CDO Ratings to Fall as Losses Trigger Fitch Overhaul The New York-based company may lower the notes by as much as five levels after failing to accurately assess the risk of debt that packages other assets, according to guidelines proposed by Fitch today. CDOs with AAA grades that are based on credit-default swaps and aren't actively managed may face the steepest reductions.

Quick Overview

• The Institute of Supply Managements' index of services fell from 54.4 to 41.9 in January, weaker than expected.
  
  

• Index of services in the Euro area dropped from 53.1 to 50.6.
  

• Services in the U.K. increased from 52.4 to 52.5 in January.
  

• Retail sales volume in the Euro area fell 0.1% in December.
  
  

• Australia's central bank raised its interest rate by a quarter point to an 11-year high of 7%.
  
  

• Ethanol production hit a new record high of 14.356 million barrels in November, up 338,000 barrels from October and up 40% YoY.
  

• Excessive rains have increased Asian rust problems on up to 25% of Brazil’s soybean belt.
  

• Canada’s wheat stocks fell 30% YoY. Corn stocks rose15%, and Canola stocks fell 9% YoY.
  

• The Bush budget proposal sent to Congress will let the 54c a gallon ethanol import tariff expires when the FY 2009 budget begins Oct 1, 2008;
  

• Indonesia's government will impose a 15% export tax if palm oil exceeds $1,100 a metric ton.
  
  

• Thai rice exporters could start defaulting on orders due to rapidly rising domestic rice prices, the Bangkok Post reported.
  
  

• The SEC is beginning to approve some "active" exchange-traded funds, which pick securities rather than simply track an index.

Russian economy succumbs to the oil curse
Nice Tsarist flats fetch $3m to $4m. Even Bolshevik boxes are booming. Moscow boasts 150,000 home millionaires in dollars, says Sergei Polonsky, the Mirax Group tycoon. In a good year, prices double

Quick Overview

• U.S. factory orders rose 2.3% in December-- less than expected. Excluding transportation, orders rose 0.7%.
  
  

• Australian home price rose 12% in 2007,
  
  

• Producer prices in the Euro area rose 0.1% in December and 4.3% YoY.
  
  

• Bush wants to spend $3.1 trillion in 2008-2009, up 76% since1999.
  
  

• China is building an enormous logistics facility covering nearly 70 hectares for the newly-launched Sino-Germany Container Railway. It is predicted that the volume of Germany-bound boxes on this railway will reach 20,000 to 26,000 TEU by 2010 while Beijing-bound boxes will be about 10,000 TEU.

Banana Republic, Without the Bananas…or the Republic How does an economy like this keep going? It depends on the kindness of strangers and the stupidity of friends. Who but a fool or a friend would buy a U.S. 30-year treasury bond at a 4.28% yield? This number is only a few basis points from the number for annual increases in consumer prices. Which means, if all goes well, investors can expect to make a return of zero on their investment over the next 30 years. And if all this talk of Zimbabwe economics and banana republic finances turns out to be true, they can expect to suffer another round of losses - measured in the trillions. And why shouldn't it be true? The American Empire is a bit like General Motors, says Martin Hutchinson. It has heavy fixed costs, an aging workforce, worn-out equipment, mammoth debts, and it is losing market share. At immense cost, America maintains its legions in more than 100 overseas garrisons. At home, the mobs call for bread. And every candidate for office - save the forgotten man, Dr. Ron Paul - offers more of it. "We cannot afford another year without decent wages because our leaders could not come together and get it done," said Barack Obama in South Carolina.

Global Finance and the Insanity Defense
French President Nicholas Sarkozy advanced the idea recently that the global financial system is "out of its mind."

Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards
What New York-based JPMorgan Chase didn't tell them, the transcript shows, was that the bank would get more in fees than the school district would get in cash: $1 million. The complex deal, which placed taxpayer money at risk, was linked to four variables involving interest rates. Three years later, as interest rate benchmarks went the wrong way for the school district, the Erie board paid $2.9 million to JPMorgan to get out of the deal, which officials now say they didn't understand.

Wheat Rallies, Extending Record in Minneapolis, on Low Supply
Another concern for farmers in the northern Plains is finding enough spring-wheat seed to plant. Supplies are low because some growers who normally grow seed wheat sold their crop as prices rose, said Louise Gartner, owner of Spectrum Commodities in Beavercreek, Ohio.

Quick Overview

• U.S. lost 17,000 non-farm jobs in January. This was the first monthly loss in 4-1/2 years and increases the likelihood the Fed will cut interest rates another half point next month.
  
  

• Microsoft wants to buy Yahoo for $45 billion in stock and cash.
  
  

• The Institute of Supply Managements' manufacturing index rose from 48.4 to 50.7
  

• U.S. Construction spending fell 1.1% MoM, and 2.6% YoY.
  

• The University of Michigan's consumer sentiment index rose from 75.5 to 78.4
  
  

Quick Overview

• MBIA Inc. Chief Executive Dunton dismissed bankruptcy rumors and expects to keep AAA rating.
  

• U.S. jobless claims rose 69,000 to 375,000, more than expected and the most in over two years.
  

• U.S. Personal incomes rose 0.5%
  

• U.S. Consumer spending rose 0.2%.

• U.S. Personal consumption expenditures rose 3.5% YoY.
  

• U.S. employment cost index rose 0.8%

• The Chicago purchasing managers' index fell from 56.4 to 51.5
  

• Russia’s GDP rose 8.1% in 2007
  

• Canada’s GDP rose 0.1% in November and 2.7% YoY
  

• Euro area unemployment rate was unchanged in December at 7.2%.
  

• The U.S. DoE said underground supplies of natural gas fell 274 billion cubic feet last week to 2.262 trillion cubic feet. Supplies are down 13% YoY
  

Putting it in Reverse
On that point, former Labor Secretary Robert Reich writes, "America's middle classes are no longer coping." He notes that the fixes proposed by Bernanke and Bush will not help much, because the middle classes have run out of "coping mechanisms." The short version of the story is that the typical man earns less, in real terms, than he did 37 years ago. "The income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago." Families have struggled to increase their standards of living, first by putting women to work…second, by working longer hours…third, by turning to credit. The workplace is now dominated by over-indebted women who work night and day.

Quick Overview

• The Fed cut its key lending rate by one-half percentage point to 3%,

• U.S. GDP rose 0.6% QoQ and 2.5% YoY, weaker than expected.
  

• Industrial output in Japan rose 1.4% in December.
  

• The U.S. Department of Energy said that:
  Supplies of crude oil rose 3.6 million barrels to 293.0 million barrels.
  Supplies of gasoline rose 3.6 million barrels
  Supplies of heating oil supplies fell 200,000 barrels.
  Refinery use fell from 86.5% to 85.0% of capacity last week.
  Gasoline demand rose 1.4% YoY
  Distillate demand fell 0.4% YoY.
  
  

• Cocoa rose to a 4 1/2-year high on speculation that supplies from West Africa are drying up.
  

U.S. farming practices acidifying Mississippi "It's like the discovery of a new large river being piped out of the Corn Belt," Raymond said. "Agricultural practices have significantly changed the hydrology and chemistry of the Mississippi."

Zimbabwe Economics

As we’ve hinted, too, it is one thing to punish a few speculators with skin in the dotcom game. It is quite another to deliver a stern lesson to America’s entire middle class. The latter never liked school.

New Alzheimer's Treatment Completes First Phase Of Testing
A molecule designed by a Purdue University researcher to stop the debilitating symptoms of Alzheimer's disease has been shown in its first phase of clinical trials to be safe and to reduce biomarkers for the disease.

Quick Overview

• U.S. durable goods orders rose 5.2% in December, much more than expected. Excluding transportation orders rose 2.6%.
  

• Consumer confidence fell from 90.6 to 87.9 in January.
  

• Japan’s employment rate unchanged at 3.8%.
  Japan's retail sales fell 0.1% YoY. Household spending rose 2.2%.
  

• Tyson Foods, the nation's second largest pork packer, announced they were in talks with China to supply them with pork. No timetable was announced.
  

• According to Standard & Poor's/Case-Shiller, U.S. home prices fell 8.4% YoY. With double-digit declines recorded in some hard-hit areas, such as Miami, San Diego, Las Vegas and Detroit.

Quick Overview

• U.S. New-home sales fell 4.7% MoM, and 26% YoY. The median price of a new home fell 10% YoY to $219,200.
  
  

• The Fed meets tomorrow and Wednesday.
  
  

• Home prices in the U.K. fell 0.3% in December. UK house prices could fall by as much as 5% this year and 8% in 2009, the quarterly Deloitte Economic Review has warned.
  

• Gold and platinum prices hit an all-time high after South Africa's main precious metals mines remained closed for the fourth day for lack of power.

Water shortage poses economic threat
The global population will rise above 9bn by 2050 but as early as 2025 the amount of water available per capita per year will have halved compared to 1960. Then it was 13,000 cubic meters but by 2025 that is projected to have fallen to 6,000 cubic meters.

Banks May Need $143 Billion for Insurer Downgrades (Update4)
``Barclays Capital has come up with a very big and very scary number,'' said Donald Light, an insurance analyst at Boston-based consulting firm Celent. ``It indicates that the cost of a bailout of the bond insurers is a lot less than the cost of shoring up these banks' mark-to-market losses.''

Bernanke's Easing Thwarted by Surging Commercial Mortgage Rates
``Lending standards became more lax because people knew they wouldn't be keeping the loans on their books,'' Tross said