Bad News Keeps Piling Up
Bad news cascading its way through the market this morning. But equities still seem positively resilient at this writing, with the Dow off a mere 44 points. A taste of today’s news releases:
The New York Federal Reserve reported early Friday that its general business conditions index tumbled to -11.72, falling below zero for the first time since May 2005, from a reading of 9.03 in January. The index was well below the median forecast of 6.5 in a Dow Jones Newswires survey.
Import prices jumped 1.7% last month as higher energy, food and commodity prices pushed the annual increase to a record high. Economists had been expecting only a 0.5% rise. Compared to a year ago, prices soared 13.7%, the highest reading since the government began gathering the data in 1982. Export prices also surged last month, by 1.2%.
UBS dropped almost 3% in early trading after Citigroup analysts speculated the bank might need to write off another 12 billion Swiss francs ($10.9 billion) to 20 billion Swiss francs in 2008. Also, The Wall Street Journal’s report that Citigroup has barred investors in one of its hedge funds from withdrawing their money could spook already wary investors.
People familiar with the situation told The Wall Street Journal that Financial Guaranty Insurance Co., has notified the New York State Insurance Department that it will request to be split into two companies. The news comes a day after New York Gov. Eliot Spitzer and the state’s insurance commissioner Eric Dinallo testified to Congress about the problems facing the bond insurers.
Crude oil futures gained 62 cents to $96.08 a barrel.
General Business conditions are off, inflation is ticking up, banks are headed for more write-downs, a bond insurer is asking to throw in the towel on its stuctured finance obligations, consumer spending continues to soften and oil is creeping its way back to $100 per barrel.
Not to mention the continued failure of muni-bond, student loan and other fixed-income auctions. Another credit market grinding to a halt.
This last issue is particularly interesting. Municipalities aren’t all of a sudden going to go bankrupt. I’m definitely on the bearish side as anyone who reads this blog regularly can attest, yet even the most ardent bear has to acknowledge that the economic situation at present is not all that terrible. Unemployment is still at 5% for goodness sakes. Sure credit markets are seizing up everywhere, but the real economy, while deteriorating, is by no means imploding.
The fact that municipalities are having trouble getting credit doesn’t mean that they are going to default…..but it does mean they’ll likely have to sell their bonds at higher interest rates in order to attract buyers. Despite the Fed’s aggressive action to cut short-term rates, longer-term rates probably have to move up in order to bring buyers back into the market.
And this is one way that the trouble in credit markets is likely to impact the real economy: higher long-term interest rates.
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