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.
There ought to be a law. That would be legislation which limits what public company CEOs get when they are fired. Maybe the limit should be $1 million. How much is failure really worth?
The departing head of American International Group (NYSE: AIG), Martin Sullivan, will pick up $47 million as he hits that door. According to the FT, "Mr Sullivan's departure was deemed a resignation for "good reason", according to AIG." His "good reason" was that the board would not allow him to stay in the building. What better excuse can a man get?
Sullivan can hardly be blamed for taking the money and retiring about his yacht to hit golf balls into the ocean. The AIG board shoulders that burden. The chairman of that board, Robert Willumstad, took Sullivan's job. Maybe it was easier to move up to CEO with Sullivan fat and happy.
But, there ought to be a law.
Douglas A. McIntyre is an editor at 247wallst.com.
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).
U.S. futures were mixed to lower early Friday morning, a day after stock markets sold off, ending at their lowest level in nearly two years. Still, with oil prices reaching another record in Asia, it's questionable whether stocks could indeed stage a recovery.
On Thursday, U.S. stocks sank to lows not seen in nearly two years after Goldman Sachs (NYSE: GS) downgraded investment banks including Citigroup (NYSE: C) and General Motors Corp. (NYSE: GM) to Sell and as Wall Street was also worried about the outlook for tech stocks as both RIM (NASDAQ: RIMM) and Oracle (NASDAQ: ORCL) reported quarterly results Wednesday, giving a tepid outlook. Topping it all were oil prices reaching $140 a barrel. The Dow Jones Industrial Average fell 358 points, or 3.03%, the S&P 500 lost 38 points, or 2.94%, and the Nasdaq Composite dropped 79 points, or 3.33%.
Usually, a day after such a selloff, buyers tend to come in, this morning we also woke up to news that oil prices climbed to a record above $141 a barrel in Asian trading, which may dampen the mood on Wall Street again. Light, sweet crude for August delivery rose as high as $141.71 a barrel before pulling back to $141.10. The previous trading record for a front-month contract was $139.89, set on June 16.
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.
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).
American International Group (NYSE: AIG) shares are trading higher today after Citigroup upgraded the stock to "Buy" from "Hold," adding in a note that AIG is poised for well over 35% upside within the following year. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AIG.
After hitting a one-year high of $72.75 last June, the stock hit a one-year low of $31.05 yesterday. AIG opened this morning at $32.38. So far today the stock has hit a low of $31.97 and a high of $32.52. As of 12:00, AIG is trading at $32.37, up 0.85 (2.7%). The chart for AIG looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put 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 just four weeks as long as AIG is above $25 at July expiration. AIG would have to fall by more than 23% before we would start to lose money.
AIG hasn't been below $31 at all in the past year but has broken below support levels recently. This trade could be risky if the financial markets continue to nose-dive, but even if that happens, this position could be protected by the fact that its next earnings are not scheduled until August, which is after expiration of the trade above.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in AIG.
MOST NOTEWORTHY: American International Group, Energy East and BG Group Plc were today's noteworthy upgrades:
Citigroup upgraded shares of American International Group (NYSE:AIG) to Buy from Hold on valuation as they see limited downside at current levels. They believe the stock is "poised for over 35% upside in the next twelve months" and raised their target price to $42 from $41.
Jefferies raised Energy East (NYSE:EAS) to Hold from Underperform to reflect the growing pressure from politicians to influence the final NYPSC order in the merger approval proceeding. The firm raised their target price to $25.50 from $16.50.
Bernstein upgraded shares of BG Group (NASDAQ:BRGYY) to Outperform from Market Perform as they believe the company should benefit from the tightness in the global liquefied natural gas market.
OTHER UPGRADES:
Total SA (NYSE:TOT) was upgraded to Buy from Neutral at Goldman and added to the Conviction Buy List.
Wachovia lifted CarMax (NYSE:KMX) to Market Perform from Underperform.
Pike Electric (NYSE:PEC) was raised to Outperform from Market Perform at Friedman Billings.
Stock Picks for Under $10 There are a lot of once-highflying stocks that have fallen below $10 and look like bargains ripe for the picking. See if CIT Group, Ford, Motorola, Tenet Healthcare, Dynegy and Interpublic. Stock Picks for Under $10 - CNBC 10 Worst Managed Companies in America With the trading year almost half over and results from the first quarter out, 24/7 Wall St. presents its latest installment of its Ten Worst Managed Companies In America list. They include Sun Microsystems, Sears, Boston Scientific, Starbucks, Sprint, Circuit City, Motorola, AMD, AIG and Pfizer. 24/7 Wall St.: The 24/7 Wall St. Ten Worst Managed Companies In America
Why didn't Fuld follow Sullivan onto the unemployment line, albeit the cushy one for failed CEOs? It makes no sense.
Last week, Fuld shocked investors by pre-announcing that Lehman lost $2.8 billion, or $5.14 per share, results that were officially confirmed today. In the earnings release, Fuld proclaimed the results as "unacceptable" and vowed to "take the necessary steps to restore the credibility of our great franchise." Well, at least he says that's what he wants to do. He dismissed Lehman President Joseph Gregory and Chief Financial Officer Erin Callan last week. On the conference call, Fuld even took responsibility for the loss and investors cheered this act of contrition, sending shares of Lehman up.
The euphoria is not going to last. I am not sure why Wall Street believes that Fuld can extricate Lehman from the financial quagmire that occurred on his watch. They certainly did not give Merrill Lynch & Co.'s (NYSE: MER) Stan O'Neal and Bear Stearns & Co.'s (NYSE: BSC) James Cayne or Citigroup Inc.'s (NYSE: C) the benefit of the doubt.
Electricity Bills Heading Up. Way Up Utilities across the USA are raising power prices up to 29%, mostly to pay for soaring fuel costs, but also to build new plants and refurbish an aging power grid. Even more dramatic rate increases are ahead. The mounting electric bills will further squeeze households struggling with spiraling gasoline prices. Price jolt: Electricity bills going up, up, up - USATODAY.com
Get Retirement Savings Money From Uncle Sam Barack Obama would match up to $500 in savings for families earning under $75,000. It would cost the government but help people save. Is it a good idea? Get retirement savings $$ from Uncle Sam - CNNmoney
American International (NYSE: AIG) is recently trading at $34.75 in pre-open trading, above its close of $34.75.
AIG named Chairman Robert Willumstad to the additional post of CEO, succeeding Martin J. Sullivan.
Wachovia Securities says: "the short-term bumps that are likely to accompany the initial phase of AIG's strategic review will be offset by long-term gains."
AIG July option implied volatility of 55 is above its 26-week average of 45 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
U.S. stock futures were a little higher early Monday, reacting mostly to news in the financials again with Lehman Brothers set to report massive quarterly loss, AIG ousting its CEO and Barclays surging in London.
On Friday, U.S. stocks climbed after May CPI report showed core inflation was inline with expectations. The Dow industrials added 165 points, or 1.37%, the S&P 500 rose 20 points, or 1.50%, and the Nasdaq Composite jumped 50 points, or 2.09%.
Not many economic indicator are due for release today: At 8:30 a.m. EDT, June NY Empire State Index, a regional manufacturing reading will be reported. At 9:00 a.m., April net foreign security purchases figures are due out. Apart from official readings, the National Association of Home Builders will release the latest housing market index in the afternoon. Lately some figures have been showing a possible bottoming and it would be interesting to see what the index brings about.
Also, Federal Reserve Chairman Ben Bernanke is due to speak at a Senate Finance Committee health summit.
Meanwhile, oil prices were steady around $135.60 a barrel after Saudi Arabia told U.N. chief Ban Ki-moon over the weekend that it would boost output, and ahead of Saudi meeting of oil producing and consuming nations in Jeddah in more than a month.
AIG (NYSE: AIG) has forced its CEO, Martin Sullivan, to resign after huge losses at the insurance company. Robert Willumstad, the company's chairman and a former Citigroup (NYSE:C) executive, will replace him.
The move may not matter. AIG has lost $18 billion over the last two quarters. According toBloomberg, The performance has been "unacceptable," said Willumstad.
The new man has a couple of problems. The first is that he has been AIG's chairman for about two years. Where was he when the company was falling apart? Granted, he was not the CEO, but as chairman, he did have a great deal of leverage with the board, which has significant responsibility for overseeing risk management. In other words, he has been part of the problem.
In addition. AIG's financial troubles are not over. The insurance company's investments in credit swaps could continue to lose money. The firm may not be able to predict how these financial instruments will perform for the rest of the year. The SEC and Justice Department are also looking into how some of them were priced.
Willumstad had a chance to get his hands around the problem over a year ago. He failed at that.
Douglas A. McIntyre is an editor at 247wallst.com.
I'm not sure how management at Lehman Brothers Holdings Inc. (NYSE: LEH) has time to run the business. What's more, with all the turbulence, I'm wondering if many of the employees are working mostly on parsing rumors and fine-tuning resumes.
Of course, this week Lehman got rid of its CFO, Erin Callan and president, Joseph Gregory. The company also raised $6 billion, which was quite dilutive. So from Monday to Friday, the stock price plunged from $33 to $25.81.
Yet, by Friday, things were perking up. The stock price shot up 13.7%. Maurice "Hank" Greenberg, the, who is the former CEO of AIG (NYSE: AIG), said he bought shares. This was also the case with BlackRock (NYSE: BLK) and Putnam Investments.
But there was something else: Wall Street was abuzz with buyout rumors.
In fact, according to a report from CNBC, it looks like the senior management team of Lehman is meeting this weekend (which is a rare thing). Are they talking to possible suitors? Or, is it to review the figures for Q2? Both?
Despite all this, the fact remains that Lehman's potential suitors are also distressed. So, even if there is a deal, the valuation is likely to be muted.
But there is an interesting scenario: Blackstone Group LLP (NYSE: BX) as a buyer or major investor. The firm is well capitalized and may want an investment banking platform. Moreover, the firm's cofounders -- Stephen Schwarzman (CEO) and Peter Peterson (Senior Chairman) -- were formerly with Lehman (back in the 1980s).
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 
U.S. futures were mixed to lower early Friday morning, a day after stock markets sold off, ending at their lowest level in nearly two years. Still, with oil prices reaching another record in Asia, it's questionable whether stocks could indeed stage a recovery.
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American International
U.S. stock futures were a little higher early Monday, reacting mostly to news in the financials again with Lehman Brothers set to report massive quarterly loss, AIG ousting its CEO and Barclays surging in London.
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Wal-Mart's launch of $20 slimming jeans will be a huge success
Why I spent some of my stimulus check on GE
Why the dollar will keep falling
