Published September 30, 2008
US bailout plan fails to relieve bourse panic
Mood is dour with more news of contagion spreading
By ANDREW MARKS NEW YORK CORRESPONDENT

Email this article

Print article

Feedback
WALL Street may be breathing a sigh of relief over the US government's tentative US$700 billion plan to bail out the financial sector, but it is hard to hear that amid the chaos that continues to roil the global financial system.

Even after Congressional leaders hammered out a rough deal for the rescue plan in round-the-clock negotiations over the weekend, investors were hardly dancing in the streets on the week's first day of trading in reaction to the news.
'The bailout, assuming it happens, removes some of the uncertainty that's rattling the stock market, but at this point, investors are still asking 'what do I do?' and the prevailing sentiment is caution until things settle down everywhere,' said Charles Crane, chief investment strategist at Scotsman Capital Management, which runs nearly US$1 billion in client money.
Those 'things', however, hardly seemed close to settling down when the opening bell sounded on the NYSE yesterday, as US stocks tumbled early in the face of a slew of unsettling news that countered relief over impending approval of the bailout.
The Dow fell 291 points, or 2.61 per cent, to 10,851 within the first 10 minutes of trading in reaction after the Federal Deposit Insurance Corp announced Wachovia has been forced into a shotgun wedding with Citigroup, and fresh evidence that the credit crisis was spreading turmoil abroad.
European governments early yesterday arranged rescues of Bradford & Bingley, Fortis and Hypo Real Estate, sending stock markets in Asia and Europe spiralling into steep losses.
Investors reacted to the steep sell-off overseas with their own in New York. The bluechip index's tumble was almost minor compared to the broader S&P 500, which was down a whopping 39.25 points, or 3.25 per cent, at 1,173.76, and the Nasdaq Composite's 87-point, or 4 per cent, fall to 2,097 at 10:15 am.
'Even though valuations appear attractive in many strong companies, there are just too many unknowns swirling around right now for us to feel confident in putting our clients' money back to work at this point,' said Mr Crane, who is overweight in cash and holds not a single individual financial firm in his clients' portfolios right now.
Indeed, investors everywhere appeared close to coming unhinged with fear that the global financial system could still implode despite the efforts of the US government and central banks throughout Europe to stem the spreading tide of collapse yesterday morning.
The already sky-high CBOE Volatility Index, widely viewed as the best gauge of fear in the market, shot up to about 38 yesterday; a reading of 30 is considered extreme uncertainty. If the VIX hits 40, analysts said, it would spell panic.
'We're going to be in this 'keep your money under your mattress' mode until some sense that this wild ride is slowing down a little, and that's not going to happen until investors stop getting these shocks to the system with bank failures and emergency rescues,' said Joe Battipaglia, chief investment strategist at Ryan & Beck.