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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Tuesday, August 12, 2008

Uptick

Blame the Banks: Dow Loses 140 Points

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Matt Egan

FOXBusiness

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In stark contrast to recent trends on Wall Street, declining crude oil prices were unable to lift the stock market on Tuesday.

The tumultuous financial sector, highlighted by JPMorgan's diving stock price, was the clear culprit for the lack of a bounce on the day.

Today's Market

The Dow Jones Industrial Average fell 139.88 points, or 1.19% to 11642.47, the Standard & Poor’s 500 index slid 15.73 points, or 1.21%, to 1289.59 and the Nasdaq Composite lost 9.34 points, or 0.38%, to 2430.61. The consumer-friendly FOX 50 fell 7.81 points, or 0.84%, to 925.83.

The negative day on Wall Street ends a two-day rally for the Dow, which added some 350 points over that span. If it weren't for the continued descent in oil prices it's possible the blue chips would have erased even more of that two-day win streak.

Financial stocks were hammered by JPMorgan Chase's (JPM) announcement that it had wrote down $1.5 billion in July, weaker-than-expected earnings from Swiss banking giant UBS (UBS) and key analyst downgrades of the sector's "Golden Boy," Goldman Sachs (GS).

“Personally I still think we are going through the bottoming process. We are probably expecting to see days like this as much as we are going to see big up days like the last few," said Steve Sachs, director of trading at Rydex Investments.

JPMorgan was easily the biggest loser on the Dow, diving 10% on the day. Not far behind were financial giants AIG (AIG), Citigroup (C) and Bank of America (BAC). On the brightside, General Motors (GM) led the blue-chip advancers, jumping more than 3% on the day.

The Nasdaq Composite held up better than the broader market on Tuesday but still closed in the red. Apple (AAPL) and Electronic Arts (ERTS) helped lead the Nasdaq 100 on the day, offsetting some of the losses from Foster Wheeler (FWLT) and Leap Wireless (LEAP).

The gloomy sentiment in the financial sector only loomed larger as the day went on as stocks closed near the lowest levels of the session. Financial stocks took the brunt of the damage, diving 5% on the day.

JPMorgan set the mood when it said late Monday it has been hit by $1.5 billion in writedowns since July due to the market turbulence. The third-largest U.S. bank warned in a regulatory filing that trading conditions have "substantially deteriorated" in the current quarter. The stock was hurt further when Dick Bove, analyst at Ladenburg Thalmann lowered his earnings per share view and price target on JPMorgan.

UBS (UBS) didn't help market sentiment when it posted its fourth straight quarterly loss. UBS lost $330 million during the second quarter, a larger loss than analysts had expected. The bank also unveiled a restructuring plan that will divorce its wealth management business from investment banking and asset management.

Not even Goldman Sachs (GS) could escape the downward trend in financials, falling 5% after the investment bank was downgraded by a pair of influential analysts, including Oppenheimer's Meredith Whitney. Mike Mayo, analyst at Deutsche Bank, cut his rating on Goldman to "hold" from "buy," citing the bank's exposure to Europe's struggling economy.

The day's agenda lacked any market-moving economic or earnings reports so the price of crude oil was closely followed yet again. Oil prices fluctuated throughout the day but closed modestly lower at $113.01 a barrel, down $1.44 on the day. Earlier in the day crude nearly touched $116 a barrel.

Oil prices haven't been boosted by the geopolitical unrest in Georgia. Reports indicate Russia has ordered a halt to military action in the region and there's been little evidence oil supplies have been significantly impacted by the unrest although BP (BP) said it has shut down one of its three pipelines in Georgia for precautionary reasons.

In any case, oil prices have plunged 21% since hitting all-time records of $145 a barrel in early July. In addition to a stronger dollar, the energy market has been rattled in recent weeks by weaker demand amid once-unthinkably high gasoline prices.

In the day's lone economic report, the Commerce Department said the U.S. trade deficit unexpectedly shrank in June to $56.8 billion. Analysts had expected the trade gap to grow to $61.5 billion. Exports jumped by 4% while imports increased by a more modest 1.8%. Both figures were records.

Corporate Movers

Delta Airlines (DAL) and Northwest Airlines (NWA) received a boost after pilots at both companies signed off on a contract agreement late Monday, helping to clear a hurdle for the airlines' planned merger. The agreement, which includes seniority and wage provisions, will take effect if the merger goes through following regulatory approval.

United Technologies (UTX) reaffirmed its 2008 profit forecast of $4.80 per share to $4.95 per share. The Dow component also said it still sees revenue of more than $60 billion for the year. According to Thomson Reuters data, analysts have been expecting $4.94 per share in earnings and $60.23 billion in revenue.

TJX (TJX), the parent company of T.J. Maxx and Marshalls, posted better-than-expected earnings for the second quarter and upped its 2009 earnings view. The company’s adjusted- profit of 47 cents topped estimates of 46 cents. TJX’s revenue rose 7% to $4.62 billion, compared to mean estimates for $4.61 billion, according to Thomson Reuters data. Looking ahead, TJX sees 2009 earnings of $2.26 to $2.31 per share.

Electronic Arts (ERTS) began shipping the 20th anniversary edition of its "Madden NFL" video game system on Tuesday. The game, which is available on Microsoft's (MSFT) Xbox 360, Sony's (SNE) Playstation 3 and Nintendo's Wii, is the longest-running franchise in sports video games.

Biogen (BIIB) rose 2% a day after billionaire activist investor Carl Icahn reported that he upped his stake in the biotech company to 6.03%. Icahn said he increased his investment "in the belief that the shares were undervalued." He also said he may continue to talk to the company about "general business issues relating to the issuer as well as their concerns relating to shareholder value."

World Markets

The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, fell 8.81 points, or 0.26%, to 3436.85 The FTSE 100, London's benchmark index, slid 7.30 points, or 0.13%, to 5534.50.

On the continent, Paris' CAC 40 closed down 20.01 points, or 0.44%, to 4518.48, while Germany's DAX lost 23.76 points, or 0.36%, to 6585.87

In Asia, Hong Kong's Hang Seng fell 25.87 points, or 0.12%, to 21859.34 while Japan's Nikkei 225 rose 262.50 points, or 1.99%, to 13430.91.