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The Wall Street Greek blog is the sexy & syndicated financial securities markets publication of former Senior Equity Analyst Markos N. Kaminis. Our stock market blog reaches reputable publishers & private networks and is an unbiased, independent Wall Street research resource on the economy, stocks, gold & currency, energy & oil, real estate and more. Wall Street & Greece should be as honest, dependable and passionate as The Greek.

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Wednesday, October 29, 2008

Confidence Lost - Consumer Sentiment at All-Time Low

consumer sentiment investor confidence lostBy The Greek - Economy and Markets

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

Every measure of consumer and investor sentiment shows Americans intently concerned about the economic situation and unraveling financial markets. I think the consensus of experts agree that Americans have good reason for trepidation. Economists, government officials, media and even Joe the Plumber are in fact reinforcing expectations for economic trouble these days.


Conference Board's Consumer Sentiment Index

The most recent litmus test of the consumer's mindset, the Conference Board's Consumer Sentiment Index, hit an all-time low in October, as reported on Tuesday. The New York area research firm indicated its October reading of 38.0 was the worst on record, and that record dates back to 1967. The index is a broad measure, based on a survey of 5,000 Americans. The October drop of 23.4 points, from September's revised level of 61.4, represented the third largest in the history of the series.

If ever there were a time, these are truly days worthy of record lows. We've seen the largest bank failures in our history and the greatest government intervention as well. Unemployment is widely expected to climb to as high as 10% as recession takes grip of the economy. The Conference Board measure indicates that consumers have also bought into that view. The percentage of consumers saying "jobs are hard to get" rose five points to 37.2.

The index stopped counting on October 21st this month, and even though things got worse thereafter, it was clearly a tough time to take count. Still, the Conference Board's measure was not the only metric recently showing dramatic deterioration.

State Street Investor Confidence Index

State Street (NYSE: STT) offered its latest measure of global investor confidence on October 21st, and it dropped 17.5 points to 58.2. The decline in North American investor sentiment was particularly dramatic, as confidence in the region fell to 50.8. In case you were wondering, European confidence fell just slightly to 79.6, while Asian investors' feelings were captured at 86.5.

State Street's index pays particular attention to asset allocation, rating equity exposure as a barometer of investor preference for or avoidance of risk. As you might have imagined, plenty of capital had run out of equity portfolios in the measured period this time around. State Street Associates Director Paul O’Connell said, "The period over which this reallocation was measured in investor portfolios, September 17 to October 15, saw the largest single reallocation away from risky assets that we have witnessed in the data since it first became available in 1994."

The fact that State Street's metric looks at actual capital flows, and its mention that this last period dwarfed the activity during the Asian Crisis of 1997 and the Russian-LTCM Crisis of 1998, is disturbing to say the least.

Reuters/University of Michigan Consumer Sentiment Index

Reported mid-month, the University of Michigan's preliminary measure for October fell to 57.5, from September's final reading of 70.3, marking yet another huge falloff in confidence. Economists were looking for a reading 8 points higher than that. We found both good news and bad news in this report. While long-term inflation expectations have retreated significantly from prior concern levels, economic expectations have been significantly damaged. Michigan's "Expectations" reading was even lower than the Sentiment measure, at 56.7.

So, it's unanimous across sentiment readings. In one case though, the money is where the mouth is, as State Street measures real capital flows. This leaves us with an important question. Will consumers also put their money where their mouth is, and refrain from spending over the quintessential holiday shopping season? What kind of damage would that do to the retail/consumer discretionary space (AMEX: SZK, AMEX: XLY, NYSE: RTL), and what residual effect would commercial real estate see. If you've been reading our column, you already know this is a rhetorical question.

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Fed FOMC Rate Action - 50 Basis Point Cut

fed cut rates
Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.


The Federal Open Market Committee (FOMC) voted unanimously for and announced a 50 basis point reduction of the Fed Funds Rate, bringing it to 1.0%. The FOMC Policy Statement reads word for word:

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today's rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco."

Greek Color

This action was anticipated, and stocks rose throughout the day. Just ahead of the report, the broader indices started downward and have held around announcement price. Still, as we enter the volatile last hour of trading, you can expect significant action. It's hard to say whether the money flow that drove stocks higher yesterday will make evident again today, or if this "news" will be sold after the "rumor" was purchased yesterday.


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Tuesday, October 28, 2008

S&P Case Shiller Home Price Index Sinks

home prices index real estateBy Markos N. Kaminis - Economy & Markets

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

The S&P Case Shiller Home Price Index noted deteriorated prices again in August. While it would be more relevant to know how October fared, or even September, the downtrend continued in this latest reported period. However, recent reports on September New and Existing Home Sales have offered signs of stabilization. Ironically though, in this case, the older data might actually offer the more trade-useful information.


Home Prices

While the year-to-year declines of 17.7% and 16.6% for the 10 and 20 city composites, respectively, are troubling, we view the monthly change a more useful barometer now. In this case, however, the message isn't any different. Prices fell 1.0% in August for the 20-region aggregate.

Foreclosures continue to play a big role in general price decline. As a result, we would look toward a point of sincere foreclosure inventory reduction, in order to confidently anticipate general price stabilization.

Two regions of the twenty counted by the index posted price increases, Cleveland (+1.1%) and Boston (+0.1%), while San Francisco noted the greatest decline (-3.5%). New York area prices fell 0.2%, after declining 0.7% in July. Year-to-year, markets in Phoenix and Las Vegas have seen the greatest drops, down 30.7% and 30.6%, respectively. The markets least impacted were found in Dallas and Charlotte, down just 2.7% and 2.8% on the year, respectively.

New Home Sales

Yesterday, New Home Sales were reported running at an annual pace of 464K in September, up from 460K in August. The result also exceeded consensus expectations for 450K. Also noteworthy, the direction of change matched last week's Existing Home Sales data for September. Running at a pace of 5.18 million, home resales exceeded expectations for 4.92 million, and represented improvement from 4.91 million in August.

Why Old News Matters This Time

Normally, we would render meaningless the older information, but this time around the old news is incidentally also likely to be more useful. The basis of our point is best illustrated through notation of today's Consumer Confidence Index report. The Conference Board's October measure of consumer sentiment showed dramatic deterioration to 38.0, from an already bad September point of reference (52.0).

While housing collapse started this mess, the consumer cycle it helped set in motion appears about ready to lap it and bite housing in the rear. As consumers lose confidence, that large purchase of a home becomes even less likely than smaller spends. Tighter lending constraints only exacerbate that reality.

Today's ICSC Weekly Same-Store Sales data showed year-to-year growth of 1.3%. While better than the prior week level of 0.9%, sales remained relatively soft.

ICSC Sales Trends
Week Ended Yr/Yr Growth Wk/Wk Growth
Oct 25 +1.3% +0.5%
Oct 18 +0.9% -1.6%
Oct 11 +1.0% +0.7%
Oct 4 +1.3% +0.1%
Sep 27 +1.1% -0.2%
Sep 20 +1.3% -1.0%
Sep 13 +1.3% -1.6%
Sep 6 +1.9% -0.1%
Aug 30 +2.2% +0.1%

The point is that as the initial drivers of real estate market decline age, a more powerful driver of demand, consumer confidence and spending, will likely wane. Therefore, prices and sales face ongoing obstacles, and market recovery is likely to be delayed.

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Monday, October 27, 2008

India Down but Not Out

markets down not outBy Guneet Singh Sahni - India Analyst

Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

Sharp global recession and RBI's trimmed growth estimate renders market to three-year low

The bears have gone on a complete rampage sending the key Indian indices to their biggest one-day fall in percentage terms on Friday. There is a complete crisis of confidence and liquidity in Indian markets (NYSE: IFN, NYSE: IIF), triggered by massive selling of foreign institutional investors (FII). FII sales have been spurred by redemption pressure and the inaction of the Reserve Bank of India (RBI) in its monetary policy (announced on Friday). Adding to the downfall, the RBI has reduced its growth forecast to 7.5%-8% for FY09, from 8% previously.

The market breached its crucial technical support levels of 9000 on the BSE Sensex and 3000 for SNX Nifty, after respective declines of 11% and 12% on Friday. The Indian rupee touched an all-time low of 50 against the dollar on substantial FII outflow, making it the second worst performing Asian currency (PCX: INR, PCX: ICN). Stocks are trading at attractive valuation well below book value, and a few BSE stocks are even trading below their cash holdings per share.

FII turned net sellers to the tune of $12 billion tanking the markets by 57% YTD

Massive FII selling to the tune of $12 billion, triggered by global turmoil, has led hedge funds to cut exposure in emerging market assets, India being no exception. After the Indian market was opened in 1992, FIIs have invested more than $56 billion thereto, leading to an unprecedented bull run. With the BSE Sensex having fallen 57% YTD, does this indicate the secular Indian market rise which started in 2004 has come to an end?
FII Flows in India
Key Macro Risks for India – High current and fiscal deficit

  • India runs one of the largest trade and current account deficits in the Asian region. Its current account deficit of 2% of GDP and fiscal deficit (including off- balance sheet items) of more than 8% of its GDP, make Indian weightage unfavorable among global fund managers.
  • An increase in the wages of Government employees, and subsidies for fertilizers (a major portion of off-balance sheet fiscal deficit), are of permanent spending nature and are therefore unlikely to reverse when the cycle turns upward.
  • The Government needs to borrow to fund its deficit, leading to squeezing of liquidity from the system; hence crowding off public sector credit. Additionally, the drying up of capital flows would put further strain on liquidity in the system, thereby hurting growth.
  • The weakening Indian currency makes the real return less attractive for global funds, leading to more outflow.

india fiscal deficitOpportunity in Adversity

I believe that India's long-term fundamentals including pro-active monetary policy, high savings rate, domestic consumption oriented economy and valuations at historic lows make the country highly favorable to be the first to bounce back after the end of global turmoil.

  • India has one of the highest foreign exchange reserves among major economies of $274 billion (as of 17th October) to tide over imbalances and to counter any liquidity crisis.
  • India remains a strong domestic consumption oriented economy (exports being 15% of its GDP), with a high savings rate of 36% of GDP and low levels of corporate leverage.
  • Inflation has started showing signs of peaking, falling from a peak of 12.91% to 11.07%, giving enough room to the RBI to lower interest rates.
  • India remains a favorable destination for investments, with FDI (Foreign Direct Investments) increasing by 124% Y/Y, to $14.6 billion for Apr-Aug 2008.
  • India's expected growth of 7.5%-8% for FY09 against 9% recorded in FY08 is still comfortably far above global growth.
  • BSE Sensex trades at a historic low valuation with trailing EPS of 10.63 as of 24th October.


The market could witness more pain on fresh redemption pressures from domestic mutual funds. Chances of a V-shaped recovery seem to be highly unlikely, owing to global bearishness. The slowdown in industrial production, and tight liquidity pressure leading to high interest rates and forex losses, have put a strain on domestic companies. Fresh rounds of selling on every relief rally cannot be ruled out. It's hard to say where the bottom might lie for the indices, but I strongly believe India will be the first among major economies to stage a comeback after the global meltdown has concluded.

(Article interests: Article interests NYSE: SAY, NYSE: WIT, AMEX: PUA, AMEX: NWD, AMEX: CZJ, Nasdaq: ASIA, Nasdaq: PRASX, Nasdaq: MEAFX, Nasdaq: EBASX, Nasdaq: EVASX, Nasdaq: MACSX, Nasdaq: MATFX, AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK.)

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This Week: Split Decision - FOMC & GDP on Tap

battle of economic data
Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

Down 41% and counting! From the high on October 9, 2007 through this past Friday, that's how much the Dow Jones Industrials Index is down. I'm quite sure you didn't need me to point that out to you though, as your 401K and brokerage statements probably get the message across well enough.

Last week, we gave back the 4.7% gain from two weeks ago, as the Dow slipped 5.3%. The driver of this most recent pain was somewhat clear. Earnings season is now firing on all cylinders, and the damage of economic decline is being seen far and wide across America's corporations. Last week's EPS reports read more like an obituary list. On Monday, chatter grew louder around the pending demise of Circuit City (NYSE: CC), as it seems unlikely its assets will be acquired before bankruptcy. At least 150 stores hang in the balance. On Tuesday, National City (NYSE: NCC) announced it would lay off 4K employees, and by Friday it was acquired on the cheap by PNC Bank (NYSE: PNC). Cyclical chemicals producer DuPont (NYSE: DD) reported profits sank 30%, and cut its outlook. On Wednesday, Boeing (NYSE: BA) noted that it took a big strike-related hit in its quarter, while Merck (NYSE: MRK) saw its net profits drop, as it let go of 7,200 workers.

Wachovia (NYSE: WB, NYSE: WFC), perhaps more open than most banks now that its acquisition is sealed, declared a $24 billion loss. Travelers Insurance (NYSE: TFC) profits fell 82% on storm related losses. On Thursday, Goldman Sachs (NYSE: GS) announced it would lay off 10% of its employees, while Chrysler indicated it would reduce its salaried workforce by 25% (5,000 jobs). Meanwhile, Sony (NYSE: SNE) slashed its forecast and Toyota (NYSE: TM) reported quarterly auto sales fell for the first time in seven years, sending the NIKKEI down 9.6% on Friday. Finally, to close out the week, Aflac (NYSE: AFL) noted an Iceland related hit and a tough quarter. The scene was pitiful, as even the companies that posted solid results, still warned on their outlooks.

The Week Ahead

Earnings season report flow will still be heavy this week, and the gist of the news should reflect as poorly on the economy as last week's data did. The economic schedule was light last week, which at least offered a respite from that angle. We even had a surprisingly strong existing home sales report for the month of September. This week, however, will be much different. A couple economic events might offer both reason for retreat and inspiration for rise.


The only economic report of the day will be the New Home Sales Report at 10:00 a.m. Last week's news from existing home sales, a much larger market not influenced by home builder decision making, showed stronger sales than were expected. Regarding new home sales, Bloomberg's consensus of economists is looking for the annual pace of sales to show slippage of 10K in September, to 450K.

The Federal Reserve will kick off its new commercial paper funding facility on Monday. Meanwhile, in Chicago, bankers will attend the "Economic Credit Summit."

A few Asian markets catch a breather on Monday, as bourses in Malaysia, Singapore and New Zealand stay shut. In the U.S., look for earnings news from Verizon (NYSE: VZ), Alberto Culver (NYSE: ACV), AmeriCredit (NYSE: ACF), Arch Coal (NYSE: ACI), Atheros Communications (Nasdaq: ATHR), Bank of Hawaii (NYSE: BOH), BE Aerospace (Nasdaq: BEAV), Buffalo Wild Wings (Nasdaq: BWLD), Calamos Asset Management (Nasdaq: CLMS), CNA Financial (NYSE: CNA), Crane (NYSE: CR), East West Bancorp (Nasdaq: EWBC), Loews (NYSE: L), FPL Group (NYSE: FPL), Humana (NYSE: HUM), ICICI Bank (NYSE: IBN), Penn National Gaming (Nasdaq: PENN), PrePaid Legal (NYSE: PPD), SOHU.com (Nasdaq: SOHU), Tidewater (NYSE: TDW), Travelzoo (Nasdaq: TZOO) and more.


As we outlined last week, the ICSC Weekly Same-Store Sales data has been steadily deteriorating since the end of "back to school" shopping season. We see no reason for improvement in this week's reporting.

You'll also want to look for S&P Case Shiller's Home Price Index, typically reported in the premarket. Prices continued their descent in July, and are expected to have fallen further in August.

The Conference Board's latest take on Consumer Confidence is due at 10:00 AM ET on Tuesday. As one might expect, economists are looking for softening consumer faith in October, to an index level of 52.0, versus 59.8 in September.

Of course, the FOMC policy meeting begins on Tuesday, but an announcement is not due until Wednesday, unless market activity dictates increased urgency. Treasury Secretary Paulson will address a securities industry trade group, potentially offering a market-moving phrase.

The Indians of Hinduism, Sikhism and Jainism faiths celebrate Diwali on Tuesday. Diwali is known as the festival of lights, when these faiths and Nepal Buddhists celebrate the victory of good over evil in each individual. Needless to say, Indian markets will be closed. A noteworthy investment conference on Mongolia begins in Ulan Bator.

In the States, Pfizer (NYSE: PFE) has an analyst/investor meeting, and earning reports will be disseminated by Honda Motor (NYSE: HMC), SAP AG (NYSE: SAP), McGraw-Hill (NYSE: MHP), Whirlpool (NYSE: WHR), McKesson (NYSE: MCK), Occidental Petroleum (NYSE: OXY), Valero (NYSE: VLO), Entergy (NYSE: ETR), Apollo Group (Nasdaq: APOL), Arthur J. Gallagher (NYSE: AJG), Beckman Coulter (NYSE: BEC), Black Box (Nasdaq: BBOX), Boyd Gaming (NYSE: BYD), British Petroleum (NYSE: BP), CACI Int'l (NYSE: CAI), Centex (NYSE: CTX), Check Point Software (Nasdaq: CHKP), Cynosure (Nasdaq: CYNO), FEI Co. (Nasdaq: FEIC), Fiserv (Nasdaq: FISV), Flowserve (NYSE: FLS), GMarket (Nasdaq: GMKT), Luxottica (NYSE: LUX), Manitowoc (NYSE: MTW), Panasonic (NYSE: PC), RF Micro Devices (Nasdaq: RFMD), Smith Int'l (NYSE: SII), STMicroelectronics (NYSE: STM), Estee' Lauder (NYSE: EL), Under Armour (NYSE: UA) and more.


At 2:15 PM ET, the Federal Open Market Committee will announce its monetary policy decision on Wednesday afternoon, and economists are talking about another 50 basis point rate cut. At this point, the market is seeking any help it can get, and anything less than 50 points would just give it more reason to give up all hope. The SEC will hold a roundtable on the topic of mark-to-market accounting, the logical rule of law that has helped to force many firms into insolvency recently.

At 8:30 AM, economists expect Durable Goods Orders for the month of September will be reported decreased by 1.1%. The report for August showed a 4.5% decline after several months of growth. The regular Mortgage Activity Report is due, but has not moved markets of late and for good reason. The Petroleum Status Report, due at its usual 10:30, has produced consistent inventory builds over recent weeks. OPEC's most recent production cut should not play a role in this week's data.

The United Nations is scheduled to hold a forum on the topic of migration and development. The Museum of American Finance, located in Downtown Manhattan, within the financial district, will examine the platforms of the presidential candidates.

The Biotechnology Industry Organization starts its investor forum Wednesday, and earnings news is due from Aetna (NYSE: AET), AGCO (NYSE: AG), Legg Mason (NYSE: LM), TheStreet.com (Nasdaq: TSCM), Allied Waste (NYSE: AW), Ameriprise Financial (NYSE: AMP), Amkor (Nasdaq: AMKR), Atmel (Nasdaq: ATML), Cal Dive Int'l (NYSE: DVR), Cardinal Health (NYSE: CAH), Chicago Mercantile Exchange (NYSE: CME), Comcast (Nasdaq: CMCSA), First Solar (Nasdaq: FSLR), Garmin (Nasdaq: GRMN), Harman Int'l (NYSE: HAR), Kraft Foods (NYSE: KFT), Maxim Integrated Products (Nasdaq: MXIM), MetLife (NYSE: MET), Monaco Coach (NYSE: MON), Newmont Mining (NYSE: NEM), Noble Energy (NYSE: NBL), Praxair (NYSE: PX), Procter & Gamble (NYSE: PG), Sanmina-SCI (Nasdaq: SANM), Sealed Air (NYSE: SEE), Symantec (Nasdaq: SYMC), Tesoro (NYSE: TSO), ValueClick (Nasdaq: VCLK), Visa (NYSE: V) and more.


If a letdown doesn't materialize from the FOMC announcement on Wednesday, then Thursday's first reporting of third quarter GDP might do the trick. For the first time through this mess, economists see a quarterly decline of 0.5%. Remember, it takes two of those to call it a recession, but that seems in the bag. In case you were wondering, Q2 registered 2.8% growth on final tally.

Weekly Initial Jobless Claims are seen running at 475K, after last week increase to 478K. Claims have been running hot, and we continue to believe an eventual reading of 500K+ would prove a significant negative catalyst for stocks. Look for the regular EIA Natural Gas Report at 10:30.

On Thursday, the American Enterprise Institute examines the deflating housing bubble, while the Joint Economic Committee considers another economic stimulus package. A Carbon Market Expo is scheduled in Australia.

Indian markets remain closed Thursday. Otherwise, look for earnings reports from Deutsche Bank (NYSE: DB), Diebold (NYSE: DBD), Genco Shipping (NYSE: GNK), Monster Worldwide (Nasdaq: MNST), Affiliated Computer Services (NYSE: ACS), Akamai (Nasdaq: AKAM), Alcatel-Lucent (NYSE: ALU), Alliant Techsystems (NYSE: ATK), AmeriSourceBergen (NYSE: ABC), Apache (NYSE: APA), AstraZeneca (NYSE: AZN), Ball (NYSE: BLL), Barrick Gold (NYSE: ABX), BJ Services (NYSE: BJS), Chesapeake Energy (NYSE: CHK), Cincinnati Bell (NYSE: CBB), Colgate-Palmolive (NYSE: CL), CVS Caremark (NYSE: CVS), Electronics Arts (Nasdaq: ERTS), Expedia (Nasdaq: EXPE), ExxonMobil (NYSE: XOM), Furniture Brands (NYSE: FBN), KLA-Tencor (Nasdaq: KLAC), MICROS Systems (Nasdaq: MCRS), Motorola (NYSE: MOT), Oceaneering Int'l (NYSE: OII), Psychiatric Solutions (Nasdaq: PSYS), Shaw Group (NYSE: SGR), Sun Microsystems (Nasdaq: JAVA), Waste Management (NYSE: WMI) and more.


The Bank of Japan should get Halloween rolling Friday (or roiling). The BOJ may cut its already low interest rates. Last week, the yen appreciated sharply against the dollar as investors unwound carry trades. A cut, therefore, might serve dual purpose; that being economic lift and yen stabilization.

A slew of economic data is due to flood the wires Friday. At 8:30 AM, Personal Income and Outlays are due. Economists are looking for 0.1% income growth and 0.3% lower spending in September. This after 0.5% income growth and unchanged spending in August.

At 9:45, look for NAPM Chicago's latest reading (October) to measure 48.0, versus 56.7 in September. Recall, a level below 50.0 indicates economic contraction. The University of Michigan offers its last take on October consumer sentiment at 9:55. Economists expect the metric to stick at the relatively low level of 57.5. Farm Prices are due at 3:00 PM.

Markets are closed in Chile, but Friday's earnings reports States-side highlight Clorox (NYSE: CLX), NYSE Euronext (NYSE: NYX), Danaos (NYSE: DAC), American Electric Power (NYSE: AEP), Apartment Investment & Management (NYSE: AIV), Burger King (NYSE: BKC), Chevron (NYSE: CVX), Goldcorp (NYSE: GG), Sanofi-Aventis (NYSE: SNY), Weyerhauser (NYSE: WY) and more.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. 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.

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Sunday, October 26, 2008

Week in Video: Rating Agencies Get Grilled

Enjoy your weekly videos! This week, we highlight the testimonies of the credit rating agencies before the House Oversight and Reform Committee. We think you will find Dennis Kucinich's grilling of these firms, which are allegedly at the root of the economic crisis, entertaining. You'll also find plenty of Presidential race coverage, as well as the usual works on financial markets, politics, global affairs and other topics of interest. This week's video collage is still growing, so check back later. As always, fast forward through videos that don't interest you. If you do not see the video player from your viewing location, please visit the site via this link: Weekly Videos

See today's headlines on the front pages of Wall Street Greek and Market Moving News.

The views expressed via videos may not agree with the opinion of Wall Street Greek. 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. Please see our disclosures at the Wall Street Greek website and author bio pages found there.

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Friday, October 24, 2008

S&P Lowers Outlook on Russia!

economic warfare US RussiaBy The Greek - Economy and Markets:

Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

(This piece contains a degree of sarcasm that should be clearly apparent, and is meant for entertainment. At the same time, the article touches on some important topics of interest and concern).

I think many of us shuddered yesterday when we read about S&P's sovereign rating warning issued to Russia. I mean what were they thinking! This is Russia we're talking about. The same country that turns off the gas to the Ukraine, Belarus and Georgia every winter, reminding their ex-Soviet pals and all of Western Europe (especially Germany) of their dependence on Russian energy. This is the same Russia that brutally invaded and pillaged its little neighbor in August after provoking it into conflict. In other words, Russia don't play...


Red October might play out in reality, as Russian U-Boats possibly work their way up the New York Bay and into the East River, possibly taking aim on 55 Water Street, the headquarters of Standard & Poor's (NYSE: MHP). I don't think S&P was thinking clearly when it issued a ratings warning on Russia yesterday. I mean, that building sits right smack on the East River, and is wide open for Destroyer Neustrashimy attack. Seriously though...

Standard & Poor's Ratings Action

S&P affirmed Russia's long-term foreign currency rating of BBB+, along with long-term local currency ratings of A- and short-term rating of A-2. However, the action that caught Russia's ire was S&P's reduction of Russia's sovereign credit outlook to negative from stable, reflecting an increased probability of future downgrade.

Two things you don't do in relation to Russia:

  1. You don't threaten to downgrade Russia
  2. You don't downgrade Russia

Russia has been undeniably hurt by the halving of crude oil prices in a matter of months. At the same time, the global economic crisis and its own poor decision making regarding Georgia have compounded upon ruble rubble. Over the last few years, Russian coffers have filled, thanks to increasing oil production and rising crude prices. Things have changed though, and the current environment has hurt Russia's ability to handle crisis-level capital needs.

Some of its pain has been Russia's own doing though. Since about when the Olympics began and Russia tricked Georgia into war, investors have given second thought to the red country's risk. That re-evaluation has helped pull at least $63 billion of investment capital out of Russia since August 8th, according to UniCredit SpA. Russia has nobody to blame but itself for that. The world witnessed the modern day pillaging of Georgia, not to mention the brutality of the invasion itself, including the murder of civilians, and even press, which is of course a greater sin. Cold comments emanating from the Kremlin, as Europe and the United States sought to prevent full-scale massacre, served as a real wake up call to investors who had previously viewed Russia as progressive.

The global economic crisis is another story. Russia has committed as much as 15% of GDP in budgetary and reserve funds toward preserving its financial system. To be specific, the nation has committed $200 billion toward stemming the crisis, with $86 billion recently allocated to help banking liquidity. Last week, Russia's reserves stood at 515.7 billion, after shedding $15 billion in the past week to stabilize the ruble.

Russia's Reaction

Signs that Russia had not taken the credit warning well began surfacing almost immediately. Russia seems to suspect U.S. government influence in the action, if we've read into recent statements accurately. Medvedev mildly stated, "We are perhaps better prepared for the situation than many other countries." (read U.S.A.) Paraphrasing, a Russian fixed income analyst noted that Russia had a budget surplus and the third largest foreign reserves in the world; he went on that Russia could rescue banks on more than just the brand value of its name. He was clearly implying that Russia was in better shape than the U.S., which may in fact be true! Nyet...

Today, however, more clear evidence of economic tension and possibly even warfare surfaced. The U.S. State Department imposed new sanctions on Russian and Chinese firms doing business with Iran, North Korea and Syria in the fields of missile systems and businesses capable of supporting WMD programs. This didn't go over well in Moscow, where legal premise is perhaps valued more highly than moral inspiration. Russian Defense Minister Sergei Lavrov said, "These new sanctions were introduced without any international legal foundation whatsoever.... Russia will of course take this into account..." Interestingly, he went on, "There can be no other explanation here than the rather arrogant extraterritorial implementation of American laws."

Trouble is Brewing

It's clear that trouble is brewing to a boil with Russia, and that leaves us with great concern regarding how Russia might react to an eventual U.S./Israeli confrontation of Iran. More importantly, we wonder what more Russia might do to help prepare Iran for that eventual conflict.

S&P's rating decision may have solid footing, and we're not arguing that. However, the issue of sovereign debt rating is an important one that perhaps deserves some inspection while Congress is looking at the agencies. Still, it seems clear that this is one segment of ratings that cannot be taken under government control, due to obvious conflicts of interest with global trading partners.

In its action this week, S&P may be unwittingly getting involved in a stealth economic war. Ratings are important to the economic interests, and thus state interests, of nations. We're sure this is something Russia and other countries view important enough to do their best to influence, and nations influence things in many ways. Russia's intelligence program is estimated now reinforced back to its old cold war KGB level. This is yet one more reason why regulation on credit rating agencies should be strengthened. In last week's Congressional testimonies, an ex-S&P employee, Frank Raiter, while referring to the topic of the testimonies, said the level of surveillance needed improvement. His own words were actually stronger, and can be seen here: Congressional Testimonies on Credit Rating Agencies and bits within our weekly videos.

Imagine a scenario where an analyst or group of analysts are influenced by foreign intelligence. We don't think this is such a far-fetched scenario considering the degree of importance sovereign ratings have to national economic interests. One thing's for certain, that job better pay well, because it entails extraordinary risk. For that matter, both internal and governmental controls of high intensity would be well advised... Judging by recent Congressional testimony and findings, it seems highly possible that these do not currently exist. We would hope Congress would take a look now that the books are open, and insure no future mishaps occur.

In any event, if we're taking bets on who might win in battle, the credit rating agencies or Russia, then my money is on the agencies. Any group that could seemingly play such a great role in bringing down the global economy via alleged flawed ratings, also seems entirely capable of taking out Russia.

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Please see our disclosures at the Wall Street Greek website and author bio pages found there.

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Stocks Set for Wild Day

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Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.


Stock index futures are limit down 550 points (6%) in pre-market activity this morning. Many widely traded firms are indicating a sharply lower open, after markets closed lower for the third straight day in Asia. The NIKKEI closed down 9.6% and Hang Seng fell 8.3%. The Dow Jones Euro Stoxx 50 is down 9% at 8:30 and the FTSE 100 is 8.0% lower.

Lost in the news is that the Dow Jones Industrials (NYSE: DIA) closed higher 172 points yesterday. However, this morning, many widely traded shares are indicating significantly lower. General Electric (NYSE: GE) is down 8.5%; Microsoft (Nasdaq: MSFT) is 7.2% lower; Citigroup (NYSE: C) is down 10%; Goldman Sachs (NYSE: GS) is down 14%.

The markets have been extremely volatile for quite some time now, so a reversal is completely possible. At the same time, leveraged trades are being forced to unwind at hedge funds and selling has been fueled by this and retail redemptions of pension plans. Fear often begets fear, so its entirely likely the market could also have a catastrophic day today. Recent Friday's, however, have offered vast trading ranges and wild swings, because value is becoming plainly apparent in stocks even as forced selling occurs. I would be looking for bargains, or sitting back for a more comfortable point to pick them up. It's time to look at your company's balance sheet before you make a panicked sale of their shares. On a day like today, I would consider buying Google (Nasdaq: GOOG), Yahoo (Nasdaq: YHOO) and stocks I've always liked that are now on sale, like VCA Antech (Nasdaq: WOOF). If I owned Microsoft (Nasdaq: MSFT), I would not be selling it. Also, gold remains interesting to me for the long and short term.

I think there's a decent chance we could see that Fed rate action this week instead of next week, as expected by many economists. However, the timing of such a maneuver would likely require some consultation with psychologist!


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Thursday, October 23, 2008

Credit Rating Agencies Duly Scrutinized

credit rating agencies investigation subprime crisisBy The Greek - Economy & Markets:

Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

Credit rating agencies came under heavy scrutiny Wednesday on Capitol Hill for the role they played in our current economic crisis. While these firms have to this point escaped the ire of Main Street despite the egregious negligence we believe they committed, it appears their time is up. The tone from the House Oversight and Government Reform Committee was clear. As Nancy Pelosi put it, "the party is over." It looks to us like the end of an era for the agencies and their cash printing presses.


Today's Congressional testimony was broken up into two sections, and it was clearly demarcated the good guys and the bad guys. The first group consisted of individuals either retired, let go or in direct competition with the Big Three rating agencies. These were men with axes to grind, and a vulnerable foe to take advantage of. The second group consisted of the CEOs of Standard & Poor's (NYSE: MHP), Moody's (NYSE: MCO) and Fitch. The three of them entered the room well-aware of the fire burning within its center, prepared minutes earlier for their roasting.

Over the past few months, the rating agencies have sort of been in hiding. Like the high school student who hadn't completed his report yet, they slid under their desks hoping to be overlooked or forgotten. S&P parted ways with the CEO who was in place when everything went down, perhaps in hope of sending blame off with her. However, she was not there when the first subprime loans were rated. In any event, concerned countrymen the nation over made sure the teacher didn't forget to call out their names.

The hands of the rating agencies seem as dirty as any in this mess, but because what they do is often misunderstood by Main Street, their directors and executives have been able to walk the street among their future hangmen. The same can't be said for the bosses of JP Morgan (NYSE: JPM), Bank of America (NYSE: BAC, NYSE: MER), Goldman Sachs (NYSE: GS) and others on Wall Street targeted recently by letters from angry citizens. S&P, Moody's and Fitch are not located on Wall Street, nor even associated with it. Neither are Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE). As it becomes more clear whose really at fault here, the demise of those responsible firms seems likely. Oh, how angry the Congressmen were yesterday, and oh how easy they discerned fault, and oh how clear their plans seem.

The Inherent Problem

You can't provide an unbiased opinion when dollars are exchanged between the judge and the opined upon. Can you? You tell me. S&P, Moody's and Fitch get paid by the issuers whose credit they rate. Dennis Kucinich called that "criminal" on Wednesday. As hard as I was on Kucinich in my work on the passage of the bailout, if I lived in his district, I would no doubt vote for him. It's clear he cares more than most about his constituents, and takes his responsibility seriously. I believe he does his utmost to serve the little guy and the righteous cause always.

The inherent problem in this business model is that you can't serve two masters. The rating agencies pay the issuers, and at the same time, they serve all investors. But, if they're collecting payment from the issuers, well then, doesn't pleasing them become important also...

One of the Representatives said it best when he addressed the concerns of many of his constituents who lost everything they owned. He said that while they may not have understood some complex financial instruments or why everyone had a mortgage and a home, his constituents thought they understood what Triple A meant. An internal exchange of memos also indicated culpability, as it detailed the discussion of two employees of one of the agencies. One of them reportedly said to the other, on one hand, we would look negligent and on the other, we would look as if we had sold our souls to the devil. What he meant was, either they were negligent for missing the risk in these instruments or they were serving their paying masters, the issuers, with investment grade ratings they didn't deserve. If they were guilty of the latter, they violated their responsibility to investors across the world, and that would make them guilty of crime. If they simply made a mistake, well then maybe they're just not good enough to handle this responsibility. The fact that employees were talking about this seems to clearly indicate they knew what they were doing. Either way, the future does not look good for these firms.

The Bad Guys

The CEOs of the Big 3 entered with trepidation and gave addresses that might have been anticipated. First, they accepted that they failed in rating the securities in question incorrectly. As any PR man worth his pitch will tell you, when you get caught with your hand in the cookie jar, the best thing you can do is say, "I messed up."

"Sorry Charlie. Last I checked, being a part of the mob does not excuse individual crime."

Secondly, the chieftains of the three declared that they were, however, not the only ones to blame. It was as if they were seeking favorable adjudication on the basis of broader fault and dilution of blame. If there were others at fault, and they specifically pointed toward mortgage brokers, lenders, GSEs and one suspect you will not like. One individual had the gall to include investors for blame. In other words, the people who relied on their "expert" analysis were also expected to do their own credit research? How would you like it if an auto dealer sold you a car that became completely worthless after a short while, and then when you asked him about it, responded that you should have checked out the engine yourself. Where's the warranty in that? Why would anyone buy these things if the rating was assumed less than adequate? Sorry Charlie! Last I checked, being a part of the mob does not excuse individual crime.

The Good Guys

Sean Egan, Managing Director of Egan-Jones Ratings, an independent rating agency that earns its keep from institutional clients rather than the issuers it rates, found opportunity to shed light on the scars of his firm's rivals. He did so rather well, I might add. The lightness of his mood was in stark contrast to the utter fear one could sense from Fitch's chief as he spoke. Mr. Egan likely earned some new clients as a result.

However, we're not sure he realized that there's one scenario that threatens even his business. A Representative made note of how Congress is often guilty of first failing to anticipate crisis, and then equaling failing in overreaction to it. As far as I see it, there are two viable solutions to this problem, neither of which the ratings fat cats expect, but both of which should have a detrimental impact to their bottom lines. For this reason, I wouldn't in my wildest dreams think of owning shares of S&P, which is a subsidiary of McGraw-Hill (NYSE: MHP), Moody's (NYSE: MCO), nor any agency now.

Resemblance to Auditors

Aptly dubbed the Big 3 today, the raters' title bore ominous resemblance to the Big Five auditors, who lest we remind you, were taken down and out after the last great regulatory debacle that allowed companies like Enron and Worldcom to commit crime. So, with fault seemingly clear, it seems likewise obvious that there are two paths forward.

The first path is to alter the business model that dictates the operations of the Big 3. All rating agencies would be required to operate like Egan-Jones, and no longer accept payment from issuers. However, in that case, we might leave too many financial instruments unrated. Well, the other option addresses that issue. In this case, we, the American citizenry, either take some or all of the responsibility of the rating agencies away. After all, it seems clear they failed us greatly. So, if anything should be government run, it seems rating securities (outside of sovereign debt) should be. Either of these options would likely leave these companies economically injured. We think for good reason though, don't you?

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Tuesday, October 21, 2008

ICSC Weekly Same-Store Sales Sinking

icsc weekly same store sales
Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis, including our current take on the ICSC Weekly Sales data.

The Greek's Color on the Trend

For some time now, we've been forecasting consolidation in the restaurant/retail space, and a resulting downturn in commercial real estate. More recently, we've looked to the period post "back to school" and pre holiday discounting as a dead zone. It's a desert retailers must survive, and then as they reach the oasis, they'll find hoards of competitors as hungry as they are fighting for a consumer carcass that is light on sales meat.

In this past week's report, the International Council of Shopping Centers noted weekly same-store sales rose just 0.9% year-to-year in the period ended October 18. Sales decreased 1.6% when compared against the prior week, but the degree of change likely had something to do with the influence of several holidays. Nonetheless, the deceleration of year-to-year growth has been plainly apparent as the weeks have advanced through this month and last.

ICSC Sales Trends
Week Ended Yr/Yr Growth Wk/Wk Growth
Oct 18 +0.9% -1.6%
Oct 11 +1.0% +0.7%
Oct 4 +1.3% +0.1%
Sep 27 +1.1% -0.2%
Sep 20 +1.3% -1.0%
Sep 13 +1.3% -1.6%
Sep 6 +1.9% -0.1%
Aug 30 +2.2% +0.1%

Clearly, the great loss of wealth in real estate and in equity portfolios has deflated consumer confidence, not to mention leaving them high and dry as far as cash and credit are concerned. Last week, the University of Michigan confirmed that, as its measure of consumer sentiment fell 13 points, to 57.5. Today, the State Street Investor Confidence Index dropped 17.5 points to 58.2 (October).

When September Chain Store Sales were reported, the virus had spread from the more sensitive department stores, like Macy's (NYSE: M), Kohl's (NYSE: KSS), Nordstrom (NYSE: JWN) and J.C. Penney (NYSE: JCP), to as far as high-end luxury chains like Saks (NYSE: SKS) and Tiffany (NYSE: TIF). Even some discounters have had difficulty managing recently, but discount and specialty retail seem the places to hide for those who must have industry exposure.

Last week, Mervyn's, a regional retailer in California and the Southwest, announced plans to hold a going out of business sale at all of its remaining 149 locations, and to wind down its business. This week, Circuit City (NYSE: CC), which currently trades at $0.35, was rumored to be in the process of hiring lawyers in preparation for a bankruptcy filing. As many as 150 stores could close as a result, and thousands of employees could be left jobless. The casualties are mounting, and in my own Yorkville neighborhood I'm seeing unprecedented vacancies among commercial properties.

My Yorkville hood, which is close geographically but otherwise a world different from the creme de la creme of the Upper East Side and Madison Avenue, is a good vantage point to get an early read on retail health. Because of the high level of competition here and expensive rents, the retail sector of my hood is super sensitive. Yet, in my nine years here, I've never seen the level of vacant retail space I see today, and things should get worse. How are things where you are? We would like to know.

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International Council of Shopping Centers' (ICSC) Index

As Defined by ICSC

"The ICSC-Goldman weekly U.S. retail chain store sales index measures nominal same-store or comparable-store sales excluding restaurant and vehicle demand. The weekly index is constructed using sales-weighted geometric average growth rates to preserve long-term consistency and is statistically benchmarked to a broad-based monthly retail industry sales aggregate that currently represents about 80 retail chain stores, which also is compiled by ICSC. A representative sample of those major retailers has been used as a control group to extrapolate the weekly sales index. As such, the weekly index statistically represents industry sales and is not just a sum of sales for a handful of retailers. The standard period used for the index is Sunday through Saturday, even though some retailers use a different weekly accounting period. The weekly sales index is presented on an adjusted basis to account for normal seasonality and to counter other data anomalies. Weekly seasonal adjustment is at best difficult for chain store sales given that retailers can and often do shift promotions to counter typical shifts in the calendar. Nonetheless, the approach to weekly seasonal adjustment used by the ICSC follows from the Piser Method, which was popular in the early 1930s and became the standard for weekly adjustment."

Please see our disclosures at the Wall Street Greek website and author bio pages found there.

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Monday, October 20, 2008

Leading Economic Indicators Report is Blind

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By The Greek - Economy and Markets

Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

The day's sole economic report, Leading Indicators, rose 0.3% in September. Bloomberg's consensus of economists had been looking for an increase of 0.2%, but doesn't an increase of any sort defy logic considering recession is widely expected to hit home in Q3? Are leading indicators blind? As always, the devil is in the details.


Economists far and wide anticipate the economy already slipped into recession or will in coming quarters, so then how could Leading Economic Indicators point toward growth? Well, first of all, this positive result is the first in five months, and compares against declines of 0.7% (revised) and 0.9% (revised) in July and August, respectively. What's more, the index is still down 1.3% over the six months ended September.

Even so, you must be wondering what the heck happened in September? Nothing seemed good about September, so what gives then... We have to study the components of the index, and see what drove the gain to figure that out. The two most important drivers of growth here were increases in the real money supply and the spread between 10-year treasuries and the fed funds rate, both resulting from the credit crisis. The third driver of leading indicator improvement was, get this, the index of consumer expectations. Clearly, that's not going to hold up in October, if it doesn't sink to new lows.

A total of six factors drove improvement versus four on the downside. Besides the deceptive factors we mentioned thus far, the others had mostly negligible impact. All except for the impact of supplier deliveries, which measures vendor performance. However, perhaps it's still too early to see vendor delivery failure.

The factors that worked counter to growth were of the sort that tend to point truer toward trouble. Weekly jobless claims, average work-week, stock prices and building permits all offered a sour forecast.

So, in conclusion, despite the headline, this report does not offer a reason for enthusiasm. As always, the devil was in the details.

Please see our disclosures at the Wall Street Greek website and author bio pages found there.


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Warren Buffet Obliges The Greek

warren buffet greatest investor all timeBy Markos N. Kaminis - Economy & Markets

Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

Did you notice? A little over a week ago we called for a hero, namely Warren Buffet, to rise up and lead us. This past Friday, that hero obliged. As the President and Treasury Secretary spoke nearly daily, and the market tanked right in tune, the problem became clear to us. We then authored the article "We Need a Hero," because of the lack of confidence the nation had (has) in our government representatives. To be specific, "The Greek" asked America's Grandfather, Warren Buffet, to offer some sound advice to worried Americans, and Warren obliged. Important people are reading Wall Street Greek, judging by recent commentary, and that includes the John McCain camp and Warren Buffet.


On Friday, in a New York Times Op Ed piece entitled, "Buy American, I Am," Warren Buffet advised Americans to fear not. Warren said he's been shifting his personal account funds out of treasury bonds and into domestic stocks. Warren reiterated a dictum he calls a simple rule, "Be fearful when others are greedy, and be greedy when others are fearful." Warren says fear is so widespread now that even seasoned investors are gripped by it, and he's right.

Warren offered a cute quote, "If you wait for the robins, spring will be over." Both Alan Abelson and Mike Santoli countered smartly, "The second mouse gets the cheese though." Then, they proceeded to kiss the money-king's butt. Look, there's never been anyone better at investing than Warren Buffet, plain and simple. One might argue that Peter Lynch did a fantastic job, and that some hedge fund managers have done well lately, but Warren is tried and true. He's lasted the ages, and is time tested.

His advice is sound, but you don't need me to tell you that after Warren has. Historically, we have experienced a 10% or greater stock market correction about every four years or so. Moreover, recessions are a normal part of the business cycle. Yet, every time we fall into one, there's a good flock of pigeons chirping about the sky falling. This time around, because things are dramatically worse than average, there's a great many panicked folks. Warren points out that there's good reason for concern, but he says it makes no sense selling the nation's many sound companies that are "sure to set profit records 5, 10 and 20 years from now." He's absolutely right, and we agree here with our hero's long-term outlook for investors who have the same time table. That's most of you!

One important characteristic has to fit between you and the most famous disciple of Benjamin Graham though, if you are going to abide by his advice. Buffet is a long-term investor. He doesn't need $20K in two months to pay for his wedding. If you do, you're better off not risking it. He's willing to bear two months of the bear for the sake of five years from now. Ask yourself if you fit that mold before you go making any euphoric decisions on the deity's words.

In fact, even if you are Warren's age, you probably shouldn't do what he's doing right now. After all, he's set for life, even if some unforeseen event drives markets even lower for longer than expected (read Iran). If you just barely have enough to survive through the estimated rest of your life, it's probably still not wise for you to risk possibly being the first mouse to the cheese. Warren can take a hit and keep on ticking; you could be a rat in a trap if you play around.

"In any event, if you're reading, thank you Grandpa..."

Still, like our great real estate guru here often says, recessions have a beginning and an end, and this one will too. The market gained ground last week, and is trading higher today. Warren might just have offered a catalyst for inflection, and I'm honored if his piece was at all inspired by my article. To be quite honest, I doubt it, though we are widely syndicated. I think we're just in tune with the collective subconscious, or just plain have a tap on common sense. In any event, if you're reading, thank you Grandpa...

Here's a bit of trivia you probably didn't know about "The Greek." After getting my MBA, I offered Warren to help out around his office for free. I figured I could deliver pizzas just as well in Nebraska as I was in Philly while fighting for my dream Wall Street job. Warren didn't know me well enough, or I'm sure he would have invited me up to Omaha. He and I are very similar in that we have a passion for stocks, and a fair amount of common sense and dare I say insight. On December 16, 1997, Warren's secretary Debbie Bosanek sent me a letter that read:

Dear Mr. Kaminis:

Mr. Buffet read your letter (I fainted) and asked me to reply. He appreciates your thinking of us; unfortunately, there just isn't a need for another person at Corporate Headquarters nor are we aware of any positions available elsewhere.

Mr. Buffet appreciates your taking the time to write, and we wish you the best of luck in your future endeavors.

P.S. We have a staff of 12 here and there isn't even room for another person.

I was never bright enough to know my bounds, and thank God for that, or I would have never made it to Wall Street. I thought it was very kind of Mr. Buffet to even take the time to reply, but in retrospect, I should have showed up at his door. If you want something, you have to claw and scratch for it. Everything works out for a reason though, and I wouldn't be the "Wall Street Greek" if Buffet had engaged my offer. I think I'd be okay though don't you...

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Week Ahead: Not So Happy Anniversary

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Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

As if substantive data was not enough, now superstition threatens the stock market. October 19, you see, marks the 21st anniversary of Black Monday, the infamous day the stock market collapsed. On that scourge of financial markets history, the Dow Jones Industrial average fell 22.6%.

I know what you are thinking. Two weeks ago, the Dow fell 18.2% over five days. So, your worst fears are confirmed then; we are currently traversing through black days indeed. The index is down 22.5% over the last five weeks, a period characterized by incessant decline. Each week, the market dropped further into the abyss; that is, up until last week. Believe it or not, the Dow actually increased in value last week, rising 4.7%.

Here's more good news! There were no catastrophic corporate debacles of the "too big to fail" sort. No matter though... the federal government still found more use for funds we don't have nonetheless. The feds announced a plan to employ an approximate $250 billion of the $700 billion emergency funds just allocated to them, to take a preferred equity interest in nine of the nation's largest banks. The Nine are now implicitly "too big to fail," just like Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) were, but common shareholders are not in any way protected from future loss of interest, nor current dilution of it.

The government urged these banks to spread the money around the rest of the banking system, and to lend to businesses and individuals as well. It's widely expected that there will be a second round of government giveaway to the next tier of bumbling banks sometime soon, but whether the money will come from the $250 billion lot or the greater $700 billion pool is unclear. If you were wondering how the market reacted on the day of announcement, well, it opened higher, but closed lower on the day. This illustrates the lack of confidence investors have in their government and the financial system.

The government's Depression Era-like action was distressing to many, especially since the Treasury deployed the Emergency Rescue funds differently than most of us were told they would. Recall, Paulson was supposed to use the money to buy illiquid assets from banks. Not just that though; the action was something more characteristic of a socialist government than of a capitalistic one.

The Week Ahead

With recession now expected, but catastrophe seemingly stemmed, stock movement looks dependent now on economic reports and corporate earnings news. Thank the Lord, the week ahead holds little in store on the economic front. However, earnings season will be in full force, and considering analysts' consensus estimates for the full year and next still look bloated, this could drive disappointment. Expect guidance and forecast revisions, not to mention analysts' rating downgrades.

Besides correctly measuring the impact of recession on the companies whose shares you hold, the most important questions to ask regarding your individual stocks now is how much of soft expectations have already been priced into them, and how well will their management teams handle the situation.


Fed Chairman Bernanke jumps back into the spotlight on Monday morning, as he travels up the Hill to testify before the House Budget Committee at 10:00 a.m. We expect Bernanke to field interrogation on why emergency funds are being used for preferred equity purchase instead of the widely anticipated acquisition of illiquid assets. While the lengthy contract may authorize the Treasury to do so, it was clearly not expected. Two other Fed representatives are scheduled to speak on Monday as well. Look for comments from Atlanta Fed Chief Lockhart and Fed Governor Kroszner.

Leading Indicators for the month of September is curiously seen increasing 0.2%, after falling 0.5% in August. Third quarter GDP seems certain to recess, and even a small increase in this data point should not alter that view. Indicators decreased in both July and August.

Monday's earnings schedule highlights reports from American Express (NYSE: AXP), Texas Instruments (NYSE: TXN), BancorpSouth (NYSE: BXS), Equifax (NYSE: EFX), Halliburton (NYSE: HAL), Hasbro (NYSE: HAS), IDEX (NYSE: IEX), Lincare Holdings (Nasdaq: LNCR), Lockheed Martin (NYSE: LMT), Mattel (NYSE: MAT), Nabors Industries (NYSE: NBR), Netflix (Nasdaq: NFLX), Novartis (NYSE: NVS) and SanDisk (Nasdaq: SNDK).


Barron's writer Michael Santoli points toward Tuesday's due date on Lehman credit default SWAPS as a key obstacle for sincere equity rally. In doing so, he also implies that anxiety might be eased if things work out smoothly.

The reporting of the State Street Investor Confidence Index and ICSC Weekly Same-Store Sales data should offer news of further deterioration, but nothing unexpected. From the moment that "back to school" shopping season concluded, weekly sales growth has decelerated almost systematically. Last week's growth was reported down to just 1.0%, year to year, and 0.7% on a weekly basis. The State Street Investor Confidence Index stood at 70.7 in September, which represented deterioration from 77.2 in August. Judging by the Michigan Consumer Sentiment reading of 57.5 in October (down 13 points from September), this data point should fall dramatically.

The Bank of Canada has a regularly scheduled meeting on Tuesday, and is seen cutting rates further. Barron's speculates another 50 basis point move is possible. Treasury Secretary Paulson is set to discuss China and the global economy at a New York City dinner event. Minneapolis Fed Chief Gary Stern will also grab a microphone on Tuesday.

The day's earnings slate highlights Apple (Nasdaq: AAPL), Manpower (NYSE: MAN), National City (NYSE: NCC), 3M (NYSE: MMM), Biogen Idec (Nasdaq: BIIB), BlackRock (NYSE: BLK), Brinker Int'l (NYSE: EAT), Broadcom (Nasdaq: BRCM), Caterpillar (NYSE: CAT), Coach (NYSE: COH), Cree (Nasdaq: CREE), DuPont (NYSE: DD), Everest Re (NYSE: RE), First Cash (Nasdaq: FCFS), Forest Labs (NYSE: FRX), Invitrogen (Nasdaq: IVGN), Kelly Services (Nasdaq: KELYA), Lexmark (NYSE: LXK), Norfolk Southern (NYSE: NSC), Panera Bread (Nasdaq: PNRA), Pfizer (NYSE: PFE), Schering-Plough (NYSE: SGP), Tellabs (Nasdaq: TLAB), U.S. Bancorp (NYSE: USB), UAL (Nasdaq: UAUA), VMware (NYSE: VMW) and Yahoo! (Nasdaq: YHOO).


Every other Wednesday, commercial banks must meet reserve requirements. As a result, the Fed Funds Rate can vary sharply on this particular day as large money center banks seek to meet the Fed's requirement at any cost. Rates tied to the Fed Funds Rate are therefore susceptible to variation as well.

Look for the regular reports from the Mortgage Bankers Association and the Energy Information Administration Wednesday morning. The MBA's last check on mortgage activity showed a modest increase in activity on volatile rates. Because rates ended that period higher, we would anticipate a decrease in activity this time around. However, this data is not moving stocks these days, so it's a nonstarter.

Oil inventory increased again last week, though oil prices have solidified on news that OPEC will cut production. The market will react to the degree of OPEC cutbacks, not the action, so prices could continue to fall if OPEC acts modestly. We expect the price to trend lower over the next few months, possibly far enough to retest $50, the point we correctly suggested investors buy oil in January of 2007. Of course, this all depends on if/when Israel bombs Iran. We happen to expect this to happen before the next president takes office, unless McCain wins.

Wednesday earnings schedule gets heavy, and includes news from Amazon.com (Nasdaq: AMZN), McDonald’s (NYSE: MCD), Boeing (NYSE: BA), Allegheny Technologies (NYSE: ATI), AllianceBernstein (NYSE: AB), Amgen (Nasdaq: AMGN), AT&T (NYSE: T), Baidu (Nasdaq: BIDU), Baker Hughes (NYSE: BHI), Chipotle Mexican Grill (NYSE: CMG), Cirrus Logic (Nasdaq: CRUS), ConocoPhillips (NYSE: COP), Covance (NYSE: CVD), EMC Corp. (NYSE: EMC), GlaxoSmithKline (NYSE: GSK), GSI Commerce (Nasdaq: GSIC), Kimberly Clark (NYSE: KMB), Merck (NYSE: MRK), Northrop Grumman (NYSE: NOC), NutriSystem (Nasdaq: NTRI), Philip Morris (NYSE: PM), Robert Half (NYSE: RHI), SLM Corp. (NYSE: SLM), Techne (Nasdaq: TECH), Allstate (NYSE: ALL), Travelers (NYSE: TRV), Wachovia (NYSE: WB) and Wyeth (NYSE: WYE).


Thursday's Jobless Claims Report offers notable risk to stocks. In recent weeks, the number of new benefits filers has eased off the 500K fear threshold. If data were to offer bad news here, it would be powerful enough to allow for further stock cascade. The economists' consensus is looking for 470K new jobless claims.

A House panel will question Alan Greenspan, John Snow and SEC Chief Christopher Cox on financial regulation. Cox is likely to take some heat, considering he's still in office. It should be interesting to see how the once idolized Greenspan is treated now that he's being partly blamed for the mortgage crisis because of how deep he took interest rates in the early part of this decade. George Soros and former Treasury Secretary Lawrence Summers join a City U panel on the future of the global economy.

Overseas, the Swedish Central Bank is seen holding rates steady, while New Zealand is expected to follow Australia's lead and cuts rates sharply. Look for the Natural Gas Storage Report at 10:30.

Thursday's earnings news should key on Aflac (NYSE: AFL), Cash America (NYSE: CSH), Microsoft (Nasdaq: MSFT), 1-800-Flowers (Nasdaq: FLWS), AirTran (NYSE: AAI), Altria (NYSE: MO), Bristol-Myers Squibb (NYSE: BMY), Burlington Northern Santa Fe (NYSE: BNI), Celgene (Nasdaq: CELG), Chubb (NYSE: CB), Cohu (Nasdaq: COHU), Credit Suisse (NYSE: CS), Daimler (NYSE: DAI), Eli Lilly (NYSE: LLY), Encana (NYSE: ECA), Ethan Allen (NYSE: ETH), Federated Investors (NYSE: FII), Friedman Billings Ramsey (NYSE: FBR), Hoku Scientific (Nasdaq: HOKU), Janus Capital Group (NYSE: JNS), Lab Corp. (NYSE: LH), MEMC Electronic Materials (NYSE: WFR), National Oilwell Varco (NYSE: NOV), Potlach (NYSE: PCH), Raytheon (NYSE: RTN), Cheesecake Factory (Nasdaq: CAKE), Dow Chemical (NYSE: DOW), US Airways (NYSE: LCC) and VCA Antech (Nasdaq: WOOF).


OPEC is meeting earlier than planned to discuss the sudden drop in crude prices. An overwhelming consensus of experts is looking for a production cut as a result. As we stated earlier in this article, it's the degree of cut that matters to the market here.

On Friday, I expect Existing Home Sales for September should fall short of consensus expectations for an annual pace of 4.92 million. However, housing is old news, and so stocks might not react.

A summit of European and Asian powers kicks off, as the two continents weigh their growing global importance. EU President Sarkozy views Europe as the emerging global leader, with US influence declining. President Bush and your favorite Greek think rumors of our demise are greatly exaggerated.

Friday's earnings reports highlight Fortune Brands (NYSE: FO), T. Rowe Price (Nasdaq: TROW), Banco Popular (MCE: POP.MC), Cache (Nasdaq: CACH), Gannett (NYSE: GCI), Idexx Labs (Nasdaq: IDXX), Ingersoll-Rand (NYSE: IR), Standard Register (NYSE: SR) and UST, Inc. (NYSE: UST).

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. Please see our disclosures at the Wall Street Greek website and author bio pages found there.

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Saturday, October 18, 2008

This Week's Must See Video Clips

Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

We had a blast putting together this week's video collage. There are some seriously fantastic clips to see here. There's so much more than just a review of last week's business news, though that's here too. We found a fantastic travel guide on Greek life, Athens and the islands, and great global affairs pieces. There's a tragic video of a Georgian reporter being shot while on the air; thank God she survived yet more evidence of Russian brutality. We've got Tina Fey, Sarah Palin, John McCain, David Letterman, Joe the Plumber and more. You should enjoy clips from the Associated Press, Reuters, The New York Times, Al Jazeera, CBS, Talking Points Memo, C-SPAN, and just in time for Halloween, some interesting interviews and work from our sponsor, whose horror film festival kicks off this week in Philadelphia.

If you do not see the video player from your vantage point, you'll have to visit the blog via this link. We think you'll enjoy the videos, so please take a look. Scan through clips that do not interest you, because there are some 60+ videos to see.

Opinions expressed within the videos may not agree with the view of Wall Street Greek. Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD and AMEX: SDK. Please see our disclosures at the Wall Street Greek website and author bio pages found there.

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Friday, October 17, 2008

Housing Starts Stall - The Tail Wags the Dog

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By Markos Kaminis - Economy and Financial Markets

Wall Street Greek and Market Moving News cover all economic reports and financial markets daily. Please visit the sites' front pages to see current data and analysis.

Studies show that the bias of a dog's wagging tail, to the left or to the right, offers insight into how the dog feels about you. If he views you with caution or as a potential threat, his tail favors the left side. If he sees you as a friend or nonthreatening, his tail is likely to wag to the right. The analogy that I draw to housing now, is that the dog thinks and his tail wags, and his tail wags and he acts. The housing bubble busted, sent the economy into recession, and is now experiencing the impact of recession, which is further decline.


Housing Starts stalled in September, dropping to a level that has not been reached since the early '90s. The annual pace of housing starts ran at 817K in September, which ranked it far below consensus expectations at 880K. Permits ran even lower, at a pace of 786K; that marked the lowest point since 1981!

Housing Starts were running at a pace of 872K in August (revised) and as high as 1.012 million in January. More recently, data seemed to be flattening out, offering strategists a trap to forecast an early bottom for the industry. Because housing led this recession, many economists overlooked the fact that the consumption restraint of recession would also drive further decline in housing demand. So, we seem due (or within) another leg lower.

Housing Market Index

If you were caught off guard today, you have nobody to blame but yourself. Yesterday's release of the Housing Market Index showed that home builder sentiment is lousy now. Soft September starts capped by financial market turmoil and wealth destruction is just the right recipe to spoil home builder sentiment. The Housing Market Index, produced by the National Association of Home Builders, fell to a level of 14 in October, down from 18 in September. What's worse is that the current level of 14 marks the low point for the year, so housing looks its bleakest now.

Curious George, err Robert and Bruce Toll?

Housing stocks reacted in turn, with shares of K.B. Home (NYSE: KBH), Lennar (NYSE: LEN) and Pulte (NYSE: PHM) down 2-4%. Curiously though, Toll Brothers (NYSE: TOL) and Hovnanian (NYSE: HOV) have moved into positive territory after opening gap-down (opening lower than the prior day close, creating a gap in the chart).

One might argue that TOL investors are re-evaluating value, which is now near July-level lows. Perhaps it's just technical buying keying the shares' rise due to that base set in July. TOL also serves a higher-end clientele and those folks are suppose to have adequate wealth to endure recession. We argue, however, that asset deflation is destroying great swaths of wealth and likely impacting the spending habits of even the rich at this point. Certainly, sales at Saks (NYSE: SKS), Neiman Marcus (NYSE: ) and Nordstrom (NYSE: JWN) indicated so in September. Many high-end retailers, including these three, reported same-store sales down in or near double-digits. So, if the rich aren't buying jewelry or clothing, then why would they pony up the big check for a down payment...

It's entirely possible that TOL is buying back its own shares at these levels, supporting the stock. It's in a capital position that makes this possible, and it benefits from being viewed as the industry leader. We're guessing such a share buyback plan has been approved and is active. HOV is another story; it's only up a dime, and is valued at a level that indicates there are pleny of bets against its survival. The price-to-sales ratio and debt levels look troublesome, should soft industry trends last.

These early cyclicals, which have been well-beaten down, will eventually see their shares rise well-ahead of economic improvement. Timing that change perfectly, however, is no easy feat. Weeding out the survivors and forecasting base level revenues would be a start toward estimating a safe long-term entry point. Even that, however, would not likely spare your heart from bouts of trepidation.

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Please see our disclosures at the Wall Street Greek website and author bio pages found there.
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