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

It was a wild week near the end of a wild month. Stocks started out the week with big gains but then sold off, ending with a Friday that initially felt like it might parallel the crash of '87. For the five days, the Dow lost 5.3%, the S&P 500 was down 6.8% and the Nasdaq fell 9.3%.

Things are set to change, because markets have finally wrapped their heads around four facts:

  • The U.S. economy is in a serious recession.

  • The world is going into a synchronized recession.

  • Commodity prices are in free fall.

  • The banking system won't fail.

The debate is now about the timeline and severity of these factors. In other words, people are asking how many banks will fail, when commodity prices will bounce back and how many more sovereigns are going to get smacked. Having at last accepted what is going on, markets are trying to look through the current crises and see how bad things will be, and how long they will remain that way. The bulls will say we have troughed, and the bears (or at least those who have not recently turned bullish) will say we haven't hit bottom yet. That is the narrative ahead.

My take is that there is much more pain ahead. Unemployment is almost certain to peak at close to 10% in the U.S. by 2010, there will be many more company failures and the recovery will be slow given problems in export markets everywhere (except maybe Ghana). But markets want to rally, with nothing ever happening in a straight line. All else being equal, once we exit the current fourth-quarter earnings season, and even perhaps before then, it wouldn't surprise me at all to see a rally to higher levels. That rally will be challenged by multiple events, including defaults and weak earnings. But it could run well into the fourth quarter. That is when things will get challenging again, as the "we didn't die!" trade likely will expire, economic data will look grim and prospects for recovery before the end of 2009 will dim.

Turning to economic indicators, next Thursday we will see the advance report on U.S. third-quarter GDP, and it will almost certainly show a negative number, perhaps -0.5% or lower. In other news, we will see data on new home sales, consumer sentiment, plus home price data, durable goods orders and the latest on personal income and saving. The Fed will also meet next week, and a rate decision will come Wednesday afternoon, with most expecting a 50-basis point cut to 1%. Both Fed Chairman Ben Bernanke and San Francisco Federal Reserve Bank President Janet Yellen will be speaking next week.

As for earnings, there will be oodles of third-quarter results next week from companies including Exxon Mobil ( XOM), Chevron ( CVX), Verizon ( VZ), Kraft Foods ( KFT), Procter & Gamble ( PG), MetLife ( MET) and United States Steel ( X).

Finally, here are some articles and papers worth reading:

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  • Investment banks are finally looking forward to work -- albeit in troubled company restructurings. (IDD)
  • Barron's picks convertible securities and Foster's, and pans autos. (Barron's)
  • Financial Meltdown Worsens Food Crisis. (The Washington Post)
  • Changes to accounting rules may put securitized assets back on bank balance sheets. (CFO.com)
  • Canadian dollar poised for quick recovery. (Globe and Mail)
  • Despite it being a far-from-sure bet historically, investors continue to move to physical gold. (The Washington Post)
  • Determinants of house prices in nine Asia-Pacific economies show some bubbles. (Bank for International Settlements)
  • TV Prices Falling Faster. (The New York Times)
  • Vanguard's John Bogle on the long view. (The New York Times)
  • Cheaper colleges and universities are seeing big surges in applications. (The New York Times)
  • Donald MacKenzie revisits his great "Why Libor?" article. (London Review of Books)
  • The U.S. added more in oil reserves last year than there was production. (EIA)
  • Guy Hands in £1.2bn Infinis wind power bid. (Times of London)
  • De-leveraging has no fairy tale ending. (Satyajit Das)
  • Credit crunch darkens solar's prospects. (Fortune)
  • Five reasons to buy Yahoo! (YHOO) stock. (Fortune)
  • MasterCard (MA) takes on Visa (V). (Fortune)
  • Economy, election worries follow visitors to Vegas. (Reuters)
  • Central banks around the world poised to act (again). (Reuters)
  • Fed questions counterparties about Citadel. (Reuters)
  • China's economy sound, but challenges loom -- Zhou. (Reuters)
  • With insurers abandoning fire-prone California, the state is stepping in as insurer of last resort. (Los Angeles Times)
  • Long-time bear Andrew Smithes newly (mostly) likes stocks. (Forbes)
  • Emerging markets in trouble. (The Economist)
  • Europe on the brink of currency crisis meltdown. (Telegraph)
  • World's biggest hedge fund restructures amid turmoil. (Telegraph)
  • GLG chief Emmanuel Roman warns thousands of hedge funds on brink of failure. (Telegraph)
  • Leading economists are smart, but not as smart as they think when it comes to preventing Depression 2.0. (The New York Times/Mankiw)
  • How RealtyTrac is booming amid the real estate bust. (Time)
  • What Happened to the Quants in August 2007?: Evidence from Factors and Transactions Data. (SSRN)
  • Burlington Northern (BNI) and the Revival of Railroads. (BusinessWeek)
  • Volvo truck sales plunge 99.7%. (thisismoney)
  • Was globalization the biggest bubble of them all? (Bloomberg.com)
  • Latest U.S. monetary trends are eye-popping. (Federal Reserve)
  • Markets look set to rally, but ultimately lower lows may be ahead. (The Wall Street Journal)

RealMoney Barometer Poll
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?
3 Which of these sectors do you think is set to move down in the coming week?


View the results without voting
At time of publication, Kedrosky had no positions in stocks mentioned, although holdings can change at any time.

Dr. Paul Kedrosky is a former highly ranked sell-side technology equity analyst, and he currently runs a technology finance institute at the University of California, San Diego. He is also a venture partner with Ventures West, an institutional venture capital firm with more than $400 million under management. He maintains a widely read blog called Infectious Greed.

Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Kedrosky cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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