January ends with grim news

It was the worst January ever for the Dow industrials and S&P 500, according to Stock Trader’s Almanac data.

The Dow lost 8.8% and the S&P 500 lost 8.6% in the month.

The Nasdaq’s loss of 6.4% was eclipsed by last January’s loss of 9.9%. That 2008 loss was the worst in the tech average’s history, going back to its inception in 1971.

As goes January so goes the year. Or so they say.

Cargo Plummets 22.6% in December

The International Air Transport Association is reporting Cargo Plummets 22.6% in December

The International Air Transport Association (IATA) released international scheduled traffic results for both December 2008 and the full-year.

In the month of December global international cargo traffic plummeted by 22.6% compared to December 2007. The same comparison for international passenger traffic showed a 4.6% drop. The international load factor stood at 73.8%.

For the full-year 2008, international cargo traffic was down 4.0%, passenger traffic showed a modest increase of 1.6%, and the international load factor stood at 75.9%.

“The 22.6% free fall in global cargo is unprecedented and shocking. There is no clearer description of the slowdown in world trade. Even in September 2001, when much of the global fleet was grounded, the decline was only 13.9%,” said Giovanni Bisignani, IATA’s Director General and CEO.” Air cargo carries 35% of the value of goods traded internationally.

Nearly 6% of world’s boxships laid up

The picture is grim for container ships as well as Nearly 6% of world’s boxships laid up

The number of containerships laid up is growing very fast. According to French maritime consultant AXS-Alphaliner, 255 ships, equivalent to 675,000 teu in capacity (5.5% of the global containership fleet), were laid up as of January 19 this year. It projects that the volume of containerships on standby will jump to the equivalent of 750,000 teu in early February this year, accounting for 6% of the entire global boxship fleet.

Since the week before Christmas – just one month ago – the number of ships idling has grown by 90 or 255,000 teu.

Worse is to come. Alphaliner estimates that new build deliveries in 2009 will represent 14% of the current fleet. Another 12% will join in 2010. Despite continued scrapping, the weak demand trends will fall well short of absorbing this net new capacity. Compounding the problem, as pointed out by Alphaliner, is that current bunker prices are reaching the point where the popular coping practice of "slow steaming" becomes uneconomical. In short, the idle fleet will expand considerably.

Harbours fill with surplus ships

Harbormasters are rejecting ships as Harbours fill with surplus ships

Boatowners are likely to encounter many more laid-up merchant ships around the UK due to the credit crunch. Harbours and anchorages in several parts of the country are filling up with surplus ships as owners lay-up their vessels.

The lay-up area at King Harry Ferry on the River Fal is already so full of dormant ships that Carrick harbourmaster Andy Brigden has had to reject a request to accommodate a further fleet of seven vessels. Southampton, meanwhile, has become the temporary home of four large ships totalling over 300,000 tonnes, and it is reported that additional moorings will be laid to accommodate further arrivals.

French workers march on ‘Black Thursday’

In France, A million workers march on ‘Black Thursday’

(Jean-Paul Pelissier /Reuters)

About a million French workers staged a one-day strike yesterday and hundreds of thousands took to the streets in a show of force against President Sarkozy and his handling of the economic slump.

The stoppage, mainly by public sector workers, closed many schools but failed to paralyse public transport as the strikers had hoped. The Paris transport system remained about 75 per cent normal. But quiet stations and roads around the capital and other cities showed that many people had stayed at home for what had been billed as “Black Thursday”.

Mr Sarkozy’s Government played down the “day of mobilisation” as relatively routine by French standards. “This was by no means exceptional in terms of a public sector stoppage,” said Luc Chatel, the Cabinet Minister who acts as government spokesman. “It was about the same as in May this year and in 2006.”

Index shows economic activity decreased further in December

The Chicago Fed National Activity Index shows economic activity decreased further in December.

The Chicago Fed National Activity Index was –3.26 in December, down from
–2.78 in November. All four broad categories of indicators made negative
contributions to the index in December.

The three-month moving average, CFNAI-MA3, increased slightly to –2.40 in December from –2.56 in the previous month. With recent revisions, the three-month moving average reached its lowest value since 1980 in November. December’s CFNAI-MA3 suggests that growth in national economic activity was well below its historical trend. It also indicates little inflationary pressure from economic activity over the coming year.

The production and income category of indicators made a large negative contribution of –1.32 to the index in December, following a contribution of –1.06 in November. Total industrial production declined 2.0 percent in December after decreasing 1.3 percent in the previous month. In addition, manufacturing capacity utilization declined to its lowest level since 1983—at 70.2 percent in December from 71.9 percent in November.

General Motors To Invest $1 Billion of TARP Funds in Brazil

US Taxpayers are creating auto jobs in Brazil as General Motors to Invest $1 Billion in Brazil Operations

General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."

"It wouldn’t be logical to withdraw the investment from where we’re growing, and our goal is to protect investments in emerging markets," he said in a statement published by the business daily Gazeta Mercantil.

Riot Fears In China

As the global economy sours, China fears riots will spread as boom goes sour

Today millions will leave the cities to return to their rural family homes for the new year celebrations. But this year Beijing hopes the newly jobless revellers will stay there – to prevent a fresh wave of unrest in the cities.

They surged into the grimy streets around the factory: first scores, then hundreds, then more than a thousand, as word spread and tension loaded the stale, grey air. The boldest overturned a police van and smashed up motorcycles, then tore through the building destroying computers and equipment. The mood was exhilarated, angry and frightened.

"It happened so quickly … There were maybe 500 involved and another 1,000 watching them. People were yelling: ‘It’s good to smash’," said a witness.

But the riot late last year at the Kai Da factory in Dongguan, amid the grim industrial sprawl of the Pearl River Delta, was not an isolated incident. It was one of tens of thousands of protests, many erupting from the same mixture of economic grievances, resentment of police and swirling rumour.

Property tax revenue plummets with home values

Adding to the growing list of California woes, Property tax revenue plummets with home values

California could pay the price for the foreclosure crisis for years to come, thanks to Proposition 13, the 1978 voter initiative that caps property taxes.

As banks feverishly dump foreclosed homes at cut-rate prices, and as neighboring homes change hands at similar bargain-basement rates, those amounts are enshrined as the new basis for determining property tax until the homes are sold again. Under Prop. 13, that basis can rise a maximum of just 2 percent a year, even if the home is worth significantly more. The consequence is likely to be a revenue crunch for the public services funded by property tax revenues.

"This is going to have a long-term impact on the state budget and on local budgets," said Jean Ross, executive director of the nonpartisan California Budget Project in Sacramento. "It means that even after the economy recovers, state and local government budgets will not recover fully."

Gus Kramer, Contra Costa assessor, puts it in stark terms.

"It’s going to be an absolute economic disaster in Contra Costa County and surrounding areas," he said. "Everyone thinks this is like the last recession with values going down and that when they come back there will be a resurgence – but it’s not going to be like that. It will be years before (the tax roll) recovers because all these people are selling (distressed) homes, banks are selling at deep discounts, values are going down from 50 percent to 75 percent. The people buying them will hold onto them for five, six, seven years. The tax base is not going to recover anytime soon."

Ford Burns Through Cash, Seeks Deal With Bondholders

In what may amount to an exchange of worthless shares for worthless bonds, Ford May Seek Distressed Debt Swap With Bondholders

Ford Motor Co., the only U.S. automaker shunning federal loans, may seek to exchange its unsecured debt with bondholders “in the coming months” as it burns through cash in the longest U.S. recession since the 1980s.

There is “little chance” that Ford, which depleted $21.2 billion of cash in 2008, will pay unsecured debt holders back at par, Kip Penniman Jr., an analyst at Montpelier, Vermont-based KDP Investment Advisors Inc., wrote in a report today.

Ford, the second-biggest automaker, on Jan. 29 reported a worse-than-expected $5.9 billion fourth-quarter loss, capping what was the worst annual performance in its 105-year history. The company said it would tap a $10.1 billion credit line to increase cash reserves.

Utah’s MagnetBank closed without an acquirer

It’s Friday so this news cannot be unexpected: Utah’s MagnetBank closed without an acquirer

Utah’s MagnetBank became the fourth bank failure of the year on Friday, and the Federal Deposit Insurance Corp. was forced to directly refund depositors after being unable to find another institution willing to take over its operations.

It marks the first time the FDIC has been unable to find an acquirer for a failed bank in nearly five years, according to FDIC spokesman David Barr. "This bank did not have an attractive franchise value, and not many retail deposits or core deposits," Barr said. The FDIC had conducted an extensive marketing process for the bank’s assets, he said.

The closure marks the fourth bank failure of 2009 and the 29th since the start of the credit crisis.

80 proof, not recession proof

The Seattle Times is questioning conventional wisdom in 80 proof, not recession proof for liquor industry

Drinking away your troubles? Possibly. But chances are you’re doing less of it, and you’re imbibing at home.

The alcohol industry is often thought of as "recession proof," but the spirits industry said Friday that its business softened last year, with revenue growth slowing and spending shifting away from bars and restaurants.

Revenue reported by liquor suppliers rose 2.8 percent from the previous year to $18.7 billion in 2008, according to the Distilled Spirits Council of the United States. That’s slower than the 6 percent average annual growth rate since 2000. Volume grew 1.6 percent, also below the 2.7 percent average growth of recent years.

That there is even still growth shows the spirits business is "recession resilient," said council president Peter Cressy, but not immune to the pressures of the economy.

"It is absolutely not recession proof," Cressy said. "There’s no question the fourth-quarter softened substantially."

Economic Plunge Worst Since 1982

Obama says it’s a continuing disaster as the Economy’s new plunge is worst in quarter-century

Battered by layoffs, debts and dread of worse to come, shoppers clutched ever tighter to their wallets in the final three months of 2008 and thrust the economy into its worst downhill slide in a quarter-century. Americans cut spending on everything from cars to computers, and it’s only getting worse so far in the new year.

All told, the economy staggered backward at a 3.8 percent pace at the end of last year, the government said Friday. And the tailspin could well accelerate in the current quarter to a rate of 5 percent or more as the recession churns into a second year and consumers and businesses buckle under a relentless crush of negative forces.

Spending cutbacks hit everywhere last quarter. Shoppers chopped spending on cars, furniture, appliances, clothes, food, transportation and more. Businesses dropped the ax on equipment and computer software, home building and commercial construction. And overseas sales of U.S.-produced goods and services tanked as foreign buyers grappled with their own economic woes.

It’s "a continuing disaster" for the nation’s families, declared President Barack Obama, making what has become an increasingly urgent daily pitch for his $819 billion stimulus package to revive the economy.

Auto Fleet Sales Off to Slow Start

An automotive hurricane is hitting the industry. Low fleet demand gets ’09 auto sales to slow start

A steep drop in sales to rental car companies and other fleet buyers is expected to weigh heavily on carmakers when they report their January sales results Tuesday. It remains to be seen whether injecting government cash into automakers’ financing arms helped consumers make up the difference.

"It is an automotive hurricane moving through this industry," said Jim Farley, Ford Motor Co.’s marketing chief, at last weekend’s National Automotive Dealers Association convention. Farley predicted a big drop in business from fleet buyers, which are keeping their current vehicles longer to pare costs.

Fleet sales — big-volume sales to customers like rental car companies and municipalities — typically account for about 20 percent of industrywide sales, but analysts expect that to be down sharply in January. Rental car companies have taken a big hit as consumers and businesses slash their travel budgets in the economic downturn, and the companies are holding onto their old cars rather than buying new ones.

"Our demand is down double-digits," said Richard Broome, spokesman for rental car company Hertz Global Holdings Inc. "So the need for new cars is less now than it would be in most years."

Many U.S. auto plants have been closed all month, with some shut down as long as eight weeks, said Jesse Toprak, executive director of industry analysis for the auto Web site Edmunds.com. He predicted industrywide fleet business fell 50 percent from January 2007.

"I think there’s a lot of pent-up demand," Toprak said. "Consumers postponed purchases in the marketplace for the last year or longer, and once conditions start stabilizing in the economy, we’re going to start seeing those postponements become reality."

Pent Up Demand? Let’s look at the jobs picture before discussing pent up demand. Unemployed persons are not prone to buy cars.

Job cuts exceed 100,000 for the week

CNN Money is reporting Job cuts exceed 100,000 for the week

In a brutal week for the job market, an assortment of companies across various industries announced more than 100,000 job cuts.

The bulk of the job loss news occurred on Monday, when several major U.S. companies announced sweeping job cuts, pushing the day’s total to more than 70,000.

Pfizer (PFE, Fortune 500), the leading drugmaker in terms of annual pharma sales, and Caterpillar (CAT, Fortune 500), a heavy equipment manufacturer based in Peoria, Ill., each said they would cut 20,000 jobs. These are the biggest reported eliminations among U.S.-based companies.

Boeing (BA, Fortune 500) announced its massive layoffs on Wednesday. The Chicago-based airplane manufacturer said 10,000 workers, including 4,500 previously announced reductions, would lose their jobs. The company blamed this on dwindling demand for its aircraft.

The U.S. economy lost 2.6 million jobs in 2008, according to government reports. This includes 21,137 mass layoffs, a seven-year high. In a mass layoff, 50 or more workers are laid off at a time.

Pent Up Demand?

Yes there is a pent up demand, not for autos, but rather for cash.

Mike "Mish" Shedlock