Wall Street Breakfast: Must-Know News

• NY AG mulls bonus pullback. Sources say New York Attorney General Andrew Cuomo may demand the return of $4B in early bonuses paid to Merrill Lynch employees just before being acquired by Bank of America (BAC). The AG's office is also looking into how much BoA CEO Ken Lewis knew about the accelerated bonuses, whether the companies' shareholders had all the necessary information about Merrill's finances and whether federal bailout loans to BoA were used properly. "No longer will this country stand for wasteful spending of tax dollars on bonuses for executives whose companies have taken huge losses and required taxpayer bailouts," Cuomo said. Obama echoed the sentiment, calling Wall Street bonuses 'shameful' and 'the height of irresponsibility.'
• Pfizer's pull-out fee. Two days after Pfizer (PFE) announced its plans to buy Wyeth (WYE) for $68B, Pfizer shares are trading near a 12-year low. Perhaps, as one analyst put it, it's because "people seem underwhelmed by the deal, maybe thinking Pfizer made a safe move with Wyeth rather than trying to shoot the lights out with a more aggressive company better able to produce blockbuster drugs." Pfizer is moving forward with the deal full-force, and has committed to paying Wyeth $4.5B as a breakup fee if the lenders pull out of the deal. The lenders could choose to act if Pfizer's operations or credit rating decline significantly. Wyeth will have to pay $2B if it drops the deal to accept a higher bid from a different company.
• Fannie tries for fewer foreclosures. Fannie Mae (FNM) has reached an agreement with former critic Neighborhood Assistance Corp. of America to help prevent foreclosures by modifying home loans. Bruce Mark, CEO of NACA, had previously called Fannie a 'major roadblock' to foreclosure-prevention efforts, but is now working to reach a similar agreement with Freddie Mac (FRE). NACA, which serves as an intermediary between borrowers and lenders and works with such major lenders as Bank of America (BAC) and Wells Fargo (WFC), helped modify over 20,000 mortgages last year.
• Madoff transfers. Bank of New York Mellon (BK) will transfer $301.4M to Irving Picard, the trustee liquidating Madoff's brokerage, and JPMorgan Chase (JPM) will transfer $233.5M. In exchange, the banks will be indemnified against any claims brought as a result of the transfers. The move is part of Picard's efforts to gather assets to be returned to defrauded investors.
• Roche lowers DNA bid. Roche Holding (RHHBY.PK) lowered its bid price for the 44.2% of Genentech (DNA) it doesn't already own to $86.50 per share from $89 per share, and will take the offer directly to shareholders within two weeks. Genentech had previously rejected Roche's $89/share offer as too low, and though the new bid is lower, it still marks a 2.9% premium on Genentech's recent closing price. A full takeover would allow Roche to cut costs, boost earnings and expand in the U.S. market.
• Amazon profit beat. Amazon (AMZN) reported better-than-expected earnings yesterday (see details below), showing a 9% growth in Q4 profits and 18% growth in sales. The growth has much to do with Amazon's strategy of aggressive discounting, free shipping offers and continued product expansion at a time when most other retailers are scaling back, and CEO Jeff Bezos cited heavy demand for Amazon's Kindle electronic reader. Amazon also forecast strong sales for the current quarter.
• Toshiba tossed by global recession. Toshiba (TOSBF.PK) fell the most in 34 years in Japanese trading after the company forecast its largest ever annual loss. Facing an industry glut and falling prices as the global economic downturn worsens, Toshiba's net loss will probably reach ¥280B ($3.1B) in the fiscal year ending March 31 vs. earlier estimates of a ¥70B net income. To save ¥300B in the next fiscal year, the company is delaying construction of new factories, firing temporary workers, slashing output and cutting research spending. In light of the lower earnings outlook and the possibility Toshiba might have to seek equity financing, Goldman Sachs cut its rating to Sell from Neutral. Shares -17.4% in Japan.
• Dell smartphone? Dell (DELL) may move into the smartphone market as soon as next month, sources say, as a way to boost sales while its core PC business gets hit by the recession. At least one of Dell's models includes a touchscreen and no physical keyboard, like the iPhone (AAPL), while another has a keypad that slides out from beneath the screen. Going up against Apple and Research in Motion (RIMM) in the smartphone market would be a bold move, one that Dell has yet to confirm. "We haven't committed to anything," said one spokesman.
• Japan's recession deepens. Japan's recession showed signs of deepening Friday, with closely watched industrial production plunging 9.6% in December, the second straight month of record decline, and projections of steep drops continuing into 2009. "I've never seen such a steep production fall," Economy Minister Kaoru Yosano said. Meanwhile, joblessness rose to 4.4% from 3.9%, and household spending fell by 4.6%. On Thursday, the government said Japan's economy entered a recession in November 2007, meaning it's been in recession for 14 months. Japan's recent expansion was fueled by exports, and economists say its current recession is being driven by the global downturn rather than domestic factors.
• The Shedlock-Schiff Affair: A Chronicle. Popular econoblogger Michael "Mish" Shedlock triggered a firestorm this week when he took down outspoken investment advisor Peter Schiff, claiming that although Schiff may have been right about the U.S. economy imploding, clients who had invested in his funds in the hopes of profiting from his prophecies had seen their accounts decimated. Big Picture author Barry Ritholtz predicted Shedlock's post would set off fireworks "via a major media outlet." He was right. Today, WSJ's Right Forecast by Schiff, Wrong Plan? does exactly that. "Peter Schiff predicted a collapse of the U.S. financial system. The bust-up he didn't foresee was the one that made mincemeat of investors who took his advice in 2008." Meanwhile, Schiff responds, saying that "the crisis is just beginning and the movements thus far in the dollar, commodities, and foreign stocks, are mere head fakes. Once the speculators have been flushed from the markets, the underlying long-term trends I have been following should return in earnest."
• More joblessness. Initial jobless claims remained elevated, with 588,000 this week after last week's (revised) 585,000 - vs. consensus of 575,000. Continuing claims +66.5K to 4.63M.
• Durables drop. Durable Goods Orders -2.6% in December, worse than the 2% drop expected. November's numbers were revised to -3.7% from -1%. Ex-transport: -3.6% vs. -2.7% consensus. It's the fifth consecutive monthly decrease. Inventories +0.4% to $343.5B, the highest on record, and up 17 of the last 18 months.
• Fewer new home sales. New home sales in December fell 14.7% to 331,000 from Nov. - well short of the 397,000 consensus. November was revised to 388,000 from 407,000. Median price $206,500 vs. $246,900 a year ago. Total new home sales for 2008: 482K down 37.8% from 776K last year.

Earnings: Friday Before Open

• AMETEK (AME): Q4 EPS of $0.66 in-line. Revenue of $624M (+6.9%) vs. $660M. Sees Q1 EPS of $0.54-0.58 vs. $0.59. (PR)
• Cemex (CX): Q4 revenue of $4.5B vs. $4.79B consensus. Majority net loss of $707M vs. +$538M a year ago. (PR)
• Honeywell (HON): Q4 EPS of $0.97 in-line. Revenue of $8.71B (-6.1%) vs. $8.97B. Reaffirms 2009 guidance. (PR)
• Honda (HMC): FQ3 net profit sagged 90% to ¥20.24B vs. consensus of ¥19.75B. Operating profit of ¥102B down from ¥276B a year ago. Sales of ¥2.533T (-17%). Lowers full-year net profit outlook to ¥80B from ¥185B. Shares -9.2% in Tokyo. (DJ)

Earnings: Thursday After Close

• Amazon.com (AMZN): Q4 EPS of $0.52 beats by $0.13. Revenue of $6.7B (+18.2%) vs. $6.44B. "We're particularly grateful for the unusually strong demand for Kindle in the fourth quarter." (PR)
• Ariba (ARBA): FQ1 EPS of $0.21 beats by $0.08. Revenue of $86.1M (+11.8%) vs. $86.8M. (PR)
• Broadcom (BRCM): Q4 EPS of $0.08 misses by $0.19. Revenue of $1.13B (+9.7%) vs. $1.07B. Sees Q1 revenue of $800-875M vs. $953M. (PR)
• CA Inc. (CA): FQ3 EPS of $0.43 beats by $0.05. Revenue of $1.04B (-5.3%) vs. $1.07B. While customers are closely scrutinizing all IT investments, we are seeing considerable interest in our enterprise software as it enables them to increase the effectiveness and cost efficiency of their IT infrastructures..." (PR)
• Chubb (CB): Q4 EPS of $1.58 beats by $0.06. Revenue of $M in-line. Sees 2009 EPS of $4.80-5.20 vs. $5.62. "We are encouraged by the improved rate environment in the fourth quarter... and there are good reasons to believe that this trend will continue into 2009." (PR)
• Eastman Chemical Company (EMN): Q4 EPS of $0.05 misses by $0.30. Revenue of $1.35B (-22.5%) vs. $1.4B. "Capacity utilization likely reached its lowest point in December. We anticipate that our capacity utilization will improve through the first quarter due to a modest increase in demand." (PR)
• Juniper Networks (JNPR): Q4 EPS of $0.321 in-line. Revenue of $923M (+14.1%) vs. $936M. (PR)
• KLA-Tencor (KLAC): FQ2 EPS of -$0.12 misses by $0.06. Revenue of $397M (-37.6%) vs. $394M. (PR)
• Monster Worldwide (MWW): Q4 EPS of $0.27 in-line. Revenue of $291M vs. $312M. (PR)
• PerkinElmer (PKI): Q4 EPS of $0.48 beats by $0.06. Revenue of $495M (+3%) vs. $516M. (PR)
• PMC-Sierra (PMCS): Q4 EPS of $0.07 misses by $0.01. Revenue of $120.8M (-2.3%) vs. $119.7M. (PR)
• Rambus (RMBS): Q4 EPS of -$0.10 beats by $0.13. Revenue of $37.6M (-7.2%) vs. $29.9M. (PR)
• SunPower (SPWRA): Q4 EPS of $0.70 beats by $0.13. Revenue of $401M (+78.7%) vs. $397M. "Long-term solar market fundamentals remain in place and we are encouraged by the commitment to renewable energy by President Obama and Congressional leadership." (PR)
• Varian Medical Systems (VAR): FQ1 EPS of $0.56 beats by $0.05. Revenue of $509M (+12.8%) vs. $501M. Sees FQ2 EPS of $0.59-0.62 vs. $0.64. (PR)

Today's Markets

• Asia markets closed mixed Friday. Nikkei -3.1% to 7,994. Hang Seng +0.9% to 13,278. Shanghai closed. BSE +2% to 9,424.
• Europe is lower at midday. London -0.45%. Paris -1.1%. Frankfurt -1.1%.
• U.S. futures have moved back into negative territory. Dow -0.3% to 8086. S&P -0.4% to 839.50. Nasdaq -0.35%. Crude +0.8% to $41.77. Gold +1.7% to $920.50.
• 30-year Treasurys -0.2%. 10-year +0.11%. 5-year +0.04%. 2-year +0.03%.

Friday's Economic Calendar

• 8:30 GDP Q4 Advance
  8:30 Employment Cost Index
  9:45 NAPM Chicago Business Barometer
  9:55 University of Michigan Consumer Sentiment
  3:00 PM Farm Prices
• Notable earnings before Friday's open: ACI, AME, AXL, CVX, GCI, HON, IVZ, PCAR, PG, SPG, XOM
• Notable earnings after Friday's close: none.

Seeking Alpha editor Eli Hoffmann contributed to this post.

Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.

Comments

[Jim Hawthorne:]

Thanks, Rachael!

There was an article in yesterdays WSJ concerning China/US relations and future trends that might also be of interest to your readers.
It appears that our largest creditor is becoming somewhat testy, and the increase in friction adds some weight to the fear side of the 'greed/fear' equation.
Worth a read...
online.wsj.com/article...

Jan 30 07:53 AM

[TxnByBrth:]

Seems it may be a little too early to dig up the coffee can in order to do a little bottom feeding...

Jan 30 08:19 AM

[know nothing:]

Obama bashing wallstreet for bonuses, as it should be! But what about the 800 billion Obama and his friends are about to blow, with 12 cents on the dollar actually going toward the problem. The unions and other pork projects soaking up the rest of the taxpayers money? Thats the pot calling the kettle black!

Jan 30 08:54 AM

[AndrewBaker:]

Most news right now is financially gloomy. We´ve got a hate on the bankers - rightly so - yet have to see them get given money, with more likely down the road. To ease this pain, I applaud every constraint that stops them getting more than their fair due and no bonuses when none are due, and I say we need a system where the bad ones are recognised and removed. Then perhaps we can feel a little easier about putting our own money, personally and through taxes, into their care. Maybe we could even buy their stock to help get us out of the financial mess they and other greedy uncaring business people and politicians (through lax regulation) got us into. I don´t like supporting the bad but we have got to get our financial system back in good working order: I´ll short financials when it´s stupid not to, but give me a reason for going long, because that´s the only way forward to get us solvent again.

Jan 30 08:58 AM

[markg:]

Sure Obama and company can whine belatedly about TARP money going for bonuses, but where was the oversight before this happened? What can they do now? Same thing they did before, nothing!

The money is gone and it is going to stay gone.

Jan 30 09:18 AM

[auto44:]

Thanks for the link. Our currency is the reserve currency because since the days of Alexander Hamilton people around the world felt they could trust us and depend on the rule of law in this country to protect them. Now they can't trust our honesty, leagal system, or judgement. if we don't start jailing folks under sarbox and other laws we will never get that trust back. At this point we don't trust ourselves.


On Jan 30 07:53 AM Jim Hawthorne wrote:

> Thanks, Rachael!
>
> There was an article in yesterdays WSJ concerning China/US relations
> and future trends that might also be of interest to your readers.
>
> It appears that our largest creditor is becoming somewhat testy,
> and the increase in friction adds some weight to the fear side of
> the 'greed/fear' equation.
> Worth a read...
> online.wsj.com/article...

Jan 30 09:27 AM

[justice for...:]

to markg What planet are u from? Obama and company , as u say , have been in office a full 10 days.

Jan 30 01:38 PM

[BigOlDave:]

Rachael,

Would it be possible to enhance SA's stock site's symbol? Click Ariba (ARBA) and all we get is the chart. If this is too much work, why not forward to Google/Yahoo/MSNBC or another site that at least tells us what sector it is in? Maybe you could even collect some ad revenue for the click!

Dave

Jan 30 01:58 PM

[bbowen7:]

To: Auto44
We have a tax cheat responsible for the IRS and another as chairman of the house committee that writes the tax code. This doesn't seem to bother the president or the speaker of the house. Or the media for that matter.

Jan 30 02:16 PM

[axelrod608:]

Thanks, Jim Hawthorne for the url.

Y'know, there's an old saying, "fool me once, shame on you, fool me twice, shame on me" that must not be known in China. Are the Chinese still buying Treasuries ? Yes. Still putting money in US companies ? Yes.

This international finger pointing is as constructive and productive as the partisan fingerpointing in DC.

FINANCIAL RECKONING DAY and a host of similar books have been in print well over five years. Anyone who couldn't see this mess coming is either illiterate, ignorant or naively optimistic.

The US government fiscal policy is the greatest con game ever played. And the "regulators" let American financial giants play along. The end result has always been certain, though the date and time are not. Things that are inevitable, eventually happen.

No person, company or nation has ever spent its way to wealth and prosperity. Water's wet, rocks are hard and the sun rises in the east. This cannot end well. Yet it looks like the Chinese are in the game, playing their part now as in the past.

There's only one finger I point with about this whole federal financial mess.

Jan 30 02:27 PM

[Bad Dog:]

Uh, dude, he's been President for only 10 days or so. I think you're asking the wrong guy. Bush appointed people like Chris Cox (Mr. What? Me worry?) and Paulson (Mr. Goldaman Sachs), and they did about as good a job as Ol' Brownie after Katrina. Those are the folks you should be mad at, or doesn't your memory go back beyond 2 weeks?


On Jan 30 09:18 AM markg wrote:

> Sure Obama and company can whine belatedly about TARP money going
> for bonuses, but where was the oversight before this happened? What
> can they do now? Same thing they did before, nothing!
>
> The money is gone and it is going to stay gone.

Jan 30 04:00 PM

[Hayweed:]

I hope Dull makes a smartphone. Anyone that can assemble parts into a pc can do the same with a phone. Dell can then transition from a mediocre box maker into a mediocre phone maker. What can dull add to make the phone smart or any good.

Jan 30 04:11 PM

[JAY BOSLIN:]

Bravo, Michael Shedlock! Schiff is a charlatan. I don't know how he get's his TV appearances, especially since other investment pro's appearing with him are obviously uncomfortable.

Jan 30 06:54 PM