Amid the vast negativity, the never-ending pessimism expressed by financial pundits, the doom and gloom reported in the daily news…surely some positive stories should be highlighted (and not buried on the back pages)?
HP reported better than expected quarterly profits and even eagerly shared the promising news a week earlier than expected. InBev completed its previously announced $52 billion acquisition of Anheuser-Busch in an environment where most deals have been put on the backburner. Goldman Sachs and UBS execs will be forgoing their upcoming bonuses and saving millions of dollars for their respective companies (and shareholders). The Prez signed a bill that extended unemployment benefits so down-on-their-luck Americans will have extra money during the holiday season. Fannie/Freddie will halt foreclosure proceedings on many properties until after the holidays. Gas prices plunged below $2/gallon, a 50+% reversal from mid-summer, and consumers can take those savings directly to the malls. Saudi Prince Alwaleed added to his substantial investment in Citigroup at a time when the financial giant struggles for its very existence. And yet, investors have chosen to focus on the vast negativity.
Despite the Prince’s act of confidence, Citi’s warned of over 50,000 new layoffs and the company will be forced to purchase another $17 billion of underwater assets. Its stock plunged about 20% on three consecutive days and moved below $4/share, a level that may lead to forced institutional selling. The one-time “too-big-to-fail” behemoth is fighting for its life, while analysts speak of managerial changes and auctioning off certain units (Smith Barney on the blocks?). Speaking of management, CEO Jerry Tang will be leaving Yahoo, the company he founded (and not too soon for shareholders), though Microsoft denied rumors that it would be interested in resuming prior merger talks. The Big 3 automakers (and their union reps) left DC empty-handed as politicos put off further bailout talks until the companies can show how they plan to spend those billions requested. Some analysts believe bankruptcy (reorganization) may be the best option as these companies struggle to compete with their non-unionized foreign counterparts. Treasury Secretary Paulson tried to put a positive spin on the bailout’s success (though few were buying it) and insurers Lincoln, Genworth, and Hartford looked to acquire small S&L’s in order to participate.
Maybe the markets should start closing an hour earlier since late-day triple-digit moves (often down) have become the norm. While many investors claim great values exist in equities and much cash remains on the sidelines, few want to be first to jump back in with both feet. Naysayers dominated trading activity as the indexes plunged to unfathomable levels until well-received rumors surfaced late in the week (in the last hour) that Obama would choose NY Fed Prez Gaithner as his Treasury Secretary (good riddance, Mr. Paulson). Remember the “irrational exuberance” of the late 90’s? This week, the S&P 500 fell to levels not seen since 1997 (before the Internet boom). Treasuries were beneficiaries of this flight-to-quality; the two-year note currently yields only about 1% (barely more than the mattress). Could this panic selling (capitulation) imply the negativity is nearing an end? That’s what eternal “optimists” are saying (though few seemed willing to jump back in wholeheartedly…until the last hour of trading).
Market Matters…
Weekly Economic Calendar
Just a few short months ago, inflation was seen as the primary challenge facing the country and most Fed watchers believed the next move in rates would be higher. Soaring energy and other commodity prices were the main culprits behind this pessimism. So, with oil dropping from $147 to below $50/barrel since July, shouldn’t investors be rejoicing about the potential cost savings and spreading good cheer about how lower prices will work their ways through the economy?
Not so fast. Given the sharp weakness in the economy and consumers’ lack of desire to spend regardless of pricing, the dreaded “D” word (deflation) has crept back into the national dialogue. (Talk about viewing the glass as half empty…a mindset all too prevalent these days.) Both PPI and CPI for October experienced their largest monthly declines on record as wholesale energy prices plummeted by over 12% last month. Despite the negativity over what should have been favorable data, consumers are already reaping significant savings at the pumps and further retreats in gas prices are expected in the months to come.
Meanwhile, Bernanke and friends opened the door for further rate cuts (though they are running out of room) by reducing their projections for economic activity in the coming quarters. (Maybe, the Fed would like to update that view should one of its own, NY Fed President Timothy Gaithner, be confirmed as the next Treasury Secretary.) Additionally, Goldman Sachs expects the unemployment rate to climb to 9% by the end of 2009 (just a few months removed from its prediction of $200/barrel oil).
On the Horizon… As Thanksgiving rapidly approaches, the American people should be thankful for the declining gasoline prices that help enable many of them to afford holiday travel this year. Speaking of the holiday, after the bird has been devoured, one additional time honored tradition remains…shopping. The Friday after Thanksgiving, known as Black Friday, represents the official start of the holiday shopping season; historically, it is the day that retailers moved out of the “red” (losses) and into the “black” (profits). Unfortunately, this year’s retail projections remain bleak and November 28, 2008 may be known simply as…Friday. According to ShopperTrack RCT, traffic in the stores will plunge by almost 10% this holiday season and overall retail activity will increase by a mere 0.1%. Over the past month, most retailers have cut outlooks for the fourth quarter and only discounters like Wal-Mart appear primed to benefit from the sluggish economy. With Congress just as eager to get home for the holidays themselves, the talks about bailouts (financial and auto) should be kept to a minimum as the key players (GM, Citi) use the time to devise new plans for survival (and avoid the other “B” word…bankruptcy).
HP reported better than expected quarterly profits and even eagerly shared the promising news a week earlier than expected. InBev completed its previously announced $52 billion acquisition of Anheuser-Busch in an environment where most deals have been put on the backburner. Goldman Sachs and UBS execs will be forgoing their upcoming bonuses and saving millions of dollars for their respective companies (and shareholders). The Prez signed a bill that extended unemployment benefits so down-on-their-luck Americans will have extra money during the holiday season. Fannie/Freddie will halt foreclosure proceedings on many properties until after the holidays. Gas prices plunged below $2/gallon, a 50+% reversal from mid-summer, and consumers can take those savings directly to the malls. Saudi Prince Alwaleed added to his substantial investment in Citigroup at a time when the financial giant struggles for its very existence. And yet, investors have chosen to focus on the vast negativity.
Despite the Prince’s act of confidence, Citi’s warned of over 50,000 new layoffs and the company will be forced to purchase another $17 billion of underwater assets. Its stock plunged about 20% on three consecutive days and moved below $4/share, a level that may lead to forced institutional selling. The one-time “too-big-to-fail” behemoth is fighting for its life, while analysts speak of managerial changes and auctioning off certain units (Smith Barney on the blocks?). Speaking of management, CEO Jerry Tang will be leaving Yahoo, the company he founded (and not too soon for shareholders), though Microsoft denied rumors that it would be interested in resuming prior merger talks. The Big 3 automakers (and their union reps) left DC empty-handed as politicos put off further bailout talks until the companies can show how they plan to spend those billions requested. Some analysts believe bankruptcy (reorganization) may be the best option as these companies struggle to compete with their non-unionized foreign counterparts. Treasury Secretary Paulson tried to put a positive spin on the bailout’s success (though few were buying it) and insurers Lincoln, Genworth, and Hartford looked to acquire small S&L’s in order to participate.
Maybe the markets should start closing an hour earlier since late-day triple-digit moves (often down) have become the norm. While many investors claim great values exist in equities and much cash remains on the sidelines, few want to be first to jump back in with both feet. Naysayers dominated trading activity as the indexes plunged to unfathomable levels until well-received rumors surfaced late in the week (in the last hour) that Obama would choose NY Fed Prez Gaithner as his Treasury Secretary (good riddance, Mr. Paulson). Remember the “irrational exuberance” of the late 90’s? This week, the S&P 500 fell to levels not seen since 1997 (before the Internet boom). Treasuries were beneficiaries of this flight-to-quality; the two-year note currently yields only about 1% (barely more than the mattress). Could this panic selling (capitulation) imply the negativity is nearing an end? That’s what eternal “optimists” are saying (though few seemed willing to jump back in wholeheartedly…until the last hour of trading).
Market Matters…
| Market/Index | Year Close (2007) | Qtr Close ( 09/30/08 ) | Previous Week ( 11/14/08 ) | Current Week ( 11/21/08 ) | YTD Change |
| Dow Jones Industrial | 13,264.82 | 10,850.66 | 8,497.31 | 8,046.42 | -39.34% |
| NASDAQ | 2,652.28 | 2,091.88 | 1,516.85 | 1,384.35 | -47.81% |
| S&P 500 | 1,468.36 | 1,164.74 | 873.29 | 800.03 | -45.52% |
| Russell 2000 | 766.03 | 679.58 | 456.52 | 406.54 | -46.93% |
| Fed Funds | 4.25% | 2.00% | 1.00% | 1.00% | -325 bps |
| 10 yr Treasury (Yield) | 4.04% | 3.83% | 3.75% | 3.17% | -87 bps |
Weekly Economic Calendar
| Date | Release | Comments |
| November 17 | Industrial Production (10/08) | Much better than expected increase |
| November 18 | PPI (10/08) | Largest one month decline in 60 years of inflation data |
| November 19 | Housing Starts (10/08) | Poorest showing on record |
| CPI (10/08) | Largest one month decline on record (dating to 1947) | |
| Fed Policy Meeting Minutes | Dismal picture suggests more cuts in December | |
| November 20 | Initial Jobless Claims ( 11/15/08 ) | Highest level of claims since July 1992 |
| Leading Eco. Indicators (10/08) | Worse than expected decline | |
| The Week Ahead | ||
| November 24 | Existing Home Sales (10/08) | |
| November 25 | GDP ( 3 rd quarter) | |
| Consumer Confidence (11/08) | ||
| November 26 | Durable Goods Orders (10/08) | |
| Initial Jobless Claims ( 11/22/08 ) | ||
| New Home Sales (10/08) | ||
| Personal Income/Spending (10/08) | ||
| November 27 | Thanksgiving |
Just a few short months ago, inflation was seen as the primary challenge facing the country and most Fed watchers believed the next move in rates would be higher. Soaring energy and other commodity prices were the main culprits behind this pessimism. So, with oil dropping from $147 to below $50/barrel since July, shouldn’t investors be rejoicing about the potential cost savings and spreading good cheer about how lower prices will work their ways through the economy?
Not so fast. Given the sharp weakness in the economy and consumers’ lack of desire to spend regardless of pricing, the dreaded “D” word (deflation) has crept back into the national dialogue. (Talk about viewing the glass as half empty…a mindset all too prevalent these days.) Both PPI and CPI for October experienced their largest monthly declines on record as wholesale energy prices plummeted by over 12% last month. Despite the negativity over what should have been favorable data, consumers are already reaping significant savings at the pumps and further retreats in gas prices are expected in the months to come.
Meanwhile, Bernanke and friends opened the door for further rate cuts (though they are running out of room) by reducing their projections for economic activity in the coming quarters. (Maybe, the Fed would like to update that view should one of its own, NY Fed President Timothy Gaithner, be confirmed as the next Treasury Secretary.) Additionally, Goldman Sachs expects the unemployment rate to climb to 9% by the end of 2009 (just a few months removed from its prediction of $200/barrel oil).
On the Horizon… As Thanksgiving rapidly approaches, the American people should be thankful for the declining gasoline prices that help enable many of them to afford holiday travel this year. Speaking of the holiday, after the bird has been devoured, one additional time honored tradition remains…shopping. The Friday after Thanksgiving, known as Black Friday, represents the official start of the holiday shopping season; historically, it is the day that retailers moved out of the “red” (losses) and into the “black” (profits). Unfortunately, this year’s retail projections remain bleak and November 28, 2008 may be known simply as…Friday. According to ShopperTrack RCT, traffic in the stores will plunge by almost 10% this holiday season and overall retail activity will increase by a mere 0.1%. Over the past month, most retailers have cut outlooks for the fourth quarter and only discounters like Wal-Mart appear primed to benefit from the sluggish economy. With Congress just as eager to get home for the holidays themselves, the talks about bailouts (financial and auto) should be kept to a minimum as the key players (GM, Citi) use the time to devise new plans for survival (and avoid the other “B” word…bankruptcy).
