Archive: December, 2009
A proposal by Sen. Bob Casey, D-Pa., shows Democrats are backing off a bit in their attempt to finance student loans "directly" through the government instead of giving the money to private, for-profit lenders like Sallie Mae, FBR Capital Markets analysts Matt Snowling and Bill Jackson tell clients in a report today.
Casey "has submitted a bill" for review by the Congressional Budget Office that would "retain a larger role for private lenders" than previous legislation. "Under the Casey proposal, lenders would originate loans, hold them briefly, and then sell them to the government at par plus a $55 origination fee." The private lender would also get paid to collect loan payments.
Obama hoped to save nearly $80 billion over 10 years by cutting out the middlemen. The Casey bill would save a few billion less, "but would arguably save thousands of private sector jobs," including new Sallie Mae student-loan job centers in influential Rep. Paul Kanjorski (D-Pa.)'s competitive Scranton-area district, and in Delaware.
At this point, "it's a proposal. We have an eye on the jobs, and we're trying to find a middle ground," Casey spokesman Larry Smar confirmed to me.
Casey's bill "has a higher probability of gaining enough Democrats' votes to pass" compared to Obama's plan, FBR concludes.
Pension plans for J.C. Penney, General Motors and Goodrich are among the corporate investors who've been shifting out of stocks and into corporate bonds, under pressure from last year's volatile market and the 2006 Pension Protection Act, which was designed to force employers to fund or cut pension plans so they wouldn't end up having to get bailed out by the Pension Benefit Guaranty Corp. Bloomberg story here.
"Companies in the S&P 500 Index had about $1.1 trillion of assets in their pensions at the end of 2008, compared with $1.4 trillion of liabilities, according to JPMorgan. After last year’s 38 percent plunge in the S&P 500 Index, the worst since 1937, the plans were underfunded by about 22 percent."
How to get out of the hole? First, by not losing more - which means safety, which, to some managers, means bonds: "JPMorgan Chase & Co. says fixed-income holdings will rise 10 percent in the next few years, or about $40 billion of corporate debt. The new money is flowing into investment-grade bonds, which may be overheating after returning 21 percent this year... the most for a comparable period since 1985..."
Would be too bad if pension plans, like some small investors, dumped stocks after the losses, and bought bonds only after the market had started to overload.
"Global demand (is) overwhelming fuel supply for reactors after 2017, potentially driving up costs for Exelon Corp. and Electricite de France SA, the largest reactor operators in the U.S. and Europe," reports Bloomberg News here.
"Fifty-two nuclear reactors are under construction, from China and India to Finland and France, according to an October bulletin from the association. Atomic power is undergoing a revival partly because it produces far fewer greenhouse gases than conventional coal- or natural gas-burning generators."
Exelon looks smart at the moment because Limerick, Peach Bottom and its other uranium generators run cheap (if you don't consider the unsolved problem of what to do with radioactive spent fuel) and don't burn smoky coal or other carbons. But the enriched-uranium market "could be subject to tight supplies by the end of the next decade."
NEW: Thursday-to-Sunday online holiday sales jumped 24 percent, compared to last year, at 50 big online merchants, says Chase Paymentech, a Dallas-based unit of JPMorgan Chase & Co.'s giant Wilmington-based credit card arm.
"We think the season is shaping up pretty well," Aaron Press, director of market analysis, told me. But he's cautious to warn that it's "unclear" if the spike is due to consumer confidence, aggressive discounts, or both. Paymentech processes "more than half" of all Visa and MasterCard online sales for U.S. online merchants. Check out Press's daily report at http://pulse.chasepaymentech.com
EARLIER: "Cyber Monday" online sales zoomed "50%" over last year's level at 100 Web sites (active 13 months or more) managed for major retailers by GSI Commerce, King of Prussia, says marketing boss Kelly Henry. That's triple the 17% increase GSI claimed for sales during the four immediately previous heavy-shopping days, Thursday through Sunday.
Exelon Power says today it plans to "permanently retire Units 1 and 2 at Cromby Generating Station (Phoenixville) and Units 1 and 2 at Eddystone Generating Station, effective May 31, 2011." Statement here.
Exelon keeps moving from fossil fuel to nuclear, from carbon to uranium: As the Inquirer's Andy Maykuth reported Sunday, Exelon is in the process of boosting power output from its Limerick and Peach Bottom nuclear power plants. Story here.
From Exelon's statement: "Following these retirements, Eddystone Station will remain in service, operating six units capable of generating 820 megawatts. Cromby Station will close when its units permanently retire... The four units, all in suburban Philadelphia, are no longer economic to operate and are not required to meet shrinking demand for electricity in the region."
Ron Rubin's Pennsylvania Real Estate Investment Trust shares "trade at a discounted valuation to their peers, which is warranted, in our view, based on the company's ill-timed redevelopment openings and sliver of equity sitting atop a much larger stack of debt... One part equity, nine parts debt," writes Keefe Bruyette & Woods analyst Benjamin Yang in a report to clients.
Yang's target price for the stock is $7, down from the recent trading level of $7 and change, well below other retail REITs, and that's where it belongs, he says. PREIT owns the Willow Grove, Plymouth Meeting, Exton, Gallery, Cherry Hill, Voorhees and Moorestown malls, among others.
More from Yang: "Tenant and occupancy levels are poised to maintain their downward momentum as consumers continue to retrench... PREIT may need to sell its better properties... PREIT could end up selling part of its future growth... Current priorities include extending" PREIT's loan agreements, which are scheduled to expire next Spring, and "will likely be downsized."
BUT: if Rubin can hold on to his best malls until times are better, PREIT "could report turbocharged operating results down the road... when the economy recovers and retailers regain their appetites for expansion... PREIT's shiny new mall space will garner attention... PREIT was also early and active offering strugglign tenants 'percentage of sales in lieu of minimum rent' leasing deals... PREIT could report better intenral growth than its peers in the early stages of a recovery."
Also, the Philadelphia region, where PREIT's malls mostly are, isn't such a bad place to be these days: Shoppers here are less "volatile", given "the absence of a housing bubble" and collapse like the ones that have wrecked Florida, Arizona and California consumer spending. "PREIT may report better-than-average sales growth (or smaller sales declines) for some time, even after housing prices have stabilized, given the deep hole consumers in housing-bubble markets are currently in."
University City Science Center says it's giving Market Street a $4 million "facelift" from 34th to 41st Sts. New sidewalks (they've already chewed up the south side around the 34th St. subway stop) in "dark charcoal" concrete "that'll sparkle in the daytime, it'll sparkle at night, it's really cool," says Curtis Hess, senior vice president for real estate of the college-corporate cooperative that owns, manages and leases blocks of U City office and lab space.
The corners will be dark-brown concrete, also sparkling, with ADA-compliant ramps for wheelchairs and granite curbs. They'll be new "pedestrian scale" streetlights supplementing the city lightpoles. And there'll be bricks, trees, grass in the "amenity strip" along the sidewalks. General contractor is AP Construction.
Half the $4 million will come, via Councilwoman Blackwell, from Restore Philadelphia Corridor program funds, for which city residents and businesses will be making bond payments for years to come. The other half was raised by the Science Center and private property owners, Hess told me.
Comparable online sales jumped 17 percent over the four-day Thanksgiving weekend, reports Fiona Dias, executive vice president for strategy and marketing at King of Prussia-based GSI Commerce, which runs Web sites for Ace Hardware, Dick's Sporting Goods, Ralph Lauren, Toys 'R Us, Zale's jewelers and hundreds of other retailers.
The number doesn't include business from GSI customers who've signed on since last fall, or those who've dropped out.. It counts 100 "webstores" where "the merchant existed 13 months ago and is still in existence," and was a GSI client for at least that long, Dias told me. GSI projects gross merchandise sales through Web sites it runs at $2.5 billion this year.
"'Cyber Monday' (yesterday) was significantly higher than the prior days," but final data's not in yet, she added, projecting it'll also show a jump: "We used to get a big spike at lunchtime. But on Monday we saw people jump online at one, two, three, four in the morning. Then we had a nice midday spike. And it kept going all the way through the night."
What's with that? "We have concluded that people have broadband (Internet) at home," not to mention hand-held Internet phone service, "there's no reason to shop from the office. Though you can."
While millions of Americans are more worried about jobs than high prices, Philadelphia Federal Reserve president Charles I. Plosser today called for boosting today's super-low government interest rates to prevent inflation. The talk was cosponsored by JPMorgan Chase & Co., Rochester Business Alliance, and U of Rochester's Simon business school, where Plosser's a former dean. Read his speech here. Excerpts:
The major impact of policy often comes only after several quarters, or sometimes several years... The economy is now in a recovery... I expect real GDP growth from the fourth quarter of this year to the fourth quarter of 2010 to be about 3 percent. I expect similar real GDP growth in 2011...
Payroll employment will start to rise during 2010 and the unemployment rate will fall by the end of next year... It is likely to take a couple of years before we see the unemployment rate back to more acceptable levels...
Shares of American International Group, down almost $5 yesterday after an analyst said the company's insurance needs will keep it from paying the federal government what it owes anytime soon, gained half of that back this morning after announcing it had reduced its $42 billion debt to the Federal Reserve Bank of New York, "by $25 billion."
How'd that happen? AIG didn't cough up cash. It gave the Fed stock in two subsidiaries: $9 billion worth of Wilmington-based American Life Insurance Co. (Alico), and $16 billion worth of Hong Kong-based American International Assurance Co.
AIG also confirmed Alico is being set up "for an intial public offering or third party sale, depending on market conditions" and subject to state regulators' (and presumably the Fed's) approval. An independent Alico would employ around 400 in Wilmington (corrected) and 11,000 nationally. AIG tried to sell Alico last year but cancelled the sale because of the weak equity markets.