Stocks Tumble As Time Warner, Intel, Alcoa Take Dive

NEW YORK — A warning from tech giant Intel about poor business conditions and more evidence of rising unemployment left stocks with their biggest losses in a month Wednesday.

The news upended some investors’ hopes for a speedy economic recovery this year and sent the major stock indexes down more than 2.5 percent, including the Dow Jones industrials, which lost 245 points.

Intel’s second warning since November, as well as bleak outlooks from aluminum producer Alcoa and media industry bellwether Time Warner, underscored the breadth of the economy’s slowdown. In addition, the ADP National Employment Report said private sector jobs fell by a greater-than-expected 693,000 in December. That made investors nervous ahead of Friday’s employment report from the government.

But unlike the panicked declines seen last fall, Wednesday’s pullback was more orderly and stocks finished off their lowest levels of the session. Some retrenchment had been expected following sharp gains in recent sessions and a 24.2 percent rally in the Standard & Poor’s 500 index since Nov. 20 before Wednesday’s slide.

“Nothing goes straight up or straight down,” said Keith Springer, president of Capital Financial Advisory Services. “You do have some people who get skittish and start taking some profits, but I don’t think the up trend has been broken here.”

Wall Street has been absorbing poor economic and corporate news far better since late November, with some investors betting on a recovery in the second half of this year or by early 2010. But the latest round of unnerving news was too proved to be too much to set aside.

Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said the market was simply reacting to the day’s drubbing of bad news.

“One too many punches and the fighter finally went down,” he said.

Chip maker Intel Corp. said it now expects fourth-quarter revenue to drop a greater-than-expected 23 percent on a further weakening in demand from computer makers.

Other corporate news added to Wall Street’s downbeat mood. Alcoa Inc. warned late Tuesday it would slash its annual output by more than 18 percent and cut its global work force by 13 percent. And Time Warner Inc. said Wednesday it plans to book a $25 billion impairment charge in the fourth quarter for its cable, publishing and AOL units.

Intel dropped 93 cents, or 6 percent, to $14.44. Alcoa tumbled $1.23, or 10 percent, to $10.89, while Time Warner sank 69 cents, or 6.3 percent, to $10.29.

Wall Street was already worried about what the Labor Department’s report on employment would bring Friday. The government report is typically the most important economic reading each month because rising unemployment could endanger consumer spending, which accounts for more than two-thirds of U.S. economic activity.

The concerns sent the Dow down 245.40, or 2.72 percent, to 8,769.70, its biggest point and percentage decline since Dec. 1.

Broader stock indicators also tumbled. The Standard & Poor’s 500 index fell 28.05, or 3 percent, to 906.65. It was the biggest drop for the index since Dec. 1.

The Nasdaq composite index fell 53.32, or 3.23 percent, to 1,599.06, hit by the decline in Intel shares.

The Russell 2000 index of smaller companies fell 17.61, or 3.42 percent, to 497.10.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to a light 1.24 billion shares compared with 1.34 billion shares Tuesday.

Bond prices were mixed Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.49 percent from 2.47 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, edged fell to 0.11 percent from 0.14 percent.

The dollar fell against most other major currencies, while gold prices declined.

Light, sweet crude slumped 12 percent, falling $5.95 to settle at $42.63 a barrel on the New York Mercantile Exchange. The decline, which erased a week of gains, came after the government reported commercial crude oil inventories jumped well beyond the increase analysts expected. The weak economy has eroded demand.

The ADP report raised questions about whether government steps such as interest rate cuts to lower borrowing costs and possible spending on infrastructure will be sufficient to revive the economy.

“The market has shrugged off some bad news recently, and it’s starting to get to the point where it can’t do that anymore,” said Scott Fullman, director of derivatives investment strategy for WJB Capital Group.

Before the decline Wednesday, the Dow had rallied about 20 percent from its multiyear lows in late November.

“We’ve had a big move,” Fullman said. “What we’re looking at now is just people getting a little cautious here.”

The drop in oil weighed on the energy sector. Chevron Corp. fell $3.39, or 4.4 percent, to $73.96, while Occidental Petroleum Corp. fell $3.53, or 5.7 percent, to $58.11.

Technology stocks were among the biggest decliners after the Intel announcement. Microsoft Corp. fell $1.25, or 6 percent, to $19.51, while Qualcomm Inc. fell $1.60, or 4.3 percent, to $35.55.

Financial shares fell after Oppenheimer & Co. analyst Meredith Whitney warned that banks could have to raise fresh capital in 2009 as they face continued deterioration of their balance sheets. JPMorgan Chase & Co. fell $1.79, or 6 percent, to $28.09, while Citigroup Inc. slid 31 cents, or 4.2 percent, to $7.15.

The market’s economic worries had been calmed a bit in recent days by President-elect Barack Obama’s proposal to slash taxes and help businesses. On Tuesday, Wall Street overcame gloomy economic readings to finish with a moderate advance. But investors remain eager for more details of the stimulus package, which could cost as much as $775 billion.

Overseas, Japan’s Nikkei stock average rose 1.74 percent, and Hong Kong’s Hang Seng index fell 3.37 percent. In Europe, Britain’s FTSE 100 fell 2.83 percent, Germany’s DAX index fell 1.77 percent, and France’s CAC-40 fell 1.48 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Ross Eisenbrey: Get Business Tax Cuts Out of the Stimulus Plan

It is heartening that the new Congress is tackling the economic crisis with the urgency it deserves. The economy is slowing dramatically, and 15 million Americans are now unemployed or underemployed. The numbers worsen every month, and if state and local governments meet their budget shortfalls by cutting services and laying off employees, the pace of job losses will accelerate. Without immediate and very sizeable intervention, unemployment could top10 percent next year.

Most of the stimulus plan proposed by the incoming Obama administration is exactly what is needed, including aid to states, an emphasis on education — including early childhood — and investment in the nation’s infrastructure — the backbone of a productive economy. The United States has allowed its infrastructure to deteriorate to the point that dikes and bridges fail catastrophically, our drinking water suffers, our mass transit systems badly lag the rest of the world, and our broadband connectivity is slower and reaches a smaller share of our citizens than equivalent systems in Korea, Japan and other allies and competitors. The condition of many school buildings — some built in the 19th century — is deplorable and hurts the performance of teachers and students. The money in this rescue package is a small down payment on what is needed to give the U.S. the world class infrastructure we need.

However, the tax portions of the package are a mixed bag. Middle class taxpayers will benefit from the AMT fix and the Make Work Pay tax credit, but the business tax cuts are mostly a waste of resources that could be much better spent elsewhere. The job creation potential of a one-time $3,000 tax credit for hiring new workers is questionable, at best, as are the stimulus effects of accelerated depreciation and reducing past income tax liabilities by taking into account recent business losses. It will be particularly hard to watch the banks and construction companies that made billions during the housing bubble get a windfall they don’t deserve.

It is instructive to compare the negligible job creation potential of these tax cuts with the hotly contested but far cheaper effort to rescue the domestic auto companies. If saving the Big 3 from bankruptcy would cost $100 billion — the mid-range of estimates by Mark Zandi of economy.com — but prevent the loss of 1 million to 3 million jobs, its “bang-for-the-buck” would equal or exceed even the best parts of the stimulus proposal, let alone the wasteful business tax cuts.

There are many causes of this downturn, including our astronomical trade deficit - the result of two decades of one-sided trade agreements and failure to respond to the unfair practices of other nations - which have not been addressed. The reckless greed of so many financial institutions and speculators is a major cause of our current problems, and the damage done to millions of homeowners remains largely unaddressed. The dwindling strength of unions has contributed to wage suppression, the loss of fringe benefits, and the end of retirement security for the average American. The ultimate health of our economy cannot be assured without addressing these problems and the dangerous growth in inequality associated with them. We need an economy that creates broadly shared prosperity, not just for executives and professionals, but for every segment of society.

IRS Offers To Waive Late Fees, Negotiate New Payments For Taxpayers Snared By Recession

WASHINGTON — As the nation sinks deeper into recession, the IRS is offering to waive late penalties, negotiate new payment plans and postpone asset seizures for delinquent taxpayers who are financially strapped, but make a good-faith effort to settle their tax debts.

IRS Commissioner Doug Shulman said Tuesday that tax agents are being given new authority to work with victims of the nation’s economic woes who are struggling to pay their bills.

“We need to recognize that it’s an extraordinary, challenging time,” Shulman said in an interview. “We need to understand the taxpayers’ perspective. We need to walk a mile in their shoes.”

It’s unrealistic to expect some taxpayers to make timely payments in this economy, Shulman said. However, he cautioned that those seeking help will have to demonstrate their inability to pay. Those who fail to file tax returns, or who simply ignore collection notices, will not be eligible for help, he said.

“The most important thing for people to do is to get on the phone or walk into an IRS office,” he said. “The worst thing someone can do is go dark and not be in a discussion with us.”

Just last month, the agency announced a program making it easier for homeowners with an IRS lien on their property to refinance their mortgages or sell their homes.

With the filing season for 2008 tax returns opening this week, the IRS expects to process 250 million returns over the next few months, including 130 million from individuals.

The new leniency program is geared toward people who have paid their taxes in the past, but who are now having facing a financial hardship. “This is not a free ride for people who can actually pay their taxes,” Shulman said.

The IRS doesn’t know how many taxpayers might take advantage of the new program for stretching out payments on overdue taxes or even reducing their tax liability. But millions could be eligible.

In the fiscal year ending last Sept. 30, the IRS took enforcement action against more than 3 million taxpayers. The actions included property liens and asset seizures, including homes, cars, bank accounts and garnishing wages.

This year, even more taxpayers could fall behind in their tax payments as the economy continues to sour. Record numbers of homeowners are falling behind on mortgage payments and the U.S. economy is losing jobs at an alarming rate.

Since the start of the recession last December, the economy has shed 1.9 million jobs, and the number of unemployed people has increased by 2.7 million _ to 10.3 million now out of work.

The leniency program is an extraordinary step by the IRS, said Ellis Reemer, head of tax litigation at the law firm of DLA Piper. IRS agents, he said, are generally well-meaning public servants who want to work with taxpayers but are often bound by policies that limit their discretion.

“This is not a normal course of events,” Reemer said. “This is an institutional determination that we are in very difficult economic times.”

The program was described as the “give the tax man a heart plan,” said Steve Ellis, vice president of Taxpayers for Common Sense, a budget watchdog group.

Ellis said the program makes sense given the state of the economy, but he cautioned that it should be closely monitored for consistency and fairness.

“You don’t want people to get off the hook and not pay their fair share,” he said. “They need to make sure that it’s consistent.”

The IRS is doing the same thing many private creditors are doing. She said the mortgage crisis, Wall Street meltdown and job losses have left many families unable to pay their bills, said Sharon Price, policy director of the National Housing Conference.

However, she worried that many taxpayers won’t know how to access the benefits.

“The problem is, will it be consistent and how will people find out about it?” Price said.

To help explain the leniency program, the IRS has posted answers to common taxpayer questions on its Web site, . The advice under “What if I can’t pay my taxes?” begins with some reassuring words: “Don’t panic.” http://www.irs.gov

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On The Net:

IRS: ,,id201853,00.html?portlet6 http://www.irs.gov/newsroom/article/0

Paulson says changes needed at Fannie, Freddie (AP)

AP - Treasury Secretary Henry Paulson on Wednesday said the best option for the future of Fannie Mae and Freddie Mac could be for the mortgage giants to be run like public utilities.

Stocks in biggest fall in a month on jobs and tech (Reuters)

Reuters - Stocks suffered their worst decline in more than a month on Wednesday after a grim private-sector jobs report coupled with a revenue warning from top chip maker Intel Corp revived deep concerns about the economy.

Bed Bath & Beyond quarterly profit falls (Reuters)

Reuters - Home furnishings retailer Bed Bath & Beyond reported a lower quarterly profit, hurt by the soft U.S. economy and a major rival’s liquidation, and forecast earnings for the current period below Wall Street estimates.

Budget deficit to hit $1.2 trillion in fiscal 2009 (Reuters)

Reuters - The U.S. budget deficit will swell to a record $1.186 trillion in fiscal 2009, congressional forecasters said on Wednesday, the result of an economic recession that has cut tax receipts and caused massive government bailouts of banks and automakers.

Intel warns second time on quarter (Reuters)

Reuters - Microchip maker Intel Corp on Wednesday issued its second revenue warning on the fourth quarter, saying demand for personal computers was even worse than it feared and sparking wide concerns about tech companies.

Maria Bartiromo: I Don’t Have A Credit Card (VIDEO)

Maria Bartiromo doesn’t have a credit card, she told Ellen DeGeneres on Ellen’s show, which aired Wednesday.

“I have a debit card, but I don’t like credit cards,” CNBC’s Money Honey told Ellen. “I’m thinking actually of getting an American Express card just because you have to pay it off in its entirety, and I’m a big believer of that. But if you’re gonna load up on debt on your credit card, I am just so not of that mindset. If I don’t have it in my checking account, I don’t spend it.”

Ellen, who stars in ads for American Express, cheered on the possibility of Maria getting an AmEx.

“You should get an American Express card, for sure,” Ellen said with a wink. “They’re great!”

Watch:

Gordon Fellman: A New Idea for How to Save the US Auto Industry

The US auto industry seems to be in a real pickle. Like much of the financial sector, it is tanking and wants help. There is something remarkable about seeing advocates of orthodox free market economics who in the abstract surely believe that firms that can’t make it for whatever reasons should die, pleading government aid for industries in deep trouble. Free market ideologists often wind up advocating, as it is said, socialism for the rich, even if for no one else.

Part of the problem surely is understandable and justifiable lack of trust in upper management of Ford, Chrysler, and GM. How can it be that for forty years, those extremely high paid executives could never figure out how to compete with Japanese, Korean, and European cars that were better made and more appealing to US customers? Why did they not buy a few cars from other companies and take them apart and see how they are put together? Why did they not emulate the quality control practices of companies more successful than they? Why did they not study carefully what American consumers wanted in cars and try to satisfy that, instead of, in effect, turning the whole shebang over to foreign manufacturers while smugly assuming that somehow Americans would buy whatever Detroit offered them, even as sales figures belied that pathetic conviction?

Let me guess that part of the problem is that extremely rich executives with rather little foresight or imagination were in charge of the Big Three for decades. Let me guess that it never crossed their highly paid minds that their companies could tank. Let me guess that smugness and self-satisfaction are packaged in the same envelope along with huge salaries and bonuses that come regardless of performance.

Let me guess too that all the Economics 101 assumptions about the resilience of companies under our economic system, about rationality in economic behavior, about incentives to innovate and create, about the long term benefits of competition, fade like a sun bleached painting before the realities of short-term planning and short-term thinking, avarice, fear, and panic that seem not to make it into those introductory economics courses.

Why don’t boards of corporations oftener fire CEOs who fail at their work tasks? What is the sociology of the buddy-buddying among the super rich and powerful that blinds them to realities outside the fragile islands of “success” where they build their outrageously posh abodes? It is fully understandable that in the culture of the rich and powerful, anything goes if it serves the purposes of making money and living extremely well.

It turns out there is more to life than profits and comfort. And it may be that the cultures that nourished the bankers and mortgage companies and auto companies sucked them away from the realities that would, if properly heeded, have had them acting more thoughtfully and cautiously during the many years leading to the current and growing economic catastrophe.

I want to suggest a daring idea that could save the auto companies. It proceeds in three parts.

1) Give up on highly experienced, highly paid executives. Some might be up to the task of the moment, but once they get their salaries and golden parachutes, most of these executives are unlikely to care about the companies they are hired to salvage.

2) Extend your imaginations beyond the conventional box of assuming you need people with business school degrees and lots of polish to make a success of companies.

3) Turn to the one resource that probably has the strength, imagination, daring, and commitment to pull off a complete turnaround of the auto companies. I am talking about the lower level staff and workers who can bring their ideas, their ignored wisdom, and their neglected talents to the executive suite and figure out how to solve transportation problems in ways that will benefit everyone. They will learn how to build better cars, they will learn how to use environmentally sound ways of moving those cars, and they might even have the energy, determination, and imagination to see cars and trucks as part of larger transportation systems that can be understood and addressed right now.

Workers have taken over some failing industries in this country and in Argentina. It would be wise to learn how they did that and then apply what is learned to our suffering auto industry.

It is time for a great new social experiment: letting the people who understand the product and the business from the inside apply their smarts and dedication to saving this most fragile, underperforming, once-great American industry.