Wall Street Breakfast: Must-Know News

• NAND glut slims Intel margins. Intel (INTC) dropped its gross-margin forecast to 54% from 56% late Monday amid lower-than-expected NAND flash chip prices, but said no other parts of its earnings outlook would be affected. Last week, J.P. Morgan analyst Christopher Danley cut his estimates due to "excess microprocessor inventory." Shares fell 2.3% AH.
• Europe frets strong euro. European officials are growing increasingly concerned that the euro's record gains against the dollar will exacerbate the region's economic slowdown. The euro is up 16% vs. the dollar over the past 12 months. A strong euro may force the ECB to cut interest rates despite 14-year highs in inflation.
• Auto sales sag. The dreary auto sales predicted in 2008 are living up to their expectations. Overall light vehicle sales fell 6.3% in February after a 4% drop in January. Chrysler (DAI) sales fell 14%, GM (GM) sales were down 12.9%, Ford (F) sales fell 6.6%, Toyota (TM) sales were down 2.8%, while Nissan's (NSANY) sales inched up 1.2%. GM and Ford announced North American production cuts of 5% and 10% in Q2.
• Fannie, Freddie agree to home appraisal watchdog. Taking aim at inflated home appraisals -- one of the root causes of the subprime mortgage crisis -- regulators moved Monday to require government-sponsored lenders Fannie Mae (FNM) and Freddie Mac (FRE) to insure the integrity of future valuations by breaking all business ties with home appraisers. New York AG Andrew Cuomo called the move "one of the greatest, most dramatic reforms of the housing industry in the last 20 years."
• Commercial construction slowing. Spending on commercial construction fell 0.8% in January, amid a 1.7% drop in overall construction -- its steepest in 14 years. Commercial construction was assumed to have been stronger than its residential counterpart. Architects' billings are down 14% from their peak, and commercial property values fell 1.5% in December. Besides builders, a construction contraction bodes ill for light-truck makers and makers of heavy equipment.
• Citi still needs cash. Dubai International Capital says Citigroup (C) and other financial institutions need "a lot more money" to rescue them. Citi received $7.5B in November from Abu Dubai and said in January it was getting another $14.5B from the governments of Singapore and Kuwait and others. Merrill analyst Guy Moszkowski told clients Citi will lose $1.66/share this quarter amid a $15B writedown on mortgage-related assets and a possible $3B writedown on leveraged debt and commercial real estate.
• When things go bad. Citigroup (C) and Wachovia (WB) are facing lawsuits from hedge funds who allege the banks turned to them to reduce their marketplace exposure through credit default swaps, but were not frank in revealing inflated risk factors they were aware of.
• Citi's revamp underwhelms. Citigroup (C) is reorganizing its wealth-management unit into segments determined by the net worth of their clients. The move suggests new CEO Vikram Pandit is more likely to fine-tune the bank's structure than to initiate sweeping changes many investors hoped for.
• Statoil goes deep. Norway's Statoil (STO) said Tuesday it will acquire stakes in heavy-oil and deep-water projects in Brazil and the Gulf of Mexico from Anadarko Petroleum (APC) for $1.8B. The deal is in line with StatoilHydro's deepwater and heavy oil focus, and significantly bolsters its reserves and resources, executive VP Peter Mellbye said. Statoil now owns 100% of Brazil's Peregrino heavy oil field and receives a 25% stake in the Gulf of Mexico Kaskida discovery.
• BP tragedy settlement grows. BP is now allocating $2.13B for claims relating to the fatal Texas refinery accident in 2005 -- much higher than the $1.6B provision it previously disclosed. Shares fell 1.6% in London.
• Bayer loses control of contraceptive patent. A U.S. court invalidated Bayer's (BAYRY.PK) patent on its Yasmin contraceptive, opening the door for Barr Pharmaceuticals (BRL) to produce a generic copy. Yasmin was Bayer's single biggest revenue driver last year with $1.58B in sales. The ruling may also threaten its Yaz birth control pill, which is protected by the same patent. Bayer fell 4.1% in Frankfurt, while Barr gained 9.5% in AH trading.
• Court deadlock hurts Pfizer. A 4-4 Supreme Court split over the question of whether pharma companies can be sued for drug-related injuries in cases where they committed no fraud means a product-liability case against Pfizer's (PFE) Rezulin will go forward. Rezulin was canned in 2000 after being linked to hundreds of deaths and cases of liver failure. Wyeth (WYE) has a similar challenge awaiting trial. Pfizer shares are down 0.4% in Frankfurt.

Today's Markets

• In Asia, markets were generally weak Tuesday. Nikkei 0.0%. Hang Seng -1.97%. Shanghai -2.32%. BSE Sensex -2.03%.
• European markets are showing weakness at midday. FTSE -0.81%. CAC -1%. DAX -1.45%.
• U.S. futures are down at 7:00 AM. Dow -0.82%. S&P -0.98%. Nasdaq -1.01%.

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Comments

[Lisa:]

Excellent summary. Worth reading every day.

2008 Mar 04 08:09 AM

[Ralph F:]

It's amazing how almost homogeneously bad the news is. Not sure what to make of that:

- keep well short
- news flow and sentiment are about as negative as they'll get, time to go long

Thoughts anyone?

2008 Mar 04 09:13 AM

[R. Richard ...:]

J M Keynes who first lost, then regained a fortune in trading once said something to the effect:

"It is something like trying to win bets on a bathing beauty contest. The trick is not to try and guess which one is the most beautiful; it is to guess which one the judges will find most beautiful."

Now the trick is : Finding out who the judges are, or will be learnt to have been.

2008 Mar 04 09:48 AM

[cachaca:]

I think it is WAY too early to go long
One liner: stick to commodities for the next 6-12 months...ignore all else. You could make money on sector runs, but why bother.

2008 Mar 04 10:23 AM

[Urbane Gori...:]

Regarding Frank F's note "It's amazing how almost homogeneously bad the news is. Not sure what to make of that:"... Today' San Francisco Chronicle reported that the Bull/Bear Company index in California has reached a level lower than the lowest level of the tech bubble... Normally you'd use these types of indicators as a bottom ... Gee, I don't know though .... I just think this is a different issue. The lack of available credit just seems to cut across **all** sectors, whereas the tech bubble was really just related to an oversold condition in one sector.

Thx jegan ;-)

2008 Mar 04 03:55 PM

[REBEL:]

"It's amazing how almost homogeneously bad the news is. Not sure what to make of that." Frank F's view reflects the majority opinion on objective economic news. If it is "good news", (as spun by the government/media cartel), then they can spend their last dollar and not worry about tomorrow. However, bad news is always due to someone else. Now that the real objective news is becoming obvious, (and it is downright distressful), something must be done, (in the sheeples' minds they are not responsible in the least). This economic debacle is largely due to the non-responsible majority's insistence that the government force the private sector to provide goodies to all irregardless of the costs to the U.S. economy. Now that these foolish government policies are bringing down our capitalist system, the moronic majority are being forced to deal with the reality of procuring life's necessities and this is horrible in their minds. Too bad, you idiots... DEAL WITH IT!

2008 Mar 04 04:48 PM

[firboy4:]

You're the best!

2008 Mar 04 10:13 PM

[helplessobs...:]

Credit induced down turns are the worst. Like bad blood weakens every body organ, credit problems affect everything economic. We saw it all in the 1930s when most of the money supply wound up in the hands of the rich and the money center banks. Sadly the rich cannot spend enough to support our economy. Most all that GS bonus money will sit on the sidelines(in the money center bank accounts) and not stimulate anything. It took WWII and huge deficits to get money back into the hands of the consumers.

2008 Mar 05 11:58 AM