Economy > Stock markets >
Shares, Trade, Traders
Illustration: Owen Freeman
For the Love of Money
The New York Times
JAN. 18, 2014
For the Love of Money
NYT By SAM POLK
JAN. 18, 2014
trigger a share
London's leading shares
$21 to $23 a share
£2.3bn share buyback
share UK / USA
value of shares > be worth...
shares on the New York Stock Exchange
on the trading floor
on the floor of the New York Stock Exchange
Reuters > The Future of Trading
high-speed trading / ultrafast trading
high-speed trading / ultrafast trading > rigging
high-speed trading glitch
high-speed stock trades
during early trading
during a trading session
at the end of the trading
trader > Bernard L. Madoff. > fraud /
junk bonds — debt issued by companies with low
credit ratings —
the City's gilts market
to new high
to a record high
rally to their highest level in a
rebound / rebound
jump 5 percent
a jump in new orders
break a four-day losing streak
advance two percent
sagging market share and profits
tumble into the
crash into the red
The great stockmarket crash of 2008
stay in the red
/ remain in the red
back in the red
close sharply lower
falling sales and profits
below the 4400 mark
below the 4400 threshold
close in the red
down 5.7 points at 5053.2
take the gauge to its highest close
recover some lost
above 4400 barrier
through the key 4500 mark
flirt with new record high
surge through the
important 4300 mark
CBOE Volatility Index
a year high
push to a new
close above 10,000
cut ... to junk status
rank as the Nasdaq's top percentage
end flat /
into downward slide
a slide in tech shares
weak against the dollar
High-Speed Trading Glitch
Costs Investors Billions
May 6, 2010
The New York Times
By NELSON D. SCHWARTZ
and LOUISE STORY
The glitch that sent markets tumbling Thursday was years in the making,
driven by the rise of computers that transformed stock trading more in the last
20 years than in the previous 200.
The old system of floor traders matching buyers and sellers has been replaced by
machines that process trades automatically, speeding the flow of buy and sell
orders but also sometimes facilitating the kind of unexplained volatility that
roiled markets Thursday.
“We have a market that responds in milliseconds, but the humans monitoring
respond in minutes, and unfortunately billions of dollars of damage can occur in
the meantime,” said James Angel, a professor of finance at the McDonough School
of Business at Georgetown University.
In recent years, what is known as high-frequency trading — rapid automated
buying and selling — has taken off and now accounts for 50 to 75 percent of
daily trading volume. At the same time, new electronic exchanges have taken over
much of the volume that used to be handled by the New York Stock Exchange.
In fact, more than 60 percent of trading in stocks listed on the New York Stock
Exchange takes place on separate computerized exchanges.
Many questions were left unanswered even hours after the end of the trading day.
Who or what was the culprit? Why did markets spin out of control so rapidly?
What needs to be done to prevent this from happening again?
The Securities and Exchange Commission and the Commodity Futures Trading
Commission said they were examining the cause of the unusual trading activity.
Mary L. Schapiro, chairwoman of the S.E.C., and Gary Gensler, the head of the
C.F.T.C., held conference calls with overseers of the exchanges who were
reviewing trading tapes from the day.
One official said they identified “a huge, anomalous, unexplained surge in
selling, it looks like in Chicago,” about 2:45 p.m. The source remained unknown,
but that jolt apparently set off trading based on computer algorithms, which in
turn rippled across indexes and spiraled out of control.
Many firms have computers that are programmed to automatically place buy or sell
orders based on a variety of things that happen in the markets. Some of the
simplest triggers are set off when a stock drops or rises a certain percent in
the trading day, or when an index moves a specific amount.
But these orders can have a cascading effect. For example, if enough programs
place sell orders when the overall market is down, say, 4 percent in a single
day, those orders could push the market down even more — and set off programs
that do not kick in until the market is down 5 percent, which in turn can have
the effect of pushing stocks down even more.
Some circuit breakers do exist, a legacy of the reforms made following the 1987
stock market crash, but they only kick in after a huge drop — and only at
certain hours. Before 2 p.m., a 10 percent drop in the Dow causes New York Stock
Exchange to halt trading for one hour. Between 2 p.m. and 2:30 p.m., the pause
shrinks to a half-hour and after 2:30, there is no halt in trading.
If there is a 20 percent drop, trading stops for two hours before 1 p.m. and by
one hour between 1 and 2 p.m. After 2 p.m., the market closes.
Glitches in individual stocks have happened before — what was different Thursday
was the scale of the problem. In April 2009, shares of Dendreon, a small biotech
company, dived by more than 50 percent in less than two minutes, just before a
presentation by Dendreon executives, Mr. Angel said.
Trading was halted on the Nasdaq, where Dendreon is listed, but there was no
news as it turned out, Mr. Angel said, and when trading resumed the stock
returned to its previous levels. “It took a human two minutes to discover
something was wrong and halt trading,” he said.
What happened Thursday was different because it moved hundreds of stocks sharply
at the same time, many of them blue chips that form the foundation of individual
investors portfolios as well as major indexes like the Dow and the Standard &
Poor’s 500-stock index.
The near-instantaneous swings left brokers dumbfounded. Dermott W. Clancy, who
runs a New York Stock Exchange broker, said Thursday was one of the five worst
days he has seen in 24 years in the business. When the market dropped across all
indexes in a matter of minutes, customers were calling him nonstop.
“They’re calling saying ‘Is there something I’m missing? Is there somebody
valuing these securities at this level? Is there some news in the marketplace
I’m not aware of?’ ” he said.
The answer — that it all started with an apparent error — infuriated Mr. Clancy.
“The market was never down one thousand points,” he said. “Procter & Gamble
should never have traded at $39. But a lot of people lost money as if the prices
were meant to drop.”
For a short while, traders started to distrust what they were seeing.
“There was no pricing mechanism,” Mr. Clancy said. “There was nothing. No one
knew what anything was worth. You didn’t know where to buy a stock or sell a
Jackie Calmes and Binyamin Appelbaum in Washington
Glitch Costs Investors Billions, NYT, 6.5.2010,
Shares Near 6-Year Low,
With More Losses Feared
November 20, 2008
The New York Times
By JACK HEALY
As the stock market tumbled to its lowest level in nearly six years on
Wednesday, Wall Street traders and many ordinary Americans were asking the same
question: Where, oh where is the bottom?
After a yearlong slide in stocks and a giant bank rescue from Washington, even
some pessimists had hoped that the worst might be over. But now, after the Dow
Jones industrial average fell below 8,000 on Wednesday, the financial crisis and
the bear market it spawned seem to be taking a new, painful turn.
Once again, investors’ confidence in the nation’s financial industry is draining
away. And once again, people are rushing for ultra-safe investments like
Treasuries. Many analysts agree that the short-term outlook seems grim now that
the Dow has fallen below 8,000, a level that had lured buyers again and again in
“When you break through these kinds of levels, it strongly suggests there’s more
to go,” said Ed Yardeni, president of Yardeni Research.
But how much more to go? Dow 7,000? Dow 6,000? Many analysts are reluctant to
say, having been proved wrong so many times before. The Dow has lost nearly 40
percent this year, and many of its blue chips, from Alcoa to General Electric,
are down even more than that.
Much will depend on the course of the economy, but there is little good news on
that front. On Wednesday, a new report raised concern that the economy might be
beset by a debilitating decline in prices, or deflation.
But another big worry is that the credit markets, where this crisis began, are
coming under even more stress than they were before. Junk bonds, for instance,
fell to their lowest levels on record on Wednesday, driving the average yield on
these high-risk corporate bonds to more than 20 percent. Yields on Treasury
bills, meantime, fell to nearly zero. Investors were willing to accept almost no
return just to know their money was safe.
The Treasury’s benchmark 10-year bill rose 1 25/32, to 103 20/32, and the yield,
which moves in the opposite direction from the price, was at 3.32 percent, down
from 3.53 percent late Tuesday.
Another source of concern is a possible new round of forced sales by hedge
funds, seeking to raise the cash quickly to meet margin calls and redemptions of
assets by investors.
Few stocks escaped unscathed. Shares of small and midsize companies fell, as
well as those of Wal-Mart, the retailer. Energy companies plunged, as did
airlines, fast-food chains and pharmaceutical companies.
But it was financial stocks that bore the brunt of the selling, and, for many
analysts, seem the most worrisome. Financial shares are plunging far below the
levels plumbed in October, when panic gripped the markets. On Wednesday,
Citigroup, the hobbled financial giant, plunged 23.4 percent to a mere $6.40 in
an avalanche of sell orders. Once the most valuable financial company in
America, Citigroup is now worth less than U.S. Bancorp.
Big banks like Bank of America, JPMorgan Chase and Wells Fargo & — all of which,
like Citigroup, have received billions of dollars from the government — fell
more than 10 percent.
Goldman Sachs, the former employer of Henry M. Paulson Jr., the Treasury
secretary, sank to its lowest level since it went public in 1999. Analysts
predicted that Goldman, the most profitable bank in Wall Street history, would
suffer its first loss as a public company.
Even Warren E. Buffett’s Berkshire Hathaway, which owns the Geico Corporation
and recently invested in Goldman Sachs, fell 12 percent, its steepest decline in
more than two decades. The Dow Jones industrial average closed down 427.47
points or 5.07 percent, at 7,997.28. The broader Standard & Poor’s 500-stock
index closed down 6.12 percent or 52.54 points at 806.58 while the
technology-heavy Nasdaq ended down 6.53 percent at 1,386.42.
But even as markets tumbled, analysts saw few signs of capitulation, that final
burst of panicked selling that typically marks a market bottom. If anything,
Wednesday’s new lows are a sign that Wall Street has farther to fall.
“The market is still anticipating that we have not seen the worst,” said Ryan
Larson, head equity trader at Voyageur Asset Management.
After precipitous declines this autumn, Wall Street had spent the past weeks
testing its yearly lows by dipping sharply, only to rebound late in the day. The
testing and retesting prompted some optimists to hope that the markets had
finally found a foothold.
But Wednesday’s drop proved them wrong.
A gathering mass of bleak economic conditions seemed to approach the critical
point, as fears of deflation and the auto industry’s waning prospects of a
federal bailout drove financial markets into an afternoon selling frenzy.
Auto shares fell as the leaders of the three American automakers reprised their
appearance on Capitol Hill to discuss an emergency bailout and the threat of
bankruptcy. General Motors was down 10 percent, to $2.79 a share, and the Ford
Motor Company was down 25 percent, to $1.26.
Crude oil settled at a 22-month low at $53.62 a barrel, and energy stocks
followed them lower.
Wednesday’s losses followed news that consumer prices dropped 1 percent in
October, a record one-month decline, according to the Labor Department. Energy
prices, which tumbled 8.6 percent over the month, led the declines.
Meanwhile, housing starts in October fell 4.5 percent to a seasonally adjusted
791,000 from the prior month, the government reported on Wednesday. For the
year, housing starts were down 38 percent and building permits were 40 percent
lower, reflecting how the housing industry has slammed to a halt amid tumbling
home values, slumping sales and tighter credit markets.
Asian stock markets opened sharply lower on Thursday. Trade data from Japan,
Asia’s largest economy, showed big drops in exports compared with a year ago.
The Nikkei 225 index in Japan dropped 4.3 percent soon after the opening.
Similar falls were seen in South Korea, where the Kospi fell 3.9 percent.
Shares Near 6-Year Low,
With More Losses Feared, NYT, 20.11.2008,
FTSE 100 hits five-year low
as world stockmarkets slump
• US manufacturing spark selling
• Oil price slips
• Japan's Nikkei down 11%
in worst performance since 1987
Thursday October 16 2008
Graeme Wearden and Dan Milmo
The FTSE hit its lowest point in more than five years today as
fears of a global recession sent world stockmarkets falling across Asia, Europe
and the US.
Shares in the UK's leading companies closed down 5.35% at 3861, the FTSE 100's
lowest point since April 2003, following another wave of selling by investors.
A batch of poor manufacturing figures from the US saw the Dow Jones index fall
2% this evening, as the Federal Reserve reported US industrial production in
September suffered its biggest drop since 1974.
The Dow Jones had fallen by 172 points to 8405 by 5pm BST, giving up modest
An influential regional factory output survey, from the Philadelphia Federal
Reserve Bank, compounded the gloom by reporting an 18-year low in factory
"The Philly Fed data provides the first reliable lead into the October numbers
and confirms that the meltdown in financial markets is being closely followed by
a dramatic slide in real economic activity," said Alan Ruskin, the chief
international strategist at RBS Global Banking.
Earlier today, the panic selling that began on Wall Street yesterday evening
spread around the globe as investors lost faith that Europe and America's bank
rescue packages would stave off an economic downturn.
In London, the FTSE 100 fell by almost 6% in the first few minutes of trading to
just 3840.6, its lowest level during the recent crisis. Although it later
bounced back, attempts at a more solid rally faltered after the Dow Jones
maintained its downward trajectory this afternoon.
The FTSE's performance followed an 11% plunge on Japan's Nikkei, its worst daily
fall since 1987.
There was little sign of optimism in the City this morning.
Antonio Borges, a former vice-president of Goldman Sachs, warned that investors
are panicking, selling shares in favour of cash. "The markets are very, very
volatile because we do have a crisis of confidence, so the slightest piece of
bad news throws the markets into disarray," he said.
One analyst warned that shares may have much further to fall. "Unless something
remarkable happens, it looks like the FTSE 100 will test the low of 3287 that it
hit in March 2003," warned David Buik of BGC Partners.
"Regarding a recession – we are in it."
Earlier today, Jaguar Land Rover cut almost 200 jobs, and Corus slashed steel
production for the rest of the year by 20%.
This follows a raft of evidence on Wednesday that the wider economy has been
damaged by the financial crisis.
In the UK, the jobless total hit 1.79 million, and is expected to break through
2 million by Christmas.
Across the Atlantic, yesterday's 733 point plunge on the Dow Jones index was
prompted by a shock drop in retail sales and a grim warning from Ben Bernanke.
The Federal Reserve chairman said that the frozen credit markets posed a big
risk to the wider economy.
"By restricting flows of credit to households, businesses, and state and local
governments, the turmoil in financial markets and the funding pressures on
financial firms pose a significant threat to economic growth," Bernanke told the
Economic Club of New York.
The price of oil slipped again today, with a barrel of US crude oil falling
another $3 to $71.73 on expectations of lower demand.
Markets had rallied on Monday as the world's governments began taking action to
pump capital into their struggling banks.
But in Japan, where the Nikkei fell 11.4% to 8458, the prime minister, Taro Aso,
said America's $250bn (£145bn) injection into the banks did not go far enough.
"It was insufficient, and so the market is falling rapidly again," Aso said.
Borges agreed that the optimism over the bail-out may have been misplaced.
"After the government guarantees, it is fair to expect that the banking sector
will go back to a more normal state. The problem is, however, that this may have
come a bit too late and, meanwhile, the consequences of the credit crunch are
beginning to be felt across the economy," Borges told BBC Radio 4's Today
Hong Kong's Hang Seng index fell by 8.5%, with China's Shanghai Composite down
almost 4% in late trading.
FTSE 100 hits
five-year low as world stockmarkets slump again,
Caps Worst Week Ever for Stocks
Dow Swings 1019 Points
in the Index's Most-Volatile Session
Despite 'Fire-Sale Prices,'
Buyers Mostly Stand Back
OCTOBER 11, 2008
The Wall Street Journal
By E.S. BROWNING,
DIYA GULLAPALLI and CRAIG KARMIN
The Dow Jones Industrial Average capped the worst week in its
112-year history with its most volatile day ever, as hopes for a major
international bank-rescue plan were overwhelmed at day's end by another wave of
Some investors who normally would be jumping to buy beaten-down stocks after a
22% drop over eight trading days said the relentless declines have left them
shell-shocked and unwilling to take new risks. Some spent the day trying to
protect themselves from further declines.
The Dow fell 697 points shortly after the opening bell, and remained down most
of the day. It surged to a 322-point advance less than half an hour before the
close. Investors stampeded into bank stocks as reports circulated that the Group
of Seven leading industrial countries was going to agree on a plan to rescue
major banks, and that Morgan Stanley had been assured that it would receive
funding from a Japanese bank. Hopes briefly blossomed that the worst might
finally be over.
But investors weren't willing to enter the weekend that exposed to stocks, and
in the waning minutes, amid brutal up-and-down swings, stocks gave back all the
late gains. The Dow industrials finished down 128 points, or 1.49%, at 8451.19,
the lowest finish since April 25, 2003. Many bank stocks, however, finished
After regular stock trading ended, the G-7 nations agreed on guidelines to
address the crisis, but stopped short of the kind of concrete action plan
investors had sought, raising the risk of further market chaos. Treasury
Secretary Henry Paulson later provided more details about the U.S. government's
plan to take equity stakes in banks.
This week's 18% decline, and Friday's 1018.77-point swing from low to high, were
the biggest since the Dow was created in 1896. Until now, the Dow's worst week
was in 1933. Total trading volume of stocks listed on the New York Stock
Exchange also hit a record, 11.16 billion shares.
The damage has been devastating both to households and to major investment
institutions. Investors' paper losses on U.S. stocks now total $8.4 trillion
since the market peak one year ago, based on the value of the Dow Jones Wilshire
5000 index, which includes almost all U.S.-based companies.
The blue-chip average is down 40% from last October's record, its biggest
decline since 1974.
Investors who normally would be buying stocks after such heavy declines are
standing back, says Henry Herrmann, chief executive of money-management group
Waddell & Reed in Overland Park, Kan.
"You make a decision and you look dumb the next day," Mr. Herrmann says. "So you
go to gold, and then gold is down. You go to Treasurys, they rally, then they
get their noses punched in." His firm overall is holding 22% to 23% of its
assets in cash, one of the highest levels ever.
The firm is holding cash to avoid getting hammered by market sell-offs, he says.
Another reason is to protect clients and the firm, so the firm won't have to
make forced sales if clients start cashing in their mutual funds -- something
Mr. Herrmann says is just starting to happen.
"I have been doing this since 1963. There has never been anything close to what
we are experiencing now," he says, referring to the market pandemonium. "Maybe
one day in 1987 was close, in terms of absolute riot. But this is happening
"Some stocks are selling at fire-sale prices," adds Jack Ablin, chief investment
officer at Harris Private Bank in Chicago. "But the way this market has broken
down, it needs to rally by 15% or 20% to get enough momentum for us to get back
Alan Haft, chief executive of Haft Financial in Newport Beach, Calif., was
helping clients place big bets against the Dow Jones Industrial Average on
Friday morning, using the ProShares UltraShort Dow 30 fund. The fund is
structured to move in the opposite direction of the Dow, and at twice the speed.
If the Dow falls 1%, the highly risky fund rises 2%, and vice versa. Mr. Haft
has made similar moves every day this week, he says. Clients who invested in a
basket of such funds on Monday were up 25% for the week, he says.
Even some pension funds, which often take a longer-term view, were breaking with
"We're caught by the immensity of the whole thing," says Jim Meynard, executive
director for the Georgia Firefighters Pension Fund. The fund has been raising
its cash position over the past two weeks by selling foreign stocks. "Some of
our [outside] money managers have also raised cash," he says.
Traders said the morning selling appeared to be driven in part by margin calls
-- brokers' demands for additional collateral from clients who had bought stocks
with borrowed money. When stocks that serve as collateral fall sharply, they may
no longer cover the value of the loans. If investors can't quickly provide new
collateral, brokers sell the stocks to pay off the loans.
The margin calls hit some chief executives who had borrowed to
buy company stock. These included Chesapeake Energy Corp. Chief Executive Aubrey
K. McClendon, who was forced to sell nearly his entire stake in the company,
which he had accumulated in recent years, including a $43 million purchase in
July. "These involuntary and unexpected sales were precipitated by the
extraordinary circumstances of the world-wide financial crisis," Mr. McClendon
said in a statement. "In no way do these sales reflect my view of the company's
financial position or my view of Chesapeake's future performance potential."
Other forced sellers included Coca-Cola Enterprises Inc.
director Marvin J. Herb, who said J.P. Morgan Chase & Co. had seized 18.6
million of his shares in the bottler, and had already sold nearly 1.4 million of
them for $17.7 million "pursuant to a credit arrangement." J.P. Morgan has
indicated it plans to sell the remaining shares, Mr. Herb said in a regulatory
The Vix, a measure of market fear based on options trading and tracked by the
Chicago Board Options Exchange, rose to 69.95, by far its highest level since it
was introduced more than 15 years ago.
Lending markets remained heavily impaired. The continuing reluctance of banks to
lend, even to some other banks, added to investor fears that more unsettling
financial news could be on the way. Investors continued to flock to the relative
safety of short-term Treasury bills, and away from corporate bonds, mortgages
and other nongovernmental bonds.
Returns in the $745 billion junk-bond market -- debt issued by companies with
weak balance sheets and cash flows -- are down more than 17% in the past five
weeks, according to Merrill Lynch. The $2.5 trillion debt market for companies
with high credit ratings, the investment-grade market, has fallen 11% since the
start of September, and 11.5% since the beginning of the year.
A Dow Jones index of bank stocks rose 9% on Friday, reflecting the hopes for
some kind of government bailout. Reports that Morgan Stanley was still on track
to receive a capital injection from Mitsubishi UFJ Financial Group Inc. helped
it rally off its lows, but the stock still fell 22% on the day.
Wild Day Caps Worst Week Ever for Stocks,
in biggest fall
since Black Monday
October 6 2008 08:35
Last updated: October 6 2008 19:54
The Financial Times
By Neil Hume and Bryce Elder
The London market was routed on Monday with the FTSE 100 suffering its biggest
one day percentage fall since Black Monday in 1987, and biggest points fall
The blue-chip index dropped 391.1 points, or 7.9 per cent, to finish at a four
year low of 4,589.2 as investors threw in the towel amid fears that a deep
global economic slow down was taking hold in spite of measures to bail out the
This was reflected by the performance of the mining sector, which led the FTSE
100 lower. Kazakhmys slumped 26.6 per cent to 417¾p, while ENRC, which listed at
540p in December, lost 23.4 per cent to 425p, Fresnillo shed 19.9 per cent to
225p and Xstrata ended 19.2 per cent lower at £13.57.
UBS said it now expected global GDP growth of just 2.2 per cent in 2009, down
from 2.8 per cent previously. “This suggests a global recession,” the bank said.
“As a result we have cut UK mining sector earnings forecasts for 2009/10 by 38
per cent and 41 per cent,” it continued.
On top of that, traders noted that four Chinese steel companies were considering
reducing output by 20 per cent, or 20m tonnes, and benchmark ferrochrome prices
for the fourth quarter had been set 10 per cent below the previous quarter.
However, Ferrexpo, the Ukrainian producer of iron ore pellets, managed to
outperform, falling just 2.1 per cent to 115p after Czech coal producer New
World Resources, down 23.1 per cent to 500p, picked up a 20 per cent stake at
just 86p a share from Ferrexpo founder Kostyantin Zhevago.
The Ukrainian billionaire, who retains a 51 per cent holding in Ferrexpo, was
forced to sell to meet a margin call on a loan, for which the shares were held
Banking stocks also slumped. With money markets still gummed up, HBOS dropped
19.8 per cent to 160.8p while Lloyds TSB fell 10.8 per cent to 259p. Based on
last night’s closing price, HBOS is trading at a 25 per cent discount to the
implied value of Lloyds’ all stock offer. On Friday, the discount was 17 per
Sandy Chen, banks analyst at Panmure Gordon, advised clients to sell Barclays,
off 14.7 per cent to 314p, and Royal Bank of Scotland, down 20.5 per cent at
148.1p, citing their potential exposure to defaults on credit default swaps.
“We broadly estimate there could be $50bn of payouts related to Fannie Mae and
Freddie Mac CDS, and $400bn of payouts related to Lehman CDS. We think it highly
likely that many counterparties, particularly hedge funds, will not be able to
raise the cash to meet their ends of these bargains,” Mr Chen warned.
Land Securities fared rather better, closing just 5.1 per cent lower at £12.25 –
after John Whittaker’s Peel Holdings announced a raised holding of 5.5 per cent.
Taylor Wimpey was among the biggest fallers in the FTSE 250, which closed 520.8
points, or 6.5 per cent, lower at 7,474.8. Its shares fell 20.1 per cent to 27¾p
as investors reacted to Friday’s late news that Fitch had downgraded its rating
on the housebuilder’s senior unsecured debt rating to B from BB-. The move
followed Friday’s announcement that Taylor Wimpey’s eurobond creditors would be
part of its covenant renegotiation process, in addition to bank and US private
placement creditors “This process is progressively moving towards a work-out
scenario,” Fitch warned.
Rentokil Initial dipped 3.7 per cent to 65¼p on concerns the support services
group might need to raise capital from shareholders to pay back a £250m bond
which matures next month.
“If it [Rentokil] is unable to refinance at rates it deems acceptable or it is
unwilling to draw down further on its banking facilities it could look to raise
cash in the equity markets,” Goldman Sachs warned in a recent note.
In the pub sector, JD Wetherspoon fell 10.3 per cent to 225¾p while Mitchells &
Butlers, in which financier Robert Tchenguiz has a 26 per cent stake, slipped
11.1 per cent to 187p.
Traders said pub stocks had been hit by investors being forced to close
positions after an Icelandic investment bank increased margin requirements on
derivative contracts. This was also a factor in the poor performance of J
Sainsbury, down 5 per cent at 313p.
FTSE 100 in biggest fall since Black Monday, FT,
Drops Under 10000
as Bank Woes Persist
OCTOBER 6, 2008
2:28 P.M. ET
The Wall Street Journal
Deepening fear that the global economy is ailing beyond the capacity of
policy makers to cure it sent stocks sharply lower on Monday.
The Dow Jones Industrial Average tumbled below the 10000 mark for the first time
since October of 2004, recently falling by more than 700 points to roughly 9615.
All 30 of the measure's components were in the red, with financial names like
Citigroup and American Express tumbling by more than 10% each.
Markets were rattled overnight after German regulators were forced to step in
and save Hypo Real Estate Holding, in the latest in a series of bailout for
banks in Europe. The move kept concern about further bank failures around the
world high and sent European stock markets sliding, setting a bleak tone for
trading in the U.S.
Government officials have been scrambling to stanch the bleeding in financial
markets. Last week, President George W. Bush signed the $700 billion rescue
package for ailing banks into law. And on Monday, the Federal Reserve said it
would begin paying interest on commercial banks' reserves and expand its loan
program for squeezed financial institutions. But the notion that there will be
no quick fix for the problems besetting Wall Street -- and the economy --
appeared to be setting in with investors Monday.
"People are looking at the [stock] market's fundamentals and realizing how long
it's going to take to see some real relief," said Doreen Mogavero, president and
chief executive of the New York floor brokerage Mogavero Lee & Co. Ms. Mogavero
said that Monday's session didn't seem like a round of capitulation, or
last-ditch selling to mark a market bottom.
"Yes, it's a big move, but there hasn't been the sort of volume behind it that
we'd like to see," in order to confirm that there isn't another wave of sellers
still waiting on the sidelines, she said.
Credit markets also continued to show signs of stress. The cost of borrowing
overnight U.S. dollar funds in the interbank market had risen to 2.36875%, up
from Friday's fixing of 1.99625%. Yields also fell sharply as investors again
flocked to U.S. government debt. The yield on three-month Treasury bill fell to
near 0.4%, showing that investors are willing to accept almost no returns in
exchange for the certainty that they'll get their cash back in hand after
marking a short-term loan to the government.
The benchmark 10-year note gained 1-10/32 to yield 3.442% as investors rushed to
move money into Treasurys and away from riskier assets like shares.
"This is just about fear right now, and whether stocks are going to close
down 200 or 900 points," said Rick Klingman, managing director o fTreasury
trading at BNP Paribas.
The S&P 500 was recently down 6.1%, trading at 1032.23. All its sectors fell,
led by economically sensitive categories like energy, down 8.9% amid a steep
drop in oil prices; basic materials, which slid 7.3%; and industrials, down
5.1%. Bank shares continued to fall, pushing the S&P financial sector down 6.8%.
The Nasdaq Composite Index dropped lost 7.2% to trade at 139.56. The small-stock
Russell 2000 was down 6.4%, trading at 579.68.
Oil futures tumbled $5.15 to $88.73 a barrel due to traders' concerns that fuel
demand will suffer as the global economy slows in the months ahead. Other raw
materials suffered from similar concerns. The broad Dow Jones-AIG Commodity
Index was off almost 5% in recent action.
Gold, which is traditionally viewed as an investor haven rather than an
industrial resource, was a notable exception to the commodity selloff. Futures
on the yellow metal were recently up $33.60 trading at $866.80 per ounce in New
In economic news, the Conference Board said its employment trends index, an
aggregate of eight labor-market indicators, fell 0.8% to 108.4 in September,
down from a revised 109.3 in August. The index is down almost 10% from a year
ago, suggesting that the U.S. labor market is likely to deteriorate sharply in
the months ahead.
"The deterioration in the Employment Trends Index has become very pronounced,
suggesting that the unemployment rate may very well exceed 7% as early as the
second quarter of 2009," said Gad Levanon, senior economist at the Conference
Board. "The persistent slackening in labor market conditions, worsened by the
financial crisis, has reached a level that in the past led to significantly
slower wage growth across most industries."
Charles Evans, president of the Fed's Chicago branch, said in a speech at an
event sponsored by the Association for Technology in Lost Pines, Texas, that
U.S. economic growth is "likely to be quite sluggish" into 2009, with the
timeline for any recovery quite uncertain.
The dollar was mixed against major rivals. One euro recently cost $1.3477, down
from $1.3806 late Friday. A dollar fetched 100.67 yen, down from 105.14 yen.
—Emily Barrett, Madeleine Lim, and Stephen Wisnefski
contributed to this
Dow Drops Under 10000 as
Bank Woes Persist, WSJ, 6.10.2008,
Worst Single-Day Drop in Two Decades
September 30, 2008
The New York Times
By VIKAS BAJAJ
and MICHAEL M. GRYNBAUM
Even before the opening bell, Monday looked ugly.
But by the time that bell sounded again on the New York Stock Exchange, seven
and a half frantic hours later, $1.2 trillion had vanished from the United
States stock market.
What had started 24 hours earlier, with a modest sell-off in stock markets in
Asia, had turned into Wall Street’s blackest day since the 1987 crash. The broad
market, as measured by the Standard & Poor’s 500-stock index, plunged almost 9
percent, its third-biggest decline since World War II. The Dow Jones industrial
average fell nearly 778 points, or 6.98 percent, to 10,365.45.
Across Wall Street, no one could quite believe what was happening on the floor —
the floor of the House of Representatives, not the New York Exchange.
As lawmakers began to vote on a $700 billion rescue for financial institutions,
the Voyageur Asset Management trading desk in Chicago went silent. Money
managers gaped at a television screen carrying news that seemed unthinkable: the
bill was not going to pass. Shortly after 1:30 p.m., the rescue was rejected.
“You just felt like the world was unraveling,” Ryan Larson, the firm’s senior
equity trader, said. “People started to sell and they sold hard. It didn’t
matter what you had — you sold.”
Frustration, and then panic, coursed through the markets. Investors feared the
decision in Washington would imperil the financial industry, as well as the
At the Federal Reserve and other central banks, policy makers were also anxious.
Even before the vote on Capitol Hill, central bankers tried to jump-start the
credit markets. They offered hundreds of billions of dollars in loans to banks
around the world because banks and investors were unwilling to lend to each
other. But neither the stock market nor the credit markets appeared to respond.
Just 24 hours earlier, few imagined Monday would play out this way. Treasury
Secretary Henry M. Paulson Jr. and the House speaker, Nancy Pelosi, announced
Sunday afternoon they had agreed on terms of a bailout.
But while Congressional aides and lawmakers worked on the details, the credit
crisis that began more than a year ago in the American mortgage market was
setting off new alarms in Europe.
Shortly before 6 p.m. New York time on Sunday, Belgium, the Netherlands and
Luxembourg agreed to invest $16.2 billion to rescue a big bank, Fortis. A few
hours later, the German government and a group of banks pledged $43 billion to
save Hypo Real Estate, a commercial property lender. At 2:50 a.m., news came
that the British Treasury had seized the lender Bradford & Bingley and sold the
bulk of it to Banco Santander of Spain.
“We will continue to do what is necessary,” a somber Gordon Brown, the British
prime minister, told reporters at 10 Downing Street in London.
In Tokyo, where stocks had opened higher in early trading on Monday, worries
quickly set in. Traders returned from lunch to reports suggesting the financial
crisis was taking a toll on the global economy. Markets across Asia began to
In Tokyo, the Nikkei 225 sank 1.5 percent. In India, stocks fell nearly 4
percent. In Hong Kong, where a big bank, HSBC, raised key lending rates because
of the credit market turmoil, the Hang Seng tumbled nearly 4.3 percent.
As events unfolded in Asia, a major American bank was in trouble. Regulators in
Washington were rushing to broker the sale of the Wachovia Corporation to
Citigroup or Wells Fargo.
At about 4 a.m., Sheila C. Bair, chairwoman of the Federal Deposit Insurance
Corporation, called Citigroup executives to say Wachovia’s banking business was
On Monday morning, before financial markets in the United States had opened,
Federal Reserve officials were alarmed that credit markets in Europe and Asia
had spiraled even deeper into crisis on Monday.
Fed officials could see that money markets were freezing up in every part of the
world, even though the Fed and other central banks had expanded their emergency
lending programs last Thursday. This time, Fed officials felt compelled to
provide a true show of force by expanding their existing loan arrangements by an
unprecedented $330 billion.
As investors in New York were getting up, the credit markets were again flashing
red as banks reported higher borrowing costs. Investors continued to seek safety
in Treasuries. The yield on one-year Treasury bills, for instance, fell to
almost zero, meaning investors were willing to accept no return just for the
assurance that they would get their money back.
When trading opened on the New York Exchange at 9:30 a.m., stocks immediately
fell 1 percent.
Worried officials at the Fed announced at 10 a.m. that the central bank would
increase to $620 billion its program to lend money through foreign central
banks, up from $290 billion, to keep credit flowing. The central bank also said
it would double the money it lends out domestically through an auction program
to $300 billion.
Many eyes on Wall Street turned to National City, the Cleveland-based bank,
which has a $20 billion portfolio of troubled loans it is trying to sell.
National City’s shares plummeted 50 percent to $1.50 in early trading, prompting
Peter E. Raskind, the bank’s chief executive, to assert that the bank was sound.
“It’s not overly dramatic to say that investors are panicking. You can see it in
the market and we can feel it,” Mr. Raskind said in an interview.
In New York, 10 executives at an investment firm, Bessemer Trust, huddled to
discuss the markets. A question arose: What would it take to restore confidence
to the credit markets? There were few upbeat answers, though one said
Citigroup’s takeover of Wachovia could pave the way for more consolidation in
banking. “It is the type of solution that makes good sense in these challenging
times,” Marc D. Stern, Bessemer Trust ’s chief investment officer, said as he
recounted the meeting.
But Mr. Stern and his group would soon be dismayed by what was happening in
At 1:30 p.m. the House began to vote on the rescue package that Mr. Paulson and
Congressional leaders negotiated over the weekend. About 10 minutes later, when
it became clear that the legislation was in trouble, the stock market went into
a free fall, with the Dow plunging about 400 points in five minutes.
At his home office in Great Neck, N.Y., Edward Yardeni, the investment
strategist, received terse e-mail messages from clients and friends. “Is this
the end of the world?” one asked. Another sent a simple plea: “Stop the world, I
want to get off.”
Mr. Yardeni and other analysts said the action in Washington left many investors
discouraged and feeling powerless. “You can come into the office and spend a lot
of time researching companies, trying to understand them. You’ve got a portfolio
that you think should do well,” he said. “And none of that matters.”
Marc Groz, chief executive of Topos Partners, a hedge fund in Stamford, Conn.,
put it this way: “It’s frustrating for someone like me because I don’t have a
pipeline to what is happening in Washington, D.C.”
The stock market briefly rallied, then slowly lost ground in the afternoon. A
flurry of sales minutes before the close sent the Dow down another 200 points,
to its lowest level for the day.
Shortly after the closing bell rang on the floor of the Big Board, Mr. Paulson,
looking exhausted, spoke to reporters at the White House. He lamented the vote,
but vowed to keep pressing Congress for a broad rescue plan to help ease stress
in the credit markets.
Following are the results of Monday’s auction of three- and six-month Treasury
Eric Dash and Ben White contributed reporting.
For Stocks, Worst
Single-Day Drop in Two Decades, NYT, 30.9.2008,
Dow Falls More Than 500 Points
September 30, 2008
The New York Times
By MICHAEL M. GRYNBAUM
The stunning rejection of the administration's $700 billion
financial bailout plan sent stocks plunging on Monday even before the House of
Representatives finished voting.
The Dow, which had been trading down about 300 points for most of the afternoon,
fell to a 600-point deficit before recovering slightly. The index was down more
than 550 points as lawmakers scrambled, but failed, to round up votes to pass
The House on Monday defeated the bill by a vote of 228-205.
At 3 p.m., less than an hour after the voting ended, the Dow was at 10,609.09,
down 534.04, or 4.8 percent. But the broader market was down even more sharply.
The Standard & Poor’s 500-stock index was down 6.3 percent after dropping as far
as 7 percent.
The drop reinforced the fear coursing through Wall Street as investors wondered
whether the bailout plan would eventually pass Congress. Before the vote,
supporters of the bill said they thought the legislation would squeak through
with a slim majority. But as the initial period of voting ended, the bill
appeared to be in danger of not passing the House.
Shares had fallen earlier in the day despite what lawmakers had described as an
agreement on the bailout plan. Citigroup also snatched up the core business of
Wachovia, the ailing banking giant, which had been in danger of collapse.
The Wachovia move, which was spearheaded by federal regulators, could have been
taken as a sign that the government was eager to restore stability to the
financial system. But the near-collapse of Wachovia, which was the nation’s
fourth-largest bank, may have underscored the troubling sense among investors
that any bank is vulnerable in the current crisis.
The world’s credit markets also remained under pressure. Yields on Treasuries
dropped and lending rates stayed high, signs that investors remained deeply ill
at ease about the health of the financial system.
Responding to the strain, the Federal Reserve moved to vastly increase the
amount of liquidity it makes available to major players in the world financial
system. The Fed will triple the size of its regular auctions for banks and work
with nine other central banks to increase the flow of credit.
The Fed is hoping to combat a hoarding mentality that has arisen among banks,
whose reluctance to lend — even to healthy institutions — has jammed up critical
financial arteries that many small businesses depend on.
On Monday, the cost of borrowing euros for a three-month period rose to the
highest price on record. Banks are charging enormous premiums for short-term
financing. And money continued to flow into the safe space of Treasury bills and
traditional hedges like gold, the price of which rose 2.2 percent.
Shares of Wachovia lost 90 percent of their value in electronic overnight, but
the stock never opened on Monday morning as officials halted trading before the
Citigroup shares fell, and shares of financial stocks traded lower. Morgan
Stanley fell 11 percent and Goldman Sachs was off 8 percent.
European stocks, already sharply down at the New York open, fell further after
the declines on Wall Street. Stocks in London and Paris were down more than 5
percent, and Frankfurt was down about 4 percent. In Asia, the benchmark Hong
Kong index plummeted 4.3 percent overnight; Tokyo’s Nikkei 225 lost 1.2 percent.
President Bush appeared outside the White House at 7:30 a.m. on Monday, before
the markets opened, to endorse the bailout legislation that was agreed upon over
“A vote for this bill is a vote to prevent economic damage to you and your
community,” the president said in a brief statement. “The impact of the credit
crisis and housing correction will continue to affect our financial system and
growth of our economy over time. But I am confident that in the long run,
America will overcome these challenges.”
The problems in Europe came after government bailouts of several banks,
including the British lender Bradford & Bingley and the Belgian-Dutch financial
If anything, the moves created uncertainty about which institution would be
next, said Jean Bruneau, a trader at Société Générale in Paris.
Shares of the Brussels-based lender Dexia fell 22.7 percent as investors worried
that it might be the next bank to need government help. The company may soon
announce a plan to raise capital, the French newspaper Le Figaro said, without
citing a source.
The agreement on Capitol Hill on the terms of the bailout package failed to lift
the mood in Europe.
“The U.S. bailout doesn’t change some negative short-term factors — that the
economic outlook is weak and that the earnings outlook is weak,” said Tammo
Greetfeld, a strategist at UniCredit Markets & Investment Banking in Munich.
“The key question is can the bailout create enough optimism among investors that
they focus on the medium-term improvement and ignore short-term weakness. We’re
not there yet, the benefits look to be too far down the road.”
The dollar gained against the euro and the pound, and was stable against the
Stock markets in Asia fell on renewed fears of a global credit crunch, erasing
earlier gains that came after the weekend agreement on Capitol Hill.
The Standard and Poor’s/Australian Stock Exchange 200 Index fell 2 percent after
rising slightly on Monday morning. The Kospi Index was down 1.3 percent after an
early 1.2 percent surge in Seoul.
Bradford & Bingley, the British lender, was seized by the government after the
credit crisis shut off financing and competitors refused to buy mortgage loans
that customers were struggling to repay.
Banco Santander, the Spanish lender, will pay $1.1 billion to buy Bradford &
Bingley branches and deposits, the Treasury said. Santander shares declined 2.8
percent, to 10.61 euros. Shares in UBS, the Swiss bank, fell 7.7 percent.
The stock market in Taiwan was closed on Monday as Typhoon Jangmi passed
directly over Taipei. Mainland China’s stock markets in Shanghai and Shenzhen
are closed this week as part of a national holiday marking the establishment of
China as a Communist country in 1949.
Vikas Bajaj, Keith Bradsher and Matthew Saltmarsh
Dow Falls More Than
500 Points, NYT, 30.9.2008,
House Rejects Bailout Package, 228-205,
But New Vote Is
Planned; Stocks Plunge
September 30, 2008
The New York Times
By CARL HULSE
and DAVID M. HERSZENHORN
WASHINGTON — In a moment of historic drama in the Capitol and
on Wall Street, the House of Representatives voted on Monday to reject a $700
billion rescue of the financial industry.
The vote against the measure was 228 to 205. Supporters vowed to try to bring
the rescue package up for consideration against as soon as possible.
Stock markets plunged sharply at midday as it appeared that the measure was go
House leaders pushing for the package kept the voting period open for some 40
minutes past the allotted time, trying to convert “no” votes by pointing to
damage being done to the markets, but to no avail.
Supporters of the bill had argued that it was necessary to avoid a collapse of
the economic system, a calamity that would drag down not just Wall Street
investment houses but possibly the savings and portfolios of millions of
Americans. Opponents said the bill was cobbled together in too much haste and
might amount to throwing good money from taxpayers after bad investments from
Wall Street gamblers.
Should the measure somehow clear the House on a second try, the Senate is
expected to vote later in the week. The Jewish holidays and potential procedural
obstacles made a vote before Wednesday virtually impossible, but Senate
vote-counters predicted that there was enough support in the chamber for the
measure to pass. President Bush has urged passage and spent much of the morning
telephoning wavering Republicans to plead for their support.
Many House members who voted for the bill held their noses, figuratively
speaking, as they did so. Representative John A. Boehner of Ohio, the Republican
minority leader, said there was too much at stake not to support it. He urged
members to reflect on the damage that a defeat of the measure could mean “to
your friends, your neighbors, your constituents” as they might watch their
retirement savings “shrivel up to zero.”
And Representative Steny Hoyer of Maryland, who as Democratic majority leader
often clashes with Mr. Boehner, said that on this “day of consequence for
America” he and Mr. Boehner “speak with one voice” in pleading for passage.
When it comes to America’s economy, Mr. Hoyer said, “none of us is an island.”
The House debate was heated and, occasionally, emotional up to the last minute,
as illustrated by the remarks of two California lawmakers.
Representative Darrell Issa, a Republican, said he was “resolute” in his
opposition to the measure because it would betray party principles and amount to
“a coffin on top of Ronald Reagan’s coffin.”
But Representative Maxine Waters, a Democrat, said the measure was vital to help
financial institutions survive and keep people in their homes. “There’s plenty
of blame to go around,” she said, and attaching blame should come later.
The House vote came after a weekend of tense negotiations produced a rescue plan
that Congressional leaders said was greatly strengthened by new taxpayer
safeguards. “If we defeat this bill today, it will be a very bad day for the
financial sector of the economy,” Representative Barney Frank, Democrat of
Massachusetts and the chairman of the Financial Services Committee, said as the
debate began and the stock market opened sharply lower. The Standard & Poor’s
500 index was down almost 3.4 percent at midmorning.
Earlier Monday, President Bush urged Congress to act quickly. Calling the rescue
bill “bold,” Mr. Bush praised lawmakers “from both sides of the aisle” for
reaching agreement, and said it would “help keep the crisis in our financial
system from spreading throughout our economy.”
He said the vote would be difficult, but he urged lawmakers to pass the bill
promptly. “A vote for this bill is a vote to prevent economic damage to you and
your community,” he said.
“We will make clear that the United States is serious about restoring stability
and confidence in our system,” he said, speaking at a lectern set up on a path
on the White House grounds.
He addressed concerns about the high cost of the legislation to taxpayers, but
he said he expected that “much if not all of the tax dollars will be paid back.”
Despite Mr. Bush’s urgings, investors around the world continued to demonstrate
doubts that the bill would fully address the financial crisis. European and
Asian stock markets declined sharply on Monday, especially in countries where
major banks have had significant problems with mortgage investments, like
Britain and Ireland. In the credit markets, investors once again bid up prices
of Treasury securities and shunned more risky debt.
The 110-page rescue bill, intended to ease a growing credit crisis, was shaped
by a frenzied week of political twists and turns that culminated in an agreement
between the Bush administration and Congressional leaders early Sunday morning.
The measure faced stiff resistance from Republican and Democratic lawmakers who
portrayed it as a rush to economic judgment and an undeserved aid package for
high-flying financiers who chased big profits through reckless investments.
Early in the House debate, Jeb Hensarling, Republican of Texas, said he intended
to vote against the package, which he said would put the nation on “the slippery
slope to socialism.” He said that he was afraid that it ultimately would not
work, leaving the taxpayers responsible for “the mother of all debt.”
Another Texas Republican, John Culberson, spoke scathingly about the unbridled
power he said the bill would hand over to the Treasury secretary, Henry M.
Paulson Jr., whom he called “King Henry.”
A third Texan, Lloyd Doggett, a Democrat, said the negotiators had “never
seriously considered any alternative” to the administration’s plan, and had only
barely modified what they were given. He criticized the plan for handing over
sweeping new powers to an administration that he said was to blame for allowing
the crisis to develop in the first place.
With the financial package looming as a final piece of business before lawmakers
leave to campaign for the November elections, leaders of both parties in the
House and Senate intensified their efforts to sell reluctant members of Congress
on the legislation.
All sides had to surrender something. The administration had to accept limits on
executive pay and tougher oversight; Democrats had to sacrifice a push to allow
bankruptcy judges to rewrite mortgages; and Republicans fell short in their
effort to require that the federal government insure, rather than buy, the bad
Even so, lawmakers on all sides said the bill had been significantly improved
from the Bush administration’s original proposal.
The final version of the bill included a deal-sealing plan for eventually
recouping losses; if the Treasury program to purchase and resell troubled
mortgage-backed securities has lost money after five years, the president must
submit a plan to Congress to recover those losses from the financial industry.
Presumably that plan would involve new fees or taxes, perhaps on securities
“This is a major, major change,” Speaker Nancy Pelosi said on Sunday evening as
she declared that negotiations were over and that a House vote was planned for
Monday, with Senate action to follow.
The deal would also restrict gold-plated farewells for executives of companies
that sell devalued assets to the Treasury Department.
House Republicans had threatened to scuttle the deal, and proposed a vastly
different approach that would have focused on insuring troubled debt rather than
buying it. In the end, the insurance proposal was included on top of the
purchasing power, but there is no requirement that the Treasury secretary use
it, leaving them short of that goal.
It is virtually impossible to know the ultimate cost of the rescue plan to
taxpayers, but Congressional leaders stressed that it would likely be far less
than $700 billion. Because the Treasury will buy assets with the potential to
resell them at a higher price, the government might even turn a profit.
That provision, pushed by House Democrats, was the last to be agreed to in a
high-level series of talks that had top lawmakers and White House economic
advisers hustling between offices just off the Capitol Rotunda until midnight on
Saturday, scrambling to strike an agreement before Asian markets opened Sunday
The bill calls for disbursing the money in parts, starting with $250 billion
followed by $100 billion at the discretion of the president. The Treasury can
request the remaining $350 billion at any time, and Congress must act to deny it
if it disapproves.
Ms. Pelosi, Mr. Paulson and others taking part in the talks announced that they
had clinched a tentative deal at 12:30 a.m. Sunday, exhausted and a little giddy
after more than seven hours of sparring. There were several tense moments, none
more so than when Mr. Paulson, a critical player, suddenly seemed short of
breath and possibly ill. He was tired, but fine.
Trying to bring around colleagues who remained uncertain of the plan, its
architects sounded the alarm about the potential consequences of doing nothing.
Senator Judd Gregg of New Hampshire, the senior Republican on the Budget
Committee and the lead Senate negotiator, raised the prospect of an economic
“If we don’t pass it, we shouldn’t be a Congress,” Mr. Gregg said.
Both major presidential candidates, Senator John McCain of Arizona, the
Republican nominee, and Senator Barack Obama of Illinois, the Democratic
candidate, gave guarded endorsements of the bailout plan. Both Mr. McCain and
Mr. Obama had dipped into the negotiations during a contentious White House
meeting on Thursday.
On Sunday evening, both parties convened closed-door sessions in the House to
review the plan, and conservative House Republicans remained a potential
But the party leadership was circulating information aimed at refuting some of
the main criticisms of the bailout, indicating they were poised to support it.
“I am encouraging every member of our conference whose conscience will allow
them to support this bill,” said Representative John A. Boehner of Ohio, the
A series of business-oriented trade associations with influence with Republicans
also began weighing in on behalf of the plan.
The United States Chamber of Commerce issued a statement on Sunday night that
said it “believes the legislation contains the necessary elements to
successfully remove the uncertainty and stem the turmoil that has plagued
financial markets in recent weeks.”
Members of the conservative rank and file remained unconvinced.
“While it creates a gimmicky $700 billion installment plan, attempts to improve
transparency, and has new provisions cloaked as taxpayer protections, its net
effect is still a huge bailout of the financial sector that will snuff out the
free market system,” said Representative Connie Mack, Republican of Florida.
Some Democrats bristled that they were now being called on to do the financial
bidding of an administration they had viewed as previously uncooperative in
dealing with executives who had performed irresponsibly or worse.
“Financial crimes have been committed,” said Representative Marcy Kaptur,
Democrat of Ohio. “Now Congress is being asked to bail out the culprits.”
Throughout Sunday, small groups of lawmakers could be found around the Capitol
exchanging their views on the plan. Some said they were willing to take a
political risk and back it.
One, Representative Jim Marshall, a Georgia Democrat facing a re-election
contest, told colleagues in a private meeting that he would vote for the measure
to bolster the economy. “I am willing to give up my seat over this,” Mr.
Marshall said, according to another person who was there.
The architects of the plan said they realized they were calling on Congress to
cast a tough vote since lawmakers might not get credit for averting a financial
crisis since some constituents will not believe one was looming.
“Avoiding a catastrophe won’t be recognized,” said Senator Christopher J. Dodd,
Democrat of Connecticut and chairman of the Senate banking committee. “This
economy is not going to have a blossoming on Wednesday.”
But he and others said the support from the two presidential contenders should
provide some comfort to nervous lawmakers.
One of the more contentious issues was how to limit the pay of executives whose
firms seek government aid, a top priority for Democrats and even some Republican
lawmakers. But it was a concern for Mr. Paulson, who worried about discouraging
firms from participating in the rescue plan, which seeks to convince companies
to sell potentially valuable assets to the government at relatively bargain
In the end, they settled on different rules for different companies depending on
how they participate in the bailout. Firms that sell distressed debt directly to
the government will be subject to tougher pay limits, including a mechanism to
recover any bonuses or other pay based on corporate earnings that turn out to be
inaccurate or fraudulent, and a ban on so-called “golden parachute” severance
packages as long as the government has a stake in the firm.
Companies that participate in auctions, or other market-making mechanisms, and
sell more than $300 million in troubled financial instruments to the government,
will be barred from making any new employment contract with a senior executive
that provides a golden parachute in the event of “involuntary termination,
bankruptcy filing, insolvency or receivership.”
While some critics said the limits did not go far enough, lawmakers described
the provision as a historic first step by Congress to limit exorbitant pay of
corporate titans. “I think we wrote it as tight as we can get it in here,” Mr.
Reporting was contributed
by Keith Bradsher from Hong Kong,
Robert Pear from
Washington and Graham Bowley
from New York.
House Rejects Bailout
Package, 228-205, But New Vote Is Planned;
Sees the Worst in Speculators
The New York Times
By DIANA B. HENRIQUES
Washington, financial speculators have fat targets on their backs.
They are being blamed for high gas prices, soaring grocery bills and volatile
commodity markets, and lawmakers are lashing out at market regulators for not
cracking down on them more vigorously.
“You study it, but you don’t act against this incredible increase in
speculation,” Senator Carl Levin, Democrat of Michigan, complained to a senior
official of the Commodity Futures Trading Commission at a recent Senate hearing.
“Unless the C.F.T.C. is going to act against speculation, we don’t have a cop on
Just this week, Senator Joseph I. Lieberman, the Connecticut independent, said
he was working on a proposal to ban large institutional investors from the
commodity markets entirely. The same day, the Bush administration endorsed
another Senate proposal to create a new federal interagency task force to
investigate commodity speculation. At least four public hearings have explored
the topic in just the last two months, and Senator Lieberman will hold another
session on June 24.
Although it is common in tough financial times to blame the speculators, this
escalating hostility toward them is starting to worry people with years of
knowledge about how commodity markets work. Because without speculators, they
say, these markets do not work at all.
Speculators, people willing to risk their capital in search of high profits, are
central to healthy commodity markets, they say, and broad-brush restrictions on
them could damage markets that are already under pressure from rising global
demand for food and fuel.
Even in Washington, there is widespread agreement that no single factor is
responsible for rising food and energy prices. The hungry, high-growth economies
of India and China are fundamentally affecting worldwide demand, while
uncooperative weather and government policies on trade and ethanol are among the
many factors affecting supply.
Commodities, priced in American dollars, tend to rise in price as the dollar
weakens, making commodities a popular haven for investors fearful of inflation.
But beneath all these external factors is the simple seesaw of the marketplace:
For every person who buys oil at $130 a barrel, there must be another person
willing to sell at that price — and, odds are, at least one of them will be a
Before it was a Beltway epithet, “speculator” was simply a type of trader in the
commodity futures markets. Unlike hedgers — the farmers, miners, refineries and
other commercial interests that actually make or use the commodities themselves
— the speculators, like day traders in the stock market, are simply trying to
profit from changing prices.
Some speculators follow market trends, buying as prices rise and driving them
higher. But others buy when they think prices have fallen too low, sell when
they see prices as too high or place bets that pay off only when prices fall.
The more money that speculators are willing to put to work in the market, the
more liquid it is and the easier it is to buy and sell without causing big
ripples in prices.
Any trader, speculator or hedger can try to manipulate markets, of course. But
with tempers rising along with food and fuel prices, some market scholars are
concerned that speculation, the legal pursuit of market profits, is becoming a
synonym for manipulation — secret and collusive trading activity aimed at
deliberately moving prices to produce illegal profits.
As political pressure has grown, regulators have stepped up their demands for
more detailed trading information from commodity exchanges, to improve their
ability to monitor trading.
In a statement this week, Walter Lukken, the C.F.T.C. chairman, said the
commission was determined to see that commodity prices were set “by the
fundamental forces of supply and demand, rather than by abusive or manipulative
The commodity market has seen its share of manipulation scandals — allegations
that executives at J. R. Simplot had tried to fix the Maine potato market in
1976, allegations that the Hunt family of Texas had manipulated the silver
market in 1979 and, just last year, BP’s settlement of federal charges that it
had manipulated propane prices.
Certainly, there have been unusual price spikes in commodity markets, like the
short, sharp roller-coaster ride that hit the cotton market in early March and
the more recent gyrations in the oil markets that have alarmed some market
While commodity market regulators regularly look for manipulative behavior, the
C.F.T.C. took the unusual step in recent weeks of publicly confirming that it
was conducting investigations looking for illegal activity in both the energy
and agricultural markets.
“Concern about manipulation is not misplaced,” said Patrick Westhoff, an
economist at the University of Missouri’s Food and Agricultural Policy Research
Institute. “But speculation doesn’t equal manipulation, and I am concerned that
there’s been a confusion between the two concepts.”
The stage of the speculation that is alarming Washington is the commodity
futures market, which trades a financial derivative called a futures contract,
an agreement for the future delivery of a fixed amount of a commodity at a
certain price. The prices at which these futures contracts change hands are the
benchmark for pricing commodities around the world.
In essence, speculators are the only voluntary players in the commodity futures
markets. They could use their billions to dabble in currency markets or buy
distressed real estate or pile up Treasury bonds.
But farmers, miners, oil producers and all the other players engaged in
commodity production and consumption — the so-called commercial players — pretty
much have to be there. There just are not many other places they can hedge the
price risks that arise in their commodity-based businesses.
So speculators become the ballast in the market, making the contrary trades,
taking on the risks the hedgers want to shed, reacting quickly when news jolts
the markets and, most important, creating liquidity by pouring in enough money
to allow everyone to make very large trades quickly without causing wild price
Liquidity is, in effect, the hostess gift that speculators bring to every market
party, and without the capital poured into energy markets by institutional
investors, prices may well be far higher and more volatile than they are, said
Philip K. Verleger Jr., an economist and energy policy consultant who testifies
frequently before Congress on energy issues.
In the last five years, hundreds of billions of dollars have flowed into the
commodity futures markets, both from traditional institutions — hedge funds,
pension funds and investment bank trading desks, for example — and from the
newer commodity-linked index funds and exchange traded funds, which track
various commodity market indexes.
Mr. Verleger said he strongly disagrees with the view that these new speculators
are pushing up the price of oil and other commodities. “In fact, they have at a
minimum reduced price volatility and quite possibly contributed to a lower price
level than would have been obtained had they been barred from the commodity
markets,” he said.
Paul Horsnell, a managing director and head of commodity research at Barclays
Capital in London, said he believes that Washington’s hostility reflects, in
part, a misunderstanding of the strategy used by many of the new investors.
Critics — including Michael W. Masters, a portfolio manager whose testimony last
month in Washington was praised by Senator Lieberman — complain that these new
investors are piling in only on the buy side, thereby tilting the market toward
The actual picture is more complex, Mr. Horsnell said. Many institutional
investors constantly adjust their positions to maintain a fixed percentage of
their portfolio in commodities, he said.
Thus, a pension fund that wants to put no more than 2 percent of its assets in
commodities will have to sell some of its stake when its value rises above that
So, as in other markets, these investors “are stabilizing forces because when
the asset goes up in value, they sell some to put their portfolios back into
balance,” he said.
But the sheer size of the money flowing into commodity futures has become the
most important fact about it.
According to Barclays research, about $200 billion in managed assets was
invested in commodities at the end of 2007 — up from barely measurable levels
just seven years ago. Latest estimates suggest that figure rose to $230 billion
in the first four months of this year, but at least half of that growth came
from rising commodity prices, not new money flowing in, Mr. Horsnell said.
He said that this entire investment stake is dwarfed by the amount of money
invested in, say, ExxonMobil. But the commodity markets are much smaller than
the equities markets, and this flood of new capital is a once-in-a-lifetime
“Speculators have seized control of these markets,” Senator Levin said.
Lawmakers know that markets need speculators, the senator said, but are using
“speculation” simply as shorthand for their real target of concern, which is
But while federal law orders commodity market regulators to prevent “excessive
speculation,” the law does not define the term — and neither has Congress.
“That’s what regulators are for,” Senator Levin said. “It’s up to them to put
some flesh on that term.”
Senator Lieberman disagreed, saying Congress must clarify the standard for
regulators to enforce. America must not hang a sign on its commodity markets
saying, “no speculators allowed,” he said. “There is a difference between
speculation and excessive speculation.”
But Congress has to “define and legislate that definition better,” he added. “We
can’t just say, as Justice Potter Stewart once said of pornography, that we know
it when we see it.”
A Bull Market Sees the Worst in Speculators, NYT,
Prices and Joblessness
The New York Times
By ABHA BHATTARAI
suffered its worst losses in more than two months on Friday after crude oil
prices spiked over $138, an increase of nearly $11, and the unemployment rate
rose more than expected.
All 30 of the stocks that make up the Dow Jones industrial average took a hit as
the index dropped nearly 400 points on fears that high energy prices will extend
and deepen an economic slowdown.
“The market is meeting its worst fears right now,” said Quincy Krosby, chief
investment strategist at the Hartford, a financial services firm.
The Dow fell 3.13 percent, or 394.64 points, to close at 12,209.81. The broader
Standard & Poor’s 500-stock index lost 43.37 points, or 3.09 percent, to
1,360.68, its lowest point in four months. The technology-laden Nasdaq composite
index declined 75.38 points, or 2.96 percent, to 2,474.56.
Shares opened lower after the government reported that the unemployment rate in
May increased the most in one month in 22 years. The market decline accelerated
as crude oil rose steadily, closing $10.75 higher in its biggest one-day climb
“Oil prices have reached the tipping point,” said Richard Sparks, an analyst at
Schaeffer’s Investment Research. “Prices have rallied for a good two months, but
now it’s really weighing on the market.”
Friday’s session wiped out the gains the markets had Thursday, and left all
three major indexes down for the week. The Dow fell 3.39 percent for the week,
the S.& P. 500 was off 2.83 percent and the Nasdaq had a loss of 1.91 percent.
Wall Street has run into choppy waters over the last two weeks after a period of
relative calm. Friday’s decline was a return to the triple-digit collapses of
February and March, when the market was rocked by the Bear Stearns bailout and
significant interest rate cuts from the Federal Reserve.
The last time the Dow fell this much was at the beginning of the subprime
mortgage crisis in February 2007.
On Friday, the blue-chip index was dragged down by shares of American
International Group, the big insurer, which stumbled after accusations that the
company may have overstated the value of contracts tied to subprime mortgages.
A.I.G.’s shares fell $2.48, or nearly 7 percent, to close at an 11-year low of
Shares of financial firms and companies that depend on discretionary spending
were the hardest hit, as investors worried that the weak labor market was likely
to raise anxieties among some Americans and put a pall on spending habits.
Friday’s report from the Labor Department said that the economy lost jobs for
the fifth consecutive month and the unemployment rate surged to 5.5 percent in
May, from 5 percent in April, the sharpest monthly rise in 22 years.
Investors are also worried that high energy prices will further slow the
“If oil prices stay this high, you’re going to have to re-examine your estimates
for G.D.P., inflation and consumers’ ability to spend outside of
nondiscretionary items,” Ms. Krosby said. “This has all of the elements of an
investor’s worst-case scenario.”
Oil prices surged almost 8 percent, to $138.54 a barrel after a senior Israeli
politician raised the specter of an attack on Iran and the dollar fell against
“As soon as that news hit the tape, oil spiked about $6,” said David Kovacs, an
investment strategist at Turner Investment Partners.
Prices were buoyed further by a report from Morgan Stanley that predicted oil
would reach $150 a barrel by July 4 because of higher demand in Asia.
Shares of General Motors, whose fortunes can depend on oil prices, fell more
than 4 percent, to $16.22.
Mr. Sparks added that the market was also taking a hit from a string of bad news
that came out earlier this week, including Standard & Poor’s downgrading of
Lehman Brothers, Merrill Lynch and Morgan Stanley and the ousting of Wachovia’s
“All of this has culminated and it’s bringing the boogeyman back out of the
closet,” he said.
Bond prices jumped on Friday as investors sought the safety of Treasuries in the
The benchmark 10-year Treasury note rose 1 2/32, to 99 23/32. Its yield, which
moves in the opposite direction, fell to 3.91 percent, from 4.04 percent.
Oil Prices and Joblessness Punish Shares, NYT, 7.6.2008,
A trader made his offer
in the oil options pit of the New York
Mercantile Exchange a few days ago.
Commodities: Latest Boom, Plentiful Risk
NYT 20 March 2008
Latest Boom, Plentiful Risk
March 20, 2008
The New York Times
By DIANA B. HENRIQUES
The booming commodities market has become increasingly
attractive to investors, with hard assets like oil and gold perhaps offering a
safe hedge against inflation, as well as the double-digit gains that have fast
been disappearing from the markets for stocks, bonds and real estate.
Undeterred by the kind of volatile downdrafts that sent oil plunging 4.5 percent
Wednesday, to settle at $104.48 a barrel, large funds and rich individual
investors have sent a torrent of cash into this arcane market over the last
year, toppling records for new money flowing in.
Small investors are plunging in, too, using dozens of new retail commodity funds
to participate in markets that by one measure have jumped almost 20 percent in
the last six months and doubled in six years.
But this market, despite its glitter, offers risks of its own, including some
dangerous weaknesses that are impairing the ability of regulators to police
fraud and protect investors. Commodities are also vulnerable to the same worries
affecting the rest of Wall Street, where on Wednesday the Dow Jones industrial
average plunged almost 300 points, erasing more than two-thirds of Tuesday’s
Moreover, the biggest speculators and lenders in the commodities markets are
some of the same giant hedge funds, commercial banks and brokerage houses that
are caught in the stormy weather of the equity, housing and credit markets.
As in those markets, an evaporation of credit could force some large investors —
especially hedge funds speculating with lots of borrowed money — to sell off
their holdings, creating price swings that could affect a host of marketplace
prices and wipe out small investors in just a few moments of trading.
“Right now is a very scary time” for commodity market regulators, said Michael
Riess, a director of the International Precious Metals Institute, a consultant
to commodities investors for more than 30 years. “It’s not a question of
overregulating or underregulating. It’s a question of just being swamped by
volume, volatility and a dramatic shift toward speculative interests.”
Developments on Wall Street in the last few days underscored the new risks. Both
Bear Stearns and its prospective new owner, JPMorgan Chase, are important
clearing brokers that process and guarantee their clients’ trades in the
Officials at the exchanges where those trades occur had to monitor Bear
Stearns’s financial situation carefully throughout last week to ensure that its
cash shortage did not affect its commodity positions or those of its clients.
Walter L. Lukken, who heads the federal agency that regulates most commodity
markets, said his staff had been able, so far, to cope with both the markets’
growth and the recent tremors from Wall Street.
"Even with the enormous volume coming through,” said Mr. Lukken, acting chairman
of the Commodity Futures Trading Commission, “we think we have gotten a very
good handle on the market. You can’t catch them all, of course, and you worry
that something will get past the goalie. But we have been able to scale up the
regulatory monitoring system to deal with increasing volume.”
Regulators and exchange officials take comfort from the rising commodity prices,
which reduce the risk that lenders will grow nervous about their collateral and
withhold new credit. Despite a broad commodities sell-off yesterday, a Commodity
Research Bureau index remains almost 40 percent higher than a year earlier.
But it has been a roller coaster: commodity prices can record daily percentage
changes that dwarf typical movements in stocks. Yesterday, when crude oil gave
back some of its 85 percent annual gain and gold dropped almost 6 percent after
an annual gain of 44.5 percent, the Standard & Poor’s 500-stock index fell 2.4
percent, leaving it down 7.4 percent over the last year. On its worst single day
over the last year, it fell 3.2 percent.
So stock market investors seeking these formidable gains will find themselves on
unfamiliar terrain. The heart of commodities markets is the so-called cash
market, a “professionals only” setting where producers sell boatloads of iron
ore, tanker ships full of oil and silos full of wheat for immediate use.
Wrapped around that core are the commodities futures markets. Here, hedgers and
speculators trade various versions of a derivative called a futures contract,
which calls for the delivery of a specific quantity of a commodity at a fixed
price on a particular date.
Futures contracts trade both on regulated exchanges and in the immensely larger
but less regulated over-the-counter market, where banks and brokers privately
negotiate futures contracts with hedgers and speculators around the world.
The prices at which all these contracts trade indicate the potential strength of
demand and supply for commodities still in the ground or in the fields. That
makes them important to everyone who produces, buys and uses those goods — wheat
farmers, baking companies, grocery shoppers, oil companies, electric utilities
Prices here can also influence the values of the increasingly popular
exchange-traded funds, or E.T.F.’s, that focus on commodity investments. Born
barely four years ago, these funds had net assets of $32.8 billion in January,
compared with less than $4.8 billion in 2005.
But as the futures markets have grown, the ability of federal regulators to
police them for fraud and manipulation has been shrinking, as a result of
legislative loopholes and adverse court decisions. And despite widespread
agreement that these regulatory gaps are bad for investors and consumers, they
have not yet been repaired.
The oldest of these is the so-called Enron loophole, an 11th-hour addition to
the Commodity Futures Modernization Act of 2000 that gave an exemption to
private energy-trading markets, like the one operated by Enron before its
scandalous collapse in 2001. Regulators later accused Enron traders of using
this exempt market to victimize a vast number of utility customers by
manipulating electricity prices in California.
Related to that loophole is a broader one for a category called exempt
commercial markets, envisioned in the 2000 law as innovative professional
markets for nonfarm commodities that did not need as much scrutiny as public
What lawmakers did not anticipate was that one of the exempt markets, the
IntercontinentalExchange, known as the ICE and based in Atlanta, would become a
hub for trading in a product that mirrors the natural gas futures contract
trading on the regulated New York Mercantile Exchange.
In 2006, traders at a hedge fund used the ICE’s look-alike contract as part of
what regulators later asserted was a scheme to manipulate natural gas prices,
again at great cost to users. The fund denied the accusation, and civil
litigation is pending.
That case persuaded the commission that it needed more power to police these
exempt markets, at least when they help set commodity prices. But so far, it has
not received it, despite repeated requests to Congress.
Another attempt to close these loopholes is attached to the pending farm bill,
which is scheduled to emerge from a Congressional conference committee next
month. But this latest effort, too, faces market and industry opposition.
The courts have also curbed the commission’s reach. In three cases since 2000,
judges have interpreted federal law to severely limit the commission’s ability
to fight fraud involving both over-the-counter markets and specious foreign
currency contracts used to victimize individual investors.
The commission has filed appeals, but a far quicker remedy would be for Congress
simply to revise the laws, as the commission requests.
Mr. Lukken said he was confident that passage of the commission’s proposed
language as part of the farm bill would address those shortcomings, as well as
the exempt-market problem.
Finally, the commodities market has not yet dealt with what some economists say
are inherent conflicts that have arisen as the futures exchanges, which have
substantial self-regulatory duties, have been converted into for-profit
companies with responsibilities to shareholders that could conflict with their
regulatory duties. (For example, shareholders may benefit when an exchange’s
regulatory office ignores infractions by a trader who generates substantial
income for the exchange.)
By contrast, when the New York Stock Exchange and Nasdaq became profit-making
entities, they spun off their self-regulatory units into an independent agency,
now called the Financial Industry Regulatory Authority.
The C.F.T.C. never encouraged that approach, trying instead — so far
unsuccessfully — to adopt principles that would encourage the for-profit
exchanges to add independent directors to oversee their self-regulatory
Independent directors do not owe any less loyalty to shareholders than
management directors would, said Benn Steil, director of international economics
at the Council on Foreign Relations. "The statutory regulators have got to
acknowledge these conflicts and act accordingly," he said.
His view is opposed by Craig Donohue, chief executive of the CME Group, the
for-profit company that operates the Chicago Mercantile Exchange and the Chicago
Board of Trade and may soon merge with the New York Mercantile Exchange.
“We succeed because we are regulated markets, among other things. That’s part of
our identity and brand,” Mr. Donohue said. Effective self-regulation, he added,
is “very consistent with the shareholder interest.”
Mr. Lukken nevertheless plans to push ahead with his call for more public
directors. “The important point is trying to minimize and manage conflicts,” he
said. “Public directors are uniquely qualified to balance the interests of the
public as well as the requirements of the act.” Although the effort has been
delayed, he added: “This is not an indefinite stay. It’s a priority of mine that
we hope to complete in the coming months.”
But some with experience in the commodities market remain nervous about the new
money pouring in so quickly.
Commodity trading firms that have survived for any length of time have excellent
risk-management skills, said Jeffrey M. Christian, managing director of the CPM
Group, a research firm spun off from Goldman Sachs in 1986. Mr. Christian said
he was less certain how the newcomers would deal with risk.
“You have the stupid money coming into the market now,” he said last week. “And
I think the smart money is beginning to get a little frightened about what the
stupid money will do.”
Boom, Plentiful Risk, NYT, 20.3.2008,
Rally on Robust IBM Results
Filed at 11:18 a.m. ET
The New York Times
By THE ASSOCIATED PRESS
(AP) -- Wall Street advanced sharply Monday, with solid preliminary results from
IBM encouraging investors to buy back into the stock market after last week's
International Business Machines Corp., one of the 30 Dow Jones industrials,
released preliminary earnings estimates for the fourth quarter that were 24
percent above year-earlier levels. The results also beat the forecast of
analysts surveyed by Thomson Financial.
After falling nearly 250 points on Friday, the Dow rose more than 100 points
''The market was pretty oversold,'' said Richard E. Cripps, chief market
strategist for Stifel Nicolaus. ''We were due to bounce back, and the IBM news
The badly beaten financial sector will remain under a microscope, however, after
reports over the past week that Citigroup Inc. may have to take a
larger-than-feared writedown; the bank's earnings report is due Tuesday.
Elsewhere in the sector, Merrill Lynch & Co. Inc. is seeking $4 billion, in a
second capital raising to stanch the losses on its balance sheet, according to
the Financial Times. The Kuwait Investment Authority could invest as much as $3
billion in the deal, which could be announced by the middle of the week.
In late morning trading, the Dow gained 116.98, or 0.93 percent, to 12,695.80.
IBM was the biggest gainer in the Dow, rising $5.85, or 6 percent, to $103.52.
Broader stock indicators also rose. The Standard & Poor's 500 index added 8.65,
or 0.62 percent, to 1,409.67 and the Nasdaq composite index shot up 24.83, or
1.02 percent, to 2,464.77.
With no major economic data on the calendar, investors focused on corporate and
commodities news. Overnight in overseas trading, gold futures hit a record,
venturing above $913 an ounce as the dollar tumbled against other major
currencies. The euro reached a new high above $1.49.
Other commodities were higher, too. Crude oil futures rose 95 cents to $93.62 a
barrel on the New York Mercantile Exchange.
Treasurys were trending slightly higher in early dealings. The yield on the
benchmark 10-year Treasury note was 3.79 percent, down from 3.81 percent on
Friday. Prices and yields trade in opposite directions.
In corporate news, General Motors Corp. Chief Financial Officer Fritz Henderson
said that although the GMAC finance wing's auto loan delinquencies were up
slightly in the third quarter from year-before levels, the problems for auto
loans were not nearly as severe as the credit troubles in the real estate
sector. GM sold control of GMAC in 2006 but still owns a large minority stake.
GM rose 28 cents to $23.78.
Sears Holdings Corp. warned that its upcoming fourth-quarter report could show a
decline as high as 51 percent from year-earlier levels, adding to concerns that
economic weakness is slowing the retail sector. The company Monday forecast a
result of $2.59 to $3.48 a share, which would be down from $5.33 a year before
and a Thomson Financial forecast of $4.43 a share. Sears fell $6.25, or 6.5
percent, to $89.92.
Stocks sold off sharply last week after a chorus of Wall Street economists
predicted the U.S. is about to slide into a recession. The Dow lost 1.51 percent
during the week, the S&P 500 index dropped 0.75 percent and the Nasdaq gave up
2.58 percent. However, a recession cannot be declared until there are two
quarters in a row of economic shrinkage as measured by gross domestic product
data, and that has not occurred yet.
At the same time, the talk of economic weakness and recent pointed remarks by
Federal Reserve Chairman Ben Bernanke have convinced investors the central bank
will cut rates later this month. The expectation of cheaper money also bolstered
sentiment Monday. The Fed's monetary policy committee will meet Jan. 29-30.
Advancing issues outnumbered decliners by about 9 to 5 on the New York Stock
Exchange, where volume came to 324.9 million shares.
The Russell 2000 index of smaller companies rose 4.76, or 0.68 percent, to
Overseas, the Tokyo stock market was closed for a holiday Monday. In Europe
London's FTSE 100 rose 0.70 percent, Germany's DAX advanced 0.41 percent and
Paris' CAC 40 gained 0.78 percent.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Stocks Rally on Robust IBM Results,
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