The financial sector and overall stock market reversed course in late-day trading on Thursday as word spread that U.S. Treasury Secretary Hank Paulson would brief Congressional leaders on a proposal to create a government entity in the near-term which would take illiquid, bad mortgage debts off the books of banks in a similar fashion to the Resolution Trust [RTC] during the savings and loan crisis of nearly two decades ago. The plan may also involve protection of money market assets in a similar fashion to FDIC-insured bank deposits.
Major market indexes in the U.S. ended the day in the green by about 4 – 5% on average and followed a gap up at the open on pre-market news of a coordinated central bank effort led by the Federal Reserve to inject billions in liquidity to ease the pressure on short-term U.S. Dollar money market funds. Asian markets responded positively to the late-day developments, trading up by about 3% on average in early trading with the U.S. Dollar also firming and futures pointing to a higher open on Friday for the major market averages.
Based on the late-day developments on Thursday, I decided to buy Goldman Sachs (GS) around $109 per share near the market close since it is the pre-eminent investment bank in the world which was not participating in the broad-based rally led by financials and offered the potential for substantial near-term upside in a V-type recovery. Shares of Goldman's smaller rival Morgan Stanley (MS) briefly touched lows not seen in over a decade on Thursday at $11.70 per share before a drastic recovery led to a 3% gain at the close as Morgan continued to advance merger talks with Wachovia (WB).
Goldman Sachs briefly touched multi-year lows below $86 per share during a mid-day meltdown in financials on Thursday before closing the day in the red by 5.7% at $108 per share. I decided to pick up shares of Goldman Sachs on the prospect of a RTC-like entity being announced in the near-term and easing concerns over the ongoing credit crisis and availability of funding. Also, late this evening CNBC is reporting that the SEC will place a temporary ban on short selling amidst complaints by companies such as Morgan Stanley and others that market manipulation is creating panic and destroying the market value of their companies. Goldman ended the after-hours session on Thursday up 11 points at $119 on volume exceeding 1.6 million shares.
$20.01 (09/19/08)
