Week in Review Part II: Street Bytes

Stocks fell hard on the week, with the Dow Jones down 1.4% to 13038, while the S&P 500 lost 2.4% and Nasdaq 3.7%, as the latter finished below 3000 (2956) for the first time in two months.

U.S. Treasury Yields

6-mo. 0.13% 2-yr. 0.25% 10-yr. 1.88% 30-yr. 3.07%

Treasuries rallied anew on the poor economic data and uncertainty over Europe

China’s official PMI for April came in at 53.3, up from 53.1 in March, while the service sector reading, 56.1, was down from March’s 58. The Shanghai exchange has been rallying on speculation the government will be loosening monetary policy by mid-year, which makes sense as the big change in government happens later in the year. You want the people feeling good.

Australia’s Reserve Bank slashed interest rates 50 basis points on fears the economy was slowing too quickly.

Facebook is coming! Facebook is coming! The IPO terms are now public and the company is looking to raise as much as $11.8 billion, with a preliminary share price of $28 to $35, which would place a value on the company of somewhere between $86 billion and $96 billion; below what was anticipated. CEO Mark Zuckerberg will control 57.3% of the voting shares (and net nearly $1.1 billion from shares sold in the IPO). Trading could commence May 18.

The U.N. Food and Agriculture Organization (FAO) said world food prices eased in April, owing to big declines in grains and sugar.

Toyota continued its comeback as its U.S. sales rose 12% in April, and its market share climbed to 15%, the highest in 17 months. General Motors, though, saw its sales fall 8% and its market share drop to 18% from 20% in April 2011. Ford’s fell 5%, but Chrysler’s rose 20%.

Others: Nissan’s were flat, Honda’s fell 2%, Hyundai’s rose less than 1%, Kia’s were up a like amount and Volkswagen’s surged 27%.

Industrywide, sales rose just 2.3% over April 2011, well below the 13.3% gain for the first three months.

GM is forecasting total industry sales in 2012 of between 14 million and 14.5 million, which would be the best pace since 2007.

[Hyundai announced it would add a third shift to its Montgomery, Ala., facility, creating nearly 900 new positions and push total employment at the plant to 3,000.]

Robert J. Samuelson / Washington Post…on the fallacy of greedy “speculators” controlling the energy market.
“Conspiracy theories are appealing.

“The actual explanation is more humdrum. Oil demand is what economists call ‘price inelastic.’ People need it to drive cars, heat homes, fly airplanes and run factories. So small shifts in supply or demand can result in big price moves. A large jump in demand or loss in supply raises prices sharply; similarly, prices may plunge when demand dips (from, say, a recession) or supply increases (from, say, new fields)….

“It’s true that outside investors (a.k.a. ‘speculators’) have dramatically shifted money into commodities – raw materials….It’s easy to imagine all this money chasing prices up in futures markets, just as speculative stock market frenzies push share prices to unrealistic levels. It’s also wrong.

“The stock and futures markets operate differently. In the stock market, herd psychology can lead to speculative bubbles or panics. In a bubble, almost everyone seems to win (until the bubble bursts); in a panic, everyone seems to lose (until the panic subsides).

“By contrast, futures markets are ‘zero-sum games.’ One investor’s gain is matched by another’s equal loss. Here’s why. Under the standard futures contract, one investor agrees to buy the commodity (say, 1,000 barrels of oil) at a future date for a given price, and another investor agrees to sell for the same price.”

But rather than futures markets raising spot prices, at times, economists Lutz Kilian, Bassam Fattouh and Lavan Mahadeva issued a report that concluded futures and spot prices reflect “common economic fundamentals.”
Samuelson:

“Casting speculators as scapegoats for our dependence on high-priced global oil is easy and misleading. It obscures the only real solution: Use less, possibly through an energy tax, and produce more.”

So in light of the above, when it comes to natural gas, the Wall Street Journal reported that major players such as ExxonMobil have announced in recent days plans to reduce production further than was the case in the first quarter, which should help alleviate the huge oversupply of the product. The price has risen about 20% since the April 19 bottom, which represented the lowest level since September 2001.

Speaking of nat gas, Chesapeake Energy Corp. CEO Aubrey McClendon was forced to apologize to investors for all the recent distractions, many involving his personal finances; plus the company missed analysts’ expectations for the first quarter, including Chesapeake’s new estimates that production will be far lower than the company forecast in February.

Earlier, Chesapeake’s board said it would find an independent replacement for McClendon as chairman, while he would be allowed to stay on as CEO, but the bottom line is the company is a mess, with net debt of $12.4 billion, and gobs of off-balance-sheet financing. A Credit Suisse analyst says this last bit amounts to an additional $6 billion, plus there is $3 billion of preferred stock on the balance sheet. The Journal estimates that when you tally it all up, including a working capital deficit, you come up with total leverage in the neighborhood of $24 billion+.

[The SEC has begun an informal inquiry into Chesapeake and McClendon.]

The current low natural gas price means less in some states’ coffers. Wyoming, for example, was operating on a $4 forecast for nat gas this year and with the current price being in the $2.30 neighborhood, the state’s tax receipts could be at least $100 million lower than expected. So the governor is warning of across-the-board agency cuts of 8% unless the price picture improves.

As noted in USA TODAY, another example would be Oklahoma, which is estimating $3.64 for its 2013 budget starting in July. “Every $1 drop in price costs the state roughly $70 million a year,” according to the state treasurer.

Natural gas pipeline operator Energy Transfer Partners is acquiring Sunoco Inc. for $5.3 billion, with Energy Transfer picking up nearly 8,000 miles of pipeline, as well as 4,900 gas stations in 24 Eastern states. The stations will keep the Sunoco brand.

And Delta Air Lines announced it would purchase an oil refinery operation in Pennsylvania for about $150 million in an attempt to control escalating fuel costs. Fuel makes up about one-third of an airline’s expenses, but Delta says it can save $300 million a year by owning a refinery directly. ConocoPhillips had idled the facility in 2011, citing “severe market pressure.”

The board of directors of News Corporation says it has “full confidence” in Rupert Murdoch, this after a UK government media committee concluded that Murdoch was “not a fit person” to run a major international business. The board countered that Murdoch had “demonstrated resolve” to address mistakes of the company resulting from the phone-hacking scandal.

From the Los Angeles Times’ E. Scott Reckard: “Wells Fargo & Co. originates 34% of all home loans – more than the combined total of the next seven biggest mortgage lenders. That’s why regulators are closely watching the San Francisco bank, Paul J. Miller, a former Federal Reserve bank examiner, said Thursday.”

Any hiccup at Wells could roil the housing market all over again.

Lufthansa is cutting 3,500 jobs owing to a worse-than-expected operating loss for the first quarter, though revenue was slightly ahead of expectations.

Bank of America is cutting another 2,000 positions, particularly in investment and commercial banking; this on top of an earlier announced plan to eliminate 30,000 jobs over three years in the consumer banking area.

Macau’s gaming revenues for April rose 21.9%, as Sands China opened a new $4 billion casino. Still strong.

Talk about a troubling quarterly report, stock in Green Mountain Coffee Roasters plummeted over 40% in after-hours trading on Wednesday following the company’s announcement it couldn’t predict demand for its Keurig single-serve coffee brewers and packs, which had many talking about serious accounting issues. CEO Larry Blanford said they don’t understand the potential impact of factors including milder winter weather. Pathetic.

Microsoft announced it was investing $605 million in Barnes & Noble’s Nook reading device as it challenges Amazon and its Kindle, as well as Apple and the iPad in the fast-growing ebook market, though it’s still just 5% of all book sales.

Samsung is now the world’s largest cellphone maker, topping Nokia and ending its 14-year run as market leader. Last quarter, Samsung shipped 92 million phones, of which more than 40 million were smartphones, vs. Apple’s 35 million iPhones.
Zachary A. Goldfarb / Washington Post

“Since the beginning of (Obama’s) term, state and local governments have shed 611,000 employees – including 196,000 educators – according to government statistics. Unlike the recovery in private-sector employment that Obama and his re-election campaign often cite – with businesses adding 4 million jobs since hiring hit its low point in 2010 – the jobs crisis at the state and local level has continued throughout his term.”

This is classic…classic Greece, that is. As reported by the Daily Telegraph’s Nick Squires, there is an Ionian island named Zakynthos that has 650 registered blind people, but 600 aren’t blind. It’s a scam designed to get them state benefits. A new mayor uncovered it. “Blind” locals were seen playing backgammon, hunting for rabbits, tending vineyards…unreal.

U.S. homeownership hit a high of 69.2% in 2004 and is now down to 65.4%, pretty much where it was for the 1970s, 80s and 90s.

According to research firm GMI, America’s CEOs received a 15% pay raise in 2011, with compensation packages averaging $5.8 million, though it’s $12.1 million among the nation’s top 500 companies.

Meanwhile, according to a report by Sentier Research, analyzing census data, the average American household saw real median income drop 3.5% - from $53,168 in 2007 to $51,287 in 2010.

CNN’s April ratings were the lowest since August 2001. Alas, one month later back then things changed.

Pssst…CNBC viewers. The New York Daily News reported that executives there are “freaking out” because viewership levels for “Squawk Box” and “Closing Bell” have been declining. Squawk Box’s big fall coincides with the addition of Andrew Ross Sorkin, while Maria Bartiromo’s show, running from 3:00 to 5:00 p.m., is down 18% for the 12 months ending in April. Fox Business Network is picking up viewers.

Beer drinking in Australia fell to the lowest level since 1946 for the 12 months ending June 30, 2011.

Edvard Munch’s “The Scream” became the most expensive art work sold at auction as it was purchased for $119.9 million by a telephone bidder who went by the name of Charlie. The work is one of four in a series but was the only one still owned privately. Proceeds will go towards the building of a new museum, hotel and art center in Norway. [The other three versions are still owned by Norwegian museums.]

You know, it really is true that as one art expert put it, “The Scream” and the “Mona Lisa” are the two most recognizable works in the world.