Morning Report: Santa Sighting

(Stocks in article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: WAG, NYSE: MER, NYSE: CC, NYSE: MMC, NYSE: UBS, Nasdaq: RIMM, NYSE: PHP, Nasdaq: RESP, NYSE: MU, NYSE: C)

Early warning radar has picked up a blip. Though there is a 50/50 chance it could be a Russian multiple warhead missile, bells ringing and children singing seem to indicate it may be Santa Claus. Well, better late than never! Odds are against it being a Russian nuke, with Putin visiting the boardroom of Gazprom to check out his new digs, maybe... An early economic report this morning is helping boost stocks. That said, consumer sentiment at 10:00 could shoot Santa right out of the sky.


Today's Market Factor Analysis:

Personal Income, Consumption and Inflation:

November personal consumption expenditures rose a better than expected 1.1%, versus consensus 0.8%. After adjustment for inflation, consumption rose a strong 0.5%, versus 0.1% in October. While November's strength is impressive, indications are that holiday sales in December have tapered off. The Greek strongly believes the holidays will tap out consumers and help drive recession in Q1. It's like that last sprint to finish a marathon, and then we collapse. Spending outpaced income, meaning consumers are drawing from savings in order to spend. However, we would expect this is typical over the holiday period.

Personal income also rose, but slightly missed expectations as it moved 0.4% higher. We would not expect much better news regarding income in the months ahead, as bonuses are expected lighter in many business lines this year, and we are looking for much employment consolidation in early '08.

The Fed's favored inflation gauge, the PCE Deflator, showed prices moved up 2.2% year over year, and entered the Fed's red flag zone above 2.0%. The Fed seems handcuffed for now regarding its ability to act against rising prices, but this certainly will be on their minds. We expect the Fed will count on some backup of prices that would be expected in recession, or in a slowing economy.

University of Michigan Consumer Sentiment:

Recent readings from this consumer sentiment measure, and others, have not been very uplifting. Expectations for December are for a reading of 74.5, versus 76.1 in November. We are concerned about the recently poor reading in small business confidence. Small businesses have been driving employment growth, and if sentiment there weakens, then employment should lose its base of strength.

Merrill Joins Pack Receiving Foreign Funds:

While UBS (NYSE: UBS) shareholders are up in arms over news that two foreign investors actually combined to fuel capital flow into the firm, Merrill Lynch (NYSE: MER) looks set to join the pack. Merrill is in discussions to bring $5 billion from Singapore's state investment company, Temasek Holdings Ltd., according to the Wall Street Journal. The flood of foreign capital into Wall Street has raised some protectionist eyebrows, but controlling interest has been submitted by none. So, who cares?! To those who argue that in time of heightened national security interest, this could be a problem, I say no way. In times of war, nations seize control and the only risk here is to the foreign investors. Also, I do not expect Dubai or Singapore to declare war anytime soon... China is a whole other story, but we are not going there yet. No stock would be safe to hold in that instance right? So, relax and accept the capital while we need it.

Cramer last night suggested that the next capital wave will be fueled by sovereign investment, and it's clear that this is already happening. Also, as the dollar stabilizes and strengthens, and please see past Greek articles on the topic, foreign capital will find impetus to get in while the bargains are hot. Prices could be going up soon. America is on sale now. I agree with Cramer on this, but I think he's early on his Goldman (NYSE: GS) buy recommendation. I would be short GS into early '08 and look long some of its beaten up rivals, like MER for instance. Citigroup (NYSE: C) still faces that dividend cut risk, but after that plays out, who better to benefit from sovereign investment than the king of the world, Citi.

Market-Moving News

• Bloomberg: Global Stocks, U.S. Futures Advance


• CNN Money: Merrill (NYSE: MER) May Get $5 Bln. Injection from Singapore


• Bloomberg: Personal Spending Healthy, Inflation Heats Up


• ECONOMIC REPORT 10:00: U. Michigan Consumer Sentiment


• DailyFX: Will the Dollar Strengthen Seasonally Again?


• Bloomberg: Muni Bond Insurance Prove Worthless to NY and California


• Platts: Crude Futures Rangebound


• SeekingAlpha: Can the Central Banks Cure What Ails Us?


• CNBC: Putin May Become Gazprom Chairman


• Yahoo! Earnings Calendar


• AP/Yahoo!: Circuit City (NYSE: CC) Looking Poor on its EPS Report


• CNN Money: Marsh McLennan (NYSE: MMC) CEO Out


• Financial Times: UBS (NYSE: UBS) Faces Rebellion Over Funds Injection


• CNBC: Research in Motion (Nasdaq: RIMM) Earnings More Than Double


• Forbes: Philips (NYSE: PHP) Buys Respironics (Nasdaq: RESP)


• TheStreet: Micron (NYSE: MU) Swings to Loss


• AP/Yahoo!: Walgreen (NYSE: WAG) Q1 Rises


• Breitbart: Asteroid Could Hit Mars


• BBC: Europe's Border Free Zone Expands


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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