Weekly Recap - October 6, 2008

It’s the Economy! Duh!

I like the title of one of this week’s Barron’s articles: ‘One Problem Down, Many, Many to Go’. We all cheered when the bailout bill passed this week, but it did little to calm the markets. All it did was to allow the investors to focus back on the economy, which, I may add, stinks.
With 159,000 job cuts in September, the worst decline since March ’03, and a total 9-month job loss of 760,000, the jobless rate is now at 6.1%, a 5-yr high. The ISM manufacturing index dived 6.4 pts in September, to 43.5, the lowest in 7 years. ISM’s service-sector index signaled little sector growth. Auto sales plunged amid economic woes, tight credit and high gas prices.

The ‘financial flu’ spread to Europe, which saw several bank bailouts. EU leaders planned a summit to address the crisis. For the week, the euro dived, the pound and Swiss franc also fell, as did the Australian dollar and Brazilian real.

Recap of the week
How deep is this global recession?
After Wednesday’s bailout approval, investors turned their attention back on the economy and punished the Dow with a 348 pts punch, while the Friday morning gain of 313 pts quickly vanished into a 157 pts loss. It doesn’t seem that the investors believe that passing the TARP – the Troubled Asset Relief Program, how the bailout is called – helped, and that many other “Paulson tools” are needed to ‘fix’ the economy.

777.7
The stocks suffered their worst week since September 11, 2001. The S&P500 ended the week down 114, or 9.4%, to 1099. It has fallen 12% in two weeks, and is 30% off its peak a year ago. The Dow fell 818, or 7.3%, to 10325. The Nasdaq Composite Index tumbled 236, or 11%, to 1947. The Russell 2000 slipped 85, or 12%, to 619.

The Buffett Way
Eight days after tossing $5 billion Goldman Sachs’ way in return for a preferred issue that yields 10% a year, Mr. Buffett, or Berkshire Hathaway to be precise, put another $3 billion in a similar issue of GE. Mr. Buffett has bought into companies when their stocks were rather thoroughly beaten down (Goldman was selling at less than half its peak of $250 a share a year ago and ditto GE, some $20 below its 12-month high of 42).
Cash is king these days!