U.S. Stocks Drop Most Since Crash of 1987 on Recession Concerns


A trader looks up at monitor while working on the floor of the New York Stock Exchange in New York on Oct. 15, 2008. Photographer: Jin Lee/Bloomberg News

Oct. 15 (Bloomberg) — U.S. stocks plunged the most since the crash of 1987, hammered by the biggest drop in retail sales in three years and growing doubt that plans to bail out banks will keep the economic slump from deepening.

Exxon Mobil Corp. and Chevron Corp. tumbled more than 12 percent as commodity prices declined on concern the slowing economy will hurt demand. Wal-Mart Stores Inc. retreated 8 percent after the Commerce Department said purchases at chain stores decreased 1.2 percent last month. Morgan Stanley lost 16 percent after Oppenheimer & Co. analyst Meredith Whitney said the government’s bank rescue is not a “panacea” solution.

The Standard & Poor’s 500 Index sank 90.17 points, or 9 percent, to 907.84, with nine companies declining more than 20 percent. The Dow Jones Industrial Average retreated 733.08, or 7.9 percent, to 8,577.91, its second-biggest point drop ever. The Nasdaq Composite Index lost 150.68, or 8.5 percent, to 1,628.33. About 37 stocks fell for each that rose on the New York Stock Exchange.

Read moreU.S. Stocks Drop Most Since Crash of 1987 on Recession Concerns

JPMorgan Net Income Drops 84 Percent on Writedowns

Oct. 15 (Bloomberg) — JPMorgan Chase & Co., the largest U.S. bank by market value, said third-quarter profit fell 84 percent on about $5.8 billion of writedowns, losses and credit provisions.

Net income dropped to $527 million, or 11 cents a share, from $3.4 billion, or 97 cents, a year earlier, the New York- based bank said today in a statement. Shares of the company rose as earnings beat the 18-cent loss analysts predicted on average in a survey by Bloomberg.

JPMorgan took $18.8 billion of writedowns and credit costs before today, less than a third of what Wachovia Corp. and Citigroup Inc. reported. Chief Executive Officer Jamie Dimon has capitalized on the market crisis by taking over Bear Stearns Cos. and Washington Mutual Inc. as they collapsed earlier this year. JPMorgan will get $25 billion from the U.S. government under a bank rescue plan announced yesterday.

Read moreJPMorgan Net Income Drops 84 Percent on Writedowns

Wall Street Turns South

Most U.S. Stocks Fall as Earnings Concern Overshadows Bank Plan

Oct. 14 (Bloomberg) — Most U.S. stocks fell a day after the market’s biggest rally since the 1930s as a worsening outlook for earnings forced investors to look beyond a $2 trillion global push to rescue banks.

PepsiCo lost as much as 14 percent, the most since October 1987, after lowering its profit forecast as customers cut back on snacks and soft drinks. Microsoft and Intel slid more than 5 percent as analysts said demand for computers is slowing. Morgan Stanley, Citigroup Inc. and Merrill Lynch & Co. added more than 19 percent, sending banking shares to a third straight advance.

“Notwithstanding the government and Treasury’s actions focusing on financials, the general economic environment has deteriorated quite a bit in the last five or six weeks,” said Jonathan Armitage, head of U.S. large-cap equities at the American unit of Schroders, the U.K. manager of $259 billion. “You’re just seeing different parts of the equity market reacting to that.”

Read moreWall Street Turns South

UK: Government to save HBOS and RBS

Government set to become biggest shareholder in top banks as Japanese weigh bid for Morgan Stanley

THE government will launch the biggest rescue of Britain’s high-street banks tomorrow when the UK’s four biggest institutions ask for a £35 billion financial lifeline.

The unprecedented move will make the government the biggest shareholder in at least two banks.

Royal Bank of Scotland (RBS), which has seen its market value fall to below £12 billion, is to ask ministers to underwrite a £15 billion cash call.

Halifax Bank of Scotland (HBOS), Britain’s biggest provider of mortgages, is seeking up to £10 billion.

Lloyds TSB, which is in the process of acquiring HBOS in a rescue merger, wants £7 billion, while Barclays needs £3 billion.

The scale of the fundraising could lead to trading at the London stock market being suspended. This would give time for the market to digest the impact of the moves.

Read moreUK: Government to save HBOS and RBS

U.S. Stocks Drop; S&P 500, Dow Post Worst Retreats Since 1937


Ben S. Bernanke, chairman of the U.S. Federal Reserve, speaks on a television above a trader in the S&P pit at the Chicago Board of Trade in Chicago, on Tuesday Oct. 7, 2008. Photographer: Joshua Lott/Bloomberg News

Oct. 7 (Bloomberg) — U.S. stocks fell, sending the Standard & Poor’s 500 Index below 1,000 for the first time since 2003, on speculation banks and real-estate companies are running short of money as the credit crisis worsens.

Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession. Morgan Stanley, KeyCorp and JPMorgan Chase & Co. slid more than 10 percent as investors shrugged off signs the Federal Reserve will reduce interest rates. General Growth Properties Inc., a mall owner, plunged 42 percent on concern it won’t be able to repay debt.

The S&P 500 slid 60.66 points, or 5.7 percent, to 996.23, extending its 2008 tumble to 32 percent in the market’s worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years. The Nasdaq Composite Index lost 5.8 percent to 1,754.88.

“We’ve approached the edge of the cliff,” Leon Cooperman, 65, who manages $6 billion at hedge fund Omega Advisors Inc., said at the Value Investing Congress in New York. “Do we go over the cliff or begin to recede? History says we recede, but there’s no guarantee. This is the most difficult financial environment I’ve lived through.”

Read moreU.S. Stocks Drop; S&P 500, Dow Post Worst Retreats Since 1937

The Dollar is Doomed

When the precious metals were smashed out of nowhere and the dollar started climbing this summer I became very worried. I didn’t question my conviction that commodities are in a bull market, or that precious metals in particular are undervalued. I felt something sinister was at work. Neither move was justified on a fundamental level. I assumed that something very bad was about to happen and the metals needed to be brought lower in advance of the bad news.

Now we have a glimpse at the ugly consequences foreseen by the Treasury Department and the Federal Reserve. In early September, Fannie Mae and Freddie Mac were nationalized with a financial commitment of USD$200 billion from the taxpayers. Incredibly, the loan limits at the former GSEs were raised from $417,000 to $729,750 in March when it was more than obvious these institutions needed to be reined in. Like most bailouts and bank failures, this one was announced on a weekend to limit the impact on the stock markets.

As I mentioned in last month’s issue, Treasury Secretary Paulson was under severe pressure to act, as the Chinese started selling Fannie and Freddie bonds while threatening further retribution. Common shareholders were left with nothing, while bondholders like Pimco and Asian central banks benefited. The small investor was stung again, as taxpayer dollars were used to bail out foreigners and wealthy Americans in a policy that Jim Rogers terms “socialism for the rich.”

Unfortunately, $200 billion is just the tip of the iceberg. As the government has assumed responsibility for Fannie and Freddie’s $5.4 trillion in liabilities, the Congressional Budget Office correctly states that these institutions “should be directly incorporated into the federal budget.” The Bush Administration has strongly opposed this move.

Read moreThe Dollar is Doomed

Goldman Sachs and Morgan Stanley have been put under Federal control


Morgan Stanley headquarters in New York

Investment banks Goldman Sachs and Morgan Stanley have been put under Federal control as part of a package aimed at rescuing the US finance system.

The move not only puts the two financial services giants under the direct supervision of bank regulators but also gives the Fed the power to force the banks to raise additional capital.

The US administration wants to prevent the collapse of two of Wall Street’s remaining investment banks after the fall of Lehman Brothers and the government-funded bailouts of Bear Stearns, Merrill Lynch and global insurer AIG.

Read moreGoldman Sachs and Morgan Stanley have been put under Federal control

Dollar May Get `Crushed’ as Traders Weigh Up Bailout


U.S. one dollar bills are displayed for a photograph in New York, April 15, 2008. Photographer: Daniel Acker/Bloomberg News

Sept. 22 (Bloomberg) — Treasury Secretary Henry Paulson‘s plan to end the rout in U.S. financial markets may derail the dollar’s three-month rally as investors weigh the costs of the rescue.

The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion, according to Barclays Capital interest-rate strategist Michael Pond in New York. While the rescue may restore investor confidence to battered financial markets, traders will again focus on the twin budget and current-account deficits and negative real U.S. interest rates.

``As we get to the other side of this, the dollar will get crushed,” said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world’s biggest currency hedge-fund firm, which manages about $15 billion.

Read moreDollar May Get `Crushed’ as Traders Weigh Up Bailout

Goldman Sachs, Morgan Stanley Become Banks, Ending an Era for Wall Street


U.S. flags fly outside the headquarters of Goldman Sachs Group Inc., in New York, Sept. 16, 2008. Photographer: Gino Domenico/Bloomberg News

Sept. 22 (Bloomberg) — The Wall Street that shaped the financial world for two decades ended last night, when Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken.

The Federal Reserve’s approval of their bid to become banks ends the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and caps weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.

“The decision marks the end of Wall Street as we have known it,” said William Isaac, a former chairman of the Federal Deposit Insurance Corp. “It’s too bad.”

Goldman, whose alumni include Henry Paulson, the Treasury secretary presiding over a $700 billion bank bailout, and Morgan Stanley, a product of the 1933 Glass-Steagall Act that cleaved investment and commercial banks, insisted they didn’t need to change course, even as their shares plunged and their borrowing costs soared last week.

Read moreGoldman Sachs, Morgan Stanley Become Banks, Ending an Era for Wall Street

Capitalism in convulsion: Toxic assets head towards the public balance sheet

In the space of just two momentous weeks, the landscape of global finance has been dramatically transformed. President George W. Bush’s administration has mounted a multi-billion-dollar rescue of the financial system at the cost of inflicting severe damage on the US model of free- market capitalism.

Heavy costs will be inflicted on the American taxpayer, who is now subsidising Wall Street – and indeed financial institutions around the world – in a bail-out of unprecedented size.

Read moreCapitalism in convulsion: Toxic assets head towards the public balance sheet

Wall Street crisis deepens and Banks rush to do deals

NEW YORK (Reuters) – Manic and increasingly desperate dealmaking gripped Wall Street on Wednesday as U.S. stocks plummeted to three-year lows amid new signs of distress in the global financial industry.

Morgan Stanley was discussing a merger with regional banking powerhouse Wachovia, the New York Times reported. CEO John Mack got a phone call from Wachovia on Wednesday but is also pursuing other options, the paper said.

“In this market, anything’s possible. It seems like the market wants the investment banking model to disappear,” said Danielle Schembri, bond analyst covering brokers at BNP Paribas in New York.

Washington Mutual , the country’s largest savings bank, put itself up for sale, sources said, confirming a New York Times report. Potential suitors include Citigroup, JPMorgan, Wells Fargo and HSBC, they added.

Read moreWall Street crisis deepens and Banks rush to do deals

Taxpayers take on trillions in risk in Fannie, Freddie takeover

USA TODAY WASHINGTON – The unprecedented federal takeover of mortgage giants Freddie Mac and Fannie Mae announced on Sunday is a bold attempt to stabilize financial markets and restore the faltering housing market, but it thrusts trillions of dollars of risk directly onto taxpayers’ shoulders.

“You can call it a bailout, you can call it a safety net or you can call it a rescue package, but the bottom line is the American taxpayer is left footing the bill,” says Richard Yamarone, director of economic research at Argus Research.

Read moreTaxpayers take on trillions in risk in Fannie, Freddie takeover

Korea Development’s Min Confirms Talks With Lehman


A man walks past the Korea Development Bank headquarters in Seoul on Aug. 24, 2008. Photographer: Nasha Lee/Bloomberg News

Sept. 2 (Bloomberg) — Korea Development Bank is in talks to buy a stake in Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm.

Chief Executive Officer Min Euoo Sung confirmed the discussions in an interview in Seoul today. “I cannot comment further,” said Min, who headed Lehman’s Seoul branch before joining the Korean bank in June. Matthew Russell, a Hong Kong- based spokesman for Lehman, declined to comment.

Read moreKorea Development’s Min Confirms Talks With Lehman

Lehman Brothers in urgent talks on capital injection

The Wall Street investment bank Lehman Brothers is this weekend locked in talks with a group of foreign government-backed investment funds in an effort to secure billions of dollars in new equity capital.

The Sunday Telegraph has learned that Lehman has intensified talks in recent days with Korea Development Bank, the South Korean ­government-backed lender, about a capital injection of as much as $6bn (£3.3bn). KDB has drafted in bankers from the heavyweight advisory boutique Perella Weinberg to provide counsel on the talks, which could be concluded this week.

Read moreLehman Brothers in urgent talks on capital injection

Wall Street Journal: New credit hurdle looms for banks

U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes – securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That’s forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.

The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That’s about 43 percent more than they had to redeem in the previous 16 months.

The problem highlights how the pain of the credit crunch, now entering its second year, won’t end soon for banks or the broader economy. The Federal Deposit Insurance Corp. said on Tuesday that its list of “problem” banks at risk of failure had grown to 117 at the end of June, up from 90 at the end of March. FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.

Read moreWall Street Journal: New credit hurdle looms for banks

A Few Speculators Dominate Vast Market for Oil Trading

Regulators had long classified a private Swiss energy conglomerate called Vitol as a trader that primarily helped industrial firms that needed oil to run their businesses.

But when the Commodity Futures Trading Commission examined Vitol’s books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol’s portfolio — at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange.

The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.

Read moreA Few Speculators Dominate Vast Market for Oil Trading

The Disconnect Between Supply and Demand in Gold & Silver Markets

There is a huge demand for both gold and silver right now in India and North America. North American shops are completely bare of silver.  Indian shops are empty of both silver and gold. Even the Indian banks don’t have any gold or silver.  The big western bullion banks, based in New York and London, control both the gold and silver trade.  Reports from India are that they are refusing to extend Indian bank lines of credit, forcing the small banks to deliver to clients, collect money, and pay down lines of credit, before being allowed to take delivery of another gold or silver shipment. This is very abnormal. Normally, if a banker’s bank knows that its customer-bank has firm orders, it would extend the smaller bank a bigger line of credit.  Not now.

By refusing to extend lines of credit, the big bullion banks are essentially rationing a very thin supply.  Most physical silver, for example, is being reserved for industrial and fabrication use, and investors are simply not able to get any, without waiting for months.  Investor oriented shops are bare, and the U.S. Mint has suspended coin production.  All available supply seems to be reserved for industrial users.  You cannot substitute paper claims for real silver, in industrial use, because paper doesn’t have the physical properties of silver.  So, it seems that all available supply is being diverted to industrial users, and, to a lesser extent, aside from the squeeze on lines of credit, also to jewelry fabricators.  But, investors are left out in the cold.  They can accept paper claims, or nothing.  The most interesting mistake that the manipulators have made is in not supplying the U.S. Mint, which has run out of silver, proving that there is a severe shortage.

Read moreThe Disconnect Between Supply and Demand in Gold & Silver Markets

Wall Street banks hit by downgrades

Goldman Sachs, JPMorgan Chase and Morgan Stanley were hit by a raft of analysts’ downgrades on Tuesday amid growing concerns that tough conditions in credit and equity markets will significantly reduce their profits.

The bearish comments by Wall Street analysts triggered a sell-off in banking shares that dragged the broader market lower, with the S&P 500 off 1.2 per cent.

Goldman’s shares fell 6 per cent after three analysts warned that the firm – which has outperformed rivals throughout the crisis – was experiencing a severe slowdown in its equity and investment banking businesses.

Shares in JPMorgan Chase dropped nearly 10 per cent – its biggest daily fall in six years – a day after it revealed that difficult credit markets had caused $1.5bn in writedowns in July.

Read moreWall Street banks hit by downgrades

Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals

Aug. 6 (Bloomberg) — Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won’t be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation.

Read moreMorgan Stanley Said to Freeze Home-Equity Credit Withdrawals

Morgan Stanley has issued a major alert on the health of Spanish banks

Morgan Stanley, the investment bank, has issued a major alert on the health of Spanish banks, warning that a replay of the ERM crisis in the early 1990s could wipe out the capital base of weak lenders exposed to the property crash.

Read moreMorgan Stanley has issued a major alert on the health of Spanish banks

Amber light flashing on U.S. dollar intervention

So Inflation is really the greatest export of the US.
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LONDON (Reuters) – Three days before the last bout of coordinated central bank intervention to calm world currency markets, the International Monetary Fund’s top economist opined: “If not now, when?” Many experts are now asking the same.

Read moreAmber light flashing on U.S. dollar intervention

The Wall Street Journal Senses Something is Wrong

A subscription to the Wall Street Journal costs several hundred dollars a year, so most people out there don’t get it and DollarCollapse.com rarely posts links to its articles. But everybody should see today’s edition, which probably sets the modern-day record for disturbing headlines. Here’s a sampling of what subscribers read this morning:

Read moreThe Wall Street Journal Senses Something is Wrong

Five Years Late and a Trillion Dollars Short

On Tuesday, the SEC issued an emergency rule in an attempt to curb naked short selling in 19 major financial institutions, including Goldman Sachs, Morgan Stanley, Citigroup, and JP Morgan Chase and Company.

Read moreFive Years Late and a Trillion Dollars Short

Are “Dark Pools” Destined to be the Capital Markets’ Next Black Hole?

Related article:Big Traders Dive Into Dark Pools

We can almost hear that ominous “Jaws” theme music in the background and can see that huge dorsal fin as it slices threateningly through the water – knowing full well that the real terror is hidden beneath the water’s surface.

But this time around, it’s not a “Great White” that’s sparking our fears; it’s a well-capitalized and broadly based series of secret stock exchanges known as “Dark Pools of Liquidity,” “Dark Liquidity,” or just “Dark Pools.”

Most investors have never even heard the term – and are truly shocked to discover these “off-the-books” trading networks actually exist.

But to Wall Street insiders looking to anonymously move billions of dollars in stocks, bonds, and other investment instruments, dark pools are de rigueur – especially when you’re an institutional trader who doesn’t want to reveal your intentions or your actions to the “rest” of the market, until after the fact when the orders are “printed.”

And that makes these dark pools of capital highly problematic when it comes transparency: There is literally none in most pools and only limited visibility in others.

Dark Pools: From Trading Haven to Heavyweight

Dark Pools are electronic “crossing networks” that offer institutional investors many of the same benefits associated with making trades on the stock exchanges’ public limit order books – without tipping their hands to others, meaning publicly quoted prices aren’t affected. This is the capital markets’ version of a godsend – especially for traders who desire to move large blocks of shares without the public investors ever knowing.

Some examples of so-called crossing networks include Liquidnet Inc., Pipeline, the Posit unit of Investment Technology Group (ITG), or the SIGMA X unit of Goldman Sachs Group Inc. (GS).

In an era in which “secret” transactions contributed to what’s shaping up to be the largest credit crisis in history, you’d think that any mechanism that allows insiders to trade in complete secrecy and with total anonymity would be scrutinized more closely than a Roger Clemens vitamin shot. But that’s not the case with Dark Pools.

Read moreAre “Dark Pools” Destined to be the Capital Markets’ Next Black Hole?