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Five Things You Need to Know for Wednesday


What you need to know (and what it means).


Five things you need to know to stay ahead of the pack on Wall Street.

1. When the Going Gets Tough, the Tough Restate

In a filing with the SEC late yesterday, GM warned that it might not be able to sell controlling interest in its GMAC finance arm to raise emergency cash and to restore the lender's credit rating.

  • GM has been seeking a buyer for controlling interest in GMAC, the company's cash-cow financing arm.
  • Although GMAC is profitable, it has been hurt by the fact that it is attached to GM, which is struggling in its auto sales unit.
  • Because of GM's financial woes and poor credit rating, the GMAC unit has found it more expensive to raise money for lending.
  • The new disclosures last night made it clear that the company may now not be able to find a buyer for GMAC, and even if it does it may not be able to effectively decouple GMAC's credit rating from GM's.
  • GM last night also disclosed it is the subject of two more SEC investigations, one related to precious metal transactions.

2. Going Once, Going Twice...

Pfizer (PFE) today is opening initial bidding in its consumer-products portfolio.

  • PFE has a market capitalization of $188 billion.
  • Its consumer-products line accounts for about 10% of the company.
  • Because drug companies trade at about a 25% discount to consumer-products companies, PFE announced in February it is hoping to capture the difference in valuation by unwrapping that part of its business.
  • PFE hopes to get a price of about $14 billion for the unit.
  • The company's consumer-products line is considered attractive because it includes many well-known brands, such as Listerine, Bengay, Visine eyedrops and Sudafed.
  • Potential bidders include GlaxoSmithKline and Colgate-Palmolive, Novartis AG and England's Reckitt Benckiser.
  • A straight sale would create a considerable taxable event for the company.
  • Therefore, it is expected that any potential buyer would have to bid high enough to cover some of the tax liability.
  • An alternative possibility is a tax-free spinoff to shareholders.

3. Gas. Just Gas.

Today is oil-inventory day in the US.

  • Markets are expecting drawdowns in gasoline in line with seasonal norms.
  • However, there are growing worries about sufficient US gasoline supplies due to the switch to the ethanol additive.
  • What? You don't know about the switch to the ethanol additive? Ha ha ha. Sorry.
  • Because of fears of lawsuits for continuing to use methyl tertiary butyl ether (MTBE), the fuel industry is switching over to fuel ethanol.
  • D'oh! But apparently there's not enough ethanol available to fill the gap left over from phasing out MTBE!
  • MTBE makes up about 10 percent of U.S. fuel supplies, and ethanol would only fill about 3 percent of the gap, leaving a potential 7 percent shortfall this summer.
  • A U.S. Senate panel today will hear from Bush administration officials about possible gasoline shortages spurred by the oil industry's decision.
  • If there is one thing politicians don't like, it's gasoline shortages.

4. Fed Alert! Fed Alert!

Richmond Fed President Jeffrey Lacker today speaks on "Central Bank Credit in the Theory of Money and Payments."

  • Yes, it's a slow news day.
  • All the more reason that the markets may attach extra importance to a rather academic-sounding speech today by Richmond Fed President Jeffrey Lacker.
  • Lacker is a voting member of the Fed.
  • What to listen for:
    - Any mention of trade deficit
    - Any mention of fiat currency relative to asset-backed currency, or gold
    - Inflation targeting
  • Other Lacker speeches, and eventually today's, can be found here.
  • It's a long shot, but you never know.


5. I'll See You on the Dark Side of the Moon

People across the globe are gathering today for what will be the first solar eclipse in years.

  • An eclipse of the Sun (or solar eclipse) can only occur at New Moon when the Moon passes between Earth and Sun.
  • The total phase of a solar eclipse rarely lasts for more than several minutes.
  • The earliest solar eclipse mentioned in historical sources was the eclipse of June 15 763 BC.
  • The most recent total solar eclipse occurred on August 11, 1999 and was visible from Europe and the Middle East.
  • After the last solar eclipse, within six months the Nasdaq-100 nearly doubled!
  • The next total solar eclipse will occur in 2088.

No positions in stocks mentioned.

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