The Coming Recession

[Martin]

Originally Posted by waltky

Millions in U.S. face energy shutoff
April 25,`08 -- Large numbers of Americans face the prospect of energy shutoffs during the coming months because of rising energy prices and stagnant wages, officials said.

That seems like a good thing.. Wont have to worry as much this summer about the power grid failing.

[waltky]

Might chase a few illegals back across the border if they can't pay their A/C bill.

Buffett and Bernanke inflation debate...

Buffett vs. Bernanke: The inflation showdown
June 26, 2008 : The billionaire investor says inflation is 'exploding,' but the Fed believes commodity price shocks should subside.

Even Warren Buffett is wrong some of the time. Federal Reserve chairman Ben Bernanke is hoping this is one of them. Buffett, the billionaire investor behind Berkshire Hathaway, fingered "exploding" inflation Wednesday as the biggest risk to the economy. "I think inflation is really picking up," Buffett said on CNBC. "It's huge right now, whether it's steel or oil," he continued. "We see it everywhere."

Indeed, the prices of gasoline and milk have shot past $4 a gallon, and Dow Chemical has announced twice in the past month that it's raising prices to offset soaring commodity costs. Yet Bernanke's Fed signaled Wednesday that, after nine months of interest rate cuts and expansive lending to the financial sector, it isn't eager to reverse course and push rates higher to try to tamp down rising prices.

Why? Because the Fed remains skeptical that high commodity prices will ripple through the economy, leading to broad price hikes and big wage increases. "The committee expects inflation to moderate later this year and next year," the Federal Open Market Committee said in holding the fed funds rate steady at 2%, though it did note that "uncertainty" remains high and suggested inflation concerns could rise.

Depends on what you mean by 'inflation'

[waltky]

If Granny takes another hit like Enron, we gonna be broke...

Stocks off $2.1 trillion this year
1 July `08 - Biggest June loss since Depression

Hurt by a record-setting run for crude oil and renewed concerns about the health of the banking sector, Wall Street ended a dismal second quarter Monday with blue-chip stocks on the cusp of their first bear market in almost six years. After a 10.2% drop last month, its biggest June loss since the Great Depression, the Dow Jones industrial average is now at 11,350, or 19.9% below its October all-time high. The Dow is flirting with its first bear market — a drop of 20% or more — since the 2000-02 bursting of the Internet bubble. The U.S. stock market has lost $2.1 trillion in value this year — $1.4 trillion in June alone, says Dow Jones Indexes. "Talk about a tough month," says Sam Stovall, chief strategist at Standard & Poor's.

Wall Street is debating whether the market has now priced in the bulk of the bad economic news. Bob Doll, chief investment officer at BlackRock, said Monday he believes the market is past the worst and should "grind higher" the rest of the year. The big game changer has been the 38% jump in the price of a barrel of oil to $140 in the April-June period. That helped deepen the economic gloom that arose from the housing bust. Stocks are likely to get a boost if oil prices recede, because it will lift some of the financial pressure off consumers and businesses struggling under the weight of $4.10-a-gallon gasoline, says Tobias Levkovich, chief investment strategist at Citigroup.

Investors are closely watching to see whether the broader S&P 500 index can stay above the recent lows it set in mid-March and avoid falling into bear territory. The S&P, after a 3.2% second-quarter loss, is 18.2% off its high.The rise in oil prices has coincided with a second round of handwringing over the credit crisis, which first hit Wall Street's radar last summer. Stocks enjoyed a relief rally in April and May after a financial market meltdown was averted in mid-March when JPMorgan Chase stepped in to buy beleaguered investment bank Bear Stearns. Fears about the health of banks and brokerages resurfaced in June amid stock downgrades by analysts and expectations that major U.S. financial institutions will write off additional billion-dollar losses on bad mortgages when they report second-quarter earnings in coming weeks.

MORE

[waltky]

Merrill throwin' ballast overboard...

Merrill Lynch reports $4.9 billion loss
July 17, 2008: Nation's largest brokerage suffers its fourth-straight quarterly loss, confirms plans to sell Bloomberg stake for $4.43 billion.

Merrill Lynch booked its fourth-straight quarterly loss Thursday, this time losing nearly $5 billion, as the nation's largest brokerage was forced to once again take massive writedowns. Merrill said it lost $4.9 billion overall. On a continuing operations basis, it lost $4.6 billion, or $4.95 a share, down from a profit of $2.01 billion, or $2.24 a share a year ago. Analysts polled by Thomson Reuters were expecting the company to report a loss of just over $1.8 billion, or $1.91 a share on this basis.

The company has now lost more than $19.2 billion in the past twelve months, making it one of the hardest hit companies during the credit crisis roiling the nation's big financial services firms. Merrill shares plunged about 6% after hours, nearly wiping out the stock's 10% gain in regular trading on the New York Stock Exchange Thursday.

Driving the loss was yet another round of writedowns. Merrill took a $4.8 billion mark on its mortgage-related portfolio, a $2.9 billion writedown due to its exposure to the recently downgraded bond insurers Ambac and MBIA, $1.7 billion in its investment portfolio of U.S. banks and $348 million related to leveraged loans. That surpassed the nearly $6 billion total that some analysts were anticipating heading into this week's results.

MORE

[waltky]

Economy sputterin' along...

Wall Street to get new bank, housing news
Sun., July. 20, 2008 - Last week investors got relatively good earnings reports

Wall Street surged higher last week, but that's cold comfort to people whose stock portfolios are still down more than 10 percent this year. The week's better than expected earnings news, which helped the Street claw itself out of bear market territory, was hardly definitive. Quarterly results from some of the big banks came in above the forecasts, but expectations were extremely low. Crude oil prices retreated from record highs, but are still up more than 70 percent since last summer.

To be sure, some investors are hoping last week's developments were the first few signs that the economy would improve later this year or early next year — and after all, the stock market is considered a leading indicator. But with the housing market still sinking — not to mention several more corporate earnings left to report — it's hard for many investors to justify big bets on an upswing. "I think the epicenter of the whole thing has been, and continues to be, housing prices," said Bob Andres, chief investment strategist for Envestnet.

This week, with quarterly losses expected from Wachovia Corp. and Washington Mutual Inc. due to defaulting mortgages, the market will also get data on existing home sales and new home sales. The National Association of Realtors is expected to report that sales of existing homes fell in June, according to the median estimate of economists polled by Thomson Financial/IFR. Economists believe the Commerce Department will report that new home sales also declined last month.

More Wall Street to get new bank, housing news - Stocks & economy - MSNBC.com

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Economy changing consumers' habits
Sun., July. 20, 2008 - Gloomy economy changing shoppers' habits; New behavior is the most dramatic since the mid-1970s, experts say

Adrienne Radtke plans to keep riding her bike to work even if gas prices drop. Steve Pizzini got rid of his Cadillac Escalade in favor of a 16-year-old Acura and doesn’t expect to have another gas-guzzler. “I had a paradigm shift,” said Pizzini, a financial analyst. “I spent the money on a nice car. But to me, it’s not worth it. I don’t think I will go that route again.”

Every economic downturn changes shoppers in some way. But this time, experts say the new behavior — fueled by higher gas and food prices, tightening credit and a slumping housing market — is the most dramatic and widespread that they have seen since the mid-1970s. So retailers, marketers and investors are all trying to figure out which habits shoppers will keep and which will they drop when the economy recovers. Will the people who switched to store-brand ice cream go back to Breyers or Edy’s? Will shoppers return to department stores or keep looking for labels at T.J. Maxx?

“We are looking at stuff that reminds me of the 1970s,” said Patricia Edwards of investment manager Wentworth Hauser and Violich. “Americans have seen a huge amount of their balance sheet evaporate. The effects will be more lingering.” Wendy Liebmann, president of WSL Strategic Retail, says people’s new spending patterns are forcing companies to change the kinds of products they sell and tweak their marketing to appeal to cost-conscious shoppers. She points to the last big recession of the early 1990s that helped trigger a fundamental shift in retailing as affluent shoppers started buying at discounters as well as upscale stores.

More Economy changing consumers' habits - Stocks & economy - MSNBC.com

[waltky]

Wachovia takes a big hit...

Wachovia reports $9 billion loss
July 22, 2008: Nation's No. 4 bank misses analysts' forecasts and cuts dividend, but insists it is adequately capitalized.

Wachovia Corp. posted a nearly $9 billion loss for its second quarter Tuesday on losses related to home mortgages and the bank's declining market value. The shortfall exceeded the estimates of Wall Street analysts, and shares sank 9.7% in pre-market trading. The nation's fourth-largest bank reported a net loss for the three months ended June 30 totaling $8.9 billion, or $4.20 per share, compared with a profit of $2.34 billion, or $1.22 per share, a year earlier.

Excluding a one-time, $6.1 billion charge related to "declining market valuations," the Charlotte, N.C.-based bank said it lost $2.67 billion, or $1.27 per share. Analysts polled by Thomson Financial, which typically excludes one-time items from their estimates, were expecting a loss of 78 cents per share. It was the second-consecutive quarterly loss for Wachovia, marking the first time the bank reported back-to-back losses in 20 years.

Revenue fell 13.7% to $7.5 billion from $8.69 billion last year. That missed analysts' forecast of $8.37 billion in revenue. "These bottom-line results are disappointing and unacceptable," Lanty L. Smith, Wachovia's board chairman said in a statement. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility."

New game plan

See also:

Fannie, Freddie rescue could cost $25B
July 22, 2008: Congressional Budget Office puts possible price tag on Bush administration plan to stabilize mortgage finance giants - says 50% chance money won't be needed.

The Congressional Budget Office on Tuesday estimated that a government plan to stabilize mortgage giants Fannie Mae and Freddie Mac could cost government coffers an average of $25 billion. The CBO said it thinks there is probably a better than 50% chance that the Treasury would not need to step in. In addition, it said there is nearly a 5% chance that Freddie and Fannie's losses would cost the government $100 billion. CBO's $25 billion cost estimate is an average based on "the path of housing prices in the next several months." They considered three scenarios: prices stabilize, grow modestly or decline steeply.

The CBO report came out one day before the House is expected to debate and vote on a rescue plan proposed by Treasury Secretary Henry Paulson last week. Paulson asked Congress to give the Treasury broad, but temporary powers intended to provide a liquidity and capital "backstop" for the two government-sponsored enterprises (GSEs). Paulson requested that the Treasury be allowed to offer Fannie and Freddie an unlimited line of credit for 18 months and be given authority to buy stock in the companies if necessary.

Both critics and supporters of the Paulson plan have expressed concern that loaning or investing money in the GSEs could leave taxpayers with a fat bill to pay. In a speech in New York on Tuesday, Paulson stressed again there are no immediate plans to exercise the powers he seeks and characterized the proposal not simply as a way to support Fannie and Freddie but to support the U.S. capital markets and the economy.

"The best way to protect the taxpayer is to have very flexible powers which are temporary," Paulson said. His reasoning: That's the best way to boost market confidence in the two companies and minimize the likelihood that the government would need to lend a hand. Even though Paulson wants as much flexibility as possible, lawmakers are expected to impose some parameters, such as giving Congress the right to limit executive pay at Fannie and Freddie and insisting that if government money is used the GSEs agree to pay Uncle Sam before paying investors dividends, or if they're liquidated, assets.

Source

[waltky]

Economy hard on the middle class...

Middle class: 'On the edge'
July 23, 2008: Experts tell Congress that middle class is struggling with stagnant wages, rising debts and increased expenses.

America's middle class is increasingly squeezed by sagging incomes and soaring expenses, experts told Congress on Wednesday. Adjusted for inflation, median household income dropped by $1,175 between 2000 and 2007, said Elizabeth Warren, professor at Harvard Law School, in written testimony before the Joint Economic Committee.

At the same time, the average family is spending $4,655 more on basic expenses, such as gas, housing, food and health insurance. Gas alone costs $2,195 more for a family making the same commute in May 2008 as it did eight years earlier. Families with children saw their child care costs soar. Those with children under age 5 spent an additional $1,508 a month, while after-school costs for older children rose $622.

To cover these soaring expenses, many people have had to turn to credit cards. Nearly 10% of total disposable income in the United States goes to paying off such debt, Warren said. "There have never been since the Depression so many families standing right on the edge," Warren said. "Families have tightened their belts. They have cut down in every discretionary spending area they possible can." "These costs are tearing a hole in the family they simply can't make up," she added. "You can't cut out enough lattes to pay for health insurance in America."

Gains go to the wealthy

[waltky]

European economy flatlines...

Economists say Europe is flat
Thursday 24th July, 2008 - Economists have warned that the 15-nation eurozone economy is teetering on the brink of recession.

Business activity in the eurozone has almost come to a halt according to a group of leading indicators. The eurozone purchasing managers index slid more sharply than expected in July to 47.8 points from 49.3 in June, according to an initial estimate.

Separate business confidence surveys from eurozone economic heavyweights Germany, France and Italy have added to fears that Europe will not escape recession as it struggles with record inflation, tight lending conditions and weakening export demand.

German business sentiment fell to near a three-year low point in July, and France's INSEE business climate index fell in July for the sixth month running to hit the lowest level since May 2005.

The Italian business confidence level dropped to a near-seven year low. In Spain, the government slashed its economic growth forecast for this year to 1.6 percent from 2.3 percent as a housing boom failed.

Economists say Europe is flat

[waltky]

Indicators indicate recession...

Slices of U.S. jobs report signal recession
Fri Aug 1, 2008 WASHINGTON (Reuters) - The U.S. economy shed jobs for seven straight months through July, something that has happened only eight other times since the end of the World War Two. Every other instance occurred during a recession.

While the overall loss of 51,000 jobs reported in Friday's U.S. employment report was not as gruesome as many on Wall Street had feared, the underlying data shows patterns consistent with previous periods of economic contraction. "After the November elections, the National Bureau of Economic Research will tell us what we ... already know -- the U.S. economy currently is in a recession," said Paul Kasriel, director of economic research at Northern Trust in Chicago.

Keith Hall, the head of the U.S. Bureau of Labor Statistics, said the jobs report alone did not prove a recession, but acknowledged that in the last two such periods, there were eight months in a row of job losses. What makes the data somewhat perplexing is that it does not match up with some other indicators. Just 90 minutes after the Labor Department issued the employment figures, a separate report from the Institute of Supply Management indicated growth in manufacturing jobs for the first time since October.

The ISM employment index jumped to 51.9 in July from 43.7 in June. A reading above 50 indicates expansion. That contrasts with the Labor Department's report showing 35,000 factory jobs lost in July. Other figures in the jobs report also looked worrisome.

More Slices of U.S. jobs report signal recession | Special Coverage | Reuters

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Munich Re CFO sees more writedowns in Q3
Fri Aug 1, 2008 - Munich Re (MUVGn.DE: Quote, Profile, Research, Stock Buzz) expects more writedowns on its equity holdings in the third quarter but took account of likely losses in lowering its profit forecast for 2008 last week, its chief financial officer told Reuters.

The world's second-biggest reinsurer roiled markets last week and sent its own share down by more than 12 percent by saying it expected to miss its full-year target of earning 3.0 billion to 3.4 billion euros ($4.67-5.29 billion) as financial market turmoil ate into its investment result. Joerg Schneider said Munich Re's strict application of accounting rules requiring writedowns when shares in its investment portfolio fall 20 percent below their acquisition price or fall below the purchase price for six months left it no option but to issue a profit warning.

"In an unchanged capital market scenario, I will have more writedowns in the third quarter because there will be other stocks that will fall into the category of six months under water," Schneider said in an interview on Friday. "In Q2, it was the 20 percent rule that bit. In Q3, it will be more the six-month rule," he said, declining to give an estimate of the size of the expected writedowns.

"But all this has been built into our modified forecast for the full year." Schneider said he was confident of the reinsurer's new guidance of achieving net profit of "well above" 2 billion euros, even if markets should see some further downturn.

More Munich Re CFO sees more writedowns in Q3 | Special Coverage | Reuters

[waltky]

Job market to stay tight...

Looming job cuts march on - report
August 4, 2008: The number of job cuts announced in July jumps 26%. Airlines and financial firms top the list, according to a monthly study.

The nation's employers continue to put jobs on the chopping block at a steep rate as the economy struggles, according to a new report. Challenger, Gray & Christmas, an outplacement consultancy firm, said Monday that planned job cuts announced by employers in July jumped 26% to 103,312 from 81,755 announced in June. That's up 141% from a year ago, when employers announced planned job cuts totaling 42,897. The July figure marks the second-highest number of planned job cuts this year, rivaling the May reading that showed 103,522.

"We have seen job cuts increase in the majority of industries that we track," John Challenger, chief executive of Challenger, Gray & Christmas, said in a statement. Monday's report indicates that the downturn in the housing and financial sectors, "has spread throughout much of the economy," Challenger said. Indeed, the report showed job cuts in the works increasing from a year ago in 17 of the 25 industries tracked by Challenger. Employers in the transportation industry announced the largest number job cuts on the horizon, at 17,051 for the month.

Planned job cuts in the transportation sector were dominated by airlines, which have struggled with soaring fuel costs and declining ticket sales due to softening consumer confidence, according to Challenger. Transportation was followed by the financial services sector, where employers announced 15,517 job cuts on the block. Financial firms remained led the year, having already announced 100,775 planned layoffs through July, the report showed. Employers in the retail and automotive industries also ranked high on the list.

The Challenger report follows a Labor Department report Friday that showed the nation's unemployment rate climbing to a four-year high of 5.7%. It was the worst reading since March 2004, and slightly worse than economists' forecast of 5.6%. But there was a bright spot in the government's report. The economy lost 51,000 jobs lost in July, which was much lower than the 75,000 loss that economists had expected.

Looming job cuts continue to climb - report - Aug. 4, 2008