Coming Week: Ratings Scrooges
12/22/07 - 10:29 AM EST
Liz Rappaport
Fitch Ratings late last week warned the guarantors they have four to six weeks to raise $1 billion before facing a possible downgrade. MBIA and Ambac have lost around 72% of their value from their pre-credit crunch highs this spring.
Traders will be on guard for more ratings bombshells in the upcoming holiday-shortened week. And they'll be watching to see if the guarantors can make any progress in shoring up the capital they require. MBIA earlier this month obtained $1 billion from private equity firm Warburg Pincus, but still needs another $1 billion to square up its capital base, says Fitch. And, while technology stocks tried to spread holiday cheer last week, the real rescuers have been the investors around the world staking their claims on distressed U.S. companies, underscoring the helpfulness of excess liquidity and a weak dollar. Several rescue fantasies came to fruition last week, and the market wants more. The question is whether these foreign investors will be frustrated by trying to call a bottom and failing. Foreign investments in Citigroup(C Quote - Cramer on C - Stock Picks), Blackstone(BX Quote - Cramer on BX - Stock Picks) and Bear Stearns(BSC Quote - Cramer on BSC - Stock Picks) have thus far failed to yield any positive returns. Maybe this week's capital injections will fare better. Goldman Sachs(GS Quote - Cramer on GS - Stock Picks) bought a stake in student loan company First Marblehead(FMD Quote - Cramer on FMD - Stock Picks), sending its shares up more than 66%. After learning Thursday that Merrill Lynch(MER Quote - Cramer on MER - Stock Picks) may be taking more writedowns, investors pushed the firm's stock up nearly 2% Friday on news the company is in talks to obtain a $5 billion capital injection from Singapore's sovereign investment company Temasek. Morgan Stanley(MS Quote - Cramer on MS - Stock Picks) announced another $9.4 billion in writedowns for the fourth quarter, but received its $5 billion from China Investment Corp. If foreign bargain hunters take the week off next week, the markets will be watching the Federal Reserve for relief in the still-tight money markets. The Fed's first two $20 billion liquidity injections via its new Term Auction Facility were met with strong demand last week. Traders may remain somewhat reassured that the Fed will keep pumping the system with cash. On Friday morning, the Fed announced it will "conduct biweekly Term Auction Facility auctions for as long as necessary to address elevated pressures in short-term funding markets." Sizes of the Jan. 14 and 28 auctions will be revealed at noon on Jan. 4, according to the Fed's statement. Next week is relatively thin on economic data, with reports on durable goods orders, consumer confidence and new home sales released on Thursday and Friday. Earnings reports are likewise scarce next week, giving traders a respite ahead of January's deluge. Whatever happens, it's not likely going to be your typical Christmas week for the markets this year. |
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