The Coming Week: Old Enemies

In early 2006, General Motors (GM Quote) and Ford (F Quote) are both planning tens of thousands of job cuts as their market share in North America continues to decline. Automakers are scheduled to report December sales of cars and trucks on Wednesday, with more market share losses for Detroit expected.

There have been other rumblings of job cuts in places like the media industry, where Time Warner's (TWX Quote) magazine publishing unit has announced reductions along with newspaper companies like The New York Times (NYT Quote).

Wage growth also has been stagnant, suggesting the economy is not yet out of the woods on the employment front. Meanwhile, markdowns were the rule for retailers in a cost-conscious holiday shopping season. Consumers could finally be ratcheting back on their spending as the wave of home refinancings dissipates, interest rates rise and gas prices remain high.

On the other hand, low prices for laptops and flat-screen TVs are keeping inflation worries at bay. While the 17% rise in oil prices this year has goosed the headline number on the government's consumer price index, core inflation, which excludes volatile food and energy prices, appears to be tame. Still, skeptics point to gold prices, which have soared above $500 an ounce this year, as an indication that inflation is brewing.

Crude oil futures at $60 a barrel remains another headache for investors. Mendelsohn pointed out that oil prices above $35 a barrel portended a recession in the 1970s, the 1980s, the 1990s and early in this decade.

"The way the Fed overcame that this time around was that they added so much liquidity to the system as oil prices rose, they sort of delayed any recession by using monetary policy to overcome the drag of high oil prices," Mendelsohn said. "Now, we're at a critical focal point, because oil is at $60, but the Fed is clamping back on liquidity, so you need one of two things to happen. You either need oil to come down to compensate, or you need [the next Fed chairman, Ben] Bernanke, to step on the gas pedal as the economy slows to reaccelerate it by bringing rates down again."