In a previously announced deal China’s CITIC said it planned to invest $1 billion in Bear Stearns (NYSE: BSC). It has had a day to think that over after Bear nearly went under and was saved by capital from JP Morgan (NYSE: JPM) which was backed by the Federal Reserve.
Now CITIC has said "We cannot guarantee reaching a final agreement in the future," according to Reuters. In other words "Don’t call us, we’ll call you."
Douglas A. McIntyre
The price of wheat has gone up three-fold in ten months. For something that looks like a weed, that is an impressive run.
Since a large number of business from McDonald’s (NYSE: MCD) to Sara Lee (NYSE: SLE) to Kraft (NYSE: KFT) have a lot of wheat-based products, inflation in the grain is hardly good news.
In many enterprises, the cost of commodities can be passed on to consumers. In a recession, that becomes somewhat more difficult. Who is willing to buy a $15 Big Mac or $20 box of cake mix? All the money that might go toward those items is already being spent on $4 a gallon gas.
Since the price of wheat is not going to drop, at least not any time soon, it is worth reconsidering investments in fast food chains like Starbucks (NASDAQ: SBUX) and Burger King (NYSE: BKS). Supermarkets may see some margin hit as well.
Even prison stocks like Corrections Corp (NYSE: CXW) may be bothered. The cost of bread and water has just gone up.
Douglas A. McIntyre
In the first of what is likely to be an avalanche of suits over the collapse of the auction-rate market, UBS (NYSE: UBS) has been sued for misleading investors. According to The Wall Street Journal the suit claims that "UBS engaged in "a deceptive and misleading plan" to cause its clients to place their money in auction-rate securities instead of customarily liquid investment products such as money-market funds."
There are two kinds of legal actions the banks and brokerages who ran that auction-rate market since 1985 will face. The first is that clients, both corporate and consumer, will claim that auction-rate securities were not actually the equivalent of cash, but were marketed as such. Individual investors and some public companies are already facing a liquidity crisis as they try to get their money out of auction-rate paper.
The other set of suits will likely be over whether companies like UBS and Merrill Lynch (NYSE:MER) had an obligation to keep the auction-rate market running once they had, over a 20 year period, created an "exchange" which investors could reasonably believe would have regular and successful auctions.
It s another straw on the back of financial companies where the troubles are growing by the day.
Douglas A. McIntyre
As the financial crisis spreads quickly from Wall St. to other industries, two large home building projected have received default notices. The problems involve developments in Las Vegas where house prices has collapsed.
A project involving KB Homes (NYSE: KBH), Lennar (NYSE: LEN), and Toll Brothers (NYSE: TOL) has failed to make interest payments on $765 million in debt.
According to The Wall Street Journal, the project is spear-headed by a private company, Focus Property Group.
It is not clear how many other large real estate developments involving public home builders are facing near-term margin calls, but with the falling price of real estate, the problem in Las Vegas is unlikely to be that last one.That means that already weakened firms could face a credit crisis of their own as home prices continue to drop and the potential value of homes under construction face going on the market for a fraction of what they may have brought just a year ago.
Some of the large home building company stocks have lost over two-thirds of their value over the last year, and that may only be the beginning.
Douglas A. McIntyre
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