Less Than Surprising

BY MICHAEL PANZNER | december 3, 2009

According to the Institute for Supply Management, economic activity in the non-manufacturing (i.e., services) sector shrank in November. While the news unsettled economists and Wall Street strategists, who’ve been focusing on ivory tower theories and the spin coming out of Washington, those who’ve been paying attention to what is actually happening on the ground were not surprised.

In fact, based on the (admittedly short) history of the ratio of the services index to the manufacturing index, one might even conclude that both measures -- along with the overall economy -- are poised for another big leg down.



If and when things do fall apart, it will no doubt provoke another round of bloodletting for the corporate sector, especially the beleaguered financials. Since the crisis began, banks and other financial institutions worldwide have written off or lost a staggering $1.7 trillion, though that has been partly cushioned by capital-raising to the tune of $1.5 trillion. However, that $200 billion differential -- which doesn’t include losses for the current quarter, among other things -- could easily expand to far more worrying levels amid a renewed downturn in the economy and an abrupt return to reality in the equity market.



All eyes were on Washington today, where the Senate Banking committee was considering Ben Bernanke’s nomination for a second four-year term as Federal Reserve Chairman. The hearing is a prelude to a vote by the full Senate, which is expected to take place sometime before Christmas. While most commentators expect Bernanke’s tenure to be extended, polls suggest that a growing number of Americans are losing confidence in “Helicopter Ben.â€