Week in Review Part II: Street Bytes

Stocks finished mixed with the Dow Jones losing 1.1% to 13080, while the S&P 500 fell 0.5%, back below 1400 at 1397, and Nasdaq rose 0.4% to 3067. With one week to go in a terrific quarter for equities, attention is about to turn to Q1 earnings, which are not expected to be good, as in the estimate for the S&P 500 is down 0.5% vs. Q1 2011. We’ll learn a ton from the accompanying comments on the outlook for the rest of 2012 and I strongly suspect the language is not going to be good in many cases as CEOs may have been a little too optimistic in January when they last gave their forecasts. Growth is not going to be as strong as it was in Q4 and now the biggest issue is how still rising energy prices, and normal weather (maybe) impacts Corporate America. I’ve been saying for weeks, don’t discount the positive impact weather has had and we’ll find out in April and May if sales, such as on the auto front, will be negatively affected. March, however, looks strong when it comes to car buying.

Separately, on Friday, there was pure chaos with the IPO of BATS, Bats Global Markets Inc., a six-year-old equity exchange. That is the company hoped to go public, only trading in the security went haywire, with Bloomberg showing what was supposed to be an initial public offering of shares at $16 that suddenly was trading for pennies. By day’s end, the stock never did officially open and all trades were canceled. While this was happening, a single 100 share trade of Apple triggered a circuit breaker that suspended trading in it for a while, though this didn’t impact where it finished up on the day.

BATS (Better Alternative Trading System) is one of those electronic firms that rose to prominencewith the proliferation of similar outfits now dominating the scene.Not exactly the kind of thing that engenders confidence in the markets overall and as I go to post, no real explanation for BATS’ problem has been given. Actually, it doesn’t matter what BATS says. They should be toast…and Wall Street has a serious issue on its hands.

U.S. Treasury Yields

6-mo. 0.14% 2-yr. 0.35% 10-yr. 2.23% 30-yr. 3.31%

The Congressional Budget Office reported President Obama’s budget would produce a $977 billion deficit next year - $75 billion more than predicted by the White House.

In a late-breaking development involving the investigation into the collapse of MF Global, an e-mail sent by a treasurer for the firm, Edith O’Brien, shows that Jon Corzine, MF Global CEO, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in one of the brokerage’s JPMorgan Chase accounts in London, three days before the collapse, with the transfer of funds being “Per JC’s direct instructions.”

This flies in the face of previous statements and testimony before the House Financial Services Committee that customers’ segregated funds were safe.

In fact, it’s now come to light that JPMorgan’s risk officer called Corzine directly to seek assurances that the funds belonged to MF Global and not customers. JPM drafted a letter to be signed by O’Brien to ensure that MF Global was complying with rules requiring customers’ collateral to be segregated. [Bloomberg News]

Corzine testified he never intended a misuse of customer funds at MF Global and that he didn’t know where the funds went. Back in December, Corzine told lawmakers, “I did not instruct anyone to lend customer funds to anyone.”

Well, I don’t need to state the obvious. A hearing is slated for March 28. O’Brien is due to be there. There is no word yet on Corzine.

Apple finally decided to do something with its massive pile of cash, which if you stacked it up, dollar by dollar, would stretch from here to Mars, or at least to the space station, by announcing a quarterly dividend of $2.65 a share in the quarter beginning in July, plus a buyback totaling $10 billion over ten years, or a total of about $45 billion in that period. Seeing as it’s sitting on more than $100 billion (the current estimate, see below), and generating cash as fast as geese fertilizing a New Jersey golf course, this is nothing. Not that shareholders have any right to complain about anything when it comes to Apple.

Apple said it sold more than 3 million iPads during its debut weekend for its latest model; a record for an opening weekend, including a single-day record for iPad sales on March 16.
And I really should note that Apple has most of its cash overseas and plans to keep it there. At last official report, $64 billion overseas, $33.6 billion in the U.S.

China increased gasoline and diesel prices for the second time in less than six weeks, though the likes of China Petroleum & Chemical Corp. (Sinopec) and PetroChina Co., will continue to face crushing margins on the refinery front as the price hike still leaves prices some 10% below where these two break-even.

China’s power consumption is expected to rise 8.5%-9.7% in the first half of the year vs. a year ago, according to the power producers association.

Luxury car dealers in China are slashing prices as the country’s Association of Automobile Manufacturers revised its estimate of 8% sales growth this year to 5%. Rolls-Royce, though, said it still expects double-digit growth. Mercedes, on the other hand, has cut the price on its high-end models by up to 25%.

Speaking from China, Caterpillar CEO Doug Oberhelman, said he remained confident.

“We look at China as a long-term market here. It’s the largest construction equipment market in the world today. We want to be here in a bigger way and of course we are investing a lot of time for what would be a 20- or 30-year run.”

Oberhelman told CNBC he expects construction markets in the U.S. and Europe to remain “depressed,” though he was more optimistic about growth in Eastern Europe and the Middle East. Boy, I wouldn’t be when it comes to the former.

I have to admit I never thought about this, but exports of U.S. wheat to Iran are legal, as all U.S. and European sanctions against the mullahs exempt agricultural products.

So as CNN reports, Iran is buying American wheat for the first time in three years, and tons of it, as it seeks to hedge against the growing impact of sanctions and weather issues. Iran may ultimately buy 400,000 tons of U.S. wheat in 2012. Smart move by the Iranians to stockpile it.

Back in 2008, Iran imported 1,564,000 tons of U.S. wheat when the country was experiencing a drought.

I’ve been impressed by the Volkswagen Passat when I see it on the road and it turns out VW sold 8,189 of the vehicle in February, its biggest month since 2003, so the automaker is adding 800 jobs to its factory in Chattanooga, Tenn. Overall, VW has a goal of selling 800,000 cars in the U.S. by 2018. It sold 324,400 last year. Good for them.

Chile’s economy grew at a 6% pace in 2011. As Ronald Reagan would have said; not bad, not bad at all.

McDonald’s CEO Jim Skinner is stepping down at the end of June after 41 years at the company, the last eight as CEO. Talk about one of the greats. His performance has been nothing short of spectacular, in my book. Virtually every move he has made, in terms of menu items and expansion, has worked beautifully. Last year was McDonald’s strongest for comparable store sales in the U.S. since 2006, with plans to open 1,300 outlets worldwide in 2012. Skinner is being replaced by COO Don Thompson, a 22-year veteran. Skinner is 67.

Wendy’s has officially surpassed Burger King as the second-largest chain in the burger biz, with $8.5 billion in sales, followed by the King’s $8.4 billion. [McDonald’s is at $34.2 billion.]

The SEC appears to be stepping up an investigation into rapid-fire trading firms and their links to the computerized stock exchanges, according to the Wall Street Journal. Of course the “flash crash” that was caused by such high-frequency trading outfits was back in May 2010, or almost two years ago. Ergo, SEC officials once again are proving that their focus continues to be on porn…as in spending the bulk of their days viewing same. [And now they have the BATS issue, which will really screw up their schedules.]

Hartford Financial Services Group suddenly announced it was exiting the annuity business as hedge fund manager John Paulson pressured the company to take drastic measures to boost the company’s share price. Hartford’s wholesalers were totally blindsided. Hartford’s business in this sector never recovered from the financial crisis.

Goldman Sachs CEO Lloyd Blankfein, under pressure after the New York Times Op-Ed, is having e-mails and phone calls scanned looking for employees who disparaged clients. A spokesman declined they were looking for scapegoats. Mrs. Blankfein, worried over her husband’s status and a possible drastic reduction in her shopping budget, was caught by our secret microphone at lunch at the Four Seasons telling her girlfriends, “I told my Lloyd, you better do something!”

The Weekly Standard’s “Scrapbook” column (3/26/12) echoed my sentiments on the Times’ (Greg Smith) column, as I expressed last time.

“(What) struck us with the force of a Goldman Sachs derivative was the following day’s front page of the New York Times. The lead story was not about Afghanistan, or the Republican campaign, or the visit of the British prime minister to Washington. It was about Greg Smith’s op-ed piece in the previous day’s New York Times.

“ ‘Public Rebuke of Culture At Goldman Opens Debate,’ screamed the lead headline, and the subhead described ‘An Unusual Cry From a Financial Insider – Discussion of Greed and Excess.’ In the Business section of the Times there were three – count ‘em, three – separate stories about the Times’ op-ed, and each headline was more tantalizing than the one before:
‘Public Exit From Goldman Raises Doubt Over a New Ethic,’ ‘Name It; Clients Are Called It,’ and The Scrapbook’s particular favorite, ‘Goldman Executive’s Resignation Letter Draws Backers, Detractors and Satirists.’

“This is what is known in the business as manufactured news.”

Meanwhile, the New York Times said it has 454,000 paid subscribers to the paper’s website and digital products, up from 390,000 end of December, which isn’t bad. Unfortunately, I’m now one at a hefty monthly price.

[Free access to the Times is being severely restricted, from 20 articles a month to just 10.]

Wells Fargo is now the nation’s biggest bank in terms of market value, not JPMorgan Chase, not Citigroup, and, it has even overtaken Europe’s largest, London’s HSBC. Pretty impressive, seeing as Wells Fargo’s executives still travel in stagecoaches….

…I was just informed that the wagons I see in my local Wells Fargo branch are just a symbol and not executives’ preferred mode of transportation. Never mind…

The world’s biggest airlines are projecting profits will be down 60% in 2012 owing to soaring fuel prices, even as traffic has picked up with an improving global economy.

Hewlett-Packard plans to combine its personal computer and printing divisions in a massive reorganization, which will be more than a bit unnerving to the company’s 350,000 employees. While HP is still No. 1 in the U.S. PC market, market share is falling.

Oracle, the largest maker of database software, said new software-license sales, a predictor of revenue growth, increased 7%, far higher than analysts’ 3% estimate. Profit, excluding certain items, rose to 62 cents a share, also ahead of expectations. Oracle shares rose a bit.

Bernie Madoff is at it again, from prison, attacking his wealthy victims, as he told biographer Diana Henriques that he’s also “very sorry that I chose not to go to trial.” Of some of his victims, Bernie said in a series of e-mails that he had no sympathy for them because they had signed documents declaring themselves to have enough wealth to withstand trading losses.

“The pure greed and untruthful cries of some who now have to sell their second or third vacation homes, which were paid for with the years of legitimate profits but because they now find themselves without the income stream I provided is what angers me.”

Oh, shut up.

Total student debt outstanding passed the $1 trillion mark last year, according to the Consumer Financial Protection Bureau, the new federal agency created in the wake of the financial crisis; 16% higher than an estimate given last year by the Federal Reserve Bank of NY. As a story in the Wall Street Journal puts it:

“(As) more people go to college and assume bigger loans for education, they may take longer than previous generations to hit key milestones such as buying a house or getting married, U.S. officials and economists say. It could take longer for heavily indebted graduates to save money for a down payment on a home, or it could be harder for them to qualify for mortgages.”

Of course it would also help if the universities would stop hiking tuitions at a rate more than the cost of living.

I’ve been to Hong Kong numerous times and love the place, but the pollution can be a bit overwhelming if you’re not prepared for it. So as Chief Executive Donald Tsang steps down after seven years in office, he leaves a city that has the world’s most valuable stock exchange, is the best place in the world for business, but also the most polluted financial center. A think tank, Civic Exchange, said air pollution is responsible for more than 3,000 premature deaths a year there vs. ongoing concerns over bird flu, which has killed 350, worldwide, since 1997.

As a piece in Bloomberg notes, one of the biggest things the city could do to improve air quality is get rid of its aging, smoke-belching buses.

By the way, if you go, don’t go in May, as I’ve done a few times. The one time I went in October-November, the air was much cleaner.

Here in the Northeast, the weather fact I find most staggering is we haven’t had a coastal storm since October, and now the experts at Colorado State Univ. announced that the six-month Atlantic hurricane season that opens June 1 should be quieter than normal. Last year was a mild one for Atlantic hurricanes, just six forming, but one, Irene, caused over $7 billion in damage.

Tourism in America was up 8.1% last year to $1.2 trillion, owing in no small part to 62.3 million foreign visitors, up 4% from 2010. Foreign tourists spent a record $153 billion. The Commerce Department estimates that travel spending supported 7.6 million U.S. jobs last year.

As part of Newsweek’s ‘time machine’ issue (basically co-branding with AMC’s “Mad Men”), the magazine compared 1965 with 2012.

On an inflation-adjusted basis, a gallon of milk was $6.84 then vs. $3.30 today. An issue of the New York Times was 0.72 vs. $2.50. An ounce of gold, $252 vs. $1,659. Gas…$2.25 vs. today’s $3.83.

But per my comment above on college tuition, check this out.

1965…tuition, room, and board at four-year university…$1,051.00
2012…$22,450.00

Walt Disney announced it would incur a $200 million writedown on the film “John Carter.” The film has generated over $200 million in global ticket sales, vs. $300 million in estimated production costs, but half the take goes to cinema chains. They would have been better off doing a slapstick, low-budget film titled “Billy Carter.”

The New York Times’ Patrick McGeehan did a story on New York’s harbor and the labor market there, 58 years after “On the Waterfront.” As in 58 years later, “no-show jobs held by relatives of mobsters and other well-connected people continue to vex government officials trying to make the ports more efficient and more competitive.”

Talk about egregious…as a new report by the Waterfront Commission of New York Harbor found:

“The work rules result in many workers’ being paid for 24 hours per day and, in some cases, as many as 27 hours within one day.”

Some shipping companies “paid salaries that exceeded $400,000 for jobs that ‘require little or no work.’”

Can you believe Tim Tebow is now a New York Jet? Us Jets fans can’t. Good thing the Knicks’ Jeremy Lin inked a deal with Volvo because Tebow could be endorsing just about every quality product in the area within the next month. Madison Avenue is salivating like Homer Simpson eyeing a keg of Duff Beer.