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- General Motors to seek bankruptcy protection. The automaker (GM) plans to file on Monday and will sell most of its assets to a new company, 72.5% owned by the U.S. government. Agreement from a key group of bondholders for a 10% stake, with warrants to buy an additional 15%, in exchange for their $27 billion in bonds paved the way. The U.S. Treasury is requiring enough debt holders – seen at 50% - to accept the terms by 5 p.m. ET Saturday. “If bondholders agree to this up front, this would essentially be a prepackaged bankruptcy,” bond analyst Shelly Lombard says. The UAW’s health care trust stands to receive up to 20 percent of the new company, including warrants. GM’s unsecured creditors will likely battle one another and dealers over claims. Current shareholders, who earlier stood to get a 1 percent stake, are left with nothing.
- The cost: A GM regulatory filing says the government is to provide bankruptcy financing of about $50 billion. The restructuring will cost taxpayers billions of dollars more than expected.
- Fiat puts brakes on speedy Opel rescue. German efforts to spin off GM’s Opel business stall as Fiat balks at a request to put up emergency funding. Italy’s Fiat had been seeking to put up assets debt-free in exchange for a merger with Opel. The automaker hasn’t abandoned its bid. Canadian auto supplier Magna, a second potential buyer, agreed to put up an extra €300m on Thursday. In all, GM Europe needs €3 billion in loan guarantees.
- Merck’s Singulair patent re-examined. Drugmaker Merck & Co (MRK) says the U.S. Patent Office is reexamining the patent on its biggest product, $4.5 billion-a-year asthma treatment Singulair. The PTO reorder the review after a request by a new online community called Article One Partners, which recruits scientists to look for evidence patents have been improperly issued.
- R.H. Donnelley to file for bankruptcy. The yellow pages and commercial search provider (RHDC) is seeking to reorganize under Chapter 11. The company said it has reached an agreement in principle with key creditors on the terms that would reduce debt by around $6.4 billion
- Ray of hope for Delphi Corp. creditors. The Obama administration’s auto task force is pushing for a sale of at least some Delphi assets to a third-party buyer, possibly another parts supplier or an investment firm. A deal could surface as soon as this weekend. As a result, Delphi may finally emerge from Chapter 11 and avoid a wholesale liquidation that would leave its creditors with little or nothing.
- No detailed outlook from Dell.The No. 2 PC maker (DELL) narrowly beat expectations with a 63% drop in quarterly profit as revenue declined 23%. "We don't believe there's enough momentum to call a bottom yet," said Chief Financial Officer Brian Gladden. He added there was "no real improvement" in business conditions in May. Dell foresees a rise in PC sales next year on corporate updates. Shares rose 1.5 percent to $11.65 on the overnight.
- Inflation or deflation? Krugman sides on deflation.. Rising Treasury yields don’t scare influential NY Times columnist Paul Krugman. Deflation is the “clear and present danger” to the U.S. economy, he says and snuffs talk the Federal Reserve is printing money. “It’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts.”
- Banks to push back on derivative rules. Banks and money managers plan next week to fend off some rules proposed by the Obama administration to reform trading practices in over-the-counter derivatives. Bankers are seeking to defend billions in fees from trading in the market. Many are opposed to mandatory exchange-trading and real-time price reporting of trades.
- Ackerman fails to hit Target board. Shareholders tossed hedge fund manager William Ackman's proposal to install new directors at Target (TGT). Shareholders elected four incumbents "by a comfortable margin" over Ackman's five picks, which included himself. The vote wasn’t surprising; outside activists rarely prevail. Ackman's Pershing Square Capital Management owns a 7.8% stake in Target stock and options. Ackman had said he would retain his personal Target stake, now worth more than $55 million, for at least five years if he was elected. It was unclear whether he will retain that stake.
- Biogen next. Carl Icahn's fight for seats on the board of Biogen Idec (BIIB) comes to a vote Wednesday. He owns 5.6% of the biotech group. Proxy advisory service RiskMetrics Group is backing two of Icahn's nominees.
- Surprise rise in UK housing prices. A break in the unrelentingly gloomy data as the average home price rose a surprising 1.2% in May to £154,016. It’s the second time in the past 12 months for a monthly rise; house prices are 11.3% lower than they were a year ago. Economists are unwilling to call a turn in the market but say the rise provides some evidence the sustained declines are at least easing.
- 'Hulu's doing OK.' Jeff Zucker, CEO of NBC Universal (GE), says the online video site should turn cash-flow postive "soon". As for the ad market, he says, "we have bottomed out, and there is some light at the end of the tunnel, and I think this upfront will be stronger than people expected.”
- Thumbs up on Bing, Wave but balance of power unchanged. Positive reviews emerge for Microsoft's (MSFT) Bing search engine and Wave, an email service unveiled Thursday by rival Google (GOOG). Yet few tech commentators were prepared to declare either product will score decisively in the showdown between the world’s biggest software and internet companies.
Earnings: Friday Before Open
- Quality Systems (QSII) Q4 EPS 40c misses by 7 cents. Q4 revenue $65.8M vs. consensus of $68M. [PR]
- OmniVision (OVTI) Q4 EPS of (30c) beats by 3 cents. Q4 revenue of $89.1M vs. consensus $68.24M. [PR]
- Tiffany (TIF) Q1 EPS 20c in-line. Q1 revenue $523.1M vs. consensus of $533.03M. [PR]
Earnings: Thursday After Close
- Dell (DELL) Q1 EPS 24c beats by 1 cent. Q1 revenue $12.3B misses consensus by $330M. [PR]
- Novell (NOVL) Q2 EPS of 5 cents misses by 1 cent. Q2 revenue $216M vs. consensus of $218M. [PR]
- Marvell Tech (MRVL) reports Q1 EPS of 5c, in line with estimates. Q1 revenue of $521.4M beats by $4M. [PR]
Today's Markets
Rising oil prices, Treasury yields lift European oil majors, insurers
- Asian markets closed. Nikkei up 0.75% to 9522.50, Hang Seng up 1.6% at 18,171, S&P/ASSK up 1.6% at 3818.1. BSE up 2.3% to 14625.25 on positive Q1 GDP report for India.
- In Europe at midday, London up 1.1%, Paris up 1.2%, Frankfurt up 1.1%
- U.S. futures: Dow up 0.5%, S&P up 0.6%, Nasdaq up 0.60%. Crude up 1.4% to $65.98. Gold up 1.2% at $974.60. 30-year Treasury yield at 4.49%. Dollar down across major currencies.
Friday's Economic Calendar
- 8:30 GDP (preliminary)
8:30 Corporate Profits
9:45 NAPM Chicago Business Barometer
9:55 University of Michigan Consumer Sentiment
3:00 PM Farm Prices - Notable earnings before Friday's open: TIF
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It causes them nightmares!!!!!
They never have had a problem taxing us or raising taxes. They sleep pretty well with that one.
On May 29 08:50 AM bbowen7 wrote:
> Interesting logic from the Nobel-winning Krugman - conservatives
> accepted deficits caused by tax cuts, so deficits caused by increased
> spending shouldn't be a problem. What is in that punch bowl in Stockholm?
It causes them nightmares!!!!!
They never have had a problem taxing us or raising taxes. They sleep pretty well with that one.
On May 29 08:50 AM bbowen7 wrote:
> Interesting logic from the Nobel-winning Krugman - conservatives
> accepted deficits caused by tax cuts, so deficits caused by increased
> spending shouldn't be a problem. What is in that punch bowl in Stockholm?
On May 29 09:02 AM DJBradach wrote:
> General Motors to seek bankruptcy protection. Seems like our government
> and the old GM are still at work. Let me see, the new GM after bankruptcy
> will be 72.5 owned by our government; including warrants, 25% owned
> by bondholders and 20% by the UAW. Being a old CPA it looks like
> that still adds up to 117.5%. So what's new?
As usual, the gov't set us up gradually for the right cross to the chin. Smart people learn, morons don't.
The question is whether there is a public policy benefit to government intervention (a political question) and how large a role the government should take if the first answer is "yes" (an intertwined political and economic question).
While GM could have been forced to file last fall with no federal assistance, the chaos would have multiplied the problems of the financial crisis. This weekend's timing allows for a more orderly process. Making the GM bankruptcy more orderly qualifies in my opinion as a valid public policy imperative.
The size of GM makes the effects of the bankruptcy far-reaching. We can debate how much role the federal government should take in cushioning the shocks, but there is no denying that large swaths of people have been and will continue to be hurt by GM's collapse.
There is a valid economic argument that the federal government is taking too large a role and spending too much money in the GM case, but I feel there is an equally valid argument that the federal government has a duty to step in when large numbers of its citizens are hurting.
On May 29 10:58 AM not so dumb blond wrote:
> I remain convinced that the best plan for GM is for the treasury
> to pay off the debt now held by bond holders and UAW - about $50
> billion- and let GM go forward without any bankruptcy, thus avoiding
> the bankruptcy costs that will likely be more than $50 billion.
> This keeps the government out of the car maker business, and saves
> many hundreds of thousands of American jobs. Obama is spending trillions
> to save/create jobs, yet can't see this as an obvious and clearly
> visable job saving plan. I now seriously question the sincerity
> of Obama and his stated plans.
We are told "officially" that UK house prices rose 1.2% in May.
Firstly, this is still May, so how did they get those figures so fast?
Secondly, whose figures are they using. Surely not actual completed sales, as they will not have gone through yet? So, perhaps agreed prices? What will they actually be at the end when mortgages are still to be arranged and inspections on the building itself that could lead to price reductions, not to mention changes of mind?
I do have an answer as well: UK home-owners don't want to accept low prices for their homes, and in some cases cannot because the mortgage is greater than the selling price. In the UK you cannot just hand the keys back and walk away; you still owe your mortgage company any shortfall between the selling price and the amount borrowed, and they will come after you for it, going to court if necessary. So many people stay in the house and pay the mortgage even though the house value is less.
Those who want to buy a house don't have such a big choice as sellers won't take sensible offers, preferring not to sell. This means that when someone has to buy a new property, they sometimes have to pay a higher price than is really warranted in order to get the right home in the right place. And houses near good state schools (which provide free education) cost more with now being the time they change hands in time for the new school year that starts in August/September.
So, don't believe a statistic that says prices are on the up, when in fact that only applies in special cases, and special cases make up a big part of sales right now.
You know that where you live home prices are still going down, so don't believe any spin that tries to tell you otherwise.
The real question is, has the government taken over GM or has GM taken over the government?
If it's the former, I vote Bill Clinton as Big Chief Executive Officer of GM and Robert Reich as Little Chief Financial Officer, both with salary caps of 100 million dollars per year, of course.
As for Paul Krugman, he has a nasty habit of thinking, which is unusual among economists. And now that the New York Times is afraid to fire him because he won the Nobel Prize, he seems to be thinking even better.
On May 29 08:50 AM bbowen7 wrote:
> Interesting logic from the Nobel-winning Krugman - conservatives
> accepted deficits caused by tax cuts, so deficits caused by increased
> spending shouldn't be a problem. What is in that punch bowl in Stockholm?
accepted deficits caused by tax cuts, so deficits caused by increased spending shouldn't be a problem."
Not exactly....
If you check the facts...there were increased tax revenues due to the tax cuts.
Unfortunately, the fiscal spending by govt was...even greater!
"If the United States owns a company that owns GM, then the United States (US) owns GM.
The real question is, has the government taken over GM or has GM taken over the government?"
You do not seem to understand just "who" failed here?
It was not Obama who failed.
It was not even the "Gum'mint" who failed.
It was the private sector who failed.
Back in 1999, according to a survey of CEOs, 95% planned to vote for 'w' in the 2000 election.
With such spectacular bad political judgement, are you really surprised they failed in their jobs, also?
If the building ("private industry") wasn't already burning down to the ground, there would be no need to put out the fire.