- Government's AIG exit imminent. Sources say AIG (AIG) and the government are finalizing a plan that would accelerate repayment of some of AIG's debt to taxpayers and allow the government to exit its 79.8% stake, but only after rising to over 90%. The conversion price of the Treasury's $49B in preferred shares is the main point of contention, with AIG officials trying to ensure shareholders "don't lose all the upside," and the Treasury concerned about leaving too much meat on the bone. The plan, which needs the approval of AIG's board, the Treasury, the Fed, and three trustees who oversee the government's stake, could be released as soon as today if parts fall into place.
- CBO laments 'anemic' recovery. The pace of the current U.S. economic recovery remains "anemic" compared to previous post-recession rebounds, CBO director Douglas Elmendorf testified before the Senate Budget Committee on Tuesday. Elmendorf broke out four possible ways to extend the expiring Bush income tax cuts, saying all would raise "output, income, and employment during the next two years," but would also inflate the deficit and drive up interest rates in the long run. He also warned that government spending would reach 24% of GDP by 2020 unless major changes are introduced.
- Consumer confidence drops to seven-month low. The Conference Board's Consumer Confidence index fell 4.7 points to 48.5 in September, the lowest level since February, underscoring lingering worries about the strength of the recovery. Economists had expected a milder drop to 52.5. "Consumers' confidence in the state of the economy remains quite grim," the report said, noting less favorable business and labor market conditions have led to increased pessimism.
- Whitney warns on state budget crisis. Look for states to suffer a collapse similar to the banking industry implosion of 2008 as crippling deficits come back to haunt them, outspoken analyst Meredith Whitney said Tuesday (video). "The similarities between the states and the banks are extreme to the extent that states have been spending dramatically and are leveraged dramatically," she said. Whitney, famous for calling the financial sector crisis, warned banks aren't out of the woods yet, predicting a sharp drop in housing prices and shrinking trading revenues will decimate Q4 earnings.
- CEO outlook darkens. U.S. CEOs grew less optimistic in Q3, with The Business Roundtable's economic outlook index falling to 86 from 94.6 in Q2 - the first decrease since the beginning of 2009 when the gauge dropped to a record-low of -5 (readings above 50 indicate expansion). 66% of respondents expect sales will grow over the next six months, down from 79%. Only 31% expect to add to payrolls, down 8 points. CEOs reduced their 2010 GDP growth forecast to 1.9% from 2.7% previously.
- Final leg of housing bounce? Case-Shiller's 20-city home price index rose 0.6% in July, but analysts warned that the report - based on a three-month average - still incorporates two months of tax incentives, which means we won't get a true look at post-stimulus housing demand until the end of November. The peak home-buying season is now ending after a dismal summer, and the hardest-hit markets, already battered by foreclosures, are bracing for a bigger wave of homes sold at foreclosure or through short sales. Moody's Analytics predicts the Case-Shiller index will drop 8% over the next year.
- H-P offers bright outlook. H-P (HPQ) offered higher guidance for earnings and revenue at its analysts meeting, which boosted shares 1% in after-hours trading. The company's EPS forecast of $5.05-5.15 in the next fiscal year is up to 14% higher than this year, and revenue of $131.5B to $133.5B is 5-7% higher. The firm gave no hints about who might succeed Mark Hurd at the top, though rumors that Apple (AAPL) COO Tim Cook could be the one briefly moved share prices in both companies.
- TechCrunch steals news thunder, sells to AOL. Influential Silicon Valley blog TechCrunch used its Disrupt conference to make a little news of its own, confirming its sale to AOL (AOL) for undisclosed terms. For its part, AOL adds to a tech-content stable that already includes the less popular Engadget. Elsewhere at the show, Google (GOOG) CEO Eric Schmidt said his company is the "inverse" of Apple (AAPL), saying computers more and more will "augment humanity," and that while he expects mobile ads to be a huge factor one day, they're not "material" for Google yet.
- B&N beats Burkle in proxy fight. Barnes & Noble (BKS) Chairman Len Riggio - who has led the company for 30 years - retained his board seat over dissident stockholder Ron Burkle and his Yucaipa Cos. after a long, contentious battle over the direction of the company. Now the bookseller has new challenges, including trying to arrange a hasty sale. A timeline illustrates Burkle's beef with the board.
- FINRA agrees to more disclosure on pay, rejects Madoff probe. Wall Street watchdog FINRA said Tuesday it would be more transparent about executive pay and how it manages its $1.6B portfolio, but resisted calls to release transcripts of board meetings and refused to allow a new probe into alleged ties with Bernie Madoff.
- Diller ditches Live Nation board. Sources say Live Nation Entertainment (LYV) Chairman Barry Diller resigned Tuesday, a move that highlights growing divisions within the music-industry powerhouse. The resignation comes after a horrendous investor conference in July, during which shares plunged, and which led to Diller chastising CEO Michael Rapino for making exaggerated claims about LYV's influence on obscure recording artists.
- BP goes back to borrowing. For the first time since August 2009 - before the Deepwater Horizon rig explosion and Gulf spill - BP (BP) will sell bonds in an amount between $2B and $3.5B. With the worst-case spill scenarios failing to materialize, it's a good opportunity for BP to raise funds at low rates; the oil giant has clung to investment-grade ratings even as credit-default swap costs soared.
- Tylenol case gets dirtier. Details have emerged in Johnson & Johnson's (JNJ) much-discussed Tylenol recall that are drawing new scrutiny to its handling of quality problems. It appears JNJ allowed drugs made with raw materials from the same batch that was later flagged as contaminated to remain in stores for months after recognizing the problem, and at one point hired a contractor to estimate how many bottles remained on store shelves.
- Eurozone confidence rises to a near three-year high. The European Commission's Economic Sentiment Index rose again in September, to 103.2 from 102.3 in August, defying economists' expectations. The improvement was led by a jump in industrial confidence. Other business components also gained confidence, but consumers grew less optimistic about the economic outlook. Among large member states, Germany led the way with another robust gain (+2.0).
Earnings: Wed. Before Open
- Family Dollar Stores (FDO): FQ4 EPS of $0.56 beats by $0.05. Revenue of $1.96B (+8.1%) in-line. (PR)
- Asia: Japan +0.7%. Hong Kong +1.2%. China flat. India -0.7%.
- Europe at midday: London -0.3%. Paris -0.3%. Frankfurt -0.3%.
- Futures at 7:00 S&P -0.11%. 10-yr -0.12%. Euro +0.13% vs. dollar. Crude +0.22% to $76.35. Gold +0.15% to $1310.20
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
10:30 EIA Petroleum Inventories
12:30 PM Fed's Plosser: Economic Outlook
1:00 PM Results of $29B, 7-Year Note Auction
3:00 PM USDA Ag. Prices
- Notable earnings before Wednesday's open: FDO
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