BROAD MARKET SUMMARY:
While some key segments of the economy are riding at all time highs, others are seeing 52 week lows. The price of oil bumped against record prices this week and broke through the levels repeatedly on supply concerns and other notable news. Crude prices are up 45% year-to-date and up 98% year-over-year. Meanwhile, the Dow Jones Industrial Average along with Citigroup, General Motors, and General Electric shares haven’t been this low in the past year of trading.
Continuing this line of thinking, the Fed announced interest rates remained unchanged basically due to factors in the economy going two different directions. While the economic activity in the US feels soft to say the least, the officials must concern themselves with impending inflationary pressures. This week also was also fraught with numerous downgrades in the security markets from various brokerage firms. Of those, a significant portion is related to the financial sector and the expected write downs in the coming months as a continuation of the overall weakness of the industry.
INDEX
6/27 Close
6/20 Close
% Chg
DJIA
11,346.51
11,842.69
-4.19%
S&P 500
1,278.38
1,317.93
-3.00%
NASDAQ
2,315.63
2,406.09
-3.76%
West Texas Intermediate Crude closed at $140.21/bbl. Gold Futures closed at $931.30/oz
Next FOMC Meeting:Tuesday, August 5, 2008
Notable Economic Data This Week:
• Consumer Confidence is at its lowest level since the last prolonged US recession in 1990.
• New home sales fell in May while sales of Existing home sales rose.
• The FOMC held key interest rates steady this week citing a dichotomous situation with both economic weakness and an inflationary environment.
RIDING THE OIL WAVE HIGHER STILL: Oil rose on Monday as Nigerian supply disruptions and escalating tensions between Israel and Iran outweighed Saudi Arabia's pledge to raise output and keep markets well-supplied. "Bellicose rhetoric between Israel and Iran and escalated militancy in Nigeria reduced what little optimism there was surrounding the Saudi's meeting in Jeddah over the weekend," John Kilduff, senior vice president at MF Global, wrote in a research note. Nigeria's senior oil workers union began a limited strike at Chevron on Monday. While the stoppage has not disrupted production yet, it added to concerns about supplies from the OPEC nation after militant attacks shut 340,000 barrels of daily production last week. European Union approved new sanctions on Iran, including an asset freeze on its biggest bank, over its refusal to meet demand to end its nuclear program. "The No. 1 issue in the market today is the strike in Nigeria. But traders are also uneasy about the agreement among European Union states to impose new banking sanctions against Iran, which comes on the heels of increasing tensions between Israel and Tehran." said Phil Flynn, an analyst at Alaron Trading in Chicago.
Oil futures shot above $140 Thursday after OPEC's president said crude prices could rise well above $150 a barrel this year and Libya said it may cut oil production. The advance raised the likelihood that gasoline prices would also extend their march higher, and that prices of goods and services throughout the economy would also keep rising. Oil's latest milestone came as Chakib Khelil, president of the Organization of the Petroleum Exporting Countries, said he believes oil prices could rise to between $150 and $170 a barrel this summer. Khelil also said prices will decline later in the year, and aren't likely to reach $200 a barrel. Khelil joined a long list of forecasters who have made bold oil price predictions this year. Each new forecast -- such as Goldman Sachs' recent prediction that prices could rise as high as $200 -- causes a jump in prices as speculative buyers are drawn into the market. Meanwhile, the head of Libya's national oil company said the country may cut crude production because the oil market is well supplied, according to news reports.
TECH TALK: Yahoo! announced changes to its organization aimed at improving its products, technologies and execution. The moves support its strategy to be the starting point for the most users, the must-buy for the most advertisers and the platform of choice for developers. Key elements Yahoo! announced are the centralization of consumer product development to enhance the company’s ability to release products worldwide; the creation of a U.S. region focused on bringing products to market for users, advertisers and publishers; formation of an insights strategy team; and enhancements to the technology infrastructure to optimize the use of data and improve coordination between product and engineering teams. “These moves accelerate the ability of our deep and talented team to build great products, grow our audiences and improve monetization globally,” said Jerry Yang, CEO. “They are designed to put us in an even better position to leverage our leading global audience and capture the opportunity we see in the convergence of search and display advertising.”
In a tumultuous week on the markets, the big news for the tech sector was Research in Motion falling short of Wall Street's first-quarter expectations, and Oracle's caution about the current quarter. RIM added about 2.3 million BlackBerry subscribers in the quarter, exceeding the 2.2 million additions forecast by the company. Just as important, almost 60 percent of the new subscribers were nonbusiness users, who now count for about 40 percent of RIM's total subscription base, the company said. For RIM to keep growing it needs to expand into the consumer arena and it appears that it has been doing just that. So why is RIM's share price dropping? RIM shares closed Thursday at $123.46, down by $18.88. The immediate problem is that higher expenses and shrinking margins caused the company to miss the high expectations of analysts. Analysts polled by Thomson Reuters had forecast revenue of $2.27 billion and earnings of $0.85 a share.
Meanwhile, words of caution from Oracle about a potentially tough quarter coming up, the traditionally slow summer season in the U.S. and Europe, helped put a damper on tech stocks. Chief Financial Officer Safra Catz Wednesday forecast a revenue increase of between 18 percent to 20 percent, which would mean $5.51 billion in sales at best. Though that is within current analyst expectations for revenue of $5.47 billion, it is not near the 35 percent jump in sales that happened during the quarter last year, which apparently is a letdown to traders.
ECONOMIC COMMENTARY: The Federal Reserve Wednesday kept its base interest rate at 2.0 percent, saying the likelihood of a sharp economic downturn has diminished while inflation risks have increased. The Federal Open Market Committee's (FOMC) 9-1 decision reinforced expectations that the central bank is leaning slightly toward a hike in rates but is not yet ready to make such a move. The action marked the first pause by the US central bank since it began a series of aggressive rate cuts last September in the federal funds rate. The panel echoed comments from Fed chairman Ben Bernanke that the world's biggest economy remains weak but that the risk of a calamitous meltdown had eased. "Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased," the FOMC statement said. Dallas Fed president Richard Fisher dissented, calling instead for an increase in the funds rate. The panel said it "expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."
Billionaire investor Warren Buffett says he's concerned about "stagflation,'' or slowing in the U.S. economy while inflation accelerates. "We're right in the middle of it right now,'' said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., in an interview on Bloomberg Television today. "I think the "flation" part will heat up and I think the "stag" part will get worse.'' Buffett, the world's richest person, runs a company with a $72 billion stock portfolio and businesses ranging from candy to corporate jet leasing and insurance. He's said the U.S. housing slump has been a drag on Berkshire's earnings, adding today he's unsure when the economy will recover. "It's not going to be tomorrow, it's not going to be next month, and may not even be next year,'' said Buffett, 77.
U.S. consumers are the gloomiest they've been since the tail end of the last prolonged recession. Inflation, sinking home values and soaring gas prices have pushed confidence to the lowest level since 1992. Consumers' view of the economic future has never been lower, raising worries that already weak consumer spending could deteriorate further. "From a consumer perspective, this is the most troubling economy since the 1980s," said Mark Vitner, an economist at Wachovia Corp. The Conference Board's consumer confidence index, released Tuesday, fell to 50.4 this month, the lowest reading since February 1992 and half what it was a year ago. The index dropped more steeply than expected from 58.1 in May. The consensus estimate of economists surveyed by Thomson/IFR was for a more modest decline to 56.5 for June. The last prolonged U.S. recession was from July 1990 to March 1991. The most recent recession began in March 2001 and ended that November.
No matter who's measuring, the results are the same: Housing prices are tumbling at the sharpest rates ever with a bottom still at least a year away, economists say. Both the Standard & Poor's/Case-Shiller home price indices and the Office of Federal Housing Enterprise Oversight index on Tuesday reported record year-over-year declines in April, a sobering signal that the housing slump not only is deepening, but also engulfing markets once above water. The last holdout in the Case-Shiller index, Charlotte, N.C., finally succumbed to the national housing downturn, with prices slipping 0.1 percent from a year ago. No city in the Case-Shiller 20-city index appreciated in April, the first time that's happened since its inception in 2000. "I think that's the most disturbing part of the report," said Mark Zandi, chief economist for Moody's Economy.com. "It shows the declines are now across all markets, that this is a nationwide housing collapse rather than one in a few markets." The 20-city index dropped by 15.3 percent in April versus last year, while the narrower 10-city index plunged 16.3 percent, its biggest decline in its 21-year history.
CORPORATE AMERICA UPDATE: MasterCard Inc, the world's second-largest credit-card network, said on Wednesday it will pay American Express Co up to $1.8 billion to settle a lawsuit that said MasterCard and Visa blocked banks from issuing cards from their rival. American Express said that so far in June, credit conditions have weakened more than it expected, and the settlement will generate funds as the weakening economy cuts into its main business. MasterCard said it will take a $1 billion charge in the second quarter for the settlement. The size of the charge accounts for tax benefits and the fact that the settlement is paid out over time.
Anheuser-Busch Cos Inc on Friday laid out a plan to cut $1 billion in costs and improve earnings as it tries to convince investors that InBev NV's $46.3 billion offer for the largest U.S. brewer was too low. The program, which the company calls "Blue Ocean”, was made even as InBev said on Friday it was mulling what steps to take next after Anheuser-Busch rejected its $65-a-share offer on Thursday. The plan includes cutting 10 to 15 percent of its salaried workforce through early retirement and attrition, speeding up price hikes to cope with rising commodity costs, and setting earnings forecasts that exceed Wall Street's expectations. The company also said it planned to repurchase a total of $7 billion in shares this year and next, up from its previous repurchase target of $3.8 billion. The maker of Budweiser and Michelob beer wrote to reject InBev's takeover bid on Thursday, but left the door open to a higher bid that would create the world's largest beer maker. Analysts said InBev will not likely give up its bid for Anheuser-Busch and say it can afford to pay more if required -- certainly $70 a share and possibly up to $75. KBS Securities analyst Wim Hoste said InBev had two options: raise its offer toward $70 per share or go hostile at the existing $65. "I can imagine they might try through informal contact to see if there is scope to talk about an offer. If not, then they could take the hostile route," he said. "But the friendly approach is clearly better for public opinion and the workforce. The company is a U.S. icon."
Citigroup Inc (C.N) is cutting thousands of trading and investment banking jobs this week, part of previously reported plans to slash about 10 percent of its investment bank division, people familiar with the situation said on Monday. The job cuts will affect a number of areas at the largest U.S. bank, but among the hardest hit will be mergers and acquisition banking, they said. Transaction activity is slowing in mergers, and there have been fewer layoffs in Citi's merger advisory group so far. Citigroup Chief Executive Vikram Pandit is working to cut costs after the bank lost more than $15 billion in the last two quarters. Citi is on track to record "substantial" write-downs for the second quarter, Chief Financial Officer Gary Crittenden said last week. The layoffs are expected to include managing directors and directors, as well as more junior employees, people said.
Shares in Swiss bank UBS rose nearly 4 percent in early trade on Tuesday and traders referred to market rumours HSBC could make a bid for the world's largest wealth manager. Both banks declined to comment on the rumours. "Scurrilous rumours of an $80 billion approach from HSBC. I doubt the Swiss would settle for that though," one analyst, who asked not to be named, said. UBS, so far Europe's biggest casualty of the global credit crisis triggered by risky U.S. home loans, has reported $37 billion in writedowns of investments and posted a loss of some $11.5 billion in the first quarter.
UAL Corp (UAUA.O), parent of United Airlines, said on Monday it plans to lay off 950 pilots as it prepares to cut domestic capacity to offset soaring fuel prices. "As we reduce the size of our fleet and take actions companywide to enable United to compete in an environment of record fuel prices, we must take the difficult but necessary step to reduce the number of people we have to run our business," the No. 2 U.S. carrier said in a statement. The latest layoffs involve nearly 15 percent of United's 6,518 pilots. The carrier has said it plans to cut its staff by 1,400 to 1,600 as it aims to reduce domestic capacity by 14 percent in the fourth quarter.
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StockwireAdmin
Oil rose on Monday as Nigerian supply disruptions and escalating tensions between Israel and Iran outweighed Saudi Arabia's pledge to raise output and keep markets well-supplied. "Bellicose rhetoric between Israel and Iran and escalated militancy in Nigeria reduced what little optimism there was surrounding the Saudi's meeting in Jeddah over the weekend," John Kilduff, senior vice president at MF Global, wrote in a research note. Nigeria's senior oil workers union began a limited strike at Chevron on Monday. While the stoppage has not disrupted production yet, it added to concerns about supplies from the OPEC nation after militant attacks shut 340,000 barrels of daily production last week. European Union approved new sanctions on Iran, including an asset freeze on its biggest bank, over its refusal to meet demand to end its nuclear program. "The No. 1 issue in the market today is the strike in Nigeria. But traders are also uneasy about the agreement among European Union states to impose new banking sanctions against Iran, which comes on the heels of increasing tensions between Israel and Tehran." said Phil Flynn, an analyst at Alaron Trading in Chicago.
Yahoo! announced changes to its organization aimed at improving its products, technologies and execution. The moves support its strategy to be the starting point for the most users, the must-buy for the most advertisers and the platform of choice for developers. Key elements Yahoo! announced are the centralization of consumer product development to enhance the company’s ability to release products worldwide; the creation of a U.S. region focused on bringing products to market for users, advertisers and publishers; formation of an insights strategy team; and enhancements to the technology infrastructure to optimize the use of data and improve coordination between product and engineering teams. “These moves accelerate the ability of our deep and talented team to build great products, grow our audiences and improve monetization globally,” said Jerry Yang, CEO. “They are designed to put us in an even better position to leverage our leading global audience and capture the opportunity we see in the convergence of search and display advertising.”
In a tumultuous week on the markets, the big news for the tech sector was Research in Motion falling short of Wall Street's first-quarter expectations, and Oracle's caution about the current quarter. RIM added about 2.3 million BlackBerry subscribers in the quarter, exceeding the 2.2 million additions forecast by the company. Just as important, almost 60 percent of the new subscribers were nonbusiness users, who now count for about 40 percent of RIM's total subscription base, the company said. For RIM to keep growing it needs to expand into the consumer arena and it appears that it has been doing just that. So why is RIM's share price dropping? RIM shares closed Thursday at $123.46, down by $18.88. The immediate problem is that higher expenses and shrinking margins caused the company to miss the high expectations of analysts. Analysts polled by Thomson Reuters had forecast revenue of $2.27 billion and earnings of $0.85 a share.
Meanwhile, words of caution from Oracle about a potentially tough quarter coming up, the traditionally slow summer season in the U.S. and Europe, helped put a damper on tech stocks. Chief Financial Officer Safra Catz Wednesday forecast a revenue increase of between 18 percent to 20 percent, which would mean $5.51 billion in sales at best. Though that is within current analyst expectations for revenue of $5.47 billion, it is not near the 35 percent jump in sales that happened during the quarter last year, which apparently is a letdown to traders.
The Federal Reserve Wednesday kept its base interest rate at 2.0 percent, saying the likelihood of a sharp economic downturn has diminished while inflation risks have increased. The Federal Open Market Committee's (FOMC) 9-1 decision reinforced expectations that the central bank is leaning slightly toward a hike in rates but is not yet ready to make such a move. The action marked the first pause by the US central bank since it began a series of aggressive rate cuts last September in the federal funds rate. The panel echoed comments from Fed chairman Ben Bernanke that the world's biggest economy remains weak but that the risk of a calamitous meltdown had eased. "Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased," the FOMC statement said. Dallas Fed president Richard Fisher dissented, calling instead for an increase in the funds rate. The panel said it "expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."
Billionaire investor Warren Buffett says he's concerned about "stagflation,'' or slowing in the U.S. economy while inflation accelerates. "We're right in the middle of it right now,'' said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., in an interview on Bloomberg Television today. "I think the "flation" part will heat up and I think the "stag" part will get worse.'' Buffett, the world's richest person, runs a company with a $72 billion stock portfolio and businesses ranging from candy to corporate jet leasing and insurance. He's said the U.S. housing slump has been a drag on Berkshire's earnings, adding today he's unsure when the economy will recover. "It's not going to be tomorrow, it's not going to be next month, and may not even be next year,'' said Buffett, 77. 
U.S. consumers are the gloomiest they've been since the tail end of the last prolonged recession. Inflation, sinking home values and soaring gas prices have pushed confidence to the lowest level since 1992. Consumers' view of the economic future has never been lower, raising worries that already weak consumer spending could deteriorate further. "From a consumer perspective, this is the most troubling economy since the 1980s," said Mark Vitner, an economist at Wachovia Corp. The Conference Board's consumer confidence index, released Tuesday, fell to 50.4 this month, the lowest reading since February 1992 and half what it was a year ago. The index dropped more steeply than expected from 58.1 in May. The consensus estimate of economists surveyed by Thomson/IFR was for a more modest decline to 56.5 for June. The last prolonged U.S. recession was from July 1990 to March 1991. The most recent recession began in March 2001 and ended that November.
No matter who's measuring, the results are the same: Housing prices are tumbling at the sharpest rates ever with a bottom still at least a year away, economists say. Both the Standard & Poor's/Case-Shiller home price indices and the Office of Federal Housing Enterprise Oversight index on Tuesday reported record year-over-year declines in April, a sobering signal that the housing slump not only is deepening, but also engulfing markets once above water. The last holdout in the Case-Shiller index, Charlotte, N.C., finally succumbed to the national housing downturn, with prices slipping 0.1 percent from a year ago. No city in the Case-Shiller 20-city index appreciated in April, the first time that's happened since its inception in 2000. "I think that's the most disturbing part of the report," said Mark Zandi, chief economist for Moody's Economy.com. "It shows the declines are now across all markets, that this is a nationwide housing collapse rather than one in a few markets." The 20-city index dropped by 15.3 percent in April versus last year, while the narrower 10-city index plunged 16.3 percent, its biggest decline in its 21-year history.
MasterCard Inc, the world's second-largest credit-card network, said on Wednesday it will pay American Express Co up to $1.8 billion to settle a lawsuit that said MasterCard and Visa blocked banks from issuing cards from their rival. American Express said that so far in June, credit conditions have weakened more than it expected, and the settlement will generate funds as the weakening economy cuts into its main business. MasterCard said it will take a $1 billion charge in the second quarter for the settlement. The size of the charge accounts for tax benefits and the fact that the settlement is paid out over time. 
Anheuser-Busch Cos Inc on Friday laid out a plan to cut $1 billion in costs and improve earnings as it tries to convince investors that InBev NV's $46.3 billion offer for the largest U.S. brewer was too low. The program, which the company calls "Blue Ocean”, was made even as InBev said on Friday it was mulling what steps to take next after Anheuser-Busch rejected its $65-a-share offer on Thursday. The plan includes cutting 10 to 15 percent of its salaried workforce through early retirement and attrition, speeding up price hikes to cope with rising commodity costs, and setting earnings forecasts that exceed Wall Street's expectations. The company also said it planned to repurchase a total of $7 billion in shares this year and next, up from its previous repurchase target of $3.8 billion. The maker of Budweiser and Michelob beer wrote to reject InBev's takeover bid on Thursday, but left the door open to a higher bid that would create the world's largest beer maker. Analysts said InBev will not likely give up its bid for Anheuser-Busch and say it can afford to pay more if required -- certainly $70 a share and possibly up to $75. KBS Securities analyst Wim Hoste said InBev had two options: raise its offer toward $70 per share or go hostile at the existing $65. "I can imagine they might try through informal contact to see if there is scope to talk about an offer. If not, then they could take the hostile route," he said. "But the friendly approach is clearly better for public opinion and the workforce. The company is a U.S. icon." 
Citigroup Inc (C.N) is cutting thousands of trading and investment banking jobs this week, part of previously reported plans to slash about 10 percent of its investment bank division, people familiar with the situation said on Monday. The job cuts will affect a number of areas at the largest U.S. bank, but among the hardest hit will be mergers and acquisition banking, they said. Transaction activity is slowing in mergers, and there have been fewer layoffs in Citi's merger advisory group so far. Citigroup Chief Executive Vikram Pandit is working to cut costs after the bank lost more than $15 billion in the last two quarters. Citi is on track to record "substantial" write-downs for the second quarter, Chief Financial Officer Gary Crittenden said last week. The layoffs are expected to include managing directors and directors, as well as more junior employees, people said.
Shares in Swiss bank UBS rose nearly 4 percent in early trade on Tuesday and traders referred to market rumours HSBC could make a bid for the world's largest wealth manager. Both banks declined to comment on the rumours. "Scurrilous rumours of an $80 billion approach from HSBC. I doubt the Swiss would settle for that though," one analyst, who asked not to be named, said. UBS, so far Europe's biggest casualty of the global credit crisis triggered by risky U.S. home loans, has reported $37 billion in writedowns of investments and posted a loss of some $11.5 billion in the first quarter.
UAL Corp (UAUA.O), parent of United Airlines, said on Monday it plans to lay off 950 pilots as it prepares to cut domestic capacity to offset soaring fuel prices. "As we reduce the size of our fleet and take actions companywide to enable United to compete in an environment of record fuel prices, we must take the difficult but necessary step to reduce the number of people we have to run our business," the No. 2 U.S. carrier said in a statement. The latest layoffs involve nearly 15 percent of United's 6,518 pilots. The carrier has said it plans to cut its staff by 1,400 to 1,600 as it aims to reduce domestic capacity by 14 percent in the fourth quarter.