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The Big Money

Stocks Get Clocked

By Matthew Yeomans
Posted Friday, July 25, 2008, at 6:15 AM ET

First Asia, then Europe woke this morning and promptly started selling, spooked by the U.S. financial sector's worst day on Wall Street since 2000, in which the Dow Jones Industrial and Standard & Poor's 500 indexes plummeted 2.4 percent and 2.3 percent respectively.

Continued fears over the health of America's housing market (home sales at a 10-year low with 2.2 million vacant houses currently on the market), along with a new Citigroup report suggesting the U.K. economy is hurtling into recession, weighed on investors' minds, but once again, it was the fragile financial sector that bothered most. Shares in Washington Mutual fell 23.4 percent at one point yesterday before ending 13.3 percent lower than Wednesday's close; the Financial Times quoted one analyst who warned, "We won't use the phrase 'run' on the bank, but we would be remiss if we did not observe that many creditors have quietly been pulling funds." Meanwhile, the Daily Telegraph says JPMorgan is considering a move to break up HBOS after its disastrous rights issue this week. All this uncertainty has private equity sniffing an opportunity. At least two firms are "considering investments in BankUnited Financial Corp.," a struggling Florida institution, writes the Wall Street Journal.

Is the age of deregulation at an end? That's the question posed in a front-page Wall Street Journal story that analyzes the move to a more active regulatory climate whereby "[f]ederal and state governments alike are increasingly hands-on in their effort to deal with failing businesses, plunging house prices, worthless mortgages and soaring energy prices." President Bush's hamstrung support for the interventionist Housing Bill (check out what's in it for you, says the New York Times) is a remarkable shift away from the deregulatory ethos "that has defined American governance for much of the past quarter-century since the 'Reagan Revolution' of the early 1980s," notes the Journal.

Seems like a good moment to mention the multibillion-dollar civil lawsuit filed against UBS by New York State Attorney General Andrew Cuomo. The suit—echoing a similar action by Massachusetts regulators last month—charges that UBS falsely marketed "auction-rate securities as safe, cash-equivalent investments at a time when the market for these securities was under severe strain," writes CNN Money.

Somehow, Southwest Airlines manages to float above it all. On Thursday the airline posted a profit for the 69th consecutive quarter, proving to be the only bright spot (only one other major U.S. carrier, Alaska Airlines, turned a profit in Q2) in otherwise very unfriendly skies for aviation. The airline's success was "helped by its extensive fuel-hedging program," notes the NYT; neither the Times nor anyone else explains why, if fuel-hedging is so great, other airlines have failed to adopt it. Regardless, the standout performance means the once-upstart airline will soon become the busiest carrier at Los Angeles International Airport, notes the Los Angeles Times.

Explaining Microsoft's online strategy to investors probably wasn't at the top of CEO Steve Ballmer's list of things to do, given the week he has had. But there he was yesterday, promoting an "online search alliance with Facebook, as [Microsoft] tried to convince Wall Street that it could recover from a failed bid for Yahoo," writes the Financial Times. Though analysts were downbeat on Redmond's online vision, Ballmer believes the market is young enough for his tortoise to catch Google's hare. "I know it may feel some days like it's all over. The story has been written. But, if you look at it today, the bulk of advertising and marketing in the world, the lion's share, is offline, not online," Business Week quotes him as saying.

Blogs and social networks aren't just shaking up big media and frightening politicians. They're also creating new types of jobs. Just ask Frank Eliason, the "digital care manager" at Comcast, whose job is to identify and respond to customer complaints posted on social media channels. That's a genuine corporate breakthrough: an employee with a legitimate reason to be logged into Facebook in the office.

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Matthew Yeomans has covered everything from the dot-com bust to the global oil boom. Today, he is founder of Custom Communication, providing social media strategy and branded content for companies.
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