Obama previously estimated that his estimated $800 billion strategy for winching the American economy out of its year-long recession could save or create 3 million jobs, but the new study has found that the actual number would range between 3 million and 4 million.

The analysis was submitted by Christina Romer, head of Obama’s council of economic advisors, and Jared Bernstein, the economic advisor to Vice President-elect Joe Biden. The analysis directly follows an official government report showing that U.S. employers slashed more than half a million jobs in December, pushing the unemployment rate to 7.2% and bringing the number of jobs lost last year to 2.6 million — the worst showing since 1945.

“The jobs we create will be in businesses large and small across a wide range of industries,” President-elect Obama said on his weekly radio and Internet address. “And they’ll be the kind of jobs that don’t just put people to work in the short term, but position our economy to lead the world in the long term.”

With President-elect Obama’s inauguration set for Jan. 20 – a week from tomorrow (Tuesday), expect around-the-clock discussions about the stimulus package (and potential tax cuts), as the political bickering begins in earnest.

Because of the plan’s high cost and proposed tax cuts, Obama has faced opposition from Republican and Democratic lawmakers. The incoming president’s top aides visited Capitol Hill on Friday to attempt to allay lawmaker concerns. The plan would combine the tax cuts, aid to states and public-works projects.

Obama said his plan would create nearly 500,000 jobs by investing in clean energy, by committing to double the production of alternative energy in the next three years and by improving the energy efficiency of 2 million American homes. However, he also warned yet again that the economy is likely to get worse before it gets better and that any recovery will not happen overnight.

“These made-in-America jobs building solar panels and wind turbines, developing fuel-efficient cars and new energy technologies pay well, and they can’t be outsourced,” Obama said during his address.

In excerpts from an interview with ABC News to be broadcast on Sunday, President-elect Obama said Americans will have to scale back and make personal sacrifices.

“I want to be realistic here, not everything that we talked about during the campaign are we going to be able to do on the pace we had hoped,” he said in a taped interview with ABC’s “This Week with George Stephanopoulos.”

“Everybody’s going to have (to) give,” Obama said.

Obama also said the proposal:

• Showed the recovery plan would put nearly 400,000 people back to work repairing infrastructure like crumbling roads, bridges and schools and adding miles of broadband network cable.

• Would include bipartisan extensions of unemployment insurance and health care coverage, a $1,000 tax cut for 95% of working families, and assistance to help states avoid deep-and-painful budget cuts in essential services like police, fire, education and health care.

“We won’t just create jobs, we’ll also provide help for those who’ve lost theirs, and for states and families who’ve been hardest-hit by this recession,” Obama said.

Investors will be tested in the coming weeks as earnings season approaches and corporations share their “gloom and doom” of the past quarter – Intel Corp. (INTC) and Wal-Mart Stores Inc. (WMT) offered investors a sneak peak.

The monthly inflation gauges should depict additional energy price contraction, which actually has served as an unofficial stimulus package at the pumps (though no one ever talks about it).  Traders who thought oil had set a floor around $40 a barrel may have to reassess their views. Cuts by the Organization of Petroleum Exporting Countries (OPEC), Middle East turmoil, Russian/Ukrainian disputes … nothing seems capable of halting the slide in oil prices.

Instead, the eternal pessimists focus on deflation, fearful that consumers will hold off on all purchases (regardless of pricing) and the economic downturn will continue well into 2009.  On that note, the retail sales data should offer few positive surprises.  At least, that new “chief performance officer” represents job expansion. But as Money Morning’s investing gurus have demonstrated, it is inflation – not deflation – that will be the big worry.

Market Matters

Six days and counting. Just how will equities perform in 2009? According to the January Effect: As the first five days of January go, so goes the market for the year. Often investors sell stocks late in the year to lock in capital losses. When they reinvest during the first five days (stocks rise), they believe the markets will increase and look to take advantage of the appreciation. When stocks fall during that week, investors are less optimistic about the future of the markets. In 2008, both the Dow Jones Industrial Average and Standard & Poor’s 500 Indexes dropped by more than 5% during the initial five trading sessions, a highly negative (but accurate) precursor of the year to come.  However, in 2009, the predictor turned out to be less clear; the Dow dropped by 0.39%, while the S&P 500 rose by 0.72% (though both were lower after Day Six).  The market uncertainty continues into the New Year.

In corporate news, published reports state that Citigroup Inc. (C) and Morgan Stanley (MS) are looking to combine their brokerage units. Morgan Stanley could pay $2 billion to $3 billion or more for a controlling stake in Citigroup’s Smith Barney retail brokerage business.

Terms of the deal are still being worked out, sources familiar with the matter said, adding that Citi may put its toxic assets into a separate unit as a preliminary step toward shedding them.

Under the current plan, Citigroup and Morgan Stanley would set up a joint venture for their combined retail brokerage businesses. Morgan Stanley would own 51%, control the venture, and would expect to buy Citigroup’s remaining share over the next five years.

The cash would be a big boon for Citigroup, which is under tremendous pressure from the U.S. government to shore up its balance sheet after taking $45 billion of government capital in October and November, the sources told Reuters.
The bank is considering multiple options in addition to the Morgan Stanley deal.
“Everything is on the table,” the sources said.

Dismantling the rest of Citigroup would be difficult, since not many are in the market for big-ticket financial assets now. A few smaller businesses or groups may be sold off – Citi has internally discussed the possibility of selling its Banamex Mexican banking unit, for example. But splitting up Citigroup completely is unlikely.

Wal-Mart Stores, Inc. (WMT) joined the ranks of depressed retailers by missing December sales projections and then cut its outlook for the quarter.  Toyota Motor Corp. (ADR: TM), General Motors Corp. (GM) and Ford Motor Co. (F) reported sales declines of 30% (or more) last month, while Volkswagen AG (ADR: VLKAY) and Bayerische Motoren Werke AG announced plans for greater expansion in the U.S. market to take advantage of their struggling domestic competitors.

Alcoa Inc. (AA) added to the gloomy unemployment picture by reducing its work force by 15,000 jobs. Intel again warned that the economy is hindering its operations as consumers and businesses shy away from technology purchases.  Indian high-tech giant Satyam Computer (ADR: SAY) pulled a “Madoff” by informing investors that its chairman had been falsifying financial results and exaggerated his $1 billion cash balance.  Even Madoff himself was appalled (as he attempted to mail $173 million of checks to loyal investors and send $1 million in jewelry to friends and family).

Oil surged above $48 a barrel early in the week as war escalated in Gaza; however, a mid-week report depicted higher-than-expected inventories and prices plunged 12% in a day – and ultimately dropped below $40 for the first time in 2009.

Stocks gave back those gains from the first trading day as investors (over)analyzed the retail numbers and other data. On the fixed income front, bond investors appear more willing to accept risk as $750 million flowed into high-yield (junk) funds during the last two weeks of 2008.

Economically Speaking…

So what’s $1.2 trillion between friends? After entering office with a budget surplus, the fiscally conservative President Bush will leave his successor with a $1.186 trillion deficit (that is sure to rise with the afore-mentioned Obama stimulus package). For his part, Obama promises to “put government on the side of taxpayers and everyday Americans” as he created a new position – chief performance officer – to eliminate waste wherever it exists in the federal budget.

Good luck with that, Mr. President (elect).

While the economic calendar was quite hectic, economists and investors alike eagerly awaited (rather, reluctantly feared) the late-week unemployment and non-farm payroll releases. In December, the jobless rate surged to 7.2%, its highest level in 16 years, as another 524,000 jobs were eliminated from the economy.

For all of 2009, 2.6 million jobs were lost, the biggest contraction since 1945, though the labor force has tripled since that time. While new claims for unemployment benefits has shown some improvement over the past few weeks, continuing claims rose to a 26-year high, revealing that laid-off workers are having significant difficulties finding new jobs during the recession.

Factory orders fell for the fourth straight month as the weak (and getting weaker) auto sector continued to restrict any progress in manufacturing.

Consumers borrowing declined by a record amount in November, as individuals remained afraid to make any purchases or add to debt positions during these dire times.  Unfortunately, the surest way to work our way out of this recession is for those individuals and businesses (who are able) to pour money back into the economy and that is simply not happening. The minutes from the December U.S. Federal Reserve meeting were released and policymakers appear highly pessimistic about growth prospects for 2009 and implied that rates could remain just above 0% for the foreseeable future.

Meanwhile, the Bank of England cuts its rate to the lowest level in its 315-year history.

Weekly Economic Calendar

Source: $800 Billion Obama Stimulus Will be Topic of Debate Through Inauguration

“China understands that it’s gaining importance in the world economy and that it’s going to participate in that process,” said Keith Fitz-Gerald, Money Morning’s investment director and a former professional trade advisor who’s spent more than two decades focusing on investment opportunities in China, Japan and the rest of the Asia region.

“Many experts will see this as just a ‘bailout’ that’s directed at Chinese infrastructure projects, Chinese technology companies and at holding the global financial crisis at bay” Fitz-Gerald said. “But the real message here is that Beijing is going to pull out all the stops to ensure that its economy does not falter. And that’s because China realizes that it’s become the super glue that’s holding the rest of the planet together.”

China on Sunday unveiled what it described as a “massive” economic stimulus package – a planned capital infusion of $586 billion that it plans to use to reverse its slowing domestic growth, to loosen domestic credit and to offset factory shutdowns and massive job losses caused by an evisceration of its export sector. Analysts also expect export growth to stall and actually reach zero in the months to come as global demand almost completely dries up.

In making this move, China becomes the latest major country to announce a stimulus package, following such nations as the United States, Germany and Japan. Governments have been injecting billions of dollars into their economies, as central banks around the world slash interest rates, all in the hope of avoiding a whopper global recession. Just last week, researchers at the International Monetary Fund (IMF) said that world growth would slow to a tepid 2.2% next year, down from the 3.7% growth estimated for this year. The IMF forecast for China slashed the growth rate down to 8.5% next year, down from an earlier projection of 9.3%.

But the world’s fourth-largest economy has almost reached the so-called “tipping point” – where increases in domestic demand can almost offset the loss of export revenue. So it wants to offset slowing global growth by stoking domestic demand – both to help itself and to remain enough of an economic oasis to possibly keep the global financial crisis from becoming a total financial rout. With record foreign reserves of nearly $2 trillion, China is in an excellent position to bring such financial firepower to bear on this growing global crisis, Money Morning’s Fitz-Gerald has repeatedly stated.

“To the extent that people are still worried that China will fall apart because of the global credit crisis – well, that remains an unknown,” Fitz-Gerald said. “However, I would point out that China is still on track for 9.6% growth, and that even if they were to get a recession, their growth is still going to be seven or eight times what ours [here in the United States] is projected to be.”
China’s plan calls for boosted spending on roads, airports and other infrastructure projects, tax deductions for exporters, and increased aid to farmers and to the nation’s poor. China’s high-tech sector is expected to be a big recipient, as will its fledgling aerospace sector. Spending on education will increase, and so will outlays for healthcare and environmental-protection programs.
For this stimulus package to work, China will need corporate investment and bank lending for rural projects, smaller companies and consumers. Beijing might supply one-quarter of the announced spending, or $145 billion, with the rest coming from increased investment by Chinese state companies, bank lending or bond sales by local authorities for individual projects, Ting Lu, a Merrill Lynch & Co. Inc. (MER) economist, told The Associated Press.

“Many state companies have a lot of cash,” Lu said. “They just need to use it.”

The Xinhua News Agency – China’s state-run news agency and the operator of China Radio International, the nation’s global shortwave broadcasting service – said late Sunday that the stimulus package represents “a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.”

The decision was announced Sunday by the State Council after Premier Wen Jiabao presided over an executive meeting Wednesday. China reported in late October that its economy grew at a less-than-expected rate of 9% in the third quarter – its lowest level in five years and the fifth straight quarter that growth has slowed, MarketWatch.com reported.

At that meeting, Wen told government leaders that China must increase investment and consumer spending, maintain export growth, enhance corporate competitiveness, reform financial industries and improve the real estate industry so that it is able to grow in a healthy manner, according to a report read out on state television.

“We must implement the measures to ensure a fast and stable economic development,” Wen told those government leaders, the television report stated. “They are not only the needs of the development of ourselves, but also our biggest contribution to the world.”

China unveiled this huge financial package before President Hu Jintao attends a meeting of world leaders in Washington this week. The meeting is supposed to be a forum in which the leaders can discuss responses to the global crisis.

With this huge planned outlay, China has taken yet another giant step back from the anti-inflation measures and lending curbs that the Beijing central government has put in place over the past three years – only to start rolling them back since the middle part of this year because of mounting government alarm over falling exports and slowing economic growth. Those very real worries induced the government to embrace “dual targets” of nurturing continued frenetic economic growth while at the same time working to contain price increases. In that vein, Beijing has lifted limits on how much each China-based bank may lend and also cut interest rates three times in the past several weeks.

“As the global outlook deteriorates, we expect Chinese macro policy to turn increasingly aggressive,” Lu, the Merrill Lynch economist, and colleague T.J. Bond wrote in a research report Friday. “This is a key theme for China and indeed, the entire Asian region.”

This stimulus package will certainly provide a major boost to the Asia region. But its effects will be felt worldwide, says Money Morning’s Fitz-Gerald.

Westerners are “going to look at this stimulus package as a case of China trying to save its own butt,” Fitz-Gerald said. “What they don’t understand is that China views this as a case of them saving ours. That’s the big difference.”

Source: Massive China Stimulus is Viewed as an Attempt to Help the West

Xinhua, China’s state-run news agency, said yesterday that the stimulus package represents “a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.”

The decision was announced yesterday by the State Council after Premier Wen Jiabao presided over an executive meeting Wednesday. China reported in late October that its economy grew at a less-than-expected rate of 9% in the third quarter – the fifth straight quarter than growth has slowed, MarketWatch.com reported.

“As the global outlook deteriorates, we expect Chinese macro policy to turn increasingly aggressive,” Merrill Lynch & Co. Inc. (MER) economists T.J. Bond and Ting Lu wrote in a research report Friday. “This is a key theme for China and indeed, the entire Asian region.”

China becomes the latest major country to announce a stimulus package. Governments have been injecting billions of dollars into their economies, as central banks around the world slash interest rates, all in the hope of avoiding a whopper global recession. Just last week, researchers at the International Monetary Fund (IMF) said that world growth would slow to a tepid 2.2% next year, down from the 3.7% growth estimated for this year. The IMF forecast for China slashed the growth rate down to 8.5% next year, down from an earlier projection of 9.3%.

Reports are circulating that the U.S. government may be considering another infusion of its own. The urgency could escalate this week after retailers take center stage and announce their third-quarter earnings. Macy’s Inc. (M), Nordstrom’s Inc. (JWN), Abercrombie & Fitch Co. (ANF) and Wal-Mart Stores Inc. (WMT) all are expected to announce quarterly results.

The retail sales data for October will be released on Friday, though the recent weak sales numbers and earnings announcements should have provided more than fair foreshadowing of the actual monthly results.

Given that consumer spending accounts for 70% of the U.S. economy’s health, don’t anticipate great numbers. And don’t assume these are the worst we’ll see.

Market Matters

With traders predicting a victory by Democrat Barack Obama, the major markets jumped by more than 3% on election day and the Dow Jones Industrial Average closed at a four-week high. International stocks also climbed in anticipation of real “change” coming to the White House.

The euphoria was short-lived, however, as the economic realities returned “the morning after.”  Domestic indexes plunged 10% over the next two sessions in volatile trading.  Cisco Systems Inc. (CSCO), Time Warner Inc. (TWX), and News Corp. (NWS) became the latest companies to disappoint on quarterly earnings.  Likewise, General Motors Corp. (GM) and Ford Motor Co. (F) announced larger than expected losses and dismal sales results for October as execs presented a dire picture of the entire industry.  Circuit City Stores Inc. (CC) started closing stores; Goldman Sachs Group (GS) began handing out pink slips; JP Morgan Chase & Co. (JPM) announced plans to modify mortgage loans for delinquent borrowers.

Weak economic releases (see below) prompted oil prices to plummet again on enhanced recession concerns; the price of gasoline pushed below $2.40 per gallon – reaching its lowest level since early 2007.  For now, inflation does not appear to be a problem.  As for the President-elect, no one ever said it would be easy.  (Then again, optimists note, many of the same fears we face now were present back in 1992 when a relatively unknown Democratic president was elected and his party also controlled Congress. The Dow soared more than 200% during the President Bill Clinton years, the strongest performance in the post-World War II era. We also ended with a budget surplus – but that, at least, may be too much to ask for).

Weekly Market Data

Economic Matters

A hectic week on the economic calendar unfortunately brought little for investors (and the President-elect) to cheer about. The manufacturing sector appears to be in far worse shape than previously thought as the ISM index plunged to its lowest level in 26 years.  Two days later, that same Institute for Supply Management reported that the services sector was weakening, as well. Retailers remained very apprehensive about the holidays and the poorest October sales results since 1969 did nothing to relieve those fears.  JC Penney Co. Inc. (JCP) and Nordstrom’s reduced their earnings projections and only discounter Wal-Mart seemed to benefit from the uncertain times.

As for the highly anticipated unemployment releases, we found that during the month of October, the country shed another 240,000 jobs, its tenth straight month of labor contraction, bringing the year-to-date total losses to 1.2 million. Even worse, the losses appear to be accelerating.

Last month’s unemployment rate skyrocketed to 6.5% (from 6.1% in September) and now stands at its highest level since March 1994. Additionally, recruiting firm Challenger Gray & Christmas reported soaring layoffs (+79%) over the past 12-months, and payroll provider Automated Data Processing (ADP) revealed that the private sector suffered its largest monthly job contraction since December 2001. The dismal labor picture all but confirms a second consecutive quarter of negative growth (GDP), which translates into full-fledged recession. When individuals worry about their jobs, they don’t spend. Retailers suffer, manufacturers suffer, and the overall economy suffers.

We’re already seeing all of this – and there’s more to come.

Overseas, the world’s Central Banks followed in the Federal Reserves’ footsteps by dropping their key lending rates in attempts to jumpstart their respective economies. As Money Morning reported, the ECB (European Central Bank) cut its key interest rate by half a percentage point to 3.25%, while the Bank of England took surprising action by reducing its rate by one-and-a-half percentage points to take it down to 3.0% – an attempt at countering the impact of its rapidly falling housing prices and the ongoing credit crisis.

Weekly Economic Calendar

Source: China Stimulus, Troublesome Retail Earnings Point to Escalating Global Economic Woes

Speaking before 4,200 shareholders in Basel, Switzerland, Chief Executive Officer Marcel Rohner said the bank would look to reduce expenses, particularly in its investment banking division.

First created in 1998, the bank’s securities division has earned $32.48 billion (32.5 billion francs) since its inception. That figure has now been completely offset by the $37.5 billion (38 billion) in losses the unit has incurred since the subprime crisis began to unfold last summer.

UBS will “no longer aim to offer everything to everyone in investment banking,” Rohner said. The bank would announce job cuts at the unit next month in order to make expenses more compatible with the securities unit’s “new positioning,” he said.

In addition to cost-cutting measures, shareholders approved another capital infusion of $15 billion. That’s on top of the $13 billion already raised from sovereign wealth funds in Singapore and the Middle East.

Ospel Ousted

UBS shareholders booed the selection of General Counsel Peter Kurer as the replacement for former Chairman of the Board Marcel Ospel.

Ospel, 58, who started his financial career in securities trading at Merrill Lynch & Co. Inc. (MER) has been lambasted in the Swiss press for overexposing UBS to the U.S. subprime crisis. UBS losses are the largest of any foreign bank.

And while most were pleased to see Ospel replaced, many objected to the selection of Kurer, 58, as his replacement.

“We have heard no justification as to why a credible search for an external chairman has not been undertaken,” former UBS President Luqman Arnold, whose London-based investment group currently holds 1.1% of UBS shares outstanding, said in an e-mailed statement, Bloomberg News reported. “We are skeptical whether a supervisory board led by legacy insiders will be the agent of change that UBS needs.”

There had been some speculation that Germany-based Deutsche Bank AG (DB) Chief Executive Officer Josef Ackermann might be tapped for the role, as he is a Switzerland native and is seen as having the experience needed to helm a large banking operation facing the type of risk management issues that UBS is confronting.

“At least half of the board should be made up of banking experts,” Dominique Biedermann, director of Geneva-based Ethos, who has been very critical of UBS management, said yesterday.

In an attempt to reassure discontent shareholders, Kurer affirmed that UBS is not for sale while acknowledging the monumental task before him.

“I am not here to defend the choice” of the board, Kurer told shareholders. “It is an honor for me to stand in front of you today, but I do so fully aware of the magnitude of the tasks ahead of us, of the work that is required to bring UBS back to the premier ranks of banking.”

UBS shares traded on the New York Stock Exchange dropped 2.6% for the day, with a decline of $0.92 to close at $34.46. Shares have traded in a range from $22.19 to $66.26 in the past 52 weeks.