The US financial market news, and related developments, are overwhelmingly negative. The DOW was mauled, dropping 370 to 12,265. The DOG fared even worse, losing 73 to 2309. Look out below.
Yes, the Titanic has been hit. This is what happens when the free market process is constantly interfered with. Unfortunately, the resulting Moral Investing Hazard was allowed to go to such an extreme, most Americans are unprepared for what is coming down the pike.
The dismal US economic news:
U.S. services sector plummets unexpectedly--ISM survey
NEW YORK, Feb 5 (Reuters) - The U.S. services sector retreated sharply in January, according to the Institute for Supply Management.
The industry group said on Tuesday its index of non-manufacturing plunged to 41.9 from 54.4 in December. Wall Street analysts had been looking for a much more moderate decrease to 53.0.
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Services index plunges, points to recession
NEW YORK (Reuters) - The U.S. services sector retrenched sharply in January to levels not seen since the 2001 recession, renewing fears about an economic slump, according to a survey released on Tuesday.
The Institute for Supply Management's index of non-manufacturing plummeted to 41.9 from 54.4 in December, its largest monthly decline on record and a far greater drop than Wall Street expected. A Reuters poll of economists had produced a median expectation of a drop to 53.0
"The recession has indeed arrived," said Jane Caron, chief economic strategist at Dwight Asset Management in Burlington, Vermont.
A reading below 50 indicates contraction, and bond prices jumped as the figures reinforced investors' conviction that the U.S. economy is already in recession. Stock futures sold off.
The employment index fell to 43.9 from 51.8, corroborating last week's dire U.S. payrolls report, which showed the first net monthly contraction in the labor market in more than four years.
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More on the ISM news…
Bill,
I would like to know one person who owned Gold and decided to sell it because the ISM-Services index showed economic activity plunged in January while prices surged, especially since the Federal Reserve panicked last week by lowering interest rates well below previous inflation rates. While the talking heads are all focused on the 41.9 recessionary number I have not heard one person mention prices paid were 70.7 vs 71.5. Last Friday the stronger than expected ISM-Manufacturing number had people selling Gold and buying stocks despite the surging prices paid component to that report. The concept that the Federal Reserve has lowered interest rates with prices paid surging and non reported M-3 over 15% is mind boggling. Starting to sound like the Weimar Republic; where, Gold survived and the currency didn’t.
Garic
Bill,
This catastrophic news hits the tape….
QUOTE
U.S. Jan. ISM nonmanufacturing index falls sharply to 41.9%
Last update: 8:57 a.m. EST Feb. 5, 2008
WASHINGTON (MarketWatch) -- Growth in the nonmanufacturing side of the U.S. economy contracted sharply, the Institute for Supply Management reported Friday. The ISM nonmanufacturing index fell to 41.9% in January from 54.4% in December. The reading was well below the 53.0% expected by economists. Readings below 50% indicate most firms are contracting. The ISM services index was released early. ISM gave no explanation for the early release.
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But Investors just couldn’t wait to buy dollars and get a piece of the recession action…
QUOTE
Gold futures drop nearly 2% on dollar strength
By Polya Lesova
Last update: 8:39 a.m. EST Feb. 5, 2008
NEW YORK (MarketWatch) -- Gold futures dropped sharply to trade below $900 an ounce early Tuesday, as a surge in the US dollar lowered demand for the precious metal. Gold for April delivery declined $17.40, or nearly 2%, to $892 an ounce on the New York Mercantile Exchange
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I bet they are selling their risky gold assets to buy dollars so that they can buy shares in the safe-haven bond insurers like AMBAC and MBIA!
The cartel is certainly going all out to prove all the things we claimed in the GATA ad.
Cheers
Adrian
The US market news stinks all the way around…
21:10 Credit-card issuers tightening standards - WSJ
The Journal reports that credit-card issuers are tightening standards. According to the article, big card issuers such as Citi are mandating higher credit scores before issuing new cards, particularly in areas hit hard by the housing downturn. In addition, lenders like Bank of America are offering lower initial credit lines, while others such as Capital One are curtailing credit line increases or reducing credit lines for customers that are applying for more credit or having trouble paying down their balances. The article also notes that most issuers are raising late fees and other charges to dampen the risks surrounding the spillover effects from the continued upheaval in the credit and housing markets. Of interest, the Journal cites data from bank-card advisory firm RK Hammer, which shows that on average, credit card approval rates have dropped to 32% of applicants from 40% a year ago.
Reference Link (subscription required)
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Home equity loan defaults soar
As credit woes seep into prime home equity lending, a spigot of ready cash for some homeowners is turned off.
By Roddy Boyd, writer
NEW YORK (Fortune) -- One of the last sources of ready cash for homeowners looking to get money from their house appears to be shutting down and the results aren't likely to be pretty for the economy.
Last week, buried deep in the ugly details of Countrywide Financial Corp.'s (CFC, Fortune 500) earnings release, was the news that its $32.4 billion portfolio of prime HELOCs - home equity lines of credit - had begun to rapidly deteriorate. The reeling Calabasas, Ca.-lender was forced to take a $704 million charge related to homeowners' inability to pay back equity they extracted from their homes.
The structure of these loans appears to spell trouble for Countrywide and other home lenders with big home equity loan books. According to an overlooked Moody's Investors Services note that came out last Wednesday, once a certain threshold of losses is achieved in a home equity loan securitization pool, the bond holder is paid off ahead of the lender…
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GMAC Posts $724 Million Loss as Home Loans Sour
Feb. 5 (Bloomberg) -- GMAC LLC, the auto and mortgage lending company once owned by General Motors Corp., posted a $724 million loss in the fourth quarter as home buyers fell behind on their mortgage payments.
The net loss narrowed from $1 billion a year earlier, the Detroit-based company said in a statement today. GMAC said it's talking to buyers for parts of the Residential Capital mortgage unit, which recorded a $921 million quarterly loss.
bloomberg.com
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CDO Ratings to Fall as Losses Trigger Fitch Overhaul
Feb. 5 (Bloomberg) -- Fitch Ratings may downgrade $220 billion of collateralized debt obligations as mortgage-related losses increase.
The New York-based company may lower the securities by as much as five levels after failing to accurately assess the risk of debt that packages other assets. CDOs with AAA grades that are based on credit-default swaps and aren't actively managed may face the steepest reductions, according to guidelines proposed by Fitch today….
bloomberg.com;
;sid=aKiCZ7EHaH8k&refer=home
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Company Default Risk Rises as Recession, Lending Concerns Mount
Feb. 5 (Bloomberg) -- The risk of companies defaulting rose after reports showing a contracting U.S. service industry and tightening lending standards by banks fueled concern that borrowers will find it tougher to raise cash.
Benchmark credit-default swap indexes in the U.S. and Europe reached the highest levels in two weeks, a sign of eroding investor confidence in corporate creditworthiness. Contracts tied to the bonds of SLM Corp., the biggest U.S. student lender, rose after Standard & Poor's late yesterday cut the company's credit rating to one level above junk. Contracts on NXP BV, the chipmaker bought by a Kohlberg Kravis Roberts & Co.-led group, soared to the highest on record…
bloomberg.com;
;sid=aEQq5eDOqs04&refer=home
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BOND INSURER DOWNGRADES MAY HAVE SIGNIFICANT IMPACT ON BANKS, "A FEW" BANKS COULD BE DOWNGRADED, according to S&P - Reuters
From England…
Hi Bill,
It is still proving difficult to get the Rock sold even with loads of help from the government.
news.bbc.co.uk
The press stories here are getting more gloomy and not just about the Rock. Inflation is mentioned regularly in headlines. We now apparently have record high food prices according to one of today's papers (see the link below), but of course the government inflation figures are still subdued.
express.co.uk.
The property boom is also well and truly over. I have just watched a TV programme about mortgage fraud and, what a surprise, it is now recognised as being much larger than previously thought. Apparently over 60 firms of lawyers are being investigated for allowing false applications to go forward. A lot of people who speculated by buying properties to let are set to lose a lot of money.
Amongst all this bad news, I hope you are well and staying relaxed about the recent bungled efforts to sink the PM prices. To me there is so much positive news around for PM investors. For example, whilst Rio Tinto is a business much more biased towards industrial metals, the fight for it and especially the emergence of the Chinese as blocking investors supports all the words written about Chinese plans to gain control of important commodities. I am sure these plans include the PM's which you keep telling us they are accumulating quietly. It is very bullish.
Best wishes,
Bob
From RK:
Bill;
Just love hearing about the "vigilance" of the Aussie Central Bank raising interest rates by a quarter point in an "effort" to reign-in inflation.
Australia Raises Interest Rate to 7% to Curb Prices (Update3)
Feb. 5 (Bloomberg) -- Australia's central bank raised its benchmark interest rate by a quarter point to an 11-year high, saying a ``significant slowing in demand' is needed to cool the fastest inflation since 1991…..
Sadly – almost everyone believes this – usually because some accredited news outlet like Bloomberg says so. Interest rates – unto themselves – have very little to do with Inflation. Money Growth – on the other hand – has everything to do with inflation. This is why the Federal Reserve canceled M3 Money Supply reporting – they quite simply do not want us to know how fast they are growing the money supply because it would make a complete mockery of their "officially published" inflation reports in the 2 – 3 % range.
This is why countries like Zimbabwe can have very high interest rates – from the Reserve Bank of Zimbabwe: |
