Wall Street Breakfast: Must-Know News 14 comments
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- Underwater mortgages could drown housing recovery. 23% of all U.S. homeowners with a mortgage, or 10.7M, now owe more to the bank than their house is worth, according to a report from First American CoreLogic this morning. More than 5.3M of those mortgages are at least 20% higher then the home's value. Noting the close correlation between negative equity and foreclosures, the firm calls the trend "an outstanding risk hanging over the mortgage market." While more than 40% of borrowers who took out a mortgage at the peak in 2006 are under water, prices have dropped so much that some borrowers who took out loans more than five years ago also owe more than their home's value. Given this, some say it's hard to believe we've broken out of the housing death spiral.
- China will punish non-compliant banks. Chinese banking regulators warned that banks which do not respect capital adequacy rules will face sanctions that could include limits on market access, overseas investments and new branches. The government's economic stimulus this year has generated a surge in bank lending, bringing it to nearly half of total GDP, at 7.37T yuan ($1.08T), and regulators fear a sharp increase in non-performing loans. The regulator recently raised the amount of reserves to 10% from 8%, and has limited the amount of subordinated bonds that banks could count toward capital requirements. Jitters that Chinese regulators will aggressively curb bank lending sent the Shanghai Composite index plunging 3.5% today.
- Fed pushes TARP repayments. Sources say the Fed has asked nine of the TARP recipient banks that underwent stress tests earlier this year to submit a schedule for repayment of the government's cash injections, and wants banks to repay the loans as soon as they have sufficient capital reserves. The request may turn up the pressure for banks accustomed to more flexibility on the timing and process of TARP repayments. Bank of America (BAC) is reportedly one of the banks, which have received about $142B of a total $700B in TARP funds.
- Corporate bond sales hit record. Corporate bond sales surged to a record annual high of $1.171T YTD - more than the $1.167T sold in all of 2007 - as companies take advantage of low interest rates to rebuild their balance sheets. Companies that could not sell debt during the financial crisis are borrowing more aggressively, and being careful to sell debt with longer maturities to avoid being trapped by refinancing risk as they were in 2008, analysts said. The bond sale surge was also supported by the FDIC's debt-guarantee program - companies issued $200B of debt guaranteed by the FDIC this year before the program ended on Oct. 31.
- HP triples share buybacks. Hewlett-Packard (HPQ) raised its share buyback purchases to $12B, three-times the size of those previously planned, as the company reported earnings that beat analyst estimates (see figures below). Revenue from emerging markets and China in particular, along with increased margin on services, boosted HP's earnings. But CEO Mark Hurd said on HP's earnings call that, although there were pockets of returning demand, in particular in printer sales, sales in Europe were still weak. By unit, Services revenue was up 8% to $8.9B; Enterprise Storage and Servers revenue fell 17% to $4.2B; Software revenue declined 16% to $967M; PC sales -12% to $9.9B; Imaging and Printing dropped 15% to $6.5B.
- NBCU IPO could scuttle deal. With right of first refusal, GE (GE) is reportedly leaning toward allowing an IPO of Vivendi's (VIVDY.PK) stake in NBC Universal, as talks over selling the unit to Comcast (CMCSA) stall. The annual window in which Vivendi could decide to sell ends Dec. 10; an IPO would likely scuttle GE's deal with Comcast.
- Where to stash the gold? Investors are piling money into gold, but are having trouble finding a place to put their holdings. According to the WSJ, HSBC (HBC) has asked retail clients to take their gold out of the vault to make room for their institutional investors' gold. Despite the price of gold hovering at about $1,170/ounce, investors are expected to increase holdings of physical gold bars and coins by 21%.
- Existing-home sales hit two-year high. Existing-home sales rose 23.5% year-on-year in October to 6.1M/year, a two-year high, according to a report by the National Association of Realtors released Monday. The $8,000 first-time homebuyer tax credit, due to expire in October, was largely responsible for the surge, the report said (it has since been extended to April). Sales of low-cost homes led the increase, although home prices did not decline sharply during the period. NAR chief economist Lawrence Yun warned that, "with such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer."
- Strauss-Kahn warns of perversity. Today's uncertain regulatory environment is creating a culture of perverse incentives, IMF director Dominique Strauss-Kahn warns: "It might be encouraging a risk-taking culture - a Mardi Gras effect whereby financial institutions party now in expectation of lean times to come." What is needed, he said, is a timetable for reforming the financial sector, and detailed plans for implementation. "We may run out of time - if we wait too long to implement these reforms, it might be too late." Strauss-Kahn added that about half of the world's banking losses have yet to be disclosed.
- Credit-card charge-offs to increase. Credit-card delinquencies have been declining, but Moody's warned Monday they will likely increase in the coming year, driving up charge-offs. Moody's October credit card index showed a decrease in charge-offs to 10.04%, well below the 11.49% record high set in August. But Moody's forecasts that charge-offs will pick up again, hitting a peak of 11-13% in the first half of next year. The early-stage delinquency rate for the past three months is already 14% higher than the same period in 2008.
- SEC to watch for derivatives insiders. The SEC will monitor a wide range of financial instruments, including derivatives and CDS, for insider trading, director Robert Khuzami said on Monday. After the first case of insider trading on CDS in May, Khuzami said the agency will "roll back the curtain and look at patterns across all markets." But some were less than enthusiastic about the initiative, saying the cost of such monitoring outweighs possible benefits: "Do we really need to protect hedge funds from other hedge funds and investment banks in credit default swap trading? Isn't this just a distraction from the SEC's core duty of protecting the ordinary shareholder?"
- Pimco likes Treasurys. Pimco increased its holdings of U.S. government debt in its Total Return Fund to 63% from 48% (.pdf), the highest amount since 2004. Fund manager Bill Gross explained last week that under the "new normal," there is a risk of asset bubbles given that interest rates will remain low for a long time. Gross also raised holdings of corporate debt by 16%, but reduced exposure to mortgage bonds.
- Fujii wants action on deflation. Japanese Finance Minister Hirohisa Fujii said on Tuesday that the Bank of Japan should take action to avoid deflation, urging the bank to cut rates and to step up quantitative easing measures. The central bank said on Friday that growth was increasing, but the government said on the same day that Japan is in deflation for the first time in three years. The government may have trouble raising funds for economic stimulus, because it has set a ceiling of 44T yen ($495B) on bond sales for the next fiscal year. Deflation was one of the main causes of Japan's 'lost decade' in the 1990s.
- Twitter might list, but won't sell. Twitter co-founder Biz Stone says the company might eventually seek a stock market listing, but isn't up for sale. The company, which reportedly received an additional $100M in venture capital last year, is also planning to charge for some of the services it offers, and to introduce paid advertising. The platform had 44.5 million visitors in June, up 15 times from the previous year.
- No bidding war for Opel. European countries that host GM's Opel plants won't be engaging in a bidding war to keep them from closing. The EC chaired a meeting on Monday with the automaker, Spain, U.K., Poland, Belgium and Germany. Under the watchful eye of Competition Commissioner Nellie Kroes, participants agreed that countries could not exchange aid to Opel to preserve jobs at factories. GM is seeking to invest €3.3B ($4.9B) in Opel, but it wants governments to pay for part of that.
- PC sales to return to growth. Gartner reversed its 2009 PC sales forecast, and now expects growth of 2.8% (299M units) from a previous estimate of -2%, noting Q3 shipments were much stronger than expected. However, Gartner still expects dollar sales to dive 10.7% year-on-year to $217B due to "unprecedented declines" in average selling prices (ASPs) as customers settle for "good enough" - a trend it says is likely to continue.
- Icahn takes post on Fountainbleu. Carl Icahn outbid Penn National Gaming (PENN) Monday to become the "stalking horse" bidder for the stalled $3.5B Las Vegas casino the Fontainebleau. Icahn's $155M was $10M higher than Penn's bid, thus setting the base price for auction. The Icahn bid includes about $50M for DIP financing that would be paid back if it is outbid in the auction.
- Black Friday rush may be deceptive. Upscale shoppers are expected to fill retail stores in droves on Friday, but lower-income shoppers won't be in the crowd, according to a survey (.pdf) by Consumer Edge Research. Those earning $150K+ will be snapping up 'Black Friday' bargains, but for every consumer planning to increase how much money he will spend during the holiday, 2.5 say they plan to curb their spending. Preseason trends suggest electronics sales may be solid, while sales of apparel could get pummeled.
- Lehman to return $11B. The bankruptcy administrator for Lehman Bros. International, the defunct U.S. bank's foreign arm, proposed a plan that would return about $11B in assets which have been tied up in bankruptcy court to creditors. If 90% of creditors support the plan in a vote on Wednesday, PricewaterhouseCoopers will be able to give them their money back.
Earnings: Tue. Before Open
- Heinz (HNZ): FQ2 EPS of $0.76 beats by $0.06. Revenue of $2.67B (+2.5%) in-line. (PR)
- Vimpel-Communications (VIP): Q3 EPS of $0.43 misses by $0.02. Revenue of $2.28B (-19.9%) in-line. Mobile subscribers +1.7M Q/Q to 65.4M. (PR)
- Warner Music Group (WMG): FQ4 EPS of -$0.03 misses by $0.08. Revenue of $861M (+0.8%) vs. $820M. (PR)
Earnings: Mon. After Close
- Analog Devices (ADI): FQ4 EPS of $0.36 beats by $0.10. Revenue of $572M (-13%) vs. $524M. Sees Q1 EPS of $0.36-0.37 vs. $0.28, on revenues up 20% Y/Y. Shares +0.9% AH. (PR)
- Atwood Oceanics (ATW): FQ4 EPS of $0.75 beats by $0.06. Revenue of $131M (-18%) vs. $128M. Shares +0.1% AH. (PR)
- Brocade Communications Systems (BRCD): FQ4 EPS of $0.15 beats by $0.02. Revenue of $522M (+30.9%) in-line. Shares +0.7% AH. (PR) (-from Mon. evening)
- Hewlett-Packard (HPQ): FQ4 EPS of $1.14 beats by $0.01. Revenue of $30.8B (-8%) vs. $30.4B. China Q4 revenue up more than 20%. "HP's solid performance in services drove record profit, and the accelerated pace in signings creates strong momentum going into 2010." Shares -0.6% AH. (PR)
- Nuance Communications (NUAN): FQ4 EPS of $0.32 beats by $0.03. Revenue of $276M (+6%) vs. $272M. Shares +1.8% AH. (PR)
Today's Markets
Asia stocks dropped Tuesday, led by China on jitters regulators there will aggressively curb bank lending. Europe is flat at midday, as are futures after a quiet overnight session.
- Asia: Nikkei -1% to 9402. Hang Seng -1.5% to 22423. Shanghai -3.5% to 3224. BSE -0.3% to 17131.
- Europe at midday: FTSE +0.1% to 5361. CAC -0.3% to 3804. DAX -0.1% to 5794.
- Futures: Dow, S&P and Nasdaq all flat. Jan. crude -0.6% to $77.06. Gold +0.3% to $1,167.70. 30-year Tsy +0.23% to 121-06. 10-year +0.14%. Euro -0.1% vs. dollar. Yen +0.3%. Pound -0.5%. Loonie -0.4%.
Tuesday's Economic Calendar
- 7:45 ICSC Retail Store Sales
8:30 Q3 GDP (2nd estimate); Corporate Profits
8:55 Redbook Chain Store Sales
9:00 S&P Case-Shiller Home Price Index
10:00 Consumer Confidence
10:00 FHFA Housing Price Index
10:00 Richmond Fed Mfg.
10:00 State Street Investor Confidence Index
1:00 PM Results of $39B, 3-Year Note Auction
2:00 PM FOMC minutes
2:00 PM Q3 Thrift Industry Charge-offs
5:00 PM ABC Consumer Confidence Index - Notable premarket earnings: AEO, BKS, DLTR, EV, HNZ, HRL, MDT, VIP, WMG
- Notable postmarket earnings: CWTR, JCG, TIVO
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"Companies that could not sell debt during the financial crisis are borrowing more aggressively, and being careful to sell debt with longer maturities to avoid being trapped by refinancing risk as they were in 2008, analysts said."
This would be kicking the can as far down the road as possible and hope that the turnaround has happened by the time the bonds are refinanced.
"Govt wants TARP money back".... My guess they are trying to get some liquidity out of the system to stem inflation.
No place to stash gold..... I have a solution, everyone bring it to my house.
Thanks!
On Nov 24 07:42 AM JoeWa wrote:
> Is it 23% of US homeowners or 23% of US homeowners with mortgages?
Not too surprising, since banks aren't lending. It makes sense to not be subject to the banks' vagracies, if its at all possible to do so.
Perhaps the IRS is attending, with cameras in hand, the physical transfer of gold by the retail clients?
"Strauss-Kahn added that about half of the world's banking losses have yet to be disclosed."
Wasn't the orchestra told to keep playing after the Titanic hit the iceberg to avoid pamic?
"Dont wait... Reinflate"
>>>Wasn't the orchestra told to keep playing after the Titanic hit the iceberg to avoid panic?<<<
Hey! I just noticed you need 12 positive posts (although it changes quite frequently) to crack the SA "Top 10" posters! seekingalpha.com/leade...
Common, guys and girls. Let's give OT a push. A 'thumbs up' for OT is a 'thumbs up' for "Must Know News".
Some of this stuff that is coming out from Case-Shiller... Now this is a "straight shooter" comment if I've ever read one:
"The S&P/Case-Shiller home-price index increased 0.27 percent from the prior month on a seasonally adjusted basis, after a 1.13 percent rise in August, the group said today in New York. The gauge fell 9.36 percent from September 2008, more than forecast, yet the smallest year-over-year decline since the end of 2007. "
Anyhow, after you get by the dazed and confused look, almost all of this is being fueled by a policy of "extend and pretend" by the US. Government and banks (one of the same). I don't know about interventions in housing overseas, but there seems to be a lot of fine print at the bottom of these growth indicators in the U.S.A.
Aw shucks....you're gonna make me start to blush!!!
On Nov 24 09:32 AM spald_fr wrote:
> On Nov 24 08:55 AM Old Trader wrote:
The only thing worse that can happen now is that the Fed's printing presses all break down at the same time!
Buy your commodities, short the market (SH), and get ready to short the financials for a wild ride - 124 banks have failed and 530 banks are in trouble according to the Fed.
I am so glad this recession is over and everything is so stable again!
>>> spald...Aw shucks....you're gonna make me start to blush!!!<<<
Who's that I see in the TOP 10?
seekingalpha.com/leade...
Hooo-ah!
I don't discount the importance of these numbers one bit. I was among the first to warn of the housing bubble with "clear and present danger" articles during 2005 and 2006. But neither can I accept the shrill conclusion that because 23% are underwater, that some figure close to 23% will walk away from their current home. (Although, in the Unintended Consequences Department, the current $6500 "redistribution" from all taxpayers to any principal residence buyer may tempt many more than otherwise would have walked to do so...)
Still, a house is not a home and a home is much more than a house. If you like the neighborhood, like the school district, like your neighbors and are comfortable in a place you rent, you don't move just because rent somewhere else is $50 a month cheaper. The same is true of your home, especially if have put sweat equity into the yard or painted it recently or done improvements to the interior, etc.
23% underwater doesn't mean that 23% are hundreds of thousands underwater; or that we'll stay underwater as housing prices rebound in many parts of the country; or that we'll walk away from the home we love just because it's underwater TODAY.
I did not share in the irrational euphoria when prices were ridiculously overpriced. But I do not share the shrill hysteria that the sky is now falling, either. We've been here before. "House" prices go up and they go down. But people still want a "home" to call their own...