Midday Market Update: Financials and Autos Slam Markets

March 30th at 10:00am by Tom Lydon

etfStocks and exchange traded funds (ETFs) are getting slammed in morning trading on news that some banks may need more government aid and the best option for two auto giants is bankruptcy.

Treasury Secretary Timothy Geithner appeared on the ABC News program “This Week” early Sunday morning to announce that many banks will need more assistance to get themselves out of the debacle that they are in.  The federal government has about $135 billion left in a financial stability fund, but it is still unclear if more will be needed.  This uncertainty sent the financials in a downward spiral.  Citigroup (C) was down 14%, trading at $2.26/share in morning trading.

To add fuel to the fire, the auto industry was plagued with even more bad news.  The White House rejected turnaround plans from General Motors (GM) and Chrysler.  Now, GM has 60 days worth of financing to restructure and Chrysler is getting $6 billion and 30 days to make a deal with Italian automaker Fiat.  Additionally, the White House has forced GM CEO Rick Wagoner to step down and has replaced with him with Fritz Henderson, previously the company’s chief operating officer, state John Hughes, Jeff Green and Doron Levin for Bloomberg.

Both GM and Chrysler are heavy debt loaded companies.  GM’s plans to cut their debt was insufficient and Chrysler’s debt is so out of whack that it can’t be sustained.  Many experts believe that the only way out of this dilemma is to file for bankruptcy.  This bankruptcy will be structured differently than a traditional bankruptcy, the process could be done in as little as 30 days and the government will provide debtor-in-process financing for the companies if needed.  This will definitely make it easier for both companies to clean up their balance sheets.

On a separate note, in reaction to uncertainty of the global economy, crude oil dipped more than 4% trading below $50/day barrel in intraday trading.  Many believe that the demand for black gold just isn’t keeping up with the supply, forcing the price of a barrel of oil to adjust to equilibrium.  OPEC’s attempt to cut production and domestic producers suspending projects hasn’t enabled the commodity to sustain high levels of demand or low levels of supply.  Take a look at the United States Oil Fund (USO), down about 4.3% in intraday trading.

This combination of bad news has sent the Dow Jones Industrial Average down about 3.4%, the S&P 500 down about 2.6% and the Nasdaq down 3.7%.  This morning has been plauged by a triple threat.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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