NAR Says 2007 Will Be First Home Price Drop Since Great Depression
The National Association of Realtors, which frequently trumpets the fact that median U.S. home prices haven't declined since the Great Depression, said yesterday for the first time that they expect prices to do just that. In February the NAR was still calling for a 1.9% increase, but now says prices will likely drop nationwide 0.7% from 2006 levels -- underscoring how quickly housing expectations have changed in the wake of the subprime mortgage fallout. Lenders current hyper-cautiousness means less eligible buyers, and a rise in foreclosures is adding to the inventory of houses in already over-stocked markets. The report said "fallout from the subprime loan debacle" will likely delay a housing market recovery until 2008. The good news: "... inventories remain well below the levels experienced during the last housing downturn in the early 1990s, and supplies are close to balance in many areas." Separately yesterday, the Mortgage Bankers Association said it was allocating $5 million to combat "a torrent of unfair press" about subprime woes, saying, "Misleading information, often reinforced by vivid and frightening anecdotes, is raising the very real possibility of overzealous regulatory and legislative responses." The group insists, however, that it doesn't blame media critics for industry woes. Howard Glaser, former MBA lobbyist, says the campaign shows the organization is out of touch "with the reality of what's happening in the marketplace."
Sources: Press release, Wall Street Journal, Bloomberg
Commentary: Today's MGIC Investment Earnings Report: Subprime Reckoning Day • Housing Bubble and Real Estate Market Tracker • The Pending Home Sales Rally?
Stocks/ETFs to watch: Lennar Corp. (LEN), D.R. Horton Inc. (DHI), Toll Brothers Inc. (TOL)KB Home (KBH), Pulte Homes Inc. (PHM), Centex Corp. (CTX). ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB), iShares Cohen & Steers Realty Majors (ICF), iShares Dow Jones US Real Estate (IYR)
Fed Minutes: No Hint of Rate Cut, Upbeat on Housing
The Federal Reserve Wednesday released the minutes of its March policy meeting, revealing a lack of clarity over America's economic direction was a key factor in dropping the possibility of rate hikes from the wording of its post-meeting statement: "In the light of increased uncertainty about the outlook for both growth and inflation, the Committee also agreed that the statement should no longer cite only the possibility of further firming." There was no hint of a rate cut. The minutes show that the Fed continues to expect its key measure of inflation, Core PCE (personal consumption expenditures excluding food and energy), to edge down over the next year or two. Core PCE currently stands at 2.4%. Wall Street Journal says the Fed was caught off guard by weaker than expected business investment, saying productivity gains could be limited, "particularly if business investment spending were to remain soft." Governors were upbeat on housing, noting "home-buying attitudes had improved and continuing job growth could be expected to support home sales," and said, "there was no sign of spillovers from the subprime market to the overall mortgage market." Separately yesterday, Chairman Ben Bernanke played down the threat of China backing away from its U.S. holdings, saying it would "not be in their interest," and that there was no indication China was considering any radical moves.
Sources: Minutes of the March 20-21 meeting, Reuters, Wall Street Journal, Bloomberg
Commentary: Globalization & Inflation: A Concerned Fed • Globalization & Inflation: A Concerned Fed • Globalization & Inflation: A Concerned Fed
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
RIMM Fails to Beat Analyst Estimates, Stock Falls 7%
Mobile email provider Research in Motion announced a sharp rise in net income and revenue for its fiscal 4th quarter ending March 3rd. But revenue narrowly missed consensus estimates, and the company said an informal inquiry by the Securities and Exchange Commission into its options grants had become a formal investigation. The stock fell 7% in late trading after the results were announced. RIMM's revenue of $930.4 million, while up 66% year over year, missed the consensus of $935.4 million. EPS of 99 cents was in line with consensus. Revenue guidance for next quarter, of $1.03 billion to $1.08 billion, is above the current consensus of $991.7 million, and EPS guidance of $1.01 to $1.09 (mid-point: $1.05) is in line with the current consensus of $1.05. RIMM added 1.02 million subscriber accounts during the quarter, driving its total subscriber base to about 8 million, and shipped about 2 million new devices, short of some analysts' estimates of 2.1 million. According to research firm IDC, RIMM held 45% of the US market for advanced phones in Q4, versus 18% for Palm and 12% for Motorola.
Sources: Press release, Bloomberg, WSJ
Commentary: RIMM Sentiment Was Too High -- But It Was There To See! • Motorola's Warning: Unmitigated Disaster • Research In Motion May Be The Big Loser In A Palm Buyout
Stocks/ETFs to watch: Research in Motion (RIMM). Competitors: Palm (PALM), Motorola (MOT), Nokia (NOK)
Conference call transcripts: RIMM transcripts, including April 11th's
Activist Investor Ralph Whitworth Takes $500 Million Sprint Stake, Pushes for Change -- WSJ
Activist investor Ralph Whitworth's Relational Investors firm has quietly amassed a $500 million stake (1%) in Sprint Nextel Corp., Wall Street Journal reports citing unnamed sources. In meetings with management, Whitworth is calling for big changes, including capital spending pullbacks and a sale of Sprint's fiber-optic networking and long-distance units. Sprint shares have lost about 25% since its August 2005 merger with Nextel as the company continues to lose customers to rivals AT&T and Verizon -- whose shares have gained 60% and 9% respectively over the same period. Many investors say management has been too slow to implement post-merger changes. Sprint's promised WiMax network, scheduled to begin rolling out late this year, is supposed to double wireless broadband speeds, but Whitworth views WiMax as a overly speculative cash flow drain. The Journal says Sprint shares will likely jump on the news, but questions whether Whitworth can help boost the company's performance in the long-term.
Sources: Wall Street Journal
Commentary: Bottom-Fishers, Beware: Sprint/Nextel Could Remain a Value Trap • Sprint-Nextel LBO Speculation Resurfaces: Why Now? • How To Invest In WiMAX
Stocks/ETFs to watch: Sprint Nextel Corp. (S). Competitors: AT&T Inc. (T), Verizon Communications Inc. (VZ). ETFs: PowerShares Dynamic Telecom & Wireless ETF (PTE), HOLDRS Wireless (WMH)
Conference call transcript: Sprint Nextel Q4 2006 Earnings Call Transcript
IBM Announces 3-D Chip Stacking
IBM says after more than a decade of research, it's ready to take 3-D chips from the 'lab to the fab', extending Moore's Law to new limits: dramatically reducing chip size while boosting speed. Using 3-D chip stacking technology called "through-silicon vias," IBM says it's able to reduce the distance information travels on a chip by 1,000 times. Sample chips will be available from the second-half of this year, with production beginning in '08. The director of research at WeSRCH.com called IBM's announcement "historic" and noted Intel, AMD and Sony are believed to be working on similar technology. AP meanwhile, quoted an Intel technology management director, who said the 3-D approach is "much more aggressive and risky" for wide scale production, adding that while Intel views 3-D stacking as very elegant, "it's not for the faint of heart." IBM says it's applying the technology to chips in wireless comm., Power processors, Blue Gene supercomputer, and in high-bandwidth memory applications. IBM lost 1.35% to $95.16 in normal trading yesterday.
Sources: Press release, Associated Press, Bloomberg, The Street.com, The Wall Street Journal
Commentary: IBM Develops Chip to Break Through Bandwidth Bottleneck • Intel, IBM Take Moore's Law to the Next Level • IBM To Announce Major Challenge To Intel-Dominant DRAM Technology
Stocks/ETFs to watch: International Business Machines (IBM). Competitors: Intel (INTC), Advanced Micro Devices (AMD), Sony (SNE). ETFs: HOLDRS Semiconductors (SMH), iShares Goldman Sachs Semiconductor Index Fund (IGW), PowerShares Dynamic Semiconductor (PSI), Internet Architecture HOLDRs (IAH)
Conference call transcripts: IBM Q4'06
MGM Catalog Hits iTunes, Pushing Apple's Library Above 500 Titles
Apple will now offer MGM's film catalog on iTunes, building Apple's available movie library to more than 500 movies. Apple added movie downloads to iTunes in September of 2006, with Disney's studio offerings. MGM will start out by offering classic movies such as "Dances With Wolves" and "Rocky," and will add other movies in the near future. An MGM Executive VP called MGM's collection unrivaled; MGM has the largest modern film catalog of the major studios, which together have received 208 Academy Awards. Despite rival download services from Wal-Mart and Amazon.com, iTunes continues to be the world's most popular online movie store with more than 2 million movies sold. According to Eddie Cue, VP of iTunes, "We'd love to have all the movie studios, that's certainly our goal. I think it's just a matter of time."
Sources: AP, Reuters, Apple Insider
Commentary: Apple, EMI to Offer DRM-free 'Premium' Tracks, but No Beatles • DRM-Free EMI Songs a Boon for Apple • Will AppleTV Do to Hollywood what the iPod Did to the Recording Industry?
Stocks/ETFs to watch: Apple (AAPL). Competitors: Amazon.com (AMZN), Wal-Mart (WMT). ETFs: Internet Architecture HOLDRS (IAH)
Related: Apple iTunes
Comcast Acquires Fandango, To Launch Video Site in Threat to Apple, Google
Cable TV leader Comcast Corp agreed to buy online movie ticket seller Fandango for an undisclosed sum. Tech blogger Michael Arrington cites unnamed sources that 'Comcast paid $200 million, or perhaps a bit more. We’re also hearing Fandango revenue is in the $50m/year range, split roughly evenly between ticket sales and advertising.' Comcast also announced that it plans to launch Fancast, a new Web site that will "leverage its experience as the nation's largest buyer of video content, serving nearly 25 million cable customers and 11.5 million broadband customers, to expand its existing video-centric websites and create a new online destination". Fandango was founded in 2000 by 7 of the 10 largest movie exhibitors, including AMC Theatres, Carmike Cinemas and Cinemark Theatres, plus Accretive Technology Partners and Technology Crossover Ventures. It has exclusive partnerships for online ticketing with roughly half the movie theaters in the US, and 4-5 million unique visitors per month. Competitor MovieTickets.com, a joint venture between AMC Entertainment, Hollywood Media Corp., National Amusements, Famous Players, Marcus Theatres, Viacom, and AOL, has exclusive partnerships with the others, and also provides online movie ticket purchases for Yahoo!, Google and AOL. The deal was announced during market hours. While the Dow and Nasdaq fell by about 0.7%, Comcast rose by 2.7% and Hollywood Media, which owns 26% of MovieTickets.com, by 2.2%. Apple fell by 1.8% and Google by 0.4%.
Sources: Press release, TechCrunch , Bloomberg, WSJ
Commentary: MovieTickets.com Wins Yahoo! Deal • Hollywood Media Must Unlock Value • AMC-Loews merger could shake up online movie ticketers Fandango and MovieTickets.com
Stocks/ETFs to watch: Comcast (CMCSA). Competitors: Google/YouTube (GOOG), Apple (AAPL), Hollywood Media (HOLL)
New York Times Will Not Change Its Share Structure, Has No Interest in Buyout -- Advisor
"There's no possibility of it changing [its dual-class share structure]," Steven Rattner, advisor to the New York Times Company, told investors Wednesday. "I don't think this is a situation where you're going to find some surprise ending to the story." The Times is under substantial investor pressure to shake itself up by ditching its Class B shares that allow minority holder the Sulzberger family to control all major decisions. He added the company has no interest in going private; there has been speculation that private equity buyers are looking at a leveraged take out of the publisher. Rattner did say that the Times will have to come up with better solutions for investors; Times stock is down over 30% in the past two years. Separately, the Times said yesterday in a filing it would buy and then sell a printing plant in Edison New Jersey rather than subleasing it as it had originally planned; the Times was stuck in a 1987 deal that committed it to "above-market" rent increases. As a result, it expects to report a $65-72 million net loss on the purchase/sale and a $70-75 million loss for accelerated depreciation expense.
Sources: Reuters I, II
Commentary: Why the New York Times Needs Web 3.0 • NY Times Rejects Morgan Stanley's Share Class Proposal • New York Times: Not Buying It Above $20
Stocks/ETFs to watch: The New York Times Co. (NYT). Competitors: Washington Post Co. (WPO), Dow Jones & Company Inc. (DJ), Gannett Co. Inc. (GCI), Tribune Company (TRB)
Conference call transcript: New York Times Q4 2006 Earnings Call Transcript
CBS on the Verge of Numerous Web Deals -- WSJ
The Wall Street Journal reports CBS Corp. is on the verge of announcing a 'flurry of deals' to distribute TV shows and video programming to websites and portals including Microsoft's MSN, Time Warner's AOL and Joost, a new online video portal created by the founders of Skype. CBS would be the first broadcast network to sign-on with Joost. Shows to be distributed include NCIS, CSI, the Evening News with Katie Couric, and sports programming. WSJ says CBS is also in talks with a yet-unnamed NBC (owned by GE)/News Corp. venture that is meant to compete with Google's YouTube by distributing TV, music and movies on Google rivals such as News Corp.'s MySpace and Yahoo. CBS wants 90% of the ad revenue generated, the same figure secured by the NBC/News Corp. venture. CBS had been in discussions to join the NBC and News Corp. venture, but balked at its requirement to give the venture exclusive rights to negotiate online deals. The move reflects CBS's strategy of distributing its content online, while maintaining maximum control. WSJ says the increased distribution could give CBS leverage in its ongoing negotiations with YouTube.
Sources: Wall Street Journal
Commentary: CBS Announces New Internet Strategy • More On The Online Push At CBS • CBS Supercharges Online Plans
Stocks/ETFs to watch: CBS Corp. (CBS), Time Warner Inc. (TWX), News Corp. (NWS), General Electric Co. (GE), Google Inc. (GOOG), Yahoo! Inc. (YHOO). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN), PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (PEJ)
ENERGY AND MATERIALS
IEA Warns of Low Global Oil Production, Diminishing Stocks
In its monthly report, the International Energy Agency [IEA] warned this morning that OPEC output is at its lowest level in over two years due to production outages and self-imposed quotas, which should lead to a marked drain on global oil stocks in the coming months. Production outages in Nigeria, Saudi Arabia led to a March output of just over 30 million barrels, the lowest since March 2005. The agency is concerned by the global drawdown: "... we are not seeing the normal seasonal build in crude inventories that we typically see at this time of year." Early data indicates crude stockpiles dropped by 80.5 million barrels in February to 2.597 billion barrels. If confirmed, the report said, the fall would be the biggest 2-quarter stock draw since 1999. The report notes an 'astonishing' 12.3% burst in Chinese oil demand in February.
Sources: Wall Street Journal
Commentary: Weekly Inventory Numbers Show Steep Loss in Gas Stockpiles • Fear and Loathing in Energy Coverage • ConocoPhillips Warns of Lower 1Q Output • OECD Countries Crude Inventories Falling Fast
Stocks/ETFs to watch: United States Oil Fund ETF (USO), Barclays Bank Zero Coupon ETN (OIL), PowerShares DB Oil Fund (DBO)
Related: IEA website
Nasdaq in Talks To Acquire European Exchange Operator OMX AB
Since being firmly rejected in its bid for the London Stock Exchange, Nasdaq Stock Market Inc. has been aggressively pursuing other options. After reports Tuesday it was negotiating to buy the Philadelphia Stock Exchange, yesterday Swedish business daily Dagens Industri quoted sources as saying Nasdaq has bid 23 billion Swedish crowns ($3.33 billion), or 192 crowns per share for European exchange operator OMX AB. However, OMX called specific bid numbers speculative, and confirmed only that it is in "exploratory discussions with several exchanges and other market venues regarding possible forms of cooperation." The company added "that no offer, formal or informal, has been received." OMX AB owns and runs exchanges in Stockholm, Helsinki, Copenhagen, Reykjavik as well as in the Baltic nations.
Sources: Reuters (i), (ii), MarketWatch
Commentary: Nasdaq in Talks With Options Heavy Philly Exchange - WSJ • An Investor's Take On The NYSE/Euronext Merger • Treading Carefully In Exchange Stocks
Stocks/ETFs to watch: Nasdaq Stock Market Inc. (NDAQ). Competitors: NYSE Euronext (NYX)
Bed Bath & Beyond's Earnings Are In-line; Shares Fall
Bed Bath & Beyond reported earnings after the bell yesterday, sending shares lower by almost 3% in after hours action to $39.55. The company reported that in its latest quarter, profit rose 4% on stronger revenue; net earnings came -in at $205.8 million, good for EPS of $0.72, versus EPS of just $0.67 in the year earlier period. Including a one-time $30 million charge, earnings were $0.79 a share. Revenue climbed 18% to $1.99 billion from $1.69 billion a year earlier. Thomson Financial consensus estimates were for EPS of $0.78 on $1.94 billion in revenue. Bed Bath & Beyond reported that same-store sales rose 5.2% during the quarter, versus an increase of about 6.3% during the prior year quarter.
Sources: Bed Bath & Beyond F4Q06 (Qtr End 3/3/07) Earnings Call Transcript, Press Release, AP, New York Times, TheStreet.com, Reuters
Commentary: Bed, Bath & Growth • Bed Bath and Beyond Needs To Unlock Value • Cramer's Take on BBBY
Stocks/ETFs to watch: Bed Bath & Beyond Inc. (BBBY). Competitors: Target (TGT), Wal-Mart (WMT), Williams-Sonoma (WSM). ETFs: Retail HOLDRs (RTH), Consumer Discretionary SPDR (XLY)
Genentech Beats Analyst Estimates On Strong Cancer Drug Sales
Genentech reported 1Q07 earnings of $706 million, or $0.66/share, up 68% y/y. Excluding special expenses, the biotech company posted net income of $792 million, or $0.74 cents/share. Analysts had expected $0.67/share in net earnings. Quarterly revenue was $2.84 billion, up 43% y/y. Genentech cited strong sales of its cancer drugs Avastin and Rituxan and revenue from outside the U.S as key growth drivers in the quarter. Avastin accounted for $533 million of the company's revenue - sales of the drug, on the market now for three years, were up 34% y/y. U.S. product sales rose y/y from $1.57 billion to $2.04 billion, but U.S. sales were essentially flat from 4Q06. In an interview after the report, Genentech CFO David Ebersman said he expects profit to rise an additional 25-30% this year. The company now has ten drugs on the market, three of which exceed $1 billion in annual sales. The strong report comes amidst ongoing trouble with drug development and an SEC inquiry at its top biotech competitor, Amgen. Shares of Genentech, which is majority held by Swiss concern Roche Holding, ticked down 14 cents in after hours trading following the report.
Sources: Genentech 1Q07 Conference Call Transcript • Genentech press release • Bloomberg • Wall St. Journal • AP
Commentary: Pharmacogenomics: Genentech, OSI and Other Pharmas Personalize Medicine • A Perfect Storm for Genentech and Amgen • Amgen Shares Fall On Disappointing Vectibix Clinical Results
Stocks/ETFs to watch: Genentech (DNA), Roche (OTCQX:RHHBY). Competitors: Amgen (AMGN), sanofi-aventis (SNY), Medimmune (MEDI). ETFs: iShares NASDAQ Biotechnology Index ETF (IBB), HOLDRS Biotech (BBH), PowerShares Dynamic Biotech & Genome (PBE)
Nestle to Buy Gerber from Novartis for $5.5B
Nestlé has agreed to acquire Gerber for $5.5 billion in cash from Novartis, in what appears to be a win-win deal.Nestlé will control the leading position in the U.S. baby food market and enhance its Nutrition division. Novartis will complete its portfolio restructuring divesting of non-core businesses. The transaction is expected to close in the second-half of this year, subject to standard regulatory approvals. Ordinary shares of Novartis are up fractionally in morning trading in Zurich, but Nestlé’s ordinary shares are down nearly 1%. Nestlé said the Gerber acquisition will be EPS neural in its first full year and accretive in its second full year. Coverage by The Wall Street Journal says Gerber has a 79% share of the baby-food market in the U.S., according to Morgan Stanley. Last December, Nestlé acquired Novartis' medical-nutrition division for $2.5b. Media reports note Nestlé tried to acquire Gerber in 1994, but lost to Novartis' predecessor, which bought it for $3.7b.
Sources: Press release, Bloomberg, The Wall Street Journal
Commentary: Novartis Lowers Growth Forecast On Suspension of Zelnorm Sales; Shares Fall • Teva v. Novartis: Federal Decision Has Broad Implications For Generics • Nestle to Purchase Novartis Medical Nutrition Unit
Stocks/ETFs to watch: Nestlé (OTCPK:NSRGY), Novartis AG (NVS)
Related: Nestle-Gerber Acquisition Presentations [i, ii (pdf)], Nestle Conference Call Webcast, Novartis Newsroom
Beijing Ends HSBC's China Expansion Plans Via Bank of Communications -- FT
HSBC has received bad news concerning its 19.9% investment in China's Hong Kong-listed Bank of Communications [BoCom], according to the Financial Times, which says the chairman of China's Banking Regulatory Commission told it BoCom will be reclassified as a "large state-owned bank" instead of a "joint-stock bank." FT reports there are four other banks with this classification, collectively regarded as "integral state assets essential for ensuring government control over the economy and therefore the nation." HSBC originally bought its 19.9% stake -- the maximum for foreign investors under Chinese law -- in BoCom three years ago for $1.75 billion, with a clause allowing it to purchase up to a 40% stake when Beijing increased foreign investor limits. The government currently owns 41% of BoCom and the FT says further bad news for HSBC is an expected secondary offering of up to 30 billion yuan ($3.9b) on the Shanghai exchange by the government within the next two weeks. HSBC will reportedly have to pay about 6b yuan ($775m) to avoid having its stake diluted, but first will need permission to transact on the exchange. HSBC said it's "still working with the bank and authorities to look for ways to maintain its stake in BoCom."
Sources: Financial Times
Commentary: Four Foreign Banks Incorporate in China • HSBC, Citigroup, Get Key Approval for Chinese Banking • HSBC Posts Record Annual Profit Despite Subprime Woes
Stocks/ETFs to watch: HSBC Holdings plc (HBC), Bank of Communications [Hong Kong: 3328]. Competitors: Citigroup Inc. (C), Bank of East Asia Ltd. [ADR] (OTCPK:BKEAY), Standard Chartered plc [London: STAN]. ETFs: BLDRS Europe 100 ADR Index (ADRU), BLDRS Developed Markets 100 ADR Index (ADRD), PowerShares Intl Dividend Achievers (PID); Bank of Communications is a 3.7% component of iShares FTSE/Xinhua China 25 Index (FXI)
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