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Thursday, 20 November 2008
U.S. Stocks Slide to Five-Year Lows as Banks, Carmakers Tumble
U.S. stocks sank and benchmark indexes slid to their lowest levels since 2003 on growing concern over the health of the financial system and survival of the nation’s car industry.
U.S. Stocks Slide to Five-Year Lows as Banks, Carmakers Tumble
By Eric Martin 19 November 2008
(Bloomberg) – U.S. stocks sank and benchmark indexes slid to their lowest levels since 2003 on growing concern over the health of the financial system and survival of the nation’s car industry.
Citigroup Inc. tumbled 23 percent to $6.40, a 13-year low, on a plan to buy $17.4 billion of troubled investment-fund assets. General Motors Corp. slid 9.7 percent to its lowest price since the 1940s, while Ford Motor Co. lost 25 percent. Fourteen companies in the Standard & Poor’s 500 Index fell 20 percent or more as government data signalled the recession is deepening and expectations grew that insurers will post more investment losses.
“Hideous day,” said Bill Stone, who oversees $56 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “It’s hard to put a basement on this thing.”
The S&P 500 plunged 6.1 percent to 806.58 and extended its 2008 retreat to 45 percent, poised for its worst year since 1931. The Dow Jones Industrial Average lost 427.47 points, or 5.1 percent, to 7,997.28. The Nasdaq Composite Index decreased 6.5 percent to 1,386.42. Thirty stocks fell for each that rose on the New York Stock Exchange, where 1.6 billion shares changed hands, 8.6 percent more than the three-month average.
The retreat in the U.S. followed declines in Europe and Asia as concern mounted the economic slowdown will cut profits at financial firms and commodity producers. Federal Reserve policy makers last month predicted the U.S. economy will contract through the middle of 2009, with some prepared to cut interest rates further in response, according to a record of their meeting released today.
Stocks Slide, Bonds Gain
Both the Dow and the S&P 500 retreated to their lowest levels since March 2003, while the Nasdaq slid to its lowest since April of that year.
Treasuries rose, led by longer-term securities, as investors sought the relative safety of government debt following the biggest drop in consumer prices on record. The difference between yields on 10-year Treasury Inflation Protected Securities and conventional notes, which reflects the outlook for consumer prices, was 38 basis points, near the least since Bloomberg began tracking the data in 1998.
Citigroup, which was surpassed by U.S. Bancorp today as the nation’s fourth-largest bank by market value, retreated to its lowest price since 1995, three years before Citicorp Inc.’s merger with Sanford “Sandy” Weill’s Travelers Group Inc.
SIV Slump
Citigroup said the value of the assets it agreed to buy from structured investment vehicles it advises fell from $21.5 billion as of Sept. 30, reflecting market declines of $1.1 billion and $3 billion in debt that matured or was sold. SIVs, which Citigroup invented in 1988, emerged 15 months ago as one of the first major strains in credit markets rocked by record high foreclosures on subprime mortgages.
Bank of America Corp., the lender that’s buying Merrill Lynch & Co., dropped $2.13, or 14 percent, to $13.06. Goldman Sachs Group Inc. dropped $6.85, or 11 percent, to $55.18, the lowest close since the company’s initial public offering in 1999.
The S&P 500 Financials Index tumbled 12 percent to a 13-year low as all 84 of its companies retreated. JPMorgan Chase & Co., the biggest U.S. bank by market value, lost $3.67, or 11 percent, to $28.47, its lowest closing price since 2003.
Lincoln National Corp. plunged 40 percent, the steepest decline in the S&P 500, to $7.31. The Philadelphia-based life insurer said it expects a charge of as much as $300 million because of declining equity markets last month. Insurers in the S&P 500 lost 11 percent collectively.
Even Buffett
Warren Buffett’s Berkshire Hathaway Inc., which owns the insurers Geico Corp. and General Re, dropped 12 percent to $84,000 for its steepest plunge since at least 1985.
Homebuilders across S&P indexes tumbled 11 percent as a group, led by a 24 percent plunge in Meritage Homes Corp.
U.S. builders in October broke ground on the fewest new homes and obtained permits for future construction at the lowest levels on record, signs the housing slump may extend into a fourth year.
A bigger-than-forecast 1 percent drop in the consumer price index was triggered by a plunge in fuel costs and discounts on automobiles and clothing to entice consumers amid a weakening economy. Excluding food and energy, so-called core prices unexpectedly fell for the first time since 1982.
Carmakers Make Case
General Motors retreated 30 cents to $2.79. Chief Executive Officer Rick Wagoner and fellow auto-industry leaders are urgently seeking a government bailout package to stem a collapse in the U.S. auto industry.
Ford, the second-biggest U.S. automaker, dropped 42 cents, or 25 percent, to $1.26.
Car company executives made their plea for government aid for a second day as Senate Republican leader Mitch McConnell pressed lawmakers to expedite $25 billion in previously approved auto loans. Support has waned for a Democratic plan to help the automakers with funds from the recently approved $700 billion bank-rescue fund. That idea is opposed by President George W. Bush and Senate Republicans, making it unlikely there are enough votes to overcome a presidential veto.
The cost of protecting corporate bonds from default rose to near a record on concern automakers won’t get a bailout in time to prevent them from failing.
‘Soap Opera’
“The continuing soap opera that’s playing out in Washington with the automobile manufacturing management testifying today before Congress is sowing further uncertainty,” said Marshall Front, who oversees $700 million as chairman of Front Barnett Associates in Chicago. “I think it’s probably preoccupying most people at this point.”
The S&P 500 has dropped 48 percent from its 2007 record as earnings for companies in the index decreased for five straight quarters and worldwide writedowns and credit losses reached $966 billion in the worst financial crisis since the Great Depression.
Profits fell 17 percent on average at companies in the index that have reported third-quarter results, according to Bloomberg data. Analysts expect a 9.5 percent decline in full-year earnings, based on estimates compiled by Bloomberg.
CA Inc., one of just seven S&P 500 companies to advance, added 3 cents to $15.30. The second-largest maker of software for mainframe computers was boosted to “strong buy” from “outperform” by Raymond James Financial Inc. analyst Michael Turits, who said the company is “well positioned” amid an economic slowdown.
Auto bailout prospects fade; last ditch effort made
By John Crawley and Kevin Drawbaugh
WASHINGTON, Nov 19 (Reuters) - Prospects for a Congressional bailout of the U.S. auto industry faded further on Wednesday with little expectation that Democratic leaders would support a compromise in the works, with little time left for action.
The last ditch effort to extend $25 billion in aid to General Motors Corp, Ford Motor Co and Chrysler LLC hinged on negotiations that are supported by Republicans and the "lame-duck" White House.
"I won't say it's completely over. I'm still having conversations with people. But it doesn't look good," Sen. Robert Bennett, a Utah Republican, said of chances lawmakers would strike a deal that could pass.
Senate Banking Committee Chairman Christopher Dodd, a Democrat, said chances of a compromise bill emerging were "remote."
Congress has at most two days remaining in its post-election session. Without a deal in that time, automakers will likely have to wait until the new Congress and the Obama administration are in place in January.
Automakers facing a rapidly worsening liquidity crunch are urgently seeking help now to avert what industry executives this week said at congressional hearings soon could be the failure of one or more of the Big Three U.S. automakers.
"We don't like being here asking for this," GM Chief Executive Rick Wagoner told the House of Representatives Financial Services Committee on Wednesday.
"So at this point, without injections of liquidity ..., probably some portion of the domestic industry will not survive," Wagoner said.
With a Democratic-sponsored $25 billion bailout proposal off table in the Senate, the emphasis shifted to a compromise package based on a strategy Democratic leaders have already dismissed as unacceptable.
But Minority Leader Mitch McConnell said in remarks on the Senate floor that the compromise "is the only proposal being considered" that has any chance of becoming law now.
The approach spearheaded by Republicans Christopher Bond of Missouri and George Voinovich of Ohio would, according to McConnell and other lawmakers, amend extend $25 billion in loans approved in September for helping Detroit retool factories and make more fuel-efficient cars.
A number of strings attached to the retooling money would have to be cut or reworked to make it available immediately for operational and other pressing needs.
"We've made great progress. We're down to wording challenges," Bond said in remarks on the Senate floor Wednesday night.
Bond proposed the Senate consider the measure on Thursday, but Majority Leader Harry Reid objected on grounds no one had yet seen the bill.
He promised to try to move forward on any compromise despite the tangled politics engulfing the bailout and the evaporating time for action.
"No matter how hard we work no matter how hard we try, the House of Representatives is going home tomorrow. They're leaving" for the year, Reid said. "I understand the importance of this but I would hope that in addition to understanding the importance of this we have to face reality."
Due to weak support and Republican objections, Democrats abandoned plans for a procedural vote on a proposal backed by Reid to tap money from the U.S. Treasury Department's financial services rescue fund to help Detroit automakers.
With a razor thin majority, Senate Democrats need some Republican support to pass legislation.
Details of the evolving compromise were kept under wraps, but Carl Levin, a Michigan Democrat and chief proponent of bailout efforts in the Senate, told reporters the common goal was still $25 billion.
Other supporters also said that taxpayer protections and other conditions limiting executive pay would be included.
"It would be unthinkable for Congress not to be able to reach a conclusion when the leadership of the Congress, the president and president-elect all say they support bridge loans," Levin said.
Democratic Rep. Barney Frank, chairman of the House Financial Services Committee and champion of a bailout plan similar to the one derailed in the Senate, said amending the retooling legislation, as he understood it, would meet resistance in the House.
"It would be sending the wrong signal to rescind the environmental restrictions," Frank said of core provisions in the retooling bill aimed at helping Detroit meet tougher new fuel efficiency standards.
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U.S. Stocks Slide to Five-Year Lows as Banks, Carmakers Tumble
By Eric Martin
19 November 2008
(Bloomberg) – U.S. stocks sank and benchmark indexes slid to their lowest levels since 2003 on growing concern over the health of the financial system and survival of the nation’s car industry.
Citigroup Inc. tumbled 23 percent to $6.40, a 13-year low, on a plan to buy $17.4 billion of troubled investment-fund assets. General Motors Corp. slid 9.7 percent to its lowest price since the 1940s, while Ford Motor Co. lost 25 percent. Fourteen companies in the Standard & Poor’s 500 Index fell 20 percent or more as government data signalled the recession is deepening and expectations grew that insurers will post more investment losses.
“Hideous day,” said Bill Stone, who oversees $56 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “It’s hard to put a basement on this thing.”
The S&P 500 plunged 6.1 percent to 806.58 and extended its 2008 retreat to 45 percent, poised for its worst year since 1931. The Dow Jones Industrial Average lost 427.47 points, or 5.1 percent, to 7,997.28. The Nasdaq Composite Index decreased 6.5 percent to 1,386.42. Thirty stocks fell for each that rose on the New York Stock Exchange, where 1.6 billion shares changed hands, 8.6 percent more than the three-month average.
The retreat in the U.S. followed declines in Europe and Asia as concern mounted the economic slowdown will cut profits at financial firms and commodity producers. Federal Reserve policy makers last month predicted the U.S. economy will contract through the middle of 2009, with some prepared to cut interest rates further in response, according to a record of their meeting released today.
Stocks Slide, Bonds Gain
Both the Dow and the S&P 500 retreated to their lowest levels since March 2003, while the Nasdaq slid to its lowest since April of that year.
Treasuries rose, led by longer-term securities, as investors sought the relative safety of government debt following the biggest drop in consumer prices on record. The difference between yields on 10-year Treasury Inflation Protected Securities and conventional notes, which reflects the outlook for consumer prices, was 38 basis points, near the least since Bloomberg began tracking the data in 1998.
Citigroup, which was surpassed by U.S. Bancorp today as the nation’s fourth-largest bank by market value, retreated to its lowest price since 1995, three years before Citicorp Inc.’s merger with Sanford “Sandy” Weill’s Travelers Group Inc.
SIV Slump
Citigroup said the value of the assets it agreed to buy from structured investment vehicles it advises fell from $21.5 billion as of Sept. 30, reflecting market declines of $1.1 billion and $3 billion in debt that matured or was sold. SIVs, which Citigroup invented in 1988, emerged 15 months ago as one of the first major strains in credit markets rocked by record high foreclosures on subprime mortgages.
Bank of America Corp., the lender that’s buying Merrill Lynch & Co., dropped $2.13, or 14 percent, to $13.06. Goldman Sachs Group Inc. dropped $6.85, or 11 percent, to $55.18, the lowest close since the company’s initial public offering in 1999.
The S&P 500 Financials Index tumbled 12 percent to a 13-year low as all 84 of its companies retreated. JPMorgan Chase & Co., the biggest U.S. bank by market value, lost $3.67, or 11 percent, to $28.47, its lowest closing price since 2003.
Lincoln National Corp. plunged 40 percent, the steepest decline in the S&P 500, to $7.31. The Philadelphia-based life insurer said it expects a charge of as much as $300 million because of declining equity markets last month. Insurers in the S&P 500 lost 11 percent collectively.
Even Buffett
Warren Buffett’s Berkshire Hathaway Inc., which owns the insurers Geico Corp. and General Re, dropped 12 percent to $84,000 for its steepest plunge since at least 1985.
Homebuilders across S&P indexes tumbled 11 percent as a group, led by a 24 percent plunge in Meritage Homes Corp.
U.S. builders in October broke ground on the fewest new homes and obtained permits for future construction at the lowest levels on record, signs the housing slump may extend into a fourth year.
A bigger-than-forecast 1 percent drop in the consumer price index was triggered by a plunge in fuel costs and discounts on automobiles and clothing to entice consumers amid a weakening economy. Excluding food and energy, so-called core prices unexpectedly fell for the first time since 1982.
Carmakers Make Case
General Motors retreated 30 cents to $2.79. Chief Executive Officer Rick Wagoner and fellow auto-industry leaders are urgently seeking a government bailout package to stem a collapse in the U.S. auto industry.
Ford, the second-biggest U.S. automaker, dropped 42 cents, or 25 percent, to $1.26.
Car company executives made their plea for government aid for a second day as Senate Republican leader Mitch McConnell pressed lawmakers to expedite $25 billion in previously approved auto loans. Support has waned for a Democratic plan to help the automakers with funds from the recently approved $700 billion bank-rescue fund. That idea is opposed by President George W. Bush and Senate Republicans, making it unlikely there are enough votes to overcome a presidential veto.
The cost of protecting corporate bonds from default rose to near a record on concern automakers won’t get a bailout in time to prevent them from failing.
‘Soap Opera’
“The continuing soap opera that’s playing out in Washington with the automobile manufacturing management testifying today before Congress is sowing further uncertainty,” said Marshall Front, who oversees $700 million as chairman of Front Barnett Associates in Chicago. “I think it’s probably preoccupying most people at this point.”
The S&P 500 has dropped 48 percent from its 2007 record as earnings for companies in the index decreased for five straight quarters and worldwide writedowns and credit losses reached $966 billion in the worst financial crisis since the Great Depression.
Profits fell 17 percent on average at companies in the index that have reported third-quarter results, according to Bloomberg data. Analysts expect a 9.5 percent decline in full-year earnings, based on estimates compiled by Bloomberg.
CA Inc., one of just seven S&P 500 companies to advance, added 3 cents to $15.30. The second-largest maker of software for mainframe computers was boosted to “strong buy” from “outperform” by Raymond James Financial Inc. analyst Michael Turits, who said the company is “well positioned” amid an economic slowdown.
Auto bailout prospects fade; last ditch effort made
By John Crawley and Kevin Drawbaugh
WASHINGTON, Nov 19 (Reuters) - Prospects for a Congressional bailout of the U.S. auto industry faded further on Wednesday with little expectation that Democratic leaders would support a compromise in the works, with little time left for action.
The last ditch effort to extend $25 billion in aid to General Motors Corp, Ford Motor Co and Chrysler LLC hinged on negotiations that are supported by Republicans and the "lame-duck" White House.
"I won't say it's completely over. I'm still having conversations with people. But it doesn't look good," Sen. Robert Bennett, a Utah Republican, said of chances lawmakers would strike a deal that could pass.
Senate Banking Committee Chairman Christopher Dodd, a Democrat, said chances of a compromise bill emerging were "remote."
Congress has at most two days remaining in its post-election session. Without a deal in that time, automakers will likely have to wait until the new Congress and the Obama administration are in place in January.
Automakers facing a rapidly worsening liquidity crunch are urgently seeking help now to avert what industry executives this week said at congressional hearings soon could be the failure of one or more of the Big Three U.S. automakers.
"We don't like being here asking for this," GM Chief Executive Rick Wagoner told the House of Representatives Financial Services Committee on Wednesday.
"So at this point, without injections of liquidity ..., probably some portion of the domestic industry will not survive," Wagoner said.
With a Democratic-sponsored $25 billion bailout proposal off table in the Senate, the emphasis shifted to a compromise package based on a strategy Democratic leaders have already dismissed as unacceptable.
But Minority Leader Mitch McConnell said in remarks on the Senate floor that the compromise "is the only proposal being considered" that has any chance of becoming law now.
The approach spearheaded by Republicans Christopher Bond of Missouri and George Voinovich of Ohio would, according to McConnell and other lawmakers, amend extend $25 billion in loans approved in September for helping Detroit retool factories and make more fuel-efficient cars.
A number of strings attached to the retooling money would have to be cut or reworked to make it available immediately for operational and other pressing needs.
"We've made great progress. We're down to wording challenges," Bond said in remarks on the Senate floor Wednesday night.
Bond proposed the Senate consider the measure on Thursday, but Majority Leader Harry Reid objected on grounds no one had yet seen the bill.
He promised to try to move forward on any compromise despite the tangled politics engulfing the bailout and the evaporating time for action.
"No matter how hard we work no matter how hard we try, the House of Representatives is going home tomorrow. They're leaving" for the year, Reid said. "I understand the importance of this but I would hope that in addition to understanding the importance of this we have to face reality."
Due to weak support and Republican objections, Democrats abandoned plans for a procedural vote on a proposal backed by Reid to tap money from the U.S. Treasury Department's financial services rescue fund to help Detroit automakers.
With a razor thin majority, Senate Democrats need some Republican support to pass legislation.
Details of the evolving compromise were kept under wraps, but Carl Levin, a Michigan Democrat and chief proponent of bailout efforts in the Senate, told reporters the common goal was still $25 billion.
Other supporters also said that taxpayer protections and other conditions limiting executive pay would be included.
"It would be unthinkable for Congress not to be able to reach a conclusion when the leadership of the Congress, the president and president-elect all say they support bridge loans," Levin said.
Democratic Rep. Barney Frank, chairman of the House Financial Services Committee and champion of a bailout plan similar to the one derailed in the Senate, said amending the retooling legislation, as he understood it, would meet resistance in the House.
"It would be sending the wrong signal to rescind the environmental restrictions," Frank said of core provisions in the retooling bill aimed at helping Detroit meet tougher new fuel efficiency standards.
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