Readings for the Day

From Mish: State Workers Fight Over Cutbacks as States Want More From Obama

iPhone 3G Unlock Now Available

iPhone 3G Unlock Available!

Readings for the Day

From Mish: New Year's Day Economic Potpourri
From Mish: How "Something for Nothing" ideas become policy

US Manufacturing Orders at 60 Year Low

From Mish: US Manufacturing Orders at 60 Year Low, China Contracts 5th Straight Month

From Yahoo! Finance: Manufacturing Index Drops to 28-Year Low
Signs grew that the economy could turn even weaker in 2009, as an index of December manufacturing activity sank to its lowest point in 28 years. Every corner of the sector was down, from bakeries to cigarette-makers to aluminum smelters.

The Institute for Supply Management, a trade group of purchasing executives, said Friday its manufacturing index fell to 32.4 in December, a greater-than-expected decline from November's reading of 36.2.

Components of the index hit historic lows. New orders fell to their lowest level on records going back to 1948. Prices fell as the number of respondents saying they had paid more in December than in November sank to its lowest monthly reading since 1949.

A reading below 50 for the overall index indicates contraction. The index, based on a survey of the institute's members, has fallen steadily for the last five months as the economy deteriorated.

If December's rate of manufacturing activity were to persist for 2009, the nation's gross domestic product would show a 2.7 percent contraction, said Norbert Ore, chairman of the group's business survey committee.

The U.S. weakness is part of a worldwide slowdown. China's manufacturing sector, which accounts for 43 percent of the economy, contracted for a fifth straight month in December. Singapore said its economy shrank in the fourth quarter, and South Korea said its exports fell 17.4 percent in December. With European manufacturing indexes also dropping, "the case for a massive global fiscal stimulus continues to grow," Ryding said.

As the economy sputters through a recession that began in December 2007, no industry is proving resistant. No sector reported overall growth in December. Also, none reported growth in new orders, production, employment or prices, as businesses from tobacco to coal products to foodmakers saw declines. Purchasing managers' employment index showed its lowest reading since 1982 as manufacturers across industries continue to cut jobs.

From Big Picture: Global Manufacturing Collapse

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Weekend Picture Post

2008 Market Review

From Big Picture: 2008 Market Review

From Afraid to Trade: 2008 Final Index Performance Numbers

Readings for the Day

From Big Picture: Low Mortgage rates to Spur New waves of defaults
From Big Picture: GMAC decision by the Fed is a Travesty
From Big Picture: Stock Market Internals - Further headway in '09?

From Mish: Case Shiller and CAR Analysis December 2008 Release
From Mish: Treasury Makes Subprime Auto Loans
From Mish: 200,000 Retail Store Closings coming in 2009

The most dramatic pullback in consumer spending in decades could transform the retail landscape, as thousands of stores and whole malls close down. And analysts expect prolonged woes in the industry as the dramatic changes in shopping behavior could linger for another two or three years amid worries about the deteriorating economy and rising layoffs.

"You are going to see a substantial retrenchment in the retail industry," said Rick Chesley, partner in the global bankruptcy and restructuring group at international law firm Paul Hastings. "The downturn has been catastrophic."

The retail casualties, which were first among home furnishing stores and then many apparel stores over the past year or so, are expected to cut across all sectors as shoppers have slashed their spending on non-essentials, from TVs to jewelry.

About 160,000 stores will have closed this year and 200,000 more could close next year, said Burt P. Flickinger III, managing director of consulting firm Strategic Resource Group. That would be the industry's biggest contraction in 35 years. Flickinger expects 2,000 to 3,000 malls to close in March and April.

AlixPartners, a turnaround consulting firm, predicts that 25.8 percent of 182 major retailers it tracks are facing major financial distress or will face a significant risk of filing for bankruptcy next year or in 2010 -- the highest level in the 10 years that the firm has been compiling the figures. That compares with the 4 percent to 7 percent that it predicted would face financial woes in the previous two years.

Happy New Year! 2009!

Happy New Year Everyone!

It is glad that 2008 is eventually over, and hopefully 2009 will be a better year.

There will be light posting today with some articles to read.

Last Post of 2008

VIX has hit 90 in October and November, now it is back to below 40 for the first time since early October. Before the turmoil in the stock market in October, VIX with higher than 35 has been considered record high and a turning point.

S&P is above 900, which is a critical resistance level for the S&P - 50DMA

1. Are we going to see high volatility again in 2009?

2. Is the market too dangerous to be short, and way too early to be long?

3. Has market priced in all the bad news already? How will the bad economy news (4th Quarter GDP, retail, unemployment, housing) and a fresh new round of corporate earnings effect the market?

4. Are we going to see a Bear Market Rally until Obama's inauguration? With hope in Obama, will his $1 Trillion Stimulus package help the U.S. and even global economy? Is it good to buy consumer staples and infrastructure stocks?

5. If market is up in January, then the chance of the stock market being positive in the whole year is quite high. Is January going to be a critical month? The economic data for 4Q, 2008 is going to be bleak. While the 1Q 2009 is going to be even worse, since it is often the slowest and weakest quarter of the year. Many analysts suggested the market is going to see a turnaround in the second half of 2009, true? Will cash finally come off and boost the stock market? Will 2009 be better or worse? Depending on housing, treasury, credit spread, unemployment, and etc.

6. What will be the 2009 Strategy, and how to rearrange portfolios to prepare for 2009?

7. Will technology section be the last to drop and first to recover?

8. Will American become the next Japan? A Nation Deep in Debt.

9. Is commodity going to be up in 2009? Oil? Gold? Good to buy UPL, DIG?

10. We are seeing a Treasury bubble right now, short Treasury. Are we going to see an inflation in the end of 2009?

Readings for the Day

From CNBC: Hard Time: Gift Cards are used for Cash, Necessities
From Bonddad: Wednesday Commodity Round-Up:
Bottom Line: Technically, the chart wants to rally. But there are no fundamental reasons to commit to the commodities market right now.
From Bonddad: Employment is looking grim
From Calculated Risk: Office rents off as much as 25% in New York

“We have fallen further faster than any time in the last 20 years,” said Mitchell S. Steir, chief executive of Studley, a national brokerage firm that represents tenants. “There has been more damage to real estate values in the last four months than in any other four-month period. The pace with which it has occurred has been astonishing.”
...
[B]rokers say that actual rents have fallen much further than the data suggests. Studley said that the asking rents for 40 percent of the spaces included in its research are listed as “negotiable.”

“No one knows what the rents are, because there has been very little activity for the past three months,” said Ruth Colp-Haber, a partner at Wharton Property Advisors, which represents small to medium-size tenants. “No one is paying attention to the asking rents.”
...
[A]ctual rents have slipped as much as 25 percent since the summer, said Mitchell L. Konsker, a vice chairman of Cushman & Wakefield.

Mortgage rates drop to 37-year low

From Yahoo! Finance: Mortgage rates drop to 37-year low
Interest rates on U.S. 30-year fixed-rate mortgages dropped for a ninth consecutive week, reaching their lowest level in 37 years. Interest rates on the 30-year fixed-rate mortgage dropped to an average of 5.10 percent for the week ending Wednesday, down from the previous week's 5.14 percent, Freddie Mac said.

It was the lowest rate for the 30-year fixed-rate mortgage since Freddie Mac started the Primary Mortgage Market Survey in 1971.

Mortgage rates have dropped dramatically since the Federal Reserve unveiled a plan last month to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises Fannie Mae and Freddie Mae, and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

From Yahoo! Finance: 2008 loan issuance falls 55 percent
U.S. loan issuance in 2008 tumbled 55 percent to $764 billion, the lowest volume since 1994, as the global credit crunch choked off lending to American businesses, according to data from Reuters Loan Pricing Corp.

Loan issuance was down from $1.69 trillion in 2007 as banks focused on repairing balance sheets damaged by mortgage losses and had little interest in underwriting riskier deals, RLPC reported on Tuesday.

Investment-grade loans fell to $319 billion, down 52 percent from 2007's 658 billion, while leveraged loan issuance slid to $294 billion, down 57 percent from $689 billion in 2007.

Lending will likely remain anemic in 2009, according to an RLPC quarterly survey of loan market participants. Nearly 54 percent of respondents said their lending will be limited to key relationships.

Institutional loans were especially hard hit as collateralized loan obligations disappeared from the market. Loans purchased by institutional investors slid to $69.6 billion, down 84 percent from 2007's $425.8 billion.

Loans backing leveraged buyouts, a key source of loan growth for the past several years, were down by 80 percent to just $41.3 billion from $209.9 billion.

From Big Picture: Low Mortgage Rates to Spur New Waves of Defaults

Case-Shiller: Home Prices Off Record 18% Last Year

From Yahoo! Finance: House Prices Plunge Again, Now Down 25%

House prices plunged again in October, with the rate of year-over-year decline accelerating to a new record high of 19%. The peak-to-trough decline in the Case Shiller 10-city index is now 25%; the 20-city index is down 23%.

Given the current rate of decline and the fact that house prices still have yet to reach their long-term historical average relative to incomes and rents, we remain comfortable with our prediction of a 35%-40% total decline. Unless the rate of price decline moderates soon, this could even prove conservative.

The Obama administration will throw the kitchen sink at this problem, but we still have yet to hear a plan that might actually work. It's just hard to see how already over-leveraged consumers can be induced to pay above-average prices for houses and take on more debt when layoffs and the recession are still gaining steam. The only solution to the house-price collapse, we think, is more price drops and time.

From MarketWatch: Home Prices off Record 18% in Past Year, Case Shiller Says

Home prices are back to their March 2004 levels, having dropped in 20 major U.S. cities by 2.2% in October and by a record 18% from the previous year.

Prices have fallen in all 20 cities compared with both the prior month and October 2007, and 14 of the 20 metro areas showed record rates of annual declines. Also, 14 of 20 areas sustained declines of more than 10% on a year-over-year basis. Retreating prices are likely to accelerate in coming months due to lower demand for housing.

For Case-Shiller's original 10-city index, prices fell a record 19.1% in the previous 12 months.

The largest price drop for October was seen in Detroit, with a fall of 4.5% amid growing troubles for the Big Three automakers.

For the year, Phoenix chalked up the biggest drop - 32.7%.

Here's how prices in the other 20 cities performed in the 12 months through October:

Las Vegas, down 31.7%; San Francisco, down 31%; Miami, down 29%; Los Angeles, down 27.9%; San Diego, down 26.7%; Detroit, down 20.4%; Tampa, down 19.8%, Washington, down 18.7%; Minneapolis, down 16.3%; Chicago, down 10.8%; Atlanta, down 10.5%; Seattle, down 10.2%; Portland, down 10.1%; New York, down 7.5%; Cleveland, down 6.2%; Boston, down 6%; Denver, down 5.2%; Charlotte, down 4.4%; and Dallas, down 3%.

From Bloomberg: Phoenix Leads U.S. Home Price Decline as Lenders Unload Houses
Phoenix, the desert city that three years ago led the U.S. in home price growth, had the nation’s worst housing market during October as sales of foreclosed properties depressed prices.

The cost of a single-family home plunged 33 percent from a year earlier, according to an S&P/Case Shiller index. The decline was worse than Las Vegas, where prices fell 32 percent, and San Francisco, where they dropped 31 percent. U.S. house prices fell 18 percent in October, a record in eight years of data.

Arizona had 11,000 notices in October of so-called trustee sales, or foreclosure auctions. Foreclosure sales reduce the value of similar properties in the same area as sellers who aren’t in distress are forced to drop their prices to compete. “This was a case of the higher they climb, the faster and harder they fell.” Phoenix home prices at their 2006 peak had almost tripled within nine years, he said.

Nationally, the fall in home prices has accelerated since the October period covered by the Case Shiller report. Sales of single-family homes in November dropped 7.6 percent from the prior month, the most in two decades. Resale prices fell 13 percent from a year earlier, the biggest collapse since the Great Depression of the 1930s.

Home sales might rise in 2009, but we are going to see a continue deterioration in the prices, and we might even seen an overshoot downward in the housing price.

Weekly Jobless Claims drop due to Holiday

From Yahoo! Finance: Jobless claims drop by much more than expected
The number of U.S. workers filing new claims for jobless benefits slumped 94,000 last week, government data on Wednesday showed, but seasonal factors were likely behind this unexpectedly large decline with the labor market remaining very soft.

Initial claims for state unemployment insurance benefits fell to a seasonally adjusted 492,000 in the week ended Dec 27 from an unrevised 586,000 the prior week, the Labor Department said. It was the lowest reading for initial claims since the week ended November 1, 2008, and the steepest decline since 1992.

A Labor Department official said the timing of the year-end holidays and volatility in factors used to seasonal adjust the data was likely to blame for the large decline in initial weekly claims, and he warned this situation could persist for several more weeks.

The four-week average of new jobless claims, a better gauge of underlying employment trends because it irons out week-to-week volatility, dropped to 552,250 from 558,000 the week before.

The number of people remaining on the benefits roll after drawing an initial week of aid rose 140,000 to a more-than-forecast 4.506 million in the week ended December 20, the most recent week for which data is available.

This was the highest since the week ended December 4, 1982, when continued claims were 4.509 million. Analysts estimated continued claims would be 4.430 million.

U.S. Weekly Store Traffic Fell 4.9%

From Bloomberg: U.S. Weekly Store Traffic Fell 4.9%
U.S. retail store traffic fell last week as steeper discounts failed to lure shoppers before and after Christmas during what may be the worst holiday-shopping season in four decades.

Traffic declined 4.9 percent in the week ended Dec. 27 from a year earlier, ShopperTrak RCT Corp. said today in a statement. Total holiday sales will decrease 2.3 percent and traffic will drop 16 percent, the Chicago-based research firm estimated, lowering its previous predictions on both.

U.S. retailers’ sales at stores open at least a year declined 1.8 percent in the week ended Dec. 27, the largest year- over-year drop in almost six years, the International Council of Shopping Centers and Goldman Sachs Group Inc. said yesterday.

The ICSC’s forecast last week of a same-store sales decrease of as much as 2 percent in November and December is more than its previously projected decline of 1 percent. It would be the largest decrease since at least 1970, when the trade group started tracking shifts from the previous year.

2008 The Year in Markets

2008: The year in markets U.S. indexes Dow Jones Industrial Average -34% S&P 500 -38% Nasdaq -40% Dow Jones Financials -55% Amex Oil Index -38% International indexes Germany DAX -40% FTSE 100 -31% Japan Nikkei 225 -42% China Shanghai Composite -65% Mexico IPC -24% Brazil Bovespa -41% Currencies/commodities Gold +5.5% Crude -54% Dollar index +6% Pound vs. dollar -28% Dollar vs. yen -18%

As of Monday's Close (December 29, 2008):

Major Indices
Dow Industrials -36.04%
Dow Transports -27.04%
Dow Utilities -32.66%
S&P 500 -40.79%
Nasdaq Composite -43.06%
Russell 2000 -39.15%

S&P 500 Sectors
Cons. Staples -19.47%
Healthcare -26.78%
Utilities -33.79%
Telecom -35.35%
Cons. Discretionary -37.70%
Energy -37.86%
Industrials -44.27%
Tech -45.41%
Materials -49.20%
Financials -59.81%

Other Major Sector Indices
Biotech -21.53%
Drugs -21.71%
Gold Stocks -22.34%
Consumer -27.93%
Airlines -31.72%
Retailers -34.44%
Defense -35.87%
Natural Gas Stocks -36.45%
Oil Stocks -39.28%
Housing -43.68%
REITs -46.69%
Semis -50.51%
Banks -53.23%
Cyclicals -55.40%
Healthcare -56.86%
Oil Services -61.02%
Insurance -61.56%
Brokers -65.94%

December Consumer Confidence Record Low

From Yahoo! Finance: December consumer confidence drops to all-time low
Consumer confidence hit a more than 40-year low in December in the face of rising layoffs, while home prices in 10 major U.S. cities dropped in October by the sharpest amount in 21 years.

Consumers have been nervous about spending for months -- putting off big-ticket purchases, forgoing new clothes and choosing store brands at the grocery store -- all of which may make this the worst holiday season for retailers in decades.

The Consumer Confidence Index measured by the Conference Board, a private research group, fell to 38 in December from a revised 44.7 in November. That is its lowest point since the group began compiling the index in 1967, and below the previous low of 38.8 in October. Economists surveyed by Thomson Reuters had expected the index to rise incrementally to 45.

The unemployment rate hit a 15-year high in November, and economists expect additional job losses in the first half of 2009. Those saying in the Conference Board survey that jobs are "hard to get" rose to 42 percent in December from 37.1 percent in November, when the unemployment rate stood at 6.7 percent.

Those claiming business conditions are "bad" increased to 46 percent in December from 40.6 percent in November.

The Conference Board's Present Situation index, which measures how respondents feel about current business conditions and employment prospects, fell to 29.4 in December from 42.3 in November. It is now close to levels last seen after the 1990-1991 recession.

Mid - Week Picture Post (New Year's Eve)

Happy New Year!

Readings for the Day

From Bloomberg: Japan’s Economy May Shrink 12.1% This Quarter, worst since 1974, Barclays Says
From Bloomberg: Oil Set for Rebound as Record Drop Spurs OPEC Cuts
From Bloomberg: Saks, Macy’s Discounts Spark Vendor Spat After Holiday Slump
From Mish: Krugman Still Wrong after All These Years

Recommand to Watch - Jim Roger - the Founder of Rogers Commodity Index Fund

From Big Picture: Rogers "Prepared for the worst"

How to invest in Roger's Commodity Index Fund? ETF?

He talked about Economy, Currency (don't hold the U.S. dollar), Commodity (Gold, Metal, Oil, Energy, and Agriculture - long commodity), long-term bond (short long-term bond, bond bubble) in 2009. Best way to buy Chinese shares is buying commodities, infrastructure.

Triangle Formation in DIA - similar in S&P

From Afraid to Trade: Triangle Formation in DIA

There’s much discussion occurring regarding the triangle formation occurring in the major US Equity Indexes. Let’s focus for a moment on the DIA (Dow Jones ETF) and see this triangle in action.

DIA Daily chart:

The structure is still the same - price is in a confirmed downtrend with price making lower lows and lower highs, and the orientation of the key daily moving averages is in the most bearish position possible (20 beneath the 50 which is beneath the 200).

There are two interesting divergences playing out and perhaps resolving: First is the positive momentum divergence that set-in on the November price lows which preceded the current ‘rally,’ while the second divergence is the non-confirmation from volume into the recent rally - albeit we are experiencing “holiday volume” which throws off volume analytics for the time being.

The 50 day EMA continues to supply price resistance, while price meanders through its flat 20 day EMA. Moving averages have less significance generally when they are ‘flat,’ or the market is in a consolidation phase (as is evidenced by the current price contraction which resembles a triangle formation).

It would be significant if price could break above the $90 level or beneath support at the $80 level.

DIA Weekly Chart (with selected Elliott Waves):

I’ve simplified this chart because I want you to focus closely on the triangle pattern that has formed on the chart - it’s much more evident in the weekly chart than the daily.

Whatever you want to call this move, it is clear that it is a consolidation pattern that can also be known as a “corrective” or ‘counter-trend’ structure.

Going back to the price structure, price remains in a persistent downtrend which is confirmed by the structure of the key weekly moving averages (again, now in the ‘most bearish orientation’ possible).

This Elliott Wave count assumes that we are still in the larger scale Wave 3 down which has been horrendously destructive to investors, and that fractal Wave 5 is perhaps yet to come… and soon.

Should price manage to break to the upside, it would find key resistance via the falling 20 week EMA around $95 per share (Dow 9,500)… but the odds seem to favor a potential downside break which would take price to new lows into 2009 perhaps to the $70 to $73 level (Dow 7,000 to 7,300).

We’re at a critical cross-roads, and just a push in either direction could send funds scrambling… to buy or to sell together. Watch the market very closely, and be prepared for a trend move (impulse… or breakout of consolidation) at any time now.

Three Month Sector Rotation Insight

From Afraid to Trade: Three Month Sector Rotation Insights

Often, the Sector Rotation model can give us insights into a deeper structure of the market, and can highlight possible clues for the pathway ahead. Let’s take a look at the absolute and relative performance of the major AMEX Sectors and see what they might be hinting to us.

In the first graph, we ‘zero-out’ the S&P 500 and then compare the outperformance or underperformance of the nine major sector ETFs to see where opportunities might exist. Keep in mind that we can have a sector outperform the S&P 500 return over a period of time, yet still decline - as is the case currently.

The three best - in fact only - relative outperformers come from “Defensive” sectors in Consumer Staples, Health Care, and the Utilities. Traditionally, money managers ‘rotate’ positions here during down markets or contractionary economic cycles. Remember that many money managers are required to be ‘long’ the market at all times - they attempt to outperform the market by ‘losing less’ than the market during difficult (down) periods.

Sector Rotation can help in determining “Hedged” positions or portfolios, in terms of selecting strong stocks in the strongest sectors and then countering them by ’shorting’ weak stocks in the weakest sectors.

Let’s turn now to Absolute Performance measures (percentages) over the same three-month period.

Virtually everything money managers have touched in the stock market has declined - there are so very few pockets of resilience. If you aren’t required to be long in this environment, do not do so. There’s no need to be a hero.

What does this tell us?

We’re not out of the woods by any means yet and the market is still likely to remain in a downtrend. Money tends to flow from left to right on the Sector Rotation model, the way the graph is drawn. This means we could expect the next source of strength to come from the Financials and Consumer Discretionary (Retail), and when we see those sectors ‘perk up,’ we will have a clue that investors are seeing better times ahead.

We’re not there yet. The Sector Rotation model continues to hint at defensive postures or perhaps avoidance of the market completely (in terms of investment horizons)… although bonds do not offer much of a respite (in terms of very low yields).

Stay safe and continue to compare sectors for signs of emerging strength or continued weakness.

Readings for the Day

From Mish: Krugman still wrong after all these years
From Big Picture: For Sale: 5 BR Detroit Manse, $8995
Here’s an update on the Detroit Housing situation:
-226 homes for sale at $1,000 or under;
-21 homes for sale at $1,00 or under;
-4 homes for sale at $1.

S&P 500 Review

From Big Picture: Fusion S&P500 Review

The market is still is well off the lows yet it has remained rather lethargic of late with many rally attempts fading pretty easily. While we have had some interesting days on the upside over the last several months the market still has not been able to display any consistency on the upside. There is a minor, yet significant, short-term downtrend (red line) that comes into play near 900.

A close above 900 could lead to a move back towards the 1,000 level (a nice move from present levels) where the market peaked in early November (next serious upside resistance level). For the S&P to make any headway higher it needs to eclipse that level. Minor trading supports exist below the marker near 850 (green line) and 820 (lower red line). If we break these levels we can expect a retest of the mid November lows.

Given volume was so anemic leading up to the Christmas holiday we can’t really say whether that last two days were good or bad since there just was no volume and the “C” teams were in control of the trading desks. So we will just have to see this week if the “A” teams are back or larger firms are content to call 2008 closed and leave the substitutes at the controls. Our guess is we can expect the market to be volatile since trading should likely be thin (typical this time of year) with this being a shortened trading week and staff at major investment houses thinned for the holidays. That said we would continue to be to play small here until the market unfurls it next directional move a little better vis-à-vis better internals.

From Bonddad: Market Monday's

The rally started in November is over with light trading volume, and prices are below all DMA. We are also seeing a strong technical support area at 820-840. With light volume, there is no clear direction.

Holiday Sales Drop to Force Bankruptcies, Closings

From Bloomberg: Holiday Sales Drop to Force Bankruptcies, Closings
U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.

Retailers will close 12,000 stores in 2009. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports.

Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the International Council of Shopping Centers said last week, more than the previously projected 1 percent decline. That would be the largest drop since at least 1969, when the New York-based trade group started tracking data.

Probably 50,000 stores could close without any effect on consumer choice. Only retailers with healthy balance sheets will survive the recession.

About 200,000 stores may close in 2009, compared with a record 160,000 in 2008. Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009.

From CNBC: As More US Retailers Fail, Malls Could Be Next Victim
The dismal holiday shopping season may sink some retailers and could take down some U.S. malls struggling with rising vacancies, softening rents and their own large debt loads.

At the end of the October, the International Council of Shopping Centers (ICSC) forecast that national chains would announce 6,100 store closings in 2008 and 3,100 in the first half of 2009.

That was before stores such as Circuit City and KB Toys filed for bankruptcy.

But factoring in nonchain stores and others classified as retail by the Census Bureau, ICSC predicted 148,000 retail stores would close in 2008 and 73,000 would do so in the first half of 2009.

During this holiday season until Christmas, retail chains, which are among the best bankable mall tenants, saw apparel sales fall 19.7 percent, according to SpendingPulse, which tracks holiday sales.

A general rule of thumb is that a mall can stay afloat if 30 to 40 percent of its tenants remain in business. But that percentage will have to be higher to sustain those malls that are burdened with debt, such as General Growth Properties, the No. 2 U.S. mall owner.

Reis forecasts that the fourth-quarter mall vacancy rate could top 7 percent, the highest since Reis began tracking regional mall performance in the start of 2000. It sees fourth-quarter mall rents falling by 0.1 to 0.4 percent. All retail properties, not just large malls, may see their rents fall by an average of 3.5 percent in 2008 and 5.5 percent in 2009. Economic vacancy now stands at about 13.5 percent and is expected to peak at 17.3 percent in the third quarter of 2009.

"If it's one of the anchor tenants, typically that has a disproportionate effect on the overall revenue streams of the location given that the anchors are involved in a lot of foot traffic to the center." Bankruptcies among retailers are likely to rise in the first quarter of 2009.

But given the long leases and lengthy process of closing a store and winding down operations, its effect on the mall owners may not kick in until next year and 2010 when landlords are unable to release shuttered spaces.

Readings for the Day

From Big Picture: "If you were dead, they would still give you a loan"

From Big Picture: Words from the (investment) wise 12.28.2008

According to Jeffrey Hirsch, the “Santa Claus Rally” normally occurs during the last five trading days of a year and the ensuing first two trading sessions of the new year. During this seven-day period stocks historically tended to advance (by 1.5% on average since 1950), but when recording a loss, they frequently traded much lower in the new year. Christmas Eve trading on Wednesday marked the start of this year’s Santa Claus Rally period, which ends on Monday, January 5. So far so good, as the combined gain for the S&P 500 Index for the first two days (Wednesday and Friday) was 1.1%.

The debate regarding the outlook for the stock market is still concerned with what represents good value. Comstock Partners comented that the S&P 500’s reported (GAAP) earnings estimate for 2009 had dropped to just over $42. “In the past, secular bear markets troughed at 8 to 10 times reported earnings, NOT operating earnings, which didn’t even exist until 1984. In terms of timing, on average the market bottomed five months before the end of the recession. Therefore the odds are that unless the economy starts to recover five months from the November 2008 bottom, the market decline is not over, although a bear market rally is always a possibility between now and the eventual low,” said Comstock.

Economic Data Next Week

Tuesday: Release of the S&P/Case-Shiller Home Price Index, a manufacturing survey for the Chicago region, and a reading of consumer confidence.

Wednesday: Weekly jobless-claims data, an update on mortgage applications and crude-oil inventories.

Friday: Survey of the national manufacturing sector

Chipmakers Faces more Issues

From Mish: When the chips are down, chipmakers resort to other means

Economic pain that has been hitting the financial economy and the brick and mortar retailers is hitting Silicon Valley as well. Many chip companies are short of cash and layoffs are increasing. Memory chipmakers are among the hardest hit.

Technology companies with headquarters in Silicon Valley -- a corridor of office parks stretching between San Francisco and San Jose -- have announced at least 38,000 job cuts since September. Hewlett-Packard Co., Yahoo! Inc., Adobe Systems Inc., Sun Microsystems Inc. and Palm Inc. are among the firms paring their workforces.

The fourth quarter earnings reports are going to be miserable. If you thought the fourth quarter was bad, wait until you see the first quarter. It's almost always true in the tech sector that Q1 is the worst quarter of the year, and Q4 is the best. This year, it may be that even after an unthinkably bad fourth quarter, the first quarter will be nastier still.

PC and mobile-phone sales could be even worse than most people imagine. Peter Misek, an analyst with Canaccord Adams, last week predicted that '09 PC sales are likely to be down 10%-15%, much worse than the consensus view of down 5%-6%, and that mobile-phone sales are likely to be down as much as 20%, rather than the 4%-6% decline the Street expects.

Some of these companies may be trading at book value, but those book values are falling fast. This recession will be longer and deeper than most think, and "values" are likely to become "bigger values". Caution is in order.