2008 Financial Thread

[SkinBasket]

The economy is going in the pooper. Consumer confidence is going in the pooper. Typically, you'd think politicians in Washington would get the economy humming in an election year...but with their approval ratings all hovering around 15%, I guess they don't care anymore.

According to everyone, the economy is always going in the pooper. No one's ever satisfied with any economic gain and no one understands how the economy actually works anyway. Make money, spend some, save some. That's about as in depth as any economic advice should ever get.

[Kiwon]

I didn't know that DAL and NWA were in merger talks. How long has this been going on?
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Lawmaker won't back Northwest-Delta merger

By Barbara De Lollis, USA TODAY

U.S. House Transportation Committee Chairman James Oberstar said Wednesday that he opposes ongoing merger talks between Minnesota-based Northwest Airlines and Delta Air Lines, saying any merger of major domestic carriers would hurt consumers.

Oberstar, a Minnesota Democrat and a key player in aviation policy, said any airline consolidation would result in a rapid collapse of the industry into two or three megacarriers. "I don't think mergers are in the best public interest, and that includes this one," he said.

Oberstar's comments came during a conference call with reporters in which he confirmed ongoing discussions between executives of Atlanta-based Delta (DAL), the USA's No. 3 airline, and No. 6 Northwest (NWA).

Neither Delta nor Northwest have publicly acknowledged the merger talks, and both declined to comment Wednesday.

Oberstar told reporters he invited Northwest executives to his office on Tuesday to discuss the status of merger talks to avoid operating "on the basis of rumor."

He said the executives confirmed the talks with Delta. The talks are in the early stages, Oberstar said, and the executives told him that they would look for another partner if Delta were to move ahead with No. 2 United Airlines (UAUA) as a merger partner instead of Northwest. Oberstar says he believes Northwest is currently talking only with Delta about a possible merger.

By law, mergers between large airlines must undergo scrutiny by the Department of Justice antitrust unit and the Department of Transportation. But congressional leaders can hold public hearings and exert pressure on regulators and have done so in the past.

Officials at American (AMR), currently the world's largest airline, said Wednesday that a "more rational industry structure" resulting from consolidation could benefit both consumers and the industry. But they stopped short of climbing onto the merger bandwagon.

CFO Tom Horton, in a conference call about American's quarterly financial performance, said the complexity of putting together two airlines makes it difficult to achieve the desired results. Horton said American is watching Delta's search for a possible merger partner closely and contemplating what its competitive response, if any, would be, he said.

U.S. Rep. Jerry Costello, a Democrat from United's headquarters state of Illinois and chairman of the House aviation subcommittee, issued a statement saying, "The history of these (merger) deals is not a positive one for consumers and airline employees." At the same time, Costello said, he'd review any proposed merger on its merits.

[Freak Out]

So much for buying American....

January 20, 2008
Foreigners Buy Stakes in the U.S. at a Record Pace
By PETER S. GOODMAN and LOUISE STORY

Last May, a Saudi Arabian conglomerate bought a Massachusetts plastics maker. In November, a French company established a new factory in Adrian, Mich., adding 189 automotive jobs to an area accustomed to layoffs. In December, a British company bought a New Jersey maker of cough syrup.

For much of the world, the United States is now on sale at discount prices. With credit tight, unemployment growing and worries mounting about a potential recession, American business and government leaders are courting foreign money to keep the economy growing. Foreign investors are buying aggressively, taking advantage of American duress and a weak dollar to snap up what many see as bargains, while making inroads to the world’s largest market.

Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock, according to Thomson Financial, a research firm. That was up 90 percent from the previous year and more than double the average for the last decade. It amounted to more than one-fourth of all announced deals for the year, Thomson said.

During the first two weeks of this year, foreign businesses agreed to invest another $22.6 billion for stakes in American companies — more than half the value of all announced deals. If a recession now unfolds and the dollar drops further, the pace could accelerate, economists say.

The surge of foreign money has injected fresh tension into a running debate about America’s place in the global economy. It has supplied state governors with a new development strategy — attracting foreign money. And it has reinvigorated sometimes jingoistic worries about foreigners securing control of America’s fortunes, a narrative last heard in the 1980s as Americans bought up Hondas and Rockefeller Center landed in Japanese hands.

With a growing share of investment coming from so-called sovereign wealth funds — vast pools of money controlled by governments from China to the Middle East — lawmakers and regulators are calling for greater scrutiny to ensure that foreign countries do not gain influence over the financial system or military-related technology. On the presidential campaign trail, the Democratic candidates have begun to focus on these foreign funds, calling for international rules that would make them more transparent.

Debate is swirling in Washington about the best way to stimulate a flagging economy. Despite divided opinion about the merits, foreign investment may be preventing deeper troubles by infusing hard-luck companies with cash and keeping some in business.

The most conspicuous beneficiaries are Wall Street banks like Merrill Lynch, Citigroup and Morgan Stanley, which have sold stakes to government-controlled funds in Asia and the Middle East to compensate for calamitous losses on mortgage markets. Beneath the headlines, a more profound shift is under way: Foreign entities last year captured stakes in American companies in businesses as diverse as real estate, steel-making, energy and baby food.

The influx is the result of a confluence of factors that have made the United States both reliant on the largesse of foreigners and an alluring place for opportunistic investors. With American banks reeling from the housing downturn and loath to lend, businesses are hungry for cash.

The weak dollar has made American companies and properties cheaper in global terms, particularly for European and Canadian buyers. Even as Americans confront the prospect of a recession, economic growth remains strong worldwide, endowing oil producers like Saudi Arabia and Russia and export powers like China and Germany with abundant cash.

As the German company ThyssenKrupp Stainless broke ground in November on what is to be a $3.7 billion stainless steel plant in Calvert, Ala., its executives spoke effusively about the low cost of production in the United States and the chance to reach many millions of customers — particularly because of the North American Free Trade Agreement, which allows goods to flow into Mexico and Canada free of duty.

“The Nafta stainless steel market has great potential, and we’re committed to significantly expanding our business in this growth region,” said the company’s chairman, Jürgen H. Fechter,, according to a statement.

Foreign giants like Toyota Motor and Sony have been sinking capital into American plants. Investment in the American subsidiaries of foreign companies grew to $43.3 billion last year from $39.2 billion the previous year, according to the research and consulting firm OCO Monitor.

“This is a vote of confidence in the American economy, the American marketplace and the American worker,” the deputy Treasury secretary, Robert M. Kimmitt, said. “These investments keep Americans employed and keep balance sheets strong.”

Five million Americans now work for foreign companies set up in the United States, Mr. Kimmitt said, and those jobs pay 30 percent more than similar work at domestic companies. Nearly a third of such jobs are in manufacturing, which explains why Rust Belt states have been wooing foreign investment.

“We’ve lost 400,000 manufacturing jobs,” said Michigan’s governor, Jennifer M. Granholm, a Democrat, who has traveled three times to Europe and twice to Japan in pursuit of investment since taking office in 2003. “I’ve got to get jobs for our people.”

Some labor unions see the acceleration of foreign takeovers as the latest indignity wrought by globalization.

“It’s the culmination of a series of fool’s errands,” said Leo W. Gerard, international president of the United Steelworkers. “We’ve hollowed out our industrial base and run up this massive trade deficit, and now the countries that have built the deficits are coming back to buy up our assets. It’s like spitting in your face.”

Other labor groups take a more pragmatic view.

“We need investment and we need to create good jobs,” said Thea Lee, policy director for the A.F.L.-C.I.O. in Washington. “We’re not in the position to be too choosy about where that investment comes from. But it does bring home the consequences of flawed trade policies over many, many years that we’re in this position of being dependent.”

At the center of concern is the growing influence of sovereign wealth funds, which invested $21.5 billion in American companies last year, according to Thomson. Analysts say they could skew markets by investing to improve the fortunes of their national companies or to pursue political goals.

“This is a phenomenon that could be called the growth of state capitalism as opposed to market capitalism,” said Jeffrey E. Garten, a trade expert at the Yale School of Management. “The United States has not ever been on the receiving end of this before.”

Perhaps emblematic of national ambivalence, in an appearance on CNBC last week, the voluble market analyst Jim Cramer spoke in menacing terms about the growing role of state investment funds from the Middle East and China.

“Do we want the communists to own the banks, or the terrorists?” Mr. Cramer asked. “I’ll take any of it, I guess, because we’re so desperate.”

Proponents of investment from overseas note that finance from sovereign wealth funds is a mere trickle of the overall flow from abroad. Indeed, the bulk comes from Europe, Canada and Japan. Just as Americans have scattered investments around the world in pursuit of profit — with holdings of foreign stock and debt exceeding $6 trillion in 2006, according to the Treasury Department — foreigners are looking to the United States, with their capital generating economic activity, proponents say.

If fear of foreign money now inspires Americans to erect new barriers, that would damage the economy, said Todd M. Malan, president of the Organization for International Investment, a Washington lobbying group financed by foreign companies.

“The policy choices on the negative side would have enormous economic implications that would make the current situation look like a bubble bath,” he said.

Tensions spawned by foreign investment hark back to the 1980s, when Japan snapped up prominent American businesses like Columbia Pictures, and some intoned that the American way of life was under assault. The new wave of foreign money is washing in at an even more important time, analysts say.

The United States has lost more than three million manufacturing jobs since 2001, with foreign trade often taking the blame. Foreign-made goods now account for roughly one-third of all wares consumed in the United States, roughly tripling their share over the last quarter-century. The soaring price of oil and a widening trade deficit underscore how the American economy is increasingly vulnerable to decisions made far away.

In 2005, Congressional opposition scuttled a bid by the state-owned Chinese energy company Cnooc to buy the American oil company Unocal. The following year, furor on Capitol Hill prevented DP World, a company based in the United Arab Emirates, from buying several major American ports.

No such outcry has greeted the purchase of stakes in major Wall Street banks by state investment funds in the United Arab Emirates, Kuwait, China, Singapore and South Korea. This is largely because the banks sold passive slices and ceded no formal control, which would have set off a federal review of the national security implications. But the silence also reflects the imperative that these enormous institutions swiftly secure cash.

“It would be good if these companies didn’t need all this capital and better if the capital was available in the United States,” said Senator Charles E. Schumer, Democrat of New York, who was a vocal opponent of the DP World deal. “But given the situation that these institutions find themselves in and the fact that there’s a pretty strong credit squeeze, there’s only two choices: Have foreign companies invest in these firms or have massive layoffs.”

In years past, particularly when Japanese money washed in, many foreign purchases proved not to be so prudent in the end. This time, with the dollar weak and troubled American companies in a poor bargaining position, the prices really do seem cheap, some economists say.

“They’re buying financial assets at well under book value,” said Gary C. Hufbauer, a trade expert at the Peterson Institute for International Economics.

Trade experts assume tensions will rise as developing countries — which tend to have more state companies — continue to expand their share of investment in the United States.

Canada still spends the most money buying stakes in American companies — more than $65 billion in 2007, according to Thomson. But other countries’ purchases are growing rapidly. South Korea’s investments swelled to more than $10.4 billion last year from just $5.4 million in 2000. Russia went to $572 million from $60 million in that span; India to $3.3 billion from $364 million.

But even if political tension increases, so will the flow of foreign money, some analysts say, for the simple reason that businesses need it.

“The forces sucking in this capital are much bigger than the political forces,” said Mr. Garten, the Yale trade expert. “If there is a big controversy, it will be between Washington on the one hand and corporate America on the other. In that contest, the financiers and the businessmen are going to win, as they always do.”

[Freak Out]

Son of a bitch the markets overseas took a beating today...hold on to your hats boys and girls.

[Kiwon]

Son of a bitch the markets overseas took a beating today...hold on to your hats boys and girls.

Yeah, really builds a lot of confidence when we hear about fears of a world-wide recession.

So if you have some extra money to invest where do you go? Bonds and Money Markets which aren't paying anything.

[Freak Out]

Son of a bitch the markets overseas took a beating today...hold on to your hats boys and girls.

Yeah, really builds a lot of confidence when we hear about fears of a world-wide recession.

So if you have some extra money to invest where do you go? Bonds and Money Markets which aren't paying anything.

Gold or Real Estate....oil stocks....I am really nervous about whats going to happen tomorrow.

The fucking dollar is going the way Drachma.

[Freak Out]

Son of a bitch the markets overseas took a beating today...hold on to your hats boys and girls.

Yeah, really builds a lot of confidence when we hear about fears of a world-wide recession.

So if you have some extra money to invest where do you go? Bonds and Money Markets which aren't paying anything.

Paying nothing is better than losing.

[Freak Out]

Shit...this is going to be painful.

[Kiwon]

Shit...this is going to be painful.

Ha, ha....tomorrow could be a bloodbath!

Dow Industrials Are Set to Plunge 500 Points When Trading Opens Today

[LL2]

If you have cash now is the time to buy! Buy stocks and/or real estate. They are at a discount right now.

[Freak Out]

I did some shuffling into some domestic and foreign bonds the past month and it has paid off the last few days. I don't think we've seen bottom just yet though so before I went on a buying frenzy I would wait to see what shakes out for at least the next couple of days.....people lose their minds at times.

[Freak Out]

Another brutal day. Buy and hold no longer applies.

[Freak Out]

The politics of an economic nightmare

No U.S. leader wants to admit how bad the damage may get from the one-two punch of the credit crunch and housing slump.

By Robert B. Reich

Jan. 23, 2008 | A possible economic meltdown is worrisome enough, but a possible meltdown in an election year is downright frightening. For months now, Republicans have been pushing the White House to take some action that looked and sounded big enough to give them some cover if and when things got worse. President Bush has now responded with a stimulus package more than twice as large as the one Bill Clinton briefly entertained at the start of 1993 but couldn't get passed.

Not to be outdone, Democrats want to appear at least as bold, which means they'll suspend pay-go rules and throw fiscal responsibility out the window. In other words, hold your noses, because the "bipartisan" stimulus package that's about to be introduced could be a real stinker, including tax cuts for everyone and everything under the sun -- except, perhaps, for the key group of lower-income Americans. These are the people who don't earn enough to pay much if any income taxes, but who are the most likely to spend whatever extra money they get and therefore are most likely to stimulate the economy. The real behind-the-scenes battle will be over whose constituencies get what tax cuts, and for how long. Don't be surprised if the only thing Congress really stimulates is campaign contributions.

Meanwhile, Fed chairman Ben Bernanke and Co. have surprised everyone with a rate cut larger and sooner than expected. The three-quarters of a percentage point ("75 basis points" in biz-speak) cut announced Tuesday morning may not sound like much, but it's bigger than any rate cut in decades. The politics here are more subtle because Bernanke and his Federal Reserve governors are supposed to be independent of politics. But as witnessed under the reign of previous chairman Alan "it's prudent to reduce the surplus with a tax cut" Greenspan, Fed chairs can have political agendas. Bernanke has been under a lot of pressure lately to cut rates big-time -- and the pressure has come not only from Washington Republicans but from panicked Wall Street Democrats, including, apparently, my old colleague Robert Rubin, formerly President Clinton's treasury secretary. (By the way, what could Rubin have been thinking when he allowed Citicorp to sell all those fancy securitized debt instruments, while agreeing to buy them back if they couldn't be resold?) Expect lots and lots more Washington activity -- enough seemingly bold strokes to convince voters that our nation's capital is doing whatever is necessary to stop whatever seems to be going wrong with the economy.

The problem is, people have different views about what's going wrong. Wall Street sees it as a credit crisis -- a mess that seems never to reach bottom because nobody on Wall Street has any idea how many bad loans are out there. Therefore, nobody knows how big the losses are likely to be when the bottom is finally reached. And precisely because nobody knows, nobody wants to lend any more money. A rate cut won't change this. It's like offering a 10-pound lobster to someone so constipated he can't take in another mouthful.

Main Street sees it as a housing crisis. Homes are the biggest assets Americans own -- their golden geese for retirement and their piggy banks for home equity loans and refinancing. But home prices have been dropping quickly. It's the first time this has happened in many decades -- beyond the memories of most Americans, which is why they never expected it to happen, why they bought houses so readily when credit was so easily available, and why so many people bought two or more of them, speculating and fixing up and then flipping. But now several million Americans may lose their homes, and tens of millions more have only their credit cards to live on and are reaching the outer limits of what they can spend. As consumer spending shrinks, companies will reduce production and cut payrolls. That has already begun to happen. It's called recession.

How much worse can it get? The housing bubble drove home prices up 20 to 40 percent above historic averages relative to earnings and rents. So now that the bubble is bursting, you can expect prices to drop by roughly the same amount, and new home construction to contract. The latter plunged last month to its lowest point in more than 16 years. A managing partner of a large Wall Street financial house told me a few days ago the scenario could get much worse. He gave a 20 percent chance of a depression.

Even if a stimulus package were precisely targeted to consumers most likely to spend any money they received, the housing slump could overwhelm it. According to a recent estimate by Merrill-Lynch, the slump will hit consumer spending to the tune of $360 billion this year and next. That's more than double the size of the stimulus package President Bush or any leading Democrat is now talking about. And the Merrill-Lynch estimate is conservative.

In reality, the crisis is both a credit crunch and the bursting of the housing bubble. Wall Street is in terrible shape and Main Street is about to be in terrible shape. And there's not a whole lot that can be done about either of these problems -- because they are the results of years of lax credit standards, get-rich-quick schemes, wild speculation on Wall Street and in the housing market, and gross irresponsibility by the Fed, the Treasury and the Comptroller of the Currency.

As a practical matter, our only real hope for avoiding a deep recession or worse depends on loans and investments from abroad -- some major U.S. financial firms have already gotten key cash infusions from foreign governments buying stakes in them -- combined with export earnings as the dollar continues to weaken. But this is something no politician wants to admit, especially in an election year. So we're going to go through weeks of posturing about stimulus packages of one sort or another, and then see enacted the big fat bonanza of a temporary tax break that will likely have little effect. That, perhaps along with a few more rate cuts by the Fed. The presidential candidates will be asked what should be done about the worsening economy, and they'll give vague answers. None will likely admit the truth: We're going to need the rest of the world to bail us out.

[Joemailman]

Big Wall Street Rally!!!

[Kiwon]

ARBA up 8.51% in one day! (9.69)

Missed opportunity