DJIA Drops 696 Points, to Below 8,000, During 1st 7 Minutes of Trading
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By 10:10 New York time, the DJIA had recovered its entire drop and was pushing above even for the day, with the likely story for the day a severe amount of volatility
With talk of the entire nation of Iceland sliding into bankruptcy, CitiGroup threatening to file a multi-billion-dollar suit against Wells Fargo for upending its buyout of Wachovia, and an unprecedented coordinated “global” interest-rate cut failing to prevent a near 700-pt. selloff yesterday, the Dow Jones Industrial Average has again dropped nearly 700 points in just 7 minutes of trading. At 7,900 points, the rate of decline is edging ever-closer to the 10% “circuit-breaker” threshold that would halt trading.
Last week Brazil was forced to stop trading twice on its biggest stock exchange. Iceland has suspended trading on all companies on its small exchange. There is concern that stock prices are driving this crisis, exaggerating underlying financial perils and pushing otherwise viable firms into sudden insolvency. Government intervention has not been able to “stop the bleeding” so far, and some worry that in the coming days, the Dow Jones may sink to just 50% of its peak one year ago.
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Analysts estimate that $8 trillion has “evaporated” due to falling stock values, over the last 12 months. Consequently, 401k and other retirement accounts may suffer massive losses, when individuals across the US receive their quarterly statements in mid-October. Speculation that such an “envelope event” would help decide the presidential election is informed by the confusion about major actions taken so far to stave off disaster.
Sen. McCain’s proposal to buy back failing mortgages failed to “change the game” in part because the authority to do just that was already passed in the previous “rescue package”, which has not been fully put in motion just yet. There is, as such, now talk of the US government buying directly into failing banks, not just giving loans with aggressive conditions for repayment but with preferred stock held by the government itself, as Prime Minister Gordon Brown has begun to do in the UK.
Japan’s principal stock exchange was down 10% today, 24% for the week. In Moscow and in Austria, exchanges were shut down. Iceland is searching for an infusion of cash to help its government save itself, after taking over the 3 major banks there which were on the verge of collapse. World leaders are now reportedly meeting not just to talk about the global crisis, but to address concerns that without deep coordination, the actions of one country could harm another country facing serious economic vulnerability.
By 11 minutes into the trading day, the Dow had recovered nearly half of its losses, to 358 points down, and just 6 minutes after that, the losses were down to 124 points, nearly erasing what appeared to be a massive selloff and a day of frozen trading. There are reports that oil firms are now shedding value as the price of crude oil plummets, following the cash available for consumer spending, the credit freeze affecting even major businesses, and overall confidence in the markets, to a bottom that no one has clearly gauged so far.
An added worry could be that those firms are already far less well-positioned than their stock prices suggested, if those prices rested solely on the inflated price of crude oil and their record profits over the last year and a half. This is because they may be positioned in such a way where their business rests on a finite commodity that will be ever less available to feed those booming profit margins and soaring stock prices. If those stock prices are in fact inflated, they may be covering up an even more serious weakness in the market, thus clouding the vision we can get of where “the bottom” is, and dragging the selloff out.
Sen. Barack Obama spoke around the time the DJIA hit break-even and said he believes the United States of America can weather the storm by not giving in to “panic and division”. Obama praised American workers and said the United States is “still a country where our destiny is decided by us and not for us”. He blamed “the policies of anything goes” for the unraveling of the financial system, and urged the Treasury Dept. to immediately work to implement the rescue package, to help restore confidence.
Pres. Bush is scheduled to speak this morning on the economy, and it is thought that uncertainty about what Mr. Bush will say, or if he will announce yet another plan to bailout the financial industry, may be driving uncertainty about what stocks to buy or sell in an environment that most market players, big or small, have never seen in their experience.
Yesterday, it was announced that insurance giant AIG will need an additional multi-billion-dollar infusion of cash in order to stay afloat, raising fears that dishonest bookkeeping and/or market forces may be masking deeper instability. As the sums of money devoted to bailing out major firms seems to keep climbing, there is speculation the president may offer to use the FDIC to insure 100% of all bank deposits in the United States, in order to instill confidence in the American banking system and even attract new funds.
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