Bailout Fallout - End of Wall Street as We Know It?

Bailout Fallout: Stocks Tumble, Oil Soars as Dollar Dives
Posted Sep 22, 2008 04:36pm EDT by Aaron Task in Investing, Information Technology, Commodities, Banking
Related: ^DJI, ^GSPC, GLD, BAC, WB, MSFT, XLF

If Thursday afternoon and Friday represent the best-case scenario of the government's unprecedented intervention in financial markets -- stocks rallied, credit markets stabilized and a measure of confidence was restored - Monday was the worst-case scenario.

Stocks tumbled Monday - along with the dollar and Treasuries - as the impact of forced covering by shorts faded and traders worried the government's bailout plan might not resolve the credit crunch and would add greatly to the U.S. deficit.

Sentiment was further depressed by reports policymakers in Europe and Japan declined to join the U.S. government's bailout plan - or take similar action in local markets.

The Dow fell nearly 373 points, or 3.%, while the S&P lost 3.8% and the Nasdaq shed 4.2%, with selling concentrated in (you guessed it) financials like Bank of America, Wachovia, Wells Fargo and JPMorgan. Big-cap tech names Intel, Cisco and EMC were notable losers as well, more-than offsetting Microsoft's gain after the software giant upped its dividend and announced a $40 billion share buyback authorization.

The dollar suffered its worst single-day decline vs. the euro since January 2001, propelling gold back above $900 per ounce while crude futures soared 17% to nearly $121 per barrel, to their single-biggest gain ever.

"The big jump in gold and weakening in the dollar probably are indicative of fears that the trillion-dollar bailout now working its way though Congress will ultimately be monetized by the Fed" via an increase in the money supply, writes Michael Darda, chief economist at MKM Partners.

Oil was also boosted by the expiration of the October futures contract and corresponding roll into November amid speculation several big hedge funds who were short oil into expiration scrambling to buy. In addition, oil got a boost from reports of a big drop in production at PEMEX's Cantarell field.

Whatever the reason for oil's rise, its ascent is the most obvious example of how the government's actions have unleashed the law of unintended consequences.

End of Wall Street as We Know It
Posted Sep 22, 2008 03:37pm EDT by Aaron Task in Investing, Recession, Banking
Related: ^dji, ^gspc, gs, ms, leh, jpm, ms

In a move that rehapes the finance landscape, Goldman Sachs and Morgan Stanley said they will transform themselves into commercial bank holding companies -- essentially ending an era of investment banking and Wall Street as we know it.

"I'm stunned," said our guest today Liz Ann Sonders, chief investment strategist at Charles Schwab, and a 22-year Wall Street veteran.

What's it all mean?:
For one, the new holding companies will be subject to far more government scrutiny
The development also acknolwedges the old-school model of financing and investing simply became too risky

Goldman and Morgan Stanley had been the last two big independent investment banks left standing on Wall Street.:
Lehman filed for bankruptcy.
Bank of America agreed to buy Merrill Lynch for $50 billion.
JPMorgan Chase acquired Bear Stearns this spring in a sale brokered by the federal government.

If there's any silver lining in this mess, it's that American consumers may finally be turning the corner away from spenders to savers. But with the possibility of the bailout bill tagged at roughly $6,000 per American, it's a small consolation.