Thursday’s Market Recap: Stocks, Crude Oil And Gold Are Up

The markets had a good day, with the NASDAQ (^IXIC) up 1.20%.  The S&P (^GSPC) was up 1.54% closing at 906.83, while the Dow Jones Industrial Average (^DJI) was up 1.25% finishing at 8403.80.  The 10-year saw prices rise over a dollar, as the yield fell to 3.620% on successful 6-month T-bill announcements and closings of attractive bid to cover ratios from the previous week.  Crude oil and August gold were both up, settling at $65.08 and $963.20 respectively.  Crude oil advanced on an inventory drawdown that was almost five times what was expected by analysts.

General Motors (GM) announced that they have reached a new debt-for-equity agreement with bondholders today that would give the debt holders 10% in equity of the new GM company and the ability to buy 15% more of the company’s equity.  It has been reported that a group representing 20% of the debt holders has accepted the agreement, with the remaining debt holders needing to accept the offer by the 5 P.M. deadline this Saturday.  The GM bondholders like this deal better than the previous deal, 225 share of common stock for every $1,000 in debt because the first deal was an attempt to avoid bankruptcy, while this deal is a prepackaged bankruptcy.  The US Government will receive 72.5% of the company and lend General Motors an additional $50 billion dollars. The United Auto Workers Union will receive a 17.5% in the company with an option to buy 2.5% more.  Bankruptcy proceedings for GM could start as early as this coming Monday, with GM not being a publicly traded company for the time period starting this weekend up to following 18 months.

Time Warner (TWX) started moving forward with its announcement that it would spin off its AOL unit into a separate publicly traded company.  Time Warner acquired AOL eight years ago, and shareholders have recently been calling for a spin-off of the struggling unit, as shareholders want Time Warner to focus on its content creation, film, and television businesses.  The spin-off of AOL will start after Time Warner acquires 100% control of AOL by buying back a 5% ownership that Google (GOOG) currently holds.  After this, Time Warner will begin to spin-off AOL in an effort to complete the process by the end of 2009.  AOL has recently transformed from a provider of dial-up internet to a web portal, which makes most of their money from advertising.  In the most recent quarter ad revenue was down 23% for AOL.  AOL is currently estimated to be worth $5.5 billion, down from the $106 billion that Time Warner paid for them in 2000 and from the estimated $20 billion they were worth in 2005, when Google bought its 5% stake.

In earnings news, Dell (DELL) was up over 0.5% afterhours when they announced earnings of $290 million, or $0.15 per share, down from net income of $784 million, or $0.38 per share the same period the year before.  Dell missed analysts estimates on both earnings and revenue; revenue fell 23% to $12.3 billion opposed to the estimated $12.6 billion and $0.22 per share.  Sales were down in PC’s, laptops, and servers falling 34%, 20%, and 25% respectively from the same quarter the year before.  The Texas based computer giant has been suffering significantly during the economic turmoil, down over 47% since the beginning of September.

Disclosure: The fund the author is associated with is long GOOG.

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