Wall Street Breakfast: Must-Know News

• Fed tries shock therapy. The Federal Reserve cut its target rate by a larger-than-expected 75-100 BPs, to a range of 0% to 0.25%, an all-time low. It also boldly pledged to buy unlimited quantities of securities, and may possibly provide financing for a new housing industry package and expand a $200B program for supporting credit card and student loans. In a unanimous decision, the Fed also dropped its discount rate by 75 BPs to 0.5%, and committed to using 'all available tools' to stimulate growth. "The only meaningful limitation right now is their capacity to be creative,” said economist David Resler. "The Fed is telling us there is just about nothing off the table." Stocks surged in response to the FOMC announcement (Dow +4.2%, S&P +5.1%, Nasdaq +5.4%), while the dollar fell against the euro and yen. (Read the Fed's statement)
• SEC swept into Madoff affair. SEC Chairman Chris Cox admits his agency failed to act for nearly ten years on 'credible and specific allegations' about wrongdoing by Bernard Madoff. Allegations date back to at least 1999 but no action was taken by SEC staff. Cox announced an internal probe will be launched to investigate the 'deeply troubling' SEC shortcomings, including whether relationships between SEC officials and Madoff or his relatives had any impact on the agency's oversight. In addition to Madoff's Ponzi scheme, the SEC has also been faulted in connection to the failures of Bear Sterns and Lehman Brothers.
• Babysitting Citi. Federal officials have put Citigroup (C) on a tighter regulatory leash, indicating continued concerns about Citi's financial health and current management team. Sources say the Fed and the Office of the Comptroller of the Currency are becoming involved in internal discussions about Citi's strategic direction and discouraging executives from pursuing certain acquisitions. The FDIC has also gotten involved, pitching Citi about possibly acquiring certain troubled banks and holding Citi bank from other overly-ambitious deals.
• GE junks quarterly guidance calls. General Electric (GE) CEO Jeffrey Immelt gave his annual state-of-the-company address yesterday. Markets responded positively as GE confirmed its 2008 outlook, maintained its dividend through 2009 and forecasted 2009 revenue growth of 0% to -5%. Q4 earnings should be between $0.50-$0.52 per share, with long-term earnings growth of around 10%. As suspected, the company put an end to quarterly guidance calls after embarrassing misses in Q1 and Q3, and will instead provide a full year operating framework. Shares closed +5.7%.
• Minor spending for miners. Hurt by record declines in metal prices, Anglo American (AAUK) cut its planned 2009 capital expenditure to $4.5B from $10B, upsetting what was meant to be a $45B expansion program. The reduced spending will be directed to sites expected to make the fastest return, and the company stressed it wasn't cancelling projects but rather delaying them until market conditions improve. Other mining giants have faced similar difficulties this year, including BHP Billiton (BHP) (-20% this year) and Rio Tinto (RTP) (-72% this year).
• Good cop/bad cop. Paulson, on the auto bailout: "The automakers will get the money as quickly as we can prudently do it." Bush: "On the other hand, I'm mindful of not putting good money after bad." Bottom line: No bailout yet.
• Honda warns again. Honda (HMC) cut its forecast for annual operating profit by two-thirds today, to ¥180B from the ¥550B forecast in October. This is its third profit warning in five months amid sinking demand and currency fluctuations that are eating into profits. Japan's No. 2 automaker, Honda will cut capital spending, delay new plants and product launches and cut back its Q3 dividend. Despite the heavy downgrade, many investors expect an additional profit warning to reflect a stronger yen.
• Mortgage apps rise; rates plunge. Mortgage applications increased by 2.9% from a week ago, MBA reported, with refinances up 6.5%. Refinances now count for 76.9% of total applications, up from 74.3% last week. The average rate for 30-year mortgages plunged to 5.18% from 5.44%. Rates are down almost a full percent from the 6.16% banks were charging in mid-November.
• Prices rise, slowly. Consumer Prices were 1.1% higher this November vs. a year ago, less than the consensus forecast of +1.5%. Core CPI of +2% vs. +2.1% consensus. Prices fell 1.7% (vs. -1.3%) vs. October, the second consecutive record decrease. Core prices were flat M/M, vs. +0.1% consensus.
• Housing Starts? Or Housing Stops? Housing Starts came in at 625K for November, a whopping 18.9% lower than October's revised 771K and 47% worse than a year ago, the Census Bureau said. Consensus was for 740K.
• Retail sales. Retail chain store sales were up 0.6% vs. a week ago, according to ICSC, reversing much of last week's 0.8% drop. Sales fell 0.4% from the previous year. "Consumers again are dragging their feet on holiday gift buying," said ICSC's Michael P. Niemira, noting gift-buying procrastination has increased in recent years. According to Redbook, national chain store sales fell 0.7% in the first two weeks of December vs. the previous month, and fell 1.1% vs. a year ago.

Earnings: Wednesday Before Open

• General Mills (GIS): FQ2 EPS of $1.36 beats by $0.13. Revenue of $4.0B (+8.3%) in-line. (PR)
• Joy Global (JOYG): Q4 EPS of $1.11 beats by $0.03. Revenue of $1.0B (+40.2%) in-line. (PR)

Earnings: Tuesday After Close

• Adobe (ADBE): Q4 EPS of $0.60 beats by $0.02. Revenue of $915M (+0.4%) in-line. Expects a challenging 2009. Shares +12.5% after hours. (PR)
• Hovnanian (HOV): Q4 EPS of -$5.79 vs. -$1.67. Revenue of $721M (-48.2%) vs. $730M. Will continue to explore debt exchanges, purchases and other opportunistic transactions to reduce its debt. Shares -6.4% after hours. (PR)
• Veriphone (PAY): FQ4 EPS of $0.19 misses by $0.07. Revenue of $248M (+2.8%) vs. $253M. Sees 2009 EPS of $0.85-1.10 vs. $1.04 and revenue of $920M to $1B vs. $973M. Shares +12.5% after hours. (PR)

Today's Markets

• Asia markets closed mixed. Nikkei +0.5% to 8,612. Hang Seng +2.2% to 15,460. Shanghai +0.1% to 1,977. BSE -2.6% to 9,715.
• In Europe at midday, London +0.5%. Paris -0.7%. Frankfurt -0.5%.
• U.S. futures: Dow -1.2%. S&P -1.6%. Nasdaq -1.1%. Crude +1.5% to $44.24. Gold +1.5% to $855.30.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  8:30 Current Account
  10:00 OPEC Press Conference
  10:35 EIA Petroleum Status
• Notable earnings before Wednesday's open: CAG, CMC, GIS, JOYG, MS
• Notable earnings after Wednesday's close: MU, NKE, PAYX, TTWO

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[James Wilson:]

Wow, They spend Billion like crazy when all they have to do is roll back the Bankruptize Laws to the 1980's.

OR

They could make every citizen in the USA a Small Business and give each individual the same write off as small businesses. After all we are all a small business in some ways.

2008 Dec 17 08:08 AM

[eddie6442:]

Mark-to-Market accounting is behind all this financial collapse. It is the reason there is a liquidity crisis. And Mark-to-Market will continue to absorb all the money the FED & Treasury can print ......... into the ZILLIONS!!!!!!!!

All the financial experts were on Kudlow last night, even ex-Fed Governors, and they agree..............yet this practice of descimating assets values is kept in tact.................o... purpose???????????

2008 Dec 17 08:20 AM

[Shaggieman:]

Bush: "On the other hand, I'm mindful of not putting good money after bad."

Why didn't Einstein think that of for Iraq? Why the AIG and investment bank bailouts? Somethings just odd to me about this line of reasoning.

2008 Dec 17 09:19 AM

[axelrod608:]

Could it be that Bush wants to make it unavoidable for Obama to continue his failed policies. He sure is handing the next Pres one helluva mess.

2008 Dec 17 10:09 AM

[notsosmart:]

too bad those shoes missed.might have knocked some sense into this guy.worst pres. ever.(im independent registered).

2008 Dec 17 10:36 AM

[hanson001:]

From above:

"Sources say the Fed and the Office of the Comptroller of the Currency are becoming involved in internal discussions about Citi's strategic direction and discouraging executives from pursuing certain acquisitions. The FDIC has also gotten involved, pitching Citi about possibly acquiring certain troubled banks and holding Citi bank from other overly-ambitious deals."

From: www.bloggingstocks.com.../

"My former employer, Bloomberg News, is on a quest to learn the identities of the recipients of $2 trillion in emergency loans from the federal government and what collateral the Federal Reserve is accepting in return. The government has thrown up roadblock after roadblock.

Bloomberg and other media organizations filed suit under the Freedom of Information Act to force the government to disclose how it's spending money under the biggest intervention in the economy since the Great Depression. On December 8, the Fed rejected the request, saying it's allowed to withhold information about trade secrets and commercial information, according to an article in Bloomberg."

The socialism is spreading. Don't be fooled it's here. Next stop is the dictatorship. That's if the Revolution doesn't kill it.

Got the bill for my parish/county taxes the other day. Up about 300% from last year. They assess the value every 4 years. Called the Tax Accessor's Office to question and it was stated, "it cost a lot to run a parish." Now I will be forced to go downtown to educate myself as to the reason for such an extreme change. I could not get a comprehensible answer over the phone.

This is the same type of service we can look forward to as the government sucks up more and more of the economy. By the time the government "fixes" everything, you will think Bush was the Dala Lama.

I am having a hard time locating 7.62 ammo. Does anyone have a lead on a supply source?

2008 Dec 17 12:08 PM

[Econ 101:]

hanson001,

Good idea. Stock up on coffee and whiskey too, as tradeable iterms when dollars are worth nothing and the government confiscates gold.

2008 Dec 17 01:30 PM

[bbowen7:]

Perhaps the next administration will be better. Even though more socialist, they will believe in what they are doing. This group is not operating with any principles.

2008 Dec 17 02:05 PM

[woodsey:]

Don't have any ammo; just a couple of good shelaylies (don't know how to spell; not in my dictionary; more's the pity). Having these bone crushers has made me even more violent. Probably have a heart attack just thinking about what I'm gonna do to the intruder AFTER I render him senseless. Noam Chomsky in "Hegemony or Survival' shows what America's violence has done to others as well as ourselves.

2008 Dec 17 03:58 PM