Wall Street Breakfast: Must-Know News

• G-20 get down to business. The G-20 summit kicks off today, with protesters set to march in London and amid new reports that suggest the global economic slide may be easing. Media outlets obtained a copy of a draft release suggesting leaders will subject large hedge funds to regulation for the first time, enhance regulation through a new agency and a stronger, better-financed IMF, and "refrain from competitive devaluation of our currencies." The draft also included a pledge to deliver "the scale of sustained effort necessary to restore growth" but made no specific stimulus commitments. Obama has stressed that there is no substantive difference between the positions of the U.S. and Europe, but the U.K.'s Brown struck a less sanguine note, telling reporters "we have some tough negotiations ahead. It will not be easy."
• Dow closes Rohm & Haas deal. Dow Chemical (DOW) finally completed its acquisition of rival chemical maker Rohm & Haas (ROH) and managed to keep its investment-grade credit rating with a one-notch downgrade to BBB- from S&P. The company must now focus on shoring up its finances after spending $16.3B on the deal, of which $9.23B was a short-term loan. To pay for part of the debt, Dow has agreed to sell Rohm & Haas' profitable Morton salt unit to Germany's K&S AG for $1.68B.
• Thornburg to liquidate. Mortgage lender Thornburg Mortgage (THMR.PK) will file for bankruptcy protection and shut down. Thornburg, which once boasted that it never made loans to risky borrowers, specialized in 'jumbo' loans to wealthy, creditworthy borrowers. The company once seemed relatively safe compared with peers, but was dragged down by mortgage-backed securities as the credit crisis worsened. A spokesman said, "our dissolution was created by one issue: the inability to support the equity requirements for financing our mortgage securities portfolio, given the continued decline in mortgage-backed securities prices."
• Weak auto sales still beat expectations. March auto sales were heavily down but were better than analysts' expectations. U.S. industrywide sales fell 37% from a year earlier but rose from February's 27-year low on pent-up demand, higher incentive spending and signs the government will move to stimulate auto purchases. The results spurred optimism that the industry's 17-month long slump may be reaching a bottom, sending shares up for some automakers (in Tokyo, Nissan +13.8%, Honda +10.7%, Toyota +5.5%). Here's the breakdown:
  Ford (F): March sales -40.9% from a year ago to 131,465 vehicles. SUV sales -73.2% to 73.2%. Inventories 27% lower than last year.
  Mercedes-Benz (DAI): March sales -23% from a year ago to 17,348 vehicles.
  Honda (HMC): March sales -33.7% to 88,379 vehicles.
  General Motors (GM): March sales -44.7% to 156,380 vehicles. Sales of 7/8 of its brands, however, were higher vs. February. Inventories -12% from a year ago to 765K.
  Toyota (TM): March sales -36.6% to 132,802 vehicles, including a 40.6% at Lexus. Sales rose 16.3% vs. February.
  Nissan (NSANY): March sales -37.7% to 106,921 vehicles.
• U.S. starts UBS tax investigation. The Department of Justice has reportedly opened around 100 criminal investigations into wealthy U.S. clients of UBS (UBS). Several of the accounts being investigated for tax evasion hold over $100M in assets, with the largest account in the probe topping $150M. UBS turned over approximately 285 client names as part of an earlier settlement agreement, but is fighting Justice Department and IRS attempts to get the Swiss bank to disclose as many as 52,000 additional client names.
• Madoff feeder fund gets sued. Massachusetts regulators filed suit against Fairfield Greenwich Group, a major 'feeder fund' for Bernie Madoff's Ponzi scheme, alleging that the hedge fund ignored red flags and lied to investors while collecting hundreds of millions of dollars in fees. The gravest accusation in the suit may be that Madoff prepped executives at Fairfield Greenwich in 2005 on how to answer regulators' questions about him when a whistle-blower raised suspicions that Madoff was running a fraud. The lawsuit marks the first action against one of Madoff's so-called feeder funds.
• Swiss Re cutting costs, workers. Swiss Re (SWCEY.PK) will cut 10% of its workforce over the next 12 months in an effort to save 400M Swiss francs ($349.6M) by 2010. The company will also promote Agostino Galvagni to be chief operating officer.
• Qwest wants to sell part of network. Qwest (Q) is reportedly looking to sell a key piece of its telecommunications network to help pay off part of its nearly $14B in debt. Sources say the unit up for sale is a long-distance network that carries calls and internet traffic for other phone carriers. It also provides advanced telecom services to businesses and government agencies. Although the sale could bring the company as much as $2-3B, it would also largely leave Qwest as a regional provider of telephone and internet services to consumers. Potential bidders could include AT&T (T), Verizon (VZ) and Level 3 Communications (LVLT).
• BoA may sell asset manager. Bank of America (BAC) will likely sell asset manager Columbia Management Group, said people close to the situation, as part of its efforts to preserve capital and get rid of non-core assets. As of Dec. 31, 2008, Columbia had $386.4B in assets under management but many inside the bank believe Columbia is now redundant compared to BlackRock, a money manager partly owned by Merrill Lynch. BoA picked up Columbia as part of a 2004 acquisition.
• GE, Intel plan health partnership. Intel (INTC) and General Electric (GE) are expected to announce today a collaboration between the two firms in the health care field. At a press conference scheduled for later today, the two companies will likely discuss plans to work together on health care related technology, including health care IT and at-home health monitoring.
• House okays pay curb. The House of Representatives voted to curb 'excessive' employee pay at firms receiving government bailout funds. The bill passed 247-171 and would give the Treasury broad powers to ban 'unreasonable and excessive' compensation and bonuses that are not based on performance standards. The bill would apply to all the employees, not just the executives, of firms that received TARP money. The new measure will largely sideline a recent House bill to levy a 90% tax on certain bonuses paid out by TARP recipients.
• Job market still tough. Monster's online employment index fell 4 points in March to 118, wiping out February's modest gains. The index is down 29% vs. the year before as hiring declines continue across a range of industries. According to Challenger, firing announcements fell 19.3% in March vs. the month before to 150,411, but are up 181% Y/Y. "The good news is that job cuts appear to be stabilizing in the financial sector," said Challenger, Gray & Christmas CEO John A. Challenger. "Unfortunately, other sectors are seeing an increase in cuts as the recession works its way through the economy." ADP reported (.pdf) that private-sector employment decreased by 742,000 in March, vs. consensus of -663K and February's -706K. Assuming the usual 20K addition of public-sector jobs, Friday's nonfarm payroll number could come in at an impressive -720K.
• ISM mfg contracts. The ISM Manufacturing Index came in at 36.3 in March vs. 36.0 consensus, its 14th consecutive month of contraction. None of the 18 manufacturing industries reported growth. Fabricated metal products and textile mills led the laggards.
• Construction spending falls. U.S. construction spending -0.9% in February vs. the month before, and -10.0% Y/Y. Residential private construction -4.1% M/M, -29.2% Y/Y. Non-residential +0.5% M/M, +1.3% Y/Y.
• Modest gains for pending home sales. Pending Home Sales rose a moderate 2.1% in February (vs. consensus of flat), bumping NAR's index of signed contracts to 82.1 from 80.4. The small increments are a welcome change, but sales "have a way to go for there to be a meaningful increase," NAR's Lawrence Yun said. Meanwhile, affordability rose to new highs.

Today's Markets

• Asian markets soared. Nikkei +4.4% to 8,720. Hang Seng +7.4% to 14,522. Shanghai +0.7% to 2,425. BSE +4.5% to 10,349.
• In Europe at midday, markets are following Asia up. London +3.0%. Paris +3.8%. Frankfurt +4.4%.
• U.S. futures: Dow +1.8%. S&P +1.9%. Nasdaq +2.1%. Crude +5.2% to $50.92. Gold -1.5% to $912.60.

Thursday's Economic Calendar

• 6:00 Monster Employment Index
  8:30 Jobless Claims
  10:00 Factory Orders
  10:30 EIA Natural Gas Report
  4:30 PM Money Supply
• Notable earnings before Thursday's open: KMX, MON, RAD
• Notable earnings after Thursday's close: LWSN, MU, RIMM

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[morph366]

There has been a lot of commentary in the UK media especially on regarding Nicolas Sarkozy's threat to walk out of the G20 summit meeting unless there is a very tough stance on increased global financial regulation.
Is it just "grandstanding" for his domestic constituents or is it a more serious threat? Well as the summit is drawing to a close in London it seems like he has either calmed down or is more satisfied with the proposed wording on regulations

Frankly it seems rather dubious whether even a united G20 communique amounts to a whole lot but there are important precedents to the French distaste for Anglo-Saxon finance.

In the 1960's Charles de Gaulle was constantly banging heads with the British and the Americans on their financial prudence. The following article from the archives of Time magazine in 1965 gives the flavor of these disputes and is especially relevant in the context of the current discussions about a new foundation for a global reserve currency.

2009 Apr 02 07:28 AM

[aquaculture]

Premarket (h)rumor!!!!!!!
Read all about it in the XTRA
Solarworld to bid for GM!!!!!!!!!!
youtube.com/watch?v=uR...

2009 Apr 02 08:02 AM

[eddie6442]

What does it say about the Media, their obsession of reporting and viewings of the protestors at G-20??????? Look closely "at the people" and not their signs, and ask yourself a basic question, "Why would any sane and civil person care what they think or say"?????

The British Member of Parliament interviewed several and asked them one question, "What are you all in favor of"????????
They were all speechless......... Only the media seems to care!!!!!!!
Hmmmm.........

2009 Apr 02 08:30 AM

[Ferdinand E. Banks]

Eddie almost has it right, but not quite. The gig in London is a circus, but a valuable circus. Just give thanks that you were not there, since it would have been necessary to listen to that lick-spittle Gordon Brown explain how to patch up the world economy..

I watched for a about a half hour, but with Mr Sarkozy showed up without Carli, and I called it a night. Although I am not sure, I believe that she has called occasions of that nature boring.

2009 Apr 02 08:39 AM

[pacman1947]

Auto sales slumping to the low levels reported does not bode well. Let's hope that sales will improve once the economy turns around, and that better mileage vehicles are available for sale soon here in the US.

I'd like to buy a replacement for my old bucket, but it still outperforms the recent offerings. Odd, it's 15 years old!

2009 Apr 02 08:45 AM

[David White]

The ECB cut rates less than expected today (by .25 versus the expected .50). This caused the Euro to rally against the US Dollar. This in turn has caused most commodities to go up (i.e. they are more expensive in US Dollar terms if still relatively constant in Euro terms). Since the Euro is now seen as in a rising trend, the gain in commodities in US Dollar terms is exaggerated.

The SPY, commodities, etc. are also up because the markets are expecting a change in the mark-to-market accounting rules from the FASB meeting today. Such a change would mean a lot less red ink from financial companies in Q1 earnings (and likely later Q's also).

In contrast to these factors, the Initial Jobless Claims were worse than expected. This may eventually erode the market rally. If the FASB does not change mark-to-market rules, the markets are likely to crash.

2009 Apr 02 09:35 AM

[David White]

The reaction to the ECB's less than expected cut may reverse eventually also. The commodities may be higher in the very short term. However, many of the European economies are in serious trouble. The action by the ECB today did not help them (was not stimulating). This will eventually mean demand destruction for commodities in those regions. This likely means lower prices for commodities for a longer time. It likely means those economies will take longer to recover from the recession.

There is also speculation that Browne and Obama may negotiate some kind of economic deal, which one might presume would be helpful. Obama and Geithner have apparently already won some concessions about the IMF.

2009 Apr 02 09:43 AM

[bobbobwhite]

And all along I thought the G20 was an old Infiniti car!

Weak auto sales that "still beat expectations" are like mutual funds that lost 40% but "still beat their benchmarks". What a crock benchmarks are; just a convenient copout for bad performance. If fund managers don't know enough to sell at the right time and preserve YOUR money they do not deserve to be in business, as any ignorant amateur investor can lose his money just as well as any of those "professionals'. Why pay a pro to do it for you?

2009 Apr 02 09:56 AM

[notsosmart]

dont be lazy.handle your own hard earned money.im not even a college grad & i had a 7.2 yield on my portfolio last year.yes it takes time.recent history shows that the experts dont know much either.be aware its all vegas & ponzi.sadly.

2009 Apr 02 10:21 AM

[mutual]

buy now. cars have improved. prices are great right now - fantastic deals. new cars last a long time with little maintenance. i already own a car with only 10,000 miles - or i would buy one.


On Apr 02 08:45 AM pacman1947 wrote:

> Auto sales slumping to the low levels reported does not bode well.
> Let's hope that sales will improve once the economy turns around,
> and that better mileage vehicles are available for sale soon here
> in the US.
>
> I'd like to buy a replacement for my old bucket, but it still outperforms
> the recent offerings. Odd, it's 15 years old!
>
>
>

2009 Apr 02 10:41 AM

[David White]

Oil is up almost $3.74 to over $52. The EIA estimates for an average price for this year are in the $42-$43 range. The COP CEO estimated $50-$60/barrel over the summer. We are not to summer yet. It seems likely we will get a retracement from this level. The "real" economic data has not been that good lately. The -19% in housing prices year over year. This likely will translate into greater numbers of foreclosures. The terrible jobs numbers from ADP (about 100,000 worse than expected). The worse than expected Initial Claims and Continuing Claims today. I acknowledge the auto sales were a little better than expected. However, they were still terrible. Plus the automakers did better than expected only because they were guaranteeing to make payments for those buyers who lost their jobs. This in my mind is a very riskly fiscal policy on the automakers part. They could end up with huge losses in an economy, which is supposed to go to 10+% unemployment soon.

In contrast to this you have some minor news about the IMF from the G20. They agreed to increase the loan reserve. The thinking is this make help some of the Eastern European countries. We also saw pending homes sales figures rise a little bit from January. However, these were still down dramatically from last year.

If the FASB changes the mark-to-market rules this may lift the markets for a little while (or at least cause them not to crash). This may keep the banks from looking quite as bad. However, it will likely not do away with the underlying problems with the wave of a hand. Businesses are still hurting. There are likely to be severe commercial real estate problems this year. There are likely to be severe residential real estate problems this year. The IMF news was good. However, it also points out that there are a bunch of small countries which are near failure. If these dominoes start to fall, we could see a cascade effect. Don't think the US, Europe, and Japan are immune. They have a lot of loans out to these countries. Plus a lot of companies have CDS obligations that will then become a big problem. I can't buy into the suggestion of FASB slight of hand as a solution to all the ills. If they come up with a good solution, it may help the banks a bit. However, there will still be big problems. Plus if countries start to fail, the newly raised IMF loan reserve may be much too small to put a significant dent in that problem. Be careful out there. I would be very circumspect about a rally that is now resorting to slight of hand to drive itself higher.

2009 Apr 02 11:09 AM

[Marco Polo]

I'm still driving my 1995 Lexus. I think it's the best car they ever made. It's just turned over 120 kms and it's still going strong. It costs me about $500 a year in maintanence, which is less than I paid for an oil change with my Mercedes!
I will trade it in for a new one when it starts to look it's age!


On Apr 02 10:41 AM mutual wrote:

> buy now. cars have improved. prices are great right now - fantastic
> deals. new cars last a long time with little maintenance. i already
> own a car with only 10,000 miles - or i would buy one.

2009 Apr 02 11:11 AM

[AndrewBaker]

Well, if the G20 can put together anything that sounds appealing, and the car makers can stay afloat, we may have the a continution of the rally that started last month. Can't see why we've got it, but I've got to back it, and keep a close eye on selling out before the next down-leg hits!

2009 Apr 02 11:33 AM

[David White]

Gold is down $22 at the moment. This is likely because the ECB's actions were seen as non-inflationary (or less inflationary than expected). In contrast oil is still up $3.47 to $51.86. The question may then be asked, which of these indicators do you think is more truely reflecting the overall health of world economies? If economies were going to ignite from the current news (likely causing inflation), wouldn't gold bugs be bidding gold up?

2009 Apr 02 11:46 AM

[David White]

I should clarify that the gold price movement (down $27 on the day now) indicates that the current economic news and the actions by the ECB and the G20 for the IMF ($1T) are overall being viewed as non-inflationary and non-stimulative. If this is in fact the case, the most recent rise in oil may be optimistic speculation. It may reverse itself in the short term. We may later get another bout of oil rising due to the summer driving season and hurricane season commencing in another 2 months. To me the time doesn't seem completely right for this at the beginning of April.

2009 Apr 02 12:04 PM

[David White]

The FASB voted to give firms more leeway in mark-to-market reporting rules. Firms can now estimate the value of assets based on an orderly sale of the assets instead of a forced sale. These news rules go into effect starting with Q2, so they will not help with any of Q1 earnings announcements. However, they may allow banks to avoid taking some huge write offs in the next three quarters of 2009. The FASB vote was only 3 to 2, which is not exactly a glowing endorsement of this new direction.

It is unclear to me if this is going to help the economic situation that much. A lot of times firms are well off to take huge one time write offs. Then they look better (and continuously improving) in future quarters. By not doing this (or by puting this off) the end result of this may be an extremely wide bottom to the recession. Perhaps it will not go quite as deep, but this makes me think that Dr. Roubini is correct. We can throw away the idea of a V-shaped recession.

This also makes me think that commodities traders, who are expecting a huge spike in values as we enter the far side of the V-shape are going to be disappointed. These rule changes argue for a very slow rise from the bottom of the recession.

2009 Apr 02 12:43 PM

[AndrewBaker]

In contrast to the appreciative votes that have been given to my bearish comments in the not-so-distant past, it seems every comment I make now about a future further market fall gets voted down by the surprising number of bulls now roaming around this site. Given so many appear to have swallowed the story about things getting better now, I'm left wondering if flocks of sheep and headless chickens have been let loose in bovine fancy dress.

2009 Apr 02 12:54 PM

[Francisco Martin]

Hot air lifts balloons but once the gas tank is empty a landing is inevitable. This market is running on hot air, gas fumes or whatever is combustible. The harsh reality of American losing their jobs at an alarming rate will show its effects soon enough.

2009 Apr 02 12:56 PM

[Repsonsible Citizen]

Well the poor little retail buyers are starting to take the Bait , the Market soars on news that Banks can HIDE there Bad assets and everything will be fine ,, WRONG ! As You Buy stocks in this Pretend World of Don't ask Don't Tell ask yourself Who's selling You this stock ?? Not the little retail investor who bought it for MORE at the Open today NO its Traders , Banks , the smart money unloading there Toxic stocks on You . Letting banks value Next to worthless assets at 90 to 100 cents on the dollar is a scam ! Course when The public buys them at 90 cents on the dollar in the New Private public Partnership the banks will actaully be saved !! And of Course The Taxpayer You Your kids and grandkids will be paying for it for the next 40 years ! It takes a Long time to Pay off 24 Trillion Dollars ! And Poor
Poor Rick Wagoner lost his job at Gm as CEO , but don't feel to bad he got a $20 Million dollar retirement package !Not to mention the $68 Million he got in Salary since 2000 . How much did You get when they showed You the door ? Smarten up keep Your wallet closed let other fools get suckered this time .

2009 Apr 02 01:04 PM

[Repsonsible Citizen]

So Your Saying Jobs Dont Matter ?? During 2003 to 2007 we had a 4.7 % Unemployment rate basicly we had Full employment . Were Now at around 9-10 % average some places a little less some a little more . We' lost another 700K jobs in March. Now most of these jobs are Gone For EVER and people who do find new jobs well be working for far less in most cases. You Must Be Young , I lived through the 70s stagflation NO Jobs, 18% inflation went from 74 to 79 it wasnt pretty . The UC rate averaged around 9% through it. At the rate were going we'll be at 12% by years end and the inflation well that s coming and 18% is going to look tame id say 50% to 75 % a year is more like it . Were in This MESS because people don't have jobs now , What do You think the Gov can Just keep printing money and giving it out ? Forever You Must be a College kid , dad sends You a Check everymonth I bet ! lol

2009 Apr 02 04:31 PM