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| Weekly Wrap Up |
Equity markets had a tough time last week as the major indices continued their march downward and entered bear market territory (i.e. atleast a 20% decline from recent highs). The slowing US economy and high gas prices were again some of the factors contributing to the bearish sentiment on the street but the major factor behind last week’s sell-off was weakness in the financial sector and genuine fears that more major financial institutions will be forced to go down the Bear Stearns route in coming weeks. Fannie Mae (FNM: Charts, News, Offers) and Freddie Mac (FRE: Charts, News, Offers), the two quasi-private institutions that own or guarantee about half the amount of the outstanding mortgages in the country, were squarely in the spotlight. A Lehman Brothers financial analyst raised doubts about the their liquidity situation on Monday and things just got worse for them the rest of week as the stocks lost about 45% of their value. Debt owed by the two companies still maintained its value as creditors remained confident that the implicit backing of the US government would kick in and the Treasury would be forced to make sure that these companies do not default on their debt. And that's what happened late Sunday night as the Fed formally announced that it would back Fannie and Freddie. Among the other news during the week, the Yahoo (YHOO: Charts, News, Offers) takeover saga continued as the search company rejected a proposal from Microsoft (MSFT: Charts, News, Offers) and Carl Icahn. Crude oil had a late rally on Thursday bumping up oil stocks. The Labor Department released data showing that initial jobless claims fell last week but cautioned that this might just be an anomaly. General Electric (GE: Charts, News, Offers) posted fairly decent numbers Friday morning and soothed investor concerns after the company’s earning miss last quarter. Anheuser-Busch (BUD: Charts, News, Offers) agreed to be taken over late Sunday evening by the Belgian brewer InBev. IndyMac Bancorp (IMB: Charts, News, Offers), a large regional bank, failed and was taken over the by the FDIC. More Market News
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| Economic News |
The morning’s headline are likely to make this a rough day on Wall Street: "Feds will offer lifeline to 2 mortgage giants." The huge Bear Stearns financial services firm essentially disappeared in a single weekend. Can Fannie Mae (FNM: Charts, News, Offers) and Freddie Mac (FRE: Charts, News, Offers) be next?
Yes.
Will they? Probably not. But hang on for the ride. The Federal Reserve and the U.S. Treasury will act, as the feds did with Bear Stearns, to prevent a collapse of the function Fannie Mae and Freddie Mac performed. Treasury Secretary Henry Paulson said Sunday that Congress will be asked on an expedited basis to provide additional credit to each company beyond the $2.5 billion each has now. The two hold or guarantee about half of the $12 trillion in U.S. mortgages. (Source: Atlanta Journal Constitution) Full Story
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Federal Reserve Chairman Ben S. Bernanke, seeking to allay renewed concerns over the health of the nation's financial system, said the central bank may extend its emergency-loan program for investment banks into next year.
"The Federal Reserve is strongly committed'' to financial stability and is "considering several options, including extending the duration of our facilities for primary dealers beyond year-end,'' Bernanke said in a speech to a conference in Arlington, Virginia. (Source: Bloomberg) Full Story
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Deciding to sell a business unit or subsidiary can be one of the hardest decisions chief executives have to make. Some cannot bring themselves to wield the axe: big disposals are often triggered only when a new boss takes over or a financial crisis forces a chief executive’s hand. But a growing body of evidence suggests that smart sellers can earn impressive returns.
The number of such sales worldwide has been growing steadily, from 10,074 in 2003 to 12,361 last year, according to data from Thomson Reuters, a research firm. Over the same period the total value of such deals soared from $539 billion to almost $1.5 trillion, as the average deal size increased. In each of the past three years, several disposals have exceeded $10 billion in value. (Source: Economist) Full Story
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| Business News |
A new era for the U.S. government's takeover of failed banks is about to begin.
IndyMac Bancorp (IMB: Charts, News, Offers) became the biggest casualty of the subprime mortgage crisis over the weekend, as federal regulators shut down the troubled Pasadena, Calif.-based savings bank in one of the largest U.S. bank failures ever.
The Federal Deposit Insurance Corp. (FDIC) said in a statement that it will take over operations of IndyMac, which will open for business today as IndyMac Federal Bank. The thrift - the fifth U.S. bank to fail so far this year - had total assets of $32 billion as of March 31.
In a televised statement Sunday afternoon, FDIC Chief Operating Officer John Bovenzi said that "come Monday morning, it will be business as usual," and urged customers to "view this as a change in ownership." (Source: Seattle Times) Full Story
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The maker of the King of Beers has agreed to go to work for the Belgian brewer InBev SA.
Anheuser Busch Cos. (BUD: Charts, News, Offers) said early Monday it had agreed to a sweetened $52 billion takeover bid from InBev, creating the world's largest brewer and heading off what was shaping up as an acrimonious fight for the maker of Budweiser and Bud Light beers.
The deal, which would also create the third-largest consumer product company, will be called Anheuser-Busch InBev.
The Anheuser-Busch board accepted the higher takeover offer Sunday night from Belgian-based brewer InBev SA, according to a joint press release. (Source: Forbes) Full Story
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Dow Chemical Co. (DOW: Charts, News, Offers) has taken a big step into a more lucrative segment of the chemical-making business, agreeing to buy a nearly century-old competitor, Rohm and Haas Co. (ROH: Charts, News, Offers), at a steep premium for more than $15 billion in cash.
A pricing and marketing consultant who follows the chemical industry said the companies' customers shouldn't fret about any immediate price increases.
"Really, truly, a new day has dawned" for Dow, Andrew Liveris, the chemical giant's chairman and chief executive, said Thursday in announcing the $78-per-share deal that includes money from a Kuwaiti sovereign wealth fund and Warren Buffett's Berkshire Hathaway (BRK.B: Charts, News, Offers).
The purchase price represents a 74 percent premium to Philadelphia-based Rohm and Haas' closing share price of $44.83 on Wednesday. (Source: Associated Press) Full Story
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| Technology Focus |
Yahoo!'s (YHOO: Charts, News, Offers) board met over the weekend and rejected a new proposal from Microsoft Corp. (MSFT: Charts, News, Offers) that would have seen the Internet company broken up.
The proposal, which the board of Yahoo rejected at a meeting Saturday, would have given Microsoft Yahoo's search business, with the rest of the company going to investor Carl Icahn. The rejection marked the first indication, though, that Icahn and Microsoft are acting closely in trying to take over or split apart Yahoo.
Yahoo seemed angered by the proposal, which came with a 24-hour deadline attached to it from Microsoft.
"It is ludicrous to think that our board could accept such a proposal," Yahoo Chairman Roy Bostock said in a statement Yahoo issued noting its rejection. (Source: Fox Business) Full Story
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For the last month, several reports from Wall Street analysts have debated whether EMC (EMC: Charts, News, Offers), the big computer storage company, would sell off its 85 percent stake in its crown jewel, Vmware (VMW: Charts, News, Offers), a fast-growing software star. EMC seems to have given its answer with a dramatic gesture on Tuesday. It fired Vmware's chief executive and co-founder, Diane Greene. She is being replaced by Paul Maritz, a former senior executive at Microsoft who joined EMC this year when it bought his Web start-up.
Ms. Greene was fired after she refused to resign or take another position at VMware, according to a VMware manager who asked not to be named because he was not authorized to speak publicly. (Source: New York Times) Full Story
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The new Apple iPhone went on sale Friday morning, but early reports of software problems overshadowed the debut of the faster, cheaper device.
As eager buyers flocked to Apple (AAPL: Charts, News, Offers) stores, news sites chronicled reports that Apple's iTunes store was struggling with a massive outage that prevented buyers from activating their phones.
Apple's new iPhone is built on third-generation, or 3G, technology that is speedier than the original iPhone's network.
As Fortune.com first reported, AT&T (T: Charts, News, Offers), the iPhone's exclusive carrier in the United States, cut the price of the iPhone in half: an 8-GB model sells for $199, or $200 less than the original iPhone. A 16-GB version costs $299. (Source: Fortune) Full Story
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| Your Money |
Women may not earn as much as men or climb the corporate ladder as quickly, but they get the last laugh because they live longer. Right?
As it turns out, women probably are not saving enough to bankroll those extra years in style. They invest more conservatively, start saving later and are more likely to be in and out of the workforce, according to a study released Wednesday by Hewitt Associates, a human resources consulting firm.
Women live an average of 22 years after retirement vs. 19 years for men and medical costs are rising, so women will need to save 2% more than men every year over 30 years to maintain their standard of living upon retirement, the study found. (Source: USA Today) Full Story
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I received a call from a broker who gave me a strong recommendation to buy a stock. While he told me I could buy it without him, he said we could make a lot of money going forward if I used him. Should I have listened to him? The stock he recommended hasn't done much since he called me.
The Mole's Answer: While I happen to believe in the kindness of strangers, I'd bet heavily that you did the right thing by just saying no.
First of all, I get these calls too. Let's examine three I've received recently. (Source: CNN Money) Full Story
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