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September 23, 2005
Alcoa is one of the first companies to report earnings each quarter. So it’s only appropriate that Alcoa today became one of the first to warn that hurricanes and energy prices are going to put a big squeeze on third quarter earnings. Expect a parade of earnings warnings during the next three weeks from just about everyone except, of course the oil and oil service companies.
Don’t be too gleeful if you own stock in one of those big oil companies. Methinks one big windfall profits tax is right around the corner when the weather calms down.
Goodyear will scale back operations and try to cut costs by up to a billion bucks by 2008. They’ll take about $200 million in charges to restructure things.
There’s nothing much on the economic calendar today, so fill up your gas tank and get ready for higher gas prices and another weekend full of damage reports.
September 21, 2005
For some reason, traders held on to hope that the Federal Reserve Open Market Committee would give us a break from rising short term interest rates. When that hope disappeared at 2:15 yesterday, so did our little market rally, as prices spiraled downward into the close. We did see a little crack in the armor – for the first time in recent memory, the Committee’s vote wasn’t unanimous – there was one dissenting vote out of ten. However, the probability of the short term rate going from its current 3 ¾ to over 4 percent by the end of the year has definitely gone up.
But today’s another day. Unfortunately, speaking of the number 4, Rita is now another Category 4 hurricane, and it may become a Category 5 before it makes landfall. Current projections have it landing early Saturday morning near Houston, which is home to about 16% of domestic oil production. On that less-than-pleasant thought, light sweet crude is up $1.60 to $67.80 per barrel, and that will pressure stock prices at the open.
Earnings estimates going are up for home builder Lennar and Federal Express this morning.
September 20, 2005
Yesterday was an ugly day for most stocks. Yet, it taught us yet another lesson in the benefits of diversification. A lot of market sectors did very well, and if you were invested in them, you made some dough. For instance, the price of oil rose more yesterday than any previous day in history, up $4.39 per barrel as traders went nuts in anticipation of another big hurricane. Hand in hand with that, Exxon stock rose almost a dollar per share, and the market capitalization of Exxon is now over $400 billion.
Japanese stocks hit a four-year high overnight, the Hang Seng in Hong Kong was up 260 points, that’s close to 2 percent, and the price of gold is at an 18 year high. So, while we can’t do much about hurricanes, we can make sure our portfolios are diversified well enough to handle their effects.
Hurricane Greenspan and his band of troublemakers will likely announce another hike in short term interest rates at 2:15 this afternoon. Expect them to thumb their collective nose at Katrina’s impact and issue the same memo for the eleventh consecutive time.
September 19, 2005
Looking at the stock market this week is a little like watching your teenaged daughter leave the house on her first date. All you can seem to think about are the bad things that could happen.
Today, it’s political uncertainty in Germany after the Christian Democratic Union won a razor-thin victory yesterday, but far less than they needed to put together an effective ruling coalition.
Tomorrow, short term interest rates will likely be raised another quarter, and maybe even a half percent, to head off what the Federal Reserve perceives as a budding inflation threat.
Later in the week, soon-to-be Hurricane Rita will begin churning through the Gulf of Mexico. Current projections have it heading due west to the Texas-Mexico border. However, any unexpected turn to the north – well, let’s not even talk about it.
Put those happy thoughts on top of a miserable Consumer Confidence number out of U of M last Friday, crude oil prices up a buck and a quarter per barrel and a rare brokerage house downgrade of Ebay this morning, and we’ll be heading lower at 9:30.
September 16, 2005
A major investment bank and broker, who shall within this report go unnamed, is out with one of those timely pieces of investment advice that makes you glad you paid the big bucks. They are now saying that you should underweight Northwest Airlines stock in your portfolio. As of yesterday, they had Northwest as an OVERweight. Of course if you do sell your Northwest stock this morning, you’ll get something in the area of 88 cents per share. The stock was around 11 dollars per share at the beginning of this year.
BP and ExxonMobil both getting upgrades from a different broker this morning.
At 9:45 the University of Michigan will release the preliminary reading on September Consumer Confidence. Expect the index to slump to a reading of 85, as reaction Hurricane Katrina starts to sink into the American psyche. That would be down from 89.1 in August.
Stocks in Europe are up at this hour. The DAX index in Germany is up almost a percent and a half on hopes that a new reform-oriented Chancellor will be elected there Sunday.
September 15, 2005
As of this morning, four of the seven major U.S. Airlines are flying under the clouds of bankruptcy protection, after Northwest and Delta chose that flight path yesterday. Northwest says, “Don’t worry about your frequent flyer miles.” They will evidently be honored. Of course if you are a pilot about to retire to a handsome pension – well, let’s hope you have been getting frequent flyer miles at work.
This morning’s report on weekly jobless claims will be very interesting, but not very meaningful. We know that Hurricane Katrina put somewhere around 400,000 people out of work. Just how many of those people reported in to their local unemployment office, that’s assuming that there still WAS a local unemployment office, that’s the big unknown. So the number, which will be announced at 8:30 will be somewhere between 300,000 and 800,000. We’ll also get the pre-hurricane CPI number for August. Expect a half percent overall and a 2 tenths of a percent increase in the core rate.
September 14, 2005
Yesterday must have been Chapter 10, because the rumor is that today may be Chapter 11 for Delta Airlines, and possibly even Northwest, although that is considered less likely. Whether today is the day or not, you can bet that our future will feature fewer of the legacy airlines, and possibly higher airfares for all of us.
Retail sales are expected to have dipped 1.4 percent in August. But, if you exclude auto, a half-percent rise is expected. We’ll find out in ten minutes.
Once again, it is a day to watch the price of oil. The weekly inventory data is due at 10:30 and is expected to show significant drawdowns in crude oil, gas and distillates. In front of that data, light sweet crude in up nearly a half-buck per barrel and that rising price of oil has had the futures in retreat all morning long. Fortunately, we had been looking for a big rally earlier, so at this point, the market open doesn’t look too bad.
September 13, 2005
Last week’s bidding war turned into this week’s sale. Ford will unload its Hertz rental car business, which incidentally made almost a half-billion dollars in 2004, in order to focus its energies on how to make money by actually selling cars. Ford will net about 5 ½ billion dollars out of the deal, while moving 10 billion of debt off the balance sheet.
Nokia is evidently selling a lot more phones at a lot higher price points than expected. They raised their revenue estimate for the quarter and now say that their profit will be about 20 percent higher than their previous forecast. Nokia is looking to open about 4 percent higher.
It will be an ugly morning for the shares of Best Buy, which missed their sales and earnings numbers and guided lower for the third quarter.
In a week, Alan Greenspan’s bunch gets together again, and looking forward to that, we could use some good inflation news from the Producer Price Index this morning at 8:30. Expect the top line number to come in at 8 tenths of a percent, due to the spike in energy prices. The core number is expected only to have risen about one tenth of one percent.
September 12, 2005
If you use your car for business purposes, and claim your expenses for tax purposes using the cent-per-mile method, there’s a little good news this morning. Recognizing that flying to work may soon become cheaper than driving, the IRS has adjusted the amount per mile that you can claim for tax purposes. This amount rarely gets adjusted mid-year. However, your business miles driven from September 1 through the end of the year will now be allowed at 48 ½ cents per mile. The old rate was 40 ½ cents.
A couple of big mergers this morning. One makes obvious sense, and the other is really intriguing. Oracle is buying Seibel Systems for almost 6 billion, or about 3 ½ billion if you adjust for the cash Seibel has piled up. The more interesting deal is Ebay buying the internet-phone company Skype.
Skype was started less than 3 years ago. Ebay is buying it for at least 2.6 billion and maybe up to 4.1 billion including performance bonuses. The idea is that buyers and sellers can talk to each other when they negotiate. Now, why didn’t we think of THAT 2 ½ years ago?
September 9, 2005
It will be a quiet end to a short week for economic news. There was plenty of news out of computer semiconductor companies late yesterday, and the news was pretty good. Texas Instruments raised their sales and earnings guidance for the 3rd quarter. Strong Asian demand should push total quarterly revenue to over 3 ½ billion and earnings to 37 cents per share. Gross margins are also expected to improve to about 47%. Intel also raised its revenue forecast on strong laptop sales. Texas Instuments is indicated up 1.7% in the pre-market. Intel is looking to lose about 19 cents per share.
For all the devastation in New Orleans, Katrina did a lot of damage offshore as well. Oil production in the Gulf of Mexico is now just about 1/3 of what it averaged during the first half of the year. British Petroleum’s massive Mars platform is now not expected to be back online before 2006.
GM will end its current “everybody’s an employee” discount program at the end of September, no doubt to be replaced with another incentive program deftly designed to move the industry away from incentive programs. If dividends are an incentive to you, don’t look to Delphi. That 1.3% yield has now been eliminated.
September 8, 2005
Ford is reportedly close to ridding itself of about 10 billion dollars of debt along with its Hertz rental car unit. Ford could also get up to 6 billion dollars in much needed cash.
Another big deal could be cooking this morning. Ebay is reportedly about to go after Skype, the voice-over-the-internet company. Estimates of the price tag there range from 2 to 5 billion dollars.
A little later this morning, we’ll find out just how much Hurricane Katrina has impacted gasoline and crude oil inventories in the U.S. A big drawdown of both is expected and the price of light sweet crude, which has dropped about 6 bucks in the past few days, is up about half a dollar this morning at just under 65 dollars.
In a speech yesterday, Chicago Federal Reserve President Michael Moskow threw a big bucket of cold water on hopes that the Fed will stop hiking rates due to the hurricane. He said that the impact of Katrina may in fact be IN-flationary.
September 7, 2005
It’s a week now since the full impact of Hurricane Katrina started to become apparent in New Orleans. Since then, the stock market is up and price of crude oil is down. So why are we paying exactly $2.99 or more for unleaded? The same reason everyone else may be paying 20 percent more for steel soon. According to the Wall Street Journal, disruption in the supply of raw materials necessary for the production of steel will push price up until the shipping lanes can re-open. Unfortunately for the auto companies, the steel companies don’t have an “everyone-gets-the-employee-price” program.
And just in case you were thinking that GM and Ford were just having too easy of a go of it, Standard & Poors is talking about another debt downgrade this morning, saying that they are “nervous” about their prospects.
Albertson’s is out with a disappointing earnings report this morning and they are making noises about “unlocking the value” of their real estate assets. That kind of talk, if you remember, was last heard out of Kmart.
September 6, 2005
The Wall Street data mill will ease back in for a short trading week. The only economic indicator due out today will be the results of the ISM non-manufacturing survey. It’s expected that the services industries expanded in August, but at a slower rate that in July. Expect a reading of 59 ½ .
But if you’re looking for news that will move stock prices, well, once again, it’s all about the oil. This morning, the news is good. Japan will be releasing oil from their strategic reserve. Valero and Marathon each have a refinery that was put offline by Hurricane Katrina. Word is that both will be back online by mid-week. So, although natural gas prices are up again this morning, the price of light sweet crude oil is below 67 bucks and the unleaded gasoline futures are down as well. Those factors have the stock index futures dancing this morning.
Watch out, though for the airlines. As the price of jet fuel rises, Chapter 11 is creeping closer and closer to the weaker carriers.
Asia was down overnight , but Europe is up. Adjusted for fair value, it looks like the S&P could rise about 6 points, the Dow more than 50 and Nasdaq futures by over 9 points.
September 2, 2005
It’s the Friday before a summer holiday weekend and it will be a nice day in New York, so trading should tail off a good bit this afternoon.
In front of that, of course, debate will continue about the long-term impact of Hurricane Katrina. Light sweet crude is down 30 cents, but is still over 69 dollars a barrel. Unleaded gasoline prices are down about 6 cents at this hour, but are still indicating that the retail price should continue well above the 3 dollar level. The LOOP, the Louisiana Offshore Oil Platform is again open this morning and unloading crude oil, but is operating at far from full capacity.
In ten minutes we’ll get the only major economic news on the docket for today. That would be the August Jobs Report. Expect an increase of 190,000 new non-farm jobs, which would be down a bit from last month. The unemployment rate is expected to hold steady at 5 percent, and workers’ average hourly earnings are expected to have risen two-tenths of one percent.
The futures are close enough to fair value that it looks like the Jobs Report at 8:30 will tell us which way the markets will open. At this point, S&P and Nasdaq futures are both within a point of fair value, and the Dow futures are up about 13 points.
September 1, 2005
The good news this morning is that crude oil prices are stable. The bad news, if you happen to own a car, is that unleaded gas futures are up another 5 ½ percent or so. You can buy all the oil you want, but until the refining capacity is back up to speed, the price of the stuff you put in your tank will likely keep rising.
Sales at Costco keep rising. Same store sales were up 9 percent in August. Walmart was up 3.3 percent. Limited Brands sales were down 3 percent.
Lots of economic data is on the way today including the weekly jobless claims number, personal income and expenditure numbers and the July car sales reports. The most interesting report may be the ISM Manufacturing Index at 10 o’clock. Yesterday, the NAPM Chicago Index fell dramatically and unexpectedly. While the two surveys are far from identical, it will be interesting to see if the ISM reflects a significant weakening in the manufacturing sector’s recent expansion. The consensus estimate is 57, with anything above 50 reflecting expansion. Yesterday’s NAPM came in at 49 versus an expected 62.
Overseas markets are up across the board this morning, with the Hang Seng Index in Hong Kong up over 1.6 percent. Out futures have improved, and are indicating a slightly higher open at this point. Adjusted for fair value, S&P futures are up a point, the Dow futures are up 4, and the NASDAQ futures are almost 2 points above fair value.
Daily Reports @ WJR
For an explanation of "fair value" please click here.