Morgan Posts Q4 Report

Morgan Stanley reported a much wider-than-expected quarterly loss as the credit crisis generated more writedowns and slashed fees from investment banking and brokerage. Morgan posted a net loss of $2.3 billion, or $2.24 a share, during the fourth quarter. Including results from discontinued operations, the company said it lost $2.34 a share.

Morgan Stanley, which dropped 70 percent on the New York Stock Exchange this year, jumped 18 percent yesterday after Goldman Sachs's loss was smaller than some analysts estimated and the Federal Reserve said it would cut the main U.S. interest rate to as low as zero and buy debt to help combat the recession. The stock fell to $15.35 in New York from $16.13 yesterday.

From Bloomberg;

Morgan Stanley today reported fourth-quarter mortgage- related losses of $1.2 billion, which were more than offset by net revenue of $2.7 billion from the widening of Morgan Stanley's credit spreads. The firm had mark-to-market losses of $1.7 billion on leveraged loans and leveraged-loan commitments, and writedowns of $800 million on securities in the firm's subsidiary banks. Those losses were offset by gains of $1.1 billion related to debt hedges.

The company also booked $1.8 billion in investment losses during the quarter from real-estate funds and other principal investments.

Morgan Stanley said last month it was cutting 10 percent of the jobs in the institutional securities division and 9 percent of the positions in asset management to help offset lower revenue. The company also said it was hiring two Wachovia Corp. executives to build a new consumer banking division as part of an effort to attract deposits.

FED Cuts Rates

FED cut the main U.S. interest rate to as low as zero for the first time and shifted its focus to the amount and type of debt it buys, seeking to revive credit and end the longest slump in a quarter- century.

The surprise move to lower its target for the benchmark federal funds rate from one percent puts the Fed in uncharted territory. Financial markets had expected the Fed to lower rates by no more than three-quarters of a point, to 0.25 percent.

There are some concerns that taking the fed funds rate so close to zero leaves the Fed with little room for additional moves if the economy does not start to show signs of improvement soon.

But the Fed said in a statement that it is looking at different steps it can take to stimulate the economy and keep market rates low, including the purchases of long-term U.S. Treasury notes. The Fed also said it will consider other, yet to be disclosed moves as well.

Markets soar after decision and christmas rally maybe started.

Economic Calendar of the Week

The week ahead for Wall Street ;

Monday: The December NY Empire State index, a regional reading on manufacturing, is expected to improve modestly to a reading of minus 27 from a reading of minus 25 in November. The two-day Federal Reserve policy meeting begins.

Tuesday: Goldman Sachs and Best Buy report earnings before the start of trade. Economic reports are due on housing and consumer inflation. The Federal Reserve's policy-setting meeting concludes, with a decision on interest rates due.

Wednesday: Morgan Stanley reports quarterly earnings before the start of trade.

Thursday: In the early morning, FexEx is expected to report quarterly earnings.

A pair of economic reports are due shortly after the start of trade. The Philadelphia Fed index, the Philly counterpart to Monday's New York manufacturing index, is expected to have dipped to negative 40 from negative 39.3 in the previous month.

The index of leading economic indicators (LEI) is expected to have decreased by 0.5% in November after dropping by 0.8% in the previous month.

After the close of trade, Oracle is expected to report earnings of 34 cents per share, up from 31 cents a share a year ago.

Friday: The December "triple witching" day, a quarterly event when stock options, equity index options and equity index futures are all expiring simultaneously.

Retail Sales Fall

Retail sales fell for the fifth straight month in November as mounting job losses last month curbed consumers' ability and willingness to spend money in stores. The Commerce Department said Friday that retail sales fell 1.8% last month, compared with a revised 2.9% drop in October, the worst monthly sales on record. October sales were originally reported to have tumbled 2.8%.

Sales excluding autos and auto parts fell 1.6% in November, compared to a revised 2.4% drop in October. Ex-auto sales were originally reported to have fallen 2.2% in October.

The Census Bureau reports that retail sales collapsed in October:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $355.7 billion, a decrease of 1.8 percent from the previous month and 7.4 percent below November 2007. Total sales for the September through November 2008 period were down 4.5 percent from the same period a year ago. The September to October 2008 percent change was revised from -2.8 percent to -2.9 percent.

The following graph shows the year-over-year change in nominal and real retail sales since 1993.

Click on graph for larger image

( Graph link : http://calculated.blogspot.com )







To calculate the real change, the monthly PCE price index from the BEA was used (November PCE prices was estimated as the same as October).

Retail sales are a key portion of consumer spending and real retail sales have fallen off a cliff.

Global Oil Recession

The International Energy Agency said that global oil demand will shrink this year for the first time in a quarter-century as rich nations fall into recession and growth slows in the developing world. For the first time in 25 years, demand for crude oil will fall.

The IEA cut its forecast for global oil demand this year by 350,000 barrels a day to 85.8 million barrels a day, down 0.2% from 2007.

Global oil demand will increase 0.5% next year to 86.3 million barrels a day, the IEA said, but it added that this forecast assumes that the plunge in OECD economic growth will bottom out next year and recover in the second half of 2009. The International Monetary Fund has made a similar estimate.

But oil prices jumped today after the House passed a $14 billion stop-gap measure designed to keep the U.S. auto industry from immediate collapse. The dollar slipped against the 15-nation euro, British pound and Japanese yen. So oil prices rose on Thursday as the value of the U.S. dollar fell versus other major currencies.

Investors are also looking for a large cut in production from the OPEC about 40% of the world's oil.

Scary Predictions

Fortune spoke to eight of the market's sharpest thinkers and what they had to say about to future is frightening.

Dr.Doom ( N. Roubini ) told that ;

We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years. It's the bursting of a huge leveraged-up credit bubble. There's no going back, and there is no bottom to it. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to muni bonds. You name it. And it's all reversing right now in a very, very massive way. At this point it's not just a U.S. recession. All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we're having a global recession and it's becoming worse.

Roubini added that home prices are going to fall by another 15% before bottoming out in 2010. And the unemployment rate peaking at around 9% by 2010.

Last of all, Prof. Roubini adviced to investors about future. He said ;

For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cashlike instruments such as short-term or longer-term government bonds. It's better to stay in things with low returns rather than to lose 50% of your wealth.

Stocks Rally

What a nice monday! Stocks soar all of global markets. Asia has started the day with a big bounce. After that European markets joined that rally. Last of all, Wall Street adds to recent rally on Obama comments on economy and hopes for automakers.

Barack Obama pledged to boost the economy with the biggest public-works spending package since the 1950s. Obama’s plan to boost the economy with a “substantial” infrastructure stimulus package sent global stocks rallying.

At a briefing Monday morning, White House press secretary Dana Perino said "we've certainly come a long way from where we were at the beginning of last week," and that "indications are that the legislation is moving more towards what the President could support." So GM and Chyrsler could get up to $15 billion in federal loans as soon as Dec. 15, according to a working Democratic draft of proposed bailout legislation. After that reports GM shares jumped as much as 25 percent.