Gold and oil soar amid market turmoil Gold and oil prices shot up to hit fresh record highs overnight as turmoil in stock markets intensified following the news that Bear Stearns, America's fifth largest bank, has been sold to JP Morgan Chase at a knockdown price. The news sent the US dollar tumbling to a record low, leading investors to seek shelter in gold and commodities.
Falling Dominoes Rising Gold Gold is the leading indicator of systemic collapse The failure of Windows Vista to improve upon Microsoft’s accepted standard is an indication that an era is ending. Another indication—just as obvious and far more significant—US central bank credit is no longer automatically able to create economic expansion. Suddenly, cheap credit does not produce growth. An era is over. Credit, like steroids, can be classified as a performance enhancing drug. When introduced into an economic system, its effects are obvious and, in the beginning, positive. Like steroids, however, over time its effects become less positive and underlying problems more apparent and, in the end, are often fatal, e.g. deflation and the Great Depression.
Spot gold surges more than 3 percent to over $1,030 Spot gold surged more than 3 percent on Monday to a record high of above $1,030 per ounce as the dollar tumbled on deepening U.S. financial concerns. The dollar sank after JPMorgan Chase said it would buy cash-trapped Bear Stearns and the Federal Reserve cut its discount rate. Spot gold rose as high as $1,030.80 as of 0144 GMT.
Oil Rises to New Record As Dollar Drops Oil Prices Rise to All-Time High of Almost $112 a Barrel As US Dollar Sinks Oil prices jumped to an all-time trading high of almost $112 a barrel Monday as the tumbling U.S. dollar and plunging stock markets prompted investors to seek shelter in commodities. Investors fled the dollar after a surprise move Sunday by the U.S. Federal Reserve to provide cash to financially squeezed Wall Street investment houses pushed the battered dollar deeper into multiyear lows against the yen. "The Fed's move overall will help the liquidity of the U.S. dollar, and that will really further soften the dollar," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "Meanwhile, investors seem to be just following the mantra of buying oil and commodities to hedge against the falling dollar and inflation."
Dollar hammered on financial fears One of few currencies not outperforming the greenback is U.K. sterling The Bear Stearns fire sale and the Federal Reserve's emergency decision to cut its discount rate sent the dollar to plunging to historic lows against major counterparts on Monday. In an extraordinary move, the Federal Reserve Sunday night announced it had cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to an unprecedented list of firms. What's more, the Fed's rate-setting Federal Open Market Committee is now expected to cut its key Fed funds rate by as much as a full percentage point to 2% when it holds its regularly scheduled meeting Tuesday.
Economy most troubled since WWII: Greenspan Today's economic condition could likely be seen as "the most wrenching since the end of the second world war," wrote former Federal Reserve chairman Alan Greenspan in the Financial Times on Monday. The U.S. financial crisis won't end until housing prices stabilize, but that won't happen for months, wrote Greenspan.
Bernanke Plays `Whac-A-Mole' With Turmoil in Markets Federal Reserve Chairman Ben S. Bernanke may be facing something worse than a loss of personal credibility on Wall Street and in Washington: waning faith in the ability of the institution he leads to turn around the economy and the financial markets anytime soon. Bernanke has reached deep into the Fed's toolkit to come up with innovative ways to head off a recession and restore some calm in credit markets. While many have initially been greeted with rallies in stocks, cumulatively they haven't yet had lasting impact on bringing down credit costs and setting the stage for economic recovery.
Fed Takes New Steps to Ease Crisis The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy. The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday.
JPMorgan to Buy Bear for $2 a Share JPMorgan Says It Will Buy Ailing Bear Stearns, Former Wall Street Rival, for $2 a Share With a deal finally struck, JPMorgan Chase & Co. will embark on the tough task of absorbing Bear Stearns Cos., once among its biggest rivals on Wall Street. As the assimilation proceeds, the financial industry wants to know exactly how badly Bear Stearns bet on mortgage-backed investments. Unwinding the nation's fifth-biggest investment houses should provide some insight into what other financial institutions might have on their books.
Paulson defends Bear Stearns bailout The U.S. treasury secretary, Henry Paulson, defended on Sunday the Federal Reserve's decision to help rescue Bear Stearns, the teetering Wall Street investment bank. He sidestepped questions about whether other financial firms were on shaky ground and the possibility of additional interventions of this kind, saying, "I'm convinced that they're going to come out of this situation very strong."
Central Bank Offers Loans To Brokers, Cuts Key Rate The Federal Reserve announced one of the broadest expansions of its lending authority since the 1930s in an effort to stem a credit crisis that is engulfing the financial system and threatening a deep recession. For the first time securities dealers, effective today and for at least the next six months, may borrow from the Fed on much the same terms as banks. The Fed also lowered the rate charged on such borrowings from what's known as its discount window by a quarter of a percentage point, to 3.25%, and extended the maximum term to 90 days from 30.
Shares of Lehman Brothers tumble in premarket trading on report of deals banned with the bank Shares of Lehman Brothers Holdings Inc. plunged in premarket trading Monday after a news report that Southeast Asia's largest bank instructed traders in an e-mail not to do business with the bank. DBS Group Holdings Ltd. took back those instructions, but after the fall of the once venerable Wall Street bank Bear Stearns on Sunday, skittish investors sold off quickly and Lehman shares fell more than 27 percent, or $10.76, to $28.50. DBS sent an e-mail to several traders instructing them not to conduct any new dealings with Lehman Brothers or Bear Stearns Cos., two people familiar with the situation said, according to Dow Jones.
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