Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Thursday's IndicatorsWeekly new jobless claims in the US fell 15,000 to 565,000, and continuing claims dropped by 80,000 to finish the week ending 15 August at 6.133 million. How many unemployed workers exhausting benefits, thereby contributing to the fall in existing claims, must be considered here, however.US 2Q GDP was revised upwards to minus one percent. In the longest recession since 1947, real GDP has fallen for four straight quarters. Corporate profits, though, rose 2.9 percent in 2Q, following a return to positive territory in 1Q of 1.3 per cent. Inventories were cut by more than anticipated during the quarter, but this was offset somewhat by stronger consumer spending (a part of that as a result of higher gas prices and the now-expired cash-for-clunkers--After posting this I remembered that the program didn't go into effect until July, so this had no impact on second-quarter purchases; sorry for the mistake). Tomorrow's personal income number will no doubt add definitively to the picture of the consumer's health. Wall Street opened by shrugging off these data, which seem to confirm long-awaited indications that consumer spending has at least some legs to stand on. Some may be puzzled by this--it wasn't too long ago that negative readings were routinely ignored by the Street. And there are some mighty strange things happening on the markets. Today's FT noted that AIG, Fannie Mae and Freddie Mac put in the most improved performance on the New York Stock Exchange since early August. All three have vaulted more than 150%, with the terrible government-sponsored entity twins posting gains of 250%. And there's more at work here than positive news on the homebuilding front: it seems short sellers have been betting against the trio, and have been caughtm, well, short: so some of the buying was of the panic sort, to buy back shares of the three that speculators had shorted which gained in price. Also, readers may recall a post from last week in which Arindrajit Dube showed how the shares of big insurers reacted to the demise of the public option in July. I don't follow individual stocks or sectors that much, so I'm guessing here, but I imagine that insurers are still racking up gains. To see so such upward activity suppported by such movements, which can only be regarded as neutral or harmful in an economic sense, would mitigate against the simple recovery story. And retail investors remain close to the sidelines. The FT also had a longer piece on the very weird upward movement of stocks, bonds and commodities recently (usually bonds move opposite to stocks, and commodities, especially oil, are used as a hedge against inflation--and hence, often-times, stock performance). Add in currencies, in which a movement away from the dollar as a safe haven has been proposed (and the dollar usually moves counter to commodity prices), and you have a very confusing situation, indeed. Labels: bond market, commodity prices, corporate profits, dollar, economic indicators, GDP, stock market, weekly initial claims Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stock Market's Loss Means Higher Wages?Dean Baker has put forth a provocative claim on his blog:The lead article in the New Year's Day edition of the Washington Post bemoaned the loss of $6.9 trillion in value in U.S. stock market last year. While those who own large amounts of stock have reason to shed tears, this may end being good news for the rest of us. Labels: Dean Baker, deflation, Inflation, stock market, wages, Washington Post Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Investors Believe Worst Is OverFrom Reuters:Wall St rallies on Obama infrastructure plan, autos Mon Dec 8, 2008 4:36pm EST By Leah Schnurr NEW YORK (Reuters) Stocks rallied to their highest level in a month on Monday on optimism President-elect Barack Obama's proposed infrastructure spending could limit the depth of the year-old recession and on hopes for a government bailout of the three U.S. automakers. In a second straight day of big gains, the broad S&P 500 pushed into positive territory for the month, giving weight to a growing chorus of market pundits who believe the worst is past for stocks. The U.S. equities market has not posted a monthly gain since August, before the collapse of Lehman Brothers sent the credit crisis into overdrive. Read the rest of the article Labels: bailout, Barack Obama, financial crisis, stock market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). S & P 314?After the latest tanking of the stock market, the stocks of 101 companies on the S&P 500 are now trading at less than $10 a share. As Reuters notes, the number can create its own feedback cycle as many institutional investors are prohibited from holding shares valued below this amount.In fact, only 314 of the companies listed in the S&P 500 are qualified to be there, as the other 186 have fallen below the required $4 billion minimum market capitalization required for membership. Labels: stock market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Co-centric Vicious CyclesThis posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.The European Central Bank and Bank of England, as expected, cut interest rates (with the BoE coming down an unprecedented 1.5% to 3.0%), but exceedingly poor corporate and consumer outlooks are pulling stocks down anyway. In Asia, both the Japanese Nikkei and Hang Seng in Hong Kong endured terrible losses. Obama is putting on a full-court press to contain the damage (expect him to name Clinton ex-Treasury secretary Lawrence Summers or New York Fed chair Timothy Geither today to head the Treasury Department), but if stocks continue their slide, he'll have to announce some sort of stimulus proposal, probably involving infrastructure spending, very soon. It remains extremely worrying that extraordinary measures, like the BoE cut, and circumstances, like the hurry-up Obama transition, have exerted only temporary effects on a downward spiral in global markets that has seen trillions wiped away from pension funds and other forms of wealth people really rely on (not just the ill-gotten gains of the filthy-rich), in just a few weeks: there will be a real shock when people get their fourth-quarter 401 K statements, even if they don’t spend much on Christmas shopping, which will itself deliver another body-blow to the economy. And, meanwhile, hedge fund redemptions continue, and that cycle of deleveraging shows no sign of abating: in fact, be prepared for an uptick in hedge fund bankruptcies. What you have here is a series of co-centric vicious cycles, all collapsing into each other. What anyone can do to stop it is still anyone's guess. Tomorrow the employment report for October comes out, and I believe it will be horrible (expect 150,000 jobs to be gone). At this rate, the Obama administration could be worn out before it even officially takes office. Labels: Bank of England, Barack Obama, european central bank, financial crisis, Larry Peterson, larry Summers, stock market, Timothy Geither Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Positive Drivers in Negative EnvironmentThe Financial Times on US stocks' best weekly performance in 30 years. Note the followiing in particular:For the week, Tuesday overwhelmed all other sessions with a stunning 10.8 per cent advance after widespread selling of yen positions left traders with cash to invest in US stocks. The article is short, so I'll reproduce the whole thing. US stocks bouyant despite grim economic data By Alistair Gray in New York Published: October 31 2008 13:04 | Last updated: October 31 2008 20:44 US stocks extended their dramatic weekly gains on Friday as investors once again overlooked a fresh glut of grim economic data and hunted for bargains. The market finished in positive territory even though downbeat consumer data and a key measure of business activity illustrated the toll that the financial crisis had taken on the economy. A lacklustre morning session gave way to a sharp afternoon rally, which eased into the close. The S&P 500 closed up 1.5 per cent at 968.75, the Dow Jones Industrial Average 1.6 per cent at 9,324.69 and the Nasdaq Composite Index 1.3 per cent at 1,720.95. JPMorgan, up 9.7 per cent at $41.25, was the biggest winner on the Dow after the bank said it would modify terms on mortgages and delay foreclosures. The financial sector led the market gains, up 5.5 per cent. In spite of official confirmation that the US economy had shrunk, the market enjoyed its strongest week for more than three decades. For the week, Friday's rally left the S&P up 10.5 per cent, the Nasdaq up 10.9 per cent and the Dow up 11.3 per cent. Illustrating the market's wild volatility, the recovery was still not enough to stop the worst monthly sell-off since 1987. Further developments on Friday served as a reminder of the difficulties facing company earnings. Carnival tumbled 11.5 per cent to $25.40 after the cruise liner group suspended its post-December dividend, while Electronic Arts dropped 17.9 per cent to $22.78 after the video game publisher issued a profit warning. Meanwhile, Chevron edged up 0.6 per cent to $74.60 after spending much of the session in negative territory, even though the oil group disclosed that third-quarter profit had doubled on the back of soaring crude prices earlier in the summer. ExxonMobil, which struggled to find positive territory in the previous session despite unveiling a world-record corporate profit, slid another 1.2 per cent to $74.12. Traders were concerned about the prospects for energy groups as the oil price continued to slide. For the week, Tuesday overwhelmed all other sessions with a stunning 10.8 per cent advance after widespread selling of yen positions left traders with cash to invest in US stocks. The Federal Reserve's move to cut interest rates and the easing of strain in money markets also gave stocks a boost. In financials, regional banks ended the week 16.3 per cent higher after a host of them accepted government cash under its banking recapitalisation scheme. Airlines soared, up 7.4 per cent for the week. Boeing climbed 15.9 per cent during the week to $52.42 amid hopes that a machinists’ strike would be called off this weekend. Meanwhile, General Motors swung wildly and was on track to end the week down 2.7 per cent. Although Moody's downgraded its rating on the motor group, investors were heartened by reports that the government was considering providing financial assistance in a possible merger with Chrysler and that the group had resolved "major issues" with the potential partner's owner, Cerberus Capital Management. The latest chapter in the saga came on Friday when Reuters reported that the Bush administration had ruled out funding for a possible deal, and the stock fell 4.6 per cent to $5.79. Procter & Gamble gained 9.6 per cent for the week to $64.54, even though the consumer products group lowered the bottom end of its full-year earnings guidance. Motorola added 7.2 per cent to $5.37 in spite of the group posting an unexpected third-quarter loss and saying that the mobile device business spin-off would be delayed. The Chicago Board Options Exchange Volatility Index, known as Wall Street's fear gauge, shed 25.2 per cent over the week, although at 59.75 it continued to indicate signs of severe distress. Labels: financial crisis, financial crisis bailout, Financial Times, stock market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bleak Earnings Swamp StocksJust posted to wsj.com:By PETER A. MCKAY | Faltering profits and fears of global recession sent stocks into a spiral Wednesday, nudging major indicators ever closer to their bear-market lows. The Dow Jones Industrial Average slid for a second straight day, ending down 514.45 points, or 5.7%, at 8519.21, hurt by declines in all 30 of its components. The Dow has tumbled almost 750 points over its two-day slide and now stands about 640 points above its Oct. 10 intraday low, which traders are hoping will hold up as a market trough. Read the rest of the article. Labels: stock market, Wall Street, Wall Street Journal Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Central Bankers, et al: Supply and, uh, What?This posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.Well, the verdict from the markets is in, and they rejected the new Treasury plan to recpitalize the banking system with almost as much enthusiasm as certain members of the House of Representatves rejected the first Treasury plan in late September. As befits a country with a disgraceful healthcare system, the soggy plaster hurriedly applied by the financial mandarins was washed away by a torrent of bloodletting on Wall Street today, with US indices giving up almost all the enormous gains they made after the unprecedented Central Bank interventions at the weekend. And this in spite of a halving of the cost of credit default insurance, and tentative signs of improvement in the all-important interbank and even commercial paper markets. The reason? A poor monthly retail sales report confirmed evidence from the just published Federal Reserve Beige Book on the health of the economy, and the indications are quite poor. As a consequence, non-financial stocks, which never really got going anyway after the announcement of the plan, fell sharply, particularly in cyclical industries and consumer goods. The (quite sensible) sentiment seems to be: all the corporate liquidity in the world (assuming it becomes truly and safely available) won't help sell to consumers who have nothing to pay for products and services anyway, as they are up to their necks in debt, and facing the prospect of swingeing job cuts, recession and--ahem--paying off the still incalculable debt of the banks anyway. And that goes for overseas consumers, too: the recent export boom, which accounted for a vast part of the otherwise inexplicable growth of the economy for the first half of the year, is bound to tail off, as trading partners find themselves, as the Europeans did, swiftly caught up in recession, or have to concentrate on shoring up domestic economies, as China and other countries still experiencing growth may have to do. Especially if the US dollar retains its position as every speculator's security blanket in time of turmoil. So bad times are on the way. What to do? Well, once Obama is elected (I have no doubt that he will humiliate the hapless McCain and his pathetic sidekick--and I wouldn't be surprised if Obama announces the outline of a semi-ambitious economic program during the presidential debate tonight, in order to consign the economically illiterate McCain to Dole-like irrelevance in the waning days of the election season), and even before, we must be on his case: we need to pressure him to focus oin the demand-side of the economy, replacing the rot of increasing consumer-indebtedness from the outsourcing of good jobs and speculative asset-bubbles that engender increasingly jobless recoveries with public works programs of huge proportions. We can't let him, as was the case with our current economic bureacrats, make the mistake that a crisis of this nature can be solved merely by adding to one side of the equation. And these public works programs must be focused on productive endevors, of which there is no shortage: a single-payer healtcare system, serious, even drastic, environmental reform, and the end to global military adventures: we can't squander the money on favoring the housing sector, or trying to subsidize heavy polluters. But it's not going to be easy. So get out there, or be prepared to feel some serious pain, sucker. It's that simple. Labels: financial crisis, john mccain, Larry Peterson, Obama, recession, stock market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Dollars & Sense not surprised by falling marketsThis morning, the New York Times is aflutter about sharp dips in global stock markets and a new report on the decline of U.S. manufacturing. Dollars & Sense has been following the economic developments that led to this situation for years. Excerpts from the NYT and links to Dollars & Sense coverage below.In the lead NYT story, Global Markets Fall Again on Fears About U.S. Economy, Keith Bradsher and Martin Fackler report: Stock markets fell sharply across most of Asia again today and continued declining in Europe as investors worried about weakness in the American economy. In Floyd Norris and Jeremy W. Peters' Wall St. Tumble Adds to Worries About Economies, Stuart Hoffman, chief economist of PNC Financial, adds that, since "global markets have been strong for years, 'We've had this 'What me worry?' mentality. And this is a little bit of a wake-up call.'" In January 2006, Dollars & Sense on the fragility of world markets' dependence on the dollar and the health of the U.S. economy: It's what lies behind the slide of the dollar that has even many mainstream economists spooked: an unprecedented current account deficit—the difference between the country's income and its consumption and investment spending. The current account deficit, which primarily reflects the huge gap between the amount the United States imports and the amount it exports, is the best indicator of where the country stands in its financial relationship with the rest of the world. (Dollar Anxiety: The advantages of imperial finance have propped up the U.S. economy—but they may not last. By John Miller, in Dollars & Sense Jan/Feb 2006.) In his NYT analysis A Recession That Arrived on Cats' Paws, David Leonhardt writes: The nation's manufacturing sector managed to slip into a recession with almost nobody seeming to notice. Well, until yesterday. Dollars & Sense wasn't surprised, given our coverage of recent declines in the U.S. manufacturing sector. In the Mar/Apr 2004 issue of Dollars & Sense, John Miller wrote: By 2000 ... manufacturing had already hit the skids. Industrial production fell steadily, contributing to a general excess of industrial capacity. Today, capacity utilization rates still hover at about 75%, and the manufacturing sector has shed jobs for some 42 straight months. (High and Dry: The Economic Recovery Fails to Deliver) And in January 2003, Ellen Frank answered Dollars & Sense reader Lane Smith's questions about the effects of NAFTA on the U.S. economy: Since the North American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada went into effect, trade within North America has increased dramatically. In the NYT, David Leonhardt continues: Is the entire United States economy in danger of going the way of the manufacturing sector? Is it possible that we're headed for a real recession? Dollars & Sense on how the U.S. economy has spent years stiffing wage-earners: The current economic recovery has done less to raise wages and more to pump up profits than any of the eight other recoveries since World War II. No wonder inequality continues to worsen, and most people still doubt that the economic turnaround will ever benefit them.(Slow Wage Growth But Soaring Profits in the Current Recovery. By John Miller, in Dollars & Sense Sep/Oct 2004.) Also in March 2004's High and Dry: The Economic Recovery Fails to Deliver, John Miller discusses the causes behind today's turmoil: "Tax cuts, home sales, mortgage refinancing fueled by low interest rates, and Iraq-driven military spending—not self-sustaining job and wage growth—fueled the ... growth spurt." For the best (and most prescient) economic news and analysis, reports on economic justice activism, primers on economic topics, and critiques of the mainstream media's coverage of the economy, subscribe to Dollars & Sense. Labels: dollar, durable goods, manufacturing, recession, stock market, wages Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
