We’ve got a lot of catching up to do, eh? Mike and Chris did a Fantastico job of taking the conn on the Pfennig in my absence… So thanks to them… But it’s back to me, and besides a couple of days in San Francisco later this month, I’m all yours! (I bet that just makes you smile like a Cheshire Cat… NOT!)

OK… Rather than beat around the bush this morning, Chris left me this note from Friday’s price action, so let’s go to the Friday round up and then onto today! Here’s Chris!

The currency markets were fairly calm Friday morning, but at around 9:00 the dollar index fell off a cliff! The big data released this morning was 2nd Quarter GDP which showed only a 1% contraction vs. an expected 1.5% contraction. But the 1st quarters number was revised down to 6.4% from the original report of 5.5%. I guess traders needed some time to digest the information, as the report came out at 7:30 but the dollar didn’t start its freefall until just after 9:00. But when they finally decided to take the dollar lower, the move was pretty dramatic with the Euro moving up a 1.5 cents in about 2 1/2 hours. The markets settled down around noon, and traded sideways until the close.

So… My time away was much like the “old days” that you could almost make trades on the trading pattern of when Chuck was away, the currencies rallied…

OK… So as I turn on the currency screens this morning, I see that the euro is trading up towards 1.43, and the Aussie dollar is trading with an 84-cent handle! So, those are some good looking numbers for the currencies. The GDP data that Chris talks about above, was interesting in that it gives the risk takers some rope… Yes, that old saying about getting enough rope to hang yourself, comes to mind here. Not that the risk takers will hang themselves, but to illustrate that they have some room to take risk assets higher.

When you look at the proxy currency for commodities and global growth, the Aussie dollar, and it’s trading at the highest level we’ve seen this year, you’ve got to think that the traders, and others are thinking that the worst of the global recession is in the rear view mirror. Now, I think that’s putting a little like putting the horse before the cart, as we just don’t have enough data that hasn’t been massaged and cooked to prove that we’re coming out of the global recession… But hey! If the traders, hedge funds dudes, and currency participants want to play Sly Stone, and take currencies higher, then I suggest we not stand in front of that bus!

One of my fave economists, Nouriel Roubini, believes that “there is now potentially light a the end of the tunnel.” And… That “Commodity prices may extend their rally into 2010 as the global recession abates.”

Now… That’s a horse of a different color, eh? When someone like Nouriel Roubini, who was one of the first to call out the collapse of the global economies, sees a potential light, then the markets sit up and take notes… And begin to buy at cheaper levels, just in case that light is the sun… And not the light of a run-away train heading straight for us!

Well… Somehow, U.S. stocks essentially made it through the earnings reports season unscathed. Pretty amazing if you ask me, but I never claimed to be a stock jockey, so that pretty much explains my inaccurate prognostications that 2nd QTR earnings would be a real drag on stock values… Which scared the bejeebers out of me, for stocks, currencies and commodities have been all rolled up in a great big “risk assets” ball for months now, and if stock values were going to get taken to the woodshed then so would currencies and commodities… But that didn’t happen… Hmmmm….

OK, with the earnings season basically over, we can get back to watching regular data that makes more sense to me… And this WILL be a week that’s cock-full-o-data, beginning with the ISM Index (manufacturing) for July today, along with Vehicle Sales. Tomorrow we’ll see the color of two of my faves, Personal Income and Spending. Wednesday is the ADP Challenger employment report for July… Thursday, we’ll get Central Banks meetings in the U.K. and Eurozone. And Friday is the BIG KAHUNA, as the Jobs Jamboree for July gets printed. Right now, the economists surveyed are looking for a HUGE drop in job losses for July. June’s BLS massaged number of 467,000 job losses is being forecast to drop to 325,000..

I’ll believe that when I see it, although it would be nice if that was the “real” number, eh?

If job losses drop by that much in July, it would certainly keep the fire burning for thought that the global recession is recovering, and that would certainly keep the fire burning for currencies and commodities!

Well… Don’t look now (made you look, made you look! HA) but pound sterling is the best performing currency overnight! The pound is 1.6840, with a bullet! (yes, it had a good beat, and was easy to dance to) Stranger things have happened in currencies over the years, but this is one that really moves to the top 10… The U.K. with all their problems, and sterling posting a better than 15% gain VS the dollar in 2009… Like I said, stranger things have happened, but this one really is a puzzle… Riddle me this Batman… How can a currency from a country that is deep in debt, has interest rates near zero, has a housing problem not unlike that in the U.S., has political problems, and has implemented Quantitative Easing, post a +15% gain?

Ours is not to question why or how… Just know that the calls for the greater use of SDR’s (Special Drawing Rights) by China is probably a good reason, for the SDR’s would contain sterling….

Speaking of SDR’s, and the IMF issuing them… And recall when the current President called for greater authority for the IMF? Well, I’m reading a book right now, that will put shivers down your spine regarding all of this, and it was written about 10 years ago! The name of the book is: The Creature From Jekyll Island… The Creature is the Federal Reserve System, and what it was created to do… Not the stuff you learn in economics 101… What it was “really” created to do… This book is over 500 pages, so it’s a long one… But well worth the read, especially to those that don’t believe we’re being driven to socialism…

OK… Enough of that! I’m really trying to steer clear of that stuff, for I’ve had to deal with quite a few people that just want to shove stuff in front of me that I’m not going to read! Of course this in response to my direction before I went on vacation… But that’s all behind me now… It’s on to the perils of Deficit Spending, and… How to protect yourself from the eventual devaluing of the dollar due to the Deficit Spending!

Back to Australia… The Reserve Bank of Australia (RBA) meets tonight, and while I don’t expect the RBA to raise rates… I do expect them to move from an easing bias to neutral, which in essence would be very much like a rate hike! And… Would really stoke the fire burning for the A$… Especially if in their Monetary Policy statement, the RBA upgrades their growth forecasts… For if they do that, that’s just like telling the markets that rates are going higher here before they go back down…

I heard, but did not see obviously since I was not around any TV’s, laptops, or cell phones last week, that there was a woman that finally took the media to the wood shed for their mamby pamby ways of dealing with the news, and playing patsy with the politicians, etc. Michelle Malkin is her name… And I give her kudos for calling into question the credibility of the media and in this case NBC… (yes, I hold a grudge, BIG TIME, and NBC / CNBC)

I saw the euro hit 1.43 a minute or so ago, but immediately fall back below the figure… I would suspect this to repeat itself a few times before finally moving over 1.43… If not, then look for a fall back… But right now, the bias seems to be to sell dollars…

Currencies today 8/3/09: A$ .8390, kiwi .6655, C$ .9340, euro 1.4290, sterling 1.6826, Swiss .9375, rand 7.7415, krone 6.0825, SEK 7.20, forint 185.60, zloty 2.8725, koruna 17.93, yen 95, sing 1.4340, HKD 7.75, INR 47.67, China 6.8308, pesos 13.18, BRL 1.8645, dollar index 78.12, Oil $70.81, 10-year 3.55%, Silver $14.31, and Gold… $956.60

That’s it for today… Vancouver was great… The Agora Financial Wealth Symposium was very well attended, and I thought my presentation to them went quite well. The attendees were so kind to me, coming up and asking how my health was… And then asking to see a picture of Delaney Grace! Then on to vacation! A great time was had by all, but especially me, as I was surrounded by my kids all week. I know it will be difficult for me to not have little Delaney Grace around me all day this week! I just loved when I would ask, where’s Delaney, and she would pat her chest and say “I right here!” So cute! We dropped my little buddy, Alex, off at Camp where he’ll be the next two weeks. His Camp is just across the lake from our campsite! This will be a long week, settling back into the saddle and all, so I had better get this out the door and to your computer screens! I hope you have a Marvelous Monday!

Source: Data Cupboard Gets a Work out This Week

China has once again snatched the leadoff spot in our daily lineup. And once again, they’ve knocked the cover off the ball.

The Chinese economy expanded at a dizzying 7.9% in the second quarter, their government announced yesterday. That far exceeds analyst expectations and China’s still-impressive 6.1% first-quarter growth. Conveniently, the second-quarter jump — plus revised GDP growth expectations of 8% in the third quarter and 9% in the fourth — puts China perfectly on track for the 8% annual growth they promised earlier this year.

Looking through the fine print of today’s data… oy, these are some la-la land numbers:

• New lending in the first half soared 201% compared to the year before
• First-half property sales up 53% per annum
• Chinese home prices are growing at a 10% annualized pace
• First-half auto sales up 17% per annum
• Retail sales up 15% in the first half
• Inflation down 1.1% from a year ago.

Of course, not all is well over there. Exports, the backbone of the Chinese economy, are down 22% so far this year. Construction starts, another staple of Chinese growth, just ended 11 straight months of decline. But still, today’s numbers show nothing short of a V-shaped recovery for China. Too good to be true? Maybe.
But here’s one more amazing Chinese stat for today, one we don’t doubt: China’s official foreign reserves now exceed a record $2.13 trillion. At least $763 billion of this sea of money is pure U.S. debt. In spite of all the global turmoil and market ups and downs, China has remained the world’s steadiest accumulator of sovereign debt — namely American Treasuries… a fact of life that will surely haunt us one day.

Another Chinese debt auction failed this morning. That’s the third time in the last two weeks that the Chinese government was unable to sell as much debt as it planned. In order to continue financing their rabid growth, maybe they’ll have to start selling some assets — like, call us crazy, American IOUs.
By the way, despite China’s unwavering appetite, global demand for American Treasuries fell by the most this year during May. According to yesterday’s TIC flow data from the Fed, the global community was a net seller of U.S. debt back then. Net selling exceeded $22 billion, the lowest demand for American debt since November.

Mexico is in deep trouble. The Mexican economy might shrink 7% in 2009, the U.N. forecasts.

“Mexico is the biggest concern in the region,” said Alicia Barcena, head of the UN’s Economic Commission for Latin America and the Caribbean. “It’s an economy that depends very heavily on exports to the U.S., it’s one of the countries with the biggest fall in remittances and it’s also being hit by swine flu. Recovery for Mexico will be difficult and highly complicated.”
Back in the U.S., here comes another financial systemic risk crisis. The drama du jour is at CIT, a commercial lender not to be confused with Citigroup.

CIT is a small-to-midsize business lender that actually has a lot more in common with Lehman Bros. Like Lehman, the company’s business model is reliant on debt and easy credit — CIT relies on money borrowed from capital markets to finance its loans. And also like Lehman, CIT is saddled with debt of its own — about $35 billion worth.

Having already bailed out CIT with $2.3 billion in TARP bucks, the Obama administration gave the company the cold shoulder (thank heavens) when CIT came knocking for more earlier this week. Evidently, their moronic board was counting on renewed government aid. Now the company has just a matter of days to raise as much as $3 billion. Fat chance, says the market:

This time last week, we compared some eerie similarities between 2008 and 2009… investor attitudes, market behavior and economic indicators are lining up a bit too close for comfort. And now this — what would be the biggest banking failure since Lehman. Oy, could get interesting. Most media outlets are downplaying CIT’s peril, but we’re not so quick to brush it off. Its bankruptcy won’t likely produce a Lehman style meltdown, but on Monday, tens of thousands of businesses might not have a primary source of financing. In this credit environment, do you think it’ll be easy for them to get fast loans from someone else?
CIT’s plight isn’t helping the dollar one bit. Coupled with the stock rallies this week, the dollar index fell as low as 79.3 yesterday, its lowest level since June 11. As we write, it’s at 79.5.
Sounds like a good day to by some gold, eh? You wouldn’t be alone today, or this month, for that matter… the spot price has risen to $935 this morning, up about $30 from early July.
“The idea that Chinese yuan could replace the dollar strikes us as ridiculous today,” writes Chris Mayer. “I am sure the typical British subject in 1922 — when the Empire ruled over 458 million people and a quarter of world’s land area — would have found equally ridiculous the idea that in two decades, his cherished pound would play second fiddle to the U.S. dollar of the former colonies.

“I don’t know what currency will be the currency of choice two decades hence. I will be surprised if it is the U.S. dollar alone. And not knowing is a good reason to own some gold.”
California’s lousy economy and gold’s worthy valuation has caused a second gold rush. We’ve heard more than one report lately of way more prospectin’ activity than normal in Southern California. For example, Keene Engineering, which makes gold-finding equipment for the average Joe, reported recently that business has doubled in 2009.

It makes sense. Times are tough, jobs are sparse, wages are low, taxes are rising… and here’s perhaps the one true “free lunch” in America. Good luck, fellas.
“If you’re American and are going to be storing things,”writes Doug Casey, “you probably can’t go wrong building a stash of cigarettes.” Of course, Mr. Casey advocates a healthy private stash of precious metals, but when pressed for what else we should stockpile, he said this:

“They keep raising the taxes on cigarettes — a pack now costs $10 in some places in the U.S. That’s 50 cents per individual cigarette. Even if you don’t smoke — or perhaps especially if you don’t smoke — every time you return to the U.S., you should buy the maximum amount of duty-free cigarettes allowed and store them.

“The other thing Americans should do is buy a lot of shotgun shells, 9 mm, .45, .223 and .308 ammo. Even if you don’t shoot, you can set those aside and store them too, because they’re going to be taxed and regulated to the nth degree. And properly stored, they keep for a very long time.

“In fact, anything regulated by the Bureau of Alcohol, Tobacco, Firearms and Explosives — one of the most corrupt, dangerous and useless of all federal bureaucracies — is likely to go up considerably in both price and value. It’s perverse that the U.S. has a bureaucracy to regulate the things you need for a hunting trip or a good party. Maybe their next trick will be to convert the DEA into the Bureau of Sex, Drugs and Rock ’n’ Roll.’”

That’s vintage Doug, for sure. Hearing him talk about stockpiling cigarettes reminds us of last year’s Investment Symposium, when Mr. Casey lit up during his presentation — not because he really wanted to, but because the (very accommodating) people at the Fairmont told him he couldn’t. What followed was an onslaught against Uncle Sam, the TSA, investment bankers and others who likely deserved it. We expect no less from Doug when we meet next week… stay tuned.
But market makers aren’t too concerned about all we’ve mentioned above. Earnings season is front and center, and blue chips are beating expectations left and right.

Most indexes climbed over 1% yesterday, driven mostly by an earnings beat from JP Morgan. Their $2.7 billion in profits gave hope to Bank of America and Citigroup — which both topped earnings estimates before the opening bell this morning. We also saw GE, Google and IBM print better-than-expected earnings after the bell. Most of their earnings beats look to have been priced in yesterday. Thus, the market is at a standstill as we write.
Stocks also got a boost yesterday from the latest jobless claims report. New claims fell by 47,000 last week, says the Labor Department, to 522,000. That’s the lowest level since January. Continuing claims fell by a whopping 642,000, to 6.2 million… a record decline so large, it’s hard to believe.
Oil’s back on the rise, thanks to this week’s sudden stock optimism. Light sweet crude is at $62 a barrel as we write.
“I am sick and tired of people going on and on about the poor and health care,” writes a reader of our recent health care debate. “I’ve been poor. I’ve been ‘trailer trash.’ And you know what? I even got sick a few times. For the most part, unless you have a bone sticking out, blood gushing or some terminal illness, a person generally gets over it. Most anyone, even with a government indoctr- , er, education, can figure out to take some NyQuil, eat the lost days’ pay and sleep it off. On the rare occasion I had to see a doctor, I worked (what a concept!) and paid cash for the office visit. And if I had been unfortunate enough to be in a traumatic accident, the hospital would have patched me back together, insurance or not, because they have to by law. Granted, I might have still been working to pay off the debt even now, which is why I found myself being really freakin’ careful not to put myself in any accidents. Funny how that works.

”If people feel so obligated to help the poor, by God, give to charities. I, like most people who are grateful for the opportunity to earn a living, believe firmly in tithing and giving to charities regularly, even in this economic misallocation. Yes, that’s right. I didn’t say crisis, or downturn or anything else. Every problem we are now facing can be narrowed down to two things: the government legislating activities counter to what the market would normally do and the people who took advantage of it.”

The 5: It’s been fun bouncing these reader mails back and forth this week. Per usual, we’ll bump this one to the blog to make space for whatever evokes rabid response from you next week. If you’ve got more to say on health care, take it to the blog.

Source: China Booms, The CIT Crisis, A Bizarre Commodity Worth Stockpiling, Vancouver and More!

A little-known indicator surfaced as China was preparing to attend the first meeting of the Committee on Statistics under the United Nations Economic and Social Commission for Asia and the Pacific, held in Bangkok, Thailand, from February 4-6.

An article in the People’s Daily called into question the final official GDP numbers for 2008 issued by China’s National Bureau of Statistics. Apparently, the 6.8% positive growth released in Q4 2008 did not correlate with the negative growth in China’s power consumption.

Now it seems that China will face a power glut this year, further calling into question its official GDP data.

The China Electricity Council (CEC) on Wednesday said in a report that demand for energy is expected to decline this year – with a possible uptick starting in Q3. The report cites shrinking exports as the culprit.

We’ve already written extensively about China’s record unemployment and factory closures. However, the extent of the problems have rarely become as clear as with the current CEC report on lower power consumption.

The CEC said that power usage grew 5.23% in 2008, or 9.57% lower than a year ago and the slowest in eight years.

The shrinking demand was mainly attributed to the industrial sector. Approximately 3.43 trillion kilowatt-hours of electricity was used by the industry last year, up 3.83% from a year earlier, slower than the overall social power consumption growth rate for the first time.

In 2008, China’s economy has reached its slowest pace in seven years. Beijing reported that the year-on-year growth rate for the fourth quarter slid to 6.8% from 9% in Q3 and grew 9.9% for the first three quarters.

The big question now is: are those numbers reliable?

We’ve been advising investor for months now to avoid China and instead look at emerging economies in South and Southeast Asia. This latest revelation about China’s questionable GDP data underscores our ongoing concern about any near-term recovery in China.

Gold slipped from a three-month high on Friday after data showed the U.S. economy had contracted by less than expected in the fourth quarter, taking some of the heat out of safe-haven buying.

Spot gold climbed 2 percent to $926.90 an ounce, its highest since Oct 10. It was quoted at $918.90/920.90 an ounce at 1406 GMT, up from $906.75 in New York late on Thursday. In the immediate wake of the data it slipped to $916.60.

Gold priced in euros hit a record high of 720.53 euros.

“On first glance the (GDP) figures are generally good, so they should be negative for gold,” Calyon analyst Robin Bhar said. “Growth is better than expected, but deflation is also stronger, so it is a bit of a double whammy for gold.”

The U.S. Commerce Department said fourth-quarter gross domestic product fell at a 3.8 percent annual rate, the lowest pace since the first quarter of 1982.

Analysts had forecast GDP contracting 5.4 percent in the fourth quarter.

Gold is still being supported, however, by interest in the precious metal as a haven from risk.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange were up $15.80 at $920.80 an ounce.

Market talk of China taking an interest in gold as an alternative to U.S. Treasuries, and of a European fund buying bullion, also helped support prices.

Gold has risen around 3 percent this week as investors have scrambled for the safety of gold and bullion-backed assets such as exchange-traded funds.

“The ETFs were up another 15 tonnes yesterday,” Simon Weeks, director of precious metals at the Bank of Nova Scotia, said, adding safe haven demand was driving the market.

The world’s biggest gold-backed ETF, New York’s SPDR Gold Trust , said its holdings jumped more than 10 tonnes on Thursday to a record 843.59 tonnes.

SPDR’s holdings have risen more than 63 tonnes or 8 percent since Dec 31.

European equity markets and U.S. stock index futures turned higher after the U.S. GDP data, showing a better appetite for assets such as stocks and shares.

The dollar also pared gains against the euro. A new wave of risk aversion hit the currency markets earlier on Friday, with the yen and dollar edging higher as investors worried about risk.

Although gold usually moves in the opposite direction to the dollar, the negative correlation between the two has broken down in recent weeks as both assets gained on risk aversion.

INDIAN GOLD HITS RECORD

Jewelerydemand remains hamstrung by high prices. In India, the world’s biggest bullion market, gold futures touched an all-time high of 14,448 rupees per 10 grams, deterring buyers.

Scrap sales are booming, however, as consumers cash in on the price rise.

Russia’s gold output rose by 13.3 percent to 184.49 tonnes last year, chiefly on the back of improving mine output, the Russian Gold Industrialists Union said.

Silver prices tracked gold, rising to a peak of $12.57 an ounce, their highest since Oct 1. It was later quoted at $12.44/12.50 an ounce against $12.31.

Silver ETFs have also risen sharply this year, with the largest, the iShares Silver Trust , up 660 tonnes or 10 percent in the year to date.

Among other precious metals, platinum and palladium were little changed. Platinum was at $980/985 an ounce against $972.50, while palladium was at $193/198 an ounce, against $191.50.

The world’s biggest palladium producer, Russia’s Norilsk Nickel , said its palladium output was 2.821 million ounces in 2008. It previously reported 2007 output at 3.113 million ounces.

A Reuters survey of 56 precious metals analysts and traders showed most expected the platinum group metals to post significant losses this year as the global economic slowdown pressures demand.

LONDON, Jan 30 (Reuters)

Oil futures rose $2 on Friday after data showed the U.S. economy shrank less than expected in the fourth quarter and after OPEC signalled it may again cut production.

By 1420 GMT, U.S. crude was up $1.34 a barrel at $42.78, after earlier touching $43.44, while London Brent crude had gained $1.70 to $47.10.

“The rally got started on WTI (West Texas Intermediate) when the GDP numbers were released,” Olivier Jakob of consultants Petromatrix said.

Data on Friday showed gross domestic product, which measures total U.S goods and services output, fell 3.8 percent in the fourth quarter, the steepest decline in nearly 27 years. But this was better than the market’s forecast for a 5.4 percent contraction.

Crude was also supported by strong RBOB gasoline and heating oil futures as February refined products contracts approached expiry, a possible workers strike at some U.S. refineries at the weekend, and word that OPEC may act again to cut production.

The producer cartel’s secretary general told Reuters it was willing to cut output further at its meetings in March.

“If the market is unbalanced, yes we will take measures to balance the market,” the Organization of the Petroleum Exporting Countries’ Abdullah al-Badri said at the World Economic Forum in Davos, Switzerland on Friday.

The comments are a strong indication the Organization of the Petroleum Exporting Countries, source of a third of the world’s oil, is willing to go further to stem oil’s $100-a-barrel collapse since June last year.

SHRINKING DEMAND

Oil has fallen nearly 11 percent over the past week but is only down 6.8 percent from December, its smallest monthly percentage fall since June 2008.

On Thursday oil fell 1.7 percent on data showing the U.S. jobless rate rose to a record peak in January, single-family home sales fell in December to their lowest ever and new orders for durable goods tumbled for a fifth straight month.

Shrinking demand for fuel has also contributed to the biggest four-month build-up in U.S. crude stockpiles since 1990.

Asia’s outlook was equally bleak. Data showed Japan’s unemployment at a near three-year high and industrial output in the world’s third-biggest oil consumer plunging a record 10 percent last month.

But traders said a possible strike by 30,000 U.S. refinery workers who threatened on Thursday to shutter more than half of the nation’s oil refining capacity could support crude.

In Britain, energy workers staged unofficial walkouts on Friday when anger over the use of foreign workers at an oil refinery spread to other sites across the country.

Contractors at Total’s Lindsey refinery in eastern England began a protest on Wednesday. The dispute spread on Friday, and hundreds walked out at the Grangemouth oil refinery in Scotland run by Ineos Group.

Total and Ineos have both said production has not been affected.

LONDON, Jan 30 (Reuters)

“Right now, given the concerns that we have over the size of this package and all of the spending in this package, we don’t think it’s going to work,” Rep. Boehner said yesterday (Sunday) on NBC-TV’s “Meet the Press.” “And so if it’s the plan that I see today, put me down in the ‘No’ column.”

The plan – detailed in a Money Morning report last week – could potentially pass the Democrat-dominated House without Republican support, The New York Times reported. But the stimulus plan will face major opposition when it comes before the U.S. Senate, U.S. Sen. John McCain, R-Ariz., told “Fox News Sunday.”

If at least two Republicans don’t approve the bill, the proposal won’t be able to achieve the majority vote of 60 it needs to be filibuster-proof. McCain said he also plans to vote “No” unless the stimulus bill is changed.

“We need to make tax cuts permanent, and we need to make a commitment that there’ll be no new taxes,” McCain said. “We need to cut payroll taxes. We need to cut business taxes.”

Added McCain: “We need to have a commitment that after a couple of quarters of [gross domestic product] growth that we will embark on a path to reduce spending to get our budget in balance.”

McCain lost the November presidential election to Obama.

That’s not all that’s taking place in what figures to be a busy stretch this week.

The economic calendar will heat up this week as economists get their initial look at U.S. gross domestic product (GDP) data for the 2008 fourth quarter. Needless to say, the results are not expected to be pretty, with analysts predicting a 5% contraction during that final three months of the year.

The report is due out Friday.

The United States has already been in a recession for a year, the National Bureau of Economic Research (NBER) reported in early December. This downturn – and the bigger-than-usual job cuts that have resulted – could generate a much-bigger financial crisis “aftershock” than many experts realize. Only two of the last 10 recessions to take place since the Great Depression have lasted a full year. But this one could last well into 2010, many economists fear.

The U.S. economy shrank 0.5% in the third quarter, marking the slowing pace since 2001 and continuing a still deepening recession that has wrung the markets since last year. GDP advanced 0.9% in the first quarter of last year and 2.8% in the second quarter, Bloomberg News reported.
Dana Saporta, an economist at Dresdner Kleinwort Ltd. in New York, told Bloomberg projects a 5.4% overall contraction in the fourth quarter. Analysts expect the malaise to carry over well into this year.

The stimulus packages – money spent by the newly departed Bush administration, as well as one planned by the newly installed President Barack Obama – will have a lot to say about how long the U.S. economy stays down. As the Republican opposition comments demonstrate, with Congress (the Democratic members, at least) promising a stimulus package by President’s Day (February 16th), Obama will have his hands full initiating some “give and take” from the dissenters of the current plan.

On Wednesday, U.S. Federal Reserve Chairman Ben S. Bernanke also leads the first Fed policy meeting of the Obama administration though he and his policymaking cohorts have no more wiggle room when it comes to cuts in the benchmark Federal Fed rate.

But the Fed statement should provide insight into the additional measures the central bank has in its arsenal to help jumpstart the economy.

Earnings season also moves forward with energy companies prepared to show the ill-effects of the drop in oil prices.  Exxon-Mobil Corp. (XOM) and Chevron Corp. (CVX) announce late in the week, as does consumer products giant Procter & Gamble Co. (PG).  Amazon.com Inc. (AMZN) also reports quarterly earnings during the week and analysts are speculating whether investors will cheer its results a la Google Inc. (GOOG) or frown along the lines of eBay Inc. (EBAY).

Market Matters

Last Tuesday, Barack Obama took the oath of office (for the first time) and became the 44th president of the United States.  In his inaugural address, President Obama called for “action, bold and swift – not only to create new jobs, but to lay a new foundation for growth.” He then acted “boldly and swiftly” by freezing the pay of high-ranking members of his administration.  One of those potential members, U.S. Treasury Secretary-nominee Tim Geithner, faced the wrath of Congress for his role in the mis-handling of the banking bailout plan and for his failure to pay a mere $34,000 in taxes.  Since the treasury secretary oversees the Internal Revenue Service, certain “rule sticklers” in Congress frowned upon his “careless mistakes.”  Still, he was approved by the Senate Finance Committee and is expected to be confirmed – just in time to oversee the distribution of that next round of Troubled Assets Relief Program (TARP) money.

While Obama begins a new job and tries to “faithfully execute the office” (rather “execute the office faithfully”), a few financial execs are headed for the unemployment line.  John Thain, formerly of Merrill Lynch & Co. Inc. fame/infamy, stepped down or was forced out from his role at Bank of America Corp. (BAC) after failing to disclose dramatic losses prior to the shareholder approved acquisition.

In an effort to stop the negativity – and no doubt to try and protect his own job – BofA Chief Executive Officer Kenneth D. Lewis and several cronies bought more than 500,000 company shares, a move that earned a collective yawn from investors.

Citigroup Inc. (C) will be replacing Chairman Win Bischoff with ex-Time Warner Inc. (TWX) CEO Richard Parsons, and also announced its intent to sell Japan’s Nikko Cordial Securities, a move that confirms that brokerage will no longer be considered a core business.  In other financial news, State Street Corp. (STT) reported a far-worse-than-expected quarter from its asset management business; U.S. Bancorp (USB) announced that profits fell to the lowest level since 2001; Capital One Financial Corp. (COF) posted a huge loss in the quarter and predicted that credit card defaults will only grow in 2009.

Across the pond, Royal Bank of Scotland Group PLC (ADR: RBS) forecast an annual loss above $40 billion which would be the largest ever reported in the United Kingdom.  On the heels of that news, the British government introduced new measures to its bailout plan, including a form of insurance to limit future loan losses.  Investors were hoping that earnings from non-financials would fare better, but Microsoft Corp. (MSFT), eBay, General Electric Co. (GE), Advanced Micro Devices Inc. (AMD) and Xerox Corp. (XRX), among others, disappointed with weak results as well (though Google and Apple offered some bright spots).  Time Warner, Intel Corp. (INTC), and Clear Channel (among others) announced layoffs, proving that most sectors of the economy are hurting.  Non-government arranged deals still exist as Pfizer Inc. (PFE) attempts to acquire pharmaceutical rival Wyeth (WYE) and Mexican billionaire Carlos Slim. Carlos Slim plans to invest $250 million into The New York Times Co. (NYT), The New York Times reported.

Economically Speaking

A rather slow week on the economic calendar last week allowed investors time to focus on the earnings data.  Housing starts fell for the sixth straight month and building permits, a predictor of future activity, dropped to the lowest level ever reported.

The never-ending layoff announcements continued to hinder the labor picture as jobless claims surged far more than expected.  In China, GDP rose by 6.8% in the fourth quarter, a number that would have prompted parades in this country. In China, however, those numbers confirm dramatic slowdowns in the world’s third-largest economy.

The “weak” report means that growth for all of 2008 came in as 9%, the first year since 2002 that China’s growth rate fell below double-digits.

Weekly Economic Calendar

Source: Financial Crisis Challenges Escalate as Republicans Announce Plans to Oppose $825 Billion Obama Stimulus