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| Market Summary |
Stocks declined sharply on Thursday as investors weighed IBM earnings, a dip in GM shares, and another possible investment plan from the Treasury Department. Today’s session marked the 7th consecutive day of losses for Wall Street. The Dow Jones Industrial Average fell 678.91 points to 8,579.19. Broader stock indicators also declined. The Standard & Poor's 500 index fell 75.02 points to 909.92 and the Nasdaq composite index fell 95.21 to 1,645.12. Stocks advanced at the start of the session, but gave up gains when General Motors Corp. (GM: Charts, News, Offers) shares fell to a level not seen since 1950. Shares of the struggling automaker fell $1.14 to $5.77. The S&P’s Ratings Service also put GM under review for a possible rate cut. Investors eyed reports that the Treasury Department was looking to buy stakes in U.S. banks. The news did not spark much change during the session mainly because investors are still unsure that this is the answer to the financial and credit crisis. The Treasury Department and the Federal Reserve have tried a number of things to loosen frozen credit markets. The Nasdaq got a boost after IBM (IBM: Charts, News, Offers) reported better-than-expected earnings, but failed to reach positive ground. Investors did receive one piece of good economic news. The government reported that applications for unemployment benefits dropped last week from a seven-year high. U.S. light crude oil for November delivery fell $1.64 to $87.31 a barrel on the New York Mercantile Exchange. The dollar fell against the euro and rallied against the yen.
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| Market News |
IBM (IBM: Charts, News, Offers) tried to separate itself from the tech pack with a mixed third quarter earnings preview, but more budget cutting among among business buyers foreshadows trouble down the road. The information technology giant said its service contract business remained solid and reaffirmed its full-year profit goal. Big Blue also said that it expects to post an adjusted profit of $2.05 a share. That compares with pro forma earnings of $1.68 in the year ago period and is above analysts estimates calling for earnings of $2.01 a share. Sales for the quarter ended last month were $25.3 billion, up from the $24.1 billion level last year, but below expectations for a top line of $26.5 billion. (Source: CNN Money) Full Story
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General Motors Corp. (GM: Charts, News, Offers) shares on Thursday plunged to their lowest level since the opening months of the Korean War, as investors continued to fret that the decline in U.S. vehicle sales may be spreading to the rest of the world. GM shares plummeted by as much as $1.50, or 22 percent, to $5.41 before rebounding to $5.90 in afternoon trading. The low point marked the Detroit-based automaker's lowest share price since Dec. 16, 1950, when it hit $5.40, according to the Center for Research in Security Prices at the University of Chicago. GM is one of the 30 stocks that make up the Dow Jones industrials, and its steep plunge helped pull the Dow Jones industrial average into negative territory, as it looked to recover from a massive sell-off earlier in the week. (Source: MSNBC) Full Story
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Micron (MU: Charts, News, Offers) will stop making flash memory chips at one of its three factories dedicated to the product, as it seeks to mitigate the pain caused by a severe industry downturn. The Boise, Idaho chipmaker said Thursday that it will also layoff 15% of its global workforce over the next two years. The moves mark the most significant acknowledgement yet by Micron that the protracted downturn in the memory chip business, coupled with the financial crisis, is forcing the company to make drastic changes to its business operations. Micron said the move is expected to result in more than $175 million in operating margin benefit, while it will incur about $60 million in restructuring charges. (Source: TheStreet) Full Story
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| Market Analysis |
Last week, I suggested the need for a coordinated monetary policy rate cut. That cut arrived yesterday, with the Fed, the European Central Bank and other central banks cutting their policy rates by 50 basis points (bps). This action is necessary, but only cosmetic, and it is too little too late. European central banks should have cut rates many months ago, before the recession and financial crisis became so virulent. Now, 50bps for the Eurozone is peanuts at a time when a minimum of 150bps is necessary to restart the economy and unclog frozen financial markets; 50bps is also too little in the U.S., given the damage to the real economy of the financial shocks of the last month. During the last recession, the Fed cut the Fed Funds down to 1%; we are still 50bps away from that level. But at the end of this cycle--as I have argued before--the Fed Funds will be closer to 0% than to 1%. (Source: Forbes.com) Full Story
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"Chairman Henry Gonzalez (D-Texas) and his committee are taking us back to 1980, when former Chairman Fernand St. Germain boosted deposit insurance to $100,000 an account (from $40,000) in the dead of night. To prevent another S&L disaster, we need to limit the deposit-insurance subsidy. A banking 'reform' without such limits is just another Nightmare on Pennsylvania Avenue." The above passage comes from a Wall Street Journal editorial dated June 7, 1991. Amid an S&L meltdown that some deemed “the worst public scandal in American history”, the Journal’s editorial page was properly relentless in its pursuit of the main causes of the S&L crisis that like banking problems today, would fall at the feet of the American taxpayer. (Source: Real Clear Markets) Full Story
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Deprive a person of oxygen and he will turn blue, collapse and eventually die. Deprive economies of credit and a similar process kicks in. As the financial crisis has broadened and intensified, the global economy has begun to suffocate. That is why the world’s central banks have been administering emergency measures, including a round of co-ordinated interest-rate cuts on Wednesday October 8th. With luck they will prevent catastrophe. They are unlikely to avert a global recession. According to the IMF’s most recent World Economic Outlook, published on Wednesday, the world economy is “entering a major downturn” in the face of “the most dangerous shock” to rich-country financial markets since the 1930s. The fund expects global growth, measured on the basis of purchasing-power parity (PPP), to come down to 3% in 2009, the slowest pace since 2002 and on the verge of what it considers to be a global recession. (Source: The Economist) Full Story
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