Week Ahead: Bailout or Bust!

By The Greek:

While many of you just don't want to hear it, if we do not get this bailout passed, we have stock market ruin and economic depression to look forward to. Even so, this action may have come too late in the game anyway, as fear is now loose on Main Street and bank runs are growing in popularity, Wachovia (NYSE: WB) being the latest. In that regard, let's not forget why we are taking this action, which is to reassure American depositors in the reliability of their banks and the financial system. We are cutting the cancer out of these organizations, so that they might live another day. Because, if they do not survive, we will mourn with great pain and for very long.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

Last Week

Lost in the mayhem of bailout mania was the fact that last week's economic data was decidedly disappointing. From start to finish, data points offered nothing but poor result. While Lehman Brothers (NYSE: LEH), AIG (NYSE: AIG), Washington Mutual (NYSE: WM, NYSE: JPM) and Ben Bernanke, Hank Paulson and elected officials dominated the news wires, home sales, durable goods orders, retail sales and weekly jobless claims quietly provided equally concerning information, albeit in stealth.

On Tuesday, the ICSC Weekly Same-Store Sales Report showed growth moderated again, as sales sank 1.0% from the prior week, while rising just 1.3% over the prior year result. Weekly sales growth has been decelerating since the end of "back to school" season, on the year-to-year comparison, and we expect things to get significantly worse before we reach Thanksgiving. As a result, we expect to see consolidation in the restaurant/retail space, and resulting commercial real estate deterioration. This is a facet of the economic cycle we've been calling attention to for more than a year now, but we see further deterioration ahead. So, for all you happy tots who have gleefully owned The Gap (NYSE: GPS) and other anomalies in retail, there's a saying about not counting your chickens before their hatched, you might look into...

Last Wednesday and Thursday, both Existing and New Home Sales Reports provided worse than expected data, with New Home Sales offering the most surprising miss. The annual rate of new homestead sales fell to 460K, versus economist expectations for a reading of 510K. We authored an article in response entitled, "Housing Recovery on Hold." Check it out.

Then on Thursday, the worst news of all came in the form of Weekly Initial Jobless Claims, which tallied 493K. I think it's only been a week or two since your favorite Hellene wrote, "It's only a matter of time before we break 500K," or something along those lines. Odds are now down to 1:1 on this one. You could make more money betting on the Mets. Oh no he didn't!

Also on Thursday, Durable Goods Orders came in as bitter as Mets fans in September. August orders fell 4.5%, versus expectations for a more modest decline of 1.6%. Orders had been flat to up since April. Slower order flow means decreasing factory/office capacity utilization and productivity, which means either tighter future profit margins or layoffs. Either card kills this hand.

So with a horrible week now behind us, and a government bailout progressing toward enactment, investors are thirsty for some good news. So, let's explore what refreshment, or poison, the week ahead might hold in store.

The Week Ahead

Monday

With the post-midnight publishing of the final composition of the "Emergency Economic Stabilization Act of 2008," you can expect all media focus to be on the report, on expert-reaction to it and global market reaction. Also, we expect the Treasury Secretary and Federal Reserve Chief might engage in a press conference, possibly alongside the President and Congressional Leaders on Monday. The President already addressed the nation, and the presidential candidates will also be expected to respond.

Wachovia failed this morning, as feared, but depositors will find statements arriving from Citigroup (NYSE: C) shortly. Finally, one slipped through the hands of that wily J.P. Morgan Chase (NYSE: JPM).

On the scheduled slate, Personal Income and Outlays for August are set for 8:30 AM ET release. Bloomberg's consensus of economists forecasts 0.2% increases for both income and consumption. This compares to a 0.7% decrease in income in July, coming on the conclusion of stimulus distribution. Outlays rose 0.2% in July, and as we know, August data has seasonal benefit to look forward to. After that though, we would not expect good news from this report. Kansas City Fed President Thomas Hoenig is scheduled to speak on Monday, and nice scheduling at that.

Internationally, Chinese markets are closed all week, while the Australian market is closed Monday only. At the hour of the authoring of this piece, U.K. Bank, Bradford & Bingley (OTC: BDBYF.PK) was taken into conservatorship by the United Kingdom, with some of its business sold to Santander's (NYSE: STD) Abbey National (London: ABO6.L).

A new authorized biography about Warren Buffet is set for release on Monday. In corporate events, W.R. Grace (NYSE: GRA) argues its case with bondholders before a U.S. Bankruptcy Court in Delaware. FedEx (NYSE: FDX) is scheduled to host its annual meeting, and the earnings report schedule includes a couple companies facing headwinds in Steelcase (NYSE: SCS) and Circuit City (NYSE: CC). The remainder of the schedule includes Cal-Maine (Nasdaq: CALM), CMGI, Inc. (Nasdaq: CMGI), Dynatronics (Nasdaq: DYNT), Fonar (Nasdaq: FONR), Hi-Shear Technology (AMEX: HSR), Napco Security Systems (Nasdaq: NSSC), TRC Companies (NYSE: TRR) and Walgreen (NYSE: WAG).

Tuesday

In the pre-market on Tuesday, look for the ICSC-UBS Weekly Same-Store Sales data at Market Moving News (stock market news aggregator). The Redbook Survey is also published each Tuesday morning, and reported on this website. We expect a continuation of recent deterioration. Also in the early going, the S&P Case Shiller Home Price Indices are due for July. We so no reason to expect anything but further price decline, given economic circumstances and recent housing data.

The National Association of Purchasing Managers - Chicago notes its Business Barometer Index at 9:45 on Tuesday. The Midwestern measure of manufacturing activity is seen reaching 53.0 in September. While a reading above 50.0 indicates economic expansion (read good thing), the forecast for this month represents a decrease from August's measure of 57.9. At 10:00 AM, the Conference Board is scheduled to post Consumer Confidence data for September. The economists' consensus forecasts a reading of 55.0, which compares to 56.9 in August. In other words, the overriding theme of economic deterioration continues.

Atlanta Fed President Dennis Lockhart is scheduled to address a group on the topic of the economy. On the corporate scene, Reliance Communications is holding its annual meeting. The very light earnings schedule highlights Pepsi Bottling Group (NYSE: PBG), and includes Landec (Nasdaq: LNDC), Marshall Edwards (Nasdaq: MSHL), Palatin Technologies (AMEX: PTN) and Xyratex (Nasdaq: XRTX).

Wednesday

As sure as the sun rises in the east, The Bank of Japan will start the day's news flow on Wednesday with its release of the tankan survey for September. Barron's reports that Japanese manufacturers should display pessimism for the first time since 2003. Keeping with the international theme, markets will be closed in Hong Kong, Indonesia, Malaysia and Singapore. China will take over the lead role of the United Nations Security Council, but as the UN fails to push Iran as aggressively as we would like, John McCain has proposed a League of Democracies to get the job done.

Monthly employment reports begin on Wednesday, with the Challenger Job-Cut Report and ADP Private Employment Report released in the pre-market. Last month, Challenger noted announced layoffs of 88,736 and ADP reported a loss of 33K jobs. We have no expectation for anything better this time around.

August Construction Spending is seen decreasing 0.5% on a monthly basis, compared to a 0.6% drop in July. The Institute for Supply Management is scheduled to measure the state of manufacturing at 10:00 AM. The September reading is expected to rate at 49.5, versus 49.9 in August, and economic contraction should be surprise to nobody at this point.

Detroit will report light motor vehicle sales (perhaps we should say "lighter"), with consensus forecasts set at 10.08 M, down from 10.3 M last month. Last week, several automakers announced expanded hybrid vehicle plans, but not many are seen reaching market soon. Meanwhile, the Southeast hopes to see the end of the gasoline shortages experienced last week. The shortages were not due to waning global supplies of crude or OPEC production constraint, but rather, the impact of two hurricanes on refinery operations.

The SEC has an open meeting scheduled, and in light of recent political pressure, you can expect the SEC to turn up the heat a bit on investors and public companies alike. I view this unfortunate, because we needed the oversight years ago, not after the fact.

The two regular Wednesday reports, Mortgage Activity and Petroleum Status, are due at their usual times. The more I think about all the events that have occurred, the more I think the interest rate outlook is less certain than most believe.

On the corporate front, the Air Force is taking one more stab at it, accepting bids again for refueling tankers from Boeing (NYSE: BA) and Northrop Grumman (NYSE: NOC). Recall, after the first time around, there were allegations by Boeing, later confirmed true, of improper process. The earnings schedule includes Actuant (NYSE: ATU), Immucor (Nasdaq: BLUD), Micron Technology (NYSE: MU), Standard Microsystems (Nasdaq: SMSC), The Mosaic Co. (NYSE: MOS) and Wolverine World Wide (NYSE: WWW).

Thursday

Overseas, markets in India and Pakistan will be closed. In Europe, the ECB makes an important rate decision for the euro zone. Expectations are that the ECB will hold rates steady as the threat against the global economy is now clearly more important than its recent inflation concern. In the States, three regional Fed Presidents are scheduled to speak.

The employment data parade enters day two on Thursday, as the Monster Worldwide (Nasdaq: MNST) Employment Index is released in the early going. Last month, the August reading showed two point improvement from July, rising to a level of 159. Weekly Initial Jobless Claims jumped last week to 493K, and so the economists' forecast has edged higher from recent prediction level, standing at 475K for this week. We'll be over 500K before you can cay Hank Paulson.

August Factory Orders are due at 10:00 AM ET, with the economists' consensus looking for a 2.5% decrease month-to-month. July marked a 1.3% rise. As recession sets in, orders are near certain to decrease, especially as export demand wanes. At 10:30, look for the regular Natural Gas Report to again post increase to inventory storage.

At 9:00 PM, you'll want to tune into the Vice Presidential debate. Sarah Palin has been on a crash course to boost her foreign policy expertise, so I would not be surprised to see a much more seasoned Joe Biden make her look foolish on a series of issues across topics. The deeper we get into real issues, the more this decision looks like a flawed one for McCain. The fruit of Palin's tree, i.e. her answers to questions, have revealed her inexperience and raised my own concerns about her ability to run our country if the aged McCain were to need a baton exchange. I'm growing uncomfortable with Obama's ability to run the country as well, due to his initial reactions to events. Even though the best presidents are good decision makers surrounded by well-seasoned and schooled advisors, I fear he's in need of more seasoning just the same. If I could put McCain and Biden together, I think I would have the ticket I would be most comfortable with. What are the odds of that happening!

On the corporate front, Lehman Brothers Holdings is making Bankruptcy Court request to borrow as much as $450 million from Barclays (NYSE: BCS), the purchaser of its brokerage assets. Reporting earnings, look for news from AngioDynamics (Nasdaq: ANGO), Constellation Brands (NYSE: STZ), DemandTec (Nasdaq: DMAN), Global Payments (NYSE: GPN), Lawson Software (Nasdaq: LWSN), Marriott Int'l (NYSE: MAR), MSCI, Inc. (NYSE: MXB) and Resources Global Professionals (Nasdaq: RECN).

Friday

The clear focal point on Friday will be the Employment Situation Report. Economists expect the economy shed another 100,000 jobs in September, after losing 84K in August. Unemployment is expected at 6.1%, equal to last month's measure. You must be wondering how unemployment could stick at the same level despite heavy weekly job losses and an estimated 100K net reduction for the month. It's because of population growth, and rounding benefit due to the three-tenths of a point rise last month. However, we still believe deterioration should be ongoing, whether this month or next... it seems clearly possible now too. Remember also, unemployment was 4.9% just a few months ago, in January; the pace of this change has been more disturbing than anything.

ISM reports its nonmanufacturing data at 10:00 AM ET. Bloomberg's experts see a reading of 50.0, as the broad service sector rides the fence of economic expansion/contraction. Nada, look for a reported result lower than 50.0 as the months progress, without a doubt. After all, who are we going to serve if money, lending and spending dwindle. Perhaps debt collection activity will increase, but that's about it.

Markets in South Korea and Pakistan are scheduled to close on Friday. In the U.S., AIG (NYSE: AIG) holds an investor call at 8:30, if there are any left to listen. The earnings schedule includes Family Dollar (NYSE: FDO), which is appropriate since America's families may be left with about that sum by Friday.

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