OTCPicks Penny Stock Blog

December 1, 2008 -

The stock market today suffered one of its worst days since the financial meltdown began, slicing 680 points off the Dow Jones industrial average as Wall Street snapped out of its daydream of a rally and once again faced the harsh reality of a recession.

Not only did stocks end their five-day winning streak, they erased more than half the gains. The Standard & Poor's 500 stock index, one of the broadest market gauges, lost nearly 9 percent.

Erasing any lingering doubts, there was also finally an officially declared recession — in progress in the United States since December 2007, according to the National Bureau of Economic Research, the nonprofit group of economists that classifies business cycles.

Retail Holiday Outlook Bleak!

Concerns that the 2008 holiday shopping season could cap off the bleakest year-end season for retailers contributed to the negative tone, along with a slide in financials and energy stocks. Black Friday sales were up from a year ago, but sales tailed off over the weekend as the door-buster promotions ended. More than 70% of shoppers said they were out over the weekend specifically to take advantage of the big-ticket promotions and beyond that they were not buying heavily this year. Adults indicated they would buy for the kids, but were keeping the adult purchases to a minimum. This is not great news for retailers this year and the shopping discounts might continue to increase as desperate retailers try to liquidate inventory.

"We thought mall traffic was good but lines were not as impressive as shoppers cherry-picked the best deals," said UBS analyst Roxanne Meyer. "We thought promotions would have been steeper, given retailers' inventory issues. The new reality is that 25 to 30 percent off is not going to cut it." Look for more retail discounts as retailers try to liquidate inventories before the year end. After Christmas sales should also include steep discounts. Retail stocks were down significantly on Monday in early trading.

Manufacturing Falls

Manufacturing in the U.S. contracted in November at the steepest rate in 26 years, leading Europe and Asia into a global industrial slump as the credit continued to be tight worldwide.

The Institute for Supply Management’s factory index dropped to 36.2, below economists’ forecasts, and its gauge of raw-material costs plunged to its lowest in sixty years, the Tempe, Arizona-based group reported today. Factory indexes in China, the U.K., euro area, and Russia all fell to record lows.

Stocks worldwide tumbled and yields on U.S. Treasury securities fell to the lowest ever on concern a lack of credit will shut down consumer and business spending. The deepening recession and a non-inflationary environment with oil falling is pressuring policy makers to keep lowering interest rates and implement new consumer stimulus plans.

The ISM index was projected to drop to 37, according to the median of 61 economists’ forecasts in a Bloomberg News survey. Estimates ranged from 33.5 to 40. A reading of 50 is the dividing line between expansion and contraction.

A report from the Commerce Department also showed construction spending fell 1.2 percent in October, a bigger drop than forecast, as a slump in homebuilding spread to non- residential projects such as power plants, churches and highways.

The U.S. ISM’s purchasing managers’ gauge of new orders for factories decreased to 27.9, the lowest since 1980, from 32.2 the prior month. The production measure fell to 31.5 from 34.1.

“These are all recession readings,” Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in an interview on Bloomberg Television. “There is widespread weakness within the manufacturing sector.”

Less Inflation

The index of prices paid dropped to 25.5, the lowest level in six decades, from 37. Oil has dropped from a peak in July at $147 to just above $50 per barrel today and nationwide gas prices have dropped to just under $2 per gallon.

Wholesale and retail prices are starting to retreat due to diminishing demand domestically and internationally. That also means that manufacturers are not able to hold their pricing as well.

The U.S. economy shrank at a 0.5 percent pace in the third quarter, with business spending on equipment and software declining at a 5.7 percent rate, the biggest drop since the first quarter of 2002. Economists at Goldman Sachs Group Inc. and Morgan Stanley in New York are among those projecting the economy will contract at a 5 percent pace in Q4.

Auto Manufacturers are Among Hardest Hit

Automakers are among the hardest hit by the slump in demand. New sales data is due tomorrow are forecast to show November auto sales dropped to a 10.5 million annualized rate, the weakest pace since April 1991, a Bloomberg survey shows.

Automakers may be facing several years of lower demand as the credit squeeze, unemployment, foreclosures, weak housing markets and sluggish retail take their toll. Companies are cutting payrolls and investments after consumer spending in the third quarter plunged by 3.7 percent, the most in 28 years.

Automakers are due to submit their revised business plans to congress by Tuesday and are due on Capital Hill on Thursday and Friday to present their plans in congressional hearings and to ask for a financial aid package to allow them to survive their impending liquidity crisis.

General Motors Corp. Chief Executive Officer Rick Wagoner and his counterparts at Ford Motor Co. and Chrysler LLC will put their jobs on the line this week when they try to convince Congress they can save their companies.

U.S. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid gave them a pretty clear plan for what they expect, and their focus had better be on coming in with a solid plan.

GM’s board met in Detroit to consider the rescue plan that may determine Wagoner’s fate. The directors started reviewing the automaker’s proposals yesterday in a 10-hour meeting and will continue today, people familiar with the plans said.

Bernanke Says Fed May Buy Treasuries to Aid Economy

The U.S. economy “will probably remain weak for a time,” even if the credit crisis eases, Bernanke said today in a speech in Austin, Texas.

Bernanke has created more than $2 trillion of emergency lending programs in the past year, using the Fed’s balance sheet and money-creation authority to cushion the economy from the worst financial crisis in seven decades. The central bank may lower its benchmark interest rate to zero and pump even more funds into the banking system, economists said.

“Although further reductions from the current federal funds rate target of 1 percent are certainly feasible, at this point the scope for using conventional interest-rate policies to support the economy is obviously limited,” Bernanke said in prepared remarks to the Austin Chamber of Commerce.

One option is for the Fed to buy “longer-term Treasury or agency securities on the open market in substantial quantities,” Bernanke said. “This approach might influence the yields on these securities, thus helping to spur aggregate demand.”

Treasury Secretary Henry Paulson also spoke on Monday and said that the Bush administration is looking for more ways to tap the $700 billion financial rescue program and will consult with Congress and the incoming Obama administration.

Bulls are saying that we are in what may be a protracted bottoming process while bears say that there is yet more downside yet to come and the market will likely test recent market lows again and might continue it's downward trend for a time to come.

One thing is for sure, no one is starting to sing "Happy Days are Here Again" just yet!

Stay Tuned!

November 18, 2008 -

On Tuesday, Treasury Secretary Henry Paulson and members of Congress clashed over the best use for the $700-billion financial bailout fund, with lawmakers demanding money to stem a national wave of mortgage foreclosures.

At a House of Representatives Financial Services Committee hearing where he was grilled over his handling of the program, Paulson said the bailout plan wasn't "a panacea for all our economic difficulties" and would be more effectively used by investing in financial companies to shore up the system.

"The rescue package was not intended to be an economic stimulus or an economic recovery package. It was intended to shore up the foundation of our economy by stabilizing the financial system," the Treasury chief insisted.

Under stiff questioning from lawmakers who charged Treasury was making up strategy as it went along, Paulson conceded he hadn't totally ruled out using bailout funds to help homeowners, but said he had "reservations" about a proposal put forward by the Federal Deposit Insurance Corp.

Rep. Barney Frank, the Massachusetts Democrat who chairs the panel, lectured Paulson, telling him mortgage relief was spelled out as an option under the bailout passed by Congress.

"The fundamental policy issue is our disappointment that funds are not being used out of the $700 billion to supplement mortgage foreclosure reduction," Frank said. "There, I believe, is an overwhelmingly ... powerful set of reasons why some of the ... money must be used for mortgage foreclosure."

Paulson was also pressed about possibly tapping bailout funds to help distressed U.S. automakers but again ruled that out. He said any solution for automakers, who are pressing their case in Congress on Tuesday, should be one that helped them to re-tool to make more energy-efficient vehicles, and that wasn't what the bailout fund was set up to do.

He said Treasury was working with the U.S. central bank on a potential program, to be run by the Fed, that could be used to buy highly rated debt backed by auto loans, which could help automakers and make it easier for consumers to obtain loans.

FDIC Supports Credit Help to Slow Foreclosures

FDIC Chairman Sheila Bair, at the same hearing, told lawmakers it was "essential" Treasury offer loan guarantees and credit help to slow foreclosures, and warned that 4 million to 5 million mortgages will enter foreclosure over the next two years if nothing is done.

The FDIC says its plan could avert about 1.5 million foreclosures by encouraging lenders to restructure loans by having the government share in the cost of defaults. It is estimated the plan could cost the federal government about $24 billion.

"We are clearly falling behind the curve," Bair said. "Much more aggressive intervention is needed if we are to curb the damage to our neighborhoods and broader economic health."

U.S. Auto Executives Visit Capital Hill to Beg for Money

U.S. auto executives warned Congress on Tuesday that their industry was teetering on the brink of disaster as they pleaded for a $25 billion aid package despite political opposition to another multibillion-dollar government bailout.

The hearings come as government and business officials around the globe decide if, and how, they should commit billions of taxpayer dollars to bolster struggling automakers.

Rick Wagoner, the head of General Motors Corp, bluntly told the Senate Banking Committee why the executives were there. "This is about much more than just Detroit," Wagoner said in his testimony. "It's about saving the U.S. economy from a catastrophic collapse."

The hearings came a day after Senate Democrats proposed to bail out the ailing industry with $25 billion in government-backed loans. Wagoner; Robert Nardelli, head of Chrysler LLC; Alan Mulally, CEO of Ford Motor Co; and Ron Gettelfinger, head of the United Auto Workers union all testified on Tuesday.

"While the domestic auto industry has made mistakes in the past, the current problems have been exacerbated by one of the worst economies in nearly three decades," Mulally said. "We are hopeful that we have enough liquidity based on current economic planning assumptions and planned cash improvement actions, but we know that we live in tumultuous economic times."

Yahoo Climbs as Yang Resigns

Yahoo! Inc., owner of the second- largest U.S. Internet-search engine, rose 8.7 percent in Nasdaq trading after Chief Executive Officer Jerry Yang agreed to step down, opening the door for a fresh Microsoft Corp. bid.

Yahoo, based in Sunnyvale, California, climbed 92 cents to $11.55 at 4 p.m. New York time on the Nasdaq Stock Market. The gain was the largest in a month.

Before today, the company's market value had fallen by more than $20 billion since Yang took over last year as discussions with Microsoft failed, an ad partnership with Google Inc. collapsed and talks with Time Warner Inc.'s AOL stalled. Goldman Sachs Group Inc. said the resignation may fuel speculation of renewed talks with Microsoft or another suitor.

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.