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Wall Street BreakfastMACRO AND HOUSING

Homebuilders Speak About the Housing Market

Executives of the largest U.S. homebuilders met yesterday at the 10th Annual Homebuilding Conference sponsored by the New York Society of Security Analysts. Some key comments: Freddie Mac Chief Economist Frank Nothaft said the correction is about two-thirds finished, and that by the Homebuilders ETF Chart 7 12 06second half of '07 home sales would begin rebounding, showing 3% gains by year end. Ara Hovnanian admitted, "the market [hasn't] found a bottom yet," but added, "there are reasons to feel a little more comfortable." Toll Brothers CFO Joel Rassman declined to pick a bottom: "Nobody can know when the bottom is." Lennar CFO Bruce Gross said the slowdown offered developers a change to optimize operations: "In good times, we were all busy growing; as things slow down, we can focus on efficiencies." Commenting on industry consolidation, Rassman said: "I think there's a reason to believe that when the big builders control 50-60% of a market, they'll probably have to eat each other." Homebuilder shares were up in yesterday's trading.
• Sources: AP, Bloomberg, Reuters, Seattle Post Intelligencer
• Related commentary: Housing Prices: The Not-So-Hidden Truth, Bursting the Housing Bubble - SeekingAlpha, Housing Stocks: Watching the RSI, Near a Housing Bottom?, Housing Bubble and Real Estate Market Tracker, Contrarians Moving Into U.S. Housing Stocks. Conference call transcripts: Toll Brothers F4Q06
• Potentially impacted stocks and ETFs: Freddie Mac (FRE), Hovnanian Enterprises Inc. (NYSE:HOV), Toll Brothers Inc. (NYSE:TOL), Lennar Corp. (NYSE:LEN). ETFs: streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB), PowerShares Dyn Building & Construction (NYSEARCA:PKB), iShares Dow Jones US Home Construction (NYSEARCA:ITB)

Fed Regulators Restrain CRE Lending

Much to the consternation of many small and medium-sized banks, federal regulators are clamping down on the proportion of commercial real estate [CRE] loans within bank portfolios. The Federal Reserve, the Comptroller of the Currency and the FDIC have proposed thresholds that are designed to avoid dangerously high concentrations of CRE loans that could spell disaster for smaller banks in the event of a serious economic downturn. Though the regulators have not imposed explicit limits on CRE lending, many bankers fear the regulatory scrutiny triggered by the crossing of the suggested thresholds will function as a de facto limitation. The regulators' goal is to avoid a repetition of the 1980s scenario in which many banks failed when the real estate market collapsed.
• Sources: Wall Street Journal, USA Today, Reuters, New York Times
• Related commentary: U.S. Housing Weakness Hits HSBC
• Potentially impacted stocks and ETFs: US Bancorp (NYSE:USB), Wachovia (NASDAQ:WB), Wells Fargo and Co. (NYSE:WFC), iShares S&P Global Financials (NYSEARCA:IXG), Vanguard Financials ETF (NYSEARCA:VFH), streetTRACKS KBW Bank ETF (NYSEARCA:KBE), Regional Bank HOLDRs Trust Regional Bank HOLDRs Trust (NYSEARCA:RKH)

TECHNOLOGY AND INTERNET

Cisco Chooses India For Global Center

Cisco is making a big investment in India, having already announced a $1.1 billion plan last October, and yesterday saying India will be the site for its globalization center, or effectively a second global headquarters. Cisco also said it plans a manufacturing pilot facility in Chennai, in addition to expanding its presence in Bangalore. It expects to triple its workforce over 3-5 years to 6,000, and has allocated and/or deployed tens of millions of dollars for R&D activities, facilities and venture capital. Cisco-CSCO-1yr-chart-12-06-06 Cisco CEO John Chambers commented, "Cisco chose India ... because India has a highly skilled work force, supportive government, innovative customers and world-class partners that already have global capabilities." Last year Cisco's revenue from India totaled $750m (or about 2.5% of its ~$30b) and Chambers said he expects it increase to 5% of global sales in 3-5 years. While services outsourcing has attracted many overseas firms, Cisco also sees a big opportunity in India's strong economic growth and rising middle-class.
• Sources: Press release [I, II], Newsday-AP,
• Related commentary: Cisco To Buyback Additional $7 Billion In Stock, Cisco Shares Rise on Strong F1Q07 Profit Report, Cisco: Catalysts That Make it a Buy, Conference call transcript: Cisco F1Q07
• Potentially impacted stocks and ETFs: Cisco (NASDAQ:CSCO). ETFs: iShares Goldman Sachs Networking Index Fund (NYSEARCA:IGN), Internet Architecture HOLDRs (NYSE:IAH), iShares S&P Global Technology (NYSEARCA:IXN)

MEDIA

Ochs-Sulzberger Family Has No Intention of Parting With Controlling Vote of Times Board

nytThe Ochs-Sulzberger family, owners of a controlling vote on New York Times' board, has no intention of loosening its grip on the paper. There has been growing pressure, largely from minority owner Morgan Stanley, for the family to eliminate the dual share class structure that gives the Ochs-Sulzberger's nine of thirteen board seats despite owning a far smaller proportion of the paper's outstanding shares. Times CEO Janet Robinson said yesterday that the family "has no intention of opening any doors to the action that is tearing at the heart of some of the other great journalistic institutions of our country." She also denied rumors the Times would willingly part with the Boston Globe calling the paper an important asset.
• Sources: AP, Motley Fool, Business Week. Conference call transcripts: New York Times Q3 2006
• Related commentary: Morgan Stanley Buys More New York Times Stock, Cramer's take on NYT
• Potentially impacted stocks and ETFs: New York Times (NYSE:NYT), Morgan Stanley (NYSE:MS). Competitors: The Washington Post Co. (WPO), Gannett (NYSE:GCI), Tribune Co (TRB), The McClatchy Company (NYSE:MNI)

The French Say "Oui" to Live Nation's Truck Shows

With a "Trois! Deux! Un! Zéro!" and the roar of gigantic vehicles, the Monster Jam Truck show brings a popular form of Live Nation 12-06-06entertainment from middle America to Paris. As monster trucks crush rows of old cars under their oversized wheels and navigate their way through pools of mud, Live Nation, which was spun off from Clear Channel in 2005, succeeds in bringing to Europeans a show that was initially considered "too American." The promoter of celebrity acts such as Madonna and U2 reported a $139 million loss last year on a revenue of $2.9 billion due to the high fees paid to performers. The Monster Jam Truck shows are cheaper to produce than glitzy concerts, and Europeans seem more open to American entertainment now that tensions over the 2001 U.S. led invasion of Iraq have abated. Parisians are now willing to pay $44 for a ticket to a truck show, and performers express their appreciation by yelling "Bon soir, Paris!" to cheering crowds while spraying crushed cars with beer.
• Sources: Wall Street Journal
• Related commentary: Live Nation to Acquire Musictoday
• Potentially impacted stocks and ETFs: Live Nation (NYSE:LYV), Clear Chanel (NYSE:CCU)

News Corp-Liberty Media DIRECTV Share Swap Nearly Complete

After months of negotiations that seemed to going nowhere, the Wall Street journal reported yesterday that News Corp and Liberty Media are close to a swap involving Liberty's stake in News Corp and News Corp's stake in DIRECTV Group. dtvOnce close friends and business associates, News Corp Chairman Rupert Murdoch and Liberty Media Chairman John Malone have seen relation deteriorate since Malone purchased a 19% voting stake in Murdoch's News Corp. The swap would save Liberty much in taxes, according to its CEO Greg Maffei and would effectively see Liberty take a controlling role in DIRECTV, which would allow it to protect its various media holdings such as QVC and Discovery channel. Shares of DIRECTV (chart pictured) have increased 20% in value since news of the talks broke in September - something which has been a sticking point in the talks. By adding some cash and other assets to the swap, Liberty will increase the effective price it is getting for its News Corp shares, since at current time, its News Corp stake and News Corp's DIRECTV stake are about equal in value.
• Sources: WSJ, CNN/Money, Reuters
• Related commentary: It's Time for a Liberty Media--News Corp. Split, Murdoch--Malone Deal Reportedly in "Decisive Stage", Murdoch-Malone Hopefully Closing in on News Corp. Stock Buyback Deal, News Corp. and Liberty Media Looking to Wiggle Out of as Much as $4.5 Billion in Taxes
• Potentially impacted stocks and ETFs: Liberty Media (NASDAQ:LINTA), News Corp (NASDAQ:NWS), DIRECTV Group (NASDAQ:DTV). Competitors: Time Warner (NYSE:TWX), Viacom (NASDAQ:VIA), Comcast(NASDAQ:CMCSA), EchoStar Communications (NASDAQ:DISH), TiVo (NASDAQ:TIVO), Cablevision (NYSE:CVC). ETFs: PowerShares Dynamic Media Portfolio (NYSEARCA:PBS)

RETAIL

Gallaher's Shares on Fire Following Japan Tobacco Bid

Sources close to the speculated takeover bid for Gallaher Group confirmed it came from Japan Tobacco. Shares of both firms have since surged. In a press release yesterday, Gallaher Group confirmed the speculation of a takeover bid, but didn't say from whom and offered no guarantee a deal will be completed. Its shares listed on the NYSE jumped 18% on more than 10x avg. volume. Japan Tobacco's shares closed 4.75% higher. Gallaher-GLH-1yr-chart-12-06-06 Investors and analysts alike welcome the deal which could set off further industry consolidation, especially in Europe. The deal is expected to be in cash, and on an earnings multiple basis, at 12.6x, would be similar to what JT paid for RJR's non-U.S. tobacco business in '99. Analysts expect a deal around £12/share, which is about a 20% premium from yesterday's close. Both firms have strength across various countries in Europe, "with the only major overlap being in the former Soviet Union," according to Reuters. JT is increasingly dependent on overseas sales, which surpassed domestic sales for the first time ever last year. One analyst said given JT's strong balance sheet and low cost of capital, that Gallaher might holdout for a higher bid.
• Sources: Press release, Reuters
• Related commentary: Altria: Stuff Your Stocking With This Long Idea, Reynolds American Reports Smokin' Profits; Altria's Earnings Slip
• Potentially impacted stocks and ETFs: Gallaher (GLH), Japan Tobacco (Tokyo: 2914). Competitors: Altria (NYSE:MO), British American Tobacco (NYSEMKT:BTI)

Options Backdating Revealed at Home Depot

A five-month internal investigation has revealed that Home Dept backdated employee stock options between 1981 and 2000. These activities racked up $200 million in unrecorded expenses. The inquiry found no intentional wrongdoing on the part of previous management. However, it had become standard practice for managers to choose option grant dates that had a lower stock price than the actual date. These changes were approved by a board committee. No such grants Home Depot 6 12 06were awarded to founders Arthur Blank, Bernard Marcus or any directors. Since 2002, the company has ensured that option exercise prices match the price of the grant date. The company admits the practice started about 25 years ago, which disproves the theory that options backdating is a product of the technology boom. Home Depot, which reported $81.5 billion in sales in 2006, is one of the largest companies to admit to options backdating.
• Sources: WSJ, Bloomberg, BussinessWeek, Reuters
• Related commentary: Private Equity Gone Wild: Home Depot In Play?, Home Depot's Dividend Increase: Not What Bob Nardelli Wants You To Believe, Home Depot Stalls Despite Strong Growth in its Supply Unit, Home Depot Rising Despite Disappointing Earnings
• Potentially impacted stocks and ETFs: Home Depot (NYSE:HD) Competitors: Target (NYSE:TGT), Lowe's (NYSE:LOW), Best Buy (NYSE:BBY) ETFs: Retail HOLDRS (NYSEARCA:RTH), Vanguard Consumer Discretionary VIPERs (NYSEARCA:VCR), Vanguard Dividend Appreciation VIPERs (NYSEARCA:VIG)

TRANSPORTATION

Ford Increases Financing Plan To $23 Billion

Ford revealed in a Wednesday SEC filing that it will expand its restructuring financing package to $22-23 billion from the original $18 billion. The company increased its convertible note offering to $4.5 billion from $3 billion to match investor demand. Ford also boosted its revolving credit to $11 billion, up from $8 billion. The credit is backed by Ford's assets; to enlarge it, the Ford 6 12 06company must pay down debt as per last month's $7 billion term loan agreement or collateralize its 1/3 stake in Mazda Motors. A company spokesman said that latter is unlikely. Ford's increased credit is Wall Street's largest recorded leveraged loan, $17.5 to 18.5 billion. The credit boost is thanks to "overwhelming support by lenders" according to its SEC filing. Analysts had mixed reactions to the news. Ford shares sank by 32 cents to $7.36.
• Sources: WSJ, Reuters, BusinessWeek, TheStreet.com
• Related commentary: Toyota Versus GM/Ford: Classic Hedged Pair Trade, Highlights From Ford's Sales Conference Call, Ford: SEC Comment Letter Slipped Through The Cracks, Ford Staff Cuts: Good Start But Not Enough
• Potentially impacted stocks: Ford Motor Co. (NYSE:F) Competitors: General Motors (NYSE:GM), DaimlerChrysler (DCX), Toyota (NYSE:TM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY)

FINANCIAL

Fannie Mae's Earnings Restatement Not As Bad As Feared

Mortgage finance company Fannie Mae filed its first annual report in three years yesterday, concluding that it had earned $6.3 billion less from 2001 to 2004.fnm Its losses weren't nearly as bad as expected - some estimates ranged as high as $10.8 billion less in qualified earnings once the restatement was complete. When accounting for derivatives, the total losses in previously reported earnings for that period turns out to be $7.9 billion. The company had reached a deal with the Office of Federal Housing Enterprise Oversight and the SEC in May to pay $400 million to end an investigation into its accounting errors. The company still has to file earnings for 2005 and 2006. In a move to appease shareholders, Fannie increased its quarterly dividend to 40 cents a common share from 26 cents.
• Sources: Fannie Mae analyst conference call (audio- scheduled for 1:00 PM EST today), Wall Street Journal, Reuters, New York Times, Bloomberg, theStreet.com
• Related commentary: Fannie Mae Reaches The Wrong Milestone, Fannie Mae Gets Spanked, Fannie Mae complete accounting overhaul
• Potentially impacted stocks and ETFs: Fannie Mae (FNM). Competitors: Freddie Mac (FRE), Accredited Home Lenders Holding Co. (LEND)

INTERNATIONAL

Private Equity Trickles into India, Wireless Eyed

The Wall Street Journal reports Blackstone Group and Texas Pacific Group are considering making an offer for Hutchison Telecommunications' Indian wireless firm Hutchison Essar, which is the third largest carrier in India. The newspaper cites people familiar with the matter who say a deal could exceed $8 billion, not including debt assumption. Hutchison Essar has more than doubled its subscribers in the past year to around 20 million. Warburg Pincus is said to have had a large stake in the two leading carriers, Reliance and Bharti Tele-Ventures. HutchisonTele-HTX-1yr-chart-12-06-06 All parties declined to comment. According to Dealogic, there has been $38.8b worth of buyouts in Asia (including Japan and India) this year, with India accounting for $3.1b. Private-equity firms are awash in capital raised specifically for Asia, and are coming under increasing pressure to make deals.
• Sources: The Wall Street Journal
• Related commentary: The Rush For Indian Tech Stocks, Barclays and PowerShares To Offer India ETFs, Private Equity Buyouts: The Five Cs, The Private Equity ETF: A Look Under The Hood
• Potentially impacted stocks and ETFs: Hutchison Telecom Int'l (HTX)

Barclays and PowerShares To Offer India ETFs

U.S. investors looking to take part in the resurgence of India's stock market can look forward to two new exchange traded products launching as soon as Dec. 20th: Barclays has filed with the SEC to launch an "exchange traded note" -- Barclays iPath MSCI India Index ETN -- which will track the MSCI India Total Return Index (consisting of 68 components), and guarantees to match its return. PowerShares plans a mixed ETF of Indian stocks and U.S. companies with exposure to India. Until now, investors have been limited to two closed-end funds offered by Morgan Stanley and Blackstone Asia Advisors, or two mutual funds managed by Eaton Vance and Matthews. BSESN_Sensex-IFN_IndiaFund-IIF_MSIndiaInvest-SP500-1yr-chart-12-05-06 Indian stocks have been volatile, with many pundits quick to warn of liquidity risk, pointing to the sharp correction earlier this year amidst a near global sell-off. However, the situation is improving - as MarketWatch's India correspondent points out, "between July and October, net inflows into the new equity plans launched by local (mutual) funds topped INR233 billion ($5.2b) ..." This occurred alongside foreign inflows of approx. $6b. Kumar adds that 90% of these domestic funds are closed-end with 3-5 year lock-in periods, meaning there's more fundamental support and stability in the domestic Indian market. Still, analysts are voicing concern over valuations, especially with the run-up since the correction and new all-time highs established this week for the benchmark BSE Sensex -- consisting of India's 30 largest firms by market cap and trading volume. Small and medium cap stocks continue to lag larger caps.
• Sources: MarketWatch, The Wall Street Journal
• Related commentary: Indian Stocks Week-in-Review, Indian Outsourcers May Be Hurt By Stronger Rupee, Indian GDP Comes In Above Forecasts, The Rush For Indian Tech Stocks
• Potentially impacted stocks and ETFs: Largest Indian Stocks traded in the U.S. by market cap: Infosys (NYSE:INFY) - $31b, Wipro (NYSE:WIT) - $23b, ICICI Bank (NYSE:IBN) - $17.5b, HDFC Bank (NYSE:HDB) - $8b, Satyam Computer (SAY) - $8b, Tata Motors (NYSE:TTM) - $7.5b. CEFs: The India Fund (NYSE:IFN), Morgan Stanley India Investment Fund (NYSE:IIF)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Markets: Is the Economy Stronger Than Expected? Stay Tuned for Friday's Report
Housing: Housing Prices: The Not-So-Hidden Truth
Long Idea: Looking to Gain? Consider This
Internet: CNET Investors Duped By Takeover Rumors Yet Again
Telecom: Telekom Austria Outbid Once Again
Hardware: Sun: Investors Still Looking For Clear Daylight
Software: Getting Ready To Pull the Trigger on a Microsoft Sale
Consumer Electronics: Sony: Holiday Sales Look Strong
Media: British Sky/Google Alliance: Yes, Murdoch Gets The Internet
Healthcare: Walgreen Co. and Genentech: Two Ways to Play the Drug Sector
Retail: Year's Worst CEO: Lekach of Parlux Shows Why
Transport: Boeing Is Flying High
Gold: Return To The Gold Standard?
Energy: Suntech Power is Warming Up
Financial: Eye On Union Bankshares
Asia: Private Equity Trickles into India, Wireless Eyed
ETFs: Barclays and PowerShares To Offer India ETFs
Small-Caps: Fuel Tech on Fire
Sound Money Tips: Picking the Perfect PDA
Jim Cramer: Latest stock picks

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