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Sinclair Noe’s
Financial Review
Friday, October 12, 2007
DOW + 77 = 14,093 (week + 27)
SPX + 7 = 1561 (week + 4)
NASDAQ + 33 = 2805 ( week + 25)
DJTA + 49 = 4940
DJUA + 1 = 519
RUT + 6 = 841
The Commerce Department said retail sales rose 0.6 percent in September from
August. This was a bit of a surprise, because yesterday many national retailers
reported seeing sluggish demand in September.
The Labor Department said wholesale prices
rose 1.1 percent in September. Excluding volatile categories of food and energy,
wholesale prices edged up by a moderate 0.1 percent – but that 1.1 percent
increase is huge.
Inventories held by businesses on shelves and
backlots rose 0.1 percent in August, less than the
0.3 percent gain analysts had been expecting.
Consumer sentiment fell in October, according
to the Reuters/University of Michigan consumer sentiment reading for
mid-October.
A surprisingly strong retail sales
report combined with rampant wholesale inflation caused bond ghouls to throw
bonds over the cliff; this reckless action was followed by a temporary lapse of
reason, and bond prices recovered; still, the yields on two-year notes are the
highest since August. The yield on the
two-year note rose more than 8 basis points to 4.21
percent. The benchmark 10-year note's yield increased 5 basis points to 4.69
percent. Futures contracts on the Chicago Board of Trade suggest a 34 percent
chance that the Fed will cut the target rate for overnight lending between
banks a quarter-percentage point at the Oct. 31 meeting, compared with 40
percent odds yesterday. Sales of company debt has picked up since the Fed cut
rates on September 18th. Corporate bond sales rose to $26.2 billion
this week and $998 billion for the year. Last year it took until Nov. 30 to
reach $1 trillion.
The dollar index moved slightly higher today.
December gold $753.80, down $2.90 an ounce. December silver $13.903, down 8.2 cents an ounce. December copper $3.6525, down 1.65 cents a pound.
A consortium headed by Richard Branson's
Virgin Group is offering to rescue Northern Rock PLC. Northern Rock is the
fifth largest bank in England, and it nearly collapsed as depositors demanded
their money. The Branson consortium wants to pump cash into the Rock and rebrand it Virgin Money.
Oracle, the business software maker,
confirmed it offered to buy BEA Systems for more than $6.66 billion. Oracle
said it sent a letter to the software maker's board offering $17 per share, a
25 percent premium over Thursday's closing price.
ORCL -.01 =
22.44
BEAS + 5.20 = 18.82
GE's third-quarter earnings rose 14
percent as its energy and transportation businesses did well.
GE --.57 = 41.03
Remember about a week ago, when an
analyst from Citigroup said homebuilders had bottomed and now was the time to
buy, buy, buy. And it wasn’t the first time; the analyst said the same thing
back in December. Well, Centex, the Dallas-based new homebuilder said its home
sales fell 13 percent in its latest quarter and it will charge nearly $1
billion against earnings to write down the value of land and other holdings.
CTX – 1.38 = 28.05
This appears to be further proof that
we are in a “kitchen sink” earnings reporting season. Banks, and mortgage
lenders, and homebuilders, and other companies
at the center of the housing bubble and credit crunch
would like to take their lumps in a single quarter, often referred to as a
‘kitchen sink’ quarter. By cramming losses and write-offs into a single
quarter, they try to give the impression that the bad news is out of the way.
It’s very difficult to cram five years of excess into one quarter of
write-offs; the process may very well play out over several painful quarters.
Write-offs represent a substantive change in assets held by these companies.
The book value for many of these companies is now a moving target; something to
consider when you hear an analyst touting the low price-to-book of a stock, or
when they say there is value in a stock.
Normally, October is bearish for oil
prices. October is not driving season; demand typically slows. Not so much this
year. Yesterday we got word that both domestic and international inventories
declined, but demand remains constant. Turkey is amassing troops on the
northern border of Iraq. Weather forecasters now say their forecasts for a warm
winter might be wrong. Oil hit a new record high today. Crude oil for November
delivery rose 61 cents to settle at $83.69 a barrel, topping the previous
settlement record of $83.32 set on September 20th. The intraday high
today also set a record at $84.05. For some reason, the reports I’ve been
reading say the price is not really a record, that if you adjust for inflation,
the price for oil was actually higher right around 1980, near $102 dollars a
barrel. Based on that logic, the Dow and the S&P 500 didn’t hit recent
records.
Based on historical norms, you might
realistically expect the price at the pump to be around $4.50 a gallon. At some
point, crude prices should come down, or the price at the pump should go up.
Former Vice President Al Gore and a United
Nations panel on the environment won the Nobel Peace Prize for raising
awareness of the threat from climate change. I mention this, after talking
about the record high price of oil, because maybe we will start to see and hear
more dialogue about an environmentally sustainable approach to energy use and
the companies that are working in those sectors may garner more attention.
