It is as if the approval of the $700bn Troubled Asset Relief Program (TARP) was a complete non-event for the markets. Money and credit markets around the world effectively seized up in the aftermath of Lehman’s default, which in hindsight proved to be a truly systemic event. In order to stop contagion from spreading to the non-financial corporate sector, on October 7, the Federal Reserve announced the establishment of a new special purpose vehicle (SPV) whose aim is to buy investment grade commercial paper directly from eligible companies (list tbd.) Yields on the shortest CP maturities declined and T-Bill yields increased but the stress in interbank and credit markets continued to build throughout the day.

Next to welcoming the liquidity extension to corporates he advocated for some time, Nouriel Roubini in his latest writing, points to the need for an immediate coordinated rate cut of 100bp and the extension of a temporary blanket guarantee on ALL deposits in the U.S. to prevent a potential bank run especially on cross-border interbank lines. The FDIC could invoke its Systemic Risk Exception authority for this purpose as it did for the first time ever with the Citi-Wachovia deal.

According to commentators, the heavy-duty CDS settlement auctions taking place this month weigh heavily on market sentiment. On October 6, the auction of (now government guaranteed) GSE bonds resulted in high recovery values from 91-99 cents on the dollar, meaning that payouts by protection sellers are in the range of 1-9 cents on the dollar. On an estimated $200-500bn notional amount outstanding, payouts are a cumulative $2-5bn. More worrisome is Lehman’s settlement on Friday, October 10. Its defaulted bonds are currently trading at 10 cents on the dollar, meaning that payouts on an estimated $400bn gross amount insured could reach $360bn. The outlook for WaMu bondholders recovery value is similarly bleak (ISDA auction taking place on October 23.)

Meanwhile, the Credit crisis is killing the carry trade. Currency and stock markets around the world are taking their last breaths for this cycle, with some already having fallen into cardiac arrest (trading halts) or needing life support (government liquidity injections). Currencies plunged versus the dollar and more so against the yen - the carry trade's two most popular funding currencies - as investors and banks deleverage. High yield alone no longer protects countries from currency depreciation - fundamentals such as indebtedness matter too (finally). Even the Indonesian rupiah and Brazilian real weakened despite recent policy rate increases to a whopping 9.50% and 13.75% respectively. EUR/USD dropped to $1.34 and the USD touched 100 yen on October 6, the day DJIA fell below 10000. Other developed markets suffered similar percentage losses, but emerging markets took the biggest hit: the MSCI Emerging Markets Index slumped 11%, the biggest intraday loss since 1987. According to S&P, the world's stock markets have lost $10.5 trillion this year as of end-September. VIX shot up to an all-time high level of 58 on October 6 and remains above 50, new territory for the volatility indicator. Worse, even this record high VIX may not mark the bottom for stocks. See RGE’s detailed coverage of the global financial crisis.

The IMF’s latest growth forecast, to be released today, suggests a significant economic downturn and risk of recession. While most of the G7 has already experienced a quarter of negative growth, big emerging economies are likely to feel the heat from this global credit crisis, tip the global economy into recession (3% global growth). See “Are We Headed Towards a Global Recession? ”

The U.S. economy is set for a full-blown recession in the next few quarters since policy actions so far have failed to prop up demand and put a floor on home prices. Pending correction in the housing market, worsening job losses, falling personal incomes and tighter credit lending standards will cause private consumption (71% of GDP) to contract, thus exacerbating the ongoing decline in retail sales and manufacturing activity. Capex plans and exports have also begun taking a hit from the credit crunch, sluggish corporate earnings and global slowdown. Given risks to the dollar and fiscal deficit, the economy is now extremely vulnerable to a more severe and prolonged U-shaped downturn.

The blanket deposit guarantees adopted in several European countries have indeed created an uneven playing field. Nonetheless, EU finance ministers on October 6 find no common agreement to tackle the common banking crisis. Daniel Gros and Stefano Micossi warn that behind the banking crisis, the likelihood of a serious economic downturn – exacerbated by fixed exchange rates as shown by Denmark’s untimely rate hike- looms ever larger. The Eurozone GDP contracted in Q2 and may do so again in Q3 – the PMI are already signaling recession and European banks and economies are exposed to both domestic and U.S. housing markets. Deleveraging has hit EMU countries asymmetrically, re-enforcing divergences within the eurozone. The ECB recently opened the door rhetorically for earlier rate cuts, likely before the end of the year.

The UK economy is setting its path towards a severe recession , which the OECD suggests may have started in Q308, as the housing sector continues to face double digit losses and a marked slump in both consumer and business confidence. On the top of the mutually reinforcing vicious circle of recession, asset price declines and financial stress the economy is now facing the burdens of a serious global credit crisis. The government hasn’t hesitated to rescue the financial system injecting liquidity into the main banks and purchasing mortgage securities through Special Liquidity Scheme (SLS). Many analysts expect a 50bps cut from the BoE meeting this week as it tries to curb the continuing macro deterioration.

While not officially in recession, there is no question that Japan is in the midst of an economic downturn. GDP in Q2 contracted an annualized 3.0%, and the weakness was broadly based. Nevertheless, analysts are divided over how long and severe the contraction will be, with a growing number forecasting a protracted recession. While Japan’s direct exposure to the global financial turmoil has so far been minimal, the global slowdown combined with an appreciating yen has hit exports, which had been Japan's key growth engine in recent years. Meanwhile, the Bank of Japan has kept the target rate on hold at 0.5% since February 2007 and no change is expected in the near future unless it is part of a coordinated international effort to stabilize financial markets.

Canada, which only narrowly missed a recession in the first half of 2008, could, surprisingly, be the best off of the G7 in the coming months according to the IMF, but growth is at a standstill. With 25% of the economy dependent on U.S.- bound exports, Canada can’t decouple. Canada’s banks are relatively healthy, buttressed by the Bank of Canada’s liquidity provision but higher credit costs will depress corporate profits. Meanwhile the slowing in the housing market might not unfold as benignly as some might hope and domestic demand, is slowing sharply as consumer confidence fades and household wealth suffers from asset price declines. Despite the candidates promises ahead of next week’s election, a fiscal deficit is in sights.

Thanks to asset deflation and the slump in commodity prices (WTI oil fell to $87/barrel Monday) due to the global growth slowdown, most central bankers are shifting focus from inflation to deflation and/or recession. Signs of decelerating inflation remove the impetus for further rate hikes (except for countries like Denmark and South Korea that need rate hikes to support their currencies) and, for some, opens up room for cuts. Some analysts believe the Reserve Bank of Australia's surprise 100bps cut today fired the opening salvo to rate cuts by major central banks, coordinated or not. See “Global Monetary Policy Outlook: Growth Worries Trump Inflation” and “Will the Credit Crisis Cause Emerging Market Central Banks to Turn Around and Cut Rates?“

With the G7 in recession, the myth of decoupling seems by now forgotten and the global credit crisis seems well set to be accompanied by a global recession.

The credit crisis will definitely work its way into the Brazilian economy mainly through much weaker balance of payments as global demand falters and capital flows to EM economies fade. But most analysts still predict a healthy 5.3% growth in 2008 followed by a slowdown towards around 3.5% in 2009. The Brazilian real has lost 22% in the past month against the dollar, the worst performance among the 16 most- actively traded currencies. Last week the central bank eased rules on reserve requirements for a second time to make more cash available for the banking system aside from the recently announced intervention in the derivative market to curb some of the BRL losses. Brazil's benchmark stock index plunged 15% on Monday before trading was halted twice in the session. The stance of monetary policy in Brazil is also changing from inflation oriented to a more growth oriented and the BCB is now expected to reduce the speed of rate hikes.

India’s recent strong growth will take a hit during 2008-09 as high interest rates and global liquidity crunch reduce consumer spending and capex while the selloff by foreign investors sell-off, decline in stock market and rupee, and ballooning fiscal and current account deficits make the economy increasingly vulnerable.

China’s Q3 data, to be released next week will likely to show the first single digit growth rate in five years and the fifth consecutive quarterly decline. A recession in the U.S. and EU, which absorb 40% of China’s exports could push its growth to 8% in 2009. While some of the decline in industrial production and manufacturing may reflect Olympic slowdowns, China’s imports of several commodities have slowed. It remains to be seen whether China’s nascent private consumption can pick up some of the slack, particularly as housing price growth is slowing. China’s government has already cut interest rates and further fiscal responses or asset market interventions are likely as it tries to maintain employment growth.

The global slowdown and accompanying fall in the price of oil, gas and other commodities is exacerbating Russia’s already slowing growth trajectory. Some of its plentiful fx reserves have been spent to support the rouble (which weakened 4.8% against the dollar in September) and its benchmark equity index fell almost 2/3 this year to its lowest level since 2005. The government has pledged nearly $170 Bln to the banking system aimed at restoring confidence. Despite the macro effects of the crisis and asset price correction, Russia’s fiscal surplus, large FX and gold reserves may cushion its trajectory unless the oil price plummets further.

The slowing in the BRICs, which account for 40% of global growth, as well as the G7 will likely have knock on effects for other emerging markets. As a group, emerging markets have suffered significant outflows from the equity and bond markets in the past quarter, with many equity markets down 40-60% this year. Emerging markets with current account deficits and exposed banks like Turkey, Iceland and Korea have been particularly hard hit amid deleveraging and flight to the dollar (and yen).

The impact of global turmoil on new EU member states has been moderate so far, but effects are likely to be more visible later. Eastern European emerging markets are more vulnerable than Asian and Latam peers, due in part to their dependence on foreign capital inflows which have dried up.

Key Latin American economies are also facing challenging times with Chile and Mexico already showing clear signs of economic slowdown. In response, the Chilean central bank is now expected to perform a less aggressive rate hike while the central bank of Mexico is now on hold.

The G-7 and EM slowdown is pinching Asian exports and manufacturing activity, enticing many central banks to ease rates or keep a lid on currencies in spite of high inflation. Price pressures and high borrowing costs will prevent domestic demand from offsetting external slowdown. But despite the moderation in growth, the ongoing turmoil in money and stock markets, exit by foreign investors and downward pressure on currencies which pose significant risks to Asia, the region retains strong external balances and forex reserves, compared to the 1997-98 crisis.

South Africa’s growth is expected to slow to 3.5-4% (from 6% in 2007) as falling commodity prices will erode the value of exports and high inflation limits domestic demand. South Africa is somewhat shielded from direct fallout from the global credit crisis directly but the volatile Rand has been one of many high-yielding current-account deficit currencies that have been depreciating as carry trades are unwound.

Equity selloffs through much of the Middle East and North Africa suggest the region is not insulated from a global recession. In fact the Bank of Israel cut its benchmark rate in a unexpected move yesterday as growth slows. Tightening of global credit, falling oil price and the withdrawal of foreign investors (Egypt, GCC) has contributed to tightening of domestic liquidity and property market pressures(Dubai) in the Middle East. If the price of oil falls further, fiscal and external balances will come under strain and some oil exporters might have to start dipping into their accumulated savings, which might decrease their investments in neighboring countries and slow domestic demand. Meanwhile, the European slowdown will weigh on non-commodity exports. Yet falling commodity prices may restrain inflation and overheating while the dollar’s rally removes some pressure from dollar pegs.

America's Financial Apocalypse Economists Need to Sit Down and Shut Up / Economics / Economic Depression
By: Mike_Stathis

I'm really sick and tired of these economists out there who continue to claim that America will not enter a depression. These are the same bozos that have yet to acknowledge the fact that the U.S. is in a recession and has been for several months now. In fact, as I have previously mentioned, I can make a very strong case that the U.S. has been in the early stages of a silent, modest depression for at least two years; at the very least a protracted recession masked by credit. After the appropriate adjustments have been made for GDP, the U.S. economy has had no more than 3 to 4 quarters of GDP growth since 2005.

Read full article...

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Global Economic Collapse Day 4

Solving the Wrong Problems, Part Deux

The global bloodletting in the financial markets is now pretty obviously past the point of no easy return. Confidence is shaky and getting more so almost by the hour. Asia overnight saw the Hang Seng drop more than 7%, Australia was down more than 8% and Japan took a 9.62% decline, which is particularly significant because they actually entered their own Depression back in 1989 when the Nikkei bubble first collapsed. For them, this kind of decline is déjà vu all over again as the whole country is likely asking "Are the lows of 2003 (7,972) going to hold?

---

There's much about the "Great Depression" which is misunderstood by the American public, but understandably so, because history is not written by the righteous; it's written by the winners.



The "Greater Depression" is not yet recognized by the MSM - that will come a little slowly, because when it arrives, it will have to be laid at the feet of the Tax & Oil Party. The $700-billion(plus $150-billion of pork) squandered on buying off bankers isn't helping much, at least so as I can see. Didn't even get the crisis pushed past the election for McCain. Universe is funny that way....moving finger writes and all.

---

Today, much of what this site has been dedicated to, namely documenting the arrival of the Kondratieff Long Wave Winter, is coming painfully into view. What's interesting (at least to me) is that we're finally getting the settlement of a long-running debate that has been raging in (semi) academic circles since I first got involved with long wave economic research in the late 1980s.



The central question boiled down to this, if I can be forgiven for over-simplifying: Do periodic long wave depressions such as have happened several times previously in America, occur on a strict calendar basis, or are there drivers which are human-referenced?



Many of my colleagues/friends from the old days on the University of Colorado discussion group server at the Center for a Sustainable Future project argued the mechanistic case. "Ure's nuts," they'd proposed (and be partially correct BTW), "Because any damn fool knows that cycles are of relatively fixed duration."



But, there have been some including Trader Jim Goulding and myself who have taken the more humanistic perspective, encompassing Strauss & Howe's "Fourth Turning" work and viewing increased cycle-length as a function of human lifespan improvement. The concept of a saeculum-length cycle is easily evident. Jim Goulding's book "Winter is Coming" (which you can download here free), is a much more thoughtful treatment of the topic than I could offer here.



Still, since what we've been warning of is now evidencing itself with the global market collapse this week, (starting on what date?) you might want to put some of this material on your reading list for either this weekend, or at least before the end of the year, while it's still readily available. It may help you keep the magnitude of unfolding events in focus.

---

Didn't mean to get off on a preachy tone this morning, or to say "Told you so!" (OK, maybe a bit) but we're in events right now that will dwarf past economic events. The coming months will be the basis for grandchildren asking you "When did you wake up to the idea that a Second/Greater Depression was unfolding? "



Most of America hasn't figured it out yet, because the "D" word is probably on those 'be careful what you report' memos that circulate in corpgov news operations. Too bad - it just stretches out the decline. "When in doubt, tell the truth," Pappy used to say. Stuff's hit the fan and it's called a depression.

---

"European Markets plunge again; Nikkei plummets" declare the early headlines from the overnight action.



You know why? I call it "Sarah Palin Syndrome". If you think back to her 'debate' with Joe Biden, you'll remember she warned at the beginning that she'd sometimes not answer the question asked, but instead, she'd answer the one she thought should have been asked.



Offishul (sic) policy response to the developing financial Armageddon so far is displaying "Palin Syndrome": The team of Paulson and Bernanke has been answering what they want to answer as a question, namely "If we save all the banks, then everything will work out OK - at least till the election" instead of the real issues which distill down to "How do we help people keep their homes and and jobs and thereby put a floor under this puppy?"



While it's nice to see that Oil is down to $82 a barrel (42 gallons, not 55 in that world), it's not going to help people stay in their homes much longer. The issues are real human beings defaulting on loans, losing their homes, and then losing even their cars to live in.

---

Speaking of which: I caught what I thought was a Chrysler ad for a mini-van yesterday as I was walking through the house on some mission or other, and I had to stop and do a double take. The scene in this ad was of a whole family appearing to be living in their mini-van. The flip-down TV screen was playing something, there were TV trays popping out of the seats (think there was even a meal being served, if my recollection is right). Pretty interesting, huh?



Down at the archetype level, I gathered we were supposed to get out of it that this was the van to live comfortably in, although I'm not sure that was how it was intended. Maybe the message was that Elaine and I should buy this new mini-van and do more entertaining there rather than out on the deck or on the screen porch. Curious, eh?



I've been watching for some of that $25-billion thrown to the auto industry to trickle down at the local auto emporia, but so far no sign of it. Until it appears, I'll take most of the talk of "recovery" in the same vein as the 1930's "Good times are just ahead" -- utter nonsense.

---

First, we have to fix the problem. The problem isn't bankers. The problem is we have been watering down the nation's money, we've built a service economy based on the continuous expansion model of business, and debased the so-called fraction reserve system to where there are no reserves left.



This swings us around to the main topic which I'd bring to your attention this morning: The continuing decline in the quality of America's money, something that's been underway ever since the Banker's absconded with Congress' Constitutional money function in early 1913.



Fast-forward to yesterday's H.3 Report from the Fed and we see this little header note:

"The Board's H.3 statistical release, "Aggregate Reserves of Depository Institutions and the Monetary Base," has been modified to include credit extended to certain regulated U.S. insurance subsidiaries of the American International Group (AIG), which was announced by the Federal Reserve on October 8, 2008. The funds extended to AIG under this transaction are reported with other lending to AIG in the category "Other credit extensions" in table 1a.

The so-called "Nonborrowed" reserves of depository institutions is -363,136-million; e.g. 363-billion. Remembering that we can simplify nonborrowed reserves -363-billion to nonborrowed reserve of -363-billion (surgically removing the 'non and '-' sign) we see that's how much banks have borrowed to balance their reserve books. And over all borrowings are 543-billion.



All this borrowed money has to show up somewhere - and sure enough, flip over to the Fed's H.6

money stocks report out Thursday and we discover (*under Table 2) that M-1 is has been 'pedal to the metal' at an 11.3% annualized growth rate for the previous 13-weeks.



"Is this going somewhere, George?" you may be wondering? Yes! (At least I hope so...)



All this printing up of money by the central bankers has resulted in a bonanza for Gold!



"Gold Prices jump above $900 after Fed cuts rates" noted an AP story Thursday. Or, how about this one: "Gold extends gains to 2-month high as panic..."



That data got me to thinking about the relative performance and relative strength between investing in gold (as we have done) and investing in stock (which detractors have been pimping to us) for years.



Let's roll back to March 17 because on that date, gold hit its most recent high. On that day, gold was $10,12, or thereabouts. And yesterday, Kitco was quoting $885 for the 'yellow dog'.

That's a decline of 12.54%.



Check this out: look at what the Dow was doing on March 17th by checking the Yahoo financial archives. Dow was 11,972 that day while yesterday's closing Dow was about 8,579. Notice that I'm being charitable and not quoting the futures price because the Dow looks to open down another couple of hundred at today's open. Nevertheless, even with my grandiose generosity toward the paper assets scam, the Dow is still down 28.34%.







Will the Dow go down more? What kind of dumb question is that?



Of course it will: If a fixed income return of 20% is possible, that means that stocks must offer a similar return - which would be a P/E of 5 in order to attract investors. Given that the PE of the Dow is still up in the high teens even after the small decline thus far, guess what's gonna follow like day follows night?

---

The August balance of trade figures are out this morning...here's how they came in $59.1 billion in the hole - it'll be a few months before the 'benefit' - if I can call it such - of decrease American consumption shows up in the rearview numbers:

Goods and Services

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total August exports of $164.7 billion and imports of $223.9 billion resulted in a goods and services deficit of $59.1 billion, down from $61.3 billion in July, revised. August exports were $3.4 billion less than July exports of $168.1 billion. August imports were $5.5 billion less than July imports of $229.4 billion.



In August, the goods deficit decreased $3.2 billion from July to $70.9 billion, and the services surplus decreased $1.0 billion to $11.8 billion. Exports of goods decreased $3.2 billion to $117.6 billion, and imports of goods decreased $6.4 billion to $188.5 billion.



Exports of services decreased $0.2 billion to $47.1 billion, and imports of services increased $0.9 billion to $35.3 billion. In August 2008, the goods and services deficit increased $3.8 billion from August 2007.



Exports were up $22.6 billion, or 15.9 percent, and imports were up $26.4 billion, or 13.4 percent.



Goods

The July to August change in exports of goods reflected decreases in automotive vehicles, parts, and engines ($1.7 billion); industrial supplies and materials ($1.2 billion); consumer goods ($0.9 billion); and foods, feeds, and beverages ($0.2 billion). Increases occurred in capital goods ($0.8 billion) and other goods ($0.2 billion). The July to August change in imports of goods reflected decreases in industrial supplies and materials ($6.2 billion); automotive vehicles, parts, and engines ($1.2 billion); capital goods ($0.8 billion); and other goods ($0.3 billion). Increases occurred in consumer goods"

(Memorize this - there will be a test Monday...)



You know, there actually is some good news to global economic collapse: It will get Americans back to being thrifty. The days of the profligate consumer are toast.



Chief time monk Cliff was telling me yesterday that he spied the end of consumer excess in a rather odd place this week. He takes is own trash to the dump - saves money and keeps recycling and consumption front and center when you have to move your own trash. "Never seen such a lack of regular folks. Just me and the rest were all commercial haulers..." he observed.



No, we don't make conclusions based on a single observation, but it's there. Less store traffic, lighter recreational shopping. People in stores getting about their shopping in a purposeful way. The Washington Post headlines it as the "Economy that Stole Christmas".

---

Of course, this is still but the leading edge of the economic mess that will last till next March if the linguistics are right. Already there's evidence of shortages/delays with headlines like ":Grain Shipments stalled in credit drought" popping out. But once again, you can look at stories like this in MainStreamMedia and miss the whole forest if you don't have some meaningful context against which to place all them trees.

---

We only have two immediate problems to solve: LIBOR rates being too high and families going banko. But, then again, we don't grind political axes around here, or take money from bankers like they do in Washington. Till we get focused on the root causes and corrective actions, we're solving the wrong problems and the crash will continue. Bet me?

THE GRAPES OF WRATH - 2008-style

http://wpcomics.washingtonpost.com/client/wpc/td/

Great Depression II
by Dennis Rahkonen / October 11th, 2008 (0)

There are banks afraid of lending
There are factories shutting down
There are people headed nowhere
On the mean streets of each town.

There are hard times in the offing
There is hunger on its way
For the greed of moneychangers
Left a high price we must pay.

There’s a desperation spreading
Like the one that used to be
In our God-forsaken heartland
Back in 1933.

There are eyes all blank and hollow
There are dreams that turned to dust
There’s a fear to face tomorrow
And not a thing that we can trust.

There are children in the schoolyards
Where their laughter still rings true
But their lives will soon be altered
By what a selfish few can …

(Full article …)

Tapping the experts
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Investors' fears must be removed before calm can re-enter the markets
The News Journal - Wilmington,DE,USA
... first the US, then the world, economic system could falter, sending Main Street, as well as Wall Street, into a deep depression. ...
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Barack Obama rides a wave of bad economic news
Los Angeles Times - CA,USA
And McCain, he says, displayed an unsteady response to what may be a global economic depression. The financial crisis has turned the last three weeks into a ...
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UPDATE 1-Taiwan cbank can't rule out snap rate meeting-source
Reuters - USA
The move was Taiwan's first rate cut in five years and ended a 4-year monetary tightening cycle, as the bank's concerns moved toward supporting economic ...
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IMF endorses G7 plan to fight global credit crisis
CTV.ca - Canada
He also said the US would lead the way in finding a solution to what is being described as the worst financial-sector crisis since the Great Depression. ...
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Bernanke vows to learn from Great Depression
San Francisco Chronicle - CA, USA
"We're incredibly lucky we have a Fed chairman at this moment who has looked so closely at the Great Depression," said David Moss, a professor of economic ...
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Fears in China about the impact of global economic crisis
World Socialist Web Site - Oak Park,MI,USA
Dismissing comparisons with the 1930s Depression, Wen insisted that the situation was different because the US was now based on high-tech industries and ...
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Breaking the vicious circle
Sunday Business Post - Dublin,Ireland
The objective now is to prevent a global depression. In the US, this gradual slump has been well flagged; however, Europe is moving from solid growth to ...
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Fear rife of another Great Depression like period
IBNLive.com - New Delhi,India
... just issuing more such reassuring messages to depositors, but also to come up with more bold and coordinated measures to avoid another Great Depression. ...
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Decoupled -depression in perspective
The Island (subscription) - Columbo,Sri Lanka
The 1997 financial crisis in the Far East was only a common cold compared to pneumonia – an economic depression. My point is that a crisis of depression ...
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Truck Maker Plans to Cut 3500 Jobs in US and Canada
New York Times
BBC News By IAN AUSTEN OTTAWA — Daimler, the world's largest maker of heavy vehicles, announced plans on Tuesday to eliminate its Sterling truck brand and shift production from the United States to Mexico, moves that will cut about 3500 jobs in Canada and the ... Daimler to Shut Truck Plants, Drop Brand in North America Wall Street Journal Daimler to Close Sterling Trucks Unit, Cut 3500 Jobs (Update3) Bloomberg

Retail stocks fall on concern over corporate profits
MarketWatch
CBS News By Andria Cheng, MarketWatch NEW YORK (MarketWatch) - Retail stocks erased earlier gains to close lower Tuesday after concerns over corporate profits outweighed the boost from US government's plan to inject $250 billion into the country's largest banks ... PepsiCo Cuts 3300 Jobs, Lowers Forecast; Shares Drop (Update1) Bloomberg PepsiCo to Cut Jobs as Net Slips 9.6% Wall Street Journal

GM to close stamping plant near Grand Rapids
The Associated Press - ‎ 22 hours ago ‎ DETROIT (AP) — General Motors Corp.'s efforts to hoard cash and outlast a prolonged economic slump claimed the jobs of more than 2700 wo..

Linens 'n Things to liquidate remaining stores
http://www.reuters.com/article/fundsFundsN...149870520081014

(Adds analyst comments about Bed, Bath & Beyond, outlook for other retailers)

By Chelsea Emery

NEW YORK, Oct 14 (Reuters) - Linens 'n Things, victim of a widespread credit crunch, will begin liquidating its remaining stores as early as Thursday, after the bankrupt home goods retailer failed to find a buyer that will keep the company in operation.

The Delaware bankruptcy court had planned to hold an auction of company assets on Tuesday, after a group of liquidators had made a preliminary $475 million offer. But no other qualified bids came in and the auction was canceled, according to court documents filed late on Monday.

The court is expected to approve the group's offer and liquidation sales are expected to begin on Oct. 16, said James Schaye, president and chief executive officer of Hudson Capital Partners, which is a member of the liquidator group.

CREDIT CRUNCH

Linens 'n Things, which initially struggled amid a housing slowdown and a decline in consumer discretionary spending, was finally taken down by a credit crisis that stymied possible buyers from obtaining credit to fund a purchase.

"If capital markets weren't so tight, I think this chain might possibly have survived," said Schaye. "There's just no financing to do these deals at all."

The company had filed for bankruptcy protection in May and has already closed more than 100 stores. It had been under pressure from its creditors to rush closing its remaining 371 stores, according to court documents. Continued...

Johnson Controls CEO Says Earnings Will Decline Amid Auto Industry ...
Wall Street Journal - ‎ 2 hours ago ‎ By JEFF BENNETT DETROIT -- Johnson Controls Inc., a manufacturer of automotive batteries and seats, expects its earnings to decline as much as 16% during its next fiscal year as the slump in global automotive production continues into 2009. ... Johnson Controls Forecasts Drop in 2009 Profit, Sales (Update3) Bloomberg Johnson Controls Loses Control Forbes

Large declines in employer-sponsored health coverage continue
The health coverage most Americans receive is becoming harder to find. Since 2000, workers and their families have become uninsured at alarming rates: there were over 4 million more uninsured workers in 2007 than in 2000. A new EPI Briefing Paper by Elise Gould finds that employer-sponsored health insurance coverage has declined for the seventh year in a row. Between 2006 and 2007, public insurance was the only reason that more Americans did not become uninsured as coverage fell through work. This week's Snapshot is illustrated by an interactive map that shows the loss in employer-sponsored health insurance coverage in all states and the District of Columbia within the under-65 population, workers, and children from 2000 to 2007.

Jobs decline for ninth month in a row
The nation's employers continue to cut payrolls, with jobs down by 159,000 in September, the ninth consecutive month of job losses. In every period since 1948 when payrolls have declined this consistently, the economy has been in an official recession. Read a quick take on the latest employment report released by the Bureau of Labor Statistics, and for in-depth analysis, see EPI's Jobs Picture.

The burden of outsourcing
The U.S. non-oil trade deficit has displaced jobs in all 50 states and the District of Columbia, adding up to 5.6 million jobs lost or displaced in 2007. This week's Economic Snapshot shows how no state is immune to the corrosive effect of the U.S. trade deficit on U.S. workers and domestic economy. A companion Briefing Paper looks closer at the growing U.S. trade deficits, state-by-state, and examines losses by industries. (Press release [PDF])

The unemployment trend by state
The national unemployment rate has risen to a five-year high of 6.1%, and many states are experiencing rates as high as 8.9%. This Economic Snapshot features an interactive map showing the unemployment rate of each state in August, as well as the employment gains and losses incurred by each state since the economic downturn began in December 2007.

The facts about CEO pay
CEO pay has emerged as a very hot topic in Washington's debate over the proposed $700 billion Wall Street bailout. Details on the meteoric rise of CEO pay in the United States, plus comparisons to workers' pay and to CEO pay in other leading economies, can be found in The State of Working America, 2008-2009. Download a PDF of the relevant section on executive pay. [PDF]

State of Working America 2008/2009
Released in time for Labor Day, the advanced edition of EPI's authoritative volume The State of Working America 2008/2009 is now available. Described as the "most comprehensive independent analysis of the U.S. labor market" by the Financial Times, the 11th edition shows that the business cycle that started in 2001 will be one for the record books. In fact, for the first time on record, middle-class families are at the end of a recovery without ever having regained the ground they lost during the previous recession. Gross domestic product and historically high productivity growth should have raised paychecks up and down the income ladder, but instead the benefits of that growth have bypassed most of the people who made it possible. Prepared biennially since 1988, The State of Working America scrutinizes family incomes, jobs, wages, unemployment, wealth, poverty, and health care coverage, describing the economy's effect on our nation's standard of living. Visit the State of Working America Web site now and in coming months to read the executive summary, introduction, select chapters, press releases, and other related material, as well as to order your copy of the advanced and final edition (to be released by ILR/Cornell University Press in January 2009). (Press release [PDF])
Got work?
Since December 2006, the number of job seekers per job opening available has skyrocketed more than 60%. The number of job seekers per job opening is now firmly in recessionary territory—at a higher level than during any month of the official 2001 recession—and it shows no signs of leveling off. This Economic Snapshot and a companion Issue Brief look at current job openings trends, an important counterpart to the more commonly cited measures of unemployment.

Increase in unemployment not due to extension of jobless benefits
Some analysts have suggested that the dramatic increase in unemployment from July to August 2008 was due to the extension of Unemployment Insurance benefits from 26 weeks to 39 weeks, but the data show unequivocally that the unemployment rate is increasing because people are losing their jobs, not because they are choosing to remain unemployed. Read what's really behind the increase here.

Eight painful months for job market
The unemployment rate jumped to 6.1% last month, the highest jobless rate since September 2003, and payrolls fell by 84,000 jobs, the eighth consecutive month of declines. In every period since 1948 when payrolls have declined this consistently, the economy has been in an official recession. EPI's latest Jobs Picture analyzes the latest data and includes a special supplement focusing on job losses for African Americans and Hispanics.

Bloomberg: Roubini Sees Worst Recession in 40 Years, Stock Drop — Oct. 14 (Bloomberg) — Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, driving the stock market lower after it rallied the most in seven decades yesterday.

Greetings from RGE Monitor!



Seeing some green on tickers around the world, as opposed to the red that was flashing last week, sure feels good. Credit market conditions also appear to be easing somewhat with respect to last week. Moreover, oil prices – a good indicator of markets’ willingness to take risk – lost steam. But is this a just a blip or are we at the turning point?



Over the weekend G7 governments agreed to address this global financial crisis in a coordinated manner, laying out a set of common objectives and principles so that each country could define its own special local financial program.



Here are the main policy actions that will be undertaken:

• Preventing systemically important banks and broker dealers from going bust by taking “decisive action and use all available tools to support systemically important financial institutions and prevent their failure” as in the G7 statement
• Recapitalization of banks and broker dealers via public injections of capital via preferred shares – i.e. partial nationalization of financial institutions. “Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses”
• Temporary guarantee of bank liabilities: all deposits, possibly interbank lines (along the lines of the British approach; see here for U.S. and for Eurozone approach), likely other new debts incurred by the banking system. “Ensure that our respective national deposit insurance and guarantee programs are robust and consistent so that our retail depositors will continue to have confidence in the safety of their deposits”
• Unlimited provision of liquidity to the banking system and to some parts of the shadow banking system to restore interbank lending and lending to the real economy. “Ensure that our banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses”
• Provision of credit to the corporate sector via purchases of commercial paper (certainly in the U.S., possibly in Europe)
• Purchase of toxic assets to restore liquidity in the mortgage backed securities market (U.S.). “Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary”
• Implicit triage between distressed banks that are solvent given liquidity support and capital injection and those that are non-systemically important and insolvent that will need to be closed down/merged/resolved
• Use of the IMF and other international financial institutions to provide lending to many emerging market economies – and some advanced ones such as Iceland – that are now at risk of a severe financial crisis.
• Use of any other tools that are available and necessary to avoid a systemic meltdown, including implicitly more monetary policy easing as well as possibly fiscal policy stimulus. “We will use macroeconomic policy tools as necessary and appropriate”

More details of European financial support programs are being flashed out. As the European governments disclosed plans to invest more than $2.5 trillion into the European financial system, the U.S. authorities announced a plan to rescue frozen credit markets that includes spending $250bn out of the $700bn already allocated for ownership stakes in nine major banks who have already agreed to participate.



The markets are certainly greeting the policy makers’ response with some optimism; however we might not be out of the woods quite yet.



The process of deleveraging is still ongoing and, on the real side of the economy, the measures adopted so far might reduce the severity and the length of the U.S. (and global) downturn but will not avoid it. A recession in the U.S. likely started a long time ago. U.S. home prices are still falling and will not find a floor as long as demand for homes keeps falling faster than supply and inventories stay at record highs. U.S. personal consumption might exhibit negative growth in Q3 2008 for the first time since Q4 1991 – and with personal consumption making up over 70% of U.S. aggregate demand, Q3 2008 real U.S. GDP growth could very well turn out negative. Private investment, both residential and capex, has been falling for quite some time. Unemployment is high and rising.



The old saying that when the U.S. sneezes the rest of the world catches a cold seems to still hold. Most of the other G7 economies have already experienced a quarter of negative growth and are navigating toward recession. A G7 recession coupled with a marked slowdown of large emerging economies can realistically translate into a global recession.



According to our Nouriel Roubini two essential components are still missing among the measures adopted so far. The fist one would be a large fiscal stimulus plan in the form of old fashioned traditional Keynesian spending to boost aggregate demand. “If such a fiscal stimulus plan is not rapidly implemented any improvement in the financial conditions of financial institutions that the rescue plans will provide will be undermined – in a matter of six months – with an even sharper drop of aggregate demand that will make an already severe recession even more severe.” The second one is a plan to reduce the debt overhang of distressed households via the institution of a new Home Owners’ Loan Corporation (HOLC) or better a Home Owners’ Mortgage Enterprise (HOME).

Nominal U.S. Retail Sales Drop for the Third Month in a Row: Biggest Fall in Three Years

• Sales at U.S. retailers dropped in September for the third consecutive month (first time since 1992) and the most in three years as U.S. consumers retrenched in the face of mounting job losses, falling home prices (and equity), falling stock prices, tighter credit conditions and record foreclosures. Consumer spending growth will likely turn negative in Q3.
• September nominal retail sales dropped 1.2%; Excluding automobiles, purchases were down 0.6%
• (Sep 08) Excluding autos, gasoline and building materials, the retail group the government uses to calculate GDP figures for consumer spending, sales dropped 0.7 percent, after a 0.4 percent decrease in August

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U.S. Fiscal Deficit Surges to $455 bn in FY2008: Govt Bailouts and Recession Making the Deficit Unsustainable?

• FY2008 fiscal deficit rose 181% to $454.8 bn (3.2% of GDP, largest since 2004) from $161.53 bn in FY2007 (1.2% of GDP) as financial crisis and economic slowdown caused revenues to fall -1.2% y/y (first time since 2003) with decline in corporate (-17.8%) and individual income tax (-1.5%) revenues

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U.S. Industrial Output Fell 2.8% in September, Most Since 1974

• Bloomberg
• 10/16/2008 08:23 AM

Banks Brace for Slump as Economy Weakens

• NY Times
• 10/15/2008 09:09 PM

Inflation in U.S. Wanes; Consumer Prices Unchanged

• Bloomberg
• 10/16/2008 08:04 AM

U.S. deficit could hit $1 trillion

• UPI
• 10/16/2008 06:30 AM

In new retail survey, consumers say they'll raise spending only 1.9%

• Dallas Morning News
• 10/16/2008 05:39 AM

Signs point to long recession

• Chicago Tribune
• 10/16/2008 05:37 AM

New stimulus package might be next in federal effort to gird economy

• LA Times
• 10/16/2008 05:33 AM

Home Prices Seem Far From Bottom

• NY Times
• 10/16/2008 05:23 AM

Bernanke Foreshadows End to Fed's Hands-Off Approach to Bubbles

• Bloomberg
• 10/16/2008 05:25 AM

As Consumers Keep Wallets Shut, Economic Outlook Dims

• NY Times
• 10/16/2008 05:24 AM

The US has tried to stave off depression in half a dozen ways ...
guardian.co.uk - UK
An occupational disease of being an economic historian is to insist that the answers to all questions lie in the Great Depression that started in 1929. ...
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The rise of economic nationalism
New Statesman - London,England,UK
The financial crisis led in turn to economic depression, which in England fuelled an already inflammatory dispute about the impact of imported Indian calico ...
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Our view - Caution is wise, fear is foolish
HollandSentinel.com - Holland,MI,USA
Seeing the actual numbers will only depress you, and that psychological depression may lead you to believe the doomsayers who claim that an economic ...
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Dow Declines 733; S&P Tumbles 9%
Wall Street Journal - USA
Mr. Bernanke said that policy makers have avoided the "critical errors" made by their counterparts during the Great Depression. Peter Cardillo, chief market ...
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Elderly vulnerable in economic chaos; memories of Great Depression ...
The Canadian Press - MILTON, Fla.
Marcelle Uptain grew up during the Great Depression, so her response to the recent bank turmoil, the stock market plunge and home foreclosures was simple ...
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