Wednesday, November 12, 2008

Intel Warning: Acceleration of the Downturn/Placing stock purchases on hold

Cisco's warning a fews days ago about an abrupt sales slowdown in October occurring worldwide has been echoed tonight by Intel.  After the close, Intel slashed its revenue forecast for the 4th quarter, made just a few weeks ago, from 10.1 billion to 10.9 billion to 9 billion, plus or minus 300 million.   ReutersThis indicates a dramatic fall off in PC demand that will impact a number of companies adversely, such as Microsoft (MSFT) , Hewlett Packard (HPQ) , and Applied Materials (AMAT).  Intel's stock fell over 7% in after hours trading to 12.55, breaking below its low of 13.89 in the prior bear market.  Tomorrow, it is headed for a price last seen in 1996.  

Also, after the close, Applied Materials had a weak outlook and announced that it was cutting 12% of its jobs.Yahoo! Finance  AMAT also announced it was putting its stock buyback on hold.  Of course, now would be a good time for AMAT to buy stock, with the price near at a 10 year low rather than buying at much higher levels in an attempt to soften the impact on its stock option grants.  A number of companies, including such blue chips as General Electric & Bank of America, have suspended stock buy back programs as their shares spiral down to decade lows.  

It looks to me now that the U.S. has already entered a near depression, call it a severe recession, and the job losses will start to accelerate into the Christmas holidays and it will be swift.  I now expect the jobless rate to hit 9% by the middle of next year.

Another REIT cut its dividend, one that I have never owned, but it is in the same property sector as First Industrial so I will mention it.  Prologis (PLD) cut its annual dividend for 2009 from $2.28 to $1 and the CEO who built up the company for the prior 15 years or so resigned.MarketWatch   The stock fell 35% today to 4.47, down from a 52 week high of 71.79.  It does have a couple of preferred issues which I intend to monitor for further weakness.

The chief executive of J P Morgan, a recepient of 25 billion in bailout money, noted today that his bank had tightened credit.  Yahoo! Finance  It now appears to me, based on these kind of remarks, that the bailout funds have not loosened lending but instead will be used to enrich the employees of the institutions receiving the funds.  (  

With the banks hoarding the cash or using it for other unintended purposes, I see little likelihood of the bailout working in the manner intended by Congress.  The disbursement of the  second 350 billion of bailout funds was subject to Congresses approval and they need to revisit this issue next year.  Yahoo! Finance 

Given what has already happened, I would hope that no more money is shoved into the banks with a plea to lend it out, please please lend the money Paulson says to them.FDIC: Press Releases - PR-115-2008 11/12/2008  (read material under the heading "Lending to Creditworthy Borrowers")

Given the rapid deterioration in the economy now occurring, I decided to suspend any common stock purchases, no matter how small, for at least a week until I can further evaluate the potential carnage about to occur.

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