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| Weekly Wrap Up |
The market suffered another wild ride this week with all major indices ending in positive territory. US stocks soared over 936 points on Monday as governments around the world continued to roll out initiatives to help struggling markets. After rallies in European and Asian markets, U.S. markets jumped higher on outline of government's bailout plan, which included buying stakes in U.S. banks. The Dow Jones Industrial Average plunged 733 points on Wednesday after weaker-than-expected retails sales renewed recession fears. The government reported that retail sales fell 1.2% in September, the highest level in 3 years. Stocks did rebound on Thursday as oil reached its lowest level since 2007 and investors scooped up battered shares. Friday was relatively quiet as stocks jumped between negative and positive the majority of the morning. In corporate news, Banco Santander (STD: Charts, News, Offers) said it may acquire Sovereign Bancorp (SOV: Charts, News, Offers). PepsiCo (PEP: Charts, News, Offers) reported lower quarterly earnings that missed estimates and issued a warning about 2008 profits. Better-than-expected earnings from a number of companies were released this week including JP Morgan Chase (JPM: Charts, News, Offers), Coca-Cola (KO: Charts, News, Offers) and IBM (IBM: Charts, News, Offers). Bank of New York Mellon Corp. (BK: Charts, News, Offers) was appointed caretaker of the US Treasury's $700 billion financial rescue plan. Lending rates continued to improve, but remained elevated. The TED spread declined to 4.11% from 4.31% late Wednesday. U.S. light crude oil for November delivery ended the week at $73.79 a barrel on the New York Mercantile Exchange after hitting a low of $69.85 on Thursday. The dollar ended the week lower against major currencies while the yield on the 10-year Treasury bill rose. More Market News
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| Economic News |
This morning the Federal Deposit Insurance Corp. unveiled details of a plan that aims to free up lending between banks and greatly reduce the risk of runs on deposits. The temporary liquidity guarantee program guarantees new senior unsecured debt issued by financial institutions and provides unlimited deposit insurance coverage on all non-interest bearing transaction deposit accounts, even those exceeding the FDIC's $250,000 individual insurance limits. The moves are part of a sweeping plan to shore up confidence in the banking system, which has dried up lending and sent equities into a tailspin. Federal officials Tuesday morning said they would use $250 billion of the $700 billion bailout package recently approved by Congress to buy preferred stock in a number of banks. (Source: TheStreet) Full Story
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The Treasury plans to invest up to $250 billion in individual banks and has already allotted half that amount to nine leading banks. For now, the key questions are: Will the plan work? And what consequences will it have for our financial system and our economy? Several issues bear examination. First, is this enough money? Citigroup (C: Charts, News, Offers), for example, is getting $25 billion. As of June 30, it had $2.1 trillion in assets and just $136 billion in capital; the new capital is only 1.2 percent of its total assets. If the problem is that falling asset prices could put banks' solvency at risk, the Treasury might have to commit more money. In truth, no one knows how much funding is needed. The reduction in lending (known as "deleveraging") underway throughout the world may lead to a sharp recession. Some European nations, which have large financial sectors and substantially greater leverage than in the United States, pose risks to all nations. The United States needs to be prepared to quickly shore up capital among banks, and potentially major insurance companies and other financial firms, if it appears the recession is deepening. (Source: Washington Post) Full Story
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For two years after housing prices began falling and a year after the bursting of that bubble turned into a financial crisis, U.S. consumers soldiered on. Month after month, their spending, the mainstay of the economy, kept increasing. Now, for the first time in 17 years, slower income growth, tighter credit and the loss of wealth from plunging stock prices -- along with house prices that still are falling -- have caused them to retrench. The result is the onset of a recession the depth of which no one can yet gauge. Various parts of the government, with the Federal Reserve leading the way, have taken a series of unprecedented steps to deal with the financial crisis. But more aggressive action is needed to help restore consumer and business confidence and enable households and state and local governments to boost spending. (Source: Bloomberg) Full Story
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| Business News |
Boeing Co. (BA: Charts, News, Offers) says renewed negotiations with its striking machinists broke down over an issue crucial to the company's "long-term competitiveness." A labor leader says the union was being asked to bargain away 2,000 jobs. The failed talks are the latest twist in the five-week-old strike by more than 27,000 commercial jet production workers, with both sides seemingly far apart on key issues as the walkout enters its 39th day. The strike has halted jet assembly at Boeing plants in Washington, Oregon and Kansas. Talks between the two sides resumed Sunday for the first time since machinists went on strike Sept. 6 over issues that include job security, pay, retirement benefits and health care. (Source: CNN Money) Full Story
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Health care giant Johnson & Johnson (JNJ: Charts, News, Offers) on Tuesday posted a 30 percent jump in third-quarter profit and beat Wall Street expectations, mainly because the year-ago results were weighed down by a $745 million restructuring charge. Higher sales of consumer products and medical devices, boosted overseas by the weak dollar, also helped the New Brunswick, N.J.-based maker of contraceptives, baby care items, medical devices and prescription drugs. It Reported net income of $3.31 billion, or $1.17 per share, up from $2.55 billion, or 88 cents per share, in the year-ago period. Revenue climbed 6.3 percent, to $15.9 billion from $14.97 billion, but was boosted 3.1 percent by favorable currency exchange rates. Analysts surveyed by Thomson Reuters expected earnings per share of $1.11 and revenue of $15.69 billion. (Source: Yahoo! Finance) Full Story
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Wells Fargo (WFC: Charts, News, Offers) reported an expected drop in third-quarter earnings Wednesday, though results beat expectations on higher net interest margin and "tremendous" growth in deposits. The San Francisco-based bank reported net income dropped 24% to $1.64 billion, or 49 cents per share, from $2.17 billion, or 64 cents per share, a year earlier, reflecting an industry-wide deterioration in loan performance. Results also include $646 million in charges for investments in the failed investment bank Lehman Brothers (LEH: Charts, News, Offers), as well as in mortgage finance giants Fannie Mae (FNM: Charts, News, Offers)and Freddie Mac (FRE: Charts, News, Offers), which were taken over by the government last month. (Source: TheStreet.com) Full Story
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| Technology Focus |
Intel's (INTC: Charts, News, Offers)third-quarter results, due Tuesday after the close of trading, should be just fine. And, frankly, no one will care. Since the Santa Clara, Calif.-based chip giant closed its third quarter, all heck has broken loose. The finance sector, the information technology industry's biggest customer, has been slammed by the collapse of Lehman Brothers, the government bailout of AIG (AIG: Charts, News, Offers) and a dramatic plunge in stock prices. More worrying, with banks growing increasingly reluctant to lend, fallout for business and consumer spending could be widespread. Analysts think Intel is just too big to escape unscathed. Not that Intel has gotten off easy this year. Intel shares have fallen more than 40% year-to-date. It could be worse, however. Rival AMD (AMD: Charts, News, Offers), by contrast, is down 49% so far this year. The Dow Jones Semiconductor Index is off 45% this year. (Source: Forbes.com) Full Story
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Ever heard of a "netbook"? They're small, light, machines that sell for as little as $250 to just north of $600 - and they're selling like hot cakes. Today, if you look at the 15 best-selling laptops at Amazon, 13 are netbooks. You might think of these computers as a cross between a Blackberry and a full-blown laptop. Netbooks are great for e-mail, Web surfing and accessing Web-based applications, but they're not what you want to work on all day creating presentations or editing a stack of digital photos. Taiwan-based computer maker Asus launched the netbook revolution about 18 months ago with the Eee PC. With a handful of the plucky little machines in its lineup, Asus projects to sell 5 million netbooks in 2008.(Source: CNN Money) Full Story
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Last holiday season, Rachel Houghton and her husband were an electronics maker's dream. She bought her husband a SanDisk (SNDK: Charts, News, Offers)Sansa digital music player. He presented her with an Apple (AAPL: Charts, News, Offers) iPod touch. The Oregon pair bought a DVD player for one set of in-laws. Evidence of belt-tightening among consumers was rife on Oct. 15, when a government report showed retail sales had their biggest decline in three years in September, falling 1.2%, almost twice as much as economists had expected. A separate report from the Federal Reserve said consumer spending was "softer" in almost all of the 12 regions monitored, with several districts reporting "a reduction in discretionary spending by consumers and lower sales on big-ticket items." (Source: BusinessWeek)
This year, the Houghtons represent what may become a nightmare for the consumer electronics industry. They're stuffing stockings with such cheaper items as calendars and framed photos. "A lot of our friends and family have it tough financially, and I am very aware that some folks feel they need to reciprocate at the same purchase level, so our plans should make for a more level playing field," Houghton says. Her friends are shopping for cheaper handmade gifts at sites like Etsy.com. Full Story
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| Your Money |
Anyone who lost money in the collapse of Lehman Brothers Holdings Inc. (LEH: Charts, News, Offers)should probably be reaching for their lawyers about now. Our money -- yours and mine -- is now keeping the global financial system afloat. In a capitulation that beggars belief, governments all around the world have pledged our money -- yours and mine -- to fund a "No Bank Left Behind'' program. And no matter what the politicians say, that means our money -- yours and mine -- is now at risk in the casino. So the decision to let Lehman go to the wall last month looks increasingly like (a) an experiment in brinkmanship gone wrong (b) a worthless sacrifice to the angry gods of moral hazard © the biggest mistake that the authorities have made during the current crisis (d) all of the above. (Source: Bloomberg) Full Story
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| Trivia Question |
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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) |
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| Market Overview |
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| DJIA |
8,852.22 |
+401.03 |
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940.55 |
+41.30 |
| NYSE |
5,948.80 |
+244.67 |
| NASDAQ |
1,711.29 |
+61.78 |
| 10Yr |
3.94% |
+0.08 |
| Dollar |
82.85 |
-0.46 |
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| Trivia Answer |
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| Greater Fool Theory, also called 'Castle-in-the-Air Theory'. |
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