U.S. Stocks Drop on Economic Data, Rising Bank Rates; GE Falls By Lynn Thomasson
Oct. 2 (Bloomberg) -- U.S. stocks dropped for a second day as a jump in borrowing costs and reports showing a worsening economy spurred concern that the government's $700 billion bank bailout plan won't be enough to stimulate growth. Caterpillar Inc., Alcoa Inc. and Deere & Co. tumbled more than 5 percent as three-month bank lending rates climbed to the highest since January, while the government said factory orders declined more than forecast. General Electric Co. lost as much as 10 percent after selling $12.2 billion in shares at a discount. Monsanto Co. slid as much as 21 percent, its steepest intraday loss since going public in 2000, after Merrill Lynch & Co. said slumping demand will hurt farm companies. ``If banks aren't willing to lend money to a bank, are they going to be willing to lend to an average person? No, they're not,'' said Frank Ingarra, money manager at Hennessy Advisors Inc., which oversees $1.1 billion in Novato, California. ``We could be at the start of a pretty bad recession.'' The Standard & Poor's 500 Index slid 34.69, or 3 percent, to 1,126.37 at 1:33 p.m. in New York. The Dow Jones Industrial Average lost 270.09, or 2.5 percent, to 10,560.98. The Nasdaq Composite Index slipped 3.3 percent to 2,001.34. Ten stocks retreated for each that rose on the New York Stock Exchange. `Flat on the Floor' Billionaire Warren Buffett, the world's preeminent stock picker, described the world's largest economy yesterday as being ``flat on the floor'' after a cardiac arrest. Caterpillar, the biggest maker of earthmoving equipment, lost $3.56 to $53.38. Deere, the largest producer of tractors, declined 11 percent to $41.15. `Liquidity Crisis' The market for commercial paper plummeted the most on record as banks and insurers were unable to find buyers for the short- term debt. Commercial paper outstanding tumbled $94.9 billion, or 5.6 percent, to a seasonally adjusted three-year low of $1.6 trillion for the week ended Oct. 1, the Federal Reserve said. Financial paper accounted for most of the decline. ``There's a liquidity crisis going on that's putting investors on edge,'' said Alan Gayle, the Richmond, Virginia- based senior investment strategist at Ridgeworth Investments, which oversees about $70 billion. ``Liquidity is like oxygen. Lack of it can cause serious damage in a very short time.'' GE's Offering GE, which got a $3 billion investment from Buffett's Berkshire Hathaway Inc. yesterday, dropped $2.22 to $22.28 and lost as much as $2.45. The company sold stock today at a 9.2 percent discount to yesterday's closing price as it seeks to fund its operations. GE's shares trade at a valuation of 10 times trailing earnings, the lowest since Bloomberg began tracking the data in 1990. Raw-material producers in the S&P 500 sank to the lowest since 2006, falling 6 percent, after Merrill downgraded fertilizer stocks to ``underperform'' and Mosaic Co., the world's largest maker of phosphates, reported weaker-than-estimated earnings. Mosaic Tumbles Mosaic tumbled 35 percent to $43.97, its steepest retreat since its shares began trading in 2004. CF Industries Holdings Inc., a maker of nitrogen and phosphate fertilizers, slumped 30 percent to $62.29. Alcoa slumped 8.3 percent to $19.50 after Goldman Sachs Group Inc. downgraded the largest U.S. aluminum producer to ``neutral'' from ``buy'' on concern metal demand will fall along with the weakening economy. EBay Inc., the largest Internet auction company, lost 8.4 percent to $19.11. The shares were downgraded to ``equal-weight'' from ``overweight'' at Morgan Stanley, which said ``trends deteriorated more than expected'' in the third quarter. Bailout Plan ``If I were a congressman I would hold my nose and vote yes, but people shouldn't be under any illusions about what's going to happen,'' Charles Bobrinskoy, who helps manage about $13 billion as vice chairman of Ariel Investments in Chicago, told Bloomberg Television. To contact the reporter on this story: Lynn Thomasson in New York at [EMAIL PROTECTED] Libor Soars, Commercial Paper Slumps as Credit Freeze Deepens By Bryan Keogh Oct. 2 (Bloomberg) -- Interest rates on three-month dollar loans rose to a nine-month high, short-term corporate borrowing fell by the most ever and leveraged loans tumbled, exacerbating the credit freeze that's paralyzing businesses around the world. The London interbank offered rate that banks charge each other for loans rose for a fourth day, driving a gauge of cash scarcity among banks to a record. The biggest drop in financial short-term debt outstanding since at least 2000 caused the U.S. commercial paper market to tumble 5.6 percent to a three-year low, according to the Federal Reserve. The crisis deepened after the worst month for corporate credit on record. Leveraged loan prices plunged to all-time lows, short-term debt markets seized up and even the safest company bonds suffered the worst losses in at least two decades as investors flocked to Treasuries. Credit markets have frozen and money-market rates keep rising even after central banks pumped an unprecedented $1 trillion into the financial system ``The credit window is closed,'' Jim Press, president of Chrysler LLC, the third-largest U.S. automaker, said today at the Paris Motor Show. The financial rescue plan must be approved because ``it's important for us to restore credibility in our banking system.'' Interbank Rates Interbank rates have soared as financial institutions hoard cash to meet future funding needs amid deepening concern that more banks will collapse. Governments in Europe and the U.S. rescued six financial institutions in the past week. The Libor- OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, widened to a record 260 basis points today. It was 197 basis points a week ago and 79 basis points a month ago. Libor for euros advanced 3 basis points to a record 5.32 percent. Libor, set by 16 banks in a daily survey by the British Bankers' Association, is used to set rates on $360 trillion of financial products worldwide, from home loans to derivatives. ``We still see upward pressure on maturities from one week,'' said Patrick Jacq, a fixed-income strategist in Paris at BNP Paribas SA, France's biggest bank. ``The situation is still blocked and we're unlikely to see spreads decline before confidence has been restored.'' Commercial Paper The market for commercial paper plummeted $94.9 billion to $1.6 trillion for the week ended Oct. 1 as banks and insurers were unable to find buyers for the short-term debt amid the worst U.S. financial crisis since the Great Depression. Financial paper accounted for most of the decline, plunging $64.9 billion, or 8.7 percent, to a two-year low. The market dropped for a third straight week, losing a total of $208 billion, as money-market funds faced withdrawals from investors, said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York. ``The purge is broad and is impacting issuers with far more predictable cash flows -- regular run-of-the-mill companies in need of working capital,'' Crescenzi wrote today in a note to clients. ``The declines add to the urgency for fixes to the credit crisis and bolster the case for a Fed rate cut.'' The U.S. market for short-term debt backed by assets including mortgages and car loans fell $29.1 billion, or 3.9 percent, this week to a seasonally adjusted $724.7 billion, according to the Fed. Lenders are balking at offering cash for longer than a day even as central banks pump an unprecedented amount of money into the banking system. The European Central Bank today offered $50 billion of overnight funds at a marginal rate of 2.75 percent. The Swiss National Bank awarded $9 billion. The Bank of England sold $8.9 billion. Futures traders put the odds that the Fed will cut the target interest rate at least 25 basis points later this month at 100 percent. The rate is currently 2 percent. Leveraged loan prices tumbled 8.57 cents in September to a record low of 79.8 cents on the dollar. Price declines will make it harder for junk-rated companies to borrow as investors may opt to buy existing debt at distressed levels and as capital- constrained banks restrict lending. Corporate bonds with the highest AAA ratings lost 6.5 percent in September, the most since at least 1989, according to Merrill Lynch & Co.'s U.S. Corporates, AAA Rated index. A FOND FAIRWELL. THE DOC IS RIGHT, NO DEBATE ON SERIOUS ISSUES IS OCCURING, BUT BLOGS ARE JUST A FORMAT TO VENT ONES SPLEEN. NO MATTER WHAT YOU CHOOSE TO BELIEVE, THE OVERWHELMING EVIDENCE INDICATES THE BEGINGING OF THE END OF THE NATION-STATE KNOW AS THE USA. IN 5 YEARS TIME IT WILL NO LONGER EXIST. I HAVE GOT EVERYTHING ELSE RIGHT, INCLUDING THIS FINANCIAL MELTDOWN (WHICH OF COURSE IS NOT REALLY HAPPENING). --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
