Wall Street Breakfast: Must-Know News 11 comments
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- 2009: Hoping for a turnaround, bracing for a thud. 2008 was a tumultuous, messy year, shaking investors' belief in basic market premises, including the value of the buy-and-hold strategy and the idea that stocks will outgain other assets over time. Volatility was startling, the stock market had its third worst year in over a century and the government spent billions of dollars frantically trying to plug holes in the economy. Some analysts believe a dismal '08 at least provided a bottom to this market, citing November's multiyear lows and the upswing that followed, though others expect another sag in 2009. Forecasters for 2009 have covered the full range of outlooks, from continued heavy losses to healthy recovery. Investors, meanwhile, are hoping 2009 brings a turnaround, but aren't counting on one.
- Bank deal bonanza. Bank of America (BAC) completed its purchase of Merrill Lynch (MER) yesterday, ending Merrill's 95-year run as an independent broker. The purchase came out to around $33B in stock and has created what is now the largest U.S. bank with around $2.7T of assets. Also completed was the roughly $12.7B purchase of Wachovia (WB) by Wells Fargo (WFC). The merger more than doubles the size of Wells Fargo and creates the fourth-largest U.S. bank by assets.
- Chrysler still on the hook. General Motors (GM) received $4B of federal money but Chrysler is still waiting for the first installment of its federal bailout. It's unclear why GM received money before Chrysler, but Treasury officials assure they are "working expeditiously with Chrysler to finalize that transaction." Officials added, however, that it's at their discretion on a case-by-case basis to decide when automakers receive emergency aid. CEO Robert Nardelli called discussions with the Treasury 'positive' and 'productive,' and expressed his hope that financing would be finalized as soon as possible.
- City National's bank bailout gets a second look. The Treasury Department's inspector general is examining the decision to award bailout funds to City National Bank (CYN), part of a growing concern that the bank bailout isn't working well, or at all. In a document released this week, Treasury's Paulson admitted the difficulty of keeping track of the funds distributed and their effects on the economy. The City inquiry is not based on suspicion of any wrongdoing; it's being used as a case study review to see how the Treasury's bailout has been working and why certain institutions were selected to participate.
- FDIC goes back to the future. With at least 171 banks on the FDIC's 'problem list,' the agency is turning to a tool last used during the savings and loan crisis. Called 'loss sharing,' the mechanism provides an incentive for healthy banks to take on the troubled assets of a failed institution, with the government agreeing to cover the majority of future losses. The FDIC tried out the model several times in 2008, including in its initial rescue effort for Wachovia (WB) and as part of an aid package to Citigroup (C), and is feeling out industry interest in the approach.
- Steel industry looks for stimulus. The ailing U.S. steel industry (NUE, X, MT) is pressuring President-elect Obama for a public works initiative that could be worth $1T over two years to boost flagging demand for U.S.-made steel. "What we are asking," Nucor CEO Daniel DiMicco says, "is that our government deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a 'buy America' clause."
- Time Warner wants its MTV. Viacom (VIA) and Time Warner Cable (TWC) reached a last minute deal on a new programming agreement, preventing popular Nickelodeon, Comedy Central and MTV television shows from being pulled off the cable service. The companies' previous contract expired New Year's Eve and failure to close a new deal would have affected 13.3M Time Warner customers. Details of the deal were not disclosed, though sources say a compromise was reached on the key issue of increasing affiliate fees.
- UBS cashes out of BoC. UBS (UBS) sold its 1.3% stake in Bank of China for $808M, netting a $316.4M profit. A three-year lockup period on the holdings expired earlier this week. The sale marks the first withdrawal by a foreign strategic investor in a Chinese lender as firms consider cashing out of investments to bulk up their balance sheets. The lockup period also expired for Royal Bank of Scotland (RBS), Bank of China's second biggest shareholder with an 8.25% stake. RBS has not yet expressed an interest in selling the stake.
- Quotables. Warren Buffett's Berkshire Hathaway (BRK.A) fell 32% in 2008, marking its worst performance in over thirty years. Buffett, however, appears unfazed. "It's happened to me three other times. It happened when it went from 90 to 40 back in 1974, and it happened in 1987. It went down 50 percent in 1998-to-2000. I mean, I hope I live long enough so it happens a couple more times."
Today's Markets
- Hong Kong jumpstarts the new year with a solid gain. Elsewhere in Asia markets were modestly higher. Hang Seng +4.55% to 15,043. BSE +0.55% to 9,958. Kospi +2.9% to 1,157. Japan and China closed.
- In Europe, markets start things off on the right foot. London +1.2%. Paris +2.3%. Frankfurt +1.9%.
- U.S. stock futures are modestly higher, while oil retreats from Wednesday's huge gain. Dow futures +0.6% to 8780. S&P +0.6% to 906. Nasdaq +0.5%. Crude -6.4% to $41.70. Gold -1.7% to $869.40.
Friday's Economic Calendar
- 10:00 ISM Manufacturing Index
4:30 PM Money Supply
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 11 comments:
Only if we ignore history's lessons. Economists at the World Bank studied every national financial crisis over a 30 year period. Among their findings was that in every case - no exceptions - the length and depth of the recession following the crisis was directly related to the amount of money the country poured in to try to "fix" things. Japan's 1980's crisis is probably the most well known example.
Given the obscene amount of money the US is pouring into failed corporations and sectors, one might doubt we will ever recover, if history repeats itself. Buffet once said something about people who claim "this time is different". As I recall he said something like it preceeds something very expensive.
The idea that a grossly overindebted government can fix a grossly overindebted economy is suspect. Find me one example in history that did not involve re-valuing the currency.
I hope I'm wrong. I hope 2009 turns out to be a teriffic year for our battered markets. But the data I see do not support that view. Keep your powder dry and your seatbelts fastened.
Sure glad we have the Wall Street Journal to tell us investors what we want. Buffett seems to be the only voice of sanity in a sea full of weasels whining for a bailout. I, for one, don't care how the market performs in 2009. I am much more concerned about my government's intervention in the automobile, housing, banking, steel, healthcare, and whatever other industry I didn't think of. If all the cries for a bailout were dismissed at the beginning, by now we would be halfway out of the storm and looking forward to a full-fledged recovery. Americans apparently prefer stability, but stability comes at a price. Nothing is free.
Human behavior does not exclude irrationality and cheating. Where, in the idealized model do we find monopoly, cartels, insider trading, deception, excesses of greed and fear, externalizing costs through pollution, conditions near slavery in many parts of the global labor market, etc.
Government intervention can reduce the worst offenses but governments are considerably influenced by the worst offenders. We have a lot to learn.
On Jan 02 10:01 AM JasonR wrote:
> "Investors, meanwhile, are hoping 2009 brings a turnaround, but aren't
> counting on one."
>
> Sure glad we have the Wall Street Journal to tell us investors what
> we want. Buffett seems to be the only voice of sanity in a sea full
> of weasels whining for a bailout. I, for one, don't care how the
> market performs in 2009. I am much more concerned about my government's
> intervention in the automobile, housing, banking, steel, healthcare,
> and whatever other industry I didn't think of. If all the cries for
> a bailout were dismissed at the beginning, by now we would be halfway
> out of the storm and looking forward to a full-fledged recovery.
> Americans apparently prefer stability, but stability comes at a price.
> Nothing is free.
Next to this was roughly 2% increases in the DOW, Nasdaq and S&P numbers.
What does the market consider to be bad news, which would result in a decline in the indexes?
On Jan 02 12:51 PM PastTense wrote:
> On Google Business News the first headline I read was: "US Economy:
> Manufacturing Shrinks as Orders Hit 60-Year Low"
>
> Next to this was roughly 2% increases in the DOW, Nasdaq and S&P
> numbers.
>
> What does the market consider to be bad news, which would result
> in a decline in the indexes?