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Five Things You Need to Know: WalMart Discounts, FedEx Hikes, What Me Worry?, Wal-Mart Angers Employees by Adopting Business-like Attitude, Ultra-Premium Vodka, Barrons' Cover Bearish?


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Wal-Mart Discounts, FedEx Hikes

While Wal-Mart is cutting prices early over concerns that the holiday shopping season may come in much lighter than expected, FedEx said it will raise 2007 rates for air shipments, an average of 5.5%, according to the Chicago Tribune.

  • FedEx and UPS have adjusted rates late each year for the following 12 months.
  • The increase by FedEx Air is the same as the one adopted for this year.
  • In October 2005, FedEx raised U.S. air-cargo rates for 2006 an average 5.5 percent.
  • FedEx Ground, which delivers shipments by truck, will adjust its 2007 shipping rates later this year, the company said.
  • While Fed Ex is the leading air shipper, UPS is the leading ground shipper and should be watched closer for trends in domestic ground shipping prices.

2. What me worry?

Investment banks and hedge funds are being forced to rapidly adjust their trading strategies amid a wave of reported "panic selling" in the US and European credit derivatives markets last week, the Financial Times reported.

  • What are credit default swaps (CDS)?
  • Credit default swaps offer a kind of insurance against non-payment of corporate debt.
  • It is essentially an agreement between a protection buyer and a protection seller, whereby the buyer pays a periodic fee in return for a contingent payment by the seller upon a credit event, such as a default) happening.
  • When the price of CDS instruments drops, this leads to market-to-market losses for those holding the instrument who have bought protection. Why? Because they are paying a premium that is greater than the market rate.
  • According to the Financial Times, the sharp price swings of the past week have confounded many investors who had expected to see the cost of debt insurance rise this winter, as part of a broader turn in the credit cycle.
  • This heavy selling has driven the cost of insuring debt against default in the market for credit default swaps to record low levels, the FT said.
  • What this means is either investors are very, very optimistic about the outlook for corporate debt, or that prices are so distorted that they are no longer being paid for the risks they are taking on.
  • Hmmm, investors no longer being compensated for assuming risk. That sounds familiar. Where have we heard that before?

Mr. Neuman, manager of the Worryfree Fund, says he isn't worried.

3. Wal-Mart Angers Employees by Adopting Business-like Attitude

At Wal-Mart these days, snowy weather is no longer an excuse for lateness, being 10 minutes or more tardy for work three times will earn you a demerit and too many could get you fired, according to the Boston Globe.

  • The changes are part of a revised attendance policy implemented this fall to make Wal-Mart workers more accountable for excessive unexcused absences.
  • Unscheduled absenteeism has climbed to its highest level since 1999, according to results released last week of an annual nationwide survey of human resource executives.
  • The survey found that personal illness accounts for only 35 percent of unscheduled absences.
  • Meanwhile, according to the the Boston Globe, the new rules already are drawing fire from critics who claim they are the latest attempt by the nation's largest private employer to weed out unhealthy and costly long-term workers as it seeks to cut labor costs.
  • Yes, times, they certainly are changing.
  • Whatever happened to the days when your employer didn't particularly care whether you showed up for work or not?

4. Ultra-Premium Vodka

Bacardi, the world's largest private spirits company, has tendered an offer to buy "ultra-premium" vodka brand 42 Below's parent company Thursday for $91 million cash, according to the Miami Herald. If that sounds like a lot, keep in mind it's not just premium vodka, it's ULTRA-premium vodka.

  • Named for New Zealand's location 42 degrees below the equator, the vodka was concocted seven years ago in the Wellington, New Zealand garage of company founder Geoff Ross.
  • According to the Miami-Herald, 42 Below aims at the ''tastemaker'' market, the young and... Whoa! Whoa! Back up. Did you really just say that 42 Below was concocted in a garage in New Zealand?
  • Yes, uh... that's what the ...uh... newspaper story seems to say. Hmmm. "Concocted in a garage in New Zealand." Yep, says so right here.
  • Remember, it's ULTRA-premium vodka. REGULAR-premium vodkas are distilled in prison kitchens. Non-premium vodkas are distilled in portable gasoline cannisters.
  • Right. Where were we? Oh yes. The offer is backed by the company's major shareholders despite the fact 42 Below has yet to turn a profit.
  • The good news is that growth has been eye-catching, with case sales up 58%.
  • The bad news is that the ULTRA-premium spirits market is highly competitive.
  • Just last week, Donald Trump launched the ULTRA-premium Trump Vodka... despite the fact he doesn't even drink.
  • No word on where it was distilled.

5. Barrons' Cover Bearish?

Conventional wisdom is that the cover of this week's Barron's magazine is a flashing red sell signal for the markets. After a closer look, we disagree.

  • Wiseguy contrarians everywhere are this morning taking potshots at Barron's magazine after their latest cover: "Next Stop 13,000?"
  • But not so fast there, Sir Knee-Jerk-alot. See the question mark there at the end? It's not "Next Stop 13,000!" with an exclamation point, or even a "period." It's Next Stop 13,000?" with a question mark, meaning the next stop is questionable, in doubt.
  • The cover story is based on the results of Barron's institutional investor "Big Money Poll," where more than a third of the institutional investors responding to the poll expect the Dow to reach or surpass 13,000 by the middle of 2007.
  • After taking a closer look at the article, Minyanville learned that it may not be quite as bearish as it seems.
  • For example:
    - 27% of "big money" investors in the survey responded from ledge of high-rise office building.
    - 24% those surveyed predicted "Next Stop 137."
    - 39% reported tingling sensation in right arm.
    - 11% reported they were neither bullish nor bearish, but uncontrollably crying.
    - 8% would only agree to respond to the survey in return for a cup of coffee and a bowl of soup.

Barron's Cover Bullish or Bearish?

No positions in stocks mentioned.

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