Sunday, November 9, 2008

Market Review - Nov 9th, 2008

So, as the week comes to an end, what did we see and, more importantly, what SHOULD we be forecasting?

1) Unemployment levels on two reports wednesday (challenger gray and some other private report), then one more on friday (gov't data) confirmed that unemployment is at 6.5% and 10 million people. I thought we were due for a record unemployment rate (in my generation) but this number is climbing quicker than I thought. What concerns me is the number of people who are REMAINING on unemployment (continued claims) within the data. I believe that number is at its highest levels in nearly 25years. WOW! Below is a 14 year graph I found in an AP press release. I could have pulled the data myself but I am a bit pressed for time today. I have got tons of stuff to get done in the next 1-2 weeks before family comes into town as I am sure everyone reading this does too :)

2) Obama won the election on Tuesday and the stock market slid 10% on Wed/Thurs. as the market was reacting to his tax policies and their impact? No, the lousy unemployment data came out on Wednesday, which shocked the hell out of everyone. On top of that, U.S. auto companies began pandering for $$$ on Wednesday looking for a handout from Uncle Sam. Lets remember that just about every U.S. poll had Obama winning this for weeks, maybe even months now.

Here is a picture of the situation Obama is going to be walking into.

Here is my take on the U.S. auto companies and their situation: I don't see how Uncle Sam can hand out BILLIONS to many banks that irresponsibly lent out $$$ and had senior executives that directly profited from those risky lending behaviors. The impact reaches globally. While we worry about job loss here in the U.S. as well as in industrialized nations developing nations worry that a financial crisis will turn into a HUMANITARIAN crisis where the world's poor are forgotten and die of starvation. That point should NOT be lost on everyone. I am NOT liberal but I do like to think of myself as socially responsible.

Getting back to the point, to bail out Wall Street, who are apparently going to get FAT bonuses this year, and turn a blind eye to blue collar workers is LUDICROUS.

Now, having said that, lets realize a few things about the auto industry.
1) They have been uncompetitive for 25 years and have been saying the same rhetoric for as many years. The graph below highlights this.
2) There is more health care costs in a car than steel. Some cost containment/restructuring has to happen BIG TIME.
3) Letting one of them go into bankruptcy would have a MAJOR ripple through on the economy (suppliers, cities, etc.)

Where I take exception to giving them $$$ is this:
1) What will be different? What will fundamentally change that will enable them to make money or gain marketshare back? I just don't see why we should toss good $$$ after bad $$$.

2) No company should be allowed to pay dividends. These loans shouldn't be flowing to the shareholders as these guys are LOSING $$$.

3) While giving $$$ to bankers is bad, at least we know they are doing things differently today, right? I mean the percentage of people geting approved for loans has dropped NOTABLY in this credit crisis and those that can get a loan are oftentimes having to pay a higher interest rate to get financing. RISK is now being priced into the banking system whereas it was NOT before.
K, that's about it for now......This issue just gets me IRRATE.

3) Thursday (and throughout the week) was the first REAL numbers of retail sales for October. We also had Cisco comment about October sales. They were the first technology comment to really comment on a full month of October sales and are regarded as an industry "bellweather" company.

* Auto sales were off 25% + for the auto industry.

* Wal-mart was up 2.8% month-over-month. Quite impressive

* Most department store chains were down 10%-20% based on comparison store sales (comps.) This Christmas sale season is really starting to look bleak quickly

* I also noticed that Walmart was running some SERIOUS sales on Saturday a.m. such as a Compaq Computer for $299 and a 46" LCD for $799.

So we found out that consumers continued to take on debt in September but they must have REALLY cut back in October. More comments after the graph below

Americans are clearly becoming more pessimistic as a result of the loss of jobs. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.3 in November, the lowest level since 1980, from 57.6 the prior month, according to the Bloomberg survey median.

4) Finally, and it would be RIDICULOUS of me to neglect this. Oil is in the low 60s and many people here in the loan star state are finding regular unleaded as low as $1.90 a gallon now. I've seen $2 - $2.05 being quite common but a few are lower. Why is gas 40 cents more now for premium vs. 20 cents before? I have noticed a widening of that gap in the last few years.

Good luck to all in the next week. I hope everyone has a wonderful holiday season ahead.

Dan Ross

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