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1. Fed's Poole: Interest Rate Indicators Not Accurate
2. Black Friday Almost a Success, But Wal-Mart Drags
3. Correction Signal? Investor Morale at 10-Month Peak
4. Investment in Vietnam to Hit Record
1. Fed's Poole: Interest Rate Indicators Not Accurate
Federal Reserve Bank of St. Louis President William Poole, a voting member on
interest rates, says that the futures market is not accurate when it comes to
predicting interest rates.
Poole points to an August study which shows that Eurodollar futures are right
less than 30 percent of the time when it comes to predicting what the target
rate for overnight loans will be six months in the future. The study goes back
to 1994.
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Eurodollars are U.S. dollars held in commercial banks outside the U.S., explains
Bloomberg. Traders use Eurodollar futures to hedge interest-rate risk.
"Those are the best forecasts we have, but they're simply not very accurate at
the end of the day," Poole said in an interview with Bloomberg.
Currently, the futures market predicts interest rates will fall to 4.75 percent
next year. But Eurodollar futures have swung wildly this year. The December 2007
Eurodollar futures contract has ranged from 5.59 percent on June 28 to 4.65
percent on Oct. 4, says Bloomberg.
"Changes in interest rates are driven by new information," said Poole. "Things
happen that cannot be forecast in advance."
For example, if the consumer price index numbers come in lower than expected,
the Eurodollar futures market can see rates drop significantly.
"Forwards are horrible predictors of where rates are going to be," Steven Blitz,
chief economist and president at Dutch Book Partners LLC, a $50 million hedge
fund, tells Bloomberg. "They are the market's best guess at the moment."
Bill Gross, manager of the world's largest bond fund, thinks that the futures
market is wrong as well. Gross' forecast is that interest rates will fall to
4.25 percent by 2008, and his $98 billion Pimco Total Return Fund has half of
its assets in Eurodollar futures and other interest-rate derivatives that bet on
cuts to 4.25 percent.
Jim Bianco, president of Bianco Research, agrees. He says the futures markets
have "chronically underestimated" Fed moves in the past.
However, interest-rate strategist Robert Podorefsky tells Bloomberg, "Forward
markets are generally good at predicting direction; their weakness is the
magnitude. At this juncture, the timing of a rate cut is very much up for
debate."
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2. Black Friday Almost a Success, But Wal-Mart Drags
Electronics and toy retailers were the big winners on Black Friday as shoppers
kicked off the holiday shopping season. The world's largest retailers, however,
slipped at the starting gate.
Best Buy, J.C. Penney, Lowe's, and Toys ‘R Us appeared to be big winners on the
Friday after Thanksgiving — called Black Friday because it is generally seen as
the day retailers become profitable. Research firm ShopperTrak RCT estimates
that sales on Friday totaled $8.96 billion and were up 6 percent compared to
last year.
Jerry Storch, CEO and chairman of Toys ‘R Us, told Reuters "he was pleased with
weekend results, noting that sales were strong across the board."
J.C. Penney said in a statement Saturday that the holiday shopping season was
"off to a good start," reports Reuters.
Wal-Mart, in contrast, warned that it would likely see sales slip 0.1 percent in
November. The company, on the heels of disappointing third-quarter sales, had
announced discounts on electronics and toys prior to Black Friday and then
further discounted items for that day.
ShopperTrak said extended store hours and waning energy prices helped retailers.
Retailers extended the shopping day with some opening as early as midnight and
most at 5 a.m. Falling energy prices have given consumers extra cash to spend
toward holiday gifts.
"Although we anticipated a solid consumer turnout for Black Friday, this data
shows an even larger increase than expected as consumers proved they were
willing to spend," said Bill Martin, co-founder of ShopperTrak, in a statement
on the Web site.
The flailing housing market, which concerned retailers going into Black Friday,
didn't seem to keep shoppers away. However, shoppers were focused on bargains.
C. Britt Beemer, chairman of America's Research Group, said, "Consumers wanted
bargains, and more bargains. You have to give the customer what they want at the
price they want to pay or else you will lose them."
The real question is whether consumers will continue to return to stores in lieu
of the big bargains.
"The hysteria has come down a bit, but it was a great start," said Martin.
Adding that it remains to be seen if "retailers can sustain the loyalty and
excitement" until Christmas.
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3. Correction Signal? Investor Morale at 10-Month Peak
Investor confidence in the U.S. economy surged to its highest level in 10
months, buoyed by a stock market rally and fading worries over energy prices, a
survey showed Monday.
The UBS/Gallup Index of Investor Optimism jumped 14 points to 93, its highest
reading since January, when it also reached 93. The index, which has risen 40
points during the past three months, was 79 in October.
"The recent stabilization in gasoline prices has clearly impacted investors'
outlook on the economy as more money has been kept in investors' pockets," said
Mike Ryan, Head of UBS Wealth Management Research Americas.
Energy price concerns fell to 54 percent, the lowest level since measurement
started in March 2004. In August, 78 percent of the respondents believed that
energy prices were hurting the economy.
Investors' perception of the economy also improved in November, with 46 percent
of the respondents saying they were experiencing a "recovery" or an "economic
expansion", compared to 43 percent in October.
About 41 percent of respondents believe the economy is in a "slowdown". This
compares to 44 percent in October. Only one in 10 investors believes the economy
is in recession.
"The continued stock market rally is also fueling investor optimism, offsetting
worries about other sectors, especially the housing market," said Ryan.
The survey showed that investors remained concerned about situation in the
residential real estate market, with many convinced that conditions will
continue to worsen before improving.
The UBS/Gallup survey covers about 800 households from around the U.S. with
investments of $10,000 or more. Nearly 40 percent of American Households have at
least this amount of savings and investments.
© 2006 Reuters
Editor's Note:
4. Investment in Vietnam to Hit Record
Foreign investment pledges in Vietnam are on pace to set a new annual record,
surging by nearly 50 percent so far this year, officials said Monday.
As of Nov. 20, overseas companies have agreed to invest $8.27 billion in
Vietnam, which is set to open up its economy after it joins the World Trade
Organization next month. That's up 47.4 percent from the same period last year,
thanks to major projects like Intel's $1 billion chip plant in Ho Chi Minh City.
"This is much higher than what we expected," said Nguyen Thuy Huong, an official
at the Ministry of Planning and Investment. "Our target for the whole year was
only $6.5 billion."
Several major deals were announced earlier this month while Vietnam hosted the
Asia-Pacific Economic Cooperation summit in Hanoi, which attracted heads of
state and business executives from around the Pacific Rim.
Vietnam began shifting away from its centrally planned economy in the late
1980s, when it started implementing free market reforms. In 1988, it began
accepting foreign investment, which peaked in 1996 at $8.5 billion.
If investment continues at its current pace, the 2006 total could easily break
that record.
Since the beginning of the year, 734 new projects have been licensed worth $6.15
billion, and companies have pledged to increase their investment in 439 existing
projects by $2.12 billion.
Last year, the country licensed investment projects worth $6.8 billion, and
foreign companies spent about $3 billion on projects in Vietnam.
"Vietnam has become a very hot spot for foreign investment," Huong said. "We
expect 2006 to be a record-setting year."
Vietnam's economy grew by 8.4 percent last year, one of the highest rates in the
world and the second-fastest in Asia after China.
The WTO approved Vietnam's application to the global trade body earlier this
month. It will formally join 30 days after Vietnam's National Assembly approves
the agreement, which it is expected to do this week.
© 2006 Associated Press
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