Wall Street Breakfast: Must-Know News 19 comments
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- Fed probed on Lehman dealings. A court-appointed examiner is investigating whether the Fed improperly cut in front of other creditors in Lehman's $613B bankruptcy. Creditors are outraged that the Fed, which lent Lehman $46B last September just before it went under, were paid back promptly and in full, while they've languished in bankruptcy courts hoping to recoup at least some of their losses. Generally, government agencies, including the Fed, can't be held legally accountable for their actions, though it's not clear that the sovereign immunity principle extends to bankruptcy law.
- Comcast, NBC in talks. Wall Street is largely discounting Comcast's (CMCSA) nuanced denial that it's courting NBC Universal (GE), which left plenty of room for interpretation ("while we do not normally comment on M&A rumors, the report that Comcast has a deal to purchase NBC Universal is inaccurate"). In one scenario favored by Comcast, the two would form a new JV led by Comcast with a 51% stake. Potential sticking points include Comcast's desire to spend as little cash as possible vs. GE's need for money, and Vivendi's 20% stake in NBCU. Investors, who have long pressed Comcast to send more cash their way, aren't likely to be keen on a deal. CMCSA fell 7.2% Thursday, but recovered after-hours. Commenting to reporters on the rumor Friday, GE CEO Jeff Immelt said, "Discussions are ongoing whether it is an IPO or another partnership."
- CIT launches debt swap. CIT Group (CIT) unveiled its debt exchange, asking bondholders to slash at least $5.7B in unsecured debt for either new secured bonds maturing in 4-8 years, preferred shares, or a combination. Sources say creditors holding bonds closest to maturity would receive proportionally more new debt than equity in an effort to achieve some equality, and not pit one group of bondholders against another. Should the exchange fail, CIT will seek court protection through a prepackaged bankruptcy, which it says offers less value to creditors than its proposal.
- Blindsided, BofA ponders options. Sources say Bank of America (BAC) is considering a temporary fill-in for departing CEO Ken Lewis to keep the bank on course while more-permanent candidates mature, yet another sign of how Lewis' sudden resignation blindsided the board. BofA meets today to decide on a course of action, and who will sit on the nominating committee. Sources say the government will have a say in the final selection. There are any number of directions the board could take, with some thought to favor an insider (Sallie Krawcheck, chief risk officer Greg Curl?), and others leaning toward a brand-name outsider (Alan Schwartz, Jerry Grundhofer, Heidi Miller?).
- Bernanke suggests regulation by committee. As expected, Ben Bernanke urged lawmakers Thursday to put the Fed in charge of regulating the largest U.S. financial institutions, but in a nod to critics worried about the Fed's immense power, Bernanke suggested a council of regulators - led by the Treasury - collaborate in monitoring systemic risk. "We have never supported, and the administration has never supported, a situation in which the Fed would be some kind of untrammeled super-regulator," he said (testimony). While many have praised the Fed's efforts to tame the crisis, it's also been criticized for not seeing it coming. As a result, even some of its biggest supporters in Congress predict the Fed's role as a watchdog going forward will be more modest than originally thought.
- U.K. tells Xstrata to put up or shut up. U.K.'s Takeover Panel gave Xstrata (XSRAF.PK) until Oct. 20 to formalize its June 'merger of equals' offer for Anglo American (AAUKY.PK) or walk away for six months. Unless Xstrata has a change of heart about paying a premium or surrendering more than 50% of the combo, it may be difficult to avoid walking away given the broad lack of enthusiasm from Anglo shareholders. "We have reaffirmed our conclusion that Xstrata's proposal is not in the interests of our shareholders," Anglo chief John Parker reiterated today.
- Northrop hands Boeing stunning defeat. Northrop Grumman (NOC) beat out Boeing (BA) for a $3.8B contract to maintain and service the U.S. Air Force's fleet of KC-10 refueling tankers. Analysts said the win was a "stunning upset" for Northrop, given that Boeing has been servicing the KC-10 since its introduction. Boeing said it will review the decision before deciding whether to appeal to the GAO. NOC +5.4% after hours. BA -0.7%.
- Car sales retreat. After two red-hot months of cash-for-clunkers sales, carmakers posted tepid numbers Thursday. GM said its sales dove 45%, Chrysler reported a 42% drop, sales were down 20% at Honda (HMC), 13% at Toyota (TM) and 7% at Nissan (NSANY). Ford's (F) sales fell just 5%, capping a 5% gain for Q3 - its first positive quarter in four years. Hyundai, which has been gaining momentum throughout the recession, was the best performer at +27%. In aggregate, sales dropped 23% from last year and 41% from August.
- Sept. ISM Manufacturing Index came in at 52.6%, short of the consensus of 54%, but still the fifth straight month of expansion (+50%). While the growth rate moderated slightly vs. August's 52.9%, the recovery broadened as the number of industries reporting growth increased from 11 to 13.
- Initial Jobless Claims rose 17K to 551,000, worse than 530,000 consensus forecast. Continuing claims declined by 70K to 6,090,000. Goldman Sachs subsequently downward adjusted its forecast for today's NFP number to -250K vs. a previous -200K and consensus of -175K.
- Aug. Pending Home Sales rose 6.4% from July, well ahead of consensus of +1%. Sales were 12.4% higher vs. last year. The index is now at its highest level since March 2007. The rise "shows buyers are returning to the market and signing contracts," NAR's Lawrence Yun said, adding that some deals aren't closing due to "complex new appraisal rules."
- August Construction Spending: +0.8% to $941.9B/year vs. consensus of -0.1%, and 11.6% below the year-ago estimate. July estimate revised to $934.6B. In the first eight months, spending was $629.5B, 11.9% below the same period in 2008.
Earnings: Thursday After Close
- Accenture (ACN): FQ4 EPS of $0.63 (ex-charge) in-line. Revenue of $5.15B (-14%) in-line. Took charge accounting for $0.24/share; increases annual dividend 50% to $0.75; increases share buyback by $4B. Shares -1.3% AH. (PR)
- Corel Corp. (CREL): Q3 EPS of $0.27 beats by $0.09 (one estimate). Revenue of $47M (-28%) vs. $48.5M. Shares -0.7% AH. (PR)
- Global Payments (GPN): FQ1 EPS of $0.71 beats by $0.06. Revenue of $441M (+9%) vs. $425M. Shares -1.6% AH. (PR)
- Immucor (BLUD): FQ1 EPS of $0.30 beats by $0.05. Revenue of $83M (+14%) vs. $78M. Sees full-year EPS of $1.10-1.17 vs. $1.11. Shares +4.3% AH. (PR)
Today's Markets
Asia markets dropped strongly Friday in reaction to Thursday's U.S. losses. Europe stocks are lower, and futures are down ahead of the NFP number at 8:30 (see today's calendar below).
- Asia: Nikkei -2.47% to 9,732. Hang Seng -2.77% at 20,375. China and India were closed.
- Europe at midday: London -0.6%. Paris -1.1%. Frankfurt -0.6%.
- Futures at 7:00: Dow -0.4% to 9433. S&P -0.4% at 1023.50. Nasdaq -0.4%. Crude -1.6% to $69.68. Gold -0.2% to $998. 30-year Treasury +0.46% to 123-07. 10-year +0.24%. 5-year +0.15%. Euro flat vs. dollar.
Friday's Economic Calendar
- Friday's economic calendar:
8:15 Fed's Rosengren speaks on inflation and financial markets
8:30 Nonfarm payrolls
9:00 Day-two of Washington Ideas Forum
10:00 Factory Orders
4:35 PM Fed's Fisher speaks on the new global economy (webcast)
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Smart talk has moved the markets up too high: now watch reality kick in, and see how in October the false "recovery" gets seen for what it is, and watch the markets fall back. And this is what we need, genuine pricing in the markets, before any real recovery can begin.
Sept. Nonfarm Payrolls: -263K vs consensus expectation of -175K. Unemployment rate = 9.8%. This was worse even than GS recently adjusted estimate (yesterday) of -250K.
However, Aug. Nonfarm Payrolls losses were revised downward from -216K to -201K. This was a little bit heartening.
This could lead to another down day. Factory Orders to come at 10am ET may have a significant impact still. Gold down -$3+. Oil down -$1+. USD Index up +.26% currently. All these things so far set the stage for a down day. Of course, the SPY sank a dollar to $102.08 soon after the non-farm payrolls announcement. We'll have to wait to see where it goes from here.
When the turnaround eventually happens, companies will first choose to increase the work week for their exisiting...then they will re-hire full time all the workers that they have become part-time by force...and THEN they would make any attempt at hiring new workers from the job market. So that's quite a few steps until companies step up hiring!
For more analysis, check out my blog: youngandinvested.com
Comcast and NBC - a distrubing trend that monopoly media provider may control a media outliet. To control the masses, media outlets are necessary to propogandize with. This is more than just "business".
Bernanke suggests regulation by committee - well, anyone who has dealt with committees knows that this guarantees that there will be an appearence of regulation with the ability to act of marble statues mired in molasses.
Rest of the news?
Issuing more debt to solve a debt crisis (kick that can!).
The collapsed car sales after steroids of CFC (surprise) with Government Motors losing the most sales and Ford losing the least (can you say "shadow tea party?").
Home sales and construction spending beating expectations = the home sales were contracts pending, not necessarily sales, and Winter is coming so if you have borrowed money you will be spending it to finish what you started. Both are seasonal.
Northrop - Boeing deserves getting the shaft for their malfeasance.
TGIF!
"Bernanke suggests regulation by committee."
As if the government is not screwed up enough, now we are going to have even MORE decisions by committee, ensuring those decisions will be at the lowest common denominator of intellect and common sense.
What is the definition of a camel? "A horse designed by a committee."
When going to learn, ya have to be in the club, GovSacs and the Fed never lose.
I guess it's the TARP money that B of A was forced to take.(www.cnbc.com/id/30745687)
So let's see... forced to take Tarp money, coerced to do the Merrill Lynch deal (www.marketwatch.com/st...) and now finally, reserving the right to have a say in the final descision for the next CEO.
Is anyone else bothered by this? Is anyone else like me, as mad as hell about how our government is involvoing itself in private business?
On Oct 02 09:34 AM axelrod608 wrote:
> It's time to eliminate corporate taxes for manufacturing companies
> that produce their products in the USA. The economy will not improve
> until and unless we start making something more tangible than paper
> financial instruments and dollar bills, and paying Americans for
> doing the work.
Of course, why didn't someone else think of that! Let's just add one more layer of people from the smart people list to regulate, by committee what the Fed and it's committees were supposed to be regulating. Only a lifetime government employee, or an MBA who never had a summer job, would suggest such a non-solution.
There is the notion among the amateur breeders of Thoroughbred race horses that "more speed" can be breed into a horse. Sorry, too late! Mother Nature and evolution bred the top speed of horses thousands of years ago by reason of the speed of the predator that hunted horses for food. A fast horse does not run faster than the fastest cat that fed upon them and no more. Faster cannot be bred in but slower, or weaker, most certainly can and usually is. That's why the greats, like Secretariat, are so accidental.
And that brings me back to government, regulators, banks, management and elected government. The Fed cannot breed - read select - a super smart committee to regulate the economy. Neither can Congress. However we can and do breed - read elect - morons to run economic policy. And we already have more of this breed than we need. We don't need to breed any more. Neuter Bernanke!
On Oct 02 11:27 AM David McSwain wrote:
> Is anyone else bothered by this? Is anyone else like me, as mad
> as hell about how our government is involving itself in private
> business?
CIT's clients would be the real beneficiaries of a prepackaged bankruptcy. Their access to short-term credit wouldn't be cut for long.
Here's a suggestion for bofA's next CEO: Carl Icahn. Turn him loose to cut senior executive pay and force bad loans to be written down.
Collapsing car sales should not surprise anyone with the expiration of the Cash for Clunkers boondoggle. Count on your government to waste your money.