BROAD MARKET SUMMARY:
Same song, but apparently investors are tiring of the tune. U.S. stocks closed sharply lower, with the Dow Jones Industrial Average ending below 12,000 for the first time in three months, as escalating oil prices and more trouble in the financial sector compounded market anxiety. Compounding the concern is the looming 2-day FOMC meeting next week where the powers that be have shifted their focus lately toward the threat of inflation. With that, the key issue on their minds, the likelihood of a rate hike is higher than that of a cut. Thus, with the American economy facing the difficult issues previously mentioned, facing possible higher interest rates makes the outlook even more ominous.
When investing in the stock market, typically a driving force in the minds of scrupulous investors is the likelihood of future corporate profitability. This is driven by many various factors, but basically the relationship between sales and costs inside the company leads to potential profits. With energy costs as high as they are, a large amount of companies are feeling the pinch of higher costs of doing business. Conversely, the sales of many companies are falling due to the inability of consumers to pay for anything more than the basics. This is due to various wealth eroding factors including higher energy costs, difficult real estate markets, declining investment account values, and possibly even higher interest rates.
With this as the landscape and outlook, along with the continued concerns about credit and energy, investors are facing a difficult environment to buy domestic equities.
INDEX
6/20 Close
6/13 Close
% Chg
DJIA
11,842.69
12,307.35
-3.78%
S&P 500
1,317.93
1,360.03
-3.10%
NASDAQ
2,406.09
2,454.50
-1.97%
West Texas Intermediate Crude closed at $135.36/bbl. Gold Futures closed at $903.70/oz
Next FOMC Meeting:June 24 & 25, 2008 - Tuesday/Wednesday
Notable Economic Data This Week:
• PPI for May measured a significant increase from 0.2% in April to 1.4% which was higher than the expectation of 1.0%.
• Core PPI was down in May to 0.2% from 0.4% previous, which matched expectations.
• Housing starts were lower this month roughly in line with market projections.
• U.S. crude inventories fell again this week, but the price of oil was effectively unwavering.
ECONOMIC COMMENTARY: Former U.S. Federal Reserve Chairman Alan Greenspan said on Friday the Fed will have to tighten monetary policy to put a brake on inflation, adding that the worst of the credit crisis may have passed. Growing price pressures have led the U.S. central bank to recently shift to more aggressive anti-inflation rhetoric, and expectations are rising that policymakers will raise benchmark U.S. interest rates within months. "If you're going to keep inflation rates down, the Federal Reserve is going to have to put increasing pressure on the money supply and reserves, and as a result we're going to see interest rates rising," Greenspan said via video link to an event in Mexico. Soaring gasoline prices helped drive up the U.S. consumer price index in May at the fastest rate in six months, the government said on Friday, although "core" prices, excluding food and energy, remained tame. Greenspan said weakness in financial markets probably peaked in March but that it was hard to say how long the crisis would last. "It can struggle along for a while. It could get worse, it could get better," he said. Federal Reserve officials have recently spoken more openly about inflation, marking an important shift away from an emphasis on the risk that financial turmoil, tighter credit, and a deep housing contraction could tip the U.S. economy into a deep recession.
SHIFTS IN THE OIL LANDSCAPE: Saudi Arabia has to take necessary measures to stabilize the price of oil, said United Nations Secretary-General Ban Ki-moon yesterday following a meeting with Custodian of Two Holy Mosques King Abdullah. Ban, who was speaking at a press conference in Jeddah, described his talks with King Abdullah as “very constructive and in-depth,” adding, “We expect the king and his government to take necessary measures to stabilize the price of oil.” Ban, who is on his second visit to Saudi Arabia since March 2007, described the UN-Saudi cooperation as “very strong.” He said the price of oil has had an impact on all aspects of life, including the soaring price of food, in addition to weakening the UN’s capacity to address climate change issues. “I have conveyed such concern, the concern expressed by a number of world leaders during the Food Agriculture Organization summit in Rome and I am sure King Abdullah shares the same concern,” he said. Ban added that the issues of rising food and fuel prices, and climate change should be addressed “comprehensively.” He also expressed hopes that the upcoming Saudi-hosted meeting of oil producers and consumers in Jeddah on June 22 would yield a positive outcome.
Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein rose to power. Exxon Mobil, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq's Oil Ministry for no-bid contracts to service Iraq's largest fields, according to ministry officials, oil company officials and an American diplomat. The deals, expected to be announced on June 30, will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations. The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production. Something just really stinks when you hear the words "NO BID CONTRACTS." Is that just me or do other people feel the same way?
HEDGE FINDS AN EDGE: Hedge fund returns look set to pick up this year after a poor start, as managers learn the painful lessons of recent months and feel well positioned to profit from opportunities arising in credit and equity markets. Having cut back the leverage that caught out some funds last year and rebuilt computer-driven models hit by a vicious circle of selling last summer, funds now see opportunities amid high market volatility and a greater chance of corporate default. Speaking at this week's GAIM International 2008 hedge fund conference, high-profile manager John Paulson said he sees a $10 trillion opportunity appearing in distressed debt and good value in higher quality mortgage debt. Others hope to profit from forced selling of equities or better conditions for convertible arbitrage. "If everything has been written down on the credit side, it's a great opportunity. It's all about a lot of dumb people and a few smart ones." said Bill Browder, chief executive of Hermitage Capital Management. During the first quarter, in which a sharp market reversal after the Fed's bailout of Bear Stearns Cos Inc caught out many funds, the Credit Suisse/Tremont index of hedge fund returns was down 2.01 percent.
MORE DOWN THAN UP IN CORPORATE AMERICA: Several Yahoo Inc. executives have departed the struggling tech icon. During the week, word emerged that the husband-and-wife team that created Yahoo's Flickr photo sharing service, Stewart Butterfield and Caterina Fake, have resigned. The resignations follow those of two Yahoo executive vice presidents, Jeff Weiner and Usama Fayyad. Three more executives have decided to leave Yahoo as well, according to reports published Thursday by the New York Times and two blogs. The reports were based on unnamed people with knowledge of the departures. Named in the reports were Qi Lu, an executive vice president in charge of Yahoo's search and advertising technology; Brad Garlinghouse, a senior vice president who oversees communications tools; and Vish Makhijani, a senior vice president involved in search. Yahoo declined to confirm the three reported departures on Thursday, issuing a statement expressing the company's confidence in "a deep and talented management team."
Shares of Western Union Co. surged to a new 52-week high Friday after the money transfer services firm said it expects 2008 earnings to be at the higher end of its guidance range. PiperJaffray analyst Robert Napoli reiterated his "Buy" rating on the stock after the news. Western Union plans to improve profitability by accelerating growth in its consumer-to-consumer business, globalizing its consumer-to-business segment, developing new products and services and reducing costs. "Our decision to raise the long-term EPS objective comes from our confidence that we are successfully executing on Western Union's strategy that positions us extremely well in the huge and growing global money transfer marketplace." Christina Gold, Western Union's chief executive, said in a statement.
In another blow to beleaguered U.S. automakers, Standard & Poor's on Friday said it may cut its ratings on Ford Motor Co, General Motors and Chrysler LLC, citing financial damage resulting from high gasoline prices. S&P said it was concerned about cash outflows from all three automakers as high gasoline prices erode demand for sport utility vehicles and pickups. The "dire state" of the vehicle finance market was also worrisome, S&P said. The rating agency also said it may cut its ratings on automaker finance units Ford Motor Credit Co and DaimlerChrysler Financial Services Americas LLC, as well as GM's 49 percent-owned finance affiliate GMAC LLC. The rating warning came after Ford said it would post a deeper loss for its auto business this year and warned it would be difficult to avoid a loss in 2009. That was a weaker outlook than Ford offered just last month. "All of the factors behind Ford's weaker guidance also apply to the other U.S.-based automakers." S&P said in a statement. Sales of light trucks and SUVs, historically key profit centers for the automakers, have plunged as consumers shift to more fuel-efficient cars. "Although these segments have been weak for some time, the exodus of demand that began in April, caused by escalating gas prices and consumer preferences for smaller vehicles, is gathering speed," S&P said in a statement.
Sen. Claire McCaskill vowed Tuesday to do everything in her power to thwart InBev's bid for Anheuser-Busch Cos., joining the chorus of politicians in opposition to the Belgian-Brazilian conglomerate's move on her home state's brewer. The Missouri Democrat made that promise shortly after meeting with Carlos Brito, InBev's chief executive. During their half-hour chat, according to a spokeswoman, McCaskill told him "quite frankly that she was opposed to the deal and would do what she could to stop it." Anheuser-Busch, based in St. Louis, is one the region's largest employers and a major source of hometown pride. InBev, based in Brussels but run by Brazilians, last week made an unsolicited cash bid of $65 per share for the No. 1 U.S. brewer, in a deal valued at about $46 billion. A-B has said that its board would consider the offer and respond in due course. Warren Buffet, the investor known as the sage of Omaha, is expected to privately step into the situation. Buffett, who owns 5 per cent of Anheuser through his group Berkshire Hathaway, is planning to speak to August Busch IV, the Anheuser chief executive, within the next few days to discuss the hostile bid, according to sources close to the deal. Buffett wants to remain neutral in the early days of the controversial offer, but it is understood Busch wants to know his opinion of the bid. At the current offer price Buffett's stake is worth some $2.3bn. Sources said Buffett believed the Busch family, which founded the company in 1852, should not reject the bid and should even consider discussions with InBev.
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StockwireAdmin
Former U.S. Federal Reserve Chairman Alan Greenspan said on Friday the Fed will have to tighten monetary policy to put a brake on inflation, adding that the worst of the credit crisis may have passed. Growing price pressures have led the U.S. central bank to recently shift to more aggressive anti-inflation rhetoric, and expectations are rising that policymakers will raise benchmark U.S. interest rates within months. "If you're going to keep inflation rates down, the Federal Reserve is going to have to put increasing pressure on the money supply and reserves, and as a result we're going to see interest rates rising," Greenspan said via video link to an event in Mexico. Soaring gasoline prices helped drive up the U.S. consumer price index in May at the fastest rate in six months, the government said on Friday, although "core" prices, excluding food and energy, remained tame. Greenspan said weakness in financial markets probably peaked in March but that it was hard to say how long the crisis would last. "It can struggle along for a while. It could get worse, it could get better," he said. Federal Reserve officials have recently spoken more openly about inflation, marking an important shift away from an emphasis on the risk that financial turmoil, tighter credit, and a deep housing contraction could tip the U.S. economy into a deep recession.
Saudi Arabia has to take necessary measures to stabilize the price of oil, said United Nations Secretary-General Ban Ki-moon yesterday following a meeting with Custodian of Two Holy Mosques King Abdullah. Ban, who was speaking at a press conference in Jeddah, described his talks with King Abdullah as “very constructive and in-depth,” adding, “We expect the king and his government to take necessary measures to stabilize the price of oil.” Ban, who is on his second visit to Saudi Arabia since March 2007, described the UN-Saudi cooperation as “very strong.” He said the price of oil has had an impact on all aspects of life, including the soaring price of food, in addition to weakening the UN’s capacity to address climate change issues. “I have conveyed such concern, the concern expressed by a number of world leaders during the Food Agriculture Organization summit in Rome and I am sure King Abdullah shares the same concern,” he said. Ban added that the issues of rising food and fuel prices, and climate change should be addressed “comprehensively.” He also expressed hopes that the upcoming Saudi-hosted meeting of oil producers and consumers in Jeddah on June 22 would yield a positive outcome.
Hedge fund returns look set to pick up this year after a poor start, as managers learn the painful lessons of recent months and feel well positioned to profit from opportunities arising in credit and equity markets. Having cut back the leverage that caught out some funds last year and rebuilt computer-driven models hit by a vicious circle of selling last summer, funds now see opportunities amid high market volatility and a greater chance of corporate default. Speaking at this week's GAIM International 2008 hedge fund conference, high-profile manager John Paulson said he sees a $10 trillion opportunity appearing in distressed debt and good value in higher quality mortgage debt. Others hope to profit from forced selling of equities or better conditions for convertible arbitrage. "If everything has been written down on the credit side, it's a great opportunity. It's all about a lot of dumb people and a few smart ones." said Bill Browder, chief executive of Hermitage Capital Management. During the first quarter, in which a sharp market reversal after the Fed's bailout of Bear Stearns Cos Inc caught out many funds, the Credit Suisse/Tremont index of hedge fund returns was down 2.01 percent.
Several Yahoo Inc. executives have departed the struggling tech icon. During the week, word emerged that the husband-and-wife team that created Yahoo's Flickr photo sharing service, Stewart Butterfield and Caterina Fake, have resigned. The resignations follow those of two Yahoo executive vice presidents, Jeff Weiner and Usama Fayyad. Three more executives have decided to leave Yahoo as well, according to reports published Thursday by the New York Times and two blogs. The reports were based on unnamed people with knowledge of the departures. Named in the reports were Qi Lu, an executive vice president in charge of Yahoo's search and advertising technology; Brad Garlinghouse, a senior vice president who oversees communications tools; and Vish Makhijani, a senior vice president involved in search. Yahoo declined to confirm the three reported departures on Thursday, issuing a statement expressing the company's confidence in "a deep and talented management team." 
Shares of Western Union Co. surged to a new 52-week high Friday after the money transfer services firm said it expects 2008 earnings to be at the higher end of its guidance range. PiperJaffray analyst Robert Napoli reiterated his "Buy" rating on the stock after the news. Western Union plans to improve profitability by accelerating growth in its consumer-to-consumer business, globalizing its consumer-to-business segment, developing new products and services and reducing costs. "Our decision to raise the long-term EPS objective comes from our confidence that we are successfully executing on Western Union's strategy that positions us extremely well in the huge and growing global money transfer marketplace." Christina Gold, Western Union's chief executive, said in a statement.
In another blow to beleaguered U.S. automakers, Standard & Poor's on Friday said it may cut its ratings on Ford Motor Co, General Motors and Chrysler LLC, citing financial damage resulting from high gasoline prices. S&P said it was concerned about cash outflows from all three automakers as high gasoline prices erode demand for sport utility vehicles and pickups. The "dire state" of the vehicle finance market was also worrisome, S&P said. The rating agency also said it may cut its ratings on automaker finance units Ford Motor Credit Co and DaimlerChrysler Financial Services Americas LLC, as well as GM's 49 percent-owned finance affiliate GMAC LLC. The rating warning came after Ford said it would post a deeper loss for its auto business this year and warned it would be difficult to avoid a loss in 2009. That was a weaker outlook than Ford offered just last month. "All of the factors behind Ford's weaker guidance also apply to the other U.S.-based automakers." S&P said in a statement. Sales of light trucks and SUVs, historically key profit centers for the automakers, have plunged as consumers shift to more fuel-efficient cars. "Although these segments have been weak for some time, the exodus of demand that began in April, caused by escalating gas prices and consumer preferences for smaller vehicles, is gathering speed," S&P said in a statement.
Sen. Claire McCaskill vowed Tuesday to do everything in her power to thwart InBev's bid for Anheuser-Busch Cos., joining the chorus of politicians in opposition to the Belgian-Brazilian conglomerate's move on her home state's brewer. The Missouri Democrat made that promise shortly after meeting with Carlos Brito, InBev's chief executive. During their half-hour chat, according to a spokeswoman, McCaskill told him "quite frankly that she was opposed to the deal and would do what she could to stop it." Anheuser-Busch, based in St. Louis, is one the region's largest employers and a major source of hometown pride. InBev, based in Brussels but run by Brazilians, last week made an unsolicited cash bid of $65 per share for the No. 1 U.S. brewer, in a deal valued at about $46 billion. A-B has said that its board would consider the offer and respond in due course. Warren Buffet, the investor known as the sage of Omaha, is expected to privately step into the situation. Buffett, who owns 5 per cent of Anheuser through his group Berkshire Hathaway, is planning to speak to August Busch IV, the Anheuser chief executive, within the next few days to discuss the hostile bid, according to sources close to the deal. Buffett wants to remain neutral in the early days of the controversial offer, but it is understood Busch wants to know his opinion of the bid. At the current offer price Buffett's stake is worth some $2.3bn. Sources said Buffett believed the Busch family, which founded the company in 1852, should not reject the bid and should even consider discussions with InBev.