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Seeking Alpha

Thursday, December 06, 2007

Morning Report: Lone Ranger & Tonto Ride Again (Bush & Paulson)


(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: SDS, Nasdaq: COST, NYSE: WMT, Nasdaq: MNST, NYSE: MCO, NYSE: TOL, NYSE: LTD, NYSE: AKH, Nasdaq: FRED, NYSE: LLY, LSE: RBS.L, NYSE: T, Nasdaq: SOLF, NYSE: TGT, Nasdaq: GSIC, Nasdaq: EBAY, Nasdaq: AMZN, Nasdaq: NILE)

The market again has a lot to digest Thursday, with key information regarding the mortgage market, employment and retail sales arriving simultaneously. Earlier this morning, the Bank of England and European Central Bank announced target rate decisions that have important repercussions for the dollar. Finally, oil is trading on the heels of yesterday's inventory report, while the EIA today publishes natural gas data at 10:30.



  1. Lone Ranger & Tonto Ride Again (Bush/Paulson's Mortgage Aid Plan) - As advertised, Treasury Secretary Paulson's plan will freeze introductory teaser rates on subprime mortgages, but better than advertised, the period of freeze will extend for five years. Qualification will be limited to those who entered into loans between the start of 2005 and July 30 of this year, and only to those borrowers who have yet to miss a payment. Now some of you will balk at this plan as a bailout, but realize that without confidence restoration to the financial derivatives market, your pension plan investments generally would have stood to bear the loss. Since this is a solution that does not burden you through increased taxes, and since the government is not bearing the cost, your only case can be made for the deserved hardship of others. Do you really wish your fellow Americans, however, ill-informed a decision they made, to go homeless? This is the time of year when it is easiest for me to reach your heart. No harm comes to you (kind of), and your fellow Americans in troubled subprime loans get the aid they need to maintain them as good consuming citizens who drive the American economy. I live within my means, just as many of you do, but I also mind my own business and live and let live, as you should as well in my view. This topic irks a great many Americans, because they see it as others getting a free ride. The banks bear this cost, and those who invested in derivative securities with expectations of receiving a better payout. Now, you may argue that the mutual fund you own that owns these securities will see the value decline, and I answer with this. Some return is better than the loss of the entire investment my friends. Kudos to the oft-criticized here Bush and Paulson. They finally figured it out.

  2. More Employment Data - Weekly Initial Jobless Claims eased off last week's spike, but still measured 338K, a number I view as indicative of an increasing trend. I expect unemployment to continue to show rise in tomorrow's jobs report. A very important report not often noticed accompanied this regular one. The Monster Employment Index measures online job demand. November's report measured 183, five points lower than October, marking the first such November decrease since the Index's inception. Online job availability was higher compared to the prior year figure, but remember, the online job search category on the whole continues to gain share from print advertising. The monthly decrease was widespread, as 18 of 20 industries measured showed decline. Monster.com (Nasdaq: MNST) notes a decline in retail/sales and leisure/hospitality, and I view this as indicative of a trend The Greek has been looking toward. As consumer confidence and spending decline, I am pounding the table on my warning about the coming consolidation in retail/restaurant/consumer sector and pending commercial construction recession and property value decline.

  3. Retail November Chain-Store Sales - Individual retailers begin reporting chain store sales for November today, with initial reports from Wal-Mart (NYSE: WMT) and Costco (Nasdaq: COST) offering positive news. Seems the earlier Thanksgiving this year versus last, and the sort of wake up call to consumers that the holidays had arrived allowed that final period after Thanksgiving to spur enough spending strength to maybe save the month. This coincides with recent scribblings here on the subject. The holiday's offer retail a chance to bounce, but I continue to see this as a short-term phenomenon that will turn off after the holidays. However, all the news has not been good and the majority of retailers have offered weaker results than expected. Target (NYSE: TGT) lowered its forecast as well. Still, it's the holidays and employment is still pretty good. The Greek continues to favor online shopping sites and related firms, and see our research on the subject here.

  4. ECB, BOE Announcements, Dollar Impact - The European Central Bank and the Bank of England both announced their respective rate decisions this morning. As expected here, the BOE cut rates, while the ECB kept rates steady. Europe is contending with a difficult balance of inflation and economic growth. It's hands are somewhat tied, as it sees heating inflation and an economic outlook that looks tougher as time goes on. Recent examples we offer our the news from Greece today, which reported consumer inflation at 3.9%. At the same time, the critical German economy and business confidence look to soften in '08. Energy and food prices seem to be impacting European inflation in a more pronounced manner than in America. However, this might have a lot to do with the greater availability of capital in the U.S., which of course is showing signs of great risk assessment error. Perhaps our inflation would be more drastic now otherwise. This seems to say that our inflation will adjust higher as we mitigate credit issues, and as the credit environment tightens in America. I guess capital is free flowing when it's not yours! In the U.K., the situation is more like the American environment, with housing and credit markets also tanking. All this news is good for the dollar, and should allow the stabilization I've been calling for to really take hold now.


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