Wall Street Breakfast: Must-Know News 23 comments
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- Little progress on Big Three bailout. House Speaker Nancy Pelosi, arguing General Motors (GM) is too big to fail, urges 'immediate action' to help automakers, but faces resistant Republicans and a noncommittal White House. Pelosi wants to include automakers in TARP, but without bipartisan support, the measure is unlikely to pass until a new congressional session begins in January. The Treasury too has been hesitant to aid automakers, concerned that expanding a rescue to include non-financial companies would raise expectations of assistance from other industries facing a slowdown. Meanwhile, General Motors' (GM) shares sank to their lowest levels in 65 years as the company warned it may run out of operating cash by the end of the year.
- Help for homeowners. The Federal Housing Finance Agency, the regulator for Fannie Mae (FNM) and Freddie Mac (FRE), unveiled plans yesterday to stem foreclosures by easing mortgage payments for potentially over 400,000 homeowners. Homeowners spending more than 38% of their income on mortgage payments and delinquent by 90 days or more could be eligible to have their mortgage rate cut, the life of their loans extended or their principal reduced. FDIC's Sheila Bair said the measure is 'a step in the right direction, but falls short of what is needed,' arguing the Fannie/Freddie focus is too narrow and ignores the 60% of seriously delinquent mortgages held by Wall Street firms and other investors. MBA Chief Economist Jay Brinkmann says a 50% success rate in the loan modification program would be 'a good result.'
- Banks win with AIG's new terms. Many banks that had bought protection from AIG (AIG) on mortgage-backed securities will be able to recoup their investments under AIG's revised rescue which will see a new facility buy around $70B of these securities. Companies that had previously sought and received collateral from AIG (including GS, MER, UBS, DB), much of which came when AIG received government funds in September, will be able to keep their collateral. Banks which participate in selling securities to the new facility will be compensated for the full, or par, value. "It's like a home run for some of the banks," says Carlos Mendez of ICP Capital. "They bought insurance from a company that ran into trouble and still managed to get all, or most, of their money back."
- AmEx looks to TARP. Sources say American Express (AXP), which just this week received approval to become a bank holding company, is requesting $3.5B in federal aid under TARP. The card issuer has not been directly impacted by the housing crisis, but faces slowing consumer spending and rising defaults. The TARP funds would allow AmEx greater flexibility in funding its operations while it deals with the market downturn. AmEx has not announced its application for aid, and federal regulators won't disclose which companies have been approved or denied for assistance.
- Changing TARP on the fly. The Treasury is considering adding a private enterprise element to TARP, say sources familiar with the matter, which would require firms to raise private capital in order to qualify for public assistance. The condition would probably not apply to the existing $250B capital repurchase program, but may become relevant for future capital investments. The same sources said the Treasury is unlikely to conduct auctions to buy troubled assets, as originally intended under TARP, and instead will continue to inject capital directly into the financial sector. These modifications could be officially announced as early as today.
- Fed wants clearinghouse role. As pressure mounts to build a central credit-default swaps clearinghouse, the Federal Reserve is angling to become its lead regulator. Sources involved in private talks between the Fed, the SEC, the Treasury and the Commodity Futures Trading Commission said the agencies discussed a memorandum that would outline clearinghouse oversight, and a regulatory structure announcement could come by the end of the week. CME Group (CME), which is competing with Intercontinental Exchange of Atlanta (ICE) and NYSE Euronext (NYX) to create a system, says it is open to Fed oversight.
- Execs want more regulation and less. A survey released earlier today shows over 75% of company executives believe credit-rating agencies must be regulated. The survey also showed support for lifting global bans on short-selling, as well as for beefing up supervision of hedge funds and structured-finance products. Respondents were divided on the need for a global financial regulator. The survey was timed for this weekend's G-20 summit in the hopes that global leaders will consider the opinions of business executives before enacting broad regulations.
- Microsoft's Verizon grab. Microsoft (MSFT) is nearing a deal to become the default search provider for Verizon Wireless' (VZ) mobile phones. A successful deal would be a slap in the face to rival Google (GOOG), which has been in negotiations with Verizon for months. Under its current offer, Microsoft would share ad revenue with Verizon and would guarantee payments of $550-$650M over five years, roughly twice Google's offer. Verizon is still in discussions with Google, but sources say Microsoft's offer is favored.
- If at first you don't succeed, try a hostile bid. After its $6.1B takeover bid was rejected earlier this week, Exelon (EXC) launches a hostile bid for NRG Energy (NRG). Exelon will take its offer directly to shareholders, will file a lawsuit against NRG and its directors and will try to nominate its own directors to the board. NRG had rejected the original bid after arguing it undervalued the company and pointing to Exelon's recent credit downgrade, but had left the door open to a higher bid which would include debt refinancing. NRG advised shareholders not to take any action while it reviews the proposed exchange offer.
- Hedge funds get clobbered. Hedge funds lost an average 5.52% in October, the fifth consecutive down month. The average hedge fund has lost 15.3% in 2008 so far, putting the industry on track for its worst year ever. October was an especially bad month as hedge funds were forced to sell assets at sharply reduced prices to cover redemption requests. Many investors are shocked by the size of the losses after being promised by money managers that their funds could make money in any market.
- Recession metrics. A survey of economists says the current U.S. slowdown will be the longest in three decades, and the drop in consumer spending could be the worst ever. The respondents expect the economy to shrink an annualized 3% in Q4 after 'the economy fell off a cliff in October' and for growth to decline at a 1.5% pace in Q1 2009. The odds of an official contraction occurring within the next twelve months rose to 100%.
- Confidence rises. Consumer confidence roared back in November. The IBD/TIPP Economic Index jumped 23.6% – the biggest one-month increase in the index's eight-year history - to reach 50.8. Any readings above 50 indicate optimism, and the index showed gains in all three of its key components. Confidence improved on falling gas prices, the government's economic rescue plans and possibly on hope connected to the U.S. presidential election.
- Chain store sales. In the slowest weekly growth since April, chain store sales rose 0.4% last week vs. a year ago, and fell 1.0% vs. the week before, ICSC says. Consumers continued to buy everyday items but scaled back on other purchases. Redbook reported national chain store sales fell 1.2% in the first week of November vs. the previous month and fell 1% vs. a year ago.
Earnings: Wednesday Before Open
- ING Group (ING): Confirms a Q3 loss of €478M following "steep declines in equity markets, widening credit spreads, declining property prices and the failure of several banks." Consensus was for -€499.50. "Markets continue to be turbulent, so we expect pressure on asset prices to continue to impact results in the fourth quarter," chairman Michel Tilmant said, "while weakening economic conditions will put pressure on results into 2009." Shares +2.1% in Amsterdam. (PR)
- JA Solar Holdings (JASO): Q3 EPS of $0.26 misses by $0.01. Revenue of $312M (+149.4%) vs. $304M. (PR)
Earnings: Tuesday After Close
- Spectrum Brands (SPC): FQ4 EPS of $0.06 misses by $0.09. Revenue of $706M (+7.2%) vs. $685M. (PR)
- Hologic (HOLX): FQ4 EPS of $0.30 in-line. Revenue of $442M (+118.4%) in-line. Sees 2009 EPS of $1.22-1.24 vs. $1.30. (PR)
- Petrobras (PBR): Q3 net income of R$10.85B, up 96% from a year ago. Total production +6% from a year ago and +2% from last quarter. (.pdf)
- Intrepid Potash (IPI): Q3 EPS of $0.66 misses by $0.07. Revenue of $146M (+176.6%) vs. $143M. (PR)
Today's Markets
- Asia markets closed mostly down. Nikkei -1.3% to 8,695. Hang Seng -0.7% to 13,939. Shanghai +0.8% to 1,859. BSE -3.1% to 9,536.
- In Europe at midday, London +1.4%. Paris +1.2%. Frankfurt +0.7%.
- U.S. futures: Dow +0.7%. S&P +0.8%. Nasdaq +0.3%. Crude -1.7% to $58.33. Gold +0.04% to $733.10.
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
10:30 Treasury Secretary Paulson to give update on the financial rescue package
11:00 Fed's Donald Kohn Speaks on Financial Services
1:00 PM Fed's Stern Speaks in Minneapolis - Notable earnings before Wednesday's open: DSX, JASO, M
- Notable earnings after Wednesday's close: AMAT, CROX, CSC, GA, NTAP, NTES, SINA
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 23 comments:
Consumers will buy cars and they need workers to build them. The company's name makes no difference as the quality and cost of the product is most important factor to the consumers.
The jobs lost by one company will be picked up by another. Like the makers of buggy whips getting jobs in the auto industry. This is the natural dynamics of the Free Enterprise System. Any government intervention tends to pervert this natural process.
President Bush asked congress for programs to retrain workers. Like the oil legislation he proposed in 2001 they not only ignored him but vilified him. Time for Congressional Term Limits as Barney Frank and Chris Dodd have overstayed their welcome and though they are good at providing "pork" to their constituents their continuance in office are detrimental to the economy of the U.S.
If Congress treated Medicare and Social Security like they treat Wall Street mismanagement and greed, those programs would have been solvent twenty years ago.
Pelosi is fighting herself her, and it would seem prudent to enact legislation that would cause the industry to fail so it could be replaced by a more efficient industry. Similar to Obama's comments on the coal industry.
I just don't get it. I guess the union and their pensions are more important to them.
www.jimrogers-investme...
With gas below $2 a gallon you can bet alternate sources of energy will not come on line anytime soon. So if the dems want to develop alternate sources of energy they will have to get the price of gas above $3.50 a gallon and they will have to keep it there.
I am predicting a federal tax to get the job done. They will call it an alternative energy tax and pass it with the guise that the tax money will be used to develop alternate sources of energy. Hold on to your wallet the greenies are taking over.
Yes, but what GM needs is NOT more money. It needs lower expenses. Go to any GM dealer and look at the sale prices. After all the cuts, you pay less than it costs to build them. That should be a dead giveaway as to the basis of their problem. It costs more for GM to make a vehicle than you can sell it for in the market.
DO NOT GIVE GM NONEY. Make them cut costs to get back into a position where they can make vehicles for less than they can sell them for and thereby make a profit.
Who cares if they can limp thru the next quarter. Make them sustainable for the long run.
Having said that, they are currently unsustainable businesses in today's market. Heck, they didn't even make much of any profit in the heyday of Greenspin's credit bubble.
Congress needs to "teach them to fish" not "give them a fish". A cash infusion without cost reduction will only extend the time until they close.
(1) They get rid of the unions
(2) Use mathematical formula for wages of blue-collar and dingy-collar workers.
(3) Workers pay half of health care insurance.
Dan Kowkabany
The only way social security will work successfully is to eliminate all pension plans and put everyone on social security including the politicians.
Everyone gets a social security number when they are born. That would also help to determine if a person is legal.
Dan Kowkabany
As said on CNBC..."GM is a heath plan masquerading as a car company".
US companies have so many social agendas (health care, pensions, childcare, racial quotas, Unions , property taxes ) how is there enough time in the day to actually get your business in done and make a profit.
Rid business of these liberal social issues and let them concentrate on winning. Let the US govt. take care of these other lofty ideals. Tax the companies just a bit more and let the govt. EARN it keep by taking these concerns under its own wing.
Leave business alone with regards to cradle to grave responsibilities and corporate profits will take care of the rest.
Just don't trust Wall Street and the Banking industries to do the right thing. These dogs bite.
On Nov 12 11:19 AM NotinMarket wrote:
> Businesses in the US have a fundamental problem; they are burdened
> with social issues and therefore can not compete with international
> competitors.
> As said on CNBC..."GM is a heath plan masquerading as a car company".
>
>
> US companies have so many social agendas (health care, pensions,
> childcare, racial quotas, Unions , property taxes ) how is there
> enough time in the day to actually get your business in done and
> make a profit.
>
> Rid business of these liberal social issues and let them concentrate
> on winning. Let the US govt. take care of these other lofty ideals.
> Tax the companies just a bit more and let the govt. EARN it keep
> by taking these concerns under its own wing.
>
> Leave business alone with regards to cradle to grave responsibilities
> and corporate profits will take care of the rest.
>
> Just don't trust Wall Street and the Banking industries to do the
> right thing. These dogs bite.
>
>
If you think GM (auto industry) is bad, wait to see how the state employee benifit plans drag down the economy, ie California. Oh well, at least now we're talking about it.
Headline in todays paper (calif) "Bottom falling out of state budget"
my comments were meant to stir thought. They may be the largest factory employing industry in the nation, but therein lies the problem. The fat ones can't move, and maybe they need to fail to stir productivity and efficiency. We all know that we are not near the deepest part of the bottom, and it will be time before we reach it.
You are correct in that they do not need fish, but need to learn how to fish. Unfortunately, you know it as well as I do, that will never happen. Listen to the song Fat Man, it is the perfect analogy for the big three. Big corporations are obese, and the big three are the fattest of them all. You have to be nimble in this economy, and for the next few years if not the next decade or two. They just ain't got it.
Gas will not stay below it's current value. It just is not going to happen. All Venezuela or Iran has to do is sponsor terror attacks on ports and pipelines and you will see oil at 120. It is all timing, nothing is going to happen until after the Obama adornation.
But wait, maybe we could nationalize the car industry and the banking industry . . . Thanks Paulson, way to change the rules at whim! This is going to be fun!
1) Higher structural costs than competitors including huge legacy costs due to huge increases in health care costs and a huge retirement population.
They have tried to stem these costs by restructuring their labor agreements and benefit offerings, but those changes will take some time to realize.
2) A large portion of the American consumer population and media who refuse to give up promoting the pervasive misconception that US automaker don’t build good products, and they won’t even consider a domestic vehicle when they go to make a purchase.
Now I agree that any cheap loans from the government should come with heavy concessions to help ensure sustainability and payback of those loans (with interest), but don't discount the changes that have already been made by these comapanies. The facts are that they have been working hard doing the right things.
On Nov 12 01:16 PM Repper wrote:
> The problem with the domestic automakers (besides the current economic
> woes effecting every automaker) is not how they’re currently run,
> nor lack of innovation, nor the quality, appeal (if you can discount
> prejudices), or fuel efficiency of their products. They have corrected
> and continue to improve those things that have been problems in the
> past. The problem boils down to 2 things:
> 1) Higher structural costs than competitors including huge legacy
> costs due to huge increases in health care costs and a huge retirement
> population.
> They have tried to stem these costs by restructuring their labor
> agreements and benefit offerings, but those changes will take some
> time to realize.
> 2) A large portion of the American consumer population and media
> who refuse to give up promoting the pervasive misconception that
> US automaker don’t build good products, and they won’t even consider
> a domestic vehicle when they go to make a purchase.
>
> Now I agree that any cheap loans from the government should come
> with heavy concessions to help ensure sustainability and payback
> of those loans (with interest), but don't discount the changes that
> have already been made by these comapanies. The facts are that they
> have been working hard doing the right things.
On Nov 12 01:16 PM Repper wrote:
> The problem with the domestic automakers (besides the current economic
> woes effecting every automaker) is not how they’re currently run,
> nor lack of innovation, nor the quality, appeal (if you can discount
> prejudices), or fuel efficiency of their products. They have corrected
> and continue to improve those things that have been problems in the
> past. The problem boils down to 2 things:
> 1) Higher structural costs than competitors including huge legacy
> costs due to huge increases in health care costs and a huge retirement
> population.
> They have tried to stem these costs by restructuring their labor
> agreements and benefit offerings, but those changes will take some
> time to realize.
> 2) A large portion of the American consumer population and media
> who refuse to give up promoting the pervasive misconception that
> US automaker don’t build good products, and they won’t even consider
> a domestic vehicle when they go to make a purchase.
>
> Now I agree that any cheap loans from the government should come
> with heavy concessions to help ensure sustainability and payback
> of those loans (with interest), but don't discount the changes that
> have already been made by these comapanies. The facts are that they
> have been working hard doing the right things.
does not the weight of health care and the retirement population within the industry lead to a lack of the ability to invest in R&D and therefore reduce their ability to become nimble?
You can't save the Titanic with a hot air balloon.
This will provide immediate jobs, but also thumb our nose at OPEC and insure immediate cash flow for the auto companies.
GM cars are junk. The way forward is to build better cars than the competition, cars that consumers will buy.
Every will fall into place after that.
Mr. Wilberforce,
Your perception is based on products from the 1970s. I had very bad luck with 70s GM & Fords [even worse]. Since 1983, however, GM reduced the quality gap every single year. By the 21 century, they PASSED Mercedes, Toyota and Honda in quantifiable problems. Only the JD Power first impressions survey has Lexus higher - And people, being suggestable, will never admit that they paid $50,000 for a poor-handling Camry [ES350.] But every long-term study places GM first in measurable quality. Polk has proven through registrations that all GM brands outlast the average.
This revelational news that GMs have not been junk for the past decade may be a blow to you. Therefore, I will not tell you the news about Ford's most recent model year statistics -- you might gasp so hard that you accidentally suck in the obituaries you were just reading.
I am sure that you did many bad things in the 1970s, too. But this is 2008.