Philly Fed, Americans Concerned About Economy
Philadelphia Federal Reserve Bank President Charles Plosser said on Tuesday that the U.S. economy is not as strong as the U.S. Federal Reserve expected as little as two months ago. "Consumption and employment are strong, business investment is weaker," he said. Prices have remained higher than expected, but inflation expectations in the U.S. are 'well anchored' helping to flatten the yield curve. He said he was not worried that a withdrawal of funds from foreign-dollar denominated asset holdings was an issue, and that even if it were to occur, it would be manageable. Separately, a Bloomberg/LA Times survey found 60% of all Americans expect a recession within the next 12 months, similar to the 64% consensus found in December 2000, three months before the stock market's last serious decline. 71% of under-$40,000 income earners foresee a recession, compared with only 50% of those earning over $100,000. 64% said their own finances are secure, while 35% described them as shaky. 60% said the Fed should hold interest rates, 30% thought a rate-cut prudent, while only 6% called for a raise in interest rates. Only 20% blamed the government for the subprime crisis, while 50% thought it should intervene to help low-income borrowers facing foreclosure.
Sources: Reuters, Bloomberg, AP
Commentary: Beware of the Data Underlying the Economy • This Week: End of the Permabull? • A Short-Run Forecast For The U.S. Market
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
D.R. Horton: Q2 Orders Dropped 37%
U.S. homebuilder DR Horton reported a 37% drop in Q2 orders yesterday, an indication that the traditionally strong spring selling season is unlikely to provide a hoped-for rebound in the housing market this year. Horton's shares fell 2% to $21.60 on the news. The company reported orders for 9,983 homes in the quarter, down from 15,771 a year ago. The value of the orders plummeted 41% to $2.6 billion, down from $4.4 billion in the year-ago period. California saw the sharpest drop in orders with 59%; the Northeast performed best with a 21% decline. The 37% overall order decline follows a 23% drop in Q1. The company's 32% cancellation rate is flat with previous quarters and remains above historical levels. Horton, which caters to first-time home buyers, is particularly susceptible to the tightening of credit standards that has resulted from skyrocketing defaults in the subprime mortgage sector. The company will report fiscal Q2 earnings on April 19.
Sources: Wall Street Journal, Bloomberg, Reuters, MarketWatch, MoneyCentral
Commentary: D.R. Horton's 37% Decline In New Orders: Bad News For Housing • Toll: Housing Slump Almost Done; Horton: Not So Fast • Ten Stock Picks From Barbara Marcin of Gamco Investors
Stocks/ETFs to watch: D.R. Horton, Inc. (NYSE:DHI). Competitors: Centex Corp. (CTX), Lennar Corp. (NYSE:LEN), Pulte Homes Inc. (NYSE:PHM). ETFs: iShares Dow Jones US Home Construction (NYSEARCA:ITB), SPDR S&P Homebuilders (NYSEARCA:XHB)
Vonage Fighting on Two Fronts
Shares of Vonage are trading at their lowest levels since going public nearly a year ago, as the broadband telephone service provider faces an injunction preventing it from signing up new customers, due to a patent infringement case against Verizon. Meanwhile, rival Charter Comm. is not wasting any time trying to lure Vonage customers amid the uncertainty. A U.S. federal appeals court will hear Vonage's case for a permanent stay of the injunction on April 24. Vonage was issued a temporary stay last Friday, and on Monday it said service to its customers will continue indefinitely. Vonage will pay a quarterly royalty of 5.5% into escrow during its appeal, which it said it believes will succeed. Coverage of Vonage's woes by GigaOM suggests it is an attractive takeover target for cable operators, even at $250-$300 per each of Vonage's 2.2 million subscribers -- a premium to its current market capitalization of about $465 million -- since it would still be cheaper than customer acquisition costs associated with an advertising and sign-up campaign.
Sources: CNET News.com, GigaOM, 24/7 Wall St., Press release, Light Reading, Bloomberg
Commentary: Vonage: Court Grants Stay On Order Barring Signing Up New Users • Comcast Set To Pass Vonage As Top VoIP Provider • Does Vonage Have a Future?
Stocks/ETFs to watch: Vonage Holdings (NYSE:VG), Verizon Communications (NYSE:VZ), Charter Communications (NASDAQ:CHTR), Comcast (NASDAQ:CMCSA)
Viacom and Yahoo Sign Exclusive Search-Ad Deal
Yahoo has signed a multiyear deal to be Viacom's exclusive provider of sponsored search and contextual ads. The ads will be powered by Panama, Yahoo's new search-ad technology. The deal is considered a significant win for Yahoo, as it prevents rival Google from advertising on at least 33 of Viacom's popular online entertainment sites, including MTV.com, comedycentral.com and Nickelodeon.com. Terms of the deal, which could ultimately be expanded to include 140 other Viacom sites, were not disclosed. The agreement comes a month after Viacom sued Google's YouTube video-sharing site for copyright infringement. Google has ad deals with some of the most visited sites on the Internet, including Time Warner Inc.'s AOL.com, News Corp.'s MySpace.com and IAC/InteractiveCorp's Ask.com. Yahoo's Panama technology makes search results more relevant and the ads accompanying them more valuable. Viacom is expected to receive 70-80% of the revenue generated from the ads.
Sources: Press release, Wall Street Journal, Seattle PI, MarketWatch, News.com
Commentary: Yahoo Displays Viacom As Internet Battle Victory • Yahoo Panama: Passage to Stronger Earnings? • Viacom Hits Google with $1 Billion Lawsuit over YouTube Copyright Infringement
Stocks/ETFs to watch: Viacom, Inc. (NYSE:VIA), Yahoo! Inc. (NASDAQ:YHOO). Competitors: Google Inc. (NASDAQ:GOOG), Time Warner Inc. (NYSE:TWX), Walt Disney Co. (NYSE:DIS). ETFs: First Trust Dow Jones Internet Index (NYSEARCA:FDN), Internet HOLDRs (NYSE:HHH), First Trust IPOX-100 Index (NYSEARCA:FPX), Consumer Discretionary SPDR (NYSEARCA:XLY)
Conference call transcripts: Viacom Q4 2006, Yahoo! Q4 2006, Google Q4 2006
Google, DirecTV Advertising Deal in the Works
Google is reportedly negotiating an advertising deal with DirecTV, according to a story picked up by Reuters, originally from the VentureBeat blog. This follows news last week of an agreement between Google and EchoStar Comm. (Dish Network) -- VentureBeat mentions it was first to break news of the deal a month ago. Neither party has confirmed a deal is being negotiated. VentureBeat explains the deal with DirecTV is taking longer than it did with Dish Network because of the ownership change currently underway, in which Liberty Media will take control of DirecTV from News Corp. DirecTV is the largest satellite TV broadcast service in the U.S. with 16 million subscribers, followed by Dish Network's 13 million. Reuters reports analysts say "Google's TV ambitions are likely to meet resistance from cable operators ... who jealously guard data their cable systems generate on customer-viewing habits, seeing it as the crown jewel of what they sell to advertisers."
Sources: VentureBeat, Reuters
Commentary: Google's Core Competency May Not Transfer To Offline Media • Google to Broker TV Ads for EchoStar • Viacom and Yahoo Sign Exclusive Search-Ad Deal
Stocks/ETFs to watch: Google (GOOG), DirecTV Group (DTV), Liberty Media Capital (LCAPA), EchoStar Communications (NASDAQ:DISH), eBay (NASDAQ:EBAY), Yahoo! (YHOO), Time Warner (TWX), Cablevision Systems Corporation (NYSE:CVC), Comcast (CMCSA), Viacom (VIA), TiVo (NASDAQ:TIVO), News Corp (NASDAQ:NWS). ETFs: PowerShares Dynamic Media (NYSEARCA:PBS), First Trust Dow Jones Internet Index (FDN), First Trust IPOX-100 Index (FPX)
Conference call transcripts: Google Q4'06, EchoStar Comm. Q4'06
Cablevision to Fight Federal Prohibition on DVR Rollout
Cable operator Cablevision Systems Corp. announced yesterday that it will fight a federal ruling prohibiting the company from launching its next-generation digital video recorder [DVR] service, which would store movies and TV shows on the company's servers rather than on the hard drives of set-top boxes. Cablevision is seeking an expedited review of the case in the U.S. Court of Appeals. The ruling follows Cablevision's loss of a suit filed by several Hollywood studios and TV studios for illegal broadcast and copyright infringement. Cablevision claims the charges are baseless, since recording and playback are in the hands of the customers. The company cites a 1984 case in which the Supreme Court found Sony Corp. did not infringe copyright when Betamax recorders were used by private consumers for playback at home. DVRs allow users to record from television without using videotape, as well as enabling instant replay, pause, and the skipping of commercials. Cablevision COO Tom Rutledge: "Our remote-storage DVR is the same as conventional DVRs, and merely enables consumers to exercise their well-established rights to time-shift television programming."
Sources: News.com, TMCnet, MoneyCentral, Reuters
Commentary: Cable Will Win the Bandwidth Wars • What Will Pay For The Online Video Explosion? Transit Bandwidth Inflation
Stocks/ETFs to watch: Cablevision Systems Corp. (CVC). Competitors: Comcast Corp. (CMCSA), DirecTV Group Inc. (DTV). ETFs: PowerShares FTSE RAFI Consumer Services (PRFS), iShares S&P Global Cons Discretionary (NYSEARCA:RXI)
Conference call transcripts: Q4 2006
TRANSPORT AND AEROSPACE
Kirk Kerkorian To Be Left Out of Chrysler Negotiations - WSJ
The Wall Street Journal is reporting that when DaimlerChrysler executive Rüdiger Grube comes to New York this week to meet the various bidders for the the company's North American Chrysler unit, Kirk Kerkorian's Tracinda Corp. will not be invited. Despite Kerkorian's difficult past with the company. including a 2000 law suit against then CEO Jürgen Schrempp, the company insists it isn't discriminating against Kerkorian and Tracinda; rather, executives say his offer simply isn't competitive at this time and places demands on DaimlerChrysler that the other bids don't. Foremost among these, Tracinda wants Daimler to help shoulder some of the $15 billion burden in unfunded pension liabilities and retiree heath-care costs Chrysler currently contains. Other bidders have not made such a request. In other news, parts maker Magna International, currently in the running with its bid, may invite Canadian Onex Corp. to join its bid. The rationale behind such a move, quoted in Canada's Globae and Mail, would be that Magna could bring its expertise to operating auto factories, while Onex could use its financial finesse to run Chrysler's credit arm.
Sources: Wall Street Journal, Reuters, MarketWatch, The Globe and Mail
Commentary: Chrysler's N.Y. Auto Show Presentation: Thoughts and Concerns • The Chrysler Saga Continues: Is Magna the Favorite? • DaimlerChrysler CEO Admits To Negotiating Sale of Chrysler
Stocks/ETFs to watch: DaimlerChrysler (DCX), Magna International (NYSE:MGA). Competitors: General Motors (NYSE:GM), Ford (NYSE:F), Toyota (NYSE:TM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY)
Northrop Partnering With Israeli Satellite Builder - WSJ
Wall Street Journal reports Northrop Grumman Corp. will announce today an exclusive partnership with Israel Aerospace Industries Ltd. to buy and modify several Israeli-built low-cost high-resolution satellites for proposal to U.S. military and intelligence. The under-$200 million satellites cost a fraction of standard satellites, giving the government "a cost-effective way to watch our adversaries," according to Northrop official Jeffrey Grant. The Journal calls the strategy surprising, because it is far from certain the Defense Department would use foreign technology for classified intelligence collection. Northrop proposes an initial deployment of an 8 satellite network at a cost of less than $1.6 billion (vs. $20 billion for the same low-orbit platform using conventional satellites), that has the additional advantage of becoming operational 'long ahead' of any homegrown option. Last year China shot down its own satellite; since then the DoD has begun pushing for an inventory of smaller, cheaper satellites. Northrop is in competition with Lockheed Martin to build a comprehensive radar system, and is betting the smaller networks would help fill coverage gaps frequent in passes of larger satellites. Other players in the small-satellite market include Raytheon and Orbital Sciences.
Sources: Wall Street Journal
Commentary: Boeing Capitalizes on Global Defense • Investment Implications of China's Satellite Killer • 15 Stocks I Expect To Breakout
Stocks/ETFs to watch: Northrop Grumman Corp. (NYSE:NOC), Raytheon Company (NYSE:RTN), Orbital Sciences Corp. (ORB). Competitors: Lockheed Martin Corp. (NYSE:LMT), General Dynamics Corp. (NYSE:GD). ETFs: PowerShares Aerospace & Defense (NYSEARCA:PPA), iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA)
ENERGY AND MATERIALS
Shell to Pay $352.6 Million Settlement for Overbooking
Royal Dutch Shell announced today that it will pay $352.6 million to settle claims among European and other non-U.S. investors regarding a reserves overbooking scandal. In 2004, Shell abruptly cut its proven oil and gas reserves by 20%, a move that led to the dismissal of three senior executives, a U.S. regulatory probe and a drop in the company's share price. Shell is not admitting to any wrongdoing, but has agreed to pay the sum to non-U.S. institutional investors, including ABP and PGGM, and organizations representing individual shareholders. The settlement remains contingent on a decision by the Amsterdam Court of Appeals that it is binding for all shareholders. Shell plans to offer the same settlement to U.S. investors in proportion to their holdings in the company. The company's shares were up 0.4% to ?16.93 this morning, giving the business a value of about ?108 billion.
Commentary: The New Seven Sisters: Today's Most Powerful Energy Companies • Royal Dutch Shell: Growing Investor Interest?
Stocks/ETFs to watch: Royal Dutch Shell [ADR] (NYSE:RDS.A). Competitors: BP plc (NYSE:BP), Exxon Mobil Corp. (NYSE:XOM), Total SA (NYSE:TOT). ETFs: WisdomTree Europe Total Dividend (DEB), WisdomTree International Energy (DKA), iShares MSCI United Kingdom Index (NYSEARCA:EWU)
Alcoa Posts Most Profitable Q1 Ever
Aluminum giant Alcoa reported its most profitable Q1 ever after the bell yesterday on higher metal demand from China and the global aerospace and construction industries. Net income rose 8.9% to $662 million ($0.75/share) from $608 million ($0.69). Sales were up 11% to $7.9 billion. Analysts were expecting EPS of $0.76 on revenue of $7.65 billion. Alcoa sold metal at an average $2,902 per metric ton in the quarter versus $2,534 a year earlier. World demand for aluminum is forecast to rise about 7.7% this year on rising consumption in Asia and Europe. Aluminum prices have risen 44% over the past two years while Alcoa shares have gained just 18%, fueling speculation that the company may be a takeover target -- possibly explaining the 13% rise in Alcoa shares over the quarter, the best performance of all the Dow Jones Industrials. Alcoa shares rose 2.4% in AH trading after the report.
Sources: Conference call transcripts: Q1 2007, Wall Street Journal, Mercury News, Bloomberg, MarketWatch
Commentary: Alcoa Earnings Preview: An Historic Look At Stock Activity • Blue-Chip Alternative Energy Picks
Stocks/ETFs to watch: Alcoa Inc. (NYSE:AA). Competitors: Alcan Inc. (NYSE:AL). ETFs: PowerShares FTSE RAFI Basic Materials (PRFM), Materials Select Sector SPDR (NYSEARCA:XLB), Vanguard Materials ETF (NYSEARCA:VAW)
Nasdaq in Talks With Options Heavy Philly Exchange - WSJ
According to familiar individuals, Nasdaq Stock Market Inc. is in talks to buy the Philadelphia Stock Exchange, the Wall Street Journal reported yesterday. The move would give Nasdaq a foothold in the burgeoning options business, which is the Philly exchange's forte, with the third most options contracts traded nationally. Though the two exchanges have been talking for months, a deal is not expected in the near future. The Wall Street Journal points out that in an era of global market consolidation, small regional players are becoming more attractive takeover targets. Philadelphia is expected to fetch between $250 and $300 million, from Nasdaq, who should have money to play with now that its bid for the London Stock Exchange has been formally rejected. Options volume has grown faster than stock trading volume in recent years; for example, last month more than 228 million options contracts were traded, a 39% increase from March 2006.
Sources: Wall Street Journal, Reuters, Bloomberg, AP
Commentary: An Investor's Take On The NYSE/Euronext Merger • Nasdaq's Bid For LSE: Get Ready For A Dominant World Exchange • Nasdaq Triples Earnings On One-Time Charge; EPS In-Line
Stocks/ETFs to watch: Nasdaq Stock Market Inc. (NASDAQ:NDAQ). Competitors: NYSE Euronext (NYSE:NYX)
ImClone's Erbitux Fails Pancreatic Cancer Study
Shares of ImClone Systems declined over 7.5% to $39.26 yesterday when it reported its Phase III clinical trial of cancer drug Erbitux failed to meet its primary endpoint. The trial was intended to demonstrate that Erbitux, when used in combination with Eli Lilly's Gemzar chemotherapy drug, would improve overall survival rates for patients with locally advanced irremovable or metastatic pancreatic cancer. ImClone plans to conduct trials of Erbitux in combination with other drugs for the treatment of pancreatic cancer, including Genentech's Avastin. Erbitux already has FDA approval for use in treating colorectal cancer and cancer of the head and neck, and is being evaluated for use in nonsmall cell lung cancer. The drug is ImClone's only product and generated worldwide sales of $1.1 billion last year. Erbitux, which competes with Amgen's new drug Vectibix, is marketed by Bristol-Myers Squibb.
Sources: Press release, Bloomberg, TheStreet.com, MoneyCentral, Reuters, Wall Street Journal
Commentary: Amgen's First Cancer Drug May Spark Price War With ImClone • Biotechs Make Appearances in Best and Worst Lists of WSJ Review • Will Biotechs Pay the Price for Playing in the Big Leagues?
Stocks/ETFs to watch: ImClone Systems Inc. (OTCPK:IMCL), Bristol-Myers Squibb Co (NYSE:BMY), Eli Lilly & Co. (NYSE:LLY), Genentech Inc. (Private:DNA). Competitors: Amgen Inc. (NASDAQ:AMGN), OSI Pharmaceuticals Inc. (OSIP). ETFs: SPDR S&P Biotech (NYSEARCA:XBI), First Trust AMEX Biotechnology Index (NYSEARCA:FBT), PowerShares Dynamic Biotech & Genome (NYSEARCA:PBE), Biotech HOLDRS ETF (NYSEARCA:BBH)
Have Wall Street Breakfast emailed to you every morning before the market opens.