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November 10, 2008 Issue Posted October 30, 2008, 5:00PM EST

News You Need to Know

The Street Shows Strength—but for How Long?

Ho-hum. On Oct. 28, in the course of a few hours, the Dow Jones industrial average roared up 889 points, or 10.9%, its second-largest point gain ever. Alas, at this stage of the financial crisis, investors suspect that such moves amount to little but sound and fury, signifying—who knows? The record point gain, after all, came just 17 days before, and the market turned tail again shortly afterward.

Tuesday's rally seemed inspired largely by belief that the global financial system has escaped utter collapse for now and that Ben Bernanke's Fed would cut its benchmark rate from an already rock-bottom 1.50% to 1%, which indeed it did on Oct. 29. That followed rate cuts in China and South Korea and strong hints of upcoming cuts by Japan and the European Central Bank. How effective such moves will be in softening the coming worldwide contraction remains anybody's guess, which is why more stock market gyrations are all but guaranteed.

Meanwhile the crisis continued to mutate, taking new forms daily. The generalized flight to safety saw investors dashing into the yen and the dollar, driving them up at alarming speed. The yen on Monday traded near 13-year highs, which will make life even more difficult for exporters facing a demand drop-off in Europe and the U.S. Japanese giant bank Mitsubishi UFJ (MUFG) on Oct. 27 said it needed to raise $10.7 billion in new capital, just two weeks after it agreed to pay $9 billion for a stake in Morgan Stanley (MS).

In the U.S., the Treasury Dept. made headway in its rescue program for the banks, doling out some $34 billion to regional institutions. But members of Congress already were bristling over how little of the cash seemed likely to flow into loans for businesses or individuals. And the chorus of companies announcing major layoffs swelled across a range of industries: Whirlpool (WHR), 5,000 workers; Qwest (Q), 1,200; Tenneco (TEN), 1,100; Time Inc., 600. Small wonder consumer confidence sank to an all-time low in October.

—Edited by Harry Maurer & Cristina Linblad

National City Falls

Experts warned that the Treasury's decision to pump $250 billion into banks it deemed worth saving meant regulators would be picking winners and losers. To its chagrin, National City (NCC) found out which list it was on. Just days after the feds told the bruised Cleveland bank it might not get the capital infusion it sought, National City agreed to sell itself for $5.2 billion to Pittsburgh's PNC (PNC)—which promptly got $7.7 billion in government funds to shore up its capital and help pay for the deal.

—Edited by Harry Maurer & Cristina Linblad

Hope for Housing?

It looks as if the mid-September meltdown arrived just as home buyers were taking advantage of tumbling prices. The National Association of Realtors said on Oct. 24 that existing home sales rose 5.5% in September, the biggest monthly jump in five years. The Commerce Dept. reported that new-home sales ticked up 2.7% in that month. The 20-city Standard & Poor's/Case-Shiller index, released on Oct. 28, showed a record 16.6% annual home-value drop in August. But mortgages aren't cheap: Average rates on 30-year loans this week climbed to 6.56% from 6.38%.

—Edited by Harry Maurer & Cristina Linblad

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