US Stocks Gain on Treasury Plan Rumor and Innuendo

Briefly, how the Dow gained 400 points after losing 450 on Wednesday:

• Before the markets open, the Federal Reserve, along with the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank inject $180 billion into into financial markets in an effort to add liquidity.


• By 10:00 am, the plan seems to be working. The Dow Jones Industrials are up 200 points.


• Investors, still shaken from Monday and Wednesday's fallout, begin to sell. By noon, the Dow is unchanged. By 1:00 pm, it is down nearly 150 points.


• In a rocky afternoon session, the Dow regains its positive footing, but by 2:45 it is just above the unchanged mark.


• CNBC reports that Treasury Secretary Paulson is in talks with congress about creating a pool for bad debt, similar to the Resolution Trust Corp. which helped clean up the savings & loan mess in the late 1980s and early 1990s.


• By 3:00 pm, the Dow is back up 200 points and adds another 200 in the closing hour.

Naturally, the idea behind the Fed money-pumping and Paulson's late-day desperate jawboning are efforts in futility. Bad debt is bad debt, plain and simple. Wall St. wheelers and dealers made bonehead loans without proper regulatory supervision and now the federal government is supposed to bail them out.

Throwing money at the markets in overnight loans and swaps has proven - over the last 13 months of declining stock values - to be a purely stop-gap affair. Paulson's plan has little chance of finding sponsors in congress and even less opportunity to be acted upon anytime soon. Congress goes into recess at the end of the month, less than two weeks ahead.

But, that doesn't stop the CNBC equity pimps from applauding every single rumor or gesture by either Treasury Secretary Paulson or Fed head Bernanke. The two are have been anointed as infallible. And the gullibility of investors cannot be underestimated. Today's late surge was supposed to indicate that the crisis had passed... at least for now.

Elsewhere, Morgan Stanley (MS), one of only two remaining investment banks (the other is Goldman Sachs), is apparently in talks to be acquired by Wachovia Bank (WB). As odd as that combination sounds, Wachovia, itself under scrutiny be investors for a shaky balance sheet, rocketed up 59% on the day, from 9.12 to 14.50. Morgan Stanley gained over 3%.

Apparently, combining two failing companies into one will magically transform the remaining single entity into a financial powerhouse. Over the past 12 months, Wachovia has lost 75-80% of shareholder value. It traded as high as 53 per share last year. Morgan Stanley has dropped from nearly 70 to 22, a 68% decline.

Washington Mutual or WaMu, the nation's largest savings and loan bank, also got a boost, though hardly one of any significance, gaining 98 cents to close at 2.99. The stock is down more than 80% from a year ago. Goldman Sachs is attempting to find a buyer or additional funds for the troubled institution.

It's a real morass of bad money chasing more bad money. Wall Street's finances haven't been in such a state of chaos since the Great Depression and these mergers and fixes still fail to address the underlying cause - highly leveraged debt-to-equity and derivatives of staggering magnitude.

These repairs also don't offer any hope to the hosing market or the flagging economy. They are nothing more than chimeras, designed to keep the public unaware of the significance of the crisis. 98 out of 100 Americans actually don't have any idea of what is really occurring, but they do know that - in an overall sense of the game - today's gains canceled out yesterday's losses.

Dow 11,019.69 +410.03; NASDAQ 2,199.10 +100.25; S&P 500 1,206.51 +50.12; NYSE Composite 7,775.16 +334.77

The late-day rally lifted most boats but not all. Advancing issues had a huge edge over losers, 4811-1648. It was not enough to register one of the most unbalanced reading in new highs vs. new lows. 169 stocks made new highs, but 1438 reached new 52-week lows.

Gold was once again in the spotlight, rising $46.50, to close in New York at $897.00. Gold is up $118 in just two days. Silver gained $1.03 to $12.70. The move in the metals begs the question: If everything is all good now, why are investors flocking to safe havens like the metals and bonds?

Oil even managed a small gain of 58 cents, to close at $97.54, after briefly topping the $100 mark earlier in the day. Strangely enough, what was the topic of heated discussion just weeks ago - oil - has now faded to the back pages.

Volume was absolutely off the charts in one of the most volatile and high volume days of the year. Considering so much money was pumped into the markets by central bankers, that should not be a surprise. Nor should the dramatic climb of the indices. After all, most of the trading was nothing more than shady self-dealing.

NYSE Volume 2,430,078,000
NASDAQ Volume 3,914,326,000

Global Financial Carnage

When US stock markets opened on Wednesday, with fresh news that insurer AIG would receive an $85 billion loan from the Federal Reserve in exchange for an 80% equity stake in the company, there was hope that Wall Street could manage to display at least a modicum of confidence that a major economic calamity had been avoided.

What occurred was exactly the opposite.

Fear that more highly-leveraged companies would soon fall victim to the worsening global recession spread through the trading floors and brokerages around the world. All of the major US indices were off sharply at the open and continued to spend the rest of the session underwater. By noon, all had reached their lows of the day, with the Dow off a startling 390 points. By the end of the day the Dow was off 449 points and the other indices ending with even larger losses.

Not a single one of the 30 stocks on the Dow finished with gains. The biggest losers were AIG, JP Morgan Chase (JPM) and Citigroup (C).

Stocks remain in a worldwide tailspin. For the week, major indices are showing the following losses: Mexico's Bolsa (-7.4%), Brazil's Bovespa (-11.1%), London's FTSE 100 (-9.3%), Germany's DAX (-6.0%), France's CAC 40 (-7.7%), Russia's RTS (-21.1%), India's Sensex (-5.3%) China's CSI 300 (-7.2%), Hong Kong's Hang Seng (-8.9%).

Once again, financial stocks led the parade down into the bottomless pit of a financial system loose from its moorings. Investment houses Morgan Stanley and Goldman Sachs fell by 24 and 14% respectively, though both were considerably lower during the session. There's beginning to be a sense that the investment banking model is badly broken and that the remaining two should seek mergers with consumer banking interests.

A series of negative economic reports have been flowing into the markets as well, feeding into the swirling vortex.

Capacity Utilization for August fell to 78.7%, down from July's 79.7%. Industrial Production for August was down 1.1% after showing a meager 0.1 increase the prior month. Building Permits fell to 854K down sharply from the 925K in July. Housing Starts were also down, to 895K, form 954K in July.

Perhaps even more frightening to those who dread deflation more than inflation, the Consumer Price Index showed a -0.1% decline with Core CPI up 0.2%. Generally a good sign, continued price weakness should occur naturally as assets are wiped from the face of the earth, as is occurring. In that regard, the CPI is a lagging indicator, but signs of pricing pressure are appearing everywhere as money conditions tighten.

Dow 10,609.66 -449.36; NASDAQ 2,098.85 -109.05; S&P 500 1,156.39 -57.20; NYSE Composite 7,440.38 -352.75

Gold was a particularly bright spot, rising a phenomenal $70, to $850.50. as wealth preservationists imagined the worst-case scenario being carried out right before their eyes. Silver gained by an even-greater percentage, adding $1.16 to $11.68. Not to be outdone, crude oil rose $5.94 to $96.96.

The percentage gains for the metals were all-time, one-day records.

Market internals were horrific, to say the least. Declining issues subsumed gainers by a better-than 7-1 ratio, 5737-748. There were only 46 new highs, but an incredible 1530 new 52-week lows. More than 1 in 5 listed securities made new lows.

The Dow Jones Industrial Average is now down 25% from its October, 2007 all-time high (14,280.00); the NASDAQ, 27%. The S&P 500 has shed 26% while the NYSE Composite, the broadest index of stocks, with 3300 equities represented, is now down 28% from less than a year ago. All of these are multi-year lows, most coinciding with early 2005 levels.

Volume was substantial, noting that some major players have been and are still being sent to the sidelines. Trade volume is a relative consideration. With fewer and fewer participants, volume should decline. Today's volumes, though not historically high, may be at the high end of a new, lower regimen.

NYSE Volume 2,154,158,000
NASDAQ Volume 3,139,135,000

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

Lehman Bankrupt; Merrill for Sale; AIG Seeks Fed Aid; Stocks Crushed

The world financial system met with extreme turmoil Monday morning as Lehman Bros., one of Wall Street's best-established investment banks, began the day by filing for bankruptcy protection in federal court.

The latest victim of the ongoing liquidity crisis, Lehman failed to find a buyer of last resort to rescue its failing franchise. Shares fell to 21 cents at the close of the session. Lehman had traded as high as 60 in January of 2008.

Fast of the heels of that dour note, news that Bank of America (BAC) was in talks to buy out Merrill Lynch (MER) for $50 billion (a mammoth premium) and troubled insurer AIG (AIG) was seeking $20-40 billion in loans from the Federal Reserve, hit the street rapid fire. (Later in the day, NY Governor Patterson approved a deal which would allow the company to borrow funds from its subsidiaries, allowing more time to negotiate with the Fed or negotiate the sale of additional assets.)

Markets opened to the negative and soon encountered steep losses. By 10:00 am, the Dow was off by more than 300 points. By the end of the day, the blue chips had turned in one of their worst-performing sessions in recent memory.

Dow 10,917.51 -504.48; NASDAQ 2,179.91 -81.36; S&P 500 1,192.69 -59.01; NYSE Composite 7,681.25 -410.59

Indices in Asia were spared the downdraft, as the news came off the wires as those markets were closing or already closed. In Europe, however, the carnage was widespread, as markets from Great Britain to Spain to Germany all suffered losses of between 2 and 5%.

In US markets, the internals confirmed that the selling was broad-based, though led by financial stocks. Overall, declining issues commanded a nearly 10:1 advantage over winners, 5803-615. New lows dominated new highs by an even greater ratio, approaching 20:1, at 1062-55.

Rather than call the washout session a bottom, analysts were more or less holding their breath along with their tongues, in anticipation of even worse news that seems to follow every few days.

The NASDAQ fared best of the major indices. While falling more than 80 points it still finished above the March 10 low of 2169.34. The Dow, however, fell below the July 15 closing low of 10,962.54. The S&P 500 was in near-panic mode, crashing through its July 15 low of 1214.91.

The last time the S&P closed this low was on October 27, 2005, when it ended the session at 1178.90. Today's close on the Dow was its lowest since February 13, 2006 (10,892.32).

What's concerning to many is the new policy stance of the Federal Reserve, which chose not to fix a buyer to Lehman, like it did in its rescue of Bear Stearns. While the Fed and Treasury are strong proponents of the Merrill-Bank of America marriage, they allowed Lehman to fail and also don't seem committed to helping AIG with loan guarantees or any other action. AIG's condition is different, however, in that it is not in a liquidity squeeze caused by malinvestments, but in a position to be downgraded by ratings agencies, making it more difficult for the firm to raise cash.

Still, the Fed's inaction on Lehman clearly displays a shift in policy, to a more hands-off stance, placing individual companies in a more precarious position while the Fed seeks to find more systemic remedies.

In the commodities area, oil and energy futures took a beating, led by crude oil, which saw futures for November delivery fall to $95.69, off $5.56. Gold rebounded $22.50, to $787.00. Silver gained 34 cents to $11.14.

Trading volume on the major indices was brisk.

NYSE Volume 1,876,814,000
NASDAQ Volume 2,727,545,000

A Day Better Taken Off

Stocks vacillated around the flat line on most major indices on Friday, as investors, apparently worn out from the volatile sessions earlier in the week, settled down, sat back and waited for Hurricane Ike.

Moving presidential politics to a back seat, the category 3 hurricane is headed to the heart of the Houston refinery complex, where most oil form the Gulf is turned into gasoline or other fuels.

Owing to the storm's presence, as the winds gained in intensity off Galveston, gas prices went up as oil prices went down.

In other economic news, retail sales fell in August, but the real news was the 0.9% decline in wholesale prices for the month, yet another indication of drying up demand and a global slowdown.

Also troubling was the Treasury Department's reluctance to bail out ailing Lehman Brothers (LEH, 3.78, -0.44). The formerly-high-flying investment bank is on its last legs and still searching for a rescue.

Dow 11,421.99 -11.72; NASDAQ 2,261.27 +3.05; S&P 500 1,251.69 +2.64; NYSE Composite 8,091.84 +80.59

In very thin trading, advancing issues edged decliners, 3302-2965. New lows continued to dominate new highs, 365-61.

Commodities reversed fortunes, for a day, at least, though the overall trend is still down. Oil ended higher by 32 cents, closing at $101.25 on the NY Mercantile Exchange. Gold gained $19, to $764.50. Silver rebounded 24 cents to $10.80.

It was a day better spent pondering the meaning of life or sipping mai tais by the pool. Life on Wall Street will get back to its normal dizzying pace on Monday. Well, maybe. The Fed meets on Tuesday, so it's likely nothing much may occur until then, when, in all likelihood, the FOMC will do... nothing.

NYSE Volume 1,250,822,000
NASDAQ Volume 1,989,322,000