Entries for September 2008

Turmoil in the credit markets has pushed Libor—the London interbank offered rate—to an all-time high, according to the British Bankers' Association.

So what exactly is Libor, and why is this significant?

Libor (pronounced LYE-bor) is an interest rate set in London each business day. It's the rate at which banks lend to other banks that need temporary funds, by way of the London interbank market. This benchmark is significant because it represents the rate at which the world's most preferred borrowers are able to borrow money, and it's also a widely used reference point for short-term interest rates.

Market got you down? In times like these, you can't go wrong with a warm bowl of soup. And in this economy, it doesn't hurt that soup is cheap.

Perhaps that's why Campbell Soup Co. was the only member of the S&P 500 that escaped the sell-off Monday. "The one thing you can afford to eat when you're destitute is soup," says Tom Sowanick, chief investment strategist of Clearbrook Financial in Princeton, N.J. "Silly as that may sound, if you have no confidence in your banking system and no confidence in the financial markets, the only thing you can have confidence in is the ability to build a bunker."

Campbell's shares (symbol CPB) rose 0.3 percent, or 12 cents, on Monday, to close at $37.75. By no means is this stock shooting out the lights, but it's up 23 percent since mid-January and has been on a steady climb since July. The company—which is also responsible for Pepperidge Farm, Pace salsas, and V8—announced last week that it's increasing its quarterly dividend by 14 percent, to 25 cents a share.

Here's a take on the market from Tom Sowanick, chief investment strategist of Clearbrook Financial in Princeton, N.J. Excerpts:

What do you see as the consequences of the rejected bailout?
The consequences are exactly as they were described in advance. We're having a financial panic, and just had the worst day of equity performance since 1987. I don't think it can last very long, in part because the devastation that will occur to financial assets will force some sort of a different type of intervention—I'm not even sure what that would be. It could be the Federal Reserve buying stocks outright or lending outright to industrial companies, not just financial companies—opening the discount window to all companies if there's no resolution soon.

How will that shake out for stocks?
Stocks are getting to the point where value isn't important. We've taken some of these companies down to levels that are so inexpensive, they're actually frightening. That's when people start to panic. Nobody cares about value in this marketplace, just about safety. Right now, owning a T-bill and earning 0.29 percent sounds pretty good.

What advice do you have for investors?
Do some serious homework on where you're doing your banking, where you're doing your brokering. If you're an investor, you have to take a long-term view. Oftentimes, you're much better served to enter the markets when they're as chaotic as they are now and start to establish positions.

Citigroup's strategic acquisition of Wachovia will make Citi the largest U.S. bank by total deposits. But what will it do for Wachovia customers and shareholders?

Wachovia plans to sell its retail bank, corporate and investment bank, and wealth management businesses to Citigroup. The transition for customers should be seamless, the company said in a press release: "Customers of both companies should continue banking as usual and feel confident that their deposits are secure." The FDIC also assured continuity of service. It's unclear whether Wachovia will operate under its own name or the Citigroup name, the Atlanta Journal Constitution points out.

This may sound counterintuitive to those who haven't had "buy low and sell high" drilled into their heads, but a down market signals a great time to invest.

Says Carmen Wong Ulrich, host of CNBC's "On the Money" and blogger: "Don't think you're diving into a pool with no water; what you're really doing is diving in and buying low," she says.

She adds, "You shouldn't look at [your balance] every day.... Try to understand that the loss you're seeing is what you have in your hand, but it's not disappearing."

Here's what she had to say specifically about 401(k)'s:

If lawmakers cement a bailout deal soon, the market's likely to see a bounce on Monday. But then what?

Says Mike Avery, comanager of the Ivy Asset Strategy fund: "I think we're in a period where global growth—including U.S. growth—is going to be very slow for a long period of time, maybe for the next couple of years."

Avery, who runs a fund that invests in a combination of stocks, bonds, cash, precious metals, and currency, says he'll probably use the rally to get more defensive with "more gold bullion." He adds that "the equities we're sticking with I'd characterize as large-cap global brands—the Nestlés, Coca-Colas, and the Yum Brands of the world; companies that have clean balance sheets and the ability to self-finance through their own cash flow."

Are you ready for the marriage of Wrigley's gum to the maker of Combos and Skittles?

Shareholders of the William Wrigley Jr. Co. (symbol WWY) just approved a $23 billion sale of the company to the privately held Mars Co., maker of such recognizable brands as Snickers, M&M's, and, of course, the Mars bar (interestingly, the company also owns the Pedigree and Whiskas pet-food brands). The deal, to be finalized in early October, will make Mars the world's largest candy maker—knocking Cadbury from the top spot. It also marks the end of more than 100 years of family control—including four generations of Wrigleys—over the gum empire. Dealbook points out that Mars, founded in 1911, is still run by descendants of its founder, Frank Mars.