Why Mike Wilson Is Sticking With Bearish S&P 500 Target - Bloomberg Television

Bear market's final leg looms as weak earnings season, says Morgan Stanley's Mike Wilson

Will the Fed Move This Week - and what should investors do?

Can the economy deal with a Federal Reserve interest rate hike at this week's Federal Open Market Committee meeting?Yes,the economy can support an 0.25% increase,but we don't think there will be one,Andrew Burkly of Oppenheimer&Co. told CNBC.To me,the risk is essentially longer,not sooner.We're leaning more to a rate increase in the latter part of the year.The sector I like for investing in from all this is the financials.*
The options market suggests that this week's FOMC meeting could be potentially one of the most volatile that we've seen in years,added Stacy Gilbert of Susquehanna Capital Group.We have seen an increase in what I call "crash protection,"and we haven't seen this increase of crash protection over the last couple of years.This is one of the biggest increases that we've seen.
The S&P 500 options are pricing in a stock market move of about 2.25% for a one day move,which prior to the past couple of weeks would have been a notable move in the S&P 500,and something that we haven't seen relative to the Fed in quite a while.So I think there's a lot of uncertainty out there.The markets are pricing this in as a notable event,and portfolio managers and investors are looking at their portfolios saying "What if?I want to be able to sleep at night."*
The Fed's decision will be released on Thursday.Whenever the rate increase comes,it will be the first one since 2006.The US economics team at Morgan Stanley thinks a hawkish pass by the Fed is a 60% probability.In other words,the Fed would pass on a September rate liftoff,citing the recent tightening in financial conditions;while leaving open the possibility of an increase at the October or December FOMC meetings.*
Morgan Stanley (MS),Oppenheimer Holdings Inc (OPY),Susquehanna Bancshares Inc (SUSQ)

Saudi Aramco Raises Asian Oil Prices;Brent and WTI Prices Follow Suit

Saudi Aramco Oil Co. has raised its prices for all crude grades to be sold to Asia in May by thirty cents,based on strong refining margins in the region and a strong Dubai crude benchmark price.These factors could reflect strong Asian demand for oil.It is the second month in a row the state-owned energy titan has raised crude prices.
Other factors boosting crude prices may include the continued fighting in Yemen between a Saudi-led coalition of states and Iranian-backed Houthi Shiite rebels,and a weaker US dollar on Friday's lackluster employment report;as well as the realisation that sanctions on Iranian oil will not be meaningfully lifted for at least a year,even if the recently achieved framework agreement receives final approval from US and Iranian authorities.Morgan Stanley issued a report saying that,while clearly a bullish headline,a final deal and full lifting of sanctions still faces a number of obstacles.Even if a final deal is reached,we do not expect any physical market impact before 2016,said Adam Longson,head of oil research at the investment bank.
Oil prices on both sides of the Atlantic rose sharply Monday.NYMEX WTI crude futures rose 6.1 % to close at 52.14 bbl;while London Ice Futures Brent crude climbed 5.8% to 58.12 bbl.These were the largest one-day percentage increases since 3 February.
Another factor being cited in the oil price rise was a decline in the US dollar versus the euro Monday.The EURUSD pairing rose 0.06%.New York Federal Reserve Bank president William Dudley also made some concerning remarks,noting that a stronger dollar has given a significant shock to the US economy and low oil prices will exact a meaningful drag on growth as they shackle the energy industry's exploration plans.

Investing Ideas November 2014

Yum Brands,parent of Kentucky Fried Chicken and Pizza Hut,has been upgraded from hold to buy at Janney Capital Markets,mainly on undervaluation.The firm got a new price target of 88.00 a share.*
Don't expect Apple Computer to go higher,according to Pacific Crest Securities.There is a potential lack of growth beyond the iPhone 6,and the iWatch and other products won't be able to make up for it.*
Lumber Liquidators was raised from equal weight to overweight at Morgan Stanley,with an 85.00 a share price target.The company has about 10% square footage growth and powerful store remodel/relocate benefits in its favour.Rising home prices and lower fuel costs should also help Lumber Liquidators.*
The low gas prices should also help big box retailers such as Target and Best Buy,says Stifel Nicolaus.Another plus is the strength of their online businesses alongside their brick and mortar stores.Wal-Mart has already seen share price appreciation from these factors.*
Yum Brands(YUM),Best Buy(BBY),Wal-Mart(WMT),Target(TGT),Apple Computer(AAPL)

Market Briefs:Morgan Stanley,IBM,Intel

On Morgan Stanley,I think the Citigroup number has emboldened the analysts to get a little more bullish on this sector,noted CNBC's popular host Jim Cramer.It's a real strong story that has just sold off.People want Morgan Stanley and that nice,smooth Gorman uptrend,and these guys at Goldman Sachs didn't give it to you.*
IBM was downgraded at Citi.Enough is Enough.This company is gonna have a better 2015 than 2014.They are motivated because they screwed up.It's been a great value play since December.*
Yahoo-there's tax issues.I don't think Yahoo's worth nothing.I think there have been some changes,but that's not why people want to own it.They want to own it because of Yahoo's stake in Alibaba.*
Mastercard and Visa-I like these companies because the transition from paper to plastic isn't done,belive it or not.There are countries still doing that.*
These guys in my class are retiring left and right.Ballmer got tired,but I'm still with it.*
Whirlpool is a nice turnaround story.I like the management-they're very good,the Maytag acquisition.*
Intel's profit exceeded estimates.I like the quarter.The company's finally spending less money;expenses are coming down;"We're not afraid of the 200.00 PC." I think you buy Intel here.You could get a dividend increase."We don't fear the low end of the market." I like that,said Jim Cramer,who has a law degree and indeed shows no signs of tiring out.*
Intel(INTC),Mastercard(MC),Visa(V),Morgan Stanley(MS),Whirlpool(WHR)

Business in Brief:Tim Geithner;Best Business Schools

The majority of businessmen have learned to give and take,according to Morgan Stanley CEO John Mack.Treasury Secretary Tim Geithner had the world on his shoulders.He'll be respected.
He did an outstanding job with the Chinese executives that visited him.I thought he was superb in the way he handled that.He didn't preach.
I think there would be a position for him on Wall Street.
AT and T will invest 14 billion dollars in broadband networks.It is also raising its dividend.Tech is the best-positioned sector under President Barack Obama,BMO Capital Markets believes.
With regard to the fiscal cliff negotiations,Professor John Cochrane of the University of Chicago Booth School of Business said the chance of another one year extension seems high to me,given how far apart we are in the basics.It needs real political leadership.That's roughly what happened in the 1980s.
Let's hope they can do it,lowering tax rates while eliminating deductions.That is tremendously pro-growth.The whole trick is to get this chaos out of our tax code.To focus on starting a business rather than consulting a tax lawyer-that would be pro-growth.
The Booth School of Business is rated the best this year by Businessweek magazine.Harvard Business School came in second,while the University of Pennsylvania Wharton School of Business got third.
Morgan Stanley(MS),AT and T(T)

A Critical View:Does The Market Have It Right

The corporate bonds aren't telling us things are as as good as the market has been,according to Adam Parker,PhD,Chief US Equity Strategist and Managing Director at Morgan Stanley.Our house call is that there won't be any QE3 by the Fed until after the November election.People are more aggressive because of the pain train higher thing.
The year end view is a framework.You have to be tactical with the low and volatile growth and extreme ten year Treasurys.I haven't found somebody who's bearish on earnings yet.Deflation is a real risk.At some point,you'll run out of band-aids.
If the revised estimates are right,the earnings expectations are too high.About half of US companies get margin expansion on average;the analysts are saying 86%.
What matters is the fiscal cliff.I am more worried than the market.You still have very close to no economic growth next year.People could be in a different mindset in three months than they are now,Dr.Parker pointed out.
Adam Parker got his doctorate in Statistics from Boston University.He was named to Institutional Investor's All-American Team in Portfolio Strategy and Quantitative Research in 2009 and 2010.
QE3 would be the Federal Reserve's third asset purchasing program to buck the market up.
Morgan Stanley(MS)

Steve Roach:A Rare Dissent

Not everyone is carefree about the current investing environment.Steve Roach,senior lecturer at Yale University and non-executive chairman of Morgan Stanley Asia,has a number of concerns.The history of post-crisis periods is clear:weak and fragile recoveries.The risk of relapse is real.Consider:1.sovereign debt;2.100 dollar oil;3.unrest in the Middle East;and 4.a U.S. consumer in need of major balance sheet repair.
The markets have dismissed the relapse possibility.Do so at your own risk.The Fed has got the U.S. economy on steroids.The risk is when we withdraw Quantitative Easing 2,you've got a weak labor market.How do you sustain an economy on that basis?
Cash flow isn't enough to get companies to go out,expand and hire.Those decisions are based on expectations of future demand.We can't stand in the way of balance sheet repair.
We're creating a whole new generation of zombie consumers,over-indebted and savings-short,Mr.Roach warns.He is a frequent guest on business television.
Founded in 1935,Morgan Stanley is a financial brain trust with offices worldwide,and offers a full scope of financial services to business,institutions and individuals.More than 45,000 people work for the mega-firm.
Morgan Stanley(MS)

The Best Financials

Gerard Cassidy of RBC Capital Markets feels the financial recovery is gonna take awhile.There's gonna be a lot of fits and starts.The securitization market is still frozen.That's a critical part to getting consumers spending again.If you have to invest in financials,invest in a capital markets bank such as Goldman Sachs or Morgan Stanley,Mr.Cassidy advises.Such banks are less exposed to the consumer.Goldman Sachs reported earnings that were far better than expected yesterday,and is raising capital through a stock offering ,so it can pay back the money it received from the Troubled Asset Recovery Program.

AmEx To Receive Funds

American Express will be receiving federal loans and other backing now that it is a commercial bank.The U.S. Treasury will inject 3.37 billion dollars from the Troubled Asset Recovery Program into the company,in exchange for warrants and preferred stock.As well,AmEx has gotten backing for 5.5 billion in corporate bonds from the Federal Deposit Insurance Corporation.It can also borrow at 0.5% from the Federal Reserve's discount window.The financial crisis has hurt AmEx's ability to raise money in the capital markets,and drove it to become a bank holding company along with Goldman Sachs,Morgan Stanley and other financial firms.

Australia Stabilizes Markets

Australia has joined the U.S.,U.K. and Germany in banning the practice of short-selling,which is a kind of betting that a stock will fall.On Monday,Australian authorities expanded the ban to include not only naked short-selling,which is the most aggressive form,but covered short-selling as well.The ban won't apply to some hedging positions.Investment bank Babcock and Brown had complained about the short-selling of its shares.It rallied 70% at the news of the expanded ban on the practice.Meanwhile,Morgan Stanley(MS) and Goldman Sachs(GS) are to become commercial banks.The last two large,independent investment banks in the U.S. will acquire a depository base and be subject to Federal Reserve supervision,in a bid to secure their futures.Goldman Sachs will be known as Goldman Sachs Bank U.S.A..

Grappling With The Bear

Financial advisors are busy grappling with the economic bear.Extreme volatility may occur this week as the markets react to the Federal Reserve's interest rate decision on Wednesday and the employment report on Friday,as well as other data.Jessica Paige of Paige Capital Management advises staying in cash.The debt market is in a crisis,and many companies will file for bankruptcy.One that has already done so is Quebecor World(QBRWF),a Montreal-based printing concern.The company,which prints textbooks,books of the month,catalogs and pamphlets,cites a need to restructure itself.Local management in Fairfield,Pennsylvania says they will not be reducing staff or cutting wages and benefits.The firm has secured one billion dollars U.S. in financing from Morgan Stanley(MS) and Credit Suisse(CS).Ms. Paige observes the market is going through a transition phase right now.Anything you want to buy will be cheaper in six months.The S and P 500 index will drop to 1200 within 6-12 months.Robert Hormats of Goldman Sachs(GS) notes that the economy is heavily in debt-much of it bad.Decoupling of other economies from the U.S. economy hasn't happened.The financial and goods markets of the U.S. are very important to other countries.It is hard for them to grow robustly without the U.S. markets.Economist Ben Stein feels the market was ridiculously oversold by hedge fund traders.They are making a fortune by shorting the market.Three hundred trillion has been knocked out of the market.Federal Reserve chairman Ben Bernanke needs to fight them and be as ruthless as they are.Jim Awad of J.P. Stewart Asset Management says that it is the most volatile market in his forty years in the business.There is a fear of more write-downs,and it will take time to get over that.According to Joe Battipaglia of Stifel Nicolaus,the corrective process is well underway,but you still have to work through the credit mark-downs.We are one-third of the way through.The process has to unfold naturally.While this goes on,some investors are sheltering in tax-free money market funds such as Alpine Municipal MMF/Investor and Vanguard Tax-Exempt MMF.

Red Flags From Factories

As soon as Christmas was over,investors sat down and reviewed economic reports.The first to be scrutinized was the U.S. Commerce Department's Durable Goods report.Orders for these costly items,which are expected to last at least three years,rose just .1%,when they were expected to rise 2.2%.The factories report was down .7%-the second straight monthly decline.Capital goods ex-aircraft fell .4%,while business capital spending dropped .9%.These figures all indicate that businesses are being more cautious in capital spending.They aren't investing as much in the equipment that helps them grow.Next to be reviewed were the Institute for Supply Management's Purchasing Managers surveys.The Manufacturing Index fell to 47.7 in December from 50.8 in November.A number below 50 indicates the sector is contracting.It was the worst reading in five years.New orders plunged to 45.7 from 51.9.Production fell to 47.3 from 51.9.These results show that even strong exports aren't working anymore.Factories are feeling the credit crunch and flattening profits due to higher costs,as domestic businesses cut back on investments or put them off.Indeed,according to Morgan Stanley(MS),global manufacturing fell .8 to51.4-the lowest level in more than four years.Manufacturing was down in Canada,the U.K. and the Euro Zone.Finally,the busy investors pored over the U.S. employment report that was released last Friday.Unemployment rose to 5% in December from 4.7% in November-the steepest increase since the recession of 2001.An uptick of that magnitude is characteristic of recessions.New jobs created totaled a mere 18,000-the least since 2003.Small wonder that the investors saw red flags on the factories,or that many of them looked to bond funds such as Vanguard's Total Bond(BND) and iShares Lehman Brothers TIPS fund(TIP),or the TIAA-Cref Instit MMF/Retail,which offered the highest 12-month yield for a taxable money market fund in 2007,at 5.19%.

A Cascade Of Caution

As the hills of Malibu burn,investors are facing their own persistent hazards-many of them so obscure that even the elite are puzzled.John Mack,CEO of Morgan Stanley(MS),says it will take 6-9 months to figure out what the losses are.We are not out of the woods yet.The credit market has improved,but mortgage securities will take a long time to work through.What is the collateral behind these packaged mortgages? That is the challenge.Treasury Secretary Hank Paulson calls for an aggressive response to the housing crisis.It is a significant threat to the U.S. economy,and is still unfolding.The longer housing prices are stagnant or fall,ther greater the penalty on our economy.Scott Sperling of Thomas H. Lee Partners,a private equity firm,says it is a very dangerous time for his business.It is a time for great caution.We haven't seen the last of the troubles.We have improved a little,notes Paul McCulley of Pimco,but the mortgage area is very restricted.There is a lot of downside on the economy.The equity market is a call option.Asset-backed commercial paper remains a problem,and structured investment vehicles still need to be unwound.To Carter Worth of Oppenheimer,it seems we will go back down to where we were before the Federal Reserve cut interest rates on 9-18.The market is wobbly and increasingly thin,so why rush to buy? Jeffrey Saut of Raymond James notes a big uptick in credit card debt.That suggests the peak of a credit cycle,and a slowdown to follow.To prepare,some investors are looking to the Vanguard Total Bond Fund(BND) for their protection.Others are buying shares of General Electric(GE),which is relatively cheap at this time,pays a dividend and has an international presence.