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WJR January 2008 Reports

January 31, 2008
 
It’s the last day of the month, and we’re on track to have the worst stock market January seen in 30 years.
 
Yesterday the Fed gave the market the half-point rate cut the market wanted.  Of course, the market had already priced it in.  So, after a little relief rally, the market got right back to the business of worrying about the next write-down coming down the financial services pipe.
 
The market didn’t have to wait long.  Right around midnight last night, when it knew everyone would be paying attention, bond insurer MBIA confirmed the 3 ½ billion dollar loss it had previously announced.  That contributed to an operating loss that was worse than expected.  The loss for the quarter was $3.30 cents per share versus the expected loss of $2.97.
 
Procter & Gamble reported earnings that were a penny ahead of estimates, but they lowered estimates for the current quarter just a tad.  Mastercard beat estimates rather handily.
 
Weekly jobless claims and personal income and consumption data come out at 8:30. The January Chicago PMI and oil inventory data are also on the way this morning. But at this point, we’re looking to open with lower stock prices.
 
Adjusted for fair value, the S&P futures are down about 11 points, the Dow futures are down 104 points, and the NASDAQ futures are about 12 points below fair value.
 
January 30, 2008
 
It’s the countdown until 2:15 this afternoon when Mr. Bernanke and Company announce the latest cut in short term interest rates.  If it’s a quarter point cut, the market will be disappointed.  If it’s a half-point, the market won’t be surprised.  If it’s ¾ of a point the market may panic at the thought that the Fed sees something horrible around the corner.  To sum it up, it’s hard to see a scenario that traders will love. Most will look closely at the Fed’s statement to get clues as to future Fed moves.
 
Love it or not, we certainly have had a continuing stream of big investment write-downs from the big financial firms that are supposed to know what they’re doing.  This morning’s mea culpa comes from UBS.  They’re admitting to another 4 billion of junk in the balance sheet.  I think that brings the total UBS sub-prime writedown to 14 billion dollars. Of course, it sounds like a lot less when you state it in euros.
 
Earnings stateside continue to be pretty solid.  Boeing beat estimates by 4 cents, although they warned about the current quarter, Merck beat by a nickel per share, Legg Mason and UPS reported earnings in line with expectations.
 
Overseas markets are lower, and that’s where we’re headed, as well.  At this point, adjusted for fair value, the S&P futures are down about 3 points, the Dow futures are down 31, and the NASDAQ futures are just about 11 points below fair value.
 
January 29, 2008
 
It’s another day full of data – but make no mistake, traders are squarely focused on 2:15 tomorrow afternoon, when the Fed will announce the >
 
In the meantime, the earnings reports we’re getting are, on the whole, pretty good.  Beating estimates for the quarter gone by are 3M, Eli Lilly, EMC, Dow Chemical, Zimmer and Cardinal Health, although Cardinal did lower expectations for the rest of the year.
 
The mess of the morning will by virtualization software maker VMware.  Profit doubled, on an 80% increase in sales.  However, analysts were expecting more and VMware, which closed at 83 dollars per share yesterday, will likely open around 63 dollars per share this morning.
 
Speaking of messes, the country’s poster child for sub-prime mortgages, Countrywide, lost 79 cents per share last quarter versus the expected loss of 30 cents.  Countrywide is already down from 45 to about 6 over the past year.
 
European markets are about one percent higher. In front of the Durable Goods number that comes out in just a few minutes, the futures spiked higher just a few minutes ago.  At this point, adjusted for fair value, the S&P futures are up almost 5½ points, the Dow futures are up 32, and the NASDAQ futures are just about 6 points above fair value.
 
January 28, 2008
 
The earnings continue to roll in, and are generally not bad.  Verizon matched expectations for last quarter and Corning not only beat estimates, but raised their projections for the year.  Corning is looking to open about a buck and a half higher.  McDonalds made 73 cents per share, versus the 71 cent estimate.
 
Black & Decker met estimates for last quarter but warned that the year to come may be a little on the soft side.  And speaking of the softer side, Sears Holdings CEO is leaving and will be replaced on an interim basis by Bruce Johnson.
 
Alliance Data Systems will be the big loser of the day as it looks like the Blackstone Group is backing away from its offer to buy ADS.  Shares of ADS will likely be on a half-off sale at 9:30.
 
Overseas markets are solidly in the red.  Asian markets were off around 4 or 5 percent.   Europe is about 1 to 2 percent lower.
 
Our futures are in a lot better shape than they were in earlier. In front of the December New Home sales at 8:30, adjusted for fair value, the S&P futures are down only a point, the Dow futures are down 5 points, and the NASDAQ futures are about 8 points below fair value.
 
January 25, 2008
 
The earnings reports continue to flow and although everyone seems to agree that the domestic economy is in for some tough sledding, overseas growth is still helping the bottom line.
 
Last night Microsoft announced earnings of 50 cents per share, versus the expected 46 cents.  That’s an 81 percent profit increase. Microsoft also raised their full year estimate.
 
Amgen also announced better-than-expected earnings after the bell.  Operating profits of a dollar beat the 90 cent estimate.
 
Caterpillar and Honeywell reported earnings pretty much in line with estimates.  Caterpillar’s CEO said that the overall market mood is far too glum, and that we’re likely to see a mild recession at worst and probably more of a “soft landing.”
 
The miss of the morning would be Harley-Davidson, with the blame falling on weak demand in the U.S.  Still, Harley-Davidson stock is looking to open higher this morning.
 
Asian markets were a sight for sore eyes overnight, rising anywhere from 4 to 6%.  Europe is positive, but not by quite as much.  How about this?  Gold is at $920 per ounce this morning.
 
Domestic stocks should open solidly higher as well. Adjusted for fair value, the S&P futures are up almost 9 points, the Dow futures are up 57 points, and the NASDAQ futures are about 22 points above fair value.
 
January 24, 2008
 
One big rally does not equal an end to the market indigestion we’ve been living with for the past six months or so.  There is, however, a powerful lesson in yesterday’s rally for the individual.  If you’re a trader, reacting to all these market gyrations is the way you make your money.  If you’re an investor, turn off CNBC and switch to the Disney Channel.  Stick to the long-term asset allocation that’s right for you and ignore all the noise.
 
Lots of earnings noise on the screen this morning.  Ford Motor lost a penny per share more than expected on much higher than expected revenue.
 
Nokia crushed estimates, making 47 cents per share versus the expected 44 cents.  That’s a 44% profit increase from last year.  AT&T reaffirmed their estimate for the year.
 
The huge French Bank Societe Generale admitted this morning that a 30 year old employee, who’d been employed there for 7 years covered up over 7 billion dollars of losses he managed to generate through bad derivative trades.  The fraud was discovered last Friday and you have to wonder if this wasn’t the smoking gun that got the Fed to pull the trigger on that interest rate cut Tuesday morning.
 
There’s another volatile day on tap.  Earlier the futures were pretty strong but at this point, they’re trending back toward the flat line.  Adjusted for fair value, the S&P futures are up 1½ points, the Dow futures are down 8 points, and the NASDAQ futures are about 7 points above fair value.
 
January 18, 2008
 
There’s a little relief on the way in the early going today after yesterday’s market drubbing.
 
A solid earnings report from General Electric and the anticipation of a temporary tax cut to boost the economy has the futures off to the races this morning.  Of course, this is the third Friday of the month, which is options expiration day.  Expect prices to by volatile all day long.
 
GE reaffirmed their full year guidance after reporting a 68 cent per share profit from continuing operations for the quarter gone by.  That matched expectations, and confirmed a theory that few people have remembered lately – that despite the U.S. mortgage mess, much of the rest of the world is doing fine, thank you.
 
Just before noon, President Bush is expected to announce a plan to put some cash back in your pocket.  The plan is rumored to include $800 per taxpayer rebate and $1,600 per married couple.  The theory is that lower taxes will boost the economy.  What a novel idea, at least around here.
 
The bond market closes at 2 o’clock today, in advance of Martin Luther King Day Monday.
 
Adjusted for fair value, the S&P futures are up 21 points, the Dow futures are up 190, and the NASDAQ futures are about 31 points above fair value.
 
January 17, 2008
 
It’s been a tough week for balance sheets at big financial firms as they’ve been brought (hopefully) back into balance.  This morning’s poster child for bad debt investments is Merrill Lynch.  A little over an hour ago, Merrill Lynch announced their latest write-off.  This one is over 14 billion dollars.  We knew that there was another big write-off coming.  The question is whether this is “Total Merrill” or whether there are more losses to come.  Traders appear to be shooting first and asking questions later. The pre-market bid on Merrill Lynch stock is about 4 percent lower than yesterday’s close.
 
Three things to watch today:  In 15 minutes, the December Housing Starts are expected to be down to an annualized rate of 1.15 million units.  At 10 o’clock, the Philadelphia Fed Survey is expected to show continued economic weakness in the Eastern U.S.
 
Also later on, Ben Bernanke will be testifying before the House Budget Committee on the near-term economic outlook.
 
Asian markets were mostly positive with a little snap-back overnight.  Europe is narrowly mixed.  Our futures have bounced around a lot, but at this point, are lower, but not by much. Adjusted for fair value, the S&P futures are down 3 ½ points, the Dow futures are down 6, but the NASDAQ futures are about 2 points above fair value.
 
January 16, 2008
 
Ever since Intel reported earnings last night, we’ve been bracing for a pretty ugly market this morning.  Intel’s profit was up – way up in fact – but not quite up to what analysts had expected.  To compound the problem, Intel lowered expectations for the current quarter.  That is, of course, all it takes to spark some selling, and we’ll get that in Intel this morning.
 
After Citigroup’s ugly numbers yesterday, hope was that JP Morgan Chase would give us a bounce in the financials this morning.  Although Chase’s numbers weren’t the disaster that Citi’s were, they’re nothing to write home about.  Eighty-six cents in earnings, versus the expected 92 cents and a 1.3 billion dollar write-off.  Wells Fargo made 41 cents per share which matched estimates.  Whew! Finally a financial without a flopper.  Wells Fargo is actually looking to trade higher at the open.
 
At 8:30, we’ll get the December consumer inflation numbers and then at 9:15, the December Industrial Capacity and Utilization numbers.  For those looking to the Fed for an intra-meeting rate cut will perk up their ears at those reports.
 
Japan lost over 3% overnight.  Hong Kong lost over 5%.  Europe is lower as well. Our futures are in better shape than a couple of hours ago, but they’re still not pretty.  Adjusted for fair value, the S&P futures are down 7 points, the Dow futures are down 60, and the NASDAQ futures are about 17 points below fair value.
 
January 15, 2008
 
Lots and lots of news on the way today.  With rumors rampant about pending rate cuts from the Federal Reserve, maybe even before their scheduled meeting two weeks from now, traders will be paying attention.
 
At 8:30, we’ll get one economic reading and one inflation reading.  December Retail Sales are expected to come in flat with a year ago, while the December Producer Price Index is expected to rise two-tenths of a percent.  The November numbers on both of those indexes with very much higher than expected, so watch for revisions as well.
 
Citigroup’s earnings report is out and it’s not pretty. A loss of $1.99 per share, an 18 billion dollar writedown, a 4 billion dollar increase in credit costs, a 41 percent cut in the dividend and a decided feeling you’re left with that there is more bad news to come.  
 
Citi is raising 14 billion from sale of preferred interest to a variety of (mostly foreign) investors.  They’re paying a 7 percent dividend.  Merrill Lynch raised another 6.6 billion much the same way, although Merill will be paying 9 percent.
 
Intel and Forest Labs will report in a little later, but in front of the economic numbers at 8:30, we’re looking to give back a lot of yesterday’s gains at the open.
 
Adjusted for fair value, the S&P futures are down 13 points, the Dow futures are down 93, and the NASDAQ futures are about 22 points below fair value.
 
January 14, 2008
 
The big number of the morning is the rumored write-off of bad loans on the books at Citigroup.  It’s now rumored that 24 billion will have to go bye-bye.  Combine that with last week’s rumored write-off of 15 billion at Merrill Lynch, it’s time for another reality check.
 
Take that combined potential write-off of 39 billion at Citi and Merrill.  Let’s imagine that Charlemagne, after conquering pieces of the old Roman Empire in the year 771, had sold the real estate back to the peasants with sub-prime mortgages, no doubt with the sales pitch that “real estate never goes down in price.”  Well, if the peasants couldn’t pay up and old Charlemagne had to write-off 39 billion dollars, and wrote it off at the rate of one dollar per second, starting in the year 771, he’d be done by the end of this year.  It’s a big number.
 
We’ll find out more this week as many of the big banks and brokers will report, starting will Citigroup tomorrow.  We’ll also get December retail sales figures tomorrow.  But for today, there’s not a lot on the calendar.
 
Less than an hour ago, IBM warned that earnings in the fourth quarter will not be as expected – they’ll be higher, thanks mainly to strength from overseas sales.  The new estimate of $2.80 per share is 20 cents higher than analysts had projected.  IBM should open 9 or 10 dollars per share higher, and stock index futures took off on that news.
 
Adjusted for fair value, the S&P futures are up 11 points, the Dow futures are up 107, and the NASDAQ futures are about 28 points above fair value.
 
January 8, 2008
 
It looks like we’ll get off of another higher start this morning.  Yesterday stock prices gyrated around enough to make you dizzy before a last minute rally pushed the Dow barely into positive territory.
 
It’s pretty much a calm-before-the-earnings-storm kind of day, without a lot on the calendar.
 
We’ll get a report on pending home sales.  However, there haven’t been a lot of housing-related reports during the past year that have been terribly inspiring.
 
Perhaps an interesting non-development at this point is the lack of earnings pre-announcements.    If the economy is slowing as much as many analysts fret, you would think that more than a small handful of companies would have warned about an earnings shortfall by now, given that reporting season officially starts with Alcoa after the close of trading tomorrow.
 
Asian markets were fairly flat overnight, but at this hour Europe is solidly higher.
 
Our futures took a step backward about 5 minutes ago, but we’re still looking for higher prices at 9:30. At this point, adjusted for fair value, the S&P futures are up about 7 points, the Dow futures are up 43 and the NASDAQ futures are about 13 points above fair value.
 
January 5, 2008
 
Three trading days into 2008, the S&P 500 index has lost more ground than it made in all of 2007, and the Nervous Nellies are understandably starting to stir.  So let’s get back to basics.
 
Stocks are priced based upon interest raes and expected future earnings.  Interest rates will be almost certainly be coming down after last Friday’s Employment Report.  That we know.  What is not yet clear is the outlook for future corporate earnings.  The S&P 500 is currently trading at about 15 to 16 times estimated earnings, which is a pretty reasonable multiple.  However, fourth quarter earnings reports and estimates for the future start to roll out this coming Wednesday, and could be a game-changer.
 
Several brokerage firm downgrades are out this morning, including downgrades of IBM, Best Buy and Goodrich.
 
Japanese stocks to a fresh low, off more than 1 percent overnight, as was Hong Kong.  Europe is very modestly higher.  Oil down again, but only to about 97.70 per barrel.
 
Our futures are in pretty good shape. At this point, adjusted for fair value, the S&P futures are up about 9 points, the Dow futures are up 69 and the NASDAQ futures are about 8½ points above fair value.
 
We apologize that our January 4th report never aired.  We were the victim of a "Comcast Triple-Play."  Our video, cable and phone all died simultnaeously and Comcaast was too understaffed to accept our call for help.  Don't you love great customer service?  We'll be back Monday (if the phone service doesn't die!)
 
January 4, 2008
 
The big economic number of the week rolls out at 8:30 when we find out about the labor market in December.  Most estimates on the number of new non-farm jobs created last month are in the 50,000 to 90,000 range.  The unemployment rate is expected to tick up to 4.8 percent.  But perhaps the sleeper number here is the average hourly wage.  It’s expected to be up 3 tenths of a percent.  Anything much higher than that would not be particularly good news for stock prices.
 
Also a little later we’ll have Fed Vice Chairman Kohn speaking about monetary policy at 11:15 and we’ll also get the ISM non-manufacturing index.  The ISM manufacturing index earlier this week sparked a market sell-off with a reading that indicated a contraction in the manufacturing sector.  We’ll see if the non-manufacturing index can stay well above 50.
 
Nothing major as far as earnings reports until next week.  And the big story of this week, the price of oil is down a bit today, right around 99 bucks a barrel.
 
Look out below in Japan, as the Nikkei sank over 4 percent on their first trading day of the New Year. At this point, adjusted for fair value, the S&P futures about 5 ½ points, the Dow futures are up 48 and the NASDAQ futures are about 2 points above fair value.
 
January 3, 2008
 
The December auto sales numbers roll out today, and it’s not expected to be a pretty sight for anyone – foreign or domestic.  Compared with December a year ago, Ford and Chrysler sales are expected to drop about 7 percent.  GM sales are expected to be off about 1 percent.
 
A lot of news served to push the price of oil higher yesterday.  In fact, there was one trade yesterday that priced oil at 100 dollars per barrel.  Light sweet crude is hanging is there at $99.50 per barrel this morning, with reports on oil inventories yet to come.
 
We’re used to job cuts in the automotive industry.  Well, rumor has it that the first round of layoffs at Merrill Lynch could begin today.  Talk is that 16,000 jobs could be going bye-bye and that an additional 10 billion dollars could be written off.
 
We’ll get income numbers from Monsanto and Bed Bath & Beyond a little later.  But the big number of the week comes with tomorrow’s Unemployment Report.
 
The futures were pretty flat most of the morning, took a swing higher about an hour ago, but started sinking again about 5 minutes ago.   At this point, adjusted for fair value, the S&P futures are just about flat, the Dow futures are still  up 28,  but that’s about to adjust, and the NASDAQ futures are still about 6 points below fair value.
 
January 2, 2008
 
It’s a New Year that no doubt will be filled with the same investment lessons we’ve been taught in years gone by.  Perhaps foremost among those lessons:  There is no silver bullet, there is no sure-fire pattern.  For instance, everybody knows that the months of November and December are terrific for stock prices.  Well, the S&P 500 declined in both November and December of 2007.  That’s the first time that’s happened in 33 years.  So, there are no sure-fire patterns – ever day is a new day with new news to deal with.
 
Today we’ll be dealing with a couple of big data points.  At 10 o’clock, the ISM Manufacturing Index will give us our first clue regarding the health of domestic manufacturing going into 2008.  November’s reading was 50.8, indicating very slight expansion.  Any number of 51 or higher would be regarded as good news.
 
A little later this morning, we’ll get the minutes of the latest Federal Reserve Open Market Committee meeting.  Traders will be looking for any hints regarding future interest rate moves.  The Fed’s next meeting is still about 4 weeks away.
 
Stocks were lower ion Hong Kong overnight.  Japanese stocks did not trade and Europe is fairly flat.  Our futures have weakened over the past couple of hours, but are still slightly positive.
 
At this point, adjusted for fair value, the S&P futures are down a fraction, the Dow futures are up 16 and the NASDAQ futures, are about 6 ½ points above fair value.
WJR February 2008 Reports
WJR December 2007 Reports

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