Representatives from Susquehanna International Group (SIG), Goldman Sachs Private Wealth Management*, PENN Capital Management, CIGNA, New York Life, and Northwestern Mutual presented on the benefits of their company’s respective Co-op program. For the latter part of the evening, students were invited to network and learn more about these great opportunities.

Attendance was extremely high, so on behalf of all the sponsoring organizations, we hope you enjoyed the event and continue to take advantage of the College’s great networking and recruiting resources.

*In attendance, but did not present on behalf of the company–networking only

Recap of Last Week

9a.m., it’s a Sunday and you’re woken by the piercing sun shining through your apartment window. What happened? Where did everyone go? Ugh. You’re dehydrated and your head is POUNDING uncontrollably as you reach for the Ibuprofen. This is going to be a nasty hangover. And what is that awful smell? Is that? No. It can’t be. . .But it’s too late, you know all too well what it is—the stench is that hot heaping pile of toxic assets still sitting on your balance sheet. You could take the trash out but who’s going to pick it up? Everyone in the neighborhood is facing the same hangover and your Uncle is only able to stop by the really decrepit houses—but look on the bright side, if a nephew can help his Uncle by taking on a little more trash from the neighboring houses, then he’ll get some money pitched his way to manage the deteriorating pile and the pain that comes with it.

 Such is the situation on Wall Street for the past several months, and the second week in the New Year was no different as financials fell 16%, dragging the broad market down with it, -3.7%, as investors mulled over a wave of capital raises and weakening credit quality. Trouble mounted early in the week as Citigroup announced plans to sell a significant stake in its brokerage house, Smith Barney, to Morgan Stanley. They then went on to announce another bold initiative during the Q408 conference call by unveiling plans to split the company into two units. Investors took this as a sign of forced selling to stay alive and by the time the carnage came to an end, their stock had fallen 59% amid an $8.3 billion Q4 loss.

Performance over at Bank of America followed similar trends as their stock was cut in half, falling 46% at one point. However, it was Bank of America’s attempt to expand that got it into trouble as it tries to handle a double integration of mortgage lender Countrywide Financial, as well as the investment bank, Merrill Lynch. Bank of America’s poor earnings results this week in conjunction with a $15 billion loss over at Merrill, led to a negative credit risk rating—forcing the firm to request an additional $20 billion in TARP money to complete the acquisition. Markets were roiled by the financial news, and as a result it continued to spread as JPMorgan Chase—who many long thought was ahead of the curve—was beaten down by poor earnings, citing economics and additional loan losses as the catalysts.

 Looking to economics and major-market news, the data wasn’t much better as retail sales for December fell 2.7%, Q4 Industrial Production declined 11.5% y-o-y, and the trade-imbalance fell sharply mostly due to a contraction in imports. Initial claims jumped 54,000 to 524,000 for the week, and in inflationary reports, PPI finished unchanged and CPI grew 0.1% for 2008.

 The data went onward to show the slashing of the ECBs lending rate 50bps to 2%, poor auto sales forecasts from GM for 09, and the releasing of the next $350 billion of TARP funds as the Treasury has already over-extended the commitment of the initial $350 billion, making approval imminent.

 With all of this turmoil, one can only look forward to the Inauguration Tuesday, as a new President, Our 44th—Barack Obama , will be given the chance to improve the economy and right (write or rewrite for that matter—pun intended) the path to prosperity. During the run-up to his Inauguration, he has meticulously surrounded himself with a stellar cabinet, and is ready to hit the ground running as he has already announced action seeking swift congressional approval, such as the suggested $825 billion stimulus plan where $550 billion would go toward spending and $275 billion in tax cuts.

 Whether the proposed plan will work is uncertain, but what is certain is although pain killers and short-term panaceas will clear up even the worst hangovers, it will never repair the cirrhotic damage done after years of binging from the over-leveraged (spiked) punch bowl. Only a complete transplant coupled with a long period of rehab monitored by qualified physicians will cure the terminal economy. Mr. Obama, I hope you’re ready, scalpel in hand.

Outlook

Martin Luther King  Jr.  Day gave traders the day off and made a very busy week pack all of the fun into only four days. The torch will be passed into fresh hands on Tuesday as President-Elect Obama takes the greatest oath a man can utter. Over 50 stocks in the S&P 500 will report earnings this week, making the inauguration a back-burner issue to investors who are expecting the worst.

In recent weeks the street has spend countless hours dissecting the proposed plans Obama and his team have hinted about. The most recent announcement from the new administration is about the focus of the Troubled Asset Relief Program (TARP). As the second portion of the $700 Billion program is made available, politicians are fighting over the use of the funds. Earmarks for banks, the majority use of the first $350 Billion, might turn into a bailout for homeowners in the form of renegotiated terms on mortgages and the creation of a “bad bank” to hold defaulting mortgages. The street will be looking for indications of how this change in focus will affect the financial sector and consumer spending. I assume that home builders will fare well if investors assume that direct support for homeowners will have a positive effect on housing demand.  The first increase in housing prices that I have heard in a long time was in Southern California this weekend, showing a little hope in a state of extreme losses in home values. If this starts a new trend, we might be seeing a housing bottom (cross your fingers).

Of the companies reporting this week, the most anticipated will be tech firms Apple (APPL), Google(GOOG), and Microsoft(MSFT), along with giants Johnson & Johnson and General Electric(GE). These heavy hitters have the ability to shake any investor from their seat, but combined they are like a nuclear bomb if they produce negative surprises. GE has already had problems with its finance unit, and Microsoft has been losing attraction every day as it struggles to show investors a spark of new light. Apple’s drop after the news of Steven Jobs’ leave of absence took me by surprise given that Jobs is really just the face of a company full of geniuses. Consumers are buying fewer IPhones, everyone gets that, but I think Apple still has a few tricks up their sleeves. They always seem to surprise.

Economic data is light this week, a much needed break from previous weeks of data overload. Housing Starts for December will be the biggest report this week and should not move the market very much unless they blow estimates out of the water. Economists are expecting 615 thousand new homes vs 625 a year ago. The flow-through from housing permits usually makes predicting starts a little easier than other data points, but the delays of planned projects has made it tough to count on quick turnaround after permits are filed. Builders will need to have confidence in housing demand before they act on approved projects. That demand will come, but it will take an increase in existing home sales before new home sales can be expected to recover. That looks to be the logic behind Obama’s plan at least.

The overall theme for the week will be the fundamental disabilities of current business models and which ones have been able to weather the storm. Analysts have taken shots at assessing the damage done to “strong” business models. That term has been redefined this year and will be put to the test again this quarter. I expect financials to have minimal skeletons to air this quarter. Let’s hope there are no other graveyard sectors. Have a great week. 

Recap of Last Week

By Steve Romasko

All eyes were on the Federal Reserve this week as they met on Monday and Tuesday to discuss further policy action in order to stem the economic crisis. From the meeting, the FOMC cut the target rate from 1.00% to a first-ever ‘range’ of 0.00-0.25%—effectively eliminating a major policy tool. However, the Fed made it clear that aggressive action will stay the course, and they will do everything possible to stimulate the credit market and the economy— perhaps by buying long-term treasury securities.

Bond traders reacted to this news by piling into long-term Treasuries—notably, the yield on the 10-yr note fell 49bps to 2.08%, while the 30-yr bill returned 2.52%, down 52basis points from the week prior. The seemingly relentless resolve of Bernanke & Co. to stimulate the economy on an infinite basis sent shorts heading for the exits and caused markets to rally 5.1% on Tuesday. However, the market gave back roughly 3.5% of Tuesday’s gains on Wednesday and Thursday, as economic reports were poor and investors returned to the notion that there’s no short-term panacea to fix the economy overnight.

Regarding economics—Industrial production declined 0.6% in November, housing starts declined 18.9% (the largest since March 1984), building permits hit a low and initial jobless claims – while  better than  consensus – are at a 26-year high.

Negativity continued, following the economic reports, as corporations announced their own vulnerabilities to the current environment. Goldman Sachs recorded its first loss as a publicly-traded company; sharing the poor-earnings spotlight with Morgan Stanley as both firms came in significantly worse than expected. In other news, Standard & Poor’s placed GE’s triple-A credit rating on negative outlook and Best Buy, while beating estimates, acknowledged a noticeable shift in consumer behavior.

Meanwhile, in an effort to stem a further decline in the price of oil, OPEC met this week and vowed to cut production 2.2 million barrels per day. Under normal circumstances, prices would rise following a cut as supply was reduced—but these times are anything but normal. Following the announcement, oil prices traded up briefly then plunged under $40 per barrel (settling ~$33bbl for the week) as oil markets compared OPECs situation to that of one trying to catch a falling knife. In their situation, slumping demand will far outstrip their ability and pace to which they can cut supply. This is evident in countries that rely heavily on the sale of commodities to manage their economies—notably Russia. It seems oil production is now a double-edged sword as oil-producing nations who found themselves with immense bargaining power when crude sat at $147bbl, now find themselves (and their profitability) at the mercy of the dependent countries’ demand, or in this case, lack thereof. Although this is poor for some, falling oil is positive for consumers and most businesses as it frees cash, and potentially encourages spending—however, with unemployment swiftly rising and tight credit, this extra cash will not be spent, instead, it will be put toward cash reserves.

In currency markets the US Dollar had a tough week (which is a surprise as falling oil usually leads to a rising dollar) as increasing US debt and roughly zero incentive to hold the dollar weighed heavily on the currency—largely a result of the Fed’s ‘quantitative easing’ which is driving down yields and flooding the market with supply.

The highly-debated decision over the bailout of Detroit came to an end this Friday as the Bush Administration threw the industry a lifeline, after a failure in Congress, citing that the unintended consequences from an automakers’ failure will pose a systemic risk to the already crippled economy. Under the terms of the deal, GM and Chrysler are going to receive $13.4 billion, of the remaining TARP money, up front and the other $4 billion in February pending the release of the 2^nd half of the TARP funds. The loans were given on the precondition that Detroit will make a viable effort to restructure the companies as well as their plans and operations by March 31 in order to become a long-term profitable industry. Also, in an effort to further boost the industry, Canada pledged $3.3 billion this weekend to the automakers with the possibility of more funds in the future. In both instances, the clock is ticking and it will be interesting to see how the events play out; as problems that took decades to build must be unwound and replaced with feasibility in four months—in short, easier said than done.

Happy Holidays!

Next Week’s Outlook

By Ryan Wheeler

The holiday week should produce very light trading as investors look to take their minds off of a bad year and focus on family and friends. Early-week economic data could shake things up, producing a swing that could really just be the result of the low volume.  

The earning calendar is very thin as odd fiscal year names report F1Q09 earnings. The most significant names to report are Walgreens (WAG), expected to report a gain of $0.46, and Micron Technology (MU), expected to report a loss of $0.43. The Walgreens estimate could prove to be a little optimistic. With an empty CEO chair and no guidance, and deteriorating front-end and pharmacy sales, I would not rule out a miss. Micron’s loss estimate is due to depressed DRAM and NAND pricing over the last year, reducing earnings sequentially. Investors will be looking for clue in the call about balance sheet strength and MU’s involvement in Taiwan consolidation efforts, according to Morgan Stanley.

The BEA will release the final revision of GDP on Tuesday, along with Personal Income and Outlays on Wednesday. Economists are looking for a Q/Q decrease of 0.5% in Real GDP (adjusted for Inflation). This report will show investors how the slowdown in spending truly effected production in the US for the third quarter.  Economists expect a flat Q/Q Personal Income report and a decrease in consumer spending of 0.7%, according to Bloomberg. With unemployment at 6.7%, and rising by the day, it is not surprising that Personal Income is looking close to falling into a downward trend. Consumer spending, obviously being highly correlated to income, is also being affected by uncertainty about job security. Consumers would rather put their money into a government insured CD or risk-free treasury security than buy anything else at this point.

Also on the economic calendar are Durable Goods Orders and housing data. Estimates for Durable Goods show a decrease of 3% M/M. A decrease of this magnitude illustrates the reason for weak economic sentiment in the near term. New home sales are expected to decrease to 420k for the month of November, 35% lower than a year ago. I am not sure if this decrease is the full amount we need to get the supply low enough, but it should be close. Existing home sales should come in around 4.9M vs 4.89M last month. Supply of existing homes is still around 10-months, still too high in my opinion. I think we need to get down to the 8-9 range before we start seeing home prices recover.

Further coverage of the Madoff scandal will give people something to talk about this week, again. The FBI has reported that they are shifting agents from Terror cases to Wall Street cases to look for more frauds. Personally, I think that the only reason the FBI is getting involved is because some big-wig at the FBI or a Senator lost their hat to Madoff and are using all resources to figure out what happened. Obviously this is a serious matter that includes major fraud, but let’s allow the SEC and the US Attorney’s Office handle investment fraud investigations and keep the FBI looking for the next nut-job that is going to blow up a building somewhere. That is just my view though.

I hope you all have a great Holiday. Take some time to focus on family and forget the market. Enjoy your week.

Click HERE to view full report

NOTE: This week’s report is appearing late and in shortened form as a result of of the Holidays. It will return to its original form next Sunday.

Recap of last week

By Steve Romasko

Despite the amount of horrid headlines that surfaces on newspapers this week, equities managed to finish the week on a positive note with the S&P 500 giving a 0.4% gain. Wall Street got off to a good start on Monday, following President-Elect Barack Obama’s comments over the weekend—where he supported the need for a massive stimulus package when he takes office to jumpstart the economy and put fiscal prudence on the back burner. The stimulus, as it seems, will be put toward an infrastructure plan, and will potentially create 2.5 million jobs— something not seen since the Reagan era, which led to the development of the US highway system. The market took the announcement as a sign of the incoming administration’s willingness to do whatever it takes to solve the current crisis and rallied as such—closing up 3.8% for the day.

 However, this particularly good news was overshadowed by a wave of poor earnings guidance, economics, and emerging scams. Tribune filed for Chapter 11; 3M, FedEx, Texas Instruments, Kroger, and Electronic Arts to name a few issued downward earnings guidance—suggesting that the crisis has officially spread from a few concentrated sectors to the broad market. Onward, economics were poor with Jobless Claims touching a 26-year high, 573,000, and continuing claims hit 4.43 million; November retail sales fell 1.8% in October—the 3-month trend to month-end November is down 4.7% from 3-month-end August. As a sign of current times, yields on the 1-3 month Tbills turned briefly negative—meaning that some investors actually were ready to pay the government to hold their money.

 Topping off the week, two fraudulent schemes emerged—Illinois governor Rod Blagojevich was indicted on allegations charging him of attempting to sell Obama’s Senate seat; as well as the uncovering of a $50 billion Ponzi scheme, where Bernard Madoff was arrested on count of fraud. The week, then, closed on Capitol Hill, where the Senate denied financing to a flailing auto industry. In the face of this market crashing, doomsday news, investors did the exact opposite expected, and accepted the news by rallying—suggesting that the news has been priced in and the negative developments take us one step closer to the ongoing bottoming process and trader sentiment has improved—however, critics to this view point to the poor fundamentals and the continued flight to safety evident in T-Bills. The upcoming week, as always, should not disappoint.

Next Week’s Outlook

By Ryan Wheeler

This week will certainly be one to remember. The plate of issues is loaded with Economic data and political drama that could tip the markets in either direction with ease. Fed policy, CPI, an OPEC meeting, and a possible TARP-funded loan to the Auto makers will undoubtedly cause waves on the street.

Economists who have made extreme projections about the near term strategy of monetary policy will see the dealers hand on Tuesday when the FOMC announces the results of their meeting. According to Bloomberg, 74% of economists surveyed estimate that the Fed will cut it’s target lending rate between banks by 75bp to .25%. At this point, it is unclear how the market will react to any Fed action. Investors seem to be losing confidence in the Fed’s ability to control the stability of the financial system, and the closer they get to a 0% rate, the closer they get to losing another weapon in their policy arsenal.

The Consumer Price Index(CPI) will be released on Tuesday and is expected to show a decrease for the second month in a row. Economists are starting to become more concerned about deflation as the slowdown in the economy is bringing prices down an increasing rate. This weeks CPI report will either counter or multiply the reaction to the FOMC announcement on Tuesday.   

Oil will be in the spotlight this week on account of OPEC’s delayed meeting to discuss the need for possible supply cuts. The meeting that was scheduled for two weeks ago was delayed in order to evaluate the effects of previous supply actions and the amount of demand changes on prices. OPEC has indicated that they would like to see oil prices rise back to the $75 range. The result of this meeting could be major cuts in production that would result in a rise in oil futures. You can pretty much count on production cuts; the question is how much they will cut.

Other than pressure from economic reports, tax loss selling will be another pressure on beaten down stocks over the next few weeks. Investors who have taken extreme hits in their portfolios will look to offset gains by realizing losses. This will not be as sever as past years due to the scarcity of gains, but it will still be a factor. I hope you all are those people. Enjoy your week.

Recap of Last Week

By Steve Romasko

Despite the short trading week due to the Thanksgiving holiday, the market managed to spark a 12% rally, largely driven by government action. The week opened with the announced rescue of Citigroup, Obama’s new economic team and an $800 billion plan from the Federal Reserve.

The financial sector displayed the biggest gains, surging 31% respectively. The move was led by the weekend announcement by the government to provide Citigroup with a guarantee on roughly $300 billion worth of assets listed as troubled. The plan, then, went on to provide Citi with an additional $20 billion of TARP funds in exchange for preferred shares by the bank. Traders saw four silver- linings to Citi’s cloud. (1) Citigroup will not be allowed to fail. (2) Common shareholders were not wiped out. (3) Core assets were not forcibly divested at depressed prices to raise capital and (4) if necessary, other distressed financials would most-likely be eligible for comparable guarantees.

Following Citigroup’s announcement, came the Federal Reserve. Along with the Treasury Department, the Federal Reserve announced the creation of a new $200 billion facility in an initiative to provide liquidity in the securities markets that aid auto loans, student loans, credit card loans, and small business loans. Along with this measure came an additional $600 billion that will be put toward the obligations of the GSEs and securities backed by Fannie & Freddie, as well as Ginnie Mae. This action was taken in an effort to lower mortgage rates; as this would improve the housing market by giving consumers an ‘incentive to buy’ which consequently, would eventually clear the housing glut.

The latter attempt proved true as mortgage rates did fall week-over-week (30-yr rates fell from 6.04 to 5.97) and improved the overall attitude of the market. However, many traders remained skeptical about the sustainability of the rally. As in the past, rallies following government intervention were corrected downward, continuing the bear market trend. Skepticism is evident in increasing o/n and 3-month Libor rates, as well as the plunging yield on the 10-yr note (2.91%). If investors were convicted of the success of the new initiatives, then Libor rates should have come down (as banks become more willing to lend) and yields should have risen (as investors become less risk-averse). Since this was not the case, take it as a short-lived bear market rally to the upside and move on.

On the economic front, investors were unreceptive to the data as they expected the reports to come on below consensus.Q3 GDP was revised downward to -0.5% from -0.3%, durable orders fell 6.2%, and existing home sales and new home sales fell 3.1% and 5.3%, respectively. Personal spending fell 1% and, although marginally improved from last week, unemployment data still showed a +500,000 reading.

In stock action, Citigroup soared 111% on the week, erasing all of the +60% loss from the prior week, General Motors (GM) in a boost of confidence jumped 71% and Goldman Sachs road the financial sector wave—finishing up 48%.

In light of an extremely volatile month, with the S&P being up as much as 4% to down 23.5%, the market managed to considerably rebound off the lows in the last week of trading and finish down ONLY 7.5% for November.Despite the short trading week due to the Thanksgiving holiday, the market managed to spark a 12% rally, largely driven by government action. The week opened with the announced rescue of Citigroup, Obama’s new economic team and an $800 billion plan from the Federal Reserve.

The financial sector displayed the biggest gains, surging 31% respectively. The move was led by the weekend announcement by the government to provide Citigroup with a guarantee on roughly $300 billion worth of assets listed as troubled. The plan, then, went on to provide Citi with an additional $20 billion of TARP funds in exchange for preferred shares by the bank. Traders saw four silver- linings to Citi’s cloud. (1) Citigroup will not be allowed to fail. (2) Common shareholders were not wiped out. (3) Core assets were not forcibly divested at depressed prices to raise capital and (4) if necessary, other distressed financials would most-likely be eligible for comparable guarantees.

Following Citigroup’s announcement, came the Federal Reserve. Along with the Treasury Department, the Federal Reserve announced the creation of a new $200 billion facility in an initiative to provide liquidity in the securities markets that aid auto loans, student loans, credit card loans, and small business loans. Along with this measure came an additional $600 billion that will be put toward the obligations of the GSEs and securities backed by Fannie & Freddie, as well as Ginnie Mae. This action was taken in an effort to lower mortgage rates; as this would improve the housing market by giving consumers an ‘incentive to buy’ which consequently, would eventually clear the housing glut.

The latter attempt proved true as mortgage rates did fall week-over-week (30-yr rates fell from 6.04 to 5.97) and improved the overall attitude of the market. However, many traders remained skeptical about the sustainability of the rally. As in the past, rallies following government intervention were corrected downward, continuing the bear market trend. Skepticism is evident in increasing o/n and 3-month Libor rates, as well as the plunging yield on the 10-yr note (2.91%). If investors were convicted of the success of the new initiatives, then Libor rates should have come down (as banks become more willing to lend) and yields should have risen (as investors become less risk-averse). Since this was not the case, take it as a short-lived bear market rally to the upside and move on.

On the economic front, investors were unreceptive to the data as they expected the reports to come on below consensus.Q3 GDP was revised downward to -0.5% from -0.3%, durable orders fell 6.2%, and existing home sales and new home sales fell 3.1% and 5.3%, respectively. Personal spending fell 1% and, although marginally improved from last week, unemployment data still showed a +500,000 reading.

In stock action, Citigroup soared 111% on the week, erasing all of the +60% loss from the prior week, General Motors (GM) in a boost of confidence jumped 71% and Goldman Sachs road the financial sector wave—finishing up 48%.

In light of an extremely volatile month, with the S&P being up as much as 4% to down 23.5%, the market managed to considerably rebound off the lows in the last week of trading and finish down ONLY 7.5% for November.

Outlook for Next Week

By Ryan Wheeler

After a week of mixed emotions stemming from mixed news and big families, this week could bring more of the same uncertainty in the financial markets. Investors will be looking for reassuring signs to support last week’s rally and could be disappointed with the line-up of economic indicators due this week. There will also be more talk about the auto makers in congress this week about whether or not to save the failing giants.

The tug-of-war between corporate bonds and risky equities will be fueled by further questions about the security of coupons and principle as talks of renegotiated terms on GM’s unsecured debt could start a new trend in the High Yield market. Spreads in the high yield bond market remain at extremes and are attractive for investors with an appetite for high risk. The result of GM’s offer to PIMCO and other large bond holders to accept a reduced principle will certainly move spreads as investors make moves in reaction to the news. Holders of distressed bonds might see this situation as an indicator of some of the solutions companies might take to reduce debt at investors’ expense.

On the economic calendar, the employment situation for November will be measured by unemployment, non-farm payrolls, average wages and the average hourly work week. Unemployment is expected to raise 20bp to 6.7% due to further layoffs in most industries. While a 20bp increase is generally significant, investors seem to have developed a stronger stomach for depressing economic numbers. Any number relatively close to 6.7% should not jolt investors into panic selling. The Fed’s Beige Book issued on Wednesday will show the state of local economies and could give clues about the action of the FOMC at their next meeting in two weeks. Across the ocean, the BOE and ECB monetary policy committees will announce any decisions they make during their meetings to jumpstart growth in their jurisdictions. The markets will look at these announcements as indications of the Fed’s move after the coordinated rate cuts last month.

Oil will certainly react to OPEC’s decision to wait another two weeks until they decide whether or not to cut production to support prices. OPEC stated that they believe $75 a barrel is a “fair price” for oil and investors who are heavily weighted in drillers will undoubtedly agree as their investments have tanked as oil prices have dropped. It is not likely that oil will get back to $75 in the near term due to increasing destruction of consumer demand, but OPEC’s moves will help drillers plan for the intermediate term. Expect movement in both up and down stream energy names this week.

Retailers will report on Black Friday results this week and the market will listen closely. Estimated results from research firm ShopperTrak RCT Corp have indicated a 3% increase compared to 8.3% last year. Investors are surly expecting weakened demand on Main Street this year, but the severity of the weakness is still up in the air. The start to the busiest shopping season of the year will help gauge how retailers’ earnings will fair in the 4^th quarter and investors will attempt to position themselves early to take advantage or avoid loss when those results come out in January.

At this point the Fed seems to be running out of firms to bail out. Just about every large-cap bank has seen some sort of aid from the US government in the last few months, leaving the Fed no choice but to look for other industries to save. This week will not paint the whole picture for the future of the US economy, but it will speak loudly to the extent the government is willing to go to support the current corporate landscape. Wall Street will look at the government’s action as a measure of the thickness of their safety net that, up until now, has seemed infinite. This week might be a wake up call. After a week of mixed emotions stemming from mixed news and big families, this week could bring more of the same uncertainty in the financial markets. Investors will be looking for reassuring signs to support last week’s rally and could be disappointed with the line-up of economic indicators due this week. There will also be more talk about the auto makers in congress this week about whether or not to save the failing giants.

The tug-of-war between corporate bonds and risky equities will be fueled by further questions about the security of coupons and principle as talks of renegotiated terms on GM’s unsecured debt could start a new trend in the High Yield market. Spreads in the high yield bond market remain at extremes and are attractive for investors with an appetite for high risk. The result of GM’s offer to PIMCO and other large bond holders to accept a reduced principle will certainly move spreads as investors make moves in reaction to the news. Holders of distressed bonds might see this situation as an indicator of some of the solutions companies might take to reduce debt at investors’ expense.

On the economic calendar, the employment situation for November will be measured by unemployment, non-farm payrolls, average wages and the average hourly work week. Unemployment is expected to raise 20bp to 6.7% due to further layoffs in most industries. While a 20bp increase is generally significant, investors seem to have developed a stronger stomach for depressing economic numbers. Any number relatively close to 6.7% should not jolt investors into panic selling. The Fed’s Beige Book issued on Wednesday will show the state of local economies and could give clues about the action of the FOMC at their next meeting in two weeks. Across the ocean, the BOE and ECB monetary policy committees will announce any decisions they make during their meetings to jumpstart growth in their jurisdictions. The markets will look at these announcements as indications of the Fed’s move after the coordinated rate cuts last month.

Oil will certainly react to OPEC’s decision to wait another two weeks until they decide whether or not to cut production to support prices. OPEC stated that they believe $75 a barrel is a “fair price” for oil and investors who are heavily weighted in drillers will undoubtedly agree as their investments have tanked as oil prices have dropped. It is not likely that oil will get back to $75 in the near term due to increasing destruction of consumer demand, but OPEC’s moves will help drillers plan for the intermediate term. Expect movement in both up and down stream energy names this week.

Retailers will report on Black Friday results this week and the market will listen closely. Estimated results from research firm ShopperTrak RCT Corp have indicated a 3% increase compared to 8.3% last year. Investors are surly expecting weakened demand on Main Street this year, but the severity of the weakness is still up in the air. The start to the busiest shopping season of the year will help gauge how retailers’ earnings will fair in the 4^th quarter and investors will attempt to position themselves early to take advantage or avoid loss when those results come out in January.

At this point the Fed seems to be running out of firms to bail out. Just about every large-cap bank has seen some sort of aid from the US government in the last few months, leaving the Fed no choice but to look for other industries to save. This week will not paint the whole picture for the future of the US economy, but it will speak loudly to the extent the government is willing to go to support the current corporate landscape. Wall Street will look at the government’s action as a measure of the thickness of their safety net that, up until now, has seemed infinite. This week might be a wake up call.

Recap of Last Week

by Steve Romasko

The bear market investors are currently experiencing took a turn for the worst, when the S&P 500 not only set new lows for the cycle, but erased all of the gains from the 2002-07 bull market. Uncertainty was the order of the week, following poor corporate news, economics, and the Big Three leaving Washington empty-handed. Citigroup was front-and-center in corporate news, as investors worried that capital-raising is imminent among financials in order to offset the steep losses. Adding fuel to the fire, was surfacing signs that the commercial mortgage backed securities (CMBS) market is beginning to deteriorate— evident in the defaulting $209 million loan made to Westin Hotels in Arizona and South Carolina , as well as the defaulting $125 million loan made to the Promenade Shops in California; both loans were originated by JP Morgan. Investors saw no signs for a positive outlook, took this as such, and triggered a broad sell-off in the financial sector. Citigroup, however, took most of the pain with their share price plummeting 60% to $3.77, amid no indication of pay cuts from senior executives and announced plans to cut 52,000 jobs.

News only got worse when automakers met in Washington to ask for bailout money. The CEOs started the session on a bad note, and created a PR nightmare, by arriving in Washington in three separate private jets. The point was made that commercial travel should have been used—Rep. Gary Ackerman (DNY) said it best, stating that you don’t “show up at the soup kitchen in a high hat and tuxedo” asking for food. The meeting went on disastrously as the executives failed to provide a clear-cut plan about how they were going to significantly restructure their businesses so they wouldn’t have to return to Washington in the future. Congress was unimpressed, and consequently, withheld aid from the automakers. A deadline was set for December 3rd for the automakers to hammer out a new plan if they were going to expect any money from this remaining administration. This left investors in a state of unease, and added to the selling pressure, due to the uncertainty of what bankruptcy would do to the economy if the big three are to leave, again, empty-handed.

In addition to the news from Citigroup and Detroit, came a wave of bleak economic data. The Fed implicated significant downward revisions to its 2009 outlook— GDP was revised from 2.0-2.8% to (0.2)-1.1%, unemployment was revised from 5.3-5.8% to 7.1-7.6%. The data also suggested a second-half economic recovery—however, without signs of slowing in the current crisis, investors felt this was not the case. In economic releases, October industrial production increased 1.3% due to the reopening of plants after hurricane season.

Housing data showed starts falling 4.5% in October, and building permits declined 12% to a rate of 708,000, showing no signs of slowing. Moving to jobless numbers, claims spiked 27,000 to a horrid 542,000. Continuing claims reflected the difficult job market jumping from 3.9 million to 4.01 million. The only good economic news came from inflation reports. Consumer prices fell 1.0% and Producer prices declined 2.8% in the month of October. However, this is taken with a grain of salt, as it indicates the potential for a deflationary environment. Perhaps the single most positive news that emerged from the week was the nomination of New York Federal Reserve President, Timothy Geithner, to become the new Treasury Secretary under the Obama Presidency— the market took it as such and rallied 6.3% on Friday. Geithner is highly regarded among his peers and is seen as having a firm understanding of the current financial and economic situation. From today’s standpoint the future is uncertain, and investors should remain cautious. As with all economic crises, the market will recover but it takes time—then, it should be understood that the problem of today is multifaceted and complex, and there is no cure-all solution that will fix everything overnight.

Outlook for Next Week

by Ryan Wheeler

This week’s equity market should consist of relatively light volume after last week’s news about an expected decision of New York Fed President Timothy Geithner as Treasury Secretary relieved some of the amassed tension on the street and the Thanksgiving Holiday should take people’s minds off of the market. But, as always there is the potential for unexpected news or deviation from market expectation that can start an uproar. This week has that potential written all over it.

The financials could add another name to the list of government aided companies as Citi Group (NYSE:C) is said to be in talks with the Fed to guarantee as much as $200B in troubled assets. These assets are part of a larger asset pool that CEO Vikram Pandit said previously he was looking to shed over the next three years. Why shed them when you can have an explicit guarantee by the US government? Smart man if you are a CEO looking limit losses.

Black Friday, one of the biggest shopping days of the year, will certainly reflect lightened consumer spending due to tight budgets. The trade-down effect that has been this year’s retail theme will continue to affect higher-end retailers and benefit the thriftier names like Wal-Mart, Target and Costco. Higher-end department stores could find their lines a little shorter this year, leaving shelves stocked and little need for high inventory build-up. The only hope for retailers is that they correctly forecast sales so they don’t have to pay the high interest rates that are currently being charged for short-term loans that many company’s use to buy inventory.

Existing Home Sales are expected to rise to 5.00M for the month of October, a decrease of 3.4% from September’s level of 5.18M homes, but 4bp higher than the 9 month average of 4.96M. Any positive surprise in Home Sales could indicate a recovering demand in a housing market that has been oversupplied by weak demand and forced sales by owners who have recently seen a decrease in their underlying worth. Preliminary third quarter GDP figures will also help dictate the direction of stocks as economists and portfolio managers look to refine their expectations for the direction of US production in the short to intermediate term.

Further discussions about the fate of the major auto makers will surly cause a lot of movement in the Big 3 as congress decides whether or not to fund the failing giants as they run out of operating cash. It can be expected that this issue will be highly debated in the media and on the street, making any action a force to move the broader market. Some economists will argue about basic economic theory that says that the market powers will fix the problem if it is left untouched, while others will argue about the ripple effect that a failure of any of these companies would create. Whatever the decision, the market will show its opinion in the usual fashion of a wild swing. Have at it day-traders, the rest of us will sit back and watch.

Recap of Last Week

by Steve Romasko

Despite a historic affair in politics, with the election of Barack Obama, Wall Street turned a blind eye after Tuesday and put economics front and center. Posting the biggest Election Day rally ever, gaining 4.1%, the S&P 500 snapped an 18% rally in the previous 6 trading sessions and gave way to a 10% decline in equities on Wednesday and Thursday. Concerns mounted on Wednesday when ADP’s employment report showed a contraction of 157,000 jobs. This report came in tandem with poor auto sales for Oct, and set the tone for Friday’s government report on employment. Adding to the pressure came several other economic reports—September’s factory orders declined 2.5%, October’s ISM Services Index dipped below expansion (>50) coming in at 44.4, 3^rd Quarter productivity fell from 3.6% to 1.1%, and continued jobless claims spiked to 3.84 million.

 Economics quickly coupled with poor earnings and cautious guidance from cyclical corporations as the last heavy release of earnings wound down. In retail, same-store sales declined -0.9%; 4.2% ex. Wal-Mart, who showed a 2.4% gain. Wal-Mart’s sales are relatively impressive from a bottom-up perspective, but does not bode well from a macroeconomic point-of-view as this suggests that cash-strapped consumers are shifting from the higher-end retailers to the lower-end alternatives to fit into the constrained needs of their personal budget. Moving to Central Bank action, the ECB cut rates 50bps to 3.25%, in line with expectations. The Bank of England acted aggressively, slashing its rate by 150bps to 3.00%—suggesting that they are behind the curve and underestimated the severity of the situation.