Consumers cut back sharply on spending

[Matter-Eater Lad]

WASHINGTON – Consumers, taking a beating from the worst financial crisis in seven decades, cut back sharply on their spending in October, pushing retail sales down by a record amount.

 

As President George W. Bush and other world leaders gathered for a weekend summit to search for ways out of the mess, Federal Reserve Chairman Ben Bernanke on Friday pledged to cooperate with other central banks to deal with financial markets he said remain under "severe strain."

 

"The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain," Bernanke said in remarks to a central banking conference in Frankfurt, Germany.

 

The Commerce Department reported Friday that retail sales fell by 2.8 percent last month, the biggest drop on record, surpassing the old mark of a 2.65 percent plunge in November 2001 that occurred after the terrorist attacks.

 

The October sales decline was led by a huge fall in auto purchases, but sales of all types of products suffered as consumers, worried about their jobs and the market turbulence, cut back sharply on spending.

 

The dismal report on retail sales was worse than the 2 percent decline that analysts expected. It marked the fourth straight decrease, the longest stretch of weakness on record.

 

Retailers are braced for what could be the worst holiday shopping season in decades with economists forecasting a recession that could turn out to be the steepest since the 1981-82 downturn.

 

A survey of the nation's big chain retail stores found that retailers suffered through the weakest October in at least 39 years even though they tried to gin up more sales by a frenzied round of price cutting.

 

Amid the dismal economic news, Bush will host a leaders' summit of the Group of 20, which includes not only the world's wealthiest nations but also major developing countries such as Russia, China, Brazil and India. The G-20 leaders are meeting in Washington for two days of talks that will wrap up Saturday.

 

Bush on Thursday defended his administration's response to the financial crisis, which has included massive amounts of government assistance to banks and outright government takeovers of the country's biggest mortgage finance companies.

 

"I'm a market-oriented guy, but not when I'm faced with the prospect of a global meltdown," Bush said in a speech in New York.

 

He put forward a list of modest reform proposals including making accounting rules more transparent but stopped well short of the global market regulator being sought by some European nations.

 

Treasury Secretary Henry Paulson said he expected the meeting would address some important issues raised by the crisis, such as how credit-rating agencies failed to properly assess risks and how to develop better ways to monitor complex financial instruments known as derivatives, including credit default swaps.

 

Paulson said it would be wrong if other nations engage in a finger-pointing game that would lay blame for the current troubles on lax regulation in the United States. He said there were problems in a number of countries not just the United States.

 

Paulson on Wednesday announced that the administration was abandoning what had once been the centerpiece of the $700 billion rescue program — the purchase of troubled assets held by banks. Instead, the program will focus $250 billion in purchase of bank stock, with Paulson arguing that this was a quicker way to get money into the banking system to encourage banks to resume more normal lending.

 

Paulson said the administration was examining new uses of the bailout money that would try to relieve pressures that have developed in the financial market that supports consumer loans such as credit card debt, auto loans and student loans. These loans are packaged together as securities and sold to investors, but after the huge losses for mortgage-backed securities, investors have grown leery of buying other types of consumer debt.

 

In a series of interviews on Thursday, Paulson provided new details of how the new program might work. He said that Treasury was exploring a joint program with the Federal Reserve that would seek to make financing of these types of loans more available. The new lending facility might buy securities backed by credit cards, auto loans or student loans in an effort to get this market back to more normal operations.

 

Paulson said that while the $700 billion rescue program is continuing to undergo modifications, it is proving to be a successful at its overall objective of stabilizing the financial system.

 

"I believe the banking system has been stabilized," he said in an interview on National Public Radio. "No one is asking themselves anymore is there some institution that might fail and that we would not be able to do anything about it."

 

In addition to news that jobless claims jumped sharply last week, the Treasury Department reported that the budget deficit for October soared to a record $237.2 billion, putting it on track to reach the once-unfathomable sum of $1 trillion for the year.

 

The flood of red ink was blamed on the initial costs of the bailout effort which spent $115 billion buying stock in the country's largest banks.

 

"And as bad as these numbers are, they may look good a year from now because things are going to get much worse," said Sung Won Sohn, an economist at the Smith School of Business at California State University, Channel Islands.

 

He predicted that the recession would drive unemployment higher, cutting into government tax revenue, and boosting payments for such programs as unemployment benefits and food stamps.

 

 

http://news.yahoo.com/s/ap/20081114/ap_on_bi_ge/financial_meltdown

[Saffire]

Expansion

Expansion

Expansion

Expansion

Expansion

Expansion

*creation of the Federal Reserve*

Expansion

Contraction

Expansion

Contraction

Expansion

Contraction

Expansion

Contraction

 

And all the while the government keeps getting bigger.

 

What's funny is how they use words like "strain" and "volatility" and "meltdown" like they're bad things. All that's happening now is a rebalancing, which is perfectly natural.

[Matter-Eater Lad]

haha^

 

I hope things get a little better before the crash because I'm working retail right now and I need some time to invest a couple thousand. If I get this apartment taken I will hopefully have 5-6,000 to invest in the next few month's. I work at a small business and i've been told were doing less then half of what we were doing last year.

 

I wonder if we'll see a short term increase in spending this Christmas?

[Cobalt]

Hah, everyone splurges at Christmas :rolleyes:

[Saffire]

haha^

 

I hope things get a little better before the crash because I'm working retail right now and I need some time to invest a couple thousand. If I get this apartment taken I will hopefully have 5-6,000 to invest in the next few month's. I work at a small business and i've been told were doing less then half of what we were doing last year.

 

I wonder if we'll see a short term increase in spending this Christmas?

 

Let me know if you need any trading tips. I've made a killing off this volatility (355% in returns since mid-October - after fees).

 

Right now the market seems like it's bouncing around in the 7500-9500 range. We'll likely see a few big rallies of 30% or more, but they'll probably be false starts. Right now I'm net short, though, so I think the DOW could stand to lose another 600 points or more before it turns around again.

[Black Rose]

I'm glad I'm not the only person making money in the stock market, it's not a lot, but it will be enough to put me thought christmas :)

[Saffire]

I'm glad I'm not the only person making money in the stock market, it's not a lot, but it will be enough to put me thought christmas :)

 

Thank God for online brokerage accounts and leveraged short ETFs! ;)

[Matter-Eater Lad]

Let me know if you need any trading tips. I've made a killing off this volatility (355% in returns since mid-October - after fees).

 

Right now the market seems like it's bouncing around in the 7500-9500 range. We'll likely see a few big rallies of 30% or more, but they'll probably be false starts. Right now I'm net short, though, so I think the DOW could stand to lose another 600 points or more before it turns around again.

 

 

Yeah, I'll definitely talk to you once I dig myself out of this horrible mess I created, if I'm really lucky I'll get my apartment lease taken by January and just pay 3 month's rent for whoever takes it, but considering I still have to pay for Decembers rent too, it'll be a while and a couple thousand dollars before I'll invest.

 

Wanna move to gainesville Jay? I can get you a great deal on an apartment right by UF!

[Saffire]

Yeah, I'll definitely talk to you once I dig myself out of this horrible mess I created, if I'm really lucky I'll get my apartment lease taken by January and just pay 3 month's rent for whoever takes it, but considering I still have to pay for Decembers rent too, it'll be a while and a couple thousand dollars before I'll invest.

 

Wanna move to gainesville Jay? I can get you a great deal on an apartment right by UF!

 

I'll definitely consider it! Depends on the job hunt...

[Matter-Eater Lad]

1500 cash or 3 month's rent if you do! Do you like Cramer from Mad Money? I've been watching him lately and can't decide what to make of him.

[Saffire]

1500 cash or 3 month's rent if you do! Do you like Cramer from Mad Money? I've been watching him lately and can't decide what to make of him.

 

Cramer is a lunatic scatterbrain who's way too risk averse when it comes to building a portfolio. He's not contrarian enough for me ;)

 

You'll learn a lot more about how the stock market works if you read a few books and blogs, let me link you:

 

[ame=http://www.amazon.com/You-Can-Stock-Market-Genius/dp/0684840073/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1226725511&sr=8-1]Amazon.com: You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits: Joel Greenblatt: Books[/ame]

 

This one has a hokey title, but it's an amazing book. Greenblatt is a hedge fund manager whose fund regularly returns over 20% a year. This book is good for understanding corporate structure and special situation investing - basically taking advantage of mergers/spinoffs/and other corporate activity. Plus you learn about how to study new types of securities (besides the regular stocks/bonds/etc, he explains things like preferred shares and senior debentures and other stuff you only hear about if you attend Harvard Business School).

 

Normally I'd tell you to buy "The Intelligent Investor" but basically you can find advice on value investing anywhere on the internet. Just understand what the basic metrics of finance are and you're set - P/E ratio, debt/equity ratio, PEG, Float, Short ratio, etc. You can find this stuff at Investopedia.com

 

Mostly when I invest I look for situations where a stock's price is severely depressed because of a situation. For instance I recently bought shares of APL (Atlas Pipelines) because a hedge fund (SAC Capital, if you're interested) was forced to sell a bunch of stock in that company, which caused it to become ridiculously cheap relative the dividend the stock pays out per annum. As a result, the shares yield something like 30% (last time I checked) - and that doesn't include the upside potential in share price appreciation!

 

Sorry I'm geeking out at you now.

 

EDIT: Watch Fast Money on CNBC, rather than Cramer. You'll learn a lot more. Jot down a phrase whenever you don't understand it and then go back online and look it up after the show.

[Saffire]

The Dow Jones Industrial average finished the day down 427 points, at 7997.

 

That's 48% lower than last year, and the first time the DOW closed below 8000 since March 2003. The intraday low on Oct 10 of this year was 7882, so we're getting close to testing the bottom again.