Tuesday, September 30, 2008

Dow Plunges 777pts!

WASHINGTON, Sept 30 — In a vote that shook the US government, Wall Street and markets around the world, the House yesterday defeated a US$700 billion (RM2.4 trillion) emergency rescue for the nation's financial system, leaving both parties and the Bush administration struggling to pick up the pieces. The Dow Jones industrials plunged nearly 800 points, the most ever for a single day.

"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene on Thursday in hopes of a quick vote on a reworked version.

All sides agreed the Bill could not be abandoned.

Yesterday, not enough lawmakers were willing to take the political risk — just five weeks before the elections — of backing a deeply unpopular measure that many voters see as an undeserved bailout for Wall Street.

The Bill went down, 228-205, even though Paulson and congressional leaders proclaimed a day earlier that they had worked out an acceptable compromise in marathon weekend talks.
Lawmakers were caught in the middle. On one side were the dire predictions from Bush, his economic team, and their own party leaders of an all-out financial meltdown if they failed to approve the rescue. On the other side: a flood of protest calls and e-mails from voters threatening to punish them at the ballot box.

The House website was overwhelmed as millions of people sought information about the measure.

The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and easing one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering.

Stocks started plummeting on Wall Street even before yesterday's vote was over, as traders watched the rescue measure going down on television. Meanwhile, lawmakers were watching them back.

As a digital screen in the House chamber recorded a cascade of "no" votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. "Six hundred points!" he yelled, jabbing his thumb downward.

The final stock carnage was 777 points, far surpassing the 684-point drop on the first trading day after the Sept 11, 2001, terror attacks.

In the House, "no" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 per cent of Democrats opposed the Bill. Several Democrats in close election fights waited until the last moment, then went against the Bill as it became clear the vast majority of Republicans were opposing it. Most vulnerable Republicans refused to back the Bill.

In all, 65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no."

The overriding question was what to do next.

"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi in a news conference after the defeat. "What happened today cannot stand."

Republican leader John Boehner said he and other Republicans were pained to vote for such measure, but he agreed that in light of the potential consequences for the economy and all Americans, "I think that we need to renew our efforts to find a solution that Congress can support."

Those positive comments aside, a brutal round of partisan finger-pointing followed the vote.
Republicans blamed Pelosi's scathing speech near the close of the debate — which assailed Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets — for the defeat.

"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Boehner said.

Rep. Roy Blunt, the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.

That amounted to an appalling accusation by Republicans against Republicans, said Rep. Barney Frank, chairman of the Financial Services Committee: "Because somebody hurt their feelings, they decide to punish the country."

More than a repudiation of Democrats, Frank said, Republicans' refusal to vote for the bailout was a rejection of their own president.

The two men campaigning to replace Bush watched the situation closely — from afar — and demanded action.

In Iowa, Republican John McCain declared: "Now is not the time to fix the blame; it's time to fix the problem."

In Colorado, Democrat Barack Obama said: "Democrats, Republicans, step up to the plate, get it done."

"We're all worried about losing our jobs," Rep. Paul Ryan, declared in an impassioned speech in support of the Bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it — not me.' "

With their dire warnings of impending economic doom and their sweeping request for unprecedented sums of money and authority to bail out cash-starved financial firms, Bush and his economic chiefs had focused the attention of world markets on Congress, Ryan added.

"We're in this moment, and if we fail to do the right thing, Heaven help us," he said. — AP

Monday, September 22, 2008

KLCI Re-Visit: North Please

As what I have expected, it will have strong rebound at 95x level which I did mention at my chatroom on 18/Sep/08. And indeed the CI rally for 62pts within two days after hitting low of 963 (so close yet not far from my low target :-o) . KLCI close at 1,025 last week. My immediate outlook will be positive! (as long as it hovering above 950 level)- of course the main resistance at 1100 and 1180 should be taken out first. Enjoy the ride and good luck!

[Previous KLCI Posting]

DJI Re-Visit: Chart Preview

Dow Jones last week encounter much pressure by financial tumors which sent the index hitting 2 years low at 10,400. The sell off was a temporary and it recover quickly at the end of last week to close at 11,388. Well, what I can see is that the market will have a better sign of moving up after all this financial crisis (news) which jitter investors. Anyway a more positive view is that the DJI must be able to breakout 11,800 level, otherwise my downtrend target at 10,000 remain a question!

[Previous DJI Posting]

Tuesday, September 16, 2008

Stocks Get Pummeled

Wall Street sees worst day in 7 years, with Dow down 504 points, as financials implode.

NEW YORK (CNNMoney.com) -- Stocks tanked Monday, amid the largest financial crisis in years after Lehman Brothers filed for the biggest bankruptcy in history, Bank of America said it would buy Merrill Lynch and AIG slumped on fears that it can't raise cash.

Treasury prices rallied as investors sought the comparative safety of government debt, sending the corresponding yields lower. Oil prices tumbled, falling well below $100 a barrel on slowing global economic growth. The dollar rallied versus the euro and gold prices spiked.

The Dow Jones industrial average (INDU) lost 504 points, or 4.4%. It was the biggest one-day decline for the Dow on a point basis since Sept. 17, 2001, when the market reopened for trading after having been closed in the aftermath of 9/11 terrorist attacks. On a percentage basis, it was the biggest decline since July 19, 2002.

The Standard & Poor's 500 (SPX) index lost 4.7%, its worst day since Sept. 17, 2001, when it plunged 4.9%. The S&P 500 also closed at its lowest point since Oct. 27, 2005.

The Nasdaq composite (COMP) lost 3.6%, its worst single-session percentage decline since March 24, 2003. It left the tech-fueled average at its lowest point since March 17 of this year.

"It was an ugly day," said James King, president and chief investment officer at National Penn Investors Trust Company. "Lehman's failure to find a suitor and Merrill deciding to cash in their chips before a similar fate could befall them really stoked the fears of the public."

AIG exacerbated those fears in the afternoon. And all the bad news isn't out there yet, King said. "Investor confidence is at the lowest point we've seen in a while."

He said that after the government bailout of Fannie Mae and Freddie Mac last week and all the other financial market bad news, this was just too much for investors.

But it doesn't mean that the stock market is likely to see these kind of massive selloffs on a regular basis, King said. Nasdaq and S&P futures pointed to a higher open Tuesday, when fair value is taken into account.

After the close of trade, S&P said it is cutting its debt rating on mortgage lender Washington Mutual (WM, Fortune 500) to junk status, reflecting the ongoing credit market meltdown and WaMu's exposure to the housing market. WaMu shares fell almost 27% during the session and lost another 11% in extended-hours trading.

Also after the close, Hewlett-Packard (HPQ, Fortune 500) said it will cut 24,600 jobs, or 7.5% of the combined workforce of HP and the recently-purchased EDS. Shares were barely changed in extended-hours trading.

Stock market meltdown: Global markets tumbled as investors reeled after Lehman Brothers filed for bankruptcy, Merrill Lynch was forced to sell itself to Bank of America and investors awaited AIG's restructuring announcement.

"You have to throw out the history books because there's really nothing to compare this to," said Jim Dunigan, chief investment officer at PNC Advisors.

"Any speculation as to what inning we're in becomes difficult because each step of the way seems to bring another drop," Dunigan said.

Art Hogan, chief market strategist for Jefferies & Co., said the magnitude of the financial industry fallout is unprecedented, and could only be compared to the Great Depression of the 1930s or the railroad bankruptcies of the 1800s.

"We've never witnessed this before," said Hogan. "There's no road map for this."

Dow-component insurer AIG and mortgage lender Washington Mutual are the latest companies to spark investor fear.

AIG has been scrambling to raise enough cash to fend off ratings agency downgrades and stay afloat.

N.Y. Gov. David Paterson said in the afternoon that AIG will be allowed to use $20 billion in assets through its subsidiaries to stay afloat, basically providing itself with a bridge loan. AIG has also reportedly asked the Federal Reserve for a roughly $40 billion bridge loan over the weekend.

In addition, the federal government has asked Goldman Sachs and JP Morgan to lead a $70 billion to $75 billion lending pool for the company, the Wall Street Journal reported. (Full story)

Shares of AIG (AIG, Fortune 500) slumped 60.8%.

The developments of the day cemented for investors that the credit crisis is far from over, six months after the near-collapse and government rescue of Bear Stearns.

"The landscape has changed and a lot of the major players who were are no more, so of course people are panicked," said Stephen Leeb, president at Leeb Capital Management.

"But it's not the end of capitalism," he said. "This may usher in something worse than what we've seen in terms of the economy, but the companies left standing at the end of this will be OK."

Merrill Lynch's buyout was perhaps providing some reassurance to investors, said Dunigan, in that it shows there is still value in the market.

Losses were also tempered by the Federal Reserve's decisions to loosen up its lending restrictions. The central bank could end up cutting the fed funds rate, its key overnight bank lending rate, when it meets Tuesday, analysts said. The fed funds rate currently stands at 2.0%.

Also helping Tuesday: news that a group of 10 banks including Morgan Stanley, Goldman Sachs and Barclays had given up to $7 billion each to create a $70 billion lending pool to help smaller institutions.

Lehman bankruptcy: Lehman Brothers (LEH, Fortune 500) announced it was filing for bankruptcy, after weekend talks aimed at saving the 158-year old firm failed.

The filing came shortly after midnight Monday, after Bank of America and Barclays pulled out of negotiations to acquire Lehman, which has lost $60 billion in bad real estate bets and the credit market's collapse.

Unlike with Bear Stearns back in March, the government was reportedly not willing to help finance a takeover, bailout or restructuring of Lehman Brothers. This reportedly contributed to the reluctance of other firms to strike a deal with the troubled company. (Full story)

Speaking in the afternoon, Treasury Secretary Henry Paulson said that he hasn't ruled out additional government bailouts for the future. He also said that the banking system is sound. (Full story).

Lehman shares plunged 94%. (Full story)

Merrill Lynch buyout: After pulling out of the Lehman negotiations, Bank of America (BAC, Fortune 500) announced that it will buy Merrill Lynch (MER, Fortune 500) for $50 billion in stock. The price values the company at more than $29 a share, a more than 70% premium from Merrill's closing price on Friday of $17.05.

The company has posted losses of more than $17 billion over the last four quarters and saw its stock plunge 27% last week.

Shares had rallied more than 15% during the session Monday before ending little changed. Bank of America tumbled 21%. A variety of other financial shares plunged, including Citigroup (C, Fortune 500), Morgan Stanley (MS, Fortune 500), Goldman Sachs (GS, Fortune 500) and JP Morgan Chase (JPM, Fortune 500).

Market breadth was negative, with losers beating winners by over 18 to 1 on volume of 1.8 billion shares. On the Nasdaq, decliners topped advancers by over six to one on volume of 2.75 billion shares.

10-bank emergency fund: In a bid to calm the markets, the Federal Reserve announced plans Sunday to loosen its lending restrictions to the banking industry. A consortium of 10 leading domestic and foreign banks, including Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500), Barclays (BCS) and Morgan Stanley (MS, Fortune 500), agreed to create a $70 billion fund to lend to troubled financial firms.

The Federal Reserve, meeting Tuesday, could cut the fed funds rate, a key short-term interest rate, from the current level of 2%, analysts said.

Oil: Oil prices plunged as investors continued to bet on a global economic slowdown. Additionally, early reports showed Hurricane Ike didn't do as much damage to oil rigs and refineries in the Texas Gulf region as expected.

Oil prices were down $5.47 a barrel to settle at $95.71, the lowest point since Feb. 15. Oil dipped below $100 a barrel on Friday for the first time in five months.

Monday, September 08, 2008

Market Volume On A Steady Decline

PETALING JAYA: Trading volume on Bursa Malaysia touched new lows last month from its high in February 2007 as the market is caught up in the swirl of economic and political uncertainties.

Volume of the 100-component Kuala Lumpur Composite Index (KLCI) fell to a new low in nearly a year of 3.28 billion units last month due to various factors, including cautious sentiment on the country’s political uncertainties.

It represented a 40% decline from 5.61 billion units a year earlier and a 28% fall from 4.2 billion units in July 2008. As of Aug 30, the KLCI was down 24% to 1,100.5 points from its high of 1,445.03 at end-2007. Last Friday, the KLCI fell 14.52 points to 1,070.54.

For the overall market, trading volume in August fell to 8.92 billion units valued at RM18.6 billion, from 10.45 billion units valued at RM21.3 billion in the previous month. Monthly trading volume stood at a previous high of 50.54 billion units valued at RM63.46 billion in February 2007.

RAM Holdings Berhad chief economist Dr Yeah Kim Leng noted that direct exposure to equities would be volatile, but the correction had made market valuation relatively attractive.

“There is an excess of liquidity as investors shift their asset allocations to cash, but as long as the funds don’t leave the country, the prospects of a rebound are much higher. We also have large institutional investors locally who will provide more support for the market,” he told The Edge Financial Daily.

Commenting on the state of the capital market, Yeah said: “I think there are a combination of factors. We have the political risk premium as a contributing factor. What we are seeing here is that the underpinning fundamentals such as the weakened currency and growth are contributing to the weakening of the markets.”

“However, we would likely see the ringgit weakness as temporary as it is supported by a large current account surplus,” he added.

Aseambankers research head Vincent Khoo told The Edge Financial Daily that the research house retained its defensive stance and advocated exposure on high dividend-yielding large-capitalisation stocks, adding that there could be an important relief rally towards year-end.

He reckoned that political uncertainties would continue to feature in the market for a while. However, he noted the domestic issue was not the only consideration as external factors also played a role in determining market confidence.

“Investors do not like uncertainties. Nevertheless, such domestic issue (political uncertainties) has masked equally important external issues. Stagflation in the United States and the recent fall-off of commodity plays (which impact the plantation sector) have also affected the KLCI,” Khoo said.

However, TA Securities’ technical analyst Stephen Soo does not recommend investors to commit in the equity market now.

“With our support level of 1,050, we don’t encourage investors to commit. They should stand at the sidelines and reduce their exposure,” Soo said, adding that the overseas market downturn, weakening ringgit and lower commodity prices would continue to impact the market this week.

He noted that the weakening ringgit of an almost 12-month-low at 3.46 per US dollar last Friday was due to investors’ concern over the recently-announced budget deficit.