Wall Street Breakfast: Must-Know News 16 comments
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- Ramp up to financial reform. Details continue to emerge on Obama's financial reform plan, due to be released tomorrow. Among other changes, the plan will urge stronger consumer and investor protections, more power for the Federal Reserve, larger bank capital cushions and more robust lending standards. It will also call for the originator of a securitization to retain a financial interest in its performance. Still unknown is how the plan will approach executive pay and streamlined bank supervision. (Read the WaPo op-ed by Geithner and Summers)
- Crunch time for California. Democrats and Republicans in California's legislature are gearing up for battle as they try to close a $24B deficit that could leave the state unable to pay its bills next month. Democrats are calling for higher taxes and fees while Republicans are pushing for $16B in program cuts. Top state officials approached the White House for emergency aid but were rebuffed; the Obama administration is concerned a California bailout would set off a wave of requests from other states.
- So long, Saab. General Motors reached a deal to sell its Saab unit to Swedish luxury carmaker Koenigsegg. Compensation details haven't been released yet, but the deal is tied to a $600M loan backed by the Swedish government.
- Cash for clunkers. The House of Representatives votes today on a 'cash-for-clunkers' bill that would let consumers collect up to $4,500 on car trade-ins. The $1B subsidy, which will likely be approved, is meant to encourage Americans to switch their old cars for new, more fuel-efficient models, and automakers have thrown their full support behind the measure as a way to get consumers into showrooms.
- Raising the stakes on Data Domain bids. Data Domain (DDUP) recommended shareholders reject EMC's (EMC) unsolicited all-cash $1.9B bid, pointing to a binding agreement with NetApp (NTAP) and the uncertainty of an EMC acquisition. It's unlikely that EMC will be deterred, and a bidding war between EMC and NetApp is likely.
- Extended Stay in bankruptcy. In one of the current recession's largest real-estate bankruptcies, Extended Stay Hotels filed for Chapter 11 protection yesterday. The hotel chain, with over 680 properties in 44 states, ended last year with $7.1B in assets and $7.6B in debt. The top holders of secured debt are Wachovia (WFC) and Bank of America (BAC).
- Glaxo is Reddy for emerging mkts. GlaxoSmithKline (GSK) teamed up with Indian drug maker Dr. Reddy's Laboratories (RDY) to focus on emerging markets, excluding India. Under the agreement, products will be manufactured by Dr. Reddy's and licensed and supplied by Glaxo in countries in Africa, the Middle East, Asia Pacific and Latin America. For Glaxo, this is just the latest in a series of moves designed to expand the company's emerging markets presence. GSK +2.5% premarket (7:00 ET).
- ECB sees more writedowns. In its Financial Stability Review, the European Central Bank said it expects eurozone banks will need to write down another $283B by the end of next year, with total crisis-related losses for the region at $649B vs. an IMF forecast of $904B. Risks to eurozone financial stability 'remain high' despite some signs of stabilization in the economy.
- Credit card defaults soar. Credit card defaults reached a record high in May as consumers remained under severe stress. In particular, Bank of America (BAC) experienced a steep deterioration in its lending portfolio, with its default rate jumping to 12.5% from April's 10.47%. Delinquency rates fell across the industry, but analysts said the drop was because of a seasonal trend and the numbers will likely rise again in the coming months.
- IMF raises U.S. outlook. The IMF issued a new outlook for U.S. economic growth, forecasting a 2.5% contraction this year and a 0.75% expansion in 2010. It's not exactly the makings of a robust recovery, but beats earlier forecasts of -2.8% growth in 2009 followed by a stall in 2010. Unemployment is expected to peak at around 10% next year. (Read the IMF report)
- BoJ cautious on outlook (.pdf). Bank of Japan kept its overnight lending rate at 0.1%, and indicated it's unlikely to wind down extraordinary policy steps anytime soon because there's no guarantee the economy's revival will be sustained. Despite the caution, the bank noted that Japan's recession is easing as exports and factory output improve.
- NY manufacturing declines. The New York Fed's Empire State Manufacturing index fell to -9.4, a five-point drop vs. consensus of -2, as conditions deteriorated at a moderately faster pace than in May. Technology and capital spending indexes were positive for the first time since October. Future indexes continued to rise.
- Treasury International Capital. Net foreign purchases of long-term securities were $11.2B in April, well short of $60B consensus and a fraction of last month's $55.4B (revised). Private investors were net buyers of $18.3B, and foreign institutions bought another $16B, while U.S. investors took in $23B of long-term foreign securities.
- Housing index dips down. NAHB/Wells Fargo's Housing Market Index dropped 1 point to 15, the first decline since January, vs. consensus of 17. The index indicates about one in six homebuilders think the market is "good." Headwinds include "the expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans."
Earnings: Tuesday Before Open
- A-Power Energy Generation Systems (APWR): Q1 EPS of $0.04 misses by $0.08. Revenue of $31.2M (-3.4%) vs. $51.2M. Sees FY '09 revenue of at least $320M vs. $335.2M consensus, prior guidance $290M. Sees FY '09 net income of at least $32M vs. prior guidance of $29M. (PR)
- Best Buy (BBY): FQ1 EPS of $0.42 beats by $0.08. Revenue of $10.1B (+12.3%) in-line. (PR)
- Smithfield Foods (SFD): FQ4 EPS of -$0.55 beats by $0.05. Revenue of $2.85B (-0.6%) vs. $3.1B. (PR)
Today's Markets
Asia markets slipped Tuesday after yesterday's U.S. selloff, but Europe stocks are carrying modest gains. Futures are slightly higher in light overnight trading.
- Asia: Nikkei -2.86% to 9,753. Hang Seng -1.8% to 18,165. Shanghai -0.48% to 2,776. BSE Sensex +0.55% to 14,958.
- Europe at midday: London +0.5%. Paris +0.4%. Frankfurt +0.3%.
- Futures: Dow +0.1% at 8529. S&P +0.1% to 916. Nasdaq +0.2%.
30-year Tsy +0.08%. 10-year -0.15%. 5-year -0.14%. 2-year -0.05%.
Euro +0.7% vs. dollar. Yen +1%. Pound +0.9%.
Crude +1.7% to $71.80. Gold +0.8% to $935.
Tuesday's Economic Calendar
- 7:45 ICSC Retail Store Sales
8:30 Housing Starts
8:30 Producer Price Index
8:55 Redbook
9:15 Industrial Production
5:00 PM ABC Consumer Confidence Index - Notable earnings before Tuesday's open: BBY, SFD
- Notable earnings after Tuesday's close: ADBE
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 16 comments:
MORE power to the FED ??? The Fed CAUSED this mess. Talk about giving the keys and security code of the henhouse to the foxes...
I'm up to around 80% cash now. NO market ever comes this far, this fast without a selloff. Keep your powder dry or lose it folks.
The old trick of moving auditors around till they are too confused to think straight has morphed into creating organizations that are so complex auditors/ regulators have no chance of truly understanding the firms they examine. The proposed changes in regulation are half measures designed to look like they are tough but allow the firms that are "too big to fail" to get bigger. If anything, the proposed change sets up the business cycle for greater peaks and valleys and eventual collapse.
Too bad, this is a missed opportunity to bring honesty and discipline to financial markets. But on the plus side, people like Paulson & Geithner, et al, have made a lot of Wall St friends and have the prospect of great jobs when they leave us with the mess they created.
Europe is to have more bank writedowns, so we hear; as if we won't! Credit card defaults are on the up, and that's being admitted. What has not yet been admitted? My guess is much more bad debts on loans of all descriptions, including commercial property. The market will not do much over summer, but wait for the fall, and don't be long with all your investment unless you don't mind a big drop in your financial worth!
Congress is Urged to Add Bankruptcy Judgeships in the Face of Near-Record Case Levels
www.uscourts.gov/Press...
"Weighted filings per authorized judgeship also have seen significant increases. From 2006 to 2007, the national average weighted filings per authorized judgeship increased 16 percent and from 2007 to 2008, the average increased a further 27 percent. As of the end of March 2009, the national average weighted filings per authorized judgeship stood nearly 60 percent higher than the first year following BAPCPA."
I am sure the Record for Bankruptcy filings will be surpassed by December. Not Going Over The Cliff "As Fast" Is Still Going Over The Cliff.
Safety Is A Function Of Awareness.
Every time the govt gives a rebate on something, all it does it drive up the final price to the consumer and provide higher margins to the supply chain. Examples are solar water heaters in the 80's (and probably now) and the current DTV converter boxes. These DTV are $20 boxes to make & sell (compare to other items like WiFi routers). The govt provides $40 rebates and the shelf price becomes $50.
RE clunkers-
many states have lieu taxes which cost more the newer the car is. If they want to stimulate new car sales, charge more to register older cars, like Japan.
I worked briefly as an accounting manager for one of the world's biggest companies I was told by the regional accounting manager that I would receive instructions where various amounts would be entered and how much. I replied that I would put all amounts in the categories they belonged in and if anyone up the chain wanted to change them, that was their perogative. I was categorized "does not play well with others".
Truth is, no huge multinational company is really auditable. And they put the numbers wherever they want them. The company I worked for wrote off huge losses that did not exist. The idea that these too-big-to-fail firms can be regulated is modern mythology.
will understand what bad leaders they have put in Sacramento
and just maybe demand the proper changes(read as downsizing).
Look for things to get much worse very soon.
I think our government is just reacting to whatever happens rather than coming up with a well thought-out plan.
This should be the job of the News Media, but most of them have climbed into bed with the politicos and refuse to expose the fraud and corruption that goes on. Watchdog status has fallen to the internet community.