U.S. Stocks Rebound, Best Daily Performance Since July
A rally across Asia yesterday spread to the U.S. as the Dow (+1.3%) and S&P 500 (+1.5%) had their biggest gains since July and the Nasdaq (+1.9%), had its best day since October. Financial stocks rallied on news Treasury Secretary Paulson told reporters "credit issues" related to subprime lenders amidst a U.S. housing slump will be limited. Despite yesterday's broad market rally, market participants expect volatility to remain. MarketWatch reports the world's stock markets lost $3.1 trillion over the past five days, according to the Dow Jones Wilshire Global Total Market Index. Jefferies & Co chief market strategist Art Hogan says, "You need a couple of days of stability in Asian markets for global markets to rebound. But both Asian and European markets sold off more than our market, so we don't need to rebound by as much." One asset manager however, says he guesses "it's a false rally" since "a relief rally after such a quick correction is fairly common."
Sources: Bloomberg, MarketWatch
Commentary: David Fry's Daily Market Outlook • Subprime Meltdown: Untested Territory • S&P 500 Now 2.9 Standard Deviations Below 50-Day Moving Average
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), NASDAQ 100 Trust Shares ETF (QQQQ)
Bernanke: Link Fannie's and Freddie's Portfolios to Affordable Housing
Fed Chair Ben Bernanke said yesterday that mortgage finance companies Fannie Mae and Freddie Mac should sell off the bulk of their $1.4 trillion in assets and "anchor" their investments to the provision of affordable housing for low-income Americans. At present, less than 30% of their mortgage assets -- about $420 billion -- promotes affordable housing. The two government-sponsored enterprises [GSEs] own or guarantee roughly 40% of U.S. residential mortgages, a $10.5 trillion market. They are owned by shareholders, but possess federal charters for the promotion of home ownership -- a fact that has fueled a belief that the government will not allow them to fail. Their senior debt, said Bernanke, "should be used only to finance assets such as affordable-housing mortgages that have...a clear and measurable public benefit." The size of the GSEs' portfolios, their swift growth and lack of market discipline "raise substantial systemic risk concerns," he said. Rep. Barney Frank, chairman of the House of Representatives' Financial Services Committee, plans to introduce a GSE reform bill by the end of March; and a House subcommittee will be holding a hearing on GSE regulation on Monday. Fannie Mae shares closed yesterday up 3.2% at $54.83; shares of Freddie Mac closed up 1.2% at $62.11.
Sources: MarketWatch, Bloomberg, Reuters, Money.com
Commentary: Freddie Mac Moves to Contain Subprime Fallout • A Low-Risk Long/Short Financial Institution Arbitrage Strategy • Fannie Mae, Freddie Mac Mortgage Portfolios Escape Regulatory Caps
Stocks/ETFs to watch: Fannie Mae (FNM), Freddie Mac (FRE). ETFs: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Subprime Lenders Stage Mini-Comeback
U.S. Treasury Secretary Henry Paulson Jr. played down the subprime market fallout Tuesday, saying it won't affect the broader credit markets. He said the housing slowdown had impacted certain types of mortgages, but did not see it as a major problem: "Some of the credit issues are there, but they're largely contained." He also was upbeat about global economic conditions: "Economies are growing, inflation is low, and liquidity is high." Subprime lender shares rebounded, with New Century (hardest hit Monday with a 68% drop) recovering 10%. Aiding the rally, Citadel Investment Group outbid Credit Suisse Group to buy ResMae Mortgage Corp for $180 million, and some subprime lender stock shorters closed out their positions. Separately, Fed chief Ben Bernanke told Congress yesterday that the largest U.S. mortgage brokers Fannie Mae and Freddie Mac's huge debt could destabilize the overall economy if not hedged against further risks. He suggests limiting their holdings, and linking them to a “measurable public purpose, such as the promotion of affordable housing.” HSBC, the #1 subprime lender, has set aside billions for subprime defaults; yesterday Lehman analyst Brian Johnson wrote in a research report that GMAC, the mortgage subsidiary of General Motors, may take a $1 billion charge in anticipation of defaults on its subprime loans.
Sources: Bloomberg I, II, III , IV • Washington Post • MarketWatch • Newsday
Commentary: Tells I'll Be Watching This Week • Stifel: Subprime Mortgage Sector in 'Downward Spiral' • Asset-Backed Insecurities: Containing the Subprime Mortgage Collapse
Stocks/ETFs to watch: New Century (NEW), Freddie Mac (FRE), Fannie Mae (FNM), General Motors Corp. (GM), Credit Suisse Group (CS). Subprime lenders: NovaStar Financial (NFI), Accredited Home Lenders (LEND), Fremont General (FMT), Countrywide Financial (CFC), Citigroup (C), H&R Block (HRB), Wells Fargo (WFC), Washington Mutual (WM). ETFs: PowerShares Dynamic Banking (PJB), streetTRACKS KBW Bank (KBE)
January Factory Orders: Worst Decline in Over Six Years
Demand for U.S.-made manufactured goods skidded 5.6% last month, its steepest decline since July 2000, the Commerce Department reported yesterday. Economists were expecting a 4.5% decline. The slide was led by a 60% plummet in demand for new civilian aircraft, but almost all factory sectors experienced a pullback. Core capital equipment orders dropped 6.3%, their worst decline in three years. Durable goods orders were down 8.7%, revised downward from last week's 7.8% projection. Orders for nondurable goods dropped 2%. Some analysts believe the manufacturing sector's struggles are accountable to excess inventories and are thus likely to be short-term. Others believe corporate capital spending is unlikely to bounce back any time soon. In a separate report yesterday, the Labor Department said productivity went up an annualized 1.6% in Q4, revised from 3%, while the cost of labor soared 6.6%, well beyond the previous 1.7% estimate. There is concern that the implied upward pressure on wages could feed inflation, but analysts said end-of-year bonuses skewed the picture. Wall Street was unfazed by the reports, posting its biggest one-day point gain since last July and ending the day at 12,207.59.
Sources: MarketWatch, ABC News, SmartMoney.com
Commentary: Productivity Down, Unit Labor Costs Up • Durable Goods Orders Decline Most in 18 Months, Sending Futures Lower • Earnings Trends: Materials Expected to Drop in Q1
ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG), iShares Lehman TIPS Bond Fund (TIP)
Yahoo "Go" to Run on Windows Mobile Devices
Yahoo has released a new version of Go, its cellphone software, that works with Microsoft's Windows Mobile operating system. The Windows Mobile initiative is expected to expand Yahoo's base of mobile users by millions. Yahoo Go, which provides one-click phone access to a variety of services including Internet search, e-mail, maps and photo-sharing, is now compatible with the more than 175 existing Windows phone devices. "Windows Mobile phone users tend to be consumers who are relatively data savvy,'' said Ojas Rege, senior director of Yahoo's mobile phone unit. "They are a pretty attractive group of users both from the standpoint of being early adopters of new services and in terms of advertising demographics." Yahoo is well on its way toward its goal of compatibility with 400 devices by the end of the year. Yahoo has also reached an agreement with Taiwanese company High Tech Computer Corp., the world's largest manufacturer of Windows-based mobile phones, to distribute the new software on its devices. It has existing agreements to distribute Yahoo Go on the devices of Motorola, Nokia, Samsung, LG Electronics and Research In Motion. Yahoo shares gained $0.49 to reach $30.80 yesterday and are up 21% on the year.
Sources: Bloomberg, New York Times
Commentary: Yahoo! Aims for Lead in Mobile Search Space • Yahoo Takes Mobile Advertising To International Market • Is Yahoo Go a No Go?
Stocks/ETFs to watch: Yahoo! Inc. (YHOO), Microsoft Corp. (MSFT). Competitors: Google Inc. (GOOG), Apple Inc. (AAPL). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
FCC Chief Questions XM/Sirius Deal Terms
FCC Chair Kevin J. Martin has expressed concern in two private conversations that critical fee and programming details concerning the proposed XM/Sirius satellite radio merger have not been made sufficiently clear. Sirius CEO Mel Karmazin testified last Wednesday before the antitrust task force of the House Judiciary Committee that prices would not be raised and that subscribers would enjoy vast new offerings. Martin said subscribers might infer that they will be getting both companies' lineups for the cost of their original subscription to one or the other, which is not necessarily the case. Karmazin said yesterday that he meant subscribers will not face price increases on their existing service, and those who want programs from both services will pay less than the combined rate of $25.90. "We will need to carefully look at what price will be frozen and what consumers will be getting for that price,” said Martin. The FCC gave the two companies satellite radio licenses in the 1990s on condition that they never merge, a ruling it will have to waive for the transaction to take place. The companies will also have to pass the Justice Department's antitrust division. Karmazin will appear before a second House telecommunications panel today.
Sources: New York Times, Reuters
Commentary: Sirius and XM Satellite to Merge - If They Can Clear Regulatory Hurdles • Satellite Radio: Best Merger Play Between XM and Sirius Bonds • Sirius and XM Soar on Merger Speculation, Tank on FCC Chairman's Comments
Stocks to watch: Sirius Satellite Radio Inc. (SIRI), XM Satellite Radio Holdings Inc. (XMSR). Competitors: Clear Channel Communications Inc. (CCU), Cumulus Media Inc. (CMLS)
Tribune Unloads Connecticut Papers to Gannett for $73 Million
In a move it is calling a success, Tribune Co. has agreed to sell its two smallest papers by circulation, the Greenwich Time and The Advocate of Stamford, to Gannett for $73 million. The two papers have combined circulation of just $39,000 but are in a premium advertising market and are considered a natural fit with Gannett's Westchester and Rockland operations. According to Tribune CEO Dennis FitzSimons, "We have exceeded our goal of selling $500 million in non-core assets as part of the performance improvement plan we launched in 2006." Tribune's future has been uncertain since the company announced plans to sell itself to the highest bidder in late 2006. But with bidders not as forthcoming as Tribune would have liked, the company has been forced to sell off its less desirable assets piecemeal rather than selling the company as a whole. Once the takeover is complete, Gannett plans on streamlining the operations with its other Tristate area operations to cut costs.
Sources: Press Release, Business Week, MarketWatch, Reuters
Commentary: WSJ: Tribune Co. Now Leaning Away From Selling Itself • Tribune Mulls Offer from Sam Zell • L.A. Times Editor Spells Out Its Troubles
Stocks/ETFs to watch: Tribune Co. (TRB), Gannett Co. (GCI). Competitors: The New York Times Co. (NYT), The Washington Post Co. (WPO), The McClatchy Company (MNI)
New York Times Company Forecasts 30% Rise in Digital Revenue This Year
The New York Times Company said yesterday at a Bear Stearns media conference that it expects digital revenue to rise 30% to $350 million this year on the back of ad revenue at its websites, which include NYTimes.com and About.com. That figure would represent 10.6% of the nearly $3.3 billion in revenue forecast by analysts. Online revenue accounted for 8% ($273.9 million) of the company's overall revenue in 2006, twice its 2004 contribution. CEO Janet Robinson also expects improvement at the company's New England business. This includes the Boston Globe, which she says should stop seeing a negative impact from the closing of the Filene's department store by Q2. The company forecasts $65-75 million in cost savings in 2007 on staff scalebacks, plant closings and outsourcing. It has also hired management consultancy Bain & Co. to assist it in "revenue enhancement and cost reduction efforts."
Sources: MarketWatch, Reuters
Commentary: Print Media: Less Predictable Revenue Doesn't Mean It's Over • New York Times and Monster Worldwide Forge Strategic Alliance • Activist Targets After Yesterday's Sell-Off
Stocks to watch: The New York Times Company (NYT). Competitors: Dow Jones & Co. Inc. (DJ), Gannett Co., Inc. (GCI), The McClatchy Company (MNI), The Tribune Co. (TRB)
Chico's Profit Tumbles 59% Despite Sales Gains; Shares Rise After Hours
Apparel maker and retailer Chico's FAS reported a 59% drop in fourth quarter earnings after the bell, largely due to heavy markdowns in merchandise and greater expenses. Sales increased almost 19% to $446.3 million in the Feb. 3-ended quarter. EPS was $0.10 after one-time items, which included a $0.03 a share tax expense resulting from the closing of its Fatigues brand operation; EPS was $0.24 in the year earlier period. Thomson Financial consensus estimates were for EPS of $0.13 on revenue of $443 million. Going forward, Chico's announced it will no longer provide specific quarterly or annual earnings outlooks. For FY2006, Chico's earned $166.6 million, good for EPS of $0.93, versus net income of $194 million (EPS of $1.06) in FY2005. Sales rose 17% to $1.65 billion. Thomson estimates were for EPS of $0.96 on sales of $1.64 billion. Chico's also reported Feb. sales figures yesterday: sales were up 15% versus the prior year February with same-store sales falling 4.3% on a comparable basis. Shares rose $1.00, or 4.9% to $21.42 in after hours action.
Sources: Press Release (i), (ii), TheStreet.com, Forbes, MarketWatch, Reuters, Women's Wear Daily
Commentary: Barron's Baby Boomer Stocks • Chico's Brand Maturing, Not Failing • Cramer's Take on CHS
Stocks/ETFs to watch: Chico's FAS (CHS). Competitors: Gap (GPS), Nordstrom (JWN), J.C. Penney Company (JCP), Federated Department Stores (FD), Talbots (TLB). ETFs: Retail HOLDRs (RTH)
TRANSPORT AND AEROSPACE
DaimlerChrysler CEO Zetche: 'Chrysler Difficult To Break Up'
DaimlerChrysler CEO Dieter Zetsche told reporters at the Geneva Motor Show yesterday that it was unlikely the sale of Chrysler would involve breaking the company up into individual parts. “Chrysler Group is very integrated. The technical lines, like platforms, do not go along the same lines as the brands. The less they are aligned with the brands, the more difficult it would be to think of any separation,” he said. Zetsche also told German paper Die Welt that the sale of Chrysler would not be in auction form, adding that when DaimlerChrysler ends its strategic review, it may decide to retain its North American division after all. Meanwhile, GM CEO Rick Wagoner was tight-lipped on the prospect of GM buying Chrysler in interviews at the Geneva show yesterday but did mention the two companies were in discussions regarding sharing the costs of future sport-utility vehicles.
Sources: Wall Street Journal, The New York Times, Reuters (i), (ii)
Commentary: Large Private Equity Meets With Chrysler • GM Vehicle Sales, U.S. Market Share Rise; Japan's 'Big 3' Continue to Roll • Chrysler's Future Remains Uncertain
Stocks/ETFs to watch: DaimlerChrysler (DCX), General Motors (GM). Competitors: Ford (F), Toyota (TM), Honda (HMC), Nissan (OTCPK:NSANY)
Conesco's Net Income Drops
Conseco Inc., a life-insurance company that emerged from bankruptcy in 2003, said Tuesday afternoon that its Q4 2006 net income dropped to $5.8 million from $77.1m in Q4 2005. EPS were $0.04; Conesco was expected to make $0.37/share in the quarter. New CEO Jim Prieur said he was disappointed with the results, but added that the company is "taking the necessary steps that will fundamentally change Conseco for the better." The company declined to give an earnings forecast, saying it would take time to improve the performance of its long-term care business. Conseco shares are down 17% over the past 12 months, while the 24-member KBW Insurance Index has gained 11% over the same period. In after-hours trading yesterday evening, shares were down 0.3% to $19.59.
Sources: Press Release, Bloomberg, MarketWatch
Commentary: Annuities Providers Eyed As Takeover Targets
Stocks/ETFs to watch: Conseco Inc. (CNO). Competitors: Genworth Financial Inc. (GNW), Allstate Corp. (ALL), American National Insurance Company (ANAT), MetLife Inc. (MET), Prudential Financial Inc (PRU). ETFs: streetTRACKS KBW Insurance (KIE), PowerShares Dynamic Insurance Portfolio ETF (PIC), iShares Dow Jones U.S. Insurance (IAK)
Nikko Cordial's Largest Shareholder Says Citi's Bid Too Cheap
Yesterday Citigroup announced a ¥1,350 per share, $10.8 billion takeover bid for Nikko Cordial, Japan's third largest brokerage. However, a chief investment officer at Harris Associates, Nikko's largest shareholder with about a 7.5% stake, says he values Nikko at over ¥2,000/share in the long-term. The CIO comments, "We welcome Citigroup's involvement but certainly not at that price." Ordinary shares of Nikko gained 1.27% to ¥1,357 ($11.65 at ¥116.5/$1) today, trading as high as ¥1,380 (+3%). Nikko's pink sheet ADRs traded up 15% to $12.00 yesterday. Nikko's four largest shareholders are foreign institutions according to Bloomberg, owning a combined 26% stake, not including Citi's 4.9% stake. Reuters reports analysts say Citi's bid 'looks just sweet enough to convince investors in the Japanese brokerage to sell.' A JP Morgan analyst says, "The tender offer price represents almost no premium over fair value under current market conditions, but we consider it fair for shareholders because the stock could have declined sharply if Citigroup had not come up with the tender offer and the TSE decided to delist the stock [a decision is expected this Friday]."
Sources: Bloomberg [I, II], Reuters
Commentary: Citigroup Bids $10.8 Billion for Nikko Cordial • Nikko Cordial: Citigroup to Launch Bid for Majority of Shares • Citigroup: Japan Expansion and M&A Could Bring Tokyo Exchange Listing
Stocks/ETFs to watch: Citigroup (C), Nikko Cordial (OTC:NIKOY), Mizuho Financial Group (MFG). Competitors: Mitsubishi UFJ Financial Group (MTU), ABN Amro Holding N.V. (ABN), Nomura Holdings (NMR). ETFs: iShares S&P Global Financial Index Fund (IXG), iShares Dow Jones US Financial Services (IYG), Financial Select Sector SPDR (XLF)
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