Rubicon3

The Tax Poem

Tax his land, tax his wage,
Tax his bed in which he lays.
Tax his tractor, tax his mule,
Teach him taxes is the rule.

Tax his cow, tax his goat,
Tax his pants, tax his coat.
Tax his ties, tax his shirts,
Tax his work, tax his dirt.

Tax his chew, tax his smoke,
Teach him taxes are no joke.
Tax his car, tax his grass,
Tax the roads he must pass.

Tax his food, tax his drink,
Tax him if he tries to think.
Tax his sodas, tax his beers,
If he cries, tax his tears.

Tax his bills, tax his gas,
Tax his notes, tax his cash.
Tax him good and let him know
That after taxes, he has no dough.

If he hollers, tax him more,
Tax him until he's good and sore.
Tax his coffin, tax his grave,
Tax the sod in which he lays.

Put these words upon his tomb,
"Taxes drove me to my doom!"
And when he's gone, we won't relax,
We'll still be after the inheritance tax.
               

                   - Author unknown

Just Think of it as an Economic High Colonic

Larry Kudlow writes:

An Economic Cleansing 

Recessions are part of capitalism. They happen every so often. We’ve had two in the last 25 years. And it looks like we are entering a third one after today’s jobs-loss report.

The unemployment rate went up to 5.1 percent. Non-farm payrolls have fallen for three straight months. Private payrolls have fallen four straight months. And the entrepreneurial small-business-oriented household survey is below its November peak, showing a loss of 678,000 jobs.

These are relatively mild job losses so far. So one can hope this will be a relatively mild recession. But frankly, no one knows for sure.

A lot of Keynesian economists expect the tax rebates will promote recovery. But I doubt it. It’s a demand-side nostrum where only about 20 percent of the checks will be spent. It creates no economic-growth incentives. The 2001 rebates were of little consequence, and it wasn’t until marginal tax rates were cut in 2003 that the economy recovered strong. Even worse, Papa Bush raised taxes in 1991, which retarded recovery.

As a guess, the recession began in November or December. The stock market is basically flat today. And with all the pessimism out there, investors may have already discounted the economic downturn, with the market reaching a low on January 22. It’s up about 4 percent since then, which may mean shareholders are anticipating a new economic rebound in the second half of this year.

Recessions are therapeutic. They cleanse excess from the economy. Think about excessive risk speculation, leverage, and housing. Recessions are curative: They restore balance and create the foundation for the next recovery. Despite the housing and credit problem and the sub-prime virus, banks are still lending to businesses. So we don’t have a genuine credit crunch across the board. That is very good.

Link

Nice News

After reading this article yesterday, I was left feeling fairly pessimistic about the state of the economy.  I'm still concerned (and I know I am not alone in feeling that way) but for the moment at least, things are looking up.  Let's keep fingers crossed and pray to all of our assorted Deities that it is a signal of a turning tide:

Stocks Surge on Bank Hopes, Econ. Data
Tuesday April 1, 11:42 am ET
By Joe Bel Bruno, AP Business Writer

Wall Street Surges on UBS and Lehman Brothers Stock News, Better-Than-Expected Economic Data

NEW YORK (AP) -- Wall Street kicked off the second quarter with a big rally Tuesday on rising hopes that banks slammed by the credit crisis are working through their problems. A report that U.S. manufacturing is faring better than expected last month also sent stocks higher and helped propel the Dow Jones industrials up more than 250 points.

Financial stocks were among the big winners after Lehman Brothers Holdings Inc. and Switzerland's UBS AG issued new stock to help bolster their balance sheets. With that upbeat news and the second quarter ahead of them, investors appear quite willing to make some bets that the worst of the damage from the credit crisis has been felt. Moreover, the moves buttressed the view that financial services companies are taking aggressive action to improve their capital bases and stave off the potential of a collapse similar to Bear Stearns Cos.

Analysts believe there must be a recovery in bank and brokerage stocks to lead major stock indexes higher. Some of the biggest financial players had their biggest moves this year -- Citigroup Inc. shot up 9 percent, JPMorgan Chase & Co. rose 6.7 percent, and Lehman surged 11 percent.

"This is a nice way to begin the second quarter," said Todd Leone, managing director of equity trading at Cowen & Co. "All the financials are up big, and there's a sense that things are turning. We definite have not seen the last of the credit crisis, but we're getting closer."

link

Ten Days That Changed Capitalism

From The Wall St. Journal, a terrific article for economic neophytes like me.  It explains what has gone on in the past couple of weeks along with the attending implications in relatively simple terms:

The past 10 days will be remembered as the time the U.S. government discarded a half-century of rules to save American financial capitalism from collapse.

On the Richter scale of government activism, the government's recent actions don't (yet) register at FDR levels. They are shrouded in technicalities and buried in a pile of new acronyms.

But something big just happened. It happened without an explicit vote by Congress. And, though the Treasury hasn't cut any checks for housing or Wall Street rescues, billions of dollars of taxpayer money were put at risk. A Republican administration, not eager to be viewed as the second coming of the Hoover administration, showed it no longer believes the market can sort out the mess.

"The Government of Last Resort is working with the Lender of Last Resort to shore up the housing and credit markets to avoid Great Depression II," economist Ed Yardeni wrote to clients.

First, over St. Patrick's Day weekend, the Fed (aka the Lender of Last Resort) and the Treasury forced the sale of Bear Stearns, the fifth-largest U.S. investment bank, to J.P. Morgan Chase at a price so low that a shareholder rebellion prompted J.P. Morgan to raise the price. To induce J.P. Morgan to do the deal, the Fed agreed to take losses or gains, if any, on up to $29 billion of securities in Bear Stearns's portfolio. The outcome will influence the sum the Fed turns over to the Treasury, so this is taxpayer money; that's why the Fed sought Treasury Secretary Henry Paulson's OK.

Then the Fed lent directly to Wall Street securities firms for the first time.

...In the days that followed, the Republican Treasury secretary leaned on two shareholder-owned, though government-chartered, companies -- Fannie Mae and Freddie Mac -- to raise capital that their boards didn't want to raise. In exchange, their government regulator allowed them to increase their leverage so they can buy about $200 billion more in mortgage-backed securities.

So Fannie and Freddie will get bigger, a welcome development when mortgage markets are in trouble.

...regardless of how we got here, the clear and present danger that the virus in the housing, mortgage and credit markets is infecting the overall economy is too great to ignore. The Great Depression was worsened because the initial government reaction was wrong-headed. Federal Reserve Chairman Ben Bernanke spent an academic career learning how to avoid repeating those mistakes.

Is it working? It is helping....Is it enough? Probably not.

Read the whole thing.

2:23 PM EST

Dow	12,009.13	+268.98
Nasdaq	2,218.33	+48.99
S&P 500	1,301.07	+27.70

Woo-hoo! Mama wants a brand new...um...actually, I don't want anything but to keep hold of my retirement funds.  Kudos to the FRB for helping out:

AP
Stocks Up Sharply After Fed Credit Plan

Wall Street Moves Sharply Higher After Fed, Other Central Banks Move to Ease Credit Crisis

NEW YORK (AP) -- Wall Street rebounded sharply Tuesday after the Federal Reserve and other central banks said they will pump $200 billion into the financial markets to help ease the strain from the credit crisis. The Dow Jones industrials surged more than 200 points.

The program is part of a worldwide effort to help struggling banks and mortgage providers. The Fed -- acting in concert with the European Central Bank, the Bank of Canada and the Swiss National Bank -- agreed to loan investment banks money in exchange for debt that includes slumping mortgage-backed securities.

The Fed's latest move was seen as a direct boost to struggling banks by avoiding having to dramatically slash interest rates when the central bank's policymaking Open Market Committee meets next week. Economists continued to be concerned about the unrelenting rise in oil prices and the dollar's weakness, which contribute to inflation -- and cutting rates only add to these pressures.

The market's reaction contrasts with its more skeptical view during the past few weeks about the central bank's ability to keep the economy out of a recession. However, this latest step was seen as a direct lifeline to investment banks -- which previously couldn't borrow in past Fed liquidity plans.

"The big problem has been the financials, and this helps supply money directly to the banks and may take some of the need for aggressive rate cutting off the table," said Peter Dunay, chief investment strategist at Meridian Equity Partners. "The Fed is basically going to take the bad loans off the banks' books, and the market seems to be loving that idea."

***********

Reuters
Dollar soars as Fed announces liquidity measures

NEW YORK (Reuters) - The dollar rose sharply on Tuesday after the Federal Reserve announced new measures to inject liquidity into the financial system, easing concern about a deepening credit crisis and a U.S. recession.

The dollar soared against the yen and was on pace for its biggest daily gain in three months after the Fed said it would lend primary dealers up to $200 billion in Treasury securities and allow them to use agency and mortgage debt as collateral.

It also rebounded from a record low against the euro and jumped against the Swiss franc after the Fed announced its plans, which will be coordinated with other central banks.

"Anything the Fed can do to help the credit market will help the dollar," said Ron Simpson, director of foreign exchange research at Action Economics in Tampa, Florida. "At least the Fed is being creative and working on the problems."

The dollar hit a session high of 103.52 yen, well off an eight-year low around 101.40. It last traded at 102.80 yen, up 1.2 percent on the day, its best daily performance since December.

The euro retreated from an all-time high just short of $1.55 and fell as low as $1.5283 before edging back to $1.5335, little changed on the day.

The Fed's action cooled market expectations for a sharp interest rate cut at the central bank's March 18 policy meeting, and that helped take some pressure off the dollar.

U.S. interest rate futures were pricing in a 72 percent perceived chance that the Fed will cut its benchmark rate to 2.25 percent from 3 percent next week. Such a cut had been fully priced in before the Fed's move.

"In a nutshell, this demonstrates the Fed will use every means at its disposal to get the economy going," said Jonathan Lewis, founder of Samson Capital Advisors in New York.

********

The "but, howevers":

The actual impact on the banking system will be minimal, said Robert Loest, portfolio manager at Integrity Funds, saying the government's need to borrow money will absorb half of the $200 billion in 30 days. But the announcement has a psychological impact, and that's why stocks are responding today, he said.

"It's not that there isn't enough money out there, it's not a liquidity issue," Loest said. "It's a confidence issue."

"I think the market is in a process of a psychological bottoming," he said.

***************

The stock market rally Tuesday could be short-lived as the jury is still out on the effectiveness of the Federal Reserve's new measures to add liquidity to global credit markets, some analysts said Tuesday.

'A short covering rally is likely to ensue leading up to next week's regularly scheduled Fed meeting,' UBS (NYSE:UBS) analyst George Bory said in a note to clients.

'However, the rally could fade rather quickly as the market realizes that the [Fed's new Term Securities Lending Facility] doesn't solve the problem of a weak housing market, a capital deficient financial system and deteriorating corporate credit quality.'
U.S. stocks surged Tuesday with the Dow Jones Industrial Average rallying nearly 300 points in intraday trading after the Fed said it will expand its securities lending program to loan up to $200 billion Treasury securities under a new Term Securities Lending Facility (TSLF).

The Fed also said it would allow dealers to use agency debt, agency residential-mortgage-backed securities and non-agency private label residential MBS as collateral.

In the near-term, Bory said the Fed's new measure helps slow the pace of bearish sentiment and should marginally help banks as they attempt to recapitalize.

However, in the longer-term, 'it remains to be seen if banks are able/willing to pass along the pop in liquidity to non-bank borrowers,' he said. 'More favorable liquidity is unlikely to be extended outside the banking system until the banks start to repair their own balance sheet.'

Graphic of Movie Box Office Receipts

The Ebb and Flow of Movies: Box Office Receipts 1986 - 2007

Summer blockbusters and holiday hits make up the bulk of box office revenue each year, while contenders for the top Oscar awards tend to attract smaller audiences that build over time. Here's a look at how movies have fared at the box office, after adjusting for inflation.

Shooting Themselves in the Foot?

And having a negative effect on the US economy which we don't exactly need right about now. The Hollywood strike cost the industry $2.5 BILLION:

The ricochet effect from the Hollywood writers strike might be more far-reaching and long-lasting than first thought. So says an influential Los Angeles economist in his annual "Economic Forecast Report" for Los Angeles County and its surrounding areas.

The work stoppage that started November 5 and was settled early this month already has cost the town an estimated $2.5 billion, according to Jack Kyser, the chief economist for the Los Angeles County Economic Development Corp.

The figure includes lost wages from TV shows that were canceled and films that were put on hold as well as a plethora of support services, ranging from limo drivers to florists. Kyser suggested that the cancellation of the Golden Globes resulted in a $60 million shortfall for the community.

The 71-page report, set to be unveiled Wednesday, focuses on other issues affecting the region, including the housing crisis and tourism, but it contains several pages devoted to problems facing the entertainment business.

Link.

Finance

Reuters Before the Bell report:

Talk about the St. Valentine's Day Massacre. Wall Street is still reeling from yesterday's sell-off, which stemmed from the failure of several municipal bond auctions, a ratings downgrade for bond insurer FGIC and Fed Chief Ben Bernanke's prediction of sluggish economic growth.

Later Bernanke predecessor Alan Greenspan weighed in, saying the U.S. is clearly on the edge of a recession.

Interestingly, Fed Gov. Frederic Mishkin is speaking on the central bank's tools for responding to financial disruptions.

Stock futures are now pointing sideways ahead of a boatload of economic data, including import-export prices, industrial utilization and capacity, consumer sentiment and the Empire State Manufacturing Survey.

U.S. Treasuries are thriving, with yields on two-year notes at their lowest in nearly four years. The dollar is down against the euro and the yen.

U.S. crude oil is holding above $95 a barrel after hitting a one-month high past $96. It's the same old themes - the possibility of getting cut off by Venezuela vs. worries over slowing demand because of the economy.

Here's an interesting take - - when it comes to investments, it's best to be depressed...?

Negative Three-Seventy

Not good.  The "R" word is being bandied about more frequently and more seriously:

Stocks suffered their biggest drop in nearly a year on Tuesday after data showed the worst monthly contraction in the services sector since the last U.S. recession and Standard & Poor's warned it could cut bank credit ratings.

The Dow and S&P 500 had their biggest drops since February 27, 2007. All 30 Dow stocks fell and only 17 of the 500 components on the S&P closed higher.

Recession fears slammed sectors across the board, ranging from telecommunications to energy. Banks and other financial services stocks fell particularly hard after S&P said any loss of a top credit rating by a major bond insurer could force banks to put hobbled bonds back on their balance sheets, curtailing funds available for basic lending.

"This could lead to a further prolonged period of generalized market disruption and a loss of confidence that would not be favorable for any financial institution," the rating agency said.

The tone for the day was set by the January reading of the Institute for Supply Management's non-manufacturing index. The gauge had its biggest drop since the indicator was created in 1997 and fell to the lowest level since October 2001, aggravating fears that a recession is at hand.

"The U.S is no longer a manufacturing economy, it's a service economy, so this number will carry a lot more weight" than last week's surprise rise in ISM's manufacturing index, said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois. He added that the ISM report will make investors more nervous about other upcoming indicators.

The Dow Jones industrial average was down 370.03 points, or 2.93 percent, at 12,265.13. The Standard & Poor's 500 Index was down 44.18 points, or 3.20 percent, at 1,336.64. The Nasdaq Composite Index was down 73.28 points, or 3.08 percent, at 2,309.57.

Year-to-date, the Dow is down 7.5 percent while the S&P is 9 percent lower. The Nasdaq has fared worse, dropping 12.9 percent so far in 2008.

The Stock Market

...heading south.

Bill Gates: For a Bright Guy, He's Not Too Bright

Larry Kudlow (as of right now, my favorite business writer) writes:

Bill Gates, bloviating at the World Economic Forum in Davos, Switzerland, is issuing a clarion call for a “kinder capitalism” to aid the world’s poor. Mr. Gates says he has grown impatient with the shortcomings of capitalism. He thinks it’s failing much of the world. This, of course, from a guy who’s worth around $35 billion (give or take a billion).

Don’t you just love it?

A guy without a college degree who invented a new technology process in his garage that literally changed the entire world, a guy who took advantage of all the great opportunities that a free and capitalist society has to offer and got filthy rich in the process, is now trashing capitalism and telling us it doesn’t work. What chutzpah.

For all his do-good preaching, Mr. Gates is ignoring the global spread of free-market capitalism that has successfully lifted hundreds of millions of people out of poverty and into the middle class over the last decade. Think China. Think India. Think Eastern Europe. (Maybe even think France under Sarkozy.) Mr. Gates wants business leaders to dedicate more time to fighting poverty. But the reality is that economic freedom is the best path to prosperity. Period.

The latest stats out of China are revealing. Here’s a country that was a basket case not so long ago and today is the world’s fourth largest economy — hot on the heels of Germany, the third largest economy. China just reported 11.2 percent fourth-quarter GDP, its fastest growth rate in thirteen years. Total output for China is now 24.7 trillion yuan, or $3.42 trillion at current exchange rates.

At $14 trillion, the U.S. economy is still four times the size of China’s. But we’ve had free-market capitalism for more than three-hundred years. China’s only had it for about fifteen. China is still an undemocratic, authoritarian, and repressive society that lacks the benefits of political freedom. But it was the late Milton Friedman who argued that the onset of free-market capitalism was the precursor to full-fledged democratic capitalism. China’s on the right track.

Mr. Gates says he has witnessed steep income and cultural inequities in his travels around the world, in particular to Africa. But for this he should blame the absence of capitalist principles, not capitalism itself.

Link

Speaking of the economy, stock futures are up once again this morning.

Stock Futures

I have a very rudimentary understanding of economics.  What I know, I learned from:

1.  The Economics 101 course that I took in college 30-something years ago.

2.  My husband, a securities attorney.

3.  Reading on my own.

Obviously not a professional.  If you don't know anything at all, I can teach you some.  Sorry if you googled in here by mistake thinking you were going to find sophisticated investment advice. You have inadvertantly taken a wrong turn and ended up in Neophyteville.  Turn left at the fork to find Expertland.   

So, any way, something that I find handy to have is an indicator of how the market is going to do before it opens. According to Investopedia:

Every morning before North American stock exchanges begin trading, TV programs and websites providing financial information will give the quotes for the S&P, Dow and Nasdaq futures contract. The quoted price movements of the futures contracts in early trading is used by some traders as a gauge for how the overall exchanges will perform at market open and over the trading day. If the index future is trading higher before the market opens, it generally means that the actual index will trade up in the early part of the day. This is because the index futures are closely tied to the actual indexes. These futures contracts mirror the underlying index and act as a precursor of the actual exchange index's direction.

So, the pre-opening futures numbers provide a potential peek into how the day might go.  It is not ironclad, however - the unexpected can happen. Here are this morning's numbers, approximately 36 minutes before the opening bell:

S&P 500	+7.10	1348.60
NASDAQ	+8.25	1815.75
Dow Jones	+30.00	12302.00

This indicates that yesterday's gains (DOW +298) will hold.  We shall see.

It's only later in life that I began to pay attention to economics and finance.  What once seemed dull as nails, I find fascinating now, both for personal and political reasons.

Just Look at the DOW

A 600 point swing - what a day:

U.S. stocks rallied the most in two months on speculation lower borrowing costs and a plan to bail out bond insurers will restore confidence in the financial system.

Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., the largest U.S. banks, helped the Dow Jones Industrial Average erase a 326-point loss and sparked the biggest advance in financial shares in five years. Centex Corp. and D.R. Horton Inc. led a gauge of homebuilders to its steepest gain since at least 1994 on expectations the Federal Reserve's surprise 0.75 percentage point rate cut yesterday will spur construction.

The Standard & Poor's 500 Index added 28.08, or 2.1 percent, to 1,338.58, its first advance in six days. The Dow average rose 298.98, or 2.5 percent, to 12,270.17. The 30-stock gauge climbed 632 points from its low of the day to its high, marking its biggest swing since July 2002. The Nasdaq Composite Index increased 24.14, or 1.1 percent, to 2,316.41.

``The bond insurers scare people to death,'' said Harry Clark, who oversees about $1.3 billion as chief executive officer of Clark Capital Management in Philadelphia. ``It's big sighs of relief around Wall Street and that's fueling a rally.''

Ambac Financial Group Inc. and MBIA Inc., the two largest U.S. bond insurers, posted the biggest gains in the S&P 500 after New York State regulators met with banks to discuss raising new capital for the insurers. Benchmark indexes posted a rally in the final hour of trading that erased declines spurred by forecasts of slowing sales at Apple Inc. and Motorola Inc.

Via Bloomberg.com

Feeling Pleased...

...that the Dow is only down 98 points at this particular moment in time.  Blaring headlines keep claiming gloom and doom - "Stocks Plummet Around the World" "Fed Rate Cut Doesn't Help." But if the rate hadn't been cut, it would have been so much worse.

There's still a lot of time left before the closing bell and things could change, but if it stays like this, we will be in good shape to begin a potential recovery. 

The fact that the world markets have been so affected by the American market seems to me could be a good thing.  First, it scares the begeesus out of everyone and lights a fire under the rear ends of those who have the power or opportunity to help fix it.  It also shows that the world is much more dependent upon the US than they think.  Moral of the story: A strong US is good for everyone, and a little financial crisis could serve as a good reminder. 

Before the Bell

Larry Kudlow writes:

Take Charge, Central Bankers 

There’s a global stock market tsunami gathering force. It may hit U.S. shores very hard this morning.

Much of this is panic over a U.S. recession threat that has yet to clearly materialize. The world sell-off also vastly overestimates loan and credit problems among international financial institutions.

In any event, world central banks should immediately reduce rates and add liquidity first thing in the morning, no matter what the time-zone.

Fed head Ben Bernanke should have cut rates 50 basis points last week. He should do it first thing this morning. Then cut rates another 50 basis points on January 30.

Importantly, central banks must work together and cut rates together. They must coordinate to avoid major financial consequences. They must show investors, financiers, and business people that they are in charge.

In this deflationary environment, plunging commodities, stocks, and credit-risk-free government bond yields are all signaling central bankers to take charge. That means lower rates and more money creation.

Pronto.

Bernanke didn't listen to Kudlow - he cut rates even more - 3/4 of a  percentage point this morning. The DOW future had been predicted at - 500, and has improved as a result - now it's predicting an opening drop of 330.

Hope everyone tied to the financial markets has their seatbelt securely fastened this AM.

Bernanke Signals Rate Cut

Wonder what he was waiting for? About time.  Hope he learned the lesson from last time and cuts enough.

Recession Fears and the Election

NEW YORK (Reuters) - U.S. stocks tumbled on Tuesday after a warning by phone company AT&T of soft consumer spending sparked a new round of recession fears, helping drive the S&P to its worst-ever five-day start to a year. Link

In my humble opinion: A speedy and efficacious remedy is needed for the slow bleeding  but worrisome US economic hemorrhage which began a few months ago. Otherwise, it's certainly curtains for the Republican party in the next election, given that things are going relatively well in Iraq and fear of terror has abated.

Wall Street

They are saying it's due to employment numbers, but I am wondering if the stock market is sinking like the Titanic at its last hour because it doesn't like Huckabee and/or Obama.

The Feds Cut Interest Rates...

...but apparently not enough.  The DOW is down 225 pts as I post this:

Like a child who got a reindeer sweater instead of the Wii he was secrertly hoping for, Wall Street sulked after the Federal Reserve unveiled its holiday present Tuesday.

Selling Our Souls to the Devil

"It's a sad day for American financial markets when you've got to turn to Abu Dhabi to get bailed out." 

Citigroup to sell $7.5 billion stake to Abu Dhabi

Citigroup Inc (C.N: Quote, Profile, Research) is selling up to 4.9 percent of itself for $7.5 billion to the Gulf Arab emirate of Abu Dhabi, giving the largest U.S. bank fresh capital as it wrestles with the subprime mortgage crisis and the resignation of its chief executive.

The capital injection will shore up Citi's balance sheet, which has been hurt by some $6.8 billion of writedowns and losses in the third quarter, and the potential for another $11 billion in the fourth quarter.

Citi is paying a high price for the capital injection by selling mandatory convertible securities to Abu Dhabi which pay a fixed coupon of 11 percent. That is above the average yield on U.S. junk bonds, which is 9.4 percent according to Merrill Lynch data.

Analysts at Royal Bank of Scotland said in a note that Citigroup was paying a "high price," but that the convertible notes would help boost the bank's core capital.

The sale to the $650 billion Abu Dhabi Investment Authority, the world's largest sovereign wealth fund, may also signal the freefall in U.S financial stocks is close to ending, analysts said.

"Citi is big, it's widely followed, and when people see confidence in it, it should mean something," said Bo Brownstein, an analyst covering financial stocks at Cambiar Investors in Denver, Colorado.

The dollar rose against the yen on the news, and Japanese bank stocks also rallied. In Tokyo trading, Citi shares (8710.T: Quote, Profile, Research) fell 4.2 percent for the day, but had been trading even lower before news of the Abu Dhabi deal.

Family ruled Abu Dhabi -- whose citizens number no more than 400,000 -- will be Citi's largest shareholder. The investment reflects the increasing financial might of oil-producing countries, which have benefited from a five-fold increase in the price of crude oil during the last six years.

Gulf investors have announced more than $70 billion of foreign acquisitions this year, more than in the previous two years combined. 

Devil.  Selling. We are. Our souls. To the.

Oh Shut Up

Calling King Carlos:

Venezuelan President Hugo Chavez opened an OPEC summit on Saturday with a chilling warning about US$200 oil if the United States attacks Iran in a speech that also urged the cartel to be more political.

Chart of the Day

Investors are very concerned about the future direction of the stock market following Wednesday's significant drop and Thursday's volatile trading session. For some perspective on the latest stock market action, today's chart presents the current trend of the S&P 500. The recent decline in the S&P 500 has been relatively sharp and while the S&P 500 remains within its five-year trend channel, support (green line) is being tested.

I Hope He's Right

Oil is what, up to $96 a barrel?  And the DOW was down almost 400 points yesterday.  But Larry Kudlow, God bless him, remains optimistic:

The Girl’s Got Game 

Well, well, well … 166,000 new jobs. Twice the consensus view. Did somebody say Goldilocks? Did somebody say the greatest story never told?

U.S. businesses and entrepreneurs are in very good shape. These are the real job creators. And with low tax rates, low inflation, and low interest rates, the economic and stock market outlook looks extremely bullish. The economic bears continue to underestimate the strength of the consumer because they continue to underestimate the strength of business. Ultimately, it is business that creates jobs. And it is jobs that create income.

Here’s the key point: Outside the struggling financial and consumer discretionary sectors, the economy is firing on all cylinders. Economy-wide profits are up a smoldering 15 percent in the third quarter when you remove these two laggards. And in addition to today’s robust, expansionary jobs number, GDP blew away forecasts earlier this week, coming in a hair shy of 4 percent. (For the record, this represents the biggest back-to-back quarterly gain in four years.) This means healthy American businesses are generating jobs. Meanwhile, hardworking American workers are out there spending money, with real, disposable, after-tax, after-inflation income running around 4 percent — a big number.

In the October jobs report, average hourly wages for non-management workers increased 3.8 percent, well above inflation. These wage gains don’t come from home-equity lines. They come from strong job creation. This is the heart of the consumer story. The October jobs gain is the best in five months. Over the past year, 1.7 million new jobs have been created. The bulk of these, by the way, are coming from high-pay service jobs, including business and professional services, as well as education and health services.

Looking back over four years, from the middle of 2003 when President Bush’s tax cuts took effect, the economy has created 8.6 million new jobs. Presently, non-farm payrolls in the U.S. stand at 138.5 million, a new record high. The unemployment rate today is a low 4.7 percent. And total civilian employment stands at 146 million, just shy of the record high. In fact, when you look at the October jobs report, it appears that employment is speeding up, not slowing down.

Message to all you worrywarts out there: The U.S. economy remains strong. There is no recession ahead. Goldilocks rules.

Way to Go, Apple

Makes me happy to hear about corporate profits - especially when they send the DOW headed back up in the right direction:

U.S. stocks rose on Monday, rebounding from last week's steep sell-off as optimism that Apple (AAPL.O: Quote, Profile, Research) would deliver strong earnings drove the Nasdaq to a gain of 1 percent.

Apple did not disappoint, reporting sales and profit that handily beat Wall Street's forecasts after the closing bell****, sending Nasdaq futures higher.

During the regular session, bargain hunters were out in force, snapping up shares in the sectors hardest hit during last week's slump, such as home builders, banks and retailers. Stronger-than-expected earnings from drug maker Merck (MRK.N: Quote, Profile, Research) lifted its shares more than 3 percent and helped spur a late recovery in the Dow.

Link

****Bought my BIL a new IPod today, doing my part to help the economy out.  (BIL's having a colon resection on Wednesday and we thought a new toy might be nice for his recuperation)

It Was Twenty Years Ago Today

Do you remember Black Monday? October 19th, 1987, the day the stock market had the largest one day percentage decline in history; down 22.6%, 508 points. The equivalent today would be a drop of 3,000 points, to put it in perspective.  Jon Friedman of Market Watch imagines what it would be like if such a drop occurred today:

Could you imagine the pandemonium at a time of 24-hour news cycles, blogs and talk radio? The media would be desperate to unearth scoops, real or imagined, about what caused the sell-off, what might come next and who should fall on their swords on Wall Street and in Washington.

"I think the feedback loop of today's broadcast media, cable, wires, blogs, etc., is much greater than it was back in '87," noted Rob Cox, the U.S. editor of Breakingviews.com, which provides business-news commentary online. "This could create a greater risk of panic piling upon panic."

...

"Like virtually every other news story of the moment, the crash would burn hotter but faster," Newsweek Editor Jon Meacham told me. "I can envision breathlessness for a day or two or perhaps three, but I bet day four or five would see a shift of some kind, either to a 'well, we will survive' [mindset] or a shift of attention to something entirely different. The cycle is intense but brief."

Imagine, too, the frantic level of conspiracy theories that bloggers would float.

You can be sure they'd be writing about terrorist plots intended to undermine U.S. financial markets, destroy capitalism and harm the American way of life. Inevitably, Osama bin Laden would opportunistically appear to knock out another gloom-and-doom message from somewhere inside a cave.

Man, CNBC's Jim Cramer would REALLY have something to yell about.

The Wall Street Journal notes dips in the market have now become commonly known as opportunities for buying, rather than catastrophes.  But they add a cautionary note:

The 1987 crash -- 20 years ago today -- had investors bracing for the worst. When the worst didn't come, those who quickly recognized that the economy and the stock market were far more resilient than they had thought looked smart.

A little more than a year later, the Dow Jones Industrial Average had made back all the ground it had lost, and anyone who bought in the aftermath of the crash could feel justifiably pleased.

...[The real risk is that] someday the U.S. economy will run into trouble that defies the ability of the Fed to deal with or, to put it another way, that the success of economy's resilience over the past 25 years has more to do with luck than it does with policy makers' skill.

Will it ever happen again? From USA Today:

When it comes to financial panics, you can never say never. But most Wall Street experts stress that crashes are low-probability events. A cataclysmic crash, they say, is usually the result of many financial stresses converging at once — and one big dollop of mass hysteria. New regulations, better technology and more proactive central bankers make major financial dislocations less likely. Still, it's hard to predict when and if the market will derail. Given the history of financial panics and the tendency of market psychology to change from bullish optimism to flat-out fear virtually overnight, crashes might never be eliminated from Wall Street's vocabulary.

And So it Begins

The first baby boomer applied for social security benefits yesterday:

Kathleen Casey-Kirschling filed for early retirement Monday, becoming the first baby boomer to start collecting Social Security.

Born one second after midnight in January 1946, the retired teacher leads the way for as many as 80 million individuals who will qualify for the retirement payout.

...David Walker, the comptroller general of the Government Accountability Office, Congress' legislative arm, warned the Social Security system will soon have more recipients coming than it can afford to pay out.

"We face a tsunami of spending due primarily to the retirement of the baby boom generation and rising health care costs," Walker said. "So what's happened is we've gone from 16 workers paying into Social Security for every person drawing benefits in 1950 to 3.3 to one today, and we're going down to two to one by the time the boomers retire in big numbers and that's about where it will stay over the long run."

"We're going to have tens of thousands of baby boomers retiring every week over the next decade or so and that means that by time we get to 2017, just 10 years away, we will no longer be collecting enough payroll taxes to pay Social Security benefits," said former Minnesota Democratic Rep. Tim Penny.

Read the rest

The Side Effects of Panicking Over Global Warming

The problem with panicking over global warming is the potential effects over-reacting could have on the economy. As Larry Kudlow writes:

In a broader sense, the issue for me boils down to:

a) Whether in fact global warming is a manmade problem;

b) With so many dissenters, does this viewpoint really pass scientific muster?

c) In the history of history I have always believed that men and women are part of the solution, not the problem; and

d) Nearly all policies associated with global warming “solutions” are inimical to economic growth, prosperity, and progress.

Think of it this way: The “cap” of “cap and trade” can literally prevent economies from powering forward. In other words, growth requires power, and caps could set back both. That really troubles me.

In addition, the “solutions” have a heavy governmental footprint. It all smacks of central planning. It is the opposite of the economic freedom and free-market capitalism that has shown us the path to prosperity. I don’t want limits to growth and I don’t want central planning. Instead, I want entrepreneurship and freedom and Schumpeterian gales of creative destruction.

So, if there is a true climate-change problem, I do not want an economy-retarding solution. That would be far worse than the so-called problem.

Dow Up Over 300!

Isn't it great? In the words of Larry Kudlow, Bernanke finally got one right:

Once in a while you get it right. One time in a row.

I talked about this in my last column, Goldilocks 2.0.

The Bernanke Fed made a good strong move this afternoon. The stock market applauded loudly with a 250-point rise in the Dow. Essentially, the Fed followed Treasury market rates lower. The 4 percent Treasury-bill rate had been urging the Fed to make this move.

By itself, this action will not heal the credit markets overnight. But it will help. Lowering the cost of money will — over time — raise asset values across-the-board. New cash injections at the new target rate of 4.75 percent will raise the low 2 percent growth of the monetary base in order to accommodate the banking system’s unusually high cash demands.

Adjustable-rate mortgage holders will get almost immediate relief.

This is a confidence-inspiring move by the Fed. Lenders will be more apt to lend, and investors will be more apt to take risks.

Importantly, President Bush should now make it very clear that he will veto any tax-hike proposals. With tax rates on capital remaining low, and a modest easing move by the Fed, the outlook for next year’s economy improves markedly.

We should see this first in the financial markets (like today’s stock rally), and then with a lag we will see stronger economic activity.

I also suspect that over time the improved economic growth outlook for the U.S. will actually strengthen the dollar’s exchange rate, in part because the interest tax on money has been lowered.

And while gold did rally immediately after the Fed move, I would look for some gold weakness along with a better dollar. In my view, rumors of stiff U.S. actions against Iran have been boosting oil and gold prices. Depending on world events, these two commodities are important barometers of political risk.

All that said, the Fed has followed the Treasury-market message of lower rates. This is a very positive development that will strengthen the financial system and the economy.

Anchored by low tax rates, increasing economic growth will hold down inflation as stronger investment absorbs the Fed’s additional cash reserves.

They got this one right.

Presenting the Milton Friedman Choir

On the corporation:

Hmmmm. I know I've heard this tune before - or something similar. Sounds a lot like the Helsinki Complaints choir.

Today's Economic News

Not a good day on Wall St:

Stocks tumbled on Friday, driving major indexes down nearly 2 percent, as data showing the first monthly drop in payrolls in four years stoked fears on Wall Street that the economy was headed into recession.

Stocks across the board dropped sharply after the government said employers cut a net 4,000 jobs in August, when turmoil in the subprime mortgage market led to a tightening of corporate credit and heightened concerns about the wider economic impact.

The report cemented expectations the Federal Reserve would cut interest rates when policymakers meet on September 18.

Anxiety about next week's anniversary of the September 11 attacks further soured the mood on Wall Street. Al Qaeda leader Osama bin Laden, in an unauthenticated video circulated on the Internet, said the United States was still vulnerable to attacks.

"Going into the weekend and the September 11 anniversary looming, I think buyers are a little bit reluctant," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

Wish someone would bomb Osama's cave to smithereeens already.

How to Fix New Orleans

Larry Kudlow prescribes tax-free private-sector enterprise in place of government spending, and it makes good sense:

How much money has Uncle Sam spent on New Orleans and the Gulf region since Hurricane Katrina ripped the place apart?

I'll give you the answer because you'll never guess it. The grand total is $127 billion (including tax relief).

That's right: a monstrous $127 billion. Of course, not a single media story has highlighted this gargantuan government-spending figure. But that number came straight from the White House in a fact sheet subtitled, "The Federal Government Is Fulfilling Its Commitment to Help the People of the Gulf Coast Rebuild." Huh?

This is an outrage. The entire GDP of the state of Louisiana is only $141 billion, according to the U.S. Department of Commerce. So the cash spent there nearly matches the entire state gross GDP. That's simply unbelievable. And to make matters worse, by all accounts New Orleans ain't even fixed!

...The idea of using federal money to rebuild cities is the quintessential liberal vision. And given the dreadful results in New Orleans, we can say that the government's $127 billion check represents the quintessential failure of that liberal vision. Hillary Clinton calls this sort of reckless spending "government investment." And that's just what's in store for America if she wins the White House next year.

Remember President Reagan's line during the 1980 campaign about how LBJ fought a big-government spending war against poverty, and poverty won? Well think of all this Katrina spending as the Great Society Redux. And it failed. I suppose the current Bush administration would like to label this "compassionate conservatism." But guess what? That failed, too.

Right from the start, New Orleans should have been turned into a tax-free enterprise zone. No income taxes, no corporate taxes, no capital-gains taxes. The only tax would have been a sales tax paid on direct transactions. A tax-free New Orleans would have attracted tens of billions of dollars in business and real-estate investment. This in turn would have helped rebuild the cities, schools and hospitals. Private-sector entrepreneurs would have succeeded where big-government bureaucrats and regulators have so abysmally failed.   

Milton Friedman Explains Capitalism to Phil Donahue

End of Day Financial News

What a roller coaster ride:

Bulls to bears: not so fast

Major gauges erase most of the day's losses, as investors recover from mortgage, credit fears; Dow, Nasdaq, S&P 500 all bounce back after falling 10% from 2007 highs.

By Alexandra Twin, CNNMoney.com senior writer

August 16 2007: 4:01 PM EDT

NEW YORK (CNNMoney.com) -- Stocks erased most of the session's losses by late afternoon Thursday, as investors worked through the panic about the credit and mortgage markets that had been sparked by Countrywide Financial's last financial problems.

The Dow Jones industrial average (Charts) added a few points, erasing virtually all of the day's declines, with about 5 minutes left in the session. The blue-chip barometer had plunged more than 300 points earlier in the afternoon, before recovering and seesawing up through the close.

The broader S&P 500 (Charts) index gained 0.4 percent and the tech-fueled Nasdaq Composite (Charts) index slid 0.5 percent. Both had posted losses throughout the session, but recovered near the close.

Link

Early Afternoon Financial News

Market bloodbath - the Dow is down 317 points at 1:06 pm ET:

Wilting in a Market Meltdown U.S. News & World Report, DC - 32 minutes ago By Paul J. Lim The subprime mortgage mess that roiled the nation's credit market is now threatening one of the longest uninterrupted bull markets in stocks. ... Wall Street slides as credit fears mount NEWS.com.au, Australia - 34 minutes ago By Kristina Cooke in New York US stocks fell sharply today on signs of further deterioration in credit conditions and the potential impact on the economy ... Stocks slide as credit fears mount Canada.com, Canada - 42 minutes ago NEW YORK (Reuters) - Stocks fell sharply on Thursday on signs of further deterioration in credit conditions and the potential impact on the economy and ... Credit Meltdown Mauls Stocks TheStreet.com - 45 minutes ago By Robert Holmes Stocks in the US were tanking Thursday, matching the declines in overseas markets, as financial fears continued to encircle the globe. ... Investors seek safety as credit fears mount Swissinfo, Switzerland - 48 minutes ago By Herbert Lash NEW YORK (Reuters) - Investors around the world slashed their exposure to risk on Thursday, driving key stock indices to multiyear lows and ... Stocks slide as credit fears mount Reuters.uk, UK - 59 minutes ago By Kristina Cooke NEW YORK (Reuters) - Stocks fell sharply on Thursday on signs of further deterioration in credit conditions and the potential impact on ...

Early Morning Financial News

From the WSJ:

U.S. stocks appear set for heavy losses after steep declines in Asia and Europe, with economic data expected to show how subprime troubles started. Full article shortly.

ASIAN STOCKS CLOSED sharply lower and European stocks dropped in midday trading, battered by persistent jitters over U.S. subprime woes and their possible damage to global markets.  7:25 a.m.

• Morning Brief: Why the Fed Isn't Thinking Rate Cut

• U.S. Stocks Decline on Credit Uncertainty

Treasury Secretary Paulson said market turmoil "will extract a penalty" on U.S. growth but expressed confidence that the economy will avoid a recession.

• Video: Paulson's Diagnosis | Transcript: Interview Excerpts

• Discuss: What do you think of Paulson's comments?