Dow Lowest Since ‘97, Mfg. Down, Consumer Spending Shows Some Strength

Stocks Fall Worldwide: Bloomberg

“The bear market has only begun,” Robert Prechter, the founder of Gainesville, Georgia-based Elliott Wave International Inc. who predicted the 1987 stock market crash, said on Bloomberg Radio. “I don’t see the clear weather yet.”

Manufacturing Slump Persists: Bloomberg

March 2 (Bloomberg) — The recession in U.S. manufacturing persisted for a 13th month in February as sales dropped worldwide and factories cut jobs at the fastest pace on record.

The Institute for Supply Management’s factory index was 35.8, compared with 35.6 in January. Readings less than 50 signal a contraction. Other reports showed consumer spending rose in January with a spurt of post-holiday discounts, and construction dropped more than twice as much as anticipated.

Dow Drops Below 7k: NYT

“Another day, another 200 points,” David Dietze, chief investment strategist at Point View Financial Services, said, comparing the daily markets to water torture.

The decision by many companies to trim dividends — one of the incentives for owning stocks — was contributing to the sell-off, Mr. Dietze said. Earlier Monday, the large regional bank PNC Financial Services Group cut its dividend 85 percent and the International Paper Company cut its by 90 percent. Last week, the General Electric cut its dividend 68 percent, and JPMorgan Chase reduced its dividend 87 percent.

Looking ahead, he said: “All eyes are on that Friday unemployment report.”

Rise in Consumer Spending: NYT

In the government report, consumer spending rose in January pushed higher by purchases of food and other nondurable items. But the increase is expected to be fleeting given all the problems facing the economy.

The Commerce Department said Monday that consumer spending rose 0.6 percent in January, even better than the 0.4 percent gain that economists expected.

Personal incomes rose 0.4 percent in January, partly reflecting the cost-of-living adjustments provided to millions of Social Security recipients. Still, that was better than the 0.2 percent decline economists expected.

The personal savings rate surged to 5 percent, the highest level since 1995 as consumers continued to save more of their incomes amid the deepening recession.

The Daily Graphic: Dow Returns to 2002 Low

Underlying chart from Google Finance.  Notations added with PowerPoint.

Brutal Week, Year for the Dow

• U.S. Stocks follow world markets down – Washington Post
• As stocks continue plunge, Dodd says it may be time for short-term nationalization – Bloomberg
• Economic concerns send global shares lower – New York Times
• B of A, Citi shares fall on nationalization talk – Reuters

Recycling – The Next Industry to Be Damaged by Recession

I came across this article in the Daily Mail (U.K.).  Great Britain is experiencing a collapse in demand for the discarded paper and cardboard stock which is used to produce recycled paper products.  The stuff is piling up in warehouses like the one to the left.

I guess the bright side of problems such as this is that a fairly robust market for our recyclables has finally taken hold in countries like the U.S. and Great Britain.

The downside is that this market – one which also has an altruistic side – is now as prone to the laws of supply and demand as any other market.  Because of the environmental and societal benefits of recycling, it’s still subsidized here and abroad through locally administered curbside recycling programs.  In order for the still youthful recycling market to stay viable through the lean times, local taxes or fees could increase – let’s hope those are temporary.  At any rate, I’ll be willing to pay a little more for such a worthy municipal service.

Read more

Who’s At Fault for Economic Crisis – Everyone: Tom Friedman

I would encourage everyone to read Thomas Friedman’s column in the New York Times today.  Along those same lines check out PBS’ Now and their report on the credit rating agencies and their role in the financial crisis. 

The first three grafs:

I spent Sunday afternoon brooding over a great piece of Times reporting by Eric Dash and Julie Creswell about Citigroup. Maybe brooding isn’t the right word. The front-page article, entitled “Citigroup Pays for a Rush to Risk,” actually left me totally disgusted.

Why? Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.

So many people were in on it: People who had no business buying a home, with nothing down and nothing to pay for two years; people who had no business pushing such mortgages, but made fortunes doing so; people who had no business bundling those loans into securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so; people who had no business rating those loans as AAA, but made a fortunes doing so; and people who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.

The article he spent his afternoon brooding over is here.  The more we know and understand this complex set of circumstances bringing our country’s economy to a standstill, the better we can advocate in our own ways moving forward.

Huge Monday for the Economy – News Roundup

Citi

• Citi to halt dividend, curb pay – New York Times
• Another crisis, another guarantee – New York Times
• What the Citi deal doesn’t do - Forbes
• Citigroup gets U.S. rescue from losses, cash infusion – Bloomberg

The Dow

• World stocks surge after Citi bailout - Associated Press
• Markets surge for a second day – New York Times

Obama Economic Team

• Obama Troika may push for deeper role in economy - Bloomberg
• Obama unveils team to tackle economy – New York Times
• Obama outlines recovery plan; announces team – Washington Post

Dow 7000?

Back on October 6, I predicted – well sort of predicted by writing a headline on some market news aggregation – Dow 8,000.  Based on the economic and financial industry news of that day just 2 1/2 months ago (seems longer) the Dow dropping to 8,000 and staying in that vicinity for some period of time seemed reasonable.

At the time we had been through Fannie and Freddie, Lehman was failing, more banks were failing and the federal government and media began explaining things like credit default swaps to America.  Things looked bad, but some were still touting the “fundamentals” of the U.S. economy and the publicly traded companies on our major stock exchanges shouldn’t pay too high a price (with dropping share values) for the excesses of the financial services industry.  Also at that time, I was reading Kevin Phillps’ book, Bad Money.  If you want a better understanding than the average bear – or bull – of the current U.S. financial system Bad Money is a must read.  At any rate, under the influence of that book, it was just obvious that as stocks dropped sharply that day there were probably many more shoes to drop, hence the market wasn’t at the bottom yet.

Now I’ll revise my estimate.  On top of the crisis in the financial system and all that it entails, from failing banks to a still too tight credit market there are many more economic indicators pointing to the final quarter of 2008 just being the beginning of a difficult economic downturn.  Here are a few things that immediately come to mind: Read more

Full Text: President George W. Bush, Speech on the Financial Markets and World Economy, Manhattan Institute, November 13

(Source: White House Press Office)

THE PRESIDENT: Thank you very much. Please be seated. Thank you. Larry, thank you for the introduction. Thank you for giving Laura and me a chance to come to this historic hall to talk about a big issue facing the world. And today I appreciate you giving me a chance to come and for me to outline the steps that America and our partners are taking and are going to take to overcome this financial crisis.

And I thank the Manhattan Institute for all you have done. I appreciate the fact that I am here in a fabulous city to give this speech. (Applause.) People say, are you confident about our future? And the answer is, absolutely. And it’s easy to be confident when you’re a city like New York City. After all, there’s an unbelievable spirit in this city. This is a city whose skyline has offered immigrants their first glimpse of freedom. This is a city where people rallied when that freedom came under attack. This is a city whose capital markets have attracted investments from around the world and financed the dreams of entrepreneurs all across America. This is a city that has been and will always be the financial capital of the world. (Applause.) Read more

Text: Prof. Nouriel Roubini’s Congressional Testimony, October 30 | Dr. Doom Speaks

Prof. Nouriel Roubini testified today before the U.S. Congress Joint Economic Committee.

Click Here for Roubini’s Written Testimony (PDF)

U.S. and World Markets Poised for Another Rocky Week

Hong Market Plunges Most Since 1989 Tiananmen Crackdown
– Bloomberg

Global markets continue slide, U.S. futures off 4%
- New York Times

‘Dr. Doom’ doesn’t see things getting better yet – Times of London

Grim GDP figures shows U.K. on verge of recession
– Times of London

Forecasters race to call the bottom
– New York Times

Last night, CBS News’ 60 Minutes ran another great, explanatory piece on how the investment class nearly ruined our economy. Check it out below:

Watch CBS Videos Online

For an explanation of credit default swaps go here.

Cat bounces Monday – Dies again today – What’s in store for tomorrow?

DOWn over 700

• Dow loses 8% over recession fears – CNBC
• U.S. stocks plunge most since 1987 – Bloomberg
• Dow declines 733; S&P 9% - Wall Street Journal
• Plunge in stocks Highlights ailing economy – New York Times
• Most of Monday’s gain is erased – New York Times
• Wall Street plummets – Reuters

One Year DJIA Chart

Bernanke, Other News & Analysis

• Economic activity weak across U.S.: Beige Book – Reuters
• Bernanke says U.S. economy faces big threat – Reuters
• Fed considers more cuts – Wall Street Journal
• Bernanke says bailout will need time to work – New York Times
• Video Link: Bernanke’s Address Courtesy of CNBC

Text: President Bush Statement on G7 Meeting, Oct 11

(Source: White House Press Office)

7:54 A.M. EDT

THE PRESIDENT: Thank you all very much. Good morning. Secretary Paulson, Secretary Rice and I just had a productive discussion with finance ministers of America’s partners in the G7 — Canada, France, Germany, Great Britain, Italy, and Japan. I’m pleased to be with Prime Minister Junker of Luxembourg, who is the President of the Eurogroup of countries, Managing Director Strauss-Kahn of the International Monetary Fund, President Zoellick of the World Bank, Chairman Draghi of the Financial Stability Forum. Thank you all for coming. Read more

Text: President Bush Speech on the Economy, October 10

10:25 A.M. EDT (Source: White House Press Office)

THE PRESIDENT: Good morning. Over the past few days, we have witnessed a startling drop in the stock market — much of it driven by uncertainty and fear. This has been a deeply unsettling period for the American people. Many of our citizens have serious concerns about their retirement accounts, their investments, and their economic well-being.

Here’s what the American people need to know: that the United States government is acting; we will continue to act to resolve this crisis and restore stability to our markets. We are a prosperous nation with immense resources and a wide range of tools at our disposal. We’re using these tools aggressively. Read more

Greenspan: Why History is not Written Contemporaneously

Today the New York Times has what I would call the definitive mainstream media piece (so-far) regarding just what 19 years of Alan Greenspan meant as head of the Federal Reserve. You can read it here.

One cannot place the blame for today’s out-of-control financial system on person or one institution. Greenspan’s still unyielding scorn for government regulation of the financial sector and markets does invite debate. There is a conversation and ensuing action that needs to take place over such issues as transparency and governance – and what role the federal government will take. Today’s mess also invites another look at the rules which were loosened under Presidents Bill Clinton and George W. Bush affecting what businesses should be engaged in lending, securities, and insurance. Under the old system where banks lent, insurers insured and brokers made markets I don’t think we would be dealing with problems which may cost the “little people,” taxpayers, trillions.

Another point worth debating is human nature. Just last week, at a speech at Georgetown University, Greenspan concluded:

Wealth creation requires people to take risks, and thus we cannot be sure our actions to enhance our material wellbeing will succeed. But the greater our ability to trust in the people with whom we trade, that is, the more enhanced their reputation, the greater the accumulation of wealth. In a market system based on trust, reputation has a significant economic value. I am therefore distressed at how far we have let concerns for reputation slip in recent years.

Reputation and the trust it fosters have always appeared to me to be the core attributes required of competitive markets. Laws at best can prescribe only a small fraction of the day-by-day activities in the marketplace. When trust is lost, a nation’s ability to transact business is palpably undermined. In the marketplace, uncertainties created by not always truthful counterparties raise credit risk and thereby increase real interest rates and weaker economies.

During the past year, lack of trust in the validity of accounting records of banks and other financial institutions in the context of inadequate capital led to a massive hesitancy in lending to them. The result has been a freezing up of credit.

As I noted in my opening remarks, trust will eventually reemerge as investors dip hesitantly back into the marketplace. From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later. In either event, human nature being what it is, revival will come. It always has in this society governed by that remarkable document we call the Constitution of the United States.

What I would say to Greenspan is that humanity is broken by nature. Take a look at history and the things people still do to one another on a daily basis all over the world. The bad actors are a minority, but common sense regulation protects the rest of us from the minority of bad actors who are apparently able to take a whole loosely or unregulated system down. When Greenspan speaks of trust as foundational to the marketplace, I can’t help but think: “Trust but verify.” If there is weak regulation, and there are billions or trillions of dollars at stake who other than the government can guarantee the “validity of accounting records of banks and other financial institutions …?”

Americans should hope that the next president is willing to take back the control Wall Street has had over federal financial and economic policy since at least the Clinton Administration. It might even be nice to have a Treasury Secretary who is not an alum of Goldman Sachs.

Everyone hailed Greenspan as “The Oracle” when his low interest rates inflated the value of the housing market and helped create the boom of the nineties and early 2000s. Now those same interest rates and his relentless fight against regulation are being derided. At some point, years from now, we’ll know the true legacy of Alan Greenspan’s Federal Reserve.

Click Here for Text of Greenspan’s Speech at Georgetown

Dow 8,000?

Financial, Markets, Economy News Roundup

Do you call a day like today bad or just reality?

• Chaotic day with Dow down 3.8% – New York Times
• Dow below 10,000 for first time since 2004 – Bloomberg
• B of A cuts dividend, offers stock – Bloomberg
• Paulson looking for ways to unlock credit – Bloomberg

I think we just gave him 700 billion ways.

• Lehman managers portrayed as irresponsible – New York Times
• Fuld blames Lehman’s collapse on ‘rumors’ – Bloomberg

Fuld is obviously a hopeless jackass.

• Bond risk rises – Bloomberg
• Oil prices fall below $90 per bbl – New York Times
• Bailout’s limit on pay will be tough to realize – Wall Street Journal
• Jim Cramer: Time to get out of market – NBC
• Germany takes hot seat as Eurpope falls into the abyss – The Telegraph

  We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars. — Ambrose Evans-Pritchard

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