Market Matters…
Black Friday has passed…as has Cyber Monday (the Monday after Thanksgiving when online shopping begins in earnest). So let the (over-)analysis begin. While retailers continued to cry “gloom and doom,” the so-called experts did not appear to be quite as pessimistic. According to National Retail Federation, holiday sales will climb by 2.2% from last year’s levels. Research firm ShopperTrak claimed that sales on Black Friday rose by 3% and ComScore said Monday’s online activity soared by 15% from 2007. Toys “R” Us (execs “were definitely pleased with sales” during the initial holiday shopping weekend, and Internet data collector, Hitwise, revealed that web traffic increased by 21% at Amazon.com (AMZN, Financial) and 6% at Walmart.com (WMT) from last year. While November sales remained bleak (see below), analysts point out Thanksgiving came late in the month (27 th) and Cyber Monday actually fell in December. The optimists (rare as they are) are hopeful that holiday activity may be skewed with December faring far better than November.
Automakers returned to DC for “bailout begging II;” this time they left their corporate jets at home and arrived in hybrid sedans. (Maybe next time they can carpool?) Combined, the Big 3 are requesting $34 billion in government assistance, though Ford (F, Financial) implied its situation may be less dire and a mere $9 billion standby line of credit would suffice (assuming the others don’t fail). The execs also expressed a willingness to operate under a federal oversight board, and even the unions offered concessions regarding health plans and the jobs bank. While some politicos used scare tactics to predict even greater economic hardships should relief not be granted, others remained skeptical of the unlimited bailouts. Mostly, they chose to grandstand and politicize the tragic times to win support at home (as if their constituents even watch C-SPAN). Stay tuned…
In other corporate news, Goldman Sachs (GS) may be forging more into the banking world as it considers launching an Internet operation to increase its deposit base. Meanwhile, analysts predict its fourth quarter loss could skyrocket to $2 billion. Beazer Homes and Research in Motion (RIM) both lowered their quarterly outlooks and AT&T (T, Financial) became the latest domestic giant to announce layoffs. While GE (GE) believes its earnings will be weaker than initially expected, the company plans to maintain its dividend and solid commitment to shareholders. Merrill Lynch (MER) shareholders approved its sale to Bank of America(BAC), though total valuation plunged to $20 billion (from $50 billion at announcement) as a result of the stock market decline.
Oil continued its never-ending decline below $41/barrel to levels not seen in four years, while gas fell below $1.80/gallon nationally. While winter weather generally means higher energy prices, the economic doldrums have more than offset the traditional trend. Treasury yields plunged to historic lows on speculation that the Fed may purchase government securities to support the credit markets (as well as the ongoing “flight-to-quality” moves). Equities resumed their overall bearish ways on dramatic volatility (what else is new?) as investors grew more fearful about the economy before totally disregarding the awful unemployment data (see below) and staging a late-week “illogical” rally. Then again, since when have markets been considered logical?
Weekly Economic Calendar
Sometimes admitting a problem is the first step toward recovery (ask anyone in an “anonymous” 12-step program). On the note…“My name is economy and I am in recession.” In what may be among the worst kept secrets of the year, the National Bureau of Economic Research revealed the domestic economy has been in a recession since December 2007. In the post-World War II era, the average length of recession has been 11 months with the downturns of 1973-74 and 1980-81 lasting 16 months. Therefore, the current one already has surpassed the norm. As the data gets weaker with each passing release, most economists expect this recession to last beyond the next four months and set a new duration record in post-World War II times. Then again, each new month means we are getting closer to the end; additionally, equity markets often serve as leading indicators and begin to rebound while still in the midst of recession. (How’s that for optimism?)
But back to reality…The weekly releases revealed that any pending rebound should remain on the backburner for some time. In November, the broad economy lost over 500,000 jobs, the largest monthly decline in 34 years, as the unemployment rate soared to 6.7 percent. In the last three months alone, more than 1.2 million individuals have moved to the unemployment line. November represented the 11 th straight month of labor contraction. Both the manufacturing and services sectors continued to struggle according to Institute for Supply Management and factory orders plummeted by the largest amount in eight years. Retailers reported weak same-store sales numbers with only Wal-Mart benefiting from the dire times. (Even Costco (COST) experienced a steeper than expected decline.) And, of course, dismal auto sales brought more ammunition to those Congressional hearings as GM (GM) (-41%) and Ford (-31%) were joined by Honda (HMC, Financial) (-32%) and Toyota (TYIDF.PK) (-34%) in the “if misery loves company” category. (Do those guys need a bailout too?) Meanwhile, Bernanke and friends are hard at work dreaming up creative ways to shore up the economy, particularly after the Beige Book reported softer activity across the country.
On the Horizon… With the funds rate at 1%, Bernanke has only so much room to cut (though most expect another 50 bps move at the December meeting). The Fed extended the lives of recently initiated programs (lending facility for investment firms, etc.) and is exploring additional moves (like Treasury purchases) aimed at reviving the credit markets. The Chairman believes that more needs to be done to slow the pace of foreclosures (that climbed to 10% in September). The Treasury is working on a plan to rejuvenate the housing market by slashing mortgage rates to 4.5% on new purchases. (At some point, shouldn’t these stimuli begin to work?) The economic calendar is highlighted by two late week releases that are sure to garner much analysis. PPI brings another look into the inflation picture, though the dramatic decline in energy prices may renew “premature” talks of deflation. And November retail sales should offer few positive surprises for the holiday season. (Any 12-step programs for overcoming “gloom and doom?”)
Brounes & Associates
4607 BRAEBURN DR. â–ª BELLAIRE, TEXAS 77401 â–ª 713.962.9986 â–ª [email protected]
Black Friday has passed…as has Cyber Monday (the Monday after Thanksgiving when online shopping begins in earnest). So let the (over-)analysis begin. While retailers continued to cry “gloom and doom,” the so-called experts did not appear to be quite as pessimistic. According to National Retail Federation, holiday sales will climb by 2.2% from last year’s levels. Research firm ShopperTrak claimed that sales on Black Friday rose by 3% and ComScore said Monday’s online activity soared by 15% from 2007. Toys “R” Us (execs “were definitely pleased with sales” during the initial holiday shopping weekend, and Internet data collector, Hitwise, revealed that web traffic increased by 21% at Amazon.com (AMZN, Financial) and 6% at Walmart.com (WMT) from last year. While November sales remained bleak (see below), analysts point out Thanksgiving came late in the month (27 th) and Cyber Monday actually fell in December. The optimists (rare as they are) are hopeful that holiday activity may be skewed with December faring far better than November.
| Market/Index | Year Close (2007) | Qtr Close (09/30/08) | Previous Week (11/28/08) | Current Week (12/05/08) | YTD Change |
| Dow Jones Industrial | 13,264.82 | 10,850.66 | 8,829.04 | 8,635.42 | -34.90% |
| NASDAQ | 2,652.28 | 2,091.88 | 1,535.57 | 1,509.31 | -43.09% |
| S&P 500 | 1,468.36 | 1,164.74 | 896.24 | 876.07 | -40.34% |
| Russell 2000 | 766.03 | 679.58 | 473.14 | 461.09 | -39.81% |
| Fed Funds | 4.25% | 2.00% | 1.00% | 1.00% | -325 bps |
| 10 yr Treasury (Yield) | 4.04% | 3.83% | 2.96% | 2.66% | -138 bps |
Automakers returned to DC for “bailout begging II;” this time they left their corporate jets at home and arrived in hybrid sedans. (Maybe next time they can carpool?) Combined, the Big 3 are requesting $34 billion in government assistance, though Ford (F, Financial) implied its situation may be less dire and a mere $9 billion standby line of credit would suffice (assuming the others don’t fail). The execs also expressed a willingness to operate under a federal oversight board, and even the unions offered concessions regarding health plans and the jobs bank. While some politicos used scare tactics to predict even greater economic hardships should relief not be granted, others remained skeptical of the unlimited bailouts. Mostly, they chose to grandstand and politicize the tragic times to win support at home (as if their constituents even watch C-SPAN). Stay tuned…
In other corporate news, Goldman Sachs (GS) may be forging more into the banking world as it considers launching an Internet operation to increase its deposit base. Meanwhile, analysts predict its fourth quarter loss could skyrocket to $2 billion. Beazer Homes and Research in Motion (RIM) both lowered their quarterly outlooks and AT&T (T, Financial) became the latest domestic giant to announce layoffs. While GE (GE) believes its earnings will be weaker than initially expected, the company plans to maintain its dividend and solid commitment to shareholders. Merrill Lynch (MER) shareholders approved its sale to Bank of America(BAC), though total valuation plunged to $20 billion (from $50 billion at announcement) as a result of the stock market decline.
Oil continued its never-ending decline below $41/barrel to levels not seen in four years, while gas fell below $1.80/gallon nationally. While winter weather generally means higher energy prices, the economic doldrums have more than offset the traditional trend. Treasury yields plunged to historic lows on speculation that the Fed may purchase government securities to support the credit markets (as well as the ongoing “flight-to-quality” moves). Equities resumed their overall bearish ways on dramatic volatility (what else is new?) as investors grew more fearful about the economy before totally disregarding the awful unemployment data (see below) and staging a late-week “illogical” rally. Then again, since when have markets been considered logical?
Weekly Economic Calendar
| Date | Release | Comments |
| December 1 | Construction Spending (10/08) | Larger than anticipated decline |
| ISM (Manu) Index (11/08) | Worst level since May 1982 | |
| December 3 | ISM (Services) Index (11/08) | Continued contraction in non-manufacturing sectors |
| Fed Beige Book | Enhanced weakness across all 12 districts | |
| December 4 | Initial Jobless Claims (11/29/08) | 2 nd straight decline in claims, though reflects weak labor |
| Factory Orders (10/08) | Largest drop in orders in 8 years | |
| December 5 | Unemployment Rate (11/08) | Climbed to 6.7% |
| Non-farm Payroll (11/08) | Largest loss in jobs in 34 years | |
| Consumer Credit (10/08) | Decline in borrowing due to lower auto sales | |
| The Week Ahead | ||
| December 11 | Initial Jobless Claims (12/06) | |
| Balance of Trade (10/08) | ||
| December 12 | PPI (11/08) | |
| Retail Sales (11/08) |
Sometimes admitting a problem is the first step toward recovery (ask anyone in an “anonymous” 12-step program). On the note…“My name is economy and I am in recession.” In what may be among the worst kept secrets of the year, the National Bureau of Economic Research revealed the domestic economy has been in a recession since December 2007. In the post-World War II era, the average length of recession has been 11 months with the downturns of 1973-74 and 1980-81 lasting 16 months. Therefore, the current one already has surpassed the norm. As the data gets weaker with each passing release, most economists expect this recession to last beyond the next four months and set a new duration record in post-World War II times. Then again, each new month means we are getting closer to the end; additionally, equity markets often serve as leading indicators and begin to rebound while still in the midst of recession. (How’s that for optimism?)
But back to reality…The weekly releases revealed that any pending rebound should remain on the backburner for some time. In November, the broad economy lost over 500,000 jobs, the largest monthly decline in 34 years, as the unemployment rate soared to 6.7 percent. In the last three months alone, more than 1.2 million individuals have moved to the unemployment line. November represented the 11 th straight month of labor contraction. Both the manufacturing and services sectors continued to struggle according to Institute for Supply Management and factory orders plummeted by the largest amount in eight years. Retailers reported weak same-store sales numbers with only Wal-Mart benefiting from the dire times. (Even Costco (COST) experienced a steeper than expected decline.) And, of course, dismal auto sales brought more ammunition to those Congressional hearings as GM (GM) (-41%) and Ford (-31%) were joined by Honda (HMC, Financial) (-32%) and Toyota (TYIDF.PK) (-34%) in the “if misery loves company” category. (Do those guys need a bailout too?) Meanwhile, Bernanke and friends are hard at work dreaming up creative ways to shore up the economy, particularly after the Beige Book reported softer activity across the country.
On the Horizon… With the funds rate at 1%, Bernanke has only so much room to cut (though most expect another 50 bps move at the December meeting). The Fed extended the lives of recently initiated programs (lending facility for investment firms, etc.) and is exploring additional moves (like Treasury purchases) aimed at reviving the credit markets. The Chairman believes that more needs to be done to slow the pace of foreclosures (that climbed to 10% in September). The Treasury is working on a plan to rejuvenate the housing market by slashing mortgage rates to 4.5% on new purchases. (At some point, shouldn’t these stimuli begin to work?) The economic calendar is highlighted by two late week releases that are sure to garner much analysis. PPI brings another look into the inflation picture, though the dramatic decline in energy prices may renew “premature” talks of deflation. And November retail sales should offer few positive surprises for the holiday season. (Any 12-step programs for overcoming “gloom and doom?”)
Brounes & Associates
4607 BRAEBURN DR. â–ª BELLAIRE, TEXAS 77401 â–ª 713.962.9986 â–ª [email protected]
