Market Insider/Thursday Look Ahead
Oracle's strong earnings could give some tech names a bounce Thursday though markets are again being haunted by credit worries, and another Wall Street firm is set to report earnings before the bell.
Stocks were lackluster Wednesday while Treasurys drew buyers. S&P issued a warning on the ratings of bond insurers, setting off a new round of credit jitters. This held back stocks, and the Dow slid 25 points to 13,207 while the Nasdaq was up 4.98 at 2,601. The S&P 500 fell 1.98 points to 1,453.
Earnings from Bear Stearns and a smattering of data, including leading indicators, jobless claims, the Philadelphia Fed survey and final third-quarter GDP are among Thursday's highlights.
Oracle , meanwhile, reported late Wednesday that its quarterly profits rose 35 percent on better-than-expected software sales. The company earned $1.3 billion or $0.25 per share. Oracle said it expects software license revenue to increase 15 to 25 percent in the current quarter, above analysts' expectations. Oracle stock moved higher in after-hours trading.
Wall Street Worries
Bear Stearns is the next Wall Street firm to show its hand when it reports earnings Thursday, after Morgan Stanley'sreport gave a deteriorating picture of how the credit crisis is impacting the industry. Morgan reported a surprisingly large fourth-quarter loss of $3.59 billion or $3.61 per share, plus a much bigger than expected subprime-related write-down of $9.4 billion.
But perhaps more surprising is that Morgan announced the sale of a $5 billion stake in the firm to a Chinese sovereign investment fund that ultimately translates to a 9.9 percent stake in the firm. Morgan stock rose and other financials were also lifted by the news of the investment. Capital is the oxygen of the brokerage industry and without it, Wall Street firms cannot grow profits. The investment by the China Investment Corp follows closely on an investment by an Abu Dhabi fund in Citigroup.
Goldman Sachs analysts, in a note Wednesday, said Morgan appears to have written down its exposure to $0.25 on the dollar on the CDO (collateralized debt obligations) write offs, making it the "most aggressive mark we have seen thus far." Goldman says it is reviewing its estimates and price target on the stock but t hat the news removes a big overhang on the stock. Bear Stearns is expected to report a loss of $1.79 per share.
Other earnings reports are due from ConAgra, Discover, FedEx and Research in Motion Thursday.
White House Summit
CNBC senior economic correspondent Steve Liesman will be hosting the latest White House Economic Summit on "Power Lunch" Thursday. His guests will be Council of Economic Advisors Chairman Ed Lazear, OMB Director Jim Nussle and Commerce Secretary Carlos Guitierrez.
Liesman says he expects to hear more on how the Administration will address the subprime mortgage mess. "We'll also ask them just what are the strengths of the economy that will see us through the tough times that everybody thinks are ahead," he said.
The first Fed auction of short term loans aimed at giving markets extra liquidity drew strong interest from banks. The Fed doled out $20 billion in 28-day loans at a rate of 4.65%. Bids were submitted by 93 banks for $61.6 billion.
CNBC's Larry Kudlow says the Fed plan to conduct three more of these auctions is not enough and that it instead should cut rates. "The only way to ease the credit strains is to keep cutting the Fed Funds rate," he said. "Bonds rallied. What you wanted to see was bonds sell off and rates rise," he said.
Time For Putin
Time Magazine named Russian President Vladimir Putin as its man of the year even after he secured himself a leadership role for life, or at least another couple years. Cambridge Energy Research CEO Dan Yergin, best known for his deep knowledge on all things about energy, is an expert on Russia in his own right. He co-authored "Russia 2010 and What it Means for the World."
Well, it's pretty close to 2010. Here are some thoughts Yergin sent me: "When we published our book Russia 2010 in 1993 and talked about a 'Russian economic miracle', people thought it was crazy. But after seven years of 7 percent economic growth, it doesn't look so crazy anymore. Russia is at least partly there, although it still has a lot of economic transformation to go through. Of course Russia would not be where it is -- and President Putin would not be 'Man of the Year' -- without the impact of oil and gas revenues. A country that was bankrupt in 1998 now has over $450 billion of foreign reserves and close to $200 billion in its stabilization fund. Gorbachev's and Yeltsin's bad luck in terms of oil has been Putin's good luck. The price of oil was just climbing out of its $10 hole when he became President in 2000. It's also clear that while Russia will have a new President next year, Vladimir Putin is still at the mid-point in terms of his own influence over Russia's future. And the next big economic question is how all that money will be spent. By 2010, the answer will start to be clear."
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