No Rest for the Weary Markets

There is no mercy for the beleaguered U.S. economy. There has been a steady flow of bad news released, and I see no sign that it is going to end anytime soon. Atmel (ATML - commentary - Cramer's Take) has announced that it is cutting 11% of its workforce and closing operations for 10 days to save money. Honeywell (HON - commentary - Cramer's Take) announced earlier this week that sales would be below analysts' original expectation. The nation's retailers are seeing a pickup in shopping as Christmas gets closer, but the bulk of transactions are being done at heavily discounted prices. While this may allow retailers to pare down inventories, it does not lead to bottom-line profit. The earnings for the retail sector in the critical fourth quarter are going to be horrible. Some are saying this could be the worst holiday season ever.

The shaky condition of the consumer is shown in recently released credit reports. Credit rating agency Fitch announced that credit card delinquencies had risen 24% since August, reaching 4.8% of outstanding loan balances. The weakness has been felt by credit card giant Capital One (COF - commentary - Cramer's Take) -- it wrote off more than $400 million of credit card accounts in November alone. That is almost double the amount charged off last year. It is almost 7% of the total loan portfolio, up from just a little over 5% last year.

The auto companies have been denied by Congress, and the administration is doing an end run to use Treasury funds to provide short-term loans to the industry. Providing short-term funding to automakers right now is putting a band-aid on a sucking chest wound. The industry has serious long-term problems that are not going to go away. Ford (F - commentary - Cramer's Take), General Motors (GM - commentary - Cramer's Take) and Chrysler have problems that were decades in the making. A short-term bailout loan is not going to fix the union, legacy health care and pension problems. It is not going to eliminate the massive debt loads these companies took on when they thought then party would last forever. A prepackaged bankruptcy that deals with these issues and resolves them permanently would be more effective. It would be painful, but so are round after round of bailouts and begging.

It is not just the Big Three feeling the pain anymore. Honda Motors (HMC - commentary - Cramer's Take) announced recently that it would cut production by 119,000 units next year. The production cutback will affect five of the company's seven North American plants. In addition, Toyota (TM - commentary - Cramer's Take) is putting off the start of production at its new plant in Mississippi until business picks up. The plant, which is being built to manufacture the Prius model, was to have opened in 2010.

---

At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.