Bristol-Myers

Bristol-Myers Squibb lost 89 million dollars in the fourth quarter. The biggest contributing factor? Generic competition for its Plavix drug? A big payout on a patent dispute? Nah. The culprit was subprime. Specifically losses on rotten subprime investments. Pretty incredible considering Bristol-Myers is a pharma company. This has to be subprime contagion at its best or its worst depending on your viewpoint.

For more on this story, check out my segment on BNN by copying and pasting the following link.

http://broadband.bnn.ca/bnn/?id=2223&vid=29124

Sit tight

Forget the relentless equity market selling in 2008. The single biggest factor in the capital markets right now is volatility. One day the equity markets are up, the next day, markets are down. Yesterday the TSX lost 605 points, its biggest points decline in 30 years. Breathtaking stuff. Today the index gained back nearly all of those losses. Pity the panic-stricken investor that sold near the bottom yesterday and then watched stock prices almost universally recover today. So when markets dive is the only sane advice to sit tight?

"Not as if we got dumb all of a sudden"

J.C. Penney is a storied tale in U.S. retail. Its first store opened in 1902 in Kemmerer, Wyoming. That store is still open for business. But today shareholders had a rough day. The stock dropped 5%. The second steep sell-off in 2 days. The company has already had a terrible couple of months. The shares are down over 40% since March. Today the company spooked investors by sending out a chilling profit warning. Its Q4 profit will be $1.80/shr at the most. Previously the company said it would make $2.41/shr. Ouch! But don’t look to CEO Myron Ullman to take any responsibility for the company’s shoddy performance. He’s blaming everything on external factors. The weather, the funky housing market, high gas prices, Hollywood writer's strike (ok maybe not that one). During the conference call Ullman said “it’s not as if we got dumb all of a sudden”. Now that's eloquent.

Business Buzzkills

There will be a little less holiday cheer this year. According to an executive search firm, 85% of U.S. companies say they will throw a Christmas party this year. In 2006, 95% threw parties. To make matters worse, this year’s crop of parties will likely be less fun. More companies are planning afternoon affairs instead of evening get-togethers. And horror of horrors, less booze will be served. Only 70% of parties will serve alcohol versus 85% last year. What a drag! The grinches are blaming it all on sub-prime. Apparently there is simply less money to throw around this year.

More beer money

The Canadian dollar had quite a day. As of 8am the loonie had busted through US$1.10. But the c-buck actually ended the day around 1.07. A lot of volatility. A lot. BNN assigned me a fun story today. Find out how much more buying power Canadians have now versus a year ago when they go abroad. I decided not to look at buying power in the U.S. That has been well documented in the mainstream media. Apparently wait times to cross the border into the U.S. and get back into Canada are one hour plus. So obviously Canadians already know how much further the dollar takes them these days when they go to the U.S.
But what about Europe and elsewhere? The price of a plate of fish and chips in "Archies Fish and Chips" in North London will cost you approx 15 pounds which is about 30 Canadian bucks. A year ago it would have cost you 35 bucks. The price of a pint of Guinness in "101 Talbot" in Dublin Street, will cost you about 3 Euros and 50 cents. Or about 5 bucks Canadian. A year ago it would have been 5.50 Canadian. Savings in the price of fish and chips and lovely pints all because of how much the loonie has gone up against the pound and the Euro.

Microsoft Stuns The Street

People love to knock Microsoft. Kevin O’Leary, host of BNN’s Squeeze Play recently called its Vista operating system “a piece of junk”. That acrid sentiment is shared by many. Despite reliability issues and problems over compatibility with things like printers, Microsoft saw Windows’ sales increase 25% year-over-year. The quarterly report Microsoft unloaded late yesterday was stunning. On revenue, Microsoft beat estimates by 1.4 billion. Now that’s what I call “blowing away the street”.

Analyst David Garrity of Dinnosaur Securities told me today Microsoft executed almost to perfection in every single business category. Its games division, traditionally its weakest sector made its first profit in 4 years. And Microsoft could only count one week of Halo 3 sales ($300M) which fell in the last quarter. Obviously Halo 3 will bring in hundreds of millions more in sales in the months to come and the full effect on the top line will be felt in upcoming quarters.

Microsoft’s stock leaped in After Hours trading, surged in the pre-market and sustained those gains in the regular session. Suddenly everyone loves Microsoft again. Garrity says this earnings statement proves Microsoft can grow despite its size.

ABCP Mess Not Over Yet

HSBC Securities Canada is being sued for providing poor investment advice to a client. Aastra Technologies says HSBC advised it to buy almost $14M in third party asset backed commercial paper. Up until August, parking your cash in ABCPs was seen as a smart and more importantly safe bet. Now the market is in an actual freeze. Nobody wants to buy new paper. And holders of existing paper can’t cash out. And we’re not talking about an insignificant amount of cash. $35B is at stake here.

I spoke to Montreal lawyer Avram Fishman. He represents some of the holders of this dubious debt. He says investors who hold ABCPs are right to sue because it may be their only hope of getting their investment back. Also some holders of that debt can't afford to hang around for their notes to mature at a later, unspecified date. Investors bought the notes based on short maturity dates (as little as 30 days in some cases). Why should they have to wait longer for their money?
Fishman says more law suits are imminent.