Week in Review Part II: Street Bytes

Stocks finished mixed with the Dow Jones off a fraction, 5 points, to 12977, while the S&P 500 rose 0.3% and Nasdaq gained 0.4%. The Dow Jones hit the 13000 level but couldn’t hold it for a second week, while Nasdaq briefly hit 3000. Nonetheless, in the case of the Dow and S&P 500, they remain at levels not seen since spring 2008, while Nasdaq was last at its level in 2000.

Shares in Apple rose to another all-time high, closing the week at $545, for a market cap of $508 billion, rarefied air in the investment world. Microsoft was briefly worth $500 billion at the end of 1999 and early 2000, while Cisco Systems, Intel and General Electric all peaked at just above $500 billion in early 2000. Since then they’ve all have fallen mightily.

Apple is to unveil the iPad 3 this coming week.

U.S. Treasury Yields

6-mo. 0.11% 2-yr. 0.27% 10-yr. 1.97% 30-yr. 3.10%

China reduced its holdings of U.S. government debt last year for the first time since the Treasury Department began keeping track of the data in 2001. China now holds $1.15 trillion in Treasuries as of Dec. 31, down from $1.16 trillion at the end of 2010. Treasury revised some data and now shows China’s holdings peaked in July at $1.3149 trillion.

[Japan is still America’s second-largest lender, with $1.06 trillion of Treasuries. The U.S. Federal Reserve remains the top holder with $1.66 trillion on its balance sheet.]

China’s February PMI came in at 51.0, thus lending credence to the soft-landing camp, of which I’ve been a nervous member.

The Shanghai Composite Index closed the week at its highest level since mid-November. It’s also on a seven-week winning streak, the longest since July 2009 as investors believe the government will announce some pro-growth measures at the National People’s Congress.

In my key barometer for the health of China’s economy and the growing middle class, casino revenues in Macau rose 22.3% year over year in February. Here’s the trend.

Feb. 2012…22.3 percent
Jan. 2012…34.8
Dec. 2011…25.0
Nov. 2011…32.9
Oct. 2011…42.3
Sept. 2011…38.8

The outlook is generally for 15% to 20% growth throughout 2012.

China is looking to put a brake on highway spending amid concerns over high debt levels resulting from earlier projects, according to the top economist in the country for such matters, as told to government mouthpiece, Global Times.

“The major concern is huge debts accumulated from highway projects. Road construction funds account for the majority of local government loans from banks, posing great financial risks to banks,” said Guo Wenlong.

I didn’t realize the risks are greater with the highway projects than with high-speed rail. In many places the toll revenue doesn’t meet interest on loans.

Back to gambling, revenues in the U.S. are showing small signs of life, up 2.3% in the first 11 months of 2011, according to the American Gaming Association, though many of the biggest operators, such as Caesars Entertainment, are saddled with humongous debt loads. After posting my column last week, I headed to Prior Lake, Minn., and the Mystic Lake Casino Hotel, an Indian operation. I was startled how big it was and business was brisk. It also seems the ‘tribal’ leaders refuse to talk to the press, or the surrounding community, probably because they don’t want anyone knowing how rich they are.

February proved to be a strong month for U.S. auto sales, the best Feb. since 2008, as automakers sold cars at an annualized sales pace of 15.1 million. Fuel-efficient vehicle sales benefited in particular with rising gas prices. Honda, for example, sold 42% more Civics than a year earlier. Toyota Prius sales rose 52% to more than 20,000.

Overall, Chrysler’s U.S. sales rose 40.4% vs. the same month a year ago; Ford’s increased 14%; General Motors’ edged up just 1%, but this was coming off an incentive-laden Feb. 2011; Toyota was up 12.4%; Honda up 12.3%; Nissan 15% and Hyundai 17%.

[General Motors announced on Friday it was halting production of the battery-powered Chevy Volt for five weeks due to poor sales.]

Among the chain store retailers reporting strong February sales were Saks, up 6.6% year over year; Macy’s, up 4.6%; Target 7%; and Nordstrom’s 10%. Only Kohl’s were weak, down 0.8%.

From January 2011 to January 2012, the unemployment rate for the euro-17 has risen from 10.0% to 10.7%, while the rate in the U.S. has declined from 9.1% to 8.3%.
India’s economy slowed in the fourth quarter with GDP growth down to 6.1%. February’s PMI, however, was a still solid 56.6 vs. January’s 57.1.

Russian foreign direct investment soared to $18.4 billion last year, up 33% over 2010. Putin can legitimately point to a stronger economy as his countrymen go to the polls on Sunday.

Canada’s fourth-quarter GDP came in at 1.8% on an annualized basis, following a revised 4.2% gain for the third-quarter.

TransCanada announced that despite the Keystone XL oil pipeline being put on hold for the segment crossing the U.S-Canada border, it would build the segment from Oklahoma to the Gulf of Mexico, which does not require presidential approval.

Editorial / Washington Post

“The White House embraced the announcement, and deservedly so. The Oklahoma-to-Texas segment will accomplish one of the primary goals of the Keystone XL project:

alleviating an inefficient glut of crude in the central United States. Constructing it will help untangle the politics, too: Opposition to the full pipeline should moderate as the first stage creates construction jobs.”

Late Friday came word that BP had reached a settlement with lawyers representing tens of thousands of victims of the 2010 Gulf of Mexico spill. I’ll have more on this next time, though the figure being bandied about is $7.8 billion. The victims’ attorneys get $7.7 billion…the victims themselves, $100 million.

This is depressing. According to an analysis from a research firm in Washington, D.C., Wider Opportunities for Women, as reported by Walter Hamilton of the Los Angeles Times, “Of the nearly 20 million older Americans who live alone or with a spouse, about 47% can’t afford everyday necessities such as proper nutrition and medical care.” [Another 20 million seniors live with family members or in group settings such as nursing homes. They aren’t included in the study.]

A Dallas-area doctor, Jacques Roy, was accused of bilking Medicare of $350 million over a five-year period in the largest Medicare fraud scheme by dollar value ever linked to a single physician. Roy and six other alleged accomplices were charged with conspiracy to bill the government for unnecessary services or those never provided.

I’ve said this before and I can’t help but repeat it. White-collar crime on such a massive scale should result in the death penalty. As it is, if convicted on all nine counts of health-care fraud, the 54-year-old faces a maximum sentence of 100 years in prison. The threat of a death sentence would stop this stuff cold.

AT&T is ending unlimited data plans and will slow download speeds for those exceeding the limits on their 3G and 4G smartphones. The company says it will send a text message when your usage nears the cap in a billing cycle. Once the billing cycle ends, your speeds go back to normal for the next one.

In yet another huge black eye for both the cruise industry and Costa Cruises (parent of the doomed Costa Concordia and a subsidiary of Miami-based Carnival Corp.), the Costa Allegra limped into port in the Seychelles after a fire disabled it. It took two days to tow it. 1,000 passengers and crew were impacted. With no electricity and no air conditioning for three nights, the passengers were crowded on decks in baking temperatures.   You can imagine the living hell it was, with no bathrooms working, for one thing.

The Costa Concordia and other vessels in the Costa Cruises fleet “were hotbeds of sexual harassment, drinking and drug abuse, former crew members have claimed,” as reported by Nick Squires of the Sydney Morning Herald. One woman told Italian prosecutors that Captain Francesco Schettino, the Costa Concordia’s commander, “used women as goods to be exchanged.”

Stephen Schwarzman took home $213.5 million in pay and dividends in 2011, the Blackstone CEO topping the list of publicly traded private equity companies. Of the total, $4.6 million was so-called “carried interest,” which is usually taxed as a capital gain; the loophole for which President Obama proposes to eliminate, which would mean it’s then taxed at ordinary income rates. I totally agree with this.

As for Mrs. Schwarzman, she is very proud of her husband and is busy shopping. “My Stephen is doing such a good job!” she tells anyone who will listen.

Cash bonuses on Wall Street fell 14% last year, according to an estimate by New York State, as the shift to “deferrals” as a larger element of pay continues. Some investment bankers, however, saw bigger cuts, with Morgan Stanley, as previously reported, limiting cash payouts to $125,000.

According to New York State’s comptroller, Thomas DiNapoli, the securities industry gained back 9,600 of the 28,000 jobs lost during the financial crisis, but then in the second quarter of 2011 began shedding positions again. Between April and December, 4.300 jobs were lost. That trend should only continue throughout 2012, I strongly suspect. Of course the declining cash bonuses are killing New York State’s and Gotham’s coffers.

In his presentation for investor day, JPMorgan Chase CEO Jamie Dimon lashed out at criticism of high pay for bankers, as well as Warren Buffett. But then Dimon stupidly said that the compensation-to-revenue ratio at newspapers was higher than that of JPMorgan’s investment bank, adding, “Worse than that, you don’t make any money,” he told the reporters in the room. “We pay 35%, and we make money.”

As the “Heard on the Street” column of the Journal observed, “Of course, newspapers didn’t rely on taxpayers of all income brackets for billions of dollars in bailout funds.”

Speaking of Buffett, he said he was “dead wrong” on housing in his annual shareholder letter, but is now very bullish on the sector. Frankly, I’ve grown weary of the guy.

Aaron Elstein / Crain’s New York Business, on JPMorgan Chase’s retail clientele, “nearly half of its customers” being unprofitable.

“Here’s the math, as given in (an investor presentation). 69% of Chase’s customers have less than $100,000 in their accounts. Of those clients, 70% are unprofitable….Now, 70% of 69 equals 48. That suggests Chase is losing money on just about half of its retail customers, which came as quite a surprise to the investment pros assembled at the bank’s Park Avenue headquarters for the presentation.”

Yet Chase is plowing ahead with plans to add another 900 branches in the years to come.

IBM fired more than 1,000 workers in North America this week, mostly in the U.S.

General Electric’s global work force expanded last year by 4.9% to 301,000. Employment peaked in 2007 at 327,000, with 155,000 being in the U.S. at the time. As of December 2011, the figure here was 131,000.
James Murdoch quit News International, a result of the News of the World phone-hacking scandal that forced that publication to close last July.

McDonald’s is looking to ramp up in China. So far it has lagged Yum Brands Inc. in opening outlets on the mainland, as Yum has about 4,500 restaurants under brands including KFC and Pizza Hut, while McDonald’s owns more than 1,400, with a goal of opening 225-250 there this year.

Federal investigators are looking into scores of wire transfers in the final days of MF Global, including a possible movement of $325 million in suspected customer funds, as reported by the New York Times. Investigators have also reviewed another $220 million transfer on Oct. 31, the day the firm filed for bankruptcy. Former CEO Jon Corzine remains untouched…at least thus far.

Michael Jordan is selling his Highland Park, Illinois home for $29 million. He built it between 1993 and 1995, and it features at least 15 baths, which would have come in handy on the Costa Allegra, not to conflate the two.

I’m going to miss Continental Airlines, which had its last flight Friday night with the changeover to United now being complete. I started flying Continental heavily in the late 1980s when it was the pits. Half my flights seemed to have mechanical problems.

But then Gordon Bethune took over and righted the airline. I miss Gordon!

I saw a piece in Investment News concerning former NBA star David Robinson, who now has a private-equity firm, Admiral Capital Group. Thus far, Admiral is focusing on real estate, buying five office buildings and hotels in California, Nevada and Texas.

Years ago I wrote in this space, seriously, that I’d vote for David Robinson for president. I hadn’t thought of him in a while until seeing this article, though. Now, more than ever, I wish he’d give politics a go. The Naval Academy graduate is superior to anyone in either party today.

Ever wonder how much a dancer makes? You know, a regular dancer, like you see on the Oscars or on Broadway…not an adult dancer, cough cough. According to a study released in New York City, the average professional dancer earns only $28,000, which is basically living in poverty in these parts. So parents…encourage your kids to pursue an engineering degree instead.

Finally, last week I mentioned the Kimberley, a region in Western Australia, where a pink diamond was found. So I’m reading a travel section piece in the Los Angeles Times by Amanda Jones and I see this, Ms. Jones having just written of how friendly the people are there:

“Of course, the Kimberley also has man-eating saltwater crocodiles and an unsettlingly large number of the Earth’s most poisonous snakes, spiders and jellyfish.”

I wouldn’t be able to sleep there, knowing this. I think I’ll just stay home the rest of this year.

The Los Angeles Times, by the way, is joining a growing number of newspapers worldwide in charging readers, as of March 5. You wouldn’t believe how much I’m now spending on subscriptions from around the world to bring you the best each week.

So don’t forget I have an iPad app, which I’m now charging for…assuming my Web people set it up right, yours truly not having an iPad himself yet.