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George Chamberlin's Money in the Morning

The bears flexed some muscle yesterday. The Dow Industrials dropped 217 points, the biggest one-day decline since Nov. 7, the day after the presidential election. It was a combination of things bringing the stocks market down including renewed worries about Europe, realization that nothing good is going to happen in Washington regarding the budget, and a general belief that prices have gone up too fast. By the way, the losses yesterday were enough to tip the Dow and S&P 500 into negative territory for February. As I mentioned in the briefing yesterday, combined gains for January and February have been 100 percent accurate in predicting gains for the year going all the way back to 1945. Let’s hope we can get back into positive territory in the three remaining days of the month.

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One of the 30 stocks in the Dow Industrials is having a good day. Shares of Home Depot are up 6 percent and less than a buck from a 52-week high after reporting strong fourth-quarter earnings. A lot of the increase in revenues was associated with Superstorm Sandy, which hit the Northeast hard at the end of the year. The company also said it is raising its dividend by 34 percent and will spend $17 billion to repurchase shares.

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Another report out today provides more evidence of the housing rebound. The Case-Shiller home price index shows prices rose in December by 6.8 percent compared to the same month a year ago. That is the biggest increase since 2006. Here in San Diego the increase over the past 12 months was 9.2 percent. Lest we get too excited about the recovery, S&P's David Blitzer was quick to say, "while housing is on the upswing some of the strongest numbers may have already been seen."

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Well, what do you know? Despite being constantly bombarded with dire economic news, U.S. consumers are actually growing more confident. The Conference Board today released its consumer confidence index for February showing a rebound in attitude by households after dropping in the three previous months. "Consumers are cautiously optimistic about the outlook for business and labor market conditions. Income expectations, which had turned rather negative last month, have improved modestly," said the board's Lynn Franco.

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The delinquency rate on auto loans has dropped to an all-time low. TransUnion reports the portion of borrowers more than 60 days late on making their car payments fell to 0.41 percent at the end of 2012. Another interesting statistic in the report: The average debt per borrower rose 5.4 percent to $13,747 in January, the seventh consecutive month the amount has increased. That, by the way, is a positive sign for the economy as people seem comfortable taking on a bit more debt to finally replace that old car.

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This year we "celebrate" the 100-year anniversary of the passage of the 16th amendment to the U.S. Constitution. You know, the one that authorized the income tax. A study by CCH, a business tax consulting service, calculates the original 1 percent tax, which applied to incomes of $20,000, today -- adjusted for inflation -- would cover incomes all the way up to $465,212. In fact, people with that income today are taxed at a rate of 35 percent and that is just on the federal level.

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