This past week, jobless claims in the U.S. soared as they always do after the holiday season. For the week ending Jan. 10th, initial jobless claims were 524,000, up 54,000 from the prior week. However, this figure is completely distorted by seasonal factors. Underneath lurks a wave of flings. The unadjusted real figure was 952,151, the 4th highest ever. The only other times we have seen more jobless claims was in 1975, 1982, and 1983 following the holiday season. Do not be deceived by sloppy reporting from the mainstream media that focuses on the seasonally-adjusted numbers.

In my book, losing a gargantuan $125 billion qualifies you as the dumb money. This appears to be what has happened at Abu Dhabi’s leading Sovereign Wealth Fund.

I had been warning all throughout 2008 that the Sovereign Wealth Funds were making a big mistake in buying stake in western financial services companies. Now, they are paying the price.

The European Central Bank cut its benchmark rate 50 basis points (0.50%) to 2% because of weakness in the Eurozone. While a cut was widely anticipated, it was not known whether the ECB would cut 25 or 50 basis points. However, the cut of 50 basis points ended up confirming the prevailing view that the ECB is behind the curve. As a result, the Euro weakened against the Japanese Yen and the U.S. Dollar.

JPMorgan Chase moved up its earnings announcement to today in order to surprise the market with better than expected earnings. The company reported full-year income of $5.6 billion and 4th-quarter income of $702 million or $0.07 a share, beating consensus estimates of $0.01 a share. You should note, these numbers do not include the estimated $31.2 billion of writedowns associated with the Washington Mutual transaction. But, folks, for banks, this is as good as it gets.

The statements coming from Meredith Whitney in this video interview with CNBC’s Maria Bartiromo could not be more blunt: the financial serves sector is weak, needs bailout money and investors will be diluted. As a result, she expects selling pressure to continue. She also mentions that a number of shotgun weddings are likely in order to stave off bankruptcy amongst weaker firms – the unstated quid pro quo obviously being bailout money for the acquirer.

This is a very good video to get a broad sense of the state of financial services.

Earnings season is upon us and I think it bears remembering that earnings season for banks has generally been associated with very bad news for banks over the past two years. Every earnings season is filled with surprise writedown announcements and capital shortfalls in the banking sector. We should expect this earnings season to be no different.

As you know from reading my blog, I am expecting a lot of writedowns from regional banks as real estate loans sour.

In fact, I expect a number of bankruptcies because of defaults in commercial real estate where much exposure is hidden. Below is a clip of Bain Slack of Keefe Bruyette & Woods, who has a few words to say about the regionals, especially in the Southwest.

Take a look.

With the economy weakening significantly around the globe, the budgets of sovereign nations are coming under increased pressure. As a result S&P has put a number of countries under review for potential credit downgrades. However, now, the first actual cut is in: it is Greece.

Ambrose Evans-Pritchard has picked up on the decline in trade flows that many have highlighted in recent months. This time, he looks at European-Asian trade flows and sees some major problems.

Let’s get right to the heart of things. It’s the credit writedowns. They are coming and they are large.

First, is Deutsche Bank coming in with a 4.8 billion Euro loss for the quarter. That’s massive. The word on the street is that Deutsche will get a bailout from the German government much as Commerzbank did. That may be one reason the Germans have taken their head out of the sand on stimulus. German banks are not looking so good. And, remember, Deutsche has HUGE U.S. commercial real estate exposure. So there’s more to come.

Then, there’s HSBC, they have glided along serenely since stating the credit writedown daisy chain back in February 2007, almost two years ago. Again, the word on the street is that there’s more of that coming. They may need as much as 30 billion in additional capital. Now, if the two best banks are in trouble in the UK, what do expect we’ll see at the likes of RBS, the world’s largest bank by assets. Lloyds is almost half-owned by the government and HSBC needs to top up capital by 30 billion, you start to realize that Iceland is not the only country with an outsized banking sector.

You’ve got Ireland and Switzerland with the exact same problems. And the Eastern European losses are going to come to Austria, Denmark and Sweden as well. So, Europe’s banks are looking very weak right now and that is going to depress shares across the board.

As for other news, read the links below and see the news feed for additional takes.

Cheers.

Ed