Stocks sharply lower: Some not-so-wonderful economic reports, plus higher commodity and materials prices, plus continuing talk about the Spring run-up drawing to a close. Dow is down 200 points after 90 minutes.
"Too far too fast": That's the headline in Barron's this week and it captures the general feeling in the annual mid-year forecast. Fred Hickey, author of The High Tech Strategist Newsletter, lays it out:
Barron's: You really nailed it in January, Fred, when you predicted a 40%-50% rally like the "little bull market" that followed the Crash of 1929. Please tell us history won't keep rhyming.
Hickey: The parallels are eerie so far, but what happens next is complicated. The market has rallied about 40% off its lows, led by the riskiest stuff. A selloff is coming because the fundamentals don't match Wall Street's perception. Retail sales were terrible in May; two-thirds of companies reporting came in below forecasts. The rebound in stocks has been based on inventory restocking, but end markets haven't improved.
That's because consumers are afraid to spend.
The savings rate rose to 5.7% in May, a 14-year high. Gasoline is up in recent weeks by about 40 cents a gallon. People are losing their jobs. Housing prices haven't stopped falling. Mortgage delinquencies and foreclosures are up. One of every 10 homeowners is in trouble. A year ago we were handing out $90 billion of rebate checks; that's over, too.
CA budget deadline: Today's the day that the governor and legislature are supposed to close a $24.3 billion deficit so the state controller has enough time to borrow money and avoid a government meltdown at the end of July. Just one problem: It's not going to happen. From the SF Chronicle:
The deadline itself became moot last week when Schwarzenegger refused to allow Controller John Chiang to take out emergency short-term loans. Instead, the governor gave the Legislature an ultimatum: Solve the budget or shut down government operations. From today on, Schwarzenegger said, every day that passes without closing the deficit is a step toward insolvency.
Maguire sells on the cheap: The L.A. -based real-estate investment trust unloaded a newly developed office building in Irvine at a 40 percent discount. Buyer is Emmes Group; purchase price about $160 million. From the WSJ:
The building, designed by Keating Khang Architecture, was originally slated to be anchored by New Century Financial Corp., a mortgage lender that filed for Chapter 11 bankruptcy protection in 2007 and never occupied the building. The building is roughly estimated to have cost about $500 a square foot, according to Michael Knott, a senior adviser with Green Street Advisors in Newport Beach, Calif. Emmes's price was about $300 a square foot.
Hotel chain goes Chapter 11: The Extended Stay chain, which has numerous locations throughout Socal, files for bankruptcy reorganization this morning. (Bloomberg)
Downtown hotels take a dive: First-quarter occupancy was 57.8 percent, the lowest level since 9/11 and no doubt the result of the huge dropoff in business travel. From the Downtown News:
With national and international tourism down, numerous hotels are taking aim at regional travelers. They are betting that families and individuals who live as close as West Los Angeles and no further than San Francisco, San Diego and Las Vegas are more likely to take a vacation in their backyard than book plane tickets to Hawaii, the East Coast and beyond. They are getting help in the effort from the Downtown Center Business Improvement District. "We thought that in light of the economy, it's a good time to focus on 'staycation' packages, on vacation packages that are affordable for the regional drive market for people who choose to have a vacation without traveling super far," said Alex Stettinski, director of marketing for the DCBID.