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Pending home sales fall 1.5% in December
By Ruth Mantell
Last update: 10:01 a.m. EST Feb. 7, 2008
WASHINGTON (MarketWatch) -- Sales contracts on previously owned U.S. homes fell 1.5% in December, a sign that home sales will continue to decline, the National Association of Realtors reported Thursday. The pending home sales index, based on contracts signed but not closed in December, was down 24.2% from the prior year's period. The index, which is considered a leading indicator of existing home sales, had also declined in November, after gains in September and October. In November, pending home sales declined about 3% from the prior month, compared with the prior estimate of a 2.6% decline.
U.S. jobless claims turn lower in latest week
But continuing claims are at highest since October 2005
By Robert Schroeder, MarketWatch
Last update: 8:41 a.m. EST Feb. 7, 2008
WASHINGTON (MarketWatch) -- Initial jobless claims dropped in the week ended Feb. 2, reversing course after rocketing higher a week earlier -- a spike that added to concerns about the nation's economy.
Labor Department data showed first-time claims for the latest week fell by 22,000 to stand at 356,000, the lowest level in two weeks.
The prior week's claims were revised slightly higher, to 378,000 from 375,000.
The average number of workers filing claims over the past four weeks also edged up, rising last week by 8,500 to 335,000. It's the highest since Jan. 5.
The four-week average is considered a better gauge of the labor market than the volatile weekly number.
The claims data measure the number of workers who lost their jobs through no fault of their own and who become eligible for unemployment benefits. They reflect layoffs, not hiring.
The level of continuing jobless claims, meanwhile, rose to the highest since October 2005.
For the week ended Jan. 26, continuing claims rose by 75,000 to 2.78 million. The four-week moving average of those claims climbed by 24,250 to stand at 2.73 million.
The advance seasonally adjusted insured unemployment rate crept up to 2.1% from 2%.
The high level of claims registered for the prior week should be interpreted with caution, economists say, since this time of year is volatile. A Labor Department official attributed the large increase to difficulties adjusting data for the Martin Luther King Jr. federal holiday.
Drug stocks mixed; Glaxo tumbles on earnings report
By Val Brickates Kennedy, MarketWatch
Last update: 10:48 a.m. EST Feb. 7, 2008
BOSTON (MarketWatch) -- Drug stocks were mixed in early action Thursday as shares of British pharmaceutical giant GlaxoSmithKline plc tumbled in the wake of a disappointing fourth-quarter earnings report.
The Amex Pharmaceutical Index ($DRG: 308.84, -3.97, -1.3%) slid 1.1% to 309.33 while the Amex Biotechnology Index ($BTK:) edged up 0.3% to 734.77.
Glaxo (GSK:) shares fell 8% to $42.45.
The U.K. drugmaker reported that fourth-quarter earnings fell 12% from last year due to decreased sales of its troubled diabetes drug Avandia, increased generic competition for other products, and a weakening U.S. dollar.
Sales of Avandia, one of the company's best-selling medications, plunged 38% to 225 million pounds over lingering concerns that the drug can cause serious heart problems in some users.
Glaxo also issued a cloudy 2008 financial forecast, stating it sees earnings per share falling by a mid-single digit percentage rate.
Meanwhile, shares of Biogen Idec (BIIB:) benefited from a better than expected earnings report issued Wednesday. Shares were up over 2% at $62.00
The biotech bellwether reported its fourth-quarter profit that nearly doubled, due largely to strong sales growth for its two multiple-sclerosis drugs and an oncology treatment co-marketed with Genentech Inc. (DNA:)
Biogen also reiterated its 2008 financial forecast calling for earnings of between $2.23 and $2.38 a share. Adjusted earnings should come in between $3.20 and $3.35 a share, the company said.
Biogen grabbed headlines last month when billionaire investor Carl Icahn said he was nominating three members to the company's board because of dissatisfaction with management.
Last year, Icahn pushed the company's board to put Biogen up for sale by indicating he was interested in making an acquisition bid. After actively soliciting bids, Biogen Idec took itself off the market in early December, stating it had received no formal offers, including one from Icahn.
By Adam O. Manzor
Last update: 12:12 p.m. EST Feb. 7, 2008
Verizon Communications Inc.'s (VZ: 36.29, -0.41, -1.1%) board approved a plan to repurchase up to 100 million shares of common stock. The New York communications services provider said no additional shares may be acquired under a previously approved buyback, which was due to end Feb. 28, 2010. The new authorization will terminate when the aggregate number of shares bought back reaches 100 million or at the close of business Feb. 28, 2011, whichever comes first. Verizon has about 2.9 billion common shares outstanding. Shares of Verizon were down 41 cents, or 1.1%, to $36.29 in recent trading.
1:00 PM ET, Feb 07, 2008 - 3 minutes ago
02.§Fisher: No sign inflation is slowing
1:00 PM ET, Feb 07, 2008 - 3 minutes ago
03.§Fisher: Jan meeting not time to add additional cuts
1:00 PM ET, Feb 07, 2008 - 3 minutes ago
04.§Fisher: Previous rate cuts were enough offset downside risks
1:00 PM ET, Feb 07, 2008 - 3 minutes ago
05.§Fed's Fisher defends dissent in favor of no cut at Jan FOMC
1:00 PM ET, Feb 07, 2008 - 3 minutes ago
Deutsche Bank avoids further big write-downs
Quarterly profit off 47% on weaker investment banking; sticks to 2008 target
By Simon Kennedy, MarketWatch
Last update: 8:22 a.m. EST Feb. 7, 2008
LONDON (MarketWatch) -- Deutsche Bank on Thursday said it had successfully avoided any major write-downs in the fourth-quarter and stuck to its earnings target in the face of tough market conditions as its latest profit largely matched expectations.
Germany's largest bank (DE:514000: news, chart, profile) (DB: 110.32, +1.75, +1.6%) said net profit for the latest quarter fell 47% to 953 million euros ($1.4 billion), hurt by lower investment-banking earnings. Also, the year-ago quarter included 355 million euros in the form of tax credits.
Pretax profit fell 25% to 1.44 billion euros, in line with the consensus forecast.
Deutsche Bank said it didn't take any write-downs related to subprime or other mortgage exposure in the quarter. And in its leveraged-finance operations the latest charges were kept below 50 million euros.
In October, the bank announced third-quarter write-downs of about 2.2 billion euros, but on Thursday said it was able to avoid further losses thanks to strong risk management exercised during the credit crisis.
CEO Josef Ackermann told a press conference that the bank had acted swiftly to exit certain markets and cut its subprime mortgage exposure when the credit crisis first emerged. He refused, however, to rule out further charges on its leveraged-loan business because the bank remains committed to funding some deals in the first half of the year.
Other banks have taken write-downs on their leveraged-loan operations because they've sometimes been unable to sell the debt on to other investors.
Shares of Deutsche Bank gained 0.8% in midday trading amid sharp losses for broader European stock indexes. See Europe Markets.
Markets had become increasingly nervous about the company's position after banking peers such as UBS (UBS: 37.87, -0.04, -0.1%) announced further hefty fourth-quarter charges.
"Clearly, the good news was that the fourth quarter did not suffer any major write-downs," said Bear Stearns analyst Christopher Wheeler in a note to clients.
"Meeting expectations must be seen as positive," Wheeler said. At the same time, he cautioned about uncertainty over the outlook for 2008 since Deutsche Bank relies heavily on its investment-banking unit.
Market share to improve
Along these lines, Ackermann said conditions are likely to remain challenging for Deutsche Bank in 2008 as economic question marks weigh on its capital-markets businesses.
However, he reaffirmed the bank's "vision" of generating a pretax profit of 8.4 billion euros in 2008 and said its capital base is stronger than ever.
Ackermann also argued the bank's relative strength will help it gain market share in investment banking.
"Unlike many of our competitors, we are in very good shape and at times like these, when financial markets are more risk-averse, we are set to gain from a flight to quality," he told analysts on a conference call.
Deal talk
The bank's ability to dodge the worst of the subprime crisis allowed it to raise its dividend by 13% to 4.50 euros a share and could also put it in a strong position in future deal-making, though Ackermann said the bank would remain selective.
Ackermann confirmed he would be willing to talk to Deutsche Postbank (DE:800100: news, chart, profile) if he was approached about a possible deal to buy the retail bank. Shares in Deutsche Postbank gained 2.3% Thursday having spiked over 10% in the previous session following a report that majority owner Deutsche Post (DE:555200: news, chart, profile) was examining options for its stake.
Deutsche Bank, however, wouldn't be interested in buying Societe Generale, (FR:013080: news, chart, profile) , Ackermann said. Bid speculation has surrounded the French bank since it disclosed a $7.1 billion loss from unauthorized bets on European stock markets.
Following the SocGen loss, Deutsche Bank began a review of all its control systems. Auditors are due to report on their findings in a few weeks, though Ackermann was confident that no significant problems with its controls would be identified.
Debt trading stutters
By division, Deutsche Bank's pretax profit in corporate and investment banking fell around 43% to 669 million euros in the latest quarter, hit by higher costs and increased provisions for credit losses, which jumped to 190 million euros from 24 million euros. Expanded global coverage.
Sales and trading activity dipped slightly from a year ago, with revenue from debt trading down 10% at 1.6 billion euros. In the equity business, quarterly sales and trading revenue was broadly flat compared to a year ago, suggesting proprietary trading losses in the third quarter had not been repeated.
Anshu Jain, head of global markets at the bank, said that he's expecting a modest reduction in the overall fixed-income market in 2008 but that he doesn't anticipate this to be as severe as many market observers have been predicting.
In the private-client and asset-management arm, pretax profit slipped 8.5% to 421 million euros, due to a goodwill impairment on U.S. asset-management business Scudder as well as higher loan losses for private and business clients.
Sales results for many worse than even grim forecasts
By William Spain, MarketWatch
Last update: 1:21 p.m. EST Feb. 7, 2008
CHICAGO (MarketWatch) -- With few exceptions, it was a miserable start to 2008 for U.S. retailers. Many of the biggest names in the sector on Thursday posted January sales numbers that were even worse than already grim Wall Street forecasts.
Judging by the numbers, Americans cut back sharply on their spending last month, pinched by high gasoline prices, the credit crunch and fears that a recession is imminent -- or perhaps already here.
In aggregate, January sales grew by 0.5% on a comparable store basis for U.S. chain stores, according to the International Council of Shopping Centers. Spending was soft across the board but especially so for luxury and department stores sales and ICSC noted that wholesale clubs are the only category showing considerable growth, a fact that demonstrates consumers are being conservative in their spending.
"With uncertainty about the economy, and the possibility of a recession, consumers have pared their spending," said Michael P. Niemira, ICSC's chief economist. "Looking forward to February, we expect much of the same, as U.S economic problems do not seem to be dissipating anytime soon," he added.
Starting at the top, Wal-Mart Stores (WMT: 49.34, +0.51, +1.0%) said unfavorable weather led to a January same-store-sales increase, excluding fuel sales, of just 0.5% from a year earlier. That compares with an average estimate of analysts polled by Thomson Financial of same-store sales -- those at locations open at least a year -- rising 2%.
Still, Wal-Mart backed its fourth-quarter target for earnings from continuing operations of 99 cents to $1.03 a share.
Total sales at the world's largest retailer for the four weeks ended Feb. 1 increased 7.9% to $27.28 billion, up from $25.29 billion. For the current month, Wal-Mart anticipates same-store sales to be between flat and up 2%
Archrival Target (TGT: 52.45, +1.45, +2.8%) , meanwhile, saw a January same-store sales decline of 1.1%, hurt in part by weaker lawn and garden and jewelry sales. The analyst estimate was for a drop of 0.6%. The Minneapolis-based retailer said net retail sales for the four weeks ended Feb. 2 increased 5.4%. Looking forward, Target is forecasting February same-store sales down 1% to up 1%
Moving upscale, Nordstrom Inc. (JWN:) said that its January same-store sales fell 6.6% -- far worse than the 0.7% decline that analysts estimated. And total sales for the four weeks ended Feb. 2 were down a whopping 20.3% to $486.3 million.
At teen-wear retailer Wet Seal (WTSLA:), January same-store sales were off 5.7%, versus the analyst view of a decline of 1.5%. And net sales for the month were down to $36.8 million from $43.9 million. But the company did boost its fourth-fiscal-quarter earnings target to between 9 and 10 cents a share, compared with its prior forecast of 6 to 8 cents, primarily due to better-than-expected operating-expense savings and a slight widening in margins.
For Limited Brands (LTD:), parent of Victoria's Secret, January same-store sales fell 8% from a year ago, while total sales declined to $625.8 million from $1.06 billion. The Columbus, Ohio-based apparel and personal-care retailer said comparable-store sales for the 13 weeks ended Feb. 3 also fell 8%, while net sales declined to $3.23 billion from $4.03 billion. On average, analysts polled by Thomson Financial had expected January comparable-store sales to decline 6.9%.
On a slightly brighter note, closeout retailer Big Lots (BIG:) said its fourth-quarter same-store sales fell 0.6%, with overall sales down 8.5% to $1.4 billion, in line with previously provided expectations.
"It is a really tough time for shopper psychology," considering all the downbeat economic news, said Sarah Henry, a retail analyst with MFC Global Investment management. "And that can be enough to make people stop spending on discretionary items. It is hard to drive sales in an environment like this."
She described overall results as "mixed" but noted that at Wal-Mart, many gift card redemptions were being used for lower-margin food and other consumables rather than discretionary purchases, a "very telling" indication of what consumers are thinking.
That attitude is pinching the department stores, chains like Macy's and Nordstrom, who were already contending with a weak holiday season and in January had to "cut prices pretty urgently to clear out inventory."
Yet there were a few upside surprises, including Costco Wholesale (COST:), where January same-store sales rose 7%, with 5% growth in the U.S. and 19% growth overseas. Total sales for the period rose 11% to $5.11 billion. The analyst estimate was for a 6.6% rise in same-store sales.
J.C. Penney's (JCP:) same-store sales fell 1.9%, compared with a year earlier increase of 3.6% with total department store sales rose 1.7%, and direct sales up 3.6%. Wall Street was looking for a 6.3% decline in same-store sales. For February, Penney projects February comparable-store sales to be flat, with comparable-department store sales decreasing in the low single digits on a percentage basis. And the company now projects fiscal fourth-quarter earnings to come in at the high end at the high end of its original target range of $1.65 to $1.80.
And the Children's Place (PLCE:) said same-store sales increased 6% from the prior year's comparable period, due in part to higher promotional levels -- nearly three times the 2.2% pace Wall Street was looking for. The Secaucus, N.J.-based chain also said total sales for the four weeks ending Feb. 2 fell 4% to $121.7 million from $127.4 million the previous year.
However, Children's Place added that it had gotten a Nasdaq staff determination letter stating that it is not in compliance with regulations because it failed to hold its annual shareholder meeting by Feb. 3. The company said it will request a hearing for an extension, saying the meeting was postponed due to a delay in filing an annual report.
Ann Taylor (ANN:) had flat same-store sales in January, versus the expected 4% decline. But total January sales at the New York-based retailer dipped 15% to $127.9 million.
Moving back to the red ink, Stein Mart (SMRT:) said it would suspend its quarterly dividend in order to provide "more flexibility" to deal with worsening industry conditions. In January, the Jacksonville, Fla.-based retailer's sales fell almost 10% to $81 million, while same-store sales were down 2.5%. For the fourth quarter, Stein Mart forecast a loss in the range of 28 to 33 cents a share. Analysts polled by Thomson Financial had expected, on average, a loss of 44 cents a share for the fourth quarter.
Macy's (M:) got the ball rolling in the wrong direction Wednesday when it announced that January same-store sales fell 7.1%, worse than a previously expected decline of 4% to 6%. Total sales for the four weeks ended Feb. 2 fell to $1.28 billion from $1.78 billion a year ago, hurt in part by the fact that there was one fewer week in the January 2008 calendar.
The department-store chain also announced various restructuring and consolidation moves that will cost more than 2,500 workers their livelihoods.
Fisher worries about what's in the punchbowl
Dallas Fed chief explains last week's FOMC rate-cut dissent
By Greg Robb, MarketWatch
Last update: 1:37 p.m. EST Feb. 7, 2008
WASHINGTON (MarketWatch) -- The president of the Federal Reserve Bank of Dallas says he voted against the half-percentage-point cut in U.S. interest rates adopted in late January because he was worried the Federal Reserve was putting too much tequila in the punchbowl.
William McChesney Martin, the Fed's longest-serving chairman, famously said it was the job of a good central banker to take away the punchbowl just as the party gets going.
In the current financial-market turmoil, credit markets have been cutting back on lending to important segments of the nation's economy. As a result, "instead of taking the punchbowl away, the Fed is now faced with the task of replenishing the punch," Dallas Fed president Richard Fisher said Thursday.
Monetary policy acts with a lag, much like "good single malt whisky or perhaps truly great tequila," Fisher told an audience in Mexico City.
"It takes time before you feel its full effect," he explained.
"My dissenting vote last week was simply a difference of opinion about how far and how fast we might re-spike the monetary punchbowl," Fisher said.
The Federal Open Market Committee, charged with setting U.S. monetary policy, voted to cut rates by a half point, to 3.0%, on Jan. 30. Fisher was the sole dissenting vote on the 10-member FOMC.
It was the second such move in eight days during which the FOMC slashed the federal funds rate by by 1.25 percentage points. See full story.
"The Fed has to be very careful now to add just the right amount of stimulus to the punchbowl without mixing in the potential to juice up inflation once the effect of the new punch kicks in," he said.
Fisher also said he was uncomfortable with the sticky nature of inflation.
"Given that I had yet to see a mitigation in inflation and inflationary expectations from their current high levels, and that I believed the steps we had already taken would be helpful in mitigating the downside risk to growth once they took full effect, I simply did not feel it was the proper time to support additional monetary accommodation," he said.
Thu Feb 7, 2008 7:37am EST
By Wojtek Dabrowski
TORONTO (Reuters) - The woes in the U.S. financial sector are "poetic justice" for bankers who designed and sold complex investments that have since gone sour, billionaire investor Warren Buffett said on Wednesday.
The head of the Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) group of companies also played down worries about a credit crunch by saying that recent interest rate cuts mean low-cost funds are readily available.
But he warned that the U.S. dollar will continue to slide unless the country can rein in its yawning trade deficit -- the "biggest factor" behind the decline. Still, he said, the U.S. economy will "do very well over time."
Buffett, one of the world's wealthiest people, appeared to see irony in the fact that many of the banks who marketed complex investments which have now crashed are bearing much of the fallout.
"It's sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end," he said.
Buffett, a legendary investor who has amassed a huge fortune through plays in a wide range of industries, has bet against the U.S. dollar in the past.
In 2005, Berkshire had made a $21.8 billion bet that the U.S. dollar would fall. It later unwound that successful position as it found other non-U.S. investments.
Buffett said on Wednesday in Toronto that the turmoil that has rocked the U.S. economy in recent months has imbued the markets with a healthy degree of caution, while the rate-cutting response from central bankers has ensured that cheap money remains available for borrowing.
"I wouldn't quite call it a credit crunch. Funds are available," Buffett said during a question and answer session at a business event. "Money is available, and it's really quite cheap because of the lowering of rates that has taken place."
He added: "What has happened is a repricing of risk and an unavailability of what I might call 'dumb money,' of which there was plenty around a year ago."
Buffet was in Toronto for the Canadian launch of corporate-news firm Business Wire, which Berkshire bought in 2006.
Buffett tends to favor companies with relatively simple businesses, strong management, consistent earnings, good returns on equity, and little debt.
As of late last year, Berkshire's businesses employed about 220,000 people and the number is growing as the group continues to expand its portfolio of companies. The units generated a $10.27 billion profit on revenue of $90.2 billion from January to September.
McAfee, RealNetworks, Activision due to report
By Carla Mozee, MarketWatch
Last update: 3:31 p.m. EST Feb. 7, 2008
SAN FRANCISCO (MarketWatch) -- Shares of McAfee Inc., RealNetworks Inc. and BMC Software Inc. are likely to be active late Thursday following the release of the tech companies' latest financial figures.
McAfee (MFE: 32.11, -0.12, -0.4%) is forecast to report a 24% increase in profit to 45 cents a share on sales of $343 million for the fourth quarter, according to a Thomson Financial survey of analysts. Shares of the security software provider were off 0.6% at $32.04 in trading ahead of the results.
RealNetworks (RNWK:) a digital media provider whose products include RealPlayer, is expected to post a penny a share in earnings on $155 million in revenue. Its shares were down 0.2% at $31.16, at last check.
Wall Street is looking for Activision Inc. (ATVI:) to post earnings of 81 cents a share on a 68% rise in sales to $1.39 billion.
BMC Software (BMC:) is forecast to report fiscal third-quarter earnings of 50 cents a share on sales of $441 million.
Genworth Financial Inc. (GNW:) is expect to report a fourth-quarter profit of 69 cents a share.
Open Text (OTEX:), Pitney Bowes (PBI:), Aon Corp. (AOC:) and Epicor Software (EPIC:) are also on deck to post results.
Commentary: U.S. policy makers should let the market guide the way
By Haag Sherman, MarketWatch
Last update: 3:42 p.m. EST Feb. 7, 2008
HOUSTON (MarketWatch) -- Before undertaking yet another dose of fiscal and monetary stimulus, U.S. policymakers should study the current credit crisis and develop a more rational market-based solution.
To combat the credit crisis and a potential recession, President George Bush and Congress have proposed a $150 billion stimulus package. At the same time, the Federal Reserve has been slashing rates, with more to come. Remarkably, the debate has largely centered on whether the government is doing enough, rather than the merits of this policy.
The credit and accompanying housing bubble was largely created through excessive monetary stimulus in the wake of 9/11, as Fed Chairman Alan Greenspan held "real" interest rates (Fed Funds less inflation) at or below 0% for nearly four years.
At the same time, the U.S. government started running large cash deficits -- $500 billion or more per annum, requiring the U.S. to borrow heavily from abroad.
Armed with an abundance of cheap money, Americans acted rationally and started borrowing and spending liberally. Not surprisingly, the U.S.'s trade deficit soared and consumer savings rate plummeted, and consumer debt increased dramatically.
The current round of stimulus will likely create more inflationary pressures, but will not avert continued declines in the housing and credit markets.
Worse yet, since short-term rates were artificially low, consumers started borrowing short-term money (e.g., adjustable rate mortgages) to finance a long-term asset (housing), and could buy ever more expensive houses based on the same level of income. The housing market soared.
The party's over
The party came to an end when the Federal Reserve started raising interest rates to more normal levels, and investors started pricing risk more stringently. Logically, this resulted in sharp declines in the housing and credit markets.
Banks are now writing down their mortgage portfolios and are not in a position to extend credit, no matter how low the Federal Reserve lowers interest rates. Consumers -- seeing their largest asset (housing) fall in value -- are retrenching.
The housing market was not the only area of inflation during this easy money era. Just about every asset class inflated -- from U.S. equities to real estate to foreign equities.
America's current fiscal and monetary policies bear a striking resemblance to those of the late 1960s and 1970s, which resulted in over a decade of stagnant economic growth and inflation. As was the case during the 1970s, foreign currency markets have taken a dim view of this easy money era. The U.S. dollar has plummeted by as much as 30%, and gold -- a historical store of value -- has soared.
The current round of stimulus will likely create more inflationary pressures, but will not avert continued declines in the housing and credit markets. These assets will decline until supported by economic fundamentals -- and still have much further to fall. Thus, the rate cuts and fiscal stimulus will be counterproductive and ultimately damaging to the economy (resulting in inflation, a weakening dollar and, ironically, higher interest rates over time).
Against this backdrop, the U.S. should focus on a dramatic change in monetary and fiscal policy, rather than repeating past policy mistakes.
Let the market lead
First, America should abandon central planning and allow the market -- not the Federal Reserve -- to set short-term rates. While not perfect, the market has been proven more effective over time than central planning. It makes no more sense for the Federal Reserve to set the price of money -- the most ubiquitous of all commodities -- than it does for it to set the price of wheat, corn, or any other commodity.
As with long-term rates, short-term rates should be market-driven. During periods of economic recovery (e.g., late 2003 through 2005), demand for capital would increase and short term rates would rise, rather than "real" Fed Funds remaining at or below 0%. During an economic slowdown, the price of money would decline, creating an incentive to borrow and spurring economic activity.
In short, the Federal Reserve would not have the latitude to create bubbles and inflation due to excessive easing or to grind the economy into recession through too much tightening, as it has done in the past.
Second, the U.S. government should account for its finances in accordance with generally accepted accounting principles, or GAAP, just like corporate America. The current budgetary numbers provide Americans with a false sense that the deficit is declining, which has been used to justify the $150 billion stimulus package. However, if you compare the stated budget deficit ($162 billion in fiscal 2007) with the increase in national debt, or cash deficit, of $575 billion, the budget situation is not improving.
The GAAP deficit is even more sobering -- a staggering $4 trillion for 2007 (after taking into account accruals for future obligations under Medicare and Social Security). These numbers do not support further fiscal stimulus.
In fact, America's fiscal policy is laying the foundation for another crisis: a run on U.S. Treasurys. This may seem farfetched. However, Moody's has indicated that unless the U.S. government addresses its ballooning entitlement programs, the U.S. Treasury may be downgraded from the highest credit rating of AAA in the next 10 years, thereby jeopardizing the dollar as the world's reserve currency.
In short, market forces and transparency represent the bedrock of this nation's economic system and, ultimately, prosperity. It is time to apply these same principles to the federal government.
McAfee, Activision lifted following results
By Carla Mozee, MarketWatch
Last update: 6:09 p.m. EST Feb. 7, 2008
SAN FRANCISCO (MarketWatch) -- McAfee Inc. shares rose 4% Thursday evening following the security-software maker's report that quarterly results came in stronger than Wall Street had forecast.
McAfee (MFE: 31.73, -0.50, -1.5%) stock up $1.27 to $33 in recent trade, after the company said that earnings excluding items were 46 cents a share, a penny more than the consensus estimate by Thomson Financial. Net income fell 63% to $12.2 million, or 7 cents a share, from a year earlier. Sales rose 17% to $356.5 million from $305.2 million, above the forecast for $343 million.
For its first quarter, McAfee forecast earnings of 24 cents to 29 cents a share on revenue of $345 million to $360 million. Excluding items, it foresees earnings of 42 cents to 47 cents a share. Analysts expect earnings of 45 cents on $343 million in revenue.
Activision (ATVI:) shares edged up 0.6% to $26.44. The video-game publisher, with titles including the popular "Guitar Hero," said that it expects fiscal fourth-quarter sales of $350 million and pro forma earnings of 4 cents a share. Analysts are currently looking for 4 cents a share on $279.6 million in sales.
The company's also said that first-quarter profit soared more than 90%.
Also, Cognizant Technology Solutions Corp. (CTSH:) shares leaped 13% to $30.75 on heavy volume after the information-technology services provider forecast first-quarter earnings of 32 cents a share on revenue of at least $640 million. Wall Street currently expects earnings of 32 cents a share on revenue of $632 million.
Cognizant also forecast 2008 earnings of $1.50 a share on revenue of at least $2.95 billion, ahead of consensus estimate of $1.47 on $2.87 billion in revenue.
Seniors to get tax rebate, but no extension for unemployment benefits
By Rex Nutting, MarketWatch
Last update: 7:59 p.m. EST Feb. 7, 2008
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WASHINGTON (MarketWatch) -- Congress on Thursday passed a $152 billion economic stimulus package designed to provide a timely, targeted and temporary boost to the flagging U.S. economy.
One day after Republicans successfully filibustered a broader plan favored by the Senate Finance Committee, the Senate approved the Republican-backed measure, nearly identical to one passed by the House last week, on an 81-16 vote.
The House approved the measure hours later on a 380-34 vote. President Bush is expected to sign the legislation quickly.
"This plan is robust, broad-based, timely, and it will be effective," Bush said in a statement released by the White House. "This bill will help to stimulate consumer spending and accelerate needed business investment."
"None of us got exactly what we wanted, but we got a great deal for the American people," said House Speaker Nancy Pelosi, D-Calif.
Passage came just two weeks after the House leadership and the White House reached an agreement in principle on a plan and three weeks after Federal Reserve Chairman Ben Bernanke told lawmakers that fiscal stimulus would be helpful.
The bill amounts to about 1% of U.S. gross domestic product.
The plan would give tax rebates of up to $1,200 for households, with $300 more for each child. The full rebates would be sent to individuals with incomes under $75,000 and to families with incomes under $150,000, including seniors and disabled veterans. The rebate would be phased out for those earning more.
The bill also has provisions to prevent undocumented immigrants from receiving tax rebates.
The plan would also cut business investment taxes by $44 billion for one year. It would raise the caps on mortgages issued by the Federal Housing Administration or purchased by Fannie Mae (FNM: 32.37, +1.05, +3.4%) and Freddie Mac (FRE: 31.05, +1.92, +6.6%) .
Rebate checks would likely be mailed beginning in May. Taxpayers will not have to apply for the rebate; it would come automatically based on their 2007 tax return.
In contrast to the defeated Senate Finance Committee bill, the measure does not include an extension of unemployment benefits that was in the defeated Senate plan, nor does it include assistance to pay the heating bills of poor families, nor does it give tax breaks for energy conservation.
The momentum for a stimulus package has accelerated in recent weeks, with more evidence piling up that the U.S. economy may be in a recession. See full story.
The stimulus is designed to boost consumption and investment in a timely, temporary and targeted manner.
All the remaining major presidential candidates serving in Congress favored the bill. Sen. John McCain, R-Ariz., voted for the bill. Sens. Barack Obama, D-Ill., and Hillary Clinton, D-N.Y., were campaigning and did not vote on final passage, although both voted in favor of the larger stimulus plan that was defeated Thursday. Rep. Ron Paul, R-Texas, voted against it.
The final bill is the one that Senate Republican leader Mitch McConnell, R-Ky., proposed earlier in the week, and is nearly identical to one passed by the House last week after negotiations among House leaders and the White House. See full story.
On Wednesday, the Senate failed by one vote to end McConnell's filibuster of the stimulus plan approved by the Senate Finance Committee backed by 59 senators. See full story.
Some economists have questioned how effective the stimulus would be. Surveys show most consumers did not intend to spend their tax rebate, but planned instead to use it to pay credit card bills or to add to their savings.
Retail sales likely to highlight consumer woes; commodities resume surge
By Nick Godt, MarketWatch
Last update: 12:01 a.m. EST Feb. 9, 2008
NEW YORK (MarketWatch) -- Investors will closely monitor data next week, given concerns that a recession might already be at hand, while a renewed surge in commodities prices is raising concerns about the Federal Reserve's ability to continue cutting interest rates to boost the economy.
"Anything that points to an economy that is [decelerating] is going to get a reaction," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
Of particular interest for investors will be January retail-sales data, to be released on Wednesday.
Stocks plunged on Tuesday, with the Dow industrials tumbling to their biggest drop in nearly a year, after news that the service sector, which constitutes 70% of the U.S. economy, contracted in January and signaled that a recession may be taking hold.
While traders sought bargains after Tuesday's tumble, notably in technology shares, the major stocks indexes all finished with weekly losses of more than 4%.
The Dow Jones Industrial Average ($INDU:) stood at 12,182, down 64 points, at the end of the session Friday. Gainers on the day included McDonald's Corp. (MCD:) and Coca Cola Co. (KO:)
Helped by news that Amazon.com Inc. (AMZN:) would buy back some $1 billion worth of stock helped boost the Dow's tech components -- Hewlett-Packard Co. (HPQ) , Intel Corp. (INTC), International Business Machines Corp. (IBM) and Microsoft Corp. (MSFT). It also kept the tech-heavy Nasdaq Composite Index (COMP) afloat. It rose 11 points to end at 2,304 on Friday, but still ended the week down 4.5%. The Nasdaq briefly entered bear-market territory Wednesday, having fallen more than 20% from its high in October 2007.
The Dow's financial stocks -- AIG Corp. (AIG), American Express Co. (AXP), Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) -- remained weighed down by concerns about bad home loans and led the blue-chip index lower.
As for the broad S&P 500 Index ($SPX) , which is heavily impacted by battered financial stocks, it fell 5.6 points to 1,331 on Friday for a weekly loss of 4.6%.
Post-Fed rally fizzles
After sliding for three months as bad U.S. home loans led to a global financial crisis, the market had shown signs of recovery as the Fed aggressively brought down interest rates to 3% in less than two weeks.
"We had the November, December and January sell-off before the Fed, with its Superman costume on, came flying into town," said Peter Boockvar, equity strategist at Miller Tabak.
"But the recession case continues to build and upside gains tougher and tougher to come by," he added. "What we had was a bear-market rally, and this week's pullback shows that. We're now in no man's land."
While a number of Fed officials spoke about the economy and the credit crisis throughout the week, the market showed little reaction, preferring to keep its attention on hard economic data.
Commodities surge
Commodities such as oil, metals, sugar and wheat surged Friday for a variety of factors, including weather conditions in China, talk of cutbacks among oil producers and overall dwindling supplies. See full story.
"The surge in commodities prices serves as a reminder of the persistence of inflation, which has not abated much despite the deep economic slowdown in the United States," said Tony Crescenzi, fixed-income strategist at Miller Tabak.
By Michael Kitchen
Last update: 9:17 a.m. EST Feb. 11, 2008
NEW YORK (MarketWatch) -- Dow Jones Indexes said Monday it is adjusting the components of its benchmark Dow Jones Industrial Average. The index group said Bank of America Corp. (BAC: 41.99, -0.17, -0.4%) and Chevron Corp. (CVX:) will replace Altria Group, Inc. (MO:) and Honeywell International, Inc. (HON:) in the average, effective with the opening of trading on Feb. 19. Dow Jones Indexes is owned by News Corp., which also owns MarketWatch, the publisher of this report.
Hands off financial markets: White House
Government would only get in way of market's self-correction: new report
By Greg Robb, MarketWatch
Last update: 1:39 p.m. EST Feb. 11, 2008
WASHINGTON (MarketWatch) -- The White House sent a message to Congress that it is not eager to see legislation aimed at greater oversight of financial markets and banks in the wake of the credit squeeze that began last August.
Beyond taking steps to help homeowners facing foreclosure, and reforming Fannie Mae and Freddie Mac, "the best course of action is often to simply allow markets to adjust," the White House economics team said in the latest Economic Report of the President sent to Congress on Monday.
Although financial firms have taken billions of dollars in losses since August as a result of little-known and incredibly complex derivatives, the White House does not agree with some commentators who have labeled financial innovation as dirty words.
"Markets naturally self correct, rewarding good strategies and punishing bad ones. Government actions may be less effective at differentiating between the two and may prevent markets from creating products that benefit consumers," the report concluded.
Policies that seek to protect market participants "from the discipline of market risk" would only delay necessary adjustment and raise concern that investors would come to expect a rescue, thus encouraging risky behavior.
In a letter accompanying the report, President Bush sought to protect his legacy. He said Americans should be confident about the long-term strength of the economy despite the recent "period of uncertainty."
In addition to the stimulus package, the best response from Washington would be to keep taxes low and promote free trade, Bush said.
The White House economic team stuck with its forecast that the economy will rebound in the second half of this year after a tough January-June period.
The White House formal forecast calls for growth at an annual rate of 2.7% in 2008, up from 2.2% in 2007.
Although the headline consumer price index rose 4.1% in 2007, inflation is not a problem, the White House said.
The impact of the credit squeeze on the "nonfinancial real economy has been muted to date," the report said.
There were some hints on concern in the report, but they were not fleshed out/
For instance, the report said: "the effects of declining home prices in some parts of the country and the tightening of credit standards is likely to have at least some effect on consumer and business spending as time passes.
Consumer spending only reacts slowly in this process and Congress and the Federal Reserve will have time to provide an offset.
The Bernanke Fed is said to be keenly concerned about the possibility of this downward spiral of growth and the reason for the aggressive rate cuts late last month.
Highlighting one of the challenges facing the next president, the report said the tax bill for every taxpayer would rise by an average of $1,800 if the Bush tax cuts were allowed to expire.
By Sue Chang
Last update: 5:06 p.m. EST Feb. 11, 2008
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SAN FRANCISCO (MarketWatch) -- Short interest in 3,223 Nasdaq (NDAQ: 41.11, +0.34, +0.8%) securities totaled 8.63 billion shares at the end of Jan. 31 settlement date, down from 8.69 billion shares at the end of Jan. 15, the exchange said late Monday. Short interest in 2,707 Nasdaq Global Market securities totaled 8.44 billion shares, up from 8.49 billion shares at the end of the previous reporting period.
Decision another blow for HD-DVD in war over high-def format
By Dan Gallagher, MarketWatch
Last update: 4:29 p.m. EST Feb. 11, 2008
SAN FRANCISCO (MarketWatch) -- The HD-DVD format took another blow Monday as online video-rental giant Netflix pledged to offer high-definition DVD's only in the rival Blu-ray format, and retailer Best Buy said it would recommend Blu-ray to its customers.
In a statement, Netflix (NFLX: 26.89, +0.01, +0.0%) said it based its decision on the fact that four of the six major studios are going give exclusive backing to Blu-ray, made by Sony (SNE: 43.50, +0.51, +1.2%) (JP:6758: news, chart, profile) . It plans to phase out its offering of HD-DVD disks, from Toshiba (JP:6502: news, chart, profile) , by the end of the year.
The move by Netflix follows a similar move by rival Blockbuster (BBI: 2.83, +0.02, +0.7%) , which announced its support of Blu-ray last summer.
Later Monday, Best Buy (BBY: 47.37, +0.67, +1.4%) said it would recommend Blu-ray hardware and software as the "preferred" format for high-definition. The company said its decision was made to address "consumer confusion."
"We believe our move to feature Blu-ray should help consumers feel confident in their hi-def content choices," said Mike Vitelli, Best Buy's senior vice president of home solutions, in a statement.
Best Buy said it would continue to "carry an assortment of HD-DVD products for customers who desire to purchase these products."
Last month, Warner Bros. said it would back Blu-ray exclusively. The Hollywood studio arm of Time Warner (TWX: 15.63, +0.04, +0.3%) had been offering movies in both formats. Walt Disney (DIS: 31.93, -0.19, -0.6%) , News Corp.'s (NWS: 20.16, -0.14, -0.7%) Fox and Sony Pictures (SNE: 43.50, +0.51, +1.2%) were already backing Blu-ray exclusively.
Universal, owned by General Electric (GE: 34.01, +0.17, +0.5%) and Viacom's (VIA: 39.50, -0.06, -0.1%) Paramount unit remain in the HD-DVD camp.
"The prolonged period of competition between two formats has prevented clear communication to the consumer regarding the richness of the high-def experience versus standard definition," Ted Sarandos, chief content officer for Netflix, said in a written statement. "Going forward, we expect that all of the studios will publish in the Blu-ray format and that the price points of high-def DVD players will come down significantly."
Netflix said that the majority of customers who rent in high-definition format prefer Blu-ray titles.
The company said it will continue to offer its line of HD-DVD discs until their "natural life cycle" takes them out of circulation, but it will not buy new HD-DVD titles.
U.S.-listed shares of Sony rose 1.2% to close at $43.50, while the stock lost 1.5% in Tokyo. Toshiba shares were up fractionally in Tokyo.
Netflix shares closed at $26.89, up 1 cent. Best Buy stock finished the day 1.4% higher at $47.37.
By MarketWatch
Last update: 10:42 a.m. EST Feb. 15, 2008
NEW YORK (MarketWatch) -- Leading U.S. electronics retailer Best Buy Co. cut its full-year earnings forecast Friday, citing weaker-than-expected revenue growth in January.
Best Buy (BBY: 44.00, -1.78, -3.9%) said it now expects to earn $3.05 to $3.10 a share for its 2008 fiscal year ending March 1. That compares to its prior full-year forecast of $3.10 to $3.20 a share, which the retailer had maintained on Jan. 11.
It now sees 2008 revenue of nearly $40 billion and an annual same-store sales gain of 2.5% to 3%, compared to a previous forecast of about 4%.
On average, analysts polled by Thomson Financial expected Best Buy to earn $3.16 a share for the year on revenue of $40.2 billion.
Shares were down almost 4% to $44.11. The news dragged down competitors Circuit City (CC:) and RadioShack (RSH:) by similar percentages.
Best Buy also said that fourth-quarter revenue will fall short of planned targets because of sluggish customer traffic. Analysts are looking for fourth-quarter sales of $13.6 billion.
"The macroeconomic environment grew more challenging after the holidays," said Jim Muehlbauer, interim enterprise chief financial officer. "Our post-holiday results are not going to be what we originally expected."
The company cited weaker-than-expected quarterly sales in categories including home theaters, MP3 devices, digital imaging and video gaming for the period, although it blamed the video-gaming weakness on temporary U.S. inventory shortages. However, it reported better-than-expected demand for notebook computers.
Best Buy also said it plans to open about 130 to 160 new stores during its 2009 fiscal year.
The company is slated to report its fourth-quarter results on April 2.
In a note to investors, David Strasser of Bank of America wrote that the weakness last month was no surprise, but added, "we just thought they would wait a little bit longer before pre-announcing."
He pointed out that the "weakness was across the board, with the exception of laptops" and is likely "macro-related and the result of weakness in big-ticket items."
Further, Best Buy "plans on maintaining growth through a tough economy, which we believe is a result of the company knowing that it has its big competitor [Circuit City] on the rocks, and this is the environment to take market share," Strasser said.
Many analysts see technology giant surpassing Street estimates
By Rex Crum, MarketWatch
Last update: 12:42 p.m. EST Feb. 19, 2008
SAN FRANCISCO (MarketWatch) -- Hewlett-Packard Co. is scheduled to deliver first-quarter results after the market closes Tuesday, and many analysts are expecting the technology giant to surpass Wall Street estimates due to the performance of its personal-computer and printing businesses.
Analysts surveyed by Thomson Financial estimate H-P (HPQ: 44.10, +0.23, +0.5%) will earn 81 cents a share, excluding one-time items, on $27.6 billion in revenue for the quarter ended Jan. 31. If H-P meets those results, it will post earnings-per-share growth of 24% and a revenue increase of 10% over the same period a year ago.
Robert Semple, H-P analyst with Credit Suisse, said in a research note that he expects the company to report earnings and sales that are slightly above the consensus estimates. Semple believes that because of a "slightly softer than expected January," H-P's PC growth will fall short of his forecasts for 25% unit growth over a year ago.
Semple thinks that H-P's PC growth will be closer to 22%, but those results will still outshine the overall PC market growth of 15% thanks to H-P gaining share in the notebook and desktop markets. He also said that favorable pricing and memory component costs should help H-P's PC business exceed his operating profit estimate of 5.8%. Semple holds an outperform rating on H-P's stock.
Another area of focus will be H-P's imaging and printing group, which for years has been the company's most profitable business area.
Citigroup analyst Richard Gardner said in a recent note that data from research groups and other printing companies "make us confident" that H-P's printer-hardware unit sales and supplies revenue slowed in the company's first quarter, and will continue to decelerate in H-P's second quarter.
However, Gardner added that such slowdowns have been expected and already are factored into H-P's stock price. For the year, H-P shares are down 13% from their high point of $50.98 on Jan. 2.
By Moming Zhou & Robert Daniel, MarketWatch
Last update: 3:45 p.m. EST Feb. 19, 2008
SAN FRANCISCO (MarketWatch) -- Alon USA Energy Inc. said Tuesday that an explosion and fire temporarily shut production at its Texas refinery, 290 miles west of Dallas.
The accident drove gasoline prices to an historic high Tuesday. Crude futures also rallied to close above $100 for the first time ever.
All but one of the four workers injured in the explosion, which occurred late Monday, were released from the hospital, the company said in a statement released Tuesday. The one remaining employee is being treated for burns and is believed to be in stable condition.
The fire has been extinguished, but the cause of the explosion has not yet been determined.
Crude oil for March delivery surged $4.51 to close at $100.01 a barrel Tuesday, and March motor-gasoline futures rallied 10.93 cents, or 4.4%, to end at $2.6031 a gallon. It earlier rose to $2.6169, the highest level a gasoline front-month contract has ever seen.
The entire Big Spring refinery, which has the capacity to process 70,000 barrels a day, was damaged. It employs approximately 170 people and is one of four Alon refineries, said Blake Lewis, a spokesman representing the company, in an interview.
Based on a preliminary assessment, Alon is aimed to resume partial operations in approximately two months, said Jeff D. Morris, Alon's president and chief executive, said in the company's statement.
Alon USA (ALJ: 16.93, -1.31, -7.2%) , which is majority-owned by Alon Israel Oil Co., markets gasoline and diesel products under the Fina brand and produces asphalt. Alon also operates more than 300 convenience stores in western Texas and New Mexico, primarily under the 7-Eleven and Fina brands.
4:02 PM ET, Feb 19, 2008 - 55 seconds ago
03.§[HPQ] H-P Q1 Thomson Financial EPS view 81c
4:02 PM ET, Feb 19, 2008 - 55 seconds ago
05.§[HPQ] H-P Q1 Thomson Financial revenue view $27.64 bln
4:02 PM ET, Feb 19, 2008 - 55 seconds ago
08.§[HPQ] H-P Q1 net income 80c vs 55c
4:01 PM ET, Feb 19, 2008 - 1 minute ago
09.§[HPQ] H-P Q1 adjusted net income 86c vs 65c
4:01 PM ET, Feb 19, 2008 - 1 minute ago
4:04 PM ET, Feb 19, 2008 - 36 seconds ago
02.§[HPQ] H-P sees Q2 adjusted EPS of 83c to 84c
4:04 PM ET, Feb 19, 2008 - 36 seconds ago
4:05 PM ET, Feb 19, 2008 - 2 minutes ago
By Rex Crum
Last update: 4:05 p.m. EST Feb. 19, 2008
SAN FRANCISCO (MarketWatch) -- Hewlett-Packard Co. (HPQ: 44.15, +0.28, +0.6%) on Tuesday reported a first-quarter profit of $2.1 billion, or 80 cents a share, compared to $1.5 billion, or 55 cents a share in the year-ago period. Revenue rose 13% to $28.5 billion from last-year's $25.1 billion. Excluding charges and one-time items, H-P would have earned $2.3 billion, or 86 cents a share, to beat the estimates of analysts surveyed by Thomson Financial, who forecast the company to earn 81 cents a share on $27.6 billion in sales. For its second quarter, H-P expects to earn 77 cents to 78 cents a share on revenue in a range of $27.7 billion to $27.9 billion.