Dow Plummets Below 10,000... By Design!

Submitted by SadInAmerica on Mon, 10/06/2008 - 12:04pm.

Stocks tumbled Monday, with the Dow Jones industrial average falling below 10,000 for the first time in nearly four years, as European governments' rush to prop up failing financial firms underscored the global reach of the credit crunch.

Credit markets remained tight, with two key measures of bank jitters hitting an all-time high. Treasurys rallied, lowering the corresponding yields as investors sought safety in government debt. Gold rallied for the same reason. Oil dipped. The dollar was mixed versus other major currencies.

The Dow Jones industrial average (INDU) lost around 400 points or 4% in the early going, and fell below 10,000 for the first time since Oct. 29, 2004. The Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) both lost more than 5%.

Stocks slumped Friday, as the Wall Street's worst week in seven years ended with President Bush signing the historic $700 billion bailout bill after weeks of contentious debate. The bill involves the Treasury buying bad debt directly from banks in order to get them to start lending to each other again. (Full story)

But the bill won't help loosen up credit markets in the near term, and with cash still scarce, investors remained on edge.

The Federal Reserve attempted to address this Monday by making an additional $300 billion available to banks in return for a broad range of damaged assets. That raises the amount available to banks to $600 billion as of Monday and the Fed could expand that to $900 billion by the end of the year. (Full story)

Underlining the global scope of the market malaise, Germany negotiated on Sunday a $69 billion deal for commercial lender Hypo Real Estate AG. Europe's second-largest economy also guaranteed all private bank accounts.

French BNP Paribas said it would buy 75% of troubled Fortis's Belgium bank after a government bailout failed to reassure investors.

Meanwhile in the United States, the battle for Wachovia (WB, Fortune 500) continued, with Wells Fargo (WFC, Fortune 500) and Citigroup (C, Fortune 500) both looking to stake their claims. (Full story)

Credit markets: Measures of bank nervousness remained at elevated levels Monday.

The difference between the 3-month Libor and the Overnight Index Swaps rallied to an all-time high of 2.94% before pulling back. The Libor-OIS spread measures how much cash is available for lending between banks and is used by banks to determine rates. The bigger the spread, the less cash is available.

Libor - the rate banks charge each other to borrow overnight - rose to 2.37%. But 3-month Libor - what banks charge each other to borrow for three months - dipped slightly to 4.29% from a nine-month high of 4.33% last January, according to Bloomberg.

The TED spread, which is the difference between 3-month Libor and what the Treasury pays for a 3-month loan, briefly hit an all-time high of 3.93%, before pulling back a bit.

The wider the spread, the more reluctant banks are to lend to each other rather than from the federal government. When markets are fairly calm, banks charge each other premiums that are not much higher than the U.S. government.

The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, fell to 0.39% from 0.49% late Friday, with investors willing to take a slim return on their money rather than risk stocks. Last month, the 3-month bill skidded to a 68-year low around 0%.

Long-term government debt prices gained and the yields slipped. The benchmark 10-year Treasury note rose 23/32, lowering the corresponding yield to 3.52% from 3.60% Friday. Treasury prices and yields move in opposite directions.

Oil and gold: Oil prices were lower, with U.S. light crude oil for November delivery $3.61 to $90.24 a barrel on the New York Mercantile Exchange. The contract briefly fell below $90 for the first time since February.

COMEX gold for December delivery rallied $44.30 to $877.50 an ounce.

Other markets: In currency trading, the dollar gained against the euro and fell versus the yen.

In global trading, European markets tumbled, while Asian markets ended lower.

The price of gas decreased for the 19th consecutive day, according to a survey of credit card swipes.

October 6, 2008 - Source CNN Money

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Submitted by SadInAmerica on Mon, 10/06/2008 - 12:04pm.