Archive for August, 2009

Regional surveys show U.S. economy is picking up (Reuters)

Monday, August 31st, 2009 | Finance News

CHICAGO (Reuters) –
A cluster of U.S. regional reports on Monday showed business picking up steam in August, suggesting the national economy is finally breaking free of its deep recession.

One report showed a nearly year-long plunge in economic activity in the relatively industrialized U.S. Midwest came to a halt last month as new orders and production rose sharply, potentially a harbinger for the country as a whole.

Still, a top Federal Reserve policy-maker warned that the economy remains fragile, and that central bank policies seen as critical to the recovery should not be changed abruptly.

New York Fed President William Dudley told CNBC television that it was too early to talk about curtailing the Fed's long-term security purchases.

"I think it's a little premature ... The economy still isn't growing very fast and we do have a very high unemployment rate," Dudley said.

Many analysts have guessed that the U.S. economy will return to growth some time in the third quarter, and Monday's data suggested August may have been the clincher.

The Institute for Supply Management-Chicago's business barometer rose to 50.0 in August, the dividing line between growth and contraction, from 43.4 in July. Wall Street economists had expected a rise to only 48.0.

"The Chicago PMI report is a further indication that the U.S. economy is starting to improve," said Shaun Osborne, chief currency strategist at TD Securities in Toronto.

Many strategists tied a jump in new orders to the government's "cash for clunkers" program, which got auto plants humming to meet demand for vehicles to replace gas-guzzlers.

"We think the success of the clunker program is now lifting the index," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

The auto sector plays a larger role in the Chicago region economy than it does nationally. The Chicago area index, which covers both the service and manufacturing sectors, is often viewed as a bellwether of national trends.

"There was a strong increase in new orders, which is critical," said Pierre Ellis, senior economist at Decision Economics in New York.

A similar index covering the heavily industrialized Milwaukee region rose to 56 in August from 45 in July, while the Dallas Federal Reserve Bank said factory activity in Texas declined in August but at a slower pace than in July.

Meanwhile, business activity in New York City, which tends to be driven by trends in the financial sector, expanded in August for the first time in three months, thanks to increased purchases and a slowdown in layoffs.

The National Association of Purchasing Management-New York index of business conditions rose to 55.3 from 48.3 in July. Improvements in purchasing volume and employment conditions signaled the worst of the city's downturn might be ending, the group said.

The slew of regional data helped trim losses in the U.S. stock market, which was hit by weakness in financial shares and a soft tone overseas. The Dow Jones industrial average (.DJI) closed down 0.5 percent at 9,496, well above the day's worst levels.

JOBLESS RECOVERY?

The regional surveys showed employment remained soft despite the brighter outlook, consistent with fears the United States could be in for a "jobless recovery." The ISM-Chicago's employment index contracted for a 21st consecutive month.

Increased hiring is seen as critical to getting a consumer-led recovery under way. The U.S. unemployment rate was 9.4 percent in July. Economists expect a report on Friday to show it rose to 9.5 percent in August.

Still, the Conference Board said online job vacancies advertised in August rose by 169,000, or 5 percent, offering a glimmer of hope for job seekers.

"The August increase is good news, showing what we hope will be a continued improvement in job demand this fall," said Gad Levanon, senior economist at the industry group.

ECONOMISTS URGE ATTENTION TO BUDGET DEFICIT

A panel of business economists suggested factory output would help lead the economy out of recession.

After a large-scale package of tax cuts and spending to boost the economy, the government should now turn its focus to cutting spending, said respondents to a biannual survey conducted by the National Association of Business Economics.

The economists were split on whether the policies pursued by the Fed, which has cut benchmark U.S. interest rates to near zero and flooded financial markets with cash, would ultimately trigger higher inflation.

(Additional reporting by Richard Leong in New York and Lucia Mutikani and Mark Felsenthal in Washington; Editing by James Dalgleish)

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Disney to acquire Marvel in $4 billion deal (Reuters)

Monday, August 31st, 2009 | Finance News

NEW YORK/LOS ANGELES (Reuters) –
Walt Disney Co on Monday agreed to buy Marvel Entertainment Inc for $4 billion in the biggest media deal of the year, banking on Marvel's roster of superheroes to broaden its lineup of movie franchises that appeal to boys.

Disney adds Iron Man, Incredible Hulk and Thor to its roster of lovable characters like Mickey Mouse and Snow White, and will feature the comic book heroes in movies before rolling out associated theme park rides, TV shows and merchandise.

But the deal comes at a tough time in the entertainment business, with advertisers avoiding spending on new campaigns and consumers cutting back on everything from DVDs to travel.

The deal is also expensive. The price tag values Marvel at 37 times its estimated 2009 earnings, and offers shareholders a 29 percent premium to Friday's closing price. Standard & Poor's reacted by placing Disney's credit rating on its negative watchlist.

But the risk of overpaying did not deter Disney from seeking out a deal to address an area of concern among investors: How can it better reach more young males.

"This helps give Disney more important exposure to the young male demographic that they have sort of lost some ground with in recent years," said David Joyce, an analyst with Miller Tabak & Co.

Indeed, Disney has long been a blockbuster brand with girls thanks to characters such as "Hannah Montana," "Cinderella" and "Snow White," but has struggled to achieve the same kind of success with boys.

Movies including "Iron Man 2," due to hit theaters next year, or 2011's "Spider-Man 4" and "Avengers" should help resolve that issue.

Disney will also be able to use its marketing and entertainment strength -- stretching from ABC to cable television to theme parks -- to promote and build characters such as Thor in ways Marvel never could.

The deal is Disney's largest since the $7.6 billion purchase of Pixar in 2006, and it immediately caused reverberations. Shares in DreamWorks Animation SKG Inc spiked 5 percent on speculation it may become a takeover target.

And analysts raised questions about companies like Viacom Inc, Discovery Communications Inc, and Hasbro Inc that have existing business partnerships with Marvel.

UNDER-PROMISING?

To acquire Marvel, Disney agreed to pay a total of $30 per share in cash plus about 0.745 Disney shares for each Marvel share owned. The deal was approved by the boards of both companies.

The shares of Marvel, which was founded in 1939 and rolled out its first blockbuster character, Captain America, in 1941, shot up to a high of $49.29 before falling a bit to close at $48.37 on the New York Stock Exchange.

Disney approached Marvel a few months ago "to get to know them," Disney Chief Financial Officer Tom Staggs told Reuters. The overture began with a meeting between Disney Chief Executive Robert Iger and Marvel CEO Ike Perlmutter and evolved into merger discussions over a series of meetings.

"We at Disney had admired them because of their position and asset base," Staggs said. "With conversations over time we came to believe in the value of a combination."

Shares of Disney, which will acquire ownership of more than 5,000 Marvel characters, fell 3 percent to $26.04. The deal is expected to close by year-end, but will not add to Disney earnings until fiscal 2012.

The acquisition came as a surprise, even though Iger had mentioned recently the company would consider acquisitions that bolstered Disney brands across international markets and on new technology platforms.

While it could kick-start more deal making in the media sector -- where stocks have outperformed the broader Standard & Poor's 500 this year -- few analysts see another bidder making a play for Marvel.

A major reason is the presence of Marvel's Perlmutter, who owns 37 percent of the company and will oversee it within the Disney empire. Perlmutter will trade his stake in Marvel for a 1 percent stake in Disney, but will not receive a seat on its board of directors -- as did Pixar CEO Steve Jobs.

Disney executives drew a number of parallels between the Pixar and Marvel deals, and suggested it would keep the Marvel brand intact.

"The goal here is not to rebrand Marvel," Iger said on a conference call.

Caris & Co analyst David Miller said Disney was "sandbagging a little" by estimating the deal would not add to its earnings for another two years.

"They said the same thing with the Pixar deal," said Miller, who has "above average" ratings on both Disney and Marvel. "I think they will make it accretive a lot sooner. They are underpromising, as they always do."

(Reporting by Paul Thomasch; additional reporting by Franklin Paul, Gina Keating and John Tilak; editing by Derek Caney, Andre Grenon and Bernard Orr)

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Why the Stock Market Looks Bullish for Fall (Time.com)

Monday, August 31st, 2009 | Finance News

Stock prices usually reflect underlying value. But stocks can also be affected by things like summer vacations among hedge fund managers, or by late-December window-dressing by mutual-fund managers who want to have the hot performers in their portfolio at year's end. Brian Belski, chief investment strategist at Oppenheimer, tells TIME's John Curran why these seasonal tea leaves are now bullish.

What are seasonal stock-market patterns pointing toward?
Right now investors have a tremendous amount of doubt with respect to the stock market. With the economy just coming out of recession and stocks up more than 40% from the lows, people are thinking, 'It's gotta correct, it's gotta correct.' But historically, it doesn't have to correct, and that's what these seasonal patterns show - following big runs in the summertime, the stock market does not, on average, turn negative in the fall.

But traditionally September is known for being a lousy month for stocks, right?
We've experienced in the last 25 to 30 years pretty sizable corrections in the fall, whether it's September or October. We saw it in 1929, but more recently in 1987, and in '97 and '98 as well. Even when there's not a big sell-off, it's not a good month. In fact, since 1942, September has been the most negative month in the stock-market year, exhibiting on average a 0.5% negative return. That's the seasonal pattern most people think of when heading into the fall. But there have been noticeable changes in summer seasonal patterns since 1994. (Read "Why an Investment Guru Is Bullish on Recovery.")

How so?
The summer months since 1994 have tended to show weakening performance as the summer wears on. We believe this has to do with an increasing trend toward longer summer vacations among the Wall Street set. Also, we are a global market today, and lengthy summer vacations are popular in many corners of the world.

But this summer the stock market has rallied.
Precisely, and that goes against the seasonal pattern that has been in effect. If you go back and look at other times when that has happened in the last 15 years - a positive stock market during the summer - the results show that the stock market also has a positive September and keeps strengthening throughout the rest of the year. (Read "Bernie Madoff's Other Legacy.")

So there's good seasonal karma right through December?
In this seasonal scenario, December actually turns in the strongest performance, on average. There's a bit of seasonality to that too, since in a rising market you will typically see mutual-fund managers rush to add hot stocks to their portfolio at the end of the year so it shows up in their portfolio statements. There's much more performance pressure on money managers today than there used to be.

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