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2009: The year of the letdown

Today's Financial News - Posted March 17, 2009

Nucor is teaching investors a very important lesson today. No matter how much we hope for change, letdowns will always be a part of Washington.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): We are only sixty days or so into the Obama administration and most investors have just one word to sum it all up. Letdown.

The effects of the stimulus were far from thrilling. The obvious trampling of campaign promises, while not surprising, removed all hopes of change. And the leader’s ways of polarizing Congress appear more of an art than a mistake.

While even I will admit it is far too early to categorize his entire presidency as a letdown, it is going to take a lot of work to turn around the views of investing Americans.

While the president may say the day-to-day swings of the Dow or the S&P 500 are not worth watching, he could not be further from the truth. Take your eye off the ball and you will strike out. Keep your eye on the stitching and hit a grand slam.

By now, it should be obvious to any market observer Obama’s stimulus plan was little more than a boring firing cracker with a long, smoking and popping fuse. The buildup was exciting and filled with potential, but the actual bang was a certain letdown.

That is not a theory you have to work hard to prove to investors that were banking on a stimulus-fueled surge. Wall Street was hoping for a jump from all sorts of sectors from solar cells to cement makers.

That’s all you got?

Investors in Nucor Corp. (NYSE:NUE) are learning the lesson the hard way. Hoping several hundred billion dollars in the name of economic stimulus would get customers ordering steel once again, Nucor executives were aiming for a profitable first quarter.

But now that they have removed the rose-colored glasses, they are seeing the situation as it really is. And it does not look profitable. Nucor is now expecting a quarterly loss of $0.55 to $0.65 per share.

If the predictions are true, the company will have solidified a horrific change in direction. This time last year, the company reported net earnings of $1.41 per share.

The question now is whether companies like Nucor can outlast the supply surpluses on the market. The industry is facing quite a conundrum. It needs to let inventories decline, but it needs the cash flow created by putting new supply into the market.

If companies like Nucor cannot find the right balance or the financing to get them through the slump, major trouble is ahead. The steelmaker has already cut production by more than half. Can it afford to slow the rollers any more?

So far, shares of Nucor have dropped some 50% from their May 2008 highs. Today, shares are down by more than 10% and showing signs that there are more declines to come.

Unless Congress can figure out a way to use something other than smoke and mirrors to get this economy back in gear, the steel industry and so many other stimulus hopefuls are going to be hurting.

We are only a third of the way through 2009, yet it looks to be the year of the letdown.


Next Article: Count Chocula feels the pain from increased inflation

Posted by Andrew Snyder · Filed Under Gold and Resources 

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