Tuesday’s Market Recap: Warren Buffett To Invest At Least $5 Billion In Goldman Sachs

What seemed to be a good day for the markets early on turned sour in the afternoon. Fed Chairman Ben Bernanke urged lawmakers that a recession was an immediate risk, due to the high unemployment and increased home foreclosures, if they do not act quickly on the $700 billion plan to bail out the financial industry created by the Bush administration. Bernanke stated following a question by Senator Chris Dodd, “I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way.” If the Bush administration did not come up with the emergency plan, would today’s rough times be considered a recession? Perhaps we’ll never know.

The Dow Jones Industrial Average (^DJI) closed down 1.47% to 10,854.17. During the trading day early on, DJIA hit 11,143.21 but then quickly began to fall due to uncertainty regarding the bailout plan. The Nasdaq (^IXIC) closed down 1.18% to close at 2,153.33 and the S&P 500 (SPY) finished at 1,188.22 to end down 1.56% on the day.

The 30-Year U.S. Treasury yield which moves opposite to prices fell to 4.38%, and the 10-Year yield fell to 3.80%. Following yesterday’s unbelievable day watching oil, nobody knew how oil would trade today. Charles posted an article on what caused crude to climb on Monday. Oil fell to $106.95. Gold fell to $891.20 an ounce, declining 1.96% after we saw gold rise to $902.00 an ounce. After a tough day for the dollar on Monday where it fell 2.3% against the Euro, Tuesday the dollar regained some strength against the Euro.

The financial stocks were heavily watched and traded today following the new bailout plan. Goldman Sachs (GS) traded up 3.54% to close at $125.05 and is rising higher in after-hours trading. Berkshire Hathaway, led by Warren Buffet, said Tuesday he would invest at least $5 billion in GS. He will be buying perpetual preferred stock which has a dividend of 10 percent and is callable at any time at a 10 percent premium. Meanwhile, Morgan Stanley (MS) rose 3.36% to close at $28.00 but is also rising heavily after-hours. Bank of America (BAC) fell to $33.30, down 2.49%.

I will end the Market Recap today with a quote by Treasury Secretary Henry Paulson. “I share the outrage that people have,” Paulson said. “It’s embarrassing to look at this. I think it’s embarrassing to the United States of America. There is a lot of blame to go around.”

Disclosure: The mutual fund that the author is associated with is long GS and BAC.

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