Week in Review Part II: Street Bytes

The Dow Jones finished the week at 12862. The all-time high is 14164, set back on Oct. 9, 2007. What the heck…make a run for it, Messrs. Dow and Jones. For January, the MSCI All-World index of 45 developed and emerging countries was up a whopping 5.7%.

U.S. Treasury Yields

6-mo. 0.09% 2-yr. 0.23% 10-yr. 1.92% 30-yr. 3.12%

Rates backed up Friday on the strong employment report, but on the week hardly moved.

On Monday, though, Federal Reserve Bank of Philadelphia President Charles Plosser conceded to CNBC that he was one of six, among 17 Fed governors, to disagree on the consensus view that rates should be kept near zero until late 2014, saying he thought the Fed would need to raise the funds rate this year. More data like January’s jobs report and consistent readings on manufacturing and he just might be right.

You look at the miniscule returns on bonds and not a day goes by when many of us think, just where the heck are pension funds going to get the kinds of returns they need to meet future liabilities? You can’t put 80-90% of the assets in the stock market and just roll the dice. Eventually you have to start funding the shortfall out of earnings, or, in the case of a public pension fund, you have to cut other programs to meet the obligations, and/or cut the benefits drastically. None of the above is good for the economy, though at least in the last instance it might be the prudent thing to do.

The volume of property loans to both developers of commercial and residential in China fell 38% in 2011 over 2010 as the government reins in the sector following the bubble. China’s PMI for January came in at 50.5, which, coupled with December’s 50.3 reading certainly bolsters the argument for those in the soft landing camp, though with the Lunar New Year holiday occurring the last week in January, I’m not clear on what kinds of distortions need to be taken into consideration for February’s reading, for example.

Separately, the government reiterated its commitment to small business and making credit available where appropriate.

And we await President-in-waiting Xi’s visit to Washington on Feb. 14.

India’s PMI for January was a robust 57.5, after a solid 54.2 in December, but India is still dealing with 9% inflation and has all manner of serious political issues.

U.S. auto sales rose to a 14.2 million annualized rate in January, 11.4% better than last January. No doubt the mild winter weather helped, as well as a better employment outlook. Chrysler Group reported a 44.3% rise, its best January since 2008, before its 2009 bankruptcy reorganization. But Ford’s sales rose only 7.3%, while GM’s fell 6.1% when compared to last year and an average $600 in sales incentives per vehicle at that time.

Others…Volkswagen’s sales soared 39.5% as it registered its best January in the States since 1974. Audi, VW’s luxury brand, reported its 13th consecutive record sales month. Toyota’s rose 7.4%, Honda’s 8.8%, Nissan’s 10.4% and Hyundai’s 14.7%.

Back to Chrysler, it is looking to hire up to 1,800 production staff at an Illinois assembly plant. Workers will be paid the automaker’s new hire rate of $15.78 an hour.

Homeownership in America fell to 66% in the fourth quarter, down from the peak of 69.2% in 2004.

Gasoline consumption is plummeting, a 10-year low in the United States. Still high prices, like $3.90 a gallon on average in California, are doing a number on us.

Follow-up: A reader suggested I should have noted in my discussions of the Keystone XL pipeline and a possible move by the Canadian government to build one to its west coast instead, that not just China would be a probable beneficiary. The oil would be available for everyone. Point taken. Canadian Prime Minister Harper goes to China shortly for what should prove to be most interesting negotiations.

Overall, commodities tanked in the fourth quarter of last year but have rebounded smartly on the decent U.S. economic data and the feeling that the worst is over in Europe. Energy commodities, though, like natural gas, have lagged badly, which in its case is about massive amounts of supply, while each big storm you see in places like Nebraska and Kansas is a welcome relief and augurs well for coming harvests.

At the same time, the U.S. cattle herd has shrunk to its smallest level in 60 years, according to the Agriculture Department, as ranchers have culled hundreds of thousands of cattle during the drought.

[The average commodity hedge fund last year fell 1.7%, according to the Financial Times and Newedge, the first loss since the latter’s index was created in 2000 and down from a rise of 10.7% in 2010. By comparison, the CRB Index was down 8.3% in 2011.]

Everyone was talking about the filing for the Facebook IPO, which is slated to come out this spring with the company being valued anywhere from $75 billion to $125 billion. About 1,000 new millionaires are expected to be minted in the process. 150 will make more than $25 million on the initial offering. One venture-capital firm, Accel Partners, invested $12.7 million in Facebook in 2005 and while it has sold a small percentage of its shares since, it still stands to reap a 1,000 times return, with its stake being potentially worth $9 billion. Greylock Partners and Meritech Capital Partners stand to see returns of around 200 times.

Meanwhile, Elevation Partners, founded by Roger McNamee, could see a return of $1.7 billion on its relatively late-stage investment. Bono is a major partner in the fund.

As to some of the company specifics, Facebook said its revenue for 2011 was $3.7 billion, with profit of $1 billion. It has 845 million members.

But 85% of its revenue comes from display ads and while it has 28% of the total market in this category, I just believe display ads were never effective (radio and television is, baby) and that this will be a dying stream for Facebook and others. So we’ll see.

Oh, and Mark Zuckerberg is currently worth about $24 billion, though the Financial Times says he may have a $1.5 billion tax bill and this could complicate the IPO itself.

Amazon’s pace of sales growth is slowing, up a strong 35% in the last quarter but this was less than the previous quarter’s 44% growth rate, worrisome as management has convinced shareholders it’s all about sales over earnings, witness Amazon’s still outrageous valuation. Operating margin is shrinking and the company warned it could report a loss for the current quarter.

[Amazon finished the week at $187.50 and a price/earnings multiple of 99. Apple Computer, by comparison, trades at a multiple of 13.]
AMR is cutting 13,000 jobs as part of its bankruptcy proceeding, or 15% of the work force. 4,600 will be in the maintenance area, 4,200 baggage handlers, 2,300 flight attendants, 1,400 management, and 400 pilots.

Canada’s unemployment ticked up to 7.6%. GDP is forecast to rise just 2% in 2012.

Gambling revenue in Macau jumped 35% in January to $3.13 billion, boosted by a record flow of Chinese visitors over the Lunar New Year holiday. Overall for 2011, growth surged 42%, though many expect it to drop to 15-20% in 2012, which would be just fine. Shelden Adelson of Sands China (and a Newt Gingrich Super Pac) said he sees no slowdown in Macau well into the future. Adelson has a new mammoth property opening there soon.

Australian home prices fell the most on record in 2011, 4.8% for an index of eight major cities, though the data base only extends to March 2002.

Singapore’s unemployment rate held near a three-year low at 2%, even as it struggles with the global trade outlook.

This is too much. The Irish Independent had a story that started out:

“A Polish waitress living here has sparked fury after she boasted about living the good life on Irish welfare benefits. ‘Magda’ (36), not her real name, described her life on the dole in Donegal as a ‘Hawaiian massage.’

“She revealed how she had packed in her job so she could spend her days walking along beaches with her partner.

“He in turn bragged about the country’s wonderful golf courses.” [Ed. that indeed is true.]

“Magda claimed she earned 67 euro more a week on the dole than she did while working and that her welfare payments are 182 euro more every week than back in her native Poland.”
Plus she gets free schooling to take courses she wants and she surfs. She told a Polish newspaper:

“Sometime I sleep till noon and the nearest beach is five minutes away. What’s our house like? Well, you can hear the ocean from the windows.”

Meanwhile, in January, an average of four companies collapsed each day in Ireland, but, “business name registrations” numbered 1,973 for the month. I can’t say I know enough about the past history of this latter figure, but this was up 12% over the same period a year ago. Back to the first part, 53% of construction companies in Ireland are deemed to be in danger of collapse…on top of the hundreds that already did.

Panasonic reported that it would record a $10 billion loss for its fiscal year ending March 31, due in part to its acquisition of Sanyo as well as the ongoing fierce competition and price pressures in the television market.

Micron Technology chairman and CEO Steve Appleton died in an experimental plane crash in Boise, Idaho. He was the only one on board.

The U.S. Senate voted 96-3 to ban insider trading among its own members.

Investigators say they know what happened to the $1.2 billion in customer money that disappeared from MF Global, but, as reported by the New York Times, “have not publicly disclosed their progress, fearing that doing so might cripple efforts to recover the cash and pursue potential wrongdoing,” according to people briefed by the investigation.

What makes this so bad is that in some cases, “securities customers withdrawing their money as MF Global began to collapse were paid from accounts that belonged to futures clients.” What a freakin’ mess…and tragedy. Compounding matters is you have three federal agencies and two bankruptcy trustees involved.

Two former Credit Suisse traders pleaded guilty to charges they mispriced mortgage-related securities that resulted in a $2.8 billion writedown by the bank at the height of the financial crisis. Credit Suisse is not going to be charged as a result of the SEC investigation.

In a further example of today’s employment environment, musicians with the New York Philharmonic reached a new two-year deal on a contract that freezes wage for the 2011-2012 fiscal year and grants them a 2% increase this September; this as costs are of course rising. One of the issues is $24 million in unfunded pension liabilities. Management wanted to move to a 401(k)-style defined-contribution plan, but the union prevailed for now in keeping it as is because they argue cutting pension benefits will hurt the orchestra’s ability to retain top musicians.

By the way, the minimum salary for an orchestra member is $134,940 a year, but, again, you’re dealing with the cost of living in New York.

I’ve long written of my guilt for eating shark fin soup in Shanghai a number of years ago. I knew it was wrong, but boy was it delicious. So these days, various international groups are trying to make sure bans on the food are enforced as there are estimates some 79 million sharks are killed each year, many just for the fins. Some populations have dropped 90% in decades.

But shark fin soup remains on the menu of high-end establishments in China, Taiwan and Hong Kong, as reported by Jonathan Kaiman of the Los Angeles Times. So when you see a story about a shark attack in Australia or California, understand where the sharks are coming from.

Fox just notched its 10th consecutive year as the most-watched cable news network. It was 15 years ago that chairman Roger Ailes launched it.

During 2011, FNC averaged 1.86 million viewers in prime time. MSNBC averaged 775,000 and CNN had 689,000.

In a further sign of economic recovery, U.S. shipments of scotch, vodka, rum and other spirits in 2011 increased 2.7% over the previous year – the strongest increase in five years, according to industry data. Sales of “high-end” brands were up 5.3%.

And tourist figures are up in Hawaii, 3.8% in 2011 to its highest level since 2007. Actual visitor spending was up 15.6% last year. Helping Hawaii is the bad publicity Mexico is facing with its crime story. The number of visitors to Hawaii had declined 16% between 2006 and 2009.

[Mexican officials say their traffic figures are improving recently despite the bad P.R.]

I have my exclusive look at the Super Bowl and the markets on my “Wall Street History” link. I have to go with the Giants, 30-21.

My portfolio: Finally, no one is more frustrated over the share price action of my large holding in Fujian, China than I am. There is nothing I can say until the company gives shareholders an update, which I had urged them to do in early January.  Knowing many of you are in it with me, I promise to provide a full analysis when the information is released. I spoke to the CFO about ten days ago and expect something out of them shortly.

But I can’t help but note the comments of an analyst at a Bloomberg sponsored conference this week on emerging markets. When it comes to Chinese stocks, fraud allegations such as at Sino-Forest have pretty much rendered them “untouchable,” while short sellers have “clobbered the valuation of the companies.” When you have P/E multiples of one, or in some cases less than that, you can only hope more rational thinking takes over.

Peter Siris, a longtime investor in China, told Barron’s he “laments that all U.S.-listed China small caps are being tarred with the bears’ brush. ‘Some of these are great companies,’ Siris says. ‘Now the companies feel frustrated, the investors feel frustrated and…it’s just sad.’”

Ain’t that the truth.