Brace yourself for a nasty 4th quarter of 2008

[Sapiens]

OK, boys and girls, brace yourself for a nasty debt deflation 4th quarter of 2008!

Let’s see how well the Stability Plan works out.

Let me give you a hint:

Gas price from $1.00 and increased to $2.00 = 100% Price increase.
Gas price from $2.00 and increased to $4.00 = 100% Price increase.
Gas price from $4.00 and increased to $8.00 = 100% Price increase.

Can you se the pattern? I hope you do because then you can find the answer to our little riddle in the stats of the St. Louis Fed.

Cheers,

-Sapiens

[Rajiv]

Re: Brace yourself for a nasty 4th quarter of 2008

stats of the St. Louis Fed.
-Sapiens

Sapiens, could we have a link?

[Sapiens]

Re: Brace yourself for a nasty 4th quarter of 2008

Sapiens, could we have a link?

http://www.bloomberg.com/apps/news?p...kzM&refer=home

[Rajiv]

Re: Brace yourself for a nasty 4th quarter of 2008

The first doubliong didn't hurt much -- but the second doubling is going to kill you! -- that is something people do not realize about what happens when the exponential and the linear function collide!

[Sapiens]

Re: Brace yourself for a nasty 4th quarter of 2008

The first doubliong didn't hurt much -- but the second doubling is going to kill you! -- that is something people do not realize about what happens when the exponential and the linear function collide!

I beg to differ Rajiv. People have not been push off the edge yet, in other words, credit has not been cut off yet, because they know the social unrest would kill their golden goose. Even the little guys are starting to figure out the ratios of the game. Take a listen to this gentleman on this video at about 1:29:10 he even figure it out. http://video.google.com/videoplay?do...66464790&hl=en

No one will tell you why the old bankers kept the housing and debt expense to income ratio at 28% and 36% so as not to give away the scam.

The sheeple has not felt the pain yet because they are in shock, but it certainly will hurt like a $%#@&^.

P.S. I hope you notice that what he said, turns the take at between 1/4 and 1/3 of the income.

[Rajiv]

Re: Brace yourself for a nasty 4th quarter of 2008

No one will tell you why the old bankers kept the housing and debt expense to income ratio at 28% and 36% so as not to give away the scam.

The sheeple has not felt the pain yet because they are in shock, but it certainly will hurt like a $%#@&^.

P.S. I hope you notice that what he said, turns the take at between 1/4 and 1/3 of the income.

Yes -- that scam could have continued indefinitely had wages kept up with "Real" inflation

However the nature of the exponential function is such that this scam cannot be continued indefinitely -- and was one of the primary reasons for the "Boom/Bust" cycles.

Exponential growth in energy usage (primarily petroleum) coupled with population growth has allowed the scam to continue much beyond what the typical 50/60 year Kondratieff/Van Gelderen cycle

[jtabeb]

Re: Brace yourself for a nasty 4th quarter of 2008

Yes -- that scam could have continued indefinitely had wages kept up with "Real" inflation

However the nature of the exponential function is such that this scam cannot be continued indefinitely -- and was one of the primary reasons for the "Boom/Bust" cycles.

Exponential growth in energy usage (primarily petroleum) coupled with population growth has allowed the scam to continue much beyond what the typical 50/60 year Kondratieff/Van Gelderen cycle

Yep, and watch that rubber band break completely during the "snap-back".

We should all look on the bright side, you don't allways get to see the entire world change right before your eyes (except for WWI, WWII, the great depression, fall of communisim, end of capitalisim), Oh, uh, never mind...

[Slimprofits]

Re: Brace yourself for a nasty 4th quarter of 2008

Re: Brace yourself for a nasty 4th quarter of 2008

Yep, with Midwesterners and New Englanders spending every last dollar on heating their homes.

Third quarter should be ugly too with the rebate cash gone --- "invested" in already spent gasoline and lottery tickets.

[Sapiens]

Citigroup Limits Meetings, Pares Color Photocopies

http://www.bloomberg.com/apps/news?p...puI&refer=home

Citigroup Limits Meetings, Pares Color Photocopies (Update1)

By Joyce Moullakis

Aug. 26 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, banned off-site meetings among employees and cut back on color photocopying to reduce expenses as investment- banking revenue declines.

Executives in the New York-based bank's institutional clients group will need to ensure spending is ``highly efficient,'' according to an internal memorandum confirmed by a Citigroup spokesman in London today.

Citigroup is clamping down on spending after cutting about 14,000 jobs in the first half of 2008 and reporting $55 billion of writedowns and credit losses, more than any other bank, according to data compiled by Bloomberg. Revenue at the company's corporate and investment bank plunged 71 percent in the second quarter because of losses on subprime-related assets.

``They are cyclical businesses that do get a bit fat in the good days,'' said Antony Gifford, who oversees about $4 billion in North American equities at Henderson Global Investors in London. ``It's not material, but a worthwhile exercise for a company the size of Citigroup.''

Under the new policy, employee meetings must be held within Citigroup offices and client events will require approval, the memo said. Color photocopiers will be removed from some locations and their use will be limited to client presentations. The memo didn't say how much money the new rules will save.

``We have spent considerable time looking at our headcount and related expense, and while we have made progress in that area, we still have more work to do,'' the memo said.

Share Comparison

Citigroup has declined 40 percent this year on the New York Stock Exchange, compared with 30 percent at Charlotte, North Carolina-based Bank of America Corp. and 17 percent at JPMorgan Chase & Co., based in New York. Citigroup rose 1 cent to $17.62 in composite trading at 9:34 a.m.

Financial firms globally have eliminated 101,250 jobs since the beginning of the credit crunch last year.

Merrill Lynch & Co., struggling to halt a four-quarter streak of $19 billion in losses, imposed a freeze on new hires this month and restricted the use of private jets, the Financial Times reported in July.

Deutsche Bank AG requires dealmakers to get their managers' approval for taxi trips in advance, and business meals can't exceed 50 pounds ($92) per person, the Independent newspaper reported in April.

Citigroup is also scaling back external training, which will be limited to that which is ``strictly necessary,'' the memo said. Purchases of computer hardware and software must also be pre-approved under the new rules, as must all non-client travel, the bank said. The U.K.'s Daily Telegraph newspaper reported the contents of the memo earlier today.

``We will be conducting a review of our Blackberry usage,'' Citigroup said. ``In the interim, all new Blackberries will require pre-approval.''

To contact the reporter on this story: Joyce Moullakis in London at jmoullakis@bloomberg.net.

Fortune 500 companies are cutting expenses and the new catch words “Spending Discipline” are now in vogue. They are being told to "unspend" until the end of the year. Remember drink tap water instead of “bottled tap water” to "unspend"…

[Andreuccio]

Re: Citigroup Limits Meetings, Pares Color Photocopies

http://www.bloomberg.com/apps/news?p...puI&refer=home



Fortune 500 companies are cutting expenses and the new catch words “Spending Discipline” are now in vogue. They are being told to "unspend" until the end of the year. Remember drink tap water instead of “bottled tap water” to "unspend"…

http://www.slate.com/id/2195866/

Selling the Family Jewels

Desperate American banks are selling everything that isn't nailed down (except the private jets).

By Daniel Gross
Posted Wednesday, July 23, 2008, at 4:17 PM ET

...

In recent weeks, American financial services companies have moved from the post-binge phase of dilutive capital raising—running around the world with a tin cup, urging well-heeled foreigners to invest in the crippled firms on purportedly advantageous terms—into the phase of selling the family jewels. Over the past year, banks have taken write-downs and raised new cash from investors, only to take new write-downs within weeks, thus turning those new investors into losers. And so as they face the need to raise more capital, banks can no longer raise billions from Dubai gazillioniaries and Chinese investment funds, who've been burned once. Now banks are having to sell their hard assets—in some cases, extremely valuable hard assets that have been passed down from generation to generation.

...

Atlanta-based SunTrust has enjoyed a symbiotic relationship with local icon Coca-Cola for nearly a century. The bank midwifed the beverage company's initial public offering in 1919, and as this article notes, Coca-Cola's ultra-valuable secret formula was allegedly stored in a vault at the bank. As Coca-Cola grew—and as its stock split, time and again—SunTrust found itself with a massive stake in the company. But during the past year, as it has been hit by credit issues, SunTrust has been selling off its shares of the real thing. In June, it sold 10 million shares, raising more than $500 million. And this month it announced it would 1) donate 3.6 million shares of Coca-Cola to SunTrust's charitable foundation and 2) enter a transaction in which the remaining 30 million shares of Coca-Cola would be sold during the next several years. Combined, the sales will allow SunTrust to raise about $2 billion (at Coke's current price) to shore up its capital and bring to an end 90 years of profitable ownership.

...

There's likely more heirloom-hocking to come. The Wall Street Journal reports this morning that several regional banks, which have already raised cash from outside investors to shore up shaky balance sheets, are now looking to sell mutual-fund businesses. National City, which in April raised $7 billion by selling shares to existing investors and the private equity firm Corsair Capital, is now looking to sell its Allegiant Fundsunit. Fifth Third Bancorp, which last month raised $1 billion, has said it would raise another $1 billion through "the anticipated sales of certain non-core businesses." The Journal suspects one of those businesses might be the bank's Fifth Third Asset Management unit.


Selling heirloom assets is frequently a last-ditch alternative. In instances in which assets have appreciated massively (such as SunTrust's Coca-Cola stock or Merrill's stake in Bloomberg), the sales can generate hefty tax bills. Such moves are also recognitions that management has screwed things up so royally in the core business that it has no alternative but to sell the remaining assets that the market still likes. But in this climate, many banks may find they don't have a choice. The worst of the housing debacle may be behind us, but there's plenty more trouble to come in loans to builders and corporations, and in the vast consumer finance sector. And with outside investors leery of jumping in again, executives will be scouring the basement for stuff to sell. Corporate headquarters and conference centers, corporate art collections and fast-growing foreign units that can be severed with relative ease—pretty much everything that isn't nailed down. Except the fleets of private planes! If big-shot bankers can't have access to Gulf Streams, there's really no point in being a big-shot banker.

[Sapiens]

Re: Brace yourself for a nasty 4th quarter of 2008

Make friends, lots of friends and acquaintances. You will need them.

[Finster]

Re: Brace yourself for a nasty 4th quarter of 2008

... brace yourself for a nasty ...

That's about all that need be said!

[Sapiens]

Economy in free fall in fourth quarter

http://www.marketwatch.com/news/stor...-AEB36F40D99B}

WASHINGTON (MarketWatch) -- The U.S. economy contracted violently in the fourth quarter, with gross domestic product falling at its fastest pace in more than 25 years, economists said ahead of what promises to be a grim week of economic news.

"Real economic activity fell off a cliff during the fourth quarter, producing a sharp drop in employment, output and spending," wrote economists at Wachovia.
And the worst part is that it's not over. Economists expect another huge decline in the first quarter, with a smaller contraction in the second quarter.
GDP is expected to have fallen at a 5.5% annualized rate in the final three months of last year, according to the median forecast of economists surveyed by MarketWatch. That would be the biggest decline since the 6.4% drop in early 1982 and one of the worst quarters in the post-World War II era.
The government will release its first estimate of fourth-quarter GDP on Friday, the culmination of a very busy week on the economic calendar. See Economic Calendar.

Other major releases will include durable-goods orders for December, home sales for December, and consumer confidence surveys for January.
In addition, economists will be watching the weekly jobless claims data for more clues about the health of the labor market. We could see first-time claims breach the 600,000 mark for the first time since the early 1980s. None of the news in the coming week is expected to be positive.

The bad GDP story

Almost everything that could have gone wrong did after the credit crisis worsened in September.
More than 1.5 million jobs were destroyed in the quarter. Consumer spending fell again. Businesses put investment plans on hold. Home builders threw in the towel. Export markets dried up. The only bright spot was the collapse in prices for oil and other commodities, a sudden reversal caused directly by the global slump. This has boosted consumers' spending power, but has also slammed corporate profits. "The weakness was very widespread, with every type of final expenditure falling," wrote economist Michael Feroli of J.P. Morgan, who expects final sales to fall 5.9% annualized, which would be the third worst quarter since 1949. According to Feroli's estimates, consumer spending likely declined at a 3.6% annual pace, about the same as the 3.8% drop in the third quarter. Business investment probably declined at a 20% pace, while residential investment plunged at a 30% pace, the worst yet in this episode. He expects nonresidential construction to fall 2%, the first decline in about three years, with bigger drops to come. And net exports are expected to fall, a big turnaround from earlier in the year when exports kept the economy above water.

The only positive contributors to GDP are expected to be government spending and inventories.
Government spending is expected to surge in the coming quarters given the huge fiscal stimulus being promised by the Obama administration and Congress.
On the other hand, inventories are expected to be a drag on growth going forward. Companies have kept their inventories lean, but not lean enough.
"Given the rate at which sales are falling, that means that the inventory-to-sales ratio is rising sharply, and production will have to fall further in the first quarter to work off the excess supplies," wrote Brian Bethune and Nigel Gault, economists for IHS Global Insight.

Every other time in the modern era that the U.S. economy has contracted more than 5% in a quarter, falling inventories have been a major reason, if not the single biggest factor. Usually, really bad recessions are worsened by the need for companies to get rid of all the stuff they made but nobody bought. Once the inventories are sold off, the economy can grow quickly again because idled workers are called back.

But so far in this recession, the inventory cycle hasn't been a major factor, outside of the housing and auto sectors. That means that we can't look forward to a quick reacceleration as the inventory cycle turns. This recession is rooted in a severe credit squeeze and a fundamental readjustment in consumer demand, not in the typical inventory cycle.

Policy to the rescue?

Most economists are cautiously optimistic about a modest recovery later this year. The turn in the inventory cycle is one reason, but a bigger cause for hope is the massive amount of work by the Federal Reserve and the government. "Despite the current and expected near-term weakness, we caution against simply extrapolating. While momentum is currently downward, policy action has been stepped up dramatically, with more measures likely," wrote Maury Harris and Jim O'Sullivan, economists for UBS, who were among the few economists who saw this coming.

The Federal Open Market Committee meets Tuesday and Wednesday to consider the impact of what they've done and what they'll try next. Interest-rates are as low as they can go, so the FOMC will put its full attention on the nontraditional measures it's employed to thaw out the credit markets.
The conventional wisdom is that nothing has worked, but that's not really accurate. First off, governments in the developed world have made it clear that they won't allow the financial system to fail, which has lessened the fear of a systemic collapse. If what they've tried so far doesn't work, there are other things that can be done, including nationalization of the banks as a last resort.

There are signs of improvement already, especially in the short-term funding markets, where the Fed has concentrated its efforts lately. Credit spreads between government debt and the London interbank offered rate, commercial paper and mortgages are falling, although they certainly aren't back to normal levels.
Yes, the days are cold and dark, but spring will come. It always does.
Rex Nutting is Washington bureau chief of MarketWatch.