Economic Slide Continues - Nov 11, 2008

I have found that when it comes to understanding what is really going on with the economy, it is much better to let companies tell the tale.  Governments and politicians will always try to ‘spin’ results – good or bad.  If we focus on the actual results of companies, we get a much clearer picture of what is happening.  All of the excerpts below were taken from articles published in the Wall St. Journal over the past two days.  The message here is that things are not good (in any industry that I can see) and the future looks to be worse.  I have searched for good news or signs of any type of recovery – but I don’t see anything that says this will end soon.

jg – Nov 11, 2008

WASHINGTON -- The U.S. government's financial-system rescue plans are coming under pressure as a growing array of distressed companies signal the need for assistance.  On Monday, mortgage giant Fannie Mae said it is losing money so rapidly it may need a cash infusion from the Treasury Department by year's end. The funds would come from a special $100 billion pool Treasury set aside back in September to aid the company. Fannie Mae had a loss of $29 billion for the third quarter.

With a less-onerous government bailout plan in hand, American International Group Inc. (AIG) reported a $24.5 billion quarterly loss Monday due to big investment losses and another $7.1 billion in write-downs on its portfolio of credit derivatives. The new $150 billion rescue package for AIG -- the largest government loan to a single company -- that also was announced Monday eases the terms of the previous deal, and officials portrayed it as helping the company get some of its most serious problems under control.

Starbucks Corp. said it will open fewer stores internationally than planned and offered a more pessimistic earnings forecast for the coming year as the coffee chain said fiscal fourth-quarter earnings plummeted 97%.

Goldman Sachs Group Inc. shares fell to a 5½-year low as doubts deepened that the firm widely regarded as the smartest on Wall Street can find a way to return near the profit level it had during its heyday.

American Express Co. won fast approval to become a bank-holding company, helping the credit-card giant gain access to a chunk of the $700 billion in federal funds being pumped into financial firms.  The move shows how quickly financial-services firms that have long relied on the capital markets are racing to shore up their funding sources as the credit crisis drags on and economic turmoil spreads around the world.

Circuit City Stores Inc.'s bankruptcy-court filing Monday underscores how this economic downturn may differ from others in recent memory: The U.S. retail sector is losing its place as the employer of last resort for the newly unemployed.

Toll Brothers Inc. on Tuesday reported a 41% plunge in building revenue for its latest quarter, as the luxury-home builder said the recent worsening of the financial crisis wreaked havoc on its business. "Unfortunately, the preliminary signs of stability we had discussed in early September ... were upended by the past month's financial crisis," said Chairman and Chief Executive Robert Toll. The Horsham, Pa., company said the resulting blowback -- including job-loss fears, slumping consumer spending and the stock-market plunge -- pushed cancellations up sharply and resulted in record-low traffic and demand.

A strong sale of three-year Treasury notes and renewed worries about the health of the banking system propelled prices higher in a holiday-shortened session Monday.  The 10-year benchmark note rose 5/32 point, or $1.5625 for each $1,000 invested, pushing the yield down to 3.760%, as yields and prices move inversely.

It is a testament to the sour mood on Wall Street that even the announcement of a stimulus package from China did little to lift the spirits of investors for more than a few hours. One of the hardest-hit sectors in 2008 has been the shipping industry, which has declined as investors have reacted to the downturn in key economic indicators by shunning those companies.  The most popular measure of the industry's state is the Baltic Dry Index, which fell to 820 Monday. This index, which measures the cost of shipping raw materials around the world, hit 11793 in May and has lost 93%. Shares of shipping companies have been beaten down as a result, with most down by more than 60% on the year.

LONDON -- HSBC Holdings PLC said more U.S. consumers fell behind on their credit-card, home-equity and other loans in the third quarter, in a fresh sign of the troubles facing big lenders already handling collapsing mortgages.

LONDON -- European economies are sliding deeper into recession, with retail sales falling in Britain and factory output declining in Italy and France.  Europe's central banks are already cutting interest rates in an effort to support growth. As the economic outlook worsens, a growing number of governments are also considering fiscal stimulus packages like those the U.S. and China have announced.

TOKYO -- Japanese machinery orders posted their largest drop in a decade in the third quarter, the government said. Japan also said it expects a modest pickup in the near-term, reinforcing fears that capital spending won't be able to rescue the economy from its current situation.

As Iceland continued to await an international bailout package, a Finnish finance-ministry official said Iceland will need to provide more details before Nordic governments can support it.  Iceland, whose economy has been ravaged by the financial crisis, has requested a $2.1 billion loan from the International Monetary Fund to help it restore financial stability. It is looking for about $4 billion on top of that to back up its effort.

Amid all the noise of the markets, it is the relative silence of the corporate-bond market that may be most troubling. Since August there have been just seven U.S. junk-bond deals, according to Dealogic, and 83 deals for all of 2008. Not only is that total a fraction of the number of deals done last year, it is just one-third the number done in 2002, the last time that market struggled. Without the ability to sell debt, companies will be fighting for their lives. And even those that can borrow could be hurt by usurious interest rates.

Signs of a slowdown in China are spreading, with weak economic data for October illustrating why the government hurried to announce its massive stimulus plan. New data announced Tuesday show slowing imports, weakening home prices and a drop in export orders, all pointing to a sharp decline in activity that will take time to reverse.

LONDON -- Vodafone Group PLC on Tuesday reported a 35% drop in first-half net income, hurt by an impairment loss on its Turkish unit, and warned that full-year sales would fall short of guidance.

Nortel Networks Corp. posted a $3.41 billion quarterly loss and said it plans to lay off 1,300 more workers, raising questions about its chief's turnaround strategy and fueling demands to break up the troubled company.

Sirius XM Radio Inc. reported a $4.88 billion net loss for the third quarter, reflecting a big impairment charge stemming from the decline of the company's share price since the 2007 agreement to merge satellite-radio operators Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc.

Dish Network Corp. reported a 54% decline in third-quarter net income as the satellite-television provider continued to lose subscribers.  The Englewood, Colo., company is in a precarious position. Dish serves a lower-end segment of consumers compared with rival DirecTV Group Inc., and has been hammered by the economic downturn. More pressure is expected next year when Dish Network's largest partner, AT&T Inc., switches to DirecTV.

Sprint Nextel Corp. swung to a third-quarter loss as its subscriber base continued to decline, but the wireless carrier sought to reassure investors concerned about its liquidity by announcing an amended credit agreement.

General Motors Corp. stock fell to its lowest level since 1946 as concern intensified that the auto maker could run out of cash and be forced to file for bankruptcy protection.

Four years ago, DHL's parent stormed into the U.S. with an advertising campaign designed to take on FedEx Corp. and United Parcel Service Inc. One television ad showed a freight train loaded with DHL vans rattling UPS and FedEx trucks stopped at a rail crossing. "I didn't see that coming," the UPS driver muttered. Now it's DHL that has been blindsided.  On Monday its parent, Deutsche Post AG, announced a massive retreat. The company said it will pull the plug on domestic U.S. deliveries by the end of January and cut about 9,500 jobs. DHL will continue to deliver and pickup international shipments in the U.S.

Tyson Foods Inc. posted a 50% jump in fiscal fourth-quarter earnings, while warning that it could swing to a loss in the current quarter amid a weakening global economy, a strengthening dollar and volatile commodity markets.

DUBAI -- Emirates Airline announced an 88% drop in six-month net profit, evidence that even carriers in the oil-rich Persian Gulf have been affected by the global economic upheaval.

In response to plummeting demand for steel in China and elsewhere, Rio Tinto, the world's third-largest miner by production, is cutting output by 10% to stem a price freefall.  Iron ore prices have fallen by more than 50% since this summer as demand for such steel-intensive products as appliances, autos and construction girders have tumbled around the world.

Ailing mall owner General Growth Properties Inc. warned Monday in a government filing that its failure to refinance or extend $1 billion in debt due this month could trigger default on billions of dollars in debt and its ability to continue operations would be in "substantial doubt." One of the nation's largest shopping mall owners, General Growth made the warning in a quarterly filing with the U.S. Securities and Exchange Commission. The company, based in Chicago, faces an additional $3.07 billion in debt coming due next year.

Las Vegas Sands Corp. said it has secured more than $2 billion in capital-funding commitments and also will suspend casino developments from Macau to Pennsylvania as it seeks to avoid defaulting on bank covenants that require it to maintain certain levels of cash flow.

Independent fashion boutiques flourished in recent years as young women snapped up the latest designer apparel, no matter the price. But now, in the current crunch, they are among the retail industry's hardest hit.

Now, India is waking up to a new reality. The combination of high fuel costs and taxes and a slowing economy has hit the airline industry hard. The financial crisis has cut carriers off from a lifeline of credit. They are defaulting on payments for fuel and falling behind in dues owed to airports.  The industry, which has emerged in the past five years after the government opened the market to private carriers, is set to lose a record $2 billion this year, analysts estimate, second only in losses to the U.S. industry.

Weak print advertising swung Tribune Co. to a loss in the fiscal third quarter, as the media company continues to be pounded by its debt costs and a deteriorating advertising market.  Tribune, the owner of eight major daily newspapers and a string of local television stations, loaded up with debt to go private last December. With newspaper ad sales in freefall and a credit crunch pressuring debt-laden companies, Tribune's results are being watched closely for signs of strain.

Clear Channel Outdoor Holdings Inc.'s third quarter-net income fell 83% amid an advertising slowdown.

MELBOURNE -- National Australia Bank Ltd. said it raised three billion Australian dollars (US$2.05 billion) through an institutional share placement to help bolster its balance sheet amid increasingly challenging economic conditions globally.

Moody's Investors Service cut its credit ratings on Genworth Financial Inc. after the Richmond, Va., insurer posted a third-quarter loss last week.

German insurer Allianz SE said the soured investments at its soon-to-be-sold Dresdner Bank unit cost it €900 million ($1.15 billion) in the third quarter. Chief Financial Officer Helmut Perlet said the group could face an additional €1 billion in impairments on equities in the fourth quarter if stock markets don't recover.

Gordon Brown (UK Prime Minister), would-be savior of the ailing global economy, has begun ratcheting down expectations for a speedy global response.

Stocks fell as investors feared that even China's $586 billion stimulus plan couldn't prevent slowing demand for goods and services world-wide, and as worries about auto makers and banks persisted.  The solvency fears on Wall Street have spread to Detroit: Shares of Dow Jones Industrial Average component General Motors fell $1, or 23%, to $3.36 -- the stock's lowest level since just after World War II -- on fears the auto maker's shareholders will be wiped out even in the event of a government bailout.

"The economy is falling faster than interest rates are and as long as that's the case it's going to remain a trader's market," said Bruce Bittles, chief investment strategist for Robert W. Baird.

KKR Financial Holdings LLC withheld its quarterly dividend payment and obtained new financing to shore up its balance sheet, marking the latest struggle for the publicly traded affiliates of Kohlberg Kravis Roberts & Co.

BILLINGS, Mont. -- The Yellowstone Club, an exclusive mountain retreat for the ultra-rich, said it filed for bankruptcy protection Monday after failing to secure new financing, underscoring that even the elite can't escape the country's current economic troubles.

LONDON -- GLG Partners LP, the large London hedge fund, has seen the amount of money it manages fall by almost a third in recent months amid poor investment performance and investor withdrawals. Between March and the end of September, GLG's assets had shrunk by about $7.3 billion to $17.3 billion. The firm, which Monday reported a third-quarter net loss, also said it is struggling with a tougher borrowing environment and is restructuring some of its largest funds to hold onto investor cash.  The disclosures by publicly listed GLG provide an insight into the struggles of asset managers generally.

Banco Santander is piling on the pressure. Rival Spanish banks may protest they don't need to follow its example and raise capital, but that is just what Santander itself said less than two weeks ago.  As recently as the end of October, Santander said it was comfortable with a core Tier 1 ratio of 6.3%. Monday, in an abrupt volte-face, Santander announced a €7.2 billion ($9.2 billion) rights issue, a move that should ensure Santander can avoid state intervention and the restrictions that come with it.

Though inventories of listed homes have been falling, they remain unusually large. Meanwhile, some real-estate agents say sales, after improving in recent months, stalled in late September and October as falling stock prices and worries about the economy rattled potential buyers.

One year ago, just as the credit doors were swinging closed, Blackstone Group LP succeeded in pulling off one last deal and it was a beaut: The $26 billion leveraged buyout of Hilton Hotels Corp., with its 2,900 hotels and 490,000 rooms throughout the world. Hilton's portfolio of hotel brands includes the flagship Hilton chain as well as Embassy Suites, Doubletree, Hampton Inn and the Waldorf Astoria in New York City, pictured here. Today, investors in the private-equity giant, the banks that provided $20 billion to finance the acquisition and -- in a strange twist of events -- U.S. taxpayers, may be wishing the firm hadn't been quite so skillful at getting the deal done. The sharp downturn in the hotel market -- with more hotel owners and operators posting dismal results and giving dour forecasts -- is making that deal look like a burden for Blackstone, which sank $6 billion of equity into the acquisition. That was the biggest equity investment ever made by the 23-year-old firm founded by Stephen A. Schwarzman and Peter G. Peterson, and some analysts believe much, if not all, of that equity has been wiped out, at least on paper.