We all know what happened yesterday, with the DJIA closing up 936 points. As happy as I was to see it, Morgan Stanley’s 88% gain in a single day seems almost as irrational as the fears that pushed it down as low as it got.

Early news seems to be indicating that the market should have another up day today in light of the new bank recapitalization plan announced by the Bush Administration.

Today’s Markets - WSJ.com

U.S. stock index futures rose after the previous day’s record-setting rally, as investors cheered the government’s bank-recapitalization plan.

About an hour before the start of trading, Dow Jones Industrial Average futures were higher by nearly 400 points. S&P 500 and Nasdaq 100 futures also gained by a large margin. Futures trading doesn’t always accurately predict early stock market moves after the opening bell.

Monday, stocks snapped a brutal losing streak as the Dow Jones Industrial Average enjoyed its biggest one-day point gain ever following new moves by governments to shore up the global financial system. The Dow leapt 936.42 points, or 11.1%, to 9387.61. The rally ended an eight-day slide in which the blue-chip measure plummeted almost 2,400 points. Meanwhile, the S&P 500 added 104 points and the Nasdaq Composite put on 194 points.

Those gains spurred rallies Tuesday in Asia and Europe. Tokyo’s Nikkei surged 14.2%, its biggest single-day percentage gain. European markets were broadly higher in midday trading, with most major indexes gaining at least 5%.

Even so, I full expect there will be a profit-taking pull-back before the end of the week.

Now, believe me, while I am hoping that yesterday’s action does mark the bottom and the beginning of a turnaround, I don’t think that volatility to going to stop anytime soon. This is a time to carefully weigh your decisions in the market … invest wisely, hedge well, and be prepared for more pain (although hopefully not as deep as it has been the past several weeks). I think things are going to be far too unpredictable for at least the next few months, until well after the election and inauguration, until the new President has a chance to start implementing his economic policies.

Just be prepared for the roller coaster ride …

This week was totally unreal. Over the course of the past 6 weeks, since the beginning of September, I have lost over 50% of my net-worth; almost all of which is in my retirement plan.

On the other hand, I have been averaging my cost-basis down in Morgan Stanley, picking up another 150 shares yesterday, and I think about 350 shares today … so I now hold about 1050 shares altogether. A year ago, my 500-ish shares was worth about $33,000.00 … my now 1050-ish shares is worth about $10,000.00.

I still find it hard to believe that Morgan Sanley has lost about 85% of its value per share in that time … and our share price is now about 41% of our book value. Yep, we’re selling for 41-cents on the dollar of our actual value.

Wild Day Caps Worst Week Ever for Stocks - WSJ.com

The Dow Jones Industrial Average capped the worst week in its 112-year history with its most volatile day ever, as hopes for a major international bank-rescue plan were overwhelmed at day’s end by another wave of selling.

Some investors who normally would be jumping to buy beaten-down stocks after a 22% decline over eight trading days said the relentless declines have left them shell-shocked and unwilling to take new risks. Some spent the day trying to protect themselves from further declines.

The Dow fell 697 points shortly after the opening bell, and remained down most of the day. It surged to a 322-point advance less than half an hour before the close. Investors stampeded into bank stocks as reports circulated that the Group of Seven leading industrial countries were going to agree on a plan to rescue major banks, and that Morgan Stanley had been assured that it would receive funding from a Japanese bank. Hopes briefly blossomed that the worst might finally be over.

And then thing started plowing their way back down again. On the other hand:

Can Morgan Stanley Outrun ‘The Fear Virus’? - WSJ.com

Morgan Stanley’s stock has dropped 20% after falling as much as 35%. It is trading at around $9.50 each share. Moody’s is threatening a downgrade. People are nervous.

Should they be?

Deal Journal set out to find out. Morgan Stanley filed its third-quarter 10-K last night. The highlights of the filing show that the bank is not in trouble — or at least, it certainly was not at the end of the third quarter. Deal Journal took a look at some measures of Morgan Stanley’s health, and whether they improved or became sickly.

For now, the deal with Mitsubishi UFJ is still on:

Morgan Stanley shares fall 36% today - CNN Money

Spokesmen for both Morgan Stanley and Mitsubishi UFJ reiterated on Friday that the deal is set to be completed by Tuesday. There has been speculation in recent days that the transaction could fall apart as the deepening credit crisis makes financial companies even more vulnerable.

Mitsubishi UFJ agreed to pay $6 billion for preferred stock and $3 billion for common stock at a value of $25.25 apiece. That’s 50% more than Thursday’s closing price.

Pressure on Friday also stemmed from concerns that Morgan Stanley’s counter-parties and trading partners could lose confidence and pull their business. That’s one of the reasons Lehman and Bear Stearns were unable to survive, but Morgan Stanley might be in a bit better shape.

The investment bank has about $900 billion of assets and an equity market value of about $8 billion, and is still considered to be one of the world’s most well-capitalized investment banks. A research report from Barclays Capital said Morgan Stanley has between $100 billion and $115 billion of liquid reserves.

And, rumor does have it that Morgan Stanley will be one of the first beneficiaries of the Treasury’s program to purchase equity stakes in banks to help inject more capital into the system.

U.S. Proceeds With Plan for Equity Stakes in Banks - NYTimes.com

Treasury Secretary Henry M. Paulson Jr. said Friday that the government would move ahead with a plan to buy stock in financial institutions in an effort to unfreeze the credit markets and resuscitate the economy, and it came at the end of the worst week that Wall Street had ever seen.

“We can solve this crisis,” President Bush said in an address at the Rose Garden on Friday.
Mr. Paulson made his comment shortly after he and the chairman of the Federal Reserve Bank, Ben Bernanke, met with the finance heads of the world’s major economies in Washington and promised to work together to try to ease the financial crisis that roiled the markets for the last week.

Although the Wall Street Journal is still raising some doubts.

Morgan Stanley Enters Weekend Beset by Doubts on MUFG Deal - WSJ.com

Morgan Stanley is valued at about $10.3 billion, after its shares plunged 22% on Friday. Japanese bank Mitsubishi UFJ Financial Group has agreed to pay $9 billion for what was a 21% stake when the deal was announced last month.

The stock’s freefall during the past four weeks leaves Morgan Stanley facing what it is likely to be the most fateful weekend in the investment bank’s 73-year-history. Doubts that the MUFG deal will be completed by Tuesday are haunting Morgan Stanley, despite repeated assertions from both sides that it will go through.

A person familiar with the matter said Friday that Morgan Stanley isn’t renegotiating the terms of its deal. But that could change as MUFG officials pore over Morgan Stanley’s books in New York this weekend and government officials meet in Washington about finding a way out of the global financial crisis.

All in all, it’s going to be interesting to see what happens over the weekend, and how we start off the week on Monday.

Hopefully, it’s not just blind faith on my part, but I actually think that Morgan Stanley will make it through this crisis okay … bloody and bruised, but not out of the game … obviously, our business model is going to be different than it has been for the past 73 years; but change can be a really good thing.

This nation’s economy is fucked … Republicans created this mess, Republicans came up with a solution to this mess, and yet Republicans are refusing to fix this mess, even though almost every thing the members of the House that revolted asked for was included in the bill being presented and voted.

What are they thinking?

Every single representative that voted against this bill, on BOTH sides of the aisle, needs to be thrown out of office in 5 weeks time.

Bailout plan rejected - Sep. 29, 2008

NEW YORK (CNNMoney.com) — The fate of the Bush administration’s $700 billion financial bailout plan was abruptly thrown in doubt Monday as a House vote turned against the controversial measure.

The next steps were not immediately clear but supporters were scrambling to put it up for another vote.

What was supposed to be a 15-minute vote stretched past the half-hour mark as leadership scrambled for support.

Investors who had been counting on the rescue plan sent the Dow Jones industrial average down as much as 700 points while watching the measure come up short of the necessary support, before rebounding slightly. The key stock reading was down more than 500 points.

The measure needs 218 votes for passage, but it came up 13 votes short of that target, as the final vote was 228 to 205 against. About 60% of Democrats voted for the measure, but less than a third of Republicans backed it.

President Bush is “very disappointed” by the House vote, his spokesman Tony Fratto said.

And now the finger-pointing begins.

Lawmakers quickly point fingers after bailout fails - CNN.com

The Republican House leadership blamed Speaker Nancy Pelosi for giving a partisan speech before the voting that alienated House Republicans.

While thanking Treasury Secretary Henry Paulson for negotiating on the bill, Pelosi said that the Democrats had insisted that the bill “protect the American people and Main Street from the meltdown on Wall Street.”

“Pelosi’s hyperpartisan floor speech infuriated a lot of our members and it has torpedoed this bill,” one Republican aide said.

But Democrats dismissed the Republican complaints, saying the Republican leadership failed to convince their members to support the bill.

“We delivered our votes. They did not deliver theirs,” one Democratic aide said.

Before the vote, many House Republicans expressed opposition to the bill, saying it departed from free market principles. Republican congressional aides also said calls from constituents were running 10 to 1 against the legislation.

Wah wah wah … because some Republicans feelings were hurt, they’ve decided to punish the American citizen by not acting; by blocking a necessary relief package to stimulate the economy.

Listen, you idiot Republican representatives. This is NO time to listen to constituents, 90% of whom do not understand the consequences that not passing such legislation will have … sometimes, you have to put both party and polls aside and do what’s right for the nation. This plan, as unpopular as it is, is still absolutely necessary to protect the American (and global economy).

And this is really no time to bitch and whine and cry and moan because Nancy Pelosi said something that hurts your feelings.

By voting against this bill, you have jeopardized the national security of the United States.

Mounting Liquidation Fears Squeeze U.S. Stock Market
March 6, 2008 5:40 p.m.

Worry about the health of the credit markets made a noisy comeback Thursday, leveling financial stocks and sending many investors scampering for the safety of government debt.

Revelations that two large investors had missed recent margin calls raised fears that more investors could be forced to liquidate assets to meet their obligations to lenders, possibly setting off a nasty spiral in which assets are unloaded into a declining market, placing even more downward pressure on values and leading more lenders to call in loans.

“The uncertainty in the market is rising,” especially in light of the margin calls, said Jim Russell, senior portfolio strategist at U.S. Bank. “Once those things get triggered you can have forced selling by leveraged players. That just adds fuel to the fire.”

The Dow Jones Industrial Average plunged by 214.60 points, or 1.8%, to end at 12040.39, hammered by sharp declines in all three of its banking components. Bank of America dropped 2.7%, Citigroup fell by 4.4%, and J.P. Morgan Chase shed 3.5%. The Dow industrials have slipped in five of the last six sessions and are now down 9.2% for the year to date.

The Standard & Poor’s 500 fell 2.2%, or 29.36 points, to end trade at 1304.34, the lowest close for the broad market measure since Sept. 22, 2006. It is down 11% this year and is 17% below the record close that it marked in October. The index’s financial sector was its worst performer Thursday, falling 4.2%.

It’s one thing when an individual investor misses a margin call, and has part of their portfolio sold out to cover. But when a hedge fund that is leveraged to 32 times its capital under management misses margin calls, life is going to get painful for a lot of people.

Carlyle Capital Receives Additional Default Notices
By PETER LATTMAN
March 7, 2008 7:05 a.m.

Carlyle Capital Corp. Friday said lenders were liquidating some of its mortgage securities, painting an even bleaker picture of its already perilous situation.

In a short news release issued early Friday, the fund, which is managed by a unit of Washington, D.C., private-equity firm Carlyle Group, said it received “substantial additional margin calls and additional default notices from its lenders” and that “these additional margin calls and increased collateral requirements could quickly deplete its liquidity and impair its capital.”

On Thursday Carlyle Capital roiled the financial markets when it said it failed to meet margin calls on its $21.7 billion portfolio. The fund said it had received a notice of default from one of its lenders that helps finance its portfolio of highly rated mortgage securities. Shares in the fund, which is listed in Amsterdam, slid about 60% Thursday.

And then I read this:

Housing, Bank Troubles Deepen
Foreclosures Reach A New Record; Home Equity Falls
By SUDEEP REDDY and SARA MURRAY
March 7, 2008; Page A1

Two crucial barometers of the nation’s housing market have worsened markedly in recent months, ratcheting up pressure on policy makers in Washington for action to stem the growing housing crisis and its widening impact on the nation’s financial system.

Among the latest trouble signals, the number of American homes entering foreclosure rose to the highest level on record in the fourth quarter of 2007. Meanwhile, homeowners’ share of the equity in their homes fell to a post-World War II low.

The unwelcome contrast provides stark evidence of how falling home prices are weighing on consumers. And it could add urgency to efforts by Federal Reserve officials to avert a larger wave of foreclosures by prodding lenders to reducing the principal — or total amount owed — on troubled mortgages.

Now, granted, a lot of people took on a lot of really stupid mortgages over the past few years, and some of them deserve what they get … but what doesn’t make sense to me is how many people are letting themselves get into this situation. Face it … banks don’t want to foreclose on their loans. They would much rather work with the borrowers to set new payment terms … but most borrowers won’t go to their lendors and say “I’m in trouble and need help” until it’s far too late.

Housing should be among the top-three items that get paid for when you get paid. Make sure you have a place to live, make sure you have food to eat, and make sure you have some way to get to/from work. Anything else can wait. If you don’t pay your credit cards, your credit score may suffer (albeit not nearly as much as it will if you default on a mortgage), but you’ll still have a place to live.

Sell your big stupid SUV and downgrade to a sensible little 4-banger (or even, shock & horror, ride a bicycle!). Get rid of cable/satellite … sell the plasma-screen if need be. Take on a tenant in your McMansion, to help cover the mortgage payment. Stop buying steaks and fast food, and make do with veggies and pasta and less meat; you really only need 3-4 oz of protein a day, and there are lots of sources from whence you can get it.

But don’t put yourself in a situation where you might lose your place to live when you still have other options. That is sheer idiocy.

I’m tired of watching my portfolio value continuing to drop … even after receiving my company matches for the past two years in my 401(k), it’s value is less than it was at the beginning of 2007 (prior to actually receiving the match for 2006), and it’s certainly less than it was at the beginning of 2008. I think I’m actually getting close to having a negative average-annual ROI (return-on-investment) overall from when I started at Morgan Stanley in 1999, but it hurts too much to look right now.

My only consolation is knowing that I’m buying in at lower prices now, and that when the market finally does recover, I will own more shares … but the short-term pain is still extremely painful. It’s the financial equivalent of a kidney stone … you know you’ll survive it, but in the midst of the pain, you’re not quite sure how.