


This is just way too cool. So, a special thanks for Bonddad's $i$ter-in-law for this incredibly great present. And in case you were wondering how cool the dogs look ....


Industrial production fell 2.0 percent in December, and declines were again widespread. Output was revised up in October, but it was revised down in November; for the fourth quarter as a whole, total industrial production decreased 11.5 percent at an annual rate. At 103.6 percent of its 2002 average, output in December was 7.8 percent below its year-earlier level. In December, manufacturing production dropped 2.3 percent. The output of mines moved down 1.6 percent, and the output of electric and gas utilities was little changed. Capacity utilization for total industry fell to 73.6 percent in December, a level 7.4 percentage points below its average level from 1972 to 2007.
Intel declined to predict future sales in an uncertain economic environment on Thursday and warned of rapidly deteriorating margins as its production lines ran on reduced capacity.The world’s biggest chipmaker kicked off what seems certain to be a grim earnings season for technology companies by reporting a 90 per cent fall in profits and a drop in revenues it said was unprecedented in the past 20 years.
Intel said fourth-quarter profits were $234m, down from $2.3bn a year earlier. Revenues of $2.8bn were in line with a second warning on the quarter it delivered last week but were 19 per cent lower than third-quarter sales.“This is only the second time in 20 years that our fourth-quarter revenues were below the third quarter, the last being the year 2000 when revenues declined less than 1 per cent,” Paul Otellini, chief executive, told an analyst conference call.
“The pace of the revenue decline in the quarter was dramatic and resulted from reduced demand and inventory contraction across the supply chain,” Mr Otellini said. He said Intel was assuming inventory reductions in the current quarter.
Highlights of Economic Recovery Plan
Spending
Energy
$32 billion Funding for "smart electricity grid" to reduce waste
$20 billion + Renewable energy tax cuts and a tax credit for research and development on energy-related work, and a multiyear extension of renewable energy production tax credit
$6 billion Funding to weatherize modest-income homes
Science and Technology
$10 billion Science facilities
$6 billion High-speed Internet access for rural and underserved areas
Infrastructure
$32 billion Transportation projects
$31 billion Construction and repair of federal buildings and other public infrastructure
$19 billion Water projects
$10 billion Rail and mass transit projects
Education
$41 billion Grants to local school districts
$79 billion State fiscal relief to prevent cuts in state aid
$21 billion School modernization
Health Care
$39 billion Subsidies to health insurance for unemployed; providing coverage through Medicaid
$90 billion Help to states with Medicaid
$20 billion Modernization of health-information technology systems
$4 billion Preventative care
Taxes
Individuals:
* $500 per worker, $1,000 per couple tax cut for two years, costing about $140 billion
* Greater access to the $1,000-per-child tax credit for the working poor
* Expansion of the earned-income tax credit to include families with three children
* A $2,500 college tuition tax credit
* Repeal of a requirement that a $7,500 first-time homebuyer tax credit be paid back over time
Businesses:
* An infusion of cash into money-losing companies by allowing them to claim tax credits on past profits dating back five years instead of two
* Bonus depreciation for businesses investing in new plants and equipment
* Doubling of the amount small businesses can write off for capital investments and new equipment purchases
* Allowing businesses to claim a tax credit for hiring disconnected youth and veterans
However, although the subprime debacle triggered the crisis, the developments in the U.S. mortgage market were only one aspect of a much larger and more encompassing credit boom whose impact transcended the mortgage market to affect many other forms of credit. Aspects of this broader credit boom included widespread declines in underwriting standards, breakdowns in lending oversight by investors and rating agencies, increased reliance on complex and opaque credit instruments that proved fragile under stress, and unusually low compensation for risk-taking.
District reports indicate that retail sales were generally weak, particularly during the holiday season. A majority of Districts noted deep discounting during the holiday sales season. Vehicle sales were also weak or down overall in the Districts reporting on them. Manufacturing activity decreased in most Districts. Declines were noted in a wide range of manufacturing industries, with a few exceptions. Services sector activity generally declined across the Districts, with exceptions in some sectors of the Boston, Richmond, and Chicago Districts. Additionally, several Districts noted weaker conditions in transportation services and slow or decreased demand in tourism activity. Conditions in residential real estate markets continued to worsen in most Districts. Reduced home sales, lower prices, or decreases in construction activity were noted in many Districts. Commercial real estate markets deteriorated in most Districts, with weakening construction noted in several Districts. Overall lending activity declined in several Districts, with tight or tightening lending conditions reported in most Districts. Credit quality remained a concern in several Districts. Agricultural conditions were mixed in response to varying weather conditions across the Districts. Mining and energy production activity generally declined since the previous report.
More than 2.3 million American homeowners faced foreclosure proceedings last year, an 81% increase from 2007, with the worst yet to come as consumers grapple with layoffs, shrinking investment portfolios and falling home prices.Nationwide, more than 860,000 properties were actually repossessed by lenders, more than double the 2007 level, according to RealtyTrac, a foreclosure listing firm based in Irvine, Calif., which compiled the figures.
Moody's Economy.com, a research firm, predicts the number of homes lost to foreclosure is likely to rise by another 18% this year before tapering off slightly through 2011.
Foreclosure activity did slow in the fourth quarter overall, declining 4 percent from the third quarter, but jumped nearly 40 percent from the fourth quarter of 2007.
And foreclosure activity last year was up 225 percent from 2006, the year home prices began a deep slump that prevented many homeowners from selling or refinancing.
"State legislation that slowed down the onset of new foreclosure activity clearly had an effect on fourth-quarter numbers overall, but that effect appears to have worn off by December," Saccacio said. "The recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners."
Nortel Networks Corp., North America’s biggest maker of telephone equipment, filed for bankruptcy protection in the U.S., a victim of the global credit crunch and declining sales.Nortel, based in Toronto, had more than $1 billion in assets and debt, according to a Chapter 11 filing of its U.S. subsidiary today in Wilmington, Delaware. Fourteen affiliates of Nortel’s financing unit are seeking similar protection in Delaware. Five units filed for bankruptcy there under Chapter 15. Nortel said Canadian affiliates also will seek protection.
“It’s the end of a saga,” said Benoit Lalonde, vice president of fixed income at Laurentian Bank Securities, a unit of Canada’s seventh-largest bank. Laurentian doesn’t own Nortel debt. “Nortel is a corpse awaiting burial. I’m sad to see it happen but the tears were shed many months ago.”
Wow -- I remember when Nortel was a hot stock that could only go up......
Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the choking-off of credit led Americans to cut back on everything from eating out to car purchases.
The 2.7 percent decrease, the sixth consecutive drop, extended the longest string of declines in records going back to 1992, the Commerce Department said today in Washington. Purchases excluding automobiles slumped 3.1 percent.
Today’s figures indicate that the hit to spending in the recession is even deeper than estimated, and spurred a slide in stock-index futures. The loss of 2.6 million jobs and declining home and stock values are squeezing households, hurting retailers from Wal-Mart Stores Inc. to Tiffany & Co., which today said its holiday sales fell 21 percent and cut its earnings forecast.
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Sales fell 0.1 percent for all of 2008 compared with the prior year, the first decrease in the Commerce Department’s records. Comparable data only go back to 1992 because government economists reformulated their retail-sales figures earlier this decade, and didn’t revise historical records beyond that year.
November’s decline was revised to 2.1 percent from a previously estimated fall of 1.8 percent.
Today’s report showed declines in 11 of the 13 major categories tracked by the government, led by a 16 percent plunge at gasoline service stations that partly reflected the slump in fuel costs. The drop at grocery stores was the biggest since April 2002 and the decrease at restaurants was the largest since the terrorist attacks in September 2001.
The industry reported year-over-year growth in net charge-offs for the seventh consecutive quarter. Net charge-offs totaled $27.9 billion in the quarter, an increase of $17.0 billion (156.4 percent) from a year earlier. Two-thirds of the increase in charge-offs consisted of loans secured by real estate. Charge-offs of closed-end first and second lien mortgage loans were $4.6 billion (423 percent) higher than in the third quarter of 2007, while charged-off real estate construction and development (C&D) loans were up by $3.9 billion (744 percent). Charge-offs of home equity lines of credit were $2.1 billion (306 percent) higher. Charge-offs of loans to commercial and industrial (C&I) borrowers increased by $2.3 billion (139 percent), credit card loan charge-offs rose by $1.5 billion (37.4 percent), and charge-offs of other loans to individuals were $1.7 billion (76.4 percent) higher. The quarterly net charge-off rate in the third quarter was 1.42 percent, up from 1.32 percent in the second quarter and 0.57 percent in the third quarter of 2007. This is the highest quarterly net charge-off rate for the industry since 1991. The failure of Washington Mutual on September 25 meant that a significant amount of charge-off activity was not reflected in the reported industry totals for the quarter.In addition,
- A marked contraction in the U.S. economy in calendar year 2009, with real (inflation-adjusted) gross domestic product (GDP) falling by 2.2 percent, a steep decline from a historical perspective.
- A slow recovery in 2010, with real GDP growing by only 1.5 percent.
- An unemployment rate that will exceed 9 percent early in 2010; the unemployment rate has been that high only twice in the past 50 years (in 1975, for one month, and in 1982-1983).
- A continued decline in inflation, both because energy prices have been falling and because inflation excluding energy and food prices—the core rate—tends to ease during and immediately after a recession; for 2009, CBO anticipates that inflation, as measured by the consumer price index for all urban consumers (CPI-U), will be only 0.1 percent.
- A drop in the national average price of a home, as measured by the Federal Housing Finance Agency’s purchase-only index, of an additional 14 percent between the third quarter of 2008 and the second quarter of 2010; the imbalance between the supply of and demand for housing persists, as reflected in unusually high vacancy rates and a low volume of housing starts.
- A decrease of more than 1 percent in real consumption in 2009, followed by moderate growth in 2010; the rise in unemployment, the loss of wealth, and tight consumer credit will continue to restrain consumption— although lower commodity prices will ease those effects somewhat.
- A financial system that remains strained, although some credit markets have started to improve; it is too early to determine whether the government’s actions to date have been sufficient to put the system on a path to recovery.
Under the standard assumption CBO uses for its estimates—namely, that current laws and policies regarding federal spending and taxation remain the same—we forecast the following:
Mario Gabelli: In 15 days we will have a new leader who is going to re-brand America. His first priority as CEO of the country is to create jobs and insure that no adult is left behind in this economic system. ..... The missing element is confidence. New tax laws are going to help with that. The working person is going to get a financial stimulus, and even under the most bearish scenarios 91% of those who can will be working in December 2009. You're going to see an investment-tax credit and a change in depreciation, encouraging small businesses to make capital investments. On Sept. 15 somebody shut off the lights for the business person. It has been hell since. We need to go from this hell for businesses to a kind of purgatory. More spending on investments and the possibility of a lower tax rate for corporations would send an interesting message to the business world.
That's nice, but what happens now?
Gabelli: Come April or May, the numbers will be a lot better than in the fourth quarter. Car dealers tell us they are starting to sell cars, but the buyers still need financing. Yes, unemployment is going to rise. But once a new president comes in and enacts fiscal stimulus and promises tax cuts, things will start changing. Once businesses see some stability, they can start planning and looking at cost efficiencies.
As far as corporate earnings go, an enormous tsunami hit the economic world. It is no different than labor strikes in the 1960s. When the steelworkers struck, did you base stock multiples on the absence of earnings, or step back and ask what normalized earnings would be over an economic cycle. And shouldn't the P/E multiple expand to account for depressed earnings?
The whole process of deleveraging is deflationary. It will last several years. Where most economists will probably err is in how the corporate and household sectors react to this. They probably have built into their models expectations that private households and corporations react to fiscal stimulus as they always did. That is wrong. In previous deep recessions the household sector lost about 5% of its net worth. This time around, it has lost about 20%. Households will become much more cautious for years. Instead of spending, they will save.
Gross: Typically we think of financial leverage, but corporations have been levered in two additional ways. The lower tax rates of the past 10 to 20 years have to [go] back up. Then there is operational leverage, which is no more obvious than in the auto industry. Corporations have been geared to a high level of global consumption, and now they must eliminate plant, labor and such. Based on tax, financial and operational leverage, the outlook for corporate profitability and profit margins isn't good.
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Zulauf: There will be changes in the corporate sector, too. S&P earnings peaked at about $100 or so. This year they could slump to $20 or $40. The consensus estimates are way too optimistic. Much depends on whether the problems in the real economy hit the financial industry, causing it to relapse. The behavior and thinking of corporate executives will change dramatically. Companies will repair their balance sheets instead of spending and expanding, and that's why the deleveraging process will take years and years and years. Government and central-bank stimulus won't have the multiplier effects we used to see. Economic growth will be much lower in the next five or six years.
MacAllaster: I can't believe you people can't find one good thing to say about the market, and at its low last year the market was down more than 50%. The bad news is in the market. Earnings are going to come down hard, but the market has come down even harder. Some bargains are out there, though they are hard to find because P/Es are difficult to determine. Still, a lot of companies are selling for well under book value, and some have high yields. The stock market is probably the place to be, particularly financials. Leverage is coming out of companies, and that will continue. But the process has created bargains.
I agree with a lot of what Bill says. The economy is experiencing a rain delay. Nothing is going to happen for a while. Although the government's spending efforts will help, they won't be enough to cure the two biggest problems. The first is housing. Unsold inventory of houses is more than a year's worth, and prices could go down another 10%-plus. Mortgages have been reduced and prices are down, but 68% of the public still owns a home, versus 64%, the historical trend. The mortgage-equity withdrawals of recent years are over. Consumers spend 14% of their after-tax income on housing, more than they pay for food. No matter what the government does, it may not help housing, and in turn, the consumer.