What’s Important in the Financial World (11/19/2011) S&P Regrades Banks, Kindle Fire Costs

The weekend break in equity trading may produce more anxiety than relief. As Friday draws to a close, most stock markets probably will be down for the day, and certainly will be for the past five days. The sovereign debt situations in Spain and Italy have not been improved. It may be that they cannot. Each nation has a new government, and each government has a new austerity program that will take months to implement. Citizens in both nations likely will protest, or even riot, because of public program cuts. The media and economist have said with more frequency that the European Central Bank may be the sole organization with the financial power to solve the eurozone debt crisis. The ECB continues to say it will have nothing to do directly with the matter.

There is no limit to the number of companies that are willing to lose money for the time being in an attempt to challenge the leader positions Apple (NASDAQ: AAPL) has in the smartphone and tablet businesses. Most analysts who cover the new generation of portable computing say that Apple has extremely high margins on its products. Few, if any, other companies can claim likewise. New data from iSuppli show that the cost to make the Amazon.com (NASDAQ: AMZN) Kindle Fire is $201.70. The Fire is available for $199. That does not include shipping. Wall St. is already concerned with Amazon’s margins and the habit of CEO Jeff Bezos to spend large amounts of money to make money — particularly because the approach does not always work.

Bill Miller, the Legg Mason (NYSE: LM) stock picker who became an icon, will retire. His fame has been eclipsed by the army of hedge fund managers who have gained and lost billions of dollars over the past few years. The Legg Mason Capital Management Value Trust, which he managed, outperformed the S&P 500 every year from 1991 to 2005. He managed money at a time when institutional investing was based on careful reviews of public company management and balance sheets. It was a period when quants had not yet taken over Wall St. Miller is gone, but he will not be missed by the traders who run the investing world now, some of whom have never heard of him.

Reuters reports that S&P will issue new ratings for the world’s 30 largest banks. The new ratings could hardly come at a worse time, since many probably will be accompanied by downgrades. The financial world is already worried about the balance sheets of financial firms, particularly those in Europe. S&P will say those banks, and some in the U.S., have exposure to sovereign debt and a new recession. Bank stocks will be hit by selling again, and faith in the credit system will further erode.

Gold: up 0.62% to $1,731

WTI Crude: up 0.4% to $99.30

U.S. 10-Year: up 0.03% to 1.99%

FTSE: -1.14% to 5,362

DAX: -0.57% to 5,817

Nikkei 225: -1.23% to 8,375

Hang Seng: -1.73% to 18,491

Douglas A. McIntyre