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Wednesday, December 31, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby


  • GM shifts into high gear after GMAC bailout. General Motors (GM) and its dealers rushed to unveil new financing offers after the Treasury allocated $6B for GMAC (GKM). GM announced it will offer 0% financing on five 2008 models, renewing a practice that was put on hold when GMAC was forced to tighten its credit standards in October. GM will also offer low-interest loans on dozens of other models in an attempt to drum up year-end sales, will offer loans to consumers with lower credit ratings and has begun reaching out to customers worried about credit availability. The flurry of activity underscores GMAC's critical role in keeping sales going at GM.
  • Treasury maxes out TARP funds. The Treasury has committed almost $9B more than the $350B of TARP funds it has been authorized to use. With Monday's announcement of $6B for GMAC, the Treasury's total TARP spending has reached $358.4B. "They are pushing the envelope here," complained Sen. Bernie Sanders. "What they are trying to do is create a situation to put pressure on Obama and the Congress to provide the next $350 billion." Treasury officials defended the agency, saying only $207B of the committed money has been disbursed thus far and that the agency is therefore working within the limits assigned by Congress.
  • Fair value marked to stay. The SEC has rejected a push by the banking industry to suspend mark-to-market rules. In a report to Congress, the SEC strongly recommended maintaining the accounting practice but suggested reducing the number of models used to measure impaired assets and offered several improvements to deal with illiquid markets.
  • Fed advances on MBS. The Federal Reserve took an aggressive step yesterday to drive down mortgage costs, setting itself a goal to buy $500B in mortgage-backed securities by mid-2009 under a program it announced last month. The purchases will begin in early January. (Read the Fed's FAQ about the purchases.)
  • AIG seeks to modify loan terms. AIG (AIG) wants permission to change some of the terms of its $60B government loan, according to sources close to the situation. The troubled insurer wants the Federal Reserve to raise the limit for non-cash assets that AIG can submit as part of its loan repayment. The changes, which would allow AIG to accept more stock and other non-cash payments for the assets it's selling, could help attract more bidders and higher prices. Under the current terms, at least 90% of the loan has to be repaid in cash.
  • Aberdeen lands CS assets deal. Credit Suisse (CS) will sell parts of its asset-management business to Aberdeen Asset Management in exchange for a 24.9% interest in the British investment firm and a seat on Aberdeen's board. The deal will see 75B Swiss francs ($70.9B) in managed assets transferred to Aberdeen. Credit Suisse announced earlier this year that it is refocusing its asset management business after a pretax loss of 45M francs during Q3.
  • Quotables. In one of his last interviews before leaving office, Treasury's Paulson said: "We’re dealing with something that is really historic and we haven’t had a playbook. The reason it has been difficult is first of all, these excesses have been building up for many, many years. Secondly, we had a hopelessly outdated global architecture and regulatory authorities... in the U.S."
  • Home prices plummet. Home prices fell an astounding 18.0% in October from a year ago (vs. -17.8% consensus), the largest drop since the S&P/Case-Shiller Index was created in 2000 and the 22nd straight monthly decline. Prices fell 2.2% from the previous month.
  • Retail sales drop. Retail chain store sales fell 1.5% from last week, ICSC reported, and fell 1.8% vs. the previous year. "The 2008 recession, widespread heavy discounting and adverse pre-holiday weather all coalesced to produce the weakest holiday season since at least 1970." According to Redbook, national chain store sales fell 0.5% in the first four weeks of December vs. the previous month and fell 0.9% vs. a year ago.
  • Mortgage apps hold steady. Mortgage applications are unchanged from last week's 48% jump, MBA says, and rose 155% Y/Y on an unadjusted basis. The average interest rate on 30-year fixed-rate mortgages decreased slightly to 5.03% from 5.04%.
  • Confidence falls. The Conference Board's Consumer Confidence Index dropped to an all-time low of 38 in December, from November's 44.7. ABC News' Consumer Comfort Index closed the year at -49 on a scale of +100 to -100, making Q4 the second worst quarter ever.

Today's Markets

  • Asia markets closed mixed, wrapping up a year of heavy losses. Hang Seng +1.1% to 14,387, and down 48% on the year. Shanghai -0.7% to 1,821, and down 65% on the year. BSE -0.7% to 9,647, and down 52% on the year. Nikkei closed.
  • In Europe at midday, London +1.0%. Paris +1.2%. Frankfurt closed.
  • U.S. futures: Dow +0.1%. S&P +0.25%. Nasdaq +0.02%. Crude -4.4% to $37.30. Gold -0.7% to $863.90.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.


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