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One of the ironies of public officialdom is that those elected officials who deal with budgets and tax policy rarely fully grasp the economic sea changes when they occur in the nation.

Whether it's due to habit, tunnel vision, groupthink, arrogance, ignorance, surrounding yourself with sycophantic staff, or some combination, congressional lawmakers are often the last to notice economic shifts that occur cyclically.

January 2009: A new era begins?

One of the key economic questions for investors and other stake holders is whether President-elect Barack Obama follows through with his campaign promise to be an eclectic, someone who tries a center-left policy here, deploys a center-right policy there because it works, and who does not implement typical party -- or partisan -- responses to problems; i.e., solutions from traditional sources of power in his party.

But an even more-telling economic question concerns what the Republicans will do. In November 2008, the Republican Party suddenly found out that it was very white, male, old, Protestant, and by-and-large economically and fiscally conservative. The aforementioned guarantees in the years ahead that they'll hold at least 20 or 25 Senate seats in a chamber of 100, and if they're not careful, about the same percentage of House seats. Meanwhile, the nation's electorate is increasingly nonwhite, female, younger, non-Protestant, and by-and-large economically and fiscally moderate, and in some cases, liberal/progressive.

To look at it optimistically, it's a period of risk aversion.

Economists, business executives, analysts, and certainly employees are hoping it doesn't become an 'era of risk aversion' - - a longer period where businesses shun expansions and new projects, and investors avoid stocks.

Further, the risk-aversion theme is prompting investors large and small to flock to the 10-year U.S. Treasuries bond, also called 10-year notes, the yield for which was 3.05% on Friday at mid-day. (Bond prices move in the opposite direction of yield. Hence, when demand is strong, such as now, a rise in bond prices pushes their yield lower.)

Moreover the 10-year yield is likely to fall further in the next two quarters, as more investors flock to safe investments amid the U.S. recession, so says economist Richard Felson.

"We're seeing the value of safety come to the forefront. In this climate, investors don't care about yield, their primary concern is capital preservation," Felson said. "And despite the increase in debt the United States is likely to record over the next two years, the lowest risk investment remains U.S. Treasury notes. It's quickly becoming a sort of electronic mattress, the way savers used to store money in mattresses decades ago. Investors are saying, 'Here, take my money and store it until conditions improve.' "

One theory about a recession is that people will not buy cars or refrigerators, but they will buy beer, razors, soap and books. If you can't ride around in a new Chevy, at least you can read about someone who is.

That theory went out the window, at least in part, when Barnes & Noble (NYSE: BKS) said its same-store sales were down -- a lot.

Last year, the nation's largest book seller made a little money in the quarter ending November 1. It was a very little, $4.4 million. This year, BKS lost $18.4 billion as same-store sales fell 7.4%. Barnes & Noble also dropped its forecast for the next quarter.

The BKS earnings news is particularly bad as the holiday season begins. Companies that sell discretionary items for under $30 have probably hoped that they would benefit, perhaps only modestly, from consumers looking for relatively cheap gifts for grandpa and the kids.

Even cheap is looking expensive this holiday. Although there is Barnes & Noble stock. It is only $12.25 a share.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Bloomberg is reporting that the global banking industry could lose 350,000 jobs by the middle of next year. That would be about 20% of the employees in the sector.

That level of unemployment represents an almost unimaginable human tragedy and one that might have been avoided in part if management at large financial house had not bet the bank on mortgage derivatives. But, that is water under the bridge.

The question which gets begged is where all of those people will go. Many bankers are not qualified for other high-paying jobs, which means they will stay unemployed for long periods or will face having to take significant cuts in their incomes. Either way, the shift will take a large toll on government services such as unemployment benefits. Let's not forget the lost taxes.

The destruction of the banking industry is a microcosm of what many happen across sector after sector if the recession bites hard. Autos may be the next domino to fall, but retail and hospitality won't be far behind it. Suddenly hundreds of thousands of jobs become millions, and, if things get especially bad, tens of millions.

Financial services is the canary in the coal mine. If the industry cannot fine some employment equilibrium it is bad for everyone.

Douglas A. McIntyre is an editor at 24/7 Wall St.

From a macroeconomic standpoint, the fiscal stimulus package can't get passed soon enough.

The Conference Board's index of leading economic indicators (pdf) fell 0.8% in October, with six of 10 components dragging the index lower. Economists surveyed by Bloomberg News had expected the LEI index to decline by 0.6% in October.

From April-October 2008, the leading index declined 2.4% or a negative 4.7% annual rate, compared to a 1.2% decrease or a negative 2.3% annual rate over the previous six months, the Board said.

Economist Richard Felson told BloggingStocks Thursday the October LEI data documents what many on both Main Street and Wall Street sense: economic conditions are worsening.

"The LEI data shows an economy that's slowing. The recession is getting worse, so look for more of the same regarding job lay-offs and downsizings, as well corporate revenue and earnings declines, and earnings guidance reductions," Felson said. "As it stands now, the economy is likely to remain in recession through at least end of the second quarter of 2009, which points to the need for federal fiscal stimulus, and other measures. The individual states are doing what they can to increase private sector demand, but many are cash-strapped themselves, facing budget deficits."

When the Federal Reserve cut interest rates by 50 basis points in October, the board members clearly expected to need further cuts, based on the minutes of their Oct. 28 and 29 meeting that were released yesterday. When looking at the October minutes, you can see there was much more diversity in opinions than in June, but that diversity was centered around how bad things would get. No one sees significant improvement any time soon.

The market expects a rate cut of 50 basis points when the Fed meets December 16. Given the continued gloomy picture, I'm not sure why the Fed is not already cutting rates more aggressively and possibly all the way to zero. The only problem is once they get there, they have nowhere left to go.

The Fed does project unemployment rates to reach 6.3 to 6.5 percent in 2008, which we've already reached. The Fed thinks the unemployment rate could go as high as 7.6 percent next year and then begin to drop in 2010 with an unemployment rate of 6.5 to 7.3 percent. In fact, some at the Federal Reserve board meeting think unemployment could go as high as 8 percent in 2009. Some think we'll start seeing signs of recovery by mid-2009, while other Federal Reserve board members think there will be a longer period of economic weakness.

In his 30 years studying economics first in China, then since 1989 in the United States, economist David H. Wang has seen it all.

Or at least he thought he had seen it all, he said.

Oil: a $100 plunge

"Oil is just about set to total a $100 fall in less than five months, which is unbelievable. It's hard to fathom," Wang said.

But, if oil, which dropped $3.41 to $49.91 early Thursday, falls $2.64 more, it will have recorded the mind-boggling $100 plunge Wang spoke about.

Oil hit a record high of $147.27 per barrel in July on what analysts then largely argued was an inability of global oil supply to keep up with oil demand growth in Asia, stemming from surging emerging market GDP growth.

However, what we now know, with the advantage of hindsight, Wang says, is that the truly ridiculous $147 price for oil this summer was fanned primarily by a liquidity bubble - - in the form of dollars and a low-interest yen deployed to commodities by institutional investors, among other oil market players. Oil demand played a role, Wang added, "but not to the degree that excess liquidity did, chasing a high-return asset [oil]. Likewise with the weak dollar."

Once again, Dow 8,000 has come back into focus.

For those investors who may not follow indices closely, the 8,000 level has a psychological but not technical support, the latter of which measures such things as the number of investors who are buying / selling, whether investors are committing more money to the market etc.

Even so, right now, a battle is taking place between the bulls and the bears: the bears argue the worst economic news stemming from the financial crisis is yet to come; the bulls argue that the worst news is behind us, and that government stimulus, fiscal and monetary, will get the U.S. economy moving again.

The Dow Jones Industrial Average Wednesday closed below 8,000 at 7,997. If the bears can keep the Dow below 8,000 and then push it through 7,800, then 7,600, it will not be a pleasant time for investors.

Let's do a condensed, cross-methodology analysis to see if we can arrive at an informed investment decision / conclusion regarding where the Dow is headed, near-term.

The case for a large fiscal stimulus package has received a shot in the arm, but as with so many economic developments during this decade, there's an upside and a downside.

A group of about 100 CEOs has urged President-elect Barack Obama to "quickly implement" a stimulus package of roughly $500 billion. The CEOs said the package should emphasize investment in infrastructure, including roads, bridges and other construction, as well as alternative energy projects. Their second priority: improving education.

Economist David H. Wang has extracted positive and negative threads from the CEOs' statement.

"On the one hand, the added CEO support will be welcome, I am sure, by the Obama Administration, as it builds the case for its stimulus package," Wang said.

"On the other hand, the fact that CEOs are calling for government spending, which is not a traditional CEO stance, tells you about the seriousness of our economic problem," Wang said. "The U.S. economy is in rough shape and there are few signs of improvement."

The market continues to jump around wildly. Investors are sitting on the sideline waiting for the volatility to end. And they will have a long wait.

For those looking to make money in the craziness, trading is the way to go. Daily fluctuations in the market provide fertile ground for profits. In fact, success in this environment can result in a year or more of gains made in one or two days.

That may make little sense, but there is no sense in debating the reality that we now face. At the moment that reality is based on an economy that is sinking and sinking fast. Despite the best efforts of the central bank and the federal government, a long recession is now baked into the cake.

What does that mean for stocks?

It means volatility and uncertainty will rule the day. There is very little clarity in the market, and even the best at forecasting are having difficult viewing the crystal ball.

Hewlett-Packard's (NYSE: HPQ) news yesterday was a fresh reminder of that uncertainty. The company offered a preview to fourth-quarter results, ended Oct. 31, that defies gravity. At a time when every other company seems to be offering lower and lower guidance, HPQ came in and boldly stated that revenue and earnings will be greater than expected.

Recently, various writers have been alluding to Terry Pettijohn's now-mythical survey of the relationship between Playboy Playmates and the economy. Pettijohn's argument is that, as times get tougher, male concepts of beauty shift toward more mature, stable-looking women who are older, taller, and less curvy. Conversely, in boom times, the woman of choice would be shorter, younger, and more hourglass-shaped.

While my knowledge of Playboy Playmates was once disturbingly encyclopedic, I have to admit that I have been out of the game for quite some time now. That said, I'd have to question Professor Pettijohn's methodology, if only for the fact that the Playboy ideal has shown far less fluctuation over the years than society at large. To put it bluntly, many of the heroin addict-thin models that grace the pages of women's fashion magazines would never be allowed within arm's length of a Playboy pictorial. Like the Rockettes, Playmates have traditionally remained within a comfortably healthy median, neither ballerina scrawny nor fully zaftig.

Now, arguably, there could be some comparisons drawn between economic boom/bust cycles and the shapes of women's bodies. Certainly, the androgynous flapper look of the 1920's, the Twiggy look of the 1960's, and the starvation victim/heroin addict look of the late 1990's/early 2000's are somewhat comparable. Similarly, the hourglass 1940's, 1950's, and 1980's have similar style cues. While it would be silly to take these comparisons to extremes, fashion goes in cycles, and those cycles overlap somewhat with the economy. However, this is far from a direct confluence; the 1930's look, for example, was still boyish, and our current ultra-thin look has been developing for quite some time.

When is a near double-digit decline in home prices viewed as a small victory? When you're the United States in late 2008 -- a nation grappling with its worst housing slump in decades amid signs of a deepening recession.

U.S. median home prices fell 9% in Q3 compared to a year earlier, to $200,500, the National Association of Realtors announced Tuesday. Prices fell in 120 U.S. metro areas, rose in 28 and were flat in four.

California registers major declines

The largest decline in home prices occurred in California: the Riverside-San Bernadino area recorded a 39.4% decline, to $227,200; the Sacramento area, a 36.8% decline to $212.000; and the San Diego area, a 36% plunge to $377,300.

At the other end of the spectrum, prices rose 12.5% in Elmira, N.Y, and 8.7% in Decatur, Illinois.

Economist Peter Dawson said today's NAR statistics represents more, sobering data from the housing sector, but in the broader context the report is not as bad as the quarterly data implies.

"We're down 9%, but it's less than what most feared, so that's a positive development, sort of," Dawson said. "We've experienced so many jolting, double-digit price declines in home prices and other negative stats from the sector that anything less than the truly abysmal looks modest, and that's the case with the Q3 NAR data."

Medtronic (NYSE: MDT - option chain) shares are way lower today after the company posted a second-quarter profit of $571 million, or 51 cents per share. The company's adjusted profit of 67 cents per share missed analysts' estimates of 71 cents per share. MDT also lowered their fiscal-2009 EPS forecast by about 3% on both the high and low ends. None of this is helping the stock today. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MDT.

This morning, MDT opened at $34.49. So far today the stock has hit a low of $31.25 and a high of $35.48. As of 12:30, MDT is trading at $32.24, down $4.18 (11.5%). The chart for MDT looks neutral and S&P gives MDT a 3 STARS (out of 5) hold ranking.

For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $42.50 range.

Yet another milestone has been reached in the ever-evolving global economy: China has passed Japan to become the largest foreign owner of U.S. Treasuries, the U.S. Treasury Department announced Tuesday.

China added $43.6 billion in U.S. Treasuries in September to about $585 billion in U.S. government debt, ahead of Japan's $573 billion.

Economist David H. Wang says the increased demand for U.S. Treasuries reflects both a global trend and an effort on China's part to increase high-rated bond holdings.

"In general, of course, during the financial crisis we've seen a global flight-to-safety by institutional investors, which has increased demand for U.S. government bonds," Wang said. "Also, China has made it known that it will be adding to existing U.S. bond positions, and the September data is further confirmation of this investment stance."

That global demand, led by China, has enabled the United States to have perhaps the most unique of all possible financing circumstances: moderate interest rates to finance its debt despite rapidly increasing borrowing to pay for the U.S. bank rescue and related financial stabilization programs, Wang said. For example, despite record government borrowing, the yield on the 10-year U.S. Treasury note is lower today, at 3.68%, than it was in August, 3.88%.

Shares of tech giant Hewlett-Packard (NYSE: HPQ) are getting a nice lift today after the company surprised Wall Street by lifting its fourth quarter estimates this morning.

Before today's announcement, analysts had been expecting the company show earnings of $1.00 a share when it announces its official numbers next Monday (Nov. 24), but the company stated today it is now expecting to show adjusted earnings of $1.03.

The decision to lift its forecast has resulted in some nice gains for HPQ shareholders today, as the stock has traded up 10.5% to $32.41, and earlier in the session hit an intraday high all the way up at $33.84.

According to today's announcement, the company is benefiting from "global reach, diverse customer base, broad portfolio and numerous cost initiatives."