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| Weekly Wrap Up |
It was a tough week on Wall Street, even though the Federal Reserve pulled out all the stops to prop up the markets. The bad news started on Monday as Thornburg Mortgage (TMA: Charts, News, Offers) slipped close to 37% on an analyst downgrade and rumors started propping up about a worsening liquidity situation at Bear Stearns (BSC: Charts, News, Offers) (which started the week trading at $62.30). Tuesday saw a huge rally in equities as the Fed announced, in an unusual move, that it will lend up $200 billion in Treasuries and cash - and accept (the currently illiquid) mortgage-backed securities as collateral. This boosted financial stocks, especially the investment banks, who would now be able to borrow directly from the Fed (a privilege long enjoyed only by commercial banks). However, rumors about Bear Stearns persisted and substantial options activity at a strike price of $30 (the stock was trading at double that amount at this time of the week) firmly indicated that traders suspected something was up. Wednesday saw a firm denial of all rumors by Bear CEO Alan Schwartz but the stock continued to slide as the rest of Wall Street started viewing the firm as a counterparty risk and was hesitant to enter into trades with the firm. Tuesday’s rally fizzled out, in part, due to the realization that a $21 billion fund run by the Carlyle Group was close to being liquidated. A report showing an unexpected 0.6% drop in retail sales on Thursday further stoked recession fears. Investors woke up to some good news on Friday - a Bureau of Labor Statistics report showed that inflation was unchanged in February, but that enthusiasm quickly disappeared when Bear announced that it was forced to essentially seek a bailout from the Fed after experiencing massive cash outflows on Thursday as the once powerful fixed-income franchise experienced a classic 'run on the bank'. Equities stayed firmly in the red for the rest of the day as traders wondered which financial firm would be the next to fall. Sunday evening, Bear Stearns was left with only 2 options - Chapter 11 or a meager $2 per share buyout offer from JP Morgan (JPM: Charts, News, Offers). It chose the latter. The Fed also announced a discount rate cut of 25 basis points Sunday evening. Looking ahead, this week will be a severe test of whether the Federal Reserve is being successful in restoring confidence to the market through its latest moves - especially after its past maneuvers haven't been overwhelming successes. More Market News
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| Economic News |
The Federal Reserve, in a series of emergency moves to try to stabilize world financial markets, voted Sunday to cut its interest rate on direct loans to banks by a quarter of a percentage point, and to provide a new line of credit to securities dealers.
The Fed acted on a day that saw JPMorgan Chase (JPM: Charts, News, Offers) acquire faltering investment bank Bear Stearns (BSC: Charts, News, Offers) at a fire sale price. On Sunday night, the Fed also provided financial backing that facilitated the Bear Stearns sale.
Wall Street negotiators scurried to take strong action to rebuild investor confidence before the Monday opening of Asian markets.
Stock markets in Asia were down sharply at the opening, with Japan's Nikkei sliding more than 4% by midday, hitting its lowest level in two years. The dollar continued its slide against the Japanese yen. (Source: USA Today) Full Story
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The Federal Reserve on Tuesday announced coordinated action with other central banks to unfreeze panicky credit markets, unveiling a $200 billion program to let even the biggest banks borrow ultrasafe Treasury money by using some of their riskiest investments as collateral.
The action was the second by the Fed since Friday designed to stem a cash squeeze at seemingly solid financial institutions, which have become too frightened to finance even conservative debt offerings.
Stock markets soared after the announcement, with the Dow Jones industrials average closed up 416.66 points, or 3.6 percent, at 12,156.81. It was the biggest one-day point gain for the Dow since July 29, 2002. The dollar also strengthened from a record low against the euro, a sign that investors believed the program would help alleviate pressure in financial markets. (Source: International Herald Tribune) Full Story
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The Federal Reserve maintains that its aggressive easing campaign is not posing a significant risk of an inflationary blowback. In making this case, the Fed argues that while the U.S. dollar is in fact considerably weaker, a declining exchange rate has not been strongly correlated with rising inflation in recent decades.
But that’s a difficult case to make when you consider the many countries in the developing world that are attempting to quell the local inflation that has resulted from ties to a depreciating dollar. The inflationary impacts of monetary policy take a long time to be felt in the sophisticated U.S. economy. (Source: National Review Online) Full Story
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| Business News |
Bear Stearns, the proud and venerable Wall Street investment bank, nearly bit the dust. Bear Stearns' stock (BSC: Charts, News, Offers) closed down 47% at $30, after the company was bailed out on March 14 by the Federal Reserve and JP Morgan. Bear's stock price has shed 80% of its value since last summer, when the credit markets erupted.
JP Morgan's temporary fix for Bear Stearns became more permanent late in the day March 16, when it announced it was buying the ailing Bear Stearns for $2 a share. The government quickly approved the deal to avert Bear's bankruptcy and prevent panic overseas before financial markets opened in Asia. (Source: Washington Post) Full Story
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A mortgage-backed investment fund created by the Carlyle Group faltered near collapse Thursday, in what analysts saw as a sign that more bad investments need to be cleared out before markets can begin righting themselves.
Shares of Carlyle Capital plummeted nearly 90 percent and rattled stock markets around the globe after the fund said late Wednesday that it expected creditors to seize all of its remaining assets - investment-grade mortgage-backed securities - because negotiations to prevent liquidation had failed.
"Someone somewhere has got to fail and this is it," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC. "I think there comes a point when you need to see some of this stuff get flushed out. The bad news just keeps getting deeper every day." (Source: Associated Press) Full Story
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Retail sales in the U.S. unexpectedly fell in February, indicating that declines in payrolls and home values and a surge in energy costs have pushed the economy into a recession.
Sales dropped 0.6 percent, led by auto dealers and restaurants, after a 0.4 percent gain in January, the Commerce Department said. Meanwhile, the Labor Department said jobless benefits rolls climbed to a 2 1/2-year high, and import prices soared 13.6 percent from a year ago, reflecting higher energy costs. (Source: Bloomberg) Full Story
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| Technology Focus |
Electronic Arts (ERTS: Charts, News, Offers) said Thursday it has started a tender offer to acquire all of Take-Two Interactive Software's (TTWO: Charts, News, Offers) common stock for $26 a share in cash.
Electronic Arts said the offer values Take-Two at around $2 billion and represents a 64% premium over the video game maker's closing stock price on February 15, the last trading before it sent its revised proposal to the company's management.
Electronic Arts said the tender offer will expire at midnight on Friday April 11, unless the company chooses to extend the deadline.
Take-Two, the maker of the 'Grand Theft Auto' video game series already rejected an unsolicited $26-a-share bid from Electronic Arts at the end February. (Source: CNN Money) Full Story
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Thirterrn years ago a great many people first saw the internet through "Jerry's Guide to the World Wide Web". It was a list of cool websites, maintained by Jerry Yang and David Filo, two friends who really should have been studying for their graduate programme in electrical engineering at Stanford University. Out of truancy came a hit. Never too serious, they renamed their list Yahoo!, for "Yet Another Hierarchical Officious Oracle", and soon were smiling for the cameras through piles of old pizza boxes. They personified everything young and fun about the fledgling web, a loveable antidote to that darker technological force, Microsoft (MSFT: Charts, News, Offers), which was stifling the first popular web browser, Netscape, just as Yahoo! (YHOO: Charts, News, Offers) went public in 1996.
But times change. Mr Yang hired one chief executive to guide Yahoo! through its early growth, then another to manage its crisis during the dotcom bust. (Source: Economist) Full Story
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The technology best known for pirating movies, music and software online is increasingly being adopted by businesses as a cheap way to get video content to customers.
A number of startups are embracing so-called peer-to-peer technology and have convinced some big-name media companies to use them to deliver legal content.
"In 2005 when we met with content owners, 'peer-to-peer' was a dirty word," said Robert Levitan, chief executive of file-sharing company Pando Networks Inc. "In 2007, finally, content owners came and said 'Yeah, we think there's a role for P2P.'" (Source: MSNBC) Full Story
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| Your Money |
The symptoms are subtle at first. You start calculating the gold content of your high school graduation ring. Just curious, you say to yourself. Soon you begin hefting those gilded baby shoes. Then, one day, you find yourself melting the gold tip on your grandfather's cane, and you realize: You've got gold fever.
If so, join the crowd. "People are bringing in stuff their mother gave them, stuff they're not wearing, broken chains, broken rings, and walking out with $900, $1,000," says Richard Rozhko, owner of Howard Jewelry in Chicago. Silver, too. "They're bringing in knives, forks, spoons," Rozhko says. (Source: USA Today) Full Story
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A couple retiring this year will need about $225,000 in savings to cover medical costs in retirement, according to a study released Wednesday by Fidelity Investments.
The figure, calculated for a couple age 65, is up 4.7 percent from the $215,000 estimate for 2007, the Boston-based financial services company said.
And it is similar to other projections for health care costs in retirement - daunting figures given that longer life spans also are requiring workers to increase retirement nest eggs. (Source: MSNBC) Full Story
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