Financial Headline News for Friday 9/23

This was the Dow's sixth largest weekly point drop in its 115-year history. The index also has dropped in seven of the last nine weeks. This is proving to be another September of stocks turbulence after all.

Even Goldman Sachs is experiencing difficulties in this recession.

The global economy continues to sputter and is causing oil and gold to fall

Here are the top financial stories of the day:

1) Wall Street stabilizes after disastrous week-From Reuters

The Dow Jones industrial average on Friday suffered its worst week since the depths of the financial crisis in 2008, stung by severe anxiety over Europe's spiraling debt crisis and a warning from the Federal Reserved about the U.S. economy.

But stocks ended higher after a disastrous four days of selling, which helped push down the S&P 500 index 6.6 percent for the week.

Volatility spiked in a revival of the tumult seen in August. Fears of a Greek default and the Federal Reserve's gloomy prognosis for the U.S. economy spurred heavy selling in equities.

Stocks seesawed between gains and losses on Friday, but the S&P was able to hold above the August 8 low of 1,119, a key support level that served as a trigger for buyers during the week.

While the market remains susceptible to further losses, many traders believe it will take a significant deterioration, either in the economy or in Europe, to spur another sharp decline.

"I would have been happier to see the market up 100 points or so ... however, in these rather cautious times people are a little hesitant to commit in a big way," said Doreen Mogavero, chief executive of Mogavero, Lee & Co. in New York.

The CBOE Volatility index edged up 0.6 percent, its fifth straight advance.

For the week, the Dow dropped 6.4 percent for its worst weekly performance since October 2008 and the Nasdaq lost almost 5.3 percent.

The primary trigger for the rebound came from policymakers suggesting additional steps will be taken to support Europe's financial system.

Ewald Nowotny, European Central Bank Governing Council member, said it might be advisable for the ECB to add more liquidity into the banking system.

The Dow Jones industrial average (DJI:^DJI - News) gained 37.19 points, or 0.35 percent, to 10,771.02. The Standard & Poor's 500 Index (^SPX - News) gained 6.83 points, or 0.60 percent, to 1,136.39. The
Nasdaq Composite Index (Nasdaq:^IXIC - News) gained 27.56 points, or 1.12 percent, to 2,483.23.

The escalating turmoil in global markets has led many analysts to cut their year-end targets for the benchmark S&P 500 index, with even some of the most bullish investors beginning to scale back their optimism a bit.

"We are at a very conservative position. We reduced our net long from 70 percent a week ago to 20 percent as of now," Barton Biggs, managing partner at New York-based Traxis Partners told Reuters Insider.
For Reuters Insider interview with Barton Biggs, see http://link.reuters.com/cex83s

Bespoke Investment Group notes the average consensus year-end price target is currently at 1,311 for the S&P, down from the 1,374 at the start of the year and nearly 100 points off its high mark of the year at 1,406.

Biggs said the chances of another recession in the United States are now three-in-four because officials in Europe and the United States are not doing enough to deal with the banking problems and their weak economies.

"Financial markets are sick and tired of the authorities in Europe and in the U.S. twiddling their thumbs and not doing substantive things to solve this crisis of the global economy,
and that's what its all about," he said.

"The odds of a double dip recession on a global basis are increasing rapidly."

Bob Doll, BlackRock's chief equity strategist and a noted bull, told Reuters Insider that while he feels most of the bad news is in the market, he has the odds of a double-dip recession at roughly one-in-three.

Gains in the Nasdaq were helped by semiconductor stocks, with the PHLX index (Nasdaq:^SOX - News) up 2 percent. Texas Instruments (NYSE:TXN - News) gained 3.8 percent to $27.22 after Caris boosted its rating on the stock.

Hewlett-Packard Co (NYSE:HPQ - News) was down 2.1 percent to $22.32 a day after Meg Whitman, the former head of EBay Inc (NasdaqGS:EBAY - News), was named to run the computer and printer maker.

The move was met with criticism of the company's board, which has been accused of recent missteps.

Trading was active with about 8.9 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, above the daily average of 7.94 billion.

Advancing stocks outnumbered declining ones on the NYSE by 1,886 to 1,104, while on the Nasdaq, advancers beat decliners 1,728 to 815.

2) Wall Street Banks Taking a Bruising-From The Wall Street Journal

Global markets have turned so ugly that Wall Street's mightiest firm, Goldman Sachs Group Inc., is at risk of posting its first quarterly loss since the financial crisis.

The culprit? Growing uncertainty among investors and cash-rich companies, driven by a slowing economy and fears that Western nations will fail to defuse debt problems that ballooned during the bailouts of 2008 and 2009.

Those worries have fed a sharp decline in revenue from stock, bond and merger deals. A spell of wild action in stock, debt and commodity markets has delivered another blow in the form of falling values on securities held to facilitate client trades.

Goldman isn't the only big bank under pressure. But as it and other firms respond to their shriveling business prospects with moves such as jobs cuts and bonus reductions, they risk further undermining the economy.

With a week left in the third quarter, "we struggle to find any broker-dealer businesses reporting positively trending results," Barclays Capital analyst Roger Freeman wrote in a note to clients Thursday. He predicted that Goldman will lose 35 cents a share for the third quarter, reversing a year-ago profit of $2.98 a share and marking just its second quarterly loss in a dozen years as a public company. Mr. Freeman had been predicting a third-quarter profit at Goldman of $2.40 a share. Goldman declined to comment.

Third-quarter revenue expectations at six big U.S. banks—Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman and Morgan—have fallen 7% since midyear, according to analysts surveyed by data provider FactSet Research Systems. That is the biggest drop since the fourth quarter of 2008.

The banks' pain has widespread implications on Wall Street and across the country. Weaker banks will likely lend less, pressuring an economy already flirting with recession. Bankers' bonus checks, which fund everything from second homes to private school educations, are expected to plummet, in some cases to zero.

Mike Mayo, a bearish bank analyst at Credit Agricole Securities, sees a bruising retrenchment ahead.

"The industry can't escape the need to reduce expenses," Mr. Mayo said in an interview.

Already, Bank of America has said it will lay off 30,000 workers. Goldman is planning to cut more than its usual percentage of low performers. Morgan Stanley is trimming brokers from its wealth-management joint venture with Citigroup.

There are fewer places for the laid-off employees to go, since many boutique firms are also scaling back.

During the quarter, investment bank Gleacher & Co. said it would close its equities division, shedding 20% of its workforce, or 94 jobs.

Some of the banks' difficulties are tied to the crisis in Europe. Morgan Stanley shares fell 5.5% on Thursday, pressured by a report on investing Web site Zero Hedge that highlighted Morgan Stanley's exposure to French banks. The report cited data in Morgan Stanley's 2010 annual report showing $39 billion of so-called cross-border outstandings at Dec. 31.

Analysts and a person familiar with the firm said Morgan Stanley's net exposure to French banks was actually close to zero now. They added that the Dec. 31 figure can be misleading since it doesn't take into account hedges or cash a bank holds on behalf of clients.

But a bigger problem is that Wall Street banks are finding it more difficult to profit from trading even plain-vanilla debt like corporate bonds and mortgage securities, since bond markets have experienced unusually violent price swings in recent weeks on relatively low trading volumes. In the past, price volatility created more opportunities for Wall Street traders to make money.

But now, banks have less appetite to take riskand step into trades, especially when bond prices are being driven up and down by external events and news, say traders.

Cost-cutting on Wall Street is always a double-edged sword. It helps profits in the short term, but firms risk missing future revenues if the markets bounce back—as was the case at Morgan Stanley in 2009.

While regulators have pushed banks to put themselves on more solid financial footing, some of the rumors floating around the market echo the panicked days of late 2008. Mr. Freeman on Thursday found himself chasing a rumor on Twitter about a bond fund blowing up and one or more banks providing a financial backstop. Mr. Freeman called the company involved and found out it wasn't true.

Despite that episode, he says there is not as much panic as there was then. But few investors are excited about financial stocks, either.

"There's more apathy about these businesses," said Mr. Freeman. He believes there is value in Goldman and Morgan Stanley, but they both need an end to market fears about Europe. And to fix that situation, "it might take a significant market rout to force the issue."

3) Global economy pushed to the brink-From The Financial Times

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Time is running out to find a solution to the eurozone crisis and prevent another global recession, finance ministers warned on Friday, as they hinted that discussions were under way to boost the firepower of European rescue funds.

Financial markets experienced another day of intense volatility as investors struggled to interpret an emergency statement from the Group of 20 leading economies, which met on the sidelines of the International Monetary Fund and World Bank meetings in Washington.

Investors were initially unimpressed by the G20’s message of support for the global economy, but several said they did not want to get caught out should policymakers unexpectedly decide on a radical policy response.

Gold continued to slide sharply and US oil prices traded below $80 a barrel, their lowest level in more than a year. Shares rallied modestly in Europe and the US, accompanied by selling in government bonds and the dollar.

Many finance ministers reported a greater sense of urgency in discussions on the eurozone overnight on Thursday.

“Patience is running out in the international community,” said George Osborne, UK chancellor of the exchequer . “The eurozone has six weeks to resolve this political crisis.”

Eurozone governments have pledged to pass legislation by mid-October to make their rescue fund, the European financial stability facility, more flexible and are now discussing ways to “maximise its impact in order to address contagion”.

European Union officials are warming to the idea that the EFSF could be “leveraged” to increase its strength, perhaps by guaranteeing larger European Central Bank purchases of Spanish and Italian sovereign debt, in an effort to isolate the two countries from the more intractable Greek debt crisis. François Baroin, French finance minister, said policymakers “need the right firewall to prevent contagion” and can discuss giving the EFSF “the necessary strength”.

“I am very confident they’re going to move in the direction of expanding (their) effective financial capacity,” added Tim Geithner, US Treasury secretary. “They’re just trying to figure out how to get there in a way that is politically attractive.”

As the sense of urgency surrounding the eurozone crisis mounted, Eswar Prasad of the Brookings Institution said the heightened risks of a disastrous outcome might help the eurozone to find a political solution to its woes and infighting: “A nudge from the rest of the world might help sway some European leaders to act more forcefully and in a more co-operative spirit to tackle the crisis.”

Investors are bracing themselves for more ECB action, possibly next week or in early October. JPMorgan analysts predicted the ECB would cut interest rates by 50 basis points at its October meeting, while members of the ECB’s governing council hinted they could reintroduce 12-month loans to eurozone banks.

Even as discussions focused on containing the crisis, German officials insisted on balancing talk of a beefed-up EFSF by lobbying for reduced government borrowing. Wolfgang Schäuble, German finance minister, said a rejection of further fiscal stimulus was “widely shared” in the G20.

Quote of the Day-from Readers Digest
Good judgement comes from experience,and often experience comes from bad judgement-Rita Mae Brown