Week in Review Part II: Street Bytes

Due to the timing of this column, there isn’t time to go into a lot of yearend numbers, but it is a convenient end to the year in other respects. For the week,

however, the Dow Jones and S&P 500 lost 0.6% and Nasdaq declined 0.5%. And I did see that according to Bloomberg and the Financial Times, about $6.3 trillion in market cap was erased from global markets this year, about 12%. Many European and Asian markets did far worse than the U.S., to say the least.

McDonald’s, by the way, was the best performer in the Dow, up 31%, while Bank of America was the worst, down a sickening 58%.

U.S. Treasury Yields

12/31/10
6-mo. 0.18% 2-yr. 0.59% 10-yr. 3.29% 30-yr. 4.33%
12/31/11

6-mo. 0.06% 2-yr. 0.24% 10-yr. 1.88% 30-yr. 2.89%

If you nailed this one for 2011, step to the head of the class. [I stayed out of the prediction game when it came to Treasuries.]

Holdings of U.S. Treasuries by foreign central banks fell a record amount this month, according to the Federal Reserve; $69 billion worth, which obviously didn’t hurt the Treasury market any. To be fair, however, Japan’s buying dollars and selling yen during the past few months aided the Treasury market greatly, so the drop in foreign holdings would have been far more pronounced had it not been for our buddies who gave us Godzilla and Mothra.

Hong Kong’s Hang Seng Index finished the year down 20%. China’s Shanghai Composite was down 21.7%. HSBC’s estimate of China’s PMI for Dec. is 48.7, a second straight month of contraction. The government’s official reading comes out Jan. 1.

Japan’s industrial production fell 2.6% in November over October, with retail sales down 2.1%. Consumer prices also fell, 0.2%, from a year ago. Deflation is once again part of the discussion here.

I do have to add regarding Italy, one massive problem Mario Monti faces is tax evasion, a la Greece. So he’s trying to cut down on the use of cash, severely limiting the maximum allowed to be used for big ticket items, for example. Italians don’t use credit cards like we do because merchants give them discounts on cash purchases, which they can then hide from their books.

The best jobs program the Obama administration has come up with was the just completed agreement to sell 84 top-of-the-line F-15SA fighter jets to Saudi Arabia, as well as refurbishing 70 F-15s currently in the kingdom’s fighter fleet. According to U.S. officials, the production of the Boeing built F-15s will support 50,000 American jobs.

Do you ever just stop to wonder about the global defense industry? Isn’t it kind of amusing? Heaven forbid true world peace ever broke out. Some countries would go spiraling into depression.

[Check out my current “Hot Spots” column…a speech by Sen. John McCain addressing the current state of affairs with defense spending in this country.]

Shares of Sears Holdings were at $94.80 on Feb. 17. This week they finished at $31.80.

James Covert of the New York Post summed it up:

“If you think Sears and Kmart stores look depressing, check out the stock price of the company that owns them.”

Sears announced that same-store holiday sales dropped over 5% and that it would close 120 locations. The day of the announcement, Tuesday, shares dropped 27%, the biggest plunge since the company was formed in 2005, when hedge-fund billionaire Eddie Lampert merged Sears with Kmart. Famed investor Bruce Berkowitz’ Fairholme Fund owned 14.5 million shares, as of Aug. 31, at an average price of $79.80. Yuck.

I know I haven’t been into either store in quite awhile. I think I was in a Kmart in Spearfish, South Dakota, about four years ago. But that’s it. A key going forward is how vendors treat the stores. If they stop shipping or start insisting on cash up front, that could spell an end to both and it would happen rapidly.

You know what I’ve discovered, though…Dollar Tree. I didn’t even know there was one nearby until a friend suggested I buy some supplies there for my recent high school reunion. I mean this week I got 100 tea bags for $1. Picture frames for a $1 each that would cost me $9 to $12 at Bed, Bath & Beyond or CVS, two of my regular haunts. Bathroom/shower cleaner for $1 that would have set me back $5 or $6 elsewhere…and the stuff really works! And a can of beef stew for a $1 that costs far more at the grocery store. Granted, I haven’t tried the stew yet, and I did see on the label it had enough salt in it to take care of most major roads in my area during the next snowstorm, but still, not bad. [I’m told it will snow again…really.]

Oh, by the way…shares in Dollar Tree finished the year at $83, off the 52-week high of $84.35 set this week and up from the low of $48. Quite a contrast to Sears. And guess what? I did eat the stew tonight. [The column is put together in pieces, you see.] I put dollops of Tabasco Sauce in it and for a $1, it was highly edible. Six hours later I feel fine…no signs of botulism, diphtheria or whooping cough, for starters, though I can’t tell what the 42 pounds of salt is doing to my system.

Depending on your television market, this time of year many of us are bombarded with a certain car commercial. Christopher Caldwell had a funny take in the Financial Times.

“For the past couple of years, Lexus has run television ads suggesting ways for people to give their loved ones cars for Christmas. There is something obscene about these spots, which promote something called the December to Remember Sales Event. (Why it’s not called the Grind-the-Faces-of-the-Poor Sales Event is anyone’s guess.) The giving of the gift usually involves some elaborate consumer goods equivalent of a striptease or treasure hunt to heighten the atmosphere of materialism. Someone gets the present of a smart phone, for instance, which has the picture of a new car programmed on to it. Maybe next year, the cars will come with GPS directions to a newly bought country estate. Just an idea.”

Speaking of car sales, during the peak for the auto industry, 1999-2006, there were about 17 million vehicles sold each year in the U.S. At the depths of the recession that then dropped to a 10.6 million vehicle pace, but at least this year should come in around 13 million and do better in 2012, perhaps 14 million.
College still pays off…according to ConvergEx Group’s Sarah Millar (and the Los Angeles Times), “The average take-home pay of college graduates is nearly twice that of their high school counterparts - $38,950 vs. $21,500…(but)…

“Students shelled out an average of $73,500 in tuition payments over the last four years. And when considering that a young person could have earned a cumulative $84,500 straight out of high school over four years, the college graduate is $158,000 in the hole. Add in the interest on student loans, and the student’s deficit can top $200,000.”

Libya’s state oil operation said it is pumping “more than a million” barrels a day, not far from the 1.6 million pace back in January, before the uprising began. I have to admit this is better than I would have believed.

Monday was Boxing Day in Britain, the biggest shopping day of the year, and prices of many items were reduced 75%. I’m no Einstein, but that can’t be great for margins.

There are about 4.7 million people in Ireland. Knowing that, consider this…from Craig Hughes of the Irish Independent:

“More than 100,000 heavily indebted people are being forced to use legal moneylenders, who charge exorbitant interest rates, in order to obtain lending as other financial institutions continue to turn them away.

“Internal documents obtained by the Sunday Independent from one of Ireland’s largest moneylenders show the company has more than 100,000 customers nationwide – and with 46 other licensed moneylenders in the business, the overall figure is much higher.”

So I read and reread and reread the following:

“Many legal moneylenders charge a maximum interest rate of 157.3 percent APR and many of them are making huge profits.”

Ya think? As noted in my opening, Ireland is far from out of the woods. I have some friends over there I’m now wondering about in a totally different light. I know they are in trouble. I just hope not this bad.

A good friend of mine, who needs to go initial-less, writes investment reports for money managers, many of whom significantly underperformed the market this year. So a popular phrase my friend said he’d be using is “macro issues trumped underlying fundamentals” in explaining away a year that was the height of blowdom. OK, that last one is mine, but you are welcome to use it, kids.

Morgan Stanley will be shedding 580 of a previously announced cut of 1,600 jobs in New York City.

San Francisco’s minimum wage will rise to $10.24 an hour on Jan. 1, the highest in the country and the first to mandate double-digit hourly wages for its lowest-paid workers.  The federal minimum, however, is $7.25 and many of San Fran’s smallest businesses say the extra amount will force them to lay off workers, particularly in the restaurant industry.

According to an analysis of congressional disclosure forms by the Washington Post:

“Between 1984 and 2009, the median net worth of a member of the House more than doubled, from $280,000 to $725,000 in inflation-adjusted 2009 dollars, excluding home equity.

“Over the same period, the wealth of an American family has declined slightly, with the comparable median figure sliding from $20,600 to $20,500, according to the Panel Study of Income Dynamics from the University of Michigan.”

You’ve gotta love the New York Post. From Josh Kosman and Kaja Whitehouse:

“A horny Mark Hurd – who tried again and again to bed a buxom Hewlett-Packard contractor – forked over more than $1 million of his personal fortune to keep the sordid details under wraps, The Post has learned.

“The size of the payout, which hadn’t been previously known, comes as Hurd lost a legal battle to keep an explosive letter detailing his advances toward the contractor, Jodie Fisher, under court seal.

“ ‘So, you’ll stay the night, right?’ the randy former HP chairman and CEO begged Fisher while sitting on a love seat in her Ritz-Carlton hotel room during a 2007 business trip. ‘You’ll stay?’

“According to the letter, a shocked and horrified Fisher shot back at the married-with-kids executive, ‘Absolutely not. I barely know you and you are my boss.’”

Hurd is now co-president at Oracle and the women there are terrified…just my guess. Of course this same guy is also one of the more overrated executives on the planet.

The U.S. commercial airline industry has not experienced a passenger death in four of the last five years; the exception being the Colgan Air disaster near Buffalo on 2/12/09 that left 50 dead (and was a case of gross pilot error and negligence).

Online gamblers (of which I am not one because I already gamble in the stock market) are raising a toast this New Year’s to the Obama Justice Department for reversing a long-held policy and potentially opening up opportunities for states to legalize Internet poker and other forms of online gambling. There’s still a long ways to go as the states now have to form compacts with one another to allow bets between them. But the door is open.

Gold is down 19% from its Sept. 6 intraday high of $1,923 an ounce. Silver is down 44% from its high of $49.84 on April 25.   To a large extent the slides in both are about investors selling to make up for losses elsewhere and concerns over sustainability of demand in India and China, as well as the dollar/euro machinations that influence commodities in general. That said, gold finished up in 2011 for an 11th straight year, advancing 10%, while silver lost 10%.

“Incredibly Stupid Research Statement of the Year Award” goes to Goldman Sachs. In a report on emerging markets, specifically the BRICs – Brazil, Russia, India and China – Goldman projects that economic growth in these four “may fall to about 4 percent by 2050 as working-age populations dwindle,” as reported by Bloomberg. 2050?! Why the heck would anyone pay the least bit attention to a forecast for 2050? Oh well, whoever is responsible is at least employed and helping pump up the economy.

In one of the dumber corporate moves of the year, Verizon Wireless attempted to charge customers a $2 “convenience fee” for those who pay their bills online. Rival AT&T charges customers who use a representative to handle a payment by phone or in stores, which makes sense (I guess), but there is no charge for paying online or through an automated pay system over the phone.

But after a 24-hour uproar, Verizon backed down, its tail between its legs. “Bad Wireless Provider. Bad Provider.” And then you take the responsible exec’s nose and rub it on a computer screen so that he learns never to do this again.

Hollywood ticket sales are expected to finish the year down 4% from 2010. In terms of domestic attendance, the year will see about 1.28 billion, down from 2002’s peak of 1.6 billion. [Attendance is actually at its lowest level since 1995] I haven’t been to a movie since the last ‘Lord of the Rings’ flick, and I bet my next one will be when “The Hobbit” is released in December. [I buy a lot of movies, though. Think I’m gonna watch “Rise of the Planet of the Apes” on New Year’s.]

The box office in China, however, is skyrocketing, up more than 30% in 2011, as China is now the world’s third-biggest movie market behind the U.S. and Japan. [Rentrak Corp. / Los Angeles Times] The most popular flicks in China were all U.S. productions, with the highest grossing being “Transformers: Dark of the Moon.”

Book sales were down 9% in 2011, according to Nielsen BookScan, compared to a drop of 4% in 2010, and 3% in 2009. Sales of mass market paperbacks fell 23%. Adult hardcover books were down 10%, very bad because this is the most profitable category.

But, no word on e-book sales, which offer some hope for the industry. [Crain’s New York Business…still one of the best weekly publications around.]

To drive a taxi cab in New York City, you need a medallion, which is a metal plate attached to the hood. They can be pricey. How pricey? Try $1 million, according to the latest auction. And as noted by the New York Post’s Paul Tharp, the price of one is up 400% the last decade, medallions going for $199,000 in 2001. The S&P 500, on the other hand, is at the same level it was in October of 1999.

Oh baby…Wendy’s is adding foie gras burgers to the menu. A fast food chain after my own heart. Only one thing…this is only for its reintroduction in Japan after leaving the country in 2009. Well, I could use some of my stash of frequent flyer miles and jet over there for a few “Japan Premium” sandwiches, selling for $16, but that may be a bit over the top, like Christopher Caldwell’s comments on the Lexus ads.

Inflation Alert: Americans who are not members of the New York Road Runners will see their New York City Marathon fee rise from $195 to $255 in 2012. The NYRR cites rising costs, like for closing the streets and providing medical care. NYRR members will also see a $60 rise to $216.

Michael Hiltzik / Los Angeles Times:

“I don’t ‘hate the iPad,’ like the sizable cadre of bloggers given to proclaiming their distaste online. I’m merely indifferent to its supposed virtues, as I am to many other cultural phenomena I’m expected to find fascinating, like Ryan Seacrest and Pippa Middleton.”

Hiltzik’s issues “fall into three categories: its poor screen resolution, its lack of a decent input mechanism and Apple’s totalitarian approach to its App Store.” I take issue with his dissing of Pippa.

For CNBC viewers…Claire Atkinson / New York Post:

“Out with the old, in with the new. CNBC’s been saying goodbye to a lot of staff in the last few months. CNBC Europe chief Mike Buckley, who’s been on the job for the past eight years, is exiting, as is London correspondent Guy Johnson [Ed. he was good], who’s joining Bloomberg TV.

“Anchors Melissa Francis, Erin Burnett and Trish Regan all departed this year after running headlong into the glass ceiling known as Maria Bartiromo, the longtime anchorwoman.

“Some former staffers are dubbing the changes a ‘brain drain’ and speculating that CNBC’s grizzled M&A reporter, David Faber, might be ready for a new challenge.”
I like Faber. I’m switching stations if he leaves.

One of the new guys, Brian Sullivan, is incredibly irritating. Andrew Ross Sorkin, on the other hand, was a good hire. Giving Herb Greenberg more air time was also a good move. Joe Kernen’s act, though, has grown tiresome. But Amanda Drury rocks! [I’m holding back on Maria. Not a fan.]

My portfolio: USA TODAY had a number of articles this week on the issue of China companies listing in the United States and the lack of success, coupled with fraud, in some cases. Some of us believe that when the story goes so mainstream (though one of the articles was very well done…Kevin McCoy and Kathy Chu the reporters, if you want to look it up), we are certainly at or near the bottom for those legitimate operations that have been thrown out with the bath water…or in the case of China, toxic milk. It’s going to be a very interesting year on this front, especially for moi. Will the good companies finally rise anew given the uncertainty concerning the overall Chinese economy? And when will the articles finally come out recognizing the legitimate Chinese stock stories? I’m not aware of a single one on this front, at least from the mainstream press.