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Wall Street's Wild Week

October 10, 2008 8:07 PM

Herman ABC News’ Charles Herman reports: One of the worst weeks in the history of the Dow ended on a slightly positive note Friday as stocks rallied in the last hour of trading to claim some minor victories.  At one point, the Dow Jones was up as much as 273 points.

But in the end, the Dow lost only (only!) lost 128 points to close at 8,451.19 (-1.49%) after a day where it dropped as low as 665 points within seven minutes of the opening bell trading below 8,000 points. 

The Nasdaq ended seven losing days to close up (up!) 4.39 points to close at 1,649.51 (-0.27%).  And the S&P 500 lost just 10.70 points to close at 899.22 (-1.18%).

Earlier this morning, it looked as if the day would take the title “Black Friday” even before the market opened.  A horrendous day of trading overseas where markets plunged dramatically led stock watchers to fear the how the week would end.

“It was a very bad week about as bad as its ever been,” said Mark Zandi, chief economist with Moody’s Economy.com.  “The sky really did fall this week”

Nearly an hour after the markets opened, President Bush addressed the nation trying to comfort Main Street.  “The federal government has a comprehensive strategy and the tools necessary to address the challenges in our economy,” he said at the White House.  “Fellow citizens: We can solve this crisis -- and we will.”

But Wall Street took little comfort in his words.  The Dow was down 78.70 points as the President began to speak and ended down 185.66 points when he finished.

Later in the day, the White House denied the President was trying to impact stock markets.

“We're not going to be able to snap our fingers and get our way out of this problem,” said White House spokesperson Dana Perino.  “The remarks this morning were never billed as a panacea to make the markets go up. We don't try to affect daily market movements. What we're trying to do is stop the bleeding, strengthen the markets, return it to -- return people's confidence.”

It’s the lack of confidence that has been the source of pessimism and fear that has resulted in the Dow losing 1,874.19 points this week, more than 18%.

“You’re seeing social psychology play out on a grand stage here,” said Stephen Leeb, chairman of the investment committee at Leeb Capital Management. “Basically, its fear feeding on fear feeding on fear.  The intensity and unrelenting selling is unlike anything we have seen.”

Despite globally coordinated interest rate cuts, massive injections of money, promises of billions of dollars to buy toxic mortgage assets, increases in insured bank deposits and practically a blank check for the nation’s businesses to obtain necessary short term loans, it still was not enough to get credit markets moving this week.

On Monday, the Dow closed at 9,955.50, losing 369.88 points (-3.58%) despite the approval of the $700 Billion TARP the previous Friday and the early morning announcement that the Federal Reserve will pay interest payments on bank reserves and announces it will inject more money into the financial system

Tuesday was even worse as the Dow lost 508.39 points or 5.11% to close at 9447.11 even though the Federal Reserve said it would get into the business of providing short-term loans necessary for businesses for things like paying employees or buying supplies. 

Also on that day, the FDIC officially announced that as of last Friday, insurance on bank deposits would rise to $250,000 from $100,000 for each depositor. 

And at the lunchtime hour, Federal Reserve Chairman Ben Bernanke spoke to a group of business economists and told them that the “outlook for economic growth has worsened.” 

But in the end, the sell-off kicked off around 2:25pm.

Wednesday the Dow closed down at 9,258.10, down 189.01 (-2.00%), even though the Federal Reserve, in conjunction with five central banks around the world, cut the key federal funds interest rate by a half a percent to 1.5%. 

Later that day, Secretary Paulson spoke about the current conditions calling for patience.  “The turmoil will not end quickly and significant challenges remain ahead.”   

And again, the sell-off kicked off at 3:30 just as Paulson finished.

On Thursday - the index lost 678.91 to close at 8,579.19 (-7.33%).  And with no major announcement, despite rumors that the Treasury Department was considering providing money directly to banks in order to get them lending money, the big sell off started in earnest at 2:59pm.

"People lost faith in every aspect of the financial system from the stock market to municipal bonds to their own deposit account,” said Zandi.  “So that loss of faith is something never seen.

That lack of faith was clearest this week as financial institutions can only watch as their stocks get hammered.  Continued worries about the future of the nation’s second largest investment bank Morgan Stanley led to its stock to drop 22% to close at 9.68.

But the severe drop in the markets led investors to run for the door, throw the baby out with the bathwater, sell first and asked questions later, throw in the towel, chose your expression. 

In other words, solid businesses had to cope with falling stocks as well.  Kellogg’s stock closed at 48.49, down more than 13% from its close on Monday.  Procter and Gamble closed at 59.56, down more than 13 percent from Monday’s close.

“I haven’t seen anything like it in my life and I’ve seen an awful lot in my life,” said Hugh Johnson, investment strategist with Johnson Illington Advisors. “I saw the bear markets of 1974 the devastation of 1982 the crash of 1987. I’ve really never seen anything like what we’ve seen this week.”

But Friday’s better-than-expected close could give hope to optimists and those searching for the bottom.

“The most horrific decline in certainly anyone’s memory and possibly in history could turn very quickly into being a very dramatic increase in stock price,” Leeb said. “This is not the time to give up.”

That possible rebound in stock prices could only come too soon after millions of Americans saw their savings wiped away in only a few days. 

“It's like 10 yrs of saving is now completely gone, vanished.  Poof!”  Mark Zandi said. 

And the damage that has done to companies such as General Motors (up 2.73% from a disastrous drop on Thursday) will reverberate throughout the nation’s economy on Main Street where we live, no matter how much the markets regain from their tremendous losses.

“The economic pain is going to be quite significant,” said Zandi. “Certainly, over the next 6 months, we're going to see hundreds of thousands lose their jobs as businesses pare back their payrolls and there will be a significant increase in the number of business bankruptcies.”

“We'll see people struggling to stay in their homes, make their bills and its going to be a really tough time for most of us for many of us into next year. 

But several veteran market watchers had hope after today’s close.  “I think the common thing about Bear markets is that it ends,” said Johnson.  “All have to recover.”

And with billions of dollars soon to flood the financial system and restart the frozen credit markets, the end could be in sight. 

As Johnson put it, “Hang on.”

October 10, 2008 | Permalink | User Comments (24)

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CRASH BABY CRASH.......
CRASH BABY CRASH.......
CRASH BABY CRASH.......
CRASH BABY CRASH.......

WALL STREET FAT CATS......
I HAVE NO SYMPATHY FOR YOU.....

CRASH BABY CRASH........

Posted by: Nicholas | Oct 10, 2008 9:12:52 PM

I personally feel like all they care is about MONEY! They are a couple of rich dumb asses that I dont really like!

Posted by: Harry Dansalson | Oct 10, 2008 9:17:22 PM

ok... we the taxpayer want our money back... thank you...

Posted by: bhuddaflii | Oct 10, 2008 9:31:32 PM

Every time Bush speaks the stock plummet,
will someone put a sock in his mouth!

Posted by: spacerook1 | Oct 10, 2008 11:12:32 PM

The real underlying fear is that B. Hussein Obama will be elected presi-
dent. Taxpayers are scared to death, freeloaders are elated. Affirmative action seekers are elated. Christians are scared. Muslims are elated. Terrorists are elated. Patriots are scared and ashamed. Socialists are elated. Conservatives are scared. How will we get our life savings back. How will we get our country back? What will happen to the land of the free and the home of the brave in the USSA, the Ununited Socialist States of America.

Posted by: Chuck | Oct 10, 2008 11:34:00 PM

And if you haven't heard, Bush wants to privatize Social Security and allow people to take money out and invest it in the Stock Market. Now I see why.. so idiot Americans who haven't learned that this swine of a President is actually horrible can pay MORE money to the big greedy man who runs the corporation.

I swear, every time we should have turned left, this idiot president has turned right. I cannot fathom why people elected a man with a high school IQ at dunce level to lead this country. I feel I'm like back in the 1950's when people blindly believed their government without questioning them. AS AN AMERICAN CITIZEN, FORGET WHAT THEY SAY YOU CANNOT DO. THEY JUST DON"T WANT YOU TO DO IT SO THEY TELL YOU YOU CAN"T. HOWEVER, IT IS YOUR DUTY TO QUESTION THEM AND TO EXPECT, DIRECT RESPONSES TO THEIR QUESTIONS. And why is it that when you do ask a question and you don't get a direct response you ask again... and again... until you are denied your rights by being tazed on national TV? Where have we let our leaders take us? And why do we blindly follow them.?

Why can't you understand that when the unintelligent person we call president says, "we are not in a depression", HE IS LYING. You want proof? If we are not in a depression, why is he sending a bill that equals or exceeds the bailout from the Great Depression? And you honestly believed the "economic stimulus" checks you received would do any good. THEY MADE THINGS WORSE! All that was was Bushes way of paying more money to the greedy big man and giving you a small token reward for falling for it. Yes, I didn't get one.

Now will someone please try to understand that the price of oil is directly associated with the strength of the dollar. They cost of oil going up - as well as everything else, was directly contributed to the de-valueing of the dollar. This was Bushy's way of keeping productivity in factories going. Make American products cheaper and while American's aren't buy them, people overseas will be. Unfortunately doing this by pumping more un-supported greenbacks into the economy causes inflation. There are a wealth of countries out there who stockpile dollars so they can buy commodities like Oil because, thanks to another stupid Republican president named Nixon, he took the dollar off the gold standard and maintained it's strangth by forcing OPEC to sell their oil using the dollar - thereby forcing countries to stockpile them accordingly. Cheapening the dollar to keep increase overseas demand has caused other country's investment to plummet. Well, there is only so far you can go stretching a rubberband before it SNAPS back... or breaks.

As Sarah Palin about that... She can NEVER answer a question. Furthermore, she's not very good at redirecting the inquirer away from what the question really was.

Part of me wishes the stock market would crash - default - destroy itself. Perhaps it would rid Wall St. of all the greed it has seen over the last 8 years. Perhaps it could be the phoenix of the new century - where a new and better financial system could rise from the ashes of the old one. After all, why thor $700 billion at a system that is obviously broken and they won't use the money to fix it. They'll just plan more $400,000 vacations with it like AIG did. Facing a massive insurance default, they got bailed out ... so they took a portion of their bailout money and WENT ON A $400,000 VACATION ! I call that ARROGANT PRESUMPTION. Now, I understand, as executives, THEY NEED TO DEFAULT because they have not learned their lession(s).

Posted by: MM | Oct 10, 2008 11:50:36 PM

One thing I forgot to mention. Has anyone every noticed that every time we have a recession, it's under a Republican Administration? The Reagan Republican President hasn't learned that Reaganomics doesn't work. It never theoretically "tickles down" because the higher you are, the greedier you are.

We had a recession under Nixon. We had another one under Reagan. We had another one under Daddy Bush that took Clinton's mastery to get us out. I still contend that Clinton couldn't keep it "in his pants" but he surely knew how to manage. Now we have the idiot Bush...who says he can re-write his legacy in 1 year - yet he can't balance a federal budget in the same amount of time... who I hope has sealed his brother's political aspirations fate. You never know... people are so blindly stupid they may just be fooled a 3rd time and vote for another Bush.

Posted by: MM | Oct 11, 2008 12:05:49 AM

WILL you make the same mistake?For those too young to know or remember. Change for the sake of change is seldom for the better. 1975-76 the U.S. was in turmoil, and people were demanding change. An obscure young man with good credentials(exceptional credentials compared to the aspirants today). 1977, President Carter inherited an economy that was slowly emerging from a recession. After four years of the Carter presidency, both inflation and unemployment were worse than at the time of his inauguration. The annual inflation rate rose from 4.8% in 1976 to 6.8% in 1977, 9% in 1978, 11% in 1979, and hovered around 12% at the time of the 1980 election. Carter had pledged to eliminate federal deficits, the deficit 1979 $27.7 billion, 1980 was nearly $59 billion. Inflation(11-12 percent), and skyrocketing interest rates(21.5 percent). July 1980, Carter received a favorable rating of only 21% in the Gallup Poll. That was the lowest rating any president, including Richard Nixon at the time of his resignation, had received since polling began in 1936.This not to mention the devastated military preparedness and income tax rates. Do we need to re-live this in 2008-2012?

Posted by: AmerVtrn | Oct 11, 2008 12:20:53 AM

Working Citizen will lose . Banks and Wall Street are not Citizens they are Business entities. The government will borrow (at interest) the money needed from the Fed. The Fed will create the dollars out of thin air (refer to Germany 1923), devaluing the U.S. currency. Taxpayers will repay the loan. Like the economy of the Carter years, The scale and damage will be about 300 fold more severe. Those business entities which cannot survive will be bought up, as is already happening ( refer to Banks acquired.) Politicians couldn't run a business if their lives depended on it. This is a political solution that will compound the problem. I say Fasten your seat belts everyone. It's going to be a long, bumpy ride. As one of those who survived the Carter years, “you ain't seen nothing yet!" But wasting resources will not cure the problem. America and the Constitution just got sold out

Posted by: AmerVtrn | Oct 11, 2008 12:21:48 AM

Government intervention may lengthen the cycle but it can not stop the boom to bust. I originally posted this before ( about three weeks ago )the Scam Bailout, since then things have accelerated, but that only lengthens the recovery time. In about a year and a half, when the real estate market is at 50 percent, and DOW has stabilized at between 7800-8000, NASDAQ 900-950, S&P 700-750, it will be the bottom. Then it will be safe to go back. Until then it is a Day trader's market. Gambler's paradise. The bailout is just a waste of resources. In fact it will compound the problem. Much like the physicians of old who would bleed the patient, to give the appearance of action. The Scam Bailout is an action to give the appearance of care and concern, but will in truth deplete needed resources for healing and extend the time required for recovery. We are looking at a very rough 3 to 6 years, according to who is president and how much more Socialistic debt is added.

Posted by: AmerVtrn | Oct 11, 2008 12:22:48 AM

I'm so sick of listening to the amount of foreclosures, when the majority of the people never should have been able to get a loan, I'm more concerned about the 50 and 60 year olds that have worked hard and in return for that, were forced by their company's into 401K's instead of pensions, people who have lived by their means and even helped the kids over rough times and now their life savings are gone and the kids can't pay them back, so who's going to take care of us, I think the Ceo's and Company presidents who riped us off and still make or made millions while knowing what they were doing to their investors should be made to pay and let them feel what its like, remember the movie Trading Places, with Dan Akroyd and Eddie Murphy, thats where these thiefs and life destoyers need to be, in our SHOE'S

Posted by: Andre | Oct 11, 2008 1:37:09 AM

I moved away from France to get away from Socialism. You Americans are letting your leaders tear everything apart and no one is doing anything about it.

And I don't think it is Bush behind all of this. He is to much of a patsy.. The execs have been pushing Paulson and Bernake to do everything they wish. Remember Paulson worked at Goldman and now he's hired his previous counterpart to head the TARP commission.

Posted by: Austin | Oct 11, 2008 2:02:32 AM

Totally ignore inflation folks....with the way they're using bandaids to hold it together, we should see inflation beyond anything we've ever seen. Where do you think they're getting this money from? Thin air! Hyperinflation....coming to a country soon!

Posted by: kennedy | Oct 11, 2008 8:51:27 AM

Remember my good friends, President Bill Clinton signed the bill allowing this pyramid scheme into action since 1999!!

The derivatives that will soon come into play are over 143 trillion dollars!! Who is going to pay for that?

Posted by: DBS | Oct 11, 2008 9:48:14 AM

folks opportunity is banging on the door with both fists. BUY BUY. Prices haven't been this low in years

Posted by: jon | Oct 11, 2008 9:49:31 AM

We have been sold out to the Arabs who now hold us hostage to the market as well as the oil. They have planned to undermine our economy for a long time and once we are broken they take over. Ever since we put "In God we trust" out of the government and schools, we were being groomed for Satin's invasion so God has removed his restraining hand and we will reap what we sow!

Posted by: Sharon Wilson | Oct 11, 2008 10:12:21 AM

They turned OFF the national debt clock when Clinton (Democrat) was in office because the budget was BALANCED. There was a SURPLUS to boot. AND he left office with a 65% approval rating, the HIGHEST since WWII. How's that for a Democrat? In comparison we have G.W. Bush (Republican!) who's run up the national debt to such an extreme that they have to install a new clock, we ran out of digits. He's leaving office with the lowest approval rating since the depression era. Now we have a carbon copy of Bush, named McCain running for election. What do you really want the next 8 years?

Posted by: Julie | Oct 11, 2008 10:23:40 AM

Bush promised to rebuilt New Orlean after Katrina, now he promises to rebuilt this economy. Do you believe him? I don't. The economy will be rebuilt AFTER Bush is gone.

Posted by: oh | Oct 11, 2008 12:55:47 PM

We are headed for the worst week in the the stock market since 1970... Are we bottoming... or is there a waterfall ahead of us? What do you think??
I am retired and an active member of Myinvestorsplace.com who is distressed by today's economic situation. Any suggestions or help??

Posted by: Andrew Abraham | Oct 11, 2008 2:20:48 PM

When did worrying ever fix one single problem in history? When did sitting around whining about how bad things are ever make them better? Just like the bogus line "the sky really did fall" most of this crises is a result of applying fear where faith desperately needs to be. Fear spreads like cancer and destroys everything in its path, but faith makes a way where there is no way. If we have half the backbone and faith of our founding fathers, our economic crises will soon be over.

Posted by: Djmartinusen | Oct 11, 2008 2:22:03 PM

There are people that are actally happy this is happening! They are BUYING! They know our American companies will not let themselves go down the tubes. They will regroup and recoup,lay off some workers and get back on track. Then the bull market begins again.

Posted by: Anna | Oct 11, 2008 4:42:59 PM

Austin, I agree, I do think Bush has been a patsy in all of this. I don't think he's bright enough to have actually orchestrated it. I may be wrong, but it seems the market fell more this week--after the bailout--than the week that Congress did nothing. Glad to see it's worked out so well for all of them. As usual, we're screwed.

Posted by: LagunaTriMom | Oct 11, 2008 11:30:21 PM

Sounds like people are starting to panic

Posted by: chavis | Oct 12, 2008 9:53:18 PM

Our life does not consist of material things... Money is just a piece of paper valued as much as the general consensus values it. Being an "American" is not what life is all about, either. When you are dead you are no longer affliated with any worldly government. The focus of our life should be less money & politics and should really be on who created us, who we are in Him, why we are here, where we are going when we die - because we all will (die)... and we won't take any money with us - nor will we have a vote on it.

Posted by: snazz | Oct 12, 2008 11:23:04 PM

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