Morning Report: Infusion of Confidence

(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: C, Nasdaq: SPLS, NYSE: BCS, Nasdaq: FSLR, Nasdaq: RVBD, Nasdaq: CMRG)

Stocks have opened higher this morning supported by an investor show of confidence in Citigroup.

1. Confidence Restored as Citigroup Gets Infusion - Citi (NYSE: C) received a $7.5 billion cash infusion from the Abu Dhabi Investment Authority. The preferred stock dealt will yield 11%, and is convertible to shares starting in March 2010 at prices up to $37.24. The investment represents a 4.9% stake in Citi, and it would seem a good investment for as long as geopolitical stability holds. This should provide some confidence to the troubled financial sector, and help stabilize the group. While I believe the shares could show short-term strength, I remain concerned about the December FOMC meeting and the result I'm looking for in inaction. However, I would be solidly long by New Year's in any event.


2. Economic Data & Analysis - This mornings weekly same-store sales report from the ICSC-UBS showed a 2.5% year-over-year increase for the Black Friday inclusive period. Not bad... Population growth continues, prices have risen and unemployment is still relatively strong, so this should not be such a surprise. Still, we note that the result was not especially strong, just still displaying signs of life. At 10:00 a.m., the Conference Board will report Consumer Confidence, with Bloomberg's consensus looking for a reading of 90.5. The University of Michigan measure was adjusted higher last week, but not much higher to a still poor 76.1. Despite ongoing holiday shopping, the consumer is showing signs of strain and concern that I view foreboding for economic recession in '08.


3. Saudis Confirm Production Boost - Not really. The Saudi Minister only indicated that production was up about 200K barrels a day from a point before the November 1 OPEC increase. He would not confirm that OPEC might raise production next week when it meets. This is really no news folks, but it's being interpreted as bearish and interpretation is important for short-term price movement, not reality. I do expect OPEC to raise production though, and this week's inventory data and price activity may play a final role in that decision. However, a loyal Greek, reader forwarded me an article yesterday indicating that the U.S. has secured more tankers than usual to transport more fuel than usual to the Middle East and Indian Ocean fleets and bases over the near term. I've suspected all along that the strategic oil reserve may be filling at a rate faster than the published rate, and this news, confirmed by the government, seems to point toward a coming need. Analysts are speculating that it could be for a war game demonstration, but logic tells us that '08 will be the year war begins with Iran. I'm willing to go out on a limb here again because of my conviction on this topic, and because this is what you deserve from independent research. The only data bit conflicting with the war scenario is the U.S. effort to build a missile defense shield in Eastern Europe. However, it's also possible that we are covering all basis. I remain bearish oil for the short short-term, and bullish over the medium and long-term.
   

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