In the first two weeks of 2008 the financial markets have performed negatively due to the housing crisis, credit concerns and recession fears. Actually, I like to think that we are in a recession despite what U.S. government reports say. The unemployment report for the month of December was higher than anticipated. Unemployment rate rose 5%, the first time in almost two years. Job growth in several service industries, including professional and technical service, health care, and food service, was largely offset by job losses in construction and manufacturing.
I feel the unemployment number will continue to increase in the coming months mainly because of a weaker consumer. Retail stocks are the most vulnerable to consumer spending and they have been hammer in the past month. On Friday shares of fine jewelry retailer Tiffany & Co. were not shinning. TIF shares were hammer as the retailer lowered its fiscal ’07 guidance on a pullback in U.S. consumer spending.
With all the negativity on the U.S. market business are less likely to hire. That means people will not be wearing nice suits to job interviews anytime soon. That being said, retailer Men’s Warehouse lower guidance, shares are down more than 40% since December ’07.
Fed chairman Ben Bernanke. or Benny Boy as I like to call him stated on a speech last Thursday that the fed will do whatever it can to prevent the economy from a recession. The possibility of lowering the Fed funds rate 50 basis point is on the table for their next meeting. In Europe, the bank of England and EU central bank are keeping rates steady. But such a bold move by the Fed will actually add to the problem. By lowering interest rates money becomes more accessible but it destroys the value with the increase in money supply and credit. One way to measure the value of the dollar is by observing the price of gold. In just a little over a 1-1/2 year the price of gold has risen from $600 an ounce to an all time high of $900 in less than two years. That’s about 50 percent increase on the value of this commodities, in 1999 it was trading below $300.
I feel the unemployment number will continue to increase in the coming months mainly because of a weaker consumer. Retail stocks are the most vulnerable to consumer spending and they have been hammer in the past month. On Friday shares of fine jewelry retailer Tiffany & Co. were not shinning. TIF shares were hammer as the retailer lowered its fiscal ’07 guidance on a pullback in U.S. consumer spending.
With all the negativity on the U.S. market business are less likely to hire. That means people will not be wearing nice suits to job interviews anytime soon. That being said, retailer Men’s Warehouse lower guidance, shares are down more than 40% since December ’07.
Fed chairman Ben Bernanke. or Benny Boy as I like to call him stated on a speech last Thursday that the fed will do whatever it can to prevent the economy from a recession. The possibility of lowering the Fed funds rate 50 basis point is on the table for their next meeting. In Europe, the bank of England and EU central bank are keeping rates steady. But such a bold move by the Fed will actually add to the problem. By lowering interest rates money becomes more accessible but it destroys the value with the increase in money supply and credit. One way to measure the value of the dollar is by observing the price of gold. In just a little over a 1-1/2 year the price of gold has risen from $600 an ounce to an all time high of $900 in less than two years. That’s about 50 percent increase on the value of this commodities, in 1999 it was trading below $300.
Investors are putting their money on the precious metals as growing worries of a U.S. recession is more likely to happen. Gold serves as an inflation hedge against the dollar during recession time fueled by lower interest rates and a weak dollar.
Last week in the financial sector Bank of American purchased Country Wide Financial for $4.1 billion in stock, a deal that rescues the country’s biggest mortgage lender and expands the financial services empire of the nation’s largest consumer bank.
The acquisition will make Bank of America Corp. the nation's biggest mortgage lender and loan services. The purchase seems to me no less than a bailout on a company that was near bankruptcy.
This week should be a very exiting week for the financial markets as Merrill Lynch, JP Morgan and Citigroup report earnings. Analyst estimate that Merrill’s fourth quarter write downs to be at least $10billion, and would shrink shareholders equity to 12 percent.
I expect that if the write downs are below analyst estimates financials should get some momentum only to be stifled with a weak consumer and fears of inflation / recession. At this time no one should be long any sector other than Gold, Healthcare or if you are shorting. I have no reason why I would be buying this market.
If the leading stocks are weak the market is weak
Last week in the financial sector Bank of American purchased Country Wide Financial for $4.1 billion in stock, a deal that rescues the country’s biggest mortgage lender and expands the financial services empire of the nation’s largest consumer bank.
The acquisition will make Bank of America Corp. the nation's biggest mortgage lender and loan services. The purchase seems to me no less than a bailout on a company that was near bankruptcy.
This week should be a very exiting week for the financial markets as Merrill Lynch, JP Morgan and Citigroup report earnings. Analyst estimate that Merrill’s fourth quarter write downs to be at least $10billion, and would shrink shareholders equity to 12 percent.
I expect that if the write downs are below analyst estimates financials should get some momentum only to be stifled with a weak consumer and fears of inflation / recession. At this time no one should be long any sector other than Gold, Healthcare or if you are shorting. I have no reason why I would be buying this market.
If the leading stocks are weak the market is weak
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