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Despite deep skepticism on the Street, stock futures are having one of their best mornings in months as details of the Geithner plan are now available.
However, S&P 500 futures, which passed 790 by 8 AM, have now come off their highs, trading about 840.
Large banks are up roughly 8 to 16 percent pre-open. Commoditiy stocks are up mid-single digits.
Will private investors step up and invest in troubled assets, now that details of the public/private partnership are available? Will banks be willing to sell? Does this lay to rest the idea of broad nationalization of the banks?
The Obama administration is seeking to use money from the $700 billion bailout fund and use the resources of the Fed and the FDIC in a three-prong program:
1) A public/private partnership with government support coming from the bailout fund; the government and private invesstors would be equal investors and share any profits equally;
2) Use of the FDIC to provide loans to purchase troubled assets
3) Expansion of the TALF programs to include purchases of troubled assets.
Executive pay limits will not apply to passive investors, which may help quell the chorus of skeptics who are reluctant to invest because they fear the government will change the rules midstream.
While this is an important part of the administration's plan, it is not the last piece of the puzzle:
1) On Thursday Geithner is supposed to release a plan for overhauling the nation's financial system.
Details of that plan are not available, but there has been speculation for weeks on the Street that it will provide broad powers to the Federal Reserve to seize troubled institutions.
2) We are anticipating some changes to the mark-to-market rules, which may greatly impact the willingness of banks to sell troubled assets;
3) The banks are currently being "stress tested" to make sure they have sufficient capital in the event the recession becomes more severe. Those tests are supposed to be completed in April.
Elsewhere:
1) Tiffany [TIF
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] up 5 percent pre-open, reported Q4 earnings of $0.85, beating the street's expectations for a quarterly gain of $0.80. However, like many luxury goods retailers, the jeweler saw its Q4 sales plummet. Total worldwide sales fell 20% from the year-ago period, while same-store sales in the U.S. were particularly weak, falling 34%. The company continues to see further weakness in 2009, with sales expected to fall 11% - a bigger drop than the 3% sales decline in 2008. Having "not yet seen signs of an upturn," the company also projects full-year earnings at $1.50-$1.60, below the analysts' consensus of $1.66.
2) After rejecting a hostile takeover bid made by competitor Agrium [AGU
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], fertilizer manufacturer CF Industries [CF
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] upped its own bid for Terra Industries [TRA
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] to $3.07 billion (or $30.50/share) from its $2.1 billion (or $20/share) offer it made back in January. Ahead of the bell, Terra Industries is up 7%, while CF Industries is up about 1%.
3) Canadian oil and gas producer Suncor [SU
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] announced a $15 billion deal for Petro-Canada [PCZ
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]. The all-stock deal, which would combine two of the biggest Canadian oil companies, values Petro-Canada at a premium of about 30%.
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