Brutal selloff on Wall Street

Dow tumbles over 250 points after weaker-than-expected jobs report revives recession worries. The Nasdaq plunges.

Stocks tanked Friday, with the Dow shedding over 250 points, after a weaker-than-expected December jobs report exacerbated recession fears.

The Dow Jones industrial average tumbled almost 2 percent. The broader S&P 500 index lost around 2.5 percent. The Russell 2000 small-cap index fell 3.2 percent.

The Nasdaq composite lost 3.8 percent, or just over 98 points. According to Stock Trader's Almanac, it was the tech-heavy index's biggest one-day point loss since Sept. 17, 2001, the first day the market reopened for trading after having been closed in the aftermath of 9/11. On that day, the Nasdaq lost 115.83 points.

A weaker-than-expected unemployment rate sparked a big stock selloff. Bonds rallied, as investors sought safety and the dollar fell versus other major currencies. Oil and gold prices retreated from recent records.

Employers added 18,000 jobs to their payrolls last month, short of forecasts for 70,000 and down from a revised 115,000 in the previous month. The 18,000 figure marked the weakest monthly jobs growth since August 2003.

The unemployment rate, generated by a separate survey, rose to 5 percent - a more than two-year low - from 4.7 percent in the previous month. Economists thought it would rise to 4.8 percent.

Average hourly earnings, the report's inflation component, rose 0.4 percent after rising a revised 0.4 percent in the previous month. Economists thought wages would rise 0.3 percent.

Stocks have been volatile for months as investors have mulled the fallout from the housing and credit market crises, and worried that the economy could be heading into recession.

The weak labor market report amplified those worries.

"In September, October and November we saw pretty solid payroll numbers, indicating that although the economy was in a bit of a slowdown, the jobs market was holding up, giving us some sort of floor," said Georges Yared, chief investment strategist at Yared Investment Research. "That floor was pulled out from under us this morning."

In the next few months, investors will be looking to see if the December employment report was a temporary indication or the start of a longer-term downtrend for the labor market.

"Jobs growth in the month was moribund and we should expect it to be moribund for a while," said Brett Hammond, chief investment strategist at TIAA-CREF. "But I think we shouldn't get too overwhelmed by the notion of a recession yet."

He said that economic growth prospects look to pick up in the second half of the year, and that by that point the housing issues will be "through the trough," although the woes for that sector won't be over yet.

In the short-term, investors will be looking to see how the Dec. jobs report impacts near-term Federal Reserve policy, with bets now rising that the central bank could cut rates more aggressively, perhaps at the next meeting on Jan. 29 and 30. (Full story)

The Federal Reserve announced Friday that it will lend up to $60 billion this month to banks through its new auction process as a means of easing the credit crunch.

Treasury prices climbed, as investors sought safety in the comparably less risky government debt. The rise lowered the yield on the 10-year note to 3.84 percent from 3.89 percent late Thursday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar slipped versus the yen and the euro.

U.S. light crude oil for February fell $1.27 to settle at $97.91 a barrel on the New York Mercantile Exchange, after hitting a record trading high above $100 a barrel during Thursday's session.

COMEX gold for February delivery fell $3.40 to settle at $869.10 an ounce, pulling back from an all-time high hit Wednesday.
Jobs weak, unemployment soars

Stock declines were broad based, with 29 out of 30 Dow components falling, led by tech stocks such as Intel, IBM and Hewlett-Packard and financial companies such as Citigroup and JP Morgan Chase.

Intel's decline followed a JP Morgan downgrade to "neutral" from "overweight." Separately, the chipmaker said it is pulling out of the One Laptop Per Child program.

Intel also trades on the Nasdaq and was among the 96 components of the Nasdaq 100 that fell on the session.

A slew of retail stocks fell on concerns that weaker job growth will slam consumer spending. The S&P Retail index lost nearly 4 percent.

Market breadth was negative. On the New York Stock Exchange, losers topped winners by more than three to one on volume of 1.26 billion shares. On the Nasdaq, decliners beat advancers four to one as 2.07 billion shares changed hands.

In other economic news, the Institute for Supply Management's reading on the services sector showed a smaller monthly decline than economists had been expecting.

Wall Street also considered the results from Thursday's Iowa caucuses, which kicked off the 2008 presidential election. Former Arkansas Gov. Mike Huckabee won on the Republican side and Sen. Barack Obama of Illinois won for the Democrats.

Stocks were mixed Thursday as a jump in factory orders helped temper concerns about inflation as oil and gold prices hit record highs.

Source - CNN Money

Stocks knocked back

Wall Street wilts as investors worry about higher inflation, lower economic growth.

Stocks tanked Monday, building on the previous week's declines, as investors continued to worry about the economic outlook amid rising inflationary pressures and slower growth prospects.

The Dow Jones industrial average lost 1.3 percent. The broader S&P 500 index lost around 1.5 percent. The tech-fueled Nasdaq composite lost 2.3 percent.

Treasury prices rose, lowering the corresponding yields as investors sought safety in government debt. The dollar was mixed versus other major currencies. Oil prices slipped and gold prices rose.

Stocks tumbled Friday at the end of a tough week, after a report showing higher consumer inflation raised bets that the Federal Reserve won't be able to keep cutting interest rates, even as the economy continues to struggle.

Those worries remained in place Monday, as investors sorted through the day's economic news and mulled the Fed's first credit auction.

"We're just in that rut right now, where people are worrying about credit and buyers are waiting for a bottom," said Ron Kiddoo, chief investment officer at Cozad Asset Management.

He said that stocks are likely to remain in a funk through the Christmas holidays.

On the upside, "sentiment has grown so negative that the market will likely react well to any good news that comes out over the next few weeks," said James Shelton, chief investment officer at Kanaly Trust Company.

Tuesday brings the November reports on housing starts and building permits, both expected to show declines.
Be prepared for a lot of bumps

The Federal Reserve offered $20 billion in 28-day credit through an auction Monday. The goal is for commercial banks to borrow from the Fed and then boost their lending to businesses and consumers. Results will be released Wednesday.

The series of auctions are part of the central bank's ongoing efforts to loosen up tight credit markets. Last week, the central bank also cut interest rates for the third time in a row since September as a means of adding liquidity to the banking system and tempering the risks to an economic recession.

But investors are worried that the Fed may have to put the brakes on its rate-cutting campaign, particularly if inflationary pressures keep rising. Former Fed Chairman Alan Greenspan said Sunday that the economy was at growing risk for stagflation - an environment in which the economy must contend with rising inflation and slower growth.

Meanwhile, Monday's economic news was mixed.

The New York Empire State index fell to 10.3 in December from 27.4 in November, a steeper-than-expected decline in the regional manufacturing read.

A separate report showed that the third-quarter current-account deficit narrowed more than expected.

And an afternoon report showed that homebuilder sentiment in December remained at a record low for the third straight month.
101 dumbest moments in business

The day also brought a number of corporate mergers, although the news failed to move the broader market higher.

Ingersoll-Rand (IR) said it will buy Trane (TT) for $10.1 billion, in a deal that will create one of the largest air conditioner manufacturers in the world. Ingersoll-Rand shares fell 11 percent, while Trane shares jumped nearly 22 percent.

Aon said it will sell two insurance units for $2.75 billion in separate all-cash deals. Aon shares gained 1 percent.

Loews said its board has approved a spinoff of cigarette marker Lorillard Inc. Loews shares gained over 2 percent.

National Oilwell Varco said it will buy oil drilling gear maker Grant Prideco (GRP) for $7.37 billion in cash and stock. National Oilwell shares fell 8.6 percent and Grant Prideco shares rose 13.6 percent.

Stock declines were broad-based, with 27 out of 30 Dow issues falling, led by Alcoa, Hewlett-Packard, Home Depot, Intel and Verizon.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than four to one on volume of 1.44 billion shares. On the Nasdaq, decliners topped advancers by more than four to one on volume of 1.50 billion shares.

Treasury prices rose as investors sought safety in government debt, lowering the yield on the 10-year note to 4.14 percent from 4.24 percent late Thursday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar gained versus the euro and slipped against the yen.

U.S. light crude oil for January delivery fell 64 cents to settle at $90.63 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery rose $1.30 to settle at $799.30 an ounce.

Wall Street takes another big hit

Major indexes slide into correction as investors fret that credit crisis could lead to recession.

Stocks tumbled Monday, with the market falling into the technical definition of a correction - a slide of 10 percent off the highs - for the second time in 2007.

The Dow Jones industrial average lost 237 points, or 1.8 percent, falling to a 7-month low. The S&P 500 index lost 2.3 percent and fell into negative territory for the year. The Nasdaq composite fell 2.1 percent.

Treasury prices jumped, lowering the corresponding yields to the lowest levels since mid-2005, as investors sought safety in response to the stock selloff.

Early reports from the nation's retailers were positive, but were soon overshadowed by revived worries that the financial and housing market crisis could send the economy into a recession.

Those worries were sparked by the drop in bond yields and developments in the financial sector.

"The equity market is taking more of its cues from the the bond market these days and the bond market seems to be signaling that we could be in recession," said John Davidson, president and CEO at PartnerRe Asset Management.

Adding to these concerns: news that HSBC Holdings is stepping in to bail out two of its flailing funds, bets that Citigroup could announce big layoffs and analyst downgrades of government-backed mortgage lenders Fannie Mae and Freddie Macslumped on an analyst downgrade.

"The fear is that there is more bad news out there, considering that it continues to dribble out from financial institutions," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.

Ghriskey said that stocks are unlikely to bounce back on a significant level until there is a sense that the bad news is all out in the open.
Here comes the recession

The S&P 500 index "corrected" this summer, dropping more than 10 percent off its 2007 peak to hit that low during the session on Aug. 16, at the height of the credit market panic. The Dow and Nasdaq composite saw declines of just short of 10 percent at that time.

But the Federal Reserve stepped in shortly after, injecting billions into the banking system to loosen up the frozen credit markets, cutting the discount bank lending rate, and ultimately cutting the fed funds rate, which affects consumer loans.

That sparked a broad rally leading through October, when the major gauges peaked again. On Oct. 9, the Dow and S&P 500 ended at all-time highs, while the Nasdaq hit an almost 7-year high on Oct. 31.

Stocks have been sliding since then, as Wall Street pros have cashed out after the rally, and as analysts and investors have begun to worry that the Fed is behind the curve and a recession could be underway.

As of Monday's close, the Dow is down 10 percent from its October high and the S&P 500 is down 10.1 percent. The Nasdaq is off 11.1 percent.

A correction could spell the start of a bigger downturn, or it could prove to be the impetus to bring wary traders back in, starting another wave up.

Ghriskey said he thinks the current "correction" is worse than the one over the summer, and that there is little to suggest a change in direction any time soon.
Cheney: No bailouts, no tax hikes

Early reports on Black Friday and the weekend showed a strong turnout of shoppers, although no big splurgers. Investors were also tracking Cyber Monday results. But the upbeat early signs about consumer spending failed to distract Wall Street from the broader worries.

Tuesday kicks off a big week for economic news, with reports due on consumer confidence, existing home sales, and personal income and spending, among other things.

While those reports are important, investors will especially be looking to the November employment report due the following week and the upcoming Fed meeting, said Ron Kiddoo, chief investment officer at Cozad Asset Management.

The Fed's last scheduled policy meeting of the year is on Dec. 11 and many market watchers are betting that the central bankers will choose to cut the fed funds rate again, to help temper the speed of the economic slowdown.

The fed funds rate currently stands at 4.5 percent. Fed watchers are split about whether the bank will cut the rate by a quarter or half percentage point, or possibly not at all.

On Monday, the Fed's New York branch said it will offer a series of special short-term loans to make sure banks have enough cash available.
Stocks: When to bail

Among other stock movers, E*Trade Financial slipped in active Nasdaq trade after a Wall Street Journal article said that any potential buyout could be delayed by concerns about its weakened mortgage portfolio. On Friday, E*Trade shares jumped on buyout talk.

Citigroup lowered its near-term outlook on the homebuilders, saying it is hard to see when the bottom will be made for the hard-hit industry. Centex (Charts, Fortune 500), Lennarand KB Homewere among the names cited in the report.

On the upside, Dow component Boeinginched higher after Wachovia upgraded the jet maker to "outperform" from "market perform," according to Briefing.com.

But it was one of the few Dow gainers, with 28 out of 30 blue chip stocks falling.

All financial markets were closed Thursday for Thanksgiving, and closed early Friday, with many Wall Streeters making a four-day weekend of it.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by over three to one on volume of 1.50 billion shares. On the Nasdaq, decliners beat advancers by seven to three on volume of 2,01 billion shares.

Treasury prices jumped, lowering the yield on the benchmark 10-year note to 3.83 percent - the lowest level since June 2005 - from 4 percent late Friday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar dipped versus the euro, but held above the all-time low hit on Friday. The greenback fell versus the yen.

U.S. light crude oil for January delivery fell 48 cents to settle at $97.70 on the New York Mercantile Exchange, erasing earlier gains.

COMEX gold for December delivery settled at $826.50 an ounce, down from Friday's close.

Source - Bloomberg

Merrill Ousts O'Neal, Names Cribiore Interim Chairman

Merrill Lynch & Co. ousted Stan O'Neal as chairman and chief executive officer and said it will begin a search for his successor, leaving the world's biggest brokerage without a leader.

Co-Presidents Gregory Fleming and Ahmass Fakahany will run the firm, reporting to board member Alberto Cribiore, who will be a non-executive chairman until O'Neal's successor is found, New York-based Merrill said in a statement today.

Merrill fell as much as 4.6 percent in New York trading after the firm said no successor is imminent. O'Neal lost the confidence of investors and directors after delivering a $2.24 billion third-quarter loss, six times what the firm forecast just three weeks earlier. Merrill has declined about 30 percent in New York trading this year, the second-worst performance after Bear Stearns Cos. among the five largest U.S. securities firms.

They have to move fast, said Mark Batty, who helps manage about $77 billion including Merrill shares as an analyst at PNC Wealth Management in Philadelphia. They have risk management issues that need to be tackled quickly.

O'Neal, 56, and the board of directors agreed that a change in leadership would best enable Merrill Lynch to move forward, the company said in the statement announcing O'Neal's retirement after 21 years at the firm. The board will consider internal and external candidates, the company said.

List of Candidates

Possible replacements include Laurence Fink, 54, who sold almost 50 percent of the BlackRock Inc. money management firm to Merrill last year, and Fleming, 44, who has spent most of his career as an investment banker at the firm. Another candidate is Robert McCann, 49, who heads Merrill's wealth-management division, including the firm's network of 16,600 brokers.

Merrill lost $2.41 to $65.01 in 1:03 p.m. New York Stock Exchange composite trading. The stock climbed 11 percent in the past two days on speculation O'Neal would go and the company might be a takeover target. Deutsche Bank AG analyst Mike Mayo estimates the firm may be worth $120 a share in an acquisition.

Some investors were probably too optimistic, expecting a quick resolution, said Benjamin Wallace, who helps manage $750 million, including Merrill shares, at Grimes & Co. in Westborough, Massachusetts.

The company said today that Fleming and Fakahany will stay in their jobs as co-presidents and chief operating officers. Cribiore, founder of New York-based private-equity firm Brera Capital, has been a Merrill board member since 2003.

Housing Slump

Merrill reported an $8.4 billion writedown for subprime mortgages, asset-backed bonds and loans gone bad last week, the biggest quarterly debacle in the history of the securities industry.

The loss followed O'Neal's $1.3 billion acquisition of mortgage lender First Franklin Financial Corp. in December. At the time, O'Neal said the purchase would add revenue velocity. Instead, the takeover contributed to losses as the U.S. housing market suffered its worst slump since the 1991 recession.

First Franklin was embarrassing for O'Neal since he had criticized acquisitions made by his predecessor, David Komansky, whose expansion culminated in a $1.7 billion charge in the fourth quarter of 2001. That's now dwarfed by O'Neal's third-quarter loss. Merrill may have to write down another $4 billion in the fourth quarter, said Meredith Whitney, a New York-based analyst at CIBC World Markets, in a note sent to clients last week.

The truth is there's probably an additional writedown coming in the fourth quarter, said Fitzpatrick. Until we get a little more color on that, it's probably a good time to be sitting on the sidelines.

Less Equity

Merrill's $8.4 billion writedown may have wiped out a fifth of shareholders equity, leaving the firm with $38.8 billion of assets minus liabilities. The probability of Merrill defaulting on debt within five years more than doubled since June 30, rising to 7 percent yesterday from 3 percent, according to credit- default swap traders.

Losing 20 percent of shareholders' equity in one fell swoop is a serious blow, said Robert Willens, the accounting analyst at Lehman Brothers Holdings Inc. in New York. It might take them two to three years to earn that capital back.

O'Neal angered the board by approaching Wachovia Corp. Chairman and CEO Kennedy Thompson earlier this month about a possible merger without consulting Merrill directors, the New York Times reported Oct. 26, citing people with knowledge of the matter. The board has discussed replacing O'Neal with candidates, including Fink and NYSE Euronext CEO John Thain, the Times said.

Discretion on Pay

O'Neal, who earned his way through college by working at a General Motors Corp. assembly plant in Georgia, may receive about $160 million to $200 million from Merrill, said James Reda, managing director of James F. Reda & Associates, a New York-based compensation consultant that has analyzed O'Neal's pay package.

Merrill has said in its annual proxy statement that the size of any payment would be at the discretion of the board. O'Neal has received stock bonuses of almost $80 million during the past three years.

O'Neal got a master's degree from Harvard Business School in 1978 and worked as a finance executive at General Motors before joining Merrill as an investment banker in 1986. He was promoted to president in July 2001.

Source - Bloomberg

Brutal selloff on Wall Street

Dow down almost 367 points, its third worst day of the year, on fears about credit and housing sector, earnings, record-high oil prices, slide in dollar, what the Fed will do next.

Stocks tumbled Friday as record-high oil prices, more problems in the bank sector and slower corporate earnings growth revived worries about an economic slowdown.

The Dow Jones industrial average lost around 367 points, seeing its third-biggest point loss of the year, its worst since the steep selloff in early August in the midst of the credit and mortgage market mess.

The decline Friday left the blue-chip indicator at its lowest point since Sept. 17, the day before the Federal Reserve cut interest rates for the first time in 4 years, triggering a rally that was cut short this week.

The S&P 500 index lost 2.6 percent and the Nasdaq composite gave up 2.7 percent.

Disappointing earnings from Caterpillar, Honeywell and others exacerbated concerns about weak third-quarter profits. Meanwhile, Wachovia became the latest financial services firm to reveal how the credit and mortgage market crisis had hit its profits.

Oil prices ended lower Friday, but not before hitting an all-time high of $90.07 a barrel in electronic trading. The dollar fell to a new record low against the euro and also slipped versus the yen. Treasury prices surged, as investors sought safety in the comparably safe haven of bonds.

The declines reflect a certain shifting in perspective, said Ram Kolluri, president at Global Investment Management.

"We have fully come to the queasy realization that the U.S. economy may slow down considerably," Kolluri said.

He said that this realization has been driven by the ongoing problems in the real estate market, rise in gold and other commodity prices, and especially $90 a barrel oil - all of which is hitting Corporate America, and the consumer.

Consumer spending fuels roughly two-thirds of economic growth, and after a lot of predictions, actually does seem to be slowing substantially.

Stocks have had a tough week as investors digested a batch of lackluster earnings reports and tried to put into context what the run up in oil prices could mean for consumer spending and the economy.

"We're seeing this kind of selloff because of where oil is and because the banks are reminding people that we have a lot further to go before we get to the bottom of the real estate issue," said John Forelli, portfolio manager at Independence Investments.

Forelli said that this marks a change in thinking from earlier in the month, when a rash of billion-dollar writedowns from big banks seemed to give investors a "the worst is behind us" perception.

The run up in oil prices was also significant in that it revives fears about whether it will drive up inflationary pressures enough to limit the Federal Reserve's ability to cut interest rates further, even if the economic growth deteriorates enough to warrant more cuts.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than 5 to 1 on volume of 1.79 billion shares. On the Nasdaq, decliners topped advancers 5 to 1 on volume of 2.41 billion shares.

Stock declines were broad based, with all 30 Dow stocks slumping.

Source - CNNMoney

The price of everything, in flux

These days, the value of housing, stocks, bonds and even a spouse seems to be up in the air.
"No one knows what anything is worth." Lately I've heard that from lots of people. We're in one of those odd periods when things feel unmoored.

Six months ago you knew, or at least you thought you knew, what your house would sell for. Now you probably don't. The bond market is quaking with fear about the credit crisis, while the stock market is saying rock on.

"Either U.S. economic conditions are really not that bad after all, or investors are suffering from a collective attack of wishful thinking," Martin Barnes, editor of the Bank Credit Analyst, wrote recently.

Valuation is supposed to be a science, sort of, but there are times when it feels more like a demented form of multivariable calculus. Bond guru Bill Gross of Pimco recently wrote that "the modern financial complex has morphed into something unrecognizable to many astute market veterans and academics."

But while you may not be able to analyze the price of a security right now, you can at least analyze the insecurity.

The first issue is that the nationwide decline in home prices that wasn't supposed to happen -- even Alan Greenspan said he didn't expect it -- and there's no historical precedent for it.

The inventory of unsold and new homes is still extremely high, which suggests that a "clearing price" -- a price that buyers and sellers agree upon -- has yet to be found. It's hard to feel secure when your feet can't touch the bottom.

But the scariest thing is that today the price of every asset -- houses, stocks, and bonds -- seems to rest on a foundation that looks increasingly shaky. David Wyss, the chief economist at S&P, puts the losses from the subprime meltdown at around $150 billion, a manageable figure in and of itself. But the subprime crisis was like a termite coming out of the wall. It made everyone start worrying that there were deeper problems.

In the past few years, there's been an explosion of what the Street calls "structured credit" -- everything from mortgages to loans used to finance LBOs was carved up into exotic new securities and sold to buyers who didn't understand what they were purchasing.

Now it turns out that Wall Street didn't understand its own mad, tangled creations either. A Bank of England official called the tests that financial firms used to measure the risk of these new products "completely hopeless." Firms from Citigroup to Merrill Lynch have declared multibillion-dollar write-downs due to losses on these products. And they're still guessing.

In August a Morgan Stanley equity analyst recommended that investors buy the stock of insurer Ambac, which guarantees the payment on billions of dollars of bonds backed by subprime mortgages. A Morgan Stanley fixed-income trader promptly fired off an e-mail calling the recommendation "absurd." "My analyst has no idea how to value" the securities Ambac guarantees, he wrote. "No one in the world can put a definitive view on recovery levels" for some of these bonds.

The subprime crisis was also the first visible sign of a weird inversion that took place during the past few years. Instead of the value of an asset dictating the amount of debt you could use to purchase it, the availability of the financing began to dictate the price of the asset.

In 2004 even the Federal Reserve Bank of New York argued that a chunk of the increase in house prices was justified by the easing of lending standards. "The price exists at the pleasure of the financing," is how one hedge fund manager put it to me recently. "That is true for stocks and houses and bonds and buyouts." But if the financing doesn't exist, or only maybe exists, then how do you determine price?

In early October a Craigslist posting, in which a self-described "spectacularly beautiful 25-year-old girl" asked for advice on meeting a man who made at least $500,000, sparked a raging debate on how you measure the value of a man or a woman.

How appropriate :-).

Source - CNN Money