U.S. ISM Manufacturing Index At 26-Year Low

Bloomberg is reporting U.S. ISM Manufacturing Index Dropped to 26-Year Low.

Manufacturing in the U.S. contracted in October at the fastest pace in 26 years as the credit crisis deepened and companies reduced orders.

The Institute for Supply Management's factory index dropped to 38.9, worse than anticipated by economists surveyed by Bloomberg News and the lowest level since September 1982, the Tempe, Arizona-based group reported today. A reading of 50 is the dividing line between expansion and contraction.

The purchasing managers' gauge of new orders for factories decreased to 32.2, the lowest level since 1980, from 38.8 the prior month. The production measure fell to 34.1 from 40.8.

The index of prices paid dropped to 37 from 53.5. Energy prices have plunged from their peaks in July, when a barrel of crude oil reached $147.

The employment index decreased to 34.6 from 41.8 in August. The economy has lost more than three-quarters of a million jobs so far this year.

Orders from overseas have weakened as economies abroad falter. ISM's export gauge dropped to 41, the lowest reading since records for this component began in 1988.

Prices Paid Collapses

Pay particular attention to that prices paid category, now at 37, down from 53.5. As consumer demand slackens, expect retail prices to drop as well. From my point of view, this is a good thing. Furthermore, I am sticking with a a forecast that has the CPI going negative in the months ahead, regardless of what the Fed does.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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ECB Inflation Fighting Mandate Tossed Out The Window

When mandates meet recessions, mandates are tossed out the window. It's a brave new world for the ECB as Trichet Extends ECB Power, May Cut Rates at Fastest Pace Ever.

Jean-Claude Trichet is extending the European Central Bank's powers just as it gears up for what may be the fastest round of interest-rate cuts in its 10-year history.

President Trichet has pushed the central bank's reach into the euro region's neighboring economies as they struggle to cope with the financial crisis, and has approved record lending to banks. Economists predict the ECB will slash its benchmark rate, currently at 3.75 percent, to 2.5 percent by April after a likely cut on Nov. 6.

"The ECB is at times playing the role of lender of last resort for the whole European financial system," said Guillaume Menuet, a senior European economist at Merrill Lynch & Co. in London. "Its mandate is being implicitly expanded."

While Trichet's remit applies just to the 15-nation euro region, the absence of an institution charged with financial stability across the 27-member European Union created a vacuum the ECB is trying to fill. In the past three weeks alone, it gave a 5 billion-euro ($6.4 billion) loan to Hungary, set up currency swaps with Denmark and Switzerland and increased its lending to euro-region banks to more than $1 trillion.

Hungarian Prime Minister Ferenc Gyurcsany said on Oct. 28 he's lobbying EU leaders to allow the ECB to provide liquidity outside the euro area. ECB Executive Board member Lorenzo Bini Smaghi said on Oct. 31 the bank stands ready to help "other" eastern European countries that are "asking for our help."

That may create problems for the ECB as the risk of possible collateral losses grows, says Natacha Valla, a former ECB economist and now at Goldman Sachs Group Inc. in Paris.

"They have challenges for the future in having a balance sheet of unprecedented size," said Valla. "The have to know how to deal with such a balance sheet, how much capital they have to hold, what it means for risk management. There is a whole set of questions that now have to be answered."

ECB is European Lender of Last Resort

And so the ECB became the Euro lender of last resort just as the Fed is the dollar lender of last resort. Furthermore, a quick glance shows all four corallaries of the Fed Uncertainty Principle now apply to the ECB as well although some might argue to a lesser degree.

Simply replace "Fed" in the following paragraphs with "ECB"and you have it.

Corollary Number One:
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn't know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three:
Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

The context of "Inflation Fighting" in the title to this post should be clear, but in case not I will spell it out. I am referring to the ECB mandate that means price stability. Of course it is impossible to stay in control with such poor definitions and that is one of the problems facing both the Fed and the ECB.

Neither the Fed nor the ECB can control inflation when they does not know what it is (See Inflation: What the heck is it? if you do not know), when prices cannot properly be measured, and when productivity, hedonics, and time preference all affect prices.

The price theory of inflation has blown sky high and it is amazing how few even see it in spite of obvious central bank panic to control not inflation, but deflation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Global ZIRP And The "Impossible Contraction"

The global race to ZIRP is on. Let's recap the state of affairs of the mad march to zero interest rates.

Bank of Japan Cuts Rate to 0.3%

In an attempt to fend off a prolonged recession, the Bank of Japan Cuts Rate to 0.3%.

The Bank of Japan cut its benchmark interest rate to 0.3 percent to help stave off a prolonged recession. Governor Masaaki Shirakawa cast the deciding vote to lower the key overnight lending rate from 0.5 percent after four of the eight board members dissented, the central bank said in Tokyo today. Three wanted to cut the rate to 0.25 percent, and one voted to leave it unchanged, Shirakawa said.

Cheaper credit may provide some relief to Prime Minister Taro Aso, who yesterday unveiled a $51 billion economic stimulus package in a bid to minimize the effect of tumbling stock prices and the surging yen on the economy.

Fed Cuts Rate To 1%

At the October FOMC meeting the Fed cut rates to 1% and signaled willingness to cut at the next meeting in December. There is currently a 70% chance of some cut in December with another 50 basis point cut at 40% probability. See ZIRP Coming To Fed? for more details.

Unexpected Cuts In India

Bloomberg is reporting India Unexpectedly Cut Interest Rates to Spur Growth.

India's central bank unexpectedly cut interest rates for the second time in two weeks and reduced the amount of money lenders must hold in reserve in a bid to protect the economy from the global slowdown.

The Reserve Bank of India lowered its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and cut the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.

The steps signal a U-turn from the Reserve Bank's policy stance just a week ago, when Governor Duvvuri Subbarao said a "heightened vigil" was needed to fight inflation.

ECB To Follow

The ECB is expected to follow suit as Fed, BOJ, India 'Shocked' Into Cuts.

The Bank of Japan yesterday cut its benchmark rate for the first time in seven years and China pared its key rate for a third time in two months. Central banks in Norway, Slovakia, South Korea, Taiwan, Israel and across the Middle East also eased credit.

Policy makers are fighting to avert a prolonged recession in the global economy as the credit crisis enters its 15th month and spreads beyond industrial countries. Officials are signaling more cuts are likely and the European Central Bank and Bank of England both set policy on Nov. 6.

"This was the week central banks got shocked into action," said Stuart Thomson, who helps oversee $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland.

Fed Chairman Ben S. Bernanke and his colleagues are also signaling they may cut their benchmark rate further after lowering it to 1 percent as "downside risks to growth remain." The economy contracted by the most since 2001 in the third quarter and Fed Bank of San Francisco President Janet Yellen said on Oct. 30 that rates may head to zero if economic pain persists.

Oil-producing nations are also resorting to lower rates after the price of crude dropped by half from a July record of $147.27 per barrel. Norway's central bank cut its benchmark by a half-percentage point for the second time last month. Saudi Arabia, Kuwait and Bahrain, which tend to shift their interest rates in line with the U.S. to maintain currency pegs to the dollar, also followed the Fed in cutting.

Not all central banks are easing. Iceland this week unexpectedly raised its main rate to 18 percent, the highest in at least seven years, as it battles a currency crisis and possible hyperinflation with the help of the International Monetary Fund.

Economists forecast that the onset of a recession in Europe will force the ECB and the Bank of England to lower their benchmark rates on Nov. 6 by a half-point to 3.25 percent and 4 percent respectively.

Both will cut to 2.5 percent by the middle of next year, according to median forecasts in two surveys. That would be the fastest pace of easing in the ECB's history.

Australia's central bank may also cut rates on Nov. 4, after lowering them by 1 percentage point to 6 percent last month, the biggest reduction since 1992.

At JPMorgan Chase & Co., economists are predicting their global interest rate measure will fall to 2.16 percent next year, the lowest since it was first devised in the mid 1990s, from 3.21 percent yesterday. They estimate the global economy will contract in the current and subsequent quarters.

Global Recession Is Here

The IMF definition of a global recession is a dip below 3% growth. I am comfortable we are in that scenario already. An outright contraction is just around the corner.

Parsing The Global Recession

Flashback April 11 2008

Portfolio.Com is Parsing the Global Recession.

We all know what a recession is: two consecutive quarters of negative growth. Easy. So a global recession, that's the same thing, but on a global level, right? Actually, no. Recessions happen, in all countries, but they don't happen in all countries simultaneously, and it's pretty much impossible for the entire world to register negative growth in any given quarter.

So don't be too alarmed when the likes of Andrew Leonard say things like this (italics his): Today, the International Monetary Fund conceded that there is now a 1-in-4 chance of a global recession occurring in the next 12 months. [See IMF says US crisis is 'largest financial shock since Great Depression']

The problem here is that he's not defining his terms. And if you look at the actual document IMF Predicts Slower World Growth Amid Serious Market Crisis , you'll see that the IMF's definition of a "global recession" is global growth of 3% or less. Which suddenly seems much less scary.

What Is A Recession?

The widely used definition of a recession is "Two consecutive quarters of negative growth". However, that definition is wrong. Contraction for two quarters is indeed a sufficient condition, however it is not a necessary condition.

The Business Cycle Dating Committee, National Bureau of Economic Research describes the Recession Dating Procedure.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

Recession FAQs

Further clarification of process is found in the NBER�s Recession Dating Procedure FAQs

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?

A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. The most recent recession in our chronology was in 2001. According to data as of July 2008, the 2001 recession involved declines in the first and third quarters of 2001 but not in two consecutive quarters. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology. ....

The Impossible Is About To Happen

Felix Salmon writes "Recessions happen, in all countries, but they don't happen in all countries simultaneously, and it's pretty much impossible for the entire world to register negative growth in any given quarter."

Indeed, not every country will contract in this global recession. China will be a notable exception, assuming one believes Chinese GDP reports. However, even China is suffering a steep manufacturing recession as noted in Tail Wags Dog Theory Blows Up.

China aside, I believe enough countries will contract to cause the afore mentioned impossible global contraction to happen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Is Credit Card Relief Coming?

Credit card defaults are soaring. And banks after having fought credit card reform for years are now in panic mode over losses.

Newsday.Com asks Is Credit Card Relief Coming?

Banks, which are losing billions because many card holders aren't paying anything, seek OK to forgive up to 40% of strapped consumers' debts. Big banks have formed an unusual alliance with consumer advocates to urge the government to allow huge portions of credit card debt to be forgiven, a turnabout from recent years when the banking industry lobbied strenuously to make it harder for consumers to erase their credit card debts in bankruptcy.

The new pilot program, which the banks hope will become permanent, could involve as many as 50,000 people struggling with credit card debt. On an individual basis, the amount of debt to be forgiven would rise according to the severity of the borrower's financial situation, up to a maximum of 40 percent.

"There's obviously a financial benefit to the financial institutions to step up to the plate right now," said Susan Keating, president and chief executive of the National Foundation for Credit Counseling. "We absolutely support the proposal."

In an increasingly tough economic climate, banks and other mortgage lenders already have been agreeing to modify loans of distressed homeowners to help them avoid foreclosure. Now, banks making credit card loans have reached a point where they can lose less by forgiving part of the debt than seeing the consumer walk away entirely.

Americans are lumbering under about $900 billion in credit card debt, according to the latest available Federal Reserve figures.

The new proposal pitched to federal regulators by the Financial Services Roundtable, which represents more than 100 big banks and other financial companies, and the Consumer Federation of America, would allow lenders to reduce by as much as 40 percent the amount of credit card debt owed by deeply indebted consumers in a pilot program.

Be Careful For What You Wish

In 2005 banks got everything they asked for and then some in the inappropriately named Bankruptcy Reform Act of 2005. A better name would have been the Debt Slave Act of 2005. The bill stops short of imprisonment for failure to repay debts, but provisions of the bill seem eerily reminiscent of the Tennessee Ernie Ford song "Sixteen Tons".

Credit Card Relief Or Sucker Trap?

Banks are not being generous here. They are attempting to squeeze the last drop of juice from a shriveled up orange. Another reason behind this new found generosity is fear of how Congress might rewrite that bankruptcy law after Obama is elected.

Banks need to learn a lesson about extending massive amounts of credit to undeserving customers. Yes, this is a two way street but banks are the enablers here. It sickens me to see people trapped in debt at 28% annual interest, with massive overlimit fees, and other gotchas like two cycle billing. Please see Read the Fine Print On Credit Cards for more details on the ripoff of two cycle billing and balance transfer offers at Discover Card and other places.

Payback Time For Bank Greed

It's now payback time for this bank greed. For anyone not paying bills, the question is why pay 60% instead of walking away? More importantly, the sooner bankruptcies and defaults are out of the way, the sooner the economy can recover. In the meantime, attempts to prop up home prices and squeeze the last dime out of consumers will do nothing but prolong the recession. That is why all these measures by Paulson and Bernanke are counterproductive.

I can see how this offer might help a few people. But I also think it will hurt more than it helps. People may squander the last of what they have and still end up in bankruptcy court.

My advice for anyone in serious financial trouble is to consult a bankruptcy attorney as opposed to a credit counseling service. Many in the latter group are nothing but shills for banks and credit card companies, just as groups offering "free down payments" on houses were nothing but shills for the homebuilders.

Credit Tightens

Bloomberg is reporting Sears, Home Depot May Lose 8% of Holiday Sales on Credit Limits.

Home Depot Inc., Sears Holdings Corp. and other retailers may lose as much as 8 percent of their holiday sales this year because lenders and stores are clamping down on financing.

Almost a quarter of shoppers say banks cut the spending limits on their credit cards, according to a survey by America's Research Group, which also provided the sales-loss estimate. More people are being rejected for new cards, hurting sales for bigger purchases. Demand is being pinched just as retailers prepare to enter the holiday selling season, which accounts for as much as 35 percent of their annual revenue.

"Banks just don't have the money," said David Bassuk, a New York-based managing director at consulting firm AlixPartners LLP. The tightening credit is putting retailers "at big risk to lose those sales or lose those customers," he said. "There is a big concern there with the holiday spending."

America's Research Group Chairman Britt Beemer predicts holiday sales will decrease at least 4 percent, the first decline since he started forecasting in 1979, as consumers grapple with sinking home and stock values. His projections have been correct in 16 of the past 17 years.

Retailers that offer zero- or low-interest financing --which is often backed by banks -- may also rein in the credit they extend to shoppers to avoid being left with bad loans when customers can't pay them back.

If financing is "offered, it's going to be to a much smaller segment of the population," said Red Gillen, a senior analyst at Boston consulting firm Celent LLC. "It's great to attract customers with these financing deals, but you don't want to be holding delinquencies."

Misplaced Concern

David Bassuk of AlixPartners LLP said "The tightening credit is putting retailers at big risk to lose those sales or lose those customers. There is a big concern there with the holiday spending."

The big concern ought to be that consumers keep spending recklessly and card companies keep extending credit. If either happens it will simply add to the defaults down the road.

Calculated Risk has an interesting report on defaults in Citigroup: $1.4 Billion in Losses from Credit Card Securitizations. Inquiring minds will want to take a look.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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World's Most Efficient Solar Cells Created

In the land down under, comes some positive news on the energy front: World's most efficient solar cells created.

The University of New South Wales� ARC Photovoltaic Centre of Excellence has reported the first silicon solar cell to achieve the milestone of 25 per cent efficiency.

The UNSW ARC Photovoltaic Centre of Excellence already held the world record of 24.7 per cent for silicon solar cell efficiency. Now a revision of the international standard by which solar cells are measured, has delivered the significant 25 per cent record to the team led by Professors Martin Green and Stuart Wenham and widened their lead on the rest of the world.

Professor Green said the jump in performance leading to the milestone resulted from new knowledge about the composition of sunlight. �Since the weights of the colours in sunlight change during the day, solar cells are measured under a standard colour spectrum defined under typical operational meteorological conditions,� he said.

�Improvements in understanding atmospheric effects upon the colour content of sunlight led to a revision of the standard spectrum in April. The new spectrum has a higher energy content both down the blue end of the spectrum and at the opposite red end with, dare I say it, relatively less green.�

Dr Anita Ho-Baillie, who heads the Centre�s high efficiency cell research effort, said the UNSW technology benefited greatly from the new spectrum �because our cells push the boundaries of response into the extremities of the spectrum�.

�Blue light is absorbed strongly, very close to the cell surface where we go to great pains to make sure it is not wasted. Just the opposite, the red light is only weakly absorbed and we have to use special design features to trap it into the cell,� she said.

Professor Green said: �These light-trapping features make our cells act as if they were much thicker than they are. This already has had an important spin-off in allowing us to work with CSG Solar to develop commercial �thin-film� silicon-on-glass solar cells that are over 100 times thinner than conventional silicon cells.�

First Solar Thermal Plant in 20 Years Launches in CA

CleanTechnica is reporting First Solar Thermal Plant in 20 Years Launches in CA

By turning a long line of mirrors, the first solar thermal plant in nearly two decades was launched last week in Bakersfield, California.

Unlike solar photovoltaic systems that convert sunlight into electricity, this plant will focus sunlight on tubes that contains water. The light heats the water, creating steam, thus turning turbines.

Pacific Gas and Electric (PG&E) and Ausra, the manufacturer of the solar panels announced a purchase power agreement in November, 2007 for a 177 megawatt solar plant. Once completed, the Carrizo Plains solar plant in Central California will generate enough power for 120,000 homes.

Catching the Eye of Utility Companies

Solar Thermal Electricity is finally Catching the Eye of Utility Companies.

The American Southwest has some of the greatest solar resources on the globe, it yet remains largely untapped. This trend may be changing as solar technology matures, market forces shift and concern for climate change mounts.

One of the most common arguments against large-scale use of renewable energy is that it cannot produce a steady, reliable stream of energy, day and night. Ausra Inc. does not agree. They believe that solar thermal technology has the potential to supply over 90% of grid power, while finding solutions to environmental issues.

The ability to utilize solar thermal technology after the sun sets is made possible by a storage system that is up to 93% efficient, according to Ausra�s executive vice president John O�Donnell. Heat storage is not a new technology, having been used for plastic manufacturing and petroleum production for a long time. Solar thermal plants have a cost advantage compared to photovoltaic technology because energy can be stored as heat without being converted to another form or relying on batteries.

On the wholesale level, storing electric power is at least 100 times more expensive than storing heat.�

Now add the uncertainty of the price of natural gas. �No utility can tell you what the cost of power will be from a gas plant, five or ten years from now,� said Frederick Morse, senior advisor for the U.S., Abengoa Solar. �From a solar plant, the price is fixed. There is no fuel component to alter it.�

This is where solar energy can truly shine. �Adding solar plants that reliably generate until 10 pm displaces the highest cost alternative power,� said John O�Donnell. �That is the first wave of solar thermal plants. The daily and seasonal variation in grid load in the United States matches solar availability.�

Due to cost, infrastructure and technology hurdles, it will be a while until we see solar energy generating large-scale base load capacity, thus replacing nuclear and coal power plants. Some of the factors that will push this along are a strong national high voltage transmission system, solar technology advances, high fossil fuel costs, a longer-term extension of the commercial solar tax credit, and a carbon tax.

Solar Thermal Power Could Supply 90% percent of U.S. Grid

Ausra Inc., the developer of utility-scale solar thermal power technology claims Solar Thermal Power Could Supply Over 90 percent of U.S. Grid Plus Auto Fleet.

"The U.S. could nearly eliminate our dependence on coal, oil and gas for electricity and transportation, drastically slashing global warming pollution without increasing costs for energy," said David Mills, chief scientific officer and founder at Ausra. "This new study shows that our daily and annual energy needs closely match the energy production potential from solar thermal power plants with heat energy storage, and our models show solar thermal power will cost less than continuing to import oil."

"Near-zero pollution technology has to replace most of our current electricity generation by mid-century to prevent the worst global warming outcomes," said Stephen Schneider of Stanford University, who was a principal author of the 2007 Intergovernmental Panel on Climate Change Synthesis Report. "We've got to cut pollution 80 percent by mid-century, and that means transforming both our electric power and transportation sectors."

The problem I have with Ausra's claims is they depend on a commercial solar tax credit, a carbon tax, land rights, and infrastructure that is not yet in place. Here is the key paragraph.

"Due to cost, infrastructure and technology hurdles, it will be a while until we see solar energy generating large-scale base load capacity, thus replacing nuclear and coal power plants. Some of the factors that will push this along are a strong national high voltage transmission system, solar technology advances, high fossil fuel costs, a longer-term extension of the commercial solar tax credit, and a carbon tax."

However, the time is coming when those issues go by the wayside. Eventually those problems will be solved or peak oil will force the issue.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Tail Wags Dog Theory Blows Up

For the third month in four, China's manufacturing is in contraction. July and August were in contraction as discussed in China's Manufacturing Contracts for Second Month.

Manufacturing in China expanded in September but has reversed to the downside once again. Amidst weak global demand China Manufacturing Contracts as Crisis Trims Exports.

The Purchasing Managers' Index fell to a seasonally adjusted 44.6 last month from 51.2 in September, the China Federation of Logistics and Purchasing said today in an e-mailed statement. That was the lowest since the gauge was launched in July 2005. A reading below 50 reflects a contraction, above 50 an expansion.

China's cabinet has pledged extra infrastructure spending to stimulate the world's fourth-biggest economy amid the global slowdown. The government has already lowered rates three times in the past two months, increased export rebates and cut property transaction taxes.

The output index fell to 44.3 in October from 54.6 in September, while the index of new orders dropped to 41.7 percent from 51.3. The index of export orders declined to 41.4 percent from 48.8, the statement said. The inventory index climbed to 51.4 from 50.5, it said.

Tail Wags Dog Theory Blows Up

At every peak there are always ridiculous predictions. In the dotcom bust it was all about the "gorilla game", the "new economy" and "click counts". When the Shanghai Stock Index rose from 998 to 6124 in about two years we heard the same sort of thing about growth in China. Instead of click counts, the theory in vogue was called decoupling. China was supposed to be the 800 lb gorilla with insatiable demand for commodities and perpetual growth for the next decade.

That decoupling theory was based on the belief that the US no longer mattered, that China demand was self sustaining, that China could grow forever with no problems, etc. Such beliefs eventually became a religion.

$SSEC Shanghai Stock Index Weekly



click on chart for sharper image

The Chinese stock market peaked right along with many stock equity indices across the globe. It was a simple case of global Peak Credit gone bust. I do not know if the Shanghai Index has bottomed or not, but it is clearly at a more realistic valuation than any time in the last two years.

Now, like everyone else, China is attempting to stimulate demand. With new orders dropping to 41.7 percent from 51.3 and the US, EU, Canada, UK, and most of the rest of the world in the worst consumer led recession since the great depression, one thing should finally be clear:

The tail does not wag the dog no matter how many people think otherwise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Weekly Economic Potpourri October 31, 2008

Every week there are a numerous headlines that are worthy of mentioning but I simply run out of time. I will handle this situation in a weekly wrap-up with a few comments. Here goes.

US eyes anti-foreclosure plan worth up to $600 bln

Oct 29 (Reuters) - U.S. regulators are working on a new federal program worth up to $600 billion that would provide government guarantees of home mortgages to help prevent foreclosures, a source familiar with the discussions told Reuters on Wednesday.

The Federal Deposit Insurance Corp and the U.S. Treasury Department were hammering out the foreclosure prevention program, which could provide guarantees for up to 3 million at-risk mortgages, the source said.

Chinese planes bound for US market

China will sell 25 jets to a US company in a "breakthrough" deal that marks the country's entry into the big-plane market dominated by European and US players. The Commercial Aircraft Corporation of China (CACC), which developed the ARJ21-700 regional aircraft independently, will sign a 5-billion-yuan ($735 million) contract on Tuesday, the Guangzhou Daily said Thursday.

The ARJ21-700 has a maximum range of 2,000 nautical miles, and is scheduled to take its first commercial flight by the end of November, Xinhua said.

Lights to go out any day at mall in Akron

Rolling Acres mall is closing. Management of the property, which does not include the anchor stores Sears and J.C. Penney, notified the eight remaining tenants inside the mall on Monday that it would be closing as soon as possible.

Tenants received written notices telling them the electricity for the mall would be shut off between Monday and Friday. In addition to a past-due utility bill, the mall is in arrears for property taxes. Tim Dimoff, whose company, SACS Consulting, is managing Rolling Acres and has been negotiating for its sale for years, said the owner of the mall gave him no other reason for the closing except "the economic conditions."

Frank Says Bonuses, Acquisitions Violate Bailout Plan

House Financial Services Committee Chairman Barney Frank said banks using cash from the $700 billion U.S. rescue plan for bonuses, acquisitions and other purposes unrelated to lending are in ``violation'' of the law.

"I am deeply disappointed that a number of financial institutions are distorting the legislation," Frank, a Massachusetts Democrat, said in a statement today. "Any use of these funds for any purpose other than lending -- for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. -- is a violation of the terms of the act."

Commodities collapse hits Canadian Canaccord

Pink slips are being handed out at an accelerating pace on Bay Street, with Canada's biggest independent investment dealer, Canaccord Capital Inc., joining the list by cutting a layer of staff and reducing senior management salaries by as much as 20%.

Despite the cash-preserving plans revealed by Canaccord yesterday, TD Newcrest analyst Doug Young suggested this week that the firm, which is also faced with weak equity financing and trading in the UK, may be forced to cut its dividend by as much as 64%.

U.S. Commercial Paper Soars Most on Record as Fed Becomes Buyer

Corporate borrowing in the commercial paper market soared the most on record after the Federal Reserve began buying the debt directly from issuers.

U.S. commercial paper outstanding rose by $100.5 billion, or 6.9 percent, to a seasonally adjusted $1.55 trillion for the week ended Oct. 29, the Fed said today in Washington. It was the first gain in seven weeks, reversing a 20 percent decline during the previous six weeks. Financial paper led this week's gain, rising $69.4 billion, or 12.4 percent, to $628.8 billion.

[Mish: The Fed becomes the Commercial Paper lender of only resort with this foolish action]

Stalled Projects in Seattle and Bellevue

More than two dozen office and residential projects in downtown Seattle and downtown Bellevue have been delayed or are on hold, many because of credit and other financial problems. This list may not be comprehensive.

Avis cuts 700 jobs and records $1 billion loss

Car rental company Avis Budget Group Inc (CAR) cut 700 jobs in the third-quarter and recorded a loss, before taxes, of more than $1 billion after writing down the value of certain assets, it said on Monday.

The company, which has been hit hard by slowing travel amid a weakening economy, also said 2008 revenue and profit would be "significantly lower" than previous estimates due to a drop in vehicle rentals.

"Declining travel volumes made the third quarter a more challenging operating environment than expected," Avis Chairman and Chief Executive Ronald Nelson said in a statement.

GMAC Added to Commercial Paper Plan, May Become Bank

GMAC LLC, the money-losing auto finance and home-loan lender, is seeking to become a bank holding company after gaining access to the Federal Reserve's new program designed to unlock short-term commercial credit markets.

The Fed began buying commercial paper from companies this week to reduce interest rates and lure investors back to the market for short-term debt, which seized up last month following the bankruptcy of Lehman Brothers Holdings Inc. Detroit-based GMAC said yesterday it was approved to participate in that program.

Becoming a bank holding company would make it easier for GMAC, the primary lender to customers of General Motors Corp., to participate in the Treasury Department's banking-industry rescue and quell doubts about the lender's survival. The firm could also get direct loans from the central bank and temporary debt guarantees from the Federal Deposit Insurance Corp.

[Mish: GMAC wants to become a bank so that it can become the fastest bank to go bankrupt in history?]

N.Z. to Guarantee Global Funds' Wholesale Deposits

New Zealand will guarantee overseas debt sales by the nation's banks to help maintain access to international wholesale funding, Finance Minister Michael Cullen said.

The guarantee will be available for investment-grade institutions seeking funds in all the major currencies, according to the nation's Treasury. Institutions opting into the program will be charged a fee based on their credit rating and the term of the issue. It won't be available for corporate borrowers.

Canada May Act Further to Aid Banks, Pensions, Flaherty Says

Canada's government may double its purchases of distressed loans among steps being considered to aid banks and private pension funds amid the worst financial crisis since the Great Depression, Finance Minister Jim Flaherty said.

The government is willing to buy more mortgages from commercial banks, after agreeing this month to purchase as much as C$25 billion ($21 billion) in real estate loans.

"We can do more dollar value if necessary," Flaherty said in an interview late yesterday in New York. "We can go another C$25 billion; if we have to do more we will do more."

Bank of Japan Cuts Key Interest Rate and Lowers Growth Forecast to Zero

The Bank of Japan cut its benchmark interest rate on Friday for the first time in seven years, joining earlier moves by the Federal Reserve in the United States and other central banks to blunt the global financial downturn.

The bank�s policy board voted to lower the overnight lending rate between banks by 0.2 percentage points, to 0.3 percent, reducing borrowing costs to try to rekindle growth in Asia�s largest economy.

As an additional measure, the bank said it would start paying interest on some of the reserves that commercial banks keep at the central bank, a step that would provide more cash to lenders. The unorthodox size of the rate cut, which the bank usually makes in quarter or half percentage-point steps, seemed to reflect a desire to maintain as much flexibility as possible if additional cuts were needed, economists said.

[Mish: As if saving .05 means a damn thing. If anything this ploy ought to panic everyone over the sheer ridiculousness of it all]

The odds of this global economic mess straightening out anytime soon are virtually zero.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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