BROAD MARKET SUMMARY:
The markets ended this week relatively flat compared to last week’s close, but that doesn’t mean the prices didn’t change throughout the week. Volatility remained mostly driven by oil prices and financial firm headlines. These habits will obviously die slowly. The ups and downs in oil were driven by supply concerns and OPEC comments respectively. Financial headlines were scaled back this week, but the one making the news (LEH) really was a downer overall.
The sentiment in the economy is becoming increasingly dichotomous. The consumer sentiment about the economy is deteriorating due to housing, credit, finance, and cost of living while the policy-makers are awake at night tossing and turning about the continuing threat of inflation. The first scenario has historically been dealt with by lowering interest rates and spurring economic activity, but the second calls for increased interest rates that will keep a dangerous inflation situation in check. What to do, what to do. No wonder the markets ended flat this week. Home sales saw a data spike this week, but a deeper dive into the number revealed folks are selling more houses simply by accepting lower prices. Material supply and demand did not change, we just moved down along the curve. As we have stated before, we continue to monitor the landscape for notable movement toward more positive or negative territory before a general prognostication can even be validated.
INDEX
6/13 Close
6/06 Close
% Chg
DJIA
12,307.35
12,209.81
+0.8%
S&P 500
1,360.03
1,360.68
-0.05%
NASDAQ
2,454.50
2,474.56
-0.8%
West Texas Intermediate Crude closed at $134.86/bbl. Gold Futures closed at $873.10/oz.
Next FOMC Meeting:June 24 & 25, 2008 - Tuesday/Wednesday
Notable Economic Data This Week:
• Pending home sales rose unexpectedly in April beating expectations of a drop of 1.0% with an actual result of a gain of 6.3%.
• Retail sales in May were revised up to a gain of 1.0& beating projections of 0.5%.
• CPI was a bit higher than expectations and Core CPI matched expectations for May, both measures were higher than they were in April.
• The U. of Mich. Consumer Sentiment Index fell for the fifth consecutive month down to 56.7.
HAPPENINGS IN ECONOMICS: We’ve all heard of “Keeping up with the Joneses”, but few ever expected that to be a prevailing sentiment at the U.S. Federal Reserve. As the dollar value continues to encounter difficulty compared to other global currencies, key officials cite the policy of lowering of the interest rates causes the value of the dollar to be worth relatively less than currencies whose applicable interest rates are higher. In turn, while European counterparts are nearing interest rate raises domestic policy-makers face a downward spiraling consumer sentiment which usually isn’t a very accepting environment for interest rate increases. But the counterpoint is that inflation in the U.S. is a real concern and lowering interest rates doesn’t do any good in reducing inflation. We wish the Fed Officials “good luck” in making these very difficult decisions. At stake are only the U.S. currency and economy.
The Fed’s Beige Book survey shows that inflationary pressures at wholesale levels are being passed on to consumers. Energy, food, metals, plastics, and others were cited as areas that were causing certain inflationary pressures.
Pending home sales spiked higher in April to register the highest reading since October, while some speculate that many owners are selling under duress and are pushing the average price of home sales lower. The reading in March was the lowest since 2001, but the unexpected rise this month should not be construed as a bounce off the bottom. Further confirmation is needed before anyone starts claiming the end of the housing slump.
May retail sales came in stronger than was expected which was finally a positive sign for the economy this week. It seems the number was bolstered by consumers spending federal tax rebate checks on retail items. This positive sign leaves the pros pontificating whether this is a sustainable trend or that the downturn in the U.S. is inevitable. Not surprisingly, the jury is still out.
CPI figures came in this week and had little impact. Not showing that inflation is a grave concern and also showing inflation is worth keeping an eye on. The impact on the markets was mostly positive as traders interpreted the results to mean the Fed is unlikely to raise rates anytime soon on such a tame report. Of course that’s only guesswork at this point.
TECH DOWNLOAD: Have you even fallen “out” of love? Yahoo and Microsoft officially have and the former is already trying to find a new date to the dance. With the deal falling through, some are left wandering who the winner actually is. By looking at the reaction in share prices, reasonable investors can assume that because prices fell at YHOO they are likely the loser and with prices up at MSFT and GOOG they are likely the winners in the end. Microsoft shareholders are happy it is over and the company can get back to what it does best, while Yahoo owners are grappling with the loss of a premium bid offer and looking for solutions to prove a similar valuation. MSFT would have paid about $33 per share, but YHOO closed Friday around $23.
Are you all excited? Apple unveiled the new version of the iPhone will be available July 11th. Jobs really is a master of marketing by the fact he can create more interest in the next product launch from the company than the world has for the actual earnings and operations of the company. Interesting isn’t it? Nonetheless, highlights of the device include a lower price, a faster interface, and more memory. The back of the phone is now black instead of silver.
DOMESTIC CORPORATE BEAT: Last week we reported that with the direction the economy is heading, it is no large surprise same store sales at Wal-Mart continue to rise. Following that trend, McDonald’s said its stores’ sales were 7.7% higher this May than last year. Strong dollar menu offerings and overseas store strength both continue to contribute to the success of the world’s largest restaurant enterprise.
Belgian brewing company InBev bid $46.3 billion for Anheuser-Busch this week, but the target firm seems to be making some strategic moves to evade the deal. Mexican brewer Grupo Modelo has been brought into the equation to complicate the matter which will alter control situations and perceived value of BUD. Many Americans who are passionate about the brand aren’t overly accepting to the idea of this domestic icon selling out and coming under foreign ownership. But with the dollar with its current value, global suitors likely feel they are getting a good deal.
Time Warner does not want to control the weather channel. NBC Universal still does though. The Weather Channel’s owner Landmark Communications has the unit on the blocks and the current bid is roughly $3.5 billion. Time Warner didn’t say the property wasn’t attractive, but rather that they are opting to remain very price disciplined.
Lehman Brothers had a really tough week. Announcing expectations of a Q2 loss of $2.8 billion, needing to raise $6 billion of capital, brokerage downgrades, and removing their CFO and COO from offices really put a damper on the share price. The loss is expected to be wider than was previously announced while the company does everything in its power to navigate the choppy waters that are inherent in the domestic financial markets these days.
THE BOUNCING OIL BUBBLE: Last week billionaire investor George Soros spoke about the current price of oil and how it isn’t currently trading in harmony with actual supply and demand for the commodity and that futures trading by speculators are artificially inflating the price. This week OPEC weighed in with commentary reconfirming “the view that current price levels do not reflect supply and demand realities.” The oil chiefs also stated it seems unrealistic that current prices will be sustained in the second half of the year.
Exxon Mobil will stop selling gas. The company is exiting its domestic retail gas operations basically citing the price it is charging itself for oil is its squeezing margins. During a period that oil priced have doubled, the price of gas has gone up only 31% forcing gas station owners to absorb a significant share of the oil price jump. Keeping this in mind Exxon is siding with the monster side of the business, the oil side, and divesting a very small part of the overall conglomerate, the retail gas side.
awm15
StockwireAdmin
We’ve all heard of “Keeping up with the Joneses”, but few ever expected that to be a prevailing sentiment at the U.S. Federal Reserve. As the dollar value continues to encounter difficulty compared to other global currencies, key officials cite the policy of lowering of the interest rates causes the value of the dollar to be worth relatively less than currencies whose applicable interest rates are higher. In turn, while European counterparts are nearing interest rate raises domestic policy-makers face a downward spiraling consumer sentiment which usually isn’t a very accepting environment for interest rate increases. But the counterpoint is that inflation in the U.S. is a real concern and lowering interest rates doesn’t do any good in reducing inflation. We wish the Fed Officials “good luck” in making these very difficult decisions. At stake are only the U.S. currency and economy.
The Fed’s Beige Book survey shows that inflationary pressures at wholesale levels are being passed on to consumers. Energy, food, metals, plastics, and others were cited as areas that were causing certain inflationary pressures. 
Pending home sales spiked higher in April to register the highest reading since October, while some speculate that many owners are selling under duress and are pushing the average price of home sales lower. The reading in March was the lowest since 2001, but the unexpected rise this month should not be construed as a bounce off the bottom. Further confirmation is needed before anyone starts claiming the end of the housing slump.
May retail sales came in stronger than was expected which was finally a positive sign for the economy this week. It seems the number was bolstered by consumers spending federal tax rebate checks on retail items. This positive sign leaves the pros pontificating whether this is a sustainable trend or that the downturn in the U.S. is inevitable. Not surprisingly, the jury is still out.
CPI figures came in this week and had little impact. Not showing that inflation is a grave concern and also showing inflation is worth keeping an eye on. The impact on the markets was mostly positive as traders interpreted the results to mean the Fed is unlikely to raise rates anytime soon on such a tame report. Of course that’s only guesswork at this point.
Have you even fallen “out” of love? Yahoo and Microsoft officially have and the former is already trying to find a new date to the dance. With the deal falling through, some are left wandering who the winner actually is. By looking at the reaction in share prices, reasonable investors can assume that because prices fell at YHOO they are likely the loser and with prices up at MSFT and GOOG they are likely the winners in the end. Microsoft shareholders are happy it is over and the company can get back to what it does best, while Yahoo owners are grappling with the loss of a premium bid offer and looking for solutions to prove a similar valuation. MSFT would have paid about $33 per share, but YHOO closed Friday around $23.
Are you all excited? Apple unveiled the new version of the iPhone will be available July 11th. Jobs really is a master of marketing by the fact he can create more interest in the next product launch from the company than the world has for the actual earnings and operations of the company. Interesting isn’t it? Nonetheless, highlights of the device include a lower price, a faster interface, and more memory. The back of the phone is now black instead of silver.
Last week we reported that with the direction the economy is heading, it is no large surprise same store sales at Wal-Mart continue to rise. Following that trend, McDonald’s said its stores’ sales were 7.7% higher this May than last year. Strong dollar menu offerings and overseas store strength both continue to contribute to the success of the world’s largest restaurant enterprise.
Belgian brewing company InBev bid $46.3 billion for Anheuser-Busch this week, but the target firm seems to be making some strategic moves to evade the deal. Mexican brewer Grupo Modelo has been brought into the equation to complicate the matter which will alter control situations and perceived value of BUD. Many Americans who are passionate about the brand aren’t overly accepting to the idea of this domestic icon selling out and coming under foreign ownership. But with the dollar with its current value, global suitors likely feel they are getting a good deal.
Time Warner does not want to control the weather channel. NBC Universal still does though. The Weather Channel’s owner Landmark Communications has the unit on the blocks and the current bid is roughly $3.5 billion. Time Warner didn’t say the property wasn’t attractive, but rather that they are opting to remain very price disciplined. 
Lehman Brothers had a really tough week. Announcing expectations of a Q2 loss of $2.8 billion, needing to raise $6 billion of capital, brokerage downgrades, and removing their CFO and COO from offices really put a damper on the share price. The loss is expected to be wider than was previously announced while the company does everything in its power to navigate the choppy waters that are inherent in the domestic financial markets these days.
Last week billionaire investor George Soros spoke about the current price of oil and how it isn’t currently trading in harmony with actual supply and demand for the commodity and that futures trading by speculators are artificially inflating the price. This week OPEC weighed in with commentary reconfirming “the view that current price levels do not reflect supply and demand realities.” The oil chiefs also stated it seems unrealistic that current prices will be sustained in the second half of the year. 
Exxon Mobil will stop selling gas. The company is exiting its domestic retail gas operations basically citing the price it is charging itself for oil is its squeezing margins. During a period that oil priced have doubled, the price of gas has gone up only 31% forcing gas station owners to absorb a significant share of the oil price jump. Keeping this in mind Exxon is siding with the monster side of the business, the oil side, and divesting a very small part of the overall conglomerate, the retail gas side.