Trader Talk

Today's Reality Check


Here's the reality check.

1) Futures dropped about 5 points as the ADP said 693,000 private sector jobs were lost in December, much greater than the expected loss of 515,000. However, there was a change in methodology that was designed to close the gap between the ADP report and the nonfarm payroll report.

2) After the close yesterday Alcoa announced a restructuring plan that involves another reduction in aluminum output, a reduction in the workforce by 13 percent (13,500 jobs), a 50 percent reduction in capital expenditures, and the sale of some non-core downstream businesses. Down 5 percent pre-open.

The good news is that the restructuring will result in lower costs and probably some incremental improvement in earnings in 2009 and 2010. The question is whether the cuts will be sufficient in light of very low aluminum prices. If not, they will need to cut capacity later in the year.

Most commodity stocks are trading down roughly 3 percent pre-open.

3) Oppenheimer's Meredith Whitney, in what has become a monthly series of downbeat notes, says that U.S. banks will need to raise new capital in 2009. She says there will be more credit-rating downgrades due to losses in mortgage-backed securities.

4) In another flameout, Satyam Computer Services down almost 90 percent (!) pre-open as the Chairman of the Indian computer maker has resigned after admitting he had falsely inflated profits for years. How much? Operating margin for the three months ending September 30th was reported at 24 percent; it was actually 3 percent. Indian financial institutions are trading down: ICICI Bank down nearly 11 percent, HDFC Bank down nearly 8 percent.


a) Despite the downbeat news, there's no doubt that the Street has become more bullish in the past two weeks. Today, Investors Intelligence notes that bulls are outnumbering bears for the first time since Aug 20th; in fact bullishness is at its highest level since June.

b) On the earnings front, both Family Dollar and Monsanto reported earnings above expectations; Monsanto raised its full year guidance (they have just finished their first quarter). Family Dollar up 10 percent, Monsanto up 8 percent.

c) Dow Chemical said it may miss next week's deadline to seal the takeover of Rohm & Haas  so it can raise cash without taking on too much debt. The cost of the acquisition increases by $100 million for each month delay.

    • Dec. Job Losses at 673,000, Worse Than Thought



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