U.S. Stock Futures Fall Sharply Wall Street was expected to plunge at the opening of trading Tuesday, extending its huge losses from last week and taking more cues from heavy selling that has spread throughout the world. Indicators showed the Dow Jones industrial average was set to fall by more than 500 points when trading begins. Fears of a recession in the United States that could pull down the global economy as well have infected markets around the world, and those declines further unnerved U.S. investors who were unable to trade Monday, when Wall Street was closed for Martin Luther King Jr. Day. Meanwhile, U.S. bond prices soared as investors fled the stock market, and the price of oil skidded as investors dumped futures in the belief that a recession would slash demand for energy.
Fed cuts rates 75 basis points in emergency move Hoping to prevent a market meltdown and recession, the Federal Reserve lowered its overnight lending rate by three quarters of a percentage point to 3.50% on Tuesday in a rare move between formal meetings. The 75 basis-point cut came after global financial markets sold off in dramatic fashion on fears that bad bets in credit markets could spread further and drive the U.S. economy into recession. "The committee took this action in view of a weakening economic outlook and increasing downside risks to growth," the Federal Open Market Committee said in a statement. It was the largest cut in the federal funds rate since 1982.
Paulson calls for swiftness in stimulus plan U.S. Treasury Secretary Hank Paulson said Tuesday he's moving to enact an economic stimulus plan "as soon as possible." He said he's optimistic that a plan can be carried out with Congress "long before winter turns to spring." Paulson called for swift, robust, broad-based and temporary fix for an immediate impact on the economy. Paulson said his team has been monitoring the global sell-off in stocks. Paulson said that looking ahead, unemployment remains low and that the "structure of our economy is sound and our long-term economic fundamentals are healthy."
Bank of America's quarterly profit falls 95% Bank of America said Tuesday its fourth-quarter profit fell 95% as write-offs for subprime credit problems, big trading losses and a less confident consumer took their toll. Bank of America's fourth-quarter earnings sank to $268 million, or 5 cents a share, from $5.26 billion, or $1.16 a share, a year earlier, as its provision for credit losses climbed and it posted $1.99 billion in net charge-offs. "Our fourth-quarter results were severely impacted by ongoing dislocations in capital markets and the slowing economy," Ken Lewis, chairman and chief executive officer, said in a press release. The main culprit was a $5.44 billion loss to the bank's trading account, compared with profit of $460 million a year earlier, driven by write-downs of collateralized debt obligations (CDOs) and weaker trading results.
Odds are, U.S. is in a recession It's much too soon for an official judgment on whether the U.S. economy has fallen into a recession, but early indications show that a recession may have already begun. Of the five monthly economic indicators used to judge whether the U.S. economy has fallen into a recession, three are declining and one other is flattening out. Three of the five numbers peaked in September. Only one has grown with any vigor over the past few months, but it's starting to look weaker. Calling a recession is as much art as science. The numbers now in hand are preliminary, subject to large revisions. What now seems very weak could be revised to show significant growth. That's why the academics who decide whether we've been in a recession wait a long time before making a judgment.
Bill Gross Calls it "Shadow Banking System" And here’s something else to worry about. Bill Gross, head of PIMCO, the world’s biggest bond fund, calls it the "shadow banking system." He’s referring to the way money and credit fly around the globe, courtesy of the very same "sophisticated" and "free" institutions that created such prosperity for so many people in the financial industry. Banks recognize that not all their loans will be repaid. They operate on margins of safety, with reserves set aside for when things go wrong. But in the worlds of swaps, hedge funds and derivatives…slick operators can invest billions with no margins of safety…and no reserves. The result, Gross says, could be catastrophic:
Hundreds of Layoffs Expected at Yahoo Yahoo is planning to lay off hundreds of employees in an effort to increase its profitability, prop up its deflated stock price and narrow the focus of its sprawling Internet portal to a smaller number of crucial areas, people close to the company said Monday. The final number of layoffs from Yahoo’s work force of about 14,000 is yet to be determined and is likely to be announced around the end of the month, perhaps during Yahoo’s conference call on Jan. 29 with analysts after it reports fourth-quarter results, these people said. Company executives are still trying to determine exactly which areas will be cut. One person close to the discussions said a final plan, or perhaps a few alternative plans, would be submitted to the board at a coming meeting. The plan’s final shape may be influenced by the company’s fourth-quarter performance, this person said.
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