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Summary: Philadelphia Federal Reserve President Charles Plosser said Thursday that the FOMC's current policy of leaving interest rates frozen while it assesses U.S. economic growth and inflation may not be sufficient to address the country's long-term economic interests. Plosser told the CFA Society of Philadelphia, "There remains some risk that policy is not yet firm enough to ensure a return to price stability over a reasonable time horizon." U.S. government bond prices continued their losses on Thursday, reacting to Plosser's remarks, with two-year notes trading down 4/32 to yield 4.66 percent. Plosser is not yet a voting member of the FOMC -- he will have to wait till 2008 before he can backup his words with his first vote.
Related links: Full article • ECB Raises Rates, Dollar Doesn't Weaken • Bernanke Comments Reinforce Stable Interest Rates View • Take the FOMC's View With a Grain of Salt • Will the Dollar Hold its Ground?
Related stocks/ETFs: iShares Lehman 1-3 YR Treasury Bond (SHY)
The ECB's Wait-and-Hike Strategy (Business Week)
Summary: The European Central Bank raised its benchmark interest rate 25 basis points yesterday to 3.25%, and signalled that it will likely raise rates again by year end, probably in December. It said growth is expected to slow, but remain robust in the second half. Risks to inflation lie on the upside despite the headline rate falling below 2% in September. Volatility could increase in 2007 due to the German value added tax increase. The rate rise was widely predicted, and the ECB's remarks were slightly less hawkish than expected, leading to a modest rise in the dollar against the Euro.
Related links: Background: Full ECB Statement • Impact on other currencies: Dollar Strengthens Against the Euro As ECB Lifts Rate (WSJ.com) • Pound Set for Weekly Gain on Expectations Rates Will Increase (Bloomberg) • Swiss Franc Falls for Third Day as ECB Raises Interest Rates (Bloomberg) • Yen Weakens on Concern North Korea Plans to Test Nuclear Weapon (Bloomberg) • Weaker Yen Is Supporting Japan's Economic Expansion, Ota Says (Bloomberg) • Investment Commentary: Significance of the Surprisingly Weak Yen • Commodity Currencies Lose Their Luster • PowerShares, Deutsche Bank Team Up To Offer Investors "Bull" and "Bear" Dollar Index ETFs • Dollar Looks OK for Now
Potentially impacted currency ETFs: Rydex Euro Currency Trust (FXE), PowerShares DB G10 Currency Harvest Fund (DBV).
TECHNOLOGY AND INTERNET
Was MySpace Sold on the Cheap? (Business Week)
Summary: After initially being accused of overpaying, it is now accepted that Rupert Murdoch's News Corp. (NWS) got a huge bargain when they picked up web 2.0 site MySpace last year for $580 million; according to Soleil-Media Metrix, the site has nearly tripled in value in a little over a year. Now MySpace co-founder Brad Greenspan says that MySpace parent Intermix sold the site for way less than it was worth -- and knew it. Greenspan also claims Intermix refused to deal with Viacom (VIA), which was also interested in MySpace. Greenspan is one of several shareholders suing Intermix for intentionally selling the company for less than it was worth. But many legal experts are skeptical of the suit, citing the growing number of 'baseless' post-acquisition law suits. In 2005, around the time of the sale to News Corp., Intermix was being investigated for installing spyware and adware onto home computers unbeknownst to users. The company ended up paying $7.5 million in that settlement, costing Greenspan $750,000.
Related links: Full article • Sumner Redstone Says Viacom Missed MySpace • Freston's Firing a Big Step Backwards for Viacom • Encouraging Stupidity: Analysts Up in Arms Over 'Outrageous' MySpace Valuation
Summary: Micron (MU) shares dropped almost 8% after posting quarterly results below Wall Street expectations. Micron reported quarterly earnings of $0.08/share ($63.5mm), below analyst expectations of $0.14/share. During the same period last year, Micron reported quarterly earnings of $0.07/share ($43mm). Micron’s quarterly revenue of $1.37 billion, although up 9% from last year, failed to meet analyst forecasts of $1.41 billion. Aside from continued strong demand for memory from cellular phone manufacturers, Micron anticipates robust demand for memory when Microsoft (MSFT) releases its upcoming Vista operating system. Vista requires significantly more memory to operate effectively than Microsoft’s current XP operating system.
Related links: Full article • Micron: UBS Analyst Expresses Concern Following Chat With Company • Micron Comments on NAND Flash Memory Market • Flash Memory Manufacturers Need Hits From Apple & Sony • Gross Margin - Memory Chip Manufacturers • Conference Call Transcript: Micron Technology F4Q06 (Qtr End 8/31/06)
Potentially impacted stocks and ETFs: Cypress Semiconductor (CY), Integrated Device Technology (IDTI), Integrated Silicon Solution (ISSI), MoSys (MOSY), Rambus (RMBS), Ramtron International (RMTR), Saifun Semiconductors (SFUN), SanDisk (SNDK), Silicon Storage Technology(SSTI), Staktek Holdings (STAK), Simpletech (STEC). ETFs: Semiconductor HOLDRs (SMH), PowerShares Dynamic Semiconductors (PSI)
Summary: Rumors spread Wednesday that Nvidia (NVDA) could be acquired by Intel (INTC), sending the former's shares up 8+%. Yesterday, however, analysts said such a deal is unlikely. Nvidia's shares lost 2.8% yesterday to close at $30.20. A Merrill Lynch analyst commented, "We don't think there's a solid rationale for a deal and we don't think it's going to happen." An American Technology Research analyst was also doubtful citing Nvdia's businesses not matching Intel's core business and a 20% premium that Intel would have to pay. An Nvidia spokeswoman declined to comment. Intel Chairman Craig Barrett told Reuters, "We treat investments and things of that sort like fine wine and we never discuss them before their time, so we don't comment on rumors of that sort."
Related links: Full article • Nvidia Shares Goosed By Rumors That Intel Will Buy It • Nvidia Comments on How AMD's Acquisition of ATI Affects Its Business • Nvidia Threatened by AMD ATI Merger • AMD, Nvidia To Be Hit By Latest Dell Weakness • Conference call transcripts: Intel Q2 2006 • Nvidia Q2 2007
Potentially impacted stocks and ETFs: Advanced Micro Designs (AMD), which fueled the Intel-Nvidia rumor because of its earlier agreement to buy Nvidia rival ATI Technologies (ATYT); Trident Microsystems (TRID) received a delisting notice from the Nasdaq on Wednesday.
From OPEC, Conflicting Talk of Output Cut (New York Times)
Summary: Conflicting reports of a possible cut in oil production by OPEC members moved oil prices yesterday pushing the NYMEX contract over $60 again, going as high as $60.97 and as low as $59.34. Nigerian oil minister Edmund Daukoru, who also serves as OPEC's current president, said OPEC could call a special meeting before its scheduled meeting in December. OPEC reportedly wants to cut daily production by 1 million barrels; OPEC's daily capacity is currently 29.6 million barrels per day. On Wednesday the OPEC basket price fell below $55 a barrel for the first time since February; according to Daukoru falling under $55 was a "trigger" for action. Washington will surely complain as Republicans have been enjoying the falling gas prices ahead of midterm elections.
Related links: Full article • OPEC Production Cut Looks Inevitable • Oil Prices Decline on Increasing Supply • Discussions on Oil • Inflated Oil Prices: Your Tax Dollars at Work • OPEC Denies it will Cut Output • The Significance of Oil's Drop Under $60
Potentially impacted stocks and ETFs: Energy Select Sector SPDR ETF (XLE), U.S. Oil Fund ETF (USO), Oil Service HOLDRs ETF (OIH)
TRANSPORTATION AND AEROSPACE
Nissan's Investors Applaud Collapse of GM Talks (Wall Street Journal)
Summary: Since Wednesday's news that Nissan Motor Company Ltd.'s (OTCPK:NSANY) merger negotiations with General Motors Corp. (GM) broke down its stock has surged, jumping 3.5% yesterday in Tokyo and 2.2% in the U.S. The reason: Investors feel that Nissan will now be able to give undivided attention to beefing up its lagging sales. In 2005 Nissan rushed out new models in an effort to meet inflated sales expectations, leaving them with no new models for '06. Auto sales have now declined for 11 straight months, and share prices are down more than 10% from May highs. The company is readying itself to introduce new models in key markets (8 new models are slated for the second half of the fiscal year vs. 1 in the first half), and analysts, noting currently deflated prices, have turned bullish. WSJ's advice to Nissan: "With the distraction of the GM deal out of the way, analysts say Nissan needs to constantly monitor how each of its models is selling, where they are selling best and make frequent decisions on whether and when to introduce new models to generate buzz."
Related links: Full article • Background: Talks Between G.M., Renault and Nissan Fail • Ford Changes Plans, Probably Won't Seek Renault-Nissan Link (Bloomberg). Japanese advantage: Why Japanese Cars Earn $2400 More Profit Each • Japan's Big-3 to Expand Fuel Efficiency
Potentially impacted stocks and ETFs: Ford Motor Co. (F), iShares Dow Jones Transportation Index ETF (IYT)
Chasing Mr. and Mrs. Middle Market, J.C. Penney, Kohl's Open 85 New Stores (Wall Street Journal)
Summary: Aiming to boost their presence among middle-market shoppers, Kohl’s (KSS) and JC Penney (JCP) are both embarking on major expansions. This weekend Kohl’s is scheduled to open 65 new stores, the biggest store expansion in its history. Of the 20 stores JC Penney will open this weekend, 17 are free-standing; a departure for Penney’s whose stores have traditionally anchored suburban shopping malls. The 20 new stores represent Penney’s largest expansion in two decades. Kohl’s and Penney have both been reporting very strong same store sales increases, likely at the expense of both department store chains like Federated (FD) and discounters like Target (TGT) and Wal-Mart (WMT). Part of their success is due to strengthening their product lines with private label brands and exclusive lines from well known designers. Penney’s private label brands, like St. John’s Bay and Arizona Jeans account for over 40% of sales. Penney’s also has introduced exclusive lines from designers such as Liz Claiborne (LIZ), Nicole Miller and Steve Madden (SHOO). Kohl’s has focused on its Daisy Fuentes private label brand, exclusive line from Vera Wang, and has even started selling Polo Ralph Lauren’s (RL) Chaps label. By 2010, Kohl’s and Penney’ are both planning to open 500 and 400 new stores, respectively.
Related links: Full article • Where is the Retail Carnage Everyone Keeps Talking About? • Kohl's Introduces New Store and Apparel Designs • Retail Beat: Merchandising is Key • Strong Month for Kohl's, Retailers, But Not Wal-Mart • Apparel Labels Making Major Push Into Retail • Discount Retailer Operating Income Growth • Forbes: Kohl's Looks Good, J.C. Penney Looks Better • Conference Call Transcript: J.C. Penney Q2 2006
Potentially impacted stocks and ETFs: Costco (COST), Sears Holding (SHLD). ETF: Retail HOLDRs (RTH)
HEARD ON THE STREET: No 'Oohs,' 'Aahs' For Star Investor In Macy's Parent (Wall Street Journal)
Summary: News that billionaire financier Carl Icahn is raising his stakes in Federated Department Stores (FD) to $500 million was not greeted with enthusiasm on Wall Street, despite the activist investor's past success with the RJR Nabisco breakup in the 90s, his high annual returns of 35%, and his profitable hedge fund. Mr. Icahn is known for taking struggling companies and using pressure to make improvements in management and strategy. But FD is still hurting from a similar transaction with Robert Campeneau who was unable to pay off debts and led Federated to file for bankruptcy court protection in 1991. Mr. Icahn argues he will avoid the same problem because Federated's management can handle debt and the company has excellent cash flow; skeptics maintain Icahn can do little to increase value in the company, which faces fierce competition and, according to some, has little growth potential.
Related links: Full article • Background: Carl Icahn Seeks to Increase His Stake in Federated Department Stores • Carl Icahn shopping for shares of Federated • What Does Carl Icahn Have In Mind for Federated Department Stores? Other recent Icahn movements: Carl Icahn Asks Imclone Chairman To Step Down • Imclone Systems: Will It Benefit From a Dose of Carl Icahn ? • Cadus: On Its Way Down to Penny Stock Land? • Big Value Potential in Little Cadus Corporation
Potentially impacted stocks and ETFs: Saks Inc. (SKS), J.C. Penney Company Inc. (JCP), Sears Holdings Corp. (SHLD)
Marriott: Room to Move Higher? (Business Week)
Summary: Shares of Marriot Int'l (MAR) jumped 6.5% yesterday to $40.85, and hit a new intra-day 52-week high of $41.18, following better-than-expected Q3 results and a positive outlook for Q4 and 2007. Adjusted income from continuing operations was up 12% and adjusted EPS increased by 21% to 34 cents. The important industry metric of revenue per available room (or RevPAR) increased 9.4% on a global basis and 8.6% in N. America. RevPAR growth of 7-8% is expected in '07. Morgan Stanley has an "equal-weight" rating and $46 price target, and S&P has a "hold" rating and $41 target on Marriot.
Related links: Full article • Marriot: Q3 Earnings News Release • Reuters: Marriott profit falls 5 pct, but tops view • Barron's Tips for a Prosperous Retirement
Potentially impacted stocks and ETFs: Four Seasons (FS) +2.79% yesterday, Hilton Hotels (HLT) +3.96% yesterday; reports earnings Oct. 31 before market open, Orient-Express Hotels (OEH) +3.02% yesterday and Starwood Hotels & Resorts (HOT) +4.55% yesterday; reports earnings Oct. 26 before market open.
Summary: A September 18th New York State Supreme Court ruling will help hedge funds realize huge profits on bonds they purchased recently. As a result of the options scandal on Wall Street, an increasing number of companies are not filing financial reports on time, which causes a technical default on their debt, enabling bondholders to demand immediate payment of principal. Hedge funds have been taking advantage of this situation by buying up bonds of companies that have delayed filings and demanding payment or other concessions. According to Barron’s there are about $36B of bonds at stake here. For example, UnitedHealth Group (UNH) was notified on August 28th that it was in default due to its filing delay. UNH has $500 million in 4.875% notes due in 2015 that currently trade at 96 cents on the dollar. Bondholders would get face value, a 4.12% return, if UnitedHealth was forced to retire the bonds immediately. In comparison, typical investment grade corporate bonds have been averaging a 3.2% return this year. Companies are offering financial sweeteners to give them more time: Medarex (MEDX) offered convertible bondholders $2.50 per $1,000 face value to give them more time to file their earnings; if earnings are not filed by October 24th, the bondholder will receive an extra $10 per $1,000 face value.
Related links: Full article • Vultures Circling Around Vitesse • Companies Implicated in Options Backdating Class Action Lawsuits • The Wall Street Journal: Hedge Funds Play Hardball With Firms Filing Late Financials • Forbes: Hedge Funds' Sidecars
Taser International Shoots Higher on Order News (Business Week)
Summary: Taser (TASR) saw its shares rise significantly after securing three major orders for a total of 2,654 X26 stun gun units and accessories, and anticipates a third-quarter revenue of $18 million. New customers include the San Bernardino County (Calif.) Sheriff's Office, the Mesa Police Department, and the French Ministry of Interior. As a result, analyst Eric Wold of Merriman Curhan reiterated his "Buy" recommendation and indicated he expects to raise earnings estimates from $16.4 million to $18 million. This is welcome news; Taser shares slid in January as the result of an investigation concerning the safety of the stun guns. Although charges were dropped, Taser paid $22 million in August to settle lawsuits.
Related links: Full article • Background: TASER Receives Several Orders for X26; Issues Revenue Guidance Above Analysts' Estimates (Reuters) • TASER Wins Two More Lawsuits (Reuters)
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