Week in Review Part II:Street Bytes

Stocks finally broke their winning streak owing to the Euro turmoil with the Dow Jones declining 2.0% to 11983, while the S&P 500 lost 2.5% and Nasdaq 1.9%. As October ended on Monday, the final Dow advance of 9.5% for the month was the best since October 2002, while the point gain, 1043, was the biggest ever; this after the Dow had lost 16% the prior five months. The S&P’s gain of 11% was its best performance since December 1991.

--U.S. Treasury Yields

6-mo. 0.03% 2-yr. 0.22% 10-yr. 2.04% 30-yr. 3.10%

Bonds rallied on the euro mess and a flight back into the greenback and also out of stocks.

--Freddie Mac requested an additional $6 billion in aid after a wider loss in the third quarter. Freddie and sibling Fannie Mae have cost taxpayers a combined $175 billion thus far, with another $140 billion probably needed. Memo to Occupy Wall Street…the banks repaid their bailout funds. These guys never will. Go down to Washington and Occupy Congress and Fannie and Freddie’s offices instead. [Not that individual Wall Streeters still need to be hung with care.]

--Disgraced former Goldman Sachs CEO, New Jersey senator and governor, and as of Friday, former MF Global CEO Jon Corzine, 64, is going to be leaving behind a legacy of wealth and household destruction in his last three positions, particularly, as he took over MF Global, a futures brokerage firm, right after being defeated by Chris Christie in Corzine’s reelection bid as New Jersey governor, and then promptly drove MF into the ground with an oversized $6.3 billion, 35:1 leveraged bet on European sovereign debt at what proved to be the worst possible time. This week’s Chapter 11 filing, and his subsequent resignation, represented the eighth-largest bankruptcy filing in U.S. history.

Compounding matters, the FBI is investigating whether client funds are missing, up to $630 million worth, at last count (knowledge of which ended a potential bid for MF by Interactive Brokers Group that might have saved 2,800 employees). Understand that keeping customer assets segregated from a brokerage firm’s own assets is “sacrosanct,” as Sharon Brown-Hruska, a former acting chairman of the Commodity Futures Trading Commission (CFTC) put it. BlackRock was hired last Friday as an adviser to help wind down MF’s balance sheet, but people close to the situation told the New York Times, MF’s books “were a mess.” [Friday afternoon, it was reported the missing client funds had been found among accounts at JPMorgan, but it’s too soon to say this is fact.]

It’s no secret I’ve never liked Jon Corzine. I just think he is a bad guy, on so many levels, yet everyone insists on saying he was likeable. I never met him, even though for years we lived in the same town. I just see a guy with major issues on the family front, who also tried to buy his way up the political ladder, including stuffing the pockets of black ministers in my state. Some say his behavior wasn’t necessarily illegal. I say at a minimum it was grossly unethical and my state, for one, is far better off by his absence from its politics.
Opinion…

Holman Jenkins, Jr. / Wall Street Journal

“Mr. Corzine had bought the governorship with his Goldman Sachs fortune, as he’d previously bought a U.S. Senate seat. But the big-bucks opportunism and manipulation he used to co-opt the New Jersey machine was never matched or vindicated by any subsequent boldness in challenging that machine for the sake of the future….

“It seems fitting, then, that Mr. Corzine’s contribution to MF Global’s failure was a big leveraged bet on politics as usual in Europe, via the bonds of heavily indebted euro-zone governments, whose pension and union problems are deeply analogous to New Jersey’s.

“These bets may well pay off, since they only need to ride until late 2012, when they mature and presumably will be settled at face value. But MF’s brokerage customers didn’t care to see their own accounts in the hands of a company betting its existence on European debt politics. Regulators and rating agencies soon piled on, and weren’t wrong judging from the shocking claim yesterday that MF Global had gone so far as to misuse client funds in its effort to stay alive.”
Editorial / Wall Street Journal

“The Chapter 11 filing by MF Global was in part reassuring news that failure is still allowed on Wall Street. With $41 billion in assets, MF is much smaller than Lehman Brothers but still among the largest bankruptcies of the last decade.

“Yesterday also offered a chance for market participants and taxpayers to reflect on their good luck that MF Global Chairman and CEO Jon Corzine was not running a bigger firm – or the U.S. Treasury. While the collapse of his company was big enough to cause major headaches in the futures market where MF provided clearing services for a long client list, almost nobody considered it too big to fail…

“There are also lessons in Mr. Corzine’s particular trading strategy. The Journal reports that he brushed aside at least one warning from a subordinate and bet big on European sovereign debt, particularly bonds issued by Italy and Spain.

“ ‘Europe wouldn’t let those countries go down,’ Mr. Corzine told an MF executive, according to the Journal. That sounds like someone who’s been reading the Financial Times too often. So perhaps Mr. Corzine is in part an ironic victim in this sad drama, if he believed in the necessity and inevitability of bailing out Europe’s welfare states.

“To prevent future bailouts on this side of the Atlantic, the key is to understand that big-bank CEOs can also be tempted to pull a Corzine. To protect taxpayers from the consequences, the solution is very high capital standards for the biggest firms. This will create a larger cushion so they are less likely to fail, and it may be an incentive for many firms to avoid getting too big in the first place, or to get smaller if they are already too big. Then they can do a Corzine for as long as their shareholders let them.”

--As noted above, U.S. chain store sales for October were disappointing. Macy’s were up 2.2% when a 3.6% increase was expected. J.C. Penny’s fell 2.6% when a 1% gain had been projected. Kohl’s beat expectations slightly, up 3.9%. But Nordstrom’s, up 5.4%, and Saks’, up 1.8%, both fell short.

The National Retail Federation expects U.S. retail spending for November and December to rise 2.8% vs. the 5.2% pace of last Christmas season.

--As a piece in the Wall Street Journal points out, President Obama has a big decision to make regarding the Keystone XL natural gas pipeline from Canada to Texas. Does he risk alienating environmentalists, a core constituency for 2012, or does he hand Republicans a major issue as the pipeline will create jobs and boost U.S. energy independence? The EPA in coming weeks is expected to complicate the matter when it disputes some of the State Department’s findings, the latter having originally had jurisdiction in the matter since it is a U.S.-Canada issue, first and foremost.

--Social media struck again with Bank of America dropping plans for a debit card fee, as rivals Wells Fargo, JPMorgan Chase, SunTrust and Regionals Financial were among those saying they too would roll back the fees, though the banks will undoubtedly seek other ways to gain back the lost revenue after the “Durbin amendment” limited the amount banks could charge for debit card transactions.

--October’s U.S. auto sales came in an annual rate of 13.3 million, the best level since the 13.4 million pace of last February. GM’s advanced 1.8%, Ford’s 6.2%, Chrysler’s 27%, Nissan’s 18%, Hyundai’s 22.8%, and VW’s 35.6% over year earlier levels. But Toyota’s fell 7.9% and Honda’s 0.5% on the back of supply disruptions. Toyota, for example, is conceding it will lose its long-held status as the top-selling luxury car in the U.S. as BMW overtakes Toyota’s Lexus brand. Natural disasters in Japan and Thailand have hurt both Toyota and Honda big time, as well as a stronger yen vs. the dollar.

[Re Chrysler’s surge, it was due in large part to its Jeep brand having its best month in five years.]

--Alcatel-Lucent, France’s largest telecom equipment maker, reported third quarter revenues were down 6.8% and guided lower, with the CEO saying Europe is “a hesitant market, and the uncertainties are bigger than we anticipated before.” European sales were off 12%, Asia’s off 19%. I’m expecting Alcatel to cut back on Lucent’s lawn care at its Murray Hill, N.J. headquarters, half the once great-looking property being used now for godawful solar panels.

--Daily deals pioneer Groupon raised $700 million in its IPO, which was priced at $20 a share, above early estimates. The stock immediately ran to $31 on its first day, Friday, before closing at $26. I wouldn’t touch this one. But then I think I advised the same with Linked In’s IPO and I just saw it was up 94% from its initial offering before sliding a bit on news it was floating a secondary. My goal is to be off all social networking sites by 2013. In fact I’m kind of liking that my phone is down right now as part of my power issues, and that among the smarter things I’ve ever done is not give out my cellphone # except to a selected handful, and that I don’t have a message board for this site, and that…sorry, getting cranky without television.

--Speaking of which, Sony continues to struggle, especially because of a decline in its core TV business, and will report a loss of around $1.2 billion this fiscal year, the fourth straight in the red for the Japanese giant. The company has lost money on TVs seven straight years. Rival Panasonic earlier reported similar issues with its television division, with its president saying TV sets were “very quickly becoming commoditized.” Yikes, he’s just learning this?! Panasonic will report a loss of $5.3 billion in 2011, including massive restructuring charges in the TV space, this after earlier forecasting a profit for the year.

--China is up to its old tricks in coming up with new rules requiring foreign workers to pay contributions to the country’s social insurance system. While for large multinationals the expense is limited, smaller companies could be hit hard. The confusion is in the central government leaving it up to municipalities to determine fee levels and payment methods and the cities aren’t ready to collect, even though the law took effect Oct. 15.

--India’s PMI was 52.0 in October vs. 50.4 in September, a good sign.

--Before you invest in defense stocks, just remember that in the case of Europe (and the U.S.), most governments are under the gun to slash defense spending as part of their austerity programs. For example, Defense News reports that procurement in Italy is set to drop 28 percent in 2012.

--The average debt of college seniors who graduated in 2010 with student loans rose 5% from a year earlier to $25,250, according to a report funded by the Bill and Melinda Gates Foundation, in case you wondered what they did all day, because in fighting malaria there’s only so much you can see from a petri dish. This doesn’t include data from for-profit colleges, like the University of Phoenix, whose graduates typically carry levels of debt that are even larger.

--Advanced Micro Devices, truly one of the more pathetic companies in the history of the U.S. that hasn’t gone under, is cutting 10% of its workforce, or 1,400 jobs, as the chip maker struggles with manufacturing glitches, and a failure to penetrate the mobile-device market.

--Starbucks reported U.S. same-store sales rose 10% in its fiscal quarter ended Oct. 2. I’m not a Starbucks fan, being a Dunkin’ Donuts kind of guy, but I love to report on successes (and turnarounds) like Starbucks’ rather than AMD’s perennial “Suckathon.”

--Fodder for Occupy Wall Street types: Nabors Industries, a leading oil-driller, is handing chairman Eugene Isenberg, 81, $100 million as part of a severance-style deal. Isenberg, long one of the best paid executives in the nation, has been chairman and CEO since 1987, but a clause in his contract was triggered entitling him to the extra $100 million “as a result of a change in responsibility” as he stepped down from his CEO title, though he’ll remain chairman.

The thing is it was the board that removed Isenberg from the CEO slot, but, according to an outside director, they couldn’t do anything about the $100 million because it was a contractual matter.

It has long been known that Isenberg’s packages were outrageous, especially when you consider that in this volatile business there are often big swings in employment. He deserves scorn, particularly as shareholders have hardly prospered. [I’ve traded it successfully a number of times, however, but haven’t been in the name in probably about 7 years.]

--Credit Suisse is axing a further 1,500 jobs after announcing 2,000 job cuts in July, while Nomura Holdings, Japan’s largest investment bank, is slashing an estimated 700 positions, mostly in Europe, on top of an earlier announced 400 cuts.

--The New York City Marathon is being run on Sunday. The economic impact on the Big Apple from the 47,000 runners is $350 million and $10 million in New York City tax revenue.

--Speaking of New York, discount clothing retailer Syms, a fixture in the area since 1959 when the late SySyms founded the company and became ubiquitous with his famous slogan, “An educated consumer is our best customer,” filed for bankruptcy. It was in 2009 that daughter Marcy Syms, upon Sy’s death that year, combined Syms with 102-year-old Filene’s Basement, a combination that never worked. Both declared Chapter 11 on Thursday.

--If you have a Gustav Klimt lying around, you may want to take it to Sotheby’s. They just sold one of the Austrian artist’s works for $40.4 million at an auction of Impressionist and modern art in New York that took in nearly $200 million. A Picasso went for $23 million. A group of eight works by my man Claude Monet sold for a collective $21.6 million. The Claudester can still bring it after all these years.

--Researchers trawling the waters of Long Island Sound say they have never seen so few lobsters, even as they appear to be thriving in Maine. From south of Cape Cod to North Carolina, however, scientists are baffled over the decline, though overfishing could be a cause. Warmer water could also be drawing Larry and Larisa to deeper, cooler spots. Before a devastating lobster die-off in 1999, for example, there were 300 lobstermen in Connecticut. Today there are 30.

--And we note the passing of Allen Bernstein, 65, who led a 1989 purchase of the original Chicago-area Morton’s and built it into a 77-restaurant empire with outlets as distant as Singapore. For those on an unlimited expense account, Morton’s was always a solid choice to entertain a top client.