The US market saw another mixed and volatile week. Morgan Stanley’s results were closely watched, with the company reporting a fourth quarter loss of $3.6 billion after a write-down of $5.7 billion. Despite this, shares rallied on news that China Investment Corporation has taken a $5 billion, 9.9% stake in the company.
Sallie Mae investors have voiced concerns about new CEO Albert Lord. According to a transcript of a conference call, when the new CEO was asked about how much equity the company would need to regain its single-A credit rating, he replied, “You’re talking to the wrong guy. I don’t know the answer”. The shares traded at more than a six year low.
The US Current Account deficit fell to its lowest third-quarter level in two years. The fall was expected and had little effect on the markets.
RealtyTrac reported negative numbers from the housing sector. November foreclosures were up almost 68% compared to a year ago but down 10% from the previous month.
Asian markets had a volatile week. The Australian market saw its biggest percentage decline in four months on Tuesday, as property trusts (REITs) were sold off. Centro Properties was the latest casualty of the credit markets. The company is having trouble refinancing short term debt. The stock, which traded above $10 in May, fell to a low of $0.42.
New Zealand’s annual deficit rose to NZ$14.2 billion, which is less than expected.
In Japan, department store sales rose 0.9% in November. The government left overall economic forecasts unchanged but downgraded its expectations on corporate profit and business conditions.
The Australian central bank released its minutes for the December meeting. The minutes suggested that the bank did not raise interest rates because a rise in the money market had already had the desired effect.
The European Central Bank has moved to lend $500 million to commercial banks to alleviate problems in the credit market. The two-week Euro inter-bank rate dropped a record 50 basis points to 4.45% after the announcement.
Minutes from a Bank of England meeting revealed that the central bank voted unanimously to cut interest rates. This came as a surprise to the market as a more diverse vote was expected.
It’s a time of reckoning this week as many options and futures expire in the US. Volumes are dropping off slowly as the Christmas holiday approaches. Investors remain on edge. Despite the move from central banks around the world to inject liquidity into the credit markets, an end to the credit problem is not yet in sight. Uncertainty in the markets is set to continue. For business-minded investors, there are opportunities to buy into quality companies at discount prices. Shrewd investors will seek out companies with low gearing levels and an absence of significant debt to be reset for 2008.
Happy investing and holiday season!
Head of Fundamental Analysis
HUBB Financial Group