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November 7, 2008 Editor’s Note: I’m spending the day at the Money Show in Washington, DC, so this week’s issue will be brief. If you’re in the area, you should certainly take the opportunity to stop by the Wardman Park Marriott and see what some of the nation’s best advisors have to say. Bearing the BurdenThe stock market couldn’t hold its gains after an election day rally, sliding into its biggest two-day slump since 1997. Higher-than-anticipated jobless claims amidst an already weakened economy and disappointing earnings across the market simply took the wind out of the market’s sails.The markets closed in the green today, but the major indexes couldn’t manage to post a weekly gain. The Down Jones Industrial Average knocked off 4.1 percent for the week; the Nasdaq Composite sank 4.3 percent; and the S&P 500 fell 3.9 percent. One drag on the markets is the US auto industry, which has been struggling for years but whose troubles have recently come to a head as it faces the weakest market in a quarter century. In October, domestic vehicle sales fell to 7.9 million units from 9.6 million in September, with GM bearing the brunt of the declines as its sales fell 45.1 percent. Sales at Ford declined 30 percent from a year earlier after posting its 23rd monthly decline in 24 months. Toyota sales fell 26 percent. Total US vehicle sales fell to 10.6 million units from 12.5 million units in September. And the industry’s problems will probably only get worse. GMAC, the lender partly owned by GM, told a number of its car dealers that it’s no longer in a position to finance them because of its own reduced access to capital. In October, the lender, along with other auto financers, suffered from reduced access to bond markets for the fifth straight month as investors weren’t interested in purchasing bonds backed by auto loans. Sales of auto bonds fell to about $500 million, down from $9 billion in October 2007, as investors worried that more consumers would fall behind on their car notes as other bills took priority. That’s led to estimates that as many as 700 car dealers could close up shop in coming months because they can no longer finance inventory or meet other obligations. GM and Chrysler are now pushing for a merger in an attempt to ride out the storm, but they need cash to make the deal happen. The two have asked to borrow the funds from the Treasury, arguing that if they can’t merge and realize economies of scale, both may have to shutter their operations. A shutdown at just one of the big three could cost hundreds of thousands of jobs--primarily in states already plauged by unemployment--and cost millions of retirees their pensions and healthcare. So far, the Treasury has been unwilling to extend any aid aside from a $25 billion loan the auto industry is expected to receive sometime early next year. GM is expected to report billions of dollars in losses when it reports its third quarter earnings later today. Click here to continue reading |
| Friday Market Wrapup is a weekly e-zine written by Ben Shepherd and published by KCI Communications, Inc. Mr. Shepherd is research editor for Personal Finance.
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Friday Market Wrapup - November 7, 2008: Bearing the Burden
