Today the Government announced bleak retail sales numbers. Most investors should have expected bad numbers but the markets will clearly continue their downward trend of the past week. The import price index, which was also released, indicates the economy is in a deflationary spiral. The only positive news seems to be a 16% mortgage application increase last week.
Markets were virtually flat yesterday but there was uncertainty in the air. The Citigroup sale of Smith Barney is the beginning of the unraveling of the Weill empire and investors are a little jittery about the losses Citi continues to incur. As we have been saying, Citi needs to sell more assets and it appears that it will happen sooner than later.
Ben Bernanke may have spooked the market a little as he gave a talk to the London School of Economics yesterday as he talked about Tarp, the stimulus package, and other Fed tools to prop up the economy. The conclusion in investors minds is there is still plenty of work to do before the good times return. Most financial institutions were weak yesterday and there are rumors that HSBC may need to raise $30 billion.
Nobody who reads this blog should be that surprised. The recession will be longer and deeper than most investors expected and markets will adjust accordingly. Earnings reports will shed some reality as we saw Deutsche Bank announce a $6 billion loss today and other disappointments are on the way.
Stocks will move through its bottoming process but it won't always be fun. The key will be to focus on the credit markets as they improve and set stocks up for some positive momentum.
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