Week in Review Part II: Street Bytes

The Dow Jones’ winning streak was snapped as it fell 0.5% to 12660, after approaching the May 2008 high of 12829, before the crisis, and the April 2011 high of 12811, post-crisis. The S&P 500 eked out a one-point gain, while Nasdaq, riding Apple’s success, finished up 1.1% to 2816. Trading volume this month, by the way, is off 16% from last January’s pace.

[From the Wall Street Journal’s “Heard on the Street” column… “S&P 500 companies are on track to boost earnings by 9.5% year-on-year in the fourth quarter…hardly a catastrophe. But AIG juices the numbers. The insurance giant is expected to post earnings of 62 cents a share, versus a whopping year-ago loss of $16.20. Strip that out and the S&P 500’s earnings growth rate falls to just 2.2%.” And as I pointed out the other day, the earnings outlook for 2012 is plummeting vs. last summer’s expectations for the current year.]

U.S. Treasury Yields

6-mo. 0.08% 2-yr. 0.21% 10-yr. 1.89% 30-yr. 3.06%

The 10-year in particular rallied big time following the Fed’s announcement, as well as another bout of uncertainty over Europe’s debt crisis.

Fiscal revenues soared 24.8% in China last year, just slightly ahead of projected gains of 8%. Spending rose 21.2%. With the added revenues, the government can do all manner of things, like cut taxes, more help for the poor, education, healthcare.

On the GDP front, an adviser to the Central Bank is forecasting 8.5% growth in 2012.

South Korea’s fourth-quarter GDP rose just 0.4%.

Brazil’s unemployment rate hit a record low of 4.7% in December, which augurs well for the 2012 economy there after stumbling in the second half. The government is predicting growth of 4.5% for this year with lower inflation.

Don Lee / Los Angeles Times:

“Germany’s economy looks like that of the U.S. a generation ago.

“In 1975, manufacturing accounted for about 20% of the United States’ economic output, or gross domestic product, about the same as in Germany today. Since then, U.S. manufacturing’s share of GDP has slid to about 12%.

“In 1975, the U.S. budget deficit was a manageable 1% of the economy, about the same as Germany’s now. Last year, the U.S. deficit was about 10%.

“American families in the 1970s and early ‘80s typically saved about 10% of their take-home pay, about the same as in Germany today. The U.S. savings rate these days is in the low single digits.”

[Germany’s unemployment rate is 6.8%. America’s is at 8.5%.]

Retail sales in Russia rose 9.5% in December from a year earlier, better than forecast, while unemployment fell to 6.1%. Not bad…not bad at all.
Tokyo-based tech giant NEC, in forecasting its third annual loss in four years, announced it would cut 10,000 jobs, 7,000 of which will be eliminated in Japan, with the bulk of these coming from the mobile-phone business. NEC had 154,800 employees in 2007 and after the cuts will be down to around 116,000, including earlier reductions.

China suffered its second bird flu death in a month, the victim being in Guizhou province in the south-west; a 39-year-old man who said he had no contact with poultry.
I can’t say I’ve ever flown Norwegian Air Shuttle but the airline is looking to become a big player in Europe’s low-cost air business and towards that end announced it was buying 222 new aircraft from Boeing and Airbus for $21.1 billion. Many feel the carrier is betting on the demise of SAS. Norwegian plans to launch long-haul operations to the U.S. in 2013.

Dublin home prices have fallen below the 200,000 euro mark for the first time since early 2000; off another 17% in 2011, according to the Irish government. Prices are off 47% in the last five years. Prices fell in December at the fastest rate since Feb. 2010.

But…the Demographia International Housing Affordability Survey, which examines 325 cities in English-speaking countries, concludes homes in Dublin finally reached affordable levels for thousands on average salaries. [Irish Independent]

Years ago I invested in an electric car battery company, Ener1, and thankfully got out of it after breaking even. On Thursday, the company filed for Chapter 11 bankruptcy. Ener1 was another beneficiary of the Obama administration, with the Energy Department awarding it $118 million in stimulus funds. Just one year ago, Vice President Biden visited the company’s new battery plant in Indiana. So add this one to the Solyndra ($535 million) narrative. Yes, some companies fail, or as President Obama said in his State of the Union address, “Some technologies don’t pan out…But I will not walk away from the promise of clean energy.”

House Energy and Commerce subcommittee Chairman Cliff Stearns (R-Fla.) countered:

“Sadly, the Department of Energy’s jobs record seems to grow worse by the day…and it is American taxpayers who are paying the price.”

The administration forecast that Ener1 would have a workforce of 1,400 by 2013. It recently had 350.

As alluded to above, shares in Apple soared 6%+ as the company reported record net profits of $13.06 billion, or $13.87 per share, which exceeded projections of $10.05. Revenues came in at $46 billion, better than the $38.8 billion the Street expected. 30 million iPhones were sold, 15.43 million iPads, and 5.2 million Macs, but iPod sales, at 15.4 million, continued to fall.

In a poll conducted by the nonpartisan Public Policy Institute of California, 68% of likely voters in the state support Governor Jerry Brown’s plan for higher taxes on individuals earning $250,000 and couples making $500,000. Support for increasing sales taxes is about the opposite as Brown tries to prevent further cuts to education and other budget areas already severely impacted by ongoing austerity. The governor’s approval rating is at 44%.

Unemployment in California fell to 11.1% last month, with the state adding 240,000 net jobs in 2011 (another figure I saw put it at 263,000), though the jobless rate is still way above the national average of 8.5%. Nonetheless it’s headed in the right direction.

Elsewhere, Alabama showed the biggest decrease in joblessness in December, falling to 8.1% from 8.7% in November, while Nevada’s rate remained the highest at 12.6%, though it’s fallen 2.3 points. North Dakota still has the lowest at 3.3%. Florida, site of Tuesday’s primary, is at 9.9%.

McDonald’s posted an 11% jump in fourth-quarter profits, beating analyst estimates, as revenue beat slightly as well. Global same-store sales rose 7.5%, including 7.3% in Europe and 7.1% in the U.S. In the latter this was the best performance since 2006.

Mickey D’s now garners 60% of its profits from overseas and only 10% of its new restaurant openings in 2011 were in the U.S. Just five years ago, only 40% of profits were international and the bulk of that came from Europe, as reported by the Financial Times.

[As an aside, while I love McDonald’s, I hadn’t been to a Burger King in quite a while and decided to try their new fries. Fairly tasty, I have to admit. And the Whopper was more than edible.]

Subway (“Eat fresh!”) is opening 600 new branches in the UK and Ireland by 2015. I didn’t realize it already had over 1,400 in the UK (and 100 in Ireland).

Morgan Stanley Chairman and CEO James Gorman addressed the compensation issue in an interview with Bloomberg television. Those who don’t grasp the reasoning behind the average cut in pay of 20% to 30% for investment bankers and traders need to adjust their attitude.

“You’re naïve, read the newspaper, No. 1,” said Gorman. “No. 2, if you put your compensation in a one-year context to define your overall level of happiness, you have a problem which is much bigger than the job. And No. 3, if you’re really unhappy, just leave. I mean, life’s too short.”

Gee, I kind of like Mr. Gorman after reading this. I’d just add a fourth point. You are all still grossly overpaid! [Gorman’s own pay was cut 25%.]

Citigroup also cut 2011 bonuses in its investment banking division by about 30%. Bloomberg reports some businesses had them reduced by as much as 70%.

I missed this last week. Goldman Sachs cut its charitable contributions to its donor-advised fund by more than 3/4s to $78 million after a steep drop in profits. Back in 2009, $500 million was allocated to the fund; $320 million in 2010. [Crain’s New York Business]

JCPenney’s new CEO, Ron Johnson, the former Apple exec who arrived to great fanfare, unveiled a plan to ditch its decades-old discounting strategy for one focusing on “everyday prices” while slashing thousands of jobs, many of whom focused on daily re-tagging of merchandise for sales events. Johnson also issued an aggressive 2012 profit outlook and the stock exploded $6 on the news.

Netflix reported better than expected fourth quarter results and shares soared 22% on Thursday, closing at $116; this after the company rocked the market last fall after losing 800,000 subscribers in the third quarter following a controversial price hike and aborted attempt to separate the DVD business. The 52-week range on the stock is $74 to $304. Just a slight bit of volatility.

Imagine the battle going on behind the scenes between the New York Stock Exchange and Nasdaq to see who gets the coming Facebook listing.   The social-networking giant will be raising a reported $10 billion in stock sometime this spring, with a filing for the IPO this coming week, according to reports. The company will likely be valued at between $75 billion and $100 billion.

Yahoo Inc. saw its fourth-quarter profit fall 5% and revenue decline 13% from a year earlier, though these lousy results were in line with expectations. Online display-ad sales fell 4%. Yahoo continues to lose market share to both Google and Bing (though Yahoo has a partnership with the latter). The revenue miss was the 13th consecutive quarter it has done so. I think I’d guide the Street to $30 or $40 next time just to be on the safe side.

The market was underwhelmed by the announcement Thorsten Heins was taking over the reins at BlackBerry maker Research in Motion, replacing the former co-chief executives, Tweedledee and Tweedledum. What upset the market was that Heins, formerly co-chief operating officer of RIM, said he would consult with his predecessors and that the existing strategy was sound.

Wall Street Journal:

“Last week, the ratio of the price of oil to that of natural gas broke through 40 times for the first time ever. To put that in context, in pure energy-equivalency terms, oil should cost somewhere between six and 10 times the price of gas. Right now, Americans are paying an extraordinary premium for the convenience of liquid fuels over natural gas.”

The infrastructure challenge, however, will prevent the nation from benefiting en masse for years to come but the right steps are finally being taken, even as nat gas producers deal with the poor economics that low prices bring. The second-largest producer, Chesapeake Energy, announced it would slash gas drilling by nearly half. Nat gas prices jumped 8% on the news, even more for the week.

Meanwhile, Apache Corp. acquired Cordillera Energy Partners III for $2.85 billion in a deal that gives Apache 254,000 acres of rich oil and natural gas straddling the Texas-Oklahoma border. New drilling techniques made this one possible.

Follow-up on the alternative to the Keystone XL pipeline debate. Some of us would love Canadian Prime Stephen Harper to stick it to the Obama White House and build a pipeline to Canada’s west coast instead for the purpose of shipping oil to China. I should have added last week that this potentiality faces all kinds of problems of its own, including protests from Indian tribes whose lands the pipeline would cross, though British Columbians back the idea, 48% to 32%.

I loved how the president during the State of the Union “took credit for the shale gas revolution he had nothing to do with,” as the Journal put it.

And you had Obama’s line, “No bailout, no handouts and no cop-outs” just minutes after hailing the auto industry bailout (which, as the New York Post reminds us, began under the Bush administration).

Speaking of autos, Ford Motor Company reported its third consecutive full-year profit, the largest in 13 years. 41,600 hourly workers in the United States will thus receive profit-sharing bonuses of $6,200, up from $5,000 in 2010.

According to Helen Kennedy of the New York Daily News:

“Survivors of the Costa Concordia wreck are being offered 30% off future cruises with the company,” along with a refund. To say the least, this is not being received very well by passengers. A class-action suit was filed in Miami, where parent Carnival Cruise Lines is based, seeking $160,000 a passenger – “or almost $513 million if all 3,206 passengers were to be paid.”

According to a study by the Airlines Reporting Corp., “Passengers can get the lowest airfares if they buy six weeks before their flight.” Ticket prices “soar dramatically about a week before the day of travel,” as reported by Hugo Martin of the Los Angeles Times.

Despite the drought in the American southwest, the U.S. Department of Agriculture announced that the amount of winter wheat that was planted is up 3% from 2010. The International Grains Council boosted its estimate of the 2012 world wheat crop to a record 690 million metric tons.

A few years ago I was on the spectacular Ngong Ping 360 cable car outside Hong Kong that takes you to a touristy village in neighboring Lantau (check it on the Web). At first it scares the hell out of you, but then you think nothing could possibly happen. Well, for those of you who have taken it yourself, the other day passengers were stranded for two hours, with no communication and in very cold weather (around 40 degrees). This isn’t a simple ski lift. I can imagine the horror, especially as you can have a car to yourself, as I did. I bring it up because this should have a negative impact on Lantau tourism, a major growth prospect for the Hong Kong region.
So the late Liz Taylor had an awesome art collection and Christie’s just sold one work, a Frans Hals painting (he’s one of my favorites) for $2.1 million when it was only expected to sell for $700,000 to $1 million.

New York Yankees star Alex Rodriguez has proven to be quite the real estate investor. Eight months ago he acquired a 3,600-foot Upper West Side condo for $5.5 million. Last week it sold for a reported $8 million (or slightly lower). A-Rod previously lived in a building at 15 Central Park West, which is the site of the most successful condo in the world, the penthouse that recently sold to a Russian heiress for $88 million, an apartment Citibank’s Sandy Weill had purchased in 2007 for $43 million. [New York Daily News]

Starbucks beat expectations slightly for the fourth quarter, but also reported growth in Europe was just 2% vs. 9% in North America (mostly the U.S.), and its full-year guidance was so-so.

However, in four to six locations in Southern California, as well as select stores in Atlanta and Chicago, Starbucks will begin offering beer and wine. In hometown Seattle, it has been testing its alcohol menu since 2010, offering beers for $5 and wines by the glass for $7 to $9. Beer options include Rogue Dead Guy Ale.
But, there are skeptics. A police officer in Valencia, Calif., told the Los Angeles Times, “If I wanted a beer, I’d go to a bar. I bring my grandkids in here. I don’t want to have to deal with a drunk if I’m having coffee.”

And that’s a memo…Bernie Goldberg is here. Bernie, what say you?