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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, December 31, 2008

Tax Loss Selling - Take Capital Losses!

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

By The Greek: Economy & Markets:

The final trading day of the year marks investors' last opportunity to take advantage of securities losses for the sake of tax reduction. So, if you can record a net capital loss, you might save yourself a few bucks or even boost your refund come tax tally time.

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

If you have paper losses on stocks or other securities that qualify as capital assets, and have yet to record a net capital loss of up to $3,000, you should be considering it. After all, why sit on a loss that can create cash flow for you now.

Maybe you love the stock or the sector you're invested in, and you fear selling just when the market or stock might turn around. Well, in that case, you might replace your sold shares with the shares of a similar or replacement firm. For instance, suppose you owned Google (Nasdaq: GOOG) all of last year. In that case, you're sitting on a 55% paper loss as of Wednesday afternoon. Why not record some of that loss now to save yourself tax dough? You can take that loss and distribute it against capital gains, thus avoiding the related tax. If you still have some losses left over, you can also offset your taxable income up to $3,000. If you have even more losses than that, fear not, as you won't lose opportunity. Those extra losses will be put towards offseting gains and income in future years. Heck, this almost makes losses taste good.

"Yeah, but Greek," you're saying, "I love Internet search over the long-term, especially Google." Okay, well, you can buyback GOOG shares after 30 days have passed and the wash sale rule no longer applies. The wash sale rule is in place to prevent people taking advantage of the system by selling off shares for tax purposes, but effectively keeping their holdings by repurchasing the same shares immediately. Basically, if you repurchase the sold shares within 30 days time, you can't take that loss on your taxes.

When you repurchase your Google position in 30 days time, you'll start off with a new and lower cost basis (or purchase price times shares purchased plus commission), assuming the stock has not recovered that ground. Now this might work to raise your long-term capital gains if you plan on holding the stock for a while and it appreciates, but remember the time value of money. Take the cash back now, and worry about future taxes later. There's no guarantee the stock will appreciate anyway, and you'll likely have new losses to counter against it in the future.

"But," you ask, "what if Google recovers in early January because of the "January Effect," or because people like you sold it in November and are now buying it back." Well, the same issues your stock suffers from might also apply to many other stocks, especially close peers. In that case, why not replace Google (or your stock), at least temporarily with shares of Yahoo (Nasdaq: YHOO) (or a similar name). In the Yahoo case, as a bonus, you also get a beaten down stock, whose stubborn CEO is about to take leave. You might get an extra benefit if Yahoo agrees to acquisition after Jerry Yang moves on. At the very least, replacing the shares with a peer should help to limit your risk of missing industry or overall market recovery.

Remember that if you have less losses than gains, the situation is altered some. First you must net your long-term gains against your long-term losses and your short-term gains against your short-term losses. Short-term gains are taxed at a higher rate than long-term, so this comes to play if you have a net gain to report. Please see the IRS file for details on Capital Gains Tax.

Taking a loss on your investments is always a painful experience, but the pain can be eased by using those losses against taxable income on your return. You still have a little time to save some money this season, so why not give yourself a tax break if you can.

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

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Tuesday, December 30, 2008

Fewer New Homes - Looming Buying Storm

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

By Michael Douville - Housing Industry

Builders across the nation have slowed construction to a pace not seen in 60 years, a time in which the US population was about half of what it is today. Although there still remains an existing unsold inventory comprising a surplus of between 11-11.5 months of new homes, the supply is finally shrinking. Although the residential real estate market is still very fragile, the supply-demand equation is balancing. Builders have been suffering for two years after all, lowering prices and giving huge incentives to current buyers to sell inventory.

(Article interests: NYSE: TOL, NYSE: HOV, NYSE: BZH, NYSE: BAC, NYSE: FRE, NYSE: FNM, NYSE: LEN, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: CTX, NYSE: KBH, NYSE: RYL, NYSE: MTH, NYSE: XIN, NYSE: BHS, NYSE: SPF, NYSE: MHO, NYSE: OHB, NYSE: WCI, NYSE: NYX, AMEX: DIA, AMEX: SPY, AMEX: SDS, AMEX: DOG, AMEX: QLD, AMEX: VNQ, Nasdaq: QQQQ, Nasdaq: VGSIX, Nasdaq: AVTR)

In the boom years of 2005-2007, builders acquired land for future development to replace the land that was being used at a furious pace. Most consumers are not aware of builders' "land banks"; however, this acreage represents economic liability even in good times. Generally the interest accumulates and is capitalized in individual lots, adding to sales price increases as developments are sold out. In uncertain times, the interest must be paid in installments, adding to cash flow concerns. Experienced building companies placed their land and lots on the sales market at huge discounts to remove the liabilities from their balance sheets; those that did not sell out immediately after the slowdown was evident have been forced to build their way out of their land. Over the past few years, there has been a consistent supply of new "spec" homes coming to market, replenishing the inventory. The available supply of homes has stubbornly remained at elevated levels. However, many signs point to much lower inventory levels in the coming months helping to stabilize the housing industry.

In my estimation, the absorption of excess housing inventory will take 6-9 months, placing the beginning of the recovery in the late second or early third quarter of 2009. Programs initiated by the Federal Reserve, the FDIC, and the Treasury have just begun implementation, and will have a cumulative effect. The rate cuts and loan balance reductions designed to lower mortgage payments and entice troubled and burdened homeowners to remain in their homes will result in fewer foreclosed properties coming to market, further reducing the glut. Foreclosed properties are selling much quicker due to a combination of lower prices and lower long-term mortgage rates, which are projected to continue declining to a possible 4-4.5% 30-year fixed rate. The "affordability threshold" has been breached and is reflected in stronger buyer activity. The dilemma for a buyer is timing the acquisition, deciding when is best to buy and lock-in a mortgage rate on a discounted home. There are many things to be considered in this decision.

In my opinion, the real estate market across the US was healing and starting to recover all throughout the spring and summer of 2008. When the rumors started about the possible failing and bankruptcy of several large financial institutions, and the sale of Bear Stearns and eventual loss of Lehman Brothers, asset managers responsible for the orderly dissolution of REO properties became extremely concerned and aggressively lowered prices. This jolted a fragile sales market and exacerbated lending conditions, resulting in further tightening of underwriting standards and a widening of the risk premium, which in turn caused higher rates, fewer approvals, and less qualified and more apprehensive buyers. Fear ruled the marketplace! As Bob Dylan sang ages ago…"the times they are a changing."

The U.S. is the only industrialized nation in the world with a considerably expanding population; there is a baby born in the U.S. every 8 seconds. October 17, 2006 is credited as the day our population first exceeded 300 million; 26 months later, the U.S. Census computes the population is over 305,492,000. There exists a need for over 1 million new homes a year to supply this level of population growth. Further, the problem areas of California, Nevada, Arizona, and Florida are the same regions consistently named as the highest growth areas of the nation. California remains the projected most populous state with a population increase from 33,800,000 in 2000 to over 46,000,000 by 2030. Nevada, Arizona, and Florida are ranked 1, 2, and 3 for population increase in the period 2000 to 2030; the projected increases are explosive at 114%, 108%, and 79% respectively.

These estimates may be conservative due to the disruption of the orderly demographic shift that will be have been initiated by the economic dislocations of this recession. The nation's most severe housing woes are centered in these four problem areas. In the Phoenix Metropolitan Statistical Area, where I am headquartered, new home permits are reported to have dropped to under 300 permits for the month of November in an area of 4 million residents. Absorption is underway here, and there is mounting evidence Nevada and California are experiencing the same conditions. The activity in my local market for December has been exceptional, with buyers purchasing foreclosed inventory and competing with sellers at opportunistic pricing and historically low mortgage rates.

"...liquidity is very slowly returning to our capitalistic society and the general economy, which is pointing to an overall housing recovery by 2010."

There are encouraging developments in real estate markets across the U.S. The balance between buyers and sellers is mending due in large part to the reduced builder activity and declining mortgage rates, which will support higher asset prices. Further, government programs to rescue troubled homeowners are starting to work; liquidity is very slowly returning to our capitalistic society and the general economy, which is pointing to an overall housing recovery by 2010.

There is at least one more wave of foreclosed properties entering the market in the next 90-120 days. These will have been priced on last years dismal statistics and should present extraordinary value. As last year saw the perfect storm in the securities and real estate markets, this round of foreclosures will have the bad news priced in to them. As a long-term investor, one should remember what Warren Buffet has been quoted as saying: "Be greedy when everyone is fearful and fearful when everyone is greedy." The growth dynamics of the United States have not been cancelled, only postponed for a short interval. Values are extremely compelling and there may now exist a new "Buying Storm" on the horizon, with extreme value and historically low mortgage rates feeding it.

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Monday, December 29, 2008

Week Ahead: Ho Ho Hum

boring job office work week lazyVisit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

The Week Ahead

If you thought last week was quiet, get a load of this one. There's very little data of consequence set to reach market wires this shortened holiday period.

Monday

We suspect the handful of Wall Street survivors still working will take an early look at futures, stick around for the first half hour of trading, and then have long brunches (with cocktail) all week long. As for work, barring any unforeseen geopolitical blowups, there's just not much doing on Monday. Note, the kindling is in place for such a troubling event, so a simple spark could set India and Pakistan aflame, not to mention Lebanon, Syria, Iran and Israel. Otherwise though, the composition of this week is boring.

The Gulf Cooperation Council is scheduled to meet in Muscat, Oman. With OPEC having already acted, this would normally be an overlooked news item. However, with the Supreme Leader of Iran calling upon all Muslims to defend Palestine and with protests taking place all over the world, this meeting should garner a good degree of attention.

The Federal Reserve is scheduled to detail money supply for the week ended December 15. This is another bit of data that most would overlook, but as the weeks pass and economists look toward an eventual economic fishtail, and the renewal of inflation, that should all change.

The paper thin earnings schedule includes Cal-Maine Foods (Nasdaq: CALM), Onstream Media (Nasdaq: ONSM) and Rick's Cabaret Int'l (Nasdaq: RICK).

Tuesday

Coming off the period of holiday shopping's last hope, all eyes will be on the ICSC/Goldman Weekly Same-Store Sales Data. Sales were down 0.6% year-to-year on last week's measure, and year-to-year figures should continue sour as far as the eye can see.

The S&P Case Shiller Home Price Index seems to have absolutely no logical footing to change trend, so look for further broad reaching price decline for the reported month of October. In any event, October was three months ago, and we already have all the data we need to know that housing continued to deteriorate. In other words, this is a near useless report (except to perhaps local markets) that gets way too much media attention. We need December's data now, or at least November!

At 10:00 AM, look for the Conference Board's Consumer Confidence Index for December. November's data came in at 44.9, and the consensus of economists see 45.5 for December, according to Bloomberg. We were at 87.9 in January...

Go out and rent the film Trading Places, because December's Farm Report is due at 3:00 PM on Tuesday. I wonder how Mortimer Duke is doing this year...

Wednesday

New Year's Eve couldn't have come any sooner. We're sure the majority of you will be glad to be out with the old, no matter what the new year may hold in store. Weekly Jobless Claims marked a 26-year high last week as they rocketed to 586K. We would hope the holiday week didn't greet nearly as many folks with pink slips.

At 9:45, the National Association of Purchasing Management - Chicago offers its composite diffusion index of business conditions. November's take on the metric was a lowly 33.8, and December shouldn't be any better for this measure of mostly Chicago area manufacturers. In case you're American and not from the windy city, Chicago is not but a stone's throw from Detroit and the troubled auto sector (hint hint).

The Mortgage Bankers Association's Purchase Applications Report has been a recent anomaly among economic data points, as it has shown life of late. Falling mortgage rates are allowing some folks to refinance, which is never a bad thing.

The EIA will report both its Petroleum Status and Natural Gas data on Wednesday this week. Look for Petroleum Status at the usual 10:35 reporting time. Last week's data noted a surprise and deep draw from inventory. The 3.1 million barrel draw may have had something to do with an onslaught of cold and blustery weather, but most of that occurred last week (speaking for my region of the Northeast). So, I would look for another draw this time around. Natural Gas inventories will be reported at 12:00 PM.

U.S. financial futures and options markets close at 1:00 PM, while the bond market shutters its windows at 2 p.m. The equity exchanges are open all day, while markets in Japan, Brazil and Germany will be closed. Remember, this will be your last day to record capital losses on securities for your 2008 tax return.

Thursday

Happy New Year! Major markets around the world are closed for the holiday. OPEC's big 2.2 million barrel per day production cut begins with the turn of the year. Changes of leadership in the EU and G8 bring Czech and Italian representatives to the fore, respectively. Slovakia is welcomed into the euro zone. Costa Rica must decide by this day whether to join the U.S.-Central American Free Trade Agreement.

Friday

Friday marks the first trading day of 2009 in the U.S., while markets in Russia, Japan, China and others wait until Monday. Barron's notes the significance of the day's direction for the full year's outlook. According to the Stock Trader's Almanac, 86.1% of the time, the first five days of trading are predictive of the remainder of the year. This may have something to do with the performance of the prior year, the rhythm of life, and tendency of reversion to the mean. It's also undoubtedly driven by the growth of population and economy, inflation and related tendency for asset value rise. However, it cannot account for wild card factors that often come to play. We happen to see one this year, and hope to note it in a "Year Ahead" article (keep your eye out for it).

The Institute for Supply Managers will report its manufacturing index at 10:00 a.m., the first economic report of the year. The consensus read is for a level of 35.4, down from 36.2 last time around. Also, the SEC's mark-to-market accounting study is due on this day, and should make for some interesting reading on an otherwise light news day.

We wish you all the best for the new year!

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 and AMEX: SDK.

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Saturday, December 27, 2008

Happy Holidays - Week in Video

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

movie theater movies film cinemaHappy holidays! Hope your season has offered sentimental treasures and mysterious miracles to replace the electronics and new clothing that might normally fill your week. Please find this week's video collage below, and if you do not see the video player, simply click on the theater image here. Fast forward through commercials and videos that do not interest you if you like, so as to browse the many videos here. Warm wishes and happy new year!



The opinions expressed within video may not agree with the view of Wall Street Greek. 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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Thursday, December 25, 2008

Warm Wishes from "The Greek"

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

merry christmas from the greekIn this joyous time of warm hearts and good tidings, we here at Wall Street Greek wish you all a happy holiday. This year especially, we know many of you are in need of money or something else. For this reason, we will incorporate more information on the many government programs recently initiated to help you. I'm also available to talk to always and for everyone, and I will try to respond to your comments at the blog more often. Shortly, we will have forums for discussion purpose as well. If you would like a more private medium, you can email me at WallStreetGreek@gmail.com.

Perhaps the greatest gifts I can offer are not stock picks, nor economic forecasts, but my words and my heart, which is open to you. I hope that I give you something more than the bland financial reporting you find across the Internet. I hope we help you navigate financial markets of course! But, I also hope we sometimes educate, sometimes uplift, sometimes inspire and even conflict. Because, when my thoughts conflict with your beliefs, it leads to debate, the consequence of which is a sharing of knowledge. This fosters a greater understanding of varying views, and often improved knowledge either here or there, or on both ends.

Today and Faith

While financiers would label the remainder of this note "style drift," no man is two dimensional. I have more interests and concerns than just those limited to Wall Street. Days like today allow me to share some of my other interests with you, if you care to know.

Now I know many of you are agnostic or atheist because I usually lose you on articles like these. I happen to have great faith. However naive that may sound, I know that my open-mindedness has only solidified my faith, because the hardest thing for an analyst to believe in is something invisible, or intangible. I ask you to tolerate my faith, as I tolerate your opinions. From time to time, I will author "feel good" stories here, which I label "life" topics. I hope atheism or religious labeling does not harden any reader's heart enough to close ears from life topics that concern many, if not all of us. The focus of this blog is all things financial, and factors that interplay with financial. Nothing else will ever become staple here, except goodwill.

That said, for me God is not a myth nor legend, but a personally well-proven reality. While I cannot prove God to an atheist in two sentences, I can say that a man with his eyes closed, or who will not look, will never see. One important note: while myths fade and die, faith in a higher power has lasted through millenniums. I believe that occurrence is impossible without substance and truth. Even the skeptic must admit to a possibility of that. Too often, I find skeptics argue against God without first having any base of knowledge on the topic. A well rounded debate can only occur when both sides have been researched thoroughly, so I encourage that, and Matthew in the New Testament is a great place to start. I'll note that I'm no authority on the subject and not preaching from some illusory pulpit born of ego.

So, in conclusion, for me and many of you, today we celebrate one of the greatest days for mankind. Thus, it is unnatural for me to not express so in my holiday greeting, and I hope you understand this. I view those of you who disagree with my religious views as my brothers, sisters and friends nonetheless, and look forward to many engaging debates over coffee or beer. I love Jew, Muslim, Hindi, Buddhist, Catholic and Protestant as much as any Eastern Orthodox, many of whom are often even harder for me to love. So now you know that when I say God bless you, I mean it literally. I ask you to keep me up to this high standard when I inevitably slip. You might also try to not crucify any person when they slip, and try to show love to even strangers you would normally not engage. For a writer, as you might expect, fighting "the criticism" temptation can prove extremely difficult.

I think I've kept you long enough on this festive day. Please enjoy it peacefully with your family and friends. Still remember, whether you believe in God or not, the worthwhileness of sincere goodwill is not debatable. God bless you, warm wishes and good day. Please see our writers' warm wishes expressed via the comment link to this article.

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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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Tuesday, December 23, 2008

Throwing Out the Kitchen Sink in Q4

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

fourth quarter earnings q4 eps kitchen sinkBy Markos N. Kaminis - Economy & Markets:

Corporate managers typically use the fourth quarter to clean their books, and prepare a fresh slate and low bar for the coming year. Management will write off most suspect assets in the last quarter of a bad year. This year offers an especially opportune moment for such a trashing, as expectations for it are high and broad reaching. As a result, the impact on share price and scrutiny of management's performance should be minimal. So, this year, the corporate junk yard should be full of kitchen sinks.

(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)

The term, "writing off the kitchen sink" illustrates the depth with which companies will go to clear their books in a bad year. The analogy is drawn to a house cleaning, where you might throw many things out. The last thing you would trash is the kitchen sink, which has a daily utility value. Therefore, when companies "throw out the kitchen sink" they go far.

The market decline of recent days has been attributed to fourth quarter concerns. It has been suggested that the market has only just considered that the fourth quarter could be horrible. We argue that current valuations should already incorporate consideration for both a dire Q4 and tough outlook for '09. Nevertheless, forward guidance and operating actions should prove more distressing for some than others. Also, despite market efficiency, we concede that market sentiment plays a role in setting expectations and in exacerbating them. One might argue this only further proves market efficiency.

No Stigma & Plenty to Gain

It's been a rough year! In the midst of deep economic recession, and with the S&P 500 Index down roughly 41% year-to-date, the exchanges are full of companies reporting losses. Besides the battlefield littered with the dead bodies of the likes of Lehman Brothers, the so-called saved Bear Stearns, Countrywide Financial, IndyMac, Linens 'n Things, Polaroid, and the dead men walking: AIG (NYSE: AIG), Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), there are scores of half-baked companies just barely surviving. In a market like this, and with peers and rivals also reporting worst nightmare type earnings, there's very little stigma attached to failure. It's the norm!

Record lows are being set across economic data points and corporate press release pages. Toyota Motors (NYSE: TM) for instance, just noted expectations for the first loss of its history. General Motors (NYSE: GM), Chrysler and Ford (NYSE: F) will likely write-off both the kitchen sink and the toilet, where they may end up flushed down as well eventually. Everywhere you look, in every industry and sector (some more than others) companies have incentive to shed troubled assets. After all, if you keep them, you risk tarnishing your 2009. More importantly to cash strapped firms, losses often represent a good tool for tax reduction and cash flow creation.

For banks, write-offs this year will not be a new thing, not even for the span of their recent history. Still, many new-born banks, or those passing through metamorphosis, are in a fiscal year "stub" period this December. Once proud investment banks like Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and J.P. Morgan (NYSE: JPM) are now commercial banks, or owned by others who are. This means their fiscal years move from October or November-end to December-end. As a result, the December period becomes a stub. All the more reason to write stuff off! It won't even make last year's reporting period! It'll get lost in history.

For companies across American industry, 2008 will be the watershed year everyone remembers decades from now. That's if 2009 doesn't top it! The losses are mounting and companies have both incentive and opportunity to be rid of ailing assets. Those business lines that hadn't been paying off as expected, can now be axed and forgotten in the fog of the 2008 recession.

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Monday, December 22, 2008

Week Ahead: Have Yourself a Merry Little Christmas

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

have yourself a merry little christmasBy The Greek - Economy & Markets:

My favorite Christmas song seems to apply to the entire world this year. It's a hopeful tune that is sure to bring a tear to many an eye this frigid season. Allow me to get a little sentimental, and offer you a pat on the back. Remember your heart and...

"Have yourself a merry little Christmas;
Let your heart be light.
Next year all our troubles will be out of sight.
Have yourself a merry little Christmas,
make the yuletide gay.
Next year, all our troubles will be miles away."


(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)

The market seemed to have decided to throw in the towel last week, a couple times, but then good old Uncle Sam came to the rescue again. The Fed somehow mustered up a last bit of magic dust, taking unprecedented action to bring rates into a target range of 0%-0.25%. Better yet, we expect it will do what TARP was supposed to, kind of. The Fed will buy up mortgage securities, unclogging the system, possibly.

The excitement lasted until Thursday's employment report, which while noting less claims than the week before, still held well above 500,000 new jobless filers. The unemployment report was not the only bad news stacking up against investors last week. The Philly Fed Index remained horribly pessimistic, and Leading Indicators for November measured down 0.4%. Talking heads openly speculated about Q4 GDP contraction of 4% or more, and I happened to catch one on Bloomberg Radio predict 6-8%. Meanwhile, the President spoke about "orderly bankruptcy" as a possibility for automakers. That really upset the market on Thursday.

However, the message was clarified on Friday, when the Feds presented Detroit with $17 billion to tide General Motors (NYSE: GM) and Chrysler over through March. The money didn't come easy, but families in the Midwest could at least now breath a sigh of relief through the holidays, not to mention the rest of us.

The Week Ahead

Hanukkah has already begun, and the typically light trading week will be shortened by Thursday's marking of Christmas for Christians the world over. The market reopens on Friday, for a traditionally negligible trading session. Without much scheduled for Monday or Friday, a slew of economic reports get packed into Tuesday and Wednesday this week.

Monday

Corporate events seem sure to guide the market's direction on Monday. There's not a smidgen of economic news scheduled. Overseas, Nicolas Sarkozy and EC President Jose' Manuel Barroso headline a meeting of the EU with Brazil. This follows last week's summit of Latin American nations with China and Russia. Note, a certain superpower neighbor seems to be getting the cold shoulder from its southern brothers.

Toyota Motors (NYSE: TM) has scheduled a news conference, within which it is widely expected to cut its forecast for 2009, and potentially announce cost consolidations of its own to match efforts seen in Detroit.

On Sunday, I passed a guy holding a giant sign that read "80% OFF". As I walked out into the street to see what desperate store might be offering the big sale, the poor guy who was stuck with the job of standing out there in the cold insisted, "the last day is tomorrow bud." Circuit City (NYSE: CC) is set to start its bankruptcy proceeding Monday you see. I'll say one thing: the sale worked in Manhattan, as the store shelves were bare; and boy did I feel stupid for missing it. I expect creditors will be pleasantly surprised with what they find in the coffers though, as shoppers were especially hungry for bottom line sales this year. When remembering your favorite Greek, I would like a new laptop and a digital camera Santa Claus...

Lehman Brothers has a request for the bankruptcy court on Monday as well, as it seeks approval to sell its Neuberger Berman division to the managers of the business. The day's earnings schedule highlights news from Park Electrochemical (NYSE: PKE), Red Hat (NYSE: RHT), Steelcase (NYSE: SCS), TIBCO Software (Nasdaq: TIBX) and Walgreen (NYSE: WAG).

Tuesday

So many things could go wrong on Tuesday, but none related to Japan since the nation will be celebrating the Emperor's birthday. The market might get a jolt from ECB President Jean-Claude Trichet's speech in Paris, since he's been interpreted as considering a pause of expansionary monetary action. I would suggest a trip to Athens for a wake up call Mr. Trichet. Governments throughout Europe should be under similar pressure before 2009 is through though, so trouble might find him anyway. This news played havoc with the dollar last week, but looks to be more problematic for Europe over the long-term, considering the severity of global economic contraction.

States-side, in the pre-market, the final reporting of third quarter GDP should bring economists' forecasts for Q4 front and center. That's not a good thing. The estimated final tally for Q3 is seen matching the last take of -0.5%, but Q4 will steal the show. The Corporate Profits Report for November is also due at 8:30.

However, the data that should have the most significant impact on stocks will emanate from the housing sector on Tuesday. Both New and Existing Home Sales are due, and all other sector reports have offered deteriorating results. Just last week, the Housing Market Index, produced by the National Association of Home Builders, stayed stuck at the miserable level of 9 posted in October. Also, November's Housing Starts came in at a pace more than a hundred thousand short of consensus expectations. We expect economists would be better prepared for Tuesday's duo of dire data, but the forecasts are split in indicating so.

Scheduled for 10:00 AM, November Existing Home Sales are seen running at an annual pace of 4.9 million. October sales managed 4.98 million. New Home Sales, also due at 10:00, are forecast to fall to a pace of just 420K, from 433K in October. This may prove conservative, as the worst pain is being felt by home building industry.

Two sentiment measures are due at 10:00 as well. State Street's Investor Confidence Index will likely sink lower than the November reading of 57.0, which up until now, marked the low-point for the year. The final University of Michigan/Reuters reading for December is seen deteriorating to 58.6, from 59.1 at last check.

The ICSC-Goldman Weekly Same-Store Sales change fell back into negative territory last week. Sales fell 0.4% year-over-year. We would expect more of the same this week as well. The day's earnings schedule highlights news from American Greetings (NYSE: AM), FSI International (Nasdaq: FSII) and Micron Technology (NYSE: MU).

Wednesday

With the holiday forthcoming, markets will close early on Wednesday. Equities, futures and options stop trading at 1 PM, while the bond market stays open until 2:00. Since the markets will be closed on Thursday, many of the reports regularly scheduled for Thursday will be moved up. This makes for a hectic short day.

Jobless Claims top our radar every Thursday now, though Wednesday this week. Economists are looking for a sum of 552K new claims filers for the most recent reporting period, versus 554K last week. Personal Income and Outlays are scheduled for release at 8:30. Income is forecast unchanged in November (+0.3% Oct.), while Spending is seen decreasing 0.7%, versus a 1.0% drop in October. Needless to say, the retail sector is next in line for the chopping block, if that's not yet evident to you. Many a prognosticator has been recommending select picks in the destroyed group, but we think you would be better served just avoiding the minefield altogether.

November's Durable Goods Orders are expected to fall a full 3.0%, after a steep drop of 6.2% in October. For the life of us, we can't imagine the reason why, with the auto and housing industry knee deep in it. Look for the Mortgage Bankers Association Report as well. Weekly mortgage activity has benefited from lower rates, and we expect the same continued last week.

The weekly EIA Petroleum Status and Natural Gas Reports will both be released on Wednesday this week. Cold began to grip much of the nation last week, but significantly warm weather pervaded in the Northeast, a big heating oil consumption region. Last week, we noted our expectation for oil prices to continue dropping until the weekly EIA report eventually shows a draw down of inventories. Recall, inventories have increased now 11 out of the last 12 reports, and oil inventories are at the high end of their range for this time of year. Still, that point we're looking for will mark the time to buy oil, or anticipation of it will.

Thursday

Merry Christmas! The Bank of Japan offers us the gift of its minutes from the November policy meeting. That doesn't even beat coal on this cold December. Major stock markets are closed throughout the world, and we wish you a merry Christmas.

Friday

The bond market closes at 2:00 PM on Friday, and equity markets will be closed in Hong Kong, U.K., Switzerland and Germany for Boxing Day. Markets should be closed in the U.S. as well, but they will open for trading, and dare I say greed. Enjoy the season with warm hearts.

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

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Sunday, December 21, 2008

Weekly Videos - Warming Up to the Holidays

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

movie theater movies theator cinemaEnjoy The Greek's collage of videos below. This week's copy highlights the dramatic resolution to the auto funding issue, the week's big OPEC production cut, the Federal Reserve's unique action and all the usual political, geopolitical and feel good stories. If you do not see the player where you are, then click on the theater image here.



The opinions expressed within videos may not agree with those of Wall Street Greek. Please see our disclosures at the Wall Street Greek website. 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.

Kingston, Sandisk, Viewsonic, Canon, Toshiba

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Friday, December 19, 2008

Merry Christmas Detroit!

merry christmas detroit automakers industryBy 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.

Merry Christmas there Detroit! There is a Santa Claus after all, but you'll never be the same after all is said and done. After first taking a moment to criticize Congress one last time (for failing to bring an auto rescue bill to his desk), President Bush offered a holiday treat to General Motors (NYSE: GM) and Chrysler on Friday. Unfortunately, since Old Saint Hank was out of TARP funds, Ford (NYSE: F) found an empty stocking. However, diverging from Santa's generous rule book, Bush sternly noted the money was just a loan loaded with heavy demands that would come due on March 31st, if the two don't reform "substantially" by then.

(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)

On Thursday, the Administration flustered markets, and others interested in the fate of the historic and proud American auto sector, when it stated that it sought something more than a disorderly bankruptcy. It seemed clear that an orderly bankruptcy would suffice, and that was not something the consensus expected.

The President and Treasury Secretary released the remaining TARP funds to GM and Chrysler, with another $4 billion earmarked for GM in February, assuming Congress first approves the release of additional TARP capital to the Treasury. For now, the $13.4 billion dollars offers the two burdened companies a short window of opportunity to restructure for the long term... and to survive.

While the terms of the loan are not strictly binding, efforts made between now and March 31st will be weighed carefully by the new Congress as it determines whether to recall its loan. For this reason, it seems likely that if the clunkers are self-sufficient by that deadline, they'll be free to operate. However, if either firm is in need of more capital, then the highest level of scrutiny will befall it. It seems clear that if both are in trouble, they have a greater chance of finding further assistance from the Obama Administration. If Chrysler is alone in need of a hand though, I expect it will then be forced to enter into Chapter 11 bankruptcy (read orderly).

General Motors is another story. Because of its size and symbolic stature, we expect it would find more sympathy from Obama's Administration if need be. At the same time, we fully expect GM to make great strides toward the self-sufficiency necessary for this deep trough and the economic long-term.

Concessions Galore - Possibly a Pipe Dream

The relative political figureheads expect concessions from all parties, and this highlights the ideology intrinsic to a politician. The plan requires concessions from the stubborn UAW, strapped parts suppliers, and creditors who in some instances might be better off in a liquidation scenario.

The concessions from management were the easiest to obtain. Rick Wagoner and the executive teams have agreed to sacrifice bonuses, to adjust golden parachutes and otherwise alter compensation and governance to meet the standards of the United States Treasury (UST) for as long as it holds the slightest interest in the saved firms. Remember, the UST represents the American taxpayer, so for as long as we are owed money, no excesses will be enjoyed by the management teams of the otherwise failing firms. This lesson was learned the hard way, through the blatant exploitation of the America taxpayer by AIG (NYSE: AIG) and its egregious post-bailout use of capital for retreats, massages and bonus payments.

The previously pampered proprietors will have to give up their corporate jets for real. Although they have already implied action due to public scrutiny, they'll now sign their names to it. The companies won't even be able to sell anything of substance without Paulson's prior approval. This could get burdensome for the Treasury Secretary, so we expect there will soon be a Car Czar named by the Obama Administration, and he will fill the role of the "President's Designee," the label for the overseer that is splattered all over the bailout contract.

The Actual Restructuring Plan

The government has extended capital, but also has very high expectations... perhaps even impossible ones. By the 17th of February, GM and Chrysler must each submit to the President's designee their plans to "achieve and sustain long-term viability, international competitiveness and energy efficiency." These are all the goodies corporate management, the government and we the people supposedly want. I say supposedly because as gas prices decline, word is SUV sales are finding life again.

Anyway, the plan is suppose to show a path to viability and the eventual means of repayment of government loan, not to mention the repurchase of warrants or non-voting shares. Automakers will have to demonstrate they can manufacture advanced technology vehicles and meet fuel efficiency standards, as laid out in the Energy Independence and Security Act of 2007. The companies will also be asked to achieve positive net present value through the rationalization of costs, capitalization and capacity. Like the Senate, the President wants to see a Detroit that makes cars the government thinks are appropriate for today's America and at a cost structure competitive in the U.S. I think you'll agree, the plan is dangerously vague to this point.

Restructuring Targets

Here's where "vague" becomes vulgar to some (read the UAW). This is the part of the contract where the government lays out in black and white exactly what it wants. To my trained eye, the contract looks designed to please voters, but also near impossible to achieve in some instances. Perhaps for this reason, the government scribes included the terminology, "the company shall use its best efforts to achieve the following targets." By doing so, the authors of the contract have done what they're arguably best at, pleasing all parties and covering their own rear-ends. And there we have it, the impossible becomes policy!

The government wants these firms to cut outstanding unsecured public indebtedness by not less than two-thirds (while preserving pension and employee benefits), through conversion of public debt into equity or debt. Actually, since this is unsecured debt, it is quite possible to accomplish. I would take an equity interest in a company over unsecured debt if the deal helped to raise the chances I would get my money back. That's exactly what this does. Hmm, maybe the boys in DC aren't as stupid as they seem at times on C-SPAN after all. Thumbs up on this one!

"Never has the United States been closer to reviving civil war between north and south than now."

Here's where we approach the impossible, and definitely attempt the difficult...

The government wants the cost of labor and benefits of Chrysler and GM to match that of the average enjoyed by Honda, Toyota and Nissan in the U.S. In other words, UAW members in Michigan and Ohio are asked to swallow a pay cut to match the autoworkers of the these Asian firms operating in southern states. Never has the United States been closer to reviving civil war between north and south than now...

The UAW has fought long and hard for every upper hand it's gained against management. The union seems to still bear the scars from back in the days when it was first forced to form in order to fight for employee rights and a decent wage. God bless the union, because as anyone whose worked on Wall Street can tell you, there are some nasty SOBs in management. Some folks think a manager title gives them the right to treat you like a citizen of North Korea. I think that's plainly evident in the number of frustrated gentlemen who end up playing shoot 'em up in the office from time to time.

Now, union boys, please try to tolerate what I'm about to communicate. While the union is proud of what it has accomplished, fat firms push thinner profit margins in boom times and go bankrupt in hard times. Even when the economy is doing well, these firms can't attract the same capital more profitable ones can. They lose market share (sometimes) and post weaker returns on capital (almost always). A competitive marketplace weeds fat firms out (especially where supply is saturated), and that's partly why Detroit nearly went bankrupt, and may still yet get there.

The government wants the UAW to agree to this with GM and Chrysler by December 31st 2009. Mark that New Year's resolution down next to "lose ten pounds." Even so, without the UAW and the fact that GM's assets are so solidly fixed, the company's operations would naturally gravitate toward states where it could find equally qualified workers willing to take less pay. If Americans can accept what Nissan (Nasdaq: NSANY), Toyota (NYSE: TM) and Honda (NYSE: HMC) offer to their U.S. employees, then a near bankrupt GM needs to restructure this cost. That's plain vanilla economics; supply meets demand. Sorry guys, nothing personal. It's better to have a job these days then to push your company into bankruptcy for $3 an hour, isn't it? (Here come the angry comments!)

Some perks are expected to go. For instance, the good deal autoworkers have, where they get paid when idle or in furlough. That income, beyond regular severance, is as good as gone. The government also wants company payments to the Voluntary Employees Beneficiary Association (VEBA) to be paid at least half in stock. This one bothers me, because it ties benefits and risk to stock, and benefits are earned and shouldn't increase the employee's risk, which is already heavily tied to the company. But, I don't know enough detail about the "voluntary" nature of this benefit. Auto people, feel free to pitch in here.

By February 17th, the companies need to show all parties have agreed to these stipulations. GM and Chrysler can deviate or alter them, but are charged with the responsibility of explaining those actions to sometimes unruly Congressmen. They'll have to show how changes have not impaired the contract position of the UST. I for one, wouldn't want to face that angry firing line.

In any event, joy has been restored to WhoVille for now. It's nice to know that so many Midwestern American families can take a moment now, exhale, and enjoy the holidays. I wish you Merry Christmas Detroit. I have my own people there, and the last thing I want to see is those good friends sitting next to me blogging for Wall Street Greek! Actually I would love it, but not this way. My best...

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


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Wednesday, December 17, 2008

OPEC's Actions Irrelevant for Now

By 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.

Wednesday's highly anticipated OPEC announcement offered a relatively significant action from the consortium, but as crude oil prices moved curiously counter to intended direction, a question was raised. Was the action inadequate, or is OPEC no longer credible? We argue that the consortium has an even more serious problem than credibility. We believe that OPEC has in fact been rendered irrelevant, at least for now.

(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, Nasdaq: OEPIX, Nasdaq: OEPSX, NYSE: DIG, NYSE: DUG, NYSE: GEX, NYSE: VDE, NYSE: KWT)

Concluding its two-day meeting in Algeria, OPEC announced that beginning on January 1st, it would cut another 2.2 million barrels a day from its production quota. Taking into account two previously agreed upon reductions, the group slyly highlighted its 4.2 million barrel total cut of the past few months. Furthermore, following OPEC's request, and in an attempt to boost the price of crude, Russia and Azerbaijan also simultaneously reported planned cuts.

crude oil pricesSince July's high of $147, the price of oil has steadily plummeted in correlation with deteriorating global economic data. OPEC has attempted to stop the bleeding several times through production action and announcements. However, its efforts have generated only little short-term disruption, and have had no lasting impact against the price slide.

At $40.50 on the WTI futures contract for January deliver, the price of crude oil at the hour of publishing on Wednesday marked a decline of 7.1% on the day. In fact, crude marked a four-year low on Wednesday, despite the OPEC announcement that would normally be considered very bullish. So what went haywire then?

The first few voices defining the situation pointed toward an inadequacy in the size of the production cut itself, as if to say a larger reduction would have helped or was expected by the market. This is to say that the news from OPEC was disappointing, despite the cut being the largest in its history. The argument, therefore, holds little water. However, this argument is genius in its simplicity, and we'll come back around to it before we conclude.

The Credibility Question

A group willing to look a little deeper into the quagmire might ask another question. Is OPEC still credible? Iran, Venezuela and others are notorious cheaters on their allotted quotas. These nations often call for rash action, but hardly ever follow through on their own part. In recent times, Saudi Arabia has even gone over and beyond its own quota to compensate for the failings of its cheating partners.

If there is no confidence in OPEC or in the sincerity of its members, then the price of the commodity should be expected to reflect skepticism. This argument holds water, but fails to accurately define the current situation, since production has in fact been reduced significantly. Even if the consortium partners only abide by say 75% of the cut, this action would still be significant.

OPEC has been Rendered Irrelevant

One might argue that OPEC's influence on market perception and oil price setting is materially changed since the '70s, and for good reason. The difference between that period and now is that resource scarcity has been exposed. In the '70s, we didn't seriously question the earth's supply. We viewed developed/undeveloped crude oil supply as abundant, and the suppliers as a valve and spigot.

When you fill your pitcher of water, you're only concern is turning the valve to allow flow-through. But what if you knew there were a limited supply of water in the reservoir, and that water flow could stop soon? Then, your concern would move from the spigot, which opens and closes as needed, to the reservoir.

We've come to expect OPEC to open and close the valve on demand. In other words, the market takes the oil supply valve fore granted at this point, and expects oil producing nations to supply the market. It's in their interest after all. If they do not, we understand that alternative energy options exist and that military force could be employed to secure supply. One way or another, the energy spigot gets bypassed or forced open. Therefore, we must ask, is OPEC really relevant over the long term?

The fundamental driver behind oil's price spike of the last few years was derived from a longer term perspective. We've come to realize that new oil field discovery and production cannot keep up with demand increase, which is driven by globalization and development of emerging markets. We have decided for the most part that the majority of the earth's petroleum resources have been largely identified. So it's the reservoir that limits us, and our focus is redirected from the spigot.

Therefore, whatever OPEC does is irrelevant. We know it's in their interest to develop their limited oil resources at a steady pace and at best price. That best price is at a point where it inspires exploration and development, but still keeps alternative energy options from economic feasibility.

While individual players can direct their exports, even Iran and Venezuela cannot afford to use oil as a weapon for an extended period of time. In limiting those exports, they would injure their own nation more than those intended for harm. To illustrate, the U.S. has the least direct risk to a disruption of Iranian supply, where Japan, China and India are most sensitive. Venezuela is another story though, and the alliance of Iran and Venezuela is therefore troubling to America.

Going to war for energy resources is possible, but highly unlikely, and if undertaken, costly and unpredictable. Besides, we're not going to war over a few dollars. It would take egregious constriction or malicious intent to put troops in the sand. At least come January 20th it will! Reiterating, the spigots are not as important as the reservoir; not even the rusty spigots.

As we focus on the scarce resource, we weigh global demand against global supply. As economic decimation is illustrated by record breaking readings of economic metrics, the market worries less about the reservoir, and so oil's precipitous price decline is derived. OPEC is irrelevant, therefore, but only for the theoretical and over the long-term perspective. Over the short term, and for the practical, OPEC could still prove critically relevant.

Show Me Mentality

OPEC is only irrelevant for as long as production cuts don't actually impact supply delivery. At some point, production cuts have actual impact though, and shortages occur. Once that happens, limited available supply should impact the price of oil, and even more so, the price of its distillates in heating oil, gasoline and even its substitute - natural gas.

A Moving Target

Each OPEC production cut acts against a moving target. Demand is still waning, and so, thus far, OPEC has not managed to meet lower demand. Wednesday's publishing of the Petroleum Status Report showed oil supplies climbed for the 11th week of the last 12. In fact, at 321.3 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year! Until OPEC's actions have a meaningful impact on local supplies, or if weather or unforeseen events impact supply or demand, then oil prices should continue to weaken. Still, soon enough, traders should start to think about those eventualities, and oil will mark bottom.

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Tuesday, December 16, 2008

China - Signs of a Collapsed Export Driven Growth Model

china exports chinese economic dataBy Guneet Singh Sahni - China Analyst:

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

Nowadays if you visit China, you will observe a bulk of goods including toys, garments and electronics occupying the store shelves, giving you much better variety and quality than before. This is thanks to falling demand for goods from the world's factory, especially from the U.S. and other western countries. After riding on a wave of five years of double-digit export-oriented economic growth, China seems to face a hard landing, if one goes by last week's trade figures. China's exports data turned shockingly negative (declined by 2.2% Y/Y) in November, the first decline since June 2001 and the largest fall since April 1999. Two-thirds of China's small-toy exporters closed shop in the first nine months of 2008, according to government statistics. Closure of high labor intensive factories, including those of toys, garments and electronics manufacturers has also aggravated social unrest, by displacing sacked workers back to the countryside.

(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, Nasdaq: ASIA, Nasdaq: PRASX, AMEX: PUA, AMEX: NWD, Nasdaq: MEAFX, Nasdaq: EBASX, Nasdaq: EVASX, Nasdaq: MACSX, Nasdaq: MATFX, AMEX: CZJ, Nasdaq: CHINA, PCX: FXI, PCX: CYB)

Global Liquidity Freeze - Culprit for Declining Exports

The global slowdown resulted in a decline of China's exports by -2.2% Y/Y in November, as against growth of 19.2% Y/Y in October. The export falloff, the first since 2002, came up against consensus estimates for 15.6%. Details suggest that the fall in headline growth was led by mechanical and electrical exports. Additionally, some major customers of Chinese buyers in the U.S. and Europe could not get letters of credit (LC), thanks to the lagged effect of the global credit crunch and its leading to cancellation of Christmas orders. While the global credit market is slowly returning to normalcy, lost Christmas orders will not come back. It's clear the global liquidity freeze has dealt a severe blow to many Chinese exporters.

Early Signs of an Industrial Recession in Asia

The sharp fall in imports by 17% Y/Y, as compared to growth of 15.6% Y/Y in October, suggests a significant downturn in China's domestic demand and production cycle. However, the steep fall of import growth (against a consensus estimate of 12%) is partly attributable to lower global commodity/energy prices. In addition, the threat of an industrial slowdown in Asia looms, owing to the warning signs of a collapse in inter-regional trade and weak domestic demand within Asian economies. Some of the lead indicators for this collapse are seen in data from Korea and Taiwan, where exports fell by 18.3% Y/Y and 23.3% Y/Y, respectively, in November.

Falling Chinese import totals are partly offset by the fact that a large part of the exports from Korea and Taiwan to China are used as intermediate goods in China for further export as finished goods.

Record Trade Surplus - Global Imbalance

The trade surplus for the month of November widened to a new record high of $40.1 billion, from $35.2 billion in October (as compared to a market consensus expectation for $32 billion). This trade surplus has surpassed all records held up by any country at anytime. China is going to come under severe strain from global economies to reduce this imbalance. However, China has once again reiterated that it will not appreciate its currency by the magnitude demanded by its global trade partners, so as to keep its export sector competitive.

Hard Landings Can Lead to Serious Social Unrest

The GDP growth rate for the third quarter, which slowed to 9% Y/Y, also signifies a major concern for the economy. The central bank has already cut rates four times since September. China's November Headline CPI inflation came in lower than expected, rising 2.4% Y/Y (against consensus estimate of 3.3%), compared to 4.0% in October. This is the lowest reading in two years. That is alright for the long term, but China has a serious short-term problem. Domestic demand is still too weak to replace exports. This is evident from its November retail sales growth data, which decelerated to 20.8% Y/Y from 22.0% in October. Experts widely believe that GDP growth below 8% could lead to social unrest within China.

Consequently, in an effort to save China from hard landing effects, the Central Economic Work Conference gathered the country's top leaders last week to set the tone for a "soft landing." The meeting ended with a pledge to maintain stable, healthy growth next year through domestic demand expansion and economic restructuring.

China Will Need Special Focus on Intangible Infrastructure to Avoid Social Unrest

The government has taken a series of aggressive measures to stimulate the world's fourth-largest economy. In one of its most significant moves, China announced the mother of all stimulus packages, estimated at $586 billion or 4 trillion yuan, to be spent over the next two years. The stimulus package also paid special attention to intangible infrastructure like health and education, which is the need of the hour to stall any social unrest.

China's Defensive Armor Against Global Slowdown

The biggest challenge for Chinese policymakers will be to avoid a hard landing. A number of economists have conjured up downgrades of China, to abysmal growth rate projections ranging from 2-8%. I believe China has enough room to move on both the monetary and fiscal policy fronts to tackle the slowdown, given its large current account surplus, FX reserves, fiscal surplus and slowing inflation.

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Monday, December 15, 2008

Weekly Planner: Heading to Zero

heading to zero fed funds rateBy 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.

The week ahead has a clear-cut theme, and that's "heading to zero." The Administration's TARP allowance is headed that way, as the last $15 billion looks to be destined for Detroit. The President may be bartering for Congressional clearance of the last half of the bailout funds ($350 Bln.) as prerequisite for his using the only cushion he has for the unforeseen. We expect though, Congress won't give, and the President has little leverage; nor can he risk losing a major automaker in an economy that already hangs on cliff's edge.

The Fed Funds Rate also seems destined for zero, as the FOMC meets again this week to review and refresh its monetary policy. Federal Reserve Chief Bernanke has been wisely setting expectations and preparing for the inevitable question of "what next," as the Fed's rate bullet store runs low. There's been plenty of talk of "quantitative easing" like that used by the Bank of Japan when its rate tool was rendered spent.

GDP already passed zero, and stocks are threatening to go there as well. However, over the last few weeks, equities have mustered up some courage, if not overcome by seller exhaustion. Last Friday, in the midst of one of the most frightening scenarios we could imagine, the bankruptcy of the American auto industry, stocks still managed a rally. Sure, the President's commitment was made to order, but as he returns from Iraq, one must wonder if there is yet another shoe to fall for Detroit. Word has it that Congressional negotiators were peeved by UAW tactics, and are seeking to convince Bush to stick to the same deal offered by the Senators last week. That would force the UAW to make hourly wage concessions, along with the rest they've agreed to. We've got two desperate negotiators, neither of which can afford to lose. So it seems, the one with the most constitution will win. Therefore, I guess it's a toss up!

The Week Ahead

Monday

The news wires will be full of speculation and anticipation on Monday. The world waits with bated breath for the Administration's solution to the auto industry quagmire. After yet another weekend spent at his desk, Hank Paulson should have one ready to order. Besides this, a new term, "quantitative easing," will be published and republished across every major website and typed on the pages of every major newspaper this week. The Fed's meeting begins on Monday, and the world will speculate about Tuesday's decision and statement.

A series of economic reports greet the week. At 8:30, the New York Fed releases its Empire State Manufacturing Report. Long since turned sour, no degree of softness could impact stocks at this point, in our view. Bloomberg's consensus is looking for a reading of negative 27.5 in December, after measuring -25.4 last month.

October's Treasury International Capital Report (TIC) shows the level of net foreign investment in long-term U.S. securities. The measure nets foreign investment against U.S. investor actions with relation to holdings of foreign securities. September's measure showed a $66.2 billion net increase in long-term security demand. The global flight to quality was likely behind the trend.

November Industrial Production, due at 9:15 AM, is expected to ease by 0.8% this month after increasing by 1.3% in October. Capacity utilization is expected to fall to 75.7%, from 76.4% in October. At 10:00, the National Association of Home Builders (NAHB) is due to report its Housing Market Index. November's measure was a lowly 9, and this month has little cause to improve.

Look east for Japan's Tankan Survey, the nation's business sentiment metric. We would be hard-pressed to find an economic data point expected to paint a pretty picture these days, and the Tankan Survey is not the exception. Barron's notes expectations for the survey to touch a seven-year low. The International Accounting Standards Board is expected to propose greater transparency for off-balance sheet items. Woo hoo! Let's regulate the dead!

The National Governors Association might provide a cause of concern on Monday when it releases its biannual fiscal survey. States are seeking TARP funds, and also asking to be directly included in the Obama Administration's expected fiscal stimulus package. Therefore, states have all the more reason to disclose every hint of economic weakness. The wheel that squeaks gets the grease after all.

On the corporate front, Honeywell (NYSE: HON) is scheduled to offer its 2009 outlook. Earnings reports include news from ABM Industries (NYSE: ABM), Alico (Nasdaq: ALCO), Arrowhead Research (Nasdaq: ARWR), Avanir Pharmaceuticals (Nasdaq: AVNR), Clearfield Inc. (Nasdaq: CLFD), CPI Int'l (Nasdaq: CPII), En Pointe Technologies (Nasdaq: ENPT), eOn Communications (Nasdaq: EONC), Fortune Industries (AMEX: FFI), Forward Industries (Nasdaq: FORD), Imperial Sugar (Nasdaq: IPSU), Innsuites Hospitality (AMEX: IHT), Integrated Electrical (Nasdaq: IESC), International Absorbents (AMEX: IAX), National Technical Systems (Nasdaq: NTSC), Particle Drilling (Nasdaq: PDRT), Smith and Wesson (Nasdaq: SWHC), Spartech (NYSE: SEH), Streamline Health (Nasdaq: STRM), Titan Machinery (Nasdaq: TITN), Value Line (Nasdaq: VALU) and WPCS Int'l (Nasdaq: WPCS).

Tuesday

The Fed is seen cutting the fed funds rate by a half point, to 0.5%, according to Bloomberg's consensus. The Greek agrees that a half point move will likely result from this meeting, but I would focus more on the Fed Policy Statement, as it will offer insight into the group's future strategy. The Fed will want to be seen as still capable of nourishing economic expansion, because the image of an impotent Fed is not good for market sentiment. However, the market seems to have determined the federal government impotent long ago. We point to Barron's work this week, where it studies recent market action on days when Hank Paulson discussed the economy. Needless to say, he's proven a clear-cut negative factor. The only occasions where the market rose while Henry spoke were when he was overseas and discussing trade rather than the economy.

Look for the Consumer Price Index, Housing Starts and weekly retail sales in the pre-market on Tuesday. Ah, remember the days when we were so concerned about inflation. Well, enjoy the current change of pace, because the dollar could be worthless soon enough. The dollar touched a 2-month low (to the euro) on Monday morning, so those days may not be so far off.

November's CPI is seen dropping 1.3% from October, but the Core figure, excluding food and energy prices (emphasis on energy) is expected to edge 0.1% higher. Housing Starts are expected to ease further in November, to an annual pace of 740,000. Starts ran at a pace of 791,000 in October. Starts should benefit from easing mortgage rates, but rising unemployment is likely to offset that adequately enough for now.

ICSC Weekly Same-Store Sales could dip back into negative territory, after a few weeks of gains on a year-to-year basis. Last week's year-over-year rise measured 0.4%. However, sales were 0.8% off the week before, portending more pain ahead.

The FDA is reporting on ImClone's Erbitux and Amgen's (Nasdaq: AMGN) Vectibix cancer offerings on Tuesday. A few companies are offering insight into their respective outlooks, including the very notable General Electric (NYSE: GE), and also ITT Corp. (NYSE: ITT) and Herbalife (NYSE: HLF).

The day's earnings schedule highlights news from Goldman Sachs (NYSE: GS), Air Corp. (NYSE: AIR), Adobe Systems (Nasdaq: ADBE), Angeion (Nasdaq: ANGN), Applied Signal (Nasdaq: APSG), Asure Software (Nasdaq: ASUR), Best Buy (NYSE: BBY), Factset (NYSE: FDS), Hovnanian (NYSE: HOV), Photronics (Nasdaq: PLAB), Rentech Inc. (AMEX: RTK), Schiff Nutrition (NYSE: WNI) and VeriFone Holdings (NYSE: PAY).

Wednesday

News from overseas should steal the show on Wednesday. OPEC will key the wire, as it is expected to cut output again. Otherwise, Norway's central bank is widely expected to cut rates, possibly in eye-opening fashion.

Economic data is scheduled for the day, but it's of the Off-Wall Street caliber. Even so, ex-Wall Street club member, Merrill Lynch (NYSE: MER, NYSE: BAC) publishes its fund manager survey. That report in particular will probably get more attention than usual, post all the Madoff madness and relative questions raised among investors.

According to Barron's, the Q3 Current Account Deficit is seen narrowing to $179 billion. The Mortgage Bankers Association Purchase Applications Report should increasingly garner attention as the Fed strives to bring down mortgage rates. It will be a key barometer for the tracking of progress made by the government's housing revival efforts. The EIA provides its weekly Petroleum Status Report at 10:35.

The earnings schedule includes a few heavy hitters Wednesday. Look for news from Nike (NYSE: NKE), Morgan Stanley (NYSE: MS), General Mills (NYSE: GIS) and ConAgra (NYSE: CAG). Also reporting, see Apogee (Nasdaq: APOG), Commercial Metals (NYSE: CMC), CPI Corp. (NYSE: CPY), Heico (NYSE: HEI), Joy Global (Nasdaq: JOYG), Lindsay Corp. (NYSE: LNN), Luby's (NYSE: LUB), MDS Inc. (NYSE: MDZ), Nordson (Nasdaq: NDSN), Paychex (Nasdaq: PAYX), Take-Two Entertainment (Nasdaq: TTWO) and Xenonics (AMEX: XNN).

Thursday

After hitting a 26-year high last week, jobless claims will key the radar screens of all investors and economists on Thursday. Jobless Claims hit 573K last week, and Bloomberg's consensus of economists is looking for 560K this time around.

Nearly as frightening as the employment report, November's Leading Indicators data poses great risk to investors. Economists are not shy about forecasting Q4 GDP contraction as high 4%, so Leading Indicators estimated at -0.5% might prove too modest. October's Leading Indicators eased by 0.8% from the month before.

If neither of those two data points does us in, Treasury Secretary Paulson might. He's speaking at a Y in New York City on Thursday, and we all know the market record of late when Paulson speaks. Dallas Fed President Fisher will also have a microphone, as he discusses the financial crisis from a historical perspective. Somebody should tell Richard it ain't over yet, and we need him thinking ahead not back.

The all-popular FCC will vote on plans to encourage national wireless Internet. While that might not raise ire, their plans to strengthen television networks in talks with cable providers might bring tomatoes. The FCC has come under intense pressure regarding the consolidation of media. Don't worry folks, your favorite Greek is still independent! (donations welcome)

The Philadelphia Fed Survey is expected to go to hell this month, as Bloomberg economists forecast a reading of -40.2. That will compare against the much better reading from last month, -39.3. The EIA offers its weekly Natural Gas Report at 10:35.

Keying the earnings schedule, look for reports from FedEx (NYSE: FDX), Darden Restaurants (NYSE: DRI), Discover Financial (NYSE: DFS), Research in Motion (Nasdaq: RIMM) and Oracle (Nasdaq: ORCL). Also look for news from 3Com (Nasdaq: COMS), Accenture (NYSE: ACN), Actuant (NYSE: ATU), Bio-Reference Laboratories (Nasdaq: BRLI), Carnival Corp. (NYSE: CCL), China Medical (Nasdaq: CMED), Electroglas (Nasdaq: EGLS), Lennar (NYSE: LEN), Palm (Nasdaq: PALM), Pier 1 Imports (NYSE: PIR), Progress Software (Nasdaq: PRGS), Quiksilver (NYSE: ZQK), Rite Aid (NYSE: RAD), Scholastic (Nasdaq: SCHL), Shiloh (Nasdaq: SHLO), Smart Modular (Nasdaq: SMOD), The Marcus Corp. (NYSE: MCS), Wimm-Bill-Dann Foods (NYSE: WBD), Winnebago (NYSE: WGO) and Worthington Industries (NYSE: WOR).

Friday

Friday is economic report light, but news should arrive from overseas. The Bank of Japan is expected to cut rates, however tiny a move, from 0.3% now. Iceland, which embraces its uniqueness and is just plain weird sometimes, might do the same, but on Saturday when everyone is sleeping.

Honda Motors (NYSE: HMC) holds its annual news conference. The light EPS schedule highlights news from Cintas (Nasdaq: CTAS), Jabil Circuit (NYSE: JBL), CarMax (NYSE: KMX) and Stewart Enterprises (Nasdaq: STEI).

(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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Sunday, December 14, 2008

Bush Dodges Shoes in Iraq

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

After giving Iraq "Shock and Awe" President George W. Bush receives "Sock and All!" GW, on a trip to sign the newly agreed upon Security Pact for Iraq, and ironically celebrating the drop in violence, became the subject of a random and bizarre shoe attack. An Iraqi reporter, seen in the video below, throws his two shoes at a nimble and elusive Bush. The Iraqi reporter claiming his 15 minutes of fame, yelled, "Here's your goodbye kiss, you dog!" as he hurled his footwear at the fleet afoot U.S. President. Bush joked afterward, saying, "All I know is it was a size 10 shoe!" To see the video of the Iraqi reporter throwing his shoes at George Bush, CLICK HERE.



We've included four different reportings of the incident, including one from Al Jazeera. Please tell us what you think of this event, of the Bush era and of Iraq's future. (Comment below) 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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Please see our disclosures at the Wall Street Greek website and author bio pages found there.

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