Tuesday, August 11, 2009

U.S. Stocks Fall on MBIA Downgrade, Outlook for Bank Earnings

Aug. 11 (Bloomberg) -- U.S. stocks dropped the most in a month, led by financials, after JPMorgan Chase & Co. said credit losses may overwhelm capital at MBIA Inc. and analyst Dick Bove said bank earnings won’t improve in the second half of the year.

MBIA, the biggest bond insurer, tumbled 13 percent after JPMorgan cut the company to “underweight.” All but one of 24 shares in the KBW Bank Index fell as Bove, analyst at Rochdale Securities, said banks will probably retreat. CIT Group Inc., the commercial lender trying to avoid a collapse, slid 19 percent after delaying its earnings report. Sprint Nextel Corp. and Yum! Brands Inc. declined on analyst downgrades. (more)

The Biggest Holders of US Government Debt

Federal Reserve and US Intragovernmental Holdings That’s right, the biggest holder of US government debt is the United States itself. The Federal Reserve system of banks and other US intragovernmental holdings account for a stunning $4.806 trillion in US Treasury debt. And with recent announcments from the Fed, potentially another $1 trillion may be added to its balance sheet... About a decade ago, the total government holdings were "only" $2.5 trillion.
(source CNBC)

Templeton’s Mobius Says Stocks Face 30% ‘Correction’

Mark Mobius said global stocks will drop as much as 30 percent following their recovery from last year’s rout as companies take advantage of the rebound to sell more shares.

“When you have these rapid increases, almost without correction, you will definitely have a correction at some point, so we can expect a lot of volatility,” Mobius, the executive chairman of Templeton Asset Management Ltd. said in an interview in Kuala Lumpur today. “Increases of 70 percent will be followed by decreases of 20 to 30 percent.”

The MSCI World Index has climbed 54 percent from a 13-year low on March 9, boosting valuations as governments worldwide spent more than $2 trillion to end the global recession. The rebound prompted a revival in share sales. China State Construction Engineering Corp. and Visa Inc.’s Brazilian affiliate VisaNet raised about $11.9 billion in the world’s largest initial public offerings this year. (more)

VIX Signals S&P 500 Swoon as September Approaches

Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities.

Traders were betting the VIX, a gauge of expected stock swings, would increase 13 percent in the next five weeks, according to futures prices at the end of last week compiled by Bloomberg. That’s the biggest spread since August 2008, before the S&P 500 suffered the steepest two-month plunge in 21 years. The indexes have moved in the opposite direction 81 percent of the time over the past five years, Bloomberg data show.

VIX futures above the level of the index show investors expect fluctuations to widen and stocks to retreat. The S&P 500 has rallied 49 percent in five months, pushing valuations to the highest levels since December 2004. The S&P 500 gained 2.3 percent last week as reports showed home sales rose and the unemployment rate fell. (more)

Faulty Forecasting

By Ralph Nader
Companies that specialize in stock market forecasting and trading—such as Goldman Sachs, Citigroup, Morgan Stanley, and JPMorgan Chase—pay very high salaries to their employee-vendors. New York Attorney General Andrew Cuomo just released data showing that these and other large banks are giving each of their 5000 trader-forecasters bonuses of at least one million dollars.

In return, these fat cats are very frequently wrong in their recommendations and decidedly unprofessional in their fiduciary relationships with the clueless, trusting clients who rely on them. Win or lose, they get their fees. (more)

Bankrupt US Financial Sysytem

The World needs a breather from the US. And they'll get it sooner than many think

We're making this way too complicated. It's simple really.

The Fed has only one tool at its disposal; to create more money. Typically, the way the Fed adds to the money supply is by lowering interest rates. When the Fed lowers rates below the rate of inflation; they're basically selling dollars for under a buck. That's a good deal, so, naturally, speculators jump on it and trigger a credit expansion. What follows is a frenzy of market activity that ends in a housing, credit, tech or equity bubble. Eventually, the bubble bursts and the economy goes into a tailspin. Then, after a period of digging-out, the process resumes again. Wash, rinse, repeat. It's always the same. The moral is: Cheap money creates bubbles; and bubbles move wealth from workers to rich motherporkers. It's as simple as that. That's why the wealth gap is wider now than anytime since the Gilded Age. The rich own everything. (more)

CNBC slides as viewers get crunched

With a steely gaze, the pin-striped CNBC television host Larry Kudlow looks meaningfully into the camera.

"We believe that free market capitalism is the best path to prosperity," he declares, reciting his trademark "creed" before enthusiastically launching into the day's financial action.

Share prices flicker across the bottom of the screen. Traders bicker about the fundamentals of the market. A "breaking news" flash delivers US non-farm payroll numbers. Welcome to CNBC, the world's top business television channel, which broadcasts across the globe from the nondescript suburban town of Englewood Cliffs, New Jersey. (more)

GM turns to eBay to sell cars

General Motors Co and eBay Inc are launching a test program in California that will allow consumers to negotiate with dealers and buy new vehicles online, the companies said on Monday.

The car shopping website -- gm.ebay.com -- marks a departure from the way new vehicles have traditionally been sold in the United States and is aimed at helping GM recapture lost market share a month after it emerged from bankruptcy.

The online marketplace provides the No. 1 U.S. automaker with a new venue to sell new vehicles as it cuts the number of U.S. dealerships by more than 40 percent to 3,600 by the end of 2010 as part of its efforts to return to profitability. (more)

Hunger hits Detroit's middle class

On a side street in an old industrial neighborhood, a delivery man stacks a dolly of goods outside a store. Ten feet away stands another man clad in military fatigues, combat boots and what appears to be a flak jacket. He looks straight out of Baghdad. But this isn't Iraq. It's southeast Detroit, and he's there to guard the groceries.

"No pictures, put the camera down," he yells. My companion and I, on a tour of how people in this city are using urban farms to grow their own food, speed off.

In this recession-racked town, the lack of food is a serious problem. It's a theme that comes up again and again in conversations in Detroit. There isn't a single major chain supermarket in the city, forcing residents to buy food from corner stores. Often less healthy and more expensive food. (more)

McMansions Going on the Block

Wealthy people are turning to auctions to sell off McMansions as their finances begin to collapse.

“We are seeing more people with homes that were on the market for $4 million to $7 million that are not selling, and they are calling us,” Jim Gall, president of Auction Company of America, tells The New York Times.

The paper reports about Jack Warner, 61, who had a successful construction business in Elkhart, Ind., that allowed him to purchase a home on Little Torch Key, Fla. 16 years ago.

In 2007, the home was appraised at almost $14 million. But when the real estate market collapsed, he closed the construction company. (more)

Unemployed Taking Jobs They Never Dreamed Of

Some of the dirtiest, smelliest, most dangerous jobs are suddenly looking a lot more appealing in this economy.

People who have been out of work for months are lining up for jobs at places they once considered unthinkable: slaughterhouses, sewage plants, prisons.

"I have to just shut my mouth because I can't do anything about it," said Nichole McRoberts of Sedalia, Mo., who pictured more for herself at age 30 than working in a poultry plant, cutting diseased or damaged flesh off chicken carcasses.

Recessions and tight job markets always force some people to take less-desirable or lower-paying work than they are used to. But this recession has been the most punishing job destroyer in at least 60 years, slashing a net total of 6.7 million jobs. (more)