Wall Street Breakfast: Must-Know News

• Bernanke to banks: Forgive and forget. Fed chairman Bernanke said foreclosures will continue to rise. Boldly, he said he hopes banks will rescue homeowners by reducing principal amounts, because anything less is just prolonging the agony.
• Inflation, what inflation? Fed Governor Mishkin said ugly January inflation numbers were an aberration, and that stunted growth is his real concern. He went one step further: Mishkin says he's equally concerned about possible deflation.
• Cisco, Ambac ignite late-day surge. Cisco (CSCO) CEO John Chambers rallied the markets from a weak morning session after he said he's more comfortable now with projected 12-17% growth than he was last month, helping MSFT, HPQ and IBM to post solid gains. The markets also like reports that troubled mortgage insurer Ambac (ABK) is on the verge of sealing a pact with Citigroup (C), UBS (UBS) and others that will help it hold onto its AAA rating.
• Yahoo: Lots of hands in the jar. The latest on Yahoo (YHOO) has it in talks with Time Warner (TWX) to take over its AOL unit, in exchange for which TWX would receive a sizeable minority stake in Yahoo. The combined company could save $1B annually. Oh, and Yahoo is still talking to News Corp. (NWS) to take over MySpace etc. for a stake in Yahoo. With all these complex negotiations, it now seems likely Yahoo will push off a March 14 deadline by when Microsoft (MSFT) must make a push to take over the board, in order to get greater clarity on its defense stance. Many doubt a YHOO/AOL merger will float.
• OPEC set to leave output steady. OPEC President Chakib Khelil opened up today's conference by saying the oil market is stable, signalling the cartel is unlikely to adjust its production targets, as expected.
• Costco earnings up 31%, in line. Bargain shoppers boosted Costco's (COST) FQ2 net income 31%. EPS of $0.74 on revenue of $17B were in line with analyst estimates. A strong global presence played a big part in the quarter: International same-store sales were up 17%, while domestic comps grew 5%, or 3% net of gas sales.
• Citic wants more Bear for its money. Chinese bank Citic says it now wants more for its straight-up $1B for $1B investment exchange with Bear Stearns (BSC) because the Wall Street investment bank is no longer worth what it was when the deal was dealt in October. "There are still risks in the U.S. financial system that haven't been completely resolved," chairman Kong Dan said. "Both sides really want to cooperate, but we need to adjust the price according to the market."
• NAHB: This downturn has legs. Housing is in the "deepest, most rapid downswing since the Great Depression," NAHB chief economist David Seiders says. The NAHB predicts new-home sales will fall 22% this year, meaning a 55% drop since a 2005 top. Housing starts will fall another 31%, down 60% from peak highs. Vacant homes for sale are about 2 million, up from 800,000 in 2005.
• China takes aim at inflation. Chinese PM Wen Jiabao said inflation is the country's number-one concern, and said he was aiming to cut inflation to 4.8% from a current 7.1%. Moves include subsidies to farmers to increase food output, and curbs to fixed-asset investment that is driving demand. One caveat: 2007's goal was 3% inflation.
• Apple says 10M iPhones doable. Steve Jobs says Apple (AAPL) will sell 10 million iPhones by year-end. Speaking at the company's annual shareholder meeting, Apple's CEO said the company has no plans to buy back its own stock, nor to declare a dividend. Shares gained 2.4%.
• Kids play: Morgan catches a bargain. Morgan Stanley's (MS) Private Equity arm is paying $465M for 60% of Australian childcare provider ABC Learning Centres' U.S. unit. The deal is expected to close by the end of April. Analysts said the price appeared cheap, likely due to the ABC's difficulties in addressing its mounting debt.
• Facebook nabs veteran Googler. Top Google (GOOG) veteran Sheryl Sandberg defected to Facebook. Mark Zuckerberg hopes Sandberg can help his rapidly growing company boost its revenue, especially outside of U.S. borders. Sources say Facebook hopes to double revenue to $300-350M this year.
• Dillard's faces proxy fight. Activist shareholders, led by Barington Capital and Clinton Group, signalled late yesterday they are gearing up for a proxy battle against Dillard's (DDS). Barington CEO James Mitarotonda has called Dillard's corporate governance "nothing short of atrocious," and has accused CEO William Dillard Jr. of ruining the business he took over from his father.
• Quote of the day: "Everybody says 'Not to worry,' but the market trend is telling you 'You should be scared to death.'" -- Market strategist Ken Tower.
• AT&T to spend $1 bln in '08 to expand network and solutions

Today's Markets

• In Asia Wednesday, markets inched lower. Nikkei -0.16%. Hang Seng -0.02%. Shanghai -0.99%.
• Europe markets are higher at midday. FTSE +0.84%. CAC +1.14%. DAX +1.4%.
• U.S. futures are higher at 7:15. Dow +0.36%. S&P +0.49%. Nasdaq +0.89%.

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Comments

[Tom B]

"Boldly, he said he hopes banks will rescue homeowners by reducing principal amounts, because anything less is just prolonging the agony."

Does the Office Mr. Bernacke holds require peeing in a cup for drug testing as a condition for employment?

Can I call my bank RIGHT NOW and ask them for "free money"?

[Tom B]

"Many doubt a YHOO/AOL merger will float."

I have little love for AOL as a company (though I problem still have a bunch of the coasters they used to send out almost weekly), but the combo could lead to a powerhouse financial portal. Yahoo and AOL individually work better for me at this time than Google Finance, though I am a huge Google fan in general.