World stock markets fell Tuesday as investors worried that any swine flu pandemic could derail a global economic recovery as the World Health Organization said it was now too late to contain the virus and urged countries to do what they can to mitigate the effects.
In morning trading London time, the FTSE 100 of leading British shares was down 84.75 points, or 2 percent, at 4,082.26 while Germany's DAX fell 119.11 points, or 2.5 percent, to 4,574.96. The CAC-40 in France was down 69.32 points, or 2.2 percent, at 3,033.22.
The disease, which broke out in Mexico just days ago, has spread to Europe and testing of suspected cases was underway around the world. Governments everywhere have toughened their precautions and the World Health Organization raised its alert level from three to four, which is just two steps short of it declaring a full pandemic.
Though all 150 suspected deaths and most of the 2,000 or infections have been seen in Mexico, investors around the world have decided to run for cover, abandoning riskier assets such as stocks and diving back into safe haven assets like the dollar and the yen.
"Equity markets have continued to sell off amid worries that the spread of the virus will undermine hopes of an economic recovery later this year," said Stuart Bennett, an analyst at Calyon Credit Agricole.
"Until further details are available with regard to the spread of the virus and its threat, concerns will remain at the forefront signaling that risk aversion will remain elevated," he added.
With all the uncertainty gripping the markets, Wall Street futures were pointing to a sharply lower opening. Dow futures were down 103 points, or 1.3 percent, at 7,899 while the broader Standard & Poor's 500 futures fell 13.70 points, or 1.6 percent, to 843.10.
Earlier, Asia's markets took a pummeling with Japan's Nikkei index closing down 232.57 points, or 2.7 percent, to 8,493.77 and Hong Kong's Hang Seng ended 285.31 points, or 1.9 percent, lower at 14,555.11.
For the second day running, airlines and travel-related companies felt the brunt of the selling pressure. In Europe, Air France-KLM and Deutsche Lufthansa AG fell another 3 percent while British Airways PLC slumped a further 6 percent.
And in a repeat of Monday, pharmaceutical stocks, particularly those with high-profile anti-flu vaccines -- Switzerland's Roche Holding AG and GlaxoSmithkline PLC -- benefited amid the pandemic fears.
A potential pandemic wasn't the only distraction for investors, already uneasy about the results of the U.S. government's stress tests to gauge the health of the largest 19 banks.
The reports are set for release Monday, though Bank of America Corp. and Citigroup Inc. have been told by regulators the two will likely need to raise more capital, according to a Wall Street Journal report. The report suggested that Bank of America's capital shortfall could run into billions of dollars, which, in the current environment would likely be extremely difficult to raise through the private sector.
"Banks requiring capital will either need to consider further government support or to sell non-core assets. Financial stocks are likely to underperform in this environment," said Hans Redeker, an analyst at BNP Paribas.
Germany's Deutsche Bank AG was the worst-performing stock on the DAX, down over 4 percent, while in London Barclays PLC dropped over 4 percent and HSBC Holding PLC was down more than 3 percent. In Asia, Mizuho Financial Group slipped 2.0 percent in Tokyo.
On Monday, the Dow Jones industrial average suffered its first drop in three days, falling 51.29, or 0.6 percent, to 8,025.00, while the S&P 500 closed 8.72 points, or 1 percent, to 857.51.
Elsewhere in Asia, South Korea's Kospi retreated 3 percent to 1,300.24. Shanghai's main index was down 0.2 percent, Taiwan's stock measure dropped 1.9 percent while Australia's benchmark was down 0.6 percent.
Oil prices also fell foul of the swine flu concerns as investors worried about lower demand, with the June contract on the New York Mercantile Exchange down $1.39 at $48.75 a barrel. Prices shed $1.41 overnight to settle at $50.14.
In currencies, the dollar weakened to 95.59 yen from 96.37. Meanwhile, the euro was just above $1.30, having started the week above $1.3250 before investors rushed into the relative safe haven of the dollar.
Showing posts with label stock market. Show all posts
Showing posts with label stock market. Show all posts
Tuesday, April 28, 2009
Monday, November 24, 2008
Government unveils bold plan to rescue Citigroup
The government unveiled a bold plan Sunday to rescue Citigroup, injecting a fresh $20 billion into the troubled firm as well as guaranteeing hundreds of billions of dollars in risky assets.
The action, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already crippled financial system and the U.S. economy.
The sweeping plan is geared to stemming a crisis of confidence in the company, whose stock has been hammered in the past week on worries about its financial health.
"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the three agencies said in a statement issued late Sunday night. "We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks."
The move is the latest in a string of high-profile government bailout efforts. The Fed in March provided financial backing to JPMorgan Chase's buyout of ailing Bear Stearns. Six months later, the government was forced to take over mortgage giants Fannie Mae and Freddie Mac and throw a financial lifeline — which was recently rejiggered — to insurer American International Group.
Critics worry the actions could put billions of taxpayers' dollars in jeopardy and encourage financial companies to take excessive risk on the belief that the government will bail them out of their messes.
The Citigroup rescue came after a weekend of marathon discussions led by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. Timothy Geithner, president of the Federal Reserve Bank of New York, who is being tapped by President-elect Barack Obama as his Treasury chief also participated.
Investors reacted cautiously to the plan. Most Asian stock markets retreated when they opened Monday, weighed down by worries about Citigroup. However, losses were pared after the government announcement.
Vikram S. Pandit, Citi's chief executive officer, welcomed the action. "We appreciate the tremendous effort by the government to assure market stability," he said in a statement.
The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package. The capital infusion follows an earlier one — of $25 billion — in Citigroup in which the government also received an ownership stake.
As part of the plan, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.
Under the loss-sharing arrangement, Citigroup Inc. will assume the first $29 billion in losses on the risky pool of assets. Beyond that amount, the government would absorb 90 percent of the remaining losses, and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government's portion of potential losses. The Federal Reserve would finance the remaining assets with a loan to Citigroup.
In exchange for the guarantees, the government will get $7 billion in preferred shares of Citigroup.
As a condition of the rescue, Citigroup is barred from paying quarterly dividends to shareholders of more than 1 cent a share for three years unless the company obtains consent from the three federal agencies. The bank is currently paying a dividend of 16 cents, halved from a 32-cent payout in the previous quarter. The agreement also places restrictions on executive compensation, including bonuses.
Importantly, the agreement calls on Citigroup to take steps to help distressed homeowners.
Specifically, Citigroup will modify mortgages to help people avoid foreclosure along the lines of an FDIC plan that was put into effect at IndyMac Bank, a major failed savings and loan based in Pasadena, Calif.
Under the IndyMac plan, struggling home borrowers pay interest rates of about three percent for five years. Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing.
The IndyMac plan also was used as a model for a new program by mortgage finance companies Fannie Mae and Freddie Mac and for two other failed thrifts taken over by the government on Friday. FDIC Chairman Sheila Bair has been pressing Treasury to use $24 billion from the $700 billion bailout program to put the mortgage modification program on national footing, but Paulson is opposed to that idea.
The once mighty Citigroup, which had at one time been the largest U.S. bank by assets, has seen its shares lose 60 percent of their value in the past week, reflecting a crisis of confidence among skittish investors. They are worried all the risky debt on Citigroup's balance sheet will turn into losses as the economy worsens and the markets stay turbulent — losses that could be nearly impossible to reverse.
Citigroup is such a large, interconnected player in the financial system that it is seen by Washington policymakers as too big to fail. The company has operations stretching around the globe in more than 100 countries.
Analysts consider Citigroup the most vulnerable among the major U.S. banks — especially after it failed to nab Wachovia Corp., which was bought instead by Wells Fargo & Co. That was a missed opportunity for Citi to gets its hands on much-needed U.S. deposits that would bolster its cash position.
Citigroup was especially hard hit by the meltdown in risky, subprime mortgages made to people with tarnished credit or low incomes. Foreclosures on those mortgages spiked, leaving Citi and other financial companies wracking up huge losses on the soured investments. The company has failed to turn a profit during the past four quarters and has announced plans to slash thousands of jobs.
Friday, November 21, 2008
Dow ends up nearly 500 on Geithner treasury report
Wall Street staged a surprising comeback Friday, with the major indexes jumping more than 5 percent and the Dow Jones industrials surging nearly 500 points in a late afternoon rally, ending another volatile week that saw stocks reach six-year lows.
Stocks erased about half of the losses that came in steep selling Wednesday and Thursday after investors got an unexpected jolt of confidence late Friday following an NBC News report that President-elect Barack Obama plans to name New York Federal Reserve President Timothy Geithner as Treasury secretary.
Investors have been looking for a clear message from Obama on who will lead his economic brain trust at a time when the country is facing its biggest financial crisis since the Great Depression. In addition, some on Wall Street have grown frustrated with outgoing Treasury Secretary Henry Paulson over his handling of the government's effort to rescue the banking system.
A senior Democratic official familiar with the deliberations confirmed to The Associated Press that Geithner is likely to be named as Treasury secretary. The official requested anonymity because the nomination hasn't been formally announced.
The advance in stocks also came as the FDIC said it would guarantee up to $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan. The directors of the Federal Deposit Insurance Corp. voted Friday to approve the plan, which is meant to break the crippling logjam in bank-to-bank lending.
Stocks fluctuated throughout most of trading Friday, as fresh concerns over the stability of the financial sector prevented the market from establishing any sustainable gains. But stocks moved sharply higher in the final half hour after the report on Geithner.
Despite Friday's gains, stocks are still down sharply for the week. The Dow has lost 5.31 percent, while the S&P 500 fell 8.39 percent and the Nasdaq lost 8.74 percent.
According to preliminary calculations, the Dow rose 494.13 points, or 6.54 percent, on Friday to settle at 8,046.42. The benchmark Standard & Poor's 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.
Stocks erased about half of the losses that came in steep selling Wednesday and Thursday after investors got an unexpected jolt of confidence late Friday following an NBC News report that President-elect Barack Obama plans to name New York Federal Reserve President Timothy Geithner as Treasury secretary.
Investors have been looking for a clear message from Obama on who will lead his economic brain trust at a time when the country is facing its biggest financial crisis since the Great Depression. In addition, some on Wall Street have grown frustrated with outgoing Treasury Secretary Henry Paulson over his handling of the government's effort to rescue the banking system.
A senior Democratic official familiar with the deliberations confirmed to The Associated Press that Geithner is likely to be named as Treasury secretary. The official requested anonymity because the nomination hasn't been formally announced.
The advance in stocks also came as the FDIC said it would guarantee up to $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan. The directors of the Federal Deposit Insurance Corp. voted Friday to approve the plan, which is meant to break the crippling logjam in bank-to-bank lending.
Stocks fluctuated throughout most of trading Friday, as fresh concerns over the stability of the financial sector prevented the market from establishing any sustainable gains. But stocks moved sharply higher in the final half hour after the report on Geithner.
Despite Friday's gains, stocks are still down sharply for the week. The Dow has lost 5.31 percent, while the S&P 500 fell 8.39 percent and the Nasdaq lost 8.74 percent.
According to preliminary calculations, the Dow rose 494.13 points, or 6.54 percent, on Friday to settle at 8,046.42. The benchmark Standard & Poor's 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.
Wednesday, November 12, 2008
Best Buy cuts fiscal 2009 profit outlook
Electronics retailer Best Buy Co. says it is sharply cutting its fiscal 2009 earnings outlook below analyst estimates amid what the company called the toughest retail environment it has ever seen.
Richfield, Minn.-based Best Buy expects earnings per share between $2.30 and $2.90 for the fiscal year ending in February, down from a prior estimate between $3.25 and $3.40 per share.
The retailer forecast revenue between $43.7 billion and $45.4 billion, as well as 1 percent decline in same-store sales, or sales at stores open at least 14 months.
Analysts expect earnings of $3.02 per share and sales of $46.23 billion for fiscal 2009, according to a Thomson Reuters survey.
Best Buy's same-store sales dropped 7.6 percent in October. Same-store sales are a closely watched performance indicator because they measures sales at existing locations rather than newly opened ones.
Chief Executive Brad Anderson said "seismic" changes in consumer behavior have created "the most difficult climate" ever seen by the company.
Best Buy also says the stronger dollar will weaken revenue and profit from its international segment more than previously expected.
Macy's swings to $44 million loss in 3rd quarter
Macy's Inc. swung to a loss in the third quarter as sales dropped more than 7 percent amid a sharp slowdown in consumer spending.
The department store operator -- one of the nation's biggest -- also said Wednesday it slashed its budget for 2009 capital expenditures by almost half as it navigates the deteriorating economy.
Still, the Cincinnati-based chain reiterated its profit outlook, adding it would be at the lower end of the range if current sales trends continue.
Macy's said it lost $44 million, or 10 cents per share, in the quarter, after a profit of $33 million, or 8 cents per share, a year earlier.
Excluding costs related to the consolidation of three regional divisions that totaled $16 million -- $10 million after tax or 2 cents per share -- the third-quarter loss was 8 cents per share.
The company said sales fell to $5.49 billion from $5.9 billion a year earlier. Analysts surveyed by Thomson Reuters were expecting, on average, a loss of 19 cents on $5.49 billion in sales.
"Macy's Inc. remains financially healthy,with strong cash flow, a solid balance sheet and ample borrowing capacity. We are committed to continuing to aggressively manage expenses and inventories consistent with planned sales levels," said Terry J. Lundgren, chairman, president and chief executive in a statement.
Lundgren added that even in what he describes as a "poor economic environment," he's confident in the company's strategies for gaining market share, particularly as its effort to localize stores more is yielding "promising early results." He expects that strategy to have a more profound impact in 2009.
Macy's announced a reorganization in February that dispersed more managers to local markets. As part of the plan, the company combined three regional divisions and slashed about 2,300 management jobs. Meanwhile, to differentiate itself from its rivals, Macy's is expanding its offerings in exclusive merchandise.
This past fall, it became the exclusive department store retailer for Tommy Hilfiger U.S.A. men's and women's sportswear. It also has a partnership with FAO Schwarz to open toy stores in close to 700 Macy's stores across the country; about 75 full-size FAO toy stores have opened in the department store chain this fall.
Macy's has reduced its budget for 2009 capital expenditures from approximately $1 billion to a range of $550 million to $600 million. That compares with about $950 million in 2008.
Macy's expects earnings in the range of $1.30 to $1.50 per share this year, and $1.10 to $1.30 per share in the fourth quarter. Analysts surveyed by Thomson Reuters forecast $1.37 per share for the year, and $1.24 per share in the fourth quarter.
Thursday, November 6, 2008
Pretty In Pink Sheets
Have you ever thought about buying Penny Stocks? These are stocks that trade for less than $5. If so, you need to familiarize yourself with pink sheets.
The pink sheets are an over-the-counter (OTC) market that connects broker-dealers electronically. There is no trading floor, and the quotations are also all done electronically. Since there is no central trading floor or stock exchange like the NYSE, the pink sheets-listed companies do not have the same criteria to fulfill as the companies listed on national stock exchanges. In this article we'll describe what pink sheets securities are, along with their risks and potential benefits. And, while Molly Ringwald may not have chosen to wear this shade to her prom, investors should grab onto these up-and-coming stocks before they hit it big too.
Listing Requirements
Pink sheets-listed companies have no requirement to be listed. All a company needs to do to get listed on the pink sheets is submit a form, entitled Form 211, with the OTC Compliance Unit. Usually this is done on behalf of a company by a market maker. The form must have current financial information. The more willing a company is to show its books, the easier it is for a broker-dealer to quote a price for that company. Some companies will make it easier and others will not - they are under no obligation to do so, and because of this, transparency is not comparable to financials for exchange-listed companies.
Pink sheets-listed companies are usually very small, tightly held and may also be thinly traded. The most difficult part about the pink sheets-listed companies is many of them do not even file annual or periodic reports with the Securities & Exchange Commission (SEC). This can make it very difficult - if not nearly impossible - for an average investor to get any real information regarding these companies.
OTCBB Vs. Pink Sheets
You may have seen the term "OTCBB" on a stock quote, which stands for Over-the-Counter Bulletin Board. The OTCBB is a quotation service that also lists over-the-counter securities. The pink sheets are a privately held company, while the Nasdaq owns and operates the OTCBB.
The other difference between the pink sheets and OTCBB is that there are stricter standards for OTCBB. OTCBB issuers have to register with the SEC. For the purpose of this article we will only discuss the pink sheets quotation system.
Advantages And Risks Associated With Pink Sheets
Advantages
The biggest advantage of trading pink sheets is that they are very inexpensive per share - some cost even less than $1. Because of this, even penny moves can mean a great return for an investor because of the higher volatility levels.
Another advantage is finding a once-strong company that has subsequently been beaten down. If a company was once listed on a major exchange like the NYSE, but has been delisted because it no longer meets certain requirements, an investor could buy shares of that company with the hope it could make a comeback. Usually, a company is delisted because of a major financial event that makes the company's future bleak.
Being early to a party may not be hip, but being early on a rising stock certainly is. When it comes to pink sheets-listed companies, you can invest in a small company that may not be nationally known. Investing in this company can be quite profitable if it continues to grow; it may even end up on a major exchange in the future.
Another advantage of pink sheets firms is the introduction of a new classification or tier system for differentiating stocks. These tiers make it easier to steer clear of the higher-risk companies listed on the pink sheets market.
Disadvantages
One should not forget that there are many disadvantages for investors to consider as well. First and foremost is limited information. Pink sheets-listed companies do not need to report any information to investors. This can make it difficult to know what you're buying and how the company is doing over time.
Thinly traded companies are another disadvantage. Sure, you can buy 1,000 shares of the next Microsoft, but what if you made a nice profit and want to sell? When a stock is thinly traded, the chances of getting out without driving the price down are slim. No matter what the market, if you can't find a buyer, you won't get out of your position, and this is an even more difficult situation when it comes to pink sheets-listed companies. Bid-ask spreads are very high, and high bid-ask spreads can make it difficult to initiate a position in the stock.
Investors also have to be aware that these companies are not usually covered by analysts. If you read financial papers or watch financial shows, they rarely - if ever - cover a company that is not listed on a major exchange. This requires a lot more due diligence on the part of the investor to locate information. Of course, that information may or may not be worthwhile in the end.
The Pink Sheets Tier System
The pink sheets system now has market tiers in order to list the companies by their "hazard" or risk level. The tiers allow the investor to quickly get an idea of what kind of company he or she is buying.
Trusted Tier
The first tier contains both international and U.S. companies that the pink sheets OTC market has deemed trustworthy and more investor friendly. Here are components in this tier:
International Premier QX: These companies are based overseas and are listed on an international exchange, but they still meet the financial requirements of the NYSE Worldwide Listing Standards. These companies establish an independent audit as well as providing immediate certification by the CEO of any non-compliance with corporate governance. These companies, while listed in another country on another exchange, still provide the NYSE with a written and updated notification of their corporate-governance practices.
Premiere QX: These are companies listed in the U.S. only that meet the Nasdaq's Capital Market continued listing standards. These companies may or may not report to the SEC, yet they still follow all of the guidelines listed by the Nasdaq.
Transparent Tier
This tier is lower than the Trusted tier and is made up of:
Pink Quote OTCBB: These companies are listed in both the pink sheets system and the OTCBB. The bulk of all OTC stocks will be dually listed. The OTCBB requires these companies to report to the SEC frequently.
OTCBB Only: This is obvious, as these are companies only listed on the OTCBB market.
Current Information: These are companies that are providing information with either the SEC or the OTC Disclosure and News Service. This information is no more than six months old. In order for companies to stay at this tier and not be moved down, they need to have filed a quarterly or annual report within 75 days after the last quarter has ended. The pink sheets OTC market will verify that the information has been posted.
Distressed Tier
This tier is not for the faint of heart. Companies falling in this tier will all be listed under:
Limited Information: These are companies that fit one of the following criteria:
They have information that is available to the general public but is older than six months and does not usually conform to the pink sheets OTC-market guidelines.
These companies could also have filed with the SEC but have not updated their information.
You will also see companies here if they have filed information with the OTC Disclosure and News Service. They must have, at a minimum, a balance sheet, income statement and shares outstanding within the last six months.
Companies that have gone bankrupt will also appear on this list. These newly bankrupt companies are required to file information with the OTC Disclosure and News Service promptly.
Dark/Defunct Tier
There are two types of companies that will fall into this memorably named tier:
No Information: You will see this category listed with a stop sign as a symbol. These are companies that are defunct or have not filed any information with either the SEC or the OTC Disclosure and News Service within the last six months. These companies are the ones that you need to be very cautious about.
Gray Market: The symbol for the gray market is an exclamation point. Companies in this category do not have a market maker. These companies are listed on neither the OTCBB nor the pink sheets. This category has no market transparency. Trades in this category are made by a broker-dealer and reported to their self-regulatory organization (SRO). The SRO will distribute the trade information, which is how prices can be tracked.
Toxic Tier
This tier advertises its extreme risk level by having a skull-and-crossbones symbol. There is only one category in this group:
Caveat Emptor: The title says it all: "Buyer beware." The Caveat Emptor tier is described on the pink sheets website as consisting of "stocks that are the subject of unsolicited spam, questionable promotion, regulatory suspensions, disruptive corporate actions (including reverse mergers), or other public-interest concerns." These are companies that are either scams or not actual businesses.
A Word About Brokers
If you are interested in investing in the pink sheets stocks you will need to find a broker. If you already have a brokerage account, chances are the broker will allow you to trade pink sheets stocks, although some brokerage firms only allow seasoned clients trading privileges in the pink sheets market. They will also ask you to sign an additional form that says you understand the risks associated with trading pink sheets stocks. A lot of investors like to use a different broker with better rates - some will charge a flat fee and others will charge a different fee to trade pink sheets stocks.
Conclusion
You should not forget that there are many companies listed that are not interested in giving out information, and investing in them can mean losing all of the money you invested. The biggest appeal of pink sheets companies is their low price, and they are attractive to those investors that really want to get in on the ground floor of an up-and-coming company. Understanding the risks and the potential for losing your entire investment will allow you to make better decisions regarding these most speculative stocks.
Pink sheets have come a long way, and with the help of the expanding OTC markets, more information and some standards have been set to help investors find out about the companies listed on the pink sheets. The introduction of a new tier system will only make those other legitimate companies listed in the pink sheets market better equipped to attract investors. Pay very careful attention to the tier system that the pink sheets market has set up, and consult an investment professional to help steer you in the right direction before taking the plunge on pink sheets.
The pink sheets are an over-the-counter (OTC) market that connects broker-dealers electronically. There is no trading floor, and the quotations are also all done electronically. Since there is no central trading floor or stock exchange like the NYSE, the pink sheets-listed companies do not have the same criteria to fulfill as the companies listed on national stock exchanges. In this article we'll describe what pink sheets securities are, along with their risks and potential benefits. And, while Molly Ringwald may not have chosen to wear this shade to her prom, investors should grab onto these up-and-coming stocks before they hit it big too.
Listing Requirements
Pink sheets-listed companies have no requirement to be listed. All a company needs to do to get listed on the pink sheets is submit a form, entitled Form 211, with the OTC Compliance Unit. Usually this is done on behalf of a company by a market maker. The form must have current financial information. The more willing a company is to show its books, the easier it is for a broker-dealer to quote a price for that company. Some companies will make it easier and others will not - they are under no obligation to do so, and because of this, transparency is not comparable to financials for exchange-listed companies.
Pink sheets-listed companies are usually very small, tightly held and may also be thinly traded. The most difficult part about the pink sheets-listed companies is many of them do not even file annual or periodic reports with the Securities & Exchange Commission (SEC). This can make it very difficult - if not nearly impossible - for an average investor to get any real information regarding these companies.
OTCBB Vs. Pink Sheets
You may have seen the term "OTCBB" on a stock quote, which stands for Over-the-Counter Bulletin Board. The OTCBB is a quotation service that also lists over-the-counter securities. The pink sheets are a privately held company, while the Nasdaq owns and operates the OTCBB.
The other difference between the pink sheets and OTCBB is that there are stricter standards for OTCBB. OTCBB issuers have to register with the SEC. For the purpose of this article we will only discuss the pink sheets quotation system.
Advantages And Risks Associated With Pink Sheets
Advantages
The biggest advantage of trading pink sheets is that they are very inexpensive per share - some cost even less than $1. Because of this, even penny moves can mean a great return for an investor because of the higher volatility levels.
Another advantage is finding a once-strong company that has subsequently been beaten down. If a company was once listed on a major exchange like the NYSE, but has been delisted because it no longer meets certain requirements, an investor could buy shares of that company with the hope it could make a comeback. Usually, a company is delisted because of a major financial event that makes the company's future bleak.
Being early to a party may not be hip, but being early on a rising stock certainly is. When it comes to pink sheets-listed companies, you can invest in a small company that may not be nationally known. Investing in this company can be quite profitable if it continues to grow; it may even end up on a major exchange in the future.
Another advantage of pink sheets firms is the introduction of a new classification or tier system for differentiating stocks. These tiers make it easier to steer clear of the higher-risk companies listed on the pink sheets market.
Disadvantages
One should not forget that there are many disadvantages for investors to consider as well. First and foremost is limited information. Pink sheets-listed companies do not need to report any information to investors. This can make it difficult to know what you're buying and how the company is doing over time.
Thinly traded companies are another disadvantage. Sure, you can buy 1,000 shares of the next Microsoft, but what if you made a nice profit and want to sell? When a stock is thinly traded, the chances of getting out without driving the price down are slim. No matter what the market, if you can't find a buyer, you won't get out of your position, and this is an even more difficult situation when it comes to pink sheets-listed companies. Bid-ask spreads are very high, and high bid-ask spreads can make it difficult to initiate a position in the stock.
Investors also have to be aware that these companies are not usually covered by analysts. If you read financial papers or watch financial shows, they rarely - if ever - cover a company that is not listed on a major exchange. This requires a lot more due diligence on the part of the investor to locate information. Of course, that information may or may not be worthwhile in the end.
The Pink Sheets Tier System
The pink sheets system now has market tiers in order to list the companies by their "hazard" or risk level. The tiers allow the investor to quickly get an idea of what kind of company he or she is buying.
Trusted Tier
The first tier contains both international and U.S. companies that the pink sheets OTC market has deemed trustworthy and more investor friendly. Here are components in this tier:
International Premier QX: These companies are based overseas and are listed on an international exchange, but they still meet the financial requirements of the NYSE Worldwide Listing Standards. These companies establish an independent audit as well as providing immediate certification by the CEO of any non-compliance with corporate governance. These companies, while listed in another country on another exchange, still provide the NYSE with a written and updated notification of their corporate-governance practices.
Premiere QX: These are companies listed in the U.S. only that meet the Nasdaq's Capital Market continued listing standards. These companies may or may not report to the SEC, yet they still follow all of the guidelines listed by the Nasdaq.
Transparent Tier
This tier is lower than the Trusted tier and is made up of:
Pink Quote OTCBB: These companies are listed in both the pink sheets system and the OTCBB. The bulk of all OTC stocks will be dually listed. The OTCBB requires these companies to report to the SEC frequently.
OTCBB Only: This is obvious, as these are companies only listed on the OTCBB market.
Current Information: These are companies that are providing information with either the SEC or the OTC Disclosure and News Service. This information is no more than six months old. In order for companies to stay at this tier and not be moved down, they need to have filed a quarterly or annual report within 75 days after the last quarter has ended. The pink sheets OTC market will verify that the information has been posted.
Distressed Tier
This tier is not for the faint of heart. Companies falling in this tier will all be listed under:
Limited Information: These are companies that fit one of the following criteria:
They have information that is available to the general public but is older than six months and does not usually conform to the pink sheets OTC-market guidelines.
These companies could also have filed with the SEC but have not updated their information.
You will also see companies here if they have filed information with the OTC Disclosure and News Service. They must have, at a minimum, a balance sheet, income statement and shares outstanding within the last six months.
Companies that have gone bankrupt will also appear on this list. These newly bankrupt companies are required to file information with the OTC Disclosure and News Service promptly.
Dark/Defunct Tier
There are two types of companies that will fall into this memorably named tier:
No Information: You will see this category listed with a stop sign as a symbol. These are companies that are defunct or have not filed any information with either the SEC or the OTC Disclosure and News Service within the last six months. These companies are the ones that you need to be very cautious about.
Gray Market: The symbol for the gray market is an exclamation point. Companies in this category do not have a market maker. These companies are listed on neither the OTCBB nor the pink sheets. This category has no market transparency. Trades in this category are made by a broker-dealer and reported to their self-regulatory organization (SRO). The SRO will distribute the trade information, which is how prices can be tracked.
Toxic Tier
This tier advertises its extreme risk level by having a skull-and-crossbones symbol. There is only one category in this group:
Caveat Emptor: The title says it all: "Buyer beware." The Caveat Emptor tier is described on the pink sheets website as consisting of "stocks that are the subject of unsolicited spam, questionable promotion, regulatory suspensions, disruptive corporate actions (including reverse mergers), or other public-interest concerns." These are companies that are either scams or not actual businesses.
A Word About Brokers
If you are interested in investing in the pink sheets stocks you will need to find a broker. If you already have a brokerage account, chances are the broker will allow you to trade pink sheets stocks, although some brokerage firms only allow seasoned clients trading privileges in the pink sheets market. They will also ask you to sign an additional form that says you understand the risks associated with trading pink sheets stocks. A lot of investors like to use a different broker with better rates - some will charge a flat fee and others will charge a different fee to trade pink sheets stocks.
Conclusion
You should not forget that there are many companies listed that are not interested in giving out information, and investing in them can mean losing all of the money you invested. The biggest appeal of pink sheets companies is their low price, and they are attractive to those investors that really want to get in on the ground floor of an up-and-coming company. Understanding the risks and the potential for losing your entire investment will allow you to make better decisions regarding these most speculative stocks.
Pink sheets have come a long way, and with the help of the expanding OTC markets, more information and some standards have been set to help investors find out about the companies listed on the pink sheets. The introduction of a new tier system will only make those other legitimate companies listed in the pink sheets market better equipped to attract investors. Pay very careful attention to the tier system that the pink sheets market has set up, and consult an investment professional to help steer you in the right direction before taking the plunge on pink sheets.
Tuesday, November 4, 2008
World markets rally as US goes to the polls
European markets moved higher Tuesday on expectations Wall Street will enjoy an election day rally and ahead of Thursday's interest rate decisions from the European Central Bank and the Bank of England.
The FTSE 100 index was 78.65 points, or 1.8 percent, higher at 4,521.93, while Germany's DAX was up 95.14 points, or 1.9 percent, at 5,121.98. France's CAC-40 was 76.44 points, or 2.2 percent, higher at 3,604.41.
Most Asian stock indexes were more or less flat, apart from Japan's Nikkei, which surged 537.62 points, or 6.3 percent, at 9,114.60 as the market played catch-up after being closed Monday, when most of Asia firmed.
Wall Street is expected to enjoy an election day rally, with Dow futures up 183, or 2.0 percent, at 9,515, with investors relieved that the political uncertainty will soon be over.
"In the U.S., there's only one show in town at the moment but Europe has been reasonably strong after some half-decent numbers," said Richard Hunter, a strategist at Hargreaves Lansdown.
"Whilst the wider economic picture remains awkward, there have been a few positives the markets are clinging onto," he added.
He noted Marks & Spencer PLC, Britain's largest clothing retailer, which saw its share price rise 7 percent as third-quarter net profit came in ahead of expectations despite falling 43 percent from a year ago.
Hunter also said interbank lending rates in Europe continue to decline ahead of expected interest rate reductions Thursday from the European Central Bank and the Bank of England.
Both banks are expected to follow the U.S. Federal Reserve's lead and cut interest rates by at least half a percentage point, though there's growing talk that the Bank of England may reduce interest rates by as much as a full percentage point for the first time since four cuts of that size in 1992-3 when Britain's economy was last mired in recession.
Ahead of the rate decisions, the markets will be digesting the outcome of the U.S. presidential election. Opinion polls on the eve of the vote showed that Democratic candidate Senator Barack Obama was leading Republican rival Senator John McCain, and that the Democrats could be on course to take a firmer grip on Congress.
The Dow Jones index of leading shares, which closed Monday 5 points lower at 9,319.83, traditionally does well between the day of the U.S. election and the end of the year, though the boost ends up short-lived.
"The bad news is that the honeymoon has tended to end rather quickly," said John Higgins, an analyst at Capital Economics.
Earlier, Australia's financial issues improved after the Reserve Bank of Australia slashed rates for the third time in as many months, reducing its cash rate by a larger than anticipated 0.75 percentage points to 5.25 percent. That helped the S&P/ASX 200 index pare earlier losses to close largely flat.
Hong Kong's Hang Seng Index added 0.3 percent to 14,384.34 after fluctuating through the day, with bank shares up as lending conditions eased further.
South Korea's Kospi rose 2.2 percent, while benchmarks in Singapore and Shanghai fell.
In mainland China, the market dropped for a third day, led by mining and metals stocks. The benchmark Shanghai Composite Index slipped 0.8 percent to 1,706.7. Losers included China Shenhua Energy Ltd., the country's biggest coal producer, and Kailuan Clean Coal Ltd.
Oil prices rose, with light, sweet crude for December delivery declining $0.48 to $64.39 a barrel in European trade on the New York Mercantile Exchange.
In currencies, the dollar rose 0.5 percent to 99.62 yen, but the euro was 1.0 percent higher at $1.2764.
Sunday, November 2, 2008
Stocks likely to recover no matter who's president
When it comes to the stock market -- especially this turbulent market -- does it really matter who is elected president?
Yes and no. Politicians do influence the economy -- and they'll play a big role in how the country emerges from this current crisis. But analysts say neither presidential candidate can be a cure for what's ailing Wall Street.
"The economy is a big, big machine, and the president is one government bureaucrat," said Ron Florance, Wells Fargo Private Bank Director of Asset Allocation.
Moreover, most analysts believe the battered stock market has nowhere to go but up next year, no matter who ends up in the White House -- and history will probably give the victor credit even if he actually had little to do with the rally.
"The timing couldn't be better," Florance said.
Still, the stock market is just one part of the economy, and under either Barack Obama or John McCain, the United States needs to recover from a downturn whose severity has not yet been determined. And either candidate will face a budget deficit of around $500 billion when he's sworn into office -- a shortfall expected to climb to $1 trillion next year.
Because of the deficit, the financial climate might end up affecting the new president's policies more than his policies will affect the financial climate.
"This whole financial crisis will largely serve as an agenda buster for at least the first year," said John Lynch, chief market analyst at Evergreen Investments.
That's not to say, of course, there aren't differences in the impact McCain or Obama would have on U.S. businesses, and in turn, their stocks. Robert Froehlich, an investment strategist at Deutsche Bank, said it's likely that under Obama, the alternative energy sector would do well, and possibly the paper and steel industries if he enforces trade treaties. And under McCain, Froehlich said, it's likely that big energy companies would do better because he does not support a windfall profits tax, and that financial companies could benefit because of his stance on dividend taxes, long-term capital gains taxes, and estate taxes.
"Don't expect the next president to say, 'I'm strapped with this economic crisis, I'm going to throw all my plans away,'" Froehlich said.
There are historical trends one can draw between presidents and how the stock market performs. The question is how seriously to take them.
The Dow Jones industrial average and the broader Standard & Poor's 500 index have posted larger returns during the terms of Democratic presidents. But this statistic doesn't prove that Democratic policies boost the stock market -- the major indexes have also done better under a Republican Congress than a Democratic Congress.
Another pattern to take note of is the stock market's apparent four-year cycle, described by market historian Yale Hirsch in his Presidential Election Cycle Theory. The theory says the stock market does well in a presidential election year, badly in the year after the election and then improves until the next presidential election. This pattern has held up for most of the century, although it's being tested by the two terms of President George W. Bush.
However, the monetary policy of the Federal Reserve, rather than the influence of the president, can explain this pattern better, according to a 2007 study by CFA Institute Education managing director Robert Johnson, University of Wisconsin professor Scott Beyer and Northern Illinois University professor Gerald Jensen. Their study found that the Fed has tended to lower interest rates during the latter half of presidential terms -- and lower interest rates encourage borrowing and spending.
At the end of the day, using the returns under previous presidents to predict the market's performance under another president gets to be like reading tea leaves. You'd probably do just as well basing your investments on next year's Super Bowl -- Wall Street's infamous "Super Bowl Indicator" postulates that a victory by a team that was part of the original National Football League, before it merged with the American Football League in 1970, will result in better gains for the stock market. It's actually been right most of the time.
The lesson, of course, isn't to base investment choices on a football game. (Anyone who rushed to buy stocks after the New York Giants' win in 2008 probably got pretty burned). Rather, the point is that correlation isn't the same as causation.
And investors shouldn't get too caught up in the market's short-term reaction after the election results. The Dow surged, for example, after President Hoover was elected in 1928 -- and the next year the it crashed, ushering in the Great Depression.
Monday, October 27, 2008
World markets keep sliding on global recession fears
"We're seeing a lot of panic selling," said Peter Lai, investment manager at DBS Vickers in Hong Kong. "People are just liquidating ... Nobody can predict where the bottom is."
Tokyo's Nikkei 225 index, after trading higher in the morning, closed down 6.4 percent to 7,162.90 -- the lowest since October 1982. Hong Kong's Hang Seng Index tumbled 12.7 percent to 11,015.84, its lowest close in more than four years.
European markets followed Asia lower, with benchmarks in Britain, Germany and France trading down more than 4 percent or more in early trading.
On Wall Street Friday, the Dow Jones industrial average fell 312.30, or 3.59 percent, to 8,378.95. Early Monday, stock index futures were down, signaled a lower open. Dow futures were down 268 points, or 3.2 percent, at 7,994. S&P futures were down about 4 percent.
The sharp declines Monday came amid another round of government measures to boost markets. In South Korea, the central bank slashed its key interest rate Monday by three-quarters of a percentage point -- its biggest cut ever -- to prevent Asia's fourth-largest economy from lurching into recession.
Australian and Hong Kong central bankers injected funds into their markets to ensure liquidity. Japan's prime minister urged officials to draw up measures to calm volatile stock markets and to fend off further fallout from the crisis.
In Europe, the International Monetary Fund said Sunday it had reached a tentative agreement to provide Ukraine with $16.5 billion in loans and announced that emergency assistance for Hungary had cleared a key hurdle.
Only South Korea's market managed to eke out gains, perhaps in part because of the big rate cut there. The benchmark Kospi ended 0.8 percent higher at 946.45.
In mainland China, the benchmark index slumped to its lowest level in more than two years as investors reacted to dismal earnings reports. The Shanghai Composite Index lost 6.3 percent, or 116.27 points, to 1,723.35. It is now down about 72 percent from its peak about a year ago.
"The panic spread much faster than we expected. It's as if everyone wants to be the fastest runner, with the best escape," said Feng Yuming, an analyst for Oriental Securities in Shanghai.
In the Philippines, the key index plummeted 12.3 percent to 1,713.83 points, triggering a circuit-breaker that automatically halted trading for 15 minutes. The biggest one-day drop since February 2007 was caused by "big fund players" withdrawing investments to get cash and meet redemptions at home, traders said.
Some analysts say the declines are overdone.
"Our fundamentals were ignored; we followed the U.S.," said Emmanuel Soller, broker at EquitiWorld Securities Inc. in Manila. "But I believe there was an overreaction by investors."
Tuesday's U.S. Federal Reserve meeting was more cause for caution. The central bank is expected to lower interest rates by at least a half-point to 1 percent, though the rate reduction is already priced into the market and unlikely to calm its restlessness.
In Japan, stocks fell despite a report that the government was considering massive capital injection into struggling banks in a bid to calm jittery financial markets.
"The reported plan by the government hardly cheered investors. What the market really wants is a package of stimulus measures to boost the Japanese economy," said Kazuki Miyazawa, market analyst at Daiwa Securities SMBC Co. Ltd.
Citing unidentified sources, the Yomiuri newspaper said Monday the government is considering injecting public money worth 10 trillion yen ($108 billion) into struggling banks in a bid to stabilize the financial market hit by sagging stocks and a soaring yen.
Investors in Japan dumped exporters like Toyota Motor Corp. and Sony Corp. as the yen remained strong after hitting a 13-year high of 90.89 yen on Friday as investors unwound so-called yen carry trades. The dollar stood at 92.27 yen compared with 94.24 yen late Friday in New York.
Financial ministers and central bank presidents of the Group of Seven major industrial countries issued a joint statement expressing concern about the recent volatility of the yen.
"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," the G-7 finance officials said in a statement released in Washington, Tokyo and other G-7 capitals.
In oil, crude prices weakened after OPEC's move to cut production in an attempt to halt the declines. Light, sweet crude for December delivery was down $2.80 to $61.36 a barrel in Asian trade. The contract settled at $64.15 a barrel on the New York Mercantile Exchange on Friday.
Oil prices have plunged more than 57 percent from a record $147.27 in mid-July.
Tokyo's Nikkei 225 index, after trading higher in the morning, closed down 6.4 percent to 7,162.90 -- the lowest since October 1982. Hong Kong's Hang Seng Index tumbled 12.7 percent to 11,015.84, its lowest close in more than four years.
European markets followed Asia lower, with benchmarks in Britain, Germany and France trading down more than 4 percent or more in early trading.
On Wall Street Friday, the Dow Jones industrial average fell 312.30, or 3.59 percent, to 8,378.95. Early Monday, stock index futures were down, signaled a lower open. Dow futures were down 268 points, or 3.2 percent, at 7,994. S&P futures were down about 4 percent.
The sharp declines Monday came amid another round of government measures to boost markets. In South Korea, the central bank slashed its key interest rate Monday by three-quarters of a percentage point -- its biggest cut ever -- to prevent Asia's fourth-largest economy from lurching into recession.
Australian and Hong Kong central bankers injected funds into their markets to ensure liquidity. Japan's prime minister urged officials to draw up measures to calm volatile stock markets and to fend off further fallout from the crisis.
In Europe, the International Monetary Fund said Sunday it had reached a tentative agreement to provide Ukraine with $16.5 billion in loans and announced that emergency assistance for Hungary had cleared a key hurdle.
Only South Korea's market managed to eke out gains, perhaps in part because of the big rate cut there. The benchmark Kospi ended 0.8 percent higher at 946.45.
In mainland China, the benchmark index slumped to its lowest level in more than two years as investors reacted to dismal earnings reports. The Shanghai Composite Index lost 6.3 percent, or 116.27 points, to 1,723.35. It is now down about 72 percent from its peak about a year ago.
"The panic spread much faster than we expected. It's as if everyone wants to be the fastest runner, with the best escape," said Feng Yuming, an analyst for Oriental Securities in Shanghai.
In the Philippines, the key index plummeted 12.3 percent to 1,713.83 points, triggering a circuit-breaker that automatically halted trading for 15 minutes. The biggest one-day drop since February 2007 was caused by "big fund players" withdrawing investments to get cash and meet redemptions at home, traders said.
Some analysts say the declines are overdone.
"Our fundamentals were ignored; we followed the U.S.," said Emmanuel Soller, broker at EquitiWorld Securities Inc. in Manila. "But I believe there was an overreaction by investors."
Tuesday's U.S. Federal Reserve meeting was more cause for caution. The central bank is expected to lower interest rates by at least a half-point to 1 percent, though the rate reduction is already priced into the market and unlikely to calm its restlessness.
In Japan, stocks fell despite a report that the government was considering massive capital injection into struggling banks in a bid to calm jittery financial markets.
"The reported plan by the government hardly cheered investors. What the market really wants is a package of stimulus measures to boost the Japanese economy," said Kazuki Miyazawa, market analyst at Daiwa Securities SMBC Co. Ltd.
Citing unidentified sources, the Yomiuri newspaper said Monday the government is considering injecting public money worth 10 trillion yen ($108 billion) into struggling banks in a bid to stabilize the financial market hit by sagging stocks and a soaring yen.
Investors in Japan dumped exporters like Toyota Motor Corp. and Sony Corp. as the yen remained strong after hitting a 13-year high of 90.89 yen on Friday as investors unwound so-called yen carry trades. The dollar stood at 92.27 yen compared with 94.24 yen late Friday in New York.
Financial ministers and central bank presidents of the Group of Seven major industrial countries issued a joint statement expressing concern about the recent volatility of the yen.
"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," the G-7 finance officials said in a statement released in Washington, Tokyo and other G-7 capitals.
In oil, crude prices weakened after OPEC's move to cut production in an attempt to halt the declines. Light, sweet crude for December delivery was down $2.80 to $61.36 a barrel in Asian trade. The contract settled at $64.15 a barrel on the New York Mercantile Exchange on Friday.
Oil prices have plunged more than 57 percent from a record $147.27 in mid-July.
Friday, October 24, 2008
Stocks dive on belief global recession is at hand
Another bad day for the stock market. At least for the time being it is. Even though the stock market only been open for 30 minutes, stocks have plunged.
Wall Street joined world stock markets in a precipitous plunge Friday, with the Dow Jones industrials dropping more than 300 points in early trading. The growing belief that the world will suffer a punishing economic recession has investors furiously dumping stocks.
The massive decline was caused by increasingly grim news from overseas. In Japan, shares of Sony sank more than 14 percent after it slashed its earnings forecast for the fiscal year. In Germany, Daimler's stock dropped 11.4 percent in morning trading after it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.
Japan's Nikkei stock average fell a staggering 9.60 percent. In Europe, Germany's benchmark DAX index was down 9 percent, France's CAC40 dropped 8.9 percent while Britain's FTSE 100 sank 8.2 percent after the government said its gross domestic product fell 0.5 percent in the third quarter, putting the country on the brink of recession.
The dour outlook convinced investors that the world economy is headed for a long and severe downturn despite a raft of government rescue efforts aimed at pulling the financial system from the brink. It also indicated that the tremors caused by the global credit crisis may have only begun to be felt in their true scope and magnitude.
"There's a lot of panic out there today," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. "People have been saying that we're in a recession. This is the realization."
Fearing more carnage in world equity markets, big hedge funds and other institutional investors have been pulling out their money en masse in a bid to reduce risk and raise cash -- a process known as deleveraging that only intensifies the selling. Meanwhile, individual investors that have seen their holdings decimated in recent weeks have been yanking money out of mutual funds, adding to the downward pressure on markets.
"I think it would be natural to make an assumption that there are some funds in trouble and that we may see some funds shut down," Fullman said.
In the first hour of trading, the Dow fell 378.33, or 4.35 percent, to 8,312.9 after falling 500 soon after the opening bell.
Broader stock indicators also fell. The S&P 500 index fell 44.33, or 4.88 percent, to 863.78, and the Nasdaq composite index fell 74.13, or 4.62 percent, to 1,529.78.
The Russell 2000 index of smaller companies fell 22.15, or 4.52 percent, to 467.77.
On the New York Stock Exchange, 115 issues advanced while 2,630 declined. Volume came to 171.5 million shares.
The market's open was quieter than many on Wall Street had predicted. Investors had been bracing for a rocky start after futures contracts for the Dow and the S&P 500 fell so low they triggered "circuit breakers," which froze selling until the market's 9:30 a.m. EDT open. That slide raised the possibility that circuit breakers intended to prevent panic selling could be triggered during regular trading -- something that hasn't happened since 1997.
The thresholds that would trigger a halt in trading are set at a decline of 10 percent, 20 percent and 30 percent in the Dow, based on where that index was at the beginning of the current quarter; that would mean declines of 1,100 points, 2,200 points and 3,300 points, respectively.
If the Dow Jones industrial average falls 1,100 points before 2 p.m., the market will shut down for an hour. If the threshold is breached between 2 p.m. and 2:30 p.m., the halt will last 30 minutes. Trading would stop again if the Dow falls by 2,200 points. If the Dow falls by 3,300 points at any time, trading would be halted for the day.
Still, the final hour of trading is a crucial period as well, with many inventors trying to square away their positions at the last minute.
Gary Townsend, president and CEO of Hill-Townsend Capital Inc., said a halt in trading was a possibility.
"It's a way of smoothing market activity and making it orderly. No one would like to see it," he said.
Elsewhere in Asia on Friday, Hong Kong's Hang Seng index fell 8.3 percent to 12,618. Markets in India, Thailand, Indonesia and the Philippines were also down sharply as investors bailed from emerging markets to cut their exposure to risky assets and meet redemption needs at home.
The intensifiying gloom over growth expectations is having the added impact of putting small economies and currencies under extreme pressure. Investors are pulling money out of countries in Eastern Europe, Latin America and Asia on fears vulnerable countries will not only be hit hard by the financial crisis but may also default on debt.
In Europe, for example, Hungary, Ukraine and Belarus are all, like Iceland, in talks with the IMF to discuss possible loans.
Meanwhile, demand for U.S. Treasurys jumped as investors sought safe places to put their money. The three-month bill, regarded as the safest asset around, yielded 0.78 percent, down from 0.94 percent late Thursday.
There were signs that credit markets continue to thaw but are doing so more slowly amid growing economic fears. The rate on three-month loans in dollars -- known as the London Interbank Offered Rate, or Libor -- fell to 3.52 percent from 3.54 percent on Thursday.
The rates have fallen steadily for 10 days as confidence in the banking industry has been helped somewhat by government rescue measures. However, the improvements were smaller Friday on widening concerns about the health of the global economy.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.58 from 3.66 percent late Thursday.
The U.S. dollar, meanwhile, plunged below 93 yen, a 13-year low, as traders reacted to dismal U.S. jobs data that spurred speculation the Federal Reserve might cut interest rates. Meanwhile, gold prices plunged as low as $681 an ounce, the lowest trading level since Jan. 11, 2007.
Light, sweet crude fell $3.66 to $64.18 on the New York Mercantile Exchange. The sell-off, another sign that investors fear a severe recession, came despite OPEC's announcement that it will cut production by 1.5 million barrels a day in a bid to shore up sagging prices.
Wall Street joined world stock markets in a precipitous plunge Friday, with the Dow Jones industrials dropping more than 300 points in early trading. The growing belief that the world will suffer a punishing economic recession has investors furiously dumping stocks.
The massive decline was caused by increasingly grim news from overseas. In Japan, shares of Sony sank more than 14 percent after it slashed its earnings forecast for the fiscal year. In Germany, Daimler's stock dropped 11.4 percent in morning trading after it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.
Japan's Nikkei stock average fell a staggering 9.60 percent. In Europe, Germany's benchmark DAX index was down 9 percent, France's CAC40 dropped 8.9 percent while Britain's FTSE 100 sank 8.2 percent after the government said its gross domestic product fell 0.5 percent in the third quarter, putting the country on the brink of recession.
The dour outlook convinced investors that the world economy is headed for a long and severe downturn despite a raft of government rescue efforts aimed at pulling the financial system from the brink. It also indicated that the tremors caused by the global credit crisis may have only begun to be felt in their true scope and magnitude.
"There's a lot of panic out there today," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York. "People have been saying that we're in a recession. This is the realization."
Fearing more carnage in world equity markets, big hedge funds and other institutional investors have been pulling out their money en masse in a bid to reduce risk and raise cash -- a process known as deleveraging that only intensifies the selling. Meanwhile, individual investors that have seen their holdings decimated in recent weeks have been yanking money out of mutual funds, adding to the downward pressure on markets.
"I think it would be natural to make an assumption that there are some funds in trouble and that we may see some funds shut down," Fullman said.
In the first hour of trading, the Dow fell 378.33, or 4.35 percent, to 8,312.9 after falling 500 soon after the opening bell.
Broader stock indicators also fell. The S&P 500 index fell 44.33, or 4.88 percent, to 863.78, and the Nasdaq composite index fell 74.13, or 4.62 percent, to 1,529.78.
The Russell 2000 index of smaller companies fell 22.15, or 4.52 percent, to 467.77.
On the New York Stock Exchange, 115 issues advanced while 2,630 declined. Volume came to 171.5 million shares.
The market's open was quieter than many on Wall Street had predicted. Investors had been bracing for a rocky start after futures contracts for the Dow and the S&P 500 fell so low they triggered "circuit breakers," which froze selling until the market's 9:30 a.m. EDT open. That slide raised the possibility that circuit breakers intended to prevent panic selling could be triggered during regular trading -- something that hasn't happened since 1997.
The thresholds that would trigger a halt in trading are set at a decline of 10 percent, 20 percent and 30 percent in the Dow, based on where that index was at the beginning of the current quarter; that would mean declines of 1,100 points, 2,200 points and 3,300 points, respectively.
If the Dow Jones industrial average falls 1,100 points before 2 p.m., the market will shut down for an hour. If the threshold is breached between 2 p.m. and 2:30 p.m., the halt will last 30 minutes. Trading would stop again if the Dow falls by 2,200 points. If the Dow falls by 3,300 points at any time, trading would be halted for the day.
Still, the final hour of trading is a crucial period as well, with many inventors trying to square away their positions at the last minute.
Gary Townsend, president and CEO of Hill-Townsend Capital Inc., said a halt in trading was a possibility.
"It's a way of smoothing market activity and making it orderly. No one would like to see it," he said.
Elsewhere in Asia on Friday, Hong Kong's Hang Seng index fell 8.3 percent to 12,618. Markets in India, Thailand, Indonesia and the Philippines were also down sharply as investors bailed from emerging markets to cut their exposure to risky assets and meet redemption needs at home.
The intensifiying gloom over growth expectations is having the added impact of putting small economies and currencies under extreme pressure. Investors are pulling money out of countries in Eastern Europe, Latin America and Asia on fears vulnerable countries will not only be hit hard by the financial crisis but may also default on debt.
In Europe, for example, Hungary, Ukraine and Belarus are all, like Iceland, in talks with the IMF to discuss possible loans.
Meanwhile, demand for U.S. Treasurys jumped as investors sought safe places to put their money. The three-month bill, regarded as the safest asset around, yielded 0.78 percent, down from 0.94 percent late Thursday.
There were signs that credit markets continue to thaw but are doing so more slowly amid growing economic fears. The rate on three-month loans in dollars -- known as the London Interbank Offered Rate, or Libor -- fell to 3.52 percent from 3.54 percent on Thursday.
The rates have fallen steadily for 10 days as confidence in the banking industry has been helped somewhat by government rescue measures. However, the improvements were smaller Friday on widening concerns about the health of the global economy.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.58 from 3.66 percent late Thursday.
The U.S. dollar, meanwhile, plunged below 93 yen, a 13-year low, as traders reacted to dismal U.S. jobs data that spurred speculation the Federal Reserve might cut interest rates. Meanwhile, gold prices plunged as low as $681 an ounce, the lowest trading level since Jan. 11, 2007.
Light, sweet crude fell $3.66 to $64.18 on the New York Mercantile Exchange. The sell-off, another sign that investors fear a severe recession, came despite OPEC's announcement that it will cut production by 1.5 million barrels a day in a bid to shore up sagging prices.
Thursday, October 23, 2008
Stocks turn higher as investors hunt for bargains
Wall Street turned higher in erratic trading Thursday as investors, while still nervous about growing signs of a weakening economy, picked up bargains from stocks that were beaten down in a two-day selloff. The Dow Jones industrial average rose 180 points and outpaced the gains of other major indexes as energy stocks bounced higher from a drop in oil.
There was little confidence behind the buying; investors were attracted to stocks that were pummeled in two days of selling that sliced nearly 750 points off the Dow. There is a growing belief on the Street that the economy is either in a recession or headed for one despite government relief efforts and gradual improvements in world credit markets.
With its move higher, Wall Street is living up to predictions that trading will remain volatile for some time to come as investors try to test whether the market has formed a bottom.
"It's people coming in that see tremendous value, but for a more sustainable advance I think we need more time," said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn.
Wall Street digested a rush of corporate news. Goldman Sachs Group Inc. is preparing to cut about 10 percent of its work force, according to a person briefed on the plan who requested anonymity because the company hadn't publicly disclosed details of the plan.
Meanwhile, drugmaker Eli Lilly and Co. said it booked a loss for the third quarter on a charge of almost $1.5 billion for an expected settlement of an investigation into the marketing of its top-selling drug, Zyprexa. Dow Chemical Co. said its quarterly profit rose 6 percent, helped by price hikes that offset a nearly 50 percent increase in raw materials and energy costs.
A snapshot of the labor market signaled that it continues to weaken. The Labor Department reported Thursday that new applications for unemployment benefits rose 15,000 last week to a seasonally adjusted 478,000. That was slightly above analysts' estimates of 470,000. Jobless claims above 400,000 are considered a sign of recession. A year ago, claims stood at 333,000, the department said. Analysts caution, however, that the weekly readings can be volatile.
Investors viewed the data as more evidence that the financial crisis is battering the economy and forcing companies to cut back. Market anxiety was already high as investors sift through a batch of corporate forecasts that has stirred intense unease about the health of the global economy.
Thomas J. Lee, U.S. equities strategist at JPMorgan Chase & Co. in New York, cautioned that the market will need to rein in its sharp swings before some investors will feel confident enough to return.
"I don't think anyone can buy and sell stocks right now with conviction," he said.
The Dow rose 182.47, or 2.14 percent, to 8,701.68 after earlier falling 125 and rising more than 277. On Wednesday, the Dow lost 514 points as investors worried that the global economy is poised to weaken. That was on top of a 231-point loss Tuesday.
Broader stock indicators also rose after showing early declines. The Standard & Poor's 500 index advanced 15.35, or 1.71 percent, to 912.13, and the Nasdaq composite index rose 4.55, or 0.28 percent, to 1,620.30.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 460.5 million shares.
Credit markets continued to show signs of slow improvement, although figures released Thursday suggested a return to more normal market conditions will take time. The rate on three-month loans in dollars -- known as the London Interbank Offered Rate, or Libor -- was unchanged at 3.54 percent. The rate fell to that level on Wednesday and is the lowest since Sept. 24.
Demand for short-term Treasury bills, regarded as the safest assets around, was little changed. The three-month Treasury bill yielded 1 percent, down from 1.01 percent late Wednesday. The levels are a notable improvement from the 0.20 percent seen last week, when investors were willing to trade the slimmest of returns for a safe place to keep their money.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.65 percent from 3.60 percent late Wednesday.
The dollar was mixed against rival currencies after jumping to multiyear highs Wednesday, while gold prices fell.
Light, sweet crude rose $1.73 to $68.48 on the New York Mercantile Exchange. The contract on Wednesday fell to a new 16-month low as big increases in U.S. crude and gasoline stocks fed beliefs that the economic downturn is eroding demand for energy.
The rise in oil gave a lift to energy companies and helped ease some worries about the economy, according to Ryan Larson, head of equity trading at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher in Chicago. While the stock market often cheers a drop in oil, recent declines have worried some investors that they portended a falloff in economic activity.
"You're seeing a connection between oil and the markets, and we're seeing a bounce," Larson said. "The market is thinking maybe the slowdown might not be as imminent as we first thought, or maybe its priced into the market."
Oil fell Wednesday to its lowest level in 16 months, hurting energy stocks. But the rebound sent them higher Thursday. Exxon Mobil Corp. rose $3.82, or 5.9 percent, to $68.39, while Chevron Corp. advanced $3.77, or 6.1 percent, to $65.51.
Goldman Sachs fell $7, or 6.1 percent, to $107.71. Eli Lilly rose $1.30, or 4.1 percent, to $33.41, while Dow Chemical rose $1.65, or 7.5 percent, to $23.76.
The Russell 2000 index of smaller companies fell 1.80, or 0.36 percent, to 500.17.
Overseas, Japan's Nikkei stock average fell 2.46 percent. Britain's FTSE 100 fell 0.25 percent, Germany's DAX index fell 1.50 percent, and France's CAC-40 lost 1.57 percent.
There was little confidence behind the buying; investors were attracted to stocks that were pummeled in two days of selling that sliced nearly 750 points off the Dow. There is a growing belief on the Street that the economy is either in a recession or headed for one despite government relief efforts and gradual improvements in world credit markets.
With its move higher, Wall Street is living up to predictions that trading will remain volatile for some time to come as investors try to test whether the market has formed a bottom.
"It's people coming in that see tremendous value, but for a more sustainable advance I think we need more time," said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn.
Wall Street digested a rush of corporate news. Goldman Sachs Group Inc. is preparing to cut about 10 percent of its work force, according to a person briefed on the plan who requested anonymity because the company hadn't publicly disclosed details of the plan.
Meanwhile, drugmaker Eli Lilly and Co. said it booked a loss for the third quarter on a charge of almost $1.5 billion for an expected settlement of an investigation into the marketing of its top-selling drug, Zyprexa. Dow Chemical Co. said its quarterly profit rose 6 percent, helped by price hikes that offset a nearly 50 percent increase in raw materials and energy costs.
A snapshot of the labor market signaled that it continues to weaken. The Labor Department reported Thursday that new applications for unemployment benefits rose 15,000 last week to a seasonally adjusted 478,000. That was slightly above analysts' estimates of 470,000. Jobless claims above 400,000 are considered a sign of recession. A year ago, claims stood at 333,000, the department said. Analysts caution, however, that the weekly readings can be volatile.
Investors viewed the data as more evidence that the financial crisis is battering the economy and forcing companies to cut back. Market anxiety was already high as investors sift through a batch of corporate forecasts that has stirred intense unease about the health of the global economy.
Thomas J. Lee, U.S. equities strategist at JPMorgan Chase & Co. in New York, cautioned that the market will need to rein in its sharp swings before some investors will feel confident enough to return.
"I don't think anyone can buy and sell stocks right now with conviction," he said.
The Dow rose 182.47, or 2.14 percent, to 8,701.68 after earlier falling 125 and rising more than 277. On Wednesday, the Dow lost 514 points as investors worried that the global economy is poised to weaken. That was on top of a 231-point loss Tuesday.
Broader stock indicators also rose after showing early declines. The Standard & Poor's 500 index advanced 15.35, or 1.71 percent, to 912.13, and the Nasdaq composite index rose 4.55, or 0.28 percent, to 1,620.30.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 460.5 million shares.
Credit markets continued to show signs of slow improvement, although figures released Thursday suggested a return to more normal market conditions will take time. The rate on three-month loans in dollars -- known as the London Interbank Offered Rate, or Libor -- was unchanged at 3.54 percent. The rate fell to that level on Wednesday and is the lowest since Sept. 24.
Demand for short-term Treasury bills, regarded as the safest assets around, was little changed. The three-month Treasury bill yielded 1 percent, down from 1.01 percent late Wednesday. The levels are a notable improvement from the 0.20 percent seen last week, when investors were willing to trade the slimmest of returns for a safe place to keep their money.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.65 percent from 3.60 percent late Wednesday.
The dollar was mixed against rival currencies after jumping to multiyear highs Wednesday, while gold prices fell.
Light, sweet crude rose $1.73 to $68.48 on the New York Mercantile Exchange. The contract on Wednesday fell to a new 16-month low as big increases in U.S. crude and gasoline stocks fed beliefs that the economic downturn is eroding demand for energy.
The rise in oil gave a lift to energy companies and helped ease some worries about the economy, according to Ryan Larson, head of equity trading at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher in Chicago. While the stock market often cheers a drop in oil, recent declines have worried some investors that they portended a falloff in economic activity.
"You're seeing a connection between oil and the markets, and we're seeing a bounce," Larson said. "The market is thinking maybe the slowdown might not be as imminent as we first thought, or maybe its priced into the market."
Oil fell Wednesday to its lowest level in 16 months, hurting energy stocks. But the rebound sent them higher Thursday. Exxon Mobil Corp. rose $3.82, or 5.9 percent, to $68.39, while Chevron Corp. advanced $3.77, or 6.1 percent, to $65.51.
Goldman Sachs fell $7, or 6.1 percent, to $107.71. Eli Lilly rose $1.30, or 4.1 percent, to $33.41, while Dow Chemical rose $1.65, or 7.5 percent, to $23.76.
The Russell 2000 index of smaller companies fell 1.80, or 0.36 percent, to 500.17.
Overseas, Japan's Nikkei stock average fell 2.46 percent. Britain's FTSE 100 fell 0.25 percent, Germany's DAX index fell 1.50 percent, and France's CAC-40 lost 1.57 percent.
Asia stocks fall on profit fears
Asian stocks fell Thursday, with South Korea's market sinking more than 7 percent, as a barrage of downbeat company forecasts deepened fears of a global recession.
"Sentiment is lousy," said Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong. "Earnings are disappointing, and we're still in the process of lowering profits all across the globe."
South Korea's market was hit hardest. The benchmark Kospi fell nearly 10 percent at one point and closed down 7.5 percent at 1,049.71. Hong Kong's Hang Seng Index fell 3.6 percent to 13,760.49 after falling more than 6 percent earlier.
Japan's Nikkei 225 stock average tumbled 7 percent at the open but recovered some to closed down 2.5 percent at 8,460.98. Traders said the turnaround in Tokyo was partly due a Wall Street Journal report that the Bush administration is considering a $40 billion plan to help limit home foreclosures.
Asia's downward lurch followed Wall Street as hundreds of companies reported third-quarter results and issued murky forecasts this week, signs that the economic slowdown was taking a toll on balance sheets despite recent improvements in the world credit markets.
Tokyo investors were cautious ahead of the release of corporate earnings next week, including Canon Inc. on Monday and Honda on Tuesday.
Japanese electronics powerhouse NEC Corp. plunged 8.5 percent after slashing its full-year earnings estimates Wednesday, blaming weaker demand for mobile phones and computer chips.
"The new numbers are below even our forecasts, which were at the bottom end of market estimates," said Takeo Miyamoto, an analyst at Deutsche Securities in Tokyo, in a report Thursday. "We predict strong disappointment in the market."
Australia's key index pulled back more than 4 percent as slumping world commodity prices sent resource companies lower. Rio Tinto fell more than 14 percent while rival BHP Billiton sank more than 9 percent.
"The markets really seem to be pricing in a slowdown in growth across the globe, and that's really hurting base metals," said Matthew Lewis, a senior dealer at CMC Markets in Sydney.
Overnight in New York, the Dow fell 514.45, or 5.69 percent, to 8,519.21, after being down as much as 698 points in the final half-hour of trading. The Standard & Poor's 500 index was the worst performer among the major indexes with a 6.1 percent drop that left it at its lowest level since April 2003.
Oil rebounded modestly after plummeting more than $5 overnight to near 16-month lows. In Asian trade, light, sweet crude for December delivery rose $1.35 to $68.10 a barrel.
South Korea's currency, meanwhile, slid further Thursday amid heavy selling of stocks by foreign investors, falling 3.3 percent against the dollar to 1,404,80. The won, one of the world's worst performing currencies, has fallen 33.6 percent this year, according to the Bank of Korea.
Japanese exporters were also battered by the surging yen against the dollar and euro. A stronger yen decreased the value of overseas profits when repatriated to Japan. The dollar was little changed at 97.79 yen from 97.70 late Wednesday in New York, while the euro was trading at 125.69 yen.
In two months, the yen has gained more than 10 percent against the dollar and more than 20 percent versus the euro. The euro is at its weakest level against the Japanese currency since January 2003.
Mazda Motor Corp. plummeted 10.9 percent, Isuzu Motors Ltd. 9.6 percent, and Honda Motor Co. fell 6.6 percent. Game console maker Nintendo Co., which releases earnings Oct. 30, closed 8.65 percent lower.
Investors flee emerging markets
Every day I look for the stock market to make a turn for the better. But instead of advancing forward, I'm forced to see the tumbling of the markets in the United States and abroad.
While I do believe it will take quite awhile before the stock market get the steam it once had, progress is being made.
Right now I have turned my attention on the markets overseas, and things are not pretty today for them. The stocks are dropping in value like I have never seen. For the last few months, the stocks have been turning downward.
I looked for China's stock market to rebound after the Olympics. But never happen, instead fell more than 10%. where do we go from here? Only time will tell.
Investor's flight from emerging markets over the past few weeks has accelerated this week, pushing the U.S. dollar to new heights, among other things as money is both repatriated from overseas and seeks relative safety in U.S. fixed income.
The dollar hit a two-year high against a basket of currencies with the dollar index up 0.2 percent to 85.6 after hitting a two-year peak above 86.
A flight from emerging market debt and stocks helped push the dollar to a two-year high against major currencies on Thursday as fears built about a global recession.
Investors were also focusing on major company earnings reports, fearful that the worst financial crisis in 80 years and the deteriorating global economy could combine to batter corporate profits.
European shares put in gains on the back of some positive results, but Asian shares fell to four-year lows and emerging markets were again under the gun.
MSCI's main emerging market stock index was down 3.3 percent on the day, hitting a nearly four-year low after major losses on Wednesday.
Emerging market sovereign debt spreads blew out to more than 800 basis points over U.S. Treasury yields, a gap not seen since late 2002.
"There is now little argument that the world economy will experience a period of sub-par growth, and a recession in several advanced economies looks increasingly likely," Goldman Sachs said in a research note.
European shares staged a mild recovery in choppy trade, helped by surprisingly strong results from some heavyweights, which helped shake off the effects of falls on Wall Street and Asia.
Nestle, the world's biggest food group, reported a forecast-beating rise in nine-month sales. Agrochemicals and seeds group Syngenta also reported a strong rise in third-quarter sales.
In the United States, technology bellwether Microsoft will release quarterly results alongside drugmakers Eli Lilly and Bristol-Myers Squibb as well as Dow Chemical and mail and logistics group United Parcel Service.
Earlier, Japan's Nikkei average hit its lowest point since May 2003 before paring losses to end down 2.5 percent. It shed 213.71 points to 8,460.98 after earlier falling as low as 8,016.61, its lowest in nearly five and a half years.
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