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Tuesday, December 2 2008
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  • Thanksgiving rally falls with a thud. After a five-day rally that spurred hopes of a lasting recovery, yesterday's market gave back much of the gains in one of its worst days ever. Monday's trading saw the Dow Jones Industrial Average down 7.7% to 8,149.09, the S&P 500 -8.9% to 816.21 and Nasdaq -8.95% to 1,398.07. The massive sell-off was spurred on by another round of negative economic news and fears that gains from the week earlier were unsustainable. As stocks fell, investors continued to move to longer-term Treasury bonds. The yield on the 10-year Treasury note, already at its lowest level in more than 31 years, fell to 2.719%.
  • The Great Recession. The U.S. economy officially entered a recession in December 2007, according to the National Bureau of Economic Research (NBER), ending a 73-month expansion. (Read the NBER report.) The 1.2M drop in payroll employment this year was the biggest factor in determining the start of the recession, the group said, while job losses are expected to mount as the economy struggles into 2009 (latest cuts I, II). At twelve months, the current contraction is already longer than the last slump that spanned March to November 2001. The current recession could potentially rival the 16-month downturns that ended in March 1975 and November 1982, the longest slumps since 1945. The Great Depression, in comparison, lasted 43 months.
  • Bernanke gets creative. "Even if financial markets improve, economic conditions will probably remain weak for a time," Federal Reserve's Ben Bernanke said. "In particular, household spending likely will continue to be depressed by the declines to date in household wealth, cumulating job losses, weak consumer confidence, and a lack of credit availability." His comments, including calling rate cuts below 1% 'certainly feasible,' helped push long-term yields to their lowest in more than five decades. Bernanke also signaled his willingness to be creative with policy tools as more conventional approaches start to approach their limits, and mentioned possible purchase of Treasury securities or a potential move towards the 'quantitative easing' used by Japan from 2001-2006. (Read Bernanke's speech.)
  • DoJ casts a wider net. The Department of Justice has expanded its criminal investigation into foreign banks that provide offshore private banking services to U.S. clients. The inquiry began with UBS (UBS) and focused on potential tax evasion by wealthy Americans with illegal help from the Swiss banking giant. Sources say DoJ is now investigating HSBC (HBC) and Credit Suisse (CS) as well to see whether the two banks helped U.S. clients hide as much as $30B in offshore accounts that went undeclared to the IRS. The new investigations are still in an early stage and have not (yet?) focused on any executives. Credit Suisse -1.5% in Zurich. HSBC -6.4% in Hong Kong.
  • Morgan searches for deposits. Two months after converting to a bank-holding company, Morgan Stanley (MS) is looking to rev up its push into retail banking, including buying small-to-medium-sized regional banks. With $36B in deposits, the bank is already one of the 50 largest in the U.S., but "the external environment seems to be aligned for us to become bigger in this space," said James Gorman, a Morgan co-president leading the retail-banking push. Executives declined to discuss specific targets or timelines for purchases, but confirmed their goal to increase stable funding sources like deposits to 50% from 33% in November and 21% in 2007.
  • Big Three begging, round two. Detroit's Big Three (General Motors (GM), Ford (F) and Chrysler) will make a second bid at securing a bailout today, presenting Congress with their individual plans for survival and trying to convince politicians that $25B in federal aid will be well-used and ultimately repaid. Sources say GM will offer to cut debt, combine U.S. brands and cut costs, while Ford will hasten a shift to cars from trucks and Chrysler will pitch the idea of an automaker alliance for fuel-efficient technology. Congressional hearings are planned for Thursday and Friday.
  • BoJ expands eligible collateral. Facing a deepening recession, the Bank of Japan held an emergency meeting today and decided to accept lower-grade corporate bonds as loan collateral. Starting Dec. 9, the central bank will accept corporate debt rated BBB or higher, and will open a new lending facility for commercial banks in January. The bank maintained its overnight lending rate at 0.3%. (Read BoJ's release on the new measures (.pdf).)
  • Aussie rate cut. The Reserve Bank of Australia lowered its benchmark interest rate by 1%, extending the biggest round of cuts since 1991 and bringing the target rate to 4.25%, a six-year low. The fourth reduction in as many months, Governor Glenn Stevens said the cut was necessary to "take monetary policy to an expansionary setting." New Zealand is likely to follow suit this week with a forecast 1.5% cut in its benchmark rate.
  • More late mortgages. According to leading credit bureau TransUnion LLC, delinquent mortgages are set to almost double by the end of 2009, bringing delinquencies to their highest level in at least 16 years. TransUnion predicts the proportion of consumers with mortgages 60 days or more past-due will rise to 7.17% in Q4 2009 vs. an expected 4.67% at the end of 2008. Credit-card delinquencies are also expected to rise, though not as sharply.

Earnings: Tuesday Before Open

  • Beazer Homes USA (BZH): FQ4 EPS of -$12.29 misses by $10.19. Revenue of $590M (-44.6%) vs. $593M. CEO Ian McCarthy said "conditions have continued to deteriorate," and the company will remain focused on "generating liquidity, reducing overhead and direct costs, and limiting investment in land and unsold home inventory." (PR)
  • Sears (SHLD): Q3 EPS of -$0.90 misses by $0.41. Revenue of $10.7B (-8.3%) vs. $10.9B. (PR)
  • Staples (SPLS): Q3 EPS of $0.42 beats by $0.01. Revenue of $6.95B (+34.5%) vs. $7.03B. (PR)

Today's Markets

  • Asia markets closed broadly down. Nikkei -6.35% to 7,864. Hang Seng -5.0% to 13,406. Shanghai -0.3% to 1,890. BSE -1.1% to 8,739.
  • In Europe at midday, London +1.6%. Paris +1.2%. Frankfurt +2.6%.
  • U.S. futures: Dow +2.2%. S&P +2.4%. Nasdaq +2.5%. Crude -0.2% to $49.19. Gold -0.1% to $775.80.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.


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This article has 18 comments:

  •  
    Dec 02 09:02 AM
    Auto negotiation MANDATORY elements for loan:
    [1] UAW disolves Job Bank with 90 day severance;
    [2] UAW agreement effective 2010 -- terms fast forward to 2/1/09;
    [3] Dividends suspended until profitable;
    [4] Proceeds from sale of car lines used to reduce debt........PERIOD;
    [5] Source & Use-of-Funds statement for 2009 w/severe penalties for non-compliance;
    [6] BOD's to increase by three goverment appointees of the calibre of Jack Welsh, Ross Perot, Warren Buffett, Kirk Kerkorian's man, etc;
    [7] Officers & Senior executives to reduce salarys by same % as UAW 2010 agreement & receive NO BONUS' except for PROFITABILITY;
    [8] White collar hiring freeze, and further staff recuctions, until profitable;

    NEGOTIABLE ELEMENTS to include downsizing commitments, R&D expenditures, regulations holidays to improve profitability, Debt-for-Equity swaps, UAW Work Rules reduced for efficiencys & Profitability, etc

    The tougher & more demanding Congress is the greater the percent of success will be!!!!!!!!

    IMHO




    Reply
  •  
    Dec 02 09:09 AM
    all the crooks go to jail,,bush,cheney rove,paulson,gonjales.... and on ,,bring back the uptick ,sarbanes oxley,,which the above crooks took away,,,this is bush's regime of financial terror on it's last legs before he ride's off into the sunset,,pardoning the largest list of CRIMINAL'S ever seen
    Reply
  •  
    Dec 02 09:43 AM
    and while you are at it throw that cramer in the cell to ,,what 10 months ago he opened his big mouth about manipulating the market thru false stories and naked short selling ,and chris cox didn't do a goddamn thing ,dress them both in pink in arizona
    Reply
  •  
    Dec 02 09:51 AM
    Morgan uses its bailout money to buy small and regional banks and will undoubtedly slash jobs. The inept automakers come to Camelot once again, hat in hand. Citi get taxpayer billions at 1%, turns around and doubles customer credit card interest rates. WTF When will this corporate welfare program end ? Better yet, when will it stop growing ?

    There is NO chance for a turnaround in the economy for YEARS. Liar's loans were still being made in big numbers into 2007. Many of them reset in 2012, so we can expect foreclosures will remain strong thru 2012.

    At the rate DC is throwing money at this mess, they will have wasted tens of trillions of dollars by then. Shoveling sand into the tide is futile, and the tide's still coming in for another three or more years.

    Leave it to a bunch of zealots who think they're "masters of the universe" to think they can fix Humpty Dumpty when they can't even run a business any direction other than into the ground.
    Reply
  •  
    Dec 02 10:39 AM
    Yes, don't we wish, but doubtful. If you take a look at what's behind all this mess, it appears there's a larger, more sinister group at work, which all these crooks are a part of....The Bilderberg Group. It was recently reported that Hillary Clinton took Barack Obama to a secret meeting with them in early June. Was it just a coincidence that the Bilderbergers had their annual meeting in Virginia this year instead of their usual European locations? Many of the CEO's of the world's largest companies are members. Look at some of David Icke's lectures and books from the 1990's. It's been said he is off the wall but he is being validated now. Their hidden agenda is a central world government. Think about it!


    On Dec 02 09:09 AM chinooking wrote:

    > all the crooks go to jail,,bush,cheney rove,paulson,gonjales....
    > and on ,,bring back the uptick ,sarbanes oxley,,which the above crooks
    > took away,,,this is bush's regime of financial terror on it's last
    > legs before he ride's off into the sunset,,pardoning the largest
    > list of CRIMINAL'S ever seen
    Reply
  •  
    Dec 02 10:51 AM
    Falling with a thud is mild. We definitely have a higher volume of day trading profit takers in this market compared to past bear markets, in addition to the increased short selling and lack of the uptick rule. But we also still have investors selling off gains when the market creeps up because they don't want to pay gains in 2009 and following.

    The Fed already commented in their minutes from October that they expect this "slow down" to last through the 2Q of 2009, so no surprise on the "Great Recession" news above. Lowering interest rates below 1% seems painful, but rates were below that during the "Great Depression", so we shouldn't be surprised by this.

    Ultimately, it doesn't seem that globalization has paid off for the U.S. economy, as we have continued to lose our industrial backbone and now even outsource service jobs, like bookkeeping and call centers. The auto industry has a hard argument to make today, as we've also become accustomed to their competition's level of running businesses within our own borders. It seems this could be ugly for quite some time.
    Reply
  •  
    Dec 02 11:19 AM
    I sent Eddie64's list to my congressman, others should do likwise, Thanks
    Reply
  •  
    Dec 02 11:23 AM
    as long as the crooks are in power nothing changes.sadly as one set of crooks get thrown out there is a very good chance the next group is just as crooked. its the nature of the beast.
    Reply
  •  
    Dec 02 11:46 AM
    The fault with America is that we EXPAND too fast specially in consumer,commercial and industrial quarters lavishly giving away billions of dollars to good for nothing highly paid company executives !.............Joyeb
    Reply
  •  
    Dec 02 12:15 PM
    Obama will save us.......................
    Reply
  •  
    Dec 02 12:17 PM
    Ford has their newest plant in Brazil. Others in Mexico. (Chrysler)
    Save the American car companies... lol lol
    Reply
  •  
    Dec 02 12:18 PM
    Tommy G
    Send the list where??? They are the problem.
    Reply
  •  
    Dec 02 01:30 PM
    get the american empire out of all other countries,e.g missile shield in poland, bases in japan,and in dozens of other places all over the world.
    Reply
  •  
    Dec 02 01:42 PM
    Bilderbergs? One World Government? Tell that to the Chinese or the Muslims for that matter. The cultural differences are too great to even talk about such nonsense. If that is what the CEO's confab about when they get together no wonder our economy is in such sick shape.
    Reply
  •  
    Dec 02 02:03 PM
    We are all with hat in hand. Just what Hillary would want. Man, her speech yesterday made me throw up a little in my mouth.

    Our country is fragmented. Reminds me of the Russian princes that had their crowns off feeding the Mongol horses before they paid their tribute. Wonder if we will end up like Kiev and Vladimior?
    Reply
  •  
    Dec 02 02:05 PM
    Those looking for scapegoats should look in the mirror. For decades we improved our standard of living as women entered the workforce and families had two incomes. Then we had a couple of decades of maxing out our credit cards. Now that game is over. We just cannot all drive SUVs, live in McMansions, and have a place at the beach. As a country, we are living 20% + beyond our means, and have been for so long that we don't even recognize it.
    Reply
  •  
    Dec 02 02:08 PM
    " As a country, we are living 20% + beyond our means, and have been for so long that we don't even recognize it. "

    If the government would keep its hands off, we would recognize it better.
    Reply
  •  
    Dec 02 03:14 PM
    I'll bet a lot of folks recognize it now!! Dumb a$$'s who lived for only the moment are getting what they deserve. Unfortunatly those who saved for tomorrow get to go down with them. Irony can be so cruel.
    Reply