• Continental Airlines Inc. (CAL) became the latest airline to announce reduced flight service and jobs cuts yesterday (Thursday). Continental will eliminate 3,000 jobs and 16% of its flight capacity, The New York Times reported. The cost cutting efforts follow similar moves from UAL Corp.’s (UAUA) United Airlines, Northwest Airlines Corp. (NWA) and Delta Air Lines Inc. (DAL).

• France Telecom SA (ADR: FTE) announced yesterday (Thursday) that it was pursuing a $42 billion bid for Sweden’s TeliaSonera AB (PINK: TLSNF), The Associated Press reported. TeliaSonera dismissed the initial offer as too low, but France Telecom reported it has the backing of the French government and could up its bid.

• The Mortgage Bankers Association (MBA) announced yesterday (Thursday) that both the percentage of loans in foreclosures, as well as the number of foreclosure starts, climbed to levels not seen since 1979, MarketWatch reported. For one- to four-unit properties, 2.47% of all mortgages outstanding were in foreclosure, up from 2.04% in the fourth quarter, according to the MBA’s latest National Delinquency Survey. At the end of first quarter 2007, only 1.28% of such homes were in foreclosure.

• The number of U.S. citizens filing first time unemployment claims fell last week, the Department of Labor said yesterday (Thursday). Initial jobless claims decreased by 18,000 to 357,000 in the week that ended May 31, the lowest level in more than a month, due in part to the Memorial Day holiday, Bloomberg News reported.

• Stocks in China fell to a six-week low Thursday (yesterday) on speculation that the government would tighten prices to curb inflation. The move that would shave profits from the country’s commodity titans. The CSI 300 Index, which tracks 300 stocks traded in Shanghai and Shenzhen, fell 1 percent to close at 3,512.14, the lowest since April 23, Bloomberg reported.

• The U.S. government announced yesterday (Thursday), via the Department of Justice, that it is suing Honeywell International Inc. (HON) for selling material used in bulletproof vests that it alleges was defective, The Associated Press reported. According to the DOJ, Honeywell had scientific data that showed the ballistic material, known as Zylon, “degraded quickly over time, especially in hot and humid conditions,” leaving the vests unfit for use. The department also alleges that Honeywell failed to notify the government or the vest manufacturer, Armor Holdings Inc., of the defect.

• E.I. Du Pont De Nemours & Co. (DD), commonly known as DuPont, said yesterday (Thursday) that it is targeting a 40% increase in soybean and corn yields over the next 10 years through its Pioneer Hi-Bred unit, according to Thomson Financial. The company expects DuPont Agriculture & Nutrition segment sales to grow by 6% to 8% and earnings by more than 15% on average between 2007 and 2010.

• Swiss pharmaceutical maker Novartis AG (ADR: NVS) spent nearly $1.3 million lobbying the U.S. government in the first quarter on drug and health care issues, according to a recent disclosure form, The Associated Press reported. Novartis lobbied on bills designed to ensure the government has a sufficient stockpile of influenza vaccine in case of an outbreak.

Source: Global Investing Roundups: Friday, June 6th, 2008

• The Conference Board’s consumer confidence index fell to 62.3 in April, a five year low, Bloomberg News reported. The Conference Board’s index dropped from a revised 65.9 reading in March that was higher than previously estimated.

• Citigroup Inc. (C) said it would sell about $3 billion of its common stock in a public offering yesterday (Tuesday). Citigroup Inc. says it is has already received “strong interest” in the issuance, the Associated Press reported.

• Denny’s Corp. (DENN) reported first-quarter net earnings of $5 million (5 cents a share), up from 1.16 million (1 cent per share) a year ago. The increase came despite a $40.8 million drop-off in revenue. The stock closed up 1 cent at $3.17, Thomson Financial reported.

• IBM Corp. (IBM) increased its dividend payout 25% yesterday (Tuesday), reflecting the technology company’s confidence that it can thrive even with an uncertain economy, according to the Associated Press. At IBM’s annual shareholder meeting, the board of directors upped the quarterly dividend to 50 cents per share. For the past four quarters it had been 40 cents per share.

• Shares of pharmaceutical firm Merck & Co. Inc. (MRK) shed 10% yesterday (Tuesday) with a decline of $4.30 to close at $37.14. On Monday, the Food and Drug Administration rejected Merck’s cholesterol drug, Cordaptive, and analysts warned it could have an inverse impact on Merck’s bottom line.

• Airline shares soared yesterday (Tuesday) as crude oil dropped below $116 a barrel after reaching a record high on Monday of almost $120 a barrel, Reuters reported. Northwest Airlines Corp. (NWA) had the biggest gain with an increase of almost 23%, adding $1.74 per share to close at $9.36.

• MasterCard Inc. (MA) shares gained 12% yesterday (Tuesday) after the world’s second-largest credit card processing company announced first quarter earnings. First-quarter net income increased to $446.9 million, or $3.38 a share, from $214.9 million, or $1.57, a year earlier, Bloomberg News reported. The stock gained $31.48 to close at $273.98.

• Shares of Canada-based sportswear maker Gildan Activewear Inc. (GIL) plunged yesterday (Tuesday) after management lowered its outlook. The stock dropped $10.99, a decline of over 30%, to close at $24.93, after the company lowered both second-quarter and full-year estimates due to production shortfalls and slow sales, Forbes reported.

Continental’s management ended months of speculation by announcing that a merger with troubled United would do more harm than good, even with the intense pressure airlines are under due to record high oil prices and the competitive threat posed by the recent deal between Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA).

“The risks of a merger at this time outweigh the potential rewards,” Chief Executive Officer Larry Kellner said in a letter. “While some would prefer to see Continental pursue a merger, we strongly believe we have made the right decision.”

As for the niche carrier Eos, in grounding itself it joins Skybus Airlines, Aloha Airgroup Inc.’s Aloha Airlines and ATA Airlines Inc., which have already ceased operations, as well as U.S. charter operator Champion Airlines, which announced plans to stop flying at the end of May.

Frontier Airlines Holdings Inc. (FRNT) also has filed for bankruptcy protection, but at this time plans to keep flying.

The Eos downfall was “no surprise,” Calyon Securities airline analyst Ray Neidl told The Associated Press. “We saw it happen with other smaller, undercapitalized airlines. Basically, there are too many airlines. We’re in a period of consolidation. The weaker guys, [facing] $120-a-barrel oil, are finally succumbing.”

With jet fuel the single largest expense for carriers, merging to capitalize on economies of scale makes sense. And as the world’s new largest carrier, the Delta/Northwest merger now has the competitive advantage.

But while Continental still might be able to go it alone – even against a stronger potential rival – United is in a much weaker financial position and needs a partner. The carrier wasted no time in turning its attentions to U.S. Airways Group Inc. (LCC).

“Consolidation is under way – ensuring you have the right partner is everything,” United Airlines Chief Executive Glenn Tilton said in a statement. “We will pursue all options to ensure a strong, sustainable future for our airline.”

While talks with U.S. Airways are not yet at the advanced stage United had reached with Continental, management is doing its best to accelerate discussions, hoping to finalize any deal before the end of the year – and before there’s a possible change in the political party in the White House.

When it comes to mega-mergers – and industry consolidations in which there might be a perceived decline in competition – the Bush administration is seen as being more of a proponent for deals that require Justice Department approval in order to proceed.

Analysts say that U.S. Airways and United could mesh well due to similar pay structures and complementary fleets. In addition, United and U.S. Airways are both members of the Star global marketing alliance.

Bigger is Better

Atlanta-based Delta announced it would buy the Eagan, Minn.-based Northwest for $3.63 billion, all in stock, creating a single carrier with a combined enterprise value of $17.7 billion.

Delta Chief Executive Richard Anderson will be chief executive officer of the combined company. Delta Chairman Daniel A. Carp will become chairman of the new Board of Directors.

The carriers decided to go ahead with a merger despite being their respective pilot’s unions being unable to come to agreement. Delta’s 7,000 pilots endorsed the deal by supporting a new labor agreement that includes an equity stake.

While Northwest’s 5,000 pilots will be asked to join a contract before the deal closes, the union is expected to oppose deal after the unions could not agree on how to assign pilot seniority – a key determinant of shifts, pay scale and what airplanes they fly – in the new organization.

It is expected that the Delta/Northwest merger will be approved later this year.

Recent high-profile bankruptcies of mainstay American retailers, such as Sharper Image Corp. (SHRPQ) and Linens Holding Co.’s Linens ‘n Things, as well as the proposed mergers between Blockbuster Inc. (BBI)/Circuit City Stores Inc. (CC) and Delta Air Lines Inc. (DAL)/Northwest Airlines Corp. (NWA), and the admissions from the nation’s leading student lenders that their business models are no longer viable, mark the beginning of a long overdue overhaul of the American economy.  In short, the economy will be getting smaller and more expensive.

The success of all of these seemingly disparate sectors depends, to a large extent, on the ability of Americans to continue to borrow cheaply and easily.  Now that home equity extractions and zero-interest credit card rollovers can no longer be used to fund electronics purchases, vacations or tuition, those corresponding sectors are suffering.  The foundation of our bloated service-sector economy, supported by overseas savings and production, is now giving way.

This diminished capacity will result in a wave of bankruptcies and consolidations to restore profitability in what will become a much smaller service sector.  The days of cheap consumer goods from Wal-Mart Stores Inc. (WMT) and cheap airfares from JetBlue Airways Corp. (JBLU) are coming to an end.  It is all part of the process of an unprecedented decline in America’s standard of living, which is the inevitable result of years of living beyond our means.

For retailers, the business model of selling cheap foreign imported goods to over- leveraged Americans was doomed from the start.  It is fitting that just prior to the collapse, Wall Street private equity firms decided to jump aboard a sinking ship (Linens ‘n Things was purchased by Apollo Management LP for $1.3 billion back in 2006).  No doubt the added debt subsequently piled on to the firm by the profit-squeezing buyout boys hastened the company’s demise.  As revenue declines and debt-servicing costs rise for many retailers (who have been similarly hog-tied by private equity firms), look for additional blow-ups down the road.

As the dollar continues its historic decline, imported goods will become too costly for many Americans.  In addition, more of those products still made (or more likely grown) domestically will be exported to wealthier foreign consumers whose appreciated currencies increase their purchasing power.  As a result, fewer products will be available to fill our shelves and those that remain will carry much higher price tags.

In addition, as defaults on both credit cards and store-charge cards continue to increase, the market for such debt soon will disappear. As a result, the credit crunch will spread from subprime mortgages to all forms of consumer credit. 

The bottom line: Not only will Americans be staring at higher prices; they will have to pay in cash. 

Similarly, the looming airline consolidation will usher in a harsher era for the American airline industry.  In truth, given the rising costs of building, flying and servicing aircraft, U.S. carriers currently supply more planes and passenger miles than American consumers can afford to utilize.  While this may seem illogical in a time when domestic flights are usually fully booked, it is important to realize that these crowded planes do not translate into profits at current ticket prices.  While mergers may help the airlines hold down costs for a bit, the only lasting pathway to profit is fewer flights and significantly higher ticket prices.  Of course, this will mean that Americans of modest means will travel less by air. Unfortunately, that fact is simply an inevitable consequence of a sagging currency and diminishing national wealth.

Although many Americans have come to regard affordable air travel as a birthright, from a global perspective it remains the province of the wealthy.  The massive borrowing that has financed the American economy for generations – combined with an evaporating industrial base and a lack of domestic savings – have all combined to reduce America’s wealth in comparison to the rest of the world.  Consequently, as more materials, technicians and jet fuel go to service the burgeoning Asian air travel industry, the higher the costs will become for American travelers.  As with other hallmarks of a diminished standard of living, Americans now have to confront the reality of staying closer to home.

The same mathematics will come into play for our ridiculously expensive higher education system, which cannot exist without a well-lubricated loan infrastructure.  Limit the ability of students to take on heavy loans, and college education becomes untouchable for anyone but the wealthiest Americans.  If loans dry up, universities will be forced to slash their bureaucracies and substantially reduce tuitions.  Ironically, the silver lining here is that with low tuitions students will no longer need the loans that kept tuitions so high in the first place.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and dollar-denominated investments, read Peter Schiff’s new book “Crash Proof: How to Profit from the Coming Economic Collapse.”  Click here to order a copy today.