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The “New” GM: What Will it Look Like, and How Far Will it Go?

Bob Blandeburgo — Mon, 13 Jul 2009 17:00:45 +0000

General Motors Corp.’s (OTC: GMGMQ) emergence from bankruptcy Friday marks the beginning of the “new GM,” which will try to stay out of the ashes from which it emerged to become a leaner, customer-centric and modern company.

The official ownership of the new GM is divided as follows:

60.8%: U.S. Department of the Treasury, after a $50 billion taxpayer-funded investment.
17.5%: United Auto Workers (UAW) Retiree Medical Benefits Trust.
11.7%: Canada and Ontario governments.
10%: The “old” GM.

By the end of next year, the new GM will operate 34 assembly, powertrain and stamping plants, down from 47 in 2008. In the United States, its headcount will decline from roughly 91,000 at the end of last year to about 64,000 by the end of this year, which GM said will create “a company sized to respond quickly to changes in the market, while still retaining the global scope necessary to develop world-class products and technologies.”

Those left behind after the dust clears will be expected to perform with fewer human resources. GM will reduce the number of U.S. executives by 35% and its salaried employment by 20% by the end of the year-”flattening the organization and speeding decision making,” the company said.

Among the executive cuts will be the elimination of the GM North America president position. Taking those responsibilities will be newly announced Chairman Edward E. Whitacre, Jr., who oversaw the creation of the new AT&T Inc. (NYSE: T).

GM’s balance sheet will include a debt of approximately $11 billion, excluding preferred stock of $9 billion, and could change under its fresh-start accounting, it said. Overall, the company’s total debt has been reduced by more than $40 billion, representing mostly unsecured debt and the Voluntary Employee Beneficiary Association Trust fund that provides medical benefits to UAW retirees.

Those looking to invest in the new GM will have to wait until at least next year.

Though not a public company, “[GM] will be transparent in our financial and other reporting to further strengthen trust and confidence,” President and Chief Executive Officer Fritz Henderson said in a prepared statement. “We expect to take the company public again as soon as practical, starting next year, and to repay our government loans as soon as possible.”

The company’s emergence from bankruptcy comes roughly three weeks earlier than the U.S. government expected, and three days faster than Motown rival Chrysler LLC. GM is shooting to beat the clock on its deadline to repay the $50 billion in Troubled Asset Relief Program (TARP) bailout funds.

“We are required to pay off the loans by 2015, but our goal is to repay them much sooner,” Henderson said.

A slimmer catalog will be the face of the new GM, which now has four primary brands: Cadillac, Chevrolet, Buick and GMC. Gone are Saab, Saturn, Hummer and this fall, Pontiac.

Winning Back America

As Money Morning reported last month, the consumer backlash against GM’s bankruptcy likely won’t be as damaging as had been initially feared. In fact, as rival U.S. carmaker Chrysler already discovered in its own bankruptcy process, potential defections and severed relationships can be avoided with aggressive discounts and strong marketing efforts.

The image of the new GM will rest largely on the shoulders of 77-year-old Bob Lutz, whom the company coaxed out of retirement to sign on as its vice chairman and senior advisor. “Maximum Bob,” the auto industry veteran who originally joined GM in 2001 and chief cheerleader for the upcoming Chevy Volt, will be responsible for “all creative elements of products,” as well as customer relationships.

Translation: Lutz is tasked with winning back the droves of customers who fled from GM in the last 40 years-primarily to foreign automakers-to reduce the company’s domestic market share to less than 20%, down from more than 50% in GM’s heyday in the late 1960s and 1970s.

“[Lutz] has a proven track record of unleashing creativity in the design and development of GM cars and trucks. This new role allows him to take that passion a step further, applying it to other parts of GM that connect directly with customers,” Henderson said. “In August, we’ll begin regular visits with customers, dealers, suppliers, employees and others-in the U.S. and abroad-who impact our relationships with customers. We’ll be listening to their ideas, and acting on the ones that will improve our ability to serve our customers.”

A Fresh Coat of Paint for an Old Classic

Parts of GM’s transparency and customer bond-forming attempts will come online. Henderson will hold live chats with customers and respond to some ideas, concerns and suggestions through a “Tell Fritz” website to be launched next week.

Other GM online initiatives include:

A Twitter page, containing “as it happens” updates on the company.
A Facebook page, which includes company news, behind-the-scenes videos of things like the production of the Volt, or a video of the “Bumblebee” Camaro as seen in the new Transformers movie, which is filled with GM vehicles.
GM FastLane, a blog from company executives and other employees.
GM Facts and Fiction, a website devoted to dispelling myths about the carmaker.

Of course, when the rubber hits the road, modern means environmentally friendly vehicles. The Volt, which GM said can go 40 miles on one charge before using gasoline to continue, gets the most press. That vehicle is currently being road tested and scheduled to launch next year, with prices starting at $32,500 after tax credit incentives.

While President Barack Obama said he doesn’t want the U.S. government to be involved in the day-to-day operations of its bailout beneficiaries, there’s no doubt the pressure is on both GM and Chrysler to produce more fuel-efficient vehicles. To that effect, GM said it has moved “aggressively” to develop a range of energy-saving technologies, including advanced internal combustion engines, biofuels, fuel cells and hybrids.

“The new GM is also taking steps to make advanced battery development a core competency, and expects to make additional announcements on this matter late this summer,” the company said in what will likely be an attempt to address consumer concerns over battery life in hybrid and electric cars.

Source: The “New” GM: What Will it Look Like, and How Far Will it Go?

Investment News Briefs Wednesday, July 8, 2009

Money Morning Staff — Wed, 08 Jul 2009 13:00:57 +0000

U.S. Government to Hold Hearings on Futures Trading; Boeing to Acquire 787 Fuselage Maker; Job Losses Contribute to Rising Credit Delinquencies; Ex-Goldman Sachs Worker May Have Stolen Crucial Code; Declining Southwest Traffic Prompts Deep Fare Discounts; GM Asks U.S. to Let It Drop Dealers, Parts Maker Files for Bankruptcy

Regulators will hold hearings this month and next to possibly limit the holdings of energy futures traders, including index and exchange-traded funds. The U.S. Commodity Futures Trading Commission (CFTC) will hold hearings in the next two months to consider the need for government-imposed restrictions on speculative trading in oil, gas and other energy markets, Chairman Gary Gensler said in a statement. “Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities such as crude oil, heating oil, natural gas, gasoline and other energy products,” Gensler said in the statement. “This will include a careful review of the appropriateness of exemptions from these limits for various types of market participants.” The CFTC did not give dates on when the hearings would be held or who would speak at them.

Boeing Co. (NYSE: BA) will acquire Vought Aircraft Industries, which makes the fuselage for Boeing’s oft-delayed 787 Dreamliner as well as parts for other aircraft including the 747 and 737. Boeing will pay $580 million in cash and release Vought of its obligation to repay $422 million in cash advances for work on the 787, according to a report in The Wall Street Journal. The acquisition gives Boeing access to Vought’s North Charleston, S.C. plant, marking the second time the aircraft maker has taken over a key part of the supply chain for the 787. “We take great pride knowing that we have been able to satisfy the technological and physical demands of the 787 program alongside much larger companies,” said Elmer Doty, Vought president and CEO. Last June, Boeing acquired a separate Vought facility in South Carolina that does fuselage subassembly.

Rising unemployment is taking its toll on credit card delinquencies, which escalated to 6.6% in the first quarter, up from 5.5% in the fourth quarter, according to a American Bankers Association (ABA) report. More than a third of the 6 million jobs lost since the recession began in December 2007 occurred in the first quarter of this year, the ABA said. Late payments on home equity loans increased from 3% to 3.5%. “The number one driver of delinquencies is job loss,” said ABA chief economist James Chessen. “When people lose their jobs, they can’t pay their bills. Delinquencies won’t improve until companies start hiring again and we see a significant economic turnaround.”

Goldman Sachs Groups Inc. (NYSE: GS) is facing the loss of a proprietary trading code and millions of dollars from increased competition if software stolen by a former employee falls into the wrong hands, a prosecutor said in a Bloomberg News report. An ex-computer programmer for the bank, Sergey Aleynikov, was arrested last Friday after arriving at Liberty International Airport in Newark, N.J., U.S. officials said. Aleynikov transferred the multi-million dollar code to a server in Germany, where others may have had access to it, said Assistant U.S. Attorney Joseph Facciponti. “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said, according to a recording of the hearing made public. “The copy in Germany is still out there, and we at this time do not know who else has access to it.” Aleynikov’s attorney, Sabrina Shroff, said in court the government’s allegations are “preposterous,” adding that Goldman Sachs was aware that Aleynikov was downloading programs to his personal computer to work from home and did not disseminate the code. “Someone stealing that code is basically stealing the way that Goldman Sachs makes money in the equity marketplace,” Larry Tabb, founder of market research firm TABB Group told Bloomberg.

Global information technology (IT) spending will fall 6% this year, according to a report from market research firm Gartner Inc.(NYSE: IT). The drop is significantly worse than Gartner’s earlier forecast for a decline of 3.8%. “While the global economic downturn shows signs of easing, this year IT budgets are still being cut and consumers will need a lot more persuading before they can feel confident enough to loosen their purse strings,” said Richard Gordon, research vice president and head of global forecasting at Gartner. The firm expects IT spending to rebound in 2010, growing 2.3%.

Hot on the heels of the revelation that its June year-on-yeartraffic fell 2.1%, low-cost air carrier Southwest Airlines Co.(NYSE: LUV) offered an steep discount on fares for flights between September 9 and November 18. For two days through today (Wednesday), the airline will charge $30 for flights 400 miles or less, including one of its newest legs between New York’s LaGuardia Airport and Baltimore. For flights between 401 and 750 miles, Southwest is charging $60 and $90 for longer trips. As with many airline specials, there are restrictions such as limited seating and the deal will not apply to Friday or Sunday flights. Southwest shares closed down 1.82% yesterday (Tuesday), settling in at $6.48.

General Motors Corp. (OTC: GMGMQ) asked a federal bankruptcy court yesterday (Tuesday) for permission to drop 38 U.S. dealers who rejected GM’s buyout offer, Reuters reported. The breakup between the automaker and its dealers would take effect this week if the court approves GM’s request. Roughly 4,100 dealerships have signed agreements to continue with the new government-backed GM, which is expected to emerge from bankruptcy this week. In related auto news, parts and car seat maker Lear Corp. (NYSE: LEAR), which saw 25% of its revenue come from GM, has filed for Chapter 11 bankruptcy protection,The New York Times reports. The filing is the latest among auto part makers, with the last ones coming in May from Visteon Corp.(OTC: VSTN) and Metaldyne Corp. Lear last week obtained an additional $500 million in bankruptcy financing from JPMorgan Chase & Co. (NYSE: JPM) and Citigroup (NYSE: C), The Timesreported.

Source: Investment News Briefs Wednesday, July 8, 2009

GM Bankruptcy Judge Approves Obama Administration’s Exit Plan

Don Miller — Tue, 07 Jul 2009 13:00:46 +0000

A federal judge handed the Obama administration an important victory in its push to steer the automobile industry back to health Sunday, approving the sale of General Motors Corp.’s (OTC: GMGMQ) most profitable assets to a new government-run company.

The move removes an important barrier to the company’s plan to exit bankruptcy.

Judge Robert E. Gerber of the U.S. Bankruptcy Court for the Southern District of New York issued a ruling saying the sale was GM’s only option and that it would “prevent the death of the patient on the operating table,” according to Reuters.

The 87-page ruling rejected appeals from a group of bondholders, tort claimants and unions who had objected to the plan.

“As nobody can seriously dispute, the only alternative to an immediate sale is liquidation — a disastrous result for GM’s creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates,” Gerber said in the opinion.

When the sale is completed, it would transfer GM’s “good assets” – including the Chevrolet, Cadillac, Buick and GMC brands – to a new company majority-owned by the U.S. Treasury. It would also pave the way for the new GM to exit bankruptcy in less than two months, one month earlier than the government’s projection.

The plan would allow the company to jettison unwanted property to the old GM, including 16 automotive plants in Delaware, Ohio, New York, Indiana, Pennsylvania, Virginia and Michigan. The Treasury will also provide the estate with $1.175 billion to unwind the remaining assets, up from original projections of $950 million after creditors complained about possibly getting stuck with liquidation costs.

The U.S. government would own 60% of the new GM in return for $50 billion in loans, the Canadian government would get 11.7% for $9 billion in loans, and workers would receive a 17.5% stake for relinquishing future health-care benefits.

Bondholders would be forced to convert about $27 billion in bonds into about 10% of stock in the new company, plus warrants with a total value of $7.4 billion. New GM’s total equity is anticipated to be worth more than $38 billion, according to Bloomberg News.

During three days of hearings, the workers and bondholders objected to the plan, saying the “new GM” is just “old GM” minus a slew of liabilities. They contend the company would market nothing new, pedaling the same cars and trucks, made by the same workers managed by the same executives.

Gerber dismissed the bondholders’ assertion that GM should restructure under a Chapter 11 reorganization plan, which would let creditors vote on details of the plan, saying the argument was unrealistic.

“In the event of liquidation, creditors now trying to increase their incremental recoveries would get nothing,” he ruled.

Gerber’s ruling also torpedoed arguments from dealers whose contracts are being terminated, groups of car-accident victims who said they would now be unable to sue GM for their injuries, and others who claimed that the U.S. government had been overbearing in its negotiations to restructure the automaker.
Gerber issued a typical four-day stay of the order approving the sale, which allows for possible appeals.

Steve Jakubowki, a lawyer for product-liability claimants said he would appeal the ruling even though GM recently revised its bankruptcy plan to take on claims from future car-accident victims.

“This issue is too important, too unsettled and too many people’s lives hang in the balance for me not to pursue this appeal through to the end,” Jakubowski told The Wall Street Journal.

Gerber ruled that the sale could be “free and clear of claims,” because his hands were tied by precedents established in the second judicial circuit during the bankruptcy filed by Chrysler LLC. The second judicial circuit encompasses Gerber’s court.

But in the end, Gerber concluded that the government’s plan was the only one that makes sense.

“GM cannot survive with its continuing losses … and without the governmental funding that will expire in a matter of days,” Gerber wrote.

The ruling marks the second big victory for the Obama administration’s auto task force, which will be charged with supervising the liquidation of the remaining assets. The task force had previously engineered the sale of Chrysler to a consortium headed by Italy’s Fiat S.p.A. (ADR OTC:FIATY).

Source: GM Bankruptcy Judge Approves Obama Administration’s Exit Plan

Another Dismal Earnings Season for U.S. Companies?

William Patalon III — Mon, 06 Jul 2009 16:45:54 +0000

Investors and analysts return from the long holiday weekend only to face a rather light week on the economic calendar – except for the earliest stages of what’s expected to be yet another dismal earnings season for U.S. companies.

Aluminum giant Alcoa Inc. (NYSE: AA) reports on Wednesday, withanalysts expecting a second-quarter loss of 34 cents a share, compared with a profit of 66 cents a year ago. The ongoing worldwide financial crisis has caused demand for its product to collapse, which in turn has caused prices (and the company’s revenue and profits) to do the same. Analysts polled by Thomson Reuters expect Alcoa to post its third consecutive loss, with revenue expected to be nearly halved.

While Thomson Reuters expects another dismal quarterly showing (down about 20% overall), its analysts are forecasting that strong earnings growth will reappear in the fourth quarter. Investors are trying to make heads or tails of the recent economic data and future earnings reports as they map out the next direction for the markets. Although many believe the euphoric rally of the past quarter ended in recent weeks, some prognosticators remain torn between a retest of the March lows or sideways trading for the foreseeable future (until the “real” recovery emerges).

As Money Morning reported late last week as part of its current “Mid-Year Forecast Series,” the U.S. high-tech sector figures to play a major role in the hoped-for rebound.

Market Matters

A federal court judge last week threw the proverbial book at Wall Street swindler Bernard Madoff by sentencing him to 150 years in prison and seizing much of his (and his wife’s) personal wealth. The verdict could have sent a message to “greedy” Wall Street to reinvent itself, but a few firms apparently never saw the memo. Analysts predict that per-employee compensation at Goldman Sachs Group Inc. (NYSE: GS) will average $700,000 in 2009, while those at Morgan Stanley (NYSE: MS) will top $350,000, levels that far exceed their 2008 pay structures and that are more in line with those of pre-crisis 2007.

The second quarter came to a close and equity indexes enjoyed their best results since 2003: The Dow Jones Industrial Average was up 11%, the tech-laden Nasdaq Composite Index up 20%, and the Standard & Poor’s Index up 15%.

While investors went bottom-fishing for bargains, the euphoria fizzled out over the past few weeks as many began to sense that the rally had moved too much too quickly (and the economy still has many issues yet to resolve). Financials, energy, and basic material stocks led the upward surge last quarter, while emerging markets like India and China benefited greatly from the rise in commodities prices. As investors increased their appetites for risk, government securities were among the big losers, though corporate bonds (both high quality and high yield) performed well within the fixed income asset class.

While the U.S. Treasury prepared to launch its Public-Private Investment Program (PPIP) to remove toxic assets from the books of troubled institutions, its magnitude seems likely to be scaled back dramatically. In the early stage of development, U.S. Treasury Secretary Timothy F. Geithner spoke of providing $50 billion in government funds so approved investment firms could purchase these assets. Now the program seems to have dwindled down to about $20 billion and some believe the “thawing” of the equity and credit markets has negated the need for such massive government participation.

In another “ailing” industry – the U.S. auto market – Ford Motor Co.(NYSE: F) announced a smaller-than-expected decline in June domestic sales as the (non-bankrupt) automaker continued to take advantage of the hardships of its main rivals. Even Japanese heavyweight Toyota Motor Co. (NYSE ADR: TM) saw its monthly activity fall by 32% – losing out to Ford in total vehicles sold for the third consecutive month.

Weaker-than-expected releases (see below) sent equities into a tailspin and left the indexes down big for the week. Oil fell below the $67 a barrel level as traders perceived the expected post-recession increase in demand will not occur overnight. While fixed income seemed primed to benefit from a “flight-to-quality,” some investors held off as they await the $136 billion in new U.S. Treasury debt.

Market/ Index	Year Close (2008)	Qtr Close (06/30/09)	Previous Week (06/26/09)	Current Week (07/03/09)	YTD Change
Dow Jones Industrial	8,776.39	8,447.00	8,438.39	8,280.74	-5.65%
NASDAQ	1,577.03	1,835.04	1,838.22	1,796.52	+13.92%
S&P 500	903.25	919.32	918.90	896.42	-0.76%
Russell 2000	499.45	508.28	513.22	497.21	-0.45%
Global Dow	1526.21	1,629.31	1,633.36	1,608.29	+5.38%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	3.52%	3.51%	3.50%	+126 bps

Economically Speaking

A heavy week on the economic calendar kept investors from taking off early in observance of Independence Day (though many probably got a nice head start). Most of the releases of the week offered some surprises; unfortunately, few were positive. Consumer confidence dropped in June as folks continued to fear for their jobs – and rightfully so, as the odds of a “jobless recovery” seem to grow almost daily.

While the past few months offered a bit of optimism that the consumer was back to lead the economy into recovery, the recent data revealed that pessimism lingers. Still, the Conference Board Consumer Confidence Index has risen dramatically since the historic lows experienced in February 2009. Construction spending surprisingly fell in May to its lowest level in more than five years, despite the expected boost (or lack thereof) from the economic stimulus package. While manufacturing showed some signs of improvement, the data indicated that any real sector growth is still a few months away.

Finally, the labor market proved again that it will remain a huge thorn in the side of the economy and the primary reason any recovery will be slow to develop. The unemployment rate pushed closer to the dreaded 10% level, and now stands at 9.5%, its highest level in almost 26 years. More than 465,000 jobs were eliminated from the economy in June. All told, more than 6.5 million employees have moved to the ranks of the unemployed since the recession officially began in December 2007. In the “misery-loves-company” category, the 16-country euro zone also reported a jobless rate of 9.5% in May, its worst showing in more than 10 years. Additionally, the British economy posted its weakest quarter in terms of growth (contraction) since 1958.

Even before the dire labor picture was revealed, San Francisco Fed Chair Janet Yellen painted a negative outlook for the economy, stating that the pending recovery will be “frustratingly slow,” while also noting that the U.S. Federal Reserve is likely to leave the benchmark Federal Funds Rate at its current level (of around 0.00%) for some time. Across the pond, the European Central Bank (ECB) held its primary rate steady at 1.0% and indicated that its gradual recovery should include a return to positive growth by mid-2010.

Weekly Economic Calendar

Date	Release	Comments
June 30	Consumer Confidence (06/09)	Surprising decline in confidence level
July 1	Construction Spending (05/09)	Worse level of activity in over 5 years
	ISM –Manu (06/09)	Sector improving, but still not in growth mode
July 2	Initial Jobless Claims (06/27/09)	Decline in both new and continuing claims
	Unemployment Rate (06/09)	Highest level in 26 years
	Non-farm Payroll (06/09)	Larger than expected cut in jobs
	Factory Orders (05/09)	Strongest increase since last June 2008
July 3	July 4th Holiday Observed	Markets Closed
The Week Ahead
July 6	ISM – Services (06/09)
July 8	Consumer Credit (05/09)
July 9	Initial Jobless Claims (07/04)
July 10	Balance of Trade (05/09)

Source: Another Dismal Earnings Season for U.S. Companies?

Investment News Briefs Tuesday, June 30, 2009

Money Morning Staff — Tue, 30 Jun 2009 15:00:56 +0000

Madoff Gets 150 Years; Pipeline Operators to Combine; Jobs Returns to Work at Apple; GM, Toyota Cut Ties on Auto Plant; U.S. Moves Closer to Solar Energy; Oil Rises to More Than $71; China Stops Stockpiling Metal

A federal judge gave no leniency to convicted Ponzi schemer Bernie Madoff yesterday (Monday), sentencing him to 150 years in prison. U.S. District Judge Denny Chin described Madoff’s crime as “extraordinarily evil” and said that it was “not merely a bloodless crime that takes place on paper but one that takes a staggering human toll.” As a part of his sentence, the 71-year-old Madoff was ordered to forfeit a total of $170.8 billion which represents the total proceeds of and property involved in certain of his crimes.

Pipeline operator Enterprise Products Partners L.P. (NYSE: EPD) will buy Teppco Partners L.P. (NYSE: TPP) for $3.3 billion, forming the biggest U.S. energy partnership, Bloomberg News reported. Teppco shareholders will get 1.24 units of Enterprise for each one they own, making the deal worth 15% more than when the initial offer was made in March. Enterprise will see the benefits of the takeover starting next year and will net a minimum of $20 million in cost savings, according to Enterprise Chief Executive Officer Michael Creel.

Apple Inc. (Nasdaq: AAPL) Chief Executive Officer Steve Jobs returned to work as promised following a near six-month leave of absence in which he received a liver transplant. Initially, Jobs will spend a few days a week at Apple’s Cupertino, Calif. Headquarters and work the other days from home. Investors will be reassured that Jobs is back, Collins Steward Ashok Kumar told Reuters. “In many ways he’s irreplaceable,” Kumar said. “Having him back brings the halo back to the company.” Apple shares closed at $141.97 yesterday (Monday), down 0.33%.

General Motors Corp. (OTC: GMGMQ) cut its ties to a northern California auto plant it operated with Toyota Motor Corp. (NYSE ADR: TM) since 1983, Reuters reported. The move puts into question the fate of more than 4,000 jobs at the plant that was once seen as a ground-breaking experiment in bringing production efficiencies pioneered in Japan to a U.S. workforce. “While we respect this decision by GM, the economic and business environment surrounding Toyota is also extremely severe, and so this decision by GM makes the situation even more difficult for Toyota,” Toyota said in a statement. The soon-to-be defunct Pontiac Vibe, Toyota Corolla and Matrix are manufactured at the facility.

The U.S. Interior Department yesterday (Monday) designated roughly 670,000 acres of land as potential areas for solar energy production with the hope it will speed up the development of renewable energy resources on federal lands. “This environmentally sensitive plan will identify appropriate Interior-managed lands that have excellent solar energy potential and limited conflicts with wildlife, other natural resources or land users,” Interior Secretary Ken Salazar said in a statement. The 24 areas on the land could generate nearly 100,000 megawatts of solar electricity, the DOI said. President Barack Obama has allocated $150 billion to renewable energy investment over the next 10 years.

Oil for August delivery rose to $2.33 to settle at $71.49 a barrel after China said it would increase oil reserves and Nigerian militants partly shut down an offshore oil platform that belongs toRoyal Dutch Shell plc (ADR NYSE: RDS.A, RDS.B), The Associated Press reports. China plans on increasing its strategic crude oil reserves by 60%, providing the market with some long-term support according to Alaron Trading Corp. analyst Phil Flynn.

The Chinese government has stopped its metal stockpiling program, a top official told state-run Caijing Magazine. China has so far amassed 590,000 metric tons of aluminum, 159,000 tons of zinc and 235,000 tons of copper. The news could push down prices of metal in the near-term, though a stimulus-driven revival in demand could limit the fall, the report said.

Source: Investment News Briefs Tuesday, June 30, 2009

Investment News Briefs Tuesday, June 23, 2009

Money Morning Staff — Tue, 23 Jun 2009 15:30:58 +0000

Oil Takes a Spill; SEC Expands Madoff Investigation; Sony Could Lose Largest Game Publisher; Nasdaq Outpaces Other Indices; Walgreens Misses Street Estimates; U.S. Car Brands Close Gap with Toyota Quality…

In spite of tense geopolitical situations in the Middle East, light sweet crude for July delivery yesterday (Monday) fell $2.62, or 3.8%, to settle at $66.93 a barrel on the New York Mercantile Exchange (NYMEX). Large and violent protests in Iran over the outcome of its recent election would normally raise concerns about supply disruptions and drive up the price of oil. Instead, the market is looking past this tense backdrop in the world’s No. 4 oil producer because of a large supply worldwide, Alaron Trading energy analyst Phil Flynn told CNN Money.

The Securities and Exchange Commission (SEC) charged a brokerage firm and several individuals with raising money from investors to feed Bernie Madoff’s Ponzi scheme. Cohmad Securities Corp., its chairman Maurice Cohn, Chief Operating Officer Marcia Cohn and representative Robert Jaffe have all been charged with securities fraud, CNN Money reports. The Cohns and Jaffe allegedly courted investors for Madoff’s grand scheme, which may get Madoff up to 150 years in prison and $170 billion in restitution.

The chief executive officer and president of the world’s largest third-party video game publisher fired a shot over Sony Corp.’s (NYSE: SNE) bow, taking the electronics giant to task over the high price of its PlayStation 3 console and going as far to say his company may pull its support if a price drop doesn’t happen soon. Activision Blizzard Inc.’s (Nasdaq: ATVI) Bobby Kotick said his company paid Sony $500 million in royalties and other goods last year, according to the Times Online. “They have to cut the price, because if they don’t, the attach rates [the ratio of games purchased to a console] are likely to slow. If we are being realistic, we might have to stop supporting Sony,” Kotick said. “When we look at 2010 and 2011, we might want to consider if we support the console – and the [PlayStation Portable] too.” Activision is the company responsible for the some of the sector’s largest franchises including “Guitar Hero,” “Call of Duty” and the “Tony Hawk” series of skateboarding games. A loss of support from Activision would be a huge blow for Sony’s gaming arm, which lost $597 million last year. Sony’s PlayStation 3 is currently third in a three-horse video game race behind Nintendo Co. Ltd.’s (ADR OTC: NTDOY) Wii and Microsoft Corp.’s (Nasdaq: MSFT) Xbox 360.

In a sign that may show investors have let their guard down, technology stocks have significantly outperformed the broader market, according to MarketWatch.com. Since its March low, the tech-heavy Nasdaq Composite Index is up more than 40% and nearly 13% for the year. “Technology tends to be a leader in the early stages of an economic turn.,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “That’s what we look for as confirmation of a sustainable rally — money rotating into a sector that historically is seen as consumer- and business-sensitive, and requiring more leverage in terms of borrowed money, because it is more sensitive to the economy.” Still, Nasdaq’s notorious volatility was on display yesterday (Monday), as it fell 3.35%, more than both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.

Restructuring costs and merchandise markdowns contributed toWalgreen Co.’s (NYSE: WAG) declining profit, which fell by 8.7% in the quarter ended May 31. The drugstore chain reported a net income of $522 million, or 53 cents per share on $16.2 billion in revenue. That compares to a net income of $572 million, or 58 cents per share on revenues of $15 billion in the same period last year. Wall Street was expecting Walgreens to earn 56 cents per share. The company’s shares closed at $29.64 yesterday (Monday), down 5.7%.

Ford Motor Co. (NYSE: F) and General Motors’ (OTC: GMGMQ) Chevrolet division are close to eliminating a long-criticized quality gap with Toyota Motor Corp. (ADR NYSE: TM), according a closely watched J.D. Power and Associates survey. The top three spots in the survey went to luxury brands, while Chevrolet, Ford and Toyota were in what amounted to a statistical dead heat further down in the rankings, Reuters reported. “Have the leading domestic nameplates caught up with Toyota? The answer is almost,” Dave Sargent, vice president for auto research at J.D. Power said. Toyota’s Lexus brand took the top spot, while Porsche and GM’s Cadillac were Nos. 2 and 3 respectively.

Source: Investment News Briefs Tuesday, June 23, 2009

Investment News Briefs Wednesday, June 17, 2009

William Patalon III — Wed, 17 Jun 2009 13:33:42 +0000

BRIC Building; Bankruptcies Accelerate; Auto Parts Suppliers Denied Additional Government Funds; GM Sells Saab; Best Buy Misses Expectations; MySpace Cuts 1,000 Workers; Banks See Recession Ending in Late Summer

Members of the so-called “BRIC” nations – Brazil, Russia, India and China – met in Russia yesterday (Tuesday) for their first ever summit. The meeting was followed by the release of a joint communiqué that demanded a larger role for emerging nations. “The emerging and developing economies must have a greater voice and representation in international financial institutions,” the statement said. “We also believe that there is a strong need for a stable, predictable and more diversified international monetary system.” However, the statement did not mention a smaller role for the dollar and a supranational reserve currency, suggestions previously proposed by Russia and China as a result of the financial tidal wave that emanated from the United States.

U.S. corporate bankruptcies are accelerating, as eight public companies with assets of more than $1 billion filed for bankruptcy protection in the last four weeks, according to data compiled by BankruptcyData.com. That compares with five multibillion-dollar company bankruptcies in the prior four-week period, Reutersreported. “In the 12-month period ending March 31, 2009, there were approximately 1.2 million bankruptcy petitions filed – nearly double the number of petitions filed in 2006,” Barbara Lynn, chair of the bankruptcy committee of the Judicial Conference of the United States told Reuters.

A request from auto suppliers for as much as $10 billion in funding from the government was denied by the Obama administration,The Associated Press reported. An existing $5 billion in funds for auto parts makers was playing an important role in stabilizing the United States’ auto supply base, the Treasury Department said yesterday (Tuesday). The group of suppliers lobbied for the money to help them buy raw materials and pay employees as Chrysler LLC and General Motors Corp. (OTC: GMGMQ) resume production.

A group led by Swedish sports car maker Koenigsegg Group ABagreed to buy General Motors Corp.’s (OTC: GMGMQ) troubledSaab Automobile AB unit. Saab has been a part of GM since 2000, but was put up for sale earlier this year as the government-supported GM attempts to return to profitability. GM unloaded its Saturn unit last week, which was sold last week Penske Automotive Group (NYSE: PAG).

Shares of Best Buy Co. (NYSE: BBY) fell more than 7% in trading yesterday (Tuesday) after the company’s first quarter profit missed Wall Street’s revenue forecasts. The No. 1 electronics retailer in the United States posted a net income of $153 million, or 36 cents per share on sales of $10.1 billion. That compares to a net income of $179 million, or 43 cents per share on sales of $8.9 billion. Declining sales of video game products, digital cameras, movies and appliances offset stronger sales of mobile phones and notebook computers, Best Buy said.

News Corp.’s (Nasdaq: NWS) social networking siteMySpace.com has laid off 1,000 workers in response to sagging ad sales and large user gains by rival Facebook Inc., Bloomberg News reported. “Our staffing levels were bloated and hindered our ability to be an efficient and nimble, team-oriented company,” said MySpace Chief Executive Officer Owen Van Natta, adding the move was “necessary for the long-term health and culture of MySpace.”

The largest banks in the nation expect the worst recession in more than 60 years to finally end late this summer, but expect the economy to remain weak until next year. “The economy will return to growth but not to health,” Bruce Kasman, chief economist forJPMorgan Chase & Co. (NYSE: JPM) and chairman of theAmerican Bankers Association’s Economic Advisory Committee, said yesterday (Tuesday). The committee expects gross domestic product to increase 0.5% in the July-September quarter, after falling a projected 1.8 percent previous period, The Associated Press reports. Despite the expected recovery, jobs will remain hard to come by going into the first quarter of 2010, the committee said.

Source: Investment News Briefs Wednesday, June 17, 2009

Investment News Briefs Wednesday, June 3, 2009

Money Morning Staff — Wed, 03 Jun 2009 12:45:53 +0000

Reports Point to Housing Market Bottom; Big Three Automakers Beat Estimates; Microsoft Will Unveil New Operating System in Time for XMAS; Dallas Fed President: Economy ‘Getting Less Worse’; European Jobless Rate Climbs; Pepsi Bottling Chief Could Cash In

The housing market showed further signs of bottoming in April, as pending sales of previously owned U.S. homes saw their biggest monthly gain in seven and a half years, the National Association of Realtors reported. The number of Americans signing contracts to buy previously owned homes climbed 6.7% in April, more than forecast and the fourth increase in five months. The report supports the case for a housing bottom made in Money Morning on Monday, where it was noted that housing prices are starting to move upward in western U.S. markets and should soon slowly begin to rise in hard-hit east coast markets. “Based on what we just heard, we are now formally calling for the end of the housing depression and that we increasingly think that the housing market is beginning to turn up. All signs are pointing to a bottoming out now of the housing market” Bernard Baumohl, Chief Global Economist at the Princeton-New Jersey based Economic Outlook Group, told Reuters.

Detroit’s ailing Big Three automakers, all reported that May sales in the U.S. fell less than analysts’ estimates while Toyota Motor Corp. (ADR NYSE: TM) and Honda Motor Co. (ADR NYSE: HMC) did worse than expected. Sales at General Motors Corp. (NYSE: GM) dropped 30% from last year, Ford Motor Co.’s (NYSE: F) sales fell only 24% and Chrysler LLC plummeted 47%, better than estimates, as shoppers returned to showrooms. Deliveries at Toyota plunged 41% and Honda plunged 42%. Among Japanese carmakers, only Nissan Corp sales exceeded estimates, falling only 33%, Bloomberg reported.

Microsoft Corp (Nasdaq: MSFT) said on Tuesday its new Windows 7 operating system, which will replace the unpopular Vista, will be available on October 22, well ahead of its original schedule and in time for the holiday shopping season, Reuters reported. Windows 7 was originally scheduled to launch at the start of next year, but Microsoft confirmed last month that it would push up the schedule to allow sales during the year’s busiest buying period.

The U.S. Federal Reserve Bank has successfully pulled the economy back from the brink, Dallas Federal Reserve Bank President Richard Fisher said yesterday (Tuesday). The Fed official also said that conditions are “getting less worse” over time and the Fed needs to unwind its new, expansive credit programs as soon as it can, Reuters reported. Furthermore, the U.S. central bank needs to make it clear it will not “monetize” the rapid expansion of U.S. debt, Fisher told a gathering of community leaders at a Dallas Fed event.

Unemployment in Europe rose to 8.6% in April, up from 8.4% in March and 6.8% during the same period last year. Although the economic downturn in Europe is showing signs of slowing, the employment rate typically lags behind economic health.

Pepsi Bottling Group Inc. (NYSE: PBG) Chairman and Chief Executive Officer Eric Foss is being promised a minimum $16.5 million in severance pay and stock benefits if PepsiCo Inc.’s (NYSE: PEP) takeover succeeds. He earned $6.1 million in total compensation last year. Pepsi Bottling, along with PepsiAmericas Inc. (NYSE: PAS) rejected a $6 billion acquisition attempt by PepsiCo, calling it “grossly inadequate” and “not acceptable.” Pepsi Bottling and PepsiCo are now locked up in a lawsuit, with PepsiCo accusing Pepsi Bottling of adopting a “poison pill” takeover defense that restricts its rights as a shareholder.

Source: Investment News Briefs Wednesday, June 3, 2009

As GM Cruises Toward Government Deadline, U.S. Automakers Must Learn to Deal With a Permanently Smaller Market

William Patalon III — Tue, 26 May 2009 12:30:52 +0000

General Motors Corp. (NYSE: GM) is closing in quickly on its June 1 deadline to finish overhauling its operations, or opt for Chapter 11 bankruptcy. Because that deadline is actually one week from yesterday (Monday), analysts and investors will be watching GM closely this week.

No matter which path GM chooses – conventional restructuring or bankruptcy – the U.S. Big Three of GM, Ford Motor Co. (NYSE: F) and Chrysler LLC will have to adjust to the U.S. auto market’s post-financial-crisis “new reality.” Automakers will sell only 10 million cars and trucks in the U.S. market this year, the worst in at least 3 decades – and roughly 38% less than the 16 million vehicles that were sold in the United States annually in recent years before the financial collapse caused an accompanying collapse in auto sales.

Part of the reason for the slump in new vehicle sales is that consumers are increasingly turning to used cars. Pre-owned car sales are up 10% this year over last, as credit availability increases, but buyers focus on affordability. In fact, according to the most-recent report, used-car sales jumped in April, and the trend is expected to continue at least until the middle of the year as pent-up demand for affordable, pre-owned vehicles jacked up the used-vehicle segment of the auto marketplace.

Market Matters

U.S. Treasury Secretary Timothy F. Geithner put his most optimistic face forward in assessing the progress with the bank bailout plan. Geithner pointed out that the 19 stressed-tested banks have already raised $56 billion in capital [including Bank of America Corp.’s (NYSE: BAC) $13.5 billion stock offering] and several could begin to pay back Trouble Asset Relief Program (TARP) money shortly. He also indicated that the public-private partnership to remove “toxic” assets from banks’ books should be up and running in the next month-and-a-half, a move that may instill greater confidence in the financial markets.

However, an analysis by The Wall Street Journal rained on Geithner’s parade by estimating that small and mid-sized banks could face losses on bad commercial real estate loans of $100 billion by year-end 2010. A Money Morning investigation of the looming commercial real estate crisis predicted that this sector of the real-estate market would pose major problems for the U.S. economic recovery.

Meanwhile, GMAC LLC may be close to receiving a fresh $7 billion in new (bailout) money as the government continues to seek ways to rescue the auto industry. GM reached an agreement with its main union (UAW) that would reduce retiree benefits and overall labor costs to make them comparable to those of their foreign rivals.

As another negative earnings season comes to a close, investors searched long and hard for a bright spot – any bright spot. With most Standard & Poor’s 500 Index companies reporting, earnings plunged more than 30% in the first quarter and are on track to fall 13% for the full year, the worst annual performance in six years.

Still, Thomson Reuters PLC (Nasdaq ADR: TRIN) says that a consensus of sell-side analysts projects a 29% increase in earnings in 2010 as cost-cutting measures pay off and relative results begin to look more attractive.

The Lowes Cos. Inc. (NYSE: LOW) reported better-than-expected quarterly profits and raised its outlook for the year, but The Home Depot Inc. (NYSE: HD) saw its numbers disappoint investors who were looking for stronger signs from the home improvement giant. Likewise, Hewlett-Packard Co. (NYSE: HPQ) reported weaker earnings, and that spawned renewed pessimism for the high-tech sector.

On a brighter note, retailers Sears Holdings Corp. (Nasdaq: SHLD) and Aeropostale Inc. (NYSE: ARO) reported better-than-expected quarterly profits. Ratings upgrades brought early promise as Citigroup Inc. (NYSE: C) boosted its forecast on homebuilder Lennar Corp. (NYSE: LEN); Deutsche Bank AG (NYSE: DB) raised its views on McDonalds Corp. (NYSE: MCD); and Goldman Sachs Group Inc. (NYSE: GS) made Bank of America a “Buy.” However, S&P warned it may downgrade the United Kingdom’s debt below AAA due to ongoing economic obstacles, a development that prompted others to wonder if U.S. securities could face similar dire possibilities.

Crude oil surged past $62 a barrel on lower inventory data and gasoline climbed above $2.36 a gallon heading into the Memorial Day holiday weekend, a far cry from the $3.80 of this time last year – although it was 30 cents higher than late April levels.

Market/ Index	Year Close (2008)	Qtr Close (03/31/09)	Previous Week (05/15/09)	Current Week (05/22/09)	YTD Change
Dow Jones Industrial	8,776.39	7,608.92	8,268.64	8,277.32	-5.69%
NASDAQ	1,577.03	1,528.59	1,680.14	1,692.01	+7.29%
S&P 500	903.25	797.87	882.88	887.00	-1.80%
Russell 2000	499.45	422.75	475.84	477.62	-4.37%
Global Dow	1526.21	1347.38	1,564.63	1,604.53	+5.13%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	2.68%	3.12%	3.45%	+121 bps

Economically Speaking

While Geithner was “spinning” the bailout progress in the most favorable light possible, the U.S. Federal Reserve meeting minutes painted a picture of a more sluggish economy than most had predicted just three months ago. In fact, the policymakers negatively revised their projections for economic contraction and warned that the unemployment rate could push toward 10% by the end of the year. Still, central bank Chairman Ben S. Bernanke believes improvements are on the way as the impact of the Obama administration stimulus package aids in the recovery over the year’s second half. Furthermore, the Fed stands prepared to buy more U.S. Treasury and mortgage-related securities should such moves be deemed beneficial.

In the “it could be worse” category, Mexico (-21.5%), Japan (-15.2%), and Germany (-14.4%) each reported severe economic declines (as measured by gross domestic product, or GDP), as these three primary U.S. trading partners suffered the ill effects of the lower domestic demand for foreign-made goods and services.

Though the economic calendar was rather light during the week, some positive signs did emerge from deep within the numbers. While analysts were surprised by a decline in April housing starts, the losses stemmed from a reduction in apartment activity, and single-family construction actually jumped by almost 3%, its second consecutive positive monthly showing.

Additionally, a private survey of the nation’s construction professionals depicted that homebuilder sentiment soared to its highest level in eight months, another sign that the prolonged housing slump may finally be nearing an end.

Finally, leading economic indicators, a predictive index that forecasts activity for the ensuing six months, turned positive after six straight down months. Unfortunately, labor continued to struggle as the number of folks who have been receiving unemployment benefits for over a week hit a new record high. While the economy definitely seems to be moving past the dreaded recession, any recovery will be limited as long as the labor picture remains weak and employees hold off on purchases until their job situations become more stable. And the risk of a “double-dip” downturn remains somewhat high.

Weekly Economic Calendar

Date	Release	Comments
May 19	Housing Starts (04/09)	Gains in single family offset by declines in apartments
May 20	Fed Policy Meeting Minutes	Signs of economic improvement though slow recovery
May 21	Initial Jobless Claims (05/16/09)	Continuing claims still at record highs
	Leading Eco. Indicators (04/09)	Better than expected increased in forecasting index
The Week Ahead
May 26	Consumer Confidence (05/09)
May 27	Existing Homes Sales (04/09)
May 28	Durable Goods Orders (04/09)
	Initial Jobless Claims (05/23/09)
	New Home Sales (04/09)
May 29	GDP – Qtr 1 (revised)

Source: As GM Cruises Toward Government Deadline, U.S. Automakers Must Learn to Deal With a Permanently Smaller Market

Investment News Briefs Friday, May 22, 2009

Money Morning Staff — Fri, 22 May 2009 13:00:22 +0000

BofA Fast Tracks TARP Payback; Brazil Unemployment Reverses in April; Taiwan GDP Falls 10.24%; Emirates Airline Posts 80% Profit Nosedive; Dollar Swoons Against Euro, Yen; GM and UAW Reach Tentative Accord; Leading Indicators Surge to 4-Year High; Copper Slumps on Poor Sentiment

Bank of America Corp. (NYSE: BAC) intends to pay back $45 billion in loans it borrowed from the U.S. government through the Trouble Assets Relief Program (TARP) by the end of the year, The Financial Times reported. And it intends to do so by accelerating its program to raise capital. Sources told the FT that BofA is on track to raise more than $35 billion by the end of September.

Brazil’s unemployment rate fell to 8.9% in April from 9.3% in March, Bloomberg reported. “The labor market stopped getting worse, that’s definitively good news,” Julio Gomes de Almeida, a consultant at the Brazilian Research Institute for Industry Development, told Bloomberg.

Taiwan’s economy shrank a record 10.24% in the first quarter, as a result of slowing exports and a lack of private investment. Taiwan’s statistics agency cut its full-year growth forecast but also believes the worst is over. “I think we have more or less seen the bottom for Taiwan’s GDP, in terms of dollar value, in the first quarter. We will start seeing improvement in the second, third and fourth quarters this year,” chief statistician Shih Su-mei told a news conference, Reuters reported.

Emirates airline posted an 80% drop in full-year profit, and gave a grim short-term assessment. “As we move into the new financial year, the outlook is not improving,” Chairman Ahmed bin Saeed al-Maktoum said in the statement, Bloomberg reported. “Although fuel prices are dropping, demand for business and first-class traffic is still weak in many markets.”

The dollar fell to its lowest levels against the euro since January and dropped versus the yen yesterday (Thursday) as Treasuries fell and gold prices increased. The spread between yields on 10-year notes and Treasury Inflation Protected Securities (TIPS), reflecting the outlook among traders for consumer prices, reached 1.73%, the highest level since September, raising inflation fears as the U.S. budget deficit widens, Bloomberg reported.

Workers will hold a ratification vote on an agreement reached by General Motors Corp (NYSE: GM) and the United Auto Workers (UAW) union leadership on contract changes and restructuring $20 billion in debt owed to a trust fund for retiree healthcare, Reuters reported. Details of the tentative agreement are being withheld until GM workers are briefed on the proposed new contract, which was reached after a round of talks involving representatives of the U.S. Treasury, the union said in a statement.

The Conference Board’s index of U.S. leading economic indicators rose 1% in April, more than forecast. A separate report showed manufacturing in the Philadelphia area shrank in May at the slowest pace in eight months, signaling the deepest recession in 50 years could end later this year, Bloomberg reported. The leading indicators gauge registered its biggest gain since November 2005, the Conference Board said today. The index points to the direction of the economy over the next three to six months.

Copper lost as much as 4% yesterday (Thursday) before narrowing losses near the close, Reuters reported. The metal, often seen as an economic barometer, was dragged down by a drop in broad market sentiment amid fresh signs of economic weakness. Copper for July delivery on the New York Mercantile Exchange’s COMEX division slipped 5.55 cents to settle at $2.0510 a pound.

Source: Investment News Briefs Friday, May 22, 2009