Sunday, January 25, 2009

Hell Week

While last week's numbers on Wall Street were dismal, this week's earnings and 4th quarter GDP figures are going to have the market testing those late 2002 market lows.

Only 10% of the 85 S&P 500 companies that have reported so far have topped forecasts. Another 60% have met estimates and another 30% have missed, according to Thomson Reuters.

"We're in the process of absorbing just how bad the fourth quarter was," said Bernard McGinn, CEO of McGinn Investment Management. "We had a feeling things were terrible, now we're getting proof of it. The question is 'where do we go now?"

This week also brings the latest Fed policy meeting - although it's likely to be less influential than usual since the central bankers are expected to keep interest rates unchanged near zero, said Kenny Landgraf, principal and founder at Kenjol Capital Management

Investors will also digest reports on housing, consumer confidence and leading economic indicators early in the week. The end of the week brings the fourth-quarter gross domestic product (GDP) report. It's expected to have fallen by an annual rate of 5.2%, it biggest plunge in 26 years.

I honestly think the GDP numbers will be worse than this, in the neighborhood of a 6% drop or more. If that happens, we could see numbers under 7,000 very soon on the Dow.

And let's not forget, the week after will bring the January unemployment numbers.

The Sun Is Still On Fire And Hot Too

And John McCain juuuuuust can't bring himself to vote for the stimulus plan, either because it doesn't have enough tax cuts for the rich.
Sen. John McCain, Obama's opponent in the November presidential contest, said he did not believe the stimulus package did enough to create jobs.

"There have to be major rewrites if we want to stimulate the economy... . As it stands now I can't vote for it," McCain said on Fox television.

He also continued a theme from his campaign, declaring that the former Bush administration tax cuts, that were particularly beneficial to high-earning Americans, should be made permanent. The measure expires next year and Obama has said he will not seek their renewal.

Gee there's a shocker. Look for 40 other Republican Senators to do the exact same thing and blame Obama for giving them something they just can sign in good conscience. That's okay though, because the Village loves their Maverick McMaverick, all is forgiven, and he's fighting for the American people against that nasty, socialist Obama guy.

Granted, Obama just needs to flip a couple. But that's of course if Obama can keep them all on his side, which I doubt. BooMan has a pretty good theory which boils down to "the safer the district is for the Dems, the more they will support Obama." Makes sense to me.

The Senate however is a bit more complex. Many of them on both sides of the aisle will be looking to take the McCain route out...especially the ones up for re-election in 2010.

Golden State Deadbeats

Turns out the state of California is so broke, it's down to the point of actively choosing to miss payments on the billions it has borrowed over the last 18 months. (h/t Atrios):
The state's cash situation is somewhat analogous to your family emptying its checking account, drawing down the savings account to cover checks, and only having enough left to pay either the mortgage or the utility bill.

Of course you could then file for bankruptcy protection. Under federal law, the state can't do that, but it can do something you can't: Issue IOUs.

Known formally as "registered warrants," the state's IOUs are just that. Someone – a vendor, a landlord, the water company – who is owed money by a California government agency gets a piece of paper that says the state owes them money, and will pay them the amount plus interest at some point in the future.

The only time since the Great Depression that the state has issued IOUs was in 1992, and it wasn't a pretty sight. About 1.6 million of them, worth a total of $3.8 billion, were issued during a two-month budget tiff between then-Gov. Pete Wilson and legislators.

Instead of paychecks, about 100,000 state workers got IOUs, which proved somewhat harder to cash. After the first month, many of the state's major banks quit accepting the warrants, saying the 5 percent interest they were paid wasn't worth the arduous processing needed to redeem them.

And after state employees sued, a federal judge ruled that paying workers with IOUs violated federal labor law. The state agreed in 1996 to give the affected workers extra paid vacation to compensate.

If IOUs are issued this year, they won't go to state workers. They also might not be accepted by many banks.

Beth Mills, a spokeswoman for the California Bankers Association, said the group's members still had "a lot of technical and operational questions we're trying to get some resolution on" about IOUs.

Banks aren't going to want to touch these things. Not when they know California may just decide "Hey. we're a state government and we're going to decide just not to pay you."

I'm wondering how many states will have to be bailed out over the next couple of years, how many state employees will be laid off as services are curtailed or eliminated.

There are plenty of states in dire trouble where Republicans are in charge, and their solution is going to be to privatize or eliminate as many state services as humanly possible. That means a whole hell of a lot of jobs are going to be lost, despite Obama's promises to fund "shovel-ready" projects.

Of Financial Oversight, Meteor Strikes, And Modern Barn Construction

Up late tonight, but noticed this over at Atrios's place:
The Obama administration plans to move quickly to tighten the nation’s financial regulatory system.

Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.
This should have been done, oh, never because this never should have been needed to be done in the first place. Remember kids, this all started with Citigroup and the Gramm-Leach-Bliley Act, which overturned Glass-Steagall, which allowed this mess to happen in the first place.

Clinton signed it into law. Bush removed nearly all the oversight from what was left in the system. It's badly needed regulatory oversight, but it's not just closing the barn door after the horses have escaped the barn, worrying about regulatory oversight right now is the equivalent of rebuilding the barn door just so you can close the damn thing at some unspecified point in the future after the barn has been hit by a meteor and not only killed the horses but flattened every building in the county.

Yes, at some point that barn door will be needed again. That's step #22,347 at this point. Step #1 is realizing that there is no barn anymore. Either Obama doesn't understand that, or he understands it all too well and he's doing what he's capable of doing at this point and getting it out of the way now.

And really, the scary part is that the horses being the financial institutions to be regulated at this point, it's really like the meteor was an evil necromantic meteor that killed the horses and raised them from the dead as Zombie Bank Horses. Zombie Bank Horses that hunger for billions in bailout money (and maybe brains.)

Yeah, I'm going to bed.
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