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Illustration: Owen Freeman

 

For the Love of Money

The New York Times

JAN. 18, 2014

http://www.nytimes.com/2014/01/19/opinion/sunday/for-the-love-of-money.html

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owen Freeman

 

For the Love of Money

NYT        By SAM POLK        JAN. 18, 2014

http://www.nytimes.com/2014/01/19/opinion/sunday/for-the-love-of-money.html

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shares

 

 

 

 

share prices

 

 

 

 

trigger a share price collapse

 

 

 

 

London's leading shares        UK

http://www.theguardian.com/business/2004/sep/21/marksspencer.money 

 

 

 

 

diving shares

 

 

 

 

$21 to $23 a share

 

 

 

 

a £2.3bn share buyback

 

 

 

 

share        UK / USA

http://www.nytimes.com/2013/08/01/technology/facebook-briefly-trades-above-ipo-price.html

 

http://www.guardian.co.uk/commentisfree/poll/2012/may/18/facebook-shares-are-you-buying

 

http://www.nytimes.com/2011/10/05/business/daily-stock-market-activity.html

 

http://www.guardian.co.uk/business/2008/jan/21/marketturmoil.equities

 

 

 

 

share price

http://www.nytimes.com/2013/10/19/technology/google-stock-scales-1000-a-share.html

 

 

 

 

value of shares > be worth...

http://www.nytimes.com/2008/10/12/business/12giants.html

 

 

 

 

shareholder        USA

http://www.nytimes.com/2013/04/24/
technology/as-profit-slips-apple-increases-efforts-to-reward-shareholders.html

 

http://www.nytimes.com/2010/07/08/business/global/08bp.html

 

 

 

 

share trader

 

 

 

 

trader        USA

http://www.nytimes.com/2015/04/28/opinion/the-trader-as-scapegoat.html

 

 

 

 

shares on the New York Stock Exchange        USA

 

 

 

 

on the trading floor

 

 

 

 

on the floor of the New York Stock Exchange

 

 

 

 

financial shares

http://www.reuters.com/article/hotStocksNews/idUSL235606420071128

 

 

 

 

trade

 

 

 

 

trade

 

 

 

 

thin trade

 

 

 

 

trading

 

 

 

 

Reuters > The Future of Trading

http://www.reuters.com/news/globalcoverage/futureTrading?src=062707_1754_FEATURES_

 

 

 

 

trading activity

 

 

 

 

trading

 

 

 

 

high-speed trading / ultrafast trading

http://www.npr.org/2014/04/02/
298370558/traders-defend-high-speed-systems-against-charges-of-rigging

http://dealbook.nytimes.com/2014/03/31/fault-runs-deep-in-ultrafast-trading/

http://dealbook.nytimes.com/2014/03/31/scrutiny-for-wall-streets-warp-speed/

 

 

 

 

high-speed trading / ultrafast trading > rigging

http://www.npr.org/2014/04/02/
298370558/traders-defend-high-speed-systems-against-charges-of-rigging

 

 

 

 

high-speed trading glitch        USA        2010

http://www.nytimes.com/2010/05/07/business/economy/07trade.html

 

 

 

 

high-speed stock trades        USA        2011

http://www.nytimes.com/2011/10/09/business/clamping-down-on-rapid-trades-in-stock-market.html

 

 

 

 

during early trading

 

 

 

 

during a trading session

 

 

 

 

at the end of the trading

 

 

 

 

easy trading

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mixed        USA

http://www.nytimes.com/2008/11/26/business/26markets.html

 

 

 

 

volatile

http://www.nytimes.com/2010/05/08/business/08markets.html

 

http://www.nytimes.com/2008/11/25/us/politics/25obama.html

 

 

 

 

volatile trading

 

 

 

 

volatility

http://www.npr.org/2014/02/05/
272081816/which-way-for-stocks-investors-watch-worry-index-for-clues

http://uk.reuters.com/article/hotStocksNews/idUSTRE55440T20090605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

trader

http://www.npr.org/2014/04/02/
298370558/traders-defend-high-speed-systems-against-charges-of-rigging

http://www.npr.org/2014/02/05/
272081816/which-way-for-stocks-investors-watch-worry-index-for-clues

http://dealbook.nytimes.com/2014/01/24/a-worldwide-market-slump-gains-traction/

 

http://www.guardian.co.uk/business/2012/may/11/jp-morgan-trader-london-whale

https://www.theguardian.com/fromthearchive/story/0,12269,1364557,00.html

 

 

 

 

stock trader

http://www.nytimes.com/2009/07/24/business/24trading.html

 

 

 

 

rogue trader

http://www.guardian.co.uk/profile/nickleeson

 

http://www.guardian.co.uk/business/2009/mar/06/merrill-lynch

http://www.guardian.co.uk/commentisfree/2008/sep/19/banking.creditcrunch
 

 

 

 

 

trader > Bernard L. Madoff. > fraud / swindle        2008

https://www.theguardian.com/business/bernard-madoff 

 

http://www.guardian.co.uk/business/2011/oct/27/bernard-madoff-wife-suicide-attempt

http://www.independent.co.uk/news/business/news/the-man-who-conned-the-world-1128194.html

 

http://www.nytimes.com/2008/12/13/business/13fraud.html

 

 

 

 

high-frequency traders

http://www.nytimes.com/2010/05/17/business/17trade.html

 

 

 

 

con

http://www.independent.co.uk/news/business/news/the-man-who-conned-the-world-1128194.html

 

 

 

 

 

 

 

 

 

 

 

 

 

 

trading shares

share prices

government bond        USA
http://www.nytimes.com/aponline/business/AP-Bonds.html

junk bonds — debt issued by companies with low credit ratings —
high-yield securities        USA
http://www.nytimes.com/2012/11/02/
opinion/the-junk-is-back-in-junk-bonds.html
http://www.nytimes.com/2012/10/29/
business/junk-bonds-are-growing-more-popular-and-turning-even-riskier.html
http://www.nytimes.com/2010/10/08/business/08bond.html

pension funds
http://business.guardian.co.uk/story/0,,1689541,00.html

mutual funds        USA
http://www.nytimes.com/pages/business/mutfund/index.html

the City

the City's gilts market
http://business.guardian.co.uk/story/0,,1689541,00.html

gilt yields
http://business.guardian.co.uk/story/0,,1689541,00.html

Main Street        USA        2008
http://blogs.reuters.com/photo/2008/10/10/
main-street-and-wall-street-audio-slideshow/

confidence

 

 

 

 

 

 

 

 

 

 

 

 

 

 

opening bell

 

 

 

 

open lower

 

 

 

 

 

 

 

 

 

 

 

 

 

 

prices

soar

https://www.theguardian.com/business/2006/jan/25/
germany.internationalnews

soar to new high

soar above forecasts

rise to a record high

rally to their highest level in a month

rally
 

surge / surge

strike new highs

edge higher

shoot higher

bounce back

rebound / rebound

advance

jump
http://www.theguardian.com/business/2005/may/28/
housingmarket.houseprices 

 jump 5 percent

a jump in new orders

lose ground

break a four-day losing streak

 

 

 

 

 

 

 

 

 

 

 

 

 

 

boost

climb

climb back

claw back

recover some ground

advance two percent

stage fightback

 

 

 

 

 

 

 

 

 

 

 

 

 

 

sink
http://www.usatoday.com/money/markets/us/2006-05-30-stocks-tue_x.htm

skid

lose

struggle

sag

sagging market share and profits

fall

fall sharply

tumble / pummel
http://www.usatoday.com/money/companies/earnings/2006-01-31-google_x.htm

tumble into the red

crash into the red

crash
http://www.guardian.co.uk/business/2008/oct/28/economics-credit-crunch-bank-england
http://www.guardian.co.uk/business/interactive/2008/oct/14/creditcrunch-marketturmoil

The great stockmarket crash of 2008
http://www.guardian.co.uk/business/2008/oct/28/economics-credit-crunch-bank-england
http://www.guardian.co.uk/business/interactive/2008/oct/14/creditcrunch-marketturmoil

plunge

stay in the red / remain in the red

close back in the red

close sharply lower
http://www.nytimes.com/2011/10/04/business/global/daily-stock-market-activity.html

lacklustre finish

drag down

fall

falling sales and profits

fall back

fall back below the 4400 mark

stay below the 4400 threshold

London's close

close higher

close in the red

close down 5.7 points at 5053.2

take the gauge to its highest close

closing price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

recover ground

recover some lost ground

climb above 4400 barrier

breeze through the key 4500 mark

power ahead on ...

rise

lift

nudge

reach highs

 flirt with new record high

pass

surge through the important 4300 mark

maintain early gains

volatile
http://www.ft.com/cms/s/0/fff0c7fc-5296-11dd-9ba7-000077b07658.html
http://www.nytimes.com/2008/01/23/business/24stox-web.html
http://business.guardian.co.uk/markets/story/0,,2196641,00.html

volatility
http://www.reuters.com/news/globalcoverage/economy
http://business.guardian.co.uk/story/0,,1777945,00.html

CBOE Volatility Index        VIX
http://www.cboe.com/micro/vix/introduction.aspx

 

 

 

 

 

 

 

 

 

 

 

 

 

hit a year high

hit a two-year high

push to a new 52-week high

close above 10,000 points
http://www.nytimes.com/2009/10/15/business/15markets.html

 

 

 

 

 

 

 

 

 

 

 

 

 

 

light trading

flat

down

ratings

downgrades

cut ... to junk status
http://www.nytimes.com/2005/05/06/automobiles/06bond.html

gain

portfolio

advancing stocks

rank as the Nasdaq's top percentage gainer

outpace

decliners

end flat / stall

fluctuate

go into downward slide

dollar slide

slide

a slide in tech shares

skid

weak against the dollar

weak

decline

 

 

 

 

 

 

 

 

 

 

 

 

 

 

choppy

caution

cautiously

 

 

 

 

 

 

 

 

 

 

 

 

 

 

up

higher

strong

advance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 stock.”

 

Jackie Calmes and Binyamin Appelbaum in Washington

contributed reporting.

    High-Speed Trading Glitch Costs Investors Billions, NYT, 6.5.2010,
    http://www.nytimes.com/2010/05/07/business/economy/07trade.html

 

 

 

 

 

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 recent weeks.

“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,
    http://www.nytimes.com/2008/11/20/business/economy/20markets.html

 

 

 

 

 

FTSE 100 hits five-year low

as world stockmarkets slump again

• US manufacturing spark selling
• Oil price slips
• Japan's Nikkei down 11%
in worst performance since 1987

 

Thursday October 16 2008
17.15 BST
Guardian.co.uk
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 early gains.

An influential regional factory output survey, from the Philadelphia Federal Reserve Bank, compounded the gloom by reporting an 18-year low in factory activity.

"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 programme.

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,
    G, 17.10.2008,
    http://www.guardian.co.uk/business/2008/oct/16/market-turmoil-recession

 

 

 

 

 

Wild Day

Caps Worst Week Ever for Stocks

Dow Swings 1019 Points
in the Index's Most-Volatile Session Ever;

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 selling.

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 higher.

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 every day."

"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 in."

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 normal practice.

"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.



Executives Hit

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 filing.

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, WSJ, 11.10.2008,
    http://online.wsj.com/article/SB122368071064524779.html?mod=article-outset-box

 

 

 

 

 

FTSE 100 in biggest fall

since Black Monday

 

Published: 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 ever.

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 banking system.

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 as collateral.

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 cent.

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, 6.10.2008,
    http://www.ft.com/cms/s/0/8eafcd26-936f-11dd-9a63-0000779fd18c.html

 

 

 

 

 

Dow 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 York.

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 article.

    Dow Drops Under 10000 as Bank Woes Persist, WSJ, 6.10.2008,
    http://online.wsj.com/article/SB122328868571207285.html

 

 

 

 

 

For Stocks,

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 broader economy.

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 sell off.

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 theirs.

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 Washington.

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 bills.
 


Eric Dash and Ben White contributed reporting.

    For Stocks, Worst Single-Day Drop in Two Decades, NYT, 30.9.2008,
    http://www.nytimes.com/2008/09/30/business/30markets.html

 

 

 

 

 

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 package.

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 opening bell.

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 the weekend.

“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 group, Fortis.

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 yen.

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

contributed reporting.

    Dow Falls More Than 500 Points, NYT, 30.9.2008,
    http://www.nytimes.com/2008/09/30/business/30markets.html

 

 

 

 

 

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 down.

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 debt.

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 transactions.

“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 night.

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 catastrophe.

“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 impediment.

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 Republican leader.

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 prices.

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. Dodd said.


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;
    Stocks Plunge,
    NYT, 30.9.2008,
    http://www.nytimes.com/2008/09/30/business/30bailout.html

 

 

 

 

 

A Bull Market

Sees the Worst in Speculators

 

June 13, 2008
The New York Times
By DIANA B. HENRIQUES

 

In 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 the beat.”

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 speculator.

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 practices.”

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 participants.

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 swings.

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 higher prices.

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 percentage limit.

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 occurrence.

“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 “excessive speculation.”

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, 13.6.2008,
    http://www.nytimes.com/2008/06/13/business/13speculate.html

 

 

 

 

 

Stocks & Bonds

Oil Prices and Joblessness

Punish Shares

 

June 7, 2008
The New York Times
By ABHA BHATTARAI

 

Wall Street 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 ever.

“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 $33.93.

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 economy.

“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 the euro.

“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 chairman.

“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 volatile market.

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,
    http://www.nytimes.com/2008/06/07/business/07stox.html

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A trader made his offer

in the oil options pit of the New York Mercantile Exchange a few days ago.

Chip East/Reuters

 

Commodities: Latest Boom, Plentiful Risk

NYT        20 March 2008
http://www.nytimes.com/2008/03/20/business/20commodity.html

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodities:

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 steep gains.

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 commodities markets.

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 and homeowners.

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 exchanges.

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 operations.

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.”

    Commodities: Latest Boom, Plentiful Risk, NYT, 20.3.2008,
    http://www.nytimes.com/2008/03/20/business/20commodity.html

 

 

 

 

 

Stocks Rally on Robust IBM Results

 

January 14, 2008

Filed at 11:18 a.m. ET

The New York Times

By THE ASSOCIATED PRESS

 

NEW YORK (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 rout.

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 Monday.

''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 didn't hurt.''

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 709.41.

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.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Stocks Rally on Robust IBM Results,
NYT, 14.1.2008,
http://www.nytimes.com/aponline/business/AP-Wall-Street.html

 

 

 

 

 

 

 

 

 

Related > Anglonautes > Vocapedia

 

stock markets > UK, USA

 

 

stock markets > indicators > USA > Dow Jones

 

 

stock markets > Apple

 

 

economy, money, taxes,

housing market, shopping,

jobs, unemployment, retirement,

debt, poverty, homelessness

 

 

industry, energy, commodities

 

 

 

 

 

Related

 

The Guardian > Business glossary

https://www.theguardian.com/business/glossary-business-terms-a-z-jargon