Markets to Open Modestly Higher Ahead of Holiday-Shortened Week

December 22, 2008 – The futures are indicating higher openings this morning for the broader markets as traders set for what will likely be a thinly-traded session this week. There isn’t any economic data scheduled today, so the retail environment and expectations about corporate performance will likely grab most of the attention. Saturday, or “Super Saturday” for retailers was predictably slower as early indications are that sales were down 5% Y/Y. Retailers are responding by slashing prices and leaving their doors open 24 hours per day to try and shave their inventories heading into the new year. Tomorrow we will get the final revised GDP for the Q3, which will almost certainly put traders in a bad mood, and pundits will likely be focusing in on that will likely be a worse number in Q4.

The dollar is softening further against the euro this morning, which is at 1.4004, up 0.68%, and the yen, at 89.9150. This is only the beginning for the dollar, which we fully expect to continue its slide through 2009. Meanwhile, oil prices are up a modest $0.51 to $42.87 this morning. Expectations for demand are so dismal that we are surprised OPEC hasn’t turned around and cut production by another million barrels since its decision last week. Gold is up $9.30 on the weaker dollar to $846.70. We think gold prices will tip back up to the $1,000 level in 2009 on the weaker dollar.

In international markets, China cut its interest rates for the fifth time in three months, to 2.25% in an effort to stimulate its economy. Japan’s exports fell a record 26.7% in November, helped by the stronger yen and lower demand for autos and electronics, amongst other things. Belarus is asking for $3 billion in loans from Moscow this morning, while it is also negotiating a $2 billion loan from the IMF. Ireland revealed a €5.5 billion ($7.7 billion) plan to bailout its three top banks.

·         In the auto sector, Toyota cut its earnings forecast this morning, forecasting its first annual operating loss since 1941, of 150 billion yen ($1.66 billion). It lowered its net profit forecast to 50 billion yen ($555 million) down from 1.7 trillion in earnings last year. Management isn’t offering guidance for vehicle sales and it isn’t offering guidance for revenue next year either; while Hyundai and Kia Motors have cut their joint 2008 sales forecast by 12.5%;

·         S&P cut the long-term ratings for American Express (NYSE:AXP) to “A” from “A+”;

In terms of what we expect in today’s session, we don’t think traders will show much conviction today, or the remainder of the week, for that matter. There isn’t much in store on the economic data front, and there just aren’t any real catalysts out there to buy stocks. The DJIA shed 25 points on Friday, on a surprisingly higher volume day (relatively speaking) at 6.7 billion shares trading hands, up from 5.6 billion shares the day before. We think the volume today is going to be much lighter than Friday as we head into the holiday-shortened week. With the DJIA at 8,579, our recommendation is not to do any buying or accumulating as, in our opinion, the DJIA is on the higher end of the current range.

Fast Facts

·         The national debt is at $10.6 trillion. Your share, and mine, which we are all accountable for as taxpayers, is $42,672 (public portion of the debt is $5.8 trillion).