S&P heads to first quarter ever of negative earnings

As of today, 390 of the S&P's 500 companies have reported 4th quarter earnings and reported a collective loss - even excluding financials. "After the sixth quarter of negative growth, it will be the first quarter ever of negative earnings," said Howard Silverblatt, senior index analyst at Standard & Poor's. A sixth quarter of negative growth ties the prior record set from the 1Q1951 to 2Q1952. "And next quarter we're expected a new record of seven quarters of negative growth," Silverblatt said. S&P earnings-per-share are reported at a loss of $10.44 for the quarter. If financials were taken out of the equation, that EPS deficit would drop to $2.35. "The majority of it is financials, but the biggest issue to hit was ConocoPhillips. That one charge accounted for $3.66," said Silverblatt.

Subprime's plague infects "Alt-A" mortgages

Economic concerns are shifting as "Alt-A" mortgages sour at an alarming pace. While credit-rating agencies play catch-up to the dismal reality, bankers are realizing that more trouble may be on the horizon. With US unemployment heading toward 8%, even more loans, including prime-mortgage loans, are expected to go bad. (Source: The Economist)

GDP Contracts 3.8%

The US economy contracted at a 3.8% annualized rate in the fourth quarter, a decline that would have been worse except that the Commerce Dept counts an unwanted buildup of goods on store shelves as growth. A clearer picture of the scope emerges if the inventory buildup is excluded. Adjusted GDP contracted at a 5.1% pace in the final three months of 2008, the weakest since 1981. Even with inventories, the performance is the worst since 1982.

Today's News

Bank of America

Shareholder Steven Sklar charged in a complaint in US federal court that Bank of America failed to disclose about $15.3 billion in losses by Merrill Lynch before shareholders voted to approve the acquisition of Merrill. The complaint states that Bank of America CEO Kenneth Lewis never revealed Merrill's problems "despite his knowledge of Merrill Lynch's staggering losses." [Source: Bloomberg]

Merrill Lynch paid out billions in employee bonuses a full month early, three days before its sale to Bank of America closed. At the time, Merrill's losses were piling up rapidly, and Bank of America CEO Kenneth Lewis asked the US government for money from TARP to help finance the acquisition. [Source: Financial Times]

Only three weeks after its acquisition of Merrill Lynch was officially completed, Bank of America ousted former Merrill CEO John Thain. [Source: International Herald Tribune]

Other Headlines

Microsoft's second-quarter profit declined to $4.17 billion, or 47 cents per share, down 11% from a year ago and missing Wall Street forecasts of 49 cents per share. The software firm blamed a weaker PC market and economic troubles for the result and also said it plans to cut 5,000 jobs during the next 18 months.

Northrop Grumman expects to record a loss when it releases its fourth quarter results. The defense contracting giant cited $3 billion to $3.4 billion for impairment of goodwill. The company expects 2008 earnings per share from continuing operations before the charge to meet the upper end of $5.20 per share for its forecast. Wall Street analysts expect earnings of $5.21 a share, according to a survey by FactSet Research.

Ugly day for financials

STT 14.89, -21.46, -59.0%
BAC 5.10, -2.07, -28.9%
WFC 14.23 -4.45 -23.8%
JPM 18.09 -4.73 -20.7%
C 2.80, -0.70, -20.0%

FHLBs in trouble

When banks take loans from a Federal Home Loan Bank, besides paying interest, they have to buy FHLB stock, based on how much they borrowed and the credit quality of the collateral they posted. The system was set up as a way to support the FHLBs’ capital as banks borrow against it. When a member first signs on, the Home Loan bank sets up a clearing account that works like a checkbook; when member banks borrow money, the FHLB takes cash out of this account and in return gives the borrowing bank stock that pays a dividend. As a bank pays off the loan, the FHLB credits back their cash account by repurchasing the stock. At least, that’s how it usually works. Now, reports are surfacing that suggest that the FHLBs themselves are running into their own problems, from owning billions in toxic mortgage bonds that are becoming worthless.

Moody’s said in a report earlier this week that the FHLB System’s $76.2 billion MBS portfolio contained $13.5 billion in unrealized losses at the end of Q3; values have likely fallen [A LOT] further since that time. At least five Home Loan banks have already notified members as early as mid-December that they will not pay dividends and will stop buying back the excess FHLB stock members hold. Citigroup holds $4.7 billion, JP Morgan Chase holds $4.1 billion, Bank of America holds $2 billion, and Wells Fargo holds $1.6 billion.

Jobs, Jobs, Jobs

They had been preparing us for over a week. Financial journalists kept telling us that when jobs data were released they could show that "as many as" 500,000 jobs were lost in December. Well, as scary as the "worst-case scenario" previews were, the actual number was much worse ... 693,000!

Turning Japanese?

Fed cuts rates to 0%

That's it, all done, close up and go home, there's nothing left to do.

The Federal Open Market Committee today agreed unanimously to cut the Fed Funds rate to a target range of 0% to 0.25%.

Read the FOMC statement.

CPI falls by largest amount since 1932

US consumer prices fell in November at the fastest rate since 1932. The CPI fell by a seasonally adjusted 1.7% and by 1.9% on a non-seasonally adjusted basis, the biggest decline since January 1932, at the nadir of the Great Depression.

Full-on deflation is here. All the bullshit you've heard all your life about how another Great Depression can't happen because of circuit breakers in the system is just that ... bullshit.

Bernard Madoff arrested over alleged $50 billion fraud

Bernard Madoff, a quiet force on Wall Street for decades, was arrested and charged on Thursday with allegedly running a $50 billion "Ponzi scheme" in what may rank among the biggest fraud cases ever. The former chairman of the Nasdaq Stock Market is best known as the founder of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he launched in 1960. But he also ran a hedge fund that U.S. prosecutors said racked up $50 billion of fraudulent losses. Madoff told senior employees of his firm on Wednesday that "it's all just one big lie" and that it was "basically, a giant Ponzi scheme," with estimated investor losses of about $50 billion, according to the U.S. Attorney's criminal complaint against him.

Dilbert

Trump Organization in Bankruptcy

AGAIN!

Trump Hotels & Casino Resorts and related operations sought a Chapter 11 restructuring after reaching agreement with most of its creditors on a new financial structure for the business. Trump's stake would be slashed to 27% from 47%, even after he plows $72 million into the new operation. Other common shareholders would be mostly wiped out, and bondholders would control about two-thirds of the equity in the reorganized company under the proposed restructuring plan, which is subject to court approval.

Their last bankruptcy (in which Trump also made out like a bandit) was reported in this blog just 3.5 years ago.

Tribune Files for Bankruptcy, Stock Falls 94%

Tribune, the owner of several of the nation’s largest newspapers, has filed for Chapter 11 bankruptcy protection. The company cited a $13 billion "heavy debt load" as the reason to seek protection. The media giant, which owns The Chicago Tribune, The Los Angeles Times, the Orlando Sentinel, 23 television stations and the Chicago Cubs, was battered in the past year. Their stock is now trading at $1, down 94% from yesterday's $18 closing price.

0% Interest Rates are Here!

Worldwide!

In the US, the Fed funds rate may be 1%, but 3-month Treasuries are currently yielding 0.01%.

The Bank of England dropped its rate from 3% to 2%, the lowest rate since the central bank's founding in 1694.

Japan-style near-zero interest rates are here and may be here for a while. I predict a lost decade, for the entire world this time rather than just Japan.

Jobs, Jobs, Jobs

This is bad, and getting worse very very quickly

AT&T cutting 12,000 jobs
Credit Suisse cutting 5,300 jobs (mostly in the US)
Dow Chemical cutting 5,000 jobs (and 6000 contractors)
UBS cutting 4,500 jobs
DuPont cutting 2,500 jobs (and 4000 contractors)
Belden cutting 1,800 jobs
3M cutting 1800 (more) jobs
Anheuser-Busch InBev cutting 1,400 US jobs
Nomura cutting 1,000 jobs
Viacom cutting 800 jobs
Adobe cutting 600 jobs

Retail sinking ... fast

Abercrombie Same-store Sales Down 28%
Kohl's same-store sales fell 17%
Nordstrom's same-store sales fell 16%
Macy's Same-store Sales Down 13%
Limited Brands same-store sales fell 12%
J C Penney same-store sales fell 12%
American Eagle Outfitters Same-store Sales Down 11%
Saks Fifth Avenue same-store sales fell 11%
Target same-store sales fell 10%
Dillard's Nov. Same-store Sales Down 9%
Children's Place same-store sales fell 7%
Costco's same-store sales fell 5%
Aeropostale same-store sales fell 5%

(all this news was reported today)

4% Mortgage Delinquency Rate

For the quarter ended September 30, 3.96% of people holding a mortgage were at least 60 days behind in payments, compared with 2.56% in the 2007 third quarter. "It's nothing short of staggering," said Ezra Becker, principal consultant in TransUnion's financial services group. Becker noted the rate had hovered at about 2% for years, until the second quarter 2007, when it started climbing. Moreover, the climb is not likely going to slow, he said. "Our projections are that it's not only going to be increasing but it's increasing at a faster pace," he said. The fourth quarter of 2008 could see the percentage of mortgages past due jump as high as 4.6 to 4.7%, he said, an estimate that reflects the recession and rising unemployment rates. "This is more pessimistic than what we would have forecast a quarter ago," he acknowledged. The highest delinquency rates continue to be in Florida, at 7.8%, Nevada, at 7.7%, California, at 5.8% and Arizona, at 5.5%.

Goldman To Post Loss

Goldman Sachs Group is likely to report a fiscal fourth-quarter loss of as much as $2 billion, or $5 a share, five times the current analyst consensus, The Wall Street Journal reported. The expected loss for the quarter ended Nov. 28 would be the firm's first quarterly deficit since it went public in 1999. The company will write down the value of assets in private equity, commercial real estate and more.

Sears Holding Posts Loss

Sears Holdings Corp reported a wider-than-expected quarterly loss Tuesday as sales fell at its US Kmart and Sears Roebuck divisions and said it would close additional stores. The loss was $146 million, or $1.16 a share, for the third quarter ended Nov. 1, compared with profit of $4 million, or 3 cents a share, a year earlier.

US sales at stores open at least a year declined 11% at Sears and 7% at Kmart.

Sears Holdings is now trading at 33.00; it was trading above $100 as recently as two months ago. Merging Kmart and Sears Roebuck was a marriage made in hell from the beginning.