- Management shake-up at Fannie. After yesterday's close, Fannie Mae (FNM) announced broad changes to its top financial management in an attempt to create an executive team that can stem growing credit losses and conserve capital. Stephen Swad, formerly the CFO, was replaced, as was the chief risk officer, and Peter Niculescu, the chief business officer, will have expanded responsibilities. Daniel Mudd will retain his position as CEO. Fannie Mae shares were up on Wednesday for the third day in a row as investor fears about a government bailout abated.
- Dollar intervention planned, abandoned. Nikkei business newspaper reports that the U.S., Europe, and Japan created a dollar rescue plan in March when the currency was plummeting. The officials did not choose which exchange rate would trigger the plan, but were prepared to aggressively buy dollars and sell yen in the event of continued dollar weakness. The intervention was never put into action, but makes some investors wonder whether a future fall in the dollar could spark a new multi-governmental rescue plan.
- U.S. companies might start using international accounting rules. The SEC proposed a tentative timeline on Wednesday that could require U.S. companies to switch to international accounting standards by 2014. Until now, the U.S. has used Generally Accepted Accounting Principles [GAAP], which are considered less flexible and more clearly defined than the international financial reporting standards [IFRS] used in Europe and in dozens of other countries. The timeline fits with a global plan to converge GAAP and IFRS, a move that would be welcome to many in the accounting industry.
- Sears seared by frugal consumer. Sears (SHLD) posted worse-than-expected Q2 earnings (see below) as shoppers cut back on appliances and clothing purchases. The results "reflect the continued effects of a slowing economy which contributed to the earnings declines we have experienced since the third quarter of 2007," it said. Inventories fell by $500M, which should allow it to reduce markdowns and boost its margins. Gross margin fell 1.2% to 26.5%. Same-store sales fell 6.2% - less than Q1's 8%+ drop. "Despite the difficult economic environment, we remain focused on long-term value creation and continue to invest in the future of the company," CEO Bruce Johnson said.
- Toyota slashes sales targets, production. Toyota Motor (TM) cut its 2009 growth forecast for auto sales to 2.1% from 5.6%. Toyota, the world's second-largest carmaker, will reduce production in the U.K. and Poland, and has already announced cuts in the U.S., its biggest market, where it has lowered its growth target by 10%.
- iTunes sees music label backlash. A growing number of record companies are trying to avoid Apple's (AAPL) iTunes store, arguing that selling individual songs is hurting overall music sales and is less profitable than selling complete albums. iTunes sells at least 90% of U.S. digital downloads, and it is widely believed in the industry that downloads will eventually replace CDs. Still, not everyone is ready to switch to the new model. Says one holdout manager, iTunes is "part of the death knell of the music business."
- Signs of a music piracy crackdown. The FBI arrested a man for copyright-infringement after he posted songs from a not-yet-released commercial album on his website, possibly signalling a new, more aggressive stance in the battle against online music piracy. The Recording Industry Association of America [RIAA] says that a lack of deterrents has allowed online piracy to flourish and that a more aggressive approach is a move in the right direction.
- MBIA to reinsure FGIC municipals. MBIA (MBI) has agreed to backstop $184B in FGIC municipal bonds. FGIC's future remains uncertain and the reinsurance agreement allows it to focus on other problems connected to mortgage securities. MBIA will receive a $741M premium.
- Mortgage apps climb slightly. MBA Mortgage Applications rose 0.5% to 421.6, the first increase in three weeks. The 30-yr. fixed mortgage rate fell to 6.44% from 6.47%.
- Bankruptcies soar. Bankruptcy filings shot upwards in the year ending June 30, to nearly 1M total. Business filings were up 41% and personal filings rose 28% on the previous year. Filings are expected to reach 1.2M this year.
- Job market confidence same as 2001. A new survey shows worker confidence at a low last seen during the 2001 recession. With unemployment at a four-year high, 65% of respondents said this is a bad time to find a quality job, and 33% of workers said they don't always have enough money to make ends meet.
- Durable goods show surprise growth. July durable goods orders rose an unexpected 1.3% on strong transportation equipment demand vs. a consensus 0.2%. Excluding transportation, orders rose 0.2%. U.S. Treasury debt prices fell as the report suggested resilience despite the deep housing correction and credit crunch.
- Lockhart: Fed prepared to raise rates when needed. Federal Reserve Bank of Atlanta President Dennis Lockhart said Wednesday that the Fed's interest rate is consistent with slowing inflation, and signalled readiness to raise borrowing costs if such a move is needed.
- UK housing woes continue. UK home prices fell 10.5% in August, the biggest annual drop in 18 years. The 1.9% drop from July was the 10th straight monthly decline. Including inflation, residential real estate could lose 1/5 of its value in 2008.
- Europe retail sales contract, again. Euro-region retail sales fell for the third straight month amid high inflation and economic weakness. "Inflation is squeezing disposable incomes and the outlook for consumer spending and for retailers is gloomy," economist Ken Wattret said.
- HK exports bounce back. Hong Kong's exports grew 11.1% in July vs. last year after slipping 0.6% in June. Economists expected a 5.5% gain. "The weakness in the U.S. economy is expected to continue to drag down Hong Kong's export performance," the government said. HK's economy "stayed in a good shape, virtually unscathed by the global credit market turbulence." (ETF: EWH)
Earnings: Thursday Before Open
- Diageo (DEO): FH2 profits fell 8.1% to £546M ($1B). Sales rose 9.9% to £3.8B. Full-year profit climbed 2.1% to £1.52B, just short of the £1.56B consensus. DEO sees 2009 operating profit growth of 7-9%, vs. this year's 9%. Shares -0.9% in London. [Bloomberg]
- Sears (SHLD): Q2 EPS of $0.21 misses by $0.12. Revenue of $11.8B (-4.1%) vs. $11.7B. [PR]
- Tiffany (TIF): Q2 EPS of $0.63 beats by $0.08. Revenue of $732M (+10.5%) vs. $721M. [PR]
- Vimpel-Communications (VIP): Q2 EPS of $0.46 misses by $0.15. Revenue of $2.61B (+52%) vs. $2.65B. [PR]
- Zale (ZLC): FQ4 EPS of $0.48 beats by $0.09. Revenue of $456M (+6.1%) vs. $449M. [PR]
Earnings: Wednesday After Close
- Benihana (BNHN): FQ1 EPS of $0.12 misses by $0.04. Revenue of $94.5M (+5.1%) vs. $92.7M. [PR]
- Coldwater Creek (CWTR): Q2 EPS of $0.04 beats by $0.03. Revenue of $241M (-0.9%) vs. $242.5M. [PR]
- FuelCell Energy (FCEL): FQ3 EPS of -$0.39 misses by $0.12. Revenue of $27.9M (+106.7%) vs. $21.1M. [PR]
- Giant Interactive Group (GA): Q2 EPS of $0.2 in-line. Revenue of $73.6M (+36.3%) vs. $72.2M. [PR]
- Greif Bros. (GEF): FQ3 EPS of $1.18 beats by $0.05. Revenue of $1.0B (+18.3%) vs. $927M. [PR]
- Heico (HEI): FQ3 EPS of $0.47 beats by $0.01. Revenue of $147M (+10.6%) in-line. [PR]
- Jo-Ann Stores (JAS): Q2 EPS of -$0.47 beats by $0.19. Revenue of $403M in-line. [PR]
- Men's Wearhouse (MW): Q2 EPS of $0.72 beats by $0.02. Revenue of $545M vs. $556M. Sees Q3 EPS of $0.36-0.40 vs. $0.53. [PR]
- TiVo (TIVO): Q2 EPS of $0.03 beats by $0.05. Revenue of $53.5M vs. $55.3M. Sees Q3 revenue of $49-51M vs. 57M. [PR]
- Asia markets closed mixed. Nikkei +0.1% to 12,768. Hang Seng -2.3% to 20,972. Shanghai +0.3% to 2,350. BSE -1.7% to 14,048.
- In Europe at midday, London -0.3%. Paris -0.5%. Frankfurt -0.6%.
- U.S. index futures are largely unchanged at 7:00 AM, with light overnight volume. Dow -0.03%. S&P -0.04%. Nasdaq -0.14%. Crude +1.18% to $119.55. Gold +0.94% to $841.80.
Thursday's Economic Calendar
- Thursday's economic calendar:
8:30 Corporate Profits
8:30 GDP (preliminary)
8:30 Jobless Claims
10:35 EIA Natural Gas Report
11:00 Kansas City Fed Mfg Survey
4:30 PM Money Supply
- Notable earnings before Thursday's open: DLM, ENER, SHLD, TIF, VIP, WSM
- Notable earnings after Thursday's close: DELL, MRVL, NOVL, OVTI, PETM, SIGM, WIND
Seeking Alpha editor Eli Hoffmann contributed to this post.
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