Citing a weakening economic environment the Federal Reserve cut interest rates 50 basis points in an attempt to soften the impending economic crash landing.  In other news the dollar was seen shooting glares of jealousy at its friend the Euro.

From the Fed statement:

 ”Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,” according to the central bank. “Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.”

Clearly the path chosen is one of an attempt to sustain the unsustainable.  Lower borrowing costs do not fix the problem of solvency that is rampant in America.  On the other hand grab the  low rates while you can - while we may see further easing the Fed has removed some of the stronger language that points to guaranteed future rate cuts.

From the Market Watch article on the Fed rate cut:

Economists detected some effort by the Fed to cool expectations that the Fed would slash interest rates in coming months.

They noted that the Fed removed language saying that downside risks were “appreciable.” In addition, the Fed said that the rate cuts taken to date should promote “moderate growth over time.”

Shepherdson said he was not surprised the Fed would hint at slower easing.

“They were probably nervous expectations would run away,” and wanted to maintain some degree of flexibility, he said.

What do you think?

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Market Watch is reporting that the FBI is scrutinizing 14 companies related to the mortgage industry at all levels of the securitization process as part of their investigation in to the mortgage meltdown.

 Agents are looking into allegations of fraud in several stages of the mortgage securitization process, in which home loans are packaged up by investment banks and sold as securities to institutional investors, Brian Hale, an FBI spokesman explained. He declined to name the companies being investigated.

Housing Wire has some additional information on the FBI’s mortgage company investigation which has yet to name any company names.

The FBI is the latest to get in to the investigation act and I would suspect that we will see many more of these over the next year and a half.  Housing Wire notes that bankrupt firms are not exempt from the investigation which means that executives that ran the companies that made an early exit may still be on the hook for activity at the now-defunct lenders.

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Filed under: Private equity, Blackstone Group L.P (BX)

Back on May 17, 2007, there was another typical multi-billion dollar private equity deal. That is, The Blackstone Group L.P. (NYSE: BX) agreed to pay $81.75 per share — a total of $7.8 billion — for Alliance Data Systems Corporation (NYSE: ADS).

In the press release, Chip Schorr, a Senior Managing Director at Blackstone, proclaimed: “We are excited about the opportunity to work together with management and with Alliance Data’s dedicated employees to help continue to grow the business and further strengthen the company’s competitive position.”

Well, now the deal is in shambles, with ADS’s stock price trading at a lowly $41.40. This week, Blackstone indicated that it is having troubles getting regulatory approval from the Office of the Comptroller of Currency (OCC), which wants Blackstone to provide a $400 million backstop of support (in the event there is a problem with the banking segment).

Continue reading Blackstone gets served

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Filed under: Rumors, Sprint Nextel Corp (S)

Sprint Nextel Corporation (NYSE: S)’s Dan Hesse hasn’t been the CEO for very long, but he’s wasting no time making a bunch of changes at the beleaguered wireless company. First off, he announced a slew of layoffs and three executive dismissals as a way to cut costs and bring in fresh blood to the company.

One of the last straws Hesse needed to address concerned the company’s 2006 commitment to rolling out a nationwide WiMAX next-generation wireless data network in the U.S.

At the time, Sprint was seen as a pioneer in bringing anywhere, anytime high-speed data to most of the U.S. with its $5 billion commitment. As 2007 brought customer defections and hundreds of thousands of customer losses and missed profit targets, those plans were scaled back — some called for them to be scrapped entirely — so Sprint could focus on its core business: wireless voice service.

Hesse is apparently not going to let the naysayers get away with having Sprint just toss out its grand WiMAX ambitions, and Sprint may now be in talks with Clearwire Corporation (NASDAQ: CLWR) to form a joint venture in a new WiMAX venture that would bring in outside money to help with the rather large capital expenditure that Sprint investors and pundits have been worried about in the wake of losing customers — big time — to its competitors. If Sprint can form a joint venture and bring in partners such as Google, Inc. (NASDAQ: GOOG) and retailer Best Buy, Inc. (NYSE: BBY), then its WiMAX plans may indeed have some life left.

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Filed under: Private equity

The fourth quarter was brutal for investment banks. But for Lazard Ltd. (NYSE: LAZ), things weren’t so bad. After all, the company focuses on corporate advisory, and as a result didn’t get dinged by principal trading and investments in subprime deals.

In Q4, Lazard’s earnings spiked 43% to $122.6 million, or $0.104 per share. Revenues were up 26% to $618 million.

The main boost came from advisory fees, such as for M&A transactions and restructurings. This business increased 27% to $313.6 million in revenues. Oh, and restructuring revenues were up 58% to $32.3 million. In light of the wreckage in the market, I suspect that this segment will continue to thrive.

Of course, a key to the success is Bruce Wasserstein, who is Lazard’s CEO and uber dealmaker. For his efforts, he got a hefty $96.3 million restricted stock grant as well as a five-year employment agreement.

However, with the credit crunch and economic uncertainty, the M&A market has been fairly soft in January. If this continues, Lazard will certainly feel some pain.

But in today’s trading, Lazard’s stock was up 4.46% to $37.25.

Tom Taulli is the author of various books, including The Complete M&A Handbook. He also operates DealProfiles.com.

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Filed under: JPMorgan Chase (JPM), Bank of America (BAC), Merrill Lynch (MER), Morgan Stanley (MS), Wachovia Corp (WB), Economic data, Federal Reserve, Recession

Stock markets rallied today after the Federal Reserve cut interest rates for the second time in 8 days. Will today’s 50 basis-point cut finally get people to stop complaining about Chairman Ben Bernanke? Probably not.

Nonetheless, the policy makers appear to be responding to criticism from pundits of all political stripes that they were “behind the curve” in dealing with the problems in the economy. The two recent cuts are the fastest easing of monetary policy since 1990, according to Bloomberg News.

“Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,” the Federal Open Market Committee said in a statement. “Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets….The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.”

Dallas Fed President Richard Fisher voted against the cut, preferring to leave interest rates unchanged. There are signs everywhere that the economy is slowing, so the question comes up yet again about whether more rate cuts are coming or will the Fed wait for the stimulus package to kick in?

For now, though, investors are basking in the present.

In late afternoon trading, The Dow Jones industrial average rose 82.67 to 12,562.97 and the Nasdaq Composite Index jumped 6.73 to 2264.79. Financial shares, including Merrill Lynch & Co. (NYSE: MER), Morgan Stanley (NYSE: MS) and JPMorgan Chase & Co. (NYSE: JPM), rallied. At least one veteran investor thinks the sector has been beaten up enough.

David Dreman of Dreman Value Management LLC told Bloomberg TV that he has bought shares of Bank of America Corp. (NYSE: BAC) and Wachovia Corp. (NYSE: WB). “There was panic in the market towards the end of the year and a lot of them went down far too much,” he said. “There will be a turn, and this is probably a major opportunity in financials, probably one of the best in the last 15 years.”

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Filed under: Options

Rambus Inc. (NASDAQ: RMBS) is recently up $3.16 to $19.68. RMBS has upcoming patent infringement and anti-trust claim issues in 2008. RMBS call option volume of 40,646 contracts compares to put volume of 8,780 contracts. RMBS February option implied volatility is at 92, March is at 93 and May is at 94; above a level of 75 from January 29. RMBS average option implied volatility over the last 26-weeks is 66 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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Filed under: International markets, Newsletters, Stocks to Buy

In a recent post, Luck of the Irish, we cited the favorable tax treatment in Ireland (among the lowest of all industrialized countries) as a key competitive advantage for Irish companies competing on a global basis.

Continuing that theme, Nick Lanyi suggests, “Genesis Lease Ltd. (NYSE: GLS) is an Irish-based aircraft-leasing company that is benefiting from a global boom in demand for commercial airplanes — even as the U.S. economy slows.”

The editor of High-Yield International states, “Airlines increasingly lease a portion of their aircraft fleet, rather than owning them.” Here’s look at a company with a double-digit dividend yield that is benefiting from this trend.

“Airplanes are very expensive, and they need to be replaced every few years. Especially for smaller airlines, it makes more financial sense to pay a regular monthly fee as part of a long-term lease than to shell out the money to buy an airplane.

“In addition, the leasing company is responsible for maintaining the plane — relieving the airline of the need to recruit, retain and pay for a maintenance staff. Also, demand for air travel fluctuates over time, and leases give airlines more ability to limit excess capacity.

“Aircraft leasing is in a strong long-term growth trend. There are currently about 18,000 commercial aircraft operating worldwide, and that number is expected to double over the next 20-25 years. Why? Because China, India, Brazil, Russia and other emerging markets are growing so rapidly. As economies expand, so does airline traffic.

Continue reading Genesis Leasing (GLS): Growth & income from aircraft leasing

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Filed under: Forecasts, Federal Reserve, Recession

New York Yankee Hall of Fame catcher Yogi Berra, noted for his incisive malapropisms, once remarked about his ballclub’s prospects, “The future, it ain’t what it used to be.”

Well, to quote Yogi, the U.S.’s economic future ain’t what it used to be, but as my BloggingStocks colleague Peter Cohan observed, it may not be what some economists currently make it out to be, either.

Cohan asked “Is the ‘recession’ real?” and argued that one could make a case that not enough evidence exists to suggest the U.S. is in recession — two consecutive quarters of negative GDP growth has not been measure yet. Further, some sectors of the economy, including oil, oil services, energy, alternative energy, and farming, among others, are doing well.

Still, housing is in its worst slump in more than 20 years, consumer spending growth is modest at best, consumer confidence is low, and one need not list the litany of concerns regarding mortgage lenders and related asset-back securities and banks.

What’s going on here?

Continue reading U.S. may enter ‘growth recession’ in 2008

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Filed under: Indices, Newsletters, S and P 500, DJIA

“Many analysts feel that we are in a bear market or soon will be; we disagree,” says Dan Sullivan. In his The Chartist, the advisor looks at several seasonal and sentiment indicators that remain bullish.

“The overall sentiment amongst individual investors is extremely negative, which in the upside down world of Wall Street is a very healthy sign.

“In their most recent poll, the bearish contingent of the American Association of Individual Investors had 55% in the bearish camp. This means that 55% of the investors polled by AAII expect the market to be lower over the next six months.

“The current bearish reading has only been surpassed on two occasions over the past four years. There were 58% AAII bears back on July 14, 2006. Over the next six months, the Dow posted a gain of 14.79%. And the AAII bearish contingent hit 56% on November 23, 2007, one day before the bottom of the October/November sell-off.

Continue reading Seasonality, cycle and sentiment indicators stay bullish

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