Entries for July 2008

No good news from the GPS maker.

1) Earnings: Excluding one-time gains, Garmin's earnings of 93 cents a share were well short of the $1 figure expected by Wall Street. Revenue of $912 million was way below forecasts of $956 million, and the company slashed full-year guidance to $3.98 billion in revenue from $4.5 billion.

2) New products: Garmin said its hyped Nuvifone launch would be put off until mid-'09, blaming retooling to meet carrier requirements.

Markets may be hurting now, but investors think stocks will rally over the coming year, according to a new survey by asset manager Schroders.

The survey asked 507 investors with assets over $100,000 whether they predicted a positive annual rate of return over the next 12 months. Ninety-four percent said yes. In fact, 55 percent expected their investments to be up at least 5 percent—even though most say we're in a recession right now.

American Axel and Manufacturing Holdings (AXL) posted a loss of $1.33 a share, a good bit worse than the 95-cent hit Wall Street had predicted.

So far today, its shares are off almost 18 percent to $5.41 midday, and they've slumped more than 71 percent so far this year.

Ongoing weakness in the greenback (a euro is worth $1.57 at the moment, if you're keeping track) has been one of the factors optimistic economists point to as a source of support for a hobbled American economy.

Basically, even though the United States is in trouble, global growth is still healthy, and that means hefty demand for American exports, plus a reason for richer-feeling Europeans and Asians to head stateside for a vacation and a little shopping.

GT Solar, a supplier of equipment used to make photovoltaic wafers and other components of solar power systems, is set to go public at an offering price of $16.50.

The offering could be worth $500 million at a time when the market for initial public offerings, solar or otherwise, remains in a deep slump. The only other solar IPO this year, installer Real Goods Solar, slumped from a debut price of $10 to around $6.

In the weeks between the March collapse of Bear Stearns and the latest crisis at Fannie Mae and Freddie Mac, there was barely time to get back to worrying about the economy's other big uncertainty: consumer spending.

It may be less dramatic than the bad news exploding out of the financial sector lately, but a slow leak in consumer optimism is arguably a bigger risk to the U.S. economy. Barring some new calamity (bank failures, anyone?), the discussion will most likely turn back to strategies for propping up American shopping habits.

Stocks are looking a bit weaker today thanks to Wachovia's terrible earnings report that kicked off a host of bad news at regional banks.

The bank's operating loss of $1.27 a share is far larger than the 78 cents expected by Wall Street. The bank is battening hatches all around: Loan loss provisions tripled, defaults rose, and uncollectible losses increased. Quarterly losses included $6 billion in write-downs (total losses hit $8.9 billion), and the bank cut its dividend by 87 percent to 5 cents a share. That's the second time it has slashed the dividend this year.

Analysts at Friedman, Billings, Ramsey are adamant that Fannie Mae and Freddie Mac won't be privatized. That's nominally good news for shareholders. The bad news? They'll each need to raise $10 billion to $15 billion in new capital to reassure investors.

FBR left its Underperform rating on the stocks, but lowered its price target on Fannie to $11 from $23. It cut Freddie to $7 from $17.

Wachovia's Woes
Oppenheimer analyst Meredith Whitney cut the North Carolina-based bank to "underperform," blaming too-rosy valuations on the bank's mortgage assets. She called the outlook "bleak" for shareholders.

Basically, the bank's current path means losses are rising as assets are shrinking, and as Whitney titled her report, "Shrinking to Grow Historically Doesn't End Well for Financials."

She says on-balance-sheet loans will drop by 5 percent by year-end and warns that "in this very real scenario, expenses simply cannot come down fast enough, seriously jeopardizing [Wachovia Bank's] ability to grow earnings." She predicts losses at the bank in 2008 and 2009.

A couple things to add about today's problems in the banking sector:

The government's plan to prop up Freddie Mac and Fannie Mae looks as if it's helping (even though their shares aren't likely to get any boost). But it doesn't really fix entrenched problems in the economy. Namely, the overarching theme of today's bad market: America's worsening credit profile.

The Federal Reserve's decision on Sunday to lend to troubled government-sponsored lenders Fannie Mae and Freddie Mac—using the same terms it extended to ailing investment banks suffering through the credit crisis—should be good news for stocks this morning.

The plan, which needs congressional approval, shows the government is fully committed to propping up the backbone of the U.S. lending market.

Shares of the two giant lenders—which hold or back some $5.2 trillion worth of American mortgages—fell nearly 50 percent last week on fears that rising mortgage defaults could force the pair to raise massive amounts of capital.

General Electric's earnings today offer a stark look at what's going wrong (and a bit of what's right) in the market.

Second-quarter profits fell 6 percent, and the company said it's selling off its Japanese consumer finance business. That's the latest surprise just weeks after GE said it would consider selling its consumer and industrial unit, which includes its signature appliances and light-bulb divisions.

Just a quick note on how tough it is to gauge the true direction of the economy and inflation right now, care of the WSJ 's latest survey of economic forecasters:

Of 53 economists surveyed, 22 said the Fed should be more concerned by economic weakness than inflation, while 21 said inflation should be the greater concern. The rest said the risks were equally balanced, or declined to answer.

Uncertainty on rates simply piles on to a seesaw day for markets as financial turmoil continues to overshadow hopes that the financial crisis is ebbing.

With government-sponsored lenders Fannie Mae and Freddie Mac reportedly on the verge of insolvency, according to former St. Louis Fed President William Poole (via this Bloomberg interview), there are mounting signs that central bankers won't manage to shift away from crisis-management mode anytime soon.

Merrill Lynch's bearish chief economist, David Rosenberg , says it doesn't matter whether we're in a recession or not. Investors already believe that we are, and the important thing now is how long the downturn lasts.

He writes:

We published our last recession piece on Monday. And we'll give you the reason. We field too many questions on when the recession began, and when we expect it to end, all for trying to time the optimal date to leap back into the equity market. It's not that easy. As we said, the GDP data are going to be subject to multiple revisions. But more to the point, with the stock market down 20% and the 10-year note yield down 100 basis points over the past year, investors already recognize that a recessionary backdrop has arrived. Here is what is important: not the peak-to-trough decline in GDP, but rather the length of time it is going to take to make the transition to the next economic expansion and bull market.

Billionaire oilman and corporate raider T. Boone Pickens is taking his fight for American energy independence public today, outlining his plan to wean America off its $700 billion-a-year foreign crude habit.

"Our dependence on imported oil is killing our economy. It is the single biggest problem facing America today," Pickens said. "As we import more and more of our energy, we are participating in the greatest transfer of wealth in the history of mankind, sending billions of our dollars overseas to buy oil for a commodity that lasts 90 days until burned in our gas tanks."