Daily Market Reports | Nov 22 2008
By Greg Peel
The Dow closed up 494 points or 6.5% while the S&P closed up 6.3% and the Nasdaq 5.2%. The Dow pushed back over 8000 to close at 8046 and the S&P closed bang on 800.
It was a choppy and directionless session up until 3pm, and one is forced to wonder these days why the NYSE doesn’t just open for an hour at 3pm and save all the trouble beforehand. The market was up and down, rallying up about 150 at its height and falling to be down 100 at its depth and crossing the flat line several times. After several days of relentless weakness however, one sensed Wall Street was in the mood for some kind of rally.
The stage was clearly set – it was Friday, and Fridays usually end with a square-up one way or the other. After several down-days a square-up to the upside was a good bet. It was also a “double witching” session in which futures and options contracts were expiring, and expiries will often cause sharp volatility as the longs and shorts battle it out around strike prices.
It was also a case of a market that was “oversold”, but just how oversold can you get? As far as any popular indicator is concerned, the market has been oversold since at least October, which was only more oversold than about July. Analogies of urinating into a breeze come to mind.
After a constant procession of depressing data, one little bit of good news was always going to be the potential catalyst. On Friday the news was that Barack Obama had chosen Tim Geithner to be his Treasury Secretary. Geithner has been with the US Treasury for twenty years and most recently has been president of the New York Fed. He has been incumbent Hank Paulson’s right-hand man throughout all of the recent bail-out process.
Geithner is a popular choice, and a 500 point rally in the Dow is testament to that. He was, nevertheless, at least second favourite with the bookies already so there was no shock. Larry Summers – former secretary under Clinton – was the other front-runner but no one was surprised when Obama went for the younger candidate. While the rally was a vote of confidence, it was more about ending the uncertainty of just who would be secretary rather than an “if anyone can save the world, Geithner can” burst of euphoria.
The announcement was also a welcome distraction from the pall otherwise hanging over Wall Street as Citigroup slides further into the mud. All through this crisis there’s been constant talk of “another big shoe has to drop” or “a whale needs to float to the surface” to signal the nadir of the weakness. It has not been a very reliable indicator however, given any of Bear Stearns, Fannie/Freddie, Washington Mutual, Lehman Bros or AIG could have fit the bill – or General Motors, or now Citigroup. Citi’s shares approached US$3 last night in another 20% fall (the late rally brought it back from 30% down) and a once 200-odd billion company is now worth just US$20 billion.
There will likely be little time for champagne at the Geithner household, as Wall Street is expecting Tim will be joining Hank, Ben and the usual suspects for yet another weekend emergency meeting. How much must Hank Paulson be looking forward to retirement? Strangely though, there is not the same sense of panic surrounding Citi as there had been as those other names were quietly imploding. The market has been weak, sure enough, but there is a sense of ennui about the whole thing and an expectation that some form of consolidation will be the result rather than a Lehman-style collapse. Goldman Sachs has been voted most likely to link up with Citi, given it remains the last of what we once called “investment banks” to secure a necessary commercial deposit base. Other names have been thrown into the mix, and there are even suggestions of a super-group consolidation between all of Citi, Goldmans, Morgan Stanley, American Express, and whoever else you wish to nominate.
Incidentally, hands up: What is now America’s biggest bank by capitalisation? Answer below.
So the rally was nice, it was overdue, and it was a lot better than more relentless selling. But it was also swift, achieved on light volume, and spurred on by short-covering. We’ve seen this movie before.
It was a great day for the gold bugs as the precious metal soared US$54.50 to US$799.20/oz. Gold has also been arguably well oversold too, but once again the bulls have been battered and bruised by that belief. Gold’s rally had nothing to do with Geithner – it had rallied from early in the session – and was probably more a case of Citi’s demise prompting renewed safe haven buying and then a big short scramble.
The US dollar was weaker, which also helped, and oil managed to rally back over US$50 by adding US$1.33 to US$50.75/bbl. We would not have been back over fifty, however, were it not for the rollover into the January delivery contract. That provided about another dollar on top of the US$1.33 on an absolute price basis.
London closed before the late rally in stocks, and a weary LME was not much interested in playing games on Friday. Base metal price movements were mixed and minimal.
The Aussie bounced back over a couple of cents to US$0.6299.
After a similar square-up to the upside on Friday in the local market, the SPI Overnight was able to jump 103 points or 3%.
America’s largest bank by capitilisation is now Wells Fargo. The largest financial sector stock (although it is not even in the S&P 500) is Warren Buffet’s Berkshire Hathaway.
