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The US markets did have a furious rally, rising 11% on major indexes. Overnight, Japan's Nikkei was up over 14%. The move to put money into banks and credit markets appears to be working.

But, don't forget the recession, which many economists see lasting longer than any downturn since 1974. Unemployment went to nearly 9% then. That is about 50% higher than the current 6.1% rate.

Yesterday, General Motors Corporation (NYSE:GM) said it would cut production more. Who would be surprised if the auto industry cut more jobs? The financial sector has lost tens of thousand of jobs, and as bank mergers go through, that is likely to go up sharply.

If there is on element which could pull the stock market back down, it is the realization that the economy is getting much, much worse and that corporate earnings will suffer accordingly.

A new wave of data about the economy will be coming soon. According to The Wall Street Journal, "The biggest data point is: the Census Bureau's retail sales report for September, on Wednesday. Economists expect sales tumbled for the third straight month, led by abysmal auto sales."

Investors who pour their money back into the market now, do so at their own peril. Don't forget the recession.

Douglas A. McIntyre is an editor at 247wallst.com.

Google (NASDAQ:GOOG) and Yahoo! (NASDAQ:YHOO) still want their deal for the large search engine company to sell search advertising for the large portal company. Yahoo! knows that Google's system for selling these ads is more efficient. Yahoo! should make more money under the arrangement.

But, almost every large advertiser in the US and Google's competitors want to block the partnership. They don't want Google to have broad pricing power over search. It has about 65% of the market and Yahoo! has another 20%. According to The Wall Street Journal, "Advertisers have told Justice Department officials that the partnership will limit competition, raise prices and reduce choices."

The Justice Department, which has to review whether the deal works under antitrust laws, is getting itchy.

So, what happens? If Google has any sense, it will throw Yahoo! under the bus and walk away. Google stands to get in real trouble with Justice if the government decides to look at the company's share of search even without the Yahoo! deal. It is better off leaving quietly. Google is not likely to make a huge amount of money from selling ads for Yahoo! since the money will be split between the two companies.

Yahoo!, which is struggling to improve revenue and with its stock near a 52-week low, needs the new sales from Google. And, if the larger company exits the deal, Yahoo! has a major problem.

Douglas A. McIntyre is an editor at 247wallst.com

Merck (NYSE:MRK) lost a lot of legal cases over whether its arthritis drug caused heart problems in patients. It even spent $4.85 billion to settle a lot of the claims against it. But, that did not end every suit, and the company is faced with new data that raises questions about the dangers of the drug.

Tough for Merck. But, putting out dangerous drugs can have side affects for both patient and company. According to Reuters, " A long-term analysis of people who took the arthritis drug Vioxx confirms it doubles the risk of strokes and heart attacks."

Most of these lawsuits come down to "did the company know of the danger, and, if so when?" Merck probably did not settle so many cases because it believed it was entirely in the right. It is hard to imagine that it did not have some sense that the data from the new study is true. It did test its own drug before it went on the market. But, did it test it well? Or, did it find that there were possible health risks but that they were acceptable? At least from a monetary standpoint.

The cynical observers of drug company practices say that the firms balance litigation costs against the money that they get from sales. If a product has some danger, it does not matter too much if it makes a great deal more money than the cost of legal consequences.

If the cynics are right, Merck has a tough road ahead.

Douglas A. McIntyre is an editor at 247wallst.com.

The Treasury did not ask several of the nation's largest banks and investment houses whether they wanted new capital. It told them. So weak banks got money and so did strong ones.

According to Reuters, "The United States will announce plans on Tuesday to inject $250 billion into its banks." Money will go in as preferred stock so common shareholders will not be diluted, unless one of the banks comes close to failure. But, JP Morgan (NYSE:JPM) is being forced to take the same $25 billion that Citigroup (NYSE:C) is. Goldman Sachs (NYSE:GS) and Morgan Stanly (NYSE:MS) will each have to take $10 billion.

The plan is ill-conceived and unfair when the more healthy firms like JPM and Goldman have to take on the same debt burden as weaker competitors. Treasury might argue that it does not have time to make these distinctions, but critical measures like reserves and earnings might have been taken into account. The Treasury might also have told the CEOs of the companies that if everyone did not take capital that full confidence in the system could not be restored.

Unfortunately, the action by the government shows that its work will be done with a hammer and not a scalpel. Over time, the may have very significant drawbacks. There are limited funds to be put to work. Why waste them on the healthy institutions?

Douglas A. McIntyre is an editor at 247wallst.com.

In an effort to make the US rally seem modest, the Japanese Nikkei rose 14.3% overnight. Some large exporters were up 17% or more.

In Hong Kong, the Hang Seng was up 4.4%

As Europe opened, the German DAX rose 3.5%. The FTSE rose 1.9% and the French CAC40 was up 2.1%

Data from Reuters.

Douglas A. McIntyre is an editor at 247wallst.com.

It is the dream of almost every mobile PC users that at some point the broadband airwaves will be free. No more connecting to one expensive WiFi service at one airport only to have to pay for another at the next stop. No more expensive 3G service.

The day may be coming. According to The Wall Street Journal, a new FCC "report clears the way for the FCC to move forward with a plan to auction off airwaves to a bidder who agrees to offer free, national wireless Internet service."

Although the study indicates that most wireless carriers will not be hurt by the program, that is almost certainly not true. By many estimates the free service will be available to 50% of the US population in four years.

The new plan may well do some significant damage to major cellular and WiFi providers. Free is free, and $59 a month can be expensive. How many people will opt to pay for service when they don't need to?

The other industries that could experience some level of harm are the cable companies and telecoms, which offer wired broadband to the home. A good wireless alternative may allow some people to cancel those services.

The FCC regulates the wireless and wired communications companies. Now it means to undermine them.

Douglas A. McIntyre is an editor at 247wallst.com.

The big season for picking up sales, and market share, in the video game console business is the holidays. Shoppers are out buying the things for themselves and their kids. But, this is a recession holiday and that means that selling any consumer electronics device will be hard.

Shoppers are looking for discounts. Sony (NYSE:SNE) has decided to play the fool and not lower prices on its PS3. It is hard to understand why they would make such a significant mistake. It gives Nintendo and Microsoft (NASDAQ:MSFT) the chance to take the lion's share of the customers.

According to the FT, "Sony, the Japanese consumer electronics group, has ruled out cutting the price of the PlayStation 3 console before Christmas, insisting that the PS3 is better value than rivals half its price." Since the Nintedo Wii has outsold the PS3 almost every month since Sony hit the market with its new product, it is hard to see why that would change.

Sony's game business has undermined the company's earnings for several years. It was late to market with the PS3, and now it is likely to be overwhelmed in the fourth quarter by its competition.

Douglas A. McIntyre is an editor at 247wallst.com.

Boeing (NYSE:BA) has gotten a federal mediator on board to help in its negotiations with machinists. It does so as its 787 Dreamliner's deliver date gets later and later. That will further anger customers who have lived though two delays, help rival Airbus pick up business, and allow airlines to ask for compensation for late delivery.

According to Reuters, "Production at Boeing's Seattle-area factories has been suspended since September 6 when 27,000 workers represented by the International Association of Machinists and Aerospace Workers walked off the job." Boeing wants to outsource more of its work. The union objects for obvious reasons.

Boeing should have done almost anything necessary to keep the unions in. The labor contract is for three years and Boeing has a massive backlog for that period. It is unlikely cutting a deal with workers would hurt its margins much. Delaying has almost certainly hurt its revenue and customer relations.

Boeing executives have helped take the firm's stock down 35% in the last month. Even with the market turmoil, the Dow is only off 25%. Management is responsible for that significant difference.

Douglas A. McIntyre is an editor at 247wallst.com

Morgan Stanley (NYSE:MS) waited too long to take new money. If should have gotten the capital long ago the way Goldman Sachs (NYSE:GS) did with Warren Buffett.

But, John Mack, the MS CEO, thought he might go it alone or get better terms, By waiting, he damaged his shareholders more than he could imagine. And, it may get worse.

The good news is that, according to The New York Times, the $9 billion coming from Mitsubishi UFJ will be protected by the federal government. That means the deal is likely to close.

The very bad news is that, according to the FT, "Under the new terms being discussed, the entire $9bn would be in the form of convertible preferred stock, that would eventually convert into common stock at a price that is expected to be between $20 and $25." Under the old terms, the conversion was at above $35.

The latest formula means that current shareholders face more dilution.

At the end of the day, the news has to be viewed in some positive light. MS will survive. But, the cost was awful. On September 8, Morgan traded at $43. No one can imagine that Mack did not know he had trouble then. It was only four weeks ago. He should have done a quick deal while he had the chance. By waiting, he let market fear, and probably some short selling, take his shares below $10.

Mack allowed Morgan to get into the trouble in the first place. He has been in upper level Wall St management for 30 years. He arrogance made him believe that he could get tremendous terms in bringing in new capital.

He was wrong on that account. But, his compensation will probably be fabulous next year.

Douglas A. McIntyre is an editor at 247wallst.com.

Stocks traded up by 5% to 10% across Asia and Europe.

The Hang Seng was up 9.5%. The Shanghai Composite rose 3.7%.

Shortly after the open in Europe, The UK FTSE rose 5.6%. The German DAX was up 6.2%, and the French CAC 40 moved higher by 6.7%.

Date from Reuters.

Douglas A. McIntyre is an editor at 247wallst.com.

The International Monetary Fund said that the world's banking system is on the verge of a "meltdown" and that the problem had to be addressed immediately.

The U.S. Treasury has not made it clear which banks it may invest in to supply capital, how much that may be, and exactly when it will happen. It has also said the the buying-in of toxic assets may take several months. In other words, the government is moving fairly slowly and with some caution.

The American reaction may simply come too late. The U.K. has already begun the process of putting money into its largest banks. Whether or not it will work is a matter of conjecture. But, the British are not going to dawdle. Time is too short.

If the Treasury Department and the Fed do not make some very significant and specific description of their plans before the markets open Monday, they may see the largest daily drop the market has ever seen.

Douglas A. McIntyre is an editor at 247wallst.com.

The Wall Street Journal reported that (subscription required) General Motors (NYSE: GM) had has merger talks with Ford (NYSE: F) as well as Chrysler. The Ford deal would make more sense. Together, the two largest car companies would have 36% of the American market. There would be no reason for the needs of a private equity firm, in the case Chrysler owner Cerberus, to be served.

While many people do not realize it, the Fed can make capital available to institutions outside the banking system if it believes that their problems could have a dire impact on the economy. By most measures, Ford and GM have enough money to make it to the second half of next year. The Fed could provide capital to stretch that well into 2010 when many analysts think that they worldwide auto industry will begin to recover.

While there may not be huge savings in putting the two largest U.S. car companies together, they could improve margins by closing some of their poorest performing brands.

Better that the government provide capital to one combined company than two smaller ones.

Douglas A. McIntyre is an editor at 247wall st.com.

It probably made sense and has for at least a year. General Motors (NYSE: GM) and Chrysler have had merger talks, and probably had them recently. The largest car company in the U.S. has been speaking with Chrysler's owner Cerberus.The conversations may have been slowed by the wild stock market.

According to The Wall Street Journal (subscription required), "Uniting two of the country's Big Three auto makers would prove a watershed for an industry knocked down by high production costs and a looming recession."

But the plan may not work. GM and Chrysler both appear too weak position to weather the bad economy, even together. Analysts believe that GM will be low on money next year, and Chrysler is no better off.

What would make sense is that Chrysler makes a good merger partner for Honda (NYSE: HMC) or VW. Both would like a larger market share in the U.S. Both have strong balance sheets, and both could rip out duplicate costs.

Putting together two troubled U.S. auto operations gains very little for either company.

Douglas A. McIntyre is an editor at 247wallst.com.

As had been expected, The Treasury will begin to take equity positions in major U.S. banks. According to MarketWatch, "The plan calls for banks to be recapitalized with public and private funds, but makes no specific mention of another common suggestion."

The part of the plan that is rarely mentioned is that the government could end up owning huge percentages of very large banks. Citigroup (NYSE: C) has a market cap of $76 billion. What if the Treasury has to put $25 billion of equity into the big bank? The agency might not want to have a board seat, but it would need to have a substantial say in what happens with the financial firm. Otherwise, how are the shareholders protected?

It would be better for the Treasury to give banks very long-term loans. It would be less risky for taxpayers if the debt was senior to all other debt and common shares. And, someone in the government would not have to look over management's shoulders to make sure the average citizen was likely to get his money back.

Douglas A. McIntyre is an editor at 247wallst.com.

Time Warner (NYSE: TWX) hit a new 52-week low today at $9.03. Until recently, it has performed better than most of the other media conglomerates, but it now faces two difficult questions.

Before current CEO Jeff Bewkes took over, it was assumed that Time Warner Cable (NYSE: TWC) would be spun out. Bewkes managed to get over $9 billion from the transaction. That may have been priced into the shares when he stepped into the top job. The other major assumption of shareholders was that AOL would be repaired or sold. The internet unit has been divided into two pieces. The ISP operations will probably be sold to another internet service company. The fate of AOL remains unknown. There are rumors that it could be sold to Yahoo! (NASDAQ: YHOO) or Microsoft (NASDAQ: MSFT).

Because internet display advertising is facing a downturn, sales at AOL will almost certainly suffer in the fourth quarter and into 2009. If Yahoo! is a reasonable proxy, the fact that it has lost half of its market cap this year and has been downgraded by several analysts cannot be good news for AOL.

Advertising weakness is bound to catch up to Time Warner's magazine unit. Print advertising may never recover entirely if the newspaper industry is any guide. Analysts have frequently said that the magazine unit should be sold. It is no longer a growth operation.

TWX cable units, like CNN, which rely on TV ads, are also certain to face an unpleasant if not vicious environment heading into the winter.

Investors in Time Warner are troubled for a simple reason: The company still looks too much like it did last year.

Douglas A. McIntyre is an editor at 247wallst.com.