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MACRO AND HOUSING

Consumer Spending Decelerates

The Commerce Department said Thursday September saw the slowest growth in consumer incomes and spending since late spring. The data showed disposable income increased 0.4% and spending rose 0.3%, both in-line with economists estimates. Income and spending growth are essential in an economy that is being dragged down by an extended housing slump. Michael Carey, chief economist at Calyon Corp., does not see increased growth by the end of the year: "Consumer spending is going to slow as we get into the fourth quarter. Consumers may be a bit cautious," he said. Separately, the personal consumption expenditure index, a key inflation gauge, rose 0.2% in September. The core PCE index, which excludes food and energy prices, increased 0.2% as well, and is now up 1.8% for the year. The Fed has an informal target for the core PCE of 1%-2%. Meanwhile, in the labor markets, the Labor Department announced initial jobless claims fell by 6,000 to 327,000. Despite the drop, the four-week average still increased to levels at which economists see signs of a softening labor market. With uncertainty surrounding the labor market and consumer spending and skyrocketing energy prices, economists say the U.S. economy may have bumpy ride ahead of it to close out the year.

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TECHNOLOGY

Best Buy/Gateway Desktops More Expensive, Worse Than Apple iMac, Says Mossberg

The Wall Street Journal's influential personal technology columnist, Walter Mossberg, penned a damning review of Gateway's new all-in-one desktop PC and recommended that consumers purchase Apple iMacs instead. The Gateway One is available in three versions costing $1,299, $1,499 and $1,799. Gateway will sell the mid-price version directly, while Best Buy has exclusive rights to sell the low- and high-end models. Mossberg, a long time proponent of Apple computers, said that the Gateway machines had smaller and lower-resolution screens, an inferior operating system (Windows Vista) and multimedia software, slower processors, and lacked built-in video cameras. "Shockingly," he wrote, "for those who still cling to the notion that Windows machines are always priced lower than comparable Macs, the entry-level Gateway One costs $100 more than the entry-level iMac... At the high end, the $1,799 Gateway has a much smaller screen than the comparably priced iMac." The only advantages Mossberg could find in the Gateways were larger hard-drives and more memory. Dell is also set to release an all-in-one desktop PC. While Mossberg's review bodes ill for Gateway and Best Buy's desktop sales in the important holiday shopping season, demand has shifted strongly towards laptop sales over the last two years.

Sprint Considering WiMax Spinoff and Merger with Clearwire - WSJ

The Wall Street Journal reports sources say Sprint is weighing its options for its plans to roll out 4G high-speed wireless Internet service using WiMax technology, including a possible spinoff and merger with Clearwire Corp. Sources say Sprint's board will be reviewing its WiMax plans and the company's CEO search at a retreat this weekend. Acting CEO Paul Saleh declined to name any CEO candidates, but sources say Sprint spinoff Embarq Co. CEO Dan Hesse is a front-runner. Separately, Sprint is reportedly close to reaching an agreement with Google to offer mobile devices based on Google's new mobile operating platform. In its (Q3 earnings) conference call Thursday, Sprint said it spent $73 million on WiMax in Q3, as it is "continuing to prepare for soft launches of WiMax in the Baltimore, Washington and Chicago markets, late this year," (full transcript). However, Sprint said it will likely spend less than its 2007 budget for WiMax. Sprint has a three-year $5B WiMax budget. Over the summer, Sprint and Clearwire reached a tentative agreement to collaborate on a national WiMax network, but a definitive agreement has yet to be signed. Sources say any WiMax restructuring for Sprint would have to wait for a new CEO to be hired. Shares of Sprint fell to a new 52-week low, losing 3% to $16.58 on Thursday. Clearwire gained 4.9% to $21.53.

Five Affiliated Computer Directors Resign After Clash With Chairman

Five directors at Affiliated Computer Services are stepping down following a vituperative war of words with Darwin Deason, the company's chairman. Deason, incensed over the loss of a $6.2 billion takeover offer from private equity firm Cerberus Capital Management that was withdrawn as a result of the credit crunch, sent the five a letter accusing them of "numerous and egregious breaches of fiduciary duties and other improper conduct" and demanding their immediate resignations (Deason's letter). The directors responded by accusing Deason of "bullying and thuggery," interfering with their mandate, and "[refusing] to understand that the Board's fiduciary duties are to all shareholders -- not just to you" (response letter). Deason's once-cordial relationship with the directors reached a nadir over the Cerberus offer, which included a six-month exclusivity clause between Cerberus and Deason. The board felt the clause would inhibit other bidders from coming forward. "Any suggestion that the Special Committee should have rolled over and simply agreed to your self-interested proposal without having an opportunity to consider alternative transactions would be irresponsible," the directors wrote. "Your self-serving conduct had a material adverse impact on the process of considering strategic alternatives, including your own offer." The directors pointed out that they could "fire you and the entire management team," but prefered to resign out of concern for the company. "In 30 years of trying to track these kind of events, I can't say I've come across such an example" of a clash between board and management, said Purdue management professor John McConnell. ACS shares closed down 3.9% at $48.68 Thursday. In related news, ACS reported fiscal Q1 adjusted non-GAAP EPS of $0.77, shy of analyst expectations of $0.84. Revenue was up 8% to $1.49 billion, in line with expectations.

Electronic Arts Swings To Loss; Shares Jump on Strong Guidance

Video game maker Electronic Arts reported a loss of $195 million in its latest quarter (F2Q08), but saw its shares climb more than 5.2% after hours on strong forward guidance, reversing a loss of 3.9% in composite trading Thursday. EA posted a loss of $0.62 a share in 2Q08, versus EPS of $0.07 a year ago. Sales fell 18% to $640 million. EA deferred nearly $300 million in net revenue and will report it in a future period. On an adjusted basis, EPS were $0.27; consensus analyst estimates were for EPS of $0.20 on sales of $896 million. The company expects next quarter's EPS in a range of $0.85 to $1.15 (midpoint $1.00) on sales of $1.33 to $1.58 billion. The Street had been expecting EPS of $0.94. EA sold more than a million copies each of Madden NFL 08, FIFA 08, NCAA Football 08, Tiger Woods PGA TOUR 08 and MySims in its latest quarter (Madden was far and away its best seller at 4.5 million copies). EA also announced a restructuring plan, in which it will close certain production facilities and lay off 4% of its global workforce, or roughly 350 individuals. The move will save it $25 million to $30 million a year on a pretax basis. CFO Warren Jensen expects "a great holiday season for consumers" with 10 new titles being launched including a Simpsons game (full earnings call transcript).

MetroPCS Withdraws Leap Wireless Bid; Shares of Both Companies Tank

A merger deal between pay-as-you-go wireless carriers MetroPCS Communications Inc. and Leap Wireless International Inc. isn't going to happen any time soon as MetroPCS withdrew its unsolicited offer Thursday to buy Leap. Shares of both companies tanked on the news with Metro falling 10.5% and Leap falling 5.8% during regular hours and another 10.7% after hours. Metro had offered 2.75 of its own shares for each one of Leap's, a deal Leap immediately rejected as insufficient (full summary). The companies both offer unlimited pay-as-you-go mobile services to customers with poor credit ratings who don't qualify for the larger national carrier plans. The two companies' areas of service coverage barely overlap and a combo would mean the formation of a national discount carrier to challenge the wireless industry's major players. Pacific Crest analyst Steve Clement believes the companies will ultimately decide to merge: "it makes too much sense for them to combine their businesses." Meanwhile, Metro "believes strongly in its stand-alone prospects."

INTERNET

MySpace, Bebo Join Google's Facebook Challenge

The Google-led OpenSocial network initiative unveiled earlier this week (full story) received a big boost when News Corp.'s MySpace was introduced as a partner on Thursday. There was speculation regarding the absence of MySpace, which was not among the initially-disclosed list of OpenSocial partners (including Google-owned Orkut, LinkedIn, hi5, Friendster, Plaxo and Ning), that it may be pursuing a proprietary platform similar to rapidly growing rival Facebook. However, the inclusion of MySpace turned out to be a matter of timing for a Google-hosted party for OpenSocial. Google and MySpace have an existing advertising revenue-sharing agreement. MySpace's 110 million worldwide users, plus Bebo's (Britain's leading social site) 39 million users, pushes the total users of OpenSocial over 200 million, compared to around 50 million for Facebook. Google and other members say they have invited other social sites, including Facebook, but a Facebook spokeswoman said the company had not been fully briefed yet, although it expected to meet with Google on Friday. Microsoft outbid Google last week to take a $240M stake in Facebook (full story). One analyst says despite the near-term two-camp arrangement, key internet giants such as Yahoo! eBay and Amazon, all holders of "social" data on their users, have "yet to weigh in."

TRANSPORT AND AEROSPACE

October Auto Sales: Ford Sags, Toyota Gains, Nissan Surges

U.S. October auto sales were reported Thursday; Ford reported its 12th straight monthly decline, GM and Toyota posted year-over-year gains, and sales of Nissan vehicles surged. Ford sales fell 9.5% from last year. GM, the number-one seller of autos, was up 3.4%, its third consecutive month with an increase. Toyota sales jumped 4.5%, outselling Ford for the first time in the three months, and enjoying the second best sales in the market. Chrysler sales plunged 8.9%, and the company also announced plans to cut 10,000 jobs earlier Thursday morning. Nissan sales surged 13%, helped by its light truck and hybrid car sales. Honda sales increased by 3.8%. With consumers paying around $3/gallon at the pump, truck sales dropped 2% in sales, while small cars and smaller SUVs with better mileage were notable growing segments. Though Thursday saw significant market weakness across the board, Toyota ADRs were able to eek out a gain of 0.01% on the strength of its October performance. Nissan shares jumped 2.7%, shares of GM lost 5.0%, and Ford stock was down 4.2%.

FINANCIAL

SEC Probes Merrill on Off-Book Risk Remedies - WSJ

Among the questions the SEC will be asking Merrill Lynch in its investigation of the company is whether the firm swept potential losses under the carpet using off-balance-sheet transactions, the Wall Street Journal says. Unnamed sources say that in one such deal, a hedge fund bought $1 billion in commercial paper from a Merrill-related entity containing mortgages -- but was given the right to sell the paper back to Merrill after a year for a guaranteed return, thereby delaying a potential writedown. "Merrill has been making the rounds asking hedge funds to engage in one-year off-balance-sheet credit facilities," derivative consultant Janet Tavakoli wrote in a recent research note. "One fund claimed that Merrill was offering a floor return so this risk would return to Merrill." She said such transactions could explain how Merrill's mortgage-related exposure lightened in the third quarter. Sources say Merrill's recent "mitigation strategy" includes rounding up hedge funds to relieve it of about $5 billion in mortgage-related securities in order to reduce its on-book risk. Other investment banks involved in similar schemes include Bear Stearns, who sold $1B in risky debt to a hedge fund, agreeing to participate in a post-year auction that guaranteed the fund a minimum return. The much-discussed $80B 'superfund' initiated by Citigroup, BofA and JP Morgan, and backed by the Treasury Dept., is also seen by many as an effort to delay inevitable writedowns on now-shunned structured investment vehicles (full story).

NY AG Accuses First American and WaMu of Collusion

New York Attorney General Andrew Cuomo announced Thursday that he has filed suit against real estate appraisal company First American Corp. and its subsidiary eAppraiseIT for colluding with savings and loan giant Washington Mutual [WaMu] to inflate home values. Cuomo's nine-month investigation into the mortgage industry has revealed "fundamental flaws" in two areas of the business: appraisals and securitization of mortgage loans. This suit is the first action the attorney general has taken against companies involved. "This is a case we believe is indicative of an industry-wide problem," Cuomo said. The suit alleges that eAppraiseIT illegally complied with WaMu's demand that it use a list of "preferred" appraisers. Much of Cuomo's case is based on emails that appear to show that executives were aware they were breaking federal law. "The independence of the appraiser is essential to maintaining the integrity of the mortgage industry," Cuomo said. "By allowing Washington Mutual to hand-pick appraisers who inflated values, First American helped set the current mortgage crisis in motion." "We have absolutely no incentive to have appraisers inflate home values," WaMu said. "In fact, inflated appraisals are contrary to our interests." Though WaMu was not named as a defendant in the case, its shares fell 7.6% to close at $25.75 following the announcement. First American closed up 1.5% at $30.56.

NYSE Euronext Beats Estimates on Record Volume, Cost Cuts

NYSE Euronext posted Q3 profits that almost quadrupled, post merger, as revenue benefitted from recent market turbulence that boosted trading volumes to record levels. Net income jumped to $258 million ($0.97/share),up from $68 million ($0.43/share) a year ago. Ongoing cost cuts helped the firm's bottom line, it said. Adjusted EPS went to $0.76 from $0.44, beating analyst estimates of $0.73. Revenue almost doubled to $1.2 billion from $602 million -- analysts had forecast a much smaller $986 million. "During the third quarter, we delivered record financial results through strong growth across our business lines, driven largely by record trading volumes in the U.S. and Europe and ongoing expense control," said CFO Nelson Chai (full earnings call transcript later today). Shares are up 30% since mid-September, but are still 14% below April, when the combined joint stock started trading.

Citigroup May Have to Lower Dividend - Analyst

Shares of Citigroup dropped Thursday on a report by CIBC that said the bank may have to cut dividends or sell assets to shore up capital. CIBC notes that Citigroup might have to raise up to $30 billion, and that it could get worse if additional credit concerns arise. "Higher credit losses and further disruption in the [structured investment vehicle] market would only exacerbate our thesis of capital pressures," the report stated. Much of Citigroup's value to investors stems from their dividend, so a decrease would severely hurt demand for the stock: "We believe the stock will be under significant pressure and could trade into the low $30s," analysts wrote. Citi's profit fell 57% last quarter, mostly due to massive write-downs from credit losses (full story). Citigroup shares fell 6.9% to $38.51; they're down almost 31% YTD.

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: Too Bad the Fed Can't Fight Inflation With Words
Housing: U.S. Housing Futures Look Bleak
Long Idea: Sweet Buying Opportunity In Jones Soda
Short Idea: Jim Rogers Shorting U.S. I-Banks
Internet: Online Gaming Equals Profits for GigaMedia
Telecom: Four Suggestions To Save Sprint
Hardware: Apple's Cash Horde Fuels MacBook Speed - and Growth
Chips: Teradyne Short-Term Bottom May Be in Place
Software: SAP Aggressively Going After Business Users
Retail: Low Hanging Fruit: Columbia Sportswear Company
Transport: Navios Maritime Poised For Substantial Growth
Energy: LDK Solar: Look Who Survived $36
Financial: WaMu’s Canary Moment?
Asia: Expecting China Medical Growth - Even if the 'Bubble' Bursts
ETFs: When Small Caps Get Hit, Ultrashort Russell Will Bounce
Small-Caps: Can Alvarion Compete with the Big Boys?
Sound Money: Start a Business Blog
Jim Cramer: Latest stock picks
Transcripts: GlobalSantaFe Q3 2007CBS Q3 2007THQ F2Q08Electronic Arts F2Q08Barrick Gold Q3 2007Las Vegas Sands Q3 2007VeriSign Q3 2007ValueClick Q3 2007Western Digital F1Q08Marathon Oil Q3 2007Exxon Mobil Q3 2007Eastman Kodak Q3 2007AstraZeneca Q3 2007Credit Suisse Group Q3 2007Sprint Nextel Q3 2007CVS Caremark Q3 2007Mindray Medical International Q3 2007American Capital Strategies Q3 2007Central European Media Enterprises Q3 2007Canadian Natural Resources Q3 2007DENTSPLY International Q3 2007Pride International Q3 2007Conseco Q3 2007Idearc Q3 2007EMBARQ Q3 2007Helix Energy Solutions Group Q3 2007Gaylord Entertainment Co. Q3 2007NYMEX Holdings Q3 2007Southwestern Energy Co. Q3 2007Plains Exploration & Production Company Q3 2007CenturyTel Q3 2007Southwestern Energy Co. Q3 2007Sauer Danfoss Inc. Q3 2007Denbury Resources Q3 2007Endo Pharmaceuticals Holdings Q3 2007Blackboard Q3 2007Santarus Q3 2007Dominion Resources Q3 2007Itron Q3 2007Affiliated Computer Services F1Q08Tesoro Q3 2007Getty Images Q3 2007Genesis Microchip F2Q08Skyworks Solutions F4Q07Oplink Communications F1Q08Maxim Integrated Products F1Q08Barrick Gold Q3 2007Callaway Golf Q3 2007The Hain Celestial Group F1Q08Harris Stratex Networks F1Q08CA F2Q08Harris F1Q08eResearchTechnology Q3 2007Marathon Oil Q3 2007Midway Games Q3 2007El Paso Electric Q3 2007Rediff.com India F2Q07Anglogold Ashanti Q3 2007InfoSpace Q3 2007Patterson-UTI Energy Q3 2007Sunoco Q3 2007International Game Technology F4Q07Fisher Communications Q3 2007Williams Companies Q3 2007PG&E Q3 2007O'Charley's Q3 2007KBR Q3 2007Rogers Communications Q3 2007Medical Action Industries F2Q08Perrigo F1Q08SPSS Q3 2007Health Net Q3 2007Cameron International Q3 2007Unilever Q3 2007Administaff Q3 2007Parametric Technology F4Q07Rowan Companies Q3 2007Becton Dickinson F4Q07NeuStar Q3 2007Henry Schein Q3 2007The Timberland Company Q3 2007Interpublic Group Q3 2007Millennium Pharmaceuticals Q3 2007British American Tobacco Plc Q3 2007OfficeMax Q3 2007General Cable Q3 2007PharmaNet Development Group Q3 2007Advance Auto Parts Q3 2007Chungwa Telecom Co., Q3 2007Boyd Gaming Q3 2007Fresenius Medical Care AG & Co. KgaA Q3 2007Ultra Petroleum Q3 2007Amerada Hess Q3 2007Eni SpA Q3 2007Omnicare Q3 2007

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