Stock Market - Pre Open Report March 31st 2008

Little to report this morning that was not already discussed last night.

Merck (MRK) and Schering Plough (SGP) are being sold off heavily in pre market on the news we reported last night. Their cholesterol drugs have been reported as being a ‘flop’ in a study released yesterday.

Asian markets sold down last night, and European markets are weak also.

A report circulating throughout the trading pits this morning is that there is a reserve shortfall in some Dutch pension funds due to market developments. There is some early strength in ’safe haven’ bond futures and gold on this news.

Stock Market - Pre Open Report for March 20th 2008

The headline (so far) for the morning is the weekly jobless claims here in the United States.

 

INITIAL JOBLESS CLAIMS: 378K V 360K ESTIMATED; CONTINUING CLAIMS: 2.865M V 2.840ME

 

The weekly claims trend continues upward and more importantly the continuing claims number has also continued to grow. It is always continuing claims that is key in that it shows how many of those already on unemployment are finding jobs. With continuing jobless claims still rising is tells us that people who are already on unemployment are not finding work, so as new unemployment claims hit the system it grows the total unemployment levels.

There is also a rise in Government employment job cuts. Local news media has been covering stories of cities and towns facing budget problems and having to reduce their payrolls. Government jobs had been one of the largest growth areas in the late 1990’s, but this sector is also facing financial troubles and are forced to cut jobs at many levels, from police officers to maintenance workers.

Borders Books (BGP) has suspended their dividend payments and is trying to find a buyer for their business. Borders had found itself in a liquidity problem and has received some cash Pershing Square Capital Management to keep them going while they look for strategic alternatives.

Federal Express (FDX) reported a 6% decline in profit margins and said that they are likely to have limited growth next year. They blamed in part, that rising fuel costs have forced customers to find cheaper shipping methods. While that may be true we see things slightly different, we see the loss in shipping revenues as a direct result of business spending cutbacks as companies are having fewer customers and less business in which needs shipping services. Also, the pullback in the consumer spending also has an impact on the shippers.

Citigroup (C) has said more layoffs will be coming. Reports are for 2,000 job cuts by next week.

Futures have fallen off on the jobless claims and Federal Express earnings. At 10:00 am we will have another economic bit of data as we will see what the Philadelphia Fed index of economic activity looks like. In previous months it had been deteriorating so many will be looking to see how this months data comes in.

Stock Market - Pre Open Report for March 18th 2008

Producer Price Index (PPI) data reveals inflation still rising…

 

FEB U.S. PPI TABLE
Table Of PPI Data From Labor Department, In Percent Changes

                                             FEB.     JAN.     DEC.

PPI, Finished Goods           0.3      1.0     -0.3
PPI, Ex. Food, Energy         0.5      0.4      0.2
Energy                                    0.8      1.5     -3.0
Foods                                   -0.5      1.7      1.4
Consumer Goods                0.3      1.1     -0.4
Residential Electricity       -0.4     -1.2      0.6
Residential Gas                 5.7      0.7     -1.5
Gasoline                             2.9      2.9     -7.6
Home Heating Oil            -3.7      8.5     -0.3
Drugs                                  1.3      1.5      0.4
Autos                                  0.8      0.3     -0.5
Tobacco                              0.1     -0.1      0.6
Capital Equipment             0.5      0.4      0.1
Intermediate Goods            0.8      1.4     -0.2
Ex, Food, Energy               0.6      0.8      0.0
Crude Goods                     3.7      2.5      1.1
Ex. Food, Energy              3.3      4.0      0.2

 

Goldman Sachs (GS) and Lehman (LEH) reported earnings and each has reported a ‘better than expected’. Oh goodie, the crisis is over (if you listen to the talking heads). No need for any rate cuts now… LOL

Today is a wait and watch day. 2:15pm is when we find out what the Federal Reserve will do. I can’t remember a time when the market has been so convinced that the Federal reserve will cut the Fed Funds rate by so much and with so much confidence it will happen. Makes me think of a ’sell the news’ once it happens, if it happens.

Stock Market - Pre Open Report for MArch 12th 2008

Yesterday’s market rally has appeared to quickly run adrift. When the news from the Federal Reserve was issued yesterday the US dollar quickly gained some upside moves. But overnight the dollar headed back down again. If we use the US dollar as a measure of confidence in the US economy then we can safely say this morning that confidence quickly wore out after yesterday’s excitement.

The health care sector is being hit hard today as the rising cost of health costs are actually hurting the earnings of the major health insurance companies. So why the surprise drop in earnings of the health insurance companies? Loss of jobs and the subsequent loss of insurance premiums and what is very concerning is that people are actually putting off some of their health needs in order to pay other bills.

Housing market problems… best to just let the CEO of Freddie Mac speak for us this morning:

Freddie Mac CEO: We are in a 100-year storm in the housing market; "Worst housing market in a century" the CEO said at an analyst meeting.

- Says home price drops are only about one-third over.

The number of mortgage applications have rolled back over and are back on a negative trail.

MBA MORTGAGE APPLICATIONS W/E MAR 7TH: -1.9% V +3.0% PRIOR
- Refinance  -4.7% to 2448.2

Stock Market - Pre Open Report March 6th 2008

The weekly jobless claims have been reported and the number for this week is 351K, continuing claims 2.831 Million. While the weekly number dropped a small amount with respect to last week, the continuing claims data continues to grow. Continuing claims is what is looked at for signs of the total employment levels of the United States. The market is viewing this data negatively as the employment situation is not showing any signs of improvement.

Monthly same-store sales data has been rolling in this morning from many of the retailers in the US.  If you only listen to the media you would take away that things are improving. But for those of us that are "thinking" analysts we see things differently. The trend is showing us that higher end retail stores are suffering more than the discount chains. Wal-Mart (WMT) reported a February same-store sales value of +2.6%. Now remember that these numbers are always relative, not an absolute. Sales relative to the previous month may have increased but it is far lower than previous revenues and sales. Be that as it may we see Wal-Marts increase as the sign that more of the middle class are shopping at the discount stores, such as Wal-Mart as the cost of living continues to increase. The more prestigious names are showing generally flat to even worse sales data. JC Penny (JCP) and  Nordstrom (JWN) are examples of higher end retail stores that are declining. And Macy’s (M) has decided to stop reporting sales data altogether which is highly unusual in the retail business. The consumer is still contracting and is shopping more at discount chains over the higher luxury stores.

Credit markets are under more stress this morning.

THE WSJ IS REPORTING THAT THE CARLYLE CAPITAL UNIT HAS RECEIVED A NOTICE OF DEFAULT FROM ONE OF THE BANKS THAT HELPS FINANCE ITS PORTFOLIO OF FREDDIE MAC AND FANNIE MAE SECURITIES THROUGH SHORT-TERM REPURCHASE AGREEMENTS.

The European Central Bank and the Bank of England left their interest rates unchanged. The Europeans are smart, they see the risks of inflation while our Federal Reserve continues to rub dirt into an open wound.

Stock Market - Pre Open Report March 5th 2008

Once again CNBC has gone on the air and said that "a deal is near". Just as in the previous news leaks this news is being reported as someone "familiar with the situation". CNBC reports that the ‘deal’ may be announced today. And on this news futures took a spike upwards.

Oops, then reality hit. ADP jobs data (ADP attempts to preview the official Government unemployment data) came in significantly lower than expected suggesting a rise in unemployment. Then we received the non farm productivity final report. The shock in this data was unit labor costs, which was revised upwards to now be 2.6%. A rise in labor costs is yet one more sign of inflation.

So we have two bits of data this morning.. on one hand the ADP data suggests recession and gives the market added hopes again of big rate cuts coming. Then the next bit of data shows inflation peeking its ugly head again and this takes wind out of the rate cut idea. So the market is confused this morning.

At 10:00am  we receive the non manufacturing ISM data. In many aspects this data is more important than the manufacturing index as the United States is a country that is no longer a manufacturing super power. We are a service provide nation now as manufacturing has mostly gone to other countries. The ISM data we get at 10:00am reflects the business conditions for the majority of the business’s in the United States. So watch for some market moving events when this data is issued.

Futures started falling after the ADP data and the revised unit labor cost data was released. The market is still pricing in a Federal Reserve rate cut of 75 basis points on March 18th. If the market does not get what it wants watch for a significant selling event. Even if it does get a 75 point cut we could still be in for more significant downside moves as inflationary pressures will rise once again.

The Federal Reserve is aware that the credit markets in this country are falling apart at the seems, oh what is the Federal Reserve to do? Well, they can raise the white flag and signal that the problem is out of their control now. As Ben Bernanke said to the banking industry yesterday he is asking the banks to help the country by reducing principal on loans for homeowners who are close to foreclosure. Now there is an idea, I’ll stop paying my mortgage and let the banks reduce my principal so that they can keep my mortgage from going into foreclosure. What a stupid thing for the Federal Reserve chairman to say. Now you will have people who are financially healthy and making payments suddenly "slipping on their mortgage payments" in order to negotiate a lower principal with their banks.

Reading between the lines of the Fed speak lately provides us with two possibilities.

1. The Federal Reserve is warning the markets to not get their hopes up on a 75 basis point rate cut

2. The Federal Reserve has played all of their cards and are left with no more solutions. In other words, your on your own now.

Will the banking industry step up to the challenge and save the credit implosion? Don’t bet your house on it! The banks would rather hold out and wait for a Government bail out.

Two charts that I owe one of our readers:

SRS:

 

 

 

 

 

 

 

 

 

 

TWM:

Stock Market - Pre Open Report for March 4th 2008

Futures are pointing to another lower opening. Events driving this mornings futures is the revision to the gross margins from Intel (INTC) in which they have called for a lower margins due to increasingly lower prices on memory devices, mostly due to a lower demand in these products.

Redbook Retail sales data for February was down 1.7% v January

Thornburg Mortgage (TMA) is in some serious trouble as they have been running into trouble with margin calls, additionally the company’s CEO said that they were not sure if they would be able to satisfy their lenders requirements by selling portfolio securities.

Clearwire (CLWR) missed earnings significantly this morning (-1.98 v 1.01e) and lowered forward guidance significantly

BMO Capital markets (BMO) misses estimates and does not see being able to meet fiscal year earnings targets.

Citigroup (C) is in trouble again. Claims of more layoffs from the company and of additional significant losses coming down the road.

Fremont General Corp (FMT) has announced receipt of notice of covenant default with respect to guaranties issued. This is essentially the ‘nail in the coffin’ for this company.

Intel and Citigroup are the ’surprise’ issues for today, couple this with the other weak earnings and data coming in this morning and we are looking for another lower opening.

Stock Market - Pre Open Report for February 27th 2008

The big even in the overnight hours was the continued decline of the US Dollar. At 4:07am (US EST) the US Dollar hit a new low of $74.22. Since that time corporate events have continued to deteriorate the pre market futures. The biggest is the earnings from Fannie Mae (FNM) released a short time ago (see Lisa’s post earlier). Also we have bad news on the biotechnology front with Amgen (AMGN) and Johnson & Johnson (JNJ) having received data that one of their prize drugs used to treat anemia may be increasing the risk of blood clots and even death.

This morning we received the Durable Goods Orders data (Durable goods are industrial products with an expected life of one year or more. They include intermediate goods, such as steel, lumber and electronic components; finished industrial machinery and equipment; and finished consumer durable goods, such as furniture, autos and TVs.). The data this morning showed a decline of 5.3% for January. We have been watching this data over the past year and we identified the down ward trend long ago, this new data adds to the trend down ward (chart will be in tonight’s commentary).

At 10:00am we will also get the Mass Layoffs data, this data, which is usually not talked about much in the media is tracked by us as it provides an early look into the unemployment rate.

And Ben Bernanke will be talking today as well… grab some coffee and a bag of pop corn for the show.

Stock Market - Pre Open Report for February 21st 2008

Pre market futures were up and on the Dow had hit resistance. Those futures have since pulled back of the highs. The weekly jobless claims data came in and for us there was no surprises, the average of jobless claims continues to rise and the continuing claims index is also still moving upwards. Confirmations of a still deteriorating employment picture.

The chart below is the current daily chart for the Dow Jones Industrial Average. The blue circle is where we took our short position on the Dow by purchasing the Ultrashort DXD. Today is setting up to be a day of indecision. We’re holding our short position.

 

 

 

 

 

 

 

 

 

 

Daily Chart: Dow Jones Industrial Average

 

Stock Market - Pre Open Report for February 19th 2008

Pre Market futures are up, but from what I am seeing thus far is that the advance in the futures is on weak volume. Not seeing a bullish rally here based on what I see so far and I would not be surprised to see the rally, if this is what it turns into to be faded quickly.

We are still short on the DOW by being in the Ultrashort symbol: DXD. See our post from February 13th for details of our trade. We are sticking with this plan and are using our entry price as our stop loss should any rally attempt try to take out that resistance level. However, this does not change our longer term view and we will quickly re-enter this short position of the DOW by taking a stand at the next resistance level.

There is not much of any substance this morning to justify the advance in the pre market futures. Wal-Mart had reported earnings this morning and were basically in-line with what they said they would have last quarter, no big surprise. And more importantly nothing great with respect to forward guidance. Wal-Mart earnings shown below…

REPORTS Q4 $1.04 (EX CHARGES) V $1.02E, R $106.3B V $106.8BE; GUIDES AT THE LOW END OF ESTIMATES
- Guides Q1 EPS $0.70-0.74 v $0.74e.
- Guides FY09 EPS $3.30-3.43 v $3.43e.
- Reports Q4 SSS ex-fuel +1.6%
- EPS items (+0.02 net add) included charges of $0.03 for approximately $70M in after-tax expenses for dropped U.S. real estate projects and an after-tax restructuring charge of $32M in the Company’s Japan operations, and a $0.01 benefit from the recognition of approximately $38M in after-tax gains from the sale of certain real estate properties.
- Customers more cautious in January spending

Anyone who views these numbers as being bullish may be in for a surprise down the road. Some say that if you build a better mouse trap customers will come, perhaps retails establishments are finding a way to create a better "bull trap". We shall see.

Bond insurers are yet again the topic De Jour. The CEO of MBIA has quit his position over the weekend and replaced with a former CEO, NY Insurance Commissioner Eric Dinallo is making statements that he hopes a resolution will be implemented soon. And on the rumor mill MBIA is believed to be working on a plan to divide the company into two parts, the good stuff, and the poison. Will this satisfy the ratings agencies? Can’t say… But if I were working at Moody’s or S&P it would not impress me.

So at this moment we are anticipating a higher open out of the gate. Lisa and I will be watching volume levels on the upside and downside throughout the day for clues into the strength, or lack thereof in today’s actions.

Oil is now approaching near $100 US dollars yet again and Gold is on another bullish rally upwards. A bit if a strange combination but with oil rising again this will only add to fuel costs in the near term and we will shortly be seeing higher gas prices yet again. Oil breaking $100 a barrel will send bulls into a slight shock as they reevaluate their positions given the circumstances of increasing commodity prices. Inflation is alive and well in the United States.

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