Stocks Crash After Democrats Send The Automakers Home Empty Handed
Democratic Congressional leaders sent Detroit's big three automakers home without a deal, but left the door open to future discussions based on Detroit's ability to craft a detailed business plan which would satisfy lawmakers.
"The executives of the auto companies have not been able to convince the Congress or the American people that this government bailout will be its last," Senate Majority Leader Harry Reid said at a news conference.
"Until they show us the plan, we cannot show them the money," House Speaker Nancy Pelosi added.
She and Reid said Congress would return to work in early December to vote on legislation if General Motors, Ford Motor and Chrysler produce an acceptable plan. "We're prepared to come back into session the week of Dec. 8 to help the auto industry," Reid said. "But only if they present a viable plan."
Stocks rose earlier in the session as rumors saying the automakers would receive a deal today surfaced but the brief rally collapsed after it became apparent that would not be the case, at least for now.
"A deal for the automakers is not likely to make a huge difference to the market because it's now all about earnings now,' said Matthew Carniol, chief currency strategist at TheLFB-forex.com.”Earnings declined 50% in the 2001 downturn so it's reasonable to believe they will fall as least that much now. The P/E ratio could go to 10 and with earnings sitting at $40-$45, there's your 400 to 450 on the S&P. That's really what we're looking at."
At the close of floor trading on the NYSE, the DOW was on 7552.29 after falling 444.99 points (-5.56%). The S&P, which is headed for its worst year on record, closed on 752.44, down 54.14 points (-6.71%) while the NASDAQ finished the day's trading on 1316.12 with a loss of 70.30 points (-5.07%). Bonds were bought heavily as stocks were sold, with yield on the 2-year note falling below 1% for the first time on record. The yield on the 2-year note fell 8.5 basis points to 0.986% while yield on the 10-year note lost 23.8 basis points to 3.085%, falling below 3.11% for the first time ever. Three month T-bills lost 3.1 basis points to yield just 0.015%. The dollar traded in risk-aversion mode, with gains of 0.22% on the euro, 1.47% on the pound and 4.37% on Australia's dollar while it fell 1.71% against the yen.
Crude oil for December delivery was recently trading $4.77 (-8.9%) lower to $48.85 per barrel.
Gold for December delivery was trading $14.00 (1.9%) higher at $749.90 per ounce.
Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com
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