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Banks, Bulls and Bear:  Gauging a Wild Week

It was a week in which the news began and ended with the financials.

In between, the Federal Reserve took dramatic action to pump liquidity into the economy, New

NYSE traders
AP
NYSE traders

York's governor was caught up in a career-ending scandal, and the markets posted their biggest one-day gain in years.

Taking It to the Bank

Billionaire investor Wilbur Ross opened the week with a sobering prediction.

"I think you're going to see a lot of depository institutions fail,' he told CNBC.

The next day, the Federal Reserve announced plans to pump hundreds of billions of dollars into the economy, setting off a stock-market rally that produced the biggest one-day percentage gain in the Dow Jones Industrials in five years, the biggest Dow point gain since 2002, and the biggest point gain in Standard and Poor's 500-stock index since 2001.

Many market experts were unimpressed. Charlie Smith of Fort Pitt Capital agreed with a commentator who dismissed the Fed action as "a cortisone shot," and, in the same interview, Thunderstorm Capital Chairman John Dorfman said, "The Fed has dressed the wound, but the patient still has the flu."

Hard to Bear

On Friday, there was dramatic evidence that Bear Stearns couldn't even hold up until the Fed's liquidity-injection took effect. JPMorgan Chase said it and the Federal Reserve Bank of New York had agreed to provide Bear Stearns with secured funding, as necessary, for up to 28 days.

The development underscored the problems at Bear Stearns, but it also gave new evidence of the clout at JPMorgan.

"For me, you want to own the highest quality banks that you can," BlackRock portfolio manager Kevin Rendino told CNBC. "My favorite is JPMorgan, because I think that Jamie Dimon is the best bank CEO that there is right now, and I think they'll win coming out of this, and there will be a 'coming out of this' at some point."

Blue Chip Blues

But not yet. Colossal problems continued to haunt the economy through the week. The dollar skidded against world currencies, passing 100 yen, one and a half euros, and two pounds. Consumer sentiment slipped to a 16-year low.

Financial exposure even continued to drag on solid giants like CNBC.com parent General Electric, making skeptics of people like BlackRock vice chairman Bob Doll.

"If we're going to own GE, we would much rather play the non-financial part of GE, and you can get that in other places: Honeywell, Raytheon, as examples," Doll told CNBC.

No Place To Hide

There was even some evidence that foreign exposure is becoming less helpful as a hedge.

John Chisholm of Acadian Asset Management said he expects the Chinese and Indian economies to lose some of their attractiveness to investors, and has underweighted his investments accordingly.

"We still think there are good investments in the emerging markets, but we don't expect nearly to see the same kind of return for the next five years that we've seen over the past five years," Chisholm said.

He recommended Brazilian bank Itau, which he said has minimal connection to the American mortgage market; Thailand-based, energy-related company PTT; and Russian oil giant Lukoil.

Love Client # 9

Finally, Wall Street was almost too preoccupied with its own crisis to notice the political catastrophe in its own back yard.

Eliot Spitzer, whose scorched-earth "Sheriff Of Wall Street" prosecutions helped him leap from New York State attorney general to governor, turned in his resignation after being identified as "Client No. 9" in a federal investigation of a high-rent prostitution ring.

At week's end, with several days to go before his resignation took effect, things were going from bad to worse for the former crusader, amid reports that investigators were trying to determine if Spitzer's trysts had been illegally funded with campaign money.

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