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| Weekly Wrap Up |
Equities had a great week with the blue chip DJIA rising 223 points (or 2.7%) and the broader S&P 500 jumping 32 points (or 3.6%). May saw the major stock indices post their third consecutive month of gains following the market bottom in early March. The country is still in a recession for sure but increasingly the economic data indicates that things have stopped worsening and since stock traders typically have a horizon of atleast 6 months in the future, they are pretty confident that the economy will be close to an upswing by then. Traders returned from the Memorial Day holiday on Tuesday to find a better than expected report on consumer confidence. This was a major propellant for the rally which basically lasted the entire week but was interrupted by concerns over the ability of the United States to continue financing its debt obligations and the impending bankruptcy of General Motors (GM: Charts, News, Offers) (which officially came this morning at 8AM). Auctions of Treasury debt are becoming closely watched events on Wall Street with traders looking at the yields of these auctions to get a sense of what kind of an interest rate the US government is having to offer to get investors to buy its debt. On Wednesday, these concerns pushed the yield on the 10-year Treasury note up to 3.732%, a level not seen since the peak of the credit crisis in November. As the week wore on, some of these debt financing concerns were assuaged as an auction of $26 billion in seven year Treasury notes went off well. Fairly positive data on jobless claims and durable good orders also helped stocks remain in the green towards the end of the week. More Market News
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| Economic News |
Defending American capitalism these days is a thankless job. Reckless lending by American financiers produced a crisis that has pushed the world into its worst recession since the 1930s. Tales of greed and fraud during the boom years abound.
Small wonder that although Americans still prefer their government neat and local, they are a little less hostile to federal activism these days. Such sentiments, last November, helped propel Barack Obama into the White House and his Democratic Party to bigger majorities in both houses of Congress. As Rahm Emanuel, the president's chief of staff, says, Mr Obama does not want to waste this crisis. He is using it to create a bigger role for government throughout the economy, from education and health care to banking and energy. (Source: Economist) Full Story
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There has been much speculation lately about the end results of the US Government's massive deficit spending. Many analysts are predicting that the end result will be hyperinflation as the Fed is forced to monetize debt that the US Government is unable to borrow in the credit markets. These concerns have already turned to reality as rates on the 10 year Government have increased sharply from approximately 2% to 3.5% since the start of the year.
Always quick to response with a new product to meet investor demand, Wall Street has come up with a product to protect investors from the risk of hyperinflation. (Source: Seeking Alpha) Full Story
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Get ready, folks: America is about to own a car company. As of Monday, we the taxpayers will own more than 70 percent of GM (GM: Charts, News, Offers). Whether the company will be formally renamed Government Motors remains to be seen. But that's what it will be.
Instead of putting the failed car enterprise into bankruptcy six months ago -- where Carl Icahn or Wilbur Ross could have bought it -- the Bush administration chose Bailout Nation. Under Team Obama, that bailout has morphed into full-scale government ownership. Twenty billion dollars of TARP money is already invested in GM, with another $50 billion on the way. And that number could easily double unless GM car sales miraculously climb back to 14 million this year. That's highly unlikely, with car sales now hovering around 9 million a year. (Source: National Review Online) Full Story
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| Business News |
So, it has come to pass. General Motors (GM: Charts, News, Offers), ultimate symbol of the world’s greatest car-owing democracy, is to end up in state hands. Henry Ford might have said history is bunk but it is still humbling for all Americans to see Ford's great rival rescued by the Government, wiping out most bondholders and shareholders. What happens next?
This deal, with its maze of myriad related smaller transactions, has been all about vested interests. The Government would be forced to support workers made redundant if the business was not saved. Banks would take a harder hit. And suppliers, such as Magna (MGA: Charts, News, Offers), GM's biggest, rely on the business continuing to save their own significant workforces. (Source: Reuters) Full Story
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Greetings from New York, where I was deeply ambivalent about Target (TGT: Charts, News, Offers) beating Bill Ackman - until the hedge-fund tough guy spent millions getting pounded into Mondale-hood in a shareholder vote. As it turns out, shareholders didn't regard this as a great time to sell off, then lease back, their prime real-estate holdings. Ackman famously bought millions in call options with Target stock in the $70s. There's one thing Minnesotans despise above all else: New Yorkers who come to town, imply that the locals are hayseeds, and presume they can show them how to do business with their fancy, East Coast ways. (Source: Minyanville) Full Story
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You don't often get to use "Time Warner" (TWX: Charts, News, Offers) and "hot stock" in the same sentence, given the company's horrible investment performance over the years.
But Time Warner's pending deal to unburden itself of AOL by dumping it onto its shareholders is one of those times, thanks to an insight I got from tax guru Bob Willens of Robert Willens LLC. Willens, who lives and breathes (and probably dreams about) the tax code, says that Time Warner's plan to distribute AOL stock to its shareholders in a tax-free transaction is benefiting from a little-noticed change last year in the rules governing "hot stocks." In this case, "hot stock" doesn't mean shares with a rapidly rising price, it means shares that can trigger a tax liability. (Source: Fortune) Full Story
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| Technology Focus |
The digital battlefield is proving to be difficult terrain for President Barack Obama.
As he unveiled his plan Friday to make the nation's computer networks more secure, he fulfilled a campaign pledge to make cyber security a top priority. But he fell short on another promise to create a cyber adviser "who will report directly to me."
Ten months ago, candidate Obama told a Purdue University audience that he "will make cyber security the top priority that it should be in the 21st century." He went on to pledge that he would coordinate efforts across government, implement a national policy, tighten standards to make information more secure, and bring together government, industry and academia "to determine the best ways to guard the infrastructure that supports our power." (Source: MSNBC) Full Story
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Microsoft's (MSFT: Charts, News, Offers) Bing search engine and Google Wave are two very distinct and different products, but they showcase where in the ecosystem each vendor is as well as current strengths and possible strategic mistakes. Let's take a look at both efforts, less from a product standpoint and more from the perspective of what they say about the companies.
In search, Microsoft is a distant third of the big three. The executive team is under substantial pressure to either improve their game or exit the effort. Google (GOOG: Charts, News, Offers) is dominant and is starting to take its dominance for granted. Microsoft did the same thing for operating systems and now faces credible competition from Linux on servers and from Apple (AAPL: Charts, News, Offers), and soon Android, on the desktop. (Source: IT Business Edge) Full Story
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Facebook said Tuesday that it received $200 million from Russian investment group Digital Sky Technologies in exchange for a 2% stake.
The deal puts a $10 billion valuation on privately-held Facebook, according to a company statement.
The agreement also calls for DST to eventually buy at least $100 million of Facebook's common stock, which the company estimates will happen during the coming months.
Microsoft paid $240 million for a 1.6% stake in Facebook in October 2007. That deal placed a $15 billion valuation on the social networking site. Just about one year ago, the company's internal valuation was $3.7 billion.
"This is good and bad news for Facebook," said Ray Valdes, social networking analyst at Gartner. "The good news is that they can still get a pretty good valuation in a down economy. The bad news is it's nowhere near the value of the Microsoft valuation." (Source: CNN Money) Full Story
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| Your Money |
By now you've heard how the big, bad banks are about to be reined in by the new Credit Card Accountability, Responsibility, and Disclosure Act, a.k.a. the Credit CARD Act. Politicians are tripping over each other for sound bite opportunities so they can proclaim they're looking out for the "little guy."
Be careful what you wish for.
Industry experts are unanimous in their agreement that credit card issuers are going to have to make major changes in the way they run their businesses. And, despite the headlines, not all of them will be positive for the consumer. Ben Woolsey of CreditCards.com says the law will "put a stake in the heart of the industry" and predicts "the nature of the product is going to change."
Robert Hammer, a banking industry consultant, called the new law "stunning," adding, "Banks have had their business model destroyed with one piece of legislation. Issuers will go out of business." (Source: Fox Business) Full Story
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When credit was flowing, stock portfolios were rising and jobs were plentiful, Americans bought and bought, stuffing their closets with everything from designer shoes to coats.
Now, worried shoppers are looking to their closets -- including many items inside that still have price tags attached -- as a means to raise cash to help them get by.
"People are coming up with creative ways to turn all that stuff into money," said Lisa Lee Freeman, editor-in-chief of ShopSmart, which is published by Consumer Reports. Here are ways to make your closets work for you: (Source: MSNBC) Full Story
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