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Nov 12
2008
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November 12, 2008
"Hold on, we're in for a bumpy ride!" is the familiar saying that comes to mind right now in the markets. More bad news keeps coming despite all the government interventions and eye-popping money being thrown at the worst financial crisis our country has faced in the last 80 years.
Stocks fell to their lowest levels since late October today after bad news from Best Buy (BBY) and Macy's (M) and many negative reactions to changes in the government's financial rescue program.
The Dow Jones Industrial Average closed down 410 points, 4.7%, to 8,284. The Standard & Poor's 500 Index was down 47 points, or 5.2%, to 852. The Dow and S&P 500 closes were their worst since Oct. 27. The Nasdaq Composite Index shed 82 points, 5.2%, to 1,499 -- its lowest close of the year, dropping below the old low of 1,505.90 on Oct. 27.
Since the presidential election on Nov. 4, the Dow has given up 1,343 points, or 14%. The S&P 500 has dropped 149 points, or 15.3%, and the Nasdaq has lost 272 points, or 15.8%.
Big Three Auto Manufacturers in Serious Trouble
Next up is what to do about our auto industry which appears to be teetering on the edge of bankruptcy. GM has said they may run out of cash by the end of the year, and yesterday GM's stock dropped below $3 for the first time ever. G.M. has been burning through an estimated $1 billion in cash each month since the middle of the year, although some analysts believe that figure has grown substantially with the drastic drop in demand for new vehicles. GM and Chrysler have been discussing merger possibilities but that does not seem to be going anywhere in recent days.
Last
week automakers announced their October sales numbers and they were not good
at all. Sales of new cars and trucks in the U.S. plummeted in October to levels
not seen in 25 years. Shaky consumer confidence and the credit crunch resulted
in the inability of shoppers to get loans. Overall the tight credit situation
resulted in driving sales down 31.9% for October compared to one year ago.
General Motor's sales dropped by a whopping 45% during October and Ford's
dropped 30%. Other declines included a 23% drop at Toyota and a 25% decline
for Honda. These over-the-cliff plunges have raised concerns about the chances
of survival of Detroit's Big Three here in the U.S.
Senate Democrats have met with Ford, GM and Chrysler this past week and discussions are ongoing on how the U.S. government might step in to help out the ailing U.S. auto companies. Obama is urging help for these automakers and it is unlikely that congress will let the automakers tumble into bankruptcy and face the loss of tens of thousands of additional U.S. jobs. It would ultimately mean the abdication of our place in the world auto manufacturing market and I don't think congress will silently let that happen. Also, GM and Chrysler going into bankruptcy would seriously endanger pension funding for tens or hundreds of thousands of retired autoworkers.
A buddy of mine's father worked for GM for 40+ years and the vast majority of his pension was based on GM stock. That family's future has been largely flushed down the toilet in the last year as GM's stock has slid from a high 12 months ago of just under $42 to a stock price that is currently hovering around the $3 mark. One might be tempted to think that this is as low as GM's stock could go and now would be a good buying opportunity. I'd urge those parties to have patience and see how the automaker's fate fares with congress. If congress does not decide to pony up $30 to $40 billion dollars to bail out the automakers then GM's stock could fall down to the penny stock range as investors will likely pushish the stock if a support program is not implemented. I'd hate to see that happen and I don't think congress and the Treasury will let that happen, but I'd wait till more shoes drop before gambling on "long" position in GM shares right now.
Oil Slides Further as Demand Drops
Oil fell 4 percent to below $57 a barrel on Wednesday as the U.S. government slashed its global demand growth forecast as the world slides into recession. OPEC is pondering further cuts as oil has slid $90 ppb from $147 in early July to $57 today and will decide by the end of the month to cut production again to help support oil prices.
U.S. crude fell $2.51 to $56.82 a barrel at 13:15 p.m. EST, after touching $56.35, the lowest since March 20, 2007. London Brent crude traded down $2.50 to $53.21 a barrel.
The U.S. Energy Information Administration dropped its 2009 output outlook by 740,000 bpd, with total demand expected to average 85.93 million bpd next year compared with estimates of 85.89 million bpd for this year.
Oil and Gasoline prices are the one thing that we can be thankful for in this gloomy economy right now. National gasoline prices have dropped below $2 per gallon again which bodes well for inflation. $4 gas back in July and August were weighing heavily on businesses and consumers and inflation was spiralining upward very quickly with high oil prices. Since oil has come back down so have inflationary trends. Lower interest rates, lower gas costs will help consumers in the long run.
Chip Manufacturers on Defensive as Intel Cuts Forecast
Intel Corp.(INTC), the largest computer- chip maker, lowered its fourth-quarter sales forecast by about $1 billion amid ``significantly weaker'' demand across its entire product line. The shares dropped 6.8 percent in late trading.
Revenue will be $9 billion, plus or minus $300 million, and profit margins will be short of projections, Intel said today in a statement. The Santa Clara, California-based company originally predicted sales of between $10.1 billion and $10.9 billion.
Intel, whose chips run more than three-quarters of the world's computers, said customers worldwide are ``aggressively'' chopping orders as they cope with falling sales. That signals that the U.S. economic slump, which Chief Executive Officer Paul Otellini already expects to be the worst of his lifetime, is spreading overseas.
The stock has a 52-week low of $13.51 and a period high of $27.99. Apple (AAPL), HP (HPQ), RIM (RIMM), Dell (DELL), and AMD (AMD) are likely to be caught in the vortex tomorrow. Micron Technology Inc.(MU), the largest U.S. producer of computer memory, dropped 20 cents, or 6.5 percent, to $2.90, while AMD declined 3 cents to $2.54.
Toshiba (6502: JT ) slumped 4.8 percent to 337 yen in Tokyo. Sony Corp.(SNE), the world’s second-largest consumer electronics maker, dropped 7.3 percent to 2,030 yen. Samsung Electronics Co. (KS) lost 2.8 percent to 467,000 won.
Paulson Shift Focus from Buying Up Bad Assets to Rescuing Consumer Lending
U.S.
Treasury Secretary Henry Paulson plans to use the second half of the $700
billion financial rescue program to help relieve pressures on consumer credit,
scrapping an effort to buy devalued mortgage assets.
"Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. "This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''
Paulson might have some "splaining" to do to Congress on why he sold them one thing and is now going in a different direction. Might be a little tougher to get his hands on the second half of the 700 billion in bailout funds.
