Some Thoughts to Start the Week

Last Friday, Goldman Sachs said it estimates that fourth-quarter GDP will be off 5%. That's the most pessimistic I have seen and would rank as one of the worst quarters since World War II. There have been some 250 or so quarters since the end of the war, and only 11 of them have been a negative 4% or lower. The all-time baddie was the first quarter of 1958, when the GDP fell 10.4%. Supporting the dire outlook was a report on Friday from the Bureau of Labor Statistics stating that 12 states reported a rise of at least 2 percentage points in unemployment the past year.

The situation is no better in Europe. The eurozone's Purchasing Managers Index dropped on Friday to the lowest level in 10 years. That indicates fourth-quarter GDP will be negative. That would be on top of two consecutive negative quarters and keep Europe firmly in recession. Claude Trichet, the head of the European Central Bank, sounded disconnected when he said the data came as no surprise. Lower rates are badly needed, and I'm hoping the ECB responds quickly. The central rate in Europe is still 3.25% against 1% in the U.S., and it looks like we will lower that soon.

The savings rate in the U.S. averaged 9% from 1950 to 1985, when it began a steady decline. Last year it was essentially 0. The economists at JPMorgan figure it will go to 4.5% by the end of next year. I'll bet it goes higher sooner. The price of gas nationwide is now around $2 a gallon after more than $4 earlier this year. I have seen different estimates, but most cluster around the American economy saving $1.3 billion to $1.4 billion for every penny decline in gas. That would approach a savings of $300 billion. Because retail sales have been terrible and retail companies are all guiding projections lower, it would make sense that the consumer is saving the "windfall" and not spending it. I would expect the savings rate to soar. Since consumer and mortgage debts are now 127% of disposable income (according to The Economist magazine) vs. 77% in 1990, it is long past the time to start saving again.

Friday was the first day banks could offer debt guaranteed by the federal government under the "Temporary Liquidity Guaranty Program." Goldman Sachs (GS - commentary - Cramer's Take) is ready to issue some debt, and JPMorgan (JPM - commentary - Cramer's Take) filed the initial paperwork. Hopefully this indicates they have demand for the money and the proceeds of the debt offerings will be loaned out -- hopefully. Oddly, and encouragingly, Fannie Mae (FNM - commentary - Cramer's Take) and Freddie Mac (FRE - commentary - Cramer's Take) debt traded better on Friday even though they have only an "implicit" guarantee, not "explicit," as this new bank paper will. Fannie Mae paper traded 158 basis points over Treasuries, which was a bit better than the day before but still way off the 45-basis-point average of 2007.

Also, the FDIC approved the first "conditional bank charter" to a group headed interestingly by a guy named Gerald Ford. Recipients of these charters will be allowed to buy failed or troubled banks. This one has flown under the radar but sounds like a good idea and a way to get new investors into the bank community.

---

Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.