Bernanke: Education, Not Tariffs, Key to Narrowing Economic Gap
In a speech yesterday to the Greater Omaha Chamber of Commerce, Fed Chairman Ben Bernanke warned that widening economic inequality may sour Americans to the dynamism "so essential to economic progress." Bernanke discussed the increasing political debate over what, if anything, to do about the widening gap between high- and low-income workers. Education and training, rather than trade barriers, would help narrow the economic gap he said, warning the United States to stay away from policies that erect protectionist barriers to trade and investment. Such barriers, he warned, “would do far more harm than good.” Trade tensions, especially with rapidly growing China, have led some Congress members to advocate policies that would impose hefty tariffs on imported Chinese goods, and many Democrats and Bush critics blame the administration's free-trade policies for the nation's record-high trade deficits and losses of blue-collar jobs.
Sources: Text of Speech, Wall Street Journal, New York Times
Commentary: Bring On The Wage Gains! • Are Wage Increases a Threat to Inflation? • Income Savings at Lowest Level Since Depression
MGIC Investment Corp. to Buy Radian for $4.9 Billion in Stock
MGIC Investment Corp., a mortgage insurance provider, will acquire Radian Group Inc., a subprime mortgage insurance provider, in a $4.9 billion stock swap. Both CEO's will take turns running the consolidated MGIC Radian Financial Group Inc. with a market cap of $10b, nearly $15b in total assets, more than $290b of active primary mortgage insurance and a guaranty portfolio of $104b. Merged, they'll save $128 million in pre-tax costs -- but also incur $125-150m in restructuring costs. Radian's shareholders get 0.9658 share of MGIC stock for each share, a premium of just 4 cents ($60.84 over Monday's $60.78 close), with a small (0.25%) dividend for both companies' investors. Yet despite MGIC's concern over Radian's "Alt-A" risky mortgage insurance, the "tax-free reorganization"/merger was unanimously approved by both boards. Investors agreed, sending Radian shares up 9.3% to $66.47, and MGIC shares up 11% to $69.70 on Tuesday. Increasingly facing lower premiums and high default rates from the U.S. housing slump, the mortgage insurers merger could signal further consolidation in the sector and possibly a bottoming out of low stock valuations from several years of lower interest rates.
Sources: Press release, Bloomberg, MarketWatch, TheStreet.com, Wall Street Journal, MSNBC,
Commentary: MGIC Investment: Living on Borrowed Time -- Barron's • MGIC Investment's Book Value Growth Better Than I Predicted • MGIC Investment Corp.: An Undervalued, Minimal Risk Long Pick
Stocks to watch: MGIC Investment Corp. (NYSE:MTG), Radian Group Inc. (NYSE:RDN). Competitors: PMI Group Inc. (PMI), Genworth Financial Inc (NYSE:GNW), Triad Guaranty Inc. (OTC:TGIC), Assured Guaranty Ltd. (NYSE:AGO), Bancinsurance Corp. (BCIS)
Cisco Reports 40% Quarterly Profit Rise
Cisco's shares gained 4.5% to $28.52 late yesterday after the company reported a 40% surge in fiscal Q2 profit and forecast Q3 revenue ahead of expectations. The company made $1.9 billion ($0.31/share) for the quarter ended Jan. 27, up from the year-ago $1.4 billion ($0.22/share). Revenue was up 27% from a year ago to $8.44 billion. After adjustments, quarterly EPS were $0.33, ahead of Street forecasts of $0.31 EPS on $8.28 billion in revenue. Cisco's "book-to-bill" ratio, a critical order-to-shipment gauge, was above 1 in the quarter just ended, a bullish indicator. CEO John Chambers raised sales projections for the current quarter to 19-20%, exceeding analysts' expectations of 15%. Cisco forecasts Q3 sales of $8.7-8.8 billion against Street expectations of $8.56 billion. Gross margins are projected around 64.5% for Q3. Cisco's $6.9 billion acquisition last year of cable set-top box manufacturer Scientific-Atlanta added $639 million in net sales to fiscal Q2 2007 results. On the conference call, Chambers highlighted the shift toward video as a key factor in Cisco's strong results. "Scientific Atlanta was above the high end of our expectations with year-over-year growth comfortably above 20%," he said. "Video continued to drive network demand and is potentially the killer application." The company's core routers business saw an 18% increase in revenue from a year ago and the switching business generated a 13% rise in revenue.
Sources: CSCO F2Q07 Earnings Conference Call Transcript, MarketWatch, Bloomberg, Wall Street Journal, TheStreet.com
Commentary: Color On Cisco's Quarter: Enterprise Order Slowdown To Pressure Stock • Is Cisco Slowing Down? • Has Cisco Found Its Missing Link?
Stocks/ETFs to watch: Cisco Systems, Inc. (NASDAQ:CSCO). Competitors: Juniper Networks, Inc. (NYSE:JNPR), Nortel Networks Corp. (NT), Avaya Inc. (NYSE:AV). ETFs: Internet Architecture HOLDRs (NYSE:IAH), iShares S&P Global Technology (NYSEARCA:IXN), iShares Russell 1000 Growth Index (NYSEARCA:IWF), iShares Russell 3000 Growth Index (IWZ)
Infineon Chips to Be Used in Nokia's New Entry Level Phones
Infineon Technologies, Europe's #2 semiconductor manufacturer, announced this morning it has been chosen by Nokia to provide a system-on-chip for its entry-level phones. Nokia says it's aiming to improve the phones' power-performance while reducing their size, in order to offer the "most competitive and cost-effective portfolio of mobile phones to consumers in new growth markets." Infineon's "E-GOLDvoice" system-on-chip combines a baseband processor, radio frequency transceiver, power management unit and RAM in a diminutive 8 x 8 mm footprint. Infineon's biggest customer, Benq Mobile, ran out of cash and began liquidating last month, forcing Infineon to cut 400 jobs and adjust its forecasts. Infineon shares were up 3.7% in Frankfurt trading on the news.
Sources: Press Release, MarketWatch, Bloomberg
Commentary: Apple Turns To UK For iPhone Processors • Foundry Shakeout Looms -- Who Will Remain Standing? • Infineon Technologies F1Q07 Earnings Call Transcript
Stocks/ETFs to watch: Infineon Technologies AG (IFX). Competitors: STMicroelectronics N.V. (NYSE:STM), Texas Instruments Inc. (NASDAQ:TXN), Fairchild Semiconductor Intl. (NASDAQ:FCS), International Rectifier Corp. (NYSE:IRF), Broadcom Corp. (NASDAQ:BRCM). ETFs: Semiconductor HOLDRs (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semiconductors (NYSEARCA:PSI), SPDR Semiconductor (NYSEARCA:XSD)
Sun Analyst Meeting: No Guidance Given, But "On Track" to Sustained Profitability
At Sun Microsystems' annual meeting with analysts yesterday, CFO Michael Lehman did not provide guidance for the current quarter or full fiscal year (ending in June), but said Sun is "on track" to achieve a 4% operating profit margin for the quarter ending in June (and aiming for a 9% margin by FY09). He acknowledged Sun's cost structure is "still too high," but warned against mass layoffs and said R&D expenses would be contained (currently around $2b annually). CEO Jonathan Schwartz declared, "We are now fully outfitted to serve 100 percent of the market. There is not an opportunity we are precluded from bidding on." Sun reported a $126 million profit for its most recent quarter (ended in Dec.), returning to profitability two quarters earlier than expected. Lehman said Sun is discussing possible uses for the $700m investment from KKR, including share repurchases and acquisitions. Schwartz killed a rumored deal however, saying, "We're not going to go out and buy Novell."
Sources: Sun Analyst Summit video archive, Reuters, TheStreet.com
Commentary: Sun: Goldman Boosts Price Target Ahead of Analysts Meeting • Sun: 8-K Filing Fails to Address Most Basic Question • Sun Posts First Profit After Five Quarterly Losses • Sun F2Q07 (Qtr End 12/31/06) Earnings Call Transcript
Stocks/ETFs to watch: Sun Microsystems (SUNW). Competitors: Hewlett-Packard Co. (NYSE:HPQ), International Business Machines Corp. (NYSE:IBM), Microsoft Corp. (NASDAQ:MSFT), Dell Inc. (NASDAQ:DELL). ETFs: Internet Architecture HOLDRs (IAH), PowerShares Dynamic Hardware & Consumer Electronics (PHW)
Comcast Teams Up With Facebook
Social-networking website Facebook will announce a partnership today with cable giant Comcast's online video website, Ziddio (currently in soft-launch), involving numerous links between Facebook and Ziddio. This is Facebook's first major move to bring video to its site; Facebook currently allows users to post YouTube videos. Facebook's CEO, Owen Van Natta, said he expects the Ziddio partnership to help Facebook shape its own video strategy. As part of the deal, the best Facebook videos, as selected by a panel of judges, will appear on Comcast's video-on-demand service, and possibly on a new show that could be broadcast by a television network, and filmmaker R.J. Cutler (producer of "The War Room") will produce 10 episodes of a new TV show called "Facebook Diaries." What's in it for them? Van Natta: "We think the opportunity for our users to have their content shown on television is a real draw." Liz Schimel, a Comcast VP: "Working with Facebook is a terrific opportunity for sponsors who want to reach a youth demographic -- it's one that advertisers most want to reach."
Sources: Wall Street Journal, CNET News/Reuters
Commentary: Google Rules the Online Video Market • What Will Pay For The Online Video Explosion? • Google/YouTube Strategy Highlights Why Video Advertising Might Falter. Websites: Ziddio, Facebook
Stocks/ETFs to watch: Comcast Corp. (NASDAQ:CMCSA). Competitors: YouTube owner Google Inc. (NASDAQ:GOOG), MySpace owner News Corp. (NWS.A)
News Corp. Rattles Google on Third-Party E-Commerce Partnerships
The $900 million advertising deal struck six months ago by Google and MySpace owner News Corp. has hit a roadblock before finalization: News Corp. want to strike similar deals with other parties, like eBay. The Google deal allows News Corp. to use Google's search tools on MySpace and run Google ads, for which Google will pay News Corp. a minimum of $900 million in ad revenue over the next three years. Before signing on the dotted line, however, News Corp. wants to ensure the option of setting up a "peer commerce" partnership between MySpace and eBay -- a means by which MySpace users could buy and sell merchandise using eBay's commerce technology and PayPal payment system. Such a deal would benefit eBay by giving it access to a younger demographic and MySpace by giving it a new revenue source. This prospect will not be met with unalloyed delight at Google, which has introduced both a listing service [Base] and a payment service [Checkout] within the past year and a half intended to compete directly with eBay. It is not expected to threaten completion of the Google/MySpace deal, however, which was put into effect in December.
Sources: Wall Street Journal, TechCrunch, 24/7 Wall St.
Commentary: Google, Fox Renegotiating Advertising Deal • eBay's PayPal Dominates Over Google Checkout • Did Google Overpay for Fox Interactive Media’s Search Business?
Stocks/ETFs to watch: Google Inc. (GOOG), News Corp. (NASDAQ:NWS), eBay (NASDAQ:EBAY). Competitors: Time Warner Inc. (NYSE:TWX), Yahoo! Inc. (NASDAQ:YHOO). ETFs: iShares Dow Jones US Consumer Services (NYSEARCA:IYC), Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (NYSEARCA:FDN), First Trust IPOX-100 Index (NYSEARCA:FPX)
Amazon and TiVo Team Up
Yesterday Amazon and TiVo announced a forthcoming service feature that will allow TiVo subscribers to rent or buy TV shows and movies from Amazon's Unbox video download service. In a press release, CBS, Fox Entertainment Group, Lions Gate, Paramount Pictures, Universal Studios Home Entertainment and Warner Bros. Entertainment were listed as participating networks and studios. The Amazon Unbox on TiVo is currently in beta testing. Amazon's service allows downloaded media viewing on PCs and any Windows Media Video compatible devices. The new service was described as "soon-to-be-launched" and will cost $1.99 per TV show purchase, between $9.99 - $14.99 for most movie purchases and $1.99 per movie rental. TiVo CEO Thomas Rogers comments, "Certainly there is a phenomenon of people watching short video clips on sites like YouTube. But our research clearly shows that when it comes to full-length movies and television shows, for the real experience, it needs to be on the TV set."
Sources: Press release, Forbes-AP, New York Times
Commentary: Starting Today, TiVo and Amazon Bring UnBox to TV • Wal-Mart Launches Hewlett-Packard Enabled Digital Download Site • Apple TV: Direct Attack on Cable TV's Business Model
Stocks/ETFs to watch: Amazon (NASDAQ:AMZN), TiVo (NASDAQ:TIVO). TV networks/movie studios: CBS (NYSE:CBS), Disney (NYSE:DIS), General Electric (NYSE:GE), Lions Gate (NYSE:LGF), News Corp (NWS), Time Warner (TWX), Viacom (NASDAQ:VIA), DirecTV (NASDAQ:DTV) • Competitors: Apple (NASDAQ:AAPL), Comcast Corp. (CMCSA), Echostar Communications (NASDAQ:DISH), Google (GOOG), Netflix (NASDAQ:NFLX), Wal-Mart (NYSE:WMT)
McClatchy Posts Smaller-than-Expected Q4 Loss
Shares of newspaper publisher The McClatchy Company rose yesterday when the company posted a better-than-expected Q4 loss of $279.3 million ($3.41/share). The net loss reflected a $354.8 million charge for the sale of The Minneapolis Star Tribune to investment group Avista Capital Partners for $530 million, less than half what McClatchy paid for the paper in 1998. Excluding the write-down, the company earned $75.5 million ($0.92/share), beating Street estimates of $0.85. The company earned $45.4 million ($0.97/share) in Q4 a year ago. Revenue jumped to $673.6 million from $210.3 million on the acquisition of 20 newspapers bought from Knight Ridder. Journal Register Co., publisher of the New Haven Register, also posted a Q4 loss after writing down the value of its Michigan newspapers in a "difficult" advertising environment. The publishers' struggles reflect the shift of consumer and advertiser attention away from the print medium and toward the Internet and cable TV.
Sources: New York Times, Bloomberg. Conference call transcript: Q4 2006
Commentary: McClatchy Co.: Avista Capital to Acquire Star Tribune for $530 Mln • McClatchy Selling The Trib: Sign Of Our Communication Times • Fewer Newspapers With Lower Circulation Is the Way of the Future
Stocks to watch: The McClatchy Company (NYSE:MNI). Competitors: Gannett Co., Inc. (NYSE:GCI), Tribune Co. (TRB)
Apple’s Jobs to Music Industry: Let's End DRM
Apple CEO Steve Jobs has challenged the world's four leading music companies to dispense with digital-rights management [DRM] anti-piracy software. In an on-line musing called "Thoughts on Music," Jobs points out that the software is not solving the piracy problem since it is not used on CDs, which buyers can easily copy onto their computers -- and which amount to 90% of overall music sales. Jobs proposes that if the four top music companies -- Universal, Sony BMG, Warner Music and EMI -- drop their requirement that Apple's iTunes sell only DRM-protected music, Apple would commit to selling only DRM-free music. "Imagine a world where every online store sells DRM-free music encoded in open licensable formats," he wrote. "In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat." The music companies are not expected to warm to this proposal, since it would advance digital music sales at the expense of CDs. Jobs is no doubt motivated in part by European criticism of the padlocking of iTunes music that makes it playable only on iPods. iTunes operates in 22 countries and has sold over 2 billion songs, giving it more than 70% of the music download market.
Sources: Wall Street Journal (I, II), MarketWatch, Bloomberg, TheStreet.com
Commentary: Steve Jobs: We're Ready To End DRM Now • Is Apple iTunes Setting CD Prices? • Apple Reports Record Earnings, Beats Street, But Stock Down on Guidance
Stocks/ETFs to watch: Apple, Inc. (AAPL). ETFs: Internet Architecture HOLDRs (IAH), NASDAQ 100 Trust Shares (QQQQ), PowerShares Dynamic Hardware & Consumer Electronics (PHW), iShares S&P Global Technology (IXN)
Nike Aims for 50% Revenue Growth Over Next Five Years
Nike announced its long-term strategies yesterday which include a revenue growth forecast of $23 billion in FY2011, compared to $15b in FY06, and plans to open 100 Nike stores worldwide in premium shopping locations over the next three years. CEO Mark Parker was quoted by Reuters saying, "Nike is as hungry and as driven as we've ever been before and becoming more focused and more competitive." Half of the new store openings are expected to be in the U.S. and 75% of its projected revenue growth is seen coming from the Nike brand. Nike says its four key markets are the U.S., U.K., Japan and China, and it plans to "drive deeper growth" in these markets which combine for 61% of current revenues. It also says it will "invest aggressively" in the other BRIC markets of Brazil, Russia and India, saying each has the potential to become a billion dollar market.
Sources: Press release, Reuters
Commentary: Nike Beats Estimates with Smaller Brands and Tax Benefits • Under Armour: The Time Has Come to Sweat This Stock - Barron's • The Long Case For Nike - 'Just Do It'
Stocks/ETFs to watch: Nike (NYSE:NKE). Athletic footwear retailers: Foot Locker (NYSE:FL), Finish Line (NASDAQ:FINL). Competitors: Adidas (OTCQX:ADDYY), Under Armour (NYSE:UA)
TRANSPORT AND AEROSPACE
How Much of Toyota's Success Comes From the Weak Yen?
The Wall Street Journal asserts that the vehicles Toyota is exporting from Japan for sale in the U.S. Japan are pumping up its bottom line. Yesterday Toyota reported a 7.3% rise in net income for fiscal Q3 2007. But exports have bolstered the auto maker's profits because the weak yen means fatter profits from dollar-paying customers. There have been concerns in Congress about the yen, and Toyota executives have expressed concern over political backlash as it usurps market share from GM, Ford and Chrysler. Toyota says it is working to increase the number of vehicles it makes in North America, but in 2006 imported cars and trucks sold by Toyota in the U.S. rose 37% to 1.2 million vehicles (out of total sales of 2.5m), while sales from North American production were for the most part unchanged. Analysts estimate the yen decline from January 2005 adds about $3,000 in profit to each vehicle exported from Japan. In November, the CEOs of GM, Ford and Chrysler discussed the issue with President Bush. And yesterday, Ford Chief Alan Mulally said called the yen "an issue the government needs to continually assess," saying, "We would encourage the U.S. to continually review the trade policies and make sure that we don't have currency manipulation."
Sources: Wall Street Journal
Commentary: Toyota Reports Record Q3 Earnings, Maintains Guidance • No Tough Times For Toyota • Significance of the Surprisingly Weak Yen
Stocks/ETFs to watch: Toyota Motor Corp. (NYSE:TM). Competitors: General Motors Corp. (NYSE:GM), Ford Motor Co. (NYSE:F), DaimlerChrysler (DCX), Honda Motor Co. (NYSE:HMC)
Ford's New Strategy: Bring Back An Old Name
After letting it fade into oblivion, Ford management has decided to bring the "Taurus" name back, replacing the "Five Hundred" midsize sedan. At one point, the Taurus was the top selling mid-sized sedan in the U.S.; it was so successful in fact that Toyota and Honda redesigned their "Camry" and "Accord" models to be more like the Taurus. After an unsuccessful redesign in 1999, Ford let the "Taurus" wither and die as Toyota and Honda models gradually replaced it atop the American market. CEO Alan Mulally has apparently been keen on reviving the "Taurus" name since coming on board last year. According to company research, the "Taurus" has name recognition among 80% of consumers; the "Five Hundred" (pictured), whose name it's replacing, is recognized by just 30-40% of consumers.
Sources: Wall Street Journal, New York Times, Business Week
Commentary: Big 3's January U.S. Auto Sales Fall To Lowest Ever As Japanese Gain • Winners and Losers From January's U.S. Auto Sales Report • Ford's Losses Mount, Exceeding Street Forecasts
Stocks/ETFs to watch: Ford (F). Competitors: General Motors (GM), DaimlerChrysler (DCX), Toyota (TM), Honda (HMC), Nissan (OTCPK:NSANY)
ENERGY AND MATERIALS
BHP Billiton: Another Earnings Report, Another Record; Shares Climbing
BHP Billiton Limited (NYSE:BHP) reported net profits rose 41% to $6.2 billion for the recently ended half year, leading shares to rise nearly 6% on the Australian Stock Exchange. That gain in profits was up from $4.36 billion in the year-ago period. Steadily rising commodity prices bolstered by strong production results for most mineral commodities, led the company to its seventh successive record fiscal half-year period. The company says future profits should continue to rise as Chinese demand for mineral metals continues to soar. BHP announced a surprise $10 billion share buyback yesterday; BHP also announced CEO Chip Goodyear will retire by the end of 2007. U.S. ADR shares of BHP are trading higher by $1.99 (4.77%) to $43.70 in pre-market trading.
Sources: Bloomberg, MarketWatch, MarketWatch II, Financial Times
Commentary: Will Another Iron-ore Price Hike Stop Surging Steel Stocks?, Australia: On the Uranium Radar, Investing in Molybdenum
Stocks/ETFs to watch: BHP Billiton Limited (BHP). Competitors: Rio Tinto plc (RTP), Anglo American (AAUK), Alcoa Inc. (NYSE:AA)
XShares to Develop Carbon Emission Credits ETFs
XShares Advisors, a financial services company focused on the development and distribution of innovative exchange traded funds, announced this morning it has entered an agreement with the Chicago Climate Exchange [CCX], the second largest carbon emissions trading market in the world, to develop ETFs based on carbon emission credits. Carbon emission credits allow companies to emit a stated amount of carbon dioxide over a specified time period. Companies that emit more carbon than permitted often buy additional credits from firms that under-emit on exchanges such as the CCX. Dr. Richard Sandor, Chairman and CEO of the CCX hopes exchange traded carbon-emission funds will provide additional pathways for emitters to balance their books: "Chicago Climate Exchange is a financial institution that is providing a cost-effective means for emitters from all sectors of the economy to reduce greenhouse gas emission and the risks from global warming. One of the objectives of CCX is to build a robust market with the necessary financial incentives so that the private sector can play its critically important role in advancing environmental and social objectives."
Sources: Press Release
Commentary: Chinese Pollution Plays • New Emissions Index Would Make Attractive ETF • Go Green, Bring In the Green: Carbon Dioxide Is the New Commodity
Stocks/ETFs to watch: PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW), PowerShares Cleantech Portfolio (NYSEARCA:PZD), Market Vectors Environmental Services ETF (NYSEARCA:EVX)
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