FINANCIAL MARKETS UPDATE: AFTER THE BELL–October 10
- Oct 11, 2008
“Catching a falling knife” is the analogy used lately to describe trying to figure out just the right time to buy a stock these days, since presumably the Dow Jones and all the other indexes will not, in fact, descend to zero. Eventually, fundamentals will re-assert themselves in the case of some stocks, and some will rise again. But when? Not Friday, at least. The DJIA ended down 128 points at 8,451.19, after bounding up and down all day (at one point, below 8,000). About 2.95 billion shares changing hands on Friday, a very high volume. Some investors are trying to catch that knife. But even though the dead cat bounced high mid-afternoon, the dive at the end suggested the feline had very much used life 9 already.For a while, it looked like Morgan Stanley was going to be a Wall Street survivor with war stories to tell to future generations of junior execs for whom “Lehman” and “AIG” will be B-school examples of monumental financial FUBAR. But maybe not. Morgan Stanley is now facing its own crisis of confidence. Recently investors have been screaming for the exit from the bank’s stock, which dropped 60 percent this week. Will Mitsubishi go ahead and infuse $9 billion as planned, or will it try to get a bigger piece of the now-smaller Morgan Stanley pie? Or get cold feet all together? Tune in next week to Survivor: Wall Street to see if Morgan Stanley gets voted off the island.Earlier, markets around the world had slip-slided away. The British FTSE 100 Index lost 1.2 percent to 4313.80; France’s CAC-40 Index declined 1.6 percent to 3442.7; and Germany’s DAX Index dropped 2.5 percent to 4887. The Dow Jones Stoxx 600, which represents western European stocks (including Iceland, oops) was down 2 percent to 221.77. In Japan, the Nikkei posted an 9.6 percent loss on Friday, the largest drop since 1987.The Euro-meltdown continues apace in any case. It was reported by a Dutch newspaper that Deutsche Bank may buy Fortis Bank Nederland, instead of buying ABN AMRO’s Dutch operations. The nationalization of Fortis’ Dutch holdings put the kibosh on the original deal. The government of the Netherlands has made €20 billion ($27.2 billion) available to “fundamentally sound and viable” firms to bolster liquidity in the nation’s banking system. The Dutch Minister of Finance has also said that the Netherlands is considering taking Iceland to court if it doesn’t honor its obligations toward Dutch account holders in Icesave, Landsbanki Bank’s online savings service. Good luck getting blood out of that stone, Mr. Finance Minister. == In Japan, Yamato Life has the dubious honor of being the first Japanese financial firm to fall victim to the credit freeze, filing for bankruptcy. Yamato is only a mid-sized insurance firm, ranking 33rd in terms of assets. Still, any failure of this kind has the potential to spook investors far beyond rational calculation. Thus, Shoichi Nakagawa, Japan’s finance minister, called Yamato’s collapse “extremely regrettable.” But at least Japan isn’t in the unenviable position of having to sue Iceland. Citigroup has apparently had enough of its dustup with Wells Fargo over Wachovia, and gave up the candle late yesterday, though not without noting that it would still continue to seek $60 billion in damages. The combo of Wells Fargo with Wachovia will lead to a behemoth with $1.42 trillion in assets — roughly the purchasing power parity GDP of Spain or Mexico, and more than that of Canada. In the future, there might well be only one Bank to service the American economy, just as the game of Monopoly has only one Bank. The Omaha World Herald claims that Warren Buffet would decline a position as U.S. Treasury Secretary in an Obama administration, should that come to pass. Citing people “who know Buffet,” the paper says he “wouldn’t even be tempted to say yes,” though the billionaire investor has been quoted as saying the job would be the most important one in a new administration. His choice would be this: (a) remain a billionaire investor or (b) sit on the hottest hot seat in the U.S. government and endure a lot of slings and arrows of a madly outrageous fortune. One can see Buffet’s reasoning. According to the consultancy TNS Retail Forward, same-store sales growth for about 40 retailers reporting monthly sales weakened to 1.3 percent in September. Growth was down from 2 percent in August, but actually the same as in September 2007, so it seems that the full impact of the financial meltdown isn’t being felt yet. But retailers have no doubt that it will be felt soon, as shoppers gave new signs of the extent they plan to cut back for Halloween (maybe the market for inflatable Halloween figures will collapse) and the following holidays.”These latest signs from retailers and shoppers are leaving little doubt that the coming months will be the weakest spending environment that the U.S. economy has faced in at least 17 years,” said Frank Badillo, senior economist at TNS Retail Forward in a statement.