Gold Shines; Morgan Stanley Plunges

123jump.com Staff
17 Sep, 2008
New York City

The U.S. benchmark indexes fell more than 4% as investors sell on worries of broadening financial crisis and the nature of response from regulators and politicians. The latest AIG bailout appears adhoc and piecemeal and the U.S. regulators lack a coordinated strategy to deal with systemic failure that has a real potential of dragging the U.S. into a long period of economic malaise. Precious metals surged as investors feared more poor response from the central bankers.

6:30PM New York, 12:30AM Frankfurt, 8:30AM Sydney[R]– The U.S. benchmark indexes plunge between 4% and 5% as nervous investors increasingly are afraid to take additional risk. Gold and silver jumped with falling confidence in central bankers around the world.[/R]

Global Markets

The U.S. Treasury and the Fed acted swiftly after an emergency meeting last night and offered $85 billion of loan to the teetering insurance company AIG. Once the largest global insurance company with operations in more than 100 countries, AIG is facing near collapse without the emergency cash of $75 billion. The government action will prevent run in the money market funds deposits and allow the insurer to carry out orderly sale of assets and raise long term capital.

Banks, brokerage houses, insurance companies and credit card processors fell sharply after the U.S. bailout of AIG failed to improve liquidity in the interbank loan markets. Dow, Nasdaq, Russell 200 and S&P 500 plunged as much as 5%. Banks plunged more than 8% and Goldman Sachs and Morgan Stanley declined more than 20%. Crude oil fell but gold surged as investors lose their confidence in central bankers. Gold surged 11% and silver soared 15%.

Financial and mining stocks in UK plunged as world markets decline for third day this week. The ongoing widening U.S. financial crisis has unnerved major European and Asian investors. The U.S. financial system weakness has spread from brokers to banks to insurance companies. The BoE along with other central bankers took measures to improve liquidity, but measures fell short of calming investors. UK unemployment rate rose in three months to September.

Stocks in Mumbai, India declined 1.9% as financial stocks in the region declined in the wake of broadening U.S. financial crisis. ICICI Bank dropped 4.8% after it disclosed $25 million exposure to Lehman Brothers, the bankrupt investment banker. Sterlite Industries fell 8.9% to 435.25 rupees and Reliance Industries declined 3% to 1,864.70 rupees. Rupee traded to 9-year low as it reached near 47 to a dollar.

North American Markets

Dow Jones Industrial Average decreased 449.36 or 4.06% to a close of 10,609.66, S&P 500 Index closed down 57.21 or 4.71% to 1,156.39, and Nasdaq Composite Index decreased 109.05 or 4.94% to close at 2,098.85. In Toronto TSX Composite closed down 349.30 or 2.86% to 11,877.69.

Homebuilders fell after the housing starts dropped 6.2% to a nearly two-decade low. Crude oil surged after the release of weekly inventories data.

Of the 30 stocks in Dow Jones Industrial Average all declined.

AIG led decliners in Dow Jones Industrial Average with a fall of 45.33% followed by losses in JP Morgan Chase of 12.20%, in Citigroup of 10.92%, in American Express of 8.4% and in General Motors of 8.4%.

Of the stocks in S&P 500 index, 21 increased, 478 declined and none was unchanged. Of the index stocks, 5 rose more than 3% and 365 fell more than 3%.

SanDisk Corp led the gainers in the S&P 500 index with a rise of 39.10% followed by gains in Newmont Mining of 9.4%, in Monster Worldwide of 6.6%, in Range Resources 4.9%, in Nvidia Corp of 4.3% and in Baker Hughes of 2.3%.

Samsung Electronics the maker of memory cards launched a hostile tender offer at $26 a share for SanDisk. The hostile offer values the company at $5.9 billion. The company rejected the offer and said that it undervalues the company.

AIG led decliners in the S&P 500 index with a plunge of 45.33% followed by losses in Genworth Financial of 25.8%, in Morgan Stanley of 21.75%, in Wachovia Corp of 20.76%, in Constellation Energy of 19.47%, in Dynegy Inc of 18.8% and in Sovereign Bancorp of 16.9%.

Morgan Stanley ((MS)) appears to be in discussion with several banks to discuss potential merger. After the close New York Times reported that Morgan Stanley and Wachovia discussing a possible merger deal. Morgan Stanley stock has declined more than 40% in the last five days of trading and if the stock continues to decline the investment banker may not have much time to find another merger partner.

Goldman Sachs is the other large independent banker that may be forced to look for a merger partner if the stock continues to fall. Goldman stock dropped 20% in today’s trading.

South American Markets Indexes

Brazil led decliners in the region with a fall of 6.74% followed by decreases in Argentina of 5.08%, in Mexico of 4.72%, in Peru of 3.6%, in Chile of 2.6% and in Colombia of 2.02%.

Europe Markets Review

In London FTSE 100 Index closed lower 178.60 or 3.43% to 5,025.60, in Paris CAC 40 Index decreased 81.57 or 1.96% to close at 4,087.40 and in Frankfurt DAX index lower 98.99 or 1.63% to close at 5,965.17. In Zurich trading SMI decreased 206.18 or 2.97% to close at 6,732.93.

Russia halted trading for the second day in a row and added $44 billion in liquidity in the financial markets. Investors have driven the Russian market index down more than 40% for the year.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 605.04 or 4.95% to 11,609.72, Hang Seng index in Hong Kong decreased 1052.29 or 5.44% closed to 18,300.61. ASX 200 index in Australia decreased 66.90 or 1.39% to close 4,750.80. The KL Composite index in Malaysia decreased 19.26 or 1.87% closed to 1,012.37.

The Kospi Index in South Korea decreased 90.17 or 6.10% to close at 1,387.75, SET index in Thailand closed lower 17.83 or 2.78% to 624.56 and JSE Index in Indonesia increased 16.38 or 0.95% to 1,735.64. The Sensex index in India decreased 12.47 or 0.09% closed to 13,518.80.

Commodities, Metals, and Currencies

Crude oil increased $5.29 to close at $96.44 a barrel for a front month contract, natural gas increased 59 cent to $7.87 per mBtu and gasoline futures decreased 4.27 cents to close at 244.35 cents per gallon.

Gold increased $89.60 in New York trading to close at $870.10 per ounce, silver closed up $1.53 cents to $12.05 per ounce and copper for the front month delivery decreased 0.20 cent to $3.087 per pound.

Wheat futures closed up 35.6 cents in Chicago trading and closed at $7.25 a bushel. Sugar increased 0.23 cent to 13.93 cents a pound. Soybean future closed up 15.00 cents to $11.39 a bushel.

Dollar edged lower against euro to $1.4156 and edged lower against yen to 104.67.

Yields on 10-year U.S. bonds decreased to 3.42% and decreased to 4.09% with 30-year of maturities.