A report by the Federal Reserve on the economy put the icing on the cake during a day of unrelenting bad news. The report, known as the beige book, said the U.S. economy continued to weaken into 2009 as steep retail discounts failed to stimulate consumer spending. Employment weakened, with some regional Fed banks reporting pay freezes or even cuts in their districts, especially among financial institutions where year-end bonuses are likely to be sharply reduced.

Most districts noted reduced or low activity across a wide range of industries, the Fed said in its summary of economic conditions. The report was compiled by the St. Louis Fed for the Jan. 27-28 Federal Open Market Committee meeting.

Meanwhile, Commerce said retail sales continued to decline for a sixth straight month, the longest streak on record. A report on businesses from the Census showed that inventories rose faster than sales in the year to November as the economy cooled, and the weekly report on oil inventories continued to show that demand for energy products was declining even as prices maintained their downward momentum, a sure sign of economic weakness if ever there was one.

At the close of floor trading on the NYSE, the DOW was on 8200.14 after falling 248.42 points (-2.94%) while the S&P finished on 842.62, down 29.17 points (-3.35%). The NASDAQ closed on 1489.64 with a loss of 56.82 points (-3.67%). Bonds were bought as stocks declined, with the yield on the 2-year note falling 2.8 basis points to 0.714% while yield on the benchmark 10-year note fell 9.3 basis points to 2.201%. The dollar was mixed, with gains of 0.06% on the euro, 0.71% on Australia's dollar and 1.87% against Canada's currency as it fell 0.31% to the yen and by 0.51% to sterling.

Crude oil for February delivery was recently trading down 40 cents (-1.06%) to $37.38 per barrel but was well off the lows of the session.

Gold for February delivery was recently trading down $6.10 (-0.74%) to $814.00 per ounce.

The market is still trying to figure out what's going on between Bernanke and the Obama administration. The Fed chairman said yesterday that the economic stimulus being planned by the in-coming President's economic team and members of Congress will not be enough to stimulate the economy without some type of provision being made for the government to take troubled assets off the balance sheets of the nation's banks. Bernanke seemed to imply that the second half of the TARP funds should be used for this purpose, something which was supposed to happen with the program's original passage until Hank Paulson changed course in mid-stream, a change in tactics which has ticked off many members of Congress (and the public) to no end. It looks as if the President-Elect has been somewhat blindsided by this, since no mention of taking over troubled bank assets has ever been made by either Mr. Obama nor any member of his team. Stay tuned.