From GVP

“@common sense

It’s kind of a mixed bag here. On a macro scale, capital needs to flow, but part of that flow needs to be saved along the way.

Imagine a world where everybody spent every penny they earned with no regard for “rainy days”. Imagine if your boss was two paychecks away from ruin, like the average American is today. Rather than keeping your next month’s payroll in the bank, your boss runs off and hires more people under the assumption that he’ll have enough money in the bank come next month.

It’s pretty obvious that this world would collapse shortly as something would go wrong.

But the inverse isn’t any better. Imagine a world where everyone saves 25%+ of their income. Now imagine being a lender in this world. Imagine not being able to get any interest from the bank because the bank can’t lend your money to anyone else. And why would they need to? Everyone else is saving 25% of their income, so we all have money in the bank. And if someone actually did want a loan how much interest would you get anyways? With so many people competing for loans, the rates you earn would be low.

Obviously this world has its issues too (see modern-day China). It’s pretty clear that a world with zero debt would be a little crazy.

So let’s look at the numbers. The US economy has had a negative personal savings rate for the last couple of years (though it may have reversed this year). The US government has been running a deficit for a decade with a ballooning debt load.

The US economy has a heavy case of “spend every penny”. Lots of people “printed” money by making promises they couldn’t keep: CDSes, Mortgage-backed securities (on over-promised home value with balloon mortgages), failing corporate bonds (Lehman Bros), failing insurance (AIG), the collapse of “commercial paper”.

At many levels, the problems companies face right now comes down to a lack of cash. GM, when talking about the desire for a bailout, is talking about having 3 months of cash left for payroll. The reason for the $700B bailout was to provide cash flow to these institutions that simply didn’t have enough available.

I know it sounds “un-American” to save money, but Uriah has it right here. Yes, companies want you to spend money, but what the economy really needs is a positive personal savings rates.

For the average person, that means throwing a little extra money in “the markets”.”

While he  set a $20 price target for a Yahoo share, down $3, the analyst kept his buy rating.  It’s still far above this morning’s pre-market price of $10.89.

For the 2009 fiscal year, Squali also trimmed his earnings estimate to 46 cents per share from 55 cents, lowered revenue estimates to $5.5 billion from $5.7 billion. Though he noted that Jerry Yang’s departure and the arrival of Carl Icahn on the board, which might lead to restarting Microsoft talks, he still sees a decline in search-related advertising and display ads not tied to search.

News that Britain’s economy contracted in the third quarter deepened fears of a worldwide recession, born of the worst financial crisis in 80 years.

Foreign exchange markets saw extreme volatility with the yen rocketing to multiyear highs against the dollar and euro. The euro/yen rate fell 10 percent at one point.

Britain’s economy shrank 0.5 percent in the third quarter and euro zone figures showed the 15-nation currency bloc was already in recession, analysts said.

Stock markets were in freefall around the world as panicked investors moved to liquidate risky positions. Japan’s Nikkei index ended down 9.6 percent and European shares dropped 8 percent.

The Dow Jones Industrial Average lost 4.7 percent while the S&P 500 shed 4.7 percent and the Nasdaq plummeted 5.1 percent in early trade.

Russia suspended trading on its stock market until at least Tuesday after the market lost more than a tenth of its value on Friday, hitting its lowest levels since late 2004.

“The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth,” Chinese Premier Wen Jiabao told an Asia-Europe Meeting of 27 EU member states and 16 Asian nations.

OPEC, meeting in emergency session, agreed to cut oil output by 1.5 million barrels per day in an attempt to halt the steep slide in the price of oil. But the price of U.S. crude fell more than 5 percent to $64 as economic gloom overshadowed the cut.

Commodities from copper to zinc, sugar and coffee were battered by sharp selling — bad news for emerging market economies that are major commodity producers and depend on exports for much of their revenue.

The price of U.S. government bonds rose sharply as investors switched out of stocks.

MORE BAD NEWS FROM COMPANIES

Bank of England Deputy Governor Charles Bean said Britain’s economy was still in the early days of weakness as a result of possibly the worst financial crisis in history.

“This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history,” Bean told the Scarborough Evening News.

A survey of companies showed the euro zone private sector economy on track for its worst performance since the recession of the early 1990s.

The October Markit Eurozone Flash Purchasing Managers’ Indexes show services business contracting at its fastest pace since after the September 11, 2001 attacks. Factory output was shrinking at the greatest rate in at least a decade.

“This is it, we are clearly into recession,” said Gilles Moec, economist at Bank of America.

A range of corporate giants reeled too, not just the banks that were hit first and hardest by a financial crisis that began with a U.S. housing market collapse.

Sony’s shares plunged to a 13-year low after it halved its profit forecast.

French carmaker PSA Peugeot Citroen cut its full-year operating margin target and said it planned to make “massive” production cuts in the fourth quarter after posting a 5.2 percent fall in third quarter sales.

Air France-KLM also succumbed to the financial crisis with a profit warning, sending shares in Europe’s largest airline group down about 7 percent.

U.S. bank PNC Financial Services Group Inc said it agreed to buy National City Corp in a $5.6 billion transaction, in a deal that would save the ailing Cleveland-based bank.

GOVERNMENT ACTION

Authorities around the world have committed nearly $4 trillion to a variety of plans including deposit and debt guarantees and taking stakes in struggling banks.

Foreign exchange analysts say major central banks urgently need to calm wild swings in major exchange rates, the latest manifestation of the deepening global financial crisis and one that has sent the U.S. dollar and Japanese yen soaring against European and emerging market currencies.

In Washington, the Treasury Department and bank regulators plan to announce as soon as this weekend the next batch of banks to receive capital injections as part of its bank bailout package, a source familiar with the Treasury’s thinking said.

European leaders want China, the world’s fastest-growing major economy, to help shape global financial reforms.

“There was large agreement that such answers must be found internationally,” German Chancellor Angela Merkel said after talks with Chinese President Hu Jintao in Beijing. “I think China will make its contribution to the stabilization of the world economy.”

Hu said the outlook was “grim and complicated.”

Leaders of the world’s major industrial nations and other big economies will discuss the crisis at a special summit on November 15 in the United States. Chinese spokesman Liu Jianchao said his government was actively considering attending.

IMF PACKAGE

The International Monetary Fund is hurrying to approve by early November a package allowing certain emerging economies exchange their currencies for U.S. dollars to ease short-term credit strains, officials familiar with the plans said.

So far, Hungary, Iceland, Belarus, Ukraine and Serbia are in talks with the IMF on programs backed by financing.

Interbank lending, frozen recently as banks feared peers might collapse, has shown some signs of thawing.

In London, interbank rates for overnight dollar deposits were indicated in a range of 0.95-1.25 percent, but the cost of borrowing longer-dated dollars rose as banks remained wary of lending to each other for durations extending into next year.

Markets expect the Federal Reserve to cut U.S. rates sharply next week to help head off a sharp recession. To that end, investors will scrutinize U.S. home sales data due later.

Courtesy of the Reuters Group.

Claudia Parsons is a reporter for Reuters.com.

As U.S. government authorities brought out the big guns to tackle the mounting financial crisis, investment bank Morgan Stanley bought itself some time to come up with a plan for its future and continued talking to Wachovia Corp and other banks about a merger.
But much of the markets’ focus on Friday was on Washington, as officials from the Bush administration, Congress and the Federal Reserve worked to craft a number of plans to restore confidence in shaken stock markets.
In the most recent example of a government entity stepping in to ease fears, the U.S. Treasury Department said on Friday it will use $50 billion to back money-market mutual funds whose asset values fall below $1 in another step to contain raging financial turmoil.
“It’s all part of the program to restore confidence in financial markets. They are absolutely petrified of just a run on financial assets and they came very close to that on Thursday,” said Boris Schlossberg, director of currency research at GFT Forex in New York. “At this point they have just decided that fiscal responsibility goes out the door and anything and everything that needs to be shored up financially will be done so … It seems to be working.”
UK lender HSBC Holdings walked away from a $6.3 billion deal for control of Korea Exchange Bank, fueling speculation it may be turning its attentions to its embattled rivals in the West.
And the Eurozone’s largest bank, Spain’s Santander, declined to comment on a media report it was eyeing Bank of Ireland, which has been pummeled by a property market slump at home.
After Britain’s Financial Services Authority imposed a four-month ban on short selling financial stocks on Thursday, the U.S. Securities and Exchange Commission followed suit on Friday with an immediate 10-day ban. French regulator AMF said it was also talking to other Eurozone regulators about market dealings, leading to expectations that the ban would snowball.
Meanwhile the world’s central banks redoubled their efforts to lubricate the seized-up money markets. Japan, Australia, India and Indonesia pumped in $42 billion after the U.S. Fed coordinated a $180 billion package a day earlier.
In Europe, there were signs that the stress was easing. The cost of borrowing dollars overnight fell back toward the Fed’s 2 percent target, and three-month borrowing costs slid. The Bank of England offered $40 billion to banks, but only half of it was taken up.
TOXIC-DEBT PLAN
Thursday’s proposals by Washington to draw the poison from banks’ mortgage assets and the first of the short-selling bans had an immediate and dramatic effect.
U.S. stocks clocked their biggest percentage gain in six years late Thursday, powering a rally in the dollar and pushing oil prices higher, and on Friday Asian and European markets picked up where New York’s left off.
The price of gold and government bonds, traditional safe havens in times of turmoil, both slipped.
U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend with Congress on a plan to deal with the toxic bank assets that have been choking the financial system for a year.
“This is a more substantial and systemic solution than the ad hoc interventions we have seen in recent days,” said Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong.
“At present, confidence is the most important factor, and this will only be maintained if the rescue plans are delivered on both sides of the Atlantic,” said Andrew Turnbull, senior sales manager at ODL Securities.
The MSCI index of regional shares excluding Japan rose 7 percent and Tokyo stocks ended up 3.8 percent. The Shanghai index roared 9.5 percent higher after China stepped in with a reform package to halt a 69 percent slide from last October’s record high. In Europe, all the continent’s major markets jumped.
MORGAN STANLEY
Sovereign wealth fund China Investment Corp (CIC), Morgan Stanley’s largest shareholder, was said to be in talks to raise its stake to as much as 49 percent from its current 9.9 percent that it paid $5 billion for in December, sources familiar with the matter said.
Beijing is wary of adding to its Morgan Stanley holding, given that its existing holding is carried at a steep loss — the whole bank was only worth $24 billion at Thursday’s close. An unidentified CIC official told the Xinhua news agency that an increase in the stake would face U.S. political obstacles.
However, on Friday morning, a senior CIC official, quoted by the official Xinhua news agency, said Wall Street’s two remaining stand-alone investment banks, Morgan Stanley and Goldman Sachs, were capable of tackling their problems on their own.
Morgan Stanley declined to say it was in talks, but a spokeswoman confirmed it was “focused on solutions” to address its falling stock price.
GOVERNMENT ACTION
A U.S. fund to deal with bad mortgage-related assets would be similar to the Resolution Trust Corp, which was set up to clean up bad debts from the savings and loan crisis in the late 1980s at a $400 billion cost to taxpayers.
“We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions’ balance sheets,” Paulson told reporters.
According to two Congressional aides, he has been shopping around a plan to create the fund.
Rep. Barney Frank, who is chairman of the House Financial Services Committee, said there was concern that establishing a formal entity to buy the assets would take too long.
“I think it will start to provide a floor to asset values and allow institutions to work through this in a systematic manner. They won’t have to rush into the arms of suitors to avoid collapsing,” said Haag Sherman, co-founder and managing director of Salient Partners in Houston.
In addition, New York’s Attorney General Andrew Cuomo began a wide-ranging probe into possible illegal short-selling in the stocks of Wall Street firms such as Morgan Stanley and rival Goldman Sachs.

Courtesy of Reuters Group.

Patrick Fitzgibbons and Will Waterman are reporters for Reuters.com.

Google reported $3.87 billion in revenue (sans the commission it shells out to ad partners). However, the search king said expenses were higher than anticipated and interest was lower than expected, creating anxiety among investors. Also fueling concern: Analysts have pointed out that Google chief Eric Schmidt referred to the challenging economic environment, a first for the tech guru.

During a second quarter earnings call, Google execs admitted that they may have created some of the mess they’re currently mired in: the company deliberately cut the number of pages it posts ads on in an attempt to boost the relevance and quality of ads. Sergey Brin said, “There is some evidence we have been a little more aggressive in decreasing coverage than we should have been.”

Microsoft did top $60 billion in revenue for its fiscal year, an 18% increase year-over-year. However, organic year-over-year ad revenue growth shrank from 26% in the first quarter to 8% in the second quarter of this year, sparking a mini-panic attack among investors. Microsoft admitted that its weakest area is its ad business – but it’s not stopping the company from pouring funds into that sector. The company said it would increase its budget for operating expenses by $500 million, in a bid to expand its online ad business.

Adding to Google’s woes, it has been sued for “parked” site fraud. A federal class action suit filed yesterday by Kabateck Brown Kellner in the U.S. District Court, Northern District of California, alleges that Google is defrauding its advertising customers by charging them for clicks from “parked” sites the company knows are worthless.

Google places ads on third-party Web sites based on keywords that the customer selects. For example, an ad for a hardware store may appear on a Web site about home improvement projects. The “parked” sites at issue in the suit, however, contain no content or useful information – just ads. The sole purpose of those sites is to generate ad revenue for Google and the site owner, while not providing any benefit to the ad customer, the suit alleges.

“The supposed advantage of Google advertising is that it’s targeted,” said Brian Kabateck, Managing Partner of Kabateck Brown Kellner. “If Google is simply placing ads anywhere they can make a buck, one has to seriously question the value of their advertising program.”

According to the suit, Google did not disclose to its advertisers the Web addresses of the parked domains where their ads were placed and clicked on, leaving customers with no ability to evaluate or dispute the validity of the clicks for which they were charged.

As of about 11:47 a.m., Google was trading at $484.41 a share, down 9.19%, while Microsoft was trading at $25.45 a share, down 7.52%.

Several other reports have cropped up naming ValueClick and MySpace, among others, as potential partners for Microsoft.

But Yahoo isn’t throwing in the towel just yet. The Web pioneer says it’s still “open” to a deal with Microsoft, and it’s also reportedly in talks with News Corp. and AOL.

Why all the scrambling? It’s a bald attempt on each company’s part to stave off the increasingly powerful Google. And so far, analysts believe the only winner in the increasingly ugly online tussle, is Google.

“They are the company that is going to have more influence and more control over the structure of the world information industry than any other,” David B. Yoffie, a professor at the Harvard Business School, told The New York Times. “The right way to think about Google is they are the next Microsoft.”

This equates to about 4.4% of CNet’s employees and will effect workers in the U.S., according to a document filed with the Securities and Exchange Commission, reports the AP.

Investors have been unhappy for some time that although the sites under CNet are among the most popular globally; the firm’s profits have not been up to par.

Layoffs will be effective immediately and will cost the company about $3.8 million in severance pay, outplacement and other expenses.

According to Reuters, the original deadline would have resulted in the now infamous proxy contest threatened by Microsoft. Shares of Yahoo rose 0.5% to $28.19 in early trading while Microsoft’s rose almost 1% to $27.85.

This extension will not prevent Microsoft from nominating directors; however it will allow Yahoo some time to potentially figure out an alternative. In a letter to employees filed with the Securities and Exchange Commission, Jerry Yang said “In light of the current circumstances, this change removes an imminent deadline. Microsoft, of course, could still choose to name directors, but our objective here is to enable our board to continue to explore all of its strategic alternatives for maximizing value for stockholders without the distraction of a proxy contest.”

The meeting could be held as late as mid-July of this year.

The New York Times reported that the extension has come at a time when “Yahoo has stepped up merger and joint venture talks with AOL.” The company put out a statement that said “As the company has not yet announced the date of this year’s annual meeting, the amendment will give stockholders who want to nominate one or more directors, including Microsoft Corporation, more time to do so. The amendment does not preclude any party from nominating one or more directors at any time prior to the new deadline.”

AOL CEO Randy Falco seemed to dispel the reports that the firm was in talks with Yahoo, saying to the New York Times that “I hope they beat each other’s brains out over search and leave the display market to us,” continuing that “I think it’s a mistake. But I think Napoleon said never interrupt your enemy when they’re in the middle of making a mistake.”

The company currently employs about 14,000 employees and it has yet to be determined exactly how many people will be losing their jobs. A final decision may be announced January 29th according to the Associated Press, when Yahoo execs are scheduled to review fourth-quarter results.

This could mark the most extensive layoff round by the company since 2001, when it, like many others was attempting to recover from the dot-com crash.

Apparently first inclinations of this consolidation were reported by Silicon Alley Insider, indicating that 1,500 to 2,500 jobs may be lost, but reports from yesterday do not assume the numbers will be quite so high.

Yahoo stocks have dipped by almost 50% since the end of 2005. Shares finished last week at $20.78. CEO and co-founder Jerry Yang is still confident that he will be able to make Yahoo the online community’s “most popular starting point” once again. However, the company’s stock price has declined by 25% since Yang has been CEO, while Google has climbed over 15%.

In the fourth quarter, Sprint lost 109,000 subscribers overall and 683,000 postpaid customers. Postpaid customers are usually considered the most valuable in the industry.

Shares dipped over 25% to $8.52 in current trades, which is the lowest it’s been since the fall of 2002. Sprint said it would cut 4,000 jobs from its 60,000 employee workforce and close 125 of its 1,400 company-owned retail stores.

These cuts are estimated to save about $800 million on an annual basis according to the company.