US House defeats Bailout Bill. Markets plunge.

The controversial $700Billion bailout plan being pushed into the House today was to be the tipping point for the US economy and financial markets. With optimism swirling on the weekend that agreements had been finally reached on the bill, the one thing left to do was the most important. Vote on it.

The vote they did, the elected House narrowly defeated the bill, sending markets into a selling frenzy by mid-day. As traders learned of the tallying votes against the bill, sellers rushed through the electronic order desks and buyers were heading for the exits. The Dow fell 700 points during the early afternoon while the Nasdaq led all decliners (off about 7% at the bottom of the session).

With politicians on both sides of the spectrum resonating the importance of the bailout package with regards to the fragile nature of the US economy, it is crucial lawmakers do something substantial soon. President George W. Bush urged for the passing of the bill, as did Federal Reserve Chairman Ben Bernanke, but their pleas fell on a deaf House. Democrats did not get the overwhelming show of support they needed and Republicans held firm with their ideas and showed virtually little support even when implored by their President and House leaders. The final tally stood at about 60% of Democratics voting to pass the bill, along with about 30% of Republicans. Pitting the vote at 228 against, 205 for. Ending a tumultuous debating session in Washington that will surely leave politicians scrambling to draft a more "commonly-acceptable" solution soon.

The key is of course, that chances to rescue the financial system in America are few, and with another bank on the bubble, having to sell its banking assets, the focus has shifted from Bailout optimism to, who is next on the chopping block.

JP Morgan Chase (JPM) salvaged Washington Mutual in what became the biggest banking failure in US history, and today Citigroup (C) bought the banking assets of Wachovia (WB). Citigroup has insurance from the FDIC against Wachovia losses if they exceed $42Billion. A truly remarkable number, that will stretch Citi's already thin resources in the coming quarters. The company had to issue another set of preferred shares to the FDIC, as well as slash its own dividend down to $0.16/share.

As the day drew up a close the Dow continued to drift lower falling over 600 points just after 3pm. The Nasdaq continued to be the biggest decliner of over 160 points and the S&P followed suit down 90 points.

US looking to President and Nominees to push bailout plan

Dire times call precisely for dire measures, and the proposed US Government bailout of the Financial Crisis is certainly one of those times. A crisis which has been called one of, if not the worst financial implosions in history. President George W. Bush went on Television to reassure Americans and to pledge support of the historic $700Billion plan to rescue the financial system and the markets.

Bush, also planned meetings with candidates Barack Obama and John McCain to detail, not only the urgent need for passing the proposed bill, but also to outline a strategy for moving forward to sustain economic activity. And furthermore to appeal to the American people that such a drastic monetary package is necessary to avoid a long and likely complete economic slowdown, the likes of which not seen in decades. The word collapse has been thrown around far to often in these discussions but it strikes an important chord as the emphasis on the swift approval of a bailout is seen as vital for market recovery.

Treasury Secretary Henry Paulson, a former Goldman Sachs (GS) chief, was the driving force behind the broad outline of the bailout plan and negotiations with lawmakers on Capitol Hill have been ongoing for days now. As these talks languish, in turn so do the buying trigger fingers of the investor community. President Bush speaking to the population is a direct result of the waning attitude towards the bailout package and its needed swift passing.

While the Dow experienced a two day gain of nearly 1000 points following the announcement of the Bailout proposal, the sentiment has been mixed since. The old adage of 'When government gets to talking the whole process stalls' had been floating around, while it may be unfair to pigeonhole that complaint here, it still provides the media a talking point. Something this drastic and this complex needs to be thoroughly discussed and with issues ranging from individual consumer tax protection, executive compensation, and specific borrowing terms there is bound to be differences of opinion in any Congressional discussion on these topics.

Today's news brings with it the optimism that the bailout package is just about complete, and all major details have been worked out. To that end, the Dow and the other majors are seeing Bullish activity. This morning, the Dow averaged stood higher by almost 200 points (1.8%), with equal percentage gains also present in the Nasdaq and S&P.

Recession Woes spill into Global Markets

While Americans enjoyed their long weekend holiday, watching New England inch a step closer to NFL perfection, markets in the rest of the world succumbed to US Recessionary pressures and tumbled like dominoes one after another.

In the Great White North, Canada (America's closest economic clone and partner), saw its major Index, the TSX, fall by over 600 points (4.75%). The sell-off was fueled by the Financial and Technology sectors but was market-wide. The sell-off was not limited to North America, markets all over the world closed substantially lower as closing bells in different time zones ended trading Monday.

The selling sentiment was seen largely due to disappointment in the stimulus package proposed by US President George Bush. The $150Billion tax relief plan, designed to spur consumer spending and reverse the trend of slowing US economic growth, is seen by Traders as helpful, but ultimately late. The rolling snowball of slowing growth in the US according to many analysts/economists, is out of control, with a recession in the 2nd half of the year inevitable. As much as been said recently by an analyst out of Goldman Sachs. Markets sold off heavily on worries that this slow down in America would spill over and effect economies worldwide.

A run down of the sell off in major world markets Monday:
Canada down 4.75%
Britain down 5.5%
France down 6.8%
Germany down 7.2%
India down 7.4%
Hong Kong down 5.5%
Japan down 3.9%
Brazil down 6.6%

Recession fears are real and are engulfing all Trader Talk these days, and with that it begs the question, can the minor investor survive? Or is cash the better place to be? I think survival is possible and thriving can be achieved. Investors must be patient, own quality companies, use dividends as a cushion (covered call selling too perhaps!), and look for bargain opportunities.

Now its been well written about how and which sectors perform better under slowing economic growth (Consumer necessities, Consumer Staples, Low Cost Retailers, Beverages, Tobacco etc.) but if everything is falling where can one turn? When is the bottom?

These are questions masses of smaller Investors everywhere are asking themselves and the markets of today aren't giving them many answers, let alone hope. The one beam of light for the Bulls seems to be the Federal Reserve and a potential not only cut, but slashing of Interest Rates. Investors need to keep a keen eye on not of what, but how much the Fed does at the end of the month.

Good Luck.

Markets Finish Higher on Bush and Bernanke Speeches while Apple's iTunes splits with NBC over Pricing

Optimism spread throughout the Financial Markets in North America Friday as Federal Reserve Chairman Ben Bernanke and US President George W. Bush presented speeches discussing the sub-prime mortgage crisis.

While not stating any certainties of an upcoming rate cut the Fed alluded to the fact that it will be ready to act if the economy becomes broadly hurt from the fallout of the credit-crunch. This was enough for investors to believe that a rate cut is more and more likely. The President conveyed a similar stance that it is not the job of the government to bail out over-extended investors, institutions and individuals. Bush did however outline a series of plans and proposals that will allow individuals to refinance some mortgages to avoid further potential loan defaults. Bush also presented proposals for slight changes to the tax code that would provide relief for people with heavy loan payments.

These were seen as positive steps by the markets as the major indices (Dow, Nasdaq, S&P, TSX) were all higher by about 1%.

In other market news Citigroup (C) is getting in on the bargain mortgage hunt as it is buying assets from ACC Captial Holdings (Parent of Ameriquest Mortgage Co.). This follows Bank of America's (BAC) recent $2Billion investment in Countrywide Financial (CFC).

In technology news Apple (AAPL) was in the news as hard-ball contract negotiations with NBC-Universal, a subsidiary of General-Electric (GE), fell apart. NBC noted that it will not renew its contract for shows in iTunes and let the current deal expire come December of this year. Apple took it one step further and stopped hosting new NBC TV Shows in iTunes before the television season starts later this September. The reasoning from Apple's press release was given as NBC demands for a 150% price increase per downloaded show. iTunes current rates are $1.99/show and NBC apparently wanted that to increase to $4.99/show, stricter piracy controls and the ability to change and bundle pricing. Apple stood its ground and talks faltered.

One of NBC's most popular shows Heroes had 23 episodes last season and at $5 a pop, a customer is expeced to shell out $115/season to be able to watch the shows on an iPod a day after it has aired on regular television. In the days of Tivo (TIVO) and the DVR the idea of drawing television audiences is about making it easier and cheaper, not more complicated and expensive. Season 1 of Heroes was just released on DVD for about $40. From a consumer perspective which party seems to have consumer interests more at heart?

There's been several editorials written about this issue including an open letter to NBC from iLounge.
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Disclosure: Author is long AAPL, C, BAC