Monday, January 5, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Tax breaks on the horizon. Obama wants tax cuts to make up 40% of his much-heralded stimulus package, a move that could help garner Republican support for the plan. As much as $300B or more could go to tax breaks for businesses and individuals by altering tax-withholding rules, rather than through a rebate check. Obama and his aides hope that individuals will be more inclined to spend if they get their money faster and in installments along with their pay checks. Several Federal Reserve officials have called a big stimulus plan 'appropriate' to help revive the economy. Though they didn't specify their recommendations for the size of the package, one official made clear that "it’s worth pulling out all the stops."
  • Pfizer open to mega-merger. Pfizer (PFE) CEO Jeff Kindler says his company is open to opportunities to increase revenue, including the possibility of acquiring a large rival. The comments from Pfizer, the world's largest pharmaceutical, stand in contrast to those of its peers who have increasingly focused on small deals and partnerships rather than the mega-mergers that created the current industry giants. Pressured by a forecasted sharp drop in sales, a major Pfizer acquisition could drive a new wave of industry consolidation.
  • Fighting deflation any way they can. The Federal Reserve and European Central Bank committed to fighting the effects of possible deflation, just months after inflation was the primary worry. The Fed's Janet Yellen warned it's "increasingly likely that inflation will fall to undesirably low levels," and said the Fed will continue with its unconventional monetary policies now that the rate cut cycle has hit rock bottom. Lucas Papademos, vice president of the ECB, said more ECB rate cuts are likely to support the European economy and stave off deflation. The ECB already cut its benchmark rate by 1.75% in the last two months to 2.5%; markets expect another 0.5% cut at the bank's next meeting in mid-January.
  • Sony's 'sacred cow-slaying.' According to reports in the Times of London, Sony (SNE) is preparing for drastic cuts, including closures of Japanese factories and major divisions early next month. Sony is facing faltering sales and growing inventory while a strong yen eats into profits. The moves would come in addition to a $1.1B savings plan announced last month. Sony says it has no plans to announce additional restructuring.
  • SEC in the spotlight on Madoff fraud. A Congressional hearing opens today as to how Madoff's $50B fraud managed to escape detection by the SEC and other regulatory bodies. Madoff's investment firm was examined at least eight times in 16 years by the SEC and other regulators, often armed with reasons to be suspicious. The SEC received emails from a hedge fund calling Madoff's business practices 'highly unusual,' while an industry-run watchdog reported in 2007 that parts of Madoff's business appeared to have no clients. Madoff himself was interviewed by the SEC at least twice, yet no one caught on to the $50B Ponzi scheme he was operating.
  • Instant movies on LG sets. Netflix (NFLX) and LG Electronics announced a new TV set that LG will introduce soon which allows Netflix movies to be streamed directly from the internet without an external box. Netflix, which is looking to provide instant movie-viewing capability to all home-entertainment screens, also announced other partnerships, including one with Microsoft's (MSFT) Xbox 360. Around 12,000 movies and television episodes are available for instant viewing from the company's library of over 100,000 titles.
  • Rogue goes Relative. Universal Pictures (GE) has sold Rogue Pictures, a film label that produces lower-budget films, to Relativity Media LLC. The deal's price tag was not disclosed, though sources say around $150M traded hands. This is the latest in the trend of major Hollywood studios shifting away from the specialty movie business.
  • U.K. banks may get more help. With the Bank of England expected to cut its benchmark rate to the lowest in its history this week, Governor Mervyn King may be forced to follow the Fed and find other ways to inject money into a recessionary economy. His first step will likely be to expand the £200B ($290B) program allowing banks to swap illiquid securities for government debt, suggesting King will start acting more aggressively to help banks amid criticism that he is too focused on the dangers of reckless lending. "King has made a big deal in the past about not being too generous," said one economist, "and it would be quite a big U-turn for him."

Today's Markets

  • Asia markets closed solidly up. Nikkei +2.1% to 9,043. Hang Seng +3.5% to 15,563. Shanghai +3.3% to 1,881. BSE +3.2% to 10,276.
  • In Europe at midday, London +0.3%. Paris +0.1%. Frankfurt +0.5%.
  • U.S. futures: Dow -0.07%. S&P -0.03%. Nasdaq +0.1%. Crude +1.5% to $47. Gold -1.8% to $864.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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