US Congress may extend unemployment benefits-Economic Reviews

WASHINGTON: The US Congress will consider extending unemployment benefits after it returns in September to help 1.5 million Americans who risk

exhausting them, Senate Majority Leader Harry Reid said on Friday.

"Soon after Congress returns to Washington we'll need to address this matter," Reid said. "There is an economic case to be made for extending unemployment benefits."

The unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, according to Labor Department data released on Friday. It was the first time the U.S. jobless rate has fallen since April 2008.

But the number of long-term unemployed continues to rise as the country struggles with the longest recession since the Great Depression of the 1930s, and many analysts attributed the dip in July to people giving up the job hunt.

Data ranging from home sales to manufacturing have pointed to an economic revival, but the unemployment rate is expected to remain high, which could lead to an anemic recovery. Obama administration officials say they still expect the unemployment rate to reach 10 percent this year.

As of July 25, 6.31 million people were collecting long-term unemployment benefits, according to Labor Department data.

Some 1.5 million of those people could exhaust those benefits by the end of the end of the year, according to the National Employment Law Project.

"We must help those who are suffering as a result of an economic crisis they did not create," Reid said.

Congress has already extended unemployment benefits for up to 79 weeks and Obama administration officials and Democratic leaders in the House of Representatives have said they will work to extend them further.

But that could widen the already yawning budget deficit, which shot up another $300 billion in July to reach a record $1.3 trillion for the first 10 months of fiscal 2009, according to the Congressional Budget Office.

The CBO expects the budget deficit to top $1.8 trillion for the fiscal year which ends September 30, in large measure due to a $787 economic stimulus bill passed by Congress in February.

Polls show rising public unease with the record deficit and Republicans have sharply criticized it.

"Instead of seeking new ways to expand the government, this Congress needs to get back to the basics of deficit reduction," Republican Senator Judd Gregg said in a statement.

Gas row: Ambani brothers trade charges

MUMBAI: Personal sensitivities of Ambani brothers were on public display today with Mukesh expressing sadness at allegations levelled by Anil, Reliance Industries' KG-D6 facility World's top oil exporting countries World's top 10 oil producers World's largest refining companies who in turn wondered if it was vendetta, greed or advisers who were motivating his elder brother. In its first statement after a series of allegations levelled against it by Anil Ambani and his group companies, RIL said: "We shall continue to exercise restraint in the face of Anil Ambani's provocative public statements. We hope that Anil and his associates will also exercise similar restraint and leave the matter to be decided by the Supreme Court." "While Mukesh Ambani is profoundly saddened by his brother's remarks, he requests the media to respect his decision not to respond," RIL's petroleum business president Atul Chandra said, reading out from the statement. This was in reply to "several personal commentrs" made by Anil, including his accusation that Mukesh had traded his father's vision for corporate greed and that he was against any role for their mother in settling the dispute. In no time, Reliance Power CEO J P Chalsani released Anil's statement that said the younger Ambani was "pained" to see RIL doing everything to renege on its binding commitments under his "respected elder brother's leadership." "This is so contrary to the fundamental values... that my visionary father, Dhirubhai Ambani, stood for... Whatever be the reason... and I have no idea what it is...corporate greed, personal vendetta, misguided advise from the 3Cs - chelas, chamchas and cronies," Anil said. Anil had made similar comments in the run up to his parting ways with Mukesh, while advising Mukesh to beware of the '3Cs'. The exchange of barbs came ahead of the scheduled hearing of their cross-appeals by the Supreme Court on September one. While Anil group has sought implementation of the June 15 Bombay High Court order that asked RIL to supply 28 mmscmd of gas to RNRL at $2.34 per mmBtu for 17 years, it has been challenged by the other side. RIL also accused that Anil and "his associates have attempted to convert what are essentially legal issues into public issues for a self-serving media campaign aimed at maligning RIL as also other venerable institutions of the country for private and personal gains." "It is unfortunate... and deeply, deeply distressing to me at a very personal and emotional level," Anil replied, terming RIL's media statement as "Mukesh Ambani's purported remarks." "We have the highest respect for the Supreme Court and our every action will always preserve its dignity and honour," Chalsani said responding to RIL's comments. "RIL's utter disrespect and disregard, on the other hand, for the judiciary is visible in its refusal to even implement the Mumbai High Court's judgment to enter into a bankable gas supply agreement within 30 days - even though that judgment has not been stayed by a superior Court," he said.

Rainfall woes weigh on market

Traders pressed the panic button towards the fag end of the session Thursday, after reports suggested that below-than-expected rainfall

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may force the government to declare some states as drought-hit. Rainfall for the week to August 5 stood at 23.5 mm, which is 66% below normal, media reports suggested. This is seen as a major concern for economic growth.

“The monsoon problem appears to be more severe than policymakers had anticipated. The government may now have to allocate more funding, possibly via subsidies and loan waivers, to support struggling farmers. Meanwhile, authorities are also under pressure to ensure food security by building up reserves, which will add to this year’s fiscal outlay. The bid to contain the damage caused by insufficient monsoon rains and maintain social stability has made fiscal management difficult. The budget deficit for fiscal 2009-2010 is likely to be larger than the government’s current estimate,” said Sherman Chan, economist at Moody’s Economy.com.

National Stock Exchange’s Nifty settled at 4585.75, down 2.31 per cent or 108.4 points from the previous close. The index slipped to a low of 4559.20 from a high of 4718.15.

Bombay Stock Exchange’s Sensex declined 2.45 per cent or 389.80 points to 15,514.03. The index crashed to a low of 15,443.22 from a high of 15,969.81.

“Global markets painted a firm picture so the sell-off was clearly driven by domestic concerns such as below-normal rainfall. In any case, the market had run up sharply in the last few days so a correction was definitely on the cards,” said Sunil Jain, head of research at Nirmal Bang Securities.

Moreover, the 30-share Sensex was within kissing distance of the psychological 16000 level – a critical resistance. Traders began booking profits close to those levels but the rainfall reports triggered the massive sell-off.

The broader market ended on a weak note as well. The BSE Midcap Index was down 2.39 per cent while BSE Smallcap Index climbed 1.29 per cent.

All sectoral indices ended in the negative terrain but the worst hit was the BSE Auto Index down 4.43 per cent, followed by BSE Realty Index shedding 3.65 per cent and BSE FMCG down 3.29 per cent.

Among frontline stocks, Tata Motors (-6.93%), Hindalco Industries (-6.5%), Jaiprakash Associates (-5.53%), Maruti Suzuki (-5.34%) and Hero Honda (-5.25%) were under severe pressure.

Sun Pharmaceuticals (1.53%) and Wipro (0.04%) were the only gainers in the 30-share index.

Market breadth on BSE worsened with 1614 declines outnumbering 1080 advances.

Indians defy high gold prices as festive season starts

Indians have started buying gold jewellery and wholesalers are stocking up against anticipated price rises as the busy season

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gets under way in the world's largest bullion consumer, dealers said on Wednesday.

India, which accounted for more than 20 percent of global demand for gold jewellery in 2008, celebrates the Hindu festivals of Raksha Bandhan, Janmasthami and Ganesh Chaturthi in August, when demand for bullion usually picks up.

Elsewhere in Asia, gold's rise to a two-month high above $970 an ounce spurred selling, but premiums for gold bars were steady at 70 cents to the spot London price in Singapore, suggesting that consumers would still buy on dips.

"As against nothing earlier, there is at least something now. This month for the festivals, the real consumers will be buying, so demand has revived a bit," said Haresh Acharya, bullion desk head at Parker Agrochem Exports Ltd, a wholesaler in Ahmedabad.

"However there is hardly any demand from northern India because of the below normal monsoon. If the monsoon fails, the full year will be very bad," said Acharya, referring to sales.

Jewellery is the most common gift during religious events in India and forms an essential part of the dowry basket. Weddings usually take place during the festive season, when parents give gold jewellery to their daughters for financial security.

Weak monsoon rains could hurt demand because farmers, who account for 65 percent of India's gold demand, depend on good harvests, but some dealers said wholesalers were active in the local market, looking for an opportunity to buy.

"When prices fall a bit, there is buying. The sentiment we saw in the first half of the year has turned around," said Ajit Shinde, a director at wholesaler Magna Projects Pvt. Ltd., which is based in the eastern city of Kolkata.

The most active October contract on the Indian gold futures added 25 rupees, to 14,920 rupees ($312.8) per 10 grams on Wednesday. Cash gold fell $3.20 to $963.55 but was within sight of a two-month high of $970.05 on Tuesday.

India's jewellery demand has suffered because of high global prices earlier this year and an economic slowdown, with consumption falling 52 percent to 34.7 tonnes in the first quarter.

Gold was around 4 percent below an 11-month high above $1,000 hit in February.

"In the near-term, it certainly has a bit of upside pressure and with expectations for the dollar to weaken further, I would expect gold to remain buoyant for now," said Adrian Koh, an analyst at Phillip Futures in Singapore.



Premiums were also steady in Hong Kong at 30 cents to the spot London prices, but physical trading slowed to a trickle in Tokyo during the summer holidays. Japanese dealers offered gold bars at a discount of 50 cents to London, compared with a premium of 25 cents two weeks ago.

Infrastructure-based funds back in vogue due to govt’s big push

The infrastructure theme in mutual funds industry is like festivals in India. It recurs with predictable regularity to garner mixed
response. This year funds that play on infrastructure theme are back in vogue, because of the Budget’s emphasis on infrastructure. The government has earmarked Rs 12,887 crore for urban infrastructure, an increase of 87% over the previous year.

This gives an indication for infrastructure funds and investors to align their strategies towards the theme. If reports are to be believed, Reliance MF new infrastructure fund offer has managed to mop up around Rs 2,500 crore. So would these do well to offer good returns ? Would it be prudent to invest in these funds? We at ETIG analyse the performance of existing schemes in bullish and bearish phases in the light recent development in the power sector.

STRUCTURE AND PERFORMANCE

A confusion investors face while investing in infrastructure funds is how different those are from diversified equity funds. They are among the most diversified funds. The confusion has, however, been compounded by the marketing strategy employed by fund houses.

Last two years’ performance record suggests that around 10 diversified equity funds beat most of the infrastructure funds on returnsparameter . However, in the last oneyear Taurus Infrastructure Fund has been the best performer in the entire gamut of such funds. This is a critical period to gauge a fund’s performance considering market volatility. The fund has given a reasonable 21% returns in the last one year and for last six months it has given a whopping 119%.

Sahara Infrastructure Variable Pricing is the second best performing fund, which has given around 20.9% returns in the last one-year and 78.23% in the last six months.


Reliance Diversified Power and ICICI Pru Infrastructure are two formidable players in the industry. Sectors such as Oil & Gas, Petroleum & Refinery, Power Generation, Transmission & Equipment, Engineering & Industrial Machinery, and Electricals & Electrical Equipments are the main composition of both Taurus Infrastructure Fund and Sahara Infrastructure Variable Pricing. Investors who invested in infrastructure theme funds and held on from January 2006 to December 2007, would have made returns of anywhere between 50% and 100% in this period.

THE DISTINCTION

As an investor you should lay immense stress on the track record of an infrastructure fund before investing with it. Though the objective of diversification to varied sectors remains the same for both diversified and infrastructure funds, it makes sense that as an investor you should regularly book profits on the theme you see in vogue irrespective of the long term. The reason being infrastructure funds, on an average, have declined more than 40 % yearto-date , higher than the declines seen in most diversified funds.

Apart from the theme play, investors should also consider the point that most infrastructure funds have track record of less than five years.
Hence, it would be too early to form a confirmed opinion on the performance of infrastructure funds considering the projects and plans of an infrastructure are long-timed . Those investors who hope to gain for the short-term diversified equity funds, however, those believe in longer we-stay-and-higher-wegain norm are set to benefit from prudent investing in infrastructure funds.

Also given the recession phase, the government’s stimulus is obvious. And considering the government’s intervention, it would inadvertently focus on infrastructure projects and hence funds investing in infrastructure companies are set to gain. Investors intending to play Indian equity,

Govt warns pvt airlines against strike

NEW DELHI: Virtually ruling out any bail-out, Government on Saturday asked privateairlines to withdraw their call for suspending flights on

August 18 and warned them of "appropriate action" if flight schedules are disrupted.

"The government reiterates its advice to private airlines against suspending operations on August 18," Civil Aviation Minister Praful Patel said in a statement.

Maintaining that state taxes on aviation turbine fuel had been an issue even before several present carriers came into existence, Patel said that the government cannot be expected to extend financial help to loss-making private carriers.

Patel, who has renewed his appeal to the private carriers for negotiations, also said the Directorate General of Civil Aviation (DGCA) could "take appropriate action" under its regulatory powers to protect passengers' interest.

Official sources said if the airlines do not operate flights on a day, it would mean breaking the schedule, which would go against the laid-down rules and procedures of airline operations. Action could be taken by the DGCA on this count, they added.

Eight major private carriers, under the aegis of their industry body Federation of IndianAirlines (FIA), had yesterday announced their decision not to fly on August 18, protesting the growing aviation turbine fuel prices and taxes on it, besides high airport charges.

The Minister reiterated that the issue of sales tax on aviation turbine fuel, which was a major bone of contention with the airline industry, depended on the state governments that imposed it.

"The tax on ATF has been an issue much before many of the present airlines came into existence," Patel said.

The government understands the problems being faced by the aviation sector; however, it does not support any move that will inconvenience the travelling public in the country, he had said yesterday.

The airlines had also threatened to suspend their services indefinitely if the government fails to "intervene urgently".

The decision was taken jointly by Kingfisher Airlines, Kingfisher Red, Jet Airways, JetLite, Jet Konnect, IndiGo and SpiceJet and GoAir, which had accumulated losses of Rs 2,444 crore in 2007-08.

However, national carrier Air India, although part of the FIA, had made it clear that it would not join other airlines in their protest.

Reacting to the decision of the airlines, Finance Minister Pranab Mukherjee had said that he would talk to Patel about it.

Govt stake sales to please market; no deficit cure

UMBAI: Power firm NHPC Ltd will kick off a $1.25 billion IPO next week in the first share sale by a state company since the Congress party's

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unexpectedly strong re-election in May spurred investor hopes for pro-market reforms.

Despite opposition from labour groups and leftist parties, the government is forecast by some watchers to offload roughly $5 billion a year in state shares, which could hearten a bond market worried about fiscal responsibility but do little to address a yawning deficit and $90 billion borrowing plan.

Uncertainty over how stake sale proceeds can be used also clouds the outlook for any benefit to government finances.






"It is not a huge amount given the size of the government borrowing. But I think it could substantially change sentiment in the debt market," said Abheek Barua, chief economist at private sector lender HDFC Bank.

"What the market is likely to price in is the prospect of larger disinvestments going forward," he said.

Investors are expected to lap up shares in government firms, given attractive pricing, a record of outperformance relative to IPOs by private firms, and a roaring stock market run since March that has been fueled by an influx in foreign funds.

NHPC opens its IPO on August 7 in what would be the first for a state firm in India since Feb. 2008. Oil India is expected to follow with a $500 to $600 million issue in September.

Also in the works could be a multi-billion-dollar IPO by telecoms firm Bharat Sanchar Nigam Ltd and secondary offerings by power equipment maker Bharat Heavy Electricals, Rural Electrification Corp, trading firm MMTC Ltd and mining firm NMDC Ltd.

"Government deals typically have done well. Government a couple of times has been credited with reopening the IPO markets," said Vedika Bhandarkar, head of India investment banking at JPMorgan.

The pipeline of equity from state firms promises to top the record $6 billion raised from government asset sales between 1999 and 2004 when the pro-business Bharatiya Janata Party (BJP) was in power. During that period, shares were sold in firms such as Oil and Natural Gas Corp and Maruti Suzuki.

Since then, the government raised just $1.4 billion as allies of the ruling coalition and labour unions thwarted plans for stake sales.

"We could see issuances in infrastructure, power, mining and agricultural sectors followed by banks and insurance companies," said A. Murugappan, executive director at ICICI Securities.

Initial Claims Down, Retail Up, Foreclosures Fall

This week produced another "good news Thursday."

Initial claims continued their downward spiral. As hiring picks up, new claims for unemployment dropped to their lowest levels since the January 24th weekly report.

Consumers were flashing the buy-sign again in May. The Commerce Department said that sales at U.S. retailers rose 0.5% last month. According to Rasmussen Reports, consumer confidence is now up ten points from the beginning of the year. Investor confidence is up seventeen points from the first reading of the year.

The May foreclosure figures were also released on Thursday and the number of filings in the U.S. dropped 6%. That had a majority of economists stroking their chins in disbelief. Some areas of the country actually reported double digit drops April to May. Foreclosure filings in Illinois dropped nearly 20%. Foreclosure filings in Illinois also dropped nearly 20%. There were even year over year drops. Foreclosures in Rhode Island for the month dropped 26.9% compared with May 2008. And in Massachusetts foreclosures were down 45.7% from the same period last year.

Look for continued improvement in employment, retail, mortgage activity and housing sales as this new growth cycle gets underway.

Jumbo Mortgage Activity Increasing

As this recovery begins, all eyes will be on the housing markets as a gauge for just how strong this return to growth will be.

Of particular note is the jumbo mortgage market which is now springing back to life.

A jumbo mortgage is a home loan with a lending amount above the industry-standard definition of conventional conforming loan limits. With some exceptions, this means an amount above $417,000. A loan in excess of $650,000 is typically referred to as a super jumbo mortgage.

Banks have now resumed underwriting wealthy clients in both of these categories. In fact jumbo activity seems to be brewing even with a limited secondary market for these large payback notes.

For instance, Bank of New York Mellon’s wealth management division reports a resurgence in its high-end lending activity. "We’ve seen significant growth," says Erin Gorman, their national director of sales. Through the end of May 2009, BNY Mellon's jumbo lending activities are up 32% by dollar volume compared to that same period in 2008. In the first quarter of 2009, BNY's average loan balance bounced by 23% compared to the first quarter of 2008.

Another example is found over at Coldwell Banker Residential Brokerage. In the Boston market alone 36 properties of $1 million and up went under contract in March. That figure nearly tripled in May, jumping to 105 mega residential deals.

Mellon's Gorman currently is observing that her competitors are indeed returning to the jumbo market as the economy recovers. She notes that during the recession, "we earned a reputation as the go-to player in jumbo mortgages. And that puts us in a strong position as other lenders gingerly move back onto the field."

BNY Mellon (BK) is one of the 10 large banks announcing that they will begin repayment of their TARP bailout monies to the US Treasury.

More Recession Proof Jobs at Wal-Mart

Last year Wal-mart added close to 30,000 jobs to it's domestic labor force. In 2009 it now predicts it will add another 22,000 positions nationwide. In fact in some hard hit states like California, Florida and Michigan, Wal-Mart plans to add over 1,000 jobs in each.

Wal-Mart is the largest private-sector employer in the US with a labor force of 1.45 million workers. Wal-Mart's strong retail sales outlook for 2009 continues to highlight a significant rebound in from discount and value retailers since the dismal Q4 of last year.

Expect similar hiring metrics from 10 top retailers that have also experienced strong than expected Q1 results.

"We're proud to be able to create quality jobs for thousands of Americans this year," said Eduardo Castro-Wright, vice-chairman in a company statement.

New Wal-mart employees have found jobs this year in a wide swath of disciplines including pharmacists, human resource managers, and customer service associates.

Separately new data from Challenger, Gray & Christmas, shows that corporate layoffs in May have free fallen 55% from their January high. The reported levels are now close to rates that could almost be considered "normal."

On Thursday the government reported that the number of continuing claims for state unemployment benefits has now started to decline. This is one of the last indicators to mark the stabilization of the labor market following a recessionary period. First-time claims also continued to fall, reaching the lowest level since early May.

Now that the recession has ended, the rate at which these labor level indicators continue to fall will be an additional indicator on how strong this new growth cycle will be.

Three Clear Markers: The Recession is Over

We now have three very reputable markers that signal the recession's end.

1. According to the U.S. Weekly Leading Index published by the Economic Cycle Research Institute (ECRI), that index growth has steadily risen to a 36-week high.

2. You've seen the pointer here for several weeks now that the "lagging peak" in new claims for unemployment is shown to be quite accurate in predicting past business cycle rebounds. With current continuing claims declining again last week, it is almost certain that we've now seen the lagging peak of this recession.

3. The ISM Manufacturing index that we've been following since the beginning of Feb, shows a likely return to GDP growth. The ISM reported that index at 42.8% on Monday. You may want to go back and check our trend-line from our March 2 post remembering that according to the ISM an index reading "in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy."

It is increasingly obvious that the 'green shoots', have grown leaves, and no doubt will blossom this summer. Professor Hirschey got it just right.

A Massive Refinancing Boom - Seriously

No doubt thousands of Americans were contacting their mortgage brokers today.

For those paying attention, news about the Federal Reserve's decision to cut its key interest rate to nearly zero, had them rushing to refinance to something lower than 5.5 percent.

Many reports have folks locking in rates almost a full percentage point lower than yesterday's quotes.

Across the country, mortgage brokers are reporting a surge of calls from borrowers seeking to take advantage of the Fed's historic decision. Brokers were routinely quoting mortgage rates of close to 4.5 percent for people with good credit.

It was a continuation of the good news since late November for anyone looking to lock in a 30-year, fixed-rate mortgage. In the past 3 weeks alone, mortgage applicatons have surged by the greatest amount in history.

"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers will wind up refinancing their existing notes.

Inter-bank lending rates in free-fall since October

Why are Libor rate declines a good thing?

1) Back in October, all we heard was that banks would not loan money to each other... that the credit markets were "frozen." Well, that is no longer the case -- short term lending is on the rise as indicted by the falling international LIBOR rates.

2) Many adjustable mortgages and home equity lines of credit (HELOC) are set by the LIBOR as their INDEX.

Let's say that one fine borrower has a HELOC on her home for $50,000 and that her interest rate payments are set by the LIBOR index + 2%.

See the charts below. Back in October her interest rate would have been 6.3%. But this month her rate will be somewhere south of 4.3%...

On her $50K note, her interest payment was $263 on October 15. But on her payment due today she only owes $179. That's $84 more for her pocket this month.

Will she save it? Pay down the principal on her note? Or buy me a nice Christmas gift?

I'd say any of those senarios are good news to her.

12 month Libor

6-month Libor

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Remembering 1975 - The Majority was Wrong

Does anyone remember the stock market crash of October 1973? Over the next 15 months world stock markets collapsed. In the UK the FT 30 index fell by 70%. The holidays of 1974 into the new year of 1975 was not merry. President Nixon decided not to light the National Christmas tree!

All the talking heads agreed: the end was near. Oil was about to be rationed, thermostats were turned down in all federal buildings to 68 degrees, and 55 mph speed limits were imposed to save gas. An energy crisis was upon us. And the Department of Energy got a Cabinet level position in the White House.

But what happened next? In January 1975, the FT index jumped 25% and in the next 12 months was up over 100%.

And what are "they" telling us now? "Things are bad right now, but they're going to get a lot worse. Apparently it'll be as bad as the Great Depression."

So why does this post offer a "good news" perspective? Because history continues to tell us that when it comes to economics, "the majority is always wrong."

Remember it has been less than 6 months since all the financial experts were predicting rampant inflation, oil over $200 a barrel, and gold over $2,000 an ounce. Yet now the same experts tell us deflation is the problem, oil and gold have plummeted. And every news outlet has a new story on economic bad news.

The majority was wrong in Jan 1975 -- one of the best buying opportunities ever in the stock market. Now the majority is wrong again.

Sounds like good news for 2009!

More Good News in the Housing Market

The National Association of Realtors (NAR), brought us continued good news in the housing market today. Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, said Lawrence Yun, NAR chief economist. “...access to safe, affordable mortgages will bring more buyers into the market.... NAR’s housing affordability index is likely to remain quite favorable in 2009."

An additional government report released today also claims that despite all the dire conditions reported in most news outlets, "the majority of markets continue to show growth in home values over the last five years." In fact in the last half decade, the following markets did quite well:

- Honolulu was up 78.7 percent
- Virginia Beach was up 72.6 percent
- Flagstaff, Ariz.: up 66.5 percent
- Bellingham, Wash.: up 65.6 percent
- Wilmington, N.C.: up 62.1 percent
- Baltimore: up 60.6 percent

Further, the NAR now predicts that the 30-year fixed-rate mortgage will probably decline to at least 5.6 percent in the first quarter of 2009. (Remember we already blogged about the surge that is now occuring in mortgage applications)

And if all that wasn't enough good news for one day, Yun further observes that "California in particular has seen an exceptional turnaround in buying activity. Many foreclosed homes have enticed buyers to take advantage of deeply discounted prices. 'Fence sitters' are beginning to do a lot more home searches. That will result in a large set of potential buyers for the upcoming spring buying season."

Good news?

And what about jobs? "

"President-elect Barack Obama is focusing his economic recovery strategy on making the biggest investment in the nation’s infrastructure since Eisenhower's plan for the interstate highway system.

Speaking yesterday at a Chicago news conference and on NBC’s “Meet the Press,” Obama said state governors have many such projects that are “shovel ready,” meaning they could be undertaken swiftly and have an immediate impact on jobs." - Bloomberg.

For those of you not familiar with the history leading up to FDR taking office: From 1929-1933, unemployment in the U.S. increased dramatically from 4% to 25%. In addition, manufacturing output was reduced by approximately a third from its historical peak. Prices fell drastically causing a deflation of currency values, which made the repayments of any debts much harder. The mining, lumber, and agriculture industries were hit especially hard by the drop in values. The outgoing Hoover administration claimed, "There is knowing more to be done. We have done all that we can do."


But in the first 120 days of 1933, the FDR administration and Congress past all 34 initiatives proposed by the new leaders. Have a look at the results:

With the statements of Obama yesterday and throughout the campaign, the next 8 years look extremely bright.

Now that's good news!

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Would you believe consumer spending is up?

Yes, the title is correct. According to reports out this past week, consumer spending was up over last year for both Black Friday and Cyber Monday.

Market Watch reported that "strong discounts brought U.S. consumers to the stores on 'Black Friday' -- the traditional first day of the holiday shopping season -- with estimated sales rising 3% from last year."

And consumers kept the momentum going on Cyber Monday... according to comScore, "Online shoppers spent $846 million on Dec. 1, a 15% increase over the Monday after Thanksgiving last year." It was the second largest online spending day on record.

Oh yes, and while we were finding great deals online, gas prices continued to fall.

What went down, must come up

Would you believe that housing prices are on the rise?

Believe it or not, in the third quarter of 2008 according to the National Association of Realtors, "28 out of 152 metropolitan statistical areas showed increases in median existing single-family home prices." That is over 18%. Said another way, one in five major metropolitan areas are experiencing a rise in the value of their homes.

If you don't believe me. Read the whole story here.

And, as the chart to the left suggests, the national decline in home values is beginning to level off.

Further evidence of a this housing market turn-around was reported on Wednesday (12/3). Mortgage applications surged by the largest amount on record in the last week of November as a new Federal Reserve program pushed interest rates down to their lowest level in more than 3 years. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended November 28 "soared a by a record 112.1%"

You heard that right my friend. Mortgage applications are soaring. I doubt they are sub-prime.

It's December 2008, Ho, ho, ho.

Bottom Feeding...

And the market keeps testing the bottom.

Tomorrow folks will wake up and see that alas, the market is way oversold yet again.

So two more developments seem highly likely.... much lower mortgage rates as the powers that be consider plans to lower long term rates to 4.5%. I never dreamed I would see that in my lifetime. It is surreal.

Looks like next week short term rates will come down another 1/2 percent. For folks with adjustable rate mortgages and any type of debt tied to the prime rate, monthly cash flow should be better right now than at any time in the last several years.

So, gas prices are way down. Mortgage payments are way down. Credit card payments are way down. Credit to the consumer, home buyers, and investors is flowing nicely.

This is not the great depression my friends. This is a buyers' market. Buy some stock. Buy some investment real estate. Buy oil if if you must, but buy something of tangible value. You will probably never see it's price this low again.

While others are lamenting their paper losses and moving their 401Ks into bonds and money markets, the time is ripe to move money in to depressed assets.

I am betting that 2 years from now you will be incredibly glad you took the counter-intuitive risk.

It's good news.

All business eyes on the macro market

With the election behind us, all industries, including recession-proof sectors have their eyes on the macro market. Despite the continued volatility in the stock market, some positive macro economic market indicators have emerged.

With oil prices continuing to fall, the US consumer is gaining significant savings at their local gas station. Since a peak in mid-summer, the price for a gallon of unleaded as fallen almost $2. With the US consuming close to 390 million gallons a day, that savings translates to a $780 million dollar stimulus package for US citizens with no congressional action required.

The business credit markets continue to thaw. According to Bloomberg, borrowing volumes are up by more than 10 times what they were in early October. In a further indication of a world market economy on the mend -- large international banks like Chase and Citigroup are lending to their counterparts like HSBC Bank of Europe.

And the market for commercial paper — the unsecured debt that companies sell for short-term financing — continues to improve. Just a few weeks ago, even the strongest companies like AT&T were having trouble selling paper for longer than overnight. Now, investors are starting to step back in and buy paper with 30-day and 60-day maturities.

And surprisingly in a Reuters report released on 11/14, US consumer confidence actually rose in November from October’s depressed reading.

October was tough. A recession is already likely. But significant economic engineering on the global market scene has already produced some positive results.