Wall Street Breakfast: Must-Know News

• China lift drops crude. Crude oil futures fell more than 3% Thursday after China raised its gasoline prices by 18%, a move many believe will dampen demand in the country. Voracious Chinese demand is widely seen as the number-one reason for soaring oil prices. On the other hand, it's altos possible the price hike could boost the country's demand for imports, as refiners ramp-up production now that they're entitled to higher prices. After the raise, gas in China should cost about $3.06/gallon - still subsidized, but less so.
• Monolines downgraded, again. After the close, Moody's downgraded bond insurers MBIA (MBI -5.4%) and Ambac (ABK -3%), citing difficulties raising capital and writing new business. Standard & Poor's did the same two weeks ago. MBIA (MBI) says it's baffled and disappointed with Moody's analysis. "We have more than enough capital to meet obligations to policyholders."
• A 'good' writeoff. After the close, regional bank Huntington Bancshares (HBAN +10.9%) said it expects 2008 charge-offs at the top end of its 'very manageable' 0.6-0.65% guidance - but not more. "Investor skepticism is not surprising," it said, however "our outlook has remained fairly consistent."
• Airlines fly high. Airline stocks soared Thursday on the drop in oil prices. Continental (CAL +16%) and United (UAUA +23.8%) also said they're entering an extensive cooperative agreement, including CAL joining United's Star Alliance. Continental sagged 4.75% AH after it priced an 11M share offer at $14.80 (close: $15.59).
• Mortgage lenders' woes far from done. Lehman analysts say Fannie Mae (FNM) and Freddie Mac (FRE) will post worse-than-expected Q2 losses. U.S. home prices are doomed to fall 20% from their peak, they say, vs. a current 4%. Bloomberg quotes Freddie CEO Richard Syron as saying the firm may still need to raise more capital (Briefing.com).
• Japan bank supports Barclays. Sources say Barclays (BCS -3.3%) may get a $927M cash injection from Japan bank Sumitomo Mitsui, part of a planned £4B fund raise. "Japanese banks are in a safer position than their global peers and have surplus capital to invest," one fund manager said.
• Yahoo: Anyone left? Delicious founder Joshua Shachter is leaving Yahoo (YHOO). Sources say SVP Vish Makhijani, SVP Brad Garlinghouse and EVP Qi Lu are also on their way out. Shachter: "I was largely sidelined by the decisions of my management... It was an incredibly frustrating experience." Yahoo acquired Delicious in Dec. 2005.
• Glaxo probe widens. A DoJ investigation into whether GlaxoSmithKline (GSK) intentionally withheld data about the suicide risks of its antidepressant drug Paxil appears to be widening. Paxil is one of GSK's best-selling drugs. There are also suspicions Glaxo promoted off-label use of the drug for adolescents.
• Rail share could cost Rio. Rio Tinto (RTP) says complying with a recommendation by an Australian commission to open its Pilbara railway to third parties could cost $30B. "The NCC appears to be lining Australia up for a massive exercise in value destruction," iron ore CEO Sam Walsh said.
• More writedowns seen at Citi. Shares of Citigroup (C) fell 1.1% after CFO Gary Crittenden said it faces continuing credit issues - and that substantial writedowns on subprime assets were likely. Also yesterday, Citi confirmed it is buying Brazilian brokerage firm Intra. "This acquisition fits Citi's strategy to invest in emerging markets, where growth rates are higher," Citi's Brazil CEO said.
• Pimco's Gross likes bank debt. Despite the woes of U.S. financial institutions, Pimco's Bill Gross said Thursday he continues to hold the debt of Citigroup (C), Morgan (MS) and Goldman (GS) - because they still offer great value.
• Google, Microsoft gain search share. Nielsen's May U.S. search stats (Y/Y growth/market share): 1) GOOG +15.4% / 59.3%. 2) YHOO -13.8% / 16.9%. 3) MSFT +72.4% / 13.3%. 4) AOL (TWX) -15.6% / 4.1%.
• Mega-star dispute to split Live Nation. Live Nation (LYV) chairman Michael Cohl appears to be on his way out. CEO Michael Rapino wants to slow down the pace of the firm's recent '360 deals' - in which it essentially buys out big-name performers in exchange for a hefty up-front payment. Cohl wants to speed up the deal-making.
• Bear traders charged. Two Bear Stearns fund managers were arrested for securities fraud. In an email four days prior to saying everything was fine, one told the other his fund's market was toast.
• Treasury Secretary Henry Paulson: "We must limit the perception that some institutions are either too big or too interconnected to fail. If we are to do that credibly, we must address the reality that some are." Paulson also pushed for the government to expand the Fed's authority beyond commercial banks, to include broker-dealers. We expect it to avert systemic risk, he said, but have not given it the mandate to do so.
• The Conference Board's Leading Indicators rose by 0.1%; economists were expecting it to remain flat. The Philly Fed said manufacturing continues to contact. Current activity fell for the 7th straight month, to -17.1 from -15.6. 72% of manufacturers saw input prices rise, the highest since 1980.
• Indian inflation. India stocks and bonds plunged Friday after government data showed inflation climbed to a 13-year high of 11.05%, up from 8.75% a week ago, and worse than the 9.8% economists expected. The BSE Sensex fell 3.42%.

Today's Markets

• Most Asia markets fell Friday: Nikkei -1.33% to 13,942. Hang Seng -0.23% to 22,746. Shanghai +3.01% to 2,832. BSE Sensex -3.42% to 14,571.
• In Europe, markets are lower at midday. London -0.29%. Paris -0.82%. Frankfurt -0.42%.
• U.S. futures are down at 7:05. Dow -0.48%. S&P -0.48%. Nasdaq -0.49%.
• Crude is up 1.21% to $133.53. Gold has gained 0.25% to $906.40.

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Comments

[Ishortyou]

In respect to Ambac and MBIA, they need to keep and save their cash they already have and any cash coming into their coffers, deleverage from annoying debts, obligations and risks, stop paying dividends to increase their book value and once their book value is adequate and sound reinstate their triple A ratings again to start writing down new public bonds insurance only in low risk areas of the market. This strategy in itself is the best advertisement to recruit new business because the new clients will precieve that " if these folks were able to survive the credit crisis then they can survive anything".

AMBAC and MBIA are already doing this strategy, so now its a matter of time for their book value to appreciate quarter by quarter to reinstate their triple A again, you dont have to be a rocket science to figure this out.

[RichardSchweitzer]

Gee, Ishortyou, how many times will you post this same stuff?

Disclosure: Long MBI - so not antithetical.

[nukldrager]

re "gas in China should cost about $3.06/gallon - still subsidized, but less so."
With gas at 4$.00 in the US, where does the line between pure supply and demand vs. manipulated markets fall? Subsidized gas would help strengthen the consumer base in China for future GDP growth. Meanwhile here in the good ol US of A (or perhaps it's now the new weird US of A) we are adapting to... "Voracious Chinese demand is widely seen as the number-one reason for soaring oil prices" Are we getting Shanghied?

[nukldrager]

Thats... $4.00, but I see I'm not alone in the clumsy finger dept.

[LondonCalling]

China subsidizes gas... USA subsidizes corn (to the tune of $10B+)... all in an effort to lower the cost in subsequent down river products... lower gas in china make for lower production costs (so the US consume can have lower product cost on consumer imports)... cheap corn makes for cheap feedstock for cows, coca cola etc (so the USA can buy cheap fast food - and other things - have a litre of coke, and a triple patty for lunch and get fat)...
LC

[Bkraswting]

You missed what might become an important development. Triad Guarantee basically went belly up yesterday. Triad provided guarantees for the top 10-20% of mortgage pools in 06, 07, 08. Many Wall Street firms have already taken losses on paper the acquired with the Triad chomp.

Heres the story that may become significant. Triad guaranteed a lot of paper that ended up in FNM/FRE.

This week FRE finally eliminated Triad as an acceptable counter-party. Just a little bit late.

Keep in mind that the Agencies have taken no losses or reserves on this

[wowser]

surprise! oil on the way up again, the chinese govt cant slow anything for real or their economy crashs too. Were in the same boat ..all our answers have bad side affects
were running out of capacity in oil folks , nothing but that is forcing prices up, any little glitch in the world now sends the price soaring ..i think just in the last few months we have seen these really big moves in price ...right? that has got to be a signal bad things are on the way....5 dollar moves in 1 day ..wow
the bitch is that its too late for usa to make anything meaningfull happen on the supply side and the guys that can pump more ...many dont like us ....and would love to see us crumble even if it takes china and europe down ....these countrys dont need anymore money and dont do anything but oil so they will be fine...feels like checkmate even if not planned

[wowser]

can anyone say WW3

[Right inSanFrancisco]

On Chinese gasoline prices, and the comparison of their new $3.06 to our $4.00, state and local taxes need to be considered. Government tinkering really operates only on the margin in terms of affecting demand. The "problem" is that they are moving toward our standard of living.

[sw05052002]

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[yeasure]

I still think the rising oil price is due to market speculation and greed,
because all gas related parties made HUGE profits including bull traders, I cannot believe that the average oil related stocks have raised up to 1000% for the past few months, that is speculation, nothing to do with oil shortage. They just won't lower the gas prices since they tasted the flavor of Greed!