Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Five Things You Need to Know for Friday


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. Pension Shock!

The Financial Accounting Standards Board (FASB) is proposing a new method of reporting pension obligations.

  • The new method of reporting pension obligations is likely to show that many companies have a lot more debt than was obvious before, according to the New York Times.
  • A widespread complaint about the current pension accounting method is that it exposes shareholders and employees to billions of dollars in risks that they cannot easily see or evaluate.
  • Congress is trying to tighten the rules that govern how much money companies are to set aside in advance to pay for benefits.
  • The new method of reporting would require companies to take certain pension values now embedded deep in the footnotes of their financial statements and move the information onto their balance sheets where all their assets and liabilities are reflected.
  • Uh, what was that? The New York Times uses Ford's 2005 financial statements as an example:
    - Ford now reports a net worth of $14 billion.
    - Under the new rule, Ford's balance sheet would show about $20 billion more in obligations than it now does.
    - Therefore, bye bye $14 billion net worth.
  • According to Bear Stearns among the companies with the biggest balance-sheet changes are General Motors, Ford, Verizon, BellSouth and General Electric.

2. U.S., EU vs. China for WTO Championship

On Thursday, in an unusual joint action, the United States and the European Union filed a complaint against China with the World Trade Organization (WTO) regarding Chinese tariff policies intended to promote the local production of auto parts.

  • The case is about China's import tariffs for auto parts.
  • The tariffs vary depending on what percentage of the value of a completed vehicle is taken up by the parts.
  • The basic rate for importing auto parts into China is 10-14%, while the completed-vehicles tariff is far higher, at 28%.
  • The original intention of this differential was to encourage foreign companies to build cars in China.
  • According to US Trade Representative Robert Portman, the US has negotiated with China on the issue for more than a year.
  • The auto-parts action is only the second taken against China since the country joined the WTO in 2001.
  • The first example was a US-initiated case in 2004 regarding China's tax treatment of domestic and imported semiconductors, with the US alleging that China had a preferential tax policy favoring domestic manufacturers.
  • The U.S. won that case, and China ended the policy.
  • China has 10 days to respond.
  • Hu Jintao, China's president, is scheduled to visit the U.S. about a week later.

3. If They're Selling When We're Buying, They'll be Laughing When We're Crying... Or Something Like That.

Stock buybacks by Standard & Poor's 500 companies surged 77 percent last year to a record $349 billion.

  • A stock buyback as essentially a company investing in itself, or using its cash to buy its own shares.
  • Corporations on currently sitting on a mound of cash. While most investors consider buybacks a good thing... to an extent, after all a buyback generally increases shareholder value, the buybacks recently have been cited by some as evidence that corporations are too risk-averse to invest the cash elsewhere.
  • Of course, share buybacks can also be used to simply improve the company's financial ratios. Buybacks reduce the assets on the balance sheet, increasing return on assets and return on equity.
  • As Professor Succo noted on the Buzz & Banter this morning, corporate profit growth has been decent, but almost all of it has come through cost cutting and share buybacks.
  • So, back to the record $349 billion buybacks. In the fourth quarter alone, buybacks increased at a $416 billion annual rate.
  • The two sectors seeing the most buybacks were Tech and Financials. Woo hoo, right?
  • D'oh! Turns out that Tech and Financials are also the two sectors topping the list of insider selling!
  • Thomson Financial recently said insider selling reached a total of $6.1billion in February, the highest since the $9.1 billion record set in February 2000. Hmmmm.
  • So, here's the plot, and you decide whether it is bullish or bearish:
    CEOs publicly say, "there is no better investment right now than in our own companies, so we're using our excess cash to buy our own stock." CEOs confer with private personal advisers who recommend CEOs unload stock.

4. Google and All That Cash

Late Wednesday Google (GOOG) announced it was raising up to $2 billion through a new public offering.

  • The offering would raise GOOG's shares outstanding figure to more than 212 million.
  • In a statement, the company said it planned to use the shares mostly to meet increased demand from index funds in light of the company's recent inclusion into the S&P 500 index.
  • Analysts are beginning to question the company's real motives, however.
  • Robert Peck of Bear Stearns said the company may target "Asian Internet companies."
  • Meanwhile, Rob Sanderson at American Technology Research, wonders if GOOG may be eyeing an investment in network providers given the recent debate over "net neutrality," referring to whether large traffickers in bandwidth should be charged for their usage.
  • Yesterday afternoon, an interesting report from Thomson Financial Research noted that the additional cash, given short-term rates exceeding 4.5%, would result in significant EPS increases as long as GOOG's PE ratio is above 33.

5. Contradictanyms

Before you bolt for the door, a contradictanym is a word that has opposite meanings depending on the context.

  • Take the word "bolt" for example. One can bolt for the door to catch the market open unless we bolt the door to make sure no one gets out.
  • I prefer to garnish my dish, adding a bright green sprig of parsley, while the IRS prefers to garnish my wages making the parsley impossible to afford.
  • Toddo has lately been critical of Chachi's and Pepe's wardrobes, while making critical errors in his own fashion judgments.
  • Giving the SEC additional oversight over hedge funds would be a regulatory oversight.
  • Meehan is at Aqueduct this morning trying to fix the starting gate before the first race, in order to fix the results of the first race.


Minyanville contributors may trade securities that are discussed on the site, both before and after the articles are published and/or may have a position in such securities for either personal or firm account(s). Minyanville contributors will indicate whether he or the firm has a position in stocks or other securities in any of the companies he discusses in an article. He will not disclose his or the firm's ownership of any securities issued by companies that are not discussed in an article. The disclosures will be accurate as of the time of publication of an article and may change at any time thereafter without notice to the reader.

The information on this website reflects an analysis of market conditions by Minyanville contributors and should not be interpreted as or deemed to be a recommendation to any investor or category of investors to purchase, sell or hold any security. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Minyanville contributors will not respond to requests for individual and specific investment advice.

The views expressed on this website are solely those of the writers whose articles appear on this site and do not necessarily reflect the views of the Fund or of any other person except where expressly indicated.

Copyright 2006 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos