U.S. Stocks Rise as ECB Offers Loans to Banks to Tame Crisis
Sept. 15 (Bloomberg) -- Thomas Brown, chief executive officer at Second Curve Capital LLC and a Bloomberg Television contributing editor, discusses the European Central Bank's decision to lend dollars to euro-area banks to ensure they have enough of the U.S. currency through the end of the year. Brown, speaking with Betty Liu, Dominic Chu and Jon Erlichman on Bloomberg Television's "In the Loop," also talks about Bank of America Corp. selling shares of HCA Holdings Inc. back to the health-care company, the unauthorized trading at UBS AG, and the outlook for financials. (Source: Bloomberg)
U.S. stocks rose for a fourth day as the European Central Bank and international policy makers coordinated to lend dollars to banks to tame the credit crisis, offsetting concern spurred by signs unemployment is worsening.
Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) added more than 3 percent as the ECB coordinated with the Federal Reserve and other central banks to provide liquidity to European lenders. General Electric Co. (GE) and Chevron Corp. (CVX) advanced at least 2 percent, pacing gains in companies most-tied to the economy. Netflix Inc. (NFLX) tumbled 19 percent as the online film- rental service cut its forecast for U.S. subscribers.
The Standard & Poor’s 500 Index advanced 1.7 percent to 1,209.11 at 4 p.m. New York time. The benchmark gauge has rallied 4.8 percent in four days. The Dow Jones Industrial Average added 186.45 points, or 1.7 percent, to 11,433.18.
“The central bank coordinated action is rather significant,” Brian Jacobsen, chief portfolio strategist at San Francisco-based Wells Fargo Funds Management, which oversees more than $400 billion, said in a telephone interview. “Given their willingness to provide liquidity to European banks, it probably signals that the Fed is going to provide additional liquidity” for the U.S. economy.
Stocks rallied as the ECB said it coordinated with the Fed, the Bank of England, the Bank of Japan and the Swiss National Bank to extend three-month loans to euro-area banks in an effort to ensure they have enough cash for the rest of the year. The announcement added to optimism after French and German leaders yesterday confirmed they will support Greece’s continued participation in the shared euro currency.
Operation Twist
The Fed may take measures at its meeting next week to bolster economic growth. Economists including Stephen Stanley at Pierpont Securities LLC and Michael Feroli at JPMorgan say the Fed will probably decide to lengthen the maturity of its $2.65 trillion securities portfolio at the Sept. 20-21 meeting. This tactic, dubbed “Operation Twist” because it bends long-term yields lower, won’t cut borrowing costs enough to have a big impact on economic growth, they said.
Concern the global economy was slipping back into a recession amid a worsening European-debt crisis triggered an 18 percent plunge in the S&P 500 between the end of April and Aug. 8. Since then, it has rebounded 8 percent.
“It’s nice to see that the risk factors coming out of Europe are abating,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “The U.S. doesn’t have a liquidity problem, it has a demand problem. While Europe has a demand problem too, it has a pressing liquidity problem. That addresses the liquidity issue that would be threatening the European banking system.”
Industrial Production
In the U.S., a report showed industrial production unexpectedly rose in August. That helped temper concerns about other data pointing to a weakening recovery. Stock futures trimmed gains earlier as applications for U.S. unemployment benefits rose last week to the highest level since the end of June. Separate reports showed that manufacturing in the New York region contracted at a faster pace, while manufacturing in the Philadelphia region shrank for a second straight month.
All 10 groups in the S&P 500 rose as gains were led by financial, energy and industrial shares. The Morgan Stanley Cyclical Index added 2.2 percent. The Dow Jones Transportation Average, a proxy for the economy, advanced 1.4 percent. The KBW Bank Index rose 2.3 percent.
Whitney Tilson, co-founder of hedge fund T2 Partners LLC, said Citigroup Inc. (C) is cheap and that he’s adding high-quality U.S. financial stocks to his portfolio.
‘Good Bank, Bad Bank’
“It’s a good bank, bad bank,” Tilson said of Citigroup at today’s Bloomberg Markets 50 Summit in New York. “The good bank is a pretty good global franchise. If they don’t need another bailout that kills the equity, which we don’t think is likely, it’s really cheap.”
Tilson’s New York-based hedge fund added shares of Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) last month, he said. He also owns and still likes Berkshire Hathaway Inc. (BRK/A), his largest position, and JPMorgan, he said.
Tilson’s bullishness on U.S. banks doesn’t extend to Europe. “There isn’t a unified government,” he said. “As dysfunctional as our government is, at least it’s one Treasury, one government, one Fed that can deal with this and that makes us very wary of Europe.”
Citigroup gained 4.4 percent to $28.59. Bank of America rallied 4 percent, the most in the Dow, to $7.33. JPMorgan advanced 3.1 percent to $33.81.
Unauthorized Trading
U.S. shares of UBS AG (UBSN) plunged 10 percent to $11.41. Switzerland’s biggest bank said it may be unprofitable in the third quarter after a $2 billion loss from unauthorized trading at its investment bank. London police arrested Kweku Adoboli, a UBS employee, in connection with the loss, according to a person with knowledge of the matter who declined to be identified. City of London police and UBS declined to identify the man.
All 30 stocks in the Dow gained. GE, the world’s largest maker of jet engines, jumped 2.8 percent to $16.08. Chevron advanced 2 percent to $99.26.
Supervalu Inc. (SVU) climbed 5.7 percent to $7.92. The supermarket chain was rated “buy” in new coverage by Deutsche Bank AG, which said “credit fears are overblown” and “sentiment was just too negative relative to ongoing underlying changes” at the company.
Netflix tumbled 19 percent, the most since April 2008, to $169.25. The company, which unveiled new prices in July, will have 2.2 million domestic DVD-only subscribers at the end of this quarter, compared with its previous projection of 3 million. The company also said it will have 9.8 million streaming-only users after previously predicting 10 million.
Lower Forecast
Goldman Sachs’s David Kostin slashed his year-end forecast for the S&P 500 by 11 percent to 1,250, citing continued uncertainty in the global markets due to Europe’s debt crisis.
Kostin, the New York-based equity strategist at the firm, had previously predicted the benchmark equity index would climb to 1,400. This is the second time Kostin has lowered his S&P 500 forecast within a two-month period. He reduced his forecast from 1,450 on Aug. 5.
“Investors believe a nontrivial probability exists that the crisis will trigger a global financial dislocation similar to 2008,” Kostin wrote in a note dated yesterday.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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