Five Things You Need to Know: NYSE High-Low Index; Bank of America; Beige Book Blues; Timing Is Everything; Chrysler to Eliminate Some Models
What you need to know (and what it means)!
Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. NYSE High-Low Index
First things first, just a heads up that a key indicator we use for equities has reversed down, a warning that the rally from the August lows may be nearing a conclusion.
- The NYSE High-Low Index is tracked by Investors Intelligence and is simply a ratio of the number of NYSE stocks showing new 52-week highs divided by the sum of the total new highs and new lows, smoothed using a 10-day moving average.
- Investors Intelligence uses the NYSE High-Low in conjunction with their proprietary Short Term Composite indicator, which is generated from scores awarded to 29 market indicators.
- With both negative, it suggests the weakness may worsen.
- The overall bullish percent indicators that are longer-term measures of supply and demand still show demand in control of equities, but they have weakened lately and bear watching over the next week.
NYSE High-Low Index courtesy Investors Intelligence
Click to Enlarge
2. Bank of America
Bank of America (BAC), the second-largest U.S. bank, said profit declined 32% in the third quarter, more than analysts estimated, due to trading losses, defaults and writedowns that cost the bank nearly $4 billion.
- Chief Executive Officer Kenneth Lewis, who depends on the domestic economy more than his counterparts at JPMorgan Chase (JPM). and Citigroup (C) according to Bloomberg, said he was "very disappointed'' with the company's earnings.
- BAC's third-quarter revenue was $16.3 billion, which came in short of analysts' estimates of $17.9 billion.
- Net income fell to $3.7 billion, or 82 cents a share, from $5.4 billion, or $1.18, in the same period last year.
- As well, return on equity, one measure of how effectively the company reinvests profits, narrowed to 11.02%, from 16.64% last year.
- By comparison, Citigroup's return on equity dropped to 7.4% from 18.9% a year earlier, Bloomberg said.
- Earnings at Bank of America's consumer and small-business banking unit fell 16%, Bloomberg reported.
3. Beige Book Blues
Yesterday saw the release of the Federal Reserve's Beige Book report.
- The Beige Book summarizes economic activity in the 12 Fed districts from anecdotal business reports.
- Most notable in the report, apart from the fact that now five of the 12 districts are reporting slower rates of economic growth, are the cracks beginning to show in consumer spending.
- "Consumer spending expanded, but reports were uneven and suggest growth was slower in September and early October than in August."
- Even more ominous was this nugget from the report:
"Financial institutions reported an increase in delinquencies and slight deterioration in credit quality. Lenders in many Districts tightened credit standards, particularly for real estate. The majority of reports indicated an increase in business lending but a decline or slower growth in consumer lending."
- The key here is the spreading of credit tightening beyond real estate and the slowdown in consumer lending.
- Finally, here is some interesting data on the report from Merrill's David Rosenberg: "The word "slow" appeared 75 times and "weak" appeared 47 times in yesterday's Beige Book for a total of 122. This was the highest such tally since January 2003 when the Fed was on its way towards cutting the funds rate from 1.25% to 1.00%."
4. Timing Is Everything
The Securities and Exchange Commission has opened an informal investigation into the stock sales of Angelo Mozilo, the chief executive of Countrywide Financial (CFC), according to the New York Times.
- Shareholders have apparently questioned the timing of Mozilo's stock sales, which allowed him to rake in more than $132 million in the months prior to CFC's price decline amid the deepening mortgage crisis.
- Since October 2006, Mr. Mozilo has twice raised the number of shares that could be sold under his plans, the Times reported.
- In December 2006, with CFC trading around $40, he increased the number of shares to be sold monthly from 350,000 to 465,000.
- In February,with CFC in the mid 40s, he increased the number of shares sold monthly to 580,000.
- The sales have generated $300 million in gains for Mozilo since 2005.
5. Chrysler to Eliminate Some Models
Chrysler executives will soon announce that several car models will be dropped in the next year under a new strategy, according to the Wall Street Journal.
- Chrysler LLC Vice Chairman Jim Press and Chief Executive Bob Nardelli are expected to unveil a new plan to make Chrysler smaller but more profitable, the Journal says.
- "We have two to three vehicles that serve the same market segment or same customer and compete with each other," Mr. Press told reporters outside the dealer meeting in Las Vegas, according to the Journal.
- Most of the models that Chrysler intends to drop in the near term have suffered severe sales declines, the newspaper says.
- Sales of some models are down as much as 32% this year.
- Below, Minyanville takes a look at some of the models Chrysler may seek to eliminate.
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