Eeyore's News and View

Stocks falls on bank anxiety, Apple down after bell
NEW YORK (Reuters) – Stocks fell to six-week lows on Wednesday on worries about steeper losses at banks worldwide and as U.S. retail sales data pointed to a deepening recession.
The bleeding could continue Thursday after technology bellwether Apple Inc (AAPL.O) said that its chief executive, Steve Jobs, will take a medical leave of absence until June, a surprise development that sent equity index futures lower.
On Wednesday, the S&P 500 and Nasdaq tumbled more than 3 percent, and all 30 Dow stocks were in the red, including Citigroup (C.N). The bank shed more than 23 percent as investors and analysts worried whether the bank can be profitable as it unravels its business model. It is expected to post a multibillion-dollar loss this week.
Highlighting the strain banks are under, The Wall Street Journal reported that the U.S. government is close to extending billions more aid to Bank of America Corp (BAC.N), sending the bank's stock lower after the bell.
Fears about the banking sector were exacerbated after Morgan Stanley analysts forecast HSBC (HSBA.L)(HBC.N), Europe's biggest bank, is likely to halve its dividend and may need to raise up to $30 billion of capital, while Germany's Deutsche Bank (DBKGn.DE) (DB.N) said it lost more than $6 billion last quarter.
"There is an awful lot of uncertainty out there about how severe the economic downturn will be and whether there will be a second round of asset write-downs," said Lincoln Anderson, managing director and chief investment officer at LPL Financial in Boston.
The Dow Jones industrial average (.DJI) fell 248.42 points, or 2.94 percent, to 8,200.14. The Standard & Poor's 500 Index (.SPX) gave up 29.17 points, or 3.35 percent, at 842.62. The Nasdaq Composite Index (.IXIC) lost 56.82 points, or 3.67 percent, to 1,489.64.
Sales at U.S. retailers fell 2.7 percent in December as the economic slowdown made consumers cut back on spending during retailers' crucial holiday selling period.
Consumer spending accounts for about two-thirds of U.S. economic activity, making it a key pillar of corporate profits.
The day's declines put another wrench in the market's attempt to recover from the November bear market low. The broad S&P 500 had gained more than 20 percent from that level, but is now up only close to 14 percent. It was the sixth straight day of declines for the Dow, racking up losses of 815 points, or 9 percent.
The S&P financial index (.GSPF) was down 5.7 percent. Since the start of the year, the index has managed only two up days. Citigroup was down 23.2 percent at $4.53 after a deal by the embattled bank to sell a controlling stake in its crown jewel, the Smith Barney retail brokerage unit, to Morgan Stanley (MS.N) for $2.7 billion.
Analysts speculate the Smith Barney sale is a precursor to a break-up of Citigroup and that the bank must be urgently seeking to replenish capital due to mounting losses.
Citigroup is due to report its results on Friday, after moving up the reporting date, while JPMorgan Chase & Co (JPM.N) is due to post its results on Thursday, after also moving up its date. JPMorgan fell 1.7 percent to $25.91.
Bank of America fell nearly 6 percent to $9.61 in extended trade following the Wall Street Journal report.
Apple shares fell nearly 10 percent after the bell after Jobs announced his decision to take a medical leave, saying his health problems are "more complex" than he had thought. The statement came just over a week after Jobs sought to alleviate nagging worries about his health.
The S&P retail index (.RLX) fell 3.6 percent on worries cash-strapped consumers spooked by the recession will remain unwilling to buy.
Energy shares also tumbled, taking oil's lead as U.S. crude fell 50 cents to $37.28 a barrel on rising inventories and weakening demand from the United States, the world's biggest energy consumer. Exxon Mobil (XOM.N) and Chevron (CVX.N) were among the Dow's biggest drags, falling 3.6 percent to $75.10 and 3 percent to $69.69, respectively.
The Federal Reserve's anecdotal Beige Book report on the economy added to the sour picture, showing the economy weakened further into the opening days of the new year.
Tax and domestic help troubles surrounding Treasury secretary-nominee Timothy Geithner further dampened investor sentiment, but President-elect Barack Obama said he expects Geithner to be confirmed. Geithner would be Obama's point man on efforts to combat the financial crisis.
Trading was moderate on the New York Stock Exchange, with about 1.42 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq about 1.94 billion shares traded, below last year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by 2,793 to 318 while decliners beat advancers on the Nasdaq by about 2,263 to 477.
http://news.yahoo.com/s/nm/20090114/bs_nm/us_markets_stocks

Nouriel Roubini 2009 U.S. GDP Forecasting 40% Home Mortgage Failures?
Last week Dr. Nouriel Roubini's newsletter (RGE Monitor) predicted a peak to trough in US housing of 38% to 44% with a bottom not before mid 2010.
That's the first time I saw Roubini put a number on house prices. My projection three months ago said (low-case) peak to trough 32% with a bottom mid 2010 ( Fixing the U.S. Housing Market and House Prices).
So "SNAP!" - more or less.
But my projection of 32% was based on 3% nominal GDP growth in 2009 (I don't do GDP I just do real estate prices, I look up the GDP projections), but things are looking worse now. Of course Roubini is the most pessimistic, that's why they call him "Dr. Doom".
If Roubini is right in that nominal GDP growth will be -5.4% in 2009 (-3.4% real and -2% inflation) then my model says that house-prices will fall 15% in 2009 (peak to end of 2009 = 35%).
What happens in 2010 will depend on the economy, and no one is talking about that. Roubini hints that the recession could be over by 2010; so for the sake of argument let's say 2% nominal GDP growth in 2010 (what's real and what's inflation doesn't matter for my model).
In that case my model says the bottom will be some time after mid 2010 with a total peak to trough of 40%. That's all assuming that long-term interest rates stay low.
So "SNAP!" and " SNAP!"... using Roubini's numbers for the economy my model delivers mid-range of his projection. Time for mutual admiration perhaps?
Methodology
RGE don't explain their methodology so it's hard to say if that's two independent views or the same model done twice.
Just for the record, the core of my model is a valuation and in any coherent valuation you are obliged to explain the methodology (I do).
That's unless you are using Zimbabwe Valuation Standards, or the "Bean Counter's Big Surprise Valuation Standards" mandated under US GAAP and IFRS. But then RGE's price forecast is an "economic" prediction, and for that, well apparently, anything goes.
I can't help wondering if the current mess might have something to do with economists (and bean counters) thinking they have the inside edge on doing valuations for assessing capital adequacy of banks with debt secured by real estate? Isn't that a bit like hiring an (expensive) dentist to clean your drains?
Nah...can't be that, Allan Greenspan is a genius and a GREAT ECONOMIST, I know that because he said so himself.
And if you can't understand that "froth" means the "biggest property bubble in history" you should be working minimum wage as a security guard, if you can get a job at all!
Anyway, back to the point, I suspect we are independent since RGE's logic appears to be based on inventory (housing starts and foreclosures) and uptake. My model ( Value of Housing Markets in USA and UK Past, Present, and Future) is based on International Valuation Standards and 100+ years of data and does not need to know anything about starts, foreclosures, or sales; rather these are predicted by the model.
It's an important distinction, if price is affected by starts, foreclosures, and sales then the logical strategy to "rescue" house prices (and the bonds that depend on them - i.e. fix the mess), is to cut starts and foreclosures and to encourage sales by getting Fannie and Freddie to lend irresponsibly.
Or in the words of that Great American Poet..."do it to me one more time...BABY". That appears, at least to the untrained observer, to be the current strategy.
But the valuation model says "NO, that won't do anything to prices".
For the valuation model, price is independent of starts, foreclosures or sales, in fact it's price that drives those variable, and that's driven by nominal GDP, long-term interest rates and the inevitability of Farrell's Rule with the only possible way out of the loop being to implement "Surprise-Free Valuation Standards" (as was argued in UK Housing Market Will Not Bottom Before 2012) .
Not that there is anything wrong with economic theories, just they often confuses cause with effect which has the tendency to send people in the wrong direction, like when Allan Greenspan pushed down interest rates so that we could all enjoy a "bit of froth". And very tasty froth it was too! Thanks Allan.
Here's why:
Logically price drives starts (I've done development, you don't start when prices are in a hole unless you have a theory and an inside track to a banker (preferably a bent one), that much I know).
So I think it's safe to assume that the logic in RGE's argument is that if starts are falling then the market knows something. Well no contest there; I say price drives starts too; just I get to starts via price rather than the other way around...cause and effect.
You can say what you like about foreclosures but my view is that they are driven by either price or GDP (which in turn drives my model - i.e. there could be cross correlation), and that if foreclosures are to some extent, driving price down (the conventional wisdom amongst economists), then the effect is part of a feedback loop ( The U.S. Housing Market Economic Double Negative Feedback Loop) .
Sure sales can be driven by irresponsible lending, but only if the trajectory of price is upwards ( Time for Selective Buying of Mortgaged Backed Securities?) .
Now the trajectory is down, that's a different ball game. Sure also, constraints on lending slow sales, but the valuation model seems to suggest this doesn't do anything to price when prices are falling (people just don't move).
It's a small point but what that says is that bailing out distressed mortgages and getting Fannie and Freddie to be irresponsible again won't affect prices, but it might affect GDP in the long term (negatively).
Predicting Foreclosures
In October I put up a chart based on combining some data that I found on the FT website on foreclosures by State, with some other data I trawled up on GDP growth by State.
I thought it might help resolve the point about foreclosures. This showed that there was a relationship between foreclosures (by State) and GDP growth per State (65% R-Squared or so). ( The U.S. Housing Market Economic Double Negative Feedback Loop) .
Basically foreclosures shoot up when GDP growth goes down below 1%. If average GDP growth goes down to -3.4% (real) it looks like we may be having the fun of accelerating foreclosures some time soon (which, now that GDP has started to tank, seems to be happening - ummm....could the two be related?)
So cause and effect, either (a) falling GDP drives foreclosures (b) foreclosures drive GDP down (c) there is a feedback loop or (d) foreclosures and GDP are independent and a 65% R-Squared is just a chance occurrence?
My view is (a) with a bit of (c).
So by how much?
Well I know that you are not "supposed" to project outside the data, but just for a bit of fun I tracked back the best fit regression line to minus 3.4% GDP Growth.
Umm...oh dear I hope either the regression line that predicts foreclosures from GDP or GDP from foreclosures (or a bit of both) doesn't mean that at minus 3.4% GDP foreclosures will pop up to 40%.
Or if that's the story I hope that Nouriel Roubini is wrong about his GDP projections!
He's been wrong before, he must have been; he's an economist after all! Didn't he say the crunch would happen before 2005, in which case perhaps his -3.4% GDP growth won't happen before 2012...whew!!!
But maybe not...oh dear oh dear, and just for a bit of froth! There again it's non-recourse debt so all those people pushed into negative equity can just jingle their way out of the hole. Thank God for that! Oh but oops…I almost forgot, what about the securities?
Don't worry we will get the Chinese and the SWF's to bail us out, no problem! And if that fails there is always the grandchildren.
Right now house prices in USA are under-valued (below the long-term equilibrium line), but unless there is REAL CHANGE they will keep going down as increasingly jingle-mail becomes the only option.
So HAPPY TIMES... 40% to 44% peak to trough and (perhaps) 40% foreclosure on home mortgages, here we come!
Yup I think that Cowboy George deserves a long rest, and although the new guy is possibly the first US President in a long time that anyone felt like dancing in the streets about, I must say, last time I saw him on TV he did seem to have a look like "darn...what have I let myself in for?"
It's one thing to run a brilliant election campaign; it's another to run the can of worms that the US Government has evolved into.
The numbers on inflation, the real size of the government's liabilities, and the "efficiency" with which money is funneled out of the back door to special interests; these are all manipulated by a shadowy tribe of vampires. And the hastily concocted "Stimulus Plan" just plays into their hands.
Right now there is only one number in USA that the manipulators of power can't (presently) get their hands on. That's how much people will pay for a house in a free and open market.
For years Fannie and Freddie distorted that number (they were set up so people could afford to own homes, their effect was to radically increase the price of housing – figure that one out), but eventually that proved to be an unsustainable scam. Ask the Master Scammer Mr. Madof, he knows, eventually every scam runs out of money.
Fannie and Freddie "temporarily" ran out of money, sure they were dressed up as instruments of the Free Market, maybe before 1987 when they changed the accounting rules for measuring inflation they were, but from that point they became instruments of crony capitalism that sucked all the blood out of America.
If CHANGE is really the objective then in Washington nothing changes, the words are the same, "FOLLOW THE MONEY". And make sure it's counted properly.
Forget about US GAAP and IFRS, there is only one tool that properly values assets and liabilities, a silver stake that can tear out the heart of the vampires.
It's called International Valuation Standards.
IF you really want "CHANGE", THEN use that tool.
By Andrew Butter
http://www.marketoracle.co.uk/Article8126.html

Big Brother's new target: Tracking of all firearms
'This is nothing less than a declaration of war on American gun owners'
Posted: January 13, 2009
10:08 pm Eastern
By Drew Zahn
© 2009 WorldNetDaily
Rep. Bobby Rush, D-Ill.
U.S. Rep. Bobby Rush, D-Ill., is hoping to pass a firearm-licensing bill that will significantly rewrite gun-ownership laws in America.
Among the more controversial provisions of the bill are requirements that all handgun owners submit to the federal government a photo, thumb print and mental heath records. Further, the bill would order the attorney general to establish a database of every handgun sale, transfer and owner's address in America.
The bill claims its purpose is "to protect the public against the unreasonable risk of injury and death associated with the unrecorded sale or transfer of firearms to criminals and youth."
Get "Shooting Back," the incredible DVD that shows once and for all why you should be packing heat for the protection of yourself and your loved ones, only from WND!
Columnist David Codrea of Guns Magazine, however, calls it a "ridiculous affront to liberty."
"This is nothing less than a declaration of war on American gun owners," Codrea writes on Gun Rights Examiner.
Rush's proposed bill, H.R. 45, is alternatively known as "Blair Holt's Firearm Licensing and Record of Sale Act of 2009," named after an Illinois teenager killed by a gunshot.
According the bill's text, "On the afternoon of May 10, 2007, Blair Holt, a junior at Julian High School in Chicago, was killed on a public bus riding home from school when he used his body to shield a girl who was in the line of fire after a young man boarded the bus and started shooting."
The bill then argues that interstate firearm trafficking and children dying from gun violence create legitimate cause for the federal government to monitor gun ownership and transfers in new ways.
If passed, the bill would make it illegal to own or possess a "qualifying firearm" – defined as any handgun or any semiautomatic firearm that takes an ammunition clip – without a "Blair Holt" license.
To obtain a "Blair Holt" license, an application must be made that includes a photo, address, all previous aliases, thumb print, completion of a written firearm safety test, release of mental health records to the attorney general and a fee not to exceed $25.
Further, the bill makes it illegal to transfer ownership of a qualifying firearm to anyone who is not a licensed gun dealer or collector. Exceptions to this rule include transfer to family members by gift or bequest and loans, not to exceed 30 days, of a firearm for lawful purposes "between persons who are personally known to each other."
The bill also requires qualifying firearm owners to report all transfers to the attorney general's database. It would also be illegal for a licensed gun owner to fail to record a gun loss or theft within 72 hours or fail to report a change of address within 60 days.
And if a minor obtains a weapon and injures someone with it, the owner of the gun – if deemed to have failed to meet certain safety requirements – faces a multiple-year jail sentence.
H.R. 45 is a resurfacing of 2007's H.R. 2666, which contained much of the same language and was co-sponsored by 15 other representatives and Barack Obama's current chief of staff, Rahm Emmanuel. H.R. 2666 was assigned to the House Judiciary committee, where no action was taken.
H.R. 45 currently has no co-sponsors and is likewise assigned to the House Judiciary committee.
http://www.worldnetdaily.com/index.php?fa=PAGE.view&pageId=86039

Group asks states to track citizens' ammo
Organization claims it is 'saving lives 1 bullet at a time'
Posted: December 09, 2008
10:05 pm Eastern
By Chelsea Schilling
© 2009 WorldNetDaily
Coded bullet (photo: KOMO-TV, Seattle)
Legislation to trace ammunition is pending in several states, and many gun owners are concerned that it is just another attempt by anti-gun groups to violate citizens' Second Amendment rights.
An organization known as Ammunition Accountability is pushing to make coding technology mandatory across the nation. Its website claims it is a group of "gun crime victims, industry representatives, law enforcement, public officials, public policy experts, and more" who are "saving lives one bullet at a time."
If states pass the legislation, manufacturers will be required to laser etch a serial number into the back of each bullet and the inside of cartridge casings, a patented process developed by Seattle, Wash., resident Russ Ford and his business partners, Steve Mace and John Knickerbocker.
According to Seattle Weekly, the men couldn't find an ammunition manufacturer to agree to stamp bullets, so they hired a lobbyist to push for state legislation to require the laser coding. They launched the Ammunition Accountability website and successfully introduced bills in the following 18 states: Alabama, Arizona, California, Connecticut, Hawaii, Illinois, Indiana, Kentucky, Maryland, Mississippi, Missouri, New Jersey, New York, Pennsylvania, Rhode Island, South Carolina, Tennessee and Washington.
Many of the proposals have died or stalled in committee; however the group is still urging lawmakers across the country to introduce the same kind of legislation in other states.
Ammunition Accountability explains its system would require states to establish databases to track coded ammunition for handguns and assault rifles. The databases would be funded by a surcharge of up to five cents per bullet.
According to its sample legislation, manufacturers would be forced to code all ammunition sold in the state. Private citizens and retail outlets would be required to dispose of all non-coded ammunition no later than Jan. 1, 2011.
Each vendor would record the following information about customers who buy the ammunition: Date, name, driver's license or ID number, date of birth and ammunition identifier. The businesses would maintain records for three years from the date of purchase.
"[W]hen a potential criminal purchases a box of 9mm cartridges, the box of ammunition and the bullets' coding numbers would be connected to the purchaser in a statewide database," Ammunition Accountability explains. "When a bullet is found at a crime scene, the code on the bullet can be read with a simple magnifying glass and then be run through a statewide database to determine who purchased the ammunition and where, providing a valuable investigative lead."
However, critics claim the system is severely flawed.
The National Rifle Association warns encoding ammunition would result in forfeiture of currently owned ammunition, separate registration for every box of ammo, outrageously expensive costs for police and private citizens and wasted taxpayer money that could be spent on traditional police programs.
The NRA also suggests private citizens could be required to keep records on anyone who uses or buys their ammunition – even family members and friends. Furthermore, it said lawbreakers could find ways to prevent their bullets from being traced.
"Criminals could beat the system," the NRA claims. "A large percentage of criminals' ammunition (and guns) is stolen. Criminals could also collect ammunition cases from shooting ranges, and reload them with molten lead bullets made without serial numbers."
Some bloggers suggested criminals could simply modify their own rounds by removing the coding before firing them.
http://www.wnd.com/index.php?fa=PAGE.view&pageId=83210

Australia's stock market slides 4.3 percent
January 15, 2009 - 1:08am
SYDNEY, Australia (AP) - Australian stocks slid more than 4 percent Thursday as grim U.S. holiday sales and concerns over the banking industry sent stocks across the Asia Pacific region plunging.
The benchmark S&P/ASX200 index closed down 157.5 points, or 4.3 percent, at 3,529.5 and the broader All Ordinaries index fell 147.5 points, or 4.1 percent, to 3,476.8.
The nosedive came the same day that government figures were released showing unemployment in Australia had inched to a two-year high of 4.5 percent in December.
Investor sentiment had already been dinged by a U.S. government report showing retail sales dropped 2.7 percent last month, more than double the decline economists had expected. A flurry of bad news for international banks also sent stocks across Asia tumbling.
Iron ore producer Rio Tinto lost AU$3.31, or 8.2 percent, to close at AU$37.30 following a significant drop in iron ore output during the fourth quarter. Mining giant BHP Billiton lost AU$2.04, or 6.6 percent, to close at AU$28.90.
http://wtop.com/?nid=111&sid=1509621

Singapore retail sales fall 5.2 pct in November
January 15, 2009 - 1:23am

SINGAPORE (AP) - Singapore retail sales fell in November as the city-state's residents tightened their belts amid the worst recession in decades.
Retail sales fell a seasonally adjusted 5.2 percent in November from the previous month and decreased 3.4 percent from the same month a year earlier, the statistics department said in a statement Thursday.
Singapore is facing its worst recession since splitting from Malaysia in 1965 as global demand for exports slows.
The government said earlier this month that gross domestic product shrank a seasonally adjusted 12.5 percent in the fourth quarter from the previous quarter and contracted 2.6 percent in the fourth quarter from the same period a year earlier.
The government expects GDP in 2009 could contract as much as 2 percent or in the best case scenario grow just 1 percent.
Manufacturing fell 9.0 percent in the fourth quarter while non-oil exports plunged 17.5 percent in November.
http://wtop.com/?nid=111&sid=1505569

Stocks tumble as worries grow about banks
By SARA LEPRO and TIM PARADIS
NEW YORK (AP) - Volatility is reasserting itself in the stock market.
A darkening outlook for companies from banks to retailers to energy producers pummeled Wall Street Wednesday, sending the Dow Jones industrials down nearly 250 points, or 2.94 percent, and giving the other major indexes a loss of 3 percent.
The plunge leaves the Dow and the broader Standard & Poor's 500 index down more than 9 percent in six sessions. The S&P 500, the gauge tracked by professional investors, has now given up half its gains since it closed at an 11-year low on Nov. 20.
One of the catalysts behind the market's latest bout of turbulence Wednesday was the Commerce Department's December retail sales report. Wall Street knew retailers' cash registers weren't as busy this holiday season but the report was much worse than anticipated. The department said retail sales dropped 2.7 percent last month, more than double the 1.2 percent decline analysts forecast.
The record sixth straight month of declines is only the latest symptom of the economy's ills. Consumers hit by steep drops in home prices, rising unemployment and difficulty accessing credit have no choice but to pull back. That's troubling for Wall Street because consumer spending makes up more than two-thirds of U.S. economic activity. Many analysts predict the year-old recession, already the longest in a quarter-century, will persist at least until late this year.
"No doubt the retail sales numbers that came in just reminded us how bad the fourth quarter is going to look," said Jim Dunigan, managing executive of investments at PNC Wealth Management.
The confluence of bad news and fears about extremely weak fourth-quarter earnings has sent stocks plunging this month. Wall Street had rallied during December and at the start of the year on hopes for an improving economy, but companies' earnings and outlooks and the continuing stream of weak economic data have brought pessimism back to the market.
Analysts expect investors to refrain from buying until they have a better picture of companies' forecasts for 2009, which so far aren't looking too bright.
"It's once again the market kind of obsessing that there's really little good news about the economy," said Edmund Hyland, managing director and global investments specialist at JPMorgan Private Bank in Atlanta. "I think anytime you're in the kind of bear market we're in, you kind of struggle along the bottom for a while."
Investors are also increasingly uneasy about the financial industry. Deutsche Bank AG' (DB)s announcement that it lost an estimated $6.4 billion in the fourth quarter intensified the market's concerns that banks in general are still suffering and will need more government help.
"People were thinking we were coming toward the end of this financial meltdown, but as you can tell from the news today, we're not even close to the end yet," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams. "Financials are the backbone of the economy. If they aren't stable, you aren't going to see a sustainable rally."
After the close of trading, Apple Inc. (AAPL) announced that CEO Steve Jobs is taking a medical leave of absence until the end of June because his health issues are more complex than he thought. The news was likely to set off selling in tech stocks when the market reopened Thursday.
According to preliminary calculations, the Dow fell 248.42, or 2.94 percent, to 8,200.14. All 30 stocks that make up the Dow fell.
The S&P 500 fell 29.17, or 3.35 percent, to 842.62 and the Nasdaq composite index fell 56.82, or 3.67 percent, to 1,489.64. Both the Dow and S&P 500 hit intraday lows not seen since early last month.
The Russell 2000 index of smaller companies fell 20.62, or 4.35 percent, to 453.17.
Only 314 stocks rose on the New York Stock Exchange, while 2,796 fell. Volume came to a light 1.42 billion shares.
Bond prices rose as stocks retreated. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.20 percent from 2.30 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.10 percent from 0.12 percent late Tuesday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude declined 50 cents to settle at $37.28 a barrel on the New York Mercantile Exchange.
In other economic news Wednesday, businesses cut inventories in November by the largest amount in seven years as companies tried to cope with a record plunge in sales. The Commerce Department said inventories declined by 0.7 percent, more than the 0.5 percent drop analysts expected. It was the third straight month that businesses have reduced their stockpiles.
The Federal Reserve's assessment of the economy by region, known as the Beige Book, offered few surprises. The findings showed the economy has weakened in the past two months as consumers have trimmed spending, retailers have seen sales fall and as factories have scaled back production.
On Wednesday, bank stocks were among the biggest losers.
Citigroup Inc. (C), which announced Tuesday it would give control of its Smith Barney brokerage business to Morgan Stanley (MS), could soon shrink itself by one-third, according to a Wall Street Journal report Wednesday. The Journal says Citi is likely to announce plans next week to shed two consumer-finance units, the bank's private-label credit card business and cut back on trading it does on its own behalf.
While other financial firms don't appear to be in as dire a situation as Citigroup - which is expected to post its fifth straight quarterly loss at the end of the week - the industry's troubles are far from over, as Deutsche Bank's loss showed.
Wall Street will get its first taste of how the U.S. financial industry is faring Thursday, when JPMorgan Chase & Co. (JPM) reports earnings nearly a week ahead of schedule.
Citigroup plunged more than 23 percent, falling $1.37 to $4.53, while Morgan Stanley lost $1.67, or 8.9 percent, to $17.19. JPMorgan fell 44 cents, or 1.7 percent, to $25.91.
Federal Reserve Chairman Ben Bernanke said Tuesday that more capital injections may be necessary to stabilize the financial markets and spur more lending.
Analysts at Morgan Stanley said HSBC PLC, Britain's biggest bank by market capitalization, may have to raise up to $30 billion and halve its dividend as earnings deteriorate. Royal Bank of Scotland PLC also said it was raising around $2.5 billion by selling its stake in Bank of China.
Among retailers, Macy's Inc. (M) fell 58 cents, or 5.8 percent, to $9.47, while energy company Chevron Corp. (CVX) fell $2.13, or 3 percent, to $69.69.
Overseas, Britain's FTSE 100 dropped 4.97 percent, Germany's DAX index slid 4.63 percent, and France's CAC-40 fell 4.56 percent. Japan's Nikkei stock average rose 0.29 percent and Hong Kong's Hang Seng index rose 0.27 percent.
---
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
http://apnews.myway.com/article/20090114/D95N62P02.html