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The Dow Jones gave back almost 70% of last week’s historic gains in just one session yesterday as soon as end of the month rebalancing was out of the way. Financials, retailers and real estate stocks led the rout.

Maybe it’s just me but I can’t help thinking that the increasingly erratic and flip-flop performances by Treasury Secretary Hank Paulson are really spooking the stock market. The other half of the double act, Fed Chairman Ben Bernanke, confirmed ZIRP was beckoning and mused about monetizing the debt. This news that they were indeed considering buying their own bond market sent yields to record lows. Has it really come to this? Now either Bernanke fears we are on the cusp of a Nippon style deflationary death spiral (cue The Vapours “Turning Japanese”) or we will end up like madcap Mugabe’s Zimbabwe. I hope the Fed’s printing presses are more reliable than my photocopier.

Today’s Market Moving Stories

  • The US NBER committee backdated the start of the American recession to December 2007.
  • Another central bank interest rate cut, this time the Reserve Bank of Australia chopping by a full 1%. Sweden’s Riksbank look likely to follow suit Thursday after they brought forward their scheduled meeting. Mmmmm, maybe a whiff of large coordinated rate cuts this Thursday with the BoE and ECB also due to decide on the magnitude of their own reductions?
  • The downturn in the global economy is accelerating. Yesterday’s PMI/ISM surveys showed the manufacturing sector at record lows across Europe, the US and perhaps even more importantly China. Note that the prices paid component in the US survey was the lowest since 1947, confirming the stunning pace of the decline in inflation.
  • Our favorite banking analyst, Meredith Whitney, was on CNBC last night. Just before the close Meredith warned that banks are on the verge of pulling consumer credit card lines. That would further smash fragile consumer spending in 2009. She went on to further to dismiss the current “never neverland” bank’s earnings estimates and had particularly harsh words for beleaguered Citigroup (NYSE:C) (whom she predicted would see fresh lows) and Wells Fargo (NYSE:WFC) (who she thinks are the biggest sell in the financials space right now).
  • The big winner on the foreign exchange markets was the Japanese Yen, benefiting from its safe haven status, with USD/JPY hovering around the 93.00 level. Whilst the BoJ kept rates on hold at 0.3%, the currency will gain in relative terms as other central banks continue to take a chainsaw to rates. The currency may also garner support from the BoJ’s announcement that it will accept a wider range of corporate debt in its money market operations.
  • Credit agency TransUnion is saying that delinquent consumer mortgages will nearly double over the next year. They predict that by the end of 2009, 7.17% of standard mortgages will be more than 60 days overdue. They blame the rise mainly on teaser rate mortgages rolling off and the new higher resets being unaffordable. This is one of the reasons that Helicopter Ben wants to start buying bonds. He want to depress the absolute yields on government securities and keep them steady there. Then people may be able to refinance at lower levels if spreads (the margin) over which domestic borrowers can fix their mortgage narrow.
  • Chat in the German press that Commerzbank may be banned from paying a dividend for two years in response to calls that the €8.2bn recapitalization of the bank was too cheap. Staying with Teutonic financials, Bayern LB is laying off 5,600 staff and is set to become a shadow of its former self after accepting a €10bn bailout from the less than happy Bavarian government. So much for Deutscheland Uber Alles.
  • US automakers are due to report final November sales figures today. These are going to make for dismal reading.

Disclosure: None

Source: Preview from Europe: Hank Speaks, Stocks Sink