Friday, December 26, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • GMAC a bank, at last. GMAC (GKM), owned by General Motors (GM) and Cerberus, has finally received approval to become a bank holding company, potentially giving it much-needed access to federal lending programs and further entangling the government in areas of the economy it once considered beyond its purview. Some officials worried about GMAC's low capital levels, but according to the Federal Reserve's statement, "GMAC Bank is currently well capitalized under applicable federal guidelines." Among the conditions for becoming a bank holding company, GMAC must restructure $38B of debt, GM must reduce its stake to less than 10% in voting shares and total equity, and Cerberus must reduce its interest to 14.9% of voting shares and 33% of total equity. (Read the Fed's statement.)
  • Banks face mixed messages. Banks are confused by the mixed messages they're getting from federal regulators, simultaneously being urged to lend more to boost the economy and to save more to build up capital against losses. The conflicting messages are especially strong for the roughly 200 institutions estimated to be receiving TARP funds. But with a list just as large of banks at risk of failure, regulators say they are trying to strike the right balance between encouraging lending and keeping banks solvent.
  • Focusing on its base, NYT wants out of ball. In an effort to make some much-needed cash, the New York Times (NYT) is actively trying to sell its 17.5% stake in the holding company of the Boston Red Sox. Times has been rumored for months to be open to selling non-core assets as its cash shortage is accelerated by steep industrywide revenue declines. The stake is estimated to be worth around $166M.
  • No respite for retail sales. Despite a rush of last-minute shopping and heavy discounts, retail sales (ex-automobiles) fell 5.5% in November Y/Y and 8% in December through Christmas Eve Y/Y, according to MasterCard Inc.'s SpendingPulse unit. Excluding gasoline sales, the declines were more modest: -2.5% in November and -4% in December. Even so, "this will go down as the one of the worst holiday sales seasons on record."
  • An inkless USA Today. Thanks to customer demand, Gannett's (GCI) flagship USA Today becomes the latest paper to be sold through Kindle (AMZN). Some publishers, including the New York Times (NYT), have expressed surprise at the service’s success, although it’s hard to know how meaningful that is. Kindle's five top-selling newspapers: New York Times, WSJ (NWS), Washington Post (WPO), Financial Times (TRI), Chicago Tribune.
  • Coming soon to a Wii near you. Nintendo (NTDOY.PK) said Thursday it will start offering videos through its blockbuster Wii game console. Rival Sony (SNE) is already using is PS3 to push sales of online movies and TV shows.
  • In China, profit growth slumps. Chinese industrial companies' profits increased 4.9% YTD, the slowest pace on record, as the economy cooled and commodity prices plunged. Last year at this time, profits were up 36.7%. Overcapacity in almost all industries and unprecedented drops in commodity prices may hurt profits further, analysts caution. "The double-whammy of cooling demand and plunging prices have caused company profits to worsen seriously," economist Xing Ziqiang says. "Profits may shrink as much 15% over the next six months."
  • Japan sinks deeper into recession. Japan's industrial output plummeted in November, down 8.1% vs. October (vs. -6.8% consensus), as companies cut back on production of cars, machinery etc. amid vanishing demand. The largest drop on record raises fears the country's recession may stretch longer and be more painful than anticipated. Japan's weakening industrial production appears to be taking a toll on employment as well. The jobless rate climbed 0.2% to 3.9% in November, and the government warned that 85,000 temporary workers will lose their jobs over the next six months.

Today's Markets

  • Asian markets were mixed in thin trading. Japan's Nikkei posted a 1.63% gain to 8,740. Profit-taking took Shanghai shares 0.05% lower to 1,852. BSE -2.5% to 9,239. Hong Kong is closed, as is Europe.
  • Stock futures were closed overnight, but are now open. Trade looks like it will be anemic. Dow +0.32% to 8450. S&P +0.4% to 868.50. Nasdaq +0.42%.
  • Crude futures are +2.4% to $36.20 after the UAE - the world's fifth-largest oil exporter - joined Saudi Arabia in deepening oil supply curbs to comply with OPEC's production cut of 2.2M barrels/day. Gold -0.35% to $845.
  • Treasurys are higher in light overnight trade. 30-year +0.44%. 10-year +0.22%. 5-year +0.28%. 2-year +0.1%.

Seeking Alpha editor Eli Hoffmann contributed to this post.

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