Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

• Global auto woes continue. U.S. auto executives pleaded for a $25B aid package at congressional hearings yesterday. "This is about much more than Detroit," testified General Motors (GM) CEO Rick Wagoner. "It's about saving the U.S. economy from a catastrophic collapse." Lawmakers were less than enthused by the pleas, with some saying the automakers had 'failed models' and should file for bankruptcy. (Read more from the hearings). Elsewhere, automakers in China and Europe have taken a cue from their U.S. counterparts and have requested aid from their governments as sales continue to tumble. Toyota Motor (TM) plans to cut output, and Nissan (NSANY) said H2 profit will fall to 'zero.'
• Execs press for stimulus plan. The chief executives of leading U.S. companies, including Intel (INTC), Google (GOOG), Time Warner (TWX) and FedEx (FDX), called for a fiscal stimulus package of at least $300B to support consumer spending in the short term. The CEOs, who gathered for the Wall Street Journal CEO Council event held yesterday, named a stimulus package as the top priority for President-elect Obama's new administration. Executives also threw their weight behind globally coordinated stimulus plans, admitting the U.S. economy will not be able to recover independent of the rest of the world. Other proposals from the event included a push for electric cars, revived global trade talks and new gasoline taxes.
• 'Perfect storm' probe. Medtronic (MDT) is under investigation by the Justice Department for off-label use of its bone growth implant. The probe comes in conjunction with a government safety warning and a whistleblowers' lawsuit, creating a 'perfect storm' to suppress sales. Medtronic officials refused to comment on the investigation, which they disclosed yesterday along with worse-than-expected FQ2 earnings. The company has relied heavily on sales of the implant as the sale of many of its other products has slowed.
• Cost cutting at GE. General Electric (GE) plans to reorganize its finance division, GE Capital, in an effort to save $2B in 2009 and to create 'a more focused set of higher return businesses.' The new structure will see GE Capital operate a new platform for consumer-focused international banks and joint ventures, and will create a 'restructuring group' aimed at 'optimizing returns on non-strategic assets.' The sale of low-performing assets will result in an unspecified number of layoffs. GE Capital accounted for 45% of GE's profit last year.
• Staff swapping at P&G, Google. In a new twist on corporate crossover, Procter & Gamble (PG) and Google (GOOG) are trading employees. Around two dozen staffers from the two companies have spent weeks in each other's staff training programs and sitting in on meetings where business plans are built. P&G, the biggest advertising spender in the world, wants to learn more about internet advertising as consumers spend more time in front of a computer than a television. Google is interested in securing a bigger portion of P&G's $8.7B annual ad budget as its own revenue growth slows.
• Search for a successor begins. Now that Yahoo (YHOO) CEO Jerry Yang has announced his plans to step down from the top post, the search is on for a new chief executive. Investors are urging the board to begin by looking at outsiders with turnaround talent who can re-open takeover talks with Microsoft (MSFT). Analysts say possible candidates include former Yahoo executives Ellen Siminoff and Dan Rosensweig, News Corp. (NWS) President Peter Chernin and former eBay (EBAY) chief Meg Whitman. (More CEO candidates).
• Boeing delays delivery. Boeing's (BA) machinist strike may be over, but its troubles are not. Since early November, Boeing has been pushing to bring production lines back up to speed after a withering 58 day strike. Sources say that despite these efforts, the company will delay the delivery date for all 3,734 airplanes in its order backlog for as much as ten weeks. The delay comes after Boeing officials decided not to push factories beyond regular production levels for fear of exacerbating a slew of existing manufacturing problems. Boeing isn't expected to publicly disclose its new schedule until December.
• Hedge funds get slammed. The $1.65T hedge fund industry is experiencing its worst declines in at least eight years as investment losses grow and redemptions rise. Customers withdrew a net $62.7B from hedge funds last month, and Eurekahedge Hedge Fund Index, which tracks more than 2,000 globally invested funds, is down 12% this year through October. Analysts believe assets could fall as low as $1T by the middle of 2009. The most recent victim is Citigroup's (C) Corporate Special Opportunities (CSO) hedge fund, which is being liquidated after losing 53% of its value last month. Investors in CSO, which managed nearly $4.2B at its peak, will likely receive no more than ten cents on the dollar.
• Are markets improving,... At least someone's feeling positive about the economy, sort of. Kenichi Watanabe, CEO of Nomura Holdings (NMR), believes financial markets are showing signs of recovery. "The liquidity crisis in the financial world is over," he told reporters, adding "the next step is how to rebuild the real economy." He said global fiscal spending will play a key role in turning around slumping economies, and expects the Japanese stock market to turn 'positive' next summer.
• ...or is the worst yet to come? Bank of America (BAC) CEO Kenneth Lewis told reporters yesterday that "we, as an industry, may end up with possibly the highest credit card losses the industry has ever experienced." His forecast for the economy was notably grim as well, as he said the U.S. is clearly in a recession, he doesn't expect a recovery until the housing market stabilizes in mid-2009 and he believes 'the economy will get worse before it gets better.' He also warned of 'fairly significant' job cuts at his firm resulting from the takeover of Merrill Lynch (MER).
• Retail sales. Retail chain store sales rose 0.3% from a week ago, ICSC reported, but fell 0.1% from the same week last year - the first year on year dip since 2003. "Unfortunately, rising unemployment is holding back spending much more than the help that is coming from lower gasoline," ICSC's Michael Niemira said. According to Redbook, national chain store sales fell 1.1% in the first two weeks of November vs. the previous month, and fell 0.9% vs. a year ago.
• Bigger than expected PPI drop. Producer Prices (PPI) fell by 2.8% in October, much more than the anticipated -1.9%. This followed a 0.4% decrease in September and a 0.9% drop in August. Breaking the PPI down, energy prices fell by a whopping 12.8% while food was down 0.2%. Factoring those out, Core PPI was up 0.4%, higher than the +0.1% consensus.
• Confidence dips. The State Street Investor Confidence Index fell 1.4 points to 57.0, mainly driven by a decline in confidence among European and Asian investors. "Coming on the heels of last month’s dramatic decline, this month’s readings provide a measure of relief." Homebuilder confidence fell as well. Down 5 points to 9, NAHB's housing market index is at its lowest level ever. The government must find ways to stimulate demand, not just reduce foreclosures, it says.
• Mortgage apps fall. Mortgage applications decreased 6.2% from a week ago, MBA reported, on a seasonally adjusted basis. The average interest rate on 30-year fixed-rate mortgages decreased to 6.16% from 6.24%.

Earnings: Wednesday Before Open

• LDK Solar (LDK): Q3 EPS of $0.77 beats by $0.06. Revenue of $542M (+241.4%) vs. $487M. (PR)
• Trina Solar (TSL): Q3 EPS of $1.34 beats by $0.13. Revenue of $291M (+252.1%) vs. $277M. (PR)

Earnings: Tuesday After Close

• Pacific Sunwear (PSUN): Q3 EPS of $0.01 in-line. Revenue of $324M (-5%) in-line. Sees Q4 EPS of -$0.08 to -$0.03 vs. $0.07. "It's been well reported that consumer spending decelerated significantly in the September/October period... To strengthen our financial position in this economic downturn, we are focused on reducing our inventory, capital expenditures, and other expenses." (PR)
• Phillips-Van Heusen (PVH): Q3 EPS of $1.10 beats by $0.03. Revenue of $727M (+4.5%) vs. $713M. Sees Q4 EPS of $0.35-0.45 vs. $0.58 and 2009 EPS of $3.00-3.10 vs. $3.21. (PR)

Today's Markets

• Asia markets closed mostly down. Nikkei -0.7% to 8,273. Hang Seng -0.8% to 12,816. Shanghai +6.1% to 2,017. BSE -1.8% to 8,774.
• In Europe at midday, London -2.1%. Paris -1.6%. Frankfurt -1.5%.
• U.S. futures: Dow -1.5%. S&P -1.4%. Nasdaq -1.6%. Crude -0.3% to $54.25. Gold +0.5% to $736.60.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  8:30 Consumer Price Index
  8:30 Housing Starts
  9:10 Fed's Donald Kohn speaks on the subprime crisis
  10:35 EIA Petroleum Status
  1:30 PM Fed's Jeffrey Lacker speaks on the subprime crisis
  2:00 PM FOMC Minutes
• Notable earnings before Wednesday's open: BJ, LDK, MENT, ROST, TSL
• Notable earnings after Wednesday's close: INTU, LTD, MW, PETM, SMTC

Seeking Alpha editor Eli Hoffmann contributed to this post.

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