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| Market Summary |
Stocks headed south on Friday as investors processed another round of disappointing economic and corporate reports. The Dow Jones Industrial Average plunged 337.94 points to end at 8,497.31. Broader stock indicators also fell. The Standard & Poor's 500 index declined 38.00 to 873.29 and the Nasdaq composite index fell 79.85 to 1,516.85. Investors were expecting a drop after the previous session’s huge rally, but today’s declines were accelerated after the Commerce Department issued a dismal October retail sales report. The report showed that retail sales slump 2.8% in October and were worst than expected. Corporate news also dragged on the market. Freddie Mac (FRE: Charts, News, Offers) reported a $25.3 billion quarterly loss and said that it will have to tap into the $100 billion provided by the Treasury Department. Additional layoffs were also announced during the session. Sun Microsystems (JAVA: Charts, News, Offers) said that it will cut its workforce by 18% as a cost-cutting measure. It was reported that Citigroup (C: Charts, News, Offers) may axe an additional 10,000 jobs on top of the 23,000 jobs it has already cut. Nokia (NOK: Charts, News, Offers) issued a warning about fourth-quarter sales and cited a weakening economy as the reason for the decline. Global markets jumped in response to Thursday’s rally in the U.S. Light crude oil for December delivery fell 90 cents to $57.34 a barrel after gaining the previous day. The dollar gained against the euro, but fell versus the yen.
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| Market News |
Publicly breaking with the Bush administration's official stance, the Federal Deposit Insurance Corp. proposed Friday to use $24 billion in government funding to help 1.5 million American households avoid foreclosure. Where to find that money, though, is in dispute. FDIC officials want to use part of the $700 billion bailout of the financial industry to pay for it. But the Treasury Department is opposed to that idea. Testifying on Capitol Hill Friday, Neel Kashkari, the Treasury Department's assistant secretary for financial stability, said the aim of the $700 billion plan was to make investments with the hope of getting the money back. That he said, was "fundamentally different from just having a government spending program" that would disburse money with no chance of ever seeing any returns. (Source: Yahoo! Finance) Full Story
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Freddie Mac (FRE: Charts, News, Offers) reported a $25 billion quarterly loss Friday that forced the mortgage finance giant to tap $100 billion in bailout money set aside by the government. The loss triggered a $13.8 billion Treasury Department investment in Freddie. The firm is likely to get the money by the end of the month; Treasury will receive preferred shares in return. A Treasury spokeswoman did not have any immediate comment. Treasury and regulator Federal Home Finance Authority announced on Sept. 7 that they had taken control of Freddie and Fannie Mae (FNM: Charts, News, Offers), the other giant mortgage finance company, when it became clear that mounting losses on bad mortgages would cause them to run out money. At the time, the Treasury committed $100 billion apiece to back up the two firms. Friday's announcement is the first major investment of taxpayer cash into the firms during the current crisis. Freddie's third-quarter loss came to $19.44 a share, far larger than the $1.2 billion, or $2.07 a share it lost in the year-earlier period. Much of that loss came from a $14 billion non-cash charge to write down the value of tax credits it had built up. (Source: CNN Money) Full Story
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Sun Microsystems Inc. (JAVA: Charts, News, Offers) plans to cut up to 6,000 jobs, or 18 percent of its global work force, as sales of its high-end computer servers have collapsed. The drastic move announced Friday highlights Sun's desperation to cut costs and survive as an independent company. Sun's shares have fallen so steeply they’ve crossed an ominous threshold, driving the company’s market value below its cash on hand. That means investors believe the company itself is essentially worthless. After eight years of devastating financial problems and multiple attempts at restructuring, Sun's latest woes have ramped up speculation that one of the most storied names in computing could be snapped up dirt-cheap by a bigger rival. Hewlett-Packard Co. (HPQ: Charts, News, Offers), IBM Corp. (IBM: Charts, News, Offers), and Dell Inc. (DELL: Charts, News, Offers) are all possible suitors. (Source: MSNBC) Full Story
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| Market Analysis |
Tomorrow's "Summit on Financial Markets and the World Economy" in Washington will have a stellar cast. Leaders of the Group of 20 industrialized and emerging nations will be there, including Chinese President Hu Jintao, Brazilian President Luiz Inacio Lula da Silva, King Abdullah of Saudi Arabia and Russian President Dmitry Medvedev. French President Nicolas Sarkozy, who initiated the whole affair, in order, as he put it, "to build together the capitalism of the future," will be in attendance, along with the host, our own President George W. Bush, and the chiefs of the World Bank, the International Monetary Fund and the United Nations. One thing is guaranteed: Most attendees will take the view that Wall Street greed and inadequate regulatory oversight by U.S. authorities caused the global financial crisis -- never mind that their own regulatory agencies missed the boat and that their own governments eagerly bought up Fannie Mae (FNM: Charts, News, Offers) and Freddie Mac (FRE: Charts, News, Offers) securities for the higher yield over Treasurys. (Source: Wall Street Journal) Full Story
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The technology industry has, by all counts, matured. Not only are billions of people users of technology today, we have even started discussing the possibility of the last billion joining this march and benefiting from its benevolence. Yet this dramatic shift toward technological ubiquity comes at a price. The producers of technology are today faced with the pressure to drive costs down--and down, and down--so that more people can afford it. From PCs to cellphones to wireless routers, every consumer product is going through a process by which margins are getting squeezed out until businesses are almost forced to operate as nonprofits. Even technology for businesses is going through a similar cost squeeze, making it possible for small businesses to afford sophisticated offerings like networking equipment, video conferencing and business applications in the form of software-as-a-service. (Source: Forbes.com) Full Story
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The economic news, in case you haven’t noticed, keeps getting worse. Bad as it is, however, I don’t expect another Great Depression. In fact, we probably won’t see the unemployment rate match its post-Depression peak of 10.7 percent, reached in 1982 (although I wish I was sure about that). We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy -- above all, the Federal Reserve’s ability to pump up the economy by cutting interest rates -- have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly. (Source: New York Times) Full Story
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