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Today's Market WrapUp  12.04.2008  Mon  Tue  Wed  Thu  Fri  Panzner Archive

Still Hitting Extremes
BY MICHAEL PANZNER

For months, the evidence has been clear: Americans are no longer willing or able to consume at the same pace as before. Thus, it should not have been a surprise to anyone (except to Wall Street economists, that is) when the latest monthly report from the International Council of Shopping Centers revealed significant weakness in retail spending. According to the ICSC, November same-store sales fell 2.7% from year-earlier levels, a record low reading.

No doubt Americans’ diminishing appetite for spending --especially on big ticket items -- has been devastating for U.S. automakers, all of whom have recently gone cap-in-hand to Washington in search of their share of the bailout pie. The graph below, which details the inventory-to-sales ratio for U.S. vehicles, aptly illustrates just how bad things are nowadays. (Of course, it also means that there will be plenty of bargains on offer in dealer showrooms in the weeks and months -- and, perhaps, years -- ahead.)

In recent months, policymakers around the globe have opened up the monetary and fiscal spigots in an attempt to counteract the credit crunch. Although safe haven buying has helped buoy prices on government bonds in spite of the budding tsunami of future supply, there are signs that investors are growing nervous. Premiums on credit default swaps (a type of derivative providing insurance on creditworthiness) for a wide range of sovereign reference credits, including the U.S., Germany, and the United Kingdom, have shot up, suggesting markets are beginning to price in an eventual -- and widespread -- loss of faith in government-issued debt.

In looking at the way the bear market has unfolded over the past year or so, it's worth noting that many constituent stocks topped out before -- in some instances well before -- benchmark indices did. In the case of the Dow Jones Industrials, for example, the shares of 16 stocks had already seen their peaks (in many cases, their record highs; in others, their two-year highs) by the time the Dow closed at its all-time high of 14,164.53 on October 9th, 2007.

Commodity prices have been hit hard by the one-two punch of widespread deleveraging and a slowing global economy. However, there may be a light at the end of the tunnel, at least in the short-term. While the nominal price of the benchmark CRB commodity index has not quite reached a level that would naturally be expected to trigger a bounce, when its price is adjusted for reported inflation (regardless of how accurate that might be), the technical picture looks a bit more promising.

Stocks ended the session sharply lower, reversing earlier gains on widespread weakness in oil shares -- which were hit by a $3/bbl drop in crude oil futures -- and leading technology shares, including Intel (-6.5%) and Microsoft (-3.8%).

At the close, the Dow Jones Industrial Average lost 215.45, or 2.5%, to 8,376.24. The S&P 500 Index slid 25.52, or 2.9%, to 845.22. The Nasdaq Composite Index shed 46.82, or 5%, to 1,516.85.

February gold decline by $5.00, or 0.7%, to $765.50, while the U.S. Dollar index eased 0.7%. Ten-year Treasury bond yields fell 11 basis points to a new record low of 2.55%.

Michael Panzner

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