Economy > Cycles, business,
markets, prices, taxes, budgets, jobs > Up
by Ed Stein
October 06, 2013
p. 32 9 October 2004
the ebbs and flows of our economy
The Illawarra Mercury, The Melbourne Express
/ shoot up
in the black
governments-to-buy-bank-stakes-stocks-soar-idUSTRE49A36O20081013 - October
rise and fall
the brunt of the increases
UK / USA
jump UK / USA
unexpected bounce in retail sales
boom UK / USA
boom / boom
enjoy a record-long economic boom
boom and bust
from boom to gloom UK
in the bust USA
get a boost from
bull market UK
bull run UK
buoyed by N
growth pace USA
grow at a 3.9 percent annual pace
slowing economic growth
sluggish wage growth
greenshoots of recovery
21 September 2008
Whiplash Ends a Roller Coaster Week
October 11, 2008
The New York Times
By VIKAS BAJAJ
For three straight days, the stock market collapsed in the
last hour of trading. On Friday, it merely swooned.
Until 3 p.m., things looked awful as investors drove the Dow Jones industrial
average down nearly 700 points at one point, to below 8,000 for the first time
in five years. Then the market made a U-turn, surging higher with the Dow
climbing nearly 900 points in less than 40 minutes. The rally fizzled in the
last 20 minutes of trading and the Dow closed down 1.5 percent — but it was a
far cry from its 8 percent decline at the start of the trading day just six and
a half hours earlier.
“We just don’t see turnarounds like this,” Howard Silverblatt, chief index
analyst for Standard & Poor’s, said about the late afternoon rally. “These
swings are enormous.”
It was one of the wildest moves in stock market history, and perhaps a fitting
conclusion to the worst week in at least 75 years. The Dow and the broader
Standard & Poor’s 500-stock index both closed down 18 percent for the week. The
Dow has never had a week that bad in its 133-year history. The S.& P. has fallen
slightly more only twice before — in 1929 and 1933. This month was the first
time that the S.& P. had fallen by more than 1 percent for seven days in a row.
In the credit markets, conditions went from bad to worse. Borrowing costs for
banks and companies jumped once again as investors sought safety in Treasury
bills despite earlier signs that the government might take equity stakes in
troubled companies to try to halt the credit crisis. It was the worst single day
for junk bonds ever, and the cost of borrowing shot up for even blue-chip
companies: I.B.M. agreed to pay 8 percent interest on $4 billion of 30-year
bonds, about twice the rate at which the federal government borrows money.
On Friday evening, after a meeting of finance ministers and central bankers from
the Group of 7 countries, the Treasury secretary, Henry M. Paulson Jr.,
confirmed that the government would move quickly to buy stakes in financial
institutions. But the details he provided fell far short of what investors were
Indeed, while policy makers have taken a stab at many extraordinary efforts to
restore confidence, none have alleviated panic in global markets so far. Because
the $700 billion financial stabilization plan will take several weeks to have an
impact, investors say officials must present significant details on the more
fast-track effort to recapitalize banks to get them to lend money to each other
and other businesses again.
“We have to do something,” said Robert C. Doll, vice chairman of BlackRock, the
big investment firm. “At the end of the weekend, before the markets open up on
Monday, these guys have to have something to say. And it can’t be, ‘Everything
is O.K., just calm down.’ ”
Investors will be watching for any new developments in Washington this weekend
after Mr. Paulson signaled that countries stopped short of agreeing to a
globally coordinated approach to stem the crisis. In addition to the G-7
meetings, which go through Sunday, the International Monetary Fund and the World
Bank are also holding annual meetings.
Politicians were busy in Washington, and on Wall Street, things were anything
but calm. Friday in New York began with a now-familiar feeling: dire
expectations of what the opening bell would bring after stocks in Asia and
Europe plummeted by as much as 10 percent.
Scott Black, president of Delphi Management in Boston, said he had taken to
waking up at 3 a.m. to check on foreign markets. When he arose before dawn on
Friday, he was distressed. “I am worried,” he said. “I have a fiduciary
responsibility to my clients.”
At the open, the Dow Jones industrial average quickly sank nearly 700 points.
But suddenly, shares of struggling financial companies surged, the Dow regained
all of its losses in less than half an hour, and a cheer went up on the trading
floor of the New York Stock Exchange.
By about 10:20, stocks had started to slide again, and President Bush tried to
soothe frayed nerves with an appearance at the White House. “This is an anxious
time,” he said. “But the American people can be confident in our economic
future. We know what the problems are. We have the tools to fix them. And we’re
working swiftly to do so.”
If traders were paying attention to the president, it did not show. Over the
course of several hours, stocks ground down, with the Dow losing more than 600
points and again falling below the 8,000 mark.
In the afternoon, an investor walked into a Kansas office of the mutual fund
company American Century Investments. The woman, who is two years from
retirement, was worried about her small business account. She brought her
unopened statement to John Leis, a director of personal financial solutions at
“She didn’t have the guts to open it even though she had conservative
investments,” Mr. Leis said. “She asked me, ‘How bad is it going to be?’ ” The
client was fortunate: her investments, in mostly government-backed bonds, were
up 6 percent for the year. But Mr. Leis said the concern about her investments
symbolized the fear among many everyday Americans who are watching the financial
markets with trepidation.
Back in New York, stocks were about to stage one of their most impressive
rallies ever. Shortly after 3 p.m., the Dow surged by nearly 900 points, with
companies like Exxon Mobil, Chevron and Boeing leading the way. While those
companies have posted decent results this year, their shares have fallen
significantly in recent months.
Why stocks surged late in the day is the subject of much discussion and
speculation among analysts and investors. Many said it was only a matter of time
before stocks bounced back from the unrelenting decline of recent days. Many
investors have been waiting on the sidelines either because they feared what
would come next or because they expected prices to fall further.
Barry Ritholtz, chief executive of Fusion IQ and author of a popular financial
blog, The Big Picture, pointed out that investors were holding more cash than at
any time since 2002, when the last bear market ended. Some of that cash appears
to have come into the market later in the day when it looked like stock prices
would not fall much further.
Some analysts said the late-hour surge reflected bargain hunting by money
managers who have watched stocks of premier companies like General Electric,
Google and Exxon Mobil fall to their cheapest levels in years or decades.
Google, for instance, opened trading at about $315 a share, about $100 below
where it was just a week and a half ago. Shares of the company closed up
modestly, at $332.
“What I saw was people starting to buy at the really distressed prices and, when
the market got better, they kept buying,” said Laszlo Birinyi Jr., president of
Birinyi Associates, an investment firm in New York.
Still, many investors said that although they were excited about buying beaten
up stocks and bonds, they were worried that the sell-off was far from over. The
recent spate of forced selling of stocks by hedge funds and other investors who
had used lots of borrowed money to make big bets during the recent credit boom
may not yet be over, they fear.
“The problem is that in order to invest in this you have to make sure your base
of capital is stable,” said Whitney Tilson, founder and managing director of T2
Partners, a hedge fund firm in New York. “Who knows when the dumping is going to
end. Who knows how many hedge funds are going to go under.”
Still, Mr. Tilson, describing current prices as “prosperously cheap,” said he
recently allowed his investors to put more money into his funds — and a handful
took him up on the offer.
The benchmark 10-year Treasury bill fell 22/38, to 101 1/32, and the yield,
which moves in the opposite direction from the price, was at 3.87 percent, up
from 3.79 percent late Thursday.
Ian Austen, Vikas Bajaj, David Stout
and Bettina Wassener contributed reporting.
Whiplash Ends a
Roller Coaster Week,
Taking Biggest Jump Ever
The New York Times
By JAD MOUAWAD
had their biggest gains ever on Friday, jumping nearly $11 to a new record above
$138 a barrel, after a senior Israeli politician raised the specter of an attack
on Iran and the dollar fell sharply against the euro.
The unprecedented gains on Friday capped a second day of strong gains on energy
markets, and fueled suspicions that commodities might be caught in a speculative
Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York
Mercantile Exchange. The record gain followed a jump of 5.5 percent on Thursday,
bringing total two-day gains to $16 a barrel.
Stocks fell sharply. The Dow Jones industrials fell 323.97 points, or 2.53
percent, in midday trading. Chevron Corp. was the only stock that rose on the
“This market is going to shoot itself in the foot,” said Adam Robinson, an
analyst at Lehman Brothers. “It is searching for a price that will build a
safety cushion in the system — either as inventories or as spare capacity. But
this takes time. The market has gotten extremely impatient and is not willing to
Even as uncertainties abound about the fundamentals of the market, geopolitical
tensions in the Middle East regained center stage after Israel’s transportation
minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked
“unavoidable.” Iran is the second-largest oil producer within the OPEC cartel
and any interruptions in its exports could push prices higher levels.
“The return of the Iranian risk premium calls for a careful assessment of the
potential oil supply impact of military strikes on Iran,” said Antoine Halff, an
analyst at Newedge, an energy broker.
The strong volatility in energy markets in recent weeks have continued to puzzle
investors and traders. Prices keep rising despite a lack of shortages in the
market, and strong evidence of lower consumption in industrialized countries.
But investors seem to be caught in a bullish mood, focusing instead on perceived
risks to future oil supplies and continued growth in oil demand from emerging
economies that subsidize fuels.
The latest jump in oil prices also came as the dollar lost almost 1 percent
against the euro amid bleak economic news that fanned recession fears on Friday.
The unemployment rate surged to 5.5 percent last month, the government said, the
biggest increase in more than two decades.
Investors reacted to the latest forecast by a large Wall Street bank that oil
prices would spike to $150 a barrel in the next month because of strong demand
from Asian economies. Morgan Stanley said “an unprecedented share” of Middle
East oil exports are headed to Asia.
Some analysts also said that the threat of a strike by Chevron’s workers in
Nigeria could lead to “considerable” shutdowns of Nigerian production. A similar
strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian
output by 800,000 barrels a day, or nearly a third of the country’s daily
A strike might delay the start of Chevron’s 250,000 barrels-a-day Agbami
project, the country’s largest offshore venture, which is slated for June 15.
One view that has been gaining ground in recent months is that the commodity
market is caught in a speculative bubble akin to the housing or technology
bubble of the late 1990s. The notion is buffered by the fact the oil prices have
doubled in 12 months despite a slowing economy.
That theory was raised by politicians in Washington and a slew of OPEC
producers, who blame speculators for the staggering rally in oil prices.
Speaking before Congress recently, George Soros, a prominent hedge fund
investor, said the current oil markets presented some characteristics of a
“I find commodity index buying eerily reminiscent of a similar craze for
portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros
said earlier this week. But he cautioned that an oil market crash was not
imminent. “The danger currently comes from the other direction. The rise in oil
prices aggravates the prospects for a recession.”
Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission,
who was speaking before another Senate committee last month, said he saw no
evidence of a speculative bubble in the commodity market. Instead, Mr. Harris
pointed out to a confluence of trends that have contributed to the oil price
rally, including a weak dollar, strong energy demand from emerging-market
economies, and political tensions in oil-producing countries.
“Simply put, the economic data shows that overall commodity price levels,
including agricultural commodity and energy futures prices, are being driven by
powerful fundamental economic forces and the laws of supply and demand,” Mr.
Harris said. “Together these fundamental economic factors have formed a ‘perfect
storm’ that is causing significant upward pressures on futures prices across the
Oil prices had been weakening in recent days but reversed dramatically after the
president of the European Central Bank, Jean-Claude Trichet, suggested on
Thursday that the bank might raise interest rates. That pushed up the euro
against the dollar and prompted investors to buy into commodities to hedge
against the weaker American currency.
Gasoline prices have also been rising steadily. American drivers are now paying
an average of $3.99 for a gallon of gasoline nationwide, according to AAA, the
automobile group. In many parts of the country, like California, Connecticut and
New York, consumers are already paying well over $4. Diesel costs $4.76 a gallon
“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil
economist at UBS, said. “I think this is real. There is a whole bunch of
commercial buyers out there who are spooked and are buying. You are an airline,
right now, you’re scared. But I don’t see who would buy at these prices unless
they need to.”
Oil Prices Skyrocket, Taking Biggest Jump Ever, NYT,
Foreclosures skyrocket 65% in April
14 May 2008
By Stephanie Armour
In a sign that the mortgage collapse is getting worse, not better,
foreclosure filings surged 65% in April from April 2007, leading some analysts
to warn that the crisis might not end before 2010.
One in every 519 households received a foreclosure filing — the highest such
figure since RealtyTrac began issuing foreclosure reports in January 2005.
Nationally, 243,353 homes were facing foreclosure last month, RealtyTrac said.
That amounts to roughly 2% of all homes.
Signs that the crisis is accelerating include sinking home values, rising
foreclosures, swelling supplies of homes for sale and tighter lending rules that
have shut out some who want to buy homes or refinance their mortgages.
"For the foreclosures to stop, inventories have to stop rising, and home sales
have to rise," says Mark Zandi, chief economist of Moody's Economy.com, who
thinks foreclosures will continue rising well into 2009 and possibly till 2010.
"We need prices to come down some more."
Congress is working on a bill that would let many borrowers facing foreclosure
refinance with federally insured mortgages. The bill's prospects, though, are
"Policy is essential," Zandi says. "If they don't do anything, this crisis will
Foreclosure filings in April rose from a year earlier in all but eight states,
according to RealtyTrac. Those hardest hit by the tsunami of foreclosures
included Arizona, California, Florida and Nevada — states where runaway subprime
lending and escalating home prices symbolized the real estate boom that fizzled
"It will almost certainly get worse," Rick Sharga of RealtyTrac says of the
foreclosure filings. "Unless the government does something, we'll probably see
this go on. We would expect a spike (in filings) in the third and fourth
quarter" of 2008.
Joel Naroff of Naroff Economic Advisors says he thinks foreclosures could
persist at a high rate into 2010. "Prices are dropping and will continue to fall
throughout the year," Naroff says. "People want to buy, but they can't get
As the downturn intensifies, credit counselors are reporting a wave of calls
from anxious homeowners. Diane Gray, director of Novadebt, a non-profit
counseling group, says its largest surge in demand from clients involves
housing-related counseling services.
"Homeowners are calling about mortgage payments, including those with ARMs and
interest-only loans," Gray says. "A lot of times, they've gotten into a home,
and it's hard for them to understand they may not be able to afford it."
65% in April, UT, 14.5.2008,
Stocks Back Near Highs Hit in July
The New York Times
By VIKAS BAJAJ
tumultuous and brutal August, the stock market has regained its footing and is
within striking distance of the record highs it set in July.
The surge began building before the Federal Reserve cut interest rates last week
and has come at a time when news from the housing market remains bleak.
Conditions in the debt markets have eased somewhat, but specialists say they
remain much tighter than they were earlier this year.
Since Aug. 15, when the stock market hit its lowest point in five months, the
Standard & Poor’s 500-stock index is up 8.5 percent and the Dow Jones industrial
average 8 percent. The increase has erased much of the decline from late July
and early August and left the indexes up modestly for the third quarter, which
“It’s kind of amazing how well equities have held up,” said Douglas M. Peta,
chief market strategist at J. W. Seligman & Company, an investment firm in New
“If you went away sometime in July and came back about now, you might say,
‘Nothing happened while I was gone,’” he said.
In yesterday’s trading, the main indexes fell slightly, with the S.& P. 500 down
4.63 points, or 0.3 percent, to 1,526.75. The Dow slipped 17.31 points, or 0.12
percent, to 13,895.63, and the Nasdaq fell 8.09 points, or 0.30 percent, to
That still left the Dow and the Nasdaq with gains of more than 11 percent this
year, and the S.&P. up 7.7 percent for the year.
The market appears to be buoyed by a belief that the problems in the housing and
credit markets will not pull the broader economy into a recession and that
growth in Asia and Europe will help offset those ill effects. The optimism is
most vividly manifest in the performance of foreign markets, particularly in the
fast-developing countries like China and India.
A widely followed Morgan Stanley index that tracks emerging markets is up 26
percent since Aug. 16, when it hit a low. Markets in developed countries
excluding the United States are up nearly 12 percent in the same period.
Even in the United States, the market’s return has been led by sectors like
energy, industrials, materials and technology, which investors believe are best
positioned to take advantage of the growth abroad.
The financial and consumer discretionary sectors have lagged; they are seen as
having the most to lose from a declining housing market and slowing consumer
Indeed, investors in September poured $1.1 billion into mutual funds that
specialize in emerging markets, while they withdrew about $3.2 billion from
domestic equity funds, according to AMG Data Services, a research firm.
Expectations that the rest of the world will outperform the United States are
also reflected in the depreciating dollar, which dropped yesterday to $1.4265
against the euro, a new low. The dollar has fallen 2.8 percent against the euro
since Sept. 14, when the Fed cut rates and is down 8 percent for the year. Gold
prices rose 1.4 percent, to $742.80 a troy ounce, the highest since 1980.
Currency traders, and others in the financial markets, are operating under the
assumption that central bankers in Washington have taken a more activist and
That view started to take hold in mid-August when the Fed cut the discount rate
— what it charges banks to borrow directly from it. Investors became even more
convinced last week when the Fed cut its benchmark rate by half a point, to 4.75
percent, rather than the expected quarter point.
The futures market is now predicting that the Fed will cut rates at least once
more, to 4.5 percent, at its meeting on Oct. 30 and 31.
But one Fed official, William Poole, said yesterday that “it would be a mistake
for markets to bake into the cake the assumption of ongoing rate cuts,”
according to Bloomberg News.
Mr. Poole, president of the Federal Reserve Bank of St. Louis, responding to a
question after a speech in New York, said he was expressing his own views and
not speaking for the Fed.
In the credit market, the Fed’s rate cutting and its lending at the discount
rate and through open market operations have eased the logjam somewhat.
This week, banks raising money for the private equity buyout of the First Data
Corporation, a credit card processor, were able to sell more debt than they had
Still some of the roughly $300 billion debt backlog that needs to be sold may
never be worked off. The private equity acquisitions that are falling apart or
being withdrawn include the purchases of the student loan provider Sallie Mae
and Harman International Industries, a maker of high-end audio speakers.
“You still have a big overhang of supply out there,” said Eric G. Takaha,
director of corporate and high-yield debt at Franklin Templeton, the investment
company. “But the path has become a little clearer.”
One mortgage company, Thornburg Mortgage, said the market for “jumbo” home loans
— those with a face value of more than $417,000 — appeared to be improving. In
recent weeks, investors have been more willing to buy bonds backed by pools of
the mortgages, but are demanding higher returns and more safeguards against
Home buyers searching for jumbo loans will notice a slight drop in interest
rates but will have to shop around, said Larry A. Goldstone, president and chief
operating officer at Thornburg, based in Santa Fe, N.M.
“The market has improved modestly and it is certainly not deteriorating,” Mr.
Goldstone said. “I think it has a ways to go before it’s back to functioning in
a completely normal way.”
What Plunge? Stocks Back Near Highs Hit in July,
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