In the morning, the market had to deal with that pesky consumer who wasn't shopping at JC Penney. The company reported lower earnings due to slowing sales in the past couple of months. This news was a blow to those who thought Penneys would be a bright spot in holiday shopping due to their product line. With this news, the market had to almost concede that the consumer might not be in such good shape after all.
The market had more bad news to face on Thursday afternoon after Wells Fargo announced that the housing gloom is the worst since the Great Depression. As we were reading the article, we thought they were going to say "since 1991" like we hear all the time but to hear them say Great Depression was a shock. It means they are very pessimistic about the current state of the housing.
The other troublesome item came from GE. We had seen this last night but couldn't find a free link to it for you to read but the coverage expanded to Bloomberg on Thursday. We thought this news deserves some attention due to the blunt nature of their announcement. Of course, the article does a good job explaining the situation and you should take a moment to fully understand the implications to you and your money market fund but...
GE has invested some of its short term assets in vehicles that have been going down in value such as mortgage backed securities, notably subprime in nature. GE sent a notice to "depositors" saying they would be offering to buy them out at 96 cents on the dollar. If you have a money market fund, you probably know that the Net Asset Value (NAV) is usually $1 and as interest is credited you just get more shares but the $1 stays the same. Well, not in this case apparently. This time GE is going to "break the buck".
To be fair, this is not a Money Market fund but an Enhanced Cash fund which does have a bit more risk to it than the money market fund. That's because it is trying to "enhance" the return on the fund by investing in more aggressive assets. This time, those assets went down in value and did Not enhance the return at all.
This news did push the Treasury market up due to a flight to quality at the longer end of the curve. With the short end trading down over the past several sessions, the drumbeat is getting louder that the Fed will cut rates again at its next meeting. Since we don't think the Fed would dare stand up against the market, it would seem the Fed is free to lower rates once again.
FSI Arithmetic: 94.66
FSI Market Cap: 94.14