Economic News Roundup 6/18/08
Ready for a 300-point Drop in the S&P 500?
A Royal Bank of Scotland credit strategist, Bob Janjuah, rattled investors around the world today with predictions that the S&P 500, now trading near 1340, could plunge to 1050 by September, as “‘all the chickens come home to roost’ from the global boom.”
“A very nasty period is soon to be upon us — be prepared,” he said, according to the Daily Telegraph.
Bits and pieces of Janjuah’s warning to RBS clients seem to be floating around the Internet. However, RBS spokespeople said the note was for RBS clients only.
Janjuah’s argument is that the European and U.S. economies will show a lot of weakness this summer. That will put the U.S. Federal Reserve and possibly the European Central Bank in a bind: If they raise interest rates, they would slow an already weak economy right before a U.S. presidential election. If they don’t hike rates, they would allow inflation to increase uncontrollably. Unchecked inflation would seriously disturb the world’s investors.
Janjuah reportedly wrote:
The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets.
RBS issues global stock and credit crash alert
The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.
"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.
RBS warning: Be prepared for a 'nasty' period
Such a slide on world bourses would amount to one of the worst bear markets over the last century.
Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates.
"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.
Treasury's Paulson repeats strength of US economy will be reflected in dollar
WASHINGTON (Thomson Financial) - US Treasury Secretary Henry Paulson today repeated that he believes the US is taking the right steps to improve its economic situation in light of the ongoing housing and credit crisis, and said the value of the dollar will ultimately reflect the soundness of the overall US economy.
What a crock of S@!t! this bozo needs to find a different line because his daily strong-dollar jawboning is growing quite old. OK Paulson, Actions speak much louder than words. Defend the US Dollar by raising rates and lets see what happens! Can't do it -- can ya?
Bank and economic fears drive Dow to 3-month low
The Dow industrials sank to their lowest close in three months on Wednesday after slipping below 12,000 for the first time since mid-March, as worries about a weak economy compounded credit sector concerns and drove shares of banks, autos and transportation companies sharply lower.
The Dow fell to an intraday low at 11,993.64 -- its lowest level since the Federal Reserve's mid-March rescue of Bear Stearns rattled investors who were already worried about the health of the banking sector.
"The autos, financials and transport sectors are very sensitive to the perception that economic growth is waning," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. "We've had little evidence the economy is at (its) bottom."
Worries were surfacing over the reading of the U.S. second-quarter gross domestic product, due in July, he said. A Reuters poll of economists see the GDP's growth rate slowing to an annual pace of 0.2 percent in the second quarter, which would be the weakest since 2002.
Paulson to Urge New Fed Powers
Treasury Secretary Henry M. Paulson Jr. plans to call today for the Federal Reserve to be given new, explicit powers to intervene in the workings of Wall Street firms to protect the financial system, adapting his vision of how the financial world should be regulated to reflect the lessons of the collapse of Bear Stearns.
"Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk," Paulson plans to say in a speech today, according to prepared remarks obtained by The Washington Post. But the central bank "has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system."
As I stated in Tail Wagging the Dog back in March: The Federal Reserve, a private banking institution authorized by Congress to loan money created from nothing and charge interest for doing so, is already a powerful, rouge institution that operates without Congressional oversight. Should we now hand them more power? The answer can be made in Two words: ABSOLUTELY NOT!
Banks' Dividends Domino; Fifth Third's Is The Latest
Shares of Fifth Third Bancorp tumbled on Wednesday as the Cincinnati-based bank became the latest regional bank to butcher its dividend and initiate a plan to raise more $2.0 billion in extra capital.
The banking company said second-quarter earnings are expected to be one to five cents a share, a fraction of the 40 cents predicted by analysts surveyd by Thomson Financial. The company is reeling from a rise in bad loans. Fifth Third's key states for operations include Ohio, Michigan and Florida, all hit hard by the U.S. housing downturn.
On Wednesday, Standard & Poor's Equity Research downgraded the bank to sell from hold, citing possible credit weakness. Moody's Investors Service said it's reviewing the bank's long-term deposit and debt ratings for a possible downgrade.
Washington Mutual plans to lay off hundreds
Washington Mutual, battered by the nationwide housing downturn, is poised to announce another round of layoffs Thursday that will affect at least several hundred employees nationwide across all departments.
Washington Mutual to end 2 complex mortgage types
Washington Mutual Inc. said Wednesday it would stop offering two types of complex mortgage products, the latest change to its mortgage business intended to help it recover from the mess in the mortgage and credit markets.
The nation's largest thrift said it would no longer offer negative amortizing loan products or WaMu Mortgage Plus loans.
The switch follows WaMu's decision in late 2007 to shutter its subprime mortgage operations and cease buying mortgages from brokers. The thrift continues to struggle with costs associated with delinquent borrowers and rising foreclosures, and in April agreed to a $7 billion cash infusion from private investors.
Hedge star John Paulson says credit crisis not over
The credit crisis is not over, and losses in the financial sector are set to be around $1.3 trillion, according to star hedge fund manager John Paulson, who says he remains short credit.
Paulson, who earned $3.7 billion in 2007 according to Alpha Magazine by going short the subprime sector during the U.S. mortgage meltdown, also said a deterioration in consumer spending was set to drive the U.S. economy into recession this year.
"I don't think we're through the credit crisis. There are lots of problems out there, and I think we'll continue to experience problems for the remainder of the year," he told the GAIM International 2008 hedge fund conference in Monaco.
"I believe we're going to go into recession, I think the second half (of the year) will be worse than the first half, and I think the recession will last into 2009 ... The primary factor leading to recession will be a decline in consumer spending, and I believe that will be more pronounced in the coming months."
He also said his funds had minimum exposure to equity markets because of a likely recession and that it was too early to start distressed debt investing, though a huge opportunity would eventually emerge.
"I do think, long-term, distressed presents an opportunity that is as much as $10 trillion. That is a reflection of how much the credit markets were overvalued on the upside."
Loan crisis: how the credit crunch has hit postgraduates
Sallie Mae's exit from the loan market has left postgrads like Victor Schonfeld stranded
One morning last week, nine months into my PhD, I discovered by accident that the loan which made my degree feasible, and which I had taken out for a year, was no longer available after that. I'd been looking into transferring to a university that might better match the evolution of my PhD in English and I mentioned to their fees office that my PhD has full funding from Sallie Mae UK. "Oh, those loans were ceased, we got an email," came the casual reply. "Can you self-fund?"
I rushed to phone my own university's financial office for enlightenment. "Yes, well, that is a problem," came the reply.
Sallie Mae, a major American lender that set up in Britain just two years ago, had not told borrowers that they were no longer lending in Britain to postgraduates. Nor was there any warning from Royal Holloway, the University of London college responsible for certifying my annual costs and delivering semi-annual cheques. The financial office explained that they're overloaded with student crises and had trusted Sallie Mae to inform its borrowers.
It looks like I will not have a Dr before my name and I'll have to put my aim of teaching university students to write fiction on hold. I'm pushing on with my novel about elitism and intelligence in America and going back to my film-making career.