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Stocks End January With a Big Loss

January 30, 2009 5:48 PM

ABC News’ Daniel Arnall reports: The first month of 2009 ended with the Dow at 8000, down 8.84 percent for the month. We’ve had worse months recently (see October’s miserable performance), but this particular red arrow month is worrying some of the folks on Wall Street more than a sour October.

Why? In the Dow’s entire 112-year history, January has accurately predicted the year’s direction 75 percent of the time. So a big loss in January is a bad portent for the year in investing.

It gets even worse. In the past 30 years, the Dow’s January performance has been an even greater predictor, matching 26 years, or 87 percent, of the time.

As with everything on Wall Street, it comes with a big disclaimer: Past performance does not guarantee future results.

January 30, 2009 | Permalink | User Comments (3) | TrackBack (3)

Down & Out in Davos: The Elite Get Discreet

January 28, 2009 3:03 PM

ABC News’ Bianna Golodryga reports: It's official.  Ostentatiousness is out, and humility is in. That's how many people gathered at this year’s World Economic Forum in Davos, Switzerland, are describing the mood this year.

The annual retreat -- once lauded and admired for its decadence and  rich and elite participants who pay upward  of $25,000 to attend -- is being observed  with suspicion  this year.

No one seems to want to talk about private planes  --  it's almost fashionable to arrive in Davos  on a commercial flight this year! Just ask George Soros, Steve Forbes and Nasdaq head Robert Greifeld, all of who chose to forgo the comforts of their private jets.

And with good reason: Just last year, panels  discussing  the future of the economic model and banking system were run by heads of banks that are now bankrolled by the U.S. taxpayer.

Gone this year are Dick Fuld, former head of Lehman Brothers, former Bear Stearns CEO Jimmy Cayne  and, as of two days ago, former Merrill Lynch head John Thain. (There  was an ongoing rumor today that there were "three John Thain sightings," but  that  could have just been a casting call for local Clark Kent lookalikes.)

Other executives who still have their jobs fear public-image embarrassments and chose to stay home.  JP Morgan CEO Jamie Dimon was the only only major player who showed up.

The theme of this year's forum is "shaping the post-crisis world," with topics such as how to add liquidity into the banking system, what to do with the staggering rate of job losses and how to invest in green technologies in the current economic environment.

But some of the best color about this year’s forum can be picked up simply by listening, without ever having to ask.

As I sit writing notes and observing  the swarm of people walking through the halls of the Congress Center, I'm intrigued by the chatter. Two Silicon Valley types joke that "It's Davos without Wall Street."

And it's true. Just as financial stocks have lost their dominance in the S&P, so too have the companies lost their luster among the world's business elite.

But let's make something clear: Just because other industries aren't asking taxpayers for a bailout (you're kidding yourself if you think any of the big three auto companies are here) doesn't mean they aren't licking their financial wounds.

Last year  at this time,   commodities were king -- oil, iron and gold were  where the money was. Think India, China, Russia, Dubai.

I remember trying to figure out whose cocktail reception was more decadent last year -- Indian tycoon Lakshmi Mittal's soiree at the ritzy Belvedere Hotel  or Russian steel magnate Oleg Deripaska's superexclusive event  held in what seemed to be a small castle in the sky.

Since then both men have been brought back down to earth. That's what being heavily leveraged in the midst of the worst credit crisis in recent memory will do to you.

Both men are said to be here, and rumor has it they are still having some sort of party  ... stay tuned for the details.

For now, I'm watching a crowd gather to see one man who can still draw and captivate an audience -- Russian president Vladimir Putin is about to address a panel. His popularity at home and influence abroad is virtually unmatched by any other foreign dignitaries, but even he is no doubt feeling the pressures of the rapidly declining price of oil.

It seems that everyone came to Davos this year with a lot less money, and a bit more humility.

January 28, 2009 | Permalink | User Comments (7) | TrackBack (0)

Retailers See Red Thanks to Inauguration

January 27, 2009 10:41 AM

ABC News' Charles Herman reports: President Obama wants to fix the economy through billions of dollars in spending and tax cuts. In an odd twist, though, it appears that Americans were so intent on watching his inauguration last week and hearing his plans that they stayed home instead of going out and spending and thus, retailers took a hit.

“The presidential inauguration kept consumers home watching television coverage rather than in stores,” said Michael P. Niemira, chief economist at the International Council of Shopping Centers. “As a result, weekly sales slipped sharply.”

The group’s weekly survey found that retailers saw sales drop for the seventh week in a row. For the week ending Jan. 24, sales dropped 2.4 percent compared with a year ago.

And the news for retailers doesn’t look  as if it's going to improve anytime soon. The National Retail Federation forecasts that sales will decrease a half a percentage point from last year. That would be the first annual decline in three decades. 

That explains why a growing list of retailers are cutting jobs to save costs. According to Dow Jones, housewares retailer Williams-Sonoma is slashing 1,400 jobs and Phillips-Van Heusen,  which  sells  clothes under the Calvin Klein, DKNY, Kenneth Cole and Izod labels, will also cut jobs and shut stores.  To save costs, the Warwick Mall in Rhode Island  will close an hour early, also in an effort to cut costs.

January 27, 2009 | Permalink | User Comments (11) | TrackBack (1)

Bank of America Gets $20 Billion More: Why the Rush?

January 16, 2009 10:52 AM

ABC News' Charles Herman reports:  In the wee hours of the morning, right before a three-day holiday weekend and just as the Bush administration was winding down after eight years and a new president was taking the oath, Bank of America received an additional $20 billion in funds from the Trouble Assets Relief Program as well as a guarantee of future losses on nearly $118 billion.  The news came hours before the bank hurriedly released its earnings for the last three months of 2008 and for the year.

Why the last-minute mad dash before the Martin Luther King Jr. Day holiday Monday?

It was exactly a year ago during this same holiday weekend that a global sell-off started Sunday night in overseas markets and continued throughout the day Monday when U.S. markets were closed.  At the time -- it almost seems quaint now -- JP Morgan's chief Asian strategist said, “I think the word you would probably use to describe what we are seeing is a ‘crash.’  Markets have fallen very sharply.  And one market falling is triggering another market to fall.” 

In an attempt to stabilize U.S. financial markets and the economy, the Federal Reserve made a surprise, intrameeting interest rate cut that was the biggest single-point cut in more than 25 years, only an hour before trading began.  The Dow Jones industrial average dropped 500 points -- below 11,800 -- but eventually recovered in the first hour of trading.  The sell-off and the worries about the health of the U.S. economy helped create “bipartisan harmony,” as ABC News’ Jonathan Karl described it, between a president and Congress that were debating the passage of a stimulus package.

"All of us understand that we need to work together; all of us understand that we need to do something that will be effective; and all of us understand that now is the time to work together to get a package done," President Bush said.

Later that same week, we learned that Jerome Kerviel, a trader at Paris-based Societe Generale, had made a series of bad bets that cost the bank possibly as much as $7.2 billion.  The bank’s attempt to resolve the trades made by Kerviel were credited by many as accelerating the overseas market decline that in turn pushed the Fed to cut rates. 

The Fed said its decision was not influenced by Kerviel.  “Although Federal Reserve officials were not aware of developments at Societe Generale before they announced their decision on Tuesday morning, they remain comfortable with their interest rate decision.”

This moment in history brought to you by the ABC News Business Unit.

January 16, 2009 | Permalink | User Comments (82) | TrackBack (0)

Have You Become Bank Yet?

January 15, 2009 2:52 PM

ABC News' Charles Herman reports:  As Congress mulls over whether or not it will try to stop the remaining half of the $700 billion Troubled Asset Relief Program from being provided to the incoming administration, that hasn’t stopped non-bank businesses from turning themselves into banks hoping, perhaps, to get some of that money.

Birmingham-based Protective Life Corporation received approval Thursday from the Federal Reserve to become a bank holding company by acquiring Bonifay Holding Company in

Bonifay

,

FL.

According to

Hoover

’s, Protective Life focuses offers life insurance policies as well as annuities.  The business tracking service also reports that the company “invested a significant portion of its assets into mortgage-backed securities, preferring to invest in pools of prime residential mortgages and non-speculative commercial properties such as strip-center retailers.”

As a bank holding company, Protective could apply for funds through the TARP program.

Earlier this week, insurance companies Hartford Financial Services and Lincoln National received permission from the Office of Thrift Supervision to purchase savings-and-loan institutions that would allow them to become thrift holding companies.  That in turn could make the eligible for the funds through the financial rescue plan approved in September. 

Hartford

is looking to purchase Federal Trust Bank of

Sanford

,

Florida

, for $10 billion.  Lincoln National wants to acquire Newton County Loan & Savings in

Goodland

,

Indiana

.

These moves come after businesses such American Express, CIT and GMAC Financial all morphed into bank holding companies and then received money through what has become the troubled, Troubled Asset Relief Program.

January 15, 2009 | Permalink | User Comments (3) | TrackBack (3)

January 15, 2009 2:52 PM

January 15, 2009 | Permalink | User Comments (4) | TrackBack (0)

Lend First and Ask Questions Later

January 13, 2009 11:43 AM

ABC News's Charles Herman reports: Neel Kashari, the man charged with running the $700 Troubled Assets Relief Program spoke to the Georgetown University business school. In his prepared speech, Kashkari reviewed the history of TARP and how Treasury had gone from using the money to buy mortgage assets to providing money directly to banks.

“It was clear to Secretary Paulson and Chairman Bernanke that we needed to use the authority and flexibility granted under the law as aggressively as possible to quickly stabilize the system,” he said. “Purchasing equity in healthy banks around the country would be a faster and more direct way to inject much-needed capital into the system and restore confidence compared with asset purchases.” 

He also stressed the money to the banks “was not a bailout of participating banks.  Only healthy, viable banks are eligible for the program and it is designed to generate a positive return to the taxpayer.”

He reminded the audience that the congressionally approved program “is not an economic stimulus plan, nor is it an economic growth plan.  It was one of several initiatives taken by the  federal government to stabilize the financial system, a necessary precondition to any economic recovery.” In response to recent criticism from Congress and the oversight panel and the general public, he said, “People recently have begun to ask what the banks are doing with the money we’ve invested in them.

We designed important features into our investment contracts to limit what banks can do with the money:  One, we restricted dividend increases and share repurchases and, two, placed restrictions on executive compensation.” He said, “Banks are in the business of lending,  and they will provide credit to sound borrowers whenever possible. They may also use the capital to absorb losses as part of loan write-downs and restructurings.” “People then ask," he said rhethorically,  "When will we see banks making new loans?” and gave a rather nonsequitor answer to his own question,  “It is important to note that over $60 of the $250 billion CPP [the program that provided money to the banks] has yet to be received by the banks.”

He also stressed, “We absolutely need our banks to continue to make credit available,” but went on to say, “We must not attempt to force them to make loans whose risks they are not comfortable with.  Bad lending practices were at the root cause of this crisis.  Returning to those practices will not help end this financial turmoil.” Finally, in his attempt to answer how Treasury will track the money banks lend, he said, “Treasury has been working with the banking regulators to design a program to measure the activities of banks that have received TARP capital.”  In other words, Treasury is still in the process of trying to figure out just how to do that.

January 13, 2009 | Permalink | User Comments (11) | TrackBack (2)

Wal-Mart CEO Discusses Health Care, Oil Addiction

January 12, 2009 2:33 PM

ABC News’ Charles Herman reports: While televisions across the country this morning showed President Bush giving what is expected to be his last press conference, Wal-Mart’s CEO Lee Scott was taking similar action in New York before an audience of his peers at the National Retail Federation’s annual conference

And just as the leader of the free world used the opportunity to reflect on broader themes, the leader of the world’s largest retailer spoke not about the weakest year in retail sales since 1971 but on larger issues confronting the nation and how retailers can play a constructive role in the coming changes.

“I believe that all of us here -- and really every business -- has a responsibility and an opportunity to be part of solutions that help make this country stronger,” Scott said in his prepared remarks.

Outlining the issue he believes facing the nation, Scott said, “How do we come out of this difficult period in our history as a stronger America? Are we going to end the national embarrassment of 47 million uninsured and finally make health care in this country affordable for working men and women? Are we going to end our addiction to foreign oil and put our country on an economically and environmentally sustainable path through alternative sources of energy? Are we going to end the shameful slide of our education system and offer our children the knowledge, training and opportunity they need and deserve?”

Sounding perhaps more like a politician than a chief executive, Scott, who will step down from that post on Feb. 1, 2009, but will continue as chairman, told the audience of retailers, “To those who say that now is not the time for health care reform, for a new energy policy, for higher quality schools, for comprehensive immigration reform, I say you are wrong. We cannot afford to postpone solving these problems.”

Scott knows firsthand what it means to address problems directly. After taking the top job in January 2000, Wal-Mart expanded at such a rapid pace that sales at newer stores ate into those at older stores nearby. Wal-Mart also became the target of union-funded groups over the retailer’s pay and health care benefits for employees. And the company also made what turned out to be a disastrous decision in 2006 to try to lure new shoppers by offering high-end fashion clothing advertised in Vogue that turned away many existing shoppers later that holiday season.

But the company took its knocks and responded to the problems. It slowed expansion in the U.S. to focus instead on upgrading existing stores and looking overseas for growth. The company also recommitted itself to offering products its customers wanted at the low prices the retailer was known for, just as the economy entered recession. The results paid off as the company emerged as one of the few winners from the recent dismal holiday shopping season.

And the retailer responded to the public criticism not only by expanding its public relations efforts to get its message out -- turning away from its insular past -- as well as reaching out to critics and implanting changes to its health care policies.  In particular, the company has come to embrace sustainable solutions as a way to further reduce costs, from fuel efficient trucks to stores powered through wind and solar power.

But today’s speech was also directed as much at the incoming administration as it was retailers. The company has been taking aggressive steps to clean up its labor record as a new CEO takes over -- and a new, union-leaning, Democratic president steps into office.  On Christmas Eve, the company announced it would settle 63 lawsuits in 42 states for as much as $352 million involving claims that the company made employees work off the clock.  The total settlement costs could rise to $640 million.  The company still continues to fight one of the largest class actions against gender discrimination in California.

The decision to settle these lawsuits, some several years old, comes just as union leaders hope a Congress they believe more inclined to support unions will approve legislation making it easier for workers to organize. 

But the speech went beyond immediate issues confronting the Wal-Mart and the industry as a whole, even as Scott acknowledged a “fundamental change” occurring in consumer spending.

“There is just as great a need and opportunity -- whether it is health care, diversity, responsible sourcing, immigration or any other,” he said in his prepared remarks.  “Each and every retailer -- each and every business -- can participate and make a difference.”

Perhaps, with his days in the immediate public eye about to subside, Scott, like that other world leader, is feeling perhaps a bit more candid about sharing his thoughts.

“They have told me in my last 12 days not to offend anybody. But I have struggled for 30 years with that.”

January 12, 2009 | Permalink | User Comments (18) | TrackBack (0)