With five consecutive daily advances in the stock market, investors are anticipating a Santa Claus rally for December to end what was a miserable investment year on a positive note. Preliminary sales results for Black Friday suggest an increase of 3% over last year which will be the lowest since 2005, but at least it is an increase. An operational credit market that will key to the resumption of economic activity still seems far off with the spread between the 3-month LIBOR and the 3-month Treasury at more than 2% (normal should be around 0.5%). LIBOR is now close to 2004 levels, but the demand for ultimate security in Treasury Bills has kept the yield at 0.3%. Investor confidence in the Obama administration’s handling of the crisis will have to be established before the economy will start to dig itself out of the hole. As seen in the Investor Section, president elect Obama’s economic team has the credentials and is centrist enough to warrant investors confidence.

Mr Obama’s policies may not be any more successful at combating the financial crisis and recession than those of George Bush. But it does seem safe to say that economics will play a bigger part in the formation of those policies. Three of the first four members of the team to be named are well-regarded PhD-holding economists and the fourth, Tim Geithner, the new treasury secretary, is a respected central banker (he heads the Federal Reserve Bank of New York). It is a striking contrast with the outgoing administration, in which economists never had much clout. Consider the Office of Management and Budget director, who as overseer of $3 trillion in federal spending plays a pivotal role in setting economic priorities. Mr Bush has had four: one was a pharmaceuticals executive, one did government relations for an investment bank, and two were congressmen.All four trained as lawyers. The team’s other striking feature is its centrism. Mr Summers is on the conservative wing of Democratic economists. As Mr Clinton’s treasury secretary he backed the law that in 1999 tore down barriers between commercial and investment banks and still backs it despite recent criticism. Christina Romer, an economic historian from Berkeley, has just published a paper with her husband David showing how raising taxes retards growth. Jason Furman, likely to be named as an aide to Mr Summers, outraged unions for his 2005 article, “Wal-Mart: A Progressive Success Story”. One hedge-fund manager who, before the election, was terrified Mr Obama would usher in “confiscatory” tax policies breathed a sigh of relief. “No Robert Reichs,” he said, a reference to the leftish adviser who was Mr Clinton’s labour secretary. “There’s no radicals in the whole cabinet that anyone can find.” Their influence helps explain why Mr Obama wants a hefty fiscal stimulus to keep the economy from “falling into a deflationary spiral”. Mr Summers had prominently called for “significant, speedy and sustained” fiscal stimulus.

For the entire article from THE ECONOMIST click here:

The rate to exchange floating for fixed interest payments for 10 years may drop below yields on similar maturity Treasury notes for the first time as the Federal Reserve buys mortgages to unfreeze credit markets. The 10-year swap spread may turn negative as the purchases push mortgage rates lower, triggering a surge in demand to lock in fixed rates. Lower mortgage rates tend to increase consumers refinancing levels, causing a decline in bondholders’ duration, a measure of price sensitivity to interest-rate change expressed as a number of years. The 10-year spread dropped as low as seven basis points after the Fed announced its plan to buy as much as $600 billion in mortgages on Nov. 25.

For the entire article from BLOOMBERG NEWS click here:

Home prices continued to fall as the economic downturn deepened in September, according to the S&P/Case-Shiller home-price indexes and the Federal Housing Finance Agency home price index. For the third quarter, the Case-Shiller national index posted a 16.6% decline in home prices from a year earlier, worse than the 15.1% drop posted in the second quarter. U.S. home prices fell a seasonally-adjusted 1.8% in the third quarter from the previous quarter, according to a purchase-only house price index published Tuesday by the Federal Housing Finance Agency. The Case-Shiller data came a day after a government report that sales of previously occupied homes resumed falling, dropping 3.1% in October, as the median price suffered its largest drop on record, and a week after new-home construction took its fourth tumble in a row for October, falling to a record low. "The impact of foreclosures and tightening credit conditions weighed heavily on house prices in the third quarter," said FHFA Director James B. Lockhart. Lockhart said he hopes that a new foreclosure prevention effort unveiled earlier this month in conjunction with the U.S. Treasury, the Federal Housing Administration, Fannie Mae, Freddie Mac and HOPE NOW will help provide some relief. "Recent government actions to stabilize financial markets are aimed at countering the tight credit conditions affecting housing," he said. THE HOME BUILDER STOCK INDEX

For the entire article in THE WALL STREET JOURNAL click here:

Stocks head into December with a tailwind, but the late November rally will quickly be put to the test by some gloomy economic reports and the next phase of efforts to save the struggling U.S. auto industry. Traders say December couldn't be any worse than the preceding three months where steep declines have left stocks at seriously depressed levels, and they are betting now that December will deliver a rally. A multi-day rally in the past week, the first of note since April, gave the market a boost of confidence. December, on average, has been the best performing month for the Dow since 1915. It has averaged gains of 1.4 percent, according to Cleve Rueckert of Birinyi Associates. But Rueckert points out: "We've been careful about making historical comparisons because there really aren't any good ones," he said. On the horizon in the coming week is the December jobs report Friday, expected to show a continuing deterioration in the employment picture. But even before that markets will focus on auto sales for November on Tuesday and the Fed's beige book on the economy Wednesday. Auto industry executives once more head to Capitol Hill Thursday and Friday for two days of hearings before Senate and House committees on their request for a bailout package. They are expected to be armed with documentation on how they would revamp their companies. There are also two appearances by Fed Chairman Ben Bernanke. On Monday, he speaks on the economy to the Greater Austin Chamber of Commerce. He speaks on housing and housing finance Thursday at the Presidents' Conference on Homeownership and Mortgage Initiative in Washington. President-elect Barack Obama, who helped spark the past week's stock rally with his appointment of an economics team, meets with governors in Philadelphia Tuesday.

For the entire article from CNBC click here:

IF you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront. According to Keynes, the root cause of economic downturns is insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending. The economy’s output of goods and services is traditionally divided into four components: consumption, investment, net exports and government purchases. Any expansion in demand has to come from one of these four. But in each case, strong forces are working to keep spending down. CONSUMPTION The Conference Board reports that consumer confidence is near its record low. It is easy to understand why consumers are so scared. House values have declined, 401(k) balances have shrunk and unemployment is up. INVESTMENT In normal times, a fall in consumption could be met by an increase in investment, which includes spending by businesses on plant and equipment and by households on new homes. But several factors are keeping investment spending at bay. The most obvious is the state of the housing market. Over the past three years, residential investment has fallen 42 percent. With house prices continuing to decline, increased building of new homes is not likely to be a source of robust demand over the next few years. NET EXPORTS Not long ago, it looked as if the rest of the world would save the United States economy from a deep downturn. From March 2004 to March 2008, the dollar fell 19 percent against an average of other major currencies. By increasing the price of foreign goods in the United States and reducing the price of American goods abroad, this depreciation discouraged imports and bolstered exports. In the coming months, however, the situation may well go into reverse. As the United States financial crisis has spread to the rest of the world, fast-moving international capital has been looking for a safe haven. Ironically, that haven is the United States. Since March, the dollar has appreciated 19 percent, a move that will put a crimp in the export boom. GOVERNMENT PURCHASES That leaves the government as the demander of last resort. Calls for increased infrastructure spending fit well with Keynesian theory.The fly in the ointment — or perhaps it is more an elephant — is the long-term fiscal picture. Increased government spending may be a good short-run fix, but it would add to the budget deficit.Keynesian economists often dismiss these long-run concerns when the economy has short-run problems. “In the long run we are all dead,” Keynes famously quipped.

For the entire article from THE NEW YORK TIMES click here:

Eurozone unemployment has seen its biggest monthly jump in 15 years, mirroring a sharp drop in inflation and strengthening the case for another big cut in European Central Bank interest rates next week. Joblessness in the 15-country region soared by 225,000 in October, adding to evidence that the recent oil price shock, which sent inflation soaring, has given way to a deep and protracted recession. At 7.7 per cent, October’s eurozone unemployment rate was the highest for almost two years. Recent rises in unemployment have been particularly stark in Spain, where the rate hit 12.8 per cent in October, up from 12.1 per cent in September and 8.5 per cent a year before. Eurozone annual inflation, meanwhile, slumped from 3.2 per cent in October to 2.1 per cent this month, the lowest since August 2007, according to separate figures released on Friday by Eurostat, the European Union’s statistical office. It was the biggest monthly fall in inflation since the launch of the euro almost a decade ago. Eurozone inflation peaked at 4 per cent in July, the same month as the ECB raised its main interest rate by a quarter percentage point to 4.25 per cent. Since the collapse of Lehman Brothers in mid-September the central bank has hurriedly reversed its strategy, slashing official borrowing costs by half a percentage point in early October and again this month. Inflation rates could drop below zero in some months next year as oil price increases drop out of annual comparisons. However, ECB policymakers see scant chance of deflation – a generalised and long-lasting fall in prices that wreaks serious economic damage – partly because of the relative-rigidity of the region’s wage and price setting structures. But the rapid pace of the economic downturn, which has seen a near-collapse in business confidence, has strengthened the case for a bolder cut in borrowing costs next week. The ECB has not sought to stop financial markets pricing in a three-quarter percentage point cut in its main rate to 2.5 per cent next Thursday.

For the entire article from the FINANCIAL TIMES click here:

From Despair.com

 

Please be sure to add JdeVilliers@LJLFunding.com to your "Safe Sender's" list so that you can continue to receive this information without disruption.

Please click here for instructions on how to do this.