Go do anything except think about the markets. I'll be back on Monday



The decrease in real GDP in the fourth quarter primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment that were partly offset by positive contributions from private inventory investment and federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
JEFFREY BROWN: As the debate in Washington moves to the Senate, we look at some key questions: What exactly is a stimulus plan supposed to do at a time of economic crisis such as we're facing now? Does the enormous and, by any measure, historic plan on the table succeed at those goals? And, if not this, what?
We turn to two prominent economists for some answers: James Galbraith of the University of Texas at Austin; and Martin Feldstein of Harvard University.
Well, James Galbraith, address that first question if you would. What are the key things you want from a stimulus plan, given where we're at now?
JAMES GALBRAITH, University of Texas: You want it to be large enough to make a difference. You want it to be sustained enough so that it continues to help the economy recover. And you want it to do some good, to do some practical good in the country.
It's very useful if it helps to stabilize parts of the economy that are otherwise in severe danger of collapsing. And the one area that's very important here is the expenditures on public services of state and local governments, which are very, very strongly affected by declining property tax revenues and the requirement that those states and localities balance their budgets if their revenues decline.
They have to cut spending. They have to cut their teachers, their fire, their police. Preventing that from happening is a very high priority right now.
JEFFREY BROWN: All right, let me start -- Martin Feldstein, just pick up there. I mean, can we have an agreement at the outset on what we're looking for?
MARTIN FELDSTEIN, Harvard University: Well, one difference is that I would say that it's not enough to make a difference. I think that was Jamie Galbraith's phrase in terms of the stimulus.
We're looking at an enormous, enormous decline in consumer spending coming along and an enormous decline in home construction, so there's a very big gap in the economy. And so that's why we need to have a fiscal stimulus plan to fill that gap.
And filling a quarter of the gap or filling a half of the gap isn't enough. It has to be more substantial or we're going to continue to see economic decline.
New Orders
New orders for manufactured durable goods in December decreased $4.7 billion or 2.6 percent to $176.8 billion, the U.S. Census Bureau announced today. This was the fifth consecutive monthly decrease and followed a 3.7 percent November decrease. Excluding transportation, new orders decreased 3.6 percent. Excluding defense, new orders decreased 4.9 percent.
Shipments
Shipments of manufactured durable goods in December, down five consecutive months, decreased $1.4 billion or 0.7 percent to $191.3 billion. This followed a 4.2 percent November decrease.
Unfilled Orders
Unfilled orders for manufactured durable goods in December, down three consecutive months, decreased $10.3 billion or 1.3 percent to $803.2 billion. This followed a 0.9 percent November decrease.
Some $1.4 billion in junk bonds were up for grabs Wednesday as speculative-grade companies continue to capitalize on renewed investor interest in riskier assets.Natural-gas producer Chesapeake Energy sold $1 billion of new senior notes after increasing the deal from an initial target of $500 million. Meanwhile, Inergy LP, which sells propane and leases propane supplies, bought home $203 million by selling its six-year bonds at a discount.
.....
It has also allowed speculative-grade borrowers to sell more than $4.2 billion of bonds already in January, making it the busiest month for junk, or high-yield, issuance since July 2008 when companies raised more than $3.8 billion in the market, according to data provider Dealogic.
There are a lot of reasons for this.
1.) The yield on Treasury Bonds does not compensate investors for the risk they are taking. With the government now promising to issue a ton of debt to pay for the stimulus plan, yields have no where to go but up.
2.) The Fed has been aggressively trying to get the credit markets jump started for the last 6-9 months. And the efforts are starting to pay off:
The a2p2 spread is coming in
Financial paper issuance has ticked-up and asset-backed issuance is evening out.
Technically, the Nasdaq and S&P both closed above some important resistance today (although just barely for the S&P) which is good for the bulls. It would be nice however for the market to be able to hold a rally/breakout like this just once without the government (or should I say taxpayers) getting involved and sponsoring it. That's one reason I still doubt this move and don't plan on playing it. We are also definitely overbought now on some short-term indicators and the others I watch like the McClellan are getting there very quickly as well. Maybe this time will be different - maybe this will be the rally that sticks. But everytime we have had one of these rallies where we get overbought with very little leadership, they have quickly failed, and that's still what I expect to happen here.
The global economy will slow close to a halt this year as more than $2 trillion of bad assets from the U.S. help sink economies from Russia to the U.K., the International Monetary Fund said.Bank losses worldwide from toxic U.S.-originated assets may reach $2.2 trillion, the IMF said in a report released today, more than the $1.4 trillion that the fund predicted in October. World growth will be 0.5 percent this year, the weakest postwar pace, the fund said in a separate report.
The reports signal that writedowns and losses at banks totaling $1.1 trillion so far are only half of what’s to come and that contractions may deepen. Losses on that scale would leave banks needing at least $500 billion in fresh capital to restore confidence in their balance sheets, the IMF said.
Not much to say on top of that, is there?
Assuming enactment in mid-February, CBO estimates that the bill would increase outlays by $92 billion during the remaining several months of fiscal year 2009, by $225 billion in fiscal year 2010 (which begins on October 1), by $159 billion in 2011, and by a total of $604 billion over the 2009-2019 period. That spending includes outlays from discretionary appropriations in Division A of the bill and direct spending resulting from Division B.
In addition, CBO and the Joint Committee on Taxation (JCT) estimate that enacting the provisions in Division B would reduce revenues by $76 billion in fiscal year 2009, by $131 billion in fiscal year 2010, and by a net of $212 billion over the 2009-2019 period.
In combining the spending and revenue effects of H.R. 1, CBO estimates that enacting the bill would increase federal budget deficits by $169 billion over the remaining months of fiscal year 2009, by $356 billion in 2010, by $174 billion in 2011, and by $816 billion over the 2009-2019 period.
Tyler Cowen says he wants to see evidence about the effectiveness of fiscal policy. This is from Michael Murray's econometrics text (which comes at the subject from an interesting perspective), and it is one of his "Regression's Greatest Hits." It speaks to dynamic government spending multipliers, and the effect of government spending on economic growth:Is Public Expenditure Productive?: From the 1930s to the late 1980s, macroeconomists viewed government spending as rather homogeneous. They asked whether government spending crowded out private investment, drove up interest rates, or spurred consumer spending. They argued whether funding government expenditures by taxation had different effects than funding by issuing new government debt. They gave relatively little attention, however, to the different ways the government spends its money-on defense, on roads, on food stamps, and so on. Economist David Aschauer of Bates College dramatically altered macroeconomists' view of government spending with a paper he wrote in 1989, however. Aschauer's analysis places a particular kind of government spending - nonmilitary public investments, such as roads - at center stage. Aschauer finds government investment is so important for private sector productivity that a decline in public sector investment might account for much of the productivity slowdown observed in the 1970s and 1980s.
Aschauer asks whether private sector productivity is improved by public sector investments, and whether public sector investments have a different effect on private sector productivity than does other government spending. He assumes a Cobb-Douglas style of production function and uses two dependent variables - output and a measure of productivity called "total factor productivity - to study the effects of government spending on productivity. Aschauer assumes that both output and productivity depend on labor, the private capital stock, the public nonmilitary capital stock (for example, roads), and, perhaps, on other government spending. He also allows output to depend on the intensity with which the capital stock is being used, as measured by the capacity utilization rate of the private sector.
When Aschauer estimates an output equation that accounts for labor, capacity utilization, and a time trend, his Durbin-Watson statistic is 0.63. Either there is serial correlation in the model's underlying disturbances, or an important variable has been omitted. When Aschauer adds the public stock of nonmilitary capital to the output equation, the Durbin-Watson statistic no longer evidences serial correlation, and public capital becomes statistically significant. The public, nnonmilitary capital stock is also significant in Aschauer's productivity equation. Public investment expenditures translate into higher private sector productivity and higher private sector output.
Aschauer finds no evidence of public military capital raising output or productivity, nor does he find the flow of spending on on capital goods to have any effect on output or productivity. Public spending raises private sector productivity to the extent that public sector spending is on nonmilitary capital goods. How government spends its money matters! It is not government spending, as such, that spurs private productivity, but rather specific government investments in capital goods that makes the private sector more productive.
We could reasonably worry that that the direction of causation runs not from government spending to output, but the other way around, from output (which translates into income) to government spending. But if this were the reason for Aschauer's findings, we would expect both military and nonmilitary capital to reflect such an effect of output on expenditure. The fact that only public-sector spending on nonmilitary capital goods shows a link with output suggests that the effect we see reflects a causal effect running from nonmilitary capital to output, and not the other way around.
Sales of previously owned homes in the U.S. unexpectedly rose from a record low, propelled by the biggest slump in prices since the Great Depression as foreclosures surged.
Purchases rose 6.5 percent to an annual rate of 4.74 million from 4.45 million in November that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago, the biggest decline since records began in 1968 and probably the biggest in seven decades, according to the group.
Home prices in 20 U.S. cities declined 18.2 percent in November from a year earlier, the fastest drop on record, as foreclosures climbed and sales sank.
The decrease in the S&P/Case-Shiller index was in line with forecasts and followed an 18.1 percent drop in October. The gauge started falling in January 2007, and year-over-year records began in 2001.
Record foreclosures have contributed to more than $1 trillion in losses worldwide that have prompted banks to shut off access to credit. While plunging values have made homes more affordable, they have also hurt household wealth, contributing to a slump in spending that’s likely to continue for the first half of the year.
Rising unemployment and announcements of huge job cuts have sapped consumer confidence nationwide, discouraging some potential buyers from making a move. "People rightly feel less secure in their future income," said Richard K. Green, director of the Lusk Center for Real Estate at the University of Southern California, who believes the housing market won't recover until the unemployment rate stops rising.
Several U.S. employers announced layoffs totaling 65,000 jobs on Monday, including 20,000 at Caterpillar Inc. and 7,000 at Home Depot Inc.
So far this year, big U.S. employers have announced plans to shed more than 140,000 jobs, on top of the 2.5 million shed last year, the biggest drop since 1945.
Caterpillar Inc., Sprint Nextel Corp. and Home Depot Inc. led companies today announcing at least 72,500 job cuts as sales withered and construction slowed amid a global economic recession that may persist through 2009.
The biggest layoffs were at Peoria, Illinois-based Caterpillar. The world’s largest maker of construction equipment said it’s cutting 20,000 jobs after fourth-quarter profit fell by almost a third.
Pfizer Inc., the New York-based drugmaker that’s acquiring competitor Wyeth for $68 billion, said it will close five factories and eliminate 19,000 jobs, or 15 percent, of the combined company’s workforce.
The firings came as American jobless claims hit a 26-year high, reaching 589,000 in the week ended Jan. 17, as shrinking demand for products and services forced companies to lower costs.
Employers “are each cutting thousands of jobs. These are not just numbers on a page,” U.S. President Barack Obama said today at the White House. “We cannot afford delays” in passing the economic stimulus program now before Congress.
Sprint Nextel Corp., the U.S. wireless carrier, will eliminate 8,000 jobs, or 14 percent of its workforce, in order to reduce expenses by $1.2 billion a year.
Home Depot Inc., the world’s largest home-improvement retailer, said it will cut 7,000 jobs, or 2 percent of its workforce, and exit its Expo home-décor business.
Lending at many of the nation's largest banks fell in recent months, even after they received $148 billion in taxpayer capital that was intended to help the economy by making loans more readily available.
Ten of the 13 big beneficiaries of the Treasury Department's Troubled Asset Relief Program, or TARP, saw their outstanding loan balances decline by a total of about $46 billion, or 1.4%, between the third and fourth quarters of 2008, according to a Wall Street Journal analysis of banks that recently announced their quarterly results.
Those 13 banks have collected the lion's share of the roughly $200 billion the government has doled out since TARP was launched last October to stabilize financial institutions. Banks reporting declines in outstanding loans range from giants Bank of America Corp. and Citigroup Inc., each of which got $45 billion from the government; to smaller, regional institutions. Just three of the banks reported growth in their loan portfolios: U.S. Bancorp, SunTrust Banks Inc. and BB&T Corp.
.....
Bankers say it is unfair to expect them to funnel a large portion of their government capital into loans so soon after receiving it. They say it takes time to make prudent loans and to attract new deposits that will allow them to lend out their new capital efficiently.
Demand for low-risk loans is also ebbing as consumers and businesses rein in their spending and try to conserve cash, according to bank executives. Even though mortgage rates are down, for example, applications in the week ended Jan. 16 declined about 10% from the previous week, according to the latest data from the Mortgage Bankers Association.
Meanwhile, federal regulators have been pushing many banks to set aside extra capital to cushion against losses. Bankers say that is at odds with the government's encouragement to make more loans.