Bailout Bill Dies: Weakness Hits Everyone; GOOG Closes Below $400; AAPL Off Nearly 20 Percent
This story was written by Joseph Weisenthal.
Apple: Down 18 percent. Google: Down 9 percent. Yahoo: Down 9 percent. Amazon: Down 12 percent. Yeah, that was a pretty ugly day in the market, as the House of Representatives stunned the world by killing a bailout deal that everyone assumed was a given. Then again, it was ugly even before the voting started, perhaps on murmurs that the deal would fail, though maybe investors felt it wouldn't have done any good.
The good news: If you're Apple (NSDQ: AAPL), Google (NSDQ: GOOG), Yahoo (NSDQ: YHOO), Time Warner (NYSE: TWX) or anyone else with an actual product, you can't have a run on your business. You can't fail overnight just because your partners lose confidence in youunlike the various banks that went from business as usual to bankrupt in a matter of hours. But as Warren Buffett recently said artfully, the economy is like a bathtub. You can't have it warm in the back and cold in the front.
And it's clear that the financial sector is getting splashed with ice water. Take a look at the regional banks today. These are normal, everyday, retail banks whose business does not revolve around running hedge funds and other bizarre activities. Ohio-based Fifth Third was down over 33 percent today. Sovereign Bancorp, just a regular bank, fell over 70 percent today. Those declines create a feedback loop, since their customers are now wondering whether they'll actually fail. Try checking Twitter to see if the bank's customers get concerned about their deposits
More after the jump
If you were switching back and forth between CNBC and C-SPAN today, you'll have heard many pundits say that the stock market isn't where you want to look to gauge the panic. The big fear is the credit marketsparticularly short-term lending. This is the money that companies borrow Thursday to make payroll on Friday, which they promise to pay back by Monday. It's what makes it all flow. And if that flow freezes over, that affects everyone. Explaining how the media sector is exposed to every other sector of the economy hardly needs an explanation.
Besides exposure via advertising, it's worth pondering the state of deals. Certainly leverage deals are through, but then again, that story is basically a year old already. Financing will get tougher, but barring Armageddon, lending isn't done. Put it this way: If Microsoft were to revisit its Yahoo bid and it wanted to finance several billion of it, it'd have no problem taking on debt. There are still plenty of lenders that would love to park some of their cash with a company like Microsoft (NSDQ: MSFT). On the VC side, funds still need to invest the cash that they hold. And though the IPO market is dead, that's another old story.
All that being said, it's still hard to imagine the government not doing something quickly. Politicians aren't used to the swift discipline of the market. Typically, they'll make a vote, and at worst, they'll have to answer for it at a low-ratings debate a year later. Usually, the result of bad decisions aren't felt until well after the vote is made. Today, cause and and effect was pretty clear. The vote failed and the markets tanked. Plenty of politicians have legitimate philosophical oppositions to this deal. And supposedly calls to congress have been running "100 to 1" against the deal. Let's see how fast that resolve wilts in this market.
Meanwhile, our ContentNextDex, an index of the top 100 digital media-related firms fell a stunning 9.4 percent to 697.90. That's pretty comparable to the 9.14 percent decline in the NASDAQ.
By Joseph Weisenthal