Interesting Week

Saturday, September 13, 2008

We had a very interesting week on Wall Street. The Dow ended the week up 1.79% and the S&P added 0.76%. These gains do not reflect the real volatility though. The Dow was up 290 points on Monday, down 280 points on Tuesday, up 38 points on Wednesday, up 164 points on Thursday and down 12 points on Friday. These swings show the uncertainty in the market and the news-driven rallies and sell-offs.

It is very important to see the market's ability to end the week positive in spite of brutal selling hitting some key financial companies. Lehman Brothers, the fourth largest investment bank, lost 77% on the week amid fears of its impending demise with a buyout this weekend very likely. American International Group, the insurance giant, lost 46% this week as jittery investors feared further losses and possible bankruptcy. Merrill Lynch, the largest brokerage firm, lost 36% as investors worried about the possibility of its collapse as the next domino to fall after Lehman.

History is in the making these days. The government seized control of Fannie Mae and Freddie Mac last weekend calming a jittery market, for a day. But, later in the week, government officials refused to offer a bailout for Lehman Brothers preferring a private solution for its problems. Yet, it is unclear how the systemic risk Bear Sterns posed to the market is dissimilar from Lehman Brothers' risks. The government is attempting to make a statement that we are not a bailout nation and Lehman Brothers is paying the price.

With all the headlines, government intervention and collapsing share prices, it is quite worthy to note that our markets ended the week in the green. I would have thought Lehman's collapse would have taken our market through the year's lows but now it seems that a possible Bank of America takeover may rally the market instead come Monday. The market absorbed horrible news this week without falling. Maybe the double bottom in the indexes is going to hold for now. I am still on the short side but I am seeing some notable changes in the action.


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