Markets to Open Mixed on Deteriorating Job Market, Uncertainty About Corporate Outlook

November 13, 2008 – The futures are indicating lower openings as the Street tries to shake off the redirection of Paulson’s bailout plan which led to a selloff in yesterday’s session. The move, in our opinion, is just another bonehead move by a Treasury Secretary that has been way behind the curve in terms of how this whole economic crisis has unfolded. As is stands, the uncertainty ahead of us is almost crippling to the markets, and Paulson just showed us that he can make that uncertainty even greater. Good job Paulson. Regardless of whether the call is ultimately the right one, Paulson handled it poorly, in our opinion. But again, Paulson has handled this whole mess poorly by betting jawboning tactics through the second half of 2007 and early 2008 would be enough to stoke confidence and buttress the U.S. economy as opposed to acknowledging how deep the crisis really is an addressing it in a serious way.

U.S. initial jobless claims rose 32,000 to 516,000 last week, which is consistent with expectations of deteriorating labor market conditions. Unemployment is currently at 6.5% and is being forecast to grow from 7.6% to 8.5% in the next year by many of the economists that we pay attention to.

Oil prices are trading slightly higher this morning by $0.59 to $56.75. We are hearing more speculation this morning that the Fed will cut rates again in the near term, which will likely help buoy oil prices at current levels, creating some additional softness for the dollar. The dollar is moving lower against its peers this morning.

Well, amidst a refocus of the bailout plan away from mortgages and toward bank credit, this morning we got more dismal news in the housing market. RealtyTrac reported this morning that foreclosure filings jumped 25% in October on a Y/Y basis, by 279,561 with 84,868 homes foreclosing. Since August, 2007, 936,439 homes have foreclosed.

In international markets, the OECD said this morning it is forecasting GDP across its 30-member countries to slow by 0.3% in 2009, with the U.S. contracting by 0.9%, Japan by 0.1% and the euro zone to contract by 0.5%. The OECD’s previous forecast in June called for growth of 1.9%, so this is just another indication that expectations and the outlook are worsening. Seven countries from South and Southeast Asia called on the G-20 this morning to strengthen the IMF, the World Bank and regional banks so that they can help countries in the region deal with the global financial crisis. China’s National Bureau of Statistics said this morning that industrial output grew 8.2% Y/Y, down from 11.4% and the slowest in 7 years. Economic growth in China slowed to 9% in the most recent quarter, down from 11.9% Y/Y. And Germany has slipped into recession in the Q3, reporting GDP contracted by 0.5% and more than the 0.2% decline that had been expected.

On the corporate front,

·         Intel (Nasdaq:INTC) slashed its profit forecast by more than $1 billion, creating major concerns in the markets this morning that the economic outlook is deteriorating. It’s $2.01 billion in profit for the Q3 did beat expectations, however.

·         Wal-Mart (NYSE:WMT) reported its Q3 sales rose 7.5% to $97.6 billion on a Y/Y basis, while profits were $3.14 billion, or $0.80 per share. The results came in better than consensus estimates, but it cut its forecast for annual profit, citing currency conversion issues. Management now expects FYEPS to come in at $3.43 to $3.50. In the Q4, it expects EPS of $1.03 to $1.07.

·         British Telecom (NYSE:BT) reported Q2 sales rose 4% Y/Y to 5.3 billion pounds ($7.9 billion), while net profit was 400 million pounds ($595 million), up from 339 million points in the prior year period. In addition, it is cutting 6,000 more jobs by March to keep its costs down, bringing its total job cuts to 10,000.

In terms of what we expect in today’s session, the mounting negative fundamentals will continue to weigh on the economy. We think the trend will continue to be lower, absent any indications that the government is making progress in terms of implementing policy and executing strategy more effectively. As we said at the outset, Paulson does anything but inspire confidence, in our opinion.

Fast Facts

·         More than $28 trillion has been zapped from global equity markets while credit write downs have grown to $690 billion. ·         The national debt is up to $10.64 trillion. ·         Hedge Fund managers lost $100 billion in October.