Steve Schaefer, 09.24.08, 12:20 PM ET
It was a case of déjà vu on Wall Street--stocks paused with Congress conducting hearings on the planned rescue package for the financial sector.
Minimal early gains were eroding, with the Dow down 27 points, or 0.3%, to 10,827. The S&P 500 was off 2 points, or 0.2%, to 1,186; while the Nasdaq held onto a slim advance, up 7 points, or 0.3%, to 2,161. A vote of confidence for Goldman Sachs (nyse: GS - news - people ) gave financial stocks a modest lift, after billionaire Warren Buffett made an aggressive bet on the firm.
Buffett'sBerkshire Hathaway (nyse: BRK - news - people ) is investing $5.0 billion in Goldman, which has sailed through the credit crunch relatively unscathed, but proved unable to avoid the lack of confidence that took down rivals Bear Stearns, Lehman Brothers Holdings (nyse: LEH - news - people ) and Merrill Lynch (nyse: MER - news - people ). Monday, Goldman and Morgan Stanley (nyse: MS - news - people ), the last two independent securities firms left on the Street, sought and won Federal Reserve approval to morph into commercial banks in a move to gain easier access to funding.
Just days later, the Buffett investment fares well for Goldman's future, even if it comes at a steep cost: perpetual preferred shares with a 10.0% dividend and warrants to purchase a batch of common shares priced at $115.00. The deal gives Buffett an immediate profit -- 11.9% early Wednesday with Goldman up $3.66, or 2.9%, to $128.71 -- and stands to become even more lucrative if Goldman can return to its pre-crisis salad days when its shares peaked above $235.00. (See "Buffett's Golden Goldman Buy.")
Goldman's gains showed that investors take solace in one of the nation's most-respected businessmen throwing his support behind the Street. The firm is also planning to sell an additional $2.5 billion of common stock, but the prospect of further dilution hardly rattled existing shareholders. (See "Goldman Doubles Down.")
Meanwhile, even as Buffett was making his bet on Goldman, Fed chief Ben Bernanke and Treasury Secretary Henry Paulson were set for another round of hearings to defend their $700.0 billion rescue package to prop up the U.S. financial system. Bond traders rushed back into the perceived safety of government debt, despite expectations a hefty debt issuance will be part of any bailout plan.
Treasury yields faltered, with the steepest drops coming in shorter maturities. The three-month T-bill was yielding 0.51%, down from 0.86% Tuesday. The 10-year note yield slipped to 3.77%, from 3.84%, while the two-year yield fell to 2.03%, from 2.11%.
A steeper-than-expected drop in August existing home sales did little to faze investors, after the National Association of Realtors recorded 4.91 million sales for the month, down from 5.02 million in July. The July figures included a notable percentage of distressed homes purchased out of foreclosure. The August data also had one encouraging sign, as the report showed a 10.4 month supply of inventory, down from a revised 10.9 months in July.
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