Taking Stock of Wall Street 2008-09-29

House of Representatives did not pass the Emergency Economic Stabilization Act bill today. Speaker Nancy Pelosi's untimely attack on Bush, with whom she cooperated in finalizing the draft during the weekend, made many Republicans grow cold feet. So today, when the bill was put vote, it failed to muster the required majority of 218. While 228 voted for it, 205 voted against it.

For the market, it was almost a foregone conclusion that it would be passed, based on the bipartisan camaraderie shown in the weekend.

And when the market's expectations were belied, it reacted violently. The Nasdaq and S&P 500's fell by the largest points since the 1987 Black Monday. Dow Jones Industrial Average's (DJIA) slide was surpassed only by the fall in the wake of the 9/11 attacks.

Global markets too reacted by sliding 4-5% be it European or Asian markets.

Even the fact that the Fed and nine other central banks pumped in $620 bln overnight to assure liquidity in the banking system, was not noticed.

In UK,the mortgage lender Bradford & Bingley was nationalized. Their deposit taking branches are to be acquired by Spain's Bank Santander (STD). Belgium, Netherlands and Luxembourg took a combined $16 bln-stake of 49% in Fortis bank in a similar bail-out move. Iceland's Glitnir and Germany's Hypo also had money infusions from their respective governments.

With European currencies falling, US dollar was the obvious beneficiary.

Economic Data:

Personal consumption expenditures (PCE) for the month of August - Total spending was unchanged though analyst forecast was for an increase of 2%.
Personal income saw a meager increase of 0.5% but it was still higher than the consensus forecast of .

September Farm Prices Index - fell by -1.3% from August. The Crop Index fell by -1.7% and the Livestock Index by -2.2%.

Emergency Economic Stabilization Act Bill:

Yes, that is the name of the Bush's financial recovery plan. Some of the clauses in the bill include:
stricter regulatory oversight, limiting executive compensation, relief from foreclosure, purchasing illiquid assets using the $700 to be allocated in three tranches of $250, $100 and $350 under supervision.

One important clause allows Fed to reward higher reserve holding banks by paying interest on that amount.

CBOE Volatility Index (VIX) soared through nearly 12 points to 46.72.

Oil fell by $-10.52 (-9.84%) to $96.37.

Gold being the safe haven alternative in times like this, went up by $5.90 (0.66%) to $894.40.

Government's Treasury bonds too are hot favorites now.

Market indices:

Dow went DOWN by -777.68 (-7.50%) to 10365.45
SP 500 DOWN by -106.59 (-9.63%) to 1106.42
Nasdaq DOWN by 199.61 (-10.06%) to 1983.73

NYSE :

Daily volume: 1.86 bln
A/D Ratio: 163 stocks advanced against 3109 declined
52-weeks Hi/Lo: Only 14 stocks attained new Highs while 970 stocks made it down to new Lows

Nasdaq:

Daily volume: 2.82 bln
A/D Ratio: 414 stocks advanced against 2572 declined
52-week Hi/Lo: 21 stocks topped new Highs while 705 stocks set new Lows

Market's fall today spread though all of its sectors.

Bain Capital and Hellman & Friedman are acquiring Lehman Brother's troubled Neuberger Berman division for $2.15 bln.

Japan's Mitsubishi UFJ (MTU) is to acquire a 20% stake in Morgan Stanley (MS) for $9 bln.

Details of Citibank's acquisition of Wachovia business:
Citigroup's total outlay in acquiring Wachovia is around $2.2 bln. That covers $700 bln operational assets and liabilities and $53 bln senior and subordinated debts. The FDIC will absorb any losses beyond $42 bln that arises out of the mortgage portfolio worth $312 bln which Citi assumed. Citi is allowed to issue $10 bln common stock to public.

Company Results:

Walgreen (WAG) produced quarterly earnings that conformed to the analyst's expectations. Circuit City's (CC) earnings were disappointing.

Analyst's Ratings:

Upgraded stocks are:

BorgWarner Inc(BWA), Brookfield Infrastructure Partners (BIP),
Canadian Imperial Bank of Commerce (CM), National City Corp (NCC), Nortel Networks Corp (NT), PMFG Inc (PMFG), Sovereign Bancorp (SOV), Take-Two Interactive Software (TTWO), Ticketmaster (TKTM) and Tellabs Inc (TLAB).

Downgraded stocks include:

Apple (AAPL), Brookline Bancorp (BRKL), Citrix Systems (CTXS), Comcast Corp (CMCSA), Coeur d'Alene Mines (CDE), Concur Technologies (CNQR), DISH Network (DISH), Freeport-McMoRan Copper & Gold (FCX), Motorola Inc (MOT), Research In Motion Ltd (RIMM), Sadia SA (SDA), Sprint Nextel Corp (S), Strategic Hotels & Resorts (BEE), Thor Industries (THO), Vasco Data Security International (VDSI) and Winnebago Industries (WGO).

Credit is hard to come by for even banking institutions. So they are charging each other more than 4% for just an "overnite" loan.

Where did all this trouble start?

For a change, the answer comes from Canadian prime minister Harper (comments after the hyphens are mine) :

1. poor oversight - self-governed doesn't mean not governed.
2. cheap credit - lying about the applicant's income and capacity to return the loan
3. tax sops that give rise to housing bubbles - encouraging people to leverage too much
4. Ignoring early warning signs - yeah, anybody who had the nerve to warn was intimidated by accusations of conspiracy theory or doomsday prophesy

Before calling our northern neighbor a traitor or backstabber, remember he is just telling the truth.

Yes, truth can be unsavory and uncomfortable.