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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Summary: Minutes of the Fed's Sept. 20th meeting released yesterday failed to mention any prospect of a rate cut but did cite "substantial risk" that inflation, currently at "an undesirably high rate", won't ease. As a result, the implied probability from bond prices of a reduction in interest rates before the March 20-21st Fed meeting fell to 18% yesterday from 82% on October 4th, and for a cut before the January 30-31st meeting to 6% from 36%.
Related links: Fed minutes from Sept. 20 meeting • Bill Gross: Bond Prices Have Bottomed • Recession Around the Corner? • Yield Curve Forecast: Cloudy With a Chance of Rain • The Economy's Wake-Up Call: Are Investors Listening? • Recession 2007? Philadelphia Fed Index Turns Negative
Potentially impacted bond ETFs: iShares Lehman 1-3 Year Treasury Bond ETF • iShares Lehman 7-10 Year Treasury ETF • iShares Lehman 20+ Year Treasury Bond ETF • iShares Lehman TIPS Bond ETF, iShares GS $ InvesTop Corp Bond ETF.
New-home prices likely to fall for 1st time since '91 [Boston Globe]
Summary: The National Association of Realtors believes that 2006 will mark the first time in 15 years that the average price of new homes will fall from the previous year. The dip in pricing will likely be 0.2 percent to $240,500, the first decline since a drop of 2.4 percent 15 years ago. Additionally, the price for previously owned homes will likely increase a meager 1.6 percent to $223,000, the smallest gain on record. Housing inventory is at its highest levels ever recorded as well - a record 3.92 million in August. On the whole, sales of previously owned homes probably will drop 8.9 percent this year while new-home sales probably will plunge 17.3 percent to 1.06 million.
Related links: Mortgage Applications Don't Indicate Housing Rebound • Soft Housing Market, Falling Commodities Prices Are Lowering Developer Costs • Faced With Growing Wall Street Scrutiny, Realogy Considers Going Private • Don't Believe Advocates of a Soft-Landing for Housing • Housing Stocks Stabilizing But No Reversal in Sight
Potentially impacted stocks and ETFs: SPDR Homebuilders (NYSEARCA:XHB), Toll Brothers (NYSE:TOL), Pulte Homes (NYSE:PHM), Beazer Homes (NYSE:BZH), Hovnanian (NYSE:HOV), MDC Holdings (NYSE:MDC), Ryland Group (NYSE:RYL), Realogy (NYSE:H), iShares Cohen & Steers Realty Majors Index (NYSEARCA:ICF), iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB)
TECHNOLOGY AND INTERNET
Yahoo's Talks With Facebook Get Bogged Down [Wall Street Journal]
Summary: Yahoo!, Inc., already faced with a host of problems including slowing Internet ad sales growth and a delayed ad systems upgrade release, is struggling in its attempt to acquire social networking site Facebook Inc. Its difficulty in closing the deal highlights the growing divide between the Internet giant and rival Google, which just announced its swift purchase of video site YouTube for $1.64 billion. An acquisition of Facebook, which is geared toward college students, would ostensibly help Yahoo target a younger demographic and thus lure advertisers. Yahoo is valuing Facebook at approximately $1 billion. The two companies flirted with a deal in July, but Facebook – likely encouraged by the strong mergers-and-acquisition climate suggested by the Google-YouTube deal – appears content to await rival suitors.
Related links: Yahoo: Left in Google's Dust? • Is $1 Billion a Fair Price For Facebook? • Yahoo Gets GooTubed: Stock Down On Ad Competition • WSJ: Yahoo in Talks to Acquire Facebook • Why the Facebook/Yahoo Deal Won't Happen So Soon • How a Facebook Acquisition Would Benefit Yahoo • Yahoo! Inc. Q2 2006 Earnings Conference Call Transcript
Potentially impacted stocks and ETFs: Yahoo! Inc. (NASDAQ:YHOO), Google (NASDAQ:GOOG)
Summary: Two Bay Area companies, McAfee, Inc. and CNET Networks announced several firings connected to their recently completed options backdating investigations. In addition, software company Adobe Systems announced yesterday that an internal investigation of option grants from 1997 through 2006 turned up evidence that records were changed after options were granted. At least 140 companies are involved in federal investigations or internal reviews relating to the options scandals. During its investigation, McAfee found abuses that would force it to wipe out $100 million to $150 million in earnings dating back 10 years after the company warned as recently as September that it probably would restate only earnings from fiscal 2003 and on. Losing their jobs yesterday were McAfee Chairman and CEO George Samenuk (who officially "retired") and President Kevin Weiss. Meanwhile, CNet disclosed the resignations of Chairman and CEO Shelby Bonnie, its general counsel and its head of human resources.
Related links: • More Trouble at CNET: CEO Axed, Revenue Below Guidance, Traffic Way Down • CNET scandal coverage from PaidContent.org • Cost of Options Backdating: $7.9 Billion of Market Value (and Counting) • Something's Rotten at Apple • Options Backdating: Merrill Lynch's Danger Stock List • Companies Implicated in Options Backdating Class Action Lawsuits • Updated WSJ Options Scandal Scorecard
Trying Again to Make Books Obsolete [New York Times]
Summary: Sony's Reader, a new portable e-book device, goes on sale this month in the U.S. The Reader is an attempt to revive interest in e-books and capitalize on a niche segment. It will cost $350 and offers features such as "page turning," bookmarking, adjustable type size, and superior battery life which lasts 7,500 "page turns" only using the battery when a page is turned meaning you never have to turn off the device. It also offers picture viewing and certain MP3/AAC music playing and memory card connectivity for uploading personal files. By and far however, it's the screen that stands out, using new display technology from a company called E Ink, which makes the text appear crisp and "so close to the surface of the screen, it looks as if it’s been printed there." The shortcomings are there is no backlight, the Sony Connect software is "somewhat buggy," button controls are far from ideal, some key e-book features are missing and there's an annoying one-second blink between page turns. Both Amazon and a Philips Electronics' spinoff are said to be working on their own e-book readers.
Related links: Sony: Reader Press Release • Playstation 3 Mania: Stores Already Sold-Out of Pre-Orders • Forbes AFX: Fitch downgrades Sony ratings on PS3, battery recall worries • Sony: Sony Ericsson earnings related materials • Reuters: Sony Ericsson hails exceptional Q3, cautious on Q4 • Reuters: Sony says developing video Walkman • Goldman Downgrades Sony, Cuts Target • Conference call transcript: Sony Q1 2007
Potentially impacted stocks and ETFs: Sony (NYSE:SNE), Amazon (NASDAQ:AMZN)
TRACKING THE NUMBERS: Expedia Might Trip Debt Covenant [Wall Street Journal]
Summary: A sharp drop in its stock price and falling cash flow mean online travel company Expedia may have to write off a portion of the $5.86 billion in goodwill on its balance sheet. That would reduce shareholder equity, trigger a violation of one of its debt covenants, and likely raise lenders' fees and impair borrowing terms. The goodwill was generated back when IAC/Interactive purchased businesses that eventually became a spun-off Expedia. The goodwill figure now exceeds the company's market value of $5.2 billion.
Related links: Expedia Q2 2006 Earnings Conference Call Transcript • Bill Miller on Expedia • Priceline: Strong Growth That Doesn't Look Sustainable
Potentially impacted stocks and ETFs: Expedia (NASDAQ:EXPE), Priceline (NASDAQ:PCLN), Travelocity (TSG)
Summary: British broadband provider Carphone Warehouse has bought AOL U.K. from Time Warner for $688 million. With this transaction, Time Warner – which was $27 billion in debt in 2003 -- has spun off all of its European AOL units. Carphone Warehouse beat other suitors to the prize by accepting AOL’s demand that it stay in contact with its customers. AOL will accordingly provide a co-branded portal and online content and will manage ad sales. Carphone Warehouse, which has now acquired 1.5 million new broadband customers and 600,000 dial-up customers, expects the purchase to boost pretax profits this year by $18.6 million. This should ease the hit to earnings caused by the company’s difficulties in meeting massive demand for its free “TalkTalk” broadband package, although it puts additional pressure on the company to overcome its credibility problem in delivering promised services in a timely manner.
Related links: Time Warner Q2 2006 Earnings Conference Call • AOL's New Business Plan: Digging for Gold • AOL Restructures - Again
Potentially impacted stocks and ETFs: Time Warner (NYSE:TWX)
Summary: In China, eBay has fallen from being first in on-line auction market share to second this year with only 29% compared to Alibaba.com's TaoBao's 67%. Yahoo! by the way owns a 40% stake in Alibaba. Growth in listings has slowed substantially since TaoBao began offering free listings. Also, the CEO of eBay's China unit, Eachnet, resigned suddenly late last month, although an eBay spokesman said he had completed his scheduled tenure. Meanwhile, Chinese newspapers are reporting eBay is discussing a possible sale of part or all of Eachnet to Hutchison Whampoa's media flagship, Tom Group. This is regarded as a negative development given the nearly $300 million invested in Eachnet. The situation isn't much better in South Korea, where eBay also lost its top market share spot to local competitor Gmarket, of which Yahoo! owns a minority stake. Yahoo! seems to have the upper hand in Asia where it earlier beat eBay to market in Japan influencing the latter's exit in 2002.
Related links: IRG: eBay in negotiations to sell/merge China business with Hutchison Whampoa's Tom Group • Online Auction Market in China: eBay/EachNet vs. Yahoo!/TaoBao • CEO Whitman: eBay "Behind a Tad in China" • Yahoo and eBay: Undervalued • Liking the Internet Big-3 Long-Term • eBay's Core Listings Remain Solid - Shares Remain Materially Undervalued • eBay: Runaway SG&A Expenses Dragging Down The Stock • eBay Listings for 3Q'06 Continue to Track Ahead of Estimates • Ebay's Growth, Margins Remain Remarkable • Highlights from Korean GMarket's SEC Filing • Conference call transcripts: eBay Q2 2006 • TOM Online Q1 2006 • Yahoo! Q2 2006
Potentially impacted stocks and ETFs: eBay (NASDAQ:EBAY), Gmarket (GMKT), TOM Online (NASDAQ:TOMO), Yahoo! (YHOO)
As oil prices fall, OPEC wavers on production cuts [Globe and Mail]
Summary: As of Wednesday, OPEC ministers were still unable to come to a consensus regarding production cuts. The cartel is looking for a way to stablize falling oil prices, which are now at $57.59 a barrel on the NYSE for West Texas Intermediate crude. This the lowest price for near-month futures since last December. Saudi Arabia seems to be dragging its heels on this decision, in attempt to reduce or completely avoid American political pressure. The kingdom is looking for other OPEC players like Qatar to take the lead in this decision. It is unclear whether OPEC will make its 1 million barrel a day cut from its actual production or from its offical quota, which is higher. Analysts conjecture that since output is already below quota levels, the planned cut would have to come from actual production for it to have any effect on oil prices.
Related links: Oil Traders Testing the OPEC Cartel • OPEC Production Cut Looks Inevitable • Reuters: UPDATE 1-Formal OPEC deal on 1 mln bpd cut due soon-Qatar • Bloomberg:Crude Oil Rises on Speculation OPEC Members Will Cut Production
Potentially impacted stocks and ETFs: ETFs: U.S. Oil Fund (NYSEARCA:USO) HOLDRS Oil Service (NYSEARCA:OIH) Stocks: ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP), BP (NYSE:BP)
TRANSPORTATION AND AEROSPACE
Summary: Toyota's sales in China doubled in the first nine months of this year, outperforming Ford, GM and Volkswagen. A late arrival in China, Toyota exceeded Ford's 105.5% growth in nine months and is threatening to overtake GM as the largest foreign car seller in the country. Toyota sold 203,000 vehicles from January to September, almost meeting its 2006 target of 278,000 units three months early. The company's high sales in January were aided by the Chinese-made Camry, the top-selling car in the U.S. One factor in the Japanese automaker's success is the perception that its cars are more fuel-efficient. Toyota is expected to surpass GM in the near future as the world's largest selling automaker.
Related links: Marketwatch: Toyota's China sales soar 64% in first nine months • Why Japanese Cars Earn $2400 More Profit Each • Toyota Ups Guidance, Sets Global Production Targets • Toyota Comments on U.S. Sales Outlook, Denies Tundra Production Cut
Potentially impacted stocks and ETFs: Toyota (NYSE:TM), General Motors (NYSE:GM), Volkswagen (OTCPK:VLKAY)
Will BofA Put Rivals Out of Commissions? [BusinessWeek]
Summary: Banc of America announced that it will offer up to 30 free online equity trades per month for investors with a combined balance of $25,000 or more with the bank. BofA will immediately begin to promote the new program in Northeastern cities such as New York, Philadelphia, and Boston, and extend the promotions across the country by February. BofA says millions of customers quality for free trades, and that the target market covers 52 million households; Bank of America Investment Services currently has only 430,000 online brokerage accounts. Online brokerage stocks were hit hard by the announcement: E*Trade Financial Corp. fell 8.8%, Charles Schwab Corp. 4.7%, and TD Ameritrade Holdings 11.9%. But executives of those companies said that most customers look at the total package, including execution quality, rates paid on deposits, investment advice and research. Analysts said the sell-off in online brokerage stocks was an overreaction.
Related links: The online brokerages have diversified away from over-reliance on commissions over the last few years. Exact exposure to brokerage commissions is discussed in their conference calls; see most recent transcripts from TD Ameritrade and E*Trade. • Previous cheap or zero cost trading offers: Zecco To Offer Free Stock Trading • Wells Fargo Aims at Schwab, TD Waterhouse, Ameritrade, E*Trade • Neal Shanske: Market Over-reacted To BoA's Commission Announcement • Online Brokerage Acquisitions Make Room For TradeKing?
Potentially impacted stocks and ETFs: Online brokerages: TD Ameritrade (NASDAQ:AMTD), E*Trade (NYSE:ET), Schwab (SCH), OptionsExpress (NASDAQ:OXPS). • Banks: Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC). • ETFs: Regional Bank HOLDRs ETF (NYSEARCA:RKH), streetTRACKS KBW Regional Banking ETF (NYSEARCA:KRE).
Visa IPO Should Speed Innovations in Payments Rivalry With MasterCard [Wall Street Journal]
Summary: After processing $4 trillion in credit card purchases last year, Visa International has decided to match rival MasterCard and go public. With more than 60% of the worldwide consumer credit market (as compared to MasterCard's 26%), Visa's upcoming IPO, which is slated to occur in the next 12-18 months, should fetch a market value of upwards of $12 billion. In comparison, MasterCard's market value was under $10 billion at the time of its IPO. Going public will allow Visa more operating flexibility as it is currently under the ownership of some 20,000 banks. The IPO is also expected to accelerate Visa's ability to offer e-commerce solutions as it attempts further inroads to the global cash and credit markets.
Related links: • An In-Depth Look At MasterCard's IPO • Was The Mastercard IPO Underpriced? • MasterCard and Visa Crack Down on Security • Shhhh! - eLong, Visa in partnership - but don't tell anyone • Misreading American Express Earnings
Potentially impacted stocks and ETFs: MasterCard (NYSE:MA), American Express (NYSE:AXP)
Banks Push Harder to Get You to Switch [Wall Street Journal]
Summary: Commercial banks, under pressure from online banks with lower cost structures and eager to capture potentially lucrative checking-account deposits, are outdoing one another in their attempts to poach customers. Tactics include bettering one another’s rates, providing more convenient branch locations, and, perhaps most critically, offering to handle bank-switching paperwork. Many customers are reluctant to disarrange their online bill payments and direct deposits, so the banks themselves are taking responsibility for the switches. The banks have largely made their own bed: by aggressively supplying free online bill payment services and rewards, they have diminished consumer interest in switching banks and are now scrambling to compensate.
Potentially impacted stocks and ETFs: Commerce Bancorp (CBH), National City Corp. (NCC), PNC Financial Services Group Inc. (NYSE:PNC), Wachovia (NASDAQ:WB), Vanguard Financials ETF (NYSEARCA:VFH), streetTRACKS KBW Bank ETF (NYSEARCA:KBE), iShares Dow Jones US Financial Services Index Fund (NYSEARCA:IYG), iShares Dow Jones US Financial Sector Index Fund (NYSEARCA:IYF), Financial Select Sector SPDR (NYSEARCA:XLF)
Hedge Fund Seeks Buyer for Phelps Dodge [Barron's]
Summary: Hedge fund Atticus Management has announced that it is looking for buyers for Phelps Dodge, the third-largest U.S. copper miner and Atticus’s largest holding. Atticus’s filing closely follows the collapse of Phelps Dodge’s attempt to merge with Canadian nickel miner Inco. Atticus owns 9.97% of Phelps Dodge and has met with several private equity firms and strategic buyers in hope of an acquisition. Phelps Dodge’s share price has benefited from strong copper demand over the past five years but has dropped 12% from its May $102.80 high amid copper price worries. Atticus’s Phelps Dodge holding is valued at over $1 billion and represents 15% of its portfolio. According to BMO Capital Markets analyst Victor Lazarovici, Atticus may find it difficult to tempt a strategic buyer for Phelps Dodge because of high costs, older assets, and currency concerns.
Related links: Phelps Dodge Withdraws Bid for Inco, Opening Door for RIO • What's Next For Phelps Dodge? • Copper Price and Supply Perfectly Synched
Potentially impacted stocks and ETFs: Phelps Dodge (PD), DB Commodity Index Tracking Fund (NYSEARCA:DBC)
Summary: China's trade surplus was $15.3 billion in September, the second-largest ever after reaching $18.8 billion in August. Year-to-date its total surplus is $110 billion or already more than all of last year. China's leaders acknowledge this is a problem and are struggling to find a solution to slow growth and how to allow the yuan appreciate. On Tuesday, a People's Bank of China policy committee member stated, "Yuan gains are needed to help resolve China's economic distortion." China now has nearly $1 trillion in foreign exchange reserves. Its exports grew 30.6%y-o-y last month versus 32.8% in August to set a new record at $91.8 billion. Imports grew 22% after rising 24.6% in August. An economist at Action Economics in Singapore comments, "This is a positive sign about global demand and that the world economy is still growing. It's consistent with the strong trade figures from South Korea and Taiwan."
Related links: The Paulson Effect: China Hawks in Senate May Delay Vote • Paulson Wants Even More Flexibility in Yuan • Beijing's Revised Export Tax Rebate Policy Boosts Stocks • China's Latest Attempt to Cut Its Trade Surplus • A Disconnect Between Beijing and Provincial Governments • China's Trade Surplus Widens; Potential Collaboration with U.S. in Oil Field Development • Stephen Roach on China and the Commodities Cyclical Bear Case • Feedback on the Chinese Bubble -- A Point-by-Point Refutation
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Notable articles on Seeking Alpha today: Latest earnings conference call transcripts: Lam Research , Infosys , Gannett , Audiovox • Praise for Microsoft's Executive Pay Practices • When Does the Fed Cut Rates, With the Dow This High? • Stocklemon: Interoil Has Major Drilling and Pipeline Problems • Oil Traders Testing the OPEC Cartel • Why Mixed Signal Phones are Bad News for Vonage • Playstation 3 Mania: Stores Already Sold-Out of Pre-Orders • Cramer Podcaster Says Jim's Picks Underperform -- and Jim Cramer's latest stock picks.
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