U.S. Current Account Gap Down to $195.8 Billion in Q4
Lower energy prices and strengthening exports shrank the record-setting 2006 current-account deficit in Q4 and could continue that trend into 2007, the Department of Commerce said yesterday. The 2006 deficit went up 8.2% to $856.7 billion, representing a record 6.5% of GDP, from $791.5 billion in 2005. In Q4, however, the deficit was $195.8 billion, its smallest in over a year, down from $229.4 billion in Q3. In Q4, U.S. exports increased to $266.6 billion from $261.3 billion, driven primarily by capital goods, particularly civilian aircraft. Analysts believe that if exports continue their upward trend and oil prices stabilize, the deficit could narrow in 2007 for the first time since 2001 -- but the U.S. must still attract approximately $2.1 billion a day to finance the gap. If foreign investors opt against U.S. assets, the dollar could be negatively affected and interest rates could rise. The January gap fell to $59.1 billion from $61.5 billion in December, suggesting the trade balance might continue to narrow. The weaker dollar, which has fallen about 3.5% over the past year, is expected to sustain demand for U.S. exports abroad.
Sources: Bloomberg, Business Week, CNBC.com, Wall Street Journal
Commentary: Overall Trade Deficit Slims, But Gap with China Balloons • Dollar Rangebound as Trade Deficit Higher Than Expected • U.S. Current Account Deficit Hits New Record
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG), Euro Currency Trust ETF (FXE)
Nokia Siemens JV Finalized; Starting Operations April 1
Nokia shares are expected to rise today on the news that the cellphone giant has finalized its network equipment joint venture with Siemens. The 50-50 venture, called Nokia Siemens Networks, will begin operations on April 1. Siemens will be investing an additional €800 million ($1.06 billion) in the venture, bringing its contribution to €2.4 billion in net assets; Nokia will add €100 million, bringing its portion to €1.7 billion. The venture is forecast to show approximately €17 billion, or about $22.43 billion, in annual revenue, making it the world's second-largest supplier of equipment to telecom carriers on that measure, behind Ericsson of Sweden but just ahead of France's Alcatel-Lucent. The venture was delayed by three months because of an investigation into a bribery scandal at Siemens's telecoms equipment unit. Nokia will hold four of the seven seats on the company's board. Nokia CEO Olli-Pekka Kallasvuo will be chairman and Siemens CEO Klaus Kleinfeld vice-chair. Nokia Siemens Networks will be based in Espoo, Finland, Nokia's home base.
Sources: Press release, Reuters, MarketWatch, Wall Street Journal
Commentary: Nokia-Siemens Telecom JV Delayed, But Not Dead • Siemens Seems Secure, Despite Bribery Suspicions - Barron's • More Consolidation in Telecom Equipment As Nokia and Siemens Announce $31.6 Billion Deal
Stocks/ETFs to watch: Nokia Corp. (NOK), Siemens AG (SI). Competitors: Telefon AB LM Ericsson (ERIC), Alcatel-Lucent (ALU), Motorola Inc. (MOT). ETFs: Wireless HOLDRs (WMH), Morgan Stanley Technology ETF (MTK)
Conference call transcripts: Nokia Q4 2006
Microsoft to Buy Tellme Networks
Microsoft confirmed yesterday that it will buy privately held voice-recognition software company Tellme Networks. Though the price was not disclosed, the deal is believed to be worth over $800 million. The transaction is expected to close in Q2. According to Jeff Raikes, president of Microsoft's business division, the purchase will give Microsoft several promising new capabilities, particularly in mobile search. Tellme "already does more mobile search support than Google and Yahoo combined," he said. The acquisition should be a boon to Microsoft's "software + service" offerings, which help integrated services vendors [ISVs] and ISPs better serve their customers. Microsoft already offers the Unified Communications [UC] Server, a UC product that combines e-mail, instant messaging and VoIP into one voice-activated client; but the Tellme acquisition gives it advanced, enterprise-class speech recognition technology. Tellme CEO Mike McCue: Tellme's technology combined with Microsoft's platform "represents dial tone 2.0."
Sources: Press Release, News.com, Bloomberg, Internet News
Commentary: Report: Microsoft Might Buy Tellme Networks • 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 Corp. (MSFT). Competitors: Cisco Systems, Inc. (CSCO), International Business Machines (IBM). Tellme Networks supplier: Nuance Communications Inc. (NUAN). ETFs: SPDR DJ Wilshire Large Cap (ELR), SPDR DJ Global Titans (DGT), iShares Goldman Sachs Technology (IGM)
NBC Prime Time TV: Coming To a Mobile Phone Near You
GE-owned NBC Universal plans to roll out a new service by which viewers can stream its 'prime time' TV content on their cell phones. The service will be delivered through MobiTV, which started streaming video to phones in 2003. The move, which will allow phone owners to buy newly aired TV shows for a period of 24 hours at a starting price of $1.99 will be a first for the U.S. wireless market. Verizon Wireless currently has a service providing clips of everything from news to sports highlights for customers willing to pay extra; its service does not feature prime time TV viewing. The service will be available starting in the second quarter with one hitch. as Forbes is reporting: NBC hasn't yet announced any wireless carriers willing to participate. Signing them up may be easier said than done considering many of the wireless carriers have begun launching video viewing services of their own.
Sources: Wall Street Journal, Forbes, Reuters
Commentary: NBC, Other Networks Sending More Content Online • ESPN To Be Exclusive Sports Content Provider For Verizon V Cast • Verizon Puts the Heat on Apple with Mobile TV Launch
Stocks/ETFs to watch: General Electric (GE), Verizon (VZ). Competitors: Disney (DIS), CBS (CBS), News Corp. (NWS), AT&T (T), Sprint Nextel (S), QUALCOMM (QCOM). ETFs: PowerShares Dynamic Telecom & Wireless ETF (PTE), Wireless HOLDRS (WMH), PowerShares Dynamic Media Portfolio (PBS)
Usana Heath Sciences Draws Ire of Felon Turned Stock Detective
The Wall Street Journal reports that Barry Minkow -- "convicted stock-fraud felon turned private investigator" -- has bought put options on Usana Health Sciences Inc. The vitamins/nutritional supplements marketer has set sales records in each of its last 18 quarters, during which share prices have jumped over 1,600%. Usana uses at-home associates to sell its products, who earn commissions based on a pyramid structure not unlike those used by multilevel marketers. It holds 500 recruitment meetings a week, and boasts 153,000 associates -- who account for 86% of its sales. Last year the company made $41 million on $374m in sales; analysts expect 20% earnings growth for 2007. It currently trades for 27x 2006 EPS. Minkow says the sales model is unstable; the company will eventually run out of new associates, and those at the bottom of the pyramid will have no incentive to continue buying its vitamins, which cost more than double the price of similar premium multivitamins. Myron Wentz, Chairman, renounced his U.S. citizenship in the mid 1990s, and controls his 45% stake through a company in the Isle of Man, which in turn is controlled by a company registered in Liechtenstein. Minkow has sent a critical report to the SEC and the FBI; people familiar with the matter say the FBI plans to question the company.
Sources: Wall Street Journal
Commentary: Superior Earnings Growth Makes Usana Health Sciences Attractive • MLM Legislation Ignites Short Sellers
Stocks/ETFs to watch: Usana Health Sciences Inc. (USNA)
Related: Barry Minkow on Wikipedia, 60 Minutes segment on Minkow
Chiquita Brands: Guilty Plea on Dealings with Colombian Terrorists
Cincinnati-based Chiquita Brands International will plead guilty to charges of violating federal law by doing business with terrorists. The plea is part of an agreement with the Department of Justice that will also require the company to pay a $25 million fine. The DoJ accused Chiquita's Colombian banana-producing subsidiary of paying $1.7 million to the right-wing United Self-Defense Forces of Colombia [AUC] in at least 100 installments from 1997 through 2004. Payments went on even after the company was informed that the group had been designated a terrorist organization in 2001. Chiquita is also alleged to have paid off the left-wing Revolutionary Armed Forces of Colombia [FARC]. According to a company statement, Chiquita voluntarily informed the U.S. government in 2003 that it had been forced to pay extortion to the groups. "The payments made by the company were always motivated by our good faith concern for the safety of our employees," Chiquita said. In 2004, the company sold the Colombian banana business to Invesmar Ltd. for $51.5 million.
Sources: Bloomberg, MarketWatch (I, II)
Commentary: Jim Cramer's Mad Money Lightning Round Picks, Feb. 7 • Chiquita Brands Is Appealing, Just Be Careful Not To Slip • A Contrarian Strategy For Quick Capital Gains
Stocks/ETFs to watch: Chiquita Brands International, Inc. (CQB). Competitors: Fresh Del Monte Produce Inc. (FDP)
ENERGY AND MATERIALS
MIT Coal Study: U.S. Must Take Lead in Carbon Emission Storage
A MIT report released yesterday indicates the U.S. will have to invest more in the capture and storage of carbon dioxide, the main "greenhouse gas" and a byproduct of coal electricity production, if limits are imposed on carbon emissions -- a prospect that has increased with the advent of a Democrat-controlled Congress. In addition, China and India, which are rapidly expanding their use of coal, are unlikely to take action to contain greenhouse gases unless the U.S. takes the lead. The U.S. gets half its electricity from coal and China 80%. The government is planning an experimental coal burning power plant called FutureGen, scheduled for operation in 2012, that will be capable of capturing and storing an annual million tons of carbon dioxide deep in the earth -- but the MIT study says several such plants need to be developed simultaneously. If future emissions limits are not met, coal will cease to be a primary fuel source, posing a threat to the industry. According to the study, the government should spend approximately $1 billion on five tests to demonstrate to China and India that CO2 "sequestration" technology can work. It also suggests that government tax breaks and other incentives be provided to new coal plants that incorporate carbon capture and safe storage.
Sources: MIT: The Future of Coal in a Carbon Constrained World, MoneyCentral, Wall Street Journal
Commentary: Headwaters Incorporated: This Energy Underdog Has Got the Goods • Profiting from the Advanced Energy Initiative: Clean Coal, Nuclear Power & Uranium Miners • An Inconvenient Truth: Changing Our State of Energy
Stocks/ETFs to watch: Fuel Tech (FTEK), Headwaters, Inc. (HW), Peabody Energy (BTU), Foundation Coal (FCL), Penn Virginia Resources (PVR), Massey Energy (MEE), Arch Coal (ACI). ETFs: Vanguard Extended Market Index ETF (VXF), PowerShares Lux Nanotech (PXN)
Wal-Mart Believed to be Readying for Banking Expansion
The New York Times reports an Ohio representative is set to discuss an undated Wal-Mart email today, related to its plans to expand its banking business. The email is said to suggest Wal-Mart has been modifying leases with banks that operate within its stores. Specifically, as a lease obtained by Dow Jones Newswires and reported by The Wall Street Journal shows, Wal-Mart has declared its right in renegotiated leases to offer debit cards and investment and insurance products "in the checkout lanes, at the customer-service desk, through automated-delivery channels, kiosks" or essentially anywhere it likes in its stores. A Wal-Mart spokeswoman however, commented, "While we recently updated language in our leases, similar language has been in our agreements for at least five years." Wal-Mart's latest application for an industrial bank charter in January was placed on hold for one year by a federal regulator. The NY Times notes Home Depot, DaimlerChrysler and Cargill all have pending applications for industrial bank charters.
Sources: The New York Times, The Wall Street Journal
Commentary: Retail Same-Store Sales Roundup • Wal-Mart Takes 35% Stake in Chinese Discount Chain • Wal-Mart Tops Q4 Forecasts
Stocks/ETFs to watch: Wal-Mart (WMT). ETFs: Retail HOLDRS ETF (RTH), SPDR S&P Retail (XRT), PowerShares Dynamic Retail (PMR)
FDA Issues New Warning Label Requirement for Sleeping Pills
Yesterday the FDA issued a request to makers of sedative-hypnotic drug products, asking them to strengthen warning labels regarding potential risks including severe allergic reaction and face swelling and "complex sleep-related behaviors." The FDA says the latter may include sleep-driving and making phone calls and preparing/eating food while asleep. The prescription sleep drugs involved are: Ambien [CR] (Sanofi), Butisol Sodium (Medpointe Pharm), Carbrital (Parke-Davis), Dalmane (Valeant Pharma), Doral (Questcor Pharma), Halcion (Pharmacia & Upjohn), Lunesta (Sepracor), Placidyl and Prosom (Abbott), Restoril (Tyco), Rozerem (Takeda), Seconal (Lilly) and Sonata (King Pharma). The NY Times cites data from Verispan showing Sanofi-Aventis' Ambien CR was the most prescribed sleep aid in the U.S. last year at 27.6 million of 44m prescriptions filled, followed by Tyco Healthcare's Restoril and a generic, temazepam, with 7.3m, and Sepracor's Lunesta with 5.8m. Shares of Sanofi and Abbott Labs both lost 0.6% to $41.90 and $53.77, respectively yesterday, while Sepracor fell 0.9% to $48.38, Lilly lost 0.3% to $51.90, King Pharma gained 1.3% to $18.64 and Valeant Pharma rose 1.7% to $17.43.
Sources: FDA press release, Associated Press, Reuters, The New York Times, The Wall Street Journal
Commentary: King Pharmaceuticals: A Healthy Way to Recover from the Selloff • Biotech Day in Review: Lilly Buys Insomnia-Focused Hypnion
Stocks/ETFs to watch: Sanofi-Aventis (SNY), Tyco Int'l (TYC), Sepracor (SEPR), Abbott Labs (ABT), Eli Lilly (LLY), King Pharma. (KG), Valeant Pharma. Int'l (VRX), Questcor Pharma. (QSX), Takeda Pharma. (JP:4502). ETFs: iShares S&P Global Healthcare (IXJ), Pharmaceutical HOLDRs (PPH), Health Care Select Sector SPDR (XLV)
Related: NY Times podcast [mp3]
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