Stocks tumble on bank bailout proposal

Markets had their worst day in months. Dow dropped 382, decliners over advancers 5-1 (long time since we've seen that desparity) & NAZ which has been strong this year sank 66.

As expected, the Senate passed the stimulus bill with 61 votes. Now it's on to the House where the 2 different bills have to be combined into 1. This legislation which involves roughly $3T is different enough to cause plenty of worries. One key point of contention is $40B related to state aid omitted in the Senate version. A lot more horse trading will have to be done. Then the Senate, in particular, will have to approve the revised legislation & those 3 marginal Rep senators will become significant once again.

• Senate passes stimulus; Treasury unveils bank help- AP

The bigger news was testimony by the Treasury on plans for bank bailout II, it went over like a lead balloon. The Dow had been lower at 8200 when the speech began. The Bigcharts widget at the right shows how it sold off 300 in the next hour while the speech was given. The Treasury plan would require up to $2T to buy troubled loans. Of course, such investments could prove profitable in the long run but that uncertain payoff has little value in today's "real" world.

•Geithner Offers Up to $2 Trillion in U.S. Programs to Unlock Credit Market


Leading the way down was banks, the index had its worst day since the Nov sell-off.

Value 118.64

Change -14.49

% Change -10.9%

The Alerian MLP Index dropped 3½, bringing it just under 200. The Dow Jones REIT Index dropped 12 to 118, it may have to test the sub 100 low of last Nov. Junk bond funds were mixed to lower, maybe helped by the rally in the 10 year Treasury bond. That move up reduced its yield a big 18 basis points to 2.85%. In all this confusion, the VIX, volatility index, jumped 3.16 to the 46.80.

Even oil got pummeled, taking to the lowest level for this contract.

CLH09.NYM

..Crude Oil Mar 09

..37.85

.. 1.71 ......(4.3%)

Today's descent takes the Dow solidly thru the 8K floor which has held so well in recent months. 7½K looks like it wants to be tested soon.


Dow Jones Industrials --- 3 months




Auto companies' troubles linger on, but it looks they are trying to get their houses in order. They will have to testify before congress next week. Now the money to bail out the auto companies becomes modest compared with bank bailout numbers.

Doubts about bank bailout sinks stocks

Uncertainties about the Senate rescue package & part II of the bank bailout package hurt stocks. Dow dropped 207, decliners over advancers 2-1 & NAZ fell 30. Stocks are crumbling as the markets learn about the Treasury's plan for banks.

Doubts about the bank bailout package drove bank stocks lower, the S&P 500 FINANCIALS INDEX is having another bad day:

Value 127.48

Change -5.65

% Change -4.2%

The Alerian MLP Index was down pennies (at least it remains near the high of its recent trading range) but Dow Jones REIT Index fell 3. Other indices didn't move much.


Alerian MLP Index --- YTD




Uncertainty played into the hand of oil bulls:

CLH09.NYM

...Crude Oil Mar 09

...40.38

... 0.82 .......(2.1%)

Timothy Geithner, Treasury Secretary, describes his “comprehensive” attack on the financial crisis. He warned that administration’s strategy will “cost money, involve risk and take time.” Geithner promised another round of capital injections for U.S. banks plus an initiative, in partnership with private investors, to address the toxic assets weighing down banks. The administration’s plan will add about $1½T in new lending & handling distressed assets. The overhaul $700 B rescue fund is aimed at addressing failures of the first phase of the program, which has not spurred additional lending. Geithner’s warning about the cost of the program followed signals that the administration may seek even more money after Pres Obama's warning that the economy is at risk of a “full-blown crisis.

•Geithner Says `Comprehensive' Remedy for Crisis Has Risks, Will Take Time


With all the attention on bailout packages, the auto companies have been pushed to a back burner. But they continue to face steep hurdles. Next week they will report to congress on their plans to get squared away. General Motors (GM) already announced layoffs & salary reductions to help in negotiations with unions & bondholders.

•GM Will Cut 10,000 Salaried Jobs Worldwide, Reduce Pay in Bid to Keep Aid


We saw the movie "Doubt" which is an excellent film. That word is the dominating force in today's market decline.

Auto bailout rally fizzles

Stocks could not hold on to early AM gains. Dow ended down 26, advancers were about 25% ahead of decliners & NAZ rose 12. The Alerian MLP Index fell back 2¼ to 174½. It's been trying for 2 weeks to crack 180, but couldn't break thru that ceiling. The Dow Jones REIT Index had a good day, gaining 7½ to almost 148. Junk bond funds also attracted buyers in contrast to JNK which was down pennies. Those ultra high yields are attracting nibblers.

Oil can't buy friends any more as it sinks to levels last seen 5 years ago. The gloomy thoughts about a worldwide recession keep buyers away.

CLF09.NYM

..Crude Oil Jan 09

...33.87

.. 2.35 ......(6.5%)

Federal regulators are getting ready to monitor the auto bailout package. Let's hope they know what they are doing.

• How the Feds will Govern GM and Chrysler- USNews.com

Retailers are already preparing for a grim future. Prices are being slashed to attract buyers. One clothing store has a sale: buy one, get two free. Retailers want to sell as much as possible before the holidays because they fear post holiday business to be awful. In addition, they dread more returns in which shoppers will want cash.

• Stores using survival tactics, look past holidays- AP

The Madoff scandal goes from bad to worse. Now they are tracing it back over 30 years, wondering what happened to checks along the way. The new administration will push for more regulation, something Wall Street is never happy with.

•Madoff Misconduct Said to Date Back to 1970s as Client List Reached 4,000


The major sort of good news was the VIX. It started the day by plunging 7 to 41. As enthusiasm over the auto bailout waned & then the markets waffled near break even it crept back up, closing down 2 at 45. Increased fears surfaced in the PM

Stocks plummet, Dow down 733

Testing the 8451 Dow low may be very coming soon. Dow dropped 733 to 8577 with very heavy selling going into the close, decliners over advancers 8-1 & NAZ was down another 150 (seems like triple digit losses are becoming common at the NAZ). S&P 500 FINANCIALS INDEX had another bad day in all this mess & uncertainty:

Value 210.23

Change -21.10

% Change -9.1%

The Alerian MLP index dropped 12 to 194 taking it well below the psychologically important 200 level. The Dow Jones REITs were punished severely, dropping an amazing 25 to 167.

In all this confusion gold was up 8 but oil pulled back below the important 75 level. Exxon Mobil, largest oil company, a Dow stock & recently joined the S&P 500 Dividend Aristocrat list, dropped 10 (yes, I said TEN) to 62. Earlier this year it traded at 95. Fears of a deep & long recession on running high!

CLX08.NYM

..Crude Oil Nov 08

....74.48

... 4.15 ..(5.3%)

Federal Reserve Chairman Bernanke, gave a speech at lunch time trying to soothe nerves. It didn't work as Dow sold off another 100+ during the speech, taking it to "down 500." Below is a quick but key paragraph from his comments plus 4 links to get an idea of what markets digested today.

++++++++++++++++++++++++++++

The U.S. faces ``a very serious too-big-to-fail problem,'' in which the insolvency of a large financial company could threaten a market collapse, Bernanke said in reply to an audience question. ``There are too many firms that are in some sense systemically critical.''

++++++++++++++++++++++++++++


•Bernanke Urges Limits for Asset Bubbles, Bank Power to Promote Stability
•JPMorgan's Dimon Expects More Loan Losses as Economy to Get `a Lot Worse'
•SEC Clears U.S. Banks to Postpone Writedowns on Value of Some Securities
•Bush Says U.S. Taxpayers Will Get Back `Most' of Money Under Bank Rescue


NASDAQ -- 10 years




This is a chart for the tech heavy NASDAQ which has suffered badly just in the last year, falling close to 50% (similar to Asian stocks which make & sell to these companies). Last night while Asian markets traded, the term "risk averse" was used frequently. As investors sell Asian suppliers or US tech stocks, much of that money is going into risk averse securities. For example, the 90 day US T-bill has a discounted interest rate of 14 basis points (that's the annualized rate)! That means to get $100 from the Treasury in 3 months, an investor will buy it for 3¢ less $100 today, that's risk averse!

I have a friend who has been day trading part time for a decade (including the ugly period at the start) & has done well over the entire period. He said watch for hedge fund selling in the last hour. I think we saw that today! Already the Mon rally seems like ancient history. Markets are catching on even that even with recent patches from central banks, there are no quick fixes. We may just have to endure a rough recession.

All markets tumble badly on confusion

Dow was down 348 to 10½K. decliners over advancers 5-1 & NAZ was down 93 taking it below 2K. The charts on the right show selling continued all day with averages closing near the lows.

Among the carnage, S&P 500 FINANCIALS INDEX down 12 to 264½. The Alerian MLP index was down 10 & Dow Jones REIT index was down 16. The AMZ is at its lowest price in 4 years:

Graphs for Dow Jones REIT Index & Alerian MLP index are shown below, these have been brutal times for many that don't deserve this punishment:


Dow Jones REIT Index --- 5 years






Alerian MLP Index -- 5 years





Oil & gold had rough days along with the markets (sellers bought T-bills & bonds because of the stronger dollar):


CLX08.NYM Crude Oil Nov 08 ... 93.68 .. 4.85 (4.9%)

GCV08.CMX Gold ...... Oct 08 ... 837.40 .. 43.30 (4.9%)

One of the many big ugly stories was GE, down almost 3 after a $12B stock sale. Just a few years ago, GE had the largest market cap of any company in the world, today it's struggling with many other giants just trying to get by.

Even though the macro economic news was grim, all eyes are watching DC to see if the House will pass a rescue package & exactly what it will contain besides pork. Some are switching sides in both directions making it difficult to guess what the outcome will be. There is plenty of chaos in DC especially with each member of the House up for reelection (some will have tough fights to keep their jobs).

Bush, Congressional leaders lobby for bailout bill


Chicken Little just got an unlisted phone number, so we'll have to tough things out by ourselves. We can do it!!

Higher unemployment sinks stocks

More grim economic brought back sellers to stock markets. Claims for jobless benefits last week inched up to 497K, the highest level in 7 years. Added claims following the hurricanes were responsible, however the economy remains very weak. Tomorrow the Labor Dept reports the monthly job report which is also expected to provide gloomy news. Factory orders plunged 4% in Aug, worse than expected, on lower orders for aircraft & autos.

• Factory orders drop by 4 percent in August- AP
• Jobless claims remain at 7-year high- AP

On this disappointing economic news, Dow sank 258, decliners ahead of advancers 4-1 & NAZ down another 61. S&P 500 FINANCIALS INDEX fell 4 to 272, Dow Jones REIT index was dropped 7 to 238 while the Alerian MLP index was down 7 to 221 (multi year low). In this world of uncertainty, Oil dropped from lower expected demand & gold plunged (huh?):

CLX08.NYM

..Crude Oil Nov 08

...96.42 ...

2.11 (2.14%)

GCV08.CMX

..Gold Oct 08

...847.00

... 33.70 (3.83%)

General Electric (GE), a Dow stock & an S&P Dividend Aristocrat, was down 2.35 to 22.15 (a 10 year low price) on selling $12B in stock after raising $3B from Warren Buffett yesterday. They are clearly struggling to maintain their elite AAA credit rating after it was reaffirmed just last week.

GE prices $12 billion stock offering


General Electric -- 10 years





The bailout plan is still hanging around in limbo. Last night, while the Senate passed an enhanced package (the original was a 3 page proposal versus a 450 page bill they passed), Asian stock markets were soft & Dow futures traded down 100. The Senate tried to include something for everybody to get the bill passed. Now the House will deal with it, but the future, once again, is not clear. Assuming they pass a bill with differences, those will have to be worked out. Uncertainty is the key emotion influencing stocks, that may not go away soon.

•Senate Passes $700 Billion Bailout Package With Inducements for House Vote

Markets lower awaiting Congressional actions

September was one the ugliest months for stocks. Dow dropped 700, NAZ & S&P 500 did even worse in terms of percentage decline. Oct is beginning wishy-washy in what is one of the most confusing backgrounds markets have ever had to deal with.

In just a couple of days, the House rescue package was shot down & very decisively. After the dramatic stock market sell-off on Mon, stocks rebounded from their vastly oversold condition on Tues (month/qtr end which adds extra unknowns to trading) but clearly remain on defense. A revised bailout package seemingly will be passed by the Senate tonight and maybe the House will also pass it in a couple of days. The thought from just a couple of days ago about Wall Street vs us has gotten blurry with over $1T in market losses on Mon. It is not clear exactly what is in the package or whether it will actually "work" in terms of providing meaningful aid to a sick economy. Sadly the economy is made sicker as the uncertainty about financial markets drags on. I am constantly reminded: a camel is a horse designed by a committee. Those thoughts, maybe in different forms, must be in traders minds as I am write.

General Electric, a Dow stock & member of the S&P 500 Dividend Aristocrats, also near a multi year low stock price of down 1 at 24½, is raising $15B to help keep its elite AAA credit rating. Meanwhile everybody is keeping a close watch on DC to find out what new regulations will be approved.

•GE Gets $3 Billion Buffett Investment, Plans $12 Billion Common Stock Sale
•Senate Leaders Predict Approval of Rescue Plan, Urge House to Support Bill

• Credit markets tight as Senate vote looms- AP

Today Dow ended down 20, decliners over advancers by about 20% & NAZ is down 22 (on even more confusion about where this leaves tech companies). The Dow was down 200 earlier in the day but recovered in the PM. S&P 500 FINANCIALS INDEX is up 6 today to 276, remaining in the same trading range for the last 3 months. The Dow Jones REIT index is down 7 to 244. The VIX (volatility index) is down a little to 40, remains in astronomical land from all the nervousness in all markets.

In the confusion, the concept of flight to safety has gotten muddled. Oil is down 2 to the 98s while gold is up 6, largely based on emotions. The Alerian MLP index is up 2 to 228, remaining near multi year lows.

Macro economic numbers keep coming, they are not pretty & do not look like they will get better (the unemployment report is due on Fri).

•Manufacturing in U.S. Contracts at the Fastest Pace Since Recession in '01
•Toyota, Ford, Honda U.S. Sales Fall as Credit Tightens; GM Beats Estimates

• Government launches mortgage aid program- AP

Gloomy news should be the main force driving markets. The economy is very weak & difficulties for businesses to simply function will bring on more layoffs & a further slowdown. Unemployment is getting worse, inflation may moderate a little, I think exports may go a little soft and it looks like GDP will contract. However, Congressional actions are getting 90% of traders' attentions while the economy drifts.

I wish these were happier thoughts, but these are unusually tough times. There are parallels to 1929, however this is lot different. Just unemployment, at 6+%, while bad, doesn't begin to compare with ugly numbers in those days. We will get thru this difficult period. These times should be used productively to prepare for buying opportunities which are coming.

Dow plunges 700 after failure to pass House bailout plan

This was to be a close vote, but it was supposed to pass in a nail biter. NOT SO!!! The House plan was shot down, Dow is down over 700 as decliners are ahead of advancers 20-1. NAZ is down 180 & S&P 500 slumped 100 in what is clearly a FINANCIAL CRISIS:

•S&P 500 Falls Most Since 1987, Commodities Plunge After Defeat of Bailout
•Financial Rescue Plan Backed by Bush, Democrats Collapses in 228-205 Vote
•Paulson Vows to Use `All Tools' to Protect Markets After Bailout Rejected
•Fed Injects Additional $630 Billion Into Financial System to Stoke Lending

Meanwhile oil is having one of its worst days ever while gold rallies on the flight to safety:

CLX08.NYM

Crude Oil ...Nov 08

... 96.42...

10.47 (9.8%)

GCV08.CMX

Gold ... Oct 08...

905.00...

22.10 (2.5%)

The flight to safely means money from stock sales is going into Treasury bills where the ANNUAL yield tumbled from 0.87% to 0.32%. Keep in mind, these are ANNUAL rates for T-bills:

Investors Swarm T-bills as House Rejects Bailout- AP

Let's see how markets close, I'll return.

Markets tumble after bailout package announced

Asian markets opened after the announcement from DC yesterday PM. Dow market futures were flattish while Asian markets had modest gains. In the first few hours Asian markets slipped, some even going into the red while Dow futures sank to the down 80 region. This AM negative thinking continued in NY trading. Dow is down 260, decliners over advancers 9-1 & NAS is down a whipping 84. The S&P 500 dropped 42 taking it near the 1170 line so many considered important earlier this year. S&P 500 FINANCIALS INDEX is down 14 to 271 & the Dow Jones REIT index is down 7 to 247. This headline from Bloomberg captures thinking today:

•Stocks Worldwide Sink Most Since 1997; Government Bonds Rise on Bailouts

It's difficult to keep track of all the collapsing bank problems around the world. Banks in Belgium, UK & Germany needed to be saved by the governments. Citigroup (C) is taking over Wachovia (WB) at a bargain basement price. All this confusion among the biggest banks in the world is just too much for the markets to take.


•Citigroup to Take Over Wachovia Bank Business, Absorb Losses With FDIC Aid
•Morgan Stanley Agrees to Sell 21% Stake to Mitsubishi UFJ for $9 Billion
•Fortis, Bradford & Bingley, Hypo Real Estate Rescued as Bank Crisis Widens
•Goldman, Merrill Get Billions After Federal Reserve's AIG Bailout Loans

• Fed takes fresh steps to battle credit crisis- AP

Economic reports keep coming, more are coming this week. Consumer spending was flat in Aug, worse than up 0.2% forecasted. Aug represents the back-to-school selling season (without the benefit of tax rebates), very dismal.

• Consumer spending weakens as stimulus fades- AP
• Oil falls to almost $101 on slowdown fears- AP

Oil is back down to 100 among all the confusion in the financial markets. If there is a reason, it is that economic slowdown will hurt demand for oil. Yesterday China said it was revising down its forecast for exports. They buy a lot of oil & much of their production is for export to the US. The Alerian MLP index dropped 11 to 225.

CLX08.NYM

Crude Oil Nov 08

.. 100.09

.. 6.80 (6.4%)

GCV08.CMX

Gold Oct 08

.. 895.40

.. 12.50 (1.4%)

In all this chaos, gold is back on the rise. Hate to give myself a plug, but my article at SeekingAlpha last week may be getting more attention as the flight to safety emotion kicks in:

http://seekingalpha.com/article/97160-buying-gold-what-is-high-and-what-is-low

Here's what it all comes down to, getting the package signed off by Congress & the President. One way or another it will happen, but agreeing to what is a fuzzy & confusing mess which can not solve all financial issues is not what markets want to see & hear.

•U.S. House Begins Debate on $700 Billion Financial Rescue; Close Vote Seen

Dow is starting the week below 11K, a level which had provided support in the past. This week, it may represent the ceiling.

Stocks slip at day's end

Dow was down 29, decliners over advancers almost 3-2 while NAZ was up a couple. S&P 500 FINANCIALS INDEX declined only 4 to 270. NYSE volume was weak as eyes were watching DC, awaiting developments on the bailout package.

Oil was down 1.45 to the 105.16, nothing dramatic going on. They, like the stock markets, are watching events play out in DC. The Alerian MLP Index was even while the Dow Jones REIT Index was down 4. After its big run-up last week, it has pulled back over 25 from the high to present level of 242.


Alerian MLP Index - last month




I'll take a break from the big story in DC, since nobody knows how it will turn out, to talk about MLPs. The last month has been unusually wild for the index. The charts show a 60 point drop from the high to low followed by a quick 30 point recovery & retrenching since then. It has settled in the 230's, a multi year low level. It's important to keep in mind that these securities are low beta, difficult to recognize this month.

There has been a lot of liquidation which may be related to the Lehman story. They were big on MLPs. Unwinding those positions may require selling more units (not shares). The unwinding may take time, so the index could be on the defensive for a few weeks, even months, but that should subside when, hopefully, rationale will bring back buyers. Their fundamentals remain strong. The country needs more pipelines to move oil & gas & they need more investment to keep depreciation high so a large portion of the distributions will not be taxed in the current year. This is a good time to keep MLPs on your radar screen & learn more so they can be bought at coming bargain prices.

Many in the country are viewing this bailout package story as a battle between us and them (the rest of the country vs Wall Street). To a point I agree. That's creating problems passing legislation. The $700B recovery package was supposed to be fairly certain, the reason behind the 800 point rally. Now it looks like it's sputtering as Paulson has already conceded one key point. I am reminded of Allen Sherman's thought, a camel is a horse designed by a committee, he probably meant a congressional committee. Stay tuned.

•Bernanke Says U.S. Faces `Grave Threats' as Credit Crisis Hurts Households
•Paulson, Reversing Course, Says Bailout Should Address Excessive Salaries

It's an Outrage! From Main St. to Congress, Bailout Proposal Falls Flat- Tech Ticker

Higher markets despite worries about bailout package

Dow is up 88, advancers are only slightly ahead of decliners while NAZ is up 26 (note the NAZ graph from Bigcharts was added below the Dow graph in the button on the right). S&P 500 FINANCIALS INDEX was up 1 to 279, financials are still slugging it out in the trenches. The Dow Jones REIT Index rebounded 6 after the drubbing it took yesterday. Junk bond funds are up a little. Nibblers looking for very high yields are attracted to them.

The biggest news is on congressional hearings about the bailout package (hate to use the word plan). Years ago, Allen Sherman, famous songwriter, said a camel is horse designed by a committee. That thought may apply to the new legislation that eventually will be passed, making markets very nervous.

•Bernanke Says Failure to Pass Bank Bailout Would Threaten Markets, Economy

•Credit Default Swap Market Must Be Regulated `Immediately,' SEC's Cox Says


Meanwhile the economy continues to drag along. Early signals for the approaching holiday selling season are not good. Asian markets are off 25+% this year (much worse in China) largely on expectations of weaker sales to the US & to a lesser extent Europe, their top customers.

•Holiday Sales in U.S. May Rise 2.2%, Slowest Pace in Six Years, Group Says

Retail trade group offers weak holiday forecast- A


High oil prices continue to be a problem for the economy. The new contract for oil (now Nov oil) is down pennies in the 108s. The big spike in oil prices for Oct oil yesterday is being investigated although it looks like there was a short squeeze as the contract closed. Bigger picture, oil is off the lows in the 90s, probably resulting from tighter inventories after the hurricanes. The national average price was 3.73 yesterday, but there are spotty shortages with resulting higher prices. The Alerian MLP index is down 3 to 236 on what may be a quiet day for oil prices.

• Oil falls toward $108 as traders mull bailout plan- AP

Congressional hearings begin today & it looks like Bernanke & Paulson will have their work cut out for them. In this election year, Congress wants to put its footprint on the package (always dangerous). This package, because of its very large size, is getting attention in financial markets around the world, creating nervousness everywhere. There is also an increasing awareness that any bailout package will not cure economic ails in the US economy.