A one-page summary of this morning's key market- and stock-moving stories. Headlines link to the original article. Use Wall Street Breakfast as a starting point, and check the original before trading.
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Where Housing Prices Will Fall the Most [Business Week]
Summary: Moody’s Economy.com’s chief economist and Chicago Mercantile Exchange [CME] traders have different opinions about which housing markets will suffer the steepest declines. Based on intensive research on housing supply/demand, new housing constructions, the job market, and mortgage rates, Moody’s Mark Zandi predicts that house prices will decline in 2007 for the first time since the Great Depression. Of the 379 markets he analyzed, Zandi predicts that Cape Coral [FL], Reno [NV] and Stockton [CA] will be hit the worst. In contrast to Zandi’s extensive research, CME traders are using their well honed trading skills for their predictions. A few months ago they actually started trading futures and options contracts on ten U.S. housing markets. Their “composite index” expects housing to fall by 6.8%, with declines in the San Diego [CA], Las Vegas [NV], Los Angeles [CA], Washington [DC], Boston [MA] and New York [NY] markets.
Related links: Soft Housing Market, Falling Commodities Prices Are Lowering Developer Costs • Housing Stocks' Recent Runup -- Sustainable? • Mortgage Buyers Finding More Bad Loans • Don't Believe Advocates of a Soft-Landing for Housing • Moody's Forecasts 3.6% Median House Price Decline in 2007 • BusinessWeek: Slideshow of 10 Housing Markets Headed For Decline
Potentially impacted stocks and ETFs: ETF: iShares Dow Jones US Real Estate (NYSEARCA:IYR)
Buffett Sees Value in Beaten-Down USG [Barron's]
Summary: Although USG Corp. (NYSE:USG) has been devastated because of general bearishness on housing, Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) spent $17.1 million to purchase 371,200 shares of the company, increasing its stake in USG to 19%. Lon Juricic, founder of StreetInsider.com, believes that the fact that the stock is down is the very reason America's most celebrated stockholder is buying up shares so aggressively. USG, which invented wallboard and ceiling tile, reached its record high of $94.22 in April after emerging from bankruptcy and settling its asbestos litigation; since then it has fallen to $48 because of the downturn in housing. Still, USG has 20% operating margins, 25% profit margins, and strong revenue growth and there are those who see Buffett's purchase as a sign of good times ahead for USG.
Related links: Lon Juricic: Buffett Grows Stake in USG Corp. to 19% • Warren Buffett Knows Something About USG Corp. • Building a Case for USG Corp • Buffett Continues to Buy Shares of USG Corp
TECHNOLOGY AND INTERNET
Dot-Com Boom Echoed in Deal to Buy YouTube [New York Times]
Summary: Google agreed yesterday to pay $1.65 billion in stock for 19-month old video sharing site YouTube. Google CEO Eric Schmidt asserted that the combination of Google's advertiser base, ad technology and infrastructure with YouTube's audience and content would create a "global media platform for users, content providers and advertisers all around the world." YouTube and Google simultaneously announced agreements with music companies Universal Music, Sony BMG and Warner Music, and TV studio CBS Corp., removing the threat of copyright litigation. Yahoo, News Corp and Microsoft also bid for YouTube, forcing Google to raise its offer price. But there are "eerie echoes of the late 1990’s boom time" -- Google VP David Drummond admitted that, "We modeled this on a more or less synergistic kind of model. You can imagine this would be hard to do on a stand-alone basis," and Viacom chairman Sumner Redstone said, "There are some issues with YouTube... They use other people’s products... The only way they avoid litigation now is they stop doing it if you call them."
Related links: Background info: Google-YouTube conference call transcript • YouTube • Google Video • Other news coverage: Google Looks To Boost Ads With YouTube [WSJ]• Commentary and analysis: YouTube Founders' YouTube Video on the Google Deal • YouTube and Sequoia Go Long Google Stock • Google's YouTube Acquisition May Just Work • GooTube: Responses • Phil Davis' Google Play (discusses Google options).
Potentially impacted stocks and ETFs: The winner (or loser?): Google Inc. (NASDAQ:GOOG) • Rival online content players: Yahoo Inc. (NASDAQ:YHOO), News Corp (NASDAQ:NWS) • Rival online video players: Time Warner (NYSE:TWX), invested in Veoh; Apple Computer, Inc. (NASDAQ:AAPL).
HEARD ON THE STREET: Vodafone Might Deserve a Fresh Look [Wall Street Journal]
Summary: Some, but not all analysts are seeing value in shares of Vodafone (NASDAQ:VOD). The arrival this week of industry veteran and former Vodafone executive Vittorio Colao as deputy chief executive is seen as reason to be optimistic, but the firm's spokesman says it "isn't related to succession planning." In any event, investor sentiment is improving as Vodafone is seen better withstanding pricing pressures, and is looking at divesting non-core operations overseas. It also has been able to maintain its profit margins so far when many thought they'd collapse. And it trades at a lower P/E multiple, 12, than compared to rivals such as Deutsche Telekom (DT) and France Telecom (FTE) at 14. Vodafone's ADRs closed yesterday at $23.49, about 12% off their 52-week high. Note that on Friday, Deutsche Bank downgraded Vodafone to "hold" from "neutral" commenting that, "While it is comforting that operational performance has not deteriorated as quickly as bears feared, we believe the fundamentals will be challenged" over the next two years.
Related links: Bidding Up the Spectrum Auction • Vodafone's Eggs Are All In One Basket • Telecom Roundup: Verizon Posts 24% Decline in Net Earnings • No Fireworks from Vodafone • Conference call transcript: Vodafone year-ended Mar. '06
Potentially impacted stocks and ETFs: Verizon (NYSE:VZ)
Summary: On Monday Google (GOOG) announced distribution deals with both Warner Music Group (NYSE:WMG) and Sony (NYSE:SNE). The Warner deal will allow Google to stream Warner’s extensive music videos for free. Advertising revenue will be shared, as would revenue from the on-line purchase of music videos through Google. The Sony BMG Music is similar to the Warner deal with the exception that videos will not be available for purchase. With Google’s pending purchase of YouTube, video content from CBS (NYSE:CBS) and Vivendi will be added to the mix. YouTube and Google will overlap in their carrying of both Sony and Warner music video content.
Related links: Press release • Google + YouTube = Natural Monopoly • GooTube: Responses • Google's YouTube Acquisition May Just Work • Google Press Center: Press Release on Google & Warner Music Group Agreement • BusinessWeek: Google in Tussle for Digital Rights • Google Competitors Beware • Forbes: The Google Industrial Complex • Variety: Hazy windows: Confusion reigns in VOD transition • Conference Call Transcript: Google Inc. Q2 2006 (July 20,2006)
Potentially impacted stocks and ETFs: Yahoo! (YHOO), CBS (CBS), Sony (SNE).
Summary: LG.Philips (NYSE:LPL) reported its second consecutive quarterly loss, citing price weakness and high costs associated with flat panel production as the reason for its 321 billion won ($334.8 million) Q3 loss; it lost 321.5 billion won in Q2. Although the loss wasn't necessarily a surprise, it was a reversal from last year's Q3 in which a 227 billion won profit was achieved. Analysts expect its struggles to continue into early '07. Meanwhile Philips is rumored to be preparing to sell its 32.9% stake, with industry watchers suggesting Sharp (OTCPK:SHCAY) or Matsushita Electric Industrial (NYSE:MC) as possible buyers.
Related links: Reuters: LG.Philips sees Q4 TV panel prices fall slowing • LG.Philips Still Floundering While the Rest of the LCD Market Recovers • LCDs Pushing Plasmas to Sidelines of Flat Panel Market • LCD Market Expectations Too High Going Into the Holiday Season • LCD Market Difficulties Lead AU Optronics to Consolidate, Ease Capacity • Improving Q3 & Q4 Outlook for LCD Makers • LCD Update: Despite Some Good News, Our Bearish Outlook Stands • Conference call transcript: LG.Philips Q2 2006
Potentially impacted stocks and ETFs: AU Optronics (NYSE:AUO), Corning (NYSE:GLW), Sony (SNE) and Toshiba (OTCPK:TOSBF)
Gazprom Intends to Develop Huge Gas Field on Its Own [New York Times]
Summary: Russian gas monopoly Gazprom has ended talks with five Western oil companies seeking rights to the Shtokman gas field. The breakdown in talks highlights the growing rift between Russia's oil industry and the West, particularly with the U.S., who it blames for blocking its entry into the World Trade Organization. In recent months, the Russian government has been seen meddling in foreign gas companies operations in the country -- most notably with Exxon (NYSE:XOM) and Royal Dutch Shell (NYSE:RDS.A) Sakhalin 1 and 2 development projects, worth $17 and $20 billion respectively. Shtokman would have provided enough natural gas to supply the world for a full year, roughly 3.7 trillion cubic meters of gas and 31 million metric tons of gas condensate. Now with Russian offshore engineering technology in doubt, it could be several years before the world sees Shtokman's vast reserves.
Related links: Russian Government Muscling In on Anglo-Russian Gas Field Venture • World's Biggest Emerging Market: Russia • Gazprom Confirms Reports it will Develop Shtokman Field Without Foreign Partners
Investors Are Wary Of Buyout Offer For Cablevision [Wall Street Journal]
Summary: A day after New York's powerful Dolan family tried to take Cablevision (NYSE:CVC) -- the cable-TV and entertainment operator they own 22.5% of and whose board they control 74% of -- private, investors are crying "foul." Says John Linehan, a portfolio manager at mutual-fund company T. Rowe Price Group Inc., which holds more than two million Cablevision shares,"I'm getting tired of management and private-equity firms trying to steal companies from underneath our noses, and I think this is another example of that. Shareholders have been asked to sit through a fairly fallow period of time. As things are beginning to look up, a lot of our upside is being taken away from us." The Dolans would beg to differ: In a letter to shareholders yesterday, they described their $27-a-share offer as "fair." Still, after a fairly rough patch, Cablevision has managed to outperform competitor telecom and satellite-television operators in the battle for video, phone and Internet customers, leading its stock to perform well this year. The Dolans will have to convince a team of two independent directors to accept their bid if they are to take the company private.
Related links: • Full article • Dolan Family Wants To Take Cablevision Out of Wall Street's Watchful Eye • Cablevision Systems Q2 2006 Earnings Conference Call Transcript • Cramer's Take On CVC
Potentially impacted stocks and ETFs: Verizon (VZ), Comcast (NASDAQ:CMCSA), Viacom (NYSE:VIA), Time Warner (TWX)
Big Tobacco Spending Big Money to Fight State Bans, Taxes [Wall Street Journal]
Summary: Big Tobacco is spending heavily to defeat upcoming ballot measures that aim to restrict smoking and raise cigarette prices. The biggest battleground this November is California, which has a ballot initiative that would raise $2.1 billion a year for the state by increasing the tax on a pack of cigarettes a further $2.60. Reynolds (NYSE:RAI) and Altria (NYSE:MO) have joined forces, pledging a combined $55 million to fight the tax increase. In contrast, proponents of the tax increase, mostly hospitals, are spending about two thirds less that the tobacco companies. Political analysts believe that tobacco companies are going on the offensive to counter anti smoking activism which has enabled 41 states to pass cigarette tax increases during the past five years. Besides California, Arizona, Missouri, Nevada, Ohio and South Dakota are the other major front lines for tobacco during the upcoming election season.
Related links: Altria Continues to Gain Altitude • Altria's Opportunity to Unlock Shareholder Value • Kraft Spinoff Goes Up in Smoke • Light Cigarette Suit Could Exact a Heavy Price on Tobacco Companies • Business Week: Big Tobacco: Back in Legal Limbo • Analysts: Tobacco suit less of a worry
Potentially impacted stocks and ETFs: Carolina Group (NASDAQ:CG), Vector Group (NYSE:VGR), Star Scientific (STSI), Gallaher Group (GLH), British American Tobacco(NYSEMKT:BTI), Imperial Tobacco Group (ITY).
Summary: On Monday, the New York Times' DealBook blog reported that Sanofi-Aventis (NYSE:SNY) was ImClone Systems' (OTCPK:IMCL) would-be acquirer in a failed takeover bid last month. Carl Icahn, who holds 14% of the company's shares and a seat on the board, broke up the merger deal. The shareholder activist claimed that if the company was "run by competent people” it could raise its $36 share price, the company's worth at the time of the attempted takeover. ImClone currently owns the licenses for Erbitux, Sanofi-Aventis' cancer drug; the drug is ImClone's main product at this time. In its hunger to expand its U.S. reach, the French pharmaceutical company might look into buying Bristol-Meyers Sqibb (NYSE:BMY).
Related links: > Icahn Responds to Imclone: I'm Glad They Didn't Sell • ImClone Systems: Will It Benefit From a Dose of Carl Icahn? • Reuters:Sanofi Silent on Report It Made ImClone Bid
Potentially impacted stocks and ETFs: ETFs: ML Biotech HLDR12/39 (NYSEARCA:BBH), iShares Nasdaq Biotechnology (NASDAQ:IBB) Stocks: Genentech (Private:DNA), Amgen (NASDAQ:AMGN), Pfizer (NYSE:PFE), Schering-Plough Corporation (SGP)
HEARD IN ASIA: Japan's Web Titans Stumble: New Users Are Harder to Find [Wall Street Journal]
Summary: Two of Japan's largest Internet companies, Yahoo! Japan (Tokyo: 4689) and Rakuten (JASDAQ: 4755) are beginning to struggle with revenue and profit growth after years of double-digit gains. There are two problems: (1) consumers signed up for broadband connections en masse over the past five years, +75% to ~73.6 million users making new it increasingly difficult and expensive to attract new customers and (2) smaller web companies and start-ups are grabbing traffic and ad revenue by offering services not available on Yahoo! or Rakuten. Mixi (Tokyo MOTHERS: 2121), Japan's most popular social networking site has been the hot web destination over the past year with subscribers increasing five-fold to nearly 6 million to become Japan's third most popular website after Yahoo! and Rakuten. Overall however, Internet companies are facing a decline in available ad revenue since one of the biggest advertisers, consumer lenders, have cut spending by about 30% since spring while the government considers a lending interest rate cap and more industry regulation.
Related links: IRG's Tech Stock Weekly Updates • Conference call transcripts: Yahoo! Q2 2006
Potentially impacted stocks and ETFs: Amazon (NASDAQ:AMZN), Google (GOOG), Softbank (OTCPK:SFTBF), Yahoo! (YHOO)
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Notable articles on Seeking Alpha today: Jason Hamiln says Silver Wheaton's the best silver play in town • Salesforce.com's Apex Uses Google Office to Challenge Microsoft • Is Level 3 Communications Google's Next Acquisition Target? • Herb Greenberg slices Panera Bread's numbers • New River Jumps 61% On Massive Short Squeeze • Why Short-Selling Has Recently Become Harder • Barry Ritholtz takes a closer look at the absurdly large BLS revision • Citi: Buy AT&T and Sell Verizon • Today's Earnings & Estimates Schedule • Puda Coal Inc. F2Q06 Earnings Call Transcript • Jim Cramer's latest stock picks.
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