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Economic Data Takes Center Stage By: Charles Payne

This is when it gets real interesting as corporate earnings begin to give way to economic data releases. Last week, we saw that great earnings results were good for the share price of the company in question but did very little for the broad market. Huge big-time names had boffo earnings results and yet the market struggled. The reason is because even with okay guidance anxiety is mounting over the different facets of the economy and its direction. The big economic data of the week is the Gross Domestic Product report out on Thursday. This reading for the third quarter will usher in a return to the plus column. There is anxiety, however, after last week saw the GDP report for the United Kingdom come in at a negative number, extending that nation's recession to its longest on record. Experts modeled for a slight recovery. The major components of GDP include:

  • Total compensation
  • Investment
  • Government spending
  • New exports

Because we know that government spending may have been high and exports improved there's a chance the official number could come in higher than the consensus of 3.2%. Of course, that brings up the notion of the quality of growth and its sustainability. If the number comes in ahead of consensus what will the Fed do about its quantitative easing program? The plot may thicken.

Real GDP Trends

TALF was supposed to need $200.0 billion quickly, and we were told the plan could grow to $1.0 trillion. This is where the New York Fed lends banks and other institutions money against eligible collateral. It began mostly as a way for banks to dump auto loans and credit card loans but has grown to include a variety of other loans, including commercial mortgage-backed assets (or CMBS). Last week, $2.1 billion in such collateral was put up for a possible three-year loan at 2.86% or five-year loan at 3.64%.

I can't explain the reason why banks haven't given this program the bum's rush, particularly as it has been expanded to include so many more sources of so-called collateral. Many say that the program has kept the auto market humming to the extent that it's in drive because right now it feels more like neutral.

  • Auto
  • Credit Card
  • Equipment
  • Floor Plan
  • Servicing
  • Advance
  • Small Business
  • Student

I suspect that a couple of things are at work. For one, banks feel better about holding their would-be toxic assets, and for another they are afraid to get in bed with government progams where the rules are subject to change.

TALF is one of those pograms that the Fed is going to wind down along with other measures that have allowed banks to not have to lend money to make money. As a result, they have ridden out the maliase in the economy in a way that most other industries, and the vast majority of individuals, could only dream about.

Bank Failures Reach Century Mark

On the topic of banks, the failure tally has finally eclipsed 100...and it did so with an exclimation point. Seven failures with a combined 21 bank branches cost the FDIC $357.0 million.

This is the first time that bank failures in the U.S. have hit 100+ since 1992, when 179 banks failed. The record amount for failures was 531 in 1989.

Written by Charles Payne, CEO and Principal Analyst of Wall Street Strategies ( providing independent stock market research to over 30,000 subscribers, in more than 60 countries. Mr. Payne is a regular contributor to the Fox Business and Fox News Networks. For more information about Mr. Payne, please refer to the company’s website