Wall Street Breakfast: Must-Know News

• Recession is here. A WSJ survey shows 71% of the 51 economists surveyed say the U.S. has already slid into recession. Key forecasts: Economic growth in Q1 will be just 0.1%, adding another 0.4% in Q2; 47% think a current recession will be worse than the 2001 and 1990-91 downturns; the economy will add less than 5,000 jobs/month over the next year; home prices will fall 5.3%; Bernanke has a 59% chance of being reappointed in 2010.
• Carlyle Group to make amends for collapsed fund. Private-equity firm Carlyle Group LLC says it will do what it can to make amends for investors who lost their capital after the collapse of Carlyle Capital, which it manages. Carlyle Capital defaulted on $16.6B of debt after lenders seized its assets. CC failed to meet margin calls after the value of the retail-mortgage-backed securities it held, issued by U.S. government-sponsored lenders Fannie Mae (FNM) and Freddie Mac (FRE), dropped suddenly and unexpectedly. "We’re working to find ways to help people to deal with losses and maybe recover some capital," Carlyle Group co-founder David M. Rubenstein said.
• End of subprime woes in sight. Standard & Poor's raised its estimate of sub-prime writedowns to $285B, from $265B six weeks ago, but said the end is in sight as the global financial sector seems to have already disclosed the majority of valuation writedowns. U.S. moved sharply higher Thursday on the upbeat outlook. S&P warned, however, that increasing weakness in U.S. real-estate markets and liquidity issues could offset any positive outcome from the reduction in subprime exposure.
• Steve, meet Jerry. Yahoo (YHOO) and Microsoft (MSFT) sat down Monday for the first time since Microsoft's unsolicited offer on Jan. 31. The meetings, which involved no bankers, were not negotiations, but rather gave Microsoft a chance to pitch its vision of a merged company. Microsoft's original $31/share offer valued Yahoo at $44.2B, a 62% premium. A subsequent 12% drop in MSFT's share price pegs the offer at $29.11/share, or $41.9B. Microsoft says it will not consider raising the offer unless it can examine Yahoo's books.
• SEC to ok soft asset pricing. The SEC is set to allow companies to give investors a range of prices and possible outcomes when valuing difficult-to-price securities in their earnings reports. Proponents of the move like that it gives more information to investors, while some worry discretionary control will allow companies to manipulate numbers. The SEC will suggest companies explain how they arrived at the values used.
• Target names credit-card unit suitor. J.P. Morgan & Chase (JPM) is in talks with Target (TGT) to take a half-stake in the retailer's credit-card unit for about $4B. Target's credit card operation made about $600M before taxes last year. A partial sale would reduce its exposure to potentially worrisome consumer debt.
• Gold, oil soar. Gold (GLD) topped $1,000/ounce Thursday and crude (USO) hit a record $111, as a weak U.S. dollar, concerns over a shaky U.S. economy, and inflationary fears saw investors moving money to tangible assets. "The funds keep throwing big-time money at commodities," a gold analyst said. Some experts say the gold rush is likely far from over, while noting sentiment can and does change quickly.
• Retail sales fall 0.6%; car sales plunge. Retail sales were down 0.6% from January, falling short of analyst expectations of a 0.2% increase, but grew 2.6% over last year. "The report doesn't suggest that consumers are falling off the cliff," AIG strategist Markus Schomer says. Car sales fell 1.9%, and auto stocks (GM, F) were down about 10% after a Morgan Stanley report saw total light-vehicle sales for 2008 down 2.5% from previous estimates. Adding to the pressure, Toyota Motor (TM) said it would slash production of pickups and SUVs, and Chrysler broadened its two-week summer shutdown to include the whole company.
• Liz comes up short on earnings. Liz Claiborne (LIZ) swung to a Q4 loss of $435.7M ($4.55/share) because of a large impairment charge on its Partnered Brands, net of which EPS of $0.20 fell short of analyst estimates of $0.24. Revenue of $1.21B was in line. LIZ reaffirmed 2008 profit outlook of $1.50-1.70 vs. consensus of $1.57.
• AOL buys Bebo. AOL (TWX) bought Bebo -- the number-three global social networking website (behind MySpace (NWS) and Facebook) with a strong UK presence -- for $850M. "People are using social networks as their prism to the online world," Bebo president Joanna Shields says. Sources say Yahoo! (YHOO) and CBS (CBS) also looked at Bebo, but decided against a purchase because they felt the valuation was focused on potential as opposed to profits. "The price seems a bit high, and it's hard to know what AOL is getting," Ryan Jacob of the Jacob Internet Fund says.
• CNet to challenge proxy fight. CNet Networks (CNET) said it will consider appealing a court decision earlier Thursday that permits a group of activist investors to nominate new board members. "We believe that it is not in the best interests of our stockholders to undertake a costly and disruptive proxy contest initiated by Jana Partners that does not comply with the company's by-laws," CNet said.
• Auction rate woes hit startups. Some smaller Silicon Valley start-ups are falling victim to the collapse of the auction-rate debt market. A startup investor says 12 of the 65 companies in its portfolio hold auction-rate securities, although less than half face short-term liquidity issues.

Today's Markets

• Markets in Asia fell Friday in a mild session. Nikkei -1.54% to 12,242. Hang Seng -0.29% to 22,237. Shanghai -0.22% to 3,963. BSE Sensex +2.37% to 15,798.
• In Europe, markets had inched up at midday. FTSE +0.49% to 5,720. CAC +0.35% to 4,647. DAX +0.73 to 6,547.
• U.S. futures fell sharply overnight, gained much of that back, but are moving lower at 7:25 AM. Dow -0.67% to 12,071. S&P -0.67% to 1,306.50. Nasdaq -0.44% to 1,748.

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Comments

[Lisa]

It's amazing that S&P managed to move the market yesterday. As if those guys successfully predicted the debt mess to start with...

[sasian]

Lisa.. In the Social Sciences what happened yesterday is called a Self Fulfilling Prophecy...

[CoolcatReport.com]

GLD and USO continue to be core holdings in my ETF Portfolio, which has shifted dramatically between a heavy weighting in international ETFs six months ago to a focus on positions in precious metals, commodities and short ETFs. That's the great thing about ETFs: their diversity and range in covering the overall world market makes it easy to shift money into the areas that are working at any moment.

Kevin Kennedy
Publisher
CoolcatReport.com
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