December 21, 2007
Here comes Santa Claus! Look for a nice little rally at the open this morning. It will be a full day of trading is you look at the calendar, but trading will likely thin this afternoon as traders finish up their Christmas shopping with their oh-so-well-earned year-end bonuses.
Not being able to manage the risk in your business is one thing. But not even being able to count the losses when you report to shareholders – well – here we go again. Just a few months ago Merrill Lynch said that a 5 billion dollar writedown was all that they needed to deal with mortgage security losses. A little later, the estimate became 8 billion. That cost the CEO his job. Or was it really this? Now the rumor is that 15 billion is closer to the truth. But no problem – Merrill is reportedly going to get a 5 billion dollar investment from an arm of the Singapore government as step by step the shareholders of big U.S. financial firms are being diluted as equity interests are sold to Asian or oil-rich governments. Oh, by the way – Merrill Lynch stock is bid about a dollar higher in the pre-market on the news.
U of M’s December Consumer Sentiment Index is expected is at 74.9. We’ll get personal income and consumption numbers at 8:30. But in front of that, it looks like we’ll be off to the races. Overseas markets are way up, generally 1 to 2 ½ percent.
December 20, 2007
There’s quite a little flurry of economic and earnings news this morning.
Let’s start with the good stuff – last night Oracle posted 31 cents per share of operating earnings. That beat estimates by 4 cents and was a 35% increase from last year. Accenture and ConAgra also beat their estimated earnings for the quarter gone by.
We have a very mixed picture at FedEx, as they earned $1.54 last quarter versus the expected buck and a half, but they lowered expectations for their fiscal 3rd quarter, BUT they raised guidance for their fourth quarter.
Rite Aid lost about 50 percent more than expected and Ruth’s Chris warned that traffic is slowing down, and average dinner bills are getting lower and I don’t think it’s because of a big vegan movement among the general population.
Bear Stearns is the mortgage writedown story of the morning, writing off another 1.9 billion versus the expected 1.2 billion.
December 19, 2007
With less than two weeks to go in the quarter, it’s time to watch out for companies that warn about future earnings. Over the past five years or so, we’ve had relatively few downward revisions to guidance. But looking into 2008 we may see a different story. Yesterday, Palm disappointed with last quarter’s earnings and said that current quarter revenue would be 13 percent lower than previously forecast. Last night, Darden restaurants missed their number by 8 cents per share and warned that rising costs and slowing sales will likely make ’08 not so great.
On Monday, the Federal Reserve put 20 billion dollars on the table for banks borrow if they’d like. We’ll get the results of that auction at 10 o’clock which may give us an indication of how much lending power will be moving through the system and how available credit will be in the near term.
Morgan Stanley announced an additional 5.7 billion dollar writedown this morning. That brings the total 4th quarter write-off to more than 9 billion. But it looks like traders were expecting worse, as Morgan Stanley stock is bid slightly higher this morning.
December 14, 2007
A sharp rally in the final half-hour of trading resulted in a mixed market at the close yesterday. However, stock prices spent most of the day in red numbers, and that’s where we’ll start this morning.
An extremely hot wholesale inflation number yesterday could well be followed up by a hot Consumer Price Index Report at 8:30 this morning. The consensus estimate going into the week was for a six-tenths of a percent increase in headline consumer inflation. But after the 3.2% jump in wholesale prices reported yesterday, there’s really not telling what to expect out of the CPI.
Citigroup’s credit rating took a downgrade from Moody’s this morning. Last night, Citi told us that they are taking 49 billion of Structured Investment Vehicles onto their balance sheet. At least we think they’re worth 49 billion. They used to be worth 87 billion, and Citi shareholders (and quite frankly the rest of us as well) hope that the worst of the write-downs may be nearing an end.
December 13, 2007
If you’re not a big fan of roller coasters, don’t spend the rest of the week watching the stock market. Yesterday the Dow Jones Industrial Average went from about 250 points up to about 150 points down in what seemed like the blink of an eye. Okay – it was a slow blink, but a four dollar spike in the price of oil really sent prices on a skid. Only a furious rally in the last 15 minutes brought us back to a positive finish.
Honeywell came out with some good earnings guidance earlier, but the focus this morning is on oil prices, retail sales and inflation.
In ten minutes, the November Retail Sales number is expected in at a 6 tenths of a percent increase. At 10 o’clock, the November Producer Price Index, reflecting inflation at the wholesale level is expected to have stormed ahead by 1 ½ percent.
Light sweet crude is up slightly at $94.65 per barrel.
December 12, 2007
It didn’t take stock traders long to react to the Fed’s quarter-point interest rate cut yesterday, and the reaction wasn’t kind.
The Dow closed about 350 lower than its level just before the Fed announcement. But this morning, we’re seeing a little snap back on the rumor that the Fed is ready to pull some alternative tools out of its toolbox in order to provide liquidity to the banking system.
There’ll be a lot of inflation readings coming later in the week, but for today we’ll have to settle for some international trade data and the Mortgage Bankers Association’s weekly reading on the level of refinancings. There is a release from an outfit called Foreclosures.com this morning that reports U.S. home foreclosures up almost 32 percent in November from October and up 41 percent from a year ago.
Overseas markets are lower after our little dipsy-doodle yesterday. Hong Kong was off about 2 ½ percent.
December 11, 2007
We should get off to a positive start once again this morning, although I wouldn’t be surprised to see stock prices dial back toward the flat line by 2:15 this afternoon. At that time, of course, the Federal Reserve Open Market Committee will announce their new target Fed Funds rate. The consensus view is for a quarter point cut in the funds rate, but there’s also more than a slim chance that the Fed will take the funds rate down by a half-percent.
Why? Oh let’s see – Washington Mutual has announced that they will close 190 of their 336 home loan centers, fire 3,100 people and get out of the sub-prime mortgage business entirely. They’ll also slash their dividend payout and issue preferred stock to shore up capital. Ouch.
What’s worse than losing a lot of money? Well how about losing so much that you can’t even count it on time. H&R Block will not file its 10-Q on time. They say it may be out by Friday. But rest assured that the losses will be more than previously expected.
The flip side today comes from Texas Instruments, raising their estimated revenue and earnings fro the quarter and AT&T, where the dividend will be going UP by almost 13 percent.
December 10, 2007
When people talk about large-cap vs. mid-cap vs. small-cap stocks, large-cap – that is – the big multinational companies, are those whose stock is worth 10 or 11 billion dollars. Using that definition, Swiss investment firm UBS is writing off the equivalent of a large, muti-national company this morning. 10 billion of sub-prime debt is being written off. Yet, UBS stock is trading about 4 percent higher in the pre-market on word that they’re getting a big cash infusion from an anonymous Middle-Eastern investor and a Singapore government entity.
Those one-dollar double cheeseburgers must be paying off. November same store sales at McDonald’s were up 8.2 percent versus the expected 4.7 percent. Micky-D’s stock is indicated to open almost a dollar higher.
The economic and earnings docket is pretty much empty today, outside of H&R Block’s report on how much money they lost last quarter. That leaves the day free for pundits to speculate on the >
December 7, 2007
It’s the first Friday of the month again, and that means the November Employment Report is due out in about 10 minutes.
Last month, we saw an increase of 166,000 non-farm jobs. This time around, the average estimate is an increase of 85,000 jobs. A couple of days ago, another jobs report, the ADP index came in surprisingly strong. Hopes of a strengthening (or at least stable) economy set off a stock market rally.
Although a strong number might normally lead traders to think that the Fed will be hesitant of cut interest rates, a rate cut seems to be “baked in the cake” already for next week. Accordingly, a number significantly higher than 85,000 may not necessarily be bad news for stock price.
Some bad news for the price of American Express stock this morning, as they suffered a downgrade to “sell” from a major broker.
At 10 o’clock, we’ll get the preliminary reading on December Consumer Sentiment from the University of Michigan. Expect a reading of 75, down from November’s 76.1
December 6, 2007
Here comes the cavalry.
On a day when we’ll get the latest mortgage delinquency data from the Mortgages Bankers Association, President Bush will announce a plan to help some people with sub-prime adjustable rate loans that they were talked into in last year and early this year.
This agreement is a voluntary lender’s agreement and involves no taxpayer money, but it’s the latest of a series of government moves over the past half-century or so to puff up the value of housing, which include deducibility of mortgage interest, tax-free capital gains, government-sponsored mortgage entities, tax-deferred exchanges – the list goes on. However, without this latest meddling the 2008 election year was bound to give us a booming foreclosure market, and if more bailouts are needed, trust that they will become reality.
The Bank of England helped out the dollar this morning by cutting interest rates a quarter point. That should give the Fed all the cover it needs to cut rates next week. The question remains – will it be a quarter or a half-percent cut? The European Central Bank held rates steady.
Eli Lilly beat estimates this morning. Retail sales reports for November will be out today and should look pretty good, if for no other reason than a quirk of the calendar with an early Thanskgiving.
Overseas stocks are higher, and our futures, although much weaker than an hour ago, are still positive. At this point, adjusted for fair value, the S&P futures are up almost 2 points, the Dow futures are up 7 points and the NASDAQ futures are about 6 points above fair value.
December 3, 2007
It should be a relatively interesting week for economic news as we head toward the next Fed meeting eight days from now. The big number of this week will likely be the jobs Report on Friday, but there’s a fair bit going on today as well.
At 10 o’clock, we’ll get the November ISM index, which is expected to read 50.7. That would be slightly lower than the October reading. And, starting shortly after that, we’ll get automaker reports on their November sales, which are expected to have held fairly steady.
The deal of the day involves Activision. Vivendi will fold its video entertainment division and some cash into Activision. The new company will be called Activision-Blizzard. Current Activision shareholders will receive about a 30% premium to Friday’s closing price. Not surprisingly, Activision is bid about 28% higher in the pre-market.
Overseas markets are mixed, but generally a bit lower. Look what else is lower – light sweet crude oil is off another dollar to “just” $87 dollars and change per barrel.
E-Trade was downgraded to “sell” at Bank of America and MetLife lowered its full year earnings guidance slightly.
We should have a fairly quiet, but modestly positive open. At this point, adjusted for fair value, the S&P futures are up 1 point, the Dow futures are up 2 points and the NASDAQ futures are about a point above fair value.
Daily Reports @ WJR
For an explanation of "fair value" please click here.