U.S. retailers' sales fell as much as 4 percent during the holiday season, as the weak economy and bad weather created one of the worst holiday shopping climates in modern times, according to data released on Thursday by SpendingPulse.
The figures, from the retail data service of MasterCard Advisors, show the 2008 holiday shopping season was the weakest in decades, as U.S. consumers cut spending as they confront a yearlong recession, mounting job losses and tighter credit.
"It's probably one of the most challenging holiday seasons we've ever had in modern times," said Michael McNamara, vice president of Research and Analysis at MasterCard Advisors.
"We had a very difficult economic environment. Weather patterns were not favorable toward the end of season, and that resulted in one of the most challenging economic seasons we've seen in decades."
The figures exclude auto and gas sales but include grocery, restaurant and specialty food sales. Although SpendingPulse did not exempt the food prices, McNamara said the decline would have been steeper without them.
"There's a lot of food that provide a buffer for the total retail sales numbers," he said.
SpendingPulse tracks sales activity in the MasterCard Inc payments network and couples that with estimates for all other payment forms, including cash and checks. It has been tracking holiday spending figures since 2002. Exact comparisons beyond that year are difficult because of changes in measurements.
The holiday shopping season typically runs from the day after U.S. Thanksgiving, which occurs on the fourth Thursday of November, until Christmas Eve. But this year Thanksgiving was a week later than last year.
To benchmark a comparison, SpendingPulse measured the season from November 1 through December 24. Sales fell 2 percent in November and 4 percent from December 1 through December 24, according to SpendingPulse.
The holiday sales season can account for up to 40 percent of a retailer's annual revenue.
Sales at specialty apparel retailers like Gap Inc and Abercrombie & Fitch Co fell 19.7 percent this year, SpendingPulse said. When factoring in department store results, sales fell about 20 percent, McNamara said.
Women's apparel sales fell 22.7 percent; men's clothing sales were off 14.3 percent, and footwear sales fell 13.5 percent, SpendingPulse said.
This year, the higher the price, the more consumers did without, SpendingPulse said. Sales at specialty electronics and appliance chains such as Best Buy Co Inc fell 26.7 percent, it said.
Luxury sales, which include sales at high-end department stores, leather goods boutiques, pricier jewelry stores and restaurants, fell 34.5 percent, SpendingPulse said. Excluding jewelry, sales fell 21.2 percent.
"There's a much different bonus environment, especially in New York and the financial services industry," McNamara said, of the traditional luxury good customer base.
"But also, the deteriorating employment figures across multiple industries across the country look like they're having a more significant impact at the higher end," he said.
Online sales benefited from the bad weather seen in the northern United States within the last two weeks of the season. E-commerce sales ended down 2.3 percent, but rose 1.8 percent in the final two weeks of the holiday season.
Nearly all retailers -- from department stores such as Macy's Inc and J.C. Penney Co Inc to specialty apparel chains like Aeropostale Inc and AnnTaylor Stores Corp -- offered aggressive discounts this holiday season to lure reticent shoppers.
SpendingPulse results do not include the post-Christmas spending activity, which has been growing with the popularity of gift cards that are typically redeemed after Christmas and post-holiday sales.
Friday, December 26, 2008
Wall Street to ease back from holiday
Wall Street looked to open higher as investors return to work Friday after the Christmas break, even with the retail sector in focus after a report showed disappointing holiday sales.
At 6:30 a.m. ET, Dow, Nasdaq and S&P futures were slightly higher with a comparison to fair value, suggesting an small early gains for Wall Street.
U.S. markets were closed Thursday, but will remain open for a full day of trading. Activity was expected to be limited as many market participants take an extended break.
Stocks rose moderately Wednesday in a thinly traded session before the holiday after a rebound in bank stocks and shares of automaker General Motors (GM, Fortune 500), which has been hammered over the past several weeks.
Asian stocks ended mixed, with Tokyo's Nikkei index up 1.6%. Some of the region's markets were closed for an extended holiday, as were European markets.
Poor economic data have haunted the holiday week, with jobless claims rising to a 26-year high and personal spending declining. There are no major economic reports on tap Friday.
Holiday sales: The first post-Christmas report on the holiday shopping period (Nov. 1 to Dec. 24) was not promising, with a report from MasterCard Worldwide unit SpendingPulse showing sales excluding gasoline down as much as 4% compared to last year.
The report called the 2008 "one of the most challenging holiday shopping seasons in decades." The weak natonal economy was primarily to blame, with some bad weather throughout the nation during the final week adding to the disappointment.
SpendingPulse said the apparel, electronics and luxury sectors were especially hard-hit this season.
At 6:30 a.m. ET, Dow, Nasdaq and S&P futures were slightly higher with a comparison to fair value, suggesting an small early gains for Wall Street.
U.S. markets were closed Thursday, but will remain open for a full day of trading. Activity was expected to be limited as many market participants take an extended break.
Stocks rose moderately Wednesday in a thinly traded session before the holiday after a rebound in bank stocks and shares of automaker General Motors (GM, Fortune 500), which has been hammered over the past several weeks.
Asian stocks ended mixed, with Tokyo's Nikkei index up 1.6%. Some of the region's markets were closed for an extended holiday, as were European markets.
Poor economic data have haunted the holiday week, with jobless claims rising to a 26-year high and personal spending declining. There are no major economic reports on tap Friday.
Holiday sales: The first post-Christmas report on the holiday shopping period (Nov. 1 to Dec. 24) was not promising, with a report from MasterCard Worldwide unit SpendingPulse showing sales excluding gasoline down as much as 4% compared to last year.
The report called the 2008 "one of the most challenging holiday shopping seasons in decades." The weak natonal economy was primarily to blame, with some bad weather throughout the nation during the final week adding to the disappointment.
SpendingPulse said the apparel, electronics and luxury sectors were especially hard-hit this season.
JuicedHybrid
The price of gas and petrol steady climbing the country, drivers are looking forward to the next wave of cars that will look great, serve their needs, and save their money at the pump. At auto shows around the world this past year, more and more cars manufacturer were showing concept cars that were green, ones that used little to no gas.
Toyota Prius is an example of a hybrid car which are available and being used in recent days. Yups,.. all cars will gone green in the next view years. But, the problem is hybrid parts and accessories are still rarely founded in recent days.
Juicedhybrid is a new source for hybrid parts and accessories. It's a great site with lots of Prius and Hybrid Accessories. Here you will find any kind of fuel saving products that improve efficiency and performance and also lower the emissions. The Prius electric only mode will allows you to switch to Electric Only Mode and operate a Prius up to 34 MPH with increased efficiency.
It increase fuel efficiency and Performance with this easily installed electric only mode chip upgrade. The EVMODE Chip activates the factory option that is not available for North American Hybrids. Toyota installs this programming in every Prius before it leaves the factory in Japan.
You just need to visit this site to see the details of any hybrid parts which ara availabel. They have collections for Honda, Toyota, Lexus, Chevrolet, Nissan, Mazda, Tesla, Porche, and some other products.
Toyota Prius is an example of a hybrid car which are available and being used in recent days. Yups,.. all cars will gone green in the next view years. But, the problem is hybrid parts and accessories are still rarely founded in recent days.
Juicedhybrid is a new source for hybrid parts and accessories. It's a great site with lots of Prius and Hybrid Accessories. Here you will find any kind of fuel saving products that improve efficiency and performance and also lower the emissions. The Prius electric only mode will allows you to switch to Electric Only Mode and operate a Prius up to 34 MPH with increased efficiency.
It increase fuel efficiency and Performance with this easily installed electric only mode chip upgrade. The EVMODE Chip activates the factory option that is not available for North American Hybrids. Toyota installs this programming in every Prius before it leaves the factory in Japan.
You just need to visit this site to see the details of any hybrid parts which ara availabel. They have collections for Honda, Toyota, Lexus, Chevrolet, Nissan, Mazda, Tesla, Porche, and some other products.
Wednesday, December 24, 2008
Oil falls as fuel supplies jump
Oil prices remained depressed in a shortened trading session Wednesday after the government reported an unexpected decline in crude inventories, but a big increase in supplies of refined fuels.
U.S. crude for February delivery fell $1.30 to $37.68 a barrel from the previous day's close of $38.98. Prices had been down $1.60 just before the report's release. Oil trading closes at 1 p.m. ET because of the holiday.
A buildup in supplies of gasoline and distillates points to falling demand as cash-strapped consumers and businesses cut back on spending.
"The economic slowdown is just doing a lot more than people thought," said James Cordier, founder of commodities brokerage OptionSellers.com.
Consumer spending slowed in November for the fifth month in a row, and jobless claims reached a 26-year high last week, according to government reports.
Supplies: The Energy Department said Wednesday that supplies of crude oil fell by 3.1 million barrels for the week ended Dec. 19.
Analysts had expected crude supplies to rise by 1.5 million barrels last week, according a survey by information firm Platts.
However, the government also said that fuel supplies had risen more than expected. Supplies of motor gasoline rose by 3.3 million barrels, and stocks of distillates, which are used to make diesel fuel and home heating oil, rose by 1.8 million, according to the report.
Investors were expecting a 900,000-barrel increase in gasoline supplies, and a 1.4 million barrel increase in supplies of distillates, according to the Platts survey.
The large build up in gasoline and distillate supplies indicates that demand continues to deteriorate. "There's just no reason for refineries to chase oil, as we have much more than we need," Cordier said.
Crude prices may continue to fall and could go as low as $35 a barrel unless the economy starts to turn around, he added.
U.S. crude for February delivery fell $1.30 to $37.68 a barrel from the previous day's close of $38.98. Prices had been down $1.60 just before the report's release. Oil trading closes at 1 p.m. ET because of the holiday.
A buildup in supplies of gasoline and distillates points to falling demand as cash-strapped consumers and businesses cut back on spending.
"The economic slowdown is just doing a lot more than people thought," said James Cordier, founder of commodities brokerage OptionSellers.com.
Consumer spending slowed in November for the fifth month in a row, and jobless claims reached a 26-year high last week, according to government reports.
Supplies: The Energy Department said Wednesday that supplies of crude oil fell by 3.1 million barrels for the week ended Dec. 19.
Analysts had expected crude supplies to rise by 1.5 million barrels last week, according a survey by information firm Platts.
However, the government also said that fuel supplies had risen more than expected. Supplies of motor gasoline rose by 3.3 million barrels, and stocks of distillates, which are used to make diesel fuel and home heating oil, rose by 1.8 million, according to the report.
Investors were expecting a 900,000-barrel increase in gasoline supplies, and a 1.4 million barrel increase in supplies of distillates, according to the Platts survey.
The large build up in gasoline and distillate supplies indicates that demand continues to deteriorate. "There's just no reason for refineries to chase oil, as we have much more than we need," Cordier said.
Crude prices may continue to fall and could go as low as $35 a barrel unless the economy starts to turn around, he added.
Stocks drift higher
Stocks rose modestly Wednesday as investors picked through a raft of reports on the economy released before the holiday-shortened session got under way.
The Dow Jones industrial average (INDU) was up 0.4% with about one hour left in the session. The Standard & Poor's 500 (SPX) index added 0.3% and the Nasdaq composite (COMP) advanced a few points.
Stocks fell Tuesday after two housing reports showed declines in sales of new and existing homes. A government report also showed the economy contracted in line with economists' expectations.
Trading is expected to be light, with many market participants on vacation. U.S. stock markets will close early at 1 p.m. ET and remain shut on Thursday for the Christmas holiday.
In addition to light participation, many investors have closed their books for the year and are not planning to make any large moves until 2009.
"We're looking for a pretty quiet, low- volume session," said Todd Salamone, director of trading at Schaffer's Investment Research in Cincinnati. "Most of the major market-moving news is out there already."
Salamone added that the market is hovering in the middle of its recent trading range and that it will probably stay there "barring any unexpected news."
Still, the market had a full roster of economic reports to digest, including one that showed a spike in jobless claims and another weak reading on personal spending.
"I think we'll continue to see unemployment rise and continue to see consumer spending drop," said Dean Barber, president of Barber Financial Group in Kansas City, Kan. These declines, combined with a high level of consumer debt, could result in a "prolonged and painful scenario" for the economy, he added.
Barber said he expects the Dow to retest its November lows in the weeks ahead, and that it could bottom out around 5,000 sometime in 2010.
"The market has factored in some bad news, but there's a lot out there that people don't really understand yet," he said.
Jobs: Before the opening bell, the Labor Department said weekly claims for unemployment benefits rose more than expected.
New jobless claims rose to 586,000 in the week ended Dec. 20. That's an increase of 30,000 from the previous week's revised figure of 556,000, and is more than the 558,000 total forecast by economists.
Wednesday's report revealed the highest number of jobless claims since Nov. 27, 1982, when initial filings hit 612,000.
Income and spending: The Commerce Department said both personal income and spending decreased in November.
Personal income dipped 0.2% after a modest 0.3% increase in October. The reading was expected to be flat.
Personal spending fell 0.6% versus a decline of 1% the month before. But the figure was better than the 0.8% decline that economists were expecting.
Durable goods: New orders of durable manufactured goods fell for the fourth month in a row, according to the Census Bureau.
Durable goods orders fell 1% to $1.9 billion in November. Excluding orders related to transportation, new orders increased 1.2%.
Still, the decline was not as sharp as had been expected. Economists had forecast durable goods orders to sink 3.1% after plummeting 6.2% in October - the biggest decline since 2006.
Sam Bullard, an economist at Wachovia Economics Group, said the decline "suggests order growth for durable goods should remain challenged throughout 2009."
Mortgages: As mortgage rates fall, applications for home loans and refinancing activity surged last week, according to the Mortgage Bankers Association.
The MBA's overall Market Composite Index, a measure of mortgage loan application volume, shot up 48% on a seasonally adjusted basis for the week ending Dec. 19.
The increase was driven by a 62.6% jump in the group's Refinance Index. But the Conventional Purchase Index also increased 17.7%. The only component of the overall index to fall was the Government Purchase Index, which largely tracks FHA loans, which slipped 3.4%.
Bonds: The benchmark 10-year note rose 3/32 to 114 31/32, and its yield held steady at 2.17%. The 10-year yield dipped below 3% in November for the first time since the note was first issued in 1962.
Lending rates were mixed. The 3-month Libor rate held steady at 1.47%, according to Bloomberg. The overnight Libor edged up to 0.15% from 0.12% Tuesday. Libor is a key bank lending rate.
Other markets: In global trading, Asian markets ended lower with the Hang Seng in Hong Kong falling 0.26%. Major indexes in Europe fell in a holiday-shortened session. The DAX index in Frankfurt was closed.
The dollar fell versus the euro and the yen.
U.S. light crude oil for February delivery was down $1.33 at $37.65 a barrel in New York. Crude prices fell sharply after the government reported an unexpected decline in crude inventories.
COMEX gold for February delivery was up $5.40 to $843.50 an ounce.
Gasoline prices fell overnight to a national average of $1.655 from $1.659 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA.
The Dow Jones industrial average (INDU) was up 0.4% with about one hour left in the session. The Standard & Poor's 500 (SPX) index added 0.3% and the Nasdaq composite (COMP) advanced a few points.
Stocks fell Tuesday after two housing reports showed declines in sales of new and existing homes. A government report also showed the economy contracted in line with economists' expectations.
Trading is expected to be light, with many market participants on vacation. U.S. stock markets will close early at 1 p.m. ET and remain shut on Thursday for the Christmas holiday.
In addition to light participation, many investors have closed their books for the year and are not planning to make any large moves until 2009.
"We're looking for a pretty quiet, low- volume session," said Todd Salamone, director of trading at Schaffer's Investment Research in Cincinnati. "Most of the major market-moving news is out there already."
Salamone added that the market is hovering in the middle of its recent trading range and that it will probably stay there "barring any unexpected news."
Still, the market had a full roster of economic reports to digest, including one that showed a spike in jobless claims and another weak reading on personal spending.
"I think we'll continue to see unemployment rise and continue to see consumer spending drop," said Dean Barber, president of Barber Financial Group in Kansas City, Kan. These declines, combined with a high level of consumer debt, could result in a "prolonged and painful scenario" for the economy, he added.
Barber said he expects the Dow to retest its November lows in the weeks ahead, and that it could bottom out around 5,000 sometime in 2010.
"The market has factored in some bad news, but there's a lot out there that people don't really understand yet," he said.
Jobs: Before the opening bell, the Labor Department said weekly claims for unemployment benefits rose more than expected.
New jobless claims rose to 586,000 in the week ended Dec. 20. That's an increase of 30,000 from the previous week's revised figure of 556,000, and is more than the 558,000 total forecast by economists.
Wednesday's report revealed the highest number of jobless claims since Nov. 27, 1982, when initial filings hit 612,000.
Income and spending: The Commerce Department said both personal income and spending decreased in November.
Personal income dipped 0.2% after a modest 0.3% increase in October. The reading was expected to be flat.
Personal spending fell 0.6% versus a decline of 1% the month before. But the figure was better than the 0.8% decline that economists were expecting.
Durable goods: New orders of durable manufactured goods fell for the fourth month in a row, according to the Census Bureau.
Durable goods orders fell 1% to $1.9 billion in November. Excluding orders related to transportation, new orders increased 1.2%.
Still, the decline was not as sharp as had been expected. Economists had forecast durable goods orders to sink 3.1% after plummeting 6.2% in October - the biggest decline since 2006.
Sam Bullard, an economist at Wachovia Economics Group, said the decline "suggests order growth for durable goods should remain challenged throughout 2009."
Mortgages: As mortgage rates fall, applications for home loans and refinancing activity surged last week, according to the Mortgage Bankers Association.
The MBA's overall Market Composite Index, a measure of mortgage loan application volume, shot up 48% on a seasonally adjusted basis for the week ending Dec. 19.
The increase was driven by a 62.6% jump in the group's Refinance Index. But the Conventional Purchase Index also increased 17.7%. The only component of the overall index to fall was the Government Purchase Index, which largely tracks FHA loans, which slipped 3.4%.
Bonds: The benchmark 10-year note rose 3/32 to 114 31/32, and its yield held steady at 2.17%. The 10-year yield dipped below 3% in November for the first time since the note was first issued in 1962.
Lending rates were mixed. The 3-month Libor rate held steady at 1.47%, according to Bloomberg. The overnight Libor edged up to 0.15% from 0.12% Tuesday. Libor is a key bank lending rate.
Other markets: In global trading, Asian markets ended lower with the Hang Seng in Hong Kong falling 0.26%. Major indexes in Europe fell in a holiday-shortened session. The DAX index in Frankfurt was closed.
The dollar fell versus the euro and the yen.
U.S. light crude oil for February delivery was down $1.33 at $37.65 a barrel in New York. Crude prices fell sharply after the government reported an unexpected decline in crude inventories.
COMEX gold for February delivery was up $5.40 to $843.50 an ounce.
Gasoline prices fell overnight to a national average of $1.655 from $1.659 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA.
Tuesday, December 23, 2008
GDP dropped 0.5% this summer
The gross domestic product, the broadest measure of the U.S. economy, fell by the annual rate of 0.5% in the summer, according to the final revision from the Bureau of Economic Analysis, released on Tuesday.
The report compares the three month period that ended Sept. 30 to the preceding quarter. The measure was unchanged from the government's prior revision for the third quarter, and it matched economists' expectations that were compiled by Briefing.com.
The 0.5% decline marks the biggest drop in seven years. A 3.8% slump in personal consumption during the third quarter helped to drag down the overall GDP, according to government figures.
"People just aren't out there shopping their hearts out," said David Wyss, chief economist for Standard & Poor's, who also blamed the contraction on a decline in business-related spending and construction.
Despite the seven-year low, Wyss referred to the 0.5% decline as "a very slight negative." He projected that the fourth-quarter GDP will plunge by 6%, which would be the biggest decline since 1982.
"If you want to see bad, wait till next quarter," said Wyss/
The Tuesday announcement was the second revision from the Commerce Department. In its first revision, the government said third-quarter GDP fell by an annual rate 0.5%. In its initial reading the government had said third-quarter GDP fell by an annual rate of 0.3%.
GDP rose by an annual rate of 2.8% in the second quarter, according to Commerce Department. Growth at that time was spurred by economic stimulus checks and strong exports.
The report compares the three month period that ended Sept. 30 to the preceding quarter. The measure was unchanged from the government's prior revision for the third quarter, and it matched economists' expectations that were compiled by Briefing.com.
The 0.5% decline marks the biggest drop in seven years. A 3.8% slump in personal consumption during the third quarter helped to drag down the overall GDP, according to government figures.
"People just aren't out there shopping their hearts out," said David Wyss, chief economist for Standard & Poor's, who also blamed the contraction on a decline in business-related spending and construction.
Despite the seven-year low, Wyss referred to the 0.5% decline as "a very slight negative." He projected that the fourth-quarter GDP will plunge by 6%, which would be the biggest decline since 1982.
"If you want to see bad, wait till next quarter," said Wyss/
The Tuesday announcement was the second revision from the Commerce Department. In its first revision, the government said third-quarter GDP fell by an annual rate 0.5%. In its initial reading the government had said third-quarter GDP fell by an annual rate of 0.3%.
GDP rose by an annual rate of 2.8% in the second quarter, according to Commerce Department. Growth at that time was spurred by economic stimulus checks and strong exports.
Stocks weather mixed economic news
Stocks rose Tuesday morning despite a raft of mixed economic reports and lingering economic concerns.
The Dow Jones industrial average (INDU) was up 0.25% about 90 minutes into the session. The Standard & Poor's 500 (SPX) index advanced 0.36%, and the Nasdaq composite (COMP) rose 0.47%.
Stocks slumped Monday after Toyota (TM) warned it will suffer an operating loss next year and Credit Suisse downgraded General Motors (GM, Fortune 500). Concerns about fourth-quarter corporate results and falling oil prices also weighed on the market.
Trading is expected to be volatile this week, with many market participants out for the holiday. Markets will close early on Wednesday and will remain shuttered on Thursday for the Christmas holiday.
Economy: The Commerce Department said before the market opened that gross domestic product, the broadest measure of the nation's economy, shrank at a 0.5% annual rate in the third quarter. It was the third and final revision for third-quarter GDP, and the decline was in line with economists' expectations.
Housing: The National Association of Realtors said sales of existing homes fell to a seasonally adjusted annual rate of 8.6% in November to 4.49 million units from a downwardly revised 4.91 million units in October. November sales are down more than 10% versus last year and were weaker than the 4.93 million units economists forecasted.
Separately, the Census Bureau said sales of existing homes fell 2.9% in November to a seasonally adjusted annual rate of 407,000 from a downwardly revised total of 419,000 in October. That tally was worse than the seasonally adjusted 420,000 that economists forecasted.
Consumers: The University of Michigan unexpectedly revised its consumer sentiment index higher to a reading of 60.1 from the 59.1 reading it announced on Dec. 12. Economists surveyed by Briefing.com had forecast a downward revision to 58.6.
The surprise increase could allay some of the market's fears that consumer spending, which makes up the bulk of the nation's economic activity, will remain weak in the months ahead.
Bonds: The benchmark 10-year note fell 10/32 to 113 23/32, and its yield rose to 2.2% from 2.14% on Monday. Treasury prices and yields move in opposite direction. The 10-year yield dipped below 3% in November for the first time since the note was first issued in 1962.
Lending rates were mixed. The 3-month Libor rate held steady at 1.47%, according to Bloomberg. The overnight Libor edged up to 0.12% from 0.11% Monday. Libor is a key bank lending rate.
Other markets: In global trading, Asia markets were lower with the Hang Seng in Hong Kong falling nearly 3%. Japan's Nikkei was closed. Major indexes in Europe were higher at midday.
The dollar fell versus the euro and gained against the yen.
U.S. light crude oil for February delivery was down 32 cents to $39.52 a barrel in New York.
COMEX gold for February delivery was down $3.30 to $843.90 an ounce.
Gasoline prices fell overnight to a national average of $1.659 from $1.663 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA.
The Dow Jones industrial average (INDU) was up 0.25% about 90 minutes into the session. The Standard & Poor's 500 (SPX) index advanced 0.36%, and the Nasdaq composite (COMP) rose 0.47%.
Stocks slumped Monday after Toyota (TM) warned it will suffer an operating loss next year and Credit Suisse downgraded General Motors (GM, Fortune 500). Concerns about fourth-quarter corporate results and falling oil prices also weighed on the market.
Trading is expected to be volatile this week, with many market participants out for the holiday. Markets will close early on Wednesday and will remain shuttered on Thursday for the Christmas holiday.
Economy: The Commerce Department said before the market opened that gross domestic product, the broadest measure of the nation's economy, shrank at a 0.5% annual rate in the third quarter. It was the third and final revision for third-quarter GDP, and the decline was in line with economists' expectations.
Housing: The National Association of Realtors said sales of existing homes fell to a seasonally adjusted annual rate of 8.6% in November to 4.49 million units from a downwardly revised 4.91 million units in October. November sales are down more than 10% versus last year and were weaker than the 4.93 million units economists forecasted.
Separately, the Census Bureau said sales of existing homes fell 2.9% in November to a seasonally adjusted annual rate of 407,000 from a downwardly revised total of 419,000 in October. That tally was worse than the seasonally adjusted 420,000 that economists forecasted.
Consumers: The University of Michigan unexpectedly revised its consumer sentiment index higher to a reading of 60.1 from the 59.1 reading it announced on Dec. 12. Economists surveyed by Briefing.com had forecast a downward revision to 58.6.
The surprise increase could allay some of the market's fears that consumer spending, which makes up the bulk of the nation's economic activity, will remain weak in the months ahead.
Bonds: The benchmark 10-year note fell 10/32 to 113 23/32, and its yield rose to 2.2% from 2.14% on Monday. Treasury prices and yields move in opposite direction. The 10-year yield dipped below 3% in November for the first time since the note was first issued in 1962.
Lending rates were mixed. The 3-month Libor rate held steady at 1.47%, according to Bloomberg. The overnight Libor edged up to 0.12% from 0.11% Monday. Libor is a key bank lending rate.
Other markets: In global trading, Asia markets were lower with the Hang Seng in Hong Kong falling nearly 3%. Japan's Nikkei was closed. Major indexes in Europe were higher at midday.
The dollar fell versus the euro and gained against the yen.
U.S. light crude oil for February delivery was down 32 cents to $39.52 a barrel in New York.
COMEX gold for February delivery was down $3.30 to $843.90 an ounce.
Gasoline prices fell overnight to a national average of $1.659 from $1.663 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA.
Monday, December 22, 2008
First-ever decline for online holiday sales
In the latest sign of consumers in distress, online holiday sales registered a first-ever decline in seven years, according to sales tracker ComScore.
The firm said online spending for the first 49 days of the critical November-December gift-buying period fell 1% to $24.03 billion compared to $24.15 billion over the same period last year.
Andrew Lipsman, analyst with ComScore, said this is the first time the firm has recorded a drop in the measure since it started tracking holiday ecommerce sales in 2001.
Industry watchers say the ongoing recession, marked by mounting job losses and consumers' diminishing personal wealth, has seriously stymied discretionary spending both online and in stores.
This, in turn, has put the 2008 holiday shopping season in serious peril, which could be catastrophic for many merchants since the November and December shopping months can account for as much as 50% of their annual profits and sales.
The spending slump has already left several casualties in its wake: Many national chain stores, including Circuit City and Linens 'N Things, have already either declared bankruptcy or are going out of business.
And if sales continue to decelerate in 2009, it could further shrink the retailing industry and eventually derail the economy since overall consumer spending also fuels two-thirds of the nation's economic activity.
For its part, the National Retail Federation (NRF), the industry's largest trade group, estimates that total holiday sales will grow 2.2% this year, which would be the weakest gain in six years.
But several other retail experts expect a worse performance - and are even forecasting first-ever declines in overall retail sales.
ShopperTrak, which closely monitors sales and traffic trends in more than 50,000 retail locations nationwide, is expected to release sales numbers Tuesday for this past weekend, which typically is the year's busiest shopping weekend for merchants.
However, anecdotal information from retail analysts and mall operators indicates that retailers had a difficult time getting shoppers to splurge in the final stretch to Christmas.
"Overall, it appears that Saturday experienced strong traffic while sales varied from up to flat to down," emailed Karen MacDonald, spokeswoman for Taubman Centers, which owns or manages 24 shopping centers in 11 states. In her e-mail to CNNMoney.com, she also noted that holiday gift card purchases were "consistently down" through the season.
"Parking lots were full in many of the malls we visited, but as told by mall management, the cars were deceiving with respect to sales levels," Amy Wilcox Noblin, analyst with Pali Research, wrote in an e-mail Tuesday.
Wintry conditions across the northern states also hurt traffic and resulted in store closures. Specialty retailers, including Bebe, Gap Inc. (GPS, Fortune 500) and Urban Outfitters (URBN), were especially hard-hit because of the weather, Noblin said, since these chain stores have a larger number of locations in the Northeast.
"The weather could not have come at a worse time with retailers already suffering a dismal December and looking to make a big push in the final weekend before Christmas," she added.
Marshal Cohen, chief retail analyst with NPD Group, said his own weekend spot checks indicated that traffic was on par with last year's levels. "But it was also very evident that purchases were down, both in dollar transactions and the number of bags people were carrying," he said.
Cohen said the real danger for retailers in 2009 is American households changing psyche.
He cited results of an NPD conducted earlier in December that polled 65,000 consumers. Of that total, 31% said they were concerned about their job security and had cut back on their spending.
More importantly, Cohen said he's worried about the 69% of respondents who said they weren't that concerned about losing their jobs but were still spending less in stores.
"More people are starting to think that it's the right thing to do to shop less in this environment," he said.
The firm said online spending for the first 49 days of the critical November-December gift-buying period fell 1% to $24.03 billion compared to $24.15 billion over the same period last year.
Andrew Lipsman, analyst with ComScore, said this is the first time the firm has recorded a drop in the measure since it started tracking holiday ecommerce sales in 2001.
Industry watchers say the ongoing recession, marked by mounting job losses and consumers' diminishing personal wealth, has seriously stymied discretionary spending both online and in stores.
This, in turn, has put the 2008 holiday shopping season in serious peril, which could be catastrophic for many merchants since the November and December shopping months can account for as much as 50% of their annual profits and sales.
The spending slump has already left several casualties in its wake: Many national chain stores, including Circuit City and Linens 'N Things, have already either declared bankruptcy or are going out of business.
And if sales continue to decelerate in 2009, it could further shrink the retailing industry and eventually derail the economy since overall consumer spending also fuels two-thirds of the nation's economic activity.
For its part, the National Retail Federation (NRF), the industry's largest trade group, estimates that total holiday sales will grow 2.2% this year, which would be the weakest gain in six years.
But several other retail experts expect a worse performance - and are even forecasting first-ever declines in overall retail sales.
ShopperTrak, which closely monitors sales and traffic trends in more than 50,000 retail locations nationwide, is expected to release sales numbers Tuesday for this past weekend, which typically is the year's busiest shopping weekend for merchants.
However, anecdotal information from retail analysts and mall operators indicates that retailers had a difficult time getting shoppers to splurge in the final stretch to Christmas.
"Overall, it appears that Saturday experienced strong traffic while sales varied from up to flat to down," emailed Karen MacDonald, spokeswoman for Taubman Centers, which owns or manages 24 shopping centers in 11 states. In her e-mail to CNNMoney.com, she also noted that holiday gift card purchases were "consistently down" through the season.
"Parking lots were full in many of the malls we visited, but as told by mall management, the cars were deceiving with respect to sales levels," Amy Wilcox Noblin, analyst with Pali Research, wrote in an e-mail Tuesday.
Wintry conditions across the northern states also hurt traffic and resulted in store closures. Specialty retailers, including Bebe, Gap Inc. (GPS, Fortune 500) and Urban Outfitters (URBN), were especially hard-hit because of the weather, Noblin said, since these chain stores have a larger number of locations in the Northeast.
"The weather could not have come at a worse time with retailers already suffering a dismal December and looking to make a big push in the final weekend before Christmas," she added.
Marshal Cohen, chief retail analyst with NPD Group, said his own weekend spot checks indicated that traffic was on par with last year's levels. "But it was also very evident that purchases were down, both in dollar transactions and the number of bags people were carrying," he said.
Cohen said the real danger for retailers in 2009 is American households changing psyche.
He cited results of an NPD conducted earlier in December that polled 65,000 consumers. Of that total, 31% said they were concerned about their job security and had cut back on their spending.
More importantly, Cohen said he's worried about the 69% of respondents who said they weren't that concerned about losing their jobs but were still spending less in stores.
"More people are starting to think that it's the right thing to do to shop less in this environment," he said.
Oil falls again
Oil prices fell Monday as investors carried on last week's tradition of falling prices leading up to the Christmas holiday, and the dollar earned back early losses against the euro.
U.S. crude fell $1.02 to $41.34 a barrel on the first weekday of trading for the February 2009 contract. The market will be closed on Christmas Day, Thursday.
Oil, like other commodities, is traded in dollars, so if the dollar declines in value, crude becomes cheaper for foreign investors, which spurs buying. The dollar was down slightly against the 15-nation euro in early trading, but had recovered to near zero by noon.
The January contract, which sank below $40, drew to a close last week. The February contract became the front-month contract, with prices above $40 a barrel.
Falling demand: Last week the market all but ignored a pledge from the Organization of Petroleum Exporting Countries, measures by the Federal Reserve to prop up the ailing economy of the United States - the world's largest oil consumer - and a bailout of the U.S. auto industry.
"This is a market that still needs to see proof of demand," said Phil Flynn, senior market analyst with Alaron Trading in Chicago.
Falling oil demand due to the global economic slump has been the oil market's main concern since this summer. Crude prices have fallen more than $100 a barrel from a record high of $147.27 a barrel on July 11.
The Fed, under pressure to strengthen the U.S. economy, cut a key interest rate last week Tuesday to an unprecedented range between 0% and 0.25%. In response, oil prices fell 91 cents.
Oil income is starting to dry up in many oil producing countries. In order to bolster prices, OPEC, whose members produce about 40% of the world's oil, pledged Wednesday to cut production by 2.2 million barrels a day. But oil prices fell $3.54 a barrel as investors speculated the group may not be able to keep its quotas.
And on Friday, the federal government announced that it would provide $13.4 billion in loans to General Motors (GM, Fortune 500) and Chrysler, which could keep them out of bankruptcy through March. But crude prices sank again, shedding $2.35 a barrel.
"People realize that that's only a band-aid," said Flynn.
Volatility ahead: With the shortened trading week, oil prices could fluctuate wildly. Trading halts on Thursday for Christmas, and then resumes on Friday before the weekend.
Swings in the market are often amplified when fewer market participants are present. So even a modest amount of buying or selling could turn more substantial price movements.
U.S. crude fell $1.02 to $41.34 a barrel on the first weekday of trading for the February 2009 contract. The market will be closed on Christmas Day, Thursday.
Oil, like other commodities, is traded in dollars, so if the dollar declines in value, crude becomes cheaper for foreign investors, which spurs buying. The dollar was down slightly against the 15-nation euro in early trading, but had recovered to near zero by noon.
The January contract, which sank below $40, drew to a close last week. The February contract became the front-month contract, with prices above $40 a barrel.
Falling demand: Last week the market all but ignored a pledge from the Organization of Petroleum Exporting Countries, measures by the Federal Reserve to prop up the ailing economy of the United States - the world's largest oil consumer - and a bailout of the U.S. auto industry.
"This is a market that still needs to see proof of demand," said Phil Flynn, senior market analyst with Alaron Trading in Chicago.
Falling oil demand due to the global economic slump has been the oil market's main concern since this summer. Crude prices have fallen more than $100 a barrel from a record high of $147.27 a barrel on July 11.
The Fed, under pressure to strengthen the U.S. economy, cut a key interest rate last week Tuesday to an unprecedented range between 0% and 0.25%. In response, oil prices fell 91 cents.
Oil income is starting to dry up in many oil producing countries. In order to bolster prices, OPEC, whose members produce about 40% of the world's oil, pledged Wednesday to cut production by 2.2 million barrels a day. But oil prices fell $3.54 a barrel as investors speculated the group may not be able to keep its quotas.
And on Friday, the federal government announced that it would provide $13.4 billion in loans to General Motors (GM, Fortune 500) and Chrysler, which could keep them out of bankruptcy through March. But crude prices sank again, shedding $2.35 a barrel.
"People realize that that's only a band-aid," said Flynn.
Volatility ahead: With the shortened trading week, oil prices could fluctuate wildly. Trading halts on Thursday for Christmas, and then resumes on Friday before the weekend.
Swings in the market are often amplified when fewer market participants are present. So even a modest amount of buying or selling could turn more substantial price movements.
How bad (really) is 8% unemployment?
Nervous about your job? Join the club. Recent polls show that 30% of Americans are worried about being laid off. Yet most of them won't be.
Economists expect the unemployment rate to hit 8% in 2009. That's more than today's 6.5%, but it's no more than it was in the early '90s and far lower than the rate in the not-so-distant recession of the early '80s (11%). Why do today's projections make you feel so scared?
It's taking white-collar workers longer to find jobs. Thomas Lam, an economist at the Singapore-based United Overseas Bank, tracks employment flows, which look at the number of people moving from the ranks of those receiving a regular paycheck to those who aren't and vice versa.
Currently, people out of work have just a 22% chance of landing a new job within a given month. That already makes this a worse market for job seekers than any since the 1990s, which is as far back as Lam's data go. And we aren't at 8% yet.
Some jobs will never be replaced. Economists call it misal-location of human capital. That's a fancy term for the fact that for decades the U.S. has been producing too many M.B.A.s and not enough health-care employees.
Meanwhile, the financial sector is shrinking and tech jobs are being shipped overseas. "People are moving down the pay scale," says Dean Baker, co-director of the Center for Economic and Policy Research, a think tank in Washington, D.C.
The outlook for recovery is slow. Many experts believe that the economy will bottom out in the third quarter of 2009. But the job market may not recover until the following year or even longer.
Okay, your fears aren't unfounded. But there are steps you can take to protect yourself. It's possible to shore up your job prospects, even when you're over 50. And remember, we've recovered from past recessions looking quite sprightly -- and will do so again.
Economists expect the unemployment rate to hit 8% in 2009. That's more than today's 6.5%, but it's no more than it was in the early '90s and far lower than the rate in the not-so-distant recession of the early '80s (11%). Why do today's projections make you feel so scared?
It's taking white-collar workers longer to find jobs. Thomas Lam, an economist at the Singapore-based United Overseas Bank, tracks employment flows, which look at the number of people moving from the ranks of those receiving a regular paycheck to those who aren't and vice versa.
Currently, people out of work have just a 22% chance of landing a new job within a given month. That already makes this a worse market for job seekers than any since the 1990s, which is as far back as Lam's data go. And we aren't at 8% yet.
Some jobs will never be replaced. Economists call it misal-location of human capital. That's a fancy term for the fact that for decades the U.S. has been producing too many M.B.A.s and not enough health-care employees.
Meanwhile, the financial sector is shrinking and tech jobs are being shipped overseas. "People are moving down the pay scale," says Dean Baker, co-director of the Center for Economic and Policy Research, a think tank in Washington, D.C.
The outlook for recovery is slow. Many experts believe that the economy will bottom out in the third quarter of 2009. But the job market may not recover until the following year or even longer.
Okay, your fears aren't unfounded. But there are steps you can take to protect yourself. It's possible to shore up your job prospects, even when you're over 50. And remember, we've recovered from past recessions looking quite sprightly -- and will do so again.
Wednesday, December 17, 2008
The dead mall problem
As the recession leaves more retail casualties in its wake, store bankruptcies and mall closures could have devastating economic consequences.
Major cities across America will be impacted, said David Birnbrey, Chairman and Co-CEO of Atlanta-based The Shopping Center Group, a retail real estate services firm.
Both Birnbrey and Susan Wachter, professor with University of Pennsylvania's Wharton Real Estate Department, warn the social and economic impact of empty stores can be devastating.
"One of the biggest consequences [of store and mall closings] is the loss of a sense of community," Birnbrey said. "I am a big believer that malls are an essential part of Americana. A mall is a place where people gather and socialize."
In addition, many municipalities are heavily dependent on retailers for the tax revenue and jobs that they generate.
For example, Montgomery County, Pa., gets as much as 50% of its tax revenue from the local King of Prussia mall, said Wachter.
The impact will be felt on local police service, schools and roads, said Birnbrey.
The village of North Randall in Cuyahoga County, Ohio, is on the verge of extinction after a challenging economic and competitive climate has crippled business at the Randall Park Mall.
The shopping center, once the largest enclosed mall in the greater Cleveland area, is closing after 32 years. [Read story]
A dead mall is often seen as dead weight on a community. As more stores exit malls, regional mall vacancies could rise past 7% by year-end. That would be a level unseen since the first quarter of 2001, according to real estate research firm Reis.
"You can keep a mall open with 60%-70% [store] occupancy," said Ivan Friedman, president & CEO of RCS Retail Real Estate Advisors. "But if it falls to below 40%, then the weakest malls could be forced to close."
What's more, given this weak economy and tight credit market, Wachter speculates that "it could be years before a dead mall can be reactivated."
Forecasts look bleak
The International Council of Shopping Centers (ICSC), in its most recent forecast, expects that 6,100 chain stores will shutter this year, the highest level since 2004 "as the U.S. recession continues to take its toll on the retail sector and its job market."
In 2009, the ICSC estimates that store closings could exceed 3,100 in just the first half of the year. However, the number of potential closings rises exponentially when the firm takes into account both public and private sector businesses.
The ICSC projects that about 148,000 retail establishments - both public and private - will go out of business this year and another 73,000 stores will close in the first half of 2009.
The ICSC projects that about 625,000 retail jobs will be eliminated this year "with little change in the pace for early 2009."
Fewer retailers means less competition and fewer places to shop. "Right now everyone is euphoric over the big sales," Birnbrey said. "Once the holiday season is over then we could get this monopolistic situation where the [retail] survivors realize that they don't need to be as competitive on prices."
Is America too 'overstored'?
But not everyone sees a dead mall as a negative development.
"Our country has six times more retail space per capita than any other county," said Ellen Dunham-Jones, director of the architecture program at Georgia Institute of Technology.
"We're just cannibalizing our existing stores by building more stores even when sales aren't increasing," she said. "We were long due for a retail correction and we're going through it now."
Dunham-Jones said big-box enclosed malls have become a dying breed as more shoppers prefer going to shop at strip malls or "lifestyle" open-air malls.
"The good news is that this isn't the first time we'll see dead malls," she said. In an upcoming book, "Reftrofitting Suburbia," co-authored by Dunham Jones, she's included case studies of more than 100 places across North America that have turned dead malls or big-box stores into thriving community centers.
What's needed, she said, is for the public and private sector to be opportunistic and develop the 100 acres of prime mall space for mixed community use like schools, libraries and new housing.
John Norquist, a former mayor of Milwaukee who now lectures on urban planning, agreed with Dunham-Jones.
"There's no disgrace in a dead mall," Norquist said. "In Milwaukee, we had one department store, Boston Store, in the downtown area. When that went away and the rest of retailing went into the suburbs, we focused in developing the empty space into housing and I gave fast permits."
Norquist rationalized that more housing would eventually attract more retailing. "Milwaukee opened up for [retail] business in 2001 and it's continued to grow," he said.
But Wharton's Wachter remained unconvinced. She said any talk of redevelopment in this environment is "unrealistic."
"Everything that has been suggested needs funding. There's no money for these adaptive reuses [of retail space] for communities," she said.
Birnbrey's criticism was somewhat harsher. "It's human nature to put a positive light on a bad situation," he said. "It's just a case of hope springs eternal."
Major cities across America will be impacted, said David Birnbrey, Chairman and Co-CEO of Atlanta-based The Shopping Center Group, a retail real estate services firm.
Both Birnbrey and Susan Wachter, professor with University of Pennsylvania's Wharton Real Estate Department, warn the social and economic impact of empty stores can be devastating.
"One of the biggest consequences [of store and mall closings] is the loss of a sense of community," Birnbrey said. "I am a big believer that malls are an essential part of Americana. A mall is a place where people gather and socialize."
In addition, many municipalities are heavily dependent on retailers for the tax revenue and jobs that they generate.
For example, Montgomery County, Pa., gets as much as 50% of its tax revenue from the local King of Prussia mall, said Wachter.
The impact will be felt on local police service, schools and roads, said Birnbrey.
The village of North Randall in Cuyahoga County, Ohio, is on the verge of extinction after a challenging economic and competitive climate has crippled business at the Randall Park Mall.
The shopping center, once the largest enclosed mall in the greater Cleveland area, is closing after 32 years. [Read story]
A dead mall is often seen as dead weight on a community. As more stores exit malls, regional mall vacancies could rise past 7% by year-end. That would be a level unseen since the first quarter of 2001, according to real estate research firm Reis.
"You can keep a mall open with 60%-70% [store] occupancy," said Ivan Friedman, president & CEO of RCS Retail Real Estate Advisors. "But if it falls to below 40%, then the weakest malls could be forced to close."
What's more, given this weak economy and tight credit market, Wachter speculates that "it could be years before a dead mall can be reactivated."
Forecasts look bleak
The International Council of Shopping Centers (ICSC), in its most recent forecast, expects that 6,100 chain stores will shutter this year, the highest level since 2004 "as the U.S. recession continues to take its toll on the retail sector and its job market."
In 2009, the ICSC estimates that store closings could exceed 3,100 in just the first half of the year. However, the number of potential closings rises exponentially when the firm takes into account both public and private sector businesses.
The ICSC projects that about 148,000 retail establishments - both public and private - will go out of business this year and another 73,000 stores will close in the first half of 2009.
The ICSC projects that about 625,000 retail jobs will be eliminated this year "with little change in the pace for early 2009."
Fewer retailers means less competition and fewer places to shop. "Right now everyone is euphoric over the big sales," Birnbrey said. "Once the holiday season is over then we could get this monopolistic situation where the [retail] survivors realize that they don't need to be as competitive on prices."
Is America too 'overstored'?
But not everyone sees a dead mall as a negative development.
"Our country has six times more retail space per capita than any other county," said Ellen Dunham-Jones, director of the architecture program at Georgia Institute of Technology.
"We're just cannibalizing our existing stores by building more stores even when sales aren't increasing," she said. "We were long due for a retail correction and we're going through it now."
Dunham-Jones said big-box enclosed malls have become a dying breed as more shoppers prefer going to shop at strip malls or "lifestyle" open-air malls.
"The good news is that this isn't the first time we'll see dead malls," she said. In an upcoming book, "Reftrofitting Suburbia," co-authored by Dunham Jones, she's included case studies of more than 100 places across North America that have turned dead malls or big-box stores into thriving community centers.
What's needed, she said, is for the public and private sector to be opportunistic and develop the 100 acres of prime mall space for mixed community use like schools, libraries and new housing.
John Norquist, a former mayor of Milwaukee who now lectures on urban planning, agreed with Dunham-Jones.
"There's no disgrace in a dead mall," Norquist said. "In Milwaukee, we had one department store, Boston Store, in the downtown area. When that went away and the rest of retailing went into the suburbs, we focused in developing the empty space into housing and I gave fast permits."
Norquist rationalized that more housing would eventually attract more retailing. "Milwaukee opened up for [retail] business in 2001 and it's continued to grow," he said.
But Wharton's Wachter remained unconvinced. She said any talk of redevelopment in this environment is "unrealistic."
"Everything that has been suggested needs funding. There's no money for these adaptive reuses [of retail space] for communities," she said.
Birnbrey's criticism was somewhat harsher. "It's human nature to put a positive light on a bad situation," he said. "It's just a case of hope springs eternal."
Who isn't a Madoff victim? The list is telling.
As the number of victims of Bernard Madoff, the criminally charged founder of the investment firm that bears his name, seems to multiply with the speed and force of a hurricane, certain types of investors seem to be absent -- so far, anyway -- from the casualty list. That's no accident, argues James Hedges IV of LJH Global Investments, a boutique firm that invests in hedge funds and private equity for high-net-worth families. In other words, score one for the big institutions that stick to standard rules rather than allowing their managers to invest on personal connections or hunches.
"There's no Duke Endowment [among the list of Madoff investors]," Hedges says. "There's no Harvard management, there's no Yale, there's no Penn, there's no Weyerhauser, no State of Texas or Virginia Retirement system."
The reason is simple, in Hedges' view. Letting Madoff manage your money "wouldn't pass an institutional-quality due diligence process," he says. "Because when you get to page two of your 30-page due diligence questionnaire, you've already tripped eight alarms and said 'I'm out of here.' " In short, in Hedges' opinion, any sophisticated entity that actually did its homework would have seen the warning signs.
Hedges got the chance to see those signs up close: In 1997, when he was advising the Bessemer Trust, the giant wealth manager, he visited Bernard Madoff to discuss investing with Madoff's firm.
"I found him stylistically like a lot of traders: fast-talking, distractable, not remarkable," Hedges says of Madoff. But during their two-hour meeting, Hedges says, "there was one red flag after another."
For starters, he couldn't grasp Madoff's investing strategy. "I kept saying, 'you've got to explain it to me like I'm in first grade,' " he says. To no avail.
Then there was the fact that Madoff was charging no fees other than trading commissions: "The notion that something is fee-less -- which is what they largely proferred -- is too good to be true."
The fact that Madoff's operation was audited by a microscopic accounting firm also worried him. "He was also so secretive about his asset base -- that was another red flag."
In the end, Hedges was uncomfortable and Bessemer decided not to let Madoff manage any of its money.
In Hedges' view, those that went with Madoff chose faith over evidence. "You've got people who were disintermediated [i.e., didn't have a professional representative], or unsophisticated, or went in through a personal relationship. That's what a con man is -- a confidence man is somebody that engenders a relationship and then subsequently lures somebody into doing something that they shouldn't do." (According to the federal criminal complaint against him, Madoff has confessed that he ran a "giant Ponzi scheme." His lawyer, Ira Sorkin, declined to comment.)
Certainly many of the institutions that turned to Madoff will challenge Hedges' views, as many will face litigation from their own clients. So far, two of the large fund-of-funds with the largest sums under Madoff's control, Tremont and Fairfield Greenwich, have already asserted that they conducted extensive due diligence before investing. Many others will take the same position.
Should Hedges' opinion be borne out and corporate and state pension funds remain absent from the roster of Madoff victims -- of course, there will be many more names added to the list -- it will only heighten the Madoff tragedy. Because, in the end, it would show that this was one investing disaster that could easily have been avoided.
"There's no Duke Endowment [among the list of Madoff investors]," Hedges says. "There's no Harvard management, there's no Yale, there's no Penn, there's no Weyerhauser, no State of Texas or Virginia Retirement system."
The reason is simple, in Hedges' view. Letting Madoff manage your money "wouldn't pass an institutional-quality due diligence process," he says. "Because when you get to page two of your 30-page due diligence questionnaire, you've already tripped eight alarms and said 'I'm out of here.' " In short, in Hedges' opinion, any sophisticated entity that actually did its homework would have seen the warning signs.
Hedges got the chance to see those signs up close: In 1997, when he was advising the Bessemer Trust, the giant wealth manager, he visited Bernard Madoff to discuss investing with Madoff's firm.
"I found him stylistically like a lot of traders: fast-talking, distractable, not remarkable," Hedges says of Madoff. But during their two-hour meeting, Hedges says, "there was one red flag after another."
For starters, he couldn't grasp Madoff's investing strategy. "I kept saying, 'you've got to explain it to me like I'm in first grade,' " he says. To no avail.
Then there was the fact that Madoff was charging no fees other than trading commissions: "The notion that something is fee-less -- which is what they largely proferred -- is too good to be true."
The fact that Madoff's operation was audited by a microscopic accounting firm also worried him. "He was also so secretive about his asset base -- that was another red flag."
In the end, Hedges was uncomfortable and Bessemer decided not to let Madoff manage any of its money.
In Hedges' view, those that went with Madoff chose faith over evidence. "You've got people who were disintermediated [i.e., didn't have a professional representative], or unsophisticated, or went in through a personal relationship. That's what a con man is -- a confidence man is somebody that engenders a relationship and then subsequently lures somebody into doing something that they shouldn't do." (According to the federal criminal complaint against him, Madoff has confessed that he ran a "giant Ponzi scheme." His lawyer, Ira Sorkin, declined to comment.)
Certainly many of the institutions that turned to Madoff will challenge Hedges' views, as many will face litigation from their own clients. So far, two of the large fund-of-funds with the largest sums under Madoff's control, Tremont and Fairfield Greenwich, have already asserted that they conducted extensive due diligence before investing. Many others will take the same position.
Should Hedges' opinion be borne out and corporate and state pension funds remain absent from the roster of Madoff victims -- of course, there will be many more names added to the list -- it will only heighten the Madoff tragedy. Because, in the end, it would show that this was one investing disaster that could easily have been avoided.
Tuesday, December 16, 2008
Housing permits, starts hit record lows
Housing permits and starts fell to record lows in November, the government said Tuesday, in the latest sign that the housing market is continuing its decline.
Housing permits fell more than 15% to an annual rate of 616,000 last month, the Commerce Department said, while starts slid nearly 19% to an annual rate of 625,000.
"[Housing permits and starts] are startlingly low and really underscore the degree to which builders are cutting back aggressively on construction," said Mike Larson, a real estate analyst for the Weiss Group. "We still have too many homes for sale on the market."
The reports were much lower than expected.
The Commerce Department was expected to report an annual rate of 700,000 building permits for November, according to a consensus of opinion compiled by Briefing.com.
Permits, which can be a useful indicator to gauge the near future of the housing market, reached a 730,000 rate in October, the lowest level since March 1975.
Housing starts were expected to come in at an annual rate of 730,000 for November, according to economist consensus from Briefing.com.
That's down from 771,000 during the prior month. The new annual rate for starts was the lowest since the department began tracking the data in 1959, and was down about 50% from the 2005 peak.
Paul Kasriel, director of economic research at Northern Trust, said he expects the housing construction market to bottom out sometime next year, though he admitted that the declines have already exceeded his initial expectations.
"We still have an excess supply of houses, both existing and new," said Kasriel. "In all candor, I'm surprised - with all the excess supply - that we've been building any [new houses]."
While the declines in construction are painful for the economy, Larson of the Weiss Group said it is the only way to work through the excessive supply.
"Arguably, these dismal numbers are what we need to see to get housing inventories back in line with the reduced level of demand out there," said Larson.
Housing permits fell more than 15% to an annual rate of 616,000 last month, the Commerce Department said, while starts slid nearly 19% to an annual rate of 625,000.
"[Housing permits and starts] are startlingly low and really underscore the degree to which builders are cutting back aggressively on construction," said Mike Larson, a real estate analyst for the Weiss Group. "We still have too many homes for sale on the market."
The reports were much lower than expected.
The Commerce Department was expected to report an annual rate of 700,000 building permits for November, according to a consensus of opinion compiled by Briefing.com.
Permits, which can be a useful indicator to gauge the near future of the housing market, reached a 730,000 rate in October, the lowest level since March 1975.
Housing starts were expected to come in at an annual rate of 730,000 for November, according to economist consensus from Briefing.com.
That's down from 771,000 during the prior month. The new annual rate for starts was the lowest since the department began tracking the data in 1959, and was down about 50% from the 2005 peak.
Paul Kasriel, director of economic research at Northern Trust, said he expects the housing construction market to bottom out sometime next year, though he admitted that the declines have already exceeded his initial expectations.
"We still have an excess supply of houses, both existing and new," said Kasriel. "In all candor, I'm surprised - with all the excess supply - that we've been building any [new houses]."
While the declines in construction are painful for the economy, Larson of the Weiss Group said it is the only way to work through the excessive supply.
"Arguably, these dismal numbers are what we need to see to get housing inventories back in line with the reduced level of demand out there," said Larson.
Wall Street jumps ahead of the Fed
Stocks rose Tuesday morning as investors shrugged off a report showing a big drop in home construction and looked to the Federal Reserve - expected to cut interest rates to historic lows this afternoon.
The Dow Jones industrial average (INDU) rose 0.7% in the early going. The Standard & Poor's 500 (SPX) index gained 0.9% and the Nasdaq composite (COMP) rose 1.4%.
Fed meeting: Central bank policymakers conclude a two-day meeting, with their decision on interest rates expected at 2:15 p.m. ET.
Economists believe the Fed will lower its benchmark funds rate to 0.5%, which would be the lowest level on record, from its current level of 1%.
As is often the case, the statement accompanying the rate cut decision will be of greater interest than the decision.
"The Fed is going to throw everything they have to not only reverse market psychology, but reverse the downward decline in economic activity," said Peter Cardillo, analyst for Avalon Partners.
He said the Fed might also use unconventional methods to try and stabilize the economy, like buying Treasurys and corporate bonds. (Full story)
Goldman results: Goldman Sachs (GS, Fortune 500) posted a deeper-than-expected quarterly loss of $2.1 billion - or $4.97 a share - before the market open.
Goldman chief Lloyd Blankfein said "extraordinarily difficult operating conditions" led to the firm's first quarterly loss since it went public in 1999. Analysts had expected a loss of $3.73 per share, according to a survey by Thomson Reuters. Shares gained 4% in morning trading.
Best Buy: Electronics retail giant Best Buy (BBY, Fortune 500) topped analyst estimates, reporting earnings of 35 cents a share. That is down from 53 cents a share a year ago, but well above the 24 cents a share anticipated by analysts, according to a Thomson Reuters poll. Best Buy shares gained 12% in the morning.
Economy: A key inflation gauge - the Consumer Price Index - fell 1.7% in November, the largest monthly decline on record.
Economists had expected the CPI to drop 1.3%, according to analysts surveyed by Briefing.com. The CPI dropped 1% in October.
The core CPI, which does not include volatile energy and food prices, held steady in November and was 2% higher on a 12-month basis.
Housing: The Commerce Department reported a record low annual rate of 616,000 building permits for November. Analysts had expected 700,000 starts, according to Briefing.com. Housing starts declined to a record low annual rate of 625,000.
World markets: Global markets were mixed. Japan's Nikkei index ended the session with mild losses. Major exchanges in Europe were higher in morning trading, with major indexes in London, Paris and Frankfurt increasing about 1%.
Oil and money: Oil prices rose $1.46 to $45.97 a barrel on the New York Mercantile Exchange. The dollar declined versus the yen, the euro and the British pound.
The Dow Jones industrial average (INDU) rose 0.7% in the early going. The Standard & Poor's 500 (SPX) index gained 0.9% and the Nasdaq composite (COMP) rose 1.4%.
Fed meeting: Central bank policymakers conclude a two-day meeting, with their decision on interest rates expected at 2:15 p.m. ET.
Economists believe the Fed will lower its benchmark funds rate to 0.5%, which would be the lowest level on record, from its current level of 1%.
As is often the case, the statement accompanying the rate cut decision will be of greater interest than the decision.
"The Fed is going to throw everything they have to not only reverse market psychology, but reverse the downward decline in economic activity," said Peter Cardillo, analyst for Avalon Partners.
He said the Fed might also use unconventional methods to try and stabilize the economy, like buying Treasurys and corporate bonds. (Full story)
Goldman results: Goldman Sachs (GS, Fortune 500) posted a deeper-than-expected quarterly loss of $2.1 billion - or $4.97 a share - before the market open.
Goldman chief Lloyd Blankfein said "extraordinarily difficult operating conditions" led to the firm's first quarterly loss since it went public in 1999. Analysts had expected a loss of $3.73 per share, according to a survey by Thomson Reuters. Shares gained 4% in morning trading.
Best Buy: Electronics retail giant Best Buy (BBY, Fortune 500) topped analyst estimates, reporting earnings of 35 cents a share. That is down from 53 cents a share a year ago, but well above the 24 cents a share anticipated by analysts, according to a Thomson Reuters poll. Best Buy shares gained 12% in the morning.
Economy: A key inflation gauge - the Consumer Price Index - fell 1.7% in November, the largest monthly decline on record.
Economists had expected the CPI to drop 1.3%, according to analysts surveyed by Briefing.com. The CPI dropped 1% in October.
The core CPI, which does not include volatile energy and food prices, held steady in November and was 2% higher on a 12-month basis.
Housing: The Commerce Department reported a record low annual rate of 616,000 building permits for November. Analysts had expected 700,000 starts, according to Briefing.com. Housing starts declined to a record low annual rate of 625,000.
World markets: Global markets were mixed. Japan's Nikkei index ended the session with mild losses. Major exchanges in Europe were higher in morning trading, with major indexes in London, Paris and Frankfurt increasing about 1%.
Oil and money: Oil prices rose $1.46 to $45.97 a barrel on the New York Mercantile Exchange. The dollar declined versus the yen, the euro and the British pound.
Thursday, December 11, 2008
Sweden offers $3.4 billion auto bailout
The Swedish government presented a $3.4 billion support package Thursday to help the nation's ailing auto industry.
The plan offers credit guarantees, emergency loans and research funds to boost companies in the "Swedish automotive cluster," the center-right government said.
Car makers Volvo (VOLV.Y) and Saab have been appealing to the government for support because of the financial woes of their U.S. owners, Ford and General Motors.
The Swedish plan, which requires approval from lawmakers, was announced just hours after the U.S. House of Representatives approved a bill to get $14 billion in emergency loans to the struggling U.S. auto industry.
Democrats and the White House hoped the bill could be enacted by week's end, but it is jeopardized by opposition from Republicans in the Senate.
The Swedish government said its support package was needed to safeguard "the continued success of the Swedish automotive industry," even if the industry's crisis deepens. It also called for quicker development of green technology.
The plan includes a maximum of 20 billion kronor in credit guarantees to automotive companies, and up to 5 billion kronor in rescue loans to bail out companies in crisis. The government said it would also earmark 3 billion kronor for research and development in the automotive sector.
The four-party coalition reiterated it was not interested in ownership in Volvo and Saab, which are expected to be put up for sale as Ford (F, Fortune 500) and GM (GM, Fortune 500) focus on their U.S. brands.
"The measures will be taken with the clear assumption that the state does not intend to acquire any of the existing automotive manufacturers," the government said in a statement. "They are also based on continued openness in relation to the ongoing process in the U.S. automotive industry and conclusions drawn by current or any new owners."
The government said the plan was in line with the proposals in the European Commission's economic recovery plan.
The plan offers credit guarantees, emergency loans and research funds to boost companies in the "Swedish automotive cluster," the center-right government said.
Car makers Volvo (VOLV.Y) and Saab have been appealing to the government for support because of the financial woes of their U.S. owners, Ford and General Motors.
The Swedish plan, which requires approval from lawmakers, was announced just hours after the U.S. House of Representatives approved a bill to get $14 billion in emergency loans to the struggling U.S. auto industry.
Democrats and the White House hoped the bill could be enacted by week's end, but it is jeopardized by opposition from Republicans in the Senate.
The Swedish government said its support package was needed to safeguard "the continued success of the Swedish automotive industry," even if the industry's crisis deepens. It also called for quicker development of green technology.
The plan includes a maximum of 20 billion kronor in credit guarantees to automotive companies, and up to 5 billion kronor in rescue loans to bail out companies in crisis. The government said it would also earmark 3 billion kronor for research and development in the automotive sector.
The four-party coalition reiterated it was not interested in ownership in Volvo and Saab, which are expected to be put up for sale as Ford (F, Fortune 500) and GM (GM, Fortune 500) focus on their U.S. brands.
"The measures will be taken with the clear assumption that the state does not intend to acquire any of the existing automotive manufacturers," the government said in a statement. "They are also based on continued openness in relation to the ongoing process in the U.S. automotive industry and conclusions drawn by current or any new owners."
The government said the plan was in line with the proposals in the European Commission's economic recovery plan.
Global oil demand to shrink - report
The International Energy Agency said Thursday that global oil demand will shrink this year for the first time in a quarter-century as rich nations fall into recession and growth slows in the developing world.
The Paris-based agency, which represents the interests of 28 oil-importing nations, also cut its forecast for global demand next year, saying a rebound in demand depends on economic recovery in the second half of 2009.
The IEA cut its forecast for global oil demand this year by 350,000 barrels a day to 85.8 million barrels a day, down 0.2% from 2007.
"The global demand contraction expected in 2008 will be the first since 1983," the agency said in its monthly oil market report.
The IEA slashed its forecast for oil demand in developed nations in the 30-country Organization for Economic Cooperation and Development by 290,000 barrels a day this year and 210,000 barrels a day in 2009.
Demand in non-OECD countries will rise 3.9% this year and 2.9% in 2009, the IEA said, slightly slower than its forecast in its report for November. It said the predicted cuts were linked to the economic slowdown and revised data in Asian countries like Malaysia, Taiwan and Thailand.
Global oil demand will increase 0.5% next year to 86.3 million barrels a day, the IEA said, but it added that this forecast assumes that the plunge in OECD economic growth will bottom out next year and recover in the second half of 2009. The International Monetary Fund has made a similar estimate.
Separate figures for the month of October likewise showed steep falls. The agency said demand in its North American member states fell 8.3% in October, while in OECD states in Europe the decline was only 0.9%.
Oil prices edged higher Thursday in Asia with investors hoping for a significant OPEC production cut next week to underpin prices.
Light, sweet crude for January delivery was up 59 cents to $44.11 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.
The Paris-based agency, which represents the interests of 28 oil-importing nations, also cut its forecast for global demand next year, saying a rebound in demand depends on economic recovery in the second half of 2009.
The IEA cut its forecast for global oil demand this year by 350,000 barrels a day to 85.8 million barrels a day, down 0.2% from 2007.
"The global demand contraction expected in 2008 will be the first since 1983," the agency said in its monthly oil market report.
The IEA slashed its forecast for oil demand in developed nations in the 30-country Organization for Economic Cooperation and Development by 290,000 barrels a day this year and 210,000 barrels a day in 2009.
Demand in non-OECD countries will rise 3.9% this year and 2.9% in 2009, the IEA said, slightly slower than its forecast in its report for November. It said the predicted cuts were linked to the economic slowdown and revised data in Asian countries like Malaysia, Taiwan and Thailand.
Global oil demand will increase 0.5% next year to 86.3 million barrels a day, the IEA said, but it added that this forecast assumes that the plunge in OECD economic growth will bottom out next year and recover in the second half of 2009. The International Monetary Fund has made a similar estimate.
Separate figures for the month of October likewise showed steep falls. The agency said demand in its North American member states fell 8.3% in October, while in OECD states in Europe the decline was only 0.9%.
Oil prices edged higher Thursday in Asia with investors hoping for a significant OPEC production cut next week to underpin prices.
Light, sweet crude for January delivery was up 59 cents to $44.11 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.
Wednesday, December 10, 2008
Auto bailout: $15B just the beginning
One thing is certain about the proposed auto industry bailout: it's going to end up being more expensive than the $15 billion Congress and the White House are hoping to approve for Detroit in the next few days.
In fact, it's likely to be more costly than the $34 billion that the Big Three were asking for last week.
Congressional leaders and the White House were working Tuesday to finalize details of a $15 billion loan designed to get the two most troubled automakers, General Motors (GM, Fortune 500) and Chrysler LLC, through March without running out of cash.
Still, that is only seen as a stopgap measure to keep the companies rolling until the new Congress and the Obama administration can consider the full request from GM, Chrysler and Ford Motor (F, Fortune 500) early next year.
And even the automakers admit that they are going to need a lot more than $34 billion to remain viable.
Executives of all three companies have said they still hope to get at least $20 billion of the $25 billion in federal loans over the next three years from the Energy Department. Those loans have already been approved to help them build more fuel efficient vehicles.
The $15 billion being considered for the current bailout would come out of that $25 billion. Democrats in Congress plan on replenishing those funds early next year.
But Big Three executives are already on record as wanting to see Congress boost the size of the Energy Department loans to $50 billion sometime next year.
Each of the automakers also hope to have their finance operations tap into the $700 billion set aside by Congress in October to help Wall Street firms and banks.
GMAC, the finance arm owned 49% by GM, has filed to become a bank holding company, while Ford and Chrysler have filed to become industrial loan companies, which could also open up that source of funds.
Those funds would go to help provide credit to dealerships and consumers that the automakers say they need to support sales. The amount of money to be requested from those funds is not yet known.
The automakers are also seeking help from the Canadian government, where all three operate plants. A report in the Hamilton Spectator estimates that the U.S. automakers are seeking more than $5 billion in loans from the Canadian government. The U.S. automakers could not confirm this.
Automakers could be back for more $ in '09
But even all these additional sources of capital may not be enough to keep the industry out of bankruptcy.
The automakers came up with the $34 billion request based on expectations of a modest rebound in auto sales in December and the first quarter of 2009. If that doesn't materialize, the cost of saving the industry would certainly rise.
Last week, Moody's Economy.com economist Mark Zandi suggested during one of the auto bailout hearings on Capitol Hill that the Big Three could need between $75 billion to $125 billion over the next two years if they are to survive.
He predicted that even if the government approves the $34 billion loan package, the automakers would be back to Washington later in 2009 asking for additional help.
That's because he thinks U.S. auto sales will remain weak well into 2010, due to problems in the economy and the bubble in auto sales from earlier in the decade.
In his testimony, Zandi said he estimates the entire auto industry would have to shut down production for nearly a year to work off the excess cars and light trucks that were sold during the bubble years.
With that in mind, Zandi said in an interview this week that his estimates for how much cash the industry needs might be low since it doesn't account for the lower revenue the Big Three are likely to receive if consumers continue to shun more expensive SUVs and pickups in favor of smaller, cheaper car models with better fuel efficiency.
Other experts agree that coming up with the actual amount that will be needed to save Detroit is difficult, but that Zandi's $75 billion to $125 billion estimate is probably closer to reality than $34 billion.
"You have to wonder if the initial cost estimates are anywhere near what the final costs are going to be," said Bob Schnorbus, chief economist with J.D. Power & Associates. "It'll take terrific management skills to contain it to $34 billion."
J.D. Power & Associates has already cut forecasts several times and will soon issue another sharp reduction to its current 2009 industrywide U.S. sales forecast of 12.6 million cars and light trucks. The firm said its new forecast is expected to be closer to annual sales of 11 million.
That's well below the targets set by General Motors and Ford Motor when they submitted their turnaround plans to Congress last week.
GM estimated industrywide sales of just under 12 million cars and light trucks for 2009 while Ford predicted sales of just over 12 million. Each said their need for federal help would increase if sales fell short of those forecasts.
Chrysler presented a more conservative estimate of 11.1 million vehicles sold industrywide next year.
And the worse the sales outlook gets, the more costly it will become for the Big Three to adjust to the weaker sales environment by reducing capacity. The cost of buyouts tied to plant and dealership closings could easily be more than $1 billion, according to some industry experts.
"If you want to accelerate cost savings or dealership reductions or brand elimination, all that requires incremental cash in addition to what's being used in the ongoing operations," said Robert Schulz, senior auto credit analyst for Standard & Poor's. "It can be more expensive in the short run to better position yourself for the long run."
In fact, it's likely to be more costly than the $34 billion that the Big Three were asking for last week.
Congressional leaders and the White House were working Tuesday to finalize details of a $15 billion loan designed to get the two most troubled automakers, General Motors (GM, Fortune 500) and Chrysler LLC, through March without running out of cash.
Still, that is only seen as a stopgap measure to keep the companies rolling until the new Congress and the Obama administration can consider the full request from GM, Chrysler and Ford Motor (F, Fortune 500) early next year.
And even the automakers admit that they are going to need a lot more than $34 billion to remain viable.
Executives of all three companies have said they still hope to get at least $20 billion of the $25 billion in federal loans over the next three years from the Energy Department. Those loans have already been approved to help them build more fuel efficient vehicles.
The $15 billion being considered for the current bailout would come out of that $25 billion. Democrats in Congress plan on replenishing those funds early next year.
But Big Three executives are already on record as wanting to see Congress boost the size of the Energy Department loans to $50 billion sometime next year.
Each of the automakers also hope to have their finance operations tap into the $700 billion set aside by Congress in October to help Wall Street firms and banks.
GMAC, the finance arm owned 49% by GM, has filed to become a bank holding company, while Ford and Chrysler have filed to become industrial loan companies, which could also open up that source of funds.
Those funds would go to help provide credit to dealerships and consumers that the automakers say they need to support sales. The amount of money to be requested from those funds is not yet known.
The automakers are also seeking help from the Canadian government, where all three operate plants. A report in the Hamilton Spectator estimates that the U.S. automakers are seeking more than $5 billion in loans from the Canadian government. The U.S. automakers could not confirm this.
Automakers could be back for more $ in '09
But even all these additional sources of capital may not be enough to keep the industry out of bankruptcy.
The automakers came up with the $34 billion request based on expectations of a modest rebound in auto sales in December and the first quarter of 2009. If that doesn't materialize, the cost of saving the industry would certainly rise.
Last week, Moody's Economy.com economist Mark Zandi suggested during one of the auto bailout hearings on Capitol Hill that the Big Three could need between $75 billion to $125 billion over the next two years if they are to survive.
He predicted that even if the government approves the $34 billion loan package, the automakers would be back to Washington later in 2009 asking for additional help.
That's because he thinks U.S. auto sales will remain weak well into 2010, due to problems in the economy and the bubble in auto sales from earlier in the decade.
In his testimony, Zandi said he estimates the entire auto industry would have to shut down production for nearly a year to work off the excess cars and light trucks that were sold during the bubble years.
With that in mind, Zandi said in an interview this week that his estimates for how much cash the industry needs might be low since it doesn't account for the lower revenue the Big Three are likely to receive if consumers continue to shun more expensive SUVs and pickups in favor of smaller, cheaper car models with better fuel efficiency.
Other experts agree that coming up with the actual amount that will be needed to save Detroit is difficult, but that Zandi's $75 billion to $125 billion estimate is probably closer to reality than $34 billion.
"You have to wonder if the initial cost estimates are anywhere near what the final costs are going to be," said Bob Schnorbus, chief economist with J.D. Power & Associates. "It'll take terrific management skills to contain it to $34 billion."
J.D. Power & Associates has already cut forecasts several times and will soon issue another sharp reduction to its current 2009 industrywide U.S. sales forecast of 12.6 million cars and light trucks. The firm said its new forecast is expected to be closer to annual sales of 11 million.
That's well below the targets set by General Motors and Ford Motor when they submitted their turnaround plans to Congress last week.
GM estimated industrywide sales of just under 12 million cars and light trucks for 2009 while Ford predicted sales of just over 12 million. Each said their need for federal help would increase if sales fell short of those forecasts.
Chrysler presented a more conservative estimate of 11.1 million vehicles sold industrywide next year.
And the worse the sales outlook gets, the more costly it will become for the Big Three to adjust to the weaker sales environment by reducing capacity. The cost of buyouts tied to plant and dealership closings could easily be more than $1 billion, according to some industry experts.
"If you want to accelerate cost savings or dealership reductions or brand elimination, all that requires incremental cash in addition to what's being used in the ongoing operations," said Robert Schulz, senior auto credit analyst for Standard & Poor's. "It can be more expensive in the short run to better position yourself for the long run."
Oil gains amid OPEC cut talk
Oil prices rose Wednesday, ahead of a government inventory report expected to show a buildup in crude supplies, as investors looked to talk about an OPEC production cut next week.
U.S. crude for January delivery rose $1.99 to $44.06 a barrel in electronic trading.
Sinking demand for crude has put pressure on the Organization of Petroleum Exporting Countries, an international trade cartel whose members produce about 40% of the world's oil, to bolster prices with a production cut.
"I think it's hurting them pretty badly," said Michael Lynch, president of energy consulting firm Strategic Energy & Economic Research Inc.
Crude prices have plummeted more than $100 a barrel since hitting a record intraday high of $147.27 a barrel in mid-July.
Investors have been worried about falling demand for crude products as the world economy slows.
OPEC nations, some of whom depend heavily on oil profits to support their domestic economies, have been scrambling to keep prices from falling further.
In October the organization pledged to cut production by 1.5 million barrels a day, and on Monday, OPEC President Chakib Khelil told the Associated Press that the oil market could expect to see a "severe" cut in production levels when the organization meets again Dec. 17.
While Khelil did not specify a number, some analysts have predicted OPEC could pledge to cut anywhere from 2 million to 3 million barrels a day.
Some question how OPEC will be able meet another production cut, since the group has not yet cut what it pledged to cut in October, according to estimates.
"The bottom line is there is a lot of cheating going on," said Peter Beutel, oil analyst with Cameron Hanover. "If [a country] can sell higher volumes at the theoretically higher price, they're going to do better."
In November, OPEC pumped about 28.16 million barrels a day, not including Indonesia, which leaves the group at the end of the year, and Iraq, according to Platts - a decline of only 950,000 barrels a day from October.
Analysts expect the Energy Department to report a 2.7 million barrel buildup of crude supplies for last week, according to a poll conducted by research firm Platts.
The government inventory report can give insight into demand levels for crude oil in the United States, the world's largest crude consumer.
Analysts also expect the report to show that gasoline supplies rose by 1.4 million barrels, and that the stockpile of distillates, used to make diesel fuel and heating oil, declined by 1.6 million barrels, according to the Platts poll.
"I think demand will be very poor," said Lynch.
It's currently cheaper for oil buyers to purchase oil immediately rather than buy a contract for future delivery. This indicates that companies are trying to get rid of excess inventory, according to Lynch, and is a sign that the oil demand is falling.
Crude was selling at $42.07 a barrel yesterday in Cushing, Okla., a major hub for oil delivered to the Gulf Coast.
"I've heard rumors that some people are holding tankers off shore so it won't show up in the data," said Lynch. By waiting until the end of the year to unload the crude, owners can get a higher price at some future date, and the deliveries aren't immediately taxed, since they don't show up on the books until 2009.
In its short-term global demand outlook, the Energy Department predicted global oil consumption will fall by 50,000 barrels a day in 2008, and by 450,000 barrels a day in 2009 - the first time in 30 years that worldwide oil demand will have fallen for 2 years in a row.
The government also revised down its prediction for 2009 oil prices, saying crude could go for an average of $51 a barrel, down from the $63.50 predicted last month.
U.S. crude for January delivery rose $1.99 to $44.06 a barrel in electronic trading.
Sinking demand for crude has put pressure on the Organization of Petroleum Exporting Countries, an international trade cartel whose members produce about 40% of the world's oil, to bolster prices with a production cut.
"I think it's hurting them pretty badly," said Michael Lynch, president of energy consulting firm Strategic Energy & Economic Research Inc.
Crude prices have plummeted more than $100 a barrel since hitting a record intraday high of $147.27 a barrel in mid-July.
Investors have been worried about falling demand for crude products as the world economy slows.
OPEC nations, some of whom depend heavily on oil profits to support their domestic economies, have been scrambling to keep prices from falling further.
In October the organization pledged to cut production by 1.5 million barrels a day, and on Monday, OPEC President Chakib Khelil told the Associated Press that the oil market could expect to see a "severe" cut in production levels when the organization meets again Dec. 17.
While Khelil did not specify a number, some analysts have predicted OPEC could pledge to cut anywhere from 2 million to 3 million barrels a day.
Some question how OPEC will be able meet another production cut, since the group has not yet cut what it pledged to cut in October, according to estimates.
"The bottom line is there is a lot of cheating going on," said Peter Beutel, oil analyst with Cameron Hanover. "If [a country] can sell higher volumes at the theoretically higher price, they're going to do better."
In November, OPEC pumped about 28.16 million barrels a day, not including Indonesia, which leaves the group at the end of the year, and Iraq, according to Platts - a decline of only 950,000 barrels a day from October.
Analysts expect the Energy Department to report a 2.7 million barrel buildup of crude supplies for last week, according to a poll conducted by research firm Platts.
The government inventory report can give insight into demand levels for crude oil in the United States, the world's largest crude consumer.
Analysts also expect the report to show that gasoline supplies rose by 1.4 million barrels, and that the stockpile of distillates, used to make diesel fuel and heating oil, declined by 1.6 million barrels, according to the Platts poll.
"I think demand will be very poor," said Lynch.
It's currently cheaper for oil buyers to purchase oil immediately rather than buy a contract for future delivery. This indicates that companies are trying to get rid of excess inventory, according to Lynch, and is a sign that the oil demand is falling.
Crude was selling at $42.07 a barrel yesterday in Cushing, Okla., a major hub for oil delivered to the Gulf Coast.
"I've heard rumors that some people are holding tankers off shore so it won't show up in the data," said Lynch. By waiting until the end of the year to unload the crude, owners can get a higher price at some future date, and the deliveries aren't immediately taxed, since they don't show up on the books until 2009.
In its short-term global demand outlook, the Energy Department predicted global oil consumption will fall by 50,000 barrels a day in 2008, and by 450,000 barrels a day in 2009 - the first time in 30 years that worldwide oil demand will have fallen for 2 years in a row.
The government also revised down its prediction for 2009 oil prices, saying crude could go for an average of $51 a barrel, down from the $63.50 predicted last month.
Tuesday, December 9, 2008
Another 14,000 job cuts
The job toll continued Tuesday morning, as four major companies - Sony Corp., Danaher Corp., Wyndham Worldwide and Novellus Systems - announced cuts totaling more than 14,000 positions.
Sony, Danaher and Wyndham announced job cuts totaling 13,700 positions. Novellus said it was cutting 10% of its global work force without specifying a number of employees, but the company had a headcount of 3,678 staffers on Dec. 12, 2007.
Sony (SNE), based in Tokyo, on Tuesday announced the most sweeping job-cutting plan of the three companies. Sony said it planned to "reduce headcount" in its electronics business by 8,000 jobs by March 30, 2010. The cuts will be implemented worldwide, the company said, from a total workforce of 160,000, according to a Sept. 30 headcount.
Sony, which produces a wide variety of consumer electronics, blamed "the acute downturn in the economic climate" for the job cuts. The company also said it was reducing its seasonal and temporary staff.
The Wyndham Hotel Group (WYN), based in Parsippany, N.J.., said late Monday it would "eliminate" about 4,000 positions through the first quarter of 2009. Wyndham's hotels include Ramada, Days Inn and Super 8 chains.
Danaher Corp (DHR, Fortune 500)., a manufacturer based in Washington, said late Monday that it was "eliminating" about 1,700 jobs and 13 facilities in the fourth quarter, to save about $100 million in 2009. The company blamed the "current economic backdrop."
Danaher makes tools, sensors and medical equipment.
Novellus (NVLS), a provider of equipment for the semiconductor industry, said on Tuesday that it was cutting one-tenth of its work force "through a combination of attrition and layoffs." The company, based in San Jose, Calif., said the reductions would occur through Jan. 31, 2009.
Job cuts have been mounting all year. According to the Labor Department, the U.S. economy hemorrhaged 533,000 jobs in November, the largest monthly loss in 34 years. Through November, the economy lost of total of 1.9 million jobs, the government said, raising the unemployment rate to 6.7%.
This does not include December's brutal onslaught of job eliminations. Just in one day - Dec. 4 - 11 companies announced a total of 24,914 job cuts. Nearly half of that toll comes from one company: the Dallas-based telecom AT&T (T, Fortune 500).
Also in December, Dow Chemical (DOW, Fortune 500) said it was eliminating 5,000 positions and closing 20 plants. The battered automaker General Motors (GM, Fortune 500), which is awaiting a bailout decision from Congress and the White House, said it was cutting 2,000 jobs. The engine-maker Cummins plans to eliminated 500 white-collar positions by the end of the year. In addition, State Street Corp (STT, Fortune 500)., Jefferies Group (JEF) and The Carlyle Group announced job cuts totaling 3,000.
On Thursday, the Labor Department is scheduled to release its weekly report on initial jobless claims. The government is expected to announce 525,000 total jobless claims for the week ended Dec. 6, according to a consensus of economists compiled by Briefing.com.
Sony, Danaher and Wyndham announced job cuts totaling 13,700 positions. Novellus said it was cutting 10% of its global work force without specifying a number of employees, but the company had a headcount of 3,678 staffers on Dec. 12, 2007.
Sony (SNE), based in Tokyo, on Tuesday announced the most sweeping job-cutting plan of the three companies. Sony said it planned to "reduce headcount" in its electronics business by 8,000 jobs by March 30, 2010. The cuts will be implemented worldwide, the company said, from a total workforce of 160,000, according to a Sept. 30 headcount.
Sony, which produces a wide variety of consumer electronics, blamed "the acute downturn in the economic climate" for the job cuts. The company also said it was reducing its seasonal and temporary staff.
The Wyndham Hotel Group (WYN), based in Parsippany, N.J.., said late Monday it would "eliminate" about 4,000 positions through the first quarter of 2009. Wyndham's hotels include Ramada, Days Inn and Super 8 chains.
Danaher Corp (DHR, Fortune 500)., a manufacturer based in Washington, said late Monday that it was "eliminating" about 1,700 jobs and 13 facilities in the fourth quarter, to save about $100 million in 2009. The company blamed the "current economic backdrop."
Danaher makes tools, sensors and medical equipment.
Novellus (NVLS), a provider of equipment for the semiconductor industry, said on Tuesday that it was cutting one-tenth of its work force "through a combination of attrition and layoffs." The company, based in San Jose, Calif., said the reductions would occur through Jan. 31, 2009.
Job cuts have been mounting all year. According to the Labor Department, the U.S. economy hemorrhaged 533,000 jobs in November, the largest monthly loss in 34 years. Through November, the economy lost of total of 1.9 million jobs, the government said, raising the unemployment rate to 6.7%.
This does not include December's brutal onslaught of job eliminations. Just in one day - Dec. 4 - 11 companies announced a total of 24,914 job cuts. Nearly half of that toll comes from one company: the Dallas-based telecom AT&T (T, Fortune 500).
Also in December, Dow Chemical (DOW, Fortune 500) said it was eliminating 5,000 positions and closing 20 plants. The battered automaker General Motors (GM, Fortune 500), which is awaiting a bailout decision from Congress and the White House, said it was cutting 2,000 jobs. The engine-maker Cummins plans to eliminated 500 white-collar positions by the end of the year. In addition, State Street Corp (STT, Fortune 500)., Jefferies Group (JEF) and The Carlyle Group announced job cuts totaling 3,000.
On Thursday, the Labor Department is scheduled to release its weekly report on initial jobless claims. The government is expected to announce 525,000 total jobless claims for the week ended Dec. 6, according to a consensus of economists compiled by Briefing.com.
Hiring holds steady
With the economy in dire straits, employers are taking a cautious approach to hiring going forward, according to a staffing firm survey released Tuesday.
Sixty-seven percent of employers said they plan to hold staff levels steady for the first quarter of 2009, up from 59% last quarter and 60% in the first quarter of 2008, according to the Manpower's employment outlook quarterly survey.
"Unless there are some signals that the economy is turning around, employers are staying on the sidelines in terms of hiring," explained Jonas Prising, president of Manpower North America.
"This is their stated intention, but of course this could change as they get into the first quarter, more likely for the worse," Prising added.
Of the 31,800 employers surveyed in the United States, only 16% anticipated hiring more employees during the first quarter, down from 22% last year, the survey said. Another 13% expected a reduction in their payrolls and less than 5% said they were undecided about their January to March hiring plans.
The net employment outlook, or difference between employers who plan to add jobs and those who expect to cut them, was 3%, down from 9% in the previous quarter and 10% in the year-ago period. That's the lowest net employment outlook since the first quarter of 1992.
Of the industries that plan on hiring, mining and professional & business services had the most promising hiring outlook, followed by wholesale & retail trade, financial activities, education & health services, leisure & hospitality, other services and government.
Alternatively, employers in construction had the weakest employment outlook in the upcoming quarter, while durable and nondurable goods manufacturing and transportation & utilities all anticipated a decline in hiring as well. Information employers plan to keep hiring levels relatively stable for the first quarter, according to the survey.
Of the employers in 33 countries and territories surveyed worldwide, the vast majority expected to see the pace of hiring slow compared to the fourth quarter of 2008. Employers in 21 countries reported the weakest hiring intentions since Manpower began tracking data.
With 1.9 million jobs lost in the U.S. already this year, job seekers are feeling pessimistic about the likelihood of landing a job in the months ahead. In a separate survey, 62% of unemployed workers expressed little or no confidence in their job prospects in the next four months, according to the National Employment Law Project.
Sixty-seven percent of employers said they plan to hold staff levels steady for the first quarter of 2009, up from 59% last quarter and 60% in the first quarter of 2008, according to the Manpower's employment outlook quarterly survey.
"Unless there are some signals that the economy is turning around, employers are staying on the sidelines in terms of hiring," explained Jonas Prising, president of Manpower North America.
"This is their stated intention, but of course this could change as they get into the first quarter, more likely for the worse," Prising added.
Of the 31,800 employers surveyed in the United States, only 16% anticipated hiring more employees during the first quarter, down from 22% last year, the survey said. Another 13% expected a reduction in their payrolls and less than 5% said they were undecided about their January to March hiring plans.
The net employment outlook, or difference between employers who plan to add jobs and those who expect to cut them, was 3%, down from 9% in the previous quarter and 10% in the year-ago period. That's the lowest net employment outlook since the first quarter of 1992.
Of the industries that plan on hiring, mining and professional & business services had the most promising hiring outlook, followed by wholesale & retail trade, financial activities, education & health services, leisure & hospitality, other services and government.
Alternatively, employers in construction had the weakest employment outlook in the upcoming quarter, while durable and nondurable goods manufacturing and transportation & utilities all anticipated a decline in hiring as well. Information employers plan to keep hiring levels relatively stable for the first quarter, according to the survey.
Of the employers in 33 countries and territories surveyed worldwide, the vast majority expected to see the pace of hiring slow compared to the fourth quarter of 2008. Employers in 21 countries reported the weakest hiring intentions since Manpower began tracking data.
With 1.9 million jobs lost in the U.S. already this year, job seekers are feeling pessimistic about the likelihood of landing a job in the months ahead. In a separate survey, 62% of unemployed workers expressed little or no confidence in their job prospects in the next four months, according to the National Employment Law Project.
Sunday, December 7, 2008
Accord on U.S. help for automakers
Congressional Democrats and the Bush White House have reached an agreement in principle on providing stopgap support for the U.S. auto industry, according to congressional and industry sources.
The deal would keep the most troubled companies out of bankruptcy court at least through the end of March. While the money is less than the automakers were asking for in testimony before Congress this week, the package is designed to keep them operating so that the new Congress and the Obama administration will have at least a couple of months to draft and pass a longer-term solution.
The break came Friday evening when House Speaker Nancy Pelosi, D-Calif., backed off her opposition to using funds from a fuel efficiency research program for a bailout, two congressional officials told CNN Friday.
A congressional source stressed that the agreement does not represent a final bill. Talks on all side are expected to continue through the weekend, and lawmakers will convene early in the week.
"We hope to continue to make progress toward assistance for the automakers based on important principles -- that taxpayer assistance only be considered for companies willing to make the difficult decisions across the scope of their businesses to be viable and competitive in the future; that taxpayer assistance should come from funds already appropriated in the program specifically intended to assist automakers -- the auto loan program; and that assistance is accompanied by very strong taxpayer protections," Pelosi said in a statement released Saturday.
An auto industry source told CNNMoney.com that it was too early to say there is a firm deal, but that the change of heart by Pelosi on the source of funds for a bailout was a significant step towards reaching an agreement.
In another significant sign of the improved chances for the bailout, both Pelosi and Senate Majority Leader Harry Reid, D-Nev., issued statements saying they expected to call the lame duck Congress back into session for a vote on help for the auto industry.
As recently as Thursday, neither Pelosi nor Reid would commit to holding the vote the automakers say they need in the coming two weeks.
But the leaders decided Friday to plan for a vote in the wake of the government's grim employment report, which showed that the economy lost 533,000 jobs in November, and the better reception the automakers' CEOs received on Capitol Hill at hearings on Thursday and Friday.
"Today's announcement of major job losses and findings from congressional hearings from the last two days make it clear that Congress must work on a bipartisan basis to provide short-term and limited assistance to the automobile industry while it undertakes major restructuring," said Pelosi.
Positive sign
Automakers took the announcement of a vote as a positive sign.
"The U.S. auto industry is a critical part of our economy and we are encouraged by Speaker Pelosi's statement that Congress is expected to act next week," Ford Motor (F, Fortune 500) said in a statement late Friday.
Congressional Republicans and President Bush support the idea of tapping a $25 billion research fund Congress has already approved. Two officials familiar with the compromise talks told CNN that the working target is $15 billion to $17 billion in bridge loans.
General Motors (GM, Fortune 500), the nation's largest automaker, has warned that it will run out of cash to operate by the end of the year without federal assistance. And Chrysler LLC has indicated it also is close to running out of money and will not get through the first quarter of the year without help.
GM and Chrysler have argued that consumers would be reluctant to buy cars from a bankrupt automaker. As a result, they say, bankruptcy filings would force them to go out of business and liquidate their assets.
While the industry requested $34 billion in federal loans this week from Congress to help them weather the current cash crisis sparked by the worst auto sales in 26 years, their top executives indicated in testimony Friday that they could get by with the lesser amount in order to make it through March.
GM Chief Executive Rick Wagoner said the company needs $4 billion by the end of the year to avoid bankruptcy, another $4 billion in January and an additional $2 billion by the end of March. Overall, GM is seeking up to $18 billion to get to 2010, when cost savings from a 2007 labor contract will kick in.
Chrysler CEO Robert Nardelli indicated his company needed $4 billion early next year out of the total of $7 billion it is asking for from Congress.
Ford, the third major U.S. automaker, has far more cash on hand and believes it will not need federal loans in order to survive. But it is asking for access to up to $9 billion in loans as a "backstop" in case business conditions are worse than its executives forecast next year.
Talks on-going
Congressional officials cautioned that talks are still very fluid, and that there are still other options on the table and many details to discuss.
Pelosi said that Congress was "considering various short-term funding options," but added that no funds would be released from the research program "unless there is a guarantee that those funds will be replenished in a matter of weeks."
Pelosi and other leading Democrats, including House Financial Services Committee Chairman Barney Frank, D-Mass., and Senate Banking Committee Chairman Christopher Dodd, D-Conn., have argued as recently as this week that the Treasury Department should help the automakers using money from the $700 billion set aside for banks and Wall Street firms. The Troubled Asset Relief Program, or TARP, was established in October.
But the Bush administration has been strongly opposed to using TARP to help the automakers. And all but $20 billion of the first $350 billion of those funds have already been allocated to the nation's banks, and additional Congressional approval is needed before Treasury can tap into the other $350 billion set aside for that program.
Pelosi reversed herself because November's devastating jobs report "changed everything," one congressional official said.
The California Democrat spoke by phone with White House Chief of Staff Josh Bolten Friday afternoon to tell him of her change of heart, hours after Bush issued a fresh warning that without help, the automakers may not survive the economic crisis.
A senior administration official had no comment on Pelosi's move.
"It should never have come to this. The auto companies dug themselves into this hole and for years did nothing to climb out of it," Reid said. "But we are not acting for executives' sake; we are acting on behalf of the workers and their families. This week's hearings have made clear that we cannot let these companies fail."
Tough time
The auto industry CEOs ran into harsh criticism the last time they appeared before the House Committee in November. Lawmakers hammered them on their lack of details for how they would spend federal bailout funds, and for their decision to fly to Washington on their own private jets.
This time the auto industry leaders came with detailed plans submitted earlier this week on how they would return to profitability if they get the federal loans. They also drove hybrid vehicles to Washington and promised to work for $1 a year.
In addition, Friday's hearing in the House started one hour after the Labor Department reported the November job loss -- the biggest in nearly 34 years.
By the end of more than six hours of testimony, it was clear that the panel was far more open to the idea of a bailout than it had been just two weeks ago, even if a solution still seemed elusive.
"I think it's fair to say the disastrous job report today has heightened the interest in doing something," said Frank. "If we are lucky, we'll come out with a bill next week that nobody likes. Because any bill that any individual might like won't pass. But there is a sufficient consensus that we need to so something acceptable to enough members of both houses so that we avert disaster."
The CEOs' appearance followed testimony they gave before the Senate Banking Committee on Thursday.
Despite the apparent breakthrough, several House Republicans said they remained reluctant to sign onto any bailout. Some suggested a bankruptcy filing would be a better way for the companies to become competitive, and others said they are concerned about other industries and businesses that might seek help if the automakers get aid.
The deal would keep the most troubled companies out of bankruptcy court at least through the end of March. While the money is less than the automakers were asking for in testimony before Congress this week, the package is designed to keep them operating so that the new Congress and the Obama administration will have at least a couple of months to draft and pass a longer-term solution.
The break came Friday evening when House Speaker Nancy Pelosi, D-Calif., backed off her opposition to using funds from a fuel efficiency research program for a bailout, two congressional officials told CNN Friday.
A congressional source stressed that the agreement does not represent a final bill. Talks on all side are expected to continue through the weekend, and lawmakers will convene early in the week.
"We hope to continue to make progress toward assistance for the automakers based on important principles -- that taxpayer assistance only be considered for companies willing to make the difficult decisions across the scope of their businesses to be viable and competitive in the future; that taxpayer assistance should come from funds already appropriated in the program specifically intended to assist automakers -- the auto loan program; and that assistance is accompanied by very strong taxpayer protections," Pelosi said in a statement released Saturday.
An auto industry source told CNNMoney.com that it was too early to say there is a firm deal, but that the change of heart by Pelosi on the source of funds for a bailout was a significant step towards reaching an agreement.
In another significant sign of the improved chances for the bailout, both Pelosi and Senate Majority Leader Harry Reid, D-Nev., issued statements saying they expected to call the lame duck Congress back into session for a vote on help for the auto industry.
As recently as Thursday, neither Pelosi nor Reid would commit to holding the vote the automakers say they need in the coming two weeks.
But the leaders decided Friday to plan for a vote in the wake of the government's grim employment report, which showed that the economy lost 533,000 jobs in November, and the better reception the automakers' CEOs received on Capitol Hill at hearings on Thursday and Friday.
"Today's announcement of major job losses and findings from congressional hearings from the last two days make it clear that Congress must work on a bipartisan basis to provide short-term and limited assistance to the automobile industry while it undertakes major restructuring," said Pelosi.
Positive sign
Automakers took the announcement of a vote as a positive sign.
"The U.S. auto industry is a critical part of our economy and we are encouraged by Speaker Pelosi's statement that Congress is expected to act next week," Ford Motor (F, Fortune 500) said in a statement late Friday.
Congressional Republicans and President Bush support the idea of tapping a $25 billion research fund Congress has already approved. Two officials familiar with the compromise talks told CNN that the working target is $15 billion to $17 billion in bridge loans.
General Motors (GM, Fortune 500), the nation's largest automaker, has warned that it will run out of cash to operate by the end of the year without federal assistance. And Chrysler LLC has indicated it also is close to running out of money and will not get through the first quarter of the year without help.
GM and Chrysler have argued that consumers would be reluctant to buy cars from a bankrupt automaker. As a result, they say, bankruptcy filings would force them to go out of business and liquidate their assets.
While the industry requested $34 billion in federal loans this week from Congress to help them weather the current cash crisis sparked by the worst auto sales in 26 years, their top executives indicated in testimony Friday that they could get by with the lesser amount in order to make it through March.
GM Chief Executive Rick Wagoner said the company needs $4 billion by the end of the year to avoid bankruptcy, another $4 billion in January and an additional $2 billion by the end of March. Overall, GM is seeking up to $18 billion to get to 2010, when cost savings from a 2007 labor contract will kick in.
Chrysler CEO Robert Nardelli indicated his company needed $4 billion early next year out of the total of $7 billion it is asking for from Congress.
Ford, the third major U.S. automaker, has far more cash on hand and believes it will not need federal loans in order to survive. But it is asking for access to up to $9 billion in loans as a "backstop" in case business conditions are worse than its executives forecast next year.
Talks on-going
Congressional officials cautioned that talks are still very fluid, and that there are still other options on the table and many details to discuss.
Pelosi said that Congress was "considering various short-term funding options," but added that no funds would be released from the research program "unless there is a guarantee that those funds will be replenished in a matter of weeks."
Pelosi and other leading Democrats, including House Financial Services Committee Chairman Barney Frank, D-Mass., and Senate Banking Committee Chairman Christopher Dodd, D-Conn., have argued as recently as this week that the Treasury Department should help the automakers using money from the $700 billion set aside for banks and Wall Street firms. The Troubled Asset Relief Program, or TARP, was established in October.
But the Bush administration has been strongly opposed to using TARP to help the automakers. And all but $20 billion of the first $350 billion of those funds have already been allocated to the nation's banks, and additional Congressional approval is needed before Treasury can tap into the other $350 billion set aside for that program.
Pelosi reversed herself because November's devastating jobs report "changed everything," one congressional official said.
The California Democrat spoke by phone with White House Chief of Staff Josh Bolten Friday afternoon to tell him of her change of heart, hours after Bush issued a fresh warning that without help, the automakers may not survive the economic crisis.
A senior administration official had no comment on Pelosi's move.
"It should never have come to this. The auto companies dug themselves into this hole and for years did nothing to climb out of it," Reid said. "But we are not acting for executives' sake; we are acting on behalf of the workers and their families. This week's hearings have made clear that we cannot let these companies fail."
Tough time
The auto industry CEOs ran into harsh criticism the last time they appeared before the House Committee in November. Lawmakers hammered them on their lack of details for how they would spend federal bailout funds, and for their decision to fly to Washington on their own private jets.
This time the auto industry leaders came with detailed plans submitted earlier this week on how they would return to profitability if they get the federal loans. They also drove hybrid vehicles to Washington and promised to work for $1 a year.
In addition, Friday's hearing in the House started one hour after the Labor Department reported the November job loss -- the biggest in nearly 34 years.
By the end of more than six hours of testimony, it was clear that the panel was far more open to the idea of a bailout than it had been just two weeks ago, even if a solution still seemed elusive.
"I think it's fair to say the disastrous job report today has heightened the interest in doing something," said Frank. "If we are lucky, we'll come out with a bill next week that nobody likes. Because any bill that any individual might like won't pass. But there is a sufficient consensus that we need to so something acceptable to enough members of both houses so that we avert disaster."
The CEOs' appearance followed testimony they gave before the Senate Banking Committee on Thursday.
Despite the apparent breakthrough, several House Republicans said they remained reluctant to sign onto any bailout. Some suggested a bankruptcy filing would be a better way for the companies to become competitive, and others said they are concerned about other industries and businesses that might seek help if the automakers get aid.
Stocks rally despite jobs report
Stocks staged a big comeback Friday, erasing big losses after a brutal November employment report, as investors extended the recent trend of buying despite the bad news.
The Dow Jones industrial average (INDU) jumped 260 points or 3.1%. The Standard & Poor's 500 (SPX) index added 3.7% and the Nasdaq composite (COMP) gained 4.4%.
All three major gauges tumbled through the early afternoon, with the Dow losing as much as 257 points after the government reported the worst monthly job losses in 34 years. But stocks erased losses and pushed higher in the afternoon.
"The report this morning confirmed the fears that the economy is worse off than economists had expected," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "But we're kind of seeing the reaction today that we've seen over the last few days, where there's extremely negative news on the economy, yet the market manages to hold its own."
Stocks still ended lower for the week following Monday's steep selloff. On that day the Dow lost 680 points after the National Bureau of Economic Research (NBER) confirmed what many have long believed - that the economy is in a recession. The NBER put the start at December 2007.
In the week ended Wednesday, Dec. 3, investors pulled roughly $12 billion out of equity mutual funds, after putting $10.4 billion into funds in the previous week. Investors have cashed out of equity mutual funds in 16 of the last 18 weeks.
Jobs: Employers cut 533,000 jobs from their payrolls in November, the biggest monthly decline since 1974, and far more than the 325,000 cuts that Wall Street economists were expecting. Meanwhile, September's and October's job losses were revised up, bringing the three-month decline to 1.3 million, the largest three-month job loss total since World War II. (Full story)
"It's a disastrous report," said Stephen Stanley, chief economist at RBS Greenwich Capital. "The overall picture is the labor market is deteriorating at the fastest pace in decades."
So far this year, 1.9 million jobs have been lost, topping the 1.6 million lost in the 2001 recession.
Stanley said that it's clear that the fourth quarter is and will continue to be a dire period for the economy, with December job losses expected to be substantial as well. He said that the fourth quarter is likely to be the worst in the cycle, although the first quarter of next year will be pretty bad too.
"We're going through the capitulatory stage where everyone is pulling back very sharply," Stanley said. "We don't know when it's going to end, but it could last for a few more months."
He said that by around the second quarter of next year, the economy will start to stabilize, still contracting but at a slower pace. He doesn't expect any real improvement until later in 2009.
Although the United States has been in a recession since December 2007, the credit crisis has intensified this downturn, causing a series of bank failures and government bailouts as the financial markets were thrown into turmoil. That has caused an already weak jobs market to weaken further.
The unemployment rate, generated by a separate survey, rose to 6.7% in November from 6.5% in the previous month. It was short of the 6.8% economists were expecting, but still brought the unemployment rate to the highest level in 15 years.
The report is maybe one of the worst the Bureau of Labor Statistics has ever produced in its 124-year history, Commissioner Keith Hall told lawmakers Friday at a Joint Economic Committee hearing.
In other news, a record 1.35 million homes were in foreclosure in the third quarter, up 76% from a year ago, according to a Mortgage Bankers' Association report released Friday.
Stocks tumbled Thursday after AT&T (T, Fortune 500) and other corporations announced more than 20,000 job cuts, adding to worries ahead of the jobs report.
Company news: Executives from Detroit's Big Three automakers were back on Capitol Hill Friday, asking a House panel for a massive loan package to rescue their struggling businesses.
Executives from GM (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler testified before the Senate Thursday. The Big Three are seeking $34 billion in aid to rescue their struggling industry, up from an initial request of $25 billion last month.
Separately, GM said Friday it will lay off about 2,000 workers in the first quarter of next year.
Shares of Hartford Financial Group (HIG, Fortune 500) surged more than 102% after the insurer boosted its 2008 profit forecast and said that it has enough capital to get through further declines in the stock market. The stock had plunged 92% this year, as of the previous session's close, on worries that the company would run out of cash.
Many big financial stocks rallied, including American Express (AXP, Fortune 500), Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500).
Merrill Lynch (MER, Fortune 500) rallied after shareholders on Friday approved Bank of America's $21 billion purchase of the bank. The all-stock deal had initially been valued at $50 billion when announced in September, but had been revised lower after Bank of America's stock fell.
Market breadth was positive. On the New York Stock Exchange, winners beat losers seven to three on volume of 1.62 billion shares. On the Nasdaq, advancers beat decliners two to one on volume of 2.24 billion shares.
Bonds: Treasury prices slumped, raising the yield on the benchmark 10-year note to 2.70% from 2.56% late Thursday. The 10-year yield dipped below 3% last week for the first time since the note was first issued in 1962. Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill fell to 0.01% from 0.015% Thursday, near the 68-year low of zero hit last month. The bill is seen as the safest place to put cash in the short term. The low yield means investors would rather preserve cash despite little or no interest than risk it in the stock market.
Lending rates showed little improvement. The 3-month Libor rate held steady at 2.19%, unchanged from Thursday, according to Bloomberg. The overnight Libor fell to 0.28% from 0.52% Thursday. Libor is a key bank lending rate.
Other markets: In global trading, European markets tumbled, one day after the European Central Bank, the Bank of England and Sweden's Riksbank all lowered interest rates. Asian markets mostly ended lower although Hong Kong's Hang Seng managed to rise, gaining 2.5%.
The dollar gained versus the euro and the yen.
U.S. light crude oil for January delivery fell $2.86 to settle at $40.81 a barrel on the New York Mercantile Exchange, ending at a four-year low.
COMEX gold for February delivery lost $13.30 to settle at $752.20 an ounce.
Gasoline continued its fall to nearly four-year lows, with prices down 1.6 cents to a national average of $1.773 a gallon, according to a survey of credit-card swipes released Friday by motorist group AAA. Prices have been sliding for 2-1/2 months and have dropped more than $2 a gallon, or 54%.
The Dow Jones industrial average (INDU) jumped 260 points or 3.1%. The Standard & Poor's 500 (SPX) index added 3.7% and the Nasdaq composite (COMP) gained 4.4%.
All three major gauges tumbled through the early afternoon, with the Dow losing as much as 257 points after the government reported the worst monthly job losses in 34 years. But stocks erased losses and pushed higher in the afternoon.
"The report this morning confirmed the fears that the economy is worse off than economists had expected," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "But we're kind of seeing the reaction today that we've seen over the last few days, where there's extremely negative news on the economy, yet the market manages to hold its own."
Stocks still ended lower for the week following Monday's steep selloff. On that day the Dow lost 680 points after the National Bureau of Economic Research (NBER) confirmed what many have long believed - that the economy is in a recession. The NBER put the start at December 2007.
In the week ended Wednesday, Dec. 3, investors pulled roughly $12 billion out of equity mutual funds, after putting $10.4 billion into funds in the previous week. Investors have cashed out of equity mutual funds in 16 of the last 18 weeks.
Jobs: Employers cut 533,000 jobs from their payrolls in November, the biggest monthly decline since 1974, and far more than the 325,000 cuts that Wall Street economists were expecting. Meanwhile, September's and October's job losses were revised up, bringing the three-month decline to 1.3 million, the largest three-month job loss total since World War II. (Full story)
"It's a disastrous report," said Stephen Stanley, chief economist at RBS Greenwich Capital. "The overall picture is the labor market is deteriorating at the fastest pace in decades."
So far this year, 1.9 million jobs have been lost, topping the 1.6 million lost in the 2001 recession.
Stanley said that it's clear that the fourth quarter is and will continue to be a dire period for the economy, with December job losses expected to be substantial as well. He said that the fourth quarter is likely to be the worst in the cycle, although the first quarter of next year will be pretty bad too.
"We're going through the capitulatory stage where everyone is pulling back very sharply," Stanley said. "We don't know when it's going to end, but it could last for a few more months."
He said that by around the second quarter of next year, the economy will start to stabilize, still contracting but at a slower pace. He doesn't expect any real improvement until later in 2009.
Although the United States has been in a recession since December 2007, the credit crisis has intensified this downturn, causing a series of bank failures and government bailouts as the financial markets were thrown into turmoil. That has caused an already weak jobs market to weaken further.
The unemployment rate, generated by a separate survey, rose to 6.7% in November from 6.5% in the previous month. It was short of the 6.8% economists were expecting, but still brought the unemployment rate to the highest level in 15 years.
The report is maybe one of the worst the Bureau of Labor Statistics has ever produced in its 124-year history, Commissioner Keith Hall told lawmakers Friday at a Joint Economic Committee hearing.
In other news, a record 1.35 million homes were in foreclosure in the third quarter, up 76% from a year ago, according to a Mortgage Bankers' Association report released Friday.
Stocks tumbled Thursday after AT&T (T, Fortune 500) and other corporations announced more than 20,000 job cuts, adding to worries ahead of the jobs report.
Company news: Executives from Detroit's Big Three automakers were back on Capitol Hill Friday, asking a House panel for a massive loan package to rescue their struggling businesses.
Executives from GM (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler testified before the Senate Thursday. The Big Three are seeking $34 billion in aid to rescue their struggling industry, up from an initial request of $25 billion last month.
Separately, GM said Friday it will lay off about 2,000 workers in the first quarter of next year.
Shares of Hartford Financial Group (HIG, Fortune 500) surged more than 102% after the insurer boosted its 2008 profit forecast and said that it has enough capital to get through further declines in the stock market. The stock had plunged 92% this year, as of the previous session's close, on worries that the company would run out of cash.
Many big financial stocks rallied, including American Express (AXP, Fortune 500), Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500).
Merrill Lynch (MER, Fortune 500) rallied after shareholders on Friday approved Bank of America's $21 billion purchase of the bank. The all-stock deal had initially been valued at $50 billion when announced in September, but had been revised lower after Bank of America's stock fell.
Market breadth was positive. On the New York Stock Exchange, winners beat losers seven to three on volume of 1.62 billion shares. On the Nasdaq, advancers beat decliners two to one on volume of 2.24 billion shares.
Bonds: Treasury prices slumped, raising the yield on the benchmark 10-year note to 2.70% from 2.56% late Thursday. The 10-year yield dipped below 3% last week for the first time since the note was first issued in 1962. Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill fell to 0.01% from 0.015% Thursday, near the 68-year low of zero hit last month. The bill is seen as the safest place to put cash in the short term. The low yield means investors would rather preserve cash despite little or no interest than risk it in the stock market.
Lending rates showed little improvement. The 3-month Libor rate held steady at 2.19%, unchanged from Thursday, according to Bloomberg. The overnight Libor fell to 0.28% from 0.52% Thursday. Libor is a key bank lending rate.
Other markets: In global trading, European markets tumbled, one day after the European Central Bank, the Bank of England and Sweden's Riksbank all lowered interest rates. Asian markets mostly ended lower although Hong Kong's Hang Seng managed to rise, gaining 2.5%.
The dollar gained versus the euro and the yen.
U.S. light crude oil for January delivery fell $2.86 to settle at $40.81 a barrel on the New York Mercantile Exchange, ending at a four-year low.
COMEX gold for February delivery lost $13.30 to settle at $752.20 an ounce.
Gasoline continued its fall to nearly four-year lows, with prices down 1.6 cents to a national average of $1.773 a gallon, according to a survey of credit-card swipes released Friday by motorist group AAA. Prices have been sliding for 2-1/2 months and have dropped more than $2 a gallon, or 54%.
Friday, December 5, 2008
Big Three plead for $34B from Congress
The CEOs of the leading automakers were back before Congress Thursday, arguing for a larger bailout than they asked for just two weeks ago, and hoping to undo the damage they did to their case at the earlier hearings.
The executives of General Motors, Ford Motor and Chrysler LLC generally faced less hostility from members of the Senate Banking Committee than they did at their last hearing two weeks ago.
But they still heard a lot of tough questions from members of the Senate Banking Committee, and the bailout push clearly faces an uphill battle for approval, even though it is now more urgent for the automakers to get help.
"All of us up here appreciate that inaction is not an option," said Sen. Christopher Dodd, D-Conn, the chairman of the committee, at the end of nearly six- hour long hearing. "We're also not about to write a check and just hand it over."
Dodd said members would work with House and Senate leadership in the next few days to try to get a vote. He also voiced hope that either the Treasury Department or Federal Reserve would provide stopgap funding to the Big Three.
But so far, the Bush administration has opposed Treasury becoming involved. Dodd said the Fed had not responded to a letter he sent seeking help from the central bank. The Wall Street Journal reported Thursday that it was unlikely the Fed would give any financial aid to the automakers.
The three automakers are now asking for up to $34 billion in federal loans, up from their earlier request for $25 billion in assistance. Two of them, GM (GM, Fortune 500) and Chrysler LLC, are warning they could run out of the money they need to operate before the end of the year without immediate help.
This time GM CEO Rick Wagoner, Ford (F, Fortune 500) CEO Alan Mulally and Chrysler CEO Robert Nardelli drove fuel-efficient hybrids to Washington, rather than flying in on corporate jets as they did two weeks ago.
Ford and GM have since announced they would sell their jets. And all three CEOs have agreed to cut their pay to $1 a year if they get the federal help they are seeking.
After presenting plans to Congress Tuesday that detailed how they would use loans to return to profitability, each company warned of tremendous damage to the economy if they are forced to file for bankruptcy due to lack of help.
In prepared testimony Thursday, Mulally quoted an estimate from Goldman Sachs that said the impact to the economy from failures could be up to $1 trillion.
Skepticism persists
Several members of the committee, particularly Republicans, challenged the assertions of the auto executives, however.
"I've read the plans and re-read the plans," said Sen. Bob Corker, R-Tenn. "I still believe there are many things that will be difficult to work out without chapter 11 [bankruptcy]."
Sen. Mike Crapo, R-Idaho, suggested that if federal loans are approved, a federal oversight board should be given the same kind of powers as a bankruptcy judge to impose changes in contracts and debt holders. None of the automakers said they would be opposed to this.
But getting approval for the loans may still be a tough sell. Even the Democratic leaders of the House and Senate who are in favor of help for the automakers have refused to commit to calling the outgoing members of Congress back next week to vote on an auto bailout.
Congressional leaders are concerned that public opinion has turned strongly against help for the automakers.
Protesters briefly disrupted the hearing Thursday, chanting "the bailout is a sell-out!" and urging Congress to use money to help the poor and food banks, rather than the auto companies.
A CNN/Opinion Research Corp. poll of nearly 1,100 Americans conducted earlier this week found 61% oppose a bailout, while only 36% support it. Even in the Midwest, home to most of the automakers' remaining plants, 53% of those polled opposed federal help.
That was a stunning reversal of polls taken before the CEOs last trip to Capitol Hill. A poll Nov. 11 and 12 conducted by Peter D. Hart Research Associates found 55% supported federal assistance for automakers at that time, and only 30% who believed they should not get federal help.
Corker called GM's plan "a nice first step" but he said that the company's debt levels are unsustainable at any level of sales. He also argued Chrysler is just trying to get the loan to stay in business long enough to be bought by another automaker.
"There is no sane person who thinks that all three companies can survive," Corker said.
Nardelli challenged that assertion, saying Chrysler would be able to stay independent if it gets the loan. He said the company's discussion in its turnaround plan of benefiting from further consolidation could include alliances instead of an outright merger.
GM and Chrysler were in merger talks earlier this year but GM said last month that it ended discussions with Chrysler because of the need to deal with its own cash crisis. But both Nardelli and Wagoner said Thursday they wouldn't rule out a merger in the future, even though they were not looking to do such a deal at this time.
Learning from their mistakes
In his prepared remarks, GM's Wagoner acknowledged the criticism of him and his fellow Big Three executives.
"It's fair to say that last month's hearings were difficult for us, but we learned a lot," he said. He said the companies revised their plans since then and accelerated their cost-cutting efforts.
"We're here today because we made mistakes, which we're learning from; because forces beyond our control have pushed us to the brink," Wagoner said. "Most importantly we're here because saving General Motors, and all this company represents, is a job worth doing."
United Auto Workers union President Ron Gettelfinger joined the CEOs in asking for help. He pointed to concessions that the union agreed to in the 2007 labor contract as well his promise made Wednesday that the UAW would work to give the automakers additional concessions. But he said the burden of saving the automakers shouldn't fall on the union and its members alone.
"If the federal government can provide a blank check to Wall Street, it should be able to provide a temporary bridge loan to General Motors, Ford and Chrysler," he said.
Nardelli stressed that one reason it's important to help the Big Three is because the companies are making great strides in hybrid and electric vehicle technology.
He argued that keeping the U.S. automakers afloat "would insure that we don't trade our dependence on foreign oil to a dependence on foreign technology."
But Sen. Richard Shelby, R-Ala., the ranking Republican on the committee, repeated his earlier opposition to helping the Detroit automakers.
He said the increase in the money being requested by the Big Three is a sign that the automakers can't give good assurances that federal loans would be enough to solve the problems facing the industry.
"If you made this presentation to get a bank loan, I suspect any sensible banker would systematically reject your request," said Shelby.
$125 billion to save Detroit?
Mark Zandi, chief economist of Moody's Economy.com, joined the CEOs in urging passage of the loan package. He said the economy is too vulnerable at this moment to weather the damage that would be caused by a failure of one or more of the companies.
But Zandi cautioned that car sales are likely to stay very low due to rising job losses, tight credit as well as an unsustainable level of sales from earlier in the decade. He cautioned that an auto turnaround could eventually cost between $75 billion and $125 billion.
"The automakers have come forth with a reasonable plan to restructure their business, but the $34 billion might not be enough for them to become viable again," he said.
Zandi said he would expect the automakers to be back before Congress late in 2009 for additional money.
But he said that even if the Big Three were to get $125 billion in loans and default on them, that would be cheaper for the federal government than the cost that automaker bankruptcies would cause since a failure could lead to lost tax revenue, increased Medicaid and unemployment payments.
"It's not a close call," he said about the cost of a bankruptcy. "It's not even in the same universe. A bankruptcy at this point in time would cataclysmic for the economy."
In his opening comments, Dodd spoke forcefully for some kind of assistance for the auto industry. He said that allowing the automakers to go bankrupt would be the equivalent of playing "Russian roulette with the economy."
Dodd added that despite mistakes made by the automakers, GM, Ford and Chrysler had all done more than banks and Wall Street firms to show they deserve federal help.
The executives of General Motors, Ford Motor and Chrysler LLC generally faced less hostility from members of the Senate Banking Committee than they did at their last hearing two weeks ago.
But they still heard a lot of tough questions from members of the Senate Banking Committee, and the bailout push clearly faces an uphill battle for approval, even though it is now more urgent for the automakers to get help.
"All of us up here appreciate that inaction is not an option," said Sen. Christopher Dodd, D-Conn, the chairman of the committee, at the end of nearly six- hour long hearing. "We're also not about to write a check and just hand it over."
Dodd said members would work with House and Senate leadership in the next few days to try to get a vote. He also voiced hope that either the Treasury Department or Federal Reserve would provide stopgap funding to the Big Three.
But so far, the Bush administration has opposed Treasury becoming involved. Dodd said the Fed had not responded to a letter he sent seeking help from the central bank. The Wall Street Journal reported Thursday that it was unlikely the Fed would give any financial aid to the automakers.
The three automakers are now asking for up to $34 billion in federal loans, up from their earlier request for $25 billion in assistance. Two of them, GM (GM, Fortune 500) and Chrysler LLC, are warning they could run out of the money they need to operate before the end of the year without immediate help.
This time GM CEO Rick Wagoner, Ford (F, Fortune 500) CEO Alan Mulally and Chrysler CEO Robert Nardelli drove fuel-efficient hybrids to Washington, rather than flying in on corporate jets as they did two weeks ago.
Ford and GM have since announced they would sell their jets. And all three CEOs have agreed to cut their pay to $1 a year if they get the federal help they are seeking.
After presenting plans to Congress Tuesday that detailed how they would use loans to return to profitability, each company warned of tremendous damage to the economy if they are forced to file for bankruptcy due to lack of help.
In prepared testimony Thursday, Mulally quoted an estimate from Goldman Sachs that said the impact to the economy from failures could be up to $1 trillion.
Skepticism persists
Several members of the committee, particularly Republicans, challenged the assertions of the auto executives, however.
"I've read the plans and re-read the plans," said Sen. Bob Corker, R-Tenn. "I still believe there are many things that will be difficult to work out without chapter 11 [bankruptcy]."
Sen. Mike Crapo, R-Idaho, suggested that if federal loans are approved, a federal oversight board should be given the same kind of powers as a bankruptcy judge to impose changes in contracts and debt holders. None of the automakers said they would be opposed to this.
But getting approval for the loans may still be a tough sell. Even the Democratic leaders of the House and Senate who are in favor of help for the automakers have refused to commit to calling the outgoing members of Congress back next week to vote on an auto bailout.
Congressional leaders are concerned that public opinion has turned strongly against help for the automakers.
Protesters briefly disrupted the hearing Thursday, chanting "the bailout is a sell-out!" and urging Congress to use money to help the poor and food banks, rather than the auto companies.
A CNN/Opinion Research Corp. poll of nearly 1,100 Americans conducted earlier this week found 61% oppose a bailout, while only 36% support it. Even in the Midwest, home to most of the automakers' remaining plants, 53% of those polled opposed federal help.
That was a stunning reversal of polls taken before the CEOs last trip to Capitol Hill. A poll Nov. 11 and 12 conducted by Peter D. Hart Research Associates found 55% supported federal assistance for automakers at that time, and only 30% who believed they should not get federal help.
Corker called GM's plan "a nice first step" but he said that the company's debt levels are unsustainable at any level of sales. He also argued Chrysler is just trying to get the loan to stay in business long enough to be bought by another automaker.
"There is no sane person who thinks that all three companies can survive," Corker said.
Nardelli challenged that assertion, saying Chrysler would be able to stay independent if it gets the loan. He said the company's discussion in its turnaround plan of benefiting from further consolidation could include alliances instead of an outright merger.
GM and Chrysler were in merger talks earlier this year but GM said last month that it ended discussions with Chrysler because of the need to deal with its own cash crisis. But both Nardelli and Wagoner said Thursday they wouldn't rule out a merger in the future, even though they were not looking to do such a deal at this time.
Learning from their mistakes
In his prepared remarks, GM's Wagoner acknowledged the criticism of him and his fellow Big Three executives.
"It's fair to say that last month's hearings were difficult for us, but we learned a lot," he said. He said the companies revised their plans since then and accelerated their cost-cutting efforts.
"We're here today because we made mistakes, which we're learning from; because forces beyond our control have pushed us to the brink," Wagoner said. "Most importantly we're here because saving General Motors, and all this company represents, is a job worth doing."
United Auto Workers union President Ron Gettelfinger joined the CEOs in asking for help. He pointed to concessions that the union agreed to in the 2007 labor contract as well his promise made Wednesday that the UAW would work to give the automakers additional concessions. But he said the burden of saving the automakers shouldn't fall on the union and its members alone.
"If the federal government can provide a blank check to Wall Street, it should be able to provide a temporary bridge loan to General Motors, Ford and Chrysler," he said.
Nardelli stressed that one reason it's important to help the Big Three is because the companies are making great strides in hybrid and electric vehicle technology.
He argued that keeping the U.S. automakers afloat "would insure that we don't trade our dependence on foreign oil to a dependence on foreign technology."
But Sen. Richard Shelby, R-Ala., the ranking Republican on the committee, repeated his earlier opposition to helping the Detroit automakers.
He said the increase in the money being requested by the Big Three is a sign that the automakers can't give good assurances that federal loans would be enough to solve the problems facing the industry.
"If you made this presentation to get a bank loan, I suspect any sensible banker would systematically reject your request," said Shelby.
$125 billion to save Detroit?
Mark Zandi, chief economist of Moody's Economy.com, joined the CEOs in urging passage of the loan package. He said the economy is too vulnerable at this moment to weather the damage that would be caused by a failure of one or more of the companies.
But Zandi cautioned that car sales are likely to stay very low due to rising job losses, tight credit as well as an unsustainable level of sales from earlier in the decade. He cautioned that an auto turnaround could eventually cost between $75 billion and $125 billion.
"The automakers have come forth with a reasonable plan to restructure their business, but the $34 billion might not be enough for them to become viable again," he said.
Zandi said he would expect the automakers to be back before Congress late in 2009 for additional money.
But he said that even if the Big Three were to get $125 billion in loans and default on them, that would be cheaper for the federal government than the cost that automaker bankruptcies would cause since a failure could lead to lost tax revenue, increased Medicaid and unemployment payments.
"It's not a close call," he said about the cost of a bankruptcy. "It's not even in the same universe. A bankruptcy at this point in time would cataclysmic for the economy."
In his opening comments, Dodd spoke forcefully for some kind of assistance for the auto industry. He said that allowing the automakers to go bankrupt would be the equivalent of playing "Russian roulette with the economy."
Dodd added that despite mistakes made by the automakers, GM, Ford and Chrysler had all done more than banks and Wall Street firms to show they deserve federal help.
Stocks tumble on dismal job report
Wall Street was thumped by more bleak economic news early Friday, as the government reported the heaviest monthly job loss in nearly 34 years.
The Dow Jones industrial average (INDU), the Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all declined, following the release of a report showing the U.S. economy hemorraged 533,000 jobs in November.
This is the worst monthly job loss since December 1974, eclipsing the 325,000 job cuts which had been expected by economists, according to a consensus of opinion from Briefing.com.
The annual unemployment rate, generated by a separate survey, soared to 6.7%.
The U.S. economy has lost 1.9 million jobs through November of this year. More jobs have been lost to date than during the last recession.
"With the loss of over half-a-million jobs just last month, the U.S. job market is now shedding jobs at a truly alarming rate, a rate that is measurably worse than past recessions," said EPI senior economist Jared Bernstein, in an e-mail to CNNMoney.com. "Policy makers need to recognize this as an emergency at the scale of any we've seen in recent years."
"This is a huge number," reacted Robert Brusca, chief economist at Fact and Opinion Economics. He noted that the Labor Department's revisions for October are "even worse" than before.
October job losses were revised up to 320,000, from the previously reported 240,000. September job losses were revised up to 403,000, a huge increase from the previously reported 159,000.
The rate at which employers have been slashing jobs has picked up as the end of the year nears. On Thursday, major companies, including AT&T (T, Fortune 500) and DuPont (DD, Fortune 500), announced more than 20,000 job cuts.
The layoffs caused jitters on Wall Street, and stocks tumbled. The Dow finished Thursday's session 2.5% lower. The S&P 500 lost 2.9% and the Nasdaq shed 3.1%,
Big Three: The CEOs of Detroit's major automakers returned to Capitol Hill for a second day of testimony as they continued to press for government loans to support their ailing businesses. Friday's hearing was before the House Financial Services Committee.
The chiefs of General Motors (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler are seeking a $34 billion bailout from Congress. That's up from the $25 billion in federal loans they requested from Congress just two weeks ago.
World markets: Global investors were wary Friday, and major overseas stock indexes tumbled. In Asia, Japan's benchmark Nikkei index ended the session little changed. The Hang Seng in Hong Kong bucked the region trend and rose 2.5%.
Major exchanges in Britain, France and Germany all fell in midday trading.
Oil and money: The price of crude oil dropped 39 cents in electronic trading to $43.28 a barrel. The dollar rose against the British pound and the euro but was down versus the yen.
The Dow Jones industrial average (INDU), the Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all declined, following the release of a report showing the U.S. economy hemorraged 533,000 jobs in November.
This is the worst monthly job loss since December 1974, eclipsing the 325,000 job cuts which had been expected by economists, according to a consensus of opinion from Briefing.com.
The annual unemployment rate, generated by a separate survey, soared to 6.7%.
The U.S. economy has lost 1.9 million jobs through November of this year. More jobs have been lost to date than during the last recession.
"With the loss of over half-a-million jobs just last month, the U.S. job market is now shedding jobs at a truly alarming rate, a rate that is measurably worse than past recessions," said EPI senior economist Jared Bernstein, in an e-mail to CNNMoney.com. "Policy makers need to recognize this as an emergency at the scale of any we've seen in recent years."
"This is a huge number," reacted Robert Brusca, chief economist at Fact and Opinion Economics. He noted that the Labor Department's revisions for October are "even worse" than before.
October job losses were revised up to 320,000, from the previously reported 240,000. September job losses were revised up to 403,000, a huge increase from the previously reported 159,000.
The rate at which employers have been slashing jobs has picked up as the end of the year nears. On Thursday, major companies, including AT&T (T, Fortune 500) and DuPont (DD, Fortune 500), announced more than 20,000 job cuts.
The layoffs caused jitters on Wall Street, and stocks tumbled. The Dow finished Thursday's session 2.5% lower. The S&P 500 lost 2.9% and the Nasdaq shed 3.1%,
Big Three: The CEOs of Detroit's major automakers returned to Capitol Hill for a second day of testimony as they continued to press for government loans to support their ailing businesses. Friday's hearing was before the House Financial Services Committee.
The chiefs of General Motors (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler are seeking a $34 billion bailout from Congress. That's up from the $25 billion in federal loans they requested from Congress just two weeks ago.
World markets: Global investors were wary Friday, and major overseas stock indexes tumbled. In Asia, Japan's benchmark Nikkei index ended the session little changed. The Hang Seng in Hong Kong bucked the region trend and rose 2.5%.
Major exchanges in Britain, France and Germany all fell in midday trading.
Oil and money: The price of crude oil dropped 39 cents in electronic trading to $43.28 a barrel. The dollar rose against the British pound and the euro but was down versus the yen.
Wednesday, December 3, 2008
Credit markets ease slightly
The credit markets showed slightly improved confidence Wednesday, as lending rates fell ahead of expected interest rate cuts by Europe's central banks.
The 3-month Libor rate eased Wednesday to 2.20% from 2.21% Tuesday, according to Bloomberg.com. The overnight Libor fell to 0.88% from 1% Tuesday.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London and is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.
One reason the overnight Libor rate fell was in response to banks' and institutions' increased borrowing demands at the end of the month, according to Kim Rupert, fixed-income analyst at Action Economics.
"The overnight rate has fallen now that we have passed the turn into the new month of December," said Rupert.
Government debt prices ticked lower, but Treasury prices remained at very elevated levels with yields near record lows. Investors have shied away from the sharp movements in the stock market and prefer to keep their funds in the safe haven of Treasurys, even if it means sacrificing profit.
European banks to slash rates: The U.S. central bank has slashed key interest rates aggressively, but central banks in Europe have been more cautious to cut interest rates.
However, the European Central Bank and the Bank of England are expected to lower their key lending rates when they make monetary policy announcements later in the week.
One analyst said that rate-cut expectations are very widely held. "The market has pretty much priced in rates cut from both," said Rupert. "The question is how big and what will their policy statements say, which will give some hint as what to expect for the future."
Bank confidence: Since the start of the credit crisis, governments across the globe have worked to juice the economy by pumping the system with liquidity. The efforts have worked to bring Libor rates down significantly. The 3-month Libor peaked at 4.82% and the overnight Libor hit a record high of 6.88%.
However, banks have still been hesitant to lend to each other because banks have become skeptical of the health of another bank's balance sheet.
Analysts fear that when Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) report their fourth quarter results later this month that even these Wall Street behemoths will show signs of weakness.
The level of trust between banks has declined significantly in the wake of the credit crisis, causing the institutions to hoard cash instead of lending. "I don't think banks are going to have the same confidence levels that they once did," said Rupert.
"It is a whole new ball game now, and we are going to have to figure out how to price this confidence between banks and institutions," she added.
Credit market gauges: Meanwhile, two market gauges were mostly unchanged Wednesday.
The "TED spread" broadened to 2.17 percentage points from 2.14 late Tuesday. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the more unwilling investors are to take risks.
Another indicator, the Libor-OIS spread, held steady at 1.82 percentage points from late Tuesday. The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The bigger the spread, the less cash is available for lending.
Treasurys: Government debt prices were higher Wednesday, but only very slightly, and yields fell near the record low levels set in recent sessions.
Bond prices and yields move in opposite directions. Treasurys are perceived as one of the safest places for investors to keep their assets in times of economic uncertainty and higher prices signal a flight to safety.
"The market is just off of its record highs," said Rupert. "Treasurys are still the safest investment around and it confirms the fear in the market that people would be willing to give the government their money for 10 years at such low rates."
The yield on the benchmark 10-year note rose 2/32 to 109-13/32 and its yield fell to 2.67% from 2.68%. Last week, the 10-year yield fell below 3% for the first time since the note was first issued in 1962.
The 30-year bond rose 1/32 to 125-10/32 and its yield slipped to an all-time low of 3.17%.
The 2-year note was unchanged at 100-23/32 and its yield held at 0.9%.
The yield on the 3-month note dipped to 0.02% from 0.04% late Tuesday. The bill is closely watched as an indicator of investor confidence. Investors and money-market funds shuffle funds in and out of the 3-month bill frequently, as they assess risk in the rest of the marketplace. A higher yield indicates that investors are slightly more optimistic.
The government has been selling an increased amount of government debt to finance the pricey rescue of the financial system, but the increased supply of Treasurys has not prevented government bond yields from falling to record lows as investors have made safety a priority.
The 3-month Libor rate eased Wednesday to 2.20% from 2.21% Tuesday, according to Bloomberg.com. The overnight Libor fell to 0.88% from 1% Tuesday.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London and is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.
One reason the overnight Libor rate fell was in response to banks' and institutions' increased borrowing demands at the end of the month, according to Kim Rupert, fixed-income analyst at Action Economics.
"The overnight rate has fallen now that we have passed the turn into the new month of December," said Rupert.
Government debt prices ticked lower, but Treasury prices remained at very elevated levels with yields near record lows. Investors have shied away from the sharp movements in the stock market and prefer to keep their funds in the safe haven of Treasurys, even if it means sacrificing profit.
European banks to slash rates: The U.S. central bank has slashed key interest rates aggressively, but central banks in Europe have been more cautious to cut interest rates.
However, the European Central Bank and the Bank of England are expected to lower their key lending rates when they make monetary policy announcements later in the week.
One analyst said that rate-cut expectations are very widely held. "The market has pretty much priced in rates cut from both," said Rupert. "The question is how big and what will their policy statements say, which will give some hint as what to expect for the future."
Bank confidence: Since the start of the credit crisis, governments across the globe have worked to juice the economy by pumping the system with liquidity. The efforts have worked to bring Libor rates down significantly. The 3-month Libor peaked at 4.82% and the overnight Libor hit a record high of 6.88%.
However, banks have still been hesitant to lend to each other because banks have become skeptical of the health of another bank's balance sheet.
Analysts fear that when Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) report their fourth quarter results later this month that even these Wall Street behemoths will show signs of weakness.
The level of trust between banks has declined significantly in the wake of the credit crisis, causing the institutions to hoard cash instead of lending. "I don't think banks are going to have the same confidence levels that they once did," said Rupert.
"It is a whole new ball game now, and we are going to have to figure out how to price this confidence between banks and institutions," she added.
Credit market gauges: Meanwhile, two market gauges were mostly unchanged Wednesday.
The "TED spread" broadened to 2.17 percentage points from 2.14 late Tuesday. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the more unwilling investors are to take risks.
Another indicator, the Libor-OIS spread, held steady at 1.82 percentage points from late Tuesday. The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The bigger the spread, the less cash is available for lending.
Treasurys: Government debt prices were higher Wednesday, but only very slightly, and yields fell near the record low levels set in recent sessions.
Bond prices and yields move in opposite directions. Treasurys are perceived as one of the safest places for investors to keep their assets in times of economic uncertainty and higher prices signal a flight to safety.
"The market is just off of its record highs," said Rupert. "Treasurys are still the safest investment around and it confirms the fear in the market that people would be willing to give the government their money for 10 years at such low rates."
The yield on the benchmark 10-year note rose 2/32 to 109-13/32 and its yield fell to 2.67% from 2.68%. Last week, the 10-year yield fell below 3% for the first time since the note was first issued in 1962.
The 30-year bond rose 1/32 to 125-10/32 and its yield slipped to an all-time low of 3.17%.
The 2-year note was unchanged at 100-23/32 and its yield held at 0.9%.
The yield on the 3-month note dipped to 0.02% from 0.04% late Tuesday. The bill is closely watched as an indicator of investor confidence. Investors and money-market funds shuffle funds in and out of the 3-month bill frequently, as they assess risk in the rest of the marketplace. A higher yield indicates that investors are slightly more optimistic.
The government has been selling an increased amount of government debt to finance the pricey rescue of the financial system, but the increased supply of Treasurys has not prevented government bond yields from falling to record lows as investors have made safety a priority.
Stocks gain for 2nd session
Stocks rallied Wednesday, finding momentum at the end of a volatile session in which investors considered a rash of weak economic reports but opted to scoop up select stocks anyway.
The Dow Jones industrial average (INDU) gained 2%. The Standard & Poor's 500 (SPX) index rose 2.6% and the Nasdaq composite (COMP) gained 2.9%.
Stocks seesawed throughout the day as investors considered the day's rash of poor economic news, including weak readings on the labor market ahead of Friday's big report.
Stocks surged in the last two hours of the session, after the Federal Reserve released its "Beige Book" survey of the economy. The report showed a deterioration in all 12 of the Fed's districts, as had been expected.
Despite the day's bad news and some jitters about Friday's employment report, stocks managed gains.
"The market is trying to find its footing," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.
"Historically, one characteristic of a market bottom is when stocks rally despite bad news," Ghriskey said. "We haven't see that kind of big rally yet, but we have seen some stabilization."
Ghriskey said that year-end maneuvering by portfolio managers and individuals could send stocks lower again in a few weeks, but that ahead of that, there's room for more gains.
Thursday brings November sales reports from the nation's chain stores, including the figures from "Black Friday" and the Thanksgiving weekend. Weekly unemployment claims and the October factory orders report are also due.
"We're not expecting good news on the economy and we haven't been getting any," said Bill Flaig, chief investment officer at Arrow Funds. "The reports keep coming in a little weaker than expected, but not dramatically."
The market is in the process of trying to fully anticipate how bad the economic news is, he said. Until that happens, stocks will remain vulnerable to big declines.
"We could still get a bounce through year-end or early January," he said. "However, if that is the case, it will be a bear-market bounce. After that, the reports are going to get worse and that could cause another leg down."
Stocks rallied Tuesday on indications that the automakers might get a bailout after all. GE also helped sentiment after it said it will keep its dividend intact and work to sustain its top-tier debt rating despite the poor economy. Tuesday's run sent all three major gauges up by at least 3%.
Economy: Weak readings on the labor market were released Wednesday morning, adding to bets that Friday's big national employment report will be pretty dismal.
Private-sector employers cut 250,000 jobs from their payrolls in November, according to a report from payroll processing firm ADP. That was worse than the 205,000 economists were expecting. Employers cut a revised 179,000 jobs from their payrolls in October.
Planned job cuts in November hit the highest level in seven years, according to a survey from outplacement firm Challenger, Gray & Christmas. Job cut announcements jumped to nearly 182,000 in November, up 61% from October and up a whopping 148% from a year ago.
Another report showed that the service sector weakened considerably in November, falling to 37.3 from 44.4 in October. The figure was worse than analysts' forecast for a reading of 42, and reflected a drop in new orders, prices and employment.
An additional report showed that third-quarter non-farm productivity was revised higher to an increase of 1.3% from an initial read of 1.1%. That was more than the 0.9% increase economists were expecting, but down from the 3.6% figure in the previous quarter.
In other news, President-elect Barack Obama has named New Mexico Gov. Bill Richardson as his choice for Commerce secretary.
Company news: BlackBerry-maker Research in Motion (RIMM) warned third-quarter sales and earnings won't meet previous forecasts due to the stronger dollar hurting international sales and the weaker economy hurting U.S. growth.
Marvell Technology (MRVL) swung to a profit in the third quarter from a loss last year, earnings 23 cents per share, versus forecasts for 21 cents a share. The chipmaker issued a current-quarter revenue forecast in a range that could miss analysts' estimates. But investors focused on the positive and shares rallied 20%.
Freeport-McMoRan Copper & Gold (FCX, Fortune 500) suspended dividend payments, lowered its 2009 capital expenditures budget and said it will cut copper production over the next two years. The copper producer said the global recession is hurting metal demand and pricing. Shares fell 17% in active NYSE trading.
Retailers jumped after comScore said Cyber Monday sales jumped 15% from a year ago as investors took advantage of deep online discounts. Amazon.com (AMZN, Fortune 500), Home Depot (HD, Fortune 500), Lowe's (LOW, Fortune 500), Target (TGT, Fortune 500) and Best Buy (BBY, Fortune 500) were among the big gainers.
Big bank stocks gained, including Dow components American Express (AXP, Fortune 500), JP Morgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500).
Market breadth was positive. On the New York Stock Exchange, winners beat losers two to one on volume of 1.55 billion shares. On the Nasdaq, decliners beat advancers four to three on volume of 2.3 billion shares.
Automakers: The United Auto Workers said Wednesday it will work with the Big Three to bring down costs, improving their chances of getting a government bailout. (Full story)
On Tuesday, GM (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler submitted their turnaround plans to Congress. the automakers are now asking for a combined $34 billion versus the initially requested $25 billion. GM's haul, at $18 billion, is the biggest. Chrysler is asking for $7 billion. Ford asked for $9 billion as a stop-gap measure, saying it has enough money to get through 2009 and expects to be profitable again by 2011.
The Senate Banking Committee is scheduled to hold a hearing on the bailout Thursday, while the House Financial Services Committee is holding its hearing Friday.
Separately, the automakers also released abysmal November sales results.
Bonds: Treasury prices inched higher, with the yield on the benchmark 10-year note falling to 2.67% from 2.68% late Tuesday. The 10-year yield dipped below 3% last week for the first time since the note was first issued in 1962.
Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill fell to 0.01% from 0.04% Tuesday, near a 68-year low of zero hit last month. The 3-month is seen as the safest place to put money in the short term. A low yield means wary investors would rather preserve cash despite earning little or no interest on it than risk the stock market.
Lending rates eased. The 3-month Libor rate slipped to 2.20% from 2.21% Tuesday, while overnight Libor fell to 0.88% from 1% Tuesday, according to Bloomberg. Libor is a key bank lending rate.
Other markets: The dollar gained versus the yen and fell against the euro.
U.S. light crude oil for January delivery fell 17 cents to settle at $46.79 a barrel on the New York Mercantile Exchange, after the government reported a surprise decline in oil inventories last week. Crude prices ended Tuesday's session at a 3-1/2 year low.
COMEX gold for February delivery fell $12.80 to $770.50 an ounce.
Gasoline continued the fall to nearly four-year lows, with prices down nine-tenths of a cent to a national average of $1.803 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA. Prices have been sliding for 2-1/2 months, and have dropped more than $2 a gallon or 53%.
In global trading, Asian and European markets ended higher.
The Dow Jones industrial average (INDU) gained 2%. The Standard & Poor's 500 (SPX) index rose 2.6% and the Nasdaq composite (COMP) gained 2.9%.
Stocks seesawed throughout the day as investors considered the day's rash of poor economic news, including weak readings on the labor market ahead of Friday's big report.
Stocks surged in the last two hours of the session, after the Federal Reserve released its "Beige Book" survey of the economy. The report showed a deterioration in all 12 of the Fed's districts, as had been expected.
Despite the day's bad news and some jitters about Friday's employment report, stocks managed gains.
"The market is trying to find its footing," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.
"Historically, one characteristic of a market bottom is when stocks rally despite bad news," Ghriskey said. "We haven't see that kind of big rally yet, but we have seen some stabilization."
Ghriskey said that year-end maneuvering by portfolio managers and individuals could send stocks lower again in a few weeks, but that ahead of that, there's room for more gains.
Thursday brings November sales reports from the nation's chain stores, including the figures from "Black Friday" and the Thanksgiving weekend. Weekly unemployment claims and the October factory orders report are also due.
"We're not expecting good news on the economy and we haven't been getting any," said Bill Flaig, chief investment officer at Arrow Funds. "The reports keep coming in a little weaker than expected, but not dramatically."
The market is in the process of trying to fully anticipate how bad the economic news is, he said. Until that happens, stocks will remain vulnerable to big declines.
"We could still get a bounce through year-end or early January," he said. "However, if that is the case, it will be a bear-market bounce. After that, the reports are going to get worse and that could cause another leg down."
Stocks rallied Tuesday on indications that the automakers might get a bailout after all. GE also helped sentiment after it said it will keep its dividend intact and work to sustain its top-tier debt rating despite the poor economy. Tuesday's run sent all three major gauges up by at least 3%.
Economy: Weak readings on the labor market were released Wednesday morning, adding to bets that Friday's big national employment report will be pretty dismal.
Private-sector employers cut 250,000 jobs from their payrolls in November, according to a report from payroll processing firm ADP. That was worse than the 205,000 economists were expecting. Employers cut a revised 179,000 jobs from their payrolls in October.
Planned job cuts in November hit the highest level in seven years, according to a survey from outplacement firm Challenger, Gray & Christmas. Job cut announcements jumped to nearly 182,000 in November, up 61% from October and up a whopping 148% from a year ago.
Another report showed that the service sector weakened considerably in November, falling to 37.3 from 44.4 in October. The figure was worse than analysts' forecast for a reading of 42, and reflected a drop in new orders, prices and employment.
An additional report showed that third-quarter non-farm productivity was revised higher to an increase of 1.3% from an initial read of 1.1%. That was more than the 0.9% increase economists were expecting, but down from the 3.6% figure in the previous quarter.
In other news, President-elect Barack Obama has named New Mexico Gov. Bill Richardson as his choice for Commerce secretary.
Company news: BlackBerry-maker Research in Motion (RIMM) warned third-quarter sales and earnings won't meet previous forecasts due to the stronger dollar hurting international sales and the weaker economy hurting U.S. growth.
Marvell Technology (MRVL) swung to a profit in the third quarter from a loss last year, earnings 23 cents per share, versus forecasts for 21 cents a share. The chipmaker issued a current-quarter revenue forecast in a range that could miss analysts' estimates. But investors focused on the positive and shares rallied 20%.
Freeport-McMoRan Copper & Gold (FCX, Fortune 500) suspended dividend payments, lowered its 2009 capital expenditures budget and said it will cut copper production over the next two years. The copper producer said the global recession is hurting metal demand and pricing. Shares fell 17% in active NYSE trading.
Retailers jumped after comScore said Cyber Monday sales jumped 15% from a year ago as investors took advantage of deep online discounts. Amazon.com (AMZN, Fortune 500), Home Depot (HD, Fortune 500), Lowe's (LOW, Fortune 500), Target (TGT, Fortune 500) and Best Buy (BBY, Fortune 500) were among the big gainers.
Big bank stocks gained, including Dow components American Express (AXP, Fortune 500), JP Morgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500).
Market breadth was positive. On the New York Stock Exchange, winners beat losers two to one on volume of 1.55 billion shares. On the Nasdaq, decliners beat advancers four to three on volume of 2.3 billion shares.
Automakers: The United Auto Workers said Wednesday it will work with the Big Three to bring down costs, improving their chances of getting a government bailout. (Full story)
On Tuesday, GM (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler submitted their turnaround plans to Congress. the automakers are now asking for a combined $34 billion versus the initially requested $25 billion. GM's haul, at $18 billion, is the biggest. Chrysler is asking for $7 billion. Ford asked for $9 billion as a stop-gap measure, saying it has enough money to get through 2009 and expects to be profitable again by 2011.
The Senate Banking Committee is scheduled to hold a hearing on the bailout Thursday, while the House Financial Services Committee is holding its hearing Friday.
Separately, the automakers also released abysmal November sales results.
Bonds: Treasury prices inched higher, with the yield on the benchmark 10-year note falling to 2.67% from 2.68% late Tuesday. The 10-year yield dipped below 3% last week for the first time since the note was first issued in 1962.
Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill fell to 0.01% from 0.04% Tuesday, near a 68-year low of zero hit last month. The 3-month is seen as the safest place to put money in the short term. A low yield means wary investors would rather preserve cash despite earning little or no interest on it than risk the stock market.
Lending rates eased. The 3-month Libor rate slipped to 2.20% from 2.21% Tuesday, while overnight Libor fell to 0.88% from 1% Tuesday, according to Bloomberg. Libor is a key bank lending rate.
Other markets: The dollar gained versus the yen and fell against the euro.
U.S. light crude oil for January delivery fell 17 cents to settle at $46.79 a barrel on the New York Mercantile Exchange, after the government reported a surprise decline in oil inventories last week. Crude prices ended Tuesday's session at a 3-1/2 year low.
COMEX gold for February delivery fell $12.80 to $770.50 an ounce.
Gasoline continued the fall to nearly four-year lows, with prices down nine-tenths of a cent to a national average of $1.803 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA. Prices have been sliding for 2-1/2 months, and have dropped more than $2 a gallon or 53%.
In global trading, Asian and European markets ended higher.
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