S&P 500 SLAMMED
The Dow tumbled on Monday as investors worried a $700 billion bailout for the financial sector may not resuscitate a slumping economy, while a record spike in oil prices renewed concern about consumer spending.
Banks, home builders and big manufacturers were among the biggest decliners as negotiations over the government's rescue plan heated up in Washington
Not only did the market action stem from concern about the bailout, but it also stemmed from a sneaking fear of what happens if it doesn’t work, explains Karen Finerman. Is there really anything else the government can do if the plan fails?
Expect the market to be up or down 200-300 points a day, all week this week, adds Pete Najarian. Volatility VIX is surging.
GOLDMAN, MORGAN STANLEY FALL ON BANK PLAN
Shares of Goldman and Morgan Stanley slumped on Monday despite approval from the Federal Reserve to change their status to bank holding companies.
The move allows them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions. This means a future of stricter regulation, less leverage and probably lower returns.
But it also means a more stable financing future that will put the Federal Reserve and its balance sheet directly behind the two banks.
Both Goldman and Morgan own industrial loan companies based in Utah that will become banks. Morgan's bank has $36 billion in assets and is the 36th largest bank in America.
Goldman has two banks with combined assets of $20 billion. It will move assets from its investment bank into the combined bank to be called GS Bank USA. The combined assets of the two is worth $150 billion.
But it’s likely both companies will now seek to buy other banks.
Banks provide a stable and low cost deposit base, explains Karen Finerman. I don’t think Goldman (or Morgan) would want to buy something branch heavy. I think maybe a Northern Trust or Wellington Trust would be more attractive to them, but do not go out and buy those on the hope that Goldman will buy them. You would be taking on too much risk for whatever upside may exist.
“I think the good news is that (as commercial banks) they’re getting a more conservative regulator,” adds Sandler O'Neill analyst Jeffrey Harte on Fast Money. "I think the Fed is likely to be tougher than the SEC was. And although I do expect to see a reduction in leverage I think it’s going too far to the extreme to think they’re going to cut their leverage in half."
But the big question for investors remains, is Morgan and/or Goldman a buy on the news? ”There are still a lot of problems left in the housing market and we’re just starting to see the credit issues ripple outside the housing market,” Harte says. “I’m looking forward to the day that I can say step into the banks, but we’re not there yet and I don’t think we’ll be there in 2008.”
What do you think? We want to know.
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DOLLAR DROPS MOST SINCE 2001
The U.S. dollar fell broadly, hitting three-week lows against the euro on Monday as the U.S. government's bailout plan to ease a global credit crisis re-ignited worries about the country's massive budget deficit.
Meanwhile, gold soared nearly 4 percent on Monday as investors switched out of dollars.
I’d look at some of the other commodity names, says Tim Seymour. Copper had a big move as did platinum.
With their stocks slumping, Microsoft , Hewlett-Packard, and Nike have all announced massive buyback plans.
I like the Microsoft buyback, says Karen Finerman. If they can get buy the stock at 12 times earnings I think it’s very smart. Corning, Cisco and TD Amerirpise also have a lot of cash on their balance sheets. It wouldn’t surprise me to see them buyback as well.
The Nike buyback is over a 4-year period, reminds Guy Adami. They report earnings on Wedensday. If they miss, I think that’s a huge buying opportunity.
HIDE OUT IN HEALTH CARE?
Even the defensive health care sector couldn’t defend itself against Monday’s sell-off with shares of Pfizer leading the sector lower.
Meanwhile, Wachovia Capital Markets raised the U.S. generic drug sector to "overweight" from "market weight," saying positive drivers like growing generic drug penetration and strong patent expiration remained intact.
Analyst Michael Tong said generic drug companies with high volume manufacturing and a broad pipeline would gain from consolidation among pharmacies and high volume requirements.
That was a nice note from Wachovia on Monday, says Pete Najarian. That should bode well for generic drug makers such as Teva .
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Trader disclosure: On Sept 22, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Pete Najarian Owns (AAPL) And (AAPL) Puts; Pete Najarian Owns (ETFC), (MYL); Pete Najarian Owns (MS) And (MS) Puts; Pete Najarian Owns (RIMM) Call Spread; Pete Najarian Owns (TSO) Call Spread; Pete Najarian Owns (WB) Put Spread; Finerman Owns (GS); Finerman's Firm Owns (RIG), (PDE), (WM), (MO), (MSFT), (SUN), (TSO), (VLO); Finerman's Firm Is Short (VNO), (WFC), (IYR), (IJR), (MDY), (SPY), (IWM), (BBT), (COF); Seymour Owns (AAPL), (COP), (ETFC), (MER), (TSO); Seygem Asset Management Owns (PTR), (EEV); GE Is The Parent Company Of CNBC; Charles Schwab Is A Sponsor Of "Fast Money"
Sandler O'Neill Has Received Non-Investment Banking Compensation From (GS), (MS); (GS), (MS) Is A Client Of And Receives Non-Investment Banking Securities-Related Services From Sandler O'Neill