Wall Street Breakfast: Must-Know News

• GMAC a bank, at last. GMAC (GKM), owned by General Motors (GM) and Cerberus, has finally received approval to become a bank holding company, potentially giving it much-needed access to federal lending programs and further entangling the government in areas of the economy it once considered beyond its purview. Some officials worried about GMAC's low capital levels, but according to the Federal Reserve's statement, "GMAC Bank is currently well capitalized under applicable federal guidelines." Among the conditions for becoming a bank holding company, GMAC must restructure $38B of debt, GM must reduce its stake to less than 10% in voting shares and total equity, and Cerberus must reduce its interest to 14.9% of voting shares and 33% of total equity. (Read the Fed's statement.)
• Banks face mixed messages. Banks are confused by the mixed messages they're getting from federal regulators, simultaneously being urged to lend more to boost the economy and to save more to build up capital against losses. The conflicting messages are especially strong for the roughly 200 institutions estimated to be receiving TARP funds. But with a list just as large of banks at risk of failure, regulators say they are trying to strike the right balance between encouraging lending and keeping banks solvent.
• Focusing on its base, NYT wants out of ball. In an effort to make some much-needed cash, the New York Times (NYT) is actively trying to sell its 17.5% stake in the holding company of the Boston Red Sox. Times has been rumored for months to be open to selling non-core assets as its cash shortage is accelerated by steep industrywide revenue declines. The stake is estimated to be worth around $166M.
• No respite for retail sales. Despite a rush of last-minute shopping and heavy discounts, retail sales (ex-automobiles) fell 5.5% in November Y/Y and 8% in December through Christmas Eve Y/Y, according to MasterCard Inc.'s SpendingPulse unit. Excluding gasoline sales, the declines were more modest: -2.5% in November and -4% in December. Even so, "this will go down as the one of the worst holiday sales seasons on record."
• An inkless USA Today. Thanks to customer demand, Gannett's (GCI) flagship USA Today becomes the latest paper to be sold through Kindle (AMZN). Some publishers, including the New York Times (NYT), have expressed surprise at the service’s success, although it’s hard to know how meaningful that is. Kindle's five top-selling newspapers: New York Times, WSJ (NWS), Washington Post (WPO), Financial Times (TRI), Chicago Tribune.
• Coming soon to a Wii near you. Nintendo (NTDOY.PK) said Thursday it will start offering videos through its blockbuster Wii game console. Rival Sony (SNE) is already using is PS3 to push sales of online movies and TV shows.
• In China, profit growth slumps. Chinese industrial companies' profits increased 4.9% YTD, the slowest pace on record, as the economy cooled and commodity prices plunged. Last year at this time, profits were up 36.7%. Overcapacity in almost all industries and unprecedented drops in commodity prices may hurt profits further, analysts caution. "The double-whammy of cooling demand and plunging prices have caused company profits to worsen seriously," economist Xing Ziqiang says. "Profits may shrink as much 15% over the next six months."
• Japan sinks deeper into recession. Japan's industrial output plummeted in November, down 8.1% vs. October (vs. -6.8% consensus), as companies cut back on production of cars, machinery etc. amid vanishing demand. The largest drop on record raises fears the country's recession may stretch longer and be more painful than anticipated. Japan's weakening industrial production appears to be taking a toll on employment as well. The jobless rate climbed 0.2% to 3.9% in November, and the government warned that 85,000 temporary workers will lose their jobs over the next six months.

Today's Markets

• Asian markets were mixed in thin trading. Japan's Nikkei posted a 1.63% gain to 8,740. Profit-taking took Shanghai shares 0.05% lower to 1,852. BSE -2.5% to 9,239. Hong Kong is closed, as is Europe.
• Stock futures were closed overnight, but are now open. Trade looks like it will be anemic. Dow +0.32% to 8450. S&P +0.4% to 868.50. Nasdaq +0.42%.
• Crude futures are +2.4% to $36.20 after the UAE - the world's fifth-largest oil exporter - joined Saudi Arabia in deepening oil supply curbs to comply with OPEC's production cut of 2.2M barrels/day. Gold -0.35% to $845.
• Treasurys are higher in light overnight trade. 30-year +0.44%. 10-year +0.22%. 5-year +0.28%. 2-year +0.1%.

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Chaim Kimel...:]

Its the first time I receive The Wall Street Breakfast, and enjoyed every line of it.
Gives the investor a window to the world of what really matters.
Kol Ha Kavod!

2008 Dec 26 07:46 AM

[Jersey:]

That's true Chaim, it's a fine publication and can be a somewhat useful tool, I just wish I could hear it / see the words as clearly, believe, as I did before the Bernie Madoff scandal; I honestly have doubts this industry will ever fully recover to what it once was and although one can't run a successful business while making emotional decisions, I just can't get past it and not certain the majority ever will, I mean after all, the former Chairman of Nasdaq, Geez. I still feel like I been hit in the head with a baseball bat.


On Dec 26 07:46 AM Chaim Kimelblat wrote:

> Its the first time I receive The Wall Street Breakfast, and enjoyed
> every line of it.
> Gives the investor a window to the world of what really matters.
>
> Kol Ha Kavod!

2008 Dec 26 09:09 AM

[axelrod608:]

>> "Japan sinks deeper into recession..." >>

One's Christmas wish might well be that the bozos "bailing out our economy" weren't repeating what the Japanese did 20 years ago. They have yet to recover. Will we ??

2008 Dec 26 09:37 AM

[daffy:]

Our Gov. needs a good rout, this last election did nothing but the further disconnect between the will of the people and the actions of our Gov.

Obama is nothing more than the next GWB . . .

pathetic

2008 Dec 26 09:43 AM

[Tad Gage:]

"Banks face mixed messages" is quite an understatement. The Treasury appears to be in a state of confusion about TARP, now the Capital Purchase Program. It started as a bailout, then morphed into capital infusion for well-run banks. In the past two weeks the Treasury has started making funding recipients that were promised capital weeks ago jump through additional and borderline random hoops. Some banks are being asked to come up with matching capital to qualify for funding (wasn't the logic behind TARP to provide liquidity and capital in the face of illiquid markets and scarce capital??), or are being given unclear or no direction about what further assurances or information they need to provide to meet the Treasury's constantly changing target. What was good enough assurance two weeks ago is no longer so today. Sadly, it's many of the well-run community banks that seem to be bearing the brunt of this political fire drill. The big boys got their handout, no questions asked.

2008 Dec 26 09:51 AM

[woodsey:]

You guys are down now; me too - a guy in a Santa suit ...
But better days are ahead; believe me. People are basically good. That's the word from down here in Takes us.

2008 Dec 26 11:55 AM

[jackooo:]

Among the conditions for becoming a bank holding company, GMAC must restructure $38B of debt, GM must reduce its stake to less than 10% in voting shares and total equity.
I wonder if I could qualify to become a bank holding company?
I don't have to restructure 38 billion in debt. I don't have to reduce my stake in anything as I have no stake in anything & no voting shares. Umm.
Intelligent minds need to know......

2008 Dec 26 12:09 PM

[bbowen7:]

The IndyMac regulator problem is bigger than Bernie Madoff. It is one thing to have a fraud cheating his friends (and exposing a lot of supposedly sophisticated investors.) It is much worse to have the system itself corrupted, not only by politics (pressure on Fannie/Freddie and others to throw out resonable lending standards), but by dishonesty by the regulators themselves. I can't understand why a foreign investor would continue to put their money into the American financial system - particluarly with the coming inflation tsunami with its devalued dollar. Woe is me.

2008 Dec 26 02:41 PM

[websmith:]

The thing that people should notice is that the Federal Reserve has to allow GMAC to become a bank when the Fed is a private bank primarily owned and governed by the richest elite families in the world. To get any loans from U.S. Taxpayers as a bank, you have to meet terms specified by these elite families and they and only they approve your qualifications. The car companies' survival depends upon the approval of these same people. If you work in the auto industry, you job exists at the whim of the elite. Your life exists based on whether or not the companies you depend on to live it meet the terms dictated by a small number of elite people. The only way that your life will be successful is by making sure that much of it is spent making these people wealthier and giving them more power. You thought you were free. You also think that you are being fed correct information about the car companies and their union by the media that they own.

ewebsmith.com/bus/auto...

2008 Dec 27 06:26 PM

[unclej0:]

There has always been a power elite. That is a given in human societies because of human nature and human culture.

That said, the power of the elite has always been opposed and, when the elite oversteps the mark of common sense and prudence, social instability sets in. If the instability does not result in bloody violence, there is a chance that conditions may be rationalized for some time.

This may be such a time. I don't expect miracles but I am hopeful.

2008 Dec 27 06:53 PM