Summary: The National Association of Realtors [NAR] said Tuesday that existing home sales went up 0.5% last month. It was the first increase after seven consecutive monthly declines. But the median home price dropped to $221,000 (3.5%), the biggest year-over-year price decline on record. It was also the third straight month that median prices have fallen compared with the same period a year ago, the longest decline stretch on record. NAR's Chief economist David Lereah said he expected prices to continue falling to year-end as sellers, accustomed to the boom of previous years, reluctantly cut prices. Sales were down 2.9% in the Northeast and 1.2% percent in the South, rose 6.4% in the West, and were unchanged in the Midwest. Unsold homes inventory rose 1.9% to 3.85 million units, the second highest total on record, meaning it would take 7.4 months to exhaust the backlog of unsold homes at the current sales pace.
Related links: NAR Press release. Media coverage: WSJ. Commentary: Existing Home Sales: Unspinning The NAR Numbers • Options Trader: Tuesday Wrapup
Potentially impacted stocks and ETFs: Toll Brothers Inc. (TOL), Lennar Corp. (LEN) • ETFs: streetTRACKS SPDR Homebuilders ETF (XHB)
Summary: In his most extensive remarks since summer, Federal Reserve Chief Ben Bernanke struck a positive, yet cautious tone on the U.S. economy during a mid-day speech yesterday to the Italian American Foundation, stating his belief that despite the fact it was slowing, it "appears to be taking place roughly along the lines envisioned." Still, Bernanke's speech was not the one Wall Street was looking for - he stated the Fed's determination to continue to monitor and control inflation, stating a rate cut in the near future was unlikely. In addition, Bernanke pointed out that while the soft landing theory seemed to be at work, there was still a chance that a worse-than-expected housing slump could have negative implications affecting the entire economy.
Related links: Media coverage: Text of Bernanke's Speech [courtesy of WSJ] • Business Week. Commentary: Phil Davis on Bernanke's Speech.
Potentially impacted stocks and ETFs: S&P 500 Index - "Spiders" (SPY), iShares Dow Jones US Total Market (IYY), iShares Lehman Aggregate Bond (AGG).
TECHNOLOGY AND INTERNET
H-P Aims to Help Cut Costs Of Cooling Computer Rooms [Wall Street Journal]
Summary: With companies running huge server farms in cramped quarters, cooling data-centers has become a major issue; air conditioning expenses often represent 70% of data-center costs. HP says it has a solution: A network of sensors that continually monitor server temperatures and air-conditioning requirements by measuring things such as server workload. The sensors send their readings to a computer running energy-management software which adjusts air conditioning output. Without data about individual machines companies keep temperatures far lower than necessary, says Steve Cumings, an H-P director of marketing involved in the effort. With the technology, called "dynamic smart cooling," a medium-size data center might experience a 30% reduction in energy consumption, saving roughly $1 million a year. A supervisor specializing in technology customers with the Pacific Gas & Electric Co. unit of PG&E Corp. predicted the technology could be an important tool in the energy utility's efforts to cut data-center power consumption. HP plans to begin marketing dynamic smart cooling next summer.
Related links: Press release. Media coverage: ZDNet. Commentary: Sun Microsystems' Data Center in a Shipping Container Will Transform Corporate Computing • Power Outage at American Power Conversion Corp? • Jim Cramer's Take on HPQ. Conference call transcripts: F4Q06 (Qtr End 10/31/06)
Potentially impacted stocks and ETFs: Hewlett-Packard Co. (HPQ), International Business Machines Corp. (IBM), Dell Inc. (DELL), Sun Microsystems Inc. (SUNW) • ETFs: Internet Architecture HOLDRs (IAH) has a 21% holding in HPQ.
Second Group May Make Bid for Biggest Casino Company [New York Times]
Summary: Coming on the heels of last month's $15.5 billion offer by Apollo Management Group and Texas Pacific Group to buy Harrah’s Entertainment, the largest casino operator in the world, a second buyout group is now considering an offer for the company. The new offer, led by Penn National Gaming, which owns casinos and racetracks, and D. E. Shaw, the hedge fund, sent shares up 2.5% yesterday after it was announced on CNBC. Any buyout would require the new owners to obtain a license to operate gambling businesses in the state of Nevada, a requirement that has stymied deals for casino operators in the past.
Related links: Media coverage: Las Vegas Business Press. Commentary: Who Will Acquire Harrah's? • Valuing the Casino Industry: Are There More Harrah's Out There? • Harrah's Seems Underwhelmed by Buyout Offer • Harrah's Gamble Not Without Risk • Bidding Up Harrah's.
Potentially impacted stocks and ETFs: Harrah's Entertainment (HET), Penn National Gaming (PENN) • Competitors: Wynn (WYNN), Las Vegas Sands (LVS), Trump Entertainment Resorts (TRMP), Monarch Casino & Resort (MCRI), Pinnacle Entertainment (PNK).
EMI Buyout Approach Raises Chance of Breakup [Wall Street Journal]
Summary: Despite its heavy debt and low credit rating, EMI Group, the world's third largest music company, has been approached for a buyout, though it's not clear by who (rumors are the suitor is European private-equity fund Permira Advisers Ltd.). The buyer could then sell off some of EMI's assets to reduce the debt load; analysts have mentioned Warner Music Group as a potential buyer of EMI's large operations in Latin American and Europe. Both EMI and Permira declined to comment on the story.
Related links: Media coverage: NY Times DealBook. Commentary: Vivendi Buys BMG -- Becomes World's Biggest Music Publisher • EMI Abandons Its Takeover Bid for Warner Music • YouTube's Warner Music Group Deal: The Technology Made the Difference • Warner Music (WMG) reports a smaller loss. Conference call transcripts: Warner Music Group Q3 2006.
Potentially impacted stocks and ETFs: EMI Group (OTC:EMIPY), Warner Music Group (WMG) • Competitors: Sony (SNE).
Publishers in Merger Talks [New York Times]
Summary: Riverdeep, an Irish educational software company, is about to close a deal to acquire textbook publisher Houghton Mifflin for approximately $3.5 billion, including debt. The Boston based publisher is currently owned by three private equity firms: Thomas H. Lee Partners, Bain Capital and the Blackstone Group. These firms purchased Houghton Mifflin from Vivendi in 2002 for about $1.7 billion, the same price the European conglomerate had paid a year earlier. The merger is expected to help both companies more effectively challenge competitors such as McGraw-Hill and Pearson. Merger mania has hit the publishing world in general: Blackwell Publishing was purchased by John Wiley & Sons; Thomson Learning and Wolters Kluwer are both looking for buyers.
Related links: Media coverage: Bloomberg , Reuters, MSN Money. Commentary: Other publishing articles. Conference call transcripts: The McGraw-Hill Companies Q3 2006 .
Potentially impacted stocks McGraw-Hill Companies (MHP), Pearson PLC (PSO), The Thomson Corporation (TOC), Scholastic Corporation (SCHL), John Wiley & Sons (JWA)
Cleaning Up Diesel's Image [Wall Street Journal]
Summary: High oil prices have resulted in consumers embracing more fuel-efficient vehicles, especially in the U.S., where larger autos such as SUVs had dominated the industry. While Toyota and Honda have taken the lead in hybrids, European manufacturers are focusing on diesel-powered engines. Volkswagen and DaimlerChrysler are busy marketing new diesel engines that are clean enough to use in California, which has the nation's strictest air quality standards -- having more torque than gas-powered rivals. The biggest challenge for diesel will be shedding its negative image extending from the 80s of black smoke pouring out of exhaust pipes. Another issue is a need to remember to replenish a certain additive that reduces greenhouse gas emissions, although it would be somewhat infrequent at every 10,000 miles or so. Separately, General Motors recently granted some members of the press access to one of its research centers where it is developing fuel-cell technology. GM hopes to beat Toyota, Honda and others to market, and likewise hopes to improve upon its image, emphasizing technology and fuel efficiency. Also, Nissan announced two Altima hybrid offerings that will hit the market early next year. Nissan is a late-comer but says it plans to establish a position in the market and expand hybrid technology to other models.
Related links: Media coverage: NY Times/AP and WSJ. Commentary: Toyota: Lithium Battery Hybrid In The Works • My Breakfast With Honda • Altairnano Reveals Battery Pack Details • Japan's Big-3 Auto to Further Expand Fuel Efficiency.
Potentially impacted stocks and ETFs: DaimlerChrysler (DCX), Volkswagen (OTCQX:VLKAY), Ford (F), General Motors (GM), Honda (HMC), Nissan (OTCPK:NSANY), Toyota (TM)
Home Depot Bets on Design Of Store Brand to Fire Up Sales [Wall Street Journal]
Summary: Home Depot is introducing Orange Works, a new line of stylish products, to improve lackluster sales. A fire extinguisher in the shape of a martini shaker is one of the three new products which CEO Robert Nardelli expects to generate $250 million or 1% of next year's expected sales. Arnell Group, a marketing and design division of Omnicom Group is participating with the retailer to develop Orange Works private label in an effort which is similar to Target's adoption of home furnishings designed by Michael Graves. The move is expected to spur Home Depot's sales which declined 5% due to a slow housing market and increasing competition from rival Lowe's.
Related links: Media coverage: Motley Fool. Commentary: Home Depot's Dividend Increase • Home Depot Stalls Despite Strong Growth in its Supply Unit • Home Depot Reports First Drop In Net Earnings Since 2003. Conference call transcripts: Home Depot's F3Q06 .
Potentially impacted stocks and ETFs: Home Depot (HD), Omnicom Group (OMC), • Competitors: Target (TGT), Lowe's (LOW), Best Buy (BBY) • ETFs: Retail HOLDRS (RTH), Vanguard Consumer Discretionary VIPERs (VCR), Vanguard Dividend Appreciation VIPERs (VIG)
Wal-Mart Plans to Test Online Films [New York Times]
Summary: Wal-Mart will offer new online video downloading service on its website next year. The company stated that all the major movie studios are interested in joining or have already signed on to project. Hewlett-Packard is designing the downloading technology. Wal-Mart is already offering movie download options with the purchase of "Superman Returns" DVDs. Customers have the option of paying an additional $1.97 for a download to a portable device, $2.97 for a PC download , or both for $3.97. Tying downloads to DVDs protects the still lucrative DVD market, but some studios are concerned that Wal-Mart's pricing will set the standard for movie downloads. BitTorrent, a popular movie downloading site, cut distribution deals with eight media companies, including 20th Century Fox, Paramount and MTV Networks. Henceforth, the internet company will begin policing its site for unauthorized content in addition to selling legitimate TV shows and movies on its website.
Related links:Press Release: PR Newswire. Media coverage: Forbes, Wall Street Journal, CNNMoney.com. Commentary: Leaning Lamps, Used Vaporizers And Wal Mart • Wal-Mart Goes On Investor Probation • Retail Discounters: Hope Their Exotic Investments Excel. Conference call transcripts: Wal-Mart F3Q07 (Qtr End 10/31/06).
Potentially impacted stocks and ETFs: Wal-Mart (WMT), News Corp. (NWS), Viacom (VIA), Hewlett-Packard (HPQ), Amazon.com (AMZN), Google (GOOG), Sony (SNE), Apple (AAPL) • ETFs: First Tr DJ Internet Index Fd (FDN), Internet HOLDRS (HHH), Retail HOLDRS (RTH), Vanguard Consumer Discretionary ETF (VCR).
Summary: Women's apparel retailer Chico's FAS reported net profit of $42.1 million (24 cents/share), down from $53.2 million (29 cents/share) in the year-ago quarter, but inline with lowered analyst expectations following the company's warning earlier this month. Merchandising problems and aggressive marketing efforts around new store openings weighed on the bottom line. The company will wait to report Q4 forecasts until 'it gauges the success of upcoming marketing efforts.' November same-store sales fell 0.4%, largely due to softness at its White House Black Market chain. The stock rose slightly in after hours trading, perhaps due to the lack of Q4 warning. The stock is down 47% YTD.
Related links: Press release Media coverage: MarketWatch , TheStreet.com , BusinessWeek . Commentary: Chico's Brand Maturing, Not Failing , A Fine Exhibit of Clarity in Chico's Recent Filing
Potentially impacted stocks and ETFs: Chico's FAS (CHS), Nordstrom (JWN), Talbots (TLB) • ETFs: Retail HOLDRs (AMEX: RTH)
Summary: Anika Therapeutics Inc. announced yesterday it received conditional FDA approval for its injectable face-wrinkle filler, and expects to get final approval by year-end. Anika did not specify on what final approval hinged, though its confidence over the pending approval seems to indicate the conditions were not difficult to satisfy. Besides getting rid of wrinkles the soft tissue filler, based on chemically modified hyaluronic acid, can also be used to treat scars and for lip augmentation. Anika plans to market an "enhanced version" pending further approval in mid-2007. The global cosmetic filler market is estimated at $400-500 million. Anika shares were up $3.73 (20%) to $15.29 on the news.
Related links: Press release. Media coverage: Business Week, MSN Money. Commentary: Anika Therapeutics Jumps 20% on FDA Letter • Anika Therapeutics Outshines its Peers
Potentially impacted stocks and ETFs: Anika Therapeutics Inc. (ANIK), Lifecore Biomedical Inc. (LCBM), Orthologic Corp. (OLGC)
New Chief at Pfizer Will Reduce Sales Force [New York Times]
Summary: Behind a new CEO who came aboard in July, Pfizer is on a cost-cutting mission, having just announced a 20% reduction (-2,400) in its U.S. sales force (but only amounting to a 2% cut to its 106,000 global employees). According to a company statement, there will be further "“actions for transforming the company” in January. A Raymond James analyst commented that other firms will likely follow suit since they "... were reluctant to cut their sales forces while Pfizer was continuing to have people on the ground." He equated it to "the end of an arms race." This will be a welcome relief for care providers, some saying they are overwhelmed by salespeople. Forbes reports the number of salespeople tripled in the past decade, now with one for every 9 doctors, compared to 1:18 in 1996. Pfizer's shares are trading about 0.7% higher in the pre-market on thin volume, similar to where they traded in after-hours yesterday.
Related links: Pfizer press release. Media coverage: Forbes and Reuters. Commentary: Pharmaceutical Shares Slip on Concerns Over Democratic House • Pfizer Gets Setback on New Cholesterol Drug • Pharmaceuticals Show Higher Profits, But Pfizer Forecasts Flat Revenues Through 2008 • Time To Buy Pfizer?
Potentially impacted stocks and ETFs: Pfizer (PFE) • Competitors: Merck (MRK), Eli Lilly (LLY), Novartis AG (NVS), Wyeth (WYE) • ETFs: iShares Dow Jones US Pharmaceuticals (IHE), iShares Dow Jones US Healthcare (IYH), Pharmaceutical HOLDRs (PPH), Vanguard Health Care (VHT), Health Care Select SPDR (XLV), First Trust Morningstar Dividend Leaders (FDL)
Novartis, Focused on Medicine, May Shed Gerber [Wall Street Journal]
Summary: Swiss pharma giant Novartis may sell its profitable Gerber baby foods unit to Nestle as part of a larger, $4-5 billion deal that would include a medical-nutrition business also held by Novartis. Profit margins on the slow-growth baby foods sector are an impressive 24% in the U.S. vs. 16% for all packaged foods (Morgan Stanley data), but Gerber faces increasing pricing pressures from competitors. Nestle, the world's largest infant nutritional products company, first tried to buy Gerber in 1984. Gerber controls fully 79% of the baby food market in the U.S.
Related links: Media coverage: Reuters . Commentary: Novartis: Strong Growth and Reasonable Valuation , Investors Infected With Vertex Fever Should Seek Healthier Stocks -- Barron's
Potentially impacted stocks and ETFs: Novartis (NVS) • ETFs: Europe 2001 HOLDRs (EKH) , BLDRS Europe 100 ADR Index (ADRU)
Summary: Monday's sell-off on Wall Street was attributed to weak sales at Wal-Mart and a weaker dollar prompting selling by European investors. Some also point to a speech made last Friday by the Chinese central bank's vice governor, who reportedly spoke about the risks for Asian countries with large U.S. dollar holdings. The fear in the U.S. and for those with dollar-denominated investments is a shift by China away from U.S. Treasuries. Economists acknowledge the importance of diversifying foreign reserves, but don't seem to expect any dumping of the dollar. In recent trading, the dollar has fallen to 3-month and 20-month lows against the yen and euro, respectively. The yuan however, is trading near its all-time high against the dollar, but its daily fluctuation is restricted to 0.3% by the central bank. Regarding China's mounting foreign reserves believed to now exceed $1 trillion, an economist at Citigroup emphasizes the importance of effectively managing the vast sum -- arguing for more government support of social welfare, which would appease consumers, resulting in higher consumption and help "to keep the economy growing at 8% to 10% a year."
Related links: Commentary: Will the U.S.-China Trade/Currency Deal Adjust? • China's Trade Surplus Keeps Growing and Growing • China's Fuel Imports Surge in September • China's Foreign Reserves Approaching $1 Trillion.
Potentially impacted stocks and ETFs: ETFs: PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE), iShares Lehman Aggregate Bond (AGG), iShares Lehman 1-3 Year Treasury Bond (SHY), iShares Lehman 7-10 Year Treasury (IEF), iShares Lehman 20+ Year Treas Bond (TLT), iShares Lehman TIPS Bond (TIP)
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