Video rental king Netflix Inc. (Nasdaq: NFLX) years ago usurped Blockbuster Inc. (NYSE: BBI)’s throne as the No. 1 video rental outlet, but now it’s focused on cementing its status as the market leader as other video rental companies struggle to play catch-up.

Blockbuster, still king of brick-and-mortar rental stores, learned first hand the threat an innovative upstart can pose when it ran up against Netflix’s DVD-by-mail business model.

With movie theater tickets costing upwards of $10 (and that’s not including the popcorn or sodas), Netflix’s $8.99 1-DVD plan with unlimited exchanges and streaming video access represents a decidedly better deal for consumers that are tightening their spending amid rising unemployment and waning confidence.

Netflix celebrated its 10 millionth subscriber in February, noting that it added more than 600,000 net subscribers since the beginning of the year. In its second quarter ended June 30, Netflix said it had a total of 10.6 million subscribers, with paid subscribers representing 98% of the membership. The company expects its total membership to rise to between 11.6 million to 12 million by the end of the year, upping its previous quarter’s guidance of 11.2 million and 11.8 million.

Churn, a measurement of customer cancellations, rose to 4.5% in the second quarter from 4.2% a year ago, Netflix said.

“It could be the economy,” Netflix Chief Executive Officer Reed Hastings said of increasing churn in an interview with The Motley Fool. “It could also be that we make it very easy for subscribers to put their accounts on hold if they go on vacation or don’t have enough money for a month or two. When a subscriber goes on hold, we count that as a cancellation. What you can look at – as a good stable indicator – are net additions. And net additions continue to grow.”

Netflix’s top and bottom lines continue to grow as well. Revenue grew to $408.5 million in the second quarter, up from $337.6 million in the same period a year ago. Profit grew to $32.4 million in the second quarter, up from last year’s $26.5 million.

As subscribers, sales and profit rise, so too does Netflix’s stock. Shares of Netflix have jumped more than 45% since the start of the year, and managed to sidestep the doldrums experienced by the markets in March.

Still, it’s no time for Netflix to rest on its laurels, lest it suffer the same fate as Blockbuster. That’s why CEO Hastings is quietly preparing for the death of DVDs themselves. Ultimately, consumers will one day dump the plastic discs in favor of movies delivered straight over the Internet, Hastings told The Wall Street Journal.

So Hastings, who is a self-proclaimed student of companies that stumble by failing to adapt to technology shifts, is quickly trying to shift Netflix’s business so that more videos are available online.

While Hastings is having success in getting Netflix instant video onto devices, the biggest challenge facing his company is convincing Hollywood executives to license their content. While 12,000 choices may seem like a lot, many are older AAA movies or TV shows, or newer movies that weren’t commercially successful. New releases of hit movies usually take months or even years to appear in Netflix’s streaming video catalog.

That’s because Netflix is competing with pay cable channels such as Time Warner Inc.’s (NYSE: TWX) HBO and Viacom Inc.’s (NYSE: VIA) Showtime, which gain exclusive rights to show movies and generally have larger audiences. To get the movies and TV shows consumers want, Netflix will have to boost its licensing spending from the roughly $100 million it spent last year, an anonymous source told The Journal.

“Netflix has yet to show that it has the resources and profitability to be in the markets where licensing is the business policy,” said Warren Lieberfarb, former head of Time Warner’s Warner Bros. home video division.

The company has had some success in the licensing department earlier this year when it inked a deal with Liberty Media Corp. (Nasdaq: LMDIA) to show movies from its Starz pay cable channel.

Netflix’s library of 100,000-plus DVD titles is made possible by the “first-sale doctrine” of U.S. copyright law, which allows buyers of DVDs to lend them out without the consent of studios.

Too Little, Too Late?

It’s difficult to say when Blockbuster’s fall from grace began, but it was somewhere between its well-publicized late fee fiasco and the proliferation of Netflix.

Blockbuster’s operating income at the end of its second quarter in 2004 was $105.3 million. That was just before Netflix entered mainstream consumer consciousness. Blockbuster’s operating income at the end of its second quarter this year was a loss of $1.5 million.

In spite-of an 8.3% industry-wide increase in rental revenue, Blockbuster’s revenue fell 13.3%.

The company blamed the drop partly on reduced inventory as it tries to generate more cash to handle its debt load, the Los Angeles Timesreported.  Although Chief Executive Officer Jim Keyes told analysts in a conference call a renegotiation of a revolving line of credit meant stores would be fully stocked and more aggressively marketed, he admitted last week that didn’t happen.

“Temporarily during the first and second quarter, we put our plans for increased availability on hold,” Keyes said on the call. “We made this change with the recognition that we were also facing new and very aggressive competition who are better capitalized and would likely take share from us as we pulled back.”

Still, Blockbuster is doing everything it can to stay afloat, from closing stores to kiosk deployment.

“We’re deploying as many as 10,000 vending machines by the middle of next year,” Keyes told Bloomberg News in a telephone interview, adding that his company is focused on increasing cash flow rather than boosting sales in a “very challenging credit market.”

Blockbuster’s $250 million revolving line of credit is due on Sept. 30, 2010, and the company has more than $350 million of long-term debt outstanding that it must pay by the end of next year, according to a research note written by Wedbush Morgan Securities Inc. analyst Michael Pachter. Blockbuster had $99 million in cash and equivalents as of July 5, down 36% from $154.9 million on January 4, Pachter said.

“[Blockbuster needs] the credit markets to loosen up and they need to refinance,” Pachter told Bloomberg. “They’re not on track to repay this debt in the time frame they need to, so they’ve got to extend the terms.”

Pachter downgraded his rating on Blockbuster stock from “outperform” to “hold” last week. Blockbuster shares have tumbled more than 44% since the start of the year.

The Little Red Box That Could

Blockbuster was effectively rendered obsolete by Netflix’s quick response to changing technology. But Coinstar Inc.’s (Nasdaq: CSTR) Redbox Automated Retail LLC, which offers consumers new release DVDs for $1 per night, is hoping to avoid a similar fate.

Kiosk vendor Redbox, initially funded by McDonald’s Corp. (NYSE: MCD) and Coinstar in 2002, saw Coinstar acquire its remaining shares in February. The company’s $1-a-night DVD rentals are found in places like McDonalds restaurants, grocery stores, and numerous locations owned by retail giant Wal-Mart Stores Inc. (NYSE: WMT) that that serve at least 15,000 customers a week.

Redbox plans on having 21,000 to 22,000 kiosks throughout the United States by January, up from 13,700 a year earlier. The company’s sales, which were $188.9 million in the second quarter, account for 57% of Coinstar’s overall sales, up from 41% in the same quarter last year. Coinstar’s stock has risen more than 62% since the beginning of the year.

At a time when consumers are strapped, Redbox is perfectly positioned for those looking to save money. But now Hollywood is looking to stunt Redbox’s growth.

Tinseltown accuses Redbox of depressing DVD prices and depriving studios of the same revenue-sharing opportunities they now enjoy with traditional DVD rental houses such as Blockbuster, Reuters reported.

Three studios – News Corp.’s (Nasdaq: NWS) 20th Century Fox Home Entertainment, Warner Bros. and General Electric Co.’s (NYSE: GE) NBC Universal – are vowing to withhold their DVD distribution to kiosks like Redbox until 28 days after they are released.

To counter, Redbox has filed a lawsuit against at least one of the studios, 20th Century Fox.

“At the expense of consumers, 20th Century Fox is attempting to prohibit timely consumer access to its new release DVDs at Redbox retail locations nationwide,” said President Mitch Lowe. “Despite this attempt, Redbox will continue to provide our consumers access to all major new releases including 20th Century Fox titles at our more than 15,000Redbox DVD rental locations.”

Speaking to the LA Times, Lowe said Redbox isn’t a threat to Hollywood, but instead an additional source of income. However, Papi Capital analyst Richard Greenfield disagrees, writing that Redbox’s pricing is a “substantial risk” to the movie industry.

“It sets an ultra-low price point for movie content that will impact consumers’ decision-making process about all forms of movie-related commerce – theater-going, DVD purchase, video-on-demand,” Greenfield wrote.

Of course, distribution withholding and lawsuits aside, if Netflix’s Hastings is right and DVDs do walk the path of oblivion like CDs are now, Redbox will need to adapt and find a way to enter the already-crowded Internet video market.

Source: Hot Stocks: Netflix Finds Success in Innovation, While Other Video Rental Companies Fight For Survival ]]> http://www.contrarianprofits.com/articles/hot-stocks-netflix-finds-success-in-innovation-while-other-video-rental-companies-fight-for-survival/19974/feed 1 http://www.contrarianprofits.com/articles/investment-news-briefs-tuesday-august-18-2009/19970 http://www.contrarianprofits.com/articles/investment-news-briefs-tuesday-august-18-2009/19970#comments Tue, 18 Aug 2009 15:00:04 +0000 Money Morning Staff http://www.contrarianprofits.com/?p=19970 Japan’s Economy Grows; Home Builder Confidence Up; New York Manufacturing Rises; Credit Card Defaults Stabilize in July; MSNBC Buys “Hyperlocal” News Aggregator; Reader’s Digest Files for Bankruptcy; Lowe’s Profit Falls 19%

• Japan’s economy is once again growing, with its gross domestic product (GDP) rising 3.7% in the second quarter. A rebound in exports to China and a large stimulus program helped Japan bounce back from contraction that, at an annualized rate of 11.7%, was more than double that of the United States’ in the first quarter. Officials at Japanese companies think the nation’s worst recession since World War II is nearly over, according to a survey released last weekend.

• The National Association of Home Builders/Wells Fargo confidence index rose to 18 this month, a…

If you need a place to live and want to own a house, why not? Prices in some areas are fairly reasonable. But if you’re speculating, our guess is that you’ll get a better deal if you wait.

Why? For the many reasons we have given you in these Daily Reckonings. House prices may be firming in some areas – that’s what the Case-Shiller numbers seem to show. But nationwide, they are probably headed down for quite a while longer.

Herewith, four reasons why:

First, as you know, this is a depression. It will probably be long. And deep. You wouldn’t know it from looking at the stock market or reading the news. The Dow went up another 114 points yesterday. Oil rose to $71. And the dollar – anticipating inflation – fell to $1.44 per euro.

But that’s what bounces are supposed to look like. They look good enough so that people mistake them for the real thing… and get suckered into more losses.

Depressions drag down asset prices. Typically, prices become much more reasonable. And then they reach UNREASONABLE levels. House prices have become reasonable. Now they will become unreasonably cheap…

Second, waves of resets and foreclosures are still washing over the housing market. As Barry Ritholz told us in Vancouver, we’re only half way through the foreclosure process. There are more than 18 million empty houses in America. A news report yesterday told of a 32-storey apartment building in Florida with only one lonely tenant.

And still coming up are more refinancings… more drowning homeowners … and more people giving up on homeownership altogether. The bubble era created new households at the rate of 1.2 million per year. Practically every one of them wanted to get in on the housing boom. Now, there are only 500,000 new households per year. And few of them still believe that housing is the route to wealth. At the current rate, it will take many years to fill up all America’s empty houses.

Third, incomes are falling. Property crashed because people with average incomes could no longer afford to buy the average house. Now, they can afford even less. Ken Rogoff estimates that the consumer needs 6-8 years to pay his debts down to a more reasonable level. Part of that deleveraging process will mean getting rid of heavy mortgage debt – one way or another.

Fourth, there are too many houses that are too big… and in the wrong places.. Big houses were a status symbol in the bubble years. Now they’re a symbol of extravagance and error. Plus, they’re expensive to own. People will want to dump them – even if they can afford them. There was far too much building in the outlying suburbs of the sand states too – Arizona, Nevada, California and Florida. Those houses may have to be abandoned as people are forced to move closer to where the work is.

There are also a couple of more technical reasons why the Case-Shiller numbers may be erring on the bright side: seasonal adjustments and a changing mix of houses sold. But our guess is that real house prices – adjusted for inflation – will continue going down for many more years.

You want to see deflation? Go to Tokyo City in London. The restaurant chain says it is going to give its food away for free. Customers will pay for drinks plus 2 pounds 50 pence for service.

Meanwhile, in Tokyo itself prices are falling – again. The Japanese have had on-again, off-again deflation for the last 20 years… ever since their stock market crashed in 1989.

Hey, what’s the matter with those Japanese? Don’t they know about stimulus?

Hold on there, pilgrim. What the Japanese don’t know about stimulus ain’t worth knowing. They’ve stimulated their economy so much that their government debt now measures 200% of GDP. And what did they get for all that stimulus? Did it get their economy moving?

Are you kidding? Now, the latest news tells us that they also have the highest jobless rate in 6 years. And the latest figures show the inflation rate NEGATIVE. In fact, never has the inflation rate been lower.

*** Nissan announced an electric car. Shares soared.

*** Jobless benefits are running out for 1.5 million unemployed Americans, says a New York Times report.

*** And here a commentary by David Pauly on what Wall Street is doing about low earnings – lying!

“Stock analysts continue to promote corporate earnings lies, insisting that net income isn’t really what investors need to know… .

“In analyst speak, Intel Corp. (NASDAQ:INTC) wasn’t hit with a $1.45 billion fine from the European Union in the second quarter for anticompetitive practices.

“After setting aside funds to cover the fine, which Intel is appealing, the semiconductor-maker had a quarterly loss of $398 million, or 7 cents a share. Disregarding the fine altogether, analysts maintain the company earned 18 cents a share, beating their average estimate of 8 cents.

“As Wall Street tells it, the employee stock options Google Inc. granted in the second quarter didn’t cost its shareholders $293 million.
“Google (NASDAQ:GOOG), according to generally accepted accounting principles, earned $1.48 billion, or $4.66 a share, in the period. Not enough for Wall Street, which prefers to say the company earned $5.36 a share, leaving out the cost of stock options.

“Viacom Inc. (NYSE:VIA.B), an entertainment company, this week reported second-quarter net income of $277 million, or 46 cents a share. Analysts had estimated profit as if money Viacom paid out in severance in the period wasn’t the real thing. On that basis, Viacom earned 49 cents a share, beating the average estimate by 1 cent.

“Time Warner Inc. (NYSE:TWX), a rival of Viacom for entertainment dollars, said it earned $519 million, or 43 cents a share, in the quarter. Analysts insist Time Warner earned 45 cents, excluding, according to Bloomberg data, costs related to litigation and asset sales. Lawyers must work for nothing.

“By similar Wall Street reckoning, the expense of cutting jobs and selling an asset that reduced McGraw-Hill Cos. (NYSE:MHP) second quarter earnings per share by 10 percent was immaterial.

“Analysts also say investors should ignore $129 million that Textron Inc. (NYSE:TXT), maker of small airplanes, helicopters and golf carts, charged against net income in the latest quarter. Included was the cost of shutting a plant for an eight-seat jet Textron decided not to build.

“General Electric Co. (NYSE:GE), which makes jet engines and electric power equipment and has a financial services arm, had a second- quarter profit of 24 cents a share. GE and the analysts emphasized earnings from continuing operations, which at 26 cents a share, exceeded their estimate by 2 cents. A $194 million loss from discarded businesses was discarded.”

And so on… and so on…

*** “As You Like It” was as we liked it – lively, bawdy, and raucous. It is not Shakespeare’s finest play – or so the critics say. But it has some marvelous dialogue. “All the world is a stage… ” is the most memorable.

Our hostess had set up a stage on the lawn and put out a hundred or so chairs for guests. But by the time we sat down it had begun to rain. The chairs were wet. A Frenchman gallantly wiped off Elizabeth’s chair. Your editor sat down in a puddle… and the play began…

The rain continued throughout the performance. Some spectators – perhaps those who listened to the weather forecast – came equipped with parkas and anoraks. We had an umbrella, which we held over our heads throughout the performance.

Despite the drippy conditions in the bleachers, a good time was had by all. The English actors who performed the play were real pros. They enlivened the set with music and acrobatics, moving the story forward 4 centuries to the days of Peace & Love and strawberry fields forever. We never quite got the connection… but it seemed to work, somehow.

After the play was over, we retired to a stone barn for soup and dessert. There, we met neighbors whom we only see once a year – in August. Among them was a dear Daily Reckoning reader.

“I’m glad I bought gold when I did,” he said. “It was $600 or so at the time. So I made a gain on the gold. But the important thing was that I wasn’t caught in that sell-off in stocks last year.

“What do you think gold is going to do now?”

“Probably, it will go down,” we replied.

“So, you’re selling your gold?”

“No… we’re holding on… It’s too risky to sell it.”

*** “Of course, that’s the big question,” Elizabeth began on the drive home.

“What’s the big question?”

“About whether the world is just a stage. It’s really a question of free will. About whether we do things because we think them through ourselves, or whether we just play our roles.

“I suppose it’s related to the ‘Great Man’ theory of history… the idea that people actually determine history, rather than play their parts in it… ”

“It’s probably like all the great questions… that is, both true and untrue at the same time. I mean, Louis 14th couldn’t have been Louis 14th if there hadn’t been a Louis 13th… and if France hadn’t been the leading country of Europe… and if it hadn’t been the peak of the monarchic age.

“And Rommel couldn’t have led a Blitzkrieg in WWII if the tank hadn’t been invented in WWI… .

“In both cases, it appears that Shakespeare was right… that the roles were already there, just waiting for someone to play them… ”

“Yes, but I wonder if that is true… or as completely true as it looks. The fellow who took over from Lenin didn’t have to be a monster, did he?”

“I don’t know. If he hadn’t been so ruthless some other guy probably would have purged him out… sent him to the gulag. Once a revolution gets started, the most violent and ruthless groups seem to take over. So, I guess you could say that even there… the role must be played… ”

“Does that apply to our personal lives, too? Are we just playing roles? You are pretending to be my husband. I am pretending to be your wife. We are pretending to love each other. Is that all there is to it?”

“No… no… that’s very different… ”

“How so?”

“I don’t know… but when I say I love you, it comes out of my soul like smoke from a sacred volcano… ”

“What does that mean?”

“I don’t know… I just like the sound of it… ”

Source: More Empty Houses in America

• The special inspector general for the Treasury’s Troubled Asset Relief Program (TARP) said U.S. taxpayers could be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, Bloomberg News reported.  In testimony prepared for a hearing before the House Committee on Oversight and Government Reform, Neil Barofsky said the Treasury’s $700 billion bank-investment program represents only a fraction of all federal bailouts to resuscitate the U.S. financial system. “TARP has evolved into a program of unprecedented scope, scale and complexity,” he said. Costs include $6.8 trillion in Federal Reserve guarantees, $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae (NYSE:FNM), Freddie Mac (NYSE: FRE), and other federal programs, he said.

• A survey of economists released yesterday (Monday) said the U.S. recession’s hold on the economy appears to be easing but likely has not yet ended, Reuters reported. The National Association for Business Economics’ (NABE) quarterly industry survey found that demand is stabilizing, but a small majority of the 102 respondents said their firms had not yet seen the bottom. The survey “provides new evidence that the U.S. recession is abating, but few signs of an immediate recovery,” said Sara Johnson, managing director of global macroeconomics for IHS Global Insight, who helped analyze the report for the NABE.  “Industry demand was still declining in the second quarter of 2009, but the breadth of decline had narrowed considerably since late 2008, raising prospects for stabilization in the second half” of the year, she said.

• General Motors Corp. (NYSE: MTLQQ) garnered three final offers for its Opel unit in Europe, with Germany’s preferred bidder,Magna International Inc. (NYSE: MGA), planning to take a bigger stake from its Russian partner, Bloomberg News reported. RHJ International SA (EBR: RHJI) and Beijing Automotive Industry Holding Co. also submitted offers. Magna, the largest Canadian car-parts manufacturer, would buy 27.5% of Opel compared with 20% in an earlier proposal, said a GM spokesman.  Germany selected Magna as preferred bidder on May 30. Detroit-based GM, seeking to salvage its European operations afteremerging from bankruptcy, set today as the deadline for taking final offers for Opel, which includes the Vauxhall brand in the U.K.  “The final bids will now be analyzed and compared by GM,” GM Europe said in a statement.

• Mortgages on commercial property held by U.S. banks have been failing at the fastest rate in nearly 20 years, the Wall Street Journal said.  Losses on loans used to finance commercial spaces would possibly reach about $30 billion by the end of 2009 at the current rate.  The $30 billion estimate is based on financial reports filed by more than 8,000 banks for the first quarter, The Journalsaid. The commercial real-estate market, valued at about $6.7 trillion, represents 13% of the United States’ gross domestic product.

• Shares of Human Genome Sciences Inc. (Nasdaq: HGSI) skyrocketed 276.81% after the Rockville, Md.-based company’s Benlysta drug reduced symptoms in patients inflicted with lupus, a disease that is notoriously difficult to treat. The company tested 865 patients in a one-year study with the drug, which is co-produced with GlaxoSmithKline PLC. Leerink Swann LLC analyst Joseph Schwartz expects the drug to launch next year andgenerate $1.2 billion in sales for HGSI in 2013 and $2.4 billion in 2015, according to a report by Dow Jones Newswires. HGSI closed at $12.51 yesterday (Monday), up $9.19.

• A potential tax liability as well as growing tensions betweenVolkswagen AG (OTC ADR: VLKAY) and Porsche Automobil Holding put a speed bump in the way of a potential Volkswagen acquisition of Porsche’s sportscar division, The Wall Street Journal reported, citing people familiar with the matter. Both companies unsuccessfully attempted last weekend to find a way around a tax payment that could be triggered by the sale Porsche’s division. Volkswagen contested the significance of the issue, with a spokesperson telling The Journal “a transparent maneuver to torpedo a sensible business idea.” Porsche is also in negotiations with Qatar to give the emirate a substantial stake in the German automaker.

• The Conference Board’s Leading Economic Index (LEI) rose slightly in June, up 0.7% following a 1.3% gain in May and a 1% rise the month before. “The recession has been losing steam since the spring, although very large job losses continue. Nevertheless, confidence is slowly rebuilding. Financial markets are less volatile. Even the housing market is stabilizing. If these trends continue, expect a slow recovery this autumn,” said Conference Board economist Ken Goldstein.  The LEI has improved 4.1% in the past six months.

• New AOL LLC Chief Executive Officer Tim Armstrong revealed his plans to overhaul the troubled Time Warner Inc. (NYSE: TWX) division’s advertising and develop more localized websites in an effort to resuscitate falling revenues. The former Google Inc.(Nasdaq: GOOG) executive says sites with city guides can help fill a void of community information on the Internet, which in turn will bring in visitors and advertisers. “AOL still has a really large opportunity in front of it,” Armstrong said in a July 16 interview with Bloomberg News. “It comes with a very difficult path, but if we can navigate the path and navigate what needs to be done here and do it transparently, quickly and deliberately, I think AOL can be a successful company, and that’s why I came.” Time Warner will spin off AOL later this year.

Source: Investment News Briefs Tuesday, July 21, 2009

That quickly turned to mania, as the media went nuts over it and fans clamored to pay their respects by buying tons of Michael Jackson merchandise. And MJ fever shows no signs of being ready to “Beat It.”

As demand for all things Michael has spiked, there’s are no doubt that many suppliers are willing to meet it. From vendors outside the Staples Center selling cheesy souvenirs, to multi-billlion dollar corporations, there are several beneficiaries of massive spending on Jackson’s music and memorabilia.

While I’m not suggesting you should unscrupulously profit from his demise, it’s a fact that some companies are enjoying a boom in Michael Jackson-related business. Here are four of them…

Four Companies At The Center Of The Michael Jackson Story

• eBay (Nasdaq: EBAY): As soon as tickets to the memorial were released, they predictably went on sale on eBay for thousands of dollars.

A search for “Michael Jackson” on eBay yielded 47,611 results, including an autographed photo for $3,200, a sealed version of “Thriller” for $1,200 and even this $1 million bill with Jackson’s face on it. And people say the Federal Reserve has recklessly printed money!

• Amazon.com (Nasdaq: AMZN) – If it’s for sale, chances are Amazon sells it. You can download the mp3 of “Thriller” for $1.29, purchase a “Michael Jackson Superstar of the 80s” outfit doll for about $1,000, or the Michael Jackson $1 million novelty notes above for $0.99 each (or 100 for $30). At that price, you can’t afford to be without your fake Michael Jackson currency.

• Sony (NYSE: SNE): Michael Jackson’s record label was Epic Records, part of Sony Entertainment. He’s sold half a million albums since his death, compared with 10,000 the week before he died. You can be sure Sony will try to capitalize on his newfound popularity with some greatest hits albums in the near future.

• Time Warner (NYSE: TWX): With the vast amount of media coverage that the story is attracting, detailing every morsel of Jackson’s life and death, one outlet is emerging from the hungry pack.

Already a well-established site for entertainment news, celebrity gossip and video, the death of the greatest entertainer since Elvis has launched TMZ.com into the stratosphere. Mainstream outlets like CNN and Fox credited TMZ with breaking the story of Jackson’s death.

TMZ is a joint venture between two TWX divisions, AOL and Telepictures Productions. Anyone looking for this type of news now has to consider TMZ the go-to website. And over the past three months, page views have jumped more than 26%, in large part due to the spike in Michael Jackson traffic just in the past few weeks.

In short, while it might be difficult to play this news directly, companies with exposure to Michael Jackson’s popularity could see a bump in revenue.

Hoping your longs go up and your shorts go down.

Marc Lichtenfeld

Source: How the Michael Jackson Story Impacts Investors

GM has lost an aggregate $82 billion in the past four years even as it slashed production capacity, nameplate brands – and more than 100,000 U.S. jobs. It needs to cut another 19,000 workers by 2012 to bring its domestic employment down to 72,500 jobs.

GM on Saturday passed a major milestone ahead of a bankruptcy filing planned for today (Monday) as the deadline passed for bondholders to accept an exchange offer brokered by the Obama administration.

As of late Saturday night, GM would not comment on how many investors had tossed in their support for the debt-for-equity swap that would have them surrender $27 billion in corporate bond debt in return for as much as 25% of a restructured GM. However, the company did say this enhanced deal already had the support of investors who held 35% of GM’s bonds. The deadline passed at 5 p.m. Saturday.

Fund managers and analysts told Reuters that that it was possible that this enhanced  bond offer could have attracted a majority of the GM bond investors by the deadline. Under the new offer, bondholders would have a recovery of around 9 cents on the dollar, up from an estimate of zero to 5 cents under the previous offer. GM bondholders last week rejected a proposal that would have given them a 10% stake in a reorganized GM.

“The warrants and the improved capital structure make for an improved recovery for bondholders,” Brian Johnson, an analyst for Barclays Capital PLC (NYSE ADR: BCS), told the news service. “In terms of the bankruptcy process, we expect the likely bondholder assent to smooth the process.”

The United Auto Workers union (UAW) on Friday cleared the way to the bankruptcy filing when it overwhelmingly approved a new labor pact that lets GM slash costs.

GM has struggled in recent years to compete, hurt by its truck and SUV-dominated vehicle line-up and a deep plunge in U.S. vehicle demand.

Market Matters

In the holiday-shortened work week, investors searched for  the tonic needed to escape the “excessive” volatility that still exists in the markets.  How did that cure-all work out?  In three consecutive sessions, the Dow Jones Industrial Average jumped 193, plummeted 173, and finally rebounded 104 points.  Meanwhile, the yield on the 10-year U.S. Treasury, the perceived safe-haven for risk-averse investors, soared by 30 basis points during the week and its declining value prompted many to rethink their “flight-to-quality” strategies.  After the recent talks that Standard & Poor’s Inc. may cut its rating on UK debt, investors began speculating that the mass domestic borrowings (to rescue virtually every industry and near-bankrupt company) will take its toll on US debt ratings as well.  While Moody’s Investors Service Inc. (NYSE: MCO) offered a bit of confidence by proclaiming the Aaa rating remains “stable,” it did leave the door open for a future downgrade. Fortunately, the week’s treasury auctions were generally well-received, though investors remain cautious that demand may subside in the future as the deficit balloons.  Stocks followed bonds for a change as traders unloaded equities on weakness in fixed income, only to buy again after the favorable auctions (among other news).  And the volatility continued.

With its bankruptcy filing, GM is merely taking a step to following in Chrysler LLC’s footsteps. Chrysler hopes to move beyond its own bankruptcy as a judge considers its restructuring via the Fiat SpA (ADR OTC: FIATY) deal.

A Federal Deposit Insurance Corp. (FDIC) report showed that banks earned $7.6 billion in profits in the first quarter, rebounding from the first quarterly loss for the industry in 18 years.  Before executives could award themselves (excessive) bonuses, the report added that the number of institutions considered “problem” climbed from 252 to 302 and said that delinquencies rose across most loan types.

In other corporate news, Microsoft Corp. (Nasdaq: MSFT) is set to launch “Bing,” its upgraded search engine on June 3 and Yahoo! Inc. (Nasdaq: YHOO) remains open to a partnership (after last year’s failed buyout) if offered a “boatload of money.”  Costco Corp.’s (Nasdaq: COST) earnings fell by more than analysts expected; Dell Inc. (Nasdaq: DELL) continued to struggle from a decrease in IT spending; Time Warner Inc. (NYSE: TWX) plans to spin-off AOL by year-end.  The Organization of the Petroleum Exporting Countries (OPEC) met and held production levels steady, though crude prices surged above $66 a barrel for the first time in six months and prices now stand almost twice as high as its mid-February level.

Economically Speaking

A recent survey by the National Association for Business Economics showed that 93% of the respondents believe the recession will end in 2009, with almost 75% of them seeing a third-quarter recovery. Still, most feel the rebound will be slow to develop as unemployment continues to climb (the survey says it will average 9.1% this year).   The results also predict gross domestic product (GDP) to contract by 1.8% in the second quarter, before turning positive (though ever-so-slightly) over the latter six months of the year.  By comparison, the first quarter GDP revision was reported as down 5.7%, a modest rebound from the 6.1% initially released, though weaker than many prior forecasts and still reflective of some pretty dire domestic economic conditions.

Since the consumer accounts for two-thirds of the activity within the economy, analysts point to some favorable sentiment data as further proof that the recession is nearing an end.  In May, the Conference Board said that consumer confidence experienced its best showing in eight months, while the Reuters/U of Michigan Index also posted stronger results.  Renewed activities should be welcome news to retailers and manufacturers alike, some of whom will be counted on to resume hiring over the next few months as they reap some rewards to their bottom lines.

April housing data also highlighted the week’s economic releases as both new home (+0.3%) and existing home sales (+2.9%) posted gains.

However, the inventory of unsold properties continued to climb and the median sales prices fell from already weak levels.  Delinquencies remain on the rise as 12% of all homeowners have fallen behind on their mortgages and foreclosures rates on even the prime borrowers (with decent credit) have surged in recent times.  Even though housing still has a way to go before the “worst of times” officially will be considered over, some early signs of a rebound in activity may be emerging.

Weekly Economic Calendar

Source: Bankrutpcy Will Let General Motors Move Forward

The site of the coming-out party for the new Web search engine apparently will be a high-tech conference called “D: All Things Digital,” which is sponsored by The Wall Street Journal. The conference, slated for The Four Seasons Aviara in North San Diego, Calif., begins Tuesday and ends Thursday, and features as speakers some of the top executives in the media, entertainment and high-tech fields. Interestingly enough, Microsoft Chief Executive Officer Steven A. Ballmer is one of the scheduled speakers.

According to a Journal report, the new Microsoft search engine – code-named “Kumo” -has been in private tests inside the company for months. Kumo is aimed at consumers and is supposedly designed to achieve two goals:

• Decrease the amount of time they spend clicking their way across the Web in search of information. The technology is designed to cut down on the length of typical Web searches by grouping the results of a search for, say, a particular model of car into helpful categories like parts, used car listings, online discussion forums and videos showing the vehicle.
• Offer better ways of organizing search results. For instance, the search results for a special-interest car might be grouped into more-helpful categories such as sales listings of that type of car, parts distributors, car clubs and online discussion forums, and even videos of that model car, published reports state.

Microsoft is planning a major promotional push and advertising campaign to boost the search-engine’s visibility and has hired the agency JWT (formerly known as J. Walter Thompson), a unit of London-based WPP PLC (Nasdaq ADR: WPPGY), to develop a campaign for the product, people familiar with the matter say.

Microsoft has a tough road to travel in order to overcome Google’s massive market-share lead in the Internet-search arena. On Monday, research firm comScore Inc. (Nasdaq: SCOR) reported that Google’s share of the U.S. Internet search market during April was 64.2%, an increase of 0.5% from March.

In fact, Google was the only major search engine to post a market-share gain for April. Microsoft and Yahoo! Inc. (Nasdaq: YHOO) both saw market-share declines of 0.1% for the month. That left Yahoo with 20.4% of the market and Microsoft with 8.2%, according to a report by ITProPortal.com.

Ask.com – part of IAC/Interactive Corp. (Nasdaq: IACI) – saw its market share hold steady at 3.8%, while AOL LLC experienced a 0.3% decline to finish April with a U.S. market share of 3.4%, comScore and ITProPortal both said. AOL is a subsidiary of media heavyweight Time Warner Inc. (NYSE: TWX).

A look at actual search queries underscores the huge lead enjoyed by Google. There were 14.8 billion search queries in April, a 3% increase from March. Google accounted for 9.5 billion of the searches, followed by Yahoo (3 billion) and Microsoft (1.2 billion).

This huge chasm between the leaders and the laggards is a key reason Microsoft and Yahoo are still pursuing a possible partnership, even though Microsoft’s proposed $45-plus billion acquisition of Yahoo went sour due to founder ego, greed and internal shareholder disputes, Money Morning has reported. The two tech firms continue to discuss a tie-up in which Yahoo would divest its search and search-advertising technology to Microsoft, in return for an upfront payment and a percentage of the search-ad revenue the partnership generates, sources familiar with the talks reported.

It isn’t known how far the talks have progressed or whether any deal is imminent, as spokesmen for both Microsoft and Yahoo declined comment on the negotiations.

Google search – originally developed by by Larry Page and Sergey Brin in 1997 – remains the most-widely used search engine on the Web, and receives several-hundred-million queries a day via Google’s assortment of services.

Source: Hot Stocks: Microsoft Takes Aim at Google’s Web Dominance With New Search Engine

This dismantling of the so-called “New Federalism” will be readily apparent again this week as the federal government is once again at the forefront of the most-closely watched  crisis-fighting initiatives at hand: With Congress pushing forward on an $827 billion stimulus plan and the Treasury Department planning to unveil its new banking bailout blueprint on Tuesday, economists and other experts say the federal government is taking its biggest role in the economy in a generation.

States that once pushed away from the federal government as part of the New Federalism are now essentially begging it for financial support, banks and Big Business that once viewed near-total deregulation as Corporate America’s Holy Grail are now seeking federal financial aid and new regulatory protections (and in many cases are becoming actual business partners with the government), and individuals are asking for tax relief.

Alan Viard, a Bush administration economist now at the American Enterprise Institute, may well epitomize this reversal of thought: He’s one of the economists who initially rejected the need for a fiscal stimulus, stating that the right size for a government spending bill was “probably zero,” believing that federal interest rate cuts and existing unemployment benefits would be enough to do the trick. But he now sees the package as necessary.

“Things have gotten so bad so quickly,” Viard told The Washington Post. “We have now lost 3.6 million jobs, a stunning loss. But what’s more horrifying is that half that loss has occurred in the last three months. This is a severe recession.”

The exact shape and size of the package matters less than the timing, and any delay will be very damaging, economists say.

“Most of the things in the package, the big dollar amounts, are things that are pretty quick stimulus and need to be done,” Alice Rivlin, who was former president Bill Clinton’s budget director and a critic of aspects of the proposed stimulus, told The Post. “Is it a perfect package? Of course not. But we’re past that. Let’s just do it.”

Signs of the Stimulus

The U.S. Senate late Friday reached agreement on the estimated $827 billion stimulus bill, setting the stage for what’s expected to be some tough negotiations with the House of Representatives over tens of billions of dollars in aid to states and local governments, tax provisions, and programs focusing on education, health and renewable energy.

Congress is pushing hard to complete the legislation this week. But that figures to be a challenge. The House bill was passed without any Republican support, while the Senate version passed Friday night between Democrats and three moderate Republicans.

During a rare floor session on Saturday, Republican opponents continued to criticize the entire stimulus proposal – even though they clearly don’t have the votes to stop it. The bill is expected to be passed in the next few days.

The price tag for the Senate plan is only slightly more than the $820 billion measure adopted by the House late last month. Both plans seek to resuscitate the U.S. economy with similar one-two punch strategies:

• Fast-acting tax cuts designed to jump-start consumer and business spending.
• And longer-term – albeit slower-acting – spending on public works programs and other projects that are projected to create more than 3 million jobs.

Despite these seemingly similar philosophies, the two plans rely on approaches that are very different. The higher-priced House bill emphasizes help to states and municipalities that would otherwise be facing major cuts in services and layoffs of public employees, while the Senate slashed $40 billion of that kind of funding from its version of the bill.

The Senate plan focuses more on tax cuts, lowers a proposed increase in food stamps and provides health-care subsidies for the unemployed that are much less generous than the House version. The Senate plan also creates $30 billion in tax incentives to encourage Americans to buy homes and cars within the next year.

House Speaker Nancy Pelosi, D-Calif., said the emerging Senate cuts to the stimulus program “very damaging” and that she was “very much opposed to them.” But after the Senate reached a deal, Pelosi expressed resolve to complete the legislation in the days ahead.

U.S. President Barack Obama has made the economic recovery effort the centerpiece of his agenda since even before he officially took office. But President Obama now intends to get much more involved, and much more aggressive: He will conduct a “town-hall-style” meeting in Indiana today (Monday), followed by a formal “prime time” White House news conference – the first of his term – tonight.

The president will then pitch the plan again in Florida tomorrow (Tuesday) and again in Virginia on Wednesday.

Senate Majority Leader Harry Reid, D-Nev., said final passage of the Senate bill is expected Thursday, after which congressional leaders say they will hurry to get the House and Senate versions into conference with the hope that a passed bill can be sent to the White House by the end of week, the San Francisco Chronicle reported.

Banking Plan Overhaul Unveiling Tomorrow (Tuesday)

Busy new U.S. Treasury Secretary Timothy F. Geithner last week promised that the Obama administration would unveil its new blueprint for rescuing the U.S. banking system today. Over the weekend, however, the administration said the rollout would be delayed until Tuesday, so that the focus could remain on passage of the stimulus package, Bloomberg News reported.

But that doesn’t mean the banking bailout plan isn’t key.

According to a recent analysis, the Obama administration has a multi-pronged strategy for quelling the financial crisis, including:

• A program to insure banks against extreme losses on mortgages and other loans.
• A new round of investments in banks.
• Help for homeowners facing possible foreclosure.
• The broadening of a U.S. Federal Reserve program to ramp up lending.
• The Treasury Department could also look at purchasing toxic assets from banks – possibly with the aid of private-sector financing.

This would represent an overhaul of the $700 billion Troubled Assets Relief Program (TARP) initiated by the Bush administration. As the name implies, TARP was initially concerned with buying troubled assets – but it quickly evolved into a direct-government investment into the banks.

This new Obama plan reflects Geithner’s personally held view of how governments should respond to financial crises. Geithner believes all available financial tools should be used – and used aggressively. Any such effort would include direct efforts to deal with the financial sector’s massive losses, since that would help renew public confidence in the financial system.

Too small a government response during a crisis poses more risk than too much response, he said during his confirmation hearing.

Many of the details of what Geithner will announce remained in flux, although the broad outlines were becoming clear, published reports state. But one thing is certain: Even the ideas that are continuations of the initiatives started by former Treasury Secretary Henry M. “Hank” Paulson Jr. will have a unique Geithner twist.

One example: The government will almost certainly continue to invest in banks. But past investments consisted of a form of “preferred stock” that granted the federal government no say in how the bank was run, or how the money would be used.

As a Money Morning investigation revealed, that lack of control allowed banks to use taxpayer-provided TARP money as financing for buyouts. And then the banks refused to detail how they spent the money – and why not? They weren’t required to.

Under the new plan, there will still likely be new government investments in banks. But Geithner will likely call for those new investments to be convertible into common stock after some fixed period of time, perhaps seven years. If the banks are unable to raise private capital in that span, government control would escalate.

Banks receiving money also will probably have to report to the government and to the public, and the government is likely to insist that the new capital be used to expand lending.

Geithner has also been looking for a way to bring back the original TARP concept, which Congress passed on Oct. 3. Paulson pitched the plan to Congress as a program to buy troubled assets off of banks’ books, then shifted the plan and opted to invest directly into the banks instead.

Paulson’s chief worry – and the reason that he changed direction – was that asset purchases would involve too many technical complications, meaning it would take too long to enact. And that delay could be costly to a system where banks were teetering on the precipice of failure.

After struggling with those same issues, Geithner and his team appear to have settled on an approach that amounts to financial triage, meant to give investors confidence that banks will not encounter vast new losses so that they are willing to invest private money, The Post reported.

In addition to buying bad assets, the Fed and Treasury in the next few weeks are expected to expand a program that should jump-start lending outside the banking system. In November, the agencies launched a program – the “Term Asset-Backed Securities Loan Facility” – that would devote $200 billion for credit card, auto, student and small-business loans.

That program will be extended to include residential real-estate mortgages and into the commercial real estate sector. Geithner may also announce an initiative that would inject government money into companies known as mono-line insurers. These firms are key players for states and municipalities when it comes time for those state and local government bodies to borrow money. With the implosion of the housing bubble, and the subsequent implosion of the commercial real estate business, mortgage-related losses by the insurers have made it harder for states to issue the municipal bonds that would help them ride out the recession without aggressive tax increases or budget cuts.

Geithner is likely to roll out a plan, worth $50 billion to $100 billion, to encourage the modification of mortgages for homeowners who would otherwise likely face foreclosure. It could be based loosely on a strategy for foreclosure relief engineered by Federal Deposit Insurance Corp. (FDIC) Chairman Sheila C. Bair, when the FDIC took control of the failed bank IndyMac Bancorp Inc. (IDMCQ) last year.

Market Matters

On the corporate front, United Parcel Service Inc. (UPS) posted a profit (though revenue declined) and then announced new cost-cutting measures.  Motorola Inc. (MOT), The Walt Disney Co. (DIS), Time Warner Inc. (TWX), and Costco Wholesale Corp. (COST) reported disappointing results.  Visa Inc’s (V) earnings jumped by 35%, though management warned of tougher times ahead.

Bailout plan recipients have tried to cut back excessive spending (and the associated bad PR) as Goldman Sachs Group Inc. (GS) (Miami) and Well Fargo & Co. (WFC) (Las Vegas) canceled huge boondoggles. Bank of America Corp. (BAC) is selling off corporate jets, and Citigroup Inc. (C) may be attempting to get out of the $400 million marketing deal with the New York Mets.

C-SPAN must be enjoying stellar ratings as investors seem obsessed with the inner-workings of Congress and their debates on the stimulus and bailout.  The markets disregarded much of the dire earnings and economic data (terrible unemployment report…see below) and focused on the newfound optimism that politicos can work together to get the country moving in the right direction.

Economically Speaking

Just how long until a stimulus package starts creating jobs?  That answer can’t come soon enough for the almost 600,000 people who moved to the unemployment line in January, the most devastating month for job losses since 1974.  The unemployment rate climbed to 7.6%, forcing many economists to (upwardly) revise their projections for the rest of the year (and beyond).

Since the recession “officially” began in December 2007, the country has lost more than 3.6 million jobs, with most of the losses coming in the past three months.  The rest of the data released during the week did little to contradict the lousy unemployment picture.  Factory orders fell for the fifth straight month and the ISM index revealed that purchasing managers still look for contraction in the manufacturing sector. Though the services sector showed a slight rebound in its ISM survey, the index reported a fourth consecutive month of declining activity.  Residential construction spending experienced its worst annual decline ever recorded (since 1993), though optimists are hopeful that a stimulus package that focuses on infrastructure growth will prompt a renewal in non-residential building.

With the Fed stuck looking for creative ways to get involved (now that the benchmark Federal Fund rate stands at about 0%), its international counterparts took action (or inaction) of their own. The Bank of England (BOE) cuts its primary lending rate to a record low 1.0%, while the European Central Bank chose to leave its rate unchanged (for now) at 2.0%.

Weekly Economic Calendar

Source: As Stimulus-Package Debate Continues in Congress, New-Look Bank Bailout Plan is Set to Debut This Week

“Right now, given the concerns that we have over the size of this package and all of the spending in this package, we don’t think it’s going to work,” Rep. Boehner said yesterday (Sunday) on NBC-TV’s “Meet the Press.” “And so if it’s the plan that I see today, put me down in the ‘No’ column.”

The plan – detailed in a Money Morning report last week – could potentially pass the Democrat-dominated House without Republican support, The New York Times reported. But the stimulus plan will face major opposition when it comes before the U.S. Senate, U.S. Sen. John McCain, R-Ariz., told “Fox News Sunday.”

If at least two Republicans don’t approve the bill, the proposal won’t be able to achieve the majority vote of 60 it needs to be filibuster-proof. McCain said he also plans to vote “No” unless the stimulus bill is changed.

“We need to make tax cuts permanent, and we need to make a commitment that there’ll be no new taxes,” McCain said. “We need to cut payroll taxes. We need to cut business taxes.”

Added McCain: “We need to have a commitment that after a couple of quarters of [gross domestic product] growth that we will embark on a path to reduce spending to get our budget in balance.”

McCain lost the November presidential election to Obama.

That’s not all that’s taking place in what figures to be a busy stretch this week.

The economic calendar will heat up this week as economists get their initial look at U.S. gross domestic product (GDP) data for the 2008 fourth quarter. Needless to say, the results are not expected to be pretty, with analysts predicting a 5% contraction during that final three months of the year.

The report is due out Friday.

The United States has already been in a recession for a year, the National Bureau of Economic Research (NBER) reported in early December. This downturn – and the bigger-than-usual job cuts that have resulted – could generate a much-bigger financial crisis “aftershock” than many experts realize. Only two of the last 10 recessions to take place since the Great Depression have lasted a full year. But this one could last well into 2010, many economists fear.

The U.S. economy shrank 0.5% in the third quarter, marking the slowing pace since 2001 and continuing a still deepening recession that has wrung the markets since last year. GDP advanced 0.9% in the first quarter of last year and 2.8% in the second quarter, Bloomberg News reported.
Dana Saporta, an economist at Dresdner Kleinwort Ltd. in New York, told Bloomberg projects a 5.4% overall contraction in the fourth quarter. Analysts expect the malaise to carry over well into this year.

The stimulus packages – money spent by the newly departed Bush administration, as well as one planned by the newly installed President Barack Obama – will have a lot to say about how long the U.S. economy stays down. As the Republican opposition comments demonstrate, with Congress (the Democratic members, at least) promising a stimulus package by President’s Day (February 16th), Obama will have his hands full initiating some “give and take” from the dissenters of the current plan.

On Wednesday, U.S. Federal Reserve Chairman Ben S. Bernanke also leads the first Fed policy meeting of the Obama administration though he and his policymaking cohorts have no more wiggle room when it comes to cuts in the benchmark Federal Fed rate.

But the Fed statement should provide insight into the additional measures the central bank has in its arsenal to help jumpstart the economy.

Earnings season also moves forward with energy companies prepared to show the ill-effects of the drop in oil prices.  Exxon-Mobil Corp. (XOM) and Chevron Corp. (CVX) announce late in the week, as does consumer products giant Procter & Gamble Co. (PG).  Amazon.com Inc. (AMZN) also reports quarterly earnings during the week and analysts are speculating whether investors will cheer its results a la Google Inc. (GOOG) or frown along the lines of eBay Inc. (EBAY).

Market Matters

Last Tuesday, Barack Obama took the oath of office (for the first time) and became the 44th president of the United States.  In his inaugural address, President Obama called for “action, bold and swift – not only to create new jobs, but to lay a new foundation for growth.” He then acted “boldly and swiftly” by freezing the pay of high-ranking members of his administration.  One of those potential members, U.S. Treasury Secretary-nominee Tim Geithner, faced the wrath of Congress for his role in the mis-handling of the banking bailout plan and for his failure to pay a mere $34,000 in taxes.  Since the treasury secretary oversees the Internal Revenue Service, certain “rule sticklers” in Congress frowned upon his “careless mistakes.”  Still, he was approved by the Senate Finance Committee and is expected to be confirmed – just in time to oversee the distribution of that next round of Troubled Assets Relief Program (TARP) money.

While Obama begins a new job and tries to “faithfully execute the office” (rather “execute the office faithfully”), a few financial execs are headed for the unemployment line.  John Thain, formerly of Merrill Lynch & Co. Inc. fame/infamy, stepped down or was forced out from his role at Bank of America Corp. (BAC) after failing to disclose dramatic losses prior to the shareholder approved acquisition.

In an effort to stop the negativity – and no doubt to try and protect his own job – BofA Chief Executive Officer Kenneth D. Lewis and several cronies bought more than 500,000 company shares, a move that earned a collective yawn from investors.

Citigroup Inc. (C) will be replacing Chairman Win Bischoff with ex-Time Warner Inc. (TWX) CEO Richard Parsons, and also announced its intent to sell Japan’s Nikko Cordial Securities, a move that confirms that brokerage will no longer be considered a core business.  In other financial news, State Street Corp. (STT) reported a far-worse-than-expected quarter from its asset management business; U.S. Bancorp (USB) announced that profits fell to the lowest level since 2001; Capital One Financial Corp. (COF) posted a huge loss in the quarter and predicted that credit card defaults will only grow in 2009.

Across the pond, Royal Bank of Scotland Group PLC (ADR: RBS) forecast an annual loss above $40 billion which would be the largest ever reported in the United Kingdom.  On the heels of that news, the British government introduced new measures to its bailout plan, including a form of insurance to limit future loan losses.  Investors were hoping that earnings from non-financials would fare better, but Microsoft Corp. (MSFT), eBay, General Electric Co. (GE), Advanced Micro Devices Inc. (AMD) and Xerox Corp. (XRX), among others, disappointed with weak results as well (though Google and Apple offered some bright spots).  Time Warner, Intel Corp. (INTC), and Clear Channel (among others) announced layoffs, proving that most sectors of the economy are hurting.  Non-government arranged deals still exist as Pfizer Inc. (PFE) attempts to acquire pharmaceutical rival Wyeth (WYE) and Mexican billionaire Carlos Slim. Carlos Slim plans to invest $250 million into The New York Times Co. (NYT), The New York Times reported.

Economically Speaking

A rather slow week on the economic calendar last week allowed investors time to focus on the earnings data.  Housing starts fell for the sixth straight month and building permits, a predictor of future activity, dropped to the lowest level ever reported.

The never-ending layoff announcements continued to hinder the labor picture as jobless claims surged far more than expected.  In China, GDP rose by 6.8% in the fourth quarter, a number that would have prompted parades in this country. In China, however, those numbers confirm dramatic slowdowns in the world’s third-largest economy.

The “weak” report means that growth for all of 2008 came in as 9%, the first year since 2002 that China’s growth rate fell below double-digits.

Weekly Economic Calendar

Source: Financial Crisis Challenges Escalate as Republicans Announce Plans to Oppose $825 Billion Obama Stimulus

• Sony Corp. (ADR: SNE) forecast a full-year operating loss of $2.9 billion as falling demand, a stronger yen and reorganization expenses cut into the company’s earnings. The forecasted loss is nearly four times analysts’ expectations, Bloomberg reported.

• Citigroup Inc. (C) named Richard Parsons as its new chairman, replacing Win Bischoff, who was brought on as Citi chairman 13 months ago. Parsons is a former chief executive of Time Warner Inc. (TWX), Reuters reported.

• Potash Corp. of Saskatchewan Inc. (PsOT) said its fourth-quarter profit more than doubled as a result of climbing potash prices. “The big question is the extent to which farmer demand for potash and other nutrients recovers in the North American planting season,” Russell Stanley, an analyst at Jennings Capital Inc., told Bloomberg.

• While posting 3% quarterly profit growth, Lockheed Martin Corp. (LMT) cut its full-year forecast because of increasing pension costs, Reuters reported. The world’s top defense contractor reported a profit of $823 million, or $2.05 a share, compared with $799 million, or $1.89 a share, a year earlier.

• John Thain has resigned from his post as Bank of America (BAC) Chief Executive Officer. The giant lender lost confidence in Merrill Lynch’s former CEO after he failed to tell the bank about mounting losses at Merrill late last year. Merrill lost more than $15 billion during the fourth quarter, forcing Bank of America to ask the government for billions of dollars in extra support.

• The Senate Finance Committee voted 18 to 5 to approve the nomination of Timothy Geithner to be Treasury Secretary, MarketWatch reported. Some Republicans said they could not vote for him because of errors on his tax returns uncovered by the committee.  The nomination now goes to the full Senate floor where it is expected to be cleared.

• Investors may be losing faith that General Electric Co. (GE) can protect its century-old dividend in 2009. GE stock is down 23% since Chief Executive Officer Jeffrey Immelt, restated that goal a month ago. “The rating is in peril regardless of what they do at this point, because the environment is just that bad,” Peter Sorrentino, who co-manages $16 billion at Huntington Asset Advisors Inc., told Bloomberg News.

Source:  Global Investment News Briefs Friday, January 23rd, 2009