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| Weekly Wrap Up |
The market started off strong last week as stocks spiked up on Monday due to indications of a recovering credit market. However, the sentiment did not last long as stocks began falling back into negative territory throughout the rest of the week. Growing fears of a global recession and numerous job cut announcements, including Yahoo and Goldman Sachs, seemed to hinder any momentum the market could gain. In addition, the week witnessed major players announcing sub-par quarterly reports. Both Yahoo (YHOO: Charts, News, Offers) and Wachovia (WB: Charts, News, Offers) reported disappointing third quarter results. Yahoo recorded a 64% decrease in profit from last year, while Wachovia continued the trend with the unexpected announcement of its $26 billion quarterly loss. Sony (SNE: Charts, News, Offers) also suffered its share of bad luck as its stock dipped 14% after cutting its annual profit and sales projections. On a positive note, Pfizer (PFE: Charts, News, Offers) beat its forecasted quarterly numbers, and is optimistic about its future. Unfortunately, the week closed out with more bad news as Chrysler LLC disclosed its plan to reduce 25% of its white-collar workforce by the year’s end. The price of crude oil for October remained low, closing out at $64.15 on Friday. However, OPEC did announce that it will be cutting production of oil by 1.5 million barrels a day. The dollar edged up slightly on the euro but continued to fall against the yen. More Market News
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| Economic News |
The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not. With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending. That is bad news for companies catering to them, which will have to retrench as well. Detroit automakers may need to slash costs and merge as Americans hold onto their cars longer. Shopping malls might be forced to shut as retail traffic trails off. Hotels may have to shelve expansion plans as vacationers become stingier with their dollars. (Source: Bloomberg) Full Story
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The U.S. economy has weakened substantially in the past several weeks, and the National Bureau of Economic Research will eventually get around to declaring an official recession. Conventional wisdom believes that the current recession will be longer and deeper than any recession the U.S. has experienced since the early 1980s, continuing through 2009 and perhaps into 2010. When the NBER picks the start date of this recession, we suspect that they will reach back to the fourth quarter of 2007, when real gross domestic product fell by a slight 0.2%. We do not agree that the U.S. was in recession then, or for that matter up through August 2008. Despite a horrible housing market, real GDP expanded at a 2.8% annual rate in Q2, while real GDP was basically flat in the third quarter. Nonetheless, when the government releases its advance estimate of Q3 real GDP growth on Oct. 30, the report will probably show a slightly negative number, something in the -0.1% to -0.5% range. This will be based on some more-pessimistic-than-necessary estimates of data that are not yet available. When the final data comes in and GDP is revised, we expect that negative figure to move into slightly positive territory. (Source: Forbes) Full Story
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With their economies in recession and a credit crunch steepening the slide, policy makers around the world race to contain the damage. Calls for expansion of government spending, taxes and regulation, even for radical revision of our economic system, an end to capitalism, are rampant. The response to those calls will be shaped to an unusual degree by the next president, given the big spending, high tax, regulatory agenda of the Democratic majorities in Congress. Presidents, with occasional exceptions, accommodate a Congress controlled by their party (George W. Bush) and only triangulate to the center when the opposition controls it (Bill Clinton). The next few years will determine whether currently contemplated policy changes round off what their proponents view as the rough edges of the Reagan revolution and capitalism, or are a bridge to more radical re-engineering of the economy. If the latter, the eventual economic costs of permanently lower living standards -- 30% lower at European levels of taxes, spending and regulation -- would be far greater than those caused by even a severe recession. (Source: Wall Street Journal) Full Story
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| Business News |
General Motors Corp. (GM: Charts, News, Offers) with its cash pile increasingly depleted, reportedly hasn't yet been able to secure the necessary funding to close a merger deal with rival automaker Chrysler LLC. That could put a damper on the companies' goal to close a transaction before the Nov. 4 presidential election, which was reported over the weekend by the Detroit News. GM's shares were on the rise to start the week, up 1.6% to close at $6.53. The Dow component has lost 74% of its value since the beginning of the year. GM, its lenders and Chrysler's owner Cerberus Capital Management have been pitching the deal to investors, citing anticipated cost savings of up to $10 billion, an immediate boost in revenue and increased cash availability to the combined firm. (Source: MarketWatch) Full Story
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A jump in global sales boosted McDonald's Corp.'s (MCD: Charts, News, Offers)third-quarter profit by 11 percent, the company said Wednesday, a bright spot among restaurant companies as strapped consumers balk at spending their cash on dining out. The nation's No. 1 hamburger chain cited the popularity of its sandwiches and drinks, but reiterated that it was discussing changes to its Dollar Menu because of the high cost of ingredients and expected to reach a decision soon. Consumers -- spooked by bank failures, declines in the stock market and talk of a prolonged recession -- have cut back on spending and focused on necessities. Given their desire to save cash, fast food sales have held up far better than those at pricier sit-down restaurants. McDonald's is "recession-resistant," Chief Executive Jim Skinner said on a conference call, adding that it is "operating from a position of strength." (Source: BusinessWeek) Full Story
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PNC Financial Services Group Inc. (PNC: Charts, News, Offers) said Friday it is acquiring National City Corp. (NCC: Charts, News, Offers) for $5.58 billion, the first bank to use fresh investments from a federal bailout program to make an acquisition. The deal comes within hours of PNC Financial receiving approval for $7.7 billion in cash from the government under the $750 billion government program aimed at relieving the ongoing credit crisis. The agreement is the latest deal in the rapidly consolidating banking industry. It combines Pittsburgh-based PNC, which has weathered the ongoing credit crisis better than most regional banks, with National City, a large, Cleveland-based regional bank weighed down by high-risk mortgage loans. The acquisition makes PNC Financial the nation's fifth largest bank by deposits and will give it the fourth most branches, said James Rohr, PNC's chairman and chief executive, during a conference call with investors and analysts. The combined bank will have about $180 billion in deposits and more than 2,700 branches. (Source: Yahoo! Finance) Full Story
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| Technology Focus |
Apple Inc. (AAPL: Charts, News, Offers) has had a good run for several years, first due to booming sales of the iPod and then the growing strength of its Mac computers. While those products are still selling well, it now appears to be the iPhone's turn to become the standout product and complete the third leg of the company's business strategy. Signs of that were apparent with Apple's fourth-quarter report late Tuesday. It reported selling 6.9 million iPhones over the three-month period that included the release of the 3G version of the iPhone, in July, up from 1.1 million iPhone sales in the same period a year ago. The performance was enough to get Apple Chief Executive Steve Jobs to make an almost-unheard of appearance on Apple's earnings conference call. Jobs highlighted that Apple's iPhone sales were greater than the 6.1 million BlackBerry smart phones Research In Motion Ltd. (RIMM: Charts, News, Offers) sold in its most-recent quarter, and that Apple is now the world's No. 3 mobile-phone vendor, in terms of revenue. (Source: MarketWatch) Full Story
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As global financial markets melted down in October, Congress handed a gift to America's green energy industry: It renewed and broadened a set of tax credits for wind and solar power, geothermal, tidal energy, and more. The move did little to prop up eco-energy stocks, which have followed oil prices down. But the news did send a positive jolt to one of the economy's darkest sectors: homebuilding. Or, more specifically, solar-powered homes. Consumers recognize that green homes "save money month in, month out," says Rick Andreen, president of Shea Homes Active Lifestyles Communities in Scottsdale, Ariz. Most of the sweeteners Congress conjured up will go to big projects such as wind farms. But aspiring buyers of green homes will benefit, too. The revised 30% one-time investment credit for solar means that a buyer who installs a typical $25,000 solar panel system on his roof will get $7,500 in income tax credits, up from $2,000 under the old standard. How long that investment takes to pay off will depend on local rules and utility rates. In markets with the most costly power, such as California, Connecticut, and New Jersey, the pretax compound rate of return on a typical home solar system will be better than 15% per year, says Andy Black, chief executive of OnGrid Solar, an industry research firm. (Source: BusinessWeek.com) Full Story
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Last month, when I told my mother I had a new girlfriend, her response was, "Great, now you have something to talk about besides your iPhone." After a few days with T-Mobile's G1, the first phone with Google's Android mobile operating system, I almost felt I was cheating. Google's gadget is less sleek and simple than Apple's, but it is potentially far more versatile and easily seduces the inner nerd. Features include a 3-megapixel camera, a crisp touchscreen, a memory card slot and a swivel-out Qwerty keyboard. Unlike the iPhone, the G1 lets globetrotters open up the back and switch SIM cards, thus avoiding the $2.50-per-minute robbery I experienced dialing from Africa on my iPhone. (Source: Forbes.com) Full Story
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| Your Money |
It's one of the most widely accepted benchmarks in retirement planning: You'll need just 70% to 80% of your pre-retirement income to maintain the same standard of living when you leave work behind. This rule of thumb can be traced to the replacement-ratio studies done for 20 years by Aon Consulting and Georgia State University. The idea is that since you'll no longer have to plow money into 401(k)s and other accounts and your expenses and taxes are likely to drop, you'll be able to live well on less. But the latest study by Aon shows that you shouldn't be too quick to rely on this yardstick. (Source: CNNMoney) Full Story
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| Trivia Question |
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How much does the average U.S. household owe on its credit cards?
(answer below) |
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| Market Overview |
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| DJIA |
8,378.95 |
-473.27 |
| S&P |
876.77 |
-63.78 |
| NYSE |
5,427.54 |
-521.26 |
| NASDAQ |
1,552.03 |
-159.26 |
| 10Yr |
3.967% |
-0.241 |
| Dollar |
86.95 |
4.115 |
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| October 24,2008 |
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| Last Week |
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| October 13-17 |
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| Trivia Answer |
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| The average household carries a balance of $6,000 on plastic. At 18 percent, that's equivalent to paying more than $1,000 a year in interest. If that $1,000 had been invested at an 8 percent return, after five years it would have grown to $1,500, a good enough reason to shop around for a card with a lower interest rate and pay down your balance as soon as possible! |
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