Producer Price Index
speech = big trouble.
Stock futures and bonds are taking a licking this morning after a key inflation report came in much stronger than expected. The September PPI gained 1.1% overall and 0.8% excluding food and energy. Economists expected the headline number to add 0.5%, with the core gaining 0.4%.
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At 9 a.m. EDT, the
futures were off 27.5, about 30 below fair value, to 1262.5. The 30-year Treasury was down 11/32 to 97 putting the yield at 6.35%.
"It's gonna be kind of messy," said Charles Farra, president of
Global Trading LLC
. "When futures open in Chicago, we could easily be limit-down right on the opening. It's going to take something very, very special to get the market to close down only 10 S&P points."
Futures players are keying off the 1267 level on the December S&P contract -- about 1256 in terms of the index. Which side of that level the contract closes at will be crucial for the market.
"As long as the S&P futures stay below 1267 and the S&P stays below 1256, we have some serious problems," said Farra. But if the market trades up from that level, it could rise just as violently as it fell -- some shorts were seriously hurt in September when the S&P hit these levels and turned up. Shorts will be quick to bail if they see that happen again.
"It's going to be a very wild and violent day," said Farra. "I have no idea where it's going to close."
Things were bad even before the report came out. Last night, the
chairman did it again -- in a hawkish
speech in Washington, peppered with references to things like the Dutch tulip-bulb bubble. (Note to policy makers, financial professionals and journalists: Can we get off the tulip thing, please? Maybe use the South Sea bubble every once in a while?) If Greenspan read that book on how the
should be at 36,000, it doesn't sound like he found it all that convincing:
...the decline in recent years in the equity premium -- the margin by which the implied rate of discount on common stock exceeds the riskless rate of interest -- should prompt careful consideration of the robustness of our portfolio risk-management models in the event this judgment proves wrong. The key question is whether the recent decline in equity premiums is permanent or temporary. If the decline is permanent, portfolio risk managers need not spend much time revisiting a history that is unlikely to repeat itself. But if it proves temporary, portfolio risk managers could find that they are underestimating the credit risk of individual loans based on the market value of assets and overestimating the benefits of portfolio diversification.
Is this new? No, not at all. It's been well known that Greenspan favors this kind of valuation model. And anyone who's been paying attention to the grousing of some of the more prominent strategists that use models similar to Greenspan --
Morgan Stanley Dean Witter's
Byron Wien and
Doug Cliggott come to mind -- has a feeling for how overvalued the chairman thinks equities are these days.
Greenspan's remarks didn't do a thing for the world's stock markets.
In Tokyo, the
lost 178.69, or 1%, to 17,601.57. Part of the problem there was the struggling greenback -- the suggestion that U.S. stocks are too high carries with it the suggestion that foreign money should migrate elsewhere. The dollar was lately down 1.5 yen to 105.7.
dropped 187.74, or 1.5%, to 12,299.08.
European bourses were off sharply. Frankfurt's
was off 99.55, or 1.9%, to 5120.74. In Paris, the
was down 78.21, or 1.7% to 4505.42. And in London, the
was down 166.9, or 2.8%, to 5872.5.
Friday's Wake-Up Watchlist
after the close
reported first-quarter earnings of 33 cents a share, beating the 19-analyst
First Call/Thomson Financial
estimate of 31 cents and the year-ago 14 cents a share.
energy-services division entered into a $1.5 billion total energy-management pact with
Simon Property Group's
Simon Brand Ventures
Mergers, acquisitions and joint ventures
announced it is buying privately held
, owner of
, for 1.8 million shares and $3 million in cash.
-- Suzanne Galante
bought an equity stake in the company. Intel bought the stake through a secondary offering of 3.6 million shares at $52.38 per share earlier in October.
Earnings/revenue reports and previews
(Earnings estimates are from First Call/Thomson Financial.)
posted third-quarter earnings of 61 cents a share, a penny ahead of the 20-analyst estimate but down from the year-ago 92 cents.
reported third-quarter earnings of $1.31 a share, above the 15-analyst estimate of $1.25 and up from $1.14 a year ago.
posted third-quarter earnings of $1.70 a share, in line with the 17-analyst estimate and up from $1.66 a year ago.
Fifth Third Bancorp
reported third-quarter earnings of 62 cents a share, in line with the 14-analyst estimate and up from a year-ago 53 cents. The company said the share amounts reflect a 3-for-2 stock split declared March 17, 1998, and distributed April 15, 1998.
posted third-quarter earnings of 31 cents a share, above the four-analyst estimate of 29 cents and better than a year-ago 20 cents.
posted third-quarter earnings of 21 cents a share, in line with the three-analyst estimate and up from 15 cents a year ago.
posted third-quarter earnings of 78 cents a share, 4 cents ahead of the 13-analyst estimate and up from the year-ago 58 cents.
posted second-quarter earnings of 47 cents a share, below the four-analyst estimate of 52 cents, but up from 37 cents a year ago.
posted third-quarter earnings of 58 cents a share, above the single-analyst estimate of 45 cents and up from a year-ago 34 cents.
reported third-quarter earnings of 44 cents a share, in line with the 12-analyst estimate, and up from 36 cents a year ago.
to near-term accumulate from near-term neutral.
Morgan Stanley Dean Witter
to its fresh money buys list and removed
Offerings and stock actions
set a 3-for-2 stock split, payable on Nov. 19 to shareholders of record Nov. 2. Veritas posted third-quarter earnings of 21 cents a share, beating the 20-analyst estimate of 17 cents and the year-ago 12 cents.
Morgan Stanley priced
3.75 million-share IPO at $10 a share, the high end of its recently lowered range. Morgan Stanley had said it expected to price the offering at the low end of the $8-to-$10 range, which had been reduced from $10 to $12.
The Heard on the Street column in
The Wall Street Journal
suspended money manager Jack Ferraro. It is conducting an internal investigation of payments he received from
and three small companies. In 1995, Ferraro lined up $7 million for Showscan through a Swiss bank, in return for warrants for 100,000 shares of Showscan, but did not disclose his payment to his clients or to Neuberger, the story says.
The Inside Wall Street column in
, written by Gene Marcial, quotes a senior
exec as saying the company -- which held talks with
last year -- is "still very interested" in the company. The executive wouldn't say if talks were going on, however, the column said. The column also said some money pros are wagering that Tyco's going to acquire C.R. Bard. Tyco has been one of the story stocks of the week in the market.
wrote about Tyco
Elsewhere, the column reports that some sizable investors think
with an informal takeover bid.
Finally, the column said that Chicago private investment group
is betting that
will get bought out. The column says Grace Brothers has amassed a 25% stake in Ladish.