News What is wrong with the US economy? Part 2

[Astronuc]

Investors worry about GE's outlook
http://marketplace.publicradio.org/display/web/2009/03/05/pm_ge/

GE shares close lower, even as it defends finances
http://biz.yahoo.com/ap/090305/na_us_general_electric_stock.html

GE Says Capital Unit Will Be Profitable in First Quarter, Full Year
http://online.wsj.com/article/SB123627807190242471.html

General Electric Co.'s troubled financial unit will be profitable for the first quarter and full year and won't need fresh capital or government assistance except under an unlikely disaster scenario, GE's chief financial officer said Thursday.

In a written statement and a TV interview, CFO Keith Sherin said recent speculation about risk at GE Capital is "overdone." Mr. Sherin said GE has enough capital to fund itself through 2010, with $45 billion in cash and an additional $60 billion available under the U.S. government's Temporary Loan Guarantee Program. There are no short-term "triggers" that would strain the cash position, he added.

Mr. Sherin spoke one day after GE shares sank to 18-year lows amid record volume of 752.9 million shares on Wednesday, according to FactSet Research System. On Thursday, the share price fell 3 cents to $6.66, as major market indexes fells sharply.

GE expects to generate $16 billion in cash this year, but Mr. Sherin said funding would be adequate even if it were to fall to $14 billion. Below that, he said the company could conserve cash by making fewer new loans at GE Capital.
. . . .

Apparently GE has cut its dividend.


Both parties play the blame game for economic woes
http://news.yahoo.com/s/ap/20090305/ap_on_go_co/spin_meter_whose_economy

Safe to say that both parties and the last several administrations have contributed to the current problems.

 

[LowlyPion]

Sadly that's what GM, BoA, Bear Sterns, etc. were saying last year.

 

[edward]

Someone needs to tie a long rope to a big rock and drop it into this toxic crud and see how deep it really goes. I have a feeling we haven't come close to the bottom yet.

 

[turbo]

With Citi under a buck and GM under two bucks, who is willing to buy stock and hang onto them? After the auditors' reports on GM came out today, I don't think I would be buying stock in that company... Citi?... Well, if the US government thinks that bank is "too big to fail", their penny-stocks might be a fun low-risk buy.

 

[Astronuc]

I heard a report today that the newest wave of foreclosures is tied to unemployment or loss of income, and those foreclosures are happening outside the 4 states (CA, FL, AZ, NV) at the heart of the subprime mortgage crisis.


Here's an interesting perspective on the mortgage crisis:

They Warned Us About the Mortgage Crisis
http://www.businessweek.com/print/magazine/content/08_42/b4104036827981.htm

It seems that the federal government undermined states' efforts to rein in the mortgage companies who were pushing risky mortgages.

More than five years ago, in April 2003, the attorneys general of two small states traveled to Washington with a stern warning for the nation's top bank regulator. Sitting in the spacious Office of the Comptroller of the Currency, with its panoramic view of the capital, the AGs from North Carolina and Iowa said lenders were pushing increasingly risky mortgages. Their host, John D. Hawke Jr., expressed skepticism.

Roy Cooper of North Carolina and Tom Miller of Iowa headed a committee of state officials concerned about new forms of "predatory" lending. They urged Hawke to give states more latitude to limit exorbitant interest rates and fine-print fees. "People out there are struggling with oppressive loans," Cooper recalls saying.

Hawke, a veteran banking industry lawyer appointed to head the OCC by President Bill Clinton in 1998, wouldn't budge. He said he would reinforce federal policies that hindered states from reining in lenders. The AGs left the tense hour-long meeting realizing that Washington had become a foe in the nascent fight against reckless real estate finance. The OCC "took 50 sheriffs off the job during the time the mortgage lending industry was becoming the Wild West," Cooper says.

This was but one of many instances of state posses sounding early alarms about the irresponsible lending at the heart of the current financial crisis. Federal officials brushed aside their concerns. The OCC and its sister agency, the Office of Thrift Supervision (OTS), instead sided with lenders. The beneficiaries ranged from now-defunct subprime factories, such as First Franklin Financial, to a savings and loan owned by Lehman Brothers, the collapsed investment bank.

Some states, including North Carolina and Georgia, passed laws aimed at deterring rash loans only to have federal authorities undercut them. In Iowa and other states, mortgage mills arranged to be acquired by nationally regulated banks and in the process fended off more-assertive state supervision. In Ohio the story took a different twist: State lawmakers acting at the behest of lenders squelched an attempt by the Cleveland City Council to slow the subprime frenzy.

A number of factors contributed to the mortgage disaster and credit crunch. Interest rate cuts and unprecedented foreign capital infusions fueled thoughtless lending on Main Street and arrogant gambling on Wall Street. The trading of esoteric derivatives amplified risks it was supposed to mute.

One cause, though, has been largely overlooked: the stifling of prescient state enforcers and legislators who tried to contain the greed and foolishness. They were thwarted in many cases by Washington officials hostile to regulation and a financial industry adept at exploiting this ideology.

The Bush Administration and many banks clung to what is known as "preemption." It is a legal doctrine that can be invoked in court and at the rulemaking table to assert that, when federal and state authority over business conflict, the feds prevail—even if it means little or no regulation.

. . . .

But this started under Clinton.

 

[OmCheeto]

The reckless lending practices in states like Florida, California and Nevada that were the epicenter of the housing crisis

Can we sell those states to China, or Saudi Arabia? Kind of like we did land deals about 200 years ago?

At $1e5 per acre, we might be ahead after it's all said and done.

Then we could travel to foreign countries by just bicycling across a border.

 

[turbo]

Can we sell those states to China, or Saudi Arabia? Kind of like we did land deals about 200 years ago?

At $1e5 per acre, we might be ahead after it's all said and done.

Then we could travel to foreign countries by just bicycling across a border.

Maybe Dubai would buy CA and take it off our hands... That would take off a lot of the load.

 

[Count Iblis]

With Citi under a buck and GM under two bucks, who is willing to buy stock and hang onto them? After the auditors' reports on GM came out today, I don't think I would be buying stock in that company... Citi?... Well, if the US government thinks that bank is "too big to fail", their penny-stocks might be a fun low-risk buy.

Buying credit default swaps could perhaps be more profitable, provided the banks who issued them can pay out if GM fails

 

[Astronuc]

How to Handle Your Job and Finances If There's a (Yikes!) Depression
http://finance.yahoo.com/banking-budgeting/article/106695/How-to-Handle-Your-Job-and-Finances-If-There-Is-a-Depression

I think some are not calling the current economic sitution "The Great Recession"

Brace yourself, America. What if the already terrible economy gets even worse? And not just a little bit worse, but a lot worse? Look at it this way: If you put a group of brainiac economists together in a room and told them to create a computer model of a Great Depression 2.0, the key ingredients would probably be a) plunging stock prices, b) collapsing home values, c) soaring unemployment, and d) a banking system on the verge of complete implosion.

And do we have all those terrible factors in play today? Check, check, check and check. But there are also some big positives to counterbalance those huge negatives, such as a Federal Reserve that is lowering interest rates and printing money, as well as trillion-dollar government plans to stimulate the economy and keep people in their homes.

But things can get a lot nastier without reaching a total Great Depression scenario where the economy shrinks by 25 percent and unemployment soars by 25 percent. So just how bad might the economy get? And if there is a mini-depression, what should you do about it? Your questions, our answers.

. . . .

Workers clobbered by relentless layoffs
http://biz.yahoo.com/ap/090306/economy.html

Employers resorting to bigger layoffs to survive recession and there's no relief in sight

WASHINGTON (AP) -- Cost-cutting employers are resorting to even bigger layoffs as they scramble to survive the recession, feeding insecurities among those who still have jobs and those who desperately want them.

The Labor Department on Friday is slated to release a report expected to show that February was an especially cruel month for America's workers.

Employers likely slashed a net total of 648,000 jobs last month, according to economists' forecasts. If they are right, it would mark the worst month of job losses since the recession started in December 2007. It also would represent the single biggest month of job reductions since October 1949, when the country was just pulling out of a painful recession, although the labor force has grown significantly since then.

"The pace of layoffs is fast and furious," said Stuart Hoffman, chief economist at PNC Financial Services Group. "We're still in the teeth of this recession and the bite has not let up at all."

With employers slashing payrolls, the nation's unemployment rate is expected to jump to 7.9 percent, from 7.6 percent in January. If that happens, it would mark the highest jobless rate since reaching 8 percent in January 1984, a time when the unemployment rate was still slowly moving down after having topped 10 percent during the early 1980s recession.
. . . .
General Dynamics Corp. said Thursday it will lay off 1,200 workers due partly to plummeting sales of business and personal jets that forced it to cut production. Defense contractor Northrop Grumman Corp., and Tyco Electronics Ltd., which makes electronic components, undersea telecommunications systems and wireless equipment, also are trimming payrolls.

"This is basically cleaning house for a lot of firms," said John Silvia, chief economist at Wachovia. "They are using the first quarter to cut back employment and figure out what they want."

Disappearing jobs and evaporating wealth from tanking home values, 401(k)s and other investments have forced consumers to retrench, driving companies to lay off workers. It's a vicious cycle in which all the economy's negative problems feed on each other, worsening the downward spiral.
. . . .

Former KB Home CEO indicted on fraud charges
http://news.yahoo.com/s/ap/20090306/ap_on_bi_ge/kb_home_backdating

A federal grand jury has charged the former chairman and chief executive of KB Home with multiple counts of fraud and other crimes related to a stock option backdating scheme that authorities say bilked the homebuilder's shareholders out of millions of dollars.
. . . .
Last month, another ex-KB executive, Gary A. Ray, pleaded guilty to conspiring with Karatz to obstruct justice by causing KB Home to file a false report on its option-granting practices in a bid to avert an SEC probe.

Stock option backdating isn't necessarily illegal as long as the stock options are properly recorded on the company's books. But if the accounting of the perks is bungled, it can exaggerate corporate profits and improperly lower taxes.

According to the indictment, for seven years, Karatz altered the grant date on his options to one on which KB Home shares traded more cheaply, but didn't report it in public filings. That hid the actual value of stock-based compensation that KB was awarding him and other executives, prosecutors said.

This enabled Karatz to reap millions of dollars when he exercised his options, while making it appear the gains were the result of the normal appreciation of the market value of KB's stock, prosecutors said.
. . . .

 

[Art]

The UK government announced yesterday it was going to try quantitative easing to try and keep their economy afloat. Initially they will create £75 billion of new money rising to £150 billion over the next 3 months. The idea being once this money is placed on deposit with Britain's investment banks it will flood the financial market with cash thus improving liquidity. There is a certain symmetry about buying fictitious assets with fictitious money.

The Japanese used this mechanism in the 90's but instead of lending the money to customers their banks just sat on it. Given the option it is likely the British banks will do the same but what is different about this is the gov't appears to be planning on lending around £50 billion of the total directly to businesses in return for bonds and commercial paper.

Unfortunately, although these figures looked huge, they were dwarfed by news the same day that Lloyd's bank may require a handout of £250 billion just to survive

 

[Jimmy Snyder]

We're now officially in Obama's bear market. The Dow Jones Industrial Average fell 20 percent since Inauguration Day. In the Bush years, the Dow had climbed to as high as $14164 and never went below $7286. In spite this, Obama has brought the Dow to a level we haven't seen since the last Democratic Presidency. Obviously, even though people say they like Obama, they won't put their money where their mouth is.

 

[Art]

We're now officially in Obama's bear market. The Dow Jones Industrial Average fell 20 percent since Inauguration Day. In the Bush years, the Dow had climbed to as high as $14164 and never went below $7286. In spite this, Obama has brought the Dow to a level we haven't seen since the last Democratic Presidency. Obviously, even though people say they like Obama, they won't put their money where their mouth is.

I take it you meant this to be a satirical comment on the Bush years?

 

[Count Iblis]

We're now officially in Obama's bear market. The Dow Jones Industrial Average fell 20 percent since Inauguration Day. In the Bush years, the Dow had climbed to as high as $14164 and never went below $7286. In spite this, Obama has brought the Dow to a level we haven't seen since the last Democratic Presidency. Obviously, even though people say they like Obama, they won't put their money where their mouth is.

14164 was a huge bubble the investors failed to see. The Dow is back to where it should be, probably it is still a bit overvalued. Obama has nothing to do with that, other than changing course in the correct direction which exposes the reality of the problem, leading to the Dow sinking to new lows where they should have been in the first place.


I've read that the Dow could sink to 4000 or lower before slowly recovering to 10,000 over the course of the next few decades.

 

[Astronuc]

Unfortunately although these figures looked huge they were dwarfed by news the same day that Lloyd's bank may require a handout of £250 billion just to survive.

Despite the fact that ~$1 trillion have already been injected into the financial system in the US, there is still great uncertainty with respect to the viability of several banks and financial institutions. That is weighing down the equities markets, and that has prompted a significant reduction in capitalization.


Meanwhile -

Unemployment hits 25-year high
Jobless rate hits 8.1% in February as a record-high 12.5 million people are unemployed.

The expected unemployment rate was 7.9%. Of course, the number could be revised upward or downward next month.


Jobless rate bolts to 8.1 percent, 651K jobs lost
http://finance.yahoo.com/news/Jobless-rate-bolts-to-81-apf-14564130.html
Jobless rate jumps to 8.1 percent in Feb., highest since late 1983; employers cut 651,000 jobs

Job losses were widespread in February.

Construction companies eliminated 104,000 jobs. Factories axed 168,000. Retailers cut nearly 40,000. Professional and business services got rid of 180,000, with 78,000 jobs lost at temporary-help agencies. Financial companies reduced payrolls by 44,000. Leisure and hospitality firms chopped 33,000 positions.

The few areas spared: education and health services, as well as government, which boosted employment last month.

Actually locally, we're seeing people in education taking early retirement to reduce staff. Layoffs and school closings are still possible.

 

[Astronuc]

We're now officially in Obama's bear market. The Dow Jones Industrial Average fell 20 percent since Inauguration Day. In the Bush years, the Dow had climbed to as high as $14164 and never went below $7286. In spite this, Obama has brought the Dow to a level we haven't seen since the last Democratic Presidency. Obviously, even though people say they like Obama, they won't put their money where their mouth is.

Did Obama Cause the Stock Slide?
Wall Street has soured on the new Administration's policy moves. Can this relationship be saved?
http://www.businessweek.com/investor/content/mar2009/pi2009034_253747.htm

At least on Wall Street, the honeymoon is over for President Barack Obama.

Polls still show the President has strong popularity among the general U.S. population, and Obama continues to command power in Congress. But among investors, fairly or unfairly, there is griping that the new Obama Administration is at least partly to blame for the recent slide in stocks. Since Nov. 4, Election Day, the broad Standard & Poor's 500-stock index is off about 25%, and since Jan. 20, when Obama took office, the "500" is down 15%.

It's never easy to determine exactly why the stock market moves in a particular direction. Plenty of other factors have influenced stock prices since November. For example, the global economy has slowed further and the outlook for corporate profits has worsened.

But BusinessWeek interviewed a wide array of investment professionals, and many said the first six weeks of the Obama Administration have soured their outlook on the stock market.

. . . .

Well there is a certain amount of inertia in the economy which is beyond the control of the president and the governments. Of course, Obama will get the blame, just like Bush got some blame.

We just have to get through this.

 

[Jimmy Snyder]

Did Obama Cause the Stock Slide?

Of course not, no individual is that powerful. I blame the Democratic congress as well.

 

[Astronuc]

Slump Humbling Blue-Chip Stocks
http://www.nytimes.com/2009/03/06/business/economy/06shares.html

The banking giant Citigroup commanded a stock price of $55 just two years ago. But at one point Thursday, as markets hurtled to their lowest close in 12 years, the shares were worth less than an item at the Dollar Store.

After months of breathtaking declines, this is what Wall Street has come to: Blue-chip companies, once considered safe investments and cornerstones of the economy, are akin to penny stocks.

The bear market is tightening its grip, despite efforts by the government to support the economy and some of its biggest companies. Fears about the depth and breadth of the recession drove the Dow Jones industrial average down another 4 percent on Thursday, bringing its losses so far this year to 25 percent — just shy of the 33 percent decline recorded for all of 2008.

“It borders on unbelievable,” said Glenn W. Tyranski, senior vice president for financial compliance at NYSE Regulation. “You’re seeing companies that are just really suffering across the board.”
. . . .
A share of General Motors stock, which fell below $2 on Thursday as it warned of possible bankruptcy, is now not even enough to buy a gallon of gasoline for your Chevy.

A share of General Electric, battered this week to little more than $6, would not be sufficient to buy two of the company’s compact fluorescent light bulbs. And at its current price of 73 cents, it would take several shares of Office Depot stock to buy a box of paper clips.
. . . .

Of course, this represents a buying opportunity of those who have loads of spare cash.

 

[mheslep]

With Citi under a buck and GM under two bucks, who is willing to buy stock and hang onto them? After the auditors' reports on GM came out today, I don't think I would be buying stock in that company... Citi?... Well, if the US government thinks that bank is "too big to fail", their penny-stocks might be a fun low-risk buy.

Citi is not low risk. If the government eventually nationalizes, and there are many who still advocate this, then you get zero.

 

[OmCheeto]

Did Obama Cause the Stock Slide?
Wall Street has soured on the new Administration's policy moves. Can this relationship be saved?
http://www.businessweek.com/investor/content/mar2009/pi2009034_253747.htm

Well there is a certain amount of inertia in the economy which is beyond the control of the president and the governments. Of course, Obama will get the blame, just like Bush got some blame.

We just have to get through this.

I would point the finger at the people primarily responsible for the whole debacle:

http://www.businessweek.com/investor/content/mar2009/pi2009034_253747.htm"
But BusinessWeek interviewed a wide array of investment professionals, and many said the first six weeks of the Obama Administration have soured their outlook on the stock market.

I get the feeling that this title is going to replace "military intelligence" as the definition of oxymoron.

Investment Professional?

Bwah, hahahahahaha!

Speaking of investment pros, last night I asked my commodities brokerage buddy what I should now invest in. He said invest in another beer.

http://www.youtube.com/watch?v=4qVZwmFZAe0"

... laughing and crying
You know its the same release

 

[turbo]

Things just keep getting worse here in Maine. On Wednesday RR Donnelly announced the closure of its printing plant in Wells. Their primary product is catalogs and promotional materials for retailers, including newspaper inserts. Then Thursday, Domtar announced that it will close its Baileyville plant due to a weakness in the hardwood pulp market. The shutdowns of those plants puts 674 people out of work. An additional 70 jobs will be lost in Eastport at Federal Marine Terminals because Domtar was their biggest shipping customer, sending most of its product to the European markets. The articles in yesterday's and today's papers cited weak consumer demand as the cause for both closings.

 

[mheslep]

Citigroup
...
A share of General Motors stock, which fell below $2 on Thursday as it warned of possible bankruptcy,
...
A share of General Electric, battered this week to little more than $6,

Slump Humbling Blue-Chip Stocks
http://www.nytimes.com/2009/03/06/business/economy/06shares.html
Of course, this represents a buying opportunity of those who have loads of spare cash.

Emphasis on spare, cash they can lose, and they might lose it all (well not w/ GE). Low price does not mean low risk. The price is low because there is high risk.

It has happened before, you'll recall:
https://www.physicsforums.com/showpost.php?p=1804413&postcount=60", before the shares were wiped out.

 

[mheslep]

14164 was a huge bubble the investors failed to see. The Dow is back to where it should be, probably it is still a bit overvalued.

On what do you base that 'where it should be' statement?

Obama has nothing to do with that,

As has already been cited in the BW article, investors, that is those who buy into the market and raise the price, are in part sitting out, more than before, because of administration actions:
a) The otherwise capable Geithner's much awaited Feb 11 speech contained little detail, even after Obama T'd him up the day before saying he would have details. 5% immediate sell off.
b) Investors are concerned about future deficits w/ little demonstrated interest in making cuts, and this in the face of apparent ambivalence by Obama comparing the market ups/downs to the vagaries of a political poll.
c) Investors are concerned about the constricting effect of carbon taxes and what it might to do business.

 

[Astronuc]

Emphasis on spare, cash they can lose, and they might lose it all (well not w/ GE). Low price does not mean low risk. The price is low because there is high risk.

It has happened before, you'll recall:
https://www.physicsforums.com/showpost.php?p=1804413&postcount=60", before the shares were wiped out.

I'm being facetious.

Of course, low prices could mean a buying opportunity, especially if the prices are expected to increase. On the other hand, there is certainly a reason the prices are now low, namely the trouble with the US and global economy.

I think 14,000 was way to high for the Dow, based on where things are now and what has happened since. We got here by poor decisions and practices by business and government.

If one builds a weak and faulty foundation, on weak and shaky ground, it doesn't matter how well the rest of the house or building is constructed, it will fall sometime in the future. And the economic future of then is now.

 

[mheslep]

XKCD, always timely.

On the other hand
http://xkcd.com/552/
http://xkcd.com/552/
I believe I could do an entire project presentation now w/ a ~dozen of these.

Edit: Arg, 552 is already a cliché, posted up all over the net.

 

[misgfool]

Citi going under?

http://money.cnn.com/2009/03/06/news/dodd.fdic.fortune/index.htm

 

[Art]

Jimmy - don't you think the continuing slide in the Dow has a lot to do with the fact several of it's 30 constituents are finance companies?? With all the other constituents being dependent on these finance companies.

Do you really think Obama's policies are what has driven the financial sector's share prices ever lower (some down 30% this past week alone) or do you think perhaps it is because of the steady flood of ever worsening news emanating from these businesses revealing problems in their balance sheets created long, long before Obama's inauguration??

The thing shaking investor confidence is lack of knowledge. It is impossible to accurately value these companies as they just will not come clean over exactly how much their <sic> 'assets' have devalued. Until this matter is resolved once and for all only the most risk taking, foolhardy individual would even contemplate investing in equities.

Lloyds bank, which I mentioned above is a good example. Only a few months ago they asked the UK gov't for £18 billion to 'supposedly' cover all of their problems. Today they are finally admitting the truth (at least one hopes) and are asking for an additional £250 billion!

Another element apart from the lack of transparency and out and out lies is that the securities the banks hold are continuing to fall in value.

So having come clean the next requirement for the banks to reach an equilibrium is something has to be done to stop the free fall in property prices. This is one of the issues Obama's policies are addressing.

How to solve the first problem in getting the finance sector to tell the truth about the state of their finances is a real conundrum - perhaps there is a place in society for water boarding after all

 

[Jimmy Snyder]

Jimmy - don't you think the continuing slide in the Dow has a lot to do with the fact several of it's 30 constituents are finance companies?? With all the other constituents being dependent on these finance companies.

Good point. The S & P 500 is only down 19%, not the 20% required for a bear market.

Do you really think Obama's policies are what has driven the financial sector's share prices ever lower (some down 30% this past week alone) or do you think perhaps it is because of the steady flood of ever worsening news emanating from these businesses revealing problems in their balance sheets created long, long before Obama's inauguration??

But I already conceded that these problems go back to the Clinton Administration. It will surely be years and perhaps decades before we get back to the prosperity we enjoyed under Bush. I consider the current Socialist policies to be unproductive and the main cause of the ongoing collapse.

 

[Art]

Good point. The S & P 500 is only down 19%, not the 20% required for a bear market.But I already conceded that these problems go back to the Clinton Administration. It will surely be years and perhaps decades before we get back to the prosperity we enjoyed under Bush. I consider the current Socialist policies to be unproductive and the main cause of the ongoing collapse.

And how many of the constituents of the S & P 500 are finance houses

You really have missed the fundamental point of this crisis. You were never prosperous under Bush. It was all one giant illusion which has now come crashing down.

You can enjoy the same type of prosperity you had under Bush any time you feel like it. Just take your credit cards and go on a spending spree. The downside being of course, that like the US economy now, you will eventually have to pay for it.

 

[turbo]

But I already conceded that these problems go back to the Clinton Administration. It will surely be years and perhaps decades before we get back to the prosperity we enjoyed under Bush. I consider the current Socialist policies to be unproductive and the main cause of the ongoing collapse.

The comedy is quite entertaining, jimmy. Unfortunately for those that might not have been paying attention during flush times, you might be misleading them. When did we slash deficits and run surpluses? (Clue: not the Bush years.)

 

[Astronuc]

The Daily Show
http://www.thedailyshow.com/video/index.jhtml?videoId=215930&title=bethany-mclean
Bethany McLean weighs in on financial corruption and incompetence (2000-2008+).