- Auto bailout runs out of gas. After being fast-tracked through the House of Representatives, a $14B emergency loan package for the auto industry failed to gain traction in the Senate. After talks deteriorated last night, a White House-backed compromise bill was introduced, but fell short of the 60 votes needed by a margin of 52-35. 'Deeply disappointed' General Motors (GM) hired advisers for what could be one of the largest and most controversial bankruptcy filings in U.S. history. Chrysler has hired bankruptcy experts as well, warning it could run out of cash by the end of the month. The White House expressed disappointment at the bailout's failure and said officials would evaluate their options (though a spokesman declined to specify just what those options were). Sources say GM and Chrysler, as well as a handful of lawmakers, are pushing the White House to finally relent and allow the Treasury to extend TARP funds to the auto industry. Meanwhile, the government of Sweden announced a 28B Swedish kronor ($3.4B) bailout for its auto industry, including car producers Saab (GM) and Volvo (F).
- Bailout fails, markets flail. "I dread looking at Wall Street tomorrow," said Senate Majority Leader Harry Reid. "It's not going to be a pleasant sight." Indeed. Asian markets opened down and continued down. European markets and U.S. futures followed their Asian counterparts into the red (see below). Crude, which had rallied strongly early yesterday, fell by nearly $3 to $45/barrel. The dollar fell to a 13-year low against the yen. Treasurys rallied, sending yields on 10-year notes to 2.48%, the lowest level since 1954. General Motors (GM) and Ford (F) were -49% and -27% in Germany, respectively, as of 3:30am. In Japan, Honda (HMC) -12%, Toyota (TM) -10%, Nissan (OTCPK:NSANY) -11%.
- Madoff, mad and off to court. Famed broker Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested yesterday for allegedly running a 'giant Ponzi scheme' that defrauded investors of an astounding $50B. In a civil complaint, the SEC alleges 'a stunning fraud that appears to be of epic proportions' and has asked a judge to seize the firm and its assets. The FBI filed a separate criminal complaint, alleging Madoff's pyramid scheme resulted in the loss of billions of dollars. Madoff is the founder and primary owner of Bernard L. Madoff Investment Securities LLC, a firm known mainly for its market-making business, but also oversaw an investment-advisory business whose financial statements he kept under lock and key. Hedge funds, already in trouble, could face a fresh round of redemptions as investor distrust falls to new lows.
- BoA constricts workforce. Bank of America (BAC) plans to slash around 35,000 jobs over the next three years as it absorbs Merrill Lynch (MER), or roughly 10-11% of the companies' combined workforce. The cuts reflect both redundancies created by the Merrill acquisition and the 'current recessionary environment,' and will affect employees from both companies. BoA hopes the cuts will help it save $7B annually.
- PNC sees fewer branches in NCC deal. PNC Financial Services (PNC) will have to sell 61 National City Corp. (NCC) branches to secure Justice Department approval for the acquisition. The DoJ order didn't come as a surprise as the $5.6B deal, announced at the end of October, would create the nation's fifth-largest bank by deposits and fourth-largest bank by branches. As of June 30, the 61 branches being sold held a total of $4.1B in deposits. PNC is the first U.S. bank to make an acquisition using TARP funds.
- Newsweek becomes news-weak. Newsweek magazine (WPO) will slim down, print fewer copies, publish more photos and opinion, and cut staff. Unlike Time magazine (TWX), which is profitable, Newsweek is bleeding and ad pages are down 21% this year. The company's strategy is to build a more 'contemporary' look and to place a greater emphasis on editorializing rather than costlier news gathering. Some industry veterans say news weeklies will have to significantly shrink their readership base and charge more per copy in order to build an audience for which advertisers will pay a premium. Deloitte has warned the 'downward spiral' of newspapers and magazines will only get worse.
- Mister, can I lend you ten bucks? Stung by the loss of more than $2.8T in net wealth, U.S. households paid down debt for the first time since at least 1952 in Q3, the Fed said in its quarterly Flow of Funds report. Outstanding household debt shrank 0.8% on an annual basis to $13.91T.
- South Korea's currency swaps. South Korea agreed on bilateral currency swaps with Japan and with China. South Korea and Japan will increase an existing won-yen arrangement to $20B from the $3B in place since May 2005. China and South Korea will create a swap accord worth 38T won ($28B). South Korea wants to stabilize its currency and maintain external credibility, while all three countries are looking to ensure financial stability in Asia.
- Gov't spending up Down Under. Australia adds A$4.7B ($3.2B) of infrastructure spending to its stimulus plan in a continued attempt to forestall recession. Australia's economy grew at its weakest pace in eight years in Q3 as consumer spending stalled.
- More unemployment. Initial jobless claims of 573,000, up 58K from last week's revised numbers, were worse than the 525,000 economists expected. The 4-week moving average rose 14,250 to 540,500.
- Import prices fall. Import prices fell 6.7% in November vs. consensus -4.7%, driven by falling petroleum prices. It was the fourth consecutive month of heavy declines. Export prices fell 3.2%.
- Trade deficit widens. October's Trade Deficit came in at $57.8B, more than the $53.5B economists expected, and up a bit from September's $57.1B (revised). Imports of $141.7B vs. exports of $199.5B, both up slightly from last month.
- News of the auto industry bailout breakdown weighed heavily on overseas markets. Asia closed heavily down: Nikkei -5.56% to 8,236. Hang Seng -5.48% to 14,758. Shanghai -3.81% to 1,954. BSE +0.46% to 9,690.
- Same story in Europe. At midday: London -3.9%. Paris -4.9%. Frankfurt -4.8%.
- U.S. futures: Dow -3.4% to 8303. S&P -4.2% to 837.50. Nasdaq -3.95%. Crude -6.15% to $45.03. Gold -1.4% to $815.
Friday's Economic Calendar
- 8:30 Producer Price Index
8:30 Retail Sales
10:00 Business Inventories
10:00 University of Michigan Consumer Sentiment
Seeking Alpha editor Eli Hoffmann contributed to this post.
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