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LOTS OF ECONOMIC DATA, BUT QUIET MARKETS

There was a great deal of economic data out today, but volatility in the markets was notably muted in front of the Thanksgiving Day celebrations tomorrow. To put it another way, I keep looking for some noteworthy percentage movements anywhere in the markets, but the broad stock indices are modestly positive, the bond market appears to be in a coma, and the dollar continues to crumble with a record new high for the euro. I’ll run through the highlights of the economic news that hit the wires today, but overall they had little impact on the markets. It looks like traders are ready to call it quits for the long holiday weekend.

Early this morning before stocks opened for trading the Commerce Department reported October orders for durable goods unexpectedly fell 0.4%. Economists were expecting durable goods orders for September to be revised from a growth rate of 0.2% to 0.6%, but instead they were revised even higher to a gain of 0.9%. Though the number for October was weaker than expected, mainstream market analysts gave the report a positive spin placing the emphasis on the upward revisions for September. In a separate release the Labor Department said first-time claims for state unemployment benefits fell 12,000 to 333,000, with the four-week average falling to 332,000. This is the lowest level of initial claims since November 2000…the best in four years, but it sure doesn’t feel like the employment and wage growth we are experiencing is enough based our continuing increases in debt levels.

The University of Michigan consumer sentiment index unexpectedly weakened from 95.5 to 92.8 after economists were expecting a gain to 96.0. This is telling me the consumer could be feeling tapped-out for more spending. There are no tax rebate checks to spend this holiday shopping season, greatly diminished stimulus from cash-out mortgage refinancing, and higher energy bills to consume discretionary spending. I have had a gut feeling this would be a horrible shopping season as consumers pull back the reins on spending. I’ve been thinking for a while that the quarterly earnings reports that come out in January will put the retailers right in the tank. When I look at the chart of the S&P 500 Retail Index, it sure looks to me like these retailers are priced for absolute perfection. I have to call this chart the “Shop ‘till ya’ Drop Chart” because it looks to be in the nosebleed section, ready for a correction. In the past U.S. consumers have not allowed the lack of cash to limit Christmas purchases…just put it on the credit card! We’ll just have to watch the retail sales figures over the next month to get a feel for where this index is headed moving into 2005. Within this index I have to believe there are some good opportunities for a short sale. I’ll drag my feet another week or two to get some updated retail sales figures for the retailers.

I mentioned less stimulus from cash-out refinancing and it was confirmed again today by the Mortgage Bankers Association. The MBA applications index dropped 5.7% with the re-fi index falling 8.3% and the purchase index declining 3.5%. The 30-year fixed rate mortgage moved from 5.7% to 5.64% and one-year adjustable-rate mortgages moved from 3.89% to 4.13%. Variable rate mortgages moved higher in rate while the fixed rate declined. Even with the gap narrowing between variable and fixed-rate mortgages, the issuance of variable rate mortgages has held steady at 34%. I’m surprised more homeowners are not taking advantage of these low rates by locking-in with 30-year fixed loans. Even though mortgage activity is showing signs of slowing, the Commerce Department said today that new home sales unexpectedly increased 0.2% to the third highest level on record. They also said the median price of a new home sold in October rose 9.1% to $221,800 from $203,300. Home prices have risen 14.3% nationally since October last year.

Stocks in general have been drifting sideways in positive territory for most of the day. One item that really caught my attention was the announcement from General Electric that they agreed to purchase Ionics (ION) for $1.1 billion or $44 per share. Yesterday Ionics (a water purifying company) closed at $29.75 and as I write it is trading at $43.25. Now that’s something to be grateful for on Thanksgiving Day! It caught my attention because just two days ago Jim Puplava penned his essay titled “Blue Gold” on the merits of investing in water companies. There has not been enough investment for infrastructure in the water utilities arena and the globe faces serious problems with water scarcity and quality. Jim was sure dead on based on the GE’s acquisition of Ionics today. For the broader market, the Dow Industrials gained 27 points to 10,520, the Nasdaq Composite added 18 points to 2,102, and the S&P 500 gained four points to close at 1,181. Stocks will be trading in a shortened session on Friday, but the action early next week should be a better indicator for the near-term direction of stock prices.

I spoke too soon when I said there was no volatility to be found today. I just took a look at energy prices and was surprised to see natural gas higher by more than 16% moving from $6.80 yesterday to close at $7.90 per million BTU’s today. That is an enormous one-day gain for natural gas after inventories were reported with a much bigger decline than expected. Fxstreet.com explains the huge gain with, “Thin trading volume ahead of the holiday and the expiration of the contract at the session’s close contributed to the price spike, analysts said.” Boy, I’ll bet some of the shorts that failed to cover because they took the day off will be looking at today as a very expensive day out of the office. It had to catch some of the traders completely off guard. Crude oil also finished higher today by $0.41 to $49.35 a barrel after the Energy Department said crude inventories gained 100,000 barrels, but the American Petroleum Institute reported crude inventories actually declined by 1.2 million barrels. Oil traders in the pit tend to rely more on the data from the API which was delayed this morning. The Energy Department data caused an initial sell-off, but after the API numbers came out oil began to move higher to close with a gain.

As Ike said in yesterday’s WrapUp, “I don’t put that much significance on the price action during a short week because of a major holiday.” I tend to agree with Ike as a great number of market analysts, traders, and investors are already on airplanes and in their cars headed out to see family and friends. I especially enjoy the Thanksgiving Holiday because people tend to be focused on positive things…those people and things that we are feeling grateful about. I count my blessings on a regular basis, but will take extra time this weekend to celebrate with an attitude of gratitude. May God bless you and your families with His peace and happiness!

Happy Thanksgiving!

Mike Hartman

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