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Cramer on BloggingStocks: Beware the financial dirty dozen

Jim Cramer — 2008-07-03T09:00:00+00:00

Filed under: Ford Motor (F), General Motors (GM), Market matters, Citigroup Inc. (C), Bank of America (BAC), CIT Group (CIT), Merrill Lynch (MER), Federal Natl Mtge (FNM), Amer Intl Group (AIG), Wachovia Corp (WB), Washington Mutual (WM), Lehman Br Holdings (LEH), Stocks to Sell, Cramer on BloggingStocks, MBIA Inc (MBI)

From TheStreet.com Network

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.

No, it's balance sheets and the plight of the common equity. There are simply too many companies in trouble all at once to let us leave this morass behind us.

Specifically, there are 12 companies that are on my watch list as potential disasters that could wreck the market further. These are companies I have NO CONFIDENCE IN WHATSOEVER, and they must be on everyone's screen. They are what could imperil this market.

So, drum roll, please ...

1. Citigroup (NYSE: C) (Cramer's Take): Here's a company that is in so much trouble that I can't even begin to figure out how to fix it. There was a moment that it could have been unwound, but now your best hope is that it goes to $5 or $6 and we realize it could fail and we let the Saudis bail it out. Don't laugh -- that's the 1990 scenario. Pathetic that history repeats itself, but this is the worst-run major bank in the world. You get what you pay for. A dividend cut is next.

2. General Motors (NYSE: GM) (Cramer's Take): Merrill says what I thought was obvious when I said it the other day -- this one makes too much sense as a bankruptcy. Wrong cars, wrong balance sheet, one of the worst mortgage writers. Sold to you. Dividend cut needed. (Ford (NYSE: F) (Cramer's Take) doesn't have the miserable mortgage business so I am not including it in the dirty dozen).

3. Lehman Brothers: I, too, once blamed the speculators. But I now feel that the CFO firing put an end to that. This company has very little earnings power, and it has very great exposure to mortgages worldwide. It has minimal disclosure. We need a takeunder to remove it from the critical list.

4. Merrill Lynch (NYSE: MER) (Cramer's Take): Without a sale of BlackRock (NYSE: BLK) (Cramer's Take) or Bloomberg, more equity is needed. Nobody wants to put up equity for this one. We still have no disclosure on the last-in-no-out mortgages they wrote. Black box. I don't want to buy a black box. Dividend cut? Good question.

5. Wachovia (NYSE: WB) (Cramer's Take): Rudderless, knee-deep in unreserved California mortgages, still writing the lowest-quality mortgages as recently as Monday! Totally unacceptable. Rumored to be bought -- yeah. At under 10. Urgent dividend cut.

6. Bank of America (NYSE: BAC) (Cramer's Take). They bought a company that could be shut down by indictments -- it has billions and billions of going-bad mortgages. Who the heck would want that? If BAC hadn't bought it, does anyone think it would still be alive? They swallowed the Love Canal when they drank from this well. Dividend cut needed, now.

7. Washington Mutual (NYSE: WM) (Cramer's Take): People are talking about a bottom; I am talking about a company that has the worst collection of mortgages out there, the least verified, the worst quality, with a private-equity firm that will take your equity and crush it. Five-dollar lottery ticket. Nothing more.

8. Fannie Mae (NYSE: FNM) (Cramer's Take): Someone has to take the hit for this market. Some government entity has to bail out homeowners. It will be this one, and see No. 9. Dividend cut needed pronto.

9. Freddie Mac (NYSE: FRE) (Cramer's Take): see No. 8.

10. AIG (NYSE: AIG) (Cramer's Take): Frightening lack of transparency despite their endless attempts to say they are transparent. I think they are on the hook to the monolines and vice versa. Big London book. They need to eliminate that just-raised dividend. Pathetic lack of knowledge of their own book.

11. Cerberus: They are so confident it is scary. They can get away with it -- they are private. But it would be really frightening to read that they are running out of money.

12. The Gang of Four -- PMI (NYSE: PMI) (Cramer's Take), MGIC (NYSE: MTG) (Cramer's Take), MBIA (NYSE: MBI) (Cramer's Take) and Ambac (NYSE: ABK) (Cramer's Take): We all know what's happening here -- their insurance might be busted. So many outfits are still valuing their portfolios presuming some insurance protection that when the inevitable happens, we will get a severe hit to everyone's book.

As I mentioned earlier, we are getting some templates -- CIT (NYSE: CIT) (Cramer's Take) -- and some sense of urgency from the government, but not enough yet to make a difference. We need housing depreciation to stop, then the list would go from being Do Not Resuscitate to simply being grave.

But this is your list. Follow it; it is what's ailing this market.

Everything else is just an earnings sideshow.

Random musings: I did a list of the dirty dozen subprime mortgage names last year. Suffice it to say that the damage was unfathomable. The Fed did know nothing. Fortunately, the Fed still has ammo to bring the funds rate down to 0.5. Unfortunately, they switched directions on us.

Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.

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Lehman issuing stock to employees smells of desperation

Jonathan Berr — 2008-07-02T17:10:00+00:00

Filed under: Major movement, Other issues, DJIA, Lehman Br Holdings (LEH)

Lehman Brothers Holdings Inc. (NYSE: LEH) is trying real hard to convince its Gucci-clad workforce not to abandon ship.

According to CNBC, employees will receive 20% of last year's bonus in stock that vests over three years. "Lehman's decision to issue additional stock to employees is being interpreted by some in the market as a sign that the Lehman is not planning to sell itself for a below-market price," writes CNBC ON-Air Editor Charlie Gasparino.

Hmm. Didn't the same conventional wisdom believe that Bear Stearns was too big to fail and that the end of the write-downs at Wall Street banks was near? So, pardon me if I am a little skeptical.

As Fortune magazine notes, Lehman, like other Wall Street banks, got itself into trouble by making scores of bad real estate investments.

"Because it prided itself on real estate expertise - it helped popularize real estate-backed securities in the early 1970s - and investment prowess, Lehman risked far bigger proportions of its own capital doing deals than its major competitors did," the magazine notes. Little wonder that the stock is down more than 65% this year.

Sorting out through this mess will take years. Any Lehman employees who were smart enough to get hired probably know a bad deal when they see it. This well-timed leak to CNBC is part of Lehman's efforts to avoid becoming the next Bear Stearns.

For now, the ploy is working. Shares of the New York-based investment bank are trading up on the news -- Lehman shares closed up 6.68%. Over the long run, though, investors and Lehman employees will see through the smokescreen.

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Closing Bell: DJIA 11,000 or 10,000 is closer rather than farther

Jon Ogg — 2008-07-02T16:24:00+00:00

Filed under: After the bell, Starbucks (SBUX), General Motors (GM), Lehman Br Holdings (LEH)

After a brief refreshment, today just ended up being ugly rather than what many were hoping would be a boring day. Today's action was likely due more to analyst concerns, but a late-day news report on a security breach scare at LAX airport may have added stress to a trading day that would have otherwise been quiet. The markets are grossly oversold, but there just seems to be very few reasons for traders to hit their "BUY" buttons on keyboards.

These are UNOFFICIAL closing bell levels for major index readings:

DJIA 11,218.77 (-163.49)
S&P500 1262.24 (-22.67)
NASDAQ 2251.46 (-53.51)
10 YR T-Note 2.959% (-0.033%)
52-WEEK LOWS
Top 10 Analyst Calls

General Motors (NYSE: GM) was the daily disaster due analyst call. Merrill Lynch downgraded the stock to Underperform and noted that "the chances of bankruptcy aren't impossible." 24/7 Wall St. noted the same weeks before, and we even posted odds on what the chances are that major auto or airline companies would have to file for protection by the end of 2008 to early 2009.

Lehman Brothers (NYSE: LEH) said that it was granting options with under-market strikes to employees of 20% of last year's salary to retain talent. This "golden handcuffs" strategy led many to believe that this means no major severe weak buyout offer like a Bear Stearns scenario is underway. Shares were up almost 7% at $22.39 in today's final minutes.

Starbucks Corp. (NASDAQ: SBUX) was a mixed bag as shares were up marginally at $15.66 in the final minutes after the company disclosed last night that it would slow down growth and expand its store closings this year. This was big enough that S&P put the company on Negative CreditWatch.

UnitedHealth Group Inc. (NYSE: UNH) issued an earnings warning, but shares held up better than you'd expect because valuations are getting so low. Shares were down about 1.7% at $25.20 in very final minute trading.

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Serious Money: Five stable stocks for troubled times

Sheldon Liber — 2008-07-01T15:02:00+00:00

Filed under: Microsoft (MSFT), Yahoo! (YHOO), General Motors (GM), Berkshire Hathaway (BRK.A), Walt Disney (DIS), Citigroup Inc. (C), Johnson and Johnson (JNJ), Chubb Corp (CB), Merrill Lynch (MER), Goldman Sachs Group (GS), Morgan Stanley (MS), Huaneng Power Intl ADS (HNP), Teva Pharm Indus ADR (TEVA), Lehman Br Holdings (LEH), Bear Stearns Cos (BSC), Intuitive Surgical Inc (ISRG)

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.

Goldman Sachs (NYSE: GS) itself is down from $250 to a very soft $177 (it's traded as low as $161.21 today) and does not appear to be at risk as much as some of its competitors, companies that do not look as competitive any more. Bear Stearns is gone, Lehman Brothers Holdings (NYSE: LEH) is on the ropes and Merrill Lynch (NYSE: MER) and Morgan Stanley (NYSE: MS) are teetering.

Reliable software giant Microsoft Inc. (NASDAQ: MSFT) is down from $37.50 to $27 and is so desperate for some traction that it is wasting its time with something called the Zune and made an unsuccessful offer to acquire Yahoo! (NASDAQ: YHOO), which is also down on its luck; 50% down since it rejected the offer.

I do not own any of these stocks, and I could list a thousand stocks to keep them company. Some that I do own as "core holdings" that are down include Huaneng Power Intl ADS (NYSE: HNP) that was trading as high as $57 and is now a more affordable $27 per share. Another one of my favorites, Intuitive Surgical Inc (NASDAQ: ISRG), is down from $360 to $260 and may drop further as hospitals look to conserve capital the rest of the year and into the uncertainty of a new presidential administration and economy. Even that old standby for tough times Berkshire Hathaway (NYSE: BRK.B) has shown weakness dropping 20% from around $5,000 to $4,000 a share.

I could point to some energy and food stocks that have done well this year but those could lose their footing as well if oil prices do not hold up. There are those that think we are in a short term speculative bubble and they could give back some of the this year's gains.

So where to hide? What if anything has been stable? The following five companies made the grade.

1) Johnson and Johnson (NYSE: JNJ): This one is probably not any surprise. There was no money to be made here but you would not have lost any either. Year to date it has traded between $68 and $64 and that is about where it has been for quite some time. It does pay almost a 3% dividend yield and that's mighty fine these days.

2) Teva Pharmaceuticals ADR (NASDAQ: TEVA): Pharmaceuticals have long been a safe haven in troubled times and the world's largest maker of generic drugs is sitting pretty these days with expanding markets everywhere it looks. This Israeli company has traded roughly between $43 and $47 for quite some time, pays a 1% yield and looks to have plenty of upside going forward.

3) Chubb Corp (NYSE: CB) the conservative insurance company has held up better than most of its peers. Over the past six months and going back two years it has hovered between $49 and $54, all the time paying about a 2.6% yield.

4) Xcel Energy (NYSE: XEL) is a holding company for numerous utilities. Over the course of the past twelve volatile months it has been trading in a 10% range between $20 and $22 while paying a huge yield, which today stands at 4.8%.

5) Walt Disney (NYSE: DIS) may be a great place to hide if you want to forget your troubles, whether you chose the new Pixar hit movie "WALL-E" or Disneyland, or a trip down memory lane renting or downloading any one of its countless hits from its film library. The stock is currently trading in the neighborhood of $30.62, mid-point in its 52 week range. Over the past six months it has spent most of the time drifting between $30 and $33 per share with a few drops and pops here and there. The 1.1% yield is not as generous as the others but it I would be happy to take it.

What do they have in common? They are diversified among their industries, have growth horizons, and of course they all pay dividends. But the standout at this juncture seems to be that they all have shrewd conservative management teams -- and they have been in the right place, at the right time, and prepared.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of BRK.B, HNP, ISRG, JNJ.

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Analyst initiations: LEH, NOK and ISRG

Eric Buscemi — 2008-07-01T11:24:00+00:00

Filed under: Analyst reports, Nokia Corp. (NOK), Adobe Systems (ADBE), Analyst initiations, Lehman Br Holdings (LEH), Intuitive Surgical Inc (ISRG)

MOST NOTEWORTHY: Lehman Brothers, Nokia and Intuitive Surgical were today's noteworthy initiations:

Morgan Stanley initiated Lehman Brothers (NYSE:LEH) with an Overweight rating and $31 target. The firm believes Lehman's discount to book value prices in significant write-downs.
Bernstein believes Nokia (NYSE:NOK) will see a slowdown in demand for devices and could loss market share. Shares were initiated with an Underperform rating.
Merriman assumed Intuitive Surgical (NASDAQ:ISRG) with a Neutral rating and believes the tightened credit markets could impact capital equipment spending for small and mid-sized hospitals. They find shares appropriately valued at current levels.

OTHER INITIATIONS:

Terre Kaufman initiated Terremark Worldwide (NASDAQ:TMRK) with a Buy rating and $8 target.
T-3 Energy (NASDAQ:TTES) was initiated at Jefferies with a Buy rating and $95 target.
Adobe (NASDAQ:ADBE) was assumed with an Outperform rating and $48 target at Friedman Billings.

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Newspaper wrap-up: Anheuser-Busch prepares to battle InBev

Laurie Pasternack — 2008-06-26T08:00:00+00:00

Filed under: Newspapers, Magazines, General Electric (GE), Citigroup Inc. (C), JPMorgan Chase (JPM), Anheuser-Busch Cos (BUD), Bank of America (BAC), Lehman Br Holdings (LEH)

MAJOR PAPERS:

Anheuser-Busch Companies Inc (NYSE: BUD) is going to turn down InBev's unsolicited $46.35B takeover offer and that may come before week's end, the Wall Street Journal reported. InBev is then expected to pursue a hostile takeover and Anheuser will say the offer undervalues the company. Instead, Anheuser will attempt to boost its share price by selling non-core assets such as its theme parks.
The Wall Street Journal also reported that Belgian-Dutch financial firm Fortis NL (OTC: FORSY), in a move to increase its solvency, will attempt to raise $12.54B, and will also cancel its interim dividend and sell some assets.
According to people familiar with the situation, the Wall Street Journal reported that JP Morgan Chase & Co (NYSE: JPM) reportedly dropped out of the bidding for General Electric Company's (NYSE: GE) $30B credit-card business. The sources said Citigroup Incorporated (NYSE: C), Bank of America Corporation (NYSE: BAC) and Capital One Financial Corporation (NYSE: COF) are not expected to submit bids, as a result of charge-offs and rising delinquencies in their own credit card portfolios.
The Financial Times reported that the London Stock Exchange, in a joint venture with Lehman Brothers Holdings Inc (NYSE: LEH), unveiled a pan-European equities trading platform to fight rivals that are hurting its market share.

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Lehman Brothers (LEH) drops on Citigroup troubles

Brent Archer — 2008-06-23T13:16:00+00:00

Filed under: Major movement, Bad news, Industry, Citigroup Inc. (C), Options, Technical Analysis, Lehman Br Holdings (LEH)

Lehman Brothers (NYSE: LEH) shares are falling with other investment banks on news that Citigroup (NYSE: C) is in the process of cutting 6,500 jobs in its investment banking division. The move reflects the deterioration of market conditions over the past year, and seems to have investors worried about the health of the industry. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on LEH.

After hitting a one-year high of $78.86 last June, the stock hit a one-year low of $20.25 in March. This morning, LEH opened at $24.15. So far today the stock has hit a low of $3.20 and a high of $24.35. As of 12:25, LEH is trading at $23.26, down 0.94 (-3.9%). The chart for LEH looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in four months as long as LEH is below $40 at October expiration. Lehman would have to rise by more than 70% before we would start to lose money. Learn more about this type of trade here.

LEH hasn't been above $40 since mid-May and has been falling steeply recently, displaying resistance around $24. This trade could be risky if the financial sector turns things around shortly, but even if that happens, this position could be protected by resistance LEH might find at its 50-day moving average, which is currently around $38 and falling.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LEH or C.

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Earnings highlights: Morgan Stanley, FedEx, Ford, GE, Circuit City and others

Trey Thoelcke — 2008-06-21T16:40:00+00:00

Filed under: Earnings reports, General Electric (GE), Ford Motor (F), Archer-Daniels-Midland (ADM), Circuit City Stores (CC), Merrill Lynch (MER), FedEx Corp (FDX), Morgan Stanley (MS), Deere and Co (DE), Lehman Br Holdings (LEH)

Here are some highlights from this past week's earnings coverage from BloggingStocks:

CarMax Inc. (NYSE: KMX) Q1 profits tumbled despite its aggressive expansion program.
Chiquita Brands International Inc. (NYSE: CQB) warned it would miss earnings due to cost hikes.
Circuit City Stores Inc. (NYSE: CC) Q1 loss widened as same-store sales dwindled.
Commercial Metals Co. (NYSE: CMC) Q3 profits declined despite strong demand, but beat estimates.
Coventry Healthcare Inc. (NYSE: CVH) lowered its Q2 and full-year outlooks after a disappointing April.
FedEx Corp. (NYSE: FDX) missed estimates on higher fuel prices and offered lackluster guidance.
Ford Motor Co. (NYSE: F) warned that 2008 full-year results would be worse than those of 2007.
General Electric Co. (NYSE: GE) was downgraded by JP Morgan because of risk to earnings.
J.M. Smucker Co. (NYSE: SJM) missed Q4 earnings expectations despite acquisitions-based growth.
La-Z-Boy Inc. (NYSE: LZB) said it swung to a Q4 loss due to diminishing retail sales.
Lehman Brothers Holdings Inc. (NYSE: LEH) CEO expressed his disappointment in the Q2 results.
Merrill Lynch & Co. (NYSE: MER) profit warnings and write-downs hit the rumor mill.
Morgan Stanley (NYSE: MS) beat low expectations despite a hefty decline in Q2 profits (see transcript).
Pier 1 Imports Inc. (NYSE: PIR) narrowed its Q1 loss but still fell short of expectations.
Winnebago Industries Inc. (NYSE: WGO) posted dismal Q3 results but still beat low expectations.

More earnings highlights from this week: Goldman Sachs, Best Buy, General Mills, Carnival and others

Also, BusinessWeek likes the earnings prospects for agricultural stocks such as Archer Daniels Midland (NYSE: ADM), Monsanto (NYSE: MON), and Deere & Co. (NYSE: DE).

Upcoming results to watch for include Walgreen (NYSE: WAG), Kroger (NYSE: KR), Bed Bath & Beyond (NASDAQ: BBBY), General Mills (NYSE: GIS), Monsanto (NYSE: MON), Nike (NYSE: NKE), Oracle (NASDAQ: ORCL), Research in Motion (NASDAQ: RIMM), ConAgra (NYSE: CAG), Discover (NYSE: DFS), McCormick (NYSE: MKC), Rite Aid (NYSE: RAD:), and KB Home (NYSE: KBH).

Visit AOL Money & Finance for more earnings coverage.

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Merrill Lynch (MER) shares sink 5% on profit warning rumors

Melly Alazraki — 2008-06-20T11:45:00+00:00

Filed under: Major movement, Rumors, Industry, Citigroup Inc. (C), Merrill Lynch (MER), Morgan Stanley (MS), Lehman Br Holdings (LEH)

Merrill Lynch & Co. (NYSE: MER), at least according to rumors running amok on trading floors, may issue a profit warning and take additional writedowns on its mortgage holdings. MER shares plunged over 5.5% as a result.

I always cringe a bit when I hear of trading floor rumors. Like it or not, traders have a vested interest so it's harder for me to take what they say at face value. Much different than when newspapers report without naming sources. At least there, I'd like to believe, journalistic standards should prevail.

Indeed, while Reuters says that "A Merrill spokeswoman declined to comment on the rumors," CNBC says that sources told it the U.S. broker "is not preparing to issue a profit warning Friday."

With $30 billion worth of writedowns under its belt, it's not difficult to believe that Merrill will indeed require additional writedowns, capital raising, or asset sales. Especially in light of what's been happening the last few weeks. Not only did peers Lehman Brothers (NYSE: LEH) -- down 4% -- and Morgan Stanley (NYSE: MS) -- down 3.5% -- posted weak results this week, but financials in general announced one writedown, or capital raise, one asset sale after another.

Indeed, analysts have been cutting their forecast on financials these days, including Merrill. If a month ago analysts had predicted earnings of 44 cents a share, today the average estimate runs at 16 cents a share.

So-called chatter can have its own agenda among traders so I'm wary of such unsubstantiated rumors. Yet, in this case, its more than likely such a warning would be out sooner or later. Just look at what Citigroup (NYSE: C) -- down 3.6% -- said Thursday.

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Cramer on BloggingStocks: JP Morgan made a huge mistake

Jim Cramer — 2008-06-20T08:57:00+00:00

Filed under: Industry, Market matters, JPMorgan Chase (JPM), Bank of America (BAC), Merrill Lynch (MER), Countrywide Financial (CFC), Goldman Sachs Group (GS), Wachovia Corp (WB), Washington Mutual (WM), Lehman Br Holdings (LEH), Stocks to Sell, Cramer on BloggingStocks

TheStreet.com's Jim Cramer says the acquired Bear Stearns portfolio is worth even less than he thought.

How bad was that Bear Stearns portfolio? I am beginning to believe that JPMorgan's (NYSE: JPM) (Cramer's Take) buy of Bear is looking like a big mistake. It can only be justified by what might have been an even bigger problem for JPM -- the collapse of the trades that Bear made, which were being processed by JPM's clearing.

We are now beginning to get a real sense of the worthlessness of the mortgage portfolios. Not that we got any help from the SEC, which has taken a "we don't care what's in the mortgages as long as you tell us you have mortgages" attitude. That's been worthless for investors, and maybe even for JPMorgan.

The losses now exceed $400 billion, according to my modeling (if you simply assumed that 50% of the exotic mortgages that were issued from 2005 to 2007 eventually went into default). That's amazing, but it looks like I dramatically underestimated the losses. UNDERESTIMATED!

The most egregious issuers of these exotic mortgages were Bear, Merrill Lynch (NYSE: MER) (Cramer's Take) and Lehman Brothers (NYSE: LEH) (Cramer's Take). I believe that JPM has taken in a huge number of uninsurable, non-hedgeable mortgage instruments that are a pure write-off. And that means they are probably underwater on everything they took in.

Worse still, judging by the Goldman Sachs call (NYSE: GS) (Cramer's Take), JPMorgan didn't pick up much from the point of view of clearing and prime brokerage. I am really worried JPM got nothing from this deal.

JPM is adamant that it got a lot out of the deal, which would imply that I am totally wrong. I can't buy that. Sorry. Not after what we have seen from the other companies that have similar vintages.

Second, it's a really bad sign for the next shotgun acquirers. Without insurance from the government for all of these bad portfolios, it simply isn't worth it to call the government and say "I want Nat City (NYSE: NCC) (Cramer's Take)," or "I want Washington Mutual (NYSE: WM) (Cramer's Take)."

It also makes me think that Countrywide Financial's (NYSE: CFC) (Cramer's Take) balance sheet will really impair Bank of America (NYSE: BAC) (Cramer's Take). And I simply don't have any idea how Wachovia (NYSE: WB) (Cramer's Take) can make it in its current form.

Everyone is way too bullish on these companies. They should all be sold. Period.

Random musings: It is time to reassess the negative view of gold. The Fed isn't tightening, which is what caused gold to go down. That was a canard. The reversal in these banks is no doubt freaking the Fed out. The idea of raising rates takes away the one reason why you would want to invest in banks: the yield curve allowing the banks to refinance. That logic is sheer lunacy.

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RELATED LINKS:
Bolling: After Lehman Call, Bet on GS, JPM
Cramer: Bear Arrest Could Scare Hedge Funds Straight
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Goldman Sachs.

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As Washington Mutual cuts more jobs, banking falls apart again

Douglas McIntyre — 2008-06-20T08:45:00+00:00

Filed under: Analyst reports, Forecasts, Industry, Short stories, Citigroup Inc. (C), Bank of America (BAC), Morgan Stanley (MS), Wachovia Corp (WB), Washington Mutual (WM), Lehman Br Holdings (LEH)

Washington Mutual (NYSE: WM) is having such trouble that it will lay-off another 1,200 people.

According to Reuters, "In an e-mail, Washington Mutual said it was cutting jobs that support its home lending unit, centralizing some support functions, and focusing on 'mission-critical activities.'" The announcement was part of a cascade of tough news for financial companies.

Not only have Lehman (NYSE: LEH) and Morgan Stanley (NYSE: MS) posted poor results, but Citigroup (NYSE:C) said its expected more write-offs through the end of the year. The head of hedge fund Paulson & Co. expects total losses at banks to hit $1.3 trillion, with two-thirds of it yet to come.

Short interest in most large financial companies moved up sharply in the period ending June 15. Shares short in Wachovia (NYSE: WB) moved up 26.2 million to 177.4 million. Short interest in Bank of America (NYSE: BAC) jumped 18.2 million to 82.7 million.

Most of this means that bank, brokerage and insurance shares could be much lower at the end of 2008. Many already trade at 52-week lows, but if losses mount, they will have to raise more money, and that means dilution.

Citigroup trades for under $20 in premarket action. As a bellwether for the industry, who would be surprised to see it at $10?

Douglas A. McIntyre is an editor at 247wallst.com.

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Citigroup announces more writedowns, I'd stay away

Melly Alazraki — 2008-06-19T17:47:00+00:00

Filed under: Forecasts, Bad news, Citigroup Inc. (C), Goldman Sachs Group (GS), Amer Intl Group (AIG), Lehman Br Holdings (LEH)

And you thought it was all over. Well, you weren't alone. Many bank executives thought the same thing, that we've seen the worst of the writedowns banks were taking as a result of the subprime mortgage collapse.

So when today Citigroup Inc. (NYSE: C), the bank responsible for 10% of the total writedowns due to the subprime and credit crisis, announced it "would suffer more "substantial" write-downs on debt investments in the second quarter," many were taken aback. Sure, the CFO said that sequentially, Citi would write down less than in the first quarter, but he also said the marks are "sizable" and gave the impression they will likely go into the next few quarters. Credit markets remain tight, he said.

Perhaps we've seen the worst, if I insist on being optimistic, but we surely haven't seen the last. Just in the past week we heard from Lehman (NYSE: LEH), AIG (NYSE: AIG), UBS (NYSE: UBS) and Fifth Third (NASDAQ: FITB). We heard of writedowns, asset sales and capital raises, none of which gave much confidence about financials and the credit markets, but there was the lingering hope we were seeing the last few hiccups (large as they were).

Still, people remained cautious and I didn't hear pounding the table to get into bank stocks, although no one could deny that some financials saw some recovery since mid-March. It was also somewhat puzzling that Citi managed to raise just over a month ago some $4.5 billion from its public offering. Meaning, there were buyers at $25 and change. The stock closed at $20.17 today after dipping to $19.41 earlier in the session.

OK, so I know we're supposed to be forward looking when investing, but there are some stocks in some sectors I simply wouldn't touch. Not all of them, of course. I'd much rather take my chances with Goldman (NYSE: GS).

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Morgan Stanley (MS) sees a 61% decline in quarterly profit

Michael Fowlkes — 2008-06-18T11:55:00+00:00

Filed under: Major movement, Earnings reports, SEC filings, Bad news, Goldman Sachs Group (GS), Morgan Stanley (MS), Lehman Br Holdings (LEH)

Morgan Stanley (NYSE: MS), the nation's second largest investment bank, posted its second quarter numbers today. As expected, the firm saw a hefty drop in quarterly profit. The ongoing credit crisis hit the bank hard and resulted in a 61% decline in quarterly profit, a number that could have been much worse.

The reason why I say that the situation could have been much worse is that the company benefited from the sale of around $1.4 billion in assets during the quarter. This contributed to a profit of 95 cents per share for the quarter.

The 95 cents per share was actually above Wall Street estimates, as analysts had been expecting to see the company show earnings for the quarter of 92 cents per share. But that has not prevented traders from pushing the stock lower in early morning trading. As of 11:00 am, we are seeing shares trading down 5% to $38.49.

During the quarter, Morgan Stanley was hit with $436 million in losses that resulted from mortgage-related trades, and another $519 million worth of losses that stemmed from leveraged loans, a definite sign that the credit crisis has not run its course just yet as some had been hoping.

With today's release from Morgan Stanley, we have now seen the last period earnings numbers from all of the big three investment banks. Earlier this week, Lehman Brothers (NYSE: LEH) stunned Wall Street with its $2.8 billion loss, and today Goldman Sachs (NYSE: GS) announced that its quarterly profit was off by 11%, but still above Wall Street estimates. Goldman is trading in the green today, with traders pushing that stock up a mere 0.2%.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.

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Before the bell: Futures lower ahead of FedEx, Morgan results, oil supply

Melly Alazraki — 2008-06-18T07:37:00+00:00

Filed under: Before the bell, Earnings reports, Deals, Market matters, FedEx Corp (FDX), Goldman Sachs Group (GS), Morgan Stanley (MS), Economic data, Oil, Lehman Br Holdings (LEH)

Stocks futures fell early Wednesday, ahead of the weekly crude oil inventories figures as oil persists at high level and ahead of earnings from Morgan Stanley and FedEx as many hope to see clearer signs the credit crunch crisis has peaked and its effects begin to ease.

On Tuesday, U.S. stocks fell sharply despite solid earnings from Goldman Sachs. Goldman, though, suggested more is to come in terms of the credit crisis. In addition, several economic figures on inflation, housing and industrial production further damped the sentiment on Wall Street. The Dow industrials fell 108 points, or 0.89%, the S&P 500 dropped 9 points, or 0.68%, and the Nasdaq Composite lost 17 points, or 0.69%.

Not much is on the economic docket today. At 10:30 a.m. EDT, the government will report its weekly figures on fuel supplies. Oil prices edged above $134 in electronic trading ahead of that report and the meeting in Jeddah Sunday of oil producing and consuming nations. So far, it seems the promised increased production from the Saudis has not helped to lower the price of oil as it is weighed against increased global demand.

Investors wait for Morgan Stanley (NYSE: MS)'s turn to report quarterly results this morning. While Lehman Brothers (NYSE: LEH) reported a $2.8 billion loss Monday and Goldman Sachs (NYSE: GS) a $2.09 billion profit Tuesday, Morgan Stanley is expected to post a 59% decline in net income. Following Goldman's remarks yesterday on further losses in the sector, investors remain worried.

Also reporting today is FedEx (NYSE: FDX), which, because of its nature, is considered a barometer of economic activity. It will be important to see how oil prices have affected the delivery firm.

French pharmaceutical giant Sanofi-Aventis (NYSE: SNY) said Wednesday that it intends to offer $2.56 billion for Czech generic drugmaker Zentiva, topping an earlier offer from financial group PPF and pitting two of its largest shareholders against each other. The bid represents an 11% premium to PPF's offer.

Northwest Airlines (NYSE: NWA) said on Tuesday it will cut its capacity later this year by 3-4% and cut staff because of high fuel prices.

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Goldman does it again

Melly Alazraki — 2008-06-17T15:00:00+00:00

Filed under: Earnings reports, Goldman Sachs Group (GS), Morgan Stanley (MS), Lehman Br Holdings (LEH)

Goldman Sachs (NYSE: GS) reported earnings today, and while revenue and profit were -- not surprisingly -- down from a year ago period (but higher compared to the previous quarter), it actually had profits to speak of, $2.09 billion of them to be exact. Indeed, Goldman did it again, surpassing Wall Street expectations for a profit of $3.42 per share on $8.74 billion of revenue with a profit of $4.58 per share and revenue of $9.42 billion.

It would be only natural to ask how Goldman made $2 billion while Lehman lost $2.8 billion. The answers are many, not the least of which is size: Goldman is the world's biggest securities firm, Lehman Brothers (NYSE: LEH) is the smallest among the four Wall Street investment banks. Other factors could include better hedging, financial decision making, diversification, management and strength of balance sheet.

To get a feel of the differences in numbers, Goldman currently holds about $14 billion of leveraged loans, down from $52 billion at their height less than a year ago in August. Residential mortgages, which include the subprime loans, have fallen to about $15 billion on Goldman's balance sheet from $19 billion last quarter. Lehman Brothers' portfolio of mortgages, including commercial loans, stood at $60.8 billion. It also has about $18 billion of leveraged-buyout loans. It is no wonder CEO Fuld took ten minutes at the beginning of the conference call to take responsibility.

Both Bloomberg and the WSJ have very good and detailed explanations of Goldman's results. While many revenue avenues declined, including its biggest segment of trading and principal investments, the figures still showed strength. In some sectors, especially commodity trading, Goldman actually experienced growth.

On Wednesday, the second largest of Wall Street firms, Morgan Stanley (NYSE: MS), is expected to post quarterly results with estimates calling for a 59% drop in net income (Goldman's declined 11%).

Looking at how the stocks are performing, both LEH and MS are down over 4% while GS is about flat at this time (1:42 pm). Year to date, LEH is off 60%, MS down nearly 24% and GS shares have decline 14.75%. An even better picture is yearly performance. Over the past 52 weeks, LEH shares are down nearly 67%, MS down over 54% and GS down nearly 19%.

Some might argue the time for a trade has come and gone as Goldman shares gained some 9.4% (about $22) in the past week. But another way to look at it might be to think whether Goldman stands to gain and grow even more going forward as its rivals struggle, even in this challenging Wall Street environment. If there's one thing Goldman proved is that it knows when to take and when to cut risks. Is it ever too late to get into a solid stock?

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Cramer on BloggingStocks: Nat gas stocks outshine integrateds

Jim Cramer — 2008-06-17T09:30:00+00:00

Filed under: Exxon Mobil (XOM), Market matters, JPMorgan Chase (JPM), BP p.l.c. ADS (BP), Anadarko Petroleum (APC), Oil, Lehman Br Holdings (LEH), Stocks to Buy, Cramer on BloggingStocks

TheStreet.com's Jim Cramer says these stocks rise because they're doubly blessed. Integrateds fall because they aren't.

So many people have been puzzled why the major integrateds have not moved with the last $30 rally in oil's spot price. The answer?

They can't take advantage of it.

They either didn't believe, and therefore didn't drill, or they have been so in the crosshairs of sovereign lunacy that they haven't been able to. They didn't have the rigs or they judged that the rigs were so expensive that, like 1980, they would look like dopes when oil came back to $40-$50, where many thought it would. (Go back and check even last year's research for price targets, most of which were from the oil companies' themselves.)

Or maybe it didn't matter anyway. So many of the contracts these companies have signed with governments around the world are either being abrogated or just outright confiscated that you have to ask yourself "Who can invest under those scenarios?" Exxon (NYSE: XOM) (Cramer's Take) in Venezuela. Shell (NYSE: RDS.A) (Cramer's Take) and now BP (NYSE: BP) (Cramer's Take) in Russia. You can't continually invest billions and then write it off because the contracts you wrote don't mean anything.

I think it is more important to focus on which stocks have gone up and that's an easy one: the natural gas stocks. These companies, which include XTO (NYSE: XTO) (Cramer's Take), Ultra (NYSE: UPL) (Cramer's Take), Anadarko (NYSE: APC) (Cramer's Take), Devon (NYSE: DVN) (Cramer's Take), Apache (NYSE: APA) (Cramer's Take), Southwest (NYSE: SWN) (Cramer's Take), El Paso (NYSE: EP) (Cramer's Take) and many of the wildcatters I have been programming on "Mad Money", are all about acquiring acres and drilling. These companies do so voraciously, they are constantly on the move and they have the excess rig capacity to do something about it.

(Remember the domestic glut, which is part of Nabors' old problems, allows for drilling to be much less expensive, not to mention shallow. The thing that's costing is that the farmers have figured out the game but it is still a small price to pay.)

These stocks fluctuate with the oil futures as they did yesterday. But if you wait a few days they stabilize and start their ramp up again because they are levered to asset growth of a rising commodity. Unlike the integrateds they are twice blessed.

There is a sense that the integrated are signaling that there is an oil top. That's so wrong. It is signaling their inability to capitalize off of it. That's why there is such a disparity with the gas wildcatters and acquirers. I remain bullish on the group despite endless carping about how they are topping. This group has been topping for two years for heaven's sake.

Sorry, I am still a believer.

Random musings: I don't trust Lehman (NYSE: LEH) (Cramer's Take) as far as I can throw 'em. These real estate portfolios -- not the Archstones, but the real junk they took back from customers -- are totally unhedgeable and in many ways worthless because of underlying fraud and because of attached HELOC that we don't even know about. The stuff's a joke and I want to emphasize that even JPMorgan (NYSE: JPM) (Cramer's Take) is shocked at how bad the stuff was from Bear. You can't hedge fraudulent securities. They had some really bad paper. More on that later. ... First Solar's (NASDAQ: FSLR) (Cramer's Take) CEO has answered a lot of questions about his selling and his program and I feel slightly better about it, but I do believe that the credibility is an issue here given all the negatives, although I also believe that the negatives are all well known, and oil is not going to plummet here, in my opinion. ...Can you believe the momentum buying in Decker's (NASDAQ: DECK) (Cramer's Take)? Sometimes the market's just pulling our legs, isn't it? The notion of valuation is out the window for some of these names ...

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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long EP, XTO and SWN.

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