| Market Summary |
Stocks soared on Monday after governments around the world continued to roll out initiatives to help struggling markets. U.S. markets jumped higher during morning trading after the U.S. Treasury Department outlined the government’s bailout plan, which included buying stakes in U.S. banks. The Dow Jones Industrial Average added over 930 points to close at 9,387.61. Broader stock indicators also recovered nicely. The Standard & Poor's 500 index rose 104.13 points to 1,003.35 and the Nasdaq composite index rose 194.74 to 1,844.25. Today’s gains come after eight consecutive days of losses. Investors were also encouraged by news that the European Central Bank and the Swiss National Bank have agreed to assist with helping unfreeze credit markets. Credit markets remained practically frozen despite today’s rally. A number of beaten down stocks surged during the session including, General Motors (GM: Charts, News, Offers) and Ford Motor (F: Charts, News, Offers). In corporate news, Banco Santander (STD: Charts, News, Offers) said it may acquire Sovereign Bancorp (SOV: Charts, News, Offers). United Technologies Corp. (UTX: Charts, News, Offers) dropped its $2.6 billion bid to buy Diebold Inc. (DBD: Charts, News, Offers) after the company refused to divulge financial information. U.S. light crude oil for November delivery gained $3.50 to $81.20 a barrel on the New York Mercantile Exchange. The dollar fell against other major currencies and gold prices fell to $835.80 an ounce.
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| Market News |
Waste Management Inc. (WMI: Charts, News, Offers), the nation's largest garbage hauler, on Monday withdrew its $6.73 billion bid to acquire smaller rival Republic Services (RSG: Charts, News, Offers), saying the move wouldn't be prudent given current financial market turmoil. The announcement ends a 3-month takeover struggle that began in July when Houston-based Waste Management first offered to buy rival Republic Services Inc., the nation's No. 3 trash hauler, and continued when Waste Management sweetened its takeover bid in August. The moves were seen as an effort to derail an earlier deal agreement between Republic Services and Allied Waste Industries Inc., the second-largest player in the industry. (Source: Yahoo! Finance) Full Story
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European governments overcame their differences to put $2.3 trillion on the line Monday in guarantees and other emergency measures to save the banking system in their most unified response yet to the global financial crisis. The pledges by six countries that use the euro and Britain helped soothe stock markets, along with a promise by top central banks to provide unlimited short term dollar credits. The amount -- pledged by Germany, Britain, France, the Netherlands, Spain, Portugal and Austria -- dwarfs the $700 billion rescue package put together by U.S. President Bush's administration, although not all the European money will necessarily be spent. It represented Europe's most unified response yet to the financial crisis, after weeks where European governments often acted at cross purposes and sniped at each other -- a piecemeal approach that failed to stop steep and frightening slides on financial markets. (Source: BusinessWeek) Full Story
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Investors are relieved that Morgan Stanley's (MS: Charts, News, Offers) investment from Mitsubishi Financial (MTU: Charts, News, Offers) did not turn sour in the end, even if it means the Japanese bank managed to extract a slightly sweeter deal. Morgan Stanley shares surged more than 50.0% Monday morning after it received a $9.0 billion investment from Mitsubishi UFJ Financial Group in exchange for a 21.0% stake in the firm. The deal, which came a day earlier than expected, was modified a little to provide more downside protection to Mitsubishi by switching to an investment of preferred shares only, instead of a mix of common and dividend-yielding shares. (Source: Forbes.com) Full Story
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| Market Analysis |
The world's banking system is caught in a vicious trap, with a forced sale of assets at one institution wiping out capital at others holding similar assets. Think of it as extraordinarily high reverse leverage. You can blame mark-to-market accounting, the advent of new indexes that supposedly track values of a wide range of assets, or a market mind-set that assumes every asset is part of a bank's trading book. Like the old Pac-Man character, this combination is devouring financial institution capital at a voracious rate. The question is whether it will gobble up even the new capital injections into banks by the U.S. and foreign governments. It's way past time to suspend mark-to-market accounting -- or somehow to make investors and analysts understand that fire- sale transactions aren't supposed to be having such broad implications. (Source: Bloomberg) Full Story
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Fear and panic have taken over the stock market, the banking system, and the economy. It is one of those moments in history when people feel helpless, frustrated, and bewildered about what’s going on and why it’s happening. Stocks are being pummeled in ways we haven’t seen in nearly a century, both here and overseas. The Dow Jones is down nearly 20 percent this week, its second worst week since December 1914. The S&P 500 dropped over 20 percent in what looks to be the worst week in the history of that index (going back to 1928). Behind all this, the credit system is completely frozen. Banks are now loathe even to lend to each other in the overnight markets that are so vital to the daily financing of American business. And the profits outlook is deteriorating badly, sparking fears that we may have a deep and prolonged recession. (Source: Real Clear Markets) Full Story
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As the world economy reels under the weight of the worst financial crisis since the Great Depression, we have been left with a broken financial system. Financial institutions around the world have suffered life-threatening, self-inflicted wounds by purchasing over a trillion dollars of complex mortgage-backed securities backed by dodgy loans based on inflated real-estate values. These assets have been financed with enormous leverage and with short-term debt. Just prior to its "rescue," Bear Stearns had a debt to equity ratio of over 30 to 1, making it susceptible to a "run on the bank," although Bear was not a commercial bank but rather part of the "shadow banking system" built on derivatives. (Source: Wall Street Journal) Full Story
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