(Headlines - scroll down for full stories)
1. Soros Takes Stakes in Retail Companies
2. Job, Wage Gains Beat Expectations
3. Fed's Minehan: Inflation Still a Concern
4. Freddie Mac Predicts 3Q, 4Q Losses
1. Soros Takes Stakes in Retail Companies
Billionaire investor George Soros is buying up positions in the retail sector,
according to the New York Post.
The Post reports that hedge fund Web site Stockpickr.com says Soros bought stock
in J.C. Penney's, Kohl's, and Target. MoneyNews readers will recall that
billionaire Warren Buffett bought a 5.5 million Target shares in the second
quarter, and owns about 20 million shares of Wal-Mart. But unlike Buffett, the
Post says Soros' investment is more opportunistic than a value play.
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"Many of these companies are very cheap," says Stockpickr Chief Executive
Officer James Altucher. "[Penney's] for instance, is just trading for eight
times free cash flow. It's potentially a buyout candidate, along with many of
the other stocks Soros is buying."
Soros' hedge fund bought relatively small stakes in the companies: 276,600
shares of J.C. Penney's, 302,5000 Kohl's shares, and 326,100 shares in Target.
Editor's Note:
2. Job, Wage Gains Beat Expectations
Employers added 167,000 new workers to payrolls in December, keeping the
unemployment rate at a historically low 4.5 percent.
They also bumped up paychecks, fueling fears that the Fed may hike interest
rates.
Analysts had been expecting an addition of just 115,000 new jobs, but the
unemployment rate remained unchanged as predicted. The number of new jobs added
was the highest since September.
The healthy addition of jobs indicates that the economy isn't in terrible shape.
But it's a tale of two cities so to speak. Job gains in the education and
health-care, business services, financial firms, and leisure and hospitality
industries outweighed losses in construction, manufacturing, and retail.
Clearly, the slowdowns in the auto and housing sectors are resulting in job
losses, but they haven't yet spread into other industries.
"The manufacturing side of the economy may be weak, but the rest of the economy
is strong and that suggests that we're probably going to see continued good
economic growth in the months ahead," Gary Thayer, chief economist for A.G.
Edwards and Sons, tells Reuters.
Wages jumped 0.5 percent in December compared to the month before. That
beat analyst estimates of a 0.3 percent increase. Average hourly earnings rose
to $17.04.
However, wage increases are a double-edged sword. They're obviously good for
workers, and help the economy by boosting consumer spending. However, wage gains
put fear in the heart of the stock market because they raise inflation flags at
the Fed. The Fed said at its last meeting that the fear of inflation outweighs
the fear of an economic recession. If wages continue to pick up, look for the
Fed to tighten rates once again.
"Without a doubt, the wage picture will be regarded as threatening by Fed
hawks," said Pierre Ellis, senior economist with Decision Economics, to Reuters.
Editor's Note:
3. Fed's Minehan: Inflation Still a Concern
The U.S. economy will likely pick up again this year while price pressures ebb,
but inflation remains a challenge for policy-makers, Boston Federal Reserve Bank
President Cathy Minehan said on Friday.
While there were risks to both growth and inflation, she said she remained
cautiously optimistic.
"I expect U.S. economic growth to accelerate slightly this year, unemployment to
remain low and price pressures to ease a bit," she told a business association
conference in Hartford.
"Inflation has been and remains a challenge, though recent data provide a bit of
assurance that price pressures may be beginning to ebb," she said.
While prices seemed to ease a bit in November, core consumer price index for the
12-month period remained close to its third-quarter high, "suggesting inflation
may be slow to taper off," she said.
As such, the Fed should keep its focus on containing inflation.
"Managing the risks around that seems to me to be the key issue facing the
central bank at this juncture," she said.
Minehan said the economy seems to be on track to achieving a so-called soft
landing and growth is likely to pick up again this year.
Fed officials raised interest rates steadily until June as they aimed for a
"soft landing" in which economic growth slowed enough to curb price pressures
while avoiding a recession.
Minehan said she expected continued moderate growth into 2007 at or slightly
below potential after around 2 percent growth in the last quarter of 2006. She
said she expected growth to pick up further in 2008.
Unemployment would likely remain below 5 percent, she said.
Government data on Friday showed a surprisingly strong jobs market, increasing
prospects that the Fed would remain on hold for some time.
U.S. Treasury debt prices tumbled after the jobs report, pushing yields up from
one-week lows.
The U.S. economy added 167,000 jobs in December, well above the 100,000 new jobs
Wall Street economists had forecast. The unemployment rate was unchanged from
November at 4.5 percent.
Average hourly earnings climbed 0.5 percent in December, the largest monthly
increase since a 0.6 percent jump in April.
On risks going forward, a deeper rout in the housing market which hits consumer
spending could pull down growth, but that scenario was unlikely as there were
signs the worst in the housing slump could be over, Minehan said.
Employment trends remain solid while equity markets were upbeat, she added.
Minehan declined to comment directly on the direction of interest rates. She
will be a voting member of the policy-setting Federal Open Market Committee
this year.
© 2007 Reuters.
Editor's Note:
4. Freddie Mac Predicts 3Q, 4Q Losses
Home-mortgage financier Freddie Mac said Friday it expects to report losses for
the third and fourth quarters of 2006, citing interest rates declines.
The government-sponsored company, emerging from a multibillion-dollar accounting
scandal, forecast a loss of about $550 million for the third quarter, compared
with a profit of $880 million in the third quarter of 2005. During the most
recent July-September period, long-term interest rates declined by about half a
percentage point.
A $550 million loss for the third quarter would be in line with analysts'
expectations. For the fourth quarter, Freddie Mac also expects to report a loss,
which company officials did not specify. Financial results remain volatile from
quarter to quarter, they said in a conference call with analysts.
Freddie Mac, the second-largest financier of home loans in the country, also
estimated that its net income would be $2.5 billion for the first nine months of
2006, up from $1.4 billion for the same period in 2005.
Returning to timely reporting of financial results is the company's highest
priority, the officials said. Freddie Mac plans to release results for 2006
before the end of the first quarter as it works on correcting problems with
internal financial controls and accounting. But the company doesn't expect to
resume regular quarterly reporting of results before the second half of the
year.
"We're making good progress," said Richard Syron, the company's chairman and
chief executive. "There's no question we still have a great deal to do, but I'm
confident we're headed in the right direction."
McLean, Va.-based Freddie Mac disclosed in June 2003 that it had misstated
earnings by some $5 billion — mostly underreported — for 2000-2002 to smooth out
volatility in profits and uphold its image on Wall Street as a steady performer.
The accounting crisis brought the ouster of Freddie Mac's top executives,
including then-CFO Vaughn Clarke. The company paid a then-record $125 million
civil fine in 2003 in a settlement with federal regulators, who blamed
management misconduct for the faulty accounting.
Freddie Mac's income fell to $2.1 billion in 2005 from $2.9 billion in 2004 as
it paid to settle a lawsuit by shareholders and took charges related to
Hurricane Katrina. The $600 million or so of costs it incurred also stemmed from
accounting changes. Earnings per share were $2.75, down from $3.94 in 2004.
Freddie Mac and Fannie Mae, its larger sibling in the $8 trillion home-mortgage
market, were created by Congress. Their mandate is to pump money into the market
by buying home loans from banks and other lenders, to keep interest rates low
and make home ownership affordable for low and moderate-income people. They
bundle the mortgages into securities for sale on Wall Street.
© 2007 Associated Press.
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