The American people say that they want both political parties to work together for the betterment of America. However, they don't seem to vote that way. Jon Huntsman dropped out of the Presidential Race this week. He was the one candidate that didn't let partisanship keep him from serving his country. Despite being a Republican, he served as President Obama's ambassador to China. He was the one candidate who could possibly work across party lines. Rick Perry also decided to drop out of the race. The list of candidates for President continues to shrink.
Despite a short week, there was a lot of news. Now that the President was able to get Richard Cordray in through the back door, the Consumer Financial Protection Bureau is up and running and full steam ahead. One subject that the CFPB is sure to address is loan officer compensation, even though changes were just made in April of last year. The government's efforts to assist borrowers has thus far fallen way short of expectations.
Despite all the government interference, Mortgage Applications have skyrocketed. Loan applications rose by 23.1 percent in the week ending January 13th. Refinance requests have risen 26.4 percent while purchase requests rose 10 percent. It seems that the new HARP rules have helped refinance activity some. It appears that homeowners need all the help they can get these days as missed mortgage payments led to the increase of Consumer Credit Default. The default rate was at its highest point since April of last year, at 2.24 percent. First time mortgage defaults rose to 2.19 percent in December and second-mortgage defaults increased to 1.33 percent.
The National Association of Home Builders released good news this week. They reported that the Housing Market Index rose, for the fourth consecutive month to 25. The index is a measure of builder confidence and is now at its highest level since 2007. However, for the housing market to be considered good, the index needs to be at least 50. Unemployment, consumer credit, and low appraisals continue to keep the number well below "Good".
In other housing news, sales of Existing Homes was up 5 percent in December. Median sales prices in December fell 2.5 percent to $164,500. Median sales prices for 2011 were $166,100, the same as they were in 2002. Inventories were lower in December by 9.2 percent. Distressed sales made up 32 percent of total sales.
Other reports last week included Initial Jobless claims, which fell 50,000 to 352,000. The Consumer Price Index was flat in December and the core rate, which excludes food & energy prices, increased slightly by .1 percent. The Empire State Manufacturing report continued its rise. It went from 8.2 in December to 13.5 percent in January. This reflects improvements seen in factory surveys.
The Dow finished positive again, up 2.4 percent from the previous week. Goldman Sachs showed better than anticipated results. Yahoo Inc. said that co-founder Jerry Yang would be leaving; which apparently was good news for investors. Target's shares fell on news that it would wait to sell its credit card portfolio. And to top it all, Eastman Kodak filed for bankruptcy this week.
And, it wouldn't be a report without more news from Greece... Greece resumed talks with bondholders to discuss a voluntary write-down of the country's sovereign debt. Prime Minister Lucas Papademos said that he would consider forcing a private sector write-down if a deal could not be reached. The other big news this week was from the International Monetary Fund. On Wednesday, they announced that they wanted to raise an additional $500 billion in lending resources. President Obama, replied, "We gave at the office" and we're not contributing any more.
Mel
Information provided by NYCB Capital Markets
Stocks bounced off their lows last Friday, but still ended in negative territory amid expectations of an imminent S&P ratings downgrade of several Euro zone countries. Despite the day's losses, stocks still posted a gain for the week. The Dow Jones industrial average finished at 12,422, up 0.5 percent for the week. The Standard & Poor's 500 Index finished at 1,289, advancing 0.9 percent while the NASDAQ Composite Index finished at 2,710, gaining 1.4 percent for the week. With stocks off their worst levels, some experts said the move implies that U.S. equities may have already priced in the negative news or are in the process of decoupling from Europe. It seems as if we are seeing the U.S. market being a lot less reactive to Europe and a lot more focused domestically. On the economic front, Consumer Sentiment reached 74.0 in its preliminary January reading, soaring to the highest level since May, according to the University of Michigan's Consumer Sentiment Index.
Standard & Poor's credit rating downgrades of nine Euro zone countries will fuel attempts by European Union lawmakers to slap stricter curbs on sovereign ratings. European shares and the Euro currency gradually recovered on Monday from early losses triggered by the mass downgrade of Euro zone sovereign ratings last week, but they still looked vulnerable amid rising fears of a disorderly Greek debt default. Markets had already reacted to the downgrades on Friday, and European assets steadied by Monday afternoon, but activity was limited with U.S. markets closed and the problems in the region's debt markets continuing to weigh on sentiment.
What's happening with the housing market? Rates for 30-year U.S. mortgages fell to the lowest level on record after Federal Reserve Chairman Ben Bernanke urged lawmakers to do more to revive housing. Bernanke, in a 26-page report to Congress last week, called the weakness in the property market a "significant barrier" to U.S. economic health and outlined possible ways to clear the glut of foreclosed properties, protect homeowners from default and help borrowers take advantage of low borrowing costs. The average rate for a 30-year fixed loan decreased to 3.89 percent in the week ended last Friday, the lowest on record dating to 1971, from 3.91 percent, Freddie Mac said in a statement. The average 15-year rate dropped to 3.16 percent from 3.23 percent. New Home Sales jumped to a seven-month high in November, according to Commerce Department figures released on December 23rd. Sales of Existing Homes rose in November to a 10-month high, according to the National Association of Realtors. . Home-loan applications climbed 4.5 percent in the period ended January 6th, according to a Mortgage Bankers Association index. The Washington-based group's measure of purchases rose 8.1 percent from a three-month low, while its refinancing index increased 3.3 percent.
The financial news should be light in the early part of this holiday shortened week. On Thursday we will receive data on CPI, Housing Starts, Jobless Claims as well as earnings from BofA, Google, and Microsoft. On Friday we will receive earnings data from GE.
Information Provided by NYCB Capital Markets
Tim Tebow has dominated NFL headlines, including last night's stunning victory over the Steelers, and his name has perhaps launched a new English word, "tebowing." What does it mean? To "tebow" is "to get down on a knee and start praying, even if everyone else around you is doing something completely different." That's according to Tebowing.com, your new internet home for tebowing. This trend of tebowing has reached a frenzy and so don't be surprised by someone doing an impromptu tebow act in a public place. A few high school teens in N.Y. were suspended recently for such an act.
The markets were somewhat pleasantly surprised by the strong unemployment data on Friday. U.S. unemployment declined to the lowest level in almost three years, lifting hopes that 2012 may bring a stronger recovery to the U.S. economy. The employment report on Friday showed the unemployment rate falling to 8.5 percent, new jobs up by 200,000, rising hourly wages, and an expanded work week. At present, the U.S. economic outlook appears to be improving with many positive reports showing signs of steady growth. The stock markets are supporting this outlook with mild gains this year. The biggest risks are the slow U.S. housing recovery and the crisis in Europe.
The Federal Reserve sent a letter to the Congressional Banking Committees stating that tight mortgage-lending standards threaten to hold back the economy. The letter asserts that restoring the health of the housing market is a necessary part of a broader strategy for economic recovery. The Fed signaled support for more aggressive use of Fannie Mae and Freddie Mac to strengthen the housing recovery. This assessment goes contrary to the recent hike in guarantee fees, and in essence mortgage rates, by Congress, to fund a payroll tax extension. Renewed MBS purchases would be complimentary to another push on housing policy, which is also getting more attention again. NY Fed President Dudley gave a detailed speech on housing policy last week. His speech offers a number of proposals, including expansion of the HARP refinance program and new tax credits for home purchases, but the one that is most likely to see the light of day is support for turning distressed homes owned by the agencies into rental homes. Some experts believe that this could result in a boost to home price growth of up to 1 percentage point over the next couple of years. Potential homebuyers are still postponing their plans and prefer to rent while the cost to rent a home in the U.S. continues to rise while the cost to buy a home is at record lows. The national apartment vacancy rate fell to 5.2% in 4Q11, the lowest level since late 2001. This is what is causing an increase in rental rates.
The US economic outlook has improved a bit. Some of the positive economy reports include:
· The rate of unemployment fell to 8.5 percent in December, down from an upwardly revised 8.7 percent in November.
· Non-farm payrolls were up 200,000, which is double the 100,000 improvement in November.
· Factory orders rose 1.8% in November after falling 0.2 percent in October.
· The ISM manufacturing index for December was 53.9, up from 52.7 in November.
· Growth in construction spending in November was 1.2 percent after a 0.2 percent decline in October.
GDP growth in Q4 2011 is forecasted to be above 3.0 percent, much higher than virtually anyone had thought in the dark days of the debt ceiling debacle back in August. And Friday's employment report was generally on the stronger side, especially in the household survey which showed hourly earnings were up 0.2 percent, after being flat in November. As a result of all this, several analysts have raised their Q1 GDP estimate to 2 percent and cut the forecast for the unemployment rate in late 2012 to 8.5 percent. Another positive relief is the overall lowering of debt at consumer levels despite growing government debt. Consumers were seen paying down their debts in the fourth-quarter across an increasing number of loan categories, according to the American Bankers Association. Sometimes slow and steady wins the race, provided it is consistent.
"An optimist stays up until midnight to see the New Year in, a pessimist stays up to make sure the old year leaves", they say. Regardless, New Year's Eve is truly a moment that unites people across attitudes and latitudes. All over the world people party... at home and on the streets, at restaurants, bars and clubs. Fireworks go off at midnight everywhere, from private backyards to main squares in the largest cities. The Sydney Harbor Bridge, The Eiffel Tower, Skyscrapers in Taiwan and Singapore turn into gorgeous displays of light at the precise moment New Year arrives. The Ball is "dropped" at Times Square; people around the world make wishes and New Year resolutions. Everyone is full of hope that the future will be better than the past - magical and wonderful it is - the New Year's celebration. Happy New Year! May this new 2012 be happy, healthy and prosperous.
There was not much room for economic events in this past week, sandwiched between two long holiday weekends. On Tuesday, Consumer Confidence did shoot to the highest level in eight months at a reading of 64.5; that was a 9.3 point increase over the previous month. The S&P Case-Schiller HPI at -0.6 percent indicated contraction of month-to-month house prices, slightly more than an expected -0.4 percent. Falling prices and rates favored purchase activity. The Pending Home Sales index rose from 93.3 to 101.1, marking a 7.3 percent gain in November after a 10.4 percent increase in October. The Chicago PMI, indicator of business activity for December, stayed as strong as in the previous month, beating the forecast. The 62.5 value of the index is well above the benchmark level of 50, indicating strong month-to month growth.
During this past volatile year, the equity markets swung up and down, hitting bottom for the year in the low 10,000's range and almost approaching 13,000 at some point of time in 2011. The benchmark 10-Year Treasury note yields slipped to around the 2 percent range in the second half of the year, down from higher levels of above 3 percent in the first half. Mortgage rates hit all-time low levels in the last weeks of 2011 when the 30-Year mortgage was spotted at 3.91 percent. Gold climbed to its all-time high values, nearing $2000 in early September on the U.S. and European debt unease, but slipped way off those levels, back to around the $1600 range by the beginning of the New Year. Oil mostly kept dancing around $90-$100 per barrel, except for two brief episodes of optimism in April and pessimism in September, where it topped and bottomed correspondingly at about $10 off the annual range.
The developed world's debt and a very slow recovery kept the market focus all year long; however, the beginning of the new year of 2012 was marked by a hint of growth momentum in India and China, along with better-than-expected growth news from Europe and U.S. Investors are once again showing optimism on this first trading day of the year; the U.S. stock market jumped following solid gains in equities around Asia, Europe and Australia. The Dow was up about 2% in the first half hour of trading.
During this short week, Motor Vehicle Sales and Factory Orders are being reported today (Tuesday), along with the FOMC Minutes from the December 14 meeting. On Wednesday, ADP Employment Report, ISM Non-Manufacturing Index and MBA Purchase Applications will be released. Traditionally reported on Thursday, Jobless Claims will be followed by the highly anticipated Employment Situation on Friday. The Federal Reserve Chairman, Ben Bernanke, will speak later on Friday morning.
Last week there was news of better coordination among all Euro zone countries at the Euro Summit. That, along with mixed domestic indicators kept the stock market rolling along. Investors took a cue from the summit, where all Euro members committed to working on reducing costs and implementing tighter fiscal controls. Equities were on a buying spree with the hope that the economy will improve because of Europe's efforts to fix its precarious financial and economic conditions, while cooler inflation in China could mean that the country can curb inflation without sacrificing economic growth.
All major indices last week were up by nearly one percent. The S&P closed at 1,255 while the Dow ended the trading week at 12,184. In domestic indicators, October sales were up while Inventory levels also rose to 1.6 percent for the same month. Consumer borrowing also rose for the month of October mainly due to Auto and Student loans. Per the University of Michigan, Consumer Sentiment is due to rise in the month of December. The Trade Imbalance for the month of October shrunk as imports slipped by $2.3 billion due to lower oil prices during that period. On the flip side, declining economic conditions with our trading partners took a toll on factory orders as they fell in October after being flat for the past three months. On the employment front, Jobless Claims came in again at the under 400 thousand mark in the first week of December.
The Ten year treasury yield ended flat at 2.05 percent. Towing the same line, mortgage rates were also flat last week. At the end of the week, the Conforming Fixed 30-year rate leveled out at around 3.75 percent, while the Conforming Fixed 15-year rate finished at around 3.25 percent. Standard 5/1 ARM rates were last seen hovering at around 2.84 percent.
This week, investors will be focusing on the Euro zone development for solving the European debt crisis. In other major economic indicators, the Fed is expected to keep interest rates unchanged as part of the FOMC meeting announcement on Tuesday. Import and Export Prices on Wednesday and the Producer Price Index on Thursday and the Consumer Price Index on Friday will be of interest.
Good, old times... we used to talk about Europe in the context of a splendid vacation, beautiful architecture, fashion designers and other pleasures of this world. Nowadays, the European debt crisis is the prime focus of investors' attention around the world. On Wednesday, the global markets cheered the joint decision of the European Central Bank, Federal Reserve, the Bank of England and the Central banks of Canada, Japan and Switzerland to support markets by easing lending policies. The important action was a signal to the markets that Central Banks will step up and take serious actions to shore up the crisis. Obviously, there is no permanent or easy solution to the problem. The crisis in Europe stretches far beyond local debt problems; it is rather a systematic crisis of the union, where currency issues, distribution of power and even international relationships are involved. While analysts and journalists speculate about possible cures and the probability of EU breakup scenarios, German Chancellor Angela Merkel says the resolution process will take years.
The Rating agencies, particularly S&P, appeared to learn lessons from the recent crisis. They seem to maintain greater focus on timely downgrading of borrowers, especially governments. S&P will possibly cut the triple-A debt rating of France as early as this coming week, according to the past week's news. The agency has recently downgraded Belgian debt from AA+ to AA. Interestingly, just a few weeks ago, S&P released an announcement of France's downgrade. The announcement stayed active during several trading hours, until it was recalled by S&P as a "mistake."
In the United States, the Consumer Confidence measure jumped to 56 while expectations were 45. The strong standing of consumers perhaps contributed to the growth of Motor Vehicle Sales in November and the sweeping success of the Black Friday weekend, when retail sales bested records. By the way, there isn't anything dramatic behind the "Black" color in the name of the day that jump starts holiday shopping season. The story is rather simple and down-to-Earth: once upon a time, retailers broke a chain of losses ("red ink" in accounting terms) and crossed into positive ("black ink") with the help of holiday sales. The Friday after Thanksgiving has been labeled "Black" since that time.
Pending Home Sales, a measure of deals struck on existing homes, jumped 10.4 percent in October after a 4.6 percent decline in September. New Home Sales rose slightly in October, but the overall market for new housing remains in a depressed mode. Median prices fell 0.4 percent to $212,300 and seasonally adjusted annual sales of 307,000 are still far from a healthy market threshold of 700,000. Mortgage applications dropped this past week marking the third week of declines in a row; the trend is mostly attributed to the slowing interest in refinancing.
The Chicago PMI set the tone of the week. The index accelerated to 62.6, above the consensus mark and well above the threshold of 50, suggesting good economic growth. The ISM Manufacturing Index for November was also reported at a higher-than-expected level of 52.7, above the level of 50, indicating growth. Construction Spending extended its stable upward trend and increased 0.8 percent topping the forecast of 0.3 percent after 0.2 percent growth in September. Per the Productivity and Costs report of the Bureau of Labor Statistics, labor productivity increased in the third quarter and labor cost fell more than expected. Compensation rose an annualized 0.6 percent.
Manufacturing activity in other parts of the world continued to slow down. Even China showed signs of contraction for the first time in three years and warned that the situation is on a dangerous path. Industrial production in the Eurozone continued its decline, reinforcing recessionary fears. On Wednesday of this past week, Central Banks of China and Brazil relaxed monetary policy in an attempt to counter the trends.
Per the ADP National Employment Report, employers added 206,000 jobs--many more than the 130,000 that was estimated. Cautious optimism sparked by the ADP report gained ground later in the week, when the Employment Situation data showed the lowest unemployment rate in 2.5 years at 8.6 percent as compared to the previous reading of 9 percent. Rising weekly unemployment claims reported Thursday was much less of a concern with more influential positive reports in the background. The improving employment situation along with strong domestic manufacturing readings and good news in retail strengthened the hopes of a sustained recovery in the United States.
Last week was a short week, as the stock market was closed on Thanksgiving Thursday and half of Friday. The day after Thanksgiving is considered the start of the holiday shopping season... which brings much joy to retailers. According to a survey by the National Retail Federation, total spending over the three-day weekend following Thanksgiving reached a record $52.4 billion, up 16% from the $45 billion last year. GSI Commerce reported a three-fold increase in U.S. mobile sales this Black Friday, compared to 2010. Retailers are hoping for a bigger surge on Cyber Monday -- which tends to be a peak day for online retail sales, and which typically surpasses sales from Black Friday. However, due to mixed news from Europe and the lack of strong economic indicators, the stock markets last week never got out of their bearish mode. Even in the minutes from the Nov 1-2 FOMC meeting, the Fed acknowledged that the biggest risk to growth is the potential effects from European sovereign debt developments on financial markets.
Last week, all major indices were down by nearly five percent. The S&P closed at 1,158 while the Dow ended the trading week at 11,232. Moody's cautious warning on France's debt rating on Monday shattered investors' confidence. Stocks gained some ground after the IMF opened a new liquidity line. In mixed domestic indicators, Durable Goods Orders were down for October due to a fall in aircraft orders. On the positive side, Personal Income for October was up slightly. Also, wages and salaries were up for the month of October. On the employment front, there was some sign of stability as initial jobless claims were below the 400K mark for the straight third month.
The Ten-year treasury yield was up slightly and ended the week at 1.96 percent. Towing the same line, mortgage rates were also up a bit last week. At the end of the week, the Conforming Fixed 30-year rate leveled out at around 3.80%, while the Conforming Fixed 15-year rate finished at around 3.25%. Standard 5/1 ARM rates were last seen hovering at around 2.87%.
This week, investors will be focusing on the France-Germany pact for solving the Euro debt crisis. In other major economic indicators, housing sector health will be gauged from New Home Sales on Monday and Pending Home Sales on Wednesday. The ADP Employment report and the Employment Situation report on Wednesday and Friday respectively will inform investors more as to the unemployment situation.
For investors, these are clearly volatile times. Many market pundits feel that if governments do the right thing and work through their problems, then confidence will return, and the economy will recover. However, continued delays to resolve problems can lead to worst-case scenarios unfolding. Politics, mainly around Europe and U.S. debt, is one of the major causes of these uncertain times and thus vacillating markets between hopes and despair. Investors may be uncertain about their next move but shoppers are ready to camp for the door-buster "Black Friday" this week. Congress may not reach a deal by Wednesday on the debt ceiling plan but shoppers have already narrowed in on the deals they might target this week.
The Congressional "Super Committee" is not turning out to be so super after all. The deficit-cutting Committee likely will announce tomorrow that it has failed to reach agreement on at least $1.2 trillion in federal budget savings which will then be followed by the political blame game. The stalemate over spending versus taxation may only be resolved after the next election. The political situation is worse in Europe. The debate is whether ECB should actively buy the sovereign debts of troubled nations or wait for political resolution first. European Central Bank President, Mario Draghi, is unwilling to make large-scale bond purchases to extinguish a debt crisis that has spread from Greece to Ireland, Portugal, Italy and Spain, threatening to tear the 17-nation monetary union apart. While the ECB is intervening in debt markets in an attempt to lower soaring yields, it's refusing to unleash the unlimited firepower that some governments are calling for. The issue is turning into a German versus the rest of the Union. The German bond yield is watched closely by Europeans, who consider it to be the gold standard of stability. The fact that the German bond yield was moving in the opposite direction of its neighbors' bond yields indicates a widening spread that is further undermining the credibility of the weaker governments.
Amidst these political black clouds, the silver lining is that the U.S. economy may end 2011 growing at its fastest clip in 18 months as analysts increase their forecasts for the fourth quarter just a few months after a slowdown raised concerns among investors. Economists at JPMorgan Chase & Co. in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent, while New York-based Morgan Stanley & Co. boosted its outlook to 3.5 percent from 3 percent. The incoming data on consumption, business spending and residential investment all point to better GDP growth in the fourth quarter. The index of U.S. leading indicators, designed to foreshadow the economy's performance over the next three to six months, rose 0.9 percent in October, the biggest jump since February, after a 0.1 percent September increase, the New York- based Conference Board said today. Sales of previously owned homes in the U.S. unexpectedly rose in October, a sign falling prices may be attracting buyers. Purchases increased 1.4 percent to a 4.97 million annual rate.
Importers in the U.S. are enjoying the rally in the dollar as we head into holiday season. As the Euro is losing its alternative status to the dollar as a reserve currency, only gold seems to be an alternative in the current environment. While importers can enjoy the strong dollar, shoppers are seen to be keen in opening their wallets and purses during this holiday season, as per analysts' collective foresights. Some signs emerged indicating that consumers were doing just that. On Wednesday, data from comScore Inc. forecast online spending of $32.4 billion during this year's holiday-shopping season, an 11% rise from the same period a year ago. The research firm also said consumers spent $9 billion online in the first 21 days of November, up 13% over the first three weeks in November 2010. Hopefully, higher business activity may give momentum to the stalling economy worldwide.
Mel Samick
Last Wednesday, Fed Chairman Ben Bernanke acknowledged that the pace of economic growth is likely to be "frustratingly slow," after the Fed downgraded its forecast for the next two years. Bernanke said the Central Bank is open to purchasing more mortgage-backed securities to boost the struggling housing market, if conditions worsen. But he declined to offer details about what would trigger such a decision. Bernanke said the bank is looking for growth and the job market to improve gradually over the next two years, but at a sluggish pace. The debt crisis in Europe is of particular concern, Bernanke said. It could have adverse effects on confidence and growth. The unemployment rate has been stuck near 9 percent for more than two years. The Fed doesn't see that changing much this year and it predicts it won't fall below 8.5 percent next year. In June, the Fed had predicted that unemployment would drop to as low as 7.8 percent in 2011.
For the U.S. economy, it all comes back to the housing market. A fresh emphasis on healing the housing sector by officials at the Federal Reserve, in the Obama Administration and in state capitals reflects the view that a healthier real estate market would go a long way in strengthening the economy. Around 7.5 million U.S. households are either in foreclosure or delinquent on their mortgage, and 11 million homeowners owe more than their homes are worth. The Obama administration and a leading housing regulator announced plans last week to widen a program aimed at helping so-called "underwater borrowers" refinance. But why housing, and why now? At just more than 2 percent of U.S. gross domestic product -- down from 6 percent during the housing boom -- residential investment isn't that big a component of the $15 trillion U.S. economy. However, housing has led the economy out of past recessions. It creates jobs and is a catalyst for spending on goods and services. Coaxing mortgage rates a bit lower could lead potential borrowers into the market. However, rates are already very low. The average rate on the 30-year fixed mortgage fell to 4 percent last week, nearly matching the all-time low hit just one month ago. The average rate on the 15-year fixed mortgage fell to 3.31 percent from 3.38 percent. The yield fell this week after investors shifted money out of stocks and into the relative safety of Treasuries on fears that Europe's debt crisis could worsen. The low rates have caused a modest boom in refinancing, but that benefit might be wearing off.
Stocks fell last Friday, ending four weeks of back-to-back gains, as political instability resurfaced in Europe and investors braced for a confidence vote in Greece after U.S. markets closed. Investors worry that the country might not go through with an austerity program needed to prevent a default on its debt. The Dow Jones industrial average fell 61 points to close at 11,983 on Friday. It was down 2 percent for the week, its first weekly loss since September. The Standard & Poor's 500 index fell 8 points to 1,253. The NASDAQ composite shed 12 points to 2,686. Greek Prime Minister, George Papandreou, won a confidence vote in Parliament early Saturday by a narrow margin, giving his country's stricken economy some breathing room, but by no means the cure-all. The Greek prime minister pledged that he was willing to step aside and form a cross-party caretaker government. It remains unclear whether the main opposition conservatives and other parties will take part in the talks and drop a demand for an immediate general election. This move is vital to Greece in terms of securing a mammoth new debt deal and demonstrating commitment to remaining in the Eurozone.
In this shortened week, let's hope the markets stay calm. The big news will come towards the end of the week with Jobless Claims on Thursday and Consumer Sentiment on Friday. Friday is Veteran's Day, the stock markets will be open but banks will be closed. Veteran's Day is a holiday honoring military veterans. It is also celebrated as Armistice Day or Remembrance Day in other parts of the world and falls on November 11, the anniversary of the signing of the Armistice that ended World War I. Major hostilities of World War I were formally ended at the 11th hour of the 11th day of the 11th month in 1918 with the German signing of the Armistice. So, please take a few moments this November 11th in remembrance of those who have fallen serving our country.
Retailers are eager to begin the holiday season, staging Christmas displays here and there, even though it is still October. The upcoming "Black Friday," which is the Friday after Thanksgiving that is believed to signal the strength of overall holiday shopping, will be a delight for shoppers. Target announced it will be opening its stores at midnight, just as Wal-Mart did last year, in addition to the super-centers already open 24-hours. Under the eyes of investors' many stores, such as Sears and K-Mart, Toys "R" Us, Gap and Banana Republic opened on Thanksgiving morning last year too, embarking on some extra beginning-of-the-season sales.
As a part of the pre-holiday rush, price wars erupted in the world of retail merchandising. Wal-Mart was reported to provide its customers gift cards if they find merchandise sold cheaper elsewhere. Staples and Bed Bath and Beyond are focused on fighting on-line competition and were said to be ready to match Amazon.com prices, as opposed to Sears that is going to beat prices of competitors by 10%, excluding on-line only retailers. With so much action and improved Consumer Confidence, exceeding expectations for October, strong Consumer Spending, even though it comes from personal savings, per the Personal Income and Outlays report, we are looking forward to a boost to the economy this Fall.
The early Christmas mood in stores might be blamed on the record snowfalls on the East Coast this past weekend; maybe the snowstorm was a product of a spell by the powerful "Wicked Witch of the East" (The Wonderful Wizard of Oz) or custom-ordered by the "Occupy Wall Street" protest opponents to help turn the financial center's occupants into merry holiday-themed snowmen on display.
Whirlpool announced it was slashing its' workforce by 5,000 jobs, about 10 percent of employees in North America, in a latest cost-cutting effort. As sales slowed down, it was reported that Whirlpool complained that some appliance manufacturing companies, LG and Samsung among them, supposedly started selling their products below fair value; the strategy called "dumping" violates international trade law. Samsung and LG, along with Sharp and Toshiba, fell under fire recently for just an opposite unfair pricing strategy -- "price fixing" on LCD monitors. The companies were sued for holding artificially high the prices of the LCD panels supplied to the U.S. over the last decade.
Caterpillar, the world's largest heavy machinery manufacturer, reported that they hired about 5,000 workers during the past quarter when their profit jumped 44%. Caterpillar is looking to post 2011 profits at a record high and expects a momentum spillover into the next year. Despite Caterpillar's triumph, the Durable Goods orders, a forward looking indicator of economic activities, came out low this past Wednesday; the decline in the aircraft industry is blamed for this effect.
The labor related moves of Caterpillar and Whirlpool are very illustrative of the job market condition. As some employers increase their labor force, others still let people go, holding misery in the job market constant. New unemployment claims this past week moved down slightly, but still stayed above 400,000, demonstrating no significant improvement. The Employment Costs Index rose only 0.3 percent in the third-quarter, the slowest pace in two years. This is yet another sign of the anemic job market that is contributing to keeping inflationary pressures down.
The Chicago Fed National Activity index, a weighted average of 85 economic indicators, rebounded to -0.22 in September, still less than forecasted. The GDP growth nevertheless was higher in the third-quarter, at a decent 2.5 percent. Investors are cautious in their conclusions, since sustainability of the growth rate remains unknown and the GDP number often gets revised some time after its initial release.
The housing market weakness continues. The MBA reported a decrease in mortgage applications this past week; both new home sales and pending home sales dropped, signaling no signs of improvement in the near future.
The Wall Street Journal article this past week began with citing a joke by Stephen Schwartzman, head of Blackstone Group L.P., an asset management giant. Mr. Schwartzman said that parents of Brian Moynihan, Bank of America CEO and Patrick Moynihan, a deacon and missionary running a boarding school on Haiti, must be proud that both their sons run under-funded non-profit organizations. The article then explains that present times are tough for the banks; going forward, banks are facing sluggish economic growth that undermines lending volumes, restructurings due to mandatory separation of the investment activities and the long-term impact of low-quality mortgage portfolios. At the same time, the perception of the banking industry as highly profitable for investors and low-cost for customers puts additional pressure on banks. The recent introduction of a debit card fee by Bank of America, amongst others, in an attempt to push up banks' fee income, led to such a negative clients response that Chase and Wells Fargo announced joining the camp of the institutions not charging debit card fees. The new European debt deal that was cheered by the markets this past week is actually bad news for the European banks. Fifty percent debt forgiveness on the sovereign bonds of Greece will put additional pressure on the banks to raise capital. After an extraordinary rally, markets seem to be into more of a profit taking mode so far this week.
Investors are looking forward to the week loaded with economic news. Chicago PMI was reported today; on Tuesday, Motor Vehicle Sales, ISM Manufacturing Index and Constructions will be released.; Wednesday begins with the ADP Employment report; an announcement of the 2-day FOMC meeting outcome is scheduled for 12:30 pm followed by the Fed Chairman, Ben Bernanke's, press conference at 2:15 pm; Thursday is a release day for Jobless Claims, Productivity and Costs, Factory Orders and ISM Non-Manufacturing Index; the Employment Situation report will conclude the busy week on Friday. After close of the market today, economists forecast increased probability of seeing witches and other unexpected non-economic factors above and beyond the business world. Stay tuned.
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