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| Market Summary |
Stocks fell deep into negative territory on Wednesday as investors reacted to news that the government has changed details of the $700B bailout plan. The Dow Jones Industrial Average shed over 400 points to end at 8,282.66. Today’s session marked the third consecutive day that the market has ended lower. The day started off lower as more companies revealed that they have been hurt by a tremendous dip in consumer spending. Best Buy (BBY: Charts, News, Offers) slashed its earnings outlook and said that this is the most serve climate they have ever seen. Macy's Inc. (M: Charts, News, Offers) said it lost $44 million in the third quarter, but stood by its earnings outlook. Declines accelerated during afternoon trading when Treasury Secretary Henry Paulson said that the government’s $700B bailout plan will no longer be used to purchase troubled assets from banks. Instead, the government will continue to make direct investments in financial institutions. Reports surfaced that American Express (AXP: Charts, News, Offers) is seeking $3.5B in federal funding after becoming a bank-holding company on Monday. U.S. light crude oil for December delivery slipped $3.17 to settle at $56.16 a barrel on the New York Mercantile Exchange. Treasury prices advanced, lowering the yield on the benchmark 10-year Treasury note to 3.64% from 3.76%.
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| Market News |
Morgan Stanley (MS: Charts, News, Offers) on Wednesday outlined plans to cut 10 percent of staff in its biggest business, which covers everything from investment banking to stock trading. The nation's No. 2 securities firm, which converted into a bank holding company in September, plans to scale back its most capital-intensive businesses before the end of the year. The layoffs inside the institutional securities group follow a 10 percent cut made earlier this year to the same group. Morgan Stanley also plans to restructure its money management business by cutting 9 percent of the staff there. It was not immediately clear how many positions will ultimately be eliminated from the company's total ranks of about 44,000. "The firm is resizing its cost base and head count to match current opportunities in the market place, while reallocating resources to those businesses that provide an attractive risk-adjusted return on capital," spokesman Mark Lake said. (Source: Yahoo! Finance) Full Story
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Shares of Sprint Nextel (S: Charts, News, Offers) sank to a new 52-week low, continuing a slide prompted days ago by the company's lackluster third-quarter earnings report. The stock was recently down 62 cents, or 24.5%, to $1.91. Sprint Nextel shares have now lost more than half their value in November. On Friday, the wireless phone shop said it swung to a third-quarter loss of $326 million, or 11 cents a share. Excluding items, Sprint merely broke even, falling short of Wall Street's average estimate for a profit of 3 cents a share. Sprint also saw wireless customers decline by a net 1.3 million, including losses of 1.1 million post-paid customers and 329,000 prepaid users. Sprint's results appear even more dreadful when compared to those of rivals AT&T (T: Charts, News, Offers) and Verizon (VZ: Charts, News, Offers). While Sprint was losing subscribers, Verizon added 2.1 million net wireless subscribers in the third quarter. (Source: TheStreet) Full Story
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Shareholders of Anheuser-Busch Cos. Inc. (BUD: Charts, News, Offers) on Wednesday approved the $52 billion sale of the nation’s largest brewer to Belgium-based InBev SA, a deal that is set to create the world’s largest brewer. The vote was the latest step necessary to form the company that will be known as Anheuser-Busch InBev and combine brands such as Bud Light and Budweiser with Stella Artois and Beck's. The deal, reached in July, is expected to close by the end of the year. It is subject to regulatory approval in the U.S., Britain and China. August A. Busch IV, Anheuser-Busch's president and chief executive, said the decision to sell was a difficult one. "Every alternative was considered," he told shareholders at the meeting just outside of New York. "In the end, we all agreed the InBev proposal was in the best interest of you, the shareholders." (Source: MSNBC) Full Story
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| Featured Article from the InvestorGuide University |
The Stock Market
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| Market Analysis |
The markets are chaotic. The stock market (S&P 500) is down 34% for the year, and 17% in October alone. Volatility, which measures how much stocks move unexpectedly in a year, is even more dramatic. It's usually around 15%, but daily volatility in October was 75% on an annual basis. Meanwhile, the financial crisis continues. Is this the prelude to further losses, as in 1929? Or is it the mother of all buying opportunities? Even if we think the market is a bit undervalued, does huge volatility pose an unacceptable risk of catastrophic losses? No one knows for sure -- but 30 years of research does offer some experience and insights. Consider the top line in the chart nearby, which depicts the dividend/price ratio for NYSE stocks. Dividends are stable over time, so this ratio lets us compare stock prices at different points in time. (Source: Wall Street Journal) Full Story
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It's all very well to say that he who doesn't remember the past is bound to repeat it. But it is sometimes hard to figure out which past to remember, and whether the way that the past is shaped into popular recollection is at all true to the circumstances themselves. Take, for example, "the Great Moderation." The last really sharp recession in the United States was from 1981 to 1982, when real output fell by more than 4% below trend, and the unemployment rate rose to over 10%. It is often referred to as the Volcker Recession because it was triggered in part by then Fed Chairman Paul Volcker's efforts to squeeze inflation out of the U.S. economy. Following that recession, something remarkable happened. The volatility in the U.S. economy declined sharply. Even though we have had two recessions in the ensuing years--in 1991 and 2002--both were relatively mild and short-lived. (Source: Forbes.com) Full Story
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President-elect Barack Obama is using the New Deal as his model for how to deal with economic crisis. He might want to distinguish between what worked and what didn't. One reason the Depression lasted until World War II, as Paul Krugman argued this week in the New York Times, is that the New Dealers sabotaged their own plan. With one hand the New Dealers gave, spending to stimulate the economy. In fact, they put through the same kinds of infrastructure projects that Obama and congressional Democrats are considering today. With the other hand the New Dealers took away, by raising tax rates -- just as the new president and Congress are likely to do in 2009. Especially damaging to the prospects of recovery were the heavy levies of the second half of the 1930s, which, as Krugman points out, were key in "precipitating an economic relapse that drove unemployment back into the double digits.'" President Franklin D. Roosevelt specialized in persecuting the rich via taxes, telling the upper class, point blank, that they had "met their master." (Source: Bloomberg) Full Story
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