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Sinclair
Noe’s Financial Review
Wednesday, October 10, 2007
DOW
SPX
NASDAQ
DJTA
DJUA
RUT
Yesterday,
the Federal Reserve released minutes from the most recent FOMC meeting. The
minutes showed the Fed was clearly frightened by the prospect of a credit crunch.
Today, the International Monetary Fund's chief
economist says repercussions from recent market turmoil should be contained
within advanced economies, with growth in emerging markets likely to remain
broadly on track. That turmoil has taken a toll. Leaked reports show the IMF
has lowered its 2008 forecast for United States economic growth from 2.8
percent to 1.9 percent. It also lowered its forecast for world growth next year
to 4.8 percent from a previous forecast of 5.2 percent.
And there are still problems, ones we can see and
others that are less obvious. The Fed injected another $16 billion dollars of
temporary reserves to the banking system via an overnight repurchase agreement.
The Bank of Canada injected C$436 million into the markets, and we all know
that the Canadian dollars are worth a lot more than greenbacks.
Sales
of new homes are expected to finish 2007 at the lowest level in a decade. The
National Association of Realtors says existing home sales will be 10.8 percent
below last year as housing market woes persist, but who knows, it could be
worse than that. The NAR has been revising its forecast each month for the past
eight months. In February, they thought existing home sales would drop by 0.6
percent. Now, they say 10.8 percent. Sale prices for existing homes are
forecast to drop 1.3 percent to a median of $210,200 this year -- a slight
improvement from last month's prediction of a 1.7 percent decline.
On Friday I reported that retail sales rose just
0.3 percent in August, and retail sales excluding autos actually fell 0.4
percent. To borrow a phrase, here’s the rest of the story. The Federal
Reserve says consumer borrowing increase more than $12 billion in
August, about 20 percent more than economists had forecast; there was an 8.1 percent
increase in borrowing on revolving credit lines, mostly credit cards, to a
record $909 billion. The Arizona Republic reports that food prices in Arizona
have jumped by 15 percent in the first 9 months of this year, and gasoline
prices are 43 cents a gallon higher than one year ago – about a 16 percent
increase. We still have to eat, and most of us consider driving pretty much a
necessity. Many people have been financing their consumption by pulling out
equity from their homes. The ATM at your front door has run out of cash.
Mortgage equity withdrawal has been down sharply on
a year-on-year basis, so consumers have been whipping out their credit cards to
fund their consumption. And while the market for mortgage backed securities,
especially subprime mortgage backed securities has frozen over, the market for
credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States are the
only asset-backed segment to experience growth in 2007, up 30 percent on the
year. Credit card delinquency actually declined in the second quarter. Of
course we all know the stringent requirements to qualify for a credit card.
The dollar has fallen 6.75 percent so far this year
against the euro, and last month the euro had its biggest increase against the
dollar since December 2003. The dollar fell against the euro again
today, and the Dollar Index continued its fall.
December
gold settled up $2.90 at $746.0 an ounce.
GOLD
OIL
BONDS
In
corporate news:
The
United Auto Workers union and Chrysler failed to reach a contract; 45,000
Chrysler workers are now on strike. The big issues in the negotiations are
retiree health care costs and job security.
Alcoa
posted a 3 percent profit increase as revenue fell. The results fell short of
expectations.
AA
International
Paper lowered its third quarter earnings projection.
IP
Chevron
warned that its third-quarter profit will come in well below the $5.4 billion
it earned in the second quarter.
CVX
Valero
Energy expects to report third-quarter earnings far short of Wall Street
estimates because of tighter refining margins.
VLO
Costco
Wholesale reported better-than-expected results.
COST
Boeing
can’t quite figure out how to finish assembling its new 787 Dreamliner
aircraft; initial deliveries will be delayed by six months.
BA
