Week in Review Part II: Street Bytes

Stocks rose on the first trading day of the new year, Tuesday, and immediately some floor reporters started foaming at the mouth, touting their January stock market lore. [I stopped discussing that on my Wall Street History link, by the way.] But the market treaded water the rest of the week and we finished with the gains of Tuesday, essentially. Any positives were met with resistance from Europe.

But now its earnings season and the next three weeks will be interesting. Some companies will blame Europe. Others will blame Asia for any shortfalls. But will any give an ‘all clear’ signal? I seriously doubt it.

U.S. Treasury Yields

6-mo. 0.05% 2-yr. 0.26% 10-yr. 1.96% 30-yr. 3.02%

The yield on the 10-year Treasury got back above 2.00% briefly before Europe concerns ushered in a renewed flight to quality and the greenback.

Meanwhile, in a bid to be more transparent, the Federal Reserve said it will begin to publish its interest rate forecasts for years into the future. All 17 members of the rate-setting Federal Open Market Committee will give their own forecasts, as well as when they expect interest rates to rise for the first time.

The point seeming to be that if the market sees the preponderance of FOMC officials forecasting low short-term rates for longer than the market expects, that may help drive down longer-term rates and thus boost the economy.

I don’t see this being that effective, but getting individual forecasts from the members could be interesting.

China’s manufacturing data for December provided a little shot in the arm for the markets on Tuesday as the government announced the reading was 50.3, rather than the sub-50 HSBC had forecast a week earlier. But Premier Wen Jiabao talked of a “relatively difficult” first quarter and as home prices declined a fourth straight month in December, you still have the important issue for 2012 of the bursting of the property bubble. With a growing price war, as developers frantically try to raise cash, many won’t survive, though the government is prepared for this. They will only feel compelled to step in if a large bank has problems and there is the risk of a systemic crisis.

As for the young homeowner who bought at the top, this is another growing issue. On unfinished properties, many are trying to cancel their contracts with limited success.

Separately, President Hu Jintao vowed that China will make the right structural adjustments, though he warned that imbalances in the country’s development and its lack of sustainability will remain big problems. At the same time, the government is determined to expand domestic consumption.

South Korea’s manufacturing PMI for December was 46.4, the fifth consecutive month below 50.

But India’s PMI for last month was a stronger than expected 54.2.

Research firm Gartner expects worldwide tech spending to grow just 3.7% this year, down from an earlier forecast of a 4.6% gain. Supply constraints brought on by the floods in Thailand are still a major issue.

U.S. auto sales for December were solid, with Chrysler continuing its comeback, up 37% over year ago levels. Ford Motor was up 10% and General Motors saw a 4.6% increase. For all of 2011, Chrysler registered a 26% gain, Ford 11% and GM 13%. Light vehicle sales for all of 2011 totaled 12.8 million. December’s annualized pace is 13.56 million.

Both Honda and Toyota, however, saw sales for 2011 down 7% each, though Toyota eked out a 1% gain in December, while Honda’s dropped a whopping 19% for the month.

Separately, Hyundai posted a 13% gain for December (affiliate Kia’s sales rose 43%), and 20% for the year, while Nissan’s sales for the month were up 7.7% and 14.7% for all of 2011.

I noted a few weeks ago that nothing could stop the global economy, save for an attack on a commercial airliner, like bird flu after the H5N1 virus was found in a bird in Hong Kong. But now we have the confirmed death of a Chinese bus driver from the virus, thus taking the threat to a new level. 60% of humans the virus infects die.

Thankfully thus far, none of the people officials were able to identify that came in contact with the man had signs of the illness but the next few weeks are critical because tens of millions of Chinese will be traveling in cramped buses and trains over the lunar new year holiday, last week in January. Hong Kong has raised its threat level to “serious.” So far the virus hasn’t mutated into a strain that could spread around the world and kill millions.

PetroChina, Asia’s largest oil and gas company, now has 100% ownership of one of Alberta’s largest oil sands developments, buying up the remaining 40% from Athabasca Oil Sands Corp. If President Obama doesn’t act quickly on the Keystone XL pipeline that would bring oil from Canada to U.S. refineries on the Gulf Coast, Canada may just say the heck with you, we’re going to build a pipeline to the west coast from the oil sands and ship it all to China.

In a major step, India will finally allow foreign nationals to invest directly in the country’s listed companies in an effort to widen the class of investors, attract more funds, and reduce volatility, according to the finance ministry. Previously, foreigners could only invest in India’s equity market through mutual funds or institutional channels.

According to a European economist, Zsolt Darvas, Iceland’s policy of letting its banks fail when their economy collapsed worked out far better than the policies adopted in Ireland and Latvia, which suffered similar banking crises.

The three all allowed the credit boom to fuel property speculation and investment imbalances, says Darvas. Then the banks collapsed when property prices fell and all three had to turn to the IMF for help.

Meanwhile, house prices in Ireland declined 13% to 18% in 2011, according to two surveys of the market. Daft.ie reports the average residential property is now off 52% from its 2007 peak, while it was reported 1,930 Irish companies failed last year. More than half the companies in the construction and real estate sectors are considered to be in danger of insolvency. [Irish Independent]

An independent panel urged California lawmakers to postpone the issuance of $2.7 billion in bonds to kick start the $98.5 billion high-speed rail project in the state. The panel questioned whether the federal government would participate in future funding according to current plans. Not doing so leaves California taxpayers on the hook for billions in future costs. Lawmakers don’t have to listen to the panel, but it will be difficult to ignore their recommendation.

Eastman Kodak is nearing a Chapter 11 filing, unless it finds a buyer for its 1,100 patents. The Wall Street Journal editorialized:

“Meanwhile, the companies now riding high on the technological waves that Kodak didn’t catch might consider that they also aren’t immune to business blunders or the impact of new technologies. Kodak so far has managed an astonishing 131-year run. Will Apple, Microsoft or Facebook be around in the 22nd century to say the same?”

[Steve Ballmer took over Microsoft 11 years ago, with the stock at $44. Today it’s around $28. How does he survive?]

In an interview with the New York Times’ Steve Lohr, Samuel J. Palmisano, who just called it quits at IBM after nearly a decade as CEO, said his guiding framework boiled down to four questions:

“Why would someone spend their money with you – so what is unique about you?”

“Why would somebody work for you?”

“Why would society allow you to operate in their defined geography – their country?”

“And why would somebody invest their money with you?”

As opposed to Steve Ballmer, shareholders benefited handsomely during Palmisano’s tenure, with the share price roughly doubling over that time.

Federal investigators are looking into allegations that Wells Fargo and other banks are double-billing for mortgage escrow fees to the tune of $150 million or more, with the average homeowner being double charged about $2,000 if they fall behind on a payment or two, this according to Catherine Curan of the New York Post.

An international arbitration panel ruled that Venezuela must pay Exxon Mobil more than $900 million for nationalizing Exxon’s assets in the country back in 2007, including one of the world’s largest oil reserves.

Tolls on New Jersey’s highways jumped 50% in the new year.

According to reinsurance giant Munich Re, the world had its costliest year ever for natural disasters with an estimated $378 billion in damages in terms of direct property losses. An average year sees losses of $75 billion. The Japan earthquake-tsunami accounted for $261 billion of the total in 2011. It was also the deadliest with 15,840 deaths. Severe storms and tornadoes accounted for $15 billion in the U.S., and Hurricane Irene was another $15 billion.

Meanwhile, the weather has been quite good this winter across the country. The lack of snowfall is leading to major savings for state and local budgets. Ottumwa, Iowa, for example, has a snow-removal budget of $300,000 and hasn’t spent a dime. In my area in New Jersey, it’s funny how the landscapers, who double as snow-removal outfits, made a mini-fortune with Hurricane Irene and then the Halloween snow disaster and resulting tree removal, but now are struggling all over again. Not a good time to be a day laborer as well.

Here in New Hampshire, you can picture the consternation on the faces of those who make their living this time of year. The downhill ski operators are hanging in there with man-made snow, but those in the snowmobiling or cross country ski business can’t afford too many years like this one. I drove up north the other day and was shocked to not even see snow at the top of the mountains. Then again, restaurant business across the state is good when everyone can get around so easily.

Super Bowl ad time is officially sold out, all of the 30-second spots going for a record $3.5 million, according to this year’s network, NBC. Evidently there will be more 60-second ads than before. Volkswagen, for example, is airing a 60-second spot in the third quarter that promotes the 2012 Beetle. GM has five ads. GoDaddy.com, will not only feature Danica Patrick again, but also the Pussycat Dolls! Woo-woo! [Couldn’t give you one song they’ve done, but they are not unpleasant to look at, mused the editor.]