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Market Recap: Buffett/Paulson Combo; Stocks Edge Higher


Buffett's offer helped markets rally a second day.

Bulls fought a late-day selloff to finish the day higher. The Dow Industrials added +133 points, or +1.09% to 12,373, the S&P 500 added +9.7 points, or +0.73% to 1,348, but the Nasdaq Composite edged slightly lower, losing -0.02 points to 2,320.

Stocks received a lift this morning when Warren Buffett announced on television that he was willing to insure up to $800 billion of municipal bonds guaranteed by the troubled bond insurers MBIA (MBI), Ambac (ABK) and FGIC. The billionaire investor said Berkshire Hathaway (BRK.A) would assume the risk of the debt excluding the subprime-related obligations. The offer helped boost stocks as investors interpreted the actions as positive for the credit markets. But others were more skeptical.

"Unlike the Fed, Mr. Buffett is a capitalist," said Mr. Practical, "He is not here to give money away; he is here to earn it. Essentially Mr. Buffett is proposing to buy the 'good' assets of the bond insurers. He is trying to get these companies to sell what they can, not what they need to. At a discount of course."

Although the sentiment was generally positive, the markets punished the bond insurers as shares of MBIA and Ambac both plunged 15% to $11.50 and $8.90 respectively. For more, read Professor Mike Shedlock's article Buffett's Kiss of Death and Professor Depew's Five Things You Need To Know.

In other news, Treasury Secretary Hank Paulson, along with U.S. lenders, announced a 30-day freeze on foreclosures for troubled homeowners. Lenders including Countrywide (CFC), Wells Fargo (WFC) and others will target homeowners that are more than 90 days delinquent. Yet Toddo noted other subtle signs in the markets: "If Bruce Toll's daughter is willing to walk away from Toll Brothers' property, what does that say about shifting social moods and risk appetites?" For more, read today's Random Thoughts.

Despite the announcement, homebuilders suffered on the day. The Philadelphia housing index (HGX) fell -2.4% to 138.36. Notable stocks included Ryland Group (RYL) dropping -3% to $28.45. Pulte Homes (PHM) fell -3.5% to $14.23, and Beazer Homes (BZH) lost -5.5% to $7.46.

Tech shares weighed on the markets as well. The high beta names Apple (AAPL), Research In Motion (RIMM), Amazon (AMZN), and Baidu (BIDU) all declined in today's session. AAPL fell -3% to $125.25, RIMM lost -2.8% to $91.69, AMZN fell -1.58% to $74.00, and BIDU edged lower -0.65% to $245.00. Toddo noted these stocks in today's Answers I Really Wanna Know.

Commodities ended lower. Crude declined -1.05 to 92.54. Gold fell -15.50 to 907.40. Silver lost -0.25 to 17.220, and copper fell -1.35 to 354.00.

The dollar index lost -0.246 to 76.338.

For more summaries, click on Minyanville's Buzz Bits.

Below is a recap of some of the idea flow on today's Buzz & Banter. Please note that stocks may appear in both bullish and bearish categories, due to long and short term trades by our many Minyanville professors.

Some bullish trade or investment ideas: GOOG, AAPL, LCC, AMR, GIL, ARII, MS, Gold, Gold shares

Some bearish trade or investment ideas: AAPL, FXI, GLD, RATE, CMG, FSLR, Gold

Tomorrow's the hump! Have a great night!

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No positions in stocks mentioned.

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