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MACRO AND HOUSING

Banks Reach Terms on Superfund Structure - NYT

After nearly two months of negotiations, Bank of America, Citigroup and JPMorgan Chase have reached agreement on a simplified structure for the $75 billion "superfund" they are setting up to ease pressure in the credit markets, the New York Times reported Sunday. The fund will not require SIVs to gain the approval of 75% of investors before they will be eligible to participate, and the fund will not distinguish among the risk levels of SIVs' assets. "We cleared all the big hurdles," an unnamed source told the Times. "We agreed to a much simpler structure that we think can get done rather than optimize it for everyone." The source added that the fund could begin to operate by the end of next month. The three lead banks also could start to solicit contributions from 60 or so other institutions as soon as this Friday. The banks are still in talks over a 75-100 basis point fee structure, and the fund has yet to receive credit-rating approval. The fund is intended to stop SIVs from dumping their assets, but SIVs -- perhaps "on the assumption that the proposed backup fund will not work" -- are unloading them anyway. Treasury Secretary Henry Paulson, at whose urging the three banks agreed to establish the fund, stressed that while it is "not a savior... Anything at the margin that will speed up liquidity is worth trying."

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TECHNOLOGY

Intel Pulls Ahead of AMD With New CPU Lineup

Intel's latest chips, which the company will formally announce today, have garnered impressive early reviews. Designed to address the problem of heat production and power consumption in the face of ever-faster clock speeds, Intel's current design process shrinks circuitry dimensions to 45 nanometers from 65, and use transistors made from hafnium instead of the silicon dioxide that has been used for the past 40+ years, thereby reducing power consumption by about 30% while at the same time increasing switching speeds by over 20%. Besides faster clock speeds, the new chips also have enhancements that increase performance by another 7% to 13%. The $999 high-end quad-core gaming chip Core 2 Extreme QX9650 is being introduced at a speed of three gigahertz, although one PC manufacturer said he was able to overclock the chips up to four gigahertz with minimal increase in power consumption, suggesting Intel has left some "headroom" for even faster models. Intel is also rolling out 15 Xeon server CPUs that run at speeds of up to 3.4 gigahertz. "It puts Intel in a great position to drop rocks on AMD's head," Gartner analyst Martin Reynolds said. "Servers is where the money is." Intel plans to spend $10.6 billion on R&D this year, more than three times rival AMD's budget. Intel shares are up 1.3% in pre-market trading.

MEDIA

FCC Planning New Cable Industry Regulations

The FCC is expected shortly to push for a host of new constraints on the cable industry, including a dramatic cut in the rates cable operators can charge programmers for access to their spare channels as well as an acquisitions cap. The FCC's campaign is based on its assertion that the cable industry has crossed a key threshold in terms of market share. An FCC regulation from 1984 stipulates that if 70% of households have access to cable systems with 36 or more channels, and 70% of those households subscribe to cable, the FCC has the right to step in. In the FCC's soon-to-be-released annual review of the state of competition in cable TV, the Commission concluded that the 70/70 threshold had been met, an assertion the industry disputes. "The provision itself is a relic of decades-old regulation and there is no basis for reviving it now," said Kyle McSlarrow, president of the National Cable & Telecommunications Association. Independent market analysts SNL Kagan forecast that by year-end 2007, cable companies will hold 67% of the market of households that subscribe to some form of pay TV. "Cable's market share has been on the downward trend since satellite television began to make a meaningful impact a decade ago," said SNL Kagan's Ian Olgeirson. "It's difficult to see an environment where cable's market share is going to increase."

RETAIL

Credit Crunch May Postpone Wendy's Auction - NY Times

The planned auction of Wendy's International is in jeopardy of being pushed off as ongoing credit market volatility may leave potential buyers short of funds to complete the deal, the New York Times reports. Potential bidders are concerned the financing due to be provided by Wendy's bankers, JPMorgan and Lehman, includes less-than-optimum terms, and allows the banks an escape door should credit markets further deteriorate. An unnamed source says that while the banks sent financing terms to prospective buyers two weeks ago, they have made no formal commitments. Among potential bidders is the outspoken activist investor Nelson Peltz, who owns Arby's, and has prodded the company to put itself up for sale. Two private equity firms are also considering a bid.

Hershey Ousts Board

All but two of the 10 members of the Hershey Co. board resigned on Sunday, in a sweeping overhaul of the company's board, indicating differences between management and the Hershey Trust, which controls about 78% of Hershey's voting shares. The news comes after trust members held preliminary merger talks with Cadbury without CEO Richard Lenny, who ultimately resigned several weeks ago because of lack of autonomy in the company. Unnamed sources say Sunday's changes do not make a potential deal any more or less likely. The trust named replacements on Sunday and shareholders will elect two additional board members next year. Kenneth Wolfe, a former Hershey CEO, was named non-executive director and will replace Lenny as chairman Jan. 1. New board members include Stone Point Capital CEO Charles Davis, a veteran of Goldman Sachs, and Edward Kelly, managing director of private equity firm The Carlyle Group. Once Hershey's limited-edition item strategy ran out last year, competitor Mars Inc. was able to steal market share. Citing increased competition, high dairy costs and restructuring charges, the company said last month that its Q3 net income dropped 66% and revenue fell 1.2%. "This seems like action for action's sake," said Walter Todd of Greenwood Capital Associates. "It's not the board of directors that underinvested in advertising for the last five years. Honestly, this won't change the loss of market share or competition from Mars."

TRANSPORT AND AEROSPACE

Airbus Lands $35B Emirates Order

Airbus came out on top in the latest battle with rival Boeing, securing a $35B deal from Dubai's Emirates airline on the first day of the Dubai Air Show on Sunday. The order included 70 A350s with options for 50 more and 11 of the A380 superjumbo aircraft. Emirates is the biggest purchaser of the A380, with the current order giving it a backlog of 58. Emirates said it chose Airbus over Boeing because the 787-9 "wasn't suitable." Emirates said it would be willing to talk to Boeing when the 787-10, a longer-range and bigger version of the 787-9, is available. One analyst called the sale a "tremendous win" for the A350, saying it "validates the program and is exactly what it needs to get it off the ground." Following the sale, Airbus raised this year's expectations for orders of the A350XWB jet to 300 and its total forecasted aircraft orders to 1,100. It said 450 aircraft would be delivered this year. Emirates didn't totally shun Boeing, however, ordering 12 of its long-range 777-300ERS worth $3.2B. Boeing also landed a $13.5B order for 57 aircraft, including 30 of the 787 Dreamliners, from Qatar Airways. According to the Arab Air Carriers Organization, Arab airlines are expected to increase their combined fleet by some 66% to 900 aircraft by 2015 from 550 in 2006.

ENERGY AND MATERIALS

BHP's Bid For Rio Tinto Moves Into Overdrive

BHP Billiton has set up a $70 billion financing package through Citigroup to strengthen its $140 billion hostile bid for Rio Tinto. BHP also said it will buy back $30 billion in shares if its bid for Rio succeeds. There were reports BHP was also mulling the sale of one of its biggest divisions, BHP Petroleum, worth about $42 billion, but CEO Marius Kloppers Monday said the company had no plans to sell any assets. Rio's board rejected as "well out of the ballpark" BHP's recent offer of three BHP shares for every Rio share, a bid that values Rio at £48 per share. The board is not expected to entertain any bids below £70 per share. If BHP and Rio do merge, they will create a $380 billion mining behemoth "that would dominate the iron ore, copper, coal and aluminium markets," according to the FT. Because a BHP-Rio combination would control 36% of the iron ore market, the merger is expected to draw close antitrust scrutiny and to face the opposition of Chinese steel manufacturers, who would be affected by rising iron prices. China consumes half the world's iron ore. "It won't just be steelmakers who are up in arms about this -- it will be car makers and anyone else that uses steel," said an unnamed industry executive to the Sunday Times. Rio's ADRs advanced 8.7% to close at $478.35 Friday.

FINANCIAL

E*Trade Falls Victim to Subprime

On Friday, investors became aware yet another victim of subprime fallout when E*TRADE Financial when it said in a SEC filing that deterioration in the residential mortgage market will likely result in writedowns that exceed previous expectations included in the company’s Oct. 17 earnings report. Shares tumbled on news of the after hours announcement, which also disclosed a SEC probe, dropping as much as 14.44% to $7.35 in extended trading to reach a four-year low. E*Trade told investors it would write off approximately $450 million of its $3 billion asset-backed securities portfolio, consisting mainly of CDOs (collateralized debt obligations) and second-lien securities, but also including $50 million in AAA-rated debt. CEO Mitchell Caplan's strategy of tripling loans outstanding backfired when borrowers fell behind on payments and U.S. home prices declined. Though the company believes it will remain well-capitalized based on regulatory standards, investors were concerned after management said in the press release the company "believes it is no longer beneficial to provide earnings expectations for the remainder of the year." One analsyt went as far as to question the company's long-term viability: "The extent of poor risk management in our view, has put the viability of the franchise at risk," Citigroup analyst Prashant Bhatia told clients in a note Sunday. E*Trade said it is cooperating with the SEC's informal investigation of its loan and securities portfolios initiated Oct. 17.

HSBC's U.S. Unit May Boost Subprime Reserves

HSBC Holdings could be hit with another bout of subprime sickness this week when its HSBC Finance unit reports third-quarter numbers, providing a peek at what may be in the cards for U.S. lenders. The Wall Street Journal called the largest European bank's U.S. consumer-lending unit "the classic canary in the coal mine" in identifying problems in the subprime market after flagging unexpectedly high delinquencies in February before the current crisis surfaced. That resulted in HSBC's first-ever profit warning. Now, the Journal says, analysts expect HSBC may have to lift its reserves against subprime loans at HSBC Finance's (formerly Household International) mortgage-services business by $2.4B to a total of $4.5B. Britain's Sunday Telegraph estimated the "hit" at $1B, but said it could run higher. That level of reserves suggests that default losses over the life of the loans could wipe out some 14% of the $41.4B loan portfolio by year-end. HSBC's first-half group charge for bad debts was $6.35B, 63% above the $3.89B in 2006's first half. Analysts expect the loan portfolio to drop to $165.8B next year from $182.5B in 2006. HSBC Finance is set to release its numbers Wednesday. Meanwhile, HSBC has agreed to buy a 50% minus one share stake in South Korea's Hana Financial. Terms weren't disclosed.

Visa Files for $10B IPO

Visa Inc. has filed for its long-anticipated initial public offering, a $10B affair that would be the second largest IPO in U.S. history behind AT&T Wireless, which raised $10.6B in April 2000. The deal would be the ninth-largest IPO ever. Rival MasterCard raised $2.4B in its May 2006 IPO; shares have since risen five-fold. The world's largest card payments processor said it earned $771M on revenue of $3.73B for the first nine months of the year and $437M on revenue of $3.91B in 2006. Visa processed 44B transactions totalling $3.2 trillion in 2006, it said, compared to 23.4B transactions totalling $1.9 trillion for MasterCard. It didn't disclose how many shares it planned to offer or what its anticipated ticker symbol would be. Visa's stockholders include J.P. Morgan Chase, Bank of America, National City Corp., Citigroup, U.S. Bancorp and Wells Fargo. Visa didn't say whether any of those holders intended to sell shares in the IPO. Last week, Visa reached a $2.25B settlement with American Express regarding a three-year old suit that alleged Visa had engaged in illegal anti-competitive practices. Visa plans to use part of the IPO proceeds to pay that settlement. Lead underwriters will be Goldman Sachs, JP Morgan Securities, Banc of America Securities, Citigroup Global markets, HSBC Securities, Merrill Lynch, UBS Securities and Wachovia.

NYMEX Buys 15% Stake in Norwegian Freight Derivatives Exchange

NYMEX Holdings announced early Monday it has signed an agreement to acquire 15.1% of leading Norwegian financial derivatives exchange IMAREX ASA for around $52 million, or 160 kroner/share ($29.63). NYMEX will purchase the shares from Norway-listed shipping group Frontline, a founding member of IMAREX and its largest shareholder. Oslo-headquartered IMAREX is the world's only regulated freight derivatives trading market. Clients are said to include the world's leading banks, trading houses, hedge funds, oil majors, power generators and ship owners. In a statement, NYMEX Chairman Richard Schaeffer commented, "This investment and partnership in one of Europe's leading derivatives exchanges advances our strategic goal to expand our product distribution and clearing into the European market. The IMAREX shipping derivatives trading and clearing business is a powerful platform for NYMEX to expand and develop new products for the European and global energy markets, and complements our energy market products." Shares of NYMEX Holdings lost 2.4% to $126.89 on Friday. IMAREX shares were last up 7.9% to 150 kroner ($27.53)

INTERNATIONAL

Chinese Banks Covet U.S. Expansion

China Merchants Bank, the sixth-largest bank in mainland China, is the first Chinese bank in more than a decade to receive approval to open a U.S. branch, reports the Wall Street Journal. The approval is seen as a tactical move by the U.S., in order to push China to further open its financial markets. The Federal Reserve's approval assuages Chinese cries of unfair practices, since China has been receptive to American banks buying stakes in Chinese banks and expanding their local footprint. The decision also bodes well for other Chinese banks eager to expand to the U.S., such as Industrial & Commercial Bank of China, which has a pending application being reviewed. Meanwhile, the matter of foreign ownership of Chinese banks will likely resurface as U.S. Treasury Secretary Henry Paulson readies for another strategic dialogue with his Chinese counterparts this December. The long gap since the last Chinese banks were allowed to open shop in the U.S. is due to the enactment of stricter foreign bank supervision laws in 1991 and because of previous weakness in Chinese banks' balance sheets. The situation has changed "radically" says one Chinese bank executive. U.S. bank license approval is critical to Chinese banks' ability to better service domestic firms' own overseas expansions.

THIS WEEK'S IPOS

Semiconductor Equipment IPO: Rubicon Technology
Enterprise Storage IPO: 3Par
Shipping IPOs: Navios Maritime Partners, Global Ship Lease
Energy IPOs: El Paso Pipeline Partners, EnergySolutions
Financial IPOs: Chimera Investment, MSCI, Och-Ziff Capital Mangement Group
Healthcare IPOs: EnteroMedics, Reliant Technologies, Virtual Radiologic

ACTIONABLE BARRON'S CALLS

Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
Cisco Systems (CSCO) shocked markets last week when CEO John Chambers said corporate spending could be "lumpy." Still, with $24B in cash in a world where bandwidth requirements are skyrocketing, no company is better positioned than Cisco if you have a long-term perspective. The company could outperform many other tech stocks if there is a recession in the U.S. (Full summary)
Google's (GOOG) recent foray into mobile OSes is far from the slam-dunk some people assume. Google is late to the mobile search party, and without any mobile-phone software patents of its own, in an arena where competitors boast hundreds, it stands exposed in the "adversarial world of mobile-wireless intellectual property." Competitors like Microsoft (MSFT) and incumbent Nokia (NOK) are not likely to go down quietly. (Full summary)
• Worries the ongoing credit and housing crises and sky-high crude prices have taken a toll on the retail sector, yet there may be some bargains to be had. The group is trading near levels that have historically signalled a bottom is near. Among stocks highlighted are American Eagle (AEO), Abercrombie & Fitch (ANF), Wal-Mart (WMT), Best Buy (BBY), Home Depot (HD), Limited Brands (LTD), Kohl's (KSS) and Macy's (M). (Full summary)
Citigroup's (C) troubles may hold hidden opportunity. One bullish analyst says Citi's piecemeal value is almost double Friday's panic-induced $33.10. And Citi's principal shareholder, Saudi Prince Alwaleed bin Talal, dismisses breakup talk and investor fears that a new CEO would have trouble steering Citi's bulk. Shares could hit $60 in a few years. (Full summary)
• Barron's says contract drug research companies such as Covance (CVD) and Pharmaceutical Product Development (PPDI) are poised to benefit as the drug makers increasingly farm out their pharmaceutical testing. Pharma and biotech companies will spend two-thirds of their $90B in R&D spending this year on testing, and one analyst notes that the number of compounds in the testing pipeline has jumped to 275 today from 150 in 2000. Full summary
• The Street may be overlooking Qualcomm's (QCOM) potential blockbuster dominance over chips for up-and-coming third-generation (3G) mobile phones, and is assuming a worse-than-worst-case scenario outcome of the company's pending arbitration. If a new agreement between it and Nokia (NOK) pegs Nokia's revenue-sharing at 4%, Lewis Asset Management's Bernard Diggins says Qualcomm shares ($38) are worth $80. (Full summary)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: Did The Market Bottom?
Housing: Caveat Emptor: The Tumbling Housing Market
Long Idea: Capella Education: High Price for a High Quality Investment
Short Idea: Six Stocks to Buy, Five Stocks to Short
Telecom: Leap's Problems Create Opportunity for MetroPCS
Networking: Cisco Systems Pushes 'Tech' Over the Cliff
Retail: Are Retail Stocks Bargains?
Transport: Four Rail Transit Stocks Fueled By Peak Oil
Gold: Precious Metals Strong Despite Yen's Surge
Energy: Ethanol and Biodiesel: Two Very Different Biofuels
Financial: Ambac Financial: Run For the Hills
Asia: Japan’s Regional Banks Appear Oversold
ETFs: The Best Green ETF
Hedge Funds: Health Grades: Waiting For Google
Jim Cramer: Latest stock picks
Transcripts: Liberty Media Capital Q3 2007IMAX F3Q07União de Bancos Brasileiros SA Q3 2007JA Solar Holdings Co. Ltd. Q3 2007Warner Chilcott Limited Q3 2007Aircastle Q3 2007Basic Energy Services Q3 2007Southwest Water Q3 2007Semitool Inc. F4Q07Southern Union Q3 2007GeoMet Q3 2007Uranium Resources Q3 2007National Fuel Gas F4Q07Public Storage Q3 2007Arbor Realty Trust Q3 2007FTD Group F1Q08Citadel Broadcasting Q3 2007Entercom Communications Q3 2007SIX Flags Q3 2007Assured Guaranty Q3 2007TeleTech Holdings Q3 2007Pacific Ethanol Q3 2007Huntsman Q3 2007Amtrust Financial Services Q3 2007Mirant Corporation Q3 2007Xerium Technologies Q3 2007BT Group F2Q07MathStar Q3 2007Hansen Natural Q3 2007

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