The Day Capitalism Died?

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• Will Tuesday be the day Capitalism died? Well after the market closed yesterday the Federal Reserve announced that it was indeed offering a lifeline to American International Group, Inc. (AIG). The final deal comes to $85 billion for a 2 year loan secured by all assets of AIG. In return we are now the proud owners, 80% in actuality, of the giant insurance and financial services company. So we are told, AIG will now have the time to liquidate assets in order to pay back the loan. More on this over at our sister site, www.investorplace.com.
• The Federal Reserve unanimously voted to keep interest rates steady on Tuesday, ignoring calls from the financial sector for lower rates in the wake of the Lehman bankruptcy and troubles at AIG. Booing was heard on the floor of the NYSE when the announcement was made, but stocks rallied anyway with the Dow rising 141 points. The policy statement seems to show more concern for inflation than is warranted, but did leave the door open for future cuts. Somebody on Wall Street needs a therapy session.
• Oil prices are in free fall and are now down 8 percent for the year after falling $4.56 per barrel to $91.15. Unprecedented collapse of large financial services firms and the hurricane in Texas conspired against crude. Some suggest the move has gone too far too fast believing that a snap back rally will occur at some point. The snap back looks to be today. Prices are up $3 in morning trade. No worries as demand destruction continue to play out. I know I drive much less and I suspect you all do as well.
• Morgan Stanley, the nation's second largest brokerage said Tuesday its third quarter profit fell seven percent from a year ago but surpassed expectations. The company turned in strong performances in its prime brokerage, commodities and equities businesses. With its stock under pressure and the landscape changing on a daily basis the firm is internally analyzing the independent versus merge scenario.
• Dell Computer (DELL) said that demand is weakening in the current quarter, sending the shares to their lowest level since September, 2001. The news dragged down some technology stocks such as IBM (which later rebounded) and Sun Microsystems, but rival Hewlett Packard rose sharply after it announced a restructuring. Dell said "conservatism" in information-technology spending has deepened in the current quarter and has led to "further softening in global end-user demand."
• Stock futures are lower today despite the AIG rescue as housing starts numbers failed to impress. August starts dropped by 6.2% to a seasonally adjusted rate of 895,000. This was well below the expected number of 950,000 that was expected on Wall Street. This was the weakest performance in the housing sector since January 1991. The housing downturn is far from over and builders are bracing for an even longer contraction.
• More bad news for the auto market as Federal Mogul (FDML)announced that it was cutting 4,000 jobs from its payrolls. The Michigan auto supplier is dealing with a shrinking auto market. The cuts are an attempt to streamline its business in the face of lower volume. With no bottom in site will this 8% reduction be enough? Only time will tell.

  by The Freshman |  09/17/08  |  Stocks: AIG, DELL, FDML, HP, IBM, JAVA, MS,