Monday, September 15, 2008

One ugly day for financials

Last night, Bloomberg.Asia TV was all about Lehman going under & Merrilll Lynch being bought out. All kinds of experts gave lots of opinions, but they are just guesses. New rules are being written which will change markets & nobody knows how this will play out. Very scary!

Pre-trading Dow was down 300 overnight. This morning in pre-markets, Dow was down about 350 & S&P was down over over 40. Maybe that's not so bad given all the confusion in the markets. After the initial plunge, there has been some recovery (as noted on my widget from Bigcharts on the right). Indices have halved their losses, but Dow is still down 270 as the recovery suffered a setback. Decliners are over advancers 7-1, one rough market. The S&P 500 FINANCIALS INDEX is down 14 to 284, near the morning lows. A big drag is Bank of America down 5 on the Merrill Lynch buyout.

From Bloomberg, here are a ton of articles, this is a very bad day for news, all grim:

Lehman Files for Record Bankruptcy, Victim of Meltdown Firm Helped Create
Stocks in U.S. Drop as Lehman Bankruptcy Deepens Turmoil in Credit Markets
AIG Slumps After Insurer Rejects Buyout Offers, Seeks $40 Billion Fed Loan
Bank of America Will Buy Merrill for $50 Billion as Credit Crisis Broadens
Oil, Gasoline Tumble as Lehman Fails, Hurricane Ike Spares U.S. Refineries
Pimco, Vanguard, Franklin Are Biggest Bond Fund Losers in Lehman Collapse
Emerging-Market `Panic' Masks Record Profits, May End With 20% Stock Rally
Houston Struggles to Recover From Hurricane Ike as Midwest Hit by Flooding

The financials continue in center stage as Lehman is history & Merrill Lynch is being bought out by Bank of America (BAC). American International Group (AIG), Dow stock, is officially shaky as its stock plunged into the 6s. They used to be the largest insurance company in the world. Insurance companies own stocks, chances are they may be selling a lot to raise cash. Washington Mutual (WM) is also shaky, heading back down to the low 2's.

Oil is getting clobbered (down 4 to 97 after falling to 95) despite the infrastructure damage in east Texas. Prices at the pumps around the country are spiking up on ugly thoughts about their supplies. That's a punch the economy does not need. The Alerian MLP index, in sympathy to lower oil prices, sold off 5 remaining near levels last seen 3 years ago.

The S&P 500 at 1225, is holding above 1200, a key support level (the July 15 low). If that floor does not hold, look out below! At the FED meeting this week, all of a sudden it is now assumed that they will cut rates again. That's a short term reaction, but may haunt the economy in the longer term. Amidst the chaos, it is best to try to stay cool. Use these trying times to prepare for buying opportunities in oversold stocks.

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