President Obama's removal of GM's chairman is raising talk of widening economic nationalization but also talk that the government will not keep losing firms afloat, at least losing firms outside the financial sector. The news sent a chill through the markets which, taking their cues from the administration, now expect both GM and Chrysler to fall into bankruptcy. Yet bankruptcy or not, the future extent of the government's involvement with the domestic auto sector appears expansive, with the president saying the government will offer incentives to consumers, will stand by warranties and that the U.S. will lead the world in building the next generation of cars.
After jumping 20 percent over the past two weeks, stocks were ready to fall back and fall back they did, ending near their lows at 787.53 on the S&P 500 for a 3.5 percent plunge. Money moved into the safety of the dollar, which rose 1 cent against the euro to end at $1.3193. Money also moved into the safety of Treasuries, especially front-end Treasuries where the 3-month bill ended at 0.130 percent -- a key indication that demand for safety has once again turned intense.
Losses in oil were steep, more than $3 for May WTI which ended just under $49. Like the stock market, recent gains in oil have been strong and not altogether backed by indications of improvement in underlying fundamentals -- setting up today's profit taking. But gold, benefiting from its own safe-haven demand, held little changed near $925 despite the gain in the dollar.