Week Ahead: A Stone Better Left Unturned

By "The Greek" - Economy & Markets:

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Just as some stones are better left unturned, Congress has wisely decided not to experiment on the U.S. economy by allowing the bankruptcy of a Big 3 automaker. I believe Senator Dodd's specific words were, "it would not be wise to play Russian roulette with the economy." We have to agree...

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Rumblings out of Washington are that a sort of temporary fix might be fashioned for now, with roughly $15 billion or so directed toward the current needs of the Big 3. The money is rumored to be redirected from funds already earmarked for the automakers, but for the development of alternatively powered automobiles. Just like you pay your necessities first, Congress wants to cover automakers' necessities before putting taxpayer dollars toward anything else.

The Week Ahead

Monday

Congress will come to session on Monday to construct a bill meant to tide automakers over. Given recent trends, I suspect we will have a law signed by Wednesday, but maybe as late as Friday. It should be a matter of hours before the automakers have the capital after that, and get things flowing again.

General Motors' (NYSE: GM) situation is reportedly already driving trouble for parts suppliers with exposure. That in turn is affecting Ford (NYSE: F) and Chrysler, who in many instances have overlap of suppliers. Banks are in some instances turning away capital previously available to cover the delayed payments of GM to suppliers, since such future payments may never occur in bankruptcy. Because of the numbers involved, this leaves some suppliers with no room to operate, which in turn leaves the other automakers left without key sources of parts, beyond current inventory. We think you can see how an actual bankruptcy would severely disrupt the entire industry. It's definitely a risk we cannot afford taking now. There's a time for debate, and there's a time for action. This is the latter.

There are no economic reports scheduled for Monday, but the day looks to be a busy one nonetheless. It is especially busy for those undertaking the Hajj in Mecca, which began on December 6 and concludes on December 10. Markets in Singapore, Malaysia, Indonesia and Pakistan will be closed, as will markets in Spain, Chile and Austria, but we're not sure why the last three. Also overseas, a meeting of the United Nations will attempt to bring the world to accord on Kyoto Protocol. Diplomatic efforts will also be underway with regards to North Korea, as a six nation meeting of world superpowers discusses disarming the North's nuclear weaponry stock. Korea had better follow through on previous promises, because I suspect there will be little patience for blackmail in the near future. At the same time, economic meetings are scheduled between the U.K., France and European Commission, all while Greece calms from its weekend ablaze.

In the States, SEC Chairman Christopher Cox is set to address an accounting group, just a week removed from the regulator's hand slapping of the credit rating agencies. The Shadow Financial Regulatory Committee is also meeting on Monday, while Fed Governors Kohn and Kroszner address groups.

Texas Instruments (NYSE: TXN), Metlife (NYSE: MET), Broadcom (Nasdaq: BRCM), SL Green Realty (NYSE: SLG) and 3M (NYSE: MMM) are set to address investors on their respective outlooks on Monday. Meanwhile, the day's earnings schedule includes reports from Gander Mountain (Nasdaq: GMTN), H&R Block (NYSE: HRB), IDT Corp. (NYSE: IDT), National Semiconductor (NYSE: NSM), C&D Technologies (NYSE: CHP), International Assets Holding (Nasdaq: IAAC), Learning Tree Int'l (Nasdaq: LTRE), Mitcham Industries (Nasdaq: MIND), Resource America (Nasdaq: REXI), OJSC Rostelecom (NYSE: ROS), Synergetics USA (Nasdaq: SURG) and Zila (Nasdaq: ZILA).

Tuesday

It's the Bank of Canada's turn at cutting interest rates on Tuesday. Whispers have the move at a half point reduction. Canada is just one nation of many finding issue with its current government, with the PM barely surviving just last week. Greece's opposition party, PASOK, long out of favor, is regaining in the polls thanks to European economic hardships. Greece's economy has actually thus far escaped recession, and my high level sources tell me it's unclear as to whether it will enter a downturn. Actually, they believe Greece will not, but my doubt is reflected in my words here.

The OECD is scheduled to issue its U.S. Economic Survey on Tuesday. Of course it will likely be full of bad news, late in coming, and so, useless in warning. Last week's ICSC Weekly Same-Store Sales Report showed the first increase of sales in three weeks, but the tally benefited from an exaggerated amount of Black Friday Shopping. Surveys indicate shoppers were out in great force, but many completed their holiday shopping on that one chaotic day. That leaves several weeks ahead of the Christmas holiday left with little fuel to drive them.

October Pending Home Sales will be reported at 10:00 a.m. on Tuesday. September's measure showed a decline of 4.6%, as the index drifted to a level of 89.2. We expect October and November will not offer anything to be enthused over, considering the great loss of wealth that took place in the equity markets, not to mention the rise in unemployment to 6.7%, from 6.1% in September.

Delta (NYSE: DAL) and Agilent Technologies (NYSE: A) have investor meetings scheduled for Tuesday, and the earnings schedule highlights news from Analogic (Nasdaq: ALOG), Pall Corp. (NYSE: PLL), Pep Boys (NYSE: PBY), Kroger (NYSE: KR) and Vail Resorts (NYSE: MTN). Also look for news from ADC (Nasdaq: ADCT), ArcSight (Nasdaq: ARST), AutoZone (NYSE: AZO), Bakers Footwear (Nasdaq: BKRS), Ferrellgas Partners (NYSE: FGP), Finisar (Nasdaq: FNSR), G-III Apparel (Nasdaq: GIII), Hi-Tech Pharmacal (Nasdaq: HITK), ICO Inc. (Nasdaq: ICOC), KMG Chemicals (Nasdaq: KMGB), LTX Corp. (Nasdaq: LTXC), Methode Electronics (NYSE: MEI), Navisite (Nasdaq: NAVI), Oil-Dri Corp. of America (NYSE: ODC), Oxford Industries (NYSE: OXM), Photronics (Nasdaq: PLAB), Retail Ventures (NYSE: RVI), Rex Stores (NYSE: RSC), SAIC (NYSE: SAI), Cooper Companies (NYSE: COO), Tier Technologies (Nasdaq: TIER), Toro (NYSE: TTC) and Williams Controls (Nasdaq: WMCO).

Wednesday

Economic reports from China could steal the show on Wednesday. The world is looking toward ongoing emerging market development to stave off economic catastrophe, so hopeful eyes will be attentive. The regular mortgage activity report from the Mortgage Bankers Association has found lift of late, thanks to Fed efforts to shrink long rates. News leaked last week that the Fed has a goal of 4.5% for the 30-year mortgage. Some speculated whether this information was leaked on purpose to help rates along.

At 10:00 a.m., Wholesale Inventory for October is due. Barron's notes consensus view at -0.2%, while September saw a decrease of 0.1%. Look for the regular EIA Petroleum Status Report at 10:35. Last week's report showed inventories decreased by 0.4 million barrels, a welcomed surprise by OPEC. Iran on the other hand, might be wondering who could possibly be drawing crude with economic activity declining... Hmmm, perhaps strategic reserves topping off? Of course, there's the possibility that production cuts have actually be adequate and met by OPEC members (yeah sure). With tax income dwindling and bailout upon bailout extended, the 2:00 p.m. Treasury Budget data is expected to show the deficit narrowed in November to $173 billion, from $237.2 billion in October. Narrowed, though still vast...

The CME Group (Nasdaq: CME), Dynegy (NYSE: DYN), Principal Financial (NYSE: PFG) and YUM Brands (NYSE: YUM) will offer up their outlooks on Wednesday. The earnings slate includes Amtech Systems (Nasdaq: ASYS), CKE Restaurants (NYSE: CKR), FuelCell Energy (Nasdaq: FCEL), Hooker Furniture (Nasdaq: HOFT), Korn Ferry Int'l (NYSE: KFY), BWAY Holding (NYSE: BWY), Emcore (Nasdaq: EMKR), Greif Brothers (NYSE: GEF), Hooker Furniture (Nasdaq: HOFT), Lakeland Industries (Nasdaq: LAKE), Medical Nutrition (Nasdaq: MDNU), Multimedia Games (Nasdaq: MGAM), Ocean Power Technologies (Nasdaq: OPTT), Peregrine Pharmaceuticals (Nasdaq: PPHM), Powell Industries (Nasdaq: POWL), Source Interlink (Nasdaq: SORC) and Star Gas Partners LP (NYSE: SGU).

Thursday

With four reports due before the market open, Thursday threatens an active start to trading. The day's regular Weekly Initial Jobless Claims data is a can't miss on the radar these days. Last week saw a slight decline from the prior period, but held high enough to lift the four-week moving average. At 525K, Bloomberg's consensus of experts doesn't see a break this week either. While you might hope holiday season warmth of heart would quell layoffs, employers are actually more mindful of meeting budgets by year end.

Also at 8:30, the International Trade Report is expected to show the deficit narrowed $3 billion, to $53.5 billion in October. Much of this has to do with renewed dollar strength and the sudden disappearance of foreign demand for any goods, let alone American ones. U.S. auto industry woes can't be good for this data-point either. Import prices likely fell 4.7% in November, according to economists, surely impacted by energy prices. Falling crude and other commodity price decline have helped take overall downstream prices lower every month since July. That says more about the weight of commodity prices than it does of cost savings being passed forward.

Look for the RBC Cash Index at 9:00 a.m. This measure of sentiment comes up against its dismal November reading of 34.7. The Quarterly Services Survey is due at 10:00; we expect the third quarter reading will post a revenue drop-off from Q2's 2.4% year-over-year growth.

The ECB will issue its monthly report on Thursday, while Jean-Claude Trichet addresses the topic of financial (markets) integration. Look for the EIA Natural Gas Report at 10:35. The IEA, not to be confused, will publish its Monthly Oil Market Report as well, so the energy sector will be in the spotlight a bit. However, considering the quantity of news flow reaching the wire on Thursday, it might still get lost.

Thursday's earnings schedule includes news from Costco (Nasdaq: COST), Global Crossing (Nasdaq: GLBC), Krispy Kreme (NYSE: KKD), Lululemon Athletica (Nasdaq: LULU), Martek Biosciences (Nasdaq: MATK), NCI Building Systems (NYSE: NCS), Nevada Gold & Casinos (AMEX: UWN) and White Electronic Designs (Nasdaq: WEDC).

Friday

Friday will keep us busy, and offers a couple significant news bits to chew on. At 8:30, November Retail Sales are forecast to have fallen 1.9% from October. Sales will be down from the prior year due to the calendar difference. Last year offered an entire November week following Black Friday, while this year's month included only two days. It's questionable as to whether this will affect December favorably or not. I suspect it will not, considering many more shoppers reported having completed their seasonal purchases earlier and lighter than normal this year.

Also at 8:30, Producer Prices should be noted down 2.0% for November, certainly impacted by energy price decline. Core PPI, which excludes food and energy, figures to increase 0.1% over October. Two more reports follow at 10:00 a.m.

Look for October Business Inventories to drop 0.2%, according to the experts surveyed by Bloomberg. Inventories fell the same amount in September. Also at 10:00, the Reuters/Michigan Consumer Sentiment measure is seen sitting at 55.0, after hitting 55.3 at last check.

Friday's EPS schedule includes reports from ADDvantage Technologies (Nasdaq: AEY), Duckwall-ALCO Stores (Nasdaq: DUCK) and a few other small firms. Keep your hat on and your wits upon you in these very tough times, and keep reading "The Greek".

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