Archive for December, 2008

Consumer confidence and home prices hit grim records (Reuters)

Tuesday, December 30th, 2008 | Finance News

NEW YORK (Reuters) –
The U.S. economy extended its run of record-breaking dismal data on Tuesday, with consumer confidence and home prices registering a pair of grim milestones.

U.S. consumer confidence fell to a record low in December as the worst job market in 16 years hammered sentiment, the Conference Board business research firm said.

The dour sentiment has had a harsh impact on spending. The U.S. holiday shopping season has been the worst since at least 1970 due to the recession, the International Council of Shopping Centers said.

Prices of U.S. single-family homes in October posted a record fall of 18.0 percent from a year earlier, according to the closely watched Standard & Poor's/Case-Shiller Home Price Indices.

Business activity in the U.S. Midwest continued to shrink in December but at a less severe rate than expected, and input prices fell sharply.

The data was the latest reminder that the U.S. economy is in for a tough slog after a year-long recession, which many expect to continue during the first half of 2009.

"Really at this point we are not going to be seeing anything fundamentally positive from the U.S. for the time being," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York.

On Wall Street, stocks closed higher despite the weak data. U.S. government bonds, which are highly sought after by investors during troubled economic times such as these, also rallied.

The Institute for Supply Management-Chicago business barometer rose to 34.1 for December from 33.8 in November. The reading was better than the 33.0 economists had forecast, but was still well below the 50 level that separates expansion from contraction.


The Conference Board said its Consumer Confidence Index fell to 38.0 in December from a slightly downwardly revised 44.7 in November.

The median forecast of economists polled by Reuters was for a reading of 45.0. Their 62 forecasts ranged from 40.0 to 51.1.

"The further erosion of the Consumer Confidence Index reflects the rapid and steep deterioration of economic conditions that occurred in the fourth quarter of 2008," said Lynn Franco, director of the Conference Board's Consumer Research Center.

"The overall economic outlook remains quite dismal for the first half of 2009, and only a modest recovery is expected in the second half."

Chief among consumers' woes has been spiraling job losses in recent months.

U.S. employers axed 533,000 jobs from payrolls in November alone, the most in 34 years, according to Labor Department data released earlier this month.

The Conference Board data reflected this, with its "jobs hard to get" index rising to 42.0 in December -- the highest since December 1992. That was up from 37.1 in November.

Not surprisingly, consumers also rated their present situation poorly, with the index of this measure tumbling to 29.4 -- its lowest since April 1992 -- from November's 42.3.

Sales at U.S. chain stores fell 1.8 percent in the week ended December 27 compared with the previous year, while sales fell 1.5 percent compared with the prior week, according to the ICSC-Goldman Sachs Weekly Chain Store Sales index.

The ICSC expects holiday sales in November and December to fall 1.5 percent to 2 percent versus the year-ago period. That would represent the first decline since the ICSC began tracking holiday sales in 1969.


The Standard & Poor's/Case-Shiller composite home price index of 20 metropolitan areas fell 2.2 percent in October from September. The price drops, both on a year-over-year and month-over-month basis, came in worse than expected, based on a Reuters survey of economists.

S&P said its composite index of 10 metropolitan areas dropped 2.1 percent in October from September for a 19.1 percent year-over-year drop, also a record.

Many economists say arresting the slide in home prices is key to halting the economy's slump, which was caused by the bursting of this decade's housing bubble.

"The bear market continues; home prices are back to their March, 2004 levels," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in a statement.

(Additional Reporting by Ros Krasny in Chicago, Julie Haviv and Nick Olivari in New York; Editing by Dan Grebler)


Fed to ramp up purchases of mortgage securities in January (AFP)

Tuesday, December 30th, 2008 | Finance News

The Federal Reserve said Tuesday it would begin buying mortgage-backed securities in early January under a previously announced plan to purchase up to 600 billion dollars of these assets.

The program was announced in late November as another step in fighting a credit crunch stemming from the collapse in housing that has now engulfed the financial sector and is choking economic activity.

"The program is being established to support the mortgage and housing markets and to foster improved conditions in financial markets more generally," the Fed said in a statement.

The New York Fed, which will carry out the purchases, said it had selected four investment managers for the program: BlackRock, Goldman Sachs, PIMCO and Wellington Management Company.

"The selection criteria were based on the institution's operational capacity, size, overall experience in the MBS (mortgage-backed securities) market and a competitive fee structure," the New York Fed said.

The contract for a custodian has not yet been awarded.

The central bank has already begun purchasing up to 100 billion dollars in mortgage-backed securities on its own and will buy up to 500 billion more through these investment firms.

"Investment managers will employ a passive buy-and-hold investment strategy in accordance with investment guidelines prescribed by the Federal Reserve," the New York Fed statement said.

The new efforts are part of a move to restart consumer credit markets that froze up in October and to get more liquidity and bring down borrowing costs for the housing market, which is at the center of the economic storm.

The program will buy up troubled assets from Fannie Mae and Freddie Mac, two major government-sponsored enterprises that were taken over by the Treasury earlier this year to avert collapse, and of securities backed by Ginnie Mae, a guarantor of mortgage debt.

The central bank is taking over the purchases of troubled mortgage debt, which originally had been intended under the Treasury's 700-billion-dollar rescue approved by Congress known as the Troubled Asset Relief Program.

The Fed has also announced a program to buy up to 200 billion dollars in asset-backed securities -- backed by student loans, auto loans, credit card loans, and other loans -- in a further effort to unclog frozen credit markets.


Madoff expected to disclose worth to regulators (Reuters)

Tuesday, December 30th, 2008 | Finance News

NEW YORK (Reuters) –
Confessed swindler Bernard Madoff faces a Wednesday deadline to tell regulators how much he is worth and where his money and other assets are, but it will likely be a longer wait before his investors, seeking to recover billions of dollars, learn the tallies.

Investigators from the U.S. Securities and Exchange Commission -- which is under fire for missing a purported decades-long $50 billion Ponzi scheme to fleece wealthy individuals and charities alike -- will take weeks to pore over the assets, liabilities and property declared by Madoff, 70.

A spokesman for the SEC declined comment. In general, the regulator is not required to immediately publicly file such disclosures with the courts.

Legal experts said Madoff, a former chairman of the NASDAQ stock market who was arrested and charged with securities fraud on December 11, would be better off declaring everything in this early stage of the parallel criminal and civil investigations.

"I find it hard to believe that he doesn't have anything that is hidden someplace," said Ellen Zimiles, chief executive of Daylight Forensic & Advisory LLC in New York, which works with corporations on compliance.

"If he is trying to do the right thing here he should put everything down. If it is found later that he has assets that are not included in that and someone finds them in some other manner, then that is going to be perjury, adding to his troubles," said Zimiles, a former federal prosecutor.

On December 18, U.S. District Court Judge Louis Stanton, who is handling the civil case, ordered Madoff and his Bernard L. Madoff Investment Securities LLC to provide the SEC "on or before December 31 a verified written accounting of all assets, liabilities and property currently held, directly or indirectly."

The order said this included bank accounts, brokerage accounts, investments, business interests, loans, lines of credit and "real and personal property, describing each asset and liability, its current location and amount."

Madoff's lawyer -- Ira Lee Sorkin, himself a former head of the New York office of the SEC from 1984 to 1986 -- could not be reached for comment on Tuesday.

Authorities said in court documents that Madoff confessed to running a Ponzi scheme with $50 billion in losses. Ponzi schemes are investment frauds in which early investors are paid with money from new clients.

Madoff is under house arrest in his Manhattan apartment on $10 million bail and he has not appeared in court to formally answer the charges.

Scores of wealthy people, banks, universities and charities all over the world say they are victims, but the exact amount of money lost is not yet known in what could be the largest fraud in Wall Street history.

Finding the money is a priority for investigators who want to recover as much as possible for those apparently duped by Madoff. On Tuesday, a bankruptcy court judge approved the transfer of $28.1 million to the trustee overseeing the liquidation of Madoff's firm from a bank account held by Madoff or his firm.

"This is one of many steps that Trustee Irving H. Picard has taken and will continue to take to collect all available assets of Bernard L. Madoff Investment Securities LLC for the future use of satisfying customer claims and other purposes," the trustee and the Securities Investor Protection Corp said in a statement.

The nonprofit SIPC was created by Congress in 1970 to maintain reserves to help investors at failed brokerage firms.

The SIPC expects it will take several years to find the money in remote locations and sort through investor losses.

"We're looking everywhere for all assets," said Richard Bernard, a lawyer representing the court-appointed trustee.

A French hedge fund manager distraught over losing his own and clients' money apparently committed suicide in his New York office on December 23.

"There are a number of rich, angry investors who want to recover their losses," said Douglas Hirsch, a lawyer investigating civil lawsuits on behalf of investors who put their money in funds that in turn entrusted it with Madoff.

Since the Madoff scandal broke, these "feeder funds" have been sued in federal court by people seeking class action, or group status, for those ensnared in the purported fraud.

Investors have written to the judge in the civil case asking him to consider broadening access to the SIPC to any investor whose money ended up with Madoff, even indirectly.

"This was an intertwined system of deceit and theft within our financial markets that has left retirees like ourselves having to sell our homes and raise money any way we can," Daniel and Suzanne Goldenson of Bremen, Maine, wrote in a letter to Judge Stanton that was entered in the record.

The judge acknowledged the letter without indicating whether he would consider the request, according to court documents.

The cases:

USA v. Madoff 08-02735, U.S. District Court, Southern District of New York (Manhattan)

Securities and Exchange Commission v. Madoff et al 08-10791, U.S. District Court, Southern District of New York (Manhattan)

Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

(Reporting by Grant McCool and Emily Chasan; Editing by Gary Hill)