Wall Street Breakfast: Must-Know News 16 comments
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- Help for homeowners, again. The Treasury Department is considering a plan to boost home purchases by pushing down interest rates on new mortgages. The plan, which is in the development stage, would encourage banks to lend at rates as low as 4.5%, more than a full percentage point lower than current 30-year fixed-rate mortgages. Treasury officials believe the plan will halt the slide in home prices as cheaper borrowing allows consumers to take out bigger loans, thereby increasing demand and pushing up home values. The lower interest rates would be available to new buyers only, not to individuals looking to refinance an existing mortgage. The plan would also require the buyers to qualify for a mortgage guaranteed by Fannie Mae (FNM), Freddie Mac (FRE) or the Federal Housing Administration. To do so, borrowers have to document their income and be able to afford monthly payments, which should help keep the government away from riskier loans.
- The stimulus that kept growing and growing and... The economy may be shrinking, but the size of a potential stimulus package is definitely still growing. Some economists are now calling for at least $1T to help boost the economy. Proponents include Joseph Stiglitz, a Nobel Prize winner who worked with Pres. Bill Clinton, and Kenneth Rogoff, a Harvard University professor and former chief economist at the IMF. Rogoff sees the need for "$500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption." Even those numbers may grow, with some seeing the need for as much as $700B or more per year. President-elect Obama, who has called a stimulus plan his top priority once he takes office in January, had originally proposed a package of $50B. With current estimates now closer to ten and fifteen times that figure, the stimulus package is still 'evolving,' says one economist, and could reach unprecedented levels by the time it is actually enacted.
- Cuts sweep through Credit Suisse. Credit Suisse (CS) plans to cut 5,300 jobs, or 11% of its workforce, after losses of around 3B francs ($2.5B) in the first two months of this quarter. About 3,800 of the jobs will come from the investment banking unit, and the reductions will save the bank roughly 2B francs while putting a renewed emphasis on money-management for wealthy clients. CEO Brady Dougan, who just six weeks ago said "we are the best capitalized bank in the world," said the cuts were necessary to help the bank "weather the continuing challenging market conditions." The bank said its deposit base and funding remain 'very solid.' Dougan and senior executives Walter Kielholz and Paul Calello have agreed to forgo their 2008 bonuses. Shares -4.1% in Zurich, bringing the stock's losses this year to 61%.
- Capital One wins the chase. Capital One Financial Corp. (COF) has reached a deal to buy Chevy Chase Bank for $520M in cash and stock. The deal will boost Capital One's presence in the Washington D.C. area and expand its deposit base, giving it key access to cheap funding. Capital One received $3.56B in federal aid this year, but says it didn't use that capital to complete the transaction. As recently as last month, Citigroup (C) was in talks to buy Chevy Chase bank, but backed out amid its own financial difficulties. Other short-list courters included JPMorgan Chase (JPM), SunTrust Banks (STI) and BB&T Corp. (BBT). Chevy Chase has $15.5B in assets and 244 branches in the Washington area.
- SEC starts 'baby steps' reform. The SEC moved to curb potential conflicts of interest at bond-rating firms and raised disclosure requirements about the ratings process. Despite these measures, the SEC held back from more controversial changes that would have seen different ratings designations for structured products and would have required agencies to disclose to the public any underlying information about any debt they rate. SEC's Chris Cox called the changes a 'significant and substantive' response to criticisms of the credit-rating industry, though other lawmakers cautioned that the new rules are just the beginning of a larger push for regulatory reform over the coming year.
- Still no deal on sweetened Sanyo bid. Panasonic (PC) raised its offer for Sanyo (SANYY.PK) by ¥10 to ¥130 ($1.39) per share, valuing the company at around $8.6B. However, sources say major shareholder Goldman Sachs (GS) once again rejected the offer, which is still 12% below Sanyo's current market price and nearly 50% below the ¥250-plus per share Goldman is said to be seeking. The two other main shareholders, Sumitomo Mitsui Banking Co and Daiwa Securities SMBC, are said to be positively considering the offer, but Goldman has threatened to launch a counter bid and may buy out the shares of Sumitomo and Daiwa. A counter bid would force Panasonic to raise its offer or abandon it altogether.
- Bankruptcy becomes an automaker option. General Motors (GM) and Chrysler are considering accepting a pre-arranged bankruptcy in a last-ditch effort to secure a multi-billion dollar federal bailout, said a source familiar with the matter. At least three members of Congress are investigating whether a pre-arranged bankruptcy - negotiated with workers, creditors and lenders - would allow the industry to restructure itself without the liquidation auto executives have warned about. A pre-arranged bankruptcy would also use less government money and be significantly faster than a regular bankruptcy (lasting potentially two months vs. two years or more). Though GM board member George Fisher said bankruptcy is "way down the list of options," the company's position is a marked shift from its earlier insistence that bankruptcy was not an option at all.
- Fed's "Blue" Book. The Federal Reserve's Beige Book looked pretty blue, but didn't hold any surprises: Weak retail, slowing manufacturing, subdued tourism spending, slow home sales, tough labor markets, and cheaper prices. "Even retailers who believe holiday-period sales could exceed current expectations say extensive discounting will mean that there might be 'volume but no profit.'"
- Mortgage apps jump up... Mortgage applications surged by a record 112% last week, according to MBA, fueled by a huge jump in refinancing. The rate for 30-year mortgages plunged by more than 50 BPs to 5.47% after the Federal Reserve pledged to buy mortgage-backed debt.
- ...but employment falls. Nonfarm employment fell by 250,000 from October to November, according to ADP, evidence of deep and broad weakness in the U.S. labor market. The consensus was for -205,000. The employment loss was again driven by the goods-producing sector, which fell 158K - its twenty-fourth consecutive decline. Manufacturing lost 118K jobs, and services jobs fell 92K. Medium-size businesses shed more jobs than large and small ones did. The change in nonfarm employment from September to October was revised down to -179,000 from -157,000.
- Nonfarm productivity down from Q2. Nonfarm Productivity was up 1.3% in Q3, more than the 0.9% economists expected, but down from Q2's 3.6% jump. Unit labor costs were up a less than expected 2.6% (+3.6% consensus), after falling 0.1% last quarter.
- Non-mfg sector contracts. Economic activity in the non-manufacturing sector decreased by 7.1% in November to 37.3%, ISM said, worse than the 43.0% consensus. This is the second month in a row of sector contraction.
Earnings: Thursday Before Open
- Toll Brothers (TOL): FQ4 EPS of -$0.49 misses by $0.02. Revenue of $699M (-40.2%) vs. $681M. (PR)
- Smithfield Foods (SFD): FQ2 EPS of -$0.21 misses by $0.11. Revenue of $3.15B (+14.6%) vs. $3.2B. (PR)
- Williams-Sonoma (WSM): Q3 EPS of -$0.10 beats by $0.02. Revenue of $752M (-16%) vs. $747M. (PR)
Earnings: Wednesday After Close
- Aeropostale (ARO): Q3 EPS of $0.63 beats by $0.01. Revenue of $482M (+16.8%) in-line. Sees Q4 EPS of $0.84-0.90 vs. $0.98. Shares -2.9% after hours. (PR)
- Collective Brands (PSS): Q3 EPS of $0.42 in-line. Revenue of $863M (+3.9%) vs. $841M. Shares +10.2% after hours. (PR)
- Copart (CPRT): FQ1 EPS of $0.44 beats by $0.01. Revenue of $192M (+4.2%) vs. $198M. (PR)
- Synopsys (SNPS): FQ4 EPS of $0.43 beats by $0.05. Revenue of $353M (+11.9%) in-line. Shares +7.0% after hours. (PR)
Today's Markets
- Asia markets closed mixed. Nikkei -1.0% to 7,924. Hang Seng -0.6% to 13,510. Shanghai +1.8% to 2,001. BSE +5.5% to 9.230.
- In Europe at midday, London +1.2%. Paris +1.4%. Frankfurt +2.5%.
- U.S. futures: Dow -0.1%. S&P -0.1%. Nasdaq +0.5%. Crude -1.7% to $46.01. Gold +0.03% to $770.70.
Thursday's Economic Calendar
- 6:00 Chain Store Sales
6:00 Monster Employment Index
7:00 BoE Announcement
7:45 ECB Announcement
8:30 Jobless Claims
10:00 Factory Orders
10:35 EIA Natural Gas Report
11:15 Bernanke speaks on housing finance
4:30 PM Money Supply - Notable earnings before Thursday's open: SFD, TOL, UTIW, WSM
- Notable earnings after Thursday's close: GES, NOVL
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 16 comments:
Oh God, here we go again. Will keep making the same mistake until we learn the lesson. Let the market do its thing and take those prices lower.
[1] Rescind Mark-to-Market accounting;
[2] Rescind Sarbanes/Oxley;
[3] Reinstate UPTICK RULE by SEC;
NONE OF THESE COSTS A DIME!!!!!!!!!!
But why do them CONGRESS IS SPENDING their way out of this mess...... Isn't that what CONGRESS' DO??????? Hey, Congress acts as though they have money.........too ignorant to even know that AMERICA IS BANKRUPT!!!!!!!!!!
Being a MILLIONAIRE once meant something--a significant amount of money symbolizing wealth and success. NOW, being a BILLIONAIRE has replaced the peasants who only have a million. Heck, TRILLIONS is the new amount designate for REAL MONEY ------ IN AMERICA!!!!!!!!!!!
After all, America is the strongest, richest, smartest, well educated, most productive, innovative, ethical and moral country in the history of the world.......... AREN'T WE?????????
That's what we keep getting told............
with new stricter rules?
Reorganization bankruptcy (Chapter 7) usually wipes out common stock. The exact situation depends on the final court decree. It is possible for some sort of equity to remain, but that is very uncommon.
Dissolution bankruptcy (Chapter 11) always discards all equity. Debt is settled by distribution and liquidation of assets.
Aside from a handful of individuals like Ron Paul, the "fools on the hill" and administrations believe they can solve this problem they created. A line from the Vietnam war comes to mind - "We had to destroy the village in order to save it". Only in this case, substitute the term "country" for "village". And since global economies are interwoven, the US government is wiling to risk destroying the global economy in a misuided effort to "save" it.
They do not understand the concept of "unsustainable". The bloated American automakers are unsustainable. The bloated American financial industry is unsustainable. And the free-spending, irresponsible Federal government is unsustainable.
Every election, the sheeple go to the polls and vote in yet another bunch of Republicrats. Einstein's definition of insanity - doing the same thing the same way over and over and expecting a different outcome - comes to mind.
If you vote for a Republicrat, YOU are the problem.
GM is unsustainable as currently structured. Their current structure is a result of management decisions over the past decades. Obvoiusly, current management is incompetent.
I'm a taxpayer. I don't want tax dollars being used to extend the life of companies in a coma. GM is NOT coming out of this mess looking anything at all like they do now. And they look now the way they look because management decisions made it this way.
Don't even THINK about giving more money to the bozos that ran it into the ground.
On Dec 04 08:46 AM eddie64 wrote:
> REAL SOLUTIONS for the economy --- still not considered:
> [1] Rescind Mark-to-Market accounting;
> [2] Rescind Sarbanes/Oxley;
> [3] Reinstate UPTICK RULE by SEC;
> NONE OF THESE COSTS A DIME!!!!!!!!!!
>
> But why do them CONGRESS IS SPENDING their way out of this mess......
> Isn't that what CONGRESS' DO??????? Hey, Congress acts as though
> they have money.........too ignorant to even know that AMERICA IS
> BANKRUPT!!!!!!!!!!
>
> Being a MILLIONAIRE once meant something--a significant amount of
> money symbolizing wealth and success. NOW, being a BILLIONAIRE has
> replaced the peasants who only have a million. Heck, TRILLIONS is
> the new amount designate for REAL MONEY ------ IN AMERICA!!!!!!!!!!!
>
>
> After all, America is the strongest, richest, smartest, well educated,
> most productive, innovative, ethical and moral country in the history
> of the world.......... AREN'T WE?????????
>
> That's what we keep getting told............
Yes this is a problem. But our country is so fragmented, I don't think greater number of political parties will solve the problem. Hitler came to power when Germany's many political parties perpetually screwed things up. People were tired of disagreements and the cynicism. Remember, he made the trains run on time.
Our dictatorship is on the way. Don't know when but it makes perfect logical sense. We are sheeple. We do not what to think for ourselves, wishing a great political person to do the thinking for us. We are never to blame for anything and want something for nothing. As I study history, this always leads to dictatorship.
It kills me that both Houses are controlled by one political party. I think Congress is a total waste of our nation's capital. Much better they be divided and not be able to pass any bill.
On Dec 04 10:49 AM axelrod608 wrote:
> Both of the two ruling parties are responsible for creating this
> mess. They all confuse the term "oversight" with "overlook", and
> they overlook all the chicanery going on in corporate America. Similarly,
> both ruling parties are committed to spending us out of the mess,
> even though logic and historical evidence indicates it cannot be
> done. And the incoming administration, from all reports, is totally
> committed to continue the orgy of throwing vast quantities of borrowed
> money at the problem.
>
> Aside from a handful of individuals like Ron Paul, the "fools on
> the hill" and administrations believe they can solve this problem
> they created. A line from the Vietnam war comes to mind - "We had
> to destroy the village in order to save it". Only in this case, substitute
> the term "country" for "village". And since global economies are
> interwoven, the US government is wiling to risk destroying the global
> economy in a misuided effort to "save" it.
>
> They do not understand the concept of "unsustainable&... The
> bloated American automakers are unsustainable. The bloated American
> financial industry is unsustainable. And the free-spending, irresponsible
> Federal government is unsustainable.
>
> Every election, the sheeple go to the polls and vote in yet another
> bunch of Republicrats. Einstein's definition of insanity - doing
> the same thing the same way over and over and expecting a different
> outcome - comes to mind.
>
> If you vote for a Republicrat, YOU are the problem.
I will have to keep paying the 6% interest while other can buy at 4 1/2%?
Stupid congress.
Chapter 7 is dissolution
Chapter 11 is reorganization
I'm surprised nobody jumped on this error. Either (1) nobody read the comment or (2) nobody understood that it was an error or (3) nobody cares.
On Dec 04 10:38 AM jlounsbury59 wrote:
> Bankruptcy Question - - -
>
> Reorganization bankruptcy (Chapter 7) usually wipes out common stock.
> The exact situation depends on the final court decree. It is possible
> for some sort of equity to remain, but that is very uncommon. <br/>
>
> Dissolution bankruptcy (Chapter 11) always discards all equity. Debt
> is settled by distribution and liquidation of assets.
We still need a third party made up of people not lawyers and Ivy league grads trying to be better than thier neighbor. We need people in congress that consider our needs not thier reelections. AND WE NEED PEOPLE NOT SHEEPLE TO MAKE IT HAPPEN. Other wise dont complain just head on down the shute for your butchering.