CHESSNOID

Many companies are starting to make forecasts in the business they are in to brace investors for a possible slowdown in their respective industries. A major US company Merrill Lynch has announced that our economy is officially in a recession, which made Lehman Brothers make a rebuttal statement that we are not.

The feared recession in the US economy has already arrived, according to a report from Merrill Lynch.

It said that Friday’s employment report, which sent shares tumbling worldwide, confirmed that the US is in the first month of a recession.

Its view is controversial, with banks such as Lehman Brothers disagreeing.

But a reserve member of the committee that sets US rates warned that it could do little about the below-trend growth expected in the next six months.

I am not sure why this would really bother any company when it is plain to see we are progressing through some tougher times that is looking like a recession. Gold hit an all time high today, crude oil is about $100 a barrel, and many CEOs are getting the axe for poor performance or big losses at their respective companies.

Many investors are excited to see more rate cuts up ahead caused by certain housing reports indicating pending home sales slip. This seems to be short term enthusiasm disregarding all the other reasons why the economy is sliding into a recession. Many major home builders are still going to be reporting bigger losses in the near future.

KB Home is not the only builder to be hit by large charges due to the downturn in the housing market. No. 1 builder Lennar (LEN, Fortune 500), as well as No. 2 Centex (CTX, Fortune 500), No. 4 Pulte Homes (PHM, Fortune 500) and No. 6 Hovnanian Enterprises (HOV, Fortune 500), all reported bigger-than-expected quarterly losses due to such charges.

While No. 3 builder D.R. Horton (DHI, Fortune 500) reported a smaller-than-expected loss in late November, that followed a quarter with a loss that was much wider than forecast. In December, luxury home builder Toll Brothers (TOL, Fortune 500) posted its first loss in 22 years as a public company.

Another part of the banking industry which will be hammered this year and has yet to really become a regular news headline is the consumer credit card debt that will crash harder than the housing bust. Many people have credit cards and many people will live off of them during tough times just to make ends meet. When a majority of card users start defaulting at the same time, the banks will be hurting and will write even bigger losses. According to CNN.Money:

Economists believe that consumers are being forced to rely more heavily on borrowing on their credit cards with the collapse of the housing market, which has depressed home prices and prompted banks to tighten up on lending standards for mortgages and home equity lines of credit.

The five-year housing boom had prompted a lot of homeowners to refinance their mortgages and take out home equity lines of credit to take advantage of the surging values of their homes – a boom that is being reversed in many parts of the country by the current housing slump.

The overall increase left total consumer credit at a record $2.51 trillion. The Fed’s credit report tracks all debt not secured by real estate meaning that mortgages, a big chunk of the debt load carried by most households, is not covered.

I am guessing the stock market will dip again before bouncing back up tomorrow, but the trend this week will be downward just based on the news stories being dominated by economic ones.