Weekly Market Report 06-10-2005

Alan Greenspan sees housing bubble

By Rick Paler


It was another slow week for the market. No market moving earnings reports were released and traders looked at both Texas Instruments and Intel’s mid-quarter reports for guidance in the technology sector. Alan Greenspan was in the spotlight giving his insight into the economy, home prices and interest rates, which caused the market to take notice.

It was a very light week for the market new wise. The main story of the week was the release of Texas Instruments and Intel’s mid-quarter reports. First came Texas Instruments (TXN) on Tuesday. The company raised their profit guidance citing rising demand for its microchips. The company now expects to earn $0.27 per share to $0.30 per share. Prior guidance had been $0.25 to $0.29 per share. Revenue projections were also raised to the $3.12 billion to $3.24 billion range.

Then Intel (INTC) also raised their outlook. The chip company now sees revenues coming in at $9.1 billion to $9.3 billion and gross margins of 57%. Analyst had expected revenues to come in at $9.0 billion.

In general news IBM (IBM) shares fell on news that Apple Computer (AAPL) plans to switch to Intel (INTC) chips to power their Macintosh PC’s. The switch could offer the company more flexibility and a likely price savings that could be passed on to consumers.

Troubled General Motors (GM) announced that the company would cut 25,000 jobs in the next three years in an effort to reduce cost. Additionally the company is talking to UAW officials in an effort to reduce their health care cost.

E*Trade (ET) renewed its effort to purchase Ameritrade (AMTD) this week by upping its bid for the company. The new offer stands at $2.0 billion and a 49.5% stake in the new company. The offer might cause problems for Ameritrade’s offer to buy TD Waterhouse from Toronto-Dominion Bank (TD).

Washington Mutual (WM) announced that they will purchase Providian Financial (PVN) for $6.45 billion in cash and stock.

ITT Industries Inc. (ITT) announced that they have “increased confidence” their earnings will come in at the high range of their $1.28 to $1.32 per share guidance. The company cited growth in their water, wastewater and defense business units.

In Economic news, Alan Greenspan had all eyes watching him as he appeared twice this week. Overall he said that “the US economy seems to be on a reasonably firm footing, and underlying inflations remains contained.” He also said that the flat yield curve “is clearly without recent precedent” during a period when the Federal Reserve is raising short term interest rates. Addressing the possibility of a housing bubble Mr. Greenspan said that he does not see a nationwide bubble in housing prices. Adding to that he did state that he does see “signs of froth in some local markets where home prices seem to have risen to unsustainable levels.” He had given similar statements prior to the end of the technology bubble.

Bond yield rose slightly across the yield curve this week as traders digested Mr. Greenspan’s comments and look to the next FOMC meeting that will occur at the end of this month. The 5 year Treasury closed yielding 3.83%, the 10 year ended at 4.04% and the 30 year bond closed yielding 4.32%.

Earnings due to be released next week are from the following companies: Best Buy Co. (BBY), Adobe Systems (ADBE), Goldman Sachs (GS), KB Homes (KBH), and Circuit City Stores (CC). Trades will also anticipate the release of both the PPI and CPI numbers for signs of inflation.