It's A New Week

Friday was another sign of the bottoming process in the market. Investors were expecting weak non-farm payroll numbers and they weren't disappointed. The loss of jobs was much worse than expected. The market was unsure how to interpret these numbers but ultimately rumors abound about another Federal Reserve rate cut and the stocks rallied at the end of the day.

Over night, China instituted a $586 billion stimulus package which provided new impetus for the overseas markets to rally. The U.S. markets also appear to have a positive tone even thought the Government restructured the $85B AIG loan and is now providing $150B of support. Circuit City which has been struggling for a couple of years finally filed for bankruptcy this morning. This event should put pricing pressure on all electronic retailers during the holiday season. However, the consumer shall benefit as Circuit City slashes prices in order to move out inventory.

On a positive note, McDonald's once again had strong sales in October. Walmart and McDonald's seem to be providing enough value for consumers to migrate to their stores. The Christmas season is likely to be quite bleak and only those stores discounting heavily or providing extreme value will benefit.

There shall be more discussion this week on the GM bailout. We continue to believe the government should let the auto company file for bankruptcy and restructure its debt. However, if political pressure results in some government help, the result for stockholders is likely to be similar to AIG. There won't be any value left for common stock shareholders. If you own General Motors stock, sell it. It will be worthless.

The markets will remain volatile for awhile. Stimulus packages in China and elsewhere will put a floor on the economy at some point but bankruptcies will rise and the economy will be weak. The strong businesses with little debt requirements will be the winners when economic times improve.