Finance Blog number 1

Home prices in 20 U.S. cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales.

The S&P/Case-Shiller index declined 18 percent in the 12 months to October, more than forecast, after dropping 17.4 percent in September. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

The financial market meltdown that’s reverberated around the globe has prompted banks to curb lending, signaling the housing slump will persist for a fourth year in 2009. Falling property values have eroded household wealth, causing consumers to pare spending and deepening what is projected to be the longest recession in the postwar period.

“We’re seeing a shift to a housing market that is driven by a poor economy rather than a housing market that’s driven by oversupply,” said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. “The credit problems that hit in October exacerbated the speed of it.”

Economists forecast the 20-city index would fall 17.9 percent from a year earlier, according to the median of 21 estimates in a Bloomberg News survey. Projections ranged from declines of 17 percent to 18.4 percent.

Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in October, led by a 33 percent drop in Phoenix and a 32 percent decline in Las Vegas.

“The bear market continues,” David Blitzer, chairman of the index committee at S&P, said in a statement. The declines in Atlanta, Seattle and Portland surpassed 10 percent for the first time, he said.

Shiller, Case

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s quick cash advance.

The 20-city index is down 23 percent from its 2006 peak. Fourteen of the 20 metropolitan areas showed record declines in the year ended in October.

Home prices decreased 2.2 in October from the prior month after declining 1.8 percent in September, the report showed. The figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month. Six cities, including Atlanta, Charlotte, Detroit, Minneapolis, Tampa and Washington, had the largest one-month drop on record.

Other Reports

Other housing reports this month have shown property values are deteriorating even faster as foreclosures climb. Home resales, which account for about 90 percent of the market, dropped in November and median-home prices fell 13 percent from a year earlier, the most since records began in 1968, the National Association of Realtors said last week. Foreclosures and short sales accounted for 45 percent of last month’s total, the agents’ group also said.

The share of mortgages delinquent by 30 days or more and those already in foreclosure rose to all-time highs in the third quarter, the Mortgage Bankers Association said Dec. 5.

Declines in home construction have subtracted from economic growth since the first quarter of 2006. Weak housing construction is likely to remain a drag on the economy until sales and prices improve.

Lennar Corp., a U.S. home construction company that builds in 14 states, reported its seventh straight quarterly loss on Dec. 18.

“Frankly, we’re in the midst of a downward spiral and the momentum is building,” Chief Executive Officer Stuart Miller said on a conference call with analysts.

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Wall Street analysts have abandoned all expectations for a rebound in U.S. company earnings in the fourth quarter, all but ensuring the corporate profit recession that began in the third quarter of 2007 will continue without interruption into next year.

Earnings for Standard & Poor’s 500 companies are now forecast to decline in the final three months of 2008 by 0.6% from a year earlier, according to Wednesday’s Thomson Reuters Director’s Report, a daily analysis of earnings trends for the companies comprising the benchmark U.S. equity index.

As recently as Tuesday, the report indicated fourth-quarter earnings could eke out a small gain of 0.2%. The report compiles the forecasts of individual Wall Street stock analysts into an aggregate view of the earnings trend for the index.

Now, the report points to earnings extending their slump without respite through at least the second quarter of 2009, which would mark eight straight quarters of falling profits. S&P profits first turned negative, on a year-over-year basis, in the third quarter of 2007.

The dismal earnings outlook is one of the chief factors contributing to the near-record drop in U.S. stocks this year. With just four trading days remaining in 2008, the S&P 500 index is down more than 40% year-to-date, a drop exceeded only by the 47.1% fall in 1931, when the Great Depression was in full swing.

The profit picture detailed in the Director’s Report has been deteriorating rapidly over the course of this quarter.

On Oct. 1, analysts’ forecasts suggested companies could post an impressive 46.7% rebound in earnings from the 2007 fourth quarter, according to the report.

Analysts had presumed for much of this year that the fourth quarter’s comparisons with the final quarter of last year would be relatively easy. That’s because it was one year ago that the first major wave of losses hit the key financial sector as a result of the U no teletrak payday loan.S. housing market’s crash.

But the overall economic picture has crumbled since September, when Lehman Brothers collapsed and sent the global credit crisis into high gear. Fourth-quarter economic output currently is forecast to be the weakest yet in the yearlong U.S. recession.

The median forecast among economists in a Reuters poll published Dec. 11 calls for U.S. gross domestic product to contract at a 4.3% annual rate in the fourth quarter, after contracting 0.5% in the third quarter.

Consumer spending, which accounts for more than 70% of U.S. GDP, has been particularly hard hit by job losses, dropping home prices and tightening credit conditions. As a result, profits in the consumer discretionary sector, which includes retailers of nonessential goods and even the ailing auto makers, are forecast to fall 54% from a year earlier.

By contrast, companies that produce or sell the staples of day-to-day living - everything from food to toothpaste - are estimated to show a 5% increase in earnings from last year, according to the report. Other groups expected to see modest profit increases are health care companies, up 6%, and utility companies, up 4%.

Most other sectors - energy, industrials, materials, technology and telecommunications - are expected to post double-digit declines from the 2007 fourth quarter. The biggest forecast drop, down 65%, is for the materials group, which has been slammed by the falloff in commodity prices and demand.

A big question mark continues to hang over the financial sector, given ongoing constrictions in credit markets and all the related government efforts to prop up the group. Financials on the whole posted a loss a year ago, and the report shows analysts are unclear whether the outlook has improved at all from then. 

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Chinese industrial companies’ profits grew at the slowest pace on record as the economy cooled and commodity prices plunged.

Net income increased 4.9 percent in the first 11 months of 2008 to 2.41 trillion yuan ($353 billion), the statistics bureau said today. Profits advanced 36.7 percent a year earlier.

The world’s fourth-largest economy grew at the slowest pace in five years in the third quarter as a global recession cut demand for exports and companies reduced output. Overcapacity in almost all industries and “unprecedented” drops in some commodity prices may hurt profits further, Li Yizhong, head of the nation’s industry regulator, said this month.

“The double-whammy of cooling demand and plunging prices have caused company profits to worsen seriously,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. “Profits may shrink as much 15 percent over the next six months.”

The CSI 300 Index of domestic stocks declined 12.74, or 0.7 percent, to 1,858.03 at the midday break. The index has plunged 65 percent this year on concern that the economic slowdown will hurt earnings.

Profits at companies owned or controlled by the state fell 14.5 percent in the first 11 months to 798.5 billion yuan, compared with a 0.7 percent increase in the first eight months.

Steel Industry Profits

Steel-industry profits fell 13.7 percent after increasing 31.5 percent in the first eight months. Power-industry profits slumped 84.1 percent.

Baosteel Group General Manager He Wenbo said in November that his company is facing its “most difficult” period since it was founded 30 years ago. Spot prices of hot-rolled sheet have fallen 35 percent in China since June.

The government may buy steel stockpiles, offer subsidies for plant upgrades and give higher export rebates to help the nation’s steel industry, the largest in the world, weather a “severe” slowdown, ’’ Minister of Industry and Information Li said Dec. 12.

China’s policy makers are concerned that a slowing economy, combined with falling profits, will prompt companies to shed more workers, raising unemployment and fomenting social unrest.

In 2008 more than 10 million migrant workers had lost their jobs as of the end of November, Caijing Magazine reported Dec. 17, citing an unidentified labor ministry official.

Exports Drop

State-owned companies should avoid firing workers next year Li Rongrong, head of the State-owned Assets Supervision and Administration Commission said yesterday payday loans.

China’s exports fell for the first time in seven years in November, imports plunged and manufacturing contracted by a record. The World Bank forecast China’s economy will grow 7.5 percent in 2009, which would be the slowest pace in almost two decades.

To help exporters, the government said yesterday it would raise rebates on shipments of some machinery and electronics and let some trade with Hong Kong, Macau and Southeast Asia be settled in yuan.

Industrial output grew at the weakest pace in almost a decade last month. China’s zinc, aluminum and steel smelters all turned unprofitable this quarter after metal prices dropped. Prices of aluminum, used in car parts, have fallen 36 percent this year.

Social Stability

Industry regulator Li said Dec. 19 that measures must be taken to sustain production to protect jobs and social stability. China aims for 8 percent growth in 2009 and production accounts for 43 percent of the nation’s gross domestic product.

“No company can fight the tide of an overall economic slowdown,” said CICC’s Xing. “The government’s stimulus plans to build airports, low-rent homes and railways may start to help boost demand for industrial goods from the middle of next year.”

China has pledged to spend 4 trillion yuan ($585 billion) in an effort to spur growth and limit unemployment. The central bank on Dec. 22 lowered its key lending rate for the fifth time in three months to help trim corporate funding costs.

China’s producer price inflation dropped to 2 percent last month from the peak of 10.1 percent in August, adding pressure on metal smelters and processors of oil and chemicals.

Sinopec Shanghai Petrochemical Co., the nation’s biggest ethylene maker, expects to post a “substantial loss” this year on a decline in prices.

Today’s increase in profits compared with a 19.4 percent gain in the first eight months. Overall, industrial companies’ sales rose 24.1 percent to 43.95 trillion yuan, down from a 29 percent increase in the first eight months.

Quarterly data on industrial profits was first released in February 2007.

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The European Central Bank cut the interest rate it pays banks to deposit money with it overnight and lifted its emergency lending rate in an effort to jolt financial companies into lending more to each other.

ECB President Jean-Claude Trichet and his governing council said after meeting in Frankfurt today that from Jan. 21 the deposit rate will be reduced to 100 basis points below its benchmark rate and the marginal lending rate will be increased to 100 basis points above it. Both are now separated from the ECB’s key rate of 2.5 percent by 50 basis points.

By lowering incentives to leave cash with it, the ECB is seeking to encourage banks to lend more as the euro region economy suffers the first recession in 15 years. Trichet and other officials have expressed concern that following the U.S. Federal Reserve in cutting the benchmark rate closer to zero won’t boost the economy as long as banks are hoarding cash.

“They have said they weren’t happy with banks not lending to the economy, so now they are discouraging them from putting the money in the central bank,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt.

The new rates will come into effect almost a week after the ECB council next convenes on Jan. 15 to set its benchmark rate which it has lowered 175 basis points since early October, the fastest reduction in its 10-year history. Investors are betting on another cut next month even as Trichet and other officials signal they may pause.

Continuing its attempt to thaw frozen money markets, the ECB also said today it will continue to provide unlimited liquidity at a fixed rate “for as long as needed, and at least until the last allotment of the third maintenance period in 2009 on March 31.”

Overnight Deposits

As banks have remained risk-averse since the Sept. 15 collapse of Lehman Brothers Holdings Inc., overnight deposits at the bank have surged. Deposits rose to 200.4 billion euros ($288.6 billion) yesterday, almost four times the daily average of 534 million euros in the year until Sept. 15. They reached a record 297 no faxing pay day loans.4 billion euros on Nov. 6.

The euro region already is in a recession and the ECB projects the economy will shrink about 0.5 percent next year, which would be the first full-year contraction since 1993. Business confidence in Germany, Europe’s largest economy, dropped to the lowest in more than a quarter century this month, the Munich-based Ifo institute said today.

Central banks around the world are cutting borrowing costs to contain the fallout from the financial crisis. While the ECB has also done so, Trichet said Dec. 15 that there is a limit to how far it can cut rates and suggested it may not do so in January.

Federal Reserve

The U.S. Federal Reserve reduced its key rate on Dec. 16 to between zero and 0.25 percent, down from 1 percent.

The lower deposit rate may not dissuade banks from storing cash at the ECB, said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc. Banks may have been depositing money with the central bank “because of counterparty risk considerations rather than to seek a return on these deposits,” he said.

Even if banks stop turning to the ECB they are unlikely to lend elsewhere, said Laurent Bilke, an economist at Nomunra International. “It will not really increase credit to the economy,” he said.

If banks don’t begin lending more, the ECB may start to guarantee short-term interbank loans by creating a clearinghouse, Cailloux said. ECB Vice President Lucas Papademos said on Dec. 15 that is “a concept worth studying.”

The ECB also said today it will maintain its current voting system in which every member of the council has a voice in setting rates. According to the Maastricht Treaty which established the central bank, a rotation system in which council members take turns to vote should be implemented when the euro- area membership reached 16. Slovakia becomes the 16th member on Jan. 1.

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The Bank of Japan may cut the benchmark interest rate further to show its commitment to countering a deepening recession and market turmoil, said Toshiro Muto, a former central bank deputy governor.

“A central bank has a role of influencing financial market sentiment and a rate cut is an option to show their determination” to support the economy, Muto, 65, said in an interview on Dec. 11. Still, “with the interest rate already so low, a further reduction would have only a limited impact.”

The central bank's Tankan survey today showed confidence among large manufacturers fell the most in 34 years as a deepening global financial crisis crimped export demand, forcing companies to pare production and fire workers. The Bank of Japan trimmed the key overnight lending rate to 0.3 percent from 0.5 percent in October, its first cut in seven years.

Muto served as the central bank's deputy chief for five years through March following his 37-year career at the Ministry of Finance. He was the government's first choice for the central bank chief, only to be rejected by the opposition-controlled upper house, which said his stint at the Finance Ministry may hamper the bank's independence.

Muto, who is now head of Daiwa Research Institute, said that lowering borrowing costs too much could damage the function of financial markets, echoing the views of Governor Masaaki Shirakawa. Since the October rate cut, Shirakawa has said at least eight times that further reductions may impede the flow of funds in the money market by diminishing returns and discouraging trading.

'Snuffed Out'

“As long as interest rates stay even slightly positive, the market mechanism can survive, but that functionality could get snuffed out” if rates are cut to zero, said Muto immediate payday loans online. “We've learned that that the significance of that from our zero-rate policy.”

Muto said should the turmoil intensify, the bank may revive quantitative easing, a policy of providing more funds to the banking system while holding the key rate close to zero. The bank adopted measure for five years through March 2006.

For now, policy makers should focus on measures to provide sufficient liquidity to lenders to avert a credit crunch, Muto said. Buying commercial paper directly from companies could cause “side effects,” he said. He added the bank doesn't need to increase its monthly purchase of government bonds from lenders from the current 1.2 trillion yen ($13.3 billion).

'Fully Possible'

It's “fully possible” that Japan may intervene in the currency market should it determine the yen's “overshooting” is a threat to the economy, Muto said. Investors are now buying the yen as a “safe-haven asset” because of the relatively better shape of the Japanese economy, he said.

Japan's currency surged to a 13-year high against the dollar last week.

“However, it's hardly conceivable that Japan's economy will improve independently from the rest of the world, and it's fully possible that the yen will weaken should financial market turmoil subsides,” Muto said.

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Five years after Federal Reserve Chairman Ben S. Bernanke helped stamp out the risk of deflation, the threat is returning as the financial crisis and a worsening economic slump pull inflation lower.

Fed policy makers now predict the U.S. economy will contract until the middle of next year, according to minutes of their Oct. 28-29 meeting released yesterday in Washington. Government figures showed that consumer prices excluding food and fuel costs fell for the first time since 1982 last month.

The minutes, along with a slide in financial stocks to the lowest level in 13 years, increased the odds that the Fed will cut its benchmark interest rate next month. Bernanke may also need to revisit the unorthodox policy options, such as purchases of U.S. government debt, that he outlined as a board member in 2003, Fed watchers said.

“The Federal Reserve put deflation back on the table as a significant policy concern,'' said Vincent Reinhart, former director of the Fed's Division of Monetary Affairs, who is now a visiting scholar at the American Enterprise Institute in Washington. “There does not appear to be any barrier to lowering'' main rate below the current 1 percent level, he said.

Deflation, or prolonged declines in prices, hurt the economy by making debts harder to pay off and lenders more reluctant to extend credit. Japan is the only major economy to have suffered the phenomenon in modern times.

`Lesson' for Kohn

“A lesson I take from the Japanese experience is not to let that get ahead of us, to be aggressive,'' Bernanke's deputy, Vice Chairman Donald Kohn, said in answering questions after a speech yesterday in Washington. “Whatever I thought that risk was four or five months ago, I think it is bigger now even if it is still small.''

Kohn and Bernanke were both at the Fed in 2003, when the central bank's preferred consumer-price gauge reached a low of 1.3 percent, spurring then-Chairman Alan Greenspan to cut the key rate to 1 percent.

Some policy makers saw a risk last month that the inflation rate will fall below their mandated goal of “price stability.'' “Aggressive easing should reduce the odds of a deflationary outcome,'' they said, while noting that the low federal funds rate target “would pose important policy challenges'' in that case.

The Fed's actions so far, including unprecedented injections of liquidity, haven't been enough to spur lending. Banks may make it even harder to get loans as their share prices plummet. Citigroup Inc. closed at a level unseen since 1995. The Standard & Poor's 500 Financials Index fell 12 percent to 139.84.

Hedge-Fund Risk

Fed officials expressed concern at last month's meeting at the risk for “financial strains to intensify if some investors, such as hedge funds, found it necessary to sell assets and as lending institutions built reserves against losses cash loan in one hour.''

“Credit availability certainly hasn't increased,'' said Lyle Gramley, a former Fed governor. “That has to be a major concern for the Fed because historically the way we get out of recessions is having the Fed push down hard on the accelerator. If that is not working very well, we have to look somewhere else for salvation.''

Future action by the central bank might include “aggressively buying long-term Treasury issues,'' Gramley, now a Washington-based senior economic adviser for Stanford Group Co., said in a Bloomberg Television interview.

Fannie, Freddie

Michael Feroli, a JPMorgan Chase & Co. economist who used to work at the Fed, said the central bank could also purchase the debt of Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the government in September.

“Before ramping up'' such programs, the Fed might “first communicate to the markets that the nature of the current economic woes should keep rates low for an extended period,'' Feroli wrote in a note yesterday.

The Fed's balance sheet has already doubled to almost $2 trillion as officials introduced programs to inject liquidity into the economy.

“Several'' participants at last month's Federal Open Market Committee meeting judged the extraordinary programs will need to be “unwound appropriately as the financial situation normalized,'' the minutes said.

Bernanke, a scholar of the Great Depression and former Princeton University professor, detailed possible assets the Fed could buy to fight deflation in a November 2002 speech when he was a governor. “Sustained deflation can be highly destructive'' and “should be strongly resisted,'' he said.

Ready to Act

Fed officials at last month's meeting “agreed to take whatever steps were necessary to support the recovery.''

Policy makers projected the Fed's preferred gauge of inflation at 1.5 percent to 2 percent next year, with a further slowdown in the next two years, reaching 1.3 percent to 1.7 percent in 2011, yesterday's report showed.

Some officials “suggested that additional policy easing could well be appropriate at future meetings,'' the minutes said.

“The door is wide open for a rate cut of half-a-point at the December 16 meeting,'' said Allen Sinai, chief economist at Decision Economics in New York. He predicts the central bank will pare the main interest rate to 0.25 percent in January.

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The number of e-mails containing attack attachments jumped eight-fold in the third quarter over the same period last year, according to a report released Monday by IT security firm Sophos Inc.

The research by Burlington, Mass.-based Sophos found one in every 416 e-mail messages contained an attachment that could harm one’s computer, up from one in every 3,333 messages last year.

Sophos officials say PCs running the Windows operating system are most at risk for infection.

“For Apple Mac and Unix lovers, these major spam attacks just mean a clogged-up inbox, not an infected operating system. But organized criminals are causing havoc for Windows users in the hunt for cold hard cash,” Graham Cluley, senior technology consultant at Sophos, says in a statement one hour loan. “Too many people are clicking without thinking, exposing themselves to hackers who are hell-bent on gaining access to confidential information and raiding bank accounts. The advice is simple: you should never open unsolicited attachments, however tempting they may appear.”

The United States remains the country that produces the most spam with some 18.9 percent of all unwarranted messages, followed by Russia and Turkey each producing 8 percent.

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A second round of mediated talks between The Boeing Co. and the International Association of Machinists and Aerospace Workers ended Monday with no settlement and no new talks scheduled.

Boeing negotiator Doug Kight expressed disappointment with the failure of the negotiations to resolve the strike by the Boeing workers, which has halted aircraft production and kept 27,000 employees off the production lines in Washington, Oregon and Kansas since Sept. 6.

“We want to resolve this strike so employees can return to work, but we cannot sacrifice our ability to continuously improve productivity and our long-term competitiveness for an agreement,” Kight said, in a statement. “Given current economic conditions, it is now more important than ever that we retain the ability to respond to a dynamic, uncertain environment.”

Boeing CEO Frank McNerney, in an Oct. 6 internal memo, expressed Boeing’s sense that the company is surrounded by rising competition and can’t surrender its competitive edge to resolve the strike. The memo was available on the Leeham Co. LLC website.

In the memo, McNerney cited the competition from China’s new 90-seat ARJ21, along with China’s aspiration to build larger aircraft bad credit payday advance.

He also pointed out that Airbus has just opened a Chinese factory to assemble its A320 model, which competes directly against Boeing’s 737. Airbus also is expected to assemble commercial aircraft at its proposed Alabama plant if the company succeeds in building jet tankers there, NcNerney’s memo said.

“The ongoing turmoil in the financial markets provides a timely reminder of why it would be gravely unwise for Boeing to agree to terms in any contract that would fundamentally restrict our ability to manage our business,” he said.

He went on to draw parallels between Boeing’s situation and that of U.S. auto makers.

“U.S. auto companies, for one, all but fatally wounded themselves years ago by promising unsustainable wage and benefit levels, and by agreeing to contract conditions (including job guarantees) that limited their flexibility to run their businesses in the face of intense global competition,” he said.

Machinists have cited Boeing’s record profits as a reason why they should be able to win salary increases without losing benefits.

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Wells Fargo has emerged victorious in its weeklong tug-of-war with Citigroup over Wachovia and will proceed with its $15 billion purchase of the troubled bank.

The Wells-Wachovia combination creates the nation’s third banking powerhouse, with about 10,700 branches and 12,200 ATMs stretching from coast-to-coast. Wells Fargo and its ubiquitous stagecoach will now roll from New York City to Miami in the East, through Texas and into the West with branches from San Diego to Seattle.

The combined company, to be called Wells Fargo and based in San Francisco, will have $1.42 trillion in assets, $787 billion in deposits and 280,000 employees.

Wells Chairman Dick Kovacevich, CEO John Stumpf and their team will have their hands full in the days and weeks ahead, handling triage among Wachovia employees who became increasingly nervous about their futures as Wells and Citigroup fought over the Charlotte bank.

Wells (NYSE: WFC) is expected to avoid layoffs, if possible, in the largest acquisition in the company’s 156-year history. Even in making last year’s in-market, Bay Area acquisition of Greater Bay Bancorp, Wells kept the vast majority of the acquired bank’s employees (faxless payday loan).

“We know this has been a time of great uncertainty for Wachovia (NYSE: WB) team members and many of its customers as their company has gone through a very painful and challenging time of unprecedented change in our industry,” Wells Fargo’s Stumpf said. “We want to assure them we’ll do everything we can to make the integration of our operations as smooth as possible. An important measure of success for this integration will be our ability to retain as many of the talented Wachovia team members as possible.”

Although Wells is acquiring Wachovia, the San Francisco bank is likely to find a few gems at the Charlotte bank to extend into Wells Fargo territory beyond Wachovia’s huge presence in the East. Wells Chairman Dick Kovacevich told analysts about a year ago that Wells Fargo’s customer service in retail banking had room for improvement. Wachovia has consistently won high marks in that department. Wachovia’s Way2Save program is also a candidate for going national under the Wells Fargo banner.

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A new government report says personal spending stagnated in August as Americans continued to be weighed down by the economy

The U.S. Commerce Department reported this week that personal spending was virtually unchanged in August. Spending has not been this weak since February, when it was also flat. Economists had forecast a 0.2 percent increase in personal spending.

Personal income, meanwhile, increased by 0.5 percent in August after a revised 0 (best payday loan).6 percent decline in July. Economists surveyed by Briefing.com were expecting income to grow 0.2 percent last month.

After adjusting for taxes and certain price changes, however, real disposable income contracted 0.9 percent, according to the report.

For more: http://www.commerce.gov.

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