Alcoa kicked off earnings season with a loss of $497 million 61 cents a share, compared to estimates of 51 to 54 cents per share.
Lower aluminum prices and decreased demand hurt the bottom line of the Dow producer. Alcoa is generally considered a bellweather and this portends to be a poor earnings season. Source
The Federal Reserve released its consumer credit data and it shows that revolving credit lines decreased at an annualized rate of 9.7% in February. That’s the greatest decline in 30 years for the measure, which has been steadily growing.
Consumers saddled by debt are not going to spend the country out of recession, but reduction of revolving lines is a positive for the economy as a whole.
The Dow and S&P 500 closed the week at 8378 and 876, respectively, down 5% and 7% for the week. The Nasdaq fell 9% this week, an indicator that Google’s earnings surprise is not going to heat up the entire sector.
Analysts are saying that Emerging Markets are likely to get the worst of this recessoin, since their credit rating is poorest to begin with.
As always, we are stressing solid, dividend-paying companies with histories of growth through the recession: PG, JNJ, GPC. A small position in SDS or SKF or SRS will offset downside risk and, since these funds work on a double-inverse of their respective indices, they require less upfront investment to reap the benefit.
The Dow gains 936 points for an 11.08% gain on Monday, the third-highest percentage gain in the history of the index.
On October 6, 1931, the index gained 13.51%
On October 30, 1929, the index gained 11.90%.
You can download the raw data here.
This market is highly volatile and too risky to predict. Traders must be nimble and willing to cut losses quickly or take the long-term (5+ year) view. Fortunes will be made and lost over the coming weeks, as the only thing we know for sure is that the volatility is here to stay.
Since October 1, the Dow has lost 20.9% of its value, a dramatic loss for the U.S. Markets.
GM is trading at 1950 levels, as investors are unsure of its ability to raise enough capital to cover its operating costs over the next 18 months.
Foreign markets have been no safe haven, as ost have seen titanic losses over the past weeks.
This weekend’s meeting of the financial officials for the G7 countries may end in some short-term relief, but there is clearly no confidence in the leadership at this time. Investors are mostly finding Treasuries as safe-havens agains steep losses.
Keep in mind that there are buys out there. Strong companies that with historically strong dividend growth that deal in Consumer Staples should outperform the market, and a short-biased ETF can help reduce volatility, when used sparingly. A very small position (extremely small, as these are very volatile) in SKF (Proshares Ultrashort Financials) or SDS (Proshares Ultrashort S&P 500), coupled with strong-performing, dividend-paying stocks should do well in this market.
Traders, investors, savers, and everyday Joes are going to remember these days for many years to come.
The S&P 500 closed down 7.62% at 909, a level first reached in July, 1997.
After seven straight days of significant losses, panic has set in, and it is safe to say that there are buys out there. Strong consumer staples blue chips with histories of dividend growth will outperform the market through the recession. Think PG and JNJ. They’re maintaining their strength through these tough times, and they will likely retain it through the times to come.
We advise you to sign up for RGE Monitor, run by Nouriel Roubini.
We aren’t economists, here at StocksAndMutualFunds.com.
We are investors, and we’re web developers; but we’re not economists.
For real economists, you usually have to pay.
Usually.
One of the best economists in the world is Nouriel Roubini.
He is a professor of economics at New York University’s Stern School of Business, and he is highly sought after for his advice by think tanks and politicians.
He started talking about the U.S. national debt in the nineties. He started talking about the housing bubble in 2004. He started talking about the credit crunch in 2005.
He’s on top of things in a way that most of us, who work too many hours per week to adequately inform ourselves, can be.
His online service, RGE Monitor (short for Roubini Global Economic Monitor), is available at rgemonitor.com, and it contains a number of useful, if controversial, points of view about the current state of our economy.
Usually he offers his premium service for hundreds of dollars per year.
During this economic crisis, premium services at rgemonitor.com are free.
We are in no way affiliated with Nouriel Roubini or rgemonitor.com, and we only see this as a way to educate our readership in a way that we are not capable.
The legislation currently running through the U.S. Congress will need additional legislation to make it work for the long term. The Paulson Plan is a short-term solution, which will be ineffective come January 20, 2009, when we will have a new president and a new Congress.
It is of unequivocal importance that our citizens take the time to educate themselves about the oncoming economic crisis that this bill is prolonging (not avoiding, but prolonging).
The first step in educating yourself is getting acquainted with Nouriel Roubini’s ideas, particularly his HOME plan, which combines relief for lenders (banks, investors), as well as homeowners.
As web publishers, there are a lot of things we want our readership to do:
— Make good financial decisions about their futures and retirement
— Sign up for brokers we recommend
— Retire comfortably and early
— Protect their nest eggs so that they have something to pass on to the next generation
As citizens of the United States, however, we want our readership to educate themselves about the dangers of the credit markets that are looming beyond bad mortgages.
The crises we’re now experiencing are only symptoms of larger problems described by Mr. Roubini.
We do not make recommendations on stocks, or mutual funds. We just report what’s going on.
This is our first recommendation since our founding in early 2006:
Signup for rgemonitor.com now, while it’s free.
It is an unprecedented opportunity to educate yourself on the potential crises ahead, and an outline for how to protect yourself and your assets during these difficult times.
The Senate passed the Paulson Plan (modified, of course) by an overwhelming majority Wednesday night.
The revised bill contains an increase in the FDIC insured limit from $100,000 to $250,000, ensuring that both presidential candidates can take credit for it. It is, no doubt a long overdue provision, but it was not the idea of either of them.
The bill will move on to the House, where it failed earlier. With such strong Senate approval, the bill will likely pass, despite strong public opposition.
In any case, the markets are poised to rise on this news. The bailout is good news for Wall Street, even if only for a short time.
Long term investors and those nearing retirement will want to look at this as a bup in the road, a bump upward. It may be best to look at strength in the market as a selling opportunity, or a short opportunity.
With the late night and weekend announcements made over the past few months, it is becoming increasingly popular to time the market with short funds, like ProShares Ultrashort S&P 500 (SDS and UltraShort Financials (SKF).
When good news like the Senate passage happens, financials, and the market in general, are bound to react strongly, sending short-focused ETFs downward.
Whether the underlying problems in credit and the economy in general are solved, however, remains a question: what if $700 billion isn’t enough?
There’s a lot of upside to this bill’s passage, but there’s a lot of downside in its wake.
Not professional advice, just some food for thought.
The House of Representatives defeated the $700 billion bailout for the credit market by a narrow margin.
Stocks immediately dipped — the Dow by 700 points, or about 7% — before recovering about 1/5 of the losses.
The S&P 500 dropped roughly 6.8% with 45 minutes left of trading.
Having liquidity in your account at this time is essential, as the buying opportunities presented over the coming weeks may be unprecedented.
The FDIC announced that Citigroup will acquire the banking operations of Wachovia for $2.1 billion.
The terms are interesting in that, while over $300 billion in loans are to be assumed by Citigroup, the FDIC assumes any risk above $42 billion. In turn, the FDIC receives warrants and preferred stock to the tune of $12 billion.
Citigroup Inc. will acquire the bulk of Wachovia’s assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.
Wachovia has halted trading, as equity will be wiped out by this deal, and markets are spiraling southward in global response to the Troubled Asset Relief Program.
Keep an eye on SKF as a reverse indicator of the BKX banking index.