Shop Talk

Welcome to new readers in Australia and New York,where I advertised this week.My newsreel colleagues and I work constantly to keep you well-informed,so you can make the best decision for your circumstances.Among those contributing matters of fact to my own research are The Associated Press,Bloomberg,The Washington Post,BBC and MarketWatch,as well as CNBC and The Wall Street Journal.None of us works in a vacuum,which is ultimately for your benefit.I am grateful to all of my fellow business editors and writers for their continual inspiration and assistance.As we approach the U.S. elections,we notice how many polls there are today.The number of national polls has gone from 55 in 2004 to 177 in 2008,but the only poll that counts is the one taken in the voting booth.That is the one that will influence our businesses and investments.

CalSTRS Is Buying

The second largest pension fund in the U.S.,the California State Teachers' Retirement System,or CalSTRS,is getting to the point of being shell-shocked,Chief Investment Officer Christopher Ailman revealed.Even so,we're actually investing.We put about one billion dollars into the market last week.These are bargains that you don't want to pass up.We're just stepping in.Wall Street is overreacting.I'm still worried about Europe.If we don't see the credit market continue to thaw,that would make me worry.Wall Street has already priced in a 30-40% earnings decline.You're still gonna have negative news,but you've got to digest through that.The circuit breakers are too wide,and the market has too much emotion.Wall Street is looking at the fourth quarter projections.I am confident in the American consumer getting through the financial crisis,Mr.Ailman affirmed.

The Hedge Fund Effect

Hedge funds serve wealthy individuals and institutions.It is believed they are responsible for about half the recent market declines.There had been 31 billion dollars in hedge fund redemptions as of last week.Typically these redemptions occur late in the day,when half of the recent market declines have occurred.There may be many more of these forced sales ahead.Indeed,up to a third of the 10,000 hedge funds may disappear altogether.Their investors want to cash out,so the fund managers must go on selling the funds' holdings,dragging the market down in the process.

A Determined Executive

Dow Chemical(DOW) has managed 388 consecutive quarters of no dividend cuts,Andrew Liveris said.This CEO will never cut the dividend,he swore.Our stock price is absolutely ludicrous.We're gonna remain strong.We've got tremendous financing arranged for our Rohm and Haas deal.We've got financial flexibility to do more this year,such as share buybacks.The stock price is divorced from the reality of the company,Mr.Liveris insisted.

Looking For Relief

Dow Chemical's portfolio is half commodities-based,half specialties,CEO Andrew Liveris explained.The commodities part has come down in price.There isn't one customer out there who isn't asking for cuts-even specialties customers.In some cases,even they are getting price cuts.Post-Olympics China has slowed down considerably,but local stimulus in China, such as infrastructure projects, will help.They're looking at 8-9% Gross Domestic Product.Frankly,I think the emerging world is gonna help us out of this crisis,Mr.Liveris conjectured.

Focus on Dow Chemical:Navigating the Crisis

Dow Chemical CEO Andrew Liveris said that hurricanes took out 80% of the firm's U.S. capacity,but now he can use different hydrocarbon feedstock because of demand destruction from the financial crisis.Price power is very poor.You have to manage costs,manage capital to keep yourself through this,keeping your long range plan in mind.Europe is in just as bad of a shape as the U.S.,Mr.Liveris observed.

Shop Talk

A special greeting to Virginia,where I advertised this week.Virginians are getting ready to vote.They won't let the media and the pollsters decide for them.There are many who have already declared victory,but maybe Virginia will surprise them.Some of my ancestors were Virginians,so I'm right at home with them.The stock futures threw a fit this morning,so I wasn't at ease then.In Japan,the Nikkei lost almost 10%.Things have settled down a bit,but we still have to get through the dreaded three o'clock hour.That's when all the forced selling comes in.Hopefully we can stay above the intraday low of October 10.So far,that has been a sturdy bottom for the market.

Libor Is Down

The London Interbank Offered Rate,or Libor,has been declining recently.From well over 4%,the 3-month rate has fallen to 3.83% as of this morning.It is the rate banks charge each other for loans,and its decline indicates a thawing of the credit markets.Governmental action around the world is beginning to have a positive effect on the banking system.

Wellpoint Is Ready

Health insurer Wellpoint(WLP) is ready for whatever the U.S. presidential election brings.CEO Angela Braly says the firm will work with either candidate.With 35 million members in its 14 Blue Cross plans,served by more than 42,000 employees,Wellpoint is the largest U.S. health insurer.Founded in 1944,the Indianapolis company is known for its stock buybacks in support of the share price.Wellpoint is a holding of billionaire Warren Buffett's Berkshire Hathaway.

The Legacy of the Crisis

The banking system is at the heart of every market economy;where we're going to is a world where the banking system is slimmer,de-risked,and with less return on equity,Mohamed El-Erian believes.We are turning the banking system into a utility,because the public cannot accept privatizing gain,while socializing risk.When the tide comes down,it exposes good things that you want to buy,but you've shaken the trust of the retail side.It will take time to heal.We shouldn't expect a linear recovery;it's gonna be a bumpy recovery,Mr.El-Erian predicted.

The Nature of the Crisis

This was a crisis of the system as a whole,according to Mohamed El-Erian.The policy response goes beyond an attempt to stabilize markets.We are in the midst of a major policy regime shift.It will be a gradual and fragile process,a protracted one.The policy regime shift cannot repair all the damage the system suffered.Policy response can change the drivers of markets.No one seems to be turning to the International Monetary Fund for advice.This is the sort of crisis that is at the heart of what the IMF was set up to control,in Mr.El-Erian's opinion.

Emerging From the Crisis

Mohamed El-Erian,co-CEO and co-Chief Investment Officer of PIMCO,feels that the U.S. financial rescue plan is the right plan.This is the appropriate response.The financial authorities need to act with overwhelming force.It's the right move in terms of design.We're starting to see the markets heal.The plan is necessary and sufficient,but the damage is so deep,you don't turn on a dime.It's gonna take time.The measures are coming in at every level of the capital structure.Institutions will have to re-tool,Mr.El-Erian thinks.

Shop Talk

Hello to Canada,where I advertised this week.It's fine to have you here,good neighbors.The aviators among you are surely among Canada's leaders.It takes a lot of skill and ambition to be a pilot-that's for sure.A business publication couldn't do better than to reach out to aviators.They have good executive qualities.No doubt many,if not most of them,have some interest in business news.Owning and operating aircraft is a business in itself.Have a rewarding weekend.

Alberta Seeks Skilled Workers

Even in these times of financial crisis,the Canadian province of Alberta needs skilled workers.It has instituted the Alberta Immigrant Nominee Program,a fast track to permanent residency status for such workers.The province says it has the strongest and fastest-growing economy in Canada.It needs skilled workers immediately.For information,log on to AlbertaCanada.com/h1b.

Problem Rooted in Leadership

Carl Icahn,billionaire investor and Chairman of Icahn Associates,thinks that the real problem is how we Americans treat our executives.They are more accountable overseas.Investors are getting the short end of the stick.The boards of directors aren't doing their job.I think that the crisis you have today is a problem of trust,Mr.Icahn said.The reason it's such an exacerbated problem is all these derivatives.The market has gone down a toboggan path.The simple solution is,you guarantee the banks' unsecured debt on the balance sheet.What I've been doing is watching and worrying,but bank debt is extremely cheap.There are also some stocks that are extremely undervalued.In a normal recession,there wouldn't be this preponderance of margin calls.A margin call is a stock sale forced by a creditor if he or she thinks you won't be able to pay him back the money you borrowed to buy the stock.There are trillions of dollars of derivatives out there,the candid Mr.Icahn pointed out.

Fed Has Done Well

Roger Ferguson,former Vice Chairman of the Federal Reserve and current CEO of TIAA-Cref,feels that the challenge of the financial crisis is the absence of credit availability and confidence.The financial rescue plan is designed to address that.I do not think there is a magic bullet,Mr.Ferguson said.I give my former colleagues at the Federal Reserve quite high marks.They've been flexible and used a number of tools.We may have several months to go before we can blow the all-clear signal,Mr.Ferguson cautioned.Keep the long view;don't panic;seek objective advice,the chief executive counseled.

Recovery May Be Prolonged

Even if the stock market bottomed last Friday,that is no assurance it will bounce back to its peak anytime soon.As of the opening bell this morning,the market was down 34% from its peak just over a year ago.Past stock market crashes have dragged on for more than a decade.The 1929 crash wasn't erased until the mid-1950s.The aftereffects of Japan's 1990 crash continue to this day.And the bear market of 1967 didn't resolve until 1982.Volatility can roll on and on,discouraging all but the hardiest investors.On the other hand,even if this is a prolonged recovery,that doesn't mean your portfolio will take that long to recover.Only if you invested all your money at the peak of the cycle would you have to wait decades to be made whole.Your portfolio's recovery will most likely be staggered, if you invested in many positions over a number of years.The market fell 40%,but your portfolio didn't,if you built it up over time,entering the chart at various points.There are also dividend payments that your portfolio accrues while the market climbs back up.Things may not be as bad for you as the media are portraying.

Shop Talk

A special greeting to California.I advertised there this week.Your economy is as big as that of many countries.Representatives of many countries are meeting in Washington this weekend to work on the financial crisis.The International Monetary Fund,World Bank and G7 group of industrialized countries will all be discussing the global economic dislocation.President Bush will meet with the G7 finance ministers tomorrow morning.It's possible some concrete steps will result.In any event,there's a chance that the U.S. stock market has finally bottomed.This morning it opened with a nearly 700 point dive,followed by some recovery:the sign of a classic capitulation,the climax of a bear market.There's a bit more financial hope this weekend than there has been in some time.

Treasury Accepting Bids

The U.S. Treasury is now accepting bids for financial rescue plan managers.The winners will be announced on Wednesday.They are to begin working on Saturday.The plan is aimed at the credit market,rather than the stock market.It is designed to restore confidence to lending institutions.Neel Kashkari,a former Goldman Sachs executive,is interim head of the effort.Mr.Kashkari,35,was Assistant Secretary of the Treasury for International Affairs.

The View From Citi Smith Barney

John Manley of Citi Smith Barney thinks the rescue plan just signed into law will help the U.S. economy.We don't want to repeat the mistakes of the late 1920s and 1930s.We need government intervention.Although the employment number means the economy is weaker than we thought,the system is still basically sound,Mr.Manley feels.The government is doing the right things.We're digging our way out of a crisis,Mr.Manley said.Citi Smith Barney likes Johnson and Johnson(JNJ).It's a very high quality investment,in their opinion,for the long term.They also like Kimberly- Clark(KMB),which is very,very sensitive to commodity prices-meaning they are benefiting now from their recent decline.ConAgra Foods(CAG) is very well-run,with very stable growth.It is perfectly positioned for the times we are in,according to Citi Smith Barney.

Buyers Note Service Slowdown

The Institute for Supply Management also reported a decline in U.S. service sector activity.The service sector represents about 80% of the U.S. economy.Purchasing managers logged a reading of 50.2 for September,as opposed to 50.6 for August.That's a little better than a Reuters poll of economists had projected.The economists thought the service sector would come in at 50.0.Nonetheless,the service sector number marks the fifth straight monthly decline in the sector.It hasn't done that since 2003.Inflation in the sector was the lowest for a year,probably reflecting a decrease in commodity prices.The service sector index covers results from hotels,restaurants,banks and airlines.The Institute for Supply Management is located in Tempe,Arizona.Its purchasing manager surveys are important to economic policy makers.

Drop in Manufacturing Index

The Institute for Supply Management,a buyers' trade group,has released its monthly manufacturing sector index-a key gauge of U.S. economic health.The September number was the lowest since 9-11,dropping to 43.5 from 49.9 in August.A reading below 50 indicates contraction of the sector.Order backlogs,employment,deliveries and inventories all fell in September.The ISM survey revealed a contraction in electrical appliances,machinery,apparel,furniture and transportation equipment.

Shop Talk

Hello to New Jersey,where I advertised this week.It is the home of many financial professionals,such as those of CNBC.It looks like we will have the quietest weekend in some time.We have forgotten what a normal weekend is.Maybe we will miss the excitement.I suppose we shall watch the presidential race.Two years of nonstop presidential politics will soon come to an end.The Inauguration will be a summit of history.All the ruckus will be forgotten then.