Richmond Fed President Jeffrey Lacker said Wednesday he was "uncomfortable" with the country's inflation picture and also forecast "very weak" economic growth into next year as housing weakness continues. "Most cogent risks to the outlook are on the downside," Lacker said at the Charlotte (North Carolina) Chamber of Commerce's Annual Economic Outlook Conference. "Home construction and sales are unlikely to bottom out before the middle of the year, and I expect housing to continue to be a drag on growth well into 2008." Further into the year, however, he expected an improvement, predicting 2.2% economic growth. As for inflation, Lacker said he was "disappointed" the improvement seen earlier this year wasn't longer lasting. The inflation picture, he said, had "deteriorated" due to high energy prices. "Because the job of a central banker is to protect the purchasing power of currency, it is overall inflation that we need to keep down, not just core inflation," Lacker said. "If energy prices fail to decline, monetary-policy decisions will be that much more difficult in 2008."

The Federal Reserve on Wednesday awarded $20B in short-term loans at a rate of 4.65% in the first of four planned auctions, known as the Term Auction Facility or TAF, as part of a coordinated effort with other central banks to help ease the global credit crisis. Also on Wednesday, the European Central Bank auctioned $10B in dollar-denominated loans and the Swiss National Bank lent $4B. "It is not clear this facility is going to address the fundamental issues driving what is going on in interbank markets, which are the constraints on balance sheets and the need of some institutions to raise capital and more fundamentally concerns about counterparty credit risk," said Richmond Fed President Jeffrey Lacker. However, one analyst called the move a "hypodermic in the heart," saying it "gets us over year-end." The rate on the 28-day Fed loans is 0.1 percentage point below the usual 4.75% discount rate charged by the Fed, which received some $61.6B in bids from 93 banks in the auction. The winning bids and sizes of the awards weren't revealed. The Fed will offer 35-day loans in its second $20B auction today. Amounts to be sold in the next two Fed auctions, to be held January 14 and 28, haven't been disclosed.

Darden Restaurants Inc. (DRI) said Tuesday that second-quarter earnings fell short of expectations amid soft sales and higher costs. The news, released after the closing bell, sent shares down 7.5% to $33.60 AH, after rising 1.3% in the regular trading session. The company reported earnings of $43.5M ($0.30/share) down from $61.7M ($0.41/share) a year ago, even as sales climbed to $1.522B from $1.298B. "While we are pleased that our sales growth this quarter once again outpaced our industry, we did see some sales softness because of what continued to be a difficult consumer environment," said CEO Clarence Otis. "As a result of this softness and a tougher than anticipated cost environment, we were unable to meet our expectations for earnings growth." Analysts had expected earnings of $0.50/share and revenue of $1.54B, on average.

Ingersoll-Rand (IR) agreed early Monday to buy Trane Inc. (TT) for a combination of cash and stock valued at about $10.1B, including fees and the assumption of $150M of debt. Trane, formerly known as American Standard Companies, makes indoor climate control systems, services and solutions. Under the agreement, each of Trane's approximately 200M common shares will be exchanged for $36.50 in cash and 0.23 of an Ingersoll-Rand share for a total value of $47.81 per Trane share. The purchase price is 29% above Trane's Dec. 29 closing price of $37.20. The addition of Trane, which has expected 2007 revenues of $7.4B, would create a combined company with pro-forma 2008 revenue of $17B, and earnings of $4/share.

Greenspan also said he favored a government bail out for homeowners who could lose their homes because they can't make their mortgage payments. "Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this," Greenspan said. "It's far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it'll drag this process out indefinitely." It's better, he said, that the selling exhaust itself, saying that preventing the selling "just merely prolongs the agony." Treasury Secretary Henry Paulson has pledged no government funds, but rather has negotiated an interest rate freeze on some subprime mortgages in an attempt to help as many as 1.2M homeowners avoid foreclosure. More bad news on the housing sector is expected this week, as economists expect November housing starts to fall 3.3%.

Steep discounts are likely in store for last-minute holiday shoppers as retailers look to salvage a dismal shopping season. Whether the weather, economy, a disappointing merchandise selection or combination is to blame, the National Retail Federation estimates holiday spending will grow just 4% this year, the slowest growth rate in five years. "This holiday season at this point has been disappointing, whether they're brick and mortar, catalog or online," according to America's Research Group. "Shoppers are more frugal and cost-conscious because they have less money to spend."

Saying record energy prices may be pressuring demand, the International Energy Agency on Tuesday cut its estimates for world oil demand. "[There are] strong indications that high prices are depressing demand, which, together with signs of higher output from Saudi Arabia, Iraq and Nigeria, have capped further price gains," the Paris-based agency said as it dropped its forecast for fourth-quarter demand by 500,000 bbls./day and its 2008 daily demand outlook by 300,000 barrels. Global daily demand for crude next year, it believes, will be 87.69M bbls. "From a practical standpoint, hitting a round number may not confer any specific damage, but the cumulative $70 rise in price since 2002 is, we believe, having a cumulative effect," it noted. The report added, however, that it was too soon to believe that the effects would be permanent. The price of crude has retreated in its march towards $100 since touching a record $98.62/bbl. last week, dropping as much as $1.30 more to $93.32/bbl. early Tuesday after the report was released. "The whole fact that we've approached $100 has created a scare for some people," one analyst said. "The underlying fundamentals are that we're expecting tighter markets through 2015." The move comes ahead of an OPEC meeting this weekend at which Saudi Arabia may push for expanded output.

EchoStar Communications tumbled 16% Monday after the satellite television provider reported what it called an "unacceptable" customer churn rate even as third-quarter profits surged 45%. The company blamed excessive free programming and weak economic conditions. Company managers "just haven't done a very good job" of controlling subscriber turnover in recent months," CEO Charles Ergen told analysts, noting that the company historically has done a better job at installation, responding to customer requests and marketing. The housing and credit crises, he said, are also taking a toll. "If you go down some subdivisions in America today, every other house has a for sale sign, and that particular house may have a dish on the roof or may have cable running into the house, and there is nobody living there," he added. Late Friday the company said net income rose to $199.7M ($0.44/share) from $139.6M ($0.31/share) a year earlier. It added 110,000 net new subscribers during the quarter, down from 295,000 a year earlier, putting its churn rate at 1.94% vs 1.76% in the third quarter of 2006. Ergen also said the company was considering a possible minority investment in foreign satellite TV operations.

Legg Mason and SunTrust Banks are investing in their money-market funds in an effort to cushion what are considered among the safest investments against possible losses from debt issued by structured investment vehicles. According to an SEC filing, Legg Mason, the second-largest publicly traded U.S. mutual-fund company, has invested $100M in one of its funds and arranged a $238M credit facility for two others. SunTrust, meanwhile, has received regulatory approval to protect two funds that bought debt from Cheyne Finance Plc if the SIV is unable to repay SunTrust. Structured investment vehicles, or SIVs as they are known, borrow money by selling short-term commercial paper and medium-term notes and buying higher-yielding assets such as financial company debt and mortgage-backed bonds. The 10 largest U.S. money-market funds have some $50B of SIV debt, some of which has defaulted because of subprime links. Legg Mason holds $10.7B in SIV debt, or 6% of its $167B in money-market assets. Wachovia also has stepped in to ensure its funds don't fall below $1/share asset value, while Bank of America, Federated Investors and Fidelity Investments are backing a U.S. Treasury plan for an $80B fund to keep SIVs afloat (full story).

HSBC Holdings could be hit with another bout of subprime sickness this week when its HSBC Finance unit reports third-quarter numbers, providing a peek at what may be in the cards for U.S. lenders. The Wall Street Journal called the largest European bank's U.S. consumer-lending unit "the classic canary in the coal mine" in identifying problems in the subprime market after flagging unexpectedly high delinquencies in February before the current crisis surfaced. That resulted in HSBC's first-ever profit warning. Now, the Journal says, analysts expect HSBC may have to lift its reserves against subprime loans at HSBC Finance's (formerly Household International) mortgage-services business by $2.4B to a total of $4.5B. Britain's Sunday Telegraph estimated the "hit" at $1B, but said it could run higher. That level of reserves suggests that default losses over the life of the loans could wipe out some 14% of the $41.4B loan portfolio by year-end. HSBC's first-half group charge for bad debts was $6.35B, 63% above the $3.89B in 2006's first half. Analysts expect the loan portfolio to drop to $165.8B next year from $182.5B in 2006. HSBC Finance is set to release its numbers Wednesday. Meanwhile, HSBC has agreed to buy a 50% minus one share stake in South Korea's Hana Financial. Terms weren't disclosed.

Visa Inc. has filed for its long-anticipated initial public offering, a $10B affair that would be the second largest IPO in U.S. history behind AT&T Wireless, which raised $10.6B in April 2000. The deal would be the ninth-largest IPO ever. Rival MasterCard raised $2.4B in its May 2006 IPO; shares have since risen five-fold. The world's largest card payments processor said it earned $771M on revenue of $3.73B for the first nine months of the year and $437M on revenue of $3.91B in 2006. Visa processed 44B transactions totalling $3.2 trillion in 2006, it said, compared to 23.4B transactions totalling $1.9 trillion for MasterCard. It didn't disclose how many shares it planned to offer or what its anticipated ticker symbol would be. Visa's stockholders include J.P. Morgan Chase, Bank of America, National City Corp., Citigroup, U.S. Bancorp and Wells Fargo. Visa didn't say whether any of those holders intended to sell shares in the IPO. Last week, Visa reached a $2.25B settlement with American Express regarding a three-year old suit that alleged Visa had engaged in illegal anti-competitive practices. Visa plans to use part of the IPO proceeds to pay that settlement. Lead underwriters will be Goldman Sachs, JP Morgan Securities, Banc of America Securities, Citigroup Global markets, HSBC Securities, Merrill Lynch, UBS Securities and Wachovia.

Airbus came out on top in the latest battle with rival Boeing, securing a $35B deal from Dubai's Emirates airline on the first day of the Dubai Air Show on Sunday. The order included 70 A350s with options for 50 more and 11 of the A380 superjumbo aircraft. Emirates is the biggest purchaser of the A380, with the current order giving it a backlog of 58. Emirates said it chose Airbus over Boeing because the 787-9 "wasn't suitable." Emirates said it would be willing to talk to Boeing when the 787-10, a longer-range and bigger version of the 787-9, is available. One analyst called the sale a "tremendous win" for the A350, saying it "validates the program and is exactly what it needs to get it off the ground." Following the sale, Airbus raised this year's expectations for orders of the A350XWB jet to 300 and its total forecasted aircraft orders to 1,100. It said 450 aircraft would be delivered this year. Emirates didn't totally shun Boeing, however, ordering 12 of its long-range 777-300ERS worth $3.2B. Boeing also landed a $13.5B order for 57 aircraft, including 30 of the 787 Dreamliners, from Qatar Airways. According to the Arab Air Carriers Organization, Arab airlines are expected to increase their combined fleet by some 66% to 900 aircraft by 2015 from 550 in 2006.

Cisco Systems may have shocked markets last week when CEO John Chambers said orders from the U.S. enterprise sector were down slightly and warned that corporate spending could be "lumpy," but that hasn't necessarily turned Barron's off from the networking giant. Barron's says the news was just the latest in a series of signals of slowing corporate technology spending following similar indications from IBM, SAP, Symantec and Cognizant, highlighting the fact that IT spending isn't immune to the financial services crisis, and that technology won't be immune to a significant business slowdown. Nevertheless, with $24B in cash in a world where bandwidth requirements are skyrocketing, Barron's says no company is better positioned than Cisco if you have a long-term perspective. Given the company's broad exposure, Barron's says the company could outperform many other tech stocks if there really is recession in the U.S.

Worries about the state of the U.S. consumer amid the ongoing credit and housing crises and crude prices flirting with the $100/bbl. marker have taken a toll on the retail sector of late, leading Barron's to say there may be some bargains to be had for those in the market for retail stocks.
One fund manager said retailers are one of the few sectors that appear to be pricing-in a fear of a recession and that they, therefore, are more attractive than many other stocks. Barron's, meanwhile, notes that the group is trading near levels that have historically signalled a bottom is near, even though earnings are growing at a faster pace than the S&P 500. Among the stocks highlighted by Barron's are American Eagle, Abercrombie & Fitch, Wal-Mart, Best Buy, Home Depot, Limited Brands, Kohl's and Macy's. Although the retailers could be pinched even further if energy and food prices continue to rise or if merchants are forced into too many markdowns during the holiday season, Barron's says shares of the "right retailers" with promising outlooks and depressed share prices could might be right for investors' shopping lists.

As pressure mounts on pharmaceutical manufacturers to make drugs cheaper to consumers, Barron's says contract research organizations such as Covance and Pharmaceutical Product Development are poised to benefit as the drug makers increasingly farm out their pharmaceutical testing. Covance's operations are split about evenly between early-development and late-stage testing, while PPDI is heavily weighted toward late-stage human testing. Barron's estimates that pharma and biotech companies will spend two-thirds of their $90B in R&D spending this year on testing, while one analyst notes that the number of compounds in the testing pipeline has jumped to 275 today from 150 in 2000. This, they say contributes to big, long-term growth prospects for the CROs, as they are known. Consultant Frost & Sullivan notes that the global CRO business has grown from $10B in 2003 to some $15B this year, and continues to grow more than 15% annually. Covance and PPDI reflect this trend, with Covance seen posting earnings of at least $3.19/share in 2008 after an expected $2.65 this year while PPDI is projected to see profits surge 26% next year after 7% growth in 2007.

AIG late Wednesday said third-quarter earnings fell to $3.09B ($1.19/sh.) from $4.22B ($1.61/sh.) a year ago while adjusted earning dropped to $3.49B ($1.35/sh.) from $4.02B ($1.53/sh) as profits were impacted by losses in the US housing market and the credit crisis. Revenue was $29.84B vs $29.25 in the year-ago period. Analysts, on average, had expected earnings of $1.62/sh. on revenue of $29.91B. Shares slid 6.7% in composite trading Wednesday leading up to the earnings release. The world's largest insurer said results were impacted by the US residential mortgage and credit market conditions but that exposure was contained by the company's risk management processes. The company's $872.3B investment portfolio lost $864M, while its credit-swap portfolio lost $352M and its mortgage-insurance business $215M. AIG had said in August its exposure to subprime debt was "minimal." "Despite the volatility of the recent quarter, AIG's exposure to the residential mortgage-backed securities market within the investment portfolios remains high quality and with substantial protection through collateral subordination," CEO Martin Sullivan said Wednesday. The mortgage-insurance unit paid out $445M in claims, more than four times the $91M it paid out a year earlier. The delinquency rate at its lending business climbed to 2.22% from 1.59%. Analysts speculated that the disappointing performance could bolster support for former CEO Hank Greenberg, who is trying to shake up the company. "Greenberg's going to use everything he can to leverage his position. He's always been good at that," one analyst said.

American Express said Wednesday it agreed to dismiss Visa from a 2004 lawsuit that alleged Visa, MasterCard and their member banks illegally blocked AXP from the bank-issued card business in the U.S. The maximum $2.25B settlement will be funded by Visa USA's member banks, which still must approve the plan. Visa said its nominal payout is $2.065B, with an accounting reserve of $1.9B and a net present value to Visa of $1.8B. The settlement removes the overhang of litigation from Visa Inc.'s planned IPO. It also resolves claims against individual banks J.P. Morgan Chase, Capital One, U.S. Bancorp, Wells Fargo, Providian and Washington Mutual who will be dropped from the suit, leaving MasterCard as the sole defendant and liable for the full amount of damages sought by AXP. "We plan to move forward with the litigation to hold MasterCard accountable for the illegal actions that blocked banks from working with us for many years," AXP CEO Kenneth Chenault said. Calyon Securities said, however, the deal is positive for MasterCard as it would suggest a near-term resolution for MasterCard, as well, with a likely payment of about $1B based on the amount payable by Visa. Before the announcement, MasterCard had said it would "consider a settlement if it were commercially reasonable and in the best interests of our company." On Wednesday, it said, it is "confident in our position" and was still planning to pursue the case in court.

Crude prices took a break on their march towards $100 Wednesday, retreating $0.33 to $96.37 on the New York Mercantile Exchange, after the Energy Information Administration's weekly inventory report indicated that crude supplies fell by 800,000 bbls. last week, just half the anticipated 1.6M bbls. decline. One economist said the report "wasn't bad enough" given the sharp drops expected by the market, and that had supplies fallen by 3M-5M bbls., crude could have gushed past $100. Meanwhile, traders who bought crude around $80 less than a month ago may be looking to cash out even though it's practically a given the century mark will be reached. "We certainly would not risk $16 or more for the last $2 or $3 a barrel," one oil analyst told clients. "Because of this, we have to expect to see a number of professional traders take profits before we actually see $100." Earlier in the day, futures had touched a new trading high of $98.62/bbl. after the International Energy Agency predicted that worldwide energy usage would rise 50% by 2030, with 45% of that demand coming from India and China. Despite the overall stretched supply of world oil resources, some are surprised record prices are being set just now, a period generally characteristic of slack demand between the summer cooling and winter heating seasons.

As oil creeps ever closer to the century-mark, the U.S. government predicted Tuesday that prices are likely to remain high amid high demand and tight output. Crude prices jumped to a record of $98.17/bbl. in NYMEX electronic trading on Wednesday after news of an attack on a pipeline in Yemen. "Rising oil consumption and the realization that additional OPEC production may not be sufficient to arrest the inventory decline are keeping markets firm," the Energy Information Administration, the statistical bureau of the Department of Energy, said in its monthly short-term energy outlook. The agency believes oil producers will increase production, which should result in somewhat of an easing in prices, but it nevertheless expects monthly average prices to exceed $80/bbl. over the next several months, and $87/bbl. over the fourth quarter. OPEC has committed to raising output by 500,000 bbls./day starting this month. Non-OPEC supply was also expected to rise through 2008. The EIA raised its 2008 forecast for U.S. oil prices to $80/bbl. from $73.50. The EIA expects U.S. petroleum consumption to increase by 0.5% in 2007 and 1% in 2008, while world oil consumption rises by 1.5M/bbls. per day. Commercial crude inventories, it noted, have been declining since May, a trend the EIA expects to continue through the forecast period. It plans to release its next update December 11.

Chesapeake Energy said late Tuesday it earned $346M ($0.72/share), down 34% from the $523M ($1.13/share) reported a year earlier, hurt by lower natural gas prices, even though production climbed 27%. The average price realized for natural gas fell to $7.41/mcf from $8.39/mcf, last year. Excluding items, earnings were $330M ($0.69/share). Revenue for the quarter was $2.03B, up from $1.93B in the 2006 quarter. Analysts had expected the natural gas producer to post earnings of $0.60/share on revenue of $1.65B, on average, according to Thomson. Daily production during the quarter rose to an average of 2.026 billion cubic feet equivalent from 1.597 bcfe in the 2006 quarter. Looking ahead, the company raised its production guidance, saying it now sees growth of 21%-23% for 2007 and 18%-22% for 2008, rather than its previous views of 18%-22%, 14%-18%, respectively. It reaffirmed its outlook for 2009 production growth of 12%-16%. It expects proved reserves to grow by 20%-25% to about 11 trillion cubic feet equivalent this year and boosted its year-end 2008 and 2009 expectations to 12.5-13 tcfe and 14-15 tcfe from 12 tcfe and 13 tcfe, respectively, previously. Shares edged up 0.4% to $40.85 AH, after climbing 2.6% ahead of the results.