Wednesday November 19, 2008
Navivest

We are looking for a rebound in stocks after a volatile week in trading that has seen the Dow trade in an almost 800 point range, but we’re still trading only about a hundred point lower than where we were trading last Wednesday.

We do have a somewhat active economic calendar today that could dictate the direction of the stock market – possibly downward. On tap, we have Building Permits, Housing Starts and FOMC minutes.

It is probably a safe assumption that the Building Permits and Housing Starts numbers will be disappointing, but at this stage, no one is expecting that builders were going gang busters applying for permits and putting up new housing.

So maybe the numbers could actually help stocks move to the upside, as whatever is released today, will be old news that should have been already been discounted.

Tags: Building Permits  Housing Starts  Economic Calendar

Monday November 17, 2008
Navivest

It was not too long ago that the investment community was actively debating whether the Federal Reserve would raise rates or not at their next scheduled meetings.

That debate is now off the table as the economy has cooled substantially and if anything, the debate is now whether the feds will continue to cut rates to spur the economy.

Tomorrow, we get the Producer Price Index numbers for October. The PPI measures the price of goods at the wholesale level.

With the state of the economy and the drop in oil prices of late, we expect to see a tame PPI.

Investors watch the PPI numbers as it helps portend the direction of interest rates.

One thing we would like to know is what Dallas Fed President Richard Fisher is thinking now. At the August 5th meeting when the FOMC voted to keep interest rates unchanged, he dissented and voted to raise rates.

We wondered then whether he could not see what was beginning to happen to the economy and that things would get worse. To us, this lack of foresight disqualifies him for his job.

Tags: PPI  Economy  Interest Rates

Monday November 17, 2008
Navivest

Friday was quite an interesting session. Almost right out of the gate, stocks trended downward and by 1PM, a quick analysis would have had traders thinking that a down day for the stock market was a foregone conclusion.

At that point, the Dow, which had opened at 8822.19 from Thursday’s 8835.25 close, was down to 8469.99.

Around 1:15 the Dow and stocks in general, started rebounding from just about the lows of the session and kept moving to the upside until about 3PM, hitting an intra-day high of 8923.18. Then things turned around again and we saw another down trend. At about 3:52 PM, just 8 minutes before the closing, things fell of a cliff and we ended the day down 337.94 on the Dow Jones Industrial Average. Nasdaq was down 5%.

Things could continue to be dicey today. On Friday, the EU officially confirmed that the fifteen nations making up the Euro zone have officially entered a recession. A recession is defined as two consecutive quarters of negative growth and the EU zone saw a 0.2% decline in both the second and third quarters.

Overnight, Monday in Japan, the Japanese Economy Minister Kaoru Yosano announced that his nation had entered into a recession.

So the news keeps getting worse and stocks will continue to reflect that.

With all the news that the global economy continues to worsen, commodity prices should continue to suffer and investors should look to short related stocks. This should be down with the understanding that we will continue to experience volatility that could send the major indices up 5-8% or even more in one day. So taking profits whenever they occur and shorting whenever we get a nice rally might be a wise course of action unless you are willing to short and hold and have the fortitude to withstand those intermittent blips.

Tags: Economy  Recession  Trading Plan
 

Friday November 14, 2008
Navivest

The U.S. Commerce Department today reported that retail sales for the month of October fell by the largest amount since they started keeping score.

According to the Commerce Department, advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $363.7 billion.

This translates into a decline of 2.8% from September to October. If automobile sales are not factored in, the decline was 2.2%

Economists had been looking for retail sales with the sales of automobiles factored out, to show a decline of 1.0% from September and a decline of 1.9% with auto sales included.

This portends more bad news for the economy, as it shows that consumer spending, which makes up the bulk of the U.S economy, continues to slow and to do so at an alarming rate.

Tags: Retail Sales  Economy

Monday November 10, 2008
Navivest

Troubled by the downturn in the global economy and a slowing of its own economy, from an 11.4% annual growth rate last year to an estimated 10.5% this year, China on Sunday, announced an economic stimulus plan that will have the country spend $586 billion over two years.

The government which just last year was still talking about trying to slow down bank lending to certain sectors of the economy such as real estate so as to avoid over heating, is now planning on removing the credit ceilings of commercial banks so as to stimulate more lending.

The government is still somewhat cautious about over lending, and at the meeting where the removal of the credit ceilings was determined, it was decided that credit expansion must be “rational” and “target spheres that would promote and consolidate the expansion of consumer credit.”

China is planning on spending the $586 billion by the end of 2010 as follows:

Housing: Building more affordable and low-rent housing and speeding the clearing of slums. A pilot program to rebuild rural housing will expand.

Rural infrastructure: Speeding up rural infrastructure construction. Roads and power grids in the countryside will be improved, and efforts will be stepped up to spread the use of methane and to ensure drinking water safety.

Transportation: Accelerating the expansion of the transport network.

Health and education: Beefing up the health and medical service by improving the grass roots medical system.

Environment: Improving environmental protection by enhancing the construction of sewage and rubbish treatment facilities and preventing water pollution in key areas.

Industry: Enhancing innovation and industrial restructuring and supporting the development of the high-tech and service industries.

Disaster rebuilding: Speeding reconstruction in the areas hit by the May 12 earthquake.

Incomes: Raising average incomes in rural and urban areas. Raising next year’s minimum grain purchase and farm subsidies. Increasing subsidies for low-income urban residents.

Taxes: Extending reforms in value-added tax rules to all industries, which could cut the tax corporate burden by 120 billion Yuan (about 17.6 billion U.S. dollars).

Finance: Enhancing financial support to maintain economic growth. Removing loan quotas on commercial lenders. Appropriately increasing bank credit for priority projects, rural areas, smaller enterprises, technical innovation and industrial rationalization through mergers and acquisitions.

Tags: China  Economic Stimulus

Friday November 7, 2008
Navivest

The Bureau of Labor Statistics of the U.S. Department of Labor reported today released a report, which showed that non-farm payroll employment decreased by 240,000 in October and the unemployment rate jumped to 6.5%, from 6.1% in September.

Economists had been looking for a job loss of 200,000, with the unemployment rate climbing to 6.5%
For the first ten months of the year, the country has lost an astounding 1.2 million jobs and over fifty percent of that has come in the last three months.

We have seen jobs losses with every successive month this year and so far, not only do we not see an end in sight, the problem is actually accelerating.

According to the Labor Department, we saw continuing job losses in manufacturing, construction and several service-providing industries, while the health care and mining industries add jobs.

With the 0.4% jump to 6.5% in the unemployment rate, the number of those that are unemployed climbed by 603,000 and the 6.5% unemployment rate means there are now 10.1 million people without jobs.

Tags: Unemployment Rate  Economy

Thursday October 30, 2008
Navivest

The U.S. Commerce Department today, put out a report that showed the Gross Domestic Product or GDP, contracted at an annualized rate of 0.3%. Economists were looking for a rise of 0.3%.

The GDP which is the broadest measure of a nation’s economy, is the sum total of all the goods and services that a country produces. As such, a shrinking GDP means we are producing fewer goods and services, which would then mean less people employed, and all the other negative economic implications that come with that.

The number should not entirely be a surprise. Employment is already at 6.1% a 0.7% jump in September, from the 5.4% August 2008 rate. Consumer sentiment for October 2008 showed a reading of 57.5, a steep drop from the September reading of 70.3. Forecasters had been looking for the number to come in at 64.5.

Furthermore, major corporations have started to announce layoffs. Just today, American Express said it will be reducing its staff by 7,000 in an effort to save $1.8 billion next year. This is a full 10% of its workforce.

General Motors (GM) and Chrysler are reportedly in merger talks. If the merger goes through, thousands of autoworkers will be laid off.

San Francisco Federal Reserve President Janet Yellen who today was speaking at a forum in Berkley California entitled “The Mortgage Meltdown, the Economy, and Public Policy,” said that the state of the economy was “deeply worrisome”

She said the 0.3% contraction in Q3, would probably get worse in Q4 and further stated, “for the fourth quarter, it appears likely that the economy is contracting significantly.”

Tags: Economy

Wednesday October 29, 2008
Navivest

The Federal Open Market Committee of the Federal Reserve, decided today to cut its target for the federal funds rate 50 basis points to 1 percent.

The federal funds rate is the key bench mark interest rate in the U.S. and is also the interest rate that banks charge each other on overnight loans. This is the lowest the fed funds rate has been since 1958.

They also cut the discount rate by half a percentage point to 1 1/4%. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility, or the discount window.

Tags: Interest Rates  FOMC  Fed Funds

Wednesday October 29, 2008
Navivest

The stock market will probably be trading in a tight range until about 2:15 PM today, when we get the latest interest rate decision from the Federal Open Market Committee. the monetary policy setting arm of the Federal Reserve.

Traders might do well to just sit on the sidelines and digest yesterday’s gains until then. A cut is very much expected, so unless the cut is extreme, it probably won’t move the markets much and if anything, there is a chance stocks could start moving to the downside after we get the news unless again, we get a massive bigger than expected cut.

The benchmark Fed Funds Target Rate is now at 1.5% and while Wall Street is angling for an interest rate cut, some are already beginning to question whether we will benefit at all from lowering interest rates further. So it might not be worthwhile to trade ahead of the news.

Tags: Interest Rates  FOMC  Federal Reserve
 

Tuesday October 28, 2008
Navivest

The S&P/Case-Shiller Home Price Index, which measures home prices in 20 U.S. cities, registered a drop of 16.6%, for the month of August 2008. In July, we saw a 16.3% drop.

The index has shown a decline in home prices every month for the past nineteen months. The good news is that the number for August was right in line with forecasts and not worse.

Of the 20 cities covered, two, Boston and Cleveland, showed an increase in prices, while Phoenix and Las Vegas showed the worst price declines, with a 31% drop.

The S&P/Case-Shiller Home Price Index is calculated monthly using a three-month moving average and published with a two month lag.

Tags: Home Prices  Housing Crisis  Case Shiller