Guest Author - Guido Deboeck

Given the lessons taught by market history, a jump of 2.6% in the Dow, 2.9% in the S&P500 and 3.2% in the Nasdaq, yesterday (November 28th) is not ample evidence that a new market rally is underway.

The jump in the market was caused according to many newspapers by the Federal Reserve’s Donald Kohn, issuing comments that hinted at a rate cut at the next meeting of the Federal Reserve on December 11th. The last two times the Fed cut rates, the market jumped 2.7% on September 18 and 1.5% on October 31. However, these jumps were not sustained and the market kept sliding after reaching a peak about a month ago on October 31.

Anyone who follows Kudlow & Company (at 7 pm on the East Coast) knows that in the panel discussions, no matter how optimistic Larry remains, there are always members who point to the prevailing economic realities. Currently these remain the drop in the housing sector, the sub-prime lending issue, the slowing of the economy, the change in consumer outlook and/or behavior, the drop in the US dollar, the rapid rise of the euro and the yen.

If you went shopping on Black Friday or since then, you may have seen large numbers of people in the malls. The initial statistics show however a drop of 3.5% of number of shoppers compared to last year with an increase of 4.8% in sales or purchases made. Hence, slightly fewer shoppers are spending slightly more money. The question is how these statistics take into account the growing volume of shopping on line?

When I think back about Christmas shopping last year, I recall spending at least a couple of hours spread over several days, before I could say, I’m done with my Christmas shopping! This year things went differently; maybe they also went differently in your family?

This year, our daughter started off by making her wish list public on-line to the rest of the family (and requiring that we do the same because she wanted to get her shopping done by December 2nd). Since we are all spread around the country (from Illinois to Texas to Virginia), this on-line wish list circulation has dramatically influenced our buying paradigm.

You should know that our daughter has since she was 16 always been the one introducing new “approaches” in the family: she got us into buying on ebay ten years ago, taught my wife how to setup and manage an ebay store with e-maginative gifts; and ones we were all familiar with ebay and amazon etc showed us many other tricks (e.g. selling old books) and sites where items can be bought at a fraction of the price. Never pay full price, she reminds the rest of us each year.

Like last year our Christmas shopping started by cleaning out our book shelves and making available on amazon the books that are just catching dust on our shelves. If you do this just before Thanksgiving and you have books that still have some value (many fiction books quickly drop to zero or cents and hence are not worth posting), you can in essence finance your Christmas shopping via the sales of used books on amazon.

After our daughter got her on-line wish list out, others in the family picked items from her list, ordered on-line and were done. This caused a bit of a whirlwind: we had to quickly figure out how to follow suit which left only one of us still circulating her wish list via… e-mail (soon to be considered as old fashioned as faxing).

So compared to last year, Christmas shopping was done quicker, cheaper, in less time. On top everyone in the family will get exactly what they wanted and there will be less “waist” on buying surprise gifts that the other persons does not want. In sum, the experience of this family confirms the statistics: fewer went to the mall, where just about everything is sold at “retail prices, more was bought on-line and in a much shorter time. Soon we will be ready to celebrate Christmas on December 6th, which Saint Nicolas day, still celebrated in Europe as “the” day to give gifts to children!

How will all of this affect consumer behavior and eventually the stock market? Until the outlook becomes again more optimistic, until there is more evidence that institutions are buying leading stocks, the current market circumstances require that you stay disciplined, watch where the market is heading and not take unnecessary risks (all of which presumes that you already bailed out and sitting on the sideline with cash).