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Buzz Bits: Dow and Nasdaq Stumble


Your daily Buzz & Banter highlights...

Editor's Note: This is a small sample of the content available on the Buzz & Banter.

JC Penney Color - Kevin Depew - 2:33pm

J.C. Penney (JCP) is an important stock in terms of consumer stress, something made clear by CFO Robert Cavanaugh in the company's conference call today: "Our focus is the moderate consumer, a consumer who has always had to make serious choices about their discretionary spending." Cavanaugh added that the company's sales trends show that consumers are cutting back on some spending, but "continue to appointment shop during key shopping periods of the year, such as back-to-school.

As for retail in general, it is evident that pricing pressures in the form of price reductions and incentives will continue: "In addition we expect that promotional activity will increase across retail due to the higher inventory levels that resulted from soft third quarter sales," Cavanaugh said. Overall the company is taking a "a more cautious view of the fourth quarter and 2008. As we look ahead to 2008, we anticipate the continuation of a difficult environment that will have an impact primarily on sales and gross margins."

CEO Myron Ullman provided even more color on the difficult operating environment and touched on what the company is seeing in terms of consumer sentiment: "For the first time we really saw a change in consumer sentiment reflecting the soft housing market, the subprime market and the effect of – psychological effect, at least, of fuel prices."

Finally, risk aversion doesn't just apply to banks and consumer discretionary spending. It applies across many different segments of the economic landscape. As Ullman noted, "[I]t's our belief that 2008 is going to continue to be a difficult selling environment and as such we are planning 2008 very conservatively on expenses. We certainly need to be able to flex the business count in terms of customer staffing and selling, but we are not going to be very aggressive in terms of spending on discretionary projects in this environment."

Commercial Paper in the Unfrozen North - Mike Mish Shedlock - 2:11pm

A friend going by the name AeroFool pinged me with the following Email this morning:

Perimeter started their online bidding marketplace for Canadian ABCP which has been locked up. There haven't been any transactions yet, but you can see what bids are on the dollar - currently .50-.60 on the dollar, so this provides a nice window of insight into what's happening in this particular market that we would not otherwise have any visibility into.

Click here to enlarge the image

As you can see pricing data is only starting to trickle in. The above is only a partial table but those are the only current bids.

The Canadian ABCP market was a $40 billion market. Judging from the preliminary results, it is perhaps now a $20+/- billion market. For more on who is affected and how, see Global Credit Crisis Canadian Style and Minyan Mailbag: Money Frozen In Yukon.

Sunshine! - Quint Tatro - 11:50am

It sure is tough to know what to do in this tape. On one hand it feels like shorting is a trap as the cat may not be done bouncing, but on the other it feels too early to be buying for a potential Turkey day trot higher.

At this point, I am remaining patient but updating my list for potential runners in the coming week. At the top of my list is Evergreen Solar (ESLR). The solar stocks have been trashed recently due to some concern surrounding tax credits for solar within the alternative energy sector. While I can't imagine this coming to fruition, these companies are putting up solid numbers and the demand is real. This morning Suntech Power (STP) is up 8% after announcing a solid quarter and discussing good things coming down the pike.

I like the way ESLR is fading on light volume and I have started some shares on today's weakness with a stop below $12.00. Should the stock continue to consolidate, I will look to get more aggressive here as the holiday trading comes into full swing.

Position in ESLR

Fed Repo - Mr. Practical - 11:18am

Fed repo today is $47.25 billion, a new single day record.

So you see, even though the repos are eventually taken back, the size of them is growing egregious. Those that say the Fed is not providing extra liquidity because they eventually take them back need a lesson in logic: the bigger they are, the more money/debt is out there at any one time. So they are desperate to inject massive liquidity.

But that liquidity is not being lent out. As we see libor rates rise we are seeing banks taking all of that capital and internalizing it. They have to replace the debt they are writing off.
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