Nucor (NUE) Blows Up on Lowered Guidance

We are really timing our stories quite perfectly of late - we talked about the pain in solar this weekend, than last night Energy Conversion Devices (ENER) blew up; we wrote about the hype that is "China will lead us back" and how steel companies are jumping the gun based on "hope/thesis" just yesterday [Mar 16: WSJ - Some Steelmakers Jump the Gun in Response to Stimulus]- and lo and behold Nucor (NUE) blows up today. This is the problem you have by investing with the horde that is basing their purchase on nothing other than thesis. When reality strikes, you lose a lot of money in a flash. The big theme you will begin to hear as we move forward this year is the following: "we are looking for less worse than the previous economic report/quarter.... when things start to become less worse than the 2nd derivative play is to begin piling into early cycle stocks because the recovery is coming soon". Again, I've outlined why I think this recovery will be weak - and that will be the big surprise of the coming 12-24 months. We will have a government inflated bump in GDP sometime between quarter three 2009 and quarter two in 2010. That's just government spending and Federal Reserve flooding of the system with money. It won't be true health. But the stock market at some point will jump on "2nd derivative improvement!" (i.e. it's not good but it's less horrific than last quarter!) Here is an example of the coming Kool Aid

my gosh, the unemployment rate only jumped from 9.4% to 9.7%! Much better than last month when it went up from 8.8% to 9.4%! The rate is slowing! By half! Things are looking up (as long as you are not unemployed). Buy stocks en masse or you miss the coming turn & bull market! Recovery imminent!

But as you can see with Nucor (NUE) - if you drink that Kool Aid, you are prone to being smashed. This is why I am having trouble bringing myself to chase into copper stocks even if they are "technically" improving. There is little behind these moves other then "thesis". As my thoughts evolve my working thesis now is a double dip recession akin to late 70s/early 80s. The only reason you will see any pop is the massive amounts of dollars stolen from your grandchildren and borrowed from our overseas creditors to give you an illusion of health that is coming in the next few quarters. Then we'll sag again once the sugar high wears off. But I do believe as Americans move back to a 8%+ type of savings rate, the government will once again come back to us in less than a year saying we need to borrow/spend another $750 Billion plus... yes kids, it will be stimulus time (again). The black hole caused by a country that actual saves a few bucks of their paycheck will require it.



Anyhow, Kool Aid time... all the stimulus by China and America will surely be a boon to steelmakers as we build projects left and right. Remember, the only people who have visibility are pundits and traders who tell us of "recoveries" around the "bend". This now marks 3rd company in the metal space (a space traders have been piling in to front run the "recovery") who say things are bad and they have no visibility. (RTP, AA, NUE) We've seen this over and over and over the past year+ as trader and investors live in some parallel universe of "pending recoveries based on hope" - remember they know better than company CEOs. Thesis baby.

• Steelmaker Nucor Corp (NUE) warned on Tuesday it would sink to a first quarter loss as the slumping economy sapped demand for the metal, forcing it to cut output and sending it shares down more than 10 percent.
• "The economy has fallen off a cliff -- and there is no visibility as to the timing of the recovery," Nucor Chairman, Chief Executive and President Dan DiMicco said in a statement. (unless you are a pundit)
• The company expects to post a first quarter loss of 55 cents to 65 cent per share, far below the $1.41 per share it earned in the year-ago quarter and the 34 cent profit it posted in the fourth quarter.
• The company had previously expected marginally better earnings than the fourth quarter, but customer orders continued to weaken, pressuring prices in all its product lines.
• Its overall steel mill utilization rate would decline to about 43 percent in the first quarter from the 48 percent run rate in the fourth quarter.
• Nucor's statement came a day after aluminum giant Alcoa Inc (AA) said it would slash its dividend, seek to raise capital and trim its future spending to cope with the moribund metals demand.

No position; short Kool Aid