Saturday, October 11, 2008

What A Week!

10/11/08 What A Week!

Americans should have confidence in the future of the markets and the economy, President Bush said Friday in a short statement from the White House. I have confidence in Charmin.
I know what I'm getting.

President Bush said the U.S. government will ``aggressively'' use a ``wide range of tools'' to help stabilize financial markets and resolve the financial crisis. They have been using Tools at the Treasury Dept and the Federal Reserve. Hopefully we have heard from all the Tools in the Bush arsenal.

Stephen Colbert: "I stand by this man (President George W. Bush). I stand by this man because he stands for things. Not only for things, he stands on things. Things like aircraft carriers and rubble and recently flooded city squares. And that sends a strong message, that no matter what happens to America, she will always rebound.. with the most powerfully staged photo ops in the world."

Abraham Lincoln: "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption in high places will follow, and the money-power of the country will endeavor to prolong it's reign by working upon the prejudices of the people until the wealth is aggregated in a few hands and the Republic is destroyed."

Since early September, growing numbers of whites who have not finished college have been expressing the view that Obama cares about people like them, even as fewer say so about McCain, according to AP-GfK polling.

In early September, McCain had a 26-point advantage among white voters without a college degree who were likely to vote, according to the poll. But by late September, the advantage had dropped to 7 points, with McCain leading 46 percent to 39 percent among this group.

The surge in new voters that helped propel Barack Obama to his party's presidential nomination is carrying over to the general election — 9 million newly registered voters who are overwhelmingly Democratic and could add up to a big victory on Election Day.

If they show up.

In states where registration is recorded by party, including eight key states that could decide the election, voters have signed up Democratic in the past six months by a margin of nearly 4-to-1.

Over the last 13 weeks our M-1 money supply has grown at an 11.3% annualized rate. That puts a floor under our deflationary situation.

Jon Markman: "Fear is getting a bad rap in the market these days, which is a shame because it's a basic instinct that deserves respect. We often hear that greed is the way to go when markets trade down, but that's not quite right. Fear works, too. Fear clarifies. Fear is good."

Since the highs of October 2007 one year ago, the Dow has lost 39%, or about 5,500 points.

The last time the Dow spent any time under 7,000 was in 1997.

General Motors Corp.said that it is not considering bankruptcy protection, according to a report Friday by Reuters, which quoted the automaker as saying, "Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers."

The U.S. trade deficit narrowed by 3.5% in August to $59.1 billion, the Commerce Department said Friday. The trade deficit was above the consensus forecast of Wall Street economists of a deficit of $58.5 billion. Both imports and exports declined in August, but imports fell faster than exports in August. However, the 2.0% drop in exports was the biggest since June 2004. Auto imports were the lowest since March 2005. Imports of crude oil dropped for the first time in six months. The U.S. trade deficit with China widened to $25.3 billion in compared with $22.5 billion in the same month last year. This is the highest deficit since last October. Imports from China hit a new record of $31.8 billion.

Macy's slashed its per-share profit forecast excluding items to $1.30 to $1.50 a share for the year from its prior guidance of $1.70 to $1.85. Macy's also said it's financially healthy and that its need for cash has been reduced.

The cost of borrowing dollars overnight fell sharply Friday, but a key three-month rate continued to rise amid chronic tightness in global money markets. The London interbank offered rate, or Libor, for overnight dollar loans tumbled to 2.46875% from 5.09375% Thursday, news reports said. But three-month dollar Libor rose to 4.81875% from 4.75% on Thursday.

The IEA cut its 2008 global demand estimate by 240,000 barrels of oil a day, now sees world demand of 86.5 million barrels a day this year, and cut its 2009 estimate by 440,000 barrels a day, to 87.2 million barrels a day.

Indian stocks fell 9.6% in early Mumbai trading Friday.

George Ure: "The issues are real human beings defaulting on loans, losing their homes, and then losing even their cars to live in."

While economists wrangle over whether the country is in a recession, the question should be how long will this depression last.

The U.S. Department of Agriculture on Friday increased its monthly forecast for this year's corn and soybean harvest due to wetter weather, potentially lowering commodity prices.

The department said this year's corn production is now estimated to be 12.2 billion bushels, up from September's estimate of 12.1 billion.

Soybean production is projected to be 2.98 billion bushels, higher than last month's forecast of 2.93 billion bushels.

Barry Ritholtz: "When banks know their counterparties are not in danger of going belly up tomorrow, they will begin lending again. Confidence will return once the underlying problem is resolved, and not a minute before."

Rob Hanna: "It seems the market is getting ready to either:
a) Complete this capitulation and reverse upwards very hard, or
b) Drop to zero and close its doors for good.
At this point I wouldn’t rule out either one. If you’re of the belief that it is more likely to reverse hard than go to zero then you’re probably in the minority."

“While GE Capital is not immune from the current environment, we continued to outperform our financial services peers,” Jeff Immelt, GE’s chief executive, said in a statement. “We are improving our margins and focusing these businesses on the right products and markets.”

Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the 1998 default on its debt.

The combined wealth of Forbes magazine's 25 richest Russians tumbled 62 percent between May 19 and Oct. 6, based on declines in the equity value of traded companies and analysts' estimates of closely held assets they own. The loss is four times larger than the fortune of the world's wealthiest man, Warren Buffett.

Russian Prime Minister Vladimir Putin said Friday that his government will start investing in Russian equities and bonds next week in an attempt to stabilize the country's ailing financial markets, the Prime-Tass news agency reported.

The benchmark Nikkei 225 index tumbled 881.06 points to 8,276.43, its lowest since May 2003. It was its biggest one-day percentage loss since the stock market crash of October 1987.

"Selling is unstoppable in New York and Tokyo," said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd. "Investors were gripped by fear."

More than half the people polled in a recent CNN survey believe an economic depression is either very likely (21%) or somewhat likely (38%). It's interesting that Main Street has better instincts than Wall Street.

Crude oil fell below $80 for the first time in a year and copper headed for its biggest weekly drop in more than 20 years on concern that the deepening financial crisis will push the global economy into a recession.

The VIX crossed the 70 level for the first time.

Jim Rogers: "The way to solve this problem is to let people go bankrupt. Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren't sound and we will start over. This is the way the world has worked for a few thousand years."

The current rescue plans, which will force governments to issue more debt, print money and flood the markets with liquidity, will flare up inflation after the crisis is over and will create worse problems. We're setting the stage for when we come out of this of a massive inflation holocaust...I have an enormous amount of cash and I've been using it to buy more Japanese yen, more Swiss Francs, more agricultural products… there's a liquidation phase going on, where everything is being liquidated. They're selling everything in sight."

The Dow Jones Industrial Average plunged nearly 700 points in the first minutes of trading to trade below the 8,000 mark for the first time since April 1, 2003, before bouncing back and erasing two thirds of its opening losses. After the first 40 minutes of trading, the Dow was in the plus column. After the first hour the Dow was down 120 points and volatility was munching away. After the first 75 minutes, the Dow had dropped 350 points.

Russia supports the creation of "an international petroleum bank," Venezuelan President Hugo Chavez said at a ceremony honoring late Argentine guerrilla leader Ernesto "Che" Guevara.
"We are going to create an international petroleum bank," Chavez said Wednesday on the eve of the 41st anniversary of the death of Che Guevara, who was executed by the Bolivian army on Oct. 9,

"Enough already with our people's resources having to be deposited in banks in the north, which you can see are sinking," Chavez said, referring to the global financial crisis.

Nouriel Roubini: "The world is at severe risk of a global systemic financial meltdown and a severe global depression."

Brazil trading halted as 10% fall triggers circuit breaker.

Clive Maund: "Payback time for Wall St and Washington will be when foreign investors fail to turn up at the bond auctions to finance the bailout plan, whose $800+ billion will have to be created out of thin air. So the bonds will have to be monetized, which will mean an immediate spike in inflation, which will cause the rate of corporate bankruptcies to soar as failing companies take down others in a chain reaction because the losses will be highly leveraged by credit default swaps etc. This is the underlying reason why banks won't lend to each other - they can't calculate the counterparty risk. All of this will set off a massive derivatives meltdown that will bring the whole system crashing down."

Initial results from the Lehman Brothers credit-default swap auction indicate a midpoint of 9.75 -- implying the recovery rate on Lehman's senior debt is about 10 cents on the dollar.

It took the geniuses 25 days to figure this out? That alone tells you the level of brilliance in te financial sphere of derivatives.

The value of U.S. and European high risk, high-yield loans fell to a record low as banks tried to sell holdings of the debt.

Markit LCDX, a benchmark credit-default swap index used to hedge against losses on U.S. leveraged loans, which falls as credit risk increases, dropped 2.5 percentage points to a mid- price of 82.75 percent of face value, paring an earlier decline to 82, according to Goldman Sachs Group Inc. The Markit iTraxx LevX index of European loans fell 2 to 86.5, Deutsche Bank AG prices show.

Speaking to an outdoor audience, Obama said "it's not hard to rile up a crowd by stoking anger and division." He said Americans want "someone who can lead this country" with a steady hand in a time of economic crisis, not divide it.

Concerns about economic prospects pushed copper futures down 10% to the lowest in two-and-a-half years. The metal is set to end the week down 20%. Gold for December delivery surged to $936.30, the highest intraday level since July 28 and then reversed course dropping $20 on the day's trading to $867. Silver dropped 10% to below $10.65 and the U.S. dollar index surged to 82+, a level it has not seen in quite some time.

In late afternoon trading, gold for December delivery lost $27.70, or 3.2%, to $831.30 an ounce. The dollar index rallied 1.8%.

Here's more bad news from vomitville: An auction to work out the value of Lehman Brothers bonds for derivatives traders valued the debt of the bankrupt brokerage firm at 8.625 cents on the dollar, according to Markit and Creditex, the administrators of the auction.

You talk about hurt. These bonds must have been backed by cyanide.

October U.S. auto sales are tracking to fall below September's dreary results, with the first week of sales already off 20% from the first week last month, according to a report from on Friday. "The automotive market slowdown has entered a new phase," CEO Jeremy Anwyl said. When are the CEOs of GM and Ford going to be fired? Or are they being given a bonus since the sales are not down 30%. Maybe they should give spa treatments with every car sale. AIG employees would stand in line to buy the cars.

Crude futures dropped below the $78-per-barrel level Friday afternoon to trade at their weakest level since September of 2007. November crude was last down 10.4%, or $9.07, at $77.52 a barrel on Globex. SUVs may come back in vogue.

U.S. stock exhanges are considering putting into place a temporary "circuit breaker" that would halt short selling on a stock for three days after a big price drop, The Wall Street Journal reported Friday on its Web site, citing people briefed on the proposal. Just as long as they continue to permit selling short the Bush Tools.

-U.S. stocks extended losses in afternoon trading on Friday, after a G-7 official said the Group of Seven major nations is unlikely to adopt Britain's proposal to guarantee lending between banks when it meets on Friday.

Yahoo is down to $12. The Microsoft bid looks better every point down. What profits are holding the stock above the $7 level?

With about one hour left in the regular trading session the Dow is down 540, the Nasdaq 96, and the S&P down 64. The swings in the market have been historic. With 30 minutes to the close the Dow had a huge rally and was 300 points in the plus side but could not hold it at the close. At the end of the day the Dow was down 128, the S&P about 11, and the Nasdaq rose by 4 points.

An Alaska committee says Gov. Sarah Palin abused her authority in firing a state employee.

Meridian Bank of Eldred, Ill. was closed Friday by the Illinois Department of Financial Professional Regulation-Division of Banking, and the Federal Deposit Insurance Corporation, marking the 15th bank failure of the year, and the second announced today. Earlier in the day, FDIC said Main Street Bank of Northville, Mich. had failed.

Wachovia Corp.will issue preferred shares as part of its merger agreement with Wells Fargo & Co. without the usual shareholders' approval in a bid to proceed with the merger as soon as possible, the bank said Friday.

Oil production from members of the Organization of the Petroleum Exporting Countries fell in September, according to a survey of OPEC and oil industry officials conducted by Platts. OPEC produced an average of 32.47 million barrels per day of crude oil in September, down about 330,000 barrels per day from August.

So far this year shares of Chesapeake Energy are down 58 percent. Aubrey K. McClendon, the billionaire chief executive of Chesapeake Energy Corp., has sold "substantially all" of his stock in the company over the past three days in order to meet margin loan calls, the company said late Friday.

U.S. Treasury Secretary Henry Paulson indicated that pumping government funds into banks is a priority and said financial markets will remain volatile.

``We see the need -- a clear, present need -- to raise capital,'' Paulson said yesterday at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.

The purchases of stock, the newest part of a rescue plan engineered by Paulson, would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades.

Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Thursday, October 09, 2008

The Torrent Of Selling

10/10/08 The Torrent Of Selling

Dan Castellaneta: "All right, let's not panic. I'll make the money by selling one of my livers. I can get by with one.”

Insurance companies MetLife Inc.and Hartford Financial Services Group recently talked about a potential merger, according to a report in Thursday's Wall Street Journal. The Journal said that MetLife approached Hartford about a merger, but the talks didn't lead anywhere.

Regional bank National City talking with several banks, including PNC Financial Services Group Inc and Bank of Nova Scotia, about a possible sale, according to a report Thursday in The Wall Street Journal.

The Taiwanese central bank Thursday surprised with a quarter-point reduction in a key interest rate, a day after major central banks around the world cut interest rates in their respective countries. The Central Bank of the Republic of China (Taiwan) cut its discount rate to 3.25%.

The Gallup organisation, whose daily tracking poll indicated 52 per cent of registered voters supported the Democratic candidate, against 41 per cent for John McCain, the Republican – said it appeared the economy was playing to Mr Obama’s advantage.

The government says new applications for unemployment benefits dropped last week from a seven-year high, though claims remain at elevated levels due to the struggling economy.

The Labor Department reported Thursday that initial claims for jobless benefits dropped 20,000 to a seasonally adjusted 478,000, the same level that Wall Street economists expected.

The department said Hurricanes Ike and Gustav were responsible for adding about 20,000 claims on a seasonally-adjusted basis.

The four-week average, which smooths out fluctuations, rose to 482,500, the highest since October 2001.

The cost of borrowing in dollars for three months in London soared to the highest level this year as coordinated interest-rate reductions worldwide failed to revive lending among banks for any longer than a day.

The London interbank offered rate, or Libor, for three-month loans rose 23 basis points to 4.75 percent today, the British Bankers' Association said. That's the highest level since Dec. 28. The Libor-OIS spread, a measure of cash scarcity, widened to a record 350 basis points. The overnight rate fell 29 basis points to 5.09 percent. That's still 359 basis points more than the Federal Reserve's target rate of 1.5 percent.

Pessimism about U.S. stocks jumped to the highest level in almost 14 years. The bearish proportion of newsletter writers surveyed by Investors Intelligence rose 5.8 points to 53% in the week ended yesterday. Bullish stock advisers fell 8.4 points to 25.3%.

The Baltic Dry Index, a measure of shipping costs for commodities, fell to its lowest since June 2006 as slowing economic growth curbed demand for raw materials and led to a surplus of vessels for hire. The Index tracking transport costs on international trade routes retreated 158 points, or 5.4%, to 2,764 points, according to the Baltic Exchange in London . It’s 77% lower than the record on May 20.

In the simplified example of a 50 percent writedown of a $2 billion asset, the notional European bank will end up with a $1 billion dollar net short position -- one its auditors will require it to cover by buying dollars to avoid the exposure.
As the dollar has surged about 15 percent against the euro since troughing in July, the euro size of the exposure has grown -- and the need to buy dollars to close that gap has merely accelerated its rally.
Credit Suisse said it expects European banks to face significant net redemptions of dollar debt through the final quarter -- with maturities of their U.S. dollar bonds particularly high in October. This must be met with dollar cash.

The International Swaps & Derivatives Assn. (ISDA) estimates that investment shops have collected nearly $2 trillion in collateral as part of derivatives agreements—money that in some cases is used several times over. That's up from $700 billion in 2003.

After the Lehman bankruptcy, JPMorgan grabbed $13 billion that Lehman had pledged as guarantees.

Morgan Stanley shares fall 11%, to $14.91. Ford at $2.50 and GM below $6.

Asset manager Franklin Resources Inc. said its assets under management in September fell 22 percent from the same time last year as the market slumped.

The San Mateo, Calif. investment manager, which operates as Franklin Templeton Investments, said its total assets under management slid to $507.2 billion as of Sept. 30, compared with $645.9 billion a year ago.
The total fell 10 percent from the prior month alone: assets under management at the end of August were $563.5 billion, Franklin said.

Recently, in China, the world's biggest potato producer, authorities are reviewing proposals for potato to become the country’s major food crop, while India is considering plans to double potato output in the next five to ten years.

Natural-gas inventories rose by 88 billion cubic feet for the week ended Oct. 3, the U.S. Energy Department said Thursday.Total stocks now stand at 3.198 trillion cubic feet, down 117 billion cubic feet from the year-ago level but 69 billion cubic feet above the five-year average, the government data said. November natural gas was down 2.8 cents, or 0.4%, at $6.714 per million British thermal units on Globex.

Airline bankruptcies around the world are set to double over the winter to at least 70 for the year, the director general of the European Regional Airlines (ERA) industry body said on Thursday.

"We are now up to around 35 (bankruptcies) this year. I see at least that number over the winter," Mike Ambrose told Reuters on the sidelines of the group's annual conference.

Barack Obama has 40 local campaign offices in Indiana. McCain has none.

Barry Ritholtz: I've heard concerns from various traders and hedge fund managers over the past few weeks that the Lehman Brothers derivatives unwind has been what's roiling markets...expectations are for Lehman to settle at 10 cent on the dollar -- causing a few $100 billion in losses. The unwind comes Friday."

Borrowing in the commercial paper market shrank by $56.4 billion, or 3.5%, to $1.55 trillion in the week ending Wednesday, the Federal Reserve reported Thursday.

Inventories at U.S. wholesalers rose 0.8 percent in August, higher than what analysts had expected, while sales suffered their largest drop in more than a year and a half, a Commerce Department report showed on Thursday.

Wall Street analysts polled by Reuters had expected inventories to gain by only 0.5 percent, compared with a 1.5 percent rise in July that was previously reported as 1.4 percent.

Sales fell 1.0 percent after dropping 0.8 percent in July, which was originally reported as a much smaller decline of 0.3 percent. The last time they saw such a large drop was January 2007, when they fell 1.4 percent.

Another reversal morning. The Dow jumped 160 points or so only to be minus 175 after the first 90 minutes of trading. SLM Corp., the education lender known as Sallie Mae, lost 43 percent and Prudential Financial Inc., the second-biggest U.S. life insurer, tumbled 35 percent.

Iceland halted trading on their stock market until Monday.

Virginia Gov. Tim Kaine is laying off 570 state workers as the state's budget outlook worsens amid the global financial crisis.

OPEC said Thursday it will hold an extraordinary meeting Nov. 18 to discuss how the widening global financial crisis is affecting oil prices, a move that could lead to a coordinated production cut in a bid to halt crude's steep losses.

Micron Technology Inc., the largest U.S. producer of memory chips, said it will cut 15 percent of its workforce over the next two years and reduce production in an industry glut. Micron will stop production of flash memory at its Boise, Idaho, headquarters, according to a statement from the company today.

The other day the Dow could not hold the 10,000 level. On Thursday afternoon it could not hold the 9,000 level. The other day crude could not hold the $90 level and today November crude closed at $86.59 per barrel on the New York Mercantile Exchange, down $2.36.

It didn't take long for the Dow to come knocking on the 9600 level. Late in the day there was a torrent of selling. The S&P was quickly down 75 points and the Nasdaq down 95.

Gold for December delivery dropped $20 to end at $886.50 an ounce on the New York Mercantile Exchange.

Investors withdrew $43.3 billion from stock mutual funds for the week ended Oct. 8, up from the $7.2 billion they pulled the previous week, TrimTabs Investment Research reported Thursday.

Japanese insurer Yamato Life Insurance Co. filed for bankruptcy protection from creditors Friday, reportedly becoming the first in the industry to do so in seven years.

The Hang Seng Index lost 8.3% to 14,523.54, while the Hang Seng China Enterprises Index shed 10% to 6,966.65, dropping below the psychologically important 7,000-point level.

The Nikkei 225 Average recently fell 10.9% to 8,161.89, while the broader Topix index fell 8.7% to 826.26. Australia's S&P/ASX 200 fell 6.7% to 4,033.10 and New Zealand's NZX 50 index gave up 3.1% to 2,853.66. South Korea's Kospi lost 5.1% to 1,227.82.

Citigroup Inc.said late Thursday that it reached no agreement with Wells Fargo & Co. over Wachovia Corp."The dramatic differences in the parties' transaction structures and their views of the risks involved made it impossible to reach a mutually acceptable agreement," Citigroup said in a statement. The bank said it will pursue damages against Wachovia and Wells Fargo, but will not seek to block the combination.

Chevron Corp.late Thursday forecast that its third-quarter earnings will be higher than second quarter on the back of strong improvement in downstream results while upstream earnings are expected to decline due to the effect of hurricanes and lower commodity prices. The company also expects net after-tax charges of $250 million and $300 million in the quarter.

Mitsubishi UFJ Financial Group, Japan's largest bank, said it has no plans to pull out of a planned $9 billion investment in Morgan Stanley, even as shares of the U.S. bank continue to tumble. Mitsubishi UFJ has said it expects the deal to take a 21 percent stake in Morgan Stanley will close by next week, but that has failed to calm investors.

What's The Big Deal?

10/9/08 What's The Big Deal?

The Fed lowered the Fed Funds rate to 1.5%. Gold futures rallied more than $20 Wednesday, pushing up by a weakening dollar after the U.S. Gold for December delivery rose $22.20, or 2.5%, to $904.20 an ounce in early electronic trading. Oil futures, down as low as $86.05, fell 46 cents to $89.60 a barrel. The dollar still was weaker on the day, down 0.9% to 100.62 yen but well off lows. Of other key crosses, the pound was about flat at $1.7511 and the euro rose 0.5% to $1.3689. The ECB cut its key rate a half point to 3.75%. The Bank of England also cut its key rate by a half point to 4.5%.Canada, Sweden and Switzerland are also reducing rates. The Bank of Japan expresses its strong support of these policy actions. In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-3/4 percent. In taking this action, the Board approved the request submitted by the Board of Directors of the Federal Reserve Bank of Boston. China's central bank slashed Wednesday its one-year benchmark lending and deposit interest rates by 27 basis points and the reserve requirement ratio by 50 basis points.

One might ask this question: will lower interest rates prevent the on-going global banking meltdown? Is it too little too late? Risk of global depression 'nearly nil,' IMF economist says.
How much of his own money does that economist have at risk?

Jerry Bowyer: "Today’s rate cut was late and small. Really, the cut was not actually a cut at all. Bernanke had already been pumping enough money into the system to lower the rate at least to 1.5%. What changed today is that it was made official. We didn’t get more money today – we got an announcement of what had already been happening. Will it be enough? No."

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's

"The Paulson proposal is an attempt to do what we so often do in Washington, D.C., throw money at a problem. We cannot make bad mortgages go away. We cannot make the losses that our financial institutions are facing go away. Someone must take those losses. We can either let the people who made the bad decisions bear the consequences of their actions, or we can spread that pain to others." — Sen. Jim Bunning, R-Ky.

Britain is to inject 50 billion pounds ($87 billion) of emergency capital into the country's banks, which have been left reeling by the global financial crisis.

After frantic overnight talks that followed dramatic falls in the share prices of banks including HBOS and RBS, Finance Minister Alistair Darling rushed out measures on Wednesday he said would help boost lending and restore confidence.

The Nikkei dropped 9.7% in the day's trading session.

Wal-Mart Stores Inc. said Wednesday its sales excluding fuel in the five weeks ended Oct. 3 rose 2.4%. On that basis, the company missed the 2.5% average estimate of analysts surveyed by Thomson Reuters. Results at its namesake chain missed Wall Street expectations while at Sam's Club, they beat. For October, Wal-Mart forecast sales growth of between 1% and 2% and kept its third-quarter profit forecast of 73 cents to 76 cents a share, Wal-Mart said.

Costco Wholesale Corp.'s fiscal fourth-quarter net income rose to $397.8 million, or 90 cents a share, from $372.4 million, or 83 cents a share, in the year-ago period. The results for the most recent quarter ended Aug. 31 included 7 cents a share in charges, and the year-earlier figure included 8 cents a share in charges, the company said. For the month of September, Costco said sales at stores open at least one year rose 7% for the total company, with an 8% gain in the U.S. and a 2% increase internationally.

Target September same-store sales down 3.0%. Nordstrom same-store sales down 9.6% in September. Saks Inc.said Wednesday that same store sales for the five weeks ending Oct. 4 dropped 10.9%. J.C. Penney Co.'s September sales at stores open at least one year fell 12.4%.The retailer cut its third-quarter profit forecast to a range of 50 to 60 cents a share, from its previous view of 70 to 75 cents a share.

With Nordstrom and Saks, we can see the high-end consumer has cut spending and, despite what some say, they are not immune from this sharp economic upheaval.

"In the past six months, our federal government has devised a dozen strategies to save America's financial markets. Each plan has been more costly, more risky, and less aligned with the principles of our country's free market economy than the last. I am disappointed to say that this latest plan puts all the rest of them to shame." Sen. Mike Enzi, R-Wyo.

Desjardins Securities cut its 2008 earnings target for Alcoa to $1.96 a share from $3 a share.

Citigroup lowered its ratings on General Motors and Ford Motor Co. to sell from hold, citing deteriorating credit conditions and unappealing valuations.

Stock futures flattened out less than an hour before the bell, as markets swung wildly on the news that the U.S. Federal Reserve, the European Central Bank, the Bank of England and other central banks slashed interest rates by a half point. S&P 500 futures were up 2.6 points to 1,008.60 while Nasdaq 100 futures fell a quarter point to 1,336.25. Dow industrial futures fell 11 points.

Rob Hanna: "The CBI (Capitulative Breadth Indicator) finally spiked above 10 today and hit 12. For those who are unfamiliar with my CBI indicator, it basically uses a proprietary calculation to determine how much capitulation is evident among large-cap stocks. Spikes of 10 or higher in the past have led to market bounces on a fairly consistent basis. Those who would like more info on the CBI may want to read the intro post here or the full post history here. Until Tuesday the CBI had sat relatively dormant. I had thought the market might rebound before the CBI ever hit 10 this time, but this market seems bent on marking every extreme.
Until July, buying the S&P any time the CBI hit 10 or higher and selling it on a return to 3 or lower had a perfect record. The July trade turned out to be a loser."

Financial Post: "In a desperate bid to help U.S. banks recapitalize, Washington is dropping its inhibitions and reaching out to Canadian financial institutions to gauge their willingness to participate in rescue operations.

The Federal Reserve has activated a back channel that puts the central bank in direct contact with chief executives at Canada's largest banks and insurers, according to a person familiar with the dialogue.

They are approaching "banks with major assets in the U.S. like [Toronto-Dominion Bank] and Royal [Bank of Canada], because when they have a bailout situation they want everyone who is a potential buyer to look at it," the source said."

``It's looking very gloomy for Iceland at the moment,'' said Bjarke Roed-Frederiksen, an economist in Copenhagen at Nordea. ``The currency isn't trading at the price the central bank has set and we're already seeing signs that people don't want to accept krona in transactions on Iceland.''

Sweden's central bank said it will loan as much as 5 billion kronor ($700 million) to the Swedish unit of Iceland's Kaupthing Bank hf after it was unable to meet payment obligations and was put up for sale.

ING Groep NV, the biggest Dutch financial-services firm, agreed to buy more than 3 billion pounds ($5.24 billion) of retail deposits held by U.K. customers of two Icelandic banks for an undisclosed amount.

“There is a very real danger … that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy,”

… Iceland’s Prime Minister Geir Haarde

Consumer Debt for August dropped at what would annualize to -3.7%. George Ure pointed out that the actual total consumer debt for August was down to $2.577-trillion.

Ford-owned carmaker Volvo Cars said Wednesday it will slash more than 13 percent of its work force because of falling global demand.

Citing a "rapidly deteriorating market situation in the global car industry," the Goteborg-based company said it would cut about 3,300 jobs, of which 2,000 would be blue-collar and 700 of them white-collar positions in Sweden.

Another 600 jobs would be eliminated abroad and some 700 contracts with consultants would be terminated.

In an effort to help the United States counter al-Qaida after the 9/11 attack, Iran rounded up hundreds of Arabs who had crossed the border from Afghanistan, expelled many and made copies of nearly 300 of their passports, a former Bush administration official said Tuesday.

The copies were sent to Kofi Annan, the U.N. secretary-general, who passed them to the United States, while U.S. interrogators were given a chance by Iran to question some detainees, Hillary Mann Leverett said.

Until August, Freddie Mac paid $15,000 a month to a lobbying firm headed by McCain campaign manager Rick Davis. The payment came on top of more than $30,000 a month Davis was paid directly by Fannie Mae and Freddie Mac from 2000-05 to head the Homeownership Alliance, an advocacy group.

Eurozone GDP declined by 0.2% quarter-on-quarter in the second quarter, dragged down by falling output in the three largest economies.

Tom Bentz, analyst at BNP Paribas Commodity Futures Inc:"But oil markets are backing off highs as energy demand concerns remain." OPEC was unlikely to cut output at its December meeting unless the price for crude produced by its members fell below $80 a barrel, an OPEC source said on Wednesday.

Warren Buffett: “In my adult lifetime, I don’t think I’ve ever seen people as fearful."

Despite a credit crunch that has driven world central banks to slash interest rates, the National Association of Realtors reported Wednesday that an index of sales contracts on previously owned U.S. homes rose 7.4% in August from the prior month. The index, which is considered a leading indicator of existing home sales, was up 8.8% from the prior year. In August pending home sales rose in all four regions, with a gain of 18.4% in the West, 8.4% in the Northeast, 3.6% in the Midwest and 2.3% in the South. The July pending home sales index was revised to a decline of 2.7% from a prior estimate of a 3.2% fall. It's unclear to what extent contract activity will be impacted by the credit disruptions, said Lawrence Yun, NAR's chief economist.

Russia's stock market collapse is exacerbating a liquidity squeeze and threatening to cut into production and employment, putting the brakes on 10 years of economic growth.

``The sharp contraction of the stock markets has resulted in a major crisis of confidence between banks,'' said Vladimir Osakovsky, chief economist at UniCredit SpA in Moscow. ``That, in turn has reduced the scale of the interbank lending market, which is cutting into available investment resources to the economy.''

"We have in effect passed the tipping point in terms of the financial crisis," Don Putnam, managing partner of Grail Partners, said after the rate cuts. "We have really serious global recessionary issues that are working their way into the market," he said, adding that the economic issues will take 24 to 36 months to be resolved. Putnam also said that the Dow Jones Industrial Average could fall to the mid-8,000 level.

The American Petroleum Institute reported Wednesday a rise of 9.4 million barrels in crude supplies for the week ended Oct. 3. The Energy Department had reported a climb of 8.1 million barrels for the latest week. Motor gasoline supplies were up 3.4 million barrels, the API said. The government had reported that supplies rose by 7.2 million barrels. Distillate supplies were down 1.2 million barrels, the API said. They were down 500,000 barrels for the week, according to the Energy Department.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, increased 8.4 percent to 58.21 at 11:58 a.m. in New York. The index measures the cost of using options as insurance against declines in the Standard & Poor's 500 Index, which slipped 1.4 percent. Yesterday's close of 53.68 was the highest in the 18-year history of the VIX.

Walgreen Co.withdrew its $75-a-share bid for Longs Drug Stores Corp.Longs' board declined the offer in favor of CVS Caremark Corp.'s $71.50 a share offer.

The Dow Jones Industrial Average fell 191 points to 9,256.11. The S&P 500 dropped 11.36 points to 984.87, and the Nasdaq Composite shed 14.55 points to end at 1,740.33.

November crude closed at $88.95 per barrel Wednesday on the New York Mercantile Exchange, down $1.11, or 1.2%. December gold climbed $24.50, or 2.8%, to close at $906.50 an ounce in New York Wednesday.

Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.

Tuesday, October 07, 2008

Record Budget Deficit

10/8/08 Record Budget Deficit

The federal budget deficit hit a new record in the just-completed 2008 budget year under the latest estimates from the Congressional Budget Office.

The record $438 billion shortfall for the budget year that ended last week is up from $162 billion posted last year. The previous record of $413 billion was posted in 2004.

The Reserve Bank of Australia cut its benchmark policy interest rate by a percentage point to 6.0% from 7.0%. The move came amid a global financial crisis, falling consumer spending and the slowest growth in Australian home borrowing since the 1980s.

Brewer InBev SA said Monday its major shareholders expect to buy up about one-tenth of new shares being issued to help pay for a $52 billion takeover of Anheuser-Busch.

U.S. financial stocks rose in pre-open Tuesda trading after the Federal Reserve said it would begin buying commercial paper in an effort to free up short-term liquidity in the credit markets.

Global central banks have set a schedule for dollar liquidity auctions that will take place every two weeks through the end of the year, the Federal Reserve announced Tuesday. These auctions include 28-day and 84-day loans and "forward auctions" of cash loans designed to bridge over the year-end.

Rob Hanna: "Most every indicator I look at with regards to breadth, volatility, and price action is strongly suggesting a strong short-term bounce should be at hand."

The National Credit Union Administration (NCUA) placed N&W Poca Division Federal Credit Union of Bluefield, West Virginia, into liquidation October 3, 2008.

Aer Lingus Group PLC is planning up to 1,500 job cuts, Ireland's SIPTU trade union said Tuesday.

General Motors Corp.'s European unit plans to reduce production by about 40,000 vehicles by the end of the year as credit-market turmoil causes a drop in car sales.

The "deteriorating" global economy will cut into world oil demand growth next year by 140,000 barrels per day, the U.S. Energy Information Administration said Tuesday.

Global oil consumption was forecast to average 86.92 million bpd in 2009, about 780,000 bpd more than this year's demand but 140,000 bpd less than the agency had forecast just last month.

Crude prices will likely average $126 per barrel in 2009, according to a monthly report from the U.S. Energy Department's Energy Information Administration released Tuesday. "Declines in U.S. oil consumption are not expected to be as large in the second half of this year due to both relatively weak consumption in the second half of last year and the price declines over the past several months," it said. It expects natural-gas demand to rise by 2.7% in 2008 and by 2.2% in 2009.

The Bank of Israel cut its benchmark interest rate 0.5 percentage point, to 3.75%, as of Oct. 12, citing a "sharp increase in uncertainty in global financial markets and the implications for the local financial markets." The bank said it took the decision based on a number of factors.

UBS AG lowered its price forecasts for copper, aluminum and most bulk commodities amid concern a slowing global economy will dent demand from builders and automakers. Copper will average $2.50 a pound in 2009, down 38% from a previous estimate. Aluminum was cut 28% to $1.15 a pound next year. The bank cut nickel estimates 32% to $7.50 a pound next year. Zinc may average 20% below the previous forecast at 80 cents a pound next year. Iron ore prices may fall 15% in 2009. Coking coal will average $250 a metric ton next year, down 17%, UBS said.

With losses on bad U.S. assets alone expected to top $1.4 trillion, the International Monetary Fund urged global policy makers Tuesday to coordinate a response to an unprecedented financial crisis that continues to spread.

The latest estimate of losses in the Global Financial Stability Report is well above the figure of $945 billion the fund predicted in April, which was considered high at the time by some economists. It also tops the $1.3 trillion forecast given by IMF Managing Director Dominique Strauss-Kahn just two weeks ago.

Russia's Medvedev announced the government would lend 950-billion rubles ($36.3 billion) with a five-year term to banks. Most of the money will go the country's two largest state-backed lenders, Sberbank and VTB, in an effort to get liquidity moving through the whole system. A further 223 billion rubles will be loaned to banks in particular difficulty.

CNN estimates that if the presidential election were held today, Obama would win states with 264 electoral votes and McCain would carry states with 174 electoral votes, with 100 electoral votes still up for grabs. To win the White House, 270 electoral votes are needed.

In the first few minutes of Tuesday trading the Dow rose 160 points. That did not last long. After 4 1/2 hours the Dow was down 325 points.By the end of the trading day, the Dow had dropped 508 points, the S&P 60, and the Nasdaq 108. The S&P 500 closed at 5-year low.

Shares of General Growth Properties Inc. were down more than 45% in midday trade Tuesday on growing fears the real estate investment trust may not be able to refinance its debt, which could force it to seek a buyer or declare bankruptcy.

John McCain may have an Iran-Contra connection. In the 1980s, McCain served on the advisory board to the U.S. chapter of an international group linked to ultra-right-wing death squads in Central America.

The U.S. Council for World Freedom aided rebels trying to overthrow the leftist government of Nicaragua. That landed the group in the middle of the Iran-Contra affair and in legal trouble with the Internal Revenue Service, which revoked the charitable organization's tax exemption.

The council created by retired Army Maj. Gen. John Singlaub was the U.S. chapter of the World Anti-Communist League, an international organization linked to former Nazi collaborators and ultra-right-wing death squads in Central America. After setting up the U.S. council, Singlaub served as the international league's chairman.

McCain's tie to Singlaub's council is undergoing renewed scrutiny after his campaign criticized Obama for his link to Ayers, a former radical who engaged in violent acts 40 years ago. Over the weekend, Democratic operative Paul Begala said on ABC's "This Week" that this "guilt by association" tactic could backfire on the McCain campaign by renewing discussion of McCain's service on the board of the U.S. Council for World Freedom, "an ultraconservative right-wing group."

Aluminum giant Alcoa Inc. reported a third-quarter profit of $268 million, or 33 cents a share, down from $555 million, or 63 cents a share, a year ago when the company benefited from an asset sale. The most recent results include an after-tax charge of 4 cents a share relating to the curtailment of a smelter in Texas. Alcoa warned that the profit squeeze from falling aluminum prices, shrinking demand and high input costs will have a greater impact going forward.

November crude closed at $90.06 per barrel, up $2.25, or 2.6%. Gold for December delivery rallied $15.80, or 1.8%, to $882 an ounce on the Comex division of the New York Mercantile Exchange.

Morgan Stanley is saying that the deal with Mitsubishi is "on track," according to a report from Bloomberg News.

``We've approached the edge of the cliff,'' Leon Cooperman, 65, who manages $6 billion at hedge fund Omega Advisors Inc., said at the Value Investing Congress in New York. ``Do we go over the cliff or begin to recede? History says we recede, but there's no guarantee. This is the most difficult financial environment I've lived through.''

The stock market is as oversold as it has been since the crash of 1987 and the broader market could be start to rebound until early next year, Marc Faber, editor and publisher of the Gloom Boom and Doom Report, said Tuesday. The market is possibly in "the most oversold condition" since perhaps Oct. 19, 1987, Faber told CNBC's "Squawk Box."

It's too early to know the full impact of the financial crisis on the U.S. economy, "but we must expect the next couple of months to be tough ones," White House economic adviser Edward Lazear said on Tuesday.

Americans' retirement plans have lost as much as $2 trillion in the past 15 months, Congress' top budget analyst estimated Tuesday. The upheaval that has engulfed the financial industry and sent the stock market plummeting is devastating workers' savings, forcing people to hold off on major purchases and consider delaying their retirement, said Peter Orszag, the head of the Congressional Budget Office.

The Hong Kong Monetary Authority said Wednesday it will cut the city's lending rate by 1.0% effective Thursday. The HKMA, which manages the city's U.S.-dollar pegged currency, said it would change the formula it uses to set the base rate, reducing the spread above the U.S. federal funds rate from 150 basis points to 50 basis points. The reduction will bring Hong Kong's base rate to 2.5% from the current 3.5%.

In early trading the Nikkei 225 Average slumped 4.4% to 9,705.87, and the broader Topix index shed 3.7% to 941.97. Australia's S&P/ASX 200 plummeted 4.1% to 4,431.10 and South Korea's Kospi lost 3.1% to 1,323.94. New Zealand's NZX 50 index gave up 2.1% to 2,940.51.

The world's major banks may need $675 billion in fresh capital over the next several years to recover from a credit crisis that shows few signs of abating, the International Monetary Fund said.

In a report on the financial system, the Washington-based lender also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion, from an estimate of $1.3 trillion two weeks ago. In April, the IMF predicted the losses would total $945 billion.

Monday, October 06, 2008

Equities Spiral Downward

10/7/08 Equities Spiral Downward

The $2 trillion market for bonds tied to home loans that don't have the backing of Fannie Mae, Freddie Mac or Ginnie Mae has ``been priced down now at fire-sale prices because everyone's afraid to jump in,'' said Timothy Policinski, managing director at Cincinnati-based Fort Washington Investment Advisors Inc., which manages $22 billion in fixed-income.

Credit-Market Losses

Some bonds backed by home loans not guaranteed by government-sponsored agencies such as Fannie Mae and Freddie Mac have fallen to less than 10 cents on the dollar, Fort Washington's Policinski said.

Mortgage bonds with top AAA ratings are being offered at about 60 cents to 70 cents on the dollar, though buyers have ``little'' knowledge of their true worth, according to Paul Gifford, a vice president and senior fixed-income manager at 1st Source Investment Advisors in South Bend, Indiana.

Holders of credit default swaps -- the financial vehicles with a
worldwide face value estimated in excess of $50 trillion -- are
bracing themselves for the fallout from the Lehman Brothers
bankruptcy and the takeover of Freddie Mac and Fannie Mae by the
United States government. Three auctions to be held next week will
determine the amount of settlement payments required to be made
under credit default swaps with Fannie Mae, Freddie Mac, and Lehman
Brothers as the reference entity.

These auctions will be used to set values to be paid under thousands
of agreements and are scheduled to take place on:

Freddie Mac October 6, 2008
Fannie Mae October 6, 2008
Lehman Brothers October 10, 2008 (TBC)

After these auctions, credit protection sellers are expected to be
called upon to make payments that, in the aggregate, are
extraordinary for the credit default swap market. Some estimate that
the payments on Lehman's bonds alone will be $350 billion.

The German government stepped in to guarantee its retail deposits, and several other governments in Europe took actions to shore up ailing banks.

Asian and European stock markets plunged Monday as government bank bailouts in the U.S. and Europe failed to alleviate fears that the global financial crisis would depress world economic growth.
Britain's benchmark stock index, the FTSE 100, lost 220.11 to 4,760.14 -- a 4.42 percent fall. The declines were led by the banking industry, with the mining and oil industries also suffering drops. HBOS PLC's share price dropped 15.7 percent, while the Royal Bank of Scotland Group PLC fell 13.6 percent.
Germany's DAX index fell 4.22 percent to 5,552.27. France's CAC-40 index dropped 4.85 percent to 3,882.81. In Russia, the RTS stock index tumbled more than 7 percent in the first 20 minutes of trading.
Tokyo's Nikkei 225 index fell to its lowest level in 4 1/2 years, sinking 4.25 percent to 10,473.09.
Hong Kong's Hang Seng index slid 5 percent to 16,803.76. Markets in mainland China, Australia, South Korea, India, Singapore and Thailand also fell sharply. Indonesia's key index plummeted 10 percent, it's biggest one-day drop ever.
Brazil's Bovespa stock index is down 10% in intraday trade.

According to the NY Times, recent figures from companies, and interviews across the country, show that automobile sales are plummeting, airline traffic is dropping, restaurant chains are struggling to fill tables, customers are sparse in stores. When the final tally is in, consumer spending for the quarter just ended will almost certainly shrink, the first quarterly decline in nearly two decades.

Rob Hanna: "On Friday the VIX closed above 45 for the 2nd day in a row. This is the 1st time since the VIX has been measured back to in 1990 that this has happened. Meanwhile the VXO closed above 50 for the 2nd day in a row. The only other time readings this high can be seen were in a back-adjusted 1987 period during and after the crash...While the instances get low over 40, average profits of greater than 5% over the next 5 days across the board are quite impressive."

Barry Ritholtz: "Trend, Breadth and Momentum are all bearish; Liquidity is bearish to neutral. The only element that is remotely bullish is Sentiment."

The Oil Drum: "The spiralling of recent events make it likely that, at least for a time, be it a week - or several years - oil and gas depletion might be more than offset by the reduction in demand due to the manifold implications of the reduction in global financial leverage and resulting credit contractions and dislocations in the real economy. The linkages between finance and energy are becoming more direct, but I'm quite certain there are many under the surface we are yet unaware of."

Washington Post: "As the deadline for voter registration arrives today in many states, Sen. Barack Obama's campaign is poised to benefit from a wave of newcomers to the rolls in key states in numbers that far outweigh any gains made by Republicans."

The Federal Reserve says it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks, fresh steps to help ease a painful credit crisis.

Obama, an Illinois senator, leads 49 percent to 42 percent among Ohio voters, according to a Columbus Dispatch poll of 2,262 likely voters released yesterday. A Minnesota poll of 1,084 likely voters published by the Star Tribune newspaper shows Obama leading 55-37 percent over McCain. The poll was conducted from Sept. 30 to Oct. 2. In Pennsylvania, Obama has a 50 percent to 40 percent lead over McCain, according to a Morning Call/Muhlenberg College tracking poll. In a CBS News poll conducted Sept. 27-30, Obama led 50 percent to 41 percent among likely voters. The margin increased 4 percentage points from a CBS/New York Times survey a week earlier.

One of the largest U.S. real estate brokerages Monday said it is asking its sellers to cut listing prices by as much as 10 percent to kick-start U.S. home sales in a market plagued by a two-year price slump and near-record unsold supply.
Coldwell Banker Real Estate said some 25,000 sellers listing homes with its brokers will cut prices during its first national, 10-day sales event starting on Friday that aims to lure potential buyers off the sidelines of the worst housing market since the Great Depression.

U.S. fuel demand the previous four weeks was the lowest in almost seven years. In early Monday trading, crude plunged 4% to the $90 level. Gold futures soared more than 3% early Monday, as investors sought a safe haven amid the global financial crisis. Gold for December delivery rallied $27.10 to $860.30 an ounce in electronic trading on Globex.

EBay Inc. plans to cut its global workforce by 10% in a move that will affect about 1,000 employees and several hundred temporary workers.

Bloomberg reported the Federal Reserve will double its auctions of cash to banks to as much as $900 billion and is considering further steps to unfreeze short-term lending markets as the credit crunch deepens.

The cost of borrowing in euros for three months rose to a record for a seventh day, according to the European Banking Federation.
The euro interbank offered rate, or Euribor, increased 1 basis point to 5.35 percent, EBF data showed. The one-month rate advanced 2 basis points to 5.15 percent, reaching an all-time high for a fifth day.

Mike Burk: 'The market is oversold and due for a relief rally which should be followed by a retest of last Friday's lows or lower lows reached early next week.
I expect the major indices to be higher on Friday October 10 than they were on Friday October 3."

Clive Maund: 'Payback time for Wall St and Washington will be when foreign investors fail to turn up at the bond auctions to finance the bailout plan, whose $800+ billion will have to be created out of thin air. So the bonds will have to be monetized, which will mean an immediate spike in inflation, which will cause the rate of corporate bankruptcies to soar as failing companies take down others in a chain reaction because the losses will be highly leveraged by credit default swaps etc. This is the underlying reason why banks won't lend to each other - they can't calculate the counterparty risk. All of this will set off a massive derivatives meltdown that will bring the whole system crashing down. At this point Martial Law will be declared in the US which will effectively be a lockdown police is thought wise to have some cash stashed away and a supply of tradable gold and silver in a safe place or safe places."

Hewlett-Packard Co. will cut 1,400 jobs in Germany over the next two years.

A price for a barrel of crude oil that is below $100 is unacceptable, Iranian Oil Minister Gholam Hossein Nozari said.

Egypt has increased its oil output by 55,000 barrels per day, bringing the country's daily oil production to 700,000 barrels for the first time in 14 years, the official MENA news agency reported.

OPEC oil supply in September fell, the first monthly decline since April, as violence in Nigeria cut output and top exporter Saudi Arabia trimmed production, a Reuters survey showed on Friday.

"Unfortunately, we are one accident away from a systemic financial meltdown," says NYU economics professor Nouriel Roubini of RGE Monitor, whose predictions about this credit cycle have been scary - and frighteningly accurate. "It is a situation of generalized panic."

Goldman Sachs says "soft" industrial production and employment trends will likely affect the nation's three largest office supply chains as the nation's economy continues to sour.
Analyst Matthew J. Fassler reduced earnings projections and price targets for Office Depot Inc., OfficeMax Inc. and Staples Inc. Monday, saying the trio will likely be affected by the nation's economic slowdown.

Oil, copper and corn drove commodities toward their biggest weekly decline since at least 1956 on Oct. 3, with the Reuters/Jefferies CRB Index of 19 raw materials tumbling 10.4 percent. The Baltic Dry Index, a measure of commodity shipping costs, has dropped 75 percent since May.
``We are certainly more worried about deflation than inflation,'' says David Owen, chief European economist at Dresdner Kleinwort Group Ltd. in London. Central bankers need to ``get rates down and keep them there for quite some time,'' he says.

Shares of Cleveland-based National City Corp (NCC) plunged almost 40% Monday morning, Regions Financial and Sovereign fell more than 10%, while KeyCorp dropped 5%.

In the first half hour of trading, agriculture, refining, oil and gas, financial, stocks to name a few are getting demolished. Investors are greatly concerned about their retirement funds.

High-end German clothing store chain SinnLeffers plans to cut some 1,000 jobs and close more than half of its 47 stores in an attempt to reorganize and return to profitability, the company's bankruptcy administrator said Monday.

The affected 24 stores will continue to operate through February 2009, said Horst Piepenburg, the temporary bankruptcy administrator.

In the first 50 minutes of trading on Monday, the Dow dropped below 10,000, the Nasdaq was down 96 points, and the S&P down 50 points. Panic was on the loose. After 75 minutes the blood started to run in the streets with the Dow down 540 points, the Nasdaq down 133, and the S&P down 68. The VIX rose to 55. More than 3000 stocks making new 20-day lows.

Officials at the Federal Reserve plan to meet with top executives from two commodities exchanges in an effort to create a new marketplace for credit default swaps, one of the most important, controversial and opaque securities traded on the Wall Street, CNBC has learned.

Dan Pickering of Houston-based energy research firm Tudor Pickering Holt said the 15% slide on Monday by the Philadelphia Oil Service Index marks the biggest one-day decline since the gauge was launched in the lat 1990s.

GE fell to $19.69. GE last dipped below $20 on May 9, 1997 when shares traded at $19.42.


Financial futures markets expect the Federal Reserve to slash interest rates by three-quarters of a percentage point to 1.25% by the end of October, according to prices on Monday in the Chicago Board of Trade's federal fund futures market.

German business software giant SAP warned on its third-quarter revenue, saying it was "below our expectations."

November natural gas dropped to $6.92 per million British thermal units on Globex, down 6% to the lowest futures prices since December 2007.

According to a new survey from American Express Publishing and the Harrison Group, nearly half of respondents with incomes of $250,000 or more agreed with the statement that “I worry that at some point I could run out of money.” That’s up from about a third in April.

Fully 69% agreed with the statement that “The recent real estate and banking crisis has affected my sense of financial security.”

November crude closed at $87.81 per barrel Monday on the New York Mercantile Exchange, down $6.07, or 6.5%. Gold for December surged $33 to close at $875 an ounce on the Comex division of the New York Mercantile Exchange.

U.S. stock index accelerated their losses Monday afternoon with the Dow Jones Industrial Average down 717.22 points, or 7%, to 9,608.16. The S&P 500 fell 80.80 points, or 7.4%, to 1,108.43, while the Nasdaq Composite fell 155.26 points, or 8%, to 1,792.13.

The survey of 688 chief financial officers and senior comptrollers by Grant Thornton found 64 percent of those polled said credit was more difficult to come by than one year ago, while 55 percent said credit costs have risen.

The Nikkei 225 Average dropped below the 10,000-point level for the first time since December 2003, dropping as low as 9,916.21 during the session, before recovering.

Democratic presidential candidate Barack Obama's lead over Republican rival John McCain is widening, according to a new Wall Street Journal/NBC News poll, The Wall Street Journal reported on its Web site late Monday. The poll gives the Democratic ticket a 6-point lead over the Republicans -- 49% to 43%, with a margin of error of 3.8 percentage points. The last such poll two weeks ago had Obama with a 2-point advantage, the Journal said. A growing number of voters say their top concern heading into the election is the economy, according to the newspaper.

Alcoa shares shed $1.13, or 5.9 percent, to close at $18.11, after sinking to $16.70 earlier in the day. The last time Alcoa shares fell that low was in September 1998.

Bank of America Corp, citing "recessionary conditions," on Monday halved its dividend and said it would sell at least $10 billion in new common stock to bolster its capital to offset rising loan losses.

"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth Lewis, its chairman and chief executive officer, in a statement.

Bank of America warned that credit quality continued to weaken during the quarter, and Lewis said he expected higher credit losses and depressed earnings ahead.

Third-quarter net income dropped to $1.18 billion, or 15 cents a share, from $3.70 billion, or 82 cents a share, a year ago.

"It was a perfect storm kind of quarter," he said in a conference call with analysts. Charlotte, North Carolina-based Bank of America said it was cutting its quarterly payout to 32 cents a share from 64 cents, which will add more than $1.4 billion in capital per quarter.

At its lowest point, the Dow was off 800 points Monday afternoon. It regained much of that ground in a late, sharp rally to close down 369.88 points, or 3.6%, at 9955.50, returning it to levels first seen nearly a decade ago, in early 1999. Major stock indexes fell 7.9% in London and 9% in Paris, the largest percentage declines since 1987. Germany was down 7.1%.

Over the past three-quarters of a century, bear markets -- defined as stock-index declines of 20% or more -- that lasted a year or more have seen broad indexes fall an average of 42%. Currently, the Dow industrials are down 30% from their Oct. 9, 2007, record of 14164.53.

On Monday, 1,973 stocks hit new 52-week lows on the New York Stock Exchange, and only 13 hit new 52-week highs.

The broader Standard & Poor's 500-stock index is down 33% from its Oct. 9, 2007, high. On Monday it fell 3.86% to 1056.85, a level it first visited in early 1998.

Japan and Australia's central banks pumped more than $11 billion into the financial system seeking to ease money-market rates that were close to record highs as banks hoard cash on concern about a global recession.

According to the NY Times, under a proposal being discussed with the Treasury Department, the Fed could buy vast amounts of the unsecured short-term debt that companies rely on to finance their day-to-day activities, according to officials familiar with the discussions. If this were to happen, the central bank would come closer than ever to lending directly to businesses.

While the move would put more taxpayer dollars at risk, it underscores the growing sense of urgency felt by policy makers in a climate where lending has virtually dried up.

The Debt Ceiling

10/6/08 The Debt Ceiling

Louise Story: "A growing list of hedge funds are down more than 10 percent for September alone and more than 20 percent for the year. If the situation does not turn around by year end, these funds will risk losing their investors."

Citigroup Inc said it won a court order late on Saturday blocking Wells Fargo & Co. from buying hobbled U.S. bank Wachovia Corp until the court rules otherwise.

Citigroup, which planned to buy Wachovia’s banking assets for $2.2 billion, said New York State Supreme Court Justice Charles Ramos granted an injunction extending Wachovia’s agreement to negotiate exclusively with Citigroup.

Mike Shedlock: "The Fed can print money, but it cannot force banks to lend or consumers and businesses to borrow."

“Microsoft will continue to grow and add thousands of new jobs this year, but given the current economic environment we are taking the prudent step of reviewing our hiring plans and will make some adjustments as appropriate. We are optimistic about our prospects for growth and will continue hiring the talent we need to ensure our ongoing success."

Thanks to the bailout bill approved by the House and Senate last week, the nation's borrowing limit has been raised to $11.3 trillion from $10.6 trillion. With the bailout plan passed, it would mark the seventh such hike since early 2004, and the second since July 30, when the ceiling rose by $800 billion.

At present, Social Security and Medicare face unfunded liabilities of roughly $53 trillion.

Based on current projections, the costs associated with servicing the federal debt and funding these programs will hit 240 per cent of U.S. GDP by 2040, figures Josh Gordon, policy director of the Concord Coalition, a lobby group that's pushing for greater fiscal accountability in Washington.

Britain's commander in Afghanistan has said the war against the Taliban cannot be won, the Sunday Times reported. "We're not going to win this war. It's about reducing it to a manageable level of insurgency that's not a strategic threat and can be managed by the Afghan army," he said.

U.S. airlines will ground 512 airplanes by the end of the year, according to JP Morgan. That's a fleet about the size of Northwest Airlines Corp. In essence, airlines are taking an entire major carrier out of the skies.

John Hussman: "With the S&P 500 trading below 1100, the U.S. stock market is now in the upper range of what I consider to be reasonable valuations. Stocks are certainly not "cheap" or undervalued overall, but they are no longer priced to deliver unacceptably poor long-term returns. I have no strong belief that stocks have reached a bottom. Although there is an increasing likelihood of a sustained "bear market rally," I believe there is a good chance that valuations will eventually move lower still before a durable cyclical low is established. Still, investors should recognize that normalized valuations are now the best they've been since 1995. That may not be saying much, since the total return on the S&P 500 since 1995 has averaged only about 7% annually, but it is what we might call "the beginning of wisdom."

Russia's major stock indexes tumbled in early trading Monday as the global credit crisis took hold in Europe. The dollar-denominated RTS index fell 14.25% to 917.80, while the Micex index, denominated in rubles, lost 15%. Shares in energy companies and banks led the slide with Lukoil, Sberbank and Gazprom all down sharply.

In early Monday trading, Crude fell to as low as $89.07 a barrel.

Indonesian shares fell more than 10% Monday after data showed inflation accelerated to a two-year high in September, fanning expectations the Southeast Asian nation's central bank will lift interest rates to cool accelerating prices.

Analysts at Credit Suisse said they think the euro zone is now in a recession and that gross domestic product will likely fall until the middle of next year

European shares fell sharply at the open on Monday after renewed turmoil in the financial sector over the weekend. Shares in Hypo Real Estate dropped 50.1% after agreeing a new bailout plan, shares in Commerzbank fell 20.1% and shares of HBOS dropped 20.2%. The German DAX 30 index dropped 4.5% to 5,536.82, the French CAC-40 index fell 4.9% to 3884.43 and the U.K. FTSE 100 fell 4.9% to 4,734.13.

More European governments followed Germany's lead on Monday offering blanket deposit guarantees to savers in a frantic effort to calm fears among investors over the worst financial crisis in 80 years.

Eli Lilly said it will acquire ImClone Systems in a $6.5 billion deal. Says deal for about $70.00 per share.

The U.S. Federal Reserve is brokering discussions between Wells Fargo & Co and Citigroup Inc over which of the banks will buy Wachovia Corp's assets, people familiar with the matter said on Sunday.The Fed is pushing the two banks to compromise by potentially carving up Wachovia between them, the Wall Street Journal reported.

Sunday, October 05, 2008

Unavoidable Financial Upheaval

10/5/08 Unavoidable Economic Upheaval

Doug Noland: "At this point, there is clearly insufficient Credit expansion to support inflated asset markets; incomes and household spending; corporate cash flows and investment; and government receipts and expenditures. Lending markets are frozen, securitization markets broken, corporate and muni debt markets in disarray, derivatives markets in shambles, and the leveraged speculating community is engaged in panic de-leveraging. As a consequence, the over-indebted household, corporate and state & local sectors now face a devastating liquidity crisis. We are today witnessing the Acute Stage of Bursting Credit Bubble Dynamics. It’s an absolute debacle, and there’s little our well-intentioned policymakers can do about it other then try to slow the collapse....It is today impossible both to generate sufficient Credit and to main previous patterns of spending. Economic upheaval and adjustment are today unavoidable...Today, confidence has been shattered, and Wall Street finance is a complete and unsalvageable bust. The spigot for Trillions of finance - that for years fueled the asset markets and U.S. Bubble economy – has been essentially shut off.... risky loans came to play a major role in determining spending and investment patterns throughout the “Bubble” economy. Wall Street finance became a major direct and indirect generator of household incomes and corporate profits. Moreover, Wall Street finance came to dominate the flow of finance both in and out of the securities markets. Wall Street could create its own liquidity and funnel it into the U.S. and global markets – and earn unimaginable returns in the process.... this historic speculative Bubble is now blowing up. One of the greatest manias ever – surely The Greatest Episode of “Ponzi Finance” – is absolutely coming apart. The wreckage is accumulating in all markets – everywhere....The Bust in Wall Street Finance has ensured that insufficient liquidity will be forthcoming to maintain inflated asset prices and sustain the Bubble economy – creating catastrophe for the leveraged speculating community....the issue is not a manageable amount of new “capital” to replenish banking system losses, but instead the massive and unmanageable amount of new Credit necessary to, on the one hand, sustain a mal-adjusted Bubble Economy and, on the other, accommodate a gigantic speculative de-leveraging. I have a very difficult time seeing a way out of this terrible mess."

The rush to safety: One-month Treasury bill rates dropped to 0.10% and three-month yields to 0.48%. Two-year government yields ended the week down 50 bps to 1.59%. The dollar index surged 4.4% to 80.31. With our current debt exceeding $10 trillion, and with the bailout package on the way to $11 trillion, please do not tell me the dollar provides a safe haven. I will have you committed.

India’s rupee slumped to the lowest since 2003.

Vacancies in U.S. office buildings rose to 13.6% in the third quarter from 13.1% in the second, the biggest one-quarter jump since the second quarter of 2002, according to Reis Inc.

According to Bloomberg, New York Governor David Paterson called for a special legislative session to confront a budget deficit that has ballooned to $1.2 billion and Massachusetts Governor Deval Patrick ordered spending cuts as states and cities from Louisiana to Illinois canceled debt sales.

According to the LA Times, New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds. California finance experts say they know of no time in recent history when the state has sought an emergency loan of this magnitude from the federal government. The only other such rescue was in 1975, they said, when the federal government lent New York City money to avoid bankruptcy.

Peter Schiff: "The moral hazard implicit in the government's willingness to re-write troubled mortgages ensures that the plan will spark a wave of new delinquencies by borrowers looking to cash in on the windfall. Since troubled loans will no longer be foreclosed by lenders but instead sold to the government, the rational choice for many homeowners will be to stop making their mortgage payments and wait for a better deal from the government. This reality will eventually push the cost of this bailout well above $2 trillion."

Tennille Tracy: "The Chicago Board Options Exchange's volatility index -- or VIX -- closed the session nearly flat at 45.1, after reaching a session low of 41.5 in the hours before the U.S. House of Representatives convened to vote on the measure.

Referred to as the "fear gauge," the VIX tracks prices at which investors are willing to buy and sell options on the Standard & Poor's 500-stock index. As a result, it typically moves inverse to the stock market and is used to determine the degree to which the market will move in coming weeks."

Paul Krugman: "The next administration’s economic team had better be ready to hit the ground running, because from day one it will find itself dealing with the worst financial and economic crisis since the Great Depression."

The massive financial bailout package approved by the House on Friday and quickly signed by the president blocks oil and gas companies from enjoying nearly $5 billion in anticipated tax cuts, while raising nearly $4 billion more in new taxes to help fund tax breaks for renewable energy.

The legislation freezes the tax deduction oil and gas companies receive for their domestic manufacturing operations at 6 percent, while other American manufacturers will see that deduction rise to 9 percent in 2010.

That provision will raise $4.9 billion over 10 years.

The legislation raises another $2.2 billion by tightening the rules applying to oil and gas companies' taxes on income earned overseas.

And the bill raises $1.7 billion by increasing what producers must pay to the Oil Spill Liability Trust Fund — from 5 cents per barrel to 8 cents per barrel starting in 2009, and then to 9 cents in 2017.

Caterpillar traded below $51 at a new 52-week low and down to a level from 2005. It's down about 35 points from the 52-week high.

Bill Bonner: "Two weeks ago, Bernanke was asked by Barney Frank how much money he had available for this kind of rescue operation. He said he had $800 billion. Last week, he was lending it out at an average daily rate of $44 billion. Let's see, at that rate, the Fed is probably about 5 days from going broke itself."

Vinnee Tong: "Creditors of Lehman Brothers have asked a judge to allow an investigation into whether JPMorgan Chase & Co. had a role in weakening Lehman as it headed toward bankruptcy.

The committee filed the request in court documents late Thursday.

The creditors committee believes Lehman Brothers Holdings Inc. had more than $17 billion in cash and securities held at JPMorgan before its Chapter 11 filing but that JPMorgan froze the assets Sept. 12, three days before Lehman filed for court protection. Its case is the biggest in U.S. history.

"The creditor's committee believes that as a result of JPMC's actions, LBHI suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired," lawyers for creditors wrote in court papers."

Obama campaign manager David Plouffe: "Every voter in every battleground state is going to know that John McCain is taxing health care for the very first time. Twenty-one million people lose their health care because small businesses will drop it."

According to the FT, the Dutch government on Friday re-negotiated last weekend’s bail-out of Fortis in order to buy all of Fortis’s Dutch operations for €16.8bn, including its Dutch insurance operations and the Dutch operations of ABN Amro.

The surprise move represents a break-up of Fortis along national lines and leaves the door open for ABN Amro, broken up last year in a €71bn acquisition by a Royal Bank of Scotland-led consortium, to be revived as an independent bank.

Robert McHugh: " We believe a devastating stock market crash that started Monday could accelerate next week, into our next phi mate turn date of October 13th +/- a few days. Stocks are going lower, fast and furious, so please be ready. We got a Dow Theory reconfirmation of the Bear Market Primary declining trend Friday as Trannies finally confirmed the downside action of the Industrials, both averages hitting new closing lows for the decline from their 2007 peaks. We got new 2008 lows also in the S&P 500, NASDAQ Composite, NDX, and Russell 2000."

European leaders vowed after crisis talks on Saturday to do all they could to fend off the financial mayhem that snowballed out of Wall Street and is now hitting banks in Europe.

Tim Wood: "By every historical measure the equity markets slipped into a secular bear market in 2000. As a result, we began to see efforts by the powers that be to keep the market afloat. I have stated all along that manipulation, will ultimately not work. I have also stated all along that all this will do is make matters worse in the end. Well, I would think that everyone can now see, matters are indeed much worse. Yet, the Fed, the Treasury and the politicians continue to think that they can "fix" the problem by throwing more money at it. They do not understand that they can't "fix" this economic crisis. They also do not understand that it is their trying to "fix" things in the past that has created the current situation. All markets as well as the economy must both inhale and exhale. They are trying to prevent the exhaling and it ain't gonna work.
What we are dealing with is the wrath of Kondratieff Winter, which is about the purging of excess credit. Along with that comes deflation and along with that global stock markets enter into extended declines. Real estate declines, economic growth slows, commodities decline, bankruptcies accelerate as the excess credit is purged from the system, the banking system is shaken, the free market is blamed and we move toward national fascist political tendencies. We are now seeing each and every one of these symptoms of K-wave winter."