North American Markets see-saw

It sounds quite bad when investors are soothed when they find out that banks are not completely worthless! Obviously investors cannot decide whether they hit bottom or are still falling off a cliff.

North American markets see-saw




Steve Ladurantaye, The Globe and MailSeptember 18, 2008
Stock prices are delayed 15 minutes. Source: Globe and Mail.
North American markets oscillated wildly Thursday as investors tried to decide whether they've seen the worst of the financial crisis in the United States or other skeletons are waiting to pop out of the closet.
"In this highly volatile market you are going to see those fluctuations until we get some confidence restored," said Laura Wallace, managing director at Toronto's Coleford Investment Management.
"It would be helpful if officials were ahead of events, instead of behind them. That's one of the largest confidence shakers, you get the feeling they are not in control."
The S&P/TSX – which had surged more than 500 points in morning trade – slipped back to the break-even point early in the afternoon before surging ahead another 250 points by 1:30 p.m. ET, when it was up 2.2 per cent to 12,140.
The Dow Jones industrial index and S&P 500, which had climbed as high as 1.5 per cent in morning trade, traded flat.
Thursday morning's rally was sparked by a $180-billion US cash injection by world central banks, intended to encourage them to start lending again. The short-term measure was applauded by economists, but wasn't enough to take the focus off turmoil in the financial sector for very long.
"That new liquidity is essential because it greases the wheels and allows financial institutions to meet their needs and provide loans to corporations and individuals," said Steve Foerster, a professor at the Richard Ivey School of Business in London, Ont. "The message is to avoid panic selling – but of course, everyone wants to make sure all of the skeletons are out of the closet."
It's been a brutal month for markets around the world, with storied financial firms slowly imploding. The U.S. government has taken control of mortgage lenders Freddie Mac and Fannie Mae to protect $5 trillion in mortgages and bought an 80-percent stake in insurer American International Group Inc. in return for an $85-billion emergency loan. Lehman Brothers filed for bankruptcy protection, and Merrill Lynch was purchased by Bank of America in a snap deal.
Now, all eyes are on Morgan Stanley – which fell 25 percent in trading Wednesday and was down another 20 percent Thursday – after reports surfaced it was in talks to be taken over by U.S. regional bank Wachovia, with China Investment Corp. also interested. Savings bank Washington Mutual is also reported to be looking for a buyer.
The fact that there is buyer interest for the troubled banks should reduce the panic being felt by many investors, said David Baskin, president of Toronto's Baskin Financial Services.
"That there are bidders for these institutions is very comforting," he said. "It means these things aren't worthless, and that the U.S. government won't have to buy everything in sight."