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WJR November 2007 Reports

November 30, 2007
 
Just in case you were wondering whether earnings news moves stock prices more or less than interest rate news, I think we can put that issue to rest.
 
Last night, after the close of trading, Dell’s earnings report sent the stock lower by about 10 percent as earnings were a penny short of estimates, even though sales were better than expected.
 
However, a little later last night, Fed Chairman Ben Bernanke delivered a speech that warned of pending problems in centain areas of the economy.  Yes, WE all know that.  But hearing the Fed Chairman say that is a fairly clear signal that lower interest rates are in the offing, probably by December 11th and possibly by a half-percent rather than a quarter.
 
Personal Income and spending numbers will roll out in ten minutes and at 9:45 we’ll find out whether mid-western manufacturing is one of those areas of the economy that’s in trouble.  Expect the November Chicago Purchasing Managers Index to come in at 50.5 which would indicate ever-so-slight expansion of the manufacturing segment.
 
Major overseas markets are all higher.  Our futures are off their best levels of the morning, but are still pretty darned good.  Adjusted for fair value, the S&P futures are up 14 points, the Dow futures are up 110 points and the NASDAQ futures are now almost 15 points above fair value.
 
November 29, 2007
 
We’ll >
 
One of the factors that helped stocks rally again yesterday was a sharp drop in the price of oil to about 90 dollars per barrel.  This morning, a pipeline explosion in Minnesota has apparently cut off at least half of the crude we get from Canada.  Oil is up over 2 dollars on the news, although you have to believe that if the supply disruption will be severe, the Strategic Petroleum Reserve will be tapped.
 
The only major earnings report of the morning was not a good one.  Sears Holdings made only a penny per share, which is - oh – a bit short of the fifty cents per share expected.  Disappointing same-store sales at Kmart stores and shrinking gross margins get the blame. Sears stock is looking to open about 11 dollars per share lower this morning.  That’s more than 10 percent.
 
Dell will release earnings later on today and is expected to have earned 35 cents per share, which would be a 17 percent increase.
 
In ten minutes we’ll get the second of three readings on third quarter Gross Domestic Product.  Expect an upward revision to 4.8% from the advance number of 3.9.
 
Asian markets were up big-time overnight.  Europe is fairly flat.  Our futures were in a big hole earlier, and are still pointing a bit lower, but have been rallying over the past hour. Adjusted for fair value, the S&P futures are down 3½ points, the Dow futures are down 9 and the NASDAQ futures are now 7½ points below fair value.
 
November 28, 2007
 
If all month you don’t succeed, try, try again.  October 29th was the last time we saw stock prices rise for two consecutive days.  Yesterday, the major domestic stock indices rose about a percent and a half.  This morning, the futures started in the hole but have been rallying over the past couple of hours and at this point are pointing toward a positive start.
 
Even the bad news is seemingly being shrugged off.  Last night, Wells Fargo announced a 1.4 billion dollar write-down of mortgage loans.  This morning, Well Fargo stock is bid only very slightly lower.
 
There’s lots of data on the way today.  In 15 minutes, the October Durable Goods report is expected to be flat.  The September report showed a 1.7 percent decline.  At 10 o’clock, the report on October sales of existing homes is expected to decline to an annualized rate of 5 million units.  And later today, at 2 o’clock, the Federal Reserve’s Beige Book, a survey of regional economic conditions will be released.  Any significant signs of weakness in that report may trigger a market perception that short term interest rates will again come down on December 11th, which of, course, would be good news for stocks.
 
Japanese stocks traded lower overnight as the value of the yen sank against the dollar.  But outside of Australia, other overseas markets are in the green at this hour.  At this point, adjusted for fair value, the S&P futures are up almost 9 points, the Dow futures are up 63 and the NASDAQ futures are now almost 21 points above fair value.
 
November 27, 2007
 
Yesterday’s good news about retail traffic was overwhelmed in the market by a rumor that Citigroup would be cutting up to 45,000 jobs.  That sent financial stocks and the overall market into a late day tailspin.  But, this morning, it looks like there’s some bottom-fishing going on in financial stocks.
 
The Abu Dhabi Investment Authority has pumped 7½ billion dollars into Citigroup in return for some convertible bonds that pay 11 percent and will convert into an equity stake.  Abu Dhabi will end up owning not more that 4.9% of Citigroup common stock.  Here’s a thought – things must be pretty dire if Citi has to pay 11 percent on its convertible bonds.  Here’s another thought – Abu Dhabi taking an almost 5% stake in Citigroup, got its first paved road just about 47 years ago.  The world, it is a-changin’.
 
The Conference Board’s reading on November Consumer Confidence is expected to read 91 versus last month’s 95.6.  That report is due at 10 o’clock.
 
The Nikkei in Tokyo rose a half percent overnight, but most other markets overseas are lower.  The futures, which were significantly higher a couple of hours ago, have been sliding back toward even ever since. At this point, adjusted for fair value, the S&P futures are still up 6 points, the Dow futures are up 34, and the NASDAQ futures are now about 14 points above fair value.
 
November 26, 2007
 
The futures are pointing toward slightly higher stock prices this morning, but the futures are significantly weaker than they were a couple of hours ago.  Friday was an ‘up’ day for the market, and we haven’t seen two positive days in a row all month long.  It should be an interesting day.
 
Retailers had an interesting weekend, with sales up almost 5 percent from a year ago.  Today is the big Internet shopping day, with 72 million consumers expected to shop online today, up 20% from last year.  Interestingly, a third of those internet shoppers will do their shopping while at work.  I’m sure they’re just looking for a gift for the boss.
 
As you may have noticed, the price of Fannie Mae stock has been cut in half over the past seven weeks.  Freddie Mac is off about 60 percent.  This morning brokerage firm UBS is seeing something they don’t like.  UBS has taken Freddie and Fannie off the ‘buy’ list and now says that they are ‘neutral’ on both stocks.
 
Hong Kong stocks rose 4 percent overnight.  South Korea’s market also rose about 4 percent.  European markets are fairly flat.
 
At this point, adjusted for fair value, the S&P futures are up 3½  points, the Dow futures are up only a point, and the NASDAQ futures are now about 8 points above fair value.
 
November 20, 2007
 
The futures were up very strongly a couple of hours ago on some good news from Hewlett-Packard last night.  But, another shoe dropping in the mortgage market this morning has taken some stuffing out of the turkey.
 
First the good news:  H-P reported earnings that were 4 cents per share better than expected on better than expected revenue.  Hewlett Packard also raised guidance for their first fiscal quarter.
 
Unfortunately, the news from Freddie Mac this morning was less than wonderful.  A loss of $3.29 per share was a big surprise.  Freddie is writing off over a billion dollars of its portfolio, is talking about cutting its dividend in half and has hired Goldman Sachs and Lehman to figure out how to raise some cash.  The stock prices of Freddie Mae and its cousin Fannie Mae have been cut just about in half over the past 6 weeks.
 
At 8:30 we’ll get the October Housing starts.  Expect an annualized rate of 1.17 million units, down slightly from September’s 1.19.
 
Japan and Hong Kong were up a percent overnight.  European markets are mixed, but generally a little higher.
Our futures are off their earlier highs, but a still positive as we head toward 9:30.  At this point, adjusted for fair value, the S&P futures are up more than 7 points, the Dow futures are up 61, and the NASDAQ futures are now about 16 points above fair value.
 
November 19, 2007
 
The most popular Wall Street parlour game on Wall Street lately has been “guessing the >
If you own drug marker Pharmion, you’re waking up to a capital gain this morning.  Celgene is buying Pharmion at a 46 percent premium to Friday’s closing price.
 
Lowe’s reported that profit for last quarter was 2 cents higher than estimated.  However, Lowe’s lowered their profit estimate for the current quarter to about 27 cents per share, which is well below the prior expectation of 36 cents.
 
Hewlett-Packard reports after the close of trading.  Look for 82 cents per share.
 
Major overseas markets are a half to one percent lower. We have red arrows on the screen as well.  At this point, adjusted for fair value, the S&P futures are down 9 ½ points, the Dow futures are down 68, and the NASDAQ futures are now about 13 points below fair value.
 
November 16, 2007
 
Asian markets were pretty much a mess overnight on the heels of our late sell-off yesterday.  Hong Kong was off almost 4 percent and Japanese stocks lost a percent and a half. 
 
Yesterday’s CPI number came in a little hotter than traders preferred.  But perhaps the biggest psychological driver yesterday was a comment out of Wells Fargo calling the current real estate market the “worst since the Great Depression.”  The market reacts badly enough to the mention of RECESSION.  Talk of DEPRESSION is taking it up a level that we really could do without.
 
It should be a pretty quiet day for economic news as we head toward a short Holiday week.
 
At 9:15, we’ll get reports on Industrial Production and Capacity Utilization in October.  Major earnings reports are pretty much wrapped up for the wee, as well.  Only Ann Taylor and Jack-in-the-Box are on the docket.  Starbucks warned that their earnings outlook is a little frothy as foot traffic is down at Starbucks for the first time ever.
  
European markets are about a half-percent lower, but we should head higher at 9:30.  At this point, adjusted for fair value, the S&P futures are up 9 points, the Dow futures are up 61, and the NASDAQ futures are about 11 points above fair value.
 
November 15, 2007
 
You get the feeling that all the big investment banks have divvied up the days of the week so that each one has “their day” to announce the latest write-down of mortgage-related assets.  So, if today is Thursday, it must by Barclays.  2.7 billion is the hit at Barclay’s, which you could classify as smaller than many, but still bigger than a breadbox.
 
In ten minutes or so, the other inflation show will drop with the announcement of the October Consumer Price Index.  The market expects a three tenths of a percent increase in the overall inflation rate and a two percent increase in the rate excluding food and energy.  As with the yesterday’s PPI, the lower these numbers, the better.  Whether you believe that the numbers reflect the ACTUAL inflation rate is entirely another matter.
 
JC Penney made $1.03 last quarter.  That beat lowered expectations of $1.01.  However, Penney has lowered their 4th quarter outlook pretty dramatically, from around 2 dollars to a buck seventy or so, and that’s not helping the market’s tine in front of the CPI number.
 
At this point, adjusted for fair value, the S&P futures are down 3 points, the Dow futures are down 24, and the NASDAQ futures are just about 2 points below fair value.
 
November 14, 2007
 
Yesterday was certainly a breath of fresh air after the beating the stock market endured last week. The Dow up was about 2½ percent, the S&P up nearly 3 percent and the NASDAQ higher by 3½ percent. However, we’re going to need some help at 8:30 to avoid giving some back at 9:30.
 
There’s no clear consensus about another interest rate cut before the end of the year.  However, low inflation numbers would sure give the Fed additional cover if they are leaning toward another rate cut.  At 8:30 the October Producer Price Index is expected to check in at a three-tenths of a percent increase.  We’ll get the Consumer Price Index tomorrow and the lower both of those numbers, the better.
 
The latest bank to take a sub-prime mortgage hit is Britain’s HSBC.  They will write off 3.4 billion of mortgage related securities and that likely won’t be the end of that type of thing.
 
Target was the target of a broker downgrade this morning.
 
Overseas markets are higher.  Hong Kong was up almost 5 percent.  We’re standing still in front of the PPI number in ten minutes.
 
At this point, adjusted for fair value, the S&P futures are down about a half-point, the Dow futures are down 4, and the NASDAQ futures are about 6 points below fair value.
 
November 13, 2007
 
A late sell-off spoiled what was otherwise a pretty nice day for stocks yesterday.  However, there’s some good earnings news this morning that should get prices to head north at 9:30.
 
Leader of the pack is Walmart.  Last month Walmart raised their earnings guidance and projected a third quarter profit of 69 cents per share.  Well, they did a penny better than that.  That’s an 8% profit increase from a year ago.  Walmart also raised their full year forecast, which is now in a range that brackets the average analyst forecast.
 
The other side of retailing is anything related to the housing market.  Home Depot’s profit is down 27 percent from last year, as they missed estimates by a penny.  Home Depot now estimates that full year profit will drop by 11 percent.  The stock is, however, which was down earlier, is now indicated slightly higher in the pre-market,
 
Vodaphone beat estimates and raised guidance this morning.
 
Light sweet crude oil is down almost another dollar at 93.68 per barrel.
 
At this point, adjusted for fair value, the S&P futures are up almost 10 points, the Dow futures are up 79, and the NASDAQ futures are about 19 points above fair value.
 
November 12, 2007
 
The bond market is closed for Veteran’s Day, but stocks will trade.  And at this point, it looks like prices will open just slightly lower.  That, of course, is good news after what we saw last week.  The Dow lost nearly half of its gains for the year last week.  The S&P, which started the week up about 6 ½ percent, lost 60 percent of that gain.
 
This week will be relatively light on economic and earnings data, although we will get the October inflation numbers later in the week.
 
IBM is paying almost 5 billion dollars to acquire software maker Cognos at 58 dollars per share.
 
Downgrades this morning for a handful of stocks including Microsoft and HSBC.  And after E-Trade’s announcement of significant writedowns in its mortgage-related portfolio,  this morning a Citigroup analyst is questioning whether E-Trade will survive.
 
The Hang Send Index in Hong Kong lost over 1100 points overnight.  That’s almost 4 percent.  Tokyo was off 2 ½ percent, but Europe is mixed at this hour.
 
At this point, adjusted for fair value, the S&P futures are down 3½  points, the Dow futures are down 16, and the NASDAQ futures are about 2 points below fair value.
 
November 9, 2007
 
More rumors about more write-downs of mortgage related securities are putting more pressure on stock prices this morning.
 
An early morning rumor the Barclay’s was facing a 10 billion dollar writedown were denied by the bank.  However, Barclay’s would not quantify how much of a charge they ARE facing and you can bet it’s more than you and I have in our wallets.
 
Wachovia is the latest to actually announce devalued debt securities.  Wachovia says that its CDO holdings declined by over a billion dollars in October alone. The good news, if you want to look at it that way, is that they have only 680 million dollars worth left on the books.
 
A 10 o’clock, the University of Michigan’s first estimate of November Consumer Sentiment is expected in at a level of 80.  That’s would be down from October’s 80.9.
 
The bond market closes at 2 o’clock this afternoon in anticipation of the Veteran’s Day holiday Monday.  Hong Kong was flat overnight, but most other major markets overseas are off one percent or so.
 
We will head lower at the open of trading.  At this point, adjusted for fair value, the S&P futures are down about 16½ points, the Dow futures are down 127 points, and the NASDAQ futures are about 28 points below fair value.
 
November 8, 2007
 
For domestic stock prices, it’s eight sessions and counting for this one day up, one day down dance.  The pattern will continue, at least at the open this morning, as the futures are in pretty good shape.
 
Last night’s outlook from Cisco Systems for U.S. corporate spending was less than wonderful.  But most corporate reports out this morning are better than expected.
 
Ford Motor reported an operating loss of only a penny per share for last quarter.  That’s versus last year’s 45 cent loss and an expected loss of 46 cents.  Ford did book 350 million in special charges.
 
Costco same store sales were up 9 percent overall and 7 percent in U.S. stores.  Most of that increase, however, came from sales of gasoline.
 
MacDonald’s same store sales were up 6.9 percent, versus an expected 5.4 percent. 
 
Mining giant BHP Billiton has offered 110 billion dollars for another mining giant, Rio Tinto.  For its part, Rio Tinto says that that 20 percent premium is not nearly enough.
 
Major Asian markets were off 2 to 3 percent overnight.  But European markets are mixed, and although the Cisco news will weigh on the NASDAQ, we should start higher at 9:30.  At this point, adjusted for fair value, the S&P futures are up about 5 points, the Dow futures are up 73 points, but the NASDAQ futures are about 3½ points below fair value.
 
November 7, 2007
 
Stock prices have been in a one-day-up-next-day-down pattern for almost 2 weeks now.  Following the pattern, today would be a down day.  Unfortunately, stock prices may out-do themselves to the downside based on a whole lot of bad news this morning.
 
We have the dollar in melt-down mode this morning, with oil prices in bubble-up mode.  Overnight, a Chinese government official, in a prepared speech, indicated that the Chinese are losing patience with the decline in the value of the dollar and would prefer to have their massive reserves in stronger currencies.  That, of course, has the dollar under more pressure this morning, at almost $1.47 to the euro.  Not that long ago, 80 cents could have bought a euro.
 
A storm in the North Sea may have the price of light sweet crude oil at 100 bucks a barrel later today.  It’s at $97.82 right now.
 
And then there’s the storm at General Motors.  The 39 billion dollar write-down will hopefully sweep the balance sheet clean. Keep in mind, that the reason for the bulk of that write-down is a technical accounting matter.  However, even without that write-down, GM lost $2.80 per share last quarter, versus the estimated loss of 25 cents.  GM stock is looking to open 5 to 7 percent lower this morning.
 
Don’t look now, but and once of gold is up to $842 dollars this morning, and although stock futures are off their lows, they are not a pretty sight.  At this point, adjusted for fair value, the S&P futures down about 18½  points, the Dow futures are off 155 points, and the NASDAQ futures are about 21½ points below fair value.
 
November 6, 2007
 
A late day rally brought stock prices ALMOST all the way back from yesterday morning’s sell-off.  That rally should carry over to the early going today.
 
We will get earnings reports from a handful of big companies toady. Archer Daniels Midland blew away estimates for the quarter, making 71 cents per share versus the expected 59 cents.   
 
Google is also looking to open higher as a major investment firm raised its price target to 850 dollars per share.
 
Bank of America, which might know a little bit about Citigroup’s line of work, downgraded Citigroup stock this morning.  Citi’s stock was around 57 dollars at the beginning of the year.  It’s under 36 now, as B of A notices that something’s not so good.
 
Not so good is business at Beazer Homes.  They will shed 25% of their workers and stop paying dividends.  New orders are down 53% and cancellations on new homes are up 68% year-over-year.
 
Ben Bernanke is also speaking at a conference later on.  However, there’s no question-and-answer period scheduled, so it’s not likely that we’ll get any earth-shattering news there.
 
Hong Kong as up almost 2 percent after Monday’s 5% slide.  Europe is higher and that’s where we’re pointed a well. At this point, adjusted for fair value, the S&P futures up down about 4½ points, the Dow futures are 48 points higher, and the NASDAQ futures are about 14½ points above fair value.
 
November 5, 2007
 
It was no big secret late Friday that the CEO of Citigroup would be, as they say, “on the beach” by this morning.  And late Friday, traders were applauding the news by bidding the stock higher in the after-hours.  Well, this morning Chuck Prince is indeed the “prince” formerly known as “CEO.”  But the reason behind his departure has stock futures in some trouble.
 
Citigroup, which recently wrote off 6½ billion in mortgage-related securities, say now that the 55 billion that they have left are only worth maybe 44 to 47 billion dollars.  This is starting to add up to real money, and it just makes you wonder how bad the numbers are at other firms with a lot of this type of exposure, notably Merrill Lynch. Citigroup shares are looking to open more than a dollar per share lower.
 
The big scheduled event of the week will be Ben Bernanke’s testimony before the Joint Economic Committee of Congress, but that doesn’t happen until Thursday.
 
Later today, we’ll get earnings from Sun Micro, Cardinal Health and Anadarko Petroleum
 
But in the meantime, we have some selling on the way.  Hong Kong was off a whopping 5 percent overnight.  Europe is off about one percent. At this point, adjusted for fair value, the S&P futures are down about 12½ points, the Dow futures are down 84 points, and the NASDAQ futures are about 21 points below fair value.
 
November 2, 2007
 
Stock traders finally came to grips yesterday with the realization that future interest rate cuts may be few and far between.  Our losses from yesterday have spread across the globe overnight.  Japanese stocks were off about 2 percent and stocks in Hong Kong were about 3 percent lower.
 
Today, it’s all about the Unemployment Report.  In just about twelve minutes, expect the Labor Department to report that 80,000 new non-farm jobs were created in October and the unemployment rate held steady at 4.7 percent.  If the new jobs number comes in well above 80,000, most would consider it good news for potential consumer spending. 
 
A Deutche Bank analyst is out with a report this morning estimating that the big investment banks may well write of another 10 billion dollars in bad loans in the fourth quarter, with 40% of that expected to come from the beleaguered Merrill Lynch, whose stock is looking to open another 2 to 3 dollars lower this morning.
 
European markets are off about one percent.  The futures are giving us a big wait-and-see sign in front of the 8:30 Unemployment Report.  At this point, adjusted for fair value, the S&P futures are up about two points, the Dow futures are up just 2 points, and the NASDAQ futures are about 6 points above fair value.

November 1, 2007

The market got what it expected out of the Fed yesterday with a quarter point cut in the funds rate and the discount rate.  However, the Fed’s statement tapped the brakes a bit on the rate cut train.  With the Fed basically saying that the risks of inflation and recession are now “in balance,” the timing of the next rate cut, if we get one at all, is an open question.
 
Citigroup will likely open a dollar or so lower this morning.  A New York Times article this morning quoted an analyst who suspects a 30 billion dollar capital shortfall at Citi, which could endanger Citi’s better than $2 per share dividend.
 
ExxonMobil reported earnings of $1.70 versus the $1.75 expectation.  Exxon shares are looking to open 1 to 2 dollars lower.
 
The October ISM Index is due out in about 10 minutes.  We’ll also get September Income and Consumption numbers and October car sales data.
 
It’s All Saints Day, which has a handful of overseas markets closed.  However, of the markets that are trading, Asia is basically higher and Europe is mainly lower.  Our futures started lower early this morning and have been slip sliding away ever since.  At this point, adjusted for fair value, the S&P futures are down about 11½ points, the Dow futures are down 95, and the NASDAQ futures are about 12 points below fair value. 
WJR December 2007 Reports
WJR October 2007 Reports

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