Housing Slump, Oil Soar, Credit Market Meltdown, Crude Oil Woes VS. A Quarter Interest Rate Cut

Oct.31, 2007 in Investment Opinions, Market Outlook, U.S Hot Stocks

Housing Slump, Oil Soar, Credit Market Meltdown, Crude Oil Woes. Everything bad comes altogether, how would a quarter interest rate cut have a good impact on our economy? Lets see.

“All bets are off if more systemic freeze-ups occur in various segments of global financial markets between now and then, spurred by evidence that the subprime-induced problems are deeper or wider than can now reasonably be anticipated.

nflation fears are real. Oil prices have to start biting harder as they head up to $100 a barrel for crude. Food prices are high. Demand from China and India won’t let up. The dollar is weak and further rates cuts will just make it weaker, which is inflationary, among other things. ”

High Inflation rate scares people. and people’s salary can’t keep up with inflation rate. how would people consume more? Even worse cases is the firms are laying off staffs start by Bank of America. How can people eligible for loan with higher restriction from lenders without jobs?

“Strong credit scores are the main factor driving mortgage lending today, but borrowers also need proof of employment and money in the bank to obtain a loan. Traditional prime mortgages are still readily available, but the supply of other mortgage types is severely constricted, Green said.

“The economy is still reasonably strong. At least the stock market thinks so, given the enthusiasm displayed by the major indexes Wednesday and for much of the sometimes frightful month of October. Technology is doing well, exports are being helped by the weak dollar, employment is holding up and at least one predictor thinks job growth went up a respectable 100,000 or so in October. ” By Neal Lipschutz

However, there are more than three firms just announced cutting jobs for their operations. It just all happened today!

“The first round of layoffs in Bank of America Corp.’s investment banking unit is under way, with the company this week losing a number of senior executives and entire teams of traders and analysts. ”

“Insurance brokerage Aon Corp., faced by fierce competition and falling rates, said Wednesday it will cut 2,700 jobs as part of a restructuring plan that will eventually save it about $240 million a year. ”

“Chrysler LLC began laying off thousands of salaried workers Wednesday as part of an effort to slash costs in the company’s new era of private ownership, a spokesman said.

The cuts won’t end there. On Thursday, Chrysler planned to announce the elimination of third shifts at the Toledo North plant in Ohio and the Belvidere plant in Illinois in the first quarter of 2008, according to two congressional aides with knowledge of the announcement. They spoke on condition of anonymity because they were not authorized to speak publicly.”

“Alcatel-Lucent SA, struggling since the deal that formed the company, disclosed plans Wednesday to slash another 4,000 jobs and shake up top management as the telecom equipment maker reported a third straight quarterly loss.”

These really look ugly, toward the next job report in the coming November, it won’t be so good. Today is really a bad start for our next month.

Housing Slump

Builders slashed investment in housing projects by 20.1 percent, on an annualized basis, in the third quarter, for the largest drop in a year. That provided stark evidence of the darkening housing picture.

“This may have been the summer of the housing market’s discontent but it clearly wasn’t for the rest of the economy,” said Joel Naroff of Naroff Economic Advisers.

Crude Oil

“Interest rate cuts generally support oil prices because they tend to send the dollar downward; the dollar is already at a record low against the euro. Oil futures have been driven to record levels in recent months partly because they offer a hedge against a weak dollar. ”

“The market is clearly reacting to the larger than expected 3.9 million barrel drop in crude oil inventories, including a stunning 3.1 million barrel drop at the Cushing, Okla., delivery point for the Nymex (crude) futures,” wrote Tim Evans, an analyst at Citigroup Inc. in New York, in a research note.

“China raised prices of gasoline, diesel oil and aviation kerosene by almost 10 percent Thursday after several days of diesel shortages that have led to rationing. ” http://biz.yahoo.com/ap/071031/china_fuel_prices.html?.v=1

We still haven’t see any clues of the crude oil prices head lower but keep soaring.

Firms

As what we believe, many firms are trying to cut jobs and lower the production, clean the inventories for survival in this dark period of time. Some of them may not be able to pay their loan interest rate and require more money for future operation(e.g INPC). House residential firms need to recapitalized. And the losing homebuilders companies for this year :

Pulte Homes Inc. - $45 [now $16.25, off by 64%]
D.R.Horton Inc. - $48 [now $14.84, off by 69%]
Lennar Corp. - $88 [now $25.90, off by 71%]
Centex Corp. - $83 [now $29.28, off by 65%]
Toll Brothers Inc. - $42 [now $22.79, off by 45%]
KB Home - $92 [now $28.60, off by 69%]
MDC Holdings Inc. - $85 [now $43.52, off by 49%]
Ryland Group - $95 [now $25.5, off by 73%]
Beazer Homes USA Inc. - $80 [now $10.08, off by 87%]
Hovnanian Enterprises Inc. - $63 [now $13, off by 79%]
Standard Pacific Corp. - $43 [now $6.24, off by 85%]
Meritage Homes Corp. - $87 [now $16.62, off by 81%]
Technical Olympic USA Inc. - $18 [now $1.94, off by 89%]

and more…

The market also shows the good sights by

“Strong sales of U.S. exports to foreign buyers was another big factor in the good third-quarter showing. Exports grew by 16.2 percent, on an annualized basis, during the quarter. That was the biggest increase since the final quarter of 2003.

Business investment in commercial structures, such as office buildings and factories, grew at a 12.3 percent pace in the third quarter. It was a robust showing but down from a sizzling 26.2 percent growth rate in the second quarter.

Government spending also contributed to third quarter GDP growth. Such spending rose at a rate of 3.7 percent, following a 4.1 percent pace in the second quarter.

As the economy picked up a bit of speed, so did inflation, although the rise wasn’t seen as worrisome.”

——————————————————————– Rally?

“The meltdown in the mortgage market has made it harder for people to obtain financing to buy homes. That’s aggravating problems in the housing market and leading to a mounting pileup of unsold homes. The housing slump is expected to drag on well into next year.

Against that backdrop, the Fed’s overriding worry is that problems in housing and harder-to-get credit could seriously crimp spending and investing, dealing a dangerous blow to the national economy. Growth in the current October-to-December quarter is expected to slow to a pace of around 2 percent or less, according to some projections.”

“A second report from the department showed construction spending rose 0.3 percent in September, the best showing in four months. ”

Is this a rally for market?

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