I was in Los Angeles for a few days last week, as chance had it, marveling at the odd disposition of things there.  I’ve been there many times over the years, but you forget how overwhelmingly weird it is. Altogether the LA metro area has the ambience of a garage the size of Rhode Island where someone happened to leave the engine running.  To say that LA is all about cars is kind of like saying the Pacific Ocean is all about water.  But one forgets the supernatural scale of the freeways, the tsunamis of vehicles, the cosmic despair of the traffic jams.  The vistas of present-day LA make the Blade Runner vision of things look quaint in comparison.

You motor out of the LAX airport – personally, I love the name “LAX” because it so beautifully describes the collective ethos of the place – and you discover quickly that the taxi cab’s windows are not that dirty, it’s the air itself colored brown like miso soup.  Going north on the 405 freeway, you see the looming Moloch of the downtown skyline through the brown miso soup. And you begin to understand why the products of the film industry are so fixated on the theme of machine apocalypse.  Downtown LA looks like just such a gigantic machine as the FX crews would dream up, as if a day will come when those gleaming mirrored office towers will pull themselves out of the ground from their roots and begin lumbering, crunch crunch crunch, north toward the Hollywood Hills seeking to exterminate the vile humanity responsible for making the place what it is.

I happened to be camping out briefly in West Hollywood, in a scene-ster hotel where tiny bubbles of show biz mega-success wafted around amidst a background odor of failure, and an impossibly thin line was drawn between being pampered and being asked to go die in the gutter, please.  The place is not without a certain decorum. I couldn’t help but imagine how lovely Hollywood must have been in, say, 1923, when 92 percent of all the hopeless crapola now on the ground there had not yet been built, when there were no freeways, and fewer cars than currently found in Lincoln, Nebraska, you could go out to the Pacific Ocean on a “Big Red” streetcar, and on a clear day you could see from La Cienga out to Mount Wilson, and the movie “industry” was like a college theater department. What a fabulous giggle it must have all been – apart from poor Fatty Arbuckle – in that romantic desert at the edge of the world.

The whole “Dream Factory” myth has become such an awful cliché, but what remains interesting now is how it utterly infected every other organ, byway, and lost corner of American life, to the degree that the life of this nation became little more than a “narrative,” a story-board, a montage of wishes superimposed over the harsher mandates of reality.  Hollywood now is a mere cartoon of what Wall Street and Washington have turned into.  We’re a civilization of fluff now, riding on a river of toxic sludge.

I found Hollywood utterly exhausting.  On morning walks down in the buzzard flats below Sunset Boulevard you almost never saw a human being outside the protective carapace of a car.  I think I was the only person who ever walked down Melrose Avenue this calendar year.  There were a lot of fresh store vacancies in the endless one-story strips, as if the retailers had just packed up and left Dodge under the cover of night.  There were obvious, if lame, attempts to pedestrianize the major surface boulevards with fancy crossing pavements, but traffic flowed on them at sixty off the rush hours, and you felt like a marmot in a buffalo stampede out there.  For solace, I listened to Bruce Molsky sing “I Ride an Old Paint” on the iPod.  The fiddle part is lovely.

The city of Los Angeles, indeed the whole state of California, seems exhausted too. Apocalypse is probably such a rich theme out there precisely because everything about that particular way of life seems to be nearing its end – whether it’s the fiscal fiasco or the water supply, or the aerospace economy, or the music industry, or the once-great university system, or the Happy Motoring fantasy of cruising for burgers in what Tom Waits called the dark, warm narcotic American night.  I went to the movies there one hot afternoon – Tarantino’s latest, Inglourius Basterds, a completely crazy but enjoyable revenge romp against Hitler & Co. – and before the feature, they showed a “trailer” for Roland Emmerich’s forthcoming apocalyptathon. 2012, in which virtually every global landmark from the Vatican to the White House is destroyed, and mankind’s last hope is John Cusack riding a spaceship to worlds unknown….  If that isn’t shooting your wad as a movie-maker, I’m not sure what is.  Maybe next time out, Roland will step back and make a movie about a puppy.

I had my fill of apocalypse by the time I left the place, only to find myself back in a real nation really dissolving into a puddle of goo.  In the strange new ether of the Web, a consensus grows that we’re in for a rocky autumn, as if the signal event will be something like a hurricane of shoes dropping – bank failures galore, repudiation of US debt instruments by America’s former patrons, foreclosures to the farthest horizon, jobs and incomes terminated, and all the good intentions of the folks in charge coming to naught in the face of historic forces.  We’re off to that kind of a start as I write this, with the Dow dropping eighty points and the news that Disney Inc (NYSE:DIS) has just paid four billion for the rights to the Marvel Comics (NYSE:MVL) posse – Spiderman and his homeys.  As if America needs more childish fantasy.

Regards,
James Howard Kunstler

Source: Cars, Wishes and the Apocalypse

Investment News Briefs Tuesday, September 1, 2009

Merger Mondays are back. But the markets don’t like the news. Even though a handful of the nation’s most economically sensitive firms are pulling their heads from the sand and shelling out big bucks in the name of growth, the markets started the week deep in the red thanks to a disastrous end-of-the-month selloff in Asia.

As investors across the globe wonder if revenue growth is necessary to prop up current share prices, China’s market dipped by more than 6% on Monday. The bears trounced their way across the globe, taking European markets down by about 1% and the S&P down an equal proportion so far today.

But there is good news, especially if you are a fan of comic books. Word is quickly spreading that Disney (NYSE:DIS) has worked out a $4 billion deal to purchase Marvel Entertainment (NYSE:MVL).

Now Mickey and Donald will have to fight with the likes of Spider Man and Iron Man for the attention of Minnie and Cinderella.

This is an interesting deal for several reasons. First, the move shows Disney needs to find growth any way it can find it. With a nasty recession hurting its theme park sales and its media business, the easiest path towards top-line growth is by purchasing it.

The fact that nearly half of the $4 billion deal will come in the form of Disney shares helps to illustrate Disney top brass feels share price is heading towards overpriced territory.

While the deal will add to Disney’s revenue stream, the news will likely be detrimental to share price over the next few weeks and months. So far today, however, shares are down by just 1.25%, only slightly worse than the overall market.

Cartoons and chemicals

About as far removed from the fast-action world of comic book characters and theme parks is the competitive and rather boring chemical industry.

The nation’s top titanium-dioxide pigment manufacturers may not be a conversation during a Saturday-night date, but come Monday morning, with word of a major acquisition, it is worth checking out, especially for us finance geeks.

Earlier today, Huntsman (NYSE:HUN) announced its $145 million bid for Tronox (PINK:TRXAQ), a bankrupt company with loads of debt but over a billion in annual revenues.

The offer, while agreed on by both sides is anything but final. It still has to be approved by a bankruptcy court, and as a “stalking horse” contract can be outbid by another party, like the industry leader Dupont (NYSE:DD).

Although Huntsman will have to pay for the acquisition through added debt, the move will almost immediately benefit Huntsman’s balance sheet and cash flow.

Shares of Huntsman are down by just over 5% so far today (after tripling since March), but don’t expect the bearishness to persist. Once this deal comes closer to finalization, share price will change direction.

Investors that get in over the next week or so will likely get a bargain.

While both stories are creating trading opportunities, the best news is for the overall markets. Increased M&A activity is a sign of a recovering market and a strengthening economy. The more cash we see put on the line, the higher stock prices will go.

I am already looking forward to next Monday.

Source: Let the Buying Begin: Merger Mondays are Back!

Even though the Internet as we know it is only a couple of decades old, this is still a difficult scenario to comprehend. Entire businesses – literally thousands upon thousands of jobs – exist because of the web.

Now we’re entering an age of Web convergence. Every single element of our old media – radio, television and print – is migrating to the Internet at breakneck speeds.

Within the next five years, the depth of offerings on the Internet and the global population connected to them will grow exponentially. In fact, the worldwide Internet economy is now growing at such a rate it will be next to impossible for content providers to keep up…

Bandwidth is being eaten up left and right by more data-intensive offerings, such as streaming video. Young people are also gobbling up Internet media. Young adults today are getting more and more of their news, sports and video directly on their computers. A recent study claims that those born between 1981-1992 get 34% of their news from the Internet, compared with only 11% from print newspapers.

Then there are the masses in emerging economies like China. China became the world’s top Internet user last year, passing the United States. The number of Chinese hooking up to the Internet for the first time is staggering, growing 42% last year alone, to nearly 300 million users, according to the China Internet Network Information Center. Now the government is setting its online ambitions toward the countryside, vowing to hook up every village with broadband lines by 2010.

In all of Asia, only 17% of the population has Internet access, according to Internet World Stats. Compare that with 75% penetration here in North America. This shows that there is plenty of room for tremendous growth…

Partnering With the Biggest Names in Media…

We’ve written to you before on the topic of bandwidth scarcity. And Penny Stock Fortunes readers already had the opportunity to score quick double-digit gains playing this trend with Internet data handler Soapstone Networks Inc. (OTC:SOAP).

Now we’re looking to play a different side of the bandwidth scarcity coin. This time, content delivery and media integration are our targets…specifically, video delivery outsourcing. As we’ve told you before, it’s a highly competitive field, but that’s where the real money is…

That’s why we’re moving one content delivery company off the Penny Stock Fortunes watch list and marking it a strong buy. This company is a content delivery network (CDN) provider for some of the largest media companies in the world. Its customer list includes big media mainstays such as MSNBC, Disney (NYSE:DIS), Netflix (NASDAQ:NFLX) and Fox. The company also boasts the biggest fish of them all. Its No. 1 customer is Microsoft (NASDAQ:MSFT) – a company that is now locked into an all-out war against rival Google (NASDAQ:GOOG) for web supremacy.

And lucrative contracts with these heavy hitters has helped the company grow its revenue more than 500% over the past three years.

Its most recent quarter proved how recession-resistant this content-delivery provider really is. While it still isn’t cash flow positive yet, its Q2 net loss was cut by two-thirds. The company grew its top line 7%, while the rest of the economy is still contracting.

And for a growing company in the tech sector, this company’s balance sheet is incredibly clean. The company is sitting on more than $145 million in cash and zero long-term debt.

The stock’s recent acquisition of another leading firm has even allowed the company to expand its offerings to mobile devices.

This is a massive market. According to networking giant Cisco (NASDAQ:CSCO), mobile video and other bandwidth-heavy features will drive worldwide mobile traffic to more than 1 exabyte per month by 2012. An exabyte is equal to 1 billion gigabytes…that’s a heck of a lot of data.

We just revealed this latest pick and more to our Penny Stock Fortunes readers – if you want to take a look, just click here for more details…

Best,
Greg Guenthner

Source: Taking Advantage of the ‘New Media’ Boom

• Both the Dow Jones Industrial Average and the Nasdaq Composite Index flirted with 9,200 and 2,000 yesterday (Thursday), respectively. Thanks to a continuing string of better-than-expected earnings reports, the Dow jumped 83.74 points, or  0.92% to close at 9,154.46. The tech-heavy Nasdaq eclipsed 2,000 in trading before finally settling in at 1,984.30, up 16.54, or 0.84%, its highest close since October 1. Meanwhile, the Standard & Poor’s 500 also posted a gain, closing at 986.75, up 11.6 or 1.19%. “Institutional and retail investors are so anxious to make up the lost returns of the last year, they are using any cue to buy aggressively,” Kevin Mahn, managing director and chief investment officer at Hennion & Walsh told MarketWatch.com. “We got to the point in the first quarter, when everyone was so risk averse they lost out. And, in just six months, they have now become overly aggressive.”

• U.S. taxpayers yesterday (Thursday) became Citigoup Inc.’s(NYSE: C) largest shareholder with a 34% stake in the company. The federal government swapped $25 billion of its $45 billion Troubled Asset Relief Program (TARP) investment into common stock. The remaining $20 billion will remain in the form of preferred shares that pay an 8% annual dividend.

• Initial claims for jobless benefits rose by 25,000 to a seasonally adjusted 584,000 last week the Labor Department said yesterday (Thursday). However, the number of people still on benefit rolls after collecting an initial week of aid fell by 54,000 to 6.20 million in the week to July 18, the lowest since early April. That fueled optimism that the economy is on the mend.

• Light, sweet crude for September delivery yesterday (Thursday) rose $3.59, or 5.6%to settle at $66.94 a barrel on the New York Mercantile Exchange (NYMEX). The surge left some analysts miffed, as there was no obvious motivation. “You need to really worry about a market that sells off on a very large build and supply one day, and then it rebounds on no headline at all,” analyst and trader Stephen Schork told The Associated Press.

• Motorola Inc. (NYSE: MOT) yesterday (Thursday) posted an unexpected profit for the second quarter after several quarters of losses. Motorola said cost cuts including 8,000 layoffs so far this year were largely responsible for the turnaround. Revenue dropped 32% to $5.5 billion for the quarter, but the company reported a profit of $26 million, or 1 cent a share. That’s up from $4 million a year ago.

• The worst recession in more than 60 years is taking its toll on theWalt Disney Co.’s (NYSE: DIS) advertising and theme park revenue. The Burbank, Calif.-based company saw its net income drop to $954 million, or 51 cents a share for the quarter ended June 27. That compares to a net income of $1.28 billion, or 66 cents a share in the same quarter last year. Operating income from its highly seasonal theme parks dropped 19% to $521 million in the quarter, compared to last year’s $641 million, which was up 3% from 2007. Advertising on its media networks which include ESPN decreased: The operating revenue was down 13% to $1.3 billion, compared to last year’s 9% increase to $1.5 billion.

• Microsoft Corp. (Nasdaq: MSFT) Chief Executive Officer Steve Ballmer weighed in on the beating his company’s new partnerYahoo Inc. (Nasdaq: YHOO) took Wednesday, when investors unloaded shares to send Yahoo’s stock down more than 12%. “People haven’t figured it out,” Ballmer said. “Yahoo gets 88% of the search revenue they have today. They have 0% cost of goods sold against 88% revenue and they have no [research and development] expense and no ongoing [capital expenditure],” Ballmer said in a Dow Jones Newswires report, which cited an event at Microsoft’s headquarters in Redmond, Wash. Yahoo’s Wall Street beating continued yesterday (Thursday), with its shares closing at $14.60, down 54 cents or 3.57%. Microsoft’s shares climbed 1 cent yesterday, closing at $23.81, up .04%.

• Southwest Airlines Co. (NYSE: LUV) made a minimum bid of $113.6 million for Frontier Airlines Holdings Inc. (OTC: FRNTQ) in a bankruptcy auction that would eliminate its low-fare rival. The bid would compete with a pending offer of $108.8 million fromRepublic Airways Holdings Inc. (Nasdaq: RJET). The winning bidder will get a bigger foothold in the Rocky Mountain region. “Taking the Denver gates and equipment from Frontier would give them a large presence there, and the cities that aren’t on Southwest’s route map now could easily be integrated,” said Dave Swierenga, president of an aviation consulting firm AeroEcon toldBloomberg News.

Source: Investment News Briefs Friday, July 31, 2009

But there’s now another problem looming – one that could ultimately weigh down the global financial system.

The problem: Europe’s banks.

As economies slow in other parts of the world, rising joblessness and plunging housing prices and escalating loan losses are putting banks under pressure. That’s especially true in Europe, where consumers and companies are continuing to run into trouble.

Royal Bank of Scotland PLC (NYSE ADR: RBS), now 70% state-owned, fell to a loss in the first quarter and wrote down $3.17 billion in risky assets after its bad debts quadrupled to $4.37 billion.

Bank executives “[expect] a slowdown in financial-market activity compared with the very buoyant conditions seen in Q1,” Chief Executive Officer Stephen Hester told Reuters.

In Germany, Commerzbank AG (OTC ADR: CRZBY) had to take a $1.61 billion charge from its investment bank and a $72.38 million charge from commercial real estate initiatives, resulting in a $1.2 billion loss for the quarter.

In late December, the Institute of International Finance released its global economic outlook for 2009, and estimated that banks around the world had collectively lost nearly $1 trillion – $678 billion from U.S. banks and $300 billion from their European counterparts.

That was in December. We know it got worse – a lot worse – for U.S. banks after that point. Thanks to a mix that included lots of government bailout and an injection of new capital from investors, U.S. banks have experienced an improvement in their outlook.

Indeed, U.S. Federal Researve Chairman Ben S. Bernanke stated that the banks tested are all solvent and the results should provide “considerable comfort about the health of the banking system.”

But in the five months since that Institute of International Finance report was issued, it’s  likely that European banks have experienced a major decline in their fortunes.

Last week’s release of the bank stress tests results removed significant uncertainty about the U.S. banks, since it created a blueprint of what the troubled institutions needed to do to stabilize their finances. Morgan Stanley (NYSE: MS) and Wells Fargo & Co. (NYSE: WFC) have announced plans to raise an aggregate $15 billion in capital. Bank of America Corp. (NYSE: BAC) plans to sell assets and issue more common stock after being told by the federal government that it must raise $33.9 billion to adequately guard against “more adverse” economic conditions.

Bank of America was one of 10 banks told by the government to raise more capital following the so-called stress test. The government concluded that BofA faces a potential $136.6 billion in losses from troubled loans and investments in 2009 and 2010. The bank’s $34 billion capital shortfall was more than twice that of Wells Fargo, which had the second greatest capital need.
Are we destined to see this all play out now in Europe?

Market Matters

Shifting back to autos, General Motors Corp. (NYSE: GM) lost $6 billion in the first quarter and is shopping Saturn to Renault SA of France as it moves closer to its restructuring deadline (and potential bankruptcy). China’s Geely Automobile Holdings Ltd. (PINK: GELYF) has interest in GM’s Saab unit, and Fiat SpA (OTC ADR: FIATY) may look to complement its Chrysler LLC line with the German Opel (also late of GM).  Meanwhile, Ford Motor Co. (NYSE: F) claims to be on track with its restructuring plan and still believes it can manage just fine without any government assistance.  On the earnings’ front, The Walt Disney Co. (NYSE: DIS) and Kraft Foods Inc. (NYSE: KFT) bested estimates, while Cisco offered some mixed results as its better than expected numbers actually prompted some profit-taking among techs.

A poorly received 30-year Treasury auction sent bond prices tumbling as fixed income investors focused on the massive programs the government will need to finance over the next few years.  Oil prices surged above $58 a barrel for the first time in six months as traders seemingly failed to consider rising inventory levels and instead bought on signs (feeble as they are) of an economic recovery that would lead to enhanced energy demand.

The Standard & Poor’s 500 Index pushed beyond the crucial 900 level and ended the week in positive territory for the year.  Techs struggled late as investors realized any economic rebound would not translate into capital expenditures overnight.  Still, the Nasdaq Composite Index has outperformed the other indexes on a year-to-date basis.  With stress tests out of the way, where will the next leaks come from?

Economically Speaking

U.S. retailers released same-store sales data for April and the results were actually quite promising.  As usual, Wal-Mart Stores Inc. (NYSE: WMT) led the charge with a 5% increase in activity, while Children’s Place Retail Stores Inc. (Nasdaq: PLCE), Stage Stores Inc. (NYSE: SSI), Gap Inc. (NYSE: GPS), and The TJX Cos. Inc. (NYSE: TJX) were among those stores that posted better-than-expected results and beat analysts’ expectations.  A late-Easter holiday (April instead of March) helped many retailers as consumers waited until the last minute (as has become the norm) for their related holiday shopping.

On the global front, the European Central Bank dropped its key lending rate by 25 bps to 1%, and initiated other monetary moves to stabilize its (16-country) economy.  Likewise, the Bank of England announced a plan to buy up government and corporate bonds, thus, increasing its money supply.

Speaking of the labor market, the U.S. unemployment rate climbed in April to 8.9%; however, only 539,000 jobs were lost from the economy.  The contraction represented the smallest in six months and was below most analysts’ expectations.  Still, since December 2007, about 5.7 million domestic jobs have disappeared and businesses continue to be slow to hire until they see additional signs of greater stability in the economy.

Construction spending climbed in March after five consecutive monthly declines, though the gains were attributed to non-residential activity and the housing sector remains sluggish at best.  In more promising news, the National Association of Realtors reported a 3.2% increase in pending homes sales, the second straight monthly gain.  Because the release is considered a predictive indicator, analysts took it as a favorable sign that sales activity may pick up in the months ahead.

Weekly Economic Calendar

Source: Are Europe’s Banks Next to be Stressed?

He also shares a British health care conglomerate that provides aid for troubled times and “sells even better when folks are broke.”

This from Adam:

Buy into Eastern Europe’s depression or just make 114% on ours: It’s your shot to call.

In case you hadn’t noticed, retail is in a bit of a pickle these days. The Conference Board’s latest consumer poll puts their Confidence Index down another 12.4 points, to yet another all-time low at 25.

Keeping in mind that anything below 50 is considered bad, I’d have to say that a score of half that ought to be considered really bad.

No shock there, I suppose, since we are looking at massive unemployment right about now. As of late last week, the official figure had us at 8.1%, a 25-year high water mark for folks who are slowly sinking under water.

And that’s only looking at it percentage-wise. Our population has grown roughly 45% since 1985, and 140% since 1930, so it’s safe to say that there are probably more folks hanging around the corner wasting time then ever before in the history of the country, including the dark days of the Great Depression.

Depressing indeed, but before you start thinking this is another one of Lass’ loads of unalloyed dreck, I actually have found another one of those oddball companies looking to expand during this dismal episode.

But First… More Dreck!

There is an odd thing about the current wreckage. Back in 2000, the majority of American households were involved in the stock market in one way or another. This was the dawn of online investing, when most any shmoe who could type their name with two fingers could get a trading account. Inside the biz, many still refer to the tech boom and ensuing crash as the “March of the Morons.”

Not very nice, but there it is. But don’t fret too much, because this most recent crash was in many ways the exact opposite. This time around, it was the wise guys themselves who sank trillions into unfathomable, unvaluable, and in the end, valueless debt arbitrage. The very folks who should have known better fell deepest into the briar patch.

As a result, mega-discounters like Wal-Mart (WMT:NYSE) are actually reporting modest but significant increases in sales, while high-end outfits Saks (SKS:NYSE), Nordstrom (JWN:NYSE), and Ann Taylor (ANN:NYSE) are reporting withering sales declines.

The folks in the Ann Taylor corner suite at 7 Times Square (one wonders how long they will be able to afford THAT address eh?) are specifically blaming the 20% plunge in Q4 on the fact that a remarkable number of women no longer require the “business attire” that is ANN’s stock in trade. The future is so “volatile” right now (that’s biz slang for “god-awful”) the team at ANN won’t even put out a forecast for next quarter.

If you didn’t turn every $1000 you invested last year into 113 GRAND, you really need to give me the next five minutes of your time…

As the Dow lost 40% of its value in 2008, one unorthodox analyst steered his readers to optimized one-year gains of 6,635%, 10,838%, and 11,359%.

Here’s how to get eight months worth of his biggest gainers for 2009 FREE…

The Two Fashion Items That Sell Even Better When Folks Are Broke

But there is one “wearable” shop that is not pulling in its horns. In fact, it is looking to expand its offerings into Eastern Europe. And yes, they know that the once-and-future Eastern Bloc is melting down as fast as (if not faster than) we are here in the States. In fact, they are counting on it.

I am referring to SSL International PLC (SSL:LN). This Brit healthcare conglomerate has the rights to distribute Dr. Scholl’s foot aids overseas. Just imagine all those sore, tired guys pounding the pavement looking for jobs! But SSL’s real winner in these troubled times is their Durex condoms line.

As per Chief Executive Officer Garry Watts, SSL intends on using the downturn to bump its stake 50% in a unit that distributes contraceptives to Russia and nine other eastern European countries. And that’s just the first kiss, as it were: By 2010 they hope to buy up the entire operation.

Blunt and to the Point

In a recent interview with Bloomberg’s Kari Lundgren and Howard Mustoe, Watts put it rather succinctly: “Russian people aren’t going to stop having sex any more than British people are. We’re not immune from the downturn, but it’s a bit like Pizza Hut: If you’re not going out, then you might be willing to drop a five-pound vibrator ring into your trolley.”

Hey, he said it, not me, folks. Okay, stinky feet and Russian condoms are slightly unsettling thoughts (especially around lunchtime). But Watt’s got a point and he’s grinning when he makes it, which makes him different than 95% of the CEOs I speak with these days, who can barely manage a forced rictus smile.

If this is just too much for you to wrap your mind around, and you still want to grab a piece of the action in the “Retail Space,” you can always pick up some of the puts we are recommending in my own WaveStrength Options Weekly column.

Like I mentioned earlier, no one is buying luxury goods. Thus, our Best Buy (BBY:NYSE) play is up some 40% as I sit to write, while our Disney (DIS:NYSE) play is up 114%.

Source: Pick Me Up a Three-Pack When You Go Out, Dear

This dismantling of the so-called “New Federalism” will be readily apparent again this week as the federal government is once again at the forefront of the most-closely watched  crisis-fighting initiatives at hand: With Congress pushing forward on an $827 billion stimulus plan and the Treasury Department planning to unveil its new banking bailout blueprint on Tuesday, economists and other experts say the federal government is taking its biggest role in the economy in a generation.

States that once pushed away from the federal government as part of the New Federalism are now essentially begging it for financial support, banks and Big Business that once viewed near-total deregulation as Corporate America’s Holy Grail are now seeking federal financial aid and new regulatory protections (and in many cases are becoming actual business partners with the government), and individuals are asking for tax relief.

Alan Viard, a Bush administration economist now at the American Enterprise Institute, may well epitomize this reversal of thought: He’s one of the economists who initially rejected the need for a fiscal stimulus, stating that the right size for a government spending bill was “probably zero,” believing that federal interest rate cuts and existing unemployment benefits would be enough to do the trick. But he now sees the package as necessary.

“Things have gotten so bad so quickly,” Viard told The Washington Post. “We have now lost 3.6 million jobs, a stunning loss. But what’s more horrifying is that half that loss has occurred in the last three months. This is a severe recession.”

The exact shape and size of the package matters less than the timing, and any delay will be very damaging, economists say.

“Most of the things in the package, the big dollar amounts, are things that are pretty quick stimulus and need to be done,” Alice Rivlin, who was former president Bill Clinton’s budget director and a critic of aspects of the proposed stimulus, told The Post. “Is it a perfect package? Of course not. But we’re past that. Let’s just do it.”

Signs of the Stimulus

The U.S. Senate late Friday reached agreement on the estimated $827 billion stimulus bill, setting the stage for what’s expected to be some tough negotiations with the House of Representatives over tens of billions of dollars in aid to states and local governments, tax provisions, and programs focusing on education, health and renewable energy.

Congress is pushing hard to complete the legislation this week. But that figures to be a challenge. The House bill was passed without any Republican support, while the Senate version passed Friday night between Democrats and three moderate Republicans.

During a rare floor session on Saturday, Republican opponents continued to criticize the entire stimulus proposal – even though they clearly don’t have the votes to stop it. The bill is expected to be passed in the next few days.

The price tag for the Senate plan is only slightly more than the $820 billion measure adopted by the House late last month. Both plans seek to resuscitate the U.S. economy with similar one-two punch strategies:

• Fast-acting tax cuts designed to jump-start consumer and business spending.
• And longer-term – albeit slower-acting – spending on public works programs and other projects that are projected to create more than 3 million jobs.

Despite these seemingly similar philosophies, the two plans rely on approaches that are very different. The higher-priced House bill emphasizes help to states and municipalities that would otherwise be facing major cuts in services and layoffs of public employees, while the Senate slashed $40 billion of that kind of funding from its version of the bill.

The Senate plan focuses more on tax cuts, lowers a proposed increase in food stamps and provides health-care subsidies for the unemployed that are much less generous than the House version. The Senate plan also creates $30 billion in tax incentives to encourage Americans to buy homes and cars within the next year.

House Speaker Nancy Pelosi, D-Calif., said the emerging Senate cuts to the stimulus program “very damaging” and that she was “very much opposed to them.” But after the Senate reached a deal, Pelosi expressed resolve to complete the legislation in the days ahead.

U.S. President Barack Obama has made the economic recovery effort the centerpiece of his agenda since even before he officially took office. But President Obama now intends to get much more involved, and much more aggressive: He will conduct a “town-hall-style” meeting in Indiana today (Monday), followed by a formal “prime time” White House news conference – the first of his term – tonight.

The president will then pitch the plan again in Florida tomorrow (Tuesday) and again in Virginia on Wednesday.

Senate Majority Leader Harry Reid, D-Nev., said final passage of the Senate bill is expected Thursday, after which congressional leaders say they will hurry to get the House and Senate versions into conference with the hope that a passed bill can be sent to the White House by the end of week, the San Francisco Chronicle reported.

Banking Plan Overhaul Unveiling Tomorrow (Tuesday)

Busy new U.S. Treasury Secretary Timothy F. Geithner last week promised that the Obama administration would unveil its new blueprint for rescuing the U.S. banking system today. Over the weekend, however, the administration said the rollout would be delayed until Tuesday, so that the focus could remain on passage of the stimulus package, Bloomberg News reported.

But that doesn’t mean the banking bailout plan isn’t key.

According to a recent analysis, the Obama administration has a multi-pronged strategy for quelling the financial crisis, including:

• A program to insure banks against extreme losses on mortgages and other loans.
• A new round of investments in banks.
• Help for homeowners facing possible foreclosure.
• The broadening of a U.S. Federal Reserve program to ramp up lending.
• The Treasury Department could also look at purchasing toxic assets from banks – possibly with the aid of private-sector financing.

This would represent an overhaul of the $700 billion Troubled Assets Relief Program (TARP) initiated by the Bush administration. As the name implies, TARP was initially concerned with buying troubled assets – but it quickly evolved into a direct-government investment into the banks.

This new Obama plan reflects Geithner’s personally held view of how governments should respond to financial crises. Geithner believes all available financial tools should be used – and used aggressively. Any such effort would include direct efforts to deal with the financial sector’s massive losses, since that would help renew public confidence in the financial system.

Too small a government response during a crisis poses more risk than too much response, he said during his confirmation hearing.

Many of the details of what Geithner will announce remained in flux, although the broad outlines were becoming clear, published reports state. But one thing is certain: Even the ideas that are continuations of the initiatives started by former Treasury Secretary Henry M. “Hank” Paulson Jr. will have a unique Geithner twist.

One example: The government will almost certainly continue to invest in banks. But past investments consisted of a form of “preferred stock” that granted the federal government no say in how the bank was run, or how the money would be used.

As a Money Morning investigation revealed, that lack of control allowed banks to use taxpayer-provided TARP money as financing for buyouts. And then the banks refused to detail how they spent the money – and why not? They weren’t required to.

Under the new plan, there will still likely be new government investments in banks. But Geithner will likely call for those new investments to be convertible into common stock after some fixed period of time, perhaps seven years. If the banks are unable to raise private capital in that span, government control would escalate.

Banks receiving money also will probably have to report to the government and to the public, and the government is likely to insist that the new capital be used to expand lending.

Geithner has also been looking for a way to bring back the original TARP concept, which Congress passed on Oct. 3. Paulson pitched the plan to Congress as a program to buy troubled assets off of banks’ books, then shifted the plan and opted to invest directly into the banks instead.

Paulson’s chief worry – and the reason that he changed direction – was that asset purchases would involve too many technical complications, meaning it would take too long to enact. And that delay could be costly to a system where banks were teetering on the precipice of failure.

After struggling with those same issues, Geithner and his team appear to have settled on an approach that amounts to financial triage, meant to give investors confidence that banks will not encounter vast new losses so that they are willing to invest private money, The Post reported.

In addition to buying bad assets, the Fed and Treasury in the next few weeks are expected to expand a program that should jump-start lending outside the banking system. In November, the agencies launched a program – the “Term Asset-Backed Securities Loan Facility” – that would devote $200 billion for credit card, auto, student and small-business loans.

That program will be extended to include residential real-estate mortgages and into the commercial real estate sector. Geithner may also announce an initiative that would inject government money into companies known as mono-line insurers. These firms are key players for states and municipalities when it comes time for those state and local government bodies to borrow money. With the implosion of the housing bubble, and the subsequent implosion of the commercial real estate business, mortgage-related losses by the insurers have made it harder for states to issue the municipal bonds that would help them ride out the recession without aggressive tax increases or budget cuts.

Geithner is likely to roll out a plan, worth $50 billion to $100 billion, to encourage the modification of mortgages for homeowners who would otherwise likely face foreclosure. It could be based loosely on a strategy for foreclosure relief engineered by Federal Deposit Insurance Corp. (FDIC) Chairman Sheila C. Bair, when the FDIC took control of the failed bank IndyMac Bancorp Inc. (IDMCQ) last year.

Market Matters

On the corporate front, United Parcel Service Inc. (UPS) posted a profit (though revenue declined) and then announced new cost-cutting measures.  Motorola Inc. (MOT), The Walt Disney Co. (DIS), Time Warner Inc. (TWX), and Costco Wholesale Corp. (COST) reported disappointing results.  Visa Inc’s (V) earnings jumped by 35%, though management warned of tougher times ahead.

Bailout plan recipients have tried to cut back excessive spending (and the associated bad PR) as Goldman Sachs Group Inc. (GS) (Miami) and Well Fargo & Co. (WFC) (Las Vegas) canceled huge boondoggles. Bank of America Corp. (BAC) is selling off corporate jets, and Citigroup Inc. (C) may be attempting to get out of the $400 million marketing deal with the New York Mets.

C-SPAN must be enjoying stellar ratings as investors seem obsessed with the inner-workings of Congress and their debates on the stimulus and bailout.  The markets disregarded much of the dire earnings and economic data (terrible unemployment report…see below) and focused on the newfound optimism that politicos can work together to get the country moving in the right direction.

Economically Speaking

Just how long until a stimulus package starts creating jobs?  That answer can’t come soon enough for the almost 600,000 people who moved to the unemployment line in January, the most devastating month for job losses since 1974.  The unemployment rate climbed to 7.6%, forcing many economists to (upwardly) revise their projections for the rest of the year (and beyond).

Since the recession “officially” began in December 2007, the country has lost more than 3.6 million jobs, with most of the losses coming in the past three months.  The rest of the data released during the week did little to contradict the lousy unemployment picture.  Factory orders fell for the fifth straight month and the ISM index revealed that purchasing managers still look for contraction in the manufacturing sector. Though the services sector showed a slight rebound in its ISM survey, the index reported a fourth consecutive month of declining activity.  Residential construction spending experienced its worst annual decline ever recorded (since 1993), though optimists are hopeful that a stimulus package that focuses on infrastructure growth will prompt a renewal in non-residential building.

With the Fed stuck looking for creative ways to get involved (now that the benchmark Federal Fund rate stands at about 0%), its international counterparts took action (or inaction) of their own. The Bank of England (BOE) cuts its primary lending rate to a record low 1.0%, while the European Central Bank chose to leave its rate unchanged (for now) at 2.0%.

Weekly Economic Calendar

Source: As Stimulus-Package Debate Continues in Congress, New-Look Bank Bailout Plan is Set to Debut This Week

Last time I checked, the price of soybeans, cocoa or orange juice had absolutely no relationship to whether Microsoft (Nasdaq: MSFT), Disney (NYSE: DIS), or Google (Nasdaq: GOOG) declined in price.

But these days, we’ve got a serious blurring of the lines between global marketplaces. In addition, the prevalence and ease of electronic trading, coupled with well-capitalized hedge funds, means we’re seeing all kinds of different markets having an affect on one another.

Not so long ago, it used to be that money typically flowed from one asset class to another – for example, from stocks to commodities. But that isn’t happening now as most players have either bailed out of everything completely, or are selling assets to meet margin calls.

For commodity-watchers like me, I’ve looked on in surprise (as well as a little frustration) as commodities head the same way as stocks and pickings are slim. All the different commodities have suffered a hammering over the past few months, as the stock market’s mess spills over.

The selling wave has taken all the major commodities to new lows for the year, with most markets giving back all their gains for 2008 and more. Let’s see if we can pinpoint the next moves…

Oil’s Slippery Downward Slope… Have We Hit Support?

There’s no question that the oil has dominated the commodity headlines this year, topping out at $147 a barrel back in July.

But somewhat quietly amid the financial crisis, stock market slump, and bailout talk, oil has bounced down to around $60 a barrel. In turn, this has resulted in gasoline prices declining to the $2 a gallon level.

Although there might be more downside to come, it seems we may have hit a temporary support area here.

Natural Gas Could Be Nearing A Bottom… But We Need More Evidence

Oil’s partner in crime – natural gas – has also endured a vicious selloff. Having topped out in July, it’s given up just as much ground as crude oil, with the December 2008 futures contract dropping a solid 8100 points from top-to-bottom. That’s a whopping $81,000 change in equity.

Like crude oil, natural gas seems to have found a temporary support level as prices have consolidated a bit over the past two weeks and remained in the same area. In order to feel confident about a support level, prices have to tread water for a while without giving up more ground. We’re going to watch the price action for a while, but we could be getting near a bottom here.

Even The Safe Havens Are On Shaky Foundations

Ask most folks to name which markets are usually the beneficiaries of an unstable financial market… and you’ll likely get the resounding answer: “Gold and silver.”

Nine times out of ten, they’d be right. But not today. Even amid the economic turmoil, the safe haven hard asset metals can’t muster up any bullish action.

Sure, they got caught up in the bullish frenzy over the summer, just like the other markets. But when the music stopped, investors decided to bail out of the metals, too.

However, take a look at the charts and you can see that they’ve joined oil and natural gas in trying to establish some support. We can see evidence of this in the fact that neither metal has made a new low over the past two weeks. If the stock markets can find their footing here, then the metals may move up just the same.

As you can see, the December silver futures currently sit at $10.40 an ounce, while the December gold futures are trading around $753 an ounce – a far cry from their highs this year of $19.70 an ounce and $1,000 an ounce respectively.

If the market feels confident that the Federal Reserve’s bailout plan will work, investors could start dipping their toes into the long side of the market. If so, that could result in gold and silver moving higher. Until that happens, however, remain cautious, as it doesn’t take much for widespread selling to rear its ugly head again.

It seems that “support” is the word of the moment for the commodities sector. The rest of the markets (corn, wheat, soybeans, coffee, cocoa, sugar, orange juice, and cotton) are all trying to find a foothold and establish some support.

Having been torn apart in the nasty selloff over the past few months, though, it may take some time.

Source:The Commodities Buzzword Of The Moment: Support

Last week’s crude and gasoline inventories dropped more than expected as the effects of Hurricane Gustav resulted in some production disruptions. Gustav, which struck last month, was the fourth-most-destructive storm to hit the United States, causing $20 billion in damages. And then came Hurricane Ike.

Ike made landfall in the Galveston area of the U.S. Gulf Coast on in the pre-dawn hours Saturday (the day I was penning this column) as a Category 2 storm with winds hitting 110 miles per hour.  Ike’s path toward Houston makes it the first storm to hit a major U.S. metropolitan area since Hurricane Katrina eviscerated New Orleans in 2005, Bloomberg News reported.

We won’t know how much direct damage those high winds from Hurricane Ike will cause for several days at least. From the initial reports, the results appear to be devastating.

But the indirect costs are already appearing.

At least 13 Texas refineries shut down as Ike approached, the equivalent of more than 19% of the nation’s oil-refining capacity, Bloomberg said. That will certainly limit fuel deliveries across the country in the days and weeks to come – a reality that will likely result in higher gasoline and energy prices.W

The Gulf Coast refineries and ports are the source of about 50% of the oil and gasoline used in the eastern half of the U.S. market. Refineries operated by Exxon Mobil Corp. (NYSE:XOM), Valero Energy Corp. (NYSE:VLO), ConocoPhillips (NYSE:COP), and Royal Dutch Shell PLC (ADR: RDS.A, RDS.B) were affected.

The bottom line: Gasoline shortages may occur across the southern United States and up to Washington because of the production losses caused first by Hurricane Gustav and now by Hurricane Ike, a U.S. Energy Department official told journalists on a conference call Friday.

“We expect to see constrained supplies of refined products,” said Kevin Kolevar, the Energy Department’s assistant secretary for electricity delivery and energy reliability. “The administration will utilize every tool at our disposal to lessen the likelihood of limited fuel supplies,” including tapping the Strategic Petroleum Reserve.

In the days to come, traders will monitor the situation closely as operators assess the damage (in both equipment loss and duration). Now that Labor Day has passed, many so-called ‘experts’ expect the demand for gasoline to weaken as the peak vacation period ends and most kids have returned to school, another catalyst for low energy prices (if only the Atlantic hurricane season would cooperate).

Source: Hurricane Ike is the Latest Wild Card in the “Guess the Gasoline Price Game”