Top 10 News Items 10/13-10/17: Treasury to Directly Buy Up to $250B in Financial Stocks; Volatility Dominates the Markets; Buffett Sticks His Neck Out with 'Buying American. I Am.' Article

October 17, 2008 3:50 PM EDT

This is a recap of the weeks major news items on Wall Street:

1. The US treasury announced this week that it would directly invest up to $250 billion in numerous financial companies by purchasing preferred stock in the open market. The unprecedented move was the latest measure undertaken by the government in an attempt to soothe the ailing financial markets. The Fed will initially invest in Citigroup (NYSE: C), JPMorgan (NYSE: JPM), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of New York Mellon (NYSE: BK) and State Street (NYSE: STT).

2. Stocks were extraordinarily volatile this week, even when compared to recent standards. The VIX, or commonly called the “fear indicator”, spiked to above 80 for the first time in about 20 years. Traders consider a VIX rating above 30 as severe market pessimism. Despite the extremely high level of fear, stocks traded higher this week. The Dow notched a 7% gain, while the Nasdaq rose nearly 6%.

3. Thursday night, the New York Times published an op-ed article by non-other-than Warren Buffett, entitled "Buy American. I Am." In the article, Buffett pounded the table, saying he has been buying US stocks for his personal portfolio. The legendary investor said that if stock prices continue to fall, Buffett said his non-Berkshire net worth would soon be 100% invested in US equities.

4. Hedge funds and top execs alike felt intense pain this week as they were forced to liquidate positions in order to cover redemptions and margin calls. Chesapeake's (NYSE: CHK) CEO, Aubrey McClendon, who has been buying shares of CHK since 2005, amassing more than 33 million shares, kicked off this phenomenon late last week when the company announced he was forced to sell the majority of his stake in order to cover margin calls. Check out StreetInsider.com's article Ring, Ring It's the Margin Guy... CEO's Don't Answer for a complete list of insiders who involuntarily sold stock this week. On the hedge fund front, Steve Cohen's SAC Capital announced that it had moved substantially into cash amid the current market chaos. On Tuesday, Cohen said he had about $7 billion in money-market and other short-term securities. John Paulson's Paulson & Co. also came out saying the majority of his holdings were in cash equivalents. Elsewhere across the hedge fund landscape, Highland Capital announced that it would close its flagship fund after losses on high-yield, high-risk loans and other types of debt forced the fund to liquidate. Commodities were absolutely hammered this week as many of these funds were highly involved in this sector.

5. Google (Nasdaq: GOOG) reported Q3 non-GAAP EPS of $4.92, versus the analyst estimate of $4.76. Revenues for the quarter came in at $4.04 billion, versus the consensus of $4.06 billion. As the Street was anticipating far-worse results, shares of Google surged about 6% on Friday, trading as high as $386 just one day after the stock hit a new 52-week low of $309 on Thursday.

6. Morgan Stanley (NYSE: MS) finally reached a deal with Mitsubishi UFJ Financial Group. Monday, Mitsubishi closed its $9 billion equity investment in Morgan Stanley, giving Mitsubishi a 21% stake in the bank. According to the terms of the deal, MUFG has acquired $7.8 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of $25.25 per share, and $1.2 billion of perpetual non-cumulative non-convertible preferred stock with a 10% dividend.

7. The price of crude oil plunged more than $10 this week, falling below the $70 level on Thursday. Since the beginning of October, when oil was around $100, crude is down about 30%.

8. Speaking at a Gartner conference in Orlando, Florida Thursday, Microsoft's (Nasdaq: MSFT) CEO, Steve Ballmer, said that a deal with Microsoft and Yahoo! (Nasdaq: YHOO) still makes "economic sense". Shares of Yahoo! spiked more than 10% on the news.

9. Pepsi (NYSE: PEP) reported Q3 EPS of $1.06, excluding items, which was below the consensus of $1.08. Revenues for the quarter came in at $11.24 billion, versus the consensus of $11.22 billion. The stock sunk more than 9% on Tuesday due to the earnings report, and further gave up another 5% on Wednesday.

10. Monday, Banco Santander, S.A. (NYSE: STD) announced that it would acquire Sovereign Bancorp Inc., (NYSE: SOV) in a stock-for-stock transaction. Under the terms of the deal, Sovereign shareholders will receive 0.2924 Banco Santander ADSs for every 1 share of Sovereign common stock they own (or 1 Banco Santander ADS for 3.42 Sovereign shares). Based on the closing stock price for Santander ADSs on Friday, October 10, 2008, the transaction has an aggregate value of approximately $1.9 billion (euro 1.4 billion), or $3.81 per share. Despite the announcement, shares of Sovereign closed this week about 21% lower.

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Related Entities

• SAC Capital
• Highland Capital
• Warren Buffett
• UBS
• JPMorgan
• Goldman Sachs
• Steven A. Cohen
• Citi
• Morgan Stanley
• Banc of America
• Paulson & Co. (PCI)
• Dividend
• StreetInsider.com Top 10 News Items for the Week
• Hedge Funds
• Crude Oil
• Aubrey McClendon

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