Breaking Wall Street Market News & Reports

BofA

Warren Buffett’s Berkshire Hathaway will invest $5 billion in Bank of America (NYSE:BAC), stepping in to shore up the company in the same way he helped prop up Goldman Sachs during the financial crisis. Bank of America shares rose 24 percent to $8.65 in early trading, erasing a large part of the stock’s August losses. This helps with the credibility gap that I think has existed in the minds of some shareholders. It reiterates the point that the balance sheet is healthy. They needed an endorsement in the market and they got it.

Bank of America will sell Berkshire // 50,000 shares of cumulative perpetual preferred stock with a 6 percent annual dividend, it said in a statement Thursday. Bank of America can buy back the investment at any time by paying Buffett a 5 percent premium. Berkshire also will get warrants to buy 700 million Bank of America shares at an exercise price of just over $7.14 a share, with the ability to exercise any time in the next 10 years. It is virtually a mirror of the deal Berkshire did with Goldman Sachs (NYSE:GS) in the depths of the crisis in fall 2008, except in this case the dividend is less. The Goldman deal paid Berkshire $15 a second in dividends until Goldman bought Buffett out earlier this year.

Europe

The three major rating agencies Fitch, Moody’s and S&P reaffirmed Germany’s rating and outlook on Thursday, after the country’s main stock index fell sharply on market speculation that a downgrade was on the cards. The markets were awash with speculation throughout the afternoon, with German regulator BaFin earlier denying earlier rumors that a ban on short selling will be implemented for the DAX. We are not planning any changes of the short selling rules which are already in place, BaFin representatives said. US stocks dropped around 1 percent, tracking earlier weakness in the DAX and Europe.

Gold Correction

 Gold prices fell for the third day as stronger equities and hopes of more monetary stimulus emboldened traders to seek riskier investments. Gold prices have slumped 11% peak to trough, putting them firmly in correction territory, as fears about a U.S. recession and the spread of Europe’s sovereign-debt problems take a back seat to renewed risk appetite. Investors have been willing to pay higher and higher prices for gold, which soared to a record $1,917.90 a troy ounce, as growing uncertainty about the global economy stirred demand for a sound store of value. Gold has been the only safe haven for a while there but some trades are concerned that gold has been going parabolic, we’ve been going up since the middle of July with no meaningful pullback. 

The recent 10% correction in benchmark U.S. stock indexes has some investors searching for bargains and selling profitable gold positions to pay for stocks. There’s a sense that maybe this equity selloff has been over done,” while gold’s ascent has been too much, too fast. A speech by Federal Reserve Chairman Ben Bernanke scheduled for Friday is further clouding the outlook for gold. Bernanke is due to address an economic symposium at Jackson Hole, Wyo., and many traders are hoping the Fed Chairman will hint at a third round of monetary stimulus. Dashing these hopes could damp the outlook for stocks and renew concerns about a U.S. recession, which would boost demand for gold as a haven. Yet, without such stimulus, inflation another driver of gold demand is unlikely to resurface. A lack of fresh easing signals by Bernanke on Friday could send gold down to $1,580

Gold on the Comex division of the New York Mercantile Exchange fell further on Thursday morning due to heavy liquidation after CME Group said it would raise margin requirements another 27 percent. As of the close of business tonight, speculators in Comex gold will be required to make an initial deposit of $9,450, up from $7,425 previously, to hold a benchmark 100-ounce gold contract overnight. The maintenance margin requirement for speculative traders and the margin for hedge accounts will rise to $7,000 from $5,500. By raising the margins, CME aims to rein in speculation by making it more expensive to hold the same amount of gold. This places short-term downward pressure on prices because smaller investors will be forced to liquidate positions to meet the higher margins.
“[But] while this might have placed a dampener on gold, and will probably continue to weigh on prices today, we don’t view this as overly bearish for gold.

But many in the market suspect that this is only the second in a series four or five margin increases. When silver approached $50 per ounce earlier this year, CME increased margins four times over a three-week period. “Proper margining would seem to be closer to $15,000 per contract, for given the volatility that exists presently the exchange needs to protect itself and its clients from the possibility that a large speculator or two or three cannot put the exchange into jeopardy.

Furthermore, exchange-traded fund (ETF) investors are currently taking profits after the record-breaking price rally and are shifting money to other investments such as equities, broker Commerzbank said in a note. For example, SPDR Gold Trust, the world largest ETF, registered outflows of more than 27 tonnes yesterday and 58.5 tonnes in total this week. “Although the price fall may to continue for a while, the lower price level could be used for greater physical gold buying, especially in Asia, and this is likely to prevent the price from dropping much further,” Commerzbank added. Another factor in gold’s slide has been the strong performance of the global share markets over the past several sessions. There is a feeling among market participants that equities had been oversold, while gold was overbought.