One of the items rallying the market a bit over the holiday was A new Fed plan to buy $500B in mortgage-backed-securities by the end of June. I don't know anymore what that brings the total expenditure to so far, or how much hopelessly over market these purchases will be. And gosh, neither do the so-called watchdogs, who really just don't know where the TARP money has gone. Gawrsh! Mish comments extensively on the high-risk auto loans being made via tax dollars, and how Fed actions will extend the downturn severely. Also, AIG, our favourite
Some people who may not getting the money, on the other hand, will be California taxpayers expecting income-tax refunds. They'll be getting IOUs from the state instead. That'll be fun. California Controller John Chiang says, "California may begin, as early as February 1, 2009, issuing registered warrants...commonly referred to as IOUs...to individuals and entities in lieu of regular payments." Back in 1992, when this last happened (under rather different circumstances and in much smaller numbers) banks took them as cash good - but that's when we had transparency, a banking system, and so on. That won't do already good for record-low consumer confidence numbers.
Oh, and for the record, this was the worst year for the Dow Jones Industrial Average since 1931, and the worst year for the S&P500 since 1937. And there's more talk of planning for domestic military use against "unrest" caused by bad economic times. New Hampshire won't hold any jury trials for a month to save jury pay - that's gotta be unconstitutional - oh, but what am I saying, nobody cares about that crap.
Social mood continues to veer towards frugality, as noted some time ago over at Minyanville. China is in serious trouble, as continued credit problems make shipping more difficult on top of the demand collapse. Kevin Depew has a long article on the social shift, talking about shifts not just to thrift, but about the financial world (from near-worship to loathing), towards stronger support for more income equality, and so on. He also has projections regarding social mood in 2009, and his calls for 2008 weren't bad. Oh, and if you want to talk about social shifts; you've probably seen all kinds of mortgage calculators; here's a walk-away-from-your-mortgage calculator. It helps you decide whether you should keep paying your mortgage or walk away. No lie.
Got a dollar? Buy a house. Got 10 dollars? Buy a house in Ferndale, tho' I think the Ferndale house is a listing error. (The $1 houses are in Detroit, and aren't.) Mish Shedlock writing at Minyanville talks about the extent of wealth destruction in 2008. Essentially, as of 4Q2008 estimates, you're talking about $10T in numerical losses last year, against roughly $15T in GDP 2007? That of course includes both stock market and housing losses. That's going to hurt as it shakes through. The Market Oracle talks about how a lot of assumptions have to be changed for a deflationary environment. Talking of which, if you replacing the bullshit-application known as the "Owners' equivalent rent" component of the consumer price index and substitute Case-Shiller housing data, the Consumer Price Index declined 3.1% year-over-year in November.
(And if you're interested, here is that data, including drop-from-peak housing prices. As I predicted, Seattle has done better than most, due mostly I still think to our having sat out much of the housing bubble to start.)
Yet more Minyantalk: Mark Bloudek sees globalisation under sharp attack in 2009. So does Brad Setzer at the Council on Foreign Relations. Ron Davis sees capitalism entirely in retreat. Skip the early section on football and Todd Harrison talks about the beginnings of re-emergence of global risk into oil pricing, a feature which has been absent as of late.
But enough with the furry financials. Brad Setzer at the CFR again notes an article stating that China has lost all appetite for external risk, which will help support the Treasury market for a while. They are, however, very much interested in using their dollar reserves to build up oil supplies and contracts while oil is relatively cheap again. Dr. Roubini at RGE Monitor answers the simple question "Will Banks and Financial Markets Recover in 2009" very simply: no, saying that the global recession will continue through 2009:
While the risk of a total systemic financial meltdown has been reduced by the actions of the G-7 and other economies to backstop their financial systems, severe vulnerabilities remain. The credit crunch will get worse; deleveraging will continue, as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, thus causing more price falls and driving more insolvent financial institutions out of business. A few emerging-market economies will certainly enter a full-blown financial crisis.Some immediate pain coming includes Microsoft reportedly planning to lay off 15,000 employees worldwide, or 17% of workforce. Several people I know work there; good luck, guys. Other spottings by Mish lead him to expect 200,000 retail store closings in 2009. It appears that the holiday shopping season was "horrific." (Bloomberg version here.)
So 2009 will be a painful year of global recession and further financial stresses, losses, and bankruptcies. Only aggressive, coordinated, and effective policy actions by advanced and emerging-market countries can ensure that the global economy recovers in 2010, rather than entering a more protracted period of economic stagnation.
A nationally televised meeting between Iceland's prime minister and other political leaders was forced off the air Wednesday night when angry protesters disrupted the broadcast. Lordhumongous on Ticker Forums found some video reportedly of the protest. Can anybody verify these?
Finally, everybody here probably knows what I think of the relationship between the so-called political press and the government; with bailouts being talked about now for newspapers, maybe it'll get made official.
eta: I keep finding more stuff! The Treasury has declared it'll help any company that they "deem important to making or financing cars." And I forgot, the overnight Fed Funds Rate is hanging out around .09%, which is now in target range but really only four or five basis points down from when the target range was around 1%. I've lost the links but there're rumours of a bunch of countries in Asia going to Yen pegs. The Baltic Dry Index is hanging out in the upper 700s. The dollar index is hanging out around 81.5, but I'm not sure how much any of that matters in a holiday week. But the TED spread is down to 1.3ish. That's ... something, anyway. By recent standards, even good.