T.G.I.M (Thank goodness it’s March). Unfortunately, that’s what investors were saying when they closed the books on January and times have only gotten worse. The economy is weaker; the markets are lower; consumers are more frightened; and businesses of all shapes and sizes continue to struggle.

February brought a comprehensive stimulus package, a blueprint for a complete budget overhaul, and several bailout plans. At some point, these ideas by the smartest men/women the country has to offer have got to start working (don’t they?). Analysts will be working overtime as data from housing, manufacturing, and labor is set to be reported.  Bear in mind, in January, the unemployment rate soared to 7.6% and 600,000 jobs were lost from the economy. With companies announcing major layoffs each day, The National Association now predicts the jobless rate to peak at nine percent this year (though the pessimists actually believe that number to be low).  Heck, maybe even a positive revision or two are in the cards?

Market Matters

In his first address to Congress last Tuesday night, U.S. President Barack Obama tried to find the middle ground between fear and optimism as he outlined the severe global economic challenges being faced today, while vowing to lead the nation into recovery.

While the talk was “generally” well-received (at least, by his fans), President Obama followed up with a budget blueprint (rather a national healthcare plan) that proposed some significant tax hikes on upper-income folks and on many businesses. Early prognostications claim that Big Oil and Big Pharma will be particularly hard hit, though Congress will have some say in the ultimate spending and tax moves. Then again, with the budget quickly ballooning to unfathomable levels, here’s hoping Obama can meet his ambitious goal of halving the deficit within five years.

Financial institutions were in the news again, as the Federal Deposit Insurance Corp. (FDIC) reported that domestic banks lost more than $26 billion in the fourth quarter and more than doubled their loan loss reserves from the prior year.  JP Morgan Chase & Co. (JPM) slashed its dividend by almost 90% to 5 cents a share and announced cutbacks of 12,000 jobs as it incorporates Washington Mutual into its mix.  Fannie Mae (FNM) reported a $25 billion quarterly loss and has its hands out for another government handout.  Likewise, American International Group Inc. (AIG) signaled a need for more bailout funds as it contemplates breaking itself into four separate entities: Asian ops, international life insurance, U.S. insurance, toxic assets (any interested parties for this unit?).  Citigroup Inc. (C) took a step closer to nationalization as the government and some private investors agreed to convert preferred stock into common stock, leaving taxpayers with a stake of just under 40% in the one-time financial behemoth.

Meanwhile, the government announced some details of “stress tests” that will be used to measure how banks needing additional capital assistance would hold up during “baseline” and “extreme” economic conditions.

In other corporate news, the tech sector is officially out of favor as two consulting firms downwardly revised sales forecasts on expectations that consumers and businesses will resist any major expenditures in the dire economy.  Microsoft Inc. (MSFT) issued a poor outlook for the rest of the year, but hinted that another deal for Yahoo! Inc. (YHOO) may be in the works.  Dell Inc. (DELL) reported a dismal quarter on slumping sales, as revenue came in below expectations.

Traders welcomed news that shrinking crude-oil supplies (due to cuts by the Organization of the Petroleum Exporting Countries [OPEC]) may be reaching equilibrium, thanks to lower demand due to the slow economy and oil prices expected to climb above the $44-a-barrel level.

Worries of a U.S. “Lost Decade” – which Money Morning warned investors about all the way back in July – hit Wall Street as equity indexes fell to their lowest levels in 12 years amid concerns that the recession will get much worse before it gets better.

February was the worst month for the Dow Jones Industrial Average since 1933.  While U.S. Federal Reserve Chairman Ben S. Bernanke attempted to calm the markets with optimistic rhetoric that the downturn might end this year, investors did not find his message very convincing.  Every slight rebound was short-lived, as investors tried to make heads or tails about Citi’s ongoing concerns, President Obama’s budget, and the horrid economic data (see below).  So much for those 60-odd standing ovations the nation’s new president received during his speech to the joint session of Congress.

Economically Speaking

With Obama stealing much of the limelight, Fed Chair Bernanke attempted to insert himself into the latest debate by issuing a few key policy talks of his own.  He told Congress that the recession should end in 2009 and next year should be one of recovery (of course, he also mentioned some substantial risks to his forecasts).  Bernanke then tried to quell the ongoing bank rumors by claiming that “nationalization misses the point” and such moves “would be disruptive to the markets.” Finally, he attempted to calm the growing concerns that the exploding deficit and expanding money supply will lead to skyrocketing inflation in the years to come.  Bernanke remains confident that the Fed can act quickly to avoid any significant threats of price pressures when the recovery eventually emerges.

When the government initially reported that U.S. gross domestic product (GDP) contracted by 3.8% in the fourth quarter, some economists raised eyebrows and predicted a revision in the later releases.  And a revision is what they got.  Now the Commerce Department claims that the American economy shrank by 6.2% in the last quarter of 2008, the worst setback since 1982, and a far weaker showing that anyone expected.

Elsewhere, existing home sales plummeted to their lowest level in almost 12 years, and new home sales plunged to their worst showing ever reported.  Consumer confidence also experienced a record-setting down month in January, as individuals remained fearful for their jobs and hesitant to hit the malls – or even the Wal-Mart Stores Inc. (WMT) for anything, but the bare essentials.

Weekly Economic Calendar

Source: Record Job Losses to Continue