Despite having passed a $700 billion dollar package to rescue the economy, broader stock indices were on a dive this past week. Comparisons to the losses last week were made to the early days of the Great Depression and thusly, the downturns last week have some financiers citing the crash as the second worst in all of US history. Stocks were plummeting early on Monday and stuck with that trend throughout the entire week. The DJIA went downwards in excess of 800 points at one point on Monday day but climbed back upwards to close lower by 369 points. The rest of the week followed a similar pattern as the DJIA closed lower by 689 points on Thursday. This is despite the fact that on Wednesday the Federal Reserve cut the federal funds rate down 1.5% as other government agencies followed suit in order to combat a global recession. Credit markets also seemed tighter despite being relatively tight from the week prior. It has been 8 consecutive days of the equities markets going downwards and the US-led financial crisis is spreading to banks in Europe and Asia. In Japan, the Nikkei went downwards by about 10 percent on Friday closing so low that these closing prices were not seen since Black Monday in 1987. In the UK, the FTSE dropped by about 8 percent on Friday closing at 3,932.06. Gold seemed to be the safe-haven investment item however as prices soared from less than $830 per troy oz to rise above $910 per troy oz. Gold prices however, took a nose-dive on Friday afternoon as signs pointed to equities markets rising amid government action. More Market News
The world economy will slow sharply this year and next, with the United States likely sliding into recession reflecting mounting damage from the most dangerous financial jolt in more than a half-century. The International Monetary Fund, in a World Economic Outlook released Wednesday, slashed growth projections for the global economy and predicted the United States - the epicenter of the financial meltdown - will continue to lose traction. "The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s," the IMF said in its report. The IMF now projects that the global economy, which grew by a hardy 5% last year, will lose considerable speed, slowing to 3.9% this year. It is forecast to weaken even more - to just 3% - next year, marking the worst showing since 2002. In the past, the IMF has called global growth of 3% or less the equivalent to a global recession. (Source: CNN Money) Full Story
Pending sales of existing U.S. homes unexpectedly jumped in August to the highest in over a year, data from a real estate trade group showed on Wednesday. The National Association of Realtors Pending Home Sales Index, based on signed contracts, rose 7.4 percent in August to 93.4 from an upwardly revised 87.0 in July on pent-up demand as affordability improved. The jump may be fleeting, however, as global financial markets chaos has since escalated, some analysts said. August’s reading was 8.8 percent higher than a year earlier and was the highest since 101.4 in June 2007. Economists polled by Reuters had expected sales to drop by 1.8 percent. "What we're seeing is the momentum of people taking advantage of low home prices," the association's senior economist Lawrence Yun said in a statement. (Source: MSNBC) Full Story
As investors await nascent signs that Washington's massive and paradigm-shattering policy response to the financial crisis is working, they realize a great deal of damage to economies in the U.S. and around the world has already been done. In the coming weeks, the economic data will begin to show just how much. Several reports for September, due this week, will provide some early clues for the U.S., but the sharp credit tightening didn't begin until mid-September, so its full impact will not begin to show up until the October reports. Consumers had already begun to pull back on their spending in the wake of oil prices that peaked at $145 per barrel back in July. Weekly store surveys through September suggest the government's roundup of the month's retail sales on Wednesday will show a third consecutive decline. On Friday, the Reuters/University of Michigan index of consumer sentiment will offer the first broad look at how the crisis is affecting household attitudes and expectations. (source: BusinessWeek.com) Full Story
Wells Fargo (WFC: Charts, News, Offers) has triumphed in its battle with Citigroup (C: Charts, News, Offers) for the rights to their struggling competitor, Wachovia (WB: Charts, News, Offers). Citi said on late Thursday that it was breaking off negotiations and proceeding with a lawsuit against Wachovia and Wells Fargo, which agreed to a deal last week, trumping an earlier deal between Wachovia and Citi. Citi, however, said it would not seek to block the deal between Wachovia and Wells after failing to come to an agreement after days of negotiations. Citi cited "dramatic differences" in their views over the transaction structure and risks involved. The dueling banks had initially agreed to halt litigation related to the competing deals through 8 a.m. on Friday. Citi says it is still willing to go through with the deal it offered. However, the company is still seeking "compensatory and punitive damages for bad faith breach of contract and tortious interference" in the $60 billion lawsuit it filed Monday. (Source: TheStreet) Full Story
General Motors Corp. (GM: Charts, News, Offers) shares on Thursday plunged to their lowest level since the opening months of the Korean War, as investors continued to fret that the decline in U.S. vehicle sales may be spreading to the rest of the world. GM shares plummeted by as much as $1.50, or 22 percent, to $5.41 before rebounding to $5.90 in afternoon trading. The low point marked the Detroit-based automaker's lowest share price since Dec. 16, 1950, when it hit $5.40, according to the Center for Research in Security Prices at the University of Chicago. GM is one of the 30 stocks that make up the Dow Jones industrials, and its steep plunge helped pull the Dow Jones industrial average into negative territory, as it looked to recover from a massive sell-off earlier in the week. (Source: MSNBC) Full Story
Executives at American International Group Inc. (AIG: Charts, News, Offers) hid the full range of its risky financial products from auditors as losses mounted, according to documents released Tuesday by a congressional panel examining the chain of events that forced the government to bail out the conglomerate. The panel sharply criticized AIG's former top executives, who cast blame on each other for the company's financial woes. "You have cost my constituents and the taxpayers of this country $85 billion and run into the ground one of the most respected insurance companies in the history of our country," said Rep. Carolyn Maloney, D-N.Y. "You were just gambling billions, possibly trillions of dollars." (Source: Yahoo! Finance) Full Story
IBM (IBM: Charts, News, Offers) tried to separate itself from the tech pack with a mixed third quarter earnings preview, but more budget cutting among among business buyers foreshadows trouble down the road. The information technology giant said its service contract business remained solid and reaffirmed its full-year profit goal. Big Blue also said that it expects to post an adjusted profit of $2.05 a share. That compares with pro forma earnings of $1.68 in the year ago period and is above analysts estimates calling for earnings of $2.01 a share. Sales for the quarter ended last month were $25.3 billion, up from the $24.1 billion level last year, but below expectations for a top line of $26.5 billion. (Source: CNN Money) Full Story
Micron MU will stop making flash memory chips at one of its three factories dedicated to the product, as it seeks to mitigate the pain caused by a severe industry downturn. The Boise, Idaho chipmaker said Thursday that it will also layoff 15% of its global workforce over the next two years. The moves mark the most significant acknowledgement yet by Micron that the protracted downturn in the memory chip business, coupled with the financial crisis, is forcing the company to make drastic changes to its business operations. Micron said the move is expected to result in more than $175 million in operating margin benefit, while it will incur about $60 million in restructuring charges. (Source: TheStreet) Full Story
Research In Motion Ltd. (RIMM: Charts, News, Offers) will start selling the BlackBerry Storm phone next month through Vodafone Group Plc (VOD: Charts, News, Offers) and other carriers, introducing a touch-screen handset to compete with Apple Inc.'s (AAPL: Charts, News, Offers) latest iPhone. The Storm will go on sale in Europe, India, Australia and New Zealand in November, Vodafone said in a statement today. Verizon Wireless, owned by Vodafone and Verizon Communications Inc. (VZ: Charts, News, Offers), has exclusive rights to sell the phone in the U.S. (source: Bloomberg) Full Story
Spooked by a staggering decline of over 40% on the S&P 500 this year, investors have yanked an estimated $164 billion from stock funds, according to TrimTabs, a Sausalito, Calif., research firm. A full quarter of that, or $43 billion, hemorrhaged in the week ending Oct. 8--the most turbulent so far for stocks. For perspective, the year's redemptions represent only 3% of the $5 trillion-plus invested in all stock funds. But 2008 is the first time since 2002--the end of the last bear market--in which net cash flow into equity funds has been negative. Full Story
What is the theory according to which some investors will buy stock even if it is over-valued, on the conviction that there will be someone else who will buy the stock from them at higher prices? (answer below)
