worst run in a 100 years

US stocks facing worst run in 100 yearsFont Size: Decrease Increase Print Page: Print September 18, 2008
US stocks plunged overnight, the Dow hit its lowest level in more than two years and Wall Street faced its biggest run since 1907.

The dive was led by insurer American International Group and the two remaining Wall Street giants, Morgan Stanley and Goldman Sachs.

A trader at a mid-sized Wall Street firm said: “This is full-fledged panic.

“Everybody's sticking fingers in the holes in the dyke, not understanding that the problem is much bigger.”

Bill Stone, chief investment strategist for PNC Wealth Management, said: “People are scared to death. Who would have imagined that AIG would have gotten into this position?”

He said the fear gripping the markets reflects investors' concerns that AIG was unable to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.

Over the past year, companies including Lehman and AIG have sought to reassure investors that they weren't in trouble, and now the market isn't sure who can and can't be trusted.

“No one's going to be believing anybody now because AIG said they were OK along with everybody else,” Mr Stone said.

In the 2008 Wall Street run, shareholders and credit traders are reacting to each failure by yanking their investments from the institution seen as the next most vulnerable.

For Lehman Brothers, Merrill Lynch and AIG, the pattern was the same: the price of protecting against defaults on debt rose sharply, the stock price plunged, and all that made it impossible for the institution to negotiate for a capital injection.

Overnight, traders turned on one descendant of the House of Morgan, Morgan Stanley, and on Goldman Sachs.

On derivatives markets, many bet on distress for the firms despite the fact that, in contrast to Lehman and AIG, both Goldman and Morgan Stanley had reported healthy profits on Tuesday.

Shares of Morgan Stanley fell 24 per cent, its lowest close in roughly 10 years.

Goldman Sachs Group fell 14 per cent. Morgan Stanley pared its losses in after-hours trading, as The New York Times reported it was mulling a merger with another institution, citing Wachovia as one candidate.

Dow component AIG slid 45 per cent after Washington stepped in to save the insurance giant that had got ensnared in the mortgage crisis through the credit-derivatives market.

The Dow Jones Industrial Average fell 449.36 points, or 4.06 per cen, to 10609.66, its lowest close in almost three years. All 30 Dow components fell.

The broad Standard & Poor's 500 index fell 57.20 points (4.71 per cent) to 1156.39, its lowest close in more than three years.

The technology-heavy Nasdaq Composite declined 109.05 points (4.94 per cent) to 2098.85, its biggest drop since the first session after the September 11, 2001, terrorist attacks, and the lowest close in more than two years.

Measures of fear in the market spiralled higher overnight - the Chicago Board Options Exchange market volatility index, which reflects the premiums paid for protection against swings in the S&P 500, closed up 20 per cent, its highest close since 2002; interbank lending rates rose sharply, and investors of all stripes dived into US Treasury securities.

Gold had its biggest one-session gain ever - a reflection of fear in the market.

Among other financial concerns with exposure to the mortgage and housing crisis, Washington Mutual fell 13 per cent. WaMu recovered in after-hours trading on reports that it was moving toward a merger.

American depositary shares of Lloyds TSB Group fell 4.8 per cent; the UK bank has agreed to merge with Britain's largest mortgage lender, HBOS, according to the BBC.

There were a few shafts of light in a gloomy stock market.

SanDisk (Nasdaq) jumped 5.88, or 39%, to 20.92 after the maker of memory chips received an unsolicited buyout bid from peer Samsung Electronics.

As brokers on Wall Street face unprecedented pressures in the market, they are extending less credit to prime-brokerage clients, according to one hedge fund manager.

That may be forcing funds to sell - or buy - stocks and commodities.

Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund, said: “All the brokers are raising margin requirements.

“Margin calls are up across the board.”

Dow Jones Newswires, with additional reporting by AP