Stocks drop on economic concerns despite bailout

NEW YORK - Wall Street ended its worst week in seven years with another tumble on Friday on fears that the US$700 billion financial rescue package may not unblock credit markets and stave off a US recession.

After much legislative haggling that roiled and captivated global markets for the past two weeks, the US House of Representatives passed the bill on its second try and President George W. Bush signed it into law.

Financial stocks, which had traded sharply higher on the expectation the bill would be passed, fell after the House vote. Traders cited profit-taking and said the market was now focusing on the tough economic road still ahead and on how the bill will be implemented.

The S&P financial index fell 3.9 per cent, while the three major indexes all fell more than 1 per cent.

The monthly jobs report earlier in the day suggested the economy may be in a recession. US employers cut 159,000 jobs in September, the ninth straight monthly reduction and the steepest decline in five and a half years.

The Dow Jones industrial average fell 157.15 points, or 1.50 per cent, to 10,325.70, while the Standard & Poor's 500 Index slid 15.04 points, or 1.35 per cent, to 1,099.24. It was the first time the S&P closed below 1,100 in almost four years.

Source: Singapore Business Times - 04 Oct 2008

I have come across many people half understood the term “long” and “short”.
Most people know going long is equivalent to buying while going short is equivalent to selling.
But that is only half true.

Why use the term “long” and “short”?
Why not just use “buy” and “sell”?

The difference is here…

BUY vs LONG
When a trader buys into a counter, he could mean:

1. he is opening (entering/taking) a new long position
(he did not have any position before this);

or

2. he is closing a short position that he sold (opened/entered) earlier
i.e., he is buying back the counter that he sold earlier.

However, if the trader goes long on a counter, it is very clear he is opening (entering/taking) a new long position.
He is for sure not closing a short position.

SELL vs SHORT
When a trader sells a counter, he could mean:

1. he is opening (entering/taking) a new short position
(he did not have any position before this);

or

2. he is closing a long position that he bought (opened/entered) earlier
i.e., he is selling the counter that he bought earlier.

However, if the trader sells short a counter, it is very clear that he is opening (entering/taking) a new short position.
He is for sure not closing a long position.

Therefore, buy or sell would have 2 possible meanings whereas long or short has only 1 definite meaning.

A good article by R Sivanithy......

Time to buy? No - patience is a virtue

WHENEVER stock markets behave as they are now, it's tempting to ask whether it's time to 'bargain hunt'. Indeed, as each passing day brings a new low - be it 24, 25 or 26 months for the Straits Times Index - the temptation to buy probably grows stronger, aided no doubt by a steady stream of 'buy' calls from brokers, all and sundry.

So will it soon be time to buy? Maybe it will? And perhaps for the Straits Times Index, the fact that the 2,300 level has held twice in the past fortnight suggests this may be where there is strong support?

Our take, though, is that there is no need to rush and that patience is a virtue. Brokers and independent researchers have consistently under-estimated risks to the downside for the past year, so their 'buy' calls should be taken not with a pinch of salt but a bucket (LOL).

Analyst credibility aside, a major reason for saying this is that despite America's woes, and despite it triggering the biggest financial meltdown ever, US stocks have not capitulated yet. Even after Monday's 7 per cent collapse, the Dow Jones Industrial Average was down only 22 per cent this year and the S&P 500 down 25 per cent - much less than the 35-50 per cent falls suffered by other markets.

From its all-time high, the Dow's loss to 10,365 was 27 per cent and the S&P's loss 28 per cent - over almost a year, compared with the 20 per cent crash in one day on 'Black Monday' Oct 19, 1987.

Seen in this light, the current losses on Wall Street could justifiably be taken to be part and parcel of a normal bear market and not really that much cause for concern.

Why has Wall Street not fallen as much as other markets? One possibility is the huge amount of liquidity the US Federal Reserve has pumped into the system. But more likely, it's the still-lingering hope of a government-led bailout, despite the initial proposal being rejected.

If a modified proposal is cobbled together before the end of this week and if this is again rejected, the full-scale removal of a 'bailout premium' will see US stocks start to reflect their true fundamental values.

Furthermore, it is debatable whether any US Treasury-led bailout would have any effect at all. Recall that on Monday, markets went into a tailspin many hours before the US Congress voted on the plan. So, even if a second plan is pushed through and even if this does push stocks up, it can only be a matter of time before reality sets in with regard to the US market and its fundamentals. And once this happens, investors might just cotton on to the fact that US stocks are grossly over-valued.

Bloomberg's analytic service gives the S&P 500 as trading at a historic earnings per share consensus analyst estimate of US$51 and a forecast figure of US$83. With banks disappearing, unemployment rising, consumer spending shrinking, no growth to look forward to, no bottom yet in housing and a possibly vicious recession just around the corner, how likely is it that US corporations will report such a big jump in earnings?

As for the local market, Citi Investment Research warned last week that it is possible for the STI to fall to 1,800 - a warning many investors reckon is too pessimistic. But if the index were to drop to 1,800, that would only take it to a four-year low which, given the huge risks to growth posed by America's problems and the unprecedented nature of the present bank failures, is arguably within reason.

The upshot of all this is that risks are still tremendously high and that Wall Street is still heavily exposed to the downside.

Investors should also realise that even if the STI's bottom does lie at 2,300, this does not automatically mean the start of a new bull market - stocks can drift for years within narrow bands before embarking on any uptrend. As such, it is clearly not time to buy yet.

Source: Singapore Business Times - 02 Oct 2008

Economic, credit fears punish Wall Street

NEW YORK - Stocks slid on Thursday as tight credit markets and bleak economic data forced investors to focus on the rocky road still ahead for the US economy even if Congress passes a US$700 billion rescue package this week.

The Dow shed more than 3 per cent while the S&P 500 and Nasdaq dropped 4 per cent as Wall Street worried the economy may slide into recession, further cutting into corporate profits.

Data showing the number of people filing for unemployment benefits hit a seven-year high painted a troubling picture, as did a report showing a steep drop in factory orders in August.

The price of oil plummeted more than 4 per cent as financial market turmoil stoked concerns about demand for fuel and precious metals slid as the dollar rose.

The Dow Jones industrial average fell 348.22 points, or 3.22 per cent, to 10,482.85, while the Standard & Poor's 500 Index slid 46.78 points, or 4.03 per cent, to 1,114.28. The Nasdaq Composite Index dropped 92.68 points, or 4.48 per cent, to 1,976.72 - a three-and-a-half-year low.

Source: Singapore Business Times - 03 Oct 2008

Wall Street slips on credit woes, economy

* Senate due to vote on revamped US$700 billion bailout
* Manufacturing, jobs data heighten economic worry
* GE shares trim losses after Buffett makes investment
* Dow off 0.2%, S&P off 0.5%, Nasdaq off 1.1%

NEW YORK - US stocks fell on Wednesday as tight credit markets and bleak economic data kept investors on edge before the Senate votes on a revamped financial sector rescue plan that was initially rejected by lawmakers.

Trading was volatile a day after Wall Street gave its best daily performance in six years, and investors worried about how effective a US$700 billion bank rescue in the United States would be in averting recession.

Investors unloaded shares of technology, industrial and energy shares, including economic bellwethers General Electric (GE), down nearly 4 per cent, and heavy-equipment maker Caterpillar, off 4.5 per cent.

Late in the day, GE shares moved off their lows after investor Warren Buffett said he planned to pump US$3 billion into the diversified manufacturer, though the gains were short-lived.

But investors' main focus was on the fate of the rescue plan, which was expected to come to a vote on the Senate floor after the market closed on Wednesday. The House of Representatives shocked markets by voting down an earlier version on Monday.

The Dow Jones industrial average ended down 19.59 points, or 0.18 per cent, at 10,831.07. The Standard & Poor's 500 Index fell 3.68 points, or 0.32 per cent, to 1,161.06. The Nasdaq Composite Index lost 22.48 points, or 1.07 per cent, to 2,069.40.

Financial shares rose as investors hoped for a thumbs-up vote from the Senate. The S&P financial index advanced 2.2 per cent, while Citigroup shares climbed 12 per cent to US$23 and JPMorgan Chase rose 6.3 per cent to US$49.63.

Source: Singapore Business Times - 02 Oct 2008

Wall Street rallies on bailout revival hopes

NEW YORK - Wall Street roared back on Tuesday, a day after its worst sell-off in 21 years as investors bet Washington would revive a plan to stabilise the US financial sector following its surprising defeat on Monday on Capitol Hill.

Adding to the positive tone was a Reuters report that US regulators intend to provide new accounting guidelines that could slow the heavy flow of mortgage-related losses on banks' balance sheets. The Dow jumped 485 points after posting a one-day record loss of 778 points on Monday.

Strains persisted in credit markets, however, suggesting banks remain reluctant to lend to each other, and September marked the benchmark S&P 500's worst month in six years.

But investors were feeling more optimistic after President George W. Bush and congressional leaders pledged to continue talks on a US$700 billion financial-sector rescue plan.

The S&P 500 rose more than 5 per cent, recovering more than half of the losses booked on Monday when the House of Representatives rejected the plan, which would have let the US Treasury buy bad mortgage debt from stressed banks so they can resume lending.

Tuesday's climb marked the S&P's best one-day percentage gain since July 2002.

Under current rules, banks must value assets based on what they would fetch in a current market transaction. Since prices for mortgage-related assets have long been at distressed levels, banks have been forced to scurry for more capital.

The Dow Jones industrial average rallied 485.21 points, or 4.68 per cent, to 10,850.66. The Standard & Poor's 500 Index jumped 58.35 points, or 5.27 per cent, to 1,164.74. The Nasdaq Composite Index climbed 98.60 points, or 4.97 per cent, to 2,082.33.

For the month of September, the Dow fell 6 per cent - its worst month since June. Tuesday also marked the end of the third quarter, when the Dow fell 4.4 per cent. This was the Dow's worst quarter since the second quarter of this year.

This is the Dow's longest quarterly losing streak since 1977-1978.

Source: Singapore Business Times - 01 Oct 2008

Finally, Dow Jones Industrial Average broke down the crucial support at 10459 last night, continuing its down trend movement. The high volume transacted seems to suggest more downsides are expected in the short term.

From the record high of 14198 traded on 11/10/2007, Dow Jones has lost 27%.

Dow Jones lost 21% year-to-date.

Dow suffers record point drop as House rejects bailout

NEW YORK - The Dow industrials plunged on Monday in the blue-chip average's biggest one-day point drop ever after US lawmakers unexpectedly rejected a US$700 billion financial bailout, spooking investors who saw it as essential to halting a global market meltdown.

The Dow lost about 778 points and posted its biggest daily percentage decline since the October 1987 stock market crash, while the benchmark S&P 500 also had its worst day in 21 years after the House sent the bailout plan to defeat by a vote of 228 to 205.

The tech-heavy Nasdaq had its worst day since April 2000 when the Internet bubble collapsed.

The failure of the bill, which would have let the Treasury buy up bad mortgage debt from struggling banks, added to serious concerns after the credit crisis claimed new victims, including Wachovia Corp and a bevy of European banks.

Fear was deep and widespread, as investors dumped stocks for the relative safety of US government bonds. The Chicago Board Options Exchange Volatility Index, Wall Street's main barometer of investor fear, jumped 39 per cent to 48.40, a nearly six-year high, and was at 46.72 at the close.

The Dow Jones industrial average sank 777.68 points, or 6.98 per cent, to 10,365.45. The Standard & Poor's 500 Index was down 106.59 points, or 8.79 per cent, at 1,106.42. The Nasdaq Composite Index was down 199.61 points, or 9.14 per cent, at 1,983.73.

Source: Singapore Business Times - 30 Sep 2008