How Bad Is It? Even Liquor Sales Are Down

Historically, the first day of the third quarter is an up day, but we are starting on a down note. Housing numbers are weak in the U.K., so the FTSE is down nearly 3 percent and sitting near a 52-week low.

Traders are scanning the horizon for some kind of bottom--some kind of selling climax, but it is not immediately obvious what that will be.


1) The rest of Europe is weak as well, as UBS is down 5 percent after announcing a management restructuring, including the elimination of the Chairman position and a stronger role for the board of directors. Four board members are resigning; replacements will be elected in October. Remember UBS recently issued over $15 billion on a major rights issue; the stock is now trading below even that deeply discounted price. UBS, which was close to $60 13 months ago, has just broke below $19.

2) Morgan Stanley out late last night with positive comments on Lehman--"Bruised, Not Broken – and Poised for Profitability" was the title of the piece. They initiate coverage with an Overweight rating and a $31 price target. "We think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing."

3) Auto sales, out later in the day, are also likely to be difficult, as Toyota may pass GM as the largest auto manufacturer and total numbers are expected to be down some 15 percent compared to June of last year; the numbers are likely to be well below 15 m annual sales projected just a couple months ago, somewhere in the range of 12-13 m.

4) How bad is it? People aren't even drinking as much, for cryin' out loud. Fortune Brands is down 6 percent after lowering their earnings guidance for Q2 and the full year--yes that Fortune Brands that owns liquor (Jim Beam, Maker's Mark, Canadian Club, Sauza, Courvoisier), golf equipment (Titleist, Cobra), and home products (Moen, MasterBrand cabinets).

OK, it's not surprising the home products division was weak--but a lot of traders were assuming the spirits division would hold up reasonably well--they had been doing well convincing the world to trade up to more expensive spirits.

It should be noted that some of the problems are also due to additional taxes on ready to drink alcohol in Australia, which is lowering consumption there.

If that wasn't enough, there are also additional cost pressures from steel & particle board.

5) Rio Tinto got increases in their iron ore prices (at least 80 percent) from South Korea.

6) Two IPOs may price tonight. On the NYSE, Galiot Capital, a mortgage REIT, is seeking to raise 16.7 m shares at $15-$18. It's a tough time to go public as a mortgage REIT.

The other, at the NASDAQ, is getting a lot of buzz: Energy Recovery (ERII) is seeking to raise 14 m shares at $7-$9. They are in a hot space: water desalination. Also pricing tonight.

Questions? Comments?