I think about this action and how New Castle doesn’t have any auto plants anymore, but there are so many retired Chrysler workers here that it will certainly affect the local economy. Many of the residents rely on the pension program of Chrysler to maintain their lifestyles and had Chrysler gone under, New Castle would have taken several steps back.

The town has grown in the past 10 years and as we drove in from Indianapolis last night, I couldn’t help but notice the new stores and restaurants. There are three hotels now instead on the one that we used to have. There is a new Steak N Shake and a new White Castle. These may not be the highest paying jobs in the world, but it shows that the town is growing and attracting new business.

As I look forward to 2009 and what I would like to see, I guess my Christmas wish list would be for the economy to improve. In an appearance on CNBC’s Closing Bell the other night, I predicted that 2009 would be a good year for stocks. Maria Bartiromo was shocked when I said the market could be 20-30 percent higher next year.

The bailout of the automakers will help stem the tide to some degree. Unlike the financial bailout, this one is a more direct bailout of the middle-class. Hopefully we will see the labor market start to stabilize.

I have mentioned before in IDE that the market tends to improve before the economy and the economy improves before the labor market.

I have been looking at historical charts of the Dow and I found out something interesting the other day. I didn’t realize that from 1932 to 1935, in the heart of the Great Depression, the Dow moved from around 44 to up over 170. Did anyone else know this? This just goes to show how the market and the economy are not always in sync.

The job losses will likely continue through the first quarter at the very least. The recession will likely continue through the first quarter as well. But that doesn’t mean that the stock market will be lower for the first quarter.

As I was preparing for the interview on CNBC, I had a thought about how much fear there was towards the stock market. How telling is it that people are pouring money into treasuries when the yield on the 10-year note is right at 2.0 percent?

The old saying that “the market likes to climb a wall of worry” doesn’t begin to capture the pessimism we have right now. It is more like a mountain of fear than a wall of worry.

I would like to wish all of you a happy holiday season and may 2009 bring all of you massive profits in your investments.

Source: An Early Christmas Present For Detroit

The dollar rose against the yen on Monday after the Bank of Japan followed last week’s interest rate cut with a warning that the health of Japan’s economy has deteriorated and is likely to get worse.

But investors’ equally dim view of the U.S. economy hurt the greenback against the euro, which rose broadly in holiday-thinned trade. Doubts about whether a U.S. automaker bailout would steer the economy out of recession also hit the dollar.

Traders said volumes were razor-thin in the lead-Up to the Christmas holidays, aggravating even the slightest moves in the currency markets. Still, many said demand for dollars remained low.

“The dollar view is so opaque at the moment, and the risk reward at this time of year is not worth it unless you really have to trade,” said Maurice Pomery, head of foreign exchange at IDEAglobal in London.

The dollar managed to rise above 90 yen for the first time in nearly a week after BoJ Governor Masaaki Shirakawa said yen strength and a global slowdown may force Japanese exports still lower even after a record plunge in November.

“All Asian exporters are at risk in this global economic slowdown, but Japan is at the top of the list,” said Dustin Reid, senior currency strategist at RBS Global Global Banking & Markets in Chicago. “The stronger yen has been playing havoc for Japanese exporters, and the auto companies in particular are likely to be significantly affected.”

So far this year, Japan’s currency is up nearly 20 percent against the dollar and more than 22 percent against the euro.

Early in New York, the dollar was changing hands at 89.85 yen , up 0.8 percent, after earlier rising to 90.23. The BoJ cut Japanese interest rates last week to near zero.

The euro also rose 1.3 percent to 125.79 yen after earlier hitting a session peak of $1.4123. Sterling fell 0.8 percent to $1.4814 , while the euro rose 1.1 percent to 94.35 pence , near a record high of 95.56 pence touched last week.

A move by China’s central bank to cut lending and deposit rates by 27 basis points — its fifth cut since September — shed more light on the scope of the global slump.

GRIM U.S. OUTLOOK

After coming under steady pressure in December, the dollar rallied on Friday after the Washington announced emergency loans for crippled General Motors and Chrysler.

But while the move averted a crisis for now, traders said uncertainty over the companies’ restructuring plans left many doubting the long-term effect it would have on the economy.

Last week, the Federal Reserve cut benchmark interest rates to near zero, underlining the severity of the economic crisis and undermining support for the dollar.

Investors are also looking for the European Central Bank to cut interest rates, currently at 2.5 percent, in January, though ECB executive board member Lorenzo Bini Smaghi warned about the risks of monetary policy being too lax, according to the Rome newspaper Il Messaggero.

Steven C. Johnson, Reuters 12/22/08

“These are not ordinary circumstances, in the midst of a financial crisis and a recession allowing the U.S. auto industry to collapse is not a responsible action,” said President Bush, who made the final decision to move ahead with the bailout after Senate Republicans last week balked at passing a House-approved rescue of the auto companies.

“Chapter 11 is unlikely to work for the American automakers at this time,” he added.

The $13.4 billion will be taken from the Troubled Asset Relief Program (TARP). GM and Chrysler will then get an additional $4 billion in February.

However, both companies are being forced to accept a number of conditions that include limiting executive pay, reducing debt obligations, and striking new agreements with the United Auto Workers union that bring employee wages and benefits down to levels that are more competitive with those of foreign-based automakers working in the United States.

The companies will also provide the government with warrants for non-voting stock, and federal officials will examine all of the companies’ financial statements. The government has the authority to block any transaction of $100 million or more.

The government’s debt will have priority over all other debts, and if the two automakers fail to demonstrate financial viability by March 31, the loans will be called and the money returned. That’s a tall order for GM and Chrysler, which are faced with plummeting sales and a harsh economic environment.

GM, the nation’s largest automaker, has suffered roughly $73 billion in losses since 2004, and its U.S. sales are down 22% this year, Bloomberg News reported. The company said earlier this month that light vehicle sales plunged 41% in November, dropping to 153,404 vehicles from 261,273 during the same month a year ago.

Chrysler sales were off 47% last month and down 28% through the first 11 months of the year. The company yesterday (Thursday) announced that it would close all 30 of its North American manufacturing plants for four weeks. GM followed suit temporarily closing 20 factories.

“I’ve been in this business since the time of Lee Iacocca and all the bad times we went through in the 1980s were nothing compared to this,” Tim Finegan, owner of a Chysler dealership told The Associated Press. “But for now, our lights are still on and our bills are paid, so you just show up every morning and say maybe today will be a little better.”

Source: White House Approves $13.4 Billion in Loans for GM and Chrysler

“Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” Treasury spokeswoman Brookly McLaughlin said in a statement.

No specific announcement of a bailout was made, as there is still time before General Motors Corp. (GM) and Chrysler LLC – the companies in most at risk of foreclosure – run out of cash. However, the White House made it clear that the government is ready to backstop the companies by using a portion of the funds allocated to its Troubled Asset Relief Program (TARP).

“The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry,” said White House press secretary Dana Perino.

The government has used roughly $335 billion into banks and insurance companies over the past two months, leaving about $15 billion of the initial $350 billion authorized by Congress for the TARP fund available for use. Treasury officials have been reluctant to make those funds available to the auto industry, however, as the money is still needed to backstop existing programs.

If the Treasury wants to tap the second half of the $700 billion bailout passed in October, the administration will first have secure Congressional approval.

A separate measure to grant the auto companies $14 billion in loans was approved by the House of Representatives last Wednesday, but failed to gain Senate approval.

“It’s over with,” said Senate Majority Leader Harry Reid, D-NV, after the Senate vote. “This is going to be a very, very bad Christmas for a lot of people.”

Democrats blamed Senate Republicans for the bill’s failure, and Senate Republicans, in turned blamed union labor.

“We’re hoping that the Democrats will continue to negotiate but I think we have reached a point that labor has got to give, if they want a bill they can get done,” said Senator Richard Shelby, R-AL.

Of course, the bill’s demise left President George W. Bush at a crucial impasse and with virtually no option but to open the Treasury coffers.

“The consequences of the Senate Republicans’ failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options,” said House Speaker Nancy Pelosi. Action by President Bush is the “only viable option,” she added.

Detroit’s Big Three employ more than 200,000 people and support millions more U.S. workers indirectly through suppliers and dealerships. Their collapse could ultimately cost the economy more than 2 million jobs total. And that doesn’t count the estimated 1 million Americans – including many retired autoworkers – who rely on the U.S. auto companies for pension and healthcare benefits.

Ford Motor Co. (F), which has more cash at its disposal than both GM and Chrysler, has said it would not seek government funds, but still urged Congress to help its competitors because their systems of supply and distribution are so intertwined.

Source: White House Opens TARP to Auto Industry after Congress Fails to Approve Loans

Asian stocks climbed nearly 4 percent on Monday on renewed hopes the U.S. automaker industry would be rescued, strengthening willingness to take risks and knocking the U.S. dollar to a two-month low against the euro.

Investors have been funnelling capital back to emerging Asia for the last few weeks and word the White House was considering using some of $700 billion meant to rescue financial institutions for the struggling car manufacturers extended the trend.

European stock index futures were also pointing to opening gains of at least 2 percent.

However, worsening U.S. economic data, a rapidly growing fiscal deficit and the likelihood the Federal Reserve will cut interest rates again this week all combined to weaken the dollar.

“The tide seems to have turned around in recent sessions, with bad U.S. economic news now rightfully hurting the U.S. dollar rather than helping it stronger,” said Nizam Idris, currency strategist with UBS in Singapore.

“Further commentary regarding any alternative solutions to the auto sector will be closely followed during the day, and hence be key to risk sentiment,” Idris said in a note.

Oil bounced back $1 to trade above $47 a barrel on signs that OPEC members might make a deep supply cut to boost prices when they meet later this week.

The MSCI index of Asia-Pacific stocks outside Japan rose 3.7 percent on the day and is up about 7 percent so far in December, trying to pull off its first monthly increase since April.

Japan and South Korea led the region in stock performance. The Nikkei share average rallied 5.2 percent, with Honda Motor Corp stock rose 8.5 percent, one of the biggest lifts to the Nikkei.

South Korea’s benchmark KOSPI share average was up 4.9 percent.

The risk of further declines based on earnings downgrades has been clearly outweighed by the cheapness of stocks at the moment. Toyota Motor Co stock is up 9.1 percent even after Japanese media reported the world’s top automaker is likely to further cut its earnings forecasts and report an operating loss of $1.1 billion in the October-March period.

Hong Kong’s Hang Seng index rose 3.1 percent, led by HSBC and China Mobile. China Construction Bank and Bank of China (Hong Kong) Ltd were the only stocks that fell.

“I am surprised that the equity market is still holding up so well in Asia. Mutual funds are probably putting their year end cash balance to work.” said Sean Darby, chief Asia Strategist at Nomura in Hong Kong, on the overall positive market movement.

In the bond market, the Asia excluding Japan benchmark iTRAXX investment-grade index tightened by 20 basis points, after widening sharply on Friday’s news of Senate’s rejection of auto bail out.

Asian benchmark dollar bonds have not kept pace with the rally in equity markets, trading near historically wide spreads, though the cost of insurance against corporate and sovereign debt default slipped as the environment for risk gradually improved.

The White House indicated last week it is open to using part of the bank bailout package for the Big Three car companies — Chrysler LLC, Ford Motor Co and General Motors Corp . A bill that would have provided $14 billion in loans for the firms failed in the Senate on Friday.

TOO EARLY FOR RECOVERY

With some equity valuations at distressed levels, some investors sitting on cash have begun to think about a recovery at some point in 2009. However, JPMorgan asset allocation strategists said it might be too early to let go of recession trades given the global economy is smack in the middle of the worst downturn since World War Two.

“There remains sufficient uncertainty about the timing of a recovery that it is quite easy for credit and equities to cheapen further, and bonds to rally more before we start the real recovery trade,” they said in a note. “We thus stay with a portfolio of recessions trades — long duration in global rates and defensive exposures in credit and equity markets.”

However, Nomura’s Darby said corporate bonds are already cheap, given how much they have sold off this year. For the time being, bond investors are not as worried about high returns as they are about staying safe, he said.

The yen was up slightly at 90.98 per dollar , having rallied to its strongest in 13 years on Friday at 88.10 after the U.S. auto bailout initially flopped.

The euro rose to highs around $1.3490 on electronic platform EBS, the highest in almost two months.

The rally in stocks sucked money out of the bond market, pushing up the yield on the benchmark 10-year U.S. Treasury note , which moves in the opposite direction of the price, to 2.59 percent from 2.58 percent late in New York on Friday.

Kevin Plumberg and Xi Chen

HONG KONG, Reuters

The dollar slipped to a two-week low against the euro while the yen fell broadly on Wednesday as a tentative agreement by U.S. lawmakers to rescue American automakers helped calm investor sentiment.

The White House and congressional Democrats reached a deal in principle on a $15 billion plan to bail out and restructure auto firms, with officials saying the House of Representatives could vote on it as early as Wednesday.

“The market is still feeding off hopes for mass fiscal stimulus in the U.S. once (President-elect Barack) Obama takes office,” said Stephen Malyon, chief currency strategist at Scotia Capital in Toronto.

Specific to the auto bailout, “in so far as how it is boosting equities, that is important for the foreign exchange market.”

U.S. stock futures rose on Wednesday, a sign of rising risk tolerance, due to bailout hopes. That led to an easing of the move to unwind carry trades, which use the yen — whose interest rate is near zero — to fund purchases of higher-yielding assets.

In early New York trade, the euro edged up 0.3 percent to $1.2948, having earlier hit a two-week high of $1.3004, according to Reuters data.

The dollar rose 0.7 percent to 92.78 yen , while the euro gained 1.1 percent to 120.28 yen. The yen was down 1.2 percent against the Canadian dollar , 0.7 percent against the Swiss franc and 1.1 percent against the pound , according to Reuters data.

Analysts said fears of Bank of Japan intervention to prevent too much yen strength also weighed on the currency after BoJ Governor Masaaki Shirakawa said on Wednesday he was watching forex moves carefully.

But few expected action any time soon.

“A comment from BoJ Governor Shirakawa that the Ministry of Finance has the option of intervening was a statement of fact to lawmakers rather than a hint that intervention is imminent,” said Brown Brothers Harriman in a note to clients.

Analysts said trading in recent days is less active than usual with little economic data to drive market moves and investors beginning to wind down for the year-end holidays.

“We’re seeing subdued days in foreign exchange markets,” said Scotia’s Malyon. “We are also in a week where there is not a lot of direction.”

US BAILOUT IN FOCUS

Analysts believe the falls in the yen are likely to be short-lived as global recession fears keep risk aversion high.

The prospect of interest rates in other developed countries falling towards the low rates in Japan will also keep the Japanese currency supported, they said.

Traders waited to see whether the House of Representatives would approve the automaker bailout, which includes conditions to provide low-interest loans to avert a threatened industry collapse if one of the three U.S. auto firms were to fail.

Some market participants are sceptical on whether such a plan, if passed, would actually save the struggling auto sector, while others argue that it would ultimately do little to cure the global recession.

“The market may yet reach a stage where interest in risk assets cannot be justified by the underlying conditions in the global economy,” analysts at UBS said in a research note.

Nick Olivari
NEW YORK, Dec 10 (Reuters)