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MACRO AND HOUSING

Dollar Falls to Lowest in 15 Years

The dollar index, which compares the dollar to its six primary peers, fell to its lowest level in 15 years on Friday. The decline followed news that U.S. employment dropped for the first time in four years (full story). Futures showed a 76% chance that the Fed will cut interest rates by half a point to 4.75% from 5.25% at its September 18th meeting. Central banks from the UK, euro region, Canada, Australia and South Korea kept rates unchanged. For the first time since 2004, US Treasuries yielded less than German bunds.
Sources: Bloomberg, WSJ
Commentary: What Does Friday's Sell-Off Tell Us About the Economy?Euro/Yen Strength To Continue Versus the U.S. Dollar
Stocks/ETFs to watch: DBV, UDN, GBB, ERO, FXY

Fed Rate Cut Not Certain - Plosser

The surprisingly sharp decline in August jobs may have shocked the market, but does not guarantee a fed funds rate cut at the upcoming FOMC meeting on Sept. 18, and is unlikely to result in another between-meetings rate cut. "We want to be careful not to overweight one piece of information," Charles Plosser, president of the Federal Reserve Bank of Philadelphia said following a speech in Hawaii on Saturday. He said the district bank heads were trying to gauge the impact of the credit market turmoil and worsening housing situation, noting that there was "a lot of conflicting data out there that's going to be tricky to get through." He added that he hadn't made up his mind as to whether a rate cut was needed. That's not to say the Fed isn't looking to put funds into the system, having cut the discount rate by 50 basis points in a rare move between meetings on August 17. Plosser reiterated that the Fed "didn't care" why banks want to borrow the money. Plosser also said that the growing uncertainty about the economy could translate into some uncertainty over the Fed's inflation outlook. While he noted that there is "considerable uncertainty" concerning the country's economic expansion given the housing slump, he indicated that there was an "underlying stability," and that he expected growth to resume later in 2008 as the housing impact gradually eases. Interest-rate futures indicate a cut in the overnight rate by at least a quarter-point from 5.25% when the Fed meets on September 18.
Sources: Bloomberg, Wall Street Journal
Commentary: How Much Should The Fed Clean Up The Current Mess?What's the Connection Between Non-Farm Payroll, a Recession and Gold?Impact of The Rotten Jobs Number
Stocks/ETFs to watch: DIA, SPY, AGG

TECHNOLOGY

Cap Gemini to Offer Clients Google Apps

Google's efforts to increase sales to big business may get a boost as French technology consultancy Capgemini, whose major customers include Eli Lilly & Co. and PricewaterhouseCoopers, plans to recommend the Internet search company's on-line office software to its corporate clients. The partnership is the first time a top a major technology consulting firm has endorsed Google's software package, though Capgemini also will continue to support software from vendors such as Microsoft and IBM. Google has made inroads with small businesses given the cheap $50 annual cost for the package, but has had a more difficult time penetrating larger corporations. The package includes the Gmail e-mail service and word processor, spreadsheet and Business presentation software. By using software as a service, customers don't have to maintain and install systems because it is available on the Internet. Capgemini has influence over the software used on more than a million PCs worldwide. Citing Gartner research, Capgemini said the market for software as a service could grow 25% by 2010. Software licenses, at $70M, accounted for less than 1% of Google's total revenue in the first half.
Sources: AP, Bloomberg, Reuters
Commentary: Snobs: Google Losing Its Indie Sex AppealGoogle Apps : Microsoft Has Good Reason to WorryGoogle Getting Serious About Taking On Microsoft In Enterprise
Stocks/ETFs to watch: GOOG. Competitors: YHOO, MSFT. ETFs: HHH, FDN
Earnings call transcript: Google Q2 2007

AMD Hopes New CPU Will Chip Away at Intel Dominance

Intel rival AMD hopes Monday to staunch growing losses with the launch of its Quad-Core AMD Opteron Processor for servers, code-named Barcelona. Various analysts stress that the release is a high-stakes event for AMD, which captured 25% of the global server semiconductor market from Intel when it released its Opteron line of chips in 2003. Intel countered with its release of core and quad duo chips in 2006, knocking AMD's market share down to 13%, as its new products combined multiple processors on a single chip, making the Opteron seem all but obsolete. Server makers IBM, Sun, Dell and Hewlett-Packard have already begun designing servers with Barcelona in mind. Unlike Intel's Xeon, which combines a pair of dual processors on one chip, Barcelona places all four processors on a single chip. Industry experts are undecided which approach will yield the performance advantage. Barcelona is more power-efficient than Intel's comparable chip, a major selling point, but only runs at 2.0 gigahertz, far slower than the Intel equivalent. CEO Hector Ruiz says AMD will release a 3.0 gigahertz version of Barcelona by year's end. AMD lost $1.2 billion during the first half of 2007, as the Barcelona release date was pushed back six months. Unlike when it released Opteron, AMD will not be able to charge a premium to Intel's rival chip, as Barcelona doesn't improve server functionality above Intel's line of quad core chips. Observers agree that at the least, AMD's new chips will give businesses more variety, and the ability to play the two chipmakers off each other in order to gain price cuts. AMD shares have lost 38% YTD, while Intel shares are up almost 26%.
Sources: Press Release, Wall Street Journal, Reuters, AP, Dow Jones Newswires
Commentary: Advanced Micro: Citigroup Awaits Restructuring MovesAMD Details Roadmap: Barcelona And BeyondIs AMD Getting On Its Feet After Intel Knockdown?
Stocks/ETFs to watch: AMD, INTC. ETFs: XSD, SMH, USD.
Earnings call transcript: AMD Q2 2007Intel Q2 2007

Philips Electronics Hopes To Save Big With Reorganization

Koninklijke Philips Electronics NV announced Monday it would reorganize into three separate units: Consumer Lifestyle, Lighting and Healthcare. The move is expected to result in a more than doubling of EBITA per share by 2010. According to Philips President and CEO Gerard Kleisterlee, "The time is right... to give our stakeholders a clear blueprint of what we want Philips to be in 2010.” The Consumer Lifestyle unit will be comprised of consumer electronics, domestic appliances and personal care; Philips sees no need to necessarily cut jobs as part of its reorganization, which it has dubbed "Vision 2010." Philips announced it was buying American LED company Color Kinetics in June. The company expects its reorganization to save it as much as 200 million euros ($274 million) a year, with sales increasing a minimum of 6% annually. Philips shares were higher by 2.6% in Amsterdam Monday morning.

Sources: Press Release, Bloomberg, Reuters, MarketWatch, Dow Jones Newswires I, II
Commentary: Philips Comments on Weak Flat Panel Sales and Its Consumer Electronics BusinessPhilips to Acquire Color Kinetics: What's An LED Investor To Do?Koninklijke Philips Electronics To Buy Color Kinetics For 14% Premium
Stocks/ETFs to watch: PHG. Competitors: GE, MC, SNE, LPL. ETFs: Shares MSCI Netherlands Index (EWN)
Earnings call transcript: Koninklijke Philips Electronics Q2 2007

INTERNET

Yahoo Overhaul Unlikely -- WSJ

"Investors who have grown impatient with Yahoo Inc. may have to wait awhile longer to see any pop in its stock," the Wall Street Journal reported Monday. People familiar with the matter say that despite Yahoo's summer-long 'soul-searching,' a major overhaul seems unlikely. In July, co-founder and new CEO Jerry Yang said he would spend the next 100 days redesigning the company's long-term strategy: "There will be no sacred cows, and we need to move quickly," Yang told reporters. Sources say Yahoo did consider one major move: outsourcing its search-advertising business, which it built at great expense, to Google (with whom one source says Yahoo held discussions) or Microsoft. Considering Google currently generates about 40% more per customer than Yahoo, such a move would give Yahoo an immediate revenue boost of "hundreds of millions annually," a likely one-time payment from its partner, as well as reducing ongoing operating costs, the Journal says. However, Yang dropped the idea after concluding Yahoo must give advertisers a 'full menu' of online-ad options -- which is only possible if it runs its own show. One fund manager, who believes outsourcing search ads would produce "massive earnings power" for Yahoo, sold his stake after meeting with Yahoo's president and CFO in August: "We decided that the management isn't considering the kind of transformational changes that would be required to improve their position in the market," Glen Kacher of Integral Capital Partners said. Sources say Yang has internally downplayed the 100-day timeline, and that no major announcement is expected when it expires in October. The company has and will likely continue to implement minor staff cuts and increase its focus on operational execution. It has also "had conversations of varying intensity with Microsoft, Time Warner Inc., News Corp. and eBay Inc. about combining at least some of their activities," sources say, adding talks don't appear to be currently active.
Sources: Wall Street Journal
Commentary: Yahoo is Not a Takeover TargetShould Yahoo Outsource Search to Google?
Stocks/ETFs to watch: YHOO, GOOG, MSFT, TWX, NWS, EBAY
Earnings call transcript: Yahoo! Q2 2007

Weak CPM Growth May Force Web Publishers to Re-examine Pricing Model

According to internet research firm comScore, 11% of the world's population (785 million) now uses the internet. However, while annual user growth is about 9%, and time spent online is growing at a slightly higher 10% clip, total page views are increasing at a far more modest 6% annually, a figure that may have serious implications for internet publishers. Legacy pricing models typically charge advertisers for every 1,000 page views or impressions [CPM] their ads receive. According to JMP Securities research analyst William Morrison, the sharp growth discrepancy between time-spent and page views growth figures is due to two factors: the explosion of internet video, which has increased the average time spent on a page; and publishers' adoption of new technologies such as RSS feeds, AJAX and widgets that enable users to access more content without clicking through to a new page. Ultimately, he says, content providers will be forced to innovate, or risk losing their audiences to those who do. Analysts and investors will eventually move towards giving more weight to time spent per site, as opposed to the ubiquitous page-views, but in the meantime, Morrison says, "If the decline in page views due to technological innovation persists, as we expect, most publishers are going to be forced to change their pricing and sales models. We have significant concerns about the disruption that this type of a change could have on the broader online display ad market over the next few years."
Commentary: Web Usability Expert: Users Ignore Ads -- Other Than Google'sRising Ad Blocker Use Poses Risk to Web Content/Ad Stocks
Stocks/ETFs to watch: GOOG, YHOO, TWX, CNET, TSCM, MSFT

MEDIA

Gazprom Considered Bid for Dow Jones -- Times of London

Gazprom, the Russian state-controlled energy company, considered submitting a bid for Dow Jones to rival Rupert Murdoch's $5 billion offer, the Times of London reported Monday. Murdoch's bid became public on May 1. An SEC regulatory filing indicates that following that bid, Dow Jones was contacted by 21 "potential transaction partners" but none made a competitive offer. Among them was "an international oil and gas company," later identified as Gazprom. The filing does not say how far the talks with the company -- labeled "Company F" -- got, but does say no specific proposal was made. "Even if Gazprom had proceeded," the Times notes, "it is thought highly unlikely that The Wall Street Journal would have been allowed to fall into the hands of a state-backed Russian company." In addition to its oil and gas businesses, Gazprom has entered the agriculture, automotive and media businesses. It owns the national television station NTV as well as the newspaper Izvestia. The WSJ notes that private equity firm Blackstone Group was also interested in Dow Jones.
Sources: Times Online, Wall Street Journal
Commentary: Dow Jones Accepts News Corp. OfferMurdoch Takes Dow Jones: The Battle CommencesMurdoch Gets Dow Jones - Now What?
Stocks/ETFs to watch: DJ, NWS, OTCPK:OGZPY, BX. ETFs: PBS, PEJ
Earnings call transcript: Dow Jones Q2 2007, News Corporation F3Q07, The Blackstone Group Q2 2007

ENERGY AND MATERIALS

Most OPEC Ministers Say No Increase Needed; Saudi Minister Stays Mum

Speaking ahead of Tuesday's OPEC meeting, most members of the cartel indicated over the weekend that they believe no increases in oil production are required at this time. Washington consultancy PFC Energy published a report Friday indicating that Saudi Arabia might favor a production increase of up to one million bpd, but Saudi Oil Minister Ali Al-Naimi has not responded. The only OPEC minister to state publicly that the cartel might raise output was Iraqi oil minister Hussain al-Shahristani, who said, "[W]e will be discussing if we need to increase production slightly to meet increased demand." A production increase would likely tamp down the oil price, which recently exceeded $76/barrel. Kuwaiti Acting Oil Minister Mohammed Abdullah al-Aleem said, "There is no pressing need to increase OPEC production as the recent rise in prices was caused by international geopolitical developments and a shortage of refining capacity, especially in the United States." Summarizing the general consensus, OPEC President and UAE oil minister Mohamed al-Hamli said, "Supplies to the oil market are now sufficient."
Sources: Reuters, MarketWatch, Bloomberg, AP,
Commentary: Hedging Oil & Natural Gas Stocks With ETF ShortsOil Market: The Good, The Bad and The UglyAre Oil Prices Increasing at a Rapid Rate?
Stocks/ETFs to watch: BP, XOM, TOT, CVX, RDS. ETFs: USO, OIL, DBO, DCR

FINANCIAL

Banks Hit With Surging Credit Costs

Twenty-five major banks are paying an approximate $300 million in interest rate charges on $70 billion worth of bonds issued since July, when the current market turbulence began, according to Dealogic. About $20 billion in bank redemptions that must be refinanced with new bonds or loans is due this month. "The uncertainty, the volatility and the low risk appetite means banks have to pay more to get their bonds away," said Willem Sels, head of credit strategy at Dresdner Kleinwort. In addition to rising costs in the bond market, banks are faced with millions in extra charges that must be paid to borrow in the shorter-term money markets, where rates have shot up since July. The postponement of buyout deals has also left leveraged loans on balance sheets that are cutting into earnings. Goldman, Morgan Stanley, Merrill Lynch, Lehman and Bear Stearns will have no choice but to fund $75 billion of loan commitments to LBOs at a loss, according to Citigroup analyst Prashant Bhatia. "They have been, to their ruin in some cases, borrowing short and investing long," said Waddell & Reed fixed-income money manager Jim Cusser. "Now they're regretting that, because what they put their money into isn't panning out." Bloomberg notes that the bond rally isn't helping Wall Street: Lehman has higher borrowing costs now than it did in June despite the sharpest drop in quarterly yields since 2002, and Bear Stearns' 10-year bonds are trading at a discount to Colombian bonds, which are "barely investment grade."
Sources: Bloomberg, Financial Times
Commentary: Credit Concerns Haven't Gone AwayBond Management and Overall Market VolatilityCommercial Paper Slump Deepens, T-Bill Yields Fall
Stocks/ETFs to watch: C, GS, LEH, MER, MS. ETFs: FDL, IAI, KCE, VFH, PRFF

Title Insurers Are Feeling the Heat - WSJ

Title insurers like First American Corp. are experiencing a sharp increase in the number of claims, according to a report in the WSJ. Title insurance, which is bought by both lenders and homebuyers, is considered a broader gauge of the health of the housing market than foreclosures, the paper states. Title insurers provide "policies that essentially guarantee a homebuyer is the rightful owner of a property," but claims can be filed not only by homeowners but also by contractors whose work on a house has not been paid for. First American had 52% more claims in Q2 2007 than in the year-ago quarter and swung to a loss of $66 million after posting $25.5 million in net income in Q2 2006. In addition to the spike in claims, title insurers are bringing in less new business this year than last. "If you want to know what's going on with mortgage activity, you look at title orders," said Stephens Inc. insurance-industry analyst Nik Fisken.
Sources: Wall Street Journal, CNNMoney
Commentary: Is the Normalization of Housing Prices a Realistic Expectation?A Contrarian Bet On Housing: Long Case for First American Corp.
Stocks/ETFs to watch: FAF, FNF, LFG, STC. ETFs: KIE, PIC, IAK

Countrywide Takes Steps to Survive Credit Crunch

After taking down its entire $11.5B credit line and receiving a $2B equity investment by Bank of America, Countrywide Financial has announced further steps it hopes will help it through the turmoil in credit markets, including the layoff 10,000 to 12,000 of its 55,000 employees. "We are taking decisive action to ensure that Countrywide continues to be well-positioned for further success," said CEO Angelo Mozilo. The lender, which finances about one of every six mortgages in the U.S., said it will eliminate about 20% of its work force over the next three months, in anticipation of a 25% decline in market origination volumes in 2008 from 2007 levels. That sort of decline in originations could lead to the firing of as many as 20%, or 100,000, of the country's mortgage brokers as the entire industry feels the pinch, according to one analyst. IndyMac Bancorp, the ninth largest home-lender in the U.S., will cut around 10% of its 10,000 member work force in the next few months. Mortgage appraisers, title-company clerks and settlement attorneys also could lose their jobs as the housing slump continues. Meanwhile, Countrywide said it also will move its residential lending business into its Countrywide Bank thrift, and made revisions to product guidelines to ensure that all loans it produces can be sold into the secondary market or are high-quality.
Sources: Press release, Bloomberg, Wall Street Journal
Commentary: Countrywide Not on Easy Street YetRegulators to Lenders: Act Now to Prevent ForeclosuresBank of America Takes Countrywide Stake , Boosting Mortgage Lenders
Stocks/ETFs to watch: CFC, IMB, BAC. Competitors: NDE, FNM, WFC. ETFs: , XLF, PGF, IYF
Related: Countrywide letter to employees (.pdf)

HEALTHCARE/BIOTECH

Boston Scientific Receives FDA Warning Letter

In a new blow to Boston Scientific, the FDA has warned the medical device manufacturer that it committed "serious violations" following the deaths of patients involved in a clinical trial. The regulator claims the company failed to determine whether two of five deaths that occurred in patients implanted with a stent graft were caused by the device. It also allegedly failed to report the adverse events and did not request follow-up information from the trial sites following the deaths. Stent grafts were designed to treat abdominal aortic aneurysms (a ballooning of the aorta that kills over 15,000 Americans over 65 each year). Clinical trials began in 2003, but Boston Scientific halted them in 2006 when it discovered fractures in the stents. "We have no evidence indicating any of the deaths were related to the stent graft fractures," said Boston Scientific spokesman Paul Donovan. The company acquired the device as part of its April 2005 purchase of TriVascular; some analysts are speculating it will try to sell the unit to help pay down its acquisition last year of Guidant. Boston Scientific has 15 business days to respond to the FDA's letter.
Sources: Wall Street Journal, Reuters, Boston Globe
Commentary: Boston Scientific: A Buyout Waiting to HappenDrug-Coated Stents Safer Than Thought -- StudyThe Long Case for Boston Scientific
Stocks/ETFs to watch: BSX. Competitors: JNJ, MDT, STJ. ETFs: IHI

ACTIONABLE BARRON'S CALLS

Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
Cleveland Cliffs' (NYSE:CLF) stock has more-than-doubled to $75 over the past year, but the iron-ore producer "still looks reasonable and could trade up to $90." Despite uncertainty over recent buys of stakes in projects in Brazil, Australia and the U.S., the 2005 purchase of 90% of Australia's Portman was a success, and the company's U.S. iron-ore operations are "lucrative." (full summary)
• Telecom giant IDT Corp.'s (NYSE:IDT) core businesses of pre-paid calling cards and telecom services have been faltering against inexpensive wireless and VOIP services. With only $600 million in cash left, some bears see IDT's cash gone by 2009. CEO Howard Jonas and insiders have been selling shares, and the company is the subject of an IRS investigation. The company's wireless technology is worth $1.23/share; with $6.64/share in cash, it's worth $7.87. At $9, shares could fall further. (full summary)
• The wireless-dependence of iPod's latest offerings portend a boon for Wi-Fi chip-makers like Atheros Communications (NASDAQ:ATHR). American Technology Research analyst Shaw Wu forecasts $1 billion in revenues by 2009-2011, double the current analyst consensus. (full summary)
• The world's largest water company, Veolia Environment (NYSE:VE), will the wave of global interest in the planet's most precious commodity. With less than 1% of the world's water supply drinkable, the company is a prime beneficiary of the need for clean water and beefing up related infrastructure. Analysts have an average one-year price target of $95 for the shares (now $75); some see it reaching $105. (full summary)
XTO Energy (XTO) holds a number of competitive advantages -- such as its large amount of proven and potential reserves -- which will allow it to increase production going forward. Making the shares more attractive are their pullback from $64 in June to $56 as natural gas prices dropped to under $6/MCF from $8. With oil trading at over $76/bbl., Barron's says gas should be closer to $10/MCF. One asset manager values shares at $70 conservatively, and up to $85-$100 based on higher natural gas prices. (full summary)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: Four Reasons For Uncertainty on The Fed
Housing: How Much Should The Fed Clean Up The Current Mess?
Long Idea: Cowen Sees A Buying Opportunity in Cognizant
Short Idea: The Short Case on MasterCard
Internet: Is TheStreet.com In Play?
Networking: What Lies Ahead For Carrier Access Corporation?
Chips: Marvell Reveals "Quiet Video" Microchip
Software: Business Objects Looks Great
Gadgets: Recent Price Cuts May Cause iPhone Interest to Double
Media: Apple to Offer Movie Rentals?
Healthcare: Kinetic Concepts: Caring For Patients And Profits
Biotech: Is Biotech on the Verge of a Breakout?
Retail: Even Insiders Are Selling Crocs
Transport: Investors Get 'Defense'-ive
Gold: Non-Farm Payroll, a Recession and Gold?
Energy: A 'Total' Shift in the Oil Industry
Financial: Bear Case on First Marblehead Still Unconvincing
Asia: Japanese Property: Fear Has Overcome Greed
ETFs: Recent Price Cuts May Cause iPhone Interest to Double
Small-Caps: PLATO Learning Has Some Real Mojo
IPO Analysis: This Week's IPO: Encore Energy Partners
Sound Money: The Week in Sound Money Tips
Jim Cramer: Latest stock picks
Transcripts: Hovnanian Enterprises F3Q07

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