24/7 Wall St.

Boeing's (BA) Management Fails

Boeing (BA) management had to define its success this year by avoiding a strike by its machinists. The executives have already failed at getting the company's new flagship Dreamliner into production one time. In the process, they alienated a number of their key airline customers.

Boeing management also lost its bid for the new Air Force tanker plane. Northrop Grumman (NOC) got the contract and Boeing is trying to get it back. As the incumbent, Boeing should not have lost it in the first place.

Ford (F) Tries To Play Small Ball (TM)(GM)(HMC)

Ford (F) wants investors to think that there is profit in small cars. Since there is no money in SUVs and pick-ups, that is the company's only option. Gas prices are probably not going back to $2 a gallon.

Rumor And The Death Of Fannie Mae (FNM)

The sky has fallen on Fannie Mae (FNM) and Freddie Mac (FRE). At least that is the rumor. True or not, shareholders are paying a price after hours. Fannie Mae is down 15%.

Whether the stock should be down at all is anyone's guess.

The news from The Wall Street Journal was terribly thin.

The 52-Week Low Club 9/5/2008 (NOK)(EXC)(SSRI)(CIEN)

Nokia (NOK) Company says its market share will drop. Shares fall to $19.25 from 52-week high $42.22.

Exelon (EXC) Weal guidance. Sells off to $65.40 from 52-week high of $92.13.

Silver Standard Resources (SSRI) Price of silver falling. Plunges to $19.10 from $48.16.

Ciena (CIEN) Still falling after bad guidance. Drops to $12.39 from 52-week high of $49.55.

Douglas A. McIntyre

Goldman's Merrill Lynch (MER) Downgrade Is Too Little Too Late (GS, MER)?

Goldman Sachs (GS) analyst William Tanona took the unusual step today of placing Merrill Lynch (MER) on the company's so-called "Conviction Sell" list. What's surprising is not that Tanona considers the embattled Wall Street firm a "sell" but that so many of his colleagues still recommend the stock.

Believe it or not, there are only four sells on New York-based Merrill. An equal number of analysts rate the shares a "buy" or "strong buy." About 13 companies urge investors to hold the stock. One analyst who must not have read much on Merrill lately has a $98 price target on the stock. A close look at the number shows that it does not appear to be a typo.

RFMD Comments Falling on Deaf Ears (RFMD, NOK)

RF Micro Devices, Inc. (NASDAQ: RFMD) is trying to dispute industry woes being seen at other mobile and communication chipset companies.  This may sound important as its customers or its customers' peers are starting to warn of revenue shortfalls ahead.   The mobile and communications chipset maker said it is reaffirming its previous guidance today at a Morgan Keegan conference for the September quarter after its guidance of July 29.

Altria & UST Could Face Antitrust Issues (MO, UST)

The merger chatter this morning has Altria Group Inc. (NYSE: MO) looking at UST Inc. (NYSE: UST) in a deal valued at $10 Billion or higher.  This could be a major score for Big Tobacco.  The Us cigarette leader could grab hold of the largest smokeless tobacco company.  Marlboro could add Skoal, Husky, Copenhagen, and other brands to its smokeless tobacco operations to become the leader in that sector as well. But that may also bring up antitrust issues and potential regulatory hurdles. 

No Assurances SanDisk Would Entertain Samsung Deal (SNDK)

SanDisk Corp. (NASDAQ: SNDK) is seeing a surge on reports that Samsung is considering a tie-up or other alternatives with the company to secure its flash memory supply.  Samsung said it is considering various opportunities after reports that a deal may come.  While this is good news for newer shareholders, there are no assurances that SanDisk management nor shareholders would go along with a merger anywhere close to current prices.

Unemployment Soars to 6.1% On Way to 8%

The jobs data isn't getting better, and in fact is getting worse.  The Labor Department has issued unemployment as being 6.1% in August, while consensus estimates were calling for a 0.1% increase to 5.8%. This was the highest unemployment rate since 2003.  The non-Farm payrolls also came in at -84,000 rather than the -75,000 expected by economists.  If you want some extra salt on that wound, the prior July number was revised to -60,000 from -51,000.  It gets worse.  June's 51,000 drop was revised -100,000 jobs.  Average hourly earnings are not keeping up with inflation either.  Hourly wages rose a whole 0.4% to $18.14.

Just yesterday we identified companies which might lay off 10,000 employees as the conditions continue to weaken. By our calculations this translates to roughly 600,000 job losses since the start of 2008.   If you take the current conditions and look at the trends going to an extreme, then all of a sudden 7% to 8% unemployment at the peak of the problems is becoming a possibility rather than just a bad dream.  With the declines in autos, airlines, manufacturing, construction, retail, banking, and brokerage firm jobs, we could be facing nearly 1,000,000 jobs destroyed in 2008. And, that does not take into account the number of small businesses that will have to cut personnel because they have no access to credit.

Guess where the gains were.  Healthcare and education rose by 55,000 jobs.  The government added 17,000 jobs.  If you keep backing those out this is getting worse and worse.  Thank heavens the government keeps telling us there is no recession.  It's just a recessionless recession.

Anyone hoping that the jobs data was going to help markets is in for another disappointment.  DJIA futures were down 60 points and are now down triple digits again. 10-Year T-Note yields are down another 0.05% to under 3.60%. If you were worried about the FOMC raising rates ahead of the election you can rest easily now.  The FOMC is likely going to be out of the rate hiking game until 2009. 

Jon C. Ogg
September 5, 2008

Nokia (NOK) Cries "Uncle" Who Will Take It Business?

Nokia (NOK) made a number of odd statements today, the net effect of which was to drive the firm's stock down 10%. For starters, it said its global market share in the third quarter would be below where it was in the second quarter. For some reason, it held to its prediction about market share being strong for the full-year 2008. If the company was wrong about the current quarter, why would it be right about what will happen next?

Beyond that, the world largest handset company, which has about 40% of the global market last quarter, said it still believes that overall demand for cell phones will grow modestly this year.

Top Pre-Market Analyst Upgrades (HD, ILMN, MFE, NAV, OMX, VTA, VRNM, WAT)

These are some of the top upgrades or positive calls we are seeing from analysts this Friday morning:

• Home Depot (HD) Started as Outperform at FBR.
• Illumina (ILMN) Started as Overweight at Morgan Stanley.
• McAfee (MFE) Started as Buy at American Technology & Research.
• Navistar (NAV) Raised to Overweight at JPMorgan.
• OfficeMax (OMX) Started as Outperform at FBR.
• Van Kampe Dynamic Credit Fund (VTA) Started as Perform at Oppenheimer.
• Verenium (VRNM) Started as Buy at Lazard.
• Waters Corp. (WAT) Started as Overweight at Morgan Stanley.

Jon C. Ogg
September 5, 2008

Top Pre-Market Analyst Downgrades (AFFX, CLNE, MER, NTRS, SPLS, TU)

These are some of the top downgrades or cautious calls we are seeing from analysts this Friday morning:

• Affymetrix (AFFX) Started as Underweight at Morgan Stanley.
• Clean Energy (CLNE) Cut to Underperform at National Bank.
• Merrill Lynch (MER) Cut to Sell at Goldman Sachs.
• Northern Trust (NTRS) Cut to Sell at Sandler O'Neill.
• Staples (SPLS) Started as Underperform at FBR.
• Telus Corp. (TU) Cut to Neutral at UBS.

Jon C. Ogg
September 5, 2008

Goldman Sachs Pans Merrill Lynch (MER, GS)

Merrill Lynch & Co. Inc. (NYSE: MER) is trading down 6% or so in pre-market after Goldman Sachs downgraded the stock to a SELL rating and put shares on its Conviction Sell List.  The firm says that it trades at the highest price-to-book multiple in the large cap brokerage firm universe.  The firm also noted that Merrill Lynch has some of the most significant exposure to CDO's, mortgages, and leveraged loans.  Shares closed yesterday at $26.21 and are trading south of $25.00 this Friday in pre-market trading.

Just yesterday, Goldman Sachs (NYSE: GS) issued an SEC Filing showing trading losses in one of its hedge fund groups.

Jon C. Ogg
September 5, 2008

Foreign Buyers Start To Shift Though US Tech Wreckage

Samsung, one of the largest companies in South Korea, says it may want to buy US flash chip company Sandisk (SNDK). The US firm's stock has dropped from a 52-week high of $56.46 to under $14. If flash memory prices stop falling soon, the acquisition would be a great deal.

What appears to be happening now is that foreign money is turning from buying distressed US financial assets and moved its interests to tech. It could be persuasively argued that there is less risk in own American companies with hard assets and fixed customer bases than banks which could still face billion of dollars of write-offs. The great pools of capital sitting outside the US may be realigning their intentions.

What Happens When Citigroup (C) Fails?

If the markets are to take bond guru Bill Gross at his word, the world's financial markets could go through a cataclysmic failure. The head of fixed income fund operation Pimco says that a rapid sale of assets by banks, brokers, and hedge funds will cause the credit system to collapse. Almost all of these companies need cash and none of them wants to be left holding the bag if housing and commercial markets go to pieces.

Yahoo!'s (YHOO) Five-Year Low To Get Lower, The Weakness Of The Internet No Longer Ignored

Yahoo! (YHOO) moved close to its five-year low yesterday, trading down at $17.75. It really has not been so long ago that Microsoft (MSFT) made its $33 bid for the portal company.

Yahoo!'s market cap is now down to $24 billion. By many estimates, its ownership in China online company Alibaba and Yahoo! Japan are worth $10 billion. That would put the value of Yahoo! itself at $10.

The analysis of Yahoo! without its overseas asset holdings has been done many times before.

A Bail-Out For China's Biggest Bank, As Pimco Warns Global Markets Will Get Worse

Perhaps some day the Fed will run out of money. The equivalent is happening in China. The People’s Bank of China managed to put a truck-load of money into US mortgage-backed securities and paper issued by Fannie Mae (FNM) and Freddie Mac (FRE).

It is hard to be critical of the communist bankers since they made the same mistake as almost every large financial firm in the US and EU.

Media Digest 9/5/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, bond giant Pimco called for more governemt support for the financial system saying the the credit crisis could turn much worse.

Reuters writes that Microssoft (MSFT) will begin its $300 million marketing campaign for Windows.

Reuters reports that Bank of America (BAC) plans to settle an auction-rate probe the same was that several other brokers and banks have.

Asia Markets 9/5/2008 (SNE)(HBC)(PTR)

Markets in Asia fell.

The Nikkei was off 2.8% to 12,212, Sony (SNE) hit a multi-year low as it recalled a number of PCs.

The Hang Seng was down 3.2% to 19,747. HSBC (HBC) and PetroChina (PTR) both fell sharply.

The Shangehai Composite fell 3.3% to 2,202.

Data from Reuters

Douglas A. McIntyre

Is Goldman Sachs Losing Its Trading Edge? (GS)

Goldman Sachs Group Inc. (NYSE: GS) has been an incredible performer among the bulge bracket investment banking firms during the entire credit meltdown and market malaise.  Its shares had been holding up better than any of the large cap competitors, partly because of its massive bet against the credit markets and partly because of its other trading efforts outperforming peers.  But some evidence is surfacing that a part of this may be peaking or that the firm has lost part of its edge.  Today we have seen an SEC filing which may be far more pertinent than an analyst estimate cut and a trader move.

The 52-Week Low Club 9/4/2008 (TEX)(HL)(MTW)(CIEN)(VRSN)

Terex Corporation (TEX) Bad guidance. Drops to $37.12 from 52-week high of $91.21.

Hecla Mining (HL) Price of silver down. Sells off to $5.79 from 52-week high of $13.14.

The Manitowoc Company (MTW) Hurt by drop in Terex. Dips to $21.62 from 52-week high of $51.49.

Ciena (CIEN) Weak guidance. Plunges to $13 from 52-week high of $49.55.

Verisign (VRSN) Some investors still unhappy with last quarter's numbers. Falls to $28.15 from 52-week high of $42.50.

Douglas A. McIntyre

Ag, Commodities, Bubbles & The Recessionless Recession (XOM, BHP, ABX, BTU, POT, WMT)

The new mantra creating a deflating speculative bubble is taking a new twist.  Even before Ospraie blew out its fund (and now after) there have been more rumors about commodity-related funds or commodity-stock related fund blow-ups.  In fact, today is no different and much of that is being tied to selling as new credit issues are bringing about more and more de-leveraging. All you have to do is look at some of the top commodity stocks (below) to see how this is not just sector rotation. Or you can just look at the yield on the 10-Year T-Note at 3.65% today.  In mid-August this was 4% and if these levels hold here this will mark the lowest yield since mid-April.  Today feels like one of those days after a weak week where nothing works.  Only two of our old "defensive stocks for a crummy market" are trading up today.

24/7 Wall St. Most Overpaid CEO Of The Day: Ciena (CIEN) CEO Gary Smith

Shares in Ciena (CIEN), a communications equipment company, fell 25% today to a new 52-week low of $13. The period high was $49.55.

As part of its earnings announcement, Ciena said the future looks grim. The firm forecast revenue in its current, fiscal fourth quarter in a range of $190 million to $210 million, dramatically below the market's prediction of $264 million according to Reuters Estimates

Markets Boo McCain's VP Choice

John Tamny of RealClearMarkets

Alongside last Friday's announcement that Alaska Governor Sarah Palin would be John McCain's running mate, the Dow Jones Industrial Average fell 170 points. Stocks have shown weakness ever since.

While there are many factors that move markets, a looming electoral contest between a tax-hiking Democrat versus a nominally pro-growth Republican surely weighs heavily on market psyche. It says here that the markets concluded last week that whatever John McCain's true economic views, on Friday he handed the election to the anti-growth candidate with his selection of Palin.

read more...

A Dozen Companies Which Should Lay-Off 10,000 People This Year

The evidence that sales at many companies are struggling and that employment will suffer are almost everywhere. Recently, a division of GMAC said it would let 5,000 people go. According to MSNBC, "Job cuts announced by U.S. employers last month jumped 12 percent over a year ago to cap the busiest summer of downsizing in six years." Job cuts through October could top what they were for all of 2007.

The economy is beginning to look like it did during the deep recessions in the early 1990s and 1973. Eric Rosengren, the president of the Boston Federal Reserve Bank, sees the situation getting much darker in the second half. Speaking of deteriorating financial conditions he said, "It may push the unemployment rate up to 6%, with more than 2 million people losing their jobs since the financial turmoil began last summer.".

Going Nuclear Into Elections (EXC, NRG, D, DUK, PGN, AEE)

Electric utility Exelon (NYSE:EXC) this morning revised guidance for 2008 to a range of $4.15 - $4.30 per share from $4.00 - $4.40 per share. That's measured on non-GAAP operating earnings; on GAAP earnings, the company adjusted its guidance from $3.70-$4.10/share to $3.90-$4.30/share. The press release cited mark-to-market adjustments in hedging, asset impairments, and costs associated with rate and litigation settlements. Analysts had been predicting GAAP earnings of $4.36/share. The company also announced a share buyback program that will total $1.5 billion over the next six months.  This might just be only the tip of the iceberg in nuclear power during an election year.

Exelon is joining nine other companies that have filed applications with the NRC to build 29 new reactors in the US. NRG Energy (NYSE:NRG), Dominion (NYSE:D), Duke Energy (NYSE:DUK), Progress Energy (NYSE:PGN), and Ameren Energy (NYSE:AEE) among others have also filed construction and operating license applications with the NRC.

Legg Mason and the Coming Redemptions & Misses (LM, LMVTX)

Legg Mason Inc. (NYSE: LM) is having a rough morning to say the least.  The investment manager's shares are being hit after Credit Suisse took an already cautious Neutral rating down to an even lower Underperform rating on the stock.  The $42.00 target stands, which is under current share prices by about 4%.  Credit Suisse believes that the firm is going to be unable to meet earnings expectations for multiple quarters and believes this firm is going to be riddled with redemptions and client defections to other managers as end of year reviews are coming up. 

TEPPCO's Multi-Year Lows on Increased Offering (TPP)

TEPPCO Partners, L.P. (NYSE:TPP) is under a bit of pressure after the energy logistics company has priced a secondary offering of 8,000,000 units.  Last night this was listed as a pricing of 7.1 million units, but that number has been increased this morning.  As far as a use of funds, TEPPCO intends to use the net proceeds from these sales of units to reduce debt under its revolving credit facility, and it expects to use some of the increased availability under the facility to finance capital expenditures and other growth projects.

Top Pre-Market Analyst Upgrades (ADS, AUTH, BRCM, EXC, NVLS, SAI, SNDA)

These are the top upgrades and positive analyst calls we are seeing this Thursday morning:

• Alliance Data (ADS) Started as Buy at B of A.
• AuthenTec (AUTH) Started as Buy at S&P Equity Research.
• Broadcom Corp. (BRCM) Started as Outperform at Credit Suisse.
• Excelon (EXC) Raised to Buy at Jefferies.
• Novellus Systems (NVLS) Raised to Overweight at Morgan Stanley.
• SAIC (SAI) Raised to Outperform at at Wachovia.
• Shanda Interactive (SNDA) Raised to Outperform at Oppenheimer.

Jon C. Ogg
September 4, 2008

Top Pre-Market Analyst Downgrades (KELYA, KLAC, LRCX, MRVL, PNY, RHI, SNDA, XLNX)

These are the top downgrades and negative analyst calls we are seeing this Thursday morning:

• Kelly Services (KELYA) Cut to Sell at Citigroup.
• KLA-Tencor (KLAC) Cut to Equal-weight at Morgan Stanley.
• Lam Research (LRCX) Cut to Underweight at Morgan Stanley.
• Marvell Technology (MRVL) Started as Neutral at Credit Suisse.
• Piedmont Natural Gas (PNY) Cut to Neutral at Baird.
• Robert Half (RHI) Cut to Sell at Citigroup.
• Shanda Interactive (SNDA) has seen estimate and targets cut by Citigroup, JPMorgan, and Goldman Sachs.
• Xilinx (XLNX) Started as Neutral at Credit Suisse.

Jon C. Ogg
September 4, 2008

Ciena Echoes Telecom & Data Slowdown (CIEN, JDSU)

Ciena Corporation (NASDAQ: CIEN) has come out with earnings and posted a 7% drop in non-GAAP EPS to $0.37 EPS on a 24% revenue rise to $253.2 million. First Call had estimates at $0.37 and $253.6M. Unfortunately the fiber optic and networking company is seeing a slowdown and order delay from its Tier One telecom and data carrier clients.  It has now lowered revenue guidance to $190 to $210 million for its fiscal fourth quarter, which is a far cry from the $263 million expected by analysts in the First Call surveys.

Alms For The Poor: Wal-Mart (WMT) August Sales Up

Wal-Mart's (WMT) US same store sales rose 3% in August. Analysts expected about half that growth rate.

The Wal-Mart news is almost certainly a sign the the middle class is joining those below the poverty line in making the huge retailer their first and only place to shop.

As Online Display Ads Falter, Yahoo! (YHOO) And New York Times (NYT) Torpedoed

It turns out that display advertising on the internet is becoming less popular with most marketers. They are turning to search text ads instead. This is probably not news to anyone in the industry, but now there is fairly solid research on the trend.

According to The Wall Street Journal, "Search ads are forecast to represent 42% of overall U.S. online ad spending in 2008, according to eMarketer, up from 40% in 2007. Display is expected to stay flat, at about 21% of overall spending."

BP (BP) And Russia: Trusting An Untrustful Partner

BP (BP) says it got what it wanted from negotiations with its Russian joint venture partner. in TNK-BP. There will be new independent directors and the current CEO will leave. There may even be an IPO of 20% of the company's shares.

According to Reuters, "The British oil company had accused its partners of orchestrating a campaign of state harassment against TNK-BP and its officers as a means of securing control of Russia's third-largest oil producer."

China Economics 101: Stimulation Causes Inflation

The communist central government in China is starting to sweat a slowdown in the national economy of the world most populated country. It has begun to dawn on them that the "law of large numbers" will make 10% GDP growth every year somewhat difficult.

Chinese economists can see a drop in consumption in the big countries especially Japan, the US, and most of the EU.

Boeing (BA): A Strike The Company Can't Afford

Boeing's (BA) machinists have decided to strike the company over wage and benefit issues. The union will hold off walking out for two days to see if a last moment deal can be reached.

A compromise seems unlikely. Boeing says it has given the workers its last offer and that the offer is unusually generous.

AIG (AIG): Create New Company, Dump Bad Assets

AIG (AIG) may resort to a tactic that is as old as the hills. It is considering taking its worst assets and moving them into a new company. This would leave AIG with a relatively good balance sheet. Its subprime investments would no longer plague it.

Media Digest 9/4/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, NY State sent subpoenas to Bank of Americ (BAC) executives over auction-rate securities.

Reuters reports the Boeing's (BA) machinist union voted to strike but stay on the job two days to see if a settlement can be reached.

Reuters writes that Mitsubishi UFJ said it had no plans to invest in Lehman (LEH).

Reuters writes that US car makers has a poor August but there were some signs of hope.

Asia Markets 9/4/2008

Markets in Asia were mixed.

The Nikkei fell 1% to 12,558. Chip-making equipment supplier Tokyo Electron slid 4.4 percent to 5650.

The Hang Seng dropped .5% to 20,493.

The Shanghai Composite moved up a fraction to 2,277.

Data from Reuters

Douglas A. McIntyre

Microsoft (MSFT) Cuts Xbox Price, Damns Nintendo

Microsoft (MSFT) has decided that it would rather be the video game market share leader than make a buck at the business.

Redmond cut the price of its Xbox 360 to $199. That drops it from its previous sticker of $279. The action may take some business away from the Sony (SNE) PS3, but it is more clearly aimed at market leader Nintendo which has remained in the front spot for months with its $250 Wii.

Corning's (GLW) Broken Glass

Corning Inc (GLW). Chief Executive Wendell Weeks is on the hot seat with investors after the glassmaker lowered earnings guidance because of lower-than-expected shipments of LCD glass. Even bigger problems may lay on the horizon for the Corning, New York,-based company over the next few years.

According to Corning's latest 10-Q,  several of its customers entered into long-term purchase and supply agreements with its Display Technologies business in 2004 and 2005 for periods of as long as six years.  Between 2004 and 2007, Corning received $937 million in deposit from these clients.

Health Care REIT Raising Cash (HCN, SRZ)

Health Care REIT, Inc. (NYSE:HCN) has filed to sell up to 6,000,000 shares of common stock in a secondary offering.  These shares of common stock to be sold are going to registered under the REIT's existing shelf registration statement on file with the SEC.  The underwriting syndicate consists of Deutsche Bank, Bank of America, UBS, and Merrill Lynch. The underwriters will receive a 30-day option to purchase up to an additional 900,000 shares to cover over-allotments.