09.28.08, 1:51 PM ET
United States - (Adds quotes, details, background)
WASHINGTON (Reuters) - Chinese Premier Wen Jiabao said Beijing was worried about the impact on its investments of U.S. financial market turmoil but now was the time to cooperate to calm markets.
"U.S. finance is closely connected with the Chinese finance," Wen said in an interview aired on Sunday on CNN.
"If anything goes wrong in the U.S. financial sector then we are anxious about the safety and security of Chinese capital," he said, but now was time to "join hands" to deal with the crisis.
"Now, cooperation is everything," Wen said in an interview that was taped last week.
He said Beijing still considered the U.S. economy to be "solidly based, particularly in the high tech industries and basic industries" but wanted to see it become more stable.
"The Chinese government hopes very much that the U.S. side will be able to stabilize its ... economy and finances as quickly as possible," Wen said. "Of course we are concerned about the safety and security of Chinese money here."
The United States is reliant on borrowing from China and other countries to finance its day-to-day operations. China at the end of June held $1.8088 trillion in foreign exchange reserves.
"We believe the United States is a credible country," Wen said. "Particularly at such difficult times China has reached out to the United States and we believe that such a helping hand will help stabilize the entire global economy and finances and prevent major chaos from occurring." (Reporting by Glenn Somerville; Editing by Neil Stempleman)
Copyright 2008 Reuters,
Sunday, September 28, 2008
Lawmakers Reach Accord on Huge Financial Rescue
By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Sunday, September 28, 2008; 2:56 AM
Congressional leaders and the Bush administration this morning said they had struck an accord to insert the government deeply into the nation's financial markets, agreeing to spend up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages.
House and Senate negotiators from both parties emerged with Treasury Secretary Henry M. Paulson Jr. at 12:30 a.m. from a marathon session in the Capitol to announce that they had reached a tentative agreement on a proposal to give Paulson broad authority to organize one of the biggest government interventions in the private sector since the Great Depression.
Full details of the plan were not immediately available. Lawmakers said their staffs would be working through the night to assemble the package and post it on the Internet.
"We've made great progress, but we have to commit it to paper before we can formally agree," said House Speaker Nancy Pelosi (D-Calif.), who has pledged to make the plan available to the public for at least 24 hours before the House votes on it. A vote could come as early as tomorrow in the House, with the Senate expected to follow soon after.
"We've been working on this a long time. We've still got more to do to finalize it, but I think we're there," Paulson said. "So far, so good."
Rep. Roy Blunt (R-Ohio), who represented House Republicans, the group that had raised the most serious objections to the plan, said he was pleased with the progress made but that he had to take the proposal back to his caucus before committing his support for it. "I look forward to what we're going to see on paper and presenting these ideas to my colleagues and getting their reaction," Blunt said.
A senior administration official, who requested anonymity to speak freely about the plan, said both sides had made significant concessions to achieve compromise. The Bush administration has agreed to accept a number of Democratic demands, including:
· The money would be dispersed in segments, with Paulson receiving $250 billion immediately, $100 billion upon White House certification of its necessity and the final $350 billion only after Congress has been given 15 days to object.
· Firms participating in the bailout would be required to grant the government warrants to obtain nonvoting shares of stock, so taxpayers can benefit if the companies return to profitability.
· Firms taking advantage of the bailout would be required to limit compensation for senior executives, with especially severe limits on "golden parachutes" at failing firms. The compensation limits will be enacted primarily, but not solely, through the tax code by reducing tax deductions for firms that pay executives more than $400,000 a year.
The administration also agreed to Democratic demands that the financial services industry should help pay for the program. Under the agreement, the president would be required to propose a fee on the industry if the government has not recovered its money through sales of the assets within five years.
Democrats also made a number of concessions, abandoning demands that bankruptcy judges be empowered to modify home mortgages on primary residences for people in foreclosure. They also agreed not to dedicate a portion of any profits from the bailout program to an affordable housing fund that Republicans claimed would primarily assist social service organizations that support the Democratic Party, the official said.
Meanwhile, House Republicans won a major victory, persuading negotiators to include a provision that would require the Treasury Department to create a federal insurance program that would guarantee banks and other firms against loss from any troubled asset, the official said.
The plan to rescue the U.S. financial markets was first advanced by the Bush administration in a late-night meeting with lawmakers just 10 days ago. Under the proposal, Paulson would be authorized to purchase mortgage-backed assets from struggling firms in hopes of easing a credit crunch that has pushed global markets to the brink of collapse.
With home prices plummeting, many of those assets are now almost worthless, and investors have lost confidence in many of the firms that hold them. That has undermined some of the biggest names on Wall Street and caused banks to stop lending money, sparking a credit crisis that threatens to deliver a devastating blow to businesses, consumers and the broader economy.
Administration officials have stressed that the ultimate cost of the bailout would be much less than $700 billion because the government would eventually sell the assets it purchased and recover most, if not all, of its investment.
Yesterday's talks, conducted mainly in Pelosi's suite of offices on the second floor of the Capitol, were focused heavily on how to cover the cost of the program so taxpayers don't get stuck with the bill.
"We believe that the taxpayer should not be left holding the bag at the end of the day, and we've proposed a way to address that," said Rep. Chris Van Hollen (D-Md.), a member of Pelosi's leadership team.
Democrats said there were no outstanding issues remaining, but that negotiators need to see the words on paper before they can sign off on the plan. "It's really a question of seeing what we believe we've agreed to," said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee.
Even strong opponents of the plan said they expected it to pass.
Sen. Richard C. Shelby (R-Ala.), the senior Republican on the Senate Banking Committee, who has refused to participate in the talks, said a "critical mass" was forming behind the measure because of fears that Congress's failure to act would cripple financial markets and devastate the economy.
Yesterday's negotiations, which began shortly after 3 p.m., were at times tense and confusing, according to participants. At one point, according to Sen. Kent Conrad (D-N.D.), one senator sought advice from investor Warren E. Buffett, one of the world's richest men and a director of The Washington Post Co.
From 3 p.m. to 5:30 p.m., Conrad and other lawmakers met with Paulson around a massive table in Pelosi's conference room under an ornate portrait of Abraham Lincoln. Among lawmakers, Democrats outnumbered Republicans nine to two, an imbalance that so irritated Paulson that he called and complained to Senate Majority Leader Harry M. Reid (D-Nev.), according to three GOP sources familiar with the call.
Reid told Paulson he would not pull any of his colleagues out of the meeting. A Reid spokesman, Jim Manley, said: "If the secretary doesn't like it, that's just too bad, because he is going to need the help of each and every one of them to sell the president's plan to the Democratic caucus and the American people."
After a break for dinner, the sides scattered into at least three separate groupings -- Paulson huddled in House Minority Leader John A. Boehner's office with other GOP leaders, Democrats in Pelosi's conference room and Pelosi in a separate suite talking with other Democrats.
Rep. Rahm Emanuel (D-Ill.) and Pelosi's chief of staff spent a couple of hours in shuttle diplomacy, frantically walking from room to room carrying sheets of paper. Conrad, the chairman of the Senate Budget Committee, said the negotiators were "shopping language" of the bill's draft versions. He and Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, also spent time in Boehner's office with Paulson.
By 11 p.m., the three groups had once again converged in Pelosi's office to strike a final deal.
Yesterday's focus on limiting taxpayer exposure may help rally support in Congress, where lawmakers have been reluctant to back the hugely expensive and unpopular bailout measure less than six weeks from the November elections. But it could unnerve Wall Street, where investors are seeking the largest possible program with the fewest strings attached. They also hope lawmakers approve it before tomorrow's opening bell.
In his public testimony and private remarks, Paulson has repeatedly emphasized the need to spend $700 billion to soothe nervous markets. At that price, the government's upfront investment in the rescue package would be more expensive than the current cost of the Iraq war, which stands at about $650 billion, according to the Congressional Research Service.
But the White House and politicians on Capitol Hill have said the government could earn back much of its money, or even turn a profit.
"Many of these assets still have significant underlying value, because the vast majority of people will eventually pay off their mortgages," President Bush said yesterday in his weekly radio address. "In other words, many of the assets the government would buy are likely to go up in price over time. This means that the government will be able to recoup much, if not all, of the original expenditure."
Bush attempted to address criticisms from the right and left that the plan would bail out irresponsible financiers while doing nothing for regular Americans. Echoing frequent comments by him and his aides, Bush said allowing Wall Street to collapse further would pose greater dangers to the economy, perhaps triggering a "deep and painful recession."
"The rescue effort we're negotiating is not aimed at Wall Street -- it is aimed at your street," Bush said. "And there is now widespread agreement on the major principles. We must free up the flow of credit to consumers and businesses by reducing the risk posed by troubled assets."
Democratic leaders have emphasized to rank-and-file members that Paulson has told them that he could only spend about $50 billion a month on the securities purchase program. Of the $700 billion figure, House Majority Leader Steny Hoyer (D-Md.) said: "Nobody believes that's going to be the final cost."
Staff writer Dan Eggen contributed to this report.
Washington Post Staff Writers
Sunday, September 28, 2008; 2:56 AM
Congressional leaders and the Bush administration this morning said they had struck an accord to insert the government deeply into the nation's financial markets, agreeing to spend up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages.
House and Senate negotiators from both parties emerged with Treasury Secretary Henry M. Paulson Jr. at 12:30 a.m. from a marathon session in the Capitol to announce that they had reached a tentative agreement on a proposal to give Paulson broad authority to organize one of the biggest government interventions in the private sector since the Great Depression.
Full details of the plan were not immediately available. Lawmakers said their staffs would be working through the night to assemble the package and post it on the Internet.
"We've made great progress, but we have to commit it to paper before we can formally agree," said House Speaker Nancy Pelosi (D-Calif.), who has pledged to make the plan available to the public for at least 24 hours before the House votes on it. A vote could come as early as tomorrow in the House, with the Senate expected to follow soon after.
"We've been working on this a long time. We've still got more to do to finalize it, but I think we're there," Paulson said. "So far, so good."
Rep. Roy Blunt (R-Ohio), who represented House Republicans, the group that had raised the most serious objections to the plan, said he was pleased with the progress made but that he had to take the proposal back to his caucus before committing his support for it. "I look forward to what we're going to see on paper and presenting these ideas to my colleagues and getting their reaction," Blunt said.
A senior administration official, who requested anonymity to speak freely about the plan, said both sides had made significant concessions to achieve compromise. The Bush administration has agreed to accept a number of Democratic demands, including:
· The money would be dispersed in segments, with Paulson receiving $250 billion immediately, $100 billion upon White House certification of its necessity and the final $350 billion only after Congress has been given 15 days to object.
· Firms participating in the bailout would be required to grant the government warrants to obtain nonvoting shares of stock, so taxpayers can benefit if the companies return to profitability.
· Firms taking advantage of the bailout would be required to limit compensation for senior executives, with especially severe limits on "golden parachutes" at failing firms. The compensation limits will be enacted primarily, but not solely, through the tax code by reducing tax deductions for firms that pay executives more than $400,000 a year.
The administration also agreed to Democratic demands that the financial services industry should help pay for the program. Under the agreement, the president would be required to propose a fee on the industry if the government has not recovered its money through sales of the assets within five years.
Democrats also made a number of concessions, abandoning demands that bankruptcy judges be empowered to modify home mortgages on primary residences for people in foreclosure. They also agreed not to dedicate a portion of any profits from the bailout program to an affordable housing fund that Republicans claimed would primarily assist social service organizations that support the Democratic Party, the official said.
Meanwhile, House Republicans won a major victory, persuading negotiators to include a provision that would require the Treasury Department to create a federal insurance program that would guarantee banks and other firms against loss from any troubled asset, the official said.
The plan to rescue the U.S. financial markets was first advanced by the Bush administration in a late-night meeting with lawmakers just 10 days ago. Under the proposal, Paulson would be authorized to purchase mortgage-backed assets from struggling firms in hopes of easing a credit crunch that has pushed global markets to the brink of collapse.
With home prices plummeting, many of those assets are now almost worthless, and investors have lost confidence in many of the firms that hold them. That has undermined some of the biggest names on Wall Street and caused banks to stop lending money, sparking a credit crisis that threatens to deliver a devastating blow to businesses, consumers and the broader economy.
Administration officials have stressed that the ultimate cost of the bailout would be much less than $700 billion because the government would eventually sell the assets it purchased and recover most, if not all, of its investment.
Yesterday's talks, conducted mainly in Pelosi's suite of offices on the second floor of the Capitol, were focused heavily on how to cover the cost of the program so taxpayers don't get stuck with the bill.
"We believe that the taxpayer should not be left holding the bag at the end of the day, and we've proposed a way to address that," said Rep. Chris Van Hollen (D-Md.), a member of Pelosi's leadership team.
Democrats said there were no outstanding issues remaining, but that negotiators need to see the words on paper before they can sign off on the plan. "It's really a question of seeing what we believe we've agreed to," said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee.
Even strong opponents of the plan said they expected it to pass.
Sen. Richard C. Shelby (R-Ala.), the senior Republican on the Senate Banking Committee, who has refused to participate in the talks, said a "critical mass" was forming behind the measure because of fears that Congress's failure to act would cripple financial markets and devastate the economy.
Yesterday's negotiations, which began shortly after 3 p.m., were at times tense and confusing, according to participants. At one point, according to Sen. Kent Conrad (D-N.D.), one senator sought advice from investor Warren E. Buffett, one of the world's richest men and a director of The Washington Post Co.
From 3 p.m. to 5:30 p.m., Conrad and other lawmakers met with Paulson around a massive table in Pelosi's conference room under an ornate portrait of Abraham Lincoln. Among lawmakers, Democrats outnumbered Republicans nine to two, an imbalance that so irritated Paulson that he called and complained to Senate Majority Leader Harry M. Reid (D-Nev.), according to three GOP sources familiar with the call.
Reid told Paulson he would not pull any of his colleagues out of the meeting. A Reid spokesman, Jim Manley, said: "If the secretary doesn't like it, that's just too bad, because he is going to need the help of each and every one of them to sell the president's plan to the Democratic caucus and the American people."
After a break for dinner, the sides scattered into at least three separate groupings -- Paulson huddled in House Minority Leader John A. Boehner's office with other GOP leaders, Democrats in Pelosi's conference room and Pelosi in a separate suite talking with other Democrats.
Rep. Rahm Emanuel (D-Ill.) and Pelosi's chief of staff spent a couple of hours in shuttle diplomacy, frantically walking from room to room carrying sheets of paper. Conrad, the chairman of the Senate Budget Committee, said the negotiators were "shopping language" of the bill's draft versions. He and Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, also spent time in Boehner's office with Paulson.
By 11 p.m., the three groups had once again converged in Pelosi's office to strike a final deal.
Yesterday's focus on limiting taxpayer exposure may help rally support in Congress, where lawmakers have been reluctant to back the hugely expensive and unpopular bailout measure less than six weeks from the November elections. But it could unnerve Wall Street, where investors are seeking the largest possible program with the fewest strings attached. They also hope lawmakers approve it before tomorrow's opening bell.
In his public testimony and private remarks, Paulson has repeatedly emphasized the need to spend $700 billion to soothe nervous markets. At that price, the government's upfront investment in the rescue package would be more expensive than the current cost of the Iraq war, which stands at about $650 billion, according to the Congressional Research Service.
But the White House and politicians on Capitol Hill have said the government could earn back much of its money, or even turn a profit.
"Many of these assets still have significant underlying value, because the vast majority of people will eventually pay off their mortgages," President Bush said yesterday in his weekly radio address. "In other words, many of the assets the government would buy are likely to go up in price over time. This means that the government will be able to recoup much, if not all, of the original expenditure."
Bush attempted to address criticisms from the right and left that the plan would bail out irresponsible financiers while doing nothing for regular Americans. Echoing frequent comments by him and his aides, Bush said allowing Wall Street to collapse further would pose greater dangers to the economy, perhaps triggering a "deep and painful recession."
"The rescue effort we're negotiating is not aimed at Wall Street -- it is aimed at your street," Bush said. "And there is now widespread agreement on the major principles. We must free up the flow of credit to consumers and businesses by reducing the risk posed by troubled assets."
Democratic leaders have emphasized to rank-and-file members that Paulson has told them that he could only spend about $50 billion a month on the securities purchase program. Of the $700 billion figure, House Majority Leader Steny Hoyer (D-Md.) said: "Nobody believes that's going to be the final cost."
Staff writer Dan Eggen contributed to this report.
China c.bank says to slow yuan rise - economist
TIANJIN, China, Sept 28 (Reuters) - The People's Bank of China has stated recently that it will slow appreciation of the yuan, a prominent economist who met with officials of the central bank said on Sunday.
The comments by David Hale, chairman of Hale Advisors, support the perception of many observers that the central bank has shifted to a policy of slower yuan strengthening, as the currency stalled against the dollar in the third quarter.
"I had lunch with the People's Bank of China on Friday, and they told me that they're going to slow down the appreciation of the currency here," Hale told a meeting of the World Economic Forum in the northern Chinese port city of Tianjin.
"If they do that, they have to intervene, so China will be providing for America next year another $200-300 billion of demand for U.S. Treasury bills," he said.
In a discussion on the future role of the dollar in the global economy, Hale cited China's policy as one reason to believe that the United States would continue to be able to cover its budget deficit, even if it carries out the massive financial bailout plan under discussion in the U.S. Congress.
The yuan closed at 6.8485 against the dollar on Friday, the last trading day of the third quarter before a week-long national holiday, little changed from the level at the end of June.
That came after the yuan appreciated about 6.5 percent in the first six months of the year. Many economists have now changed their forecasts for the yuan to account for a slower pace in the coming months.
Hale added that he thought China's increasing role in the global economy would mean that the yuan, or renminbi (RMB), would one day become a global reserve currency, though that would take time on account of China's capital restrictions.
"Given China's evolving role, there's no doubt the RMB will assume a global role in time," he said. "We're talking 20 years from now, not in the next few years," he said. (Reporting by Jason Subler; Editing by Jacqueline Wong)
The comments by David Hale, chairman of Hale Advisors, support the perception of many observers that the central bank has shifted to a policy of slower yuan
"I had lunch with the People's Bank of China on Friday, and they told me that they're going to slow down the appreciation of the currency here," Hale told a meeting of the World Economic Forum in the northern Chinese port city of Tianjin.
"If they do that, they have to intervene, so China will be providing for America next year another $200-300 billion of demand for U.S. Treasury bills," he said.
In a discussion on the future role of the dollar in the global economy, Hale cited China's policy as one reason to believe that the United States would continue to be able to cover its budget deficit, even if it carries out the massive financial bailout plan under discussion in the U.S. Congress.
The yuan closed at 6.8485 against the dollar on Friday, the last trading day of the third quarter before a week-long national holiday, little changed from the level at the end of June.
That came after the yuan appreciated about 6.5 percent in the first six months of the year. Many economists have now changed their forecasts for the yuan to account for a slower pace in the coming months.
Hale added that he thought China's increasing role in the global economy would mean that the yuan, or renminbi (RMB), would one day become a global reserve currency, though that would take time on account of China's capital restrictions.
"Given China's evolving role, there's no doubt the RMB will assume a global role in time," he said. "We're talking 20 years from now, not in the next few years," he said. (Reporting by Jason Subler; Editing by Jacqueline Wong)
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Friday, September 26, 2008, at 6:00 p.m. EST.
The market did not tank despite no TARP deal today. At the closing bell, the Dow gained 121 points, closing at 11,143, while the Nasdaq lost 3 points, closing at 2,183. The S&P 500 closed 4 points higher at 1,213. Oil closed $1.13 lower at $106.89 per barrel, and gold closed $6.50 higher at $888.50 an ounce.
Our politicians will work over the weekend to hopefully pass the TARP bill before the opening bell at 9:30 a.m. on Monday. Even so, the democrats have the votes to pass their bill today. They won't however, because taxpayers overwhelmingly do not want the $700 billion TARP bill to pass. How big is $700 billion relative to our debts? The Federal Reserve Flow of Funds data for the second quarter of 2008 reveals $148 trillion in debt.
A second comparison: Home mortgages totaled $10.6 trillion at the end of the second quarter. One-in-ten mortgage loans are in default or delinquent.
A third comparison: The Bank for International Settlements (BIS) revealed $596 trillion in debts which included $58 trillion in credit default swaps that are beginning to meltdown.
Final comparison: Citigroup has $1.1 trillion of assets off its books. Some of this bad debt dates back to the Enron Collapse, when Enron could not pay off its loan from Citigroup.
$700 billion is probably just a down payment to hold the financial system together. For how long, no one knows.
The real value of the $700 billion TARP program is to temporarily stop a financial collapse, which will give you and the Wall Street smart money time to prepare for the great economic crash between 2010 and 2015.
Now is a good tome to read "The Great Bust Ahead", by Daniel Arnold.
You should stay 100 PERCENT CASH.
Don't be surprised if the market moves back down to test the recent lows. I expect a profitable rally ahead if Congress passes a convincing bill that restores investor confidence in the U.S. banking system.
Stay close to our Hotline Updates.
The next Hotline Update will be on Tuesday, September 30, 2008, at 6:00 p.m. EST.
The market did not tank despite no TARP deal today. At the closing bell, the Dow gained 121 points, closing at 11,143, while the Nasdaq lost 3 points, closing at 2,183. The S&P 500 closed 4 points higher at 1,213. Oil closed $1.13 lower at $106.89 per barrel, and gold closed $6.50 higher at $888.50 an ounce.
Our politicians will work over the weekend to hopefully pass the TARP bill before the opening bell at 9:30 a.m. on Monday. Even so, the democrats have the votes to pass their bill today. They won't however, because taxpayers overwhelmingly do not want the $700 billion TARP bill to pass. How big is $700 billion relative to our debts? The Federal Reserve Flow of Funds data for the second quarter of 2008 reveals $148 trillion in debt.
A second comparison: Home mortgages totaled $10.6 trillion at the end of the second quarter. One-in-ten mortgage loans are in default or delinquent.
A third comparison: The Bank for International Settlements (BIS) revealed $596 trillion in debts which included $58 trillion in credit default swaps that are beginning to meltdown.
Final comparison: Citigroup has $1.1 trillion of assets off its books. Some of this bad debt dates back to the Enron Collapse, when Enron could not pay off its loan from Citigroup.
$700 billion is probably just a down payment to hold the financial system together. For how long, no one knows.
The real value of the $700 billion TARP program is to temporarily stop a financial collapse, which will give you and the Wall Street smart money time to prepare for the great economic crash between 2010 and 2015.
Now is a good tome to read "The Great Bust Ahead", by Daniel Arnold.
You should stay 100 PERCENT CASH.
Don't be surprised if the market moves back down to test the recent lows. I expect a profitable rally ahead if Congress passes a convincing bill that restores investor confidence in the U.S. banking system.
Stay close to our Hotline Updates.
The next Hotline Update will be on Tuesday, September 30, 2008, at 6:00 p.m. EST.
Monday, September 22, 2008
Bailout's price tag seen pressuring dollar
Broad gains for other major currencies as investors weigh U.S. plan
By William L. Watts & Deborah Levine, MarketWatch
Last update: 10:02 a.m. EDT Sept. 22, 2008
Comments: 16
NEW YORK (MarketWatch) -- Sticker shock weighed on the dollar Monday as financial markets wrestled with the implications of the U.S. government potentially taking on $700 billion in debt to finance a massive bailout and stabilization of the financial sector and money markets.
Washington's ambitious strategy to clean up the troubled U.S. financial system's debt load "have been largely dollar-negative," said James Hughes, an analyst at CMC Markets.
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DXY 76.91, -0.55, -0.7%) , a measure of the greenback against a trade-weighted basket of currencies, fell to 76.982, down from 77.663 late Friday in North American trading.
"Many traders seemingly [are] buying into the core idea that anything that's good for the banks will be bad for taxpayers," Hughes said.
The euro changed hands at $1.4625, up from $1.4488 late Friday, the highest in almost a month. The British pound surged to $1.8452, up from $1.8334.
The dollar also fell against Japan's currency, slipping to 106.50 yen from 107.28 yen.
U.S. lawmakers and Bush administration officials worked through the weekend to work out details of the plan.
The administration's proposal would allow the government to buy the bad debt of U.S. financial institutions for the next two years. It gives the Treasury secretary authority to buy $700 billion in mortgage-related assets, and would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion. See full story.
Separately, the Treasury last week said it would insure publicly offered mutual funds that pay a fee, while the Federal Reserve will buy agency discount notes from primary dealers, acting as a backstop when and if money-market funds want to sell their assets. See earlier story.
"Many investors expect the government's efforts to work and leave the U.S. with a large debt, which foreign investors will be increasingly reluctant to finance at current prices," said Brown Brothers Harriman strategists in New York.
The dollar came under pressure Friday after initially rallying on news of a Washington-engineered rescue plan.
Sorting out the implications
The sheer scale of the proposed bailout has stirred concerns about the addition of massive levels of debt to the federal budget. More debt will likely weigh on the price of U.S. government bonds, sending yields higher.
"U.S. yields are likely to move higher in the medium term as the U.S. Treasury will be forced to issue bonds to finance its run of bailout packages," noted strategists at BNP Paribas.
Indeed, Treasury prices fell by the most in two decades on Friday, as investors sold in anticipation of lots of new supply coming on the market for U.S. government bonds. See full story.
International investors may respond to the prospect of holding U.S.-denominated paper in the face of expanding supply by turning to assets such as gold and other commodities, strategists at Bank of New York Mellon told clients.
"Such a shift in thinking is also likely to see investors favor currencies where the central banks retain an anti-inflationary stance and where there is a well-developed government bond market where they can leave their capital," they wrote. "The euro would seem the most likely home for such investment flows."
Meanwhile, coordinated efforts by the Federal Reserve and other major central banks unveiled last week to pump billions of additional dollars into money markets should serve to ease a near-term dollar shortage, analysts said. See full story.
"We continue to hold the view that the U.S. dollar liquidity provided outside the U.S. will reduce the liquidity squeeze in the short term and therefore lead to lower dollar demand," wrote Sven Schubert, a currency strategist at Credit Suisse in Zurich.
Japan's yen, meanwhile, continues to gain ground on renewed risk aversion, analysts said. End of Story
William L. Watts is a reporter for MarketWatch in London.
Deborah Levine is a MarketWatch reporter, based in New York.
By William L. Watts & Deborah Levine, MarketWatch
Last update: 10:02 a.m. EDT Sept. 22, 2008
Comments: 16
NEW YORK (MarketWatch) -- Sticker shock weighed on the dollar Monday as financial markets wrestled with the implications of the U.S. government potentially taking on $700 billion in debt to finance a massive bailout and stabilization of the financial sector and money markets.
Washington's ambitious strategy to clean up the troubled U.S. financial system's debt load "have been largely dollar-negative," said James Hughes, an analyst at CMC Markets.
The dollar index (DXY:
US Dollar Index Future - Spot Price
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Last: 76.91-0.55-0.70%
10:23am 09/22/2008
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DXY 76.91, -0.55, -0.7%) , a measure of the greenback against a trade-weighted basket of currencies, fell to 76.982, down from 77.663 late Friday in North American trading.
"Many traders seemingly [are] buying into the core idea that anything that's good for the banks will be bad for taxpayers," Hughes said.
The euro changed hands at $1.4625, up from $1.4488 late Friday, the highest in almost a month. The British pound surged to $1.8452, up from $1.8334.
The dollar also fell against Japan's currency, slipping to 106.50 yen from 107.28 yen.
U.S. lawmakers and Bush administration officials worked through the weekend to work out details of the plan.
The administration's proposal would allow the government to buy the bad debt of U.S. financial institutions for the next two years. It gives the Treasury secretary authority to buy $700 billion in mortgage-related assets, and would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion. See full story.
Separately, the Treasury last week said it would insure publicly offered mutual funds that pay a fee, while the Federal Reserve will buy agency discount notes from primary dealers, acting as a backstop when and if money-market funds want to sell their assets. See earlier story.
"Many investors expect the government's efforts to work and leave the U.S. with a large debt, which foreign investors will be increasingly reluctant to finance at current prices," said Brown Brothers Harriman strategists in New York.
The dollar came under pressure Friday after initially rallying on news of a Washington-engineered rescue plan.
Sorting out the implications
The sheer scale of the proposed bailout has stirred concerns about the addition of massive levels of debt to the federal budget. More debt will likely weigh on the price of U.S. government bonds, sending yields higher.
"U.S. yields are likely to move higher in the medium term as the U.S. Treasury will be forced to issue bonds to finance its run of bailout packages," noted strategists at BNP Paribas.
Indeed, Treasury prices fell by the most in two decades on Friday, as investors sold in anticipation of lots of new supply coming on the market for U.S. government bonds. See full story.
International investors may respond to the prospect of holding U.S.-denominated paper in the face of expanding supply by turning to assets such as gold and other commodities, strategists at Bank of New York Mellon told clients.
"Such a shift in thinking is also likely to see investors favor currencies where the central banks retain an anti-inflationary stance and where there is a well-developed government bond market where they can leave their capital," they wrote. "The euro would seem the most likely home for such investment flows."
Meanwhile, coordinated efforts by the Federal Reserve and other major central banks unveiled last week to pump billions of additional dollars into money markets should serve to ease a near-term dollar shortage, analysts said. See full story.
"We continue to hold the view that the U.S. dollar liquidity provided outside the U.S. will reduce the liquidity squeeze in the short term and therefore lead to lower dollar demand," wrote Sven Schubert, a currency strategist at Credit Suisse in Zurich.
Japan's yen, meanwhile, continues to gain ground on renewed risk aversion, analysts said. End of Story
William L. Watts is a reporter for MarketWatch in London.
Deborah Levine is a MarketWatch reporter, based in New York.
Sunday, September 21, 2008
Treasury Seeks Asset-Buying Power Unchecked by Courts
By Alison Fitzgerald and John Brinsley
Sept. 21 (Bloomberg) -- The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.
Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.
``He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''
As congressional aides and officials scrutinized the proposal, the Treasury late yesterday clarified the types of assets it would purchase. Paulson would have authority to buy home loans, mortgage-backed securities, commercial mortgage- related assets and, after consultation with the Federal Reserve chairman, ``other assets, as deemed necessary to effectively stabilize financial markets,'' the Treasury said in a statement.
The Treasury would also have discretion, after discussions with the Fed, to make non-U.S. financial institutions eligible under the program.
The plan would raise the ceiling on the national debt and spend as much as the combined annual budgets of the Departments of Defense, Education and Health and Human Services. Paulson is asking for the power to hire asset managers and award contracts to private companies. Most provisions of the proposal expire after two years from the date of enactment.
Markets `Fragile'
Paulson today urged Congress to approve the relief program quickly, saying financial markets are ``fragile.'' While the plan should have ``mortgage relief components,'' he suggested legislative changes should be kept to a minimum.
``We want this to be clean, we want this to be quick,'' Paulson said on Fox News Sunday.
A failure by the government to support the U.S. financial system could lead to ``a depression,'' Senator Charles Schumer, a New York Democrat told reporters yesterday. ``To do nothing is to risk the kind of economic downturn this country hasn't seen in 60 years.''
The Treasury is seeking authority to step in as buyer of last resort for mortgage-linked assets that few other financial institutions in the world want to buy, following government takeovers of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc.
Pelosi Response
``Democrats will work with the administration to ensure that our response to events in the financial markets is swift,'' House Speaker Nancy Pelosi said in a statement.
The majority party will seek to reduce mortgage foreclosures and create ``fast-track authority'' for an overhaul of financial regulation, Pelosi said. Democrats will ensure ``the government is accountable to the taxpayers in any future actions under this broad grant of authority, implementing strong oversight mechanisms.''
The proposal will include curbs on executive pay for the companies whose assets the government will be buying, Steve Adamske, a spokesman for Representative Barney Frank, said yesterday in an interview.
Democrats also will include a plan to stem foreclosures, which may involve tapping the loan-modification abilities of the Federal Housing Administration, the Federal Deposit Insurance Corp., and Freddie Mac and Fannie Mae, Adamske said. Frank, a Democrat from Massachusetts, is chairman of the House Financial Services Committee.
Senate Majority Leader Harry Reid said that while he has misgivings about the rescue plan, ``the consequences of inaction could be catastrophic.''
`Furious' Boehner
``While the Bush proposal raises some serious issues, we need to resolve them quickly,'' he said yesterday in a statement. ``I am confident that, working together, we will.''
House minority leader John Boehner, an Ohio Republican, said yesterday he is reviewing the proposal but didn't say whether he was inclined to support it.
``The American people are furious that we're in this situation, and so am I,'' Boehner said in a statement. ``We need to do everything possible to protect the taxpayers from the consequences of a broken Washington.''
Congress, which may pass legislation as soon as Sept. 26, needs to ``make sure there are protections built in for taxpayers,'' said Schumer, a New York Democrat on the banking committee. Lawmakers should ensure ``taxpayers who gave the money will be put ahead of the stockholders, bondholders and others.''
Paulson is seeking an expansion of federal influence over markets that hasn't been seen since the Great Depression, said Charles Geisst, author of ``100 Years of Wall Street'' and a finance professor at Manhattan College in New York.
Hoover Era
Geisst likened the plan to the Reconstruction Finance Corp., which was chartered by Herbert Hoover in 1932 with the goal of boosting economic activity by lending money after credit markets seized up.
President George W. Bush said he called leaders in both houses of Congress and ``found a common understanding of how severe the problem is and how necessary it is to get something done quickly.''
``This is going to be a big package because it's a big problem,'' Bush said following a meeting with Colombian President Alvaro Uribe at the White House. ``We need to get this done quickly, and the cleaner the better.''
Democratic presidential nominee Barack Obama said in a radio address that he ``fully supports'' Paulson and Fed Chairman Ben S. Bernanke's efforts to stabilize the financial system. The plan, however, should benefit both main street and Wall Street, he said.
`Burden on Taxpayer'
Republican Presidential nominee John McCain ``looks forward'' to reviewing the proposal while focusing at least in part on ``minimizing the burden on the taxpayer,'' said Jill Hazelbaker, communications director for the McCain campaign.
The ban on legal challenges of actions by Treasury is ``distasteful, it's unfortunate and it's bad precedent, but this is an emergency and you have to act,'' said Jerry Markham, a law professor at Florida State University and author of ``A Financial History of the United States.''
``What you don't want happen is to have lawsuits that will slow things down and cause problems,'' he said.
The proposal would raise the nation's debt ceiling to $11.315 trillion from $10.615 trillion and require the Treasury secretary to report back to Congress three months after Treasury first uses its new powers, and then semiannually after that.
Hiring Authority
Paulson would gain discretion to act as he ``deems necessary'' to hire people, enter into contracts and issue regulations related to a revival of U.S. mortgage finance, according to a three-page proposal. The Treasury would ``take into consideration'' protecting taxpayers and promoting market stability.
The Treasury may hire managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, Treasury said yesterday. The document specifies that Treasury may buy only assets issued or originated on or before Sept. 17.
The House will pass legislation to implement the plan by the end of this week, and the Senate will act soon after, Frank said on Sept. 19 in an interview on Bloomberg Television's ``Political Capital with Al Hunt.''
Bush said yesterday he's unconcerned that the price tag on the package may seem high.
``I'm sure there are some of my friends out there that are saying, `I thought this guy was a market guy, what happened to him?''' the president said. ``My first instinct was to let the market work, until I realized, while being briefed by the experts, how significant this problem became.''
The Bush administration seeks ``dictatorial power unreviewable by the third branch of government, the courts, to try to resolve the crisis,'' said Frank Razzano, a former assistant chief trial attorney at the Securities and Exchange Commission now at Pepper Hamilton LLP in Washington. ``We are taking a huge leap of faith.''
To contact the reporter on this story: Alison Fitzgerald in Washingtont ; John Brinsley in Washington at jbrinsley@bloomberg.net
Last Updated: September 21, 2008 10:03 EDT
Sept. 21 (Bloomberg) -- The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.
Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.
``He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''
As congressional aides and officials scrutinized the proposal, the Treasury late yesterday clarified the types of assets it would purchase. Paulson would have authority to buy home loans, mortgage-backed securities, commercial mortgage- related assets and, after consultation with the Federal Reserve chairman, ``other assets, as deemed necessary to effectively stabilize financial markets,'' the Treasury said in a statement.
The Treasury would also have discretion, after discussions with the Fed, to make non-U.S. financial institutions eligible under the program.
The plan would raise the ceiling on the national debt and spend as much as the combined annual budgets of the Departments of Defense, Education and Health and Human Services. Paulson is asking for the power to hire asset managers and award contracts to private companies. Most provisions of the proposal expire after two years from the date of enactment.
Markets `Fragile'
Paulson today urged Congress to approve the relief program quickly, saying financial markets are ``fragile.'' While the plan should have ``mortgage relief components,'' he suggested legislative changes should be kept to a minimum.
``We want this to be clean, we want this to be quick,'' Paulson said on Fox News Sunday.
A failure by the government to support the U.S. financial system could lead to ``a depression,'' Senator Charles Schumer, a New York Democrat told reporters yesterday. ``To do nothing is to risk the kind of economic downturn this country hasn't seen in 60 years.''
The Treasury is seeking authority to step in as buyer of last resort for mortgage-linked assets that few other financial institutions in the world want to buy, following government takeovers of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc.
Pelosi Response
``Democrats will work with the administration to ensure that our response to events in the financial markets is swift,'' House Speaker Nancy Pelosi said in a statement.
The majority party will seek to reduce mortgage foreclosures and create ``fast-track authority'' for an overhaul of financial regulation, Pelosi said. Democrats will ensure ``the government is accountable to the taxpayers in any future actions under this broad grant of authority, implementing strong oversight mechanisms.''
The proposal will include curbs on executive pay for the companies whose assets the government will be buying, Steve Adamske, a spokesman for Representative Barney Frank, said yesterday in an interview.
Democrats also will include a plan to stem foreclosures, which may involve tapping the loan-modification abilities of the Federal Housing Administration, the Federal Deposit Insurance Corp., and Freddie Mac and Fannie Mae, Adamske said. Frank, a Democrat from Massachusetts, is chairman of the House Financial Services Committee.
Senate Majority Leader Harry Reid said that while he has misgivings about the rescue plan, ``the consequences of inaction could be catastrophic.''
`Furious' Boehner
``While the Bush proposal raises some serious issues, we need to resolve them quickly,'' he said yesterday in a statement. ``I am confident that, working together, we will.''
House minority leader John Boehner, an Ohio Republican, said yesterday he is reviewing the proposal but didn't say whether he was inclined to support it.
``The American people are furious that we're in this situation, and so am I,'' Boehner said in a statement. ``We need to do everything possible to protect the taxpayers from the consequences of a broken Washington.''
Congress, which may pass legislation as soon as Sept. 26, needs to ``make sure there are protections built in for taxpayers,'' said Schumer, a New York Democrat on the banking committee. Lawmakers should ensure ``taxpayers who gave the money will be put ahead of the stockholders, bondholders and others.''
Paulson is seeking an expansion of federal influence over markets that hasn't been seen since the Great Depression, said Charles Geisst, author of ``100 Years of Wall Street'' and a finance professor at Manhattan College in New York.
Hoover Era
Geisst likened the plan to the Reconstruction Finance Corp., which was chartered by Herbert Hoover in 1932 with the goal of boosting economic activity by lending money after credit markets seized up.
President George W. Bush said he called leaders in both houses of Congress and ``found a common understanding of how severe the problem is and how necessary it is to get something done quickly.''
``This is going to be a big package because it's a big problem,'' Bush said following a meeting with Colombian President Alvaro Uribe at the White House. ``We need to get this done quickly, and the cleaner the better.''
Democratic presidential nominee Barack Obama said in a radio address that he ``fully supports'' Paulson and Fed Chairman Ben S. Bernanke's efforts to stabilize the financial system. The plan, however, should benefit both main street and Wall Street, he said.
`Burden on Taxpayer'
Republican Presidential nominee John McCain ``looks forward'' to reviewing the proposal while focusing at least in part on ``minimizing the burden on the taxpayer,'' said Jill Hazelbaker, communications director for the McCain campaign.
The ban on legal challenges of actions by Treasury is ``distasteful, it's unfortunate and it's bad precedent, but this is an emergency and you have to act,'' said Jerry Markham, a law professor at Florida State University and author of ``A Financial History of the United States.''
``What you don't want happen is to have lawsuits that will slow things down and cause problems,'' he said.
The proposal would raise the nation's debt ceiling to $11.315 trillion from $10.615 trillion and require the Treasury secretary to report back to Congress three months after Treasury first uses its new powers, and then semiannually after that.
Hiring Authority
Paulson would gain discretion to act as he ``deems necessary'' to hire people, enter into contracts and issue regulations related to a revival of U.S. mortgage finance, according to a three-page proposal. The Treasury would ``take into consideration'' protecting taxpayers and promoting market stability.
The Treasury may hire managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, Treasury said yesterday. The document specifies that Treasury may buy only assets issued or originated on or before Sept. 17.
The House will pass legislation to implement the plan by the end of this week, and the Senate will act soon after, Frank said on Sept. 19 in an interview on Bloomberg Television's ``Political Capital with Al Hunt.''
Bush said yesterday he's unconcerned that the price tag on the package may seem high.
``I'm sure there are some of my friends out there that are saying, `I thought this guy was a market guy, what happened to him?''' the president said. ``My first instinct was to let the market work, until I realized, while being briefed by the experts, how significant this problem became.''
The Bush administration seeks ``dictatorial power unreviewable by the third branch of government, the courts, to try to resolve the crisis,'' said Frank Razzano, a former assistant chief trial attorney at the Securities and Exchange Commission now at Pepper Hamilton LLP in Washington. ``We are taking a huge leap of faith.''
To contact the reporter on this story: Alison Fitzgerald in Washingtont ; John Brinsley in Washington at jbrinsley@bloomberg.net
Last Updated: September 21, 2008 10:03 EDT
Thursday, September 18, 2008
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Wednesday, September 17, 2008, at 6:00 p.m. EST.
The short-sellers ganged up on the financial sector today. At the closing bell, the Dow sank 449 points, closing at 10,609, while the Nasdaq fell 109 points, closing at 2,098. The S&P 500 dropped 57 points, closing at 1,156. Oil closed $6.01 higher at $97.16 per barrel, and gold closed up $70.00 higher at $850.50 an ounce.
The SEC just issued new rules on naked short selling. That should substantially reduce market volatility.
From the opening bell today, it was clear that Wall Street was not impressed with an $89 billion loan at 11 percent to AIG, a company with a trillion dollars in assets. Even worse the Fed is not replacing liquidity as fast as it is evaporating in the form of rapidly depreciating debt. Also, the banks don’t want to lend because they may not be repaid in the current environment. Gold jumped $88 intraday as investors dumped stocks and purchased gold & silver in a flight to safety.
Everything that is happening today (Bear Sterns, Fannie & Freddie, IndyMac Bank, Lehman Brothers) is a symptom of the real problem, which is the enormous level of defaulting debt. There is almost $600 trillion in derivatives debt, over $2.5 trillion in credit card debt, and $58 trillion in credit default swaps. We are witnessing the very beginning of a worldwide credit-market meltdown. Long-term, the banking and financial sectors may not bottom anytime soon.
We sold the last three positions in our portfolio at the opening bell this morning. You should be 100 percent cash today.
The next Hotline Update will be on Friday, September 19, 2008, at 6:00 p.m. EST.
The short-sellers ganged up on the financial sector today. At the closing bell, the Dow sank 449 points, closing at 10,609, while the Nasdaq fell 109 points, closing at 2,098. The S&P 500 dropped 57 points, closing at 1,156. Oil closed $6.01 higher at $97.16 per barrel, and gold closed up $70.00 higher at $850.50 an ounce.
The SEC just issued new rules on naked short selling. That should substantially reduce market volatility.
From the opening bell today, it was clear that Wall Street was not impressed with an $89 billion loan at 11 percent to AIG, a company with a trillion dollars in assets. Even worse the Fed is not replacing liquidity as fast as it is evaporating in the form of rapidly depreciating debt. Also, the banks don’t want to lend because they may not be repaid in the current environment. Gold jumped $88 intraday as investors dumped stocks and purchased gold & silver in a flight to safety.
Everything that is happening today (Bear Sterns, Fannie & Freddie, IndyMac Bank, Lehman Brothers) is a symptom of the real problem, which is the enormous level of defaulting debt. There is almost $600 trillion in derivatives debt, over $2.5 trillion in credit card debt, and $58 trillion in credit default swaps. We are witnessing the very beginning of a worldwide credit-market meltdown. Long-term, the banking and financial sectors may not bottom anytime soon.
We sold the last three positions in our portfolio at the opening bell this morning. You should be 100 percent cash today.
The next Hotline Update will be on Friday, September 19, 2008, at 6:00 p.m. EST.
Tuesday, September 16, 2008
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Tuesday, September 16, 2008, at 6:00 p.m. EST.
Stock prices were volatile today, but the good news is that AIG survived for another day. At the closing bell, the Dow jumped 141 points, closing at 11,059, while the Nasdaq gained almost 28 points, closing at 2,207. The S&P 500 closed almost 20 points higher at 1,213. Oil closed $4.56 lower at $91.15 per barrel, and gold closed $6.50 lower at $780.50 an ounce.
But here is the bad news:
Everything that is happening today (Bear Sterns, Fannie & Freddie, IndyMac Bank, Lehman Brothers) is a symptom of the real problem, which is the enormous level of defaulting debt. There is almost $600 trillion in derivatives debt, over $2.5 trillion in credit card debt, and $58 trillion in credit default swaps. We are witnessing the very beginning of a worldwide credit-market meltdown. Long-term, the banking and financial sectors may not bottom anytime soon.
Wall Street fears that the Fed and/or the Treasury will allow AIG to fail. That would create a financial mess that could trigger a financial meltdown.
First, tomorrow morning let's sell all remaining positions so we are 100 percent cash at the end of the day.
On Wednesday's hotline I will provide you with ETFs that will allow you to short the market and the sectors by 100 percent and 200 percent.
The next Hotline Update will be on Wednesday, September 17, 2008, at 6:00 p.m. EST.
Stock prices were volatile today, but the good news is that AIG survived for another day. At the closing bell, the Dow jumped 141 points, closing at 11,059, while the Nasdaq gained almost 28 points, closing at 2,207. The S&P 500 closed almost 20 points higher at 1,213. Oil closed $4.56 lower at $91.15 per barrel, and gold closed $6.50 lower at $780.50 an ounce.
But here is the bad news:
Everything that is happening today (Bear Sterns, Fannie & Freddie, IndyMac Bank, Lehman Brothers) is a symptom of the real problem, which is the enormous level of defaulting debt. There is almost $600 trillion in derivatives debt, over $2.5 trillion in credit card debt, and $58 trillion in credit default swaps. We are witnessing the very beginning of a worldwide credit-market meltdown. Long-term, the banking and financial sectors may not bottom anytime soon.
Wall Street fears that the Fed and/or the Treasury will allow AIG to fail. That would create a financial mess that could trigger a financial meltdown.
First, tomorrow morning let's sell all remaining positions so we are 100 percent cash at the end of the day.
On Wednesday's hotline I will provide you with ETFs that will allow you to short the market and the sectors by 100 percent and 200 percent.
The next Hotline Update will be on Wednesday, September 17, 2008, at 6:00 p.m. EST.
Sunday, September 7, 2008
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Friday, September 5, 2008, at 6:00 p.m. EST.
Disappointing employment figures pushed stock prices down dramatically this morning. The financial sector rebounded in the afternoon and cut losses. At the closing bell, the Dow gained almost 33 points, closing at 11,220 while the Nasdaq fell 3 points, closing at 2,255. The S&P 500 closed 5 points higher at 1,242. Oil closed $1.66 lower at $106.23 per barrel, and gold closed $0.30 lower at $803.50 an ounce.
The unemployment rate inched up to 6.1 percent. Since January, 600,000 jobs have been lost. August auto sales were down again. GM fell 20.3 percent, Ford fell 26.5 percent Chrysler fell 34.5 percent, Honda fell 7.3 percent, and Toyota fell 9.4 percent. Nissan bucked the trend and gained 13.6 percent in August.
September is the worst month of the year for stock prices. I expect a sell-off in September because of adverse down-market cycles, which should bottom on or before October first. I see no reason to add positions to our portfolio until after the market bottom.
I would continue to avoid the money center banks, the brokerage and financial sectors, and the commodity area.
Home prices will continue to fall. I don't see a housing bottom until late 2009, at the earliest. The Fed must supply greater liquidity to the banking system. And Congress, sooner-or-later, will have to pass a deep tax cut to accelerate economic growth. That is a tall order with our do-nothing Congress.
I will continue to trim positions from our portfolio as needed. Stay close to our Tuesday/Friday Hotline Updates.
The next Hotline Update will be on Tuesday, September 9, 2008, at 6:00 p.m. EST.
Disappointing employment figures pushed stock prices down dramatically this morning. The financial sector rebounded in the afternoon and cut losses. At the closing bell, the Dow gained almost 33 points, closing at 11,220 while the Nasdaq fell 3 points, closing at 2,255. The S&P 500 closed 5 points higher at 1,242. Oil closed $1.66 lower at $106.23 per barrel, and gold closed $0.30 lower at $803.50 an ounce.
The unemployment rate inched up to 6.1 percent. Since January, 600,000 jobs have been lost. August auto sales were down again. GM fell 20.3 percent, Ford fell 26.5 percent Chrysler fell 34.5 percent, Honda fell 7.3 percent, and Toyota fell 9.4 percent. Nissan bucked the trend and gained 13.6 percent in August.
September is the worst month of the year for stock prices. I expect a sell-off in September because of adverse down-market cycles, which should bottom on or before October first. I see no reason to add positions to our portfolio until after the market bottom.
I would continue to avoid the money center banks, the brokerage and financial sectors, and the commodity area.
Home prices will continue to fall. I don't see a housing bottom until late 2009, at the earliest. The Fed must supply greater liquidity to the banking system. And Congress, sooner-or-later, will have to pass a deep tax cut to accelerate economic growth. That is a tall order with our do-nothing Congress.
I will continue to trim positions from our portfolio as needed. Stay close to our Tuesday/Friday Hotline Updates.
The next Hotline Update will be on Tuesday, September 9, 2008, at 6:00 p.m. EST.
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