U.S. Foreclosure Rate Hits Record High
The Mortgage Bankers Association said yesterday that the rate of homes entering foreclosure hit a record 0.54% in Q4 last year. Delinquency rates for subprime mortgages hit 14.44%, a 122 basis-point jump in three months. The overall delinquency rate on U.S. home loans leaped to 4.95% from 4.67%. The association reported that 4.53% of 5.97 million subprime loans were in foreclosure at the end of Q4, up from 3.86% at of the end of Q3. Among prime loans, however, only 0.50% of 33.32 million loans were in foreclosure, up from 0.44%. The worst-performing states in terms of delinquencies were Mississippi with a 10.64% overall rate, Louisiana with 9.10%, and Michigan with 7.87%. The states with the highest foreclosure rates were Ohio, Indiana and Michigan. Sen. Chris Dodd, D-Conn., said that while the federal government has an obligation to "protect consumers from abusive lending practices," it also must be careful to avoid imposing so much regulation that the market would be prevented from "respond[ing] to changes in underlying economic conditions."
Sources: MarketWatch, Wall Street Journal
Commentary: Big Banks Come Out Swinging Against Subprime Originators • New Century Leads Subprime Lender Selloff as its Shares Plummet 70% • Stifel: Subprime Mortgage Sector in 'Downward Spiral'
Stocks/ETFs to watch: New Century Financial Corp. (NEW), Countrywide Financial Corp. (CFC), Accredited Home Lenders Holding Co. (LEND). ETFs: iShares Cohen & Steers Realty Majors (ICF), iShares Dow Jones US Real Estate (IYR)
Icahn, WCI Management Trade Barbs at Hint of Hostile Bid; Shares Jump
Carl Icahn released a statement yesterday in which he claims his affiliate companies will soon launch a $22-a-share takeover bid for WCI Communities Inc., of which he already owns a 14.6% stake. The move sent shares higher by 15% to $21.80, the largest single day gain for WCI since 2002; the stock is down 29% over the last 12 months. Icahn's latest move has puzzled Wall Street pundits, who predict continuing weakness for the company, which is based in one of the nation's weakest housing markets, Florida. WCI, which builds luxury condominiums, also has more debt than its peers. Icahn likely took the following three things into account when formulating his current valuation: 1) its large land holdings in Florida are very possibly undervalued, 2) the 20% deposit on unfinished apartments WCI charges prospective buyers, making cancellations unlikely 3) WCI trades below book and will likely bring in more than $1 billion in revenue in FY2007. Icahn's proposed offer values the company at just over $950 million. The offer is conditional to WCI's board enacting a 'poison pill,' which allows it to ward off hostile takeovers. Icahn left the current board and management fighting words, saying: "[CEO Jerry] Starkey and the current board are not qualified to navigate WCI through the difficult industry conditions that lie ahead." The board responded by telling shareholders: "If Mr. Icahn's unsolicited tender offer is formally commenced, shareholders are urged to take no action until they have been advised of the Board's recommendation."
Sources: Press Release, Wall Street Journal, Business Week, Bloomberg, TheStreet.com
Commentary: Temple-Inland, WCI Communities: Icahn Files to Nominate Board of Directors • Homing in on WCI Communities • Cramer's Take on WCI
Stocks/ETFs to watch: WCI Communities Inc. (WCI). Competitors: Brookfield Homes Corporation (BHS), Pulte Homes (PHM), Hovnanian Enterprises (HOV), NVR, Inc. (NVR), Centex Corporation (CTX). ETFs: SPDR S&P Homebuilders (XHB)
QUALCOMM's Shares Jump on Higher Q2 Guidance
QUALCOMM gained 4.26% to $41.83 yesterday on nearly 2.5x its 3-month average trading volume of 20 million shares, on news it raised its Q2-FY07 (ending Apr. 1) guidance and announced a 17% quarterly dividend hike to $0.14/share. QUALCOMM now forecasts pro forma EPS of $0.48 - $0.49, compared to its prior estimate of $0.42 - $0.44, and ahead of analysts' average estimate of $0.43, according to Reuters. QUALCOMM also raised its revenue forecast to $2.1 billion - $2.2b, from $2.0b - $2.1b previously, above analysts' expectation of $2.08b. QUALCOMM's CEO commented, "We are expecting a particularly successful quarter, reflecting strong growth in chipsets, handsets, and applications and services, enabled by mobile broadband capabilities deployed around the world by both CDMA2000 and WCDMA operators." Rival Texas Instruments' shares fell 2.6% to $31.74, as its revised Q1 EPS guidance of $0.29 - $0.33, from $0.28 - $0.34 previously, and expected revenue of $3.07b - $3.22b, compared to $3.01b - $3.28b, came up short of investors' expectations, although it was in-line with analysts' average estimate of $0.31/share on $3.15b, per Thomson.
Sources: Press releases [I, II, III] and presentation [pdf], MarketWatch, Reuters, CNBC.com
Commentary: Qualcomm's Rosy Forecast: Too Good To Be True? [24/7] • Wireless Changes Can Benefit Qualcomm, Research in Motion • Qualcomm: Positive Catalysts Ahead
Stocks/ETFs to watch: QUALCOMM (QCOM). Competitors: Nokia (NOK), Samsung Electronics [not traded in U.S.; see iShares S. Korea (EWY)], Texas Instruments (TXN). ETFs: Broadband HOLDRs (BDH), Wireless HOLDRs (WMH), iShares Goldman Sachs Networking (IGN)
Microsoft to Bring Xbox Live to PC Gamers
Microsoft announced yesterday it would open up its Xbox Live gaming network to online PC Gamers under the name Games for Windows -- Live. The release date of the new service coincides with the much-anticipated release of a Vista version of Microsoft best-seller Halo 2 combat game. Peter Moore, Microsoft VP: "The benefit of expanding Live to Games for Windows titles is two fold: We’re bringing together two communities that share a passion for playing online games, and we’re enhancing the online experience for PC gamers who have long desired seamless game and voice connectivity." Despite the gaming industry's preoccupation with dedicated consoles, most video games are still played on run-of-the-mill PCs. Online gaming has failed to adequately address PC gamers' desire to experience the same level of online connectivity enjoyed by console gamers. Microsoft's new offering seeks to up the online ante for more than "200 million PC gamers." Features include a 'gamer tag' identity that follows users regardless of what game they were playing, text/voice chat, and a unified friends list. Industry analysts say the move should increase game developer focus on the Windows platform. Basic membership (silver) is free; gold membership will cost $50/year (same as Xbox Live gold); Xbox Live users will automatically gain access to the Windows expansion.
Sources: Press Release, New York Times
Commentary: Sony Reveals Social Gaming Platform for PS3 • Game Consoles: Microsoft's Search for the Killer App • Don't Sell on Microsoft Vista's Poor Reception
Stocks/ETFs to watch: Microsoft Corp. (MSFT). Competitors: Sony Corp. (SNE), Nintendo (OTCPK:NTDOY). Game developers: Electronic Arts Inc. (ERTS), TakeTwo Interactive Software Inc. (TTWO), Activision Inc. (ATVI), Midway Games Inc. (MWY), Walt Disney Company (DIS)
Report: Microsoft Might Buy Tellme Networks
Internet news site CNET.com, citing unnamed sources, reported Monday that Microsoft is in discussions to purchase privately owned voice-recognition software company Tellme Networks. The Wall Street Journal claims the deal could be worth up to $800 million. Microsoft calls the story "rumor and speculation;" neither company is offering any further comment. Microsoft business group president Jeff Raikes said last week that the company expects over 100 million people to use its Office software to make phone calls over the Internet using voice-over Internet protocol [VoIP] by 2010 and is adding VoIP capability to some of its latest software, including Office Communications Server 2007. Microsoft also wants to enable users to use voice commands with products like its Outlook email program. Tellme could provide Microsoft with wireless search capability -- considered by Microsoft to be a largely untapped market -- by folding voice recognition capability into Microsoft's Windows Mobile OS for cell phones. Tellme provides automated, voice-based phone services to clients FedEx, Merrill Lynch, Cingular and AT&T.
Sources: CNETnews.com, Reuters, Wall Street Journal, Information Week
Commentary: Microsoft Vista's Voice-Recognition Software: The Future of PC Applications • Speech Recognition Software: Nuance Communications Has Got The Gist
Stocks/ETFs to watch: Microsoft Inc. (MSFT). Tellme Networks supplier: Nuance Communications Inc. (NUAN). ETFs: SPDR DJ Wilshire Large Cap (ELR), SPDR DJ Global Titans (DGT), iShares Goldman Sachs Technology (IGM)
Viacom Hits Google with $1 Billion Lawsuit over YouTube Copyright Infringement
Viacom Inc., producer of The Daily Show and parent of Paramount Pictures, is suing Google for $1 billion for "rampant [copyright] infringement" on its YouTube video sharing site. In November, Google purchased YouTube -- which drew 133.5 million visitors in January against 9.5 million a year ago -- for $1.65 billion. Viacom claims that YouTube, which posted 160,000 Viacom clips that have been viewed a collective 1.5 billion times, "willfully infringe[d] copyrights on a huge scale" and had "brazen disregard" for intellectual property laws. Google lawyer Alexander Macgillivray says YouTube's actions are covered by the 1998 Digital Millennium Copyright Act, which protects online service providers from copyright liability provided they promptly comply with requests to take down material. YouTube has fielded similar complaints before: CBS Corp. complained of copyright infringement before agreeing to voluntarily provide clips; and Vivendi's Universal Music Group threatened a lawsuit before reaching a licensing agreement with the site. Viacom is the first big media company to carry through on its threat of a substantial lawsuit, and some analysts believe it is a ploy to enhance its negotiating position. Macgillivray: "Lawsuits are generally not very good negotiating tactics with us." Google shares shed 2.6% to close at $443.03; Viacom's Class B shares lost $0.09 to close at $39.48.
Sources: Information Week, Bloomberg, Business Week
Commentary: Pumped Up On Joost, Viacom Sues Google • Viacom's Lawsuit Could Mean YouTube's End Game • Viacom Suing Google For $1 Billion? Yawn.
Stocks/ETFs to watch: Viacom, Inc. (VIA.B), Google Inc. (GOOG). ETFs: First Trust IPOX-100 Index (FPX), Consumer Discretionary SPDR (XLY), First Trust Dow Jones Internet Index (FDN), iShares S&P Global Technology (IXN)
TRANSPORT AND AEROSPACE
Northrop Expected To Take a Backseat To Boeing in NASA Rocket Bid
In a reversal, Northrop Grumman Corporation's chances for playing a prominent role in landing NASA's upcoming rocket contract, have disappeared, according to individuals in the know. Boeing is expected to lead the bidding team with Northrop playing only a secondary role. A deal signed by a partnership of Northrop and Boeing with Nasa in 2004, covering U.S. manned space-exploration efforts, had been termed by the Wall Street Journal as a 'marriage of equals.' But after a joint Northrop-Boeing $8.1 billion bid for the next-gen of manned spacecraft was rejected last year, relations between the two companies soured. The new rocket contract is considered particularly important as it is expected to be NASA's core launcher for manned spaced exploration for at least 20 years. A bid put forth by a team led by Alliant Techsystems is considered the favorite to land the contract, ahead of the Boeing-led team. In other Northrop related news, the company reported Tuesday it had won a $267 million contract to develop Defense Knowledge Online, a single point of entry for all Defense Department Web sites.
Sources: Wall Street Journal, Reuters
Commentary: Northrop to Bid on $40 Billion Air Force Contract • DoD's FY-08 Budget: The Largest in US History • How Boeing Defense Got Its Groove Back
Stocks/ETFs to watch: Northrop Grumman Corp. (NOC), Boeing (BA), Alliant Techsystems (ATK). Competitors: Lockheed Martin Corp. (LMT), General Dynamics Corp. (GD). ETFs: iShares Dow Jones US Aerospace & Defense (ITA), PowerShares Aerospace & Defense (PPA)
ENERGY AND MATERIALS
Energy Watchdog: More OPEC Crude Needed
The International Energy Agency has warned that global oil and fuel stockpiles are falling unusually fast this year, creating concern about supply over the next few months. OPEC's daily output last month averaged 30.2 million barrels, 400,000 barrels less than the level the IEA claims is needed from the cartel. OPEC will meet tomorrow in Vienna to discuss output. The IEA's report indicated that stockpiles for the OECD nations are falling by 1.26 million barrels a day this year, which could ultimately amount to the largest Q1 stock reduction in over 10 years. Oil supplies generally fall by about 100,000-400,000 barrels a day during this season. The unusually steep drop is attributable to unplanned refinery outages, high crude demand in Europe and high U.S. fuel consumption. In September, inventories were more than 120 million barrels larger than they were a year earlier. The high level of supply and accompanying dwindling of the price of crude led OPEC to implement a series of production cuts. In February, daily oil supply from OPEC members (not including new member Angola) was down a million barrels a day since September. Crude for April delivery shed 1.7% to $57.93 a barrel yesterday on the New York Merc.
Sources: Wall Street Journal
Commentary: Why the Rapid Decline in Saudi Oil Production is Involuntary • Government Forecasts Bullish Oil Price • Lower Inventories Push Crude, Motor Gas Futures Higher
Stocks/ETFs to watch: United States Oil Fund ETF (USO), Barclays Bank Zero Cpn ETN (OIL), PowerShares DB Oil Fund (DBO)
Lehman Brothers Discloses 20% Stake in D.E. Shaw Hedge Fund
The nation's fourth largest U.S. securities firm, Lehman Brothers, disclosed yesterday it had purchased a 20% stake in D.E. Shaw & Co., the nation's fourth-largest hedge fund with $29 billion in assets. With its recent purchase of 20% of Spinnaker Capital Group in London, Lehman now has stakes in a total of five hedge funds including Ospraie Management LP, Marble Bar Asset Management and GLG Partners LP. Though the price of the stake was not revealed, Lehman said it will be tied to Shaw's performance. The fastest growing Asset Management pool, hedge funds attracted a record $126.5 billion in investments in 2006.
Sources: Press Release, Bloomberg, Financial Times, MarketWatch
Commentary: I-Banks At Risk From Hedge Fund Over-Exposure? • David Fry's Daily Market Outlook • Lehman Brothers Struggling to Gain Traction in European Investment Banking
Stocks/ETFs to watch: Lehman Brothers Holdings Inc. (LEH). Competitors: Goldman Sachs (GS), Bear Stearns (BSC), Morgan Stanley (MS), Merrill Lynch (MER) ETFs: iShares Dow Jones US Broker-Dealers Ind. (IAI), Vanguard Financials (VFH), Financial Select Sector SPDR (XLF), iShares Dow Jones US Financial Svc. (IYG)
Glaxo Gets U.S. Approval for Tykerb, a Breast-Cancer Medication
GlaxoSmithKline plc has won FDA approval for Tykerb, a dual-kinase inhibitor designed to combat breast-cancer tumors. The FDA has approved the drug's use in combination with Roche's Xeloda for treatment of advanced breast cancer in women who carry the HER-2 gene and don't respond to Genentech's Herceptin. A clinical trial involving about 400 women indicated that Tykerb plus Xeloda delayed tumor growth for an average of eight and a half months, or about twice as long as Xeloda alone. Tykerb, an oral medication, might ultimately compete directly with intravenously administered Herceptin if it is approved to treat earlier-stage breast cancer. Glaxo hopes that in addition to providing a solid footing in the $35 billion global cancer market, Tykerb will counter slowing sales of Advair, the company's bestselling asthma medication, and compensate for the pending loss of several patents, including depression blockbuster Wellbutrin XR, bipolar disorder medication Lamictal and migraine drug Imitrex. Tykerb, which is projected to reach $1 billion in sales by 2010, will be available to the public in about two weeks. Although it will cost approximately $2,900 a month, the drug will be part of a program that will dispense it free to those without health insurance.
Sources: Bloomberg, Business Week, MSNBC, MarketWatch, Wall Street Journal
Commentary: GlaxoSmithKline Grabs HuMax-CD20, Genmab's Promising New Cancer Drug • Glaxo and the Making of a Blockbuster Drug • Top Six Socially Responsible Healthcare and Pharmaceutical Firms
Stocks/ETFs to watch: GlaxoSmithKline plc [ADR] (GSK). Competitors: Novartis AG (NVS), Pfizer Inc. (PFE), Sanofi-Aventis (SNY). ETFs: Europe 2001 HOLDRs (EKH), BLDRS Europe 100 ADR Index (ADRU), BLDRS Developed Markets 100 ADR Index (ADRD)
Global Stocks Fall Like Dominoes, Led by Weakness in U.S.
Concerns over a slowing U.S. economy sparked by a rapid decline in U.S. subprime mortgage lenders brought selling pressure to all major indices across Asia and is currently pushing European indices lower. Both the Dow Jones and S&P 500 lost 2% yesterday, to 12,075.96 and 1,377.95 respectively, and the Nasdaq dropped 2.2% to 2,350.57. The Nikkei 225 fell more than 500 points, or 2.9% to 16,676.89, on additional concerns of a re-strengthening of the yen and lower trading volume due to the fiscal year end nearing. The Hang Seng dropped almost 500 points, or 2.6% to 18,836.93. Singapore's benchmark index lost 3.4% and India's BSE 30 was down 3.3% at the time of publishing. In morning trading in Europe, the Dow Jones Stoxx 600 Index representing small, mid and large capitalization companies across 18 European countries and the Euro Stoxx 50 Index representing blue chips across the 13-country Eurozone, are both down 2.0%.
Sources: Bloomberg [I, II], MarketWatch
Commentary: David Fry's Daily Market Outlook • Market Outlook: Stiff Headwinds Ahead • John Hussman: Debunking the 'Global Liquidity' Myth
Stocks/ETFs to watch: iShares MSCI Asian Indices: Australia (EWA), Hong Kong (EWH), Japan (EWJ), Malaysia (EWM), Singapore (EWS), South Korea (EWY), Taiwan (EWT), Emerging Markets Index (EEM), Pacific ex-Japan (EPP); China: iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ); Closed-end funds: India (IFN) and (IIF), Indonesia (IF), Thailand (TF); iShares MSCI EAFE Index (EFA); US: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), NASDAQ 100 Trust Shares ETF (QQQQ); Bonds: iShares Lehman 7-10 YR Treasury Bond (IEF), iShares Lehman Aggregate Bond (AGG); iShares European Indices: S&P Europe 350 Index (IEV), Austria (EWO), Belgium (EWK), France (EWQ), Germany (EWG), Italy (EWI), Netherlands (EWN), Spain (EWP), Sweden (EWD), Switzerland (EWL), United Kingdom (EWU), EMU Index (EZU) ; DJ Euro Stoxx 50 (FEZ)
Have Wall Street Breakfast emailed to you every morning before the market opens.