Saturday, January 03, 2009


1/4/08 Debt

As of yesterday, the debt stood at nearly $10.7 trillion, of which about $4.3 trillion is owed to other government institutions, such as the Social Security trust fund. Debt held by private investors totals nearly $6.4 trillion, or a little over 40 percent of gross domestic product.
According to the most recent figures, foreign investors held about $3 trillion in U.S. debt at the end of October. China, which in October replaced Japan as the United States' largest creditor, has increased its holdings by 42 percent over the past year; Britain and the Caribbean banking countries more than doubled their holdings.

Andrew Bary: "The bubble in Treasuries looks ready to pop, sending prices on government debt sharply lower. But just about every other corner of the bond market beckons -- and could provide competitive returns with stocks."

Michael Santoli: "Carpenter Analytix furnishes this anomalous scorecard for 2008: Despite the historic 12-month decline, there were as many up days as down, 126 each. The up days averaged a 1.57% gain and the down sessions a loss of 1.92% -- which proprietor Robin Carpenter calls "immense magnitudes.".....The folks at BCA, in discussing the 2009 outlook, plumb the potential "differentness" of this environment under the rubric of "A Changed Regime," from debt-enabled excess growth to thrift-driven economic drags. They offer that even if the lows are in for stocks, perhaps "the market will churn for an extended period, as occasional decent rallies will not be sustained." This is more than reasonable, while also approximating the consensus view. The BCA analysts add: "The poor long-run performance of equities has drawn remarkably little attention. However, that could change with books touting equities for the long run being removed the shelves, replaced by books describing the scandals and disastrous investment climate of the 2000s."

The escape from having to predict what the Dow will do is to lean on the idea that even if the indexes continue to struggle -- even if this latest spurt above Dow 9000 is a head fake -- no one should expect the universal devastation that 2008 brought. Last year virtually nothing worked, and beginning in September the liquidation took down high-quality shares along with the dubious. According to Morningstar figures, any diversified equity mutual fund that lost a mere 27% in 2008 ranked in the top 5%. Even with the benchmark suffering as it did, more than 60% of all funds did worse than the S&P 500. And there was only a single diversified stock fund that labored to a positive return, the $53 million Forester Value fund, which is free to go to cash and hedge with futures and options. It gained 0.39% -- and is now fully invested in stocks."

Barry Ritholtz: "Rather than make resolutions you won’t keep, try something different this year. Figure out your own brain tendencies — including personality type. Don’t try to become something you are not, and instead, adapt to your own physiology. If you are impulsive, map out an investment strategy that includes handling this part of yourself.
Some people have had success setting up a sequestered, smaller, “thrill” account for trading. Any impulsive trades should be in the fun account, measured in percentages, not dollars. Keep your dopamine-seeking trades here — put and call options, hail marys, shots in the dark — and make sure these trades remain separate from your long term retirement monies.
Your investment returns will thank your brain chemistry for it."

Brett Steenbarger: "What we see is that the riskier sectors that had been more beaten down during the market decline are now outperforming: small caps and emerging market issues. We're also seeing outperformance among consumer discretionary shares relative to consumer staples issues, as investors turn away from the more defensive sector and bet on economic recovery."

The Oil Drum: "With 80 percent of its exports dependent on a rapidly contracting U.S. market, Mexico has been hard hit by a series of factory closings and layoffs. Mexico is Latin America’s second largest economy after Brazil.
Ford, Chrysler, General Motors, Nissan Mexicana, and Volkswagen de México have all announced they are closing factories across Mexico for the next month or more—the first time they have ever done so. Honda and Toyota have said they do not plan to suspend production at this point. "

John Ryding and Conrad DeQuadros, at RDQ Economics, said the surveys showed “the global nature of the economic contraction” and added that “the case for a massive global fiscal stimulus continues to grow”. In the US, a part of the survey that deals with employment declined from 34.2 in November to 29.9 – its lowest level since November 1982 – raising the likelihood that job losses in December may have exceeded 500,000.

The prices paid index dropped from 25.5 to 18 – its lowest point since June 1949, according to JPMorgan. This was largely the result of plummeting energy and commodity prices.

Michael Pento: "The once-mighty U.S. manufacturing base, over 28% of G.D.P. in 1953, is now just barely above 11% of total output. What was once the world's reserve currency now sadly offers little in the way of interest to our foreign purchasers. And now, since the Federal Reserve has decided it can repeal the business cycle and prevent recessions, the Central Bank has doubled the monetary base in just six months!"

Wednesday, December 31, 2008

Happy New Year

12/31/08 Happy New Year

Chemical company LyondellBasell told lenders it is considering filing for bankruptcy protection amid plunging sales and a cash crunch.

Motorola to lay off an additional 400 employees.

The Shanghai Composite, which measures the combined share value of most of the large public companies in China, fell 65% this year.

The VIX has dropped to 39.61. Fear is on the decline.

James Sterngold: "It has been a year of record misery: the largest bankruptcy, bank failure and Ponzi scheme in U.S. history; $720 billion in writedowns and losses by financial institutions; $30.1 trillion in market valuation wiped out.... In the U.S., $7.2 trillion of shareholder value was wiped off the books, as the Standard & Poor’s 500 Index fell 39 percent through Dec. 30 and the Nasdaq Composite Index dropped 42 percent."

Corn, soybeans and wheat dropped in after-hours trading, on track for their first annual declines in four years on concern the slowing global economy will reduce demand for food, animal feed and fuel.
Corn futures have fallen 14 percent this year, soybeans have lost 22 percent and wheat has tumbled 32 percent. The crops reached all-time highs earlier in the year. Crude oil has plunged 60 percent, heading for a record annual drop amid the deepest economic slide since World War II.

U.S. crude stockpiles rose 500,000 barrels to 318.7 million in the week ended Dec. 26, U.S. Energy Information Administration reported on Wednesday. Gasoline inventories rose 800,000 barrels in the latest week, while distillate stocks rose 700,000 barrels, EIA reported.
Demand for gasoline over the four weeks ended Dec. 26 was 2.2 percent lower than a year earlier, averaging 9 million barrels a day.
At the same time, U.S. refineries ran at 82.5 percent of total capacity on average, a drop of 2.2 percent from the prior week.

Mexico lifted the suspension on meat imports from 20 of the 30 processing plants it banned imports from last week.

Shukri Ghanem, Libya’s oil chief, told The Associated Press the country would cut almost 20,000 more than the 252,000 barrel per day reduction it was committed to under the group’s quota system. The cuts, effective Jan. 1, would be from September levels.
“The corporation has asked oil companies (in Libya) to cut output by 270,000 barrels per day, which is more than Libya is required to do under the OPEC-brokered agreement” in Oran, Algeria, Ghanem said in a telephone interview today.
“This is a positive step for boosting oil prices, and I believe that all the (OPEC) countries will abide with the agreement,” Ghanem said.

Financially struggling universities, factories and even hospitals are requiring employees to take unpaid "furloughs" — temporary layoffs that amount to one-time pay cuts for workers and a cost savings for employers. This year, the number of temporarily laid off workers hit a 17-year high.
"If they do it once, I think it's easier for them to try to do it again," said Carrie Swartout, who researches traumatic brain injuries at the University of Maryland Medical Center. Maryland is requiring unpaid time off for 67,000 of its 80,000 employees as it struggles with a budget crisis. The state says the furloughs will save an estimated $34 million during the fiscal year.

According to Bloomberg, state and local borrowers sold $385 billion of long-term bonds through yesterday, down 9 percent from 2007, according to data compiled by Thomson Reuters. Next year, sales will drop more than 6 percent to about $364 billion, the least since 2004, based on an average of estimates from London-based Barclays Plc, Merrill Lynch & Co. and Loop Capital Markets LLC.
The combination of the worst financial crisis since World War II and the collapse of the $330 billion auction-rate debt market will leave 41 states and the District of Columbia with shortfalls just as financing sources diminish. Merrill Lynch’s Municipal Master Index, which tracks 14,000 bonds, fell 4.6 percent this year, the first decline since a 6.34 percent drop in 1999. The biggest underwriters are merging or leaving the business.

The number of U.S. workers filing new claims for jobless benefits slumped 94,000 last week, government data on Wednesday showed, but seasonal factors were likely behind this unexpectedly large decline with the labor market remaining very soft. A Labor Department official said the timing of the year-end holidays and volatility in seasonal factors was likely to blame for the large decline in initial weekly claims and warned this situation could persist for several more weeks. Initial claims for state unemployment insurance benefits fell to a seasonally adjusted 492,000 in the week ended Dec 27 from an unrevised 586,000 the prior week, the Labor Department said. It was the lowest reading for initial claims since the week ended Nov. 1, 2008 and the steepest decline since 1992. Despite the decline, the level of claims is 45% higher than the same period in the prior year. The four-week average of new claims fell 5,750 to 552,250. Meanwhile, the number of people collecting benefits in the week ending Dec. 20 rose 140,000 to 4.51 million - the highest level since December 1982. The four-week average of continuing claims rose 103,750 to 4.42 million - also the highest level since December 1982. The government added that the insured unemployment rate rose to 3.4% -- the highest level since November 1983 -- from 3.3% in the prior week.

Crude for February delivery fell $1.49, or 3.8%, to $37.54 a barrel in early North America electronic trading. Futures have slumped more than 60% so far this year, the biggest yearly loss since crude started futures trading in New York.

Gold for February delivery lost $11.30, or 1.3%, to $858.70 an ounce in early electronic trading. Despite the loss, gold is set to end this year's trading up for an eighth consecutive year.

"You want to be in gold, silver, platinum, and also oil," Marc Faber told CNBC. "If you believe in a recovery of asset prices as a result of money printing, you should be in hard assets, particularly precious metals." "I think the big trade in 2009 will be to go short Treasurys massively -- I really mean massively -- because we may not have inflation for one, two, three years," he said. I agree with Faber except that I differ on his inflation forecast.

State Controller John Chiang, who oversees California's cash flow, warned state agencies Tuesday that unless Gov. Arnold Schwarzenegger and the Legislature agree on a budget, the state will have to begin issuing IOUs to some state employees and contractors as early as Feb. 1.

Managed-care companies can expect to lose business as large corporations cut jobs in a slow economy, reducing health insurance membership. Standard & Poor's lowered its credit outlook for U.S. health insurers to negative from stable last month due to slowing growth prospects and a weaker 2009 economic forecast.
On the other hand, some say the weak economy will prompt many people to cut down on doctors' visits and delay medical procedures, which would keep health insurers' costs down and help their profit margins.

The University of Utah Seismograph Stations report that an intense swarm of 250 earthquakes has been underway since December 26, beneath Yellowstone Lake in Yellowstone National Park, three to six miles south-southeast of Fishing Bridge, Wyoming, centered on the east side of the Yellowstone caldera.

comScore data which stated that total eCommerce sales declined 4% Y/Y QTD for Q4 and declined 37% Y/Y in the last full week of December. comScore said this was the first time they've seen negative growth rates for the holiday season since they began tracking e-commerce in 2001.

U.S. corporations raised $4.54 trillion issuing securities in 2008, down from $5.14 trillion in 2007. Global merger activity fell to $2.5 trillion in deals announced from a record $4.1 trillion the previous year.

Traffic declined 4.9 percent in the week ended Dec. 27 from a year earlier, ShopperTrak RCT Corp. said today in a statement. Total holiday sales will decrease 2.3 percent and traffic will drop 16 percent, the Chicago-based research firm estimated, lowering its previous predictions on both.

Venezuela cut in half the amount of dollars it will let people buy when traveling abroad to $2,500, part of a push by President Hugo Chavez to preserve foreign currency reserves as oil exports plunge.

The Dow Jones Industrial Average gained 108 points, or 1.2%, to end at 8,776, with 25 of its 30 stocks advancing. The blue chip average slumped 33.8% this year. The S&P 500 index rose 12 points, or 1.4%, to end at 903. The S&P, widely considered as the most representative of the market gauges for U.S. stocks, fell 38.49% in 2008 and has not seen a worse year since 1937. The Nasdaq Composite gained 26 points, or 1.7%, to end at 1,577. The technology-heavy index fell 40.5% this year.

Crude for February delivery rose $5.57 to end at $44.60 a barrel on the New York Mercantile Exchange. Gold for February delivery closed up $14.30, or 1.6%, at $884.30 an ounce on the Comex division of the New York Mercantile Exchange. It dropped to as low as $857.30 earlier. Futures ended the year up 5.5%.

Tuesday, December 30, 2008

Bad News Amidst Year-end Rally

12/30/08 Bad News Amidst Year-end Rally

Charles Kindleberger: “Thus, financial crises are a product of sudden alterations of expectations, rooted in reality or imagination. If you are looking for a way to avoid financial disaster, this is the key level of understanding."

The Oil Drum: "The problem, as new research shows, is that we have to face a new reality. As many as 100 million Americans now live in families that are earning less in real terms than their parents did at the same age."

U.S. banks and savings institutions are heading for their first overall quarterly loss since 1990, according to a report in Tuesday's Wall Street Journal.

Chain-store sales for the week ended Dec. 27 fell 1.8% from the year-ago period, according to a survey released Tuesday by the International Council of Shopping Centers and Goldman Sachs. On a week-over-week basis, sales fell 1.5%. "The 2008 recession, widespread heavy discounting and adverse pre-holiday weather all coalesced to produce the weakest holiday season since at least 1970," said Michael Niemira, ICSC's chief economist.

South Korea's current-ccount surplus climbed 23% in November from a year earlier, marking its second straight month in positive territory. The nation's surplus expanded to $2.06 billion from $1.67 billion a year earlier, the Bank of Korea said Tuesday.

The Nikkei rose 1.3% to end the half-day session at 8,859.56, tallying losses of 42.1% for the year.

Germany's DAX 30 index closed up 2.2% at 4,810.20 in its shortened final session of the year Tuesday. The rally left the country's benchmark index down 40.4% over the course of the year.

Gold for February delivery dropped $5.30 to $870.10 an ounce in electronic trading on Globex.

Light sweet crude oil for February delivery fell 43 cents, or 1%, to $39.59 a barrel in electronic trading on Globex.

Home prices in 20 major U.S. cities dropped 2.2% in October from the prior month, and had fallen a record 18% from the previous year, according to the Case-Shiller home price index published Tuesday by Standard & Poor's. Prices have fallen in all 20 cities compared with last month and a year ago, and 14 of the 20 metro areas showed record rates of annual declines. For the original 10-city index, prices fell a record 19.1% in the previous 12 months. "The bear market continues; home prices are back to their March 2004 levels," said David M. Blitzer, chairman of S&P's index committee. He added that both composite indexes and 14 of the 20 metropolitan areas are reporting new record declines. As of October, the 10-city index is down 25% from its mid-2006 peak and the 20-city is down 23%, Blitzer said.

Though the pace of bombing appeared to slow on Tuesday, Interior Minister Meir Sheetrit told Israel Radio that at this point "there is no room for a ceasefire," according to news reports from the region. "The Israeli army must not stop the operation before breaking the will of the Palestinians, of Hamas, to continue to fire at Israel."

An estimated 300 or more Israeli airstrikes against Gaza Strip targets since Saturday have killed more than 360 Palestinians in a campaign meant to undercut Hamas and repress its ability to fire rockets into Israeli territory. Four Israelis have died from dozens of rockets fired by Hamas over the last four days.

Prime Minister Ehud Olmert said “the military operation is in the first of several stages” in a meeting today with President Shimon Peres, according to an e-mailed statement from the president’s office.

Defense Minister Ehud Barak said Israel would use all legal means at its disposal to stop the rockets and his deputy, Matan Vilnai, said Israel was prepared to fight for several weeks.

Refiners are taking steps to boost production of diesel fuel, which is expected to be in higher demand around the world in coming years, and moving away from the U.S.-centered gasoline business.

Specialty packaging company Chesapeake Corp. has filed for Chapter 11 bankruptcy protection and plans to sell itself to a group of investors for about $485 million. Chesapeake, which makes paper cartons and plastic containers for the health care, beverage and food markets, has been cutting jobs and realigning operations in an effort to foster growth and reduce costs. The company struggled earlier this year to complete a $250 million credit line with a group led by GE Commercial Finance Ltd. and General Electric Capital Corp. to refinance prior debt.

The Japan Automobile Manufacturers Association predicts auto sales in Japan will fall to 4.86 million in 2009 — the first time below 5 million in more than three decades. This year, sales are projected at 5.11 million, the worst since 1980.

"This is probably going to go down as the worst season in history as far as retail sales," said Victor Calanog, director of research for real estate research firm Reis. "The difficulty of ascertaining what the effect would be at the property level is because we're already heading toward a train wreck." Reis forecasts that the fourth-quarter mall vacancy rate could top 7 percent, the highest since Reis began tracking regional mall performance in the start of 2000.

It sees fourth-quarter mall rents falling by 0.1 to 0.4 percent.

All retail properties, not just large malls, may see their rents fall by an average of 3.5 percent in 2008 and 5.5 percent in 2009, according to Property & Portfolio Research.

Nouriel Roubini: "The United States will certainly experience its worst recession in decades, a deep and protracted contraction lasting about 24 months through the end of 2009. Moreover, the entire global economy will contract. There will be recession in the euro zone, the United Kingdom, Continental Europe, Canada, Japan, and the other advanced economies. There is also a risk of a hard landing for emerging-market economies, as trade, financial, and currency links transmit real and financial shocks to them....But the worst is still ahead of us. In the next few months, the macroeconomic news and earnings/profits reports from around the world will be much worse than expected, putting further downward pressure on prices of risky assets, because equity analysts are still deluding themselves that the economic contraction will be mild and short.

While the risk of a total systemic financial meltdown has been reduced by the actions of the G-7 and other economies to backstop their financial systems, severe vulnerabilities remain. The credit crunch will get worse; deleveraging will continue, as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, thus causing more price falls and driving more insolvent financial institutions out of business. A few emerging-market economies will certainly enter a full-blown financial crisis.

So 2009 will be a painful year of global recession and further financial stresses, losses, and bankruptcies. Only aggressive, coordinated, and effective policy actions by advanced and emerging-market countries can ensure that the global economy recovers in 2010, rather than entering a more protracted period of economic stagnation."

Angola is likely to reduce its February crude oil exports by about 13 percent from January following OPEC's agreement on supply cuts to help reverse falling oil prices, traders said on Tuesday.

Corporate profits probably fell by an average of 11.9% in the fourth quarter, according to data compiled by Bloomberg. That would be the sixth quarter in a row of falling profit, the longest declining streak in 20 years, notes Bloomberg. Bloomberg reports that analysts expect a total of 8 quarters in a row of declining profits before the worst is over, with profits down 10.3% in the March quarter and another 5.8% percent in the June quarter, before a 12.6% increase in the third quarter.

Yellowstone is jostled by 250 small earthquakes in three days, and no one knows why. Clearly, this is not business as usual.

Consumer confidence hit an all-time low in December, dropping unexpectedly in the face of layoffs and deteriorating markets for housing, stocks and other investments.

The Conference Board's Consumer Confidence Index fell to 38 in December from a revised 44.7 in November. Economists surveyed by Thomson Reuters had expected the index to rise incrementally to 45.

The separate Present Situation index, which measures how respondents feel about business conditions and employment prospects, fell to 29.4 in December from 42.3 in November. It is now close to levels last seen after the 1990-1991 recession.

"Deepening job insecurity and falling asset prices are outweighing any optimism consumers may have derived from falling gas prices," said Dana Saporta, U.S. economist at investment bank Dresdner Kleinwort.

“What we know about periods of asset deflation and credit contraction is that the impact on the economy tends to last for years not quarters,” David Rosenberg said, projecting housing is likely to contract through the end of 2009.

The Dow Jones Industrial Average gained 184 points, or 2.2%, to 8,668, with 28 of its 30 components advancing. The S&P 500 index rose 21 points, or 2.4%, to 890, and the Nasdaq Composite gained 40 points, or 2.7%, to 1,550.

Light, sweet crude for February delivery fell 99 cents to end at $39.03 a barrel on the New York Mercantile Exchange. In very thin trading, gold for February delivery dropped $5.30 to end at $870 an ounce on the New York Mercantile Exchange.

Late December and early January are typically when shoppers flock to the malls to spend their gift cards on discounted merchandise. This year, a lot of shoppers don't want sales. They want the cash.
"Consumers are obviously in dire straits economically and they're going to cash a lot of those cards in for cash, not necessarily goods," said George Whalin, a retail analyst with Retail Management Consultants.

Monday, December 29, 2008


12/29/08 Commodities

Gold for February delivery rose $12.10, or 1.4%, to $883.30 an ounce in electronic trading on Globex. Silver is up 5.2% to $11.08 per ounce.

The euro soared to a new record high against the British pound on Monday. The common currency advanced 1.7% to a high of 97.58 pence as it continues to head towards parity with sterling. The euro also rose sharply against the dollar, recently trading up 2% at $1.4302.

Light, sweet crude for February delivery rose $2.51 to $40.22 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. Natural gas is up 2.9% to roughly $5.98. In early trading, Corn, wheat, and soybeans have had strong upward moves.

Rob Hanna: "The market has performed 50% better following periods when is has been more gappy than average vs. times when it’s been less gappy than average."

Brett Steenbarger: "47% of S&P 500 stocks closed on Friday above their 20-day moving averages, but 63% of small caps.
Thus, while we've pulled back to a moderately overbought stance in the Cumulative Demand/Supply Index (top chart) and have also pulled back in the ratio of new 20-day highs to lows among NYSE issues (middle chart), these moves were muted. The low 900 area continues to serve as important resistance for the S&P 500 Index; a break above that level accompanied by strong sector participation and new high strength would be an important signal for longer-term bulls. We need to see new 20-day lows outnumbering new highs and a downturn in NYSE TICK and money flow to test range lows."

According to the WSJ, for a decade, Russian academic Igor Panarin has been predicting the U.S. will fall apart in 2010. For most of that time, he admits, few took his argument -- that an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S. -- very seriously. Now he's found an eager audience: Russian state media.
"There's a 55-45% chance right now that disintegration will occur," he says. "One could rejoice in that process," he adds, poker-faced. "But if we're talking reasonably, it's not the best scenario -- for Russia." Though Russia would become more powerful on the global stage, he says, its economy would suffer because it currently depends heavily on the dollar and on trade with the U.S.
Mr. Panarin posits, in brief, that mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces -- with Alaska reverting to Russian control.

House prices in Britain fell by nearly 9 percent in 2008.

More than 600,000 people in Britain will be laid off in 2009, making next the worst year for job losses in 18 years, a leading personnel group forecast on Monday.
The Chartered Institute of Personnel and Development's annual report predicted that, including people who lose their jobs for other reasons such as contracts ending, the country's economic slowdown will push 1 million more people into unemployment by the end of next year than were out of work in October of this year.
That would bring the total number of unemployed in Britain up to 2.8 million, and would make 2009 the worst year for job cuts since 1991, the institute said.

Dow Chemical is targeted to close on its $15.3 billion buyout of specialty chemicals maker Rohm & Haas early next year. Rohm & Haas shareholders approved the transaction on Oct. 29.
Late Sunday Rohm & Haas said the K-Dow joint venture is not a closing condition of its proposed acquisition by Dow Chemical.
Kuwait's decision to back out of a $17.4 billion joint venture with Dow Chemical Co. will likely force the company to re-negotiate its planned acquisition of Rohm & Haas Co., analysts said Monday. Rohm and Haas dropped 14 points to $48. Dow Chemical dropped 4 points to $15.

John Hussman: "As of last week, the Market Climate for stocks was characterized by favorable valuations, moderately unfavorable market action on the basis of broad internals, but continued improvement in “early” measures of market action. In bonds, the Market Climate was characterized by extremely unfavorable yield levels and moderately favorable yield trends, however, the depressed level of yields holds sway since bond yields at this point are vulnerable to very sharp reversals. Given the level of extension in yields, it would not be difficult for the bond market to generate losses of say 10% in the 10-year Treasury bond, and as much as 20-25% in the 30-year Treasury bond over a very short period of time. Straight Treasuries may have safety from default risk, but the price risk is becoming downright dangerous. Corporate yields are much more reasonable, but there will be more fallout in this sector, and as I've noted before, taking a significant position in corporate would be essentially like a “bottom call” in stocks, since corporate bonds tend to trade much like stocks during periods of elevated default risk."

The dollar dropped the most in more than a week against the euro and fell versus the Swiss franc on concern Israeli attacks on Hamas in the Gaza Strip will fan Middle East tensions and disrupt oil supplies to the U.S.

“The American economic slump is running into the Chinese economic slump,” says Derek Scissors, a research fellow at the Washington-based Heritage Foundation. “It's creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world's most important bilateral economic relationship.”

Italian business confidence fell more than expected to a record low as the worst recession since 1992 and the fallout of the 18-month long financial crisis hurt sales, prompting companies to cut output and jobs.
The Isae Institute’s business confidence index dropped to 66.6 in December from a revised 71.6 in November, the Rome-based research center said today. That was less than the median forecast of 70.6 in a survey of 15 economists by Bloomberg News.

Belgian banking and insurance group KBC said on Monday it expects a quarterly loss of 900 million euros ($1.28 billion) on credit portfolio writedowns.

Holiday sales are shaping up to be the worst in 40 years.
Retailers will close 12,000 stores in 2009, according to Howard Davidowitz, chairman of retail consulting and investment- banking firm Davidowitz & Associates Inc. in New York. AnnTaylor Stores Corp., Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.

In thin trading, gold for February delivery ended up $4.10 at $875.30 an ounce on the New York Mercantile Exchange.

In thin trading, light, sweet crude for February delivery rose $2.31, or 6%, to end at $40.02 a barrel on the New York Mercantile Exchange. Earlier, the contract had soared to an intraday high of $42.20 a barrel in electronic trading on Globex.

The Dow Jones Industrial Average fell 31 points, or 0.4%, to end at 8,483, with 25 of its 30 components declining. It earlier fell to a low of 8,364. The S&P 500 index fell 3 points, or 0.4%, to 869, while the Nasdaq Composite lost 19 points, or 1.3%, to 1,510.

Transocean had a good day up 2.2 points, U.S.Oil Fund rose 1.8 points, and the U.S. Natural Gas Fund up 1.1 points.

Hong Kong’s exports fell for the first time in five months in November, worsening the outlook for an economy already in a recession.
Overseas sales declined 5.3 percent from a year earlier to HK$231 billion ($29.8 billion), the government said today on its Web site, after gaining 9.4 percent in October.

The Chicago Fed's Midwest factory index dropped 1.6 percent to a seasonally adjusted 96.4, the lowest since January 1997, from a downwardly revised 98.0 in October. The October reading was originally reported at 98.6.
Compared with a year earlier, Midwest output was down 10.8 percent, worse than the 7.3 percent drop in national factory output previously reported by the Fed.

The Economy

12/27-28/08 The Economy

S&P 500 index down 40% in year to date. Nasdaq Composite down 41% in year to date. Dow Jones Industrial Average down 35% year to date.

Paul Krugman:"Long-term interest rates are higher than short-term rates, which is usually a sign that the economy will expand. Not this time, I’m afraid."

Alan Abelson: "There's a towering 11.2-month supply of unsold existing homes, or some 4.2 million abodes, and 11.5-month supply of new homes, or 374,000 units, hanging over the market. That's a heap of a mud pile that has to be cleared away before anything resembling a recovery in housing can begin."

According to The London Telegraph, Stephen King, HSBC's chief economist writes "On the basis of nominal GDP weights, we expect global GDP to shrink in 2009, an extraordinary development in the modern era."

Mike Burk: "2009 is the 1st year of the Presidential Cycle and the 1st trading day of the 1st year of the Presidential Cycle has been down every year since 1985, however, 1981, the last time the market was up, the 1st trading day of the year fell on a Friday as it does this year.
The S&P 500 (SPX) has been down every year on the last trading day of the 4th year of the Presidential Cycle since 1989 while the NASDAQ composite (OTC) has been up 3 out of the 5 final days of the 4th year, but with a negative average return.

Dissecting it this way, Tuesday is the only day for which there is much hope....Since 1963 the OTC has been up 67% of the time in January with an average return of 3.2% making it the best month of the year. During the 1st year of the Presidential Cycle January has been up 55% of the time with an average return of 3.9%, helped considerably by a 21% gain in 2001 (the best month ever for the OTC in a year when it ended down 21%) and a 13.5% gain in 1999."

GMAC wouldn't say on Saturday if it had met a midnight deadline to clear a final hurdle in its bid to become a bank holding company.

Crowds of thousands swept into the streets of cities around the Middle East on Sunday to shout down Israel's air assault on Hamas targets in the Gaza Strip.From Lebanon to Iran, Israel's adversaries used the weekend assault to marshal crowds out onto the streets for noisy demonstrations. And among regional allies there was also discontent: Turkey's prime minister, Recep Tayyip Erdogan, called the air assault a ''crime against humanity.'' Hamas security installations are targeted in retaliation for rocket attacks from Gaza into Israel; at least 225 Palestinians are killed, 400 wounded.

The bear market is dealing a double-whammy to retirement hopes. Not only is it crushing the value of 401(k) plans, it's also hurting pensions.

Pension plans among companies in the Standard & Poor's 500 index could end 2008 underfunded by a record $256.74 billion, according to S&P estimates. That would top the previous record of $218.51billion, set in 2002.

California's prices appear to be rising in response to problems, both real and potential, at two of the state's gasoline refineries.

A key piece of equipment at BP's major refinery in Carson (Los Angeles County) reportedly malfunctioned on Dec. 14, triggering a sudden jump in wholesale gasoline prices.

And on Monday, the owner of a Bakersfield gasoline refinery filed for bankruptcy. The refinery is still running, but its owner - Flying J of Ogden, Utah - reportedly didn't pay one of its suppliers last month. That spooked gasoline traders, said Brian Milne, editor of DTN MarketWire, a news service for the wholesale fuel market.

"This Flying J thing just makes everybody really nervous," he said. "People are worried about whether they'll continue with the supply."

About 200 Woolworths stores in Britain have shut their doors for good.

The stores that closed Saturday represent about a quarter of the company's shops. The rest of the stores are to close within about a week unless a last-minute buyer is found for the failed retailer. It filed for a form of bankruptcy protection last month.

About 27,000 people are expected to lose their jobs.

"There is no return to the time when the United States was the 'indispensable power,' " said Stewart Patrick, a former State Department official at the Council on Foreign Relations. "The world has moved on."

Kuwait's cabinet has cancelled a deal to form a $17.4B petrochemical JV with Dow Chemical. Kuwaiti TV says the government no longer sees any benefit from the deal as a result of the global financial crisis and its impact on the OPEC producer.

Hospitals, which employ 5 million people, are reporting that donations and investment returns are down, patient visits are flat and profitable diagnostic procedures and elective surgeries are declining as people with inadequate insurance delay care. But those patients are turning up later at ERs, seriously ill, making it tough for hospitals to lay off nurses and doctors.

All those problems are aggravating long-standing stresses: stingy reimbursements from commercial insurers, even-lower payments that generally don't cover costs for Medicare and Medicaid patients, and high labor and technology costs.

Adam Hamilton: "Global gold production is actually falling despite the relatively high gold prices. Annual gold mined today, which is 70% of the world’s supply, is running over 4% lower than when this bull began in 2001! Global reserves are also shrinking, despite vast sums being spent on exploration."

Venezuela will seize several gold mining concessions that previous governments granted private operators, in a bid to supplement falling oil prices with proceeds from state-controlled gold, President Hugo Chavez said Saturday.

Chavez named no specific contracts or companies to be affected, but his mining minister has vowed to next year take over the nation's largest mine, Las Cristinas, which is operated by Canadian mining company Crystallex International Corp.

Air New Zealand Ltd., the nation’s largest airline, said it doesn’t expect delivery of the first of eight Boeing Co. 787-9 aircraft until the first quarter of 2013, more than a two-year delay from the original due date.

Boeing yesterday confirmed the new delivery date which is 12 months later than indications given in April, Auckland-based Air New Zealand said in a statement sent to the stock exchange. The airline is in talks with Boeing over compensation, it said.

The MSCI Asia Pacific has slumped 45 percent in 2008, the worst annual performance in its two-decade history, as the most severe financial crisis since the Great Depression dragged economies worldwide into recessions.

PetroChina, China's top oil firm, has found more than 200 million tonnes, or 1.46 billion barrels of proven oil reserves this year in its Daqing oilfield, local media reported on Thursday.

Daqing, China's largest field by output, has also added 100 million tonnes of "controlled reserves" and more than 200 million tonnes of "prospective reserves" in 2008, Daqing Daily reported, sourcing Daqing Oilfield Company.

But it did not say whether the proven reserve figures had been endorsed by the Ministry of Land and Resources, which provides government certification of oil and reserve data.

Russian Prime Minister Vladimir Putin warned that a period of low natural gas prices is coming to a close. Mister Putin spoke at a meeting of the Gas Exporting Countries Forum in Moscow. The fourteen-member group includes Russia, Iran and Venezuela.

Currently, natural gas is transported through pipelines under long-term contracts. This limits the prices suppliers can charge. But the new process of liquefying natural gas may change that. Mister Putin said liquefied natural gas has become an expanding industry that requires new investment in processing centers.

Venezuela's Energy Minister Rafael Ramirez said the Gas Exporting Countries Forum will have more power over prices as the world market becomes more developed.

Michael Silver, Gartner tech industry analyst:"There is a very good probability of Windows 7 shipping early, in time for holiday sales in 2009," Silver says. "Strong sales of new PCs will allow Windows 7 to get off to a good start."

British children's clothing retailer Adams said Sunday it has taken a step toward filing for bankruptcy protection.

The 75-year-old company submitted court papers last week indicating it planned to appoint administrators. That is a preliminary step to going into administration, a form of bankruptcy protection. Administrators are appointed to salvage as much of the company as possible for creditors. Adams makes clothes for the retail chain Boots and also sells clothes through its own outlets.

Kuwait would drop into deficit at oil below $42 and Saudi Arabia at $50, according to Fitch Ratings.