Wall Street Breakfast: Must-Know News

• Paulson: No GSE rescue planned. Treasury secretary Paulson says he has no plans to use congressional authority to inject Treasury capital into government-sponsored mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) - despite last week's dismal earnings reports, which he says were no surprise. "Given that Fannie Mae and Freddie Mac are solely involved in housing, that’s their sole business, and given the magnitude of the housing correction we’ve had, it’s not a surprise to me to see those losses." Paulson also downplayed the need for a second stimulus package.
• Private equity soaks up $8B of RBS's LBO debt. Sources say Royal Bank of Scotland (RBS) is dishing off up to $8B in LBO loans to private-equity firms, who are becoming increasingly aggressive in their pursuit of cheap debt. The buyers - Apollo (AINV), GSO Capital, Blackstone (BX) and TPG - stand to make returns of up to 30%. GSO is also lending money to Blackstone to help it complete LBOs such as its joint acquisition of The Weather Channel, prompting rivals KKR and TPG to seek out their own debt-market partners. "Purchasing debt at big discounts is a terrific one-off opportunity," Morgan Stanley's Mark Bradley says. "But firms like GSO, with their ability to provide all the debt to buy-outs, are going to change private equity in a lasting way."
• Credit unions: next shoe? Five of the largest U.S. credit unions are reporting big paper losses on mortgage-related securities - a sign housing-market distress is spreading to even the most risk-averse participants. The federal regulator of credit unions thinks losses are likely to be reversed when mortgage markets stabilize, and says the institutions are adequately capitalized. Some worry they're underestimating the depth of their mortgage-market problems.
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• iPhone apps hot seller - Jobs. Users have downloaded over 60 million iPhone programs from Apple's (AAPL) AppStore, CEO Steve Jobs told the WSJ in an interview. If sales keep up, Apple could bag at least $360M/year in new revenue. Mind you, Jobs thinks bigger than that: "This thing's going to crest a half a billion, soon. Who knows, maybe it will be a $1 billion marketplace at some point in time - I've never seen anything like this in my career for software."
• UPS downplays TNT deal talk. UPS (UPS) is in initial talks for a €10B buyout of Dutch logistics firm TNT, after recent talk of a FedEx bid (FDX) fizzled. Morgan Stanley (MS) is advising UPS; Goldman Sachs (GS) is advising TNT. A deal would vastly enhance UPS's Europe reach. In a Monday interview with Reuters, UPS downplayed the chatter, saying a deal would devalue its shares. Shares of TNT initially leapt more than 6% Monday, but fell back on UPS's lack of enthusiasm.
• Naked shorts rule about to expire. The emergency measure that protects a select group of 19 financial stocks from abusive short-selling expires Tuesday. At least two-month is likely to pass before a similar rule under consideration may be imposed. Some say traders may not pick up where they left off: "A message has been sent and I don’t think we’ll see a return to that." Others are less sure: "We remain concerned that during this interim time period our members will continue to be exposed to these 'distort and short'" games, ABA's Sarah Miller says.
• Waste Management to boost bid for Republic. Sources say Waste Management (WMI) will raise its bid for rival Republic Services (RSG) by about 10% to $6.73B - or $37/share from $34/share. That would be a 33% premium to RSG's share price before the initial bid. Despite initial pessimism, it seems a deal would pass regulatory muster. Republic, meanwhile, is attempting to buy rival Allied Waste Industries (AW) for $6.24B in stock - a move a raised bid from WMI could thwart. Though Republic is smaller than both Waste and Allied, it is considered the top waste-hauler in the country. Update: Confirmed.
• NBC finds winning combo with TV-Internet Olympic coverage. NBC's (GE) decision to air the Olympics on both TV and the web seems to be paying off. Friday night's taped opening ceremony reached 34.2M viewers, a jump of 35% from the last summer games, and Saturday's network coverage attracted 24.1M viewers, the highest audience for the Summer Olympics in a decade. The NBC webcasts scored high too, with a record 4.8M people watching streaming Olympic video on Saturday. Despite fears that offering Olympic content online would lead to internet piracy and erosion of the television audience, "the early numbers suggest that all of this is fueling more interest," said Gary Zenkel, president of NBC Olympics.
• Inflation expectations dive. TIPS (Treasury Inflation Protected Securities) traders think the commodities top is in, as inflation expectations fall to a 10-year low. "The bottom line is you've seen a significant turn in commodity prices," RBC's Thomas Tucci says. "Going forward you're more likely to see inflation erode." If I'm the Fed, Cantor Fitzgerald's Brian Edmonds muses, "I feel pretty good about my statement that we expect inflation to moderate over time."
• American, BA, Iberia pushing for closer ties. American Airlines (AMR), British Airways (BAIRY.PK), and Iberia are seeking permission from the U.S. government to cooperate more closely on trans-Atlantic flights. Antitrust immunity would allow the airlines to cooperate internationally on pricing, scheduling, and marketing. Coming amidst rising fuel costs and stiff industry competition, the airlines see the move as cost-saving and say it will allow travellers a greater choice of destinations and flight connections. However, not all are pleased with the idea of greater airline cooperation; critics argue it will lead to less competition, higher prices and fewer choices.
• GATX deals for GE Freight. Freight car lessor GATX (GMT) is offering about $3.5B for GE's (GE) rail services unit, sources say. GATX CEO Brian Kenney recently told investors he's looking to invest more aggressively during the economic downturn.
• JDA Software to buy i2. JDA Software (JDAS) announces a $346M merger agreement to acquire i2 Technologies (ITWO)- a 5% premium on ITWO's Friday close. The merger will create a global leader in the supply chain planning and optimization market.
• China trade surplus jumps. China's trade surplus widened to $25.3B (+4%) in July, beating analyst estimates by more than $5B. Exports rose 26.9%. The strong numbers are likely to rekindle talk of Beijing allowing yuan gains to accelerate. Stocks plunged 5.2% to an 18-month low, as China overtook Vietnam as the world's worst performer this year. A Goldman note said the Olympics will slow the economy.

Earnings: Monday Before Open

• Clear Channel Outdoor (CCO): Q2 EPS of $0.23 beats by $0.04. Revenue of $915M (+9.3%) vs. $864M. [PR]

Today's Markets

• Asian markets closed mixed on Monday: Nikkei +1.99% to 13,431. Hang Seng -0.12% to 21,859. Shanghai -5.21% to 2,470. BSE +2.22% to 15,504.
• European markets at midday: London +0.81%. Paris +0.47%. Frankfurt +0.35%.
• U.S. futures are slightly higher at 7:15 AM. Dow +0.08%. S&P +0.08%. Nasdaq +0.23%. Crude +0.89% to $116.22. Gold +0.56% to $862.60.
• Monday's economic calendar:
  6:00 Fed Survey on Bank Lending
• Notable pre-open earnings: CNO, HYGS, LINTA, PEIX, RDN, RTK, SYY, VRX
• Notable post-close earnings: AOB, BE, EXM, FLR, HPT, LDK, MDR, NUAN, POM, SONS, TWTC

Seeking Alpha editor Rachael Granby contributed to this post.

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Comments

[kkin365:]

re NBC's viewership, 2 billion was tossed around (presumably for the world); still, 34+ million seems such a modest figure.

2008 Aug 11 08:20 AM

[Rhett:]

There is nothing out there to support the proposition that inflation is subsiding or under control, and everything to assure the opposite. The current strengthening of the dollar is clearly a blip that will quickly fade away. Wish it were otherwise, but wishing won't make it so.

2008 Aug 11 08:52 AM

[notsosmart:]

smaller content on what you buy at the supermarket-the real hidden inflation.when this measure increases you will know the bottom has been hit.i dont think we will everb get the content back.gyps & scams.thats what goldilocks has become.

2008 Aug 11 04:17 PM