Review of Last Week
LOTS OF ROCK 'N ROLL BUT NO PARTY... What a wild ride down Wall Street-a 552-point weekly slide for the Dow, as everyone fretted over the financial sector's exposure to more subprime losses. The fun began with the resignation of Citigroup CEO Chuck Prince and ended with Wachovia reporting a $1.1 billion write-down of their collateralized debt obligations, just for October. Along the way, Cisco reported $.40 earnings per share, $.04 ABOVE expectations, but still got hammered. GM deserved its hammering following a record $39 billion loss for Q3.
All week was jittery anticipating Fed Chairman Ben Bernanke's Thursday testimony before the Joint Economic Committee. Rowdy Wall Streeters quietly listened as Big Ben gave Congress his sobering view: he expects U.S. economic growth to slow "noticeably" and still feels there's a risk of higher inflation. (More on Bernanke in Home Base below.) The rowdies read "inflation concerns" as "no more rate cuts" and slower growth as a net negative, so the market took a 300-point dip. The last hour brought it all back, with the Dow closing just 33 points off.
Friday began with a nice -$56.5 billion Balance of Trade number for September, better than expected and the lowest trade deficit in over 2 years. This is good news for the economy, but could be bad for bonds-so we'll keep watching. Then the roof caved in. A combination of profit taking among the high-flying techies and continued concerns about credit market losses sent the Dow plummeting over 220 points.
But the facts are: Q3 productivity rose 4.9% and unit labor costs dropped 0.2%, so inflation stays under control. In addition, Initial Jobless Claims came in at 317,000, way below expectations and the lowest reading in a month.
The Dow ended the week at 13,042.74-down 552.36 points. The S&P 500 closed at 1,453.70, down 3.7% for the week. The tech-laden NASDAQ was hit worst, down 6.5% for the week, closing at 2,627.94. Commodities got even stronger, with gold at record levels and oil, tin and wheat near record levels.
The bond markets closed early Friday but still scooped up lots of money running from the wild times in the equity markets. The benchmark 10-year Treasury ended with its yield down to 4.22%. Mortgage rates remain at very nice levels.
This Week's Forecast "Can't We All Just Get Along?" CAN WE ALL SETTLE DOWN?... Things are so turbulent, everyone's looking for a breather. Will we get it from any of next week's economic and earnings reports? October Retail Sales will show the strength of consumers as they charge (pardon the pun) into the holidays. PPI and CPI, along with Capacity Utilization will key on inflation.
The Q3 earnings season is almost over, but we'll still have some heavies weighing in, including Tyson Foods, Home Depot, J.C. Penney, Wal-Mart, Tyco and Starbucks.
The Week's Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Nov 12 - Nov 16
| Date | Time (ET) | Release | For | Consensus | Prior | Impact | Tu
Nov 13 | 10:00 | Pending Home Sales | Sep | -2.0%
| -6.5%
| Moderate | W
Nov 14 | 08:30 | Retail Sales | Oct | 0.2% | 0.6% | HIGH | W
Nov 14 | 08:30 | Retail Sales ex-auto | Oct | 0.3% | 0.4% | HIGH | W
Nov 14 | 08:30 | Producer Price Index (PPI) | Oct | 0.2% | 1.1% | Moderate | W
Nov 14 | 08:30 | Core PPI
ex-food and energy | Oct | 0.2% | 0.1% | Moderate | W
Nov 14 | 10:00 | Business Inventories | Sep | 0.3% | 0.1% | Moderate | Th
Nov 15 | 08:30 | Consumer Price Index (CPI) | Oct | 0.3% | 0.3% | HIGH | Th
Nov 15 | 08:30 | Core CPI
ex-food and energy | Oct | 0.2% | 0.2% | HIGH | Th
Nov 15 | 08:30 | Initial Jobless Claims | 11/10 | NA | 317K | Moderate | Th
Nov 15 | 08:30 | NY Empire State Index | Nov | 21.0 | 28.8 | Moderate | Th
Nov 15 | 12:00 | Philadelphia Fed Index | Nov | 6.0 | 6.8 | HIGH | F
Nov 16 | 09:15 | Industrial Production | Oct | 0.1% | 0.1% | Moderate | F
Nov 16 | 09:15 | Capacity Utilization | Oct | 82.1% | 82.1% | Moderate |
Home Base INFO THAT HITS US WHERE WE LIVE In Fed Chairman Ben Bernanke's testimony this week, there were some nicely positive statements, which the economy-bashing media chose to ignore.
- Bernanke said he expected growth to slow-NOT disappear, which would mean a recession, which he is NOT forecasting
- He blamed the slower growth on housing and credit market problems, but affirmed "the broader resilience of the economy", as evidenced by the 3.9% growth in GDP and strong jobs numbers
- He said he expected housing prices to turn around and the credit market to stabilize early next year
- Finally, he asked Congress to consider allowing Fannie Mae and Freddie Mac to back jumbo loans above the present conforming limit, up to $1 million
Amidst all the hand wringers and naysayers, we need to reassure our customers that you can never time the real estate market...that for many people, selling and buying now makes a whole lot of sense. There are more people working in the U.S. today than ever before. And mortgage rates are still at attractive levels.
Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months. The Fed's statement accompanying their October 31 rate cuts indicated that, barring new data, they're finished with cuts for the year. With economic and inflationary concerns still on the Fed's mind, most experts still agree. Current Fed Fund Rate: 4.50%
| After FOMC meeting on: | Consensus | | Dec 11 | 4.50% | Jan 30
| 4.50% | | April 30 | 4.50% |
Odds of change from current policy:
| After FOMC meeting on: | Consensus | | Dec 11 | 46% | Jan 30
| 63% | | April 30 | 77% |
*Information courtesy CTX Mortgage, Franklin TN |
and say, NO! 
Comments(3)