Stocks tumbled Monday, ending a choppy session lower as recession jitters outweighed relief that the government’s programs to shore up the financial system have gotten underway.
Investors also weighed a better-than-expected September new home sales report.
The Dow Jones industrial average (INDU) lost 203 points or 2.4% according to early tallies, after having been on both sides of breakeven throughout the session. Verizon rallied 10% after its profit report, but it was one of only 3 Dow components to rise.
The Standard & Poor’s 500 (SPX) index fell 3.2% and the Nasdaq composite (COMP) fell 3%. All three major gauges closed at fresh five-year lows.
Tuesday brings the release of the October consumer confidence report.
Stocks had seesawed on both sides of unchanged throughout the session as investors geared up for critical events due later in the week and early next.
As a result, Wall Street is unlikely to move much over the next few sessions, said Harry Clark, CEO of Clark Capital Management Group.
Ahead of the election, the Federal Reserve is expected to announce an interest rate cut at the conclusion of its two-day meeting Wednesday.
"The rate cut this week will help a bit, but we really need to get past the election right now," Clark said.
The start of some of the government’s rescue programs this week is significant, Clark said, but it’s still going to take several weeks for the impact to be felt and borrowing rates to improve more substantially.
Recession fears decked stocks last week, near the end of a brutal month on Wall Street. The credit crisis, sluggish corporate profit outlook and slump in commodity prices have all exacerbated fears that a recession is imminent, if not already underway.
These underlying issues aren’t going to disappear anytime soon, but there are signs that the stock market is closer to hitting bottom, said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.
Detrick said that stocks are the most "oversold" they’ve been since the period surrounding Black Monday in October 1987. That means that on a technical basis, it wouldn’t be hard to spark a big bounce. Additionally, the level of money sitting in mutual funds and the level of investor fear are good contrarian indicators. Plus, November, December and January are typically good months seasonally on Wall Street.
However, there’s nothing typical about this year or this time period on Wall Street, he said, and the usual factors may not carry much weight.
"You have the uncertainty of worldwide recession and the credit markets are still a problem," Detrick said. "For the market to see a significant bounce, we’d need to see signs that our economy and the global economy are turning around."
He said that the recent housing market reports have been positive, but that doesn’t change the broader economic outlook.
Brutal month: With just one week left in October, the Dow is down 24.7%, the S&P 500 is down 27.2% and the Nasdaq is down 27.7%.
The Dow is currently on track to post its worst month ever on a point basis and fifth worst ever on a percentage basis, according to Stock Trader’s Almanac info going back to 1901.
The S&P 500 is currently on track to post its worst month ever on a point basis and third worst ever on a percentage basis, going back to 1930.
The Nasdaq is on track to post its fourth-worst month ever on a point basis and its second-worst month ever on a percentage basis, going back to its inception in 1971.
Global market effect: World markets continued to retreat as the new week began.
European markets ended lower, with the London FTSE closing down 1%, erasing bigger session losses. Asian markets tumbled overnight, with the Japanese Nikkei falling 6 one hour cash loan.6% to a 26-year low on worries that the strong yen will hurt exports. The Hong Kong Hang Seng fell 12.7% to a more than four-year low.
The declines followed a Sunday statement from the G7 warning about the excessive volatility of the yen, which hit a 13-year high versus the dollar Friday. Analysts said the statement could mean the government is set to intervene in the currency markets.
The dollar continued to retreat versus the yen on Monday and gained against the euro. Bets that the Bank of England and European Central Bank will have to cut rates aggressively over the next few months have weighed on the euro and pound lately.
Banks and credit: Nine big banks are set to get $125 billion from the Treasury Department this week as part of the $700 billion bank rescue plan passed last month.
Ten regional banks said Monday that they will get at least $18 billion under the bailout plan.
Also beginning this week: The Fed’s previously announced program to buy up commercial paper, short-term debt that businesses depend on to fund daily operations.
Despite the government’s efforts, lending has remained constrained, with short-term borrowing rates the one exception.
Libor, the overnight bank-to-bank lending rate, edged lower to 1.26% from 1.28% Friday, according to Bloomberg.com. It was a modest retreat after two days of gains. On the upside, that still kept Libor below the Fed’s benchmark lending rate of 1.5%, seen as a good sign. Libor hit a record 6.88% earlier this month at the height of the market panic.
The 3-month Libor rate, what banks charge each other to borrow for three months, inched lower to 3.51% from 3.52% Friday.
The TED spread, the difference between what banks pay to borrow from each other for three months and what the Treasury pays, narrowed to 2.67% from 2.70% Friday. The spread hit a record 4.65% earlier this month. The narrower the spread, the more willing banks are to lend to each other.
Treasury prices were little changed, with the yield on the 10-year note at 3.68%, roughly where it stood late Friday. Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, slipped to 0.75% from 0.86% late Friday, showing investors would rather see little return on their money than risk the stock market.
Last month, the 3-month yield reached a 68-year low around 0%, as investor panic hit its peak.
Results: Dow component Verizon Communications reported higher quarterly earnings that met estimates on higher sales that beat forecasts. Verizon (VZ, Fortune 500) shares jumped over 10%.
With 45% of the third-quarter reports out already, profits are currently on track to have fallen 11.3% from a year earlier, according to the latest estimates from Thomson Reuters.
Oil, gas and gold: U.S. light crude oil for December delivery fell 93 cents to settle at $63.22 a barrel, after falling to a 17-month low in morning trading.
Prices have been sliding since crude peaked at a record $147.27 a barrel on July 11, with speculators pulling out of the market on bets that global demand is slowing. Investors have also had to raise money fast amid the stock market slump and have done so by dumping their oil positions.
Gasoline prices fell another 3.1 cents overnight, to a national average of $2.668 a gallon, according to a survey of credit-card activity by motorist group AAA. It was the 40th consecutive day that prices have decreased. During that time, prices have fallen by $1.18 a gallon, or more than 30%.
COMEX gold for December delivery rose $12.60 to settle at $742.90 an ounce.
Mutual fund company AIC Ltd., buffeted by the worldwide financial crisis, has trimmed its workforce by 20 per cent to keep costs down and better position itself in a tough economic environment.
The privately owned company, which has suffered a large number of redemptions since the market meltdown began, laid off 53 out of some 290 employees on Thursday, spokesperson Terri Oswald said.
"The areas that were affected were mostly marketing and information technology," said Oswald, adding that some employees on the investment side and in sales were also let go.
There were no layoffs of fund managers, but three analysts were cut.
"The key reason for the reduction is simply that the market conditions are so difficult right now," she said.
The company doesn’t see any more financial problems down the road and no more pink slips are contemplated, Oswald added.
"We’re trying to keep our cost structure so that we can continue to remain profitable through this storm that every other company is experiencing internet pay day loans."
AIC, which is controlled by billionaire Michael Lee-Chin, has been suffering from net redemptions for several years. Some of its stock portfolios were hit hard because of holdings in the battered financial sector.
Canadian investors redeemed a record $4.5 billion in mutual funds last month, making September the worst month for outflows since the Investment Funds Institute of Canada started collecting data in 1990.
AIC, Canada’s 19th largest fund company, saw net outflows of $86 million in September.
The downturn is expected to spur consolidation but AIC has said it is not up for sale.
The Canadian Press
Enterprise Financial Services Corp. of Clayton is preparing to raise up to $62 million in new capital to position the banking company for growth in a period of economic uncertainty.
Peter Benoist, Enterprise Financial president and CEO, said Thursday that the company will consider seeking the new capital from a combination of sources, including the government’s Troubled Asset Relief Program and private equity groups.
Enterprise remains well capitalized, Benoist said, but it wants to be ready to take advantage of opportunities that may arise while weathering the "uncharted waters of the financial industry.
"The financial industry is transforming right before our eyes," Benoist said, "and it’s clear to me that highly focused, well-capitalized commercial banking organizations in attractive markets will be the ultimate winners when the dust settles."
Banks must apply for the TARP funds by Nov. 14, and the process of gaining approval likely will take 30 to 45 days after a bank applies. Enterprise also has been working with investors on raising money by selling convertible trust preferred securities.
Enterprise, the parent of Enterprise Bank & Trust, also reported a 74 percent drop in third-quarter profit after it took a $5 free credit report instantly.9 million goodwill impairment charge.
The charge relates to Millennium Brokerage Group, a wholesale insurance subsidiary Enterprise bought several years ago. The charge reflects margin pressure in insurance as carriers consolidate.
Enterprise said it is looking at strategic options to improve the brokerage. Often companies talk in terms of strategic options when they are considering selling an asset.
The non-cash charge doesn’t reduce the bank’s regulatory capital, cash flow or liquidity, the company said. Enterprise bank’s earnings, which exclude the charge, were about even with last year’s.
Benoist said the bank is seeing loan growth despite the troubled economy. That growth may slow going forward, but the bank also has been able to increase pricing.
Enterprise completed the previously announced sale of its Great American Bank charter and a branch in DeSoto, Kan., to First Financial Bancshares Inc. of Lawrence, Kan. The sale generated an after-tax gain of $1.5 million or 12 cents a share.
jerristroud@post-dispatch.com
314-340-8384
Philip Morris International said Wednesday its third-quarter profit rose 20.6% as sales climbed and a weak dollar boosted results.
The results led the company to reaffirm its full-year profit forecast for 2008.
The world’s biggest non-governmental cigarette maker reported net income for the quarter of $2.1 billion, or $1.01 per share, compared with $1.73 billion, or 82 cents per share, a year ago.
Philip Morris International Inc. (PM) - which sells Marlboros outside the U.S. and has offices in Lausanne, Switzerland and New York - said revenue rose 22% to $17.37 billion. Sales rose 23.6% in Eastern Europe, the Mideast and Africa; 17.3% in Europe; 14.9% in Latin America and Canada; and 11.7% in Asia.
Excluding one-time costs, the company said it earned 93 cents per share in the quarter, beating a consensus Wall Street estimate low fee cash advance. The weak dollar added 8 cents per share to the results and tax items added another 8 cents.
Analysts surveyed by Thomson Reuters, who typically exclude one-time costs, expected earnings of 90 cents per share on revenue of $6.57 billion.
The company reiterated that it would earn $3.32 to $3.38 in 2008. It earned $2.79 a share in 2007.
During the quarter, the company completed its acquisition of Canadian cigarette maker Rothmans Inc.
Gas prices continued their decline one day after falling below $3 a gallon for the first time in nearly nine months, according to a daily survey of credit card swipes released Sunday.
The average price of unleaded regular fell to $2.95 a gallon, down 3.7 cents, according to the Daily Fuel Gauge Report issued by motorist group AAA. Prices have fallen more than 30 cents a gallon in the last week and 90 cents, or 23%, in the last 32 days.
The current national average is $1.16, or 28%, off the record high price of $4.11 that AAA reported July 17.
The last time the average price for a gallon of regular unleaded gasoline dropped below $3 a gallon was Jan. 25, when it reached $2.99.
Alaska has the most expensive gas, with prices averaging $3.90. The cheapest gas is found in Oklahoma, with prices averaging $2.54.
The decline comes as hurricane season winds down and oil prices drop over concerns that a prolonged economic slump would curb demand for energy savings account payday advance.
Oil prices rose above $74 a barrel in premarket trading Monday after settling Friday at $71.85 a barrel in New York. The rebound comes ahead of an expected production cut by the Organization of Petroleum Exporting Countries.
The cartel, which controls two-thirds of the world’s oil supplies, is set to hold an emergency meeting that begins Oct. 24 in Vienna.
OPEC ministers have expressed concern over the rapidly declining price of oil. Chakib Khelil, OPEC’s president, said Sunday that members are considering a "substantial" cut and that the oil market is oversupplied by about 2 million barrels a day.
A barrel of crude has lost roughly half its value since hitting an all-time high above $147 a barrel in July.
Time and possibilities are a jumble in the 2008 investment world, but looking ahead rather than behind is what investing is all about.
Experts agree that fundamental changes under way in our financial system will provide a different scenario for tending to our money in the year 2020.
The united resolve of International Monetary Fund nations to "use all available tools" to prevent major financial institution failures indicates the global nature of that scenario.
A lot will depend on financial institutions, on government and on us. Either we learn from what went wrong and revise our credit and saving habits, or we’re doomed to repeat mistakes.
Some believe the current shakedown bodes well for the future.
"Investing will have changed significantly for the better by 2020," said Bruce Bittles, chief investment strategist for Milwaukee-based Robert W. Baird Inc. "We’re in the position we are today because the country over several decades had become a nation of consumers, not savers, who had been borrowing to buy foreign goods."
A dozen years from now, U.S. consumers will have returned to a more traditional savings ethic and will save 8 percent of their income, which was the savings rate until it began eroding in the 1990s, Bittles said. And don’t worry too much about a slow economy, he added.
"A protracted slow economy doesn’t mean the stock market can’t do well, because the market typically does well in a slow-growth economy," Bittles said. "It will be very bullish long-term if we move back into a savings ethic in which we fund our own liabilities and loans."
The investor mind-set must be patience because it will take a while to get through current woes, said Chris Brown, chief investment strategist for Pax World Management Corp. in Portsmouth, N.H. Companies that survive as winners will be stronger and face less competition.
He noted that Warren Buffett of Berkshire Hathaway is obviously excited about possibilities because he invested in Goldman Sachs and General Electric Co. as seemingly once-in-a-lifetime opportunities.
"We’re going to see people saving more for retirement, but they’ll also be working longer because they hadn’t saved enough early on," Brown said. "By 2020, there will be a huge shift in spending habits in which saving, not spending, is rewarded and you’ll no longer be punished for saving by low interest rates."
We must remember not to have short memories.
"I would assume that people and investment firms in 2020 will remember the dangers of leverage," said E. William Stone, chief investment strategist with PNC Wealth Management in Philadelphia electronic check payday advance. "We may have a better appreciation for seemingly hidden risk or the risk of chasing excess returns."
Because investment returns will revive at various times throughout the 2010 decade, there’s a chance this could energize investors to chase returns once again, Stone said. The lessons of today may have been forgotten and greed will take over again.
The undeniable staying power of greed has other experts worried.
"By 2020, peoples’ tolerance for risk will return," said Lawrence Harris, professor of finance and business economics at USC’s Marshall School of Business.
Yet in 2020 you’ll find positive differences, such as the greater importance of alternative energy. That means plenty of windmills in the Midwest and in the oceans, but oil prices "going through the roof," Harris predicted. There will be long-term upward pressure on commodities due to growth in the world population and rising education levels that make people more prosperous, he said.
Experts hope it will become easier to invest in understandable instruments in 2020. Many of today’s problems were masked in complex financial vehicles with obscure descriptions. Subprime was only widely understood when it was too late.
"You may see a movement toward simplicity on the part of investors in which complex products are shunned, but that will take a while," Stone said. "A lot of complex financial products currently aren’t traded on exchanges, so we may also see a push to have more of them on exchanges where they can be monitored closely."
Global markets will loom large in 2020.
The U.S., Europe, China and India should remain locked in "very, very slow" economic growth for a long period of time, predicted Bittles. Yet even though China, India and Latin America may falter the next couple of years, Harris considers it inevitable their economies will grow.
There likely will be one global system with united goals, as foreshadowed recently by the IMF, rather than 200 independent economies, Brown said. The U.S. will be the biggest driver, but by 2020 a number of emerging economies also will have clout.
For now, expect the rising U.S. dollar and falling foreign securities to continue to give American investors a double dose of financial pain, Bittles said.
andrewinv@aol.com
2008, TRIBUNE MEDIA SERVICES INC.
Gasoline prices extended their slide, dropping more than 4 cents a gallon and coming within 25 cents of breaching the $3 level, according to a daily survey of credit card swipes releases Sunday.
The average price of unleaded regular fell to $3.247 a gallon nationwide, down 4.4 cents from $3.291, according to the Daily Fuel Gauge Report issued by motorist group AAA. That brings the two-day total decline to 10.3 cents.
The decline comes as hurricane season winds down and oil prices drop because demand is likely to weaken as the economy slows.
Gas prices dropped a record amount in the last two weeks, falling by more than 35 cents a gallon, the publisher of a separate survey said Sunday.
Trilby Lundberg, publisher of the nationwide Lundberg Survey of gasoline prices, said the average price for self-serve unleaded across the United States dropped to $3.31 a gallon - the largest decline in the six-decade history of the survey.
"This could be one the largest drops in history," Lundberg said.
Lundberg’s survey looks at about 5,000 gas stations around the nation, tallying an average gas price for regular-grade unleaded gasoline.
Before the latest survey, the record drop tallied by surveyors came after Hurricane Katrina in October 2005, when national gas prices dropped 25 cents a gallon, Lundberg said.
The price has now tumbled nearly 87 cents, or 21%, below the record $4 cheap payday advance.114 set July 17. And it’s down about 43 cents from a month ago, but still remains some 49 cents, or 19%, higher from a year ago.
The average price has dropped below $3 a gallon in six states: Iowa, Kansas, Minnesota, Missouri, Ohio and Oklahoma, where gas was selling for $2.83 a gallon, on average.
Gasoline is highest in Alaska, at $4.133 a gallon, with Hawaii - at $4.079 - the only other state above $4 a gallon.
Gasoline prices had surged during the highly traveled summer season and as a series of hurricanes battered oil refineries in the Gulf of Mexico. But with hurricane season nearly over, prices began their slide.
Oil prices also have been moving sharply lower amid fears that the economic crisis, which has deepened globally, will have a severely adverse effect on demand.
Crude plunged to a 13-month low on Friday, ending down $8.89 to $77.49 a barrel. That’s a far cry from the $147.27 a barrel seen in July.
And since oil prices make up about half of the price of gasoline, the slide in crude S good news for drivers.
The survey is conducted for AAA by Oil Price Information Service from credit card swipes at more than 85,000 service stations nationwide.
General Motors Corp., Ford Motor Co. and Chrysler LLC may be forced into bankruptcy by slowing economies and dwindling U.S. auto sales, Standard & Poor’s analyst Robert Schulz said yesterday.
The companies said they have no plans to seek bankruptcy protection.
But the assessment underscored the pressure on the industry as the worsening credit crisis makes it harder for buyers to get loans and dealers to finance their operations. U.S. industry-wide sales tumbled 27 per cent in September, the most in 17 years.
S&P said yesterday that it may further trim credit ratings for GM and Ford on forecasts for 2009 auto demand to fall to its lowest level since 1992.
"Macro factors could overwhelm them at some point" even with the three biggest U.S. automakers committed to turnarounds, said Schulz, S&P’s lead automotive credit analyst.
GM, which has said it will idle assembly factories in Oshawa, Janesville, Wis., and Toluca, Mexico, by 2010, is likely to announce further production cuts and possible plant closures as early as next week as it deals with the sales slump and a collapse in its stock price, sources told Associated Press.
A source said the cuts likely will hit engine, transmission and stamping operations.
With all three companies working to boost cash, any bankruptcy filing would be a last resort, not a "strategic" decision, said Schulz.
He said the "trigger" for a forced restructuring under bankruptcy protection would be based on the automakers’ ability to preserve liquidity as sales decline.
GM shares will fall further, Barclays Capital analyst Brian Johnson said in a report yesterday, reducing his stock price for the Detroit-based automaker to $4 (U.S.)
"With auto sales stalled in the U.S. and beginning to contract in the rest of the world, we believe GM’s cash needs are increasing," wrote Johnson.
GM and Dearborn, Mich.-based Ford lost a combined $24.1 billion last quarter. GM last posted an annual profit in 2004, while Ford hasn’t had a full-year profit since 2005.
The global economic crisis claimed its first Japanese financial institution on Friday and the government looked to prop up smaller banks, as Tokyo shares flirted with their biggest one-day fall since the 1987 market crash.
Escalating bankruptcies in the property sector and among small businesses, along with fears of a global recession, have dragged Japan’s export-dependent economy into the crisis, sending blue chip shares sliding by a quarter so far this week.
“This is panic. New York, the currencies — there’s nothing left for us to trust,” said Takashi Ushio, head of investment strategy at Marusan Securities, as the Nikkei share average slid more than 10 percent, following sharp falls on Wall Steet.
“Investors are scurrying to convert to cash. A lack of confidence is coupling with panic.”
As unlisted Yamato Life Insurance Co failed, the government said that to help hard-hit smaller lenders it may revive a bank rescue law from the 1990s Japanese banking crisis (no fax instant cash advance). One newspaper report suggested Tokyo may set up a $100 billion fund.
Fearful selling also sent Hong Kong and South Korean shares down 7 percent while Singapore declared its first recession in six years as the U.S. stock plunge heaped pressure on economic powers to halt a global spiral of financial distress and slowing growth.
Financial policy makers from the Group of Seven major industrial nations, including Japan, are to meet in Washington later on Friday to consider what to do next, as bank bailouts, liquidity injections and interest rate cuts across the world have failed to quell investor anxiety.
After arguing for months that Japan had avoided the worst of the global financial crisis, its leaders acknowledged they were increasingly worried about the stock falls.
The Federal Reserve led a global round of emergency interest rate cuts Wednesday in an effort to contain the worst financial crisis since the 1930s.
The Fed said it was cutting its key federal funds rate by 50 basis points to 1.5 percent. China, the European Central Bank (ECB) and central banks in Britain, Canada, Sweden and Switzerland also cut rates in the coordinated response which analysts had been demanding.
“Incoming economic data suggests that the pace of economic activity has slowed markedly in recent months,” the Fed said in a statement.
“Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit (pay day loans).”
World stock markets cut heavy losses after the move.
The dollar fell further versus major currencies and U.S. Treasuries rose. German government bond futures wiped out gains, while European bank shares turned positive.
“At last they all woke up!” Bank of America rates strategist Riccardo Barbieri-Hermitte said.
Britain had earlier offered to pump at least 50 billion pounds ($87.2 billion) into its biggest retail banks to help them survive the crisis.
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