Dollar Appears Likely to Extend Fall Against Euro [Wall Street Journal]
Summary: Despite strong gains against the dollar last week, the consensus on Wall Street is that the dollar will continue its losses against other major currencies this week and beyond. One reason for this is Wall Street's continued focus on strong European economic performance versus weak economic reporting coming out of the U.S. And with the ECB and Bank of England set to announce rate hikes this week, further pressure to the dollar continues to seem likely.
Related links: Commentary: International ETFs Gain From the Dollar's Loss • Dollar Decline? What Dollar Decline?! It's Arbitrage • Falling Dollar: Who Stands To Gain?.
Potentially impacted stocks and ETFs: Euro Currency Trust ETF (FXE), PowerShares DB G10 Currency Harvest Fund (DBV), CurrencyShares British Pound Sterling Trust (FXB).
Summary: Carl Icahn's two main partners for an attempted buyout of Reckson Associates backed out of the deal over the weekend -- Mack-Cali withdrew on Saturday and Harry Macklowe, who originally proposed the deal to Icahn, on Sunday. A Reckson spokesman claims that Mr. Icahn may pursue the $49-per-share cash bid on his own. Icahn and Macklowe had formed Rome Acquisition L.P. to buyout Reckson, and were to submit a formal bid today. Independent directors at Reckson previously accepted a cash/stock bid from SL Green that is currently worth $45.70 a share.
Related links: Media coverage: WSJ, Bloomberg . Commentary: Reckson Realty: The Real Story. More articles on Real Estate and REITS and on Mergers & Acquisitions
Potentially impacted stocks: Reckson Associates (RA), SL Green (SLG)
TECHNOLOGY AND INTERNET
Qualcomm to Buy Chip Businesses [Wall Street Journal]
Summary: Wireless chipmaker Qualcomm is buying WiFi startup Airgo Networks and the key Bluetooth units of RF Micro Devices in an effort to expand its reach to those markets. The goal is "to offer broadband wireless data service wherever you go," according to Sanjay Jha, president of Qualcomm's CDMA technologies group. In its core handheld market, Qualcomm finds itself in a battle against Intel for broadband wireless standards, with Intel promoting a technology called WiMAX that challenges Qualcomm's EV-DO. The purchase of Airgo gives Qualcomm a foothold in Wi-Fi that aligns it firmly against Intel, which has long promoted that local network technology and plans to integrate it with WiMAX.
Related links: Press release. Media coverage: Reuters , AP. Commentary: Qualcomm's Empire Is Under Siege, Cell Phone Makers: Nokia May Run, But Qualcomm's On An End Run, In WiMax, It's Qualcomm vs. The World . Conference call transcripts: QUALCOMM F4Q06
Potentially impacted stocks and ETFs: Qualcomm (QCOM), RF Micro (RFMD), Intel (INTC), Broadcom (BRCM)
The Retooling of a Search Engine [New York Times]
Summary: Fourth ranked internet search site Ask.com is introducing its new AskCity search service, a city search feature which allows users to locate information about local businesses, restaurants and cultural/entertainment events. Early reviews of the service have been positive, and according to Ask.com CEO Jim Lanzone, the new feature brings together available data from its parent company's other businesses like Citysearch and Ticketmaster. Acquired by IAC/InterActiveCorp in 2005 for nearly 2005, Ask.com (called AskJeeves at the time) has lately been gaining internet search market share. In addition to continuing to help Ask.com gain search market share, AskCity is also seen as a way to tap into ad spending by small businesses, many of which have yet to switch their advertising dollars online.
Related links: Media coverage: WSJ. Commentary: IACI's Ask.com Gaining Search Share • IAC Says Ask.com Taking Share in Search • IAC Beats, No Questioning Revenue Growth at Ask.com • ZDNet Between the Lines. Conference call transcripts: IAC/InterActiveCorp Q3 2006.
Potentially impacted stocks and ETFs: IAC/InterActiveCorp (IACI) • Google (GOOG), Yahoo (YHOO), Microsoft (MSFT), TimeWarner/AOL (TWX) • ETFs: First Tr DJ Internet Index Fd (FDN), Internet Architecture HOLDRS (IAH).
In Tough Times, a Redesigned Journal [New York Times]
Summary: The Wall Street Journal is reducing its width to the industry standard of 12 inches in an effort to cope with declining circulation and competition from the Web. The popular financial publication will lose 3 inches, shrinking space for news coverage by 10%. The Journal expects to save $18 million a year on newsprint and the new standard size will make outsourcing easier. Advertisers such as Hewlett-Packard welcomed the news, as it will no longer need to reconfigure its ads for the Journal, which is one of the few papers whose advertising revenues have been up in 2006. L. Gordon Covitz, WSJ publisher and executive vice-president of Dow Jones, comments, “Our ambition is to be the first newspaper rethought for how people consume news," and expects The Journal to be profitable once again.
Related links: Media coverage: Wall Street Journal . Commentary: Dow Jones: Maybe Our Online Business is Part of Yahoo's Problem • Sharpest Newspaper Circulation Drop in 15 Years • WSJ's Print Ad Revenue Sluggish, But Profits Beat Estimates. Conference call transcripts: Dow Jones Q32006.
Potentially impacted stocks and ETFs: Dow Jones Inc. (DJ), Hewlett-Packard (HPQ) • Competitors: New York Times (NYT), Gannett Co. Inc. (GCI), Tribune Co. (TRB)
Why Wall Street Is Placing Its Chips on Casino Investing [Wall Street Journal]
Summary: More Wall Street investment firms are looking to casinos for investment opportunities that are not just a roll of the dice. Morgan Stanley is the most prominent example: the firm purchased a beachfront casino in Atlantic City for $75 million and has an 18% or $120 million stake in Trump Entertainment Resorts Inc. Morgan Stanley had a 75% stake in the proposed casino close to the historic Gettysburg battlefield, but withdrew due to controversy; Goldman Sachs and Silver Point Hedge Fund, run by former GS employees, took over. Although casinos have a scent of 'sin stocks' and sometimes draw comparisons to the stock market itself, an analogy most firms would rather avoid, Cezar Froelich, a lawyer who represents casino investors, reports his clients are increasingly are "more substantial institutional investors, everything from private equity to hedge funds to investment banks."
Related links: Commentary: Harrah's Gamble Not Without Risk • Stepping up to the Gaming Table
Potentially impacted stocks and ETFs: Morgan Stanley (MS), Goldman Sachs (GS), Trump Entertainment Resorts (TRMP), Harrah's Entertainment Inc. (HET) Wynn Resorts (WYNN)
ENERGY AND MATERIALS
Steelmakers, Led By China Firms, Seek Lower Iron-Ore Price Increase [Wall Street Journal]
Summary: Negotiations for iron-ore prices in 2007 continue between steel and iron-ore companies, with an increase now seen coming in at 5%-10%. At least for now, it looks as if steelmakers will not have to face as high of a price rise as in the last three years: +19% in '04, +71.5% in '05 and +19% in '06. Iron-ore producers claim higher-than-expected demand is keeping the market tight and iron-ore price increases haven't equaled the price rise seen in other metals. An industry analyst says pricing power remains with the world's three largest producers: Cia. Vale do Rio Doce, Rio Tinto PLC and BHP Billiton. One argument is steelmakers can absorb higher costs due to better cost containment of shipping and coal. China is playing a larger role in this year's talks out of necessity since it consumes approx. one-third of the world's steel output. Shares of Mittal Steel and US Steel have risen about 50% this year, outpacing the 20%-25% gains by Big-3 iron-ore.
Related links: Commentary: Rio Tinto Ready to Exploit Better-than-Expected Iron-ore Prices • Metal and Mining ETF: A Safer Way to Play Steel • New Van Eck Global Steel ETF • A Steel Industry Primer.
Potentially impacted stocks and ETFs: Mittal Steel (MT), United States Steel (X), Rio Tinto (RTP) -- 1 ADR = 4 ordinary shares, Companhia Vale do Rio Doce (RIO), BHP Billiton (BHP) -- 1 ADR = 2 ordinary shares • ETFs: Market Vectors - Steel (SLX), SPDR Metals & Mining (XME)
Summary: Cerberus Capital Management LP may buy 12 of bankrupt auto parts maker Delphi's U.S. plants, as well as possibly 12 of the company's European plants. Cerberus, which controls GM's finance unit, is demanding that the UAW accept lower wages. The private equity firm also wants health care costs slashed. To avoid striking production workers, GM requires an amicable resolution between Delphi and the UAW. Since declaring bankruptcy in October 2005, Delphi has been trying to cut a deal with UAW that would allow it to lower wages without resulting in a strike. Delphi, hoping to emerge from bankruptcy in mid-2007, plans to close or sell operations in brake and chassis systems and instrument panels, among others. Powertrains, automotive safety products, entertainment systems and navigation technologies will be the company's primary products. By January 2008, the company will close 21 out of 29 U.S. plants.
Related links: Media coverage: Forbes , DetNews.com. Commentary: GM Lends a Hand to Avert a Delphi Strike • Auto Nation: Detroit Needs To Get Real • Top 5 Things the Auto Industry Has to be Thankful For . Conference call transcripts: General Motors Q3 2006 Earnings .
Potentially impacted stocks and ETFs: Delphi Corp. (OTC:DPHIQ), General Motors Corp. (GM).
Summary: Wall Street's top financial firms are providing more of a challenge to the NYSE and Nasdaq, by matching up buyers and sellers directly and thus circumventing going through the exchanges. With the top five firms by volume - UBS, Goldman, Morgan Stanley, Merrill and Lehman - expected to pay nearly $100 million in trading commissions to the NYSE and Nasdaq this year alone, it is no wonder they are looking to avoid the exchanges whenever possible. The firms already steer 12% of their trades into their own internal pools - a move that also allows traders an added level of secrecy - and the number is expected to increase to 18% by 2010.
Related links: Commentary: NYSE: Gains Are Far From Automatic • A Unified, Global Stock Exchange May Be Approaching • Exchange Stocks: Beware The Bear.
Potentially impacted stocks and ETFs: NYSE Group (NYX), Nasdaq Stock Market Inc. (NDAQ), Goldman Sachs (GS), UBS AG (UBS), Morgan Stanley (MS), Lehman Brothers (LEH), Merrill Lynch (MER) • ETFs: iShares Dow Jones US Broker-Dealers Ind. (IAI), iShares Dow Jones US Financial (IYF), iShares Dow Jones US Financial Svc. (IYG), Vanguard Financials ETF (VFH).
Summary: Investors warmed up to Pfizer late last week as the firm announced job cuts and disclosed the largest drug pipeline in its history. Now however, with the sudden halting of torcetrapib, a cholesterol drug deemed the most important among all drugs under development at Pfizer and previously seen as a replacement to Lipitor -- the world's best-selling drug -- its shares will likely face renewed downward pressure. Despite its HDL, or "good cholesterol" boosting benefits, patients who took torcetrapib were 60% more at risk of death than those that didn't take it. In morning trading in Germany, Pfizer's shares fell an ordinary share equivalent of about 11% from Friday's close. Analysts say Pfizer will have to cut more costs and some suggest it will have to diversify its revenue sources. One analyst says selling its consumer may have been a mistake. Another listed Amgen and Medtronic as potential acquisition targets for Pfizer. However, a Lehman analyst commented, "There is nothing to buy that will make up for what torcetrapib might be."
Related links: Pfizer press release. Media coverage: Reuters and WSJ including Torcetrapib timeline. Commentary: Simply Tragic: Pfizer's Torcetrapib Cholesterol Drug Halted • Pfizer Stops Cholesterol Drug Trial Over Deaths • Pfizer Soothes Investors -- Raises Guidance, Unveils Deep Pipeline • Pfizer's Sales Force Cut: Like 'The End of an Arms Race'.
Potentially impacted stocks and ETFs: Pfizer (PFE), Amgen (AMGN), Medtronic (MDT) • 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)
Summary: After nice gains last week in Tokyo, stocks got off to a bumpy start due to the weak ISM data release in the U.S. on Friday and lower-than-expected corporate spending data today in Japan. Capex increased 11.9% in the quarter ended Sept. 30, but fell short of economists' estimates which were as high as 15%. Meanwhile, profit growth remained strong at 15.5%, for the 17th-straight quarter of gains. Wages however, were unchanged in October and have been disappointing, increasing less than $100 this year. Both investors and the Bank of Japan are expected to be watching important data releases over the next two weeks, ending with a BoJ rate setting decision on the 19th.
Related links: Commentary: Japan's Nikkei-225 and the Dollar/Yen Dance • Nice Week for Nikkei -- ADR Watch List • Positive Economic Data Supports Japan Stocks; More BoJ Watching • Bullish on Japan -- Nikkei Primed for Big Rally.
Potentially impacted stocks and ETFs: iShares MSCI Japan Index (EWJ), iShares S&P/TOPIX 150 (ITF)
Summary: The weakening U.S. dollar, which recently hit a 20-month low against the euro and a 14-year low against the British pound, has boosted international ETF performance. Since most foreign ETFs are unhedged, investors should be careful of heavy or short term investment. ETFs have made it easier for retail investors to buy and sell shares in foreign companies. According to the Investment Company Institute, 'Global ETF' assets grew 46 percent to $95.3 billion from $65.2 billion during the first 10 months of this year. The waning dollar heightens the worth of foreign assets, stocks included. Barclays PLC's $31 billion iShares MSCI EAFE Index Fund, the biggest foreign ETF, was up 17.4 percent in dollar terms but had gained only 7.9 percent in local currencies. Vanguard has released research noting that currency movements reduced 12-month returns of international stocks by 20% in 1984, but added more than 30% in 1985-1986.
Related links: Media coverage: Chicago Tribune, TheStreet.com. Commentary: Know Your International ETFs • Strategies in Tactical Asset Allocation • Foreign Investing and Diversification Lessons From Berkshire Hathaway • Overbought/Oversold Global ETFs.
Potentially impacted ETFs: iShares MSCI EAFE Index (EFA), iShares MSCI Emerging Markets Indx (EEM), Vanguard Emerging Markets (VWO), China iShares (FXI), iMSCI Austria Index Fund (EWO), iShares MSCI Malaysia Index Fund (EWM), iShares MSCI Hong Kong Index Fund (EWH), iShares MSCI Sweden Index Fund (EWD), iShares MSCI Singapore Index Fund (EWS)
ACTIONABLE BARRON'S CALLS
- Barron's cover story takes a bullish stance on International Business Machines Corp. (IBM). Barron's likes the leadership of CEO Samuel Palmisano, who is reinventing the giant company and transitioning it from a hardware/mainframe focus to a middleware producer which can make big dough with its exceptional software margins (85%), followed-through with client services. Its middleware domination has helped it corner the SOA (Server Oriented Architecture) market, it's cash-cow mainframe business still makes money, it is aggressively pursuing Indian partners, and its chips are at the core of all major videogame consoles. CEO Palmasino: "We have a top share in servers and Linux, #1 in blade servers... #1 in supercomputing, #1 in SOA... #1 in middleware." Barron's: You don't need a computer to know what that trend could do for IBM's shares.
- Tom Brown's Second Curve Capital hedge-fund invests exclusively in financial services stocks. He likes: CompuCredit Corp. (CCRT) for its sub-prime non-credit-card lending focus, Capital One Financial Corp. (COF), RenaissanceRe Holdings Ltd. (RNR) -- its estimates are too low, and Tennessee Commerce Bancorp (OTC:TNCC) for its focus on the small business customer.
- Duke Energy (DUK) plans to spinoff its natural gas operations into Spectra Energy this coming January. Duke shareholders will get Spectra stock for about $8/share -- analysts think it's worth double that. Duke currently trades at about $31; after the spinoff, Barron's says Duke could go for $23, and Spectra for $16.50.
- Microsoft Corp. (MSFT) shares are up 35% since June to $29 on good vibes over forthcoming upgrade revenues from Vista and Office 2007. Barron's likes its 60% profit margins on these products, and the fact that MSFT has only assumed a 50% upgrade number on its installed base. Xbox 360 seems like it's starting to turn a profit, and the company's aggressively buying back its shares. A rise in revenues from its new products could get per-share cash-flow up to 15%, and push shares into the mid 30s.
- Friedman Billings Ramsey hardware analyst Clay Sumner reported Friday that Dell (DELL) has been manipulating its earnings by under-compensating for warranty costs, overstating earnings by $0.02-$0.08/share in five of the past 12 quarters. Warranty costs are currently 46% of its warranty reserve, well above Hewlett-Packard Co.'s (HPQ) 26% and EMC Corp.'s (EMC) 13%. With actual claims rising steadily, he warns earnings restatements may be on the way.
- Andrew Bary looks at five heavily-followed hedge fund managers and gives us their top-three holdings: David Tepper: Oracle Corp. (ORCL), Micron Technology Inc. (MU), Applied Materials Inc. (AMAT). David Einhorn: Ameriprise Financial Inc. (AMP), Microsoft Corp. (MSFT), Hospira Inc. (HSP). Steve Mandel: Brookfield Asset Management Inc. (BAM), Google Inc. (GOOG), Comcast Corp. (CMCSA). Ed Lampert: Sears Holdings Corp. (SHLD), AutoZone Inc. (AZO), AutoNation Inc. (AN). Activist investor Carl Icahn: Time Warner Inc. (TWX), ImClone Systems Inc. (IMCL), American Railcar Industries (ARII).
- Retail stocks, says Lehman Brothers' chief technical analyst, Jeffrey deGraaf, tend to peak in the days that straddle Thanksgiving, then drift down through most of December, making it better to wait until month's end to play the sector. Stocks mentioned: Tiffany & Co. (TIF) -- good technical pattern. The Home Depot Inc. (HD) -- neutral. Best Buy Co. Inc. (BBY) and Circuit City Stores Inc. (CC) -- among the weakest patterns in the group. Department stores -- look good. Wal-Mart Stores (WMT) -- mediocre. Federated Department Stores Inc. (FD) -- reported sizzling sales last week; if it goes down with the sector, it will be a buying opportunity.
- Vito Racanelli looks at U.S. multinationals with the largest overseas revenues as potential beneficiaries of a weak dollar: Intel Corp. (INTC) leads the pack with 85% non-domestic revenue. Coca-Cola Co. (KO) (71%), ExxonMobil Corp. (XOM) (69%), McDonald's Corp. (MCD) (66%), Hewlett-Packard Co. (HPQ) (65%), International Business Machines Corp. (IBM) (62%) and 3M (MMM) (61%).
- Property and casualty insurers will likely see triple-digit earnings growth this year after recovering from weather catastrophes that dropped profits in 2005. Because they lost so much in 2005, regulators let them hike rates sharply and increase deductibles. Even assuming an average rate of catastrophes, return on equity could increase 18-20% in 2007 due to the higher premiums, driving share prices up 25-30%. Stocks mentioned as a potential play on the sector: Aspen Insurance Holdings (AHL), Endurance Specialty Holdings Ltd. (ENH), Axis Capital Holdings Ltd. (AXS), Montpelier Re Holdings Ltd. (MRH), RenaissanceRe Holdings Ltd. (RNR), ACE Ltd. (ACE).
Seeking Alpha is not affiliated with Wall Street Journal, New York Times, Bloomberg, Reuters, AP, or Barron's.
U.S. Markets: Record Level Of Record Levels Reached
Long Idea: Investors, Not Users, Compare Palm vs. Research in Motion
Short Idea: Handheld Entertainment Doesn't Stand a Chance: Here's Why
Internet: Long Yahoo, Short Google: Why I Think This Contrarian Idea Will Work
Telecom: Ready To Wait For Nortel's Turnaround
Hardware: Dell Over-Stating Profits, FBR Analyst Says
Software: Microsoft's Vista Goes on Sale to Corporations (yawn)
Consumer Electronics: The Short Case for Garmin
Media: Warner Music Discusses its "Digital Milestone" and the Future of Physical
Healthcare: Simply Tragic: Pfizer's Torcetrapib Cholesterol Drug Halted
Retail: Sadia SA: High Protein Buy
Transport: Advance Auto Parts Analyst Day Celebrates 5 Years As a Public Company - What Next?
Gold: Dow-to-Gold Ratio Tells a Bearish Picture
Energy: Limited Upside Makes PDS a Sell
Financial: Eye on Synovus Financial Corp.
Asia: Japan's Nikkei-225 and the Dollar/Yen Dance
ETFs: Gold Increasingly Used As Hedge Against Currencies; Gold ETFs Growing
Hedge Funds: See How the Hedge Fund Grows
IPO Analysis: This Week's IPOs: Aegean Marine, Allegiant, Heelys, Penn Virginia, WSB Financial
Sound Money Tips: Weekend Round-Up: From Video Gaming to Holiday Saving
Jim Cramer: Latest stock picks
Earnings Conference Call Transcripts: OmniVision • Warner Music Group
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