Anglonautes > English vocabulary / words / dictionary > Economy > Cycles, business, markets, prices, taxes, budgets

For three straight days, the stock market collapsed in the last hour of trading. On Friday, it merely swooned.

Until 3 p.m., things looked awful as investors drove the Dow Jones industrial average down nearly 700 points at one point, to below 8,000 for the first time in five years. Then the market made a U-turn, surging higher with the Dow climbing nearly 900 points in less than 40 minutes. The rally fizzled in the last 20 minutes of trading and the Dow closed down 1.5 percent — but it was a far cry from its 8 percent decline at the start of the trading day just six and a half hours earlier.

“We just don’t see turnarounds like this,” Howard Silverblatt, chief index analyst for Standard & Poor’s, said about the late afternoon rally. “These swings are enormous.”

It was one of the wildest moves in stock market history, and perhaps a fitting conclusion to the worst week in at least 75 years. The Dow and the broader Standard & Poor’s 500-stock index both closed down 18 percent for the week. The Dow has never had a week that bad in its 133-year history. The S.& P. has fallen slightly more only twice before — in 1929 and 1933. This month was the first time that the S.& P. had fallen by more than 1 percent for seven days in a row.

In the credit markets, conditions went from bad to worse. Borrowing costs for banks and companies jumped once again as investors sought safety in Treasury bills despite earlier signs that the government might take equity stakes in troubled companies to try to halt the credit crisis. It was the worst single day for junk bonds ever, and the cost of borrowing shot up for even blue-chip companies: I.B.M. agreed to pay 8 percent interest on $4 billion of 30-year bonds, about twice the rate at which the federal government borrows money.

On Friday evening, after a meeting of finance ministers and central bankers from the Group of 7 countries, the Treasury secretary, Henry M. Paulson Jr., confirmed that the government would move quickly to buy stakes in financial institutions. But the details he provided fell far short of what investors were seeking.

Indeed, while policy makers have taken a stab at many extraordinary efforts to restore confidence, none have alleviated panic in global markets so far. Because the $700 billion financial stabilization plan will take several weeks to have an impact, investors say officials must present significant details on the more fast-track effort to recapitalize banks to get them to lend money to each other and other businesses again.

“We have to do something,” said Robert C. Doll, vice chairman of BlackRock, the big investment firm. “At the end of the weekend, before the markets open up on Monday, these guys have to have something to say. And it can’t be, ‘Everything is O.K., just calm down.’ ”

Investors will be watching for any new developments in Washington this weekend after Mr. Paulson signaled that countries stopped short of agreeing to a globally coordinated approach to stem the crisis. In addition to the G-7 meetings, which go through Sunday, the International Monetary Fund and the World Bank are also holding annual meetings.

Politicians were busy in Washington, and on Wall Street, things were anything but calm. Friday in New York began with a now-familiar feeling: dire expectations of what the opening bell would bring after stocks in Asia and Europe plummeted by as much as 10 percent.

Scott Black, president of Delphi Management in Boston, said he had taken to waking up at 3 a.m. to check on foreign markets. When he arose before dawn on Friday, he was distressed. “I am worried,” he said. “I have a fiduciary responsibility to my clients.”

At the open, the Dow Jones industrial average quickly sank nearly 700 points. But suddenly, shares of struggling financial companies surged, the Dow regained all of its losses in less than half an hour, and a cheer went up on the trading floor of the New York Stock Exchange.

By about 10:20, stocks had started to slide again, and President Bush tried to soothe frayed nerves with an appearance at the White House. “This is an anxious time,” he said. “But the American people can be confident in our economic future. We know what the problems are. We have the tools to fix them. And we’re working swiftly to do so.”

If traders were paying attention to the president, it did not show. Over the course of several hours, stocks ground down, with the Dow losing more than 600 points and again falling below the 8,000 mark.

In the afternoon, an investor walked into a Kansas office of the mutual fund company American Century Investments. The woman, who is two years from retirement, was worried about her small business account. She brought her unopened statement to John Leis, a director of personal financial solutions at the company.

“She didn’t have the guts to open it even though she had conservative investments,” Mr. Leis said. “She asked me, ‘How bad is it going to be?’ ” The client was fortunate: her investments, in mostly government-backed bonds, were up 6 percent for the year. But Mr. Leis said the concern about her investments symbolized the fear among many everyday Americans who are watching the financial markets with trepidation.

Back in New York, stocks were about to stage one of their most impressive rallies ever. Shortly after 3 p.m., the Dow surged by nearly 900 points, with companies like Exxon Mobil, Chevron and Boeing leading the way. While those companies have posted decent results this year, their shares have fallen significantly in recent months.

Why stocks surged late in the day is the subject of much discussion and speculation among analysts and investors. Many said it was only a matter of time before stocks bounced back from the unrelenting decline of recent days. Many investors have been waiting on the sidelines either because they feared what would come next or because they expected prices to fall further.

Barry Ritholtz, chief executive of Fusion IQ and author of a popular financial blog, The Big Picture, pointed out that investors were holding more cash than at any time since 2002, when the last bear market ended. Some of that cash appears to have come into the market later in the day when it looked like stock prices would not fall much further.

Some analysts said the late-hour surge reflected bargain hunting by money managers who have watched stocks of premier companies like General Electric, Google and Exxon Mobil fall to their cheapest levels in years or decades. Google, for instance, opened trading at about $315 a share, about $100 below where it was just a week and a half ago. Shares of the company closed up modestly, at $332.

“What I saw was people starting to buy at the really distressed prices and, when the market got better, they kept buying,” said Laszlo Birinyi Jr., president of Birinyi Associates, an investment firm in New York.

Still, many investors said that although they were excited about buying beaten up stocks and bonds, they were worried that the sell-off was far from over. The recent spate of forced selling of stocks by hedge funds and other investors who had used lots of borrowed money to make big bets during the recent credit boom may not yet be over, they fear.

“The problem is that in order to invest in this you have to make sure your base of capital is stable,” said Whitney Tilson, founder and managing director of T2 Partners, a hedge fund firm in New York. “Who knows when the dumping is going to end. Who knows how many hedge funds are going to go under.”

Still, Mr. Tilson, describing current prices as “prosperously cheap,” said he recently allowed his investors to put more money into his funds — and a handful took him up on the offer.

The benchmark 10-year Treasury bill fell 22/38, to 101 1/32, and the yield, which moves in the opposite direction from the price, was at 3.87 percent, up from 3.79 percent late Thursday.

Ian Austen, Vikas Bajaj, David Stout

and Bettina Wassener contributed reporting.

Whiplash Ends a Roller Coaster Week,
NYT,
11.10.2008,
https://www.nytimes.com/2008/10/11/
business/11markets.html

Oil Prices Skyrocket,

Taking Biggest Jump Ever

June 7, 2008

The New York Times

By JAD MOUAWAD

Oil prices had their biggest gains ever on Friday, jumping nearly $11 to a new record above $138 a barrel, after a senior Israeli politician raised the specter of an attack on Iran and the dollar fell sharply against the euro.

The unprecedented gains on Friday capped a second day of strong gains on energy markets, and fueled suspicions that commodities might be caught in a speculative bubble.

Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange. The record gain followed a jump of 5.5 percent on Thursday, bringing total two-day gains to $16 a barrel.

Stocks fell sharply. The Dow Jones industrials fell 323.97 points, or 2.53 percent, in midday trading. Chevron Corp. was the only stock that rose on the blue-chip index.

“This market is going to shoot itself in the foot,” said Adam Robinson, an analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. But this takes time. The market has gotten extremely impatient and is not willing to wait.”

Even as uncertainties abound about the fundamentals of the market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable.” Iran is the second-largest oil producer within the OPEC cartel and any interruptions in its exports could push prices higher levels.

“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker.

The strong volatility in energy markets in recent weeks have continued to puzzle investors and traders. Prices keep rising despite a lack of shortages in the market, and strong evidence of lower consumption in industrialized countries. But investors seem to be caught in a bullish mood, focusing instead on perceived risks to future oil supplies and continued growth in oil demand from emerging economies that subsidize fuels.

The latest jump in oil prices also came as the dollar lost almost 1 percent against the euro amid bleak economic news that fanned recession fears on Friday. The unemployment rate surged to 5.5 percent last month, the government said, the biggest increase in more than two decades.

Investors reacted to the latest forecast by a large Wall Street bank that oil prices would spike to $150 a barrel in the next month because of strong demand from Asian economies. Morgan Stanley said “an unprecedented share” of Middle East oil exports are headed to Asia.

Some analysts also said that the threat of a strike by Chevron’s workers in Nigeria could lead to “considerable” shutdowns of Nigerian production. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.

A strike might delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is slated for June 15.

One view that has been gaining ground in recent months is that the commodity market is caught in a speculative bubble akin to the housing or technology bubble of the late 1990s. The notion is buffered by the fact the oil prices have doubled in 12 months despite a slowing economy.

That theory was raised by politicians in Washington and a slew of OPEC producers, who blame speculators for the staggering rally in oil prices. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said earlier this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before another Senate committee last month, said he saw no evidence of a speculative bubble in the commodity market. Instead, Mr. Harris pointed out to a confluence of trends that have contributed to the oil price rally, including a weak dollar, strong energy demand from emerging-market economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

Oil prices had been weakening in recent days but reversed dramatically after the president of the European Central Bank, Jean-Claude Trichet, suggested on Thursday that the bank might raise interest rates. That pushed up the euro against the dollar and prompted investors to buy into commodities to hedge against the weaker American currency.

Gasoline prices have also been rising steadily. American drivers are now paying an average of $3.99 for a gallon of gasoline nationwide, according to AAA, the automobile group. In many parts of the country, like California, Connecticut and New York, consumers are already paying well over $4. Diesel costs $4.76 a gallon on average.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. But I don’t see who would buy at these prices unless they need to.”

Oil Prices Skyrocket, Taking Biggest Jump Ever, NYT, 7.6.2008,
https://www.nytimes.com/2008/06/07/
business/07oil.html

Foreclosures skyrocket 65%

in April

14 May 2008
USA Today
By Stephanie Armour

In a sign that the mortgage collapse is getting worse, not better, foreclosure filings surged 65% in April from April 2007, leading some analysts to warn that the crisis might not end before 2010.

One in every 519 households received a foreclosure filing — the highest such figure since RealtyTrac began issuing foreclosure reports in January 2005. Nationally, 243,353 homes were facing foreclosure last month, RealtyTrac said. That amounts to roughly 2% of all homes.

Signs that the crisis is accelerating include sinking home values, rising foreclosures, swelling supplies of homes for sale and tighter lending rules that have shut out some who want to buy homes or refinance their mortgages.

"For the foreclosures to stop, inventories have to stop rising, and home sales have to rise," says Mark Zandi, chief economist of Moody's Economy.com, who thinks foreclosures will continue rising well into 2009 and possibly till 2010. "We need prices to come down some more."

Congress is working on a bill that would let many borrowers facing foreclosure refinance with federally insured mortgages. The bill's prospects, though, are uncertain.

"Policy is essential," Zandi says. "If they don't do anything, this crisis will continue."

Foreclosure filings in April rose from a year earlier in all but eight states, according to RealtyTrac. Those hardest hit by the tsunami of foreclosures included Arizona, California, Florida and Nevada — states where runaway subprime lending and escalating home prices symbolized the real estate boom that fizzled in 2006.

"It will almost certainly get worse," Rick Sharga of RealtyTrac says of the foreclosure filings. "Unless the government does something, we'll probably see this go on. We would expect a spike (in filings) in the third and fourth quarter" of 2008.

Joel Naroff of Naroff Economic Advisors says he thinks foreclosures could persist at a high rate into 2010. "Prices are dropping and will continue to fall throughout the year," Naroff says. "People want to buy, but they can't get financing."

As the downturn intensifies, credit counselors are reporting a wave of calls from anxious homeowners. Diane Gray, director of Novadebt, a non-profit counseling group, says its largest surge in demand from clients involves housing-related counseling services.

"Homeowners are calling about mortgage payments, including those with ARMs and interest-only loans," Gray says. "A lot of times, they've gotten into a home, and it's hard for them to understand they may not be able to afford it."

Foreclosures skyrocket 65% in April, UT, 14.5.2008,
http://www.usatoday.com/money/economy/housing/
2008-05-14-foreclosures-mortgage-apps_N.htm - broken link

What Plunge?

Stocks Back Near Highs Hit

in July

September 29, 2007

The New York Times

By VIKAS BAJAJ

After a tumultuous and brutal August, the stock market has regained its footing and is within striking distance of the record highs it set in July.

The surge began building before the Federal Reserve cut interest rates last week and has come at a time when news from the housing market remains bleak.

Conditions in the debt markets have eased somewhat, but specialists say they remain much tighter than they were earlier this year.

Since Aug. 15, when the stock market hit its lowest point in five months, the Standard & Poor’s 500-stock index is up 8.5 percent and the Dow Jones industrial average 8 percent. The increase has erased much of the decline from late July and early August and left the indexes up modestly for the third quarter, which ended yesterday.

“It’s kind of amazing how well equities have held up,” said Douglas M. Peta, chief market strategist at J. W. Seligman & Company, an investment firm in New York.

“If you went away sometime in July and came back about now, you might say, ‘Nothing happened while I was gone,’” he said.

In yesterday’s trading, the main indexes fell slightly, with the S.& P. 500 down 4.63 points, or 0.3 percent, to 1,526.75. The Dow slipped 17.31 points, or 0.12 percent, to 13,895.63, and the Nasdaq fell 8.09 points, or 0.30 percent, to 2,701.50.

That still left the Dow and the Nasdaq with gains of more than 11 percent this year, and the S.&P. up 7.7 percent for the year.

The market appears to be buoyed by a belief that the problems in the housing and credit markets will not pull the broader economy into a recession and that growth in Asia and Europe will help offset those ill effects. The optimism is most vividly manifest in the performance of foreign markets, particularly in the fast-developing countries like China and India.

A widely followed Morgan Stanley index that tracks emerging markets is up 26 percent since Aug. 16, when it hit a low. Markets in developed countries excluding the United States are up nearly 12 percent in the same period.

Even in the United States, the market’s return has been led by sectors like energy, industrials, materials and technology, which investors believe are best positioned to take advantage of the growth abroad.

The financial and consumer discretionary sectors have lagged; they are seen as having the most to lose from a declining housing market and slowing consumer spending domestically.

Indeed, investors in September poured $1.1 billion into mutual funds that specialize in emerging markets, while they withdrew about $3.2 billion from domestic equity funds, according to AMG Data Services, a research firm.

Expectations that the rest of the world will outperform the United States are also reflected in the depreciating dollar, which dropped yesterday to $1.4265 against the euro, a new low. The dollar has fallen 2.8 percent against the euro since Sept. 14, when the Fed cut rates and is down 8 percent for the year. Gold prices rose 1.4 percent, to $742.80 a troy ounce, the highest since 1980.

Currency traders, and others in the financial markets, are operating under the assumption that central bankers in Washington have taken a more activist and accommodating stance.

That view started to take hold in mid-August when the Fed cut the discount rate — what it charges banks to borrow directly from it. Investors became even more convinced last week when the Fed cut its benchmark rate by half a point, to 4.75 percent, rather than the expected quarter point.

The futures market is now predicting that the Fed will cut rates at least once more, to 4.5 percent, at its meeting on Oct. 30 and 31.

But one Fed official, William Poole, said yesterday that “it would be a mistake for markets to bake into the cake the assumption of ongoing rate cuts,” according to Bloomberg News.

Mr. Poole, president of the Federal Reserve Bank of St. Louis, responding to a question after a speech in New York, said he was expressing his own views and not speaking for the Fed.

In the credit market, the Fed’s rate cutting and its lending at the discount rate and through open market operations have eased the logjam somewhat.

This week, banks raising money for the private equity buyout of the First Data Corporation, a credit card processor, were able to sell more debt than they had planned.

Still some of the roughly $300 billion debt backlog that needs to be sold may never be worked off. The private equity acquisitions that are falling apart or being withdrawn include the purchases of the student loan provider Sallie Mae and Harman International Industries, a maker of high-end audio speakers.

“You still have a big overhang of supply out there,” said Eric G. Takaha, director of corporate and high-yield debt at Franklin Templeton, the investment company. “But the path has become a little clearer.”

One mortgage company, Thornburg Mortgage, said the market for “jumbo” home loans — those with a face value of more than $417,000 — appeared to be improving. In recent weeks, investors have been more willing to buy bonds backed by pools of the mortgages, but are demanding higher returns and more safeguards against default.

Home buyers searching for jumbo loans will notice a slight drop in interest rates but will have to shop around, said Larry A. Goldstone, president and chief operating officer at Thornburg, based in Santa Fe, N.M.

“The market has improved modestly and it is certainly not deteriorating,” Mr. Goldstone said. “I think it has a ways to go before it’s back to functioning in a completely normal way.”