GM Cuts 2009 US Sales Outlook to 27 Year Low - Wall Street Rallies

A grim outlook from General Motors today as it continues to attempt to wring concessions and donations from anyone and everyone.

The market rallied after this news. If this is confusing, read this blog entry from earlier today on the technical state of the SP500 futures.

Its reassuring to see that the economic carnage has not made the banks and hedge funds too glum to engage in the usual option expiry market manipulation. They'll never learn. Keep your powder dry because there are some rough seas dead ahead.

"As a dog returns to its vomit, so a fool returns to his folly. " Proverbs 26:11

Bloomberg
GM Says U.S. Auto Sales May Tumble to 27-Year Low on Economy
By Jeff Green

Jan. 15 (Bloomberg) -- General Motors Corp. cut its estimate for 2009 U.S. industrywide auto sales to 10.5 million units, a total that would be the lowest in 27 years, as a worsening economy crimps demand.

The new outlook replaces a projected range of 10.5 million to 12 million vehicles, GM said in slides for a Deutsche Bank AG conference today in Detroit. Global sales will fall to 57.5 million autos from 67.1 million last year, GM said.

GM is using the sales estimates to craft a proposal to cut costs, revamp operations and show it can repay $13.4 billion in Treasury Department loans. A weakening economy may force the biggest U.S. automaker to seek additional government funding after it completes the viability plan due March 31.

“We’re on track,” Chief Executive Officer Rick Wagoner told analysts. “We’re confident GM will come through this a stronger company.”

Wagoner said this week that the loans were sufficient for now and that he would review GM’s needs at the end of this quarter. He joined Chief Operating Officer Fritz Henderson and Chief Financial Officer Ray Young at the Deutsche Bank meeting.

GM gained 5 cents, or 1.3 percent, to $3.90 at 2:32 p.m. in New York Stock Exchange composite trading.

Global economic growth may slow to 0.5 percent this year from 2.3 percent, GM said today.

The U.S. recession is ravaging consumers’ auto purchases, sending deliveries plummeting to 13.2 million vehicles in 2008 after an average of about 16 million annually during the past decade. U.S. job losses last year were the worst since 1945.

Industrywide sales of 10.5 million vehicles in the world’s biggest auto market would be the lowest level since the 10.36 million units of 1982, according to research firm Autodata Corp. of Woodcliff Lake, New Jersey. The total in 1981 was 10.6 million.

Union Workers, Bondholders

GM is seeking concessions from its largest union and is chopping debt in half because the government can call the loans unless the company shows progress in reshaping itself by the March deadline. The Detroit-based automaker plans to drop or de- emphasize half of its brands and seeks to cull 1,700 dealers from its total of 6,400.

It’s premature to discuss how GM might work with bondholders to win their assent in reducing debt, Wagoner said this week. Government loan conditions require GM to cut its unsecured public debt by at least two thirds in an exchange with bondholders for equity or other methods.

The debt exchange is designed to pare $27.5 billion in unsecured debt to about $9.2 billion in a swap for equity, Young said.

Health-Fund Costs

GM also needs to reduce its obligations to a union retiree health fund to $10.2 billion, a 50 percent trim, in a separate equity swap, Young said. About $14.1 billion in other debt won’t be affected.

After saying it would run short of operating cash by the end of 2008 without an infusion of financial aid, GM received the first $4 billion in loans on Dec. 31 from the Troubled Asset Relief Program. The money is being used to pay bills, mostly to the automaker’s 3,000 suppliers.

An additional $5.4 billion is due this month. Should Congress agree to release a second $350 billion in TARP funds, GM will get $4 billion more in February. An initial progress report must be presented to the Treasury Department by Feb. 17.

The loans are secured by almost all of GM’s available unsecured assets and as a secondary lien against other assets already secured, Young said today. GM also plans to draw $1 billion in Treasury loans granted to the automaker as part of a $6 billion bailout of the GMAC LLC finance unit.

SP Futures At Key Support on the Hourly Chart

Even if you trade on fundamentals, it is a good idea to keep an eye on the charts to select your entry and exit points.

If we break down out of the short term trend (the hourly chart) then we would look to the SP daily and weekly charts to see where support might be found. Although things may seem obvious, they are rarely certain.

Keep in mind tomorrow is stock options expiry and the put buyers have been active. We are also going into a three day weekend in the States as Monday is a national holiday. There is significant worry about the Citi earnings report due out tomorrow.

Here is a snapshot of the SP500 emini futures at 10:30 AM.

The Worst Is Yet to Come (But We Beat the Numbers) - J. P. Morgan

Interesting quotes from Jamie Dimon, CEO of J.P. Morgan, the Fed's instrument of policy, their house bank, king of the derivatives pyramid, as the world is amazed that they beat the EPS numbers again this morning, at least on paper.

The problem is not so much the banking system and a lack of confidence in it. They do not deserve any. Our financial system has become a shell game, an extended accounting fraud, that permeates and selectively destroys whole segments of the real economy.

The problem is that the average consumer in the United States is a wage earner, and their real wages have been stagnating for the past twenty or more years, despite a rosier-than-reality set of CPI figures from the last two administrations.

The fact that most in New York and Washington have not quite realized yet is that the average American consumer is exhausted, tapped out, broke.

Providing easier credit terms, new sources of debt to feed the machine, may stretch this out a bit longer, may cushion the impact as the overloaded and imbalanced economy hits the wall, butit will do nothing to create sustainable growth.

Unless and until something is done to address the real median wage, to provide sources of income, rather than fresh sources of debt, to the middle class, there will be no recovery other than more monetary bubbles, that will be increasingly fragile and destructive in their collapse, ultimately testing the foundations of democracy.

The economic, and then the political, situation in the United States will deteriorate, perhaps much more rapidly than most would expect or even allow, unless something is done to break this cycle of debt and wealth transference, this illusion of vitality and stability.


AFP
JPMorgan chief says worst of the crisis still to come
Wed Jan 14, 10:13 pm ET

LONDON (AFP) – The chief executive of US bank JPMorgan Chase, Jamie Dimon, told the Financial Times on Thursday that the worst of the economic crisis still lay ahead as hard-hit consumers default on their loans.

"The worst of the economic situation is not yet behind us. It looks as if it will continue to deteriorate for most of 2009," he told the business daily.

"In terms of our sector, we expect consumer loans and credit cards to continue to get worse."

Dimon said the bank -- which bought rivals Bear Stearns and Washington Mutual last year -- was prepared for a deterioration in consumer-orientated businesses but if things were worse than expected, it would have to cut costs further.

The interview was published after a fresh wave of selling hit US and European stock markets Wednesday, as an unrelenting flow of bad economic and corporate news sparked fears of a deepening global downturn.


Bloomberg
JPMorgan Profit Drops 76 Percent, Less Than Analysts Estimated
By Elizabeth Hester

Jan. 15 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank by assets, said profit fell 76 percent, beating analysts’ estimates, as the company navigates the credit crisis with more success than most of its peers.

Fourth-quarter net income was $702 million, or 7 cents a share, compared with $2.97 billion, or 86 cents, a year earlier, the New York-based bank said today in a statement. Fourteen analysts surveyed by Bloomberg had an average earnings estimate of 1 cent a share.

JPMorgan’s $20.5 billion of writedowns, losses and credit provisions through the third quarter were less than a third of those at Citigroup Inc., which was forced to sell control of its Smith Barney brokerage to Morgan Stanley for $2.7 billion this week. Chief Executive Officer Jamie Dimon has used JPMorgan’s relative strength to acquire troubled rivals, including Bear Stearns Cos. in March and Washington Mutual Inc. in September.

“JPM is better positioned against deteriorating loan portfolios than many of its peers given its strong loan-loss reserves,” KBW Inc. analyst David Konrad wrote in a Jan. 14 research note.

JPMorgan, which moved up its earnings announcement by six days, is the first of the largest U.S. banks to disclose fourth- quarter figures. New York-based Citigroup reports tomorrow, and Bank of America Corp., which bought Merrill Lynch & Co. two weeks ago, is scheduled to release results on Jan. 20. San Francisco- based Wells Fargo & Co. will follow on Jan. 28 as it works to absorb Wachovia Corp.

...Federal Reserve officials and President-elect Barack Obama have said more government help will be needed to shore up the U.S. financial system.

Fed Chairman Ben S. Bernanke said Jan. 13 that banks’ holdings of hard-to-sell investments raise questions about the companies’ underlying value, and called for the government to take on or insure the assets. Obama is deciding how to use the remaining $350 billion of the $700 billion Troubled Asset Relief Program that Congress approved in October, with some Democrats saying the plan should favor homeowners and community banks over larger financial-services companies.

Its Official - Obama Fatigue

Well this time we didn't even make it to the Inauguration before becoming disenchanted with a candidate. That beats our record set by ... wait for it ... Bill Clinton.

The straw that broke the camel's back, at least for us, was Obama's nomination of Eric Holder as his Attorney General.

After suffering through that continuing assault on the Constitution known as Alberto Gonzales, one might have expected the President-elect to appoint someone with a sterling reputation for upholding the rule of law, and not performing as a compliant tool to a particular Administration.

As the Deputy to Janet Reno from 1997, Eric Holder was intimately involved in many of the more controversial actions in the twilight of the Clinton Administration, including a key role in the infamous pardon of financial fraudster, Marc Rich.

Obama has spent much of his goodwill now with a series of highly cynical appointments of Clinton insiders, with virtually no signs of any type of a reform government.

He still has all our best wishes of course, but a healthy skepticism has already replaced much of the initial optimism. The honeymoon is over before it got started.

Bush II did not lose this voter's support until it was proven, at least to our satisfaction, that he systematically lied to the nation about something important, the case for the Iraq war.

The same criteria will apply to this President as well. But the goodwill has been spent.