Friday, October 17, 2008

Daily economic news roundup

U.S. willing to discuss financial governance: EU

The United States has indicated its willingness, for the first time, to discuss creating an international governance structure for financial markets, a top European Union official said on Friday.

"My impression is there's a growing willingness on both sides to discuss seriously the reasons for the crisis and the instruments (for) how we can prevent it from happening again," EU Industry Commissioner Guenter Verheugen told reporters after two days of talks with Bush administration officials.

President George W. Bush will meet with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso on Saturday to discuss further steps the two sides can take to contain the global financial crisis.

Verheugen said he expected that meeting at Camp David "to define the scope" of a even larger meeting of global leaders to try to tackle the crisis.

Housing starts fall to second-lowest rate in 50 years

Housing starts dropped much more than expected in September - down 6.3% to an annual rate of 817,000 units, the lowest rate since January 1991 and just 19,000 above the record low - Starts are now down a total of 31.1% from September 2007.

Meanwhile, new construction of single-family homes, a better and more stable indicator of new home trends, fell 12.0% in the month to an annual rate of 544,000 units. That's the slowest pace since February 1982.

Few economists expect to see a quick end to the housing recession.

"Builders are frantically cutting back their production of new homes, trying to work off a mammoth glut of unsold properties. Record foreclosures on existing homes are complicating the builders' efforts to bring supply back down to meet sluggish demand."

The mood of home builders' has rarely been worse. The National Association of Home Builders reported Thursday that its sentiment index fell to a record low in October, with respondents particularly gloomy about future sales.

The Hedge Fund Apocalypse

Billionaire investor Warren Buffett wants his fellow Americans to buy stocks, but the Greenwich, Conn., set couldn't take his advice if they wanted to. As investors scream for their money back, hedge fund managers are as paralyzed as the rest of Wall Street.

Hedge fund assets shrank by $210 billion in the third quarter, hit by volatility, higher borrowing costs and $31 billion in redemptions after a wave of investor panic.

The carnage is the worst in the industry's history, surpassing the jolts in 1998, 2002 and 2005, according to Chicago's Hedge Fund Research, which has tracked fund assets and performance since 1990. Funds are scrambling to meet the withdrawal requests, helping to push the major stock averages down in the last few days, and many won't be able to continue in business.

So far this year, 350 funds have closed shop, but that doesn't count the third quarter, when most of the bloodletting has taken place. Ken Heinz, the president of Hedge Fund Research, says he wouldn't be surprised to see 1100 funds liquidate this year.

That would be three times greater than in 1998, when $4 billion Long-Term Capital Management had to be rescued. "We've never seen it happen in this magnitude," Heinz said.

Struggling Mervyns to Close Its Doors

A tightening economy has led another retailer in bankruptcy to shut down its operations.

Mervyns, the California-based department store that filed for Chapter 11 bankruptcy protection in July, announced Friday that it planned to hold going-out-of-business sales at its remaining 149 locations.

The move comes after Linens ’n Things, the home goods retailer that filed for bankruptcy protection in the spring, announced on Tuesday its own plans to liquidate.

The collapse of the chains comes after a dismal back-to-school shopping season — generally the most important time of the year for retailers next to Christmas

ING to Post Its First Quarterly Loss, EU500 Million

ING Groep NV, the biggest Dutch financial-services firm, expects to report its first quarterly loss after 1.6 billion euros ($2.2 billion) of writedowns. The company made the statement after its shares fell a record 27 percent today in Amsterdam trading.

The third-quarter loss of 500 million euros reflects writedowns for stocks, bonds, structured investments and investments related to bankrupt Lehman Brothers Holdings Inc, as well as lower real estate values. Loan-loss provisions totaled about 400 million euros, the Amsterdam-based company said. ING plans to report its third-quarter results on Nov. 12.

``Until two months ago, ING was one of the banks that was doing better, and everyone felt confident they would pay a dividend,'' said Paul Beijsens, an Amsterdam-based analyst at Theodoor Gilissen Bankiers NV in Amsterdam who has an ``hold recommendation on ING. ``The considerable loss is a bad sign.''

Bush Struggles to Be Heard in Economic Crisis

Hardly a day has passed this month without Mr. Bush appearing in the Rose Garden, or meeting with business leaders, or convening his cabinet, or giving a speech, as he did at the United States Chamber of Commerce on Friday, to talk about the “systematic and aggressive measures” his government has taken to put the fragile economy back on track.

But while Mr. Bush is doing plenty of talking, Americans do not appear to be taking much reassurance from his words.

The sheer volatility of the markets suggests that investors remain unconvinced when he says, as he did on Friday, that the government’s bank rescue plan is “big enough and bold enough to work.” On Wednesday, hours after Mr. Bush said he was ‘’confident in the long run this economy will come back,” the Dow Jones average plunged 700 points. Nine in 10 people now say the country is on the wrong track.

U.S. Economy: Sentiment Drops by Record; Starts Fall

Oct. 17 (Bloomberg) -- Confidence among Americans fell by the most on record and single-family housing starts hit a 26-year low, posing an increasing threat to consumer spending that accounts for more than two-thirds of the economy.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 57.5 this month from 70.3 in September.

Today's figures show that the tightening credit crunch has spurred a further step down in the three-year real-estate recession. Falling property values, along with the crash in stocks, threaten to cause the first decline in consumer spending since 1991, and put pressure on the Federal Reserve to cut interest rates again this month.

``Even gasoline-price decreases were overpowered by the massive destruction of wealth,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York who used to work at the Fed. ``Things are pretty awful in the economy and that should make itself felt through weaker consumer spending.''

The University of Michigan's index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 56.7 from 67.2.

Record Low

Its gauge of current conditions, which reflects Americans' perceptions of their financial situations and whether it is a good time to buy big-ticket items like cars, slumped to 58.9, the lowest level ever, from 75.

New Yorkers Expect Depression, Swift Recovery, Siena Poll Finds

Oct. 17 (Bloomberg) -- New Yorkers anticipate a global depression with near-record unemployment and widespread bank failures while remaining confident in a recovery, a Siena College Research Institute poll found.

While 59 percent expressed expectations of a worldwide depression, 58 percent said the economy will recover and 72 percent believe the stock market will recoup recent losses, the survey found. About half said they lost ``a substantial amount'' from retirement savings, and 50 percent expected a lower standard of living.


Gary Near Death Valley said...

According to this notice, an emergency meeting will very soon take place in discussing about the huge derivative probem facing the world, a 600 TRILLION explosion coming. If an emergency meeting is wanted, can the explosion be far behind? See what is happening in Iceland, and get a picture what may be coming our way in the USA soon, if the derivative problem increases beyond total control. Of course, see how the FED has handled the economic crisis up to this point as well as the King Treasury Secretary Paulson. It might be a good thing for those persons that can still think for themselves, and has a litte extra money, to go to the local grocery and stock up on some extras. Just in case.

Randy said...

Thanks for the link Gary - scary indeed. Additionally, some of the reader comments were just as good as the article.

Personally, I don't think this derivative monster can be unwound without initiating severe global economic carnage