Archive for December, 2008

World markets close 2008 bruised and confused (AP)

Wednesday, December 31st, 2008 | Finance News

LONDON – World stock markets were seeing out 2008 in a bruised and confused state after a year of dizzying turmoil, with stocks in Europe and Asia little changed Wednesday in light trading.

In very modest shortened New Year's Eve trade, the FTSE 100 index of leading British shares closed up 41.49 points, or 0.9 percent, at 4,434.17, while France's CAC-40 close up a bare 0.84 point, or 0.03 percent, at 3,217.97. Germany's DAX was closed for New Year's Eve.

Earlier, markets that were open in Asia ended the year mixed. In Hong Kong, the benchmark Hang Seng Index rose 152 points, or 1.1 percent, to end at 14,387.48 — 48 percent lower than when the year began. Australia's key index added 1.9 percent but stock averages in Mumbai, Shanghai, Malaysia and Singapore fell modestly. Markets in Japan, South Korea, Indonesia, the Philippines and Thailand were closed for the holiday.

In the U.S., Wall Street was set to end the year with a whimper, with futures markets predicting a slightly higher opening after Tuesday's advance on the news that General Motors Corp.'s troubled financing arm received $5 billion through the U.S. government's bank rescue program. The Dow Jones industrial average was predicted to open 18 points higher at 8,658 while the broader Standard & Poor's 500 index was set to open 3.4 points higher at 891.60.

The world's main markets will not reopen until Friday and investors will be hoping December's modest year-end rally across the world augurs a change of fortunes in 2009, especially if a massive stimulus package from the incoming Obama administration makes the U.S. recession shorter than would otherwise have been the case.

"I remain upbeat enough to believe that we will begin to move in the right direction before 2009 is out. Between now and then it will be a torrid affair," said Howard Wheeldon, senior strategist at BGC Partners.

2008 will go down as one of the worst years ever in stock markets as the credit crunch claimed a number of high-profile investments banks in the U.S. and brought the financial world to near-ruin. Governments and central banks intervened to shore up confidence but could not prevent the world's leading economies sliding into recession.

Among the world's major indexes, Japan's Nikkei index tumbled 42 percent during 2008, its biggest loss since its inception 58 years ago, while Britain's FTSE 100 closed around a third lower than a year ago, its worst year since it was created in 1984. Germany's DAX closed out 2008 Tuesday down around 40 percent on the year, its second biggest fall in its 20-year history.

In the U.S., where the financial crisis proved to be most acute following the collapse of the subprime housing market and the bankruptcy of such Wall Street luminaries as Lehman Brothers, the Dow Jones was poised to end 2008 around 35 percent lower on the year while the broader S&P 500 was set to end around 40 percent down.

Grim as those numbers are, they were even worse before a December rally. The FTSE 100, for example, is 20 percent higher than its October lows.

Most stock market observers think things are likely to get worse before they get better, as the start of 2009 will likely provide mounting evidence that the world economy is experiencing one of its worst recessions since the 1930s.

With companies struggling to make ends meet and unemployment set to soar in the U.S. and Western Europe in particular, investors will likely remain wary of dipping their toes back into stocks.

Some analysts are also concerned that policy-makers around the world appear reluctant to accept that the world has changed and that the credit-driven growth over the last decade is unlikely to recur.

"Financial markets are only likely to regain their confidence if the authorities create a tightly controlled supervisory environment and are ready to crack down on financial activities that have no clear economic justification," said Stephen Lewis, an analyst at Monument Securities.

"The fact that we are a long way from that state is a major reason for pessimism as we enter 2009," he added.

One potential bright spot, at least in terms of its impact on economic activity, has been the collapse in the price of oil from $147 a barrel as recently as July.

Oil prices were lower in European trade, with light, sweet crude for February delivery falling $1.31 to $37.72 a barrel in electronic trading on the New York Mercantile Exchange.

The turmoil in the stock markets in 2008 was replicated in foreign exchange markets too, with the yen being the biggest gainer among the major currencies and the British pound the biggest loser.

In low volumes, the dollar was up 0.1 percent at 90.38 yen, while the euro slipped 0.7 percent to $1.3970.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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Jobless claims drop by much more than expected (Reuters)

Wednesday, December 31st, 2008 | Finance News

WASHINGTON (Reuters) –
The number of U.S. workers filing new claims for jobless benefits slumped 94,000 last week, government data on Wednesday showed, but seasonal factors were likely behind this unexpectedly large decline with the labor market remaining very soft.

Initial claims for state unemployment insurance benefits fell to a seasonally adjusted 492,000 in the week ended Dec 27 from an unrevised 586,000 the prior week, the Labor Department said. It was the lowest reading for initial claims since the week ended November 1, 2008, and the steepest decline since 1992.

Prices on U.S. government bond extended losses on the larger-than-expected drop in claims.

Analysts polled by Reuters had forecast 565,000 new claims as the country's year-long recession continued to chill employment, and a separate reading on so-called continued claims hit a 26-year high.

A Labor Department official said the timing of the year-end holidays and volatility in factors used to seasonal adjust the data was likely to blame for the large decline in initial weekly claims, and he warned this situation could persist for several more weeks.

"The numbers seemed unbelievable but the states certified they were correct," the Labor Department official said.

The official said all but two states and one territory reported actual numbers of claims, rather than submitting an estimate. But the fact many staff at claims offices were likely away for the Christmas vacation may have depressed the number of applications for aid that were actually processed, he said.

The four-week average of new jobless claims, a better gauge of underlying employment trends because it irons out week-to-week volatility, dropped to 552,250 from 558,000 the week before.

This measure has mounted steadily as the U.S. housing slump roiled financial markets and spread to the wider economy, forcing lay-offs as firms slash costs to offset weaker income.

The number of people remaining on the benefits roll after drawing an initial week of aid rose 140,000 to a more-than-forecast 4.506 million in the week ended December 20, the most recent week for which data is available.

This was the highest since the week ended December 4, 1982, when continued claims were 4.509 million. Analysts estimated continued claims would be 4.430 million.

(Reporting by Alister Bull, Editing by Neil Stempleman)

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Mortgages: What You Need to Know in 2009 (BusinessWeek Online)

Wednesday, December 31st, 2008 | Finance News

With all the doom and gloom over housing, you might be surprised to know that this is a fantastic time to get a mortgage. Not if you have poor credit, to be sure. But you can get a great deal on a 30-year, fixed-rate, conforming loan these days if you have a solid FICO score, a manageable debt burden, and proof positive of a reliable income.

You have to go back to around 1961 to find a time when 30-year mortgages had rates this low, according to Keith Gumbinger, a vice-president at financial publisher HSH Associates in Pompton Plains, N.J. For that, thank the U.S. government, which is trying to jump-start the stalled housing market by buying up mortgage-backed securities.

Rates are probably headed even lower in 2009, raising the question of whether you should borrow now or wait for a better deal. The experts are sharply divided over this one. Put it this way: If you're a gambler, wait. If you can't sleep at night worrying that rates will go up from here, borrow now.

Here are some key things you need to know about today's mortgage market:

Now More Than Ever, Shop Around

In ordinary times, one loan is about as good as another because most lenders' offers on 30-year loans are clustered within around a quarter of a percentage point. Not now. With the economy so shaky, lenders are all over the map in how much risk they're willing to take in making loans. So it really pays to shop around. And keep checking, because rates are constantly changing. One day in late December 2008, Wells Fargo (NYSE:WFC - News) was offering 30-year conforming loans at 5.0% plus one point, while Bank of America (NYSE:BAC - News) was offering the same kind of loan at 6.625% plus one point, according to Cameron Findlay, chief economist of LendingTree.com, a division of Home Loan Center. No offense to Bank of America, but only a sucker would have borrowed from it instead of Wells Fargo that day.

For New Loans, Get a Fixed Rate

Forget what you were told in quieter times about the pros and cons of fixed- vs. adjustable-rate mortgage loans. These days, all the best deals are on fixed-rate loans because that's the segment of the market that the government has been targeting with support. The securitization of adjustable-rate loans has mostly dried up, so banks don't want to originate ARMs, therefore they don't offer attractive rates on them, says HSH's Gumbinger.

If You Have an ARM, Keep It for Now

On the other hand, if you got an ARM in the past and it's coming up on an interest rate reset, don't rush to unload it. Short-term interest rates have gotten so low that you're very likely to see your monthly payment fall. Thank your lucky stars if your ARM happens to be indexed to the one-year Treasury bill, whose yield has fallen below half a percent. Even with the typical spread added on, you're still paying only around 3.25% a year, says Gumbinger. ARMs indexed to LIBOR (the London Interbank Offered Rate) are resetting these days to the low 4s, which is still excellent.

Check Your Finances

The hurdles to get one of those low fixed-rate loans are high because Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) have tightened standards for the loans they'll buy or guarantee, even though the two mortgage finance giants are now under government conservatorship. You'll need a FICO score of at least 720 for the best interest rate, although for a big enough fee Fannie and Freddie will guarantee loans with FICO scores down to the mid-600s. You may also need a down payment of 20%. In the boom times you could get a "piggyback" loan to shrink your down payment, but those are history. Even private mortgage insurance, which used to cover some of the financing gap up to 20%, is much harder to get now because the issuers have suffered big losses.

Lately, says LendingTree's Findlay, the highest hurdle for many buyers has been lenders' debt-to-income standards. Here are the numbers, as of late December, according to LendingTree: For a Fannie or Freddie conforming loan, monthly mortgage payments cannot exceed 28% of gross income, while all debt payments (including student loans, etc.) cannot exceed 36% of gross income.

For a Federal Housing Administration-guaranteed loan, the corresponding figures are 29% for mortgage debt and 41% for all debt.

Before Making an Offer, Get Pre-Qualified

Home sellers are likely to give you a better deal on a house if you're pre-qualified for a mortgage. Why? Because it shows you can get the deal done quickly. In this market, nothing burns a seller more than being strung along by a buyer who wants the house but can't qualify for a loan to buy it.

First-Time Borrowers: Get Credit Counseling

A lot of the mess we're in now could have been avoided if first-time home buyers had paid attention to warnings about getting overextended. If you don't want to listen to your parents or nosy brother-in-law, then visit a credit counseling agency. Says Rick Sharga, marketing vice-president at RealtyTrac: "Most people getting into the market for the first time seriously underestimate the cost of maintaining a home, from taxes to upkeep. What happens if that water heater blows? Do you have enough money to pay for it without missing a mortgage payment?"

Think Hard About Refinancing Now

The decision about when to refinance comes down to personal risk preferences. Of course, you should also run your numbers through one of the many online calculators (a rough rule of thumb is that it makes sense to refinance if the new rate is a full percentage point below your current rate and you don't plan to move soon).

The argument to wait, as expressed by BanxQuote.com President Norbert Mehl, is that the Federal Reserve and Treasury Dept. are determined to force mortgage rates lower in 2009 and are bound to have their way. Says Mehl: "The pressure on the banks will continue to mount to bring down interest rates, not just on mortgages but on all kinds of personal loans."

In contrast, LendingTree.com's Findlay says that while it's reasonable to guess that rates will fall more, nothing's for sure. "Rates have come down so fast that trying to pick the bottom is a mistake," he says. "Their propensity to slingshot back up is high." He votes for refinancing now if the numbers work.

So, pull the trigger or wait? Nobody but you can decide this one.

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