Even though the Internet as we know it is only a couple of decades old, this is still a difficult scenario to comprehend. Entire businesses – literally thousands upon thousands of jobs – exist because of the web.

Now we’re entering an age of Web convergence. Every single element of our old media – radio, television and print – is migrating to the Internet at breakneck speeds.

Within the next five years, the depth of offerings on the Internet and the global population connected to them will grow exponentially. In fact, the worldwide Internet economy is now growing at such a rate it will be next to impossible for content providers to keep up…

Bandwidth is being eaten up left and right by more data-intensive offerings, such as streaming video. Young people are also gobbling up Internet media. Young adults today are getting more and more of their news, sports and video directly on their computers. A recent study claims that those born between 1981-1992 get 34% of their news from the Internet, compared with only 11% from print newspapers.

Then there are the masses in emerging economies like China. China became the world’s top Internet user last year, passing the United States. The number of Chinese hooking up to the Internet for the first time is staggering, growing 42% last year alone, to nearly 300 million users, according to the China Internet Network Information Center. Now the government is setting its online ambitions toward the countryside, vowing to hook up every village with broadband lines by 2010.

In all of Asia, only 17% of the population has Internet access, according to Internet World Stats. Compare that with 75% penetration here in North America. This shows that there is plenty of room for tremendous growth…

Partnering With the Biggest Names in Media…

We’ve written to you before on the topic of bandwidth scarcity. And Penny Stock Fortunes readers already had the opportunity to score quick double-digit gains playing this trend with Internet data handler Soapstone Networks Inc. (OTC:SOAP).

Now we’re looking to play a different side of the bandwidth scarcity coin. This time, content delivery and media integration are our targets…specifically, video delivery outsourcing. As we’ve told you before, it’s a highly competitive field, but that’s where the real money is…

That’s why we’re moving one content delivery company off the Penny Stock Fortunes watch list and marking it a strong buy. This company is a content delivery network (CDN) provider for some of the largest media companies in the world. Its customer list includes big media mainstays such as MSNBC, Disney (NYSE:DIS), Netflix (NASDAQ:NFLX) and Fox. The company also boasts the biggest fish of them all. Its No. 1 customer is Microsoft (NASDAQ:MSFT) – a company that is now locked into an all-out war against rival Google (NASDAQ:GOOG) for web supremacy.

And lucrative contracts with these heavy hitters has helped the company grow its revenue more than 500% over the past three years.

Its most recent quarter proved how recession-resistant this content-delivery provider really is. While it still isn’t cash flow positive yet, its Q2 net loss was cut by two-thirds. The company grew its top line 7%, while the rest of the economy is still contracting.

And for a growing company in the tech sector, this company’s balance sheet is incredibly clean. The company is sitting on more than $145 million in cash and zero long-term debt.

The stock’s recent acquisition of another leading firm has even allowed the company to expand its offerings to mobile devices.

This is a massive market. According to networking giant Cisco (NASDAQ:CSCO), mobile video and other bandwidth-heavy features will drive worldwide mobile traffic to more than 1 exabyte per month by 2012. An exabyte is equal to 1 billion gigabytes…that’s a heck of a lot of data.

We just revealed this latest pick and more to our Penny Stock Fortunes readers – if you want to take a look, just click here for more details…

Best,
Greg Guenthner

Source: Taking Advantage of the ‘New Media’ Boom

Competition can be so mean. In a country where the government is doing its best to make sure we  all have equal incomes and resources, you would think companies like Redbox, Netflix (NASDAQ:NFLX) and TiVo (NASDAQ:TIVO) would take it easy on Blockbuster (NYSE:BBI) for a few quarters.

After all, isn’t it “un-American” to force your fellow citizens into bankruptcy?

Banks can’t force homeowners delinquent on their mortgages out of their houses. General Motors (NYSE:GRM) and Chrysler were saved. How in the world can we stand by and watch Blockbuster go under? Where will I rent my Saved by the Bell Reunion video?

While it is not surprising to see a company that has done the absolute bare minimum to update its business model over the last, oh say, two decades is about to be rewound for the last time, it is time the markets seriously begin to discount the notion.

After yesterday’s horrific earnings report, it is safe to say there are plenty of folks taking bets on just how many days Blockbuster has left on this planet.

Be kind, DON’T rewind

Once yesterday’s closing bell was done vibrating, the company snuck onto the news wire and told investors it managed to lose $0.21 per share ($39.7 million total) last quarter, far worse than even the lowest analyst expectations.

On average, the company’s followers were looking for a per share loss of $0.11. The spread was enough to drive shares down by close to 20% in today’s notably rough session.

Although the quarter’s loss was less than last year’s corresponding period when the company spent $41.9 million more than it made, a same-store sales figure that is 17.8% lower proves that operating cuts and short-term margin boosters will not be able to prop up the company’s losses for much longer.

Unless consumers suddenly start flocking to Blockbuster instead of the growing list of competitors, Blockbuster’s bottom line is only going to sink deeper and deeper.

Just when the company thought the threat from Netflix in the mail-rental business was leveling off, Redbox shows up and slams its in-store business.

Why drive to the nearest Blockbuster and shell out five bucks when you can pay a buck a night from one of the kiosks that seemingly appear on every corner these days?

Blockbuster missed its shot at a first-entry position once again. It is proving it is not necessarily the company’s business model that is lacking, but its management team.

Unless these guys can offer something innovative and appealing to its customers real quick Blockbuster’s dwindling pile of cash is going to become a serious problem.

Shares are already trading well under a buck each. It won’t be long until they are trading back down at 52-week low territory, just above the single-digit range.

If you are holding shares of Blockbuster, you had better return them now. You are not going to like the late fees.

Source: Blockbuster: Where is the Rewind Button When You Need?

I watch about one movie each month, if I am lucky, and most of those are borrowed from a friend or relative’s Netflix (NASDAQ:NFLX) account. So it is safe to say Blockbuster (NYSE:BBI) is not getting any money from me… and neither is Netflix.

Looking at Blockbuster’s latest earnings report, it is not getting much money from anybody.

The year’s first quarter was far from a good one for the movie-rental business. Blockbuster claims its drop in sales was due to a lack of good movies reaching the rental market and the closing of some stores, but more likely it is a lack of a good business model that is driving the company slowly but surely towards bankruptcy.

Over the last three months, Blockbuster watched its profits decline by 39%, down to just $27.7 million on $1.12 billion in revenues.

If the current trend continues, Blockbuster will not be in the black – and quite possibly, in business – for much longer.

Out of all the figures the company released last night, the most foretelling is the horrific drop in same-store sales. Thanks to a host of negative factors, sales dropped by 10.9% at stores open for more than 12 months. This time last year, the figure was an increase of 2.9%.

That’s not good.

It should be obvious to shareholders that the news is bad, but just in case they misread the earnings report, one glance at today’s share price action should tell them something is horrifically wrong.

Is this flick a drama or a comedy?

Shares of Blockbuster traded down by as much as 30% today.

Could the selling activity be in anticipation of a future bankruptcy filing?

While it is still too early to say for certain that the rental company is gearing up for a day in court, anybody with a crystal ball or a set of tarot cards would say a filing appears inevitable.

It may not happen this year or next, but it likely will happen someday in the relatively near future.

Blockbuster simply has not found a solution to competitors like Netflix and online offerings. Yes, the company has its own mail-based service and offers movies on the Internet, but we all know how fickle Web surfers can be.

If a company is unable to be a first mover online, it is likely to never get the kind of momentum it needs to overcome its competitors. Unless Blockbuster can somehow find the capital it needs for an all-out media blitz and a full-on re-launch of its name, its solvency will remain a high concern for investors.

If you are looking for a way to play this situation, take a look at going short on Netflix. Surprisingly enough, it has its own set of pains.

Netflix may be the industry leader, but it is not immune to some of the fundamental problems facing its competition. In the next six months or so, its correlation with Blockbuster will increase, meaning its share price will drop.

Shares of Netflix have remained strong and are in positive territory based on the bad news from Blockbuster. By almost all standards of valuation, Netflix is overvalued.

Go short and wait for the hype to dwindle. As consumers continue to cut their expenses, Netflix subscriptions will be hurt.

Blockbuster is hurting and is likely in serious trouble. Its pain is a symptom of the dire illness overtaking the entire industry.

Source: Is Blockbuster Going The Way Of The VHS?

At All About Trends, the action in leading stocks — stocks that have delivered solid returns during this rally — is what we use to gauge the health of the market. That’s because in order for the market to continue to advance, the leaders must lead the market higher. And lately, those stocks have struggled — just look at AMZN, SNDA, NFLX, BWLD, JOSB.

That said, it’s not surprising to us to see what’s happening in the NASDAQ. And since the NASDAQ often leads the market, we expect to see topping patterns in the Dow and S&P very soon.

As you can see above, the NASDAQ has formed a Change In Trend pattern — from up to down.

Typically, there are three short sell set-ups that provide the best opportunity for low-risk gains. They are:

• Double Tops
• 1st Thrust Down
• Pullback Off Low’s

The above chart of the NASDAQ sports all three. The first clue that a change in trend is near is the formation of a double top (the red lines). Then, we have the first thrust down, which you can see from the second top down to the start of the pink line — the stocks that have led the NASDAQ higher are also now showing a first thrust down which explains the selling in AMZN, SNDA, NFLX, BWLD, JOSB.

And finally, you have a Pullback Off Lows pattern (the pink line). When a stock or an index completes its First Thrust Down, it will eventually find support and attempt to rally. This rally attempt is called the Pullback Off Lows pattern.

All of these set-ups are tradable on the short side.

Let’s start with SNDA first.  SNDA formed a solid Double Top pattern. This is what it looked like before it triggered a short-sell trade:

When it broke its pink uptrend line, it began its First Thrust Down.

JOSB is another example of a stock that is in the First Thrust Down phase.

As you can see, JOSB formed a double top as shown by the red line. The blue box is the first thrust down which is often a steep, quick sell-off — in this case JOSB has lost 14% in just two days.

These First Thrust Down moves start when a stock tops and then breaks its upward trendline. The place to take the trade is at the trend line break.

Finally, after a stock completes its First Thrust Down, it will eventually attempt to rally back. When they do that, they will form the third short-sell pattern we look for called the Pullback Off Lows pattern. LOPE (NASDAQ:LOPE) formed this pattern back in March and here’s what it looked like as it triggered:

This pattern is the exact opposite of the Pullback Off Highs pattern we’ve discussed in the recent past. It’s also usually the start of many trades we can do on the same stock. As you can see here, when a stock reverses course and starts making lower highs and lower lows, each rally attempt is a new short-sell opportunity.

Sincerely,
David Grandey

Source: Three Ways to Short Stocks

According to the deal, TiVo users will be able to rent Blockbuster’s 10,000 titles for $1.99 and $3.99, and purchase movies for between $14.99 and $19.99. Blockbuster will also sell Tivo DVRs in its stores and on its Web site.

The move shows Blockbuster is starting to understand what Netflix and Amazon.com Inc. (AMZN) have all along: It’s cheaper and more profitable to chase the customer instead of building stores and waiting for the customer to walk in during business hours.

It’s also the second time Netflix beat them to the punch. Its top rival began renting films on TiVo last year and has developed streaming video on its Web site and through Microsoft Corp.’s (MSFT) Xbox 360 video game console.

This time – unlike Netflix – Blockbuster’s TiVo offerings will be available a few weeks after they arrive in rental stores, but before they reach pay-per-view audiences.

“You will see us in a large number of other devices going forward,” Kevin Lewis, senior vice president of digital entertainment at Blockbuster, said.

Lewis added that the company also plans to sell its movies via Apple Inc’s (AAPL) products.

“We need to be in the normal places that consumers want to watch movies,” he said.

Shareholders Happy… For Now

More than ever, Blockbuster needs a better business model – and fast. Last quarter, the movie-rental chain posted a net loss of  $359.8 million, or $1.89 per diluted share, while taking a $435 million non-cash charge “for the impairment of goodwill and other long-lived assets.”

Blockbuster’s shares dipped as low as 13 cents early this month when a report surfaced that the company hired Kirkland & Ellis LLP to advise a possible bankruptcy filing.

Chief Executive Officer Jim Keyes didn’t refute the report outright, but rather misdirected it, saying that bankruptcy is “not our objective,” Bloomberg reported.

“We have retained expertise both on the legal side and the investment-banking side to very aggressively pursue our refinancing alternatives,” Keyes said.

Keys said he has support from his investors, including Mark Wattles, founder of rival Hollywood Entertainment Corp., who took a 5.7% equity stake in Blockbuster as a sign of his confidence in the industry and Blockbuster’s financial stability.

“I was pleased to find he is a strong believer in our industry,” Keyes said. “We didn’t have any strategic discussions. He just emphasized his confidence in the direction of the company.”

But there’s one shareholder who demands that his actions and opinions about the company’s direction be watched: Billionaire Carl Icahn, who owns an 8.7% stake in Blockbuster, making him the company’s largest shareholder.

Icahn famously, and successfully, led the charge to dethrone Yahoo! Inc. (YHOO) co-founder Jerry Yang from his job as the company’s Chief Executive Officer. Icahn – upset with Yang’s performance – threatened to seek control of the board and resuscitate takeover talks with Microsoft.

Icahn ultimately won the battle, with Yang stepping down and Yahoo selecting Carol Bartz, chairwoman of Autodesk Inc. (ADSK), as his replacement a few months later.

Icahn did not get his ultimate wish, however, as Microsoft did not succeed in taking the company over.

Source: Blockbuster Teams with TiVo Go Global to Escape Extinction

This from Today’s Financial News:

Last night, I sat down at the kitchen table and realized I was a bit lopsided. I checked to see if the chair was broken. It checked out.  I sniffed my glass of water to make sure it wasn’t tainted. It was alcohol free.

It turns out my overstuffed wallet was the culprit. My worn-out leather companion has slowly grown to nearly two inches in thickness. The growth cannot because of an accumulation of greenbacks. You have a better chance of finding a moth infestation than more than forty bucks in cash in my back pocket.

The culprit was a collection of gift and membership cards. As I started digging through the mess, I uncovered memories I had long forgotten, like my membership to a local gym. I called to see if it was still active. The kind lady that answered the phone told me the gym closed over two years ago. No wonder I have not been going.

As my stack of “throw-away” cards grew to over an inch in thickness, I hesitated when I got to my Blockbuster (NYSE:BBI) membership card. I hadn’t used the thing in at least a year, but had a tough time convincing myself that would be a long-term trend. After all, I am recently married and that means I will be spending a lot more time at home, snuggling on the couch. Ugh…

In the end, I decided to experiment and toss the rectangular piece of plastic into the hopper that will ensure it is buried for all of eternity. I think I made the right decision.

The Internet killed the video star

Blockbuster is in a ferocious industry battle. The video-rental company was doing fine, even leading its industry, until Netflix (NASDAQ:NFLX) came along and changed the rules of the game.  No longer do consumers have to get in their cars and shell out four or five bucks for a movie that is due back in a couple of days. Thanks to Netflix, they are delivered straight to a subscriber’s door.

Blockbuster enjoyed nearly half of the industry’s “store” business, but cannot get anywhere close to a leadership position in the industry’s new monthly subscription business. Netflix dominates with nearly three-quarters of the $2.2 billion industry’s total sales.

Blockbuster has tried to keep up with the mail-based subscription industry, but as it was not able to obtain a position as a first-mover, its brand is rarely associated with the industry. Just as brands like Kleenex, Google and Xerox became synonymous with their products so has Netflix. It has become a strong and relentless competitive advantage for the company.

But now the industry is changing once again and Blockbuster is desperate to take the lead. Check out any of the latest in television or set-top products at the Consumer Electronics Show and you will see one thing. Almost all of them have Internet connections. A broadband-enabled TV is the way of the future.

At least that is what Blockbuster hopes.

Earlier today, the company announced a deal with Sonic Solutions (NASDAQ:SNIC), a $35 million company specializing in digital video software and products. Through Sonic’s CinemaNow video library and Blockbuster’s own digital content offerings, the companies are working to beat Netflix to the downloadable movie leadership position.

Netflix has the advantage. It has been offering online video downloads since 2007. Subscribers can download videos to their computers, Xbox systems and the company has a deal with TiVo (NASDAQ:TIVO) that sends movies straight to a TV set.

Blockbuster wants to follow the same route, but offer the content to even more digital devices hooked to the Web. It is going to be an interesting battle.

Playing for keeps

The real question is not what devices or technology the company’s should use. What investors need to know is if there is room for more than one player in this industry.

Just like the satellite-radio industry, the world of downloadable movies has high fixed costs and little in the way of variable costs. That means if the subscribers are spread over too many competitors, individual profits will remain low and we will see a wave of consolidation. Again, just look at Sirius XM (NASDAQ:SIRI).

But if one company emerges as the winner, it will be able to fend off competition because newcomers will not be able to afford the initial technology costs. That is why Netflix and Blockbuster are fighting so hard while this industry is in its infancy. The winner will secure a huge long-term revenue stream.

Right now, it is anybody’s battle to win. Netflix has the better brand, but it appears Blockbuster has the superior technology. Traders would be wise to look beyond these two companies and look at the firm’s making it all happen, like Sonic or even TiVo.

For investors looking to break into an industry of the future, this is a fantastic opportunity. Share prices are cheap and the profit potential can only grow from here. All you have to do is pick the winner.

Source: Want to get rich? Invest in the company that can dominate your entertainment

At first, Netflix’s threat to Blockbuster seemed laughable. But now, with more consumers cutting back and looking for instant entertainment, low monthly costs and the ease of Netflix are really starting to squeeze Blockbuster.

And that’s not to say that Blockbuster hasn’t given its rivals a hand. There was the misguided and disastrous attempt to merge with financial-albatross Circuit City (OTC: CCTYQ), the botched roll-out of the “no more late fees – just other fees” program and the complete failure to see how a vindictive fee and collection system could alienate its customers.

But the competition isn’t just coming from Netflix. Redbox’s easy-to-use, dollar-a-day rental system is also stealing revenue. Most Redbox vending machines are located outside of parent company McDonald’s (NYSE: MCD) and inside grocery stores. Often in the same shopping centers as Blockbuster.

In the same way Eastman Kodak (NYSE: EK) missed the advent of digital, Blockbuster missed the transformative power of the Internet and subscription rentals. It’s playing catch-up. And only time will tell if BBI can recover.

Source: Blockbuster (NYSE: BBI) – Another Nail In The Coffin

• Halliburton Co. (HAL) yesterday (Monday) announced a third quarter loss of $21 million, or 2 cents per share, compared to a gain of $727 million, or 79 cents a share, for the same period in the prior year. The Houston, Tex.-based oil and energy services firm attributed the loss to financing expenses including $693 million in costs related to the redemption of convertible bonds, Bloomberg News reported.

• Toymaker Hasbro Inc. (HAS) posted a gain of $138.2 million, or 89 cents a share, for its fiscal third quarter, compared with a profit of $161.6 million, or 95 cents per share, which included a tax benefit of 17 cents per share for the same period in 2007. Due to its popular Star Wars action figures and Playskool line of toys for preschoolers, Hasbro beat analyst expectations of 86 cents per share, despite the tough retail environment, Reuters reported.

• The Conference Board yesterday (Monday) announced its U.S. index of leading economic indicators gained 0.3% in September, after dropping 0.9% in August. “The extreme volatility in the financial market, and the near freeze-up of credit, will no doubt weaken the economy further,” said Ken Goldstein, labor economist at the private research group, MarketWatch reported. “But latest data suggest that conditions in the non-financial economy are not falling apart.”

• Jet Airways Ltd., India’s largest private airline, decided to cancel plans for a layoff of 1,900 workers after the plan received harsh criticism from the Indian government and local labor unions. The airline said it would reinstate the 800 flight attendants already let go, The Financial Times reported, and discontinue plans to fire an additional 1,100 workers. Praful Patel, India’s aviation minister, called for a reduction in jet fuel taxes to help the struggling carrier.

• Netflix Inc.’s (NFLX) third-quarter profit surged 30% the company said yesterday (Monday) in a statement. Netflix earned $20.4 million, or 33 cents per share, for the three months ending in September, compared with $15.7 million, or 23 cents per share, in 2007. Revenue rose 16% to $341 million, from $294 million last year.

• U.S. home prices will fall 8%-10% further before they show signs of stabilizing, Fitch Ratings Inc. said yesterday (Monday). National home prices have declined a full 22% from the peak hit in 2006, the agency said in a note. Fitch has a peak to trough forecast for prices to decline 30% according to Reuters.

• A U.S. jury yesterday (Monday) found Parmalat SpA guilty of defrauding Citigroup Inc. (C) in a case stemming from the Italian dairy company’s 2003 collapse, Reuters reported. Citi was subsequently awarded $364.2 million in damages.

• Merrill Lynch & Co. Inc. (MER), the biggest U.S. brokerage, plans to cut about 500 jobs in its trading division, people with knowledge of the situation told Bloomberg News. The cuts equate to about 1% of the company’s 60,900 employees, and include traders and institutional salespeople in the firm’s fixed-income and stock departments.

Source: Global Investing Roundups Tuesday, October 21st, 2008

• British Airways PLC (OTC ADR: BAIRY), AMR Corp.’s (AMR) American Airlines Inc. and Iberia SA (PINK: IBRLF) announced yesterday (Thursday) that they were applying for European and U.S. antitrust immunity. If the three airlines receive the requested exemption, the three carriers will cooperatively set fares and share seats on transatlantic flights, BusinessWeek reported.

• Despite oil’s recent pullback, icon investor T. Boone Pickens feels crude will not drop below $100 due to the United States’ heavy dependence on foreign oil. “I don’t think it’ll drop below $100,” Pickens told Reuters yesterday (Thursday) in a telephone interview. “I would say $110 is where it might go, something like that.”

• Wal-Mart Stores Inc. (WMT) announced yesterday (Thursday) that net income increased 17% in its fiscal second quarter driven by bargain hungry shoppers hurting from high food and fuel prices. For the quarter ended July 31, Wal-Mart reported net income of $3.45 billion, or 87 cents per share, an increase from $2.95 billion, or 72 cents per share, for the same period in the prior year,
  The Wall Street Journal reported.

• Amusement park operator Six Flags Inc. (SIX) said yesterday (Thursday) that revenue in the third quarter through Aug. 12 was up 7.6%, or $23.5 million, from the same period last year, and included fewer operating days. Attendance grew 5.1%, or 407,000 people, to 8.4 million, the company said. Year-to-date, Six Flags said its revenue was up 6.1% from last year, representing an increase of $43.1 million.

• Gannett Co. Inc. (GCI) Inc will eliminate 1,000 positions from its local newspapers around the U.S. because of declining advertising and circulation revenue, Reuters reported. The company said the cuts equal about 3% of the positions in its Community Publishing unit.

• General Motors Corp. (GM) said yesterday (Thursday) that it would finalize the design of the all-electric Chevy Volt by mid-September and hopes to have 50 prototypes with production-ready parts by the end of 2008. GM plans to launch the car in 2010, Reuters reported.

• Estee Lauder Cos. Inc. (EL) said yesterday (Thursday) that net income hit $120.2 million, or 61 cents a share, in the quarter ended June 30, from $88.6 million, or 45 cents a share, a year earlier. Quarterly sales rose 14% to $2.01 billion. For fiscal 2009, the company said it expected earnings per share of $2.57 to $2.72 and net sales growth of 6% to 8%.

• Netflix Inc. (NFLX) has suffered a major disruption in its mail-service DVD rental business, The Wall Street Journal reported, that has prevented the majority of customers from receiving movies since Tuesday. Steve Swasey, a spokesman for California-based Netflix, described the cause of the disruption as a “pretty severe technical” problem with the company’s shipping system and could not speculate as to when the problem might be resolved.

Source: Global Investing Roundups Friday, August 15th, 2008

But if the central bank does pare short-term interest rates, it’s likely to be the last such move in awhile; the Fed will take a break and give its rate cuts a chance to work their way through the U.S. economic system.

Despite an active-economic-calendar schedule this week – which includes a report on first-quarter gross-domestic product, and several other statistics that could confirm that the U.S. economy is entrenched in a recession – the Fed’s machinations should dominate this week’s headlines, given that the central bank’s interest-rate-setting arm is set to meet Tuesday and Wednesday.

Any announcements about interest rates will be made at 2:15 p.m. Wednesday. Experts also say that whatever the Fed says about its expectations will be just as important as what it actually does to the benchmark Federal Funds rate.

“I don’t think there’s any question that they’ll cut [a quarter-percentage point] off the rate,” David Rosenberg, chief economist for Merrill Lynch & Co. Inc. (MER), told The International Herald Tribune. “The real question is what they say about the future. It won’t be an ‘all clear’ signal. But they’ll find a way to tell the markets that they’ve done enough for now, simply put.”
Not everyone agrees.

“There is no reason why the Fed should be cutting rates right now,” Richard Yamarone, director of economic research at Argus Research Corp., told MarketWatch.com.

Yamarone may be thinking back to some of the public comments certain of the central bankers themselves have been making.

Back on April 18, Fed officials hinted that they would be reluctant to cut the benchmark Federal Funds rate yet again, given that the slumping U.S. economy also faced a major inflationary threat. Indeed, Philadelphia Fed President Charles Plosser warned against believing that interest-rate cuts were “the solution to most, if not all, economic ills.”

Plosser is one of the Fed’s major anti-inflation hawks At the time, Plosser was merely the latest in a string of policy-makers to warn about the rising risks of inflation, essentially suggesting that another rate cut would probably be a very tough sell.

In a speech at Drexel University’s LeBow College of Business in Philadelphia, Plosser said real interest rates were now at “an accommodative level, meaning borrowing costs were low enough to start boosting the U.S. economy’s growth rate back toward its normal historical norm, Reuters reported.

The futures market is projecting a Fed Funds rate of 1.75% by the end of this year. Here’s a look at the futures market’s month-by-month expectations for short-term borrowing costs for the remainder of 2008:

• April: 2.17%.
• May: 1.89%.
• June: 1.85%
• July 1.79%.
• August 2008: 1.76%.
• September 2008: 1.76%.
• October 2008: 1.77%.
• December 2008: 1.73%.

The worries about inflation that Plosser and other inflation hawks have are very real. And those concerns don’t exist solely on our side of the Atlantic. The low U.S. rates are contributing to a weakness in the greenback that’s sent the American currency to record lows against most other key world currencies. That’s fueling a massive run-up in the cost of energy and food-related imports – and that’s inflationary for U.S. buyers.

But it’s made U.S. exports very competitive abroad, acting almost as a big discount for foreign buyers of such wares as Boeing Co. (BA) jetliners. In fact, just last week Boeing surprised Wall Street with record earnings and announced a record order backlog. And pan-European arch-rival Airbus SAS., was forced to announce a price increase on several  of its commercial airliners – because of rising steel prices and because of the falling dollar.

French Economy Minister Christine Lagarde yesterday (Sunday) that the gap between the U.S. and Eurozone interest rates was way too large, and called for a change in rate policies on one side of the Atlantic, or the other.

“We are in a delicate situation where we have, on the one hand, an American Federal (Reserve) which has a policy of very low rates and a European Central Bank which has maintained high interest rates,” Lagarde told LCI Television and RTL Radio, the global wire service Reuters reported. “The differential in interest between the two, it seems to me, is a little too big at the moment.”

Paris has long been a vocal critic of what French President Nicolas Sarkozy has termed the ECB’s overly narrow focus on fighting inflation – and has previously been criticized by Germany for meddling in the business of the “independent” central bank.

With Eurozone inflation running at about 3.6% – its highest rate since the measure for that portion of the European market began in 1997, the European Central Bank (ECB) has left its key refinancing interest rate unchanged at 4.0%, despite some very definite signs that Eurozone growth is slowing.

By comparison, the key U.S. interest rate is at 2.25%, though it may be heading lower this week, and inflation is “officially” said to be at right about 4% – though such experts as Money Morning Contributing Editor Martin Hutchinson believe the actual U.S. inflation rate is actually much higher.

Although the FOMC meeting is likely to top the economic the economic news of the week this week, the GDP report will come in a fairly close second and will be nearly as closely watched by some experts. The reason: Many eternal pessimists are expecting the report to show negative growth during that three-month period.

Why is that important? Simple: According to the National Bureau of Economic Research (NBER), two consecutive quarters of negative growth constitutes a recession.

Most folks “feel” like the U.S. economy is already in a recession. An official designation by the NBER – which usually comes well after the fact – would simply make it official.

In the meantime, some of these other reports this week could help serve as an interim and unofficial “confirmation” of that dour diagnosis of the U.S. economy:

• The health of the manufacturing sector will get a solid assessment via Thursday’s release of the much-watched ISM survey and Friday’s report on factory orders.
• The all-important U.S. labor markets will get significant scrutiny via Thursday’s report on initial jobless claims and Friday’s reports on the U.S. unemployment rate and on non-farm payroll data.
• We’ll get a bit more insight into the psyche of the American consumer with Tuesday’s report on consumer confidence for the month of April and Thursday’s report on personal income and spending for the month of March.
• And we’ll get an overview of Corporate America’s health, as U.S. energy giants Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) reveal how their profit reports have been boosted by record energy prices [likely also prompting new calls for Congressional investigations into allegations of price gouging].  Starbucks Corp. (SBUX) will follow up recent warning with an actual announcement, while Office Depot Inc. (ODP) and Radio Shack Corp. (RSH) will give investors a look inside the world of retail.

Market Matters

Two weeks ago, investors disregarded any semblance of bad news (and lately, there has been plenty) and instead took the stock indices to their highest levels in months. Last week, investors allowed the earnings releases to guide their trading activities while awaiting the Fed’s interest-rate decision and commentary.

So just what did the recent earnings reports say about the current state of Corporate America?

Financialscontinue to stoke the negativity (no surprise there) with Bank of America Corp. (BAC), investment banker Credit Suisse Group (CS), and bond insurer Ambac Financial Group Inc. (ABK) reporting more disappointing results.  Drugmakers, on the other hand, enjoyed a nice quarter with Merck & Co. Inc. (MRK) and Novartis AG (NVS) beating expectations.  While a sluggish economy can’t keep folks out of McDonald’s Corp. (MCD) (as least in its international markets), it does seem to be impacting coffee intake as Starbucks warned that this week’s results (and those for all of 2008) will miss earlier projections.  Of course, dire times lead to more nervous smoking (and higher cigarette sales) as happy Philip Morris International Inc. (PM) shareholders found out this quarter.  While cost-conscious folks stayed home and watched more DVDs, Netflix Inc. (NFLX) warned that future subscriber growth may be limited.

Both Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA) posted sizable losses on skyrocketing fuel costs, leading some analysts to question the wisdom behind the proposed merger. While the world’s largest shipper, United Parcel Service Inc. (UPS), experienced a jump in profits, management expressed concern about the quarters to follow, since consumers just don’t seem quite as interested in finding out “what Brown can do for you.”  Even techs, which previously had been a savings grace for the market, turned pessimistic this week.  Apple Inc. (AAPL) and Texas Instruments Inc. (TXN) reported decent earnings, but warned about their respective outlooks.

Likewise, high-tech bellwether Microsoft Corp. (MSFT) disappointed with its profit numbers, while investors wait with trepidation to see what becomes of Microsoft’s bid for Yahoo! Inc., (YHOO). Meanwhile, Yahoo beat “The Street’s” expectations. However, the three-week deadline that Microsoft gave Yahoo to come to an agreement on its unsolicited bid passed Saturday without any announcement from either side, leading to the possibility that the battle for Yahoo is about to turn hostile, MarketWatch.com reported.

ConocoPhillips (COP) showed that record energy prices are not hurting everyone, as the No. 3 U.S. oil company reported a 17% increase in profits.

Transactions typically imply growing confidence in corporate boardrooms as management finds the value in certain acquisition targets.  Last week, News Corp. (NWS.A) moved closer to buying Newsday and giving Rupert Murdock greater control over the New York press.

Insurance giant Liberty Mutual Holding Co. Inc. agreed to buy SAFECO Corp. (SAF) in a $6.2 billion deal that will create the 5th-largest property and casualty firm.  Triarc Cos. Inc. (TRY) soon may be adding those terrific “hot-and-juicy” square burgers and addictive Frosty drinks to its Arby’s roast-beef-sandwich menus as it looks to acquire Wendy’s International (WEN) in a deal valued at $2.34 billion. And, of course, there’s still the Microsoft-Yahoo proposal.

With a mixed week on the earnings front, stocks traded relatively flat as investors took some profits from last week’s newfound bullish sentiment, while still searching for a bargain or two.

Economically Speaking

For many Fed-watchers, the prospect for another rate cut has been a foregone conclusion.  After all, central bank Chairman Ben S. Bernanke and clan have let their creative juices flow [not to be confused with the creative juices of those Wendy’s hamburgers] over the past few months; the Fed has tried everything from the aggressive rate-cutting campaign to liquidity injections to arranging the buyout of The Bear Stearns Cos. Inc. (BSC) by JPMorgan Chase & Co. Inc. (JPM).

Suddenly, some great prognosticators believe the Fed may be “seven and done” as they drop the Federal Funds rate again (by a minimal quarter of a percentage point this time around) – before going on a “summer hiatus” to give their earlier work the time to take effect.

With oil prices hovering around the (once unheard of) $120/barrel level, some policymakers are sure to claim that inflation should be considered as critical a concern as the sluggish housing market to the U.S. economy’s health. Indeed, comments such as those of Philly Fed President Plosser make it clear that inflation is already becoming an increasingly important consideration.

Additionally, the European Central Bank seems content to keep its lending rate at 4%, so further Fed actions will continue to have devastating impact on the value of the dollar.

The economic calendar was relatively light last week as analysts rested up for this week’s vast array of important data. After a surprising climb (better known now as an aberration) in February, existing home sales plunged again in March, while new homes sales fell to their lowest level in more than 16 years.

Furthermore, the median price of a new home dropped by more than 13% last month, the largest such decline in almost four decades.

Durable goods orders fell in March, as well, although once the volatile transportation sector was removed from the equation, the results did not look half bad.

We hope that investors and analysts got plenty of rest over the weekend to get ready for the bustle of economic reports due throughout this week. Talk of recession should resume with the release of the first-quarter GDP, which many eternal pessimists believe will show negative growth during that three-month stretch.

Weekly Economic Calendar