Trader Talk

In Need of Some Direction


Futures all over the map this morning: They popped to their highs of the morning, and have since come down, as the final numbers for second quarter GDP came in better than expected (decline of 0.7 percent vs. expectations of a decline of 1.2 percent).

Futures had rallied modestly overnight as the dollar again resumed its downward trend, then dropped when the ADP report indicated that 254,000 jobs were lost in September, more than the 200,000 loss expected. Still, it was the smallest decline since July 2008.


1) Darden , owner of Red Lobster, Olive Garden and Capital Grille restaurants, down about 5 percent pre-open. Though they beat earnings estimates by a penny, revenues were weak. They are maintaining guidance of $2.59-$2.85 vs. consensus of $2.80, while same store sales guidance is a bit lower than expected.

2) IPO postponed: We have noted the poor reception which real estate investment trust (REIT) IPOs have received in the last week. Last night Ladder Capital Realty Finance (LCG) indefinitely postponed its IPO. It was looking to price 20 million shares at $20.

3) Nike rises 6 percent after Q1 earnings topped estimates ($1.04 vs. $0.97 est.) as cost cuts and better inventory controls continued to help.

Despite the earnings beat, sales were weak around the world, even when excluding negative currency impact: North America down 5 percent, Western Europe down 8 percent, Central and Eastern Europe down 23 percent, China down 17 percent, Japan down 10 percent. The apparel and footwear maker also sees worldwide futures orders for the current quarter to fall 6 percent from last year's levels.

Goldman Sachs also upgrades the stock to 'buy" on a optimism over improved basketball shoe sales and expectations of positive effects from the upcoming World Cup soccer tournament.

4) Micron is down 2 percent despite posting a smaller-than-expected Q4 loss (loss of $0.10 vs. loss of $0.18 est.). CEO Steve Appleton noted that "the market, while still challenging, is beginning to improve."

One encouraging sign for the chipmaker: sales of DRAM were up 28 percent amid stronger volumes and higher prices. Meanwhile, sales of flash memory also rose 10 percent, but that was due to a 23 percent rise in volumes which offset an 11 percent fall in prices.

5) Cash for clunkers redux: the expiration of the first time home buyer tax credit in November may be having the same effect on home sales that the cash for clunkers program had on car sales after it expired. The Mortgage Bankers Association (MBA) said applications for mortgages to buy homes fell 6.2 percent last week to a 7 week low, despite the fact that the average 30-year mortgage rate fell to a 4 month low.

6) With one day left in the quarter the S&P 500 is up 15.3 percent, exactly mimicking the 15.2 percent gain in the second quarter, the first back to back gains since 2007. Still, it was the best quarter in almost 11 years. Once again financials lead the gains (25 percent) followed closely by industrials (22 percent) and materials (22 percent).

7) Workers, produce more! No, wait! Stop producing! China announced plans to curb overcapacity. The State Council is simply dictating that certain industries (steel, cement, plate glass, etc.) must cut production. No new aluminum smelters, no new steel plants. _____________________________


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