No. 3 - Trading Layoffs

Nothing Gets Wall Street More Excited Than Job Cuts, But Do They Work?

It's an example of Wall Street is at its coldest. A company announces layoffs and its shares surge on the promise of cost cutting and synergy. Today, a Wall Street Journal report said Citigroup (C) is set to cut 15,000 people – also today Goldman Sachs recommended Dell (DELL) computer because of a restructuring plan sure to include layoffs. While conventional wisdom says fewer employees mean fewer expenses, are lay-offs really just a sign of a desperate company?

Jeff Macke says Dell layoffs are good, but Citigroup are bad. He explains the Dell layoffs are part of an integrated plan implemented by Michael Dell who realizes his company isn’t the juggernaut it once was. Citigroup layoffs, he says are meaningless except as scape-goats for weak stock performance.

Dylan Ratigan asks if Dell, a great growth name of the 90’s, is laying off people – why are investors excited?

Jeff says it shows Dell realizes they need to address their issues and investors want to see something.

Tim Strazzini adds the reason Dell is laying-off, is to control costs. He adds the cost of building a PC and servicing it has become too expensive.

Tim thinks Citigroup will come out ahead on this because the model isn’t broken. They’re just too expensive.

Guy Adami adds revenues have grown 7% at Dell in the last two years, while operating expenses have grown 30% and head count is up 50%. Dell has to do something. On the other hand, the Citibank situation, Guy calls a fiasco.

Eric Bolling adds that instead of Dell; investors should own Hewlett-Packard (HPQ).

Questions? Comments?

Trader disclosure:
On MAR 26, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders Strazzini Owns (MER) Bolling Owns (BP), (XOM), Gold, Silver, Soybeans, is Short Corn