An incredible and historic day on Wall Street, with the Dow down close to 700 points moments after the open, rallying late to be 300 points up at one point before closing down 128. The trading range for the day was over 1,000 points, which is unprecedented.
All things considered it was a pretty good performance, and I sense we’re closing in on the end of the panic season. I thought we’d get some sort of rally today but when it came I was surprised at the strength of it – there is one very big situation that still needs to be cleared up before anyone can relax and I didn’t think the market would be able to drive forward until this was done.
There is a war going on out there – funds, banks and the like are scrapping it out for survival in the toughest financial climate since 1929. Right at the heart of the crazy melee you have that giant of the financial world Morgan Stanley, but on its knees now, paralysed and praying for rescue. Rushing to the aid of the stricken investment bank comes Mitsubishi UFJ, a massive Japanese bank with the firepower to sort this problem out.
It all sounds fine, but the rescue plan that was agreed three weeks ago is still not signed and sealed, and many are wondering if it will happen. Morgan’s share price was well below the agreed deal price on Friday and some are asking why Mitsubishi would shell out for the deal shares when they can buy cheaper in the market. Others are questioning whether Mitsubishi are able to complete the deal now – a lot has happened in the last three weeks.
If Morgans were to collapse the fallout would be unimaginable. Their spiritual brother Goldman Sachs would surely be doomed – they would crumble like the second twin tower. The financial world would shudder and institutions would start collapsing around the globe. No-one knows exactly how bad it would be – I’d guess a 9 on the Richter scale.
But surely this isn’t going to happen. Japanese banks are extremely honourable and I don’t believe Mitsubishi will walk away unless they have no choice – the price argument is a red herring as Morgans will bounce right back into play when the deal is signed. Japan has had a torrid time, and it seems possible that Mitsubishi can’t afford it now, but the cavalry are coming in behind them.
On Friday night in Washington there was an emergency G7 summit. The G7 – the group of seven major industrial nations (as was when the club came together) – are represented by the financial heads of the respective countries, and Alistair Darling represents the UK. At the head of the table sits a towering figure from the world of finance – Henry “Hank” Paulson, former CEO and chairman of Goldman Sachs.
No-one has a better picture of the financial world or is better placed to lead the rescue effort than Paulson. He’s had plenty of time to assess the landscape and he’s already bet the farm on turning it around – he still has cards to play. He let Lehmans go which shook up a lot of people, but I believe he’ll move whatever mountains he has to to keep Morgans in the game.
Mitsubishi say they will commit on Tuesday before Wall Street opens, so there isn’t long to wait. There is still an unbelievable amount of noise and general chaos in the marketplace, but the signs of a selling slowdown are clearly there and if Morgans are back in the game I think the end may be in sight. I’ve been staying out of it but I know of a few people who are getting ready to come in, and I may invest alongside them. Once more unto the breach and all that…
One runner today – Major Eazy runs in a G3 at Ascot. It’s more of a discovery mission than anything else – I won’t be backing him. I think Aldermoor is an interesting runner in the first. I’ll go with Heaven Knows in the 4-05 – his last win was in October last year and he has ability.
Marine Boy got out of his paddock yesterday – he hurdled a 5ft tall gate. Tom has never seen a horse do that in all his days training – perhaps we’ll run him in the Champion Chase one day. Tikka Masala comes out on the 16th at Nottingham, and Teia Tephi will come out in a competitive maiden at Newmarket.