The Hump Day Scrum: A First For Mother Morgan
Morgan Stanley reported its first quarterly loss in company history this morning
"You know, I'm a rather brilliant surgeon. Perhaps I can help you with that hump."
--Dr. Frederick Frankenstein
My goodness, is it really only Wednesday? It already feels like Thursday-next Thursday-as the flips and whips shape daily scripts. Who needs writers when you've got the world's greatest reality show unfolding on a daily basis? Uh, I do, as there is a lot to cover in today's day and age. Let's get cranking as we follow in my grandfather's footsteps, footsteps, footsteps!
Morgan Stanley (MS) reported its first quarterly loss in company history this morning after taking a total of $9.4 billion in write-downs on mortgage-related investments. It also took in a $5 billion from China Investment Corp., the nation's sovereign wealth fund, continuing our long-discussed theme of the transfer of wealth.
Yesterday afternoon on the Buzz, I offered the following thought about Mother Morgan:
Mirror Image - 3:15 EST
Hey, remember how GREAT Goldman (GS) was supposed to be, riding in on her white horse to save the market? Everyone and their other brother Darol knew it was gonna be great and, while they stepped up, investors stepped out.
For as much positive chatter as I heard about GS, I'm hearing an equal amount of negativity surrounding Mother Morgan. We watched (and traded) this stock as it broke $60 and we saw the importance of $55. Now, as it probes fresh lows, there is all sorts of negativity swirling around the name.
The latest (unconfirmed) whisper is that they need to raise more capital as a result of further write-downs. I obviously have no insight as to whether this is true (although I DO have tremendous respect for John Mack) and, in the interest of full disclosure, I am not involved in the name either way.
What I will say is that, while I think financials--as a whole--have a ways to go on the downside over the long run, I would much rather hear this (as opposed to the optimism in Goldman) if I had horns and owned a blue suit. Just sayin'.
The stock, as it stands and as I write, is trading slightly higher versus yesterday's close. I just walked out to Minyan Editor Terry Wooo (he's doing a good job, thus the extra "o") and said "Son, do you remember how Goldman couldn't get up yesterday morning? That was a sign. You see how Morgan isn't trading down pre-opening? It's the same sign, only in reverse." Time will time, naturally, but that's where my keppe is.
In other news…
Let's see, in the last four trading days, we've seen a cut in the Fed Funds rate and discount rate, the biggest Global Coordinated Liquidity Injection since 9/11 and $500 billion infusion from the ECB. And the market acts like this? The window for a rally is there but, as the reaction to news is more important than the news itself, it best be starting shortly.
Remember this summer when we wondered what they knew that we didn't? Now we know what they knew. I suppose the scary aspect is, given this fresh round of historic stimuli, what do they foresee in the future?
Aside from the year-end liquidity concerns, perhaps they're looking down the consumer food chain. As we've been saying-heck, as Bank America (BAC) said last week-sub-prime is simply the first domino as "the other side of zero-percent financing" comes home to roost.
Minyanville President Kevin Wassong leaned over to me at dinner last night and asked why my message is sometimes so sullen. I told him that preparedness is the first step towards prosperity and, while I hope I'm wrong, I foresee the stiffest economic headwinds of our lives approaching.
We spoke about this in Vail, simply saying that the probabilities of a prolonged socioeconomic malaise are higher than most folks have factored into their risk assumptions. That notion is no longer foreign matter but I would argue that it's still on the front end of the denial-migration-panic continuum.
So, butter and guns? As my buddy Jeff Saut always says, where you stand is a function of where you sit. I'm open-minded to the notion of some year-end lift-we've got "room" to S&P 1490-and, as Buzzers know, I've been trading the homies and financials from the long side of late (gluttony loves company).
BKX 88ish remains an important level from a trading basis and-while I've been bearish for a long time and remain bearish for the long-term-the idea that, if we hold that level, a January lift in the financials could take place after funds purge 'em from their books into year-end.
Year-end plans? Giving birth to Minyanland and The Exchange, hanging with ye faithful through next week, doing a slew of FBN Happy Hour spots and then heading to an island far, far away to care for an old friend. So, for purposes of communication, I'm in the spin through next Friday and out-of-pocket the first week of 2008. For all ye faithful who are scooting early, healthy, happy and all that jazz!
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