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Retailers wave the warning flags

2007-10-11T09:08:00.000-07:00

Retailers wave the warning flags

Wal-Mart says its shoppers are concerned about their finances; Nordstrom, one of the better-performing retailers, warns on its third quarter and misses sales forecast.

NEW YORK -- A slew of earnings warnings from retailers Thursday, on top of poor September sales numbers, added credence to concerns that consumers are feeling tapped out and that retailers are headed for a difficult holiday period.

"Retailers really struggled last month because of slow sales and also because of the warm weather drag," said Ken Perkins, president of Retail Metrics.

Warner-than-usual September and early-October temperatures around the nation were blamed by some retailers for disappointing sales.

High-end seller Nordstrom, which has been one of the best-performing retailers, said Thursday that sales at its stores open at least a year - a key measure of retail performance known as same-store sales - rose 3.2 percent, missing analysts' forecasts for a 5 percent increase.

What's more, the retailer cut its third-quarter profit guidance to between 50 and 53 cents a share, much lower than its prior outlook of 61 to 64 cents a share.

Nordstrom said it struggled with much higher inventory levels it had planned for, a possible sign that its shoppers bought less.

Dow hits all-time high

2007-10-01T12:10:00.000-07:00

Dow hits all-time high

Big blue-chip barometer hits intra-day record of 14,111 as Wall Street resumes the recent advance; Citigroup warning, drop in ISM index fuels hope of Fed rate cut.

NEW YORK -- Stocks surged Monday afternoon, with the Dow touching an all-time high above 14,110 as investors shrugged off a profit warning from Citigroup and instead focused on the possibility of more Fed rate cuts.

The Dow Jones industrial average (Charts) added around 210 points with an hour left in the session, rising as high as 14,111.53 and setting a new all-time intra-day high. The previous intra-day high was 14,021.95 from July 19.

The broader S&P 500 (Charts) index and the tech-fueled Nasdaq composite (Charts) both gained 1.3 percent. The Russell 2000 (Charts) small-cap index jumped more than 2 percent.

"You're seeing a continuation of the recent momentum," said Chris Johnson, CEO of Johnson Research Group. "There was unfavorable news in the financial arena, but the market is still rallying, which tells you that investors are afraid of getting left behind."

Investors were also perhaps reacting to hopes that any so-called "bad news," whether it be weak bank earnings or a dip in the ISM index, means that the Federal Reserve is more likely to cut interest rates again at its next policy meeting scheduled for the end of the month.

Falling home prices hurt borrowers, neighbors

2007-09-19T14:51:00.000-07:00

Falling home prices hurt borrowers, neighbors

Economist estimates inflation-adjusted value of $23 trillion housing market could fall by $3 trillion by next year.

NEW YORK -- If home prices fall as forecast, the $23 trillion housing market could lose $3 trillion in value by August 2008, a leading housing economist and former mortgage bank president told lawmakers on Wednesday.

Between 1998 and early 2006, when housing prices peaked, home values rose 86 percent on an inflation-adjusted basis, Robert Shiller, a professor of economics at Yale University, said at a hearing about the subprime crisis held by Congress's Joint Economic Committee.

Since that peak, Shiller noted, real home values have fallen 6.5 percent and they're forecasted to fall at least another 7 percent on average in the next year.

That combined decline could translate into a $3 trillion loss of wealth for households, said Alex Pollock, a resident fellow at the American Enterprise Institute and the former CEO of the Federal Home Loan Bank of Chicago, in his written testimony.

Those hardest hit likely would be homeowners with subprime adjustable-rate mortgages (ARMs) whose payments are scheduled to reset to higher levels in the next year - in some cases by as much as 50 percent. Refinancing out of those loans, already made difficult by the recent credit crunch, will be out of reach should a borrower's home price fall below the value of his loan in the next year, said Martin Eakes, CEO of the Center for Responsible Lending, during his testimony.

That's why he and Shiller were urging lawmakers to act quickly to pass measures to aid struggling homeowners saddled with high-cost predatory loans.

Helping them with foreclosure avoidance wouldn't just assist the mortgage borrower but his neighbors, too, Eakes asserted. He cited a study that estimates that for every foreclosure on a block, values on homes within an eighth of a mile are likely to fall 1.14 percent in value.

Lawmakers have been considering what steps, if any, to take both to contain the current subprime contagion and also to prevent another mortgage meltdown in the future.

A number of proposals have been put forth, including one by Sen. Charles Schumer (D-NY), chairman of the Joint Economic Committee and a member of both the Senate banking and finance committees. Schumer's bill is aimed at making it easier for homeowners with subprime ARMs to refinance and to help home buyers in high-cost markets get a mortgage since even those with good credit have been shut out recently.

Among the measures he calls for: temporarily lifting the portfolio caps allowed for Fannie Mae and Freddie Mac by 10 percent, or $145 billion. Those caps apply to the amount of mortgage assets the government-sponsored agencies buy and own directly (as opposed to their other function - which is to buy, pool and sell mortgages as mortgage-backed securities).

Half of the cap increase would be earmarked for the purchase of subprime refis with scheduled interest-rate resets between June 2005 and December 2009. That would potentially encourage lenders to offer them, since they know Fannie and Freddie would guarantee a secondary market in which the lender could sell the refis.

Those who oppose such a move, such as the White House and the Office of Federal Housing Enterprise Oversight (OFHEO), which regulates both agencies, contend that such a big increase would not be prudent given the accounting problems both Freddie and Fannie have had in recent years.

To date, the Federal Housing Administration has already loosened its criteria for refinancing. And eligibility requirements for FHA loans would be further liberalized if FHA reform legislation passes into law, which many are expecting.

Group bids $150 million for Aeromexico

2007-09-14T15:08:00.000-07:00

Group bids $150 million for Aeromexico

Subsidiary of Citigroup bids for majority stake of Mexican airline; Aeromexico says it will reply within 10 business days.

MEXICO CITY (AP) -- Mexican airline company Consorcio Aeromexico SAB said Friday that a trust run by a unit of Citigroup has launched a $150 million tender offer for the company's shares.

Aeromexico said its board of directors will issue its opinion on the latest offer no later than 10 business days. The board had already endorsed an earlier offer from other local investors as "reasonable from a financial point of view."

The trust run by Citigroup's (Charts, Fortune 500) local banking unit Banamex is offering 1.68 pesos (15 cents) a share for between 50.1 percent and 100 percent of Aeromexico's 992.4 million shares, the airline said in a filing with the local stock exchange.

The offer is open until Oct. 15 and could be extended until Nov. 30. Banamex's brokerage unit is acting as the intermediary in the transaction.

Flying Southwest? Reconsider that miniskirt

The trust's bid was first announced Sept. 12, and represents a 53 percent premium over the 1.10 pesos (10 cents) a share offer made last month by local businessmen Moises Saba Masri and Alberto Saba Raffoul.

Both offers would be contingent on the Mexican state selling some or all of its 62 percent stake in Aeromexico. The government has said that it would sell the shares through a public offer unless a buyer emerged

Barclays says trading unit profitable in August

2007-09-10T10:07:00.000-07:00

Barclays says trading unit profitable in August

British bank, with a deal in the balance, fears major losses from overexposure to risky mortgages.

LONDON (AP) -- Barclays, the British bank in a bidding war for ABN Amro Holding, said Monday that its securities unit "traded profitably" last month, easing fears that the bank was overexposed to the credit crisis that has swept global markets.

Barclays (Charts), Britain's third-largest bank, borrowed twice in two weeks from the Bank of England's emergency loan facility this month, but sources said at the time that the loans were due to technical glitches rather than a shortage of funds.

"Barclays Capital traded profitably in August 2007, after full allocation of costs and the mark to market of all positions," said Bob Diamond, head of investment banking at Barclays, in a statement coinciding with an investor presentation in New York. "Year-to-date profits are well ahead of 2006."

Shrinking global credit levels started with defaults on U.S. subprime mortgages, or home loans made to people with weak credit histories. The crisis has spread because banks have repackaged risky loans with the more reliable, and sold them to a wide range of investors across the globe.

All the latest market news

Attention was drawn to Barclays when it turned to the Bank of England as a lender of last resort - once after a loan from HSBC Holdings was delayed and again after a breakdown in the banking clearance system.

"I find it amazing there was any question about a bank the size and quality of Barclays to fund itself," Diamond said in notes prepared for the U.S. investor presentation and posted on the Barclays Web site. "In fact, as in previous times of market turbulence, we've been net recipients of liquidity as a haven in rough seas."

Diamond said that Barclay's mortgage and asset-backed business has been a good growth area, but accounted for less than 5 percent of its revenue based on its first-half results.

"Subprime is an even smaller piece of this," he said.

Diamond also addressed concerns about Barclay's structured investment vehicles, known as SIV-lites.

Barclays denies exposure to failed debt vehicles

Edward Cahill, who was head of the European collateralized debt obligation division, resigned earlier this month, and the bank injected $1.6 billion into a SIV-lite run by Cairn Capital to rescue it from collapse after a failed attempt to raise money in the credit markets.

Two similar funds set up by Barclays Capital, Mainsail II and Golden Key, were forced to begin selling assets earlier this month because they were unable to raise new financing.

Diamond said Barclays had structured four SIV-lites for managers looking to increase their exposure to credit, but neither selected nor managed the assets.

"As liquidity in the short-term debt markets has tightened and asset prices have declined we've been working with our clients to restructure these vehicles," he said, adding those moves were not "bailouts."

"It's also worth noting that SIV-lites constitute in total about $10 billion of a market in asset-backed commercial paper worth $1.2 trillion," he said.

Thornburg raises $1.44B to relaunch loans

2007-09-04T08:53:00.000-07:00

Thornburg raises $1.44B to relaunch loans

Residential mortgage lender announces deal backed by ARMs; amount is enough to let firm repay what it owes and start issuing mortgages again.

SANTA FE, N.M. (AP) -- Thornburg Mortgage, a residential mortgage lender, said Tuesday it raised $1.44 billion in a deal backed by adjustable-rate mortgages, giving it enough money to start making loans again.

Thornburg (Charts), which specializes in adjustable-rate mortgages of more than $417,000, said the financing allows it to repay $1.37 billion in borrowings, clearing the way for new loan originations.

Mortgage lenders originate loans and then typically package them together for sale to bigger banks, who then slice them into securities. Demand on this so-called secondary market has waned, making it difficult for lenders to raise money to initiate mortgages.

Thornburg said the money it raised is backed by $1.44 billion in prime-rated ARM loans in the publicly registered Thornburg Mortgage Securities Trust.

China's top 100 companies

2007-08-29T06:23:00.000-07:00

China's top 100 companies

Banks with hot IPOs, plus surging energy demand, propelled a dozen new arrivals onto our list of China's largest companies.

(Fortune Magazine) -- A rush of listings on the Hong Kong and Shanghai exchanges added a dozen newcomers to Fortune's annual list of China's 100 largest publicly traded companies. One of them had the largest share offering in the world: Industrial & Commercial Bank of China, which raised $21.9 billion last October. As China's biggest bank by revenue and Asia's most profitable bank, with profits of $6.2 billion last year, it grabbed the No. 4 spot on this year's list.

The Bank of China, which also had a successful IPO, debuted at No. 5. While China's economy grew nearly 11 percent last year, the revenue cutoff for this year's list rose 46 percent, to $1.9 billion, compared with last year's $1.3 billion.

Global 500: The world's largest corporations

The country's gnawing demand for energy helped keep China Petroleum & Chemical (Charts) in its No. 1 position for the seventh year in a row, with revenue up almost 34 percent, to $134 billion.

State-owned companies continued to dominate the list, taking the top ten spots. The largest private company on the list, computer maker Lenovo, fell four places, to No. 11, even though its revenues rose 10 percent, to $14.6 billion.

The China 100 was compiled by the editors of Fortune China in cooperation with the Finet Group, a Hong Kong--listed company specializing in providing business information about China, and was first published in Fortune China. In compiling the list, Fortune China looked at Chinese companies listed on the stock exchanges in Shenzhen, Shanghai, Hong Kong, Singapore, London, and New York City. The companies are ranked by 2006 revenues. Figures were provided by the companies to the relevant stock exchanges and obtained from Bloomberg.

Subprime hits another German bank

2007-08-26T04:26:00.000-07:00

Subprime hits another German bank

Owners of SachsenLB hope to sell the bank quickly after suffering losses from U.S. mortgage crisis.

FRANKFURT (Reuters) -- The owners of stricken state lender SachsenLB aim to sell the German bank quickly after its near collapse under heavy losses from U.S. subprime mortgages and other risky debt, sources familiar with the matter said.

Last week a group of state banks said they would rescue SachsenLB, the second German casualty, after the subprime mortgage crisis led to difficulties in world credit markets.

In return for a 17 billion euro ($23.1 billion) credit line to keep SachsenLB afloat, its owners - the eastern state of Saxony and local community savings banks - were forced into agreeing to its sale.

Subprime on the Rhine

At least four regional state lenders, or Landesbanks, are interested - WestLB, LBBW, NordLB and BayernLB, one source familiar with the matter said on Friday.

SachsenLB's owners will decide on a buyer over the weekend, he said, adding that Stuttgart-based LBBW was the favorite. A second source said LBBW, Germany's biggest Landesbank, was primed to buy as long as the risks were ring-fenced.

The sale is a milestone in Germany, where few state-owned banks are ever put up for auction. It also is an indication that the subprime mortgage crisis may ultimately loosen the German government's dominance of the country's banking industry.

Landesbanks such as SachsenLB were traditionally an arm of local government used to influence economic development. Their owners are reluctant sellers, fearing a loss of this influence.

But the Landesbanks have been among the hardest hit by the subprime crisis. Many had entered this risky territory in a bid to shore up profits after much of the support they had received from government was outlawed by the European Union.

Battered image

Germany has taken the brunt of the European fallout so far from problems stemming from subprime home loans as two of the country's banks have almost collapsed, requiring high-profile industry bailouts.

The lifeline to SachsenLB came hot on the heels of the near collapse of small-company lender IKB. It was also saved by a group of banks including state-owned lender KfW, its biggest shareholder.

Earlier on Friday, another Landesbank - BayernLB - acknowledged it too had invested in subprime U.S. home loans but did not say how much it had tied up in the risky mortgages.

BayernLB's announcement further dents the image of German banks abroad.

Foreign banks had already been growing wary of lending to them as the casualty toll from subprime problems rises. Earlier this week, the head of state bank WestLB said the country's banks faced a crisis because foreign banks were reluctant to lend to them.

More international news

Alexander Stuhlmann told journalists the sector was in a "not uncritical situation," adding that German banks had created the impression abroad that the whole sector had a problem by rescuing IKB.

Germany's central bank and government have repeatedly called for calm over the credit spasms unleashed by the uproar.

Government involvement in banking has made Europe's biggest economy one of the continent's most overbanked, squeezing profits and forcing lenders to look abroad for new ways to bolster profits. As a result, German groups invested heavily in packets of debt that included risky U.S. home loans, racking up profits as the market boomed.

But slowing house prices and higher interest rates sparked defaults on subprime mortgages - given to people with a weak credit record - and left those banks facing heavy losses

Bonds keep climbing on credit fears

2007-08-21T04:53:00.001-07:00

Bonds keep climbing on credit fears

Investors continue to pour into Treasurys in a flight to quality, while investors bet on fed funds rate cut.

The dollar retreated against the euro and the yen.

The 10-year note rose 11/32, or $3.44 on a $1,000 note, to yield 4.58 percent, down from 4.65 percent late Monday.

Panic eases, credit woes persist

The 30-year note gained 11/32 to yield 4.94 percent, down from 4.98 percent in the previous session. Bond prices and yields move in opposite directions.

Shorter-term debt continued to post big gains as the five-year gained 9/32 to yield 4.23 percent. The two-year note rose 5/32 to yield 4.01 percent.

Investors again sought shelter in Treasurys amid worries that more credit market troubles were forthcoming.

Last week, the Federal Reserve tried to allay those fears by cutting the discount rate 50 basis points. The move provided temporary support to the battered stock market, but investors continued to bet during Monday's session that more troubles were ahead.

But with evaporating credit conditions, much of Wall Street believes that the central bank will have to take additional action, including cutting the key federal funds rate, which directly impacts consumer loan rates. That rate remains at 5.25 percent.

"There is a huge liquidity crisis that has not gone away despite the Fed's efforts of last week," David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Conn., told Reuters late Monday.

In related news, the Chinese central bank raised interest rates in an effort to stabilize inflation expectations.

In currency trading, the dollar retreated versus the yen, trading at ¥114.60, down from ¥114.96 Monday, while the euro bought $1.3510, up from $1.3485.

Stocks soar into the weekend

2007-08-19T16:48:00.000-07:00

Stocks soar into the weekend

Wall Street rallies, with the Dow spiking 230 points as Fed discount-rate cut soothes credit market worries. Yet investor fears persist.

NEW YORK (CNNMoney.com) -- Stocks surged Friday after the central bank cut its mostly symbolic discount rate, easing worries about the credit and mortgage markets that have roiled Wall Street for weeks.

The Dow Jones industrial average (up 233.30 to 13,079.08, Charts) jumped 233 points, or 1.8 percent, after soaring more than 300 points earlier in the session. The tech-fueled Nasdaq composite (up 53.96 to 2,505.03, Charts) index rose 2.2 percent. Both the Dow and Nasdaq snapped 6-session losing streaks.

The broader S&P 500 (up 34.67 to 1,445.94, Charts) index climbed nearly 2.5 percent, clawing back into positive territory for the year.

The gains were broad based, with 25 out of 30 Dow components rising. Banks, energy, steel, retailers, telecom and technology led the charge.

However, early-week losses left the markets lower for the week, with the Dow down 1.7 percent, the S&P 500 down nearly 1 percent and the Nasdaq down 1.9 percent.

Fed cuts discount rate

Stocks got pummeled in the first three days of the week and looked like they were heading for another battering Thursday. But investors staged an impressive comeback, with the Dow bouncing back from a 342-point loss to end that session down by just 15 points. That recovery extended to Friday's session, thanks to the move by the Fed.

Although it did not cut the more widely-watched fed funds rate, which affects consumer loans, the central bank did cut the discount rate, which impacts banks and other lenders. The Fed cut the discount rate by a half-percentage point to 5.75 percent, taking Wall Street by surprise and raising bets that it will cut the fed funds rate at the Sept. 18 policy meeting.

"A sense of calm has come over investors, supported by the actions of the Fed," said Art Hogan, chief market strategist at Jefferies & Co.

The move, while largely symbolic, was an attempt by the central bank to "promote the restoration of orderly conditions in financial markets," the Fed said in a statement.

It did the trick, at least on Friday, cooling investor jitters after a period of great uncertainty about how the subprime mortgage and credit market problems will hit the broader economy.

Although the problems in those markets remain, "just knowing that the Fed is ready to assist is reassuring," Hogan said.

Whether that translates to further stock gains remains to be seen.

"We'll have to wait and see how the market reacts to the next piece of negative news," Hogan said, referring to ongoing troubles with risky U.S. mortgages and the credit market.

Next week is light on market-moving economic news, highlighted by the July leading economic indicators report, due Monday, and July readings on durable goods orders and new home sales, expected Friday.

On the corporate front, earnings are due from home improvement retailer Lowe's (up $0.06 to $26.87, Charts, Fortune 500) on Monday and Staples (down $0.02 to $23.25, Charts, Fortune 500), Target (up $1.43 to $61.18, Charts, Fortune 500) and other retailers later in the week.

Investors will also be looking to see if the Fed infuses more money into the U.S. banking system, as it has been doing lately.

Senator pushes for ratings agency review

2007-08-19T04:21:00.000-07:00

Senator pushes for ratings agency review

Senator Dodd of Connecticut urges examination of ratings agencies' high assessment of mortgage-related assets.

WASHINGTON (Reuters) -- U.S. Senate Banking Committee Chairman Christopher Dodd on Friday called for an examination of the credit rating agencies' role in valuing the subprime mortgage securities market.

Dodd, a Connecticut Democrat and presidential candidate, also urged federal regulators to raise the investment portfolio cap by 5 percent for mortgage finance companies Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500).

During a conference call with reporters, Dodd expressed "great concern" about how credit rating agencies assessed and rated packages of mortgage-related assets, which include collateralized debt obligations.

"Clearly there was other information that should have warranted something else," he said. "We need to have a thorough examination of that."

Banks, Wall Street firms lead stock charge

His remarks to reporters came one day after a European Commission official announced a review of the code used by the raters in a probe that could be critical of the industry.

EU Internal Market Commissioner Charlie McCreevy said the crisis in the subprime mortgage sector has highlighted apparent failings in the voluntary code now used by the raters.

The three largest U.S. raters are Moody's Corp.; Standard & Poor's, a unit of McGraw Hill Cos. Inc.; and Fitch, a unit of France's Fimalac SA.

Moody's (Charts) shares closed 78 cents higher at $49.98 and shares of McGraw-Hill (Charts, Fortune 500) finished up 29 cents at $49.14 on the New York Stock Exchange on Friday.

Barney Frank, chairman of the House of Representatives Financial Services Committee, has said he would hold a hearing this autumn to examine how credit ratings agencies contributed to a collapse of the subprime mortgage market.

In May, the U.S. Securities and Exchange Commission adopted new rules to foster competition in an industry dominated by three companies. The rules also cover record-keeping requirements and financial reporting standards.

Cliff Hyatt, a former SEC enforcement attorney now with law firm Pillsbury Winthrop Shaw Pittman, said credit rating agencies are historically difficult to examine. But, he said, that would not stop Congress from asking rating agencies tough questions about how they operate.

Dodd and other congressional Democrats have called on the Office of Federal Housing Enterprise Oversight (OFHEO), which regulates Fannie and Freddie, to temporarily lift the portfolio cap so the government-sponsored companies can buy more mortgages.

Frank said Friday the Senate should raise the limit on the size of loans that can be bought by Fannie and Freddie past its current level of $417,000 when lawmakers take up reform legislation.

"It now is clear we underestimated in the House bill how far we should raise the conforming loan limit, and the current crises in the mortgage market demonstrate we should raise it to a higher level," the Massachusetts Democrat said in a statement.

Fannie and Freddie are the nation's two largest sources of mortgage financing and have a combined $1.4 trillion investment portfolio of mortgages.

Fannie asked to lift the cap to allow for additional 10 percent investments to its portfolio, but OFHEO denied that request for the moment.

A higher cap is also opposed by the Treasury Department, the Federal Reserve, and President George W. Bush, who say their holdings are dangerously bloated.

Sen. Charles Schumer, a New York Democrat, said this week that he plans to introduce legislation to temporarily lift the cap between 5 percent and 10 percent if OFHEO fails to do so.

Dodd said the move was urgently needed in financial markets and could not wait for Congress to pass legislation.

"There's enough authority with existing law today ... to allow this portfolio cap to go up 5 percent," Dodd said. "The idea that we have to wait and do the reforms first before they can respond to this is not a legitimate answer to the question."

GM chief says sales are holding up

2007-08-18T08:51:00.000-07:00

GM chief says sales are holding up

CEO Rick Wagoner is feeling positive about U.S. auto sales despite the tough market.

ROYAL OAK, Mich (Reuters) -- The top executive at General Motors Corp (Charts, Fortune 500) said on Friday that U.S. consumers appeared to be holding up well despite the recent credit crisis that roiled world markets and prompted the U.S. central bank to cut rates.

Rick Wagoner, the automaker's chief executive, also said that the crisis hadn't had any big impact on auto sales. He said pickup sales so far this month were doing "better" but that the overall market remains tough.

Wagoner said that ResCap, GMAC's home lending unit, was also weathering the current market volatility.

Asked about the company's negotiations with the United Auto Workers, Wagoner said it was too early to speculate whether they would reach a deal before the contract expires on Sept. 14.

Bulls charge on Fed move

2007-08-17T13:09:00.000-07:00

Bulls charge on Fed move

Stocks remain sharply higher heading toward the closing bell after the Federal Reserve cuts discount rate, but credit fears persist.

NEW YORK (CNNMoney.com) -- Stocks posted significant gains Friday afternoon but remained off session highs, as the Federal Reserve's decision to cut a little watched interest rate helped soothe ongoing credit market worries.

The Dow Jones industrial average (up 170.14 to 13,015.92, Charts) gained about 180 points, or 1.4 percent, with an hour left in the session, after soaring more than 300 points at the open.

The broader S&P 500 (up 26.89 to 1,438.16, Charts) climbed nearly 1.9 percent while the tech-fueled Nasdaq composite index (up 42.68 to 2,493.75, Charts) rose about 1.8 percent.

"A sense of calm has come over investors, supported by the actions of the Fed," said Art Hogan, chief market strategist at Jefferies & Co.

Fed cuts discount rate

"Just knowing that the Fed is ready to assist is reassuring," Hogan said. Going forward, however, "we'll have to wait and see how that market reacts to the next piece of negative news," he added referring to ongoing troubles with risky U.S. mortgages and the credit market.

"Volatility is going to be the norm for a while."

All three major gauges soared out of the gate on news that the Fed cut the discount rate, which the central bank charges qualified lenders - mainly banks - for temporary loans, by half a point to 5.75 percent, taking Wall Street by surprise.

The move, while largely symbolic, was an attempt by the central bank to "promote the restoration of orderly conditions in financial markets," the Fed said in a statement.

While the Fed did not cut its more closely watched Fed funds rate, the action did soothe nervous investors who have been gripped by uncertainty about how hard the subprime mortgage and credit market problems would hit the broader economy.

The move provided a big lift to the financial sector. Shares of Wall Street banks Goldman Sachs (up $3.78 to $173.63, Charts, Fortune 500) and J.P. Morgan Chase (up $1.92 to $47.39, Charts, Fortune 500) climbed 2 percent and 4 percent respectively, while the AMEX Securities Broker/Dealer index (up $7.67 to $220.94, Charts) gained nearly 4 percent.

Even the troubled mortgage lender Countrywide Financial (up $2.07 to $21.02, Charts, Fortune 500) rebounded nicely from Thursday's losses on the news, climbing more than 10 percent.

Wall Street had been bracing for another bumpy session Friday, just a day after the Dow and the other major gauges fell enough during the session to be down 10 percent from the highs hit just a month earlier, a sign of a market correction.

But stocks made a stunning recovery. The Dow industrials, which had been down more than 300 points during the session, closed down just 15 points.

Bye-bye bull? 5 ways to know

On the corporate front, shares of organic grocer Wild Oats Markets (up $2.79 to $18.00, Charts) soared 18 percent after a bid by federal antitrust regulators to temporarily block its purchase by rival Whole Foods Market (up $2.90 to $44.07, Charts, Fortune 500) was rejected by a federal judge. But the FTC filed an appeal today on the decision.

Shares of oil majors including Exxon Mobil (up $3.25 to $83.92, Charts, Fortune 500), BP (up $1.28 to $64.28, Charts) and Chevron (up $2.59 to $83.98, Charts, Fortune 500) all rose more than 2 percent on higher crude prices, which were supported by the Fed's move and the growing strength of Hurricane Dean.

Light, sweet crude oil rose 76 cents to $71.76 a barrel on the New York Mercantile Exchange.

Early Friday morning, Midwest Express (up $0.83 to $15.53, Charts) accepted a raised $17-a-share offer from a group led by private equity firm TPG Capital and Northwest Airlines (up $0.01 to $15.99, Charts, Fortune 500), ending the hostile bid for the company by rival AirTran Holdings.

Dow component Hewlett-Packard (up $0.98 to $47.03, Charts, Fortune 500) reported better-than-expected earnings and issued a stronger-than-forecast outlook late Thursday, sending its shares about 2 percent higher.

Of the 30 stocks in the Dow, 23 rose and seven fell.

Market breadth was positive. Winners beat losers on the New York Stock Exchange by 6 to 1 on volume of 1.8 billion shares. Advancers topped decliners by 3 to 1 on volume of 2.1 billion shares.

In economic news, consumer sentiment fell more than expected in August, according to a survey published Friday by the University of Michigan.

Short-term Treasury prices and the 10-year note were modestly higher with the yield on the benchmark note at 4.68, up from 4.67 percent late Thursday. Bond prices and yields move in opposite directions.

Overseas, European markets finished sharply higher after the Fed discount rate cut. But Asian markets tumbled Friday, with Japan's Nikkei index skidding 5 percent, posting its worst day since the Sept. 11 attacks.

The dollar eased versus the euro and the yen.

COMEX gold for December jumped $8.80 to $666.80 an ounce

UBS warns about market turmoil

2007-08-14T02:51:00.000-07:00

UBS warns about market turmoil

Swiss banks says ongoing turbulence could hurt its investment banking results in the second half.

ZURICH (Reuters) -- Swiss bank UBS, the world's largest wealth manager, beat forecasts with record second-quarter profits but warned that market turmoil was likely to hit its investment banking business in the second half of the year.

In an explicit warning that the upheaval in credit markets is likely to take a heavy toll, UBS said that if turbulent conditions prevailed throughout the third quarter, "UBS will probably see a very weak trading result in the investment bank."

UBS is the first big bank to comment on trading conditions since last week's havoc in financial markets forced central banks to intervene in the interbank lending market to restore order.

"The results are fine. It's all about the outlook. You have some earnings downgrades coming," said Kinner Lakhani at ABN Amro. "It shows the extent of the drag from the investment bank, another example of the tail wags the dog."

UBS drew a line under its hedge fund, Dillon Read Capital Management, which it said was closing in May after running up big losses. It said there would be no further costs after it took a pretax charge of 384 million francs in the second quarter.

The bank also said it had paid back 1.5 billion francs to outside investors following the closure.

Net second-quarter net group profit rose to 5.622 billion francs ($4.7 billion) from 3.147 billion in the second quarter of 2006 and 3.275 billion in the first quarter. It exceeded an average forecast of 4.751 billion by 11 analysts in a Reuters poll.

The result included a 1.926 billion franc windfall from the sale in June of UBS's 20.7 percent stake in Swiss private bank Julius Baer.

The results are the first to be unveiled since Peter Wuffli's abrupt departure and replacement as chief executive officer in early July by Marcel Rohner, who formerly ran the bank's wealth management business.

Rohner said he was comfortable with the level of the bank's exposure in leverage finance with a market share of about 4 percent. He also said trading in U.S. mortgage-backed securities market was satisfactory.

"In July we have experienced significant dislocation in the U.S. mortgage market, but we have had a satisfactory trading result," Rohner told a conference call with journalists.

The bank said its traditional strength in wealth and asset management would help see it through the second half, with weaker investment banking results "offset by predictable earnings from wealth and asset management."

Rohner said the second-quarter results were outstanding even with the windfall from the sale of Julius Baer stripped out.

"It is a record result even if we exclude the contribution from our sale of our stake in Julius Baer. We have 3.455 billion, which is the best ever quarterly performance."

Net new money in wealth management was 35.2 billion francs, ahead of the average forecast for 32.2 billion.

Profits were boosted by record net fee and commission income of 8.099 billion francs, a rise of 26 percent over the same quarter last year.

Analysts had expected UBS to have an exceptional quarter in cash equities and derivatives trading but had been nervously waiting to find out whether the bank would take more charges from Dillon Read.

Wall Street: Down but not out

2007-08-11T06:41:00.000-07:00

Wall Street: Down but not out

Major gauges cut losses but still end in the red for day 2 as investors weigh Fed's $38 billion infusion into the banking system. Worries remain about tightening credit, subprime mortgage market.

NEW YORK (CNNMoney.com) -- Stocks fell Friday, but recovered from bigger losses earlier in the session after the Federal Reserve pumped $38 billion into the banking system, soothing some worries about tightening credit and the subprime mortgage market fallout.

Treasury bond prices fell, raising the corresponding yields. Oil prices dipped, and gold prices rebounded.

The Dow Jones industrial average (down 31.14 to 13,239.54, Charts) lost 0.2 percent, after falling more than 200 points in the morning. On Thursday, the Dow slumped 387 points, suffering its second biggest one-day point and percentage decline of the year.

The broader S&P 500 (up 0.55 to 1,453.64, Charts) index ended little changed, recovering from earlier losses, while the tech-fueled Nasdaq Composite (down 11.60 to 2,544.89, Charts) index gave up 0.5 percent after falling more in the morning.

Who can't get a mortgage now?

All three major gauges managed to end modestly higher for the week, with a three-day rally in the first half of the week trumping Thursday's battering and Friday's mixed trade.

For the week, the Dow gained about 0.4 percent, the S&P 500 rose 1.4 percent and the Nasdaq composite added 1.3 percent.

The volatile nature of trading is unlikely to ease up anytime soon, said Randy Diamond, an equity trader at Miller Tabak. However, "If this thing continues to play out as it has on a daily basis, people may become less jumpy," he said.

"Eventually, the market will have to pick a direction and go with it," Tabak said. "But it's too hard to tell now which way it will go."

Next week brings a bevy of key readings on the economy, including the July retail sales and June business inventory reports on Monday.

Mortgage meltdown contagion

The Dow had slumped more than 200 points in the morning, reflecting a broad market selloff, before trying to rebound near midday after the second wave of the Federal Reserve's cash infusion. The afternoon was again choppy, as investors struggled to position themselves amid ongoing uncertainty.

Treasury bond prices fell, after having risen in the morning in a classic "flight-to-quality" move into the comparatively safer haven of bonds.

Stocks slumped Thursday as worries about a tightening of the global credit market resurfaced, sparking a broad decline in stocks in the U.S. and abroad.

The worries continued Friday after central banks in Europe, Japan, Australia and the U.S. all made billions available.

However, investors found some solace in news later in the session that the U.S. Federal Reserve had upped its initial influx of $19 billion to first $35 billion and then $38 billion, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

"There may be a little less fear now," Saluzzi said. "It may not really make much of a difference, but it settles some feelings."

Yet, concerns about credit tightening and subprime aren't going away anytime soon, and the market is bound to remain vulnerable in the weeks ahead, let alone next week.

"This is still an emotional market and there are a lot of news events that could happen over the weekend that could weigh on stocks next week," Saluzzi said.

Earlier in the week, French bank BNP Paribas said it was halting withdrawals from three of its funds because of current market conditions, while Goldman Sachs (Charts, Fortune 500) said two of its hedge funds have sold some of their positions because of recent losses.

Similar news from other financial institutions this weekend or early next week could spark another leg down for the stock market, Saluzzi said.

FDA to rule on Wyeth's anti-psychotic drug

2007-08-09T03:47:00.000-07:00

FDA to rule on Wyeth's anti-psychotic drug

Wyeth's experimental schizophrenia drug to receive FDA decision this week; anti-psychotic market faces impending generic pressure.

NEW YORK (CNNMoney.com) -- The FDA will decide soon whether Wyeth's experimental drug for schizophrenia merits approval for the U.S. market.

The Food and Drug Administration is expected to make a decision as early as Friday regarding the schizophrenia drug bifeprunox, developed by Wyeth (up $1.21 to $50.55, Charts, Fortune 500) and its partner, Solvay Pharmaceuticals.

More drug news...

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"There's more downside risk than upside," said Jon LeCroy, analyst for Natexis Bleichroeder.

The Madison, N.J.-based Wyeth could use some good news, since its stock tanked more than 10 percent in July, when the review of its experimental antidepressant Pristiq was stalled by the agency.

"The stock's in a precarious spot here, because they had that other drop," said LeCroy, adding that the FDA might step cautiously around bifeprunox because it causes nausea as a side effect.

LeCroy said that bifeprunox sales have the potential to peak at $1 billion annually. But he said growth would be stymied beyond that, because the industry for anti-psychotics as a whole will soon be constrained by generic competition.

A drug to slow Alzheimer's cruel march

The patent for Johnson & Johnson's (up $0.41 to $62.49, Charts, Fortune 500) blockbuster Risperdal is expected to run out in 2008. The patent for Eli Lilly & Co's (up $1.88 to $58.40, Charts, Fortune 500) Zyprexa (which totaled $2.3 billion in the first half of 2007) is slated to expire in 2011.Name-brand drug sales typically plunge when a patent expires, because competition opens to low-cost generics.

"Generic Zyprexa will make it tougher for all these schizophrenia competitors," said Michael Krensavage, analyst for Raymond James & Associates.

MOVE THIS UP: But generic competition isn't the only challenge for bifeprunox, said Krensavage. The analyst said the drug has demonstrated "questionable efficacy" in treating schizophrenia. Krensavage said he wasn't convinced the drug would sail past the FDA, and that the drug doesn't have what it takes to be a billion-dollar blockbuster.

Generic competition is expected to put pressure on other players in the schizophrenia class of drugs, including Abilify from Bristol-Myers Squibb (up $1.01 to $29.93, Charts, Fortune 500), with nearly $800 million in sales during the first six month of 2007, AstraZeneca's (up $0.47 to $51.04, Charts) Seroquel, with nearly $2 billion in first-half sales, and Pfizer's (up $0.26 to $24.61, Charts, Fortune 500) Geodon, with $400 million in the first half.

Even as the industry faces low-cost competition from generic drugmakers, it also stands to get more crowded. Though bifeprunox is the most advanced experimental drug in the anti-schizophrenia class, there are others in the wings. Schering-Plough acquired asenapine, through its recent purchase of Organon Biosciences, and the drug is in late-stage tests. Vanda Pharmaceuticals completed tested with its experimental iloperidone (which it licensed from Novartis) and plans to file with the FDA.

The analysts interviewed for this story do not own stock in companies mentioned here, though Raymond James has received non-investment banking securities-related compensation from Wyeth in the last 12 months.

Bear Stearns president resigns

2007-08-05T22:40:00.001-07:00

Bear Stearns president resigns

Two Bear Sterns-managed mortgage funds recently collapsed, triggering a downturn in the credit markets.

(Reuters) -- Bear Stearns President and co-Chief Operating Officer Warren Spector resigned on Sunday, becoming a casualty of a credit risk crisis at the investment bank.

Spector's departure follows Bear Stearns' assertion on Friday that it is weathering the worst storm in financial markets in more than 20 years, after a major rating company warned mortgage credit problems could hurt the investment bank's profits.

Standard & Poor's warned that the recent collapse of two Bear Stearns-managed mortgage funds could hurt the company's performance and reputation for an extended period.

The collapse of the funds triggered a downturn across credit markets, put a damper on corporate buyout financing and sparked fears about Wall Street's trading and banking profits.

Spector's departure is a blow to Bear Stearns (Charts, Fortune 500) because he was regarded as a possible successor to Chairman and Chief Executive James Cayne.

Cayne said in a statement on Sunday: "In light of the recent events concerning BSAM's high grade and enhanced leverage funds, we have determined to make changes in our leadership structure."

Bear Stearns said that, effective immediately, Alan Schwartz has been named the company's sole president, and Samuel Molinaro will become chief operating officer as well as chief financial officer.

Bear Stearns also said that Jeffrey Mayer, co-head of the fixed income division, has been named to the Bear Stearns executive committee.

Bear Stearns said Schwartz joined the company in 1976, becoming head of the investment banking division in 1985. Schwartz was named president and co-chief operating officer in June 2001.

Molinaro joined Bear Stearns in 1986 and 10 years later was promoted to CFO. In 2002, Molinaro was named a member of Bear Stearns' executive committee.

Mayer joined Bear Stearns in 1989, became the head of the mortgage department seven years later and has been co-head of the global fixed income division with Craig Overlander since 2002.

Bear Stearns spooked investors on Friday by saying it has halted share buybacks to preserve capital as it faces the most difficult debt markets in more than two decades.

Bear Stearns held a hastily arranged conference call on Friday after S&P changed its rating outlook on the company to "negative" from "stable," flagging a greater chance of a credit downgrade in the next two years.

While the conference call was aimed at soothing investors' fears, the call, featuring CFO Molinaro and, briefly, CEO Cayne, seemed to exacerbate them as the company's stock lost about 6 percent on Friday.

Freddie CEO wary of more subprime loans - NYT

2007-08-05T03:50:00.000-07:00

Freddie CEO wary of more subprime loans - NYT

Richard Syron dismissed the notion that his company should buy distressed loans.

(Reuters) -- The head of Freddie Mac, one of the biggest U.S. mortgage finance companies, dismissed suggestions that his company should step in to bolster sagging financial markets by buying distressed loans, the New York Times reported on Saturday.

Next victims of the credit squeeze

Freddie Mac chief executive Richard Syron said he was wary of calls for Freddie Mac (Charts, Fortune 500) and fellow mortgage finance company Fannie Mae (Charts) to buy loans and securities no longer favored by private investors, the Times said.

With credit pools drying up "there are some loans that are in difficulty," the Times quoted Syron as saying in a telephone interview.

"There are other loans that probably should never have been made and providing more liquidity will make that situation worse in the long term," Syron told the Times.

Syron said Freddie Mac's portfolio size was limited by an agreement reached with regulators.

American Home Mortgage to shut down

Default rates in the subprime segment of the U.S. mortgage market, which serves borrowers with poor credit histories at high interest rates, have jumped in recent months as the housing industry has slowed and home prices have fallen.

The Office of Federal Housing Enterprise Oversight, which regulates both Fannie Mae and Freddie Mac, in July directed them to avoid loans that did not meet standards set in June by bank regulators.

Another devastating decline for the Dow

2007-08-04T02:03:00.000-07:00

Another devastating decline for the Dow

Blue chip index posts third-biggest drop so far this year, falling 281 points.

NEW YORK (CNNMoney.com) -- Wall Street ended another rollercoaster week with the Dow industrials plummeting about 280 points Friday amid continued credit market fears, sparked by Wall Street bank Bear Stearns.

The Dow Jones industrial average (down 281.42 to 13,181.91, Charts) fell 281 points, or 2.1 percent, marking the third-biggest point drop for the 30-stock index this year.

Friday's session stands in stark contrast to the past two sessions, when the blue chip barometer finished over 100 points higher.

So far this year, the Dow is up 5.8 percent.

The broader S&P 500 (down 39.14 to 1,433.06, Charts) lost nearly 2.7 percent, while the tech-fueled Nasdaq Composite index (down 64.73 to 2,511.25, Charts) tumbled 2.5 percent.

Treasury prices soared as investors sought shelter in the safe haven investments, lowering the yield on the 10-year note to 4.68 percent from the 4.77 percent level reached late Thursday. Bond prices and yields move in opposite directions.

Next victims of the credit squeeze

"A lot of this stuff is being attributed to Bear Stearns' conference call," Ryan Larson, senior equity trader at Voyager Asset Management, remarked just before market selloff gained momentum.

"There's nothing reassuring the market about subprime and that continues to underline the tone in the market - any whisper or negative news and we get a selloff."

Stocks were modestly lower for most of the session until about 2 p.m. when investment bank Bear Stearns hosted a conference call to discuss the company's health, after credit rating agency Standard & Poor's lowered the company's debt rating to "negative" from "stable" in the wake of its recent hedge fund woes,

In a conference call with Wall Street analysts, the company's chief financial officer warned that the recent turmoil in the bond market is as bad as it has been in 22 years.

Those credit worries hurt shares of financial sector players such as Goldman Sachs (down $7.78 to $179.68, Charts, Fortune 500), Morgan Stanley (down $3.26 to $60.62, Charts, Fortune 500) and Lehman Brothers (down $4.67 to $55.78, Charts, Fortune 500) before spreading to the larger market.

Among individual issues, all 30 Dow components finished the session lower.

Investors around the world have been rattled by signs of tougher conditions in credit markets, since tighter credit could raise the cost of borrowing for companies, hurting corporate earnings. This is likely to slow the buyout boom, which has helped prop up stock prices.

Credit market fears helped send global stock markets tumbling last week, with the 30-stock Dow industrials falling 585 points, posting its biggest percentage drop since March 2003.

Wall Street found little solace in Friday's monthly employment report, which revealed that U.S. employers added fewer jobs than anticipated in July. The Institute for Supply Management's service sector reading for the month also came in weaker-than-expected.

While the number of economic reports due out next week look pretty sparse, investors will have the Federal Reserve's policy meeting to look forward to on Tuesday.

Wake up time for the Fed?

The recent turmoil in the stock market has fueled speculation that the central bank may cut interest rates sooner than previously expected, but the Fed is widely expected to leave the Fed funds rate untouched at 5.25 percent, where it has remained since August 2006.

In corporate news, DaimlerChrysler (down $2.06 to $89.12, Charts) completed the sale of its Chrysler Group unit to private equity firm Cerberus Capital Management, bringing an end to the failed 9-year-old merger.

American Home Mortgage closed its doors Friday, cutting nearly 7,000 jobs, after lenders had cut off credit to the mortgage lender.

Take-Two Interactive Software (down $2.75 to $14.16, Charts) warned after the bell Thursday that it would delay its most important upcoming video game, "Grand Theft Auto IV," and that it would post a full-year loss. Shares plunged 16 percent on the Nasdaq.

On the earnings front, both consumer-products maker Procter & Gamble (down $0.42 to $62.88, Charts, Fortune 500) and the No. 1 automaker, Toyota Motor (up $0.31 to $118.90, Charts), reported better than expected profits Friday.

After several busy weeks of companies reporting quarterly results, only a handful of firms are set to report earnings next week including Cisco Systems (Charts, Fortune 500), Sprint Nextel (Charts, Fortune 500) and News Corp (Charts, Fortune 500).

Market breadth was negative. Decliners topped advancers by more than 5 to 1 on the New York Stock Exchange on volume of 2.05 billion shares. Losers beat winners on the Nasdaq by nearly the same ratio on volume of 2.53 billion shares.

Oil prices retreated as the price of U.S. light crude lost $1.75 to $75.11 a barrel on the New York Mercantile Exchange.

The dollar fell against the euro and the yen. COMEX gold for December gained $7.80 to $684.40 an ounce.

Take-Two delays 'Grand Theft Auto IV'

2007-08-03T01:00:00.001-07:00

Take-Two delays 'Grand Theft Auto IV'

Critical game gets pushed back and will be released in the video game maker's second-quarter of '08; company expects to post a full-year loss.

LOS ANGELES (Reuters) -- Take-Two Interactive Software Inc Thursday delayed its most important upcoming video game, "Grand Theft Auto IV", and warned it would post a full-year loss, before one-time items, sending shares down 17 percent.

"We are very disappointed to reduce guidance after having previously reaffirmed it," Ben Feder, the chief executive who is part of a new management team at the troubled company, said in a statement, referring to the company's previous assessment, in June.

Take-Two (Charts) shares dropped 17.8 percent to $13.90 after hours from a close of $16.91 on Nasdaq.

The game, which had been scheduled for release in October, is now planned for release in the second quarter of Take-Two's fiscal 2008. That means it will not be on store shelves in time for the holidays, dealing a blow to Microsoft Corp (Charts, Fortune 500) and Sony Corp (Charts), who had been banking on the must-have title to help lift sales of their respective gaming consoles, the Xbox 360 and the PlayStation 3.

"It's a disappointment that the game won't come out in the holiday period. It's one of the biggest games of all time," said Janco Partners analyst Mike Hickey, who has a "buy" rating on Take-Two shares. "This is probably going to hurt the sell- through of the PS3 and 360."

Grand Theft Boardroom

In the "Grand Theft Auto" franchise, players assume the role of a thug who, by committing various crimes, works his way up to the top of a criminal organization. The game is notorious, however, for its extreme violence, including letting players run over innocent pedestrians or gun down police officers willy-nilly.

The last version of the game, "Grand Theft Auto: San Andreas" came under fire in 2005 after hidden sex scenes were discovered that allowed players to engage in virtual sex acts.

Take-Two Chairman Strauss Zelnick, who helped lead a shareholder coup that ousted the former management earlier this year, said "certain elements of development proved to be more time-intensive than expected, especially given the commitment for a simultaneous release on two very different platforms."

On a conference call with analysts to discuss the delay, executives said the reason for the move was almost strictly due to technological challenges in completing the game.

The latest version of the game was reviewed Wednesday, they added, and a decision to delay its release was made Thursday.

Feder said the company had already warned retailers about the delay and that they had been understanding.

"Putting 'Grand Theft Auto IV' out in the Easter season or so isn't necessarily the worst thing in the world for them," he said.

Xbox repairs cost Microsoft $1B

Take-Two said that, for the fiscal year ending Oct. 31, it expects revenue of $950 million to $1 billion. It also forecast a loss of $1.25 per share to $1.35 per share, excluding one- time items.

Including costs for stock-based compensation, restructuring, and legal matters, Take-Two forecast a 2007 loss of $2.10 per share to $2.20 per share.

In June, Take-Two said it expected revenue of $1.2 billion to $1.25 billion for the year, with break-even results before one-time items.

"It's a disaster. It's nothing but bad news," said Todd Greenwald, an analyst at Nollenberger Capital Partners.

Asked if a turnaround for Take-Two was in sight, he said: "Someday, but not necessarily in sight. There will be several quarters of what I expect to be disappointing results."

Thursday's announcement marks the second high-profile game mishap under Take-Two's new management team. In June, the company suspended plans to sell "Manhunt 2" after the title was slapped with restrictive ratings for its extreme violence.

11th hour rally on Wall Street

2007-08-02T01:23:00.000-07:00

11th hour rally on Wall Street

Major gauges break into the black minutes before the closing bell after a tumultuous session.

NEW YORK (CNNMoney.com) -- Stocks rallied late in the session Wednesday as investors weighed credit concerns and oil prices in addition to some better-than-expected economic news and corporate earnings reports.

The Dow Jones industrial average (up 101.77 to 13,313.76, Charts) rose over 150 points, or 1.2 percent after struggling for most of the session.

The broader Standard & Poor's 500 index (up 11.70 to 1,466.97, Charts) added 0.7 percent and the tech-heavy Nasdaq composite index (up 5.37 to 2,551.64, Charts) gained 0.3 percent.

All three major gauges got off to a rocky start on the heels of a stock selloff in the previous session.

But stocks bounced into the black briefly after the Institute for Supply Management reported that nationwide manufacturing activity fell more than expected and the National Association of Realtors' pending home sales index jumped more than expected in June.

Oil prices weighed in following the government's weekly report on crude inventories, which showed a huge drawdown last week. U.S. light crude for September delivery sank $1.26 to $76.95 a barrel after reaching a peak of $78.77, according to Reuters.

In addition, credit concerns, a slumping real estate market and corporate earnings compounded investors nervousness throughout the session, according to Art Hogan, chief market strategist at Jefferies & Co.

"We don't know the magnitude of all of those issues," Hogan said, and "that is giving markets the jitters."

Here's what was moving near the close:

Shaking off the mortgage meltdown

In corporate news, Rupert Murdoch finally won his battle for the publisher of The Wall Street Journal. Dow Jones (up $0.62 to $58.00, Charts) agreed to be taken over by News Corp. (up $0.02 to $21.14, Charts) for $5.6 billion.

Time Warner (down $1.45 to $36.78, Charts), which owns CNNMoney.com, reported second-quarter earnings that topped analysts' estimates and said it has authorized an additional $5 billion stock repurchase. Investors weren't impressed, though, and shares tumbled nearly 5 percent.

Kraft Foods (down $0.30 to $32.45, Charts) posted higher quarterly profit, but shares of the Oreo maker fell.

Alltel (up $0.29 to $66.24, Charts, Fortune 500) rose after the wireless service posted a higher quarterly profit as revenue rose.

Cigna (down $3.23 to $48.41, Charts, Fortune 500) reported lower net income, but operating earnings beat Wall Street expectations. Shares of the health insurer sank 6 percent.

Shares of Qwest Communications (down $0.17 to $8.36, Charts, Fortune 500) also fell 2 percent after the telecommunications carrier said second-quarter profit rose, but came in short of expectations.

DaimlerChrysler (down $1.72 to $89.03, Charts) and Ford Motor (down $0.12 to $8.39, Charts, Fortune 500) both reported sharp drops in July auto sales, while General Motors (up $0.39 to $32.79, Charts, Fortune 500) said sales slumped 22 percent, more than expected. This could be the first month on record that domestic brands fall below 50 percent of overall U.S. auto sales.

After the closing bell Tuesday, Whole Foods (up $2.35 to $39.39, Charts, Fortune 500) posted profit that fell less than Wall Street expected, sending shares up 5 percent.

And Blackboard (down $6.03 to $38.20, Charts) tumbled 13 percent after the educational software company forecast third-quarter sales below Wall Street expectations.

Also on Tuesday, news that a third Bear Stearns (down $4.73 to $116.49, Charts, Fortune 500) hedge fund is reportedly in jeopardy added to jitters. The Wall Street Journal reported Tuesday night that a Bear Stearns fund with about $900 million in mortgage investments is refusing to return investors' money. Shares of the investment bank fell 4 percent.

And American Home Mortgage Investment Corp. (up $0.41 to $1.45, Charts) said that lenders had cut off its access to credit and that it may have to liquidate its assets. After a big fall Tuesday, shares gained 38 percent.

Market breadth was negative and volume was heavy. Losers beat winners on the New York Stock Exchange by nine to seven on volume of 2.4 billion shares. Decliners topped advancers by three to two on volume of 3 billion shares on the Nasdaq.

Treasury prices fell, raising the yield on the benchmark 10-year note to 4.78 percent from 4.74 percent late Tuesday. Bond prices and yields move in opposite directions.

The dollar gained against the euro and was little changed versus the yen.

COMEX gold for December fell $3.40 to $675.90 an ounce.

Report: 3rd Bear Stearns fund in jeopardy

2007-08-01T02:31:00.000-07:00

Report: 3rd Bear Stearns fund in jeopardy

Hedge fund with $900 million in mortgage investments reportedly face huge losses, according to newspaper.

NEW YORK (CNNMoney.com) -- A Bear Stearns' hedge fund with about $900 million in mortgage investments is reportedly facing huge losses and is refusing to return investors' money, according to a news report published online Tuesday.

Revelations of the imperiled hedge fund comes weeks after the investment bank closed two hedge funds that suffered losses arising from the subprime-mortgage market.

The value of the Bear Stearns Asset-Backed Securities Fund has fallen amid a flurry of mortgage markdowns, the Wall Street Journal reported, sparking fears the bank will have to close the fund as it has done to two others.

Bear Stearns (Charts, Fortune 500) has delayed paying back investors' money in the hope that the values of the fund would rise again, a source told the Journal.

The asset-backed fund's value was up 5 percent from Jan.1 to the end of June, the source told the newspaper. The troubled fund reported holds a range of mortgages with only a sliver being of the subprime category, the Journal reported.

Subprime loans are loans made to borrowers with less-than-perfect credit. Such loans have been roiling markets, setting off fears of a credit crunch or market slowdown in recent weeks.

"There are no plans to shut down the fund," Bear Stearns spokesman Russell Sherman, told the Journal. "We believe the fund portfolio is well positioned to wait out the market uncertainty."

Countrywide profit plummets

2007-07-24T09:05:00.000-07:00

Countrywide profit plummets

No. 1 mortgage lender, hurt by surging homeowner defaults, slashes outlook.

NEW YORK (Reuters) -- Countrywide Financial Corp., the largest U.S. mortgage lender, Tuesday slashed its full-year earnings outlook and said quarterly profit slid 33 percent, hurt by rising homeowner defaults in as the U.S. housing market slumps.

Shares of Countrywide sank more than 7.2 percent on the New York Stock Exchange Tuesday morning.

Second-quarter net income for the Calabasas, California-based company fell to $485.1 million, or 81 cents per share, from $722.2 million, or $1.15, a year earlier. Revenue fell 15 percent to $2.55 billion.

Analysts on average expected profit of 93 cents per share on revenue of $2.9 billion, according to Reuters Estimates.

Countrywide (Charts, Fortune 500) also cuts its full-year earnings forecast to a range of $2.70 to $3.30 per share from the $3.50 to $4.30 it had forecast in April, and the $3.80 to $4.80 it had forecast in January. Analysts on average expected $3.65. Profit was $4.30 per share in 2006.

"We expect difficult housing and mortgage market conditions to persist" this year, Chief Executive Angelo Mozilo said in a statement.

"Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories," Mozilo added.

Countrywide, which competes against Wachovia (Charts, Fortune 500), Wells Fargo (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), set aside $292.9 million for credit losses, up nearly fivefold from $61.9 million a year earlier.

Countrywide shares fell $2.49 to $31.57 in pre-market trading. Through Monday, the shares had fallen 20 percent this year, compared with a 13 percent decline in the KBW Mortgage Finance Index.

Mortgage banking

Pretax profit from mortgage banking fell 49 percent to $319.6 million as revenue slid 18 percent, though earnings roughly tripled from the first quarter.

Results reflected a $388 million writedown in the value of "prime" home equity-backed loan assets on its balance sheet, and a $25 million writedown for subprime assets, largely because delinquencies and defaults are rising.

Fed looks to rein in 'liar loans'

Mortgage loan production rose 19 percent to $123.1 billion, of which just 4 percent was "subprime," Countrywide said.

The company has tightened its lending guidelines, and like many rivals has stopped making some of the more exotic subprime loans that have triggered greater-than-expected defaults.

In banking, pretax profit fell to $128.9 million from $324.6 million, as credit losses rose more than sixfold. Pretax profit also fell 31 percent in capital markets, while it rose 11 percent in insurance.

Dow sinks as earnings, housing sting

2007-07-21T10:42:00.000-07:00

Dow sinks as earnings, housing sting

Benchmark index tumbles over 100 points a day after topping 14,000, its highest close ever; Google, Caterpillar, Ericsson all disappoint.

NEW YORK (CNNMoney.com) -- The Dow lost nearly 150 points Friday, a day after closing above 14,000 for the first time ever, as a spate of weak earnings news and continued housing fears rattled markets.

The Dow (down 149.33 to 13,851.08, Charts) sank over 1 percent, while the broader S&P 500 (down 18.98 to 1,534.10, Charts) and the tech-heavy Nasdaq (down 32.44 to 2,687.60, Charts) each fell about 1.2 percent.

The dollar hit a all-time low against the euro, bonds rallied and oil fell.

Coping with Dow 14,000

Despite the record-setting day Thursday, stocks still finished lower for the week. The Dow ended the week down 0.4 percent, while the S&P lost 1.1 percent and the Nasdaq declined 0.7 percent.

Next week investors will look forward to an advance reading on economic growth and numbers on the home sales. Both will be closely watched as economic growth has been slowing and real estate has deflated.

On the move

Stocks rallied Thursday, pushing the Dow, a blue-chip barometer that tracks 30 large companies, to its highest finish ever.

But a big miss from Dow component Caterpillar dashed hopes of another record- setting day Friday.

The heavy equipment maker said its net profit fell 21 percent and posted earnings of $1.24 a share, versus estimates for $1.49 a share. Caterpillar (down $3.78 to $83.20, Charts, Fortune 500) shares slid over 4 percent, although they were down over 9 percent earlier in the session.

Lackluster earnings in the tech sector also weighed on stocks.

Google (down $28.47 to $520.12, Charts, Fortune 500) reported earnings late Thursday that missed Wall Street's estimates even as its quarterly sales soared. The earnings miss - only the second since the Internet search firm went public in 2004 - rattled investors who have grown accustomed to solid results from the company. Google shares tumbled 5 percent.

Swedish firm Ericsson, the biggest maker of cell phone network equipment, also reported earnings that fell short of analysts' expectations early Friday. Ericsson (down $2.25 to $39.84, Charts) shares fell 5 percent.

"Google and Caterpillar have really taken the wind out of the sails," said Todd Clark, Director of stock trading at Nollenberger Capital Partners in San Francisco. "But this is just some healthy consolidation. The market really looked a little long in the tooth yesterday."

"Earnings are partly a factor, but they are not the whole thing," said Larry Peruzzi, a stock trader at The Boston Company Asset Management.

Peruzzi said the fact that the Dow hit the 14,000 mark Thursday, but just barely, was also giving investors pause.

"As the market gets up there, it acts as a reflection point," he said, noting that the Dow has often dropped after hitting other psychologically important benchmarks like 12,000 or 13,000.

Housing woes linger

Peruzzi said from comments Federal Reserve member William Poole that the subprime mortgage sector was large enough to affect the broader housing market also dampened the mood.

Defaults on mortgages in the subprime sector have risen sharply in the last few months, resulting in the implosion of several subprime mortgage lenders and funds that bought the repackaged debt.

Poole's comments follow those from Fed Chairman Ben Bernanke, who earlier this week told lawmakers that subprime losers could total $100 billion.

While so far limited, Bernanke said a housing slowdown had the potential to cut into consumer spending, hurting the broader economy. His comments helped stocks close lower Wednesday.

Is Baidu still a buy?

2007-07-09T13:21:00.000-07:00

Is Baidu still a buy?

Think that Google’s (GOOG) stock has been on a tear lately? Maybe so, but Google’s got nothing on Baidu (BIDU), aka the Google of China.

Shares of Baidu, China’s top search engine, have surged more than 40 percent in just the past month. The stock is up about 72 percent year-to-date. But the stock took a bit of a breather on Monday after Citigroup analyst Jason Brueschke downgraded Baidu from “buy” to “hold” citing valuation concerns. The stock dipped about 2 percent in mid-afternoon trading.

Still, that’s not that big of a drop considering how much momentum the stock has had lately. And a closer inspection of the Citigroup report shows that Brueschke isn’t exactly turning into a Baidu bear.

“To be clear, we do not recommend liquidating an entire position in Baidu,” he wrote, adding that he believes Baidu will report revenues for the second quarter that are higher than Wall Street’s consensus expectations of $48.9 million, which would be an increase of 105 percent from a year ago. What’s more, Brueschke even raised his price target for Baidu to $218 a share, about 12 percent higher than the stock’s current price.

I’ve already written about how Baidu and several other Chinese Internet stocks such as Sohu (SOHU), Sina (SINA) and Shanda Interactive (SNDA) have been hot performers as of late. Baidu’s gains have dwarfed the appreciation of these stocks, though.

But that’s precisely what makes putting new money into Baidu a little bit of a scary proposition now.

Much like Google, Baidu’s growth potential appears, on the surface, to justify its performance. But as Brueschke points out, the valuation may be ahead of itself. Baidu’s triple digit P/E - the stock trades at 107 times 2007 earnings estimates - makes it an exceptionally expensive stock.

Sure, profits are expected to increase by nearly 70 percent this year and in 2008 and at about a 48 percent clip, on average, for the next five years. But the stock is a bigger gamble now since expectations for the next few quarters are so high.

After all, Baidu has surpassed earnings estimates by nearly 20 percent a quarter, on average, for the past four quarters. So the pressure is on Baidu to keep wowing the Street in order to satisfy the momentum investors that have bid up the stock to just under $200 a share in the past few weeks.

That’s exactly why Ryan Jacob, manager of the Jacob Internet fund, has been reducing his stake in Baidu recently. He still owns a small position in the stock in his fund but said he’s concerned about the valuation.

“The problem is that Baidu is such an early stage company. By far, they are the search leader in China and all indications are that they will have a very strong quarter. But we’ve cut back our position because at these prices, there’s a lot more risk,” he said.

Still, Jacob agreed with Brueschke and said investors should not completely bail on Baidu.

“Long-term, this is what’s hard. Baidu’s extremely well positioned and they’ve done an excellent job competing against Google and other local players in search. So eventually, the company will justify its valuation,” he said, but added that there’s more to China than Baidu and recommended that investors diversify their holdings in the country.

As such, he also owns Sohu, Sina, Chinese travel site Ctrip (CTRP) and Tencent, a popular instant messaging company. Tencent shares aren’t as easy to purchase for the average investor, though, since they trade only in China and do not have a U.S. Nasdaq listing

Man not buying Snapple's 'all natural' claim

2007-07-07T07:33:00.000-07:00

Man not buying Snapple's 'all natural' claim

Suit alleges Cadbury Schweppes' drink uses high fructose corn syrup; seeks class action status.

NEW YORK (Reuters) -- A New York man sued Cadbury Schweppes Plc Friday, alleging the company mislabeled certain products, including its Snapple juice and tea drinks, as "all natural" when they were not.

Hemant Mehta, who wants the suit to become a class action complaint, alleged that the drinks contained high fructose corn syrup (HFCS) and "other non-natural products," according to the suit filed in Manhattan federal court.

Mehta seeks to represent all people who bought certain Cadbury Schweppes (Charts) and Snapple drinks over the last six years.

"HFCS does not exist in nature and is not 'minimally processed,"' the complaint alleges. "Describing HFCS as an 'all natural' ingredient is deceptive and unfair to consumers and competitors."

A Cadbury Schweppes representative was not immediately available for comment.

Rye Brook, New York-based Snapple uses "Made from the best stuff on Earth" as its slogan. British-based Cadbury is the world's largest confectionary company and competes with Coca-Cola (Charts, Fortune 500) and Pepsi (Charts, Fortune 500).

Hedge fund settles Azerbaijan oil bribe case

2007-07-06T11:41:00.000-07:00

Hedge fund settles Azerbaijan oil bribe case

Omega Advisor to pay fine, cooperate with on-going probe into alleged scheme to gain control of Central Asian state oil company.

NEW YORK (Reuters) -- The U.S. government said Friday it had agreed not to prosecute Omega Advisors Inc., a $6 billion hedge fund, over its role in an alleged scheme to bribe Azeri officials and gain control of the Azerbaijan state oil company.

Omega will not be prosecuted for any crimes related to its investment in a privatization program in Azerbaijan, the U.S. Attorney's office in Manhattan said in a statement. Omega will forfeit $500,000 and continue to cooperate with the probe.

The agreement ends uncertainty over the case for Omega, which was founded by Leon Cooperman, a former general partner of Goldman Sachs (up $1.60 to $222.92, Charts, Fortune 500).

It also comes after recent setbacks for prosecutors in the case, which includes allegations that Czech investor Viktor Kozeny sent "planeloads of cash" into Azerbaijan in the late 1990s to acquire a controlling interest in the former Soviet republic's state oil company, SOCAR.

Omega invested more than $100 million in the privatization program in 1998 through a co-investment agreement with two companies controlled by Kozeny, prosecutors said.

Clayton Lewis, a former Omega employee who was the hedge fund's point of contact on the Azeri investment, has admitted he knew about Kozeny's alleged arrangements before he invested on Omega's behalf, prosecutors said.

Lewis pleaded guilty in February 2004 to charges of violating the Foreign Corrupt Practices Act and conspiracy to violate the act, prosecutors said.

After UBS hedge fund trouble, executives shuffle

Omega lost all of its investment and SOCAR has not yet been privatized, prosecutors said. Omega substantially wrote down its investment in 1998. It has sued Kozeny and Lewis.

"I am happy that the government has understood that Omega has acted appropriately since it learned of Mr. Lewis' improper conduct," said Omega's lawyer Robert Anello, of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C.

In a letter to investors, Cooperman said he was pleased "the saga relating to Omega's 1998 investment in the privatization program in Azerbaijan has come to an end."

In June, a federal judge threw out most of the charges against two defendants in the case -- David Pinkerton and Frederic Bourke -- saying the indictment was filed too late.

Pinkerton was managing director of AIG Global Investment, a subsidiary of American International Group Inc (down $0.27 to $70.00, Charts, Fortune 500)., while Bourke was the principal shareholder in Blueport International Ltd, which allegedly invested in a company involved in the scheme, according to the ruling last month.

The two still face charges of making false statements. The judge has set a conference for July 17.

Kozeny was released on bail in April from a Bahamas prison where he was sent in 2005 to await extradition to the United States.

European stocks hit 2-week highs

2007-07-04T10:27:00.000-07:00

European stocks hit 2-week highs

Expectations for strong corporate earnings growth help push markets higher; hotel stocks advance after Blackstone buys Hilton.

LONDON (Reuters) -- European shares ended strongly for the second straight session on Wednesday, with a key benchmark hitting its highest closing level in two weeks, but volume was stifled by a U.S. holiday.

Travel and leisure stocks were standout gainers, with hotel group Accor rallying 10 percent and Intercontinental Hotel up 4 percent as private equity firm Blackstone Group (Charts) agreed to buy Hilton Hotels (Charts, Fortune 500) in a deal valued at $26 billion, spurring talk of further industry consolidation.

The pan-European FTSEurofirst 300 index rose 0.4 percent to 1,620.2, its strongest close since June 20, and up 9 percent so far this year, boosted by corporate takeovers and strong earnings. The index jumped 16 percent in 2006.

About 1.8 billion shares were traded, about half the average daily volume traded so far this year.

Fund managers said strong corporate profit growth was supporting stocks.

"Recent highs in European equities are driven by expectation of European earnings growth picking up as corporate investment remains strong and unemployment rates continue to fall," said Vincent Devlin, investment director of European equities at Scottish Widows Investment Partnership.

Around Europe, Germany's 30 share DAX index added 0.3 percent while UK's FTSE 100 and France's CAC 40 both rose 0.5 percent.

Focus on rates

Interest rates will be eyed Thursday with the European Central Bank expected to hold rates at 4 percent, while the Bank of England is forecast to raise rates a quarter percentage point to 5.75 percent.

In June, concerns over rising interest rates and costlier credit hit European stocks as investors worried that higher borrowing costs might derail M&A activity.

"M&A is still alive," said Philip Isherwood, a strategist at Dresdner Kleinwort. "With the maturity of the profit cycle, the concept of cost synergies appeals to management, because companies are not willing to let their profit growth slow down."

Among gainers, Volkswagen added 1.3 percent after Europe's largest carmaker reported a 15 percent rise in car sales in the United States in June, marking its strongest overall sales month since August last year.

British Airways rose 5.3 percent after the airline reported strong figures for its premium class seats in June.

Oil

2007-07-02T05:54:00.000-07:00

Oil steady above $70; terror risk considered

In holiday week, traders await inventory report expected to show higher fuel production in the world's top consumer.

SINGAPORE (Reuters) -- Oil prices steadied Monday, the start of a holiday-shortened week, as traders looked ahead to a recovery in U.S. refinery use to offset declining gasoline stockpiles.

U.S. light crude eased 13 cents to $70.55 a barrel in electronic trading, after a $1.11 rally Friday to the highest settlement since August 2006. London Brent crude traded 9 cents lower at $71.32, after gaining 89 cents Friday.

Oil traders worried about geopolitical supply risks saw London's Heathrow airport and New York's JFK terminal reopened Sunday after bomb scares, following an explosion at a Scottish airport Saturday and failed car bombing attempts in London.

"We can see some profit taking after short covering brought the market up to $71," said Ken Hasegawa at Himiwari CX in Tokyo. "The market will be rangebound until the U.S. holiday."

Wednesday's Independence Day holiday will delay until Thursday weekly U.S. inventory data, in which some analysts expect to see higher U.S. fuel production after several plants returned from maintenance.

Retail gasoline price dips below $3

ConocoPhillips (Charts, Fortune 500) planned to begin a restart of a gasoline-making unit in Texas Friday, while two crude units at a BP (Charts) refinery in Indiana, the country's fifth biggest, will reach full rates within two to three weeks after a fire slashed output in April.

A series of outages in the world's top consumer has helped drive down gasoline stockpiles during peak summer demand, though crude stockpiles have risen to nine-year highs despite OPEC production cuts.

Oil market speculators trimmed their exposure to rising prices in the week ended June 26, paring their net long gasoline and heating oil positions from the previous week's multi-year highs. Crude oil net length was almost unchanged.

Crude stockpiles in Cushing, Okla. - the delivery point for U.S. crude futures - fell by 1.4 million barrels in last week's data, leaving the price gap between American and European oil benchmarks at under $1 a barrel after U.S. crude has been trading at an atypical discount to Brent since February.

Iran's dispute with the West over the country's nuclear program is still in focus after an Iranian official said Saturday a team from the U.N. nuclear watchdog will visit Iran on July 11-13 for discussions.

Worries over Iran's nuclear dispute together with disruptions to Nigerian supplies, OPEC supply curbs and growing fuel demand have left Brent oil prices up 17 percent this year.

Job growth, subprime on investors' minds

2007-07-01T12:36:00.000-07:00

Job growth, subprime on investors' minds

Stocks posted solid 2nd-quarter gains but rising interest rates and the subprime mortgage mess are a concern.

NEW YORK (Reuters) -- Investors are hoping this week brings some answers to the question of whether an improving U.S. economy unleashes inflationary forces, and one place to look will be in the government's June employment report.

At the same time, the potential for defaults in subprime loans to spill over to the general economy remains a concern. Nervousness that tighter credit may affect the availability of financing for buyouts prompted investors to sell banks' and brokers' shares on Friday, which helped cut short a morning rally.

In this holiday-shortened week, the most significant data, the June payrolls report, will come on Friday.

U.S. financial markets will be closed on Wednesday, July 4, for the Independence Day holiday and the New York Stock Exchange will close early, at 1 p.m. ET on Tuesday.

Stocks can't muster turnaround

Last month, investors were cheered by news that employers added 157,000 jobs in May. But a Reuters poll of economists found forecasts for weaker job growth in June: analysts on average said payrolls added 120,000 jobs last month.

Bill Dwyer, chief investment officer at MTB Investment Advisors in Baltimore, expects growth of 120,000 to 130,000 jobs. "I think the economy is still chugging along and the consumer is in pretty decent shape," Dwyer said. He added that with decent economic fundamentals, no recent announcements of major layoffs and signs that manufacturing is picking up, the payrolls report should be at or a little better than the consensus.

Other reports due during the week include the Institute for Supply Management's readings on June manufacturing, on Monday, and the services sector, on Thursday. The Reuters survey forecasts that ISM's June index of national factory activity will be unchanged at 55.0. The ISM services index is expected to drop to 58.0 from 59.7 in May. Any reading above 50 points to growth in the sector.

Al Kugel, chief investment strategist at Atlantic Trust in Chicago, noted that some recent data from regional Federal Reserve banks has been good. He said he expects the ISM data to be strong. "People need some new information to become more bullish and the ISM could be the trigger," he said.

The stock market turned in a strong performance for the second quarter, but has hit a wall in recent weeks after Treasury bond yields climbed above 5.0 percent and problems surfaced at two Bear Stearns hedge funds that held investments in subprime loans, home mortgage loans to borrowers with weak credit.

Cracks in the buyout boom

For the second quarter, the Dow industrials jumped 8.5 percent, the S&P 500 rose 5.8 percent and the Nasdaq gained 7.5 percent. So far for the year, the Dow is up 7.6 percent, the S&P is up 6 percent and the Nasdaq 7.8 percent.

After losing ground Friday, the Dow finished last week up 0.4 percent, the Nasdaq gained 0.6 percent and the S&P ended little changed.

In the week ahead, Tuesday will bring its fair share of numbers. A government report on May factory orders is due that day, along with car and truck sales in June. After a lull this week, S&P 500 companies' earnings will begin to trickle out the following week and then the quarterly deluge begins later in July.

Bob Millen, co-portfolio manager of The Jensen Portfolio, a $2.3 billion mutual fund, noted that S&P 500 earnings growth is down significantly from the double-digit readings of a year ago. He said price-to-earnings multiples are unlikely to expand, and that companies generating significant revenue from outside the United States are the best bets now.

News of a probe into two Bear Stearns (Charts, Fortune 500) hedge funds heavily invested in subprime mortgages added to investors' worries last week that the potential fallout could spread throughout the banking industry. One company was forced to postpone a bank loan and another firm delayed the pricing of a $1.1 billion high-yield bond offering.

Mergers fail to lift media stocks

Referring to the problems in subprime debt, which have devastated some hedge funds that made heavy bets in the sector, RiverSource Investments chief market strategist David Joy said he believes that "it's the primary preoccupation of equity investors and that is going to continue next week.

"The issue is: 'Does it result in a tightening of lending standards that could spill over into a general credit tightening?' That's the biggest concern."

As for the week's statistics, Joy said he will be watching the average hourly earnings figure that is included with the payrolls data, as well as the prices paid numbers in the ISM reports.

"Our view is that inflationary pressures are probably going to increase in the second half of the year" but at a modest rate as the economy picks up steam, Joy said.

The wait is over

2007-06-30T03:36:00.000-07:00

The wait is over

The first Apple iPhones went on sale Friday, ending months of mounting anticipation. But now comes the hard part: will it live up to the hype?

NEW YORK (CNNMoney.com) -- The Apple iPhone, the most-anticipated gadget debut in years, went on sale Friday in the United States, ending months of waiting for diehard Apple fans and signaling the start of what could be the company's biggest test yet.

In New York City, eager buyers streamed into Apple stores when the doors opened, as planned, at 6 p.m. sharp. Similar openings took place across the country as the clock struck 6 p.m. local time.

The intersection of Prince St. and Greene St. in New York's chic Soho district was completely shut down as hundreds of people crowded around the entrance of the Apple store, photographing and shopping for the first iPhone sales.

In-depth: More iPhone madness

Apple store employees made a line just inside the front door and clapped for customers entering and leaving the store.

The mood was much like a rock concert, with people screaming and pumping their fists, and camera flashes going off.

"The guys inside made me feel like a celebrity," said Antonia Leite. "I've been waiting in line forever."

"This is a liminal experience. Do you know what a liminal experience is?," said Johnny Samson, a video producer, who purchased one of the first iPhones. "I've gotta go. I don't want to get robbed."

At the Apple store in Palo Alto, Calif., Apple CEO Steve Jobs made a surprise visit soon after the cell phone went on sale. Wearing a baseball cap and black t-shirt, he greeted customers before rejoining his wife.

What do you think of the iPhone?

In the five months since Jobs announced Apple's move into the mobile phone business, the iPhone has become the most widely-anticipated product launch in recent memory.

The phones, which retail for $499 for 4 gigabytes of storage or $599 for 8 gigabytes of storage, are being sold at Apple and AT&T Wireless stores.

Apple, which was to begin selling the phone online late Friday, has said shoppers will be limited to two devices apiece. AT&T, the exclusive carrier, plans to sell one iPhone per customer and at company stores only.

iPhone mania was in full bloom Friday as hundreds of people camped out at Apple stores in New York and elsewhere for their shot at the pricey gadgets.

iPhone accessories: sneak preview

The line outside the Soho store snaked for blocks as consumers stood, sat under umbrellas and lounged on folding chairs. The faithful started lining up late Tuesday, weathering fierce thunderstorms and rain, with many pulling out tarps to protect themselves from periodic downpours.

By Friday morning, umbrellas and lawn chairs were scattered on the sidewalk and some people were lying on the ground with jackets over their heads. Apple employees gave away bottles of water early in the day.

"I'm actually supposed to be at work right now," said one would-be buyer, who asked for obvious reasons to remain anonymous.

Top 10 product launch hits and misses

At the Apple Store on Manhattan's tony Fifth Avenue, the man who was fifth in line was planning to propose to his girlfriend with a ring and an iPhone. For lunch Friday, a 44 year-old graphic designer who was No. 88 in line, ordered foie gras and sparkling lemonade delivered.

Earlier in the day Krispy Kreme handed out free donuts and FAO Schwarz, the venerable toy store adjacent to Apple's shop, gave away gift bags to the first 100 people in line.

In San Francisco, eager shoppers who began lining up early Thursday outside the Apple Store near Union Square, spent the night on folding chairs and in sleeping bags - one even brought a mattress. A 54-year-old marketing specialist who was first in line claimed he'd been offered $1,200 for his slot (Live coverage).

Meanwhile, a few dozen miles to the south in Palo Alto - in the heart of Silicon Valley and Jobs' backyard - about 50 iPhone buyers spent Thursday night typing on their laptops, playing Scrabble, and honoring an numbering system so nobody lost their place in line (Live coverage).

Sell Apple, buy Google

The iPhone represents a crucial test for Apple (Charts, Fortune 500) as it evolves from a computer maker into an entertainment device company. While the company's stock has soared on the blowout success of its iPod music player, the response to its more recent foray into Web television, dubbed Apple TV, has been muted.

Meanwhile, AT&T (Charts, Fortune 500), the country's largest wireless carrier by customers, is banking on the iPhone to give its stodgy image a much-needed makeover. The company, which is in the process of integrating Cingular, is also looking to justify generous concessions it made to Jobs & Co to land the iPhone deal.

While the early iPhone reviews have so far been glowing, there are some concerns, namely its lack of common features like GPS and the decision to use AT&T's sluggish broadband instead of a faster 3G network.

Stocks finish flat

2007-06-29T03:22:00.000-07:00

Stocks finish flat

Fed's decision to keep rates steady was widely expected, and doesn't do much to rally an inflation weary market.

NEW YORK (CNNMoney.com) -- Stocks bounced around a bit Thursday, ultimately finishing flat, after the Federal Reserve held interest rates steady but indicated it was still concerned about inflation.

The Dow Jones industrial average (down 5.45 to 13,422.28, Charts) and the broader S&P 500 (down 0.63 to 1,505.71, Charts) were both virtually unchanged, according to early tallies. The tech-heavy Nasdaq (up 3.02 to 2,608.37, Charts) gained about 0.1 percent.

In its policy statement, the Fed kept its target for the fed funds rate, an overnight lending rate for banks, steady 5.25 percent, where it has stayed since August 2006.

Fed holds rates steady again

The Fed dropped the word "elevated" from its description of core inflation, but added that "sustained moderation in inflation pressures has yet to be convincingly demonstrated."

"It might be a little less hawkish than last time around," said Peter Cardillo, chief market economist at Avalon Partners. "But is inflation still on the minds of the Fed? Indeed."

Treasury bonds edged lower on the news, pushing the yield on the benchmark 10-year note to 5.10 percent from 5.08 percent late Wednesday. Bond prices and yields move in opposite directions.

Oil closed higher, and the dollar rose against the euro and yen.

Here's what else moved markets Thursday:

The Fed's moves, while not a surprise, were nonetheless closely watched by investors since inflation and rate hike fears have rattled markets in recent weeks, helping to push the 10-year note yield to a 5-year high earlier this month.

Investors dislike rising interest rates since they make borrowing more expensive, eating into corporate profits.

Stocks traded flat for most of the morning, with investors awaiting the Fed's decision and largely ignoring a reading on first-quarter economic growth.

Before the opening bell, the Commerce Department released its final revision of first-quarter economic growth, which showed the nation's economy grew at a slightly faster pace in the first quarter than previous estimates. But the reading missed forecasts and also included showed a slight pickup in a key inflation reading.

In corporate news, troubled U.S. automaker General Motors agreed to sell its Allison transmission unit to private-equity firms Carlyle Group and Onex for $5.6 billion. GM (up $0.74 to $38.15, Charts, Fortune 500) shares jumped over 2 percent.

Builder KB Home (down $0.54 to $39.89, Charts, Fortune 500) reported an unexpected quarterly net loss of $1.93 a share as revenue tumbled due to the weak housing market. KB shares lost about 1 percent.

And Capital One Financial (up $0.87 to $79.67, Charts, Fortune 500), the credit card issuer and banking company, said after the closing bell Wednesday that it plans to cut about 2,000 jobs, or 6 percent of its work force, as it struggles with mortgage banking losses and higher credit costs. Its shares rose over 1 percent.

Oil prices rose. U.S. light crude gained 60 cents to settle at $69.57 a barrel on the New York Mercantile Exchange.

The dollar rose slightly against the euro and yen.

Market breadth was positive. On the New York Stock Exchange, winners beat losers 3 to 2 on volume of 1.12 billion shares. On the Nasdaq, advancers topped decliners by a narrow margin as 1.54 billion shares changed hands.

Stocks snap losing streak ahead of Fed

2007-06-28T01:54:00.000-07:00

Stocks snap losing streak ahead of Fed

Major gauges rally late in the session helped by push from tech sector as investors await Fed rate decision.

NEW YORK - A late session push by the tech sector helped major gauges end their three-day losing streak, even amid concerns about the manufacturing sector and higher oil prices.

The Dow Jones industrial average (up 90.07 to 13,427.73, Charts) climbed 90 points, or about 0.7 percent, while the broader S&P 500 (up 13.45 to 1,506.34, Charts) rose 0.9 percent.

The tech-laden Nasdaq (up 31.19 to 2,605.35, Charts) jumped 1.2 percent, while the Russell 2000 (up 12.33 to 838.46, Charts) small cap index rallied 1.5 percent higher.

The tech sector delivered a big push late in the session as shares of software maker Oracle (up $0.53 to $19.69, Charts, Fortune 500) posted higher quarterly profit late Tuesday, beating Wall Street estimates. Shares of the tech bellwether rose nearly 2 percent in Nasdaq trading Wednesday after the company issued an upbeat outlook for the current quarter.

Has the bull market run its course?

Other techs leading the charge included Intel Corp. (up $0.41 to $23.79, Charts, Fortune 500), Salesforce.com Inc. (up $2.89 to $43.92, Charts), Dell Inc. (up $0.40 to $27.96, Charts, Fortune 500) and Internet measurement firm comScore (up $6.97 to $23.47, Charts), whose shares soared 42 percent in its market debut Wednesday.

The financial sector also provided a boost, as shares of Bear Stearns (up $3.96 to $143.31, Charts, Fortune 500), Goldman Sachs (up $5.16 to $219.33, Charts, Fortune 500) both finished over 2 percent higher.

Stocks fell early in the session following a bigger than expected drop in big-ticket item orders, which fell by 2.8 percent in May.

A jump in the price of oil over $1 a barrel also weighed on markets. Oil climbed Wednesday after the latest report on U.S. oil and energy inventories revealed a drop in gasoline inventories. U.S. light crude for August finished up $1.20 to $68.97 a barrel on the New York Mercantile Exchange.

Stock have shown a lot of volatility recently, with the Dow rallying more than 100 points each of the last two days until gains evaporated amid ongoing concerns about the subprime mortgage sector and its impact on the recent buyout boom.

Hugh Johnson, chief strategist for ThomasLloyd Global Asset Management, said the recent erratic erratic behavior of stocks makes sense at a time when second quarter earnings numbers and big economic reports like the June employment report, lay on the horizon.

"It's hard to get portfolio managers to make any big commitments," said Johnson.

Summer vacation for the Fed

While it wasn't the primary focus of Wednesday's trading activity, Wall Street was well aware that the Federal Reserve had begun its two-day policy meeting. But the central bank, which is widely expected to hold interest rates steady at 5.25 percent, will not release its rate decision and its closely watched statement until Thursday afternoon.

Investors will have a few economic reports to sift through Thursday including the final reading on first-quarter gross domestic product and weekly jobless claims, both of which are due out before the market open.

Stocks in focus

On the earnings front, Bed Bath and Beyond Inc. (Charts, Fortune 500) posted higher quarterly results late Wednesday on stronger sales.

Nike (Charts, Fortune 500) shares jumped nearly 9 percent Wednesday after the apparel maker reported better than expected fourth-quarter profits in the previous session.

Shares of the food giant Conagra (up $1.14 to $26.70, Charts, Fortune 500) finished 4.4 percent higher after posting better than expected quarterly earnings Wednesday, citing strength in its energy trading and fertilizer divisions.

In corporate news, Blackstone Group (down $0.83 to $29.92, Charts) shares marked their third straight day of declines by easing 2.7 percent, falling below last week's initial public offering price of $31 a share.

Shares of the musical instrument retailer Guitar Center (up $9.92 to $59.98, Charts) jumped nearly 20 percent after the company said it agreed to a $2.1 billion buyout offer from private equity firm Bain Capital Partners.

Market breadth was positive. Winners beat losers 3 to 1 on volume of 1.76 billion shares on the New York Stock Exchange. On the Nasdaq, advancers topped decliners by 2 to 1 on volume of 2.06 billion shares.

Treasury prices were lower, raising the yield on the benchmark 10-year note to 5.09 percent from 5.08 percent late Tuesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar moved higher versus the euro and eased against the yen.

COMEX gold for August fell 50 cents to $644.80 an ounce.

Woeful on Wall Street

2007-06-27T04:11:00.000-07:00

Woeful on Wall Street

Futures point to lower open as Fed prepares to start two-day meeting; subprime worries plague markets worldwide.

NEW YORK.. Stock futures pointed to another weak session Wednesday as investors remained nervous about subprime concerns and the latest economic readings ahead of the start of a two-day Federal Reserve meeting.

S&P and Nasdaq futures edged higher at about 6:30 a.m. ET but a comparison to fair value pointed to a negative opening for U.S. stocks.

Stocks have had trouble finding their footing this week amid ongoing concerns about the subprime mortgage sector. The Dow has rallied more than 100 points each of the last two days but the gains were thwarted by selloffs late in each of the sessions.

"There's continued worries about subprime and what might happen," said Peter Cardillo, chief market economist , Avalon Partners. "I think that we probably are heading for another nervous day."

After the close Tuesday, Wall Street investment bank Bear Stearns (Charts, Fortune 500) said it does not plan to bail out the second of two struggling hedge funds. The problem in the funds helped start the current slide in U.S. stocks last week. Bear Stearns cited stabilizing markets, but Bill Gross, the manager of the largest bond fund in the world, said the subprime crisis was not isolated and would eventually take a toll on the U.S. economy.

Treasury prices edged higher, trimming the yield on the 10-year note to 5.06 percent from 5.08 percent late Tuesday. Bond prices and yields move in opposite directions.

Oil fell in early trading, ahead of the 10:30 a.m. ET report on U.S. fuel inventories. U.S. light crude lost 41 cents to $67.36 a barrel in electronic trading.

Investors will take in a report on durable goods orders as well as the government's weekly report on crude inventories. The durable goods reading is forecast show a 1 percent decline in demand for big ticket items in May after a 0.8 percent rise in April, according to economists surveyed by Briefing.com.

Fed policymakers also meet today, but their closely watched statement isn't due until Thursday. Economists widely expect the central bank to hold rates steady.

In global trade, European shares fell at the open, and markets in Asia had another losing session. The dollar rose against the euro but fell versus the yen in early trading.

In major corporate news, software maker Oracle (Charts, Fortune 500) reported a jump in quarterly profit late Tuesday. The results beat the consensus forecast of analysts, and the company also issued an upbeat outlook for the current quarter. Shares of the tech bellwether gained 0.6 percent in after-hours trading, but slipped 0.4 percent in early Frankfurt trading.

Nike (Charts, Fortune 500) reported fourth-quarter profit rose by nearly a third on surprisingly strong sales of its shoes and apparel, as it beat forecasts. Shares gained more than 5 percent following the after-hours report.

Underwriters pulled a $1.5 billion bond offering that was to be used to finance the purchase of U.S. Foodservice from Royal Ahold (Charts) by two private equity firms - the latest sign that the trouble in the debt markets could put a crimp in the recent buyout boom.

BAE under probe over Saudi dealings

2007-06-26T07:32:00.000-07:00

BAE under probe over Saudi dealings

British defense company under investigation by U.S. regulators; firm denies breaking anti-corruption laws as shares fall in early trading

LONDON (Reuters) -- The U.S. Department of Justice has launched an investigation of Britain's BAE Systems Plc over the defense company's compliance with anti-corruption laws, including its dealings with Saudi Arabia.

Shares in BAE (Charts), Europe's biggest military contractor, fell as much as 10 percent in early Tuesday trading on fears the probe could lead to fines, disrupt the group's extensive interests in the United States, and damage its relations with Saudi Arabia.

Britain's Serious Fraud Office dropped an inquiry into BAE's dealings with Saudi Arabia in December last year after Prime Minister Tony Blair said it would harm national security and relations with the Gulf kingdom.

"BAE Systems has been notified by the U.S. Department of Justice that it has commenced a formal investigation relating to the company's compliance with anti-corruption laws including the company's business concerning the Kingdom of Saudi Arabia," the company said in a brief statement.

Radical new Boeing aircraft takes flight

BAE has denied making wrongful payments in its dealings with Saudi Arabia, which include Britain's biggest arms export deal, known as al-Yamamah, that dates back to the 1980s and was worth an estimated £43 billion ($86 billion).

The firm, which makes Typhoon jet fighters, Nimrod reconnaissance planes and nuclear-powered submarines, also has a new agreement, known as Al-Salam, to supply Saudi Arabia with 72 Eurofighter jets.

"This is bad for sentiment and could delay the signing of the Salam deal," said Panmure Gordon analyst Nick Cunningham. "But it is unlikely to have a material financial impact and could ultimately cauterize the seeping wound of Saudi related allegations."

U.S. force

BAE has become an increasingly powerful force in the lucrative U.S. military market, making two multibillion-dollar acquisitions there in as many years after selling its stake in troubled European plane maker Airbus.

One analyst, who declined to be named, said the Department of Justice (DoJ) investigation followed lobbying by BAE's U.S. rivals seeking to disrupt the latest deal with Saudi Arabia, though he saw little chance of this happening.

He noted that BAE received approval last week from the Committee on Foreign Investment in the United States for its latest deal -- the $4.1 billion purchase of body armor and army truck maker Armor Holdings (Charts) - and said this suggested there was no real threat to BAE's U.S. business from the DoJ inquiry.

"The uncertainty is whether there will be any fines, and what those might be," he said.

Ethics

British media reports have accused BAE of paying £1 billion over a decade to Saudi Prince Bandar bin Sultan in connection with the al-Yamamah deal.

Bandar, former Saudi ambassador to the United States and now Secretary General of the Saudi National Security Council, has strongly denied the sums involved represented secret commissions to him, describing this as "a zenith in fabrication."

Big plane, big problems

Solicitors for Bandar have said the U.S. accounts at Riggs Bank into which the funds were paid were in the name of the Saudi Arabian Ministry of Defense and Aviation. Any monies paid from them were exclusively for ministry purposes.

BAE has said al-Yamamah was a government-to-government agreement and so all payments involved were made with the express approval of both the Saudi and British governments.

A spokesman at Blair's office said: "We can't comment on legal proceedings that haven't started yet, but we will be watching the proceedings with interest." Britain's Ministry of Defense said it had no immediate comment.

BAE said earlier this month it had asked a former top English law official, Lord Woolf, to lead a review of its business ethics, although this will not include its past dealings with Saudi Arabia.

2007-06-25T09:41:00.000-07:00

Chemical reaction

From gunpowder to polymers, DuPont has survived by adapting. Now the company is in the midst of its most audacious transformation. The goal: to improve the environment and make a fortune doing it.

(Fortune Magazine) -- Not so long ago the scene inside Room 406 of the U.S. Senate's Dirksen building would have been inconceivable. There, on a mid-February morning, sat top executives of three old-economy behemoths - DuPont, the 205-year-old science company; BP, the oil giant; and PG&E, California's largest utility. The corporate chieftains weren't there to fend off regulation, but to request it.

"Prompt action by Congress is needed" on climate change, DuPont CEO Chad Holliday told the Senate Committee on Environment and Public Works. DuPont (Charts) is part of a new group called the U.S. Climate Action Partnership (USCAP), which has proposed a plan that would force companies to reduce their greenhouse-gas emissions and also implement a market mechanism that would lower the costs of doing so.

USCAP counts GE (Charts), Alcoa (Charts), Caterpillar (Charts), and several power companies as members, as well as groups like the Natural Resources Defense Council and the World Resources Institute, whose president was sitting shoulder to shoulder with Holliday. Some of the Senators seemed dazzled by the union of gray and green. "You've got our attention," said Virginia Republican John Warner.

Faster than you can say "cellulosic ethanol," the idea of greening business has gone from eccentric to mainstream. But DuPont has been at it much longer than most. Since 1990 the company has been working its way through the two stages of sustainability: first, drastically reducing how much it pollutes (an effort that continues), and second, embracing sustainability as a strategic goal. DuPont's journey makes it a good test case to examine the opportunities - and challenges - for big industrial companies that want to make environmentalism both an operational imperative and a core principle.

By DuPont's definition, $5 billion of its $29 billion in revenue comes from sustainable products. These can be pure-green materials, such as bio-PDO, a corn-based substance that can be turned into a fiber for suits or carpets or even made into deicing solutions for airplanes. Or they can be products such as Tyvek - a chemically based material that dates to the 1950s - that can be used in new ways to improve energy efficiency.

What remains unclear is whether this effort will pay off - for DuPont or for any other company that declares its devotion to the planet. "People don't pay for green for green's sake," says Deutsche Bank analyst David Begleiter. "They pay for black, which is earnings. Green is not the new black. Black is still black."

Chad Holliday wouldn't disagree; he likes black too. He has very practical reasons for requesting legislation on greenhouse gases. For starters, he thinks climate-change rules are inevitable, and he'd like to help shape them, in particular to make sure that DuPont gets credit for the massive voluntary emission cuts it has already made - 72 percent since 1990 (with plans for another 15 percent by 2015). No doubt he also wouldn't mind if his competitors faced the same restrictions DuPont has imposed on itself. More important, Holliday, like GE's Jeff Immelt, who is taking a similar tack, believes his company could make a lot of money in a carbon-constrained world on everything from alternative fuels to materials that save energy.

Holliday, 59, is a DuPont lifer. An industrial engineer by training, he landed a summer job at the company while attending the University of Tennessee, in his home state, then signed on full-time after graduation in 1970. Relaxed and chatty, he is quick with self-deprecating comments ("I've never had an original idea - it's always somebody else's idea, okay?"). He has been known to show up for interviews in one of the two suits he had made for himself out of DuPont's corn-based bio-PDO. (For Fortune, he opts for a traditional fiber, in pinstripes.)

Despite his genial demeanor, Holliday is well aware that his company's stock stands about 10 percent below its price when he took over in February 1998. (The Dow rose roughly 17 percent during the same period.) A big reason for the feeble showing has been the struggle to reinvent DuPont. Yes, that $5 billion in revenue from sustainable products is impressive, but it's taken an awful lot of pain - plus the occasional zigzag - to get there.

DuPont's overhaul has required $60 billion in deals. The company sold its Conoco oil unit in 1999 for $11.7 billion - and thus missed out on one of the largest oil booms in history. It used $7.7 billion of the proceeds to acquire the 80 percent of seed maker Pioneer Hi-Bred it didn't own. But it overpaid, and had to write off $2.9 billion in goodwill on the deal a couple of years later. And after years of fretting, in 2004 DuPont sold off its Invista unit, which manufactures materials such as nylon, a core product for more than half a century. By agonizing over the move, DuPont probably missed getting the best price, selling on the wrong end of the commoditization curve. Finally - and this decision seems hard to criticize - it bailed out of a brief foray into the pharmaceutical business.

When all the buying and selling was over, in 2004, what remained was no longer a $40 billion chemical and polymer titan but a $29 billion enterprise that now uses way more chemicals than it produces - and derives a large chunk of its revenues from fertilizers and seeds for corn and soy, while continuing to make well-known DuPont brand names such as Kevlar, Corian, Tyvek and Teflon. The transformation was not DuPont's first; 75 years ago it abandoned the explosives business and reincarnated itself as the haute science inventor of polymer chemistry that would shape our lives with the likes of nylon, Lucite, and Dacron.

"That transition took decades of fundamental research," says Paul Tebo, who retired as DuPont's top sustainability executive in 2004. "And what you are seeing now is the same type of transition."