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Wall Street started December in a relatively quiet mood. After last week’s 3% gain, all three major indices gave back less than 1% in today’s session. Although most indices have been turbulent since the sub-prime issue emerged and are well off their highs, there is one index actually quietly climbing to a new historical high. And it is the Dow Utility Average Index. This shows two things: a). Fund managers are increasingly bearish towards US equity and hence move their funds to more defensive sectors such as utility; b). With the 10yr T-notes currently yielding below 3.90%, it is more and more difficult to find relatively safe assets that provide attractive returns (as can seen by $2.1 billion Berkshire investment in TXU junk bonds announced this morning).
The US Treasury Secretary Paulson made another speech this morning and basically outlined the detailed steps for his sub-prime bailout plan last Friday. It is quite rare that the US government took such a rapid action towards a plan just outlined days ago and this shows the urgency of the matter itself. On the economic front, the ISM index number came no surprise. Oil price, after touching $87 per barrel, rebounded and closed the day up by $1. It seemed that some traders are betting OPEC would not increase production after seeing more than $10 drop in the price. For those oil rich nations, higher oil price means more profits as well as more control over their governance. But eventually demand will wane if high oil price drags the world economy into a recession and now the chance is increasing on a daily basis. Late the week, we are going to get the non-farm payroll report for November and arguably, this will be the last piece of important economic data before the next Fed meeting on Dec 11th.
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