Today’s Earnings From MAR*,PEP*& UMC*… Plus Initial Claims: Prior 551k / Mkt Expects 540k / Actual 521k With Falling Continuing Claims To 6.04 mln… Also Wholesale Inventories: Prior -1.4% / Mkt Expects -1% / Actual -1.3%

UMC

* UMC sales hit two-year high in September

* Q4 sales seen slow after strong Q3

* UMC, TSMC stocks fall before results (Recasts, adds details)

By Baker Li

TAIPEI, Oct 8 (Reuters) – Solid September sales at UMC (2303.TW), the world’s No.2 contract chipmaker, showed stronger demand for technoology products that could have helped the Taiwan company book a bigger profit in the third quarter.

However, analysts have widely expected UMC’s (UMC.N) fourth-quarter sales to be flat or to decline slightly from the strong third quarter even though it ramped up production of new chips by using more efficient technology to cut costs.

United Microelectronics Corp (UMC) said on Thursday it recorded sales of T$9.536 billion ($297 million) last month, up 18 percent from a year earlier, to the highest level in two years.

Before the results, UMC’s Taipei-listed shares fell 3.14 percent on Thursday, exceeding the main TAIEX’s 1.38 percent drop. Sector leader TSMC (2330.TW) (TSM.N), whose September sales are due to be released on Friday, fell 1.93 percent.

UMC shares have doubled so far this year, while Citigroup said the stock was not attractive based on a price-to-book ratio of 1.1 times its earnings forecast. Citi also expressed concerns about growing pricing competition into next year.

“UMC faces the risk of larger order cuts from October as many of its key local fabless customers could see a larger drop in demand in October to December,” Citi semiconductor analyst Andrew Lu said in a Wednesday report.

Around 60 percent of UMC’s sales come from chips for communications products, such as mobile phones, and the company sells nearly 80 percent of its chips to fabless chip companies, including Mediatek Inc (2454.TW).

“TSMC, to stop overflow orders to competitors, and Globalfoundries, striving to be No.2 foundry globally, are both expected to be aggressive in adding capacity and cutting wafer prices to compete against UMC in 2010,” Lu said.

A month ago, Abu Dhabi’s state-owned ATIC offered to buy Singapore’s Chartered Semiconductor (CSMF.SI), which is likely to be merged with California-based Globalfoundries and could create a major rival to TSMC and UMC. [ID:nT37096]

UMC’s July-September sales totalled T$27.41 billion, up 21 percent from the previous three months, according to Reuters calculations.

Thomson Reuters I/B/E/S put UMC’s third-quarter net profit at T$2.8 billion, up 81 percent from the second quarter when UMC booked its first net profit in one year.

Both TSMC and UMC are set to release their third-quarter earnings and give guidance for the current quarter later this month.

For a graphic on UMC’s monthly sales, click here (US$1=T$32.1) (Reporting by Baker Li, Editing by Chris Lewis)

MAR

BETHESDA, Maryland (AP) — Marriott International says it lost $466 million in its third quarter on hefty impairment charges, mostly related to its timeshare business.

The hotel operator lost $1.31 per share for the period ended Sept. 11 compared with earnings of $94 million, or 25 cents per share, a year earlier.

Excluding impairment charges of $1.41 per share and other items, adjusted income from continuing operations was $53 million, or 15 cents per share.

Adjusted results surpassed analyst expectations for profit of 13 cents per share.

Revenue fell 17 percent to $2.47 billion. Wall Street expected $2.39 billion.

Marriott expects fourth-quarter adjusted income from continuing operations in a range of 20 to 23 cents per share.

PEP

PURCHASE, N.Y., Oct. 8 /PRNewswire-FirstCall/ — PepsiCo, Inc. (NYSE: PEP – News) today reported solid profit performance in the third quarter of 2009, reflecting the company’s balanced approach to investing in value and innovation in key markets as well as productivity and cost discipline across its businesses. Reported EPS was $1.09, and in constant currency the company delivered 5 percent net revenue growth and an 8 percent increase in core EPS.

Indra Nooyi, PepsiCo Chairman and Chief Executive Officer, said “PepsiCo’s diversified food and beverage portfolio and our advantaged business model continued to drive solid results this quarter. Our teams around the world leveraged PepsiCo’s agile go-to-market system to deliver our brands at differentiated value to consumers, who are still feeling the pinch of the global recession despite improving macroeconomic indicators.

“We will continue to make targeted investments across our entire portfolio, and we expect these to ramp up next year as we begin to realize the benefits of the integration of our two anchor bottlers. These investments in innovation, infrastructure, key markets and people development, coupled with our operating agility and focus, give me great confidence in both the near-and long-term growth prospects of PepsiCo,” Nooyi continued.

Richard Goodman, PepsiCo Chief Financial Officer said, “As we prepare for 2010, we are targeting EPS growth of 11 to 13 percent in core constant currency. As we progress through 2010, if we do better than this range we will take the opportunity to make additional strategic broad-based investments in our business to enhance our competitiveness. ”

*Please refer to the Glossary for definitions of constant currency and core. Core results and constant currency core results are non-GAAP financial measures that exclude certain items. Please refer to “Reconciliation of GAAP and Non-GAAP information” in the attached exhibits for a description of these items.

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High Hopes For INTC

By Ian Sherr and Clare Baldwin

SAN FRANCISCO (Reuters) – Intel Corp (INTC.O) should handily beat forecasts when it kicks off a busy earnings season for the chip sector next week, but investors worry that corporate spending will not rebound until mid-2010.

Investors have bet on a stellar third-quarter for the world’s top chip maker, pushing its stock up nearly 25 percent in three months based on resurgent demand in Asia and other recovering economies.

But while consumer spending has lifted hopes for a broad recovery in the $250 billion global semiconductor market, some analysts do not foresee a sustained rebound in crucial enterprise IT spending until well into 2010, despite Microsoft’s (MSFT.O) release of Windows 7 later this month.

“When you’ve got 60 percent of IT technology demand coming from enterprises, a key to the market rebounding is them starting to invest again,” said Ragen MacKenzie analyst Taunya Sell. “With the whole Windows 7 thing, that’s not going to be as soon as it comes out that enterprises are going to upgrade everything.”

Analysts expect chip companies, whose semiconductors and microprocessors are found in everything from PCs, cars and smartphones like Apple Inc’s (AAPL.O) iPhone, to report slightly better quarterly earnings this time round, with an eye toward retailers stocking up for the holiday buying season.

Intel, whose microprocessors are found in three-quarters of the world’s PCs is considered a bellwether for the tech industry.

It is expected to report earnings of 27 cents a share, excluding items, down from 35 cents a year earlier, according to Thomson Reuters I/B/E/S. Arch-foe Advanced Micro Devices (AMD.N) is expected to post a loss of 42 cents a share excluding items, down from a year-ago 13 cent gain.

In August, Intel raised its forecast for third-quarter revenue to $8.8 billion-$9.2 billion, spurring a rally in tech shares.

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Treasury Prices Fall on Slow Bond Auction

By Cordell Eddings and Susanne Walker

Oct. 8 (Bloomberg) — Treasuries declined after the government’s $12 billion auction of 30-year bonds drew weaker- than-forecast demand.

The securities drew a yield of 4.009 percent, more than the 3.994 forecast by six of the Federal Reserve’s 18 primary dealers in a Bloomberg News survey. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.37, compared with 2.92 at the September auction and an average of 2.42 at the last 10 auctions.

“The auction was very tepid,” said Tom di Galoma, head of fixed-income rates trading at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. “The auction shows that the market can sell off when levels are overpriced. This can be a disappointment in these reopened issues.”

The 30-year bond yield rose five basis points to 4.05 percent at 1:51 p.m. in New York, according to BGCantor Market Data. The 4.5 percent security due August 2039 fell 30/32, or $9.38, to 107 20/32. The yield touched 3.89 percent on Oct. 2, the lowest level since April.

The previous sale of 30-year debt on Sept. 10 drew a yield of 4.238 percent. Its bid-to-cover was the highest since November 2007.

Stocks Versus Bonds

An investor class that includes foreign central banks bought 34.5 percent of the notes, compared with 46.5 percent at the last auction and an average of 45.36 percent at the past five auctions.

“We continue to see a lot of cash that was on the sidelines during the volatility in the markets being redeployed,” said Richard Bryant, senior vice president in fixed income at in New York at MF Global Inc. “Given the relative returns of other asset classes, Treasuries at these yield levels are not unattractive.”

The U.S. sold $7 billion in 10-year Treasury Inflation Protected Securities on Oct. 5, $39 billion in three-year notes the following day and $20 billion in 10-year notes yesterday as President Barack Obama borrows record amounts to spur economic growth.

“The bond market is telling you the recovery is weak and it will take a long time,” said Ray Remy, head of fixed income in New York at Daiwa Securities America Inc., one of 18 primary dealers that trade directly with the Federal Reserve. “It is concerned about the jobless picture. Stocks are saying earnings are in good shape. I don’t know which will win.”……

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Dems Push To Extend Home tax Credit

WASHINGTON — Democratic Congressional leaders are working with the White House to extend an expiring $8,000 tax credit for first-time home buyers, and aides said Wednesday that they were considering making it available to current homeowners who purchase a new residence.

Extending and possibly expanding the popular home-buyers credit, which is due to expire after November, is high among options for further stimulating the economy and creating jobs, Congressional aides said, though a White House official said it was only briefly mentioned on Wednesday in an Oval Office meeting between President Obama, Speaker Nancy Pelosi of California and Senator Harry Reid of Nevada, the Senate majority leader.

The Democratic leaders met with the president to discuss a broad range of options to combat persistent high unemployment, officials say. The existing credit for first-time home buyers will expire at the end of next month if not extended, and two other components of the economic safety net — unemployment compensation and health care benefits for those who have been out of work for long periods — will expire at the end of the year……

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This is Really Not News or Funny, But Makes For Funny News

Children at an Irish primary school have been asked to bring their own lavatory roll in order to help save money.

The Devils of Debasement Command You Must Spend More @ Least For Main Streets Sake

Posted on Oct 7, 2009

White House / Pete Souza

By Joe Conason

The latest signals from the White House suggest that President Barack Obama now realizes he must do more—and quickly—to ease the economic suffering of working families. He knows that most Americans believe his administration and Congress have so far provided more help to major banks and Wall Street investment firms than to workers and small companies, as a survey released by pollster Peter Hart reported recently.

If voters still feel the same way a year from now, the midterm consequences for the Democrats will be severe, and deservedly so. Yet that same poll, conducted for the Economic Policy Institute, showed that most Americans would support the only action that might relieve the lingering pain of recession: more and faster spending.

The conventional viewpoint—repeated incessantly on talk radio and cable television and in newspaper columns, as well by politicians of both parties—is that the country cannot afford to further increase the public deficit. According to those savants, the stimulus package passed last winter spent too much and achieved too little; the deficit and debt are just too high; and there is simply nothing more that can be done except to wait for jobs to return sometime next year—or the year after that, or maybe someday in the distant future.

Among the respondents to the Hart poll, however, 53 percent named unemployment as the nation’s most serious economic problem, with only 27 percent saying that the most serious problem is the federal budget deficit. The poll found that support for a continuing policy of public investment in job creation, energy independence and improved education is even more emphatic. Fully 73 percent believe that investment should be the first priority, and only 24 percent said that cutting government spending should take precedence.

In short, public spending in bad times is good politics. But is it good policy?……

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COP 2 Sell $10bln in Assets

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ECB Keeps Rates Unchanged

FRANKFURT (Reuters) – The European Central Bank kept its main refinancing rate unchanged at a record low of 1.0 percent on Thursday, as expected by economists.

Markets are now turning their attention to President Jean-Claude Trichet’s news conference at 1230 GMT (8:30 a.m. EDT), when he will explain the decision and give the ECB’s latest assessment of the economy. This month ECB members are meeting in Venice.

The ECB also kept its overnight deposit rate, which acts as a floor for money markets, at 0.25 percent and left its marginal lending rate at 1.75 percent.

The decision came as no surprise. All 82 economists in a Reuters poll expected the ECB to leave rates on hold.

The ECB began cutting rates in October as the financial crisis wreaked havoc in the euro zone economy, taking them from 4.25 percent to their current record low of 1.0 percent in May.

Since the ECB’s September meeting, data has broadly supported hopes that the eurozone is beginning to pull itself out of the recession. The euro has risen around 3 percent against the dollar and more than 6 percent against sterling.

The Bank of England also keep rates on hold earlier on Thursday, leaving them at a record low of 0.5 percent.

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Retail Sales Looking Up

Apparel retailers Zumiez and Hot Topic posted better-than-expected September sales in stores open at least a year.

Hot Topic cnbc_comboQuoteMove(‘popup_HOTT_ID0ERF15839609’);[HOTT 7.70 -0.06 (-0.77%) ]
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shares were up 7 percent at $8.25 in trading after the bell. They had closed at $7.70 Wednesday on Nasdaq. Shares of Everett, Washington-based Zumiez cnbc_comboQuoteMove(‘popup_zumz_ID0EXCAC15839609’);[ZUMZ 15.94 0.41 (+2.64%) ]
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were up 2 cents at $15.96.

Kirsty Wigglesworth / AP

Zumiez, which sells clothing and equipment for skaters, snowboarders and the like, posted a 0.8 percent fall in September same-store sales, marginally better than the 1 percent decline expected by analysts, according to Thomson Reuters data.

September same-store sales were positively impacted by a shift in the Labor Day weekend into the second week of the month and therefore later back-to-school shopping, Chief Financial Officer Trevor Lang said in a pre-recorded call.

In the second week of September, the company’s same-store sales were up 29.1 percent, before falling 13.7 percent in the third week, Lang said on the call. In the fourth week they were down 13 percent, before recovering slightly to fall 8.3 percent in the fifth week.

“If you were to look at the weekly sales trends, week five sales trends actually saw a slight bounce which is quite encouraging heading into October,” Wedbush analyst Betty Chen told Reuters.

However, Roth Capital Partners analyst Elizabeth Pierce said a sequential improvement was unlikely.

“I think October is going to be very wishy washy. The next catalyst, not only for Zumiez but for all of them, really becomes if it gets colder because that will prompt people to start thinking about outerwear and sweaters etc.”

Total sales in September rose 8.4 percent to $36.5 million, the company said. The company also said for the nine weeks ended Oct. 3, comparable sales in stores in the western half of the country were down in the low double digits.

It seems like same-store sales were stabilizing in a market which contributes about 55 percent of sales, Chen added.

‘Torrid’ Sales

Hot Topic, known for its Goth- and rock ‘n’ roll-inspired apparel and accessories, posted a 4 percent decline in comparable sales, narrower than analysts expectations for a decline of 6.3 percent.

Sales at the company’s Torrid division rose 4 percent driven by a mid-single digit percentage increase in the number of transactions, while the Hot Topic division posted a decline of 6 percent.

“Torrid was responsible for the beat, absolutely,” Roth’s Pierce said.

“Its tough because you don’t want to take the beat away from them but the beat was Torrid, not the main business,” Pierce added. Total sales at the company fell 2.5 percent to $59.3 million in September.

Other Reports Show Retail Sales Looking Down

NEW YORK (AP) – Early September reports from retailers show weak sales as shoppers cut back on fall clothing purchases amid worries about jobs and tight credit.

As stores announce their results, Thursday, teen retailers Wet Seal Inc. and Stage Stores Inc. and department store Stein Mart all are reporting declines in sales at stores open at least a year. The measure is considered a key indicator of a retailer’s health.

The comparison is to a rough September last year when business plummeted during the financial meltdown.

Limited Brands Inc., which runs Victoria’s Secret and Bath & Body Works, posted an increase, beating Wall Street expectations

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Asian Markets Rise on AA & Australian Jobs Report

By Shani Raja

Oct. 8 (Bloomberg) — Asian stocks advanced for a third day, driving the MSCI Asia Pacific Index to a two-week high, after Australian employers unexpectedly added workers last month and Alcoa Inc. earnings beat analyst estimates.

National Australia Bank Ltd. climbed 4.4 percent after the statistics bureau said the country’s jobless rate fell. Alumina Ltd., Alcoa’s joint-venture partner, climbed 4.6 percent in Sydney. Mitsui O.S.K. Lines Ltd., operator of the world’s largest merchant fleet, rose 5.8 percent on a Bank of America- Merrill Lynch upgrade. The dollar fell as optimism the global economy is picking up boosted demand for higher-yielding assets.

The MSCI Asia Pacific Index added 1.4 percent to 118.67 as of 6:02 p.m. in Tokyo, set to close at the highest level since Sept. 23. The gauge has climbed 68 percent from a five-year low on March 9 as better-than-estimated economic and earnings reports boosted speculation the global economy is recovering from the worst slowdown since World War II.

“Valuations are no longer particularly cheap in Asia, but they don’t appear to be overly excessive either,” said Robert Horrocks, who helps manage $9.9 billion including Asian stocks at Matthews International Capital Management LLC in San Francisco. “Markets now are going to be driven by the ability of companies to sustain a reasonable level of growth.”

Australia’s S&P/ASX 200 Index climbed 1.6 percent, the biggest advance in the region, as the statistics bureau said in Sydney today that the number of people employed rose 40,600 from August. The median estimate of economists surveyed by Bloomberg was for a decline of 10,000……

Europe Rises on Positive News Out of The U.S. & Asia

By Daniela Silberstein

Oct. 8 (Bloomberg) — European and Asian shares climbed and U.S. stock-index futures advanced as Alcoa Inc. posted a surprise quarterly profit and employment in Australia unexpectedly surged.

Alcoa, the largest U.S. aluminum producer and the first company in the Dow Jones Industrial Average to release third- quarter earnings, jumped 10 percent in Germany. Xstrata Plc, the world’s fourth-biggest copper producer, and Antofagasta Plc rose more than 3 percent. Vedanta Resource Plc rallied 4.2 percent after reporting increased production.

Europe’s Dow Jones Stoxx 600 Index climbed 1 percent to 242.61 at 11:06 a.m. in London, advancing for a third day this week. All four companies in the Standard & Poor’s 500 Index that announced results yesterday topped profit estimates, according to data compiled by Bloomberg.

“Analysts are looking for demand pickup and evidence of cost control” in company earnings, Michael Dicks, head of research and investment strategy at Barclays Wealth in London, which manages about $203 billion, said in a Bloomberg Television interview. “There’s a fair chance we’ll get both of those. We see a flattening and gradual pickup in overall demand.”

Today marks the one-year anniversary of coordinated interest-rate cuts by the Federal Reserve, European Central Bank and central banks in the U.K., Canada, Sweden and Switzerland in an unprecedented effort to ease the economic effects of the worst financial crisis since the Great Depression.

The ECB and the Bank of England will announce decisions on interest rates today and will probably leave their key rates unchanged, according to economists surveyed by Bloomberg……

Oil Up a Stick to $71pb

By ALEX KENNEDY p {margin:12px 0px 0px 0px;}

The dollar thus plunged to a 2-week low against the European currency, 8-day low versus the British pound and a 2-day low against the Swiss franc.

Against the European currency, the US dollar traded down during early deals on Thursday. At 3:50 am ET, the dollar touched a 2-week low of 1.4789 against the euro, compared to 1.4693 hit late New York Wednesday. The next downside target level for the dollar is seen around 1.490.

The French trade balance showed a deficit of EUR 3.4 billion in August, much larger than the revised EUR 1.02 billion deficit recorded in July, the Customs Office announced today. The expected deficit was EUR 2.5 billion…..

Australia’s Unemployment Falls

By Jacob Greber

Oct. 8 (Bloomberg) — Australia’s jobless rate fell for the first time in five months as employment unexpectedly surged, driving the currency to a 14-month high as traders bet the central bank will raise interest rates again next month.

The number of people employed jumped 40,600 from August, the biggest gain in almost two years, cutting the jobless rate to 5.7 percent from 5.8 percent, the statistics bureau said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg was for a decline of 10,000.

Governor Glenn Stevens’ unexpectedly raised interest rates this week, the first Group of 20 central banker to do so. He said economic growth in Australia, which skirted the global recession, will accelerate, driven by A$22 billion ($20 billion) in government infrastructure spending and demand for minerals from China, the nation’s second-largest export market.

“It really is quite surprising to see such strength so quickly,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney, one of only two analysts surveyed by Bloomberg to forecast a gain in employment. Today’s report “is supportive of a fairly quick tightening of monetary policy.”

The number of full-time jobs gained 35,400 in September and part-time employment increased 5,200, today’s report showed.

The Australian dollar rose to 90.21 U.S. cents at 4:16 p.m. in Sydney from 89.30 cents just before the report was released, taking its gain this week to 4.3 percent…..

Shell Deploys The Largest LNG Barge

By Ben Sharples

Oct. 8 (Bloomberg) — Royal Dutch Shell Plc plans to deploy a vessel “much larger than an aircraft carrier” off the coast of northwestern Australia to house the world’s first floating liquefied natural gas plant.

Shell will use the technique at the Prelude and Concerto gas discoveries, Malcolm Brinded, the company’s executive director for international upstream business, said on a conference call today. The untested method is a “game-changer,” allowing discoveries that are small and too far from the coast to justify onshore plants to be profitable, he said.

The Hague-based Shell’s plans to employ what will be the biggest ship in the world are backed by the largest exploration budget of any oil company, estimated at $31 billion this year and $28 billion in 2010, Brinded said. The project is among more than a dozen that may propel Australia to second among global suppliers of the fuel from fifth now.

“There are clearly some technical challenges, but I think the industry is confident that a company like Shell would be able to address them,” Tony Regan, a consultant at Singapore- based Tri-Zen International, said by telephone. Regan previously worked for Shell’s LNG business.

Brinded declined to give an estimate of spending on the floating LNG project. Prelude is about 475 kilometers (297 miles) north, north-west of Broome in Western Australia, and about 200 kilometers from the Kimberley coast, Shell spokeswoman Claire Wilkinson said by phone from Perth……

Japan’s Bankruptcies Fall @ Fastest Pace

By Aki Ito

Oct. 8 (Bloomberg) — Japanese corporate bankruptcies fell at the fastest pace in more than four years in September, signaling that an easing credit crunch is enabling smaller firms to stay in business.

Business failures dropped 18 percent from a year earlier to 1,155 cases, Tokyo Shoko Research Ltd. said in Tokyo today. It was the biggest decline since April 2005, when they fell 23.5 percent.

Bank of Japan policy makers may decide as soon as this month to end their emergency corporate-debt buying programs amid signs that larger firms are regaining access to private funding, people with direct knowledge of the discussions said last month. The benefits of the country’s recovery from its deepest postwar recession are also spreading to smaller businesses, thanks to government measures to spur demand and unfreeze credit.

Parts of the economy “are still supported by government measures, but the worst is over,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Things are starting to stabilize,” and funding conditions for small and medium-sized companies “are gradually improving,” he said.

The central bank’s Tankan survey showed last week that small enterprises saw an improvement in banks’ lending attitudes for a third consecutive quarter, though a majority of companies said banks were still reluctant to extend credit.

Lehman Collapse

Bankruptcies soared at the fastest pace in eight years in September 2008 as companies including Lehman Brothers Holdings Inc.’s Japan unit failed.

Since Lehman’s collapse spurred a global credit crisis, Japanese policy makers have taken steps to keep ailing businesses afloat. The government expanded the lending capacity of state-affiliated entities three times; set aside 30 trillion yen ($339 billion) to guarantee loans made to small and midsized businesses; and pledged 25 trillion yen in stimulus to spur consumer spending.

The measures helped pull Japan out of its worst postwar recession in the second quarter. A separate report today showed that confidence among merchants rose in September, rebounding from August’s slide that halted seven consecutive months of improvements……

Bank of England Holds Rates Steadfast

LONDON (Reuters) – The Bank of England left interest rates at a record low of 0.5 percent for the seventh month running on Thursday and said it would keep its 175 billion pound asset buying programme in place.

Focus will now switch to the November meeting when the Monetary Policy Committee will have new economic forecasts, though most analysts do not expect the BoE will change policy then either given Britain may now be emerging from recession.

But a sizeable minority still see a further expansion of the quantitative easing programme which pumps money into the economy because any recovery is likely to be fragile.

BoE Governor Mervyn King had actually wanted to raise the QE total to 200 billion pounds in August but, along with two other members, was outvoted by the rest of the MPC.

In either case, policy is likely to remain ultra-loose for months yet as policymakers around the world have been stressing now is not the time to withdraw the extraordinary support they have plowed into their economies over the last year.

British economic output in the second quarter of 2009 was 5.5 percent lower than a year ago and policymakers are worried it will take years for the level of GDP to get back to where it once was, entailing huge job losses in the interim.

And while most recent data have pointed to the worst being over for the economy, figures this week showing a shock 1.9 percent fall in August manufacturing output raised doubts over whether the economy started growing again in the third quarter.

Thursday marks the first anniversary of the major central banks’ surprise coordinated rate cut to bolster confidence after the collapse of Lehman Brothers.

The European Central Bank is also expected to hold interest rates at a record low of 1 percent when it announces its decision at 1145 GMT (7:45 a.m. EDT).

Lloyds of London Plans on Dilution

By Jon Menon and Kevin Crowley

Oct. 8 (Bloomberg) — Lloyds Banking Group Plc said it will keep its options open after the Financial Times said the lender is preparing to raise 15 billion pounds ($24 billion) in a share sale and leave the government’s asset insurance program.

Lloyds is canvassing investor appetite for a rights offering, which would be the U.K.’s biggest, surpassing HSBC Holdings Plc’s 12.5 billion-pound sale in April, the newspaper reported. The government, which owns 43 percent of Lloyds, supports the plan and may buy shares in the sale, the FT said.

The London-based lender said last month it was considering pulling out of the government’s asset protection program. To leave the plan, it would have to raise about 25 billion pounds, according to Simon Maughan, an analyst at MF Global Securities in London. Lloyds, Britain’s biggest mortgage lender, would have to sell shares and assets such as its Scottish Widows insurance and asset management unit to raise that amount, analysts said.

“We issued a stock exchange announcement two weeks ago and our position has not changed since then,” Lloyds spokesman Shane O’Riordain said in a telephone interview. “We have a number of options available and we continue to review them.”

Lloyds declined 3 percent, or 2.9 pence at 92.81 pence as of 10:44 a.m. in London. The U.K.’s benchmark FTSE 100 Index was up 0.6 percent…..

Ireland’s Banks May Need Another Cash Infusion

By Dara Doyle

Oct. 8 (Bloomberg) — Irish Finance Minister Brian Lenihan said the country’s biggest banks may need further money from the state even after selling real-estate loans to the government.

The proposed National Asset Management Agency will pay 54 billion euros ($79.4 billion) to buy loans with a book value of 77 billion euros from five lenders, including Bank of Ireland Plc and Allied Irish Banks Plc. Losses on those loans are likely to leave the companies needing more cash, Lenihan said.

“You can see some element of state capital, but certainly an element of private participation would be most welcome,” Lenihan, 50, said in an interview in Dublin yesterday. “If they can raise funds on the private markets, well and good. The market analysis is that will be very difficult at this stage.”

The minister wants to purge the banks of toxic assets related to the slumping property market to revive lending and reignite what used to be Europe’s most-dynamic economy. Nobel Prize-winning economist Joseph Stiglitz said yesterday that the plan is “squandering” public money.

Lenihan pointed to the U.S. as an example of a rescue package that was attacked before succeeding.

“I simply do not accept his analysis,” Lenihan said. “As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”

Allied Irish will transfer 24 billion euros of loans to NAMA, while Bank of Ireland will move 16 billion euros. The current market value of the 77 billion debt is about 47 billion euros, the government has estimated.

‘Massive Transfer’

“It’s a massive transfer of money from the public to bankers,” Stiglitz said at an event in Dublin. “There are consequences going forward.”

NAMA will complete its valuations of the bank loans by the middle of next year, Lenihan said. The government has said the agency, which can hold assets for up to 15 years, may break even or even show a profit. Tom O’Connell, chief economist at Ireland’s central bank, said earlier this week that there is a “fair chance” that it won’t lose money over its lifetime.

Bank of Ireland rose 2 percent, or 6 cents, to 3.06 cents at 8:18 a.m. in Dublin, while Allied Irish advanced 2 percent to 3.08 euros.

“The bigger valuations will be completed by the end of this year,” Lenihan said. “Clearly the government then will be in a position to look at the capital ratios, look at the extent of the writedowns, and come to a conclusion with Bank of Ireland and Allied Irish about their capital structures.”

New Regulator

The minister, who has already pumped 7 billion euros into Allied Irish and Bank of Ireland, said the proposals creating NAMA should pass into law by the end of the year.

Separately, Lenihan said the appointment of a new financial regulator is “close” and will probably be made “within a matter of weeks.”

The new regulator will join the recently appointed central bank governor, Patrick Honohan, on an international tour to help restore investor confidence in Ireland, Lenihan said.

The ISEF index of Irish financial stocks has plunged 76 percent over the past 18 months.

MS Raises Estimates For DB & CS

By Christine Harper

Oct. 8 (Bloomberg) — European banks including Credit Suisse AG and Deutsche Bank AG will probably report third- quarter earnings that exceed market expectations as favorable trading fuels profit, Morgan Stanley analysts said.

The analysts, led by London-based Huw van Steenis, raised earnings per-share estimates for the two banks as well as for Tullett Prebon Plc, according to an Oct. 7 note to investors. The team also raised share-price targets for Credit Suisse, Deutsche Bank and Tullett Prebon, the note said.

“We believe the market is missing the upside” from low interest rates, steep yield curves and high volume of trading and underwriting, the report said. “We are also more pragmatic on the impact of regulations on returns.”

Credit Suisse, the biggest Swiss bank by market value, will probably earn 7.19 Swiss francs ($6.95) a share for 2009 instead of 6.82 francs, the previous estimate, the note said. The 2010 estimate rose to 6.91 francs a share from 6.73 francs and the price target was raised to 73 francs from 70 francs. Credit Suisse stock has more than doubled this year to 58.8 francs.

Credit Suisse “has sufficient levers to exploit good openings in the market such as supportive trading conditions and asset outflows from competitors,” said the analysts, who have an “overweight” rating on the stock. “The performance of the private bank remains an important source of earnings strength.”

For Deutsche Bank, Germany’s biggest bank, the 2009 earnings per-share estimate rose to 6.75 euros ($9.91) from 6.13 euros and the 2010 estimate was lifted to 5.85 euros from 5.57 euros. The price target rose to 57 euros from 53 euros.

Deutsche Bank stock, which the Morgan Stanley analysts rate “equal-weight,” has climbed 89 percent this year to close yesterday at 52.54 euros.

UBS Cut…..

Profits Expected To Rise @ GS & JPM While C Flounders

By Bradley Keoun and Elizabeth Hester

Oct. 8 (Bloomberg) — JPMorgan Chase & Co. and Goldman Sachs Group Inc., the largest banks to repay U.S. bailout funds, will probably post the industry’s biggest third-quarter profit gains while Citigroup Inc., still gripping its government lifeline, reports another loss.

Earnings at JPMorgan may have almost quadrupled to $2.05 billion from the height of the financial crisis a year earlier, according to analysts’ average estimates in a survey by Bloomberg. Goldman Sachs’s profit probably almost tripled to $2.3 billion. Citigroup’s expected $2.58 billion loss would mark its sixth unprofitable quarter in the past eight.

“We’re seeing a bifurcation of the banking industry between the haves and the have-nots,” said Matt McCormick, a banking-industry analyst at Bahl & Gaynor Inc. in Cincinnati, which manages $2.5 billion.

JPMorgan, based in New York, is benefiting from its No. 1 ranking among underwriters of stock and equity-linked securities for the year, as well as dollar-denominated debt sales. At Goldman Sachs, whose shares are the best-performing of the biggest U.S. banks in 2009, revenue from trading has surged to a record as competitors including Morgan Stanley scaled back their riskiest bets.

The relative strength of the firms is reflected in the market for credit-default swaps, used to insure company bonds against default. Investors must pay about $67,000 a year to insure $10 million of JPMorgan bonds for five years, and $109,000 for Goldman Sachs’s bonds. That compares with $207,000 at Citigroup, $138,000 at New York-based Morgan Stanley and $115,000 at Bank of America Corp., based in Charlotte, North Carolina.

They cost $81,600 at San Francisco-based Wells Fargo & Co., the fourth-biggest U.S. bank by assets.

Dimon’s Forecast….

IBM To Face Antitrust Issues

By KEITH J. WINSTEIN And WILLIAM M. BULKELEY

The Justice Department is investigating allegations that International Business Machines Corp. has monopolized the market for mainframe computers, broadening Washington’s search for anti-competitive behavior in the technology industry.

Members of the Computer & Communications Industry Association—a group with many IBM rivals among its members—recently received civil investigative demands from the Justice Department seeking information related to IBM, said the group’s chief executive, Edward Black .

The requests, a special kind of subpoena used in antitrust investigations, followed a complaint by the group to the Justice Department accusing IBM of harming businesses by abusing its dominance of the market for mainframes. IBM declined to comment on the CCIA’s allegations.

The Armonk, N.Y., giant has long held a near-monopoly position in mainframes, which are large computers that can cost $1 million or more and are designed to run accounting software anddatabases. For decades, the company operated under terms of a 1956 consent decree with the government that required it to license mainframe technology to competitors.

The final terms of that decree were phased out in 2001. After that, the CCIA alleges IBM began to tighten its grip on the market by not allowing its newest software to be used on competitors’ machines. Some analysts calculate that as much as a quarter of IBM’s $104 billion in annual revenue stems from mainframes, despite the company’s shift towards computer services and consulting.

The government’s investigation comes after IBM has successfully batted away civil litigation accusing it of anti-competitive behavior, by purchasing one complaining business and defeating another case in court last week…..

The Fed Enters Lawsuits To Fend Off Creditors or to Seize Property

The Federal Reserve’s ballooning balance sheet is turning into something of a legal morass.

Some of the $29 billion in troubled securities and loans the Fed took on from Bear Stearns as part of last year’s rescue is starting to give rise to lawsuits. These are cases where the Fed is either suing to collect on a multi-billion commercial real estate debt or is trying to fend off claims from rival creditors.

The lawsuits are a fee bonanza for the high-priced law firms that the Fed is paying to litigate these cases on behalf of Maiden Lane LLC — the entity set up by the New York Fed to hold the Bear assets.

But this mushrooming litigation is drawing the Fed into conflicts with commercial developers or into uneasy partnerships with some of the banks it regulates.

It even means that Fed Chairman Ben Bernanke has become a reluctant landlord — forced to rely on BlackRock, which manages Maiden Lane for the central bank, to collect the rent from some of its commercial tenants.

In February, for instance, lawyers for the Fed foreclosed on the Crossroads Mall in Oklahoma City, after the shopping center’s operators defaulted on a $76 million commercial mortgage. The Fed subsequently took title to the property after paying $11.2 million for the half-empty retail space.

The Fed has put the 941,745-square foot mall back on the market with an asking price of $24 million. Now the Fed is in federal court in New York, seeking to recoup its losses by going after three of the mall’s former owners who, the Fed contends, signed a personal guarantee on the loan with Bear. This is not what the Fed bargained for when it assumed some of Bear’s worst assets to induce JPMorgan Chase to buy the teetering Wall Street bank. But it’s the inevitable outcome of taking on a distressed portfolio that includes $8.5 billion in commercial mortgages — hotel chains and office complexes, assets that the Fed had marked down in value by about half last summer.

The litigation over the floundering mall in Oklahoma is nothing compared with the starring role the Fed is playing in the bankruptcy of Extended Stay Hotel. The South Carolina-based operator of more than 600 mid-priced hotels received $900 million in financing from Bear as part of a complex $4.1 billion loan package.

The Fed is now in the middle of two lawsuits arising from the Extended Stay bankruptcy. The Fed also stands to incur substantial losses as a result of the bankruptcy……

Dell To Launch A Smart Phone With T

By Gabriel Madway and Doug Young

SAN FRANCISCO/HONG KONG (Reuters) – Dell Inc plans to launch a smartphone with Google’s Android mobile software on carrier AT&T’s network, a source said, marking the PC maker’s first foray into a cut-throat U.S. cellphone arena.

Dell will become the latest tech manufacturer to try and establish a footprint in a fast-growing market dominated by Apple and Research in Motion. Its planned phone would also give a boost to Google’s fledgling mobile platform, which vies with Apple’s and Microsoft’s platforms.

A source with direct knowledge of the matter told Reuters Dell plans to introduce a U.S. version of its “oPhone” for China — which runs on Android — and that the device had been certified by AT&T for its domestic network.

The Wall Street Journal, which broke the news on Wednesday, cited people briefed on the matter as saying Dell’s phone could be launched as soon as early 2010.

Smartphones — or cellphones that come with an array of complex functions from email to multimedia — have exploded onto the corporate and consumer market as users increasingly access information and entertainment on the go.

Worldwide factory shipments of smart phones are expected to rise to 235.6 million units in 2010, up 27.9 percent from 184.2 million in 2009, according to iSuppli. That is a far cry from a 12.3 percent decline projected for cellphones overall in 2009.

But analysts warn that the world’s No. 2 PC maker would face a tough challenge in a market already crowded with competition. On Wednesday, South Korea’s Samsung said it would also begin selling an Android phone through Sprint Nextel’s network…….

Paul Krugman Still Flies The Warning Flag

Krugman’s depressing the hell out of the folks over at the World Business Forum.  Kelly Evans, WSJ:

1 – Based on GDP, “the recession is over, we’re back to a world of growth”

2 – But, “the jobs picture is continuing to deteriorate. The recession may be over, but the bad times are nowhere near over.”

3 – “This could be bad. Financial crises tend to produce prolonged hits to growth…and this is the mother of all synchronized financial crises so we almost certainly have a long, long slog before we’re fully recovered.”

Then, he turned to the topic of world trade. And the picture he painted was not a pretty one.

“When it comes to international trade, actually it’s not the Great Depression, it’s worse,” he said, presenting charts showing the decline in global trade activity falling much more steeply in the current downturn than during the Depression.

“The scale of the collapse of world trade has been so large that it has produced a degree of international linkage that surpasses what even the pessimists imagined,” he said. “World trade acted as a transmission mechanism,” spreading economic distress “even to those countries that had relatively healthy financial systems,” such as Germany.

“We really are one world economy in a way that has never been true before,” he said.

Read the whole thing >

We haven’t looked at the trade figures for a while, but here’s what world GDP trends looked like six months ago, before the rebound:

Foreclosures Show No Sign of Easing Up

Every 13 seconds in America, there is another foreclosure filing. That’s the rhythm of a crisis that threatens to choke off hopes for a recovery in the U.S. housing market as it destroys hundreds of billions of dollars in property values a year.

There are more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon.

If anything, the country’s worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment.

In congressional testimony last month Michael Barr, the Treasury Department’s assistant secretary for financial institutions, said more than 6 million families could face foreclosure over the next three years.

“The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn,” Barr said.

A September report by a foreclosure task force appointed by Florida’s Supreme Court pointed to a shift in the root cause of foreclosures: “People are no longer defaulting simply because of a change in the payment structure of their loan.

They are defaulting because of lost jobs or reduced hours or pay.” Florida had the nation’s highest rate of homes — 23 percent — that were either in foreclosure or delinquent on mortgage payments in the second quarter, and the report said “the latest news for Florida is horrifying.”

A recent pickup in sales and home prices in some regions has been heralded as a sign that the crisis in residential real estate may be close to bottoming out, after the steepest price decline since at least 1890.

But nearly half of recent sales have been attributed to foreclosures or “short sales” at bargain-basement prices…..

IL. The Next CA.

When individuals don’t pay their bills for 3 months creditors will put the screws to you in any way they can. When state and local governments don’t pay the bills for 3 months it just goes into a ‘this is the new normal’ and no punishment is given to the state and local governments. Besides, you can’t fight City Hall as the old saying goes.

You do realize that one day the “full faith of the United States Government” will no longer mean anything when it comes to making good on its debt.

(CBS News) The State of Illinois’ pile of unpaid bills has grown to a record-breaking $3 billion. Comptroller Dan Hynes said Tuesday it’s never before been this bad at this point in any previous fiscal year. CBS 2 Political Editor Mike Flannery reports that some social service agencies that rely heavily on state reimbursement warn they will soon be forced out of business.

Hynes said that things are likely to get worse before the state’s bleak revenue picture begins to improve.

The comptroller reported corporate income tax receipts down $77 million for July through September; sales tax receipts, down $244 million; personal income tax receipts, down $251 million.

One result: the typical creditor must now wait three months to be paid by the state, compared to a two-month wait at this time last year.

It’s all very discouraging to the physician who runs Family Home Service.

Dr. Norman James said he does not have enough cash to pay his 250 employees this Friday. He said he may have to close the doors, leaving more than 450 clients without the support they need to stay in their own homes and out of expensive nursing homes.

Dr. James said his bank had tripled the size of his line of credit, but that money is now all gone. Dr. James said Illinois owes his agency $900,000, about $700,000 of it past due by up to five months.

Evelyn Gonzalez, a Family Home Service supervisor, said she can’t afford to miss a pay check.

“It’s nerve-wracking. Because I have bills to pay just like everybody else,” Gonzalez said.

A Chicago Meals on Wheels and nutrition center can’t purchase food and is facing eviction,” Hynes said. “A large Lake County disabled program can’t make insurance or mortgage payments.”

Hynes said he’s now getting 2,600 calls a week from creditors desperate to be paid by the state.

While the General Assembly is scheduled to reconvene next week in Springfield, no one’s even pretending to offer a comprehensive solution to the unprecedented budget disaster. Democrats and Republicans, the governor and legislative leaders all insist that must wait until next year.

Late Tuesday, Mayor Daley described Chicago’s revenue situation as “very serious.”

The Divergence Between Bonds & Stocks, Which is Right ?

Stocks have surged 11% since June 10th.  At the same time, the 10 year treasury yield has declined almost 70 basis points to close at 3.18% yesterday.   What is curious here is that the stock market is telling a very different story from the bond market.  Bond investors (who tend to have a longer time horizon) are forecasting a long battle with deflation.  Equity investors (who tend not to think much farther than one quarter into the future), on the other hand, are putting their money on the line in the hopes that the reflation trade is alive and well.

Unfortunately for equity investors, they have a poor record of forecasting the future when compared to bond investors.   There have been 4 famous cases of such bond and stock divergences in the last 20 years.  The most famous is the summer of 1987.  We all know what occurred then.  The other three cases were fall ‘94, summer ‘98 and winter 2000.   All three preceded declines in the market.  Of all 4 instances, three of them preceded 15% declines in the S&P 500.

The real crux of the issue here is not terribly complex.  In order for corporations to tack on to the $80 in operating earnings that the equity market is currently pricing in for 2010, they will need pricing power.  The cost cutting and resulting margin expansion we are seeing is great in the near-term, but we’re unlikely to see pricing power and hence real revenue expansion without at least some inflation.   The bond market, however, is pricing in little to no inflation.   The bond market’s message is clear – we are in a deflationary world.  That doesn’t bode well for the prospect of corporate earnings and that likely means stocks are getting a bit frothy here.  Investors would be wise to take a step back and reconsider the risk/reward of owning equities once the euphoria surrounding Q3 earnings wears off….

* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.

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“The Dollar’s Days Are Numbered, Says Historical Record”

Will the American dollar last? The past of paper currencies is a list of failures: Every fiat currency in history has ended essentially worthless.

History is littered with the wrecks of paper money adventures. In hundreds of cases, in all lands, at all times, the story has been the same: loss of confidence in and eroding value of fiat currencies. Paper money does not work; the temptation of the printing press is too great. Emperors, kings, presidents, prime ministers and central bankers have not been able to resist the temptation: When faced with economic problems or overspending, they have all chosen to create the money needed to pay bills or fight wars.

The world’s first known experiment with fiat money (paper money not backed by tangible assets like silver or gold) was in 10th-century China. At first successful, it was abandoned a few hundred years later because it, like all the paper currencies that followed, was found to be too susceptible to inflation. But, to the Chinese’s credit, a few hundred years is actually pretty successful as far as paper money goes.

By 1200, the Chinese had forgotten this earlier failure and launched another paper money scheme, this time under Kublai Khan. Marco Polo was so impressed, he reported that Kublai Khan “had the secret of alchemy in perfection” and that he “causes each year to be made such a vast quantity of money that it must equal in quantity all the treasure of the world.” But Marco Polo visited Kahn’s empire during a time that American historian Alexander Del Mar called “the most brilliant period in the history of China”—which, it turns out, was just before its collapse. “Kublai Khan entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power and progress. … Population and trade had greatly increased, but the emissions of paper notes outran both, and the inevitable consequence was depreciation. … Excessive and too rapid augmentation of the currency resulted in the entire subversion of the old order of society. The best families in the empire were ruined” (Bullion Vault, October 27; emphasis ours).

Fiat currency adventures in Europe also have a history of painful failures. For hundreds of years, the Roman Empire reigned, increasing in power and influence. Even when Nero decided to start debasing the currency by taking the silver out of the coins, Rome prospered for a while. However, as Rome decayed, successive emperors continued to remove the silver content of the denarius to pay the bills. At the beginning of the first century, the denarius was essentially pure silver. By the time of Nero, in a.d. 54, the silver content of the denarius had slipped to 94 percent; by a.d. 68, it had fallen to 81 percent; by a.d. 218, only 43 percent was silver. Philip in a.d. 244 had the silver content reduced to 0.5 percent. At the time of Rome’s fall, silver content of the denarius was 0.02 percent and pretty much everyone was refusing to accept it as payment for anything (LewRockwell.com, November 4).

But central banks and governments are poor students of history.

During the 1700s, France stands out as a paper-currency basket case. John Law first established a paper currency in France in 1716. Backed by King Louis xv, who declared all taxes had to be paid with paper dollars, it gained wide acceptance—more so than coinage, in fact. But as with all paper currencies, excessive printing, additional moneymaking schemes (the Mississippi bubble), and fraud eventually blew up the system, wiping out many people’s investments and savings.

During the late 18th century, a new French government again adopted fiat currency, which was called the “assignats.” But again, money-creating destroyed it: By 1795 inflation had reached 13,000 percent. Napoleon replaced the assignat with the gold franc, inflation subsided, and a century of relative economic stability resulted. In the 1930s, the French again adopted a paper franc. In 12 years, its currency lost 99 percent of its value.

Weimar Germany is another example of a failed currency. At the end of World War i, Germany decided to print the money needed to pay the debts it owed foreign nations. By the time the government was done printing money, the currency had been so debased that postage stamps cost millions of Deutsche marks.

In 1932, before adopting a paper currency, Argentina was the eighth-largest economy in the world. Since abolishing their precious metal-backed currency, Argentineans have been plagued with continual currency inflation—even hyperinflation reminiscent of Weimar Germany. The latest bout was in 2001, when the peso lost 75 percent of its value in one year.

Each couple of years it seems like another nation’s fiat currency falls apart. In 1992, Finland, Italy, Norway and other European countries suffered when their currencies devalued. In 1994, it was the Mexican peso “tequila hangover” crisis, which spread through several Latin American nations, including Brazil, Venezuela and Argentina. 1997 was the year of the “Asian flu” contagion, which started with the Thai baht and then within days spread to Malaysia, the Philippines, Indonesia, Hong Kong and South Korea. The currency collapses associated with “bahtulism” were still destabilizing currencies in 1999. 1998 saw the Russian ruble fall apart and experience massive devaluations. February 2001, the Turkish lira lost 40 percent of its value in one day.

To attempt to chronicle the massive currency devaluations that are endemic to many African nations would require stacks of paper, but Zimbabwe is too clear cut of an example to pass up. Formerly known as Rhodesia, Zimbabwe was one of the wealthiest countries in Africa. In fact, at the time of its independence in 1980, the Zimbabwe dollar was worth more than the U.S. dollar. Then along came President Robert Mugabe, who decided to seize virtually all property owned by white people to give to black people. The upheaval within society caused an economic collapse. With a non-functioning economy and falling tax revenues, Mugabe decided to just print up the money needed to pay the bills, destroying Zimbabwe’s currency and any of his people’s savings in the process. As of May 2006, it cost $416 Zimbabwe dollars to purchase a single two-ply square of toilet paper, while a whole roll cost $145,750.

Why should we think America is somehow special and immune to currency crisis? In fact, go back and study history: In addition to the fact that the U.S. dollar has lost 92 percent of its purchasing power since 1913, and 41 percent in the 1934 revaluation, there have been times when the dollar lost even more value. Maybe you have heard the expression “not worth a Continental.” That expression developed in regards to America’s paper money during the Revolutionary War era (not Ford’s Lincoln Continental luxury vehicle). The U.S. government again tried a paper currency experiment during the Civil War. The Legal Tender Act of 1862 allowed the Lincoln administration to issue paper money, backed by nothing but the government’s decree that it be accepted for trade. The paper money lost value so quickly that the practice of fiat currency in America fell out of favor until the Federal Reserve System was put in place in 1913. Paper money in the South by the end of the Civil War was worth even less.

The sad part is that when governments resort to mass currency creation, it is the common person’s savings that get destroyed. The interest earned in savings accounts never keeps up with mass-printing induced inflation.

For the U.S. dollar, its final link to a hard, tangible asset was severed 35 years ago. Today, the majority of dollars are little more than bits of electronic information zooming between banks and corporations that people don’t even see, and that they need computers with super calculators to keep track of. How much confidence is left in the inflated U.S. dollar—a dollar whose value remains high not for any tangible reason, but only because so far America’s trade partners are still willing to accept it?

In Weimar Germany, when the mark was inflated into practical worthlessness, at least the German people were left with tinder. When the dollar collapses and no one wants it, most of it will probably just be deleted.

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AA

NEW YORK–(BUSINESS WIRE)–Alcoa (NYSE: AA – News) today announced third quarter 2009 income from continuing operations of $73 million, or $0.07 per diluted share, compared to a loss from continuing operations of $312 million, or $0.32 per share, in the second quarter 2009. Income from continuing operations in the third quarter of 2008 was $306 million, or $0.37 per share. Excluding restructuring and special items, income for the third quarter 2009 was $39 million, or $0.04 per share.

The third quarter of 2009 had net income of $77 million, or $0.08 per share, compared with a net loss for the second quarter of 2009 of $454 million, or $0.47 per share. Net income in the third quarter of 2008 was $268 million, or $0.33 per share. Discontinued operations for the third quarter of 2009 had income of $4 million, or $0.01 per share. The second quarter of 2009 had a loss of $142 million, or $0.15 per share.

Restructuring and special items in the quarter totaled $34 million, or $0.03 per share. These items included a gain on the completion of a transaction to acquire bauxite and alumina refining interests in Suriname of $35 million and restructuring charges of $17 million before tax ($1 million after tax and noncontrolling interests).

Revenues for the quarter were $4.6 billion compared with $4.2 billion in the second quarter of 2009, a nine percent increase. Revenues were $7.0 billion in the third quarter of 2008. Sequentially, revenues were helped by an increase in realized prices for primary aluminum to $1,972 per metric ton from $1,667 per metric ton in the second quarter, as well as stabilization in the end markets.

“The financial and operational measures we took in the first half of the year are having a strong positive impact on our cash position and profitability,” said Klaus Kleinfeld, Alcoa President and Chief Executive Officer. “Despite unfavorable currency and energy headwinds, our performance this quarter indicates that Alcoa is weathering the economic storm and is in excellent shape to benefit when the market recovers.”

The Company is exceeding all the targets of its Cash Sustainability Program, which helped to offset negative currency and energy impacts in the quarter of $89 million. Overhead savings are $375 million, 188 percent of the full year target for 2009, and procurement savings are $1.61 billion, 107 percent of the full-year target. Reductions in working capital have generated $780 million in cash, or 98 percent of the 2009 target of $800 million.

Cash from operations in the quarter was $184 million compared with $328 million in the second quarter of 2009 as working capital reductions continued, yet at a slower pace due to rising prices. Cash from operations in the third quarter 2008 was a negative $93 million. EBITDA in the quarter improved by $454 million from zero in the second quarter of 2009.

During the quarter, the Company received the final $520 million of proceeds from the exiting of the Shining Prospect venture and finished the quarter with $1.1 billion of cash on hand. The Company’s debt-to-capital ratio stood at 38.3 percent at the end of the quarter, a 140 basis point reduction from the second quarter of 2009.

Capital expenditures in the quarter were $370 million, on-target to reach the 2009 goal of a nearly 50 percent reduction from 2008. In the quarter, the Company commissioned its Juruti bauxite mine in Brazil and new lithographic sheet operations in Bohai, China. This follows the opening of a new end and tab line in Russia in late-June. These investments will lower costs and position the Company well for growth as economies improve in those important markets.

Revenues for the first nine months of 2009 were $13.0 billion, compared to $21.2 billion in the first nine months of 2008. Income from continuing operations for the first nine months of 2009 showed a loss of $719 million, or $0.78 per share, compared with income of $1.2 billion, or $1.40 per share, in the first nine months of 2008. The nine months of 2009 showed a net loss of $874 million, or $0.95 per share, compared to net income of $1.1 billion, or $1.35 per share, in the first nine months of 2008.

In the second half of 2009, there are signs that key markets the Company operates in are stabilizing. Due to low inventories at distributors and rising shipments, regional premiums are improving and global aluminum consumption is expected to increase 11 percent in the second half of 2009.

Segment Results

MON

 ($in millions, except          Quarter     Quarter    Year      Year
     per share amounts)              2009       2008      2009      2008
    Net Sales by Segment
      Corn seed and traits           $387      $353     $4,113     $3,542
      Soybean seed and traits          81       110      1,448      1,174
      Cotton seed and traits           53        89        466        450
      Vegetable seeds                 236       223        808        744
      All other crops seeds and
       traits                         151       166        462        459
                                      ---       ---        ---        ---
    TOTAL Seeds and Genomics         $908      $941     $7,297     $6,369

      Roundup and other glyphosate-
       based herbicides              $778      $936     $3,527     $4,094
      All other agricultural
       productivity products          193       174        900        902
                                      ---       ---        ---        ---
    TOTAL Agricultural
     Productivity                    $971    $1,110     $4,427     $4,996

    TOTAL Net Sales                $1,879    $2,051    $11,724    $11,365
    ---------------                ------    ------    -------    -------

    Gross Profit                     $857      $960     $6,762     $6,177
    ------------                     ----      ----     ------     ------

    Operating Expenses             $1,109    $1,186     $3,659     $3,456
    ------------------             ------    ------     ------     ------

    Interest Expense (Income), Net    $34      $(14)       $58       $(22)
    Other Expense (Income), Net       $16        $7        $78      $(183)

    Net (Loss) Income               $(233)    $(172)    $2,109     $2,024
    -----------------              ------      ----     ------     ------

    Diluted (Loss) Earnings Per
     Share (See note 1.)           $(0.43)   $(0.31)     $3.80      $3.62
    ---------------------------    ------    ------      -----      -----
    Items Affecting Comparability
     - EPS Impact
      Income on Discontinued
       Operations                      --    $(0.01)    $(0.02)    $(0.04)
      Acquired In-Process R&D          --     $0.29      $0.19      $0.29
      Solutia Claim Settlement         --        --         --     $(0.23)
      Sunflower Divestiture        $(0.08)       --     $(0.08)        --
      Restructuring(1)              $0.53        --      $0.52         --
    ---------------                  ----                 ----
    Diluted (Loss) Earnings per
     Share from Ongoing Business
     (For the definition of
     ongoing EPS, see note 1.)      $0.02    $(0.03)     $4.41      $3.64
    ----------------------------     ----    ------      -----      -----

    Effective Tax Rate
     (Continuing Operations)           26%       21%        28%        31%
    ------------------------          ---       ---        ---        ---

    (1) FY09 Restructuring Charges consist of $361 million in SG&A and $45
        million in cost of goods sold.

                                      Fourth     Fourth     Fiscal     Fiscal
    Comparison as a Percent           Quarter   Quarter      Year       Year
     of Net Sales:                      2009      2008       2009       2008
      Gross profit                       46%       47%        58%        54%
      Selling, general and
       administrative expenses (SG&A)    25%       35%        17%        20%
      Research and development expenses
       (excluding acquired in-process
       R&D)                              15%       15%         9%         9%
      (Loss) Income before income taxes
       and minority interest            (16)%     (11)%       25%        26%
      Net (Loss) Income                 (12)%      (8)%       18%        18%

Comment from Monsanto Chairman, President and Chief Executive Officer Hugh Grant:

“Monsanto has now entered the next decade of global growth. Over the last 10 years, we emerged as the industry leader in the agricultural space based on a grower-oriented strategy of successfully introducing innovative solutions to increase yield for farmers across corn, soybean and cotton crops. The coming decade holds even greater promise as we commercialize the strongest pipeline of products ever seen on farm. Our success rests with four core beliefs: that our success is forever linked to the farmer’s success; that our commitments are only as good as our ability to deliver new value on farm; that growth has to be funded, but prudently; and that the value we create must be shared with our customers and our owners.”

Comment from Monsanto Chief Financial Officer Carl Casale:

“What has served us well through our first decade as a standalone company informs the second decade. We exist to serve the customer, and every financial choice we make should drive grower profitability. We must then execute to deliver consistent earnings growth as a commitment, not an aspiration. Growth comes with a price tag, but spending must be disciplined and the last dollar spent needs to bring as much value as the first.”

Operations Update

Monsanto reported net sales of $1.9 billion for the fourth quarter of fiscal year 2009, a slight decrease over the same period of fiscal year 2008 due in large part to a sales decrease for Monsanto’s Roundup® and other glyphosate-based herbicides as a result of pricing competition and a global glyphosate supply and demand imbalance. Positive drivers for the quarter included higher sales of corn seeds and traits as well as sales of vegetable seeds.

For the full year, company net sales and gross profit were up 3 percent and 9 percent respectively. Monsanto saw record net sales of $11.7 billion in the company’s fiscal year 2009, driven by higher worldwide corn seed and traits revenue, increased soybean seed and traits revenue in the United States, and higher cotton seed and traits revenue driven by higher trait penetration in India and increased acres in Australia. Increased revenue from the company’s vegetable seed portfolio also contributed to results in the year. Overall, seeds and traits profit made up more than 65 percent of total company gross profit, growing at a 17 percent rate over fiscal year 2008, and helped offset lower sales of Roundup and other glyphosate-based herbicides.

Monsanto reported a net loss of $233 million in the fourth quarter of fiscal year 2009, compared with a reported net loss of $172 million in the same period last year. For fiscal year 2009, Monsanto reported net income of $2.1 billion, which was a slight increase over last year’s net income of $2 billion.

Monsanto delivered on its commitment to grow ongoing earnings per share (EPS), reporting a year-over-year increase of 21 percent to $4.41 (5 percent or $3.80 on an as-reported basis), driven by strong seeds and traits performance, the optimization of gross profit for Roundup and other glyphosate-based herbicides at $1.8 billion, and extraordinary cost reduction actions.

For the fourth quarter, the company reported a loss per share of $(0.43) on an as-reported basis, and income of $0.02 on an ongoing basis. As-reported EPS results for the fourth quarter and fiscal year 2009 reflect the effects of restructuring and the divestiture of the company’s sunflower operations. Charges related to this restructuring are reflected in EBIT and include the costs of staff reductions, streamlining brands, office and facility consolidations and the realignment of resources of its global seeds and traits business. (For a reconciliation of ongoing EPS, see note 1.)

Cash Flow

For fiscal year 2009, net cash provided by operating activities was $2.2 billion, down $560 million from the prior year as a result of the net use of cash for changes in working capital. The primary drivers were lower accounts payable and other accrued liabilities and the timing of the high level of prepayments in Brazil in August 2008 instead of cash generated in the first quarter of fiscal year 2009.

Net cash required by investing activities was $726 million in fiscal year 2009, compared with net cash required of $2 billion for the same period last year. As a result, free cash flow was a source of $1.5 billion for fiscal year 2009, compared with a source of $772 million in fiscal year 2008. (For a reconciliation of free cash flow, see note 1.) Free cash flow in fiscal year 2009 included the investment of $411 million on acquisitions and investments and a reinvestment of an additional $916 million in capital expenditures. Net cash required by financing activities was more than $1 billion for fiscal year 2009, compared with net cash required of $102 million last year.

Outlook

Monsanto affirmed its full-year ongoing 2010 EPS guidance is in the range of $3.10 to $3.30. Monsanto’s full-year 2010 EPS guidance on an as-reported basis is in the range of $2.85 to $3.11. (For a reconciliation of 2010 EPS, see note 1.)

Seeds and traits, which is targeted to account for 85 percent of Monsanto’s business in 2012, is expected to cross the $5 billion gross profit mark for the first time in 2010 by creating new value for growers and increasing their profitability on farm.

The strength of the triple stack platform for corn, the launch of Genuity(TM) SmartStax(TM) in the United States and trait penetration in South America will be the key enablers for growth in 2010, when gross profit for corn is expected in the range of $3.1 billion to $3.2 billion. For soybeans, gross profit is expected to increase to approximately $950 million, driven in part by the full commercial launch of Genuity(TM) Roundup Ready 2 Yield® and greater penetration of first-generation Roundup Ready in Brazil.

Cotton, which experienced a better than expected gross profit result in 2009, is expected to increase to approximately $375 million gross profit in 2010 with the launch of new varieties and penetration of second-generation Bollgard® in India. Vegetable gross profit is expected to increase to about $525 million.

The company also confirmed guidance for free cash flow for fiscal year 2010 will be in the range of $900 million to $1 billion, including the after-tax cash effect from the restructuring of approximately $250 million. The company expects net cash provided by operating activities to be $2 billion to $2.2 billion, and net cash required by investing activities to be approximately $1.1 billion to $1.2 billion for fiscal year 2010. (For a reconciliation of free cash flow, see note 1.)

COST

ISSAQUAH, Wash. (AP) — Costco Wholesale Corp. said Wednesday that its fiscal fourth-quarter profit fell 6 percent, partly on the stronger dollar and increased employee benefit costs, but results beat analysts’ estimates.

The warehouse club operator earned $374 million, or 85 cents per share, for the quarter ended Aug. 30. That’s down from $398 million, or 90 cents per share, a year earlier.

Still, the performance was enough to top the 77 cents-per-share forecast of analysts polled by Thomson Reuters. Analysts’ estimates generally exclude one-time items.

Revenue slipped 3 percent to $22.38 billion from $23.1 billion, but surpassed Wall Street’s $22.34 billion sales estimate.

Sales at stores open at least a year dropped 5 percent in the quarter, with a 6 percent decline in the U.S. and a 3 percent dropoff internationally. Removing the effect of the stronger dollar and lower gas prices, sales at stores open at least a year edged up 1 percent.

These figures are considered a key indicator of a retailer’s performance because they measure growth at existing stores, rather than newly opened ones.

Issaquah-based Costco has managed to pull in budget-conscious shoppers during the recession with deals on food and everyday items but has been hurt by a pullback in spending on big-ticket items like jewelry and furniture.

For the year, net income slipped 15 percent to $1.09 billion, or $2.47 per share, compared with $1.28 billion, or $2.89 per share.

Annual sales dipped 2 percent to $71.42 billion from $72.48 billion.

Costco currently runs 560 warehouses, including 407 in the U.S. and Puerto Rico, 77 in Canada, 32 in Mexico, 21 in the U.K., seven in Korea, six in Taiwan, nine in Japan, and one in Australia.

FDO

Q4 shr 43 cts vs Wall St view 41 cts

* Sales rise 2.6 pct

* Shares up 1.5 percent

NEW YORK, Oct 7 (Reuters) – Family Dollar Stores Inc (FDO.N) reported a 13 percent rise in quarterly profit on Wednesday, topping Wall Street estimates, as frugal shoppers scoured its stores for low prices.

Family Dollar, which sells most of its merchandise for under $10, said it had earned $60.1 million, or 43 cents per share, in the fourth quarter ended on Aug. 29, compared with $53.2 million, or 38 cents per share, a year earlier.

Analysts on average were expecting earnings of 41 cents per share, according to Thomson Reuters I/B/E/S, while Family Dollar had forecast 39 cents to 43 cents.

Last month, Family Dollar said quarterly net sales rose 2.6 percent to about $1.81 billion, while sales at stores open at least a year rose 1 percent. That same-store sales growth was below its forecast for a rise of 2 percent to 4 percent, and it blamed the shortfall on store reorganizations.

Family Dollar has been rearranging the space in its stores to stock more food and other consumable items as shoppers stick to buying necessities.

Shares of Family Dollar were up 1.5 percent at $28.90 in light premarket trading. (Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)

WWW

ROCKFORD, Mich. (AP) — The shoe maker Wolverine World Wide Inc. said Wednesday that its profit fell 14 percent in the third quarter, hurt by lower sales, restructuring charges and the stronger dollar.

But its adjusted earnings easily topped Wall Street’s expectations, and the maker of Hush Puppies and Wolverine shoes raised its earnings outlook for the year.

Net income slid to $26.8 million, or 54 cents per share, for the three months ended Sept. 12 compared with $31.2 million, or 62 cents per share, a year ago.

Excluding 8 cents per share in restructuring charges and 5 cents per share for the stronger dollar, profit was 67 cents per share.

Analysts predicted earnings of 56 cents per share, according to a Thomson Reuters survey. Analysts’ estimates typically exclude one-time items.

Sales declined 10 percent to $286.8 million from $318.9 million on difficult trading conditions in most major markets and the stronger dollar.

The results missed Wall Street’s estimate of $292.3 million.

Wolverine, whose brands also include Merrell and Sebago, cut operating expenses to $77.8 million from $82.4 million during the quarter and also decreased inventory by 5.2 percent. The company expects to continue to lower its inventory through the end of the year.

The company increased its full-year adjusted profit forecast to $1.65 to $1.75 per share from a previous guidance of $1.55 to $1.73 per share. It also narrowed its annual sales outlook to a range of $1.08 billion to $1.11 billion. The company’s prior forecast was for revenue in a range of $1.07 billion to $1.12 billion.

Analysts expect full-year net income of $1.70 per share on sales of $1.12 billion.

AUO

HSINCHU, Taiwan, Sept. 7 /PRNewswire-Asia-FirstCall/ — AU Optronics Corp. (“AUO” or the “Company”) (TAIEX: 2409; NYSE: AUO) today announced its preliminary consolidated and unconsolidated August 2009 revenue of NT$37,713 million and NT$36,911 million, both up 15.9% from July 2009. In terms of Y-o-Y comparison, they were up by 1.7% and down by 0.4% respectively.

Large-sized panel(a) shipments for August 2009, with applications on desktop monitors, notebook PCs, LCD TVs and other applications, broke the nine-million mark and set a new record of 9.07 million units, up 9.7% from previous month. As for small- and medium-sized panels, the shipments surpassed 19.69 million units, down by 8.5% from July 2009.

(a) Large-sized refers to panels that are 10 inches and above in diagonal measurement while small- and medium-sized refers to those below 10 inches

    Sales Report :(Unit: NT$ million)

    Net Sales(1)(2)           Consolidated(3)        Unconsolidated
    August 2009                   37,713                  36,911
    July 2009                     32,551                  31,843
    M-o-M Growth                   15.9%                   15.9%
    August 2008                   37,097                  37,072
    Y-o-Y Growth                    1.7%                   (0.4%)
    Jan to Aug. 2009             203,492                 200,669
    Jan to Aug. 2008             329,856                 328,143
    Y-o-Y Growth                  (38.3%)                 (38.8%)

    (1) All figures are prepared in accordance with generally accepted
        accounting principles in Taiwan.
    (2) Monthly figures are unaudited, prepared by AU Optronics Corp.
    (3) Consolidated numbers include AU Optronics Corp., AU Optronics (L)
        Corporation, AU Optronics (Suzhou) Corporation, AU Optronics (Shanghai)
        Corporation, Tech - Well (Shanghai) Display Co., AU Optronics (Xiamen)
        Corp., Darwin Precisions (L) Corp., Toppan CFI (Taiwan) Co, Ltd., AU
        Optronics (Czech) s.r.o., Lextar Electronics Corp., Darwin Precision
        Corp., BriView Technology Corp., BriView Electronics Corp. and AUO
        Energy Taiwan Corp.

RT

MARYVILLE, Tenn.–(BUSINESS WIRE)–Ruby Tuesday, Inc. today reported diluted earnings per share of $0.11 on net income of $6.1 million for the Company’s first quarter of fiscal 2010, which ended on September 1, 2009. This compares to diluted earnings per share of $0.01 on net income of $285 thousand for the first quarter of the prior year.

Same-restaurant sales for the first quarter decreased 3.1% and 6.5% at Company-owned and domestic franchise Ruby Tuesday restaurants, respectively, compared to the same quarter of the prior year. Guest traffic at Company-owned same-restaurants was up in the quarter and built on the positive momentum of the fiscal 2009 fourth quarter.

Sandy Beall, Founder and CEO, commented on the results, saying, “Although the environment remains challenging, we are pleased that the momentum we established in the second half of fiscal 2009 through our marketing strategies and cost savings initiatives continued in the first quarter. Highlights from our first quarter results include:

• Same-restaurant guest counts increased for the second consecutive quarter;
• Same-restaurant sales and guest counts continued to outperform our peers as measured by Knapp-Track^TM;
• Same-restaurant sales were down 3.1%;
• Solid profitability improvement;
• We paid down $107.0 million of debt during the quarter, boosted by applying the net proceeds of approximately $73 million from our equity offering in July to debt retirement.

“Our top priorities for the remainder of the year remain unchanged. First, get guests in seats, thereby increasing restaurant traffic and ultimately sales. Our guests are responding to our strategic focus on Compelling Value as evidenced by our positive traffic. Second, we remain highly focused on maximizing our cash flow and reducing debt. Our third priority is to further strengthen and differentiate our brand through quality and remaining true to our core operating strategies: Uncompromising Freshness and Quality of our food; service with Gracious Hospitality; a Fresh New Look for our restaurants; and offering Compelling Value. We are confident in these strategies and believe that our team’s unwavering focus on them is contributing to our momentum.”

Highlights for the 13-week first quarter included:

• Total revenue decreased 7.2% from the same period of the prior year primarily because of 45 fewer restaurants in operation and the decrease in same-restaurant sales.
• The Company closed two restaurants and did not open any.
• Domestic and international franchisees closed three restaurants and did not open any.
• Sales at domestic and international franchise Ruby Tuesday restaurants (which is the basis for determining royalty fees included in franchise revenue on the Company’s statement of operations) totaled $94.8 million and $99.7 million for the first quarter of fiscal 2010 and 2009, respectively.
• Total capital expenditures were $3.8 million.
• Debt was reduced by $107.0 million.
• The Company sold 11.5 million common shares, raising a net of approximately $73 million which was used to pay down debt.
• The Company had approximately 64 million shares of common stock outstanding at the end of the quarter.

Fiscal Year 2010 Guidance….

Comments »

Today’s Up & Downgrades

Exactly twelve months after its first close below 10,000 in almost four years, changed days indeed for the Dow. Amid seventieth birthday celebrations for The Wizard of Oz equities were all emerald cities and yellow brick roads yesterday, trading screens flashing green again as gold got to a new nominal high. The DJIA ended up over 130 points after an unexpected interest rate increase Down Under. See also Aussie Rate Hike Triggers Dollar Earthquake. Precious metal bullishness has bullion bugs scanning sea beds even as they enjoy the view atop a (non-inflation adjusted) summit.

Tiffany (TIF) jumped 4.62% after upbeat analyst comments while an eight time recipient of its wedding rings was in our hearts. In a week which has seen Bruce Willis move markets, Monsanto (MON) just made Hugh Grant less happy after reporting an 8.4% yearly revenue drop, and Alcoa’s (AA) results after the close unofficially opens earnings season. For an earnings preview, see Why Earnings Look Opaque Beyond Third Quarter.

Initiations

Research In Motion (RIMM): The tech company is begun with a Buy at both Jesup & Lamont (which sees continued market share gains) and MKM Partners ($87 target on a strong product pipeline).

Miscellaneous: Wells Fargo starts coverage of several stocks, including Group 1 Automotive (GPI) (Outperform due to potential earnings upside), PetSmart (PETM) (also Outperform, on gross margin upside), Bed Bath & Beyond (BBBY) and Williams-Sonoma (WSM) (both Market Performs).

Upgrades

Media & Entertainment: Bank of America/Merrill Lynch upgrades Disney (DIS) (Neutral from Underperform; target price up $8 to $30), Viacom (VIA) (Neutral from Underperform, though the target is taken to $31 from $33) and News Corp (NWS) (Buy from Neutral).

Coca-Cola (KO): Dow component Coca-Cola gets an extra shot of caffeine with a Buy-from-Hold boost at Deutsche Bank, better bottler relations and favorable FX among factors cited.

Time Warner Cable (TWC): The cable provider gets upgraded to Outperform from Market Perform at Wells Fargo.

Cisco Systems (CSCO): William Blair raises its rating on Cisco Systems to Outperform from Market Perform on impressive recent channel checks.

Bank of America (BAC): The financial company is increased to Outperform from Market Perform at Wells Fargo.

Downgrades

St. Jude Medical (STJ): The company is cut at Canaccord Adams (Hold from Buy), among others, after yesterday’s decline of over 12%.

Cephalon (CEPH): Robert Baird downgrades Cephalon (Neutral from Outperform, price objective now to $59 from $74) as the Nuvigil launch hasn’t been as helpful as hoped.

Aeropostale (ARO): The retailer gets lowered to Underweight from Neutral at Piper Jaffray, with an objective of $43. See also Which Retailers Are Poised to Beat.

Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.

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Verisk Analylitics (VRSK) Goes Public Today…1 of The Largest IPO’s

NEW YORK (MarketWatch) — Verisk Analytics Inc. on Wednesday said it priced 85.25 million shares at $22 a share for proceeds of $1.9 billion in the richest U.S.-based initial public offering so far in 2009. The Jersey City, N.J. provider of actuarial data to the insurance industry priced above its $19-$21 estimated price range in a sign of strong interest from Wall Street. BofA Merrill Lynch and Morgan Stanley acted as joint book-running managers for the offering

JERSEY CITY, N.J., Oct. 7, 2009 (GLOBE NEWSWIRE) — Verisk Analytics, Inc. (Nasdaq:VRSK – News), a leading source of information about risk, announced today the pricing of its initial public offering of 85,250,000 shares of the Company’s Class A common stock at a price of $22.00 per share. Total proceeds from the offering are approximately $1.9 billion.

The shares of Verisk Analytics are expected to begin trading today on the NASDAQ Global Select Market under the ticker symbol “VRSK.” Verisk will not receive any proceeds from the sale of shares in the offering.

BofA Merrill Lynch and Morgan Stanley are acting as joint book-running managers for the offering. J.P. Morgan and Wells Fargo Securities are acting as senior co-managers. William Blair & Company, Fox-Pitt Kelton Cochran Caronia Waller, and Keefe, Bruyette & Woods are acting as co-managers. Certain of the selling stockholders have granted the underwriters a 30-day option to purchase an additional 12,745,750 shares to cover over-allotments, if any.

The shares of Class A common stock are being offered only by means of a prospectus. A registration statement relating to these securities has been declared effective by the Securities and Exchange Commission. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Copies of the final prospectus relating to the offering may be obtained for free by visiting the U.S. Securities and Exchange Commission website at http://www.sec.gov. Alternatively, a copy of the prospectus related to this offering may be obtained from BofA Merrill Lynch, Attention: Prospectus Department, 4 World Financial Center, New York, NY 10080, telephone: 1-212-449-1000, or from Morgan Stanley & Co. Incorporated, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, NY 10014, telephone: 1-866-718-1649, or by sending email to [email protected].

About Verisk Analytics

Verisk Analytics (Nasdaq:VRSK – News) is a leading provider of risk assessment solutions to professionals in insurance, healthcare, mortgage lending, government, risk management, and human resources.

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Spain’s Santander (BSBR)To Go Public Raising $8bln

SAO PAULO (AP) — Spain’s Banco Santander has raised 14.1 billion reals ($8.1 billion) by selling new shares to expand Brazilian operations. It’s the world’s biggest initial public offering this year, and Brazil’s biggest ever.

Santander’s Brazilian unit says in a filing to Brazilian securities regulators that 600 million shares were sold for 23.50 reals ($13.43) each.

The bank will use the money to grow in Latin America’s largest nation. Brazilians are seeking loans in droves — buying cars and homes and funding business expansions as the economy charges forward after being hit lightly by the global meltdown.

The announcement was made Tuesday night. The offering eclipsed Brazil’s largest IPO last year — when VisaNet raised $4.3 billion.

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An Inventory Glut Looms Over Glass Makers

By YUN-HEE KIM

HONG KONG — The rush by Asian liquid-crystal-display makers to ramp up production at home and invest in new plants threatens to curb the nascent recovery in the flat-panel market.

LCD makers in Asia just started to see their earnings recover in the second quarter after prices began to rise thanks to production cuts made last year, component shortages and strong demand from China. But another supply glut could be looming as soon as the current quarter as companies such as Sharp Corp., Samsung Electronics Co., LG Display Co. and AU Optronics Corp. ramp up production from new lines.

“With the glass shortage diminishing in Taiwan, and [eighth-generation plants] ramping up in Korea, supply is growing faster than demand,” said Paul Semenza, senior vice president at U.S. market-research firm DisplaySearch.

For consumers looking to replace their bulky cathode ray tube-based television sets or upgrade their flat-screen TVs, more efficient plants will translate into lower panel prices and more bargains on store shelves next year. LCD screens are also used in everything from mobile phones to computers. But for LCD makers, lower panel prices will likely put pressure on profits starting in early 2010.

Mr. Semenza said the LCD industry moved into oversupply during September when both TV- and monitor-panel prices began to fall. “We expect prices to fall throughout the fourth quarter and the first quarter of 2010,” he said.

According to Taiwan-based WitsView Technology Corp., a 32-inch LCD TV panel fetched $208 each early October, down from $210 in late September. A 32-inch LCD TV set, meanwhile, averaged $656 late September, down 5% from late August.

“The third quarter will likely be the cyclical peak for the LCD industry,” said Peter Yu, an analyst at BNP Paribas in Seoul. “The industry is moving into a slow season and Sharp’s new plant [near Osaka, Japan] coming online doesn’t help.”

Japan-based Sharp began production this month at its most advanced LCD plant in Sakai City, Osaka Prefecture, using so-called 10th-generation technology. Plants with this technology can produce six panels in the 60-inch range per glass sheet. The Sakai City plant is targeted to eventually have a production capacity of 72,000 glass substrates per month, about 60% more than the capacity of an older eighth-generation plant.

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T  To Allow Skype Over Their Networks

By AMY SCHATZ

AT&T Inc. reversed its stance on the use of Skype and other Internet-phone applications by users of Apple Inc.’s iPhone, saying it would no longer block customers from using them on its wireless network.

The change means iPhone users will soon be able to use eBay Inc.’s Skype and other services on AT&T’s high-speed 3G network, taking advantage of competitors’ efforts to offer cheaper international calls and text messaging.

AT&T previously blocked iPhone customers from using Internet-phone applications on its cellular network, citing congestion concerns. However, customers have been allowed to use the software to make calls if using a Wi-Fi Internet connection, such as at home or at a coffee shop.

Ralph de la Vega, head of AT&T’s wireless division, said the company made the change in response to customer requests……

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Asian Markets Rise on Commodities

By Shani Raja

Oct. 7 (Bloomberg) — Asian stocks rose for a second day, led by mining companies and banks, as gold prices surged to a record and brokerages upgraded companies from Sumitomo Mitsui Financial Group Inc. to Hitachi Ltd.

BHP Billiton Ltd., the world’s biggest mining company, gained 3.2 percent and gold producer Newcrest Mining Ltd. surged 6.7 percent in Sydney. The country’s benchmark index posted its biggest gain in three weeks after the central bank raised interest rates, saying the justification for low rates “has now passed.” Sumitomo Mitsui Financial jumped 7 percent in Tokyo after Nomura Holdings Inc. raised its share-price target.

“The improvement in Asian stocks can be attributed to further evidence the global economy is on the mend,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “Investors waiting for a pullback to increase equity exposure continue to be disappointed.”

The MSCI Asia Pacific Index gained 1.9 percent to 117.80 as of 7:32 p.m. in Tokyo, extending yesterday’s 1.7 percent advance. The gauge has risen 64 percent in the past seven months on signs the global economy is emerging from its worst slowdown since World War II.

Australia’s S&P/ASX 200 Index climbed 2.3 percent, its biggest gain since Sept. 16. It rose 0.4 percent yesterday after the central bank’s unexpected interest-rate increase. Crane Group Ltd., the country’s biggest distributor of plumbing supplies, gained 2.4 percent on a Credit Suisse Group AG upgrade.

U.S. Earnings

Japan’s Nikkei 225 Stock Average increased 1.1 percent as Hitachi, a nuclear reactor maker, added 7 percent after Mizuho Securities Co. raised its recommendation and Mitsui O.S.K. Lines Ltd. advanced 3.3 percent after a gauge of shipping fees increased the most since July. Hong Kong’s Hang Seng Index rose 2.1 percent, while Taiwan’s Taiex Index gained 1 percent….

Markets in Europe Take a Break & Trade Down

By Andrew Rummer

Oct. 7 (Bloomberg) — European stocks declined and U.S. index futures pared their advance. The Dow Jones Stoxx 600 Index slipped 0.2 percent to 240.7 as of 11:45 a.m. in London, erasing an earlier increase of as much as 0.4 percent. Futures on the Standard & Poor’s 500 Index added 0.2 percent after rising as much as 0.6 percent.

Oil Rises Slightly Above $71pb

By EILEEN NG

KUALA LUMPUR, Malaysia (AP) – Oil prices rose above $71 a barrel Wednesday in Asia as increased optimism about a global economic recovery boosted expectations that crude demand will grow.

Benchmark crude for November delivery was up 24 cents at $71.12 by late afternoon Kuala Lumpur time in electronic trading on the New York Mercantile Exchange. The contract rose 47 cents to settle at $70.88 Tuesday.

Oil rose in sync with global stock markets. The Dow Jones industrial average gained a second straight day, advancing 1.4 percent Tuesday, its biggest gain since Aug. 21 as investors bet corporate profits will surge as the global economy recovers. Most Asian indexes also advanced in early trading Wednesday.

The rally in stocks came after Australia raised interest rates Tuesday, signaling that policymakers see the country’s economy as strong enough to withstand higher borrowing costs. That touched off hopes other economies may also be strengthening enough to unwind stimulus measures including super low interest rates and massive government spending.

“The optimism for economic recovery is driving equities and oil markets,” said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

A report by the American Petroleum Institute showing a surprise fall in U.S. oil inventories last week also lifted prices, he said. Crude inventories dropped 254,000 barrels while distillate fuel stocks fell 2.91 million barrels, he said according to the report late Tuesday.

The report however, contrasted with market expectations for higher inventories.

A survey by Platts, the energy information arm of McGraw-Hill Cos, said crude stock is likely to grow by nearly 2 million barrels and that supplies of gasoline and distillates used for heating oil and diesel also climbed last week.

The official weekly supply report will be released by the Energy Information Administration later Wednesday.

Shum said oil prices will rise further if crude inventories fall. Prices will fall if crude stocks rise but likely to hold above $70, backed by stronger financial markets, he added.

In other Nymex trading, heating oil gained 1.53 cents to $1.8295 a gallon. Gasoline for November delivery jumped 1.08 cents to $1.7835 a gallon. Natural gas for November delivery rose 4.5 cents to $4.925 per 1,000 cubic feet.

In London, Brent crude rose 35 cents to $68.91 on the ICE Futures exchange.

The U.S. Dollar Trades Mixed Against Other Currencies

Wednesday during early deals, the US dollar traded mixed against other majors as investors look forward to U.S. third quarter earnings, which kick off later today with aluminum giant Alcoa reporting its results for the quarter after the market closes. The dollar pared its early Asian session gains against the euro and the pound, while remained higher against the Swiss franc. Against the Japanese yen, the dollar slipped to a new multi-month low……

The dollar that rose to 1.4685 against the euro and a 5-day high of 1.5864 against the pound during today’s Asian session, weakened to 1.4738 and 1.5935 respectively. The greenback closed yesterday’s deals at 1.4723 against the European currency and 1.5923 against the pound……

As Yen Strengthens Japanese Electronic Makers Suffer

By Kevin Cho and Mariko Yasu

Oct. 7 (Bloomberg) — Sony Corp., Japan’s biggest exporter of televisions, said the yen may strengthen, threatening to push Japanese electronics makers further behind South Korean competitors such as Samsung Electronics Co.

Combined with falling television prices and a weak U.S. economy, the Tokyo-based maker of Bravia TVs has no “moment to breathe,” Sony Vice Chairman Ryoji Chubachi said in an interview yesterday. By comparison, Samsung Electronics reported operating profit more than doubled last quarter and analysts estimate the company’s net income climbed to a record.

The yen’s gain against the Korean won in the past year has given Samsung and Seoul-based LG Electronics Inc. room to slash more than $100 off a $1,000 TV without trailing Sony and Panasonic Corp. in terms of profitability. A stronger yen, which has led to higher earnings at Korean manufacturers and losses at Japanese producers, may widen the rift.

For Japanese companies, “it’s like a death warrant as things stand now and if this continues, they will have a very difficult time,” said Chu Moon Sung, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which manages the equivalent of $26 billion in assets. “For Korean companies, it’s a favorable environment and the currency has been the biggest factor for their good performance.”

The dollar is at its weakest levels against the yen since February, trading at as low as 88.86 yen yesterday. The yen is the third-best performer among G-10 members in the past 12 months, according to data compiled by Bloomberg.

Yen ‘Too Strong’

Sony rose 2.9 percent to close at 2,505 yen in Tokyo trading today, extending its gain this year to 30 percent. Samsung, which has gained 60 percent so far this year, fell 3.1 percent on the Korea Exchange.

“The dollar probably won’t stay below 90 yen,” said Katsumasa Shinozuka, chairman of Oki Electric Industry Co. “The yen at 90 is still too strong.”

Sony, which exports electronics ranging from DVD players to Cyber-shot cameras, loses about 1 billion yen ($11.2 million) of annual operating profit for every 1 yen decline in the value of the dollar, according to the company. The yen will average 93 against the dollar from July to March 2010, it said July 30.

Faster-than-expected declines in TV prices and increased competition have been “more difficult to deal with” than the currency after Sony improved its hedging practices, Chubachi said. Sony has increased the portion of components, such as liquid-crystal displays, it buys in U.S. dollars to reduce foreign-exchange-related risks, he said.

Tumbling Earnings……

Barclays Calls For $1500 Gold

By Glenys Sim

Oct. 7 (Bloomberg) — Investors should hold onto long positions in gold as bullion has “significant upside potential” to reach as high as $1,500 an ounce, Barclays Capital said, citing trading patterns.

“Having rallied ‘off the charts’, we are left to resort to projections and extrapolated trendlines to forecast where the move might stop,” Jordan Kotick, global head of technical analysis at Barclays Capital, wrote in a note e-mailed today.

So-called trendlines are used to determine momentum and are found by connecting an asset’s high prices and low prices over a given period to form a channel.

“Channel resistance currently is at $1,370; history suggests a run at $1,500,” Kotick wrote. “Taking it a step at a time, in the coming weeks, we view consolidation above $1,020 as extremely positive, targeting $1,050 initially, and $1,120,” he added.

Gold for immediate delivery gained as much as 2.6 percent to a record $1,043.78 an ounce yesterday, and traded at $1,038.46 at 10:35 a.m. in Singapore.

“We suspect the rally is wave 3 of 5, indicating an eventual push toward the $1,120 area and potentially beyond into year end,” wrote Kotick, referring to the Elliott Wave theory, which holds that market swings follow a predictable five-stage pattern of three steps forward, two steps back.

“Initial resistance is found in the $1,050 area but that is way too conservative given the springboard that a wide 18- month range provides,” he added.

Not Unstoppable….

Europe’s Economy Shrunk More Than Expected

By Simone Meier

Oct. 7 (Bloomberg) — Europe’s economy contracted more than estimated in the second quarter as consumer spending, investment and exports were weaker than earlier reported.

Gross domestic product in the 16-nation euro region fell 0.2 percent from the first quarter, when it dropped 2.5 percent, the European Union’s statistics office in Luxembourg said today in publishing final figures on second-quarter GDP. The decline was sharper than the 0.1 percent decrease estimated on Sept. 2.

While the euro-area economy is gathering strength after governments injected billions of euros through tax cuts and spending incentives to fight the worst recession since World War II, the International Monetary Fund projected last week that Europe’s recovery will be “slow and fragile.” Confidence in the economic outlook rose to a one-year high in September and investors also grew more optimistic.

“This report is slightly negative but adds nothing to the big picture,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam. “The economy very likely returned to growth in the third quarter and a rather moderate recovery is likely to follow in the coming quarters.”

From a year earlier, GDP decreased 4.8 percent in the second quarter, also sharper than the 4.7 percent drop estimated earlier. The economy may expand 0.2 percent in the third quarter and 0.1 percent in the three months through December, the European Commission forecast on Sept. 14.

Government Bonds

European government bonds rose and the euro declined against the dollar after the GDP report. The euro was at $1.4715 at 11:50 a.m. in London, having reached $1.4737 earlier. The yield on the 10-year bund slipped 1 basis point to 3.15 percent.

Investment declined 1.5 percent in the second quarter, compared with the 1.3 percent drop estimated earlier, today’s report showed. Consumer spending rose 0.1 percent, half the increase estimated last month. Exports shrank 1.5 percent in the latest quarter, a sharper drop than the 1.1 percent decline estimated last month. Imports fell 2.9 percent, compared with the 2.8 percent drop estimated earlier……

Aberdeen Expects “Wall of Cash” To Continue Rally into 2010

By Peter Woodifield

Oct. 7 (Bloomberg) — The global recovery in stock markets will stretch into 2010 as people try to make more money than they can from cash and government bonds, according to the investment chief of Scotland’s largest money manager.

“There is a wall of cash out there seeking income-earning assets,” Anne Richards, who oversees 129 billion pounds ($207 billion) at Aberdeen Asset Management Plc, said in an interview at the company’s offices in Edinburgh. “That wall of money will be supportive into next year.”

The Standard & Poor’s 500 Index in the U.S. has staged the biggest rally since the Great Depression, soaring more than 50 percent from a March low as economies around the world emerge from recession. The FTSE 100 Index in the U.K. and Germany’s DAX Index recorded similar gains, while Hong Kong’s Hang Seng Index advanced more than 80 percent.

American investors hold $3.5 trillion in cash, a higher proportion of the net assets of the companies in the S&P 500 Index than at the peak of the market in 2007, according to data compiled by the Investment Company Institute in Washington and Bloomberg as of Sept. 28.

At the same time, interest rates worldwide are at or near record lows. The U.S. Federal Reserve cut its rate in December to between zero and 0.25 percent.

The Bank of England trimmed its benchmark cost of borrowing to 0.5 percent from 5 percent between September and March. The yield on two-year U.K. government notes has held below 1 percent since Aug. 12 and is at its lowest since 1992…..

GOOG, MSFT, & PALM To Rev Up Smart Phone Race

By Alexei Oreskovic

SAN FRANCISCO (Reuters) – Google Inc, Microsoft Corp and Palm Inc stepped up efforts to bolster their smartphone line-ups, as the tech industry’s key players increasingly move to challenge Apple Inc’s popular iPhone.

In a flurry of announcements on Tuesday ahead of the holiday shopping season, the companies introduced new phones, wireless carrier partnerships and efforts to boost the availability of new applications for the phones.

The moves underscore the extent to which the smartphone market has emerged as a prime battleground encompassing a variety of technology businesses and one of the few markets experiencing rapid growth in a rough economic environment.

“Everyone wants to build up and bolster their smartphone portfolio, because that’s what drives more dollars for the carrier and that’s where the market is going,” said Avian Securities analyst Matthew Thornton.

Google, the world’s largest Internet search company, said it was teaming up with Verizon Wireless to co-develop multiple phones based on its Android operating system. They plan to bring two phones to market this year, and Verizon Wireless CEO Lowell McAdam said the partnership could result in the introduction of multiple devices per year going forward.

The partnership with Verizon Wireless, a venture of Verizon Communications Inc and Vodafone Group Plc, is a boost for Google’s efforts to gain a foothold in the smartphone market.

It caps a string of Android phone announcements, including Motorola Inc’s recent introduction of the Cliq phone and HTC’s Hero phone, slated for U.S. release next week.

Google does not charge a licensing fee for Android but hopes to benefit by serving highly targeted mobile ads to users.

Microsoft, whose software is used in the majority of the world’s PCs, unveiled on Tuesday a new version of its smartphone software, Windows Mobile 6.5, and promised more than 30 new devices with the software would be available in more than 20 countries by year’s end.

According to research firm IDC, smartphones running Microsoft software accounted for 11 percent of the worldwide market in the first half of 2009, compared to 11.7 percent share for Apple’s iPhone and 19.9 percent share for Research in Motion’s Blackberry.

Nokia’s Symbian operating system had the largest share with 46.4 percent share.

IPHONE THE ONE TO BEAT……

U.S. Banks Have Yet To Recognized Commercial Real Estate Losses

(Reuters) – A U.S. Federal Reserve report found that banks in the country are slow to take losses on their commercial real estate loans that have been hit by slumping property values and rental payments, the Wall Street Journal said.

Citing a Sept 29 presentation made by Fed analyst K.C. Conway to banking regulators, the paper said the report’s remarks suggested that regulators were preparing for a rerun of housing-related losses that plagued many banks after the residential property bubble burst.

Conway is a senior real estate analyst at the Federal Reserve Bank of Atlanta.

The Journal said a Fed official had confirmed the authenticity of the document, but added it did not represent the central bank’s formal opinion.

Conway’s report predicted that commercial real-estate losses would reach roughly 45 percent next year, the Journal said.

According to the paper, the report said that the most “toxic” loans on bank books were interest-only loans, which get no benefit from amortization, since it requires borrowers to repay interest but no principal.

The Journal said the report also stated that banks have been slow to absorb the losses on their loans, partly due to “capital preservation” concerns.

A spokesman for the Federal Reserve did not immediately reply to a Reuters email seeking comment that was sent outside regular U.S. business hours.

(Reporting by Biswarup Gooptu in Bangalore; Editing by Kim Coghill)

U.S. Mortgage App.’s Edge To a 4 Month High

By Julie Haviv

NEW YORK (Reuters) – U.S. mortgage applications surged last week to their highest since mid-May as consumers sought to take advantage of the lowest interest rates in months, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, were below 5 percent for a third straight week, reaching a four-month low. Demand for home refinancing loans was the highest since mid-May.

Appetite for applications to buy a home, a tentative early indicator of sales, climbed to the highest level since early January. The trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.

The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to October 2 increased 16.4 percent to 756.3, the highest since the week ended May 22.

“The residential housing market appears to be stabilizing due to lower mortgage rates,” said Alan Rosenbaum, president of Guardhill Financial, a New York-based mortgage banker and brokerage company.

“The affordability factor, which takes into consideration both price and mortgage rates, has been very positive of late,” he said.

Low mortgage rates, high affordability and the federal government’s $8,000 tax credit for first-time home buyers — part of the stimulus bill — have helped pave the way for stabilization.

But with the tax credit set to expire on November 30 and distressed properties making up a high proportion of sales, the recent uptick in activity may mask uncertainty about the long-term outlook.

Rising unemployment is another obstacle. The U.S. Labor Department last week said the jobless rate reached a 26-year high of 9.8 percent in September……

FNM & FRE To Help U.S. Banks

By JAMES R. HAGERTY

Fannie Mae and Freddie Mac are preparing to introduce a program aimed at helping independent mortgage banks acquire the short-term credit they need to make home loans, according to people familiar with the plans.

The two government-backed mortgage companies, the main providers of funding for U.S. home loans, plan to provide advance commitments to purchase home mortgages that meet certain standards. The goal is to reduce risks faced by independent mortgage banks so they can obtain short-term credit.

Spokesmen for Fannie and Freddie declined to discuss details of the plan, and the companies’ regulator, the Federal Housing Finance Agency, declined to comment.

But other people briefed on the situation said Fannie and Freddie plan to build on a previously undisclosed pilot program that Freddie has with Provident Funding Associates LP, a large national mortgage lender based in Burlingame, Calif., and with NattyMac, a so-called warehouse lender based in St. Petersburg, Fla., that provides short-term funding to mortgage companies.

Under that pilot program, these people said, Freddie makes commitments to purchase loans made by Provident Funding that are financed by NattyMac. NattyMac is responsible for ensuring that the loans meet certain quality standards set by Freddie. The commitments from Freddie reduce the risk that NattyMac or Provident will be stuck with loans that are rejected by Freddie or Fannie and can be sold to other investors only at a huge discount…..

FDIC To Sell a 40% Stake in Corus Bank

WASHINGTON (AP) – The Federal Deposit Insurance Corp. has agreed to sell a 40 percent stake in a portfolio of Corus Bank assets for $554.4 million to a private-equity consortium led by Starwood Capital Group.

The investor group also includes TPG Capital, Perry Capital and WLR LeFrak. The FDIC initially will hold a 60 percent stake in the portfolio valued at $831.6 million.

The FDIC said on its Web site late Tuesday it received eight bids for a stake in the portfolio, which includes construction loans and real estate-owned assets with an unpaid principal balance of about $4.5 billion. It determined that the consortium’s bid – which values the assets at $2.72 billion or 60 cents on the dollar – would result in the greatest return for the agency.

Federal regulators in September seized Corus Bancshares Inc., a major Chicago-based lender to condominium, office and hotel projects, adding it to the long list of banks that have succumbed this year to the recession and waves of loan defaults.

The FDIC took over Corus Bank, which had $7 billion in total assets and $7 billion in deposits. Corus Bank’s closure is expected to cost the fund that insures bank deposits $1.7 billion. Chicago-based MB Financial Inc. took on Corus Bank’s deposits, re-opened its branches under the MB Financial Bank name, and agreed to buy about $3 billion of its assets.

The Starwood transaction, expected to close in mid-October, completes the sale of the majority of the remaining assets of Corus Bank.

The FDIC will provide nearly $1.39 billion worth of zero-coupon debt, matching the amount of equity in the deal. It also will provide up to $1 billion in financing over the next three to five years to fund construction of incomplete buildings, operating deficits in completed buildings and other asset-related working capital needs.

Barclays Capital advised the FDIC on the sale.

Ninety-eight banks have failed so far this year as losses have mounted on commercial real estate and other soured loans amid the most severe financial climate in decades. The FDIC said last week that the failures have cost it about $25 billion.

In September, the FDIC opened the door wider for private investors to buy failed financial institutions. The FDIC’s board voted to reduce the cash that private equity funds must maintain in banks they acquire.

Private-equity funds have been criticized as excessive risk-takers. But with fewer healthy banks willing to buy ailing institutions, the banking crisis has softened the FDIC’s resistance to private buyers.

A Faith Based Market

Some always valuable thoughts here from investing legend Richard Russell:

It’s human nature to be optimistic. It’s human nature to hope. Furthermore, hope is a component of a healthy state of mind. Hope is the opposite of negativity. Negativity in life can lead to anger, disappointment and depression. After all, if the world is a negative place, what’s the point of living in it? To be negative is to be anti-life.

Ironically, it doesn’t work that way in the stock market. In the stock market hope is a hindrence, not a help. Once you take a position in a stock, you obviously want that stock to advance. But if the stock that you bought is a real value, and you bought it right — you should be content to sit with that stock in the knowledge that over time its value will out without your help, without your hoping.

So in the case of this stock, you have value on your side — and all you need is patience. In the end, your patience will pay off with a higher price for your stock. Hope shouldn’t play any part in this process. You don’t need hope, because you bought the stock when it was a great value, and you bought it at the right time.

Any time you find yourself hoping in this business, the odds are that you are on the wrong path — or that you did something stupid that should be corrected.

Unfortunately hope is a money-loser in the investment business. This is counter-intuitive but true. Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and instead, allowing that small loss to develop into a large loss.

In the stock market hope get in the way of reality, hope gets in the way of common sense. One of the first rules in investing is “Don’t take the big loss.” In order to do that, you’ve got to be willing to take a small loss.

If the stock market turns bearish, and you’re staying put with your whole position. and you’re HOPING that what you see is not really happening – then welcome to poverty city. In this situation, all your hoping isn’t going to save you or make you a penny. In fact, in this situation hoping is the devil that bids you to sit — while your portfolio of stocks goes down the drain.

In the investing business my suggestion is that you avoid hope. Forget the siren, hope — instead embrace cold, clear reality.

For more on the Dow Theory Letters please see here.

* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.

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