Wall Street Breakfast: Must-Know News

• Housing slump hurts Home Depot. Profits at Home Depot (HD) fell for the eighth straight quarter as a severe housing slump takes its toll on America's biggest home-improvement chain. EPS still beat expectations (see below). HD said it's comfortable with the low-end of its previous outlook - that 2008 EPS will fall 19-24%. Same-store sales fell 7.9%, steeper than the 5.3% drop reported by Lowe's (LOW) yesterday; the comparison has been a point of contention among investors.
• Nymex agrees to CME Group merger. After a twelve month courtship, Nymex Holdings (NMX) shareholders approved the CME Group's (CME) $8.3B takeover bid Monday. The deal cements CME's status as the world's largest derivatives market. CME will pay $36 cash and 0.1323 of its shares for each Nymex share. The combined company may be able to save as much as $100M/year in costs, and will guarantee around 98% of the exchange-listed futures that are traded in the U.S. In AH trading, CME gained 1% and NMX was up 1.7%.
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• General Dynamics to buy Jet Aviation. General Dynamics (GD) has agreed to buy Jet Aviation, a privately-held business-plane fitter, for $2.25B. The boards of directors for both companies have already approved the deal; the acquisition should be completed by the end of the year.
• Game developers agree to remain friends. EA (ERTS) dropped its $2B, $25.74/share hostile bid for Take-Two Interactive (TTWO), but said it will meet with TTWO. "EA is throwing an olive branch out there," analyst Michael Pachter says. If TTWO management is smart, he says, they'll negotiate a $26-27/share bid "and come out as heroes." TTWO says it's not averse to staying independent, and continues to feel the bid undervalued its shares. TTWO was off 4.4% Monday. ERTS fell 1%.
• Lehman markets prized division. Lehman Brothers (LEH) has approached potential bidders, possibly Blackstone (BX), in an attempt to sell the firm's prized investment-management division, including the Neuberger Berman unit. The money management division could be worth as much as $8-10B; the structure of any potential deal remains unclear. Lehman's efforts come as analysts predict Q3 losses of at least $1.8B and the company seeks to ease capital pressures.
• FHA mortgage apps triple. The government-insured share of mortgage applications tripled in the past year, to 29.1% of all mortgage applications accepted last month, up from 8.4% in July 2007 and 9.4% in January - as borrowers increasingly turn to the FHA for loans. Reasons for the jump include the FHA's increased loan limits, a huge jump in conventional-to-FHA refinancings, smaller down-payments and easier credit requirements.
• Labor gets more expensive. Growth in labor costs accelerated in most developed economies during the first three months of the year. The OECD reported a 0.5% rise in industrial labor costs, vs. a 0.1% increase in the last three months of 2007. U.S. costs were up 0.3%, euro-zone +0.2% and Japan +0.6%. The acceleration will worry central bankers, who fear inflationary pressure could lead workers to press for higher pay, leading to further price increases.
• Crude slides as Fay fears fade. Crude oil fell Monday, and continues to drop in overnight trading as tropical storm Fay circumvents Gulf of Mexico oil rigs and tanker traffic as it heads for the West Florida coast. September crude fell $0.90 (-0.8%) to $112.87 a barrel, and is off another 0.9% to $111.90 at 6:20 AM.
• Strange volatility surrounds naked-shorts rule. The temporarily halt of naked short sales in the shares of Fannie Mae (FNM), Freddie Mac (FRE) and 17 other financials drove up stock borrowing and increased stock-loan market volatility, a new study concludes. Stock loans for the 19 firms more than doubled, a "substantial and remarkable" rise. Still, two-thirds of the borrowed shares were returned before restrictions were lifted on Aug. 12, suggesting brokers may have overanticipated demand - and possibly indicating there was not much naked shorting going on.
• Bats prepares to challenge NYSE and Nasdaq. Electronic-trading network BATS received SEC approval to operate a stock exchange that will compete against the NYSE and Nasdaq. BATS plans to offer discounted trading fees and promises faster order execution.

Earnings: Tuesday Before Open

• Home Depot (HD): Q2 EPS of $0.71 beats by $0.10. Revenue of $21B vs. $20.58B. Same-store sales fell 7.9%. Sees 2008 EPS down 24%, vs. a previous 19-24%. [PR]
• Mesa Air Group (MESA): FQ3 EPS of -$0.09 misses by $0.02. Revenue of $354M vs. $327.5M. [PR]

Today's Markets

• Asia markets closed lower, save for a much-needed bounce in Shanghai. Nikkei -2.28% to 12,865. Hang Seng -2.13% to 20,484. Shanghai +1.06% to 2,344. BSE -0.7% to 14,544.
• Europe is down sharply at midday, mirroring yesterday's U.S. drop. London -1.4%. Paris -1.6%. Frankfure -1.3%.
• U.S. futures are all lower. Dow -0.37%. S&P -0.35%. Nasdaq -0.35%.
• Crude -0.5% to $112.31. Gold -0.66% to $800.40. Platinum -4.15% to 1,336.

Tuesday's economic calendar:

• 7:45 ICSC Retail Store Sales
  8:30 Housing Starts - consensus 0.95M
  8:30 Producer Price Index - consensus M/M 0.5%
  8:55 Redbook Chain Store Sales
  10:00 State Street Investor Confidence Index
  
10:00 Fed's Fisher speaks on economy
5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday's open: HD, MDT, MYGN, SKS, SOL, TGT
• Notable earnings after Tuesday's close: ADI, HPQ, NVTL

Seeking Alpha editor Rachael Granby contributed to this post.


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Comments

[Frankfurt/H...:]

Shalom Mr.Eli,

thanks again,I was prepared for PPI with my Dow shorts at 11455.

2008 Aug 19 08:42 AM

[Frankfurt/H...:]

Shalom Mr.Eli,

thanks again,I was prepared for PPI with my Dow shorts at 11455.

2008 Aug 19 08:42 AM

[kkin365:]

re CME, at what time yesterday was the vote-counting meeting held? The stock was done 21.03 for they day (M, 8/18/08)

2008 Aug 19 09:11 AM

[whidbey:]

Are you missing the story of the day? Appears that the roll over in equities has started for the autumn season, and that inflation will drive gold and silver to new highs. Dare we think that the US dollar is about to turn again? I think so since the Fed can not fight inflation with ending the chances of just a "slow down". The great story is the Silence of the Fed in the face of clear commodity driven inflation. They are powerless, or they have lost control!!

2008 Aug 19 10:54 AM

[wallyjm:]

printing money is coming home ti roost!

2008 Aug 19 12:13 PM

[discov:]

Yeah printing money is coming home to roost. I am keeping my trading strategy focused on more downside in the financials and consumer Dependant names.

my trades at concisetrading.blogspo.../
Ryan

2008 Aug 19 12:29 PM

[CrossProfit:]

RE: General Dynamics, see
www.crossprofit.com/vi...

The real story is that GD has $2.7B cash on hand. As per last quarter results, profits are up 25%. Current acquisition is a hedge against any reversal in the strong Gulfstream sales that is now entering its sixth year.

This is a logical move; providing services to all the aircraft GD sold over the past years. Also, enables GD to establish contact with owners of competitors aircraft. Crafty indeed!

CrossProfit

2008 Aug 19 01:02 PM

[monk:]

Bernanke speech today"

".......Importantly, a well-designed supervisory regime complements rather than supplants market discipline. Indeed, regulation can serve to strengthen market discipline, for example, by mandating a transparent disclosure regime for financial firms."

www.federalreserve.gov...

Could Bernanke's speech today be the catalyst for a "game changer", i.e. a big plus for CME?

2008 Aug 22 01:13 PM