Associate Editor
Money Morning

The Bush administration Friday dropped its opposition to using the $700 billion bank bailout fund to provide financing for U.S. automakers after the Senate balked at approving $14 billion emergency loans.

“Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” Treasury spokeswoman Brookly McLaughlin said in a statement.

No specific announcement of a bailout was made, as there is still time before General Motors Corp. (GM) and Chrysler LLC – the companies in most at risk of foreclosure – run out of cash. However, the White House made it clear that the government is ready to backstop the companies by using a portion of the funds allocated to its Troubled Asset Relief Program (TARP).

“The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry,” said White House press secretary Dana Perino.

The government has used roughly $335 billion into banks and insurance companies over the past two months, leaving about $15 billion of the initial $350 billion authorized by Congress for the TARP fund available for use. Treasury officials have been reluctant to make those funds available to the auto industry, however, as the money is still needed to backstop existing programs.

If the Treasury wants to tap the second half of the $700 billion bailout passed in October, the administration will first have secure Congressional approval.

A separate measure to grant the auto companies $14 billion in loans was approved by the House of Representatives last Wednesday, but failed to gain Senate approval.

“It’s over with,” said Senate Majority Leader Harry Reid, D-NV, after the Senate vote. “This is going to be a very, very bad Christmas for a lot of people.” 

Democrats blamed Senate Republicans for the bill’s failure, and Senate Republicans, in turned blamed union labor.

“We’re hoping that the Democrats will continue to negotiate but I think we have reached a point that labor has got to give, if they want a bill they can get done,” said Senator Richard Shelby, R-AL.

Of course, the bill’s demise left President George W. Bush at a crucial impasse and with virtually no option but to open the Treasury coffers.

“The consequences of the Senate Republicans’ failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options,” said House Speaker Nancy Pelosi. Action by President Bush is the “only viable option,” she added.

Detroit’s Big Three employ more than 200,000 people and support millions more U.S. workers indirectly through suppliers and dealerships. Their collapse could ultimately cost the economy more than 2 million jobs total. And that doesn’t count the estimated 1 million Americans – including many retired autoworkers – who rely on the U.S. auto companies for pension and healthcare benefits.

Ford Motor Co. (F), which has more cash at its disposal than both GM and Chrysler, has said it would not seek government funds, but still urged Congress to help its competitors because their systems of supply and distribution are so intertwined.

News and Related Story Links:

• Associated Press:
  White House considers help for car makers

• Money Morning:
  GM Taking Swift Cost-Cutting Action

• Money Morning:
  Auto Bailout Passes House, Faces Hostile Senate

• Dealing with $13 billion in debt and declining revenues, media and sports conglomerate Tribune Co. filed for bankruptcy protection yesterday (Monday). The company – which owns the Chicago Cubs and newspapers The Chicago Tribune, Los Angeles Times and Baltimore Sun – was famously taken private last year by real estate mogul Sam Zell, The Associated Press reported.

• Dow Chemical Co. (DOW) said it will divest several business, close 20 facilities and cut about 5,000 jobs, or about 11% of its workforce. The announcement comes less than a week after rival DuPont Co. (DD) announced cutbacks that it said would save $700 million annually by 2010, Reuters reported.

• Morgan Stanley’s (MS) top executives – CEO John Mack and Co-Presidents Walid Chammah and James Gorman – won’t receive bonuses this year, Bloomberg reported. In addition, the company is lowering compensation for its operating committee 14 members by an average of 75%.

• Sen. Harry Reid (D-Nev.) yesterday (Monday) urged Merrill Lynch & Co. Inc. (MER) to reject its CEO John Thain’s request for a $10 million bonus since Merrill was the recipient of millions of taxpayer money, Dow Jones reported. "While American families struggle to keep their jobs and their homes, I question the chutzpah of asking for a $10 million taxpayer-subsidized bonus," Reid said.

• After earlier assuring the public that no U.S. jobs would be jeopardized by a merger, Anheuser-Busch InBev NV announced yesterday (Monday) that it would cut 1,400 U.S. jobs — about 6% of its U.S. work force. The move is expected to help save the world’s largest brewer at least $1.5 billion a year.

• Brazil’s Mines and Energy Minister, Edison Lobao, said yesterday (Monday) that China wants to lend Petroleo Brasileiro SA, Brazil’s state oil company, $10 billion to help develop massive new oil fields in deep water off the coast of Rio de Janeiro, The Associated Press reported.

• McDonald Corp.’s (MCD) global same-store sales rose 7.7% in November and U.S. sales climbed 4.5% the company said yesterday in a statement. "I think what you’re seeing is that McDonald’s has so far been relatively immune to the recession," David Morris, senior analyst at consumer research firm Mintel told The Associated Press.

• Carlos Slim, the Mexican billionaire Forbes ranks as the second-richest man in the world, yesterday (Thursday) announced he purchased a 6.4% stake in New York Times Co. (NYT). Slim called the publisher of The New York Times an "attractive value" due to the stock’s 20% loss so far this year, Bloomberg News reported.

• Campbell Soup Co. (CPB) yesterday (Thursday) announced quarterly profit for its fiscal fourth quarter ended Aug. 3 increased 46% from the year ago period as the company increased prices to offset higher commodity costs. Campbell’s reported net earnings of $89 million, or $0.24 per share, compared to $61 million, or $0.16 per share for the prior year in a company statement.

• King Pharmaceuticals Inc. (KG) upped its takeover offer for Alpharma Inc. (ALO) yesterday (Thursday) to almost $1.6 billion. King raised its offer to $37 per share from its initial bid of $33 per share and said it plans to take the new offer directly to shareholders, Reuters reported.

• According to a report published yesterday (Thursday) by the Commodity Futures Trading Commission, commodity index traders only accounted for 13% of crude oil futures trading on the New York Mercantile Exchange in the first half of 2008, Bloomberg News reported. "At first glance the numbers seem inconsistent with the allegations that swaps traders and index traders are driving up the price of oil," said Robert Webb, a finance professor at the University of Virginia.

• Bank of America Corp. (BAC) is in talks to buy Lehman Brothers Holdings Inc. (LEH), the Wall Street Journal reported, citing an unnamed source. Sources say Goldman Sachs Group Inc. (GS), also thought to be interested, will not takeover the beleaguered firm.

• Bristol-Myers Squibb Co. (BMY) yesterday (Thursday) reiterated its $60 per share offer for ImClone Systems Inc. (IMCL), even though the biotechnology company said earlier this week that a secret suitor is offering $10 a share more.

• Shares of Sunrise Senior Living Inc. (SRZ) yesterday (Thursday) reported a $31.8 million second-quarter loss. The company’s shares fell $2.56, or 13.5%, to close at $16.36 after falling as low as $16.22 earlier in the day. On Wednesday, the stock fell $1.82, or 8.8%.

• Deutsche Bank AG (DB) will today (Friday) announce the purchase of a controlling stake in Postbank, a profitable German institution worth about $14.6 billion, the International Herald Tribune reported. This opens up the door for a potential bidding war with Banco Santander SA (ADR: STD), which said Thursday that it wanted to negotiate the purchase of all of Postbank.

Although consumers and businesses have gotten a bit of a reprieve at the gas pump as of late, the escalation in oil prices we’ve seen over the past year has led to some major changes in overall consumer behavior. Many car-owners have dumped their gas-guzzling pickup trucks and SUVs at the nearest used-car lot and used the proceeds to buy some gas-sipping rides. Companies with large distribution networks have redesigned their shipping schedules, crafting more efficient routes that accommodated larger truckloads.

The upshot: Gasoline sales tumbled during the first half of the year as domestic demand fell to its lowest level in five years.  In fact, the U.S. Department of Transportation reported that Americans drove almost 5% less in June than a year ago, and also said that the buses, subways and light-rail systems that make up the nation’s public/mass-transit systems climbed by 3.4% in the first quarter of the year.

Lately, U.S. gasoline stations have been forced to adjust their prices (again) after prices at the pump dropped below $3.80 a gallon – a hefty decline from the prices of $4 a gallon and higher that motorists were forced to deal with as the summer driving season began.

Even in China, oil imports dropped substantially in July on shrinking global demand. (It will be interesting to see if – and by how much – the Summer Olympic Games affect these numbers. And even if the games prompt a spike in demand, some analysts are now predicting that a post-Olympic economic “lull” will afflict Mainland China – watch for our analysis of that theory in an upcoming issue of Money Morning).

This energy-price conundrum doesn’t stop there, either, as such geopolitical “wild cards” as the Russian invasion of Georgia continue to whipsaw prices. Even with such tensions, however, energy traders brushed aside concerns about major supply disruptions – not the response we would’ve seen just a few months back. Late last week, in fact, oil prices took cues from the newfound strength in the dollar and dropped below $112 a barrel, a number not even imaginable in mid-July, when crude-oil prices reached a record level of $147.

All’s well on the Energy Front, it seems.

Don’t you believe it (as we’ve said on more than one occasion during the past year).  In the near term, crude-oil prices could well keep declining … but it’s only going to take one “real” scare – a terrorist attack, or some sort of event that creates protracted supply worries – to cause oil prices to spike in a big way.

And in the long run, demand is going to keep rising in such emerging-market countries as China and India. That can only send oil prices higher. [For a related story on oil prices in today’s issue of Money Morning, please click here].

On the Horizon

The July inflation report (Part II) will be reported tomorrow (Tuesday), with the release of the wholesale price gauge, the Producer Price Index (PPI).  Since energy prices have declined in recent weeks, analysts should take these numbers with a grain of salt, as the July data still will reflect the previously higher levels.

Of greater relevance, perhaps, is the Index of Leading Economic Indicators, due out Thursday. The leading indicators often serve as a foreshadowing of future activity so U.S. Federal Reserve Chairman Ben S. Bernanke and friends should take note of that report.

More retailers post earnings this week, including Limited Brands Inc. (LTD), The Gap Inc. (GPS), AnnTaylor Stores Corp. (ANN), and The Home Depot Inc. (HD). By now, however, most investors realize that consumers remain cautious about the economy, and that most related companies (other than discounters) have continued to struggle.  Maybe the lower gas prices will help turn things around for these and other businesses in the coming months – that is, as long as the current trend in energy remains “friendly.” [For a related story on consumer sentiment in today’s issue of Money Morning, please click here.]

We’ve all watched as the once-pristine reputation of former Fed Chairman Alan Greenspan has been tarnished by the credit crisis, and by some of his recent public pronouncements that were aimed at putting the blame on others (possibly impacting book sales). But that’s okay, as investors are now eagerly awaiting the authorized biography of the “real” market maestro – Berkshire Hathaway Inc. (BRK.A, BRK.B) Chairman Warren Buffett. The book, "The Snowball: Warren Buffett and the Business of Life," published by Bantam Dell Publishing Group, is due on bookstore shelves Sept. 29.

Market Matters

While certain optimistic analysts claimed that the worst of the credit crisis had ended, the latest news from the financial front indicated otherwise.  Swiss banking giant UBS AG (UBS), fresh off $5 billion in new mortgage write-downs, will divide its investment banking and wealth management operations into two separate units – and some analysts believe it may look to sell off the banking arm over the next few years. 

JP Morgan Chase & Co. (JPM) announced additional losses of $1.5 billion in July and then followed in the footsteps of Citigroup Inc. (C), Merrill Lynch & Co. Inc. (MER), UBS, and others, by agreeing to settle with regulators for billions (plus fines) over the sale of risky securities.  In non-financial news, Wal-Mart Stores Inc. (WMT) bucked the negative retail trend by reporting a 17% increase in quarterly profits as strong international sales helped overcome the domestic slowdown.  Meanwhile, Macy’s Inc. (M) issued a warning that earnings for the year will not meet prior expectations and J.C. Penney Co. Inc. (JCP) and Abercrombie & Fitch Co. (ANF) missed analysts’ outlooks, as well.  Despite the rise in commodity prices, food services company Sysco Corp. (SYY) [not to be confused with techie Cisco Systems Inc. (CSCO)] posted a 10% gain in quarterly earnings.  Given the ongoing economic concerns (see below) and the “challenges” faced by financial-services companies and retailers, congressional Democrats are pushing for another stimulus package, a move with political implications during the presidential election year.

Looking at the fixed income sector, bonds moved higher late in the week on a stronger dollar and the yield on the benchmark 10-year fell below the 3.90% level.  While pressures on financial stocks (Citi, JP Morgan, or Bank of America Corp. (BAC)) propelled the Dow Jones Industrial Average lower at mid-week, other equity indexes held up quite nicely.  As energy prices keep falling, some investors believe that corporations will enjoy improved expense outlooks in the months to come, causing certain share prices to react accordingly.  Many companies already have begun making helpful adjustments.

Economically Speaking

While talks of the dreaded “R” word come far less frequently these days (although there’s still some concern about the “S” world – stagflation), economists remain pessimistic about the rest of the year (and beyond). Some economists previously believed the country would experience a nice rebound by the second half of 2008, though the latest economic projections call for 1.2% growth in the third quarter and a feeble 0.3% increase in the fourth. 

A recent CEO survey showed that 90% of top execs polled considered domestic conditions to be “fair” or “poor.”  The Fed Beige Book warned that the overseas demand for “Made in America” goods was beginning to soften, and manufacturers were growing more concerned that the recent strong international activity would no longer help cushion the domestic weakness.  In fact, the European Union (EU) economies actually fell by 0.2% in the second quarter and consumer confidence dropped to its lowest level in more than five years.  Perhaps the European Central Bank can hold off on those rate hikes after all.

Even former Fed Chief Alan Greenspan (remember him?) thinks the housing sector will not show signs of a turnaround until the first half of 2009.  Greenspan also criticized the Bush Administration over its handling of the Fannie Mae (FNM) and Freddie Mac (FRE) debacles, perhaps attempting to shift blame away from himself for his role in the “lax” regulatory oversight of housing and the mortgage industry.   

Looking inside the weekly numbers, retail sales dropped in July as cautious consumers stayed away from the malls and seemed to be waiting for the absolute last minute for any back-to-school shopping needs.  Even removing the weak auto sales data from the equation, retailers suffered their worst showing in five months.

Meanwhile, the July CPI surged by its fastest pace in 17 years and the core statistic (excluding the volatile food and energy components) increased slightly more than expected, as well.  However, since average gas prices have declined by more than 20 cents a gallon in the past few weeks, some analysts expect that the August (or possibly September or October) CPI release will look far better (unless, of course, a situation like the Russia/Georgia conflict heats up or a sizable hurricane wreaks havoc on oil platforms in the Gulf of Mexico).

Weekly Economic Calendar

News and Related Story Links:

• Money Morning Special Investment Report:
  
  Profit Opportunities From the New Cold War.

• Wikipedia:
  The Producer Price Index (PPI).

• TheStreet.com:
  
  Index of Leading Economic Indicators

• Reuters:
  Authorized Warren Buffett biography due September 29.

• Money Morning Economic Analysis:
  
  Soaring Consumer Prices and Mounting Foreclosures Threaten 2008 Economic Growth.

• Wikipedia:
  Beige Book.

• Money Morning Economic Analysis:
  
  Sales Down as Unemployment Rises and Home Values Decline.

Volkswagen AG (PINK: VLKAF), PSA Peugeot Citroen SA (OTC ADR: PEUGY), and Fiat SPA (OTC ADR: FIATY) beat earnings estimates in the last week.  At the same time, however, Ford Motor Co. (F), one of the largest industrial companies in America, missed earnings estimates.

By a lot.

Indeed, the Wall Street consensus called for Ford to lose 27 cents per share – instead, Ford lost 62 cents per share. Even though Ford outperformed in its European, South American and Asia-Pacific operations, the massive undertow of its U.S. operations was just too much to overcome.

That’s not really a surprise, you see, since auto sales in the United States are the weakest they’ve been since 1993, reports J.D. Power and Associates.

U.S. auto sales have been shot down by three key factors:

• The negative wealth effect of the U.S. housing market.
• The credit crunch for the last year or so.
• And, lately, the meteoric increase in the price of oil and gasoline.

All of these detract from consumer wealth and purchasing power even as they weaken the general economy.

But there’s an additional catalyst for Ford’s malaise: While economies of scale in the car industry are very important and volume is critical to allow to keep manufacturing costs down, compensation for Ford’s work force is problematic.

For decades, Detroit’s “Big Three” – Ford, General Motors Corp. (GM) and Chrysler Corp. (now Chrysler LLC) – which once ruled the worldwide auto industry, have been losing their leadership. Call it the typical story of success sowing the seeds of destruction.

With their global dominance of the auto industry, the U.S. Big Three grew complacent and, despite their market and technological leadership, fell into the trap of granting overly rich compensation-and-benefit packages to their work forces. How rich? The pension plans were super-generous and the health-care plans required no co-payments from workers.

Then came the double-whammy that put the U.S. auto sector on a path to destruction: U.S. health-care costs ballooned and carmakers watched their work forces age, forcing the automakers to assume a massive cost burden – one that they ultimately couldn’t afford.

By 2000, in fact, that cost burden was so huge that the companies were no longer making money from automobile production; any profits they were reaping actually came from their auto-financing arms, which finance auto sales.

These longer-term trends left Ford and GM in a highly vulnerable position. And it likely blunted innovation and kept the companies from quicker development of hybrid vehicle lines.

Then came the energy bubble.

The meteoric rise in the price of oil has put an already heavily cost-burdened U.S. auto industry in a near-panic-mode situation, since customers have shifted away from Detroit’s line-up of trucks and sport-utility vehicles to smaller, more-fuel-efficient cars and hybrids offered by Japanese rivals.

With Ford, at least, there has been major progress on the cost-cutting front. In the first quarter, under the leadership of Chief Executive Officer Alan R. Mulally, the very able engineer who turned around The Boeing Co. (BA), Ford was able to secure a new contract with the United Auto Workers Union that allowed for reductions in 20% of personnel.  This allowed Ford to start the process of discontinuing unprofitable models without having to keep the workers employed.

At the same time, Ford announced cuts of another 4,000 employees in the most recent quarter, and is in the process of starting another round of layoffs of some 15% of salaried personnel.

Ford opted to cut loose Land Rover and Jaguar to raise cash and improve profitability. It’s launching new, fuel-efficient cars and has dramatically improved the quality of its products – especially its cars.

To deal with the recent effects of the economy, it has postponed the launch of its redesigned F-150 pickup truck, which has been the industry’s standard-bearer for decades. That’s a huge move, given that the Ford pickup truck is an icon in the industry, with consumers, with collectors, and even with hot rodders – and has been for generations — reaching all the way back to the Ford Model T and Model A trucks of the 1920s and 1930s.

Managing liquidity and maintaining enough cash to complete the restructuring plan is a big challenge for Ford, given the shifting market tastes and the highly uncertain economic environment.  Should the company successfully navigate these dangerous financial straits, Ford’s stock will likely enjoy a major increase, generating huge capital gains for current stockholders.

But there is a significant probability that the company’s equity holders will get wiped out and the bondholders will end up owning the company. This reality is reflected in the upfront cost of almost 30% in credit insurance needed for certain Ford obligations.

Therefore, while Ford’s restructuring plan seems to be moving forward well and even accelerating in pace, and Mulally has distinguished himself with his execution, the unpredictability of oil prices and the slow resolution of the housing crisis ahead makes this stock very speculative. I cannot recommend it without warning that Ford shareholders must accept a large degree of risk and accept the potential for some pain.

A much better play, yet also with the potential for pain, is to look for convertible debt, with the view that even in a restructuring, bondholders will end up owning the company and capture the huge upside that this franchise will have once it finishes dealing with its problems and is able once more to deliver competitively the high quality products that it was known for.

Action to Take: BUY Ford Motor Co. (but as a highly speculative position). This once-great U.S. automaker may once again find its way, but possibly only after the bondholders end up owning the company. If you are going to buy Ford shares, keep the position small. A BETTER BUY: Ford debt, especially senior convertible issues.
[Editor’s Note: Horacio Marquez was working as a vice president of the Merrill Lynch Emerging Markets Fixed Income Group in 1994 when he correctly predicted that both Argentina and Mexico were headed for currency crises - cementing his reputation as an expert on both the emerging markets and on the nuances of global finance. Now Marquez brings that expertise to you with his newly created "Shadow Stock Trader" service. To find out how to subscribe, please click here. "Buy, Sell or Hold" is a brand-new Money Morning feature that so far has covered Cisco Systems Inc. (CS), ABB Ltd (ADR: ABB), Cummins Inc. (CMI), and Chevron Corp. (CVX). We continue to appreciate all the readers who are writing to us, suggesting stocks they’d like to see analyzed.]

News and Related Story Links:

• The Associated Press:
  Earnings Roundup: Volkswagen, Boston Properties.

• Money Morning News Analysis:
  European Automakers Turn to Emerging Markets to Offset Weak Sales at Home.

• Money Morning News Analysis:
  GM Announces Second Round of Cost Cuts in Six Weeks as U.S. Economy Continues to Slump.

• Web Site:
  Ford Trucks.

• Web Site:
  Mike’s Old Ford Truck Site.

Wachovia Cuts Dividend and Jobs; Caterpillar Builds a Global Business; Home Prices Collapse; UPS Delivers More Revenue, Less Profit; Fed Directors Split; Oil Hits Six-Week Low; UAL Stock Soars; Two For, One Against Satellite Radio Deal

• Wachovia Corp. (WB) said yesterday (Tuesday) that it lost $8.86 billion in the second quarter and would be forced to slash its dividend and cut 10,750 jobs. Wachovia said it lost the equivalent of $4.20 per share in the April-June period. Over the same period of time last year, the bank earned $2.34 billion, or $1.22 per share.

• Caterpillar Inc.’s (CAT) second-quarter profit jumped 34%, $1.11 billion, or $1.74 per share, for the three months ended June 30, compared with $823 million, or $1.24 per share, a year earlier. While the domestic market falter overseas sales for the company increased 60% of quarterly sales and revenue coming from outside North America, up from 55% a year earlier.

• The Office of Federal Housing Enterprise Oversight said yesterday (Tuesday) that U.S. home prices fell a record 4.8% in May from the same month last year. On a seasonally adjusted basis, prices fell 0.3% from April to May. The index is down almost 5% from its peak in April of last year, the Associated Press reported.

• United Parcel Service Inc. (UPS) said yesterday (Tuesday) that its profit fell nearly 21% in the second quarter despite a more than 6% increase in sales. Profit was $873 million, or 85 cents a share, in the second quarter, compared to $1.10 billion, or $1.04 a share, for the same period a year ago. Revenue grew to $13 billion from $12.2 billion. "We’re feeling the impact of higher energy costs throughout the company," Chief Executive Scott Davis told the Associated Press.

• Two out of the 12 Federal Reserve directors wanted an increase in the discount rate in June, according to documents released yesterday (Tuesday).  Dallas Fed President Richard Fisher and Kansas City Fed President Tom Hoenig asked that the discount rate be raised from 2.25% to 2.50% in June, MarketWatch reported, a request that was ignored by the majority of the Federal Open Market Committee.

• Light, sweet crude for August delivery fell $3.09, hitting a six-week trading low yesterday (Tuesday). On their last day of trading, August delivery contracts settled at $127.95 a barrel in afternoon trading on the New York Mercantile Exchange, CNNMoney reported. September delivery contracts, which begin trading today (Wednesday), are priced at $128.42.

• UAL Corp. (UAUA), parent of United Air Lines Inc., yesterday (Tuesday) announced a new credit-card/frequent flyer agreement that would boost liquidity $1.2 billion, Reuters reported. The news, helped along by lower oil prices, pushed UAL stock up over 65% for the day with a gain of $3.42 to close at $8.41.

• Federal Communications Commissioner Michael Copps voted against the proposed merger between Sirius Satellite Radio Inc. (SIRI) and XM Satellite Radio Holdings Inc. (XMSR) late Monday night, The Wall Street Journal reported. It’s the first vote against the deal, as two commissioners have voted for it and two others have yet to vote. The deal must receive majority approval from the five-member FCC board to proceed.

• Belgian brewer InBev NV announced yesterday (Monday) that it would attempt to remove the entire Anheuser-Busch Cos. Inc. (BUD) board of directors after InBev’s $46.3 billion hostile takeover offer bid was rejected. InBev is seeking to use a process outlined in Anheuser- Busch’s bylaws that allows shareholders to vote on a new board without a meeting, Bloomberg News reported.

• Microsoft Corp. (MSFT) said yesterday (Monday) that it would be willing to reopen talks to buy all or part of Yahoo! Inc. (YHOO), but only if a new Yahoo board is elected, Reuters reported. Carl Icahn, the billionaire financier who owns a 4% stake in Yahoo, has for the past several months been rallying other shareholders to overthrow the current Yahoo board at the company’s August 1 stockholder meeting. Icahn said he had "spoken frequently" to Microsoft CEO Steve Ballmer over the last week. Microsoft walked away after Yahoo rejected a $47.5 billion takeover bid in May.

• Light, sweet crude for August delivery fell $3.92 (2.7%) to settle at $141.37 on the New York Mercantile Exchange yesterday (Monday) after falling as low as $139.50 earlier in the day. Concerns about escalating tensions in the Middle East and tightening supplies sent futures sharply higher last week. Prices dropped after the threat of potential disruptions subsided and investors took profits.

• Merrill Lynch & Co (MER) may write down about $6 billion in the second quarter primarily driven by losses on high-grade collateralized debt obligations, said Citigroup Inc. (C) analyst Prashant Bhatia.  Bhatia also forecast a second quarter loss and widened his 2008 loss per share view, Reuters reported.  

• Shares of mortgage giants Freddie Mac (FRE) and Fannie Mae (FNM) plunged yesterday (Monday) on liquidity concerns. Investors are concerned the two largest U.S. lenders will need to raise additional capital, Bloomberg News reported. Freddie shares shed almost 18%, with a loss of $2.59 to close at $11.91, while Fannie Mae’s shares dropped $3.04, a decline of 16%, to close at $15.74.

• San Francisco Federal Reserve Bank President Janet Yellen said yesterday (Monday) that the U.S. Fed’s monetary policy is shifting "slightly tighter," as inflation concerns mount and start to outweigh worries about economic growth, Reuters reported. "On a continuum I would say things are shifting to somewhat more inflation risk," Yellen told reporters after a speech at the University of California San Diego.

• Gold for August delivery closed down $4.80 to $928.80 an ounce on the New York Mercantile Exchange, MarketWatch reported. Earlier the yellow metal contract had traded as low as $916.60. "Unfortunately, gold doesn’t have any independent thought right now, and is simply tracking what goes on in the dollar market," said Frank McGhee, the head precious metal trader at Chicago-based Integrated Brokerage Services.

• The popular Prius hybrid from Toyota Motor Corp. (ADR: TM) is about to get even greener, according to media reports yesterday (Monday). As early as Spring 2009, Toyota plans to install solar panels on the Prius that will provide energy to power the hybrid’s air-conditioning unit, MarketWatch reported, making Toyota the first major automaker to utilize solar technology.

• In reporting a $164.8 million loss (or $1 per share), electronics retailer Circuit City Stores Inc. (CC) suspended its 4-cent dividend. The company also forecast a wider second-quarter loss but said it expects a “gradual recovery” in the second half, Reuters reported.

• Mitsubishi Motors Corp. (PINK: MMTOF) plans to introduce a line of plug-in hybrids as soon as 2013. The company’s all-electric i MiEV minicar plans to be charged from a standard electric outlet. About 1,000 of them will go on sale to fleet customers starting April 1, 2009, Bloomberg reported.

• Continental Airlines Inc. (CAL) and United Air Lines Inc. announced yesterday (Thursday) that despite deciding not to merge in April, the two carriers would form an alliance that includes linking their networks and operations worldwide, The New York Times reported. As part of the deal, Continental will join the Star Alliance, of which United is already a member.

• Western oil majors will return to Iraq for the first time in 36 years, The New York Times reported yesterday (Thursday). Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Royal Dutch Shell PLC (ADR: RDS.A, RDS.B), BP PLC (ADR: BP) and Total SA (ADR: TOT) are at the forefront for contracts on the countries largest oil fields and are currently in talks with the government’s oil ministry, MarketWatch reported.

• Shares of Citigroup Inc. (C) dropped over 1% with a 23 cent decline to close at $20.17 yesterday (Thursday) after Chief Financial Officer Gary Crittenden said there would be “substantial” additional write-downs and losses on consumer loans, Bloomberg News reported.  Citigroup has already written down $42 billion, or approximately 10% of the $396 billion in total write-downs.

• Matthew Tannin and Ralph Cioffi, two former Bear Stearns Cos. Inc. (BSC) managers, were arrested yesterday (Thursday) on securities fraud and other charges linked to the collapse of a hedge fund that bet heavily on subprime mortgages before the market collapsed, The Associated Press reported. The FBI announced Thursday that it had arrested about 300 real estate industry players since March.

• Transocean Inc. (RIG) said yesterday (Thursday) that BP PLC (ADR: BP) extended an ultra-deepwater drilling contract for five more years, The Associated Press reported. The extension for the semi-submersible vessel GSF Development Driller II begins in November and is expected to generate up to $1.06 billion in revenue over the life of the contract.

• Bank of America Corp. (BAC) expects to complete its acquisition of mortgage lender Countrywide Financial Corp. (CFC) by July 1, a source familiar with the matter told Reuters yesterday (Thursday). Bank of America has agreed to pay about $4 billion for Countrywide.

Mexico Freezes Food Prices; FedEx Doesn’t Deliver Earnings, Dow Drops Below 12,000; Bear Stearns Execs to be Indicted; Somanetics Reports Healthy Profit; LinkedIn’s Loot; More Cut-Backs for Delta; Gas Guzzler Price Decline

• Mexican President Felipe Calderon announced yesterday (Wednesday) that the government will freeze the prices of more than 150 basic foods, a bid to quell inflation. The freeze was immediately effective and will last until the end of the year, Reuters reported.

• FedEx Corp. (FDX) posted a fiscal fourth-quarter loss yesterday (Wednsday), as rising fuel prices and weak domestic demand hampered the Memphis-based shipping business. The company posted a loss of $241 million, or 78 cents a share, compared with profit of $610 million, or $1.96 a share, in the year-earlier period, MarketWatch reported.

• Stocks tumbled yesterday (Wednesday) with the Dow Jones Industrial Average Index briefly dipping below the 12,000 mark for the first time since mid-March. "I think the 12,000 level is probably more psychological than anything else, but in reality for the general investing public, crossing below that threshold is going to be a big headline grabber and runs the risk of pulling down sentiment," Craig Peckham, market strategist at Jefferies & Co. told the Associated Press.

• Two Bear Stearns Cos. Inc. (BSC) hedge fund managers are expected to be indicted for securities fraud in connection with a fund tied to the subprime lending market, CNBC reported. According to the report, the U.S. Attorney’s Office for the Eastern District of New York has its sights set on Ralph Cioffi and Matthew Tannin, who ran the two Bear Stearns hedge funds that imploded and signaled the start of the subprime crisis.

• Medical device maker Somanetics Corp. (SMTS) said yesterday (Wednesday) that its fiscal 2008 second-quarter profit rose 27% on a jump in sales of the company’s patient-monitoring systems, the Associated Press reported. The company earned $3.1 million, or 21 cents per share, compared with profit of $2.4 million, or 17 cents per share, a year ago. Revenue was up 40% from $9.1 million to $12.7 million.

• LinkedIn Corp., a social-networking Web site, announced yesterday (Wednesday) that it had raised $53 million in venture capital, currently valuing the firm at around $1 billion. The site, which targets business and professional users, had 8.7 million unique users in April, MarketWatch reported.

• Struggling carrier Delta Air Lines Inc. (DAL) announced yesterday (Wednesday) that it would further reduce capacity by 13%, more than originally anticipated. Citing high jet fuel prices and costs associated with the Northwest Airlines Corp. (NWA) merger, Delta said reductions would begin in the second half of the year in a regulatory filing, Bloomberg News reported.

• Used car wholesaler CarMax Inc. (KMX) reported yesterday (Wednesday) that retail prices for used trucks and sport utility vehicles dropped 25% for its fiscal quarter ended in May. “It’s the longest-lasting depreciation of any segment we have ever seen, and I don’t know when it will turn,” CarMax Chief Executive Tom Folliard said, DowJones reported.

Goldman Beats Expectations; Rebate Checks Boost Best Buy; Hershey Looking Long Term; InBev’s CEO: Take it or Leave it; Canadian Solar Heats up Outlooks; Computer Design Bid; Wal-Mart Pares Back Spending; Crude Dips from High on Supply & Demand

• Goldman Sachs Group Inc. (GS), the world’s largest investment bank, said yesterday (Tuesday) that second-quarter earnings fell about 10%, but still managed to beat Wall Street expectations on higher fees from asset management and stock underwriting. The company reported a profit of $2.05 billion, or $4.58 per share, for the three months ended May 30 compared to $2.29 billion, or $4.93 per share a year earlier, the Associated Press reported. Revenue fell 7% to $9.42 billion from $10.18 billion a year earlier.

• Best Buy Co. Inc. (BBY) said first-quarter profits dropped 7% but government rebate checks gave revenues a welcomed boost. Net income dipped to $179 million, or 43 cents per share, from $192 million, or 39 cents per share, the Associated Press reported. Revenue jumped 13% to $8.99 billion from $7.93 billion. Analysts expected $8.57 billion.

• The Hershey Co. (HSY) cut its long-term earnings growth target yesterday (Tuesday) and outlined a plan to boost its brands in the United States with more advertising and product development Reuters reported. The company stood by its 2008 earnings forecast and said it expected profits to increase in 2009.

• Perhaps jaded by the boardroom drama surrounding Google Inc. (GOOG) and Yahoo! Inc.’s (YHOO) merger, InBev NV Chief Executive Carlos Brito said that his company’s $65-a-share offer for Anheuser-Busch Companies Inc. (BUD) is the highest it would bid. Brito was in Washington to meet Sen. Claire McCaskill (D-Mo.), who told Brito outright that she would do everything in her power to block the sale, Reuters reported.

• Shares of Canadian Solar Inc. (CSIQ) moved more than 11% yesterday (Tuesday) as the company raised its 2008 revenue outlook from its earlier estimate of $650 million to $750 million to $750 million to $870 million. The company also boosted its output outlook from between 200 megawatts (MW) and 220 MW to 230 MW to 260 MW.

• Cadence Design Systems Inc. (CDNS) made its $1.6 billion cash offer for Mentor Graphics Corp. (MENT) public yesterday (Tuesday), some seven weeks after its initial private bid. Cadence’s offer includes $16 per share and taking on $69 million of Mentor’s debt, MarketWatch reported.

• Wal-Mart Stores Inc. (WMT) announced yesterday (Tuesday) that it had lowered its capital expenditure forecast for the current fiscal year, Reuters reported. Wal-Mart lowered its forecast for the fiscal year ended Jan. 31, 2009 to $13 billion – $14 billion, down from its previous estimate of $13.5 billion – $15.2 billion as the retail giant cut back on planned supercenter sites.

• Crude oil for July delivery closed at $134.01 a barrel yesterday (Tuesday) on the New York Mercantile Exchange, MarketWatch reported, after having hit a new intraday trading high of $139.89 on Monday. Continued concerns about the effect a weak U.S. economy could have on demand as well as a promise of increased production from Saudi Arabia put downward pressure on prices.