By Patrick Rizzo and Ellen Simon,
Stock market rout spreads around the world as recession worries turn to dismay
NEW YORK (AP) -- Stock markets around the world plummeted Friday and oil prices plunged to their lowest in more than a year. Even gold, the traditional safe haven in times of panic, fell sharply.
The common denominator was growing fears that governments, central banks and finance ministers seem powerless to stop the deepening of a global recession that will slam corporate earnings and lead to deep job losses around the world.
The Dow Jones industrial average dropped more than 420 points in early afternoon trading. Before the open of New York trading, Dow futures had dropped 550 points, triggering a temporary trading halt in stock futures contracts in an effort to slow the decline.
"This is beyond volatile: It is chaotic," Carl Weinberg, chief economist at High Frequency Economics wrote in note to clients. "This is the kind of day when the central banks step into the market with an 'unexpected' interest rate move to calm things down."
Treasury Secretary Henry Paulson is monitoring the markets and staying in close touch with market participants, a spokeswoman said.
Oil fell sharply and traded near $63 a barrel amid weakening global demand for crude -- despite a decision by the OPEC cartel to cut production quotas by 1.5 million barrels a day from next month.
The dollar plunged below 93 yen, a 13-year low. Gold fell as low as $681 an ounce, its lowest since January last year.
It was a black Friday overseas. Japan's Nikkei stock average dropped 9.6 percent. Germany's benchmark DAX index plunged as much as 10.8 percent, France's CAC40 slid 10 percent and Britain's FTSE 100 shed 8.7 percent. Stocks in Hong Kong fell 8.3 percent.
Russian stocks fell sharply, the two main exchanges shut early and won't resume trading until Tuesday.
"We are getting used to wild swings in the markets, but today's moves verge on the bizarre," said Julian Jessop, chief international economist at Capital Economics.
The only good news was the 5.5 percent increase in September existing home sales. Median home prices, however, dropped to $191,600, down 9 percent from a year ago.
The U.K.'s third quarter gross domestic product fell 0.5 percent, with the steepest decrease in 18 years putting the country on the brink of recession. Shares of Japan's Sony sank more than 14 percent when it slashed its earnings forecast for the fiscal year. In Germany, Daimler's stock dropped 11.4 percent in morning trading; it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.
Emerging market economies and currencies are coming under extreme pressure. Investors are pulling money out of countries in Eastern Europe, Latin America and Asia on fears vulnerable countries will not only be hit hard by the financial crisis but may also default on debt.
Hong Kong's Hang Seng index fell 8.3 percent and markets in India, Thailand, Indonesia and the Philippines were also down sharply.
Brazilian stocks slumped for the fourth straight day, with the Ibovespa index down more than 8 percent in early afternoon. Mexico's benchmark index was down 5 percent.
"Periods of panic punctuated by occasional calm appears to be the manner of things for now," said Daragh Maher, a strategist at Calyon Corporate and Investment Bank in London.
Investors around the world seemingly have become more convinced the global economy is on the brink of a long and painful recession, if it's not already in one.
Over the past few weeks, governments have taken unprecedented steps to thaw frozen credit markets and avert the downturn. But while there are signs that credit markets are beginning to thaw -- rates banks charge each other for short-term loans have been falling in recent days -- the outlook from companies reporting earnings are almost universally cautious about their prospects going forward.
That means companies will be reluctant to buy new equipment or hire new workers. U.S. unemployment claims, already well into recession territory, are rising even faster than expected. Economists warn the worst is yet to come.
On Thursday, the government said new applications for unemployment insurance rose 15,000 last week to a seasonally adjusted 478,000, above analysts' estimates of 470,000. Jobless claims above 400,000 are considered a sign of recession.
Goldman Sachs, Chrysler and Xerox all announced they were cutting workers by the thousands, adding to the woes of an economy beset by tighter credit and wobbly banks. Chrysler said it would cut about 5,000 of its 18,500 white-collar work force.
PNC Financial Services said it is acquiring National City bank for $5.8 billion and planned to receive $7.7 billion in capital from the federal government as part of its $700 billion financial rescue plan.
The Commerce Department will release its first estimate of third-quarter economic performance Oct. 30, and Wall Street analysts project it will show the economy contracted by 0.5 percent, according to Thomson/IFR.
Many economists expect the decline to continue into the current quarter and the first three months of 2009, if not longer. The classic definition of a recession is at least two consecutive quarters of negative growth.
The Standard & Poor's 500 was down 33.29, or 3.6 percent, to 874.82. Sam Stovall, S&P's chief investment strategist, put a 700 target on the index, saying S&P's equity analysts expect operating results for the 500 large companies to decline 10 percent in 2008.
Associated Press writers Stevenson Jacobs in New York, Louis Watt and Carlo Piovano in London and Martin Crutsinger, Christopher S. Rugaber and Marcy Gordon in Washington contributed to this report.
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Historic cut may be coming
Fed: New rate cut likely, with record low within sight
By Chris Isidore, CNNMoney.com senior writer
The Federal Reserve is widely expected to cut interest rates again next week. But could the Fed soon go where it has never gone before and bring them below 1%?
The Fed lowered its federal funds rate, the benchmark overnight lending rate at which banks lend to one another, by a half-percentage point to 1.5% in an emergency announcement Oct. 8.
Many investors believe the central bank will cut rates by at least another half-percentage point following the end of a two-day meeting on Oct. 29.
In fact, the fed funds futures on the Chicago Board of Trade are now pricing in a 26% chance that the Fed will cut rates by three-quarters of a percentage point to 0.75% by that meeting.
Fed Chairman Ben Bernanke has said in recent weeks that economic weakness is likely to continue into next year, despite rate cuts and other recent moves taken by the Fed and Treasury Department to try and fix the credit crisis.
On Monday, Bernanke pushed Congress to consider a new stimulus plan to spur the economy.
"Everyone at the Fed has pretty much told you they're going to cut," said Rich Yamarone, director of economic research at Argus Research. "They're in a kitchen sink mode right now. Rate cuts, fiscal stimulus, bailouts - they're throwing everything they can at this right now."
Still, would the Fed really consider lowering interest rates below 1%? The last time rates were at 1% was between June 2003 and June 2004.
Rate cuts have been a key tool the central bank has used in the past to boost a weak economy. A variety of lending rates, including credit cards and home equity lines, as well as the prime rate used to set many business loan rates, are pegged to the fed funds rate.
So lower rates usually lead to cheaper credit, thus spurring businesses and consumers to spend money more freely.
But in the current credit crisis, with banks afraid to make loans due to worries about their firms' own need for cash in the near term, already relatively low short-term rates have done little to get credit flowing. (The Fed cut rates seven times between September 2007 and April before holding them at 2% for several months.)
Some economists argue that another rate cut may be the least important step the Fed can take in its effort to solve the crisis.
"It's window dressing, only a psychological weapon," said Sung Won Sohn, economics professor at Cal State University Channel Islands. "Right now, the problem isn't the cost of the Fed's money, it's that the existing money supply is not circulating. The pipelines are clogged."
Even Fed Vice Chairman Donald Kohn seemed to acknowledge that rate cuts aren't as important as they once were. In an Oct. 15 speech, Kohn said the coordinated global cut the previous week had already been "overwhelmed ...by the further erosion in confidence."
Still, many economists say that fear and uncertainty in the markets is so great right now that the Fed can't risk leaving rates unchanged. And they say anything that can be done to spur lending is a positive.
"It's not irrelevant, even if it's not as important as usual," said David Wyss, chief economist with Standard & Poor's.
Wyss said that if the U.S. credit and financial markets remain in crisis, a cut below 1% could come later this year or early next year.
To be sure, some have pointed to rates being at 1% for as long as they were as a factor in the housing bubble earlier this decade. It was the plunge from those inflated home values that sparked the credit crisis now dogging markets.
Low rates can also feed inflation. But that might be a sacrifice the Fed has to make.
"Inflating our way out of this mess is the Fed's only option at this point," said Peter Boockvar, market analyst of Miller Tabak, in a note Friday morning.
With the global economy slowing down, there are few economists talking about the threat of inflation. And the continued decline in home prices has negated most fears of low rates leading to another housing bubble.
So even a cut to nearly 0%, a rate where the Bank of Japan left rates for much of the 1990's, is not out of the question, given the unprecedented nature of credit problems.
"There's a hesitation to do it because it looks like desperation. But they're getting desperate," said Wyss.
Stocks dive on belief global recession is at hand
World Markets in Free Fall
NEW YORK – Wall Street joined world stock markets in a selloff Friday, with the Dow Jones industrials dropping more than 300 points and all the major indexes falling more than 3 percent. The growing belief that a punishing economic recession is at hand had investors abandoning stocks.
The pullback on Wall Street wasn't quite as steep as some had feared though the pace of selling increased in afternoon trading. The massive declines began overseas after another round of grim corporate news stirred fears about the world's economy. Investors also grew nervous after a decline in index futures before the market opened was so steep that selling halts were imposed.
The anxiety Friday — demonstrated by the limits on futures and gyrations in everything from gold to the dollar — underscored the fear and uncertainty that has gripped markets since the mid-September bankruptcy of investment bank Lehman Brothers Holdings Inc. and the subsequent lockup in the world's credit markets.
The past month's urgency to resuscitate lending was aimed at avoiding some of the problems that have nonetheless spread around the world. The latest reasons to worry about the economy came Friday — a profit warning from electronics maker Sony sent its shares sharply lower in Japan overnight and was on
America's Most and Least Vulnerable Towns
By Rebecca Ruiz, Forbes.com
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Despite what he calls "the negatives," Mayor Howard "Butch" Zwelling is optimistic about the future of Zanesville, Ohio.
In the past two years, a handful of local manufacturing plants have shuttered or relocated abroad, putting roughly 1,000 people out of work in this town of 25,500. But Zwelling is encouraged by the new businesses arriving shortly, including a glass manufacturing plant, an Avon distribution center and a Time Warner call center, all of which will create more than 800 jobs. Zwelling has also planned on more than $250 million in school and downtown development construction in the next two years.
Jobs and construction will certainly be a boon for the local economy, but our survey gauging the vulnerability of towns across the country tells a more complicated story: Zanesville ranked as the seventh most vulnerable. Among its weakest spots were an unemployment rate of 8.9% and poverty rate of 16.2%. Only 18% of the workforce has an associate's degree or higher.
When is Judgment Day?
By Stephen B. Johnston
The United States was founded on the principal that all men were created by God with the unalienable right of freedom. The prosperity of the industrial revolution was the direct result of the Protestant work ethic, which embodied the moral virtue of hard work and thrift. A borrower was considered the servant to the lender. Those who did not work hard should not enjoy the fruits of their own poor performance. A righteous man provided an inheritance to his children's children and helped the needy. The purpose of law was to protect from plunder. Property was the result of ceaseless labor applied to natural resources. Demand came from supply. The creation of money caused inflation and not demand.
Today, the purpose of law is being used to plunder the labor of others and redistribute wealth. Karl Marx opposed the ownership of private property and believed workers would eventually revolt and take property by force. Fabian socialists are named after Roman general Fabius Maximus, who defeated Hannibal with delay tactics. Fabian socialists believe in gradual attrition rather than head-on revolution against capitalism.
Today, leaders of both political parties follow the teachings of John Keynes, a Fabian socialist. Keynes rejected the Christian virtue of savings and providing for one's heirs. Keynes focused primarily on present gratification and promoted debt and consumption. He favored taxing the rich, borrowing from the rich and printing money. Central bankers should be central planers who could prevent unemployment through creation of demand by creation of debt.
As a result of Keynesian economics, the total U.S. public and private debt is approximately $117 trillion dollars. This debt includes $52 trillion dollars of unfunded entitlements from Social Security and Medicare. The U.S. has become a debtor nation. Our manufacturing base has been reduced through taxation, regulation and currency debasement. We have moved from a manufacturing economy based upon capital and savings to a consumer nation managed by central planning and driven by debt. Today, approximately 50 percent of U.S. citizens support Barack Hussein Obama II, who believes Jesus was a black community organizer. Sen. Bernie Sander, as a democratic socialist, represents Vermont in the U.S. Senate. Barney Frank, is chairman of the House Financial Services Committee.
Where will we be in 2030? The official estimate of the combined deficit of Social Security and Medicare will be $1.7 trillion annually. The interest on public national debt is projected to exceed government revenues. Interest will be paid by currency debasement. World population is expected to peak around 8 billion in 2030. At that time, growing shortages of fossil fuels will cause resource wars and famine, which will reduce the world population by half.
1 de Novembro de 2008 11:44
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