Wall Street Breakfast: Must-Know News

• G-20 recap. G-20 leaders met this weekend to discuss solutions to the global financial crisis. The group called for a regulatory crackdown on high-risk lending and investments, and will require banks to meet higher capital standards and better risk management. They also indicated an openness to so-called dynamic capital rules, as currently used by Spain's banking system. President Bush blamed a looming global recession on investors who "sought higher yields without an adequate appreciation of the risks" and on supervisors who failed to address market dangers. Summit participants wanted to institute ways to increase international surveillance of firms that operate across multiple countries. However, at the end of the summit, it remained unclear how much power regulators would have and whether there will ultimately be a global financial markets authority. G-20 leaders have until March 31 to come up with plans to implement the discussed proposals, and will meet again in April. (Read the official G-20 statement.)
• Analysts weigh in on the G-20 summit. Analysts say calls for more regulation could rein in excessive risk but will also make financial services less profitable. Economist Mark Cliffe warns "efforts to make the system more robust may make recovery harder in the short term," while Carl Weinberg of High Frequency Economics Ltd. says immediate action is "what matters for markets at the moment, not regulatory changes for the next decade." Simon Johnson, formerly of the IMF, thinks stricter lending standards for banks could backfire because "the last thing you want to do in a global credit crunch is go around and basically tell people to tighten, tighten, tighten."
• FDIC mulls debt-guarantee changes. The FDIC may alter its $1.4T debt-insurance program after companies complained it would create an exodus from the overnight federal funds market. Firms including JPMorgan Chase (JPM) and Bank of America (BAC) said the original proposal would have made overnight loans too expensive compared to alternatives like direct loans from the Federal Reserve. As such, the FDIC may switch to a sliding scale of fees based on the maturity of the debt instead of the flat fee it had previously suggested. "Complexity is somewhat inevitable," said FDIC's Art Murton, but "we're doing our best to take away unnecessary confusion." The FDIC plans to release final regulations for the program as early as this week, and banks have until December 5 to decide whether they will participate.
• Insiders snap up company shares. General Electric's (GE) Jeffrey Immelt and Citigroup's (C) Vikram Pandit are among recent insiders to buy shares of their own companies. CEOs, directors and other senior executives at NYSE-listed companies bought $1.37B worth of equities in October, buying $57 worth of shares for every $100 sold last month, up from a low of $21 bought in June. A bullish signal for two decades, insider buying now has a mixed record and could be a sign of an impending decline. The last time insiders bought this much was in March, and the buying spree was followed by a significant drop in the S&P 500 a month later. "Everyone’s drinking the Kool-Aid," says money manager Michael Levine. "These guys know their companies better than the market, so they think they’ll be right. But the economic slowdown has happened much more quickly and has been much deeper than people expected."
• Some clamor for federal money,... First it was banks, brokerages, mortgage lenders, insurance firms. Then automakers joined the fight for government funds. The most recent group to come hat in hand to lawmakers is now the auto-parts makers. As Detroit's Big Three wait for aid, auto-parts makers are arguing they deserve access to TARP funds too, and over 100 parts maker companies have signed a letter sent to Congress today asking for a change in pending legislation to make their industry eligible for federal money. Auto-parts suppliers employ 600,000 people, nearly three times as many as those working for the Big Three automakers, and say they are already feeling the effects of automakers' financial woes.
• ...others keep a wary distance. Over 60 banking institutions have indicated they are eligible to receive more than $173B via TARP, but several institutions have made clear that they don't want any help. Over 35 companies, ranging from United Financial Bancorp (UBNK) to Charles Schwab (SCHW) to nine-branch thrift Ocean Shore Holding (OSHC), have chosen not to apply for federal aid. Some, like United Financial Bancorp, say they are 'financially solid' and have no need for the aid. Others say TARP has 'too many unknowns within the program' for a bank to prudently enter, or are resistant to TARP rules that limit stock buybacks for banks. One thing the institutions have in common is their desire to make sure the public knows they have not applied for aid; analysts are expecting an industry shake-out and say banks that apply for aid and are rejected face almost certain failure.
• GM sells assets. General Motors (GM) sold its remaining 3% stake in Suzuki Motor (SZKMF.PK) on the open Tokyo market for around $230M. Desperate for cash, GM sold the stock almost 5% below Suzuki's 25-day moving average, and at less than half Suzuki's high for the year. CEO Rick Wagoner stressed GM continues to value its 'strategic relationship' with Suzuki, and said the move was 'based on a mutual agreement.' The sale marks GM's first exit from Suzuki since it first invested in the Japanese company in 1981.
• Toyota faces downgrade. Toyota Motor (TM) is the automaker with the best credit, but may not hold that distinction for long. Fitch Ratings, citing 'unprecedented' challenges in the auto industry, has placed the company on 'Rating Watch Negative' and will review the carmaker in the next several weeks, potentially leading to a downgrade from Toyota's current AAA rating. A ratings cut would raise borrowing costs for Toyota and would be the company's first downgrade in a decade.
• Bonuses begone. Seven top executives at Goldman Sachs (GS) have decided to give up their 2008 bonuses, forfeiting potentially tens of millions of dollars in payouts. A company spokesman said the executives felt it was 'the right thing' to do. Wall Street's top players have been under pressure from regulators and investors to eliminate bonus payments this year. Goldman's move is being closely watched by Wall Street, but it is unclear whether other firms will choose to follow suit.
• GE eyes expansion. General Electric (GE) CEO Jeffrey Immelt said his company has the resources to take advantage of buying opportunities during the economic downturn. In specific, he named the oil and gas, media, infrastructure and aviation sectors. The professed interest in buying media assets has brought some reassurance to investors who worried GE might sell its NBC Universal unit.
• Recession metrics. If a survey by the National Association of Business Economists (NABE) is any measure, the economic future of the U.S. looks grim indeed. Economists believe the U.S. is in a recession, the economy will contract more severely in Q4, the decline will extend into early 2009 and unemployment will likely peak at 7.5% by the third quarter of 2009. NABE President Chris Varvares said economists have become "decidedly more negative on the economic outlook for the next several quarters" as the credit crisis intensifies and spills over to the 'real economy.'
• Recession hits Japan. Japan, the world's second largest economy, entered its first recession since 2001 last quarter, and conditions are expected to get worse before they get better. GDP shrank an annualized 0.4% last quarter, vs. predictions of 0.1% growth, and had contracted 3.7% in the quarter before. The recession could grow more severe as demand for exports falls and the Japanese government faces serious constraints in its ability to stimulate growth.

Earnings: Monday Before Open

• Covidien (COV): FQ4 EPS of $0.73 beats by $0.05. Revenue of $2.6B (+12%) in-line. (PR)
• Gol Linhas Aereas Inteligentes (GOL): Q3 EPS of -R$1.47 misses by R$1.12. Revenue of R$1.8B (+38.5%) vs. R$1.3B. (PR)
• Lowe's (LOW): Q3 EPS of $0.33 beats by $0.05. Revenue of $11.7B (+1.4%) vs. $11.6B. (PR)

Today's Markets

• Asia markets closed mixed. Nikkei +0.7% to 8,523. Hang Seng -0.1% to 13,530. Shanghai +2.2% to 2,030. BSE -1.0% to 9,291.
• In Europe at midday, stocks are trading down. London -2.0%. Paris -2.0%. Frankfurt -2.8%.
• U.S. futures: Dow -0.9%. S&P -1.0%. Nasdaq -0.8%. Crude -2.7% to $55.49. Gold -0.2% to $740.80.

Monday's Economic Calendar

• 8:30 Empire State Mfg Survey
  9:15 Industrial Production
• Notable earnings before Monday's open: COV, GOL, LOW, TGT
• Notable earnings after Monday's close: CTRP

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Kingsley An...:]

Regardless of what GS does at this point, the stock is still not healthy.

2008 Nov 17 07:42 AM

[PeteK:]

The medias are being kind of bias nowadays.
GE should stay away from that. No good.

2008 Nov 17 07:54 AM

[cmwood70:]

I don't think GS CEO and directors had a choice to "voluntarily" give up their bonuses. After receiving a huge chunk of the TARP bailout they should have been required to give up their bonuses. So kind of them after their dismal performance. Thoughts?

2008 Nov 17 08:09 AM

[Prudent Man...:]

In my fifty years of professional investment experience, my intuition is that governments should be minimal and usually are part of the problem instead of the solution. It is obvious in this "crisis", which is actually not as serious as the economic situation of the seventies when the people of Kansas had to bail out New York City, calls for less government intrusion rather than more.

When people are told that any government agency is going to solve their problems those people have a lack of a sense of reality. In the case of derivatives and leverage the government could have easily ameliorated the risks by raising rates and Congress should have given the SEC the tools they need though I believe they already have those tools but, for political reasons, failed to take away the punch bowl. After all, the member of the House of Representatives run for reelection every two years and they like bull markets and never ever want to decrease the money supply.

If the Administration would have announced in 2007 that the Free Market would have to clean up any messes it got itself into the markets would have corrected accordingly and quickly. Now everyone who made a stupid, greedy or both mistake is waiting for some government organization to bail them out. The line continues to lengthen and the G-20, beings a political organization, is clueless as to the ability of markets to correct their own mistakes.

2008 Nov 17 08:14 AM

[eddie6442:]

Why hasn't SARBANES/OXLEY been reversed????????

Why hasn't MARK-to-MARKET accounting been rescinded????????

Does our government want to SOLVE THE PROBLEMS or simply THROW MONEY AT THEM?????????
Money = symbol of POWER!!!!!!!!!

INCREDIBLE, as every expert has been saying for months, these changes are MANDATORY!!!!!!!!!!!!!

2008 Nov 17 08:22 AM

[axelrod608:]

The current administration has been selling fear for many years now and it appears it is the only policy they have championed that is working. They and Congress are so gripped with fear that they will try anything, do anything - no matter how nonsensical - to attempt to "fix" our current economic problem. Perhaps a bit of reason is in order.

The underlying problem that caused it all was years of unlimited cheap credit. "Free money" if you will. Anyone who thinks that flooding markets with additional cheap credit will "fix" the problem probably also believes that eating more is a good way to lose weight.

The size of the losses so far is staggering. $4 working-on-$5 trillion in real estate. Another $5 T in equities. Then there's the "opaque losses" in 2nd and 3rd tier "assets/liabilities" held by corporations off the books. I've seen estimates ranging from $100 - $500 Trillion. If we assume - for illustration - that half are worth 100 cents on the dollar and the other half are worth 15 - 65 cents on the dollar, we still have losses there at least as great as the national GDP. To think that throwing a few $ trillion of public money at a mess this big will "fix" the problem is like fighting a forest fire with a garden hose. Are we really stupid enough to believe this is the way to "fix" this problem ??

Add to that the certainty that it is going to get worse, MUCH worse. Based on the rate Americans are losing their jobs, it is sheer folly to expect that foreclosures will not at least double what they are currently. What are our leaders smoking ?

The US automakers are unsustainable as they are currently configured. Their vehicles cost far more to make than they can sell them for. If they are not restructured, the only "bailout" possible would be for the government to supplement them FOREVER. They lose money EVERY quarter. Do we want to pay them the difference from the public trough EVERY month ?

And yet between the automakers and their suppliers there are about a MILLION jobs. A million workers. Put them all out of work and see what happens.

US companies grew fat on a decade of unlimited cheap credit. It's time to restructure those companies to reality. Paulson and Bernanke need to put away the punchbowl and bring in a few folks who didn't learn eveything they know at the Enron School of Accounting.

2008 Nov 17 09:19 AM

[long_on_oil:]

The world is suppose to be starving for liquidity but on the other hand we are currently suppose to have $13 trillion dollars in cash sitting on the sidelines just waiting for a market bottom. Where exactly is this $13 trillion sitting, apparently not in any bank that lends money. If it is in T bills how long can that last? As bubbles burst so does idle cash sitting on the sidelines waiting for an entry point. When this cash starts to reenter the market and the dam eventually breaks, this market will reverse itself and the move will be fast, because unlike the decline, the upward movement will suck in that idle cash like a tornado.
Buy high, sell low will never change. It is human nature.

2008 Nov 17 09:26 AM

[John Lounsbury:]

Prudent Man - - -

Good point. I believe that during the TARP "disbursement" phase, all executive salaries should have been capped at some nominal level, say $300,000 per year max per individual, and some limit on the total for all executives within each company. There could be a formula for resurrection of higher compensation during the "repayment" phase. This applies incentives for "rehabilitation" as well as inflicting some level of pain on the perpetrators.

Some history: Lee Iacoca worked for $1 a year during the Chrysler rehab project. A cut to $300,000 (or less) allows the fat cats to still make enough to pay the mortgage on their mansions and second homes and to buy groceries and personal necessities. Tough if they have to temporarily give up their domestic servants, lurxury vacations and third and fourth status-mobiles. If they don't want to work for $300,000 per year they can leave. There are plenty of qualified (maybe more qualified) people in the finance world who would work for that and for a better future.


On Nov 17 08:14 AM PrudentMan, CFA wrote:

> In my fifty years of professional investment experience, my intuition
> is that governments should be minimal and usually are part of the
> problem instead of the solution. It is obvious in this "crisis",
> which is actually not as serious as the economic situation of the
> seventies when the people of Kansas had to bail out New York City,
> calls for less government intrusion rather than more.
>
> When people are told that any government agency is going to solve
> their problems those people have a lack of a sense of reality. In
> the case of derivatives and leverage the government could have easily
> ameliorated the risks by raising rates and Congress should have given
> the SEC the tools they need though I believe they already have those
> tools but, for political reasons, failed to take away the punch bowl.
> After all, the member of the House of Representatives run for reelection
> every two years and they like bull markets and never ever want to
> decrease the money supply.
>
> If the Administration would have announced in 2007 that the Free
> Market would have to clean up any messes it got itself into the markets
> would have corrected accordingly and quickly. Now everyone who made
> a stupid, greedy or both mistake is waiting for some government organization
> to bail them out. The line continues to lengthen and the G-20, beings
> a political organization, is clueless as to the ability of markets
> to correct their own mistakes.

2008 Nov 17 10:16 AM

[fastcad:]

Bush at the G20 is still calling for less regulation. He just doesn't get it.

2008 Nov 17 10:32 AM

[bonddude:]

Tells me how rotten the foundation truly is at GS, probably due to cds s and cdo s they are still packing. They had a gun to their heads.

2008 Nov 17 10:38 AM

[axelrod608:]

long_on_oil -

Money flows back into markets when stability is reached. Currently we are losing about 250,000 jobs a month, annualized that's 3 million/year Americans out of work. The US automakers can't sell a vehicle for what it costs them to make it. Retirees living on investment income have huge losses and no way to recoup them. American families and individuals are laden with debt. At current rates, more Americans will be underwater with their mortgages than those who still have equity this time next year.

While Americans are rejoicing that gas is now less expensive, nobody is paying attention to the leaks from the IEA (International Energy Agency) predicting a 9.1% oil depletion rate in 2009. And greater than that in the future.

American corporations are holding massive amounts of level 2 and 3 assets/liabilities that everyone knows aren't worth 100 cents on the dollar. The potential losses are multiples of national GDP.

The idea that there s a huge mountain of cash out there somewhere that will pour into the markets and turn everything around quickly is ludicrous, given the reality of the national situation. Heck, even permabull Buy !! Buy !! Buy !! Cramer is calling for a sub - 7,000 DOW.

In plain and simple terms, the economy the US brought into the 21st century is not sustainable. And tinkering with one or a couple mechanisms in the economy is like stitching up a trauma victim to stop the bleeding without surgically repairing the sources of the bleeding first.

Anyone who believes this mess is going to turn around soon and everything will be rosy again next year is living in a fantasy world.

2008 Nov 17 10:56 AM

[James Wilson:]

One world banking proceeds New World Order. One world Government on it's way.

2008 Nov 17 11:24 AM

[passhappy:]

One world Gov. would not be such a bad thing.It's the only way to get the problems of the world solved.Look at what going on here.States working independently to solve the problems would cause chaos and inequity.States rights and the constitution, as it is written, are antiquated ideas.The UN was an excellent idea and needs to have more clout.The USA as the world super power is ludicrous.We don't know whats best for us let alone the whole world.Our values and lifestyles and moral values(especially the whole religious hypocrisy thing) are nothing but greed based,and,we want the whole world to be greedy like us.Equating material abundance w/happiness


On Nov 17 11:24 AM James Wilson wrote:

> One world banking proceeds New World Order. One world Government
> on it's way.

2008 Nov 17 12:03 PM

[Gil 1937:]

Does anyone believe that Barney and Chris did not force Fanny/Freddy to make loans to folks who could never repay? Does anyone not believe that George Bush stood by in splendid isolation? Does anybody believe that bankruptcy would not be better for GM than allowing the incompetent management to continue? Does anyone believe that more government is better than less??

2008 Nov 17 12:17 PM

[bbowen7:]

The problem in all of this looking for scapegoats is that the problem is not corporations, unions, or even government. It is the American people who have taken on an unsustainable amount of personal and collective (government) debt. The game is over. We can only consume as much as we produce, and over the last few decades we have abandoned our productive resources while emphasizing consumption - to be paid for by our kids and grandkids. As a nation, we need to take personal responsibility.

2008 Nov 17 01:51 PM

[notsosmart:]

good day sheeples.ready for another fleecing.dumb & dumber are losing houses they had no business buying in the first place.the car makers should go bankrupt( i own ford stock) & management sent packing.no parachutes.welcome to socialism( mainly for the rich.)

2008 Nov 17 02:20 PM

[axelrod608:]

definitely not right in SF - Not all Americans are to blame. I'm debt free except for a mortgage that's still less than half my home's selling price. I've never had a car loan. I worked my way thru college and grad school rather than take loans. And I get hammered by this mess just like everybody else. Many responsible Americans who didn't play the make-believe-we're-ric... game are getting wiped out along with the prodigals.

And the CAUSE of it all was a neverending wave of cheap credit created by the government. And PLEASE don't try to tell me the government was doing what "the people" wanted. Government serves big business and corporations.... after themselves, of course.

Identifying the foundations of a problem is NOT scapegoating. Greenspin should be in jail. Paulson would be a great cellmate for him. They could play chess with Frank & Dodd. And then some REAL Americans could start making a serious attempt to clean things up for the people, not for the CEO's.

2008 Nov 17 02:29 PM

[wallyjm:]

what makes you think that selling equities and putting the dollars in the bank is a smart thing to do? dollar=fiat money! in other words printing press money, just a piece of paper with no gold or silver backing. good luck!

2008 Nov 17 03:37 PM

[PainfullyAware:]

To Assume Benevolence Is Foolish.

You only see the symptoms and have no ability to recognize the disease.

Power given is not so easily taken back.

When you centralize power evil seeks the highest seat at any cost.

Government is like fire - A worthy tool and a terrible master.

The farther from your location you put the power the harder it is to influence.

You have no concept of the "why" the constitution was implemented thus you consider it antiquated. I would like to know what you think about this concept in 2 years. Those who do not study history are doomed to repeat it.

Chaos is not a bad thing. There are many examples of spontaneous order with greater benefit than regimented systems. People have greater collaboration when there is mutual benefit.

Utopia Can Not Be Obtained Because Evil Exists.

Fools And Their Rights Are Soon Parted.




On Nov 17 12:03 PM passhappy wrote:

> One world Gov. would not be such a bad thing.It's the only way to
> get the problems of the world solved.Look at what going on here.States
> working independently to solve the problems would cause chaos and
> inequity.States rights and the constitution, as it is written, are
> antiquated ideas.The UN was an excellent idea and needs to have more
> clout.The USA as the world super power is ludicrous.We don't know
> whats best for us let alone the whole world.Our values and lifestyles
> and moral values(especially the whole religious hypocrisy thing)
> are nothing but greed based,and,we want the whole world to be greedy
> like us.Equating material abundance w/happiness

2008 Nov 17 08:36 PM

[bobbobwhite:]

GE shares are at a 12 year low so if you think the company has a good chance of making it, why not buy now? On the other hand, due to GE's weakness for a long time, it has been seen recently that insider buying is an obvious ploy to inspire retail investor confidence, a la Warren Buffett, that is specious and perhaps unethical due to the immense power and public influence of the "perps". Don't fall for it, and keep your smart money on the sidelines for now. This mess has a long way to go before any clarity is possible. Perhaps years.

2008 Nov 18 11:45 AM