U.S. Stocks Tumble on Poor Corporate Earnings Reports
By Renae Merle
Washington Post Staff Writer
Wednesday, October 22, 2008; 3:36 PM
Stocks plunged today as sluggish corporate earnings reinforced investors' concerns about a global recession.
The Dow Jones industrial average, an index of 30 blue-chip stocks, fell 5.6 percent, or more than 500 points, in the final hour of trading. The Standard & Poor's 500, a broader index watched by market professionals, fell 6.5 percent, or 62 points. The tech-heavy Nasdaq fell 5.3 percent, or 88 points.
Investors have grown increasingly worried about the impact of the financial crisis on corporate balance sheets as firms announce plans to lay off thousands of workers and predict poor earnings through the rest of the year, analysts said. The financial turmoil and the dollar's strength against the euro sent crude oil prices to new lows for the year. That has offset building evidence that government efforts to thaw the credit markets and encourage banks to lend to each other may be taking hold.
"This is part of the recuperation process," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati. "People would like to believe the worst is behind us, but they realize there is still going to be some hurdles in front of us."
Global recession fears also sent overseas markets falling, with Japan's Nikkei closing down 6 percent. The FTSE in London was down 3.5 percent, while the Paris' CAC 40 was down 4 percent.
Poor corporate earnings showed weakness in wide array sectors of the economy.
Wachovia, weighed down by bad mortgage debt, reported a $24 billion loss during its third quarter and saw revenue fall 23 percent to $5.77 billion. That is one of the largest quarterly losses in history.
The Charlotte, N.C.-based bank is being acquired by Wells Fargo in a deal expected to close by the end of the year. "We believe that it was prudent for Wachovia to put these losses behind them," Wells Fargo's Chief Financial Officer Howard Atkins, said in a statement.
Wachovia's stock was down 2 percent.
But the economic downturn has spread from the financial sector and is being felt in a wide array of corporations, from aircraft manufacturers to drug companies.
Merck, the drug maker, said today it would cut about 7,200 positions after reporting that net income fell 28 percent during the third quarter. Chicago-based Boeing, an aircraft manufacturer and defense contractor, said it was hampered by an ongoing machinists' union strike and profits fell 38 percent during the quarter. AT&T, the country's largest telecommunications firm, reported a 5.5 percent increase in net income, but missed analysts expectations.
Merk was down 4 percent this morning, while Boeing fell 4.7 percent. AT&T was down 6 percent.
Not even the maker of Huggies diapers and Kleenex could escape the economic downturn. Kimberly-Clark reported a 9 percent drop in net income despite a strategy of raising prices for some items. The company also lowered its earnings expectations for the year.
"The unprecedented volatility in global commodity, currency and financial markets has resulted in a high level of uncertainty in the current business environment," Thomas J. Falk, Kimberly-Clark's chairman and chief executive, said in a statement.
Some firms saw better-than-expected earnings. McDonald's reported an 11 percent increase in net income during the third quarter. It was down 2 percent in morning trading. Apple was up 8 percent today after reporting a 26 percent jump in profit, to $1.14 billion, after the markets closed yesterday.
The dollar was up against the euro and British pound today, sapping the appeal of commodities like oil and gold as a hedge against the currency's weakness.
Crude oil continued its price slide on the New York Mercantile Exchange today, falling as much as 7 percent to $66 a barrel, a new low for the year. Prices have also been dragged down by expectations that the financial crisis would dampen demand.
The drop in crude oil prices has translated into lower fuel prices for consumers, but has dragged down energy stocks. Exxon and Chevron were down 5 percent, while ConocoPhillips fell 7 percent.
A Matter of Life and Debt
THIS week, credit has begun to loosen, stock markets have been encouraged enough to reclaim lost ground (at least for now) and there is a collective sigh of hope that lenders will begin to trust in the financial system again.
But we’re deluding ourselves if we assume that we can recover from the crisis of 2008 so quickly and easily simply by watching the Dow creep upward. The wounds go deeper than that. To heal them, we must repair the broken moral balance that let this chaos loose.
Debt — who owes what to whom, or to what, and how that debt gets paid — is a subject much larger than money. It has to do with our basic sense of fairness, a sense that is embedded in all of our exchanges with our fellow human beings.
But at some point we stopped seeing debt as a simple personal relationship. The human factor became diminished. Maybe it had something to do with the sheer volume of transactions that computers have enabled. But what we seem to have forgotten is that the debtor is only one twin in a joined-at-the-hip pair, the other twin being the creditor. The whole edifice rests on a few fundamental principles that are inherent in us.
We are social creatures who must interact for mutual benefit, and — the negative version — who harbor grudges when we feel we’ve been treated unfairly. Without a sense of fairness and also a level of trust, without a system of reciprocal altruism and tit-for-tat — one good turn deserves another, and so does one bad turn — no one would ever lend anything, as there would be no expectation of being paid back. And people would lie, cheat and steal with abandon, as there would be no punishments for such behavior.
Children begin saying, “That’s not fair!” long before they start figuring out money; they exchange favors, toys and punches early in life, setting their own exchange rates. Almost every human interaction involves debts incurred — debts that are either paid, in which case balance is restored, or else not, in which case people feel angry. A simple example: You’re in your car, and you let someone else go ahead of you, and the driver doesn’t nod, wave or honk. How do you feel?
Once you start looking at life through these spectacles, debtor-creditor relationships play out in fascinating ways. In many religions, for instance. The version of the Lord’s Prayer I memorized as a child included the line, “Forgive us our debts as we forgive our debtors.” In Aramaic, the language that Jesus himself spoke, the word for “debt” and the word for “sin” are the same. And although many people assume that “debts” in these contexts refer to spiritual debts or trespasses, debts are also considered sins. If you don’t pay back what’s owed, you cause harm to others.
The fairness essential to debt and redemption is reflected in the afterlives of many religions, in which crimes unpunished in this world get their comeuppance in the next. For instance, hell, in Dante’s “Divine Comedy,” is the place where absolutely everything is remembered by those in torment, whereas in heaven you forget your personal self and who still owes you five bucks and instead turn to the contemplation of selfless Being.
Debtor-creditor bonds are also central to the plots of many novels — especially those from the 19th century, when the boom-and-bust cycles of manufacturing and no-holds-barred capitalism were new and frightening phenomena, and ruined many. Such stories tell what happens when you don’t pay, won’t pay or can’t pay, and when official punishments ranged from debtors’ prisons to debt slavery.
In “Uncle Tom’s Cabin,” for example, human beings are sold to pay off the rashly contracted debts. In “Madame Bovary,” a provincial wife takes not only to love and extramarital sex as an escape from boredom, but also — more dangerously — to overspending. She poisons herself when her unpaid creditor threatens to expose her double life. Had Emma Bovary but learned double-entry bookkeeping and drawn up a budget, she could easily have gone on with her hobby of adultery.
For her part, Lily Bart in “The House of Mirth” fails to see that if a man lends you money and charges no interest, he’s going to want payment of some other kind.
As for what will happen to us next, I have no safe answers. If fair regulations are established and credibility is restored, people will stop walking around in a daze, roll up their sleeves and start picking up the pieces. Things unconnected with money will be valued more — friends, family, a walk in the woods. “I” will be spoken less, “we” will return, as people recognize that there is such a thing as the common good.
On the other hand, if fair regulations are not established and rebuilding seems impossible, we could have social unrest on a scale we haven’t seen for years.
Is there any bright side to this? Perhaps we’ll have some breathing room — a chance to re-evaluate our goals and to take stock of our relationship to the living planet from which we derive all our nourishment, and without which debt finally won’t matter.
Margaret Atwood is the author of “The Handmaid’s Tale” and, most recently, “Payback: Debt and the Shadow Side of Wealth.”
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