• Continuing jobless claims rose to 4.78 million, the highest levels in 42 years, as the U.S. labor market continues to worsen MarketWatch reported. Meanwhile, the four-week average of new claims rose by 24,250 to 542,500. The four-week average draws the attention of economists and investors because it smoothes out distortions caused by bad weather, strikes or the timing of holidays. Compared with the same week a year ago, first-time jobless claims are up about 63%, while continuing claims are up 71%.

• Senator Christopher Dodd, chairman of the Banking Committee, is going after money awarded as bonuses to financial industry executives, Bloomberg reported. Dodd said he wants executives who took billions of dollars in government-rescue funds to repay the bonuses.  A report yesterday showed New York City financial firms disbursed $18.4 billion in cash bonuses in 2008 as the government’s Troubled Asset Relief Program infused almost $200 billion into banks.

• Orders for durable goods dropped 2.6% last month after plunging 3.7% in November, the Commerce Department said.  It was the fifth straight month new orders for long-lasting manufactured goods had fallen, reflecting an ongoing pullback in the economy. For 2008 as a whole, orders tumbled 5%, the second biggest decline since 2001, Reuters reported.

• 3M Co. (MMM) said on Thursday that fourth-quarter profit and sales fell due to the economic downturn, but the company’s stock rose on hopes that the industrial manufacturer is well positioned for growth in the latter half of 2009, Reuters reported.  The company is a bellwether of the U.S. economy because of its geographic reach and varied lineup of products including Scotch tape to optical films for liquid crystal displays.

• Amazon.com Inc. (AMZN) yesterday (Thursday) that its fourth-quarter profit rose 9% after having its “best ever” holiday season.  For the full year, Amazon earned $645 million, or $1.49 per share, on $19.2 billion in revenue. The company earned $476 million, or $1.12 per share, on revenue of $14.8 billion during 2007.

• Light, sweet crude for March delivery fell 72 cents yesterday (Thursday) to settle at $41.44 a barrel on the New York Mercantile Exchange. Storage tanks in the United States are housing more than 338.9 million barrels of crude oil, up from 15.7% from a year ago, according to the Energy Information Administration.

• Eastman Kodak Co. (EK) said yesterday (Thursday) that it would cut up to 4,500 jobs after the company reported a 24% drop in fourth-quarter revenue. Kodak reported a loss of $137 million, or 51 cents per share, from continuing operations, compared with a profit of $215 million, or 75 cents per share, a year earlier.

Global Investment News Briefs Friday, January 30th, 2009

“Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain.”

-Fed Chairman Ben Bernanke

“Was this a justified rescue to prevent a systemic collapse of financial markets or a $30 billion taxpayer bailout for a Wall Street firm while people on Main Street struggle to pay their mortgages?”

- Senate Banking Committee Chairman Christopher Dodd

From where I sit, far away from Washington, it seems like the bailout was both. Yes Mr. Bernanke is correct, had Bear Stearns gone under, there would have been massive panic in the world’s financial markets, not just the U.S. market.

Is it a bailout at the taxpayers’ expense? You bet it is. There is no way J.P. Morgan agrees to this deal without the Fed taking on the risk. Well, after the uproar of JPM paying just $2 per share for BSC and not taking on any of the $30 billion in bad assets, the deal had to be revised to $10 per share and now JPM is taking on the first billion of the risk with the Fed taking on the other $29 billion. Jamie Dimon, the CEO of J.P. Morgan, said in his prepared remarks that JPM would not have done the deal if the Fed had not agreed to take on the risk.

This sounds like a low down payment mortgage. I buy a house and put three percent down, the bank puts up the other 97 percent. If I go into default on the mortgage, I lose the three percent I put down and the bank is left with the rest of the risk. If it goes to auction, they might make money on it, but not necessarily.

The Fed believes that it will eventually make money on these assets, but as you and I both know, there is no certainty in investing.

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I was just on a radio interview with WMMB, the CBS radio affiliate in Chicago. They asked me what I thought of the Fed’s involvement with the JPM/BSC deal. My answer was that “I’m glad I didn’t have to make that decision.” Think about it, if you are Bernanke and don’t do anything, the world’s financial system goes into an all out panic. Or you can stick the U.S. taxpayer with a potential $29 billion bailout.

I still think JPM got a steal, even after so generously agreeing to take on the responsibility of one billion in losses should they occur.

I still can’t say whether or not the Fed should have done this deal. It might take several years to tell whether or not it was the right decision. For now, it was the right decision in that it kept stability in the U.S. and world financial systems. But if the assets they agreed to take on as part of the deal end up costing the taxpayer $29 billion down the road, then it was a bad decision.

The part that worries me is now that there is a precedent for the Fed to step in like this, when will the next time be? I read some comments from Todd Harrison, the founder of Minyanville.com, and I like how he put it. Mr. Harrison said it was like the situation in Iraq in that the Fed is engaged and can’t pull out now without some serious consequences.

I could not agree more. I know my colleague Rusty McDougal is usually the one railing on the government for getting involved in the market, and I usually agree with him, I just don’t usually express it here in the pages of IDE. But the words Laissez Faire mean nothing anymore. There is no such thing as a free market anymore.

I will wait to pass judgment on this particular Fed decision. Whether or not it was a good business decision is one thing and that will take time to figure out. But interfering with a supposed free market system is a no-no in my book.

Good luck and good trading,

Rick

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

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