Ford Shares Rising on Rumor

(Headlines - scroll down for full stories)
1. New Home Sales Drop 4.3% in July
2. Big-Ticket Orders Down
3. Ford to Go Private?
4. Drug Funds Spike on Glaxo News

1. New Home Sales Drop 4.3% in July

Sales of new homes dropped in July by the largest amount since February while the inventory of unsold homes climbed to a record high.

Piling on more proof that the housing boom is over, the Commerce Department reported Thursday that new home sales fell by 4.3 percent last month to a seasonally adjusted annual sales pace of 1.072 million units. The decline was the largest since an 11.5 percent plunge in February.

Sales of both new and existing homes set records for five consecutive years as the housing industry enjoyed a boom powered by the lowest mortgage rates in four decades. But rates have been steadily rising this year as the Federal Reserve tightens credit conditions as a way to slow the economy and keep inflation under control.

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Analysts expect home sales to drop by some 10 percent this year.

In other economic news, orders to U.S. factories for big-ticket manufactured goods fell 2.4 percent in July as demand for aircraft and automobiles weakened.

And the Labor Department reported that the number of Americans filing claims for unemployment benefits last week slipped by 1,000 to 313,000.

Prospective home buyers have turned cautious about making such a big-ticket purchase as mortgage rates have gone up and uncertainty has risen over whether the economy and job creation will keep slowing, analysts said.

The government reported that the median price of a new home was $230,000 in July, down from $233,800 in June and up from $229,200 a year ago.

The data follows another report Wednesday that also provided evidence of how much the once-sizzling housing market has cooled. Sales of previously owned homes dropped 4.1 percent in July from June to a 2 1/2-year low, while the inventory of unsold homes climbed to a record high, the National Association of Realtors reported.

The report rattled investors and pushed stocks lower Wednesday on Wall Street. The Dow Jones industrials lost 41.94 points to close at 11,297.90.

New orders for durable goods decreased by $5.3 billion last month, the Commerce Department said. The 2.4 percent decline, which followed two straight monthly increases, was a poorer showing than the unchanged level that analysts had expected.

Much of the weakness came from a 9.6 percent drop in demand for transportation equipment, which included a 10 percent decline in new orders for commercial aircraft and parts, and a 7 percent fall in orders for motor vehicles and parts.

U.S. automakers continue to struggle with lagging sales in the face of rising gasoline prices, which have cut demand for previously popular models such as sport utility vehicles.

Analysts believe that output in the manufacturing sector will rise in coming months but at a slower pace than before, reflecting an economy that is slowing under the impact of surging energy prices, rising interest rates and a cooling housing market.

For July, orders for durable goods - items expected to last at least three years - totaled $212 billion, a decline of $5.3 billion from the June level.

Excluding transportation equipment, orders were up 0.5 percent in July.

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2. Big-Ticket Orders Down

Orders for durables goods, manufactured items expected to last three years or more, fell 2.4 percent in July. Orders totaled $212 billion, a decline of $5.3 billion from a month earlier.

This is the first drop in durable goods orders since May when orders fell 0.3 percent, says the Commerce Department. The consensus estimate of analysts polled by Reuters was a drop of 0.5 percent.

Analysts are blaming the weakened housing market on the fizzling demand for durable goods, says the Washington Post.

"Prospective buyers have turned cautious about making such a big-ticket purchase as mortgage rates have gone up and uncertainty has risen over whether the economy and job creation will keep slowing," reports the Post.

In addition, with new and existing home sales cratering in July, fewer homeowners are buying new appliances and furniture.

Transportation orders, including aircraft and automobiles led the index down. The demand for transportation equipment declined 9.6 percent overall. New orders for commercial aircraft fell 10 percent and orders for motor vehicles and parts dropped 7 percent. Excluding transportation, durable goods orders rose a paltry 0.5 percent.

The decline in demand for durable goods is more evidence of a slowing economy. This will give the Fed more reason to hold off raising rates at its next meeting.

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3. Ford to Go Private?

Shares in Ford Motors have been rising in the wake of reports that Ford Motors might be considering going private, according to The Wall Street Journal.

USA Today has reported that, in order to buy some time to restructure and salvage its operations, the Ford family - which owns 5% of the automaker's outstanding shares, and controls 40% of the company by way of a separate class of stock - is thinking about privatization.

The paper cites a source close to the situation, who says, "The family is willing to look at anything," said the confidential source. "A lot of different scenarios are being gamed out." That could include selling off some of Ford's unsuccessful brands, cutting more workers and shutting down factories - or even partnering with another competing manufacturer.

Thomson Financial says that close to 600 banks or investment firms have a stake in Ford, while some 790 mutual funds also own a piece, according to the article. "The biggest benefit to taking it private is just not having to answer to all the external stakeholders they have to answer to today," Kevin Reale, an analyst with AMR Research, tells USA Today.

Ford shares are exceptionally undervalued, according to the paper, and its market cap is $14.5 billion - which accounts for only 25% of the much smaller DaimlerChrysler.

" ‘The assets are tremendously undervalued,' said David Cole of the Center for Automotive Research. A private equity firm could be eyeing a future share price of $20 to $40, he said," USA Today reports.

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4. Drug Funds Spike on Glaxo News

Drug stocks jumped on news today that European drug-manufacturing giant GlaxoSmithKline has signed to enter into a collaborative deal with American biotech firm ChemoCentryx.

Glaxo, which gained 2% to hit $54.86 today, would give ChemoCentryx an upfront payment of $63.5 million - in cash and equity investment in the company - to enter into the drug-discovery agreement, according to Reuters.

"The deal will focus on developing therapies based on chemokine and chemoattractant receptors for the treatment of a variety of inflammatory diseases. It will also include Traficet-EN, a product in late-stage development for inflammatory bowel disease," according to MarketWatch.

If the venture succeeds and certain achievements are made, Glaxo could end up paying out as much as $1.5 billion "in milestone payments and research funding to the privately owned group."

The news sent the Amex Pharmaceutical Index up 0.4% to 345.22, while the Amex Biotechnology Index moved up 0.6% to 655.74.

ChemoCentryx is considering an initial public offering, and Glaxo may be part of it, Reuters says.

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Editor's Notes:

Sir John Templeton, the noted investor, first warned of a major housing crash 18 months ago. Find out what Sir John said and how you can protect your wealth today. Go Here Now.
Learn how you can hedge your portfolio against a slowing economy. Go here now.
Discover how you can outperform stocks by 500% this year with one of the safest investments available. Go here now.
Biotech companies are set to take off as 77 million baby boomers near retirement. Go here now.
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