Trader Talk

Trader Euphoria: Giants; China Stocks; Airlines

Floor traders are in a great mood after the Giants win! Ticker tape parade tomorrow downtown; a lot of people will try to take off.

President Bush acknowledging a weaker economy will lead to higher deficits. Looking for budget deficit to double to $410 billion.

What's up with China? Shanghai Composite up 8% overnight. Speculation that the Chinese government will act to boost stocks and the economy after the worst snowstorms in decades. Chinese New Year starting early. Chinese stocks at the NYSE up about 6 percent pre-open.


1) Lots of chatter on airlines this morning.

a) Morgan Stanley upgrading airlines, saying "We are getting off of our defensive call on the U.S. airline industry"; says investors can benefit from recent momentum in a key metric: revenue per available seat mile (RASM). Much of this appears to be due to surprisingly strong numbers put up by Continental Airlines on Friday.

b) Then Calyon out with a long piece called "Airline Mergers: The Time Has Come," which states that "We anticipate the process will be led off by Delta and NWA [Northwest] proposing a combination that would be all stock." Following that will be a Continental-United deal.

2) UBS getting negative on credit card companies, cuts American Express, Capital One, and Discover to sell, based on "UBS' outlook for a consumer-led recession in 1H08, which we believe will result in higher levels of unemployment in 2008-09, the primary driver of credit losses in this space."

AmEx down 2 percent pre-open.

3) Earnings:

a) Clorox's second quarter came in stronger than expected, guidance for the full year roughly in line with expectations. They too talked about higher costs, and higher prices.

b) Wendy's came in below expectations, down about 4 percent pre-open

c) Humana beat and gave guidance for the first quarter in a very wide range, but trending above expectations.

4) We've had a V-shaped bottom led by the most beaten-up groups: financials, retailers, and homebuilders, which is clearly indicative of short covering. These kinds of rallies rarely move in one direction for very long.

On the positive side, ex-financial earnings are continuing to hold up well. Outside of financials, companies continue to beat expectations roughly two-thirds of the time.

Questions?  Comments?