Joseph Lazzaro
New York - http://
Joseph Lazzaro is a veteran financial editor with more than 10 years in financial news and financial publishing. Lazzaro served as Managing Editor of New York-based financial news web site WallStreetItalia.com / WallStreetEurope.com for four years. Lazzaro, who holds an ABD/Ph.D. in American Government and International Economics from the University of Connecticut, also served as a News Editor for the Pulitzer Prize-winning Hartford [Connecticut] Courant, prior to graduate school. He is based in New York.
Posted Dec 3rd 2008 5:34PM by Joseph Lazzaro
Filed under: Bad news, Financial Crisis
In another sign that the credit crunch has not disappeared, the Port Authority of New York and New Jersey
received no bids from investment banks to underwrite a taxable note offering.
The Port Authority was trying to sell $300 million worth of three-year notes, backed by revenue streams, Bloomberg News reported.
The Port Authority operates airports, river crossings, and certain transit systems in the New York metropolitan area and has a strong credit rating. The agency is also rebuilding the World Trade Center site, including the new
Freedom Tower.
Economist David H. Wang was apoplectic about the failed offering. "This is unbelievable," Wang said. "It's a ridiculous situation, frankly, and something has to be done to free-up these credit markets. This is the financial equivalent of Warren Buffett not being able to get a $20 million loan."
State, cities, and other taxing districts have had trouble selling bonds through advertised bidding, after institutional investors pared-back their appetite for fixed-income securities -- and just about every other asset class -- as the financial crisis intensified in September. In tandem, investment banks have balked at bidding for certain debt, sensing insufficient client demand, Wang said.
Continue reading No bids for Port Authority of NY/NJ bond offering shows credit crisis far from over
Posted Dec 3rd 2008 12:45PM by Joseph Lazzaro
Filed under: Forecasts, Politics, Recession, Financial Crisis
What's one reason for not jumping back in the market at this juncture?
Well, one could certainly cite end-of-the-year tax loss selling, which typically weighs on the market. Or
the battle for Dow 8,000 between institutional bulls and bears. Or the fact that the Dow's path of least resistance,
from a technical standpoint, remains down. (That's a major reason why the Dow drops so quickly: all that's required is a hedge fund manager to sneeze and the Dow drops 300 points, or so it seems.)
All of the above are valid reasons to remain on the sidelines.
Is Washington planning big changes?But perhaps the best reason to not deploy new capital is the new era itself. The United States is preparing for a new presidential administration and one gets the sense that there could be a series of seismic shifts up ahead -- shifts that will affect money, markets, investing, and business trends.
It's true that after the U.S. government's allocation, via loans, loan guarantees, or investments, of
about $8.2 trillion for the financial system, it's hard to picture shifts up ahead that could be as landscape-altering as those undertaken in the past year. But that could very well be the case nevertheless.
Those hoping for small change are likely to be disappointed. On January 20, President-elect Obama becomes
President Obama and he is
big change. U.S. Senator and now Secretary of State-designate Hillary Clinton, D-New York, was
small change, and we saw how the electorate responded to her candidacy. Voters were so adamant for economic change (and other changes) after the United States' decade of descent that they not only blamed the Republican Party, they rejected anyone with even a hint of being a part of the economic policy mistakes, including Clinton.
Continue reading Is this the best time to commit new money to stocks?
Posted Dec 3rd 2008 9:58AM by Joseph Lazzaro
Filed under: Bad news, Employees, Recession
Nonfarm private employment
decreased an enormous 250,000 in November (pdf) on a seasonally adjusted basis, ADP announced Wednesday.
Meanwhile, the October estimated change in employment was revised to a decrease of 179,000 jobs from the previously-announced decrease of 157,000 jobs.
While manufacturing employment fell 118,000 in November -- its 27th consecutive monthly decline -- the service sector of the economy lost 92,000 jobs -- its second consecutive monthly job loss, and the first back-to-back monthly job loss in that sector since November 2002.
Economist Richard Felson said the November ADP private sector report shows a U.S. economy with few strengths. "It is another distressing report. The fact that the service sector is now registering large job losses is bearish for the economy. Previously, the service sector had been the only sign of strength," Felson said. "Simply, the nation, and the other regions of the world need to create engines of growth to reverse this negative spiral of decreased demand, lower revenue, job losses, decreased demand."
Most of the decline in employment during November was accounted for by job losses at medium-sized companies, which registered a 130,000-job decline. Meanwhile, large businesses cut 41,000 jobs in November. Small businesses cut 79,000 jobs during the month.
Continue reading November payroll loss points to likely lower corporate revenue, earnings
Posted Dec 3rd 2008 8:58AM by Joseph Lazzaro
Filed under: Freep't McMoRan Copper (FCX), Commodities, Recession
Just call it another data point confirming the breadth and depth of the global economic slowdown. Freeport-McMoRan Wednesday suspended its dividend and cut production by 5% in 2009 and 11% in 2010, due to a sharp decline in prices,
the company announced (pdf).
Freeport said it will reduce capital spending by $1.2 billion, a gargantuan 50% reduction from its previous estimate for 2009 capital spending. The company also suspended its $2 annual dividend.
Shares of
Freeport (NYSE:
FCX) Tuesday closed up 91 cents to $21.82 amid a broader market rally, but are declining $4.02, or over 18%, in premarket trading (8:27 am).
For the cutbacks, Freeport cited a large decrease in key commodity prices stemming from declining demand. Copper prices have declined to an average price of $1.69 per pound in November, compared to a nine-month average of $3.61 per pound as of September. Molybdenum prices have decline to $9 per pound as of December, compared to about $30 per pound in mid-October.
Continue reading Freeport suspends dividend, cuts production on lower demand, prices
Posted Dec 2nd 2008 6:00PM by Joseph Lazzaro
Filed under: International markets, Commodities, Oil, Recession, Financial Crisis
History is repeating itself, at least in the oil market.
Once again, a miscalculation by
OPEC -- probably motivated by greed or rational self interest carried to its logical (but foolish) extension -- has resulted in almost the same set of market conditions that resulted when OPEC made the same mistake in 1990-1991.
Then, following the Persian Gulf War in 1990, OPEC increased production only grudgingly, in an attempt to hang onto sky-high oil prices of about $55-60 per barrel. (Or about $120 in today's dollars.) The result? A
U.S. recession and a consequent collapse in oil demand, and in oil's price: oil first fell below $40, then $30 on its way to trading below $13 per barrel in 1998.
Thirteen dollars a barrel in nineteen ninety-eight.Those who fail to learn from history...Fast forward to 2007. OPEC has an opportunity to at least slow, if not reverse the steady rise in oil prices, which were then testing
$90. However, despite the fact that oil shocks have preceded every U.S. recession since 1972, except the post-September 11, 2001 recession, OPEC does nothing.
In fact, as the price of oil continued to spiral
to dizzier and dizzier heights, OPEC meetings served as information dissemination opportunities to blame the rising price on anything but a lack of increased OPEC production: the weak dollar, geopolitical concerns, investors who view oil as a performing asset, and so on. In fact, what OPEC was doing during this phase of the oil cycle was, yet again, testing the limits of the market: i.e., to determine the maximum price the market could bear, in order to maximize revenue for oil-producing nations. Or, in other words, OPEC members were repeating the mistakes of 1990-1991.
Continue reading Once again, OPEC has killed the goose that lays the golden egg
Posted Dec 2nd 2008 3:05PM by Joseph Lazzaro
Filed under: Delta Air Lines (DAL)
Delta may still be ready when you are, but in 2009 they're not going to be as big.
Citing the global recession,
Delta (NYSE:
DAL)
announced that it will cut an additional 6-8% of capacity in 2009. The move will result in an up to 10% reduction in domestic capacity, when one includes the impact of previously-announced operational cuts. Delta also said it will eliminate an undetermined number of jobs.
Shares of
Delta (NYSE:
DAL) rose 52 cents to $8.48 on Tuesday at mid-day amid a broader market rally.
Delta, which recently merged with Northwest to become the world's largest airline, said it will offer "voluntary programs" to decrease the size of its workforce. Delta President Ed Bastian called the cuts "dramatic" and said total seat capacity, domestic and international, over the two-year, 2008-2009 period, will be reduced by 20% -- a required step, due to the downturn in both business and leisure travel,
The Wall Street Journal reported.Continue reading Delta to cut capacity by up to 8% in 2009, plans 'voluntary' job cuts
Posted Dec 2nd 2008 1:20PM by Joseph Lazzaro
Filed under: Forecasts, Recession, Financial Crisis
A journalism professor of yours truly, Jon Sandberg, who also served in key positions for several Connecticut governors, had an interesting technique that he frequently deployed in seminars. A student would pose a question and Sandberg would say, "That's a good question. Is it acceptable and ethical to publish information that you know would show ethical and other lapses by the current president, if you know that information would also harm innocent individuals?
That's a good question."Then Sandberg would grab his cup of coffee and walk to the window side of the classroom, and stare out the window, sipping his coffee, saying nothing, for an eternity. Eventually, a student or two would begin the discussion.
What's a good question for today? Maybe this: where have all the consumers gone
in the U.S. economy? BloggingStocks had a chance to grill economist Peter Dawson on the matter, and he has a few theories.
The first concerns
structural and technological factors, he said. The U.S. is in the midst of adjusting to globalization, which, as most investors know, has resulted in the transfer of millions of good-paying U.S. jobs overseas to lower-cost centers. "The U.S. has also gained some jobs from globalization, but the net is still a major loss of good-paying jobs in the United States," Dawson said. "Some economists argue that's at the root of declining consumption. We are net-negative in the good-paying jobs category, so far, in globalization, and there simply aren't enough citizens with incomes adequate to buy the products."
Continue reading Where have all the consumers gone?
Posted Dec 2nd 2008 11:41AM by Joseph Lazzaro
Filed under: Forecasts, Recession, Financial Crisis
A good rule for a forward-thinking executive to observe is never go anywhere -- at least don't walk into any meeting -- without the latest projections or models for the U.S. economy for the year ahead.
How's the U.S. economy likely to perform in the year ahead? Well, here are the summaries of economist David H. Wang's models based on predetermined values for 20 proprietary variables.
Realignment: This forecast assumes a modest $200-400 billion fiscal stimulus, a $70-80 a barrel oil price, record / near-record home mortgage foreclosures, along with efforts to realign U.S. energy policy, and reductions in health care spending accompanying national health care legislation. In this model unemployment rises to 9.5% and the recovery does not begin until Q4 2010. (That's correct: Q4
2010.)
Elongated: This model assumes a modest $200-400 billion fiscal stimulus and a $60 a barrel average oil price, with another year of record / near-record home mortgage foreclosures. Unemployment rises to 9.0%, and the economic recovery does not begin until late Q2 / early Q3 2010.
Steady-state: This model assumes about $500 billion in fiscal stimulus and a $60 a barrel average oil price, among other factors, that limits the recession's depth slightly. Unemployment still rises to 8.0% from the current 6.5%, but the economic recovery begins in early 2010.
Continue reading Outcome for the U.S. economy depends mostly on fiscal stimulus
Posted Dec 1st 2008 3:25PM by Joseph Lazzaro
Filed under: Federal Reserve, Recession, Financial Crisis
U.S. Federal Reserve Chairman Ben Bernanke Monday provided the markets with his latest -- and strongest -- hint about new plans to counteract both the credit crunch and the U.S. recession. Now it looks like the Fed may buy Treasury notes and bonds, and/or agency bonds, in an effort to push interest rates even lower and "spur aggregate demand."
"Although conventional interest rate policy is constrained by the fact that nominal interest rates cannot fall below zero, the second arrow in the Federal Reserve's quiver -- the provision of liquidity -- remains effective," Bernanke said in
a speech Monday in Texas. "The Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities. This approach might influence the yields on these securities, thus helping to spur aggregate demand."
Fed deploying unconventional toolsBernanke's comments are the Fed's latest hint that the world's most powerful central bank will deploy a 'new tool box' and unconventional techniques that Bernanke has previously said most likely would be needed to help the nation cope with its most serious financial crisis since the
Great Depression.Moreover, although the potential actions announced Monday technically are not quantitative easing, they will have that effect, says economist David H. Wang. Quantitative easing involves increasing the reserves in the banking system after the Fed loses the ability to lower the cost of money from an interest rate standpoint.
Continue reading Fed's Bernanke: Fed may buy Treasuries, agency bonds to stimulate economy
Posted Dec 1st 2008 2:55PM by Joseph Lazzaro
Filed under: Forecasts, Other issues
"My Maserati does one eighty five,
I lost my license, now I don't drive."
-- "Life's Been Good," Joe Walsh
U.S. auto sales most likely will register yet another year-over-year decline when Big Three auto manufacturers report November sales on Tuesday.
But that's not to say that all segments of the auto market are in free-fall, revenue wise: sales of many high-end or luxury cars are doing just fine. Sales of many high-end luxury cars are flat or down just slightly this year, in contrast to double-digit declines seen in typical vehicle categories.
Ferrari's U.S. sales are down just 3%, Mazerati's sales are up 10%, and Rolls-Royce's sales have risen an eye-opening 32%, according to data collected by Autodata.
It's been a great decade . . . for the gentry
Economist David H. Wang said the luxury car statistics are consistent with a macro-consumption theme pervasive throughout the decade: for the most part, luxury brands and super-exclusive brands did well.
"One thing the decade's economic policies did accomplish was a substantial increase in wealth among upper income groups, especially the already wealthy and the super rich. Most people earning more than $300,000 a year have had their best decade ever," Wang said. "That's been very good for luxury product sales, like luxury cars, luxury homes, fine art, jewelry, and vacation homes. Unfortunately, the decade's income and wealth gains at the high end doesn't mean too much for broad-based consumer demand, and for the overall U.S. economy." Wang added that he does not have a rating on or an investment stake in any auto manufacturer.
Continue reading Auto sales slumping? Not if you're a Maserati dealer
Posted Dec 1st 2008 11:28AM by Joseph Lazzaro
Filed under: International markets, Forecasts, Economic data, Recession, Financial Crisis
Crises have a way of separating strong business models from sub-par ones. Similarly, they sometimes invalidate theories institutional investors and economists have adhered to for generations.
One example of the latter concerns the dollar. The Federal Reserve's balance sheet has increased to $3.5 trillion from $800 billion in September. Meanwhile, the U.S. budget deficit for fiscal 2009,
will likely exceed $550 billion (pdf) and could top $1 trillion; it could top $1.2 trillion next year.
Had the aforementioned debt increases occurred in Brazil, Mexico, or Argentina, the result would have been a flight of international investors out of local investments, accompanying respective currency runs, and an ensuing domestic crises.
The impact of the increased debt on the United States? By almost all measures, it's been mild. Since September, the
dollar has risen about 15% and 20% against the
euro and
British pound respectively. Meanwhile, borrowing costs for the U.S. government have
trended lower, with interest rates on the
10-year and
30-year bonds falling to 2.79% and 3.29% respectively.
True, the dollar has fallen 13% versus
Japan's yen, as institutional investors, unable to productively invest borrowed, low-interest-rate yen, returned that money to Japan, but by and large the dollar has remained firm amid the nation's worst financial and economic crisis in at least 40 years.
Many economists had expected the dollar to weaken. Economist Peter Dawson was one of them.
Continue reading Amid rising U.S. budget deficit, investors still clamoring for dollars
Posted Dec 1st 2008 10:40AM by Joseph Lazzaro
Filed under: Forecasts, Bad news, Economic data, Recession
Two questions of macroeconomic importance for investors and executives alike? How deep will the U.S. recession be, and how much fiscal stimulus will be needed to get the economy on a sustainable growth track?
On the first, the recession will not be mild if case precedent holds, particularly if the Economic Cycle Research Institute's (ECRI)
weekly leading index is predictive. The index fell to a record-low -29.2% last week from -28.2% registered earlier in the month. It was the index's lowest reading since 1949.
A turn in the ECRI's leading index would suggest that the U.S. economic cycle has bottomed, so says economist David H. Wang. So far, there's little indication of a turn.
On the policy front, a consensus appears to be forming that the Obama Administration's fiscal stimulus package should be upwards of $400-500 billion. If that's the case, it would please Wang.
"Given the amount of wealth and income taken out of the economy by the decline in housing and stock prices and job lay-offs, we will need a stimulus of at least $500 billion to counteract the major contraction forces affecting the economy," Wang said. "And the more concentrated the stimulus, from a time standpoint, the better. A $500 billion infusion over three months would create more GDP bang for the buck than two $250 billion packages spread over five or six months."
Continue reading So far, few signs U.S. economic cycle has bottomed
Posted Nov 26th 2008 3:36PM by Joseph Lazzaro
Filed under: International markets, Forecasts, India, China, Brazil, Russia, Middle East, Recession, Financial Crisis
Few economists deny that the global economic order that dawns following the financial crisis will be different from the pre-crisis order.
And a key difference is likely to be consumption patterns -- namely the development and expansion of middle classes in younger economies as a source of demand.
The export economy's downside
Emerging market economies have learned/are learning an all-too-painful lesson regarding the vulnerabilities -- or the downside -- of an export-based economy: if for some reason that foreign demand wanes or dries up, your economy has a problem. A big problem.
Continue reading A global imbalance not likely to be repeated: dependence on U.S. consumption
Posted Nov 26th 2008 2:50PM by Joseph Lazzaro
Filed under: Berkshire Hathaway (BRK.A)
Patience is a behavioral virtue in more ways than one.
Billionaire investor
Warren Buffett's bank-related investments increased 36% in Q3, while the Standard & Poor's 500 Financial Index declined 0.2%, as Buffett's subprime lender-avoiding strategy shielded him from losses in the sector, according to
Bloomberg.The rewards of waitingPatience appears to have been a key to Buffett's impressive performance in the financial sector.
"In a word, I can sum it up: patience," William Frels, CEO of Mairs & Power Inc.,
told Bloomberg News. "Warren has the luxury of being able to exercise patience." Mairs & Power Inc. also holds some Berkshire stock in client accounts.
Shares of
Berkshire Hathaway (NYSE:
BRK.A) rose $3,100 or 3.22% to $99,550 on Wednesday at mid-day.
Economist David H. Wang said Buffett's results speak for themselves. "I wish he was managing my portfolio," Wang said. "Seriously, the results have to bring into discussion again the inherent problems of quarterly reporting. There has been much debate regarding how quarterly reporting influences corporate operational decisions, to the detriment of long-term business operation performance. Now we are getting more and more evidence that quarterly reporting may be hurting investment fund performance, as well." Wang added that he does not own shares of BRK.A.
Continue reading Warren Buffett's picks beat S&P 500's Financial Index in Q3
Posted Nov 26th 2008 1:50PM by Joseph Lazzaro
Filed under: Forecasts, Economic data, Politics, Recession, Financial Crisis
Is it safe to assume there will be a shift in U.S. public policy, particularly with respect to the economy, just because
President-elect Barack Obama and the Democrats will be in charge, as opposed to the George Bush-led Republicans?
The above may appear to be stating the obvious but historical evidence indicates that is not the case: over the decades there have been remarkable similarities in economic policies offered by Republicans and Democrats. It's the basis for the joke that the difference between the two is akin to the difference between Tweedledum (center-right) and Tweedledee (center-left).
A new era of reform? Further, although Democrats have historically viewed government as an activator (and Republicans as a regulator), Democratic ventures, certainly from a European standpoint, with few exceptions, have been limited in scope. The largest and most influential, of course, has been Social Security -- the successful redistributive (although partial) pension program that lifts tens of millions of American senior citizens out of poverty every year.
However, the above is not to imply that Republicans can not be change agents. The impressive reforms by the trust-busting
President Teddy Roosevelt (including the Hepburn Act of 1906, the Pure Food and Drug Act of 1906, the Meat Inspection Act of 1906, and numerous conservation programs) provide testimony to that. There's a reason Teddy Roosevelt's face is on
Mount Rushmore.Continue reading Will Obama really change the economic playing field?
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