There are two competing positions on consumer sentiment right now. One is that it turned south last week, as people worried about their jobs – always a bad sign for spending. The other is that consumer sentiment didn't crap out in July: it fizzled in May. So, it's not a question of whether consumers aren't confident in the U.S. economic machine, it's just a matter of when the collective mood changed.

The July camp is set up around the Reuters/University of Michigan Surveys of Consumers, which makes now the weakest point for consumer sentiment since March. Those who favor May look to domestic demand for foreign goods, which went soft two months ago, bringing the monthly trade deficit to its narrowest since 1999. The U.S. trade gap unexpectedly tightened to $26 billion in May, with exports up 1.6% and imports down 0.6%, according to the U.S. Department of Commerce.

Retail sales took an unexpected downward turn in May in the United Kingdom -- for first time in three months. Cautious banks appear to be the problem, as their rationing of credit is impeding broader economic recovery. Retail sales fell 0.6% from the previous month, while economists had predicted a 0.3% change in the other direction.

Year-over-year, retail sales were off 1.6%. Sales for the year are down 1.1%, the greatest decline since score-keeping began in 1988. Of course, there's plenty of fodder for rationalizing the results. The annual change was affected by an "unusually large" retail sales estimate for May 2008. Clothing, textile, and footwear retailers and department stores led the plunge, with nonfood store sales off 1.4%, compared to a 0.3% increase in food retail sales.

Good news everyone! The Fed believes that the worst of the recession has passed. At least that is what its snapshot of economic conditions from yesterday showed. The data indicated that the "downward trend is showing signs of moderating" in five of the Fed's 12 regions.

Furthermore, "several" regions indicate that their expectations of future business activity have improved, but there will not be a "substantial increase" through the end of the year. In the last survey, "several regions" indicated signs of some stability at low levels. Taken in whole, the assessments of businesses on the "front lines" of the economy appear slightly better than in the last report, which was issued in mid-April.

This morning, Citigroup (NYSE: C) began its $58-billion stock swap, a move that could leave the government with a 34% stake in the bank. The country's third-largest bank plans to swap common stock for (up to) $33 billion in preferred shares and convert as much as $25 billion of preferred shares held by the U.S. Treasury into common stock.

The bank believes that the swap could (emphasis on could here) make Citigroup one of the world's best-capitalized banks. The action could add up to $61 billion of tangible common equity and $64 billion of Tier-1 common equity. Citigroup had planned to take this action back in April.

TheStreet.com's Jim Cramer says it's not too much to ask that banks have enough money to loan to customers and to pay back TARP.

Bankers who complain about having to raise more money to pay back the Troubled Asset Relief Program ought to be real careful here about their insistence that the rules have been changed.

Never did Treasury say, "If you raise this money, you can pay TARP back." What it did say was, "If you raise this money, you can stay in business."

Given that most of the banks that raised the $85 billion probably could have gone by the wayside, I don't think there's all that much to be said about the government demanding that the banks have enough money on hand to loan to customers and to pay back TARP. Is that really too high a price to pay?

$12.8 trillion of our money is going to bail out the bad bets of bankers, auto execs, and ordinary folks who took on mortgages they couldn't repay over the last 20 months. If you're among the 90% of the country that's been playing by the rules all these years, you may be wondering why that $12.8 trillion should come out of your pocket. After all, doesn't free markets mean that bettors get the pot when they win and pay the piper when they lose?

The "good" news is that of that $12.8 trillion, only a third -- or $4.2 trillion -- has actually been committed to a total of 34 distinct programs. The remaining $8.6 trillion is the limit of how much has been approved. And of that $12.8 trillion, 61% is under the control of the Fed in 20 programs, 16% is in the hands of the FDIC in 5 programs, another 21% will be spent by the Treasury in eight programs and the remaining two percent is being doled out by the Department of Housing and Urban Development (HUD) in one program.

These days, investors are bombarded by variety of stimuli about the financial crisis and the state of the U.S. economy, and not all of it is useful. In fact, some of it can be downright harmful -- leading to imprudent decisions, needless shifts in asset classes, and other financial mistakes.

Hence, perhaps more than ever these days, investors need to be able to separate 'the wheat from the chaff.'

Lately, it has been as if every lesson from a first-year graduate seminar in public policy is being played out on the national stage.

Let's underscore one point: the nation appears to be nearing a policy to deal with the financial crisis. Investors should try to keep that at the forefront. Or maybe paste it on to their computer screens at work or in their home offices, so that they can maintain a sense of perspective. Yes, it's about a year late, but there was another U.S. president in charge then: the new guy's just arrived. Moreover, if calm prevails, the nation is going to get through this difficult period, this aftermath of the decade of policy errors, the decade of descent.

TheStreet.com's Jim Cramer says everything depends upon these financial programs.

Maybe Sheila Bair doesn't matter at all. Maybe nothing matters. The chatter behind the scenes everywhere is, "Just let it happen, it can't be any worse than this."

I say, are you kidding me? Do you know that our whole country would simply stop if we didn't have these programs and these government promises?

Think of it like this: If you have models that show 10% unemployment and you offer credit cards, your model says don't offer them. But if the government didn't guilt-trip these companies into offering them, you couldn't get one.

Imagine this: You live in Castelfranco Emilia, a small town in northern Italy, and you want a loan for $9,000. So you walk into the bank and the manager says: "OK, how many wheels of Parmesan cheese do you have for collateral?" You answer, "I have three wheels." (Each wheel is worth $3,000.) "Fine, we'll take your three wheels as collateral for your loan," he says and draws up the contract.

Meanwhile, you take your three wheels to the warehouse for inspection. All cheese must be aged for at least one year. Cheese that does not meet the strict standards at the warehouse is downgraded and the price reduced. After the inspection is completed, the bank manager gives you a check for $9,000.

Found an interesting article from Reuters, noting that investors specializing in distressed debt and bankruptcy believe that our current recession will "last at least three years and possibly longer absent a revival in credit markets." Michael Psaros, managing partner at KPS Capital Partners told Reuters, "This is going to be a three- to four-year disaster," and used the term "Great Recession" when discussing the current crisis.

Remember Wall Street analysts? Those are the people who go on tout TV and tell you to buy stocks regardless of what is happening to stock prices. The reason you should ignore them is that they get paid to make you buy stocks which generates commissions for their employer. If they issue 'sell' recommendations, they will scare people away from the market. And then there won't be any commissions to pay them.

This comes to mind courtesy of some fresh statistics on analysts' rate of issuing buy recommendations as stocks have plummeted in the last year. When stocks hit their peak in 2007, analysts put buy or hold calls on stocks 95% of the time. And last month, history's worst January, analysts urged you to sell a mere 5.9% of stocks. In 2008, as the market lost almost 40%, sells never outweighed buys or holds.

It would be nice if we could just wave a magic wand and evaporate the $13 trillion worth of toxic waste that's dragging down the global financial system. But we'll have to dispose of it somehow in order to reboot the financial system. A colleague of mine came up with a brilliant idea: the government could guarantee the failed mortgages buried inside that toxic waste -- meaning that the owner of a bundle would not incur any loss from a failed mortgage for the next 3 years.

After all, those mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) are just bundles of mortgages. If 15% of those mortgages fail and the government agrees to guarantee those over the next three years, then the MBSs and CDOs -- e.g., the toxic waste -- would suddenly increase in value because the losses to the entire bundle of the 15% of the failed mortgages would be limited.

People are really losing their appetite for equities. In the wake of last year's 39% drop in the S&P 500 index, investors seem to be scrambling for some way to preserve the money they have -- and they lack an appetite for taking the risk of buying stocks. One way I measure this is that despite the 15% increase in my newsletter's stock picks in 2008, there's not much appetite for subscribing. I think most people have concluded that the plunge in stocks does not make them cheap because there is not likely to be earnings growth to prop them back up.

Among the biggest losers in the stock market is TARP. The Congressional Budget Office (CBO) estimated last week that the U.S. Treasury's $247 billion in TARP investments made in financial institutions -- including 262 banks -- through the end of December have lost 25% of their value. NYU economist Nouriel Roubini estimated that potential credit losses for U.S. banks could hit $3.6 trillion -- $2.2 trillion more than their $1.4 trillion in capital.

This suggests that investors are wise to stay away from bank equities. But there is vast uncertainty regarding how many other industries and companies will suffer the collateral damage of a bankrupt banking system. It seems likely that any industry -- such as automobiles, airplanes, big computers, MRI machines -- that depends on financing to close deals will be in deep trouble. And with 2.6 million lost jobs in 2008, so will any industry that depends on the recently or about-to-be fired workers in these companies. Are there any equities that could emerge unscathed?

It's not as bad or as large as it looks is how one economist put it, but try convincing U.S. taxpayers of that.

The U.S. budget deficit soared to a record $485.2 billion in the federal government's fiscal first quarter, (October-December 2008), the U.S. Treasury Department announced, as the government implemented its financial system stabilization plan.

The December 2008 budget also increased to $83.6 billion from $48.3 billion a year ago.

Further, the deficit is on-track to total more than $1 trillion this year, fiscal 2009. The Congressional Budget Office (pdf) is projecting a $1.2 trillion deficit for the current fiscal year.

In addition, the $485.2 budget record for fiscal Q1 already exceeds last year's budget deficit for the full year of $454.8 billion.