Shanghai Drops 6.5% on Trading Tax Hike, Asia Trades Lower, But Stable
Beijing made its latest effort to slow skyrocketing domestic equities, as it raised the "stamp tax" on stock trading to 0.3%, from 0.1%, sending the Shanghai Composite down 6.5%. The rest of Asia traded lower, but nowhere near China's drop. Analysts expect limited, if any, negative impact on the domestic economy and overseas equities. Bloomberg quoted analysts and economists who cited a lack of correlation between domestic equities and overall economic growth, and note limited shareholder exposure for both domestic and overseas investors (based on total assets invested and the amount of asset exposure, respectively). On Wednesday, the World Bank raised its forecast for China's 2007 GDP to 10.4% from 9.6%, citing better-than-expected Q1 data. The CSI 300 Index, which tracks China's A-shares fell 6.8%. B-shares in Shanghai plunged 9% and by nearly the same amount in Shenzhen. H-shares in Hong Kong lost 2%, while the Hang Seng traded 0.86% lower. Separately, state media reported foreign investment banks will be allowed to take larger stakes in domestic brokerages and joint ventures later this year. There is currently a cap of 20% and 33%, respectively. Leading global i-banks are said to be watching developments closely for market entry and/or expansion.
Sources: Bloomberg [i, ii], MarketWatch, Reuters
Commentary: 'Pao Mo': That's Chinese for Bubble • Greenspan Warns of 'Dramatic Contraction' in Chinese Stocks, Moves Markets • The Bubble Theorists Have Shanghai Wrong • Chinese Stocks: Putting Faith in Numbers
Stocks/ETFs to watch: iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), PowerShares Gld Drg Haltr USX China (NYSEARCA:PGJ), The China Fund (NYSE:CHN), The Greater China Fund (NYSE:GCH), JF China Region Fund (NYSE:JFC), First Trust ISE ChIndia Index Fund (NYSEARCA:FNI)
MACRO AND HOUSING
Pulte Homes Cuts Another 16% of Its Workforce
Pulte Homes says it will cut 16% of its workforce in response to "the challenging operating environment that exists in the U.S. home-building industry." Pulte will take a $40-50 million charge as part of the move, most of it in Q2. It said the changes will save $200 million annually, with $90-100 million in savings in 2007. Pulte had 12,400 employees in 2006 and 13,400 in 2005; post reorganization, the company said it will employ just over 10,000 people. "The homebuilding environment remains difficult and our current overhead levels are structured for a business that is larger than the market presently allows," CEO Richard J. Dugas said. The company has already reduced its workforce by 25% since 2006.
Sources: Press release, Wall Street Journal, AP
Commentary: Calculated Risk • Homebuilders Sinking Into the Subprime Mess • Pulte Homes Falls to #4 Homebuilder on Weak Earnings
Stocks/ETFs to watch: Pulte Homes Inc. (NYSE:PHM). Competitors: Lennar Corp. (NYSE:LEN), Toll Brothers Inc. (NYSE:TOL), Centex Corp. (CTX), D.R. Horton Inc. (NYSE:DHI), Hovnanian Enterprises Inc. (NYSE:HOV), Beazer Homes USA Inc. (NYSE:BZH). ETFs: streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB), iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB)
Home Price Decline Speeds Up -- Survey
U.S. housing prices fell last quarter for the first time since 1991, but consumer confidence remains steady on job growth and rising stock prices. An S&P/Case-Shiller study released Tuesday reported the value of a house lost 1.4% in Q1 2007 against an 11.5% rise in Q1 2006. Thirteen of 20 cities posted price declines, led by Detroit (-8.4%) and San Diego (-6.0%). Goldman Sachs economists, who use the Case-Shiller index as a gauge, said in a note that they "remain comfortable with our forecast of house prices falling by 5% over 2007." Falling house prices coupled with soaring gasoline prices are raising concerns that consumer spending will slow, but the Conference Board's index of consumer confidence, also released Tuesday, showed a rise to 108 from April's revised 106.3. Though house prices have fallen over the past year, they are still up 157% from where they were 15 years ago. Nevertheless, the drop implies "there are just too many homes on the market," according to FTN Financial chief economist Christopher Low. David Seiders, chief economist for the National Association of Home Builders, said new home construction might take until 2011 to reach last year's level. "We've fallen way below trend because we soared way above trend during boom times," he said. "The upswing will be relatively slow, unlike earlier cycles."
Sources: Bloomberg (I, II), MarketWatch, Wall Street Journal, Money, MoneyCentral
Commentary: Housing Freefall Continues Unabated • New Home Sales Up (But Beware Double Digit Monthly Gains) • The National Association of Realtors Predicts the First Drop in Home Prices Since 1968
Stocks/ETFs to watch: Toll Brothers (TOL), Hovnanian Enterprises (HOV), KB Home (NYSE:KBH). ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB)
Microsoft to Unveil Coffee-Table PC
Microsoft Corp. will unveil a coffee table shaped touch-screen computer at a technology conference Wednesday. Called Microsoft Surface (pictured), the computer will forgo the usual convention of keyboards and mouse devices in exchange for Microsoft founder Bill Gates' vision of more natural human-computer interactions using touch and voice. Surface will feature a 30-inch display under a hard-plastic tabletop, and will go on sale in November for between $5,000 and $10,000. It will initially be aimed at hotels, casinos and restaurants. Microsoft Surface is also designed to interact with devices placed on its surface; for example, users can upgrade mobile phone plans simply by placing their phone on the computer's surface. Microsoft says it will manufacture the Surface itself, initially selling to corporate customers including Sheraton hotels, Harrah's casinos, T-Mobile stores and restaurants. In Surface, CEO Steve Ballmer sees "a multibillion dollar category," and envisions a time "when surface computing technologies will be pervasive, from tabletops and counters to the hallway mirror."
Sources: Press Release, Wall Street Journal, Bloomberg, AP, Reuters
Commentary: What Does Microsoft Have In Mind For PlayTable? • Cramer's Take on MSFT • Popular Mechanics
Stocks/ETFs to watch: Microsoft (NASDAQ:MSFT). Competitors: Apple (NASDAQ:AAPL), Hewlett-Packard (NYSE:HPQ), Dell (NASDAQ:DELL)
Related: Microsoft Surface Home Page • Popular Mechanics Video Display
Chipmakers Slash 2007 Forecasts
Chipmakers have drastically cut their 2007 forecasts, according to data released Wednesday by World Semiconductor Trade Statistics [WSTS]. Following a weaker-than-expected first quarter, semiconductor manufacturers now forecast 2.6% growth in 2007, down from the 8.6% they foresaw in October. "Revenues in first quarter 2007 (were) lower than expected for almost all products," WSTS said in a statement. For 2008, it cut its growth forecast from 12.1% to 10.2%. Reuters says the revisions underscore a sense of oversupply within the industry, which ramped up production on expectations of a jump in demand from Microsoft Corp.'s Vista release. 2009 growth was pegged at 5.2%. Asia Pacific demand continues to be the fastest growing among regions. On May 24, Goldman Sachs analyst James Covello predicted what may be the "worst semiconductor equipment downturn" ever, and said he would short any semi company -- "Novellus is No. 1 (of the stocks he would short), followed by Applied Materials and Lam Research, in that order." In a preview of its Q2 semiconductor forecast due Wednesday, Gartner analyst Richard Gordon said it is likely to revise its market growth rate forecast for 2007 from 6.4% to below 5%. Gartner calls for weak DRAM sales, but said growing demand in the auto industry would be a bright spot.
Sources: Press release, Reuters, Investor's Business Daily, EDN
Commentary: Analysts Get Bearish On Semis a Year Late • No Longer a Contrarian View: The Semi Equipment Slowdown • Citi: DRAM Sector Is Bleeding To Death
Stocks/ETFs to watch: Intel Corp. (NASDAQ:INTC), Advanced Micro Devices Inc. (NASDAQ:AMD), Texas Instruments Inc. (NASDAQ:TXN), Novellus Systems Inc. (NASDAQ:NVLS), Applied Materials Inc. (NASDAQ:AMAT), Lam Research Corp. (NASDAQ:LRCX). ETFs: HOLDRS Semiconductors (NYSEARCA:SMH), SPDR Semiconductor (NYSEARCA:XSD), PowerShares Dynamic Semiconductor (NYSEARCA:PSI)
Google CEO Hopes for Closing of DoubleClick Deal by End of 2007
Google Inc. CEO Eric Schmidt said Wednesday he is hopeful the $3.1 billion purchase of DoubleClick will close by year-end, despite federal regulatory scrutiny. "We are quite convinced that the proposed merger meets all appropriate U.S. laws and is ultimately very good for consumers and for advertisers and publishers," Schmidt said at a news conference at the Seoul Digital Forum. Google's rivals, including Microsoft, have criticized the deal as giving Google too much share of the online ad market; and privacy advocates, led by the Electronic Privacy Information Center, have also weighed in with concerns about the access DoubleClick will provide Google to consumer information. The Federal Trade Commission, which is handling the government probe, usually addresses monopoly concerns, but analysts say there is precedent for it to examine privacy issues as well. Schmidt is "not concerned" about privacy "because we knew competitors would raise those issues, as indeed they have," and the company evaluated the question closely when considering the acquisition. Schmidt's comments reiterated statements he made earlier in the month forecasting a year-end close to the deal.
Sources: Reuters, PE.com
Commentary: Google's Purchase of DoubleClick Faces Antitrust Scrutiny • Microsoft, AT&T Press for Review of Google-DoubleClick Deal
Stocks/ETFs to watch: Google Inc. (NASDAQ:GOOG). Competitors: Microsoft, Inc. (MSFT), Yahoo Inc. (NASDAQ:YHOO). ETFs: iShares Goldman Sachs Technology (NYSEARCA:IGM), iShares Goldman Sachs Software (NYSEARCA:IGV), First Trust Dow Jones Internet Index (NYSEARCA:FDN), First Trust IPOX-100 Index (NYSEARCA:FPX)
Conference call transcripts: Q1 2007
Borders Posts Another Loss, Worse Than Expected, Shares Down
Borders Group said its Q1 net loss increased to $35.9 million, or $0.61/share (vs. $0.31/share last Q1), on a 2% rise in sales to $885.8m. Its operating loss of $0.51/share was more than analysts' average forecast of -$0.31. Analysts expected sales of $876m. More weakness is expected in Q2, but analysts believe Borders will report a full year profit. Shares of Borders lost 0.4% to $23.32 during normal trading Tuesday and last traded down 3.3% to $22.55 in after-hours activity on thin volume of 40,000. CEO George Jones said, "The current sales environment was more challenging than we anticipated." He previously called '07 a year of transition and said the Company is targeting a return to EPS growth from '08. Domestic superstore sales rose 1.4% to $615m, but same-store-sales fell 1.9%, and an operating loss of $22m was reported after a $1.5m profit last Q1. Rival Barnes & Noble also posted a quarterly loss, but nearly broke even, while beating analysts' average estimate.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Borders Cancels Debt Sale on Shareholder Objections • Borders Reports Q4 Loss, Announces Long-term Strategic Plan • Will Borders and Barnes and Noble Become Book Buddies?
Stocks/ETFs to watch: Borders Group (BGP). Competitors: Barnes & Noble (NYSE:BKS), Amazon (NASDAQ:AMZN), Books-A-Million (NASDAQ:BAMM)
Ad Agency Report Criticizes Wal-Mart
A sharply-worded report written seven months ago by Wal-Mart's then-advertising agency GSD&M advises the retailing giant that its greatest strength -- low prices -- has damaged its image and lost it respect. The report was leaked by union-financed group WakeUpWalMart.com to the Associated Press. "[T]he American people [care] about values, not just value," said WakeUpWalMart.com spokesman Chris Kofinis. The report claims Wal-Mart has allowed itself to be portrayed as a "bad corporate citizen who doesn't treat employees well and isn't acting as a good citizen of the planet." It also asserts that Wal-Mart's "low prices actually suggest low quality," causing customers to look elsewhere for electronics, apparel, and home decor -- areas where "saving money and time are not the be-all, end-all drivers." It describes Wal-Mart as appearing "old and outdated," particularly in comparison to rival Target, which has positioned itself as "the 'new and improved'." GSD&M, which was Wal-Mart's ad agency since the early seventies, wrote the 55-page report in an effort to retain the retailer's business after Wal-Mart said last year that it was considering hiring new firms. Wal-Mart did eventually replace GSD&M. "[T]his particular piece of work is not very useful, not least because it's now completely out of date and in some areas just plain wrong," said Wal-Mart spokesman Nick Agarwal.
Sources: New York Times, Reuters, Forbes
Commentary: Wal-Mart Earnings: "We Could Have Done Better" • Retail Madness: Dump Wal-Mart, Buy Target and Costco • Wal-Mart's Earnings Disgrace: Time to Follow McDonald's Example
Stocks/ETFs to watch: Wal-Mart Stores Inc. (NYSE:WMT). Competitors: Costco Wholesale Corp. (NASDAQ:COST), Target Corp. (NYSE:TGT). ETFs: Retail HOLDRs (NYSEARCA:RTH), PowerShares FTSE RAFI Consumer Services (PRFS), iShares S&P Global Consumer Staples (NYSEARCA:KXI)
Conference call transcripts: F1Q08
ICE Pact With Chicago Options Exchange May Assist In Its CBOT Bid
InterContinental Exchange [ICE] has reached an agreement with the Chicago Board Options Exchange [CBOE] which may help it in its bid to buy the Chicago Board of Trade [CBOT], according to the Wall Street Journal. CBOT members founded the Options Exchange in the 1970s but are now caught in a dispute as to how much ownership they still posses over the CBOE. The case has gone to court, as the CBOE has contemplated a public offering. The agreement would only take hold if ICE successfully buys CBOT, and would pay each of the 1,300 CBOT members in question $500,000 for their stakes in the CBOE. The Chicago Mercantile exchange is currently the front runner to buy CBOT; though more lucrative, CBOT's board said earlier this month that a combination with ICE "would take longer to integrate and would involve significantly greater execution risk" than a Chicago Merc deal.
Sources: Wall Street Journal, Reuters, Financial Times
Commentary: CME Sweetens Offer for CBOT; ICE Considers Its Position • CBOT Favors ICE Over CME, May Stay Independent -- Papers • CBOT Taking ICE Offer Seriously: Money Talks
Stocks/ETFs to watch: IntercontinentalExchange, Inc. (NYSE:ICE), CBOT Holdings, Inc. (BOT), Chicago Mercantile Exchange Holdings Inc. (NASDAQ:CME). Competitors: NYMEX Holdings Inc. (NMX), International Securities Exchange Inc. (ISE)
ABN Mulling RBS Consortium Bid; Supervisory Board Enters Takeover Fray
The managing and supervisory boards of ABN Amro are closely examining the Royal Bank of Scotland consortium's latest bid for the bank, which -- like its original bid -- is higher than the one ABN accepted from Barclays in April. ABN's supervisory board has formed a special "transaction committee" to evaluate the offers. The RBS consortium has offered €71.1 billion ($95.5 billion) for the bank, or €38.40 ($51.59) per ABN Amro Holding share, approximately 10% above Barclays' bid. In addition to being a greater sum, the RBS bid also consists of 79% cash (9% more than its original bid), while the Barclays bid is all stock. The consortium's offer depends, however, on the cancellation of ABN's pending sale of LaSalle Bank to Bank of America for $21 billion. BofA has filed suit in the U.S. to compel completion of the sale. RBS CEO Fred Goodwin said Tuesday the consortium's bid might have to be lowered by €1 a share, or €1.85 billion ($2.5 billion), to provide a reserve to pay legal costs related to the LaSalle dispute.
Sources: Reuters, Forbes, Bloomberg, Wall Street Journal
Commentary: RBS Consortium Formalizes Bid for ABN • ABN Amro Opposes RBS-Led Rival Bid for LaSalle • ABN Shareholders Determined to Thwart LaSalle Sale to BoA; RBS-Led Consortium Reiterates Rival Bid
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (NYSE:BCS), Royal Bank of Scotland Group plc [ADR] (RBSPY), Fortis NV [ADR] (FORSY), Bank of America Corp. (NYSE:BAC). Competitors: HSBC Holdings plc ADR (HBC), Deutsche Bank AG (NYSE:DB), UBS AG (NYSE:UBS). ETFs: First Trust Morningstar Div Leaders Idx (NYSEARCA:FDL), PowerShares Intl Dividend Achievers (NYSEARCA:PID), iShares MSCI Netherlands Index (NYSEARCA:EWN)
Advanced Medical Optics: Shares Plummet on MoisturePlus Recall
Shares of Advanced Medical Optics slid almost 14% Tuesday, closing at $34.69 on 10 times their average volume, after the company voluntarily recalled its Complete MoisturePlus Multi Purpose contact lens solution and announced it is withdrawing its guidance for 2007 and 2008. The recall came after the Centers for Disease Control and Prevention [CDC] found a link between the product and a rare, serious cornea infection, acanthamoeba keratitis [AK]. The CDC found that the risk of developing AK, which can lead to vision loss and the need for a corneal transplant, is at least seven times higher among people who use MoisturePlus. MoisturePlus accounted for $105.7 million, or about 10%, of Advanced Medical's consolidated sales last year. In the wake of the recall, the company has withdrawn its forecasts of 2007 EPS of $1.40-1.55 on sales of $1.15-1.18 billion and 2008 EPS of $2.25-2.40 on sales of $1.35-1.37 billion. Analysts had been expecting EPS of $1.44 in 2007 and $2.22 in 2008. According to Lehman Brothers analyst Mathew Blackman, the recall could cut $0.50 from Advanced Medical's 2007 EPS and as much as $0.60-0.70 from 2008 EPS. In addition, the company's expressed interest in outbidding Warburg Pincus for Bausch & Lomb is now in question. Bausch's shares fell 3.7% to close at 67.90.
Sources: TheStreet.com, MoneyCentral, MLive, Bloomberg
Commentary: Advanced Medical Optics: Bounce Candidate Following MoisturePlus Recall • Advanced Medical Optics Considering Offer for Bausch & Lomb • Advanced Medical Optics: ValueAct Capital Discloses 7.3% Stake
Stocks/ETFs to watch: Advanced Medical Optics, Inc. (EYE), Bausch & Lomb Inc. (BOL). Competitors: Alcon Inc. (NYSE:ACL). ETFs: iShares Dow Jones US Healthcare Provider (NYSEARCA:IHF), Vanguard Health Care ETF (NYSEARCA:VHT), Health Care Select Sector SPDR (NYSEARCA:XLV)
Bradley Pharmaceuticals Shares Soar on Buyout Offer
Shares of Bradley Pharmaceuticals soared 24% before closing up 21% at $22.35 Tuesday on news that a group of investors, led by President and CEO Daniel Glassman, has bid $360 million to buy out the company. The group offered $21.50 in cash per share, representing a 17% premium to the shares' Friday close. Glassman owns 2.1 million shares, or 12.4% of the company. The other members of the group are Glassman's wife and company co-founder Iris Glassman and their son, SVP Bradley Glassman. Glassman plans to continue as CEO. He will finance the deal through roll-over equity "provided by myself and others," new cash equity -- possibly from One Equity Partners LLC -- and debt financing. "I am prepared to move very quickly to negotiate a transaction," Glassman said in a letter to the board, which has convened a special committee of independent directors to consider the proposal. Raymond James analyst Michael Krensavage believes Glassman's offer is low in view of the company's portfolio, which includes three patented drugs (Solaraze, Elestrin, and Veregen) that alone are worth $20 per share. Krensavage puts a fair value for the whole company in the $27-$34 range. Investors bid up the company's shares past Glassman's offer on Tuesday, suggesting the market expects a higher bid.
Sources: Press release, MarketWatch, Forbes, Reuters, Wall Street Journal
Commentary: The Investable Universe of Aesthetic Healthcare Stocks • Biotech Buyout Frenzy Continues
Stocks/ETFs to watch: Bradley Pharmaceuticals, Inc. (BDY). Competitors: Medicis Pharmaceutical Corp. (MRX), Sciele Pharma Inc. (SCRX). ETFs: Pharmaceutical HOLDRs (NYSEARCA:PPH), iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE)
Have Wall Street Breakfast emailed to you every morning before the market opens.