Yellen: Fed Policy Should Encourage Growth, Contain Inflation
Janet Yellen, President of the Federal Reserve Bank of San Francisco, said Thursday that prevailing U.S. interest rate policy is the best means of accelerating growth and slowing down inflation, although "upside risks to inflation continue to be present." Speaking via satellite to an economic conference in Singapore, Yellen said, "The virtues of this path are that it avoids exposing the economy to unnecessary risk of a downturn while, at the same time, it is likely to produce enough slack in goods and labor markets to relieve inflationary pressures." Her speech followed the Fed's decision last week to maintain the benchmark interest rate at 5.25%. Yellen called the latest economic indicators "robust" and does not expect the housing slowdown to be a significant damper on wider growth, although she does expect consumer spending to "diminish." She did not mention slumping business spending, a topic she addressed in an April speech, but did discuss a new risk: high premiums on subprime mortgage-backed debt. "[S]uch developments are worth watching with some care, since there is always the possibility that they do presage a more general and pronounced shift in risk perceptions" that could ultimately "pose a downside threat to the global economy," she said.
Sources: Reuters, Bloomberg, Forbes
Commentary: Core Inflation Remains a Low 0.1% • The Fed Rates the Economy, and Leaves All Its Options Open • Fed Holds Rates Steady
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Sony Denies Rumors It Will Cut PS3 Prices
Sony Corp. President Ryoji Chubachi said in an interview in Tokyo Friday that his company had no plans to lower prices on the $599 PS3 game console released in late 2006, even though it's trailing sales of rival Nintendo's Wii game console by a wide margin. Several gaming sites reported such a move would likely occur next week, including GameDaily and CAGCAST Video Games, who said an unidentified merchandising manager at "one of the world's biggest retailers" claimed Circuit City would begin selling the PS3 for $100 less starting July 12. Based on the available information, David Abrams, CEO of CAGCAST said "It is hard to imagine that Circuit City alone would cut the price on a game consoles. This must be a retail-wide move." But Sony's President responded "We have no immediate plans [for price cuts] as of now,'' adding that any change in the console's price "is a matter" for Sony's gaming unit, Sony Computer Entertainment. A Circuit City Spokesman declined to comment on the rumors. Sony shares rose 3.36% to $52.37 Thursday, and gained another 0.58% after hours.
Sources: Bloomberg, Reuters, CAGCAST, Game Daily, Next Generation, Gamesindustry.biz
Commentary: Sony Has "No Plans" For PS3 Price-Cut? [kotaku.com] • Wii Extends Lead Over PS3 • Nintendo: The Charts Don't Lie
Stocks/ETFs to watch: Sony Corp. (NYSE:SNE), Circuit City (NYSE:CC). Competitors: Microsoft (NASDAQ:MSFT), Nintendo (OTCPK:NTDOY). ETFs: BLDRS Asia 50 ADR Index (NASDAQ:ADRA)
Earnings call transcripts: Sony F4Q06
Microsoft to Take $1B Charge for Xbox 360 Repairs
Shares of Microsoft fell 0.4% to $29.88 in extended trading, erasing approximately $1.05 billion from its market capitalization, or the low end range of the $1.05b - $1.15b pre-tax charge it announced it will take against its Q4 (ended June 30) earnings related to current and enhanced Xbox 360 warranties. The charge will lower Q4 EPS by $0.07 - $0.08, but have no impact on fiscal 2008 earnings. CFO Chris Liddell said the company is still eying Xbox profitability sometime this fiscal year. The decision to expand the Xbox 360 warranty to three years (from one previously) was the result of "an unacceptable number of repairs." The new warranty is effective on a global basis for customers who experience a "general hardware failure indicated by three flashing red lights," known as "The Red Ring of Death" among gamers. Microsoft had already expanded its Xbox 360 warranty for U.S. consumers to one year (from 90 days) last December. Microsoft lost 0.1% to $29.99 in normal trading. It reports Q4 earnings July 19.
Sources: Press release, Associated Press, Bloomberg, MarketWatch, Wall Street Journal
Commentary: Microsoft Having Problems With Xbox 360? You Don't Say! • Microsoft: Xbox Hardware Failures Prove Costly • Wii Extends Lead Over PS3
Stocks/ETFs to watch: Microsoft Corp. (MSFT). Competitors: Nintendo Co. Ltd. (OTCPK:NTDOY), Sony Corp. (SNE). Gaming software publishers: Electronic Arts (ERTS), Activision Inc. (NASDAQ:ATVI), Konami Corp. (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ Inc. (THQI). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV), Software HOLDRS Trust ETF (NYSE:SWH), PowerShares Dynamic Software (NYSEARCA:PSJ)
Conference call transcripts: Microsoft F3Q07, Sony F4Q06
Parametric Trims Guidance; Shares Tumble After Hours
Shares of design software manufacturer Parametric Technology plummeted almost 22% to $16.86 in AH trading Thursday after the company announced it is lowering its Q3, Q4 and full-year revenue and EPS forecasts. Q3 revenue is now projected at $225 million, 4% higher than last year but down from an earlier forecast of $235-240 million. "Lower-than-expected license revenue totaling approximately $62 million was the primary driver of the Q3 results," the company said in a release. Parametric expects Q3 EPS, which it forecast in April to come in at $0.15-0.18 [GAAP] and $0.26-0.29 [non-GAAP], to fall short, though it did not specify to what extent. Analysts had been expecting Q3 EPS of $0.28 on revenue of $238.2 million. On July 25, Parametric will report Q3 results and issue lowered forecasts for Q4 and the full year. Parametric had been forecasting fiscal 2007 revenue of $950 million, GAAP EPS of $0.71-0.76 and non-GAAP EPS of $1.17-1.22. Analysts had been expecting $1.17 in full-year EPS on $951.2 million in revenue.
Sources: Press release, TheStreet.com, AP, MarketWatch, RTT News
Commentary: Parametric Issues Warning on Weak Revenue • Eye on the CAD/PLM Market
Stocks/ETFs to watch: Parametric Technology Corp. (PMTC). Competitors: Dassault Systemes SA (OTCPK:DASTY). ETFs: iShares Goldman Sachs Software Index Fund (IGV), Software HOLDRS Trust ETF (SWH), PowerShares Dynamic Software (PSJ)
TRANSPORT AND AEROSPACE
Lockheed Secures Billion Dollar Air Force Training Contract, Beating Out L-3
Lockheed Martin was awarded an Air Force Special Ops and Search & Rescue training contract, beating out a rival bid from L-3 Communications Holdings. The one-year contract, announced Thursday, is valued at $1.07 billion. Lockheed already held the previous Aircrew Training and Rehearsal Support contract. The contract is with Lockheed Simulation, Training and Support, based in Orlando, FL. It will provide training, hardware, software and course instruction to involved air force personnel. Lockheed shares fell 0.28% in after-hours trading Thursday, after climbing 1.29% in regular trading.
Sources: AP, Reuters
Commentary: Lockheed: Q1 Profit Up 17%, Beats Street, Raises Guidance • Lockheed Martin: Continued Improvement Due to Accounting Changes • Cramer's Take on LMT
Stocks/ETFs to watch: Lockheed Martin Corporation (NYSE:LMT), L-3 Communications Holdings (NYSE:LLL). Competitors: The Boeing Company (NYSE:BA), Northrop Grumman Corporation (NYSE:NOC), Raytheon Company (NYSE:RTN). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA)
ENERGY AND MATERIALS
Rio Tinto Hires Advisors in Possible White Knight Bid for Alcan -- Telegraph
The Telegraph.co.uk reports Rio Tinto is "understood to have engaged Credit Suisse [CS] and Deutsche Bank [DB] to advise it on a range of options, including a bid for Alcan." A bid for Alcoa is possible, but thought less likely. Rio Tinto could emerge as a white knight for Alcan, which received a $28b hostile takeover bid from Alcoa in early May. Alcan has hired Morgan Stanley, a long-time financial adviser to Rio. Sources say Rio asked CS and DB to explore "strategic alternatives" in the mining sector. Larger rival BHP Billiton is also said to be interested in Alcan, along with other players such as Xstrata , Anglo American and Companhia Vale do Rio Doce, according to analysts. In the meantime, Alcoa has said it could bid more for Alcan, while the latter reportedly could make a reverse hostile bid. Alcan is believed to have already talked with both Rio and BHP about a deal, but it is unclear what stage talks are in, if any, at present.
Sources: MarketWatch, Telegraph.co.uk
Commentary: Speculation Takeover Continues For Alcan, Alcoa: BHP, Rio Tinto Front-Runners • Teck Cominco in $3.9B Deal; Rio Tinto Says Unable to Meet Chinese Demand • Analysts Skeptical of BHP Bid for Alcoa, Alcan; Shares of All Three Rise
Stocks/ETFs to watch: Rio Tinto plc (RTP), Alcan Inc. (NYSE:AL), Alcoa Inc. (NYSE:AA), BHP Billiton Limited (NYSE:BHP), Anglo American plc ADR (AAUK), Companhia Vale do Rio Doce (NYSE:RIO), Xstrata [UK: XTA]
Newmont Mining to Shutter Merchant Banking Business, Eliminate Gold Hedge
Newmont Mining's new CEO Richard O'Brien, who is completing his first week in that position after being promoted from CFO, is already making his mark by closing the company's merchant banking unit to focus on its core gold mining operations. The unit "has not helped Newmont grow its gold business and may have been a distraction," said HSBC analyst Victor Flores. Several options are being considered for the unit, including an IPO or sale. Newmont will take a $1.7 billion impairment charge in Q2 as a result of the closure. The company also announced that last month, it eliminated its entire 1.85-million-ounce gold hedge position at a cost of $578 million. Newmont will post a pretax loss of $531 million for early settlement of all its price-capped forward sales contracts. "With the elimination of our gold hedge book, we have renewed our commitment to maximizing gold price leverage for our shareholders," O'Brien said in a release. Analyst Patrick Chidley forecasts Newmont will post a "very poor second quarter" because the charges should outweigh results, but sees the elimination of the gold hedge as a net positive that could ultimately attract investors.
Sources: Press release (.pdf), Bloomberg, Dow Jones, MarketWatch, TheStreet.com, MoneyCentral
Commentary: Eight Ways to Add Gold to Your Portfolio • Is a Bottom in Store For Gold Miners? • Gold Should Continue To Gain vs. Paper Assets
Stocks/ETFs to watch: Newmont Mining Corp. (NYSE:NEM). Competitors: AngloGold Ashanti Ltd. (NYSE:AU), Barrick Gold Corp. (NYSE:ABX), Gold Fields Ltd. (NYSE:GFI). ETFs: Market Vectors Gold Miners (NYSEARCA:GDX), Materials Select Sector SPDR (NYSEARCA:XLB), Vanguard Materials ETF (NYSEARCA:VAW)
Earnings call transcript: Newmont Mining Q1 2007
UBS Ousts CEO Wuffli; Replaces Him with Rohner
Swiss financial institution UBS has replaced CEO Peter Wuffli with deputy CEO Marcel Rohner, effective immediately. It has also rejected a proposal by Chairman Marcel Ospel that Wuffli succeed him in that position. Ospel will continue as Chairman for three years and will be succeeded by Rohner. Wuffli has resigned from the bank in the wake of the shakeup. "Events like this might look unsettling at first glance but be assured that we will continue to pursue UBS's current course, acting as one firm with a focus on profitable growth," Ospel said after Wuffli's resignation. Rohner is also CEO of UBS's global wealth management and business banking units, which accounted for over 40% of the company's profit last year. UBS has suffered the loss of several major dealmakers recently, including Ken Moelis and Jeffrey McDermott. The company also shut down its loss-making in-house hedge fund, Dillon Read Capital Management, at a cost of about $300 million. UBS's share price has disappointed investors, particularly when compared to that of rival Credit Suisse Group. Two months ago, UBS posted a 7% drop in Q1 profit. The WSJ reports the reshuffle might be a means of thwarting a break-up of the company, a prospect some analysts believe could revive the lagging share price.
Sources: Bloomberg, Wall Street Journal, MarketWatch, Forbes
Commentary: Ten Ways to Invest in Switzerland • UBS AG Misses Forecasts on Hedge Fund Loss, Shares Drop on Downgrade
Stocks/ETFs to watch: UBS AG [USA] (NYSE:UBS). Competitors: Credit Suisse Group (NYSE:CS), Deutsche Bank AG (NYSE:DB), Barclays PLC (NYSE:BCS), ABN Amro Holding N.V. (ABN), Morgan Stanley (NYSE:MS), JPMorgan & Chase Co. (NYSE:JPM), Citigroup Inc. (NYSE:C). ETFs: iShares MSCI Switzerland (NYSEARCA:EWL)
Interactive Brokers Drops in AH on Disappointing Preliminary Q2 Earnings
Shares of Interactive Brokers Group [IB] last traded down 8.8% to $24.73 in extended trading after falling as much as 13%, following the release of preliminary Q2 earnings. IBG reported a $37 million options trading loss in what it says was manipulated trading of Germany's Altana AG on the Deutsche Boerse. IB estimated Q2 pro forma diluted EPS of $0.26-0.28, on revenue of $281-299m. It earned $0.24/share on sales of $291m in Q2 2006. The options trading related loss was transferred from its European limited partnership. Germany's Federal Financial Supervisory Authority is investigating the trading of Altana. IB said its limited partner will attempt to recover the losses. Excluding the $37m loss and an $11m tax-related gain, EPS of $0.32-0.34 would have been within the range of two analysts who cover the company, according to Bloomberg.
Sources: Press release, Bloomberg
Commentary: Interactive Broker Group Should Raise Upwards of $1 Billion In IPO • Interactive Brokers Group S1 Review • Market Maker-Broker Interactive Brokers Group Going Public
Stocks/ETFs to watch: Interactive Brokers Group, Inc. (NASDAQ:IBKR). Competitors: Investment Technology Group Inc. (NYSE:ITG), NASDAQ Stock Market, Inc. (NASDAQ:NDAQ), optionsXpress Holdings Inc. (NASDAQ:OXPS)
Advanced Medical Optics Tops Warburg Pincus's Bid for Bausch & Lomb
Advanced Medical Optics has made a $4.3 billion counteroffer for Bausch & Lomb to rival the $3.7 billion deal Bausch signed with Warburg Pincus on May 16. Bausch shares gained 4.9% to close at $72.00 on the news. Advanced Medical has bid $45 in cash and $30 in stock per share, 16% more than Warburg's $65 all-cash bid. "It's hard to find a way to argue that $75 isn't superior to $65," said Robert Baird analyst Jeff Johnson. Before accepting the higher bid, however, Bausch's board will have to consider antitrust issues that may be implicit in the combination. In addition, the transaction could be subject to the approval of Advanced Medical's shareholders. According to the WSJ, the deal might be advanced by the re-entrance into Advanced Medical's buying group of either Goldman Sachs's private equity unit or KKR. If that occurs, it would mark a diversion from the traditional "gentlemen's agreement" among private equity firms not to sabotage one another's signed deals. Advanced Medical wants Bausch for its contact lens and eyeglasses lines, which would complement its own product line of eye solutions and laser vision correction tools.
Sources: Wall Street Journal, MarketWatch, Bloomberg, Reuters
Commentary: Bausch & Lomb To Be Taken Private for $4.5B; Traders Anticipate Higher Bids • Advanced Medical Optics Considering Offer for Bausch & Lomb • Advanced Medical Optics: Shares Plummet on MoisturePlus Recall
Stocks/ETFs to watch: Advanced Medical Optics, Inc. (EYE), Bausch & Lomb Inc. (BOL). Competitors: Alcon Inc. (NYSE:ACL), Cooper Companies Inc. (NYSE:COO)
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