Wall Street Breakfast: Must-Know News 15 comments
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- China bailout brings global cheer. Asia, Europe and U.S. futures all moved higher Monday (see below) after China rolled out a $586B economic stimulus package to kick-start its slowing economy. "Over the past two months, the global financial crisis has been intensifying daily," the State Council said in its statement. "In expanding investment, we must be fast and heavy-handed." Analysts praised the long-awaited plan, but doubted it could prevent China's economy from slowing further amid global economic slowdown. The package includes corporate tax cuts and incentives for rural development and technical innovation. The government also promised a shift to a looser monetary policy. China's Q3 growth of 9% was its lowest level in five years. China's government relies on rapid growth to maintain political stability.
- YouTube goes long. With an eye towards boosting advertising revenue, YouTube (GOOG) will begin showing full-length movies and TV shows from MGM Studios' (SNE, CMCSA) archives. YouTube features millions of home videos and some TV clips, but most videos are short and usually run ten minutes or less. The company has been experimenting with full-length shows for several months, and signed a similar deal with CBS (CBS) in October. The new partnership, to be announced later today, will put YouTube in more direct competition with online video site Hulu (NWS, GE).
- AIG bailout balloons. The government raised its aid package to AIG (AIG) to $150B from a present $123B to reduce the troubled insurer's interest payments, allow more time to sell off assets, and save itself from collapse. Renegotiation of the government's bailout, which started out at $85B and gave taxpayers an 80% stake in AIG, came after AIG rapidly depleted the original sum. The details: The $85B, two-year loan at Libor +8.5% gets swapped for a $60B, five-year loan at Libor +3%. AIG will pay only 0.75% on the unborrowed portion of the loan, vs. a current 8.5%. The government will use its $700B Troubled Asset Relief Program facility to buy $40B in AIG preferred shares yielding 10%. The government's stake remains unchanged at 79.9%. The remaining $50B will be used to buy up AIG's balance-sheet-depleting distressed assets, placing them into two separate financing entities. Read the Fed's release.
- Citi courts ?? Undaunted by its failure to acquire Wachovia (WB), Citigroup (C) is in advanced discussions to acquire an unnamed regional bank to compliment Citi's retail-banking unit, sources say. A deal could alleviate some of the internal strife that was exacerbated by Citigroup's botched attempt to buy Wachovia, as well as boosting Citi's deposit base - an alluring prospect in a period where funds are so scarce. Citigroup also comes armed with another $25B, courtesy of taxpayers. Oh, wait - are they supposed to use government money for acquisitions?
- Exelon strikes out. NRG Energy (NRG) rejected a $6.1B unsolicited takeover bid from Exelon (EXC), arguing the bid 'significantly undervalues' NRG and pointing to Exelon's recent credit downgrade and lack of secured financing. S&P cut Exelon's credit rating last month by one notch to BBB due to its "willingness to pursue an aggressive growth at the detriment of creditworthiness" in bidding for junk-rated NRG. A successful acquisition would have made Exelon the largest U.S. power producer. NRG left room open for a higher bid that would include debt refinancing.
- G-20 consensus on need for action. After meeting this weekend, the G-20 agree to act 'urgently' to restore stability and support growth. The nations called on governments to cut interest rates and raise spending, and to employ 'all their policy flexibility,' both monetary and fiscal. "The solution to this crisis must be rapid," said Brazil's Finance Minister Guido Mantega, forecasting a 60-90 day timeline to new financial regulation. "We need to change the tire on the car while it's still moving."
- Big Three bailout could open can of worms. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid formally requested that Treasury Secretary Henry Paulson consider giving "temporary assistance to the auto industry" using its $700B bailout fund Saturday. The proposition is forcing a broad debate on Capitol Hill about how far the government should go to bail out failing industries, and where the money should come from. Premarket: GM -10.5%.
- Astra aids hearts, investors. AstraZeneca (AZN) should see sales jump for Crestor, its cholesterol-lowering drug, after a new study showed the drug significantly reduced the risk of severe heart attacks. Crestor is already one of Astra's best-selling drugs, and is used by over 15M patients in 95 countries. The data should boost sales for the entire class of cholesterol-lowering drugs, including cheaper drugs that have already gone off patent. Shares +8% premarket.
- Massive Treasurys sale to test demand. The Treasury plans to auction about $55B in securities this week, the most in one week since 2004. Expect markets to focus on demand, or lack thereof. If yields begin to rise due to weak demand, it could add to pressure on the markets. Strong demand would be bullish for the U.S. dollar.
- Libor eases, again. Three-month Libor slid 6 BPs to 2.24% - the lowest since Nov. 2004 and the 21st consecutive decline. Overnight lending was up 2 BPs to 0.35%, still 0.65% lower than the fed funds target rate of 1%.
- Analysts pray for year-end surge. Even after cutting estimates at a record clip, analysts still need the biggest year-end rally in the S&P 500 ever for their forecasts to come true. The average Wall Street forecast calls for the S&P 500 to break out and surge 20% to 1,118 by Dec. 31 - more than double its previous year-end record. "It's very difficult for us to see that kind of turnaround by year end," one investment officer said. "The stock market would need to see a bottoming of this economic cycle, and that is nowhere in sight."
Earnings: Monday Before Open
- AIG (AIG): Q3 EPS of -$3.42 misses by $2.52. Includes more than $8B in writedowns. "Reported earnings are not indicative of the underlying core earnings power of our insurance businesses, which remain solidly capitalized," AIG says. Shares +28.3%. (PR)
- Cinemark (CNK): Q3 EPS of $0.19 beats by $0.02. Revenue of $476M (+1%) vs. $460M. (PR)
- Clear Channel Outdoor (CCO): Q3 EPS of $0.06 misses by $0.07. Revenue of $813M (-0.5%) vs. $838M. (PR)
- DISH Network (DISH): Q3 EPS of $0.20 vs. consensus of $0.58. Revenue of $2.94B (+5.4%) in-line. (PR)
- Frontier Communications (FTR): Q3 EPS of $0.15 misses by $0.01. Revenue of $558M (-3.1%) in-line. (PR)
- GLG Partners (GLG): Q3 EPS of $0.07 misses by $0.01. Revenue of $102M (+0.5%) vs. $103M. Shares (PR)
- HSBC (HBC): Says Q3 profits was ahead of 2007, with Asia growth the key driver. Takes a $4.2B impairment charge on its U.S. business. Tier-1 capital ratio rises to 8.9% from 8.8% in June. Shares -0.3% in London. (DJ)
- Nortel (NT): Q3 EPS of -$0.30 in-line. Revenue of $2.32B (-14.3%) in-line. Sees full-year revenue and operating margin at the low end of previously announced ranges. Shares -3.3% in Frankfurt. (PR)
- Pacific Ethanol (PEIX): Q3 EPS of -$0.98 misses by $0.78. Revenue of $184M (+55.8%) vs. $219M. (PR)
- PHH Corp. (PHH): Q3 EPS of -$1.56 misses by $1.67. Revenue of $533M vs. $634M. (PR)
- Six Flags (SIX): Q3 EPS of $0.95 misses by $0.05. Revenue of $489M (+5.4%) in-line. (PR)
- Southern Union (SUG): Q3 EPS of $0.40 beats by $0.07. Revenue of $657M (+25.1%) vs. $618M. Shares (PR)
- Tyson Foods (TSN): FQ4 EPS of $0.15 misses by $0.03. Revenue of $7.2B (+9.5%) vs. $6.98B. Shares +2.7%. (PR)
Today's Markets
- Asia markets were broadly higher, led by China. Nikkei +5.81% to 9,081. Hang Seng +3.52% to 14,745. Shanghai +7.27% to 1,875. BSE Sensex +5.74% to 10,536.
- In Europe, bourses are trading up at midday. London +2.8%. Paris +3.4%. Frankfurt +3.3%.
- U.S. futures indicate a higher open Monday. Dow +1.6% to 9137. S&P +1.8% to 953.50. Nasdaq +2%.
- Crude +5.44% to $64.34. Gold +2.57% to $753.
Monday's Economic Calendar
- 10:00 Treasury's Kashkari Speaks on TARP Program
- Notable earnings before Monday's open: ACAS, ALD, AOB, DISH, ENER, FNM, FTR, GLG, ISIS, NT, SIX, SRE, SUG, TSN.
- Notable earnings after Monday's close: FMCN, HPT, KFN, MR, MRX, REG, ROK, SBUX, SIRI, TMA.
Seeking Alpha editor Rachael Granby contributed to this post.
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Will the management that created this mess be replaced?
Will the union contracts be changed to "similar to" Toyota/Honda wages/benefits?
Will the unfunded pensions/healthcare benefits disappear?
Will the ongoing Delphi Billions be waived?
Will quality of cars be re-engineered?
Will shoddy QC be ended?
Will sloppy & inefficient work rules be no longer tolerated?
And finally, will consumers buy their cars any more than they have been over the past several years????????
I think we all know the answers:
Management will continue to be rewarded financially..........
Dividends will remain in place and paid..............
Union jobs will continue to be "bought out" @ $150-$250K ..........
Labor costs will remain highest in history for any mfg.............
And finally, the INEVITABLE WILL SIMPLY BE DEFERRED AT THE TAXPAYERS EXPENSE...........
Washington doesn't understand that AMERICA IS BANKRUPT!!!!!!!!!!
Congress just doesn't get it..............
I watched the workers filing out of my hometown Chevy plant on their last day. These people WANT to work, and they'd do it for 20% less pay if they thought management was getting a worse deal.
No matter how much government money goes into the US auto industry, they ARE NOT SUSTAINABLE at current pay levels.
There can only be a very few winners. The money won't go far
enough if it is spread thin.
Hopefully, the car companies will be an exception. They have
a reputation of getting through tough times. And they haven't put
anyone out of business. I say they are worth a chance.
Having online access to every shred of media - pay per view for the demand items - would be heaven on earth.
Now, if we could figure out a way to get rid of the ads........
I do agree with Eddie64
None of this increases production of goods and services but gives us more inflation than LBJ's "Guns and Butter" of the sixties. We paid the price in the seventies.
So drink now and be merry. The hangover will come sooner than you want. The sophistry of the politicians are pathetic and detrimental to the now Democratic Socialism of the U.S. whose Commander in Chief will be Barack Hussein Obama who only has shown he can get elected by those idiots who thought they were electing the president of the Student Body.
1. In the long run, you can only spend as much as you take in.
2. Businesses are better run by the private sector than the government.
Hank Paulson has brought change, but I am having a hard time believing in it.
After Toyota and Honda take over the government could give the consumer a $3,000 tax credit to purchase a car. The tax credit would keep the auto industry afloat and workers income tax would easily pay back the tax credit money.
Unemployed workers sure don't pay income tax. We have to find a solution that will not require a tax payer bailout.