With options running out over the weekend, CIT advisors began preparations for a bankruptcy filing. As of Sunday, JPMorgan Chase & Co. (NYSE: JPM) and Morgan Stanley (MS) were talking with other banks about a debtor-in-possession loan, used to fund a company’s operations after it seeks court protection from creditors, Bloomberg News reported.

Bondholders held calls last week to discuss whether to swap some claims for equity to reduce indebtedness. Thomas Lauria, a lawyer at White & Case LLP, told Bloomberg that a group of CIT creditors he represents offered to provide $3 billion in new loans to bridge CIT to an out-of-court restructuring or an orderly bankruptcy, but had yet to hear back from CIT management.

“It seems CIT was ill-prepared for this moment, so they’re scrambling,” Scott Peltz, a managing director at consulting firm RSM McGladrey Inc. told Bloomberg. “Unless you have all these bondholders holding hands and singing Kumbaya, I think they’re too far behind the eight ball to avoid filing.”

While CIT is not nearly the household name of Citigroup Inc. (NYSE: C)or Bank of America Corp. (NYSE: BAC), the lender finances over 1 million businesses – including Dunkin Donuts and Eddie Bauer.

Three prominent retail trade groups sent letters to financial regulators this week warning that the failure of CIT would undermine the industry supply chain.
“[Retailers] are unbelievably concerned right now,” New York bankruptcy lawyer Jerry Reisman told the Buffalo News. “What we may have here is a total disruption in small business.”

Reisman said he received more than two dozen calls from panicked stores and apparel manufacturers, some of which said they may not have the money to pay their employees.

An otherwise light week on the economic calendar gives way to the next round of earnings as Apple Inc (Nasdaq: AAPL) and Texas Instruments Inc. (NYSE: TXN) highlight the corporate releases this week, while consumer companies The Coca Cola Co. (NYSE: KO),McDonalds Corp. (NYSE: MCD), and Amazon.com Inc. (Nasdaq:AMZN) join the mix.

U.S. Federal Reserve Chairman Ben S. Bernanke will head to Congress where several critics await.  As for the healthcare debate, the August deadline seems less likely, though the Senate has its two cents to add in the coming days.  Expect plenty of politicized talk about the ballooning deficit and the impact on small businesses.

Market Matters

The financial sector appears to be on the mend as earnings season brought several positive signs that the worst is over and soon “business as usual” will return to Wall Street.  Goldman Sachs Group Inc. (NYSE: GS) easily surpassed analysts’ earnings estimates on solid trading revenues, while JP Morgan got a boost from its investment banking division to shatter the forecasts.

Even Citigroup and Bank of America posted solid results (thanks to one-time gains), though both entities have many ongoing challenges to overcome before the Feds let them fend for themselves.

Of course, the possibility that CIT will file for bankruptcy protection has left panicked customers without a significant source of funding for their daily operations.  After late hour negotiations failed, the government chose to pass on another sizable bailout and allow true capitalism to play itself out.  CIT turned to private firm and bondholders to help devise a financing plan and avoid the fate of Lehman Bros. and others.  But now, nervous retailers and manufacturers are lining up alternative funding sources with the hope of dodging significant business interruptions.

Bed Bath & Beyond (Nasdaq: BBBY) and Wal-Mart Stores Inc. (NYSE: WMT) are among CIT’s largest customers, though many are small independent operations.  A CIT failure could prove devastating for those firms considered the lifeblood of American business.

In other earnings news, techs enjoyed another decent quarter as Intel Corp. (INTC) easily bested expectations (that is, before that $1.45 billion antitrust fine) and International Business Machines Corp. (NYSE: IBM) earnings grew by double-digits, while management raised its outlook for the next few quarters.  Though both offered encouraging signs for the sector (and economy as a whole), Dell Inc. (Nasdaq:DELL) warned that lower margins are impacting its operations andGoogle Inc. (Nasdaq: GOOG) experienced its lowest rate of revenue growth since going public five years ago.

The travel industry continued to struggle as consumers and business professionals delayed trips and Marriott International Inc. (NYSE:MAR) and American Airlines parent AMR (NYSE: AMR) posted disappointing results.

Market/ Index	Year Close (2008)	Qtr Close (06/30/09)	Previous Week (07/10/09)	Current Week (07/17/09)	YTD Change
Dow Jones Industrial	8,776.39	8,447.00	8,146.52	8,743.94	-0.37%
NASDAQ	1,577.03	1,835.04	1,756.03	1,886.61	+19.63%
S&P 500	903.25	919.32	879.13	940.38	+4.11%
Russell 2000	499.45	508.28	480.98	519.22	+3.96%
Global Dow	1526.21	1,629.31	1,561.11	1,664.23	+9.04%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	3.52%	3.30%	3.65%	+141 bps

Economically Speaking

The White House also experienced a “good news/bad news” week as House Democrats began to push forward a major healthcare overhaul.  Before the real lobbying could begin in earnest, the Congressional Budget Office (CBO) Director proclaimed the proposal would have no positive results on reducing costs or expanding coverage and would actually increase government spending.

Investors shrugged off the CIT developments and focused on positive earnings and economic data.  Stocks surged early on the Goldman news and soared right through the technology reports.  Technicians joined the fun as the Standard & Poor’s 500 Index broke beyond resistance at 930, a strong sign for traders who monitor charts.  Major indexes snapped a month-long losing streak and the tech-heavy Nasdaq Composite climbed to levels not seen since last October, while fixed income suffered reverse “flight-to-quality” trades.  Oil rebounded on the favorable market and economic signs.

While the debate over a healthcare overhaul rages on, the Treasury Department reported that the budget deficit ballooned beyond a record $1 trillion and seemed prime to move even higher if Congress cannot reign in spending.   Analysts fear that interest rates ultimately will move higher should the alarming trend continue and foreign investors shy away from U.S. securities.

But for now, inflation seems very much under control, despite sizable jumps in both the retail and wholesale gauges.  Though gasoline prices surged by 17% in June, prices have already begun dropping at the pumps and most economists do not expect a repeat performance in the months to come.

Though retail sales increased in June for the second consecutive month, much of the gain was related to the rising gas prices and consumers remain reluctant to part with their hard-earned income in light of the weakening labor picture.

On a positive note, weekly jobless claims fell to its lowest level since January. However, naysayers claimed that much of the decline was due to calculation problems stemming from auto closures and layoffs are still very much on the rise.

Finally, the hectic economic calendar ended on a positive note as the housing sector showed renewed signs of a rebound as both new construction and permits for future activity experienced unexpected strength.  Even Dr. Doom himself, NYU professor Nouriel Roubini, the man best known for predicting the current crisis, reversed course and claimed the global economy would move out of recession by late 2009.

The minutes from the June Fed meeting showed that policymakers revised (positively) their forecasts for economic activity in 2009 and 2010, though they expect the unemployment situation to remain weak through next year.  Most Fed watchers do not see any change in the funds rate for the foreseeable future.

On another note, numerous renown economists (about 200), including a few Nobel prize winners, called on Congress to cease the grandstanding and stop criticizing the Fed’s handling of the financial crisis and economic downturn (particularly Bernanke’s “tactics” surrounding the Bank of America/Merrill Lynch deal).  The strongly worded letter by some of the nation’s sharpest minds stated that such politicizing could prove detrimental to the recovery.

Weekly Economic Calendar

Source: Market Recoils as CIT Edges Toward Bankruptcy

If the last three months are any indication, the U.S. tech sector has shaken off its recession-heightened late-winter doldrums, and could see its fortunes soar in the year’s second half as businesses and consumers open their wallets and the broader economy picks up speed.

The technology-laden Nasdaq Composite Index was at the forefront of the most-recent market rally, having soared more than 45% since hitting its 52-week low on March 10. That outpaced both the Dow Jones Industrial Average – up 30% in that time – and the Standard & Poor’s 500 Index – up about 37%.

According to industry analysts, the technology sector – because it is heavily reliant on borrowing, as well as consumer demand – can serve as a harbinger of economic recovery.

“Technology tends to be a leader in the early stages of an economic turn. That’s what we took for as confirmation of a sustainable rally-money rotating into a sector that historically is seen as consumer- and business-sensitive, and requiring more leverage in terms of borrowed money, because it is more sensitive to the economy,” Marc Pado, U.S. market strategist at Cantor Fitzgerald told MarketWatch.com. “I expect technology to continue to lead well through this year and into February of next year.”

Spearheading the Nasdaq’s charge has been Redmond, Wash. software giant Microsoft Corp. (Nasdaq: MSFT).  While its fiscal third-quarter profit fell 11% from a year earlier, Microsoft beat analysts’ expectations, helping the company’s stock to surge more than 50% from its mid-March low. Microsoft is up about 16% in the past month.

Semiconductor manufacturer Texas Instruments Inc. (NYSE: TXN) could trade in the is up more than 45% in the past six months to its current level of about $21 per share. The company could trade up into mid-$30s within 12 months, according to Paul J. Nolte, director of investments atHinsdale Associates Inc., an Illinois money management firm.

Earlier this month, in fact, Texas Instruments sharply raised its second-quarter financial guidance. The reason: Customers had slowed the rate at which they were reducing chip inventories – a signal that the market for semiconductors may be stabilizing.

The company now expects to report earnings per share (EPS) of 14 cents to 22 cents, up from the previous forecast of 1 cent to 15 cents per share.

Opening New Windows

The long-suffering PC market may get a shot in the arm this fall with the Oct. 22 release of Microsoft’s Windows 7, which is all but guaranteed to generate better reviews than its predecessor, Windows Vista. Pre-release versions being publicly tested are already being called better than Vista, which was dogged by geeks and general end-users alike for its slow performance and questionable compatibility with legacy software and hardware.

Stopping short of admitting the goof and giving away Windows 7 to existing Vista users, Microsoft is offering cheaper upgrades to those who pre-order Windows 7 between June 26 and July 11.  The company will offer free Windows 7 upgrades to anyone who purchases a PC pre-installed with Vista after June 26.

Windows 7 is expected to be the operating system of choice for information technology (IT) managers who make purchasing decisions for corporate users.

“The upcoming introduction of Windows 7 could spur a rapid corporate PC upgrade cycle starting in late 2010/early 2011, catalyzed by the end of support for Windows XP and a recovery-based increase in IT spending,” said Jeffries & Co. Inc. analyst Katherine Egbert wrote in a recent research report.

But history shows that a release of a new operating system – no matter how positive the buzz – will translate into only a slight increase in PC sales, Microsoft Senior Vice President Bill Veghte said in a webcastearlier this month. On the business side, enthusiasm is high for Windows 7, but corporations will not rush to upgrade when it is released. The release “will get drowned by the macroeconomic environment,” Veghte said. “As the macro environment comes back, people will have to buy new PCs. People aren’t using PCs any less.”

Game On

Looking ahead, the tech sector is anticipating a slew of product releases in the year’s second half – many of them in the $22 billion video-game sector, which lives and dies on new releases.

Activision Blizzard Inc. (Nasdaq: ATVI), the largest third-party game publisher in the world, will lead the way with the latest in its rock music game series with the September release of “Guitar Hero 5″ on four platforms: Sony Corp.’s (NYSE ADR: SNE) PlayStation 2 and 3, Microsoft’s Xbox 360 and Nintendo Co. Ltd.’s (OTC ADR: NTDOY) Wii. The third iteration of “Guitar Hero” became the first video game ever to achieve $1 billion in sales.

But the music from Activision won’t stop with the last strum of a toy guitar: The company will debut “DJ Hero” in October for the same four platforms. “DJ Hero” will ship with a mock turntable and should appeal to fans that don’t turn to rock for their music fix.

Activision will release new titles for proven franchises such as “Modern Warfare” and “Tony Hawk.” The first “Modern Warfare” title, released in 2007, has sold 13 million copies worldwide and is one of the best-selling games on Xbox 360. The new “Tony Hawk” game represents the 12th installment in the series since it was started 10 years ago.

While sales of console games typically garner most of the attention, it is Activision’s “World of Warcraft” (WoW) playing the role of its single largest sales generator. In 2008, WoW accounted for $1.1 billion in revenue, or 38% of Activision’s total revenue. Sales from all of Activision’s console titles were $1.2 billion. WoW has more than 11.5 million subscribers, Activision said.

Since its dropping down to its 52-week low of $8.14 in January, Activision shares have risen steadily, and are now trading in the $12 range. With a war chest stuffed with nearly $3 billion in cash and ratingsof mostly “Buy” or “Strong Buy” from analysts, Activision may warrant closer study by individual investors, too.

Activision’s rival, Electronic Arts Inc. (Nasdaq: ERTS) also has some potential-big-hit titles coming in the year’s second half, but saw its losses more than double to $1 billion for the fiscal year that ended March 31. Like most game publishers looking to cash in on the holiday shopping season – primetime for consumer spending – EA is saving its best for the second half of 2009.

Titles such as “Madden NFL 10,” “The Beatles Rock Band” and “Left 4 Dead 2″ will sell well, but the outlook for EA on Wall Street is mixed, with the majority of analysts rating the company as a “Hold.”

Some analysts say that EA can weather the current downturn in consumer spending, as it sits on more than $1.6 billion in cash, according to its annual regulatory filing with the Securities Exchange Commission (SEC), but the outlook for the 2009 Christmas shopping season remains uncertain.

Will iSpend?

Following a sharp drop in its stock after the revelation that its chief executive officer’s health may be worse than previously thought, shares of Apple Inc. (Nasdaq: AAPL) have slowly been climbing back toward its 52-week high of $180.91. The shares are currently trading at about 21% below that peak.

The Cupertino, Calif.-based company on June 8 removed a barrier that had stopped many consumers from purchasing its popular iPhone when it lowered the price of its 8-gigabyte 3G model to $99. With wireless plans starting at around $70 per month, Apple’s phone – and perhaps more importantly, its app store – will find its way into the hands of many more consumers in the second half of 2009.

Couple the 8GB iPhone 3G with the newly released, feature-rich 3GS model – and then stir in a barrage of television commercials – and the result should be a marked improvement in revenue.

It is unlikely that Palm Inc.’s (Nasdaq: PALM) Pre will put a dent in iPhone sales, partly because of sustained shortages as Apple floods the market with its phone. However, Sprint Nextel Corp. (NYSE: S) customers locked in their contracts looking to upgrade to a phone with a growing app catalog will see the Pre’s similarities with the iPhone.

Sprint Chief Financial Officer Bob Brust told investors via a webcast at Wachovia Corp.’s Annual Mid-Year Equity Conference that Pre shortages still exist weeks after its launch.

“We still have a backlog of subscribers but it’s not unmanageable and we get shipments every week,” Brust said. Sprint is the exclusive carrier of the Pre.

Analysts estimate that 50,000 to 100,000 Pres were sold in its debut weekend earlier this month, while Apple said the new iPhone sold 1 million units in its opening weekend.

Source: Rebounding Tech Sector Stars Could Play Key Role in U.S. Economy’s Second-Half Rebound

[Editor's Note: This tech-sector preview is the opening installment of a new Money Morning series that will make economic projections for key U.S. sectors for the last half of 2009. As part of that series, look for forecasts for housing, energy, U.S. stocks and the emerging markets.] ]]> http://www.contrarianprofits.com/articles/rebounding-tech-sector-stars-could-play-key-role-in-us-economy%e2%80%99s-second-half-rebound/18629/feed 0 http://www.contrarianprofits.com/articles/controversial-stress-tests-reveal-only-one-bank-needs-capital-but-worries-remain/15933 http://www.contrarianprofits.com/articles/controversial-stress-tests-reveal-only-one-bank-needs-capital-but-worries-remain/15933#comments Mon, 27 Apr 2009 18:18:54 +0000 William Patalon III http://www.contrarianprofits.com/?p=15933 Only one of the 19 financial institutions that received a bank stress test would require additional capital, the controversial government initiative has reportedly concluded.

The identity of the bank that is alleged to have failed the bank stress test was not revealed.

The bank-stress-test findings were reported yesterday (Sunday) by CNBC.com, which said it obtained the information from a source that it did not identify. The source did not identify the company, CNBC.com reported.

“At least one firm – under the [bank] stress test assumptions – will require more capital,” the source said.

The bank-stress-test results were contained in a two-dozen-page report that the government released Friday. But the results had already been “conveyed” to the firms, meaning the bank in question is aware of…

For instance, a 5% to 6% contraction in first quarter gross domestic product (GDP) will look decent vs. the wrenching 6.3% decline the U.S. economy experienced in the fourth quarter. Mix in some still weak – but improving – corporate earnings season and there may be reason to hope that U.S. President Barack Obama’s prediction of an economic rebound in 2010 may not be off target after all.

Eddie Cohen, a market historian who is chief investment officer for Stavis & Cohen Financial, a Houston-Texas financial-management firm, points out that the U.S. stock market has endured three protracted bear markets since 1900 (1906-1921, 1929-1942 and 1966-1982) and sees evidence that the United States may be ensconced on one of those periods again.

While Cohen sees some positive indicators, he continues to advise that caution (or even cautious optimism) be the order of the day.

“Plenty of questions still need to be answered before we can proclaim an end to the bearishness and a definitive market recovery,” Cohen said. “At least, we have started to see some rays of sunshine on the horizon, and that is encouraging.  Still, this environment is not the time to be a hero.”

But there are three significant wildcards at play here that could keep the market from sinking into an even deeper malaise – and that could, in fact, be a catalyst for higher stock prices and perhaps even an improved economy in the months to come. Those three wildcards include:

• There’s an estimated $4 trillion in cash in investors’ hands on the sidelines – capital that could be drawn in to further pump up the markets, should the recent rally continue.
• The federal government has already committed to funding $11.6 trillion in stimulus initiatives, and the sheer magnitude of that government intervention could play a substantial role in determining just how long this downturn lasts – or how quickly it ends.
• Stocks are, in many cases, currently trading at levels not seen since the late 1990s, meaning the market is dangling bargains too enticing to ignore.

Cohen believes that investors need to remain cautious and to understand that market sentiment can literally turn on a dime, especially if the volatility levels remain high [there's some evidence that volatility has diminished somewhat in the past week, and is currently below what is usually expected for the start of the corporate earnings cycle]. However, the Texas investment advisor also foresees some potentially positive developments on the horizon and believes that patient long-term investors who are willing to ride out the short-term volatility may want to commit some money to stocks in profit from these low valuations.

Given that there is “an estimated $4 trillion in cash on the sidelines right now … as investors become more confident, some of these funds could potentially find their way into equities and help drive the markets higher,” Cohen said.

The Quarter That Was

When 2008 came to a close, investors hoped the nightmare had ended and some normalcy would return to the economy and the markets. It was not to be. During the first three months of the New Year, a $787 billion stimulus package, multiple blueprints for rescuing the nation’s banking system and a honeymoon period for a new presidential administration that was one of the shortest in U.S. history made it very clear that the nation’s economic nightmare was continuing.

Much of the data portrayed an economy in decline despite the promises by U.S. Federal Reserve Chairman Ben S. Bernanke’s that better times were coming. The U.S. Commerce Department initially reported that fourth-quarter GDP was down 3.8%, its worst showing in 27 years, though not as bad as many economists had projected. A few months later, however, Commerce Department analysts revised that statistic downward to 6.3% and confirmed that the recession had worsened.

Jobless statistics became the barometer for the nation’s declining economic health, as company after company announced major cutbacks. On Jan. 26 – in a single day so bad that it was labeled as “Black Monday” – about 75,000 jobs were eliminated ad the likes of Caterpillar Inc. (CAT), Sprint Nextel Corp. (S), Home Depot Inc. (HD), Texas Instruments Inc. (TXN), General Motors and others announced major job cuts. Even before that dark Monday, there had already been 170,000 job cuts announced that month – and that’s after a 2008 that saw the recession claim 2.6 million jobs.

“Some of the worst job losses are ahead of us, not behind us,” Wells Fargo & Co. (WFC) senior economist Scott Anderson told USA Today at the time.

One-time global giant Citigroup Inc. (C) fell briefly into penny stock territory and came within a heartbeat of nationalization as the U.S. government finally opted to inject more money into the former financial-sector stalwart. A late-quarter restructuring plan seemed to better position Citi.

Nor did the trouble stop with the banks. Two of the U.S. Big Three automakers – General Motors Corp. (GM) and Chrysler LLC – moved closer to bankruptcy as the government rejected the American carmakers’ plans for reorganizing. Indeed, the Obama administration even “suggested” GM’s CEO pursue other endeavors, and laid down serious guidelines regarding future intervention. Even so, bankruptcy may be unavoidable.

But then a funny thing happened on the way to Great Depression II. Citi, Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) each announced promising results for the first two months of the year, surprising investors and igniting a late-quarter stock market rally. In an interesting parallel development, a “surprise” announcement by Wells Fargo & Co. (WFC) last week added fuel to that already-existing rally in financial-sector stocks, and in the market in general.

Some confidence returned to the boardroom – at least within the healthcare sector – as major deals involving Merck & Co. Inc. (MRK) and Schering-Plough Corp. (SGP) ($41.1 billion) and Roche Holding AG (ADR: RHHBY) and Genentech Inc. (DNA) ($46.8 billion) moved forward.

Electronics retailing giant Best Buy Co. Inc. (BBY) reported better-than-expected profits as consumer activity suddenly picked up (at least, above the dismal levels of the fourth quarter). The credit markets began to thaw a bit as corporations issued new debt and the U.S. Federal Reserve offered up a plan to buy U.S. Treasuries as a way of keeping interest rates low.

Though the Dow Jones Industrial Average declined 13.3% for the quarter, March was its best-performing month since October 2002. The tech-heavy Nasdaq Composite Index declined 3.07%, but enjoyed a March that was actually its best month ever. The Standard & Poor’s 500 Index declined 11.67%.

Some of the late-quarter economic reports seem to reflect this brighter outlook. In manufacturing, for instance, factories continued to struggle as industrial production fell to the lowest level in almost seven years, though a favorable durable goods report offered some optimism as the first quarter came to a close.

Home sales likewise offered some cause for optimism, rising in February as buyers took advantage of low rates and a tax-break for first-time homeowners. Retail sales statistics were a bit better than expected – especially after removing dismal auto sales from the mix. And inflation – a much-feared foe with the level of government spending that’s taking place – remained well under control, even as talk of deflation also seemed to subside.

Stocks continued their strong run, even after the quarter closed. Since then, in fact, the Dow has rallied 6%, the S&P 8% and the Nasdaq 8%.

Sound Strategies to Follow No Matter Which Way the Market Moves

Nat Levy, a principal with Houston-based McNeil, Levy & Friedman LP, is a five-decade veteran of the financial-services sector, and has seen his share of uncertainty. In the near term, it rarely pays to prognosticate – so he doesn’t.

“I am unable to predict short-term market or economic movements and don’t know of anyone who can do more than guess at this,” Levy says.

Even so, at a time when many investors are talking about “new rules,” or “new realities,” Levy says it pays to stay the course.

The one prediction he will offer is that some investors will look back on miscues they made today with more than a little regret.

“Right now, we find ourselves in one of those “if only I had…’ periods,” said Levy.  “My one educated guess is that in five years from now we’ll look back and think “If only I had invested in this; if only I had remained invested in that, etc.’.”

Stavis & Cohen Financial’s Cohen points to the usual suspects like automakers and banks as industries that continue to face considerable challenges in the periods ahead.  While he sees signs of renewed housing activity in terms of new and existing home sales, he acknowledges that prices continue to fall each month, foreclosures are increasing, and the newly laid-off workers could exacerbate those trends.

Cohen – like Money Morning – believes that commercial real estate may be the next shoe to drop; vacancies are increasing, rents are under pressure, and banks may not be willing to loan large sums of money to related companies looking to refinance.

Because inflation could become a problem, Cohen says investors should have some exposure to gold in today’s environment.

“The unprecedented level of government intervention has added significant liquidity to the marketplace, but, ultimately may lead to higher levels of inflation,” he said. “Gold can serve as a potential hedge against such price pressures.  Additionally, as the country’s debt and deficit positions mount, the dollar could remain under pressure and gold can be viewed as an insurance policy against a weak currency and the uncertain times faced today and in the future.”

Cohen states that investors can invest in gold directly by purchasing bullion or through funds or exchange-traded funds – one being the SPDR Gold Shares exchange-traded fund, or ETF, (GLD) that track the price movements of the so-called “yellow metal.” His firm uses a manager who buys bullions and stores it in a vault, which he says gives his firm’s clients the opportunity to access a product whose price moves more in lockstep with the market price of gold, and is even more cost effective than gold funds or ETFs.

In terms of stocks, Cohen believes investors should consider small-cap shares.

“Historically, coming out of recessionary times, small-caps are among the best performing equity asset classes,” he says. “Granted, many of these companies may have struggled during the dire economic times as investors shun anything other than industry leaders. Now may represent a decent time for cautiously optimistic investors to again look at small-cap companies, particularly when combined with some exposure to gold as a hedge against renewed downside pressures on stocks.”

Cohen recognizes that the newly enacted government programs could prove helpful in jump-starting the U.S. economy – which should enable the recent upward move in stock prices to continue. In particular, he sees some successes in the Fed’s attempts to get corporations and municipalities borrowing again.

“The credit markets definitely are showing signs of life,” said Cohen. “In the first quarter, domestic companies issued over $350 billion in new investment-grade paper and interest rate spreads between [corporate bonds] and Treasuries are coming down. Likewise, according to Lipper, investment-grade [municipal bonds] were up 4% to 5% in the first quarter and investor demand for such offerings seems to be on the rise. In fact, the state of California moved up a recent sale of $4 billion in bonds by a day to accommodate the demand for what turned out to be one of the largest tax-exempt offerings since 2007.”

Mortgage-market distress could also create some investment opportunities for investors who do their homework, Cohen says.

“I am a firm believer that challenges create opportunities, and no products have experienced more significant challenges over the past few years than mortgage-related securities,” said Cohen. “Amid the subprime debacle and related credit crisis, all mortgage products have struggled and even the higher-quality paper is being priced as if it is a toxic asset. We use a fixed-income manager who has been buying up more stable mortgage-backed issues at what he perceives to be tremendous values because of the negativity that has enveloped the entire asset class.”

A market historian to the end, Cohen likes to return to what he knows best when attempting to analyze just where he believes the markets will head next.

“Dating back to 2000 through mid-March, the equity market lost about 3% in value, so history may suggest we are about halfway through what some would call a secular bear market,” Cohen said. “During such times, it is quite common to experience periods when markets really take off. In fact, during the last few weeks in March, equities rose over 20% and some investors have pointed to that move as evidence that the market had bottomed and the turnaround had begun. In reality, since October 2007, we have seen six rallies of various magnitudes.”

Source: After a Tough First Quarter, Investors Have Cause For Cautious Optimism

[Editor's Note: This look at the U.S. economy and stock market is the latest installment in a series of Money Morning quarterly reports that will examine such topics as gold, housing and oil. These reports will now be a regular feature at the end of each quarter.]

Monday began with several European companies, including electronics giant Philips (PHG) and insurance and banking conglomerate ING, announcing job cuts of 6,000 and 7,000 employees respectively.

The gloomy start to the workweek quickly turned into a bloodbath as more than 75,000 jobs were lost in a single day, when a who’s who of U.S. household names launched a gauntlet of layoffs:

● Sprint Nextel Corp. (S), the wireless phone carrier said it is eliminating about 8,000 positions in the first quarter.

● Caterpillar Inc. (CAT), the world’s largest maker of mining and construction equipment, is in the process of shedding about 20,000 jobs.

● Pharmaceutical company Pfizer Inc. (PFE), is buying rival drugmaker Wyeth (WYE) for $68 billion, and said it would cut 8,000 jobs as part of the merger strategy.

● Home Depot Inc. (HD) the home-improvement retailer said it was closing four small business units, trimming about 7,000 jobs in the process.

● General Motors Corp. (GM) said it will cut 2,000 jobs at plants in Michigan and Ohio.

● Texas Instruments Inc. (TXN), which makes chips for cell phones and other gadgets, said it will axe 3,400 jobs.

And the bad news continued yesterday (Tuesday) as Owens Corning (OC) said it is cutting 3,500 jobs, or 13% of its payroll.
It was a stark reminder of how rapidly the recession is claiming jobs. Already 170,000 jobs have been lost in January. The U.S. economy lost 2.6 million jobs in 2008.

Moreover, a growing number of economists say the U.S. has only reached the halfway mark of job losses expected for this recession.

“Some of the worst job losses are ahead of us, not behind us,” Wells Fargo & Co. (WFC) senior economist Scott Anderson told USA Today.

Anderson expects 3 million Americans to lose their jobs in 2009. Approximately 2.6 million were cut last year – the most since 1945, the final year of World War II. The layoffs are happening in “all industries in all areas of the world,” Anderson says.

The worst news, though may be that the U.S. economy is not just shedding jobs temporarily, but is undergoing a fundamental restructuring process that will eliminate some types of jobs for good.

“They [represent] structural, not cyclical, changes to the economy,” Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland told BusinessWeek. “We’re looking at a permanently smaller economy with prolonged unemployment at an unacceptable level.”

Morici says that housing, real estate, automobiles, finance, and retail sectors are resetting to “permanent lower levels” of employment.

Mike Montgomery, an economist with IHS Global Insight, asserts that many jobs in autos, manufacturing, apparel, and textiles aren’t coming back. Those industries “have been in a long-term decline, and the recession is knocking them out.”

Jobs began disappearing in home building and mortgage operations early in the recession, then across finance and banking more generally. Now the ax is falling across large swaths of manufacturing, retailing and information technology sectors.

The news ratchets up the pressure on the Obama administration and Congress as lawmakers debate an $825 billion stimulus package intended to save or create millions of jobs.

“These are not just numbers on a page,” President Obama said citing the layoff announcements in remarks Monday. “As with the millions of jobs lost in 2008, these are working men and women whose families have been disrupted and whose dreams have been put on hold.”

The House of Representatives will vote on its version of the bill today (Wednesday), and Senate committees will begin pulling together a companion bill this week.

But Obama’s stimulus package is based largely on an estimate that the unemployment rate will rise to between 8% and 9% this year, according to the proposal summary from the House Appropriations Committee. If unemployment soars into double digits, as some economists expect, the financing may not be enough.

Many economists see the nationwide jobless number rising to at least 9% this year, possibly reaching double digits in 2010. Thirteen states are already above the national average of 7.2%, with Michigan (9.6%), Rhode Island (9.3%), California (8.4%), and South Carolina (8.4%) topping the list.

But as Money Morning reported Monday, the government’s recently released official unemployment number of 7.2%, already vastly understates the number of jobless Americans because it fails to account for “discouraged” and “unattached” workers who have given up even looking for work.

Our research further indicates that if the number included unemployed farm and self-employed workers, “real” unemployment levels would approach 18%.  Whatever the unemployment number is, the new administration’s stimulus plan is the only glimmer of hope for newly laid-off workers.

While stimulus spending on public works may take some time to get going, some companies could bring back displaced workers quickly if the government initiative generates new orders.

And because many businesses were already operating with a lean workforce when the recession began, there is some hope they will fill vacated positions when the economy improves.

“The vast majority of the job loss is strictly short-term,” said Global Insight’s Montgomery. “When consumer demand and sales come back, the jobs will come back.”

But as Univeristy of Maryland’s Morici contends, many companies may not rush to increase staffs even if business begins to pick back up.  “We are very early in the cycle,” he said. “We are going to see the fury of the Old Testament for what we have done to the economy.”

Source: Black Monday Brings Massive Layoffs – Economists Say Some Jobs Could be Gone for Good

It will be interesting to see how the FOMC approaches this meeting. The current Fed Funds target rate is 0-0.25%, which in and of itself is rather strange. It is a moving target, not a fixed rate. Who determines which rate is used? My guess is this meeting will be used to clarify what the rate is. The Fed will either officially reduce it to 0% in a continued effort to resuscitate the economy, or lock it in at 0.25%. This would at least leave the Fed with one perceived bullet in the gun.

The rest of the week has a full slate, which starts this morning with the December Existing Home Sales report. Expectations are for a slowdown of 40k units versus the previous month, and I think that is overly optimistic. The housing reports last week both fell flat on their face so I don’t think this report, or the New Home Sales report on Thursday, will come anywhere close to expectations.

Tuesday morning sees the release of the Consumer Confidence report for January, and this one is a tough read for me. It is expected to be the same as the December reading of 38. I am not sure which one will have a bigger impact on the reading: consumers getting excited about a change in leadership, or fearful of more job cuts. I guess it all depends on when the reading was taken.

Earnings:
Mon: AXP, AMGN, CAT, HAL, MCD, TXN
Tues: BMY, DD, GILD, JAVA, YHOO
Wed: PFE, SBUX, WFC
Thurs: MMM, AMZN, CELG, CL, LLY, JNPR,
Fri: CVX, XOM, HON, PG,

Source: Fed Counts Bullets, Earnings Dominate Calendar

The U.S. recession may just now be entering full swing, but storm clouds have been gathering for more than a year and many companies have already trimmed payrolls. Now, the goal for many companies is to prepare for an economic rebound by finding ways to keep the their skilled productive labor intact.

“More companies are exploring alternatives to layoffs,” John A. Challenger, chief executive of consulting firm Challenger, Gray & Christmas, told BusinessWeek. “If they can keep people on until the business turns around, the company would be in much better shape to ramp up quickly.”

Dell Inc. (DELL) employees, for instance, recently received a memo from Chief Executive Officer Michael Dell asking them to take some time off without pay. The company has already met its previously stated goal of cutting employee payrolls by 10%, but the memo said there would be more layoffs unless other cost-cutting measures, like unpaid leave, weren’t effective.

Other companies throughout Silicon Valley have joined Dell in elongating the holiday.
Hewlett-Packard Co. (HPQ), Cisco Systems Inc. (CSCO), Advanced Micro Devices Inc. (AMD), Texas Instruments Inc. (TXN), Adobe Systems Inc. (ADBE) and Computer Sciences Corp. (CSC) are among the industry heavyweights to be taking a break, with some closed from today until January 5.

Maria Guidice, owner of San Francisco-based Web design firm Hot Studio Inc., told the New York Times that when the dot-com bubble burst in 2000 many companies, including hers, immediately slashed payrolls but that tactic was painful and counterproductive.

“In 2000, it was like ‘cut the heads,’” she told The Times. But things are different this time around.

“Our No. 1 priority is to keep people employed and to do that we’re going to bank the money and keep it for when we need it,” Guidice added. “I know some people are super bummed, but they understand we’re trying to keep the workforce intact.”

California’s technology giants aren’t the only ones pursuing alternative cost-saving measures to save jobs, either. Across the country, in Towanda, PA, Global Tungsten & Powders is encouraging its 1,000 employees to take leave without pay in an effort to preserve manpower, The New York Times reported.

“We have a very skilled and competent workforce and the last thing we want to do is lose them when we’re assuming this economy is going to come back,” Craig Reider, the company’s director of human resources, told The Times in an interview.

The number of U.S. workers who normally work full-time but now clock fewer than 35 hours per week has soared 72% in the past year according to the Bureau of Labor and Statistics. The agency said the number of such employees climbed from 1.49 million in November 2007 to 2.57 million in November 2008.

Pella Corp., an Iowa-based manufacturer of windows, is instituting a four-day workweek for a third of its 3,900 employees, BusinessWeek reported.

“Our contention is, consumer confidence will rebound,” said Pella Senior Vice President Chris Simpson. “If there’s a [government] stimulus package of some kind, we think people are going to respond.”

A stimulus package being drummed up by the incoming Obama administration is rumored to cost roughly $800 billion, for instance.

Other companies, like Motorola Inc. (MOT), are cutting back salaries, but so far, pay cuts do not seem to be widespread. Labor Department figures indicate the average hourly pay for about 80% of the work force grew by 3.7% last month from November 2007.

John Challenger, of Challenger Gray & Christmas, says that the effort to save jobs is not just a fad, or a case of companies living in denial, but a shift in modern corporate ethos that is not only more humane, but more economical.

“People are measured and ‘metricked’ to a much greater degree,” he told The Times, “So companies know that when they’re cutting an already taut organization, they’re leaving big gaps in the workforce.”

Company Layoffs: More Companies Trim the Fat without Trimming the Workforce

This from Smart Profits Report:

Congratulations… you’ve almost survived the most volatile stock market of our generation.

At least for 2008 anyway.

And if you’re asking yourself whether it’s time to buy stocks as the CBOE Volatility Index (VIX) is receding and valuations are at record lows, I offer this: Before jumping back in the water, be sure the sharks have fattened up and left the area. Forget “blood in the streets”… make sure there’s no “blood in the water.”

And amid the gloom and doom, I’m also going to offer up a more bullish, optimistic outlook: While the economic outlook remains very weak, the stock market is, after all, a market.

By that, I mean that the main factor that drives prices up or down is supply and demand (with a hearty dose of fear and greed tossed in for good measure, too, of course). So what do we really know about supply and demand? And more importantly, how can we profit from it?

Look Forward, Not Back

Let me put it this way: The view ahead is better than the one in the rear view mirror. In fact, even over the past week, we’ve seen many examples of how the lack of supply for stocks is driving prices higher – even in the face of terrible fundamental news.

The issues are worth noting, in order to keep the impact in context…

• On the political front, we’ve seen the bribery of government officials in an attempt to sell a decision-making seat in one of our top governing bodies.
• We’ve seen one of the most highly regarded hedge fund managers be exposed as a charlatan, wiping out individual and seasoned professional investors alike.
• On the economic front, we’ve seen massive job losses that were substantially worse than expectations – and while this is a backward looking indicator, economists are now talking about double-digit unemployment.
• The Federal Reserve has hacked interest rates to the lowest level ever in what seems like the latest in a series of desperate reactionary tools to stave off the expanding and increasingly ugly recession.

The current climate resembles a rugby scrum, with each new issue piling on top of other existing ones. And they throw up questions about the very stability of our investing framework.

But underneath the bad news, there is still some resilience…

So Much For Selling Pressure: These Two Stocks Reported Awful Bad News… And Investors Loved It!

For example, we’ve recently seen Texas Instruments (NYSE:TXN) and Nokia (NYSE:NOK) dramatically reduce their earnings estimates for the current quarter and offer a dour outlook for 2009.

Specifically, Texas Instruments expects revenues to slump by 26% to 32% sequentially. Yet investors “rewarded” the stock with a 5% boost the day after the announcement.

Nokia has reduced its guidance twice so far this quarter – once on the earnings call and again at its capital market day on December 4. Expectations for fourth-quarter handset shipments are now a negative 5%. And while the stock initially dropped by 3%, it’s up 6% since the latest reduction.

What does this say? To me, it’s clear that the downward pressure on stock prices that we’ve seen from forced selling is over. So is this just cause to get back in the investing saddle? Consider these three reasons…

Three Reasons To Resume Your Investing… But With A Caveat

• All three major stock indexes closed above their 50-day moving averages for two straight days – the first time that’s happened since August.
• There’s also a lack of selling pressure for tax-loss purposes.
• Dow Jones reports that 344 funds liquidated in the third quarter. That was the first time on record that more funds disappeared than launched. It also means that there’s likely to be less selling pressure ahead.

All three of these reasons for buying stocks are valid. But beware… with a potentially disastrous earnings season on the horizon and volume drying up as we head into the Christmas season, short sellers may take the opportunity to drive stocks back below their 50-day moving averages if for no other reason than a lack of buyers. Larger funds may also take the opportunity to reduce potentially volatile positions.

Corporate America’s New Tagline: Aim Low!

At this time of year, thoughts turn to the jolly fat man who represents gift-giving and good cheer. Question is: Will he hit Wall Street this year?

Investors are hoping for the oft-mentioned “Santa Claus Rally,” but in a thin market like this one, it’s easy to be shaken out of a 10% stop-loss simply due to increased volatility.

The next fundamental opportunity to invest will be after we have a feel for what first quarter corporate earnings will bring in terms of growth rates and profit levels.

The January earnings will provide management teams with the opportunity to reduce expectations to a point where they will be easily achievable. Once the bar is set low enough and investors are comfortable with growth rates, they will begin to take longer-term positions and the stock market will likely stop behaving like a casino.

If you prefer to look at the technicals, simply wait until the indexes prove they can hold their 50-day moving averages under increased volume – and be ready to sell if earnings season proves to be worse than we are currently expecting.

Source: As Wall Street Selling Pressure Eases, Three Reasons To Invest Cautiously

This from Investment U:

As is usually the case, I’m sitting here writing from my comfortable home office in rural northeast Pennsylvania. I often marvel at the fact that even from my remote location, I’m able to do research and submit copy over a broadband connection.

Of course, 20 years ago we never would have thought of broadband penetration as a necessary component to our nation’s infrastructure. Back then most of us interacted with our televisions far more than with our computers.

Now, it’s hard for most of us to imagine life without a high-speed Internet connection, especially if you work from home as I do. For millions of Americans, broadband is the enabler for telecommuting, giving many more options when it comes to who to work for and where to work. Most homes are quiet environments with limited distractions, and generally result in higher productivity than their noisy company office counterparts.

It wasn’t too many years ago that I was saddled with dialup. Trying to be productive with a dialup connection is like trying to type with your nose. It can be done, but it takes a lot longer…

Broadband Penetration Across The United States

It is somewhat ironic that the most powerful nation in the world ranks twenty-fifth when it comes to broadband penetration. Indeed, only a little over 50% of American households have high-speed Internet connections. Compare that to South Korea, which has a broadband penetration of nearly 90%.

Before you fault the U.S. Congress, know that there are no less than three broadband expansion bills that were introduced in 2007. While there has been much debate (hot air) regarding a national broadband initiative, Congressional action hasn’t been forthcoming. What a surprise…

But if President-elect Obama has his way, every household could soon have the opportunity for a high-speed hookup. As he states on his website: “America should lead the world in broadband penetration and Internet access.” He thinks we should provide “true broadband to every community in America.”

If Congress and the new President are searching for a broadband penetration model to work from, they need look no further than one of America’s own states: Kentucky.

Broadband Penetrates Kentucky By 95%

Just a few years ago – 2004 to be exact – only 60% of Kentuckians had access to a broadband connection. Three years later 95% had access… an increase of 60%. But this didn’t just happen by accident.

“ConnectKentucky” is the bluegrass state’s arm of the larger, national, non-profit Connected Nation. Widely seen as the national model for digital inclusion, Connected Nation promotes higher broadband penetration and adoption.

Although it initially targeted four states – Kentucky, Ohio, Tennessee and West Virginia – the ultimate focus is all 50. Connected Nation’s research states that every 7% increase in broadband adoption could result in the following benefits:

• Job creation of around 2.4 million
• Annual health care cost savings of $692 million
• Annual fuel savings of $6.4 billion
• 3.2 billion fewer pounds of CO2 emissions per year
• 3.8 billion hours saved by accessing broadband from home
• $134 billion in direct economic impact

If Connected Nation’s numbers are anywhere close to those above, President-elect Obama might just be on to something. Of course, this gargantuan task translates into some real investment opportunities on this side of the fence.

7 Ways to Connect to Broadband Penetration Profits

One way to play the broadband penetration build-out is via specialty chipmakers that supply chips to the equipment companies. The following four companies all specialize in producing broadband chips:

• Broadcom (Nasdaq: BRCM)
• Conexant Systems (Nasdaq: CNXT)
• Texas Instruments (NYSE:TXN)
• Standard Microsystems (Nasdaq: SMSC)

Another way is via equipment makers like Cisco Systems (Nasdaq: CSCO) and Juniper Networks (Nasdaq: JNPR). Cisco and Juniper’s equipment – at the heart of all broadband networks around the world – controls many different kinds of Internet traffic and directs it to its final destination.

A third way would be via Corning (NYSE: GLW), one of the world’s largest manufacturers of optical fiber, optical cables and other hardware and equipment components for the telecommunications industry.

It’s clear that President-elect Obama has many challenges facing him once he sets up shop. But you can bet that this Blackberry-toting, tech-savvy guy wants to be connected everywhere he goes. And so do we.

Source: Broadband Penetration: 7 Ways to Profit From Our Biggest Infrastructure Need

Bear in mind that each new economic report, earnings statement, news report or trading session represents a new opportunity for fear and uncertainty to reemerge.

Fortunately, next week’s economic calendar remains quite light, although retailers may just weigh in with “doom-and-gloom” holiday predictions.  Earnings season may be weak as well (with even more pessimistic outlooks), so investors should not overreact even if Texas Instruments Inc. (TXN), Halliburton Inc. (HAL), Amazon.com Inc. (AMZN) and others fail to meet expectations.  Volatility should continue and the days of triple-digit index moves (often up and down in the same day) may be here for a while.

So try not to get so overwhelmed with the seemingly never-ending challenges and uncertainties: The credit crisis, weak economy, plunging stock market, presidential election, etc.  Take everything one day at a time. The government actions are starting to thaw out the credit concerns and lending/borrowing should return to a somewhat normal level in due time. Declining energy and commodities prices should improve the inflation picture, which will help the consumer and allow the U.S. Federal Reserve to better focus on the struggling economy. Stocks tend to be leading indicators and often begin to rise even when the economy remains in the midst of a recession. The election (regardless of the victor) represents a new beginning, a new direction, a new attitude, and hopefully renewed confidence.

Market Matters

So much for less government.  With the presidential election at the homestretch, the candidates pushed their respective plans to rescue the economy in an attempt to appeal directly to Main Street folks like Joe the Plumber (basically more tax cuts vs. “spread the wealth”).  The bailout moves continued as U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. (a self-proclaimed free-market capitalist, if there ever was one) announced that the government would invest $250 billion into the nation’s banks to stabilize the financial system.  Proponents refused to label it as”nationalization.” But don’t tell that to the pundits on Fox News this past weekend: Some went as far as to question whether the U.S. government is embracing full-fledged “socialization.”

The Federal Deposit Insurance Corp. (FDIC) will be expanding its insurance program on non-interest bearing accounts, a move designed to assist small businesses. Throughout Europe and Asia, similar moves also were approved, as the global efforts appeared to be well coordinated.  The Swiss National Bank took over about $60 billion of bad assets from UBS AG (UBS), leaving the institution with one of the cleanest balance sheets around.  Morgan Stanley (MS) received a $9 billion investment from Mitsubishi Bank UFJ Financial Group Inc.  (ADR: MTU), giving the Japanese giant a 21% interest in one of the last remaining domestic financial super-powers (and at better terms than initially negotiated).  JPMorgan Chase & Co. (JPM) posted an 84% decline in third quarter profits (which still somehow bested analysts’ pessimistic expectations).  Likewise Wells Fargo & Co. (WFC), Citigroup Inc. (C), and Merrill Lynch & Co. Inc. (MER) (still under its pre-Bank of America Corp. (BAC) brand) suffered through “challenging” quarters, to say the least, and their short-term outlooks do not look any better. (Bring on those direct government investments).

While the technology sector struggles from dire expectations of future corporate IT expenditures, eBay Inc. (EBAY), Google Inc. (GOOG), Intel Corp. (INTC) and International Business Machines Corp. (IBM) all announced relatively strong quarters – IBM even “pre-announced” its strong results – and chipmaker Advanced Micro Devices Inc. (AMD) reported a narrower-than-expected loss.

Intel, IBM and AMD were all three topics of Money Morning’s new “Hot Stocks” feature, which chronicles the prospects of companies that are in the news.

Microsoft Corp. (MSFT) apparently still thinks a deal to acquire Yahoo! Inc. (YHOO) would make “economic sense,” though that $33 a share offer most likely would no longer apply for a stock trading below $13 a share.  General Motors Corp. (GM) intensified its merger talks with Chrysler Corp. and continued to explore sale options for its Hummer unit. But does $70 a barrel oil make those cool gas-guzzlers look attractive again?

Speaking of oil prices, the “black gold” plummeted to its lowest level in 13 months as prospects for a recession – or worse – continued to dampen energy demand.  Goldman Sachs Group Inc. (GS) became the first to predict a decline as far as $50 a barrel, ironically just a few months after its analysts called for $200 oil over the next two years.  The 50% percent slide in prices has prompted a panicking Organization of the Petroleum Exporting Countries (OPEC) to schedule an emergency meeting on Friday in Vienna, Austria. It will be the cartel’s 150th meeting. Gas prices are following in step as they pushed downward – in some areas through $3 a gallon, a 25% drop from the $4.11-per-gallon highs set in July.

Even so, as Money Morning reported, Merrill Lynch sees oil at $150 a barrel and gold at $1,500 an ounce, though its analysts provided no time frame.

Volatility continued as triple-digit-daily moves remain the norm.  Last Monday, the Dow Jones Industrial Average broke its eight-day (2,400 point) losing streak with a 936-point gain, its largest ever recorded.  Profit-taking and hedge fund redemptions followed, though bargain hunters reemerged at week’s end (until the final hour of trading).  The limited investor confidence was a welcome sign after the mass hysteria of the past weeks.

The credit markets seem to be slowly (but surely) recovering with the government actions, though some banks remain hesitant to lend and businesses and consumers have been slow to borrow.  Then again, given time, more government just may work.

Economically Speaking

At this point, there should be no real surprises in terms of weak economic data.  However, when September retail sales was reported as down 1.2% (for the third consecutive month) and the Philly Fed survey plunged to its worst showing in 18 years, investors were surprisingly caught off guard.  While the “official” definition of a recession is two consecutive quarters of negative growth, many analysts claim the country is already mired within one’s midst and the numbers will continue to reflect such weakness well into 2009.  The Fed Beige Book depicted that each region of the country is struggling and U.S. Federal Reserve Chairman Ben S. Bernanke did not rule out an additional rate cut at (or before) the Fed’s late October meeting.  Housing starts fell to the lowest level in 17 years and many believe that any recovery must start with a rebound in this long-suffering sector.  In fact, construction activity has plunged over 30% since September 2007.  (Could the next government intervention involve some direct mortgage relief for ailing homeowners?).

Now for some positive news (for a change).  The inflation picture is starting to look more promising as falling energy and other commodity prices begin to work their way through the U.S. economic system.  The wholesale inflation gauge – known a the producer price index, or PPI, fell for the second straight month, and consumer prices remained flat from August as gasoline prices slowly retreated.  Bear in mind, just a few short months ago, inflation was high on the Fed’s radar screen as Bernanke and friends were forced to tackle a weak economy and rising prices.  While the Fed’s “challenges” are far from over, talks of higher rates have disappeared and policymakers can focus all their energies on repairing the sluggish economy. 

Source: Here’s Why the Stock Market Relief of Late Last Week May Not Last