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Just The Facts

I promise there will be analysis next week...

For the week, the S&P500 dropped 4.4% (down 1.4% y-t-d), and the Dow fell 4.8% (down 2.0%). The Transport declined 5.2% (down 2.2%), and the Utilities fell 2.8% (down 0.7%). The Morgan Stanley Cyclicals slipped 0.2% (up 4.7%), and the Morgan Stanley Consumer index sank 4.4% (down 1.9%). The small cap Russell 2000 dropped 4.9% (down 3.6%), and the S&P400 Mid-Caps fell 3.8% (down 1.4%). The Nasdaq100 dipped 3.2% (up 0.9%), and the Morgan Stanley High Tech index slipped 0.8% (up 3.8%). The Semiconductors declined 3.0% (up 1.5%),the Interactive Week Internet index declined 1.0% (up 3.2%), and the Nasdaq Telecommunications index dipped 0.2% (up 3.7%). The Biotechs were hit for 3.2% (down 1.5%). The Broker/Dealers fell 1.8% (up 1.5%), and the Banks sank 11.8% (down 10.1%). With Bullion sinking $21, the HUI Gold index dropped 7.3% (down 8.2%).

One-month Treasury bill rates ended the week at 2 bps and three-month bills at 6 bps. Two-year government yields were down 7 bps at 0.76%. Five-year T-note yields dropped 15 bps this week to 1.51%. Ten-year yields added 2 bps to 2.39%, and long-bond yields jumped 26 bps to 3.05%. The implied yield on 3-month December '09 Eurodollars sank 45 bps to 1.19%. Benchmark Fannie MBS yields dropped a notable 31 bps to 3.84%. The spread between benchmark MBS and 10-year T-notes narrowed 33 to 145. Agency 10-yr debt spreads narrowed 5 to 77 bps. The 2-year dollar swap spread dropped 23.5 to 54.25 bps; the 10-year dollar swap spread sank 22 to 14.5 bps, and the 30-year swap spread collapsed 30.2 to negative 18 bps. Corporate bond spreads were mixed to wider. An index of investment grade bond spreads narrowed 3 to 202 bps, while an index of junk bond spreads increased 7 to 1,313 bps.

Investment grade issuance included Anheuser-Busch $5.0bn, GE Capital $7.25bn, Weatherford Intl $1.25bn, Nabors Industries $1.125bn, Walgreen $1.0bn, Pacificorp $1.0bn, Tyco Intl $750 million, Morgan Stanley $650 million, Progress Energy Carolina $600 million, Devon Energy $500 million, Brown-Forman $250 million, and Nevada Power $125million.

Junk issuers included CSC Holdings $844 million.

International issuers included KFW $5.0bn, Westpac Banking $3.0bn, Trans-Canada Pipeline $2.0bn, Philippines $1.5bn, Brazil $1.0bn, Colombia $1.0bn, Turkey $1.0bn, and Commonwealth Bank of Australia $575 million.

German 10-year bund yields rose 6 bps to 3.02%. The German DAX equities index dropped 3.8% (down 0.5% y-t-d). The new Japanese 10-year "JGB" yield ended the week at 1.28%. The Nikkei 225 slipped 0.3% (down 0.3% y-t-d). Emerging bonds and equities traded mostly on the weak side. Brazil's benchmark dollar bond yields jumped 30 bps to 6.43%. Brazil's Bovespa equities index gained 3.3% (up 10.7% y-t-d). The Mexican Bolsa sank 6.5% (down 2.9% y-t-d). Mexico's 10-year $ yields added 3 bps to 5.94%. Russia's RTS equities has yet to trade in 2009. India's Sensex equities index was smacked for 5.0% (down 2.5% y-t-d). China's Shanghai Exchange ralliied 4.6% (up 4.6% y-t-d).

Freddie Mac 30-year fixed mortgage rates dropped another 9 bps to a record low 5.01% (down 86bps y-o-y), with a 10-wk decline of 135 bps. Fifteen-year fixed rates sank 21 bps to 4.62% (down 81bps y-o-y). One-year ARMs rose 10 bps to 4.95% (down 42bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down 14 bps this week to 6.82% (up 21bps y-o-y).

Bank Credit declined $27.5bn to $9.886 TN (week of 12/31). Bank Credit rose $645bn y-t-d, or 7.0%. Bank Credit jumped $493bn over the past 17 weeks. For the week, Securities Credit dipped $1.6bn. Loans & Leases dropped $25.9bn to $7.127 TN (52-wk gain of $315bn, or 4.6%). C&I loans dropped $9.5bn, with y-t-d growth of 8.5%. Real Estate loans gained $15bn (up 5.5%). Consumer loans declined $6.7bn, and Securities loans fell $11.5bn. Other loans dropped $13.2bn.

M2 (narrow) "money" supply gained $5.3bn to a record $8.124 TN (week of 12/29). Narrow "money" expanded $661bn during 2008, or 8.9%. For the week, Currency jumped $6.2bn, and Demand & Checkable Deposits gained $7.8bn. Savings Deposits fell $8.3bn, while Small Denominated Deposits added $1.3bn. Retail Money Funds slipped $1.7bn.

Total Money Market Fund assets (from Invest Co Inst) surged $65bn to a record $3.895 TN, with a 52-wk expansion of $730bn, or 23.1% annualized.

Total Commercial Paper outstanding surged $83.1bn this week to $1.764 TN (high since 9/10), with CP down $49bn over the past year (2.7%). Asset-backed CP jumped $46bn to $780bn, with a 52-wk decline of $22bn (2.7%).

Federal Reserve Credit declined $69.0bn to $2.178 TN, with a historic 17-wk increase of $1.289 Trillion. Fed Credit expanded $1.308 TN over the past 52 weeks (151%). Fed Foreign Holdings of Treasury, Agency Debt last week (ended 1/7) rose $8.0bn to a record $2.525 TN. "Custody holdings" were up $467bn for the year, or 22.7%.

International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi - were up $583bn y-o-y, or 9.4%, to $6.804 TN.

Global Credit Market Dislocation Watch:

January 7 - MarketNews International (John Shaw): "The Congressional Budget Office said Wednesday that the fiscal year 2009 deficit will be $1.186 trillion and then decline to $703 billion in FY10. The CBO report represents the first official confirmation of the staggering decline in the nation's fiscal situation from less than a decade ago when budget surpluses were on the indefinite horizon... The CBO report almost certainly understates the severity of the nation' fiscal woes. For example, the CBO report does not account for the emerging fiscal stimulus bill that may cost more than $800 billion over two years."

January 9 - Bloomberg (Erik Holm and Andrew Frye): "Bernard Madoff's alleged Ponzi scheme may cost insurers who cover financial institutions more than $1 billion as they pay legal costs for investment managers who gave client money to Madoff, an industry executive said. Insurers who sell such coverage never expected, or charged their clients, for the possibility of investor losses in such a massive fraud, said Greg Flood, the president of the management liability practice at Ironshore Inc... 'This isn't supposed to happen in America,' Flood said. 'There will be extraordinary losses paid for this year.'"

January 7 - Bloomberg (Anchalee Worrachate): "Britain may overwhelm bond investors with a record number of quarterly debt sales, risking the first failed auctions since 2002... 'I'm not predicting that we will have failed auctions, but I can't rule that out,' Robert Stheeman, chief executive officer of the U.K. Debt Management Office, or DMO, said... 'It's a big amount of debt to be sold. We are in a very different world than we were six months or a year ago. But I believe it's a challenge that both we as an organization and the market will be able to meet.'"

January 7 - Bloomberg (Jana Randow): "The European Central Bank expanded its balance sheet by 36 percent last year as it tried to revive lending among banks by pumping cash into the financial system. The ECB held 2.08 trillion euros ($2.8 trillion) in assets and liabilities on its balance sheet at the end of 2008, it said today in a statement, up from 1.53 trillion euros at the start of the year."

January 7 - Bloomberg (Chen Shiyin): "Emerging-market equity investors withdrew a record $48.3 billion from their funds in 2008 as the global financial crisis and economic recession hurt demand for riskier assets, according to data from EPFR Global."

Currency Watch:

The dollar index gained 1.0% this week to 82.66. For the week on the upside, the British pound increased 4.2%, the Brazilian real 2.9%, the Canadian dollar 1.7%, the New Zealand dollar 1.1%, and the Mexican peso 1.0%. On the downside, the South African rand declined 5.1%, the Danish krone 3.4%, the Euro 3.2%, the Swiss franc 3.0%, the Swedish krona 2.9%, the Singapore dollar 1.8%, and the Norwegian krone 1.6%.

Commodities Watch:

January 7 - Bloomberg (Tony Czuczka): "Prime Minister Vladimir Putin's decision to confront Ukraine over a gas-pricing dispute reflects a determination to assert Russian clout, even at the cost of worsening ties with Europe and a loss of export revenue. The escalating 'pipeline war,' which culminated today with the cutoff of supplies to the West, may prompt Europe to diversify its sources and lead Russia to expand energy exports to Asia, according to Alexander Rahr, a Russia analyst at the... Council on Foreign Relations. 'To Western elites, this looks like Russian imperialism, like energy imperialism,' Rahr said... 'There is a danger of a radical worsening of relations. Maybe we are living in a historic moment where we will reduce our dependency on Russian gas.'"

January 9 - Bloomberg (Alistair Holloway): "The Baltic Dry Index, a measure of shipping costs for commodities, advanced for a fourth consecutive day to the highest in more than two months."

Gold declined 2.4% this week to $854 (down 3.2% y-t-d), and silver slipped 1.5% to $11.32 (up 0.2% y-t-d). January Crude sank $5.51 to $40.83 (down 8.5% y-t-d). January Gasoline was little changed (up 4.6% y-t-d), while January Natural Gas dropped 7.6% (down 1.9% y-t-d). March Copper rose 6.7% (up 10.6% y-t-d). March Wheat increased 3.0% (up 3.1% y-t-d), while Corn slipped 0.4% (up 0.9% y-t-d). The CRB index declined 1.7% (up 0.2% y-t-d). The Goldman Sachs Commodities Index (GSCI) dropped 2.6% (up 0.2% y-t-d).

Asia Bubble Watch:

January 7 - Bloomberg (Janet Ong): "Taiwan's exports slumped by a record 41.9% in December on weaker demand from the U.S. and China for laptops, mobile phones and computer chips."

India Watch:

January 6 - Bloomberg (Kartik Goyal): "Indian exporters expect to cut about 10 million jobs by March as the global recession prompts overseas buyers to cancel orders. 'The year 2009 is going to be the worst year in the history," A. Sakthivel, president of the Federation of Indian Export Organisations, told reporters... 'Exporters don't have orders beyond January and if the present trend continues, there will be approximately 10 million job losses.' Indian exporters presently employ about 150 million people."

January 7 - Bloomberg (Anoop Agrawal): "India's 10-year bonds dropped the most since September 2001 after the government said it will increase debt sales to fund additional spending."

January 9 - Bloomberg (Andrea Tan): "Satyam Computer Services Ltd. plunged for a second day in Mumbai trading on concern it may run out of money after Chairman Ramalinga Raju said he falsified the accounts and quit. Satyam extended its two-day slide to 87 percent since Raju said he inflated earnings and assets by $1 billion."

Latin America Watch:

January 8 - Bloomberg (Jens Erik Gould): "Mexico reported the highest annual inflation rate in more than seven years in December as prices rose for tomatoes, tourist packages and air transportation. Prices rose 6.53% from a year earlier..."

January 5 - Bloomberg (Andres R. Martinez): "Mexico's manufacturing index fell to a record low in December because of a worsening recession in the U.S., the largest consumer of Mexican exports, the Mexican Institute of Financial Executives said."

Unbalanced Global Economy Watch:

January 9 - Bloomberg (Alexandre Deslongchamps): "Canadian employment fell by almost twice as much as expected in December, led by construction... Employers shed a net 34,400 workers after a drop of 70,600 in November, Statistics Canada said... The jobless rate rose to a three-year high of 6.6 percent from 6.3 percent the month before."

January 5 - Bloomberg (Hugo Miller): "Auto sales in Canada fell 21% in December as Honda Motor Co. and Toyota Motor Corp. reported declines of at least 35%."

January 8 - Bloomberg (Emma Ross-Thomas): "European confidence in the economic outlook fell to the lowest on record and unemployment rose to a two-year high..."

January 9 - Bloomberg (Jennifer Ryan): "U.K. manufacturing plunged in November, extending its longest streak of declines since 1980, and factories raised prices at the slowest pace in a year as Britain's recession worsened."

January 7 - Bloomberg (Johan Carlstrom): "Norway's domestic credit growth slowed to 10.9 percent in November as the economy weakened and unemployment rose in the wake of the global financial crises."

January 8 - Bloomberg (Zoltan Simon): "Hungarian industrial production fell the most in more than 16 years in November... Production dropped 10.1% from a year earlier..."

January 6 - Bloomberg (Alex Nicholson): "An index of Russian service industries from banks to mobile phone retailers plummeted to a record in December as signs the economy is heading for a recession curbed spending."

Bursting Bubble Economy Watch:

January 9 - Bloomberg (Shobhana Chandra): "The U.S. lost more jobs in 2008 than in any year since 1945 as employers fired another 524,000 people in December, indicating a free-fall in the economy just days before President-elect Barack Obama takes office. 'Consumers are now going to get more and more scared at the prospect of losing their job,' said Nariman Behravesh, chief economist at IHS Global Insight... The Labor Department reported that the nation lost 2.589 million jobs in 2008, just shy of the 2.75 million decline at the end of World War II. The unemployment rate climbed... to 7.2%... the highest level in almost 16 years."

January 9 - Bloomberg (Bob Willis): "The number of Americans collecting unemployment benefits surged to a 26-year high as the labor market worsened in a yearlong recession."

January 5 - Bloomberg (Mike Ramsey and Alan Ohnsman): "General Motors Corp.'s U.S. sales plunged to a 49-year low in 2008, dragged down by a 31% slide in December as demand... Toyota Motor Corp.'s U.S. deliveries plummeted 37% last month, while Honda Motor Co. slipped 35%, Ford Motor Co. fell 32% and Nissan Motor Co. was down 31%... Chrysler LLC dived 53%."

January 7 - Bloomberg (Margaret Chadbourn): "Late payments on home equity loans rose to a record in the third quarter, as consumers remain under stress as unemployment rises and the credit crisis persists, the American Bankers Association reported. Home-equity delinquencies rose to 2.63% in the third quarter from 2.56% in the previous period..."

Central Banker Watch:

January 9 - Bloomberg (William Sim): "The Bank of Korea cut its benchmark interest rate by a half-point to a record low... The bank's board lowered the seven-day repurchase rate to 2.5 percent in Seoul today, the fifth reduction since early October."

January 6 - Bloomberg (Eugene Tang and Chia-Peck Wong): "China's central bank and banking regulator are formulating a plan to allow developers to raise funds through real-estate investment trusts, or REITs, hoping to restart construction projects hamstrung by financing issues. 'The effort is to help developers because they have tended to rely on commercial banks as the primary source of funds," Qi Ji, China's vice minister of housing, said..."

MBS/ABS/CDO/CP/Money Funds and Derivatives Watch:

January 7 - Bloomberg (Bob Ivry): "Foreclosure sales in the 25 largest U.S. metropolitan areas almost tripled in the first 10 months of last year as rising unemployment and falling home values made it tougher for homeowners to sell or refinance their mortgages. Motivated sales, which include foreclosure auctions and banks selling homes taken over for non-payment, increased 193% from January to October 2008 from a year earlier... Radar Logic Inc. said..."

Real Estate Bust Watch:

January 8 - Bloomberg (Kathleen M. Howley): "As the U.S. housing recession enters its fourth year, there's no sign of a recovery because speculators account for most of the rise in sales. While the purchases are trimming the inventory of unsold properties, most of those bought by speculators will likely return to the market when prices rise again, hampering any recovery, said... Joseph Stiglitz and... Robert Shiller... 'We're creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve,' said Stiglitz... 'We could see a double-dip in the housing recession if that happens.'"

January 7 - Bloomberg (Hui-yong Yu): "Vacancies at U.S. malls and shopping centers approached 10-year highs in the fourth quarter, and are set to rise further as declining retail sales put more stores out of business, research firm Reis Inc. said. Regional mall vacancies rose to 7.1 percent last quarter from 6.6 percent in the third quarter."

January 6 - Bloomberg (Hui-yong Yu): "Vacancies in U.S. office buildings rose to 14.4% in the fourth quarter, the highest in three years, and rents fell as companies cut jobs and landlords boosted concessions, according to Reis Inc."

GSE Watch:

January 8 - Bloomberg (Jody Shenn): "The Federal Home Loan Banks face potentially 'substantial' losses on mortgage bonds, and in a worse-case scenario only four of the 12 would remain above regulatory capital minimums, Moody's... The government may need to put some of the FHLBs, the largest U.S. borrower after the federal government, into conservatorship or force them into mergers with others, Moody's said."

Speculator Watch:

January 5 - Bloomberg (Saijel Kishan): "Harley International Ltd., a hedge fund run by... Euro-Dutch Management Ltd., invested all its assets with Bernard Madoff... The fund managed $2.76 billion as of Oct. 31 and returned an average of 10.9% annually since April 1996..."

January 7 - Bloomberg (Pierre Paulden and Jonathan Keehner): "Apollo Management LP, the private- equity firm led by Leon Black, holds about $2 billion of loans from Lyondell Chemical Co., which filed for bankruptcy protection, people with direct knowledge of the matter said."

Fiscal Watch:

January 5 - Bloomberg (Laura Litvan and Brian Faler): "President-elect Barack Obama told House Speaker Nancy Pelosi he favors a price tag of about $775 billion for the U.S. economic stimulus plan, a Democratic aide said. Obama met with congressional leaders from both parties at the Capitol yesterday to help craft and shore up support for a two-year plan to boost the sagging economy... 'We have to act now to address this crisis and break the momentum of the recession, or the next few years could be dramatically worse,' Obama told reporters..."

January 8 - Bloomberg (Terrence Dopp): "Funding for a new rail tunnel from New Jersey to New York City should be part of a proposed $775 billion federal economic stimulus package, congressional representatives from the area told President-elect Barack Obama. Work on the $8.7 billion tunnel may begin this year and will create 6,000 construction jobs annually for a decade..."

Muni Watch:

January 5 - Bloomberg (Terrence Dopp): "New Jersey Governor Jon Corzine estimated state revenue will drop to $29 billion next fiscal year, constraining spending and requiring cuts on top of the $2.1 billion he proposed last week to close the current budget. Corzine said... revenue for the year that begins July 1 will fall $1.7 billion below the $30.7 billion now expected..."

California Watch:

January 7 - Bloomberg (Michael B. Marois): "California moved closer to running out of cash and being unable to pay its bills after Governor Arnold Schwarzenegger vetoed an $18 billion package of tax increases and spending sent to him by Democrats."

New York Watch:

January 9 - Bloomberg (Henry Goldman): "New York City may lose 243,000 jobs, and declining tax revenue because of Wall Street retrenchment will produce a $7 billion budget gap by the start of the 2011 fiscal year, the city's Independent Budget Office said."

Crude Liquidity Watch:

January 5 - Bloomberg (Arif Sharif): "Banks in the United Arab Emirates and Kuwait have the highest exposure to the real-estate industry among Middle East lenders...Gulf News reported, citing... Credit Suisse... About 35% of U.A.E. bank loans are exposed to the property industry as a significant portion of corporate and personal loans has been invested in real estate...citing Credit Suisse analysts Mohammad Hawa and Digvijay Singh."

January 6 - Bloomberg (Angus Whitley): "WCT Bhd. plunged the most in almost 14 years in Kuala Lumpur trading after the Malaysian engineering company's $1.3 billion contract to build a racetrack in Dubai was canceled."

I'm not one for excuses, but I've been "under the weather" for a couple days.


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