Wall Street Breakfast: Must-Know News 16 comments
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- Global markets drop, again. Korea's central bank lowered its key interest rate by an unprecedented 0.75%, Japan's finance minister talked down the bulging yen by suggesting the government is willing to intervene, and Australia's CB bought sagging Aussie dollars for the first time since 2007. None of this did much to stop the bleeding as Asia's markets picked up where they left off Friday - with Nikkei down 6.4% and Hang Seng down 12.4%. India's Sensex lost as much as 11.4%, plunging below 8,000 for the first time in three years, but rebounded to close down 2.2%.
- Automakers grope for the lesser evil. GM (GM) and Chrysler continued to talk tie-up over the weekend, with the possibility of forming a new company that could include a third automaker. While daunting in its complexity, the growing feeling is that a combo is the best way to avoid bankruptcy and draw federal money. Analysts say that without external intervention - likely a government-led cash injection with or without a merger - both could run out of cash within 12 months. Odds on a Big-Three bankruptcy are currently about 50-50, based on the price of their bonds ($0.20 to $0.40 on the dollar). On Thursday, Daimler (DAI) wrote its 19.9% stake in Chrysler down to zero. The bankruptcy of even one would likely bring down its suppliers, which would effectively shut down the other two for lack of parts. More here.
- CenturyTel to buy Embarq. CenturyTel (CTL) is buying larger rival Embarq (EQ) for about $5.76B in shares excluding debt, a 36% premium to Embarq's Friday close. The deal marks a significant step toward the much-anticipated consolidation of U.S. regional phone carriers. Upon closing of the transaction, Embarq shareholders are expected to own approximately 66% and CenturyTel shareholders are expected to own approximately 34% of the combined company. Landline carriers are feeling the pinch as customers move to VOIP and cable companies roll out their own offerings.
- Morgan Stanley used $23B to prop up money-market funds. Morgan Stanley (MS) clients withdrew almost 1/3 of their cash from money-market accounts last month, forcing the firm to buy $23B of securities held by the funds to keep them afloat. Most of the $46B withdrawn in September were from funds that invest in corporate paper. Last week the Fed rolled out a Money Market Investor Funding Facility that will provide up to $540B in loans to buy assets from funds hit with redemptions.
- MUFG to raise capital. Mitsubishi UFJ Financial (MTU) said it will raise up to ¥990B ($10.6B) by November 2009 to strengthen its balance sheets. MUFG will issue up to ¥600B of common shares and ¥390 in preferred securities. The move follows a series of heavy investments this year, including a 21% stake in Morgan Stanley (MS). Shares fell a record 15% in Tokyo trading after the announcement.
- Goldman, Citigroup briefly discussed a combo. Not long after Lehman filed for bankruptcy protection on Sept. 15, Goldman Sachs (GS) quietly approached Citigroup (C) about a possible merger, sources say. The Lehman failure sent shares of rival brokers like Goldman and Morgan Stanley (MS) down sharply. The brief courtship did not result in further talks, and soon thereafter the Treasury decided to pump $125B into nine major banks, a move banks hope will ease jitters over the shaky U.S. banking system.
- Money remains scarce. Short-term lending rates were little changed over the weekend. "We see money markets remaining tight because the fear and uncertainty haven't gone away," economist Adam Carr says. Another sign of banks' wariness to lend even to each other: financial institutions continue to deposit record amounts in central banks' overnight deposit facilities.
- Mostly black, but some white, for newspapers. Most of the largest U.S. newspapers not-surprisingly saw a drop in print circulation during the first half, but the news may be less bleak than the numbers indicate: Newspapers are boosting profits by raising newsstand prices, curtailing discounted copies and stopping delivery to some not-profitable customers. "We'd asked newspapers to really focus on paid, quality circulation," Dave Walker, CEO of NSA Media, which buys ads on behalf of big companies says. "They're actually doing what we asked them to do."
- More rate cuts on the way. Economists say the Fed will likely drop its key lending target rate another 50 BPs to 1% on Oct. 29 and will continue a march toward near-zero percent overnight lending amid widespread economic deterioration. "We're heading south big-time," former Fed governor Lyle Gramley says. Former Fed officer Vincent Reinhart calls the Fed's three-pronged attack - lower rates, increased liquidity and purchases of toxic assets - a "great monetary experiment" in which we, apparently, are the guinea pig. For the record, the fed funds target has never been below 1%.
- Credit crunch may shrink crops, spur prices. Bone dry credit markets may send ag commodity prices back up as farmers cut back on crop size due to lack of funds. Dan Basse, president of AgResource, says wheat futures will jump 16% by the end of 2009, corn will rise 15%, and soybeans will gain a more modest 3%. "The costs of farming operations today are huge, and that backs up to the banks that have balance sheets that are tight, it backs up to elevators that have credit stretched out," U.S. Agriculture Secretary Ed Schafer said. Corn is down more than 50% from its peak in early July.
Earnings: Monday Before Open
- Alberto-Culver (ACV): FQ4 EPS of $0.31 in-line. Revenue of $386M (+7.3%) vs. $375M. (PR)
- BE Aerospace (BEAV): Q3 EPS of $0.59 beats by $0.06. Revenue of $588M (+37.3%) in-line. [PR]
- Humana (HUM): Q3 EPS of $1.49 beats by $0.02. Revenue of $7.15B (+13.1%) vs. $7.34B. [PR]
- Lorillard (LO): Q3 EPS of $11.38 beats by $0.03. Revenue of $1.13B (+7.8%) vs. $1.03B. (PR)
- Sohu.com (SOHU): Q3 EPS of $1.08 beats by $0.13. Revenue of $121M (+134.2%) vs. $115M. [PR]
- Verizon (VZ): Q3 EPS of $0.66 in-line. Revenue of $24.75B (+4.1%) vs. $24.52B. Organic growth of 1.5M net retail customers. (PR)
Today's Markets
- Asian markets close deeply in the red: Nikkei -6.4% to 7,163. Hang Seng -12.7% to 11,016. Shanghai -6.3% to 1,723. BSE -2.2% to 8,510.
- European markets are heavily down at midday: London -4.7%. Paris -6%. Frankfurt -4.2%.
- Futures drifted down for most of the overnight session, but are now off their lows. Dow -1.9% to 8102. S&P -2.45%. Nasdaq -2.2%.
- Crude -2.63% to $62.46. Gold -0.93% to $723.50.
- 30-year bond +0.69%. 10-year +0.48%. 5-year +0.38%. 2-year +0.16%.
Monday's Economic Calendar
- 10:00 New Home Sales
- Notable earnings before Monday's open: ACI, BEAV, EXP, FPL, HUM, LO, ONB, PENN, SOHU, TDW, VZ
- Notable earnings after Monday's close: ACF, ATHR, AXS, CF, EXEL, FIS, HLIT, HPC, MTH, PCL, PCU, RCII, SCUR, SLG, TXRH, VRTX, WMS, ZRAN
Seeking Alpha editor Rachael Granby contributed to this post.
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This article has 16 comments:
Hang on America, because it's about to get worse..........ALOT WORSE!!!
Sadly, this has all happened on our watch............ SHAME ON US!!!!!!!!!
IMHO
and stealing from the Social Security Trust Fund are the two major culprits
of our economic plight. Don't forget most of this debt was racked up during the past 25 years when alleged conservatives were in charge.
Taking us back to the whites only, country club mentality of the '50s won't accomplish squat.
In this case the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.
This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.
A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.
The parameters of the first traunch of $125 billion should be changed:
1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking
2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.
3) The conversion factor should be significant
4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants
5) The "fund" should be given seats on the Boards.
6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year
7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year
8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.
The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.
Capitalism will be alive and well.
Michael Z.
Sherman Oaks
dmzfinancl@aol.com
This financial tsunami was wholly caused by deregulation of financial institutions , an unlimited supply of cheap, easy credit and the absolute greed of a few casino gamblers masquerading as investment bankers. The "sub-prime" mortgage was a symptom caused by the problem, not the problem.
If you were to read 100 articles/books on problem solving, ALL the authors would agree that the one essential step in problem solving is DETERMINING THE PROBLEM. If you don't know exactly what the problem is, a solution is not possible.
So here we are with our government throwing money at this problem even though they haven't begun to figure out what actually caused it. To reinflate the credit bubble with yet more cheap, easy credit will only make the problem worse and longer lasting. What they are doing is adding fuel to the fire, not fixing anything.
This problem was not caused by a few poor people getting bad loans. It was caused by a few greedy, unprincipled fools in Congress and Wall Street trying to ensure more campaign contributions and exorbitant profits.
All down through history, great nations rose and fell. In our recent history, Rome, Spain, Britain. Most fell because of greed and corruption of their leaders. Most imploded from within! That's where we are headed!
50 years from now, I wonder who the great nation will be? I doubt the U.S.!
Too many thieves!
I cannot even imagine the cojones it takes for companies that have lost half or more of their value in the past year to even THINK about paying anybody a bonus. These guys have rocks the size of their Ferraris.
So what can we do about it other than log on and complain?
Our government encourages the fall of our economy, then calls it a "crisis" that can be solved.....(you guessed it)....by more laws designed to hold the taxpayers responsible. Both parties in power were involved....those who initiated these onerous laws, and those who folded and went along with them for fear of losing votes. Indirectly, we taxpayers were in on the entire collapse because we were too stupid and too selfish to tell our representatives to stop giving us things we did not earn on our own.
Bernie Ebbers goes to jail for fleecing his World Com investors, with the applause of the national news media, yet high officials in our Treasury Department, Fannie Mae, Freddie Mac, etc., assume no fault or responsibility. Our politicians were supposed to be our protectors, not our executioners.
Anything less is just shoveling the crap to the other side of the room. Only when Congress, the administration and the courts see their job as protecting INDIVIDUAL Americans, not companies, will we get a republic that is anything at all like our founding fathers intended.
The mess we're in now is what to expect from government of the corporations, by the corporations and for the corporations. And it will persist either until we the people change it or it crumbles under the greedy demands of the corporations sucking the life out of it.
But the huge benefit to the citizens of the US would be , ta dah, NO BUILT-IN ADVATAGE TO THE TWO RULING PARTIES. The greens, the Libertarians and any other party that could get the signatures could get EQUAL funds, equal airtime and equal opportunity.
Our government doesn't work because it is run by two equally UnAmerican parties. They both exist for their own benefit, not the good of the country. Listen to one hour of vapid rhetoric from either party - they couldn't care less about the USA. They either want to run everything their way or not play the game.
It's time our "representatives" started representing US and the USA, not their parties.