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| Weekly Wrap Up |
The stock markets were extremely pessimistic and panicky last week giving rise to one of the biggest wave of sell-offs in history. The DJIA lost 7.3% last week while the broader S&P 500 plummeted 9.3%. The week started off with the House of Representatives voting down the $700 bailout package. That scared investors who sent the DJIA down 777 points, the biggest one-day point decline in the history of the index. This showed Congress that they were really playing with fire if they waffled on the Treasury proposal which would allow the government to take troubled mortgage securities off bank balance sheets. As a result, both the House and the Senate started considering a slightly revised version of the bill which passed the latter Wednesday night and the former Friday morning. To the surprise of many, even though the package has been written into law, stock markets are not reacting with enthusiasm. All major indices were down Friday and the DJIA fell below the 10,000 point mark this morning. Traders are reluctant to show enthusiasm because for one, the credit markets are still not functioning properly, the Fed has pumped massive amounts of liquidity into the markets over the last few days but banks are still reluctant to trade with each other and therefore, that liquidity is not tricking down. Secondly, it is becoming clear that no matter what the Fed or the Treasury does, a recession cannot be escaped. Banks in Europe are starting to show cracks too, as evidenced by the failures this weekend. Economic data was across the board negative last week with the highly watched unemployment report indicating that the economy lost 159,000 jobs last week. More Market News
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| Economic News |
Maybe only a friendly foreigner could say this. But America needs to realize that not everyone can own a home. The American Dream of home ownership for all is a fraud. Politicians who pimped this dream created an unsustainable mortgage industry whose collapse is only surprising because it didn't happen earlier. America's mortgage industry will not recover, nor deserve to recover, unless it is prepared to challenge this politically unpalatable reality.
Why listen to an Australian like me? For starters, as our central banker, Glenn Stevens, said a few weeks back, Australian banks are "light years away from what's happening in other banking systems around the world." Australia's four major banks sit amongst the 20 AA rated banks around the globe. And as the Sept. 23 International Monetary Fund Country Report on Australia concluded, Australia's banking sector "is sound with stable profit, high capitalization and few non-performing loans." (Source: Wall Street Journal) Full Story
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National job losses accelerated sharply in September, and analysts said deeper losses could follow this month as the effects of the crisis in financial and credit markets spread through the broader economy. US employers cut 159,000 jobs last month, more than double the losses in August and the biggest monthly employment decline since March 2003, the Labor Department reported yesterday. The unemployment rate held steady at 6.1 percent. (Source: Boston Globe) Full Story
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"Crises have the power to unite us in strange ways." So said Steny Hoyer, the Democratic majority leader in the House of Representatives, in an article on Friday morning that pleaded for passage of the $700 billion bail-out plan. United they were. The House voted by a huge 263-171 margin for the bail-out, a dramatic reversal of the 228-205 rejection on Monday. On Friday October 3rd 172 Democrats backed the bill, up from 140; 91 Republicans did so, up from 65. As the Senate had already approved the bill, it was immediately signed by George Bush.
The rejection on Monday was caused by conservative Republicans who said it was socialism, by liberal Democrats who said it did not do enough for poor people, and fears by many that voters would fire them for bailing out Wall Street. The rejection triggered a plunge in stocks and a scramble to sweeten the bill. In the end numerous, mostly unrelated, items have been grafted on, from higher federal deposit-insurance limits to a tax exemption for wooden children's arrows. (Source: Economist) Full Story
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| Business News |
Warren E. Buffett is emerging as the banker of choice to the embattled blue-chip companies of American business. Mr. Buffett, the billionaire investor, announced on Wednesday that he would invest $3 billion in General Electric (GE: Charts, News, Offers), the industrial giant that is also the nation's largest nonbank financial company. The move comes eight days after he said he would invest $5 billion in Goldman Sachs (GS: Charts, News, Offers).
In both cases, Mr. Buffett has driven a hard bargain and extracted favorable terms. Still, he is betting when other investors remain fearful and on the sidelines. (Source: NY Times) Full Story
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Citigroup Inc. (C: Charts, News, Offers) and Wells Fargo & Co. (WFC: Charts, News, Offers) may end up splitting Wachovia Corp., (WB: Charts, News, Offers) the Charlotte, North Carolina-based bank staggered by almost $53 billion of mortgage- related losses.
Wells Fargo's $15.1 billion offer on Oct. 3 trumped New York-based Citigroup's $2.16 billion bid for parts of Wachovia, setting up a takeover fight for a bank with 20 million customers and almost $450 billion of deposits.
"Citi's purchase was too cheap for the assets and operations involved,'' said Jason Pride, research director at Haverford Trust Co. in Haverford, Pennsylvania, which held about 70,000 Wachovia shares at the end of June. (Source: Bloomberg) Full Story
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ImClone Systems (IMCL: Charts, News, Offers) is finally escaping its scandal-plagued past to become biotech's most desirable property, at least for the moment. That may seem odd, given that its sole product on the market-the cancer drug Erbitux-has not lived up to initial expectations. But industry experts say takeover interest from Eli Lilly (LLY: Charts, News, Offers), which on Oct. 6 said it will pay $6.5 billion in cash, is ImClone's future, not its past.
Lilly, like earlier suitor Bristol-Myers Squibb (BMY: Charts, News, Offers), wants to get its hands on the five drugs ImClone is in the midst of developing. "ImClone has one of the strongest oncology pipelines in the business," says Cowen & Co. biotech analyst Eric Schmidt. Of course, developing these drugs will take years, and there is no guarantee that any will make it to the market. But large pharmaceutical companies, facing patent expirations on their biggest blockbusters, are scrambling to expand their cancer drug portfolios, and buying a pipeline is a lot more efficient than building one from scratch. (Source: BusinessWeek) Full Story
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| Technology Focus |
My new 3g iPhone is a wonderful device, but it has one very serious short-coming. The battery life stinks. I never get through a day without needing to recharge. Sometimes the low-battery warning shows up by noon. The phone isn't defective. It just harnesses a bunch of battery-draining technologies, like a powerful (relatively speaking) processor, a 3G radio chipset and a large, bright display. In fact, the iPhone isn't really a phone at all. It's actually a miniature computer. More such devices are on the way, like HTC's G1 phone (a.k.a. the Google phone) which ships later this month. An entire industry is springing up around these gizmos, with developers creating hundreds of applications for the mobile Internet, including things like delivering services using GPS or even showing live TV on mobile devices. As smart phones get ever smarter, they could become the most popular way to connect to the Internet. How to power these things? Batteries get better every year, but improvements aren't keeping pace with the innovation that's taking place at the device level. (Source: Newsweek) Full Story
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Barry Diller is not backing down. The media mogul's IAC/InterActiveCorp (IACI: Charts, News, Offers) has once again relaunched its Ask.com search engine - aiming to increase its share of the lucrative Web search market.
Ask.com Chief Executive Officer Jim Safka told Reuters in an interview that the revamped site -- with its faster, better searches -- would keep customers coming back for more. He said early tests showed a 16 percent increase in the rate at which customers returned to the search page.
The problem is that Ask.com has a long way to go. Google is the dominant Web search service in the United States, growing in August to more than 63 percent market share, according comScore, a Web audience measurement firm. (Source: Reuters) Full Story
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With the DOJ expressing skepticism over Yahoo's (YHOO: Charts, News, Offers) agreement to sell search ad space to its biggest competitor, a letter from a key US senator urging action could be preaching to the choir. What's interesting is that senator's theory.
In a letter to the Justice Department's antitrust chief yesterday, Sen. Herb Kohl (D - Wisc.), chairman of the Senate Antitrust Committee, advised the Dept. to maintain a close watch over Google (GOOG: Charts, News, Offers) and Yahoo as they initiate their search advertising deal, for two reasons: The first is something discussed quite often, that the deal could be used to drive up the price of contextual search advertising. But the second is something that has been mentioned, but not fully explored: the notion that Google made the deal in bad faith, as an anti-competitive measure to maintain Yahoo's subordinate position in the marketplace. (Source: Beta News) Full Story
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| Your Money |
So, Congress finally passed the bailout bill. You know about the Treasury's newfound $700 billion, and you've heard about the snipped golden parachutes, but what does the 451-page week-old shotgun savior of a bill actually mean for you?
Your 401k Should Stop Free Falling
The bill was heralded as a way to calm the markets following the 778-point mini-crash the day after the original bill failed. That plan hasn't exactly worked. But! If the bill does eventually succeed in stabilizing the markets, everyone with a 401k, IRA, mutual fund, or plain old stocks will directly benefit. (Source: Consumerist.com) Full Story
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Shannon Burdette has been a Wachovia customer for five years, but feels like she's been settling for less customer-friendly banking than she wants. She's not optimistic things will change, now that her Wachovia bank accounts have been sold to Citigroup.
"My husband and I have a credit card through Citi, and we like that," she said. "They've always been really good, but I don't have great expectations for the personal banking side."
Before Citi bought Charlotte, N.C.-based Wachovia's retail banking and other subsidiaries, Burdette had already shopped around for another bank, but had no luck. "I found the other choices were either just as bad or worse," said the graphic designer, who lives in Sykesville, Md. "I found that with all the major banks, the customer service is really lacking." (Source: MSNBC) Full Story
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| Trivia Question |
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What term, used in economics and finance, refers to the method of persuasion employed by the Central Bank to control credit expansion by commercial banks?
(answer below) |
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| Market Overview |
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| DJIA |
10,325.38 |
-817.75 |
| S&P |
1,099.23 |
-113.89 |
| NYSE |
7,088.94 |
-801.43 |
| NASDAQ |
1,947.39 |
-235.95 |
| 10Yr |
3.644% |
-0.18 |
| Dollar |
80.58 |
+3.63 |
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| Trivia Answer |
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| Moral suasion |
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