Stock investors hope Santa touches down

NEW YORK (Reuters) - Investors could do their holiday shopping on Wall Street this week as bargain-basement prices for stocks and optimism over efforts to fight the year-long recession may prompt a year-end rally.

But not even a Santa Claus rally to end the year can rescue 2008 from going into the books as the worst for stocks since the Great Depression, thanks to the body blow delivered by the housing market slump, credit crisis and, finally, recession.

With just seven trading days left, the benchmark S&P 500 index is down 39.5 percent for the year, on pace perhaps to match Wall Street's second-worst year ever, 1937, when the S&P also plummeted nearly 39 percent. Should no rally develop next week, 2008 could well challenge 1931 -- when the S&P crashed 46 percent -- for the mantle of Wall Street's worst-ever year.

That said, the slump in stocks has left them relatively cheap. And analysts are now more optimistic that unconventional recession-fighting efforts such as the Federal Reserve's big interest-rate cuts may soon gain traction.

"You're getting a lot of people picking through the wreckage of this year and doing some selective buying," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.

"There are some good bargains out there and there is a fair amount of buying in the marketplace."

This week, market watchers will look at fresh data on the housing market for any sign that the sector is getting closer to a bottom.

HUNTING FOR HOLIDAY BARGAINS

Volume is expected to be light in a week shortened by the Christmas holiday and an early close on Christmas Eve.

The buying spirit tends to visit Wall Street nearly every year, "bringing a short, sweet, respectable rally within the last five days of the year and the first two in January," according to the Stock Trader's Almanac.

Santa's appearance on Wall Street has been good for an average 1.5 percent gain since 1969, according to the Almanac, while the absence of such a rally tends to precede times when stocks can be bought at much lower prices.

As of Friday's close, the broad S&P 500 was off about 40 percent from where it started the year, and was down about 44 percent from the all-time high it reached in October 2007.

But the S&P has recovered about 20 percent since hitting an 11-year intraday low in late November, prompting some to speculate that the worst may be over.

"A lot of people are wondering whether they'll get a Santa Claus rally," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

"Clearly, this is not a normal year, but just the fact that you have history on your side around the New Year's holidays can only be called a positive."

Analysts said sentiment over the outlook for the battered U.S. economy has shifted to a more positive tone as investors were cheered by the Fed's move last week to cut the benchmark fed funds rate to as low as zero and pledge further measures to shore up credit markets.

Optimism over President-elect Barack Obama's proposed stimulus plan has added to the more positive tone, helping the market rally in the face of an onslaught of dire economic and corporate outlooks.

"No one is very good at dealing with economic Armageddon, but we have dealt with recessions in the past," Sheldon said.

He noted that more investors are coming around to "the opinion the economy is going through a severe recession, but we've been here before, and we'll get through this at some point. We're starting to see a little more positive sentiment."

WATCHING HOME SALES AND CASH REGISTERS

Among economic indicators due this week are new home sales and existing home sales for November, the final look at gross domestic product for the third quarter, and the final December reading on consumer sentiment from the Reuters/University of Michigan Surveys of Consumers.

The home sales figures are not likely to bring much relief, with current forecasts pointing to an 18-year low for new home sales and a nearly 10-year low for sales of existing houses. Meanwhile, the GDP data should confirm the economy, which has been in recession since December 2007, contracted at an annual rate of 0.5 percent in the third quarter.

Weekly jobless claims will come out a day early on Wednesday because of Thursday's Christmas holiday.

Analysts also will look for anecdotal signs of how retailers fare over the last shopping weekend before the holidays.

Over the weekend, retailers made a last-ditch effort to lure cash-strapped consumers to spend. But Friday's big snowstorm that has blanketed much of the northern half of the country threatened to hold down shopper traffic.

Quarterly results are light. Pharmacy chain Walgreen Co (NYSE:WAG - News) and memory chip manufacturer Micron Technology Inc (NYSE:MU - News) are among those expected to report.

Source : Here

AP IMPACT: Wall Street still flying corporate jets

NEW YORK (AP) -- Crisscrossing the country in corporate jets may no longer fly in Detroit after car executives got a dressing down from Congress. But on Wall Street, the coveted executive perk has hardly been grounded.

Six financial firms that received billions in bailout dollars still own and operate fleets of jets to carry executives to company events and sometimes personal trips, according to an Associated Press review.

The jets serve as airborne offices, time-savers for executives for whom time is money -- lots of money. And some firms are cutting back, either by selling the planes or leasing them.

Still, Wall Street's reliance of the rarified mode of travel has largely escaped the scorn poured on the Big Three automakers.

Insurance giant American International Group Inc., which has received about $150 billion in bailout money, has one of the largest fleets among bailout recipients, with seven planes, according to a review of Federal Aviation Administration records.

"Our aircraft are being used very sparingly right now," AIG spokesman Nicholas J. Ashooh said. "I'm not saying there's no use, but there's very minimal use."

To cut costs, AIG sold two jets earlier this year and is selling or canceling orders for four others.

Five other financial companies that got a combined $120 billion in government cash injections -- Citigroup Inc., Wells Fargo & Co., Bank of America Corp., JPMorgan Chase & Co. and Morgan Stanley -- all own aircraft for executive travel, according to regulatory filings earlier this year and interviews.

A cross-country trip in a mid-sized jet costs about $20,000 for fuel. Maintenance, storage and pilot fees put the cost far higher.

Many U.S. companies are giving up the perk. The inventory of used private jets was up 52 percent as of September, according to recent JPMorgan data on the health of the private aircraft industry.

A few big U.S. companies have shunned jet ownership. Chip maker Intel Corp., for example, requires executives and employees to fly commercial. Intel occasionally charters jets for executives on overseas trips for security reasons, though.

For automakers, the public relations nightmare exploded last month when the chief executives of Ford, GM and Chrysler were criticized for flying on corporate jets to Washington to ask Congress for federal bailout money.

"Couldn't you all have downgraded to first class or jet-pooled, or something, to get here?" Rep. Gary Ackerman, D-N.Y., asked the CEOs.

When the executives went back to Capitol Hill two weeks later for a second round of hearings, they traveled by car.

So why were Wall Street executives spared from the corporate-jet backlash? One reason is that they didn't have to go before Congress to request bailout money, so no one asked how they traveled to Washington.

But an AP review of Securities and Exchange Commission filings and FAA records offers a glimpse of Wall Street firms' ownership and use of private aircraft. Among the findings:

-- CITIGROUP: Has a wholly owned subsidiary, Citiflight Inc., that handles air travel for executives. Citi spokeswoman Shannon Bell refused to comment on the size of the firm's fleet but said it has been reduced by two-thirds over the past eight years. FAA records show four jets and a helicopter registered to the company.

In 2007, then-CEO Charles Prince used company aircraft for personal trips for security reasons. Those trips cost the company $170,972 for that year. Current CEO Vikram Pandit began reimbursing the company for all personal travel on company planes since being appointed in November 2007.

Use of Citigroup's aircraft currently is confined to a "limited number of executives," Bell said. "Executives are encouraged to fly commercial whenever possible to reduce expenses."

-- MORGAN STANLEY: Has reduced its executive jet fleet size from three planes to two since 2005, company spokesman Mark Lake said. FAA records show two Gulfstream G-Vs as registered to the company.

In 2007, CEO John Mack's personal use of company aircraft totaled $355,882, according to a February proxy filing. Mack is required to use company aircraft for personal trips for security reasons.

-- JPMORGAN: Registered as the owner of four Gulfstream jets, including a 2007 ultra-long range flagship G550 model, FAA records show. A G550 ordered for delivery that year would have cost roughly $47.5 million.

CEO Jamie Dimon is required to use company aircraft for personal trips; In 2007, his personal use of company jets totaled $211,182, according to a May filing with the SEC. Company spokesman Joe Evangelisti refused to comment on whether the bank has changed its policy on corporate aircraft use since accepting $25 billion in TARP money.

-- BANK OF AMERICA: Registered as the owner of nine planes, including four Gulfstreams, FAA records show. Company spokesman Scott Silvestri refused to say whether the company has changed its policy on corporate aircraft use since taking $15 billion in bailout money.

CEO Kenneth Lewis, also required to use company aircraft for personal trips, racked up $127,643 in such travel last year, according to a March filing with the SEC.

-- WELLS FARGO: Owns a single jet that "is strictly for business purposes under appropriate circumstances," spokeswoman Julia Tunis Bernard said. "No (government) funds will be used for corporate jet travel," she added.

SEC rules require publicly held companies to disclose executives' personal use of corporate aircraft. But there's "a lot of gray area" in how they do it, said David Yermack, a finance professor at the Stern School of Business at New York University who has studied the matter.

"If you use the plane for a personal trip but make one business call, should you report it?" he said. "Or if you're playing golf with potential business partners, does a company report that as business or personal?"

As mounting losses force companies to cut costs, some are becoming stingier about personal use of the company plane. Merrill Lynch & Co., for example, has banned such trips, according to company filings.

Experts say other companies that took bailout money will probably follow suit.

"The personal use of these planes is virtually indefensible at this point," said Patrick McGurn, special counsel at shareholder advisory firm RiskMetrics Group. "Once you're on the federal dole, the pressure is going to become immense on these firms to cut these costs."

Private jet manufacturers say the debate over executive travel has been overblown.

"What people don't understand is that business jets are mobile offices," said Robert N. Baugniet, Gulfstream's director of corporate communications. "If time has any value to you, then you'll understand why people use business jets."

He said the dustup hasn't hurt orders for new planes.

Still, some firms have avoided corporate jet ownership. Goldman Sachs Group, whose executives in past years have been among the highest-paid in the industry, has never owned its own aircraft since going public in 1999, spokesman Michael DuVally said.

The company does make private planes available to some executives through a fractional jet agreement, a timeshare-style arrangement, according to filings. Duvally refused to say how much the company spends on its fractional agreement.

Wary of being perceived as opulent, most companies fly in unmarked jets. Aviation buffs can usually track planes over the Internet using aircraft tail numbers. But many companies, including AIG and Citigroup, have blocked the public's ability to do so for security reasons.

Some corporate chieftains make no excuses for flying the private skies.

After years of railing against such costs, billionaire investor and Berkshire Hathaway Inc. CEO Warren Buffet broke down in 1989 and bought a Gulfstream IV-SP using $9.7 million in company funds. He named the aircraft "The Indefensible."

Source : Here

Obama expands goals of stimulus

Barack Obama has expanded the goals of his proposed economic stimulus, with a plan to create or save an additional 500,000 jobs.

The president-elect raised his jobs target over the next two years to 3m – up from the 2.5m goal set last month – after US unemployment hit its highest level for 15 years in November.

Transition officials said Mr Obama had agreed the outlines of a $675bn-$775bn two-year recovery plan last week. But the price tag is likely to rise above $800bn (€575bn, £535bn) as Congress makes its own demands during the legislative process.

The moves come amid a warning on Sunday, from the International Monetary Fund, that governments must act more aggressively to prevent a deeper slump

Dominique Strauss-Kahn, IMF managing director, told BBC radio that inadequate stimulus measures risked making the slowdown worse than expected next year. “I’m specially concerned by the fact that our forecast, already very dark . . . will be even darker if not enough fiscal stimulus is implemented,” he said.

The IMF has called for combined stimulus measures in 2009 of $1,200bn – or 2 per cent of global annual economic output – amid fears of the deepest slump since the Great Depression.

Mr Strauss-Kahn’s remarks echoed Joe Biden, US vice-president-elect, who told ABC’s This Week on Sunday that the American economy was in danger of “absolutely tanking” without “bold” action.

“The economy is in much worse shape than we thought it was in,” he said. “There is going to be real significant investment, whether it’s $600bn or more, or $700bn, the clear notion is, it’s a number no one would have thought about a year ago.”

Under Mr Obama’s proposals, most of the cash would be spent on tax cuts for the middle class, aid to cash-strapped state governments and investments in infrastructure, “green” energy and other policy priorities.

Detailed talks have been under way with congressional leaders for the past few days, with a view to legislation being ready for Mr Obama to sign soon after taking office on January 20.

Mr Obama’s stimulus package represents a sharp increase from the $175bn stimulus plan he proposed during the election campaign. It would be by far the biggest intervention of its kind in the US economy for decades, on top of the $700bn bail-out already committed to the financial and automotive industries.

Many of the 3m jobs that Mr Obama aims to save or create will come in the construction industry as his administration pours billions of dollars into infrastructure projects, including road and bridge building, mass transit systems and modernisation of schools and other government buildings.

Source : Here

Japanese exports in record 27% fall

TOKYO, Dec 22 – Japan’s exports plunged at a record annual pace in November with shipments to Asia dropping the most since 1986 as a global economic slump and a surging yen slashed demand for everything from autos to electronics.

While imports fell 14.4 per cent as the Japanese economy languished in recession, the 26.7 per cent plunge in exports was large enough to keep the trade balance in deficit for a second month running. Japan last logged trade deficits two months in a row during a previous spell of yen strength in 1980.

The Japanese currency has surged around 20 per cent against the dollar this year as investors spooked by the global financial crisis bailed out of risky assets and brought funds home.

Shipments to the United States sank a record 33.8 per cent on slack demand for automobiles. The United States is in recession and American demand for Japanese goods has been falling for 15 months, ever since US mortgage defaults started to squeeze global credit markets.

By contrast Asian markets held up for much of the crisis, but are now crumbling at dizzying speed. Exports to Asia fell 26.7 per cent in November. Shipments to China dropped 24.5 per cent, the biggest fall since 1995, on weak demand for semiconductors, digital cameras and other electronic goods, the Ministry of Finance said.

“The drop shows that domestic demand in China for Japanese goods is not that strong,” said Kaori Yamato, an economist at Mizuho Research Institute. The Chinese economy is slowing sharply as exports to Europe and the United States plunge.

Collapsing export markets have slashed Japan’s once politically sensitive trade surplus. The trade deficit of Y223.4bn ($2.5bn) in November was smaller than a median market forecast of Y257.5bn.

“Exports will probably be weak at least until the end of this fiscal year,” said Maiko Noguchi, senior economist at Daiwa Securities SMBC.

“After that there will be some help from fiscal spending (by other countries) but it’s still not clear the economy could recover sustainably.”

The Japanese government grew more pessimistic about the economy for the third straight month, citing rapidly falling output and corporate profits in its economic report for December.

“Economic conditions are worsening,” the government said in the report. It was the first time the government used that expression since February 2002.

The deepening economic gloom at home and abroad is forcing Japanese companies such as carmakers Toyota and Honda to slash output and profit forecasts.

A Ministry of Finance survey showed earlier this month that Japanese corporate profits in July-September fell at the sharpest pace in 6 years.

A Reuters poll showed on Monday the mood among Japanese manufacturers at an all-time low and deteriorating at the fastest pace on record in December.

The Reuters Tankan survey found manufacturers’ sentiment worsened 22 points – the biggest monthly tumble ever recorded – to minus 64 in December, the lowest reading since the survey began in June 1998.

Financial markets did not react much to the data with investors pushing up the Nikkei stock average by 1.4 per cent on relief that struggling U.S. automakers had been granted a $17.4bn government loan.

Naoki Iizuka, senior economist at Mizuho Securities, said the Bank of Japan could resort to cutting interest rates to zero as early as January to contain the slump.

The BoJ pushed its key policy rate down to 0.1 per cent on Friday following the US Federal Reserve, which announced a target rate of between zero and 0.25 per cent, the lowest it has ever taken the benchmark.

The Fed cut last week pushed the yen to a 13-year high.

Source : Here

China battles unemployment to deter unrest

Tackling unemployment among university graduates will be China’s priority next year as the economy falters, Wen Jiabao, the prime minister, said at the weekend.

The attention given by state media to Mr Wen’s visit to a Beijing university was the latest sign of the government’s increasing fear of widespread unrest as growth declines much faster than expected.

“We have made finding jobs for university students our top priority and will come out with some measures to make sure all graduates have somewhere constructive to direct their energy,” Mr Wen told students at the Beijing University of Aeronautics and Astronautics.

He said the government was also extremely concerned about migrant workers who had been laid off in the cities. By the end of November, 10m migrant workers had lost their jobs nationwide and 4.85m of those had returned home, according to government figures.

A survey last week by a government think-tank estimated the number of recent graduates who have been unable to find work at 1.5m. Tertiary institutions are expected to churn out another 6.5m graduates next year.

In recent weeks, a growing chorus of official voices has raised the spectre of unrest. “If growth falls below 8 per cent then that will create enormous problems in terms of unemployment,” according to Zhang Xiaojing, director of the Macroeconomy Office of the Institute of Economics at the Chinese Academy of Social Sciences.

“There will be lots of laid-off migrant workers returning to the villages, not to mention the many college graduates and this will affect social stability.”

Mr Zhang linked the continuing riots in Greece directly to the global economic crisis and said that Beijing was wary of a similar situation erupting in China.

Sporadic protests by laid-off workers in export-oriented industries have increased in recent months and large-scale riots have become a common occurrence in China in recent years, especially in poorer rural areas.

The State Council, China’s highest governing body, issued a decree to local governments over the weekend ordering them to create jobs for migrant workers who had returned to their home towns.

The creation of a huge population of educated unemployed is worrying for the ruling Communist party, which is keenly aware of the historic role disgruntled students have played in inciting rebellion. Next year marks the 20th anniversary of the June 4, 1989, crackdown in which party elders ordered troops to fire on student-led demonstrators in Tiananmen Square, Beijing.

Mao Zedong, who led the Communists to victory in 1949, was himself an educated son of a rich peasant who had his scholarly ambitions thwarted.

●China offered Rmb130bn ($19bn) of loans for Taiwan companies operating on the mainland, Bloomberg reported, as the ruling parties of both governments laid out proposals to boost financial ties. Beijing would provide the financing over three years and also purchase $2bn worth of flat-panel displays from the island’s companies, Wang Yi, director of the Taiwan Affairs Office, said at the end of a weekend forum.

Source : Here