2nd & last (?) rally day


w post

live coverage

Posted at 2:09 PM ET, 10/14/2008

Reid Calls for More Stimulus

In a statement released moments ago by Senate Majority Leader Harry Reid (D-Nev.), he echoed calls by House Speaker Nancy Pelosi (D-Calif.) for an economic stimulus plan aimed at Main Street, now that the Wall Street bailout/rescue plan apparently is underway.

Faq 2. In a severe recession, on the verge of a decade (2010s) depression,  where are the fundamentals of profits actualisation? Likely at about 1/2 of current stock values, i.e. 2/3 down from the Autumn 2007 apex.  A different answer in the ft, by LEX (implicitly assuming we are so close to the bottom floor ?):

Time to buy?

Published: Monday 13 Oct 2008 09:55

With stock markets falling day by day, investment gurus suggest that it is time to buy – taking a 30-year view.  Certainly, there are plenty of companies across the developed world in little immediate danger and trading at eyewateringly low prices. But there is no telling how long a market recovery could take. The Dow Jones Industrial Average took 24 years to regain its pre-crash highs following the Great Depression. Japanese equities are still a quarter of what they were almost 20 years ago.

BREAKING NEWS.  -3% Nasdaq, at 2 pm ET, -4.5% at 3 pm ET



Market Index Charts


At  5pm GMT = 1pm ET (see the self-updating graphs) the Nasdaq was losing 1.35%, at 5.30: – 1.75%, at 6.00: -2.45%; on expectations of  a severe recession hitting ICT profits and consumption (on a Pepsi profit warning). DIJA  + 0.34%, then becoming negative at 5.35pm GMT (1.35 ET).

The rally is over at Wall St., and it lasted JUST 1 day.

Tokyo up a Guinness 14%. Europe on average up 3% (DJ Stoxx 600), but it might be the end of it, and the slide down continue –  although not as catastrophically as last week.


Roubini Sees Worst Recession in 40 Years, Rally’s End (Update1)

By Eric Martin and Rhonda Schaffler


Oct. 14 (Bloomberg) — Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, causing the rally in the stock market to “sputter.”

“There are significant downside risks still to the market and the economy,” Roubini, 50, a New York University professor of economics, said in an interview with Bloomberg Television. “We’re going to be surprised by the severity of the recession and the severity of the financial losses.”

The economist said the recession will last 18 to 24 months, driving unemployment to 9 percent, and already depressed home prices will fall another 15 percent. The U.S. government will need to double its purchase of bank stakes and force lenders to eliminate dividends to save them from bankruptcy, Roubini added. Treasury Secretary Henry Paulson said today he plans to use $250 billion of taxpayer funds to purchase equity in thousands of financial firms to halt a credit freeze that threatened to drive companies into bankruptcy and eliminate jobs.

“This will be the first round of recapitalization of the banks,” Roubini said. “The government has to decide to intervene much more directly in the provision of credit and the management of these companies.” (…)

“The stock market is going to stop rallying soon enough when they see the economy is really tanking right now,” Roubini added. (…)

Roubini said total credit losses resulting from the meltdown of the subprime mortgage market will be “closer to $3 trillion,” up from his previous estimate of $1 trillion to $2 trillion. The International Monetary Fund estimated $1.4 trillion estimate on Oct. 7. Financial firms have so far reported $637 billion in losses, according to data compiled by Bloomberg. 

SEE OUR ESTIMATE (from last Summer) in our blog title: $3 tr, IRAQ cost = SUBCRIME cost.


Disaster Averted, EU’s Recession Looms

European governments can congratulate themselves on preventing the region’s troubled financial sector from collapsing. But the focus will swiftly return to the bleak macroeconomic outlook.

Actually, we expect the Wall Street worries on the recession to spread tomorrow, Wednesday in Asia and Europe.


Worry over profit outlook halts early stock burst

Tue Oct 14, 2008 12:05pm EDT = 16.05 GMT

By Ellis Mnyandu


NEW YORK (Reuters) – The Nasdaq fell in choppy trading on Tuesday as investors sold technology shares on fears that fallout from the credit turmoil would hurt profits despite the U.S. government’s plan to invest in banks to shore up the financial system.

The Dow and S&P 500 were moderately higher after a sharp rise at the open. Concerns about the broad profit outlook overshadowed the Treasury Department’s plan to inject $250 billion in major banks to stabilize the financial system in hopes of averting further damage to the economy.

A profit miss by soft drink company PepsiCo , whose shares were down 9 percent, added to worries over how consumer spending will hold up against declines in home values, stocks and tighter credit.

On Nasdaq, shares of chip maker Intel Corp fell more than 5 percent to $16.02 before it reports quarterly results after Tuesday’s closing bell.

The semiconductor index was off nearly 4 percent, a day after Wall Street roared back from its worst week ever with one of its best single days ever on Monday.

“We may be trying to establish the floor with the credit crisis, and that’s why you had the euphoria in the last day and a half,” said Alan Lancz, president of Alan B. Lancz & Associates Inc investment advisory firm in Toledo, Ohio. “Now people are starting to look at how much damage the credit crisis has done to the economy and earnings.”

The Dow Jones industrial average rose 58.86 points, or 0.63 percent, to 9,446.47. The Standard & Poor’s 500 Index climbed 6.59 points, or 0.66 percent, to 1,009.94. The Nasdaq Composite Index slid 24.42 points, or 1.32 percent, to 1,819.83.

Shares of software maker Microsoft Corp declined more than 5 percent to $24.17. Computer maker Dell slide nearly 6 percent to $14.32.

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Posted at 12:03 PM ET, 10/14/2008

Crisis Hits Real Economy: Pepsi Flat


PepsiCo. which, like Coca-Cola, has long been considered a “safety stock” — in good times or bad, folks drink soda — said this morning that people actually aren’t drinking soda. Result: The company will cut 3,300 jobs in the United States.


The company’s stock is being hammered thanks to a trifecta of bad news from the soda giant this morning: Third-quarter profits fell short of Wall Street expectations, the company cut its full-year outlook and it refused to give guidance for 2009.


Nearing lunchtime, shares of PepsiCo. are trading down about 10 percent. 

ft – Global markets rally as US launches bank rescue

Asian and European (Milan closes at + 3.6%) Markets


are still in rally mood today, Tuesday Oct. 14, but Wall Street’s COLD SHOWER decelerated the European rally at end of the day.

The very short lived rally (1 day ad  a half) was an answer to the week-end instant diffusion of Gordon Brown’s pseudo-nationalisations (Plan B, after the useless Pauson’s Plan A) in US and Europe; in each country measures are undertaken, but also find a lot of social and economic opposition and discussion, A dramatic acceleration in the US where the top 9 banks are partially State owned ($250 bn): Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America, Merrill Lynch (also becoming controlled by Mitsubishi), Citigroup, Wells Fargo, Bank of New York Mellon, and State Street. In Italy it was observed: What about the Made in Italy, if its environment, the districts and supply chains of SMEs, are about to disappear, since they receive no credit?  A much similar question (mutatis mutandis) is posed in the US (see below). 


Dow Soars 11 Percent; Biggest Point Gain Ever
The U.S. government is dramatically escalating its response to the financial crisis by planning to invest $250 billion in the country’s banks, forcing nine of the largest to accept a Treasury stake in what amounts to a partial nationalization.


From today’s update in Section 2 of our “AAA updates on subcrimes” page:

Wall Street and the global financial system are pro tempore nationalised in US and Europe.

The stock and credit markets historical BLACK WEEK  (6-10 Oct. 2008) has wiped out Paulson’s Plan B. Europe and the US hurried up to adopt Gordon’s Brown PLAN B – and the Labour Premier from a lame duck suddenly became the prophet of Financial Socialism, Hood Robin. As Lex (Brownian Motion in Europe. FT, Oct. 13) puts it

The lugubrious British premier, out of sorts at home and seriously adrift in the polls, has been styled as a swashbuckling conductor in the Spanish press, and a “magician” in France. Europe has apparently bought into Mr Brown’s conviction that this is a severe, but transient crisis of confidence that can be overcome by piling on more and more government debt.

While the wisdom of that strategy is questionable, it is clear that there is strength in numbers. If governments all muck in together, using taxpayers’ money to recapitalise banks

What about Mean Street, the middle, lower and under classes?

There is no alternative (against the persisting risks of the severe recession to degenerate into a 2010s depression) than a Robin Hood policy for the poor and the middle class. As the historian Howard Zinn puts it, arguing in advance for an Obama New Deal (Beyond the New Deal, The Nation, April 7 – oL March 20),
We might wonder why no Democratic Party contender for the presidency has invoked the memory of the New Deal and its unprecedented series of laws aimed at helping people in need. The New Deal was tentative, cautious, bold enough to shake the pillars of the system but not to replace them. It created many jobs but left 9 million unemployed. It built public housing but not nearly enough. It helped large commercial farmers but not tenant farmers. Excluded from its programs were the poorest of the poor, especially blacks. As farm laborers, migrants or domestic workers, they didn’t qualify for unemployment insurance, a minimum wage, Social Security or farm subsidies.
Still, in today’s climate of endless war and uncontrolled greed, drawing upon the heritage of the 1930s would be a huge step forward. Perhaps the momentum of such a project could carry the nation past the limits of FDR’s reforms, especially if there were a popular upsurge that demanded it.


Low-Wage Workers
Low-wage workers have been hardest hit by the economic downturn, yet most remain hopeful about the future. 




Take On Me

By Daniel Politi

Posted Tuesday, Oct. 14, 2008, at 6:42 AM ET (our bold characters)

The U.S. government is officially switching gears. In news that almost all the papers banner across the front page, the Treasury Department will be announcing that the U.S. government plans to invest up to $250 billion in the nation’s banks in a move that will effectively translate into a partial nationalization of the financial institutions that take federal money. In addition, the government would provide insurance on all deposits in non-interest-bearing accounts and insure certain types of bank debt. The New York Times calls it the Treasury Department’s “boldest move yet” to deal with the financial crisis. The Wall Street Journal does the best job of summarizing that the move “intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.” USA Today points out that Europe’s moves to prop up banks across the pond, “set the pattern for the U.S. plan” because if the Bush administration failed to act “in a similar fashion, investors might have moved money abroad to seek safety.”

The move represents a dramatic shift for Treasury Secretary Henry Paulson, who had previously opposed the idea of taking equity stakes in banks. The Los Angeles Times specifies that while the government still plans to go ahead with its plan to buy toxic securities, “the new strategy is likely to move that into a secondary position.” The new program will be divided into two parts. First, the government will devote $125 billion to buy a minority stake in nine of the nation’s top financial institutions and then make the other $125 billion available to thousands of banks and thrifts across the country. Executives from the nine big banks met with Paulson yesterday and while some weren’t happy with the plan, they all agreed to participate. The Washington Post says Paulson told the executives they needed to agree to it for the good of the American economy, illustrating that while “officially the program was voluntary, the banks had little choice in the matter.”

By pretty much forcing the nine big financial institutions to take government money, officials wanted to make sure there would be no stigma associated with receiving the funds, which would have made the entire plan useless. The WSJ and USAT have the full list of the nine banks that will now be partially owned by taxpayers: Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, Merrill Lynch, Citigroup, Wells Fargo, Bank of New York Mellon, and State Street.

The amount of money each bank will get won’t be uniform—the WSJ has the specific numbers—but essentially the Treasury will buy up to $25 billion in preferred stock in each of the financial institutions. The stock each bank issues “will pay special dividends, at a 5 percent interest rate that will be increased to 9 percent after five years,” the NYT details. The government also added a provision that would allow taxpayers to benefit if the stock value of the financial institutions increases.

The NYT notes that while financial institutions that accept government money won’t be required to eliminate dividends or fire their chief executives, they will “be held to strict restrictions on compensation.” But the WSJ isn’t impressed and notes that the restrictions “are relatively weak compared with what congressional Democrats had wanted.” Key Democratic lawmakers emphasized yesterday that they fully expect the government to impose strict limits on compensation, signaling that a failure to do so could put in doubt whether Congress releases more of the $700 billion after Treasury officials burn through the first installment.

The LAT says that some in the banking industry “reacted with alarm” when details of the plan began appearing in news reports and they predicted the government would soon hear from hundreds of angry banks that were left out of the first phase of the program. “This worked in Sweden, where you have about 14 banks,” one “industry insider” said, adding that it’s little surprise that Paulson, a Wall Street insider, would choose to pump up big New York financial institutions first. “It’s like picking your kids,” he said. The WP notes that there is a risk the banks will use the government money “to bolster their balance sheets” instead of increasing lending, but regulators will apparently pressure the financial institutions not to let that happen.

(…) If there’s a clear winner in all this it’s the British government. Of course, that could all change if the rescue plans that are taking shape around the world fail. But as of now, Prime Minister Gordon Brown, went, in a matter of days, from lame duck to global leader as the plan he announced last week to inject billions into British banks was quickly taken up by European leaders and now the United States. “He’s the cat who got the cream,” a British historian tells the WP. “It was a gift from heaven for him to have this crisis in his field of expertise.”

For their part, investors are cheering. News that European leaders were planning to prop up banks, coupled with anticipation for a new U.S. program, sent stock prices soaring yesterday. The Dow Jones industrial average ended more than 900 points higher, the largest point gain in history, for an 11 percent gain, the biggest since 1933. As the WSJ highlights in its front page, history has shown that these quick gains can be short-lived, which is why no one was ready to say that yesterday marked a turning point in the ongoing crisis.