Get Your Money Out Now!

Shares in the US saw their worst one-day fall yesterday - already dubbed Black Tuesday - since the height of the credit crunch last August after the world's biggest bank, Citigroup, fanned recession fears by announcing the biggest loss in its 196-year history.

Amid speculation that the US Federal Reserve might announce an emergency cut in interest rates to help Wall Street and revive the economy, Citigroup said it was writing off $18bn (£9bn) in bad investments and announced it was receiving a cash injection from foreign sovereign wealth funds.

On Wall Street, the Dow Jones industrial average shed 277 points, the 2% decline shared by other leading US indexes.

"There are few words of comfort really for equity investors under these circumstances," said Peter Dixon, an economist at Commerzbank in London.

"It is looking like the US is sliding into recession, there's no doubt about it ... I think we'll be able to make that definitive call when we get a bit more data."

Recession fears also gripped other markets, with crude oil futures down $3 a barrel New York and the dollar sliding to its lowest against the Japanese yen since 2005.

Providing fresh evidence of the impact of sour sub-prime mortgage loans on the balance sheets of big US banks, Citigroup said its losses were $9.83bn in the final quarter of 2007.

If It Feels Like a Recession, Is It a Recession? [Minyanville]

“Medic! Medic!” That’s the rally cry being heard across the Wall Street battlefield. With the market looking more like triage at a front line Mash unit, investors have to be asking where the morphine is. Even for Hedge Fund managers when every short works and every long doesn’t, it can become quite uncomfortable.

Yesterday there was no place to hide. There was no rotation from losers to the new winners. Nothing worked. Stocks at 52 week lows continued their slide and stocks near their highs began their fall from grace. The sick are infecting the healthy.

Pessimism is hitting peak levels and the market is close to and about to cross market lows first set last year. Add to that the high probability of an emergency rate cut and you have the ingredients for a massive oversold short covering rally.

Even when it materializes it won’t cure the damage that has been done. Whether the economy is in recession or not is beside the point. For most Americans it feels like one and that’s all that really matters.

In the end the Fed will do their job despite the fact that this one seems to get its cues from the newspapers. No, the real cure is time.

Over the long run the economy has been able to withstand shocks, recessions, terrorist attacks you name it.

The US and the economy need to regroup and regain strength before the markets can truly recover.

The fundamentals and the economic backdrop don’t have to start getting better but they do have to stop getting worse for a true bottom to be put in.

It took the better part of a decade to create some of the problems our economy faces today so I suspect it will take some time to cure them. The good news is that contractions are generally much shorter than the expansions.

Know in advance their will be many of these oversold rally’s and trust me during each one you will feel that this is it. The bottom is in and I am not going to miss the rocket to the moon.

In deep corrections the biggest challenge we face is often psychological. We are more concerned about missing the rally than losing money and as a result overstay our welcome with long positions for fear of missing the big bounce.

Risk management has to be maintained. Even if we end up big today being fully invested without the wind at your back may prove problematic. Smaller positions are imperative as company risk right now is high.

Stocks aren’t going down 4-5% on missed earnings. The downside moves are more like 10 and 20%. Intel (INTC) is a perfect example.

Every smart general knows that you don’t keep charging ahead when all your troops are being cut down by machine gun fire. Sometimes you have to pull back until fresh boots hit the ground.

American Capitalism in Crisis [World Socialist]

Citigroup has been scouring the Middle East and Asia for investors in a position to take multi-billion-dollar stakes. Among those said to be involved is Prince Alwaleed bin Talal of Saudi Arabia.

The bank is seeking to raise as much as $15 billion in new capital. On Monday, the state-owned China Development bank decided not to go ahead with a proposed investment of $2 billion in the company, forcing Citigroup to seek other benefactors.

The Financial Times reported Monday that Merrill Lynch, the largest US stockbroker, is seeking to raise an additional $4 billion in new capital, with the Kuwait Investment Authority as the leading candidate.

Merrill Lynch is expected to write off as much as $14 billion in losses and lay off up to 1,000 workers.

The spectacle of giant US financial institutions going hat in hand to the oil sheiks and the government investment agencies of China, Taiwan and Singapore is one indicator of the deteriorating world position of American capitalism.

Deeper in Debt

The growing indebtedness of consumers, combined with the falloff of spending, demonstrates that millions of households, working class and middle class, are going further into debt just to finance their day-to-day expenses. Any new expenses can lead to major financial difficulties.

In the face of these figures, the sudden flurry of proposals by the political representatives of big business—the Bush administration, Congress, and the Democratic and Republican candidates—resemble nothing so much as the reorganization of the deck chairs on the Titanic.

White House officials told the press last week that Bush would propose a stimulus package for the US economy in his State of the Union speech scheduled for January 28, although no details had been worked out yet.

Treasury Secretary Henry Paulson said January 11 that the US economy had slowed “rather materially” and that “time is of the essence” in initiating any stimulus package.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, the two leading congressional Democrats, sent a joint letter to Bush Friday saying, “We want to work with you.”

The letter received a favorable White House response, and Pelosi met with Fed chief Bernanke Monday to discuss what concrete actions could be taken.

Some combination of tax cuts for business, tax rebates for the working poor and a limited extension of unemployment benefits or home heating assistance is the likely outcome of such discussions, with a total amount estimated at $50 to $100 billion.

Even these proposals are problematic, however, since congressional Republicans could block such measures, particularly those targeted to lower-income families.

The presidential candidates have chimed in, with the Republican candidates proposing more tax cuts for business and the wealthy—which would do nothing to alleviate the spreading economic distress among working people—and the Democrats offering stimulus packages that would amount to little more than band-aids.

Hillary Clinton’s plan, released Friday, calls for $70 billion in stimulus, including relief for homeowners facing foreclosure and an extension of unemployment benefits.

Barack Obama slightly outbid her, offering a $75 billion plan, but with more targeted to business interests in the form of tax incentives.

None of these plans amount to more than a drop in the bucket compared to the vast dimensions of the social and economic crisis in the United States.

By one estimate, the $30-a-barrel increase in oil prices over the past five months has by itself cost US consumers $150 billion—double the amount of “stimulus” proposed by the Clinton and Obama plans.

It goes without saying that no big business politician is proposing that the oil companies disgorge any of their massive profits.

On the contrary, the energy bill adopted by the Democratic Congress last month retains $12 billion in federal subsidies to the oil giants.

More fundamentally, a minor boost to consumer spending will do nothing to offset the spreading financial contagion or restabilize debt markets. The bursting of the housing bubble is only the initial stage of a financial crisis of unprecedented dimensions, one that will call into question the viability of the capitalist system worldwide.

tags: crisis  recession  economy  capitalism  debt  banks  

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