Filed under: Forecasts, Management, Interviews, Market matters, Money and Finance Today, AutoNation Inc (AN), Darden Restaurants (DRI), Personal finance, Media World, Federal Reserve

Four well known CEOs weighed in on CNBC’s Squawk Box, giving their particular insight on economic conditions one day after the Federal Reserve made yet another basis rate cut. Each of the four Chief Executives acknowledged the tough going in the economy, yet each also sought to inject a thread of optimistic patience into their commentary.

Mike Jackson, CEO, Auto Nation Inc. (NYSE: AN), came to the defense of Reserve Board Chair Ben Bernanke. While admitting that the chairman may have crawled blindly into what is now mostly economic turmoil, Jackson stated: “…I think he absolutely has it right now. He’s got to be on full flight recession mode, and we’ll worry about the dollar, and commodities and inflation later.” Personally, I think Benanke should be making moves to protect the consumers and their dollars first, and let inflation take care of itself until the consumer sector is back up to speed.

Wilbur Ross, CEO, W L Ross & Co. Played the most obtuse card stating: “My own opinion is that it’s just more of the same volatility.” More of the same volatility? Yeah the economy is volatile … DUH!
Clarence Otis, CEO, Darden Restaurants Inc. (NYSE: DRI). My guess is that CEO Otis is feeling the most pressure right now. He stated: “Certainly there are some pressures on discretionary income and with what we see as a result of that is fewer restaurant visits across the board…” I think CEO Otis is optimistically hedging his bets. We’ll know more when Q3 numbers come through.

John Hofmeister, CEO Shell Oil U.S. Operations Hofmeister made probably the most powerful statement of the day: “Well, actually a lot of people will hate me for saying this but gasoline is a real bargain right now give the crude price.” The fact of the matter is that he’s right. Gasoline prices at the pump have in no way been tracking commodity crude prices. We should be thankful we’re not paying $7 for a gallon of gas.

For a better look at the interviews of these four CEOs, check out the video clips on CNBC.com.

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Modest dollar rally fades on belief Fed will cut rates more

Filed under: International markets, Other issues, Housing, Federal Reserve

The dollar’s modest rally faded Tuesday afternoon as traders calculated that the U.S. Federal Reserve is likely to continue to cut key, short-term interest rates by another 50 basis points to jump-start the anemic U.S. economy.

In mid-day Tuesday trading, the dollar was substantially lower against the world’s other major currencies. The dollar fell almost 2 cents to $1.5596 versus the euro, about one-half yen to 100.22 versus Japan’s yen, and about 1.5 cents to $2.0003 versus the British pound. The dollar also fell about 1 cent to $1.0095 versus the Swiss franc.

Short-lived dollar rally

Some traders had argued that the dollar would be able to post its second straight weekly rise on renewed confidence that the U.S. economy would perform better than expected, with a shallow recession, said Andrew Resnick, independent currency trader. But those comments most likely will be categorized as ‘famous last words’ based on recent U.S. housing data, which suggests continued U.S. economic sluggishness up ahead, he said.

This means the Fed “is likely to continue to cut interest rates,” which is bearish for the dollar, Resnick said, adding that he is presently flat, with no open currency trading positions.

Housing sector woes

Earlier Tuesday, the markets received word that U.S. housing prices in 20 major cities, as measured by the Case-Shiller Home Price Index, dropped 2.4% in January 2008 and an alarming 10.7% on a year-over-year basis.

Resnick said it’s hard for traders to feel confident about a U.S. recovery without a rebound in the U.S. housing sector, given the large swath of economic activity that housing affects. And, by extension, “there’s no dollar recovery without a U.S. economic recovery,” since sluggishness will keep rate-cut pressure on the Fed.

For the above reason, among other factors, Resnick is sticking with his bearish dollar prediction made at the start of 2008. Resnick said he expects the dollar to fall to 95 yen by the end of 2008. He also expects the dollar to fall to $1.65 versus the euro and $2.05 versus the British pound by the end of 2008.

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Filed under: Options, The Blackstone Group, Raising money, Public or private?

Alliance Data Systems (NYSE: ADS) is recently at $39.00 in pre-open trading, below its close of $65.60. ADS says affiliates of The Blackstone Group (NYSE: BX) have informed ADS that they do not anticipate closing the merger due to problems obtaining approvals from the Office of the Comptroller of the Currency (OCC).

ADS announced on May 17, 2007 it would be acquired for $81.75 in cash ($7.8 billion) by BX. ADS is expected to announce Q4 EPS on January 30. ADS February option implied volatility of 105 is above its 26-week average of 41 according to Track Data, suggesting larger risk.

M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

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Filed under: Analyst upgrades and downgrades, Forecasts, Bad news, Industry, Citigroup Inc. (C), Merrill Lynch (MER)

Almost every day some researcher cuts earnings estimates or rating for some set of banks and brokerages. Late yesterday, Oppenheimer chopped its view for Merrill Lynch (NYSE:MER) and UBS (NYSE:UBS). Earlier in the day the same analyst had cut several banks, including Citigroup (NYSE:C).

Among other things Oppenheimer sees writes-offs at Merrill running up to over $6 billion in the first quarter. Reuters reports, “The earlier cuts fanned fears that credit and housing crises will crimp earnings at banks and brokerages for a longer period of time.” Now the market can face more of that anxiety.

But, the trouble will quickly turn from earnings cuts to the issue of whether US financial firms have enough capital. Late last year, several major banks and brokerages raised tens of billions of dollars. The hope in the market was that most write-offs were over. The new cash brought in would be enough.

Now, it is clear that financial institution losses are actually going up and not down. Executives from the firms will be back in the markets. There are probably only two alternatives to the issue. One is for the Fed to dump more taxpayer money into the system which gives it some “ownership” in the companies facing problems. The other is to turn to sovereign funds in the Middle East and Asia.

Sovereign funds got burned in their first set of investments in banks and brokerages. They are going to want a bigger piece of the pie this time. Current shareholders may be diluted. And, that could send shares down even further.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Consumer experience, Competitive strategy, General Motors (GM), Marketing and advertising, Toyota Motor Corp. (TM)

With people in Japan showing less and less interest for cars, Japanese automaker Toyota Motor Corp. (NYSE: TM) is exploring more efficient methods to increase sales in its strong competition with rival General Motors Corp. (NYSE: GM) for the title of the world’s largest automaker. The attempt to boost sales has become even more difficult as, according Toyota officials, young people prefer spending their money on laptops or mobile phones than a car that could be easily replaced by public transportation.

In an attempt to reach younger people and lift car sales, Toyota is opening a new mall located in Yokohama, southwest of Tokyo. The new Tressa mall is pretty much like any other malls, with 220 stores and restaurants like cafes, clothing stores and even gym or games centers where people enjoy spending their time. However, in the new mall space, Toyota showrooms take center stage, placing at people’s disposal a large variety of old and new cars models.

One thing that Toyota is aware of, and trying to improve upon, is that in Japan showrooms and TV advertising are not efficient any more in attracting people’s interest for buying cars. The new mall is aimed at accomplishing Toyota’s plan of global domination by providing “opportunities for people to come in contact with cars.”

For the moment, is unclear if Toyota’s plan will be successful. In addition, the Japanese automaker is showing concerns about its global sales target for this year, which was set at 9.85 million. The company is blaming both the weakening U.S. economy and higher raw material prices. In the United States, car demand has been declining, hurt by the tight credit crisis, tumbling dollar and surging crude prices that put pressure on consumer spending.

With the current market conditions, Japanese car makers are facing a tough environment as the yen has been rising against the dollar. But with this new strategy and Toyota’s ambitious plans to defeat the competition, it could be just a matter of time before it gets back people’s interest for its car models.

Eliza Popescu is a financial writer for the online investment advisory service Investor’s Observer.

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John McCain gets it right on the mortgage mess

Filed under: Politics, Presidential elections, Housing

I never thought I’d be doing a post praising John McCain’s wisdom, but here goes.

In the midst of calls from members of both parties for a big government intervention in the mortgage crisis, John McCain said in a speech in Los Angeles that “it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

Exactly — Senator McCain is saying what needs to be said but isn’t being said because of election-year politics. Democrats and some Republicans appear to be making a bet that you will win very few votes by saying that some people should lose their homes.

He added that “Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates … Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million homeowners are doing what is necessary - working a second job, skipping a vacation and managing their budgets to make their payments on time. That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?”

Taking the focus off of homeowners and onto Wall Street, McCain said that “Capital markets work best when there is both accountability and transparency. In the case of our current crisis, both were lacking.”

Of course, Senator McCain is right, and I wonder what he thinks of the taxpayer-financed Bear Stearns (NYSE: BSC) bailout that will stuff over $1 billion into the pockets of investors who bought a bad stock.

McCain’s honesty here is refreshing — I have to wonder what Washington would be doing if this crisis hadn’t happened in an election year. My hunch is that we’d see more rational behavior focused on fixing problems, not appearing to be compassionate while bailing out people who made bad decisions.

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A recipe from Williams-Sonoma’s recession cookbook

Filed under: Industry, Housing

During summer and winter breaks from college, I used to work in a Williams-Sonoma, Inc (NYSE: WSM) store in my local mall. As a moderately eloquent speaker and the only guy in the joint, I managed to make quite a few sales, particularly among the key “25-40 year old, vaguely unsatisfied married female” demographic that made up most of the store’s customers. One day, as my father waited for me to get off work, he watched me talk a wealthy, sour-faced housewife into buying a $49 grape drainer. Shaking his head at my salesmanship, he wondered aloud how I could convince someone to shell out a pocketful of cash for what was essentially a porcelain bowl with holes in the bottom. I couldn’t really answer him and, to this day, I wonder how Williams-Sonoma manages to market its wares, many of which are amazingly useless.

In the fourth quarter of 2007, Williams-Sonoma’s profit rose almost 3%, but its first-quarter same-store 2008 profits are expected to fall by between 6% and 8.5%. The store is blaming its flagging sales on the real-estate slump. While it seems reasonable to expect that people would be disinclined to buy home goods when they’re having a hard time covering their mortgage payments, Williams-Sonoma is missing the big picture. In addition to its position as a major player in the home decor market, W-S is also a luxury brand store and a narrow-focus mall retailer. Both of these types of stores are facing serious problems in the current economy, one for its inflated prices and the other for its lack of diversity. Consumers looking for kitchen implements are probably inclined to go to Lechters, which is a lot cheaper, or Wal-Mart and Target, both of which have a much wider selection of merchandise. If Williams-Sonoma wants to weather this storm, it should probably follow the lead of its Pottery Barn subsidiary and start cutting its prices. In the current economy, it’s hard to imagine someone shelling out $49 for a grape drainer!

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Filed under: Deals, Industry, Employees, Delta Air Lines (DAL)

Northwest (NYSE: NWA) does not care what the pilots’ union thinks. It plans to go ahead with a merger with Delta (NYSE: DAL) despite resistance from the sky captains. Pilots have held up a deal while they negotiate seniority provisions for a combined company.

According to The Wall Street Journal (subscription required), “a jump-started deal wouldn’t include terms of a combined pilot labor agreement and the salary enhancements previously foreseen.”

Aside from regulatory approval, the deal has two real problems. The first and most obvious is that the pilots may strike the airlines if they feel they have been mistreated. A shutdown, especially if it is prolonged, could cost tens of million of dollars in lost passenger revenue.

In addition, it is not clear that merging airlines has a clear benefit. Fuel costs do not change. The number of employees may fall, but some of the unions involved may ask for higher compensation in exchange for supporting cuts. Customer service department mergers almost always cause problems because putting together incompatible reservations platforms can take several quarters. This can damage relationships with consumers and cause them to use other carriers.

Pushing the merger may be a bad idea, whether the pilots are on board or not.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: International markets, Industry

International music industry trade group IFPI is applauding recommendations made in a new British report about “the potential hazards the Internet can pose to children.” The Byron Report is being accepted and implemented by the British government, calling for new gaming review systems and having the British Department for Children Schools and Families and the Department for Culture Media and Sport “vowing to work with industry, schools and parents to ensure children and young people remain safe in the online world.” Billboard also reports that the IFPI is planning its “own guide for parents and teachers informing them on how to obtain music safely and legally online.”

The merits of commending the new report on Internet safety are obvious, so it is no surprise the IFPI would welcome it. At the same time, one has to wonder how illegal music downloading is connected to the fears of the violent nature of online games. Regardless, as Billboard notes, greater fears of identity theft and online fraud were pertinent in the report and it is possible to understand where fears of children and illegal downloading would come in.

Unfortunately, despite the merits and value in the Byron Report, the fact that the IFPI would applaud it so greatly only speaks to the lengths that trade group is willing to go to prohibit illegal downloading. With as much resistance as the IFPI is facing in a number of countries about having Internet providers turn over users that illegally download, the connection to fears based on children’s access to the Internet makes sense because it markets the IFPI to consumers who might otherwise be unaware of their existence.

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Filed under: Deals, Engagements

The IPO and M&A markets have gone to pieces. No one would be surprised but the extent of the decline is shocking.

Global IPO activity is lower than it has been at any time in the last four years. M&A transactions are as far down as at any time since November 2004.

Read the whole story at 24/7 Wall St.

Douglas A. McIntyre

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