Wall Street Breakfast: Must-Know News

• Fed frets downturn, cautious on rate cuts. FOMC minutes yesterday revealed some governors fear a "prolonged and severe downturn," while at the same time conceding, "monetary policy alone could not address fully the underlying problems" of the housing and financial markets -- a concession many economists think is a signal the Fed plans to back off from aggressive rate cuts. Economists think rate cuts may bottom at 1.75% in June.
• Will the Fed have to beef up its own books? Having committed much of its Treasury portfolio to support sagging credit markets, the Fed is now looking at how it can fortify its own balance sheet before it runs out of ammunition. Among the options: 1) The Treasury borrows more money than the government needs, and the excess is deposited with the Fed. 2) The Fed issues its own debt. 3) Fast-tracking a new law (set to take in 2011) that will allow the Fed to pay interest on commercial-bank reserves. The Fed has sold or lent about $300B of its $790B Treasury portfolio. Two less-likely options are simply to print money (would drive interest rates too low) and to directly purchase mortgage-backed securities (too risky).
• Greenspan on U.S. economy - past and present. Former Fed Chairman Alan Greenspan told CNBC the U.S. is "in the throes of a recession," but that it's still early to gauge its depth. "We have not confronted a situation like this in over half a century," namely a "tug-of-war" between the economy and financial systems. Greenspan also said 1% interest rates during his reign did not induce the housing bubble, but rather "misjudgments of the investment community" and the illusion of risk-free profits. Nor does he think regulators could have eased the pain: "The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent."
• Citi nears sale of $12B in risky debt. Sources say Citigroup (C) is on the verge of selling $12B in leveraged loans and bonds to a private-equity group including Apollo, Blackstone Group (BX) and TPG for just under $0.90 on the dollar. The move would unsaddle Citi of more than a quarter of its $43B in leveraged-loan exposure. Further sales are possible. Shares rose 3% in extended trading.
• WaMu snubs JPMorgan takeover bid. Sources say JPMorgan (JPM) made a preliminary $8/share stock-only ($7B) takeover bid for Washington Mutual (WM) last week, which the latter spurned, opting instead for a $7B cash infusion from a TPG-lead private-equity group which took JPM by surprise. Shares of WaMu closed Tuesday at $11.85. The JPMorgan bid was at a substantial discount, but would have avoided the dilution that will result from the stock issue to the private-equity investors. JPM is still thought to covet SunTrust Banks (STI).
• China stalking BHP? China's biggest steelmaker, Baosteel, is gearing up to buy a more than 9% stake in BHP Billiton (BHP), seemingly an attempt to inject itself as a factor in BHP's proposed takeover of rival Rio Tinto (RTP). BHP's Sydney shares initially rose 3.7%, but later relinquished 2% of that after a senior Baosteel executive said he was unaware of any such dealings. China's Chinalco acquired a 9.4%, $14B stake in RTP in February. Iron-ore and coal hungry Chinese companies and officials oppose BHP's $135B bid for Rio.
• Taking sides in Yahoo/Microsoft struggle. Legg Mason (LM) portfolio manager Bill Miller says he will support Yahoo's (YHOO) battle to stay independent should Microsoft (MSFT) lower its $31/share bid, as it threatened to late last week. Miller thinks Microsoft could shift shareholder support in its favor by bumping up its offer by $1 (to $32 -- it's worth only $29.17 at MSFT's current price), and called Microsoft's threat to lower its offer a blunder. "Telling the shareholders you're going to take something away from them is not a way to get their support." Piper Jaffray Piper analysts say their survey of 20 institutional Yahoo investors showed a majority favor the current deal to no deal.
• EMC spends $213M on Iomega. EMC (EMC) is buying Iomega (IOM), best known for its once-popular Zip Drive, for $3.85/share, a 5.8% premium to the previous close, concluding months of complex negotiations. EMC's business is largely geared toward corporate clients; acquiring Iomega will give it a bigger foothold in the small businesses and consumer markets.
• Will Boeing's new deadline fly with investors? Boeing (BA) is expected to announce today its 787 Dreamliner has been delayed by 18 months, to the end of 2009. Boeing may also scrap or at least put off the 787-3, a high-passenger-density model designed for the Japanese market, in order to focus on the other two variants. Airlines who ordered the new jets are likely to demand billions in compensation. Meeting the new deadline will require a massive resource allocation.
• G-7 aims to prevent next crisis
• FDA warns Glaxo over Avandia
• Pilot talks could aid Delta merger

Today's Markets

• In Asia, markets closed down everywhere except India. Nikkei -1.05% to 13,112. Hang Seng -1.35% to 23,985. Shanghai -5.5% to 3,414. BSE Sensex +1.3% to 15,791.
• In Europe, markets are up mildly at midday. FTSE +0.25% to 6,005. CAC +0.14% to 4,920. DAX +0.1% to 6,779.
• U.S. futures are flat to higher at 7:15. Dow +0.05% to 12,616. S&P +0.05% to 1,371.75. Nasdaq +0.35% to 1,861.25.

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Comments

[nukldrager:]

Re "Greenspan on the US Economy..."
Greenspan is great with words, great to read and listen to. But something stinks around the Fed. In his book "The Age of Turbulence" he writes"...Rising leverage appears to be the result of vast improvements in technology and infrastructure, not significantly more risk-inclined humans. Obviously, a surge of debt leverage above what the newer technologies can support invites a crisis. I'm not sure where the tipping point is." (slightly paraphrased) And now "...We have not confronted a situation like this in over half a century," and, "The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent." Well someone should explain the $530 trillion in cdos as it rips it's way through the belly of the economy like a butchers knife.

2008 Apr 09 08:28 AM

[flatman:]

On the Citi deal - its 90 cents to the dollar but its leveraged. Anyone know what the discount on that is?

2008 Apr 09 10:21 AM

[pdx:]

Alan Greenspan is like the child passing the cemetery--whistlling and saying what he does out of fear of the truth or of the unknown. His policy "enabled" the greedy in our system to commit their financial atrocities. "Just don't give a convicted felon a gun" would apply here. Maybe the metaphor is too harsh but the message is not. The low interest rates instituted by Greenspan did, in fact, encourage lenders to rapaciously feed money to the unwary among us.  There is fault aplenty to go around, but the beginning of the difficulty was Alan Greenspan's attempt to shift the losses in the high tech markets to another, broader market, namely the housing market. Could this broad action dilute the losses? said he. What actually happened was that he embroiled the greedy with the uninformed to create a much bigger credit problem enveloping the entire global structure. This was unconscionable. Only some among us would have suffered from bad judgement with the High Tech losses and our capital system would have had its painful day. But with our homes on the block almost all of our citizens were swept up in the losses and attendant credit crises. Now, it appears that the pain will be protracted and the solution unsure. God Bless/help America.

2008 Apr 09 11:02 AM

[wsigler:]

Yes, there's plenty of blame to go around - but - you know what?...The simple answer is that we, the borrowers...the uneducated, ignorant, stupid, greedy borrowers who didn't have the common sense to look before we leaped...are at the root. We simply don't want to take the blame...too easy to push it off on someone else. Lenders knew these were ignoramuses they were lending to and now that it's caught up with them, they deserve NO RELIEF from the rest of we taxpayers - and neither do the borrowers who instigated it. Every one of those folks for whom it can be shown they stepped into something they were not prepared to handle and walked away - should have their credit destroyed for at least 10 years - and lenders should not be allowed to lend to them again during this period. Both the lenders and borrowewrs should be left to wallow in their own slop and the govt. (we, the taxpayers) should not contribute ONE CENT to their rescue!

2008 Apr 09 12:56 PM

[robert99:]

wsigler: Yes, but the problem is that the people who were responsible with their loans, who also live next door to those who were not, will probably abstain from the high road and cry for government intervention. After all, it wasn't their fault, was it? The problem is that we have simply become an entitlement society. Life still throws curveballs as it always has, but we have now come to rely on the umpire to wave us on to first base when that third strike goes whizzing by instead of admitting that we did not see it coming because it was a beauty, and sucking it up and driving on.

2008 Apr 10 03:31 AM

[wsigler:]

NI123: Yes, you're absolutely right...

2008 Jun 01 02:20 PM

[brettlee:]

Everyone of those folks for whom it can be shown they stepped into something they were not prepared to handle and walked away-should have their credit destroyed for atleast 10 years.
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brettlee
[URL="www.opiate-addiction.c..."]Opiate Addiction[/URL]

2008 Sep 06 02:58 AM