Wall Street Breakfast: Must-Know News

• AIG CEO changes restructuring plan. New AIG (AIG) CEO Robert Benmosche is already making his presence felt in the company, calling off a planned sale of the insurer's investment advisory unit in order to "continue to build a world-class financial advisory business." The scrapped sale is an early sign that more significant changes may be in store for AIG's restructuring plans as Benmosche conducts a "strategic review" of the company. Shares -1.8% premarket (7:00 ET).
• Regulators pressured Citi on management. According to a confidential June agreement between Citigroup (C), the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC, Citigroup said it would consider replacing then-CFO Ned Kelly by October. Kelly resigned in July after less than four months on the job once he learned of the agreement. The arrangement between Citigroup and regulators emphasizes just how large a role authorities have played in Citigroup's management shake-up and contradicts the official account of the episode that had been presented by both sides. Shares -2.2% premarket (7:00 ET).
• Tax probe nets other European banks. As wealthy U.S. citizens embroiled in the UBS (UBS) tax probe join a tax-evasion amnesty program, authorities have received information on ten other Swiss and European banks where Americans held accounts, potentially opening new fronts in the IRS's investigation of tax crimes. Banks named in the disclosures, including Credit Suisse (CS), Julius Baer Holding and Union Bancaire Privee, haven't necessarily engaged in any wrongdoing. Meanwhile, the U.S. is building criminal cases against more than 150 of UBS' American clients, and that number is expected to grow.
• MSFT fights to keep selling Word. Microsoft filed to stay an injunction that could prevent the company from selling its core Word software, arguing the injunction would cause "irreparable harm." The permanent injunction was issued last week and barred Microsoft from selling recent versions of Word because it infringes on a patent held by technology firm i4i Inc. If upheld, Microsoft will have to significantly change a major upgrade to the software due to launch next year and will have to stop selling versions of Word 2003 and Word 2007.
• IMF: Global recovery begins. Olivier Blanchard, the IMF's chief economist, said the global economic recovery has begun but a sustainable recovery will require fundamental changes, including a U.S. shift towards more exports and an Asian shift towards more imports. Potential economic output may also remain depressed as "the crisis has left deep scars, which will affect both supply and demand for many years to come."
• HP calls tech spending bottom. Hewlett-Packard (HPQ) narrowly beat earnings expectations in its most recent quarter (see details below), but saw sales fall sharply in several key business areas, including PCs and printers. Looking forward, the company said it sees a "stabilized market" and that technology spending has already hit bottom.
• Macquarie buys asset manager. Continuing an industry trend of consolidation, Australian investment bank Macquarie Group agreed to buy U.S. asset manager Delaware Investments from Lincoln National Corp. (LNC) for $428M. The deal will raise Macquarie's total assets under management to over $300B.
• Mortgage apps rise. Mortgage applications rose 5.6% from last week, MBA said. The average interest rate on 30-year fixed-rate mortgages fell to 5.15% from 5.38%.
• Retail sales. Chain store sales fell 0.7% in the first two weeks of August, Redbook said, slightly worse than the -0.6% expected. According to ICSC, weekly sales were down 0.6% Y/Y and down 0.9% from the previous week as heavy discounts failed to increase sales.
• Housing starts miss consensus (.pdf). July Housing Starts came in at 581K vs. consensus of 605K. Permits were 560K vs. 577K. Starts were 1% lower than June's 587K (revised) and 37.7% lower than last July.
• Prices fall. July's Producer Price Index was -0.9% vs. consensus of -0.3% and +1.8% in June. Core PPI fell 0.1% vs. consensus of +0.1% and +0.5% in June. Core producer prices were down 6.8% from a year ago.

Earnings: Wednesday Before Open

• BJ's Wholesale Club (BJ): Q2 EPS of $0.64 beats by $0.02. Revenue of $2.6B (-5%) in-line. (PR)
• Deere & Co. (DE): FQ3 EPS of $0.99 beats by $0.42. Revenue of $5.3B (-25%) in-line. (PR)
• Yingli Green Energy (YGE): Q2 EPS of -$0.44 vs. consensus of $0.04 (may not be comparable). Revenue of $219.5M (-24%) vs. $213.5M. Shares -5% premarket (8:00 ET). (PR)

Earnings: Tuesday After Close

• Analog Devices (ADI): FQ3 EPS of $0.22 beats by $0.02. Revenue of $492M (-25%) vs. $480M. Sees Q4 EPS of $0.24-0.26 vs. $0.24 and Q4 revenue of $510M-530M vs. $498M. (PR)
• Hewlett-Packard (HPQ): FQ3 EPS of $0.91 beats by $0.01. Revenue of $27.5B (-2%) vs. $27.3B. Sees Q4 EPS of $1.12 vs. $1.07. Sees Q4 revenue up 8% sequentially and affirms full-year revenue guidance. Q3 services revenue up 93% to $8.5B due to EDS merger; enterprise storage/servers sales down 23% to $3.7B; software sales down 22% to $847M. Cash flow $3.9B and inventory down 10 days, to $5.9B. (PR)
• La-Z-Boy (LZB): FQ1 EPS of $0.05 beats by $0.10. Revenue of $263M (-18%) vs. $255M. (PR)
• Photronics (PLAB): FQ3 EPS of -$0.55 misses by $0.36. Revenue of $95M (-10%) vs. $88M. (PR)

Today's Markets

Asian markets closed down, with a heavy drop in China spooking European markets and U.S. futures.

• In Asia, Nikkei -0.8% to 10,204. Hang Seng -1.7% to 19,954. Shanghai -4.3% to 2,786. BSE -1.5% to 14,810.
• In Europe at midday, London -0.8%. Paris -0.9%. Frankfurt -1.2%.
• Futures: Dow -0.9%. S&P -1%. Nasdaq -1.2%. Crude -0.6% to $68.76. Gold -0.4% to $935.30.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  10:30 EIA Petroleum Status
• Notable earnings before Wednesday's open: BJ, DE, EV, YGE
• Notable earnings after Wednesday's close: HAR, HOTT, JDSU, LTD, NTAP, PETM, SNPS

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[doubleguns:]

PPI down, housing starts down, retail sales down, mortgage apps up.
Does anyone else think this news keeps repeating.

Seems like we are stuck in groundhog day.

Aug 19 07:54 AM

[Master Che:]

To Rachael Granby,

Your morning market briefings are excellent in content and length.

Aug 19 08:00 AM

[marketman54:]

Someone help this little brain understand! I haven't posted in a while because I can't believe the market went up 40 pts. on NOTHING!

Housing foreclosures, dirivitve swaps and slowing consumer purchasing started this mess. Each one of these has only gotten worse each month! THESE TOXIC ASSETS ARE STARTING TO SMELL REALLY BAD TO ME!

Foreclosures are up and now that the Obama moratorium has lifted there will be another tsunami rushing towards the banks. To make matters worse for the banks credit card defaults are up; auto loan defaults are up; commercial real estate refinancing

Unemployment is still increasing monthly and there must be close to 20 million full, part time and self-employed people out of work, maybe more. These people along with the rest of America is still not purchasing anything. 70% of our economy is driven by this and each month it gets worse. OH, BUT THE OUTLOOK IS GREAT!!!

Aug 19 08:30 AM

[robert.b.fe...:]

Thank you Rachel. I wonder if terrible Tim the tax cheat had any money in UBS? If he did would Holder build a case against him? Nah, he could have done that without UBS. I wonder if the trial lawyers realize that once Uncle Sugar takes over health care it will exempt itself from malpractice actions?

Aug 19 08:38 AM

[Chandragupta:]

The US Government seems to be having a single point agenda: Prop up the markets and keep the "feel good" feeling going. And with the passage of time, every thing will be alright again. Wow! What economics!


On Aug 19 08:30 AM marketman54 wrote:

> Someone help this little brain understand! I haven't posted in a
> while because I can't believe the market went up 40 pts. on NOTHING!
>
>
> Housing foreclosures, dirivitve swaps and slowing consumer purchasing
> started this mess. Each one of these has only gotten worse each month!
> THESE TOXIC ASSETS ARE STARTING TO SMELL REALLY BAD TO ME!
>
> Foreclosures are up and now that the Obama moratorium has lifted
> there will be another tsunami rushing towards the banks. To make
> matters worse for the banks credit card defaults are up; auto loan
> defaults are up; commercial real estate refinancing
>
> Unemployment is still increasing monthly and there must be close
> to 20 million full, part time and self-employed people out of work,
> maybe more. These people along with the rest of America is still
> not purchasing anything. 70% of our economy is driven by this and
> each month it gets worse. OH, BUT THE OUTLOOK IS GREAT!!!

Aug 19 08:40 AM

[Master Che:]

Bear rallies are this way, the worst the fundamentals the higher up it goes..therefore this market still has a lot of upside left in it.


On Aug 19 08:30 AM marketman54 wrote:

> Someone help this little brain understand! I haven't posted in a
> while because I can't believe the market went up 40 pts. on NOTHING!
>
>
> Housing foreclosures, dirivitve swaps and slowing consumer purchasing
> started this mess. Each one of these has only gotten worse each
> month! THESE TOXIC ASSETS ARE STARTING TO SMELL REALLY BAD TO ME!
>
>
> Foreclosures are up and now that the Obama moratorium has lifted
> there will be another tsunami rushing towards the banks. To make
> matters worse for the banks credit card defaults are up; auto loan
> defaults are up; commercial real estate refinancing
>
> Unemployment is still increasing monthly and there must be close
> to 20 million full, part time and self-employed people out of work,
> maybe more. These people along with the rest of America is still
> not purchasing anything. 70% of our economy is driven by this and
> each month it gets worse. OH, BUT THE OUTLOOK IS GREAT!!!

Aug 19 09:18 AM

[bbowen7:]

Perhaps the markets are looking at the world, ex-U.S. BRIC GDPs have remained up; Europe is now up. It's just us (and Japan) fumbling along for the past six months.

Aug 19 09:51 AM

[carey_jim:]

Just a quick comment on the Microsoft Word issue.

Microsoft used its virtual monopoly of PC operating systems, Windows, to get a monopoly of other, non-related systems such as Microsoft Word and Microsoft Internet Explorer.

They did this by using several unfair advantages. For example, in the beginning, they included Microsoft Word for free with every copy of Windows and, in addition, they would not share vital information about their operating system to vendors of other word processors such as Word Perfect which was almost forced out of business.

This has actually been standard practice in American financial history, for example, with such companies and Standard Oil, etc.,etc. but most of them were broken up into smaller competitive businesses in the period just before World War I. The resulting system was called oligarchy capitalism. The previous one, monopoly capitalism.

That's why we call the present owners of American businesses oligarchs. Microsoft Corporation is a mastodon, just as IBM was a generation ago, in that it is a virtual monopoly in PC operating systems. In an age of virtual regulators, that isn't surprising. Obama is now kicking up a lot of political dust now, and breaking up Microsoft is probably part of a plan.

Aug 19 11:23 AM

[notsosmart:]

if possible just count the rail stock not rolling (engines & freight cars) & so called mothballed.that will tell you the real story.the bs of the talking heads & newspapers should be ignored.im not capeable but someone on this alpha site should give us a weekly report on the idle rail equipment.that should help determine if the tracks are covered with green shoots or weeds.

Aug 19 11:28 AM

[AndrewBaker:]

It does seem that keeping alive the feel-good factor is more important to the Government, the Fed and other authorities than dealing with the facts which are not-so-feel-good. It could be that this rally does continue a little more as a result, but I'm closing all long stock positions and waiting for the reversal which must come before too long, even if not until the fourth quarter. It will be a brave bull who stays in until then.

Aug 19 02:42 PM