[Marxism] Facing deep recession, stock surge doesn't make it to Tuesday

["Fred Feldman" <ffeldman@xxxxxxxxxxxxxxxx>]

October 15, 2008
Despite Big Rally, Grim Outlook on Profits and Jobs 
By VIKAS BAJAJ
The euphoria that swept Wall Street on Monday gave way to a sober reality on
Tuesday: a recession, perhaps the deepest one in decades, may be
unavoidable.

A day after the stock market staged one of its biggest rallies in history,
buoyed by the government's plan to rescue banks, investors retreated once
again. Worries about the economy came to the fore. Many people fear that
corporations - and by extension their workers and shareholders - will face
harder times in the months ahead.

"Everything the government has done is not going to prevent further
deterioration in the economy," said Stuart Hoffman, chief economist at PNC
Bank. "At the end of all this, what matters is what the economy does."

The flow of credit, which has been choked for weeks, began to trickle
through the financial system on Tuesday. But the credit markets remained
shut to many companies and municipalities. Home mortgage rates, which some
had hoped might decline once the government's plans became clear, rose
instead. The fear is that the financial rescue will add to an
already-swelling federal budget deficit and force the Treasury to borrow
heavily in the capital markets. 

Beaten-down financial shares soared, but shares of many big blue-chip
corporations sank as the outlook for profits and employment darkened.
PepsiCo, the soft drink maker, said it would cut 3,300 jobs and close six
plants.

The Dow Jones industrial average fell 76.62 points, or 0.8 percent, to
9,310.99 points. Earlier in the day, the Dow surged 4.3 percent after the
Bush administration confirmed that it would invest $250 billion in banks,
with about half going to nine large national companies. 

In addition, the government said it would insure more bank deposits and debt
issued by big financial firms. But worries about profits at technology
companies sent the Nasdaq composite index down 3.5 percent, to 1,779.01. The
decline, however, came before the Intel Corporation, the world's largest
semiconductor maker, issued a strong earnings report after the market
closed, easing some of the concern that an economic slowdown had hurt its
sales. The broader Standard & Poor's 500 stock index fell 0.5 percent, to
998.01.

Asian stocks were down in trading on Wednesday morning. The Nikkei 225 index
fell 1.5 percent, while the Hang Seng index in Hong Kong was off 2.3
percent.

Investors said the United States government intervention should help avert a
crisis in the financial system by preventing cataclysmic bank failures like
the recent bankruptcy of Lehman Brothers. But they added that even if the
effort were successful at getting banks to lend more freely than they had in
recent months, the initiative would not avert a recession.

"Everybody expects the government to do something and have the economy pick
up in a quarter or two," said Ira Jersey, an interest rate strategist at
Credit Suisse. "All of this will stabilize the markets, but the real
economic issues remain."

The questions now are how weak the economy will get and how far corporate
profits will fall. Economists estimate that the gross domestic product - the
broadest measure of the nation's economic output - barely grew in the third
quarter. The Commerce Department will release that number on Oct. 30, just
before the election.

Companies are just starting to report about their performance in the third
quarter, and so far, many blue-chip names have delivered bad news. 

PepsiCo said on Tuesday that its North American beverage sales fell during
the quarter, hurting its profit. Shares of the company fell nearly 12
percent, to $54.40. Shares of other companies that cater to consumers also
fell.

Full: http://www.nytimes.com/2008/10/15/business/15markets.html



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