• Dominique Strauss-Kahn, Managing Director of the International Monetary Fund yesterday (Tuesday) warned of a “Great Recession” taking place this year. “The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” Strauss-Kahn told African political and financial leaders in the Tanzanian capital. He added his forecast may “even be too optimistic.”

• United Technologies Corp. (UTX), makers of Carrier air conditioners and Otis elevators, announced a $750 million restructuring plan that includes 11,600 job cuts. The plan is a response to expectations that 2009 revenues will fall $2.7 billion short of projections, Bloomberg reported.

• Brazil’s economy expanded 1.3% in the fourth quarter, and economic growth for 2008 clocked in at 5.1%. The fourth-quarter gross domestic product (GDP) growth is a drastic decline from the 6.8% year-over-year growth rate in the previous quarter, Reuters reported.

• Malaysia’s government yesterday (Tuesday) added $16 billion (60 billion ringgit) in tax incentives and spending to its stimulus plan, and predicted its economy would contract as much as 1.0% this year. That would be the first contraction in 10 years. The additional stimulus measures will take place over the next two years, Bloomberg reported.

• General Motors Corp. (GM) may sell at least half of its Opel unit to private investors with German government support.  GM’s European unit will still have to save $1.2 billion (784 million euros) annually under the plan. The plan could include closing an Antwerp, Belgium, factory and selling a plant in Eisenach, Germany, Bloomberg reported citing a person who didn’t want to be identified because the talks are private.  GM is seeking U.S. and foreign aid to survive the current economic downturn.

• Bankruptcies by publicly traded U.S. companies are running at twice their 2008 pace, fueled by large companies with assets of more than $1 billion, Reuters reported. There have been 46 bankruptcy filings in 2009 by public companies with assets of $74 billion. That’s nearly seven times more than the $11 billion in assets of the 21 companies that filed for bankruptcy by this date last year. Two of the more noteworthy companies were Nortel Networks (NT), and Smurfit-Stone Container Corp (SSCCQ), according to research firm BankruptcyData.com.

• Hedge funds may slash 20,000 jobs worldwide this year, as investment losses and client withdrawals erode fees. The dismissals account for a full 14% of the industry’s jobs, and come on top of the 10,000 jobs that disappeared last year. Employment peaked at 155,000 in 2007, and has since dropped to about 145,000, according to estimates by New York-based Options Group, an executive-search firm. About 920 hedge funds, or 12%, closed last year, Bloomberg reported.

• The Securities and Exchange Commission will restore the uptick rule in about a month, U.S. Rep. Barney Frank, chairman of the House Financial Services Committee, said yesterday (Tuesday). Bringing back the uptick rule, which would only allow short sales when the last sale price is higher than the previous one, could calm volatile markets, market-watchers said. The rule also could stem a stock’s decline by preventing short sellers from piling on one after another, Reuters reported.

Source: Global Investment News Briefs Wednesday, March 11, 2009

Geithner, currently the president of the Federal Reserve Bank of New York, is viewed by Democrats and Republicans alike as probably the most qualified candidate to succeed current Treasury Secretary Henry M. “Hank” Paulson Jr., since whoever fills this post will have to be able to step right in and make whatever moves are needed to fix a financial system that seems to get worse by the week. Geithner is actually viewed as perhaps the one candidate with the qualifications, personality and personality needed for success.

But there’s a problem.  The man chosen by President-elect Obama to run the U.S. Treasury failed to pay $34,000 in taxes over several years in the first half of the decade. This oversight, which relates to a period when Geithner worked as a senior official with the International Monetary Fund (IMF), will complicate a Senate Finance Committee hearing into his nomination as U.S. treasury secretary, the online edition of the London (U.K.) Times reported. That issue – as well as a second, regarding the employment of a housekeeper without a work permit – emerged in papers released last week by the Senate Finance Committee.

Lawmakers on both sides of the aisle were saying last week that they were still hoping Geithner could be confirmed, but with each passing day there are a growing number of critics, many of whom are calling for him to withdraw. The days ahead will tell us whether Geithner will be able to assume the post so many believe he’s just right for, or whether President Obama will have to settle for a less-than-perfect replacement.

As Obama prepares to take the historic oath of office as the 44th President of the United States tomorrow, he faces the worst financial and economic crises since the Great Depression.  He intends to hit the ground running and put his personal touches on the much discussed stimulus package.

Congressional Democrats revealed plans for the new administration’s stimulus, which has grown to $825 billion and which includes $275 billion in tax cuts.  For good measure, the Senate approved the release of the next $350 billion of Troubled Asset Relief Program (TARP) money, but only after Obama pledged to place restrictions on banks that will be receiving funds.

Market Matters

A light week on the economic calendar gives way to more earnings reports as investors move beyond (depressed) financials and focus on other key corporate releases, including:

• International Business Machines (IBM) (Tuesday).
• Google Inc. (GOOG) (Thursday).
• Microsoft Corp. (MSFT) (Thursday).
• General Electric Co. (GE) (Friday).

Expectations are incredibly dire so any positive earnings surprises (no matter how low) should be well received.  The new Citigroup Inc. (C) will be worth watching as some analysts expect its downward spiral to continue and anticipate a similar fate as the bankrupt Lehman Brothers Holdings Inc. (LEHMQ).

Amid all the talk of recession and bailouts, foreclosures and bankruptcies, unemployment and deflation, bear markets and capitulation, there was actually an airline-related story that actually was the feel-good story of the week last week – and it involved perennial also-ran US Airways Group Inc. (LCC). On Thursday, in an incident that the New York governor has labeled as “Miracle on the Hudson” – and in a story that finally lifts the human spirit above the “gloom and doom” of the ongoing financial crisis – U.S. Airways Capt. Chesley “Sully” Sullenberger III made a series of split-second decisions and heroically ditched his Airbus jetliner in the Hudson River after a dual engine failure, saving the lives of all 150 passengers and crew.

Many folks didn’t even get their feet wet. The National Transportation Safety Board (NTSB) said it will be studying this case as an example of all the things to do “right” during such a crisis – in stark contrast to most of its investigations, which look at the sometimes scandalous events that went wrong. Sullenberger, a former U.S. Air Force fighter pilot is also a skilled glider pilot, and is also the airlines’ expert on safety.

So while Vikram S. Pandit (Citigroup), Kenneth D. Lewis (Bank of America Corp. (BAC)), John Thain (Merrill Lynch & Co. Inc. (MER)), G. Richard Wagoner Jr. (General Motors Corp. (GM)), and many others, shirk responsibility over corporate (and shareholder) losses, let’s not forgot that true heroes still exist and their leadership is not measured by the value of their stock options or investment portfolios, or the size of their (missed) bonuses. Thank you, Sully.

Bank of America, fresh on the heals of its first quarterly loss in 17 years, emerged as the initial beneficiary of new TARP dollars (and loan guarantees) to help absorb Merrill into its corporate umbrella (where it joined forces with another failing institution, (Countrywide Financial Corp). While BofA seemed to be embracing the “financial supermarket” concept made famous by Citigroup, the latter took the opposite approach and sold part of its Smith Barney brokerage unit to Morgan Stanley (MS) and divided its remaining operations into two entities (See related stories on both Citi and BofA in today’s issue of Money Morning.)

Citi lost more than $8 billion last quarter, despite its personal government bailout and initial TARP money.  Deutsche Bank AG (DB) warned of a $6 billion quarterly loss of its own, revealing that the financial debacle is not limited to the United States.  JP Morgan Chase & Co (JPM) recorded a slight profit last quarter, but added to its loan loss reserves as CEO James “Jamie” Dimon expressed “disappointment” over the results.

While the financials reported earnings (losses) early to avoid the painful waiting, the news from other sectors was not any better. Alcoa Inc. (AA) kicked off the earnings season by announcing worse-than-expected results, while Intel Corp. (INTC) lived up to its dire outlook by reporting a 90% drop in profits.

Though Thomson Research predicted a 14% decline in Standard & Poor’s 500 Index earnings for the quarter, that forecast may look optimistic after the initial reports.  In other corporate news, Nortel Networks Corp. (NT) filed for bankruptcy; Yahoo Inc. (YHOO) found a new CEO; Circuit City Stores Inc. (CCTYQ) moved into liquidation mode; and Apple Inc.(AAPL) will continue without Steve Jobs for the foreseeable future.

Oil plunged below $35 a barrel for a bit as the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) each reduced their projections for global demand in 2009.  Stocks resumed their downward spiral (before rebounding slightly late in the week) as the banking sector proved that TARP was no easy fix and that the earnings season could be disastrous.  A horrific retail sales report (see below) added to the economic woes as investors searched long and hard for something to believe in.  Thanks again, Sully, for the welcome relief (no matter how temporary).

Weekly Economic Calendar

Alas, a Ben Bernanke sighting.  During the week, the U.S. Federal Reserve chairman expressed his concern that a new stimulus package might not be enough to provide a “significant boost” to the economy and confirmed that policymakers will “do their part” to promote recovery.  The Fed’s Beige Book depicted a domestic economy growing weaker by the day as conditions deteriorated within virtually all sectors across virtually all regions.  Fearful of a weakening labor picture, consumers disregarded the available (deep) discounts provided by the nation’s retailers and contributed to a very dismal holiday season.  In fact, retail sales plunged by 2.7% in December, more than twice the expected decrease in activity, and suffered the first annual decline on record (since 1992).

While the trade deficit dropped to its lowest level in five years, exports also fell as our international trading partners have lost their unlimited appetites for U.S.-made goods and services.  This bad news for domestic manufacturers will surely be reflected in corporate earnings in the quarters to come.  On that note, industrial production dropped by 2% in December, a far worse showing that analysts expected.  On the housing front, 30-year mortgage rates fell below 5%, though home purchases are still rare and borrowers with less than stellar credit face difficulties in refinancing loans in this environment.

The inflation picture offered a bit of a reprieve from the negativity (though naysayers continued touting deflation or worse).  Wholesale prices plummeted for the fifth consecutive month and experienced their first annual drop since 2001.  In December, gasoline prices fell by another 25% and even food costs suffered their largest decline since early 2006.  The less volatile core producer price index (PPI) – which excludes the “volatile” food and energy components – rose slightly in December, though most economists expect that the lower energy costs will soon impact other sectors of the economy, as well.  Consumer price index (CPI) data reflected another large decline in retail prices, and the smallest increase in annual inflation since 1954.

Unfortunately, few analysts even speak of the stimulus package that Americans have received at the pumps over the past few months as gas prices have plummeted far more than 50% since mid-summer (and this one won’t cost taxpayers a penny down the road).

Source: Could Tax Problems Trip up the Confirmation of the Best Candidate for Treasury Secretary?

When it comes to Ford Motor Co. (F), a Canadian car dealer bet a month’s sales on that premise.

Rose City Ford dealership owner John Chisholm offered 100 shares of Ford stock to anyone who bought a new or used vehicle from the dealership during the month of November, the Windsor Star newspaper reported. Chisholm, the president and general manager of Rose City, said he got the idea from a General Motors Co. (GM) dealership in Texas that offered GM shares for each vehicle sold. So Chisholm opted to try it in Windsor, the Ontario, Canada city where Ford has both a long history and deep community roots.

“What a great way to show our confidence in the company,” Chisholm, who employs 80 at a dealership that his father founded nearly 30 years ago, said in an interview late last week. “We believe the company is going to be around for a long, long time.”

Chisholm was planning to actually buy the shares Monday for customers who bought a vehicle last month. He expects to extend the promotion, should its popularity continue.

“We want as many people with ownership in the company as we can,” said Chisholm, who owns Ford shares himself. “They’ll be going up. This is an incentive that is going to grow.”

Just how big a payoff the incentive deal provides the dealership’s customers will depend on whether Ford is able to turn itself around in the coming months.

Thanks to the ongoing global financial crisis – and stung by the worst sales slump in 25 years – Ford lost $3 billion in the third quarter and now the Dearborn, Mich.-based company and its two other “Big Three” cohorts are pressing both U.S. and Canadian lawmakers for emergency aid. All three are to submit turnaround plans to Congress this week – a requirement if General Motors, Ford and Chrysler Corp., are to receive $25 billion in U.S. government bailout loans.

Some details began to emerge yesterday (Tuesday), according to a report that runs elsewhere in today’s (Wednesday’s) issue of Money Morning. Among other things, Ford is considering the sale of its stake in Volvo as it seeks to raise cash.

Anthony J. “Tony” Faria, a marketing expert who is the co-director of the University of Windsor/DaimlerChrysler Canada Automotive Research and Development Center (ARDC), told the Windsor Star that the Ford promotion was “interesting” and “attention-getting,” even though the present value to customers was less than $300, a small inducement compared to other incentives and rebates.

“I presume Detroit Three dealers probably will be looking for a lot of creative things they can do to improve traffic through their dealerships,” Faria said.

Promotional flyers for what the dealership portrayed as “confidence sale” exhorted local customers to “be a part of history,” proclaiming that “100 shares is the way forward.” Public interest has already been piqued by the inexpensive promotion, which customers say they like because of the potential for a big payoff, the newspaper reported.

“The 100 shares are an absolute bonus,” customer Tina Reed said, just before she drove away from the dealership in a brand-new charcoal-gray Ford Focus. “I keep an eye on the stock market but now I’ll pay a little more attention.”

JP Morgan Chase & Co. (JPM) credit analysts had rated GM’s distressed debt as a “Buy,” noting that the company – known for such brands as Chevrolet and Buick – was likely going to survive.

Interestingly, Ford has a market cap of $6.09 billion – making the company known for bringing forth such innovations as mass production, the Model T and the assembly line more than twice as valuable as GM, the market-share leader (of the U.S. carmakers). Ford had $172.5 billion in sales last year, and $160.1 billion in 2006.

GM had $181.2 billion in sales last year and $205.6 billion in 2006, according to statistics provided by Google Finance. The company right now has a market value of only $2.8 billion.

Shares in the embattled automaker hovered near $30 in 2001, but have nose-dived since that time. GM’s shares closed Monday at $4.59 each, a decline of 65 cents each, or 12.4%. They have traded as high as $29.95 in the past 12 months.

Ford shares closed Monday at $2.55 each, down 14 cents, or 5.2% per share. They’ve traded as high as $8.79 in the past year.

Whether the price will tank or skyrocket in these uncertain times is anybody’s guess but many, including Faria, the marketing expert, believe the stock is poised for a rebound – especially if the U.S. and Canadian governments can agree on a multibillion-dollar bailout package.

I’ve seriously thought about buying a lot of Ford shares at this price because one of two things is going to happen,” Faria said. “Either Ford is going to fail and you’re going to lose all of it or, if Ford doesn’t fail, the shares, at some point, are going to be worth a lot more.”

Faria said Ford was in better shape financially than GM and Chrysler, but conceded that the fates of all three are intertwined because they share suppliers dependent on business from all three – and because of the need for government aid.

Not everyone sees a bright future for Ford. Indeed, one Web site wag wrote on the Windsor Star Web site that “I have some Penn Central, WorldCom., Enron, Nortel (NT) and Citibank (C) shares if Mr. Chisholm would like to take them in trade for a new car. They are in certificate form, so he can use them to decorate the showroom. Cheaper than buying new wallpaper.”

Source: Hot Stocks: Canadian Ford Dealer Offers Ford Shares to Buyers of Ford Vehicles

Editors Note: “Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the eighth installment of this ongoing investment series.

Maybe socialism is not all that bad. Right now, the United States government effectively owns the nation’s major banks, mortgage lenders, and insurer. Even more, they just changed long-standing securities laws and financially backed the short-term cash market.

Washington’s action is making the heroes of a free-market economy scratch their skin off, but it is hard to deny the monumentally positive impact it is having on Wall Street. All major indices are through the roof this morning.

What will happen on Monday, next week, next year, or even next decade, nobody knows. The Treasury Department and the Federal Reserve have re-written the world’s economic rules. Wall Street was forced to throw out its old textbooks. Now it must sit back and wait as we write a new one.

Today may be a great day on the Street. But absolutely nobody knows what impact all of these knee-jerk regulations will have on the global markets in the future.

Some cash for the weekend

With near-zero certainty in the markets, I am not willing to take any undue risks. Nearly all my recent equity picks are way into positive territory. You need to lock in the gains.

Mechel (NYSE:MTL) is up by nearly 25%. Vimpel Communications (NYSE:VIP) is up by nearly 35%. And Nortel (NYSE:NT) is up close to 10% since I recommended it. And do not forget my third Russian pick, Rostelecom (NYSE:ROS) that I recommended selling for gains of nearly 40% yesterday. These are sizeable gains in just a few days.

If you followed my advice and bought shares of these companies earlier this week, sell them all.

The equities market is in a great mood today. Monday could be an entirely different situation. By then, we could have new rules, new economic laws, and an entirely different sentiment on Wall Street. The potential gains are much smaller than the potential losses.

Take your money off the table and stay tuned. I will have the next round of winners online in no time.

Source: Lock in huge profits: Sell Mechel (MTL), Vimpel (VIP) and Nortel (NT)

This from Today’s Financial News:

Investors are scared. Nearly everywhere you look there are signs of economic calamity.

What is an investor to do?

First, do not panic. Those kinds of reactions are how markets topple and huge sums of wealth are lost.

The key to success right now is remembering there are two major factors that control the markets. They are fear and greed. This concept is one of the first things taught in Investing101.

Let’s Get Emotional

Greed makes prices go up and creates financial anomalies like tech bubbles and credit crunches. Without excessive amounts of greed on Wall Street, we would not be in the current crisis. But we would also never have seen the Dow reach 13,000 in May. Everything in investing is a trade-off.

The days of greed are gone, for now. Fear is overwhelmingly controlling the market, just as it should be. When former ultra-bulls like Lehman Brothers (NYSE:LEH), AIG (NYSE:AIG), and Bear Stearns are lying dead on the Street getting picked to nothing by vultures, investors have good reason to be fearful.

Use that healthy fear to make solid investment decisions. Invest in companies you are not scared to be part of.  Throw away the rest.

Start looking for undervalued companies now and start buying. The market has made a tremendous slide in the last few days. Many companies that do not deserve discounting saw huge price cuts.

One of these is Nortel (NYSE:NT). Shares of the telecommunications manufacturer made a precipitous plunge today, down nearly 45% to levels unseen since the early 1980s, nearly three decades ago.

Normally, news that revenues will be slightly lower than analysts forecasts (Nortel expects a drop of two to four percent in annual revenues) calls for a small share price pullback, maybe 10% or 15% at most.

In a fearless market like we had just a few months ago, a 45% drop was reserved for the most speculative of companies, not a $2-billion multi-national powerhouse.

When it comes to investing, a little greed is never a bad thing. Go ahead and start your value search by grabbing shares of Nortel.  It deserves a hit to its share price, but not one of this magnitude. You should not plan on owning shares for more than a week or so.

The malfunction of some of the world’s largest financial institutions is scary stuff.  It is no wonder many investors are running in fear. Fortunately, if you know where to look and how to control your emotions, there is big money to be made.

PS: In yesterday’s Hidden Value newsletter, Andrew recommended three Russian stocks oversold in the recent market crash. One of those – Rostelecom (NYSE:ROS) – has already made over 35% gains. Andrew says its a good time to book these profits, but recommends readers continue to hold his other Russian picks: Mechel OAO (NYSE:MTL) and Vimpel Communications (NYSE:VIP).

Source: Market crash: Time to Buy Nortel (NT)?

Buy, Sell or Hold: Cisco Systems Inc.

By Horacio Marquez

During the Internet boom in the latter part of the 1990s, Cisco Systems Inc. (CSCO) was the king of the “must-have” stocks, with shares of the maker of telecommunications-networking gear soaring 400% from June 1998 to March 2000.

At Friday’s close of $23.61, Cisco’s shares are down 69% from their all-time high of $77.31 and 31% from their 52-week high of $34.24, as most investors realize this will never be the great growth stock that it was a decade ago.

But that doesn’t mean investors should write off Cisco. Quite the opposite, in fact.

When it comes to Internet-infrastructure gear, Cisco remains the proverbial “800-pound gorilla,” the market leader and dominant-industry player.

Cisco recently reported strong earnings, meeting market expectations. Company Chief Executive Officer John Chambers – who is well known for “telling it like it is” – issued some rather cautious comments in conjunction with an upcoming performance guidance that was otherwise fairly strong.

Since then, Chambers has become much more confident in Cisco’s ability to achieve his long-term annual profit growth target of 12% to 17%. As the U.S. economy reaccelerates, technology-related spending by U.S. corporations – which accounts for about half of the capital outlays in this country – should be very robust for three key reasons:

First and foremost is that Cisco’s business, which enables computer-network and telecommunications-system connectivity, is a major way companies can improve productivity.

And right now — despite the ongoing slowdown — US companies are awash with cash, which is typically deployed in the year’s second half.
Finally, the United States actually lags other countries in terms of broadband-network deployment, and needs to close the gap in order to enhance its competitive position in the world markets.

Not that Cisco is a one-trick pony in terms of focusing only on the US market. Indeed, Cisco is a global player and is enjoying very strong growth throughout the world’s emerging markets and in Asia, which includes recent major deals in China and in the left-for dead Japan. The company is even active in Europe, despite that region’s recent slowdown. Broadband is the name of the game and, as one analyst said, Cisco is the “Internet infrastructure king.”

From a financial standpoint, Cisco is virtually bulletproof. It has a $140 billion market cap and no debt. The company last year earned $7.33 billion on sales of $34.9 billion, dwarfing such rivals as Juniper Networks Inc. (JNPR), Nortel Networks Corp. (NT) and France’s Alcatel-Lucent (ADR: ALU).

This year, revenue will advance 13% and profits 10%. After that, investors expect profits to grow at a 15% annual clip — an alluringly brisk rate for a company as large as Cisco.

Investors don’t get many chances to invest in a terrific company at bargain prices. Earlier this month, while the NXTcomm 2008 global-telecom conference was under way in Las Vegas, Cisco’s shares dropped 6.5% – for no clear reason. Some analysts worry that telecom providers – the telephone and cable companies that, up to now, were the key growth drivers at Cisco and its sector compatriots – would go the way of the enterprise sector and cut back on their equipment outlays.

But those fears are overblown. Besides, rival Juniper Networks hasn’t taken market share from Cisco.

Action to Take: BUY. Cisco has once again protected its crown:

[Editor’s Note: Horacio Marquez was working as a vice president of the Merrill Lynch Emerging Markets Fixed Income Group in 1994 when he correctly predicted that both Argentina and Mexico were headed for currency crises - cementing his reputation as one of currency crises for both Argentina and Mexico. Now Marquez brings that expertise to you with the newly created “Shadow Stock Trader” specialized trading service. To find out how to subscribe, please click here.]

Source: Buy, Sell or Hold: Cisco Systems Inc.