Financial Review by Sinclair Noe
Tuesday, October 30, 2007

DOW – 77 = 13792
SPX – 9 = 1531
NAS --.73 = 2816
DJTA – 2 = 4842
DJUA + .05 = 526
RUT – 5 = 816

The Conference Board’s Consumer Confidence Index fell to 95.6 from a revised 99.5 in September. It was the lowest reading since 85.2 in October 2005. The September reading marks the third consecutive decline in consumer confidence. Shoppers are contending with higher food and gas prices, a deepening housing slump and tighter credit.

The S&P/Case-Shiller index shows home prices fell nationwide in August for the eighth consecutive month. An index of 10 metropolitan areas fell 5 percent in August from a year ago, the biggest drop in 16 years. The index shows the price of a typical single family home in Phoenix dropped 8 percent.

The Wall Street Journal says the Fed is not considering a 50 basis point cut in the Fed funds target rate, and there is a chance there will be no rate cut at all. If the Fed does not cut rates there will be speculation about what they know and transparency of information. In other words, it is very unlikely that the Fed would leave interest rates unchanged on Wednesday, only to be blindsided by a very weak jobs report on Friday. If they don't do it, it will be because they are confident the economy is strong enough and it doesn't need further cuts; or perhaps they are leery of the falling dollar and the associated soaring price of oil. If they cut rates, that means there is continued weakness in housing and some initial signs of some weakness in employment. Idle speculation really; fed funds futures have completely priced in a 25 basis point cut. It would be crazy for the Fed to fight the market, and I don’t think the Fed is totally crazy.

The Fed will make its announcement tomorrow at 11:15.

The bond market is waiting on the Fed. Benchmark 10-year notes were trading unchanged in price for a yield of 4.39 percent. Two-year Treasury notes were trading unchanged in price for a yield of 3.82 percent, while 5-year notes were also flat for a yield of 4.06 percent. The 30-year bond was trading 4/32 lower in price for a yield of 4.68 percent.

Of course, tomorrow’s Fed decision will impact the dollar, one way or another. The dollar continued its unrelenting slide today. The Dollar Index is now under 77. This has to worry the Fed at some point, seeing the devaluation of the dollar. I know we hear that a weak dollar is good for exports, but it really sucks for so many other parts of the economy; specifically a weak dollar increases the prices of a whole bunch of commodities. So it wasn’t surprising to see some profit taking today in the commodities markets. Gold dipped $4.80 to settle at $787.80 an ounce, while silver shed 10.2 cents to $14.328 an ounce.

Crude oil dropped $3.15 to settle at $90.13 a barrel. Tomorrow the Energy Information Administration will report on petroleum inventories, which are expected to increase just a little. Goldman Sachs said oil prices could break the $100 mark based on risks such as cold winter weather, a U.S. Federal Reserve rate cut, rising costs and geopolitical turmoil. OPEC expressed concern about high oil prices, but OPEC oil ministers have no plans to discuss further raising output at an OPEC heads of state summit in mid-November in Riyadh. The OPEC view is that the market is out of control – and besides, they’re making money.

Swiss banking giant UBS reported a third-quarter loss of just over $700 million dollars and write-offs of $3.6 billion, mainly on bad investments in the U.S. subprime mortgage market; the losses were bigger than previously estimated; and UBS warned there are more losses and write-downs waiting in the fourth quarter.
UBS -- .14 = 53.11

Let this serve as a warning: if you lose $8.4 billion dollars, you might get fired from your job. Stan O’Neal has been fired as CEO of Merrill Lynch. There is speculation that Merrill Lynch faces a $4 billion write-down during the fourth quarter. O’Neal will depart with $161.5 million of securities and retirement funds.
MER – 1.86 = 65.56

Shareholders of Applebee's have approved a $1.9 billion buyout offer from pancake house operator IHOP. The sale price works out to $25.50 per share. The deal should be finalized by the end of November.
APPB + .09 = 25.29
IHP + .04 = 62.72

Procter & Gamble reports first-quarter profit rose 14 percent, but said rising commodity, energy and product investment costs will hurt its second-quarter margins.
PG – 2.88 = 4.01

U.S. Steel posted a 35 percent slide in third-quarter profit. The company also warned of an earnings decline in the fourth quarter.
X – 7.88 = 104.62