Wall Street Breakfast: Must-Know News

• $200B pop. The Fed said it will inject another $200B into the economy, lending money against mortgage-backed debt for 28 days, vs. the current overnight. The move sparked a 3.6% gain in the Dow, its biggest rally in five years. The Fed hopes the additional liquidity will help Wall Street bankers cushion their books against loan defaults and depressed debt securities. The odds of a 75 BP cut to the Fed's current 3% target on March 18 fell to 64%; it had previously been fully priced-in.
• Banks turn focus to home equity defaults. Banks such as J.P. Morgan (JPM) and Wells Fargo (WFC) are being hit by a wave of defaults on home-equity loans, while falling housing prices leave stiffed lenders with nothing from which to collect. National City (NCC), Washington Mutual (WM) SunTrust Banks (STI) and WFC each has 12-19% of its total assets tied up in home-equity debt. Borrowers are not blind to the fact that, in the order of things, home-equity lenders have less leverage against them than mortgage lenders or even credit card companies.
• Soaring mortgage rates repel borrowers. Mortgage applications dipped 2.7% last week amid surging interest rates; 30-year fixed-rate mortgages jumped 39 BP to 6.37%, while 15-year loans were up 46 BP to 5.72% over the last week. None of this matters to the Federal Housing Administration [FHA], which is stepping in to guaranty many of the mortgages Fannie Mae (FNM) and Freddie Mac (FRE) will no longer touch. In the first half of February, the FHA received more than five times as many applications for refinancing help as it did a year ago. Some worry the FHA may be in over its head.
• Can you say stagflation? Economists say recent bearing economic data, including two straight months of payroll shrinkage, indicate the U.S. is most likely already in a recession. "It is now beyond a reasonable doubt that the U.S. economy has entered recession," Wells Fargo economist Scott Anderson says. At the same time, economists raised inflation forecasts to 2.5% for the first half of 2008. Rate cuts will bottom at 2%, they say, and will be back to 3% by Q3 2009.
• Google's good news day. Google (GOOG) gained 6% Tuesday after news the European Commission approved its acquisition of DoubleClick, paving the way for Google's foray into corporate banner display ads. Meanwhile, U.S. courts denied Viacom's (VIA) request to allow it to sue Google for punitive damages of $1B for alleged copyright violations.
• Motorola gets nibbles. After initially shunning Motorola (MOT), leading Asian telecom manufacturers are now showing interest in some form of partnership. MOT said in January it would consider selling its underperforming mobile handset unit.
• Humana: Double whammy. Humana (HUM) plunged another 24% in pre-market trading Wednesday after cutting Q1 and 2008 earnings guidance due to higher claims volumes. HUM sees Q1 EPS of $0.44-0.46, down from $0.80-0.85, and 2008 EPS of $4.00-4.25, down from $5.35-5.55. Shares lost 24% on Tuesday after rival WellPoint (WLP) reduced its forecast.
• Fiery iPod sparks overseas probe. Japanese authorities are looking into a possible defect in Apple's (AAPL) iPod Nano after sparks shot from an iPod as it recharged.
• Drug sales sag. Sales of prescription drugs grew just 3.8% in 2007, down from more than 8% in 2006, amid patent expirations, fewer new products, and the impact of safety issues. Total U.S. prescription sales were $286.5B.
• Heart-stopper. A new study raises concerns pacemakers manufactured by Medtronic (MDT), Boston Scientific (BSX) and St. Jude Medical (STJ) may be hackable by radio signals which could cause them to shock patients, stop working, or reveal a user's personal information. BSX says its defibrillators use encryption, and doubts they could be hacked, while MDT acknowledges the risk and says it is taking steps to prevent unauthorized use, but noted restrictions need to be balanced with the need for immediate access to the devices in the case of an emergency.
• Strike flattens GM truck production. With 30 plants fully or partially closed, GM (GM) hopes American Axle (AXL) makes headway as it resumes talks with the UAW to end a 13-day strike. A complete lack of truck axles has crippled GM's pickup and SUV production; CEO Rick Wagoner said yesterday the strike will impact its Q1 earnings, but added, "it's not a huge issue for us." J.P. Morgan analyst Eric Selle thinks a one-month strike will cost GM $1.8B.
• Time Warner favors split with Time Cable; addresses Yahoo situation. Time Warner (TWX) CEO Jeff Bewkes indicated he favors divesting some of TWX's 84% stake in Time Warner Cable (TWC), likely to less than 50%. Addressing talk of a deal with Yahoo! (YHOO), Bewkes said TWX would not rule out a deal that would make AOL stronger. He said a proposed Microsoft (MSFT)/YHOO merger would produce a formidable rival, but also noted the deal would "verify the value" of AOL's Platform A ad network. Flat growth at AOL, he said, would be history after the coming quarter.
• Intel stands before EU court. AMD (AMD) will take the stand today before the EU's antitrust watchdog, trying to convince officials rival Intel (INTC) commandeered the chip market by offering customers payments for refusing to market or delaying the launch of AMD-based products, and sold chips below cost. If proven, Intel could be in hot water.
• IBM puts tag on Ecentuate. IBM (IBM) acquired Encentuate, a provider of identity and access management software and developer of strong authentication technology. Financial terms were not disclosed.
• Take-Two posts $38 million loss, but raises outlook
• Spitzer is pressured by New York lawmakers to quit now or face impeachment

Today's Markets

• Markets closed higher Wednesday in Asia on the heels of yesterday's action in the U.S. Nikkei +1.6% to 12,861. Hang Seng +1.86% to 23,423. BSE Sensex +0.03% to 16,128. Shanghai -2.3% to 4,070.
• In Europe, markets are higher at midday. FTSE +1.42% to 5,771. CAC +1.45% to 4,696. DAX +1.21% to 6,604.
• U.S. futures are down slightly from Tuesday's close at 8:10 AM. Dow -0.16% to 12,171. S&P -0.28% to 1,320.25. Nasdaq -0.34% to 1,744.50.

Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

Comments

[Lisa]

Excellent summary.

[steveballmer]

Microsoft set for explosive growth as masses are forced to use Vista!