It is hard to imagine an industry where when sales are off 30% to 40% it is considered a good thing. Welcome, to the Detroit auto company bailout of 2009.
Sales of light vehicles at GM (GM) fell 31% to just over 220,000 units in December. That rate was much worse than for the entire year of 2008 in which sales dropped 23%. But, maybe December could have been worse, so GM shares are up almost 5% to $3.82.
Why are advertisers who pay cheap ad rates running at premium websites like the tech section of CNN.com? Because the online advertising business is falling to pieces as the first quarter of the year opens. Netflix, known for buying up cheap inventory, has a prime spot at the website of the 24-hour news service.
In the tech section of nytimes.com there are ads running for ancestry.com, another marketer that buys in bulk and gets its impressions cheap. The "leadership" section of forbes.com is running advertising for SkyMall, unlikely to be a company that pays top dollar.
The national news section of usnews.com is running advertising for Keller, a third-tier management school.
Bad omens.
Douglas A. McIntyre
At the beginning of the decade a number of internet and next-generation technology companies raised money through venture capitalists and IPOs. Many of these companies had little, if any, revenue. Most had relatively high expense structures.
As these firms quickly ate through the cash on their balance sheets and continued to have poor sales prospects, the term "burn rate" was coined. If was defined as the amount of cash a company had on its balance sheet divided by the firm’s monthly expenses less any revenue. An operation with $12 million in cash less short-term debt and a $1 million a month "burn rate" was expected to be out of business in a year.
At this point, GM (GM) and Chrysler would make any burn rate risk lists as would a number of retailers who had awful holiday seasons and are facing repayment of debt or revolving credit facilities. That is why Pier 1 (PIR) is trading at $.40 and shares of Dillard’s (DDS) are off 80% over the last year.
As 2009 is kicking off, it is interesting to start seeing the many many forecasts for the US and other major economies. The NBER finally came clean last month about our own organic homegrown recession starting roughly in December 2007. And everyone is expecting the recession to continue in 2009. They expect it here in the U.S., they expect it in the E.U., and they expect it in Asia. What is interesting is how economists are still projecting above-world growth in China.
The CEO of SandRidge Energy, Inc. (NYSE: SD) sold approximately 8.90 million shares at $5.62/share in a private transaction in order to meet "debt service and tax planning needs." Tom Ward, SandRidge’s CEO, retained the option to purchase the shares back at the original price on February 16. The total value of the transaction was about $50 million. Mr. Ward still owns 29.05 million shares of SandRidge common stock.
Chesapeake Energy Corporation (NYSE:CHK) has sold about $412 million worth of royalty interests in "long-lived, producing assets" in gas fields in Oklahoma and Arkansas. The buyer was a private equity firm, Argonaut Private Equity, and the deal was financed by an affiliate of The Goldman Sachs Group, Inc. (NYSE:GS).
Analysts already noted the increase in oil prices resulting from the fighting in Gaza. Neither the Palestinians nor the Israelis controls any oil–as the late Israeli Premier Golda Meir famously remarked: "[Moses] took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil!" So why the price boost?
There is fear among traders that war will accomplish what OPEC production cuts have not: a real decline in the amount of oil available on the market, leading to higher prices. That might happen; and if it does, OPEC gets its price boost while it dithers around with virtually non-existent production cuts.
Deutsche Bank said the biggest issue U.S. banks will face in 2009 is loan losses. The firm expects commercial bank loan losses for the industry to increase from 1.5% (3Q08) to 3% by the end of 2010. They said Citigroup (NYSE: C) could be one of the worst hit and lowered estimates on the stock today to reflect this view.
The firm lowered 2009 estimates on Citi by 30 cents to a loss of $1.00 and 2010 estimates by 40 cents to EPS of $0.75, which mostly reflect higher loss rates and lower revenues than previously modeled.
It seems that the early bird analyst calls did not capture the notion that analysts are starting 2009 with more opportunities to downgrade stocks. Here are some additional pre-market analyst downgrades from Wall Street this Monday morning:
Here are the top 10 pre-market analyst upgrades and downgrades:
Jon C. Ogg
January 5, 2009
Steve Jobs, and the Apple Inc. (NASDAQ: AAPL) board of directors, have decided to come out with a full pre-MacWorld attack to address the health of Steve Jobs and some explanations as to why he is not giving the keynote speech this year. First, the good news is that Jobs is running the show. The bad news is that his weight loss isn’t just a desire to emulate runway models.
John Tamny, RealClearMarkets
"Recession Slows Migration in U.S." was a recent Wall Street Journal headline. Since new jobs are frequently the main reason people move, the story wasn’t a big surprise.
Unfortunately, the lack of migration related to a less bountiful jobs picture wasn’t the full story. Indeed, the other major factor presently keeping Americans grounded is housing. As the Journal article noted, falling home prices "have prompted many people to stay put, rather than risk losing money in a declining housing market."
It is still fairly thin in analyst upgrades and downgrades as this week marks the return of investment banking and research departments from what is nearly a two-week hiatus. Here are the few stand-out calls we have seen early this morning with more than two hours to the open:
Jon C. Ogg
January 5, 2009
There may be some speculation that drug giant Pfizer Inc. (NYSE: PFE) is looking at expansion through acquisitions. The FT reported that the world’s largest pharmaceutical company is willing to acquire a large rival drug company. It even cites the CEO as saying the company real goal is to grow revenue, which is different than many other goals out there from other peers in the new market. It also brings about the questions about who could be on the buyout target list.
Detroit has gone to the government well and collected enough money to get it through to late March. It will present forecasts to the government based on cutting costs, keeping market share, and operating in a fairly depressed domestic market.
With Toyota (TM), Honda (HMC), and Nissan struggling, US car companies have at least a chance of holding their piece of the US pie.
It seems that no matter what the market does, investors still want to see which old tech stock is the one to own for the year ahead. Everyone still remembers the massive growth of the late 1990’s despite what happened in 2000 to 2002 and the market malaise of 2008. We are going to still pass on a thought to you which many will consider heresy. Cisco Systems Inc. (NASDAQ: CSCO), Dell Inc. (NASDAQ: DELL), Intel Corp. (NASDAQ: INTC), Microsoft Corp. (NASDAQ: MSFT), and Oracle Corp. (NASDAQ: ORCL) have all evolved to the point that they may soon become no different than Grandma Furgeson’s old fashioned utility stock she used to invest in.
We have made this argument many many times. But for 2009 we want you to embrace the notion that many of your old technology leadership companies have now become utilities or appliances. While there are still many outlying factors that are different, this is how these old leaders are evolving. That evolution is not the death of the companies. Not at all. But it will require a rethinking of how they need to be analyzed for the years ahead.
Spending on cars, clothing, jewelry, furnishings have moved down 20% or more over the last few months. There has been a lot of research that consumers were still willing to buy video games, PCs, and other electronics.
Now, those categories have joined almost every other in a period of rapid sales contraction.
"Fortes fortuna adiuvat"–Virgil
The question comes up over and over again. How could a massive fraud, which probably went on for well over thirty years, have gone undetected by federal regulators? The answer up until now was that the funds run by Bernie Madoff were rarely looked at carefully by the SEC or other financial regulatory bodies.
It turns out that the reality was worse than that.
According to Reuters, Obama may seek take cuts of over $300 billion.
Reuters reports that the SEC examined Madoff eight times over 16 years.
Reuters reports that the Fed and European Central Bank plan to attack deflation.
Reuters reports that Sony (SNE) may announce large cost cuts.
Stocks in Asia were broadly higher.
The Nikkei rose 2.1% to 9,043.
The Hang Seng was up 3.1% to 18,516.
THe Shanghai Composite rose 3.3% to 1,881.
At the open in Europe, the FTSE was up .9% to 4,601. The Daxx moved up 1% to 5,023. The CAC 40 was higher by .7% to 3,372.
Data from Reuters.
Douglas A. McIntyre
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