Wednesday, February 11, 2009

Wall Street Still Waiting on Washington

Markets were mildly optimistic on Wednesday, awaiting word from Washington on the proposed $800 billion stimulus bill in Senate-House negotiations, which appeared close to a deal.

Having investors focus on anything other than issues regarding US banking interests was likely preferable, following yesterday's massive sell-off on the heels of Treasury Secretary Timothy Geithner's sketchy bank plan announcement.

Following the initial shock, players in the financial field are beginning to flesh out possible scenarios, each of them fraught with peril as economists delve into the unknown. Preeminent are the individual balance sheets and books of the banks in question, primarily bank of America and Citigroup, the two which seem to be most at risk, though the books of Wells Fargo, JP Morgan Chase and others will surely require the close scrutiny of government fixers before any steps toward a working solution are attempted.

Like an alcoholic with serious addiction issues the major money center banks have not yet taken the serious step of actually disclosing the size of their losses and may never do so, publicly, as the sheer size of the numbers would panic most ordinary people. It's essential to any kind of recovery that the banks confess their shortfalls to the government, so that an appropriate solution can be delivered.

As for the bank plan being devised at Treasury and the Fed, there is some agreement, that, considering the broad outlines, banks will be merged and/or downsized in coming months.

Trading in very narrow ranges, all of the major indices finished on the upside, though only marginally. Much of the trade was tied to hope for quick passage of the stimulus bill or recovery from yesterday's drama. As for a dead cat bounce, today's action barely merited notice, though most traders seemed relieved that the markets didn't devolve into indiscriminate selling.

Dow 7,939.53, +50.65 (0.64%)
NASDAQ 1,530.50, +5.77 (0.38%)
S&P 500 833.74, +6.58 (0.80%)
NYSE Composite 5,252.65, +37.94 (0.73%)

Much of the bounce-back on the Dow was due to the financials, as Citigroup (C) and Bank of America (BAC) each rose by more than 7%, and JP Morgan, another Dow component, lifted to a 4% higher close.

Internally, the market sent a mixed message, one to which traders have become accustomed over the past 18 months. Advancing issues outnumbered decliners, 3669-2769, though new lows sailed past new lows, 232-14, increasing by both raw number and the overall divergence.

NYSE Volume 5,977,889,500
NASDAQ Volume 2,206,760,750

Crude futures took a severe hit after US inventories were reported to be close to 16-year highs. Oil for March delivery fell $1.61, to $35.94.

Gold finished with strong gains for the second straight day, as the flight to safety continues. Gold was up $30.50, to $944.50, with the magic $1000 mark clearly in sight. Silver also showed strong gains, picking up 39 cents to finish at $13.52 in New York.

In yet more good news for consumers, natural gas lost a penny and all food stock futures were lower. After Citigroup analysts downgraded supermarket chain operators Safeway (SWY) and Kroger (KR) on Tuesday, warning of a protracted "price war," shoppers should expect stable to lower prices on grocers' shelves over the near term.

Considering the dark cloud over the stock markets and the number of layoffs occurring in the past few months, cheaper food and fuel are providing the silver lining.

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