Credit Crisis Has Whirlpool In A Spin
Whirlpool Corp. said Tuesday it will cut about 5,000 jobs by the end of 2009 because of the global credit crisis and its expectation for continued reduced demand in North America and Europe.
The US's largest home appliance maker also reported that its earnings fell 7 percent during the third quarter on lower global unit volumes and higher material costs. Whirlpool lowered its earnings outlook for the year.
Shares of Whirlpool dropped 9.9 percent, or $4.96, to $45.05 in early trading.
Don't Panic, Stampede
The fallout from the US mortgage crisis is far from over according to this US analyst.
The Sovereign Bank, the third largest savings and loan in the United States, has been revealed to have a $632 million stake in Fannie and Freddie preferred shares — the same shares that have lost about two-thirds of their value just since May 15, making them a prime candidate for bankruptcy he says....
Full story here: The Greatest Bailout Of All Time
Something I Didn't Know About America - Did You?
I was reading an article across the weekend about the state of the US economy and the outlook for the rest of the year. During the article a couple of times the term "rebate checks" was used. Every heard of them?
Of course the Septics mean cheques not "checks" but it still got me wondering what are they on about.
Apparently the rebates, which provided up to $600 per taxpayer, $1,200 for couples and $300 per child younger than 16, are the centerpiece of a $168-billion economic stimulus package that President Bush signed in February -- an effort in line with the tax cuts his administration has tirelessly promoted over his eight years in office as the nation's economy has stalled.
The idea being, everyone gets a little windfall and goes out spending, thereby helping the economy.
The reality this year seems to be spending their modest windfalls on bargain-rate clothes, groceries, utility bills, mortgage payments and gas tanks that increasingly seem to verge on empty.
The point being what happens when the money runs out? After all this amount of money isn't a life-changer is it? The outlook doesn't seem great.
According to one Merrill Lynch analyst "Just like consumers, who are insulating their windows and making fewer trips to the malls, we are adjusting our economic forecast to the new high-oil price reality not to mention the latest round of trauma in the mortgage markets. Though fiscal stimulus [rebate checks] will provide a lingering boost to 3Q we expect GDP to plummet 2.5% in 4Q and see a similar decline in 1Q. In all, we have shaved our 2009 GDP forecast to -0.5%, a full percentage point lower that where it was previously, while 2008 is broadly unchanged at 1.5%.
"The scenario we ran last May, when we shocked the model with higher oil prices, now appears to be playing out as predicted. With rebate check delivery winding down, there is now little shielding the consumer from the full force of $4+ gasoline, deflating real estate and equity markets and rising unemployment. The new reality means a deeper downturn for consumers, higher headline inflation, more belt-tightening from businesses and a mammoth profit squeeze. It also keeps the odds squarely in favor of more rate cuts from the Fed, in our view.
"Once the last of the rebate money is spent, in either July or August, consumer spending is expected to roll over, and hard. The oil shock we're experiencing is on par with the spike in the mid-1970s and consumer spending will see a similar downturn, in our view. The unemployment rate will probably crest at about 7.0% in mid-2009, a half percentage point higher than our previous outlook. We're expecting a 3.0% decline in PCE in 4Q 2008 and 1Q 2009 does not promise to be much better.
"The deeply disappointing retail sales report this week only serves to underscore how far behind the curve consumer is financially and a grim foreshadow of what lies ahead once the rebate checks are all spent. Flat spending was all consumers could muster in July with three quarters of the $106 billion total rebate checks in their bank accounts."
So there you go, it doesn't seem like the American patient is going to get better anytime soon. Reeling in on spending will inevitably include a lowering in crude oil consumption.
As recently tax hikes filter through to Indian, Chinese and Malay consumers too it looks like the cure for high oil prices has been high oil prices.
With corn, soybeans and rapeseed all seeming to be inextricably linked to the price of crude, maybe these are all going to go lower if oil continues to fall, no matter what the fundamentals for the grains and oilseeds complex.
For a chart of recent soybeans vs crude price movements click here to see just how closely they are linked (crude is the blue line). Link
Worried US banks sharply reduce business loans
(International Herald Tribune) -- Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.
Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term "commercial paper" not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.
The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.
"The second half of the year is shot," said Michael Darda, chief economist at the trading firm MKM Partners in Greenwich, Connecticut, who was until recently optimistic that the economy would continue expanding. "Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit."
Companies that rely on credit are now delaying and canceling expansion plans as they struggle to secure finance.
Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.
But when Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.
"The exact words were, 'We're saying no to almost everybody,' " Greenblatt recalled. "This is why God made banks, for this kind of transaction. This is going to slow down the American economy."
Earlier this year, credit extended by banks to companies and consumers was still growing at double-digit rates compared with three months earlier, according to an analysis of Federal Reserve data by Goldman Sachs. By mid-June, bank credit was declining at an annualized pace of more than 6 percent.
That is a drop of nearly $150 billion, an amount much larger than the value of the tax rebates the government has sent to households this year in an effort to spur economic activity.
