Greenspan: Recession Possible by End of 2007
Former U.S. Federal Reserve Chairman Alan Greenspan stepped back into the spotlight in dramatic fashion yesterday, warning at a business conference that the U.S. economy is in danger of slipping into recession. He categorized the budget deficit as "a very significant concern" and suggested the expansion of the economy since 2001 is approaching a conclusion. He identified the stabilization of profit margins as an indicator that "we are in the later stages of a cycle" and said a recession is possible toward the end of this year. After Greenspan's comments, July fed funds futures were up 0.02 at 94.805, their highest level since Jan. 16, implying 22% odds that the Fed will lower its interest rate benchmark to 5% from 5.25% at its June policy meeting. April fed fund futures were up 0.01 at 94.76, implying a 4% chance the Fed might cut rates at its March meeting. The yield on the 10-year Treasury note was down 0.041 percentage points at 4.637%, its lowest point since Jan. 5.
Sources: Fox News, MarketWatch, Wall Street Journal
Commentary: When Greenspan Forecasts Recession, Is It Time to Switch Camps? • Not in Kansas Anymore: Recession, Economic Data and Margin Rules - Oh My! • Economists Expect Fed to Sit Tight on Rates Throughout 2007
ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Marvell Posts 27% Rise in Q4 Sales
Marvell Technology posted a 27% Q4 revenue increase on sales of data storage and consumer electronics chips and the purchase of a chip unit from Intel, but the result missed Street expectations. The company did not report profits because it is reviewing its accounting of options grants. For the three months ended Jan. 27, the company posted $622 million in sales against $489 million a year ago. Analysts were expecting $624.6 million. In November 2006, Marvell purchased Intel's cell phone processor line for $600 million. This acquisition brought Marvell the Xscale processor, which is used in Research in Motion's Blackberry. The unit added $90-100 million in sales in Q4. Marvell is projecting Q1 sales of $640-650 million, shy of analysts' $651.3 million expectation. Marvell's chips are used in Apple's iPod, Sony's PlayStation portable games, Hewlett-Packard's notebook computers, and WiFi electronics.
Sources: Bloomberg, TheStreet.com, MarketWatch. Conference call transcript: F4Q07 (Qtr End 1/27/07)
Commentary: Color On Marvell Tech's Quarter • Chip Stocks: Weak Motherboard Sales Signal Trouble In PC Supply Chain • Intel Sells Communications Chip Unit to Marvell
Stocks/ETFs to watch: Marvell Technology Group Ltd. (MRVL). Competitors: Agere Systems Inc. (AGR), STMicroelectronics NV (STM), Texas Instruments Inc. (TXN). ETFs: iShares Goldman Sachs Networking (IGN), iShares Goldman Sachs Semiconductor (IGW)
Intel Continues To Ramp Up 45-Nanometer Production Spending
Intel plans to spend between one an $1.5 billion dollars retooling its plant in Rio Rancho, New Mexico so that it can begin production of 45-nanometer chips by late 2008 at the site. In all, Intel plans to spend $5.5 billion this year on factory and equipment upgrades; its biggest competitor AMD plans to spend less than half that in FY2007. Intel expects to have three 45-nanometer production facilities in operation by mid-2008 with a plant opening at Hillsboro, Oregon during the second half of this year and additional plants coming on line in Chandler, Arizona and Kiryat Gat Israel in late 2007/early 2008. By comparison, AMD does not plan to bring its first 45-nanometer chips online until mid-2008. In other news, Intel announced it was closing its Jerusalem-based 'fab 8' factory as a result of the opening of other Israeli facilities; the company is hiring an additional 50 employees for its Jerusalem-based R&D facility.
Sources: Wall Street Journal, MarketWatch (i), (ii), Jerusalem Post
Commentary: IBM To Announce Major Challenge To Intel-Dominant DRAM Technology • All Chips Are Not Created Equal • AMD in Trouble: Needs to Raise Cash & Develop Products
Stocks/ETFs to watch: Intel (INTC). Competitors: Advanced Micro Devices (AMD), IBM (IBM). ETFs: HOLDRS Semiconductors (SMH), iShares Goldman Sachs Semiconductor Index Fund (IGW), PowerShares Dynamic Semiconductor (PSI), Vanguard Information Technology ETF (VGT)
Yahoo's Panama Rollout Is Showing Results
A ComScore Networks sampling has shown that following the second phase of Yahoo's rollout of its Panama ad-ranking technology, its click-through rate increased 9% in the week ending February 18 over the baseline week of February 4. Competitors Google and Microsft MSN did not show similar increases. Previously, Yahoo displayed ads solely on the basis of the amount advertisers paid for keyword search terms. Panama matches ads to search queries, making Yahoo's searches more similar to Google's. Panama's ad-ranking model is vital to Yahoo's effort to recapture market share lost to Google. Citigroup analyst Mark Mahaney, who has a Buy rating on Yahoo, says, "Panama amounts to the biggest single catalyst in the Net sector -- as search accounts for approximately 50% of Yahoo's net revenue and 60% of its profits." Yahoo shares rose $0.16 to $31.94 yesterday while Google's fell $6.07 to $464.55.
Sources: Forbes, Red Herring, Information Week, Business Week
Commentary: Four Issues With Yahoo's 'Fast Start' On Panama • RBC: Yahoo's Panama Launch Going Smoothly • Yahoo: Is Project Panama Taking Dollars from Google?
Stocks/ETFs to watch: Yahoo! Inc. (YHOO). Competitors: Google Inc. (GOOG). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
Microsoft to Acquire Medstory
Microsoft is purchasing Medstory Inc., a manufacturer of search software for the healthcare market that uses artificial intelligence techniques to sift medical information in journals, government documents and other on-line sources. Medstory will become part of Microsoft's Health Solutions Group. The terms of the deal were not released. Last year, Microsoft bought Azyxxi, a maker of healthcare software that displays patient information. There is increasing demand for online healthcare information, as evidenced by last week's expectation-surpassing quarterly report by WebMD, the biggest health site on the Internet. That demand is driven primarily by aging baby boomers. Microsoft will have ample competition in the space: San Francisco company Healthline provides health search services, Google is developing a health information search tool, and former AOL CEO Steve Case is launching a healthcare portal called Revolution Health.
Sources: New York Times, Information Week, News.com, Wall Street Journal
Commentary: Microsoft to Purchase Azyxxi Healthcare Software Technology • Google Preparing Health Portal • Can Health Grades Inc. Compete With WebMD For a Share of the Health Information Industry?
Stocks/ETFs to watch: Microsoft Corp. (MSFT). Competitors: Google Inc. (GOOG), WebMD Health Corp. (WBMD), Health Grades Inc. (HGRD), Time Warner Inc. (TWX). ETFs: iShares Goldman Sachs Technology Indx (IGM), iShares Goldman Sachs Software Index (IGV), iShares S&P Global 100 Index (IOO)
Nordstrom Just Misses, Shares Drop
Nordstrom reported yesterday that Q4 2006 earnings from its 98-store department stores were up 18% to $232 million on 15% higher revenues of $2.63 billion. EPS were $0.89 vs. $0.69 in Q4 2005, and Nordstrom gave Q1 2007 guidance of $0.54/share. Average analyst estimates were for EPS of $0.90 and Q1 forecasts of $0.57. For the year it forecast $2.84, compared with analysts' $2.92. Same store sales were up 8.3%, but the company said they may rise as little as 3% next year. Nordstrom paid unusually large executive bonuses (the top five managers got bonuses totaling $5.63 million) in recognition of the strong same store sales rise and a fourth straight year of profit gains. Addressing concerns that its fashions may be too forward-looking, merchandising President Pete Nordstrom said in its earnings conference call, "I think we've yet to see a time where giving the customers what they want in terms of what's new and most fashionable has deterred us; we really benefited actually from providing newness in fashion across all price points," and said its designer business is growing at a healthy clip. Nordstrom shares fell $1.80 (3.2%) to $54.80 in after-hours trading, after closing down $1.49 (2.6%) before the results were released.
Sources: Nordstrom Q4 2006 Earnings Call Transcript, Bloomberg, MarketWatch
Commentary: Try Nordstrom On For Size • Analyzing Nordstrom (24/7)
Stocks/ETFs to watch: Nordstrom Inc. (JWN). Competitors: Gap Inc. (GPS), Chico's FAS Inc. (CHS), Jos. A. Bank Clothiers Inc. (JOSB), Federated Department Stores Inc. (FD), Abercrombie & Fitch Co. (ANF). ETFs: Retail HOLDRS ETF (RTH), SPDR S&P Retail (XRT), PowerShares Dynamic Retail (PMR)
Wal-Mart Takes 35% Stake in Chinese Discount Chain
Wal-Mart has bested Carrefour, Tesco and Lianhua Supermarkets to acquire a 35% stake in the Bounteous Company, which owns 101 Trust-Mart hypermarkets in 34 Chinese cities. Wal-Mart might eventually take control of the company, which would position it to challenge Carrefour's dominance as a foreign retailer in China. It is estimated that assumption of control of Bounteous would cost Wal-Mart $1 billion. Wal-Mart already has 73 stores in China, a country with strong appeal to retailers by virtue of its strong economy, enormous population and expanding middle class. The Chinese Ministry of Commerce is also far more open to foreign competition than it has been in the past. In 2005, 1,027 retailers received permission to enter the market, triple the combined total of the past 12 years. Retail sales were up 13.7% last year to $770 billion, and analysts believe the market could expand to about $2.4 trillion by 2020. Wal-Mart is testing the waters in several international markets, pulling out of South Korea and Germany but expanding in Central and South America, China and India. In 2005, Wal-Mart's international division represented approximately 20% of overall net sales of $312.4 billion.
Sources: Bloomberg, Wall Street Journal, New York Times
Commentary: Wal-Mart's Cheap Doubling in China [24/7 Wall Street] • Chinese Markets Take Biggest Drop in 10 Years • Making Sense of Chinese Markets
Stocks/ETFs to watch: Wal-Mart Stores Inc. (WMT). Competitors: Costco Wholesale Corp. (COST), Target Corp. (TGT). ETFs: Retail HOLDRs (RTH), Vanguard Consumer Staples ETF (VDC), Market 2000 HOLDRs (MKH)
The Gap Leaves Towne
The Gap is shuttering its struggling Forth & Towne chain to refocus its attention on its Gap and Old Navy stores. The closure of Forth & Towne, which provided clothing for baby-boomer women who are not interested in the young-adult look found in most retail clothing outlets, marks a formal break with the policies of former CEO Paul Pressler. Pressler started a variety of projects, including Forth & Towne, and insisted on keeping them afloat even as the company foundered. Forth & Towne, which offered four product lines, was intended to compete with Chico's FAS, Federated Department Stores, Talbot's and J. Jill. After two difficult years at the Gap and Old Navy brands -- which represented 85% of the company's sales last year -- and five quarterly profit declines, Pressler resigned last month. The 19 Forth & Towne stores will close by the end of June, and the company will take pretax charges of approximately $40 million in Q1 and Q2.
Sources: Wall Street Journal, MarketWatch, Bloomberg
Commentary: Gap Begins Its Corporate Shakeout • Gap CEO Calls It Quits • Time to Go to The Gap - As A Value Stock?
Stocks/ETFs to watch: The Gap Inc. (GPS). Competitors: Chico's FAS, Inc. (CHS), The Talbots, Inc. (TLB), Federated Department Stores (FD). ETFs: PowerShares Dynamic Retail (PMR)
Conference call transcript: Gap Q3 2006
TRANSPORT AND AEROSPACE
Chrysler's Future Remains Uncertain
Chrysler is in talks to expand its alliance and buy more parts and car models from China's Chery Automobile Co., which specializes in making fuel efficient vehicles gaining popularity on the U.S. market, Bloomberg learned from anonymous sources. The negotiations are reported to be at an advanced stage. Meanwhile, the AP is reporting that China's FAW Group Corp. refused comment after the Oriental Morning Post reported it had sent representatives to Detroit to negotiate with Chrysler for an undisclosed stake in the company. In other Chrysler-related news, the Wall Street Journal is reporting infighting between Chrysler unions in Canada and Germany over the company's fate. The divisiveness could hamper parent DaimlerChrysler's attempts to unload the company if potential buyers view the company as not presenting a unified front.
Sources: Bloomberg, AP, Wall Street Journal
Commentary: Financial Times: Chrysler Considering An All-Equity Deal With GM • Large Private Equity Firms Approached About Buying Chrysler • GM To Buy Chrysler? At Least It Hasn't Been Ruled Out
Stocks/ETFs to watch: DaimlerChrysler (DCX). Competitors: General Motors (GM), Nissan (NSANY), Ford (F), Toyota (TM), Honda (HMC), Volkswagen (VLKAY.PK)
Air Force Urged To Reopen Competition for Boeing's $15 Billion Chopper Contract
In a rare about face, the Government Accountability Office, Congress's auditing arm advised the Air Force to reopen competition for the $15 billion contract it awarded Boeing to build 141 rescue helicopters by 2019. While the ruling, which cited inconsistencies in the Air Force's evaluation process is non-binding, the Air Force has generally followed such requests in the past. If competition is reopened, it means a second chance for Boeing competitors Lockheed Martin and United Technologies-owned Sikorsky Helicopter. On hearing the news, Boeing said it believes its "helicopter offers the most capable and best-value aircraft for the Air Force's combat search and rescue operations."
Sources: Wall Street Journal, Business Week, Bloomberg
Commentary: How Boeing Defense Got Its Groove Back • Boeing Is Flying High • Boeing One-Ups Airbus Yet Again With FedEx Contract
Stocks/ETFs to watch: Boeing (BA). Competitors: Lockheed Martin (LMT), United Technologies Corp. (UTX). ETFs: PowerShares Aerospace & Defense (PPA), iShares Dow Jones US Aerospace & Defense (ITA)
Volvo to Buy Ingersol Rand Road Construction Equipment Unit for $1.3B in Cash
Volvo, the world's second biggest truckmaker, said this morning it has agreed to buy Ingersoll Rand's road construction equipment unit for $1.3 billion in cash. Volvo's construction equipment division is its second-largest; the Ingersoll Rand division brings with it $864 million in revenue and $101m in operating income as of last year. The acquired unit makes heavy compactors, asphalt pavers and milling machines, and Volvo said in its press release it provides favorable growth opportunities. It also includes 20 North American dealerships and distribution centers in Europe and Russia which will leverage Volvo's sales of compact equipment. Anders Bruzelius of Swedbank in Stockholm said the price was high and fails to address Volvo's dependency on North America and Europe. Volvo shares were down 2.4% in Stockholm on the news. The deal is expected to close in Q2, subject to regulatory approval.
Sources: Press Release, Bloomberg, MarketWatch
Commentary: Shedding Light on the Nordic States: Small, But Powerful • Ingersoll-Rand Trying To Recover From Housing Slowdown
Stocks/ETFs to watch: Volvo (VOLV), Ingersoll-Rand Co. Ltd. (IR). Competitors: Caterpillar Inc. (CAT), Hanover Compressor Company (HC), Terex Corp. (TEX), Briggs & Stratton Corp. (BGG)
FDA Evaluating Effectiveness of Sanofi's Bird-Flu Vaccine
The FDA has cleared Sanofi-Aventis's H5N1 bird-flu vaccine for safety, but is still trying to determine whether it is sufficiently effective. There are no bird-flu vaccines approved for humans in the U.S., and H5N1 is the only such vaccine currently before the FDA. Since 2003, bird flu has killed 167 people, primarily in Asia and Africa. Most had come into direct contact with infected poultry. If the virus mutates, it might become more easily transmittable among people, creating the risk of widespread illness. A two-shot, high-dose series of H5N1 prompted a protective immune response in 45% of adults in a newly released clinical trial, below a 54% immune response rate shown in an interim analysis performed in 2006 and well below the 75-90% effectiveness rate of seasonal flu vaccines. Studies are being conducted to find ways to use immune boosters to improve H5N1's effectiveness, and the FDA will ask a panel of outside experts to review H5N1 at a meeting today. Though the FDA remains to be convinced that H5N1 will suffice in the event of a mutation, Sanofi is manufacturing the vaccine for stockpiling in in the U.S.
Sources: Wall Street Journal, Discovery News, Reuters
Commentary: FDA Limits Use of Sanofi-Aventis's Drug • Sanofi-Aventis: FDA Lays to Rest Metabolic Syndrome Indication for Acomplia • Biotech Day In Review: Another Setback for Acomplia from Sanofi-Aventis
Stocks/ETFs to watch: Sanofi-Aventis [ADR] (SNY). Competitors: Eli Lilly & Co. (LLY), Merck & Co. Inc. (MRK), Pfizer Inc. (PFE). ETFs: Pharmaceutical HOLDRs (PPH), iShares Dow Jones US Pharmaceuticals (IHE)
Chinese Markets Take Biggest Drop in 10 Years
This morning in Chinese trading, stocks took their worst fall in 10 years over investor concerns the Chinese government may begin cracking down on illegal investments that have helped fuel record-breaking gains in its indexes. The Shanghai and Shenzhen 300 Index fell 9.2%, giving back most of its 13% gains it had amassed over the previous six sessions when it climbed 13% and closed yesterday at record highs. The State Council, China's highest ruling body, yesterday appointed a task force to crack down on illegal share offerings and give guidance on securities regulations and policies. On Feb. 6, Cheng Siwei, vice chairman of the National People's Congress, wrote in a commentary that the government must pay attention to "bubbles" in its stock market before they get out of hand. "People are worried that more tightening measures may come out," said Mona Chung of Daiwa Asset Management Ltd. in Hong Kong. The National People's Congress' annual session begins March 5.
Sources: Bloomberg, MarketWatch
Commentary: Stumbling Blocks On China’s Path To Power • Chinese Blue Chips Soar to the Stratosphere • Profiting From China's Population Policy
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ)
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