Published December 8, 2008
Wall St finds silver lining in the darkest hour
Friday's unexpected but impressive rally could bode well for market
By ANDREW MARKS
NEW YORK CORRESPONDENT
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BY ALL accounts, the dreadful economic data heaped on US stock market investors last week was enough to keep their heads spinning and their money under the mattress.
Working the floor: The Dow was up 259 points on Friday for a gain of 3 per cent
Not only did Wall Street receive the official word that the US is in a recession, but it is one so severe that it is already twelve months old. The economic reports that followed over the course of the week only offered further evidence that the end is nowhere in sight.
And yet, at the end of a week that brought unrelenting signs that these are the worst of times in decades for the economy and the financial markets, Wall Street staged an unlikely and impressive rally, and offered some hopes of its own for an improving outlook.
'It's almost baffling, but in these turbulent times, you can't even count on a sell-off,' joked Marc Pado, chief investment strategist at Cantor Fitzgerald. His comment was made soon after Friday's closing bell ended a day in which stocks rebounded more than 6 per cent from their lows in intra-day trading to generate a strong rally despite the Labor Department's stunning job-loss number of more than 500,000 layoffs last month. Some economists now expect the numbers to be repeated when the December employment numbers come out in a month's time.
Preceding that historically bad jobs report during the week was a worst-ever ISM manufacturing report, the worst month for same-store sales in more than three decades, and further proof that the housing market tailspin is accelerating. So with the declaration by GM's chief executive that the employer of nearly 200,000 doesn't have enough cash to survive on its own through to the end of the year, the news couldn't get much more grim.
'On the face of it, investors had every reason to turn even more bearish with all the bad news coming down,' said Mr Pado.
'The fact that stocks finished with such impressive gains despite all that is a very bullish statement,' he said. 'We could point back to this day a few months from now and say that's the point that the market decided the economy couldn't get much worse and investors started lifting their heads towards the horizon.'
Indeed, analysts struggled to pinpoint a reason for the late afternoon rally that lifted the Dow Jones Industrials to a better than 3 per cent gain after it had sunk to losses of more than 3 per cent at around midday.
Financial and insurance giant The Hartford offered a solid earnings outlook for the year, offering some hope that not every company in the financial sector is in dire straits.
There were also early indications that the government's myriad programmes to lower borrowing costs and make loans more available have helped to stabilise and loosen credit markets, driving down rates on mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac to levels not seen since last January.
But yields on Treasury bills also continued to plunge and borrowing costs for companies whose debt isn't backed by the US government have yet to improve, signs that risk-aversion continues to rule.
'More than anything, Friday's trading is a sign that investors looked at the magnitude of bad economic data, and decided to look at it from the perspective that this is as bad as it gets, and maybe stocks have been almost fully discounted for the bottom,' said Joe Battipaglia, investment strategist at Ryan, Beck.
Only time, and further proof of resilience in the face of bad news, can prove that bullish thesis. But on Friday, it looked like a promising one, as the Dow finished the day with a 259.18-point, or 3.1 per cent, advance to close the week at 8,635.42.
The S&P 500 fared even better, with a 30.85 point gain, or 3.7 per cent, to 876.07. The Nasdaq Composite was the day's biggest winner, gaining a robust 63.75 points, or 4.4 per cent, to 1,509.31.
For the week, however, blue chips were 2.2 per cent lower. The S&P 500 lost 2.3 per cent and the Nasdaq 1.7 per cent.
But considering how the week started, with a 700-point crash on Monday, and all the hard-to-swallow news that followed, investment strategists found the stock market's performance encouraging. 'We continue to look like we're in the bottoming process,' said Larry Adams, chief investment strategist at Deutsche Bank.
Stock investors can expect little relief from economic data in the coming week. But they should get a boost from Washington's ongoing efforts to right the failing economy. That will start today when Wall Street comes to work having had two days to absorb the announcement by Democratic Congressional leaders just hours after Friday's closing bell that they will work to put together a short-term rescue for the Big Three US automakers.
The compromise with the White House could also lead to Treasury secretary Henry Paulson requesting the remaining US$350 billion of the financial industry bailout money, now that it looks like he won't have his arm twisted by Congress over using some of that money, to aid GM, Chrysler and Ford.
Additionally, President-elect Barack Obama began offering details over the weekend of the huge government stimulus plan to spur economic recovery that he wants to enact soon after his inauguration on Jan 20.
He said that he will create the largest public works construction programme since the interstate highway system bill more than fifty years ago, as well as technology works programmes that are expected to cost as much as US$700 billion in an effort to put 2.5 million people back to work over the next two years.
Investors will have to balance those hopeful developments against the hard evidence of economic data. Monthly retail sales are due this week, and economists expect further sharp declines.
The producer price index, due on Friday, should also show a significant retreat in wholesale prices, which investors will not cheer with the fear of deflation in the air. Friday also brings the University of Michigan's consumer sentiment index.
Monday, 8 December 2008
Published December 8, 2008
breakingviews.com
F1 in need of an urgent overhaul
By UNA GALANI
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FORMULA One faces a shrinking grid. Honda is quitting the F1 motor racing championship after 44 years in the sport. The exit of the Tokyo-based carmaker has a lot to do with the pain that it's taking in the rapidly deteriorating global car market. But it is also a worrying verdict on the economics of F1.
Honda's departure may not be a one-off. It could give beleaguered rivals such as Toyota and BMW Sauber an excuse to make tracks.
F1 is the world's most expensive sport. One reason for it is that performance is closely correlated to investment. Teams that can afford to splash out on the best engines, engineers and superstar drivers tend to take podium spots.
Honda put in a dismal performance last year - finishing ninth - in spite of having one the largest budgets at around 200 million euros (S$388 million).
True, Honda also made some mistakes. It shunned corporate sponsorship in favour of a self-funded environmental campaign, which cost it dearly. The top four teams - McLaren, Williams, Renault and Ferrari - are each understood to generate up to 40 million euros annually from deals with the likes of telecom giants Vodafone and AT&T, Dutch financial institution ING and the UAE's national carrier, Etihad.
Yet Honda's departure underscores the serious threat that the global financial crisis poses to the sport's future. All carmakers will be under shareholder pressure to review their F1 commitment after global car sales fell 45 per cent last month. Corporate sponsorships will also be aggressively renegotiated amid a crunch in global marketing spending.
F1 needs to adapt. The sport in its present form unduly favours teams such as Ferrari, which is supported by the cash-rich Abu Dhabi state-investment vehicle Mubadala. F1's governing body has already aired controversial suggestions such as introducing standard engines and capping team budgets. Such reforms would change the sport, but could also help level the playing field financially. Honda's departure should add some urgency to F1's thinking.
breakingviews.com
F1 in need of an urgent overhaul
By UNA GALANI
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FORMULA One faces a shrinking grid. Honda is quitting the F1 motor racing championship after 44 years in the sport. The exit of the Tokyo-based carmaker has a lot to do with the pain that it's taking in the rapidly deteriorating global car market. But it is also a worrying verdict on the economics of F1.
Honda's departure may not be a one-off. It could give beleaguered rivals such as Toyota and BMW Sauber an excuse to make tracks.
F1 is the world's most expensive sport. One reason for it is that performance is closely correlated to investment. Teams that can afford to splash out on the best engines, engineers and superstar drivers tend to take podium spots.
Honda put in a dismal performance last year - finishing ninth - in spite of having one the largest budgets at around 200 million euros (S$388 million).
True, Honda also made some mistakes. It shunned corporate sponsorship in favour of a self-funded environmental campaign, which cost it dearly. The top four teams - McLaren, Williams, Renault and Ferrari - are each understood to generate up to 40 million euros annually from deals with the likes of telecom giants Vodafone and AT&T, Dutch financial institution ING and the UAE's national carrier, Etihad.
Yet Honda's departure underscores the serious threat that the global financial crisis poses to the sport's future. All carmakers will be under shareholder pressure to review their F1 commitment after global car sales fell 45 per cent last month. Corporate sponsorships will also be aggressively renegotiated amid a crunch in global marketing spending.
F1 needs to adapt. The sport in its present form unduly favours teams such as Ferrari, which is supported by the cash-rich Abu Dhabi state-investment vehicle Mubadala. F1's governing body has already aired controversial suggestions such as introducing standard engines and capping team budgets. Such reforms would change the sport, but could also help level the playing field financially. Honda's departure should add some urgency to F1's thinking.
Published December 8, 2008
US car giants clear roadblock to their rescue
Legislation in final lap and may go before Congress today
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(WASHINGTON) US lawmakers worked over the weekend to hammer out details of legislation to bail out ailing car companies that could be presented to Congress as early as today, after reaching an agreement in principle with the Bush administration.
Ms Pelosi: Tapping into US$25b from Energy Dept fund now okay with her
The legislation is taking shape after House Speaker Nancy Pelosi dropped her opposition to drawing on US$25 billion in funds from the Energy Department intended to help carmakers develop more fuel-efficient vehicles, according to a Democratic aide who declined to be identified.
The chief executives of General Motors Corp and Chrysler LLC testified at hearings last week that they need a combined US$14 billion to keep operating through March 31.
To qualify for aid, carmakers must be prepared to make 'difficult decisions' to ensure their long-term viability, Dana Perino, the White House spokeswoman, said in a statement on Saturday.
The Bush administration has held 'constructive discussions' with members of Congress, Ms Perino said. 'We hope to continue to make progress towards assistance for the automakers', provided that public money can be safeguarded.
'Taxpayers should not be asked to finance assistance for automakers without a strong likelihood that they will be paid back,' Ms Perino said.
A draft proposal from the White House calls for the appointment of a 'financial viability adviser' in the Department of Commerce to work out terms of assistance to car companies. The adviser would be authorised to provide short-term loans to keep carmakers afloat during talks.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, said on Saturday in a statement: 'I look forward to reviewing the legislation being drafted to address the difficulties in our auto markets. As we consider this legislation, our first priority must be to protect the hard-earned money of the American taxpayer.'
Democratic leaders in Congress and the Bush administration have been at odds for weeks over the source of money to help the industry.
Ms Pelosi, a California Democrat, had demanded that the Bush administration tap a US$700 billion bailout fund for the financial industry. President George Bush and congressional Republicans refused, saying that the money must come from the US$25 billion in Energy Department funds.
The breakthrough came when Ms Pelosi said that the Energy Department funds could be used to keep the carmakers operating, provided that the money would be 'replenished in a matter of weeks'.
The White House proposal calls for 'strong taxpayer protections' for agreements on longer-term financing for car companies. These include options for ownership stakes for the government, limits on compensation of senior executives and a suspension of dividends.
US President-elect Barack Obama said yesterday that the struggling US car industry could not be allowed to collapse, but that any bailout would require a complete restructuring.
'I don't think its an option to simply allow it to collapse,' Mr Obama said in a taped interview on NBC's Meet the Press programme. 'What we have to do is to provide them with assistance but that assistance is conditioned on them making significant adjustments. They are going to have to restructure and all of their stakeholders are going to have to restructure.'
Senator Bob Corker, a member of the Senate Banking, Housing, and Urban Affairs Committee, said on Saturday that he was disappointed with the draft of the plan being worked on between House Democrats and the White House.
'Based on the outline we've seen so far, we are disappointed,' he said in a statement. He proposes including conditions for bondholders and for the car unions and asks for wage parity with carmakers such as Nissan.
Ms Pelosi said that she expects to bring legislation to the floor this week to provide 'short-term and limited assistance' to the industry. She said that there would be strict oversight on the use of the funds. The House plans to return to work tomorrow and the Senate reconvenes today.
Ms Pelosi spoke directly with White House Chief of Staff Josh Bolten two days ago in an effort to resolve the issue.
The support of the White House is crucial since it removes the threat of a veto and will likely persuade many Senate Republicans to end their opposition. Some senators had argued that the companies should survive or fail on their own.
Nobel economics prize winner Paul Krugman said yesterday that the beleaguered US car industry will likely disappear.
'It will do so because of the geographical forces that me and my colleagues have discussed,' the Princeton University professor and New York Times columnist told reporters in Stockholm. 'It is no longer sustained by the current economy.' - Bloomberg, Reuters, AP
US car giants clear roadblock to their rescue
Legislation in final lap and may go before Congress today
Email this article
Print article
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(WASHINGTON) US lawmakers worked over the weekend to hammer out details of legislation to bail out ailing car companies that could be presented to Congress as early as today, after reaching an agreement in principle with the Bush administration.
Ms Pelosi: Tapping into US$25b from Energy Dept fund now okay with her
The legislation is taking shape after House Speaker Nancy Pelosi dropped her opposition to drawing on US$25 billion in funds from the Energy Department intended to help carmakers develop more fuel-efficient vehicles, according to a Democratic aide who declined to be identified.
The chief executives of General Motors Corp and Chrysler LLC testified at hearings last week that they need a combined US$14 billion to keep operating through March 31.
To qualify for aid, carmakers must be prepared to make 'difficult decisions' to ensure their long-term viability, Dana Perino, the White House spokeswoman, said in a statement on Saturday.
The Bush administration has held 'constructive discussions' with members of Congress, Ms Perino said. 'We hope to continue to make progress towards assistance for the automakers', provided that public money can be safeguarded.
'Taxpayers should not be asked to finance assistance for automakers without a strong likelihood that they will be paid back,' Ms Perino said.
A draft proposal from the White House calls for the appointment of a 'financial viability adviser' in the Department of Commerce to work out terms of assistance to car companies. The adviser would be authorised to provide short-term loans to keep carmakers afloat during talks.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, said on Saturday in a statement: 'I look forward to reviewing the legislation being drafted to address the difficulties in our auto markets. As we consider this legislation, our first priority must be to protect the hard-earned money of the American taxpayer.'
Democratic leaders in Congress and the Bush administration have been at odds for weeks over the source of money to help the industry.
Ms Pelosi, a California Democrat, had demanded that the Bush administration tap a US$700 billion bailout fund for the financial industry. President George Bush and congressional Republicans refused, saying that the money must come from the US$25 billion in Energy Department funds.
The breakthrough came when Ms Pelosi said that the Energy Department funds could be used to keep the carmakers operating, provided that the money would be 'replenished in a matter of weeks'.
The White House proposal calls for 'strong taxpayer protections' for agreements on longer-term financing for car companies. These include options for ownership stakes for the government, limits on compensation of senior executives and a suspension of dividends.
US President-elect Barack Obama said yesterday that the struggling US car industry could not be allowed to collapse, but that any bailout would require a complete restructuring.
'I don't think its an option to simply allow it to collapse,' Mr Obama said in a taped interview on NBC's Meet the Press programme. 'What we have to do is to provide them with assistance but that assistance is conditioned on them making significant adjustments. They are going to have to restructure and all of their stakeholders are going to have to restructure.'
Senator Bob Corker, a member of the Senate Banking, Housing, and Urban Affairs Committee, said on Saturday that he was disappointed with the draft of the plan being worked on between House Democrats and the White House.
'Based on the outline we've seen so far, we are disappointed,' he said in a statement. He proposes including conditions for bondholders and for the car unions and asks for wage parity with carmakers such as Nissan.
Ms Pelosi said that she expects to bring legislation to the floor this week to provide 'short-term and limited assistance' to the industry. She said that there would be strict oversight on the use of the funds. The House plans to return to work tomorrow and the Senate reconvenes today.
Ms Pelosi spoke directly with White House Chief of Staff Josh Bolten two days ago in an effort to resolve the issue.
The support of the White House is crucial since it removes the threat of a veto and will likely persuade many Senate Republicans to end their opposition. Some senators had argued that the companies should survive or fail on their own.
Nobel economics prize winner Paul Krugman said yesterday that the beleaguered US car industry will likely disappear.
'It will do so because of the geographical forces that me and my colleagues have discussed,' the Princeton University professor and New York Times columnist told reporters in Stockholm. 'It is no longer sustained by the current economy.' - Bloomberg, Reuters, AP
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