Tuesday, September 16, 2008

Fed Bails Out AIG; Leaves Rates Unchanged

After the markets closed, the Federal Reserve authorized an $85 billion emergency loan to insurance concern American International Group (AIG).

The nation's largest insurance company, AIG fell into the "too big to fail" category, which is a bunch of rubbish, but nevertheless qualifies it - in the minds of policy makers at the Federal Reserve - for assistance from US taxpayers.

Though the story on the government bailout was originally reported on Bloomberg around 2:30 pm, it was not confirmed and attribution was to unnamed sources. Still, the rumor was enough to keep markets from collapsing, which they had on the non-news of the Fed's rate announcement.

Following the FOMC's decision to leave the fed funds rate unchanged at 2.00% stocks sold off near their lows of the day. The Fed also left the discount rate at 2.25%. Moments later, the rumor that the Fed may consider authorizing a loan package for beleaguered insurance firm AIG began to circulate. Stocks began a sudden ascent.

Later, in the evening, well after markets had closed, the government announced a deal to save the battered insurance company.

AIG traded as low as 1.25 per share during the session, briefly showed a small gain, but finished in the red, down 1.01 at 3.75.

That the Federal Reserve has to bail out yet another company - this time a monstrous insurance concern - should not be cause for celebration, yet the market mavens managed to find a way to turn gloom into glory with a late-session rally, even if it turns out to be a very short-term upswing.

Following Monday's meltdown, Tuesday began with more panicky investors seeking relief by selling. All of the major indices were down heavily early on, but quickly regained their footing and toed the flatline through much of the session.

While today's action is hardly an endorsement for stocks or the general economy, it was at least not a disaster. That will likely come later, preferably, in the opinion of many, after John McCain is elected president. It should come as no surprise that Wall Street insiders prefer McCain over Obama. Despite his reformist rhetoric, McCain is a proven ally to Wall Street. Tough on workers, light on immigration law and lenient when it comes to standards and regulation, McCain will give the crooks and liars whatever they need to continue to savage the US economy and taxpayers.

Dow 11,059.02 +141.51; NASDAQ 2,207.90 +27.99; S&P 500 1,213.59 +20.89; NYSE Composite 7,793.13 +112.98

Interestingly, NYU professor Nouriel Roubini was making the rounds on all the talking heads after Monday's calamitous session. I seldom toot my own horn, but I have to say that Roubini is probably the only analyst I can find who holds a more pessimistic position than my own and who has been more prescient. Further, he's got the credentials to back up his words and he's been right almost as often as yours truly. I enjoy being in the company of people who share my keen perceptions.

On the day, the PPT and their proxies at the various brokerages, including Goldman Sachs and the recently-acquired Merrill Lynch, managed to control enough of the jawboning and trading to keep the indices above water.

Internal numbers were another story altogether.

Advancers and declining issues were in a virtual dead heat, with the winners ahead, 3269-3153. The real story was in the number of new highs (71), as compared to new lows (1629). The massive number of stocks hitting new 52-week lows represented nearly 1 in 3 listed securities on the NYSE reaching new bottoms on the day.

If financial armageddon isn't here already, it sure must feel like it to many investors, large and small. Incidentally, the indices in Japan and China were knocked down substantially on Tuesday as well. The Bank of Japan issued $18 billion in emergency funds to shore up stocks.

Taking their queue from the general market commotion, commodities took another hit. Oil lost $4.67, settling at $91.02, the lowest price in more than 7 months. Gold fell $6.50, to $780.50. Silver lost 62 cents, finishing the day in New York at $10.52.

NYSE Volume 2,163,764,000
NASDAQ Volume 3,247,308,000

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