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| Market Summary |
Wall Street remained lower on Wednesday as investors processed another round of economic reports and worried about the future of the automobile industry. The Dow Jones Industrial Average sank 427.47 points to close at 7,997.28. Stocks held onto gains earlier in the session, but eventually declined as investors thought about the consequences of automakers having to file bankruptcy. Top executives from General Motors (GM: Charts, News, Offers), Ford (F: Charts, News, Offers), and Chrysler were in Washington asking lawmakers for assistance. Weak readings on the nation's housing market and a sharp decline in consumer prices also kept the market lower. The Labor Department reported that the consumer price index fell to 1% in October. Investors were dealt another blow after the Federal Reserve released a sharply lower projection on economic activity for the remainder of this year and next year. Investors are betting that additional rate cuts are soon to come after this projection. In corporate news, General Electric (GE: Charts, News, Offers) announced a plan to reorganize its GE Financial branch as a method of cutting costs. BJ’s Wholesale (BJ: Charts, News, Offers) reported a 24% rise in third-quarter profit, helped by gasoline sales and discount shopping. U.S. light crude oil for December delivery fell 77 cents to settle at $53.26 a barrel on the New York Mercantile Exchange. The dollar gained against the euro but fell against the yen.
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| Market News |
Microsoft Corp. (MSFT: Charts, News, Offers) is no longer interested in buying all of Yahoo Inc. (YHOO: Charts, News, Offers), CEO Steve Ballmer said Wednesday, though he told shareholders that the company would still be "very open" to a collaboration on Internet search. His comments sent Yahoo shares diving by 19 percent. "Let me be clear," Ballmer said at Microsoft's annual shareholder meeting. "We are done with all acquisition discussions with Yahoo." Yahoo spurned a $47.5 billion takeover offer from Microsoft in May, and later rejected Microsoft's bid to buy only its search engine. Ballmer has said repeatedly of late that the buyout remains off the table, though a search-related deal is possible. (Source: Yahoo! Finance) Full Story
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Citigroup Inc. (C: Charts, News, Offers) said Wednesday it is acquiring the remaining $17.4 billion in assets held by structured investment vehicles (SIV) it already supports, as the bank moves to unwind the troubled funds.Citigroup will move the SIV assets to a portfolio of assets held for sale. The transfer allows the funds to fully repay maturing debt obligations. Citi is acquiring the assets at their current fair value, net of cash. The assets' value fell to $17.4 billion from $21.5 billion as of Sept. 30. The value fell $4.1 billion, with $3 billion tied to asset sales and maturities, and the remaining $1.1 billion due to market value declines. The transfer of assets out the SIVs is the latest step as Citigroup has been working to shut down the operations. (Source: CNN Money) Full Story
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The Federal Reserve on Wednesday sharply lowered its projections for economic activity this year and next, and signaled that additional interest rate reductions may be needed to help combat the worst financial crisis to jolt the country in more than a half-century. With the economy forecast to lose traction, or even jolt into reverse, unemployment will move higher, the Fed predicted. Facing the likelihood of "significant weakness" in the economy, some Fed officials suggested "additional policy easing could well be appropriate at future meetings," according to documents from the Fed's most recent closed-door deliberations on interest rate policy at the end of October. (Source: TheStreet) Full Story
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| Market Analysis |
Every crisis has its heroes. For months now we've all been hearing about Walter Bagehot, whose 19th-century injunction to lend "freely" in a panic was cited by the Federal Reserve in its bailouts. Now another Englishman, John Maynard Keynes, has been pulled on the stage. Keynes taught that spending, especially spending by consumers, is the way out of a slowdown. From last summer's small stimulus checks to the infrastructure projects under consideration by President-elect Barack Obama and congressional Democrats, almost everything the government has done or wants to do is justified by Keynes. That's problematic. For Keynesian solutions often fail to deliver good or even acceptable results. (Source: Bloomberg) Full Story
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I'm dreaming of holiday goodies. It's now clear that plans are well underway for a big stimulus package for the U.S. economy. There will be similar programs announced elsewhere, just as happened in China this past week. The numbers being discussed are of the magnitude of $300 billion for the U.S., although Paul Krugman proposed as much as $600 billion. We are getting so accustomed to sums of this order that it is hard to get a sense of their importance in the scheme of things. U.S. gross domestic product is $14.4 trillion, so $300 billion is about 2.1% of GDP. That's a lot of stimulus, coming on top of the commitments that have already been made via the Paulson bailout plan (4.8 % of GDP) and the other commitments of the Fed and the Treasury (another 4% of GDP) to rescued institutions. (Source: Forbes.com) Full Story
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Barack Obama's election has elicited debate about whether he will drive America toward a European-style economy, one that is heavy regulated and relies on high taxation of the rich to redistribute income and finance generous government programs. How ironic, then, that Europe itself is moving away from European-style taxation as part of a broader trend by developed and developing countries to compete more extensively for capital and talent. In the past five years alone, 33 countries, including 20 in Europe, have cut their top personal income tax rates, according to a study released just before the U.S. presidential election (and predictably ignored in the U.S. media) by the accounting firm KPMG International. Even more impressively, in the past four years, 60 countries have cut their corporate income tax rates, according to a World Bank survey. (Source: Real Clear Markets) Full Story
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