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HomeEconomic/Market Highlights 11/19/08 . . . The Pain Increases!!
Posted by Larry Doyle on November 20th, 2008 7:10 AM |
***Citigroup is down another 25% in this morning’s trading as investors are concerned that embedded losses are deeper than previously thought….as the attached article highlights, “it makes us think the mark to market writeoffs are not over yet”.***
Read more as to how and why “Citi’s Slide Deepens….”
As my Dad used to say when the report cards came home, “Just give me the grades and save the sob story for your Mother!”
| Dow | on the day | -5.1% |
| month to date | -14.2% | |
| year to date | – 40% | |
| S&P 500 | on the day | -6.1% |
| month to date | -16.7% | |
| year to date | -45.3% | |
| Nasdaq | on the day | -6.5% |
| month to date | -19.5% | |
| year to date | -49% | |
| 10yr U.S. Tsy | on the day 3.33% | down 20bps |
| month to date | down 64bps | |
| year to date | down 70bps |
With grades like these, my Dad would have clenched his teeth, furrowed his brow, and bit his tongue. My Mom would proceed to rip my head off. Truth be told, that tough love was just what I needed to increase my discipline.
While tough love needs to be more love than tough, the fact is that covering my own shortcomings in work and discipline solved NOTHING. Our “socialized housing finance system” and our effectively “socialized banking system” are finding the same outcomes. Ultimately the price must be paid much like the losses must be recognized.
Neither Paulson nor Congress nor anybody in Washington or Wall St will tell you that the system has trillions in embedded losses but they do and our markets know it and are showing it by their prices.
(more…)
Economic/Market Highlights 11/17/08
Posted by Larry Doyle on November 17th, 2008 10:20 PM |
I am going to save all the readers here extensive verbiage so as not to be overly morose about the ongoing challenging economic environment. I will offer my thoughts and comments on a few of the higher profile stories as indicators of what is going on, broadly speaking.
1. G-20 Summit….I had high hopes that commitments to global coordinated tax cuts would emanate from this summit. Talk about a major “whiff” on behalf of the global leaders. All I see is that leaders expressed a “promise” to work together on the critical issues. Wow, how gracious of them. Over and above this promise, I sensed that global leaders want to wait until the Obama administration takes charge and work with them. Believe me, with all due respect to Barack and team, if anybody thinks they have a magic bullet and will “inspire” a heightened level of confidence in the markets and economy, well….don’t hold your breath.
Read more on how “G-20 leaders Tighten Grips on Banks” (more…)
“The Greatest Generation”
Posted by Larry Doyle on November 14th, 2008 7:45 AM |
I commend HRC for providing some real leadership at this point in time. There is no doubt that our country is screaming for real leadership. From Washington to Wall St. to Main St. our citizens are looking for people and programs that will look forward and take the vital and necessary steps to change our national mindset. Do you get the sense that perhaps some supporters of BO are getting a little nervous and now realize that he is a very high risk President-elect?
HRC’s stimulus proposal addresses a number of fronts (expanding unemployment insurance, addressing Medicaid, funding infrastructure projects and clean energy, modify mortgages) which will need focus from Congress to create a demonstrative impact on our economy. Some of the programs will clearly be impactful while others may have unintended negative consequences. We will have to take some prudent but necessary risks to achieve positive results.
The TARP bailout/rescue plan proposed to date has not inspired confidence nor generated any real impact for three reasons:
1. the banks have such sizable embedded losses that the funds already injected are being and will be used to recapitalize the balance sheets …
2. investors have little to no appetite to purchase loans currently on the banks’ books which were not properly underwritten and will likely continue to suffer an ever increasing level of delinquencies and defaults …
3. little to no demand for funds due to the fact that most individuals and institutions are looking to decrease their debt service not increase it …
As a result our economy spirals downward. HRC’s plan addresses some of our most serious needs. I commend her. (more…)
Economic/Market Highlights 11/12/08
Posted by Larry Doyle on November 13th, 2008 1:31 PM |
Markets trade down another 5% and close within spitting distance of October’s closing lows seen on Oct 10. I remain decidedly negative on the market and the economy despite every effort made by global governments. In fact, the pace of the economic slowdown is quickening. It’s all about delevering and liquidity.
We have much to address, so let’s get after it.
Retail….
1. Best Buy comments that they see a “seismic slowdown” in 4th quarter projected sales. Expect to see significant sales and price cuts on electronics going into the holiday season.
2. Survey of credit card holders indicates the following: 53% have more debt than they are comfortable handling. Of that group 73% indicate that they will likely spend less this holiday season….lots of regifting….
Economy
1. Julian Robertson, one of the most highly regarded money managers of the last 40 yrs, indicates that “we have not seen the capitulation in our economy and that the foreseeable future will be a long, tough period for the American people. He also offered that Nancy Pelosi wants to throw money down the toilet to save the automotive industry. (more on this later)
2. Moody’s ratings expects defaults on distressed debt situations to almost quadruple in the next year to north of 10%. This expected level of defaults is why high yield debt is trading near a 20% yield level. Lots of RISK! Companies will be severely challenged to refinance their debt.
3. Jamie Dimon, CEO of JP Morgan, indicates that the economic recession will be worse than the credit crisis.
Auto Situation
1. Pelosi, Frank, Obama and team clearly want to see a bailout for the automotive industry with GWB’s signature. The package being discussed is $25bln but with no specifics highlighted as of yet. Expect hearings next week in Washington on this issue. From the standpoint that Uncle Sam has already committed north of a trillion dollars to the financial system, a 25bln capital injection is a drop in the bucket but it goes a lot deeper than that. First off, the cash burn rate for the Big 3 at the anemic pace of auto sales is currently 5+bln per month, so 25bln gets us to next March. Big deal.
IMO, I would not give this industry $20 without an agreement to restructure. (more…)
Review of Employment Report and Markets 11/7/08
Posted by Larry Doyle on November 7th, 2008 4:50 PM |
The highly anticipated October employment report came in as follows:
| unemployment rate | 6.5% up from 6.1% |
| non-farm payrolls | -240k jobs vs consensus estimate of -200k |
| September revision | a loss of 284k jobs from initial estimate of 159k! |
| Labor costs | +3.5% year over year |
Jobs were lost in virtually every sector: manufacturing, construction, and especially the service sector, which had been the sector that provided job strength over the last few years.
In summary, there is nothing to like about this report and it is likely to get worse. Estimates on unemployment rate range from 7% to 9% by the middle of 2009.
Read more here on how the “Economy Sheds Jobs.”
Goldman Sachs, which had the most accurate call on the employment report, is now calling for a -3.5% GDP for 4th qtr 2008 and a -2% for 1st qtr 2009. (more…)
Economic/Market Review 11/6/08
Posted by Larry Doyle on November 6th, 2008 9:00 PM |
****I hope that people can access this article which will appear in tomorrow’s WSJ. This piece gives a great recap of the very painful delevering (unwinding investments made with borrowed funds) for Citadel, one of the higher profile hedge funds in the business. — Wall Street Journal
Markets are down another 4-5% on the day and app 10% for the month. Today’s highlights (or lowlights…) being….
1. Goldman Sachs announces that they expect a loss of 300,000 jobs in tomorrow’s employment reports from Dept of Labor. Consensus estimate is that the economy lost 200-250,000 jobs. Markets are very nervous that this number will be even worse but regardless the overall rate is headed well north of 7%…
2. Cisco announced after yesterday’s market close that they had their first revenue decline in 5 years…
3. Blackstone (one of the largest private equity funds in the business) is down app 15% on negative earnings report and negative outlook…
4. Now for the good news…Wal-Mart has positive earnings and outlook for holiday season…this is a recession play …
Economic/Market Highlights 11/5….Biggest Post Election Slump in History!!
Posted by Larry Doyle on November 6th, 2008 7:00 AM |
Today’s 5-6% market selloff is the biggest post-election slump in history. If you think the markets aren’t nervous enough already, the prospects of a Democratic Congress and White House added fuel to the fire.
I fully appreciate that the campaign and election captivated our hearts and minds and souls over the last days, weeks, and months. To that end I refrained recently from regular economic/market posts so as not to distract from the main focus. Against that backdrop, though, we all have bills to pay so back to work we go.
Our economy remains mired in a slump that I expect to only get worse over the next few quarters.
–Jamie Dimon, the CEO of JP Morgan cautioned employees in Hong Kong that he does not foresee an economic recovery until 2010. JPM is currently the strongest banking institution in our country and has business in virtually every sector of commercial and investment banking. Dimon is sending a message to not only employees but even moreso to shareholders as to what he expects. We should all heed what he says.
–Dallas Fed governor said that he does not expect to see a positive GDP report until 2010. (more…)
McCain/Palin’s Economic Stimulus Plan
Posted by Larry Doyle on October 23rd, 2008 9:05 AM |
This post is written in response to the October 21st statement issued by the McCain/Palin campaign:
STATEMENT FROM SENATOR MCCAIN AND
GOVERNOR PALIN ON AN ECONOMIC STIMULUS
“We are deeply concerned about our nation’s economic outlook and will support measures that improve the outlook for American families. This economic crisis has its roots in the housing market and the most effective stimulus will be to reverse the cycle of foreclosure, neighborhood blight, and falling housing values. The American Homeownership Resurgence Plan is the best kind of stimulus.
“The Democrat-controlled Congress will likely propose additional measures. We do not believe that a national crisis should be taken as a license for wasteful spending or earmarked projects. Each new proposal must pass on the grounds that it is timely, effective in supporting business sales and job creation, and consistent with long-term fiscal discipline.
“In the past, raising taxes and cutting off international trade have only served to make hard economic times worse. We oppose harmful attempts to just ‘spread the wealth.’ Our job-creating economic plan is the best path for the economy and includes the types of policies that the Congress should consider.”
Prior to addressing the prospects of another economic stimulus plan, let’s review some of the steps that the Fed and Treasury have taken over the course of the last month: (more…)
The Wall St. Model is Broken . . . and Won’t Soon be Fixed!!
Posted by Larry Doyle on November 12th, 2008 12:15 PM |
Despite billions and now trillions of dollars in capital injections and equity investments made by our government, private equity, and sovereign wealth funds, our economic turmoil is a long way from being over. I do find it interesting that despite numerous Wall Street titans having indicated to us at different points over the last year that we were in the 7th inning of this fiasco, now a recurring theme is that we should not expect any real economic recovery until 2010. Actually, maybe we were in the 7th inning but it was the 7th inning of the first game of a 4 game series.
Well, if we want to figure out where and when we are moving forward, I think it would be beneficial to know from where and when we came.
For those over 50 years of age, perhaps you remember when mortgage money dried up. Perhaps you also recall the days of putting down 20% before you even thought of buying a home. In any event, the growth of the secondary mortgage market in the mid 1980s was a result of some very sharp financial minds on Wall St. who engineered a product called a Collateralized Mortgage Obligation (CMO). (more…)
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