Thursday, October 30, 2008

Warren Buffet: Reminds Investors How To Behave Now!

By Warren E. Buffett

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts. |

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."

I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was." Today my money and my mouth both say equities.

Tuesday, October 28, 2008

Buffett’s Value Investing Style Good For Malaysia

Investors should be long-term oriented and focused on what stocks they buy

WORLD famous stock market guru, Warren Buffett, made headlines when he bought substantial stakes in technology and services giant General Electric Co (GE) and financial heavyweight Goldman Sachs Group.

Just when everyone else was pulling out their investments from Wall Street, Buffett stepped in to inject some US$8bil in these two companies via his investment company Berkshire Hathaway Inc.

Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well,” he once said.

But is Buffett’s value investing style suitable for the Malaysian equity market and investors?

"Yes, it provides great opportunities to buy now if you are buying for long-term,” said Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose, adding that the current stock pricing “is irrational” due to the heavy selldown by foreign funds.

He said investors should hold good stocks for “as long as possible” as stock investment was about investing in a company’s management and market strategy.

Jupiter Securities Sdn Bhd executive director of operations Tan Chee Siong said Buffet was very careful with his investments and rarely found stocks that met his requirements.

The five main criteria Buffett uses for stock selection are earnings versus growth, high return on equity, minimal debts, strength of management and simple business model.

Buffett’s strategy was more of a “concentration of a few solid stocks” in a few industries that he could understand, Tan noted.

However, he cautioned that the local bourse, as an emerging market, could be more volatile and that market sentiment could easily be influenced by many external factors.

“We must remember that if we talk about investment in the local equity market, the duration should be shorter and we need to take profit whenever there are signs of big changes in market trend and our economic performance,” he said.

Meanwhile, Aseambankers head of research Vincent Khoo said investors should generally hold on to three principles — “be long-term oriented, only buy what you can afford and be focused in what you buy.”

He said investors should hold on to good stocks for as long as possible.

“Blue chip stocks, for example, can ride through bad times and will recover over time,” he said.

Being among the most successful and trusted investors’, Buffett’s investment in GE and Goldman Sachs restored some investor confidence on Wall Street.

Buffett, who is also known as “The Oracle of Omaha”, is an astute long-term investor and has always investigated the underlying fundamentals of a company, rather than market sentiment.

He has always determined the intrinsic value of a business and paid a good price for it. He believes price is what you pay, value is what you get.

Being prudent, Buffett is said to never invest in any business that he could not understand, a principle that paid off when he escaped the dotcom market crash.

His investment principle is simple— always analyse a company’s annual reports to check its fundamentals and know what you are investing in.

Buffett, who is chairman of Berkshire Hathaway, the most expensive stock on Wall Street, said in a letter to shareholders last year that Berkshire was seeking to invest in companies with favourable long-term prospects and competitive advantage in a stable industry.

To him, “if a business does well, the stock eventually follows.”

One of his most successful investments was PetroChina.

Buffett bought a stake in the Chinese oil and gas firm for an initial sum of US$500mil and later sold it for US$3.5 bil.

He has also made successful investments in companies such as Coca-Cola, American Express and Gillette.

Monday, October 27, 2008

Crude Oil Price At Bottom?


Since my last update on June 08, the oil price jump to its new high of $148 per barrier on July 08. Well thats the end of the oil price rally. Every one of us should be happy now that the oil price is hitting $60. Now its time to look at how it was going to consolidate. I expect it to trading between my band of $55 - $90 level. For worst case it can go below $55 which may hit $30 - $40 (due to current financial crisis hitting around the globe if the global government failed to contain such meltdown). Anyhow low oil price is good for us, I just wondering when our Malaysia government going to reduce more on the petrol price???
Previous Crude Oil Post:
http://bursabulltrader.blogspot.com/2008/06/crude-oil-price-at-peak.html

FCPO Good Time To Buy?

Those wanting to buy CPO counter can start nibble to keep for long-term. There would be also a downside risk to hit 1250 strong support level. My trading band for the CPO is around 1250 - 2000. Good Luck!

Previous CPO Post:
http://bursabulltrader.blogspot.com/2008/07/cpo-hanging-in-between.html

Tuesday, October 14, 2008

Manic Monday: Dow Roars Back From Worst Week Ever

NEW YORK, Oct 14 — Wall Street stormed back after its worst week ever and staged the biggest single-day stock rally since the Great Depression yesterday, catapulting the Dow Jones industrials to a 936-point gain and finally offering relief from eight consecutive days of stock market carnage.

While no one was saying the worst was over for the staggering financial system or troubled economy, buyers returned to the stock market with gusto, with some saying stocks had been driven down to fire-sale prices.

The surge came as executives from leading banks were summoned by the Bush administration to Washington to work out a plan to get loans, the lifeblood of the economy, moving again. And it followed signals that European governments would put nearly US$2 trillion on the line to protect their own banks.

The Dow gained more than 11 per cent, its biggest one-day rally since 1933, and by points it shattered the previous record for a one-day gain of 499, during the waning days of the technology boom in 2000.

"My screen is completely green, and I love that," said John Lynch, chief market analyst for Evergreen Investments in Charlotte, North Carolina. "But I'm not doing any backflips yet. We still have many challenges up ahead."

Stocks opened sharply higher and never looked back. The Dow was up more than 400 points in the opening minutes of trading, and by lunch hour had crossed back through the same 9,000 level it crashed below last week.

The rally intensified in the final hour of trading. In the moments before the closing bell rang, boisterous traders sounded horns on the floor of the New York Stock Exchange, and raucous applause broke out.

"I would say this is closer to the bottom. I can't say this is the bottom," said Bill Schultz, chief investment officer at McQueen, Ball & Associates. "I think it's more relief, the rally today."

For Wall Street, it came not a moment too soon. The dismal week before wiped out about US$2.4 trillion in shareholder wealth. The eight-day losing streak drained 2,400 points from the Dow, or 22 per cent — roughly equal to the 1987 crash and enough to establish a bear market all on its own.

US stock market paper gains totalled US$1.2 trillion yesterday, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America.

The massive rebound also pushed the Nasdaq composite index higher by 195 points, or nearly 12 per cent, its second-biggest gain in percentage terms. The Standard and Poor's 500, rose 104 points, its biggest point gain ever and an 11.5 per cent gain, its greatest since 1933.

About 3,030 stocks advanced on the New York Stock Exchange, while only about 160 declined — a reversal from last week, when declining stocks overwhelmed the gainers. But the trading volume of 1.82 billion shares was lighter than it had been last week, suggesting there was less conviction in the buying than during last week's selling.

At the close, the Dow stood at 9,387.61. That's still a far cry from its peak of 14,165, set a little more than a year ago — and history suggests Wall Street could have a long climb back to the top of the mountain.

After the Black Monday crash of October 1987, it took the Dow until August 1989 to set a new all-time closing high, almost two years after its previous peak. The 1987 crash took stocks down 36 per cent from their pick — comparable to the 40 per cent decline in this round of turmoil.

The Bush administration said it was moving quickly to implement its financial rescue package, including consulting with law firms about the mechanics of buying ownership shares in a broad number of banks to help get lending going again.

Neel Kashkari, the assistant Treasury secretary in charge of the programme, said yesterday officials were also developing guidelines to govern the purchase of soured mortgage-related assets. He gave few details about how the programme will actually buy bad assets and bank stock.

And Wall Street still has a lot to worry about, including a housing market that is still groping for a low point in prices and shoppers who are spooked by job losses and other ominous economic signs and are cutting back on their spending.

"I think we had enough negatives last week that if the government steps in we could have a pretty nice run," said Denis Amato, chief investment officer at Ancora Advisors. "Is it off to the races? No, I don't think so. We have a lot of stuff to work through."

It was also too soon to say for sure whether lending was finally loosening up. The sell-off on Wall Street last week was driven by fear that mistrustful banks were choking off the everyday loans that businesses use to buy supplies and pay their workers.

Yesterday was the Columbus Day holiday, and the US bond markets and banks were closed, making it difficult to gauge the reaction of the credit markets to the measures taken by world governments.

The Bank of England said it would use up to US$63 billion to help the three largest British banks strengthen their balance sheets. The Bank of England, the European Central Bank and the Swiss National Bank also jointly announced plans to work together to provide as much short-term money as necessary to help revive lending.

The heads of the five biggest US banks — Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Bank of America — were meeting at the Treasury Department with officials from Treasury and the Federal Reserve. The discussions are aimed at finalising details on the rescue package Congress passed on Oct 3.

That package started with the idea that the government would buy the bad mortgage-related debt off the books of banks. It now includes provisions for the government to buy ownership stakes in banks, among other steps.

It is coming together against the backdrop of a presidential election that has focused squarely on the economy. Sens. Barack Obama and John McCain are to meet for a final debate tomorrow night on Long Island, with the state of the nation's finances sure to be at the top of the list.

Consolidated volume on the New York Stock Exchange hit 7.1 billion shares, down from 11.2 billion during Friday's session but still very heavy. — AP

Saturday, October 11, 2008

Opportunities In Crisis

MOST in the investment fraternity agree that with the huge dip in all markets, it’s time to go shopping for stocks. Selling at this point would be a poor strategy.

Capital Dynamics Asset Management managing director Tan Teng Boo says people are ignoring that oil prices are now so much lower than what it was in July. Come 2009, inflationary pressures will have eased tremendously, and this will primp markets for another run.

“Low oil prices will definitely help emerging markets, as it will also lower interest rates, hence boost consumer spending,”

“We are getting close to the bottom. If you are 100% in cash, then it’s time to invest. Even if you’re 50% cash, it’s time to start buying. We’re not there yet, but getting very close to where we should be long-term greedy. This is a once in a lifetime investment opportunity,” he says.
Standard & Poor’s Asia Equity Research Services director Alexander Chia sees the bottom happening within the next two quarters.

“Yes, for sure I see opportunities in times of crisis. With bad news being plastered everywhere, it is hard for the investor to maintain his perspective. Don’t let emotions take over.

“I don’t think people should be buying just yet, as investors are still selling into strength, but I believe the bottom is not far off,” Chia says. Chia opines that most funds are cashed up and waiting for that point of capitulation.

“Have your assets very liquid, so that when capitulation happens, you have the bullets to buy. For the time being, I see the market trading rangebound to lower,” he adds.

A fund manager says that if one follows the Buffet style of investing, (having a 3-5 year view), present times present exceptional opportunities.

“History has proven it. So if you have the money, it is a good time to start investing,” he says.
He adds that when there are declines in the major indices, investors will normally compare sectors and look at the more defensive sectors of the economy.

Says JP Morgan Securities head of broking Clement Chew: “In the short term, its unpredictable. But if you have to buy, some of the sectors to look at would include tobacco, power, telecoms, supermarkets and number forecasting operators. Look at companies that offer deep value with some sort of yield to support it,” he says.

Chew cautions that investing in commodities is still risky, as there is still a lot of unwinding in commodity trade going on.

Chew isn’t too bullish on properties either.

“The newsflow surrounding property stocks isn’t so good, and with lending being curtailed and credit shrinkage everywhere, this wouldn’t be such a good time. Regional property companies are trading at wider discounts to their revised net asset values. I don’t think you will see property stocks going up,” says Chew.

Shock Hits Asia With Disturbing Force

OCT 11 - Can a region like Asia - with more than US$3 trillion in foreign exchange reserves, high savings rates, mostly well-capitalised banks and minimal exposure to American mortgage-backed securities - run into trouble during a global financial crisis?

The answer Friday was a resounding yes.

Stock markets plunged from Tokyo to Mumbai. Real estate prices are tumbling from Seoul to New Delhi. The economy in Singapore has tipped into recession, and there is growing evidence of a recession in Japan, where an unlisted insurer and a real estate investment trust filed for bankruptcy Friday.

From UBS to Morgan Stanley, investment banks have been warning in the past week of a global economic downturn. For Asia, that sounds uncomfortably like a forecast that economic slowdowns in the United States and Europe will cripple demand for Asia's exports and pull the region down into recession as well.

What went wrong? As the biggest beneficiary of the rise in global trade, Asia depends heavily on exports to the West. Everything from corporate earnings to real estate prices depends on a steady inflow of dollars and euros.

Growth in exports has slowed to a crawl or started declining across most of the region when calculated in local currency terms and adjusted for inflation. And that is even before Western stores have had a chance to cut back their orders in response to the sort of steep declines in sales that American retailers announced on Wednesday.

India announced Friday that industrial production in August was 1.3 per cent higher than a year earlier. That was a drastic deceleration from July, when the growth rate was 7.4 per cent.

In South Korea, exporters are suddenly struggling.

''The problem is the global recession - people don't buy consumer electronics, this means less exports and fewer dollars for us,'' said Choi Hae Pyong, an electronics parts manufacturer south of Seoul. ''It's like walking in a thick fog.''

As long as the region kept exporting and kept saving the proceeds, investors bid up real estate and share prices that now seem to have a long way to fall.

Matthew Au, a luxury real estate broker in Hong Kong, said that this past week had been even worse than the days after the Tiananmen Square killings on June 4, 1989, which briefly shattered business confidence here.

''I've been through June 4th, the 1997 financial crises and SARS, but this time around, the decline in housing prices has been the most abrupt,'' he said. ''Sellers of properties are now more willing to consider offers which come in 20 to 30 percent below their asking prices.''

As global financial markets increasingly look to each other for direction, lack of confidence in financial institutions and housing markets in the West has also proved contagious in Asia. The Asian news media, often focused on economics instead of potentially touchy political issues, have been full of reports in the past three weeks about failing banks and falling real estate prices, and that has fed through into local markets.

An outflow of Western investment has also played a role in Asia's decline now, although foreign investment has become less important in much of the region as Asia has become a formidable saver in its own right.

In Malaysia, foreign investors held nearly a third of Malaysia's national debt until they started selling this summer to raise money so as to cover losses in other markets.

In Korea, foreign investors sold US$29 billion in the first nine months of this year. This was an important reason why the country's foreign exchange reserves have slipped to a still formidable US$239.7 billion last month from US$264.2 billion in March.

Many in Asia now despair of help from the West, and are looking to Beijing.

''The United States is beyond saving - our only hope rests with China,'' said Dick Chen, a middle-aged manager in a pin striped blue shirt and carrying an ultraslim modern mobile phone who watched the markets with dismay after lunch in a trading room of Tai Fook Securities in Hong Kong.

Can China save Asia? For the past six years, the Chinese economy has been like an enormously powerful hound that has charged ahead despite every obstacle. Worried that the economy may overheat and accelerate inflation, Beijing officials have run a budget surplus, repeatedly raised interest rates and even required banks to deposit a remarkable one-sixth of their entire assets as reserves at the central bank to slow lending.

Now Beijing is trying to loosen the leash it has had on the economy by cutting interest rates and taxes and lowering reserve requirements. But the government is finding the economy already looks a little out of breath as exports slow.

Economists see annual growth slowing from 12 percent a year ago to 8 or 9 per cent this winter. That is still respectable by most countries' standards, but a shock for many Chinese, particularly workers losing their jobs in factories producing mainly for export markets.

For Asia, this is the crisis that was never supposed to happen again.

The region was deeply scarred by the Asian financial crisis of 1997 and 1998.

Dozens of banks failed after lending too much with too little capital, while profligate governments found that they had borrowed too much overseas and could not repay their debts.

That led to a rapid contraction of credit that bankrupted many industrial companies and caused a steep decline in economic output and a surge in unemployment - the same fate that may now await the United States and Europe, many economists and investors fear.

Southeast Asian economies have never entirely recovered. After a drop of nearly 10 per cent on Friday, the main index of the Thai stock market closed at 452, a quarter of its high in 1994.

Most of Asia emerged from that crisis with more cautious banks, stricter financial regulation, a tighter rein on government spending and a strong determination to accumulate. But while Asia broke its dependence on capital flows from the West, the dependence on exports remained.

Yet Asia's frugality over the past decade has given the region a lot more room to maneuver than most Western countries.

South Korea and India are often cited by economists as the two most vulnerable economies in Asia.

South Korea is drawing attention because its trade deficit, by the broadest measure possible, was US$4.7 billion in August, after mostly surpluses before that. Korean exports of manufactured goods have slumped even as the cost of its oil-dominated imports have surged - although falling oil prices now will help.

The South Korean won showed the steepest decline of any Asian currency against the dollar on Friday morning, falling more than 3 percent.

But the won soared on Friday afternoon, with a gain for the day of 6.3 per cent. The reason? Widespread rumors that the government would start spending part of the country's huge foreign exchange reserves to prop up the won.

The South Korean government only owes US$334 million in foreign debt repayments by the end of next year, or 0.14 per cent of foreign exchange reserves, according to a recent study of emerging market debt by ING. Big Korean exporters like Samsung, hobbled for lack of foreign currency reserves in 1997, have hoarded formidable reserves of dollars.

Corporate debt repayments are a little larger, and also harder to calculate. But since all of Asia only owes US$31 billion in debt repayments through the end of last year, South Korea's share is tiny relative to its foreign reserves.

India was one of the few countries in Asia to escape the financial crisis a decade ago, because it was just starting to embrace international markets then. It did not adopt the same tight bank regulatory standards and tough fiscal policies as the rest of Asia after that crisis.

That has prompted some economists, like Ajay Kapur at Mirae Asset and Takahira Ogawa at Standard and Poor's, to express particular concern about India's preparedness for the current crisis. While India has US$295.3 billion in foreign exchange reserves, it is running a large government budget deficit and a large trade deficit while its banks have lent very aggressively to a real estate sector that is now tumbling quickly.

With an election expected early next year, Indian leaders have been much more upbeat about their country's prospects than most Asian leaders.

Policy makers in India have also subscribed to the idea that their economy has ''decoupled'' from Western economies, an idea that most economists and policy makers in Asia rejected many months ago.

''India is not from any other planet,'' said a posting on an Indian web site this week. ''This common logic is ignored by our policy makers.'' - International Herald Tribune.

US Stocks High Swings, Bottom Out?

US stocks end worst week mixed after wild session

NEW YORK, Oct 11 — Wall Street capped one of its worst weeks ever with a wild session yesterday that saw the Dow Jones industrials gyrate within a 1,000 point range before closing with a relatively mild loss and the Nasdaq composite index actually ending with a modest advance. Investors were still agonising over frozen credit markets, but seven days of massive losses and the possibility of further government support for the markets tempted some investors late in the session.

The Dow lost 128 points, giving the blue chips an eight-day loss of just under 2,400, or 22.1 per cent. The average had its worst week on record in both point and percentage terms. The Standard & Poor's 500 index, the indicator most watched by market professionals, posted its worst weekly run since 1933.

The latest loss also means the Dow is down 40.3 per cent since reaching a record high close of 14,164.53 a year ago, on Oct 9, 2007. The S&P 500, which reached its high of 1,565.15 the same day, is down 42.5 per cent.

Investors suffered a paper loss for the day of about US$100 billion (RM350 billion), as measured by the Dow Jones Wilshire 5000 index. For the week, investors lost US$2.4 trillion, and over the past year, the losses have piled up to US$8.4 trillion.

But there were signs yesterday that some investors believe the market is near a bottom. On Thursday, selling accelerated in the last hour of trading. The Dow was down 221 points at 3pm but closed down 679 points an hour later. Yesterday, the Dow was down 468 points at 3 but rocketed 790 points and was up 322 points just after 3.30. It then sold off but closed down only 128.

And the Russell 2000 index, which tracks the movements of smaller company stocks, had a 4.66 per cent gain yesterday; small-cap stocks are often first on investors' shopping lists when they think a market turnaround is at hand.

"Nobody wants to miss the bottom," said Anton Schutz, president of Mendon Capital Advisors, who said of the Dow's performance, "I view it as a victory that we only finished down 100."

Some investors may have been placing bets ahead of the weekend meeting of officials from the Group of Seven nations, who gathered in Washington to discuss the economic meltdown. One of the potential remedies expected to be reviewed at the meeting is for governments to guarantee lending among banks.
"Everyone is hoping for really good news that can invigorate some buying and break this credit freeze, but your guess is as good as mine as to whether that will happen. I think people are desperate for action," said Jon Biele, head of capital markets at Cowen & Co. "It truly is remarkable to watch what's happening."

Still, yesterday's widely mixed finish was proof that Wall Street still has a long list of troubles, and trading is likely to remain volatile when the market reopens on Monday.

"This kind of volatility in the market tells you that there are huge disagreements among investors about what the fundamentals are, about what the outlook is," said Ethan Harris, managing director and chief US economist at Barclays PLC.

The hair-trigger mentality of the market — a reflection of the intense anxiety on the Street — was evident from the opening bell. The Dow fell 696 points in the first 15 minutes, recovered to gain more than 100 before that first hour was over and then turned sharply lower again. It spent much of the session with a deficit between 300 points and 500 points, regaining some ground and then falling again — until the last hour, when the average had swings spanning hundreds of points that took the Dow up as much as 322.

Investors have shuddered the past month over a credit market that remains frozen, posing a threat to the economy by making it harder and costlier for businesses and consumers to get a loan. But yesterday's gainers included financial stocks, the ones most decimated by the credit crisis.

Harris said policymakers likely will continue to do what is needed to revive the credit markets. Actions taken so far by central banks, among them the Federal Reserve, have included increased lending and interest rate cuts.

"The deeper problem is not the stock market drop but the freezing up of the credit markets and that's the root problem and they have to keep applying the antifreeze until it works," Harris said.

The major indexes' sharp swings yesterday were likely exacerbated by the computer-driven "buy" and "sell" orders that kicked in when prices fell far enough.

"Fear has been running rampant all over the Street. Fear and greed, that's what rules the Street. I think the carcass has been stripped to the bone," said Dave Henderson, a floor trader on the New York Stock Exchange for Raven Securities Corp. "The mood, it swings with the market. When we went positive, the euphoria down there was awesome. It's like at a football game."

Market index stats again told how horrific the run has been on Wall Street:

The Dow lost 1,874.19 points, or 18.2 per cent, during the week. Its dismal performance outdid the week that ended July 22, 1933, which saw a 17 per cent drop — and back then, during the Great Depression, there were six trading days in a week.

The Dow has fallen for eight straight sessions — the longest losing streak since the eight days of declines following the Sept 11, 2001, terror attacks, when the blue chips lost 1,038.12, or 10.8 per cent.

It's been the worst run for the Dow since the nearly two-year bear market that ended in December 1974 when the Dow lost 45 per cent.

Since hitting their record highs a year ago, the Dow has lost 5,713 points, or 40.3 per cent, while the S&P 500 is off 665.90 points, or 42.5 per cent.

Beyond the Dow, broader stock indicators were mixed yesterday.

The S&P 500 index fell 10.70 or 1.18 per cent, to 899.22. The 18.2 per cent drop for the week was the S&P's steepest decline since the week ending May 21, 1933; its worst loss was in 1929, when it fell 19.9 per cent. The index lost 200.01 points for the week.

The Nasdaq composite index rose 4.39, or 0.27 per cent, to 1,649.51. For the week, the Nasdaq lost 297.88, or 15.3 per cent.

The Russell 2000 rose 23.28, or 4.66 per cent, to 522.48. For the week, the Russell fell 96.92, or 15.64 per cent.

Decliners led advancers 2-to-1 on the New York Stock Exhange, where consolidated volume came to a record 11.2 billion shares, compared with 8.14 billion traded on Thursday.

Most major central banks around the world slashed interest rates this week after continuing problems in the credit market triggered concerns that banks will run out of money. Analysts have described the mood on trading floors this week as panicked at times, with investors bailing out of investments on fears there is no end in sight to the financial carnage.

A stream of selling forced exchanges in Austria, Russia and Indonesia to suspend trading, and those that remained opened were hammered. The rout in Australian markets caused traders there to call it "Black Friday."

European stocks sank yesterday, with Britain's FTSE-100 falling 8.85 per cent, German's DAX declining 7.01 per cent, and France's CAC-40 ending down 7.73 per cent. In Asia, the collapse of Japan's Yamato Life Insurance caused already nervous investors to pull even more money out of the market — the Nikkei 225 fell 9.6 per cent.

An index considered to be Wall Street's fear gauge reached record highs yesterday in another sign of massive investor anxiety. The Chicago Board Options Exchange Volatility Index, known as the VIX, rose to an all-time intraday high of 76.94. The VIX, which usually trades under 50, tracks options activity for the companies that make up the S&P 500.

Still, prospects of further government help and, perhaps, attractive prices helped parts of the financial sector show signs of life. Big national banks were among the gainers, including Bank of America Corp, which rose US$1.24, or 6.3 per cent, to US$20.87. Some smaller banks also rose, including Fifth Third Bank Corp, which advanced 67 cents, or 6.9 per cent, to US$10.40.

Not all financials enjoyed a bounce, however. Morgan Stanley Inc fell US$2.77, or 22 per cent, to US$9.68 as investors worried that even with a major investment from Japan's Mitsubishi UFJ Financial Group the company was still facing troubles. Meanwhile, Goldman Sachs Group Inc fell US$12.55, or 12 per cent, to US$88.80.

Investors appeared unfazed by final results arriving in afternoon trading from an auction yesterday that set the price of debt issued by now bankrupt Lehman Brothers Holdings Inc at 8.625 cents on the dollar, down from a preliminary estimate of 9.75 cents.

The auction was for credit default swaps, which are contracts used to insure against the default of financial instruments like bonds and corporate debt. Traded in a US$60 trillion, unregulated market, many of the instruments have fallen sharply because of their ties to bad mortgage debt. Those big losses and nervousness about who holds what CDS has made financial institutions hesitant to lend to one another. The auction could help the market determine which companies are most at risk from CDS losses. — AP

Tuesday, October 07, 2008

Wall Street Tumbles Amid Global Sell-Off

NEW YORK, Oct 6 - Wall Street tumbled again today, joining a sell-off around the world as fears grew that the financial crisis will cascade through economies globally despite bailout efforts by the US and other governments.

The Dow Jones industrials skidded nearly 500 points and fell below 10,000 for the first time in four years, while the credit markets remained under strain.

The markets have come to the sobering realization that the Bush administration's $700 billion (RM2.31 trillion) rescue plan won't work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash.

That's caused investors to exit stocks and move money into the relative safety of government debt.

Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.

The governments of Germany, Ireland and Greece also said they would guarantee bank deposits.

The Federal Reserve also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.

Investors took a bleak view of the future, seeing no end to the crisis in the near term.

"This is a psychologically important moment that we passed below the 10,000 level," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "But, the issues are worldwide. The fact is people are scared and the only thing they're doing is selling."

In midmorning trading, the Dow Jones industrial average fell 443.08, or 4.29 percent, to 9,882.30, dropping below 10,000 for the first time since Oct. 29, 2004. At one point, the Dow was down nearly 600.

Broader indexes also tumbled. The Standard & Poor's 500 index shed 53.12, or 4.83 percent, to 1,046.11; and the Nasdaq composite index fell 101.07, or 5.19 percent, to 1,846.32. The Russell 2000 index of smaller companies dropped 29.31, or 4.73 percent, to 590.09.

There were only 78 advancing stocks on the New York Stock Exchange, compared to 3,080 decliners. Volume came to 512.4 million shares.

In Asia, the Nikkei 225 closed 4.25 percent lower. Europe's stock markets also declined, with the FTSE-100 down 6.31 percent, Germany's DAX down 8.29 percent, and France's CAC-40 down 8.76 percent.

The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.33 percent from 0.50 percent late Friday.

Demand for bills remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.

Investors also moved into longer-term Treasury bonds. The yield on the 10-year note fell to 3.45 percent from 3.60 percent late Friday.

Banks' hesitation to lend to one another and to many businesses and individuals is the result of the bad mortgage debt that the financial rescue is supposed to sweep up. But it's still unclear how quickly financial institutions will be able to hand that debt to the US government and convince the markets they are healthy again.

There has been some hope that perhaps the Fed, in concert with other central banks, might cut interest rates to help stimulate the economy.

With oil prices well off their midsummer highs and indicators pointing to a slower economy, the Fed's worries about inflation are less than they had been, making it easier to justify a rate cut.

Investors might get some indication about a potential rate cut with several policymakers slated to speak this week. Dallas Fed President Richard Fisher and Chicago Fed President Charles Evans will speak on the US economy on Monday. Federal Reserve Chairman Ben Bernanke is due to speak later today.

Frederick Dickson, chief market strategist at D.A. Davidson & Co., believes investors are eager for any signs about the well being of the economy.

"Wall Street at this point is shifting its attention from whether Congress was going to act on the emergency stabilization bill to the realization that the economy is slowing significantly faster than most analysts had expected," he said. "The downturn has shifted from first gear to about third gear in about two weeks."

Oil prices fell to an eight-month low below $90 a barrel on speculation that the spreading financial crisis will exacerbate a global economic slowdown and further cut demand for crude oil. Light, sweet crude tumbled $3.82 to $90.06 a barrel on the New York Mercantile Exchange.

In corporate news, ailing Hartford Financial Services Group Inc. received a $2.5 billion investment from European insurer Allianz. Hartford's market value was halved last week on concerns it needed more capital to survive, but shares recovered $2.97, or 11 percent, to $31.29 on Monday.

EBay Inc. fell $1.14, or 6 percent, to $17.81 after announcing it will cut about 1,000 jobs, reducing its work force by 10 percent, to streamline the company. The online auction site expects restructuring charges of about $70 million to $80 million, mostly during the fourth quarter.

Wells Fargo & Co. said late Sunday its takeover agreement with Wachovia Corp. will go forward after a state appeals court blocked a lower court ruling that favored rival bidder Citigroup Inc. Wells Fargo said it will "continue working toward the completion of its firm, binding merger agreement" with Wachovia.

Shares of Wells Fargo rose 67 cents, or 2 percent, to $33.77, while Citi fell $1.71 cents, or 9.3 percent, to $16.68. Wachovia fell 18 cents, or 2.9 percent, to $6.03.

Eli Lilly & Co. said its board approved an acquisition of ImClone Systems Inc. for more than $6 billion. The deal, which also has been approved by ImClone's board, will create one of the leading oncology franchises in the biopharmaceutical industry. Eli Lilly fell $1.90, or 4.7 percent, to $39.35, while ImClone rose $1.76, or 2.7 percent, to $66.76. - AP