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By William Patalon III
Money Morning/The Money Map Report
Dow Jones Industrial
10 yr Treasury (Yield)
Looks like Santa made an early appearance for investors last week. While the continuous spirit of "gloom and doom" surrounded the markets for the past few weeks, a few elves (known as Donald Kohn, Ben Bernanke, and the Abu Dhabi Investment Authority) emerged with some much appreciated holiday cheer. When the dust had settled, the Dow Jones experienced its best two-day performance since October 2002, and the biggest one-week gain in almost five years. Throw in some lower oil prices, positive comments from our friends at OPEC, and a general bullish sentiment seemed to reemerge – at least, for the time being.
Even the holiday shopping season got off to a solid start as ShopperTrak reported that sales activity climbed by 7.2% from last year's levels on the Friday and Saturday after Thanksgiving. The tracking company monitors sales at over 50,000 domestic retail outlets. Not to be outdone, results from "Cyber Monday" also depicted strong sales activity as employees took time out of their "hectic" work schedules to click around a few web sites for some key gift purchases.
Internet researcher, ComScore Inc., announced that online sales increased on the Monday after Thanksgiving by 21% from 2006, and the number of online shoppers who actually purchased something grew by 38%. Sears (Nasdaq: SHLD) put a huge (but temporary) damper on the holiday spirit by announcing quarterly profits that declined by 99% on weaker sales.
While "Dubya" was working hard to reshape the landscape in the Middle East this week, Citigroup (NYSE:C) was doing its part to energize the region's financial markets (and help itself recover from the mortgage debacle) by accepting a capital infusion from the Abu Dhabi Investment Authority to the tune of $7.5 billion. While the investment gives the state-owned pool a 4.9% stake in the nation's largest bank, Citi assured concerned investors that it is entirely passive and the fund will not have any representatives on its Board. E*Trade (Nasdaq: ETFC) also received a bailout infusion as hedge fund giant, Citadel, invested $2.55 billion into the troubled financial services company. (And, rest assured, theirs will probably not be passive.) Euro-giant HSBC (NYSE: HBC) was forced to bail out two failing funds it oversees in a move much reminiscent of Bear Stearns a few months ago.
Inflation hawks got a nice reprieve from the oil patch this week as the price of crude plunged below $90/barrel, a level not seen since October. Reports of an increase in oil supplies coincided with talk that OPEC may be increasing production (despite what Chavez and Ahmadinejad may be saying). Investors welcomed such news as well as comments by Fed Vice Chair Donald Kohn who told the Council on Foreign Relations that "."
When Bernanke echoed his lieutenant's sentiment a few days later, Fed watchers became virtually convinced that another rate cut was in the cards for the December 11 meeting. Such a move would be a nice gift (though hardly a surprise) for investors, whatever holiday they're celebrating.
Weekly Economic Calendar
Consumer Confidence (11/07)
Durable Goods Orders (10/07)
Existing Home Sales (10/07)
Fed Beige Book
GDP (3rd qtr)
New Home Sales (10/07)
Initial Jobless Claims (11/24/07)
Personal Income/Spending (10/07)
Construction Spending (10/07)
The Week Ahead
ISM (Manu) Index (11/07)
Factory Orders (10/07)
ISM (Services) Index (11/07)
Initial Jobless Claims (12/01/07)
Unemployment Rate (11/07)
Nonfarm Payroll Additions (11/07)
Consumer Credit (10/07)
So suddenly the sky is falling and the economy is plummeting toward recession? With the Fed's top two honchos predicting sluggishness, the GDP release added a bit more confusion into the equation. While the subprime fiasco was preventing any housing rebound and threatening other consumer-driven sectors over the past several months, the overall economy (as measured by GDP) experienced its best showing in four years by expanding 4.9% in the third quarter.
Most analysts believe that the fourth quarter will depict economic growth closer to 1.5% or lower. Additionally, the Fed reported in its Beige Book that recent activity expanded at "a reduced pace compared with the previous survey period," and renewed calls for a rate cut have begun in earnest. In fact, a Goldman Sachs analyst believes that the fed funds rate will fall to 3% in 2008.
News from the housing sector did not reveal anything positive this week. Existing home sales dropped for the eighth straight month. New home sales now have fallen over 20% during the past 12-months. And construction spending experienced its sharpest decline since July. Can someone please recalculate that nonsensical GDP?
News and Related Story Links:
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Sovereign Wealth Funds Biting into the World's Biggest Companies…Transparency and Motives in Question
- Shopper Trak:
- AOL Money & Finance:
Sears Stock Battered on Huge Profit Drop
- Money Morning:
Citadel Throws E-Trade a $2.5 Billion Life Raft
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. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.