Friday morning headlines

Stocks higher: After three days of good-sized losses, the market appears to be regaining its composure, with the Dow up 38 points after about an hour of trading.

Interest rate worries: A 409-point Dow drop in three days is unsettling, but it's nothing compared with the worries about interest rates. For most of us, that means higher mortgage rates and financing charges. For the private equity boys, it could mean the end of their buyout fun – or at least a slowdown. You see, most of the money they use to snap up companies is borrowed, the theory being that paying off low-interest loans would be offset by the profit potential of whatever it is they're buying. But what if interest rates reach the point where the metrics get all out of whack? Everyone seems to disagree on the scope of the problem - or whether it's a problem at all – but consider this nugget from this morning's p1 WSJ story: Buyout firms and companies plan to raise more than $250 billion via junk bonds and loans in the coming months to fund deals - enough money to buy all the stock outstanding of Wal-Mart Stores Inc. or Citigroup Inc. More from the Journal:

Interest rates aren't the only drag on the action, though. Some of the pension funds that often invest alongside private-equity funds are showing signs of buyout fatigue. In addition, many takeover targets' shareholders are growing more demanding. In several recent cases, they have won out on demands that private-equity firms pay a higher purchase price for their stock.

[CUT]

"Investors right now can't imagine how the LBO [leveraged buyout] boom would end," said Richard Bernstein, a Merrill Lynch stock strategist in a note to clients earlier this week. The combination of rising interest rates and a stock market that has grown more expensive in the past few months, he said, "could do the trick." The buyout boom and the private-equity funds behind it have blown through plenty of tests already -- from worries about the subprime-mortgage meltdown to periods of rising interest rates. At every turn, the firms haven't had problems attracting piles of new money. Indeed, many bankers still say they aren't worried about raising all the funds needed for deals now on tap.

Immigration bill dies: So much for Socal businesses having to deal with new work rules. Senate Majority Leader Harry Reid talks vaguely about bringing back the legislation (is this guy a disappointment or what?), but it seems to be gone with the wind for at least another couple of years, when there's a new administration in power. The Wash. Post's Dan Balz correctly describes last night’s Senate implosion as a "scathing indictment of the political culture of Washington."

The defeat of the legislation can be laid at the doorstep of opponents on the right and left, on congressional leaders who couldn't move their troops and on an increasingly weakened president and his White House team. But together it added up to another example of a polarized political system in which the center could not hold. The partisan blame game was already at fever pitch as the bill was going down yesterday. But to those far removed from the backrooms of Capitol Hill, what happened will fuel cynicism toward a political system that appears incapable of finding ways to resolve the nation's big challenges. If Washington cannot produce a solution to the glaring problem of immigration, they will ask, what hope is there for progress on health care, energy independence, or the financial challenges facing Medicare and Social Security? Iraq is another matter entirely.

Queen Mary resort?: The Long Beach Press-Telegram is reporting that an OC development team is talking about a $22 million refurbishing of the tub, plus hotels, a marina and a City Walk-style shopping center on the surrounding 45 acres. You might recall that the ship had been leased to a company that was forced into Chapter 11. A bankruptcy trustee who has tried to sort out the mess scheduled an auction on the property for mid-August. He even accepted an opening bid of $41 million from O&S Holdings, a Los Angeles firm headed by the founder of Kinko's copy centers. But the city of Long Beach apparently wants to drop the auction plan and just go with the OC group. And for good reason - the OC’ers are offering to resolve all pending litigation with creditors.

Bargain basement pump prices: Not really, but for all the media-induced panic a couple of weeks back the numbers are getting closer to normal. The Auto Club's weekly survey shows The average price of self-serve regular gasoline in the Los Angeles-Long Beach area is $3.333, which is 5.1 cents cheaper than last week, 15 cents below last month, and 1 cent under last year.

Passport update: We've finally found something that gets folks good and riled up: Not getting their passports in time for summer vacation. So the White House will waive new travel restrictions this summer so that passports will not be required for travel to and from Canada, Mexico, Bermuda and the Caribbean (all you need is a driver's license). That requirement is what brought about the crunch in issuing passports. LAT

Macy's keeps struggling: Swallowing May Department Stores Co. (Robinsons-May in Socal) continues to be hard on the digestion. Last month's 3.3 percent decline in same-store sales was way more than analysts had expected and marked the fourth-consecutive month that the results came in below guidance. It's no coincidence either: Macy's began including the former May stores in its numbers in February. As you might imagine, the class-action boys are sniffing around; another suit was filed by investors claiming that Macy's executives artificially inflated the company's stock by concealing problems with the integration of the former May stores. NY Post

Revver woes: How do you compete with YouTube? Video-sharing sites like L.A.-based Revver are learning how hard it is to attract a crowd - and that inevitably means management disarray. CEO Steven Starr is stepping down, the latest in a string of departures that has included the company's cofounders. Kevin Wells, the company's chief operating officer takes over for Starr, who will now serve as Revver's chairman. Revver was no slouch in the funding department; its venture backers include Draper Fisher Jurvetson, and Comcast Interactive Capital. "I think we can all acknowledge that YouTube has won the big prize," said Thomas McInerney, right before he stepped down as CEO of video-sharing site Guba last December. CNET

Port budget approved: The Harbor Commission signed off on a record $1 billion budget for the Port of Los Angeles that will include funds for environmental cleanup, port security and waterfront development in San Pedro and Wilmington. Daily Breeze

Isaiah Washington dumped: The star of ABC's "Grey’s Anatomy" said some stupid things about fellow cast member T.R. Knight, who happens to be gay, and the network apparently decided he was more trouble than he was worth. Washington also got into a snit last fall with Patrick Dempsey, another star of the show. NYT

NBC tries live ads: If you're old enough to remember the "Tonight" show when Johnny Carson ruled the roost, you might also remember his sidekick Ed McMahon plopping down a big bowl of Alpo for some ravenous dog who probably hadn't eaten in three days. It was live TV and it was kind of fun. It also kept viewers in front of their sets. So in this TiVo age, the network is trying it on for size once more - also on "Tonight." Tuesday's broadcast will air a live skit promoting car satellite-navigation devices made by Garmin International. The skit will air immediately before the show goes to commercial break. From the WSJ:

Pressure on networks to deal with TiVo and similar devices -- now in 17% of U.S. homes, according to Nielsen Media Research -- has ratcheted up in the past several months. Nielsen last month began releasing ratings measuring the viewership of commercial breaks, as opposed to the programs. While marketers have long worried about people skipping their ads, Nielsen's new ratings are providing hard evidence of just how much DVRs reduce viewing of their ads. Nielsen's introduction of "commercial" ratings has helped delay "upfront" negotiations for next season's ad time between networks and advertisers, which usually start after the networks present their schedules to advertisers in May. This year, the negotiations have been slow to gain traction. Some media buyers expect the deal-making to pick up steam in the next few days, however.