Week in Review Part II: Street Bytes

Stocks raced higher in a broad-based rally with the Dow Jones and S&P 500 gaining 2.4%, while Nasdaq added 2.2%. Nasdaq has been down just one week in eleven thus far in 2012 and is up 17% for the year. Nasdaq also closed at 3055, while the Dow Jones is now solidly over 13000 (13232) and the S&P finished over 1400 (1404). Nice round numbers for the bulls. The positive release on the retail sales front early in the week was one of the prime catalysts, as well as the performance in a certain tech stock named Apple.

Shares in Apple hit $600 on Thursday, before backing off and finishing the week at $585, a rise of about 55% in just three months! [The stock was $378 on 12/15/11, $405 on 12/31.] The new iPad (iPad 3) went on sale Friday and the product has received rave reviews. IDC, the research firm, said that because of Apple’s latest release, worldwide tablet shipments in 2012 will rise 21%. For its part, Apple has received record pre-orders. One analyst said Apple will capture 80% of the tablet industry’s profits in selling 65 million units. Just know that of 56 analysts covering the company, Bloomberg says only one has a sell rating.
And if you want to get sick all over again, back in 2000, Apple shares traded $7 to $31.

U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.36% 10-yr. 2.29% 30-yr. 3.41%

Yields soared, relatively speaking, and in percentage terms, on a return to equities and the misguided belief the economy continues to improve, which would force the Fed to switch gears. Everyone has an opinion, that just happens to be mine.

On the inflation front, yes, I know it’s there, as I discuss below, but the official data speaks otherwise…for now. The February figures on producer prices showed an increase of 0.4%, 0.2% ex-food and energy, while consumer prices for the month rose 0.4% as well, but 0.1% on the core. For the last 12 months, the PPI is up 3.3%, 3.0% core; and the CPI is up 2.9%, 2.2% core.

Other data points of note: February retail sales were up a solid 1.1% (see above discussion on weather), while February industrial production was unchanged, not good.

China’s National Bureau of Statistics admitted some local officials have been falsifying economic data, especially as it pertains to industries such as coal and aluminum. This is not a surprise. I’ve written many a time over the years of the pressures local officials face in meeting certain quotas, with the political future of some at risk, but it nonetheless is a further example of the issues faced by the national government to ensure the data is accurate. There has been an ongoing crackdown. It’s at least a positive that top officials admit the problem and have been taking steps to address it, including severe prison sentences for those leaking information. One researcher with the People’s Bank of China received six years for willfully revealing state information to 15 people in the securities industry.

The Obama administration, along with Japan and the European Union, filed suit against China at the World Trade Organization over Beijing’s restrictions in the rare earth metals sector, with China accounting for more than 95% of the global supply that finds its way into high-tech applications from smartphones to electric cars.

China has been limiting exports, and/or output, to drive up the price, as well as encourage foreign companies to relocate to China to access the materials, after which China could steal the technology. Cough cough.

Separately, Molycorp acquired a key processor of rare earth minerals, Neo Material Technologies, which will pave the way for Molycorp to ship minerals from its California mine to Neo’s Chinese operations. I don’t like this deal, partly because I’m not a fan of Molycorp CEO Mark Smith. Maybe someday I’ll give you other reasons.

China had another serious issue with its high-speed railway as soft soil and shoddy construction (denied by the government but rumored) was to blame for the collapse of a 4-mile section of the line in the central part of the country. Repair work will take at least a month. The line had not been in use yet but was set to go into service in May.

Update: India ended its one-week ban on exports of cotton under pressure from growers, traders and China, India’s largest customer. So you might say, this was one stupid decision in the first place and whoever is responsible should be shelling peppercorn as a punishment. Farmers will now get a higher price, which will encourage more planting for next year. Funny how that works.

India reported record car sales in February, up 13%, while industrial production for January was up 6.8%, better than expected.

The unemployment rate in the U.K. rose to 8.4% in January. Youth unemployment is 22.5%; yet another potential lost generation of workers.

From Bloomberg News: “When Morgan Stanley said in January it had cut its ‘net exposure’ to Italy by $3.4 billion, it didn’t tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.

“Italy…paid the money to unwind derivative contracts from the 1990s that had backfired…It was cheaper for Italy to cancel the transactions rather than to renew.”
The cost is equal to half of Italy’s sales tax increase this year. Morgan Stanley had a gain of about $600 million in the fourth quarter related to the contracts, but this was a reversal of earlier charges it took in 2011 on fear Italy wouldn’t pay the full amount it owed.

Counterparty risk among the five largest swaps dealers – Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and JPMorgan Chase – amounts to $19.5 billion with Italy; with total exposure to the country of as much as $31 billion when including European banks.

In the key California home market, DataQuick estimated sales of houses and condos rose 8.5% in February, the seventh straight month of increases, but the median home price across the Golden State fell 2% from a year ago to $239,000. Absentee buys (investors) purchased 30% of all homes sold in Southern California, where the six-county median home price fell 3.7% from Feb. 2011.

The International Energy Agency said unscheduled crude oil supply outages from Syria to the UK had reached 750,000 barrels a day and world markets face a “bumpy ride” in the months ahead. Throw in Iran and it’s a serious issue, though Saudi Arabia is now pumping at a 3-year peak and Libyan production is recovering quickly. Overall, OPEC’s production is at its highest level since mid-2008, but this also means OPEC’s spare capacity is below 3m b/d for the first time since 2008.

According to a report, home prices in Ireland have hit bottom, but may stay at their current levels “for ages,” as noted by Goodbody Stockbrokers. Economist Dermot O’Leary says prices have now fallen 68% from their peak in 2007.68%! That’s greater than the official 48% from the Central Statistics Office property price index.

UBS AG said it slashed its bonus pool in 2011 by 40% due to weaker performance; 60% among those in the investment banking division. It didn’t help a trading scandal in London cost the bank $2.3 billion.

According to Manpower Group, new hires will outpace firings in New York City by a 3-1 margin in the second quarter. This is good!

To give you a sense of how high oil prices can do a number on airline profits, Cathay Pacific on Wednesday said its net profit fell 61% in 2011, despite a 9.9% increase in total revenue. Jet fuel costs surged 44%. Other international carriers such as Singapore Air, Air New Zealand, and Qantas are slashing jobs.

Janet Robinson, the New York Times Co. CEO who was pushed out last December, took the box that started with a year’s supply of Whammy Sticks and received an exit package of $23.7 million, including stock options and pension benefits. Plus, she earns $4.5 million in consulting fees for this year. It’s this last part that is the most egregious, in the eyes of your editor.
 
577 cities reported record high temperatures on Wednesday and the National Weather Service is forecasting mostly warmer and drier-than-normal weather for the next three months, outside the Northwest. Every state east of the Mississippi River, except Wisconsin, is going to be basking in it.

And with the shocking winter that we’ve had, the third least snowfall in the U.S. in 46 years, that means little chance of spring flooding, so we catch a break on that front.

The drought situation has also improved. Only 7% of the nation has extreme or excessive conditions.

As for the warmer air, thank the Arctic Oscillation, the northern cousin to El Nino, which keeps storms and the cold bottled up north.

We love you, A.O.!

Despite the warm weather here in New Jersey, Atlantic City’s casinos continued to take it on the chin, with revenue for the month of February declining 5.9% over last year. For the first two months, the casino take is down 6.6% over the same period in 2011.

Inflation Alert: The cost of walk-up general admission to the Kentucky Derby is rising 25%, from $40 to $50 this year. Goodness gracious!

Inflation Alert, part deux: The New York Post’s Terry Keenan did a piece last Sunday on the American Institute of Economic Research and their Everyday Price Index (EPI), which strips away the cost of big-ticket items, like homes and cars, and looks at the cost of items such as milk, coffee, eggs, beer, and potatoes…everyday stuff. By that measure, “the Everyday Price Index shows inflation galloping ahead at an 8.1% annual rate…

“Averaging the CPI and the EPI gives us a rate of 5.6%, a number most New Yorkers, and probably most Americans, would consider on the mark.”

Inflation Alert, part trios: Six years ago, a New York strip steak at one of the four top restaurants that are part of the Palm Restaurant Group in Gotham, was under $40. But with the rising cost of beef, an emergency conference call was held recently to raise the price to $50, or generally $49.95, when looking at outlets like Bobby Van’s. Some, such as Smith & Wollensky, are now testing single selections at $52. So if you’re a steer, thinking you’ll take the spring and summer off and just kind of lounge around, and you see some humans on horseback attempting to round you and your buddies up into metal enclosures, make a break for it. [Lisa Fickenscher / Crain’s New York Business]

Lastly, you have the case of disgruntled, now former Goldman Sachs employee Greg Smith and his op-ed in the New York Times.

I really do try to live by the adage I’ve long put forward in this space… “Wait 24 hours.”

Guess what we’ve learned by waiting? There is no story! Period.

I can understand why the New York Times ran it. We’ve learned it was submitted unsolicited, among hundreds of other submissions the Times receives every week, and I can see how an editor thought it fit in the editorial pages.

But then to run it as the lead the next day on page one, and for all the major news organizations to lead with it, was beyond absurd.

Look, I can’t stand Goldman. I have no friends there, nor am I looking for any. I know Wall Street and I just don’t respect them.

But while I printed out all the stories pertaining to Smith’s editorial in the 24 hours after the Times ran it, I am now depositing the pile in the trash. There’s nothing newsworthy there, including all the comments that Jamie Dimon and other Wall Street leaders stupidly put out. If they had waited 24 hours, too, they would have seen the light as I did.