- Stocks continue to slide- After Cisco Systems Inc. (Nasdaq: CSCO) reported its fiscal first-quarter earnings the markets started the day positive, but quickly turned red. One week after the election, fiscal cliff concerns continue to mount as the president and Congress meet later this week to hopefully negotiate a deal. So far no progress has been made on the debt reduction talks and until that happens don't expect the markets to change course. "We will continue to drift sideways until we see some progress on the fiscal cliff negotiations," Peter Jankovskis, co-chief investment officer for Oakbrook Investments told Bloomberg News in a phone interview.
- President calls for $1.6 trillion more in revenue- When President Obama meets with congressional leaders on Friday he will ask for double the amount of revenue that was discussed at budget talks in 2011. On Tuesday, the president met with union leaders and other liberal groups and stated he will now seek $1.6 trillion in additional revenue over the next decade. That will be accomplished partially through higher tax rates, something Republicans have not yet said they would agree to. But Republicans have offered to accept extra revenue if Democrats can agree to making structural changes to entitlement programs. "New revenue must be tied to genuine entitlement changes," Senate Minority Leader Mitch McConnell, R-KY, said Tuesday. "Republicans are offering bipartisan solutions and now it's the president's turn. He needs to bring his party to the table." An agreement, which included $800 billion of extra revenue, between House Speaker John Boehner, R-OH, and President Obama failed when the President asked for $1.2 trillion in additional revenue. That deal would have lowered the deficit by $4 trillion over ten years, and now President Obama is seeking $1.6 trillion, a number much higher than Republicans will likely agree to.
Friday, the third day of trading since President Obama was re-elected, looks to be a volatile ending to a scary post-election market. Since the election, the Dow Jones is down more than 3.5%, the S&P 500 is down 3.7% and much of Wall Street thinks this sell-off will continue.
Analysts and CEOs predict the next year to be a very rough one for stocks and the economy, and there might be nothing the president can do to stop the slide.
"Economic prospects might not have been much different if Mitt Romney had won, especially as Congress remains divided. But the subsequent weakness in equities makes sense too," Julian Jessop, chief global economist at Capital Economics, said in a note to clients. "As we had anticipated, the focus has quickly moved on to the uncertainty over the 'fiscal cliff,' and perhaps back to the unsolved crisis in the euro-zone as well."
Political worries were exacerbated by worse than expected monthly sales from McDonald's Corp. (NYSE: MCD) and fears that Apple Inc. (Nasdaq: AAPL) had entered a bear market.
The fiscal cliff continued to dominate investor sentiment today as both Republicans and Democrats expressed their intentions of working together to find a solution to the impending crisis but failed to offer any concrete evidence of their willingness to budge from long-held positions.
Afraid that Republicans and Democrats will not compromise, even when the stakes are high, investors are bailing out. It is too close to the end of the year-too close to bonus time-to be a hero now.
In his victory speech following his re-election on Tuesday, U.S. President Barack Obama said that he is "looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together."
Senate minority leader Republican Mitch McConnell said, "To the extent [the President] wants to move to the political center, which is where the work gets done in a divided government, we'll be there to meet him halfway."
Jim Manley, a former aide to Senate majority leader Democrat Harry Reid, hoped that President Obama would become more personally involved in the negotiations on the resolution of the fiscal cliff.
"He's simply going to have to take a more active and forceful role," Manley told Bloomberg News. "He never got involved in the nitty-gritty of the legislative process. In light of the hyper-partisanship that still surrounds Capitol Hill, he's going to have to change, and he's going to have to take more of a lead in breaking the logjam."
Even though the markets started today positive, many financial experts, including Marc Faber and Peter Schiff, are extremely bearish now that the president has been re-elected.
Here's what they have to say on the economy and the fiscal cliff, as well as some stocks that investors should avoid.
- Marc Faber warns of 20% market plunge- The Swiss investment analyst and entrepreneur spoke with Fox Business Network on what to expect from the markets during a second Obama term and about the impending fiscal cliff. "I think from the peak the market will drop at least 20%. I think we will revisit the lows of June at 1,266 on the S&P." On the markets' reaction to the election he added, "I'm not surprised the market is selling off because technically the market was weak already for a couple of months and we are in a downtrend and Mr. Obama's economic policies are obviously not very good for an economic expansion."
U.S. President Barack Obama's victory in Tuesday's election has upset the Republicans' political calculus. The purpose of four years of obstruction was to deny the president any legislative achievements and thereby prevent his re-election.
It didn't work.
With the election behind us, the politics of obstruction has lost its meaning. There is nothing to be gained from obstruction for obstruction's sake.
Boehner made that abundantly clear when he read a statement Wednesday afternoon in which he opened up the possibility of compromise in order to avoid the looming fiscal cliff at the end of the year.
"For purposes of forging a bipartisan agreement that begins to solve the problem, we're willing to accept new revenue, under the right conditions," Boehner said.
"The president has signaled a willingness to do tax reform with lower rates," Boehner continued. "Republicans have signaled a willingness to accept new revenue if it comes from growth and reform. Let's start the discussion there."
The fiscal cliff will be crossed on Jan. 2, 2013 when $530 billion in tax increases and spending cuts at the federal level take place due to a previous budget agreement between Congress and the Obama administration.
Since Congress and the Obama administration could not reach an accord to reduce the federal budget deficit, a series of automatic tax hikes and decreases in spending will take place instead to achieve the necessary savings.
This is much like the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act from 1985. The fiscal cliff will pack a one-two punch to U.S. cities that are already burdened by heavy debt loads, and raise taxes on U.S. households struggling to recover.
What is the Fiscal Cliff Effect on the U.S. Economy?According to the Congressional Budget Office, a non-partisan organization, if there is no other agreement and the fiscal cliff is crossed on Jan. 2, the United States could fall back into a recession in 2013.
That will have a tremendous negative impact on the global economy as Europe is in a recession and economic growth is slowing in China and India.
Based on the 320-point drop in the Dow Jones Industrial Average the day after President Obama's re-election, Wall Street is not bullish about the future of the economy.
Here are the latest headlines:
- Traders try to play catch up- The NYSE's two-day closure resulted in delayed earnings and economic reports, and unluckily came at the end of the month. Investors and especially traders will be trying to make up for the lost time, leading to higher volume due to unfulfilled trades from Monday and Tuesday. Besides the volume, volatility could be high as traders close out their books for the month. Also, for some mutual funds today is the end of their fiscal year, meaning more losses could be taken to offset capital gains. "The two-day delay is really the perfect storm in terms of when it occurred. To happen in the heart of earnings season and just a week before an election is rather unfortunate," Ryan Detrick, senior technical analyst at Schaeffer's Investment Research told Yahoo! Finance. "Had this happened during the boring summer months it wouldn't have mattered as much, but with so much happening currently, the odds of some huge volatility on big volume is very good. Throw in the fact this is the end of the month and the end of the year for some hedge funds, volume today could be in line with what we normally see on expiration Friday once a month as firms close their books on the year."
How bad was it?...
Let's put it this way, if it happened today the Dow would drop 2,965 points on the session to finish at roughly 10,158. You can imagine the depression.
Now you know why they call it "Black Monday," even though it occurred in a sea of red.
In absolute or percentage terms it was the largest one-day drop ever-- beating the 13.6% drop on the worst day of the 1929 crash.
But then again, the 1929 crash was caused only by human beings. The 1987 event, on the other hand, was largely computer-driven. Of such is progress made!
For British observers like me, Black Monday was memorable as being the first business day after the Great Storm, the first hurricane to hit the British Isles since 1703.
The relief at not having lost a third of the British Navy, which happened on the previous occasion, made Black Monday seem a minor hiccup. I actually bought some shares as the U.S. markets opened, and was delighted to see that they closed at a higher price than I paid!
There was also the satisfaction of hearing about a rather smug ex-colleague, who had received a large payout from the bank where we had worked (no such payout came my way, alas) and had invested it and margined 50% in the U.S. market.
Alas, blessed by Fortune though he was, he was awakened at 1:30 am London time by a margin call for $700,000. I always felt it was something of a fitting recompense for greed and creepiness to authority.
How the Market CrashedOf course, those whose trading lives don't extend back to 1987 doubtless feel that it can't happen again.
Well, I have news for you....
Here's the market roundup, along with one stock that is soaring today because analysts say there is a "50% chance" it could be acquired.
- Caterpillar lowers earnings outlook for second time this year- The world's largest construction maker reported third-quarter earnings that beat expectations but cut its 2012 sales and earnings forecasts. CAT joins a growing list of American firms including McDonald's Corp. (NYSE: MCD), Google Inc. (Nasdaq: GOOG), and General Electric Co. (NYSE: GE) that have either missed expectations or lowered their outlook this earnings season. Caterpillar reported third-quarter net income of $1.7 billion, or $2.54 per share, compared with $1.14 billion, or $1.71 per share a year ago. Adjusting for one-time items CAT earned a profit of $2.26 per share, ahead of analysts' estimate of $2.22. The troubling facts for CAT include its order backlog fell 18% from the second quarter of this year and the Peoria, IL-based company now expects to generate much lower sales for the remainder of this year and 2013.
While earnings have taken their toll on corporate giants, this stock is up almost 30% today on hopes of a buyout:
Here's today's roundup and one stock that has gained over 30% this week.
- General Electric Co. (NYSE: GE), Microsoft Corp. (Nasdaq: MSFT) fall short of estimates- Two American titans, software leader Microsoft and diversified conglomerate General Electric, reported their latest earnings. GE saw its third-quarter profit rise 8.3% to $3.49 billion, or 33 cents per share, from $3.22 billion, or 22 cents per share a year earlier. Yet the company's revenue fell short of expectations and its outlook for next year did not inspire much confidence. Microsoft saw its fiscal first-quarter earnings drop 22% from a year ago and missed analysts' forecasts for earnings and revenue. GE and Microsoft are struggling with the same obstacles that have scared investors and hurt other businesses: the global economic slowdown and uncertainty regarding the fiscal cliff. "We're not assuming that Europe gets any better," GE's Chief Executive Officer, Jeff Immelt, told investors on a conference call. "We're looking at '13 being kind of like '12, with the big variable being the fiscal cliff." GE stock is down 2.5% in early trading and MSFT stock is down almost 3%.
- Restaurant stocks hurt by drought- McDonald's Corp. (NYSE: MCD) and Chipotle Mexican Grill Inc. (NYSE: CMG) both reported weak third-quarter earnings, an indication they are still feeling the effects of this summer's epic drought. Same-store sales were the driving negative factor for both restaurants. McDonald's posted global same-store sales growth of 1.9%, the first time that number has been below 2% since 2003. Chipotle's comparable sales rose 4.8% in the quarter, its lowest growth in almost three years. "I think that competition has certainly gotten more aggressive the past several quarters," Morningstar analyst R.J. Hottovy told Reuters. "Between commodity costs coming in and companies being able to price more aggressively, but also consumers still being very fixated on value, it's led to a very cutthroat restaurant environment." Chipotle has seen its stock plunge to under $250 from above $400 earlier this summer after two consecutive dismal earnings reports. "They're coming up against a little bit of a ceiling," Peter Saleh, a New York-based analyst at Telsey Advisory Group, told Bloomberg. "They need to do something more either on advertising or new product news to draw more customers into their stores." MCD stock is down 3.4% today and CMG stock is down over 14% as of noon.
They're winging it.
In a talk before a Harvard Club audience, Fisher presented a candid assessment about all the levers the Fed has been pulling in the aftermath of the 2008 financial crisis. And that includes the recently announced QE3.
"Nobody really knows what will work to get the economy back on course. And nobody-in fact, no central bank anywhere on the planet-has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank-not, at least, the Federal Reserve-has ever been on this cruise before."
I don't know about you, but the idea that four years and trillions of dollars into this quantitative easing voyage we're still sailing without a compass isn't just appalling.
Yet this ship of fools sails on.
The problem is, Fisher is right: QE3 won't work. QE1 and QE2 didn't fix this mess. Nor will QE4, QE5, onwards to infinity.
What's more, there's a cottage industry of pundits and consultants who'll agree.
Trouble is, just like Fisher and his colleagues at the Fed, none of them can tell you why it won't work.
That's what we're going to do here today.
We'll start by giving you the lowdown on how this nation's central bankers view "Quantitative Easing." Then we'll show you how the Fed thinks QE is supposed to work.
Finally, we'll punch some (actually, many) holes in in the Fed's hull by discussing why it's not working.
We'll even demonstrate what could still be done to fix this wretched mess.
Here's our market roundup and one stock that's soaring today.
- Housing starts reach four-year high- The housing market continues to show signs of recovery as the rate of home building in September grew to levels not seen since July 2008. Housing starts rose to an annual pace of 872,000 homes, up 15% from August. Builders also filed for permits at an annual rate of 894,000 homes, up 11.6% from last month and 45.1% year-over-year. Demand for housing will continue to be helped by the Federal Reserve's pledge to keep interest rates near historic levels and the implementation of QE3. Housing prices have rebounded from their nadirs in part because foreclosures are at five-year lows and because the number of U.S. households grew 2% in 2011, its largest rise in 10 years. "There is going to be a continued housing recovery over the next few years," said Larry Seay, chief financial officer at Meritage Homes Corp. (NYSE: MTH) in Scottsdale, AZ, at an investor conference. "Pent-up demand that has built up from people deferring household formation is going to help buoy the recovery. High affordability not only with house prices being very low, but also interest rates being as low as they've been in decades, and all that translating into an improved buyer confidence."
- Bank of America Corp (NYSE: BAC) delivers a mixed bag- Charlotte, NC-based Bank of America barley managed to squeeze out a profit for the third quarter after $1.6 billion in litigation charges ate away at its earnings. The financial giant earned $340 million - a little more than zero cents per share. That was better than analysts' average estimate of a loss of 7 cents per share, but well below last year's third-quarter profit of $6.2 billion, or 56 cents per share. Revenue also fell, slumping to $20.4 billion from $28.5 billion a year ago, missing expectations. A day after Citigroup CEO Vikram Pandit abruptly resigned, Bank of America's CEO Brian Moynihan sounded confident about his bank's future. "We are doing more business with our customers and clients, deposits are up, mortgage originations are up," he said. "Our strategy is taking hold even as we work through a challenging economy and continue to clean up legacy issues." BAC stock is up 0.6% in early trading.
Here's our market roundup for investors:
- Earnings continue to beat estimates- The third quarter was supposed to be a dismal earnings season but lowered expectations are giving companies a boost. Johnson and Johnson (NYSE: JNJ) and Goldman Sachs Group Inc. (NYSE: GS) reported better-than-expected profits this morning and each offered investors something else to cheer about. JNJ's third-quarter profits fell 7% from last year but its adjusted EPS of $1.25 beat Wall Street's estimates of $1.21. Goldman had a third-quarter profit of $1.51 billion, compared with a year-earlier loss of $393 million and easily beat both earnings and revenue forecasts. Besides the strong earnings, Goldman announced that it would increase its quarterly dividend to 50 cents from 46 cents and JNJ raised its 2012 earnings forecast. JNJ stock is up 1.4% in early trading and GS stock is up 1.0%.
"Investors are cycling back into risk as earnings as well as economic numbers in the U.S. are somewhat better than expected," Chad Morganlander, a Florham Park, NJ-based fund manager at Stifel Nicolaus & Co. told Bloomberg News in a telephone interview. "Economic growth will continue to be sluggish even with the flickers of hope that we've seen this morning."
Markets have traded down all week on global economic concerns and today are being held back by JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) even though the two financial giants posted record earnings.
Here's what's bringing those stocks down and why consumer sentiment is at a five-year high:
- Banks slide amid record earnings- JPMorgan and Wells Fargo each reported record quarterly profits but neither stock is surging on the results. Wells reported third-quarter net income of $4.94 billion, or 88 cents per share, up from $4.06 billion, or 72 cents a year ago and JPMorgan announced third-quarter earnings of 5.71 billion, or $1.40 a share, up from $4.26 billion, or $1.02 a share a year earlier. The record results were spurred by homeowners taking advantage of lower interest rates in order to refinance their mortgages. "The one big positive is clearly mortgage origination revenues," Richard Staite, an analyst at Atlantic Equities LLP in London, told Bloomberg News in an interview before results were announced. "Rates will remain at this level or potentially drop further and ultimately that will drive a recovery in the housing market."