Oh No, Timmy!

And by Timmy, I presume you mean Tim Geithner, Treasury Secretary?

The market (down 382 points) was not very impressed with the new treasury secretary's overview of TARP part Deux. Buy on the rumor, sell on the news...

Job Losses - Comparing Recent Recessions

The current contraction is far far worse than the prior downturns: 3.6 million — and counting — job losses as of January 2009 is worse than the 2.7 million jobs lost in the 2001 recession, and far worse than the 1.6 million job losses in the 1990-1991 recession.

January Unemployment Report Friday

We are likely to see another ugly unemployment report on Friday. The early data points are not pretty:

Layoffs: Challenger job layoffs surged to 242,000 in January — the highest level for a month since 2002. The monthly rise was +75,000 and, year over year, the increase in layoffs was 165,000.

ADP Report: 522,000 jobs lost in January, consistent with consensus expectations.

I am looking for another 500,000 plus job loss (potentially over 600,000) and unemployment ticking up to 7.8%.

So, is this expectation baked in the cake, or will the financial markets drop hard if in fact this type of number comes to fruition?

Consumers Are Doing The Right Thing

Consumers are correct to increase savings while spending less. No one will save them, so they must save themselves. Bravo.

The issue of toxic bank assets is THE big sinkhole swallowing up global capital markets. There seems to be something in the air, a feeling that before rushing into “fiscal stimulus”, something has to be done about this. And contrary to official propaganda, banks ARE lending.

Risks are vast in revaluing tainted assets
Example: The financial institution which owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S&P estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.

The bond analyzed by S&P is just one of thousands that the government might buy or guarantee should it go forward with setting up a “bad bank” that would acquire $1 trillion or more of toxic assets from banks.

The idea is that, free from the burden of carrying these bad assets, banks would start lending again and bolster the faltering economy. The bad bank set up by the government would, over time, sell the assets and recover some or most of what it had paid.

While the government is considering several approaches to helping the banks, including more capital injections, buying or insuring toxic assets is likely to be a centerpiece. Determining the right price for these assets is crucial to success. Placing too low a value would force institutions to sell and others holding similar investments to register crushing losses that could deplete their capital and make it harder for them to increase lending.

We Know the Story, but the Pictures Really Do Tell It Well

The charts above vividly illustrate the sharp contraction the economy is going through.

The first chart covers capacity utilization, or the effective utilization of factory assets and production capability in the United States. Capacity utilization fell to 73.6% from 75.2%. This is the lowest level since December 2001.

The second chart shows inbound and outbound freight to the ports of Los Angeles and Long Beach. Inbound traffic was 19% below last December. For the LA area ports, outbound traffic continued to decline in December, and was 30% below the level of December 2007.

The Bailout Game

We’ve reached the point where things are so bad we can only laugh at it — and that means its time for amusing and silly, time-killing web games.

The US economy is failing. Your job is to save it from economic ruin by choosing which companies live and which can be let go bankrupt. Interactive flash, looks like Monopoly. If you get stuck, you can always “Ask A Greenspan.” Click here to begin the game.

Subsidizing Business?