Weekend Reading: This Is Going to Hurt

Welcome to another edition of Weekend Reading. First, a look back at the week that just finished, then a look forward to the week ahead, and then a summary of articles and papers worth reading.

The world will never be the same. We saw the worst week in U.S. stock market history, as the continuing crisis in the credit markets finally leaked over into the broader economy. The Dow has been down for six days straight, and the Dow, S&P 500 and Nasdaq all lost almost 20% on the week. Staggering stuff.

There are so many things going on at once it's almost impossible to know how to draw the threads together. In essence, we are seeing the collapse of a credit bubble that began more than a decade ago, one that goosed asset prices and returns around the world, from housing to financial instruments. The collapse is now causing a dramatic contraction in lending as balance sheets shrink, while investors reconsider the value and solvency of companies overly dependent on short-term debt. The spin-down is global, with Asia, Europe and North America all struggling to work through the carnage. It is destroying retirement savings, companies and banks alike.

Looking forward, there is, perversely enough, a chance we will see a bounce from here, if for no other reason than we have fallen so far, so fast. The markets rarely run in any one direction for too long, even in times of crisis like this. The trouble is, it doesn't feel like the markets have been able to adequately discount the contraction in the global economy. A synchronized recession is almost certainly in the cards, along with a corresponding contraction in corporate earnings leading to wholesale revisions in outlooks and prospects. This is not going to be pleasant, and it is not going be short, especially when you consider we're already a year into it.

Turning to economic indicators, we will see the producer price index for September and retail sales, also for September, on Wednesday; the Federal Reserve's report on industrial production and capacity utilization, along with the Philadelphia Fed's October business survey Thursday; and the Reuters/University of Michigan consumer sentiment survey Friday. All almost certainly will be negative, some very much so.

As for earnings, we will see reports from financials and technology companies including JPMorgan Chase(JPM Quote), Citigroup(C Quote), Capital One(COF Quote), Intel(INTC Quote), Google(GOOG Quote) and eBay(EBAY Quote). The guidance will, as ever, be key, with solid guidance doubted, and weak guidance sold. I'm also expecting a blizzard of layoff news from major companies.

Finally, here are some articles and papers worth reading:

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• European Union to guarantee interbank lending. (MarketWatch)
• The new age of frugality. (BusinessWeek)
• Barron's has great interview with GMO's Jeremy Grantham. (Barron's)
• Those With Sense of History May Find It's Time to Invest. (The New York Times)
• As Larger Banks Crumble, Local Firms See Rush. (The Washington Post)
• Financial crisis: Government to take majority stake in Royal Bank of Scotland(RBS Quote). (Telegraph)
• Sun Microsystems(JAVA Quote): A Lesson in Failed Cosmetic Surgery. (The New York Times)
• The U.S. as a power that may not stay so super. (The New York Times)
• MBA finance students keep their job hopes alive. (The New York Times)
• The lagged relationship between real estate declines and property taxes. (Federal Reserve Board)
• Will Asian financial centers overtake Wall Street? (Christian Science Monitor)
• State to save HBOS and RBS. (Times of London)
• Dollar: the unlikely beneficiary of deleveraging. (Fortune)
• How GE Capital puts all of GE(GE Quote) at risk. (Fortune)
• Europe readies action plan to avert global crisis. (Reuters)
• What comes after the Great Unwinding? (Reuters)
• The Next Meltdown: Credit-Card Debt. (BusinessWeek)
• CBS(CBS Quote) Writes Down $14B; Viacom(VIA-B Quote) Sees Global Ad Revenue Decline. (Advertising Age)
• Insecure Minds Wired for Pattern-Finding. (Discovery News)
• Wells Fargo's(WFC Quote) big gamble on Wachovia(WB Quote). (Forbes)
• When fortune frowned: A special report on the financial crisis. (The Economist)
• What a U.S. default might look like. (Satyajit Dayas)
• Market meltdown thwarts state's ability to borrow, pay bills. (Boston Globe)
• Deposit insurance around the world. (OECD)
• Global Business Cycles: Convergence or Decoupling? (NBER)
• London's gathering financial storm. (Time)
• Lehman: One Big Derivatives Mess. (BusinessWeek)
• Japan to contribute foreign reserves to global bailouts. (Bloomberg)
• Understanding how the Icelandic meltdown happened. (Times of London)
• Nassim Taleb on the trouble with economists and risk models. (YouTube)

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting