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October 11, 2008

As in the U.S. British home sale prices have plummeted
(NEW YORK, N.Y.) -- On Wall Street the Dow Jones Industrial Average Friday ended the worst week in its 112-year history with its most volatile trading day ever, as hopes for a major international bank-rescue plan were overwhelmed at day's end by another wave of what appeared to be panic selling.

U.S. financial papers reported that some investors who, under normal trading circumstances would be jumping in to the market to purchase at bargain basement prices beaten-down stocks after a 22% decline over eight trading days, said the relentless declines have left them shell-shocked and unwilling to take new risks.

The Dow average dropped 697 points shortly after the opening bell, and remained down most of the day. It surged to a 322-point advance less than half an hour before the close. Investors made a rush into bank stocks amidst reports the Group of Seven leading industrial countries were going to agree on a plan to rescue major banks, and that Morgan Stanley had been assured that it would receive funding from a Japanese bank.

Although there seemed to be hopes the worst of the deepening world wide financial crisis might finally be over, investors refused to go into the weekend exposed to stock in a major way and in the waning minutes of the day in wild up-and-down swings, stocks gave back all the late gains. The Dow industrials finished the day down 128.00 points, or 1.49%, at 8451.19, the lowest finish since April 25, 2003.

This week's 18% decline, and Friday's 1,018.77-point swing from high to low, were the biggest since the Dow was created in 1896. Total trading volume of stocks listed on the New York Stock Exchange also hit a record of 11.16 billion shares.

From American households to major investment institutions, investors' paper losses on U.S. stocks now total about $8.4 Trillion dollars since the market peak one year ago, based on the value of the Dow Jones Wilshire 5000 index which includes almost all U.S.-based companies.

The blue-chip average is down some 40% from last October's record, its biggest decline since 1974. Investors who normally would be buying stocks after such heavy declines are standing on the sidelines holding cash to avoid getting beaten up by market sell-offs. Some firms are reported to be holding anywhere from 22% to 23% of assets in cash, one of the highest levels ever.

One floor trader on New York Stock Exchange was reported in one of the financial papers today as saying he’s been doing this work since 1963 and “there has never been anything close to what we are experiencing now…maybe one day in 1987 was close, in terms of absolute riot. But this is happening every day."

The Vix, a measure of market fear based on options trading and tracked by the Chicago Board Options Exchange, rose to 69.95, the index’s highest level since it was introduced more than 15 years ago.

Lending markets remained stuck. The reluctance of banks to lend money, even to other banks, added to investor fears that more unsettling financial news might be on the horizon.

In the main investors continued the move toward the safety of short-term U.S. Treasury bills. Corporate bonds, mortgages and other less safe and secure bonds declined further in price, sending yields higher as banks, hedge funds and other investors continued to unwind debt.

Even corporate bonds, which many investors typically consider safer than stocks, have had their biggest declines ever in recent weeks. Returns in the $745 billion junk-bond market -- debt issued by companies with weak balance sheets and cash flows -- are down more than 17% in the past five weeks, according to one investment house.

The $2.5 Trillion dollar debt market for companies with high credit ratings, called the “the investment-grade market”, has fallen 11% since the start of September and 11.5% since the beginning of the year.

In the currencies markets, the Canadian and Australian dollars got hammered as investors once again turned to the U.S. dollar as a safe harbor. The Australian dollar hit a five-year low against the dollar. The Canadian dollar fell 8% over the past five days, its worst weekly drop in decades.

However a Dow Jones index of bank stocks rose 9% on Friday, apparently reflecting investor hopes for some kind of government bailout. Reports that Morgan Stanley was still on track to get a capital injection of funds from Japan helped it rally off the lows, but the stock still fell 22% on the day.

Also contributing to worldwide market jitters were heavy stock declines registered earlier in the day in Asia and Europe.

Looking to soothe investors' frayed nerves both here and abroad, President Bush said his administration has the tools it needs to restore order to turbulent financial markets and resolve the economic crisis.

President Bush said the U.S. government is acting and will continue to act to restore stability to U.S. markets adding, "The plan we are executing is aggressive. It is the right plan. It will take time to have its full impact. It is flexible enough to adapt as the situation changes and it is big enough to work." The President’s comments came during an eight-minute statement from the Rose Garden at the White House.

Meanwhile U.S. bank regulators are mulling over a host of dramatic options to complement the recently passed $700 Billion dollar rescue package, which has so far failed to restore investor confidence. The U.K. recently announced a plan to guarantee bank debt maturing up to 36 months.

President Bush called the current crisis "deeply unsettling for the American people." He said anxiety about the problem is further feeding more anxiety. "Over the past few days, we have witnessed a startling drop in the stock market, much of it driven by uncertainty and fear," Mr. Bush said.



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