Economic Crisis Continues

A few highlights from articles in today’s Wall St. Journal. People are placing their hope with Central Banks (rate cuts, increased liquidity, etc) and governments – which I’ve said before - is not a wise move. The question becomes – how long before stock markets figure out what’s happening with the rest of the economy? You know it’s serious when experienced business executives issue quotes like this:

"the worst month in the post-World War II era"
"This is clearly a severe, severe recession."
"Never in all of the years I've been in business have I seen a worse outlook for the economy"
“never in all my years as a bookseller have I seen a retail climate as poor as the one we are in. Nothing even close."

What about the bailout? Not helping – but it is adding significant debt to the U.S.:

“The U.S. Treasury estimated it will borrow a record $550 billion in marketable debt in the October-December quarter to pay for a slew of emergency programs aimed at easing the credit crunch.”

jg – Nov 3, 2008

DETROIT--U.S. auto sales in October plunged an estimated 31% to about 850,000 vehicles, as the financial crisis and tightening credit kept buyers away from showrooms. It was the first time since February 1993 that auto makers sold fewer than 900,000 cars and light trucks in a month. When adjusted for increases in the U.S. population, October was "the worst month in the post-World War II era," Michael DiGiovanni, the top sales analyst at General Motors Corp., said in an conference call. "This is clearly a severe, severe recession."

WASHINGTON -- Amid uncertainty about the economic outlook, U.S. banks continued to tighten their standards on loans to households and businesses in the third quarter, according to a Federal Reserve survey of bank executives."Large net fractions of domestic institutions reported having continued to tighten their lending standards and terms on all major loan categories over the previous three months," said the survey, released Monday. Additionally, banks said the uncertain economic outlook and their reduced tolerance for risk also prompted them to reduce credit limits on existing credit card accounts to both prime and nonprime borrowers.

Manufacturing activity in the U.S. slowed sharply in October, falling to the lowest level since 1982 and signaling that a recession is at hand. On the eve of Election Day, the Institute for Supply Management reported that overall activity sank to 38.9 last month from 43.5 in September. Only two industries—computer and electronic products and apparel—reported growth, while 16 industries, including furniture, plastics and petroleum products, reported contraction. It was the first ISM reading this year to herald a recession.

Circuit City Stores Inc., the second largest consumer electronics chain in the U.S., said it will immediately close and liquidate 155 stores and lay off thousands of employees as it struggles to survive an increasingly dreary holiday shopping season. Citing a deteriorating economy, tightening credit limits by its suppliers, and an updated assessment that found its inventory was worth less than it expected, Circuit City said it would close the stores in 55 U.S. markets Tuesday and immediately begin liquidation sales on Wednesday.

PARIS -- Société Générale SA Monday said net profit in the third quarter fell by 84%, as the French bank increased its provisions and continued to reduce its exposure to risky assets. France's second-largest bank said net profit fell to €183 million ($233.2 million) from €1.12 billion in the same period a year earlier. Third-quarter revenue slid 5% to €5.11 billion from €5.38 billion in the year-earlier period.
Viacom Inc.'s third-quarter net income fell 37% as the media company faced challenges in both its networks and filmed-entertainment segments. "The economic environment and ongoing uncertainty have posed new challenges for the media industry, and Viacom has not been immune to the impact of these forces," said Chief Executive Philippe Dauman.

The souring economy is aggravating the troubles of Whole Foods Market Inc., a onetime Wall Street darling now mired in a nearly three-year slump. Analysts say the upscale grocer probably will have to trim its earnings forecast for the current fiscal year and announce further cuts to capital spending or new-store plans when it reports fiscal fourth-quarter results Wednesday.

WASHINGTON -- The U.S. Treasury estimated it will borrow a record $550 billion in marketable debt in the October-December quarter to pay for a slew of emergency programs aimed at easing the credit crunch. The $550 billion estimate is $408 billion more than what Treasury projected in July 2008. The latest projection for the current quarter would leave the Treasury with an estimated end-of-December cash balance of $300 billion. That figure includes $260 billion for a new program Treasury created in September to help finance new Federal Reserve programs to address liquidity pressures in financial markets. "The increase in borrowing is primarily due to higher outlays related to economic assistance programs, lower receipts, and lower net issuances of state and local government series securities," Treasury said in a notice Monday afternoon.

For months, many mutual-fund investors could take comfort in this: They had endured worse during the tech-stock collapse. The hard lessons learned from that earlier, harrowing ride led many to believe they were better positioned for this bear market. But U.S. stock-market declines during October were so deep and wide that even tame investments were pummeled. Losses from the steep plunge that began just over a year ago now top those from 2000-2002.

Grim. There's no other word for the European Commission's outlook for the euro zone and wider European Union economy in its regular autumn survey. But the outlook may get grimmer yet for those countries with the biggest current account deficits unless the European Central Bank comes up with a series of sharp interest-rate cuts. That would probably see the euro fall even further against the dollar.

The chairman of Barnes & Noble Inc. last week told employees via an internal memo that the nation's largest bookstore retailer is "bracing for a terrible holiday season," and that he expects "the trend to continue well into 2009, and perhaps beyond." "Never in all of the years I've been in business have I seen a worse outlook for the economy," wrote Mr. Riggio. "And never in all my years as a bookseller have I seen a retail climate as poor as the one we are in. Nothing even close."

Private-equity firm KKR & Co. LP won't complete its initial public offering until 2009, once again delaying its going-public plans amid the growing financial crisis.

BRUSSELS -- The euro-zone economy is now in recession and will remain at a standstill for most of next year, the European Commission said Monday in its autumn forecast. The commission, the European Union's executive arm, said financial markets are still in a "precarious" condition, creating significant risks to its already bleak economic outlook.