Another day, another round of layoffs at an investment bank. Today’s casualties are the employees of UBS AG, a Swiss based bank that has come onto hard times.
The firm’s investment banking division lost $17.3 billion in the first quarter. You can bet that the majority of job cuts will be from that division.
The 5,550 jobs represent about 7% of UBS’s 83,800 worldwide employees. That number is actually less than the rumored 10% cut that was floating around the market yesterday.
This newest round of layoffs brings the total reductions in the industry to over 53,000 since this whole mess began. There is still no sign that the credit market has turned around, so expect more cuts to come during the next few months.
Not too many people pay attention to contrarians. They often remind me of the kids in school who ate paste. Sitting in a corner by themselves, ostrasized by their peers. Loners. What you forget is that these kids are often the ones who grow up to do great things. Their minds are complex and cavernous, sparkling with nuggets of information that every investor should pay attention to.
Contrarians are not the ones shouting from atop desks, playing silly sounds and acting like crazed lunatics when discussing the stock of the day. In fact, one could argue that a contrarian is the exact opposite of Jim Cramer. Read more
One of the hallmarks of a healthy economy and equity market is a strong Mergers and Acquisitions sector. Nothing gets bulls running like one company devouring another. This is true even when one of the companies is helpless and injured (see Bear Sterns).
Today we learn that there are rumors that T-Mobile is looking into combining with Sprint. Although in the US Sprint is the larger company, T-Mobie’s German parent Deutsche Telekom AG could easily handle the required costs. Sprint has been struggling financially of late, having its credit rating cut to junk status by Standard & Poors last week.
If successful, the new entity would represnet the largest wireless company in the US.
Looks like my earlier prediction was right. Microsoft Corp. has pulled its bid to purchase Yahoo! Inc. for $33 a share. The deal is dead.
The market, to no surprise, doesn’t like the news and shares for Yahoo have plunged 21% in pre-market trading. Bloomberg reports that Citigroup Inc. has downgraded the stock to a “sell” after the news came out.
Yahoo’s future is not as bleak as some apparently want to believe. It is still arguably the #1 or at worst #2 brand on the Internet. They are currently rumored to be in talks with with Google to iron out an advertising deal, and there are also rumors of a possible deal with AOL Time Warner.
I’m sure this is not the last time we’ll be discussing Yahoo! mergers this year.
With all the recent negative press on the economy, I’ll forgive you for not noticing that the Dow Industrial Average had a really good month in April. Super Really Good. 4.6% returns good.
May is not doing too shabby either. Two days into the month and the Dow is up 1.4%. Aren’t we supposed to be in the middle of a Bear Market with a looming recession? What gives??!?!
What gives is that prior to April, the market went down too much, too quickly, thereby attracting buyers. From October 1st to March 31st, the Dow tumbled almost 13%. That’s quite a haircut for a 6 month period. Based on where we are today, the market still needs another 8.3% in gains just to break even with October’s numbers.
So here’s the big question: Is this just a blip correction, or do we call out the bulls and shout recovery?
Lets take a look at what we know based on data from the last few weeks:
- The US Federal Reserve has been slashing rates. This usually leads to a boost to stocks, as companies will be able to borrow for less, and consumer get access to cheaper money (so that they can spend it).
- Job numbers for the month of April weren’t as bad as expected. The results were a quarter of the street consensus.
- GDP also topped analysts expectations in April.
- Oil & Food prices continued to rise rapidly, with no real end in sight.
So overall there’s been more positive than negative economic news this past month. However, and this is a BIG however, the continued rise in oil and food prices can lead to high inflation, which can undo a lot of the positives from the past month.
The good news is that things aren’t so bad after all, but we’re not out of the woods yet.
US Non-Farm payrolls came in at -20,000 jobs for April. The consensus was -80,000, matching the previous numbers for March.
Translation from EconoSpeak™ to regular English: The US economy had fewer layoffs for jobs that don’t involve working on a farm, the government or a private house, for the month of April than those in the towers of Wall Street expected. The data represents 80% of the workforce involved in the economy.
This is different from the job numbers from yesterday, where a private firm announced its research on announced layoffs. Yesterday’s data was far less broad, and focused on only announced cuts and primarily in the financial sector.
What does this all mean?
Well, it’s good that the numbers beat expectations, although this is the longest string of consecutive declines since Feb-June 2003. So there are pluses and minuses. The data will definitely add fuel to the camp who believe that we are near the end of the downturn, and that recovery is on the way. (via U.S. Bureau of Labor Statistics)
I don’t know why Kermit the Frog is the first thought that crossed my mind after reading that US consumer spending was up 0.4% for the month of March. Maybe it was because the news was positive. Maybe it’s because today has been stressful and I need a release. Probably I’m just going a little bit insane.
Anyhoo, The numbers are a bit exaggerated until you adjust for inflation. Taking inflation into account, spending increased just 0.1%
Consumption, for those who don’t remember their economics classes, is the biggest contributor to GDP. What will be really interesting is to see the spending numbers in June for the month of May. Those numbers will include the Government’s rebate cheques and the verdict will finally be out if they were of any use to the economy.
“Job cuts announced by U.S. employers increased 27 percent in April from a year earlier, reflecting the crisis in financial markets, according to a report by a private placement firm.
Firing announcements rose to 90,015 last month, the most since September 2006, from 70,672 in April 2007, Chicago-based Challenger, Gray & Christmas Inc. said in a statement today.” (Via Bloomberg)
There is no real surprise here. Financial firms are the hardest hit by the “Credit Crunch™” and have been announcing layoffs for the past few weeks. These jobs are very cyclical and workers are usually aware of the risk as the downside to the high salary.
If we begin seeing big increases in layoffs in core industies like manufacturing and retail, then there will be cause for alarm.
Breaking News Via Reuters:
-RTRS-U.S. FED CUTS BENCHMARK FED FUNDS RATE 1/4 POINT TO 2 PCT, DISCOUNT RATE 1/4 TO 2.25 PCT
-RTRS-FED SAYS UNCERTAINTY ABOUT INFLATION OUTLOOK REMAINS HIGH
-RTRS-FED SAYS READINGS ON CORE INFLATION SOMEWHAT IMPROVED, BUT ENERGY, COMMODITY PRICES UP
-RTRS-FED SAYS SOME INDICATORS OF INFLATION EXPECTATIONS HAVE RISEN RECENTLY
-RTRS-FED SAYS EXPECTS INFLATION TO MODERATE IN COMING QUARTERS
-RTRS-FED SAYS ENERGY, COMMODITY PRICES TO LEVEL OUT, PRESSURES ON RESOURCE UTILIZATION TO EASE
-RTRS-FED SAYS SUBSTANTIAL EASING OF POLICY, LIQUIDITY MEASURES SHOULD HELP PROMOTE GROWTH, MITIGATE RISKS
-RTRS-FED SAYS RECENT ECONOMIC ACTIVITY REMAINS WEAK, HOUSEHOLD, BUSINESS SPENDING SOFTENED FURTHER
-RTRS-FED SAYS FINANCIAL MARKETS REMAIN UNDER STRESS, TIGHT CREDIT, HOUSING DOWNTURN TO WEIGH ON GROWTH
US Gross Domestic Product grew at an annualized rate of 0.6 percent, beating the median forecast of 0.2 percent for the first quarter.
The news will do little to sway any decisions at today’s Federal Reserve policy meeting, where it is widely expected that a 25 basis point rate cut will arrive at the 2:15pm announcement.
There is much talk about what qualifies as a recession and whether you can technically have one if growth remains positive. All that is irrelevant. A recession is something that is felt. It is an atmosphere of uncertainty and worry. It is also very personable. You can feel in recession while your neighbor is in boom. Who cares if the GDP is positive/negative or if housing is up or down. All that matters is whether or not you’re stressed about your economic future when you’re laying in bed at night.
