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| Weekly Wrap Up |
This past week was a pretty wild one on Wall Street with the keyword being 'volatility'. Sentiment about the overall economy and over the state of the financial sector varied heavily during the week leading to heavy gyrations in stock prices (e.g. the Dow Jones Industrial Average saw swings of at least 200 points for 3 consecutive days). After all was said and done, stocks ended the holiday-shortened trading week higher with the Dow up over 400 points and the broader S&P 500 up 41. The week started off with news that JP Morgan Chase (JPM: Charts, News, Offers) agreed to buy Bear Stearns (BSC: Charts, News, Offers) for a paltry $2 a share (however, this morning, JPM announced that the purchase price has been raised to $10) and the Fed pumped more liquidity into the markets with additional unconventional moves such as allowing investment banks to borrow on same terms as commercial banks and reducing the discount rate (i.e. the interest rate on these loans) by 25 basis points on a Sunday night. Those moves prevent the large-scale sell-off that the Bear story would have normally warranted. On Tuesday, the bulls were firmly in charge as the Dow jumped over 420 points on the back of largely surprise-free and fairly strong earnings reports from Goldman Sachs (GS: Charts, News, Offers) and Lehman Brothers (LEH: Charts, News, Offers) and a 75 basis point cut in federal funds interest rate by the central bank. Wednesday the rally fizzled as traders fretted that no matter what the Fed does, a painful recession may not be avoidable. Commodity prices took a hit too after the recent spectacular run-up. On Thursday, the last trading day of the week, sentiment once again swung upwards with financial stocks leading the way. Most of the banks were trading higher as commodity prices continued their retreat down. Looking ahead, among the events on tap this week, new home sales and durable goods data for February will be released on Wednesday, final GDP numbers for the fourth quarter are due Thursday and the University of Michigan consumer sentiment will be out Friday. More Market News
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| Economic News |
The Federal Reserve has taken its boldest action since the Great Depression, invoking rarely used powers in an effort to contain a panic threatening to undermine the economy. The central bank acted with speed the White House and Congress only could envy.
The Fed is largely free from many constraints that bog down other policymakers. Also, it is the only U.S. institution with the authority and ability to create money out of thin air.
For now, the steps orchestrated by Chairman Ben Bernanke, in the first critical test of his leadership since succeeding Alan Greenspan in early 2006, are earning praise from the Bush administration, Congress and presidential contenders Barack Obama, Hillary Rodham Clinton and John McCain. (Source: Associated Press) Full Story
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"A company for carrying out an undertaking of great advantage, but nobody to know what it is." This lure for the South Sea Company, published in 1720, has a whiff of the 21st century about it. Modern finance has promised miracles, seduced the brilliant and the greedy--and wrought destruction. Alan Greenspan, formerly chairman of the Federal Reserve, said in 2005 that "increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago." Tell that to Bear Stearns (BSC: Charts, News, Offers), Wall Street's fifth-largest investment bank, the most spectacular corporate casualty so far of the credit crisis.
For the critics of modern finance, Bear's swift end on March 16th was the inevitable consequence of the laissez-faire philosophy that allowed financial services to innovate and spread almost unchecked. (Source: Economist) Full Story
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Prompted in part by government interventions including the Community Reinvestment Act of 1977 -- which required banks to make riskier loans to less credit-worthy borrowers to avoid charges of racist "red-lining" -- America's banks and mortgage companies created new sources of investment return in recent decades. Home mortgages -- both the secure and the less secure -- were bundled up, sliced and re-sold like baloney.
It reached the point where nearly everyone seemed to have a child or spouse or girlfriend -- charming, yes, but not someone you'd expect to become a millionaire based on business acumen or educational attainment -- driving around dressed to the nines, operating a real estate business out of a couple of file drawers in the back of a fancy new sports car, expressing amazement that you, too, weren't getting rich flipping homes and condos, many before they'd even been built. (Source: Las Vegas Review Journal) Full Story
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| Business News |
Last Monday morning, $2 bills could be seen taped to the inside of entrance doors at the octagonal headquarters of Bear Stearns (BSC: Charts, News, Offers) in midtown Manhattan. It's hard to decide what was more remarkable: the fact that $2 was the price per share JPMorgan Chase (JPM: Charts, News, Offers) had just agreed to pay to take over the company, whose stock had traded above $60 the previous week, or the fact that at a place where so many employees had suddenly become impoverished, the $2 bills lasted for more than a few minutes.
Like every other Wall Street firm, Bear had taken its lumps on subprime mortgages. But in recent months it had lost the confidence of the markets the way many marriages dissolve: slowly, and then all at once. In July, when two hedge funds it managed were melting down, Bear's septuagenarian CEO, James Cayne, was at a bridge tournament in Nashville. (Source: Newsweek) Full Story
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The blockbuster initial public offering of Visa Inc (V: Charts, News, Offers) -- the largest ever in the United States -- will do little to revive the slowing IPO market, which has been dampened by investors spooked by the credit crisis.
With its $17.9 billion offering, the world's largest credit-card network's IPO is the first bright spot in the U.S. IPO sector this year, but that market is likely to return to gloomy skies in the coming months.
"Visa is in a league of its own," Francis Gaskins, president of research firm IPOdesktop.com, said. (Source: Reuters) Full Story
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Another stone fell into place in the federal government's plan to build a path to credit market recovery. On Mar. 19, the Office of Federal Housing Enterprise Oversight, or OFHEO, said it was reducing the amount of capital it requires Fannie Mae (FNM: Charts, News, Offers) and Freddie Mac (FRE: Charts, News, Offers) to maintain on their balance sheets above statutory requirements. By reducing the capital surplus level from 30% to 20%, the regulator will provide up to $200 billion in immediate liquidity to the distressed mortgage-backed securities market.
Investors welcomed the announcement, pushing up Fannie's share price by 8.8%, to close at 30.71, and boosting Freddie's shares by 14.9%, to 29.90. (Source: BusinessWeek) Full Story
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| Technology Focus |
Dressed in jeans and black T-shirts and armed with touch-screen laptops, Generation Y employees at "The City" help customers choose the latest gadgets.
Far from its old "stack 'em high, watch 'em fly" approach, struggling electronics retailer Circuit City Stores Inc. (CC: Charts, News, Offers) hopes its smaller concept stores, widespread cost cutting and new support services will spark a turnaround despite increasing competition and the faltering economy.
"We have a difficult economy, we have fierce competition, and we're in the middle of some of the most difficult, deepest work in the transformation," Chief Executive Philip J. Schoonover said in an interview with The Associated Press. (Source: Tampa Bay Online) Full Story
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Microsoft (MSFT: Charts, News, Offers) is betting that a buyout of Yahoo (YHOO: Charts, News, Offers) will help in its battle against Google, but a new search report shows that's purely wishful thinking. Google (GOOG: Charts, News, Offers) continues to gain market share, while both Yahoo and Microsoft lose ground. Microsoft needs to learn that adding together two negatives doesn't equal a positive.
comScore just released the results of its February 2008 search engine survey, and for Microsoft, the results aren't pretty. Microsoft's share of search dropped from 9.8% in January to 9.6% in February. Yahoo took an even larger dip, from 22.2% to 21.6%. That means the combined Microsoft-Yahoo share dropped from 32% to 31.2%, a drop of .8%. (Source: ComputerWorld Blogs) Full Story
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There's no use crying over spilled milk in Japan. Not when it can be converted into biogas.
As the alternative energy movement picks up steam, researchers are increasingly looking to their local communities for tons of organic waste that could be transformed into more environmentally friendly biofuels. At the Nigata Institute of Technology in Kashiwazaki, Japan, that mindset has spurred scientists to give new life to spoiled milk and rotting jellyfish. At the University of California at Davis, engineers have repurposed table scraps from swank Bay Area restaurants. And at the United Kingdom’s University of Birmingham, researchers have diverted gooey nougat, caramel and other confectionary waste from the nearby Cadbury Schweppes plant. (Source: MSNBC) Full Story
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| Your Money |
If you're starting college this fall, you've probably got a lot on your mind. Choosing a major. Making new friends. Hoping you won't end up with a roommate who keeps an ant farm under his bed.
No question, this is a stressful time in your life. But here's one thing you shouldn't worry about: getting a federal student loan.
The credit crunch has made it harder for borrowers who don't have stellar credit to get a private student loan. But federal student loans are still widely available. Though a handful of lenders have stopped offering federal loans, more than 2,000 lenders are still in the business. And some banks plan to expand their lending to college students in the upcoming academic year, the Consumer Bankers Association, the main trade group for the banking industry, said last week. (Source: USA Today) Full Story
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I know teenagers typically don't think a lot about the economy, but if they're planning on working this summer it's time they Google the word "recession."
Oil prices skyrocketing. Home sales plummeting. Retail sales falling.
Because of all these factors, there is likely to be a dearth of "help wanted" signs up this summer. And many teens may be extra motivated to want work as parents, seeing discretionary dollars dwindle, start asking kids to pick up more of the tab. (Source: MSNBC) Full Story
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