Week in Review Part II: Street Bytes

Stocks resumed their advance after a one-week respite with the Dow Jones adding 1.2% to 12949, the highest level since May 2008, while the S&P 500 was up 1.4% and Nasdaq gained 1.6%. Nasdaq is already up 13% for the year and sits at levels not seen since December 2000. Should the Greece issue be temporarily resolved come Tuesday morning (the U.S. markets being closed Monday for Presidents Day), we could easily see Dow 13000 and Nasdaq 3000 the same day.

Again, if you strip out Apple’s earnings from the S&P 500, the fourth-quarter gain in earnings for the index, year-over-year, is just 2.8%, according to UBS.
U.S. Treasury Yields

6-mo. 0.12% 2-yr. 0.29% 10-yr. 2.00% 30-yr. 3.14%

Treasuries were as close to unchanged on the week as you can get despite the solid economic news, once again tempered by uncertainty over Greece mid-week, while the inflation data offered up no real surprises.

Producer prices in January rose 0.1% and were up 0.4% ex-food and energy. For the past year the PPI is up 4.1%, 3.0% on the core. Consumer prices rose 0.2% on the month, and 0.2% on the core, while the past 12 months the CPI has risen 2.9%, 2.3% ex-food and energy.

On Thursday, all three major news networks led off their programs with the story of General Motors’ record 2011 profit, $7.59 billion for the year, the best in its history. GM shares rose 6% on the news.

But the European business continues to struggle, losing another $747 million after a loss of $1.95 billion in 2010. Folks in Europe are worried the automaker is preparing another round of cuts there after previously eliminating 8,300 jobs at its Opel division.

The U.S. government still owns 32% of GM’s shares going back to the taxpayer-funded restructuring in 2009. GM is looking to pay profit sharing bonuses of up to $7,000 each for its 47,500 blue-collar workers, while the office folks are being pared back a bit.

[GM had its IPO, post-restructuring, in Nov. 2010, at $33 a share. The current price is $27.30. The government doesn’t make money until the stock hits $53.]

Shares in Apple hit $500 for the first time on Monday and then traded up to $526, intraday, before backing off and finishing the week at $502. Had Apple been added to the Dow Jones Industrial Average on June 8, 2009, instead of Cisco Systems when it ousted then-struggling GM, after Wednesday’s close, the Dow would be trading at a record 14810 instead of Wednesday’s close of 12781, according to Bespoke Investment Group and Adam Shell of USA TODAY. Back in June ’09, Apple was $143.

But Apple has a major trademark dispute in China as authorities began removing iPads from some stores after a court ruling that Proview Technology owns the right to the product’s name. Proview originally registered the name “iPad” in Taiwan in 2000 and on the mainland in 2001. Apple bought Proview’s iPad trademark for $55,000 in 2009. Proview claims the deal only applies to Taiwan and that it didn’t know that an Apple subsidiary called IP Application Development was connected to Apple.

Proview’s hope has been that Apple would pony up a large sum for the China trademark to help dig Proview out of its debt, said to be about $500 million.

Thomas Black of Bloomberg reports:

“Global companies from NEC Corp. to PepsiCo Inc. and AstraZeneca Plc are chopping jobs more than three times faster than in 2011 as they brace for recession in Europe and a slowdown in China.

“Announced workforce reductions surged to 94,369 through Feb. 10 from 26,561 a year earlier, according to data compiled by Bloomberg. Employers based in Western Europe accounted for the biggest group of job-cut disclosures, threatening to add to unemployment in the euro area already running at a 13-year high.”

China instructed its banks to rollover loans to local governments, some $1.7 trillion in debt to provinces and cities – about a quarter of the country’s GDP – with more than half of the loans due in the next three years; an attempt to delay the day of reckoning. Banks have been extending maturities for local governments to avoid a wave of defaults, sources are telling the Financial Times.

No doubt, this is kicking the can down the road, but it is also buying more time for the government to find a more permanent solution. Not dissimilar to some of the aspects of the European debt crisis.

Separately, foreign direct investment here fell for a third consecutive month in January, November’s decline having been the first since 2009. The Commerce Ministry called the outlook in this category “grim.”

Analysts are forecasting that the government will announce at a National Party Congress in March that the GDP target for 2012 will be 7% to 7.5%. While that’s a significant comedown, and worrisome, it also needs to be noted that average disposable income rose 14% in 2011.

Japan’s economy shrank for the third time in four quarters, with Q4 GDP falling an annualized 2.3%, owing in no small part to the floods in Thailand, as well as a strong yen that hit exports. However, the government remains optimistic on the future, thanks to reconstruction demand in the quake-hit region, for starters.

Separately, core consumer prices fell 0.1% year-over-year in December, the third straight month of decline. Prices haven’t risen at least 1% in Japan since 1997.

Inflation in India is coming down. Wholesale prices rose 6.5% in January, compared with 7.4% in December, though growth is also slowing.

The youth unemployment rate in Greece is 48%.

Median home prices in the key six-county Southern California market fell 3.7% in January to $260,000, only 5.2% above the low hit during the worst of 2009 (April ’09…$247,000). Foreclosure filings were down 23% vs. January 2011, though with the recent bank settlement over foreclosure abuses, more properties will be hitting the market.

Interestingly, only 669 newly built homes sold in the region in January, the lowest since DataQuick started keeping track in 1988, so it seems clear many prospective homebuyers continue to have problems getting financing.

S&P raised California’s outlook on the state’s ability to repay its debt to “positive” from “stable,” saying “We think the state is poised for credit improvement – and potentially a higher rating.” This is good. Should it come to pass, Democratic Gov. Jerry Brown will deserve a ton of credit. But one problem. California has to keep cutting.

Robert Zoellick announced he was stepping down as president of the World Bank, where he’s been in charge since 2007. Hillary Clinton and Lawrence Summers have always been mentioned as possible successors, though Clinton has steadfastly denied she’s interested.

Traditionally, the U.S. gets the World Bank head slot while a European gets the IMF’s top job, but now China is angling for at least far more say in the former, which they deserve.

Personally, it looks like a good gig. I’m assuming at Christmas you get beer samplers from every country.

“Mr. Trumbore, the Tiger Beer from Singapore came in.”

“Yes!”

Speaking of beer, Heineken NV announced it would continue to cut costs as profit slipped for 2011. Volumes were flat in Europe, up 1% in the Americas, up 6.5% in Central & Eastern Europe, and in Africa, the Middle East and Asia Pacific they grew 6.2%.

[The Heineken Brewery tour in Amsterdam is a must see.]

CBS Corp. reported a 31% increase in fourth-quarter profits, owing to its cable operations, but total revenue declined due to weaker advertising; important because this is 2/3s of its revenue, though you’d expect this to rise come the second half with all the election year advertising coming down the pike.

Linsanity (the Jeremy Lin phenomenon) has been a godsend to MSG Network with television ratings soaring. Wednesday’s win over the lowly Sacramento Kings drew the best audience yet in the six games Lin has started, prior to Friday night’s contest. Shares of Madison Square Garden Company hit a record high during the week as Lin’s emergence not only is good for ticket prices, merchandise sales and ratings, but it was clearly an impetus behind a late settlement on Friday between MSG and Time Warner Cable to resolve their ongoing dispute, which had resulted in a blackout for fans using the Time Warner Network.

[The Knicks then lost to lowly New Orleans, thus ending Lin’s, and the team’s, winning streak at seven.]

I mentioned the Tappan Zee Bridge last time and this week New York officials announced they were looking for a $2 billion federal loan to help pay the $6 billion estimated cost to replace the 56-year-old erector set special. The state is convinced it can break ground in August. Seeing actual work on a new bridge will only aid New York Gov. Andrew Cuomo, the Democratic Party’s 2016 nominee for president, as I predicted way back.

[Some are already calculating that the toll on the new bridge could be as high as $30 by 2022, up from the current $5.]

4,000 passengers were left stranded as Aussie discount air carrier Air Australia filed for bankruptcy. 100,000 tickets have been sold and flyers are unlikely to get refunds. 300 staff are history. The airline was popular for its flights to Phuket and Honolulu and passengers were stranded when the planes were refused fuel.

A Czech Airlines pilot died during a flight from Warsaw to Prague, but the copilot had no problem guiding the plane to a safe landing.

United and Continental are merging their computer systems the first week of March, so you may want to do some planning beforehand…just sayin’. These things seldom go smoothly.

How many channels on your basic cable system these days? A lot. I got a kick out of a notice I received from Verizon concerning my own service. They are eliminating “Funimation” and “Bridges TV” due to “very low viewership.” I had never heard of these two. They could eliminate another 100+ for all I care.

As part of Eastman Kodak’s bankruptcy filing, the company will take its name off the Kodak Theatre prior to the Oscar awards show there, Feb. 26, as part of Kodak’s efforts to save money. Kodak had previously agreed to pay $72 million in annual installments over 20 years, according to a court filing, or $3.6 million a year and has $38 million in payments left on the contract. [Crain’s New York Business/Bloomberg]

Casino revenues in Atlantic City fell 7.2% in January despite the warm weather, this after a surprising increase in December. Only two of 11 casinos showed increases in revenue.

Speaking of warm weather in January, six degrees above normal in the New York-New Jersey area, you can imagine how local ski areas are taking a pummeling. Crain’s New York Business interviewed ski-related proprietors, such as hotel/motel operators, and most say their weekday business is off about 70%. The flip side, as I noted when I was in balmy Manchester, New Hampshire, is that restaurant business is up.

Sign of the Apocalypse: Thieves made off with paintings valued at $6.5 million from Greece’s National Gallery, the first such theft in the gallery’s 112 years of operation, but as the Los Angeles Times’ Anthee Carassava points out, there was just one guard on duty that night for the entire gallery…the result of cutbacks, in this case incredibly short-sighted ones.

Art thefts, though, have been increasing across the continent. In Greece, however, as budgets are slashed in its austerity move, “About 1,900 government-paid guards protect more than 15,000 museums, monuments and archaeological sites across the country.”

And so it was that on Thursday, two armed robbers broke into the museum in Ancient Olympia – the birthplace of the Olympics, overpowering the lone guard. The local mayor called the value of the dozens of items stolen “incalculable.” The Culture Minister tendered his resignation.

Editorial / Washington Post

“In a recent briefing to Congress about worldwide threats, FBI Director Robert S. Mueller III said that the danger of cyberattacks will equal or surpass the danger of terrorism ‘in the foreseeable future.’ What makes that assessment particularly alarming is that the United States may be as unprepared to defend some of its critical computer systems as it was to protect New York and Washington against al-Qaeda before Sept. 11, 2001.

“Though the Pentagon has a cybercommand, it does not cover the domestic civilian economy, including vital infrastructure systems such as the electric power grid, water supplies and the financial system. Many of the computers controlling those utilities lack adequate security measures and could be devastated by viruses launched by hostile states or even hackers. As it is, U.S. companies, from defense contractors such as Lockheed Martin to e-mail carriers such as Google, are under continual assault from China and Russia, which seek to steal industrial or national security secrets and probe for infrastructure weaknesses….

“Cooperation between the government and private companies is also badly needed to ensure protection of power and water plants, banking networks, and other infrastructure essential to modern society.”

At least the Senate is finally working on responsible legislation to ensure better cooperation between the Pentagon, Department of Homeland Security and private companies, but we’ve once again wasted far too much time and implementation should have occurred years ago.

Former National Security official Richard A. Clarke wrote an op-ed for the Wall Street Journal, talking about Arab-Israeli tensions that “have been spilling off the streets and airwaves and onto the region’s fiber optic cables. Citizen hackers on both sides have engaged in tit-for-tat raids on Israeli, Saudi and other regional computer networks. Stock exchanges, airlines, government offices and even hospitals have had their websites defaced or shut down. Credit-card numbers and personal emails have been stolen and posted on the Internet. One Israeli official has labeled the escalating cyber hostility ‘terrorism’ and called for it to be dealt with as such.”

While no one has died, and this is not classic terrorism, Mr. Clarke concludes:
“The recent hacker exchange should…remind us that just as hacking could escalate to the use of conventional force in the Middle East, the reverse is also true. Bombing Iran, for example, could unleash an Iranian government cyber attack. Israelis say they could handle that, despite the recent evidence to the contrary. Unfortunately, much of the critical infrastructure in the U.S. is still not ready for a sophisticated nation-state cyber attack either.”