Good Morning,

A pall descended over Wall Street before markets opened today, and it originated on Main Street. Fears that the US economy will show February job losses at a level higher than any since the immediate post-war years, had traders looking to batten down any open hatches through which a potential sales deluge could inundate them.

Street talk of a million jobs lost rattled nerves further, although expectations are that 'only' 650,000 positions were eliminated last month. We will know all too soon. The recession that is now thought to have started in December of 2007, has cost the country 3.6 million jobs thus far. Automakers are likely to lead the pack, but banks, retailers and possibly even government jobs (!) were likely shed in the contraction.

The US dollar showed signs of job-loss related apprehensions early on, and sank 0.80 to 88.26 on the index while crude oil recorded mild gains, which, if anything, were safe-haven anti-dollar plays rather than genuine optimism about more of it being burned any time soon. Stock futures were pointed slightly lower.

 Against this background of jitters, gold opened the final session of this week with a modest gain of $2.90 per ounce, quoted at $935.30 per ounce. Resistance around the mid-$900 area looms, and so does pre-weekend book-squaring. Neither might turn out to be as impactful as investor perceptions of the on-going crisis and what stage it may have reached in their minds. If it still holds true that stock markets are showing us what is in the pipeline some six to twelve months ahead, well, we might want to avert our vision.

Silver climbed 18 cents showing $13.42 at the open, while platinum rose $15 to $1077 per ounce, driven mainly by speculative fund inflows into ETFs. Certainly, it was not the imminent return to vigor among carmakers that had the metal push closer to $1100 at this point in time. Palladium gained $5 to start at $202 this morning.

And...they're off! Job losses started out of the gate with a number precisely at the anticipated target: 651,000, followed by unemployment sporting the 8.1% label. Stock futures took the lead early on, gaining 0.2% while April crude rounded the first corner, ahead by 1.7%. The dollar slowed a bit, showing a 0.69 loss on the index, while gold maintained its early gains and built up more steam ahead of the back stretch (up $8.60 at $941.00 per ounce). The finish line is many hours ahead, and this horse race is anyone's guess at this time. Combination bets were abundant this morning.

Other odds being weighed these days, are those of the US falling into an outright depression. My son sent me a brief from the Harvard Crimson overnight. It reveals the thinking of Prof. Barro. Here is what he sees taking place:

The United States currently faces an approximately 20 percent probability of entering into an economic depression, according to a Wednesday Wall Street Journal opinion piece penned by Harvard Economics professor Robert J. Barro.

Drawing upon the financial statistics of 251 previous stock-market crashes and 97 depressions, Barro wrote that “the odds are roughly one-in-five that the current recession will snowball into the macroeconomic decline of 10% or more that is the hallmark of a depression.”  Barro also wrote that he was skeptical about the effectiveness of the current federal stimulus package.

“I wish I could be confident that the array of U.S. policies already in place and those likely forthcoming will be helpful,” he wrote. “But I think it more likely that the economy will eventually recover despite these policies, rather than because of them.” Fellow Harvard economics professor Kenneth S. Rogoff wrote in an e-mail yesterday that he found Barro's analysis “highly informative” and “certainly more credible” than quantitative economic forecasts circulated by the Federal Reserve.

“I would guess that the risk of the US having a Japan-style lost decade, where the economy goes in and out of recession for years on end, is more likely than the risk of a catastrophic double-digit output collapse,” Rogoff wrote. Rogoff also expressed the need for a speedy response by the Obama administration if the economic situation is to be rescued.

“The longer the Obama administration dithers over a decisive and comprehensive fix to the banking system, the greater the risks,” Rogoff wrote. According to Barro, America has been plagued by only two depressions since 1870—the post-World War I depression and the Great Depression. The Harvard economist's current piece came in the midst of an economic downturn that has seen the stock market fall to its lowest levels since 1997.

Those are odds most people could live with, but it does not assuage the rantings of some who proclaim that The Great Depression II is upon us. Much depends on the US, to be sure. Like China recovering any time soon, for example. Bloomberg's William Pesek minces no words and brings reality home as follows (we bring you only the highlights):


The idea that China can grow strongly as the world unravels is a fantasy. Ditto for the view that China is going to save the global economy. China is already slowing, of course. The third-biggest economy grew 6.8 percent in the last quarter of 2008. Such growth sounds like heaven just about everywhere else. Yet for an economy at China's level of development, one that zoomed along at a 13 percent pace in 2007, it's hell.

As the global meltdown deepens, it probably means the export demand that drives China won't return until well into 2010. Here are five reasons a Chinese rebound in 2009 may not pan out:

1. World growth is collapsing . This isn't hyperbole, but a sobering fact. 

 2. China's key customer [ The U.S.] is in hiding , indefinitely. 

 3. A lack of tools. It's important to remember that the 4 trillion yuan ($585 billion) spending plan unveiled in November was more spin than reality. Much of it wasn't new, but a tally of existing spending efforts. They were never going to boost a $3.3 trillion economy anyway. China's almost $2 trillion of currency reserves would seem to give the nation considerable policy latitude. Yet China's vast economy lacks the financial infrastructure to get the bang it needs from its stimulus in yuan. Would building more roads, bridges and dams do the trick?

4. All those U.S. Treasuries. Financing loads of new projects could prove dicey, even for cash-rich China. Any move to draw down $696 billion of U.S. government debt could leave China with major losses and prolong the U.S. recession . That leaves domestic lending institutions. If China wants to avoid a Japan-like bad-loan crisis, or something far worse, it has to be careful about massive public-works projects with questionable economic benefits.

5. Rebalancing takes time. Just as the U.S. needs to become a nation of savers, China needs more consumers. That's a destabilizing, decade-long process that requires the creation of national safety nets and more education and health-care spending.

Wen wasn't exaggerating yesterday when he said China faces its “most difficult” year of the past 30 . How much China's export collapse is hurting can been seen in the 20 million migrant workers who are suddenly unemployed. The risk of social unrest is higher than at any time since 1989, the year of the Tiananmen Square protests.

  That about does it for this update. Watch for pitched battles in certain stocks (Wells, BofA, Citi, GM, GE, and the rest of the usual suspects) and keep an eye on the greenback. Today's gold bug slogan will be: The dollar should tank and gold should rise. Last week's positive correlation (touted as a new paradigm) is so...last week. Not everything has been factored into this horse race as yet. Call the book before time is up.

Happy Book-Squaring.