MarketView for November 20

Summary 

Ouch, it was a tough day on Wall Street on Thursday as fears over the economy exasperated the financial mire that has Detroit virtually emasculated combined to drive the benchmark Standard & Poor's 500 index to its lowest level since 1997, thereby erasing more than a decade of stock market gains. The latest leg down in what has been a 13-month whipping of equities worldwide was led by the year's weakest links: banks, commodity producers and car makers.

The S&P 500 is now more than 52 percent below its October 2007 record high, making the current bear market the second largest on record. The current decline is exceeded only by the 83 percent drop between 1930 and 1932, according to the Stock Trader's Almanac.

At the same time, the price of crude fell below $50 per barrel, taking energy shares with it as dismal U.S. economic data intensified concerns of a long and deep global recession, crushing fuel demand expectations. Chevron closed down 8.8 percent to $64.40, making it the largest drag on the Dow Jones industrial average.

There was one bright spot but it occurred after the closing bell when shares of Dell rose 6.3 percent to $10.43 after the world's second largest manufacturer of personal computers reported better-than-expected earnings as cost cuts tempered lower revenue.

And in another positive development after hours, Fannie Mae and Freddie Mac, the two largest mortgage finance companies, said they would suspend foreclosures of occupied homes until early 2009, making it one of the largest moves to date by the government to staunch the wave of evictions and home losses.

Earlier on Thursday, the number of American workers on the unemployment rolls surged to the highest in a quarter century, government data showed, while a regional manufacturing gauge slumped as the economic misery intensified. The Labor Department reported on Thursday that the number of workers making new claims for jobless benefits surged last week to the highest level in 16 years.

Financial stocks helped lead the parade downward as Citigroup fell 26.4 percent to $4.71 on growing worries about whether the second-largest bank has enough capital to withstand billions of dollars of additional loan losses, overshadowing fresh support from Saudi Prince Alwaleed, its largest individual investor.

Uncertainty over the prospects for a bailout for struggling automakers added to the day’s volatility. Democratic leaders warned that no bill would pass unless it includes a plan for the industry to return to profitability. Shares of General Motors and Ford still managed to end the day higher after falling sharply during the morning. GM rose 3.2 percent to $2.88, while Ford advanced 10.3 percent to $1.39. Democratic leaders said automakers can submit another plan by December 2, adding that the proposal could be considered during the week of December 8.

Congress Offers Detroit A Lifeline...Of Sorts

Democratic congressional leaders seeking to salvage a bailout of the Big Three automakers demanded car executives provide a business survival plan on Thursday in exchange for their support for up to $25 billion in loans. Noting the increase in public resentment over government bailouts the Congressional leaders said they will take a look after the auto industry provides a roadmap to its survival.

House of Representatives Speaker Nancy Pelosi and Senate Majority Leader Harry Reid told a crowded news conference on Capitol Hill that the automakers must develop a bailout proposal by December 2 and that it would be considered during the week of December 8.

"Until we can see a plan where the auto industry is held accountable and a plan for viability on how they go into the future... we cannot show them the money," Pelosi said Reid said, "We can only help if they are willing to help themselves."

The Big Three's auto executives testified on Capitol Hill this week about their dire economic situation, but undercut their argument by flying to Washington aboard corporate jets instead of taking cheaper transportation.

"I know it wasn't planned, but these guys flying in their big corporate jets doesn't send a good message to people in Searchlight, Nevada, or Las Vegas, or Reno, or any other place in this country," Reid said.

The Big Three's woes were adding to a chaotic economic picture, as stocks suffered losses on fears that failure to get a bailout would lead to thousands more layoffs and deepen what many economists believe are recession conditions.

In Detroit, United Auto Workers President Ron Gettelfinger said lawmakers need to take immediate action on a $25 billion loan bill to support the U.S. automakers or one or more could fail by the end of the year. "Inaction is simply not an option," he said.

A bankruptcy of one or all of the Big Three could shake vast sections of the U.S. economy, an argument Democrats have emphasized. Some Republicans have argued a bankruptcy could allow the companies to make structural changes needed to assure their long-term survival.

The Big Three will need massive restructuring in order to reduce the costs of a heavily unionized labor force and produce cars that Americans will buy, after years of producing gas-guzzling sport utility vehicles that have fallen out of favor after people got a taste of $4-a-gallon gasoline last summer.

The White House and its Republican allies on Capitol Hill have drawn the line against extending part of the $700 billion financial industry bailout to the Big Three because that could prompt other sagging industries to seek a government handout. Instead, they have called on Democrats to back amending the $25 billion earmarked for meeting new fuel-efficiency standards to help the Big Three.

Crude Continues To Fall

Oil prices fell more than 7 percent to below $50 a barrel on Thursday as a bearish unemployment report intensified concerns of a long and deep global recession and further crushed fuel demand expectations. Sweet domestic crude for January delivery settled down $4.00 per barrel at $49.62, the lowest settlement since May 23, 2005. London Brent crude settled down $3.64 per barrel at $48.08, its lowest close since May 20, 2005.

The price of crude oil has fallen nearly $100 from record highs above $147 a barrel in July, as the economic crisis strangles demand growth in large consuming nations such as the United States. As demand slumps, oil companies plan to store millions of barrels of crude in the hope economics will improve.

Shipping brokers on Thursday said U.S. oil trader Koch and Royal Dutch Shell had booked supertankers capable of storing 10 million barrels of crude.

Libya's top oil official said on Thursday that OPEC may decide to reduce supply further at a meeting in Cairo next week, if it finds members have implemented a previous decision to lower output. The comments followed remarks from other OPEC members, including Kuwait, Iran and Venezuela, raising the possibility of a further cut in supply to prop up oil prices.