Early Stimulus Wears Off

In this continuing seemingly unprecedented global crisis, the next stimulus injection attempt is being carried out by the Chinese. China announced a $586 Billion stimulus package it will use to try to guide that nation through the perils of today and tomorrow's economic pressures. The package, which was designed to boost business and consumer confidence and hence bolster the economy, was seen as a light for Asian markets.

US stocks began the day climbing about 2% at the open, but those gains were short-lived as the realities of the harsh conditions facing many of America's most fundamental and historic firms flew across the news wires.

AIG (AIG), which was the recipient of an already large bailout from the Government, got a revamped agreement that bolstered its rescue package up to $150 Billion. This came on the heels of  the reports that AIG's quarter swung from $3 Billion in profit last year to a $24 Billion loss in the current frame. Not to be outdone by the atrocious market conditions and poor financial performance of its peers, the now-infamous mortgage house Fannie Mae (FNM) posted a $29 Billion loss for its quarter and reported the need to tap into the Government funding that it had earlier received.

Things are just as rosy for the American automakers, with Ford (F) struggling operationally, posting a quarterly loss of $3 Billion last week and having its financial future in jeopardy. Economic pressures are keeping buyers away from big ticket items, and Ford's formerly successful fleet of gas-guzzling SUVs and Trucks now sit on lots unable to be sold at today's gasoline prices.

If Ford's troubles were the only problems facing GM (GM), management might be able to crack a smile or two. However, General Motors is much worse off from an operational standpoint. The company says it may run out of cash by the end of the year and it just had a Deutsche Bank analyst downgrade the stock and set a price target of $0. The analyst projected a path for GM that ended with little option other than bankruptcy. GM stock fell at one point today to its lowest levels in over 60 years after getting trimmed by nearly 30%.

The American consumer is facing tremendous pressure and these type of headlines flying through the business pages just add to the hurt. With unemployment in the US at its highest in 14 years and the election behind us,  a new direction is needed, and needed quickly in order to restore some confidence and needed stability to the markets.

Disclosure: Author holds no position in the above mentioned companies.

Comments

[Pipo:]

Even Oil Futures reversed early gains and traded briefly below 60.

Good recollection of Oil Forecasters at:

oiltradersblog.blogspo.../

2008 Nov 10 04:42 PM

[Chris B:]

"Ford's formerly successful fleet of gas-guzzling SUVs and Trucks now sit on lots unable to be sold at today's gasoline prices"

$2 is about the price of gas in the heyday of the Ford Expedition. More likely, consumers are no longer willing or able to finance $40k SUV's and are instead buying Corollas and Civics.

2008 Nov 10 05:04 PM

[Wadhamite:]

Does anyone have a firm number on AIG policyowners and how much loss there is per policy? Perhaps some perspective would help us react to such gut-wrenching figures.

Obviously, there has been some unrealistic pricing. Again, free enterprise should be able to solve this problem -- not government.

2008 Nov 10 06:00 PM

[Diabolo:]

free enterprise says survival of the fittest. if the government did let it go to free-enterprise, which US banks or auto companies would make it through? not many - maybe 4 large banks and no auto - none of the big 3!

names such as Ford, GM, Chrysler, Morgan Stanley, Citigroup, Goldman Sachs, etc would be insolvent! They have been a big part of the american dream - hence why the government will never let these go! TOO BIG TO FAIL!

For the auto, merging all big 3 into 1 could be a good starting point.

2008 Nov 10 06:26 PM

[Syl:]

Government canot solve the problems caused by the unions and their high demands. People working at GM, Ford, etc. etc. could solve the problem overnight by renegotiation of contracts with cooperation from the executives with their excessive pay and bonuses. Bailouts are going to cost me more in taxes, thus I will have to pay for problems I did not create. Unless contracts are renogiated the auto companies will be back to the government trough in a year or two. People will not buy a high priced car when a better quality product is available with a more competitive price.

2008 Nov 10 09:03 PM

[Homer II:]

On Nov 10 06:26 PM diabolo wrote:

>
> For the auto, merging all big 3 into 1 could be a good starting point.

and then, folding all those redundant models into about 3: small car, smaller car and a truck.

2008 Nov 11 02:12 AM