Friday, January 04, 2008

Economic News and Market Downturn

The DOW is down nearly 200 points as I pen this quick message and the S&P has finally broke through key downside resistance. Looks like the markets, this week, have finally woken up to the issues that we’ve been talking about for quite some time.

Some of the major concerns that have come to light over the past few days—several of the catalysts for recent negative market reactions:

ISM Index (Manufacturing Activity) drops to 47—below 50 is bad/contracting

US blue-chip stocks on Wednesday suffered the worst start to a new year in 25 years after an index of manufacturing fell sharply, raising fears that the US economy is slowing more than expected.

Jobless Rate rose to 5%--even w/skewed data from BLS birth-death model

Hiring practically stalled in December, driving the nation's unemployment rate up to a two-year high of 5 percent and fanning fears of a recession.

Employers last month added the fewest new jobs to their payrolls in more than four years, according to the employment report released Friday by the Labor Department. The report showed that employment conditions are deteriorating, strained by a housing slump and credit crunch that are sapping economic strength.

"The economy is getting hit by some body blows. The big question is whether the economy can withstand it or will it take a fall," said Ken Mayland, president of ClearView Economics.

GM, Ford, Toyota December Sales Fall—Worst Year in a Decade

General Motors Corp., Ford Motor Co. and Toyota Motor Corp. said U.S. auto sales fell in December, capping the worst year in a decade, and predicted that 2008 probably won't be any better.

Consumers are curtailing spending after being hammered by $3-a-gallon gasoline prices. Housing starts, a barometer for sales of profitable trucks, are in the deepest slump in 16 years.

``It's going to be a brutal year for autos; we're headed into a recession,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee.

Ford Stock Price @ 22 year low after losing #2 spot to Toyota

Ford Motor Co. fell to the lowest price since 1986 in New York trading after losing its status as the No. 2 seller of autos in the U.S. for the first time in three-quarters of a century.

Ford slid as much as 7 percent to $6 today, a day after posting a 12 percent drop in U.S. sales and forecasting a ``challenging'' 2008. Toyota Motor Corp., which modeled itself after Ford following World War II, has now overtaken the Dearborn, Michigan-based automaker on its home turf.

Past due payments on consumer loans UP—highest since 2001

Americans are falling further behind on consumer loans, with late payments rising to the highest level since the nation's last recession in 2001, data released Thursday show.

In its quarterly study of consumer borrowing, the American Bankers Association said the percentage of loans at least 30 days past due rose to 2.44 percent in the July-to-September period from 2.27 percent in the previous quarter.

The delinquency rate was the highest since a 2.51 percent rate in the second quarter of 2001. Late payments on some types of loans rose to levels not seen since the 1990s.

The ABA attributed some of the summer increase to rising oil prices and the inability of thousands of homeowners to keep up with mortgage payments.

"Those little expenses that keep sucking dollars out of wallets every month are what have the most impact on people's ability to pay their consumer loans," Chief Economist James Chessen said in an interview

So what can we expect the Markets to do next week?

I expect to see a small recovery on Monday, but numerous economic releases due later in the week will probably intensify today’s decline.

Due Next Week:
- Pending Home Sales
- Consumer Credit
- Initial Claims
- Wholesale Inventories
- Import/Export Prices
- Crude Inventories

BREAKING NEWS! Looks like the Fed is becoming more concerned w/Credit Crisis

Fed Ups Auction Amounts to Aid Banks

The Federal Reserve announced Friday that it is increasing the amount of money available to banks through the new auction process it created to ease the nation's severe credit squeeze. The Fed again pledged to continue the auctions "for as long as necessary."

The Fed said that it will increase the amount offered at each of the next two auctions from $20 billion to $30 billion, a 50 percent jump. Those two auctions will be Jan. 14 and Jan. 28.

So, will the Fed cut rates again at the end of Jan?

ABSOLUTELY! My Bet is 50 Basis Points. We may even see an emergency rate cut beforehand.

Post Updated at 14:30--Added new Peter Schiff Video (Discussing Markets); Very Smart guy and I agree with many of his points (even read his book), but don't agree that foreign markets will decouple and withstand the downturn--Decouple yes, but I think it will take many years

Have a great weekend!


Anonymous said...

The stock market is a big player in all this bad news. It is so overpriced it's a shame. No wonder we are paying so much more at the grocery, gas stations, and any other goods and services we may need or desire. When the stock market is so overpriced, naturally the companies and businesses that are involved have to either cut payrolls or up the price of their goods and services to pay the dividends to stock holders. Like the old saying goes There's no free lunch. So what needs to happen? Let the chickens come home to roost. Quit trying to bail out banks and wall street for their greed and stupidity. If stock holders want to sell then they should sell. All this lying and deception should stop. The Feds should quit giving our tax dollars to the tune of Billions of dollars to wall street and the banks to create a false sense of security to keep wall street in a buying mood.
Let the correction take care of itself.

Anonymous said...

The market is a side-bar, opening act for a three part tragedy. The money flowing into the market is, to a significant degree, from foreigners looking for a place to park some cash.

The tragedy, as it plays out will be the total collapse/implosionof the banking system.

Forget about greed. Get to know your neighbors! Stock up on food, water and ammunition. Prepare to ride out the tide of civil unrest.

Work with your neighbors. Prepare.

And do like my wife did on her wedding night--act like you're having fun.

Randy said...

Anon 12:53, I couldn't have said it any better myself. This "Free-Market Economy" we live in, is so blatently manipulated it's enough to make a person nauseous.

Anon 1:36, I certainly hope it doesn't come to this, but better judgement tells me it's quite possible.

BTW: I couldn't stop laughing after reading your closing line:
"do like my wife did on her wedding night--act like you're having fun"

Anonymous said...

He's not much of a salesman.

Randy said...

Who's not much of a salesman (Peter Schiff or Anon 1:36)?

Peter Schiff usually does a Great Job with his message; see link
Peter Shiff Videos

Thomas Coolberth said...

Thanks for posting Peter. He really gets me thinking.

If Peter is a weak salesman that makes me want to give his firm my savings all the more.

Anonymous said...

If the world GDP is 50 trillion and the total of derrivatives is about 700 trillion, just how long do investors think it can go without a correction/equalisation?

Japan can't seem to get out of their slump even with oil prices reasonable. What makes the US think that they can slide out of this problem when oil exports drop off a cliff at the end of 2010?

NASA has said the obvious; that weather is going to get increasingly violent. What is the plan when violent weather takes out more crops, oil platforms, and coastal cities?
We've all been cursed in that we live in interesting times.