CFO Are More Pessmastic for 2009

From Calculated Risk: CFOs: Recessions to last another year

CFOs are as negative as they have been in the history of the Duke Optimisim survey, falling to 71.5%.

• A record 81 percent of U.S. CFOs are more pessimistic about the economy this quarter (twice as many as last quarter), and 85 percent of European and Asian CFOs are more pessimistic.

• Nearly 60 percent of CFOs say the U.S. economic recovery will be delayed until the fourth quarter of 2009 or later, while 71 percent of European CFOs expect Europe’s recovery to be delayed until at least the fourth quarter of 2009

• Employment is expected to fall by 5 percent in the U.S. and Europe in 2009, and by 0.5 percent in Asia. Capital spending is expected to fall by about 10 percent in all regions

• Weak consumer demand and financial market woes are major concerns for CFOs around the world. More than 70 percent of U.S. and European firms are concerned about the state of their financial institutions. Among users of financial derivatives, 75 percent are concerned about the risk of default

CFO Optimism Index: Quarterly History

Earnings Update

From Yahoo! Finance: Best Buy 3Q profit sinks, company offers buyouts

Best Buy Co. Inc. offered voluntary severance packages to virtually all its 4,000 corporate employees Tuesday as the nation's largest consumer electronics chain announced its third-quarter profit skidded 77 percent.

The results -- which beat Wall Street's lowered expectations -- came in what the company called the "most challenging consumer environment" in its history, an environment so rough Best Buy hasn't been able to take full advantage of its largest rival's bankruptcy.

"We believe that the environment for consumer spending is likely to get worse before it gets better," said Chief Executive Brad Anderson. "In fact, we can foresee a period in which consumers may significantly shift their spending behaviors, which could have a dramatic impact on retailing."

Data released by MasterCard SpendingPulse said total consumer electronic spending declined approximately 25 percent last month. And, as wary shoppers tamped down discretionary spending, retailers boosted discounts to keep merchandise moving, often at the expense of profits.

From Yahoo! Finance: Xilinx cuts fiscal 3Q sales estimate
Programable chip maker Xilinx Inc. lowered its fiscal third-quarter guidance Tuesday, saying sales in December have been weaker than anticipated.

Xilinx said it expects sales to decline between 6 percent and 10 percent from second-quarter levels. The company previously predicted a range between 2 percent growth and a 2 percent decline in sales.

Xilinx reported fiscal second-quarter revenue of $483.5 million, suggesting the company expects revenue of $435.2 million to $454.5 million for the period ending in December, compared with $474.8 million in the same period a year ago. Wall Street analysts surveyed by Thomson Reuters were anticipating revenue of $458.5 million, on average.

From Yahoo! Finance: Adobe 4Q profit grows, revenue essentially flat

Adobe Systems Inc., best known for its Photoshop and Acrobat software, said Tuesday its fiscal fourth-quarter profit grew 11 percent, at the high end of the guidance it gave this month.

The company also reaffirmed the first-quarter outlook it gave on Dec. 3, and shares jumped more than 9 percent in after-hours trading.

Goldman Sachs Posts First Loss Since Going Public

From Yahoo! Finance: Goldman Sachs posts first loss since going public

Goldman Sachs Group Inc. on Tuesday reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter, but investors seemed unfazed and sent its shares higher.

The Wall Street firm lost $4.97 per share in the quarter ended Nov. 30, compared with earnings of $3.17 billion, or $7.01 per share, last year.

Morningstar Inc. equity analyst Michael Wong said Goldman was able to shrink its total assets by 18 percent to $885 billion during the quarter, and that has helped reduce leverage. Moody's cut Goldman's long-term senior debt rating to "A1" -- still investment-grade -- from "Aa3."

General Growth Fall after missed deadline

From Yahoo! Finance: General Growth shares fall after missed deadline
Shares of troubled shopping mall owner General Growth Properties Inc. dropped Tuesday after the company missed a crucial deadline to repay $900 million in debt and saw its debt ratings downgraded further into junk status (from Caa2 to Ca).

Credit rating agency Moody's Investors Service on Monday downgraded the debt ratings for Chicago-based General Growth, which said earlier in the day it is still negotiating for an extension on the maturity date mortgage loans for two Las Vegas malls.

Why SRS dropped 25% today to its 52-week low of $61? Long on SRS.

Consumer Prices Pluged by Record 1.7% in November

From Yahoo! Finance: Consumer prices drop more than expected

Prices fell 1.7 percent, surpassing the previous record decline of 1 percent set in October. It was the largest one-month decline dating to February 1947. Core inflation, excluding food and energy, was flat in November after a 0.1 percent drop in October.

Falling prices for goods and services might sound like a good thing for consumers, but a continued downward spiral can wreak economic havoc. During deflationary periods, companies earning less react by slowing production and cutting jobs, which causes consumers to scale back spending even more. The pattern is hard to stop because it feeds on itself.

Private economists predicted further price declines in coming months as the deepening recession cuts further into consumer demand, forcing businesses to reduce prices further as they try to spur sales.

Energy prices fell by 17 percent in November, nearly double the 8.6 percent decline in October. Both declines represented record drops. Gasoline costs fell by a record 29.5 percent in November, while home heating oil costs were down 14.6 percent and natural gas prices were off 5.2 percent.

Food costs posted a modest 0.2 percent rise in November, the smallest increase in eight months.

The 1.7 percent decline in consumer prices was larger than the 1.2 percent drop that economists had been expecting. It left inflation rising over the past 12 months by 1.1 percent, the smallest 12-month increase since June 2002. Inflation has not risen at a slower pace since a 1 percent rise in the 12 months ending in February 1965.

The Producer Price Index for Finished Goods fell 2.2 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This decline followed decreases of 2.8 percent in October and 0.4 percent in September. At the earlier stages of processing, prices received by manufacturers of intermediate goods dropped 4.3 percent in November after falling 3.9 percent in the prior month, and the crude goods index declined 12.5 percent subsequent to an 18.6-percent decrease in October.

South California Home Sales Up, Prices Down to $285K

From Data Quick News: Southland Home Sales Ease But Still Beat '07; Median Falls Below 300K

Southern California home sales outpaced last year for the fifth consecutive month in November, when 55% of buyers in the resale market chose repossessed homes. The abundance of discounted foreclosures helped push the median sale price down a record 35% from a year ago.

A total of 16,720 new and resale houses and condos closed escrow in the six-county Southland last month. That was down 22.3% from 21,532 in October but up 26.9% from 13,173 in November 2007, compares with annual gains of 64.6% in September and 66.7% in October. Moreover, the 22.3% drop in sales between October and November was a record and compares with an average October-to-November decline of just 7.4% since 1988. Last month's Southland sales were the second-lowest for any November in 16 years.

The median price paid for all homes combined last month was $285,000, down 5% from October and down a record 34.5% from November 2007. Last month's median was the lowest since it was $298,000 in April 2003, which was the last time the median was below $300,000. November's median stood 43.6% below the peak $505,000 median reached in spring and summer of last year.

Foreclosures have accounted for about half of all Southland resales during the past three months. In November, 54.6% of all the homes that resold had been foreclosed on at some point in the prior 12 months. That's up from 50.9% in October and 18.8% a year ago. At the county level, these "foreclosure resales" ranged from 44.1% of November existing home sales in Los Angeles County to 70.4% in Riverside County.

The typical monthly mortgage payment that Southern California buyers committed themselves to paying was $1,323 last month, down from $1,413 the previous month, and down from $2,049 a year ago. Adjusted for inflation, current payments are 37.4 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 48.7 percent below the current cycle's peak in June 2006.

Christmas Song - Here Comes Santa Claus

Readings for the Day

From Bonddad: Some very interesting observations
From Bonddad: Market Monday's
From MarketWatch: The 2008 market will go down in history

Industrial Output Fell 0.6% in Nov.

From Yahoo! Finance: Industrial output fell less than expected in Nov.
The Federal Reserve reported Monday that industrial activity dropped by 0.6 percent in November. Economists expected a decline of 0.8 percent.

"Manufacturing production tanked in November and the data were even worse than they look," said Joel Naroff, chief economist at Naroff Economic Advisors. "The only industry that posted a gain was aircraft and that was only because Boeing started back up after the strike."

The 0.6 percent drop in November followed a revised 1.5 percent increase in October. However, that gain occurred after a 4.1 percent plunge in September, which represented the biggest one-month drop since a 5 percent decline in February 1946.

For November, manufacturing output was down 1.4 percent, reflecting a 2.8 percent decline in production at auto plants, the third drop in the past four months. Production fell by a huge 11 percent in August and 3.6 percent in October.

From Mish's: Manufacturing Index Falls to Minus 25.8

The Federal Reserve Bank of New York’s general economic index fell to minus 25.8, the lowest level since records began in 2001, from minus 25.4 in November, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.

The New York Fed’s measure of new orders rose to minus 20.8 from minus 22.2 the prior month. A gauge of shipments increased to minus 8.8 from minus 13.9.

The report also showed inflation eased. The index of prices paid for raw materials decreased to minus 7.5 from 20.5 and the gauge of prices received dropped to minus 11.7, the lowest since July 2003, from 6. A measure of employment rose to minus 23.4 from minus 28.9, the lowest reading since December 2001.

HomeBuilder Sentiment Index - Record Low

From Yahoo! Finance: Homebuilder sentiment index remains at record low

The National Association of Home Builders/Wells Fargo housing market index held at nine in December for the second month in a row.

The index has drifted below 50 since May 2006 and has been below 20 since April. The slide in builders' confidence sharpened this fall in the wake of the U.S. financial crisis, slipping three points in October and then five points in November.

Homebuilders have asked Congress to enact a 10 percent tax credit of up to $22,000 for homebuyers that purchase a home over the next year. They also are seeking a temporary interest-rate reduction on 30-year mortgages.

From Calculated Risk: NAHB Index At Record Low

Credit Cards Interest Rate Up

From Yahoo! Finance: Interest rates up for popular credit card types
Monday December 15, 10:37 am ET The average annual interest rates charged on popular types of credit cards mostly rose last week, according to Bankrate.com.

For low-interest cards, which have rates below the national average but are often offered only to customers with strong credit histories, the average APR edged up to 11.45 percent, from 11.41 percent the week before.

Cash back cards, which feature cash or other reward incentives and generally require a good-to-excellent credit rating for approval, saw their average APR inched higher, to 13.66 percent, from 13.56 percent last week.

For balance transfer cards, which allow consumers to consolidate outstanding debt from one or more cards and sometimes include a low introductory rate, the average annual percentage rate rose to 13.16 percent, from 13.10 percent the week before.

Overall, the average APR charged for all variable-rate cards tracked by Bankrate was 11.07 percent, down marginally from 11.08 percent the previous week.

Commercial Property Loan Delinquencies Down - Due to Law Changes

From Yahoo! Finance: Fitch: Commercial property loan delinquencies down Fitch says commercial real estate loan delinquencies fell in Nov., helped by loan extensions NEW YORK (AP) -- Delinquencies on commercial real estate loans fell in November due to lenders allowing more loan extensions than in the previous month, Fitch Ratings said Monday.

The delinquency rate for commercial real estate collateralized debt obligations, or CDOs, fell to 2.8 percent last month from 3.13 percent in October. That marked the first decline since July.

There were 45 new loan extensions in November, up from 35 in October. Fitch expects an average of 40 extensions each month going forward, measuring 3.5 percent of loans in the commercial real estate CDO universe.

Fitch rates 35 such CDOs, which represent 1,100 loans and 370 securities and assets with a balance of $23.8 billion.

As the economy deteriorates, Fitch expects delinquencies to rise with the riskiest loans backed by hotel and retail properties. Chicago-based shopping mall owner General Growth Properties Inc. is struggling to stay afloat with its staggering debt load, and is still negotiating for another extension on $900 million worth of mortgage loans for two Las Vegas malls.

From Calculated Risk: Office Landlord Advice: "Go Ugly Early."

From the Business Ledger: Vacancy rates skyrocket in [Chicago] I-55 corridor

[A] slowdown in leasing along with new speculative buildings coming online and new sublease space hitting the market have combined in a “perfect storm” ... Since Jan. 1, the I-55 corridor vacancy rate has risen from 11.66 percent to 18.5 percent at the end of the third quarter.

Bernie Madoff on the modern stock market

Earnings, Dividends, and Buybacks

From the Big Picture: Quote of the Day: "Earnings, Dividends & Buybacks"

Floyd Norris mentions a wild data point:

“Over the last four years, since the buyback boom began, from the fourth quarter of 2004 through the third quarter of 2008, companies in the S.&P. 500 showed:

Reported earnings: $2.42 trillion
Stock buybacks: $1.73 trillion
Dividends: $0.91 trillion”

Geez, did these guys really spend every dime they made in profits on stock buybacks and divvies? That doesn’t really leave a lot of money to go back into R&D, new product development, are anything else innovative.

Christmas Song - Christmas Time is Here

Readings for the Day

From Mish's Global Economic Trend Analysis: China to print money to combat deep slowdown
From Bloomberg: Japan's Tankan Confidence Plunges most in 34 years
From MarketWatch: China's industrial output growth eases to 5.4% in November
From Bloomberg: UK House Prices will decline 10% in next year

Market Next Week: A Possible Santa Rally?

We clearly break the crazy dive we had experienced in October and November. We have been rallied 17% from November 20th low of S&P=750. We are still heading up and have 50 DMA and 900 as a strong resistance. Now we are higher than the 10 and 20 DMA, while the volume is relatively light. The market has also been taking the bad news a lot more calmer, without a lot of +3% up/down days now. I think now we are at #4 wave of the Elliott Wave.

From CNBC: Week Ahead: Santa's Rally Could be Driven Chevrolet:

Stocks could chug higher if investors are comfortable with the status of the auto industry bail out and the Fed does not makes any surprise moves when it meets early in the week.

The Fed is expected to trim its target Fed funds rate by a half point, trimming it to a half percent, at the end of a two-day meeting Tuesday afternoon. There is a batch of fresh data on production, housing and inflation and fourth quarter earnings from major brokers—Goldman Sachs and Morgan Stanley.

"Economic news was as bad as it gets last week, and the market trades higher. It's not that bad news is good news, it's just that it's not getting the bad reaction it was getting," said Hogan. Hogan said he does not expect the broker earnings to surprise the market in the coming week. Bad news is already priced in to their shares.

Economy Reports:

Monday - FED Meeting starts, Empire State Manufacture Survey, Industrial Production, Housing Market Index
Tuesday - Consumer Price Index, Housing Starts, FOMC Announcement,
Wednesday - OPEC Meeting, Bank Reserve Settlement, EIA Petroleum Status Report
Thursday - Jobless claims, Philadelphia Fed Survey, Leading Indicators

Earnings:
Tuesday - Goldman Sachs earnings, Best buy, Adobe
Wednesday - MS Earnings, Nike
Thursday - Rite Aid, FedEx, Pier One, Oracle, Palm, Research in Motion, 3Com

San Francisco Housing Price is not Immune

From Calculated Risk: San Francisco: House Prices not Immune to Downturn

Marni Leff Kottle write in the San Francisco Chronicle: S.F. feels the pain of real estate meltdown

The downturn that slammed other parts of the Bay Area and the rest of the country didn't really begin inflicting serious pain on San Francisco until the second half of this year, real estate experts said. And while no one expects San Francisco to see the kind of foreclosures and bank sales that have become common in the East Bay, the city's real estate market is clearly suffering.

"San Francisco had managed to fool itself through most of 2008 into thinking that it wasn't going to suffer the same sort of issues that have hurt other places in the state," said Christopher Thornberg, an economist with the consulting firm Beacon Economics. "The last four or five months of the year, San Francisco has seen price declines that have been quite prominent. You can't have prices fall as much as they have across the bay without some impact on San Francisco itself."

OK, the price dynamics in San Francisco will be different than in the East Bay; East Bay prices have fallen faster because of all the foreclosures and distressed sales.

However prices will fall in San Francisco too, and by close to the same percentage as other areas in real terms, it will just take a little longer. I think those hoping for a price bottom in 2009 (in San Francisco) are way too optimistic.

Funs for Holiday!

Regression to Trend: Bearish or Bullish?

From dshort.com: Regression to Trend: Two views

The peak in 2000 marked an unprecedented 160% overshooting of the trend, which is double the overshoot in 1929. The index has been above the trend for 17 years. We also see that the major troughs saw declines in excess of 50% below the trend. If the S&P 500 were sitting squarely on the regression, it would be hovering around 820. If the index should decline over the next 12 months to a level comparable to previous major bottoms, it would fall to the vicinity of 400-425.

A critical factor for the reliability of a regression analysis of stock prices over many decades is the accuracy of the inflation adjustment. The Bureau of Labor Statistics (BLS) has been actively tracking inflation since 1919 and has estimated inflation rates back to 1913 using data on food prices. In 1982, however, the BLS began incorporating changes to the Consumer Price Index (CPI), which is used to calculate inflation. These changes have resulted in much lower "official" inflation rates than would have been the case if the method of calculation had remained consistent.

This time adjusted for inflation since 1982 using Williams' Shadow Government Statistics. The change is astonishing. The adjustments to post-1982 data alter the slope of the regression that impacts the variance from the trend across the entire time frame, dramatically so in the last two decades. With this adjustment, the S&P 500 has been below trend since 2002. The current bear market has dropped the monthly average index price 50% below the trend, which puts us in the territory of those secular market troughs. In fact, this regression analysis, the closing low on November 20th came within 2% of the monthly average trough following the Crash of 1929.

"My opinion is that the optimum method for calculating consumer prices is somewhere between the revised BLS method and the historic method preserved by Williams. But for a long-term regression analysis, consistency is essential, which makes me think the chart with the John Williams' Shadow Government Statistics gives a better indication of where the market currently resides."

Christmas Song - Jingle Bell Rocks

The Best and The Worst of 2008

From Yahoo! Finance: The Best and Worst of Everything 2008

Weekend Picture Post

Christmas Song - Alvin & the Chipmunk

Zimbabwe Inflation Pictures

Check Out: What the real crisis is like

Wow! 10 billion dollar note!!!

Readings for the Day

From Bonddad: The Foreclosure and Subprime Crisis
From Bonddad: Restaurant Jobs No Longer Safe Heaven
From Calculated Risk: Forecaster: Negative Q4 GDP in China
From Calculated Risk: Construction Employment as a Total Percent of Employment

Inflation? Deflation related Blogs

Form Bloomberg: Treasury Bills Trade at Negative Rates as Haven Demand Surges

Treasuries rose, pushing rates on the three-month bill negative for the first time ... The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929.

The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001. The rate on four-week bills peaked at 5.175 percent on Jan. 29, 2007. The flight to treasuries is across all durations: the Ten year is now yielding 2.67% and the thirty year treasury just over 3.0%.

Recommend Articles on Deflation/Inflation?
From Mish's Global Economic Trend Analysis: Huge Demand For Treasuries As Banks Refuse to Lend
From Mish's Global: No Fever like Gold Fever
From Mish's Global: Humpty Dumpty on Inflation

Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

The benchmark 10-year note’s yield dropped seven basis points, or 0.07 percentage point, to 2.67 percent. The 3.75 percent security due in November 2018 gained 21/32, or $6.56 per $1,000 face amount, to 109 12/32. The yield touched 2.505 percent on Dec. 5, the lowest level since at least 1962, when the Fed’s daily records began.

The two-year note’s yield fell nine basis points to 0.85 percent. It dropped to a record low of 0.77 percent on Dec. 5.

If you invested $1,000 in three-month bills today at a negative discount rate of 0.01 percent, for a price of 100.002556. At maturity you would receive the par value for a loss of $25.56.


A nice explaination of why Rates of zero percent is not the same as inflation even with surge of monetary base. Little money is going to the M1 as banks save them as reserves rather than lend.

Corporate Borrowing Fell in 3rd Quarter

From Mish: Economic Winter Reflected in Shipping, Capex, Jobs, Treasury Yields

Corporate Borrowing Plummets Worldwide
BIS is reporting Corporate, government borrowing plummets in third quarter.

Net issuance of bonds and notes by corporations, financial institutions and governments fell to 247 billion dollars (195 billion euros) from 1.086 trillion dollars in the second quarter, said the world's top central bank body.

Debt issued in euros fell most, plummeting from 466 billion dollars in the second quarter to 28 billion dollars in the third quarter.

Debt issued in dollars also dropped steeply, from 396 billion to 40 billion dollars in the three months ending September.

Base money supply may be soaring but banks are clearly not lending. But why should banks lend when default risk is high and rising? More importantly, why should businesses want to expand?

Retail Sales, Whole Sale Price Index Fell Sharply

From Yahoo! Finance: Retail sales, wholesale prices fall again in Nov.

The Commerce Department reported Friday that retail sales dropped by 1.8 percent in November and 7.4% YOY. Total sales for the September through November 2008 period were down 4.5 percent from the same period a year ago. The September to October 2008 percent change was revised from -2.8 percent to -2.9 percent. The decline, which was slightly below the 1.9 percent dip that had been expected, was the fifth straight monthly drop, a record stretch of weakness.

Retail trade sales were down 2.0 percent from October 2008 and were 8.5 percent below last year. Motor vehicle and parts dealers sales were down 25.2 percent from November 2007 and gasoline stations sales were down 22.0 percent from last year.

The Producer Price Index, which tracks costs of goods before they reach consumers, fell 2.2 percent last month as gasoline and other energy prices retreated, according to the Labor Department. That followed a record 2.8 percent plunge in wholesale prices in October, and November's price drop was larger than the 2 percent decline economists expected.

Falling prices might sound good for buyers, but a prolonged, widespread decline would do serious economic damage, dragging down incomes, clobbering home prices even more and shrinking corporate profits.

The Commerce Department also said businesses slashed the inventories they hold on shelves and back lots by 0.6 percent in October, three times the 0.2 percent decline economists expected. It was the biggest cut in inventories since August 2003.

The latest economic data illustrate the negative cycle currently bedeviling the economy: consumers tighten their belts as the unemployed -- and those who fear for their jobs -- spend less, reducing retail sales and leading companies to cut back further.

Most Americans expect the jobs situation to get even worse, according to a poll released Thursday by the Pew Research Center for the People & the Press. More than 60 percent believe unemployment will increase next year, and 73 percent plan to cut back on holiday gifts this year.

Separately, the U.S. trade deficit rose unexpectedly in October to $57.2 billion, partly because of dampened demand for American exports. Analysts had been expecting a decline because of falling oil prices.

From Calculated Risk: Retail Sales Off Sharply in November

Economy News of the Day

From Mish's Global: Economic Potpourri December 11, 2008
From Mish's Global: Economic Potpourri December 10, 2008
From Big Picture: Updated Fed Lending
From Calculated Risk: Sester: On Global Trade and China

Companies Slashes Outlook

From Yahoo! Finance: Bank of America says to cut up to 35,000 jobs

Bank of America Corp said on Thursday it plans to cut up to 35,000 jobs over the next three years.

From Yahoo! Finance: Analyst cuts 2009 EPS on deteriorating economy

For the third time in less than a week, an analyst cut his earnings projection Thursday for General Electric Co., citing the deteriorating economy and the conglomerate's exposure to financial markets.

From Yahoo! Finance: Sharp says mulling LCD production cut

Japanese electronics maker Sharp Corp. said Thursday it may cut production of liquid crystal display panels, as global demand falters for personal computers and mobile phones. Sharp will shut down production at two small domestic plants and cut 300 contract workers.

From Yahoo Finance: Ahead of the Bell: Tobacco sector downgraded

An expected federal excise tax and rising unemployment caused an analyst to cut her rating on the tobacco sector, which includes companies such as Philip Morris International Inc. and Lorillard Inc.

Goldman Sachs analyst Judy E. Hong late Wednesday downgraded the sector to "Neutral" from "Attractive," expecting a possible federal excise tax increase to hurt volume next year across the industry. Hong also said rising unemployment may limit companies' ability to raise prices. Philip Morris, for example, said recently it will raise prices across its portfolio, but Hong still said the increase is modest.

From Yahoo! Finance: Baidu.com lowers 4Q revenue outlook
Baidu.com Inc. lowered its fourth-quarter revenue guidance on Thursday after the Chinese search engine operator suspended thousands of merchants from its paid-search service that were selling medical products without licenses on file.

From Yahoo! Finance: Cadence Design shares fall on weak 2008 outlook

Shares of Cadence Design Systems Inc. slumped Thursday after maker of chip manufacturing equipment reported a sharp drop in third-quarter sales and lowered its fiscal 2008 guidance.

Late Wednesday, Cadence said it lost $169 million, or 67 cents per share, for the three months ended Sept. 27. That compares with profit of $72.7 million, or 24 cents per share, in the year-ago period. But revenue declined dramatically, falling 42 percent to $232 million from $401 million in the year-ago period and missing analysts' $239.3 million estimate.

Looking ahead, Cadence forecast fourth-quarter adjusted losses of 4 cents to 6 cents per share on revenue of $215 million and $225 million, compared with analysts' expectations for a loss of 7 cents per share and higher sales of $247 million.

For fiscal 2008, it lowered its outlook, now expecting an adjusted loss of 4 cents to 6 cents per share on revenue of $1.025 billion to $1.035 billion, compared with its earlier forecast for profit of a penny to 5 cents per share on sales of $1.12 billion to $1.14 billion.

From Yahoo! Finance: Volvo to cut output of truck motors in US

Swedish truck and bus maker Volvo AB said Thursday it is laying off some U.S. workers, furloughing others and throttling back on engine and transmission production due to slow sales.

The company will cut transmission production by a third and engine production by 25 percent at its powertrain plant in Hagerstown, effective Jan. 5, plant spokeswoman Ilse Ghysens said, and there will also be layoffs.

Earlier in the year, Volvo announced layoffs of 2,000 workers at truck plants in Belgium and Sweden and 1,350 workers at its construction equipment unit and more than 1,000 powertrain workers.

From Yahoo! Finance: Retailer KB Toys files for bankruptcy protection

In another sign of the grim holiday season, KB Toys filed for bankruptcy protection for the second time in four years on Thursday and plans to begin going-out-of business sales at its stores immediately.

From Yahoo! Finance: Sun to shut Scottish manufacturing site

Struggling Sun Microsystems will halt production at its Linlithgow plant in Scotland, the company said Thursday, part of a move to consolidate its global manufacturing operations at a single site in Hillsboro, Oregon.

Sun said the closure of the company's only manufacturing site outside the U.S. would result in the loss of between about 120 and 135 jobs, or about 6 percent of its U.K. work force.

Sun Microsystems Inc. spokeswoman Cathy Toft said the move was part of the company's previously announced plan to slash 6,000 jobs, or 18 percent of its global work force.

From Yahoo! Finance: Furniture Brands cutting 1,400 jobs
Furniture Brands International Inc. said Thursday it will cut 1,400 jobs, or 15 percent of its U.S. work force, as it grapples with a continuing soft retail market.

From Yahoo! Finance: Procter & Gamble trims fiscal 2Q sales outlook

Procter & Gamble Co. said Thursday it will miss a second-quarter sales target as the consumer products company acknowledged it isn't immune to the recession.

P&G said won't meet the 4 percent to 6 percent growth goal in the quarter ending in December. But the Cincinnati-based company still expects sales to grow between 4 percent and 6 percent over its fiscal 2009, which ends in June. "P&G is recession-resistant, but not recession-proof."

From Yahoo! Finance: Consumer spending, strong dollar hurt Costco in 1Q

Warehouse-club operator Costco Wholesale Corp. reported nearly flat first-quarter profit Thursday, citing the stronger dollar and cuts by U.S. consumers in spending on nonessentials.

Costco said consumers pulled back on spending on nearly all items outside of food, especially in the later part of the quarter, despite more aggressive pricing.

"I think people's habits have changed," Richard Galanti, Costco's chief financial officer said.

From Yahoo! Finance: Krispy Kreme again looks to future after 3Q loss

Krispy Kreme Doughnuts Inc. said Thursday higher ingredient and gas costs contributed to its losses in the third quarter, but it's optimistic about the steps the company has taken in its ongoing effort to transform the business.

Export Traffic Falls to 2006 Level

From Calculated Risk: West Coast Ports: Export Traffic Falls to 2006 Levels

Inbound traffic has peaked for the year as retailers have already imported most of the goods for the holiday season. Inbound traffic was 11% below last November. This slowdown in exports (inbound traffic to the U.S.) is hitting Asian countries hard.

But even more concerning for the U.S. is that export traffic is declining sharply. For the LA area ports, outbound traffic continued to decline in November, and was 18% below the level of November 2007. Export traffic is now at about the same level as in late 2006. So much for the export boom!

From Yahoo! Finance: Weekly US rail shipments sink again last week

Shipments carried by U.S. railroads fell significantly again last week, a major industry trade group reported Thursday, as demand for everything from paper to cars continued to slow across the country.

The Association of American Railroads said freight carried on the tracks for the week ending Dec. 6 totaled 301,120 cars, down 8.5 percent from the same week a year ago. Shipments fell 10.1 percent a week earlier.

Intermodal volume fell 9.8 percent from a year ago. Intermodal involves moving freight from one method of transportation to another, such as truck to rail.

So far this year, shipments on U.S. rails are down 1.5 percent compared with the same period in 2007.

$14 Billion Auto Bailout dies in Senate

From Yahoo! Finance: $14 billion auto bailout dies in Senate

A $14 billion emergency bailout for U.S. automakers collapsed in the Senate Thursday night after the United Auto Workers refused to accede to Republican demands for swift wage cuts.

The collapse came after bipartisan talks on the auto rescue broke down over GOP demands that the United Auto Workers union agree to steep wage cuts by 2009 to bring their pay into line with Japanese carmakers.

The Senate rejected the bailout 52-35 on a procedural vote -- well short of the 60 required after the talks fell apart.

Why UAW does not agree to cut their salaries in line with the Japanese automakers? That is just totally wrong, you make worse automobiles and expect more pay?

As a result, Asian market and U.S. future market are tumbling over the news.

Isn't it true that if the Big Threes file Chapter 11, Bankruptcy Protection, it does mean they are going to die. It actually allows them to get rid of the Unions, and restructure.

File Chapter 11 might be the only option left!

Household Net Worth At All Time Lows

From Calculated Risk: Fed: Household Percent Equity Cliff Diving

Household percent equity was at an all time low of 44.7%, down from 46% in Q2, 50.9% in Q3 ‘07. The recent peak was 59.6% in 2001.

When prices were increasing dramatically in recent years, the percent homeowner equity was declining because homeowners were extracting equity from their homes. Now, with prices falling, the percent homeowner equity is Cliff Diving!

Note: approximately 31% of households do not have a mortgage. So the 50+ million households with mortgages have far less equity than 44.7%.

Household assets as a percent of GDP is now declining. Mortgage debt as a percent of GDP has declined for the last three quarters. Household debt (home mortgages + consumer credit) as a percentage of disposable income, for Q3 it was 123% up from 122% in Q2 but down from 126% in Q1. It peaked at 127% in 2006 and is still well above its level of 83% in 1995.

Rex Nutting at MarketWatch has more: U.S. households pay down debts for first time

Stung by the loss of more than $2.8 trillion in their net wealth, the nation's households paid down their debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday.

As of Sept. 30, households' total outstanding debt shrank at an annualized rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report.
...
With the stock market plunging and home prices falling rapidly, American households lost a total of $2.81 trillion in wealth during the third quarter, the most ever. Wealth fell at an 18% annual rate during the quarter.

From Calculated Risk: Total Household Networth as a percentage of GDP

Foreclosure Rises - lowest level since June

From Big Picture: Foreclosures Rise 28%

• November Foreclosure activity decreased 7% from October (the lowest level since June)
• Foreclosures up 28% from year ago levels;
• Foreclosure activity slowed in November due in part to recently enacted laws that have extended the foreclosure process in some states;
• 259,085 properties got a default notice or were warned of a pending auction or were foreclosed on last month;

Realtytrac VP Rick Sharga said: “We’re going to see a pretty significant storm next year. There are two or three clouds that suggest a pretty heavy downpour.” He expects monthly filings to move towards 303,000. The number of homes that revert to lenders, the last stage of foreclosure and known as “real estate owned” or REO properties, will increase to 1 million from as many as 880,000 this year, he said.

Initial Unemployment Claims = 573K

From Calculated Risk: Initial Unemployment Claims Increase Sharply to 573 Thousand

In the week ending Dec. 6, the advance figure for seasonally adjusted initial claims was 573,000, an increase of 58,000 from the previous week's revised figure of 515,000. The 4-week moving average was 540,500, an increase of 14,250 from the previous week's revised average of 526,250, the highest since December 1982.

The advance number for seasonally adjusted insured unemployment during the week ending Nov. 29 was 4,429,000, an increase of 338,000 from the preceding week's revised level of 4,091,000.

The Capitalism Clapper

From Calculated Risk: The Clapper

Bear Market Bottoming Analysis

Great chart and analysis of previous bear market bottoming processes.

But notice this time we might also violated the Rules of Double Tops: "If you make a double top and retrace then the retrace is normally to the start of the move to FIRST top. In this case that started at 450-460. Also, this counts as third down of five Elliot wave move (on monthly). The likely stop for wave 5 is support below where we stopped for wave 3 and a leg down about half and that puts us down in the 450 range also."

From dshort:com: The Bear Bottoming Process

"As the charts show, bear markets typically spent six weeks to eight months working though the bottoming process. Rather than a sharp V-shaped decline and recovery, these bears bounced around the lower range before transforming into the next bull market. As our review of recoveries suggest, patience will be required while today's bear thrashes around his bottom."

Americans See Brighter Ecnomic Future

From CNBC: American See Brighter Economic Future: Survey

The current pessimism runs so deep that, for the first time in the survey's two-year history, no statistically significant group (not even 1 percent) of the more than 800 survey respondents rated the economy as excellent. In fact, the percentage of Americans who rate the economy as poor ratcheted up to 70 percent from 65 percent last quarter and 33 percent a year ago.

The pessimism looks set to have real economic consequences: Americans plans to spend on average just $704 on their holiday shopping, down 4.6 percent compared with a year ago. One in 10 Americans plan to spend nothing on holiday shopping, double the one in 20 from a year ago.

The percentage of Americans who believe the economy will improve next year surged 11 percentage points from September and stands at 39 percent. In fact, the level of optimism is higher than at any time in the past 10 months, and appears connected with a change in administrations.

Regardless of what Americans believe about the future of the economy, they are not optimistic about a series of key economic variables. Americans think their wages will grow by only 3.1 percent next year, down from 5.3 percent a year ago; they believe their home prices will decline by 1.6 percent, the most in the life of the survey, and considerably below the 0.3 percent decline envisioned in September. A year ago, Americans thought their home prices would rise by 2.2 percent over the coming 12 months.

One positive outlook for the future is that Americans see prices rising by 5.8 percent, the smallest increase since the survey began asking the question in March 2007. The percentage is almost half the expected increase registered in June when oil and food prices were surging. Also on the plus side, while Americans rate the national economy poorly, they have a better view of their personal situation. More than half of Americans (52 percent) rate their personal financial situation as good or excellent, compared to just 4 percent when asked about the overall economy.

Americans plan to spend less on shopping this holiday season, with 30 percent saying the higher cost of necessities is the No. 1 reason for cutting back. Sixteen percent said it was because they or a family member are unemployed, and 15 percent said it was because they are having trouble paying regular bills.

52 percent of respondents said it is a somewhat bad or very bad time to invest in the stock market, up from 27 percent in October, 2007; 35 percent of those surveyed said they are not confident or only somewhat confident their money is safe in a federally insured bank account; and 37 percent surveyed said they would be willing to buy a car from a bankrupt auto maker, while 52 percent said they would not, and 11 percent were unsure.

Mid - Week Picture Post

International Trades Shrink in 2009

From Bloomberg: World Bank Cuts East Asian Economic Growth Forecast

International trade will shrink in 2009 for the first time in more than 25 years as economic growth slows and commodity prices slide, the World Bank said. Global growth will slow to 0.9 percent, or the weakest rate since records began in 1970.

The East Asian economies will probably expand at the slowest pace in eight years in 2009 as easing export demand and declining investment and consumer spending portend “hard times” for the region, the World Bank said.

East Asia, which excludes Japan and the Indian subcontinent, will expand 5.3 percent next year, slower than the 7.4 percent rate the World Bank predicted in April. Growth will probably be 7 percent this year.

East Asia probably contributed to a quarter of global growth this year, and that may rise to a third next year, the World Bank said.

More Job Cuts and bleak economy news:

1. Rio Tinto to cut 14,000 jobs (13%) and slash $5 billion in spending.
2. Electronic Arts cuts 2009 profit, outlook
3. Wal-mart suspends stock repurchase program.

Deal reached in principle on $15B auto bailout

From Calculated Risk: WSJ: Auto bailout deal reached

The White House and top Democrats on Capitol Hill reached agreement in principle on a sweeping rescue package for the nation's auto makers ... The bill would provide short-term funds, expected to total about $15 billion ...

[A]n auto czar ... would bring together labor, management, creditors and parts suppliers to negotiate a long-term restructuring plan ... if a company and its stakeholders can't agree on a plan, the czar would be required to recommend one, including the possibility of a Chapter 11 bankruptcy reorganization.

We will have the vote tomorrow. But watch out, Republicans might block it.

Be careful, any hope of a Detroit turnaround is pure speculation. There’s no guarantee that, even with a multibillion-dollar injection, Ford, GM, or Chrysler will ever again find viability. Look how much debt they have: GM, $45 billion; Ford, $32 billion. And if they fail, the common stock will be worthless. Any money these companies have will go to debt holders first.

Readings for the Day - Commercial Real Estate

Calculated Risk: The CRE Bust: Quick Overview

Calculated Risk: Lodging Investment and the Hotel Bust

Santa Rally?

From Big Picture: A leading bear turns bullish

From Mish's Global economic Trend Analysis: Bullish Looking Charts: S&P, NASDAQ, BKX, GOLD

Jeff Saut: The Sound of the Santa Rally?

“First, until proven wrong, I continue to think October 10, 2008 represented the ‘capitulation low’ when of the 3,130 stocks that traded on the NYSE, a shocking 2,901 (or 93%) of them made new yearly lows. Subsequently, even though all of the indices we follow have registered lower prices since October 10th, none of those lower lows have been accompanied with anything close to the new yearly low ratio that occurred on October 10th!

"Second, while the S&P 500 (SPX) traveled below its 2002 ‘low,’ the DJIA did not, and that’s a huge downside non-confirmation. Third, I can find nowhere in history were the major averages have declined by 50% and there has not been a major ‘throwback rally’ even if the averages eventually went lower. And fourth, I’ve learned the hard way that it is extremely difficult to put stocks away to the downside during the ebullient month of December.”

From Mish:

Saut goes on to say that "stocks, in the aggregate, are cheap.” I disagree, but there are many who don't. Stocks are cheaper than they were, but that does not make them "cheap".

Earnings are low and headed lower still. It is a mistake to ignore what hugely rising unemployment is going to do to both demand and profits in 2009 and 2010. And it is an additional mistake to not factor in something for boomers scared half out of their minds headed into retirement.

Pending Home Sales Slide in October

From Calculated Risk: Pending Home Sales Decline in October

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, slipped 0.7 percent to 88.9 from an upwardly revised reading of 89.5 in September, and is 1.0 percent below October 2007 when it was 89.8.

Existing home sales have been boosted by all the distress sales in low priced areas. Over time, as foreclosure activity shifts to middle and upper income areas, existing home sales will probably decline.

Existing home sales are reported at the close of escrow, pending home sales are reported when contracts are signed. The Pending Home Sales index leads existing home sales by about 45 days, so this suggests existing home sales will decline in December (from November).

Semiconductor Firms Slash Forecasts - Reduce Headcounts, Reduce Capital Spending

Research firm Forrester slashed its growth forecast for U.S. technology spending in 2009 to 1.6 percent from 6.1 percent, saying the recession is deeper and will last longer than it assumed in previous forecasts.

Semiconductor Firms Slash Forecasts:

Several large chip makers, including Texas Instruments Inc. and National Semiconductor Inc., sharply cut their financial forecasts Monday, as the global economic slowdown saps demand for devices that use a variety of semiconductors.

- TI, which makes chips used in cellphones and high-definition televisions, warned sales in the current quarter would drop as much as 35% from a year ago.
- National Semi, whose chips are used in cellphones, computer displays and other products, posted a 63% decline in profit for the period ended Nov. 23 and said revenue could drop 30% in the current quarter.
- Broadcom, Altera warn of sales shortfall.
- Nokia, TI's top customer, issued two warnings in three weeks about phone demand. Nokia predicted that mobile-phone industry sales will decline 5 percent or more in 2009, the first contraction since 2001.
- Analog Devices warns of weak 1st-quarter sales, profit
- Chipmaker Intersil Corp cut its fourth-quarter estimate, expects a 37 percent to 41 percent fall in revenue.
- Samsung Electronics Co., the world’s largest maker of memory chips, liquid-crystal displays and televisions, said the global recession is wiping out profits at those businesses this quarter.
- Hynix Semiconductor Inc., the world’s second-largest computer-memory chipmaker, will probably post a record operating loss in the fourth quarter.
- Infineon Technologies AG, Europe’s second-biggest maker of chips, reported a seventh straight quarterly loss last week.

Join the layoff waves:

1. Dow Chemical to Slash 5000 jobs, shut down 20 plants
2. 3M to cut 2,300 jobs
3. Anheuser-Busch InBev to cut 1,400 jobs (6%)
4. Tribune Co, the privately held publisher of newspapers including the Los Angeles Times and the Chicago Tribune, filed for Chapter 11 bankruptcy protection.
5. Sony Corp to eliminate 16,000 jobs, include 8,000 full-time employees, or 5 percent of the company’s electronics workforce, and another 8,000 part-time and seasonal workers. Sony said it will invest 30 percent less in its electronics business than planned. The company will also cut the number of manufacturing sites by 10 percent by the end of next fiscal year, from 57 currently.
6. Chip equipment maker Novellus Systems Inc. said Tuesday that it will shrink its work force by 10 percent and cut its chief executive's pay in half as sales dry up
7. Texas Instrument will suspend its hiring process

From Calculated Risk: FedEx: "Significantly weaker macroeconomic conditions":

[S]ignificantly weaker macroeconomic conditions are expected to offset the benefits from lower fuel prices and the announced departure of DHL from the U.S. domestic package market.

Second quarter results benefited from rapidly declining fuel prices and continued cost management,” said Alan B. Graf, Jr., executive vice president and chief financial officer. “However, demand for our services weakened sequentially throughout the quarter and global economic trends continue to worsen, substantially reducing our second half outlook. We are adjusting our expense plans to more closely align with the weaker business conditions, and are now targeting capital spending of $2.5 billion for fiscal 2009, down from $3.0 billion at the start of the year.”

International Markets

From CNBC: Japan Deeper in Recession, Third-Quarter GDP Shows

Japan's economy sank more deeply into recession in the third quarter than initially thought (weakness in exports and capital spending). The export-driven economy now looks likely to keep contracting at least until the first quarter of next year -- which would mark an unprecedented four straight quarters of decline -- as leading Japanese manufacturers cut output sharply to deal with a slump in global demand.

The economy contracted 0.5 percent in July-September, far more than the preliminary figure of a 0.1 percent decrease and economists' median forecast of a 0.2 percent fall.

Japan's economy shrank at an annual rate of 1.8 percent in the quarter, three times faster than the contraction in the U.S. economy in the same period. The revision was mainly due to a mark down in inventory and government spending.

From Bloomberg: Japan Default Risks Signal Stocks are a sell!

The link between corporate default risk and stock prices indicates Japanese shares trading at record low valuations may have room to fall further.

The CHART OF THE DAY shows the inverse relationship on a 120-day basis between the Topix index and the iTraxx Japan Index benchmark of credit-default swap spreads, which measures perceived default risk. On Dec. 5, the correlation coefficient reached minus 0.75 on a scale of plus 1 to minus 1. A positive reading shows moves in the same direction and a negative number indicates moves in opposite directions.

“The CDS index is at its highest since its creation, indicating a deterioration of corporate financial conditions.”

Similar prediction has been made for S&P, which ultimate target is 450-600 region.

From Bloomberg: China's exports shrink, output cools

“November figures will come out soon, and industrial growth will be something around 5 percent and export growth will be negative.”

A collapse from October’s 19.2 percent export growth would add pressure on policy makers meeting in Beijing this week to do more to sustain the expansion of the world’s fourth-biggest economy. The government has already unveiled a 4 trillion yuan ($582 billion) stimulus package and cut interest rates by the most in 11 years as a global recession cuts demand for the nation’s toys, textiles and electronics.

Industrial-output growth of 5 percent would be the weakest since Bloomberg data began in 1999 and worse than the 7.2 percent median estimate of 14 economists in a Bloomberg News survey. Production rose 8.2 percent in October.

High Re-Default Rate

From Calculated Risk: Dugan: High Re-Default Rates

Comptroller of the Currency John C. Dugan said today that new data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months.

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent."

In general, the third quarter report will show many of the same disturbing trends as other recent mortgage reports. Credit quality continued to decline across the board, with delinquencies increasing for subprime, alt-A, and prime mortgages – and the greatest increase in percentage terms was in prime mortgages. Similarly, total foreclosures in process increased, as did foreclosure sales, just as they had done in the previous quarter.



From Calculated Risk: Credit Suisse Forecast: 8.1 millions foreclosures by 2012

Credit Suisse analysts are now forecasting 8.1 million homes will be in foreclosure by the end of 2012, representing 16% of all households with mortgages.

The analysts projected this could be as low as 6.3 million in a mild recession, with a somewhat successful loan modification program (re-default rates at around 40%), and as high as 10.2 million in a more severe recession.