Economic Summary 10th Jan 2008

In another day with no major economic releases, the markets spent a good part
of the trading session worrying about just how bad next week's Q4 earnings
reports will look. But equities turned higher in the middle of the afternoon,
encouraged in part by Berkshire Hathaway's announcement that it may invest in
municipal bond insurers. Treasuries peaked about the same time equities
bottomed out and closed the day with losses across the board. The foreign
exchange value of the dollar rose.

The Mortgage Bankers Association's weekly mortgage applications index for the
week ended January 4 surged by some 32%, breaking a three-week string of
declines. The purchase index rose 15%, and the refinancing index shot up by
54%. Mortgage applications probably overstate the underlying demand for
housing since mortgage brokers are submitting multiple applications in the
face of tight lending standards. Also, these data, while seasonally adjusted,
are particularly volatile around the holidays.

Economic Outlook

Initial claims for unemployment insurance for the week ended January 5 are due
out at 8:30 (Consensus 340k). While initial claims are slowly trending higher,
continuing claims for unemployment insurance are particularly concerning. The
latest four-week average reading of 2.7mn was the highest for continuing
claims in over two years. The data suggest that those who are already laid off
are having trouble finding new jobs.

Little attention will likely be paid to the November wholesale inventories
release at 10:00 (Consensus +0.4%). Wholesale inventories are a componenet of
business inventories, which will be released on January 15. In general,
inventory accumulation probably provided less of a boost to GDP growth in Q4
than it did in Q3, and we forecast it will subtract from growth throughout the
first half of 2008.

Market Summary

St. Louis Fed President Poole, a nonvoting member of the FOMC this year, said
that "the uncertainties are probably greater" for growth than for inflation,
and he added the risks of a recession are "high enough to worry about."
Tomorrow, Fed Chairman Bernanke will speak at 1:00 about the economic outlook.
We expect that his comments will also signal the Fed's concern about a more
pronounced slowdown in growth than expected.