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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Fed Again Leaves Rates Unchanged [Wall Street Journal]
Summary: The U.S. Federal Reserve left short-term interest rates unchanged for the third consecutive month yesterday, but warned "some inflation risks" remain. "Going forward, the economy seems likely to expand at a moderate pace." Core inflation remains "elevated" but tempered by lower energy prices and the impact of previous rate increase; at 2.9%, core inflation is at its highest level in a decade. On the other hand economic growth seems like it will come in at about 2% for Q3, its second-lowest since 2003; it has fallen under the weight of falling home and auto sales. In recent weeks energy prices have plummeted, and the Fed expects thi s will eventually lead to a drop in core inflation. Key differences in the wording of yesterday's press release: (1) The passage on "moderate growth" is new and "neutral sounding." (2) The Fed removed its reference to commodity- and energy-based inflationary concerns. Selected economist reactions: (1) "The Fed has effectively thrown cold water on the notion that the next move will be lower rates." -- Outlook Group (2) "They want to show the markets that in the unlikely event that growth re-accelerates, they have left the door open to another hike." Ian Shepherdson, High Frequency EconomicsIan Shepherdson, High Frequency Economics (3) "We continue to expect a near term reacceleration of growth triggered, in large part, by the recent plunge in fuel prices. And, we expect core inflation at the consumer level to drift higher. From our standpoint, such developments are likely to bring the Fed -- which still retains a tightening bias -- back into the game in early-2007." -- Morgan Stanley U.S. Economics (4) "By projecting that, "Going forward, the economy seems likely to expand at a moderate pace," we see the Fed as signaling that a rate cut in the foreseeable future is very unlikely." -- Bear Stearns U.S. Economics
Related links: The Fed's September statement and Yesterday's • More economist reactions • Fed 's Rate Pauses Prompt Banks to Cut Deposit Yields • Fed Will Decide Policy Based on Bond Market Performance • Bloomberg commentary: Fed May Keep 5.25 Percent Rate for Quite a While: John M. Berry
Potentially impacted stocks and ETFs: iShares Lehman 1-3 Year Treasury Bond ETF (NYSEARCA:SHY) • iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF) • iShares Lehman 20+ Year Treasury Bond ETF (NYSEARCA:TLT) • S&P 500 Index (NYSEARCA:SPY) • NASDAQ 100 Trust Shares ETF (QQQQ) • iShares Russell 2000 Index ETF (NYSEARCA:IWM)
Big Drop in U.S. Home Prices: A Record Decline Nationwide, Though California Sees Rise [San Francisco Chronicle]
Summary: The National Association of Realtors has reported that national housing prices fell a record 2.2% to $220,000 in September, the sixth consecutive month that prices have declined. Sales last month of existing homes were also 14.2% slower than they were a year ago. In California, though, the state's strong, tech-powered job market coupled with tight housing supply lifted the median price of an existing single-family home by 1.8% to $553,050 last month from $543,510 in September 2005. Despite this positive, analysts expect California to begin to suffer as well because the pace of sales is slowing as buyers await a bottom. In addition, the run-up in prices has shrunk the pool of buyers who can afford the homes. In the Bay Area, existing home sales were down 24% in September from a year ago, while existing home prices rose 2.2% to $725,870. While some analysts maintain the market is merely correcting after a period of explosive growth, many believe the sector will continue to contract throughout 2007.
Related links: Eye On Existing and New Home Sales • Reflexive Changes in Real Estate • Don't Let the Housing Spinmeisters Mislead You • Housing Bubble and Real Estate Market Tracker • Housing: What Does "Return to Mean" Really Mean? • Time to Start Looking Beyond the Housing Slump • Home Prices Keep Sliding; Buyers Sit Tight [Wall Street Journal] • Prices of Previously Owned Homes Fall [New York Times] •
Potentially impacted stocks and ETFs: Brookfield Homes Corp. (BHS), D.R. Horton Inc. (NYSE:DHI), Lennar Corp. (NYSE:LEN), Pulte Homes Inc. (NYSE:PHM), Toll Brothers Inc. (NYSE:TOL), Hovnanian Enterprises Inc. (NYSE:HOV) • iShares Dow Jones US Home Construction (NYSEARCA:ITB), SPDR Homebuilders (NYSEARCA:XHB)
TECHNOLOGY AND INTERNET
Summary: Sony reported net income fell 94% in Q2 to 1.7 billion yen ($14 million), or 1.6 yen/share, versus 28.5 billion yen, or 27.32 yen, last year. The weak results are in-line with its earnings warning last week, attributed to costs related to PlayStation 3 development and its battery recall. It reported an operating loss totaling 20.8 billion yen ($174 million), compared to a profit of 74.6 billion yen last year, hurt by a 51.2 billion yen ($429 million) charge for battery recall-related costs. Meanwhile, revenue grew 8.3% to 1.85 trillion yen ($15.5b), driven by Bravia LCD TVs, Vaio computers and Cyber-shot digital camera sales.
Related links: Q2 FY2006 Sony Group Earnings Announcement • Earnings coverage: Reuters and Forbes.com XFN Asia • Sony Profit Forecast Drops 39% Due to Battery Recall, Sluggish Sales • Sony's Battery Production Capacity Strained, Sanyo to Benefit • Sony's 15,000 PS3 Kiosks: Marketing Par Excellance • Is the Worst Over for Sony's Stock?
Potentially impacted stocks and ETFs: Sony (NYSE:SNE), BLDRS Asia 50 ADR Index ETF (NASDAQ:ADRA)
Summary: Crude oil rose for a third straight day yesterday - to $61.72 a barrel in after-hours electronic trading on the New York Mercantile Exchange - after a government report showed U.S. stockpiles unexpectedly fell last week. On the whole, U.S. crude inventories dropped by 3.21 million barrels on diminishing imports - the biggest decline since July. That combined with the greatest demand for heating fuels since last December did the trick in pushing prices safely over $60 again. According to DeltaOne Capital Partners energy analyst Peter Linder, "It's clearly very bullish... We've already seen the beginning of winter and we'll start to see OPEC cuts next week. I'm convinced we've seen the low prices for the year.''
Related links: The Rise and Fall of Oil: Roach Motel Theory • Cover Up Those Signs! The Problem With Gasoline Prices and "Reported Inflation" • OPEC to Cut Production to Halt Price Skid • Oil Economics in a Nutshell • Falling Oil Prices: Producers Are Playing a Game of Chicken • Oil: Prices and Producers -- Where They're Headed • Crude Reality: Supply > Demand • How Low Will Gas Prices Ultimately be Able to Fall?
Potentially impacted stocks and ETFs: Exxon (NYSE:XOM), Chevron (NYSE:CVX), BP (NYSE:BP) • Oil Service HOLDRs (NYSEARCA:OIH), United States Oil Fund (NYSEARCA:USO)
TRANSPORTATION AND AEROSPACE
Summary: DaimlerChrysler has reported a Q3 loss of $1.5 billion at its Chrysler division. The company says it is working on a plan to return the division to profitability -- a plan that might, for the first time, consider the spin-off or outright sale of Chrysler. Chrysler cites dismal sales of SUVs and pickups, which are disproportionately represented in its product line, and deep discounting as reasons for the loss. (Light trucks offer high profit margins when sales are good, but consumers have balked because of rising gasoline prices.) Last week, the company announced it is attempting to cut manufacturing and marketing costs by $1,000 per car (Project Refocus). DaimlerChrysler's other car-making unit, Mercedes, enjoyed a more-than-doubling of operating profit to $1.3 billion in Q3, but Chrysler's losses have dragged down overall company earnings by 37%. Meanwhile, GM earned $529 million in the quarter and posted record revenue of $48.8 billion. This compares nicely to last year, when it lost over $1 billion in the same quarter and eventually lost $10.6 billion on the year. These results represent earnings of $0.93/share versus Street expectations of $0.49, but the stock price fell anyway over concerns the company is burning cash too fast. GM has dramatically cut costs, in part through buyouts of nearly 1/3 of its hourly workers, in an attempt to fend off the demands of Kirk Kerkorian, the company's largest shareholder, who insisted over the objections of management that the company explore an alliance with Nissan and Renault.
Related links: DaimlerChrysler Q3 2006 Earnings Call Transcript • Chrysler's Date With a German Efficiency Expert • DaimlerChrysler's New Marketing Strategy: The Beginning of the End for Car Dealerships? • Chrysler Forecasts 1% Market Share Gain • Chrysler's Attempt to Lower Inventory Hits Roadblock • Jerry Flint Believes Detroit's Luck Has Run Out • With the GM Merger a No Go, What Kerkorian's Next Move? • Despite a Great Year, GM is Still Trailing Japanese Counterparts Like Toyota • Message to GM Investors: Whoa!
Potentially impacted stocks and ETFs: General Motors Corp. (NYSE:GM), DaimlerChrysler AG (DCX) • iMSCI Germany Index Fund (NYSEARCA:EWG), WisdomTree Dividend Top 100 (NYSEARCA:DTN), PowerShares FTSE RAFI US 1000 (NYSEARCA:PRF), Rydex S&P 500 Pure Value (NYSEARCA:RPV)
Nissan 2nd-Quarter Profit Unexpectedly Rises 31% [Bloomberg]
Summary: Nissan benefited from its sale of Nissan Diesel and a weaker yen (it makes as much as 60% of annual profit in the U.S.), which helped its Q2 net income jump 31% y-o-y to 164 billion yen ($1.4b), or 39.75 yen a share, versus 125 billion yen, or 30.51 yen, last year -- beating four analysts polled by Bloomberg with a median estimate of 111.8 billion yen ($940m). Its Q2 sales were off 1.3% to 2.32 trillion yen ($19.5b). A Credit Suisse analyst comments, "Nissan has been very fortunate to have the weaker yen help offset the sales drop," in response to its forex gain of 5.4 billion yen ($45m), versus its 22.5 billion yen forex loss last year. Nissan is maintaining full-year (ending March '07) guidance for net income of 523 billion yen ($4.4b), +0.9% y-o-y, on sales of 10 trillion yen ($84b), +7% y-o-y, and overall unit sales of 3.73 million autos, +4.5% y-o-y. Its Q2 sales were 7.6% lower to 883 thousand units, falling 17% domestically, -9.8% in the U.S. and -2.1% in Europe. Nissan is set to several new or remodeled autos over the next several months, which is expected to curb its sales decline.
Related links: Nissan Earnings Press Release, IR Earnings Materials • Earnings coverage: Forbes.com AP, Reuters • IHT.com AP: Ghosn says company in no rush to find alliance partners • Reuters: Nissan US sales on track for Oct double-digit rise • Business Week: Don't Write Off Nissan Yet • Talks Between GM, Renault and Nissan Fail • Why Japanese Cars Earn $2400 More Profit Each • Japan's Big-3 Auto to Further Expand Fuel Efficiency • Japanese Auto Industry Struggles Continue, But Mini-cars Rule • Nissan Salvages Q1, All Eyes on 2H
Potentially impacted stocks and ETFs: Nissan (OTCPK:NSANY), Honda (NYSE:HMC) - reported earnings yesterday, Toyota (NYSE:TM) reports Nov. 7th, Daimler Chrysler (DCX) - reported yesterday [CC transcript], Ford (NYSE:F) - reported Tuesday [CC transcript], General Motors (GM) - reported yesterday [CC transcript]
Summary: Jet maker Boeing Co.'s 3Q results were not the jet-setting figures the company had hoped for. The Chicago-based company posted a 31 percent decline in profits Wednesday; it also raised concerns regarding its still-in-development 787 commercial airliner, saying hundreds of millions more were needed to reduce the weight of the plane before its first test flight. CEO Jim McNerney tried to assuage investor worries yesterday saying the fuel-efficient plane "will be done on time." But wary investors pushed Boeing's stock lower despite raised guidance for 2007 earnings and revenue - reflections of a prosperous commercial plane business. In composite trading yesterday, shares fell $2.73, or 3.3 percent, to close at $80.86.
Related links: Boeing Q3 2006 Earnings Call Transcript • Airbus' Loss in Market Share is Boeing's Gain • Boeing: Get Ready to Fly • Embraer Poised to Capitalize on Airbus' Jumbo-Jet Sized Difficulties • Boeing's Outsourcing for the 787 Dreamliner • Boeing is Set for Takeoff • Boeing Bolsters R&D for New 787 to Avoid Delays [WSJ]
Potentially impacted stocks and ETFs: Embraer-Empresa Brasileir de Aero. (NYSE:ERJ) • iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA), Vanguard Industrials ETF (NYSEARCA:VIS)
Summary: Altria Group, the leader of the tobacco industry and manufacturer of perennially popular Marlboros and Virginia Slims, saw its Q3 profits slide over disappointing sales in Spain and Japan. Reynolds American, however -- producer of Camels and Kools and Altria's biggest rival -- enjoyed a 45% jump in earnings over the period. Revenues increased for both companies and both were rewarded with a lift in share price. Altria reported EPS of $1.39 versus $1.37 last year, just shy of Street expectations of $1.41. Revenue went up 3.7% to $25.88 billion from $24.96 billion last year. Reynolds earned $309 million, or $1.05 per share, in the quarter, up from $2.13 million, or 72 cents per share, a year ago. Revenue ticked up to $2.19 billion from $2.15 billion last year. The company's results bested Street expectations of $1.02 EPS on $2.16 billion of sales. Profits were enhanced by improvements in market share and by a strong showing by Conwood, Reynolds's newly acquired smokeless tobacco business. In other news, an appeals court on Tuesday granted a temporary stay in a case accusing Altria, Reynolds American and other tobacco companies of deliberately misleading smokers about the safety of light cigarettes. The case, which exposes the industry to potential damages of approximately $200 billion, will be reviewed by a panel of judges. Also, Altria's board will meet in January to set in motion a long-anticipated divestiture of its 88.6% stake in Kraft Foods.
Related links: The Tobacco Empire Strikes Back • Kraft Spinoff Goes Up in Smoke • Altria Continues to Gain Altitude • Altria's Opportunity to Unlock Shareholder Value • Light Cigarette Suit Could Exact a Heavy Price on Tobacco Companies • R.J. Reynolds Tobacco Company to Appeal, Ask for Stay in "Lights" Case [Yahoo Finance]
Potentially impacted stocks and ETFs: Altria Group Inc. (NYSE:MO), Reynolds American (NYSE:RAI) • PowerShares Dynamic Market Portfolio (NYSEARCA:PWC), WisdomTree Dividend Top 100 (DTN)
Summary: Altria announced yesterday that it plans to finally sell off its majority stake in Kraft foods. The company will finalize and announce this decision at the end of January. Investors and analysts are pleased with the news, especially since this "restructuring plan" was delayed following the light cigarette class action lawsuit decisions in September. This latest lawsuit and others like it over the past few years have been a major factor in the postponement of this move. Previously, Altria did not want look as if it was shifting assets in an attempt to evade plaintiffs' claims. The spin-off news comes on the heels of the company's Q3 earnings report, which revealed that the company's profits slipped almost a percentage point. Altria pins these results on poor international sales and restructuring costs. Chief Executive Louis Camilleri stated that despite this quarter's less than stellar performance, the company expected to meet its annual financial targets. Altria in fact raised its guidance for the year, yesterday, in addition to its restructuring news and earnings report.
Related links: Reynolds American Reports Smokin' Profits; Altria's Earnings Slip • Kraft Spinoff Goes Up in Smoke • Light Cigarette Suit Could Exact a Heavy Price on Tobacco Companies • The Tobacco Empire Strikes Back • MarketWatch.com: Altria board ready to go ahead with Kraft spinoff
Potentially impacted stocks and ETFs: Stocks: Altria (MO), Kraft Foods (KFT), Reynolds American (RAI), Carolina Group (NASDAQ:CG), Loews Corporation (LTR) • ETFs: WISDOMTREE H-Y EQ TR (NYSEARCA:DHS), MORNINGSTAR DV (NYSEARCA:FDL), ISHARES DOW SEL DIV (NYSEARCA:DVY)
Summary: Starbucks is pursuing rapid expansion, and its goal is to bring the total number of stores worldwide from 12,440 to 40,000 with an average of six opening every day. Although McDonalds and Krispy Kreme suffered setbacks after their aggressive expansion campaigns, the java giant is not worried about saturation, and justifies placing more than one Starbucks in a city block or a large hotel by insisting its customers do not want to walk out of their way or waste time waiting in line for their favorite latte. "At some stage there (are) limits to their expansion, but to date we really haven't seen any signs that they are near that point," comments John Owens, an equity analyst with Morningstar. In addition to adding cafes to suburban malls, Starbucks is building more drive-throughs for busy commuters and is installing vending machines that sell warm lattes for $2.50.
Related links: One Reason Starbucks Continues to Succeed: Partnering With Local Businesses Abroad • Starbucks' Same Store Sales Resume Strong Growth • Starbucks Caffeinates Its China Growth Plan[Business Week]
Potentially impacted stocks and ETFs: Stabucks (NASDAQ:SBUX) • Competitors: Diedrich Coffee (DDRX), New World Restaurant Group (NWRG.PK), Pete's Coffee and Tea (NASDAQ:PEET), Caribou Coffee Company (NASDAQ:CBOU), Green Mountain Coffee Roasters (NASDAQ:GMCR)
Icahn Wins Control of ImClone Systems and Company’s Chief Leaves [New York Times]
Summary: Carl Icahn won control of ImClone Systems yesterday, as he was named chairman along with his 14% stake in the company. ImClone's interim CEO has resigned, and at Tuesday's board meeting, three directors in opposition to Icahn agreed to not seek re-election at the next annual meeting in Q1 2007. Icahn and three allied executive directors will lead ImClone until a new CEO 'with ample biotechnology experience' is found. ImClone's lone commercial product, cancer fighting drug Erbitux, will be the focus as Icahn and co. attempt to boost sales, and pressure licensee Bristol-Myers Squibb to increase its marketing efforts. Erbitux faces competition from Amgen's Vectibix, which received approval late last month, and is also 20% cheaper and believed to be safer. ImClone reported considerably stronger y-o-y quarterly earnings yesterday, beating Street estimates and shares of ImClone soared 5.3% to close at $31.00, but are still trading 28% below their 52-week high of $43.08. Note that Icahn said he invested in ImClone in the mid-1990's, buying at $2 per share, and later sold at around $130 per share.
Related links: ImClone Press Releases: Carl Icahn Appointed Chairman, Q3 and 9-months 2006 Financial Results • TradingMarkets.com: ImClone Systems Q3 Profit Soars • Icahn Responds to Imclone: Nobody Asked Me, But I'm Glad They Didn't Sell • Amgen's First Cancer Drug May Spark Price War With ImClone • ImClone Systems: Will It Benefit From a Dose of Carl Icahn? • Carl Icahn Asks Imclone Chairman To Step Down
Potentially impacted stocks and ETFs: ImClone Systems (OTCPK:IMCL), Bristol-Myers Squibb (NYSE:BMY), Amgen (NASDAQ:AMGN)
Cash Starts to Lose Its Luster [Wall Street Journal]
Summary: Following the Federal Reserve Bank's third consecutive decision to keep short-term interest rates unchanged (after 17-consecutive prior hikes), a number of banks are beginning to cut yields on CDs and other cash instruments, in order to limit rate spread between lending and deposits once the Fed begins to lower rates. Current data shows savings accounts deposits are at an all-time high of $3.6 trillion, and retail CDs are at multi-year highs. Investors must now decide whether to lock-in rates for the longer-term, or to continue to fetch competitive yields over the short-term, but face rollover reinvestment risk if short-term rates decline. Banks aren't seen slashing deposit rates nearly as aggressively as they did between 2001-03, since competition is fierce, not to mention new banks and online banks offering higher yields, and also due to the strength of the stock market.
Related links: Defending This Bull Market • Current Rally: Retail Investors Have NOT Been Left Out • Record Short Interest Pushing Market Higher • Nasdaq Short Positions Reach All-Time High • Where Is All This Excess Liquidity Coming From? • Inverted Yield Curve: Understanding Its Implications
Potentially impacted stocks and ETFs: Bank of America (NYSE:BAC), Wachovia (NASDAQ:WB), Huntington Bancshares (NASDAQ:HBAN), JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), Capital One Financial (NYSE:COF), KeyCorp (NYSE:KEY) • ETFs: iShares Lehman 1-3 Year Treasury Bond (SHY), iShares Lehman 7-10 Yr Treasury Bond (IEF), iShares Lehman 20+ Year Treasury Bond (TLT), DIAMONDS Trust, Series 1 (NYSEARCA:DIA), S&P 500 Index (SPY), NASDAQ 100 Trust Shares (QQQQ), iShares Russell 2000 Index (IWM)
GateHouse Media Shares Rise 20% in Debut [Reuters]
Summary: During its IPO yesterday, shares of newspaper publisher GateHouse Media Inc. climbed 20%, a day after pricing at the top of a forecast range. Shares of the company closed at $21.17, after pricing at a $16-$18 range. In total, GateHouse raised $248 million on a 13.8 million share offering, giving the company a market capitalization of about $621 million. The heavily in-debt company plans to use the proceeds of the IPO to pay down some of its debt. Last year, GateHouse paid $21 million in debts on an operating income of less than $14 million. Perhaps the major reason for the success of its IPO was the involvement of the well respected Fortress Investment Group. Said Francis Gaskins, President of LA-based research firm IPO Desktop, "This one has an air of real mystique to it because of Fortress... The financials look terrible, but [Fortress] is saying 'we put in a top five management team and you can trust us.'"
Related links: Newspapers: Another Slide Coming? • Declining Print Ad Revenues Take Toll on Newspaper Earnings • IPO For GateHouse [Forbes] • GateHouse Media Sets 11.5 Mln Share IPO at $16-$18 [Reuters - 10.11.06]
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