Just like you never want to hear a doctor say "oops" in the operating room, you never want to see a going-concern statement in a financial report about a company you own. Accountants throw these in when they've been over the books, talked to customers, and checked the horoscopes and have concluded there is "substantial doubt" about a company's ability to remain in business. In short, don't blame the accountants if the company files for bankruptcy protection.

You¿d reckon that a going-concern statement would be enough to send investors running to the exits, but it's not. True, many large institutions automatically bail when an existing company gets slapped with one of these, but many individuals (often wrongly) take a chance they know more than the bean counters.

During the tech boom of the late 1990s, many companies actually went public even though they had been hit with going-concern statements. Many of those companies subsequently disappeared. Enough said.

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Friday, August 08, 2008

Uptick

Dow Soars 303, Cashes in on Dollar

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Matt Egan

FOXBusiness

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Fueled by the greenback's best day in years and another tumble in oil prices, the Dow leaped 300 points on Friday to put the finishing touches on the index's best week since April.

Today's Market

The Dow Jones Industrial Average rose 302.89 points, or 2.65% to 11734.32, the Standard & Poor’s 500 index gained 30.25 points, or 2.39%, to 1296.32 and the Nasdaq Composite Index picked up 58.37 points, or 2.48%, to 2414.10. The consumer-friendly FOX 50 rose 25.34 points, or 2.81%, to 926.70.

The big day on Wall Street reversed a 224-point selloff on the Dow from Thursday and allowed the blue chips to close the week with a rally of more than 3%. It was the week's second rally of 300 points or more, with a 200-point dive coupled in between.

“I think it’s a pretty significant psychological gain that we can shrug off all of yesterday’s losses to close the week out," said Michael James, senior equity trader at Wedbush Morgan Securities in Los Angeles.

Earlier in the day the market was trading flat to just slightly higher as the soaring dollar was offset by Fannie Mae's (FNM) fourth consecutive quarterly loss.

"The market is reacting to the strong dollar, which is putting pressure on oil and commodities. The news from Fannie Mae is actually taking a back seat," said Peter Cardillo, chief market economist at Avalon Partners.

All but two of the 30 components of the Dow closed the day in the green, led by a 7% rally from Home Depot (HD). Also, McDonald's (MCD) rose 6% to an all-time high after its better-than-expected same-store sales.

The Nasdaq Composite rose more than 2% and reached its highest levels in more than a month. Irish carrier Ryanair (RYAAY), Hansen Natural (HANS) and Amlyin Pharmaceutical (AMLN) were a few of the best performing stocks on the Nasdaq 100. Big-name tech stocks like Cisco (CSCO) and Amazon.com (AMZN)) also posted sizable gains.

The star of the rally on Friday was clearly the greenback, which soared more than 2% against the euro -- the best one-day gain for the currency since September 2000, according to Bloomberg. At its worst level, the euro fell below $1.50. The action came as the market begins to factor in likely rate cuts in Europe as their economy weakens.

"There is a sense that the dollar will strengthen further, which I think it will. That will probably help mend some of our problems," said Cardillo.

Tops among those problems this year has been the price of crude oil, which has sharply declined over the past month to slide below $115 a barrel after flirting with $150 in July. The greenback was the main catalyst for the latest decline in oil prices as the stronger currency tends to push dollar-traded commodities like oil and gold lower.

Crude closed down $4.82 at $115.20 a barrel while gold futures slid $12.90 to end at $859.20 an ounce. Just a day ago oil prices rallied more than $1.40 to post their best one-day dollar gain in more than a week.

"The big move down in oil is driving a significant amount of money into the equities today. People are feeling more emboldened to put more money into equities," said James, who also said it was encouraging that oil kept declining even as reports indicated Russia and Georgia were on the brink of war.

Airline stocks certainly benefited as they jumped 8% on Friday. Shares of Continental (CAL), United (UAUA) and American Airlines (AMR) all closed sharply higher.

The good news from commodities and the greenback helped overshadow mortgage giant Fannie Mae's (FNM) worse-than-expected second-quarter loss of $2.3 billion. The company also slashed its dividend by more than 85% to save cash.

The sister company to Freddie Mac (FRE) lost $2.54 a share, well off its profit of $1.86 a share a year ago. Analysts had been expecting a loss of 97 cents. Fannie slid 9% on Friday as the company failed to join in the rally.

Corporate Movers

McDonald's (MCD) enjoyed an 8% jump in global same-store sales in July, boosted by a 6.7% increase in domestic sales. The U.S. sales increase was the best month for the fast food giant since February, when the calendar was favorable due to Leap Day.

UBS (UBS) reached a comprehensive settlement with the SEC and state officials to buy back nearly $20 billion of auction rate securities the bank sold to investors. UBS, like several other banking giants, had been under investigation for the way it sold the hard-to-value securities. The Swiss banking giant said the settlement and fines won't significantly change the company's second-quarter results.

MBIA (MBI) closed higher following its better-than-expected quarterly earnings. The bond insurer's earnings surged to $7.14 a share, up from $1.61 a share a year ago. Those results include unrealized gains from insured credit derivatives. Aftertax operating income fell on a per-share basis to 96 cents but topped estimates for a loss of $1.46 per share.

Royal Bank of Scotland (RBS) didn't join in the rally after the second-largest U.K. bank posted a $1.5 billion first-half loss and took $11.4 billion in writedowns. The results mark the first loss in 40 years for the bank.

Beazer Homes (BZH) posted a worse-than-expected quarterly loss of $2.85 per share in the fiscal third quarter but saw its shares close higher. Analysts had been expecting a $2.66 per-share-loss. Still, it was an improvement from the year-ago period when the Atlanta homebuilder lost $3.09 per share. Beazer Homes saw its revenue slid 40% to $455.6 million.

Crocs (CROX) posted disappointing second-quarter earnings Thursday evening. The shoe maker earned 3 cents per share, down from 58 cents per share a year ago. Analysts polled by Thomson Reuters had been expecting 5 cents per share. Crocs reaffirmed its third-quarter and full-year earnings.

Data Dump

The stock market reacted positively to an economic report from the Commerce Department which showed wholesale inventories increased by 1.1% in June, topping consensus estimates for 0.6% rise. Wholesale sales rose by 2.8% -- the largest amount since March 2004.

Also, the government reported that productivity rose by 2.5% during the second quarter, slightly less than the 2.5% that had been forecasted.

The Labor Department also said labor costs slowed significantly during the period, rising just 1.3%. The inflationary indicator had been expected to rise 1.6%. The results help ease some worries that wages would jump in tandem with prices, causing a real inflationary headache for the Federal Reserve.

World Markets

The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, rose 11.23 points, or 0.33%, to 3408.48. The FTSE 100, London's benchmark index, gained 11.70 points, or 0.21%, to 5489.20.

On the continent, Paris' CAC 40 picked up 34.42 points, or 0.77%, to 4491.85, while Germany's DAX added 18.16 points, or 0.28%, to 6561.65.

In Asia, Hong Kong's Hang Seng fell 218.99 points, or 0.99%, to 21885.21 while Japan's Nikkei 225 gained 43.42 points, or 0.33%, to 13168.41.