Economic Woes Weigh on Stocks

U.S. stocks were indicated to open lower Thursday as major index futures fell in premarket trading, following a steep slide in the previous session. on Globex. A report that showed weekly initial jobless Claims rose 15,000 to 478,000 added to arguments the U.S. economy is sliding into a steep recession that is becoming global.

Former Fderal Reserve Chairman Alan Greenspan is seen calling for more financial regulation at a House hearing Thursday on housing and the financial crisis. Meanwhile, the Bush administration is considering a $40 billion program to forestall housing foreclosures, according to a press report.

The dollar index was up at a two-year high as the worsening global economic outlook is prompting investors to liquidate risky assets. Bonds were also higher. Gold futures continued their descent. Oil futures were of before Friday's OPEC meeting.

European stocks were lower Thursday. In Asia, markets suffered more selling, with Tokyo stocks falling 2.46%, Hong Kong down 3.55%, and Shanghai lower by 1.07%.

U.S. stocks fell to their lowest levels in more than five years Wednesday amid worries about a serious economic slowdown not only in the U.S. but worldwide. On Wednesday, the Dow Jones Industrial Average tumbled 514.45 points, or 5.69%, to 8,519.21. The broad S&P 500 shed 58.27 points, or 6.1%, to 896.78. The tech-heavy Nasdaq composite fell 80.93 points, or 4.77%, to end at 1,615.75.

Lawmakers have called key players from the past and present to congressional hearings in an effort to find out what caused the biggest financial crisis since the 1930s and determine how the government plans to get the nation out of the mess. Former Fed Chairman Alan Greenspan, the star witness today before the House Oversight and Government Reform Committee, faces questions about actions the government took or didn't take that might have contributed to the boom in subprime mortgages and the subsequent housing market collapse that has led to the loss of billions of dollars in investments, according to AP.

Greenspan, who was succeeded in 2006 by Ben Bernanke, was likely to find himself defending actions he took that are being blamed for contributing to the current crisis. Critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed's powers to impose greater regulations on the issuance of new types of mortgages, including subprime loans. It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.

Greenspan recently described the current episode as the type of wrenching financial crisis that comes along only once in a century. He has defended the use of derivatives, so-named because their value is derived from the value of an underlying asset. He said they were useful in helping to spread risks.

Greenspan called for tighter regulation of financial companies, distancing himself from the free-market culture that he helped to create. Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony to the House Committee on Oversight and Government Reform. Bloomberg reported on his testimony. Other rules should address fraud and settlement of trades, he said. Greenspan's office released the text ahead of the hearing scheduled for 10 a.m. EDT in Washington.

Paul Volcker, Greenspan's predecessor, said at a New York conference Wednesday that "We are really going to have to rebuild this system from the ground up." Volcker said the creation of complex financial products "instead of spreading the risk and creating transparency" wound up concentrating risk and "opaqueness." Volcker, 81, said the current crisis is more complex than any other in U.S. history.

House Financial Services Committee Chairman Barney Frank called this week for a freeze on executive bonuses and other stronger regulation of Wall Street, following passage of a $700 billion rescue plan for financial institutions. Frank said in a hearing in February that Greenspan "erred" in "his view that regulation was almost never required." Greenspan "often told us" that there were two options: "I can either deflate the entire economy or I can let the problems continue," Frank said. SEC Chairman Christopher Cox and former Treasury Secretary John Snow are also scheduled to appear at the House committee hearing today.

Meanwhile, Neel Kashkari, the interim head of the government's $700 billion rescue effort, and other government officials are scheduled to testify before the Senate Banking Committee about their plans for implementing the massive program. Lawmakers in particular want government officials to explain why the emphasis in the rescue package has switched from a program that initially was aimed at buying billions of dollars of troubled mortgage-related assets from banks as a way to spur them to resume more normal lending. A week ago, Treasury Secretary Henry Paulson announced that the program now would have as a major component the purchase by the government of $250 billion in stock in hundreds of U.S. banks, including $125 billion that would go to nine of the largest institutions.

Paulson has said that the fast-moving nature of the crisis convinced him that money needed to get out more quickly as a way to encourage banks to start lending again. But questions have been raised about whether the huge infusion of government money will actually spur more lending, especially after several banks have said they planned to employ the new capital to help finance purchases of weaker rivals.

The Bush administration is weighing a roughly $40 billion proposal to help forestall housing foreclosures, one of a series of ideas under consideration to address the root causes of the financial crisis according to a Wall Street Journal report. FDIC Chairman Sheila Bair is expected to suggest at a Senate Banking Committee hearing today the government give banks a financial incentive to turn troubled loans into more-affordable mortgages, the paper said citing a person familiar with her testimony.

In economic news Thursday, U.S. initial jobless claims jumped 15,000 to 478,000 in the week ended Oct. 18, from a revised 463,000 the week before (461,000 previously). The four-week moving average slipped to 480,250 versus 484,750.

U.S. foreclosure activity in September rose 21% from a year earlier but fell by double-digits from the prior month as some state laws slowed the foreclosure process, according to a monthly report by research firm RealtyTrac.

Goldman Sachs (GS) plans to cut about 3,260 jobs, a source familiar with the matter said. That represents about 10% of the total staff of the New York-based bank, the source said. Reuters said the bank has so far suffered the least damage in its peer group in the global financial crisis and it remains the leading adviser to mergers and initial public offerings worldwide. But its transition from an investment bank to a traditional bank holding company means the Federal Reserve will use its new regulatory authority to limit the bank's risk taking and encourage longer-maturity funding. Analysts expect Goldman to shrink businesses in prime brokerage and securitization.

The Swedish Central Bank -- the Riksbank -- lowered its repo rate by 50 bp to 3.75% at today's meeting, a larger cut than the 25 bp consensus forecast. The central bank said the repo rate is likely to be cut by another 50 bp over the next 6 months. The bank has cut rates by 100 bp this month after hiking 25 bp in September. The Riksbank revised down its rate path and now sees the repo rate bottoming around 3.2% by the end of 2009. The Bank revised down its GDP forecast to 1.2% and 0.1% for 2008 and 2009 respectively, from 1.4% and 0.8% in September, while CPI is now expected to average 2.1% next year, compared to a 3.2% forecast earlier.

In other U.S. markets Thursday, Treasury yields continue to roll downhill as the bounce in jobless claims will do little to cure the dark mood hanging over the equity market, says Action Economics. The 10-year yield was down 8 basis points from overnight highs and testing the 3.55% level.

The dollar index was up 0.24 to 85.68.

Energy futures, which were solidly higher overnight, turned mixed as stocks were indicated to open lower. December West Texas Intermediate crude oil futures, which hit a $68.50 high earlier, were up 19 cents to $66.94 per barrel. Volatile trading was expected as OPEC officials arrived in Vienna for Friday's special meeting. The cartel is expected to reduce production to stem a steep decline in prices the past three months, with the consensus forecast calling for a cut of 1 million barrels. But Iran is pushing for a 2 million barrel cut.

December gold futures were off $24.50 to $710.70 per ounce as the dollar index rose against sterling and the euro. Action Economics reports broad based deleveraging by Asian fund names and short term investors. The move was in line with losses in other base metals and commodities as fears over the global growth outlook continued to encourage selling pressure.

Among Thursday's stocks in the news, Amazon.com (AMZN) reported third-quarter EPS of 27 cents, vs. 19 cents one year earlier, on a 31% sales rise. The company sees fourth-quarter operating income between $145-$305 million (-46% to +13% year-over-year) on sales of $6-$7 billion (+6% to +23%). Amazon now expects 2008 operating income of $716-$876 million on sales of $18.46-$19.46 billion.

Amgen (AMGN) reported third-quarter adjusted EPS of $1.23, vs. $1.08 one year earlier, on a 7% total revenue rise. GAAP EPS was $1.09; reflecting write-offs of $590 million of acquired in-process R&D. Amgen raised its 2008 revenue guidance to $14.9-$15.2 billion from $14.6-$14.9 billion, and adjusted EPS to $4.45-$4.55 from $4.25-$4.45.

Potash Corp. (POT) reported third-quarter EPS of $3.93 vs. 75 cents one year earlier, on sharply higher sales. Using a locked in C$/US$ exchange rate of $1.10, Potash expects 2008 EPS to be at the low end of the company's previously provided guidance range, with possible variance of 2% in either direction.

Allstate Corp. (ALL) reported a third-quarter operating loss of 35 cents per share, vs. $1.54 operating EPS one year earlier, on a 19% revenue decline and $1.8 billion in catastrophe losses. Wall Street was looking for 72 cents EPS. The company suspended its $2 billion stock buyback plan.

United Parcel Service (UPS) posted third-quarter EPS of 96 cents, vs. $1.05 one year earlier, as higher operating expenses offset a 7.4% revenue rise. Wall Street was looking for 89 cents EPS in the third quarter. UPS said it anticipates a challenging environment for a number of quarters going forward, and believes the U.S. consumer will be very conservative with spending this year. UPS still expects 2008 EPS will be toward the lower end of the $3.50-$3.70 range provided mid-year.

Altria Group (MO) posted third-quarter adjusted EPS from operations of 46 cents, vs. 40 cents one year earlier, on a 5% revenue rise. The company reaffirmed its 2008 adjusted EPS from continuing operations guidance of $1.63-$1.67.

Dow Chemical (DOW) posted third-quarter EPS of 46 cents, vs. 42 cents one year earlier, on a 13% sales rise. The company posted 60 cents third quarter EPS excluding certain items. Wall Street was looking for 57 cents. Dow says it's well positioned to weather this increasingly difficult economic downturn, as it has a strong balance sheet, and is accelerating its focus on what it can control, namely costs and capital, asset restructuring, and other interventions.

Starwood Hotels & Resorts (HOT) posted third-quarter EPS before special items of 71 cents, vs. 68 cents one year earlier, on flat revenues. The company notes margins at Starwood branded same-store owned hotels worldwide and in North America decreased 208 and 151 basis points, respectively, vs. the year-earlier quarter. The company sees EPS before special items of 36-42 cents for the fourth quarter and $2.07-$2.13 for 2008. It said that given significant uncertainty in the global economy, it is very difficult to provide any definitive guidance looking out four quarters, but Starwood did forecast $1.55 2009 EPS.

Xerox Corp. (XRX) posted third-quarter EPS of 29 cents, vs. 27 cents one year earlier, on a 2% revenue rise. The company said it will take a pre-tax restructuring charge of approximately $400 million, or 31 cents a share, in the fourth quarter to accelerate its cost-reduction activities on a global basis. Excluding the charge, Xerox sees fourth-quarter non-GAAP EPS of 34-36 cents. The company believes operational efficiencies it will gain from restructuring actions in the fourth quarter will position it to deliver double-digit EPS growth in 2009.

Eli Lilly (LLY) posted third-quarter pro forma non-GAAP EPS of $1.04, vs. 91 cents one year earlier, on a 14% sales rise. Lilly posted a 43-cent third-quarter loss per share when including $1.477 billion in charges related to pending Zyprexa investigations. Excluding significant items, the company raised its its 2008 pro forma non-GAAP EPS guidance to $3.97-$4.02 from $3.85-$4.00.