Stocks Holding to Positive Route

Steven Wieting, economist at Citigroup, wrote in an email that consumer spending for the third quarter dropped 3.1%, the biggest drop since 1980. Declines in production and employment, coupled with tight credit markets and wealth destruction indicate that GDP may decline more than 3% for the fourth quarter, he wrote.

However, "Assuming some easing in extraordinarily tight credit markets, we may currently be experiencing the worst pace of contraction in domestic economic activity overall," he wrote.

On the other hand, Bill Fleckenstein, hedge fund manager for Fleckenstein Capital, said he expects to see a sustained contraction, because many companies have said that business has dropped off significantly. "The psychological sea change that's taking place isn't being captured by these numbers. ... We are going to have a brutal recession. That cannot be changed."

In terms of government intervention, "From a balance-sheet standpoint, the country's kind of broke, said Fleckenstein. He said that continued efforts to prop up housing prices is a failing undertaking, and that, given a limited set of options, the government would be better served funding infrastructure and energy projects to alleviate unemployment and reinvigorate the economy.

Additional government efforts to bolster the economy looked to be in the works, as Bloomberg reported that the Treasury Department and the Federal Deposit Insurance Corp. may devote $500 billion to help avert home foreclosures.

Meanwhile, in the wake of the Federal Reserve's 50-basis-point rate cut that brought its target interest rate to 1% Wednesday, debt markets were relaxing. Three-month dollar Libor was down 23 basis points to 3.19%, and overnight Libor declined 41 basis points to 0.73%.