Housing Prices and Sales Continue to Fall
Home prices in 10 major U.S. cities fell 2.7% y/y -- their fastest pace in 16 years -- while prices in a 20-city group fell a more modest 2.1%, according to Standard & Poor's Case-Shiller April home price index released Tuesday (see table). Also Tuesday, the National Association of Realtors [NAR] said that the median existing-home price fell 2.1% y/y in May to $223,700. Annual resales fell to 5.99 million/year, their lowest level in almost four years. The Commerce Department said Tuesday that new home sales fell 1.6% to a seasonally adjusted 915,000 units/year, while downward-revising April's new home sales gain from 981,000 units/year to 930,000. New home sales have dropped 15.8% over the past year and 21.1% YTD. Inventories fell 1.1% to 536,000; after peaking in March at 8.3 months, the current figure represents a more modest 7.1-month supply.
Sources: New Home Sales press release, Case-Shiller report (.pdf), MarketWatch I, II, Bloomberg
Commentary: Lennar's Earnings - Or Lack Thereof • Global Home Prices Remain Fairly Strong Relative To U.S. • A Look At U.S. Home Price Performance in 20 Markets
Stocks/ETFs to watch: streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB), iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB)
SEC Probing CDOs, Bear Stearns Funds
SEC Chairman Christopher Cox told a House Financial Services Committee hearing Tuesday the regulatory body has opened about 12 investigations into bundled financial products as well as into two Bear Stearns hedge funds that were heavily invested in those products. The vehicles in question are collateralized debt obligations [CDOs] and collateralized loan obligations [CLOs]. The SEC has set up a working group to investigate a variety of topics connected to the subprime mortgage industry, including the securitization process and the health or otherwise of subprime issuers. The fund investigations, Cox said, will explore the ways they value their assets. Because CDOs are illiquid, they are valued by managers making estimates. That means their prices are unrelated to -- and generally much higher than -- the prices they would fetch on the open market. Everquest Financial, a Bear-backed hedge fund that recently had its IPO canceled, received equity in 10 CDOs from Bear. Roughly a third of the fund's assets are believed to be CDOs backed by subprime mortgages. The transfer of CDO assets to Everquest has raised eyebrows, since Bear was functioning in the transaction as both buyer and seller.
Sources: Wall Street Journal, TheStreet.com
Commentary: SEC Knocking on Bear Stearns' Door • Collateralized Debt Obligations: "A Triumph of Greed Over Fear"
Stocks/ETFs to watch: Bear Stearns Companies Inc. (NYSE:BSC). Competitors: Goldman Sachs Group Inc. (NYSE:GS), Lehman Brothers Holdings Inc. (LEH), Merrill Lynch & Co. Inc. (MER). ETFs: iShares Dow Jones US Broker-Dealers (NYSEARCA:IAI), KBW Capital Markets ETF (NYSEARCA:KCE)
IPhone Reviews: A Brief Summary
A number of leading tech journalists, having had their chance to give Apple's eagerly-awaited iPhone a spin, weighed in today with their thoughts - the response was largely very positive. Reviewers liked iPhone's full-fledged web browser, vivid email client, visual voicemail (choose which message you want to hear), and iPod (including widescreen movies). Its much-touted software seemed to work without a hitch, and was praised for ease-of-use, simple elegance, and fun. The phone is sleeker and thinner than its competitors ("it makes Treos and BlackBerrys look obese" -- NYT's Pogue), and the glass seems to resist scratching. Battery life was excellent, outlasting most smartphones, and almost as long as its claimed 8 hours talk/6-7 hours internet use. Users were able to get the hang of Apple's on-screen keyboard, liked its auto-correction (though weaker than BlackBerry's -- WSJ's Mossberg), but said it would not likely be a BlackBerry replacement. Quirks include a lack of video capability for its built-in 2 megapixel camera, average voice quality and weak network coverage, no search function (only scroll) on its phonebook, no cut-and-paste, no instant-messaging, lack of dedicated buttons and excruciatingly slow internet when using AT&T's EDGE network and not WiFi. Apple/AT&T announced calling plans Tuesday: There's a one-time $36 activation fee, and buyers must commit to a two-year service contract with AT&T. Monthly plans start at $60 for 450 daytime voice minutes and unlimited data, to $120 for 2,000 minutes, and $220 for 6,000. All plans include 200 SMS messages; unlimited SMS can be had for another $20. Apple shares shed 3.4% Tuesday to close at $119.65; AT&T shares were down a modest 0.8%.
Sources: New York Times [David Pogue], Wall Street Journal [Walt Mossberg], Newsweek [Steven Levy], USA Today [Edward Baig], Calling plan press release
Commentary: The iPhone Revolution Will Have to Wait For the Right Network • iPhone Hype Doesn't Speak for the Masses • iPhone Could Create Memory Shortage • Jobs Answers iPhone Questions [WSJ]
Stocks/ETFs to watch: Apple Computer Inc. (NASDAQ:AAPL), AT&T Inc. (NYSE:T). Competitors: Nokia Corp. (NYSE:NOK), Motorola Inc. (MOT), Telefonaktiebolaget LM Ericsson ADR (NASDAQ:ERIC), Palm Inc. (PALM), Research In Motion Ltd. (RIMM), Verizon Communications Inc. (NYSE:VZ), Sprint Nextel Corp. (NYSE:S)
Related: Video reviews: David Pogue, Walt Mossberg
Telus Decides Against Takeover Bid for BCE; Three Suitors Remain
Telus said it has elected not to submit an offer to acquire BCE, citing "inadequacies of BCE's bid process." Canadian buyout fund Onex Corp. and a Quebec pension fund also withdrew plans to bid, pushing shares of BCE down 3.1% to $36.86 on Tuesday, while Telus rose 0.8% to $57.64. The three remaining interested parties believed to have made bids Tuesday include: 1) Ontario Teachers' Pension Plan (BCE's largest shareholder at 6.3%) partnering with Providence Equity Partners, 2) Hospitals of Ontario Pension Plan with Cerberus Capital and 3) The Canadian Pension Plan Investment Board with KKR. The Wall Street Journal reports Canadian investment bank Catalyst Asset Management proposed a restructuring plan Monday which would keep BCE as a standalone company, with possible upside for its shares of 12% to 37% above its Monday close of $38. BCE's shares are up almost 30% since buyout speculation began in late March. Some analysts believe the bidding period could be extended as some interested parties felt rushed by BCE. There's also concern over foreign ownership restrictions of telecom firms. A Credit Suisse analyst told clients, "Telus can wait to be invited back, or may even launch a hostile takeover of its own."
Sources: Press release, Bloomberg, The Globe and Mail, Wall Street Journal
Commentary: Why Isn't Telus Bidding for BCE? • Three Way Bid for BCE Underway • Telus Not Interested In BCE, Shares Rise
Stocks/ETFs to watch: BCE Inc. (NYSE:BCE), TELUS Corporation (NYSE:TU)
Oracle Beats Street on 23% Higher Net, Shares Up on Sales Guidance
Oracle's fiscal Q4 net income rose 23% to $1.6 billion, or $0.31/share, while adjusted EPS of $0.37 beat analysts' average estimate of $0.35. Sales also exceeded expectations, up 20% to $5.83b (vs. $5.6b). Shares of Oracle rose 0.6% to $19.28 after-hours, after initially trading to the downside in anticipation of Q1 guidance from its conference call. Oracle forecast adjusted EPS of $0.21, in-line with estimates, as its sales guidance of $4.32b to $4.43b (+18% to +21% y/y) topped estimates of $4.11b. In a press release, CEO Larry Ellison cited a Gartner study showing Oracle's database market share has increased to 47%, compared to a decline to 21% for IBM. President Charles Phillips noted Oracle's application new software license revenues grew 32% in the past year, lauding its strategy of combining innovation and acquisitions, compared to 10% growth for rival SAP, which he said is "... trying to build everything themselves using a 1970s-era proprietary programming language." Oracle lost 1.6% to $19.16 in normal trading.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Analysts Raising Oracle Estimates Ahead of Today's Report • Oracle vs. SAP: A Special Episode Of Law & Order? • Companies With The Most Analyst Attention & Affection • Oracle Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Oracle Corp. (NYSE:ORCL). Competitors: SAP AG (NYSE:SAP), International Business Machines Corp. (NYSE:IBM), Microsoft Corp. (NASDAQ:MSFT). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV), Software HOLDRS Trust ETF (NYSE:SWH), PowerShares Dynamic Software (NYSEARCA:PSJ)
Dow Jones Board and Murdoch Agree on Editorial Safeguards
The Dow Jones board of directors and Rupert Murdoch's News Corp. reached agreement late Monday on broad principles for editorial safeguards in the event of a News Corp. takeover, according to sources close to the negotiations. Details were not released. The Bancroft family, which holds a controlling interest in Dow Jones, still has to approve the terms. Murdoch has bid $5 billion, or $60 per share, for the company, an offer the family has resisted out of concern over Murdoch's possible influence over the company's jewel, the Wall Street Journal. Michael B. Elefante, a Bancroft trustee, has not yet presented the family with the agreed-upon editorial board proposal, a delay believed by some observers to be a maneuver to extract a higher price. Dow Jones will make a management presentation to News Corp. Thursday and price negotiations are expected to resume soon thereafter. In related news, MySpace co-founder Brad Greenspan plans to meet with the Dow Jones board and several Bancrofts to discuss his counteroffer for $60 per share for a 25% stake in the company. His offer is viewed as a long shot now that Dow Jones and Murdoch are making progress on editorial considerations. Dow Jones shares rose 2.2% to close at $58.77 Tuesday.
Sources: AP, Wall Street Journal, Dow Jones, Reuters, Bloomberg
Commentary: Murdoch and Dow Jones Near Deal -- WSJ • Dow Jones-Murdoch Talks Intensify • Is Brad Greenspan the Bancrofts' White Knight?
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NASDAQ:NWS). Competitors: Reuters Group PLC [ADR] (RTRSY). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
Nordstrom to Sell Façonnable Chain to Lebanese Firm -- NY Post
Nordstrom will sell its Façonnable chain of luxury apparel and accessories to a Lebanese private equity firm, according to a report in Wednesday's New York Post. People familiar with the company say news of the impending sale was distributed internally to Façonnable employees yesterday. Employees were told there was the possibility of job cuts in the wake of the sale. The chain is expected to sell for about $200 million. Façonnable president Mark Brashear and others, including Iconix Brand Group and V.F. Corp., were also eyeing the company, the Post says. Nordstrom operates four Façonnable stores in the U.S., including its Rockefeller Center flagship, and 36 boutiques in Europe. Façonnable sells upscale items like $90 silk ties and $300 linen jackets. It is thought to have about $300 million in annual sales. Critics say Nordstrom failed to give Façonnable its own identity by forcing it to share resources with the Nordstrom chain, and having the same buyers scout merchandise for both lines. Shares are up 36.6% over the past year.
Sources: New York Post I, II
Commentary: Will Nordstrom shoppers notice if Faconnable disappears? [Styledash] • Dealwatch: Department Stores
Stocks/ETFs to watch: Nordstrom Inc. (NYSE:JWN). Competitors: Macy's Inc. (NYSE:M), ,Saks Inc. (NYSE:SKS), Jones Apparel Group Inc. (NYSE:JNY), AnnTaylor Stores Corp. (NYSE:ANN), Gap Inc. (NYSE:GPS), Ross Stores Inc. (NASDAQ:ROST), TJX Companies Inc. (NYSE:TJX)
Conference call transcript: Nordstrom Q1 2007
Nike Shares Jump 5.5% on Strong Q4 Earnings, Upside Orders/Guidance
ENERGY AND MATERIALS
Nike reported its fiscal Q4 earnings increased 32% to $437.9 million ($0.86/share), in-line with analyst consensus estimates. Revenues rose 9.4% to $4.38b -- helped by a weak dollar -- beating analyst forecasts by $20m. Shares of Nike climbed 5.5% to $56.80 in after-hours trading. Nike's global future orders for footwear and apparel for delivery from June to November surprised to the upside, totaling $7.7b (+12% y/y -- its biggest increase in 10 years). Order growth was highest in Asia, up 19%, followed by Europe (12%) and the U.S. (7%). Analysts were pleased with CFO Don Blair's forecast for current fiscal year sales growth at the top-end of guidance in the "high-single-digits." Europe led regional sales growth, up 12% to $1.3b. The U.S. was up 10% to $1.6b, and Asia gained 7% to $597m. Nike said it repurchased 5.26m shares for $281.2 million during the quarter under its four-year, $3b repurchase program (with approximately $2.2b remaining).
Sources: Nike F4Q07 Earnings Call Transcript, Press release, Bloomberg, MarketWatch
Commentary: Adidas vs. Nike: Check 'Em Out And Make Some Money • Can Nike Keep Up With the Competition? • Nike Earnings and Stock Movement
Stocks/ETFs to watch: Nike Inc. (NYSE:NKE). Competitors: Adidas AG (OTCQX:ADDYY), Under Armour, Inc. (NYSE:UA). Athletic/footwear retailers: Foot Locker Inc. (NYSE:FL), Dick's Sporting Goods Inc. (NYSE:DKS), Finish Line Inc. (NASDAQ:FINL). ETFs: PowerShares Dynamic Consumer Discr. (NYSEARCA:PEZ)
Related: Nike earnings release with tables (.pdf)
Basell Buys Huntsman Corp. For $9.6 Billion Including Debt
Massive polyolefins producer Basell announced Tuesday it would buy all common shares of Huntsman Corp. for $5.5 billion in cash ($25.25/share). Including debt, the deal, which is expected to close in the fourth quarter, is valued at $9.6 billion. The offer represents a 34% premium to Monday's closing price of $18.90. Shares reacted by jumping 28% to close at $24.21. Shareholders and regulators in the U.S. and Holland (where Basell is based) must approve of the deal. Basell is a division of industrialist Leonard Blavatnik’s Access Industries, the world's largest producer of polypropylene and advanced polyolefin products. The boards of both companies have approved the deal, as has the Huntsman family of Utah, which owns 57% of the shares outstanding. Utah Gov. Jon Huntsman Jr. sold off his shares of Huntsman Corp. upon taking office in 2005. Basell and Huntsman combined for revenue of $26 billion in 2006. Goldman Sachs analyst Edlain Rodriguez believes the companies will retain their full earnings power, as there is "little overlap in their businesses."
Sources: Press Release, Wall Street Journal, Bloomberg, New York Times DealBook, AP, Reuters
Commentary: Only Offer For Huntsman, But Other Chemical Companies Are Targets [Reuters] • Through The Fly's Eyes: M&A[Flyonthewall] • US Slipping Behind?
Stocks/ETFs to watch: Huntsman Corporation (NYSE:HUN). Competitors: E.I. du Pont de Nemours & Company (NYSE:DD), Lyondell Chemical Company (LYO), The Dow Chemical Company (NYSE:DOW). ETFs: Materials Select Sector SPDR (NYSEARCA:XLB), iShares Dow Jones US Basic Materials Index (NYSEARCA:IYM), Vanguard Materials VIPERs (NYSEARCA:VAW)
ExxonMobil and ConocoPhillips: Adios, Venezuela
ExxonMobil and ConocoPhillips are abandoning most of their multibillion-dollar investments in Venezuela after refusing terms demanded by President Hugo Chavez as part of his nationalization drive. Chavez has also pushed AES Corp. and Verizon Communications out of Venezuela to take control over the country's power and phone lines. Chevron, Statoil, Total and BP have agreed to Chavez's terms and will continue heavy-oil operations in the country. On May 1, state oil company Petroleos de Venezuela [PdVSA], which previously held minority stakes in the operations of the foreign oil companies, unilaterally claimed stakes of at least 60% while also taking operational control over foreign plants. Under the terms of the new agreements, PdVSA will assume stakes in the four remaining foreign projects ranging from 60% to 83%. The projects are worth a collective $31 billion. ConocoPhillips will take a $4.5 billion charge in Q2 to write off its Venezuelan operations. Exxon and ConocoPhillips now have the option of either negotiating for compensation or suing Venezuela. ConocoPhillips's assets in Venezuela represent approximately 5% of its 2006 oil-and-gas equivalent production; ExxonMobil's Venezuelan assets are about 1% of 2006 output. Shares of ConocoPhillips were off 2.9% to $75.80 Tuesday. ExxonMobil fell $0.55 to $81.82.
Sources: Wall Street Journal, Forbes, Bloomberg, CBS News, Reuters
Commentary: Heavy Crude: Why Venezuela and The U.S. Need Each Other • Is It Too Soon to Celebrate Venezuela-Exposed Stocks? • Hugo Chavez: Providing Profitable Investment Opportunities
Stocks/ETFs to watch: Exxon Mobil Corp. (NYSE:XOM), ConocoPhillips (NYSE:COP). Competitors: BP plc (NYSE:BP), Chevron Corp. (NYSE:CVX), Total SA [ADR] (NYSE:TOT), Statoil ASA [ADR] (NYSE:STO). ETFs: Ultra Oil & Gas ProShares (NYSEARCA:DIG), PowerShares FTSE RAFI Energy (PRFE), Energy Select Sector SPDR (NYSEARCA:XLE)
Conference call transcripts: ExxonMobil Q1 2007, ConocoPhillips Q1 2007
Citibank In Advanced Talks To Acquire Automated Trading Desk -- WSJ
Citigroup is in advanced talks to acquire electronic platform trader Automated Trading Desk for approximately $700 million dollars, according to a report in the Wall Street Journal. People familiar with the matter say the deal could close before week's end. Automated Trading was founded in 1988 by two computer programmers and a Rutgers University finance professor and uses computer algorithms rather than humans to execute trades. Though it employs only 100 people, it handled roughly 6% of the equity trading volume in the U.S. last year, logging as many as 200 million trades a day. Citigroup has been under intense pressure recently to either break up into several parts or start growing from within, as costs have outstripped revenue growth. The company recently acquired a majority stake in Japan's third-largest brokerage, Nikko Cordial, for upwards of $7.5 billion.
Sources: Wall Street Journal, Reuters, Dow Jones Newswire, RTT News
Commentary: Supreme Court Tosses Class-Action Suit Against I-Banks • CreditSights Analyst Joins The 'Breakup Citi' Team • Citigroup Clinches Key Stake in Nikko Cordial
Stocks/ETFs to watch: Citigroup Inc. (NYSE:C). Competitors: Bank of America (NYSE:BAC), JP Morgan Chase (NYSE:JPM), HSBC (HBC). ETFs: iShares Dow Jones US Financial Services (NYSEARCA:IYG), Financial Select Sector SPDR (NYSEARCA:XLF)
Conference call transcripts: Citigroup Q1 2007 Earnings Call Transcript
Related: Automated Trading Desk
Bear Stearns: Bigger Fund Doesn't Need a Bailout
Bear Stearns said Tuesday the more leveraged of its collapsing hedge funds owes much less than was originally estimated, obviating the need for a bailout by the investment bank. This news followed the disclosure that Bear will put about $1.6 billion, rather than the originally proposed $3.2 billion, into a secured financing facility to rescue the less leveraged of the two funds. "By providing this... facility we believe we have helped stabilize and reduce uncertainty in the marketplace," said Bear Stearns CEO James Cayne, who added he does not foresee "any material adverse effect" on Bear's business. Bear has assigned Thomas Marano, global head of mortgages and asset-backed securities, to manage the bailout. The more leveraged fund, the High-Grade Structured Credit Enhanced Leveraged Fund, has $1.2 billion in repurchase agreements on its books, much less than the original estimate of $7 billion. This lower figure, which Cayne considers "adequately collateralized," suggests the fund has managed to sell assets since the crisis began. Though the fund could still face serious losses, it appears less likely to be subjected to a broad forced liquidation. Most of its creditors have consented to give Bear the opportunity to either boost collateral for its loans or unwind its positions rather than flood the market with its assets.
Sources: TheStreet.com, Bloomberg, Dow Jones
Commentary: Bear Stearns Attempting $3.2 Billion Hedge Fund Rescue • SEC Knocking on Bear Stearns' Door • Collateralized Debt Obligations: "A Triumph of Greed Over Fear"
Stocks/ETFs to watch: Bear Stearns Companies Inc. (BSC). Competitors: Goldman Sachs Group Inc. (GS), Lehman Brothers Holdings Inc. (LEH), Merrill Lynch & Co. Inc. (MER). ETFs: iShares Dow Jones US Broker-Dealers (IAI), KBW Capital Markets ETF (KCE)
BlackRock to Acquire Quellos Division for Up to $1.7 Billion
Asset management company BlackRock, Inc. has signed a definitive agreement to acquire the fund-of-funds business of Quellos Group LLC for up to $1.7 billion. The Quellos unit assembles portfolios of hedge funds, an increasingly popular investment among investors who seek alternatives to equities and bonds. These investors are also attracted to private equity and real estate. "You're seeing a global reallocation into those categories," said BlackRock Chairman and CEO Laurence Fink. "We needed more depth." BlackRock will pay $562 million in cash and $188 million in BlackRock common stock at closing, with Quellos entitled to up to an additional $970 million in cash and stock over three and a half years if certain conditions are met. BlackRock, the largest public mutual fund company in the country, manages about $1.15 trillion. The deal is expected to close on or around October 1, 2007.
Sources: Press release, Bloomberg, Reuters, Wall Street Journal, Business Week, RTTNews
Commentary: Covestor and VesTopia: Winners and Losers from Peer to Peer Investing • Outsourcing Asset Management is Hurting the Insurance Industry
Stocks/ETFs to watch: BlackRock, Inc. (NYSE:BLK). Competitors: Federated Investors Inc. (NYSE:FII), Legg Mason Inc. (NYSE:LM)
China Readies Overseas Investment Fund; Yen Rises
China's Ministry of Finance is set to issue 1.55 trillion yuan ($200 billion) of bonds to buy an equal amount of forex reserves from the nation's huge $1.2 trillion stockpile, for management by the start-up State Investment Co., according to media reports citing Xinhua News. If the bonds are issued directly to the People's Bank of China, there will be no effect on liquidity and the markets, says an economist at HSBC Hong Kong. However, if sold to the market, it will have the effect of raising the reserve ratio by 0.5% and further reduce excess liquidity. Separately, China's parliament is said to be considering removing or reducing a 20% tax on interest income from deposits, in an attempt to slow shifting of funds to equities. Meanwhile, the yen made its biggest advance against the euro in 10-weeks, as investors sought to reduce riskier holdings funded by yen-denominated loans. Reactions varied among currency traders and strategists. The Bank of New York's currency chief in London was bearish, citing "very clear changes towards the currency markets within Japan's Ministry of Finance along with continued losses for global equity markets." His counterpart at Citigroup in NY however, forecast prolonged yen weakness, calling the yen "a dog."
Sources: Reuters, Bloomberg I, II
Commentary: China's 10% Stake In Blackstone Group: Should We Start To Worry? • Chinese Banks to Reference the RMB Yield Curve: It's About Time • Yen Gains Against Dollar on Minister's Warning, But Carry Trade Intact
Stocks/ETFs to watch: iShares Lehman 1-3 YR Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ YR Treasury Bond (NYSEARCA:TLT). Currency funds: PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), Euro Currency Trust (NYSEARCA:FXE), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY). China funds: Morgan Stanley China A (NYSE:CAF), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NYSEARCA:PGJ)
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