Wall Street Breakfast: Must-Know News

• Short-sellers to suffer further setback. Wall Street watchers believe the SEC will extend its short-selling limits beyond the current 19 companies now covered before Tuesday's expiration. An extension could be for 60 days or more, and could incorporate insurance, housing-industry and more financial stocks - or perhaps even be extended to all stocks. Until Friday, an extension was considered unlikely. Broadening the restrictions to all stocks would require an extensive implementation delay, and could be costly to comply with - especially for smaller firms.
• KKR going public, with a twist. Buyout firm Kohlberg Kravis Roberts & Co. will rescue its struggling Amsterdam-traded affiliate, KKR Private Equity Investors, by offering its shareholders 21% of KKR in exchange for shares in the affiliate. The move would put a $12-15B valuation on the parent. No additional capital would come KKR's way, nor would its partners immediately profit from the deal, unlike when peer Blackstone (BX) went public in June 2007.
• Wash sale. Unilever (UL) is selling its North American laundry business (All, Snuggle, Wisk, Surf) to Huish Detergents parent Vestar for $1.075B and shares worth another $375M. It will merge the business with its existing operation, Huish Detergents, to form a new company, The Sun Products Corporation. Unilever CEO Patrick Cescau, who plans to leave within the year, says the deal puts its North American laundry lineup with a company focused on the sector, and that outside of North America laundry remains important to the company. [PR]
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• Toyota trims targets. Toyota (TM) shaved its global 2008 sales forecast amid crumbling U.S. demand for its trucks and SUVs. It now sees 2008 sales of 9.5M, down by 350,000. It also trimmed its global production plan for this year to 9.5M vehicles from 9.95M.
• Amgen soars on solid results from bone drug trial. Amgen (AMGN) said ts experimental osteoporosis drug (denosumab) significantly reduced the risk of bone fracture in post-menopausal women in a large trial. The positive result "almost guarantees denosumab a place in the osteoporosis market," Morgan Stanley's Steven Harr told clients. He sees peak yearly sales of $2-3B. Amgen posts Q2 earnings after the bell today. Shares are up 18% in pre-market trading.
• The best things in life are free; banks need money. I-bank deleveraging is not helping to reduce elevated borrowing costs. At Lehman (LEH), borrowing costs jumped to 7.7% from 5.2% a half-year ago, making it the worst of the big four. A lack of access to reasonable funds is undermining I-banks' business model, and destroying their balance sheets. "This is far beyond just your basic slowdown," fixed-income strategist Joseph Balestrino says. Wall Street firms have not yet had to borrow significant amounts, because they stocked up on cash when it was cheap. They may have to soon, and it could significantly change their profitability.
• Victory for net neutrality. The FCC will rule Comcast (CMCSA) violated federal policy by crimping the bandwidth of heavy-traffic users. If upheld, a ruling would set an important precedent in determining how much control phone and cable carriers have over monetizing their networks. FCC Chief Kevin Martin said Friday all users deserve "unfettered access to the Internet."
• Jobs phone call settles health issues. Apple (AAPL) CEO Steve Jobs revealed to NY Times journalist Joe Nocera in an 'off-the-record' phone call that "while his health problems amounted to a good deal more than 'a common bug,' they weren’t life-threatening and he doesn’t have a recurrence of cancer." Nocera's reaction? After he hung up the phone, it occurred to me that I had just been handed, by Mr. Jobs himself, the very information he was refusing to share with the shareholders who have entrusted him with their money. You would think he’d want them to know before me. But apparently not."
• IBM buys Ilog for $340M. IBM (IBM) is buying French software developer Ilog (ILOG) for €215M ($340M). Ilog is a leading provider of pre-built software development components that focus on business rules, resource optimization, and data services. The purchase fits with IBM's strategy to make bolt-on acquisitions of intellectual companies to which it can give scale.
• Ryanair nose dives. Ryanair (RYAAY) said FQ1 profit fell 85% due to soaring fuel prices. On the year, it expects to break even, or post a small loss. Average fares fell by 8%. Costs excluding fuel also fell by 8%; including fuel they gained 18%. "We believe that oil prices of approximately $130 per barrel are unsustainable over the medium term, but we don't know when they are going to fall," the company said. Markets were spooked by the €90.5M Q1 net loss including one-time costs and warning, selling shares down 26% in overseas trading.
• Feds shutter two more banks. Federal regulators closed down two more banks Friday, bringing to seven the number of bank failures so far this year. The FDIC was appointed receiver of Reno-based First National Bank of Nevada and First Heritage Bank of Newport Beach, Calif. - both units of First National Bank Holding Co. The Treasury department said FNB Nevada was "undercapitalized and had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices."

Earnings: Before Monday's Open

• Kraft (KFT): Q2 EPS of $0.58 beats by $0.08. Revenue of $11.18B (+21.4%) vs. $10.7B. [PR]
• Lorillard (LO): Q2 EPS of $1.25 misses by $0.10. Revenue of $1.07B (+1.3%) in-line. [PR]
• Metavante Tech. (MV): Q2 EPS of $0.36 beats by $0.02. Revenue of $425M (+7.4%) vs. $419M. [PR]
• Simon Property Group (SPG): Q2 EPS of $1.56 beats by $0.07. Revenue of $923M (+7.8%) vs. $885M. [PR]
• Sohu.com (SOHU): Q2 EPS of $0.92 beats by $0.25. Revenue of $102M (+161.6%) vs. $96.5M. Shares +12.3%. [PR]
• Verizon (VZ): Q2 EPS of $0.67 beats by $0.02. Revenue of $24.12B (+3.7%) in-line. Shares +0.7%. [PR]

Today's Markets

• Asia markets were mostly higher Monday. Nikkei +0.14% to 13,354. Hang Seng -0.24% to 22,687. Shanghai +1.32% to 2,903. BSE +0.43% to 14,336.
• In Europe, markets are lower at midday. London -0.35%. Paris -0.8%. Frankfurt -1%.
• Futures are down slightly. Dow -0.1%. S&P -0.2%. Nasdaq -0.15%. Crude +1.3% to $124.86. Gold +0.35% to $930.

• Monday's economic calendar:12:00 PM Fed's Mishkin speaks on Fed Communications Strategy
• Notable earnings before Monday's open: ACV,BOH, CNA, KFT, MV, SOHU, SPG, TSN, VZ, WWY
• Notable earnings after Monday's close: AMGN, ARNA, ATHR, CF, CHH, EDS, EVVV, HIG, HLIT, MOS, MTW, PCL, PCU, RAH, RCII, SCUR, SLG, SSCC, STR, UHS, WLT

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Comments

[M in Baltimore:]

THIS IS COMPLETELY UNRELATED, BUT CAN SOMEONE TELL ME WHAT MAKES STOCK PRICES MOVE PRIOR TO THE PRE-MARKET OPEN ?(BEFORE 8 A.M.) ARE PRICE CHANGES COMING FROM FOREIGN EXCHANGES? AND, IS THERE ANY WAY ( FOR ME OR YOU )TO TRADE AT 7 A.M.? USING, SAY, E TRADE, WHICH ALLOWS SOME FOREIGN EXCHANGE BUSINESS?

2008 Jul 28 07:57 AM

[deaverb:]

Eli does it again, as always. I feel like Johnny One Note, but fear someone will get Eli to do something different. A wonderful way to start the day being put in the picture, especially the short stories and EPS reports (well, that's about everything; so I guess I like everything).

2008 Jul 28 08:53 AM

[JCCIII:]

1. deaverb, I totally agree with heaping praise on Eli. He is one of my first-thing-in-the-mor... reads, every day. Thank you, Eli.

2. pilar, although I have not done it, I believe most brokerages allow pre-market trading. Like pilar, I would be very interested in hearing comments about experiences with e-trade's foreign trading capabilities. Thanks.

2008 Jul 28 09:01 AM

[ajhough:]

This is a meaningful start for the morning of markets. I have been upset for many years about excessive leverage and short sellers. Especially when we all know that noone knows who is doing it and how much is done. We need transparency at least and regulators who believe in free markets, not greedy markets.

2008 Jul 28 09:09 AM

[The Whole P...:]

To Pilar:

Except for the relatively few items being traded on multiple markets, stocks don't really "move" after extended trading hours. It is simply a case of supply and demand. Let's say a stock ends the day at $10 per share. After trading stops, let's assume some very bad news is published about the company. The next morning, when trading begins, no one in their right mind would enter a bid for $10. The best bid might be for $5, so that the first trade of the day was $5. The stock did not move overnight from $10 to $5. You did not lose out on a chance to trade on the way down after the news was released. There were simply no buyers as the price dropped from $10 to $5.

After saying that, there are some private markets (i.e., those used by larger institutions) that may be in after-market trading, but I am not sure that is the case. Regardless, the same rules apply -- the price does not move around in a linear fashion -- it jumps around based on available buyers and sellers.

A good example of where this can hurt you is with a stop loss price. Let's say you own a stock trading at $10. You want to protect yourself from any major losses, so you put in a stop loss order for $8. However, some bad news is released such that all buyers reduce their bids to $5 or less. Unless your broker was kind enough to "guarantee" your stop loss order (highly unlikely), your stop loss would be forced to sell at $5 because there are no available buyers at $8. The price jumped from $10 to $5 instantly.

This is one of the reasons businesses make announcements after trading stops. It allows all shareholders and potential investors equal access to information, so that the share price can adjust appropriately and the market open at a fair price given the new information.

2008 Jul 28 09:20 AM

[Chuck:]

Pilar:
Contact E-Trade directly to see what you need to do to have them allow you to trade in the overseas markets. THEY are your one and only reliable source of good information. Anyone else's views/opinions/advice are worth what you pay for them.. i.e. Nothing.
go out to Etrade.com and search for Overseas trading or send them an email asking about it.

(P.S. this advice also cost you nothing.)

2008 Jul 28 09:36 AM

[nefri:]

Whole Picture:
I have been reading about futures, trying to learn, and this explanation puts it all very simply. Thanks for all the typing!

2008 Jul 28 09:58 AM

[Monty23:]

To wholepicture; Thanks for the tutorial. I learned something this morning. And many thanks to Eli who makes all this possible.

2008 Jul 28 10:14 AM

[Gen. Change:]

Thank you Eli...Always very informative...Mitch

2008 Jul 28 10:55 AM

[secmaven:]

E trade will establish a global trading account for any customer. But you will find that transferring money in and out costs you about 2.5% in exchange fees plus a 20 buck commission at minimum on trades.

2008 Jul 28 11:01 AM

[Arnold Layne:]

This would be more useful if it arrived before the market open! Yes, otherwise excellent....

2008 Jul 28 01:08 PM

[User 233652:]

Eli, please respond to conversation thread re: after-hours trading. I am afrraid there is some misinformation in the well meaning responses to pilar and I may be misinformed as well. My understanding is that there is after hours trading occurring here (U.S.) and not just in global markets. I have been caught out in the cold when after hours earnings triggered after hours losses to this market. My research shows that mostly large institutions make block sells or buys by participating in after hours trades that are legally open to individual investors, but by ways not known to many of us. Thank you.

2008 Jul 28 01:28 PM

[M in Baltimore:]

Thank-you one and all for your information, esp. "The Whole Picture". I have noticed that sometimes a stock's price may have moved a great deal since it's 8 p.m. after hours close, in response to some (good or bad ) news. By the time the market has opened for the da,y the stock's price has already made it's big move for the day!

2008 Jul 28 04:34 PM

[long_on_oil:]

Pilar
If you open a Schwab account they will give you a program called Street Smart pro. This program allows pre market and after market trades along with normal hours trading. You can sit and watch all the shares being traded and actually watch the price movement.
The program also provides fantastic charts that show live moving averages along with the Relative Strength movement.
I trade pre market and after market with it and it works great.

2008 Jul 28 05:24 PM

[inthemoney:]

There is after and pre market trading from 4-8PM and 7-9.30Am in the US. Everyone can do it, after establishing an agreement with the broker. After market trading costs a bit more, a few cents per share.
Many companies announce earnings after the market close and that move the price in the after market. Also, if it is a foreign company, like an ADR, it could be affected by something overseas and you'd see it at 7AM at pre-market. For example, MTL fell from 26 to 24 pre-market on news from Russia, and then from 24 to16 at the open.
After market is very illiquid, so I don't think an average investor looses much by not being able to access it.
I use it when I need to place a trade for a scan that runs after the close. But if I don't expect a gap in the morning, then I just wait for the open.

2008 Jul 28 08:51 PM

[User 114520:]

FWIW, not all brokerages offer their customers the same access for after-market and pre-market trading, e.g. OptionsXpress allows their users to access to pre-market trading (via the ARCA exchange) from 8-9:30am, not 7-9:30am.

This was a mystery to me, as I could see trades taking place before I could trade, and I was wondering WHO was trading during hours I didn't have access to! I suspected shenigans, but if you're into trading outside normal hours, it might be wise to inquire what hours are offered.

For the most part, most pre-market traders tend to ramp up (or sell off) stocks well outside reasonable levels (not to mention over-night trades which are filled at open), and hence why you'll see the market make a quick correction before the price/trend stabilizes.

2008 Jul 28 11:10 PM