Friday, October 19, 2007

Marking Black Monday With A Bleak Friday

Today is the 20 year anniversary of the 1987 stock market crash. Wall Street didn't fare so well today either (though losses were nowhere near '87 levels):

The credit-market crisis came zooming back into investors' consciousness on the 20th anniversary of the Black Monday stock-market crash, sending shares plummeting amid uninspiring earnings reports and high oil prices.

The major indexes all ended down more than 2.5%, closing with their biggest weekly declines since the week ended July 27th. The Dow Jones Industrial Average dropped 366.94 to 13522.02. The S&P 500-stock index lost 39.45 to 1500.63, and the Nasdaq Composite Index was down 74.15 to 2725.16.

"Nobody wants to own stocks. Everybody [sold] into the weekend," said Ryan Detrick, chief technical strategist at Schaffer's Investment Research. "The overall concern for the financial markets and credit markets has taken over… People realized that these third-quarter earnings haven't been what we wanted."

Earnings from financial companies have been particularly disappointing, and there was more grim news from that segment Friday as Wachovia said its third-quarter net income dropped 10% amid a quadrupling in provisions for soured loans and $1.3 billion in losses and write-downs. Wachovia shares fell 3.6%.

Wachovia reported its results in the wake of similar announcements this week from the likes of Bank of America, Citigroup and Washington Mutual. The fact that so many financial institutions have suffered similar problems signaled that the sector may have a long way to go before it recovers from the credit squeeze. The Amex Broker/Dealer Index slumped 3.7%.

"There's a sense that the full impact of the subprime-mortgage crisis has yet to be revealed," said Alan Gayle, senior investment strategist at Trusco Capital Management.

Just 10 days ago, when the Dow and the S&P were at all-time highs and investors were still euphoric from September's rate cut, we kept hearing about how the worst of the credit crunch crisis was behind us, a recession was unlikely, and the outlook for equities was pretty good.

Two weeks later, Caterpillar reports that

Several U.S. industries it serves were in recession and machinery sales to nonresidential builders were declining as fast as sales to residential builders, which it said were in "severe recession." The company's CFO also said he sees a 50 percent chance the U.S. will fall into recession in 2008.

Also today Julian Robertson, the founder of the investment firm Tiger Management, told CNBC that he sees a "doozy of a recession" coming down the pike:

"I think we are going to have a doozy of a recession," Robertson told CNBC's Erin Burnett. "I think the credit situation is worse than anybody realizes, and...I think we're getting little inklings of that. I don't think any of the normal indicators you would look at in the economy are really very strong. As a matter of fact, they are weak, and not really getting any better."

Robertson, founder of the investment firm Tiger Management, also expressed some concerns about the devaluation of the dollar.

"I think the Federal Reserve will trash the dollar until such times that there is some turn around in the economy, or until such time that they see that as self defeating," he said.

According to Robertson, Bernanke is doing what he can to help the economy.

"I think in a sense, he is trapped in the sins of his forefathers," Robertson said. "I think he is doing exactly what he can do: ease ease, ease; cut, cut, cut; print, print, print."

Ease, ease, ease, cut, cut, cut, print, print, print...

Couple that strategy with the hundreds of billions we're spending on the wars and you get what?

Back to the past, that's what you get.


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