Bank stocks fell today as MF Global files for bankruptcy. Even though the Dow was down big today, it was still up over 10% for the month of October which was the best increase since the month of August 1982.
What a surprise-ex Governor of NJ Corslime fails at yet another thing. The best investment of my time was campaigning against this fraud two years ago at this time of year and helping the great state of NJ elect a person who knows how economics works in Governor Christie. And to think this incompetent failure will walk out with $12.6 million for his troubles.
One benchmark, income of the median household—meaning the one in the very middle of the middle—declined 3.2% to $53,518 during the 2007-2009 recession and fell a further 6.7% to $49,909 between June 2009 and June 2011, according to an analysis of monthly Census Bureau numbers.
Here are the top financial stories of the day:
1) Stocks fall on worries about US broker, Europe-From the AP
Despite being known as the stock market's jinx month, this October is shaping up to be one of the best months on record. The main reason is progress in Europe toward containing that region's debt crisis.
The Standard & Poor's 500 index has gained 12 percent for the month, which puts the broadest stock-market measure on track for its best month since January 1987. Even after a decline Monday, the Dow Jones industrial average is still up 10.6 percent in October, its best month since August 1982.
The big breakthrough in Europe came early Thursday of last week, when European leaders reached a far-ranging agreement aimed at shoring up the region's banks and preventing a debt crunch in Greece from bringing down Europe's financial system.
But a lack of many key details in the plan has made markets jittery again, and on Monday fresh reminders of how the Europe crisis can affect U.S. financial institutions helped bring the market lower.
Bank stocks fell broadly Monday after the securities firm MF Global filed for bankruptcy protection.
Last week the company's debt was downgraded to junk status by ratings agencies concerned about its large holdings of European government debt. The company is headed by former New Jersey Governor and Goldman Sachs chairman Jon Corzine.
MF Global's bankruptcy filing labeled JPMorgan Chase & Co. the brokerage's largest creditor.
JPMorgan, widely considered the strongest of the big banks, dropped 3.4 percent.
Other banks sank. Bank of America lost 4.3 percent. Citigroup dropped 5 percent, and Morgan Stanley 5.8 percent.
The Dow was down 153 points, or 1.3 percent, to 12,076 at 2:24 p.m. ET. The drop comes after the Dow closed out its fifth straight week of gains, its best winning streak since January.
The Standard & Poor's 500 index was down 17, or 1.3 percent, to 1,268. Energy and materials companies led the decline. The Nasdaq composite is down 28, or 1 percent, to 2,709.
The Organization for Economic Cooperation and Development warned Monday that European economies will see a "marked slowdown" next year. The organization called on the European Union to provide more information on how it plans to stem the debt crisis.
Major stock indexes dropped in Europe. Germany's DAX fell 3.2 percent. France's CAC-40 dropped 3.2 percent. Both still closed the month with strong gains. The German index rose 11.6 percent, the French one 8.7 percent.
October has earned a reputation as a famously bad month for stocks. The October 1929 crash divided the roaring 1920s from the Great Depression of the 1930s. It's the month that has given the market two black eyes: Black Tuesday in 1929 and Black Monday in 1987.
This October started off on a sour note when the Dow and S&P 500 hit their lowest point for the year Oct. 3, but the market has soared since then. The Dow is up 13.3 percent since then, the S&P 15.2 percent.
Investors were relieved when European leaders made progress in tackling the region's debt crisis in recent weeks. Worries that the U.S. might slip into a recession have faded, and many big U.S. companies like McDonald's Corp. have reported stronger profits for the third quarter. More than three-quarters of U.S. companies in the S&P 500 that have reported results so far had earnings that beat analysts' expectations, according to the financial data provider FactSet.
"It's a rally off what was a very pessimistic view of the global economy," said Todd Henry, an emerging-market equity specialist at T. Rowe Price. "Does it have legs? I think that's yet to be seen."
The European debt crisis is still far from fixed. One troubling sign is that borrowing costs for Italy and Spain have increased, a signal that traders remain worried about their ability to pay their debts.
2) Corzine's MF Global files for bankruptcy-From Reuters
Jon Corzine's bid to revive his Wall Street career crashed and burned on Monday when his futures brokerage MF Global Holdings Ltd filed for bankruptcy protection following bad bets on euro zone debt.
Corzine, who once ran Goldman Sachs and became governor of New Jersey, had been trying to turn MF into a mini Goldman by taking on more risky trades.
But once regulators forced it to disclose the bets on debt issued by countries including Italy, Portugal and Spain, the firm's fortunes quickly began to unravel.
MF Global's
The Chapter 11 bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc broke down earlier on Monday, a person familiar with the matter said. MF Global's shares plunged last week as the company's credit ratings were cut to junk.
Regulators had expressed "grave concerns" about the viability of MF Global, which filed for bankruptcy only after "no viable alternative was available in the limited time leading up to the regulators' deadline," the company's COO, Bradley Abelow, said in a court filing.
The severity with which markets and regulators reacted to MF Global's troubles may have surprised Corzine, whose affinity for risk-taking finally caught up to him after a career that took him to the top echelons of Wall Street and then into politics first as a U.S. senator.
Corzine, 64, was seen leaving the company's midtown Manhattan office and hopping into a black SUV vehicle early Monday afternoon.
"They went for what would be a very profitable trade with European sovereign debt that obviously has blown up in their face and brought the company down," said Dave Westhouse, vice president of Chicago retail broker PTI Securities and Futures.
The bankruptcy is reminiscent of 2008 when Lehman Brothers collapsed at the height of the financial crisis. But market participants said the impact from this collapse, far smaller, would likely be contained.
MF Global's 2,870 employees, as well as counterparties, were left scrambling and confused on Monday, as MF Global halted its shares, but did not file for bankruptcy until well after U.S. markets had opened.
"Ultimately it will have lost all confidence of its investor base," said Michael Epstein, a restructuring adviser with CRG Partners. "I'm not sure what restructuring it actually does. In some respects, it's a baby Lehman, in effect."
Three traders wearing MF Global jackets were seen leaving the Chicago Board of Trade prior to the opening of pit trading and floor sources told Reuters they had been turned away after their security access cards were denied.
The New York Federal Reserve suspended MF Global from conducting new business with the central bank. CME Group Inc, IntercontinentalExchange Inc and Singapore Exchange Ltd and Singapore's central bank all halted the broker's operations in some form except for liquidations.
There was little evidence of any severe ruptures in commodity markets, although volumes were down sharply as investors said they preferred to wait for more clarity before placing new trades.
JPMorgan Chase & Co's exposure for a $1.2 billion syndicated loan to MF Global is less than $100 million, a source at the bank said.
Jeff carter, an independent futures trader in Chicago, said the impact on the markets should be smaller and nothing like when Lehman failed and hedge funds had money locked up with the firm for months.
Corzine's decision to chase yield by going after European sovereign debt was clearly ill-advised and always seemed much too risky, Carter said.
On Monday, MF Global's HR department was busy making calls withdrawing job offers it made over the past few weeks, according to a person familiar with the situation.
BANKRUPTCY FILING
MF Global scrambled through the weekend and into Monday to find buyers for all or parts of the company, while at the same time hiring restructuring and bankruptcy advisers in case nothing could be done.
In the past week, MF Global posted a quarterly loss, its shares fell by two-thirds and its credit ratings were cut to junk.
Corzine was trying to transform MF Global from a brokerage that mainly places customers' trades on exchanges into an investment bank that bets with its own capital.
But the company was also suffering because of low interest rates, which hurt profits from core brokerage operations.
It may be easier for MF Global to work out a sale in bankruptcy than outside of it, said Bill Brandt, chief executive of Chicago-based turnaround firm Development Specialists Inc.
By filing for bankruptcy, MF Global freezes the value of its free-falling notes and gives potential suitors a clearer picture of the losses they would be taking on, Brandt said.
"If I were trying to do a deal fast, rather than sell the company itself, I'd see if I could peg the notes at a discounted price and find someone else to buy the distressed notes," Brandt said.
If a sale is in the offing, the buyer may be a European bank or sovereign government, as such entities would be particularly keen on stopping the slide and maximizing the value of the notes, Brandt said.
MF Global Finance USA Inc also filed for Chapter 11 protection, court records show. Both MF Global entities filed for protection from creditors with the U.S. bankruptcy court in Manhattan.
"The real question is how many assets will be left to transfer," said Niamh Alexander, an analyst at Keefe, Bruyette & Woods.
"Customers might move very quickly and it may be that every hour that passes shrinks the portfolio of assets that could be transferred" to a buyer, KBW's Alexander said.
The bankruptcy, meanwhile, is the latest flop for finance-focused private equity fund J.C. Flowers, whose other recent investments include nationalized German bank Hypo Real Estate.
MF Global's deeply distressed 6.25 percent notes maturing in 2016 fell 4 cents to 46 on the dollar, according to the Trace, which reports bond trades. The price had earlier fallen as low as 15 cents.
Its shares remained halted in New York.
The company hired boutique investment bank Evercore Partners Inc to help find a buyer, separate sources said this past week.
3) Slow Recovery Feels Like Recession-From the Wall Street Journal
Americans are two years into a recovery that doesn't feel much different to many of them from life during the most bruising recession in seven decades.
Scenes of the long haul back from the slump show a nation struggling to rebuild after a battering that crossed ages, regions and occupations.
A sobering set of economic statistics is at the heart of tales of Americans moving in with relatives, switching careers and dialing back on spending to cope with straitened circumstances amid the fitful rebound.
One benchmark, income of the median household—meaning the one in the very middle of the middle—declined 3.2% to $53,518 during the 2007-2009 recession and fell a further 6.7% to $49,909 between June 2009 and June 2011, according to an analysis of monthly Census Bureau numbers.
According to a study done by former Bureau staffer Gordon Green and others at data-crunching firm Sentier Research, the income of the typical American household, adjusted for inflation and in 2011 dollars, has dropped well below the January 2000 level ($55,836).
Other data paint a similarly bleak picture. No recession since the Great Depression was deeper or longer than the most recent. It has taken two years for the nation's total output of goods and services to return to pre-recession levels, longer than after any recession since World War II. And on a per-capita basis, the Commerce Department said Thursday, output remains 3% lower than it was at the end of 2007.
Since the recession's end in mid-2009, the economy has been expanding but it isn't adding jobs at a fast-enough pace—at least 150,000 a month—to absorb the growing population. The unemployment rate stands at 9.1%, and nearly half the unemployed have been out of work for six months or more. Housing, the most fragile sector, has yet to rebound. As of June, home prices were 10.1% below mid-2009 levels. One in five mortgage borrowers has a loan bigger than the value of the underlying home.
Education, once a reliable means to employment and earning power, has been no insurance against declining incomes during the recovery. Between June 2009 and June 2011, the median income of households led by high school graduates fell 8.2%, Sentier estimates. Households led by people with two-year associates degrees saw incomes fall even more: 11.2%. And even those led by individuals with bachelor's degrees were squeezed: down 5.9%.
Recoveries are hard-pressed to take hold when earnings tread water or fall behind. Consumers who have less income and smaller retirement accounts—or who are underwater on their mortgages—are likely to spend less. Worries about finding or losing a job, or paying back debts, translate into cautious spending. Only 21% of Americans responding to the October Wall Street Journal/NBC News poll said they expected the economy to improve in the next 12 months. In the latest Wall Street Journal survey of economists, respondents said it would take more than a decade for median income to return to pre-recession levels.
Amid meager, if any, income growth, U.S. households are gradually whittling down their debt burdens. Americans are roughly halfway through efforts to reduce their debt, according to Jerry Webman, senior investment officer and chief economist at Oppenheimer Funds. Based on data such as consumer-credit levels, "it looks like we're at a bottoming point," he said. Until that process is over, it will constrain the economy, even if the U.S. is spared additional adverse shocks, leaving Americans groping for a way through an uneven recovery.
Quote of the Day from Dave Ramsey.com:
Proverbs 27:19 — As water reflects the face, so one's life reflects the heart.
Monday, October 31, 2011
Friday, October 28, 2011
Financial Headline News for Friday 10/28
What a surprise after yesterday's celebration about the European crisis supposedly being fixed for the umpteenth time-Stocks end mixed as traders turn a skeptical eye to Europe's plan to contain its debt crisis.
On average, consumers put 3.6% of their hard-earned dough into savings in September, the government reported Friday. It marks the lowest level of saving since December 2007, when consumers stashed away only 2.6% of their income.
Like a consumer with a bad credit score who has to pay a high interest to get a loan, so does Italy due to their unwillingness to cut their debt.
Here are the top financial stories of the day:
1) Stocks finish mixed after Thursday's big rally-From the AP
A quiet day on Wall Street ended Friday with major stock indexes little changed after a big rally the day before.
The Dow Jones industrial average gained 23 points, or 0.2 percent, to finish at 12,231.11. Stock indexes jumped more than 3 percent Thursday after European leaders unveiled a plan to expand their regional bailout fund and take other steps to contain the debt crisis in Greece.
Optimism ebbed on Friday as analysts raised questions about the plan, which left out many key details about how the fund would work. European markets mostly fell, and the euro declined against the dollar.
The S&P 500 rose less than a point to 1,285.09. The Nasdaq composite fell 1.48, or 0.1 percent, to 2,737.15.
"It's a kind of sobering-up after a day of partying," said Jerry Webman, chief economist with Oppenheimer Funds in New York. "We got back to what's more of a square position, closer to where we want to be, and now we're going to take a couple of deep breaths and reassess what this really means."
There are still plenty of obstacles to overcome before the crisis is resolved. One troubling sign: Borrowing costs for Italy and Spain increased, signaling that traders remain worried about their finances.
The Dow is up 12.1 percent this month, the S&P 13.6 percent. Both indexes are on pace to have their best month since January 1987.
In less than four weeks, the Dow has risen 14.8 percent from its 2011 low, reached on Oct. 3. The S&P has gained 17 percent in that time. However, the Dow remains 4.5 percent below this year's high, reached on April 29. The S&P is 5.8 percent below its high.
Whirlpool Corp. slumped 14 percent, the most in the S&P index, after the appliance maker said it would cut 5,000 jobs, citing weak demand and higher costs for materials. Another household name,
Newell Rubbermaid Inc., soared 11 percent after its adjusted earnings beat Wall Street's expectations. The maker of tubs and markers maintained its outlook for the year.
Cablevision Systems Corp. fell 12.5 percent after reporting that its third-quarter net income dropped sharply and it lost cable TV subscribers.
Thursday's stock rally led to a sell-off in Treasurys, which traders hold to protect their money when other investments are falling. Demand for Treasurys increased sharply Friday, pushing the yield on the
10-year Treasury down to 2.33 percent from 2.39 percent late Thursday.
Markets have been roiled for months by fears about the impact of Europe's debt crisis. Greece couldn't afford to repay its lenders, and banks holding Greek bonds faced billions in losses. A disorganized default by Greece threatened to spook lenders to other countries with heavy debt loads such as Spain and Italy. Traders feared that a wave of defaults by countries would cause financial panic and mire the global economy.
Some analysts expect traders to refocus on U.S. economic news next week after months spent watching Europe. The government releases its jobs report for October next Friday. A news conference by Federal Reserve Chairman Ben Bernanke might offer clues about the Fed's economic outlook. Key reports on manufacturing and business sentiment are due out as well.
Declining stocks narrowly outnumbered rising ones on the New York Stock Exchange. Volume was slightly below average at 4.4 billion shares.
2) The Next Worry for Markets: No Deal Yet on US Debt-From CNBC
Wall Street might want to enjoy the rally over Europe's debt agreement while it lasts, because another debt crisis is still looming closer to home.
The euro zone crisis had been recently overshadowing the debates in Washington over how to rein in America's debt, whose rapid growth triggered a downgrade to the US credit rating in August and sparked a market selloff.
But with Europe apparently settled for now, a supercommittee of Democratic and Republican leaders is likely to regain Wall Street's focus, and should the group fail to come up with a debt solution acceptable to ratings agencies, the summertime scenario could play out once again.
"We fear that the so-called 'Super Committee' of both Republicans and Democrats that has been charged with putting for a credible and material deficit reduction program will do nothing of the sort and will end up falling apart because of bilateral bickering," Dennis Gartman, hedge fund manager and author of The Gartman Letter, wrote Friday. "The committee has a Nov. 23 deadline, and from the discussions and rumours thus far there is no chance that anything credible shall be put forth by that date."
Right now, investors are merely hoping that the deficit panel can agree on a bare minimum of cuts to deal with the nation's nearly $15 trillion debt load.
"They're only looking for a trillion in savings," says Keith Springer, president of Springer Financial Advisors in Sacramento, Calif. "They don't do anything unless there's a gun to their head. They'll come through with the bare minimum, which will be a boost to the market and prevent another downgrade."
Not everyone, though, is quite so convinced.
Analysts at Bank of America Merrill Lynch have said in recent days that another credit downgrade, similar to the one from Standard & Poor's that triggered a 500-point one-day selloff in the Dow industrials, is possible before the end of the year.
S&P's move came in reaction to Washington's inability to meet the rating agency's target for deficit reduction. Should the supercommittee come up short - and the indications in the early sessions are not favorable - the good feelings over Europe's crisis resolution could dissipate quickly.
"In many ways, the supercommittee is damned if they do and damned if they don't," says Quincy Krosby, market strategist at Prudential Financial in Newark, N.J. "If they come out with the cuts and it indicates that what we're going through now is just a positive bump and we're going to to back to weakening, there are going to be questions about the growth rate in the country."
Indeed, the U.S. faces much the same debt challenges as Greece, even though the latter and its southern European peers face debt burdens relative to gross domestic product that are much more severe than the situation Washington confronts.
But addressing those burdens requires cutbacks, which in turn could inhibit economic growth. That would come at an especially ticklish time for the U.S., where recent data has indicated that the country may defy predictions for a new recession just two years after the end of the last one.
Despite persistently high unemployment and a flatlining housing market, gross domestic product grew 2.5 percent in the third quarter and earnings have done well for the quarter.
But Europe actually labors under a higher probability of recession, and should cutbacks slow growth dramatically it will be hard to prevent contagion to the U.S.
"While the plans represent a step forward, we suspect that they will soon be viewed in the same way as every other policy response during this crisis - as too little, too late," Jonathan Loyes, at Capital
Economics in London, wrote in a note to clients. "We still expect the crisis to prompt a prolonged recession in the euro-zone, further turmoil in global financial markets and, at some point, the end of the euro itself in its current form."
That raises concerns, then, that U.S. investors may get getting too sanguine about a resolution to the euro debt crisis and making large bets - as evidenced by the market surge Thursday - that the crisis is in the rear-view mirror.
Like a football team that had just scored a touchdown and taking turns spiking the football in the end zone, strategists said the only direction for the market was higher.
"This European Union agreement is going to be a game changer," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "This is huge technically. The market might be a little stretched short-term, but we've clearly broken out of the consolidation to the upside."
Hager believes the market is well on its way to setting a new all-time high that would take it past its 14,198 Dow level in October 2007.
"This is as clear a green light for rising equity values as I've seen since the break in 2008," he says.
"This was like a cake that was baked great. This came out of the oven very nicely."
3) Savings rate falls to lowest level since 2007- From CNN Money
The good news is, a recent pick-up in consumer spending is fending off fears of another U.S. recession.
The bad news is, it's coming at the expense of Americans' savings.
On average, consumers put 3.6% of their hard-earned dough into savings in September, the government reported Friday. It marks the lowest level of saving since December 2007, when consumers stashed away only 2.6% of their income.
But deciphering the meaning of the savings rate is a tricky business.
On one hand, many economists had hoped the Great Recession would spark a newfound period of thrift and frugality, lessening consumers' vulnerability to financial shocks in the future. (The recession did have this effect for a while, sending the savings rate as high as 7.1% in mid 2009.)
On the other hand, American businesses have argued that without an increase in demand for their products, there's no incentive for them to create more jobs. If consumers continue to save rather than spend their money, why should the restaurant down the street, the local big-box retailer or even large American manufacturers ramp up their hiring?
On Thursday, the government's latest report on U.S. economic growth showed that since July, consumers have started to slow down the amount they add to their savings, to ramp up their spending more instead.
Adjusted for inflation, consumer spending rose 2.4% in the third quarter.
That was not only strong enough to boost overall economic growth in the recent quarter, it also led some economists to boost their forecasts for fourth quarter growth.
But at the same time, others are reluctant to carry their optimism into their 2012 forecasts.
Mark Vitner, a senior economist at Wells Fargo, points out that the increase in spending has come even as consumers saw their disposable income fall 1.7% in the third quarter (adjusted for inflation and taxes).
"The sluggish income growth cast doubts on how sustainable the pickup in economic growth is," he said. "Without an increase in income, consumers can't afford to keep increasing their spending at the the pace that they have."
4) Italy Pays Higher Yields at Debt Sale-From Wall Street Journal
Italy paid higher yields Friday than at corresponding previous auctions to sell €7.94 billion in four government bonds as the initial rally in peripheral debt after the European Union's summit seems to be running out of steam amid implementation risks.
"Today's auction was not very satisfying," said Newedge economist Annalisa Piazza. "Although the EU Summit welcomed the new measures the [Italian] government is planning to implement in the next eight months to 'change' the Italian economy, markets remain skeptical about the outcome," she said.
Italy offered up to €7.5 billion in three nominal BTPs, maturing in 2014, 2019 and 2022, and up to €1 billion in a floating rate bond, or CCTeu, maturing in October 2017.
It paid higher yields on all bonds than previously but in the most worrying sign, it paid 6.06% against 5.86% a month ago to sell the BTP 5% March 2022, the current 10-year benchmark.
"In an environment, where barely any economic growth looks uncertain, paying an interest rate of more than 6% does not look very encouraging from the perspective of debt sustainability," said Jan von Gerich, chief analyst at Nordea.
Italy paid a yield of 4.93% on the BTP July 2014, up from 4.68% previously.
Bid-to-cover ratios, a key gauge of investor demand, remained subdued for the BTPs, with the 1.27 figure on the BTP March 2022 being low even by Italian standards. Coverage ratios on BTPs have recently been capped at 1.5.
Bund futures rose after the results came out and Italian yields moved higher.
Thursday morning European leaders agreed on a writedown of Greek debt, increased the firepower of the European Financial Stability Facility by up to five-fold and reached a deal on recapitalizing banks.
Euro-zone governments have also decided to be more pro-active in dealing with their deficits, while Italy announced a number of growth-boosting reforms and an increase of the retirement age.
Initial market reactions suggested the agreement represents a good start in the right direction but misses key details, and thus runs the risk of not being carried out.
Anja Mikus, head of portfolio management at Union Investments, said Italy's newly announced reform efforts are so far "only a declaration of intent," not a concrete decision, adding that "there are still some implementation risks."
Quote of the Day from Dave Ramsey.com:
Psalm 118:24 — This is the day the Lord has made; let us rejoice and be glad in it.
On average, consumers put 3.6% of their hard-earned dough into savings in September, the government reported Friday. It marks the lowest level of saving since December 2007, when consumers stashed away only 2.6% of their income.
Like a consumer with a bad credit score who has to pay a high interest to get a loan, so does Italy due to their unwillingness to cut their debt.
Here are the top financial stories of the day:
1) Stocks finish mixed after Thursday's big rally-From the AP
A quiet day on Wall Street ended Friday with major stock indexes little changed after a big rally the day before.
The Dow Jones industrial average gained 23 points, or 0.2 percent, to finish at 12,231.11. Stock indexes jumped more than 3 percent Thursday after European leaders unveiled a plan to expand their regional bailout fund and take other steps to contain the debt crisis in Greece.
Optimism ebbed on Friday as analysts raised questions about the plan, which left out many key details about how the fund would work. European markets mostly fell, and the euro declined against the dollar.
The S&P 500 rose less than a point to 1,285.09. The Nasdaq composite fell 1.48, or 0.1 percent, to 2,737.15.
"It's a kind of sobering-up after a day of partying," said Jerry Webman, chief economist with Oppenheimer Funds in New York. "We got back to what's more of a square position, closer to where we want to be, and now we're going to take a couple of deep breaths and reassess what this really means."
There are still plenty of obstacles to overcome before the crisis is resolved. One troubling sign: Borrowing costs for Italy and Spain increased, signaling that traders remain worried about their finances.
The Dow is up 12.1 percent this month, the S&P 13.6 percent. Both indexes are on pace to have their best month since January 1987.
In less than four weeks, the Dow has risen 14.8 percent from its 2011 low, reached on Oct. 3. The S&P has gained 17 percent in that time. However, the Dow remains 4.5 percent below this year's high, reached on April 29. The S&P is 5.8 percent below its high.
Whirlpool Corp. slumped 14 percent, the most in the S&P index, after the appliance maker said it would cut 5,000 jobs, citing weak demand and higher costs for materials. Another household name,
Newell Rubbermaid Inc., soared 11 percent after its adjusted earnings beat Wall Street's expectations. The maker of tubs and markers maintained its outlook for the year.
Cablevision Systems Corp. fell 12.5 percent after reporting that its third-quarter net income dropped sharply and it lost cable TV subscribers.
Thursday's stock rally led to a sell-off in Treasurys, which traders hold to protect their money when other investments are falling. Demand for Treasurys increased sharply Friday, pushing the yield on the
10-year Treasury down to 2.33 percent from 2.39 percent late Thursday.
Markets have been roiled for months by fears about the impact of Europe's debt crisis. Greece couldn't afford to repay its lenders, and banks holding Greek bonds faced billions in losses. A disorganized default by Greece threatened to spook lenders to other countries with heavy debt loads such as Spain and Italy. Traders feared that a wave of defaults by countries would cause financial panic and mire the global economy.
Some analysts expect traders to refocus on U.S. economic news next week after months spent watching Europe. The government releases its jobs report for October next Friday. A news conference by Federal Reserve Chairman Ben Bernanke might offer clues about the Fed's economic outlook. Key reports on manufacturing and business sentiment are due out as well.
Declining stocks narrowly outnumbered rising ones on the New York Stock Exchange. Volume was slightly below average at 4.4 billion shares.
2) The Next Worry for Markets: No Deal Yet on US Debt-From CNBC
Wall Street might want to enjoy the rally over Europe's debt agreement while it lasts, because another debt crisis is still looming closer to home.
The euro zone crisis had been recently overshadowing the debates in Washington over how to rein in America's debt, whose rapid growth triggered a downgrade to the US credit rating in August and sparked a market selloff.
But with Europe apparently settled for now, a supercommittee of Democratic and Republican leaders is likely to regain Wall Street's focus, and should the group fail to come up with a debt solution acceptable to ratings agencies, the summertime scenario could play out once again.
"We fear that the so-called 'Super Committee' of both Republicans and Democrats that has been charged with putting for a credible and material deficit reduction program will do nothing of the sort and will end up falling apart because of bilateral bickering," Dennis Gartman, hedge fund manager and author of The Gartman Letter, wrote Friday. "The committee has a Nov. 23 deadline, and from the discussions and rumours thus far there is no chance that anything credible shall be put forth by that date."
Right now, investors are merely hoping that the deficit panel can agree on a bare minimum of cuts to deal with the nation's nearly $15 trillion debt load.
"They're only looking for a trillion in savings," says Keith Springer, president of Springer Financial Advisors in Sacramento, Calif. "They don't do anything unless there's a gun to their head. They'll come through with the bare minimum, which will be a boost to the market and prevent another downgrade."
Not everyone, though, is quite so convinced.
Analysts at Bank of America Merrill Lynch have said in recent days that another credit downgrade, similar to the one from Standard & Poor's that triggered a 500-point one-day selloff in the Dow industrials, is possible before the end of the year.
S&P's move came in reaction to Washington's inability to meet the rating agency's target for deficit reduction. Should the supercommittee come up short - and the indications in the early sessions are not favorable - the good feelings over Europe's crisis resolution could dissipate quickly.
"In many ways, the supercommittee is damned if they do and damned if they don't," says Quincy Krosby, market strategist at Prudential Financial in Newark, N.J. "If they come out with the cuts and it indicates that what we're going through now is just a positive bump and we're going to to back to weakening, there are going to be questions about the growth rate in the country."
Indeed, the U.S. faces much the same debt challenges as Greece, even though the latter and its southern European peers face debt burdens relative to gross domestic product that are much more severe than the situation Washington confronts.
But addressing those burdens requires cutbacks, which in turn could inhibit economic growth. That would come at an especially ticklish time for the U.S., where recent data has indicated that the country may defy predictions for a new recession just two years after the end of the last one.
Despite persistently high unemployment and a flatlining housing market, gross domestic product grew 2.5 percent in the third quarter and earnings have done well for the quarter.
But Europe actually labors under a higher probability of recession, and should cutbacks slow growth dramatically it will be hard to prevent contagion to the U.S.
"While the plans represent a step forward, we suspect that they will soon be viewed in the same way as every other policy response during this crisis - as too little, too late," Jonathan Loyes, at Capital
Economics in London, wrote in a note to clients. "We still expect the crisis to prompt a prolonged recession in the euro-zone, further turmoil in global financial markets and, at some point, the end of the euro itself in its current form."
That raises concerns, then, that U.S. investors may get getting too sanguine about a resolution to the euro debt crisis and making large bets - as evidenced by the market surge Thursday - that the crisis is in the rear-view mirror.
Like a football team that had just scored a touchdown and taking turns spiking the football in the end zone, strategists said the only direction for the market was higher.
"This European Union agreement is going to be a game changer," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "This is huge technically. The market might be a little stretched short-term, but we've clearly broken out of the consolidation to the upside."
Hager believes the market is well on its way to setting a new all-time high that would take it past its 14,198 Dow level in October 2007.
"This is as clear a green light for rising equity values as I've seen since the break in 2008," he says.
"This was like a cake that was baked great. This came out of the oven very nicely."
3) Savings rate falls to lowest level since 2007- From CNN Money
The good news is, a recent pick-up in consumer spending is fending off fears of another U.S. recession.
The bad news is, it's coming at the expense of Americans' savings.
On average, consumers put 3.6% of their hard-earned dough into savings in September, the government reported Friday. It marks the lowest level of saving since December 2007, when consumers stashed away only 2.6% of their income.
But deciphering the meaning of the savings rate is a tricky business.
On one hand, many economists had hoped the Great Recession would spark a newfound period of thrift and frugality, lessening consumers' vulnerability to financial shocks in the future. (The recession did have this effect for a while, sending the savings rate as high as 7.1% in mid 2009.)
On the other hand, American businesses have argued that without an increase in demand for their products, there's no incentive for them to create more jobs. If consumers continue to save rather than spend their money, why should the restaurant down the street, the local big-box retailer or even large American manufacturers ramp up their hiring?
On Thursday, the government's latest report on U.S. economic growth showed that since July, consumers have started to slow down the amount they add to their savings, to ramp up their spending more instead.
Adjusted for inflation, consumer spending rose 2.4% in the third quarter.
That was not only strong enough to boost overall economic growth in the recent quarter, it also led some economists to boost their forecasts for fourth quarter growth.
But at the same time, others are reluctant to carry their optimism into their 2012 forecasts.
Mark Vitner, a senior economist at Wells Fargo, points out that the increase in spending has come even as consumers saw their disposable income fall 1.7% in the third quarter (adjusted for inflation and taxes).
"The sluggish income growth cast doubts on how sustainable the pickup in economic growth is," he said. "Without an increase in income, consumers can't afford to keep increasing their spending at the the pace that they have."
4) Italy Pays Higher Yields at Debt Sale-From Wall Street Journal
Italy paid higher yields Friday than at corresponding previous auctions to sell €7.94 billion in four government bonds as the initial rally in peripheral debt after the European Union's summit seems to be running out of steam amid implementation risks.
"Today's auction was not very satisfying," said Newedge economist Annalisa Piazza. "Although the EU Summit welcomed the new measures the [Italian] government is planning to implement in the next eight months to 'change' the Italian economy, markets remain skeptical about the outcome," she said.
Italy offered up to €7.5 billion in three nominal BTPs, maturing in 2014, 2019 and 2022, and up to €1 billion in a floating rate bond, or CCTeu, maturing in October 2017.
It paid higher yields on all bonds than previously but in the most worrying sign, it paid 6.06% against 5.86% a month ago to sell the BTP 5% March 2022, the current 10-year benchmark.
"In an environment, where barely any economic growth looks uncertain, paying an interest rate of more than 6% does not look very encouraging from the perspective of debt sustainability," said Jan von Gerich, chief analyst at Nordea.
Italy paid a yield of 4.93% on the BTP July 2014, up from 4.68% previously.
Bid-to-cover ratios, a key gauge of investor demand, remained subdued for the BTPs, with the 1.27 figure on the BTP March 2022 being low even by Italian standards. Coverage ratios on BTPs have recently been capped at 1.5.
Bund futures rose after the results came out and Italian yields moved higher.
Thursday morning European leaders agreed on a writedown of Greek debt, increased the firepower of the European Financial Stability Facility by up to five-fold and reached a deal on recapitalizing banks.
Euro-zone governments have also decided to be more pro-active in dealing with their deficits, while Italy announced a number of growth-boosting reforms and an increase of the retirement age.
Initial market reactions suggested the agreement represents a good start in the right direction but misses key details, and thus runs the risk of not being carried out.
Anja Mikus, head of portfolio management at Union Investments, said Italy's newly announced reform efforts are so far "only a declaration of intent," not a concrete decision, adding that "there are still some implementation risks."
Quote of the Day from Dave Ramsey.com:
Psalm 118:24 — This is the day the Lord has made; let us rejoice and be glad in it.
Thursday, October 27, 2011
Financial Headline News for Thursday 10/27
Yet another Europe debt deal and stronger economic growth sent stocks soaring today. Dow Chemical's income surged as nine stocks rose for every one that fell on the New York Stock Exchange. Volume was heavy at 6.5 billion shares.
Economy grew nearly twice as fast this summer, helped by stronger consumer and business spending.
Contracts to buy US homes fell for 3rd straight month after sluggish peak sales season.
Here are the top financial stories of the day:
1) Stocks surge on European debt deal, GDP growth-From the AP
Stocks are surging after European leaders agreed on a deal to slash Greece's debt load and prevent the financial crisis there from engulfing larger countries like Italy. The Dow Jones industrial average had its biggest gain since Aug. 11th.
Stronger U.S. economic growth and corporate earnings also drove markets higher. Commodities and Treasury yields soared as investors took on more risk.
The Dow jumped 340 points, or 2.9 percent, to close at 12,209. It was its highest close since July 28.
The S&P 500 rose 43 points, or 3.4 percent, to close at 1,285. The Nasdaq gained 88, or 3.3 percent, to 2,739.
Nine stocks rose for every one that fell on the New York Stock Exchange. Volume was heavy at 6.5 billion shares
2) U.S. Economic Growth Accelerates-From The Wall Street Journal
The U.S. economy grew 2.5% in the third quarter, a pace nearly twice that of the second quarter but too slow to create enough jobs to bring down the nation's high unemployment rate anytime soon.
The rise in gross domestic product—the sum of all goods and services produced—suggests the U.S. regained its footing after events earlier this year, including a spike in gasoline prices and waves of stock-market turmoil, led wary consumers and businesses to pull back on spending.
Thursday's report from the Commerce Department, along with news of an agreement to tackle Europe's debt woes, cheered markets and reaffirmed most economists' conviction that the U.S. isn't sinking back into recession. A spurt of spending by businesses on equipment and software, which surged 17.4% in the period, suggested companies aren't paralyzed by uncertainty. Spending by consumers also climbed, suggesting worries about the job market didn't stop them from shopping.
"The economy just turned out to be more resilient to the negative shocks than many of us feared," said Justin Wolfers, an economist at the University of Pennsylvania's Wharton School who not long ago said a recession was "on the table." He now says an economic contraction in 2011 is highly unlikely, but like other economists cautioned against too much optimism. Growth would have to be above 3% to substantially cut into the nation's 9.1% unemployment rate, economists say.
"If the economy grew at this rate forever the unemployment rate wouldn't fall. We'd be stuck where we are," Mr. Wolfers said.
Paul Ballew, chief economist at Nationwide, said, "I think it's fair to say that this takes away" talk of a recession in the near term. But the economy remains fragile and big risks linger, he added, and the latest growth report merely confirms a longer-term trend of growth in the low-2% range that is likely to carry into next year.
Economists pointed out another troubling trend in Thursday's report: Consumers are spending more even as their wages stagnate and they save less, a trend that economists say is unsustainable and makes Americans vulnerable to crises.
Consumer spending rose 2.4% in the third quarter, after rising 0.7% in the earlier quarter. If consumers cut back on spending—which constitutes about 70% of economic activity—it would hurt growth.
Amid a slow and uneven economic recovery, companies have been more willing to spend on equipment than on people. Nonresidential fixed investment, a measure of business spending, rose 16.3% last quarter after rising 10.3% in the second quarter. In another positive sign for U.S. businesses, exports rose 4%.
Atlas Machine & Supply Inc. has seen a 15% increase in total sales this year, said Rich Gimmel, president of the Louisville, Ky., equipment maker. But sales are coming from businesses that want to replace old equipment rather than expand. "Nobody is doing this like they did in the early '80s where you had this groundswell of optimism" about the recovery, Mr. Gimmel said. "It's more of a begrudging, 'Demand may come back but I'm not sure how sustainable it's going to be, so I'm going to spend just enough to keep up.' "
Because of such sentiment, Mr. Gimmel said, the only hiring he plans for coming months is replacing employees who retire. "There still is that psychological barrier that we're not sure and our customers are not sure that this is going to be sustainable," Mr. Gimmel said.
The lack of expansion has left many Americans out of work or in part-time jobs.
Betsy Armacost hasn't had full-time work since November 2007, when she lost her job at a casino and hotel in Atlantic City, N.J. Ms. Armacost, who is 56 years old, has made do with a string of temporary jobs, most recently, as a part-time telemarketer.
At the casino, Ms. Armacost earned about $600 a week and received health benefits. Since losing her job, she moved from her rented Atlantic City condo to Myrtle Beach, S.C. In a good week, she brings home about $230 from her telemarketing work.
She spends nearly every dollar she brings home: $170 a week pays for her new home, a motel room. She fears what will happen if she loses her job or can't find full-time work. "Every day is like—crisis," she said. "I've tapped out all my friends. Some of them won't even talk to me anymore."
But budget cuts by state and local governments—even in wealthy areas— signal more gloom for employment, as well as for the nation's economic growth. State and local governments subtracted 0.16 of a percentage point from growth last quarter.
The government of Maryland's Baltimore County is offering employees early retirement packages in a bid to trim 200 jobs. The move is designed to save at least $15 million a year out of a roughly $1.6 billion operating budget, a county spokesman said.
The county's tax revenue is declining and it also is dealing with substantial cuts in state and federal aid. As recently as five years ago, the county received $45 million a year in state aid for road projects; this year that aid is $1.9 million, Democratic County Executive Kevin B. Kamenetz said.
Economic uncertainty and a dreary job market, meanwhile, has been a barrier to housing, which showed little improvement last quarter, according to the GDP report. A separate report Thursday showed the Pending Home Sales Index, produced by the National Association of Realtors based on contract signings, fell 4.6% to 84.5 in September. The index is 6.4% higher than it was a year ago.
3) Contracts to buy homes fell 4.6% in Sept.-From USA Today
The number of Americans who signed contracts to buy homes fell for the third straight month in September after the spring-and-summer peak buying season failed to entice new buyers.
Quote of the Day from Dave Ramsey.com:
Proverbs 14:8 — The wisdom of the prudent is to give thought to their ways.
Economy grew nearly twice as fast this summer, helped by stronger consumer and business spending.
Contracts to buy US homes fell for 3rd straight month after sluggish peak sales season.
Here are the top financial stories of the day:
1) Stocks surge on European debt deal, GDP growth-From the AP
Stocks are surging after European leaders agreed on a deal to slash Greece's debt load and prevent the financial crisis there from engulfing larger countries like Italy. The Dow Jones industrial average had its biggest gain since Aug. 11th.
Stronger U.S. economic growth and corporate earnings also drove markets higher. Commodities and Treasury yields soared as investors took on more risk.
The Dow jumped 340 points, or 2.9 percent, to close at 12,209. It was its highest close since July 28.
The S&P 500 rose 43 points, or 3.4 percent, to close at 1,285. The Nasdaq gained 88, or 3.3 percent, to 2,739.
Nine stocks rose for every one that fell on the New York Stock Exchange. Volume was heavy at 6.5 billion shares
2) U.S. Economic Growth Accelerates-From The Wall Street Journal
The U.S. economy grew 2.5% in the third quarter, a pace nearly twice that of the second quarter but too slow to create enough jobs to bring down the nation's high unemployment rate anytime soon.
The rise in gross domestic product—the sum of all goods and services produced—suggests the U.S. regained its footing after events earlier this year, including a spike in gasoline prices and waves of stock-market turmoil, led wary consumers and businesses to pull back on spending.
Thursday's report from the Commerce Department, along with news of an agreement to tackle Europe's debt woes, cheered markets and reaffirmed most economists' conviction that the U.S. isn't sinking back into recession. A spurt of spending by businesses on equipment and software, which surged 17.4% in the period, suggested companies aren't paralyzed by uncertainty. Spending by consumers also climbed, suggesting worries about the job market didn't stop them from shopping.
"The economy just turned out to be more resilient to the negative shocks than many of us feared," said Justin Wolfers, an economist at the University of Pennsylvania's Wharton School who not long ago said a recession was "on the table." He now says an economic contraction in 2011 is highly unlikely, but like other economists cautioned against too much optimism. Growth would have to be above 3% to substantially cut into the nation's 9.1% unemployment rate, economists say.
"If the economy grew at this rate forever the unemployment rate wouldn't fall. We'd be stuck where we are," Mr. Wolfers said.
Paul Ballew, chief economist at Nationwide, said, "I think it's fair to say that this takes away" talk of a recession in the near term. But the economy remains fragile and big risks linger, he added, and the latest growth report merely confirms a longer-term trend of growth in the low-2% range that is likely to carry into next year.
Economists pointed out another troubling trend in Thursday's report: Consumers are spending more even as their wages stagnate and they save less, a trend that economists say is unsustainable and makes Americans vulnerable to crises.
Consumer spending rose 2.4% in the third quarter, after rising 0.7% in the earlier quarter. If consumers cut back on spending—which constitutes about 70% of economic activity—it would hurt growth.
Amid a slow and uneven economic recovery, companies have been more willing to spend on equipment than on people. Nonresidential fixed investment, a measure of business spending, rose 16.3% last quarter after rising 10.3% in the second quarter. In another positive sign for U.S. businesses, exports rose 4%.
Atlas Machine & Supply Inc. has seen a 15% increase in total sales this year, said Rich Gimmel, president of the Louisville, Ky., equipment maker. But sales are coming from businesses that want to replace old equipment rather than expand. "Nobody is doing this like they did in the early '80s where you had this groundswell of optimism" about the recovery, Mr. Gimmel said. "It's more of a begrudging, 'Demand may come back but I'm not sure how sustainable it's going to be, so I'm going to spend just enough to keep up.' "
Because of such sentiment, Mr. Gimmel said, the only hiring he plans for coming months is replacing employees who retire. "There still is that psychological barrier that we're not sure and our customers are not sure that this is going to be sustainable," Mr. Gimmel said.
The lack of expansion has left many Americans out of work or in part-time jobs.
Betsy Armacost hasn't had full-time work since November 2007, when she lost her job at a casino and hotel in Atlantic City, N.J. Ms. Armacost, who is 56 years old, has made do with a string of temporary jobs, most recently, as a part-time telemarketer.
At the casino, Ms. Armacost earned about $600 a week and received health benefits. Since losing her job, she moved from her rented Atlantic City condo to Myrtle Beach, S.C. In a good week, she brings home about $230 from her telemarketing work.
She spends nearly every dollar she brings home: $170 a week pays for her new home, a motel room. She fears what will happen if she loses her job or can't find full-time work. "Every day is like—crisis," she said. "I've tapped out all my friends. Some of them won't even talk to me anymore."
But budget cuts by state and local governments—even in wealthy areas— signal more gloom for employment, as well as for the nation's economic growth. State and local governments subtracted 0.16 of a percentage point from growth last quarter.
The government of Maryland's Baltimore County is offering employees early retirement packages in a bid to trim 200 jobs. The move is designed to save at least $15 million a year out of a roughly $1.6 billion operating budget, a county spokesman said.
The county's tax revenue is declining and it also is dealing with substantial cuts in state and federal aid. As recently as five years ago, the county received $45 million a year in state aid for road projects; this year that aid is $1.9 million, Democratic County Executive Kevin B. Kamenetz said.
Economic uncertainty and a dreary job market, meanwhile, has been a barrier to housing, which showed little improvement last quarter, according to the GDP report. A separate report Thursday showed the Pending Home Sales Index, produced by the National Association of Realtors based on contract signings, fell 4.6% to 84.5 in September. The index is 6.4% higher than it was a year ago.
3) Contracts to buy homes fell 4.6% in Sept.-From USA Today
The number of Americans who signed contracts to buy homes fell for the third straight month in September after the spring-and-summer peak buying season failed to entice new buyers.
The National Association of Realtors said Wednesday that its index of sales agreements fell 4.6% last month to a reading of 84.5.
A reading of 100 is considered healthy. The last time the index reached that high was in April 2010, the final month that buyers could qualify for a federal tax credit that has since expired.
Contract signings are usually a reliable indicator of where the housing market is headed. There's typically a one- to two-month lag between a contract and a completed deal.
But the Realtors group said a growing number of buyers have canceled contracts after appraisals showed that the homes were worth less than the buyers had bid. A sale isn't final until a mortgage is closed. That means more "pending" sales aren't turning into final sales.
"It is especially troubling given the big August decline in long-term interest rates," said Pierre Ellis, an analyst at Decision Economics.
Homes are the most affordable they've been in decades. Long-term mortgage rates are hovering at record lows near 4%. Prices in some metro areas have been cut in half. Still, sales in most areas remain weak.
In part, that's because loans are harder to get. Many lenders are requiring 20% down payments and strong credit scores to qualify.
Sales for previously occupied homes are on pace to match last year's 4.91 million sold, the fewest since 1997. In a healthy economy, Americans would buy roughly 6 million homes each year.
In September, sales of new homes rose after four straight monthly declines. But that was largely because builders had cut their prices in the face of depressed demand. This year is shaping up as the worst for new-home sales on records dating to 1963.
The number of people who signed home contracts had risen in both May and June before falling 7% over the past three months.
Contract signings fell across the U.S. September's index fell 2.1% in the West, 4.7% in the Northeast, 5.5% in the South and 6.2% in the Midwest.
Quote of the Day from Dave Ramsey.com:
Proverbs 14:8 — The wisdom of the prudent is to give thought to their ways.
Wednesday, October 26, 2011
Financial Headline News for Wednesday 10/26
Stocks turned positive today in afternoon trading after reports that China will buy European bonds. We'll see how this story changes tomorrow.
Mark Dow from Pharo Management says consumer debt is still stifling the economy. This is why Dave Ramsey preaches debt is dumb and cash is king.
Netflix stock continues to stumble as the worst corporate decision since New Coke sent the stock from over $300 a share to $79 today.
Here are the top financial stories of the day:
1) Stocks end higher on reports of help for Europe-From the AP
Stock indexes finished higher Wednesday following reports that China will come to the aid of Europe by investing in a financial rescue fund.
Agence France-Presse reported that China has agreed to invest in Europe's financial rescue fund, which will be used to support struggling countries and banks in the European Union. The Dow Jones industrial average jumped more than 100 points after the report came out in the early afternoon.
Stocks had been mixed for much of the day as investors weighed stronger earnings from Boeing and Corning with uncertainty about the outcome of a key meeting among European leaders.
Top European officials met in Brussels to discuss how to contain the region's debt crisis, which has festered for two years.
One consideration is increasing the power of a financial rescue fund, which
Germany's parliament approved shortly before U.S. stock markets opened.
European officials announced a plan after the U.S. market closed that will require the region's banks to increase their levels of cash to better protect themselves from losses on the Greek bonds they hold.
European governments have been pressing the banks to forgive significant amounts of the Greek government's debt.
"This is a total news and rumor-driven market right now, and everyone's attention is focused on Europe," said Joe Bell, an analyst at Schaeffer's Investment Research.
The Dow Jones industrial average gained 162.42 points, or 1.4 percent, to 11,869.04. Boeing Co. led the way. It rose 4.5 percent after it reported a bigger profit for its latest quarter than analysts expected. It also raised its forecast for 2011 earnings.
The S&P 500 index rose 12.95, or 1.1 percent, to 1,242. The Nasdaq composite added 12.25, or 0.5 percent, to 2,650.67. Amazon.com Inc. slumped 12.7 percent after reporting a 73 percent drop in income. The retailer cited higher costs for expansion.
Strong economic reports also helped send stocks higher. Businesses ordered more heavy machinery and other long-lasting manufactured goods last month, after excluding aircraft orders, which can be volatile. That indicates businesses are still spending on equipment despite worries about a weak economy and Europe's debt problems. Sales of new homes rose in September after falling for four straight months. Lower home prices enticed buyers.
The yield on the 10-year Treasury note rose to 2.21 percent from 2.14 percent late Tuesday as demand diminished for assets perceived to be relatively safe.
Corning Inc. rose 3 percent after reporting a 3 percent increase in income last quarter on stronger sales of glass for flat-panel televisions. Its earnings and revenue beat analysts' expectations.
First Solar Inc. rose 6.6 percent. It reported results a week earlier than expected, and revenue and earnings both improved. That helped the stock recover some of its losses from Tuesday, when it fell
24 percent after the surprise departure of the company's chief executive.
Five stocks rose for every one that fell on the New York Stock Exchange. Volume was slightly above average at 4.8 billion shares.
2) Your Debt: The One Thing Killing the Economy, Says Mark Dow-From The Daily Ticker
"Better-than-expected" has made more than one appearance in the headlines for some of the most recent economic data.
For the month of September:
-New home sales rose 5.7% to levels not seen since April.
-Orders for durable goods, excluding transportation, increased 1.7%, and nondefense goods, excluding aircraft, increased 2.4%.
-Retail sales grew 1%.
-Third-quarter GDP expectations have been revised to nearly 3% ahead of tomorrow's announcement.
But despite this good news, the economy is nowhere near safe territory, says Pharo Management's Mark Dow. "These numbers are very bumpy," he tells The Daily Ticker's Henry Blodget. "We shouldn't look too much quarter to quarter at them. We should look through them a little bit."
Dow may not think we are headed for another recession, but he certainly doesn't believe a recovery is imminent. His best-case scenario for the U.S. economy is to "bump along the bottom," with anemic growth for the next few years.
His slow-growth prediction rests upon one key factor: household debt.
"The underlying structure of demand in this country is very weak. Why? Because we have an overhang of household debt," says Dow. "It is not because the regulations are bad, it's not because Obama is a socialist, or what have you, it is really that the households have too much debt, and until they get out from under that debt they won't be able to generate the top line for companies necessary for them to want to invest."
In addition to the obvious, too much debt is bad because it makes us vulnerable to exogenous shocks like Europe, he notes. (See: Big Europe Summit Won't Solve The Problem, Says Mark Dow)
So what's the solution?
"When you have a debt overhang, the only thing that can cure it is time," he says, while pointing out that not even the Federal Reserve or Congress can fix this mess.
3) How Low Can Netflix Shares Go?-From The Wall Street Journal
Three months ago, the question for Netflix was how big it might one day become. Now investors wonder whether it can pay the bills to get there.
In the latest leg of their spectacular decline, shares in the DVD and video-streaming service fell 35%Tuesday morning to $77. In July they were above $300.
Monday night, Netflix said it expects to lose money "for a few quarters" starting next year. Before the announcement, analysts had expected 2012 earnings to grow 38% from 2011. The message was an attempt to reset expectations after the catastrophic decision to raise prices this summer—which caused subscribers and investors to flee.
The trouble is that Netflix may not be able to invest as much as it would like in order to reinvigorate itself. The company needs to spend heavily on marketing and content to bring domestic subscriber growth back to life and get it started in new overseas markets. Netflix has already committed to spend $3.5 billion on content over the next several years. Overseas expansion will require it to purchase rights one country at a time, along with heavy marketing costs.
But given overseas markets take at least a couple of years to become profitable, Netflix may be forced to hit the brakes if U.S. subscriber growth and cash flow don't turn around quickly. Having spent more than $1 billion on share repurchases since 2007, the company has just $366 million in cash. Adjusted for its $200 million in debt, the cash position is just $166 million. Free cash flow was just $13.8 million in the third quarter and could continue to lag profits as the company's content payments soar.
Where could Netflix get more cash? Considering its limited cash flow, Netflix may not want to borrow much more. And a secondary share offering would be a painful process now that the stock has cratered.
The big hope is that Netflix is on the cusp of making significant profits from its streaming customers—still far less profitable than the aging DVD mail order business. The company says the profit margin from streaming is only about 8% now. But given the largely fixed costs, any subscriber growth would boost the margin.
Investors betting Netflix can pull it off need to believe the subscriber exodus has finally stopped.
Netflix says the rate of departures has declined in the last two weeks and U.S. subscriber growth is expected to resume in December. There's no sign that customers are switching to rival streaming platforms like Amazon, which has a far smaller content offering.
Another plus is that the company says its subscriber acquisition cost is about $15 per account, roughly flat from the second quarter and down 24% from a year ago. That's a sign that the consumer backlash, while painful, never raised the cost of adding fresh customers. And its current content library is probably large enough to attract a decent flow of new subscribers.
So what is Netflix worth? Earnings for 2012 are likely to be deeply depressed, forcing investors to look to 2013. Even if the company returns to roughly this year's level of $4 in earnings per share by then, the current price implies a multiple of 20 times. With doubts about whether the company can afford to invest—let alone succeed—overseas, it's too early for investors to re-subscribe.
But with the market capitalization down to $4 billion, attention will turn to whether a cheaper enough valuation could attract takeover interest. Amazon, for example, is looking for a way to jump ahead in the streaming game. Others could also be interested. That should prevent the stock from being completely shut down.
Quote of the Day from Dave Ramsey.com:
You have enemies? Good. That means you've stood up for something, sometime in your life. — Winston Churchill
Mark Dow from Pharo Management says consumer debt is still stifling the economy. This is why Dave Ramsey preaches debt is dumb and cash is king.
Netflix stock continues to stumble as the worst corporate decision since New Coke sent the stock from over $300 a share to $79 today.
Here are the top financial stories of the day:
1) Stocks end higher on reports of help for Europe-From the AP
Stock indexes finished higher Wednesday following reports that China will come to the aid of Europe by investing in a financial rescue fund.
Agence France-Presse reported that China has agreed to invest in Europe's financial rescue fund, which will be used to support struggling countries and banks in the European Union. The Dow Jones industrial average jumped more than 100 points after the report came out in the early afternoon.
Stocks had been mixed for much of the day as investors weighed stronger earnings from Boeing and Corning with uncertainty about the outcome of a key meeting among European leaders.
Top European officials met in Brussels to discuss how to contain the region's debt crisis, which has festered for two years.
One consideration is increasing the power of a financial rescue fund, which
Germany's parliament approved shortly before U.S. stock markets opened.
European officials announced a plan after the U.S. market closed that will require the region's banks to increase their levels of cash to better protect themselves from losses on the Greek bonds they hold.
European governments have been pressing the banks to forgive significant amounts of the Greek government's debt.
"This is a total news and rumor-driven market right now, and everyone's attention is focused on Europe," said Joe Bell, an analyst at Schaeffer's Investment Research.
The Dow Jones industrial average gained 162.42 points, or 1.4 percent, to 11,869.04. Boeing Co. led the way. It rose 4.5 percent after it reported a bigger profit for its latest quarter than analysts expected. It also raised its forecast for 2011 earnings.
The S&P 500 index rose 12.95, or 1.1 percent, to 1,242. The Nasdaq composite added 12.25, or 0.5 percent, to 2,650.67. Amazon.com Inc. slumped 12.7 percent after reporting a 73 percent drop in income. The retailer cited higher costs for expansion.
Strong economic reports also helped send stocks higher. Businesses ordered more heavy machinery and other long-lasting manufactured goods last month, after excluding aircraft orders, which can be volatile. That indicates businesses are still spending on equipment despite worries about a weak economy and Europe's debt problems. Sales of new homes rose in September after falling for four straight months. Lower home prices enticed buyers.
The yield on the 10-year Treasury note rose to 2.21 percent from 2.14 percent late Tuesday as demand diminished for assets perceived to be relatively safe.
Corning Inc. rose 3 percent after reporting a 3 percent increase in income last quarter on stronger sales of glass for flat-panel televisions. Its earnings and revenue beat analysts' expectations.
First Solar Inc. rose 6.6 percent. It reported results a week earlier than expected, and revenue and earnings both improved. That helped the stock recover some of its losses from Tuesday, when it fell
24 percent after the surprise departure of the company's chief executive.
Five stocks rose for every one that fell on the New York Stock Exchange. Volume was slightly above average at 4.8 billion shares.
2) Your Debt: The One Thing Killing the Economy, Says Mark Dow-From The Daily Ticker
"Better-than-expected" has made more than one appearance in the headlines for some of the most recent economic data.
For the month of September:
-New home sales rose 5.7% to levels not seen since April.
-Orders for durable goods, excluding transportation, increased 1.7%, and nondefense goods, excluding aircraft, increased 2.4%.
-Retail sales grew 1%.
-Third-quarter GDP expectations have been revised to nearly 3% ahead of tomorrow's announcement.
But despite this good news, the economy is nowhere near safe territory, says Pharo Management's Mark Dow. "These numbers are very bumpy," he tells The Daily Ticker's Henry Blodget. "We shouldn't look too much quarter to quarter at them. We should look through them a little bit."
Dow may not think we are headed for another recession, but he certainly doesn't believe a recovery is imminent. His best-case scenario for the U.S. economy is to "bump along the bottom," with anemic growth for the next few years.
His slow-growth prediction rests upon one key factor: household debt.
"The underlying structure of demand in this country is very weak. Why? Because we have an overhang of household debt," says Dow. "It is not because the regulations are bad, it's not because Obama is a socialist, or what have you, it is really that the households have too much debt, and until they get out from under that debt they won't be able to generate the top line for companies necessary for them to want to invest."
In addition to the obvious, too much debt is bad because it makes us vulnerable to exogenous shocks like Europe, he notes. (See: Big Europe Summit Won't Solve The Problem, Says Mark Dow)
So what's the solution?
"When you have a debt overhang, the only thing that can cure it is time," he says, while pointing out that not even the Federal Reserve or Congress can fix this mess.
3) How Low Can Netflix Shares Go?-From The Wall Street Journal
Three months ago, the question for Netflix was how big it might one day become. Now investors wonder whether it can pay the bills to get there.
In the latest leg of their spectacular decline, shares in the DVD and video-streaming service fell 35%Tuesday morning to $77. In July they were above $300.
Monday night, Netflix said it expects to lose money "for a few quarters" starting next year. Before the announcement, analysts had expected 2012 earnings to grow 38% from 2011. The message was an attempt to reset expectations after the catastrophic decision to raise prices this summer—which caused subscribers and investors to flee.
The trouble is that Netflix may not be able to invest as much as it would like in order to reinvigorate itself. The company needs to spend heavily on marketing and content to bring domestic subscriber growth back to life and get it started in new overseas markets. Netflix has already committed to spend $3.5 billion on content over the next several years. Overseas expansion will require it to purchase rights one country at a time, along with heavy marketing costs.
But given overseas markets take at least a couple of years to become profitable, Netflix may be forced to hit the brakes if U.S. subscriber growth and cash flow don't turn around quickly. Having spent more than $1 billion on share repurchases since 2007, the company has just $366 million in cash. Adjusted for its $200 million in debt, the cash position is just $166 million. Free cash flow was just $13.8 million in the third quarter and could continue to lag profits as the company's content payments soar.
Where could Netflix get more cash? Considering its limited cash flow, Netflix may not want to borrow much more. And a secondary share offering would be a painful process now that the stock has cratered.
The big hope is that Netflix is on the cusp of making significant profits from its streaming customers—still far less profitable than the aging DVD mail order business. The company says the profit margin from streaming is only about 8% now. But given the largely fixed costs, any subscriber growth would boost the margin.
Investors betting Netflix can pull it off need to believe the subscriber exodus has finally stopped.
Netflix says the rate of departures has declined in the last two weeks and U.S. subscriber growth is expected to resume in December. There's no sign that customers are switching to rival streaming platforms like Amazon, which has a far smaller content offering.
Another plus is that the company says its subscriber acquisition cost is about $15 per account, roughly flat from the second quarter and down 24% from a year ago. That's a sign that the consumer backlash, while painful, never raised the cost of adding fresh customers. And its current content library is probably large enough to attract a decent flow of new subscribers.
So what is Netflix worth? Earnings for 2012 are likely to be deeply depressed, forcing investors to look to 2013. Even if the company returns to roughly this year's level of $4 in earnings per share by then, the current price implies a multiple of 20 times. With doubts about whether the company can afford to invest—let alone succeed—overseas, it's too early for investors to re-subscribe.
But with the market capitalization down to $4 billion, attention will turn to whether a cheaper enough valuation could attract takeover interest. Amazon, for example, is looking for a way to jump ahead in the streaming game. Others could also be interested. That should prevent the stock from being completely shut down.
Quote of the Day from Dave Ramsey.com:
You have enemies? Good. That means you've stood up for something, sometime in your life. — Winston Churchill
Tuesday, October 25, 2011
Financial Headline News for Tuesday 10/25
Dow slumps on poor profit reports, Europe and low consumer confidence. I can't believe these Euro nations don't know from day to day whether they are solvent or not-unbelievable!!!
Consumer confidence fell to its lowest level since March 2009 which was supposedly the end of the recession. Just in time for the holidays, a bad economic mood for shoppers.
While commodities are declining, they remain costly relative to past years, meaning inflation will stay near the highest levels since 2008.
Here are the top financial stories of the day:
1) Stocks fall as hopes for Europe debt deal falter-From the AP
Stocks closed with steep losses Tuesday after disappointing corporate earnings and reports that a key meeting of European financial ministers had been canceled. Assets that tend to hold their value in a weak economy like U.S. government debt and gold rose.
The Dow Jones industrial average lost 207 points. It had gained 409 points over the previous three days.
Manufacturing conglomerate 3M cut its 2011 earnings forecast, and U.S. Steel warned that demand for its products could slow. Netflix Inc. plunged 35 percent after the company cut its profit forecast and said it is losing subscribers following a price increase in July. After the market closed, Amazon Inc. plunged 17 percent after its earnings came in far below Wall Street's forecasts.
The market was also pulled lower by a report that consumer confidence plunged in October to the lowest level since March 2009. The Conference Board index measures how shoppers feel about business conditions, the job market and their outlook for the next six months.
"It's hard to parse this data and find any way that you can glean something positive about it," said Tim Speiss, vice president at EisnerAmper Wealth Planning.
The Dow fell 207 points, or 1.7 percent, to close at 11,706.62. 3M fell 6.3 percent, the largest drop among the 30 stocks that make up the Dow average.
The Standard & Poor's 500 index fell 25.14, or 2 percent, to 1,229.05. The Nasdaq dropped 61.02, or 2.3 percent, to 2,638.42. The losses turned the Nasdaq negative for the year once again. A rally Monday left the index up 1.8 percent for 2011.
Small company stocks fell far more than the broader market, a sign that investors were shunning assets perceived as being risky. The Russell 2000, an index of small companies, plunged 3 percent, reversing a gain of 3.3 percent Monday.
Prices for assets seen as stable stores of value rose. The yield on 10-year Treasury notes fell to 2.14 percent from 2.23 percent late Monday. Bond yields fall when investors send their prices higher. Gold rose 2.9 percent.
The latest headlines from Europe cast doubt over whether leaders there can agree on a comprehensive solution for the region's debt crisis in time for a summit Wednesday. Europe's ongoing debt crisis has been behind much of the market's big moves lately.
European officials are working to patch together a plan that will prevent banks from taking huge losses if the Greek government defaults on its bonds. A messy default could lead to a credit freeze-up similar to the one in 2008 following the fall of Lehman Brothers.
Anticipation of a solution to Europe's debt mess and strong profit reports from Caterpillar Inc., McDonald's Inc. and other major U.S. companies helped the S&P 500 surge 14.1 percent from Oct. 3, when it slumped to its lowest point of the year, through Monday's close. Traders warn that if European leaders fail to come up with a credible solution it could sent markets sharply lower.
United States Steel Corp. dropped 9.6 percent after the nation's largest steelmaker warned that demand for some of its products could decline in the final three months of the year if the economy slows down more.
Delta Air Lines Inc. slumped 5.2 percent after the airline reported results that missed Wall Street's expectations. Delta cut its flights 1 percent in the most recent quarter and said it would cut as much as another 5 percent during the last three months of this year.
United Parcel Service fell 2.1 percent after the company said its growth in Asia was slowing. First Solar Inc. plunged 25 percent after the company said its chief executive had stepped down.
Five stocks fell for every one that rose on the New York Stock Exchange. Volume was average at 4.3 billion shares.
2) Consumer confidence tumbles, home prices stagnate-From Reuters
Consumer confidence unexpectedly dropped to its lowest level in two-and-a-half years in October, while house prices were unchanged at low levels in August, suggesting the consumer is still struggling.
Taken along with recent regional manufacturing data that hinted at stabilization in the sector in October, Tuesday's U.S. data underscored the view that the economy should avoid another recession, though growth will be slow.
Confirmation of a growing but sluggish U.S. economy is expected from U.S. gross domestic product data for the third quarter on Thursday, but the surprising drop in consumer confidence suggests the recent bounce back from a weak first half year may not be sustained.
U.S. third quarter GDP due on Thursday is expected to show the economy grew at an annualized rate of 2.5 percent, up from 1.3 percent the prior quarter, according to a Reuters poll of economists.
"For everybody that's excited that growth is going to be somewhere in excess of 2.0 percent in the third quarter, you should not think that's sustainable," said Anthony Chan, chief economist at JPMorgan Private Wealth Management in New York.
"A lot of that is going to come off as we go into the fourth quarter."
The Conference Board said its index of consumer attitudes in October fell to its lowest level since March 2009 as consumers fretted about job and income prospects. However consumer confidence does not always correlate well with consumer spending or retail sales, economists noted.
CONSUMERS FEELING GLUM
The Conference Board's index of consumer attitudes fell to 39.8 from a upwardly revised 46.4 the month before. Analysts had expected a reading of 46.0.
The expectations gauge was also at its lowest level since March 2009, just before the economy officially crawled out of recession.
Consumer attitudes have soured since the spring, hit by fears of a renewed recession, political gridlock, high unemployment and volatility in the stock market.
With consumer spending accounting for about 70 percent of the economy, economists say the recovery will be hard pressed to make significant headway until confidence improves.
"Consumer spending has slowed because confidence has deteriorated, and these numbers are very, very consistent with that view," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
"You can't look at these numbers and be optimistic about growth in 2012."
Earlier this month the Thomson Reuters/University of Michigan's preliminary reading of sentiment for October also showed consumers' attitudes sagged, though not as sharply.
HOUSE PRICES STABILIZE AT LOWER LEVELS
In Tuesday's other main economic report, the S&P/Case Shiller composite index of house prices in 20 metropolitan areas was flat compared with the month before on a seasonally adjusted basis, frustrating expectations for a gain of 0.1 percent.
On a seasonally adjusted basis, prices fell in 14 of 20 cities, with Atlanta and Las Vegas among the biggest losers, according to the S&P/Case-Shiller data.
The annual rate of decline slowed, however, with prices in the 20 cities down 3.8 percent compared with a year-over-year decline of 4.1 percent the month before. That still was a bigger drop than the expected 3.5 percent decline in August.
Analysts said the weaker-than-expected home price data was disappointing but not altogether shocking as the market struggles to get out from under a glut of unsold homes and ongoing foreclosures that are holding prices down.
While prices are forecast to remain depressed for some time, any further declines are expected to be modest.
"This has been a five-year process and I think we are at least closer to the end of the hemorrhaging in housing prices than we've been in a long, long time," said Chan.
The struggling housing market continues to be one of the biggest hurdles for the economic recovery as attempts to bolster the sector have had limited success.
In the latest efforts, the Obama administration said on Monday it would expand a mortgage refinancing program in a step that could help up to a million borrowers.
"I'm glad that they're trying. This was a clever idea. But more needs to be done," Yale economist and index co-founder Robert Shiller told Reuters Insider.
A separate home price index from the Federal Housing Finance Agency showed prices declined 0.1 percent in August from July.
The index is calculated using purchase prices of houses financed with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.
In other U.S. economic data on Tuesday, the Federal Reserve Bank of Richmond showed manufacturing in the region was unchanged in October with the composite index at minus 6.
New orders improved to minus 5 from minus 17, but employment gauge worsened to minus 7 from positive 7.
U.S. stock prices dipped and U.S. Treasury bond prices rose after the weak consumer confidence data, but in financial markets, the day's data was eclipsed by the cancellation of a meeting of European finance ministers that added to doubts about the region's efforts to tackle its debt crisis.
However, European leaders still planned to hold a summit on the issue on Wednesday as scheduled.
3) Inflation Peaking in U.S. as Commodity Prices Tumble-From Bloomberg
The biggest rout in commodities since the global recession may be a sign that the fastest U.S. inflation in three years is peaking.
The Standard & Poor’s GSCI Index of 24 commodities entered a bear market last month after sliding more than 20 percent from a two-year high in April, on concern that slower growth will cut demand. A slump in the gauge from a 2008 record preceded a drop in inflation, while a 2009 rebound caused the consumer price index to climb. Raw materials fell 12 percent in September as the CPI rose 3.9 percent from the same month a year earlier, the most since 2008.
“There is a sense that headline inflation is receding,”said Stephen Stanley, the chief economist at Pierpont Securities LLC, a government-bond broker in Stamford, Connecticut. “Things have been a little more tame the last few months than they were earlier in the year, when you had this relentless push higher, in energy prices especially.”
That’s good news for shoppers, manufacturers and Federal Reserve Chairman Ben S. Bernanke, whose efforts to revive the economy have been criticized for risking faster inflation. Lower commodity costs, accounting for 40 percent of the CPI, would give Bernanke even more flexibility to shore up growth. The benchmark measure for prices will slow to 2.1 percent in 2012 from 3.1 percent this year, according to the median estimate of 75 economists surveyed by Bloomberg News.
Retail Costs
While the commodity gauge doubled from its 2009 low as shortages emerged in energy, metals and grain markets, the cost of regular gasoline fell to $3.451 a gallon on Oct. 23 from $3.985 in May, American Automobile Association data show. The fuel accounts for 4.9 percent of CPI. Three years ago, a plunge to $1.616 from $4.114 helped reverse the year-over-year inflation rate of 5.6 percent in July 2008 to a contraction of 2.1 percent in the same month a year later.
The pace of food-cost gains will slow to 2.5 percent to 3.5 percent next year, compared with 3 percent to 4 percent in 2011, the U.S. Department of Agriculture estimates. The commodities account for almost 14 percent of CPI.
The United Nations World Food Price Index has fallen 5.3 percent from a record in February as wheat plunged 30 percent from this year’s peak and corn and soybeans retreated. In August, Orrville, Ohio-based J.M. Smucker Co. lowered the price of Folgers coffee, the top-selling U.S. brand, as arabica-bean futures dropped as much as 24 percent from a peak in May. Cotton is 51 percent cheaper than at end-March, easing pressure on clothing manufacturers. Apparel accounts for 3.6 percent of CPI.
Slowing Inflation
Price growth will slow to 3.35 percent this quarter from 3.77 percent in the previous three months, according to the median of 68 economists’ estimates compiled by Bloomberg. CPI will cool to 2 percent by the third quarter of next year, the estimates show.
The government’s measure includes 60 percent services such as rent and medical care and 40 percent commodities, which the Bureau of Labor Statistics defines as food, beverages, apparel and other non-durable goods, as well as durable goods including cars and appliances. The cost of those items is determined byraw materials and other expenditures, including labor.
“We’ve already seen some declines in gasoline prices and at least for some foodstuffs,” said Randy Kroszner, a former Fed governor and an economics professor at the Booth School of Business at the University of Chicago. “That suggests that the outlook for inflation is relatively subdued.”
Investors’ Outlook
Investors are expecting a slower pace than they did in April, when the S&P GSCI gauge was at a 32-month high. The difference in yields on 10-year Treasury Inflation Protected Securities and 10-year bonds is 2.0309 percentage points, the average rate investors anticipate in CPI over the life of the securities, down from an almost five-year high of 2.6556 points on April 11.
Consumers also are changing their outlook. In a survey released by the University of Michigan on Oct. 14, they expected an inflation rate of 3.2 percent over the next 12 months. In the same survey in March, respondents forecast rates would reach 4.6 percent, the highest since August 2008.
While commodities are declining, they remain costly relative to past years, meaning inflation will stay near the highest levels since 2008. The median forecast of a 3.1 percent gain in the CPI this year compares with expectations for 1.5 percent in January, a Bloomberg survey of 75 economists shows.
Copper, Crude
Copper averaged $8,993 a metric ton in London in the third quarter, down for a second straight period. A typical U.S. home has 439 pounds (199 kilograms) of copper wire and plumbing, while a car has about 50 pounds. New and used vehicles account for 6.3 percent of the CPI. Shelter, a category that includes everything from rent to household insurance, makes up 32 percent.
Crude oil cost $89.54 a barrel on the New York Mercantile Exchange on average in the past quarter, 13 percent above its five-year trend. Heating oil was $2.9847 a gallon, 45 percent higher than a year earlier. Household energy makes up 4 percent of CPI. Crude oil climbed 3 percent to $94.02 a barrel today.
Cattle futures in Chicago reached a record $1.24475 a pound on Oct. 17, in part because corn-feed costs surged in the first half of 2011 and a drought led to depleted herds in Texas. Pork chops rose to a record $3.831 a pound at the end of September, and ground beef retailed at $2.868 a pound, also the highest ever, according to the Bureau of Labor Statistics. Sirloin steak is 8.5 percent more expensive than a year earlier, and bacon advanced 5.4 percent.
Expensive Cheese
Dairy is still appreciating, with cheddar cheese in supermarkets costing the most in at least a quarter century, government data show. Milk futures rose 35 percent this year in Chicago, driving ice cream to $4.805 for a half-gallon, up 11 percent from a year earlier. Dairy accounts for 0.8 percent of CPI, and meat, fish and eggs are 1.8 percent.
While the drop in commodities may be good for consumers, it may curb the boom in U.S. agriculture.
The government anticipates record farm income of $103.6 billion this year. North Dakota, the biggest wheat grower in 2010, has the nation’s lowest jobless rate, at 3.5 percent. The second-lowest, at 4.2 percent, is Nebraska, the biggest corn producer after Iowa and Illinois.
Goldman Sachs Group Inc. predicted on Oct. 4 that the slump will give way to a 20 percent gain in the next 12 months, led by energy and industrial metals. Barclays expects shortages in copper and tin next year. The International Energy Agency anticipates record demand for crude oil. Macquarie Group Ltd. forecasts deficits in corn, wheat and soybeans.
‘Here to Stay’
“Input-price inflation is here to stay, and that’s demand and supply driven,” said Pete Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets.
Companies will be reluctant to cut prices because “they think any sell-off is short term in duration,” Sorrentino said.“They run up fast, and then they’re sticky on the downside.”
SuperValu Inc., the owner of Save-A-Lot grocery stores, has“taken a deliberate approach to passing on price increases as soon as practical,” Chief Financial Officer Sherry Smith said on an Oct. 19 conference call. The Eden Prairie, Minnesota-based company expects inflation of 3 percent to 4 percent this year, compared with 4.5 percent in the second quarter.
Weakening confidence and higher-than-average unemployment make people reluctant to pay more for some products. Bentonville, Arkansas-based Wal-Mart Stores Inc., the world’s largest retailer, said Oct. 12 that it plans to lower prices as it cuts operating expenses as a percentage of sales over the next five years.
Tight Budgets
Shoppers have “concern about their income, and their family, and their budgets and how they’re going to get through,” Wal-Mart Chief Executive Officer Michael Duke said on a conference call Oct. 12.
“That economic pressure our customers still feel today here in the U.S., and I can’t tell you that I’ve seen it get better.”
The data doesn’t support Bernanke’s critics, including Republican presidential candidate Rick Perry and Allan H. Meltzer, an economics professor at Carnegie Mellon University.
After the Fed purchased $2.3 trillion in housing and government debt during two rounds of so-called quantitative easing from December 2008 to June 2011, Perry, the governor of Texas, said in August that printing more money may be“treasonous.” Meltzer, who has written a two-volume history of the central bank, said in March that inflation was a growing threat and that the pace would quicken as soon as housing prices stop falling.
Employment Gains
According to estimates compiled by Bloomberg, economists anticipate the jobless rate falling to 8.7 percent in the fourth quarter of 2012, from 9.1 percent unemployment now, which is almost double the rate four years ago. U.S. growth will accelerate to 2 percent next year from 1.7 percent in 2011, the estimates show.
That may not mean faster inflation, which “appears to have moderated,” the Federal Open Market Committee said Sept. 21. Bernanke said in testimony to Congress on Oct. 4 that the higher prices haven’t become “ingrained” in the economy.
The central bank said in its Beige Book survey Oct. 19 that economic activity “continued to expand” last month while some areas of the country are reporting the pace of growth as“slight,” and companies see more doubt about the strength of the recovery. Prices paid by producers for raw materials were 6.9 percent higher in September than a year earlier, outpacing the gain in CPI and suggesting that some businesses may be reluctant to pass on higher costs.
Meat and Dairy
The USDA expects food inflation to retreat in all but four of 21 categories it monitors, including meat and dairy products. Futures traders anticipate gasoline dropping about 6.4 percent by the end of next year, and heating oil 4.9 percent. Motor fuel makes up 5.1 percent of CPI.
The Journal of Commerce Smoothed Price Index, which tracks the annual growth rate of 18 industrial materials from burlap to tallow, fell below zero in August, and reached minus 23.32 on Oct. 21, the lowest since June 2009. The last time it went from positive to negative was in August 2008, a month before the collapse of Lehman Brothers Holdings Inc.
“Commodities come off most when the winds of recession are blowing pretty strong,” said Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Inflation has “run up to the top because gasoline prices were so high this spring,” he said. “Now that gas peaked at around $4, there’s nowhere for headline CPI to go but down.”
Quote of the Day from Dave Ramsey.com:
Once you have mastered time, you will understand how true it is that most people overestimate what they can accomplish in a year—and underestimate what they can achieve in a decade. — Tony Robbins
Consumer confidence fell to its lowest level since March 2009 which was supposedly the end of the recession. Just in time for the holidays, a bad economic mood for shoppers.
While commodities are declining, they remain costly relative to past years, meaning inflation will stay near the highest levels since 2008.
Here are the top financial stories of the day:
1) Stocks fall as hopes for Europe debt deal falter-From the AP
Stocks closed with steep losses Tuesday after disappointing corporate earnings and reports that a key meeting of European financial ministers had been canceled. Assets that tend to hold their value in a weak economy like U.S. government debt and gold rose.
The Dow Jones industrial average lost 207 points. It had gained 409 points over the previous three days.
Manufacturing conglomerate 3M cut its 2011 earnings forecast, and U.S. Steel warned that demand for its products could slow. Netflix Inc. plunged 35 percent after the company cut its profit forecast and said it is losing subscribers following a price increase in July. After the market closed, Amazon Inc. plunged 17 percent after its earnings came in far below Wall Street's forecasts.
The market was also pulled lower by a report that consumer confidence plunged in October to the lowest level since March 2009. The Conference Board index measures how shoppers feel about business conditions, the job market and their outlook for the next six months.
"It's hard to parse this data and find any way that you can glean something positive about it," said Tim Speiss, vice president at EisnerAmper Wealth Planning.
The Dow fell 207 points, or 1.7 percent, to close at 11,706.62. 3M fell 6.3 percent, the largest drop among the 30 stocks that make up the Dow average.
The Standard & Poor's 500 index fell 25.14, or 2 percent, to 1,229.05. The Nasdaq dropped 61.02, or 2.3 percent, to 2,638.42. The losses turned the Nasdaq negative for the year once again. A rally Monday left the index up 1.8 percent for 2011.
Small company stocks fell far more than the broader market, a sign that investors were shunning assets perceived as being risky. The Russell 2000, an index of small companies, plunged 3 percent, reversing a gain of 3.3 percent Monday.
Prices for assets seen as stable stores of value rose. The yield on 10-year Treasury notes fell to 2.14 percent from 2.23 percent late Monday. Bond yields fall when investors send their prices higher. Gold rose 2.9 percent.
The latest headlines from Europe cast doubt over whether leaders there can agree on a comprehensive solution for the region's debt crisis in time for a summit Wednesday. Europe's ongoing debt crisis has been behind much of the market's big moves lately.
European officials are working to patch together a plan that will prevent banks from taking huge losses if the Greek government defaults on its bonds. A messy default could lead to a credit freeze-up similar to the one in 2008 following the fall of Lehman Brothers.
Anticipation of a solution to Europe's debt mess and strong profit reports from Caterpillar Inc., McDonald's Inc. and other major U.S. companies helped the S&P 500 surge 14.1 percent from Oct. 3, when it slumped to its lowest point of the year, through Monday's close. Traders warn that if European leaders fail to come up with a credible solution it could sent markets sharply lower.
United States Steel Corp. dropped 9.6 percent after the nation's largest steelmaker warned that demand for some of its products could decline in the final three months of the year if the economy slows down more.
Delta Air Lines Inc. slumped 5.2 percent after the airline reported results that missed Wall Street's expectations. Delta cut its flights 1 percent in the most recent quarter and said it would cut as much as another 5 percent during the last three months of this year.
United Parcel Service fell 2.1 percent after the company said its growth in Asia was slowing. First Solar Inc. plunged 25 percent after the company said its chief executive had stepped down.
Five stocks fell for every one that rose on the New York Stock Exchange. Volume was average at 4.3 billion shares.
2) Consumer confidence tumbles, home prices stagnate-From Reuters
Consumer confidence unexpectedly dropped to its lowest level in two-and-a-half years in October, while house prices were unchanged at low levels in August, suggesting the consumer is still struggling.
Taken along with recent regional manufacturing data that hinted at stabilization in the sector in October, Tuesday's U.S. data underscored the view that the economy should avoid another recession, though growth will be slow.
Confirmation of a growing but sluggish U.S. economy is expected from U.S. gross domestic product data for the third quarter on Thursday, but the surprising drop in consumer confidence suggests the recent bounce back from a weak first half year may not be sustained.
U.S. third quarter GDP due on Thursday is expected to show the economy grew at an annualized rate of 2.5 percent, up from 1.3 percent the prior quarter, according to a Reuters poll of economists.
"For everybody that's excited that growth is going to be somewhere in excess of 2.0 percent in the third quarter, you should not think that's sustainable," said Anthony Chan, chief economist at JPMorgan Private Wealth Management in New York.
"A lot of that is going to come off as we go into the fourth quarter."
The Conference Board said its index of consumer attitudes in October fell to its lowest level since March 2009 as consumers fretted about job and income prospects. However consumer confidence does not always correlate well with consumer spending or retail sales, economists noted.
CONSUMERS FEELING GLUM
The Conference Board's index of consumer attitudes fell to 39.8 from a upwardly revised 46.4 the month before. Analysts had expected a reading of 46.0.
The expectations gauge was also at its lowest level since March 2009, just before the economy officially crawled out of recession.
Consumer attitudes have soured since the spring, hit by fears of a renewed recession, political gridlock, high unemployment and volatility in the stock market.
With consumer spending accounting for about 70 percent of the economy, economists say the recovery will be hard pressed to make significant headway until confidence improves.
"Consumer spending has slowed because confidence has deteriorated, and these numbers are very, very consistent with that view," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
"You can't look at these numbers and be optimistic about growth in 2012."
Earlier this month the Thomson Reuters/University of Michigan's preliminary reading of sentiment for October also showed consumers' attitudes sagged, though not as sharply.
HOUSE PRICES STABILIZE AT LOWER LEVELS
In Tuesday's other main economic report, the S&P/Case Shiller composite index of house prices in 20 metropolitan areas was flat compared with the month before on a seasonally adjusted basis, frustrating expectations for a gain of 0.1 percent.
On a seasonally adjusted basis, prices fell in 14 of 20 cities, with Atlanta and Las Vegas among the biggest losers, according to the S&P/Case-Shiller data.
The annual rate of decline slowed, however, with prices in the 20 cities down 3.8 percent compared with a year-over-year decline of 4.1 percent the month before. That still was a bigger drop than the expected 3.5 percent decline in August.
Analysts said the weaker-than-expected home price data was disappointing but not altogether shocking as the market struggles to get out from under a glut of unsold homes and ongoing foreclosures that are holding prices down.
While prices are forecast to remain depressed for some time, any further declines are expected to be modest.
"This has been a five-year process and I think we are at least closer to the end of the hemorrhaging in housing prices than we've been in a long, long time," said Chan.
The struggling housing market continues to be one of the biggest hurdles for the economic recovery as attempts to bolster the sector have had limited success.
In the latest efforts, the Obama administration said on Monday it would expand a mortgage refinancing program in a step that could help up to a million borrowers.
"I'm glad that they're trying. This was a clever idea. But more needs to be done," Yale economist and index co-founder Robert Shiller told Reuters Insider.
A separate home price index from the Federal Housing Finance Agency showed prices declined 0.1 percent in August from July.
The index is calculated using purchase prices of houses financed with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.
In other U.S. economic data on Tuesday, the Federal Reserve Bank of Richmond showed manufacturing in the region was unchanged in October with the composite index at minus 6.
New orders improved to minus 5 from minus 17, but employment gauge worsened to minus 7 from positive 7.
U.S. stock prices dipped and U.S. Treasury bond prices rose after the weak consumer confidence data, but in financial markets, the day's data was eclipsed by the cancellation of a meeting of European finance ministers that added to doubts about the region's efforts to tackle its debt crisis.
However, European leaders still planned to hold a summit on the issue on Wednesday as scheduled.
3) Inflation Peaking in U.S. as Commodity Prices Tumble-From Bloomberg
The biggest rout in commodities since the global recession may be a sign that the fastest U.S. inflation in three years is peaking.
The Standard & Poor’s GSCI Index of 24 commodities entered a bear market last month after sliding more than 20 percent from a two-year high in April, on concern that slower growth will cut demand. A slump in the gauge from a 2008 record preceded a drop in inflation, while a 2009 rebound caused the consumer price index to climb. Raw materials fell 12 percent in September as the CPI rose 3.9 percent from the same month a year earlier, the most since 2008.
“There is a sense that headline inflation is receding,”said Stephen Stanley, the chief economist at Pierpont Securities LLC, a government-bond broker in Stamford, Connecticut. “Things have been a little more tame the last few months than they were earlier in the year, when you had this relentless push higher, in energy prices especially.”
That’s good news for shoppers, manufacturers and Federal Reserve Chairman Ben S. Bernanke, whose efforts to revive the economy have been criticized for risking faster inflation. Lower commodity costs, accounting for 40 percent of the CPI, would give Bernanke even more flexibility to shore up growth. The benchmark measure for prices will slow to 2.1 percent in 2012 from 3.1 percent this year, according to the median estimate of 75 economists surveyed by Bloomberg News.
Retail Costs
While the commodity gauge doubled from its 2009 low as shortages emerged in energy, metals and grain markets, the cost of regular gasoline fell to $3.451 a gallon on Oct. 23 from $3.985 in May, American Automobile Association data show. The fuel accounts for 4.9 percent of CPI. Three years ago, a plunge to $1.616 from $4.114 helped reverse the year-over-year inflation rate of 5.6 percent in July 2008 to a contraction of 2.1 percent in the same month a year later.
The pace of food-cost gains will slow to 2.5 percent to 3.5 percent next year, compared with 3 percent to 4 percent in 2011, the U.S. Department of Agriculture estimates. The commodities account for almost 14 percent of CPI.
The United Nations World Food Price Index has fallen 5.3 percent from a record in February as wheat plunged 30 percent from this year’s peak and corn and soybeans retreated. In August, Orrville, Ohio-based J.M. Smucker Co. lowered the price of Folgers coffee, the top-selling U.S. brand, as arabica-bean futures dropped as much as 24 percent from a peak in May. Cotton is 51 percent cheaper than at end-March, easing pressure on clothing manufacturers. Apparel accounts for 3.6 percent of CPI.
Slowing Inflation
Price growth will slow to 3.35 percent this quarter from 3.77 percent in the previous three months, according to the median of 68 economists’ estimates compiled by Bloomberg. CPI will cool to 2 percent by the third quarter of next year, the estimates show.
The government’s measure includes 60 percent services such as rent and medical care and 40 percent commodities, which the Bureau of Labor Statistics defines as food, beverages, apparel and other non-durable goods, as well as durable goods including cars and appliances. The cost of those items is determined byraw materials and other expenditures, including labor.
“We’ve already seen some declines in gasoline prices and at least for some foodstuffs,” said Randy Kroszner, a former Fed governor and an economics professor at the Booth School of Business at the University of Chicago. “That suggests that the outlook for inflation is relatively subdued.”
Investors’ Outlook
Investors are expecting a slower pace than they did in April, when the S&P GSCI gauge was at a 32-month high. The difference in yields on 10-year Treasury Inflation Protected Securities and 10-year bonds is 2.0309 percentage points, the average rate investors anticipate in CPI over the life of the securities, down from an almost five-year high of 2.6556 points on April 11.
Consumers also are changing their outlook. In a survey released by the University of Michigan on Oct. 14, they expected an inflation rate of 3.2 percent over the next 12 months. In the same survey in March, respondents forecast rates would reach 4.6 percent, the highest since August 2008.
While commodities are declining, they remain costly relative to past years, meaning inflation will stay near the highest levels since 2008. The median forecast of a 3.1 percent gain in the CPI this year compares with expectations for 1.5 percent in January, a Bloomberg survey of 75 economists shows.
Copper, Crude
Copper averaged $8,993 a metric ton in London in the third quarter, down for a second straight period. A typical U.S. home has 439 pounds (199 kilograms) of copper wire and plumbing, while a car has about 50 pounds. New and used vehicles account for 6.3 percent of the CPI. Shelter, a category that includes everything from rent to household insurance, makes up 32 percent.
Crude oil cost $89.54 a barrel on the New York Mercantile Exchange on average in the past quarter, 13 percent above its five-year trend. Heating oil was $2.9847 a gallon, 45 percent higher than a year earlier. Household energy makes up 4 percent of CPI. Crude oil climbed 3 percent to $94.02 a barrel today.
Cattle futures in Chicago reached a record $1.24475 a pound on Oct. 17, in part because corn-feed costs surged in the first half of 2011 and a drought led to depleted herds in Texas. Pork chops rose to a record $3.831 a pound at the end of September, and ground beef retailed at $2.868 a pound, also the highest ever, according to the Bureau of Labor Statistics. Sirloin steak is 8.5 percent more expensive than a year earlier, and bacon advanced 5.4 percent.
Expensive Cheese
Dairy is still appreciating, with cheddar cheese in supermarkets costing the most in at least a quarter century, government data show. Milk futures rose 35 percent this year in Chicago, driving ice cream to $4.805 for a half-gallon, up 11 percent from a year earlier. Dairy accounts for 0.8 percent of CPI, and meat, fish and eggs are 1.8 percent.
While the drop in commodities may be good for consumers, it may curb the boom in U.S. agriculture.
The government anticipates record farm income of $103.6 billion this year. North Dakota, the biggest wheat grower in 2010, has the nation’s lowest jobless rate, at 3.5 percent. The second-lowest, at 4.2 percent, is Nebraska, the biggest corn producer after Iowa and Illinois.
Goldman Sachs Group Inc. predicted on Oct. 4 that the slump will give way to a 20 percent gain in the next 12 months, led by energy and industrial metals. Barclays expects shortages in copper and tin next year. The International Energy Agency anticipates record demand for crude oil. Macquarie Group Ltd. forecasts deficits in corn, wheat and soybeans.
‘Here to Stay’
“Input-price inflation is here to stay, and that’s demand and supply driven,” said Pete Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets.
Companies will be reluctant to cut prices because “they think any sell-off is short term in duration,” Sorrentino said.“They run up fast, and then they’re sticky on the downside.”
SuperValu Inc., the owner of Save-A-Lot grocery stores, has“taken a deliberate approach to passing on price increases as soon as practical,” Chief Financial Officer Sherry Smith said on an Oct. 19 conference call. The Eden Prairie, Minnesota-based company expects inflation of 3 percent to 4 percent this year, compared with 4.5 percent in the second quarter.
Weakening confidence and higher-than-average unemployment make people reluctant to pay more for some products. Bentonville, Arkansas-based Wal-Mart Stores Inc., the world’s largest retailer, said Oct. 12 that it plans to lower prices as it cuts operating expenses as a percentage of sales over the next five years.
Tight Budgets
Shoppers have “concern about their income, and their family, and their budgets and how they’re going to get through,” Wal-Mart Chief Executive Officer Michael Duke said on a conference call Oct. 12.
“That economic pressure our customers still feel today here in the U.S., and I can’t tell you that I’ve seen it get better.”
The data doesn’t support Bernanke’s critics, including Republican presidential candidate Rick Perry and Allan H. Meltzer, an economics professor at Carnegie Mellon University.
After the Fed purchased $2.3 trillion in housing and government debt during two rounds of so-called quantitative easing from December 2008 to June 2011, Perry, the governor of Texas, said in August that printing more money may be“treasonous.” Meltzer, who has written a two-volume history of the central bank, said in March that inflation was a growing threat and that the pace would quicken as soon as housing prices stop falling.
Employment Gains
According to estimates compiled by Bloomberg, economists anticipate the jobless rate falling to 8.7 percent in the fourth quarter of 2012, from 9.1 percent unemployment now, which is almost double the rate four years ago. U.S. growth will accelerate to 2 percent next year from 1.7 percent in 2011, the estimates show.
That may not mean faster inflation, which “appears to have moderated,” the Federal Open Market Committee said Sept. 21. Bernanke said in testimony to Congress on Oct. 4 that the higher prices haven’t become “ingrained” in the economy.
The central bank said in its Beige Book survey Oct. 19 that economic activity “continued to expand” last month while some areas of the country are reporting the pace of growth as“slight,” and companies see more doubt about the strength of the recovery. Prices paid by producers for raw materials were 6.9 percent higher in September than a year earlier, outpacing the gain in CPI and suggesting that some businesses may be reluctant to pass on higher costs.
Meat and Dairy
The USDA expects food inflation to retreat in all but four of 21 categories it monitors, including meat and dairy products. Futures traders anticipate gasoline dropping about 6.4 percent by the end of next year, and heating oil 4.9 percent. Motor fuel makes up 5.1 percent of CPI.
The Journal of Commerce Smoothed Price Index, which tracks the annual growth rate of 18 industrial materials from burlap to tallow, fell below zero in August, and reached minus 23.32 on Oct. 21, the lowest since June 2009. The last time it went from positive to negative was in August 2008, a month before the collapse of Lehman Brothers Holdings Inc.
“Commodities come off most when the winds of recession are blowing pretty strong,” said Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Inflation has “run up to the top because gasoline prices were so high this spring,” he said. “Now that gas peaked at around $4, there’s nowhere for headline CPI to go but down.”
Quote of the Day from Dave Ramsey.com:
Once you have mastered time, you will understand how true it is that most people overestimate what they can accomplish in a year—and underestimate what they can achieve in a decade. — Tony Robbins
Monday, October 24, 2011
Financial Headline News for Monday 10/24
US stocks rose today as investors anticipate a European rescue deal as well series of takeover deals. We'll see about the European rescue-it is becoming like the boy who cried wolf.
Merrill Lynch economist Ethan Harris predicts another credit downgrade by the end of this year but it didn't affect the stock market today.
A great article over the weekend in the Wall Street Journal of how people are getting out of debt the Dave Ramsey way right down to the envelope system! Of course the Keynesian ideologues think this will hurt the economy.
Here are the top financial stories of the day:
1) Takeovers, anticipated European deal lift stocks-From the AP
Stock indexes are closing at the highest point since the U.S. debt limit showdown in August. A round of corporate takeovers and reports that Europe's bailout fund will be larger than originally thought drove the market higher.
Mattel and J.M. Smucker were among companies that rose after announcing acquisitions. Widespread anticipation that European leaders will reach a deal Wednesday to prevent another credit crisis also spurred buying.
The Dow closed Monday with a gain of 105 points, or 0.9 percent, to 11,914.
The S&P 500 rose 16, or 1.3 percent, to 1,254. The Nasdaq jumped 62, or 2.3 percent, to 2,699. The Nasdaq turned positive for the year.
Five shares rose for every one that fell on the New York Stock Exchange. Volume was average at 4.2 billion shares.
2) U.S. Downgrade Threat Reemerges: Why the Markets Don’t Care-From Breakout
As telegraphed as it may have been in the 4 months leading up to this summer's debt ceiling showdown, and as ham-fisted as the message was ultimately delivered, when Standard & Poor's actually cut the AAA credit rating of the United States that hot Friday evening of August 5th, it still shocked the world.
Nearly three months later, there's word that it is about to happen again, only this time, at the hand of either Moody's or Fitch. In a note to clients, Merrill Lynch economist Ethan Harris writes:
"We expect at least one credit downgrade in late November or early December when the super committee crashes."
The super committee is a reference to the bi-partisan panel of 12 lawmakers selected to do what the body of Congress couldn't: Balance the budget and meaningfully move to reduce the nation's burgeoning debt and deficit or allow sweeping automated cuts to occur.
It's not as though Fitch and Moody's haven't warned Washington that it is on an unsustainable fiscal path, or that investors haven't taken note of the fact Exxon Mobil (XOM) or Microsoft (MSFT) are in better shape to repay debt than Uncle Sam.
So far the CDS (credit default swap) market has not paid much attention to another downgrade. The cost of insuring yourself against the risk of a U.S. default is currently hovering about 30% below the peak in August and clearly trending lower.
The irony in all of this is that the S&P's downgrade had the inverse effect on the treasury market. The yield on the 10-year note fell from about 2.5% in early August to 1.75% in late September as investors sought the unmatched safety and liquidity that only the U.S. government bond market can offer - credit rating be damned.
Officially, there are still 19 nation's in the world that carry the AAA rating, including Germany, the UK, Canada and France, the latter of which could be next on the chopping block as markets and analysts are already predicting and pricing in.
On a side note, the second largest shareholder of Moody's (MCO) is none other than Warren Buffett, who was not only critical of the action taken by Standard & Poor's, but said he felt the "U.S. deserved a AAAA credit rating."
3) Spenders Become Savers, Hurting Recovery-From The Wall Street Journal
American consumers' long-running love affair with debt is on the rocks. And as they repent for their credit-driven Bacchanalia, the foundering U.S. economy is left to pick up the pieces.
Anita Bullock-Morley, a 36-year-old speech therapist in Atlanta, is one who talks about her old borrowing habits like a recovering drug addict: "My life is so much better not having that haunting debt."
She used savings to help pay for her wedding last year. And after wiping out the balance on two dozen credit cards—and swearing off boutique-label purchases and fancy vacations—she is working her way through $50,000 in student loans and the $215,000 left on her mortgage. Ms. Bullock-Morley is among a generation of Americans who were taught the value of saving as children but had to learn the hard way how to spend wisely.
Since the financial crisis erupted, millions of Americans have ditched their credit cards, accelerated mortgage payments and cut off credit lines that during the good times were used like a bottomless piggybank. Many have resorted to a practice once thought old-fashioned—delaying purchases until they have the cash.
As a result, total household debt—through payment or default—fell by $1.1 trillion, or 8.6%, from mid-2008 through the first half of 2011, according to the Federal Reserve Bank of New York. Auto loan and credit-card balances in August had their biggest drop since April 2010, the Federal Reserve said.
The national belt-tightening, known as deleveraging, comes as the U.S. economy struggles to fend off a double-dip recession. Paying off bills slows consumer spending on appliances, travel and a slew of other products and services. Home sales, the engine of past economic recoveries, remain depressed.
Many other Americans aren't borrowing because they can't—either because of credit defaults, tightened bank standards or homes that have lost all equity.
Deleveraging should help the U.S. economy in the long-run, putting households on a sounder footing and easing the nation's reliance on the savings of Chinese and other foreign nationals. But there are short-term dangers.
During the Great Depression, economist John Maynard Keynes warned of a so-called paradox of thrift: When everyone turns frugal, everyone suffers. Synchronized thrift slows the economy, according to Keynes, which hobbles income growth and makes people even stingier in a pernicious cycle.
Some experts worry that is happening now. Since the recession ended in mid-2009, the U.S. economy has expanded at a 2.5% annual rate, far slower than the average growth of 4.3% during the first two years of the previous four recoveries.
"Folks aren't borrowing," said Jim Ernest, executive vice president at Provident Credit Union in Redwood Shores, Calif. "They are paying down debt and continuing to save." Since January, 12% of the credit union's mortgage customers have made at least $1,500 in extra payments.
Nearly 300 borrowers have made at least $1,000 in additional payments on car loans from Provident, said Mr. Ernest, who confessed he sometimes can't sleep—Provident's loan portfolio has shrunk by a quarter since the end of 2008.
The change in attitude stretches far beyond Mr. Ernest's credit-union members: two-thirds of Americans polled online in July by U.K. research firm Absolute Strategy Research said they planned to either reduce their debt within a year or stop borrowing altogether.
Last year, Americans spent less on appliances, cars, car maintenance, dental services, jewelry and watches, recreational vehicles, tobacco, insurance, cameras, gambling and air travel than they did in 2005, when adjusted for inflation. Finance professors Atif Mian of the University of California at Berkeley and Amir Sufi at the University of Chicago found that households with the most debt were the likeliest to cut spending on big-ticket items.
Turbulent financial markets and turmoil in Europe also have caused some investors to retreat to the sidelines, where they plow money into reducing their debt rather than risk it in stocks.
Historically, deleveraging after a financial crisis is long and painful. In a 2010 study of 15 crises since World War II followed by deleveraging, economists Carmen and Vincent Reinhart concluded that economic growth and inflation-adjusted home prices fell in most countries during the decade after the crisis, while unemployment grew.
The current U.S. belt-tightening might have an unusually big impact because the last borrowing bubble was so big.
From 1997 to 2007, household debt ballooned from 66% of economic output to 98%, according to Federal Reserve data. As of June, the percentage had since been whittled down to 89%.
American households closed 103 million credit-card accounts. And credit-card payments exceeded purchases made with plastic by an estimated $116 billion between the end of the first quarter of 2009 and the end of the second quarter of 2011, according to TransUnion LLC.
Some economists and bankers say the deleveraging crunch has begun to ease. Student borrowing and auto loan balances are up from a year ago. Mark Zandi, chief economist of Moody's Analytics in West Chester, Pa., says the deleveraging process is winding down.
Yet this month's third-quarter earnings reports from U.S. banks show how leery many Americans remain over borrowing, despite record-low interest rates. Reluctance is widespread even among borrowers with excellent credit. According to Mr. Zandi, about 25% of deleveraging is by Americans who could get new loans but are paying down debt.
Wells Fargo & Co., the nation's fourth-largest bank in assets, announced meager 1% growth in loans from last year's third quarter. Loan demand remains so weak that deposits are piling up, hurting profit margins at Wells Fargo and thousands of other U.S. financial institutions. A Wells Fargo spokesman said although deposits were rising faster than loans, contributing "to a lower net-interest margin," the company was "very pleased" with its third-quarter loan growth.
Eager for new business, Citizens Equity First Credit Union, based in Peoria, Ill., offers its best customers new-car loans with a rock-bottom interest rate of 2.4% and promises to absorb paperwork costs when borrowers refinance a car loan by another lender.
American Express Co. chief financial officer Daniel Henry told investors Wednesday that "consumers have decided to deleverage more" and the shift in behavior is creating a challenge for the entire industry.
Many people say they feel worse financially, despite shedding debt. One big reason: The value of U.S. real estate has declined by more than $6.6 trillion since late 2006, according to Fed data, prompting some Americans to feel like they are falling behind even as they tidy up their finances.
"We're not trying to jump-start the economy. We're trying to be better off in the long run," said Charles Allen, 33, of Crofton, Md., who owes $350,000 on a house he could sell for only about $300,000. "Instead of buying a big-screen TV or an Xbox, I'd like to be paying off this debt."
Mr. Allen puts cash in envelopes marked for food, car maintenance, clothes, home repairs and entertainment. He spends only that money, using any leftover to pay down debt. Once upon a time, he said, he used to toss credit-card bills into drawers, figuring he would deal with them later.
Carol Ford, a consultant who lives in Redwood Shores, Calif., pays an extra $100 a month on her mortgage try to get a handle on the debt. "I realized I had been fooled by people having me refinance my house several times," she said.
Ms. Ford said she pulled out cash when she refinanced because she believed claims that it would be easy to refinance or sell her house at a higher price. "I fell for their blandishments," she said of lenders.
Joseph Kovar, a certified public accountant and financial planner in Danville, Calif., said two of his clients recently tapped their 401(k) retirement accounts to pay debts, even though Mr. Kovar advised them of the high tax penalties.
Another client got a large bonus that could have made it possible to buy a more expensive home. Instead, Mr. Kovar's client paid down a portion of a 30-year mortgage and refinanced to a 15-year loan. "People are not taking those excess funds and spending them," he said. "It's why we are …treading water in the economy."
Samir Arsan of Redwood City, Calif., who works in commercial real estate, is trying to pay at least $270 extra a month on his used-car loan. Once the $10,000 loan is paid off, he plans to step up payments on his mother-in-law's mortgage and then the loan on his own home.
"This year, I've done well," said Mr. Arsan, 54. "But I don't know what is coming down the pike. I'm hoping to lower my debt service so I can survive any additional problems the economy might have."
He has no plans to replace his two cars: a 1998 van and 2000 Mercedes-Benz. He isn't alone. Nearby dealership Cammisa Hyundai boosted its repair staff from 10 to 14 employees last year.
Car sales rebounded to record highs for two months this summer, before settling back in September, said Ralph Walker, Cammisa's assistant service manager: "People are still coming in but it's more an absolute need for a purchase than a want for a purchase." He said more buyers pay cash.
For many Americans, the process of reducing debt feels like a marathon. Jason Jacobs, 32, of Richmond, Va., wants to move to Paraguay with his wife to become a Christian missionary and open a foster home. That won't happen until he pays down a chunk of more than $180,000 in debt. He said that could take until the end of 2014 or longer.
The debts include $4,000 in credit cards, $30,000 for student loans and an $8,000 loan for energy-efficient windows for his home. The windows, he said, were a mistake. Mr. Jacobs also hopes to shave enough off his $139,000 mortgage to have equity in the property, which has fallen in market value since he bought it for $150,000 in 2005.
To increase the odds of hitting his target, Mr. Jacobs is embracing a frugal life. He funnels about $650 a month into shrinking loan balances.
Automated bank payments keep him disciplined. Mr. Jacobs keeps an envelope in a desk drawer that is allocated $300 a month for food. He spends only what's in the envelope.
Soon, a new envelope will get $160 a month for movies, clothes and other items. Instead of shopping at malls, Mr. Jacobs hunts for deals at secondhand stores or on websites like eBay and Craigslist.
"We've decided that we're not going to buy really new things," said Mr. Jacobs. Abandoning the mortgage is out of the question, he said: "It's my responsibility to pay for it, since it was my decision to buy the house."
Quote of the Day from Dave Ramsey.com:
Character is, in the long run, the decisive factor in the life of individuals and of nations alike. — Theodore Roosevelt
Merrill Lynch economist Ethan Harris predicts another credit downgrade by the end of this year but it didn't affect the stock market today.
A great article over the weekend in the Wall Street Journal of how people are getting out of debt the Dave Ramsey way right down to the envelope system! Of course the Keynesian ideologues think this will hurt the economy.
Here are the top financial stories of the day:
1) Takeovers, anticipated European deal lift stocks-From the AP
Stock indexes are closing at the highest point since the U.S. debt limit showdown in August. A round of corporate takeovers and reports that Europe's bailout fund will be larger than originally thought drove the market higher.
Mattel and J.M. Smucker were among companies that rose after announcing acquisitions. Widespread anticipation that European leaders will reach a deal Wednesday to prevent another credit crisis also spurred buying.
The Dow closed Monday with a gain of 105 points, or 0.9 percent, to 11,914.
The S&P 500 rose 16, or 1.3 percent, to 1,254. The Nasdaq jumped 62, or 2.3 percent, to 2,699. The Nasdaq turned positive for the year.
Five shares rose for every one that fell on the New York Stock Exchange. Volume was average at 4.2 billion shares.
2) U.S. Downgrade Threat Reemerges: Why the Markets Don’t Care-From Breakout
As telegraphed as it may have been in the 4 months leading up to this summer's debt ceiling showdown, and as ham-fisted as the message was ultimately delivered, when Standard & Poor's actually cut the AAA credit rating of the United States that hot Friday evening of August 5th, it still shocked the world.
Nearly three months later, there's word that it is about to happen again, only this time, at the hand of either Moody's or Fitch. In a note to clients, Merrill Lynch economist Ethan Harris writes:
"We expect at least one credit downgrade in late November or early December when the super committee crashes."
The super committee is a reference to the bi-partisan panel of 12 lawmakers selected to do what the body of Congress couldn't: Balance the budget and meaningfully move to reduce the nation's burgeoning debt and deficit or allow sweeping automated cuts to occur.
It's not as though Fitch and Moody's haven't warned Washington that it is on an unsustainable fiscal path, or that investors haven't taken note of the fact Exxon Mobil (XOM) or Microsoft (MSFT) are in better shape to repay debt than Uncle Sam.
So far the CDS (credit default swap) market has not paid much attention to another downgrade. The cost of insuring yourself against the risk of a U.S. default is currently hovering about 30% below the peak in August and clearly trending lower.
The irony in all of this is that the S&P's downgrade had the inverse effect on the treasury market. The yield on the 10-year note fell from about 2.5% in early August to 1.75% in late September as investors sought the unmatched safety and liquidity that only the U.S. government bond market can offer - credit rating be damned.
Officially, there are still 19 nation's in the world that carry the AAA rating, including Germany, the UK, Canada and France, the latter of which could be next on the chopping block as markets and analysts are already predicting and pricing in.
On a side note, the second largest shareholder of Moody's (MCO) is none other than Warren Buffett, who was not only critical of the action taken by Standard & Poor's, but said he felt the "U.S. deserved a AAAA credit rating."
3) Spenders Become Savers, Hurting Recovery-From The Wall Street Journal
American consumers' long-running love affair with debt is on the rocks. And as they repent for their credit-driven Bacchanalia, the foundering U.S. economy is left to pick up the pieces.
Anita Bullock-Morley, a 36-year-old speech therapist in Atlanta, is one who talks about her old borrowing habits like a recovering drug addict: "My life is so much better not having that haunting debt."
She used savings to help pay for her wedding last year. And after wiping out the balance on two dozen credit cards—and swearing off boutique-label purchases and fancy vacations—she is working her way through $50,000 in student loans and the $215,000 left on her mortgage. Ms. Bullock-Morley is among a generation of Americans who were taught the value of saving as children but had to learn the hard way how to spend wisely.
Since the financial crisis erupted, millions of Americans have ditched their credit cards, accelerated mortgage payments and cut off credit lines that during the good times were used like a bottomless piggybank. Many have resorted to a practice once thought old-fashioned—delaying purchases until they have the cash.
As a result, total household debt—through payment or default—fell by $1.1 trillion, or 8.6%, from mid-2008 through the first half of 2011, according to the Federal Reserve Bank of New York. Auto loan and credit-card balances in August had their biggest drop since April 2010, the Federal Reserve said.
The national belt-tightening, known as deleveraging, comes as the U.S. economy struggles to fend off a double-dip recession. Paying off bills slows consumer spending on appliances, travel and a slew of other products and services. Home sales, the engine of past economic recoveries, remain depressed.
Many other Americans aren't borrowing because they can't—either because of credit defaults, tightened bank standards or homes that have lost all equity.
Deleveraging should help the U.S. economy in the long-run, putting households on a sounder footing and easing the nation's reliance on the savings of Chinese and other foreign nationals. But there are short-term dangers.
During the Great Depression, economist John Maynard Keynes warned of a so-called paradox of thrift: When everyone turns frugal, everyone suffers. Synchronized thrift slows the economy, according to Keynes, which hobbles income growth and makes people even stingier in a pernicious cycle.
Some experts worry that is happening now. Since the recession ended in mid-2009, the U.S. economy has expanded at a 2.5% annual rate, far slower than the average growth of 4.3% during the first two years of the previous four recoveries.
"Folks aren't borrowing," said Jim Ernest, executive vice president at Provident Credit Union in Redwood Shores, Calif. "They are paying down debt and continuing to save." Since January, 12% of the credit union's mortgage customers have made at least $1,500 in extra payments.
Nearly 300 borrowers have made at least $1,000 in additional payments on car loans from Provident, said Mr. Ernest, who confessed he sometimes can't sleep—Provident's loan portfolio has shrunk by a quarter since the end of 2008.
The change in attitude stretches far beyond Mr. Ernest's credit-union members: two-thirds of Americans polled online in July by U.K. research firm Absolute Strategy Research said they planned to either reduce their debt within a year or stop borrowing altogether.
Last year, Americans spent less on appliances, cars, car maintenance, dental services, jewelry and watches, recreational vehicles, tobacco, insurance, cameras, gambling and air travel than they did in 2005, when adjusted for inflation. Finance professors Atif Mian of the University of California at Berkeley and Amir Sufi at the University of Chicago found that households with the most debt were the likeliest to cut spending on big-ticket items.
Turbulent financial markets and turmoil in Europe also have caused some investors to retreat to the sidelines, where they plow money into reducing their debt rather than risk it in stocks.
Historically, deleveraging after a financial crisis is long and painful. In a 2010 study of 15 crises since World War II followed by deleveraging, economists Carmen and Vincent Reinhart concluded that economic growth and inflation-adjusted home prices fell in most countries during the decade after the crisis, while unemployment grew.
The current U.S. belt-tightening might have an unusually big impact because the last borrowing bubble was so big.
From 1997 to 2007, household debt ballooned from 66% of economic output to 98%, according to Federal Reserve data. As of June, the percentage had since been whittled down to 89%.
American households closed 103 million credit-card accounts. And credit-card payments exceeded purchases made with plastic by an estimated $116 billion between the end of the first quarter of 2009 and the end of the second quarter of 2011, according to TransUnion LLC.
Some economists and bankers say the deleveraging crunch has begun to ease. Student borrowing and auto loan balances are up from a year ago. Mark Zandi, chief economist of Moody's Analytics in West Chester, Pa., says the deleveraging process is winding down.
Yet this month's third-quarter earnings reports from U.S. banks show how leery many Americans remain over borrowing, despite record-low interest rates. Reluctance is widespread even among borrowers with excellent credit. According to Mr. Zandi, about 25% of deleveraging is by Americans who could get new loans but are paying down debt.
Wells Fargo & Co., the nation's fourth-largest bank in assets, announced meager 1% growth in loans from last year's third quarter. Loan demand remains so weak that deposits are piling up, hurting profit margins at Wells Fargo and thousands of other U.S. financial institutions. A Wells Fargo spokesman said although deposits were rising faster than loans, contributing "to a lower net-interest margin," the company was "very pleased" with its third-quarter loan growth.
Eager for new business, Citizens Equity First Credit Union, based in Peoria, Ill., offers its best customers new-car loans with a rock-bottom interest rate of 2.4% and promises to absorb paperwork costs when borrowers refinance a car loan by another lender.
American Express Co. chief financial officer Daniel Henry told investors Wednesday that "consumers have decided to deleverage more" and the shift in behavior is creating a challenge for the entire industry.
Many people say they feel worse financially, despite shedding debt. One big reason: The value of U.S. real estate has declined by more than $6.6 trillion since late 2006, according to Fed data, prompting some Americans to feel like they are falling behind even as they tidy up their finances.
"We're not trying to jump-start the economy. We're trying to be better off in the long run," said Charles Allen, 33, of Crofton, Md., who owes $350,000 on a house he could sell for only about $300,000. "Instead of buying a big-screen TV or an Xbox, I'd like to be paying off this debt."
Mr. Allen puts cash in envelopes marked for food, car maintenance, clothes, home repairs and entertainment. He spends only that money, using any leftover to pay down debt. Once upon a time, he said, he used to toss credit-card bills into drawers, figuring he would deal with them later.
Carol Ford, a consultant who lives in Redwood Shores, Calif., pays an extra $100 a month on her mortgage try to get a handle on the debt. "I realized I had been fooled by people having me refinance my house several times," she said.
Ms. Ford said she pulled out cash when she refinanced because she believed claims that it would be easy to refinance or sell her house at a higher price. "I fell for their blandishments," she said of lenders.
Joseph Kovar, a certified public accountant and financial planner in Danville, Calif., said two of his clients recently tapped their 401(k) retirement accounts to pay debts, even though Mr. Kovar advised them of the high tax penalties.
Another client got a large bonus that could have made it possible to buy a more expensive home. Instead, Mr. Kovar's client paid down a portion of a 30-year mortgage and refinanced to a 15-year loan. "People are not taking those excess funds and spending them," he said. "It's why we are …treading water in the economy."
Samir Arsan of Redwood City, Calif., who works in commercial real estate, is trying to pay at least $270 extra a month on his used-car loan. Once the $10,000 loan is paid off, he plans to step up payments on his mother-in-law's mortgage and then the loan on his own home.
"This year, I've done well," said Mr. Arsan, 54. "But I don't know what is coming down the pike. I'm hoping to lower my debt service so I can survive any additional problems the economy might have."
He has no plans to replace his two cars: a 1998 van and 2000 Mercedes-Benz. He isn't alone. Nearby dealership Cammisa Hyundai boosted its repair staff from 10 to 14 employees last year.
Car sales rebounded to record highs for two months this summer, before settling back in September, said Ralph Walker, Cammisa's assistant service manager: "People are still coming in but it's more an absolute need for a purchase than a want for a purchase." He said more buyers pay cash.
For many Americans, the process of reducing debt feels like a marathon. Jason Jacobs, 32, of Richmond, Va., wants to move to Paraguay with his wife to become a Christian missionary and open a foster home. That won't happen until he pays down a chunk of more than $180,000 in debt. He said that could take until the end of 2014 or longer.
The debts include $4,000 in credit cards, $30,000 for student loans and an $8,000 loan for energy-efficient windows for his home. The windows, he said, were a mistake. Mr. Jacobs also hopes to shave enough off his $139,000 mortgage to have equity in the property, which has fallen in market value since he bought it for $150,000 in 2005.
To increase the odds of hitting his target, Mr. Jacobs is embracing a frugal life. He funnels about $650 a month into shrinking loan balances.
Automated bank payments keep him disciplined. Mr. Jacobs keeps an envelope in a desk drawer that is allocated $300 a month for food. He spends only what's in the envelope.
Soon, a new envelope will get $160 a month for movies, clothes and other items. Instead of shopping at malls, Mr. Jacobs hunts for deals at secondhand stores or on websites like eBay and Craigslist.
"We've decided that we're not going to buy really new things," said Mr. Jacobs. Abandoning the mortgage is out of the question, he said: "It's my responsibility to pay for it, since it was my decision to buy the house."
Quote of the Day from Dave Ramsey.com:
Character is, in the long run, the decisive factor in the life of individuals and of nations alike. — Theodore Roosevelt
Friday, October 21, 2011
Financial Headline News for Friday 10/21
US stock indexes rose sharply on solid corporate earnings reports. McDonald's and Chipotle stocks jumped.
The September unemployment rates by state was released today with oil exploration rich North Dakota leading the way again at a measly 3.5%.
The dollar slipped to a record low against the rising Japanese yen today.
Here are the top financial stories of the day:
1) Stocks rise sharply on solid corporate earnings-From the AP
A broad rally swept through the stock market Friday after McDonald's and several other large companies reported solid earnings. The Standard & Poor's 500 index closed higher for the third straight week, its best run since February, as hope builds that a weekend meeting will bring European leaders closer to easing the region's debt troubles.
The Dow Jones industrial average jumped 267.01 points, or 2.3 percent, to 11,808.79. The Dow is now up 2 percent from where it started 2011. Before Friday's surge, it was down for the year. The Dow has risen for four weeks straight, the first time that has happened since January.
The combination of stronger earnings, better economic news and a sense that European officials were taking the debt crisis more seriously have helped lift stocks, said Phil Orlando, chief equity market strategist at Federated Investors. "It seems like there's a greater sense of urgency to deal with Greece and the sovereign debt trouble in Europe," Orlando said.
McDonald's Corp., Chipotle Mexican Grill Inc. and Harman International Industries Inc. were among the companies that beat analysts' expectations. The quarterly earnings season is off to a strong start. Of the 118 companies that reported earnings so far, 75 percent have beaten estimates, according to financial data provider FactSet.
The encouraging corporate news was in line with recent signs that the U.S. economy strengthened in September after a very weak summer. On Friday the government said unemployment fell last month in half of U.S. states and was unchanged in 11. That's much better than in August, when unemployment rose in 26 states.
Markets have been moving sharply in recent weeks, mainly in reaction to the latest headlines out of Europe on the debt crisis. The Dow had a bigger jump on Oct. 10, 330 points, after the leaders of France and Germany pledged to have a comprehensive solution to the debt crisis in place by the end of the month. The Dow has now gained 10.8 percent since Oct. 3, when it sank to its lowest point of the year.
The S&P 500 gained 22.86 points, or 1.9 percent, to 1,238.25. Rising stocks in the S&P outpaced falling ones by a margin of 20 to 1: only 23 companies traded lower.
The Nasdaq composite index gained 38.84, or 1.5 percent, to 2,637.
European markets closed sharply higher as investors hoped that European leaders will agree on a package of measures to address the region's debt crisis in time for a summit scheduled for Wednesday. Germany's DAX index rose 3.5 percent. France's CAC 40 and Italy's FTSE MIB rose 2.8 percent.
Traders sold ultra-safe U.S. Treasury debt as riskier assets rose. The yield on the 10-year Treasury note rose to 2.22 percent from 2.18 percent late Thursday. Bond yields rise as demand for them falls and their prices decline.
Stocks were lifted earlier this week by better news about the U.S. economy. A measure of manufacturing in the Philadelphia region grew in October after contracting for two straight months.
The number of people claiming unemployment benefits declined last week, and inflation remains low.
Among the companies reporting earnings late Thursday or early Friday:
-- McDonald's Corp. rose 3.7 percent after reporting a 9 percent increase in income. The results beat analysts' expectations and marked McDonalds' ninth straight quarter of gains.
-- Harman International Industries Inc. jumped 20.6 percent, the most in the Standard & Poor's 500, after the audio equipment maker's income trumped expectations.
-- Chipotle Mexican Grill Inc. leaped 8.3 percent after reporting a 25-percent jump in third-quarter income. The fast-casual chain raised prices, sold more burritos and opened new stores.
2) September Jobless Rates by State-From The Wall Street Journal
The federal government’s latest snapshot of state and regional unemployment is out, and New Mexico appears to be one of the few somewhat-bright spots.
The state saw the biggest drop in unemployment in September from a year ago, the U.S. Labor Department reported Friday in its latest breakdown of the 9.1% unemployment rate across the nation.
New Mexico’s 6.6% unemployment rate for September is two percentage points lower than it was a year ago. Only three other states — Florida, Oregon and Massachusetts — reported statistically significant decreases over the year, the new data show.
New Mexico’s growth tracks closely with that of the entire country, Mark Snead, an economist at the Denver Branch of the Federal Reserve Bank of Kansas City, said Thursday, according to the New Mexico Business Weekly. Mr. Snead said the U.S. economy averaged a 2.5% growth rate over the past nine quarters, according to the paper.
“You have had a very rapid turnaround and it looks like things are finally going your way,” in comparison to the U.S. economy, Snead said at the Albuquerque Economic Forum’s monthly breakfast meeting, the New Mexico Business Weekly reported . “You had a false start [in 2010], but are now on track with the U.S. cycle. Your growth potential is showing again.”
Snead said the state’s mining and manufacturing sectors have grown recently, the paper reported.
The Labor Department’s latest snapshot reflects an otherwise stubborn jobs picture. While half the states saw the jobless rate drop in September from the previous month, the rest, along with
Washington, DC., registered an increase or no change. North Dakota (3.5%) and Nebraska (4.2%) had the lowest unemployment rates.
3) FOREX-Dollar slumps to record low versus yen-From Reuters
The U.S. dollar slumped to a record low against the yen on Friday in its biggest one-day decline in nearly two months, bringing back into focus the threat of official intervention to weaken the Japanese currency.
Traders reported initial large selling of dollars from a U.K. clearer and macro funds, and losses accelerated after the pair broke through a series of stops around 76.30 and 75.90.
"No specific news. Just general investor impatience with the Bank of Japan's lack of a yen weakening policy," said Tommy Molloy, chief dealer at FX Solutions at Saddle River, New Jersey.
Talk that Japanese authorities may follow the footsteps of the Swiss National Bank in putting a floor in dollar/yen had buoyed the currency pair in recent sessions, but investors resumed yen buying after market speculation failed to materialize.
The euro rallied against the dollar, but fell against most other currencies, as doubts persisted that European leaders are able to deliver a solution to the escalating debt crisis soon.
The dollar fell as low as 75.78 yen on trading platform EBS , surpassing its previous record low of 75.941 set in August.
It last traded down 0.9 percent at 76.18 yen, coming off lows on reported buying from Japanese banks at the 76.00 level. At current levels, it was on pace for its biggest daily fall since Aug. 26.
If the yen does hold, it could hit 75.50 per dollar, followed by the 75.00 mark, Molloy said.
The euro last rose 0.8 percent to $1.3883 , recovering from a session low of $1.3703. It had hit as high as $1.3890 on Reuters data.
France and Germany said in a joint statement that European leaders would discuss a solution to the crisis on Sunday, but no decisions would be adopted before a second meeting to be held by Wednesday at the latest.
But the euro dropped 0.1 percent versus the yen to 105.76 . It also slipped 0.1 percent against sterling to 87.15 pence and lost 0.4 percent to 1.2269 Swiss francs.
Quote of the Day from Dave Ramsey.com:
You can do anything if you have enthusiasm. Enthusiasm is the yeast that makes your hopes rise to the stars. With it, there is accomplishment. Without it there are only alibis. — Henry Ford
The September unemployment rates by state was released today with oil exploration rich North Dakota leading the way again at a measly 3.5%.
The dollar slipped to a record low against the rising Japanese yen today.
Here are the top financial stories of the day:
1) Stocks rise sharply on solid corporate earnings-From the AP
A broad rally swept through the stock market Friday after McDonald's and several other large companies reported solid earnings. The Standard & Poor's 500 index closed higher for the third straight week, its best run since February, as hope builds that a weekend meeting will bring European leaders closer to easing the region's debt troubles.
The Dow Jones industrial average jumped 267.01 points, or 2.3 percent, to 11,808.79. The Dow is now up 2 percent from where it started 2011. Before Friday's surge, it was down for the year. The Dow has risen for four weeks straight, the first time that has happened since January.
The combination of stronger earnings, better economic news and a sense that European officials were taking the debt crisis more seriously have helped lift stocks, said Phil Orlando, chief equity market strategist at Federated Investors. "It seems like there's a greater sense of urgency to deal with Greece and the sovereign debt trouble in Europe," Orlando said.
McDonald's Corp., Chipotle Mexican Grill Inc. and Harman International Industries Inc. were among the companies that beat analysts' expectations. The quarterly earnings season is off to a strong start. Of the 118 companies that reported earnings so far, 75 percent have beaten estimates, according to financial data provider FactSet.
The encouraging corporate news was in line with recent signs that the U.S. economy strengthened in September after a very weak summer. On Friday the government said unemployment fell last month in half of U.S. states and was unchanged in 11. That's much better than in August, when unemployment rose in 26 states.
Markets have been moving sharply in recent weeks, mainly in reaction to the latest headlines out of Europe on the debt crisis. The Dow had a bigger jump on Oct. 10, 330 points, after the leaders of France and Germany pledged to have a comprehensive solution to the debt crisis in place by the end of the month. The Dow has now gained 10.8 percent since Oct. 3, when it sank to its lowest point of the year.
The S&P 500 gained 22.86 points, or 1.9 percent, to 1,238.25. Rising stocks in the S&P outpaced falling ones by a margin of 20 to 1: only 23 companies traded lower.
The Nasdaq composite index gained 38.84, or 1.5 percent, to 2,637.
European markets closed sharply higher as investors hoped that European leaders will agree on a package of measures to address the region's debt crisis in time for a summit scheduled for Wednesday. Germany's DAX index rose 3.5 percent. France's CAC 40 and Italy's FTSE MIB rose 2.8 percent.
Traders sold ultra-safe U.S. Treasury debt as riskier assets rose. The yield on the 10-year Treasury note rose to 2.22 percent from 2.18 percent late Thursday. Bond yields rise as demand for them falls and their prices decline.
Stocks were lifted earlier this week by better news about the U.S. economy. A measure of manufacturing in the Philadelphia region grew in October after contracting for two straight months.
The number of people claiming unemployment benefits declined last week, and inflation remains low.
Among the companies reporting earnings late Thursday or early Friday:
-- McDonald's Corp. rose 3.7 percent after reporting a 9 percent increase in income. The results beat analysts' expectations and marked McDonalds' ninth straight quarter of gains.
-- Harman International Industries Inc. jumped 20.6 percent, the most in the Standard & Poor's 500, after the audio equipment maker's income trumped expectations.
-- Chipotle Mexican Grill Inc. leaped 8.3 percent after reporting a 25-percent jump in third-quarter income. The fast-casual chain raised prices, sold more burritos and opened new stores.
2) September Jobless Rates by State-From The Wall Street Journal
The federal government’s latest snapshot of state and regional unemployment is out, and New Mexico appears to be one of the few somewhat-bright spots.
The state saw the biggest drop in unemployment in September from a year ago, the U.S. Labor Department reported Friday in its latest breakdown of the 9.1% unemployment rate across the nation.
New Mexico’s 6.6% unemployment rate for September is two percentage points lower than it was a year ago. Only three other states — Florida, Oregon and Massachusetts — reported statistically significant decreases over the year, the new data show.
New Mexico’s growth tracks closely with that of the entire country, Mark Snead, an economist at the Denver Branch of the Federal Reserve Bank of Kansas City, said Thursday, according to the New Mexico Business Weekly. Mr. Snead said the U.S. economy averaged a 2.5% growth rate over the past nine quarters, according to the paper.
“You have had a very rapid turnaround and it looks like things are finally going your way,” in comparison to the U.S. economy, Snead said at the Albuquerque Economic Forum’s monthly breakfast meeting, the New Mexico Business Weekly reported . “You had a false start [in 2010], but are now on track with the U.S. cycle. Your growth potential is showing again.”
Snead said the state’s mining and manufacturing sectors have grown recently, the paper reported.
The Labor Department’s latest snapshot reflects an otherwise stubborn jobs picture. While half the states saw the jobless rate drop in September from the previous month, the rest, along with
Washington, DC., registered an increase or no change. North Dakota (3.5%) and Nebraska (4.2%) had the lowest unemployment rates.
3) FOREX-Dollar slumps to record low versus yen-From Reuters
The U.S. dollar slumped to a record low against the yen on Friday in its biggest one-day decline in nearly two months, bringing back into focus the threat of official intervention to weaken the Japanese currency.
Traders reported initial large selling of dollars from a U.K. clearer and macro funds, and losses accelerated after the pair broke through a series of stops around 76.30 and 75.90.
"No specific news. Just general investor impatience with the Bank of Japan's lack of a yen weakening policy," said Tommy Molloy, chief dealer at FX Solutions at Saddle River, New Jersey.
Talk that Japanese authorities may follow the footsteps of the Swiss National Bank in putting a floor in dollar/yen had buoyed the currency pair in recent sessions, but investors resumed yen buying after market speculation failed to materialize.
The euro rallied against the dollar, but fell against most other currencies, as doubts persisted that European leaders are able to deliver a solution to the escalating debt crisis soon.
The dollar fell as low as 75.78 yen on trading platform EBS , surpassing its previous record low of 75.941 set in August.
It last traded down 0.9 percent at 76.18 yen, coming off lows on reported buying from Japanese banks at the 76.00 level. At current levels, it was on pace for its biggest daily fall since Aug. 26.
If the yen does hold, it could hit 75.50 per dollar, followed by the 75.00 mark, Molloy said.
The euro last rose 0.8 percent to $1.3883 , recovering from a session low of $1.3703. It had hit as high as $1.3890 on Reuters data.
France and Germany said in a joint statement that European leaders would discuss a solution to the crisis on Sunday, but no decisions would be adopted before a second meeting to be held by Wednesday at the latest.
But the euro dropped 0.1 percent versus the yen to 105.76 . It also slipped 0.1 percent against sterling to 87.15 pence and lost 0.4 percent to 1.2269 Swiss francs.
Quote of the Day from Dave Ramsey.com:
You can do anything if you have enthusiasm. Enthusiasm is the yeast that makes your hopes rise to the stars. With it, there is accomplishment. Without it there are only alibis. — Henry Ford
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