Where is the US economy headed?

Market Snapshot June 2, 2008, 4:50PM EST

Stocks Slump on Bank Worries

Investor jitters resurfaced after management shakeups at Wachovia and Washington Mutual, and an S&P debt downgrade of three Wall Street firms
Stocks kicked off June with a broad sell-off Monday after one of the U.S.'s largest banks, Wachovia (WB), forced out its chief executive after the billions of dollars in losses from credit trouble at the company. Wachovia chief executive Ken Thompson was forced to retire, and chairman Lanty Smith will take over as interim CEO.

Also, Washington Mutual's (WM) chief executive Kerry Killinger will step down as chairman. He will keep his CEO job.

The market was also roiled by news that Standard & Poor's Ratings Services had lowered its debt ratings

on Wall Street giants Morgan Stanley (MS), Merrill Lynch (MER), and Lehman Brothers (LEH), having updated its assessment of the major investment banks and brokers. Morgan Stanley's rating was cut to A+ from AA-, while Merrill Lynch and Lehman were each downgraded to A from A+.

New economic data Monday was better than expected but still weak. So, says Richard Sparks of Schaeffer's Investment Research, "There was nothing positive out there to help the market."

The negative headlines put pressure on financial stocks, with the S&P Investment Banking & Brokerage index falling 3.25%. Lehman shares were the worst performers in the S&P 500 on Monday, dropping 8.1%. The S&P Specialized Finance index lost 3.34% after a trading volume report at the CME Group (CME) disappointed investors. The stock market's sell-off was broad-based, however. "You pretty much saw weakness across the board," Sparks says.

Bond prices were up on a flight to safety. The dollar and gold were higher as well. Oil prices rebounded higher after initial declines.

On Monday, the blue-chip Dow Jones industrial average fell 134.5 points, or 1.06%, to 12,503.82. The broader S&P 500 index shed 14.71 points, or 1.05%, to 1,385.67. The tech-heavy Nasdaq composite index was lower by 31.13 points, or 1.23%, at 2,491.53.

Activity in the broader market was negative. On the New York Stock Exchange, 22 stocks declined in price for every nine that gained. The ratio on the Nasdaq was 21-7 negative.

Monday was the first trading session in June. In May, the S&P 500 was up just 1.05%, and the Dow dropped 1.42%. The Nasdaq had a better month, posting a 4.55% gain.

More evidence of turmoil in the banking industry came from the United Kingdom, where Bradford & Bingley (BB.L) was forced to seek emergency capital after large losses. With a $355 million investment, U.S. private equity firm TPG took a 23% position in the lender.

Atlanta Federal Reserve President Dennis Lockhart said it is too soon to declare turmoil in financial markets over. "Although conditions have improved on some fronts, I don't feel we can yet 'breathe easy,'" he said. "The path of the economy is still enveloped in considerable uncertainty, and serious risks remain."



"On balance," he told the Jacksonville Chamber of Commerce, "I'm expecting a weak first half followed by some improvement in the second half as the drags on growth I mentioned earlier gradually diminish."

In economic data Monday, U.S. construction spending fell 0.4% in April, after a 0.6% drop in March. Residential construction, down 21% in the past year, was off 2.1% in April. Non-residential spending, however, rose 0.7% and is up 11.6% from a year ago.

The U.S. ISM manufacturing index rose to 49.6 in May, from 48.6 in April, a "little better than expected" according to Action Economics. It's one of many data points suggesting "manufacturing seems to have stabilized."

Today's U.S. ISM and construction spending reports both beat expectations to further diminish recession risks, and the upside surprise in the nonresidential construction figures through April has boosted our Q2 GDP estimate to 1.6%, wrote Action Economics in a posting on its Web site Monday.

July West Texas Intermediate crude oil futures, which skidded at the start of Monday's session, rose 41 cents per barrel to $127.76. The volatility that dominated last week's market persisted on Monday, reports S&P MarketScope.

Among stocks in the news Monday, Marriott International (MAR) expects revenue per available room in North America to rise just 2% in the second quarter, vs. previous estimates of 3 to 5%. Also, the hotel chain said it would be surprised if the revenue measure strengthened in the second half of the year. S&P's Hotels, Resorts & Cruise Lines index fell 2.57% Monday.

Harris Corp. (HRS) says it has been approached by other companies interested in buying the company and other transactions, but it is not pursuing a merger or sale.

Intrepid Potash (IPI) posted earnings of 27 cents per share, vs. earnings of 5 cents a year ago, as sales rose 75%.

China Netcom Group (CN) agreed to be acquired by China Unicom in a $56.3 billion stock-swap deal.

Marsh & McLennan Companies (MMC) announced that its chief financial officer, Matthew B. Bartley, will leave the firm.

Major European stock indexes slumped Monday. In London, the FTSE 100 index declined 0.76% to 6,007.60. In Paris, the CAC 40 index lost 1.58% to 4,935.21. Germany's DAX index dropped 1.24% to 7,008.77.

Major Asian indexes finished higher. Japan's Nikkei 225 index added 0.71% to 14,440.14. In Hong Kong, the Hang Seng index was higher by 1.22% at 24,831.36.

Treasury market

Treasuries rallied Monday. The ten-year note rose 24/32 to 99-18/32 for a yield of 3.96%, while the 30-year bond climbed 21/32 to 95-06/32 for a yield of 4.67%.

April 2, 2008

Warren Buffett Comments on the Subprime Mortgage Lending Crisis

Excerpt from Warren Buffett's current Letter to Berkshire Hathaway Shareholders:

"Some major financial institutions have, however, experienced staggering problems because they engaged in the "weakened lending practices" I described in last year's letter. John Stumpf, CEO of Wells Fargo, aptly dissected the recent behavior of many lenders: "It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine."

You may recall a 2003 Silicon Valley bumper sticker that implored, "Please, God, Just One More Bubble."

Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower's income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA - house price appreciation - would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief.

As house prices fall, a huge amount of financial folly is being exposed.

You only learn who has been swimming naked when the tide goes out - and what we are witnessing at some of our largest financial institutions is an ugly sight."

(see below for a prettier sight !)

Link: http://www.berkshirehathaway.com/letters/2007ltr.pdf

okie, Without ethics and compassion, everything else falls apart.

Jobless rate jumped to 5.5 percent in May
Increase biggest rise since `86, payrolls cut by 49,000

Quote:

Jobless rate jumped to 5.5 percent in May
Increase biggest rise since `86, payrolls cut by 49,000

http://www.msnbc.msn.com/id/25001930

CI

The sunday drive may not survive and neither will those living in rural America where public transportation is not available. Making the family auto the only means of getting to and from their place of employment.

From The Times of London

June 10, 2008

President Bush betrays fears over economy with strong dollar call

Gerard Baker and Tom Baldwin on board Air Force One

President Bush issued a call for a rise in the value of the US dollar on currency markets yesterday in a signal of mounting official alarm in Washington about the effect of the slumping greenback on the world's largest economy.

In an exclusive interview with The Times on the eve of the United States-European Union summit in Slovenia, Mr Bush expressed concern about the dollar's continuing weakness and said that he favoured an appreciation in the US exchange rate.

"We want the dollar to strengthen," he said on Air Force One as it crossed the Atlantic bound for the summit.

The President did not suggest that the United States was preparing to back its rhetoric on the dollar with any formal intervention in the exchange markets. He said that the "relative evaluations of economies will lead to that dollar strengthening".

However, his remarks clearly reflected the concern in Washington at the dollar's decline, which accelerated last week amid news of a further weakening in the US economy.

Henry Paulson, the US Treasury Secretary, in an interview on American television yesterday, hinted at a growing inclination in Washington to prop up the dollar. Mr Paulson said that he "would never take intervention off the table". The dollar rallied 1.3 per cent against the yen to Y106.23 amid hopes of intervention. The euro fell 1 per cent to $1.5626.

In a further signal of official US concern, Mr Bush said before he left Washington that he would raise the issue of the economy and the need for a strong US dollar at the summit, which begins today. He added that Mr Paulson would discuss the global economy at a meeting of the Group of Eight finance ministers in Tokyo this week. The US currency has fallen by more than 40 per cent against the euro and by 36 per cent against sterling in the past six years. While that has helped US exporters and has made American goods more competitive at home, it has helped to unleash inflationary pressures.

The Bush Administration and the US Federal Reserve have been strongly criticised in America for not doing more to support the dollar. Critics argue that the central bank's interest-rate reductions in the past nine months, designed to save the economy from the full effects of the global financial crisis, have pushed the dollar into dangerous freefall. Although the Bush Administration has said repeatedly that it supports a strong dollar, it has declined so far to take any direct action to support the currency.

On Friday the Labour Department reported that unemployment rose by 0.5 percentage points in May, the largest monthly increase in more than 15 years. On the same day, oil prices recorded their sharpest one-day increase in history and equities tumbled by more than 3 per cent.

In yesterday's interview, the President expressed confidence that the US would emerge in good shape from the crisis but acknowledged that the short-term outlook was still challenging. "We are a robust, flexible economy. No question we're having a tough time, as are other nations," he said.

Last week Ben Bernanke, the Chairman of the Federal Reserve, hinted for the first time that the central bank was concerned about the weakening dollar and suggested that the Fed was unlikely to cut interest rates again soon. Mr Bernanke sparked speculation that the Fed and the US Treasury might intervene on the dollar last week when he said that he was working with the Treasury to "formulate policy" that would prevent the dollar from declining further.

Kevin Logan, chief economist at Dresdner Kleinwort, the investment bank in New York, said: "There is clearly some unity of purpose between them and they are really concerned about dollar depreciation and the related inflation expectations."

The last time the US intervened to support the dollar was during the Clinton Administration.

Mr Paulson also indicated that Washington has no current plan of action to deal with the rising price of oil.