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The Big Picture

Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media

Dramatic Return of Risk Aversion May Not Be All BadYesterday

Good Evening: In the wake of the mid November washout in almost all forms of risk taking, risk appetites in markets around the world spent most of last week trying to recover. Reaching their short term fill on the day after the Thanksgiving holiday in the U.S., market participants abruptly turned away from the risk buffet today and disgorged more than half of last week’s gains in U.S. equities. Contributory factors included the size of last week’s advance, another batch of horrid economic statistics, tax-loss selling, and, drum roll please…the “official” arrival of an economic recession in the U.S. None of these negatives should be dismissed, but today’s carnage actually generated some hopeful signs.

Perhaps due to the poor travel weather afflicting much of both the East and Midwest, most of the first-string traders and investors returned to their desks this morning in no mood to continue last week’s rally in Wall Street. Global equity markets and U.S. index futures were down prior to the open in New York, and this morning’s batch of economic data was very weak. Construction spending dropped 1.2% (vs. and expected -0.9%), but the bigger negative impact came in the form of an ISM manufacturing survey reading of 36.2, a level not seen since the brutal 1982 recession (see story and Merrill’s take below).

And just as these statistics were causing investors to worry about the length and depth of the downturn evidently under way, NBE

Plan? What Plan?Yesterday

Not exactly a huge revelation:

The head of a new Congressional panel set up to monitor the gigantic federal bailout says the government still does not seem to have a coherent strategy for easing the financial crisis, despite the billions it has already spent in that effort.

Elizabeth Warren, the chairwoman of the oversight panel, said in an interview Monday that the government instead seemed to be lurching from one tactic to the next without clarifying how each step fits into an overall plan.

“You can’t just say, ‘Credit isn’t moving through the system,’ ” she said in her first public comments since being named to the panel. “You have to ask why.”

If the answer is that banks do not have money to lend, it would make sense to push capital into their hands, as the Treasury has been doing over the last two months, she continued. But if the answer is that their potential borrowers are getting less creditworthy with each passing day, “pouring money into banks isn’t going to fix that problem,” she said.

The new panel has held only a few briefings with Treasury officials so far, and Ms. Warren acknowledged that she and the other panel members were still in the early stages of their research.

Treasury Department officials have never described their actions as the sole remedy. A spokesman noted that Secretary Henry M. Paulson Jr. recently testified that stabilizing the financial system was a necessary first

Chatting With KrugmanYesterday

This may be the winter of Paul Krugman’s content. President Bush, whose economic policies Krugman has derided from the beginning, is leaving office. Krugman has been awarded the Nobel Prize in Economics. And Norton has just published The Return of Depression Economics and the Crisis of 2008, a substantial revision of the book he originally published in 1999. Listen to an exclusive interview with Krugman by Newsweek senior editor and Moneybox columnist Daniel Gross.

Calculated LossYesterday

I was deeply saddened to read early this morning that Doris Dungey, better known as Tanta of Calculated Risk, has passed. She had been ill for some time, but one always holds onto hope that a condition might improve.

The news of her passing already generated over 1000 comments here.

We are all that much poorer for her no longer being with us . . .

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Ben Stein on Tim Geithner: Right for the Wrong ReasonYesterday

For those who did not see the NYTimes yesterday, below is an excerpt from Ben Stein’s “Everybody’s Business” column:

“I am the world’s most ardent fan of Paul A. Volcker and Lawrence Summers, but I am a bit puzzled by the choice of Timothy F. Geithner to be Treasury secretary. During the presidential campaign, I heard Mr. Obama talk many times about “change you can believe in.” But what does Mr. Geithner have to do with change? He’s the pre-eminent careerist of old-time finance, and a basic part of the team that got us into this mess. He was pro-deregulation for most of his career. He went along with failing to rescue Lehman Brothers, a decision now generally considered a catastrophic mistake. He led the Federal Reserve Bank of New York while money-center bank