U.S. ECONOMIC/FINANCIAL NEWS
U.S. Stocks Tumble for Sixth Straight Week
Continuing the crash begun in March 2000, that just accelerated with the worst quarter since 1987, the Dow Jones Industrial Average fell nearly 189 points to 7,528 Oct. 4, the lowest level since November 1997; the S&P 500 dropped to 800, just above the five-year low reached in July; and the Nasdaq declined to its lowest level since September 1996. Some 1.82 billion shares traded on the Big Board, 20% more than the three-month daily average, probably showing intervention by the Plunge Protection Team in addition to massive selling, as the Dow was down by 220 points in the early afternoon, before jumping to minus 100 points, then falling again. For the week, the S&P dropped 3.2%, the Dow lost 2.3%, and the Nasdaq fell 4.9%.
'A Tombstone, Not a Milestone'
"This is a tombstone, not a milestone," stated an analyst for A.G. Edwards to the Washington Post Oct. 1, when commenting on the performance of the stocks markets in the third quarter. This has been the worst quarter for Wall Street since the "Crash of 1987"; the October crash that only Lyndon LaRouche had forecast.
If You Think September Was Hellish, Just Wait for Hallowe'en!
"Beware! October Is a Very Bad Month for the Stock Market," headlined John Crudele's New York Post column Oct. 1, forecasting a deeper collapse than we saw in the third quarter just ended Sept. 30. He debunked the media stories about the stock-market jumps on Sept. 25 and Sept. 26; in reality, the rally was manufactured, and had to do with technical factors as the end of the third quarter neared.
As bad as the past few weeks have been, warns Crudele, October will be worse. "October has historically been crash montheven when times are better than these," Crudele writes. Some retail companies whose profit projections were not lowered are now facing the big fall, including Harley Davidson. "This market is very dangerous, even if things look like they couldn't get any worse," he concludes.
Echoing these warnings, Lawrence Kudlow, writing in the New York Post Oct. 2, described the stock market jump on Oct. 1 as "just a sucker's rally," adding that it doesn't mean that the bottom is behind us. The only "explanation" for the Dow rise was the expectation that things are so bad, that the Federal Reserve's Open Market Committee (FOMC) will have to cut interest rates at its next meeting on Nov. 6. Bruce Steinberg, chief economist at Merrill Lynch, noted that "There is an economic slowdown going into the fourth quarter."
U.S. Faces Japanese-Style Deflation
Continuing the metaphor that October is the witching month, the New York Times titled a lead business section article, "Japan and U.S.: Bubble, Bubble, Toil and Trouble," and warned that the American economy faces the threat of deflation, which would set off a dangerous series of events similar to those suffered by Japan in recent years. Neither consumers, businesses, nor the U.S. government, appear ready to turn the economy around. The Federal Reserve, "clearly concerned that it is flirting with danger," has cut interest rates 11 timesbut hasn't ended the downward spiral.
A sharp rise in mortgage defaults (which have recently hit a record), perhaps caused by an oil price spike, would trigger deflation, the Times said.
IT Blowout 'Brutal'; Not a 'Cyclical Downturn'
"This is a brutal slowdown, the worst in the history of America's IT industry," moaned Larry Ellison, chairman and chief executive of the world's second biggest software producer Oracle. Ellison's statement appeared as the headline of a full-page feature on the dissolution of Silicon Valley in London's Financial Times Sept. 30.
According to the National Science Foundation, 2002 will be the first year in which U.S. corporate investments in information technology (IT) show a decline, since the agency began reporting data in 1960. The slowdown in U.S. corporate R&D spending, according to Dan Wilson, economist at the San Francisco Federal Reserve Bank, is much deeper than it was in 1991. Venture capital investments in technology start-ups have plummeted by 85% in the last two years. While these events are taking place across the U.S., notes the article, the San Francisco Bay Area has lost more than 110,000 jobs since the end of 2000 alone, and unemployment in nearby Santa Clara County, the heart of Silicon Valley, shot up to 7.6%, "the highest of any urban county in California."
"Nearly every sectortelecommunications equipment, enterprise hardware and software, semiconductors, servers and dot.comsis suffering," Wilson said.
In the interview, which is part of the Financial Times feature, Oracle's Ellison states, "Silicon Valley will never be the same," adding, "Those who believe this is merely a cyclical downturn are mad. They cannot see what is happening in front of their eyes."
Tech Meltdown: More To Come
"Think the tech meltdown is over? Think again," warns the Washington Post technology column Oct. 3, forecasting that things are about to get worsemore IT companies could shut down in the near future, than have so far gone out of business. More than 5,800 IT companies still exist, of the more than 10,000 that were funded with venture capital since 1992. Those left are about to run out of money.
Manufacturing Employment Skids for 25th Straight Month
During September, U.S. manufacturing employment fell for the 25th straight month: The official level of unemployment dropped to 8.092 million workers, compared to 8.142 million workers in August, a decrease of 50,000, while the official U.S. unemployment rate dropped to 5.6%, compared to 5.7% in August, the Bureau of Labor Statistics of the U.S. Department of Labor announced Oct. 4. However, the real unemployment rate and level, as determined by EIR, are actually double the BLS official figures.
The number of workers on non-agricultural payrolls, as measured by the BLS's "establishment survey," fell by 43,000 in September. The BLS did not revise downward the previous month's gain of non-agricultural payroll employment, but instead, actually increased the reported gain in August's level to a positive 107,000. During September, manufacturing employment fell by 35,000, while service-sector employment rose by 23,000; both indicate unhealthy developments in the underlying economy.
September marks the 25th consecutive month of a decline in manufacturing employment. Since August 2000, some 1.907 million manufacturing payroll jobs have been eliminated from the U.S. economy. Of these workers, since the end of August 2000, some 1.511 million production manufacturing workers' jobs have been eliminated, which means eliminating those workers whose scientific transformation of nature, advances human existence. This deep continuous fall in manufacturing employment represents the devastation of the manufacturing sector.
At the same time, new claims for unemployment benefits rose the last week in September to 417,000, the sixth week above 400,000, the Labor Department reported Oct. 3; the four-week average of new claims rose to 423,000, the highest level in five months. Continuing jobless claims increased to 3.68 million for the week ending Sept. 21.
Cracks Found in Foundation of Housing Boom
In its lead, page-one story Oct. 3, the Wall Street Journal warned, "Cracks are spreading in the foundation of the U.S. housing boom, as evidence that the long run-up in housing prices can't be sustained." The Journal pointed to job losses as undermining real-estate markets, and called the real-estate market "speculative." To picture that home mortgages exceed many households' ability to finance them, the Journal reported on the results of a study that it commissioned, that determined for 100 of America's large cities, since 1998: (a) the percentage increase of the median household income; (b) the percentage increase of the median home price; and, subtracting (b) from (a), the percentage by which the increase in the median home price surpassed the increase in the median household income.
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****************TABLE 1***********************
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Percentage by which Increase in Median Home Price Surpasses Increase in Median Household Income
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Boston |
66.1% |
Portland, Maine |
61.3 |
San Diego |
59.8 |
Fort Myers |
59.4 |
New York |
51.3 |
San Francisco |
39.8 |
Denver |
33.9 |
Washington, D.C. |
29.7 |
Minneapolis |
28.3 |
Santa Fe |
21.1 |
Houston |
20.8 |
Tucson |
20.7 |
Chicago |
20.1 |
[Source: Economy.com for Wall Street Journal]
In the case of San Diego, the median price of a home has jumped to $362,000, not merely outstripping the increase in median household income since 1998, but reaching a price that is the greater than the income that two-thirds of American households could afford. The Journal documented the past fall of home prices: In Los Angeles, after home prices rose during the 1980s, they fell by 24% over a five-year period in the 1990s.
But, after convincingly showing that there is insufficient real income behind sky-high prices of homes and the mortgages attached to them, the Journal attempted to draw back, and reassure, at least its own readers, that everything will turn out okay. It spread the fairy tale that unlike the "high-tech" stock market, real estate cannot experience a depression, "because real estate is such a local phenomenon."
The Journal article showed that the Journal itself and Wall Street are broadly aware in outline, but unwilling to publicly acknowledge, that the Fannie-Mae/Freddie Mac housing bubble is set to blow.
West Coast Port Lockout Continues; Cost to Economy $2 Billion a Day
The lockout of West Coast dockworkers continued last week with growing economic effects as 1,500 International Longshore and Warehouse Union (ILWU) members and supports rallied in Southern California. Spokesmen for the Boeing Company have warned that, if the lockout of 29 West Coast ports continues into next week, Boeing production plants in Everett and Renton, where 727s and 737s are produced, could be affected. Boeing attempted to have ships diverted to Vancouver, Canada, but found that ILWU members there are refusing to unload any ships diverted from West Coast ports, according to the Seattle Times Oct. 4.
Last week, the San Francisco Federal Reserve estimated that the lockout will cost the economy $2 billion a day.
Spokesmen for Ford Motor Co. have also indicated that Ford plants will begin to feel some impact next week. A Mitsubishi auto plant as far away as Normal, Illinois has scaled back production of autos (so far, only slightly), because of inventory shortages, and the auto plant in Fremont, Calif. remains shut down, although management is attempting to have some shipments come in through costly air freight. Grain shipments via Burlington Northern Santa Fe line remain halted since Wednesday, because of a lack of storage facilities; and California almond growers report they face major losses of holiday sales to Asian markets, unless the lockout ends promptly.
States Take Wrong-Headed Approach to Budget Woes
"Budget Axe Fells State Programs," was the headline on the Oct. 1 Boston Herald report on the self-defeating approach states are taking, as they faced collapsed revenues, even before the first quarter ended, on Sept. 30. "Programs to prevent youth violence in Colorado cancelled. Two-thirds of school bus stops in Tulsa, Oklahoma eliminated. Stockpiles of flu vaccines ... purchased by the Massachusetts Department of Public Health reduced by 19%," was the bleak news as of mid-September. With the news of 1Q FY 2003 revenue shortfalls coming in, more deadly cuts are coming.
Massachusetts, for example, which cut $900 million from programs, hiked taxes by $1.2 billion, and drained nearly all of its $1.8 billion "rainy day" fund, to balance last year's budget, will see $200 million slashed "from state programsmostly in human serviceswithin this week." Its 1Q revenue data "showed an anemic $47 million" tax gain, not enough to halt the snowballing, now projected, $350-million deficit. Acting Governor Jane Swift will use emergency powers to cut public health, child care, and home care for elderly citizens' programs, among others. State budget drafters, foolishly, planned for a quick recovery and built this year's budget on expectations that the state would have a 75,000-job gain, when instead it has lost 66,000 jobs since the spring! Hundreds of state workers are expected to lose their jobs, while those still employed will be asked to pay more for health insurance.
The public-health cuts show the potentially deadly nature of this approach. The flu vaccine program cuts will mean triaging broad vaccination, and limiting shots to the elderly and infirm. "The younger and healthier you are, the longer you may have to wait for your shot," the public affairs director of the state's Public Health Department was quoted.
More than 40 Million Americans Lack Health Insurance
The number of Americans lacking health insurance rose by 1.4 million, in 2001, to 41.2 million, as unemployment increased and companies cut benefits amid the economic breakdown. About 14.6% of the U.S. population had no health insurance coverage during all of 2001, an increase from 14.2% in 2000, according to a report released Sept. 30 by the Commerce Department's Census Bureau. The share of the population covered under private, employment-based plans dropped from 63.6% in 2000, to 62.6% in 2001.
Rates of uninsured rose across all income levels, among full- and part-time workers, and among U.S.-born residents and immigrants.
The percentage of people covered under Medicaid, rose from 10.6% (29.5 million) to 11.2% (31.6 million).
About 30.7% of people living below the poverty level, or 10.1 million, had no health insurance in 2001.
Roughly 23% of people earning less than $25,000 per year lacked health insurance, roughly three times the percentage of those earning $75,000 and above.
WALL STREET POLICE BLOTTER
*Andrew Fastow, former Enron chief financial officer, was charged Oct. 2 with fraud, money laundering, and conspiring to hide debts, inflate profits, and enrich himself at the expense of the now-bankrupt energy pirate. The criminal complaint, filed in U.S. District Court in Houston, alleges that Fastow and others, created a scheme to defraud Enron and its shareholders through transactions with off-the-books partnerships that hid some $1 billion in debt, making the company look more profitable than it was. The charges include securities, wire, and mail fraud.
Justice Department officials said the case would be brought before a grand jury within the next 30 days. The DOJ also asked the court to freeze an additional $11 million of Fastow's assets, bringing the total to $37 million, and will seek their forfeiture.
"We aim to put the bad guys in prison and take away their money," Deputy Attorney General Larry Thompson told a Justice Department news conference in Washington, D.C.
Fastow is alleged to have stolen $30 million from the various transactions for his benefit and the benefit of his friends and co-conspirators.
He faces up to 20 years for money laundering, 10 years for security fraud, and five years each on the mail fraud and conspiracy charges.
The Securities and Exchange Commission filed a civil lawsuit against Fastow, alleging that he defrauded investors and violated securities laws. The SEC seeks monetary penalties and repayment of "ill-gotten gains."
*Douglas Faneuil, an assistant to Martha Stewart's stockbroker at Merrill Lynch, pleaded guilty Oct. 2 to a misdemeanor charge that he was paid off to keep secret about an insider stock tip allegedly given to Stewart. Faneuil entered the plea in Manhattan Federal court, as part of a deal to testify against Stewart and others who could be charged in connection with sales of ImClone stock last December, just before the stock price plunged on news that its cancer drug was denied approval by the Food and Drug Administration.
*John Rigas, founder and former chairman of Adelphia Communications, along with his two sons and two other former Adelphia executives, pleaded not guilty Oct. 2 to Federal conspiracy charges that they looted the cable television firm of $252 million and hid $2.3 billion in loans to themselves. Each defendant, if convicted of conspiring to commit securities and bank fraud, could face prison sentences of 15-20 years.
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