| Market Summary |
Equities had a mixed trading session Wednesday as the blue-chip DJIA was in the red, continuing its recent losing streak which is now 4 days old, while the tech-heavy NASDAQ ended the day in the green. The former lost 0.1% while the latter gained 0.91%. Traders were enthused by a couple of economic reports released early this morning. These included a report on productivity which jumped a better than expected 2.6% and an employment report from ADP which indicated that the economy added 40,000 non-farm private jobs last month, instead of shedding some, which was the expectation. Along with other recent positive economic data, this is giving some traders reason to believe that the US economy may have narrowly avoided a recession. Oil futures fell $2.01 to $122.30 a barrel (they recently topped out at $135). But stocks were held in check despite all these positive development, in part, due to weakness in financials. Several large investment houses are scheduled to report quarterly earnings within the next couple of weeks, leading to fresh concerns about write-downs and liquidity at these firms. Lehman Brothers (LEH: Charts, News, Offers) is the one firm that most people are concerned about right now. Moody’s also indicated that it may strip the coveted Triple-A credit rating from bond insurers Ambac (ABK: Charts, News, Offers) and MBIA (MBI: Charts, News, Offers). The dollar was trading up against the euro and the yen. Bond prices fell, pushing the yield on the benchmark 10-year Treasury note up to 3.973%.
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| Market News |
J.M. Smucker Co (SJM: Charts, News, Offers) will acquire Folgers, the largest U.S. coffee business, from Procter & Gamble Co (PG: Charts, News, Offers) for stock in a deal valued at $2.95 billion, the companies said on Wednesday. The deal will give P&G shareholders a 53.5 percent stake in Smucker, known for its namesake jellies and jams and which also makes Jif peanut butter and Crisco shortening, brands it acquired from P&G in 2002. Smucker will issue a one-time dividend of $5 per share to its shareholders prior to the deal, which it called "a clear indication of the strength of the combined businesses." (Source: Yahoo! Finance) Full Story
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Verizon Wireless (VZ: Charts, News, Offers) is close to buying Alltel in a $28 billion deal that would create the nation's biggest cell phone provider with more than 80 million users, vaulting past AT&T's (T: Charts, News, Offers) customer base of 71.4 million, according to a person familiar with the talks.
There's a better than 50% chance that an agreement could be announced within 24 hours, though the talks could stretch into next week, this person says. Cost savings from the potential deal could reach $1 billion in the first year, with the savings coming in part from job cuts and a reduction in the roaming fees that Verizon Wireless pays when its customers use their phones on Alltel's network. (Source: BusinessWeek) Full Story
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Worker productivity increased at a faster pace in the first three months of this year than previously estimated, while wage pressures moderated.
The Labor Department reported Wednesday that productivity rose at an annual rate of 2.6 percent in the January-March period, faster than the government's initial estimate of 2.2 percent made a month ago.
Wage pressures, meanwhile, moderated from the final three months of last year with unit labor costs rising at an annual rate of 2.2 percent in the first quarter. That was a marked slowdown from a 4.7 percent surge in labor costs in the final three months of last year. (Source: MSNBC) Full Story
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Basic Bond Concepts
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| Market Analysis |
There's seldom any joy in praising the mighty. Yet you have to give Goldman Sachs Group Inc. (GS: Charts, News, Offers) credit. Once again, it's living up to its reputation as the world's smartest bank. It's been two weeks since Goldman said it would sever its ties to the Institute of International Finance, a lobbying group now best known for floating one of the dumbest regulatory proposals to emerge out of the subprime-mortgage debacle. By doing so, Goldman stands apart as a rare voice of sanity in an industry gone cuckoo. For months, we've heard one major financial institution after another complain that the real villain behind today's credit problems is mark-to-market accounting, which requires that companies record many assets at their fair value each quarter, rather than at their historical cost. (Sources: Bloomberg) Full Story
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In the history of real estate there are a handful of legendary homebuilders - William Levitt, who created Levittown on Long Island, being one, and then there's Eli Broad, who became a billionaire building tract homes throughout the Midwest and Southern California. Surrounded by the famous Jasper Johns series "The Seasons" in his office 11 floors above Los Angeles' Wilshire Boulevard, Broad does not miss much. The 75-year-old real estate pioneer has seen bull and bear markets, and in recent years he watched as the company he founded (and cashed out of so he could focus on philanthropy) lost its way. During the bubble, KB Home (KBH: Charts, News, Offers), like many other big builders, blew up its old-line business by going ritzy and building expensive houses. Now KB is among the first homebuilders to recognize the error of its ways, and it is returning to its roots as a purveyor of low-cost, smaller homes. (Source: CNN Money) Full Story
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The sharp deterioration in mortgages made by Bradford & Bingley points the way to further difficulties for Britain and its banking system. Bradford & Bingley, which specializes in riskier loans to buy-to-let property investors and borrowers who "self-certified" their employment and income, is seeing a sudden surge in late payments, repossessions and fraud. For those of you who watched the U.S. subprime saga unfold, it all seems chillingly familiar. This is what happens when bubbles pop. This comes at the end of a tripling of property prices in about a decade and after the lock-down of the securitization market left Britain bereft of the extra funds that were keeping the whole scheme afloat. (Source: Reuters) Full Story
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