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We had some considerably volatile days this week……what it really boils down to is whether the Fed will be more concerned about the credit meltdown and the housing market versus inflationary pressures on the economy and the dollar’s weakness. Several analysts came out and predicted that we will be in a recession next year. Just how bad it will be will depend on your particular area’s local economy.

Items of note:

• The Fed lowered rates by a very unwelcome .25 basis points. The Fed termed it’s outlook for the future as “balanced” , the market however was looking for a more decisive 50 basis point cut for the discount rate which is the rate that directly impacts the banks’ profitability. Later in the week the Fed did announce that it was negotiating credit swaps with Bank of England in order to help stem the credit crunch. The Fed intends to lend at least $40 billion to cash strapped banks.
• Retail Sales rose by an unexpected 1.2%, the fact that Thanksgiving was a week early this year contributed but what’s really interesting is that 25% of the increase was attributed to gains in sales for gasoline stations.
• PPI came in above expectiations with an increase of 3.2%…….yes folks that was a one month increase, not an annual increase. This represents the biggest increase in 34 years! We have energy prices behind this increase, which should not come as a big surprise.
• CPI came in at a higher than expected .8%.
• Pending Home sales rose slightly in October, but keep in mind this has not been the most reliable indicator as potential or pending sales can fall out of escrow.
• Freddie and Fannie Mae announce fee increases for future mortgages, while intended to bolster the bottom line, some anticipate that this could add as much as $2000 to some loans.
• MBIA got a $1 billion dollar capital infusion or bailout, depending on how you look at it.
• Washington Mutual announced more losses and layoffs and that they are shutting down their subprime division.
• UBS wrote down another $10 billion in subprime debt.
• Bonds-The 2 year closed at 3.10%, 5 year at 3.5% and the 10 year at 4.1%. These yields are all roughly 30 basis points higher than the lows recorded earlier in the week.

Have a great weekend!