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  Thursday, 11 Dec 2008 | 9:07 AM ET

Dollar Weighs On Traders

Posted By: Bob Pisani

Futures dipped a few points as jobless claims hit a 26-year high. But the big topic on trading desks is the dollar, which may be weaker on expectations the U.S. will ease interest rates next week, so commodities and some commodity stocks (notably gold) are stronger. Other commodity stocks like iron ore companies are weaker on concerns over slower global demands.

A couple companies in the industrial space confirmed a notable slowdown in the last several weeks:

1) Engine maker Cummins revised its 2008 outlook, expecting sales to increase 9 percent over 2007, compared to previous guidance of a 12 percent increase. Cummins confirmed what many companies have been seeing: a notable drop in sales in the last several weeks. Still, sales are growing, and they noted 2008 wll be the fifth consecutive year of record sales and profits.

2) Stanley Works , which has experienced "rapidly deteriorating business conditions" in its Construction and Industrial segments, is down 10 percent pre-open as they lowered earnings for the quarter. They are laying off 2,000 employees, 10 percent of the current base.

    • Jobless Claims at 26-Year High; Import Prices Fall
    • Auto Bailout Prospects Look Grim in the Senate

Elsewhere:

1) Lilly up 3 percent pre-open, even though thy provided 2009 guidance of $4.00-$4.25 (slightly below analyst estimates of $4.26, which includes the cost of the acquisition of ImClone) and reiterated 2008 guidance.

2) Boeing down 3 percent as they update the schedule for its 787 Dreamliner program. The first flights are now moved to the second quarter of 2009 and first delivery to the first quarter of 2010, which will have some impact on earnings. The machinist's strike caused some of the delay.

- The Dow 30 at a Glance
CNBC's Names in the News:

P&G

Costco

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  Wednesday, 10 Dec 2008 | 4:14 PM ET

Why The Market Is Looking More "Normal"

Posted By: Bob Pisani

The market may seem boring today, but look under the hood--something is happening. That "something" is rotation: traders are looking to buy some stocks and sectors, and sell others.

Huh? This is what they used to do, before the Lehman bankruptcy. Then it went away, as they sold everything indiscriminately. Now, normal rotation may be coming back.

Between the Lehman bankruptcy on September 15th and the market bottom on November 20th, it's amazing how little deviation there had been between techs, energy, materials, industrials, even financials--as volatile as they have been--are not far from the overall horrible performance of other sectors.

In other words, not much has outperformed or underperformed in that period. However, since the November 20th bottom, there has been the beginning of efforts to trade stocks as individual investments, rather than as a single asset class. This is very encouraging!

For example, while there was a rally in financials in early December, they have been selling off this week:

Financials this week

JP Morgan up 0.4%
PNC down 1.3%
US Bancorp down 5.7%
Regions Fin. down 6.9%

»Read more
  Wednesday, 10 Dec 2008 | 9:07 AM ET

Get Used To The Layoffs

Posted By: Bob Pisani

For at least the next couple months, we are going to have to get used to hearing companies announce job layoffs and earnings reductions.

1) Commodity producer Rio Tinto up 20 percent pre-open, laying off 14,000 globally, reducing capital expenditures, and revise production expectations for copper, iron ore and aluminum downward.

Other commodity stocks are up as well as commodities are up 2 to 4 percent this morning.

2) Praxair , the largest producer of industrial gases, is cutting 1,600 jobs and reducing its earnings guidance due to a drop in demand.

3) Kodakdown 16 percent pre-open; has withdrawn its second-half and full year 2008 guidance, but did not provide a revised forecast. They will update their guidance when they report fourth quarter earnings on January 29th.

Elsewhere:

1) Not great news on the mortgage front: the ABA said 30-year mortgages rates fell to 5.45 percent, down 2 basis points from last week (that's good news), but the big boost in purchases applications that we saw last week has largely dissipated. Purchases fell by 17.4 percent after gaining 38 percent. This will create debate that it is not the cost of money that is the issue, but there is either: 1) less willingness to buy regardless of the cost, or 2) lending standards are making it difficult to get loans. Refis, at least, were down only 0.9 percent after a 203 percent gain.

    • US Mortgage Applications Dip after Big Surge

2) The $15 billion loan (bailout, whatever) that the automakers are getting makes one thing clear: forget about developing fuel-efficient vehicles, at least for this round. The money will be used to just to keep them afloat, and the whole issue of radically redesigning vehicle platforms and improving energy efficiency is not even on the table. Yet.

3) Remember a couple weeks ago when there was a riot after toy workers in China had been laid off? China exports dropped 2.2 percent in November from a year earlier, the first monthly decline since June 20.

- The Dow 30 at a Glance

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CNBC's Names in the News:

Kodak

Yahoo

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 9 Dec 2008 | 4:07 PM ET

Bad News Keeps Hammering Markets

Posted By: Bob Pisani

How much of the bad news is priced into the stock market? The answer is, the news is still coming in a bit worse than most market participants are expecting.

Toward the close, the indestructible Wal-Mart announced that they were suspending their stock repurchase program due to the economy and credit market instability.

OK, it's not a big deal, there was only $5 billion left in the program to re-buy, and Target has already suspended their program, but it is emblematic of the problem. Dropped 2 percent quickly.

Consider also:

1) Lots of job layoffs announced in the last day (Sony, Molex,Danaher, etc.)

2) Still getting lower guidance/shrinking profits for shippers (FedEx, Con-Way), electronics (Sony, Samsung, Texas Instruments,National Semi), and manufacturers (Danaher).

FedEx the stock of the day: think the lower guidance they provided for the next two quarters, which you could drive a truck through, has been priced in? No! FedEx down 16 percent today, the biggest one-day drop since 1987.

This despite all the tailwinds FedEx has going for it:

1) Jet fuel prices way down;

2) DHL (one of its main competitors) going away.

The FedEx formula is pretty simple:

1) FedEx is a classic early cycle stock

2) If economy turns up in 2H 2009: buy FedEx NOW

3) If no upturn until 2010: no rush

Today it is looking more like 3) than 2).

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  Tuesday, 9 Dec 2008 | 12:08 PM ET

What FedEx Is Telling Us

Posted By: Bob Pisani

The good news is that the S&P remains in positive territory for the month of December (so far), and volatility is dropping. So we are seeing technical improvement: higher highs and lower lows.

The bad news is that the news flow remains poor--the question is, how much poorer than expectations will the December economic numbers be?

Look at FedEx . Everyone knows shipping is weak. The issue is this:

1) FedEx is a classic early cycle stock;

2) if you believe the economy will start turning up in the second half of 2009, you will be considering buying FedEx NOW;

3) if you believe the economic recovery is pushed into 2010, there is no urgency to buy FedEx yet.

FedEx's commentary are making a lot of the people in camp 2) move into camp 3), because they are implying that global demand is softer than expected a month ago, and getting worse, implying a longer period of bumping along the bottom than some anticipated.

- The Dow 30 at a Glance


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 9 Dec 2008 | 9:11 AM ET

Jobs: Going And Going And Going

Posted By: Bob Pisani

1)The job cuts continue, as we are now in the heart of the recession.

a) Sony said it would cut 16,000 jobs, half full-time and half part-time. That’s about 4 percent of its full time workforce. Their music players are facing tough competition from Apple and flat-screen TV sales have been declining.

Separately, Korean electronics rival Samsung said profit markets have also "vaporized" on its liquid crystal display business, and they were not sure how long the business downturn would last. They anticipate personal computer shipments slowing to single digit growth, with slower growth for handset sales as well.

b) Manufacturing is having a tough time: Danaher is cutting 1,700 jobs, about 3 percent of its workforce, and lowering earnings guidance for the quarter (to $1.03-$1.10 from $1.17$1.25)--Danaher is famous for its Craftsman line of tools.

This follows announcements of lower earnings from Illinois Tool Worksand 3M .

2) Elsewhere, lower guidance is weighing on several stocks:

a) FedEx down 10 percent pre-open, lowered guidance for the current (second) quarter, and guided lower for the full year (to $3.50-4.75 vs. prior $4.75-5.25). What would their guidance have been had oil been at $100 a barrel?

b) Trucker Con-Way guided full year earnings lower as well, to $2.20-$2.35 vs. $2.60-$2.80. They have reduced their workforce by 8 percent.

c) Texas Instruments guided revenue for the current quarter lower ($2.30-$2.50 billion vs. prior $2.83 to $3.07 billion)

d) National Semi said revenue would be down 30 percent in the following quarter (hurt by lower handset demand)

3) Super-contango: traders have noted to me that the December crude futures contract, at $43.85, is way below the cost of the December 2009 contract, at $57.63. Even accounting for carrying costs, one could make a tidy profit on this trade, which just involves buying the December 2008 contract and selling the December 2009 contract.

4) It sounds like a lot, but it isn't:

a) A Reuters poll of analysts expect the Hong Kong Hang Seng index to rise 22 percent from where it is now. (The Hang Seng is down 47 percent this year!)

b) A poll of analysts and fund managers in Japan predict the Nikkei will end 2009 up 13 percent from current levels (Thanks: the Nikkei is down 45 percent this year!)

- The Dow 30 at a Glance


Questions? Comments? tradertalk@cnbc.com

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  Monday, 8 Dec 2008 | 5:06 PM ET

Late Day Comments Help "Lower" Markets

Posted By: Bob Pisani

There was a broad rally today....four to one advancing to declining stocks, but late-day comments from Federal Express, which lowered its 2009 earnings guidance, as well as negative comments from Con-Way in the trucking space, and Texas Instruments, National Semi, and Altera in the techs are weighing on futures after the close.

Specifically:

1) FedEx lowered guidance for the current (second) quarter, and guided lower for the full year (to $3.50-4.75 vs. prior $4.75-5.25). What would their guidance have been had oil been at $100 a barrel?

2) Trucker Con-Way guided full year earnings lower as well, to $2.20-$2.35 vs. $2.60-$2.80. They have reduced their workforce by 8 percent.

3) Texas Instruments guided revenue for the current quarter lower ($2.30-$2.50 billion vs. prior $2.83 to $3.07 billion)

4) National Semi said revenue would be down 30 percent in the following quarter (hurt by lower handset demand)

5) Chip maker Altera also said sales would be down 9 to 12 percent compared to the current quarter; they are seeing slower than expected sales across all market segments--they sell to the computing, telecom, industrial and automotive industries

On the markets, the big question today was, how big will the infrastructure part of the stimulus package be? President-elect Obama made a point of saying it would be big, but how big? Some analysts said it could be as big as $130 billion.

That stimulated buying in engineering and construction stocks like Fluor. These stocks have been rallying for a couple weeks. More importantly, commodity stocks and oil service stocks--which have not rallied--staged a terrific move up today, with many up double digits.

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

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  Monday, 8 Dec 2008 | 3:09 PM ET

Infrastructure Package: Big, But Just How Big?

Posted By: Bob Pisani

The markets are doing well for the second day because the awful jobs number on Friday has convinced traders that a huge stimulus package is coming. President-elect Obama did nothing to dispel that notion over the weekend.

How big will the infrastructure stimulus plan be? There is talk it could be as much as $130 billion. How much is that? It is roughly the cost of the entire interstate highway system from its inception.

There are three components to this that are exciting investors:

1) Highway infrastructure;

2) Make public buildings more energy efficient (replace heating systems, efficient light bulbs, etc.);

3) Modernize and upgrade school buildings.

Infrastructure. Don't kid yourself: the credit crisis has stalled a lot of projects. Is there really any "shovel-ready" projects out there? The American Association of State Highway Transportation Officers (AASHTO) says there are $64 billion in ready-to-go projects already out there (interestingly, they increased this more than three-fold from $18 billion in January to $64 billion on Friday...hmm). This is big deal for companies like Granite Construction and Vulcan Materials . Here is the press release.

Modernize and upgrade school buildings, and make public buildings more energy efficient. This would be a boon to companies like Emcor , which makes power generation systems, and HVAC (heating, ventilation and air conditioning).

This is good news, but let's get real:

1) Right now, the market seems to be pricing in the most aggressive figures, which are unlikely to happen. Granite Construction, for example, is trading at 17x forward earnings already! The stock was at $30 10 trading sessions ago...It's $48 today! Think the word is out?

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  • 2) Don't exaggerate the effects of infrastructure stimulus. According to BMO Capital, spending on public infrastructure for the past year was roughly $160 billion; spending on residential construction was $645 billion.

    - The Dow 30 at a Glance

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    Questions? Comments? tradertalk@cnbc.com

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      Monday, 8 Dec 2008 | 12:17 PM ET

    Markets Rally On Stimulus Fever

    Posted By: Bob Pisani

    The awful payroll numbers on Friday finally seems to have galvanized Washington and the rest of the world--stimulus fever is now global, with additional packages in India and discussions of more in China and France.

    The infrastructure stimulus plan is pushing engineering stocks like Shaw Group and Jacobs Engineering up double-digits, and auto stocks like GM , Visteon ,TRW , and Borg Warner up double digits as well on a belief that some kind of money will be forthcoming for the Big Three shortly.

    The rally is based on the belief that both the quantity and quality of the stimulus will be such that it will be the "X Factor" that turns the economy. There is also a widespread belief that the Feds will figure out which programs work, and which don't, and that the bang for the buck will increase.

    Now, here's the bad news:

    1) Much of the success depends on the dollar remaining strong; if dollar holders start selling aggressively on the belief that the U.S. is less creditworthy, inflation will return in a big way. While reflation is a desire, inflation is not.

    2) It's not clear that the main focus of the stimulus--infrastructure--will be successful long term. It sounds right, because there is a big bang for the buck initially from jobs and commodity production. But as Peter Boockvar at Miller Tabak noted: "The Obama proposed stimulus plan focused on public works is right out of the play book of government attempts to help the economy in the 1930's and 1950's and was a main focus of the Japanese in their lost decade, it helped for a short period of time and then flamed out because there was nothing sustainable from it because there is no lasting profit being driven."

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    - The Dow 30 at a Glance


    Questions? Comments? tradertalk@cnbc.com

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      Monday, 8 Dec 2008 | 9:06 AM ET

    Stimulus, Stimulus, Stimulus

    Posted By: Bob Pisani

    Futures are trading up on hopes that the stimulus package from India, talk of a greater stimulus package from China, and President-elect Obama's talk to launch the biggest public infrastructure works project since Eisenhower will be game changers in the global slowdown.

    Commodity stocks like US Steel , Freeport-McMoran ,Alcoa and others are trading up 7 to 10 percent on the general rise in markets as well as a strong commodity market this morning.

    Financials are also trading up 4 to 7 percent.

    But we have several reminders that companies are still in the process of adjusting their expectations for 2009:

    1) 3M, which is holding an analyst meeting today, reduced it's 2008 earnings guidance by about 8 percent, and more importantly said 2009 earnings would be $4.50-$4.95, well below analyst estimates of $5.31. It's not just volume declines; differing exchange rates are also expected to have a negative impact.

    2) Illinois Tool Works, holding its annual meeting in New York, lowered their fourth quarter earnings forecast, from $0.44-$0.52 from $0.74-$0.82, reflecting "significant further weakening in North American and international end markets." Down 5 percent pre-open.

    3) Dow Chemical is laying off about 5,000 full-time employees, about 11 percent of its workforce. However, the closing of several plants will also idle about 6,000 contract workers.

    4) How strange are things? MetLife is also holding an investor meeting; they announced fourth quarter earnings would be far from analyst expectations for 2008 ($0.20 vs. expectations of a gain of $0.74) as well as 2009 ($3.60-$4.00 vs. expectations of $4.48).

      • Merrill's Thain Wants $10 Million Bonus: Report

    Still, the stock is trading up 6 percent pre-open. The only good news is that the shortfall was due to a "decline in variable investment income and the poor equity markets"; their core insurance business continued to perform well.

      • GM's Lutz: No 'Sacrificial Lambs' In Bailout

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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

    Tribune

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    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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