Markets to Open Lower - Depressing Corporate Outlook

November 11, 2008 – The futures are indicating lower openings this morning as concerns about corporate performance and deteriorating economic conditions mount. The bottom line, in our opinion, is that there just aren’t any catalysts in place that can be pointed to that give the markets a reason to move higher. With no key economic data on tap today, the focus will be on corporate earnings.

With the bond market closed for Veterans day, the dollar is unchanged this morning against its peers. Our outlook for the dollar remains bearish over the longer term with expectations of a second stimulus package coming from Washington which will likely add at least another $400 billion to the national debt and expectations also pretty high for another Fed rate cut. These moves may be necessary to get the economy going again, but the longer term consequence, in our opinion will be inflationary. If we are right, then the recent softness in commodities should be seen as an opportunity to accumulate.

Oil prices have dipped below $60 this morning, down $2.37 to $59.94. It is a bit surprising, and telling to see the further weakness in oil prices on the heels of China’s announced bailout plan yesterday. This is an indication of just how dismal the markets think the global economic conditions are and just how low they expect demand to be. We have been commenting that we expect OPEC to step back in sooner than later to cut production again to try to buoy oil prices. This morning Qatar’s Prime Minister said he believes that $70 to $90 is a “fair price.” We are extremely bullish on oil at current levels and think that the current prices are overcompensating for slowing global growth. Consider the fact that China’s economy, though slowing, is still posting 9% growth, and that its economy boasts the second largest auto market in the world, with only 2% penetration amongst its population. That is right, only 2% of its population own cars, and the sold fact that Chinese citizens on a wider percentage basis will be car owners in the coming years should be enough to be driving demand projections higher from current pessimistic levels.

In international markets, British retail sales fell for the first time since 2005, which shouldn’t be too much of a surprise, down 0.1% in October on a Y/Y basis. Sweden’s annual inflation rate fell to 4% in October from September, from 4.4% in September on lower commodities prices.

On the corporate front,

·         Circuit City (NYSE:CC) is the latest casualty of the recessing economy, filing for Chapter 11 protection;

·         DHL said it is cutting 9,500 jobs, reducing air and ground operations in the U.S.;

·         Fannie Mae (NYSE:FNM) reported a $29 billion loss for the Q3, or $13 per share, leading to concerns that the $100 billion it has received from the government may not be enough. Last year in the same period, it lost $1.4 billion, or $1.56 per share;

·         Ascent Solar (Nasdaq:ASTI) signed a cooperation agreement with TurtleEnergy to focus on developing BIPV (building integrated PV) products for the U.S. residential marketplace. This move is intended to take advantage of wider expected demand in the rooftop market driven by the extension of the ITC.

In terms of what we expect in today’s session, more downward pressure. We have been recommending to our readers to hold off in the past week or so when the DJIA rallied to 9,600, suggesting that there just weren’t any reasons for stocks to move higher, but there are seemingly and unlimited number for stocks to move lower. Our suggestion for investors has been to hold off to accumulate until the DJIA tips below the 8,500 level, getting more aggressive with the DJIA closer to 8,000. In this range, we believe the downside is mitigated and there is a better trading opportunity, as well as a more attractive entry level altogether. We think the markets are moving their way back down to these levels in the next few sessions.

Fast Facts

·         The GOA just released a report on the Nation’s Long-Term Fiscal Outlook that we think is worth reading. Here is a depressing punch line of the report: “Under either set of projections, the long-term outlook is unsustainable.”

·         As of this morning, the national debt stands at $10.65 trillion. This is fundamental to our bearish outlook on the dollar, and fundamental to our long-term call for inflationary pressure.