Biggest Market Gains In History

Morgan Stanley shares are soaring today as Mitsubishi (MUFG) completes its $9 billion investment.

Mitsubishi UFJ Financial Group Inc (MUFG) completed its $9 billion investment in Morgan Stanley on Monday as U.S. government support helped nail down a critical deal many investors had feared could fall apart.

Morgan Stanley shares soared more than 75 percent after Japan's largest bank bought a 21 percent stake one day earlier than expected. Last week the New York bank's stock plunged by more than half amid fears that Morgan, forced to wait five days before completing the deal, might not survive the crisis.

"It's different terms, but it's done, and I think people should breathe a sigh of relief that it's done," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

Amending the terms of a September 29 agreement, Mitsubishi bought preferred stock convertible into a 21 percent stake in Morgan for $9 billion cash. Yet the entire investment now consists only of preferred shares, the banks said.

Previously, Mitsubishi had agreed to buy $3 billion of common stock at $31.25 a share, but the Japanese bank pushed for new terms after Morgan's stock plunged to $9.28. Morgan's total market value had fallen to $10.3 billion, and some customers were starting to lose confidence.

The U.S. government did not invest in Morgan Stanley, as had been speculated, but federal officials were involved in the talks and assured MUFG over the weekend that its investment would be protected, a person familiar with the matter said.

About $7.8 billion of MUFG's investment was in preferred shares with a conversion price of $25.25 a common share and with no maturity date. The other $1.2 billion is in preferred stock that is not convertible and also has no maturity date.

Both preferred series pay a 10 percent interest rate, unchanged from the original pact.

Morgan Stanley 30 Minute Chart



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Add another $9 billion to US guarantees. Is this what it is going to take to get a deal done now? Regardless, Morgan Stanley and the Market are both soaring.

Bloomberg is reporting U.S. Stocks Rally on Bank Plan; Dow Has Biggest Point Gain Ever.

U.S. stocks staged the biggest rally in seven decades on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.

The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points. Morgan Stanley soared 87 percent after sealing a $9 billion investment from Japan's Mitsubishi UFJ Financial Group Inc. Alcoa Inc., General Motors Corp. and Chevron Corp. climbed more than 20 percent each as all 10 industries in the S&P 500 added more than 7 percent.

The S&P 500 rose 104.13 points to 1,003.35. The Dow increased 936.42, or 11 percent, to 9,387.61, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since March 1933. The Nasdaq Composite Index increased 194.74, or 12 percent, to 1,844.25. Thirteen stocks gained for each that fell on the New York Stock Exchange.

The S&P 500 halted an eight-day losing streak, its longest since 1996. Last week's 18 percent declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended last week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.

In Elliott Wave terms the market is in a 4 of 3 up. See the S&P 500 Crash Count for more details. In terms of price, given the magnitude of today's move on top of the huge move up from Friday's low, the rally may be 65% over already. In terms of time, the rally likely has several weeks to a couple of months to play out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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