Under The Radar News - Thursday

BoE to copy Fed. The Bank of England is expected to launch a new lending program for UK banks to help thaw frozen credit markets. The plan will be similar to the Fed's recent move, allowing banks to swap mortgage-based assets for government bonds, and could be launched as soon as next week. Today's BoE auction drew £50B in bids on the £13.7B it offered, the most in three months. "It shows the scale of the problem," a strategist said.

Dollar's not going away. Soros says the dollar's here to stay as the global reserve currency. "I don't think the euro can replace the dollar, and a system with two major reserve currencies is not a stable system," he said. He called the current downturn a time of wealth destruction, and said investors should preserve capital until things cleared up. On bubbles: "There is a commodities bubble still in the growth phase while other bubbles are being deflated," he said.

Debt defaults dampen. Moody's says global defaults may not climb as much as its previous forecast of 5% (from a current 1.5%). Moody's now thinks debt-laden firms' default rates will be a milder 3-4%; the historical average is 4.5%. Spreads on high-yield bonds over Treasurys is 738 BP, up from 594 BP at year-end and 287 BP in the first half of 2007. U.S. non-financial firms, which represent the majority of high-yield bond issuers, "look in reasonably strong condition relative to prior periods leading up to recessions", it says.

Now you can buy that mansion. Freddie Mac (FRE) will today announce deals with Wells Fargo (WFC), JPMorgan (JPM) and Citigroup (C) to make more funds available for large home loans. Lenders were reluctant to offer terms on loans between the old limit of $417,000 and the new $729,750 limit (known as "conforming jumbo") because they were unclear as to how much GSEs Fannie Mae (FNM) and Freddie would pay for them. Freddie is making 90-day commitments to the banks on how much it will pay, and is in talks with more banks. GSE conforming loans average 5.9% vs. a 7.2% average on loans they can't buy.

Auction-rate borrowers come to their own aid. At least 36 municipal debt issuers are taking advantage of the SEC's allowing them to bid on their own auction-rate debt, enabling them to lower interest rates on their debt from as high as 20%. The average seven-day rate fell to just 5.14% as the change has largely put an end to auction failures.

"Clarification." Former GE (GE) CEO Jack Welch says he "really stepped in it" yesterday by saying current CEO Jeffrey Immelt had a credibility issue after the company missed Q1 estimates. "Nothing is as disgusting to me as some old CEO chirping away about how things aren't as good under the new guy as they were under him. That's the last thing that I would be involved in." Ok, so what did he mean?

PC sales surprisingly strong. The worldwide PC market grew 12.3% in Q1, Gartner says, in line with forecasts. Hewlett-Packard (HPQ) extended its lead to 18.3% (from 17.5% Y/Y). Dell (DELL) was second with 14.9%, up from 13.7%. Mac (AAPL) shipments soared by 32.5% to 1M, giving Apple the number-four spot among U.S. vendors at 6.6%. Apple also tripled its business client PC market share to 4.2%. Windows (MSFT) PCs still account for 95% of the market.

Comes With Music comes at a cost. A well informed industry insider says Nokia (NOK) is paying Universal Music $35 (or $33.50) for every phone it sells with access to Universal's music library, which Nokia calls "Comes With Music." If true, expect music studios (and TV and movie distributors) to be pitching similar deals to Nokia and other mobile phone manufacturers. Reports say "Comes With Music" is not literally all-you-can-eat, but does include downloads of a "relatively high number [of] songs."

China targeting BHP? Increased speculation that China is preparing a $22 billion-plus share raid on BHP Billiton (BHP), after Chinese Government's National Development and Reform Commission promised yesterday to play a bigger role in the country's push to secure Australian iron ore assets.

Penney's plans. J.C. Penney (JCP) says it will continue to roll out private-label brands despite soft sales, but will only open 36 new stores (down from 50) and renovate 20 (down from 65). JCP is reducing its capex by $243M to $1B. "I have been in the business 39 years [and] I don't think I've seen an environment as unpredictable as the current environment," CEO Mike Ullman says. Analysts liked the idea of aggressively pursuing market share during a weak period.

BlackRock splits BRIC. BlackRock (BLK) says to buy Russian (RSX) and Brazilian (EWZ) stocks to capture an ongoing commodity bull. "Prices of these products have been strong for the last five years. We don't think this trend will change its course anytime soon," it says. It remains cautious on China (GXC) and India (IFN). Schlumberger (SLB) will benefit from higher oil prices, it said. [See our ETF selector for different ways to capture single-country and broad international exposure.] Of note: BlackRock CEO Laurence Fink says the time has come for investors to take on more risk: "We're suggesting many clients start looking to move away from Treasury-oriented strategies to more credit-oriented and mortgage-oriented strategies."

Hard to surprise to downside. "The expectations for earnings have been dramatically, greatly downgraded. It just strikes me that there is very little scope for shock value. Therefore I don't think the market will be going to be very fazed by what's happening in the financial sector." - Mike Lenhoff, Chief Strategist at Brewin Dolphin, London, on Merrill's (MER) earnings miss

Hidden cost of Yahoo bid. If Microsoft (MSFT) succeeds in snagging Yahoo! (YHOO), it will likely have to launch an employee retention package to prevent top Yahoo veterans from jumping ship. Some think this is one of the reasons Microsoft has resisted raising its bid.

Liz smells a sale. Liz Claiborne (LIZ) is shopping its fragrance business, including brands Juicy Couture, Usher, Lucky and Claiborne.

Comments

[User 170478:]

So should GE shareholders really be blaming Welch for the drop in earnings? Afterall, Immelt was mentored by Welch.

2008 Apr 17 11:41 AM