US stocks fell for a third straight week on fears that the six-year economic expansion is ending.
|New Merrill Lynch CEO John Thain is seeking to raise funds overseas to plug big hole in the balance sheet. |
The start of US fourth quarter earnings season has investors worried about how banks and brokerages have performed after suffering losses in the collapse of the subprime mortgage market. America's biggest financial institutions will report results next week, including Merrill Lynch & Co., Citigroup Inc. and JPMorgan Chase & Co.
The Dow Jones Industrial Average lost 1.9% Friday, plunging 246.79 points to close at 12606.30. The Dow is down 5% in 2008, its worst start since 1991 when the economy was in recession.
The Standard & Poor's 500-stock index fell 1.4%, or 19.31 points, to 1401.02 and is down 4.6% the year-to-date and the tech-dominant Nasdaq Composite Index lost 2%, or 48.58 points, to 2439.94, down 8% this year.
The Wall Street Journal reports today that a little-known hedge fund run by an astronomy buff contributed to billions in losses on Wall Street, even as the fund itself profited from the subprime-mortgage crisis.
The Journal says that the hedge fund, run by Alec Litowitz, 41 years old, facilitated the creation of a few of the worst-performing collateralized debt obligations, or CDOs. These are giant packages of subprime-mortgage securities and derivatives that are bundled together and sold off in slices to investors around the world. The investments came with names like Orion, Aquarius, Scorpius, Carina and Sagittarius and were managed by third-party money managers. In all, roughly $30 billion of these constellation CDOs were issued from mid-2006 to mid-2007, with Magnetar as their lynchpin investor.
Even as it helped to spawn CDOs that would later wrack Wall Street with painful losses, Magnetar, which has around $9 billion in assets, itself made a tidy profit. Its funds returned 25% across a range of stock and debt strategies last year, thanks largely to the way it hedged these trades.
The New York Times reports today that strong evidence is emerging that consumer spending, a bulwark against recession over the last year even as energy prices surged and the housing market sputtered, has begun to slow sharply at every level of the American economy, from the working class to the wealthy.
The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth. Such a decline would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year.
There are mounting anecdotal signs that beginning in December Americans cut back significantly on personal consumption, which accounts for 70 percent of the economy.
On Thursday, US investment bank Merrill Lynch is expected to report a fourth quarter loss in the range $10-$20 billion.
Thhe Financial Times reports that Citi is expected to announce a writedown of close to $20bn and present plans to raise as much as $14bn in new capital from the Chinese and public market investors as well as the KIA. Analysts expect Vikram Pandit, Citi’s recently installed chief executive, to slash the dividend 40 per cent or more to improve Citi’s capital position.
Asia-Pacific stocks fell Monday after US investment bank Goldman Sachs reduced its forecasts for regional growth on expectations the US economy will fall into recession.
In Tokyo, the Nikkei 225 fell 1.93%. Benchmarks also fell in South Korea, Australia, Hong Kong and India but rose in China.
Taiwan's Taiex index added 1.8% after the opposition Kuomintang party, which favours improved relations with China, won a landslide victory in parliamentary elections. Cathay Financial Holding Co. paced gains by the island's biggest companies on expectations they will be allowed to invest more in mainland China.
Goldman Sachs said in a client note that economic growth in Asia, excluding Japan was cut to 8.3% for 2008 from 8.6% earlier, while the outlook for 2009 was cut to 8.5% from 8.6%.
Goldman says China is likely to grow 10% in 2008, slower than 10.3% estimated initially. Goldman kept China's 2009 growth outlook at 10% due to an expected smoothening in the domestic investment regulations in the second half of 2008, as a result of weakness in exports.
In Europe Monday, 10 of the 18 Western European markets are trading down, In Dublin, the ISEQ is up 0.44%.
National benchmarks - Europe
Irish Share Prices
AIB Daily Report
Bank of Ireland Daily Report
Crude oil for February delivery is trading on the New York Mercantile Exchange (Nymex) at $93.08 a barrel up 39 cents from Friday. In London, Brent is trading on the International Commodities Exchange at $91.76 up 69 cents.
Gold spot price
The spot price of gold is at $905.70 per ounce up $10.80 from Friday.
On Friday, the gold price crossed the $900 per ounce threshold for the first time.
Gold would have to reach about $2,200 per ounce to reach the inflation adjusted record set in January 1980.
The metal has risen by over $200 since the onset of the credit credit crisis in early August.
The euro is trading at $1.4864 and at £0.7578 - a record low against the euro.
The euro has risen against the US dollar on expectations that the Federal Reserve will cut the federal funds rate to below the European Central Bank's benchmark rate of 4%, at the end of January.
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