It will be interesting to see how the FOMC approaches this meeting. The current Fed Funds target rate is 0-0.25%, which in and of itself is rather strange. It is a moving target, not a fixed rate. Who determines which rate is used? My guess is this meeting will be used to clarify what the rate is. The Fed will either officially reduce it to 0% in a continued effort to resuscitate the economy, or lock it in at 0.25%. This would at least leave the Fed with one perceived bullet in the gun.

The rest of the week has a full slate, which starts this morning with the December Existing Home Sales report. Expectations are for a slowdown of 40k units versus the previous month, and I think that is overly optimistic. The housing reports last week both fell flat on their face so I don’t think this report, or the New Home Sales report on Thursday, will come anywhere close to expectations.

Tuesday morning sees the release of the Consumer Confidence report for January, and this one is a tough read for me. It is expected to be the same as the December reading of 38. I am not sure which one will have a bigger impact on the reading: consumers getting excited about a change in leadership, or fearful of more job cuts. I guess it all depends on when the reading was taken.

Earnings:
Mon: AXP, AMGN, CAT, HAL, MCD, TXN
Tues: BMY, DD, GILD, JAVA, YHOO
Wed: PFE, SBUX, WFC
Thurs: MMM, AMZN, CELG, CL, LLY, JNPR,
Fri: CVX, XOM, HON, PG,

Source: Fed Counts Bullets, Earnings Dominate Calendar

• The world’s largest chemical company, BASF SE (ADR:BASFY), lowered its profit forecast and announced plans to halt operations at 80 factories. The Ludwigshafen-based company cited reduced orders from the auto, construction and textile industries, Bloomberg reported.

• Oil prices continue sliding, as U.S. crude fell to $53.30 a barrel yesterday (Wednesday) – the lowest price since January 2007. Oil has dropped almost two-thirds from its record $147 a barrel in July, Reuters reported.

• Mirroring the efforts of their U.S. counterparts, Chinese automakers are seeking government aid to breathe some life back into the world’s second-largest vehicle market. “Chinese automakers do need government’s help to survive the turmoil,” Zhang Xin, an analyst at Guotai Junan Securities Co. in Beijing, told Bloomberg. “There aren’t any policies yet for stimulating vehicle consumption and automakers need to shout louder to get the government to provide incentives.”

• October housing starts clocked in at the annual rate of 791,000, the lowest level since the U.S. Commerce Department began tracking them in 1959. Also, building permits last month fell 12% to the annual rate of 708,000, the lowest level since March 1975, Phoenix Business Journal reported.

• Honeywell International Inc. (HON) yesterday (Wednesday) landed a $52 million contract to supply jet engines to Italy-based Alenia Aermacchi, The Associated Press reported.  Honeywell did not disclose the number of engines being supplied or a delivery timetable.

• Federal Reserve policymakers expect the U.S. recession to last as long as a year or longer, according to edited minutes of a closed-door meeting of the Federal Open Market Committee on Oct. 28 and 29, MarketWatch reported. Fed governors and bank presidents “generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009, and agreed that the downside risks to growth had increased,” the minutes said.

• Research firm ShopperTrak predicts a record-low increase in holiday sales of 0.1%, Reuters reported. The group also says holiday traffic could decline by as much as 9.9% as shoppers stay at home and hunt for bargains online. “Currently we’re anticipating the lowest retail sales and total U.S. traffic numbers we’ve seen since we started compiling this data in 2001, Bill Martin, co-founder of ShopperTrak, said in a statement.

• BJ’s Wholesale Club Inc. (BJ) yesterday (Wednesday) reported a 24% jump in quarterly profit. BJ’s profit rose to $28.2 million, or 48 cents per share, in the quarter ended November 1, up from $22.7 million, or 35 cents per share, a year earlier.

Source: Global Investing Roundups Thursday, November 20th, 2008

This week is full of important reports, and unfortunately for us, few are expected to improve over last month. The calendar starts on Wednesday when the Core PPI and PPI figures for September are announced at 8:30 AM. Core PPI (which excludes food and energy costs) is expected to rise by 0.20 percent. PPI is expected to drop by 0.30 percent, most likely due to the recent plunge in energy costs.

Also on Tuesday, the Retail Sales report for September comes out, and is also expected to post a decline. Expectations are for a drop of 0.40 percent, which is even larger than the 0.30 percent drop in August. Even back-to-school sales couldn’t rescue this segment.

The Core CPI and CPI reports come out on Thursday, and I find the CPI report to be an oddity. The market anticipates that both reports will show an increase. While this can be expected for Core CPI since it excludes food and energy costs, I would have thought the CPI would have dropped for the same reason PPI is expected to drop. Energy costs have dropped significantly as of late, and I would have expected to see this reflected in the CPI.

Capacity Utilization and Industrial Production are both expected to post declines for last month, showing that the weakness in the manufacturing sector continues. The same can be said for the housing sector. The September reports for Building Permits and Housing Starts look like they will show contraction. As loans continue to get harder and harder for potential buyers to find, the housing sector will continue the slide.

As if this isn’t enough, this week also has the release of the Beige Book on Wednesday, the Philly Fed report on Thursday, the Preliminary Michigan Sentiment report on Friday, and a week full of earnings reports. If a majority of these reports come in worse than expected, and earnings consistently miss expectations, it could be a very grim week on Wall Street.

Earnings:
Tues: DNA, JNJ, PEP
Wed: EBAY, JPM, KO, WFC
Thurs: BAX, COF, C, GOOG, MER
Fri: HON

Source: This Week Provides No Relief, It Could Get Worse Before It Gets Better

“We are refraining at this point from adding another stock in the financial industry because of the extremely unsettled conditions,” said Robert Thomson, managing editor of The Wall Street Journal, regarding the change. “We realize this decision leaves the Dow Jones Industrial Average under-weighted in financials, and we will address this situation in due course.”

First created by Charles H. Dow in May 1896 as an index of just 12 stocks, the Dow has now become one of the most widely recognized indicators of the general health of the U.S. economy.

“When you think of a Dow stock, you think of a company with a stable, solid business model and an enduring franchise representative of the American economy. Kraft clearly fits that bill,” Christian Andreach, who helps oversee $18 billion at Manning & Napier Advisors in Fairport, New York, told Bloomberg News. “It should give the stock a short-term kick.”

New Dow components often get a short-term boost as fund managers purchase shares of the addition to rebalance portfolios that are managed against the index. Similarly, stocks that are replaced face downward price pressure as shares are sold.

Dow components are generally seen as the cream of the crop of the large-cap U.S. market. Kraft certainly fits the bill in terms of size with a market capitalization of $50 billion and sales of over $37 billion last year. But as a rather recent spin-off of former parent company Altria Group Inc. (MO), Kraft just doesn’t have the distinguished history of some of its new Dow peers.

While some questioned the choice, Warren Buffett has been a fan of Kraft for quite some time. The Oracle of Omaha’s Berkshire Hathaway Inc.  (BRK.A, BRK.B) purchased an 8.6% stake in Kraft earlier this year, making it the foodmaker’s biggest shareholder.

The last changes to the blue-chip stock index occurred in February of this year when Bank of America Corp. (BAC) and Chevron Corp. (CVX) replaced former Kraft parent Altria and Honeywell International Inc. (HON).

Source: Warren Buffett Favorite Kraft to Replace Sinking AIG in Dow

Among the earnings season headlines: Bank of America Corp. (BAC) will be issuing its final earnings report of the pre-Countrywide Financial Corp. (CFC) merger era and investors hope that Wachovia Corp. (WB) follows in the recent footsteps of Citigroup Inc. (C) and JP Morgan’s Chase & Co. (JPM), the latter two of which both provided better-than-expected (though certainly negative) results.

Yahoo! Inc. (YHOO) gives its shareholder a bit more ammunition for the never-ending Microsoft Corp. (MSFT) buyout controversy, as Yahoo execs are clearly hoping against hope some decent numbers can save their skin (musings known by the acronym “WWID” – for “What Would Icahn Do?).

Amazon.com Inc. (AMZN) will shed some light onto the U.S. consumer spending/retail sector pictures; however, investors should remember that those Internal Revenue Service rebate checks have likely all been spent by now. The U.S. Federal Reserve stays in the limelight as the Beige Book provides the country one more look at the mindset of U.S. policymakers.

The energy-supply data will be analyzed more closely as investors hope that prices are headed down to more manageable levels. And, of course, the Freddie Mac (FRE)/Fannie Mae (FNM) saga merits continued close scrutiny. Anyone interested in some newly issued stock of these financially strapped companies? [For a related Money Morning story containing the latest developments in the Fannie/Freddie saga, please click here.]

Last week provided investors with a nice reprieve from the daily surge in oil prices, as well as an apparent rebound in the Dow Jones Industrial Average Index – out of bear-market territory. But at least with the stock-price rebound, there’s a real question about whether this represents the first leg of a new bull-market uptrend, or is just a bear-market “head fake” that will separate many investors from their money. [For a special weekend market bulletin, in which Money Morning Investment Director Keith Fitz-Gerald argues that last week’s reversal in trading trends was such a "head fake," please click here. The report is free of charge.]

The backdrop for such a “bear trap” was just about perfect as the week ended, for the overall investor-market mindset had shed the dire outlook of recent weeks and months. Bad earnings somehow didn’t seem so bad. Negative forecasts somehow didn’t seem so negative. Cautionary comments by the central bank didn’t translate automatically and immediately into marketplace fears. Weak economic releases somehow didn’t seem so weak. Investors departed for the weekend with a newfound confidence (or, as we fear, overconfidence). Again, this begs the question: Is this the start of a new, bullish trend, or is it just an aberration that will soon yield to a resumption of downward stock prices and rising food-and-energy costs?

Stay tuned…

Coming up in the week ahead: Leading Economic Indicators (Today/Monday), Fed Beige Book (Wednesday), Existing Home Sales (Thursday), Durable Goods Orders (Friday), New Home Sales (Friday).

Market Matters

Freddie Mac and Fannie Mae stayed in the headlines last week as U.S. Treasury Secretary Henry Paulson announced plans for a “non-bailout” government bailout, complete with improved borrowing terms and an expanded line of credit (and which required congressional approval, easier said than done). By week’s end, Freddie toyed with the idea of “going at it alone” (like any good private enterprise should) and opened discussions about raising capital by offering up to $10 billion in new stock. Given the company’s current “dire” financial position, any new shares must offer great incentives to potential investors. Currently, Freddie’s outstanding preferred stock yields in the neighborhood of 14%.

Meanwhile, the U.S. Securities and Exchange Commission (SEC) emerged from hibernation and offered a few regulatory ideas of its own. With “short interest” at all-time record levels, the SEC initiated actions aimed at limiting investors’ abilities to engage in short-selling strategies (which many observers have labeled as the “speculative excesses” that are responsible for everything from soaring energy prices to plummeting stock prices). Not be upstaged, the Federal Deposit Insurance Corp. (FDIC) took possession of IndyMac Bancorp Inc. (OTC: IDMC), another troubled institution engaged in “risky” mortgage lending, which opened again as a federally-owned institution. (So who’s next and just what will that cost the taxpayers?)

Bailouts and new regulations aside, the financial crisis still has a way to go – and possibly a very long way [To read my two-part report from last week about a Japan-style "Lost Decade" for the U.S. economy, including the investments you can make to sidestep this long malaise, please click here. Both reports are free of charge.]

In terms of earnings season, while Wells Fargo & Co. (WFC), JP Morgan Chase, and Citigroup announced weaker earnings (or losses) for the last quarter, their results actually beat Wall Street’s expectations. Merrill Lynch & Co. Inc. (MER) helped shore up its capital position by selling its 20% interest in Bloomberg LP for roughly $5 billion. The world’s largest brokerage firm also reported its fourth-straight quarterly loss and was downgraded by Moody’s Corp. (MCO) immediately after the release. Outside of financial-services companies, airlines – Continental Airlines Inc. (CAL), Delta Air Lines Inc. (DAL) and American Airlines Inc. parent AMR Corp. (AMR) – did as expected in this earnings season, and reported massive losses.

Google Inc. (GOOG) and Microsoft were among the earnings-season headlines, issuing disappointing forecasts, despite reporting quarters that saw earnings jump by more than 35%. Oil-services giant Schlumberger Ltd. (SLB) reaped the benefits of higher energy prices and manufacturer Honeywell International Inc. (HON) raised its forecast for the rest of the year.

Investors enthusiastically received the positive (yet negative) earnings news from the (depressed) financials and also reacted to a pullback in oil prices. Early in the week, the dollar dropped to a record low against the euro and oil continued its endless climb. After that, however, in four consecutive trading sessions, crude plunged by more than $15 a barrel to a market price of less than $130 – its lowest-such close in more than a month.

Excellent supply reports showed that oil-and-gas inventories actually rose last week as demand slowed, given the higher prices. Mid-week, investors took the opportunity to seek out some bargains as the Dow soared close to 500 points and experienced its best two-day percentage gain since October 2002. The other indexes lagged (thanks Google), though still ended the week in positive territory. Bonds tumbled as investors unwound previous flight-to-quality trades. The week came to a close with plenty of uncertainty, but also with the slightest glimmer of hope out in the market that the financial (and oil) madness may one day come to an end (although we here at Money Morning still believe that “end” is well down the road).

Economically Speaking

News from the economic front was not quite so positive last week as those inflationary fears we’ve been warning about for more than a year appear to finally be coming to fruition.

The June Producer Price Index (PPI) rose at its fastest pace in 27 years and wholesale prices now stand more than 9% higher than they were at this time last year. Likewise, the Consumer Price Index (CPI) jumped by 1.1% in June as energy prices skyrocketed by more than 6.5% during the month.

For those economists who choose to discount the energy statistics, core CPI experienced its worst showing since January and reflected escalating prices in airline tickets, among other areas. (Since ticket prices are directly tied to the price of jet fuel – a form of “energy price” – shouldn’t those optimistic economists factor travel out of the “core” equation as well?)

Retail sales rose by a slower-than-expected 0.1% in June, as weakness in auto sales overshadowed the consumers’ desires to spend those government rebate checks. In fact, many naysayers previously warned not to put too much stock in recent retail statistics as they are more reflective of that (temporary) economic stimulus than they are of any real motivation for consumers to shop.

U.S. Federal Reserve Chief Ben S. Bernanke was in the spotlight again last week (as he seems to be every week, these days), as he delivered his mid-year testimony to Congress and discussed the Fed’s ongoing challenges of stimulating a weak economy without prompting additional inflationary pressures. The central bank chair continued to walk a fine line between these two crises and the minutes from last month’s policymaking Federal Open Market Committee (FOMC) meeting revealed the difficult balance.

While many Fed-watchers expected the next move in rates to be higher, the continued economic weakness makes a rate escalation potentially deadly to the weak economy. For now, the central bank pretty clearly believes that the best move may just be no move at all. The Fed also announced some new rules aimed at protecting residential homebuyers against the “predatory” practices of those (now defunct) mortgage originators.

These days, lenders actually may be required to verify a potential borrower’s income to determine if he or she qualifies for a loan. (What a shame IndyMac never thought of that before.)

Weekly Economic Calendar

Source: New Bull Market or Bear-Market Trap? Investors Look to Earnings Season for Clues

Wednesday morning sees the release of the CPI and Core CPI Index at 8:30 am. The CPI Index is expected to post another increase from last month, no doubt due to rising food and energy costs. Core CPI is anticipated to equal last month, with a 0.20 percent increase.

The FOMC minutes from the June 25 meeting are released at 2 pm on Wednesday, and will be scrutinized by the market to glean any hint as to the direction the Fed will take at the next meeting. On Thursday, the Philadelphia Fed Index is released, and is expected to show continued contraction. The Index is a monthly survey of purchasing managers in the tri-state area, and if any positive spin can be put on the Index, it is that the contraction isn’t as bad as the previous month.

Thursday sees the release of the Building Permit and Housing Start reports. Building Permits are anticipated to show a small increase, essentially matching last month’s number. Housing Starts are expected to show a decrease of 7000 units, which would be surprising, as this is the time of the year when home construction really gets going in the northern states. With permits increasing, but starts decreasing, it may just signal a delayed start to this summers building season.

Earnings Calendar:

Monday: Gentech (DNA)
Tuesday: Intel (INTC), Johnson & Johnson (JNJ)
Wednesday:eBAY (EBAY), Wells Fargo & Company (WFC)
Thursday: Google (GOOG), JPMorgan Chase & Co (JPM), Merrill Lynch & Co. Inc.(MER), Microsoft Co.(MSFT), The Coca Cola Company (KO)
Friday: Citigroup Inc (C), Honeywell International Inc. (HON)

Source: A Significant Week for the Market

NEW HIGHS OF NOTE LAST WEEK

Halliburton (HAL)… oil services
Patterson-UTI (PTEN)… oil services
Carbo Ceramics (CRR)… oil services
Atwood Oceanics (ATW)… oil services
Key Energy Services (KEG)… oil services
National Oilwell Varco (NOV)… oil services
Spectra Energy (SE)… gas pipelines
U.S. Steel (X)… you guessed it
Schnitzer Steel (SCHN)… scrap steel
Fluor (FLR)… infrastructure
Quanta Services (PWR)… infrastructure
Crude oil, Natural gas, Gasoline, Corn, Soybeans, Cocoa

NEW LOWS OF NOTE LAST WEEK

JetBlue (JBLU)… airline
US Airways (LCC)… airline
Continental Airline (CAL)… airline
MGM Mirage (MGM)… casinos
Boyd Gaming (BYD)… casinos
Wynn Resorts (WYNN)… casinos
Las Vegas Sands (LVS)… casinos
Monarch Casinos (MCRI)… casinos
Winnebago (WGO)… RVs
Thor Industries (THO)… RVs
Fleetwood Enterprises (FLE)… RVs
Goodyear Tire (GT)… tires
News Corp (NWS)… media
Hershey (HSY)… candy
Playboy (PLA)… eye candy
American Express (AXP)… credit cards
Capital One Financial (COF)… credit cards
International Gaming (IGT)… gambling machines
Circuit City (CC)… landfill stuffing continues to suffer
Veolia Environnement (VE)… world’s largest water stock
Honeywell (HON)… conglomerate
General Electric (GE)… conglomerate
United Technologies (UTX)… conglomerate
XM Satellite Radio (XMSR)… satellite radio
Legg Mason (LM)… asset management
Callaway Golf (ELY)… golf equipment
Whole Foods (WFMI)… expensive groceries
General Motors (GM)… read the letter from the Chairman
Lead, Nickel

Source: Brian Hunt’s Market Notes Monday, June 30, 2008

• Continental Airlines Inc. (CAL) became the latest airline to announce reduced flight service and jobs cuts yesterday (Thursday). Continental will eliminate 3,000 jobs and 16% of its flight capacity, The New York Times reported. The cost cutting efforts follow similar moves from UAL Corp.’s (UAUA) United Airlines, Northwest Airlines Corp. (NWA) and Delta Air Lines Inc. (DAL).

• France Telecom SA (ADR: FTE) announced yesterday (Thursday) that it was pursuing a $42 billion bid for Sweden’s TeliaSonera AB (PINK: TLSNF), The Associated Press reported. TeliaSonera dismissed the initial offer as too low, but France Telecom reported it has the backing of the French government and could up its bid.

• The Mortgage Bankers Association (MBA) announced yesterday (Thursday) that both the percentage of loans in foreclosures, as well as the number of foreclosure starts, climbed to levels not seen since 1979, MarketWatch reported. For one- to four-unit properties, 2.47% of all mortgages outstanding were in foreclosure, up from 2.04% in the fourth quarter, according to the MBA’s latest National Delinquency Survey. At the end of first quarter 2007, only 1.28% of such homes were in foreclosure.

• The number of U.S. citizens filing first time unemployment claims fell last week, the Department of Labor said yesterday (Thursday). Initial jobless claims decreased by 18,000 to 357,000 in the week that ended May 31, the lowest level in more than a month, due in part to the Memorial Day holiday, Bloomberg News reported.

• Stocks in China fell to a six-week low Thursday (yesterday) on speculation that the government would tighten prices to curb inflation. The move that would shave profits from the country’s commodity titans. The CSI 300 Index, which tracks 300 stocks traded in Shanghai and Shenzhen, fell 1 percent to close at 3,512.14, the lowest since April 23, Bloomberg reported.

• The U.S. government announced yesterday (Thursday), via the Department of Justice, that it is suing Honeywell International Inc. (HON) for selling material used in bulletproof vests that it alleges was defective, The Associated Press reported. According to the DOJ, Honeywell had scientific data that showed the ballistic material, known as Zylon, “degraded quickly over time, especially in hot and humid conditions,” leaving the vests unfit for use. The department also alleges that Honeywell failed to notify the government or the vest manufacturer, Armor Holdings Inc., of the defect.

• E.I. Du Pont De Nemours & Co. (DD), commonly known as DuPont, said yesterday (Thursday) that it is targeting a 40% increase in soybean and corn yields over the next 10 years through its Pioneer Hi-Bred unit, according to Thomson Financial. The company expects DuPont Agriculture & Nutrition segment sales to grow by 6% to 8% and earnings by more than 15% on average between 2007 and 2010.

• Swiss pharmaceutical maker Novartis AG (ADR: NVS) spent nearly $1.3 million lobbying the U.S. government in the first quarter on drug and health care issues, according to a recent disclosure form, The Associated Press reported. Novartis lobbied on bills designed to ensure the government has a sufficient stockpile of influenza vaccine in case of an outbreak.

Source: Global Investing Roundups: Friday, June 6th, 2008