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Market Insider with Patti Domm Trader Talk with Bob Pisani

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  Thursday, 23 Oct 2008 | 9:34 AM ET

Commodities Still Under Pressure

Posted By: Bob Pisani

S&P futures moved about 40 points off their highs of the morning, before posting a slight rebound off the lows late in the morning. They are finishing the morning session only down slightly.

Commodity stocks continue to be under pressure pre-open (down 4%-6%), as many of the commodities are weak this morning. Among them: platinum is down 7%, copper is down 5%, and gold is down 4%. The dollar is showing strength again, with the dollar index up for the seventh day in a row.

It’s another busy earnings morning today. While several companies beat estimates in the past quarter, one thing trend was clear: companies were cautious to pessimistic on the upcoming quarter.

Some of the earnings highlights:

1) UPSbeat estimates despite lower U.S. domestic volume, which fell 3.4% in the quarter. Its international operations, which posted a 7% INCREASE in volume, along with strength in its supply chain division, helped the company’s results. With greater concerns over the U.S. economy and consumer spending, the company is guiding towards the low-end of its previously-announced $3.50-$3.70 range for the full year. Analysts are expecting full-year results of $3.57. The CEO also remarked that a U.S. economic recovery may not happen until 2010.

2) Dow Chemicalbeat estimates ($0.60 vs. $0.57 est.), as it was helped tremendously by its 22% increase in prices which offset volume declines. While the company didn’t provide guidance, it warned of a “global recession through most of 2009.”

3) Potash is up 4% pre-open following its earnings beat. Higher prices helped its Q3 results to beat both analysts’ estimates and the company’s own expectations. Despite the stock’s rise in the pre-open, keep in mind the stock is down 72% from its June high, as concerns over slower global demand have significantly plagued the company. While Potash expects strong demand to continue in the long term, it does see some risk in the near term, and guides to the low end of its previous $12-$13 EPS guidance for the full year – which may come in just slightly below the analysts’ estimate of $12.55.

4) While Black & Deckeralso beat estimates for the past quarter, it sees weaker consumer confidence and slowing global economies in the next quarter. Its guides significantly below analysts’ estimates ($0.70-$0.90 vs. $1.13 est.).

Ahead of its full earnings report next week, Sony slashed its operating profit forecast by more than half for the year. The company noted it’s not only being hurt by poor sales but also but volatile currency markets. Remember, over half of Sony’s revenues are generated outside of Japan (in Europe and the U.S.)

In other news:

The Wall Street Journal reports that Goldman Sachs intends to lay off 10% of its staff (about 3,250 job cuts) in the ongoing staff reductions across Wall Street financial firm.

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New from CNBC.com:

- The Dow 30 at a Glance

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CNBC's Names in the News:

General Motors

Amazon

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Questions? Comments? tradertalk@cnbc.com

»Read more
  Wednesday, 22 Oct 2008 | 9:08 PM ET

Trader Talk: UPS on Deck; Amazon Hit

Posted By: Bob Pisani

Australia is opening down modestly, 3.5 percent. U.S. stock futures are up.

The most important company reporting tomorrow is UPS—the good news is that falling fuel prices is gonna be a big help to them, so don’t be surprised if they beat expectations. The problem for UPS will be in Q4 guidance—don’t be surprised if it's lower than the roughly $0.96 expected due to expected lower volume. And 2009 is a big open question. The only other good news is that the stock is already reflecting considerable weakness, closing today at a historic low—remember they went public in 2003.

After the close:

1) Online retailer Amazon is also trading down about 12 percent after the close; even though earnings slightly beat expectations the company gave weak fourth quarter guidanceof $6.0-7.0 billion, below most analysts projections. CFO Tom Szkutak sounded the now-familiar refrain of "limited visibility." 43.29

2) Two big home builders continue to have problems.

After the close home builder Pulte reported a bigger loss than expected. Due to the uncertainty, they are not providing guidance for the fourth quarter. The homebuilding business worsened in the third quarter. Average selling price of their homes declined 13 percent compared to the same period a year ago. Orders were off 34 percent compared to the same period a year ago.

Pulte trading down about 10 percent to $9.50 after the close.

Rival Ryland also reported earnings below expectations—new orders declined 31 percent.

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 22 Oct 2008 | 4:53 PM ET

Commodities Help Bring New Lows For NASDAQ, S&P

Posted By: Bob Pisani

Though it was another disappointing day, note that the Dow was down 690 points at 3:40 PM ET and then rallied 170 points into the close. The S&P 500 and the NASDAQ closed at new lows.

Despite all the worries about redemptions and forced selling, volume was notably light until the last 45 minutes. It really was more of a buyers' strike as bids simply got cancelled.

That changed a bit in the last 45 minutes, as volume picked up a bit, but 6.1 billion shares for the NYSE is still moderate compared to recent activity.

The primary impetus for the weakness was a commodity selloff: the dollar strength and global slowdown concerns created a negative feedback loop.

Commodities today:

  • Oil down 7.5%
  • Copper down 9.6%
  • Gold down 5.9%
  • Corn down 6.3%

As a result, the weakest section of the market was again commodity-based stocks and commodity based countries:

  • Energy stocks: down 10.4%
  • Commodity stocks: down 7.7%
  • Brazil: down 10.0%
  • Argentina down 10.0%

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 22 Oct 2008 | 1:00 PM ET

Pension Funds A Worry With Down Market

Posted By: Bob Pisani

While the big story today is declining commodities and the global slowdown, there's some trader talk about the future impact that the lower stock market will have on funding obligations of corporate defined benefit plans--traditional pension funds.

Corporations are required to fund these pension funds at certain levels, and a lower market may require them to put up more money to cover any shortfall between what is paid out and what is taken in.

According to the Center for Retirement Research at Boston College, pension funds had a funding ratio of 90 percent prior to the crisis, meaning corporations were funding 90 percent of their obligations.

Today, the funding ratio is a more precarious 72 percent, so it is likely that many corporations will require higher contributions next year.

Two items here:

1) Lockheedlowered its 2009 guidance, partly on higher pension expenses next year;

2) The California Public Employees' Retirement System, the nation's largest public pension fund, said a decline of more than 20% in its assets since June 30 may require increased contributions to its fund, starting in July 2010 and July 2011.

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New from CNBC.com:

- The Dow 30 at a Glance

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_______________________________________
CNBC's Names in the News:

Amazon

Merck

_______________________________________


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 22 Oct 2008 | 9:06 AM ET

Japan's Market, Deflation Offset Interest Rate News

Posted By: Bob Pisani

A smattering of good news on the interest rate front, and a few good earnings reports, are being offset by a 7 percent drop in Japan's stock market, and continuing worries on deflation.

The good news is that Libor rates are again dropping. The dollar is rallying big again, this is continuing to put pressure on commodities, but the stress is also showing up in corporate profits. Kimberly Clark, for example, said that because of the dollar rally, currency will be a drag on fourth quarter sales comparison instead of a benefit.

While oil is again below $70, copper has become the poster child for the deflationary/end of speculation play. Copper is trading firmly below $2 a pound ($1.93); two months ago it was $3.50.

Speaking of commodities, BHP Billiton down 8 percent as it said "volatility and uncertainty" would continue in China.

Elsewhere:

1) On the good news front, McDonald'strading up on a terrific report ($1.05 vs. $0.98 expected), said October sales trends remain strong. Global comps were up 7.1 percent, U.S. up 4.7 percent. They appear to be taking shares from some of the casual dining places.

2) Boeingwas a bit light on earnings ($0.94, a decline of 33 percent, vs. $0.98 expected). Earnings were impacted by the ongoing machinists' strike and "supplier production challenges" on their wide-bodied planes. They cannot update how full year earnings will look due to the ongoing strike.

3) AT&T was also a bit light ($0.67 cents, ex-items, vs. $0.71 expected) revenues above expectations. Apple reported terrific iPhone sales, and that was also a big help to AT&T's wireless unit: they signed up a net 2 million more customers last quarter.

4) Wachoviahad a big loss ($2.23, vs. expectations of a gain of $0.02). To give some idea of how utterly lost the analyst community is on financials, consider that the range of 12 analyst estimates was from a loss of $0.54 to a gain of $0.53. And they still were far off, even the outliers.

  • Economic Stimulus Gets Fresh Push in Washington
  • Housing Bailout Will Be Next on Agenda
  • Australia Economy Set for Softer Landing: RBA Governor
  • More Interest Rate Cuts Seen in Australia
  • Key Lending Rates Drop in US
  • 5) Drilling giant Baker Hughes echoed Schlumberger when it said that they expect capital expenditures in North America by big oil companies to decline due to tight credit and oversupply of natural gas. They do expect spending outside of North America to continue to expand, although more modestly than recent years.

    6) Housing: MBA says mortgage rates fell to 6.28 percent from 6.47 percent; we have been moving between 6 and 6.5 percent. The bad news is that purchases fell 10.9 percent to the lowest level since October 2001.

    7) Finally, Samsung has withdrawn its offer to buy SanDisk, saying "we are no longer interested in acquiring SanDisk at $26 a share" (currently trading at $14.76). Meaning...they would buy it somewhere below $26?

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    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________

    Questions? Comments? tradertalk@cnbc.com

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      Tuesday, 21 Oct 2008 | 12:01 PM ET

    Why Today Is So Important

    Posted By: Bob Pisani

    Here is one of the more important trading days we have had in this tumultuous month. Any close that is near break even or positive would be a sign that stocks are discounting a lot of bad news.

    Today, we get generally poor guidance on 2009 and the markets do...nothing. The VIX, down 25 percent yesterday (biggest drop in years) does nothing. Dow moves in a 150-point range, it's narrowest range in weeks.

    Don't let the quiet trading fool you: beneath the turmoil the market is struggling to find new leadership. It has not yet clearly materialized, but that's because we are in an uncertain transition.

    Just because the big names--DuPont, Caterpillar, Texas Instruments, American Express, Lockheed Martin, have all been out trying to talk down 2009 in the last 24 hours doesn't mean these stocks are dead in the water.

    The markets have already discounted a doozy of a recession. AmEx was at a 10-year low, DuPont at a 13-year low, Lockheed 2 year low, Texas Instruments5 year low, get the point?

    Yes we are down, but not much, midday. Bulls will crawl out of their hole if we get anywhere near break even at the close.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________

    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Tuesday, 21 Oct 2008 | 9:07 AM ET

    Market Test--Can It Move Up On Bad Earnings?

    Posted By: Bob Pisani

    Futures are down in reaction to the poor earnings guidance we have seen from Dupont,Texas Instruments, Sandisk, and Sun Micro, among others, but the swing in the futures pre-open has been only 18 points, well below the 50-point spreads we have seen in the past few weeks.

    Overnight, three month Libor dropped below 4 percent to 3.83 percent. The dollar index rallied to a new 18 month high, which is hurting commodities again. Copper is down 5 percent this morning.

    While lower copper is good news for many industries like home builders, it is a huge problem for a firm like Freeport-McMoran, which this morning reported earnings and revenues a bit below expectations.

    They did not give guidance, but noted "significant uncertainty" about the near-term price outlook for copper and gold. Down 6 percent pre-open.

    "Significant" is an understatement. Freeport said copper prices averaged $3.49 a pound during the third quarter, dropped to $2.89 at the end of the quarter, and this morning is $2.01.

    Other than earnings, the most important event today is that the Lehman credit default swaps are supposed to be paid off--we have no idea how much was actually bought as insurance, how much as speculation, nor the exposure of the big firms.

    On earnings:

    1) Caterpillarmissed earnings, revenues above expectations, however stock is up because they reiterated 2008 full year guidance (about $6.00), however the expectations for 2009--flat with 2008--are a bit below expectations of $6.15. CEO Jim Owens said, "the timing and strength of the recovery are very uncertain."

    2) Dupont beat, but lowered guidance for the full year (to $3.25-$3.30, from $3.45-$3.55), based on weakened demand in North America and Europe, which is two-thirds of their business. Down 5 percent pre-open.

    3) MMMbeat, full year estimate is $5.40-$5.48, in line with estimates of $5.45. This was a good report given the environment, with continued growth in international operations. Up 2 percent pre-open.

    4) Lockheed-Martin beat, and their guidance for the rest of the year is above their prior guidance, but 2009 guidance is below expectations. Down 5 percent pre-open.

    4) American Express beat expectations and is trading up about 4 percent pre-open. Mastercard and Visa are both trading up in sympathy. But don't get too excited: AmEx was at a 10-year low on Thursday, so this is just a small bounce from a dramatically oversold level. Amex saw a further slowing in October and said the difficult economic environment will extend into 2009.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Monday, 20 Oct 2008 | 8:41 PM ET

    After the Close, a Series of Lowered Outlooks

    Posted By: Bob Pisani

    There was good news during the day, but several companies provided very poor guidance after the close.

    So here’s a great test of the markets: can stocks stabilize on bad news?

    Bad news after the close:

    --many companies reducing Q4, 2009 estimates

    --weak tech reports from Texas Instruments, Sandisk, and Sun Micro

    The good news:

    --credit markets improving

    --less signs of liquidation

    --buying interest perks up

    --stocks (and traders!) calmer

    Texas Instruments reported earnings and gross margins below expectations and guided lower on both revenues and earnings . Wireless is the weak link here, the CEO said he saw continued weakness in chip sales through the first quarter of 2009. New orders were "declining rapidly" in all areas. Down 6 percent after the close.

    Sandisk, which makes data storage products based on flash memory, reported a loss ($0.59) well beyond expectations (loss of $0.27) as price cuts appear to be cutting into margins. Revenue guidance for the fourth quarter is substantially below estimates. They are making substantial cuts in manufacturing investment. The company said they were still open to negotiations with Samsung.

    More from CNBC:

    Sun Micro guided revenue for their first quarter slightly below expectations ($2.95-$3.05 b vs. expectations of $3.14 b). Down 10 percent after the close.

    American Express beat expectations and is trading up about 6 percent after the close. Mastercard and Visa are both trading up in sympathy. But don't get too excited: AmEx was at a 10-year low on Thursday, so this is just a small bounce from a dramatically oversold level. Amex saw a further slowing in October and said the difficult economic environment will extend into 2009.

    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Monday, 20 Oct 2008 | 5:16 PM ET

    Volatility Continues, But Here's The Good News

    Posted By: Bob Pisani

    The bad news is that the large price swings in stocks continue, with the Dow gapping up at the open, moving in a 300 point trading range with ease.

    But the good news is that stocks — and traders — are a lot calmer, despite the price swings.

    And there's one reason for the markets slow move up today: credit markets are improving. Stock traders are noting that Libor rates continue to decline across all maturities — and in case you're wondering, stock traders have not normally paid attention to Libor, except in the last few weeks.

    For example, 3-month dollar-denominated Libor rates have dropped to 4.06 percent, down from 4.8 percent a couple weeks ago, and traders feel it will drop below 4 percent by tomorrow.

    How much calmer are the markets? Traders have begun noting the slow emergence of leadership: For the past several days, defensive names like utilities, telecom, and healthcare have outperformed, but today we saw energy come roaring back on a gutsy call from Oppenheimer to BUY OIL AND GAS STOCKS.

    Financials are lagging, but that is not agitating anyone.

    This is only the third day in the month of October the Dow and the S&P have closed up.


    Questions? Comments? tradertalk@cnbc.com

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      Monday, 20 Oct 2008 | 3:52 PM ET

    Does France's Sarkozy Seek 'State Capitalism'?

    Posted By: Bob Pisani

    Is a second Bretton Woods coming? Mr. Sarkozy, the French president, met with President Bush over the weekend. They agreed to a series of summit meetings in the next few months to discuss common strategy for the global economy, but don't kid yourself: behind that innocuous goal, Mr. Sarkozy is clearly pushing for a change in the way capitalism is practiced.

    "Those who led us to where we are today should not be allowed to so once again," Mr. Sarkozy told Mr. Bush. "This sort of capitalism is a betrayal of the sort of capitalism we believe in," he also said.

    What kind of capitalism does he believe in? A highly regulated state capitalism — and now he will be pushing for new international bodies to regulate financial institutions.

    This is likely to take two forms:

    1) a new global fund that will invest directly in financial institutions in exchange for preferred stock; and

    2) a global, likely Brussels-based regulator for all international banks, including U.S.-based.

    Proponents say that ad hoc national solutions have not worked, that in an era of globalism we need global regulation.

    Opponents say that national regulators were not effective, why would global ones be? Why not strengthen existing national regulation, in coordination with other nations?

    But the most important point is that we are now going in the other direction: having erred on the part of diffuse or too little regulation, we are now getting to the other extreme.

    Mr. Bush agreed to a series of summits, which will apparently start in November. No word on what the exact dates are, but they are likely to involve most developed and many developing countries.

    For those of you with bad memories: Bretton Woods was the 1944 meeting held in Bretton Woods, New Hampshire, that established the economic face of the post-World War II world. It set up the General Agreement on Tariffs and Trade (GATT) (later replaced by the World Trade Organization) and the International Monetary Fund, as well as the International Bank for Reconstruction and Development (IBRD).

    Out of these agreements came, among many thing, convertible currencies and the espousal of open markets, specifically lowering barriers to trade and the movement of capital.

    _______________________________________
    CNBC's Names in the News:

    - Apple - Mac Sales Leap in Sept.

    - General Motors - GM's Chrysler Juggernaut

    _______________________________________


    Questions? Comments? tradertalk@cnbc.com

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    About Trader Talk with Bob Pisani

    • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

     

    • Bob Pisani

      A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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