Most stocks keep sinking, but big banks get a lift

With less than 90 minutes to go in the trading session on Wall Street, it’s looking as grim as many market pros had expected.

The Dow industrials fell as much as 695 points early on, rallied back to a 90-point gain, and then quickly plunged again.

At about 11:40 a.m. PDT, the Dow was down 487 points, or 5.7%, to 8,091. The loss for the week so far: 21.6%.

"I don’t see a rally" by the closing bell, said Dan McMahon, veteran trader at Raymond James & Associates in New York. "They tried and it couldn’t hold."

But there is one bright spot today: Many bank stocks are trading up, apparently as investors figure that whatever move governments make next to try to shore up the financial system, it will involve massive direct or indirect aid to the banks.

Two proposals the Group of 7 industrialized nations are expected to consider at their meeting in Washington this weekend: Guaranteeing all bank deposits, and guaranteeing banks’ debts.

Bank of America was up 51 cents to $20.14 at about 11:40 a.m. PDT. Other bank stocks trading higher include JPMorgan Chase, up $2.24 to $38.92; Citigroup, up 38 cents to $13.31; KeyCorp, up 66 cents to $7.08; and PNC Financial Services, up $2.83 to $62.68.

Whatever the G-7 countries decide, the market doesn’t believe it will be enough to save Morgan Stanley.

The brokerage’s shares have plunged for a fifth day on fears that it will follow Bear Stearns and Lehman Bros. into collapse. Moody’s Investors Service warned today that it might cut Morgan’s credit rating, which could be the final blow.

Morgan’s shares were down $5.18, or 42% to $7.27, despite assurances from Japan’s Mitsubishi UFJ Financial Group that its planned $9-billion capital infusion for Morgan remains on track.

Traders also are hammering Goldman Sachs, which was off $17.29 to $84.06.

If Morgan were to collapse, Goldman would be the last man standing among independent investment banks.

Comments

[William]

In the near future, there is going to be a time where we all are standing here at the bottom, looking up, looking at where we have been and be in relief it is all over. Sites like these will no longer be impacting economic news http://www.buymyhousebeforethebanktakesit.com . The dust will settle and there will be great deals to be made, great opportunities to invest in and we will all move on. It will be a time for rebuilding, working together hand in hand, and lending a helping hand. Our actions will have become a part of history. You will be able to tell your grandkids you made it through the crash of 2008 and tell them your part. Your character will be determined, did you believe on not, did you hold on or not, did you panic or not, did you ride the course or not, did you contribute or take. What was your role, what did you do to help others, what did you do to help America in it’s time of need? Your decisions and actions today are what are building tomorrow. Make sure they are the right decisions.

[Gary Noel]

Recently I read that there are 2 million loans facing foreclosure. I have been doing some calculation. If each loan was $200k (someone may have a more accurate number, but lets use this for the example), that would be $400 billion. Not let's assume that the underwater value is 40%. That means that it would be $160 billion to float every one of those loans. Then let's assume that the 2 million loans is 20% of all the underwater loans out there. That means to float every bad loan in the country would cost $800 billion. I would like to see one of the self proclaimed genius posters to this blog recalculate this number with more accurate figures. However I believe that I am at least in the ballpark.

If that is the case how do you explain the fact that the Fed has already pumped $1 trillion dollars into the economy and the treasury has already spent almost $400 billion with another $700 billion coming and it hasn't even begun to alleviate the problem????? This leads me to believe that the problem really has nothing to do with the housing market and probably not with consumer loans or debt to the Chinese.

I have to believe that financial derivatives or some other financial sleights of hand are the real culprits. It seems like the Wall St types were making money by literally making money. I just don't see that there really is any intrinsic value underlying most of the 'wealth.' It looks like it is just all stacks of paper or files on a disk. But this paper or files have been used to dominate and control real resources and real lives. It has controlled our society, our culture and our lifestyles. I think I now understand why revolutions occur and elites get their heads cut off.

[Mr.Bilko]

The whole sell off coincides with the Freddie Mac and Fannie Mae credit default swap settlement auction on Oct.6th and the Lehman Bros credit default auction, today, Oct.10th. The massive sell off started last week in anticipation of Oct.6th. Entities started to sell stock to raise capital in anticipation of their Freddie Mac and Fannie Mae CDOs. There might be some more sell offs on Monday, Oct.13th if people still need capital to cover their Lehman CDS liabilities. The market should stability by Weds, Oct.15, and possibly bottom out, unless we're hit by another wave of credit default swap settlements. Investor panic (i.e. herd mentality) adds to the sell off but blame CDS', aka derivatives, for the bludgeoning the market has taken over the last 10 days.

[forexthinker.com]

Prices may decline further. Traders who use trading systems to trade the market will tell you “It’s not time yet to buy.” Why? Indicators are bearish. Until you see some consolidation at the bottom, or prices moving sideways on chart patterns, a reversal of current selling is unlikely. Unless buyers jump and start buying on heavy volume for a sustained period of time.