Washington's leaders have been pushing many policy buttons to stem the worsening housing and credit crisis. They've yet to find the off button, however, and that's prompting a search for more-aggressive solutions.
This week's decision by Citigroup Inc. to bail out seven investment entities and bring $49 billion in assets onto its balance sheet effectively killed one of the centerpieces of the Bush administration's approach. Treasury Secretary Henry Paulson has pushed a giant rescue plan for off-the-books funds saddled with mortgage-backed debt, but banks have mostly done the painful work themselves.
Some other policy moves are getting under way, including a plan to freeze interest rates for some subprime mortgage borrowers and the Federal Reserve's move to offer banks special funding at lower-than-usual rates so they can lend more. The Fed has cut its key short-term rate by a full percentage point since August, and markets expect it to continue.
Still, if those steps fail to calm homeowners and markets, as some investors expect, debate is likely to grow about what levers remain. Some with an interventionist bent are raising proposals amounting to federal bailouts for homeowners facing foreclosure and the revival of New Deal-era programs. Earlier this month, the Mortgage Bankers Association said home foreclosures in the third quarter hit their highest rate since at least 1972.
"There needs to be a bias towards activism," said Lawrence Summers, secretary of the Treasury under President Clinton, in an interview. "Policy has been behind the curve for months now. The dangers of doing too little are much greater than the dangers of doing too much in this context."
Others on the conservative or libertarian side say the best move may be to do nothing. They contend the government must be careful about anything that props up home prices because it would delay the point at which investors -- in both real estate and mortgage-backed securities -- believe prices have touched bottom.
"The financial erosion will come to an end when the prices of homes and equity in homes stabilize, probably not before," said former Federal Reserve Chairman Alan Greenspan in an interview.
This past week, the Center for American Progress, a liberal think tank, proposed that the government buy some mortgage-backed securities and create a new agency, the Family Foreclosure Rescue Corp. It would issue new, more affordable fixed-rate mortgages for those facing foreclosure whose homes are worth less than what they owe.
"There will be a louder discussion about do variations on this theme make sense, and could you pull it off?" says Ellen Seidman, a former economic adviser in the Clinton administration now at the New America Foundation.
Alex Pollock, a resident fellow at the American Enterprise Institute, a market-oriented Washington think tank, says Congress and the White House should review the history of a defunct federal agency known as the Home Owners' Loan Corp., created in 1933 when thousands of banks were failing and millions of Americans couldn't pay their mortgages.
The agency acquired distressed mortgages from banks at a discount and refinanced them on easier terms. It was wound up in 1951 and returned a small surplus to the U.S. Treasury, Mr. Pollock says. He says it's unclear whether the U.S. eventually might need another such agency but not too early to start work on contingency plans.
Hundreds of thousands of homeowners are stuck with subprime mortgages that are about to get more expensive to maintain as rates automatically jump. Rising foreclosures put further pressure on home prices, sucking into the maelstrom homeowners who had hoped to avoid the mess. The way these mortgages were packaged and sold to investors has spread the contagion to Wall Street, where banks have already announced tens of billions of dollars in losses.
One question is what exactly Washington policy makers should be trying to prevent. Does every homeowner facing foreclosure deserve help, or just some of them -- and how should the deserving be identified? At what point do banks' problems raising funds become a public concern?
The plan recently announced by the mortgage industry, with Bush administration support, could freeze interest rates on hundreds of thousands of troubled subprime mortgages that are set for rate increases over the next two years. But it won't help everyone. Borrowers can't have defaulted already. Some critics say the plan amounts to a rescue for the irresponsible, while others, particularly Democrats, say it won't fend off foreclosure for enough people.
A Treasury spokeswoman declined to discuss what options the administration is now considering.
The Senate Friday voted 93-1 to approve long-delayed legislation to expand the role of the Federal Housing Administration, which insures home mortgages against the risk of default. The legislation, supported by the White House, would raise limits on the size of mortgages the FHA can insure. The current limit of $362,790 would rise to $417,000. The House has already passed a similar bill, and the two versions must now be reconciled.
"Everyone I talk to...is predicting an extremely difficult housing year in 2008," said Sen. Jack Reed, a Rhode Island Democrat, after the vote. "If we don't act promptly in many different ways, and this is one, I think we will be rightfully criticized."
Pending on Capitol Hill are bills to make it easier for bankruptcy judges to help borrowers remain in their homes, tighten regulation of mortgage lenders and brokers, and give government-sponsored mortgage investors Fannie Mae and Freddie Mac more scope to finance home loans.
The political pressure for action is likely to intensify as the 2008 elections approach, and Fannie and Freddie are likely to get more attention. Though they are owned by private shareholders, the companies were chartered by Congress, and federal regulators have a big influence over them. Fannie and Freddie already are playing a much bigger role in financing mortgages because other investors, scared off by soaring defaults and falling home prices, are retreating.
But Fannie and Freddie are limited in how much more they can do. Heavy losses in the third quarter, and expectations of more red ink to come, forced them in recent weeks to scramble to raise a combined $13 billion in fresh capital by selling preferred shares. By law, they can't own or guarantee single-family mortgages that exceed the "conforming loan" limit, currently $417,000 in the continental U.S.
Their main regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo, has placed a temporary limit on their holdings until they can redress problems with accounting and risk controls.
If Fannie and Freddie report results for 2007 on a timely basis in February, Ofheo will seriously consider removing the caps, which would allow them to buy more mortgages, James Lockhart, director of the regulatory agency, said in an interview. After that, Ofheo also will look at whether it can eliminate or scale back the current requirement that they hold 30% more capital than usual.
Sen. Charles Schumer, a New York Democrat, says Fannie and Freddie should be given marching orders to devote more money to refinancing subprime loans, something he has proposed in legislation that is currently stalled. "They're needed at this moment," he said in an interview.
While such steps might help homeowners, they won't directly address the reluctance of financial institutions to lend to one another and the sudden hesitation among investors to hold risky assets.
Last Wednesday the Fed unveiled, in concert with four other central banks, a new method by which it would "auction" low-rate loans to banks totaling up to $40 billion. Options for the future include expanding the auctions and lowering interest rates rapidly. But Fed officials, worried about rising inflation, believe markets overestimate how far the central bank can go.
--Michael R. Crittenden contributed to this article.
From WSJ on-line
...read more...
Saturday, December 15, 2007
Friday, December 14, 2007
Inflation Accelerated Last Month
By KELLY EVANSDecember 14, 2007 5:20 p.m.
An unexpectedly large jump in consumer prices last month suggested inflationary pressures haven't receded and the Federal Reserve may have less latitude than markets believe to lower interest rates to cushion the economy.
Ken Goldstein of the Conference Board discusses factors that will continue driving consumer prices. Kelsey Hubbard reports.
The Labor Department reported that its November consumer price index rose by a seasonally adjusted 0.8% from October, the largest monthly gain in two years and a 4.3% yearly increase.
Energy prices, which jumped 5.7% over the month, accounted for more than two-thirds of the gain. But core consumer prices, which exclude energy and food, rose 0.3% from October and 2.3% over the year.
Economists had expected core prices to rise just 0.2%. Fed policy makers follow the lesser-known personal consumption expenditures price index, and economists believe that when that index is reported next week it will still show inflation at or above the top of the 1.5%-to- 2% range policy makers consider price stability.
That said, the latest data gives credence to the Fed's stated concerns that inflation pressures remain, and that persistently high overall inflation could yet boost public expectations of future inflation, which can become self-fulfilling.
That realization caused both stock and bond markets to fall on Friday; as the prospect of interest-rate relief receded a bit. Markets still expect the Fed to cut short-term rates again at the end of January, but they trimmed the odds.
Kenneth Beauchemin, U.S. economist with research firm Global Insight, noted the sharp rise in consumer prices "may well be the first clear sign that months of soaring and volatile energy prices are seeping their way into consumer prices at large."
Stephen G. Cecchetti, a global finance professor at Brandeis International Business School, called the consumer price index numbers "scary" because price pressures were widespread in the report. Apparel prices jumped 0.8% in November while shelter and medical care costs also rose faster than expected.
The rise in consumer prices comes on the heels of a similar sharp increase in producer prices last month and signs of inflationary pressures elsewhere in the economy. Producer, or "wholesale," prices jumped 3.2% in November -- the biggest monthly gain since 1973 -- and 7.6% from a year earlier. Rising prices for food, tires, and other household goods -- unless matched by higher wages -- threaten to crimp consumer spending, the behemoth of economic growth.
REAL TIME ECONOMICS
• Read the latest news and analysis on the economy at WSJ.com's Real Time Economics blog.
• Economists React: 'Not a Good Report'
Despite rising oil prices and other signs pointing to accelerating inflation in recent months, many economists have been more focused on whether economic growth is about to stall. But a surprisingly strong report on November retail sales, released Thursday, and the Fed's latest report on industrial production, released Friday, has prompted some analysts to rethink whether the economy is headed toward recession.
The Fed report showed that output at U.S. factories, mines, and utilities rose 0.3% in November after dropping a revised 0.7% in October.
J.P. Morgan economist Abiel Reinhart noted that "in the near-term, industrial production will probably remain soft as inventory growth decelerates, auto production declines, and housing-related products remain a drag on manufacturing."
Manufacturing output rose 0.4% in November after falling 0.6% in October. Manufacturing capacity utilization ticked up 0.2% to 79.9% but remains below the recent trend, suggesting output may be weak in coming months.
Ethan Harris, chief U.S. economist at Lehman Brothers, said he expects that the current slowdown in the economy will take some pressure off prices. "Slower growth means weaker commodity prices and a weaker labor market [so] a lot of the inflation worries we have now will dissipate in the new year."
But he added that an unexpectedly resilient economy could fuel inflation.
"You've got a big wild card thrown into the economic outlook -- this energy and food price shock that's both hurting growth and raising inflation risks," Mr. Harris said. "This creates a lot of difficulty for policy making. Somebody 'up there' doesn't like [Fed Chairman] Ben Bernanke."
Write to Kelly Evans at kelly.evans@wsj.com
From WSJ On-line ...read more...
An unexpectedly large jump in consumer prices last month suggested inflationary pressures haven't receded and the Federal Reserve may have less latitude than markets believe to lower interest rates to cushion the economy.
Ken Goldstein of the Conference Board discusses factors that will continue driving consumer prices. Kelsey Hubbard reports.
The Labor Department reported that its November consumer price index rose by a seasonally adjusted 0.8% from October, the largest monthly gain in two years and a 4.3% yearly increase.
Energy prices, which jumped 5.7% over the month, accounted for more than two-thirds of the gain. But core consumer prices, which exclude energy and food, rose 0.3% from October and 2.3% over the year.
Economists had expected core prices to rise just 0.2%. Fed policy makers follow the lesser-known personal consumption expenditures price index, and economists believe that when that index is reported next week it will still show inflation at or above the top of the 1.5%-to- 2% range policy makers consider price stability.
That said, the latest data gives credence to the Fed's stated concerns that inflation pressures remain, and that persistently high overall inflation could yet boost public expectations of future inflation, which can become self-fulfilling.
That realization caused both stock and bond markets to fall on Friday; as the prospect of interest-rate relief receded a bit. Markets still expect the Fed to cut short-term rates again at the end of January, but they trimmed the odds.
Kenneth Beauchemin, U.S. economist with research firm Global Insight, noted the sharp rise in consumer prices "may well be the first clear sign that months of soaring and volatile energy prices are seeping their way into consumer prices at large."
Stephen G. Cecchetti, a global finance professor at Brandeis International Business School, called the consumer price index numbers "scary" because price pressures were widespread in the report. Apparel prices jumped 0.8% in November while shelter and medical care costs also rose faster than expected.
The rise in consumer prices comes on the heels of a similar sharp increase in producer prices last month and signs of inflationary pressures elsewhere in the economy. Producer, or "wholesale," prices jumped 3.2% in November -- the biggest monthly gain since 1973 -- and 7.6% from a year earlier. Rising prices for food, tires, and other household goods -- unless matched by higher wages -- threaten to crimp consumer spending, the behemoth of economic growth.
REAL TIME ECONOMICS
• Read the latest news and analysis on the economy at WSJ.com's Real Time Economics blog.
• Economists React: 'Not a Good Report'
Despite rising oil prices and other signs pointing to accelerating inflation in recent months, many economists have been more focused on whether economic growth is about to stall. But a surprisingly strong report on November retail sales, released Thursday, and the Fed's latest report on industrial production, released Friday, has prompted some analysts to rethink whether the economy is headed toward recession.
The Fed report showed that output at U.S. factories, mines, and utilities rose 0.3% in November after dropping a revised 0.7% in October.
J.P. Morgan economist Abiel Reinhart noted that "in the near-term, industrial production will probably remain soft as inventory growth decelerates, auto production declines, and housing-related products remain a drag on manufacturing."
Manufacturing output rose 0.4% in November after falling 0.6% in October. Manufacturing capacity utilization ticked up 0.2% to 79.9% but remains below the recent trend, suggesting output may be weak in coming months.
Ethan Harris, chief U.S. economist at Lehman Brothers, said he expects that the current slowdown in the economy will take some pressure off prices. "Slower growth means weaker commodity prices and a weaker labor market [so] a lot of the inflation worries we have now will dissipate in the new year."
But he added that an unexpectedly resilient economy could fuel inflation.
"You've got a big wild card thrown into the economic outlook -- this energy and food price shock that's both hurting growth and raising inflation risks," Mr. Harris said. "This creates a lot of difficulty for policy making. Somebody 'up there' doesn't like [Fed Chairman] Ben Bernanke."
Write to Kelly Evans at kelly.evans@wsj.com
From WSJ On-line ...read more...
Sunday, November 18, 2007
Chrysler Considers Slashing
Chrysler LLC, looking to return to profitability by 2009, is considering branding changes that would further simplify its product portfolio while helping to cut as many as 1,000 dealers.
MORE ON CHRYSLER
• Chrysler Will Dump Some Models, Dealers10/18/07
• Big Three's Other Woe: Too Many Dealers06/18/07
A plan now being discussed calls for Chrysler dealers to sell all of the auto maker's passenger cars under the Chrysler name. Dodge dealers would exclusively offer pickup and commercial trucks, while Jeep dealers would sell Jeep and sport-utility vehicles, according to three dealers familiar with the discussions.
Such a scenario would allow Chrysler to drop some of its overlapping products that essentially compete with one another, such as the Dodge Avenger and Chrysler Sebring, which are both midsize sedans but marketed under different names. Fewer products could also mean a reduction in dealers, which would weed out poor-performing dealerships that have excess inventory and resort to incentives that hurt profitability.
"This is just one of the plans they are studying," said a dealer who was informed of the idea. "At the end of this year, they expect to have a plan for the future."
Chrysler co-President Jim Press, speaking at a media briefing last month, suggested that the auto maker simplify its product lineup. Mr. Press, who until September was president of Toyota Motor Co.'s North American operations, questioned the need to divide Chrysler's resources to market both a Chrysler Town & Country minivan and a Dodge Caravan. Mr. Press spent 37 years with Toyota, which in comparison has fewer and more profitable dealerships in the U.S.
Chrysler spokesman Rick Deneau said, "I would not interpret Jim Press's comments about product overlap as an indication we will segregate vehicle types by brand."
The broad scope of the plan further underscores how fast and deep Cerberus Capital Management LP is willing to go to turn around Chrysler after buying an 80.1% stake in the company in August.
Chrysler, which is facing sluggish U.S. sales because of housing-market weakness and high fuel prices, this month announced an expansion of a restructuring plan unveiled in February, saying it would cut its North American hourly work force almost in half by 2010. The company has also made several high-profile executive appointments since Cerberus took over.
Meantime, Chrysler executives have also now decided to kill the entire PT Cruiser line after the 2009 model year, according to a dealer who was told of the decision this past week. The move further expands the auto maker's push to eliminate slower-selling models. Chrysler, in announcing the expanded restructuring this month, said that it was dropping the PT Cruiser convertible, Chrysler Pacifica, Chrysler Crossfire and Dodge Magnum.
From WSJ On-Line ...read more...
MORE ON CHRYSLER
• Chrysler Will Dump Some Models, Dealers10/18/07
• Big Three's Other Woe: Too Many Dealers06/18/07
A plan now being discussed calls for Chrysler dealers to sell all of the auto maker's passenger cars under the Chrysler name. Dodge dealers would exclusively offer pickup and commercial trucks, while Jeep dealers would sell Jeep and sport-utility vehicles, according to three dealers familiar with the discussions.
Such a scenario would allow Chrysler to drop some of its overlapping products that essentially compete with one another, such as the Dodge Avenger and Chrysler Sebring, which are both midsize sedans but marketed under different names. Fewer products could also mean a reduction in dealers, which would weed out poor-performing dealerships that have excess inventory and resort to incentives that hurt profitability.
"This is just one of the plans they are studying," said a dealer who was informed of the idea. "At the end of this year, they expect to have a plan for the future."
Chrysler co-President Jim Press, speaking at a media briefing last month, suggested that the auto maker simplify its product lineup. Mr. Press, who until September was president of Toyota Motor Co.'s North American operations, questioned the need to divide Chrysler's resources to market both a Chrysler Town & Country minivan and a Dodge Caravan. Mr. Press spent 37 years with Toyota, which in comparison has fewer and more profitable dealerships in the U.S.
Chrysler spokesman Rick Deneau said, "I would not interpret Jim Press's comments about product overlap as an indication we will segregate vehicle types by brand."
The broad scope of the plan further underscores how fast and deep Cerberus Capital Management LP is willing to go to turn around Chrysler after buying an 80.1% stake in the company in August.
Chrysler, which is facing sluggish U.S. sales because of housing-market weakness and high fuel prices, this month announced an expansion of a restructuring plan unveiled in February, saying it would cut its North American hourly work force almost in half by 2010. The company has also made several high-profile executive appointments since Cerberus took over.
Meantime, Chrysler executives have also now decided to kill the entire PT Cruiser line after the 2009 model year, according to a dealer who was told of the decision this past week. The move further expands the auto maker's push to eliminate slower-selling models. Chrysler, in announcing the expanded restructuring this month, said that it was dropping the PT Cruiser convertible, Chrysler Pacifica, Chrysler Crossfire and Dodge Magnum.
From WSJ On-Line ...read more...
Saturday, November 17, 2007
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it's focus on technical analysis....
u can chose stocks based on the source u like
hope u guys like it!!
www.tradetrek.com ...read more...
Friday, November 2, 2007
Citi's Fat Cats Take a Drubbing in DeclineFriday
BOSTON -- Wall Street firms encourage the top brass to own equity in order to align their interests with those of ordinary stockholders. It's good to know the system works -- even if, so far, the main result is the satisfaction of knowing that the big shots are feeling your pain.
Take Citigroup, where board members and senior management are losing big money as the bank's deepening crisis sends its shares into freefall.
Their total losses on stock and options this year? Nearly half a billion dollars.
That's right. Thirty board members and top executives have seen nearly $500 million wiped off the value of their shares and options.
Even for Citigroup's well-heeled head honchos, this is a lot of dough. And it shows that anyone who believes the wealthy can be wholly insulated from the knock-on effects of the subprime meltdown is dreaming. The news comes at fears of writedowns and mounting losses sent the stock plummeting to a fresh four-year low.
The figures on personal losses at the top of the bank come from an analysis of Citigroup's public filings.
They include a $52 million loss suffered just by Mr. Establishment himself -- executive committee chairman Bob Rubin, Bill Clinton's former Treasury Secretary and a leading figure in the Democratic Party.
Rubin holds 345,000 shares along with 4.6 million share options at exercise prices ranging from $33.44 to nearly $50. In January his holdings were valued at $75 million.
Today: Just $23 million.
Mexican banker Roberto Hernandez has seen his fortune reduced by about $220 million. Hernandez joined the board after selling Citigroup his bank, Banamex, six years ago. That deal has left him with 14.56 million Citigroup shares.
Most of the other losses have been borne by company executives. But the powerful and connected outside directors haven't been spared completely. Movers and shakers like former CIA head John Deutsch and Johns Hopkins chairman Michael Armstrong are out a million bucks or two.
The figures provide an indication of the pressure on chief executive Chuck Prince to turn the ship around quickly or walk the plank. Speculation about Prince's fate is growing following the dramatic ousting of Stan O'Neal, his counterpart at Merrill Lynch .
Citigroup stock, which began the year at $53.88, fell below $39 yesterday amid growing fears of write-downs and capital needs. One Wall Street analyst even questioned whether the dividend was safe. The last time the shares were this low was in October 2003.
According to the most recent company filings, directors and senior management owned 25.3 million shares. The value of those shares has plunged by $404 million this year to $956 million.
Top figures also held 10.7 million stock options. Most, or 7.7 million, were held by five senior executives -- Prince, Rubin, wealth management boss Sallie Krawcheck, Chief Operating Officer Bob Druskin, and Vice Chairman Stephen Volk. Based on exercise prices ranging from $32.05 up to $55.88, those options have lost another $72 million in value.
That brings the total to $476 million.
One caveat: It's an estimate. And it is not complete. The figure, for example, does not include losses on another 3 million stock options held by other senior figures, where the exercise prices are unknown. Nor the effect on any stock granted since the last proxy statement.
Citigroup's top brass are standing by Prince for now, but of course fine words butter no parsnips -- and float no yachts.
As O'Neal just learned, the end comes quickly when it comes.
From Yahoo Finance
...read more...
Take Citigroup, where board members and senior management are losing big money as the bank's deepening crisis sends its shares into freefall.
Their total losses on stock and options this year? Nearly half a billion dollars.
That's right. Thirty board members and top executives have seen nearly $500 million wiped off the value of their shares and options.
Even for Citigroup's well-heeled head honchos, this is a lot of dough. And it shows that anyone who believes the wealthy can be wholly insulated from the knock-on effects of the subprime meltdown is dreaming. The news comes at fears of writedowns and mounting losses sent the stock plummeting to a fresh four-year low.
The figures on personal losses at the top of the bank come from an analysis of Citigroup's public filings.
They include a $52 million loss suffered just by Mr. Establishment himself -- executive committee chairman Bob Rubin, Bill Clinton's former Treasury Secretary and a leading figure in the Democratic Party.
Rubin holds 345,000 shares along with 4.6 million share options at exercise prices ranging from $33.44 to nearly $50. In January his holdings were valued at $75 million.
Today: Just $23 million.
Mexican banker Roberto Hernandez has seen his fortune reduced by about $220 million. Hernandez joined the board after selling Citigroup his bank, Banamex, six years ago. That deal has left him with 14.56 million Citigroup shares.
Most of the other losses have been borne by company executives. But the powerful and connected outside directors haven't been spared completely. Movers and shakers like former CIA head John Deutsch and Johns Hopkins chairman Michael Armstrong are out a million bucks or two.
The figures provide an indication of the pressure on chief executive Chuck Prince to turn the ship around quickly or walk the plank. Speculation about Prince's fate is growing following the dramatic ousting of Stan O'Neal, his counterpart at Merrill Lynch .
Citigroup stock, which began the year at $53.88, fell below $39 yesterday amid growing fears of write-downs and capital needs. One Wall Street analyst even questioned whether the dividend was safe. The last time the shares were this low was in October 2003.
According to the most recent company filings, directors and senior management owned 25.3 million shares. The value of those shares has plunged by $404 million this year to $956 million.
Top figures also held 10.7 million stock options. Most, or 7.7 million, were held by five senior executives -- Prince, Rubin, wealth management boss Sallie Krawcheck, Chief Operating Officer Bob Druskin, and Vice Chairman Stephen Volk. Based on exercise prices ranging from $32.05 up to $55.88, those options have lost another $72 million in value.
That brings the total to $476 million.
One caveat: It's an estimate. And it is not complete. The figure, for example, does not include losses on another 3 million stock options held by other senior figures, where the exercise prices are unknown. Nor the effect on any stock granted since the last proxy statement.
Citigroup's top brass are standing by Prince for now, but of course fine words butter no parsnips -- and float no yachts.
As O'Neal just learned, the end comes quickly when it comes.
From Yahoo Finance
...read more...
Tuesday, October 30, 2007
Stocks struggle ahead of Fed
Stocks struggle ahead of Fed
After rallying last week on bets of a rate cut, Wall Street takes a breather Tuesday amid weak consumer confidence reading, Merrill CEO resignation; oil prices drop.
NEW YORK (CNNMoney.com) -- The Dow slipped and the broader market ended mixed Tuesday, after a choppy session in which investors mulled weaker economic news and lower oil prices ahead of an expected interest rate cut from the Federal Reserve Wednesday.
The Dow Jones industrial average (Charts) lost 0.6 percent. The S&P 500 (Charts) index lost around 0.7 percent.
The Nasdaq composite (Charts) ended little changed, after having been on both sides of the unchanged line through the session. The tech-heavy index ended the previous session at a 2007 high and its highest close in nearly seven years.
Ahead of the Fed meeting, investors will take a look at the third-quarter gross domestic product growth report, the construction spending report and the Chicago PMI, a regional read on manufacturing.
Earnings are due Thursday morning from Alcatel-Lucent (Charts), Kraft Foods (Charts), Sunoco (Charts, Fortune 500) and others.
A weak consumer confidence report, disappointment about Procter & Gamble's forecast and the resignation of Merrill Lynch's CEO were among the factors dragging on the session. Strength in technology and a drop in oil prices were among the positives.
Stocks rose last week and Monday as Fed hopes overshadowed record oil prices as high as $93 a barrel, and a weak dollar. After such a run, stocks saw a broader retreat Tuesday morning. But the Nasdaq managed to recover by the close, thanks to select tech gainers, including Microsoft (Charts, Fortune 500), Apple (Charts, Fortune 500) and Google (Charts, Fortune 500).
"The market is waiting for the next shot in the arm and the Fed is likely to provide it tomorrow," said Georges Yared, chief investment strategist at Yared Investment Research.
Federal Reserve officials meeting Tuesday and Wednesday are expected to cut the fed funds rate, a key short-term interest rate, by a quarter-percentage point to 4.50 percent.
The Fed cut rates last month by a half-percentage point in an attempt to both loosen up the credit market and stop the housing market collapse from sending the broader economy into a recession.
It was the first rate cut in four years and at the time the bankers indicated that inflation fears had receded.
However, with oil prices near all-time records and gold prices near 26-year highs, concerns remain about pricing pressure and the strength of the consumer. Investors will be looking for the statement accompanying Wednesday's decision to address these issues, as well as other recent signs that economic growth continues to slow.
That run up in oil prices and spate of weaker economic news was reflected in the Conference Board's October consumer confidence index, released Tuesday morning. Confidence fell to its lowest level in two years, versus forecasts for it to hold steady.
Another economic report, the S&P/Case-Shiller housing index showed U.S. home prices fell in August for the eighth consecutive month.
In corporate news, Merrill Lynch (Charts, Fortune 500) said Chairman and CEO Stanley O'Neal is retiring from the firm, as expected, one week after the brokerage said it lost $8 billion in the third quarter due to bad mortgage bets.
Merrill shares fell 2.8 percent and dragged on other financial stocks.
Procter & Gamble (Charts, Fortune 500) reported higher quarterly earnings that edged expectations, but issued a current-quarter outlook that disappointed some investors, sending the stock down 3.7 percent. (Full story).
Fellow Dow stock Boeing (Charts, Fortune 500) continued to rise on late Monday news that it is boosting its share buyback plan by $7 billion and that it is announcing a quarterly dividend of 35 cents per share.
ON Semiconductor (Charts) shares slumped 16 percent in unusually active Nasdaq trade after the company reported lower third-quarter earnings that missed estimates and gave a fourth-quarter revenue forecast that is below analysts' estimates.
Around 63 percent of the S&P 500 September quarter earnings have been reported, with growth on track to have fallen 1.3 percent from a year ago, according to the latest Thomson Financial figures. That makes the quarter the weakest in at least five years.
Market breadth Tuesday was negative. On the New York Stock Exchange, losers beat winners 5 to 3 on volume of 1.22 billion shares. On the Nasdaq, decliners topped advancers by 3 to 2 on volume of 2.18 billion shares.
U.S. light crude oil for December delivery fell $3.15 to settle at $90.38 a barrel on the New York Mercantile Exchange after settling at a record $93.53 a barrel Monday. Crude reached a record $93.80 during the session Monday.
COMEX gold for December delivery fell $4.80 to settle at $787.80 an ounce.
A variety of stocks in the oil and metals sectors fell along with the price of the raw commodities, including Exxon Mobil (Charts, Fortune 500) and Alcoa (Charts, Fortune 500).
Treasury prices were little changed, with the yield on the benchmark 10-year note at 4.38 percent, little changed from late Monday. Bond prices and yields move in opposite directions.
In currency trading, the dollar slipped a bit versus the euro after falling to another all-time low against the European currency Monday. The dollar rose against the yen.
Saturday, October 27, 2007
Microsoft PostsStrong ProfitsAs Tech Thrives
Microsoft Corp.'s best quarterly revenue growth in eight years, helped by a surge in sales for the Windows operating system, capped a strong earnings season for the technology industry that has made it a rare bright spot for investors this fall.
Microsoft's 23% boost in net income, reported after the 4 p.m. close of markets, lifted its shares more than 10% in after-hours trading, making America's third-largest company by market value some $30 billion more valuable. Its surprisingly strong earnings, after years of lackluster growth that some investors took as a sign of a plateau, showed that Microsoft has maintained its dominant position in technology even as hot Internet companies garner much of the public's attention.
Steve BallmerMORE ON MICROSOFT
• BizTech: Businesses Are Funding Microsoft's Google Chase
• Microsoft Bets on Facebook Stake and Web Ad Boom10/25/07
• Microsoft, RIM Battle in Consumer Market10/23/07
• Microsoft's Halo 3 Busts Games Record9/27/07
• Inside Microsoft's Plan to Bring In Outside Talent 9/26/2007
• Microsoft Goes Behind the Scenes In Google Fight 9/24/2007
The personal computer continues to expand its role as a workhorse in businesses and staple in the home. Microsoft's performance was driven largely by sales of the same two products that were key performers back in 1999 when it enjoyed its last growth surge: the Office software package and Windows, the foundation for most of the world's PCs.
The Redmond, Wash., company's results follow strong earnings last week from chip makers Intel Corp. and Advanced Micro Devices Inc. Those companies pointed to demand for laptop computers and growth in emerging markets such as China and India. Earlier this week, Apple Inc. posted a 67% jump in profit and a 29% increase in revenues amid rising sales of its Mac computers.
Overall, the PC industry, sometimes perceived as a mature business, grew more than 14% in the third quarter, according to research firms Gartner and IDC.
"Consumers are driving an enormous amount of growth, especially as they move to portables and higher-end desktops," says Todd Bradley, an executive vice president at Hewlett-Packard Co. in charge of the PC business. He said India and China are fueling H-P's sales as consumers and small businesses in those countries join the computer age. PC shipments in Asia increased 23.4% in the third quarter, according to Gartner.
Microsoft's revenue rose 27% from a year earlier to $13.76 billion for the quarter ended Sept. 30. Net profit rose to $4.29 billion, or 45 cents a share, from $3.48 billion, or 35 cents a share, a year ago.
Microsoft's shares rose more than 10% in after-hours trading. During regular trading yesterday on the Nasdaq Stock Market, Microsoft shares rose 74 cents to $31.99 at 4 p.m., giving it a market capitalization of $300 billion.
The company still faces a struggle against Google Inc. and other Internet stars that are reaping the biggest benefits from growth in online advertising. Microsoft's search engine remains far behind Google's in popularity.
Microsoft's online-services group posted an operating loss of $264 million in the third quarter, wider than the $102 million loss in the same period a year ago, though revenue jumped 25% in the quarter to $671 million. The loss comes in large part from investments in banks of computers, called data centers, that run Microsoft's online services.
In an effort to boost its presence in online advertising, Microsoft agreed Wednesday to invest $240 million for a 1.6% stake in the social-networking site Facebook Inc., valuing the closely held startup at $15 billion.
An even bigger long-term threat for Microsoft is the emergence of Internet services that match PC software such as the Office package, which includes programs such as Microsoft Word, PowerPoint and Excel for spreadsheets. Google and others are experimenting with ways to offer such functions free of charge, with the revenue coming from online advertising. Over time, some users might find less need to buy from Microsoft.
For now, demand is strong for Office and Windows, including Windows Vista, introduced last year, and its predecessor, Windows XP. Quarterly sales at the Windows division jumped 27% to $3.37 billion. Revenue and profit also grew at a double-digit pace in the division that sells Office.
Vista has generally underwhelmed reviewers, but many consumers end up with it when they buy new PCs that come with Vista by default. Microsoft executives said they were surprised that a majority of Windows sales came from pricier versions of XP and Vista that include features such as better photo-editing software.
The real test of Vista will come over the next year as more large businesses face the choice of whether to roll out the software broadly. Many corporate buyers remain skeptical that benefits of Vista will outweigh the costs and challenges of switching to it.
Companies like Webcor Builders, a San Mateo, Calif., commercial builder with around 700 employees, are helping to boost Microsoft and the PC makers. Gregg Davis, chief information officer of Webcor, says his company is upgrading its PCs with laptops that include new Microsoft software such as Office 2007. Webcor plans to roll out 200 new laptops in the next two months, and will complete the deployment by mid-2008.
"We're always upgrading," says Mr. Davis.
Microsoft said the revenue growth in the third quarter was its fastest since 1999, when the dot-com boom was in full swing. The growth is even more significant because Microsoft today has two and a half times the revenue it did eight years ago. "To be able to grow as fast as we did eight years ago...is a pretty momentous achievement," said Microsoft's chief financial officer, Chris Liddell, in an interview.
Microsoft's revenues got a boost from the weak dollar, which raises the value of sales overseas when converted into dollars.
One noteworthy contributor in the quarter was the Xbox 360 videogame console and the Halo 3 videogame, which together nearly doubled revenue in Microsoft's entertainment division to $1.9 billion for the quarter. The group moved into the black, posting a profit of $165 million compared with a loss in the same period of the previous year of $142 million.
Despite the strong run of tech earnings, the industry by itself can't hold up the U.S. economy, which some believe is headed for a downturn triggered by the housing slump. Business and government spending on technology accounts for just 4% to 5% of annual output in the U.S., according to Forrester Research. "Tech is a bright spot in the economy, with emphasis on the word spot," says Andy Bartels, a Forrester analyst.
But tech makes up a much bigger portion of the stock market -- some 16.6%, according to Standard & Poor's. The strong earnings at Apple, Intel and others have helped keep stock indexes near record highs even as financial institutions take big hits connected to mortgages gone bad.
--Don Clark and Pui-Wing Tam contributed to this article
From WSJ on-line
...read more...
Microsoft's 23% boost in net income, reported after the 4 p.m. close of markets, lifted its shares more than 10% in after-hours trading, making America's third-largest company by market value some $30 billion more valuable. Its surprisingly strong earnings, after years of lackluster growth that some investors took as a sign of a plateau, showed that Microsoft has maintained its dominant position in technology even as hot Internet companies garner much of the public's attention.
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• Inside Microsoft's Plan to Bring In Outside Talent 9/26/2007
• Microsoft Goes Behind the Scenes In Google Fight 9/24/2007
The personal computer continues to expand its role as a workhorse in businesses and staple in the home. Microsoft's performance was driven largely by sales of the same two products that were key performers back in 1999 when it enjoyed its last growth surge: the Office software package and Windows, the foundation for most of the world's PCs.
The Redmond, Wash., company's results follow strong earnings last week from chip makers Intel Corp. and Advanced Micro Devices Inc. Those companies pointed to demand for laptop computers and growth in emerging markets such as China and India. Earlier this week, Apple Inc. posted a 67% jump in profit and a 29% increase in revenues amid rising sales of its Mac computers.
Overall, the PC industry, sometimes perceived as a mature business, grew more than 14% in the third quarter, according to research firms Gartner and IDC.
"Consumers are driving an enormous amount of growth, especially as they move to portables and higher-end desktops," says Todd Bradley, an executive vice president at Hewlett-Packard Co. in charge of the PC business. He said India and China are fueling H-P's sales as consumers and small businesses in those countries join the computer age. PC shipments in Asia increased 23.4% in the third quarter, according to Gartner.
Microsoft's revenue rose 27% from a year earlier to $13.76 billion for the quarter ended Sept. 30. Net profit rose to $4.29 billion, or 45 cents a share, from $3.48 billion, or 35 cents a share, a year ago.
Microsoft's shares rose more than 10% in after-hours trading. During regular trading yesterday on the Nasdaq Stock Market, Microsoft shares rose 74 cents to $31.99 at 4 p.m., giving it a market capitalization of $300 billion.
The company still faces a struggle against Google Inc. and other Internet stars that are reaping the biggest benefits from growth in online advertising. Microsoft's search engine remains far behind Google's in popularity.
Microsoft's online-services group posted an operating loss of $264 million in the third quarter, wider than the $102 million loss in the same period a year ago, though revenue jumped 25% in the quarter to $671 million. The loss comes in large part from investments in banks of computers, called data centers, that run Microsoft's online services.
In an effort to boost its presence in online advertising, Microsoft agreed Wednesday to invest $240 million for a 1.6% stake in the social-networking site Facebook Inc., valuing the closely held startup at $15 billion.
An even bigger long-term threat for Microsoft is the emergence of Internet services that match PC software such as the Office package, which includes programs such as Microsoft Word, PowerPoint and Excel for spreadsheets. Google and others are experimenting with ways to offer such functions free of charge, with the revenue coming from online advertising. Over time, some users might find less need to buy from Microsoft.
For now, demand is strong for Office and Windows, including Windows Vista, introduced last year, and its predecessor, Windows XP. Quarterly sales at the Windows division jumped 27% to $3.37 billion. Revenue and profit also grew at a double-digit pace in the division that sells Office.
Vista has generally underwhelmed reviewers, but many consumers end up with it when they buy new PCs that come with Vista by default. Microsoft executives said they were surprised that a majority of Windows sales came from pricier versions of XP and Vista that include features such as better photo-editing software.
The real test of Vista will come over the next year as more large businesses face the choice of whether to roll out the software broadly. Many corporate buyers remain skeptical that benefits of Vista will outweigh the costs and challenges of switching to it.
Companies like Webcor Builders, a San Mateo, Calif., commercial builder with around 700 employees, are helping to boost Microsoft and the PC makers. Gregg Davis, chief information officer of Webcor, says his company is upgrading its PCs with laptops that include new Microsoft software such as Office 2007. Webcor plans to roll out 200 new laptops in the next two months, and will complete the deployment by mid-2008.
"We're always upgrading," says Mr. Davis.
Microsoft said the revenue growth in the third quarter was its fastest since 1999, when the dot-com boom was in full swing. The growth is even more significant because Microsoft today has two and a half times the revenue it did eight years ago. "To be able to grow as fast as we did eight years ago...is a pretty momentous achievement," said Microsoft's chief financial officer, Chris Liddell, in an interview.
Microsoft's revenues got a boost from the weak dollar, which raises the value of sales overseas when converted into dollars.
One noteworthy contributor in the quarter was the Xbox 360 videogame console and the Halo 3 videogame, which together nearly doubled revenue in Microsoft's entertainment division to $1.9 billion for the quarter. The group moved into the black, posting a profit of $165 million compared with a loss in the same period of the previous year of $142 million.
Despite the strong run of tech earnings, the industry by itself can't hold up the U.S. economy, which some believe is headed for a downturn triggered by the housing slump. Business and government spending on technology accounts for just 4% to 5% of annual output in the U.S., according to Forrester Research. "Tech is a bright spot in the economy, with emphasis on the word spot," says Andy Bartels, a Forrester analyst.
But tech makes up a much bigger portion of the stock market -- some 16.6%, according to Standard & Poor's. The strong earnings at Apple, Intel and others have helped keep stock indexes near record highs even as financial institutions take big hits connected to mortgages gone bad.
--Don Clark and Pui-Wing Tam contributed to this article
From WSJ on-line
...read more...
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