Investment News Briefs Wednesday, September 9, 2009

Shares of Ford were up 7 percent at $8.58 before the bell after senior company executives said the automaker was on track to post its first monthly sales increase in two years.

In banking news, Barclays PLC reported an 8 percent rise in half-year profit, while HSBC Holdings PLC said its first-half profit halved from a year ago, but the results were better than the analyst consensus forecast.

“The greatest difficulty has been in financials, so the gains in HSBC and Barclays (are) adding to optimism and (suggest) that the worst may be over,” said Andre Bakhos, president of Princeton Financial Group, in New Brunswick, New Jersey.

“It’s comforting to see that we are in a global rebound in earnings.”

The Select Sector SPDR Financial ETF was up 2.2 percent before the bell.

A rise in oil prices was also poised to underpin the broader market, with U.S. front-month crude up 2.4 percent, or $1.65, to $71.10 a barrel.

S&P 500 futures rose 10 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 74 points, and Nasdaq 100 futures were 17.00 points higher.

The rise in U.S. stock index futures suggested that indexes will open up about 1 percent or more. The benchmark S&P 500 <.SPX> could begin trading at a 9-month high, very close to the psychologically important 1,000 level, after registering its best five-month winning streak since 1938 on Friday.

In Europe stocks were up more than 1 percent.

3M Co shares rose 2.4 percent to $72.22 before the bell after Goldman Sachs upgraded the Dow component to “buy” from “neutral.”

Ford, due to report its July sales later in the day, is among the primary beneficiaries of the federal government’s “Cash for Clunkers” incentive program that took effect on July 24.

The Senate on Monday is due to vote on extending the program to stimulate auto sales after the U.S. House approved $2 billion for it on top of an initial $1 billion in June.

The economic calendar includes the Institute for Supply Management’s manufacturing index due at 10 a.m. (1400 GMT). A Reuters poll of economists forecast a July reading of 46.2 from 44.8 in June.

NEW YORK, Aug 3 (Reuters)

But the question is – which ones?

In the financial services sector, 2008 was a year of spectacular failures:

• Bear Stearns Cos. and Merrill Lynch & Co. Inc. were absorbed by JP Morgan Chase & Co. (JPM) and Bank of America (BAC), respectively.
• Lehman Brothers Holdings Inc. (OTC: LEHMQ) filed for bankruptcy protection.
• And financial-sector giants American International Group Inc. (AIG) and Citigroup Inc. (C) were both bailed out a vast expense to taxpayers.

If at the start of 2008 I’d written that the entire New York investment banking business would disappear during the year, you’d have thought me a madman. But it has. The two houses still standing, Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), are both now officially conventional banks, with lower leverage ratios and a changing business mix.

In the New Year, we’ll see less turbulence in financial services than in 2008, if only because it would be almost impossible for it to have more. The dangerous process of de-leveraging becomes less dangerous as leverage itself is reduced, and the capital injections from the Troubled Asset Relief Program (TARP) into the major U.S. banks have hastened their recovery. Solid banks such as Wells Fargo & Co. (WFC), and PNC Financial Services (PNC) are likely to do quite well, gaining market share at the expense of their weaker brethren.

Indeed, Wells and PNC each completed major buyout deals right as 2008 came to a close.

This year, however, will be the one in which banks that have truly done a poor job will be separated out from those who merely made the obvious mistakes of the boom and just need time and some extra capital to work through their problems.

Citigroup, for example, was at the beginning of 2008 a pretty obvious example of financial-sector “roadkill.” A messy conglomerate of banking, investment banking and insurance that had been put together but never properly integrated, Citi had been at the forefront of every major financial disaster in the last 30 years and was not about to miss this one. The fact is that only weeks after receiving a $25 billion capital injection from the TARP, Citi was back in trouble again, this time requiring not only more capital, but a $300 billion guarantee of its liabilities. That’s a pretty good indicator that in a free market, Citi would have slid into corporate bankruptcy and liquidation.

Sign up below… and we’ll send you a new investment report for free: “Credit Crisis Report.”

Obviously, if the government chooses to keep Citi afloat, U.S. taxpayers, as a group, are (just) rich enough to make that happen. But a sensible government will eventually realize that these expensive rescues are pointless. The financial services business – once an economic mainstay – is declining in importance in the U.S. economy, and is probably half its relative size compared to its historic levels from the 1970s. In such an environment, capacity needs to be lost and Citi is the capacity most obviously surplus.

If Citi is propped up by the taxpayer, some other bank may be forced into bankruptcy, instead: My bet would be Bank of America, which made a very foolish acquisition in Countrywide Financial Corp., at the beginning of 2008 and a very dangerous one (because of its size and over-leverage) in Merrill Lynch right at the end of the year.

Countrywide was an enthusiastic participant in the worst excesses of the housing bubble, and hence will have a correspondingly large share of its detritus, while Merrill Lynch itself made what turned out to be a major misstep when it bought a major subprime mortgage lender, First Franklin, at the absolute peak of the bubble in 2006. Merrill had actually prided itself on its aggression in the housing finance business, but ended up having to shut down portions of First Franklin.

Aside from financial services, 2008’s major bailout was in the automobile sector. As is well known, all three major U.S. automakers – General Motors Corp. (GM), Ford Motor Co. (F) and Chrysler LLC – are in financial trouble and could be pushed over the edge by a couple of bad quarters. Given that the government would hate to see a major U.S. manufacturing sector disappear – especially one with the high profile that the car business has – and that the sums of money involved are smaller than in the banking business, I would not expect the automobile companies to be liquidated.

General Motors has world-class engineering and research capabilities that remain of huge value, and is becoming a bigger player in Asia, while Ford is in better financial shape than its competitors and also has good international operations and sufficient scale for its current focused strategy. On the other hand, it’s clear that both companies need to get out from under their past pension obligations, as well as their United Auto Workers Union (UAW) contracts, in order to compete against lower-cost competitors, both internationally and domestically (where a lot of the foreign carmakers now manufacture).

So, either a UAW agreement combined with a government assumption of most pension and healthcare obligations or a Chapter 11 filing (which would void the UAW and pension contracts) is needed. My bet would be on a “prepackaged” Chapter 11 filing – not a disaster for the companies, but I’d still avoid the shares.

As for Chrysler, it is too small to compete properly, has no international presence, and is owned by an overstretched private equity outfit. So hasta la vista, Chrysler!

Another area that’s seen its share of bankruptcies is retailing: Circuit City Stores Inc. (OTC: CCTYQ), Linens n’ Things Inc., Mervyn’s LLC and Sharper Image Corp. (OTC: SHRPQ) were among the biggest names to file in 2008.

That’s not surprising: Consumer spending is down – even in nominal terms – and needs to fall further, as the U.S. consumer rebuilds his savings rate from 2007’s pathetic 0.7% to the 6% to 8% range that was more the norm in the pre-bubble years. The recession will inevitably push more retail chains over the edge, with the highest casualty rate being among high-end and specialty retailers: Saks Inc. (SKS), for example, is taking losses and could be in trouble.

At the bottom end, as a recent Money Morning “Buy, Sell or Hold” feature detailed, Wal-Mart Stores Inc. (WMT) will probably continue to do well as middle class consumers find their budgets pinched and decide to restrict their spending to the land of “everyday low prices.”

If the recession is even longer and deeper than it’s already been, two other victims of middle-class spending cutbacks could be Target Corp. (TGT), which lacks Wal-Mart’s purchasing ability and whose prices are significantly higher than Wal-Mart’s, and The Home Depot Inc. (HD), which over-expanded during the housing boom, replacing traditional hardware stores, and which lacks the service capability to facilitate recession-resistant D-I-Y (do-it yourself) projects.

Producers of luxury goods, as well as retailers, may find themselves in trouble.

Just this Monday, china-maker Waterford Wedgwood PLC, filed for bankruptcy. The Dublin-based company, with more than 200 years of history, was a victim of social change and the move to less formality as much as it was to the global recession.

Like high-end retailers, luxury-goods producers will suffer from a massive decline in their customers’ purchasing power, as Wall Street bonuses disappear and redundancies soar, Middle Eastern oil sheiks cut back amid declining oil prices and the Russian mafia is forced to ask Prime Minister Vladimir Putin for bailouts. Many luxury goods producers are quite small and private, so their disappearance will not affect investors, but even such a giant as LVMH Moet Hennessey Louis Vuitton (OTC: LVMHF) will not find itself immune to the global downturn, and may be in trouble if that financial malaise remains in place for a long stretch.

It’s a rough tough world out there. As investors, corporate bankruptcy should be our No. 1 risk concern in 2009.

Source: Corporate Bankruptcies Will be a Key Investor Concern in the New Year

All told, the Big Three will idle about 59 factories over the next month as each of the three American carmakers struggle to wait on a rescue that the White House says is still under study. The announcement comes in the wake of a stubborn credit crisis and debate over the government bailout for the Big Three automakers.

The Chrysler announcement – because it came first – was the stunner.

“This is definitely out of the ordinary,” Edmunds.com analyst Jesse Toprak told MarketWatch. “I’ve never seen this kind of shutdown for this long.”

At Chrysler, some 46,000 employees will be affected by the shutdown, but will receive about 95% of their pay through unemployment and contributions from Chrysler.

Meanwhile, Chrysler’s new credit terms are forcing some dealers to sell cars at a loss.  At a time when many are struggling to survive, the company’s financing arm imposed large fees on aging, unsold inventory, which could cost dealers hundreds of thousands of dollars in 2009.

David Kelleher, who owns two Chrysler dealerships in metro Philadelphia, told The Wall Street Journal he has 56 vehicles more than a year old, which are subject to the fees.

“I’m taking, in some cases, a loss to get rid of cars before I face curtailment,” said  Kelleher, who is making deals to reduce his aged inventory before he gets a bill from Chrysler on Jan. 1. Kelleher said he knows of many dealers in worse shape.

Any loss of dealers could hurt the automaker’s sales and increase consumer worries about the company’s future.

The company also threatened to temporarily suspend new-inventory loans. Known in the industry as floor planning, the loans are funded by the dealers themselves to stock their  lots with new vehicles and drawn down as they pay off inventory. But since July, dealers have yanked $1.5 billion from the accounts on worries that Chrysler could go bankrupt.

Blaming its woes squarely on the credit crisis, Chrysler said that dealers have indicated “many willing buyers for Chrysler, Jeep and Dodge vehicles,” but have been unable to close the deals, due to lack of financing.

Automakers’ cash troubles are coming to a head, which is what forced General Motors, Chrysler and Ford Motor to conserve cash by halting production at many or all of their plants.

Ford said Wednesday that it would idle 10 North American plants for an additional week in January because of the slumping industry. GM said it will indefinitely delay the construction of a Michigan factory that will make its electric car, the Volt – one of the vehicles GM hopes will help turn the company profitable.

Even Toyota Motor Co. (ADR:TM), the world’s top automaker, told Reuters that it will announce a revised 2009 sales forecast at its end-of-the-year news conference Dec. 22. The company is expected to cut at least one million cars from its original forecast of 9.7 million units.

The Big Three have warned that without a loan package, millions of jobs could be lost, which would send ripple effects through the nation’s already faltering economy. U.S. auto sales sank 37% in November amid talk of a bankruptcy at GM or Chrysler if Washington fails to deliver a massive bailout package

The latest news raises new questions about the viability of any proposed bailout, with some analysts saying a rescue plan – no matter how large – won’t solve the industry’s underlying problems.

“Even though the industry has improved its products in the last few years, the government shouldn’t give the Big Three a dime until they can demonstrate compelling changes to their products, management, and productivity that will be rewarded by increased market share,” said Money Morning Investment Director Keith Fitz-Gerald.

Fitz-Gerald estimates the final cost of a rescue package would exceed $100 billion.

Meanwhile, the White House remains evasive about any plans for a bailout.

President George W. Bush said late Wednesday he was “looking at all options,” according to the transcript of a Fox News interview. “A disorganized failure, disorganized bankruptcy or disorderly bankruptcy … could cause great harm to the economy, beyond that which we’re now witnessing. And that concerns me,” Bush said.

The news came a day after the White House warned that the U.S. auto industry would have to make “concessions” to win a government bailout.

“And the other point is that, I’m not interested in … really putting good money after bad,” Bush said.

Big Three to Shutter 59 Plants – Chrysler Forces Dealers to Sell at a Loss

It’s also expected to outline cost cutting measures that could include laying off employees, suspending plant operations, delaying the opening of new plants, and cutting the budget for research and development.

According to several Japanese media outlets, Toyota plans to eliminate bonuses for its executives and is expected to post a second-half loss.

One analyst believes the company’s dividend also could be on the chopping block.

“We anticipate that even Toyota could see its post-dividend cash flow turn negative should it keep its dividends at 140 yen,” Morgan Stanley (MS) analyst Noriaki Hirakata wrote in a report. “Thus, in this perfect storm, we expect the firm to cut its dividend to 100 yen per share for this business year.”

That’s a gigantic step backwards from last year, when Toyota took the crown from General Motors Corp. (GM) as world’s largest automaker by selling 9.37 million cars worldwide.

But like all automakers – and nearly every major industry – Toyota has been crippled by a worldwide dearth in demand, brought on by a whirlwind of job losses, devalued property, lack of credit and falling stock markets.

From January to October this year, Toyota sold 7.74 million vehicles. And during its fiscal first half – six months ended September 30 – net revenues fell 6.3% compared to the same period last year.

Year-to-date, Toyota’s New York-listed ADR shares have fallen about 38%, still much better than GM and Ford Motor Co.’s (F) respective stock declines of 83% and 53%. But recently, Toyota’s ADR shares have been moving forward in hopes that the U.S. government will bailout Detroit’s Big Three – GM, Ford and Chrysler LLC – because that would shore up the auto industry’s underpinnings: Dealerships and parts and supply manufacturers.

The United States is also the largest market for most foreign automakers. Allowing one or all of the Big Three to go under would add millions to the running unemployment numbers and deepen the recession, making the U.S. market less likely to buy their cars.

Source: Toyota to Slash 2009 Sales Outlook, Cut Costs

More from The Sovereign Society:

In 1955, U.S. manufacturing was approximately 55% of the nation’s GDP. Today, manufacturing is barely 15% of GDP as the United States and other industrialized countries continue to transition to service-based economies. Unfortunately, the backbone of American industry is now coming apart at the seams and desperately hungry for a government bailout.

In 2004, I predicted that one of the Big Three auto companies would fail in a few years. Though not a bold forecast by any measure – the autos were long bleeding before 2004 – my target back then was Ford. At the time, I plugged put options on Ford Motor and made a profit on that trade; now I wish I had purchased long-term LEAP put options. Ford in July 2004 traded north of $13; today, Ford Motor (NYSE:F) fetches just $1.76.

Ford’s stock price chart starts to resemble everything else…

Detroit is home to America’s Big Three auto companies. It’s also home to one of the worst contractions in manufacturing activity accompanied by seemingly never-ending losses.

General Motors (NYSE:GM), Ford and Chrysler are bleeding profusely and need emergency cash funding right away. Of the three, General Motors is headed into bankruptcy first unless the government comes to the rescue.

The world’s second largest car company (Toyota is now #1), GM has just enough cash to last until January at the latest. Chrysler and Ford probably have enough funding for another 6-12 months. Beyond that period, it’s Game Over.

Bailout Bonanza

The scope of Washington’s bailout reach is now extending: mortgages, banking, investment banking, insurance and now auto manufacturing. Pretty soon it might extend to the airlines, real estate companies and who knows, maybe even every industry that comprises the S&P 500 Index. This whole bailout thing is totally out of control.

Should the government let the Big Three fail? Combined, these three goliaths employ more than 300,000 people worldwide with most of that total in the United States. The pressure is on the government to bailout the autos. Paulson isn’t too keen on extending TARP to the auto companies but Obama certainly is. I reckon Detroit’s odds of obtaining a bailout are pretty good.

With the economy showing no signs of bottoming as we shortly conclude a miserable 2008 for investors it would only seem prudent to remain underweighted stocks. The market shows no convincing ability to bottom; every major rally is met by big selling as investors eagerly grab short-term gains to raise cash.

This recession will be a long, drawn out affair, probably lasting throughout 2009, possibly 2010. Housing is at the core of this secular bear market. I don’t see housing bottoming or at least stabilizing until at least mid-2009 with inventories still rising in Q3. Mortgage rates, which declined following the initial Paulson Fannie Mae and Freddie Mac government guarantee in September, have since risen again. Mortgage rates must come down.

It’s now time for America to become thrifty again. The correlation between a rise in the savings rate and corporate earnings growth is negative. Earnings expectations remain too bullish for 2009 and must still be revised lower. Earlier this fall I had expected a rally following the post-October 9 crash; thus far, the Dow is up just 7% off its low for the year or 42% off its October 2007 high. Now I’m beginning to think we might test fresh lows and soon.

Equity Markets in line for another Beating

The Dow will test its October 2002 low of 7,286. In my mind, there’s no way this bear market is not as severe as the 2002 debacle. It’s much worse.

Should stocks decline another 15% from current levels the Dow would sit 57% off its best level in October 2007 but still about 30% above the trough of the 1932 lows. From October 1929 until late 1932, the Dow collapsed a cumulative 86%. I doubt we’ll see that sort of spectacular decline; yet it’s pretty likely that a 42% peak-to-trough loss thus far won’t kill this bear.

If one of the Big Three is allowed to fail, watch out. That would trigger another crash. The market is drunk, expecting another industry bailout. Let’s not disappoint Mr. Market.

Source: The Beginning of the End for U.S. Auto Manufacturing

Detroit’s “Big Three” automakers – GM, Chrysler, and Ford Motor Co. (F) – are in need of government assistance after being pushed to the brink of bankruptcy by slumping sales and increased foreign competition.

GM has been in talks with Cerberus Capital Management LP about buying Chrysler since September. But GM’s inability to secure financing at a time when credit is hard to come by and auto sales are in decline has left GM with few options other than appealing to the government.

GM spokesman Greg Martin said Monday that the company has asked the U.S. Treasury to broaden recently passed legislation, intended to bolster banks and financial institutions, to include auto companies. “We believe the federal government should consider using all the tools available to it, including some recently enacted, to support industries that are in distress and that are essential to the U.S. economy,” Martin told the New York Times.

Earlier this month, Congress gave the Treasury Department the authority to spend up to $700 billion to take equity stakes in ailing financial institutions and buy up troubled assets. While automotive companies would not be eligible for cash injections, the government could end up purchasing bad auto loans from the financing subsidiaries of Detroit’s automakers, an anonymous source told Reuters.

Meanwhile, the Energy Department could release $5 billion in loans to GM to help it finance the merger. The money, according to The Wall Street Journal, would come from the $25 billion approved by Congress last month to help domestic manufacturers make more fuel-efficient cars.

The White House yesterday (Tuesday) confirmed that the Bush administration has been in talks with GM.

“I can tell you we’ve been in contact with automakers, GM and others,” said White House spokeswoman Dana Perino. “And beyond that, I’m just not able to comment on any of those discussions.”

GM desperately needs funding, as the company lost $18.8 billion in the first six months of the year, and is hemorrhaging about $1 billion in cash each month. That has raised the prospect of bankruptcy for the company. GM had $21 billion as of June, but a merger with Chrysler would give the company access to another $12 billion in cash.

Should any of Detroit’s Big Three go bankrupt the consequences for the U.S. economy would be severe. Together, the companies employ more than 200,000 Americans, and support millions more U.S. workers indirectly through suppliers and dealerships, The Times reported.

The unemployment rate hit 6.1% last month and continues to rise. Some analysts anticipate the jobless rate could climb as high as 8.5%-10% next year. With a jobless rate that reached 8.7% in September, Michigan has the highest unemployment rate in the country.

Source: GM, Chrysler Merger Could Get Government Backing

The strategic shifts are part of General Motors’ plan to return to profitability by 2010, a goal that will require a lot of changes to the company model. And they come at a time when U.S. auto sales are the slowest in 15 years, gas prices have edged above the $4-a-gallon mark, and GM’s stock is trading at a 54-year low.

The decision on the job cuts will come at the No. 1 automaker’s board of directors meeting in August, where the GM board may also entertain management’s suggestions about trimming its number of brands, sources told the paper.

General Motors M’s entire global brand roster – Buick, Cadillac, Chevrolet, GM Daewoo, GMC, Holden, Hummer, Opel, Pontiac, Saab, Saturn and Vauxhall – are under the microscope and only its core Cadillac and Chevrolet lines are safe from potential sale, other sources told the Journal.

General Motors has already announced that Hummer is on the sales block.

As GM rival Ford Motor Co. (F) has learned, less can be more. Earlier this year, it unloaded its luxury lines Land Rover and Jaguar to Tata Motors Inc. (ADR: TTM) for a cool $2.3 billion.

Ford also recently announced that it would cut costs by eliminating about 2,000 salaried positions.

General Motors Sizing Down?

News of the potential job cuts and brand reduction follow reports last week that General Motors may accelerate production and sales of its new subcompact car, the Chevrolet Beat, in the United States.

Though not a hybrid, the Beat can get as much as 40 miles per gallon. GM – whose autoline is heavy on trucks, SUVs and the gas-guzzling Hummer – hopes that number will appeal to U.S. drivers, who are hampered by record gasoline costs.

“This is a very big change for GM,” John Wolkonowicz, an analyst at Global Insight Inc. in Lexington, Mass., told Bloomberg. “They have no choice. There’s never been as rapid a shift in consumer demand in the history of the auto industry.”

Year-to-date, GM has been the worst performing stock on the Dow Jones Industrial Average Index, falling nearly 59%.

The damage has actually lifted the value of its 25-cent quarterly dividend, but that’s about the extent of the good news. However, even that dividend may be at risk, the Journal reported.

If GM sells additional shares to raise cash, the quarterly dividend becomes more of a burden. Should the board vote to suspend GM’s dividend, the automaker would preserve about $550 million a year, the Journal reported.

Source: General Motors Pondering Thousands of Job Cuts and Selling Brands, Sources Say

• The World Trade Organization (WTO) has published a new draft of plans for a global trade deal that will be discussed the next time world trade ministers meet, BBC News reported. Although the plan doesn’t change existing tariff or subsidy cuts, it does offer some compromises and clarifies some key “sticking points.” Negotiators hope to have a deal closed by the end of the year.

• Battered by increasing steel costs and dampened consumer demand due to high gas prices, Ford Motor Co. (F) announced yesterday (Thursday) that it would not be able to meet Chief Executive Officer Alan Mulally’s goal of returning to profitability by 2009, Bloomberg News reported. North American vehicle production will be cut throughout the rest of this year due to “the rapidly changing business environment in the [United States],” a company statement read.

• First-time jobless claims fell 9,000 to 365,000, from a revised 374,000 the previous week, the Labor Department announced yesterday (Thursday), Bloomberg News reported. The decline was unexpected and indicates that companies are responding to the current U.S. economic slowdown by curtailing hiring, while trying to maintain current employees.

• Hong Kong’s Hang Seng index hit a one-month closing low yesterday (Thursday) in reaction to the declines in the U.S. markets. Oil firms Sinopec Shanghai Petrochemical Co. (ADR: SHI) and PetroChina Co. Ltd. (ADR: PTR) also weighed on the index. “Weak U.S. stocks and Beijing’s denial on an imminent deregulation of oil product prices hurt market sentiment,” Kenny Tang, associate director at Tung Tai Securities, told Reuters.

• Bookseller Barnes & Noble Inc. (BKS) yesterday (Thursday) reported a loss of $2.2 million, or 4 cents per share, for its fiscal first quarter ended May 3, compared with a loss of $1.67 million, or 3 cents per share, for the same period in the prior year, Reuters reported. Barnes & Noble reduced its full-year outlook based on the difficult economic environment and announced it would consider “the feasibility of a transaction” with rival Borders Group Inc. (BGP).

• The American Petroleum Institute, the trade group for major oil and natural gas companies, spent nearly $1.3 million in the first quarter to lobby on fuel economy standards, appropriations bills, and other issues, the Associated Pressreported. The API also lobbied on various pieces of legislation dealing with oil taxes and fees, renewable fuel standards, climate change, offshore drilling and more, according to the form posted online April 21 by the House clerk’s office.

• Bill Miller, portfolio manager at Legg Mason Capital Management, has not signed on to the Yahoo! Inc. (YHOO) investor coup being led by Carl Icahn. However, in an interview at a New York conference Wednesday, Miller, whose fund controls a 5.4% stake in Yahoo, said he wants Microsoft Corp. (MSFT) to reopen talks to buy Yahoo outright and not simply forge a joint venture. “It is a strategic imperative for Microsoft to change its position,” Miller told Reuters after speaking at the hedge fund conference.

• The International Energy Agency announced yesterday (Thursday) that it is studying depletion rates at about 400 oil fields in its first-ever study of world oil supply. The Paris-based group said the study, to be released in November, was prompted by concern about the volatility of world oil markets and uncertainty about supply levels.

• The spinal-products unit of medical-device maker Medtronic Inc. (MDT) will pay $75 million to settle accusations that it defrauded Medicare by telling doctors to bill in-hospital stay – even when a cheaper outpatient visit would have done the job, The New York Times and The Associated Press both reported. Originally, the accusations had been leveled against Kyphon Inc., which Medtronic spent $4.2 billion to buy in November.

Source: Global Investing Roundups: Friday, May 23rd, 2008

Still, a few prominent players are set to report this week led by The Walt Disney Co. (DIS) (entertainment), Cisco Systems Inc. (CSCO) (tech), and American International Group Inc. (AIG) (financial services).

The Microsoft Corp. (MSFT)/Yahoo Inc. (YHOO) (and occasionally Google Inc. (GOOG)) soap opera will be worth watching – if only to make sure that Microsoft’s withdrawal isn’t a cover ploy for a hostile run at Yahoo [For a related news story in this issue of Money Morning that details Microsoft’s decision drop its pursuit of Yahoo, please click here].

A slow schedule on this week’s economic calendar will prompt a much greater focus on the dollar as investors speculate on whether the price run-up in commodities – and oil – is at, or near its end. Gold prices will help make that determination [For a related news analysis of gold prices in this issue of Money Morning, please click here].

U.S. Federal Reserve Chairman Ben S. Bernanke is scheduled to address the Columbia Business School on mortgage issues, though he’ll surely also be asked about central bank policies by a rapt audience whose members will hang on his every word. [Wasn’t he supposed to be on vacation?]

Last week’s earnings saw some energy companies that were benefiting from the most recent surge in energy prices. Though Exxon Mobil Corp. (XOM) only claimed the second-highest profit ever (it also holds the title for the single best quarter ever), the results nevertheless disappointed Wall Street, which was obviously pulling for a new record.

Likewise, Chevron Corp. (CVX) and BP PLC (BP) reported favorable periods. In the wake of the recent initial public offering (IPO) of credit-card processor Visa Inc. (V), rival MasterCard Inc. (MA) doubled its earnings last quarter as its international business helped overcome domestic weakness. Consumer-products giant The Procter & Gamble Co. (PG) also received good news from overseas with higher sales of consumer goods like diapers (Pampers), razors (Gillette), and shampoo (Head & Shoulders) from certain emerging markets.

Not all was rosy, however, as Sun Microsystems Inc. (JAVA) and food giants Kellogg Co. (K) and new Warren Buffet favorite Kraft Foods Inc. (KFT) each fell prey to the continued economic “challenges” in the U.S. market.

On the transactional front, investor Kirk Kerkorian will boost his stake in Ford Motor Co. (F), in turn a nice boost for the domestic auto industry. Time Warner Inc. (TWX) will be spinning off its 84% stake in its cable operation, Time Warner Cable Inc. (TWC).

And privately held M&M’s-maker Mars Inc. will buy Wm. Wrigley Jr. Co. (WWY) for over $20 billion in cash with financing help from famed sweet-tooth junkie, Warren Buffett.

Market Matters

Recession? What recession? For days, weeks, even months now, naysayers had been predicting the emergence of that dreaded “R” word with the release of 1st quarter GDP. Additionally, they claimed that the labor picture would continue to worsen, gas prices would hit $4 a gallon by summer, the dollar would be worth next to nothing, corporate earnings would signal more “gloom and doom,” and high-net-worth investors would be making dramatic allocation shifts from the “risky” equity markets.

Not so fast … the data released last week appeared to portray an economy closer to a rebound – far from the dire business climate the gloom-and-doomers had been predicting. A stronger dollar that may have placed a ceiling on oil (and other commodities) prices, and rich folks seemed to be looking for bargains in stocks.

Do we here at Money Morning buy into that totally bullish scenario?

Not necessarily.

But we do agree that the next few days, weeks, and months are going to get more interesting.

The latest Fidelity Investment’s Millionaire Outlook reported (mildly) bullish findings among its surveyed investors who have average investable assets topping $4 million. Instead of decreasing their equity allocations, 27% of these millionaires plan to add stock positions during the next 12 months. Only 7% expect to sell out of equities, which logically deduces 66% will be staying the course. Real estate seems to be another “favored” asset class, as 14% of respondents say they will increase exposure to related investments. That doesn’t quite sound like “gloom and doom” at once.

Oil flirted with the $120 a barrel level before sliding on a stronger dollar and news that the Fed may play the “wait and see” game (see below). Equity investors again took a “things could have been worse” approach and sought out value in the aftermath of last week’s economic and earnings reports. Some analysts believe that a stronger dollar will mean the end to the rally in commodities, and investors (hedge funds) will take some related profits and move back into stocks.

Despite all the recent negativity, the Dow Jones Industrial Average surged more than 500 points in April, and the Standard & Poor’s 500 Index and Nasdaq Composite Index both rose about 5% – hardly the recessionary results many had been anticipating.