Holiday Schedule

I will not be posting on December 25 or January 1.Instead,I will try to post another day those weeks.Have a blessed holiday season.A special greeting to our military men and women.You are always fondly remembered.

Central Banks Seek Growth

Central banks are cutting interest rates in hopes of sparking flagging economic growth.The Bank of Canada was first last week,cutting its overnight rate a quarter of a point,from 4.5 to 4.25.As late as July,the BOC was worried about inflation.Now it is concerned about deflation and the prospect of a failing economy.The Bank of England followed suit.It cut its key rate to 5.5 from 5.75.Growth has begun to slow,though the upward risks to inflation still remain.Credit tightening poses a risk to the Gross National Product.Slowing demand growth will ease pressure on capacity.The European Central Bank left rates unchanged.That may amount to a concession,since the ECB has been a hawk on inflation,and might prefer to raise rates.Today at 2:15 PM Eastern,the Federal Reserve will issue its decision on interest rates.It is expected to cut as well.Bill Gross of PIMCO would like to see the Fed cut all the way down to 3%.To restart the near-recessionary economy,we will need that.The Fed needs to reduce steadily and significantly.There has been a breakdown of the modern banking system.The tangled web of subprime loans has created a shadow banking system.The banking system must be shored up.Home prices may fall another 10% over several years.The banking system exhibits a freezing up of liquidity and a reluctance to make loans to the vital part of the economy.The Fed must use all means to provide liquidity.Troubled Swiss bank UBS has written down another 10 billion of subprime securities,following an initial write-down of 3 billion.To cover this,it has sold a stake in itself to the government of Singapore and a secret Middle Eastern investor.Shares of UBS rose on the news.Longterm investors are building positions in such financial stocks,which are trading at a big discount,although they could well drop further before recovery.Similar holdings are HSBC(HBC) and Citigroup(C).

Conference Board Charts Downdraft

The Conference Board's Consumer Confidence Survey registered 87.3 last week-a drop from 105.3 a year ago,and down 8.3 from last month.A combination of high gas and food prices,coupled with a decline in home values and a nervous stock market,are giving consumers their most cautious frame of mind in two years.Billionaire Wilbur Ross of W L Ross and Company says the consumer is quite a bit overstretched.Spending has exceeded income growth for the past six years.Donald Ratajczak of Morgan Keegan feels that the pressures should create a recession,but the economy's internal dynamics have allowed for absorption to this point.Still,there is a 50-50 chance of a consumer-led recession.Goldman Sachs(GS) issued an analysis upping the chance of a recession to 40-45%.Gross Domestic Product growth will be below trend for an extended period-through 2008.Unemployment will rise to 5.5% from 4.7%.The housing downturn will worsen,and credit availability will decline.To Joe Battipaglia of Stifel Nicolaus,the U.S. is going through financial difficulty that will affect the general economy.We may be in a recession right now.That bonds are outperforming stocks is an indication of this.The equity risk premium is only 2.25%,yet the slowing economy suggests there is actually more risk than that.The correction of stock prices could have as much as 15% more to go.You'll see more rate cuts.Financial institutions will write more losses off.The economy won't pick up till the end of next year and into '09.A growth portfolio should contain 50% U.S. equities,25% international equities and 25% short term,risk averse instruments and gold.David Rosenberg of Merrill Lynch(MER) puts the odds of recession at 60%.Financial and brokerage stocks are already pricing it in.The Federal Reserve is pushing on a string,as we are in a rare environment of national real estate deflation and a credit crunch.Robert Albertson of Sandler O'Neill thinks the market will fall another 15%.The Federal Reserve can't do much about the mortgage problem.You should stockpile cash,as there is no pressing need to buy stocks right now.If you must buy them,then defensive areas such as tech and health care would be best.The iShares Lehman Brothers SHY and TIP bond funds have been good refuges for cash this year.

Sun Shines On Mr.Softie

Sun Microsystems(JAVA) and Microsoft(MSFT) show how two firms can both challenge and support one another in their quest for progress.Google(GOOG) is now distributing a free version of Sun's Star Office software.It is part of the Google Pack.Star Office is Microsoft Office-compatible and is also sold by Sun in a version with technical support and free updates.Star Office provides the Open Document Format Alliance,which includes Google,Sun and IBM,with an important open product.The free Star Office has the same basic features as Microsoft Office,which goes for 150-400 dollars.Word-processing,database,graphics,spreadsheets,photo editing and Web publishing are all possible with Star Office.Sun acquired Star Office when it purchased its parent company in 1999.Sun refined the product and contributed to a free version called Open Office before the Google Pack was offered.More than 100 million copies of Open Office have been downloaded.Star Office supports the Open Document file format,which many governments have considered adopting for its free document storage.Star Office is available on Sun's Solaris Operating Environment,along with Microsoft Windows and Linux.At the same time that Sun's Star Office competes with Microsoft Office,Sun is allied with Microsoft on a number of other fronts.Sun now sells servers with factory-installed Microsoft Windows.In this connection,the two firms will even call on customers together.They are also collaborating on interactive television built on Microsoft's Mediaroom software and Sun systems.AT and T wants to use this blend for its U-verse offering.It is clear that Sun and Microsoft are fully implementing their 2004 alliance,while competing in the office software realm.Their complex relations will be of benefit to both of them into at least the next decade.Shares of both Sun Microsystems and Microsoft were up this morning.

Del Monte Picks Winners

Del Monte Foods(DLM) has tied itself to a couple of winners.In a coupon ad,the company celebrated Disney Pixar's(DIS) release of Ratatouille on DVD and Blue-ray Hi Def.It also offered a five dollar rebate if you buy five cans of Del Monte vegetables and a Ratatouille DVD or Blue-ray.This proved to be a clever choice,since Ratatouille promptly went to the top of the DVD chart.The ad encouraged people to eat healthier and get more exercise.The Wolfe family,YMCA members,are shown preparing a meal with Ratatouille himself."Just One More,"the Del Monte healthy living campaign,is a proud supporter of YMCA Activate America.Nor is Del Monte limiting its health promotion to humans.On the flip side of the ad,we see a cat licking its chops while imagining a shrimp."Think like a cat.Think fresh.Think Meow Mix.Made with REAL Poultry and Seafood!"Meow Mix has its own website,where you can enter a contest and win"a culinary adventure with celebrity chef Cat Coral."DLM has committed itself to the health of the whole family."Foods of Del Monte.Nourishing families.Enriching lives.Every day."These tie-ins and slogans appeal to young families.Del Monte is making itself an element of their lifestyle.With DLM's substantial distribution network and shelf space,they will have no trouble finding the Del Monte foods they want.Carl Marker of IMS lists Del Monte as one of his top five stock picks.In this morning's trading,Del Monte shares were up five cents to 10.02.This consumer staple stock looks appealing in light of a National Association of Business Economics forecast released yesterday.One in five economists surveyed sees greater than a 50% chance of a recession.The median growth forecast is 1.5% for the fourth quarter.Gross Domestic Product for 2008 is pegged at 2.5-down from 2.8.Seventy-eight percent of Americans think the economy is getting worse.

Wary Sentiment Wells Up

For the past several days,a wary mood has been expressed by Wall Street analysts.David Greenlaw of Morgan Stanley(MS) notes a powerful flight to the safety of government bonds.Banks are still tightening credit,which will slow the economy over the next several quarters.Peak foreclosure on homes will not occur until mid-2008.Jack Ablin of Harris Private Bank thinks the world has changed now.There is the high price of oil coupled with the weak dollar.The trend has changed.As the Federal Reserve lowers interest rates,the price of commodities spikes.Fifteen of twenty commodities have gained over the past six months.Billionaire Wilbur Ross of W L Ross and Company says we are in the fourth or fifth inning of the crisis.It will be at least a few more years until foreclosures and write-downs end.More credit card and loan delinquencies are being recorded,which suggests that consumers are tapped out.Oppenheimer's Michael Metz feels we are in for a period of very slow growth.This will last for about two years,as we've been in a leveraged economy.The big growth wasn't real.Now we will see a period of 1-1.5% growth.To Joe Battipaglia of Stifel Nicolaus,we are in a contraction from housing,and consumption will be weak for some time.It will take years to work this out.Housing prices are just beginning to fall.The biggest consumer asset is losing its value.Credit is harder to get,so the market is properly going down.We've only dropped 5% in home prices so far.The clock is ticking on 600 billion of mortgages,so he is staying in a lot of cash and some multinational stocks.Cash has been pouring into money market funds,sending them to record levels.Oppenheimer offers its customers the Advantage series of funds.Other stable funds are TIAA-Cref Instit MMF/Retail and Vanguard Tax-Exempt MMF.Procter and Gamble(PG) and Johnson and Johnson(JNJ) are favored multinational stocks.

Exxon Mobil Surpassed

Exxon Mobil(XOM)is no longer the largest company in the world.That distinction now belongs to Petro China(PTR).Petro China is worth an estimated one trillion dollars.In an initial public offering on the Shanghai exchange yesterday,the oil giant's shares tripled in value.Last week,Exxon Mobil reported earnings down 10%.The price of crude oil is at record levels,which means refiners such as XOM aren't able to make as much money off their refining operations,since the competitive nature of gasoline sales prevents them from raising gas prices very much.This is known as a "narrow crack spread." As well,production was down 2%,with new oil fields to replace declining ones being very hard to locate;what is more,the countries where XOM is exploring and drilling are demanding a bigger cut,and exploration and drilling costs are rising.Big oil is feeling a big squeeze.Chevron(CVX)reported nearly identical results for the third quarter.Investors will have to adjust to these smaller profits,but they are still in the many billions of dollars.According to Jerry Castellini of Castleark Management,the energy market is still in the early phase of an ascent.In order to fund enough of an investment to keep the oil flowing,a price of 100-200 dollars a barrel is needed.So far,the capital flow hasn't reached the level of a secular bull market.Oil price rose 17% in October-the biggest increase since Hurricane Ivan struck in 2004.Shares of both XOM and CVX rose on Monday,even as crude oil retreated 2.03%.This morning,shares of XOM were up in European trading,as was the price of crude.Many analysts are recommending energy stocks as a good long-term holding.