Everything is Ugly – Recession, Stocks, Housing
Another back and forth session was ended on Wall Street with cheers of easing credit markets. But analysts nevertheless warn that market faces rough times.
With the current economic downturn, many companies are reporting job cuts, as they brace for what could be long recession. This week PepsiCo and Danaher reported they would lay off thousands of workers. This situation may worsen as holidays approach and layoffs are shared in tough times.
Governments around the world pledged billions of dollars to help economy and stabilize markets. Market may keep mixed again next week as everyone expects financial market to stabilize further. Some of this week’s heavy selling came in response to disappointing economic reports.
The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.41 percent from 4.50 percent on Thursday, the fifth consecutive day of declines. The three-month Treasury bill Friday yielded 0.82 percent, up from 0.47 percent on Thursday.
The new rescue plan of buying bad mortgages should slow job cuts, if it doesn’t more people will loose jobs. More and more companies will be resizing their business, cutting jobs, reducing so they can turn profit for next quarter.
Consumers will be very careful of spending this year and 2009 may bring another job cuts. While credit card market is not helping edges to get back in addition, edges are tightening their guidelines on mortgages, auto loans, credit cards and other financing and loan options. Consumers are defaulting on their credit cards as home values have dropped and they cannot refinance anymore.
But there could be a enormous overreaction in the market, but this ineffective market was down 20% which credits to financial problems leading to recessions. If a financial crisis is not solved, it could weaken. President Bush on Friday said in a speech that the credit market, where many companies find funding for their operations will take a while to thaw, but that Americans should be confident that it will.
While the economic outlook darkened a survey by the National Association of Home Builders showed builders hit a record low in early October. The Commerce Department said Friday that construction of new homes and apartments dropped by a bigger-than-expected 6.3 percent in September to an annual rate of 817,000 units.
Billionaire investor Warren Buffett said in opinion piece in The New York Times that he sees opportunity in the Wall Street chaos. He’s been moving his personal investments from safe Treasuries into U.S. stocks. “To be sure, investors are right to be cautious of highly leveraged entities or businesses in ineffective competitive locaiongs,” Buffett wrote.
“But fears regarding the long-term wealth of the nation’s many sound companies make no sense.”
The market ultimately will turn around. “So if you wait for the robins, spring will be over,” he said.
Wages grow more slowly when there’s higher unemployment, so the downturn will be affecting most working families by reduced hours of work. When people loose their jobs, they will cut back on consumption and people are less able to pay bills.
PepsiCo will cut 3,300 jobs or 2% of its work force.
Danaher will cut 1,000 jobs and close 12 plants
Rockwell Automation will cut 600 jobs or 3 percent
Best Buy plans to cut seasonal hiring by as many as 10,000 workers this year.
Officials need to do a better job talking to Main Street and taxpayers, not Wall Street and big investors.