- Chugging along towards a bailout. After multiple false starts, sources say an auto bailout could be unveiled today that would see General Motors (NYSE:GM) and Chrysler get loans needed to survive until March 2009, and would demand sweeping restructuring. President Bush expressed worry about a "disorderly bankruptcy and what it would do to the psychology of the markets," and said he doesn't want to "dump a major catastrophe" on President-elect Obama. To avoid opening up TARP access to other industries, the Treasury may lend to GM and Chrysler through their credit arms, GMAC (NYSE:GKM) and Chrysler Financial.
- Yes We Can (fix the economy)! President-elect Obama may not be in office yet, but that hasn't stopped him from making some ambitious economic promises. Yesterday, Obama committed to strengthen financial regulatory agencies and to fight runaway "greed and scheming" to stabilize the struggling U.S. economy. He called on his picks for the SEC and CFTC (Mary Schapiro and Gary Gensler, respectively) to "put in place new, common-sense rules... that will protect investors, consumers and our entire economy from fraud and manipulation." Also on the agenda is a wide-sweeping stimulus plan that could cost from $675B-$850B or more, though aides say they'll try to keep the final version of the plan under the psychological $1T mark. Obama's advisers hope to finalize their version of the stimulus plan by Christmas so Congressional staffers can draft legislation by the new year.
- S&P dims GE outlook. S&P took the first step towards potentially lowering General Electric's (NYSE:GE) AAA credit rating, sending shares down 8.2%. The ratings agency changed GE's outlook to Negative from Stable, and warned earnings and cash flow at GE Capital could decline enough over the next two years to warrant a downgrade. S&P put the odds of a downgrade at 1 in 3. GE execs defended their decision not to cut the firm's $1.24 annual dividend, despite the estimated cost of over $12B. GE has repeatedly emphasized its commitment to maintaining its triple-A rating. "The AAA is a philosophy of how you run the company," said CEO Jeff Immelt. "I've always liked the discipline around the AAA."
- Credit card clampdown. Federal regulators adopted sweeping new rules for the credit card industry. Effective as of July 2010, credit card companies will be able to increase interest rates only on new credit cards and future purchases or advances, rather than on current balances. The move is meant to shield consumers from arbitrary rate increases or insufficient times to pay bills. Among other changes, firms will have to provide a longer notice period before modifying the terms of an account. The changes could cost the banking industry over $10B a year and could make it more difficult for individuals with bad credit to get a subprime card carrying higher interest rates. (Read the Fed's official statement.)
- GMAC setback. GMAC's (GKM) efforts to become a bank-holding company were dealt a potentially fatal blow yesterday when Pimco (AZ) declined to tender its bond holdings as part of a massive debt restructuring. If Pimco doesn't participate in GMAC's debt restructuring, as it had previously said it would, GMAC will probably fall short of the capital it needs to convert its status. Without access to federal funds available to banks, the cash-strapped firm could default on its debts and possibly face bankruptcy.
- Stake sale scuppered. Bank of America (NYSE:BAC) canceled plans to sell about 5.5B shares (worth around $2.8B) in China Construction Bank Corp. because of a Chinese law that would have forced BoA to forfeit profits from the sale. BoA raised its stake in China Construction Bank in June and November (previously), and China's securities law bans investors holding over 5% of a locally incorporated, publicly traded company from selling shares within six months of buying the stock. BoA holds a 19.1% stake in China Construction Bank.
- FedEx exes pay, pensions. FedEx, which released quarterly earnings yesterday, forecasts tough economic conditions through 2009 and has taken broad cost-cutting measures. It has slashed the pay of over 35,000 employees, including its chairman and CEO Frederick W. Smith. The company will also stop contributing to employee retirement plans for at least a year as part of its efforts to cut at least $1B in annual costs. Though the pay cuts surely come as bad news to FedEx employees, some argue that pay cuts are better than job cuts and, ultimately, could help the economy recover faster.
- ABB's drab orders spur cost cuts. ABB (NYSE:ABB), the world's largest builder of electricity grids, will take an $850M provision to cover a cartel probe and announced its biggest cost-cutting campaign since facing bankruptcy in 2002. The company plans to cut costs by $1B as orders slow and will shift more production to emerging markets. CEO Joe Hogan said a strong order backlog will help offset a fall in new bookings. ABB is down 50% this year, and down 8% in premarket trading.
- BoJ joins race to zero. Bank of Japan lowered its benchmark rate to 0.1% from 0.3%, raised purchases of government debt and announced plans to buy commercial paper for the first time. This is the bank's second cut in as many months as Japan faces a deepening recession. (Read the full policy decision (.pdf))
- Jobless claims dip. Initial jobless claims of 554,000, down 21K from last week's revised number, were just below the 558K economists expected. The 4-week moving average rose 2,750 to 543,750. Continuing claims down 47K to 4.384M.
- Leading indicators fall. Leading Indicators dipped 0.4% in November, slightly better than the -0.5% economists expected. Positive contributions from money supply and yield spreads helped pull up "large declines in building permits, stock prices, and initial unemployment claims."
- Philly Fed bounces back. After tumbling a shocking 41 points in October, Philly Fed's index of manufacturing conditions bounced back to -32.9 from -39.3, vs. -40.5 consensus. But its index of future activity falls to -14.5 from -10.4, suggesting declines will continue into 2009.
Earnings: Friday Before Open
- Cintas (NASDAQ:CTAS): FQ2 EPS of $0.47 misses by $0.07. Revenue of $985M (+0.1%) vs. $1.02B. Removes guidance for remainder of year amid volatile market conditions. (PR)
- Lam Research (NASDAQ:LRCX): "Business conditions in the semiconductor equipment sector have deteriorated further in recent weeks. The weakness in memory pricing, the softening end-user demand environment, and restrictions in the capital markets have caused our customers to dramatically reduce their equipment purchases." Sees Q4 revenue of $270-285M vs. $300M consensus. (8-K)
- Weyerhaeuser (NYSE:WY): "The continued housing slump and a weaker pulp market will result in significantly lower than expected Q4 earnings." Expects challenging market conditions to continue through 2009. Reduces quarterly dividend to $0.25 from $0.60. Approves $250M share buyback. (PR)
Earnings: Thursday After Close
- 3Com (COMS): FQ2 EPS of $0.12 beats by $0.03. Revenue of $355M (+11.6%) vs. $342M. Shares +5.8% after hours.(PR)
- Accenture (NYSE:ACN): FQ1 EPS of $0.74 beats by $0.06. Revenue of $6.47B (+6%) vs. $5.97B. Shares +0.3% after hours.(PR)
- Darden Restaurants (NYSE:DRI): FQ2 EPS of $0.44 beats by $0.14. Revenue of $1.67B (+9.9%) in-line. Shares +6.3% after hours. (PR)
- Intrepid Potash (NYSE:IPI): Expects Q4 sales levels to be less than half of Q3 (consensus was -2%!). Shares -16.9% after hours. (PR)
- Oracle (NYSE:ORCL): FQ2 EPS of $0.34 in-line. Revenue of $5.61B (+5.5%) vs. $5.84B. Shares +3.0% after hours. (PR)
- Palm (PALM): FQ2 EPS of -$0.73 misses by $0.35. Revenue of $192M vs. $214M. (PR)
- Potash (NYSE:POT): Sees full-year 2008 EPS of $10.75 vs. $11.56 consensus due in part to weak sales volumes. Shares -4.7% after hours. (PR)
- Quiksilver (NYSE:ZQK): Q4 EPS of $0.28 beats by $0.03. Revenue of $607M (+3.3%) vs. $590M. Shares +9.5% after hours. (PR)
- Research In Motion (RIMM): FQ3 EPS of $0.83 in-line. Revenue of $2.78B (+7.9%) vs. $2.81B. Sees Q4 EPS of $0.83-0.91 vs. $0.83 consensus and revenue of $3.3-3.5B vs. $2.98B. Shares +0.7% after hours. (PR)
- In Japan, profit-taking trumps the BoJ rate cut, Nikkei -0.91% to 8,589. Elsewhere in Asia: Hang Seng -2.39% to 15,128. Shanghai +0.14% to 2,018. BSE +0.23% to 10,100.
- In Europe, big oil stocks, hurting from sub-$40/barrel oil, dragged markets down. London -2.7%. Paris -2%. Frankfurt -1.4% at midday.
- U.S. futures have drifted lower overnight. Dow -0.7% to 8615. S&P -0.9% to 885. Nasdaq -0.9%. Feb. crude -0.6% to $41.42. Gold -3.4% to $831.40.
- U.S. dollar, fresh off a late-day rally Thursday, continues to make up lost ground. Euro -2.5% vs. dollar. Yen +0.12%. Pound -0.9%. $Cad -2.3%.
Friday's Economic Calendar
Seeking Alpha editor Eli Hoffmann contributed to this post.
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