets under management last year due to losses connected to the U.S. subprime crisis.
TheStreet.com's Jim Cramer says their products just don't have the demand to compete.
General Motors (NYSE: GM) (Cramer's Take) joins the list of unthinkables, the ones that may not be able to make it with its current structure. The ones that basically need to be Chapter 11'd to save the business from dying.
Since early May, the share price of Merrill Lynch & Co. (NYSE: MER) has plunged, going from $52 to $31.12. Basically, various Wall Street analysts have turned negative on the company as there may be a need to seek more capital to deal with write-downs.
Six months of 2008 are now behind us and the stock market has not been a friendly place to most investors. Stability that was once found in household names that were industry giants is gone, and they have now been brought to their knees. 
No matter what any CEO, analyst, "guru", "market expert", strategist, fund manager, trader or message board poster says (few show all their trades and investments like me, nor are they up 60% in 2008, see details 
This post is part of 
Merrill Lynch
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U.S. stock futures were lower early Thursday, a day after the Federal Reserve announced rates will be kept steady. Investors this morning are mostly concerned about financials following Goldman Sachs downgrades of several banks. Wall Street is also worried about the outlook for tech stocks after both RIM and Oracle reported quarterly results Wednesday and gave a tepid outlook.
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