I have just received a telephone call from Federal Reserve Chairman Ben Bernanke with a scoop no other newspaper has. Goldman Sachs is merging with Citigroup and the new company will be called, “Sachs and the Citi.”
We have been through one of the worst weeks in global history and the S&P 500 index has fallen to its lowest level since 1997. The Dow and the Nasdaq are only a fraction above it. The Dow closed nearly 500 points higher on Friday due to the fact that it was expiration day for the option market. All the bears who sold put options on stocks and the S&P index last month called their options and covered their short positions so the Dow opened nearly 200 points higher. Toward the close, Obama appointed Geithner to be treasury secretary and Summers to be chief of the National Economic Council. Both men are highly qualified and well thought of so the Dow rallied strongly.
Other appointments were also announced and he has offered the post of Secretary of State to Hillary Clinton who has accepted. He outlined his economic recovery plan to create 2.5 million jobs by 2011. He said that American workers would rebuild the nation’s roads and bridges, modernize its schools and create more sources of alternative energy such as wind farms and solar energy. A bipartisan Congress extended the unemployment benefits for one million Americans, who would otherwise be destitute by Christmas. He did no comment on the failure to vote on the automotive bailout, saying that President Bush was in charge until Jan. 20.
Obama is a charismatic speaker and his promise of action when he assumes power is likely to infuse confidence into the America public. Nevertheless, he warned that things would get worse in the near future. A record number of unemployment claims last week indicates that November will be an even worse month. Nobody would be surprised if the number of jobs lost exceeded 300,000 and this trend will continue into next year. By the end of 2008, the total number of jobs lost should be around 1.7-1.8 million and will surpass two million before he can hope to reverse the trend.
House prices are still declining, house starts are at a new low, consumer spending is down and nobody expects anything other than a dismal Christmas as far as sales are concerned. All attempts by the Fed (Bernanke has tried everything) have so far failed to get the banks to lend. Foreclosures are running at a record of 80,000 a month and few people will be helped by Paulson’s schemes, as he has diverted the funds away from buying toxic mortgages to helping finance banks. Whether this decision is a wise one, only time will tell. We may see a better stock market ahead of the transition but I still don’t think we will see the ultimate low before the middle of next year. Meanwhile, there could be some sharp rallies.
It will be interesting to see how the big three automakers survive the next two months. Personally, I agree with the Senate majority leader and would like to see all three companies file for Chapter 11 and for Chrysler to get taken over. A slimmed down GM and Ford, minus all their union liabilities, might allow them to survive against Toyota, Honda and Volkswagen. Unfortunately, Obama is likely to be more sympathetic to the unions, in which case I think he will be throwing good money after bad. Any money given to the automakers should be fashioned after Warren Buffett and include preferred shares and warrants so that taxpayers have a chance to recover their investments.
All Asian and European markets have followed the US and Japan, Germany and the UK have admitted they are in recession. The trend toward safety has continued and foreign fund managers have been dumping stocks, bonds and currencies of emerging markets. Hardest hit has been the won and the rupiah. The peso has not escaped and is hovering around the 50 mark but mercifully, we are protected by the remittances from our overseas workers. Without them and bearing in mind our yawning trade deficit next year, I hate to think what the rate would be.
Foreign brokers have been slashing their price targets on a number of blue chips often by a third, and these include TEL, GLO, SM, SMPH, AC, ALI, MEG, MBT and many more. Even Meralco is degenerating. Turnover in the local market has fallen from P6 billion early in the year to around P1 billion, net of cross sales. Foreign selling continues and accounts for 20-30 percent of gross turnover. Local investors have given up and are no longer active and most second and third liners are at crazy levels but as there is no interest in them, prices are likely to remain depressed. Two recent rights offers, IPVG and ATRK, have had to reduce their offer prices. Etel announced record third-quarter profits and is at its high while PAX announced a P30-million loss and has slipped to a new low of 97 centavos.
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A married couple was having trouble over birth control. The wife was a devout Catholic, the husband not so. In order to spare his wife from sinning, he volunteered to have a vasectomy. The wife agreed but wanted the children to vote on it. They voted 17 in favor and two against.
My wife wanted to visit the Holy Land this Christmas but I told her that all aircraft seats were taken and sent her to visit the Taliban instead.
I was married by a judge but I should have asked for a jury. When I look at my wife I realize I should have joined the priesthood.
I cannot remember who said, “The rich will get richer, the poor will have children.”
