Sunday, August 3, 2008

Bursting Bubble Economy Watch

Reposted from here...

July 29 – Financial Times (Francesco Guerrera and Saskia Scholtes): “The US financial crisis is spreading from subprime borrowers to wealthier consumers, with evidence mounting that more affluent people are failing to pay their mortgages and credit card balances. Growing concerns over the financial health of richer borrowers are prompting banks and card issuers to tighten lending practices in moves that could futher dampen consumer confidence and spending more. Banks such as JPMorgan Chase and credit card groups such as American Express have clamped down on lending to customers that have traditionally been regarded among the safest and most profitable borrowers. ‘The crisis is just starting to spread beyond the middle class,’ said Curtis Arnold, founder of ‘Even folks with good credit-ratings scores are no longer immune from adverse actions from their card issuers.’ Senior bankers say that after the subprime debacle, the worsening outlook of ‘prime’ portfolios shows the crisis is far from over and could inflict substantial losses on financial institutions… At American Express, which has traditionally focused on high-spending consumers… Kenneth Chenault, chairman and chief executive, said the company’s most affluent card-holders were feeling the pinch.”

July 28 – New York Times (Peter Goodman): “Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring. Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term ‘commercial paper’ not backed by collateral — collectively dropped almost 3% over the last year, to $3.27 trillion from $3.36 trillion, according to [fed] data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001. The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt… Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory… His company, which makes parts for makers of home appliances, is growing and profitable, he said… But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response. ‘The exact words were, ‘We’re saying no to almost everybody,' Mr. Greenblatt recalled.”

July 30 – New York Times (Michael Grynbaum): “Several national restaurant chains were shuttered on Tuesday, possibly offering an early taste of what’s in store this year for businesses that depend on free-spending consumers whose budgets are now being squeezed. The parent company of Bennigan’s… with about 200 sites across the country, filed for bankruptcy, a move that will put hundreds of employees out of work and leave many landlords with empty retail space during a painful time in the real estate market. A sister brand, Steak & Ale, will also close… The restaurants are the latest casualties in the so-called casual dining sector, considered a cut above fast food. Soaring food costs and a surfeit of locations have hurt the companies’ bottom lines just as Americans are choosing to take more meals at home…"

August 1 – Bloomberg (Mike Ramsey): “U.S. auto sales tumbled 13% in July, pushing the industry toward its worst year since 1993, as General Motors Corp., Ford Motor Co. and Toyota Motor Corp. posted declines on lower demand for fuel-thirsty trucks… The industry’s annualized selling rate for July was 12.6 million vehicles, the lowest since April 1992, according to Autodata.”

August 1 – Bloomberg (Jeff Plungis): “Leasing a car is about to get more expensive. Chrysler LLC, the money-losing automaker owned by Cerberus Capital Management LP, is closing its unprofitable leasing business today, and General Motors Corp. and Ford Motor Co. are scrapping leases for some models.”

July 29 – Boston Globe (Beth Healy): “The Massachusetts Educational Financing Authority yesterday said it will not be able to provide student loans this fall for the first time in its 26-year history, leaving more than 40,000 families without an important source of tuition funds just weeks before college classes begin. The nonprofit lending authority, which last school year provided $510 million in loans, said it has been unable to secure funding to provide private student loans… ‘As a result of our problems and the continued dislocation of the capital markets, we have been unable to raise funds for the coming academic year,’ said Thomas M. Graf, the authority’s executive director.”

July 30 – New York Times: “Mervyn’s and the parent company of Bennigan’s both filed for bankruptcy protection yesterday, providing more evidence that the pace of corporate flame-outs is accelerating. Only half way through 2008, billion-dollar bankruptcies are at their highest level in five years, according to… ‘We seem to be in the midst of a ‘perfect storm’ leading to more bankruptcies: high levels of debt, high energy and raw materials costs and weakness in the U.S. economy,” George Putnam III of New Generation Research, which publishes, said…”

July 28 – UPI: “Los Angeles food bank operators say the troubled economy has produced the biggest demand for their help they’ve ever seen. The demand is spreading from poverty-stricken residents to those in the middle and upper classes, they told the Los Angeles Times. ‘This is probably the most people we’ve ever seen use emergency food assistance," Darren Hoffman, communications director for the Los Angeles Regional Food Bank, told the newspaper. ‘We’re seeing people who were making $70,000 a year coming into a food bank for the first time.’ Food bank operators say people who have spent their retirement savings to pay their mortgages are turning to the pantries to avoid going hungry. Some told the Times that major job losses in the banking and entertainment industries, coupled with the housing crisis, are hitting the San Fernando Valley area especially hard.”

July 30 – Bloomberg (Meg Tirrell): “Profits at U.S. companies may have dropped the most in at least a decade last quarter after credit writedowns triggered a combined $7.43 billion loss at Merrill Lynch & Co. and Lehman Brothers Holdings Inc. Earnings of S&P 500 Index companies have tumbled 24% from a year earlier, according to data compiled by Bloomberg on the 291 companies that had reported quarterly results… As recently as July 3, analysts expected a drop of 11%. Financial industry profits… have plummeted 87%... The energy group of the S&P 500 has posted a 15% gain in profits so far.”

July 30 – Bloomberg (Kevin Bell and Beth Jinks): “The Starbucks index is pointing down in Las Vegas. The Nevada city’s gambling-driven growth in the 1990s proved irresistible to Starbucks Corp… Las Vegas, which had no Starbucks outlets before 1995, has about 155 now… Starbucks, stung by a slowdown in sales as strapped consumers shy away from $4 lattes, is staging the biggest retreat in its 37-year history, closing 600 of 11,168 U.S. company-owned and licensed stores. Las Vegas is taking the biggest hit, losing 16 of the once-trendy cafes, including in North Las Vegas, or 10% of its total. Los Angeles will lose just two of about 56 and New York City 10 of more than 200.”

July 30 – Bloomberg (Mike Ramsey): “Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, is trying to reduce the 60% of its U.S. sales that come from leases as automakers balk at the contracts’ rising costs.”

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