Wall Street Breakfast: Must-Know News

• Slow-motion car crash. President Bush says the auto industry bailout is coming 'relatively soon,' but that may not be soon enough. Chrysler has announced it will shut all 30 of its plants, beginning tomorrow, for at least a month, and is tightening its terms for dealerships. Ford (F) will idle most of its North American plants for the first week in January. General Motors (GM) is halting a key new engine factory and, as part of its efforts to shrink the number of models it sells, might downsize the Pontiac brand, its third-highest selling brand, from six models to one. Out of desperation, GM and Chrysler have restarted merger talks abandoned only weeks ago, and Cerberus has signaled its willingness to give away part of its Chrysler ownership. Bush seems to want an automaker agreement before Christmas, but even if a deal is put in place by Dec. 25, there's no guarantee the Big Three will see the money anytime soon.
• Markets shrug off OPEC cuts. OPEC members agreed to slash output by a record 2.2M barrels/day in addition to the 1.7M barrels/day cut over the past three months. Effective as of January 1, the larger-than-expected cut was meant to send a strong message that OPEC members are ready to act to put a floor beneath plummeting oil prices. Two non-members, Russia and Azerbaijan, said they may contribute an extra 600,000 barrels/day in cuts as a show of support. Within minutes of the announcement, however, benchmark crude prices fell sharply and closed down 8.12% to $40.06.
• Schapiro to shape up SEC. President-elect Obama will announce Mary Schapiro as his nominee for SEC chairwoman at a press conference later today. A top brokerage regulator, Schapiro will probably try to overhaul financial-market regulations and may push for a merger between the SEC and the Commodity Futures Trading Commission [CFTC]. The appointment comes at a critical time for the SEC, which has seen its reputation dragged through the mud in recent months for lax oversight and 'deeply troubling' acts of negligence. At the press conference, Obama is also expected to name Daniel Tarullo to an open seat on the Federal Reserve Board and Gary Gensler to head the CFTC.
• Goldman says sayonara to Sanyo. Panasonic (PC) finally reached a deal with Sanyo Electronics' (SANYY.PK) three largest shareholders. Panasonic will buy a 70% stake in the smaller electronics rival from Goldman Sachs (GS), Sumitomo Mitsui Banking Corp. and Daiwa Securities SMBC for ¥131 ($1.48) per share, one yen higher than a previously rejected offer. The deal values Sanyo at around ¥800B. A combined Panasonic-Sanyo would rival Hitachi (HIT) as Japan's largest electronics maker. Sanyo -3.5% to ¥138 in Tokyo.
• Airline merger fails to take off. British Airways (BAIRY.PK) and Australia's Qantas Airways have ended merger talks after failing to agree on key terms of a deal that would have been worth over $6B. Many analysts had questioned the rationale of the deal in the first place and Qantas CEO Alan Joyce had warned of significant hurdles in moving the merger forward. British Airways is now free to pursue a deal with Spain's Iberia, while Qantas may pursue ties with Asian airlines.
• Deficit shrinks. The U.S. Current Account Deficit narrowed to $174.1B in Q3, better than the $179B expected by economists. The deficit on goods decreased to $214.7B, while the surplus on services increased to $38.2B.
• German confidence flags. German business confidence fell to its lowest level since 1982 this month as the country is dragged deeper into recession. The business climate index fell to 82.6 from 85.8, worse than the 84 consensus.

Earnings: Thursday Before Open

• Covance (CVD): Sees 2008 EPS of $3.02 vs. $3.14 consensus "due to a combination of a lower level of new project initiations and increased project delays." Sees 2009 EPS of $3.00-3.20 vs. $3.44. (PR)
• Ingersoll-Rand (IR): Sees Q4 EPS of $0.20-0.30 vs. consensus of $0.60 and revenue of $3.7B vs. $4.1B. "The rate of decline accelerated compared with prior expectations... The rate of deterioration in European economic activity was especially severe over the last six weeks." (PR)
• Lennar (LEN): Q4 EPS of $0.43 beats by $2.04. Revenue of $1.3B (-41.3%) vs. $1.1B. (EPS excludes a $0.94/share charge related to valuation adjustments and other write-offs; and a $4.61/share charge related to a non-cash deferred tax asset valuation allowance.) (PR)

Earnings: Wednesday After Close

• Nike (NKE): FQ2 EPS of $0.80 beats by $0.02. Revenue of $4.6B (+6%) vs. $4.69B. "I see the current state of our industry and the world as an incredible opportunity for Nike to be a better and stronger leader, and we’re going to seize that opportunity." (PR)
• Paychex (PAYX): FQ2 EPS of $0.39 misses by $0.01. Revenue of $524M (+3.2%) vs. $533M. "Over the past six months, we experienced companies going out of business increasing 12%, new business starts declining 13%, checks per client decreasing 1.5%, and we saw lower levels of new hire reporting." (PR)
• Take-Two Interactive Software (TTWO): Q4 EPS of $0.02 misses by $0.03. Revenue of $323M (+10.5%) vs. $326M. Sees Q1 EPS of ($0.70-0.85) vs. $0.22 and revenue of $175-225M vs. $318M. Shares -19% after hours. (PR)

Today's Markets

• Asia markets closed in the green. Nikkei +0.6% to 8,667. Hang Seng +0.2% to 15,498. Shanghai +2.0% to 2,016. BSE +3.7% to 10,076.
• In Europe at midday, London +0.1%. Paris -0.8%. Frankfurt +0.8%.
• U.S. futures: Dow +0.5%. S&P +0.4%. Nasdaq +0.5%. Crude +1.4% to $40.61. Gold +0.8% to $875.10.

Thursday's Economic Calendar

• 8:30 Jobless Claims
  10:00 Leading Indicators
  10:00 Philadelphia Fed Survey
  10:35 Philadelphia Fed Survey
  11:30 Fed's Fisher speaks on the economic crisis
  2:30 PM Fed Board Holds Open Meeting on Credit Card Regulations
  4:30 PM Money Supply
• Notable earnings before Thursday's open: CCL, DFS, FDX, LEN, PIR, RAD, WOR
• Notable earnings after Thursday's close: ACN, COMS, DRI, ORCL, PALM, RIMM, ZQK

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[timemachine:]

The automotive bailout will be just that. One more container of money following the previous one. The industry, both labor and management is begging for help. The very best help we can give them is to let GM and Chrysler merge, structure an organized bankrupcy, and proceed with funds ladeled to them from a small container. If they are incapable of handling their funds without help, why would we assume they would handle ours any better. Let free enterprise work, and let all stakeholders participate in a total restructure of this industry.

2008 Dec 18 09:45 AM

[erniem:]

GM has needed to drop models for decades. Now that it is inches from bankruptcy, it finally does. Good management LOL.

2008 Dec 18 09:55 AM

[sidestick:]

I thought the Conservative mantra was that private industry, businessmen, always did things better and more efficiently than government... Apparently it is being revealed that businessmen aren't smart enough, after all, to run their businesses well, but are smart enough to go on the public dole and ask for, and receive, public money to continue their follies. Could Conservatives have been that wrong about the purported "efficiencies" of "business", or more likely, did they know all along that they could "manage" public monies right into their own pockets. I feel raped by the now discredited Conservative philosophy of "Free Markets" because it has cost me and my children too much.

2008 Dec 18 10:25 AM

[jackooo:]

The action the auto firms are taking now should of been executed 10 years ago.

2008 Dec 18 11:16 AM

[axelrod608:]

Aside from Ron Paul and very few like him, there are no "conservatives" in government. The only significant fiscal distinction between the Republicrats is the source of the funds with which to increase the size and expense of government. Tax and spend or borrow and spend. The we have the current run the printing presses nonstop and spend. Consevatism is close to death without access to life support.

As for business, when the holy grail is next quarter's report, long term planning disappears. Which is why normal fluctuations in the business cycle leave a blast zone littered with casualties.

But the fundamental principle on which our house of cards economy is based is never questioned even though it is only accurate in certain conditions. The idea that the economy can be grown by force feeding it cheap, unlimited money - liquidity - in the form of credit, stops working when earnings aren't sufficient for debt service.

We had our decade long orgy of debt. A few companies remained solvent and self financing. Those companies are still sound. The companies holding a lot of debt - especially BAD debt - are, or will be, toast.

You cannot borrow your way to wealth. Not in today's conditions. Not even at zero percent interest when asset prices are deflating and costs are inflating. And the only constitutional way of eliminating bad debt is in bankruptcy.

Finally, Wall St again gave themselves big bonuses. Remember when bonuses were pad to reward people for exceptional performance ?

Free markets ?? Naw, freeloaders.

2008 Dec 18 11:43 AM

[John Lounsbury:]

The comments here are pretty much in agreement in addressing some of the symptoms of our current malaise. I would like to add a list of some of the underlying causes.

1. Use of debt to create additional debt, rather than to finance means of production.

2. Lack of long-term planning and contingency planning.

3. The belief that desirable economic outcomes can be legislated in any way except by incentivizing entreprenurial effort.

4, Belief that self-interest in and of itself will, through competition (without regulation), automatically produce benefit for all.

Others may add to this list, but I'll stop for now.

2008 Dec 18 02:44 PM

[long_on_oil:]

Schaprio heading the sec is a joke. Recycling sec employees by putting them in different positions is not going to solve the regulatory problems. Putting ex Clinton people and Illinois machine politicians in positions of higher authority is not the change the American people are expecting. Before the Messiahs term is over he will be treated like the leper. When will the American people ever realize that Lincoln and Evertt Derkson were the last good politicians to come out of Illinois. Why in the heck do we keep electing these crooked politicians from Illinois.

2008 Dec 18 03:12 PM

[Bob Ball:]

Government has never run an efficient anything. Check out the USPS, Army, Navy and Air Force efficiency. Check out what accomplishments of the Energy Department with a $60B budget. How about the local governments DMV, Schools, and street maintenance. All these agencies would not last a minute if they had to make a profit or meet a budget. They never economize but will increase taxes at the drop of a hat. I will bet on private business anytime and win 99 % of the time. If they do not meet budget they go out of business OR SHOULD go out of business' Detroit Automakers have been put under by work rules and benefits all under pressure by the U.S. Congress in support of the UAW and all other unions. The bail out may work but only to mortgage the future of all tax payers.

2008 Dec 18 04:21 PM

[secmaven:]

20 billion won't even cover the deferred pension plan payments for the auto workers!

2008 Dec 18 06:35 PM

[smurphny:]

So the "BIG THREE" need to shut down??? So what? Sounds like good business policy, maybe the best idea they've had in decades. We need to ignore the scare tactics that are stampeding Americans like sheep into giving these failed businesses our hard earned tax dollars. Let them find other ways like this to survive or let them go under. Maybe they can sell their assets to someone responsible who will be able to produce a decent American vehicle.

2008 Dec 23 09:16 AM