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TheStreet Open House

'RealMoney' Radio Recap: Financials in Flux

The lack of a Santa Claus rally has some on Wall Street crying Grinch, but Aaron Task, co-executive editor at TheStreet.com, told listeners to the "RealMoney" radio show on Friday that it could mean opportunities for 2006.

"We are shaping up to have a pretty solid January because the macro environment looks good going into 2006," Task said.

But he cautioned against making big bets on the financial sector right now because of unusual action in the bond market that has economists debating whether the economy is heading for a slowdown.

The yields on two- and 10-year Treasury notes have inverted or remained flat all week. This means that you can get the same amount of return for lending your money for either period of time, or that you can get even more return for lending money for a shorter period of time.

This is unusual, Task said, because investors generally demand more yield for the risk of a longer-term loan; and yield-curve inversion has preceded several recessions.

As Wall Street debates what exactly the curve is telling us, investors should take note, Task said. The profitability of the financial sector has been historically dependent on the shape of the yield curve.

Task said this is because banks usually borrow money at low short-term rates and then lend it at higher, long-term rates. When the curve inverts, it takes away a source of free money for the banks.

The picture seems somewhat rosier for retail, Task said, with holiday spending up 8.75% from a year ago, Wal-Mart (WMT) standing by its December forecast, and consumer confidence above pre-hurricane levels.

But strong spending doesn't necessarily mean retail stocks will rise, Task said, noting that there are too many gut factors shaping the success of a retailer.

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