Well, I guess it's time to start a recession watch topic...
I yelled in the wildrerness about the market, lending,
and debt pushing us in the direction. Now more and
more economicts, analysts and op-ed writers are
all moving toward a possible recession scenario.

So let me begin...

http://www.nytimes.com/2007/12/16/opinion/16tyson.html

Op-Ed Contributor
Bet the House on It

By LAURA TYSON
Published: December 16, 2007

THE economy faces a vicious downward spiral of foreclosures, declining property values and mounting losses on mortgage-backed securities and related financial assets.

The resetting of interest rates on more than 2 million subprime loans will prompt a large number of foreclosures, perhaps a million a year in both 2008 and 2009. These huge waves of foreclosures will depress the price of residential real estate still further. Plummeting real estate values and escalating foreclosures will cause further losses on mortgage-related securities and will further burden American consumers already dealing with higher energy prices and substantial debt.

Given the dampening effects of these developments on both consumption and investment spending, it is increasingly likely that the economy will slip into recession next year. The Federal Reserve should continue to cut interest rates and to experiment with new ways to pump liquidity into the financial system.

The Bush administration’s plan for a voluntary freeze by lenders on interest-rate resets for a small fraction of subprime loans has been judged inadequate by the financial markets. Bolder measures — a temporary moratorium on foreclosures on subprime owner-occupied homes, a freeze on interest rate resets for subprime adjustable rate mortgages, and federal funds to help at-risk borrowers to stay in their homes and at-risk communities to reduce foreclosures — are required to contain the potential damage to the overall economy from the crisis in the housing and mortgage markets.

— Laura Tyson, a professor of business and public policy at the University of California, Berkeley, and the chairwoman of the Council of Economic Advisers from 1993 to 1995.

----------------------
http://www.nytimes.com/2007/12/16/business...ml?ref=business

Market Week
Minding the Rate Gap


By CONRAD DE AENLLE
Published: December 16, 2007
YOU may not know what Libor is, but your mortgage rate could be tied to it.
Over the next week or so, the value of your stock portfolio could depend on it as well.

Libor — the London interbank offered rate — is the rate at which banks around the world make short-term loans to one another. The Libor for three-month loans is usually close to the federal funds rate, the target set by the Federal Reserve for overnight interbank loans. Lately, though, the three-month Libor has carried a substantial premium. It was 4.97 percent on Friday, well above the Fed funds rate of 4.25 percent.

The discrepancy is bad news for investors, warned Ed Yardeni, president of Yardeni Research. It hits us where we live, for one thing. Many adjustable-rate mortgages are pegged to the Libor, either the three-month rate or the rate for another period. So when Libor rates stay high or rise, so do home payments. That could deepen and prolong the trouble in housing and mortgage markets.

The spread between the Libor and the Fed funds rate is a measure of liquidity — how much money is coursing through the financial system. It is also a sign of how creditworthy banks consider other banks. The comparatively high three-month Libor means that “banks probably don’t trust one another and are hoarding capital,” Mr. Yardeni said.

A more ominous message may be found in the failure of the Libor to decline appreciably after central banks around the world announced last week that they would join forces to make credit more easily available to banks. If the rate does not fall markedly this week as the plan is put into effect, it could signal a continuation of the credit crisis that has gripped the markets for much of the year and spell fresh trouble for stock prices, Mr. Yardeni said.

“The markets would love to see some clear signs in Libor and the money markets generally that this action by the central banks is working,” he said.

DATA WATCH Further evidence of weakness in the housing market is anticipated Tuesday, when building permits and housing starts for November are reported. A Bloomberg News poll of economists forecasts steep declines in both.

More auspicious numbers are expected on Friday, when personal spending and consumption data is released for November.

http://www.marketwatch.com/news/story/spec...p;dist=hplatest

NEW YORK (MarketWatch) -- After a record-smashing year with oil peaking at $99 a barrel in 2007, a triple-digit world of crude oil awaits in the coming year, energy experts say.

Trading below $51 a barrel less than 12 months ago, crude prices hit their first in a fusillade of all-time highs in July and never looked back.

While some blame the frothy crude market on speculation rather than the simple rules of supply and demand, the only force that managed to slow prices down at all this year was fear of an economic slowdown, as oil fell below $90 a barrel just weeks after hitting a record.

But as the U.S. Federal Reserve cut interest rates and moved to inject liquidity into the financial sector, oil prices have been creeping back as 2007 draws to a close. With its price spiking so quickly, the impact of record crude has yet to fully filter through the economy, but that's expected to change next year.

Gasoline prices, which have held at about $3 a gallon for much of the year, could rise to about $4 a gallon in the new year, for example.

"We think $100 per barrel oil is on the horizon in 2008, perhaps in the Spring," said Brian Hicks, co-manager of the Global Resources Fund.
--------------------

Plug in $4 a gallon gasoline next year while purchasing power slips and loan availability slides...
you had better be on a motorcycle y'all...price a Harley Davidson. It's American...parts and labor...at 45 mpg city and
55 mpg highway...parking easy and traffic navigation supurb. Accelleration beats Corvettes and BMW. Ride to live.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Feldstein Says U.S. May `Easily' Slip Into Recession (Update1)

By Kathleen Hays and Vivien Lou Chen

Dec. 14 (Bloomberg) -- Harvard University economist Martin Feldstein, head of the group responsible for dating U.S. economic cycles, said there may ``easily'' be a recession next year if consumers cut spending amid sliding home values.

``I would put it at about 50 percent,'' Feldstein, head of the National Bureau of Economic Research, said in an interview today when asked about the chance of an economic contraction. The risk ``clearly has been increasing,'' he said.

There's a danger of the U.S. falling into ``stagflation,'' with gross domestic product shrinking and inflation increasing by around 3.5 percent, Feldstein said. Government figures today showed U.S. consumer prices in November rose the most in more than two years on higher energy, clothing and rent costs.

``We are looking at a slightly higher inflation rate than we want,'' Feldstein said. Still, ``we are not back to the very high inflation rates we had in the late 1970s,'' adding that whether the U.S. is heading for stagflation ``depends on how you want to define it.''

The U.S. economic expansion, which began in 2001, is cooling after a third-quarter surge as the housing slump enters its third year and consumer spending slows. Former Federal Reserve Chairman Alan Greenspan and ex-Treasury Secretary Lawrence Summers are among those raising the prospect of a recession.

``The consumer is key to all of this,'' Feldstein said. If consumers significantly increase savings or reduce their spending, ``then we could easily be pushed into a recession.''

Tax Cuts

The Federal Reserve's decisions to lower interest rates and pump billions of dollars into the banking system may not be enough, and the U.S. will need fiscal stimulus, such as temporary tax cuts, if the economy remains weak next year, he said.

``The Fed is trying to get around what is a very difficult situation, where credit markets are not working in a normal way,'' Feldstein said. ``But I think the Fed policy tools are limited.''

Fed policy makers lowered their benchmark rate by a quarter-point on Dec. 11 to 4.25 percent, the third cut since September, disappointing some investors who had expected a half- point reduction. The next day, the Fed, European Central Bank and three other central banks moved in concert to alleviate the credit squeeze.

The dollar was helped by the Fed's coordinated plan and interest-rate cut. The U.S. currency's gains this week pared its loss this year to 8.5 percent against the euro.

``It needs to come down substantially further in order to shrink our trade deficit,'' Feldstein said. ``And that's good news for the U.S. economy in 2008. If the economy is going to have strength, a lot of that strength is going to have to come from our net exports.''

The biggest problem here is that 70% of US GDP comes from CONSUMPTION, and much of the items consumed come from China. Therefore, as people are no longer able to use their houses as an ATM machine, they will have to CUT BACK buying all those things, and that most certainly will cause a drop in GDP.

Maybe if we had exported goods instead of JOBS we would not be in the spot we are now in.

It's the perfect Hurbert Hoover (Republican) storm,
the rich get richer and the rest of us slip...while Bush
(and Romney, Guiliani and McCain) sell war...yes consumers make
up 70% of GDP and when prices go up...consumption goes down.

http://money.cnn.com/2007/12/14/news/econo...sion=2007121410

Prices jump more than expected
Higher gasoline prices bring big jump in overall prices,
larger rise in core prices than forecast.

By Chris Isidore, CNNMoney.com senior writer
December 14 2007: 10:05 AM EST


NEW YORK (CNNMoney.com) -- Prices paid by consumers rose faster in November, lifted by a spike in the price of gasoline, as the government's key inflation measure came in higher than Wall Street forecasts.

The Consumer Price Index, the key measure of inflation on the retail level, rose 0.8 percent in the month, up from the 0.3 percent rise in October. Economists surveyed by Briefing.com had forecast a 0.6 percent rise in overall prices.

It was the biggest jump in prices since September 2005, when gasoline prices surged higher in the wake of Hurricane Katrina. There was a similar impact of higher gasoline prices this time.

The report showed overall energy prices up 5.7 percent, with gasoline up 9.3 percent. In addition food prices, another recent driver of inflation, were up 0.3 percent.

The Fed's tightrope act

The so-called core CPI was up 0.3 percent, even though that more closely watched measure strips out the volatile food and energy prices. Economists had forecast a 0.2 percent rise, which was the same increase posted in October. Among the core items seeing prices jump was clothing, where prices jumped 0.8 percent, and medical care, which rose 0.4 percent. It was the largest one-month jump in apparel prices in more than nine years.

Housing also posted a 0.4 percent increase despite widespread reports on home value declines because the report does not measure owner-occupied home prices to estimate this cost. Instead it uses a formula based upon rents.

The core CPI is now up 2.3 percent in the last 12 months, up from a 2.2 percent 12-month gain in the previous report. The Federal Reserve is generally believed to want to see core prices rise 1 to 2 percent a year, so an increase outside of its so-called comfort zone would seem to reduce the chance that the Fed will make further rate cuts soon.

The Fed has cut rates at its last three meetings, citing the risk of an economic slowdown created by problems in the housing and credit markets. But the last cut on Tuesday was a quarter percentage point, when many investors were expecting a half-point cut, and stocks went into a sharp decline after that announcement. U.S. stocks opened sharply lower Friday on the latest inflation reading.

The chance of another quarter-percentage point interest rate cut in January, as predicted by the fed funds futures, fell to 84 percent after the CPI report, from 100 percent before the report.

"No wonder Feddies cite inflation risks," said economist Robert Brusca, citing the statement the central bank released when it trimmed interest rates Tuesday. "Still the economy is weak so we'll see what they do."

Gus Faucher, director of macroeconomics for Moody's Economy.com, said he believes the price jump in Friday's report is not something the Fed needs to worry about, given the the impact volatile oil prices had.

"I don't expect to see much pass through to core CPI," he said. "With economy remaining soft, I don't think we have to worry about businesses raising prices much."

But Rich Yamarone, director of economic research at Argus Research, said there is much more growth and underlying core inflation than has been assumed by many economists. He said many companies in consumer products, food and air travel have been announcing price increases due to a combination of higher costs and continuing high demand for their product.

"All those price hike announcements we saw in the last three, six or nine months are now coming home to roost," he said. "These reports are not coming in on softer side, they're all coming out much stronger than expectations. Consumers are continuing to spend money. It should diminish the chance of a recession, not increase it."
----------------------

I have no idea where that last sentence came from, except I now
understand why they call them "bulls", because they are full of B.S. They still want
the Fed to cut interest rates to banks and investors, those greedy, selffish SOBs.

http://www.rgemonitor.com/blog/roubini/233120

Nouriel Roubini's Global EconoMonitor

Central Banks Are Getting Desperate
in Dealing with the Liquidity Crunch
and Resorting Again to Stealth Reductions in Policy Rates

Nouriel Roubini | Dec 18, 2007

...
Of course, as it has been argued in this forum since last August when the crunch first emerged, this severe liquidity crunch would get worse rather than better, is due not to illiquidity alone but also to insolvency, widespread lack of trust and counterparty risk, un-measurable uncertainty, wrong incentives and information asymmetries in financial markets and the existence of a shadow non-bank financial system where you have a huge number of non-bank financial institutions that are severely illiquid and do not have direct or indirect access to the Fed’s open market operations, discount window, auctions and other forms of lender of last resort support. This crisis represents the first crisis of financial globalization and is the most severe financial turmoil hitting advanced economies in the last twenty years. But central banks are treating this liquidity and credit and solvency crisis and crunch as if it was a run-of-the-mill mild liquidity crisis – like the one that occurred during the near collapse of LTCM.


And the central banks – the Fed in particular – have been behind the curve for over a year now. The Fed totally underestimated the housing recession arguing – like most market folks – that this was a temporary slump that would bottom out by the end of 2006 (sic!); it kept on saying throughout the winter of 2006 that the sub-prime problem was a niche and contained problem when it was not just sub-prime mortgages but also near prime and prime and excessive and reckless lending and leverage across the entire financial system; it kept on arguing that the housing slump would not affect other sectors and would not lead to a more severe economic slowdown that is in full swing now; it underestimated the risk of broader contagion to the financial system and ended up being literally surprised when the liquidity and credit crunch hit in the summer time; it then it deluded itself in believing that this crunch was temporary and that Fed easing would resolve it; and it was then surprised (as Kohn admitted in its last speech) when the crunch got worse rather than better in the fall and has now gotten much worse than in August. So, the Fed has been persistently wrong for over a year now in its assessment of the economy and of financial markets.


As argued here liquidity palliatives and band aid will not work. Certainly at this point monetary policy will have very limited ability to prevent the hard landing that the US is now experiencing and a severe global economic slowdown as we are now paying the price for the credit excesses, the asset bubbles, the reckless leverage, the lack of minimal appropriate supervision and regulation of financial markets of the last few years. A sharp recession is unavoidable and necessary to cleanse the financial system and the economies from such excesses.

But the failure of central banks and the Fed to provide the appropriate diagnosis and prognosis of the crisis and now their failure now to provide enough monetary policy easing to reduce the collateral damage on the real economies of the fallout of the bust now of the biggest ever credit house of cards is worrisome. Monetary policy easing will not avoid the necessary recession and massive financial losses that will be experienced by economies and financial markets regardless of what monetary authorities do now.

This forum was the very first to argue over 17 months ago in August 2006 that this was a solvency crisis - starting with subprime and housing but bound to spread to the entire financial system - and that a recession would be unavoidable by 2007. But arguing now that a harsh medicine of monetary tightening (keeping policy rates on hold or even raising them) is the bitter and painful medicine that markets and investors need to ensure the appropriate fall of asset prices, the appropriate deleveraging of the financial system, and the appropriate and unavoidable losses is – in my view incorrect. That severe fall in asset prices, that deleveraging and reintermediation in the banking system of off-balance sheet and off-banking intermediation, those massive losses in the trillion dollar range will occur regardless of how much monetary policy easing occurs now. What central banks should worry now is the risk of a global recession; and this requires lower policy rates, not temporary monetary injections and stealth reduction in policy rates and manipulation of market rates. The time for fixing the international financial system, reforming regulation and supervision, reducing moral hazard, dealing with the mess of securitization, avoiding another asset bubble will come once the collateral damage to real economies is reduced. You don’t withhold liquidity during a five-alarm fire because of the moral hazard of fire insurance or the collateral damage to a building of excessive use of water.


Thus, I respectfully disagree with the very serious and intelligent arguments made recently by many thoughful analysts (most recently Rogoff today in the FT) that central banks should not ease as this will prevent the necessary adjustment and may cause future bubbles, more moral hazard and future inflation; these are legitimate and sensible concerns but confuse the appropriate policy response in the short run versus the medium term. Those necessary real and financial adjustments will occur regardless of that monetary easing today; and the way to prevent future excesses, bubbles and manias is to eliminate the monetary easing as soon the collateral damage to the real economies is minimized and to introduce appropriate regulation and supervision of a financial system that has run amok.
...

9am EST Update: Today's monster monetary injection by the ECB (European Central Bank) ended up being even larger than expected, amounting to 348.6 billion euros (or about $501 billion). The two-week Euribor fell a record 50bps to 4.45%. But in spite of this massive intervention it is still 45bps above the 4% policy rate of the ECB; so even with this unprecedented intervention the ability of the ECB to unclog the money markets has been only partially successful. Also note that three-month euribor rate fell 7 basis points to 4.88 percent but it is still 88bps above the 4% policy rate. Thus, while a massive injection of liquidity of $500 billion partially reduced the crunch at a short term maturity of two weeks - the one that covers the year end "turn" it has done little to nothing to deal with the liquidity crunch at a 3 month horizon. And the fact that the two week euribor is still a stubborn 45bps above the policy rate - in spite of an added $500 billion of liquidity - means that the liquidity crunch remains severe among non-bank financial institutions - SIVs, money market funds, investment banks, hedge funds - and a variety of non-depository institutions that do not have accesss to the ECB (and Fed's) open market operations and auctions. If $500 billion of extra liquidity is not enough to reliquify money market what will take to do that? Possibly nothing as monetary policy cannot address credit and insolvency problems and the deep lack of trust of counterparties that are at the core of this credit - not just liquidity - crunch.

-----------------------------

At least that's a European's take on our situation...which makes some sense IMO.

http://www.nytimes.com/2007/12/20/business/20bond.html

Bond Insurer Cut to Junk; Negative Outlook for 4

By VIKAS BAJAJ
Published: December 20, 2007

Citing deepening problems in the mortgage market, Standard & Poor’s cut the rating of one troubled bond insurer on Wednesday and assigned a negative outlook to four other companies that guarantee debts linked to home loans.

The announcement shook an already unsettled credit market, signaling that investment banks and others that had thought they were protected from rising foreclosures might not be immune from all losses. Investors bid up Treasury debt, a refuge in troubled markets, and sold shares in bond guarantors and some investment banks.

In another indication that credit markets remained unhinged, the Federal Reserve said that its auction of $20 billion in short-term loans to the banking system drew 93 bids, seeking more than three times the amount available. Banks have become increasingly reluctant to lend to each other in the last few weeks, prompting the Fed to use new methods to lend directly to the banks.

The biggest impact of the S.& P. announcement was felt by investors who had bought protection from the ACA Financial Guaranty Corporation, whose rating was cut to CCC, a subinvestment grade, from an A rating. Merrill Lynch, the Canadian Imperial Bank of Commerce and several other investment banks could be forced to acknowledge billions of dollars in losses on securities that they insured through ACA.

S.& P. affirmed AAA ratings for MBIA, Ambac, XL Capital and Financial Guaranty Insurance, but assigned a negative outlook to them. And it left unchanged the ratings of five other bond insurers.

Later in the day, ACA said it had reached an agreement with its clients that would put off until Jan. 18 a requirement that the company post about $1.7 billion in collateral to cover future losses if its rating fell below A.

It said it would use the next month to come up with a more lasting solution to its financial problems, which could include raising new capital. It could also renegotiate the terms of its insurance contracts for a longer period.

The temporary agreement is a result of negotiations involving several banks that bought insurance from ACA, like Merrill and C.I.B.C. The talks have also involved Bear Stearns, whose merchant banking affiliate owns 29 percent of ACA.

It is unclear how much money ACA would have to raise and where it might turn for such an infusion. An S.& P. analysis indicated that ACA’s portfolio of insurance contracts, also known as credit default swaps, could show losses of $2.2 billion above the $650 million it is capable of handling.

ACA has insured about $26 billion in mortgage-related collateralized debt obligations, some of them considered at high risk of loss as more homeowners fall behind on payments and end up in foreclosure. ACA typically makes up interest and principal payments to investors like Merrill Lynch if losses in C.D.O.’s they hold rise above certain thresholds set in the terms of their contracts. (ACA said Wednesday that the AAA-rated C.D.O.’s it had insured continue to carry the top rating.)

A spokeswoman for Merrill declined to discuss its exposure to ACA, but some analysts have said that it may have to write down as much as $3 billion if ACA fails. Shares in Merrill declined 78 cents on Wednesday, to $54.73.

C.I.B.C. has been the only bank to publicly acknowledge its exposure. In a statement released before the temporary arrangement was announced, the Canadian bank said there was a “reasonably high probability” that it would have to write down mortgage securities it had insured with ACA, suggesting that the charge could total up to $2 billion. C.I.B.C. fell $1.83 in New York, to $70.60, its lowest close in more than a year.

Shares of ACA Capital Holdings, the insurer’s parent company, which has been delisted by the New York Stock Exchange, were trading at 65 cents on over-the-counter markets; they had been as high as $1 early Wednesday after The New York Times reported that investment banks were discussing aid for the company.

The S.& P. move left credit market investors with little comfort about the safety of mortgage securities, particularly those linked to home loans made to people with blemished, or subprime, credit. Many investors are counting on bond insurance to protect them from losses, and others have used credit protection contracts to bet that the housing market will weaken further.

-----------------------------------

THE DOMINOS KEEP FALLING...

http://www.forbes.com/home/markets/2007/12...0markets16.html

Market Scan
Bear Stearns: Worst Quarter Ever!
Evelyn M. Rusli, 12.20.07, 1:55 PM ET

Wall Street was braced for a quarterly loss at Bear Stearns on Thursday, but the extent of the firm's first quarterly deficit since it was founded in 1923, far surpassed expectations. The poor results will cost Bear's top brass their 2007 bonus payments.

As with its competitors--other than Goldman Sachs (nyse: GS - news - people )--the root of Bear's troubles was the global debt crisis, which was routed in the U.S. subprime mortgage market. Bear was an early victim, shocking the Street in July when two of its major hedge funds collapsed.

On Thursday, The brokerage said it suffered a loss of $859 million, or $6.90 a share, for its fourth quarter, which ended Nov. 30, down from a profit of $558 million, or $4.00 a share, for the year-ago period. The firm also announced $1.9 billion in additional write-downs as it recalculated the value of its battered portfolio.

The results shocked Wall Street, where analysts--whose track record at predicting earnings in their own industry leaves something to be desired--were looking for a loss of just $1.79 a share. According to the Associated Press, no one in the analyst pool predicted a deficit greater than $2.45.

Shares of Bear Stearns (nyse: BSC - news - people ) fell 50 cents, or 0.6%, to $90.10 in early afternoon trading.

The profit report comes just one day after Morgan Stanley surprised the Street with a steep quarterly loss and $9.4 billion in write-downs. The rapidly depreciating value of mortgage-related assets and the general turmoil in the credit markets has punished Wall Street's power houses.

In a mea-culpa moment, Morgan Stanley's Chief Executive Officer John Mack said he would not accept a bonus this year. Bear Stearns followed suit. Senior executives, including CEO James Cayne, will also go home without bonuses for 2007. Like Mack, who expressed his disappointment in the fourth-quarter numbers, Cayne told investors that he was not pleased with the results.

"We are obviously upset with our 2007 results, particularly in light of the fact that weakness in fixed income more than offset strong and, in some areas, record-setting performance in other businesses," said Cayne. "Our underlying fixed-income franchise remains strong and we have taken steps to size the division to market conditions." He added, "In a year in which we produced unacceptable results, the plans are working as they were designed -- and the members of the executive committee will not receive any bonuses for 2007."

In the troubled capital markets division, which includes fixed-income, the company said it experienced a loss of $956 million. The fixed-income unit alone lost $1.5 billion in the quarter. "Results for 2007 were heavily influenced by the severe market conditions across the fixed-income sector. More broadly, the repricing of credit also led to significantly lower net revenue levels due to illiquidity in the markets as trading activity levels deteriorated across the spectrum of fixed income products," the company said. The unit recorded $1.9 billion in recorded write-downs for the period, which is larger than the previous estimate of $1.2 billion, the company released in November. However, before hedges, the company actually suffered $3.2 billion in write-downs, said Bear's Chief Financial Officer Sam Molinaro in a conference call, according to Reuters. During the period, Bear Stearns unwound the remainder of its collateralized debt obligations, or CDOs.

The company's investment banking unit (another section of the capital markets division) also underperformed. Investment banking sales fell 44% to $205 million, from $364 million, due to lower fees for underwriting services. Elsewhere, the company's equity trading business saw sales fall 11% to $384 million, from $430 million.
----------------

Everyone but Goldman topples...and Goldman was the only one to predict the sub-prime debacle...

Even though it grabs the headlines (but then so does Britney Spears), the sub-prime problem is relatively small compared to the dollar value of non sub-prime loans. Perhaps half of the homeowners in the US own their homes outright, or have a nearly paid off mortgage taken out 20 years ago.

Sure, a lot of people who could NOT get a FHA approved loan to buy a house they had no business even viewing, took the bait and are in trouble. Well, they will probably lose their house, but they got to live in it a while even though that should never have been allowed.

The people getting screwed right now are the ones who somehow ended up owning financial instruments that contain these CDOs which have been sliced and diced and repackaged so many times by the slicksters on Wall $treet.

Problem is that nobody know the magnitude of these worthless CDOs or how far they have traveled. The EUB just injected 500 Billion Dollars into the EU banks. That makes our FED look like pikers.

The only thing Wall $treet hates worse than bad news is uncertainty.

And we will have uncertainty for the better part of a year.

We had better get used to it.

I'm not worried about my fixed 30-year (about 16 left) fixed rate mortgage,
or most homeowners, it's the ripples (waves?) created by the sub-primes
that keep licking up on the shore....to that end:

http://www.reuters.com/article/bankingFina...022611120071221

MBIA Details Huge Mortgage Exposure, Shares Collapse
Fri Dec 21, 2007 3:03am EST

By Walden Siew

NEW YORK (Reuters) - MBIA Inc, the world's largest bond insurer, said it had guaranteed $8.1 billion of the riskiest mortgage securities, imperiling its entire net worth and sending its shares plunging 26 percent.

The company said it had guaranteed $30.6 billion of complex mortgage securities in total. The disclosure threatens to set off a chain reaction that could lead to larger write-downs at Wall Street banks.

"We are shocked that management withheld this information for as long as it did," Morgan Stanley said.

"This new disclosure completely changes our view of MBIA being a 'more conservative underwriter' relative to Ambac," the second-largest bond insurer, said a Morgan Stanley report co-written by analysts Ken Zerbe and Yoana Koleva.

MBIA's stock fell to a 13-year low on Thursday in its biggest one-day decline ever, bringing its total drop this year to more than 70 percent. The stock, which closed at $19.95 on Thursday, had hit a record high in January.

The cost to insure MBIA bonds also soared to new records.

MBIA is most vulnerable to guarantees on $8.1 billion of collateralized debt obligations, or CDOs, most of which includes the riskiest debt known as CDO squared, or CDOs backed by other CDOs. MBIA detailed its exposures on its Web site late on Wednesday. The company's net worth as of Sept. 30 was $6.5 billion.

MBIA said in a statement late on Thursday that the CDO squared exposures were discussed with investors on a conference call on August 2, and the information was also made available to rating agencies Moody's Investors Service, Standard & Poor's and Fitch Ratings.

No doubt about it, IH.

But the ripples will be smaller than everyone thinks because even though some INDIVIDUAL corporations will be going broke, mainly bond insurers who labeled the CDOs as AAA, I don't think GE, EXXON, or other Fortune 500 Cos will disappear.

I think that the problem is bigger in Europe as witnessed by the HUGE 500 Billion dollar injection by the ECB this week. The FED has ponied up 40 bil so far.

I agree mega-corporations will survive - The Great Depression is proof of that - and all I expect is a recession. It's also my understanding that bids were placed for more than the $40 billion pool, and only the highest were taken to that limit...the fed is to have two more auctions in January.

January...when more chickens come home to roost with holiday credit card bills...see the thread "Debt: the forrest..." I'm about to post someting on credit card debt...

I'm not a total gloom-and-doomer, but I feel like if the US doesn't face this debt disease we could make it a lot worse than it has to be. The way we have come to casually accept huge debt - consumer debt, business debt and government debt - worries me...and thus, I am being careful with mine and closely monitoring the institutions in which my few funds reside. It seems people (Cheney and the neo-cons foremost) think all the government has to do is print more money...and I believe you have a good understanding of where that leads. IMO debt is the engine that will drive the devaluation Desoto.

Not so sure.

After all, this is BushWorld.

BushCo controls all the world's oil (except for those annoying twerps Venezuela and Russia). And the BushCo mercenaries will kill you if you don't use US dollars to pay for that oil.

And BushCo prints those dollars.

Look for an INCREASE in the world price of oil during 08. That will sop up those extra few trillion greenbacks that the FED has printed.

It;s a new world odor.

It's BushWorld - - a parallel universe, running alongside of reality.

Check,
check (and laugh)
check.

The parallel universe is running...stocks soar, consumer (credit) spending up, inflation (reality) up. (see market talk thread today)

Except what I was taught was that eventually all consumer (and govt and federal) debts would come due and have to be paid off.

In Bushworld, that is no longer true because of the OIL factor, which is very likely to be the dominant factor in global development for the next 50 years.

And that is a long time.

So the "old-time" strategy of keeping one's books straight could be a loser in BushWorld.


I need to go back to school.

Jeffmo -----

Q. 1 - Where do you think Bush needs to go?

Q. 2 - What do you think is likely to happen, ( economically ) in 2009, when Bush is finally and mercifully gone ? )

A.B.

A. 1- You know my answer to that one already.

A. 2 - I think that high-priced oil is the short and medium solution to the sad situation America now finds herself in. We have turned into a nation of overweight consumers who drive gas guzzlers. Not a pretty sight, IMHO. And we are not educating our kids the way we used to. And the ones smart enough to get into a good college now graduate with a diploma and $100k in debt.

Oil will be as essential to China and India as water and air are to life. And even though I deplore the way Bush did it, the Anglo-American oil companies are now in a position to guarantee world domination for at least 50 years.

This is not entirely a bad place to be, if you are an American or a Brit. If you are Chinese or Indian, it means you will have to work harder to be able to pay for the oil you need (with our dollars, of course, which we print for 2.3 cents per 100 dollar bill), while we have mainly given up work, except as it applies to the work of high finance (for the rich) and flipping burgers (for the poor).

My crystal ball for 2009 sees oil at or above $100 a barrel. I see BushCo pulling out some troops (but we will never know whether he added some replacements in secret will we) from Iraq, but there will be contractors there in the 14 enduring bases for the next 25 to 50 years. Iraq swims on a sea of cheap oil, and the Western economies are all based upon the US Dollar as a global reserve currency. The coin of the realm. Therefore, since oil is the only think that Euros cannot buy, BigOil will be very happy to keep that oil in the ground while it goes hunting for deep-water oil. It makes no sense, you might say, but it is the only way to keep the dollar from going the way of the Argentine Peso.

And nobody wants to see that happen.

Keep the oil, I'll take air and water and walk.
I guess it's a Louisiana thing. Eat, drink, breath and dance.
But what do I know...the land...that's all. Bella terra.
I'll blouse my boots, wet-stone my knife, and watch
jesters play out...best of luck to the concrete cowboys.

I cut collard greens today and gave them away...poor folks ya know.
Brokers don't grow anything...while they claim they grow investments.
Investments that grow are called seeds.

"And I dreamed I saw the bombers
Riding shotgun in the sky
And they were turning into butterflies
Above our nation
We are stardust
Billion year old carbon
We are golden
Caught in the devil's bargain
And we've got to get ourselves
Back to the garden"
- Joni Mitchell, Woodstock

Wall Street wouldn't understand...

Wall $treet only understands money and greed.

http://uk.reuters.com/article/stocksNews/i...A72948120071227

COLUMN-
U.S. holiday spending raises recession flag
Thu Dec 27, 2007 8:24am GMT
By James Saft

LONDON (Reuters) - U.S. consumer spending in the crucial holiday period looks weak, upping the chances that the credit crunch tips the economy into recession.

Americans spent less in stores the week before last compared to a year ago for the third week running. More of them say they will spend less this year, while fewer say they will spend more.

Little wonder. The seemingly unsinkable American consumer is weighed down by debt, has seen the ATM machine they call home shrink in value and is now finding loans are harder to come by.

With consumer spending accounting for about 70 percent of U.S. gross domestic product, the stakes this Christmas couldn't be higher.

Sales in the week ending December 15 fell 0.4 percent from a year earlier, compared to falls of 2.7 percent and 4.4 percent the two weeks before, ShopperTrak RCT said on Wednesday.

A National Retail Federation survey released on Tuesday found that a third of shoppers intend to spend less this year, up from 29 percent who were cutting back a year ago.

Only 16.4 percent of shoppers plan plan to spend more this December, down from the 20.4 percent planning an increase last year.

MasterCard data released over the weekend showed sales have slowed steadily since the Thanksgiving weekend.

While shoppers may have been stymied this month by a winter storm, the more likely explanation for the muted December is that gasoline at more than $3 (1.50 pounds) per gallon is combining with the most widespread housing slump in more than a generation to dampen demand.

To understand why the outcome of consumer spending is both important and a likely source of recession you need to understand just how deeply indebted they have become.

U.S. household debt hit $14.2 trillion in the third quarter, or a record 138 percent of household disposable income, up from 113 percent in 2002.

"People don't realize how far expenditure is above income. Each year the consumer needs to increase its debts by the equivalent of 4 percent of GDP just to keep that level of that expenditure (consumption plus investment) the same," said Albert Edwards, global strategist at Societe Generale Cross Asset Research.

"With the current imbalance between spending and income, debt carries on ballooning upward just to keep expenditures the same. If the rate of borrowing falls back a bit, expenditure falls back very sharply."

If this marks a turning point for the consumer debt cycle, the impact will outstrip that of the credit crunch, not to mention providing another push to the self-reinforcing cycle.

BREAKING OPEN THE RETIREMENT SAVINGS PIGGYBANK

But why now? Americans have kept on spending through other tough periods, and indeed betting against them has historically been a losing proposition.

What is key now is that the main asset against which Americans borrow has declined in value at the same time that borrowing has become much more difficult.

The S&P/Case-Shiller national index is down 4.5 percent for the year to November, and many analysts are predicting bigger falls in the coming year. American's equity in their own houses declined by $128 billion in the third quarter, according to Federal Reserve data.

And banks are less willing lend against that dwindling equity. Home equity lines of credit and other mortgage loans are now harder to get and more expensive, due in part to a higher level or perceived risk by banks but also because of the effective shutdown of the global securitized debt markets.

With few other options for ready cash, a growing number of Americans are breaking into their retirement savings, according to a survey of chief financial officers by Duke University and CFO Magazine.

It showed that nearly a fifth of CFOs have seen an increase in those seeking "hardship" access to their retirement accounts, with 45 percent of those using the money to make mortgage payments.

"I'd be very surprised if we were not in recession by the first half of next year," said Edwards of SocGen.

"In fact, I'd be astounded."

...
Incredibly, 40 percent sought to break their retirement piggybank to allow "non-emergency" spending.

Given that these withdrawals incur a ten percent penalty tax it's not "something people do lightly," said John Graham, a finance professor at Duke.

With this as a backdrop the soggy holiday sales figures make more sense.

Retailers in the U.S. are hoping that a last minute rush this weekend saves the day.

If consumers do hang in there the U.S. may escape recession, but if not it does look likely.

---------------------

When the markets lose dramatically investors slow
investing, for for the masses of us it's housing
because that is our largest investment.

That's why housing prices dropping scares the heck out of economists...

---------------------
http://business.theage.com.au/bracing-for-...71228-1j81.html

Bracing for a US crunch
Ruth Williams
December 28, 2007

AUSTRALIA is facing fallout from a "terrifying" plunge in home prices in the US and lacklustre consumer spending over the American holiday period, economists are warning.

As Australian shoppers spent up at the post-Christmas sales for a second day, adding to fears of an interest rate rise in February, an early indicator of US festive season shopping prepared by MasterCard Advisors showed modest sales growth on last year.

And the S&P/Case-Shiller Home Price Indices, which track prices in 20 US cities, reported that US house prices had slumped at a record pace, culminating in a 6.1% drop over 12 months.

"The US housing market still hasn't bottomed out - if anything, house prices are still accelerating on the downside and probably will get worse from here," said Shane Oliver, chief economist at AMP Capital Investors. "By the time they get to the bottom of it they could be 15% off their top levels."

------------------

So while most bullish analysts keep saying the markets will do fine cause slumps offer new opportunities to buy...they can not keep up the rally cry if we (the masses) start slowing down consumption as retirements and savings accounts are tapped for ongoing expenses.
And, the final worry is in the job market...

--------------------

U.S. Initial Jobless Claims Unexpectedly Increase (Update1)

By Shobhana Chandra and Bob Willis

Dec. 27 (Bloomberg) -- The number of Americans filing first-time claims for unemployment insurance unexpectedly rose last week and total benefit rolls reached a two-year high, reflecting a weakening U.S. labor market.

Initial jobless claims increased by 1,000 to 349,000 in the week that ended Dec. 22, the Labor Department said today in Washington. The number of people continuing to collect unemployment benefits jumped by 75,000 to 2.713 million, the highest since November 2005, in the week that ended Dec. 15.

Construction companies and mortgage lenders are letting workers go, while slowing demand is making other employers reluctant to hire. Fewer jobs raise the risk that consumer spending, which accounts for more than two thirds of the economy, will weaken and push the U.S. closer to a recession, economists said.

``The trend is definitely down in job creation, which is weighing on consumer spending, and businesses are starting to take note,'' Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said.

In another sign that the housing recession is spreading to other parts of the economy, the Commerce Department reported orders for U.S.-made durable goods rose less than forecast in November. The 0.1 percent increase, the first gain in four months, followed a revised 0.4 percent drop in October that was larger than previously reported, according to the report. Excluding transportation equipment, demand fell 0.7 percent.

Economists had forecast initial claims would fall to 340,000 from a 346,000 level originally reported for the prior week, according to the median estimate of 32 economists in a Bloomberg News survey. Estimates ranged from 335,000 to 350,000.

...

So far this year, weekly claims have averaged 321,700, compared with 313,000 for all of last year.

Economic growth will cool as the housing slump extends into 2008 and consumers rein in spending, economists said. FedEx Corp., the second-largest U.S. package-delivery company, reported a 6.3 percent drop in quarterly profit because of softer demand for freight shipments and higher fuel costs.

``We see challenging near-term economic trends,'' Fred Smith, chief executive officer, said in a statement on Dec. 20.

Businesses related to residential real estate are suffering. Fortis, Belgium's biggest financial-services company, reduced the workforce this month at its New York-based structured-credit division, citing current capital-market conditions.

---------------------------------------

I saw this headline on CNN's Money News main page...so I figured I'd look for some good
news. However, as I read through the story the messages were definately mixed, if not bad...

http://money.cnn.com/2007/12/27/news/econo...sion=2007122808

Consumer confidence rises
Researchers see first increase in consumers' short-term outlook since July; present situation index declines.
December 28 2007: 8:25 AM EST

NEW YORK (AP) -- The nation's consumers grew slightly more confident in December despite underlying concerns about the health of the U.S. economy.

The New York-based Conference Board said Thursday that its Consumer Confidence Index advanced to 88.6 in December from a revised 87.8 in November. It was the first increase since July.

Wall Street expected a slight drop to a reading of 87.0, according to Thomson/IFR. Analysts surveyed by Yahoo Finance had projected a stronger 87.5 showing.

Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement that the gain in the overall index "was due solely to an increase in the expectations index."

This reading, which measures consumers' outlook over the next six months, rose to 75.5 in December from 69.1 the month before.

"Consumers' short-term outlook regarding business conditions, employment, inflation and stock prices improved marginally," Franco said.

Still, she added: "Persistent declines in the present situation index indicate the economy is still losing momentum."

That index, which measures how consumers feel now about the economy, has been weakening since July and fell again in December to 108.3 from 115.7 the month before.

This reflects growing pessimism about the job market - a key contributor to consumer confidence and consumer spending.

In fact, a growing number of those surveyed say jobs are hard to get and fewer say jobs are plentiful, Franco said.

Confidence levels are watching closely because they can presage changes in spending patterns; consumer spending makes up about two-thirds of the U.S. economy.

The survey, which measures a sample of some 5,000 U.S. households, collected its data prior to Dec. 18.

Many retailers reported mediocre Christmas traffic. The International Council of Shopping Centers said Wednesday that same-store sales, or sales at stores open at least a year, were coming in just below already slim projections for a 2.5 percent gain. Still, the trade group said a post-Christmas buying splurge could erase that shortfall.
--------------------------

As jobs go, so goes consumer purchases, and so goes the economy. I say that because the other indicators (home values, borrowing, debt) are already in place (if not for recession) for slowing of the economy.
I hope I'm wrong...

Another brick in the wall?

http://money.cnn.com/2008/01/02/news/economy/ism/index.htm

Manufacturers shift into reverse
December survey of purchasing managers shows first decline
in activity in nearly a year sparking debate of whether a recession and more Fed cuts lay ahead.

By Chris Isidore, CNNMoney.com senior writer
January 2 2008: 11:36 AM EST


NEW YORK (CNNMoney.com) -- Manufacturing activity unexpectedly declined for the first time in 11 months in December, a survey of purchasing managers in that sector released Wednesday showed.

The Institute of Supply Management's manufacturing index weakened to 47.7, compared to 50.8 in November. Economists surveyed by Briefing.com had expected the index to show slower growth forecasting a reading of 50.5.

The unexpected weakness in manufacturing came due to a sharp drop in new orders and production. The reading, one of the first looks at the economy in December, raised questions of whether more Federal Reserve rate cuts and possibly a recession were on the horizon.

The tipping point for the index is 50, with a reading above that reflecting growth in the sector. A reading below 50 represents a decline in manufacturing.

The report said slowing demand for products, rather than excess inventories, resulted in manufacturers hitting the brakes during the month.

"December was apparently a very tough month as new orders, production and employment were all below the breakeven mark of 50 percent," Norbert Ore, chairman of the ISM's Manufacturing Business Survey Committee said in a statement. "Industries close to the housing market appear to be struggling more than others, and those involved in exports seem to be doing better."

The overall reading of the index is the weakest since April 2003, and it also marks the sixth straight month that the index has dropped. It is another sign that the U.S. economy slowed significantly in the fourth quarter after showing resilience through the third quarter despite this summer's meltdown in mortgage and credit markets.

Wachovia economist Adam York said that even with the long trend of weaker growth, having the index fall below 50 was a surprise. Even with the reduced role of manufacturing in the nation's economy, repeated readings below 50 are a sign of trouble ahead, he said.

Still, he cautioned: "One month doesn't a trend make. We've touched those levels without it indicating a recession is coming."

The Fed did not cut interest rates when the ISM reading fell below 50 in November 2006 and again in January 2007. But York said with the Fed already having cut rates at its previous three meetings, this reading makes another rate cut at the end of January more likely.

"If nothing else, it gives them some cover to keep cutting rates," York said. "They don't have to keep preaching about fighting inflation as hard."

But Jeoff Hall, the chief U.S. economist for Thomson Financial, said he's not convinced that the Fed will need to respond to this report with more cuts, especially with the reduced role that manufacturing plays in the U.S. economy today compared with August 2000, when the ISM manufacturing started an 18-month streak with readings below 50, and was seen as a warning of the coming recession.

"Maybe I'm missing something, I'm not convinced this is the straw that will break the camel's back," he said. Still, even Hall said the sharp drop in orders and production was worthy of attention.

"We're trying to find some silver lining in some bad news, but the 800-pound gorilla here is the drop in production and orders," he said. "It's tough to overlook those."

The survey showed only 15 percent of executives reported stronger new orders in the month, down sharply from the 27 percent who reported an increase in November. The percent reporting a drop in the level of new orders rose to 30 percent from 27 percent previously. It was the weakest reading on new orders since May 2001, when the nation was in a recession.

The level of production also showed a sharp decline to the worst reading since March 2003. Those who reported an improved level of production at their company fell to 16 percent from 23 percent, while those who said there was a worse level of production rose to 26 percent from 23 percent.

With that drop in orders and production, the survey's employment reading also showed weakness, although that was little changed compared to the November result. Only 11 percent said they saw higher levels of staffing down from 14 percent, while the percent who saw lower staffing levels also edged lower to 18 percent from 19 percent.

--------------------

If the dollar is down and exports up...is the drop in orders related to US consumer retreat?

Here she comes...

http://www.businessweek.com/investor/conte...week+exclusives

Investing January 4, 2008, 10:23AM EST
Jobs: December's Big Chill
The U.S. economy added just 18,000 jobs on the month, sparking recession worries. A January Fed interest rate cut "is now nearly certain"

By BW, Standard & Poor's, Action Economics, and AP staff

A surprisingly weak report on U.S. employment released Jan. 4 by the Labor Dept. fanned fears of a recession.

The unemployment rate jumped from 4.7% in November to 5% in December, the highest since November, 2005 after the Gulf Coast hurricanes dealt the country a mighty blow. Payrolls—both private employers and government—grew by just 18,000 in December, the worst showing since August, 2003, when the economy suffered job losses as it struggled to recover from the 2001 recession.

The December employment data suggest that the housing contraction and the credit-market turmoil have finally wound their way into the job market, says Action Economics.

The December employment picture was much weaker than economists were expecting. They were forecasting the unemployment rate to bump up to 4.8% and for employers to add around 70,000 jobs to their payrolls.

"The only silver lining is that a January rate cut is now nearly certain, maybe even 50 basis points," wrote S&P Economics in a Jan. 4 note.

Housing and Credit Problems Sink In
Employers have grown cautious as they try to cope with fallout from housing and credit problems and rising uncertainty about how the economy will fare in the months ahead. Galloping energy prices and bad weather in some parts of the country also probably figured into the weak job figures.

Manufacturers, construction companies, and financial services all cut jobs in December—casualties of the housing slump. Retailers also sliced jobs.

The government added 31,000 jobs in December, while private employers actually cut payrolls by 13,000, underscoring the weakness.

A drop of 49,000 construction jobs was the major surprise in the report, says S&P Economics, probably reflecting December weather.

For all of 2007, the unemployment rate averaged 4.6%, the same as last year.

--------------------------
http://www.reuters.com/article/topNews/idUSWBT00815520080104

Bush says economy sound; mum on stimulus plan
Reuters - 1 hour ago
By Jeremy Pelofsky WASHINGTON (Reuters) - US President George W. Bush said on Friday that the US economy was on solid footing despite a weak employment report, and gave no hint of what his administration may have in store to bolster growth.
---------------------------
If ya had money in Boeing (a big friend of Bush's BTW) ya did ok.

Aircraft makers report record orders
MSNBC - 3 hours ago
By Kevin Done, Aerospace Correspondent The commercial aerospace industry won record orders for new jets in 2007, as the period of very strong demand from airlines was extended to an unprecedented third year.
Boeing Shatters Aircraft Order Record TheStreet.com
-----------------------------
But if ya money in automakers...oh well...

Ford Slips to 22-Year Low After Falling Behind Toyota (Update5)
Bloomberg - 39 minutes ago
By Bill Koenig Jan. 4 (Bloomberg) -- Ford Motor Co. fell to the lowest price since 1986 in New York trading after losing its status as the No.1 car maker.

----------------------------

Months ago I predicted the DJIA at 12,000 on Jan. 31, but there have been two fed rate cuts, and predictions are for another (.50) this month...
so I adjusted my prediction to the end of the first quarter March 30...we'll see...now I'm suggesting people wait to jump into the market until
Oct. 1 when we may find the bottom...which may well be blow 12,000. Lord do we need a Democrat president!

The quandry debt has gotten us in...and why investors say "more please"...

from The Wallstreet Journal

http://online.wsj.com/article/SB1199403949...=googlenews_wsj

Fed's Inflation Fears Might Trump Calls for Another Big Rate Cut
Monetary-Policy Makers Appear to Have Less Room To Maneuver Than in Past
By GREG IP
January 4, 2008; Page A3

Slowing factory activity, weakening job growth and a credit crunch have investors expecting aggressive interest-rate cuts from the Federal Reserve.

But this week's surge in the prices of oil and gold underlines why the Fed may not have the freedom to ease monetary policy as much as it did in 2001, when the economy slumped, or as much as many on Wall Street want.

The real disconnect is over inflation. The Fed thinks it is a bigger risk than it was in 2001, and bigger than Wall Street and many prominent economists think. That forces the Fed to accept a greater risk of recession than it did in 2001. That could mean either fewer rate cuts than anticipated by futures markets, which see the Fed's short-term rate target falling to 3% by year-end from 4.25% now, or a quicker reversal of the rate cuts.

...
(Alan) Mr. Greenspan, who retired last year, said in a recent interview that inflation risks are much greater today than in 2001 and thus his successor, Ben Bernanke, has less freedom to shore up the economy with steep rate cuts than he did. "This is a much tougher monetary-policy environment than anything I experienced," he said.

The most obvious inflationary threat is from oil. It has risen to almost $100 a barrel now from $61 at the end of 2006. That has sent the 12-month overall inflation rate up sharply, to 4.3% in November. By contrast, oil hovered just at just less than $30 for most of 2001 before sinking after the Sept. 11 terrorist attacks, and inflation ended the year (2001) at 1.6%.

Perhaps the most important contrast with 2001 is one that gets little attention. Back then, the Greenspan-led Fed was optimistic that the spread of new technology had boosted worker productivity growth and thus the speed at which the economy could grow without bumping up against capacity constraints. Fed staff that June put the economy's noninflationary (2001)"potential growth" rate at 3.4%.

Since then, slower growth in both productivity and the labor force has led Fed policy makers to put (2008) potential growth at only about 2.5%. Thus, inflationary bottlenecks could develop at much more moderate growth rates than they did in 2001.

...
Harvard University economist Martin Feldstein has also called for sharp cuts in interest rates, arguing that if higher inflation results, "the Fed would have to engineer a longer period of slower growth to bring the inflation rate back to its desired level."

But if inflation does rise as a result of overly easy monetary policy now, getting it back down could require much tighter monetary policy and even a recession.

"If in fact the economy bounces back fairly quickly and inflation remains elevated, then if monetary policy is very aggressive now, you might find yourself in a terribly inflation-risky environment later next year (in late 2008)," Federal Reserve Bank of Philadelphia President Charles Plosser, one of the Fed's most hawkish policy makers, said in a recent interview. And if inflation expectations rise, getting them back down "might prove to be costly."

Mr. Bernanke, whose term is up for renewal in 2010, certainly wants to avoid a recession. But he would probably prefer a mild recession now to a high risk of increased inflation and a deeper recession later.

--------------------------------

So, if screaming investors push the fed around for easy money for profits now - price gallons of milk and gasoline next Fall.
I know economists don't like to include fuel and food in their "core inflation", but they damned sure are in family budgets' core inflation.
CNN's Your Money just reported personal bankruptcies were up 40% in 2007 and are expected to rise even more than that in 2008. How
is all the debt going to be paid off? Will they keep borrowing from Peter to pay Paul?

Jan. 6, 2008, 12:55AM
$100 oil will hurt at more than the pump

By BRETT CLANTON
Houston Chronicle

U.S. consumers are likely to feel the sting of $100 oil soon, and in perhaps more ways than they realize.

Crude reached the symbolic milestone, albeit briefly, a couple of times last week, before closing Friday at $97.91. It finished 2007 on New Year's Eve at $95.98.

More directly ominous for consumers, AAA reported Friday that the average price for a gallon of regular gasoline nationwide was $3.07, up from $2.32 a year ago. In Houston, the average price at the end of the week was $2.92, up from $2.18 last January.

Higher gasoline prices likely will pinch consumers most as bigger crude costs are passed through to drivers, analysts said. Fuel costs also could push up airfares.

But if oil prices stay up, Americans also may see higher prices for a host of other petroleum-derived products, from light bulbs and paint to golf balls and deodorant.

"There's oil in everything around us," said Edward Morse, chief energy economist at Lehman Bros. in New York. So it's impossible not to be touched by $100 oil.

"Whether it's the direct impact of heating oil or diesel or gasoline, the indirect impact is sort of ubiquitous in the world we live in," he said. "And it affects everyone's pocketbook because it affects the amount we can spend on the things we need and want."

Oil prices continued their ascent in the first days of this year after climbing nearly 60 percent in 2007 amid rising global energy demands, geopolitical tensions and betting by speculators in commodity markets.

Yet the effects of the sharp increase in oil prices have been slow to hit consumers.


Prices creeping up

Profits dipped for most major oil companies in late 2007 because crude oil costs rose faster than their refining operations could pass those costs on, leaving the companies stuck with the bill. Other industries have been absorbing higher energy costs to avoid raising prices, analysts said.

"But somewhere down the line, if (oil) prices are sustained at where they are today, you'll probably start to see it creep into consumers' pocketbooks," said Brian Youngberg, energy analyst at Edward Jones in St. Louis.

That creep is well under way at the gas pump.

Recently, the Federal Reserve has warned that higher energy costs could force many consumers to pull back spending in other areas and lead to a broader slowdown of the U.S. economy.

...
That worry has deepened amid signs of slower growth in several parts of the economy, prompting speculation by analysts that a recession is near. Those signs include softer growth in retail sales, continued trouble in the housing market, declining industrial production and slower job growth.

Many eyes also remain on consumer spending, which accounts for about two-thirds of the U.S. economy.

"You would not expect high gas prices to depress consumer spending growth forever," said Nigel Gault, an analyst with economic forecaster Global Insight. "What we would expect to see is if gasoline prices go up, that squeezes spendable income. People adjust to that."

...
While $3 gas has appeared during the peak summer driving season in recent years, prices always fell again in the fall on softer demand for motor fuels. But in November and December of 2007, average prices surpassed the $3 mark for the first time ever in each of those months, AAA said.

If oil stays high, gasoline prices could continue their march upward, hitting new records, analysts said.

The record national average of $3.23 per gallon was set last May 24, according to AAA.

Tom Kloza, oil analyst with the Oil Price Information Service in Wall, N.J., believes gas prices could keep rising this year but probably won't reach $4 a gallon.

"I think a range of $3.25-$3.75 is a reasonable guess of where gasoline prices may peak in 2008," he said.

About 3.5 percent of U.S. household budgets now goes to gasoline and fuel costs, up from 3 percent in the fourth quarter of 2006, according to the U.S. Bureau of Economic Analysis.

From early 1986 to 2004, families never dedicated more than an average of 3 percent of their total spending to gasoline. In the fall of 2006, gasoline expenditures jumped to 3.8 percent. The record was 5.2 percent in 1981, when oil prices, adjusted for inflation, were about where they are today.

With gasoline price spikes in recent years, Americans have responded by cutting vacations, saving less and borrowing more on credit cards, said Christian E. Weller, a senior fellow at the Center for American Progress, a Washington, D.C., think tank, and professor at the University of Massachusetts Boston.

"The main point still holds that families cannot adequately plan for large jumps in gasoline prices," Weller said. "And that they will have to cut back elsewhere."

-----------------------------------

So, while the costs are no higher than 1981...we didn't have the debt then we have now, which continues to build.
There is a tipping point, whether it's postponed or not. And, the longer the economy/markets are propped up, the
deeper a recession should be. It's the same theory the neo-cons have used for the War in Iraq - spend like crazy,
cut taxes on the wealthy and corporations and leave the problem for the next guys. It is a mistake and it's BIG.

http://money.cnn.com/2008/01/07/news/econo...sion=2008010715

Paulson defends 'freeze' plan
In a speech Monday, the Treasury Secretary said the subprime crisis raises the 'potential of a market failure.'

By Jeanne Sahadi, CNNMoney.com senior writer
January 7 2008: 3:39 PM EST

NEW YORK (CNNMoney.com) -- Treasury Secretary Henry Paulson used a speech Monday to defend the Bush Administration's plan to "freeze" mortgage rates for some subprime borrowers and also to call on Congress to pass legislation to head off a housing crisis.

"Over the next two years, we ... face an unprecedented wave of 1.8 million subprime mortgage resets, raising the potential of a market failure," Paulson said.

By creating the rate-freeze plan, the Administration is helping to prevent avoidable foreclosures and safeguard neighborhoods and communities, Paulson said.

Critics of the plan fall into two camps.

There are those who say the rate-freeze plan is a start, but it's a late one and not sufficient to address the size of the problem.

Others say adjusting mortgage contracts amounts to a bailout - free-market principles say that those to take on risk should suffer the loss when bets go bad.
------------------------
Either way, the Bush Administration's cabinet officers have both supported sub-prime mortgages
and now say Congress must do something to bail out those who blindly followed that advice.
Sound like Iraq?

http://www.businessweek.com/ap/financialnews/D8U2GG0G0.htm

The Associated Press
January 9, 2008, 12:42PM ET
Goldman predicts light recession

The biggest investment bank on Wall Street has a grim prediction about 2008: a recession is definitely on the way.

Goldman Sachs on Wednesday said it believes the housing slump and recent credit market turmoil will spill over into the broader economy this year. And, by the time it's all over, economists believe the Federal Reserve will cut interest rates to 2.50 percent from its current 4.25 percent.

There is a silver lining to the dire prediction, however, since Goldman projects the economy will recover as soon as 2009, making this downturn somewhat "recession-light."

"The recession is likely to last two to three quarters and should be relatively mild by historical standards, with a cumulative decline in real GDP of only about a half percent," Goldman economists' Jan Hatzius and Ed McKelvey said in a research note.

Goldman switched to an "outright recession call" following recent economic reports that indicated a spike in the jobless rate, and a decline in home sales and manufacturing. They also expressed concerns that sluggish consumer spending will contribute to a recession, which is typically defined as two quarters of economic contraction.

The economists expect the Federal Reserve will aggressively lower rates to combat the credit crunch, including a half-point cut at its Jan. 29-30 meeting. The contracting economy is likely to push the unemployment rate to about 6.25 percent by late 2008, potentially hurting corporate earnings.

Goldman also expects that Congress and the Bush Administration will push through a temporary tax break later this year as part of a fiscal stimulus plan.

What would all this do to stocks and bonds?

Economists predict that consumer spending will likely post a small outright decline -- unlike in the 2001 recession -- as the housing downturn contributes to a negative wealth effect and consumers find it harder to obtain credit.

This will put pressure particularly on stocks in the consumer discretionary, financials, industrials, materials and information technology sectors. Sectors that might offer investors some protection in a recession, however, include health care, consumer staples, energy and utilities.

Meanwhile, bond prices are expected to rally as risk-averse investors pull money out of stocks and boost demand for safer, albeit low-yield, investments. Goldman predicts the yield on the 10-year Treasury note -- which moves opposite its price -- will fall to 3.5 percent by late summer following interest rate cuts. The 10-year yielded 3.78 percent on Wednesday.

----------------------------

I think:

1) Goldman has been the most correct Wall St. investment bank in 2006-07 predictions...
2) If the recession is "light", as they predict that's, good news...
3) Credit will constrict with lower interest rates...but if you can
pay off debt and build a stronger credit report from an already good
one...you may get some very good rates on real estate loans by the
time property hits bottom....maybe Dec. 2008 or Jan. 2009 (right after a Democrat is inagurated .

Dow Jones Industrial Average
12,501.11 [b]-277.04 [/b]/ -2.17%

Jan 15
Open: 12,633.94
High (day): 12,754.65
Low (day): 12,425.92
YTD%Change: -5.76%
Volume: 331,514,400.00
Prev. Close: 12,778.15
52-Week Range (Low - High): 11,939.61 - 14,198.10

http://money.cnn.com/2008/01/15/news/econo...rates/index.htm

Wall Street to Fed: Cut rates now!
More gloomy economic data has investors crying
for Ben Bernanke & Co. to slash rates sooner than later.
But should the Fed listen?

By Paul R. La Monica, CNNMoney.com editor at large
January 15 2008: 12:41 PM EST



NEW YORK (CNNMoney.com) -- A nearly $10 billion loss from Citigroup. Weak retail sales last month. Rising inflation pressures. It's ugly out there.

With all that in mind, investors are now betting the Federal Reserve may cut interest rates before its next scheduled meeting, a two-day session that wraps up on Jan. 30.

Some economists have argued that the United States is close to a recession or may already be in one.

"Fundamentally, we're on the verge of a recession. The economy may pull back from the cliff but I wouldn't count on it," said David Wyss, chief economist with Standard & Poor's.

Federal Reserve chairman Ben Bernanke said last week that he did not think the economy would slip into recession. But he acknowledged that the economic outlook for 2008 "has worsened and the downside risks to growth have become more pronounced."

The market now thinks it is a lock the Fed will cut its key federal funds rate by at least half of a percentage point, or 50 basis points, to 3.75 percent by the end of the month, according to futures listed on the Chicago Board of Trade.

What's more, the futures are pricing in a 44 percent chance of a 75 basis point cut. Because such a move at one meeting would be considered extremely aggressive, some analysts think the Fed will act even before Jan. 30.

"Let's face it. The stock market and investor confidence is being taken into consideration by the Fed," said Ashraf Laidi, chief currency analyst with CMC Markets U.S., a New York-based brokerage firm.

"All the dismal data cement a half-point cut. But things have gotten so bad that just a 50 basis point cut would trigger a disappointing reaction," Laidi added.

Bernanke is set to testify in front of the House Budget Committee Thursday morning in a hearing about the near-term outlook for the economy.

Laidi said he would not be surprised if the Fed moved to cut rates after this hearing, especially if reports on Wednesday on consumer prices and industrial production confirm economic weakness and contained inflation.

Laidi compared the possibility of an inter-meeting cut now to the emergency rate cut in January 2001 by Bernanke's predecessor Alan Greenspan. That was right before the last recession began.

But Wyss isn't as sure that the Fed would follow Greenspan's example.

For one thing, the 2001 rate cut took place on Jan. 3, four weeks before a scheduled meeting. This time around, a Fed meeting is roughly two weeks away.

The Fed has already cut the federal funds rate - an overnight bank lending rate that affects how much interest consumers pay on credit card debt, home equity lines of credit and many other loans - from 5.25 percent to 4.25 percent since September.

The central bank has also reduced the discount rate, which is what it costs banks to borrow directly from the Fed, from 6.25 percent to 4.75 percent since August.

Investors have been arguing for more, and bigger, rate cuts in the hopes that it will kick start a moribund economy and encourage businesses and consumers to spend.


A READER'S POLL ON THE ABOVE PAGE ASKED:

1. Do you think the worst is over for the financial sector?
RESULTS:
Yes 13%
No 79%
Not sure 8%
(more than 31,000 readers voting)

According to the Farmer's Almanac,, about mid-Februray is when I should start my seed beds.

Not only DJIA, also FTSE and All Ordinaries in la toilette.

Makes you wonder where people are storing all those greenbacks.

Even gold is down.

It's a mystery.

It's fatigue...from the biggest-spending pack of fools in American history...
who now want the fed and Democratic Congress to bail them out. Lame-duck lame-brains.


Dow Jones Industrial Average
12,466.16 -34.95 / -0.28%

Jan 16 4:05pm ET †
Open: 12,476.81
High (day): 12,613.13
Low (day): 12,392.27
YTD%Change: -6.02%

• Wells Fargo's earnings dip 38%
• AMR sinks on $69M fuel costs
• Charles Schwab earnings fall 34%
• Ambac cuts dividend, replaces CEO
• Citigroup's $10 billion loss is worst ever
* JPMorgan: Profit decline, $1.3B writedown

People simply don't believe in this propped-up economy any more...

Well, there are 12 trillion of those buckos floating around the world. Countries gotta have them to pay for oil. Countries gotta have them to pay for 80 percent of the goods and services they buy that are NOT MADE IN THE USA but are priced in US Dollars just the same.

It is a Dollar world.

And those Dollars have to be parked SOMEWHERE.

Greed or no greed.

American spendthrifts or none.

Where are those Dollars lurking?

The foreign, sovereign funds will put alot of bucks back into major
banks and investment firms...to make more...but the basic
foundation of the economy - consumer spending - is screwed.
If they put a bunch into US home building, which some emir had
predicted...but didn't do...that could help some.

Foreign funds are often held by royal families or government
strong men, which also doesn't translate to consumer spending...
but rather airplanes, arms and some infrastructure.

It is estimated that yearly, over $1 trillion is spent on military expenditures and arms worldwide.

The world's largest arms exporters are the USA and Russia...the next closest
doesn't do 1/4th what each of the top two do.

Arms exports 2000-2006:
USA $454,380,000,000
Russia $ 405,340,000,000
Add in the arms manufacturered for our wars and US arms manufacture about doubles.

Then Halliburton and Shaw (construction) move overseas to service the
governments holding dollars and Boeing sees sales records and builds a plant
in China to continue.

(BTW the Baton Rouge paper has been pointing the Shaw angle out,
with the corporate CEO bailing and the company getting a big job
building a styrene plant in China - more plant jobs going.)

Of course coporations don't want corporate taxes and their CEO's
and major stock holders don't want to be taxed at the high end of the scale...
profits taxes, pollution taxes, inheritance taxes...etc.

Consumer confidence is being beaten...we don't believe The White House,
or the corporations that run it...have about given up on Congress and
most have debt up to their armpits, and rising toward breathing orafaces.
Credit was the last straw in artificially pumping consumer spending up.

I quit unnecessary spending a year ago to knuckle down for this...and I expect it
may be a year before consumers start sticking their heads out of their holes again.
Assuming Democrats are elected and some sort of faith is restored in the Social
Security and Medicare future...enabling boomers to feel secure enough to
buy cars, clothes and refrigerators when the ones they have will do.

I don't know why greed pushes the wealthy to starve the horse they rode
uptown. When they finally have to get off a prone work-horse and look around
for another they seemed suprised everyone else is walking or sitting still.

And suggesting government hand out $600 checks or reducing the fed's
lending rate to banks won't do it when debt is crushing.

It looks like it's going to be DEEP

http://www.washingtonpost.com/wp-dyn/conte...8011803592.html

Insurer Of Bonds Loses Top Rating


By Tomoeh Murakami Tse
Washington Post Staff Writer
Saturday, January 19, 2008; Page D01

NEW YORK, Jan. 18 -- Ambac Financial Group, the nation's second largest insurer of bonds, lost its precious AAA rating from Fitch Ratings on Friday over concerns that the company no longer had enough capital to guarantee billions of dollars in debt now imperiled by the subprime mortgage crisis.

The move to downgrade Ambac to a rating of AA could further roil financial markets, increasing pressure on Wall Street banks that hold this bad debt and making it even more costly for local governments to raise money for public projects.

Ambac and other bond insurers play an obscure but crucial role in capital markets by essentially transferring their ratings to the securities they guarantee. The downgrade of Ambac means many of those securities also will be downgraded, Fitch said.

This could spark a substantial sell-off by institutional investors such as pension funds that can only invest in top-rate securities, causing their value to drop. That in turn would prompt even more selling. As the securities become less valuable, Wall Street firms could be forced to write down billions of dollars on their balance sheets, restating how much their holdings of these securities are worth. The banks, which have already suffered staggering losses, have relied heavily on bond insurance to reduce their exposure to subprime mortgage debt and other complicated securities linked to these loans.

"Everyone thinks they're looking at the cliff over Armageddon," said Ed Rombach, senior derivatives analyst at Thomson Financial. "If you think the write-downs have been bad so far, the next write-downs could be twice as big."

The downgrading of Ambac is also a major blow to municipalities and other government authorities, which are having difficulty raising money for roads, buildings and other projects because of the worsening credit crunch. Some government agencies may find borrowing more costly, while others may not be able to raise money at all.

The troubles of Ambac and other bond insurers are rooted in their decisions during the last decade to move beyond their traditional business of insuring municipal debt into a realm of complicated securities. Much of this was made up of structured debt entailing subprime mortgages.

In downgrading Ambac, Fitch said its decision "reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction."

The move by Fitch, one of three major rating agencies, came hours after Ambac said it would abandon its plans to raise $1 billion in capital. The rating agency said last month that it considered the additional capital as critical. Fitch gave the company no more than six weeks to come up with the funds.

Ambac had said Wednesday it would strengthen its capital base by issuing at least $1 billion in securities. A day later, however, the company said it expected to report a loss of $5.4 billion on its portfolio of credit derivatives and losses of another $1.1 billion on subprime mortgage securities. Ambac also announced its chief executive, Robert J. Genader, had resigned. That same day, Moody's Investor Service signaled it was also considering whether to downgrade Ambac's ratings. Ambac stock plunged 52 percent.

On Friday, the company did an about-face, announcing that "market conditions and other factors" had made raising capital "not an attractive option at this time."

Fitch was out of patience. "There's no reason to wait any longer," said Thomas Abruzzo, managing director at Fitch, in an interview after Ambac was downgraded.

Ambac declined to comment on the decision.

In recent months, shares of some of the biggest bond insurers have been pummeled as rating agencies scrutinized the insurers' ability to cover potential defaults on the mortgage-related bonds they insure, particularly those backed by loans to homebuyers with poor credit. In total, Ambac and six other AAA-rated bond insurers enhance the credit of some $2 trillion worth of debt securities held by Wall Street banks, pension funds, mutual funds and other investors around the globe.

Without its flawless rating, Ambac may now find it nearly impossible to attract business, analysts said. Rombach and others questioned whether Ambac could even stay afloat. Some analysts said the move by Fitch would trigger downgrades by the other two major credit rating agencies, Moody's and Standard & Poor's, which have been reviewing the ratings of Ambac and its peers.

"The Fitch downgrade only exacerbates Ambac's difficulties in their ability to write business as well their ability to access capital or other capital-like instruments," said Dick Smith, managing director of global bond insurance ratings at Standard & Poor's. He said S&P was already focused on those issues as it conducts its review.

Moody's warned Thursday it was also reviewing the ratings of MBIA, the largest bond insurer, citing "growing concern about the potential volatility" in the performance of mortgage-related securities and "the corresponding implications for MBIA's risk-adjusted capital adequacy." Moody's decision came even after MBIA had carried out its own $1 billion debt issue.

-------------------

checks to taxpayers ain't even gonna be a cup of water on this firestorm...