Market Plunge: Will Wall Street choke recovery? If meltdown continues, all bets are off
ARE THE MARKETS HEADED FOR A CRASH? - Newsweek
Foreign Investors Losing Faith - Overseas Capital Is Fleeing The U.S. Markets
Posted on 07/18/2002 11:01:35 PM PDT by Uncle Bill
Do not listen to old slogans like this. They might have bee true 50 years ago when the U.S. was the world’s CREDITOR, but we are now the world’s DEBTOR – we have hocked everything to buy that extra SUV and take those extended vacations, having borrowed the $$ from the Europe and Asia (They got the dollars hot off Greenspan’s presses to pay for all that stuff they export to us.).
So we no longer owe only to “ourselves.” … but even if that were the case, and the debts to “ourselves” were magically forgiven, then that “full faith and credit” statement has just been flushed. Now with the dollars in your pocket worthless, and your CDs valueless, and with T-bills, Notes, etc., not even worth a piece of toilet paper, tell me this: What exactly do you have that would be worth the gallon of gasoline that I have?
Tell the Japanese and Europe to dock our rebuilding them after WW2 from what it would cost today and deduct it from our debt to them.=o)
No problem! They’ll just return to us that $160 billion in worthless pieces of green paper – debt paid in full!
Being DEBTORS, Americans can no longer call all the plays in the world, and we don’t have any good options; we certainly don’t have any simple ones!
J
Market Plunge: Will Wall Street choke recovery? If meltdown continues, all bets are off
ARE THE MARKETS HEADED FOR A CRASH? - Newsweek
Foreign Investors Losing Faith - Overseas Capital Is Fleeing The U.S. Markets
NYSE's Grasso: Monday May Be Rough Day
Reuters
By Caren Bohan
July 21, 2002 04:24 PM ET
Source
WASHINGTON (Reuters) - The head of the New York Stock Exchange warned on Sunday that Wall Street may face a rough ride when stock markets open this week but urged investors to stay calm and focus on the wisdom of long-term investing.
"Mondays following Friday declines have always been difficult and I suspect tomorrow will be no different," Richard Grasso, chairman of the world's No. 1 exchange, told NBC's Meet the Press.
On Friday, the Dow Jones industrial average sank to 1998 lows when it crumbled 390 points, or 4.6 percent, to 8019.
In a bear market, stocks can be especially vulnerable on Mondays because the market closure over the weekend allows time for investor anxieties to build.
The October 1987 market crash, when the Dow plunged 508 points or 22 percent, occurred on "Black Monday" -- which followed a 108-point-drop the previous Friday.
A slew of corporate accounting scandals have left investors mistrustful, prompting them to dump equities.
The Securities and Exchange Commission has ordered leaders of U.S. companies to vouch for the honesty of recent financial reports, giving them until Aug. 14 to do so. The SEC named the top 945 publicly traded firms whose books must be certified as accurate by chief executive and financial officers.
The Aug. 14 deadline is also looming over the marketplace. And after the scandals at Enron, WorldCom and other companies, investors are worried about what new bombshells might drop when executives put a stamp of approval on their company's results.
But Grasso played down such concerns.
"I'd be very surprised, if any of the major companies ... would, in essence, renege on their previously reported financial statements," he said.
Over the past two weeks, the Dow has lost 14 percent of its value, falling in every session but one. Other market gauges have hit multiyear lows as well.
KEY THRESHOLD
With the Dow perched just above the psychological threshold of 8,000, Grasso made a plea for investors to keep a cool head and think about long-term goals like saving for retirement or their children's college education.
"Please be patient," he prodded. "Please don't do something that emotionally feels good but in the long term will be a mistake."
He noted that over the long haul stocks outperform fixed-income assets. Grasso also highlighted statistics showing that despite the stock market's woes, the U.S. economy remains in a recovery mode after last year's recession.
"Our economy is strong. We've seen first-quarter (gross domestic product) grow at a rate of 6 percent. Inflation is nonexistent. Interest rates are the lowest they've been in 30 years," Grasso said.
Economist Allen Sinai of Decision Economics agreed the economy has held up so far but two of its key pillars, consumer spending and the housing market, may be vulnerable because of the beating the stock market is taking.
The stocks' declines threaten to undermine confidence and could lead consumers to shut their wallets.
Speaking on the CBS program "Face the Nation," Sinai also said he saw a chance of a temporary reprieve from stocks selling but they may lose even more ground.
"We still have significant downside risk to our equity markets, even from these levels, I'm sorry to report another 8 or 10 percent possibly down before we could bottom out and then move up," he said.
Goldman Sachs strategist Abby Joseph Cohen was more optimistic, saying stocks have absorbed much of the bad news.
"I can't give advice to all of the different investors out there, but would I say that I think that stock prices are today priced too cheaply," Cohen told "Face the Nation."
In several public appearances recently, President Bush has also emphasized some recently positive economic signs in an effort to shore up investor confidence.
But that has not stemmed the stocks' slide. Even Federal Reserve Chairman Alan Greenspan was only able to bring about a momentary pause in the sell-off when he testified on Capitol Hill last week, saying the corporate accounting mess had not shaken the core foundations of the U.S. economy.
Grasso said efforts by Washington and within the private sector to reform the financial system would eventually renew investors' faith but that would take time.
The New York Stock Exchange chairman urged tough measures to crack down on corporate managers who commit fraud, saying the country needs to "wage a war against terrorism in the boardroom, against misleading investors."
'Difficult' Monday looms over Street
WorldCom to File Bankruptcy Sunday
WorldCom Will File for Bankruptcy, Wiping Out Common Holders
Dollar Seen Hitting Fresh Lows
Dollar lower against yen in Tokyo
Trade Deficit Swells to $37.6B
White House Says It Expects Government Deficit to Hit $165 Billion
Vivendi Still Faces Liquidity Crisis
Note: Vivendi In Big Trouble.
AOL Time Warner Inc.'s stock falls on report of questionable accounting
The AOL Time Warner Black Hole
Investor Confidence Ebbs as Market Keeps Dropping
Monday Morning Trading: Down Overseas
World Stock Markets Open. Going Down So Far
Asian Markets Slide in Early Trading
Taking cue from Wall Street plunge, Asian markets slide in early trading
Tokyo stocks stage recovery despite U.S. gloom
How Bad Could It Get? Think Japan
No relief seen for struggling markets
WATCH OUT FOR DOUBLE SLUMP
"So what is the market saying? A lot, and most of it is not good. Behind the falling stock prices, the market is screaming that the twin engines of growth - retail spending and housing - are starting to stall."
Wall Street Braces for Uneasy Week
WorldCom files for bankruptcy
The Wall Street Journal
By Shawn Young, Carrick Mollenkamp, Jared Sandberg and Henny Sender
July 22, 2002
Source
Embattled telecom’s board of directors approves action
WorldCom Inc. filed for bankruptcy-court protection late Sunday, succumbing to $41 billion of debt and an accounting scandal that has destroyed its access to capital.
WORLDCOM, WHICH has $35 billion in annual revenue but is now nearly out of money, filed under Chapter 11 of the U.S. Bankruptcy Code. The filing, which shields the company from its creditors as it reorganizes, was made in the U.S. Bankruptcy Court for the Southern District of New York. The company intends to continue its normal operations. WorldCom’s board had unanimously approved the step at a meeting Sunday afternoon.
WorldCom, parent of MCI, is the nation’s second-largest long-distance provider and serves 20 million consumers and thousands of corporate customers. In its filing, the company, based in Clinton, Miss., lists assets valued at $107 billion, making the bankruptcy filing by far the largest in U.S. corporate history. Enron Corp., which had been the largest bankruptcy until now, listed assets of $63.4 billion.
Analysts believe, however, that WorldCom’s assets today may be valued at less than $15 billion.
“The shame of it all is that underlying the debt and the restatement and the alleged fraud is a really great company that will ultimately survive,” said Chief Executive John Sidgmore in an interview Sunday. “If we can emerge from bankruptcy without the debt load, we can have a strong position in the industry. We might emerge with the strongest balance sheet.”
WorldCom’s list of creditors, which reads like a who’s who of Wall Street, is made up mostly of bondholders and bank lenders. The largest noteholder is J.P. Morgan Chase & Co.’s J.P. Morgan Trust Co. which, as a trustee, lists $17.2 billion. As a trustee, J.P. Morgan Trust doesn’t necessarily own the bonds, but it is simply an administrator for the investor that owns the bonds.
As expected, the banks that loaned WorldCom $2.65 billion in May, just weeks before WorldCom imploded, are on the list, with Deutsche Bank AG, the largest bank loan creditor, seeking $241 million. ABN Amro Bank NV is owed $203 million.
The filing was made by WorldCom and its roughly 180 domestic subsidiaries, but it doesn’t include the company’s foreign affiliates.
WorldCom intends to sell off nonessential assets and focus on key businesses so it can emerge from bankruptcy protection as a viable company. As part of the court process, WorldCom creditors, including bondholders and banks, will jockey for payment. The bankruptcy almost certainly will wipe out common shareholders, who are last in line among stakeholders in such a proceeding. WorldCom has about three billion common shares outstanding. WorldCom plans to continue serving its residential and business customers, but it faces a major challenge to hang on to them, as some have begun voicing concern that the company’s financial condition could impact service.
Mr. Sidgmore, who took over after veteran CEO Bernard Ebbers was ousted in April, plans to remain in charge, though some bondholders in interviews have raised the possibility that they will seek new management to start fresh. The company will hire a restructuring adviser, who would report to Mr. Sidgmore, to handle relations with the creditors’ committee and help keep management from becoming so distracted by the bankruptcy details that it can’t run the company.
WorldCom’s longer-term tasks will be more difficult. It has to protect the rapidly eroding value of its brand. And it has to decide what its core business should be. WorldCom doesn’t have a group of assets it can easily spin off to raise billions of dollars. Some minor assets, such as the company’s Brazilian and Mexican operations, could be easily disentangled from the rest of the company, but they wouldn’t raise much money.
The expected bankruptcy filing caps a spiraling series of troubles that culminated in disgrace last month when WorldCom admitted to what could turn out to be the biggest accounting fraud ever. WorldCom misstated $3.8 billion in expenses over five quarters in a way that allowed it to report profits when it actually lost a total of about $1.2 billion in that period. The company will have to restate financial results for 2001 and the first quarter of 2002. The move placed WorldCom at the front of a growing line of scandal-tinged flameouts among major companies that have undermined investors’ faith in the market and sent stocks reeling.
WorldCom, whose high-profile former CEO Mr. Ebbers once boasted that his company’s stock was more valuable than cash, had a market capitalization of about $120 billion at its peak in the summer of 1999. By Friday, with expectations widespread of its impending bankruptcy filing, WorldCom’s market capitalization had dwindled to $280 million, a good deal less than Mr. Ebbers’s $408 million loan from the company.
Bondholders are the dominant creditors and will have one of the loudest voices in determining the company’s fate.
One of the first things WorldCom will do now that it has filed will be to ask the bankruptcy-court judge to approve a $2 billion bank loan in the form of senior secured debtor-in-possession financing. WorldCom said Sunday it has secured $750 million of the $2 billion to use in the interim. One of the stipulations the banks made is that WorldCom hire a chief restructuring officer to shepherd WorldCom through what has the potential to be a daunting reorganization.
WorldCom’s debtor-in-possession funding was arranged by lead bank Citigroup Inc. along with J.P. Morgan Chase and General Electric Co.’s financial-services arm, GE Capital. Providing the financing gives these institutions what is called “super-priority” status among WorldCom creditors, which means they will be repaid for the new loans before anyone else.
Another early step will be for WorldCom to seek authority to pay bills outstanding to some creditors-so-called “critical trade vendors”-before it pays bills owed to other creditors. That step is taken to ensure good relations and critical service. An early court battle could occur over how WorldCom categorizes the regional Bell companies, which provide much of the nation’s local-phone service. The Bells could be categorized as utilities and therefore wouldn’t have to be paid immediately for past bills.
But the Bells could argue that without the ability to connect to local phone networks, WorldCom wouldn’t be able to function. The regional Bells are: Verizon Communications Inc., SBC Communications Inc., BellSouth Corp. and Qwest Communications International Inc. WorldCom owes Verizon, which the largest of the Bells, $121 million, according to the filing.
The Bells, which are also WorldCom’s competitors, have been demanding upfront payments, as have other suppliers, as the company’s fortunes slumped. That demand sharply accelerated the rate at which WorldCom burned through its remaining cash and hastened a bankruptcy filing that already seemed inevitable. Even with WorldCom in bankruptcy-court protection, the regional Bells seem inclined to take a tough stance.
“We will take an aggressive approach to protecting the interests of our shareholders,” said Peter Thonis, a spokesman for Verizon.
Some people familiar with the situation say that WorldCom’s cash flow could improve significantly because of the protection a Chapter 11 filing provides and that the company may not need much of the $2 billion in loans that will be available. For example, WorldCom won’t have to pay $500 million in estimated quarterly interest expenses that go to WorldCom’s bondholders.
“Working capital could actually shift to be a significant” help to WorldCom’s operations, said Banc of America high-yield analyst Trent Spiridellis.
There is some desire among bondholders for Mr. Sidgmore to step down, said people familiar with the bondholders’ views. Such changes are common in bankruptcies, particularly if the existing management is tainted in any way. Mr. Sidgmore has denied any knowledge of the accounting improprieties, but some bondholders believe he lacks the heavyweight management credentials the company needs and was too close to Mr. Ebbers and fired Chief Financial Officer Scott Sullivan.
Mr. Sidgmore said he doesn’t believe his departure would benefit the company. “If you believe the company is going to be liquidated, then that’s what you need,” he said. “If you believe that the company is going to be rebuilt, then I think they’re dead wrong.”
“We haven’t heard any outcry to displace management,” said Marcia Goldstein, a senior partner at Weil Gotshal & Manges, which is handling the WorldCom bankruptcy procedures.
“The most important thing is to ensure stability of the operations,” says Daniel Golden, the Akin Gump Strauss Hauer & Feld LLP lawyer for the bondholders making up the informal creditors’ committee. “To preserve WorldCom’s network of customers and suppliers, speed is key.”
At Sunday’s meeting, WorldCom’s board approved two new board members to succeed Mr. Ebbers and Mr. Sullivan. The company named Nicholas Katzenbach, 80 years old, a former undersecretary of state, attorney general, and Yale Law School professor; and Dennis Beresford, a 64-year-old professor of accounting at the University of Georgia who formerly served as the chairman of the Financial Accounting Standards Board.
Some of the stakeholders in the bankruptcy say once WorldCom’s balance sheet is clean, it could become an attractive acquisition target for the Bells or other competitors. Mr. Sidgmore said some would-be buyers are interested enough to have hired investment bankers to assess possible deals. But so far, some prospective buyers are still intensely wary of the company’s weakening core business and the many unknowns that still could lurk in the company’s books.
What kind of freeping nonsense is this statement? Sheesh!
Whoops, sorry, I guess I spoiled your oasis didn't I? :)
ladyinred, chartermember, BushBots of FR.com
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