By William Patalon III
Executive Editor
Money Morning/The Money Map Reports
As Thanksgiving 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 traditional 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 Nov. 28, 2008 may be known as “Black” 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 such as Wal-Mart Stores Inc. (WMT) appear primed to benefit from the sluggish economy. With members of Congress just as eager to get home for the holidays themselves, the talks about bailouts (financial and auto) will likely be kept to a minimum as the key players – Citigroup Inc. (C) and General Motors Corp. (GM) – use the time to devise new plans for survival … and to avoid the “Big B” – corporate bankruptcy.
Market Matters
Amid the vast negativity, and the never-ending pessimism expressed by financial pundits, the gloom-and-doom of the daily news reports, some positive stories merit highlighting. Here are a couple:
Hewlett-Packard Co. (HPQ) reported better-than-expected quarterly profits and raised its outlook for the New Year. “HP is gaining market share in an extremely strong competitive position. They’ve got share gains, combined with very aggressive cost reduction,” Shannon Cross of Cross Research told Reuters.
Belgium’s InBev NV officially completed its $52 billion, or $70 a share, acquisition of Anheuser-Busch Cos., Inc. (BUD), as it won its last regulatory approval from China. The combined company will be based in St. Louis and named Anheuser-Busch InBev, Dow Jones reported.
Officials from both Goldman Sachs Group Inc. (GS) and UBS AG (UBS) will forgo their upcoming bonuses and save millions of dollars for their respective companies (and shareholders).
President George W. Bush signed a bill that extended unemployment benefits, so that down-on-their-luck Americans will have extra money during the holiday season.
Fannie Mae (FNM) and Freddie Mac (FRE) will halt foreclosure proceedings on many properties until after the holidays.
Gasoline prices plunged below the $2 a gallon level, a 50%-plux reversal from mid-summer, and consumers can take those savings directly to the malls.
Saudi Prince Alwaleed bin Talal added to his substantial investment in Citigroup at a time when the financial giant struggles for its very existence.
And yet, even with all these investors have chosen to focus on the vast negativity.
Despite the Prince’s act of confidence, Citi’s warned of more than 50,000 new layoffs and said the company will be forced to purchase another $17 billion of under water assets. Its stock plunged about 20% on three consecutive days and moved below $4 per 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, Chief Executive Officer Jerry Yang will be leaving Yahoo! Inc. (YHOO), the company he co-founded – a move that comes none too soon for shareholders, though Microsoft Corp. (MSFT) denied rumors that it would be interested in resuming prior merger talks.
The Big Three automakers (and their union reps) left Washington empty-handed as politicos put off further bailout talks until the companies can show how they plan to spend those billions requested. It didn’t help that all three of the executives flew down to that Capitol Hill summit on their own private jets, a show of largesse that prompted a derisive rejection of their cause.
Some analysts believe bankruptcy (reorganization) may be the best option as these companies struggle to compete with their non-unionized foreign counterparts. U.S. Treasury Secretary Paulson tried to put a positive spin on the bailout’s success (though few were buying it) and insurers Lincoln National Corp. (LNC), Genworth Financial Inc. (GNW), and Hartford Financial Services (HIG) looked to acquire small savings and loans (S&Ls) in order to participate.
| 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 |
Economic Matters
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 a barrel to below $50 a 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. Both the producer price index (PPI) and consumer price index (CPI) for October experienced their largest monthly declines on record as wholesale energy prices plummeted by more than 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 gasoline prices are expected in the months to come.
Meanwhile, U.S. Federal Reserve Chairman Ben S. 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, New York Fed President Timothy F. Geithner be confirmed as the next U.S. Treasury secretary.) Additionally, Goldman Sachs expects the unemployment rate to climb to 9.0% by the end of 2009 (just a few months removed from its prediction of $200 a barrel oil).
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 (3rd 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 |
News and Related Story Links:
-
ShooperTrak RCT:
ShopperTrak Predicts 9.9 Percent Retail Traffic Decrease for 2008 Holiday Season; Slight 0.1 Percent Sales Increase Expected During Same Period. -
Money Morning News Analysis:
Citigroup Board to Meet Today to Weigh Options for Embattled U.S. Banking Giant. -
Money Morning News:
Hot Stocks: Citigroup to Buy Back Billions in SIV Assets, May Face Another Write-Down. -
Money Morning News:
Yang Steps Down, Yahoo CEO Search Commences.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.