Over the past year, automakers have struggled to deal with the tough economic conditions in North America, especially the United States. One of the companies that has been able to handle the slowdown better than its peers has been Toyota (NYSE: TM). But the effects are being felt even by the Japanese automaker, as made clear today in the news that the company is laying off 800 workers in one of its Japanese plants.
The 800 workers that are being laid off represent about 10% of the workforce at the company's plant in southwestern Japan. So far, the company has been able to sidestep the steep losses that its American rivals have been forced to deal with, but this year is proving to be a bit tougher, as the company is now predicting a first annual drop in profit, which would be the first time in the past seven years that the company has seen profit fall.
Toyota has been more fortunate than many automakers, mostly due the fact that the company has a long history of building smaller, more fuel efficient cars. This fact alone has helped it weather the slowdown that record high gasoline prices in the U.S. have helped create. Last Friday, however, the company stated that sales dropped 18.7% in July from the same period last year.
Thirty years ago, China did not have much of a middle class. A large number of people who have recently moved to big cities for jobs in the fast-growing economy still lived in rural areas then. China's increasing role as an exporter changed that.
As Chinese began to see wage improvement, these people not only became consumers of goods, they drove a thriving stock market and real estate prices. A lot of that is about to end.
According toThe New York Times, "Chinese factories reported a plunge in new orders last month. Exports are barely growing. The real estate market is weakening." Some of the immediate fallout of that will be good for the West. China may need less oil and a smaller supply of metals commodities. That could bring down the prices of these and cut back inflation in big economies like the U.S.
The less pleasant side of the coin is the U.S. exports to China will almost certainly slow, putting pressure on corporate earnings here.
The worst case is much worse, and looks like Japan in the 1980s. A boom in exports helped drive inflation in Japan. The value of its real estate and banks sky-rocketed. Japanese businesses started to buy up U.S. assets. When growth in Japan slowed a bit, the value of real estate and the stock market in the country collapsed. Money from Japan used to buy U.S. treasuries disappeared. So did the demand for U.S. goods and services. No one was a winner.
It is hard to imagine a recession in China as it has a GDP growth rate of nearly 10% and has been growing faster than that for years. But Japan's problems thirty years ago are a warning. Nothing good lasts forever.
Douglas A. McIntyre is an editor at 247wallst.com.
"As the tech industry has matured, some technology companies are beginning to devote some of their cash flow to dividends," explains George Putnam, who notes, "This helps reduce downside volatility and offers some positive return when the stock prices lag."
In his industry-leading The Turnaround Letter, the advisor highlights some dividend-paying tech stocks; here a look at three of those picks.
"Many tech stocks have underperformed for the last couple of years as capital spending on technology products has been weak. The sector will eventually rebound, but the timing is far from certain.
"A conservative way to play the industry is to focus on technology stocks that pay dividends. That way you at least get paid something while you wait for the rebound. The following technology stocks pay decent dividends, many of them higher than the average 2.1% dividend paid by the stocks in the S&P 500 Index.
Oil's four-year bull run to +$140 per barrel has increased the wealth of 'petrodollar' nations, and is about set to propel another shift, this time in the bond market.
Petroleum-exporting nations, such as Saudi Arabia and Russia are set to become the biggest creditor nations to the U.S. Government, Bloomberg News reported Monday.
Holdings of petrodollar nations increased 44% to $510 billion through April, Bloomberg News reported Monday -- an increase pace that's set to displace Japan, which holds the largest amount of U.S. Treasuries, at $592.2 billion.
Oil rose about 20 cents to $145.28 per barrel in late Monday afternoon trading.
Unlike a number of large banks, GE (NYSE: GE) does not need any money. It does, however, need to look like it is doing something to address shareholder concerns that it is in too many unrelated businesses. Yesterday, it said it would consider spinning-off much of its industrial and consumer divisions. They are dogs, so why not give them to the shareholders.
Now, GE has decided to sell part of its financial services business. According toReuters, "General Electric Co will sell its Japanese consumer finance operation to Shinsei Bank Ltd," The piece of GE's business in the Asian country will bring it $5.4 billion.
Shareholders will probably not reward GE for the move. They want something much bigger. While the company's infrastructure business is a huge success, other operations including its medical device and NBCU businesses are viewed as slow growing and a poor match for an company which has so many divisions that even management does not seem able to keep track of them.
Perhaps GE can hold a huge auction and rid itself of half of its businesses all at once Sotheby's could handle the sell-off in a day.
Douglas A. McIntyre is an editor at 247wallst.com.
European markets slumped and Asian markets held steady on the back of Wednesday's 236-point drop in the Dow Jones industrial average.
European markets:
The Dow Jones Euro Stoxx: closed at 3,293.85, down -48.63 (-1.45%)
The FTSE 100 Index: closed at 5,435.70, down -93.90 (-1.70%)
The CAC 40 Index: closed at 4,258.26, down -81.40 (-1.88%)
the S&P/MIB Index: closed at 28,590.00, down -181.00 (-0.63%)
Asia/Pacific markets:
The MSCI Asia-Pacific Index: virtually flat at 132.05 after a drop of about 0.6%. Tech stocks were the decliners, while financial stocks were the advancers
Nikkei 225 Average: up to 13,067.21, a gain of 0.1%. Singapore's economy expanded at the slowest pace in five years while New Zealand's manufacturing industry shrunk for the third time in four months in June. Said Chua Hak Bin with Deutsche Bank Private Wealth, "We think growth will be sub-par until the end of next year and there are signs the slowdown in the U.S. is broadening." Mitsushige Akino with Ichiyoshi Investment Management in Tokyo added, "Investors have realized there's no reason to sell Japanese banks based on the U.S. credit crisis ... they've been picking up more business overseas.''
Hang Seng Index: up to 21,821.78, a climb of 0.073%. The Hang Seng's decline since November's high of over 31,000 isn't showing any decent recovery as of late. No surprise there.
Toyota Motor Co.'s (NYSE: TM) Prius hybrid is by far the world's most successful hybrid vehicles, with sales numbering over one million units. In addition to the great gas mileage these gas/electric vehicles provide, could these cars become even more efficient? According to Toyota, that's already in the works.
The Japanese automaker was featured in Japan's Nikkei newspaper yesterday as saying it will begin installing rooftop solar panels on its next-generation Prius vehicles. Starting with the high-end model, these solar panels will be used to power the air conditioning systems of the car. According to the Nikkei report, these solar panel arrangements may start showing up as next spring.
If Toyota can pull this off, it will mark yet another milestone in automotive history: including solar panel technology in a mass-produced car. It could also set off a trend to power automotive subsystems directly from solar power instead of internally generated power from the gas engine/alternator system or the onboard electric motor. Solar power is abundant and free -- why not use it as much as possible?
Now, where are the other automakers with this? General Motors (NYSE: GM)? Ford Motor (NYSE: F)? A show of hands, please.
It was announced today that soft drink giant Coca Cola (NYSE: KO) had settled an almost 8-year-old lawsuit today for $137.5 million. The case originated back in October of 2000, and alleged that the company had artificially boosted its strike price in 1999.
According to the lawsuit, back in late 1999 Coca Cola applied pressure to some of its bottlers to buy unnecessary beverage concentrate. By adding "hundreds of millions of dollars" to the books, the company was allegedly able to report much higher sales volumes to its shareholders and keep its stock price artificially inflated. This practice is typically referred to as "channel surfing".
Despite the fact that the company decided to settle, there was definitely no admission to any wrongdoing. A company representative stated that the decision to go ahead and settle out was merely a move meant to avoid any length and drawn out legal battle, and by no means should be viewed as any admission of guilt in the charges.
Japan's Nikkei Index, the weighted average of 225 stocks in major companies, fell for the 10th day. That has not happened since 1965.
According to the FT, "Rising fears about the impact of inflation on slowing economies took their toll on Japanese and other Asia-Pacific markets." That sounds a bit like the current trouble in the US.
A number of other indicies have had sharp declines lately. The Shanghai Composite has fallen by more than half since late last year. Rising energy and food costs in China have not helped it. Neither have concerns that a recession in the West could cut demand for its exports.
The Nikkei news says two things. The first is that the economies in other large nations may be as troubled as that in the US. Traders often look out several quarters when they make their buying or selling decisions. But, the second, more ominous sign from the Nikkei's decline is that it says that the smart money in Japan believes that the price of oil is not likely to fall. Japan is relies more on imports of crude that the US does.
The tough run for the Nikkei is not restricted to Japan. US and EU markets are likely to set records of their own, and not the kind that traders look forward to.
Douglas A. McIntyre is an editor at 247wallst.com.
Panasonic, the main American subsidiary of Matsushita Electric Industrial Co.(NYSE:MC) is getting serious about its bet on the next generation of televisions. Panasonic is going with what's known as OEL (organic electroluminescent) or OLED (Organic Light Emitting Diode) TVs. They're vastly thinner---less than a quarter of an inch---and are supposed to faster, sharper and use less energy. (Some have disputed the last point.) But they could wear out quicker than other TVs, and by organic they just mean carbon based.
Sony (NYSE: SNE) already has the lead in the a OLED TV market. But Sony's TV is only 11 inches and it costs $2,500. They plan to release a 27-inch version "fairly soon," according to this blog dedicated to OLED. Matsushita---which is changing its name to Panasonic come fall---is planning a 37-inch screen for around $1,400, according to Reuters, which was picking the story up from the Japanese newspaper Sankei Shimbun. But that's still years away.
Toshiba (TOSBF) is also working on one, but suffered some delays. Samsung just announced they were investing $530 million in OLED production. There have been plenty of delays in this OLED technology--almost as many as there have been with the rival technology SED (surface-conduction electron-emitter display). Toshiba and Canon (NYSE:CAJ)is the big backers of SED TVs. After years of delays the battle for the next, thinnest TV is heating up.
"If you own a television, chances are you're quite familiar with the infamous squawking duck in Aflac's commercials. Aflac has also been in the news lately as the first American company to give shareholders a 'say on pay', or the ability to vote on executive compensation.
"Less well known, however, is Aflac's huge presence in the Japanese insurance market. In 2007, roughly 75% of the company's pre-tax operating earnings were generated in Japan.
"Alfac has been doing business in Japan for more than 30 years, and one in four Japanese households has an Aflac insurance policy. In Japan, Aflac sells healthcare policies for certain things that aren't covered by the national healthcare system, as well as life insurance. And, yes, they have a talking duck in their ads over there too.
"At a time when many financial companies are reporting massive write-offs, Aflac reiterated its target of 15% earnings growth this year, and double-digit growth in 2009. Aflac Japan is doing its part to help drive this growth with 19% operating earnings growth in the first quarter of 2008."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
If you have an ADR for Japanese electronics giant NEC, save it as a collectible. In light of the SEC's recent decision to revoke NEC's securities registration in the U.S., there will not be any more of those ADRs. NEC ran afoul of U.S. listing requirements when it failed to file annual reports for 2006 and 2007, and improperly booked revenues for 2000-2006. NEC was also the victim of internal fraud when at least 10 emplyees, over a period of several years, booked millions of dollars worth of fraudulent transactions. NEC had no procedures in place to authenticate or track these transactions.
To be fair to NEC, recognizing software sales revenue up front in complicated under GAAP SOP 97-2, particularly when the software is sold as part of a service package that also includes hardware and/or software maintenance. But NEC was responsible for taking steps to see it was not being robbed blind from within. NEC was delisted from active trading on Nasdaq in November 2007. NEC neither accepted nor disputed the SEC decision. The company has also been under investigation by the Tokyo Regional Taxation Bureau. NEC states it has constructed sufficient internal controls to cut back on the potential for internal fraud. Too little, too late. The stock now trades on the pink sheets.
After hitting a one-year high of $90.00 in January, the stock hit a one-year low of $28.19 in March. STP opened this morning at $42.01. So far today the stock has hit a low of $41.12 and a high of $42.69. As of 12:35, STP is trading at $41.85, up 0.54 (1.3%). The chart for GIS looks bearish but improving slightly, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $30 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in just two months as long as STP is above $30 at August expiration. STP would have to fall by more than 28% before we would start to lose money. Learn more about this type of trade here.
STP hasn't been below $30 since March and has shown support around $38 recently. This trade could be risky if the company's earnings (due out in early August) disappoint, but even if that happens, this position could be protected by the support the stock might find between $35 and $40, where it bounced over the past month.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in STP.
The Japanese market for buyouts is certainly alluring (basically, there is lots of opportunity to cut costs). But, it has been tough for US private equity firms to break in.
But, today there was a success: D&M Holdings Inc. agreed to a $470 tender offer from Bain Capital Partners LLC. This is according to a report in the Wall Street Journal (subscription required).
D&M sells premium and super premium audio and video products, with brands like Denon and Snell. The company got its start in 1910 and has since engaged in a variety of acquisitions, such as for McIntosh Laboratory, Allen&Heath Holdings and Boston Acoustics.
D&M does have an attractive long-term potential. After all, with the surge in wealth in Asian countries, there is likely to be strong demand for D&M products. And, with the financial backing of Bain, there are likely to be more acquisitions to enhance the D&M platform.
Markets in Asia were troubled by rising oil and concerns that the global economy is getting into more trouble as each week passes.
The Shanghai Composite fell 6.5% to 2,749.
In Hong Kong, the Hang Seng fell 2.2% to 22,807. China Life (NYSE: LFC) dropped 3.1% to 28.3 yuan. China Petroluem (NYSE: SNP) fell 3% to 8.07.
In Tokyo, the Nikkei dropped 2.2% to 14,130. Mazda fell 5.5% to 568 yen. Toyota (NYSE: TM) dropped 3.2% to 5490 on concerns that its truck sales were falling in the US.
Over the past year, automakers have struggled to deal with the tough economic conditions in North America, especially the United States. One of the companies that has been able to handle the slowdown better than its peers has been Toyota (NYSE: TM). But the effects are being felt even by the Japanese automaker, as made clear today in the news that the company is laying off 800 workers in one of its Japanese plants.
"As the tech industry has matured, some technology companies are beginning to devote some of their cash flow to dividends," explains 
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Panasonic, the main American subsidiary of 
The Japanese market for buyouts is certainly alluring (basically, there is lots of opportunity to cut costs). But, it has been tough for US private equity firms to break in.
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Investor confidence in global growth continues to decline
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