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

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

With the Dow dropping a historical 777.68 points yesterday because the house voted to reject the bailout plan, we may see lawmakers going into overdrive and working on trying once again, to get the bill passed as early as today.

Initially, it was believed it would take at least a couple days for lawmakers to address the situation again, as Monday evening was the start of the Jewish holiday Rosh Hashanah, which lasts for two days.

However even those lawmakers who were skeptical that the markets would see a precipitous drop if the bill was not passed, now understand that the economy is in a free fall, we need some sort of brakes applied and they need to act quickly.

On Monday 09/29/08, Citigroup (C) bought the assets of Wachovia Bank (WB) in a fire sale. While Vikram Pandit, Citigroup’s (C) CEO, extolled the deal in a press conference, which considering that they picked up $700 billion worth of assets for $2.2 billion (they immediately wrote down about $30 billion of those assets) it does seem to be, you still have to wonder how much prodding they got from the government.

In other words, this was a rescue plan albeit from the private sector, that was done to “prevent” the failure of another very large bank just four days after Washington Mutual (WM) became the largest ($307 billion in assets) U.S. bank to fail after it went under on Thursday 09/25/08.

And with the bank failures now getting larger in scope and happening more frequently and the FDIC having only $45 billion in the insurance fund that covers deposits (up to $100,000 per account) in federally regulated banks, it won’t take much for the fund to get wiped out and the FDIC will have to go hat in hand to congress.

Today, on the economic news front, we will be getting Chicago PMI, which measures manufacturing activity in that region, for September, as well as Consumer Confidence, again for September.

The numbers will be bad needless to say and the fragile state of the economy will continue to be a topic of discussion, especially now that we can add major bank failures to the discussion.

From a trading perspective, unless we get a technical bounce and there is a big rebound in stocks today, there will be little buying and until the bailout package gets passed, its possible we won’t see any meaningful rise in stocks. So the trading plan for today is to gauge market direction, trade according, that is go with the flow and take early profits.

Sitting on your assets today, is not a bad course of action and we would recommend getting in only on one of two conditions, if it looks like we will get either a big move in stocks, in which case you short if we are heading down, or you go long if we are getting a bounce, or congress will be voting today on the package, in which case, you go long.

Other than that, watch for what lawmakers are doing, and on the day we will be getting a vote, go long the markets by trading indices and ETFs that track the market, or buy call options on those instruments.

If we do get that bailout rally, look to lock in your profits within two to three days. The fundamentals of the economy are horrible and earnings season is around the corner to remind us of that. So stocks should be heading down further.

 Tags: Citigroup  Wachovia  Bailout Plan

The Labor Department just reported at 8:30 AM, that the U.S. unemployment rate jumped to 6.1% in August from 5.7% in July and the news is not good for stocks. We are looking at a very weak open and possibly another triple digit decline again today.

U.S Stocks had been holding up well in the last few weeks, as the bad economic news focus had shifted to Europe. The U.S. was being seen as possibly being on the road to recovery, while the Eurozone was seen as just starting to sink into its own economic malaise. As a result, the dollar was rising and stocks were holding up, if not being dragged up in the dollar’s upswing. This unemployment rate numbers just reminded us again that all is not well here as well.

 Tags: Economy