Under The Radar News - Friday

Credit derivatives show unexpected strength. Despite heavy cynicism from credit analysts, a recent rally in credit derivatives isn't slowing. The iTraxx Crossover index, which measures the cost of protecting 50 risky European companies' debt, fell 30 BP to 480, its first visit below 500 since the beginning of February. Financials are down 77 BP from a March 17 peak; non-financials are down 49 BP.

Per capita recession: We're there. Merrill's chief North American economist David Rosenberg notes that with U.S. population growth of 1-1.5%/year, any GDP growth less than that means contraction. The per-capita recession began in Q4 2007, when GDP was 0.6%.

Train wreck. 81% of Americans think the U.S. is on "the wrong track," up from 69% last year and 35% in 2002. The number is the worst since NY Times/CBS began their poll in 1991. Only 46% think their children will enjoy a better standard of living than they do.

Banks choke FHA loans. Even as politicians move to increase FHA home loan availability, banks that lend the money are adding fees and rules that make FHA mortgages more difficult and more costly to secure.

3G iPhone for $399? Apple's (AAPL) much-anticipated 3G iPhone may go on sale in June, and may cost the same $399 as an 8GB model. AT&T (T) may tack on another $10 for 3G access. iSuppli says 3G will cost Apple another $17/phone, and GPS maybe another $3-4.

Microsoft beefs up enterprise handheld management. A new bit of code in an otherwise benign Windows Mobile 6.1 release is a watershed for enterprise users. The updated OS now contains hooks into Microsoft's System Center Mobile Device Manager 2008 [MDM], the first major effort by Microsoft (MSFT) to make handhelds as manageable and secure as PCs. To be sure, Microsoft comes to an already-crowded party (RIM, NOK), but Microsoft-centric IT departments are sure to be cheered.

Honda gives Toyota Fits in Japan. Honda (HMC) reclaimed top-spot in Japan after a five-year drought with its Fit, beating out the Toyota (TM) Corolla.

Dividends dive. Dividends took a huge hit in the Q1: Only 598 of the nearly 7,000 companies tracked by S&P's Dividend Record raised their payouts, down 19.2%. 83 companies decreased dividends, the worst since 1991. Surprise: 3.4% of financials lowered dividends, vs. 6.2% for non-financials.

Small is smart. Which asset class has fared best during the recent market plunge? Small-cap value, down just 3.8%. Large, mid and small growth are down 5-12%. Top small-cap fund Paradigm likes Whiting Petroleum (WLL), Sensient Technologies (SXT), Cimarex Energy (XEC), Quanex (NX) and Navigant Consulting (NCI).

Analysts bearish on $Cdn. RBC Capital pegs the Canadian dollar (FXC) at $0.909 by year-end and $0.87 by the end of 2009. BMO sees $0.97 and $0.95, respectively. Catalysts: a U.S. turnaround, a cessation of Fed easing, and falling interest rates in Canada.

JPMorgan locks up Bear vote. JPMorgan (JPM) acquired another 11.5M shares of Bear Stearns (BSC) in open market trades (for $12.2369). When all's said and done, it plans to own as much as 49.5% of the outstanding shares. Think it can muster a majority?

Riverbed shortfall bodes ill for Cisco, Juniper. Riverbed (RVBD) pre-announced a revenue shortfall last night, due to delayed and downsized purchases. Reason to be concerned for Cisco Systems (CSCO) and Juniper Networks (JNPR).

Hunting illegal Bear trades. The SEC is questioning whether illegal trading and rumor-mongering took place in the days preceding Bear Stearns' (BSC) downfall. Bear insiders have suggested hedge funds spread false rumors in order to drive down its share price.

Who stands atop 3G? A recent study of HSPDA solutions (High-Speed Downlink Packet Access, a 3G component) found InterDigital (IDCC), Infineon (IFX) and Icera at the top of the heap. For now, Qualcomm (QCOM) still has an economy-of-scale advantage, but a Texas Instruments (TXN) tie-up with IDCC could break things open.

Intel Philippines fab at risk. Intel says it may close its Philippines assembly, in which it has invested $1.5B, because of the high cost of electricity there. The factory employs 3,000. Hmm... do you think maybe Intel would like a discount?

Citigroup a sad story - former CEO. The 1998 $166B merger that joined Citicorp with Travelers, creating today's Citigroup (C), was a "mistake," architect John Reed says. "The stockholders have not benefited, the employees certainly have not benefited and I don’t think the customers have benefited because our franchises are weaker than they have been." Citi insiders say Reed has privately told CEO Vikram Pandit to at least consider spin-offs, perhaps Citi's international consumer unit. Citi executive Don Callahan defended the merger, saying it "revolutionized" the sector. "After 10 years there is still no other financial services firm that has the combination of businesses or the global reach that Citi has."

The next subprime? Scary thought from IBM's (IBM) top data security expert: Just as many financial services firms failed to see the writing on the wall before the subprime meltdown, and its ripple effect on the overall U.S. economy, IT teams won't be able to sufficiently secure their information unless they become far more proactive in assessing risk. "With the lending sector, risk was not priced into the market appropriately until August of 2007, and those markets were not acting efficiently before then -- they weren't able to accurately predict the risk of companies like Bear Stearns (BSC) until it was far too late," Steven Adler said. "Every market is an arbitrator of fear and greed, and information about risk is what we all use to make educated decisions. We need new data governance standards to help companies engage in smarter risk calculation, modeling, forecasting, and analysis on a much more systemic basis."

Comments

[who:]

great article!

honda like apple are innovators, hence these type of companies have better chance of getting to the top.

2008 Apr 04 02:12 PM

[GregY:]

The next subprime? Adler's call sounds like nostalgia for 2K "good times" hoping to scare businesses into colossal spending campaign. Perhaps infrastructure investments are not a bad thing in recessionary time. Even if this recession is politically induced for election purposes.

2008 Apr 05 11:39 AM