Nouriel Roubini's Global EconoMonitor

The Chinese Devil Wears Prada: Why 0% Growth is the New Size 6.8%

The Chinese came out today with their 6.8% estimate of Q4 2008 growth. China publishes its quarterly GDP figure on a year over year basis, differently from the U.S. and most other countries that publish their GDP growth figure on a quarter on quarter annualized seasonally adjusted (SAAR) basis.

When growth is slowing down sharply the Chinese way to measure GDP is highly misleading as quarter on quarter growth may be negative while the year over year figure is positive and high because of the momentum of the previous quarters’ positive growth.

Indeed if one were to convert the 6.8% y-o-y figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 would be close to zero if not negative.

Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9% in y-o-y basis; the Chinese PMI has been below 50 and close to 40 for five months now.

And with manufacturing being about 40% of GDP , manufacturing is certainly in a sharp recession (negative growth) and the overall economy may be close to a recession

So the 6.8% growth was actually a 0% growth – or possibly negative growth – in Q4; and the Q1 figures look even worse.  So China is in a recession regardless of what the highly massaged official numbers claim.

410 Responses to “The Chinese Devil Wears Prada: Why 0% Growth is the New Size 6.8%”

REDJanuary 22nd, 2009 at 4:05 am

It was always going to be this way. When the Chinese currency peg breaks, thats a strong buy sign for the equity market, simply because it allows US firms to compete on a equal footing around the world again. China loses, America gains, zero sum.The Chinese were sold a bag of goodies, and probably still haven’t realised they carry all the risk in the trade relationship with the USA. At some point the Chinese people are going to want to spend the $2t of savings the government has built up. There simply isn’t a buyer for the currency unless at a massive discount.

AmazonkidJanuary 22nd, 2009 at 3:32 pm

The other effect of revaluing the yuan is that medium term import prices will increase. In the short term there will be massive destruction to capacity production as they try to maintain price competivieness due to week US demand. In China’s “contracting” economy, appreciating the yuan must appear like suicide to the Chinese. It would have to be done gradually or the hard landing in China will become a crash landing.

Octavio RichettaJanuary 22nd, 2009 at 4:58 am

I had not taken a walk around Norther Trust for a while. Kasriel’s latest economic outlook is worth reading (via CR). This is a MUST read, specially if you are an ultra bear. Kasriel is optimistic GDP will turn positive in Q4’09 and that CPI will start accelerating in Q1’10.Even though I believe Kasriel is trying to look too far ahead into the game I think he is one the best (i.e., “top 5” or better) in the economic forecasting business. Thus, to me, his view yields a significant lowering of my probability assessment for “economic disaster” scenarios.

HayesJanuary 22nd, 2009 at 7:26 am

Thanks for the links – Kasriel like NR is placing great faith in the stimulus while Krugman says it’s not enough. I recall commenting a while ago something to the effect that politicians giving taxpayers’ money to other politicians who in turn pass it on to yet more politicians may not be particularly efficient.Apart from any debate as to whether stimulus will actually deliver the intended results is the issue of how and when the stimulus will be spent. As many in the nation are still basking in the afterglow of Obama’s victory there are signs that it may be politics as usual when it comes to the economy. Stimulus Projects May Be Slow, CBO SaysWashington Post Staff WriterWednesday, January 21, 2009; D01

Less than half the money dedicated to highways, school construction and other infrastructure projects in a massive economic stimulus package unveiled by House Democrats is likely to be spent within the next two years, according to congressional budget analysts, meaning most of the spending would come too late to lift the nation out of recession.A report by the Congressional Budget Office found that only about $136 billion of the $355 billion that House leaders want to allocate to infrastructure and other so-called discretionary programs would be spent by Oct. 1, 2010. The rest would come in future years, long after the CBO and other economists predict the recession will have ended.The report does not analyze the entire $825 billion package assembled by House leaders and aides to President Obama. Parts of the legislation are scheduled to be considered today in the House Appropriations Committee. Other portions of the proposal — including $275 billion in tax cuts and nearly $200 billion for jobless benefits, health care for the poor and other entitlement programs — are expected to pour cash into the nation’s faltering economy much more quickly.But the CBO analysis appears to confirm the complaints of many Republicans and other critics, who have long argued that spending money on highway construction and other infrastructure projects is ineffective at quickly jolting a sluggish economy. The report was distributed to reporters yesterday by aides to Senate Minority Leader Mitch McConnell (R-Ky.)The report also suggests that the House measure would violate Obama’s rules for the stimulus package; Obama aides have said they want the bulk of the spending to occur before 2011. Obama has pledged that the measure would save or create at least 3 million jobs over the next two years.House Democrats and administration officials said that by leaving out the tax cuts and spending on the poor, the CBO report focuses on the slowest-spending parts of the proposal. Even there, small changes to the measure could have a huge effect, they said. For instance, Democrats said that if states were given a different deadline for spending highway money, analysts predict the spend-out rate would be accelerated significantly.”The new CBO report does not take into account the fastest spending provisions in the bill, leaving the false impression that the overall spend-out rates are slower than they actually are,” said Brendan Daly, a spokesman for House Speaker Nancy Pelosi (D-Calif.). “These provisions will go out quickly to give the economy a jolt while others will represent down payments on crucial priorities for our economic future — investments in clean energy, health care, education and repairing our nation’s infrastructure.”Still, the report from the CBO, the nonpartisan arbiter of congressional spending measures, offers a stark assessment of some of the Democrats’ top priorities. For example, of $30 billion in highway spending, less than $4 billion would occur over the next two years. Of $18.5 billion proposed for renewable energy, less than $3 billion would be spent by 2011. And of $14 billion for school construction, less than $7 billion would be spent in the first two years.Obama and congressional Democrats have pledged to approve a stimulus package within the next few weeks, calling it a critical step to easing the effects of what economists predict is likely to be the longest, deepest and most dangerous recession since the Great Depression. Many economists — including some prominent conservatives — have called for spending significantly more than the $825 billion included in the House package.That measure is expected to grow before it reaches Obama’s desk. The Senate plans to add several provisions, including $70 billion to prevent millions of additional families from being subject to the alternative minimum tax in April 2010.

another article worth reading is from yesterday’s Investor’s Business Daily Stimulus Deferred

economicminorJanuary 22nd, 2009 at 10:03 am

My issue with the stimulus is in the HOW is it going to work?My assessment is that this is a consumer led recession. Consumer led due to over indebtedness. Not a little over indebted but way over indebted.So HOW does any of the plans on the table have a significant effect upon this dynamic?Sure jobs are nice and sure the money eventually circulates but isn’t all that extremely slow. All the while the consumer is still in trouble and jobs keep diminishing and houses keep going lower (supply and demand > to much inventory that is to expensive to be owned) and businesses will still be going down…. due to the consumption pull back.SO HOW does the stimulus plan have a significant effect upon this dynamic? It is like all inflationary excesses, the money never goes where you want it to or have the effect wanted does it? So we get rising fuel prices leading to even higher food prices and the majority of consumers are in worse shape.Without growth in the rest of the world, how and why will exports increase? And hasn’t world growth be on the backs of the American consumer? What is or will change that?What am I missing? Why are many seeing a recovery in 4th quarter or early 2010? Isn’t this just doing the same thing and expecting different results?

JamesJanuary 22nd, 2009 at 10:23 am

I’m with you. This needs to be explained. In the GD, the increase of government spending resulted in decent-paying jobs for people who were otherwise out of jobs. I don’t see how this is going to put money in the pockets of people, which is what needs to be done. Most people out there have jobs that don’t pay enough and I don’t see how this is going to help them.

HayesJanuary 22nd, 2009 at 11:10 am

The efficacy of the stimulus is suspect – the structure of the stimulus according to the CBO would appear to undermine any chance of it being successful.

ex VRWCJanuary 22nd, 2009 at 11:26 am

I was disappointed in this actually. The author’s arguments boil down to ‘if we increase the credit supply, people will be able to spend again’. Like most economic analysts and the people designing the so called ‘rescue package’ in Washington, this author misses the psyche change that has been occurring across the globe during this most predictable of economic collapses. In essence, all of the efforts being put forth are pushing on a string – expecting that by ‘unfreezing’ credit, businesses and consumers will automatically resume their borrowing ways.Again, these thinkers need to challenge their core assumptions. The biggest, most mistaken core assumption out there right now is that credit and its availability is the key to the economic recovery. I submit that this is not the case anymore, and will not be until much more deleveraging has occurred. The sooner we recognize this sea change, the sooner we navigate out of this storm.

economicminorJanuary 22nd, 2009 at 11:42 am

I agree. Credit is available to those who can demonstrate the ability to repay. At least residential real estate loans are…. And BoA sends me blank checks all the time wanting me to write it for anything… I just have no interest in going into debt for anything.

Octavio RichettaJanuary 22nd, 2009 at 12:29 pm

Thanks for the thoughtful replies. I agree. Economists’ “big pictures” are often too big:-)

ex VRWCJanuary 22nd, 2009 at 12:36 pm

Plus the interbank spreads they cite are actually starting to inch back up anyway, even if they really made a difference.

Octavio RichettaJanuary 22nd, 2009 at 4:09 pm

to ex VRWC: Yeah, I’ve noticed that. I am underwater about 3% in the investment grade corporate bonds I bought recently.

FredJanuary 30th, 2009 at 3:36 pm

Excellent point! The OPPOSITE of credit is savings and until people have their bills paid off and some money in the bank they will not start buying again and that will take years and even then many will never spend the way they used to…I won’t!That means decades until the next big bubble comes along, probably 7 or 8 decades.–Fred

Octavio RichettaJanuary 22nd, 2009 at 5:06 am

BTW, I forgot to check Hussman last Monday (MLK day). Iit turns out he saw what was coming with financials on Tuesday by looking at CDS action for the sector the previous week. 19, 2009Market Action Abruptly Signals Renewed CautionJohn P. Hussman, Ph.D.All rights reserved and actively enforced.Reprint PolicyIn recent sessions, we have observed a troublesome deterioration in credit default swap spreads among a number of major financials, which has prompted us to tighten our hedges in response. From a statistical perspective, what I’ve referred to as “early improvement” in our measures of market action has now been lost. The Strategic Growth Fund is fully hedged here, about half with pure long-put / short-call option combinations, and about half with what amounts to in-the-money put options (allowing the Fund to obtain a moderate positive exposure to market fluctuations in the event that the market recovers more than a few percent). Overall, I expect the Fund to experience only modest sensitivity to market fluctuations here, and the main driver of our returns is likely to be the difference in performance between the stocks that we hold in the Fund, and the indices we use to hedge (primarily the S&P 500 and Russell 2000). …I wonder how much all the hedging Hussman does ends up costing him. He has written about this but options ain’t cheap and the tremendous volatility since last summer will, IMO, cost him big time.

GuestJanuary 22nd, 2009 at 5:09 am

I would like someone to shed some light on the implications of china being in recession and US borowing needs. With massive $ reserves what would be china’s move? will they use them to buy US debt or to stimulate there own economy to shore up there domestic consumption?

GuestJanuary 22nd, 2009 at 5:42 am

Its likely the Chinese people will demand the government spend its money on them, not the USA in the near future. That will force a major change in exchange rate policy by the Chinese.Who would they sell their USD holdings to???? I’m sure some US citizens would buy them for a 50% discount.

GuestJanuary 22nd, 2009 at 6:21 am

if us have to print its way out then inflation would reduce the value of chinese $ assets. do the chinese see a fall of the dollar in future and how long they would keep holding us debt and $ assets.

GuestJanuary 23rd, 2009 at 10:25 am

when foreigner start selling agency, USA step up to buy agency. prediction, when foreigner start selling Treasury or short-term bill, then USA will step up to buy them. yes, the answer is print press

ex VRWCJanuary 22nd, 2009 at 11:56 am

Its hard for China to spend domestically in a rapid manner. They already suffer from the effects of much too rapid growth in many ways. A nation of 1.5 billion people cannot go from a class-based, largely rural society to a modern society with a thriving middle class and upward mobility without a few generations of slow, steady growth and maturing. Their government has tried to jump start the process with their grand capitalistic experiment, but it has been spotty and rocky and has not resulted in a modern, stable society as of yet. If you ever visit you would see what I mean. They also are a lot like the US was during the GD, as they already have overproduction and it is difficult to generate offsetting growth with so much overcapacity already. Their plight is more difficult than we realize.The world wants China to increase its domestic consumption and therefore be able to reduce the trade deficit, appreciate their currency, raise up their wages, and correct global trade and wage imbalances. China, for their part, believes that us well paid, high consuming westerners should instead lower our wages, consume less, and move in their direction. But their government still continues to buy our Treasuries, lacking another good choice. You can bet they are working overtime on alternatives.Pettis and Setser and others on the web are pretty good in their ability to dissect the data coming out of China and to try and follow the money for clues as to where things are headed. They are a little less adept at trying to capture the socioeconomic picture and weave this into their narrative, so I recommend keeping abreast of this from other sources, such as Chinese web newspapers, dissident blogs, etc.It is a battle for the ages. In the old economic order we saw the US in a spiral of ever-increasing consumption and debt, and China in a spiral of saving and overproduction and hot money capital inflows resulting from our growth oriented investing. This order is now passing away before our eyes, with the imbalances, having reached unsustainable proportions, correcting themselves very forcefully. It is a fascinating and history making time we live in.

GuestJanuary 22nd, 2009 at 2:13 pm

The U.S. business, econonic and political leaders who favored fast-paced globalization appear to have made a gross miscalculation. Their collective policies and the resultant effects thereof have dealt a near-fatal blow to the middle class American consumer base. In their arrogance, however, I suspect they don’t care so much about that. What they regret is that they grossly underestimated how long it would take to build a sold and sizeable middle class consumer base in China and India to take our place. Now, they need us again, at least for awhile.

Anthony D'AmatoJanuary 23rd, 2009 at 2:45 am

“Pettis and Setser are a little less adept at trying to capture the socioeconomic picture and weave this into their narrative.”Nouriel Roubini is the most “adept” economist in the world, fortunately for us posters. It was his accurate estimations of how the public would react to the peak in housing that animated all his accurate economic prognostications.

Octavio RichettaJanuary 22nd, 2009 at 5:21 am

Despite the recent scare, it doesn’t look like the British want to nationalize their banks. So why would we? It looks like we may have another strong day for Financials in the US.City minister Lord Myners rejects nationalisation of banksLord Myners, the City minister, said the Government did not want to nationalise the banks, preferring a return to a strong banking sector we need strong commercial banksBy Paul MynersPublished: January 21 2009 20:14 | Last updated: January 21 2009 20:14 is the result of these news:U.K. Stocks Advance as Banks Rally; RBS, Barclays, Lloyds Climb Sarah JonesJan. 22 (Bloomberg) — U.K. stocks rose for the first time in four days after the U.S. government pledged an expanded role in stabilizing the banking system and Chinese economic growth met market expectations.Royal Bank of Scotland Group Plc, facing the biggest loss in British history, jumped 18 percent as President Barack Obama’s nominee treasury secretary, Timothy Geithner, yesterday committed “much more substantial action” to stabilize the financial system. Xstrata Plc and BHP Billiton Ltd. advanced more than 5 percent after China’s gross domestic product grew 6.8 percent in the fourth quarter. Royal Dutch Shell Plc climbed as crude oil rallied for a second day.The benchmark FTSE 100 Index increased 76.26, or 1.9 percent, to 4,136.14 in London at 10:09 a.m. as all but 24 shares advanced. The FTSE All-Share Index gained 1.8 percent, while Ireland’s ISEQ Index jumped 4.5 percent.“Banks are centre stage today,” said Richard Hunter, London-based head of U.K. equities at Hargreaves Lansdown. “There has been rather reassuring noise coming out of the U.S. from Obama’s new tenure which has some impact. Any good news at the moment is welcome respite.” …

GloomyJanuary 22nd, 2009 at 6:23 am

No one wants to take the pain of natiuonalization which is a necessary precursor of an effective cleanup. But the pain is unavoidable. You can pay me now or pay me later (with interest), but pay you must!

GloomyJanuary 22nd, 2009 at 6:23 am

No one wants to take the pain of natiuonalization which is a necessary precursor of an effective cleanup. But the pain is unavoidable. You can pay me now or pay me later (with interest), but pay you must!

Wolf in the WildsJanuary 22nd, 2009 at 7:41 pm

I don’t think any government wants to nationalise their banks. However, it is no longer an issue of desire but need. Without nationalisation, the UK banking system (which IMHO is a microsm of the US banking system) will collapse and push the UK into utter chaos. Nationalisation done wrongly will also put the UK in the basket case category. The unwillingness of the government to punish bank shareholders, preference share holders and creditors is appalling. For true and proper recapitalisation of the banking system, all risk takers must take a hit. Instead, these fools are putting it on the country’s balance sheet, making recovery even more difficult. Deferring liabilities to future generations does not solve the problem.

jimsumJanuary 22nd, 2009 at 9:56 am

An additional Ponzi factor to consider is that in Canada, the surplus in the government pension plan (CPP) is not counted as part of the overall budget balance. The U.S. government “borrows” the Social Security surplus to make the budget deficit look a little better while Canada has been running a federal budget surplus that does not include the CPP surplus.On the other hand, Canada’s long-term medicare problems are worse than the U.S. due to a more rapidly aging population. In both countries medicare is a much bigger problem than pensions.

edwardbJanuary 22nd, 2009 at 10:34 am

I agree medicare is a bigger issue than pensions in Canada. The Canadian government has tried for years to get people to accept a 2-tiered system like the U.K. with very minimal success. For better or worse Canadians see universal medical care as part of their identity, and the politicians know tampering with the ‘Universal’ of it would be political suicide. My experiences with the Canadian system have been positive although everyone complains. The rich can always go across the border, after all.

ranManJanuary 22nd, 2009 at 5:45 am

Take a look at this from Naked Capitalism:Playing fast and loose seems to be the theme of the evening. First we have the credulity-stretching China fourth quarter GDP release, and now we have the eleventh hour stealing of the silver by Merrill’s top executives as one of the firm’s final acts.Let us remember the fact set: Merrill managed to get Bank of America to agree to buy it in September, elbowing aside Lehman. The deal is subject to shareholder approval, however. BofA, realizing it has acquired a garbage barge, threatens to scuttle the deal unless Uncle Sam lends a helping hand. Negotiations proceed behind closed doors (and neither Merrill nor BofA shareholders are told prior to the shareholder vote that BofA has agreed to do the deal subject to some form of government support).Now we learn that after it was evident that the US taxpayer was going to subsidize the Merrill acquisition, the Merrill compensation committee accelerated bonus payments by a month to make sure they were paid out before the BofA deal closed.

Jason BJanuary 22nd, 2009 at 6:25 am

Intermodal Traffic 1/21/2009Container volumes plummet at Long Beach, Los Angeles ports in ’08Reflecting the “depth of the global economic recession,” as the Port of Long Beach puts it, 2008 container volume at the key California facility nosedived 11 percent to 6.5 million 20-foot equivalent units (TEUs) compared with 2007’s total — the largest single-year decline in more than two decades.The year culminated in an especially weak December, when volume tumbled 25.3 percent to 429,946 TEUs — the lowest monthly total since February 2005. December’s decline marked the 14th time in 15 months that container volume decreased.“Imports of all products — such as clothing, toys and electronics goods made in Asia — were slow throughout 2008, but exports were strong through mid-summer as a weak dollar helped American exporters of raw materials,” port officials said in a prepared statement.However, export volumes began to drop in 2008’s latter half, climaxing with a 23.6 percent decline in November and 34.2 percent fall in December. Imports finished the year by declining 26.9 percent in December vs. December 2007’s total.At the Port of Los Angeles, container volume in 2008 totaled 7.8 million TEUs, down 6 percent compared with 2007’s volume. Total volume in December plummeted 15.2 percent to 561,033 TEUs.

GloomyJanuary 22nd, 2009 at 6:38 am

THE ROAD AHEADIf you want to know where the dollar is heading, take a look at the pound. The budget deficit in the U.K. will equal 9.4 percent of gross domestic product in 2009, compared with 8.4 percent in the United States and 4.9 percent in the euro zone. All of the problems currently affecting the pound will soon visit the dollar as this percentage will surely increase in the U.S. this year with even more bailout programs. The dollar is just a small step behind the pound. There are no free lunches. And no country can successfully self-finance its own liabilities.

GiustinianiJanuary 22nd, 2009 at 8:01 am

A possible circumstantial evidence.Could read “China to make bombs, not toys””A government policy report, released on Tuesday, said China’s overall security situation had improved but that China’s armed forces needed to improve to protect Chinese economic interests around the world.Looking further to the future, the report said China needed to be prepared for conflicts brought about by increased competition for energy and food.”

GuestJanuary 22nd, 2009 at 8:28 am

sort of weird, whether it is U.S. of A. or China that does the bomb making to improve the bottom line. Weird because a war will ALWAYS lead to the destruction of CONSUMERS (either actual or potential).

HayesJanuary 22nd, 2009 at 8:36 am

Iceland’s government is on the point of collapse as angry protesters stake out the parliament in ReykjavikWhile Barack Obama was being sworn in to office on Capitol Hill yesterday, the people of Iceland were starting the first revolution in the history of the republic. The word “revolution” might sound a bit of an overstatement, but given the calm temperament that usually prevails in Icelandic politics, the unfolding events represent, at the very least, a revolution in political activism…

PeteCAJanuary 22nd, 2009 at 10:24 am

I said some time ago on this blog that the country of Iceland was on the brink of becoming a piece of “financial flotsam” floating in the Atlantic Ocean. Tragically, that is exactly what has happened. It’s a really bad outcome for the Icelandic people, but they’ve only got a future of hard work now. Everything that happened before – all the apparent prosperity – was really just the flows of hot money from hedge funds. Their little economy was overwhelmed, first by kindness (too much investment), and then by abandonment (complete loss of investment).The phrase “apparent prosperity” is also going to come home to the USA to haunst us as well. For too long we have also been maintaining a living standard that is based on apparent properity.PeteCA

GuestJanuary 22nd, 2009 at 11:46 am

Neither we nor the Icelanders created this rigged game: we just fell for it or were forced to play against stacked cards, and a set of flexible rules where the house always wins even when it loses.Savers adverse to risk who sat on the side lines during the 90s watched as their CDs earned 5-6% while the Street rolled in 10-20%: when the game blew in 2001 and it was time for the savers to pick up a few chips, Greenspan instead made them pick up the Street’s loses by dropping savings rates deep into negative territory. Bernanke’s skinning the sideliners again, to the bone — for the boys’ sake.And Kiplinger admonishes the people for not saving. Maybe a sucker isn’t born every minute.

CJanuary 22nd, 2009 at 12:30 pm

If Iceland can collapse, why not the U.S. too? The incurred and projected losses from the econolypse just seem to keep growing and growing. There has to be a limit where even the U.S. cannot sustain itself.

devils advocateJanuary 22nd, 2009 at 7:51 pm

USA IOU … and possibly -?- USA WELFARE FOR AS LONG AS IT TAKESthe stimulus bill’s details will count very much…let’s wait and see

Jimmy_CJanuary 22nd, 2009 at 8:36 am

A timely and important article, Nouriel. Thanks for explaining this important fact. I couldn’t understand for the life of me how growth could’ve been 6.8% in 4Q08, but given that it’s calculated on a year-on-year rather than quarter-by-quarter basis, it now makes sense.

JSJanuary 22nd, 2009 at 9:01 am

From bloomberg 15 mins ago:*Geithner says Obama ‘believes’ China ‘manipulating’ currencyDay 2 of Obama and unfortunately I could not be more disappointed.

Little SaverJanuary 22nd, 2009 at 10:57 am

Here we go again: we, Americans, are the good ones, them outside there are the bad ones. Nothing changed.

GuestJanuary 22nd, 2009 at 9:23 am

09:18 ET Dow , Nasdaq , S&P : [BRIEFING.COM] S&P futures vs fair value: -14.60. Nasdaq futures vs fair value: -25.80. The mood in premarket trading has turned decidedly negative, which comes to the dismay of many investors that were hoping the prior session’s 4.3% rebound would turn into a sustainable rally. The mood this morning was initially a bit positive as participants focused on word that Apple (AAPL) posted better-than-expected quarterly results, and recent reports that insiders at Bank of America (BAC) and JPMorgan Chase (JPM) were buying stock in their companies. Investors were quickly reminded that fundamental conditions remain challenged, though. Microsoft (MSFT) just hit the wires with news it earned $0.47 per share in the latest quarter. Wall Street was looking for $0.49 per share. Microsoft is also looking to cut up to 5,000 jobs. Mobile handset company Nokia (NOK) reported quarterly results that missed expectations, and indicated industry volume is expected to slow more than initially expected. Sony (SNE) expects to post its first annual loss in 14 years. Meanwhile, elevated jobless claims continue to reflect weak labor conditions. Initial jobless claims for the week ending Jan. 17 totaled 589,000. That was up from the prior week and more than economists expected. Nasdaq at… NYSE Adv/Dec 0/0… Nasdaq Adv/Dec 0/0.

GuestJanuary 22nd, 2009 at 10:23 am

They forgot the fact that Toyota surpassed General Motors as the largest seller of automobiles in the world…

GuestJanuary 22nd, 2009 at 9:34 am

Roubini Sees China Recession Despite ‘Massaged’ GDP (Update1)By Michael PattersonJan. 22 (Bloomberg) — China is in a recession despite government statistics today showing the world’s third-largest economy expanded in the fourth quarter from a year earlier, according to Nouriel Roubini, the New York University professor who predicted last year’s economic crisis.“China is in a recession regardless of what the highly massaged official numbers claim,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, wrote in a note today on his Web site. “When growth is slowing down sharply the Chinese way to measure GDP is highly misleading…”Roubini said at a conference in Dubai this week that U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent.” He also predicted oil prices will trade between $30 and $40 a barrel all year.Roubini wasn’t immediately available to comment on the report, his spokesman said.

Another GuestJanuary 22nd, 2009 at 9:57 am

At what point are the losses so great that they can’t be backstopped by the U.S. government? And then what?

HayesJanuary 22nd, 2009 at 9:42 am

Senate hearings on Geithner are on now (Real Player streaming)rtsp:// positive for Geithner – (great news)

JimmyTheBankerJanuary 22nd, 2009 at 9:55 am

Here comes the start of protectionist war!!!10:52 a.m.China must adopt aggressive fiscal stimulus: Geithner10:52 a.m.Obama to use all diplomatic avenues with China: Geithner10:52 a.m.Obama believes China manipulating currency: Geithner

GuestJanuary 22nd, 2009 at 10:10 am

You got it! They (U.S)know the only way out of this mess is with war: with trade, with currency and with military! Let’s see how far China is going to be pushed before “all hell breaks loose”!

GuestJanuary 22nd, 2009 at 11:19 am

Governments and central banks with unfettered power to manipulate currency also have the ability to cheat their creditors. One way they do this is simply to create enough currency to pay off debts. This devalues the currency and “cheats” the recipient out of what they are owed. It would not be fair if you watered down your product the way our government waters down its currency, so it is not too hard to understand, in simplifed terms, why loose monetary policy contributes so much to ill will and war…” ~ from Ron Paul’s “Texas Straight Talk”

ex VRWCJanuary 22nd, 2009 at 12:01 pm

Hilarious. Out goes the China-loving Hank Paulson, in comes the new guard. Is it just saber rattling or will their be teeth to the policy?

CahillJanuary 22nd, 2009 at 10:06 am

I have to pass on, the most incredibly stupid thing I’ve heard Krugman say to date. Last night on the radio I heard him utter the words “really, 1 trillion dollars is not that large of a sum given the size of the general economy”.I have to wonder if that kind of thinking is what got us to this point?

GuestJanuary 22nd, 2009 at 10:15 am

On September 10th, 2001, Don Rumsfeld announced that the Pentagon couldn’t account for 2.3 trillion dollars, they didn’t know where it went, and they weren’t likely to ever know.Hardly a soul batted an eye at that, and virtually no one cares to this day.

GuestJanuary 22nd, 2009 at 10:15 am

People like “Thugman” are out of touch with reality: My friend just got an inquiry letter from Franchise Tax Board of CA because she didn’t report $46.85 of interest from her savings account in 2006!I told her to write them an IOU like Gov. Scharwzenegger is doing to the taxpayers of California!

tutterfrutJanuary 22nd, 2009 at 10:16 am

If it was only THAT one trillion $, he would probably be right. It’s just that you have to add the ONE to all the other ONEs…At least that’s what I remember from maths, but I have to admit I’m not longer sure about anything I once learned at school.

GuestJanuary 22nd, 2009 at 11:08 am

Starting to worry about the competence of your “Dear Leaders”? So did Senator S.I. Hayakawa. In his book, “Mr. Hayakawa Goes to Washington, he found his appointment to the Senate’s Budget Committee “appallingly irresponsible” in that he had “the greatest difficulty balancing his own checkbook.” Describing how our “Dear Leaders” handle your money, he wrote:A member of the committee will say, for instance, “Here’s an appropriation for such-and-such. It was 1.7 for 1977. So for the 1978 budget we ought to make it 2.9.” So all we do is add 1.2; that’s not hard. The next item is 2.5. The members discuss it back and forth, and someone says, “Let’s raise it to 3.7.” They look around at each other. “Everybody in favor?” “Yes, sir. Okay.” So in five minutes we have disposed of 2 “billion” bucks – 2 billion, not 2 million. I never realized it could be so easy. It’s all simple addition. You don’t even have to know subtraction.”Using Krugman 2009 simple addition, make that “2 trillion, not 2 billion.”

GuestJanuary 22nd, 2009 at 10:39 am

And. so, the “engine” of China’s communist economy grinds to a stop, just as the US’ market economy puffs to a halt. The Leviathan grows and mushrooms and King Consumer fades into the abyss. Killed by statecraft.Long live the new king – the great god State. Socialism, thy name Leviathan.

GuestJanuary 22nd, 2009 at 12:35 pm

Samuel Johnson in 1772 made one of the most stupid comments ever made throughout history: “I would not give half a guinea to live under one form of government rather than another.But, then, he wasn’t around to see the demonstrations of the 20th Century that taught man that it might be worth having one form of government “ism” over another.

blindmanJanuary 22nd, 2009 at 6:48 pm

g,which “ism” could have prevent the demonstrations of the 20th century? how many “isms” did it take to accomplish said demonstrations? at least a few in conflict to the “ism” exists in isolation, so, become an opposing “ism” in conflict with other “isms” and it’s own reason for being, articulated, dictated and internalized by the body politic (people) bellies.samuel johnson apparently valued even half a guinea so he recognized the psychological value of currency and the legal/cultural structure extant to enforce it’s worth. so he was inconsistent to the extent that you quote him… according to wiki …”The last of these pamphlets, Taxation No Tyranny (1775), was a defence of the Coercive Acts and a response to the Declaration of Rights of the First Continental Congress of America, which protested against taxation without representation.[141] Johnson argued that in emigrating to America, colonists had “voluntarily resigned the power of voting”, but they still had “virtual representation” in Parliament. In a parody of the Declaration of Rights, Johnson suggested that the Americans had no more right to govern themselves than the Cornish people. If the Americans wanted to participate in Parliament, said Johnson, they could move to England and purchase an estate.[142] Johnson denounced English supporters of American separatists as “traitors to this country”, and hoped that the matter would be settled without bloodshed, but that it would end with “English superiority and American obedience”.[143] Years before, Johnson had advocated that the English and the French were just “two robbers” who were stealing land from the natives, and that neither deserved to live there.[107] After the signing of the 1783 Peace of Paris treaties, marking the colonists’ defeat of the British, Johnson was “deeply disturbed” with the “state of this kingdom”.[144].that is a mind full. “two robbers” . he at least got that right. pirate bankers we say today. so which “ism” will win the day? royal nepotism, cronyism, moral relativism, racism, communism, socialism, capitalism? they are all, principle core to decoration, disposable in the face of necessity,and that is as it should be. disposable, yes.people are more important than ideology. but when a people put violated and corrupted ideology above people, human lives, we have misery.when people neglect their own freedom to think you have the rules of conflicting “isms”. ignorance of reality.that is all, i think we really agree? no?i believe and am observing that we are at a consciousness altering point in human history.ism less … you are free . no? don’t take my word for it, demand it for yourself or for the sake of the truth. or let someone else tell you what to think, what to feel, what to be. either way it is your choice. …….

FredJanuary 30th, 2009 at 3:47 pm

Freedom is the answer! When people are free to work and speak and act as they choose, history shows that great wars and poverty are much less likely.Hitler, Stalin and Mao all caused the misery and death of millions and the worst America has yet caused is the Civil War, where at least people had the right to choose a side in deciding what they were willing to die for.The free societies of today do not start wars and have little poverty. This is fact. As much as some people hate freedom and one person making a better life for themselves through hard work the truth shows that a free nation provides a vastly better life, even for those who hate freedom and prefer to live upon the labor of others’.–Fred

GuestJanuary 22nd, 2009 at 10:54 am

Rats fleeing a sinking ship!!!11:51 a.m.[BAC] Merrill Lynch CEO Thain resigns from Bank of America: WSJ11:50 a.m.[BAC] CEO John Thain resigns from Bank of America: WSJ

Wolf in the WildsJanuary 22nd, 2009 at 7:55 pm

More like rats being chased off a sinking ship. Ken Lewis must really feel like an idiot now.

Reggie MiddletonJanuary 22nd, 2009 at 11:00 am

China’s slowdown will push HSBC over the edge, which will help to contribute to the domino effect in UK banks. I’ve been crowing about the China risks and the exposure of Britain’s most prominent bank for about 6 months now. See Morgan (the biggest US bank) is now insolvent 1.4x over:

JimmyTheBankerJanuary 22nd, 2009 at 11:01 am

Global chaos is beggining. There is going to be more global unrest than at any point in our history since WWII. Why Obama wanted to be President is way beyond my comprehension!

GuestJanuary 22nd, 2009 at 12:41 pm

🙂 “…Why Obama wanted to be President is way beyond my comprehension!”I have never laughed in my all life than by reading these words.

MorbidJanuary 22nd, 2009 at 3:09 pm

Bamalot Has Also Had A Dream……he just hasn’t told us what it is yet.I have a guess though – it’s the Socialist’s Wet Dream that Kennedy had and that never came to fruition.

Little SaverJanuary 22nd, 2009 at 11:08 am

It is official now. Cheating is no obstacle for the highest public functions. Let’s call it honest mistakes and go on to business as usual, which it already was, in hinsight.

GuestJanuary 22nd, 2009 at 12:33 pm

Our twin brother Rome fell from the same mistakes America is making including the complete moral decline and no sense of right and wrong.

GuestJanuary 23rd, 2009 at 5:27 am

Roman Empire fell when it reached extremes of economic inequality. Same way all empires did fall. And do fall. And always will fall. The State built on injustice cannot stand. USA has extremes of wealth, extreme injustice. Stop hoping to survive inequality. It ain’t never happened and it ain’t never gonna happen. All of history is screaming this fact at the deaf race; the human race…which is now armed with E=mc2.Legally Enforced Material Inequality is why the sugar is scarce on Earth, and everyone is forced to eat bitter fruit.

Octavio RichettaJanuary 22nd, 2009 at 12:37 pm

“Cheating is no obstacle for the highest public functions.” If you or I were the ones being a bit late paying our taxes I wonder if we would get the “honest mistake treatment”. At the very least, I would expect an “interests only, no penalties” treatment same as Geithner.

HayesJanuary 22nd, 2009 at 11:16 am

in the past few trading sessions this is about the time of day that the market has turned up after being down hard in the morning

cmJanuary 22nd, 2009 at 11:38 am

again, the $21.58 area is pivitol!! This market is amazing to say the least! ALL news today has been horrible, not only trailing, but future. Stock should not only be lower, they should be BELOW Tuesday’s lows!

HayesJanuary 22nd, 2009 at 11:45 am

for about 5 minutes it was trying to break through that level – but looks like we’re going to go down a bit now before another test

economicminorJanuary 22nd, 2009 at 11:36 am

Food banks: 30% rise in needyBy David Goldman, staff writerJanuary 21, 2009: 04:21 PM ESTIn his Senate confirmation hearing Wednesday, Treasury Secretary nominee Tim Geithner told a sobering story about the economy, talking of a severe recession that has cost the nation millions of jobs.He also mentioned a sobering anecdote.”At the food bank where my wife and son volunteer, the lines are long and getting longer,” Geithner said.Nationwide, food banks are reporting a 30% increase in the number of people seeking assistance — double the increase reported just six months ago, according to Feeding America, a network of more than 200 food banks across the country. The organization says food banks serve 25 million Americans of the 35 million it estimates are in need of food banks’s services.As a result of growing demand, 72% of food banks have been unable to adequately meet needs, resulting in cut backs in the amount of food they make available to pantries that serve food.”Millions of Americans simply don’t have enough money to buy food,” said Ross Fraser, spokesman for Feeding America. “We’re seeing the needle moving up in terms of how much people make that come to food pantries.”Food pantries noted that an increasing number of people coming to food banks have recently lost jobs.”More and more people are coming to us and saying they’ve lost their jobs,” said Jean Warren, executive director of Lutheran Community Services in Wilmington, Del. “People are making choices between paying their gas bill or buying food.”Many food banks and pantries have been forced to give out less food or limit how many times individuals can come in a given week, according to Stacy Dean, director of food assistance policy at the Center for Budget and Policy Priorities.Some have even gone to extreme measures, including one food bank in Florida that sold the van it used to deliver food in order to raise money to buy more food.

JimmyTheBankerJanuary 22nd, 2009 at 11:41 am

Funny he would tell that story with a sympathetic voice since he is one of the people who helped put them there!!! Snake Bastard

CahillJanuary 22nd, 2009 at 3:52 pm

That means the number of cases is exponentially larger than reported and that it’s already becoming a problem in China. The US government may lie ALOT, but nobody does it like the Chinese.

JimmyTheBankerJanuary 22nd, 2009 at 11:46 am

In the week ending Jan. 17, the advance figure for seasonally adjusted initial claims was 589,000, an increase of 62,000 from the previous week’s revised figure of 527,000. The 4-week moving average was 519,250, unchanged from the previous week’s revised average of 519,250.The advance seasonally adjusted insured unemployment rate was 3.4 percent for the week ending Jan. 10, unchanged from the prior week’s unrevised rate of 3.4 percent.The advance number for seasonally adjusted insured unemployment during the week ending Jan. 10 was 4,607,000, an increase of 97,000 from the preceding week’s revised level of 4,510,000. The 4-week moving average was 4,559,750, an increase of 58,750 from the preceding week’s revised average of 4,501,000.

PPTMYASSJanuary 22nd, 2009 at 11:50 am

If stocks finish anywhere near unchanged or even up today, I will be a true beliver that key levels are “protected” for as long as they can be.

Dr GMeliJanuary 22nd, 2009 at 12:02 pm

Is there any way of knowing who is buying equities?Is there a breakdown day by day into statistics of equities along various models?In Medicine, we have the CDC who tells us when there is an outbreak or where cases of a specific cancer are highest, etc…Why are financial markets all completely opaque? This is GAMBLING for me.

GuestJanuary 22nd, 2009 at 12:12 pm

California Gov. Arnold Schwarzenegger warns of the seemingly insurmountable state deficit. California Budget Crisis About to Affect People’s Everyday LivesJanuary 21, 2009California’s creditors have cut the state off. The borrow and spend policy may be nearing an end, and with it California’s high standard of living. By Robert MorleyTen days remain before California will begin defaulting on its obligations.

GuestJanuary 22nd, 2009 at 12:16 pm

The state is spending so much money that Governor Schwarzenegger could fire every single California civil servant and still not come close to balancing the budget! Even if he also fired the other 149,000 legislative aides and people who work for the state’s courts or university systems (people not directly under the state’s control), he still couldn’t eliminate the deficit.Lawmakers are spending so much money that California could become a state without employees and still not balance its books.Alternatively, Schwarzenegger could close every single state prison, fire the guards, release all the prisoners—plus cut off all funding for health care across the entire state—and still be billions in the hole.

GuestJanuary 22nd, 2009 at 12:23 pm

It will also read like this very soon. As California goes so goes the country.United States creditors have cut the Country off. The borrow and spend policy may be nearing an end, and with it Americas high standard of living.

Henry in SeattleJanuary 22nd, 2009 at 10:45 pm

From Karl Denninger’s “Ticker” today:”We have rising unemployment and north of 20 million illegal aliens in this nation. That is, we have more illegal aliens than we have unemployed workers, while states are spending billions that we don’t have for their medical care and in many cases incarceration. Lesson: It is idiotic to permit illegal aliens to remain in this nation while our citizens and lawful immigrants (e.g. green card holders) are unable to find a job and states are going bankrupt.”

GuestJanuary 23rd, 2009 at 5:38 am

Get rid of immigrants who want and need jobs, but keep creating and having billionaires, eh?Think again, Karl. Think really hard about who is and isn’t creating the problem “there’s not enough to go around”.The Forbes 400 billionaires are the ones sucking up all the money and destroying all the jobs. Send THEM packing and the rest of us – immigrants to this continent all – will be fine.

MorbidJanuary 22nd, 2009 at 3:23 pm

California budget increased 40% in last four years – which now stands at a staggering $147 billion. The solution is simple – roll back the budget to what it was in 2004. But the bleeding *ss liberal politicians will not do that.

GuestJanuary 23rd, 2009 at 12:34 pm

Forget about welfare. They’re talking about halting state tax refunds, i.e., you can’t even get your own money back if you overpaid.

economicminorJanuary 22nd, 2009 at 12:14 pm

Technically, there have been continual retests of lows and there is no volume on the down side. As Tom O’Brien puts it, “If they can’t bust them down, they’ll bust them up!”This is the world’s biggest auction. When there is no volume going, that means there aren’t enough sellers to cause it to go lower. Same on the upside except with buyers. When a stock or the market reaches a resistance point, channel or swing point, if there is no volume, the market bounces and goes the other direction. With enough volume, it breaks thru and you have a new resistance line. Nothing goes straight anywhere…Some of you are trying to make fundamentals rule on a short term basis. They don’t! Technicals rule short term. Fundamentals rule on the long term but as the old saying goes, the market can stay irrational much longer than you can stay solvent. Just go with the flow, take a really long term approach or stand back.

MAJanuary 22nd, 2009 at 1:28 pm

As I see it!…and 401k is long term any way you slice it….so as I once again state, my buy 8,000 DOW, sell 850 gold, line has been perfectly in place.It’s no promise for profits… but rather it was my true gut feeling based on my unique analysis.Miss America

CahillJanuary 22nd, 2009 at 2:43 pm

If California goes into default how do you think that will affect the market? Just ignored as all the other bad news? That is my one hesitation to your analysis.

GuestJanuary 22nd, 2009 at 12:22 pm

Unemloyment 8 percent by end of Feb. 9 percent by end of June. 10.5 percent by the end of the year. Another dismal retail seanson leads to a new round of layoffs. Meanwhile, the govt intervenes soon and delays the foreclosures by making loan-adjustments. The govt adjusts a lot of them by March. Housing seems to be stabilizing by the end of August. October a new tsunami of foreclosures results among the adjusted mortgages, consumer confidence dented, the govt nationalizes major banks, senator Dodd calls for more intervention from the govt and action, and new adjustments are made to the adjuted loan-mortgages and new foreclosures. In March-April 2010 another tsunami of foreclosures and the goverment intervenes by buying sharing equity with home-owners, nationalizing homes, printing cash and giving it to the major banks they have come to own. Meanwhile, retail chains are ready to file for bankruptcy and the goverment ends up nationalizing all of them amid mounting layoffs. Economic revoery takes place soon, large swaths of these nationalized bussineses are in tether and defunct, inflation kicks in, and the reverse happens. The US consumer is squeezed because of hyperinflation, the Chinese and other start dumping dollar in the market, there is a run and the collapse of the dollar, and after then a much poorer America– compared to now– is stabilized.

GuestJanuary 22nd, 2009 at 12:28 pm

Does anybody know what’s going on with Citigroup? A friend of a friend who works there says they are involved in a big deal but no one will say what it is.

Hugo PenteadoJanuary 22nd, 2009 at 12:32 pm

Chinese growth will be stopped by the planet, because economy can be bigger than the planet, although economists do not recognize that. This will happen sooner than later.

GuestJanuary 22nd, 2009 at 12:37 pm

Chinese growth can continue at the expense of the West. For example, China can use a lot more oil, if the US uses a lot less in the future. And the US will use less of everything, whether it wants it or not.

MorbidJanuary 22nd, 2009 at 3:27 pm

You are correct Hugo,The economic model is a flawed one for it is unsustainable. It is a huge PONZI scheme that requires unlimited resources and ever growing population. And they give out Nobel Prices for such bullshit. Go figure.

GuestJanuary 22nd, 2009 at 12:39 pm

Mortgage rates are back up to around 5.5-5.75% Still historically very low, but much higher than the hyped 4.5% rates that are supposed to be coming.Anybody have any insight on where mortgage rates are heading in the near-mid term? I am pretty confident they will be going up a lot more 6+ mos out.Not sure how much MBS the FED is buying right now. With banks now taking 6-12 weeks just to close a loan, there probably isn’t too much incentive for banks to go much lower than they are now. My guess is that we will see rates come back down some once the current pipeline is closed out and underwriting times are back under 10 days. Just a guess.Thanks.

AnonymousJanuary 22nd, 2009 at 10:42 pm

My theory on why banks are not lending at lower rates, is that they are aware probably more than most that deflation will only be temporary, but the environment will soon become highly inflationary. What I have noticed, is that in order to get a decent rate at 4-5 % you must pay 3-4 points to even get that rate, this is much different then it was during the 2001-2004 timeframe under Greenspan, where you could get 4% lines of credits and 5% 30 year jumbo loans with 0 points. I think in the second half of this year, you will see a continuation of this paradox of rates creeping up with the prime rate staying at or near 0%

JimmyTheBankerJanuary 22nd, 2009 at 12:40 pm

Senate Panel OKs GeithnerTreasury secretary nominee wins approval despite concerns over tax problems, nomination heads to full SenateYOU SEE, IT JUST DOESN”T MATTER! HE COULD HAVE 5 FELONY DWI’s AND A MURDER CHARGE ON HIS RECORD, IT WOULDN”T MATTER!!! SLICK WILLY IS HERE AND WILL RAPE THE US CITIZENRY AT WILL!

MorbidJanuary 22nd, 2009 at 3:31 pm

@Jimmy,It truly is disgusting.Whatever happened to “pay, always pay” instead of lie, cheat, ‘n steal & ‘n sleaze!

A wise man will extend this lesson to all parts of life, and know that it is always the part of prudence to face every claimant and pay every just demand on your time, your talents, or your heart. Always pay; for first or last you must pay your entire debt. Persons and events may stand for a time between you and justice, but it is only a postponement. You must pay at last your own debt. If you are wise you will dread a prosperity which only loads you with more. Benefit is the end of nature. But for every benefit which you receive, a tax is levied. He is great who confers the most benefits. He is base,—and that is the one base thing in the universe,—to receive favors and render none. In the order of nature we cannot render benefits to those from whom we receive them, or only seldom. But the benefit we receive must be rendered again, line for line, deed for deed, cent for cent, to somebody. Beware of too much good staying in your hand. It will fast corrupt and worm worms. Pay it away quickly in some sort. [i][b]Compensation (1841)[/i][/b], Emerson, §33.

datadudeJanuary 22nd, 2009 at 12:42 pm

Now I know that the full Senate has not voted on the Treasury Secretary but the fact that the Finance Committee approved him is OUTRAGEOUS!Maybe we should call for every Tax cheat that says an I’m sorry and pays up gets a FULL PARDON immediately!!

GuestJanuary 22nd, 2009 at 12:51 pm

Everyone has something and if you dig deeply enough, you will find it. In the scheme of things, what he did was relatively minor. I will take Geitner’s misstep over the legal financial pillage of Dick Fuld, Angelo Mozilo, etc.

GuestJanuary 22nd, 2009 at 12:42 pm

Shhh its a national security issue LOLThat is what he said, it is a “national security” issue. I wonder whether the Goldman Sachs ownership of the treaury secretay postion and the US govt is a national security issue or not?

GuestJanuary 23rd, 2009 at 5:46 am

Told ya so when I first came here. House of Goldman and House of Morgan prevail. Google up the anglo-american Pilgrims Society. And the 1001 Club, too – if you want a REAL ‘environmental ecofascism’ scare.

CMJanuary 22nd, 2009 at 1:01 pm

AHAHAHAHAHAHAHHA!!!! GREEN BABY! This is the result of Obama’s first economic meeting today. He told his advisors:”The Dow is below 8,000 and on the verge of collapsing, not on my watch. Ben, print me $500 Billion and send it to Goldman immediately!”

MM CAJanuary 22nd, 2009 at 2:08 pm

I want my Dow under 8000 back, actually I want 6000 and I want it now where it belongs at a minimum… It needs to be reset as does every other part of our economy, from housing to, interest rates, to unemployement, to wages, to cost of goods, EVERYTHING needs to be reset…

GuestJanuary 22nd, 2009 at 12:52 pm

America: I hope you get back to using regulations to protect workers and start protecting health,safety,environment etc. Companies that follow best practice should be rewarded…People are tired of the old mantra which was to compete you must cheat. The case below is a good example of change coming to slow.

GuestJanuary 22nd, 2009 at 1:13 pm

trust and confidence are shakey worldwide.two men have been given the death penalty for their involvement in China’s contaminated milk scandal.bbc

GuestJanuary 22nd, 2009 at 1:15 pm

The government said the move was to protect its citizens from unemployment during the economic downturn.It has also told employers that if they want to cut back their workforce they must sack foreign staff first.Malaysia

MAJanuary 22nd, 2009 at 1:32 pm

this is not amazing. This is stimulus. This is sideline money going into play. This is irrational disconnect of gutting the economy.It is very hollow. (done for perception, psychology, etc…) …but that’s all the market really is anyway.Miss America

GuestJanuary 22nd, 2009 at 1:42 pm

Is this “THE” bottom then MA? It is quite evident that Dow 8,000 and belwo is the “no go” zone.

GuestJanuary 22nd, 2009 at 6:44 pm

why do you say Dow 8,000 and below is the “no go” zone?Because it always seems to start picking back up when it is near the 8,000 line?(I must admit I had not thought about that)

inquireJanuary 22nd, 2009 at 1:28 pm

Speaking of China, I found this article to be very worrying, but would like some second opinions to judge its conclusions. Here are some excerpts, it is worth reading in full:Hyperinflation Begining in China and Will Destroy the U.S. DollarBy Eric deCarbonnel

The US’s trade deficit requires China to print money!The little discussed downside of the dollar peg is all the money China has to print to maintain it. China’s Central Bank puts the extra dollars it receives from its trade surplus into its growing foreign reserves and then prints yuan to pay Chinese exporters. This results in an increase in China’s base money supply by an amount equal to the increase in its foreign exchange reserves. While China’s ability to keep accumulating US reserves is endless, its ability to keep its money supply under control is not.The true threat to the dollar pegIf there is one development which could force China to drop its dollar peg, it is out of control inflation. Rampant inflation would result in millions of citizens starving and would create widespread social unrest. Keeping food prices low is a matter of political survival for Chinese authorities. So, facing the choice between losing their grip on power and losing the dollar peg, they will not hesitate for a second to sacrifice the dollar to save their own skin.So far China been able to contain inflation, but…In recent years, China has been able to contain the inflationary effects of its trade surplus by soaking up or “sterilizing” all the extra liquidity (printed yuan).There is no chance of real deflation happening in China. None. The Strength of China’s Banking System makes it impossible.I view hyperinflation in China as absolutely guaranteed. Zero doubt. China is dismantling all the measures it has put in place over the years to fight inflation. It is dropping restrictions on purchasing property, eliminating price controls, getting rid of loan quotas, lowering interest rates, ceasing its sterilization efforts, etc… It is also pulling out all the stops to boost government spending and new loan creation.Meanwhile, China’s 40 billion dollar trade surplus means that its base money supply looks set to double in 2009. There is also the fact that China’s money supply is frozen due to cash hoarding and will cause inflation to increase when it accelerates. Finally, the commodity bubble has finished bursting, and China’s economy looks set to shrink.Every economic factor in China suggests an enormous wave of hyperinflation will begin early this year. While I have written about the threats facing the dollar , this will be the event that finally ends the US’s borrowing binge and destroys our currency.Hyperinflation in China will be a monumental eventBecause China makes most of the world cheap consumer goods, it will export its hyperinflation around the world. This means that no fiat/paper currencies will survive this with its purchasing power intact. Some will lose all value (dollar) while others will only survive but experience a loss of purchasing power (yuan, euro, yen, etc…). The only money that will retain its full value in the face of Chinese hyperinflation is gold.China will sink the dollar to save the yuan

HayesJanuary 22nd, 2009 at 1:33 pm

as I posted above – read Pettis and Sester – these two offer a lot of insights into the China situation

PeterJBJanuary 22nd, 2009 at 2:23 pm

No; Wrong!China will do everything to save the Yuan and to save China and to save its political centre; perfectly understandable.The dollar will sink due to the manipulations of abuse by the FedRes., Congress., Wall Street and all that hangs off it, and the White House.Ho hum

HayesJanuary 22nd, 2009 at 1:31 pm

An interesting exchange on CNBC just a while ago – very anti Geithner – (easy to do after the guy has passed his first senate test) – Faber and Burnette (of all people) challenged both his character and competence – I believe Geithner is the chosen one – but having watched the hearings – he is not impressive

GuestJanuary 22nd, 2009 at 1:32 pm

Yahoo News: Senate panel approves Geithner for treasury postWASHINGTON – The Senate Finance Committee on Thursday cleared the nomination of Timothy Geithner as treasury secretary despite unhappiness over his mistakes in paying his taxes.”The committee approved the nomination on an 18-5 vote, sending it to the full Senate for a vote either Friday or next week. President Barack Obama is hoping for quick approval so that the POINT MAN FOR THE ADMINISTRATION’S ECONOMIC RESCUE effort can begin work.” now embraces all the mistakes that have been made and embraces the wisdom of the Bush Administartion’s financial policies – he takes on this run of cheaters. Obama likes it. He turned back change and went for them — he went back to the core of the Bush Administration’s banker bunker — right to the center and said, You know what? The Bush Administration in the past 8 years hasn’t been so bad. ln fact, it’s been so good, I’m going to take their guy and he’s going to fix our problems for us.Hail to Chief Obama. Hail to the Goldman Sachs Banker-in-Chief!

GuestJanuary 22nd, 2009 at 1:43 pm

MA-is Dow 8000 the bottom in your opinion then? Should us simpletons be puttin glong-term 401K money back in down here?

MM CAJanuary 22nd, 2009 at 2:09 pm

I want my Dow under 8000 back, actually I want 6000 and I want it now where it belongs at a minimum… It needs to be reset as does every other part of our economy, from housing to, interest rates, to unemployement, to wages, to cost of goods, EVERYTHING needs to be reset…

MAJanuary 22nd, 2009 at 3:12 pm

It’s hard for me to rationally argue that 8,000 is a bottom. Especially with the forces I am fighting against. …but here’s where I’m at.I actually thought things were going to be worse! (similar to the Madoff case) I thought retail, jobs, P&L were all going to come in worse then they have so far. I also thought stimulus was going to be flowing faster. (I’m shocked that the second 350b wasn’t already put into play)With that said… it would almost sound like I think the bottom is in… but I don’t think so. I do think there is another notch down if the correct actions aren’t taken. (or what I believe the correct actions to be, which is mass Prin Redux. That is the floor/foundation to our economy!) I believe losses, will perpetually grow, and outpace stimulus if this doesn’t happen. So what it takes is: Money in the pockets of consumers. Nothing other then this will ultimately put “true confidence” back, which could replace the artificial confidence that the top downers sell.Going by the basics, young/aggressive – old/conservative, I would defiantly advise that procedure within the realm of 401k. (locked long term investments)If you’ve got money to spare, and are a risk taker, I think there are good short term buys at the 8,000 level. (which should be reversed prior to the carpet pulling that will be done if the correct actions aren’t taken… and I will post when I think that is happening.)If you want to conserve, or save what you have, I’d spread myself around in CDs.If you’re very nervous… then just stay in cash and treasuries. (and get some sleep.)If you are more specific about your situation, I can probably give you more detailed “advice”. As well as quite a few other posters. (OctavioRichetta/OR seems to have a pretty safe and successful plan in works… and he’s given the breakdown on occasion.)…and PeteCA put together a pretty well thought out Disaster Recovery Plan for the individual about a month or so ago.Miss Americap.s. This all does not take into consideration a “special event”. Pandemic, epidemic, bomb, hurricane, Enron, CDS implosion, etc… (I’m not comfortable speculating on how low things would go in this type of event.)

Free TibetJanuary 22nd, 2009 at 4:36 pm

“This all does not take into consideration a “special event”. ….”Exactly. This may be _a_ bottom. It isn’t necessarily _the_ bottom. Though it may be that too. The problem again is transparency. There is a bottom somewhere. We have not been allowed to find it. Prin Redux is a non-starter. No banker’s lobbyist will allow his client’s assets to be reduced – further undermining his insolvent capital position – unless his own liabilities can be reduced even further. The case for jubilee is rather strong. Bailouts until now have only allowed those insolvent institutions to continue to operate as insolvents. It hasn’t addressed the problem of insolvency.Meanwhile, the shoes keep dropping. Citi, BoA, JPM, and a multitude of regionals – not to mention HSBC, RBS, etc.

Octavio RichettaJanuary 22nd, 2009 at 5:09 pm

Speaking of the devil, I bought some international leaps today: EWJ 2011 JAN $9 (2% of portfolio value), and EEM 2011 JAN $25 (3%). The leverage on these was 5X.I honestly have no idea how my leaps play will turn out. These things are perishable but with a two year horizon the extra risk versus the non-perishable underlying security seems a fair bet given the leverage I am getting coupled with the limited downside potential.I am most pleasantly surprised that despite almost 20% of my portfolio in stock leaps and 3% in commodity leaps, the daily volatility has been less than 1% of my total portfolio value.The current breakdown of my portfolio is as follows:Cash: 10% (It went down quick!, perhaps too quickly)5-10 year CDs at 5-5.20%: 35%TIAACREF Insured account: 5%Total Principal not at risk: 50% (of course there is inflation risk)US Bonds:US bond index: 16%US corporate Inv. Grade: 6%TIAACREF TIPS acc: 5%Total US Bonds: 27%Total cash, CDS, US bonds: 77%Equities:US equity leaps:SPX: 8%XLF: 3%XLE: 1%Total: 12%Intl equity leaps:EWJ: 2%EEM: 3%Total:5%Total equity leaps: 17%Individual stocks: 3%Total equity equivalent: 20% (note that the 17% leap position is leveraged about 5X)Commodity leaps:USO 2011 JAN 40: 1.5%DBA 2011 JAN 25: 1.5%Total commodity leaps: 3%Portfolio total: 100%Risk analysis:% at low risk: 77% (cash + CDs + bonds)% at high risk;23% (equity and commodities – mainly leaps)Sensitivity analysis:Assume a 50% loss in positions at high risk. Diz translates into a 0.5*23%=11.5% portfolio loss. I don’t like it, but I could live with that.IMO, diz is close to a worse case analysis since my decision making is dynamic; i.e, even though my strategic intention is to hold the leaps to maturity; tactically, I plan/can trade in and out of the positions.The daily volatility I am witnessing in the short time span I have experienced with the leaps is less than 1% of my total portfolio value which is less than you have with average duration treasuries! This, of course, my change; remember that a repeat of October/November 2008 is quite possible.Why did I go from 0 at risk at the end of the first week of December to 23% at high risk in less than 2 months?Dat is a very good question. I could have used a slower approach, and could have probably gotten a better dollar-cost average.Why not wait for the market to test the November lows and then take the plunge?I have done most of the buying at around SP500 800-820 which, IMO, is low enough.This of course does not mean we may not see SP500 of 600; but one may need to waiting for a long time to see such an event, missing upside opportunities that may occur in the interim.Is there some element of greed in my thinking? You bet. But after looking at the portfolio I have crafted above, my conclusion is that I am playing the middle way:Neither extreme greed nor extreme fear.Happy 2009 in all regards to all! We are out to a good start. At least we won’t have to deal with GWB on a daily basis anymore!

GuestJanuary 22nd, 2009 at 2:02 pm

False Dawn | by Justin Raimondo (excerpt)Obama’s election doesn’t mean peace is breaking out all over – far from itJanuary 21, 2009 — As a new administration takes power in Washington and the promise of “change” is in the air, we have to ask ourselves: when-oh-when is it coming? When will the dam break on the sclerotic foreign policy thinking of the past eight – heck, the past 50 – years?The first place to begin is, of course, the Middle East, scene of our latest – and worst – transgressions, starting with but hardly limited to the invasion and occupation of Iraq. What is the likelihood of change in this area?The ongoing occupation of Iraq is a costly operation, in more ways than just financially. It imposes on us the responsibility for maintaining order in a country that is always, seemingly, on the brink of civil war, as well as laying on our buckling shoulders the burden of supporting a government we are increasingly at cross-purposes with. The Bush administration’s attempt to implant a colonial-style Iraqi protectorate is just not sustainable, and Barack Obama came into office largely on the strength of his promise to end this misconceived adventure in “liberation.” The problem is that he has no intention of keeping his campaign promise, as the New York Times reported shortly after the election:”On the campaign trail, Senator Barack Obama offered a pledge that electrified and motivated his liberal base, vowing to ‘end the war’ in Iraq. But as he moves closer to the White House, President-elect Obama is making clearer than ever that tens of thousands of American troops will be left behind in Iraq, even if he can make good on his campaign promise to pull all combat forces out within 16 months.”David Axelrod to the contrary, the idea that Obama is going to get us out of Iraq at all, never mind in 16 months, is going to die a hard death, but die it will…As our developing conflict with Iran takes center stage in the endless foreign policy drama of constant “crises” – and it will continue to develop, just as it did under Bush I – we will hear a medley of voices (“liberal” voices) telling us that we can’t just “abandon” the Iraqis to their fate, we have a moral responsibility to stay and try to clean up the mess George W. Bush made, we have to rebuild what we destroyed, re-weave the social and political fabric of a nation.Don’t forget the “residual” force slated to stay on for an indefinite period – the size of which is sure to be rather substantial. I’d be surprised if it went below 80,000 “support” troops. We didn’t build the biggest embassy in diplomatic history just to leave it to become a Museum of American Atrocities.In short, we won’t be leaving Iraq any time soon. The “national security” Democrats are going to be in charge, not the lefties, at least when it comes to foreign policy, and we know what that means: more Peter Beinart than Noam Chomsky.This “regional” approach championed by Obama is a technocratic euphemism for yet more – and bigger – U.S. military interventions throughout the Middle East…~ Justin Raimondo

GuestJanuary 22nd, 2009 at 2:06 pm

But I’m thankful for this:”Jan. 22 (Bloomberg) — President Barack Obama ordered the U.S. prison camp for suspected terrorists at Guantanamo Bay, Cuba, closed within a year and banned intelligence agencies from using the harshest interrogation techniques.”

GuestJanuary 22nd, 2009 at 2:55 pm

And we will regret that decision sooner rather than later. Weak minds, weak guts and weak hearts….good job America.

GuestJanuary 22nd, 2009 at 8:34 pm

g,if i am interpreting your comment correctly you are saying “america” should embrace fascism, torture and lawlessness, in the name of a “job” well done? what do you know that justifies, if you even care, thisstyle of public policy.

GuestJanuary 23rd, 2009 at 5:55 am

Diabolically clever Smokescreen. A disgusting and cynical ploy for Obama to look good without even discussing stopping renditions for torture elsewhere more out of sight. CIA scumocrats rule the world. Obama is just the left wing of the CIA staging a phony battle with the right wing of the CIA. Taxpayers pay to be propagandized, mostly by omission of relevant facts.

FoolsworldJanuary 22nd, 2009 at 2:14 pm

So what is the news? Goverments are fixing data? Cheating and lying is common standard in our political and financial society. How else do you think this huge house of cards, built on illusion over illusion, was able to be kept up over all these years? One might want to make an effort to understand the greatest illusion and scam of all times: FIAT MONEY and the fractional reserve.Let me open a bank and create money out of thin air, enslave others by working for me to pay interest rates back for something that I have created out of nothing. As long as one wants to believe in the value that is printed on one of these notes only deserve to be cheated by the ones who want to cheat them. WAKE UP people and stand up against the poeple who have enslaved you the people for centuries – at its root the Federal Reserve and the IMF!!!

CMJanuary 22nd, 2009 at 2:46 pm

Nope, we just retested it on the selloff and notice we are rallying again off that exact level. There wer 4 attempts to take it out again at 20 minutes after. It held, massive buying came in. Funny how one numbe becomes so important isn’t it…

AnonymousJanuary 22nd, 2009 at 2:24 pm

tax cheats come forward and pay up nothing will happen to you as long as you pay up! Has the stage been set now that mr. Geithner has confessed his error. Is he setting the example of what might come?

HayesJanuary 22nd, 2009 at 2:27 pm

Ballbusting Analyst Meredith Whitney Wants Banks to Let Go of Their ‘Crown Jewels’1/22/09 at 1:30 PM

Time was, we didn’t much like Oppenheimer analyst Meredith Whitney. She was just a little too gleeful about playing scariest bear in all the land, it seemed to us, and we found it annoying and predictable: In times of panic, there’s always a race to the bottom among market prognosticators, as everyone competes to be the darkest soul out there. (You see this on CNBC all the time now. Dow 4,000, here we come!) But we’ve come around to Whitney, and not just because she’s been right about everything for at least the last year, or even because she’s pretty and married to a professional wrestler. In the op-ed she wrote in the Financial Times today, Whitney presented the most lucid and clear plan to combat the financial crisis we’ve seen so far. The solution, she said, is a massive “yard sale” in which the banks sell their prized possessions for whatever price someone will pay.Sounds simple, and it is. Since the credit crisis began to bust out into the open in the late summer of 2007, banks, even some of the ones with relatively sterling reputations, have engaged in all manner of accounting gimcrackery to disguise the market value of what they’ve got on their books and forestall the inevitable reckoning. As long as this continues, says Whitney, the financial system will remain in peril. And as it stands now, the plan is to make taxpayers buy a bunch of crap, at a price far higher than a prudent private buyer would ever pay, which makes not one iota of sense. Writes Whitney:While it is never pleasant to sell one’s ‘crown jewels,’ the strain of this credit crisis and the overextension of many bank balance sheets will require that they sell what they can and perhaps not what they would like.We personally have no idea what these “crown jewels” might look like (a retail-banking franchise in Manitoba, how irresistible!), but we sure do like the idea of a yard sale. Just picture Vikram Pandit standing outside the Citicorp Center, making change out of a cash-stuffed fanny pack.America’s banks need to hold a yard sale

GuestJanuary 22nd, 2009 at 2:52 pm

Hilarious, but she’s right! Isn’t this what the banks do when they try to sell one of their foreclosed homes?

David in SeattleJanuary 22nd, 2009 at 2:49 pm

Who do you think will run America’s economy from now on, the new Obama administration, or Tim Geitner and Ben Bernanke? I think Obama will realize soon enough that there are two administrations in this country: his on one hand, and the Fed and the Treasury on the other. For much of the Bush administration Paulson and Bernanke made financial decisions for this country, and Bush gave them his rubber stamp.Obama will soon be on a collision course with the Fed if he truly wants to keep his promises to those who elected him, and to restore trust and transparency to our economy.We shall see…

GuestJanuary 22nd, 2009 at 3:07 pm

We’ll see? We’ll see? After 95 years and the NY Fed still in the US Tresury, we’ll see? Have you looked at Obama’s cabinet? I’m sorry, but, “We’shall SEE”?

MarkJanuary 22nd, 2009 at 10:48 pm

I thought that the bankers elected him, in which case it shouldn’t be hard to continue the current line…Mark

HayesJanuary 22nd, 2009 at 2:54 pm

CM another good day – thanks for your insights on SSO (24 trades today (e.g. 12) – all but one favorable) that moving average 14 simple / 10 Exp is quite amazing –

PeterJBJanuary 22nd, 2009 at 3:18 pm

Speaking of Predictions:There will be without question a continuity of applied incompetence expressed in the form of bailouts (for the boys), “stimulus” packages (worthless), roads and bridges to nowhere, no planning, and or plan (so what’s new?), taxpayers contribution commitments (neat)into the next millennium for the bankers and all that hangs off them, serious savaging of the public purse by politicians at all levels (real Moral Hazard hard at work for you!), lots of resplendent bullshit eagerly reported by the MMS (also uber-incompetent)and a continuing (ad nauseum) cyclic socio-economic – of global proportions – downturn, er, collapse / disaster that will devour all the nonsense these “leadership” morons will commit (on behalf of their Electorate – Hah!) to the hope that THEIR positions will remain intact ad infinitum – none of which needed to occur!Oh, did I mention the cash grab by the feral? And, the power grab by the FedRes er, the Big Banks of the World, you know, the ones that are “insolvent”; the Institutionals of the World. The secret manipulations of all the markets by the Central Bankers and the faithful servants, “leadership”??The collapse IS of “leadership”.”Leadership” today is really exactly like Bernasean “excellence” that is – just mediocre bullshit!But don’t do anything – “Let us all just wait and see what happens as I’m sure that it will not be all as bad as you say.”Keywords: Frog – pan – water – fire – poached – deathHo hum

blindmanJanuary 22nd, 2009 at 8:08 pm

g,once again i am inspired to comment, the man remains a poet. have you ever looked out at the night sky and wondered, some part of your neurology must correspond exactly to the display you, there, witness? or observed a tree, a head of broccoli, or a walnut and thought this relates to my anatomy in some fundamental/genetic congruence? this is the MIND at work. knowing stuff. this is art. this is poetry. seeing and channeling rare frequencies of light..where we are. the top is blind and in shock. now is the time for those underneath, on the bottom, to speak the truth to “power”. “leadership” is stunned. they are begging for insight and money. light and value. what will they be told / shown?.and may i digress??.a short reading from richard flanagan’s, goulds book of fish.. pg 36…. my gaze turned to the weedy seadragon, which was, i had to agree with mr. hung, a magnificent creature. the weedy seadragon swam horizontally like a fish, rather than vertically like the seahorse, but like the seahorse, its movements were beautiful: it hovered up and down, forward and sideways, like a hovercraft crossed with a helicopter, a jump-jet in rich mufti. its luminous coloring was exquisite-its trunk pinkish red, purple blacks and silver blues spotted with yellow dots, billowing around which were its mauve leaves. yet there was a serene grace about it that was also the oddest melancholy. as well as wonder, it shimmered sadness..i was not then a weedy seadragon, and so i could not sense its terrible imprisonment, which was endless. i fancied i understood its horrific calmness; only a life time later would i truly comprehend the reason for such: that sense that all good and all evil are equally inescapable. yet understanding all, the weedy seadragon seemed troubled not at not being understood..i put my face to the glass, stared closer, trying to fathom its descending mystery. then i imagined the weedy seadragon’s beauty arose out of some evolutionary necessity; to attract mates possibly, or to merge with colorful reefs. now i know beauty is life’s revolt against life, that the seadragon was that most perfect of things, a song of itself…….

wetanzJanuary 22nd, 2009 at 10:19 pm

…yes…interesting book…on the surface appears to discuss scientific observation and intuitive understanding…the ending however directs one to realise its all an illusion…

GuestJanuary 23rd, 2009 at 6:07 am

whaa whaa whaa – cry cry cry – bad old leadership won’t give me my rights!Honest to God, snails have more dignity. Snails are willing to shoulder the burdens of life and get on with living life. But I guess it’s just too hard for you to accept the responsibility for your own life and do the work to get fair pay for everyone.Men are such visionless crybabies.

PeterJBJanuary 23rd, 2009 at 4:31 pm

It is NOT “bad old leadership” that is the problem, it is the morons and irresponsible electorates (read: public), that is to say, those apathetic, over emotional, under educated, unthinking, thoughtless, bauble buying, pitiful slobs that don’t know the difference between analysis and your emotional preferences; that is, those that chose its “leadership” due to the fact that his/her chosen talking heads said it was a good idea on the daily blinking TV – during massive infusions of entertainment such as Days of our Lives and football and whatever, etc., etc. in lieu of becoming a human being, that is sentient and intellectual…that is the problem.Or, you can’t blame the cockroaches for feeding on the crumbs of a broken civilization; male or female.Perhaps you should read about ‘Brownian Motion’ which really proves conclusively that most human beings are not humans after all, despite what you think; just thoughtless domesticated herds of animals and that the Christian Bible was actually merely a corporate sales and marketing gimmick devised by Edward Bernays.Ho hum

JimmyTheBankerJanuary 22nd, 2009 at 3:22 pm

The Euro/Yen has made a new low suggesting that stocks will not be far behind. A fresh round of deleveraging is on the way.

GuestJanuary 22nd, 2009 at 3:32 pm

WASHINGTON (MarketWatch) — The House Ways and Means Committee approved the tax portions of President Barack Obama’s economic recovery plan on Thursday, setting up for a full House vote next week on one of the new president’s highest priorities.

Octavio RichettaJanuary 22nd, 2009 at 5:12 pm

This is a reply to MA on the current on my latest portfolio moves. If you don’t follow my posts on this subject, this opening note will limit your time wasted to reading thse two lines:-)Speaking of the devil, I bought some international leaps today: EWJ 2011 JAN $9 (2% of portfolio value), and EEM 2011 JAN $25 (3%). The leverage on these was 5X.I honestly have no idea how my leaps play will turn out. These things are perishable but with a two year horizon the extra risk versus the non-perishable underlying security seems a fair bet given the leverage I am getting coupled with the limited downside potential.I am most pleasantly surprised that despite almost 20% of my portfolio in stock leaps and 3% in commodity leaps, the daily volatility has been less than 1% of my total portfolio value.The current breakdown of my portfolio is as follows:Cash: 10% (It went down quick!, perhaps too quickly)5-10 year CDs at 5-5.20%: 35%TIAACREF Insured account: 5%Total Principal not at risk: 50% (of course there is inflation risk)US Bonds:US bond index: 16%US corporate Inv. Grade: 6%TIAACREF TIPS acc: 5%Total US Bonds: 27%Total cash, CDS, US bonds: 77%Equities:US equity leaps:SPX: 8%XLF: 3%XLE: 1%Total: 12%Intl equity leaps:EWJ: 2%EEM: 3%Total:5%Total equity leaps: 17%Individual stocks: 3%Total equity equivalent: 20% (note that the 17% leap position is leveraged about 5X)Commodity leaps:USO 2011 JAN 40: 1.5%DBA 2011 JAN 25: 1.5%Total commodity leaps: 3%Portfolio total: 100%Risk analysis:% at low risk: 77% (cash + CDs + bonds)% at high risk;23% (equity and commodities – mainly leaps)Sensitivity analysis:Assume a 50% loss in positions at high risk. Diz translates into a 0.5*23%=11.5% portfolio loss. I don’t like it, but I could live with that.IMO, diz is close to a worse case analysis since my decision making is dynamic; i.e, even though my strategic intention is to hold the leaps to maturity; tactically, I plan/can trade in and out of the positions.The daily volatility I am witnessing in the short time span I have experienced with the leaps is less than 1% of my total portfolio value which is less than you have with average duration treasuries! This, of course, my change; remember that a repeat of October/November 2008 is quite possible.Why did I go from 0 at risk at the end of the first week of December to 23% at high risk in less than 2 months?Dat is a very good question. I could have used a slower approach, and could have probably gotten a better dollar-cost average.Why not wait for the market to test the November lows and then take the plunge?I have done most of the buying at around SP500 800-820 which, IMO, is low enough.This of course does not mean we may not see SP500 of 600; but one may need to waiting for a long time to see such an event, missing upside opportunities that may occur in the interim.Is there some element of greed in my thinking? You bet. But after looking at the portfolio I have crafted above, my conclusion is that I am playing the middle way:Neither extreme greed nor extreme fear.Happy 2009 in all regards to all! We are out to a good start. At least we won’t have to deal with GWB on a daily basis anymore!

Ian von BenjaminJanuary 22nd, 2009 at 5:13 pm

Forget about yuan appreciation. There is no buy pressure any more on the yuan. Export demand is weakening while the hot money flows out. The current account is surely still be in positive territory but export demand is fading away. Meanwhile the capital account is in deficit as investors are selling yuan to buy dollars to send back to the US to pay off USD denominated loans.

ex VRWCJanuary 22nd, 2009 at 6:13 pm

I listened to her. She comes across as very common sense.However, I don’t see the government working in the way she says they must – ie forcing banks to hold fire sales and therefore set a market price for the bad assets and actually help the process of bottom discovery. Instead, I see the government continuing the favorable terms, basically bailing banks out while allowing them to hold on to all the assets, as they plan to later to benefit from selling them after the recovery. I don’t see Geithner as being one to hold US banks feet to the fire. Instead he seems more inclined toward protectionism with his first moves. I think we will see the ‘victim mentality’ far too much in the next few cycles.

HayesJanuary 22nd, 2009 at 8:31 pm

— she has evolved from forecasting to prescribing solutions – her competence in the former is second to only a few – in terms of solutions I’m guessing her instincts are pretty good but like with the coming stimulus that many economists are saying is the “solution” the politics are an even bigger factor and right now it’s not looking good IMHO

GuestJanuary 22nd, 2009 at 6:23 pm

ANOTHER REAL ESTATE CRISIS IS ABOUT TO HIT by Paul Craig RobertsAnother Real Estate Crisis Is About To HitJanuary 21, 2009 — For a picture of the US real estate crisis, imagine New Orleans wrecked by Hurricane Katrina, and before the waters even begin to recede, a second Katrina hits.The 1,120,000 lost US retail jobs in 2008 are a signal that the second stage of the real estate bust is about to hit the economy. This time it will be commercial real estate—shopping malls, strip malls, warehouses, and office buildings. As businesses close and rents decline, the ability to service the mortgages on the over-built commercial real estate disappears.The over-building was helped along by the irresponsibly low interest rates, but the main impetus came from the slide of the US saving rate to zero and the rise in household indebtedness. The shrinkage of savings and the increase in debt raised consumer spending to 72% of GDP. The proliferation of malls and the warehouses that service them reflect the rise in consumer spending as a share of GDP.Like the federal government, consumers spent more than they earned and borrowed to cover the difference. Obviously, this could not go on forever, and consumer debt has reached its limit.Shopping malls are losing anchor stores, and large chains are closing stores and even going out of business altogether. Developers who borrowed to finance commercial ventures are in trouble as are the holders of the mortgages, derivatives and other financial junk associated with the loans.The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. As offshoring moved jobs, incomes, and GDP out of the country, debt expanded to take the place of the missing income. When the offshored goods and services were brought back to be sold to Americans, the trade deficit rose, adding another level of financing for an economy that consumes more than it produces.The growth of debt has outpaced the growth of real output. Yet, the solution offered by Obama’s economic team is to expand debt further. This is not surprising as Obama’s economic team consists of the very people who brought on the debt crisis. Now they are going to make it worse.The unexamined question is: Who is going to finance the next wave of debt?The US budget deficit for fiscal year 2009 already appears to be on a path to $2 trillion, and that is before Obama’s stimulus program. What we are looking at is a $3 trillion budget deficit if Obama’s program is enacted in time to impact the economy this year.Foreign countries can finance a $500 billion US budget deficit out of their trade surpluses with the US. But foreigners do not have the funds to finance a US budget deficit in the trillions of dollars, and they would not finance such a deficit even if they had the funds. Foreigners are over-weighted in dollar holdings and prefer to lighten their holding than to add to them. America’s economic prospects are dim as are the dollar’s prospects as reserve currency. An annual budget deficit in the trillions of dollars makes the dollar’s prospects appear even dimmer.The federal government’s likely solution to the debt problem will be to monetize the debt, that is, the government will finance its deficit by printing money. Debt will be inflated away. But for those Americans without jobs or whose incomes do not rise with inflation, life will be cruel.Life is already cruel for Americans living on retirement savings. Not only has the stock market bust reduced their wealth by half, but also their remaining assets are producing no income. Interest rates are so low that debt instruments produce no income, and there are scant capital gains in the stock market. Retirees are living by consuming their capital.America’s economic policy of low interest rates and debt expansion bodes ill for everyone living off their savings. Their future prospects are even worse as high inflation will destroy the value of their savings, especially if held in cash or debt instruments, including “safe” US Treasuries.There are more intelligent ways to try to escape from the current crisis. However, the financial gangsters and their shills that Obama has put in charge of economic policy are thinking only of their own interest. What happens to the American people is not a concern.A compassionate government would handle the crisis in this way:The trillions of dollars in credit default swaps (CDS) should be declared null and void. These “swaps” are simply bets that financial instruments and companies will fail, and the bulk of the bets are made by people and institutions that do not hold the financial instruments or shares in the companies. The ideology that financial markets were self-regulating allowed illegal gambling free rein. There is no reason under the sun for taxpayers to bail out gamblers.The bailout money, instead of being given to favored financial institutions to finance their acquisition of other institutions, should be used to refinance the defaulting mortgages. This would slow, if not stop, the growing inventory of foreclosed properties that is driving down home prices.The mark-to-market rule should be suspended until the real values of the troubled properties and instruments can be determined. Suspension of the rule would prevent the failure of sound institutions and lessen the need for a bailout.Interest rates have to be raised in order to encourage saving and to provide incomes to retirees.To preserve the dollar’s status as reserve currency, a credible policy of reducing both budget and trade deficits must be announced. In the near term the budget deficit can be reduced by $500 billion by withdrawing from Iraq and Afghanistan and by cutting a bloated defense budget that represents the now unattainable goal of US world hegemony.The trade deficit can be significantly reduced by bringing offshored jobs back to America. One way to do this is to tax corporations according to the value added to their output that occurs in the US. Corporations that produce their products for US markets abroad would have high tax rates; those that produce domestically would have low tax rates.This approach to the economic crisis stands in marked contrast with the approach of the gangsters running US economic policy. The gangsters are using the crisis as an opportunity to steal from taxpayers and to finance their misdeeds and exorbitant salaries with Federal Reserve loans. Their shills among economists and the financial press tell the people that the solution is to fatten up the banks with funds so they will resume lending to an over-indebted public that will then return to the shopping malls.This unrealistic approach to a serious crisis indicates a leadership crisis on top of an economic crisis.Paul Craig Roberts [email him] was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal.

HayesJanuary 22nd, 2009 at 8:26 pm

CMBS are the next MBS and Gross (Pimco) let it slip during an interview a few weeks back that he foresees a bailout of that product as well.

MarkJanuary 22nd, 2009 at 10:59 pm

I generally agree with Roberts’ assessments, but his solutions are, as are just about everyone else’s, wrong.Using money to stem the flood of foreclosures does nothing to allow people to BUY homes. This requires money, jobs. No matter what he or anyone else says, we’re NEVER going to see the glut of (worthless and high paying) jobs that we had: how many marketing, financial and other non-productive jobs can we sustain?And trying to push for increased domestic production for domestic consumption is, well, just how is that supposed to happen? Everyone is in debt!Mark

AnonymousJanuary 23rd, 2009 at 8:08 am

In the good times, loans for commercial real estate in the retail sector were frequently made on valuations that assumed combined vacancy and credit losses of about 5% to 7%, and generally no more than 10%. The office market has been so overbuilt that some areas have averaged 15% to 20% vacancy rates for years.The shoe that is going to drop will be a Big Daddy clodhopper.

GuestJanuary 22nd, 2009 at 8:35 pm

this loser obama. why is he not fixing the economy? instead, he just kept trashing the economy? what he wants to do? trash the market to 0 to jump start his agenda???

GuestJanuary 22nd, 2009 at 9:06 pm

John Thain’s $87,000 RugThis morning in a Daily Beast/CNBC exclusive, Charlie Gasparino obtained documents about $1.22 million of company money that former Merrill Lynch CEO John Thain spent on his office, just as the financial crisis was hitting the firm. Thain announced his resignation this morning, less than a month after his brokerage firm was taken over by Bank of America. Does he get to take his goodies with him?Below, The Daily Beast presents Thain’s top 16 outrages.01) $2,700 for six wall sconces.02) $5,000 for a mirror in his private dining room.03) $11,000 for fabric for a “Roman Shade.”04) $13,000 for a chandelier in the private dining room.05) $15,000 for a sofa.06) $16,000 for a “custom coffee table.”07) $18,000 for a “George IV Desk.”08) $25,000 for a “mahogany pedestal table.”09) $28,000 for four pairs of curtains.10) $35,000 for something called a “commode on legs.”11) $37,000 for six chairs in his private dining room.12) $68,000 for a “19th Century Credenza” in his office.13) $87,000 for a pair of guest chairs.14) $87,000 for an area rug in Thain’s conference room and another area rug for $44,…15) $230,000 to his driver for one year’s work.16) $800,000 to hire celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.And not to be forgottem” 40 yards of fabric for wall panels” for $5,000 and a “parchment waste can” for $1,400.John Thain’s $87,000 Rug by Charlie Gasparino

GuestJanuary 23rd, 2009 at 6:12 am

While my kids are eating macaroni and cheese – lucky to have that.Fuck it. I’m finally going to buy a gun.

GuestJanuary 23rd, 2009 at 8:13 am

May I suggest Just ask a local pawn shop to act as your FFL agent which they will gladly do for $25. For home defense, get a .45 5″ barrel pistol (700-1,200). For CCW, get the AMT backup .45 (~400), and a .22 Ruger target pistol (~300). For comfort get a 12 gauge (.72) shotgun. Apply for your CCW permit (may take up to four months to get); take 16-20 hours of lessons from your local shooting range, and practice.

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@MA, OR, Capone …I spoke with an analyst at a large transaction processor (credit/debit/gift cards)today. He was telling me that since late Nov. the sales data is showing 15% to 20% drops across all categories. He said the truth about the catastrophic drop in sales will start to show up in Q1 results.My take is that if 70% of GDP is basically consumer sales and if these numbers continue then we are looking at a 10.5% minimum drop in GDP up to 14% drop in GDP assuming the other 30% stays even! At 10.5% we officially enter a depression by even the strictest interpretation of that term. My sense is that we’re not even close to a bottom.@ JimmyTheBankerSorry about the head fake you dealt me the other post! (I had my back turned)Anyhow, about Mr. Geithner, I am seeing more and more issues about his tax evasion. (Non payment of retirement account early withdrawal, fraudulent child care credit claims, non-payment of servants FICA/Medicare, etc.)Besides that, I have a really biggie reason Mr. Geithner may go down in flames. Mom.I know we all love our mothers, but my mother’s point hits home. She is as far removed from politics as can be. She loves and adores Obama and the Democratic party. She thinks that Obama is making the biggest mistake he can possibly imagine by continuing to support Geithner. She doesn’t care whether Geithner is the financial equivalent of Einstein, he first and foremost needs to be an honest person. In her mind there is no doubt that he is and has been dishonest. She contends that should Geithner get approved, Obama better hope that the economy and financial system are on a tear within 90 days or there is going to be a terrible backlash straight to Obama’s door!

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I agree with her. Actions speak louder than words. Those whom you associate with, do business with, and support will always reflect upon you.

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Ever wonder what a Roman of 410 A.D. thought as he sat starving in his besiged city?”Gee, my house was worth 300,000 Cisterces last year, and now I can’t sell it for half that. Public works are crumbling because the bloody provinces haven’t been sending their tribute lately. My gardner (and all the other cheap labour) have been uppity lately, what with their cousins camped outside the gates of the city … the miserable wretches don’t know what is good for them. The world is really letting us down.”

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He probably was recommended by someone, such as Summers.I doubt Obama knows whether he’s competent or not. or much about his record.

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Geithner is one or both of two things: a cheat/liar or an incompetent screw-up who can’t even file a proper 1040. Either trait should disqualify him for the position of Treasury Secretary. He was suited for the previous administration, but not the current one. It’s not a good idea to appoint this guy. It’s getting off on a bad foot and sending the wrong message to the people.

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wow Obama is starting to confront China on currency manipulation. good job, now the only buyer of USA debt will be USA itself. lets start the print press.

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