CIT Group files for bankruptcy, fifth largest in U.S. history.
Monday, November 2, 2009. 9:15 a.m.
Giant lender to small businesses CIT Group spent the summer desperately trying to avoid it, but had to give up, and filed for bankruptcy yesterday. At $71 billion it is the fifth largest bankruptcy in U.S. history. Common stock investors in CIT will be wiped out, including U.S. taxpayers, as the government will lose the $2.3 billion it provided to CIT in bailout funds.
In its arguments for more bailout money during the summer CIT said its bankruptcy would be disastrous for small businesses, particularly small and mid-size retailers.
But the government determined that any problems caused by its bankruptcy would not create a systemic financial system meltdown, as could have happened had institutions like Bank of America, and Citigroup not been rescued, and so refused further aid.
CIT now says it will be able to emerge quickly from bankruptcy, probably by year-end, and will continue to operate under the ownership of its creditors, who have agreed to the reorganization via bankruptcy.
The markets are getting used to large bankruptcies (GM, Chrysler, Washington Mutual, etc), being of no consequence. So CIT’s announcement is being largely ignored.
But not the announcement from Ford.
Ford reports unexpectedly large earnings!
Ford Motor Co reported its first profit in four years in its 3rd quarter, an unexpectedly large $997 million, close enough to a $billion, although on another sales decline.
The company credited cost-cutting and price increases with creating the profit, and left its forecast of 2009 sales unchanged. The company also warned that “the near-term growth outlook remains rather uncertain”, and that “the end of government incentives in Europe could severely dent industry sales next year”.
But that warning is being ignored, the company’s statement that it expects to be solidly profitable by the full year of 2011, at least excluding special items, being taken as the important part of the report.
Subscribers: There is a Special Report, and an important hotline update, on the Street Smart Report website from yesterday, and for the first time ever there will be an intraday hotline update at 1 o’clock today. And this is another reminder that the next issue of the newsletter will not be out today, as previously scheduled, but on Wednesday.
Last night:
Asian markets were mostly down last night.
The DJ Asia-Pacific Index closed down 0.9%. Among individual countries; Australia closed down 2.2%. Hong Kong was closed down 0.6%. China closed up 2.7%. India closed down 1.0%. Indonesia closed up 0.2%. Japan closed down 2.3%. Singapore closed down 0.3%. South Korea closed down 1.4%. Taiwan closed down 0.1%.
This morning:
European markets are off earlier highs, now mixed, fractionally both side of unchanged.
Oil is up $.30 a barrel at 77.30 at the moment.
Gold is surging up, $14.60 an ounce (1.4%) at $1,055 at the moment.
In the U.S.:
This week’s very heavy schedule of potential market-moving economic reports begins today, with the ISM Mfg Index, Construction Spending, and Pending Home Sales. But they won’t be released until 10 am.
As expected, the debate has returned to whether the recovery in the 3rd quarter, which was expected, can be sustained into future quarters. So all eyes will continue to be looking forward to more recent economic reports.
Meanwhile, considerable excitement has been created this morning by Ford’s report.
Our pre-open indicators are positive, pointing to the Dow being up 30 points or so in the early going, probably not meaningful as to its direction by the close.
What’s next for stock markets?
This week has a very heavy schedule of the same type of important potential market moving economic reports that have been roiling the market day-to-day in both directions over the last couple of weeks.
They include the ISM Mfg Index, Construction Spending, and Pending Home Sales this morning, Factory Orders, the Fed’s next FOMC meeting, the ADP monthly jobs report, culminating in what we always refer to as The Big One on Friday, since it most often comes in with a surprise that results in a one to three-day triple-digit move by the Dow in one direction or the other. It is of course the Labor Department’s Employment Report for the previous month, in this case October.
To see the full schedule of next week’s reports click here, and look on the left side of the page it takes you to.
As I said on Saturday, the market will be particularly sensitive to each report now, as it was last week, as the reports begin to indicate the trend of the economy in October, as the 4th quarter was getting underway, and whether the GDP recovery in the 3rd quarter will continue. The reports from September, as the 3rd quarter was winding down, on home sales, auto sales, job losses, and consumer confidence were not encouraging, and the market needs to see those numbers bouncing back in October.
Stock Market Patterns.
We are in the weekly pattern of the ‘Monthly Strength Period’, which was due to begin last Thursday, and to run through this Thursday (November 5).
To read my weekend newspaper column ‘The Recession Has Ended. Has the Bull Market Also?’ click here!
Interesting Chart of the Morning:
I’m sorry but I have too much to do for subscribers today and am running late. So don’t have time to provide an ‘interesting chart of the morning’ this morning.
Please scroll down to see recent ‘Interesting Charts of the Morning’.
Subscribers: There is a Special Report, and an important hotline update, on the Street Smart Report website from yesterday, and for the first time ever there will be an intraday hotline update at 1 o’clock today. And this is another reminder that the next issue of the newsletter will not be out today, as previously scheduled, but on Wednesday.
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