Wednesday, January 21, 2009

Banking Bloodbath Covers Wall Street in Red

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The bloodletting on financial stocks was almost relentless in U.S. trading yesterday. Trouble began in Europe the day before with the collapse of Royal Bank of Scotland stock, a collapse which took place despite (and some are now saying because of) a second bailout of the banking system by British authorities. The U.S. markets were closed for the Martin Luther King holiday, but when they reopened banks and brokers were cut to pieces. It was not a propitious beginning for the new Presidency.

Action in the market overall was ugly Tuesday and while financials led the way down, selling wasn't isolated to just that sector. While the Dow was down 4.0% and closed below the psychologically key support level of 8000, the technology laden Nasdaq suffered even more. The Nasdaq's 5.8% loss was a crash level drop. While the rest of the market fell apart, the gold ETF GLD gapped up sharply for the second day in the row, showing incredibly strong technical strength. As it has done throughout history, gold was shining once again in the midst of a crisis.

To say the drop in some financial stocks was a crash would actually be understating the situation. State Street was cut in half with a 50% drop. PNC was down 41%. Even though Bank of America was down 'only' 29% it hit yet another yearly low and without additional intervention (it was bailed out only a few days ago) the stock looks like it is headed toward oblivion . Citi, down 20% on the day, also managed to hit a yearly low and dropped below $3. The detailed action in the financials below:

State Street down 50 percent to 21.46.
PNC down 41 percent to 22.00.
Bank of America down 29 percent to 5.10.
Wells Fargo down 24 percent to 14.03.
Suntrust Banks down 24 percent to 15.07.
Citigroup down 20 percent to 2.80.
JPMorgan Chase down 20 percent to 18.09.
Goldman Sachs down 19 percent to 59.20.
Deutsche Bank down 19 percent to 21.00.
U.S. Bancorp down 16 percent to 15.34.
Morgan Stanley down 16 percent to 13.10.
UBS down 16 percent to 10.00.
Credit Suisse down18 percent to 19.76.
HSBC down 15 percent to 33.83.

Some recovery is taking place today in the banks and brokers because of Geithner's statements about more banking bailouts. Of course, that approach hasn't worked well so far. However, nothing succeeds like failure in recent U.S. economic policy.

NEXT: Volatility is Back

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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