Tuesday, September 16, 2008

Stock Market.....Crash????

What is Happening?

It is 8am (9/16), I am currently awake watching the financial news to attempt to gauge how turbulent the day will go. CNBC has fantastic live converage of the futures rigt now. Yesterday rocked Wall Street and, in essence, your pocket as well. I watched the Asian markets late last night and they dropped drastically. The Hong Kong market suspended trading "until further notice". The night proved to be interesting for the markets, AIG has put up 20 billion dollars in customer collateral for a loan, and they were approved, but something has happened. The Feds have basically denied AIG the bridge loan so that AIG could stay afloat. The Feds have asked Goldman Sachs to help raise the money for AIG, and this is not your grandma's bingo fundraiser, we are talking about 75 billion dollars. At close yesterday AIG was holding on, selling at roughly $4.00 a share. This morning AIG has already tumbled 42% more leaving the asking price and bid price for their stock today $2.85 and $2.86 respectively.

Yesterday(9/15), Lehman Brothers filed bankruptcy yesterday after the Feds have said that they will not use tax dollars to bail them out. This is what should have been done with other companies because we should not be bailing these companies out. This is the free market at work, however before this the government DID NOT ALLOW the free markets to work and thus things are turning sour. Do not believe what some are saying, that the free market is the cause, no folks, the government is the cause, The Federal Reserve is the primary culprit, but now they are attempting to let the free market work at the end and companies are sinking. With Lehman Bros filing bankruptcy the markets were rocked.

Yesterday the Dow Industrial Average dropped below 11,000 to 10,917. Under 11,000 is bad news for the market, those numbers have not been seen since September 11 2001. This morning the Dow futures were around 10,887 which is considerably lower than market close yesterday. The Nasdaq yesterday, which is all technology stocks, was staying afloat, and generally we want that to stay above 2,000. Yesterday it was about 190 point above 2,000 but this morning the Nasdaq futures are below 2,000. To just put that into picture, when Dow goes below 11,000 and Nasdaq goes below 2,000 a panic ensues and the market crashes. Now these are just futures and we will not know what happens until the market actually opens. Part of the Nasdaq problem is that this morning Dell has announced that the global demand is down, and thus the tech stocks are suffering as we speak.

Also yesterday Bank of America bought the failing company Merrill Lynch. This is Bank of America's second failing company that it has bought recently and I have a feeling with all that bad credit acquisition that Bank of America can not last.

Washington Mutual also suffered yesterday dropping 26%, with their stock closing at $2.00. But they have been bumped out of the news because right now AIG is worse off at this point. I want to point out that 6 months ago Washington Mutual was selling at $21.82 a share and AIG was selling at $58.30 a share.

There are many people with ideas for solutions, most notably John McCain and Barack Obama. They both want more government regulation. I will be the first to say that they are wrong. Who is to blame? The entire government, both Republicans and Democrats, the House and the Senate together along with the executive branch, and not just this administration. We already have government regulation that is not being enforced. The problem is that these companies are being underwritten by the government, a stop-loss really, and that means that the companies really are no longer accountable to the investors. If the government was not under writing these companies the investors would be able to say to the companies "provide assurance that they follow accepted management and accounting practices". This is what the free market is all about. In the free market investors would be able to do this, and with this transparency the amount of capital drawn to these companies would not have been as much, but with this false appearance that was created partly by the government, everyone thought it looked good and it draw large amounts of capital. Blame the government, but do not blame the free market.

My Predictions

Yesterday I had said that either AIG or Washington Mutual would be the next companies to go under. Today my predictions are a bit different, and remember these words. If AIG does not get the money it needs today, if Goldman Sachs can not raise the capital needed by AIG, than we can expect AIG to file bankruptcy, at the latest, by tomorrow. AIG will eventually fail, the question is how soon? I also think that by the end of the week Washington Mutual will cease to exist, or will be bought by someone else because it is absolutely failing.

I am keeping my eye on Bank of America and CitiGroup. Bank of America will fail, but probably not this month. CitiGroup's stocks are not looking that great but they do not concern me right now, just keep an eye on them.

The opening bell is about 30 minutes away. Hold on tight folks.


The following links are to Google Finance for the stock listed. You can keep up throughout the day. Yahoo Finance is also good.

Dow Jones Industrial Average
Nasdaq Composite Index
Washington Mutual

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