The Greek's Week Ahead has been engineered to prepare you for the events that could impact your portfolio this week.
The week ahead brings with it the turn of the year, but what's in store... Will it just be more of the same? This is the easiest forecast to make, and the one you will see most commonly presented by the talking heads on your favorite financial channel. There will also be the extremists, who will predict extremes in either direction. But this is a topic for a pending article to discuss, "The Year Ahead - 2008," coming soon to Wall Street Greek.
For now, let's just focus on next week. The trouble in Pakistan is the most important issue in the week ahead, despite the employment data due. Chaos has not ceased, but the rise of Bhutto's son to symbolic party leadership at least gives Musharraf's opposition something to focus on rather than destruction. Benazir's husband, Asif Ali Zardari, is taking over active leadership of the party, but he was once known as "Mr. 10%," notorious for taking cutbacks. The wise thing now for President Musharraf to do would be to delay the election and allow the population of the country to ponder the risk of an emotional decision. The world will probably not underestimate that risk either, given Pakistan's store of nuclear warheads.
I've been to a third world country or two in my time, and I have to say, don't judge men by our standards. In poor nations where kickbacks are the norm, however immorally hazardous for the soul this is, it's also the only way for these poorly compensated legislators to survive sometimes. By choosing the public office over private industry, they make a patriotic decision that severely impacts their wallets. This is why corruption runs rampant. The first thing a government that truly seeks the high road should do is to properly compensate legislators, important officials, military commanders and police. It's the only way to reduce corruption that can be corrosive to progress. We have to hope Benazir rubbed off a little bit on Zardari. President Bush looks to be keeping his bets on Musharraf for the sake of the value in keeping the "devil we know."
If Musharraf delayed the election, he would give his opponent a chance to speak, to be heard, to err. He would allow time for the world to weigh in as well. What happens next is yet to be seen, but we will tell you one thing, our trust in Musharraf has decreased significantly also. We now view him as a liar, a serpent even. In order to retain power, he has made a deal with the devil, in fact with every devil that has threatened him. He would deal with a new devil to spear an old one if he had to.
We use to think that his presence in office was a stabilizing force for his country, but we now understand that he is in fact a pressure inducing force that will eventually lead to an explosion, like the one we saw on Thursday that killed that great hope Bhutto represented. We are not saying Musharraf was behind this, but the nonsense coming out regarding the inconsequential cause of death is telling. We know there was gunman; we know there was an explosion. It does not matter if she hit her head or was shot. She died as a result of that attack. It seems Musharraf sees some value in creating illusion, that somehow he will not be blamed for the lack of protection she had if she bumped her head. Now, we believe her own party should have protected her, but Musharraf's actions are still undeniably shady. Even so, we have to weigh the consequences of a Musharrafless Pakistan. But, really, how strong of an ally is he?
The fact that al-Qaeda and Taliban wander Pakistan freely is indefensible. The fact that President Bush trusts Musharraf and Putin is embarrassing, or an ingenious strategy of deception upon deception. She was our gal, Bhutto that is. We wanted her in office, and because of this, her killer could be one of many possible enemies. She could have been as strong an ally as Sarkozy is in France. Al-Qaeda was well aware of this.
We find one thing especially disconcerting about Bhutto's assassination. It bears strong resemblance to the assassination of the head of the Northern Alliance, Ahmed Shah Massoud, which immediately preceded the attacks on the World Trade Center. Considering that New Year's Eve follows by just days this event, and this year's alarm raised by the Chief of Homeland Security when he said he "just had a feeling;" we think there's enough here to be a little worried about this year as much as any. New Year's Eve in Times Square and in every major city is a globally watched event. There is no better way to impact the world with terror than to strike on New Years Eve, in our view. Al-Qaeda itself has been quoted saying some especially ominous things this year, and more than just the usual "we will destroy you all!" Our cause is not to stir alarm, just to remind you of that historical precedence al-Qaeda has of linking assassination with attack.
Let's examine what AQ has to gain from Bhutto's death. Well, unrest now rules Pakistan. If AQ attacks the west now, while chaos rules Pakistan, is Musharraf in position to mobilize forces and efforts against AQ? We say no. The assassination of the Northern Alliance leader was meant to destabilize the most threatening opposition to the Taliban, or sort of insure al-Qaeda's safety after 911. They underestimated us of course, but this was their goal.
Musharraf would clearly be in a difficult position now; at the same time, he just announced some new form of effort (read deception) against AQ on the Afghan border, and this would seem like the complete opposite effect AQ would hope for from the Bhutto assassination... unless al-Qaeda and Musharraf are married. Can we really rule that out as we reflect on Bin Laden's status some six years after the worst attack on American soil in decades?
We do not believe Pakistan is majority fundamentalist militant. However negative sentiment may be toward the U.S., we do not believe the country in majority is militant level negative. Still, the country is near out of control, has a significant fundamentalist presence, and resembles Iran pre-revolution. Thus, we are one bullet in Musharraf's head away from hell. Is it that far-fetched to imagine a foreigner, one of rock star status perhaps, walking into Pakistan and taking leadership like Ayatollah Khomeini did (though he was a patriot of his country). So, is it impossible for Osama Bin Laden to walk into a revolutionary Pakistan and suddenly raise al-Qaeda to nuclear nation state status. We think it's unlikely, considering humanity's love of nationalism, but religion in that part of the world is just about even in importance.
Years ago when I use to talk about Pakistan, and Iran even, and geopolitical unrest, my naive bosses, friends and colleagues, who like most Americans are much more concerned with what's for dinner and how the Yankees are doing, would make fun. We wish the world were as stable as those folks, and as interested in dinner, but unfortunately the world is not. The world is still a very selfish place, and as that greatest generation fades off, we fear the lessons learned by it will be lost as well. We'll discuss the geopolitical picture in broader extent in the "Year Ahead" article. We think you will be surprised with our hope regarding Iran, and President Bush's important decision.
Market-Moving Event Schedule
Monday
New Year's Eve marks the last trading day of 2007, and it will be a full one. The bond market closes at 2 p.m., however, while markets in the U.K. and France shut down early. Markets in Japan, Germany, Russia and Brazil will be closed the entire day. The day also marks the deadline for former European colonies to form new trade and investment relationships with the EU.
While you might otherwise expect it to be a light trading day because it comes just ahead of a holiday and marks the close of the year, tax loss selling still might prove meaningful. If you think not, I ask you to remember how people line up at post offices around the country on April 15th year after year. Procrastinators abound, and so trading on Monday will probably be more active than expected.
Monday is not economic data empty despite its near holiday status. Existing home sales for the month of November are set for release at 10:00 AM EST. Bloomberg places consensus expectations at an annual run rate of 4.97 million sales, which exactly matches October's level. Considering new home sales fell off a virtual cliff in November, dropping 9%, Wall Street Greek expects existing sales to follow suit. We say this because home builders market more actively than real estate agencies, we believe.
The semiconductor industry will take tally of its own health on Monday, as the industry's association issues its November global sales report. Sales were up 5% in October. Monday's earnings schedule includes only SINOENERGY Corp. (OTC BB: SNEN.OB).
Wednesday
As the American market resumes trading, many markets overseas remain closed for another day and even through the week in some instances. With the start of the year, Japan takes over leadership of the Group of Eight industrialized nations.
U.S. motor vehicle sales will lead off the day's economic reports at 7:00 AM, but one resource indicates this report could be a day late this time around, so look to Thursday for it in that case. Bloomberg's consensus of experts sees a December measure of 12.3 million sales. Sales of autos have weakened as the consumer has become strained. As a result, auto industry benefits from cost cutting and renegotiation with the UAW are not having as much impact as would be expected otherwise. In other words, the catalyst for share rise has been somewhat stymied.
At 7:45, the ICSC-UBS will report its now widely followed weekly same-store sales data for the period ended Dec 29. The reporting period (last week) was especially important, as the period just following Christmas accounts for approximately 16% of holiday sales. The period being measured also included the last few days before Christmas, which of course are highly significant sales days. The last week measured showed a year-to-year sales increase of 2.8%.
At 10:00 AM, the ISM Manufacturing Index is expected to reach 50.9 for December. Despite supposedly still strong international demand for U.S. goods, Philly Fed and the Empire State Manufacturing data indicated a softening trend here. Only Chicago-land posted a solid measure this time around. We think ISM could come in closer to 50 or below it, indicating contraction. We expect later readings in January and February will fall sub-50.
Construction spending in November is expected to have decreased by 0.3% when posted at 10:00. October's reading showed a deceleration of 0.8%. At 2:00 PM, the FOMC Meeting Minutes from December are due, and we will find this especially interesting reading. Recall, the Fed told us it was neutral, and then individual public discussions by Kohn, Bernanke, Kroszner and Mishkin left reason to doubt and offered up some confusion and conflicting statements. We expect the minutes will prove less enthusiasm inducing than the 25 point move did in December, and that's not saying much. Be careful treading Wednesday afternoon. The earnings schedule looks empty on Wednesday, but preannouncment season is still here.
Thursday
The big guns of economic and labor concern arrive Thursday morning when the ADP Employment Report, Challenger Job-Cut Report, Monster Employment Index and Initial Weekly Jobless Claims are released. ADP offers up the most important prelude to the Labor Department's report the next day, and the market pays heed to the news. Wall Street Greek believes employment data will show a deterioration of the labor situation in the very near future. We've outlined countless times our view that the next sector of the economy to slip will be consumer sensitive, and that's not breaking news anymore. As retail results falter, and following the busy holiday period, The Greek expects retail/restaurant and other consumer sensitive businesses to begin consolidating operations. Layoffs should precede later store closures, as we are confident that the environment is a saturated one. REITs focusing on commercial space should be a dangerous place for capital now, as should the shares of commercial construction beneficiaries. Jobless claims are seen reaching 345K, and have been noticeably increasing this fall/winter. If you are still standing after the barrage of labor data, November Factory Orders could do you in. However, the consensus is looking for an increase of 0.5% on this measure.
With Pakistan in dismay, and with "Mr. 10%" and a teenager scheduled to take over for Bhutto in the People's Party attempt to win control, oil traders have their hands full this week. That said, they will also receive their regular bit of inventory information from the EIA at 10:30. Remember, last week's supply draw alongside the assassination of Bhutto drove oil up near $100. We could already be there by Thursday, but if not, well we think the odds favor it in the near term.
Thursday's earnings schedule includes Bed Bath & Beyond (Nasdaq: BBBY), Monsanto (NYSE: MON), AngioDynamics (Nasdaq: ANGO), CelebrateExpress (Nasdaq: BDAY), Finish Line (Nasdaq: FINL), Global Payments (NYSE: GPN), Landec Corp. (Nasdaq: LNDC), Neogen (Nasdaq: NEOG), Sonic (Nasdaq: SONC) and UniFirst (UNF).
Friday
Friday's Employment Situation Report is not expected to offer a rally cry, to say the least. Bloomberg's consensus is looking for non-farm payrolls to rise only 70,000, which is a recessionary type number. Wall Street Greek expects unemployment to move higher to 4.8%. All indications are that we are heading over 5% in short time from here. Average hourly earnings are seen appreciating 0.3%, which is hot in our view.
Later Friday at 10:00, the ISM Non-Manufacturing Survey is seen measuring 53.8 for December. Sorry Charlie, we are looking for the service sector to start showing weakness. With small business confidence waning, most signs point toward an all around troubled early start to '08.
At 10:30, the EIA offers its storage information concerning natural gas. Natural gas has not fully paralleled oil's move; in previous energy spikes natural gas has moved into double digits, and it's only in the $7 range now. A lot of this has to do with basically full storage of this fuel source, however, with oil so expensive, we think a good deal of energy users could convert to natural gas from heating oil this spring.
Last, but certainly not least, be on the lookout for that disruptive Don Kohn on Friday, as he's scheduled to find a podium. Recall, it was his voice this past fall that rallied market expectations for the rate cut. Friday's earnings schedule includes A. Schulman (Nasdaq: SHLM), AZZ Inc. (NYSE: AZZ), Piedmont Natural Gas (NYSE: PNY) and Texas Industries (NYSE: TXI).
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Labels: Week Ahead
