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Real Time - Market Currents
Top Stories - Wall Street Breakfast
Friday, December 5 2008
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  • Closer ties in trade talks. The U.S. and China wrapped up two days of bilateral economic talks, their last before President-elect Obama takes office, with an agreement to deepen financial ties, and pledged $20B to fund trade. The U.S. agreed to institute a rapid approval process for Chinese financial firms that want to invest in the country. In a joint statement, the U.S. said it welcomes investments by China's sovereign wealth fund, while Chinese officials look forward to a 'candid and pragmatic dialogue' with the new administration. In response to urging by Treasury's Paulson to let the yuan appreciate, China said it remains committed to a 'stable' yuan and currency reform, and that the U.S. should deal with its own economic problems, including excessive consumption and debt.
  • Job losses pile up. Anticipating declining sales and tougher times ahead, companies across a broad swath of industries are accelerating layoffs. Over 33,000 job cuts were announced this week alone, including 12,000 jobs at AT&T (T), as well as cuts at household names like Viacom (VIA), DuPont (DD) and Avis Budget Group (CAR). All told, the U.S. has lost around 1.2M jobs this year, and economists expect November's losses to reach 350,000. (The government will release its monthly employment report today at 8:30am.) Unemployment will likely tick up to 6.8% for November, or possibly as high as 7%, and break 8% by the end of the year. (More employment data below.)
  • What next from the Fed? Central banks in Europe and Asia slashed interest rates aggressively this week in an effort to stabilize financial markets and check deflationary pressures (see below). Federal Reserve officials are weighing their options and considering following suit. Ahead of today's employment figures, the market priced in a 60% chance that the Fed would cut rates by 75 basis points to 0.25% on December 16. Aside from rate cuts, the Fed is also considering unconventional steps, including new efforts to bring down rates it doesn't usually target, such as those on mortgages, other consumer borrowing and Treasury bonds. Raising expectations for aggressive policy action as soon as next week, Bernanke called for new government measures to stem foreclosures, while two other Fed policy-makers said the economic outlook has 'clearly deteriorated' and is 'not encouraging.' Fed officials insisted the central bank has the necessary tools to tackle current weaknesses and future shocks, even as benchmark interest rates approach zero.
  • Voters line up on BoA/MER deal. Shareholders of Bank of America (BAC) and Merrill Lynch (MER) face separate votes today to approve the takeover deal forged in September. Expected to close by the end of the year, the deal is a significant one in the reshaping of the U.S. financial industry, blurring the lines between investment bank and commercial bank. Some Merrill brokers are reportedly chafing at the BoA approach of peddling stocks through retail-bank branches, though executives have repeatedly denied any cultural tensions. Little has been said about the possible sales strategy for the combined companies, and the internal focus has been on cost-cutting, with as many as 25,000-30,000 positions, or 8%-10% of the new firm, likely to be eliminated over the coming three years.
  • Lu to the search-ad rescue. Microsoft (MSFT) tapped Qi Lu, a former top executive from Yahoo (YHOO), to run its internet operations, a strategically important business in which Microsoft has struggled to gain traction. With Lu's appointment, Microsoft is looking to revamp its search ad-strategy to better compete with industry juggernaut Google (GOOG). Microsoft executives believe search engine technology is the most powerful way to make money on the internet, but the company remains a distant third place despite hefty investments. In October, 63.1% of U.S. searches were done with Google, 20.5% with Yahoo and just 8.5% with Microsoft.
  • Retail sales plunge. For the month of November, U.S. retailers posted the biggest decline in same-store sales in at least 39 years, with heavy discounting keeping sales from falling even lower. Overall, retail sales were down 2.7% from last year, with ICSC's Michael Niemira forecasting 'the weakest holiday season in our record.' Wal-Mart (WMT) beat expectations, and helped pull up overall sales. Excluding Wal-Mart, same-store sales fell by 7.7%. (See how other retailers fared.)
  • Central bank cuts. Bank of England cut its key interest rate by 100 BPs to 2%, as expected, saying "there remained a substantial risk of undershooting the 2% CPI inflation target in the medium term." The European Central Bank cut its key interest rate by 75 BPs to 2.5%. The cut was larger than the expected 50 BPs reduction, and the largest in the ECB's 10-year history, but many suspected something more was in store amid ever-weakening economic data. While economists were satisfied with the larger than expected cut, Nomura's Laurent Bilke says the central bank is late to the party. "The economy is in deep recession now."
  • Monstrous employment numbers. Monster's online employment index fell 7 points in November to 143, and is down 22% from the previous year. Public administration remained Monster's most resilient industry category, but the trend appeared to be weakening. Online job availability rose in just one of Monster's 20 industry categories. The Labor Department's initial jobless claims, released yesterday, totalled 509,000, down 21K from last week. The numbers were less than the 540,000 economists expected, marking the second week in a row forecasts have overshot. The 4-week moving average moved up 6,250 to 524,500.
  • Underwhelming factory orders. October's factory orders were down 5.1% vs. -2.8% consensus, the third consecutive monthly decrease. Ex-transportation, orders fell 4.2%, the largest percentage decrease since 1992.

Earnings: Friday Before Open

  • Big Lots (BIG): Q3 EPS of $0.15 in-line. Revenue of $1.0B (-0.9%) in-line. (PR)

Earnings: Thursday After Close

  • Guess? (GES): Q3 EPS of $0.69 beats by $0.06. Revenue of $528M vs. $512M. (PR)
  • Novell (NOVL): FQ4 EPS of $0.06 in-line. Revenue of $245M (-0.1%) vs. $250M. (PR)

Today's Markets

  • No clear pattern in Asia trading Friday. Nikkei -0.08% to 7,918. Hang Seng +2.49% to 13,846. Shanghai +0.86% to 2,019. BSE Sensex -2.87% to 8,965.
  • In Europe, markets are lower in anticipation of a weak U.S. payroll number. London -1.1%. Paris -2.6%. Frankfurt -2.5%.
  • Futures are down a bit in light overnight trading. Dow -0.1% to 8395. S&P -0.2% to 845.50. Nasdaq -0.4%. Crude +1.4% to $44.29. Gold +0.6% to $770.

Friday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.


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This article has 11 comments:

  •  
    Dec 05 08:26 AM
    There should be NO bailout money for Chrysler!!!!

    There should be NO bailout money for Chrysler!!!!

    Cerberus is a vulture fund that had every intention of stripping Chrysler of every penny and then bringing it back to the market and walking off with their fat billions and beating their chests while laughing there heads off at how they took the suckers money.
    WELL, to bad boys, it did not work out so well for you this time, you were not as smart as you thought you were. EAT YOUR LOSSES, NO GOVERNMENT (TAXPAYER) MONEY FOR YOU!!
    No money to slosh around in your fund to cover up all of your other mistakes and keep your sorry butts solvent and your pay checks fat.
    Sell out or fold, your done, and I for one am going to write Dodd's office to make sure he hears it loud and clear, as we should all do.

    Taxpayer dollars should not be being used to support PRIVATE VULTURE FUNDS business mistakes.

    ggillin - 12-05-2008
    Reply
  •  
    Dec 05 08:49 AM
    Ouch, Just saw the November jobs report - 533 Thousands non farm jobs gone. It's seems as if Hollywood and Wall St. have collided as the reporter managed to spit the words out of his mouth on CNBC. It reminded me of the famous line from The Perfect Storm when the Captain realizes their fate is sealed and remarks to his crew - "She's not gonna let us out" it really sends a chill out my spine to see the implication that we are in the perfect economic storm. As much as it may be true though I'm not sure if the theatrics were intentional or not, I would hope however the guys at CNBC, as much as I enjoy watching the station, would try their best to keep it together
    Reply
  •  
    Dec 05 08:54 AM
    My personal email to Senator Dodd today,

    Senator Dodd,

    I am urging you NOT to support Chrysler and it's current owners with with any bailout money until they divest, break-up, sell or dissolve the company.

    There should be NO bailout money for Chrysler!!!!

    Cerberus is a vulture fund that had every intention of stripping Chrysler of every penny and then bringing it back to the market and walking off with their fat billions and beating their chests while laughing there heads off at how they took the suckers money.
    NO GOVERNMENT (TAXPAYER) MONEY FOR THEM!!
    No money to slosh around in their fund to cover up all of their other mistakes and keep their sorry butts solvent and their pay checks fat.
    Taxpayer dollars should not be being used to support PRIVATE VULTURE FUNDS business mistakes.
    Sincerely,
    Ggillin - 12-05-2008
    Reply
  •  
    Dec 05 08:58 AM
    It was said the US welcomes investments from China's sovereign wealth fund. Sounds like we are at their door begging for scraps. China on the other hand says we need to take care of our own problems such as over consumption. Stop buying all the crap from China at Walmart and we will see if they like that!
    Reply
  •  
    Dec 05 10:21 AM
    Of course, getting a handle on our consumption is in the long-term best interest of the countries that export to us. Reasonable consumption and debt levels build a healthier economy that serves as a better customer overseas suppliers and avoids situations like what we're dealing with now.

    But it's all part of the economic cycle... if we are capitalist, anyway.
    Reply
  •  
    Dec 05 10:31 AM
    i am a little confused i thought one of the reasons gm wanted chrysler was that chrysler had $11 billion and i agree that cerberus is a vulture. i do not think their intentions were ever to revive chrysler. it looks to me like their intention was to swap chrysler for the part of gmac they don't have,
    Reply
  •  
    Dec 05 11:01 AM
    In the 1920's & '30's, there was no internet, no CNBC, no Fox no Bloomburg to whisk out the blow-by-blow leading up to the Great Depression. Currently, we get to see, hear and get opinions about every jab, body blow, uppercut, haymaker. And the cornerworkers are feverishly trying to keep their fighters in the game.

    But is there any doubt of the ultimate outcome ? Whatever "American automakers" looks like now, is there any doubt that in ten years IF such a thing is still around, it will look radically different ? Even if we put the financial system on life support, is there any doubt that the best possible outcome will be to Zombify it like the Japanese did to their bloated banks 20 years ago.

    The mountain of credit that Alan "Bubbles" Greenspin constructed turned into a mountain of debt and is now, daily, changing into a mountain of BAD debt

    Employment is dropping fast. GDP is as well. Earnings, well, aren't there. Yet the federales are revving up the spending machine like teens on the strip, trying to impress Peggy Sue.

    Posturing. It's all one big farce with a bunch of people who aren't good at anything other than making speeches making believe they know how to fix things. Worse, the help they've hired to do the work are the ones who souped up the machine beyond its capacity, which made it break down.

    I get a kick out of the "it'll turn around in Q2 '09" crowd. This bus is NOT headed for Vegas.
    Reply
  •  
    Dec 05 11:06 AM
    I hate to hear all the dumb Republicans who think the ecomony is a free-range chicken. All you have to do is lower taxes to the Investors, remove regulations and stand back. This assumes that the market is two dimensional creature that expands and contracts naturally and should not be interfered with.
    The market is a multi-dimensional, artificial creation of Human beings. Taxes and regulations are only a small piece of the whole. We absolutely foolish if we just stand back and let this income provider die because political dogma. Its our source for bread winning not a tool to punish inept CEO's. England let its auto manufacturing die, and now Germany and Japan have replaced them. It is dumb-American to give our auto Industry to China. We must not follow the same dogma that got us into this mess to bury us deeper.
    Our economy must be manage by clear thought, with a eye on the future. If can use these hard times to extract necessary improvements to the current system so that when the markets return we will be in a stronger position or we can behave like children (Bush) and do nothing now and buy all our cars in the future from some where else.
    Reply
  •  
    Dec 05 12:12 PM
    Every economics class should be required to watch the hearings on the Detroit bailout. Points to ponder:
    1. Why should they all be considered together when Chrysler is owned by venture capitalists, Ford was profitable in the first quarter, and GM doesn't have a clue?
    2. Why is all of the discussion about the Big Three - with the assumption that the money will trickle down to the suppliers (who may be increasingly in China)?
    3. Why should GM be allowed to become a bank - displacing local banks as a source of car loans - when they can't succeed at making cars?
    4. Why isn't the technology money pooled into a joint venture, rather than having three separate efforts?

    There are some thoughtful congress members; others who just reflect a populist sentiment. A very interesting exercise in both economics and politics. If only the 25% who are insightful (in both parties) could dominate the Congress rather than Nancy Pelosi and Harry Reid who understand the politics, but not the economics.
    Reply
  •  
    Dec 05 12:14 PM
    The economic mess is largely the creation of congress along with help from loose cannons such as Greenspan. Congress now has an oportunity to redeem itself. Will it do so; I think not. Rather, it will join the mob of auto worker haters. In which case congress shall be severely punished at the polls.
    Reply
  •  
    Dec 05 12:17 PM
    Congress has an opportunity!
    Reply