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NEW YORK, NY By early afternoon, the major indexes were trading in positive territory after staging an impressive recovery off the lows from the morning. The volume today is rather light as can be expected a day before the major Thanksgiving holiday. As such, any possible market trend that may be forming in this environment must be treated with a fair amount of suspicion. The true test will be next week when activity returns to normalized levels.
It is important to note that it is in these times of great uncertainty that events that were inconceivable in the equity markets only 12-months ago are now a common feature on the investment landscape. Companies that were once considered venerable American icons (read General Motors and Ford) have seen their stocks collapse to generational lows. In some cases, they have gone out of business altogether (read Lehman Brothers and Bear Stearns) The retail companies have been decimated in large measure in 2008, and it is likely that some venerable names are not likely to be in existence beyond the first half of 2009. Our retail sector analyst, Brian Sozzi, suggests that there is a strong possibility that such will be the case for Liz Claiborne (LIZ), the owner of such brands as Juicy couture, Kate Spade, and Lucky Brand, among others.
Investors are now only subscribing to those ideas and conventions that have been proven to be immutable and fixed throughout the ages. In fact, a strong appetite for vehicles that are considered safe, especially the ongoing flight to liquidity, remains the dominant theme. This has resulted in massive outflows from mutual funds and other similar entities and into cash and cash equivalents.
Clearly, the traditional ways of doing things needs to be revamped, or at the very least, modified in these unusual times. It is clear that the incoming administration appears to be signaling to the market that such is going to be the case with the daily announcement of the appointments to the economic team. Indeed, it can be argued that the three-day rally, and today's move, have all been predicated on the optimism being felt by the markets that the current problems are being addressed in a meaningful way. It does not mean that there will be a miraculous turnaround in the very near-term, but it is being addressed in meaningful way. However, we defer to what is going to happen next week.
As it stands, the Fed is doing everything to keep the funds rate at around 1%, with the ultimate goal of having a zero percent rate. This is necessary for an ultimate goal of jumpstarting an economy that has stalled and is not responding to any of the fixes thus far implemented. A zero percent interest rate would not necessarily translate into free money for consumers as they would still have to pay some interest, but business can see a sharp reduction in their borrowing costs. That is, of course, if and when the banks start lending again.
The Federal Reserve is effectively be engaged in the strategy of quantitative easing where money is being printed with the intention of it being injected into the economy. The obvious pitfall is that it can overshoot and create more inflation, and perhaps another asset bubble. However, it appears that such is not the case as of yet because the banks are not lending and the money is not yet reaching its intended target. Furthermore, with the current team of economic policymakers and the team of independent advisers to be led by the legendary Paul Volcker, who once described inflation as "public enemy number one," the chances of that occurring are somewhat diminished. Happy Thanksgiving!
Economic Data
New Home Sales
New home sales dropped 5.3% to an annual rate of 433,000 homes from September to October, falling below the 450,000 consensus estimate. Slight increases in the Northeast and the Midwest were offset by declines in the South and West, making for the slowest sales pace since 1991. The good news here is that total supply fell by 8.0% during the month as homebuilders continue to opt to forego new construction as much as possible. In fact, permits for new home construction decreased by 12% month to month.
Up until October, we had been seeing several signs that the housing market was improving, including increased new and existing home sales and stabilizing prices. However, these were fragile improvements, and the events in the financial markets during October/November appears to have knocked the market back a couple of steps.
Sidebar
* According to the latest data, the average price of a new home is $272,300, down from $310,100 last year. That's a decrease of $37,800! Here's what you could buy with that extra cash:
It is important to note that it is in these times of great uncertainty that events that were inconceivable in the equity markets only 12-months ago are now a common feature on the investment landscape. Companies that were once considered venerable American icons (read General Motors and Ford) have seen their stocks collapse to generational lows. In some cases, they have gone out of business altogether (read Lehman Brothers and Bear Stearns) The retail companies have been decimated in large measure in 2008, and it is likely that some venerable names are not likely to be in existence beyond the first half of 2009. Our retail sector analyst, Brian Sozzi, suggests that there is a strong possibility that such will be the case for Liz Claiborne (LIZ), the owner of such brands as Juicy couture, Kate Spade, and Lucky Brand, among others.
Investors are now only subscribing to those ideas and conventions that have been proven to be immutable and fixed throughout the ages. In fact, a strong appetite for vehicles that are considered safe, especially the ongoing flight to liquidity, remains the dominant theme. This has resulted in massive outflows from mutual funds and other similar entities and into cash and cash equivalents.
Clearly, the traditional ways of doing things needs to be revamped, or at the very least, modified in these unusual times. It is clear that the incoming administration appears to be signaling to the market that such is going to be the case with the daily announcement of the appointments to the economic team. Indeed, it can be argued that the three-day rally, and today's move, have all been predicated on the optimism being felt by the markets that the current problems are being addressed in a meaningful way. It does not mean that there will be a miraculous turnaround in the very near-term, but it is being addressed in meaningful way. However, we defer to what is going to happen next week.
As it stands, the Fed is doing everything to keep the funds rate at around 1%, with the ultimate goal of having a zero percent rate. This is necessary for an ultimate goal of jumpstarting an economy that has stalled and is not responding to any of the fixes thus far implemented. A zero percent interest rate would not necessarily translate into free money for consumers as they would still have to pay some interest, but business can see a sharp reduction in their borrowing costs. That is, of course, if and when the banks start lending again.
The Federal Reserve is effectively be engaged in the strategy of quantitative easing where money is being printed with the intention of it being injected into the economy. The obvious pitfall is that it can overshoot and create more inflation, and perhaps another asset bubble. However, it appears that such is not the case as of yet because the banks are not lending and the money is not yet reaching its intended target. Furthermore, with the current team of economic policymakers and the team of independent advisers to be led by the legendary Paul Volcker, who once described inflation as "public enemy number one," the chances of that occurring are somewhat diminished. Happy Thanksgiving!
Economic Data
New Home Sales
New home sales dropped 5.3% to an annual rate of 433,000 homes from September to October, falling below the 450,000 consensus estimate. Slight increases in the Northeast and the Midwest were offset by declines in the South and West, making for the slowest sales pace since 1991. The good news here is that total supply fell by 8.0% during the month as homebuilders continue to opt to forego new construction as much as possible. In fact, permits for new home construction decreased by 12% month to month.
Up until October, we had been seeing several signs that the housing market was improving, including increased new and existing home sales and stabilizing prices. However, these were fragile improvements, and the events in the financial markets during October/November appears to have knocked the market back a couple of steps.
Sidebar
* According to the latest data, the average price of a new home is $272,300, down from $310,100 last year. That's a decrease of $37,800! Here's what you could buy with that extra cash:
