9/2T9:09 News & Notes

U.S. stocks at 25.8 times profit means rally may end - Bloomberg.com
Bloomberg.com reports the best already may be over for the U.S. stock market this year. The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2% this quarter, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38%. Money managers at Federated Investors, Russell Investments and Morgan Asset Management, which oversee a combined $600 bln, said the gains won't last because corporate profits will fail to meet analysts' estimates. Wall Street forecasters, who were too optimistic about earnings for the past four quarters, predict income at America's biggest companies will grow by a record 62 percent in the final three months of 2008, according to data compiled by S&P. "The market is pricing in the expectation of a good quarter, but we just don't see it,'' said Philip Orlando, who helps manage $350 bln as chief equity market strategist at Federated in New York. "The fundamentals are going to be poor, earnings are going to be bad, and there are going to be more huge writedowns. We think stocks probably need to work 5-10% lower over the next month or two.''

Back-to-school is looking like a flop for retailers - NY Post
NY Post reports the back-to-school season is shaping up to be a bust for retailers. With cash from government-stimulus checks mostly spent, families have been forced to skip discretionary items like clothing as the summer winds down, industry sources said. As usual, the culprit is a hobbled economy. "It's like the back-to-school season never happened," said Britt Beemer, president of America's Research, a retail consulting co. Wal-Mart (WMT), J.C. Penney (JCP) and Target (TGT) will post relatively solid results when major chains report August sales on Thursday, Beemer predicted. But aside from such low-price venues, "I don't see any big numbers out there," Beemer said. In addition to soaring gasoline prices, plunging home prices and tight credit that has clamped parents' wallets shut, teens have been hit by the worst market for summer jobs in two decades, according to Beemer.

Scramble for cash as central banks dry up - Times of London
Times of London reports British banks soon could be scrambling for short-term funding once more amid reports that supplies from Threadneedle Street and from Frankfurt may be drying up. The Bank of England explicitly ruled out extending its Special Liquidity Scheme, while the European Central Bank is reportedly considering tightening its lending criteria. The two central banks have been huge suppliers of liquidity to British banks. Despite pressure from some British banks for an extension, the SLS will be closed to new applications from the week of October 20, the Bank said. UK banks have been campaigning for an extension to the scheme, under which the Bank provides banks with highly liquid government bonds in return for illiquid AAA-rated mortgage-backed securities.

Autos: August Sales Preview
Tomorrow August auto sales are scheduled to come out during market hours. Currently the Street is expecting August N. American sales for GM to be -29.2% (based on daily selling rates), and for F the Street is expecting -21.0%. The following is a quick overview on GM's and F's last three months of sales results and subsequent stock reaction... GM: July N. American sales were -32.4% vs. -24.0% Street expectations, the stock closed down 1.8%; June N. American sales were -8.3% vs. -21.3% Street expectations, the stock closed up 6.6%; May N. American sales were -28.0% vs. -22.9% Street expectations, the stock closed down 1.7%... F: July N. American sales were -13.3% vs. -19.0% Street expectations, the stock closed down 3.1%; June N. American sales were -28.1% vs. -18.7% Street expectations, the stock closed flat; May N. American sales were -15.8% vs. -17.3% Street expectations, stock closed down 0.01%... Industry Expectations: The auto industry continues to face harsh conditions, especially here in N. America. Once again, GM and F are expected to post declining sales for the month of August. Another decline will mark the ninth straight month. Many analysts are citing a fading job market, tighter lending standards, and a weakening U.S. economy for the continued decline in sales. According to a Bloomberg survey, July sales are likely to see an annual selling rate of ~13 mln vehicles, compared to last months 13.6 mln annual selling rate. This morning GM's COO said that "August was similar to prior 2 months, overall fairly tough." He was noted that he "doesn't have a huge amount of optimism for the rest of the year." F's sales analyst added to that sentiment by stating that "We're in a very difficult period right now. F's sales are likely to be close to July's 15% decline." According to Deutsche Bank, "with large drops in sales coming from GM, F, and Chrysler, the Japanese automakers may have each gained at least a percentage point of U.S. market share." At current rates, U.S. auto sales are on pace to hit a 15 year low, although increased incentives may have hindered August sales from hitting that mark. Continuing sales declines are hurting automakers efforts to end losses and bring them back to profitability. Note that the last time the U.S. industry exceeded the current six month slide was in 2000 and 2001. During that time period, the industry saw an 11 month slide as the U.S. was on the brink of recession... Overall, look for the economic factors to continue to have an impact on autos as a whole... Note GM typically releases sales around 13:45 EST; F release sales around 12:00 EST... To take a look at auto sales trends dating back to May 2007 click here (you may have to click the image to enlarge it).