GOIH Capital Markts: Market Overview--10-01-07

GOIH Capital Markets has reprogrammed its qunatitative models and has a new outlook on the global capital markets. Our models indicate continued weakness in:

1. Consumer discretionaries (Target (TGT), Wal-Mart (WMT), Sears Holdings
2. Consumer financials (Countrywide (CFC)
3. Money center financials (Citigroup (c), JP Morgan (JPM)
4. Housing sectors (Lennar, Toll Bros., Beazer, etc.
5. Autos (Ford)
6. Casual Dining---Starbucks (SBUX)



Starbuck (SBUX)

Especially Starbucks. SBUX is a premium consumer discretionary dining retailer whose price point is elastic. The consumer has options to replace the dining experience with a competitor’s product at lower costs. And given that the consumer, we believe is tapped out, will adjust their spending patterns giving up the premium discretionaries first then the consumer essentials later.

We see weakness in the near term for SBUX as a seasonal as well as a fundamental weakness in the business cycle for this product.

Dollar

The Dollar is at a new low against the major currencies. What this means is that imports into the US will increase in price and US exports will decrease in price aiding US exports, but hurting US consumers with higher prices for their goods. The Fed gave the Dollar one on the chin with the last rate cut and any near term rate cut will further weaken the Dollar creating a spiral cycle of inflation and then rate tightening further damaging the economy. In essence the Fed’s hands are tied.

The global economy is feeling the effects of the US credit crisis in the financial institutions of the world. Around the world banks are writing off bad debt securitized by the subprime loans originated in the US.


Oil recently made a new high last week on the weakness of the US Dollar. Oil is one of the major commodities that are priced in Dollars, which offers some support for the Dollar.


Countries such as Japan who hold large Dollar reserves due to the trade deficit with the US, import 80% of their oil and use the Dollar reserves to pay for the oil to the exporters OPEC and Russia who will increase the price of oil to compensate for the falling Dollar.

We see no let up in the current economic climate until the consumer starts spending again once the housing inventory is finally sold off.