Week in Review Part II: Street Bytes

Stocks were up solidly for the second week in 2012, with the Dow Jones adding 0.5% to 12422, while the S&P 500 gained 0.9% and Nasdaq tacked on 1.4%.

U.S. Treasury Yields

6-mo. 0.05% 2-yr.   0.22% 10-yr. 1.86% 30-yr. 2.91%

It was another week that saw a flight to quality, or to the best house in a bad neighborhood, especially at week’s end with the expected European downgrades.

Morgan Stanley economist Stephen Roach continues to believe China will fair far better than India when it comes to this dicey time and that there will be no hard landing in the former, but could be in the latter.

China reported December imports rose 11.8%, a 2-year low, while exports were up 13.4%, also a 2-year low, but clearly the import figure was partly due to lower prices, not fewer purchases.

The December consumer price index came in at 4.1%, still high but far below July’s 6.5% peak for the cycle. Lower inflation makes it easier for monetary authorities to loosen up and spur growth.

Housing remains a big concern, with most expecting a further decline in prices for 2012 of 10-20%.

Capital outflows continued a third straight month in December.

Passenger car sales rose 5.2% in 2011, the slowest pace ever, but total sales of 14.5 million still beat the U.S. figure of 12.8 million for the year. Local brands in China made up 29% of sales. This figure should grow strongly, especially if trade tensions worsen. Currently, the U.S. and China are battling over solar cells and steel.

In India, software services giant Infosys saw its share price tumble as it cut its revenue forecast owing to Europe’s problems.

Overall, industrial production in India rose 5.9% in November, this as the December PMI was a previously reported 54.2 (HSBC).

But inflation is still running at 9%, prohibiting aggressive loosening of monetary policy to keep the economy chugging.

According to an anti-crime group SOS Impresa, the Mafia in Italy is the country’s biggest “bank” and squeezing the life out of thousands of small firms.

“Extortionate lending by criminal groups had become a ‘national emergency.’

“Organized crime now generated annual turnover of about $175 billion and profits of more than $125 billion,” the report added.

The criminal gangs account for 7% of national output. 200,000 businesses were tied to the crime groups. Small businesses, unable to obtain credit during the economic slowdown, have had to turn to the Mob. [Reuters]

The Wall Street Journal reported that Bank of America Corp. has told U.S. regulators it is willing to downsize, a geographic retrenchment, if its financial problems persist. There are 7,400 U.S. banks and savings institutions, but only BofA, JPMorgan Chase and Wells Fargo have a true coast-to-coast presence.

Personally, should Bank of America be forced to exit a few regions, I’d make sure it kept the Barbecue Belt…that’s Caroline Barbecue, my friends…preferred by the editor over the Kansas City and Texas varieties. Regardless, it seems clear BofA will be exiting smaller cities that have not been as profitable as larger ones.

Others believe BofA will spin off or sell its Merrill Lynch operation.

Regarding release of the Federal Reserve’s minutes from 2006 and how Fed governors blew it when it came to predicting the housing crisis, it’s all in this space…my columns. I’ll have to resurrect a few “Wall Street History” pieces I did on the topic. The only fair thing to say about Chairman Bernanke, after he took over for Mr.

Bubble, Alan Greenspan, is that Bernanke was clueless. Thankfully he got himself together to save the banking system, but has now killed seniors with his zero interest rate policies. A pretty mixed record thus far, to say the least.

On Wednesday, corn, soybean and wheat prices plunged after the U.S. Department of Agriculture issued a report forecasting larger inventories than analysts expected, easing concerns on food price inflation. In the case of corn, the figure was 12 percent higher than initially projected.

World food prices fell 2.4 percent in December, according to the UN’s Food and Agriculture Organization. Global wheat supplies are at levels not seen since 2000, owing to rising output in Australia and Russia. I could show you how I nailed that one way back just looking at the weather and getting notes from readers in those countries. I haven’t given a forecast for commodities this year. It’s all about debt and global hot spots for now, sports fans.

Bucking the trend, orange juice prices hit a 34-year high this week owing to food safety concerns out of Brazil, the leading producer of the fruit. The Food and Drug Administration announced it would block imports containing a fungicide commonly used there.

U.S. consumption of O.J. has fallen by nearly a quarter in the past decade, according to the USDA. PepsiCo, which owns the Tropicana brand, and Coca-Cola, which sells Minute Maid, account for 62% of all orange juice sold at U.S. supermarkets.

Wall Street bonuses and overall pay for 2011 will fall anywhere from 15% to 50%, while yearly raises at the lower ranks are being phased out, according to Bloomberg and the Wall Street Journal. In the case of New York City and New York State, this will have a huge impact on tax revenues and the 99%, which includes many of these same Wall Streeters, as much as the OWS crowd refuses to understand this.

Interesting tidbit from Crain’s New York Business’ Greg David. Wall Street wasn’t always so profitable, nor its pay so large.

“Salomon Brothers CEO John Gutfreund – the Lloyd Blankfein of the 1980s – made $3.1 million in 1986, considered outrageous at the time. Goldman Sachs paid Mr.

Blankfein $68.5 million in 2007, nine times what Gutfreund made after adjusting for inflation.

“The future of Wall Street and finance might be more like the 1980s rather than the ‘70s, but the adjustment will be plenty painful.”

Apple was forced to stop retail sales of its iPhone 4S in China after its flagship store in Beijing was the scene of violence. Appleonians had been camping out in freezing temperatures, waiting for the opportunity to buy the phone, but when told by store employees there would no iPhone 4S that day, a few of the customers started throwing eggs.

It turns out demand has been so incredible, Apple’s stores in China had already sold out, plus in the case of Beijing, security was a serious concern. There are alternative ways for Chinese customers to purchase the product. The problem is really with black marketeers and scalpers.

I missed this last time, my casino barometer in Macau. Revenues for all of 2011 rose 42% over 2010, though December’s were up 25%. I’ve said I’d become concerned when the monthly figure got below 20%. Revenue growth in 2010 over 2009 was 58%. Revenue in Macau is now five times that of Las Vegas. But, non-gaming revenues in Macau are just 5% of total revenue vs. half for Vegas, when breaking out conferences/conventions, shows and dining.

[Hong Kong Disneyland recorded its strongest results in 2011 since opening in 2005, with attendance up 13% and hotel occupancy at 92% at the theme park.]

Hong Kong’s roadside pollution levels in 2011 were the worst ever, which is not good for attracting commerce. I’ve been there a bunch of times and it’s generally awful (as much as I still love the place). But if you’re a corporation, you have to take into consideration quality of life for your employees, let alone how many would want to relocate there if that’s the decision to be made.

Russia saw capital outflows of $84.2 billion last year, according to the Central Bank, the second-highest figure since 1994. $37.4 billion of the total was in the fourth quarter, an example of the tremendous uncertainty surrounding the entire political situation there.

GM sold 8% more vehicles in China last year than in 2010; 2.55 million units, or more than the above-noted overall growth in the China market.

I forgot two other items from last time I want to get down for the archives.

Canada’s jobless rate rose to 7.5% in December.

And investors pulled $132 billion from U.S. stock mutual funds, the fifth straight year of withdrawals for the domestic variety, according to the ICI.

According to a survey of 400 businesses in Ireland, the vast majority are set to freeze or slash pay in 2012. Irish wages have been significantly higher than the rest of the European Union for years. This is a needed step, unfortunately for those affected, in order for Ireland to restore competitiveness. It should be no surprise that a survey of consumer sentiment in Ireland registered its biggest decline in December in over a decade.

Job cuts…Novartis AG said it will slash 1,960 jobs as it restructures its U.S. businesses due to a key patent loss and failure of a high blood pressure medicine. Of the job cuts, 1,630 will come from the sales force, so if you see some dapper folks outside Dunkin’ Donuts trying to hawk overpriced drugs that have generic alternatives, ask them for a current ID.

Vestas Wind Systems is cutting another 2,300+ jobs, or 10% of its staff as the wind turbine maker fights to compete with Chinese suppliers. The Denmark-based company said a further 1,600 jobs in the U.S. are at risk if the tax credit supporting the industry expires. Vestas slashed 3,000 jobs in October 2010, and 1,900 in April 2009.

Delhaize Group SA, the owner of Food Lion supermarkets, plans to cut 5,000 positions and 113 Food Lion stores in the U.S. People in those communities will now starve to death.

Royal Bank of Scotland PLC is shedding a further 3,500 jobs from its investment banking unit over a three-year period. Just a month or two ago, RBS said it was lopping off 2,000 from the same area. The bank is 83% owned by the U.K. government after the bailouts of the financial crisis.

Archer-Daniels-Midland Co. is cutting 1,000 jobs. Earlier, ag giant Cargill said it plans to eliminate 2,000 positions. In both cases it’s about profitability despite the boom in the sector.

MetLife, the largest U.S. life insurer, is axing 4,300 jobs as a result of shutting down its residential mortgage business.

But…there was some good employment news in the U.S. BMW is adding 300 jobs this year to its Spartanburg, S.C. plant. This flagship operation has been in existence since 1994 and BMW says it has invested nearly $6 billion in the state thus far.

While Home Depot is hiring 70,000 seasonal workers this spring, its busiest period, up 17% from year ago levels.

Natural gas prices continued to plummet as U.S. energy companies expand their drilling operations further, which is not beginning to make a heck of a lot of sense. At the pricing levels of today, drilling for nat gas is nowhere near as profitable as drilling for oil, though sometimes the operations can result in both products. Many companies simply don’t have ways to transport the nat gas they find.

Then again, as a Journal article pointed out, “Some gas fields produce so much ethane, a valuable liquid used to make plastics, that companies will drill regardless of gas prices. In addition, some companies need to continue drilling so they don’t violate terms of leases on millions of acres of land – deals struck when gas prices were high.” No word on whether any of the drillers have hit China.

Of course the above is great news for U.S. consumers, with more than half heating their homes with nat gas. The government is forecasting an 18% price drop this winter.

Venezuelan President Hugo Chavez said his government would ignore a World Bank-affiliated arbitration body’s ruling that it owed Exxon Mobil $900 million after Venezuela nationalized Exxon’s assets in 2007.

The Securities and Exchange Commission is stepping back from its longstanding practice of allowing companies to settle fraud charges by paying a fine without admitting or denying guilt when at the same time the individual or company has been convicted of criminal violations. If the SEC is acting alone, however, the agency would continue to use the language as part of the settlement process. At least it’s a good step.

Former General Electric chairman Jack Welch on CNBC this week:

“A great economy grows with innovation, with great people, with a president yelling, ‘We’re going to grow,’ not saying, ‘You rich bastards.’… ‘No, we’re going to grow and we’re all going to grow together. I’m not going to divide you from you, we’re all a ‘team growth,’ we’re team America.’”

Japanese and Canadian regulators have weighed in on the Volcker Rule, which would ban U.S. investment banks such as Goldman Sachs from proprietary trading, thus exacerbating a liquidity crunch. The banks have argued that banning proprietary trading would impact their market-making functions. Japan and Canada are concerned about the impact on global government debt. Earlier, European officials voiced similar concerns on the effect of the rule on the $13 trillion eurozone debt market.

Raymond James Financial, Inc. acquired Morgan Keegan & Company. Being familiar with both when I was on the Street, this is one deal that makes eminent sense. Nice cultural fit, as both firms’ executives put it. Raymond James will increase Morgan Keegan’s existing presence in Memphis, for one. [Unrelated to the transaction, the Memphis Grizzlies’ Rudy Gay scored a season-high 26 points in the team’s win over a pathetic Knicks squad on Wednesday night.]

As one who flies Continental Airlines fairly frequently to Europe, I was disturbed to see that as part of its merger with United, Continental is making more unexpected stops in Canada on the leg home if it encounters strong headwinds over the Atlantic. The issue is United Continental are now employing smaller, less expensive to use jets that don’t have the fuel capacity.

Some are pooh-poohing this, pointing to only 43 flights out of nearly 1,100 that were impacted, but if you’re on one of those that has to make a pit stop, these are not simple delays.

But for Canadian airports such as Goose Bay and Gander, the fueling stops are highly profitable. Now if you tell me that I get to purchase some premium, like Moosehead, while on the ground in Canada, I won’t complain.

Hotel room rates nationwide rose 4.3% in 2011 over 2010. They are expected to increase 3.6% this year.

Manhattan apartment rents rose a whopping 9.5% in the fourth quarter. The median is now $3,121 a month, owing to weak home purchases and a still tight credit market.
Attendance at the Museum of Modern Art dropped 11% last year, while admissions at the Metropolitan Museum of Art rose to a record.   In each case it was about blockbuster shows, or lack thereof in the case of MoMA. The Met’s 1978 King Tut exhibition, credited as being the first museum blockbuster, remains the most popular with 1.3 million visitors.

The art market returned 11 percent in 2011, outpacing the stock market a second straight year, according to the Financial Times. Impressionist and modern art delivered returns of 14%, while Old Master and 19th-century art increased 4.8%. I’d still buy Russian art from the 19th-century, if I were you. That era had some spectacular landscape artists…just sayin’.

Barclays Capital analysts have concluded there is an “unhealthy correlation” between the building of skyscrapers and subsequent financial crashes, beginning with the Empire State building, built as the Great Depression was underway, and the current world’s tallest, the Burj Khalifa, built just before Dubai cratered. Barclays warns that China and India are currently the biggest builders of skyscrapers. The report notes:

“Often the world’s tallest buildings are simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and an impending economic correction.”

Long ago I worked with a brokerage firm, Thomson McKinnon Securities, and our chairman, in his infinite wisdom, decided we needed our own building, just as Wall Street was about to crash in 1987. We called it his ‘edifice complex.’ Shortly after moving in, we went under.

Back to China, it is indeed disconcerting that it is responsible for 53% of all the tall buildings currently under construction in the world.

As for India, it currently has just two of the 276 skyscrapers over 240 meters, yet over the next five years plans to complete 14. [BBC News]

The maker of Twinkies and other crappy products, Hostess Brands Inc., filed for bankruptcy. It’s up to the court, as the company continues to operate, to ensure that the products on the shelf are no more than 400 days old.

Uh oh…strike the above from the record. I just realized Hostess’ Drake’s unit makes my favorite, Funny Bones, which are best eaten frozen. Never mind….

Finally, bedbug cases in New York City are down! Repeat…bedbug cases in Gotham are down! This is the best news I’ve seen in months. [I’m a Jets and Mets fan, you understand.]