Stocks tumble on Libya unrest, home prices

Oil and gold prices climb amid continuing protests. Home Depot rises on strong sales. Wal-Mart's woes in the US continue. Home prices drop, but consumer confidence hits a 3-year high.

By TheStreet Staff Feb 22, 2011 8:36AM

Image: Wall Street sign (© Comstock Images/age fotostock)TheStreetBy Melinda Peer, TheStreet

 

Updated at 12:25 p.m. ET

 

Stocks were dropping and oil prices were surging Tuesday as violent clashes in Libya stoked fears on Wall Street, prompting many investors to turn to lower-risk gold and Treasurys.

 

At 12:25 p.m. ET, the Dow Jones Industrial Average ($INDU) was down by 113 points, or 0.9%, at 12,278. The S&P 500 ($INX) was down by 19 points, or 1.4%, at 1,324. The Nasdaq ($COMPX) was falling by 54 points, or 1.9%, to 2,780.

 

A steep drop in housing prices is also weighing on stocks. The S&P/Case-Shiller 20-city home price index fell 2.4% in December from a year earlier, meeting expectations. In November, the gauge declined 1.62% year over year.

 

Investors sought haven assets amid reports that Libyan leader Moammar Gadhafi ordered mercenaries to fire on protesters calling for an end to the dictator's 40-year rule. In a speech broadcast on Libyan state television, Gadhafi vowed to keep his position.

 

Gold for April delivery was jumping by $16.40 to $1,405 an ounce. The benchmark 10-year Treasury was up 21/32, diluting the yield to 3.503%.

Investors are also concerned that anti-government demonstrations could spread to major oil-producing countries such as Iran, disrupting oil production. Libya provides roughly 2% of the world's daily oil output as the 18th-largest oil producer. The April crude oil contract was rising $4.60 to $94.31 a barrel.

 

Among the 330 million shares trading on the New York Stock Exchange, 25% were advancing and 72% were declining. There were 648 million shares changing hands on the Nasdaq.

 

The energy sector had the day's strongest gains, with Chevron (CVX) and Exxon Mobil (XOM) topping the Dow. Wal-Mart (WMT), JPMorgan (JPM) and Bank of America (BAC) were the benchmark’s biggest laggards.

 

Shares of Wal-Mart (WMT) were losing 3.7% at $53.30 after sales at stores open at least a year fell 1.8% in the quarter ended Jan. 28. 

 

Home Depot (HD) shares were up 1.1% to $38.90 after the home improvement retailer raised its quarterly dividend by 6% to 25 cents a share and reported quarterly sales that beat forecasts. While the company's adjusted fourth-quarter earnings of 24 cents a share fell short of the 31-cent profit analysts expected, sales of $15.1 billion surpassed forecasts for $14.8 billion.

Shares of Chesapeake Energy (CHK) were climbing 7.8% to $32.81 after it agreed to sell its Arkansas shale natural gas assets to BHP Billiton (BHP) for $4.74 billion in cash. BHP's stock was up by 1.2% at $93.49.

 

Holly Corp. (HOC) and Frontier Oil (FTO) agreed to merge in an all-stock deal, forming an oil-refining company called HollyFrontier Corp. with a market value of $7 billion. Frontier shares were falling 3% to $27.28 while Holly's were down 0.2% at $55.94.

 

Hong Kong's Hang Seng lost 2.1%, and Japan's Nikkei dropped 1.8%. London's FTSE was adding 0.2%, and the DAX in Frankfurt was ahead by 0.4%.

 

The dollar was strengthening against a basket of six currencies, with the dollar index up by 0.08%.

 

The weak housing report and Libya conflict overshadowed gains in consumer confidence and manufacturing. The Conference Board's Consumer Confidence Index rose to 70.4 in February from 64.8 in January, beating expectations for 67. January's reading was revised from 60.6.

 

Manufacturing activity in the central Atlantic region increased for a fifth straight month, according to the Richmond Federal Reserve Bank. Its manufacturing index rose to 25 in February from 18 in January.  

 

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100Comments
Feb 22, 2011 2:42PM
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uvuvuv- In classic management theory, it's referred to as constructing the management pyramid.  An unenlightened manager (corporate / government) tends to equate a greater number of direct reports to a higher personal level of job security.  An enlightened manager understands everyone can be replaced and the leaner, more efficient operation he runs, the more secure he should be in his own continuing employment.   
Feb 22, 2011 2:41PM
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I think the real layoffs come when a deal is not struck with government in Wisconson,much like New Jersy now blaming the governor for the huge layoffs because Teacher Unions would not negotiate.
Feb 22, 2011 2:39PM
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We could be off foreign oil right now if the EPA would allow the use of coal for synthetic fuels.  There are already refineries in Texas City and Louisiana and it is a technology thats been around for years.  We have 35% OF THE WORLD's coal reserves and this combined with nuclear power generation would make us self sufficient.

STOP talking coal and START talking natural gas.....natural gas as it's name states 'NATURAL' is a purer form of heating/ automotive fuel...coal mining is a killer of natural beauty landscapes and the pollution from it's use is ridicules

natural gas is so pure it doesn't need any food byproduct to increase it's volume, so when driving around you don't see starving children!

 

Feb 22, 2011 2:39PM
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VF:

Our money supply, M2, has not remained the same.  It has increased.  What causes a rise in prices is when the amount of currency increases at a greater rate than the amount of goods and services being produced in the economy.  

If you actually read my post with acuity you would have observed that "I have little to no respect" for nearly all the "talking heads" in the mainstream media, hence my use of spouting the party line.

The reason I find it interesting is that most of these talking heads no little about the economy and are only tools for people who want to promote an agenda.  Most of the time these talking heads paint an unrealistic rosy picture.  However, even these guys and gals, that have any integrity are admitting that there is no reason for the stock market growth except Fed monetary policy.

The volume in the market has been low.  The price increase has not been driven by millions of worker bees putting away money in the market, but rather by a relatively few large financial institutions and banks.  These institutions are taking advantage of loose Fed monetary policy to get cheap loans and try and make great returns.

It is interesting to note, that "the market" is more concerned these days with "whether the Fed is going to keep the money flowing" then economic fundamental like "employment."    This is because, up to a point, as long as the Fed keeps the money flowing and some big players can direct it into the Stock market, the market will go up.

Of course, this will devastate the dollar and likely collapse everything in the end.

Look, you can't convince me and I can't convince you.  I guess we'll just have to sit back and watch this play out.

Oh, and by the way, those pre 1965 silver U.S. coins that used to sell for $14.00 per $1.00 face value (in other words, 10 dimes was worth $14.00) a couple of months ago, are now selling for $23.00 for $1.00 face value.     

Feb 22, 2011 2:36PM
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Oh.. and fundamentally what's changed..  Panic has been alleviated.  Trust in the financial system has been restored.  That is that my bank will be there tomorrow, not that I trust my banker. Our real GDP is back where it was before the crash!  Manufacturing is expanding, hiring is taking place.  Oil even at $100 I don't think is going to be extremely detrimental.  It'll be annoying and slow down growth.

That's the problem with classical economics.  Something like what we just went through (are going through) doesn't even register as a problem.  There was a temporary misallocation of productive capacity that the market handed.  It doesn't account for the short run emotional responses by the people in those markets.
Feb 22, 2011 2:32PM
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This has NOTHING to do with Libya.  The market has been over-inflated & this is a market correction - which most of us have been expecting...  I expect the sell-off to last until Friday...

 

That said, don't expect it to bounce-back anytime soon with states like Wisconsin & Ohio threatening state employee's wages & job security...  My wife is a teacher & I own a business - about 40% of my clients are state employees.  Not only do we stand to lose 20% of her income, but 20% - 40% of my income as my clients cut back spending & postpone purchases.

 

To brace for the impact, I postponed a store remodeling project indefinitely and have cancelled all orders for new equipment & upgrades.  We will make do with what we have for another year & see how things play-out.  When we expect to receive 25% less income in a given year we tend to spend 40%-50%  less, which makes it that much harder on all of our venders & suppliers - some of which have already gone out of business...

 

We are also spending less at home...  After I heard the state employee layoff news I postponed my decision to buy a $1000 snowblower during the typical post-winter sale & I stopped shopping for a new laptop to replace my 4 year-old one...  With a new $15 DIY replacement keyboard it works fine....

 

I believe we need to balance the budget by creating MORE JOBS not cutting-back pay.  I am sorry to say that I voted for our Republican Governor because I thought he would do a better job at creating jobs than the last one... MY MISTAKE!  Lesson learned... but now it is going to be 4 more years of broken promises & more jobs leaving our state... Houses prices are down 40% - everyone is leaving our state vs. moving in.  Our local realtors are about the most depressed-looking people I have seen about town...

Feb 22, 2011 2:26PM
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Someone, VF...

 

Banks are lending money, to CREDIT WORTHY people.  What has ended is Real Estate loans to people withoug excellent credit and large (20%) downpayments.

 

The problem is usually business wants to borrow money when things are bad, and repayment looks unlikely.   People with underwater assets cannot borrow against them for more than they are worth. 

 

This is the price we pay for allowing these kind of loans in the first place.   I guarantee you can get a mortgage if you have 25% down, the appraisal is good, and your credit is 780 or better...

 

Now with 3% down and 610 credit, its hopeless...

 

All of the real estate problems are the fault of the government.  They created the mess and only a return to the free market can change that.

 

PAY the PIPER...

Feb 22, 2011 2:24PM
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Ahh responder..  You're back!  Check out the Fed's lending reports.  Lending is moving some but it needs to move more to get real solid recover.  Revolving has been dropping for much longer, although I would say that's a positive thing in the long run.  Non-revolving has been expanding for some time.

Soo...  the fed's inflated the market with excess liquidity and that must be pushing things along.  Please explain how increasing the monetary base does anything when M2 remains largely the same.  I'm sure Japan would be interested.  After all, they tried to do that and added 85% to their monetary base and experienced deflation.  And you know that our M2 hasn't changed all that much in the last few years.  The big change was at the tail end of 2008.  And we can see how that impacted prices.

And food jumped when Russia's wheat fields caught on fire.  Oil is spiking when one of the world's largest producers is threatened.  Dairy had it's big moves during the summer when Midwest dairy production was far less than expected.  Those prices, that move relative to others (the studies in Macroeconomics you spoke about should have included money neutrality) means that the market is demanding a reallocation of productive capacity.

Even most of the talking heads on T.V. who just spout the party line are admitting this.  

I see you use great sources.  Nothing brings facts like talking heads who normally spout the party line.
Feb 22, 2011 2:08PM
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VF:

You speak of people you talk to and their circumstances, well, I talk to business people and real estate people and they tell me that banks are not lending money.

Answer this, fundamentally, what has changed with our economy in the past 2 years?  I am talking about structurally in our business sector and public sector.

The answer, nothing to speak of in the business sector and in the public sector our debt levels have increased tremendously.  The recent federal budget proposal has a 1.6 trillion dollar deficit.   Moreover, oil prices are soaring and this has a devastating effect on our economy overall. 

The only reason your 401K has recovered is because the Fed has inflated the stock market with monetization (read money printing/electronic credits).   This is leading to world wide inflation in core commodities first and other products later.  Since the dollar is the world's reserve currency, the inflation affects the whole world. 

From an economic standpoint, the only reason the stock market is doing what is doing is excess liquidity, period.  Even most of the talking heads on T.V. who just spout the party line are admitting this. 

I am surprised that you don't see this.  Our economy is in bad shape, period.      

Feb 22, 2011 2:01PM
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Dek:  Do you know why the capital gains cuts were done?  Inflation had pushed the price of assets up.  Even then... it was from 28% to 20.  The administration even put them back to 28% when prices stabilized.  Some of the policies were incredibly effective, like the investment tax credit.  If you invest directly into a company that actually makes something, you get a deduction.

When individuals got the tax cut, corps didn't.  But when taxes went back up, so did corps.  Reagan gets blamed for the recession Volcker caused that killed the inflation continued panic from the oil crisis caused which he gets credit for.  Nothing has made it more clear than everything coming out now at his 100th birthday that he was a good president with good ideas, and he was a realist and much more of a centrist than anyone wants to believe.  The far right wants to co-opt him and build a mythology.  the far left wants to demonize him based on the same mythology.  
Why can't we just have the man as we was?  Centrist, willing to talk to the enemy, build alliances before running in guns blazing, friendly to business but not afraid to regulate and tax it when necessary, overall.. pragmatic not ideological.  Can you imagine if Obama had the same kind of relationship with an opponent as Reagan had with Gorbachev?
Feb 22, 2011 1:49PM
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We could be off foreign oil right now if the EPA would allow the use of coal for synthetic fuels.  There are already refineries in Texas City and Louisiana and it is a technology thats been around for years.  We have 35% OF THE WORLD's coal reserves and this combined with nuclear power generation would make us self sufficient.

 

Now that gasoline is reaching above $3.10 a gallon retail sales (except gasoline) are going to plummet and you can bet the banks are going to start getting hit with credit card defaults as people trying to get ahead begin cutting off spending or paying anything but essentials.  This happened in 2008, this time it will be much worse.  Also if gas is $4.00 per gallon during the hurricane season you can bet it will cost some lives as people who can't afford to evacuate stay put again like Ike and Gustav.

 

Feb 22, 2011 1:40PM
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2Sick:  You confuse a recession the the financial crisis.  Confidence in the financial sector is a prerequisite for growth in this county.  We need people to feel comfortable having their savings in a bank so it can be lent.  Without confidence in banks, you get bank runs like what happened to Indymac and WaMu as notable examples.  Immediately following the collapse of Lehman, you also need to take into account that the assets many were using to satisfy their reserve requirements and maintain a healthy balance sheet for current levels of lending had their value disintegrate.  The meant that banks were not just unwilling, but were unable to lend anything.  Lending is where the growth in this country comes from.  Corps would rather grow on bonds than dilute equity unless they think the can get enough cash to make up for it or they don't have the ability to borrow or repay the amount of money they need.  Just like people trying to get a mortgage should need to justify a steady income stream, companies need to show a steady income stream to attract bondholders.

Concerning Iceland, we basically did what Iceland did in a number of cases.  We let Indymac, WaMu, Wachovia, and a host of other depository institutions either be taken by the FDIC or had their sales arranged.  There is a difference in not only scale, but the breadth of the items touched.  The thing we didn't do was print money and directly inject it to cut the value of a dollar in half.  Their M2 went from 716703 to 1134032 in 1 month.  That's over double the M2 from July 2007.  Over 12% inflation in 2009 and 2010 makes everyone's debts a little easier to pay.  Their GDP growth rates were also 1% in 2008, -6.8 in 2009, and -3.4 in 2010( The US was flat in 2008, -2.6% in 2009, and +2.6% in 2010).  And their debt to GDP ratio is still 125%, and the value of their currency compared to the US dollar is about half of what it was in 2006.  I wouldn't exactly say they've faired well, especially since their unemployment rate is rising, 8% in 2009 8.6 in 2010.  In case you weren't aware, they actually had a TARP style program (direct nationalization) ready to go, but banks started failing before it was authorized by shareholders of the banks.

Anyway, TARP is basically repaid, so it's not like it's responsible for a massive amount of the country's debt.(Are you meshing the stimulus act and TARP?)  The toxic assets the Fed of NY bought are up over 20%.  The panic was alleviated and people feel confident in their savings, my 401K is nearly restored to it's former glory.  Actually better since I kicked up my contribution while everything was on sale!  All in all.. that's pretty successful.  But can I prove that I'm right?  No.  I can't prove that a rock will always fall when I drop it either but I'm pretty sure that it will.

I'm kind of curious what industry you're in.  Mine (I'm not in banking) has recovered nicely and were it not for inventory adjustments we would have a phenomenal 2010.  Heck.. 3rd quarter 2010 was the best earnings ever! *EDIT-That was for the US as a whole-End Edit* Small business owners I talk to everyday are getting more and more orders.  Sure some are dying on the vine, but the vast preponderance are doing well.  Gross employment numbers improve everyday, average pay is climbing.  I don't know what's prompting you continual gloom and doom, but in case you didn't notice: manufacturing is up, services are up, lending is finally starting to loosen up, and consumer spending is climbing again.  A couple sectors, most notably supermarkets, are in dire straights, but they're basically going to the way of butchers and bakers in years past.  They gave way to supermarkets, and supermarkets are going to need to give way to high volume supercenters.
Feb 22, 2011 1:40PM
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One way we may be able to offset oil(FOOD) we have millions of  acres of  semi-productive lands being federally subsidided NOT  to have crops planted on them (CRP).Hungry mid-easterners could trade oil for food at lower prices for each. Ending subsidies for a year or two to landowners and maybe lowering our oil costs.Just a thought. But just like the  oil cartels limiting acres on cropland keeps the prices for food higher and and our farmers happy.Also it may keep the ethanol program less dependant on government  subsidies.

Feb 22, 2011 1:38PM
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deklen, yes I vote, it doesn't matter which you vote for,how much they promise, they are all in one pot called "goverment". They all protect themselves from the laws and policies they inflict on the people. It is not one party or the other it is the "RULES" they are allowed to play by. The "GOVERMENT" has this country in debt that will probably never get straight. Their solution is to take more from the people while they give up nothing. We pay them to do this wether we like it or not because theirs is guaranteed because it is taken out of your check wether you like it or not and if they screw up they will just raise taxes or cut the peoples benefits to fix it. When was the last time the goverment said it was going to cut their health benefits or their" people" paid gas cards to help the deficit.

Feb 22, 2011 1:32PM
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2 Sick -  The 'Tower of Debt" is beyond most peoples imagination.  The cuts in spending will be deep, and tax increases inevitable just to stop the flood of red ink.   Fathom the measures necessary to eventually pay off those national, state and local debts.   Trillions upon trillions - who is gonna pay and for how long??  Now that would make anyone too sick.....
Feb 22, 2011 1:27PM
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Here we go again..The price per barrel of crude is utterly absurd, Speculation should be outlawed. My favorite one "fog in the Houston ship channel" price went up .18 for something that would last maybe 2 hours. The price shouldn't be over $68.00 per barrel & gas shouldn't be over $2.00 a gallon. So many refiners are shut down due to low demand, tankers are sitting full. Now lets just buy the full tankers sitting there for $65.00 a barrel. Greed is making this country Falter!
Feb 22, 2011 1:22PM
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Foreign oil dependencany is killing our economy. Lets use domestic energy sources

(Nat -Gas,Coal, Wind,,, ETC....) and put a stop to the wild price swings in oil. That way we and our economy (mostly energy prices which effect most econmic activity in some form) are not at the mercy of foreign uprises.  Lets put  US back in USA economy and not be held hostage ...

Feb 22, 2011 1:18PM
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The price of oil accounts for about 55% of the price of gasoline.  The other 45% is made up of refining costs, shipping costs, taxes, etc...
Feb 22, 2011 1:14PM
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John Scott, the only augmentation for this is when raw material prices are falling.  Then it just takes competitive pressure to push prices back down.  Let's face facts, a company is going to try to keep prices high until they need to lower them, and no one should fault them for it.  I think someone posted here yesterday that prices rise like a rocket and fall like feather.  I like that phrase.
Feb 22, 2011 1:12PM
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Dek:  This might shock and amaze you, but I've voted Republican more than I've voted Democrat.  Admittedly moderates on both sides.  A lot of the "bankrupting" that gets blamed on the GOP from the 80s is a result of globalization and higher skills needed for previously unskilled jobs.  Consider it, you used to have 3 or 4 secretaries that were reasonably unskilled.  Typing, dictation, filing, not a very technical position.  Now an entire department has 1admin that is expected to handle everything the 3 or 4 did and more, and can do so because technology has made it easier.  That's a big part of the income gap widening in the 80s, a glut of unskilled labor as capital equipment displaced humans.  Like I had said before, I think the "victors" in those scenarios should be taxed progressively to help accommodate training and education for the displaced workers.  The other part is that taxes are too low on the highest earners.  Kick up the tax and they'll be paid more in stock and options like they used to be.  Then at least they'll be tied to making long term decisions instead of burning the house down for short run profits.

More market occurrences, not something the GOP specifically did.
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