| Market Summary |
Stocks tumbled further on Wednesday as record oil prices and a bleak economic forecast spooked investors. The Dow Jones Industrial average lost more than 227 points to close at 12,601.19. Broader stock indicators also declined. The Standard & Poor's 500 index fell 22.69 to 1,390.71, while the Nasdaq composite index fell 43.99 to 2,448.27. Stocks turned lower in the morning as oil prices spiked and shot up $4 to $133 a barrel on a weaker-than-expected weekly supply report. The market slumped further after last month’s Federal Reserve minutes were released and showed that policymakers expect lower economic growth and higher unemployment later this year. In corporate news, Time Warner (TWX: Charts, News, Offers) will completely split with Time Warner Cable Inc (TWC: Charts, News, Offers) by the end of the year, and receive a $9.25 billion payout. Microsoft Corp (MSFT: Charts, News, Offers) announced that it has launched a new "cashback" search service that pays users a rebate for buying products found through the company’s search engine. Government bond prices rose as investors sought out safety from tumbling stocks. The yield on the 10-year Treasury note rose to 3.84 percent from 3.78 percent late Tuesday. The dollar fell versus the euro and yen.
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| Market News |
Time Warner Inc. (TWX: Charts, News, Offers) said Wednesday it would formally split off its cable TV business, giving the media conglomerate a $9.25 billion windfall and allowing it to focus on cable network, entertainment and publishing operations. The separation of Time Warner Cable Inc. (TWC: Charts, News, Offers) gets Time Warner out of the media distribution business altogether, something investors had been clamoring for. The company announced its decision to split up last month and said Wednesday that the boards of the two companies had agreed to financial terms. Time Warner Cable is the second-largest cable provider in the country after Comcast Corp. with about 13.3 million video subscribers. It has been a public company for more than a year, but Time Warner had held on to an 84 percent stake. (Source: Yahoo! Finance) Full Story
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Top executives of the five largest oil companies tried to shift anger over high prices to a debate over supplies Wednesday, leading a senator to accuse them of acting like “hapless victims” while racking up record profits. Patrick Leahy, D-Vt., told the executives there’s “a disconnect” between normal supply and demand and the skyrocketing price of oil — surpassing $130 a barrel even as the oil leaders testified — that the industry has yet to explain. J. Stephen Simon, executive vice president of Exxon Mobil Corp., said profits have been huge “in absolute terms” but must be viewed in the context of the massive scale of the industry.” He also said high earnings are needed “in the current up cycle” to pay for investments in the long term when profits will be down. (Source: MSNBC) Full Story
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While the rest of the financial services industry has zigged, Visa (V: Charts, News, Offers) has zagged. Just two months after Visa's stock hit the market in the largest initial public offering on record, shares of the credit card processor have soared 46%. Even with the turmoil in the broader financial sector, the San Francisco-based company has proven that it can deliver. When Visa reported quarterly results for the first time as a public company last month, it booked a profit of $314 million, or 52 cents a share, handily beating Wall Street estimates of 44 cents a share. The U.S. economy may be at a near standstill and consumers are increasingly getting squeezed by rising food and gas prices. But the consensus among analysts is that Visa should continue to do well. (Source: CNN Money) Full Story
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| Market Analysis |
How long does the word "temporary'' mean? The accountant who wants to stay employed knows the right answer: "How long do you want it to mean?'' That new twist on an old joke goes a long way toward explaining Freddie Mac's net loss last quarter of $151 million, which was smaller than analysts' estimates. In reality, Freddie is gushing much more red ink than that. Yet hardly any of it is showing up on the company's income statement. That's mainly because the government-chartered mortgage financier has deemed $32.4 billion of paper losses from mortgage- related securities as "temporary.'' Freddie's big sister, Fannie Mae, is in a similar, though less extreme, position with $9.3 billion of such losses. (Source: Bloomberg) Full Story
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If you're wondering why driving to work has gotten so expensive, you might want to peruse your pension fund's investments. That's because speculation by institutional investors pouring money into the commodities market may be largely to blame for spiking oil prices, according to testimony on May 20 before the Senate Committee on Homeland Security & Governmental Affairs. Crude oil, a so-called hard asset, is viewed as a buffer against inflation—a foe of longer-term investment returns. At the hearing, "Financial Speculation in Commodity Markets: Are Institutional Investors and Hedge Funds Contributing to Food and Energy Price Inflation?," senators heard from those defending the role of speculators in oil and commodities markets as well as those who argue that excessive speculation is the root of global price surges. (Source: BusinessWeek) Full Story
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In its "Spring Economic Forecast," published last month, the European Commission revised downwards its previous projections. Economic growth is now set "to ease significantly over the forecast horizon" in the euro area, with outcomes of 1.7% real gross domestic product growth in 2008 and 1.5% in 2009. This is a half a percentage point lower than the commission's relatively optimistic December 2007 estimates. The revisions are understandable and reflect the caveats about global uncertainties expressed by the commission and other forecasting bodies. Nevertheless, the stress on external factors such as energy and raw materials inflation and the continuing turbulence on international financial markets may be diverting attention away from the underperformance of the euro area, compared with other regions. (Source: Forbes.com) Full Story
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