The world’s second-largest foodmaker went public with its bid for Cadbury earlier this week after being snubbed privately. Kraft’s offer – a 31% premium to the chocolate maker’s Friday closing price of $37.46 a share, but less than  – “fundamentally undervalues” Cadbury, it said. The offer is less than 15 times Cadbury’s 2008 earnings before interest, tax, depreciation and amortization (EBITDA).

“Any follow-up offer by Kraft would likely involve a higher price,” Moody’s Investor Service senior analyst Brian Weddington said in a note. “The increased leverage that would result under the proposed transaction would be considerable.”

Increased leverage could be a boon to Cadbury and its investors, as The Hershey Co. (NYSE: HSY) will likely throw its hat into the bidding ring, one person familiar with the matter told The Wall Street Journal.

“Hershey recognizes that Cadbury is the last major confectionery company potentially available and, as such, is likely to make some response,” the person told The Journal. Nestle Chief Executive Officer said his company is always “open to acquisition opportunities if they fit strategically.”

Some analysts have Hershey teaming up with rival Nestle SA to make a joint offer for Cadbury and splitting its business, Reuters reported.

If Kraft and Cadbury can reach an agreement, it would be “bad news” for Nestle, Icap PLC analyst Andy Smith told Bloomberg News. “[Nestle has] the firepower to counter if they want.”

Cadbury and Kraft’s combined sales in 2008 were $51 billion, roughly half of Nestle’s in the same period.

However, Hershey’s position is less flexible.

The Pennsylvania chocolate maker has $1.7 billion in net debt and a market capitalization of $8.9 billion. Cadbury is valued at $17.7 billion, so any takeover by Hershey would require serious financing, according to The Journal.

Hershey could pursue a joint effort with Nestle, but that would mean turning Cadbury’s lucrative gum business over to the Swiss candy company to take to avoid antitrust issues.

Cadbury has almost 29% of the global gum market. The other big player in the sector is privately held Mars Inc., which became the world’s largest confectioner last year when it teamed with Warren Buffet’s Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) to buy chewing gum icon Wm. Wrigley Jr. Company for $23 billion. Berkshire owns about 9.4% of Kraft’s shares, according to Reuters.

In January 2007, Cadbury Chief Executive Officer Todd Stitzer agreed with Hershey’s then-Chief Executive Officer Richard Lenny to remove that obstacle and suggested they create a “global confectionary powerhouse.” But any potential merger was held back by Cadbury’s beverage business, which included Dr. Pepper and Snapple.

Cadbury spun off its beverage business in May 2008, which resulted in the birth of the Dr. Pepper Snapple Group Inc. (NYSE: DPS).

Chances for a reverse scenario of Cadbury acquiring Hershey are slim, as the Hershey Trust is set on protecting the Hershey name and keeping it an American company.

“Simply put: We will not sell the Hershey Co.,” Hershey Trust Chairman LeRoy Zimmerman said in an opinion piece published last year in the Patriot-News of Harrisburg, PA.

While a number of analysts expect Kraft to raise its bid for Cadbury, the foodmaker is in a tight position because it does not have that much room to maneuver without threatening its balance sheet or risking its investment grade credit rating. The company already has almost $19 billion of bonds outstanding, according to Bloomberg.

Other companies mentioned as possible suitors are Kellogg Co. (NYSE: K) and PepsiCo Inc. (NYSE: PEP).

The worst economic downturn since the Great Depression and rising commodity costs have sent consumers looking for less expensive products at the grocery store, limiting companies’ ability to grow. As with Mars’ acquisition of Wrigley last year, companies are looking to consolidation for growth.

“Consolidation in the food sector has long been anticipated,” an unnamed merger advisor told Reuters. “Given the drop in [bottled] water revenues, Nestle and Danone are thought to look at acquisitions to spur revenue growth.”

For Kraft, a successful acquisition of Cadbury would spur its growth by expanding its presence in emerging markets like China, Brazil, Russia, and especially India. Cadbury is deeply entrenched in British Commonwealth nations such as India, where it has been selling chocolate for more than 60 years.

A takeover of Cadbury India “would open up a $500 million chocolate market which is growing at 15% per year,” Angel Broking Ltd. analyst Anand Shah told The Journal.

“I believe that in the current global economy, the growth prospects are constrained,” said Kraft Chief Executive Officer Irene Rosenfeld.

Shares of Kraft closed at $26.85 yesterday (Wednesday), up 1.51% or 40 cents, while Cadbury closed at $51.80, down .15%, or eight cents.

Source: Kraft’s Bid for Cadbury Not Sweet Enough

“I’m more interested in exploiting Buffett than defending him,” Hough writes. “The shortest path to being a great investor is to copy one.”

He recommends against Berkshire shares because of its concentration in financial service companies. “Investors who prefer to avoid that can simply cherry-pick from its holdings, which are reported quarterly.”

Hough chose five stocks that “Buffett says he still likes but that Berkshire has trimmed its stake in to make room for new purchases.”

The selections: Burlington Northern (NYSE:BNI); Eaton (NYSE:ETN), an industrial products company; ConocoPhillips (NYSE:COP); Kraft (NYSE:KFT); and NRG Energy (NYSE:NRG), a utility.

But there’s now another problem looming – one that could ultimately weigh down the global financial system.

The problem: Europe’s banks.

As economies slow in other parts of the world, rising joblessness and plunging housing prices and escalating loan losses are putting banks under pressure. That’s especially true in Europe, where consumers and companies are continuing to run into trouble.

Royal Bank of Scotland PLC (NYSE ADR: RBS), now 70% state-owned, fell to a loss in the first quarter and wrote down $3.17 billion in risky assets after its bad debts quadrupled to $4.37 billion.

Bank executives “[expect] a slowdown in financial-market activity compared with the very buoyant conditions seen in Q1,” Chief Executive Officer Stephen Hester told Reuters.

In Germany, Commerzbank AG (OTC ADR: CRZBY) had to take a $1.61 billion charge from its investment bank and a $72.38 million charge from commercial real estate initiatives, resulting in a $1.2 billion loss for the quarter.

In late December, the Institute of International Finance released its global economic outlook for 2009, and estimated that banks around the world had collectively lost nearly $1 trillion – $678 billion from U.S. banks and $300 billion from their European counterparts.

That was in December. We know it got worse – a lot worse – for U.S. banks after that point. Thanks to a mix that included lots of government bailout and an injection of new capital from investors, U.S. banks have experienced an improvement in their outlook.

Indeed, U.S. Federal Researve Chairman Ben S. Bernanke stated that the banks tested are all solvent and the results should provide “considerable comfort about the health of the banking system.”

But in the five months since that Institute of International Finance report was issued, it’s  likely that European banks have experienced a major decline in their fortunes.

Last week’s release of the bank stress tests results removed significant uncertainty about the U.S. banks, since it created a blueprint of what the troubled institutions needed to do to stabilize their finances. Morgan Stanley (NYSE: MS) and Wells Fargo & Co. (NYSE: WFC) have announced plans to raise an aggregate $15 billion in capital. Bank of America Corp. (NYSE: BAC) plans to sell assets and issue more common stock after being told by the federal government that it must raise $33.9 billion to adequately guard against “more adverse” economic conditions.

Bank of America was one of 10 banks told by the government to raise more capital following the so-called stress test. The government concluded that BofA faces a potential $136.6 billion in losses from troubled loans and investments in 2009 and 2010. The bank’s $34 billion capital shortfall was more than twice that of Wells Fargo, which had the second greatest capital need.
Are we destined to see this all play out now in Europe?

Market Matters

Shifting back to autos, General Motors Corp. (NYSE: GM) lost $6 billion in the first quarter and is shopping Saturn to Renault SA of France as it moves closer to its restructuring deadline (and potential bankruptcy). China’s Geely Automobile Holdings Ltd. (PINK: GELYF) has interest in GM’s Saab unit, and Fiat SpA (OTC ADR: FIATY) may look to complement its Chrysler LLC line with the German Opel (also late of GM).  Meanwhile, Ford Motor Co. (NYSE: F) claims to be on track with its restructuring plan and still believes it can manage just fine without any government assistance.  On the earnings’ front, The Walt Disney Co. (NYSE: DIS) and Kraft Foods Inc. (NYSE: KFT) bested estimates, while Cisco offered some mixed results as its better than expected numbers actually prompted some profit-taking among techs.

A poorly received 30-year Treasury auction sent bond prices tumbling as fixed income investors focused on the massive programs the government will need to finance over the next few years.  Oil prices surged above $58 a barrel for the first time in six months as traders seemingly failed to consider rising inventory levels and instead bought on signs (feeble as they are) of an economic recovery that would lead to enhanced energy demand.

The Standard & Poor’s 500 Index pushed beyond the crucial 900 level and ended the week in positive territory for the year.  Techs struggled late as investors realized any economic rebound would not translate into capital expenditures overnight.  Still, the Nasdaq Composite Index has outperformed the other indexes on a year-to-date basis.  With stress tests out of the way, where will the next leaks come from?

Economically Speaking

U.S. retailers released same-store sales data for April and the results were actually quite promising.  As usual, Wal-Mart Stores Inc. (NYSE: WMT) led the charge with a 5% increase in activity, while Children’s Place Retail Stores Inc. (Nasdaq: PLCE), Stage Stores Inc. (NYSE: SSI), Gap Inc. (NYSE: GPS), and The TJX Cos. Inc. (NYSE: TJX) were among those stores that posted better-than-expected results and beat analysts’ expectations.  A late-Easter holiday (April instead of March) helped many retailers as consumers waited until the last minute (as has become the norm) for their related holiday shopping.

On the global front, the European Central Bank dropped its key lending rate by 25 bps to 1%, and initiated other monetary moves to stabilize its (16-country) economy.  Likewise, the Bank of England announced a plan to buy up government and corporate bonds, thus, increasing its money supply.

Speaking of the labor market, the U.S. unemployment rate climbed in April to 8.9%; however, only 539,000 jobs were lost from the economy.  The contraction represented the smallest in six months and was below most analysts’ expectations.  Still, since December 2007, about 5.7 million domestic jobs have disappeared and businesses continue to be slow to hire until they see additional signs of greater stability in the economy.

Construction spending climbed in March after five consecutive monthly declines, though the gains were attributed to non-residential activity and the housing sector remains sluggish at best.  In more promising news, the National Association of Realtors reported a 3.2% increase in pending homes sales, the second straight monthly gain.  Because the release is considered a predictive indicator, analysts took it as a favorable sign that sales activity may pick up in the months ahead.

Weekly Economic Calendar

Source: Are Europe’s Banks Next to be Stressed?

This from the Financial Times: Sales of Mac & Cheese – which can feed two or more people for as little as $1 – have become an indicator of the health of the US consumer.

Kraft first reported a surge of “almost 20 per cent” in Mac & Cheese sales during spring and early summer last year as economic pressures increased.

Mac & Cheese sales also jumped in 1990, when the US economy was also in a downturn.

It’s not just Mac & Cheese that are surging, either. Other budget menu items are also making gains. Kraft, the largest US food group, reported “solid gains” in powdered drinks and desserts. “Businesses like Jell-O, Mac & Cheese, and Kool-Aid are doing exceptionally well,” says Irene Rosenfeld, CEO of Kraft. “There is no question that we are benefiting from the value orientation of consumers,” she said.

Kraft also reported strong sales of its ready-to-eat frozen DiGiorno and Jack’s pizzas, which it markets as a cheaper and higher quality alternative to ordering pizza to be delivered. Overall, its food business has been benefiting as families eat at home more rather than in restaurants.

That makes Kraft (NYSE:KFT) one of the strongest recessionary plays we’ve seen in a long time.

• U.S. Federal Reserve Chairman Ben Bernanke said the U.S. economy will begin to “turn up later this year,” contingent upon the financial sector’s continued improvement, Reuters reported. Speaking to a congressional committee, Bernanke said the housing market may be bottoming out and pointed to improving consumer spending.

• The Canadian dollar hit its highest point since November. “The market is now willing to embrace risk and move clean of the safety associated with the U.S. dollar,” Stewart Hall, an economist in Toronto at HSBC Securities, told Bloomberg. “The Canadian dollar has the potential to be a high-yielding currency if the commodity story once again gains traction and moves forward.”

• Price increases and cost-cutting measures helped Kraft Foods Inc. (NYSE: KFT) post higher-than-expected first-quarter profit. The food company also reaffirmed its 2009 earnings and revenue forecast, Reuters reported.

• South Africa’s unemployment rate jumped to 23.5% in the first quarter, as Africa’s largest economy likely slipped into recession for the first time in 17 years, Bloomberg reported. “Manufacturing and mining are under strain, and we can expect these numbers to worsen,” Fanie Joubert, an economist at Efficient Group, told Bloomberg. “We’re unlikely to see a recovery until the fourth quarter.”

• The U.S. service sector is beginning to show signs that the worst may be behind it as the Institute for Supply Management’s index of non- manufacturing businesses contracted less than forecast in April.  The index of service businesses, which make up almost 90% of the economy, rose to 43.7 from 40.8 the prior month, according to the Tempe, Arizona-based group. Readings below 50 signal contraction. Separately, a survey of chief executives found the highest level of confidence in three years, as home purchases and retail sales rose, another signal that the economic slump is abating, Bloomberg reported.

• Shares of American International Group Inc. (NYSE: AIG), once the world’s largest insurer, rallied in New York trading yesterday (Tuesday), on speculation the insurer’s first quarter loss narrowed from its record $61.7 billion net loss in the fourth quarter, Reuters reported. AIG, was rescued with a taxpayer lifeline last year after severe mortgage losses left it unable to meet collateral postings with counterparties. It currently needs to pay back about $80 billion in borrowings from the U.S. Treasury and Federal Reserve.

• Several Wall Street traders and mutual funds, including Fidelity Investments and General Electric Co. (NYSE: GE), oppose bringing back the so-called “uptick rule,” which may deter U.S. regulators from resurrecting the provision, Bloomberg reported.  At a public meeting in Washington, several executives from companies that blame short-sellers for driving down share prices said they prefer an alternative to the uptick. The Securities and Exchange Commission scrapped the almost 70-year-old uptick provision in July 2007 after studies determined it wasn’t relevant in markets dominated by fast-paced electronic trading. SEC Chairman Mary Schapiro said any new rules will uphold the benefits of short-selling while restricting market abuses.

• Chile’s peso firmed to a seven-month high yesterday (Tuesday) on dollar weakness and better-than-expected domestic growth data. “The main elements that influenced the peso…were the fall of the dollar against the euro, and also the economic data, which was negative, but better-than-expected,” one currency trader in Santiago told Reuters. The peso is now up 12.2% against the dollar year to date after slumping 22.3% in 2008.

Source: Investment News Briefs Wednesday, May 6, 2009

]]> http://www.contrarianprofits.com/articles/investment-news-briefs-wednesday-may-6-2009/16296/feed 0 http://www.contrarianprofits.com/articles/employment-numbers-are-about-to-get-historically-bad/16143 http://www.contrarianprofits.com/articles/employment-numbers-are-about-to-get-historically-bad/16143#comments Mon, 04 May 2009 17:46:45 +0000 Christian Hill http://www.contrarianprofits.com/?p=16143 This could get ugly. Another month, another 600k+ jobs expected to be lost. This would mark the 16th straight month of job losses, just one month short of the longest streak in history.

Needless to say, when the number of jobs lost every month is in excess of 600k, we aren’t going to see an abrupt stop. We will unfortunately set the record for consecutive months of job losses in the next few months.

Monday

Economic Reports: Pending Home Sales

The Pending Home Sales report for March comes out this morning at 10:00 am, and I am a little surprised by the expectations (flat). With all the foreclosures continuing, and prices still sliding, I think this report will show a modest increase in…

This from Sovereign Society:

Several segments of the credit markets have come back to life in December after crushing losses recorded in September and October. Though it’s too early to celebrate a broad-based credit revival, the largest issuers of investment grade debt surged this month as yields plunged. Mortgage-backed bonds, or agency debt, have also rallied sharply in December on the heels of government guarantees and the Fed’s plan to spend $500 billion dollars to shore up the sector.

With the United States and other governments amassing a truckload of debt to finance state sponsored bailouts of financial services and fiscal spending plans, it is conceivable that investors will increasingly swap low-yielding T-bonds for high quality corporate debt in 2009.

Since hitting a post-crisis peak of 4.88% in October, three-month LIBOR (London Interbank Offered Rate) has plunged to 1.52% on December 19. On December 1, LIBOR stood at 2.22%. A lower LIBOR rate is the first indicator to finally emerge from stress amid the credit crisis. Banks are still largely hoarding cash but several large institutions have started to lend in overnight markets this month for the first time since late 2007.

The Growing Yield Dilemma

The Federal Reserve’s latest interest rate cut to effectively 0% on December 16 has laid the foundations for more trouble at money-market funds where yields for 30-day and 90-day Treasury bills continues to fetch just 0.01% – the lowest in more than six decades. Earlier in December, 30-day bills actually turned negative for the first time since 1940. That means investors are paying the government to park cash.

Money market funds are now sitting on potential losses as management fees erode the yield generated by Treasury bills and other short-term paper. Though other debt securities yield more than T-bills, investors might be embracing more credit risk as fund companies look to boost yield.

A better alternative to money market funds include one-year term deposits (CDs), short-term investment grade bonds and even intermediate-term corporate debt. Term deposits should be held only at the nation’s biggest banks, including J.P. Morgan Chase, Wells Fargo and Bank of America.

Yield Hungry? Here’s a Free Lunch

The Fed’s latest moves to spur lending in a massively credit-inflicted bear market since 2007 is forcing many investors to turn to distressed corporate investment-grade bonds. The effective yield on the benchmark Dow Jones Corporate Bond Index is 7.23%, down from a record high of 8.88% just a few months ago and down from 8.06% on November 30. A lower yield means corporate bond prices are rising in value.

In September, investment grade bonds were hammered following the collapse of Lehman Brothers Holdings and posted their single worst month of performance since February 1981. Many bonds plunged more than 15% in September alone.

More than half of the investment grade bond sector is comprised of financial services debt or bonds issued by some of the largest banks in the United States and Europe. With the Fed’s implicit guarantee on the largest issuers of such debt, investors can now tap into bank issued bonds trading at a 5.16% premium to expensive Treasury bonds.

For a portion of an investor’s liquidity, corporate high quality debt is literally a “free lunch.” The largest issuers of corporate paper have started to return to the market since November, including IBM and other large cap companies. In Europe, some banks without government guarantees have managed to raise sizable offerings – a positive development.

Corporate Debt: The New Safe-Haven?

Since October, governments in the United States and Europe have swapped government paper for toxic mortgage-backed assets previously held at banks. Despite these efforts, most banks are still laced with all sorts of other clogged credits like leverage loans, auction rate securities and repo credits.

The credit crisis has not disappeared because of aggressive government and central bank action; rather, swaths of credit risk has been transferred from bank balance sheets to government balance sheets, effectively polluting central bank coffers with largely illiquid and near worthless paper. Since August, the Fed’s balance sheet has mushroomed from $850 billion dollars to more than $1.5 trillion dollars – and still rising.

Indeed, credit default swap rates since October have risen sharply on government paper while swap rates have decreased for the highest quality companies. This suggests investors are starting to place a risk premium on government issued bonds.

Are we at the cusp of a major transition in the credit markets whereby investors might increasingly purchase investment grade debt as a hedge against rising yields on government bonds? After all, outside of the financial sector many industries harbour their highest net cash levels in more than a decade. For some companies, especially the food and beverages and fast-food companies, cash flow is largely generated internally and, in most cases, these companies don’t need to raise cash to finance operations. I would argue that companies like Kraft Foods (NYSE:KFT), General Mills (NYSE:GIS) and McDonald’s (NYSE:MCD) are a better long-term credit risk than most sovereign borrowers.

Failed Auctions Rising

To confirm the above theory that perhaps investors are starting to embrace riskier bonds like investment grade debt because of bulging government deficits, consider the trend in Europe since October whereby several governments have scrapped bond auctions.

Over the last sixty days, Germany, the Netherlands, Italy, Spain, Austria and the United Kingdom have either scrapped bond auctions or reduced their planned offerings because of tepid investor interest. These governments, including Germany, the largest and most liquid, are paying higher yields to draw institutional buyers. This could mark the beginning of a bear market for government bonds at some point later in 2009, once credit markets stabilize and risk taking is resumed.

In the United States, demand for Treasury’s remains strong because of fears of deflation. The current environment – a disaster for just about every asset class except T-bonds – has supported the dollar to an extent. Foreigners are chasing Treasury securities as they scramble for safe havens. Yet even Treasury is not immune to the deluge of supply coming our way in 2009.

Over the next 12 months Treasury estimates it will have to raise about $1.5 trillion dollars to fund gargantuan fiscal spending plans, bailouts, and possible tax cuts. Treasury will re-introduce one-year, three-year and five-year T-bonds in 2009 to finance part of this spending spree. At some point, investors will force long-term rates higher. The Fed will try to influence the long end of the yield curve but will ultimately be unsuccessful. The Fed can only control short-term lending rates.

Investment grade bonds shouldn’t supplement T-bills. The risk spectrum is normally quite significant in a normal economic environment. Yet these are anything but normal economic times. It is possible that as 2009 progresses and, assuming credit markets continue to grudgingly normalize, the new safe haven in bonds will be high quality investment grade bonds at the expense of super low-yielding Treasury debt.

Source: Is Investment Grade Corporate Debt Safer Than Government Bonds?

And in the latest addition to his Obamanomics plan, the president-elect has also proposed a massive stimulus package of as much as $775 billion over the next two years as part of a historic infusion that’s aimed at overhauling America’s infrastructure, schools, broadband networks and energy use, a Congressional source told MarketWatch.com yesterday.

But making the Schapiro nomination official was considered a key move. In its Thursday morning issue, Money Morning reported that Schapiro had been chosen and that an official announcement would be made later in the day. And that’s just what happened.

Obama named Schapiro as his choice for the top SEC post and nominated former Treasury undersecretary Gary Gensler to run the Commodity Futures Trading Commission (CFTC), which regulates trading in the commodities markets, and called for an overhaul of the U.S. financial-regulatory system in the wake of the credit and economic crisis.

“My priority is to create a regulatory structure that stops future problems in the financial system,” Obama said at the press conference where he announced the identities of the two latest nominees for his team. “Financial regulatory reform will be a top priority of mine.”

In a move that helps further define the Obamanomics platform, the incoming president indicated that a key mandate for both Schapiro and Gensler would be to reign in the multi-trillion-dollar derivatives market, which functions largely outside of the traditional equities market and is mostly unregulated.

“There is a huge amount of money sloshing [around] outside of banks and that is a problem,” Obama said.

A Merger in the Works?

Schapiro, 52, may have one of the toughest jobs in the new Barack Obama administration, for the SEC has come under increasing fire for allegedly failing to demonstrate much initiative in attacking the current financial crisis.

Currently, Schapiro is the chief executive of the Financial Industry Regulatory Authority (FINRA), the largest non-governmental regulator for all securities firms doing business in the United States, MarketWatch reported. FINRA was created in July 2007 through the merger of the National Association of Securities Dealers (NASD) and the member-regulation, enforcement and arbitration functions of the New York Stock Exchange.

Schapiro is also a former head of the CFTC and former member of the SEC. She has been appointed to top finance-related government posts by two Republicans presidents and – now – two Democratic chief executives.

If confirmed by the Senate, Schapiro would take over as head of an agency that has been roundly criticized for failing to detect signs of trouble on Wall Street, where enormous derivatives losses have led to the collapse of the investment banking sector, caused a near collapse of many top commercial banks, and forced the U.S. government to engage in a bailout effort that will end up costing taxpayers trillions of dollars.

Because Schapiro has experience in merging regulatory organizations, and because she’s held posts with all the key players, many observers believe that her nomination signals that the incoming administration is serious about merging the SEC and the CFTC. In fact, outgoing Treasury Secretary Henry M. “Hank” Paulson Jr. has called for the two regulatory agencies to be combined as an interim step in his “blueprint” for a regulatory reorganization in Washington.

Interestingly, Schapiro has publicly supported that “blueprint” for overhaul, both in speeches to organizations, and in testimony in Washington. She is well known for being a strong advocate of the rights of individual investors.

“If the Obama administration decides to merge the SEC and CFTC, Schapiro has the experience at both the agencies to make that transition happen,” Barbara Roper, director of investor protection at the Consumer Federation of America, told MarketWatch.

But Schapiro’s insider experience and knowledge of key regulatory players may also make it more difficult for her to make the tough decisions that will be required if the merger strategy is called for, Roper noted.

“Even though she has a great deal of policy expertise at both the CFTC and SEC, I’m not sure she will be prepared to bring in the broom that the agency needs. She has long years of relationships with people at this agency,” Roper said.

A Solid Resume

Schapiro has plenty of operational, management and regulatory experience. Before FINRA was formed, she had most recently served as chairman and chief executive officer of the NASD, an appointment that took effect in December 2006. Before her appointment as chairman and CEO, Schapiro had spent five years serving as the vice chairman of the NASD and president of its regulatory and oversight division. She’d been with the NASD since 1996.

According to some reports, because the NASD was an industry group, there were often accusations that it overlooked instances in which broker/dealer abuses trampled individual investor rights. Given the more-retail-oriented focus many markets have taken in recent years – with a majority of U.S. workers actually owning stocks via mutual funds or through their employer retirement plans – many industry insiders felt that a new organization was needed, especially one that would view protection of the public as paramount. The creation of FINRA was one offshoot of this push for increased indvidual-investor protection.

In a speech in June, Schapiro talked about the growing complexity of the financial markets and warned that highly sophisticated new products will only make matters even more challenging for individual investors. The upshot: bankruptcies and home foreclosures could jump, and many investors could find themselves facing a future in which they have little in the way of a financial cushion.

“In tough financial times, many investors feel pinched for cash – and some may search for different, often-risky ways to make ends meet, or to maintain a certain lifestyle,” Schapiro told listeners at a “Women in Housing and Finance” conference in Washington. “Troubling trends include investors leveraging or prematurely depleting their retirement savings, trading in their insurance policies in transactions known as ‘life settlements,’ and tapping their home equity through reverse mortgages. We are concerned that some investors may be risking their most valuable assets in an effort to raise cash—including those in or near retirement, who may not have time to recover their losses.”

And the other unfortunate part of that problem, Schapiro said, was that “some unscrupulous financial professionals—many of them unregistered—feed into this investor anxiety, pushing strategies and products that promise to provide balance and safety, but that often end up haunting an investor for a lifetime.”

Schapiro will bring skills – as well as experience – to her new post as head of the Securities and Exchange Commission.

In late 2006, at the time of her appointment as NASD chairman, Richard F. Brueckner, the presiding governor of the NASD’s Board of Governors, described Shapiro as a “highly respected and effective regulator who has proven herself time and again to be a strong investor advocate.”

“She is a proven leader and is uniquely qualified to take over as the head of NASD as it continues to execute its vital mission of protecting investors and ensuring market integrity,” said Brueckner, who was also the CEO of financial-technology provider Pershing LLC.  “I am confident the securities industry will work closely with Mary and support NASD’s efforts to make regulation both more efficient and effective.”

A Career Regulator

Schapiro joined the NASD in 1996 as president of NASD regulation and was named vice chairman in 2002.  As head of NASD’s Regulatory Policy and Oversight Division, she served as the primary regulator of 5,100 securities brokerage firms and the nearly 700,000 registered brokers who were doing business with the public.

The division was responsible for writing rules that governed the conduct of virtually all aspects of the securities industry, including sales practices and financial and operational integrity; examining firms for compliance with those rules; and enforcement of NASD rules as well as those of the Municipal Securities Rulemaking Board and federal securities laws.

At that time, the NASD also had regulatory responsibility for The NASDAQ Stock Market, the American Stock Exchange and the International Stock Exchange.

Before joining the NASD, Schapiro was the chairman of the CFTC, a post to which President Bill Clinton had appointed her in 1994.  The CFTC is the federal agency responsible for regulation of the U.S. futures markets, including the financial, agricultural and energy markets.

As chairman, Schapiro participated in the President’s Working Group on Financial

Markets with the U.S. treasury secretary and the chairmen of both the U.S. Federal Reserve and the SEC.

Prior to her time with the CFTC, Schapiro served for six years as an SEC commissioner. She was appointed in 1988 by President Ronald W. Reagan, reappointed by President George H.W. Bush in 1989, and was named acting chairman by President Clinton in 1993.

At one point, Schapiro was an active member of the International Organization of Securities Commissions (IOSCO) and was elected Chairman of the IOSCO Consultative Committee in 2002 and 2004.

Schapiro currently serves as the “lead director” of Kraft Foods Inc. (KFT), and has been a board member since last year. She’s also a director of Duke Energy Corp. (DUK), a post she’s held since 1999.

Schapiro is a trustee of Franklin and Marshall College.

Obama Stimulus

In discussions with Congressional leaders, President-elect Obama has outlined the basics of a stimulus package worth in the range of $675 billion to $775 billion over two years to Congressional leaders, the published reports state. Obama talked to House and Senate officials Wednesday, but it’s believed the package will likely grow in size.

The package does not consist of another rebate for taxpayers, Congressional sources say. Instead, a number of other programs – such as infrastructure, schools, energy efficiency and health care – will be targeted.

States also will receive aid, and the package would assume more of the cost of Medicaid – perhaps even as much as $100 billion.

Obama transition team officials have declined comment on the financial plan, but Congressional leaders already are calling for a passage of the package. House Majority Leader Steny Hoyer, D-Md., said a package similar to what Obama proposes was needed in light of the Labor Department’s report yesterday that another 554,000 Americans filed for unemployment benefits.

“This package must renew our infrastructure, stimulate our economy by extending unemployment insurance, invest in new energy technologies, and help cash-strapped states protect vital services like education and health care from damaging cuts,” Hoyer said in a prepared statement.

The Wall Street Journal reported there is concern the package could expand to as much as $850 billion as it works its way through Capitol Hill. But Obama is trying to keep the stimulus below $1 trillion, an important psychological barrier, as those on Capitol Hill and Wall Street would be wary of what one insider referred to as the “Dreaded T Word.”

Obama has said that the stimulus needs to be just that – a stimulus, and one that’s actually big enough to “jolt” the wheezing U.S. economy and put it back on a path to growth. Since the just-declared recession actually began back last December, almost 2 million workers have lost their jobs, and more than 500,000 jobs were shed in November alone, according to government data.

Passage would allow Obama to knock out a number of problems with a single blow. The president-elect wants to jump-start the economy on one hand while fulfilling a number of campaign promises with the other. In an ideal world, Obama would like to be able to sign the legislation immediately after he’s sworn in. The Republicans, however, have apparently been quite dismissive of such a time frame.

Obama actually hopes to get lawmakers to assemble a package that could be put before both the House and Senate when the 111th Congress convenes Jan. 6. The president-elect is to be inaugurated on Jan. 20.

“Congressional Democrats urge President Bush to drop his opposition to the recovery package; but if he does not, Congress will ensure that President-elect Obama can sign it soon after taking the oath of office,” Hoyer, the House majority leader, said in his statement.

Source: Obamanomics: President-Elect Taps Career Regulator Mary Schapiro to Head SEC, Proposes $775 Billion Stimulus

• Companies from Russia and China are most likely to use bribes when conducting business abroad, says a report from Berlin-based corruption watchdog Transparency International (TI), Reuters reported. The least likely to bribe were Belgium and Canada, according to group’s 2008 Bribe Payers Index.

• Four days after rival J.M. Smucker Co. (SJM) cut its list price for Folgers coffee products, Kraft Foods Inc. (KFT) announced an immediate 10-cent price cut for its Maxwell House and Yuban ground and instant coffees. It marks the fifth price cut by major U.S. roasters this year, Reuters reported.

• Sales of existing homes fell again in October, says a report from the National Association of Realtors. Its index of pending home resales fell 0.7% to 88.9 from a revised 89.5 in September, Bloomberg reported.

• Smelters in China asked mining companies including BHP Billiton Ltd. (ADR: BHP) to pay 74% more to process copper next year, two sources told Bloomberg. Earlier this week, China – the world’s biggest iron and copper consumer – asked BHP and other mining companies to scale back prices of iron ore by 82%.

• Yahoo! Inc. (YHOO) directors are moving in on selecting a candidate for its vacant chief executive officer post, and have gone as far as checking references on a few candidates, sources told The Wall Street Journal. One of the names considered is Arun Sarin, former CEO of Vodafone plc (VOD).

• FedEx Corp. (FDX) warned that it would finish its fiscal year 26% below the low end of its projected earnings, Dow Jones reported. “Demand for our services weakened sequentially throughout the quarter and global economic trends continue to worsen, substantially reducing our second- half outlook,” Chief Financial Officer Alan B. Graf Jr. said in a prepared statement.

• Lehman Brothers Holdings Inc., the bank that filed the biggest U.S. bankruptcy, asked a judge to allow it sell its French unit to Nomura Holdings for $1, Bloomberg reported. According to its filing, Lehman was “unable to find an alternate solution or buyer.” And for the price (and liabilities that come along with it), Nomura would get employees, commercial records, information technology, furniture and other assets.

• The National Football League announced it will lay off 150 jobs in the next 60 days to cut costs in the face of recession. The job cuts are within the league offices, not the teams, Reuters reported.

Source: Global Investing Roundups Wednesday, December 10th, 2008

Consumer confidence on the other hand, is getting drastically worse. The anticipated reading of 54 would be the third-lowest reading of the year, and a 10 percent drop from last month. The expected drop this month would reverse the recent trend of increased readings. We still wouldn’t be near our lowest reading of the year which occurred in June (50.4), but looking back over the last 12 months, it is quite startling to see that the October 2007 reading was 95.6.

The advanced GDP figure for Q3 is announced Thursday, and it looks like we will be seeing a contraction compared to last quarter. This advanced reading is likely to show a 0.10 percent decline, but with all the revisions it goes through before we get the final GDP number, I would expect it to become a larger decline by the time the final number is announced down the road.

The Personal Spending report for September comes out on Friday, and just in time for a frightful Halloween, we are expected to show a negative number. Without consumers opening up the wallets and spending money, I don’t see how we are going to pull out of this market. Perhaps a second round of economic stimulus checks will prop up this number in the next few months if the plan comes to pass. If not, outside of a Christmas miracle, this number could get much worse before it gets better.

The big event of the week is the FOMC Policy Statement on Wednesday. Depending on what the Fed decides to do, it could either provide a short-term bounce for the market, or send it tumbling further down to re-test the lows of 2002-2003.  Probabilities are all over the board with cuts from 25 basis points to 75 basis points looking like a very real possibility.

Earnings Calendar:
Monday: VZ
Tuesday: CEPH
Wednesday: GRMN, KFT, PG
Thursday: XOM, JAVA
Friday: CVX

Source: Halloween Isn’t The Only Scary Thing This Week