Markets Open Modestly Higher In Midst of Poor Retail Data

December 26, 2008 – The futures are indicating slightly higher openings this morning in what will be a lightly traded session. Much of the focus this morning will be on the retail front, where SpendingPulse reported that retail sales are down between 5.5% and 8% compared with last year. While there isn’t much good news for the retailers, there was some positive news in Detroit, which saw the Fed allowing GMAC Financial Service s to become a bank holding company and qualify for some of the $700 billion in bailout money allocated earlier this year by Congress. Without the held, GMAC would have likely had to shut down. So the news is being taken as a positive on the Street this morning.

In international markets, Japan’s factory output fell 8.1% in November, the largest drop since it began measuring the data in 1953. Further declines of 8% and 2.1% are forecasted for December and January.  Thailand’s prime minister said the government is planning to spend about 300 billion baht ($8.7 billion) on stimulus for its economy. India’s wholesale price index fell to 6.61% for the most recent week, down from 6.84% the prior week, on falling commodities prices. Singapore’s industrial production fell 7.5% in November, after a 12% decline in October. And tourism fell 9.7% in November as well.

The dollar is slipping a bit this morning against the euro, which is at 1.4070. Our outlook for the dollar against the euro in 2009 is extremely bearish and we are projecting the euro to hit 1.50 again as early as the first calendar quarter. Russia’s ruble has fallen to a 3-year low against the dollar as its Central Bank supervised the depreciation itself in an order to deal with its financial crisis. The goal is for the ruble to become a more “flexible” currency to reflect the current economic situation. Gold prices are up $2.50 to $850.40 this morning, helped by a softer dollar.

Given our outlook for the dollar, we remain bullish on gold prices. Oil is slightly higher this morning, up $0.66 to $36.01. Demand expectations for oil continue to get recalibrated lower, which is driving oil prices down. We are still surprised that OPEC hasn’t slashed production again.

On the corporate front,

·         Amazon (Nasdaq:AMZN) said its 2008 holiday season was its best eve, with 6.3 million items ordered on its peak day;

In terms of what we expect, another light session of trading as many traders and fund managers are still out for the holidays. There aren’t any real catalysts for stocks to move higher today, as most of the focus will be on the dismal retail sales data (excepting Amazon – see above). Granted, the fact that GMAC is not being rumored to be closing its doors this morning, which was a distinct possibility, is a positive. But still, it will be hard for traders that are working today to get too keyed up in either direction heading into the weekend, Keep in mind that next week’s economic data is going to be thin, with only the ISM Index for December on tap. So for the next few days it will be all about positioning for 2009, which, in the early months may prove to be just as challenging as the second half of 2008. What is in store in the second half of 2009 is so much a consequence of the incoming Obama administration’s policies and plans to stabilize the economy, so at best, the outlook is uncertain.

The only positive here is that Bush will be out of the way.

The question is, whether the markets have digested and anticipated all of the negative data out there, and if so, whether they are also taking into account potential for some further bad news. If so, then we may have put in a bottom back on November 21. On the other hand, the people we take most seriously, Roubini, Rogers and Faber, who have been right for some time now, and way ahead of the rest, are all warning that 2009 could bring some new lows altogether. Our recommendation then, is to continue to take a cautious approach. We certainly aren’t buying in today’s session, but we remain inclined to hold off until the DJIA gets back closer to the 8,000 level, which we think, all things being equal, is going to happen again – sooner than later.