Saturday, August 8, 2009

Noteworthy - Week of August 2nd

As the political turmoil in the States heats up over health care, the biggest news this week concerned the economy, as the national unemployment rate shrank unexpectedly for the first time since April 2008 with nonfarm payrolls shedding 247,000 jobs in July vs. 443,000 in June, lowering the official unemployment rate from 9.5% to 9.4%. Not surprisingly, President Obama, other politicians and Wall St. analysts saw the unemployment surprise as a sign that the economy is, indeed, improving, although during a press conference this week, White House Press Secretary Robert Gibbs stated that the White House still expects the unemployment level to reach 10%.

Earlier in the week, economists revised their GDP forecasts for the U.S. economy upward as the economy shrank at a better-than-expected 1% in June, citing the success of the "cash for clunkers" program and lean inventories. Analyst estimates ranged from 2.5-3% for the 2nd half of the year vs. a previously anticipated 1.5-2%. Accordingly, the Dow was up 2.2% for the week.

The Senate voted to add $2 billion to the "cash for clunkers" program this week. The program, which originally had a $1 billion budget, went through its reserves in just 4 days last month.

The White House unveiled a $2.4 billion grant plan to develop next-generation batteries for electric cars. Critics argue that very little of the money has been appropriated for recharging stations.

Congress awarded itself $500 million for 8 new private jets this week; this, at a time when it has strongly criticized the use of corporate jets by companies. The vote for the new jets has fueled a rift between the Congress and the Obama administration over the defense priorities of the nation. Earlier in the week, former President Clinton flew to North Korea on a private plane in order to rescue two American journalists there. The mission cost well over $200,000 for jet and fuel costs alone and was funded mainly by Dow Chemical and Hollywood mogul Steve Bing. Congress has apparently used the mission as stepping stone for its need for new planes. The rescue, according to the White House, is a sign that North Korea is warming to U.S. relations.

After arranging town hall meetings to gain support for the proposed health care reform plan in Congress, many politicians are opting for smaller gatherings, meetings by phone and one-on-one meetings in their office, as large town hall meetings have brought many protesters out of the woodwork. Democrats argue that the GOP is organizing the protests; however, there have been many occurrences of Democratic protesters at the meetings as well. House Speaker Nancy Pelosi stated that protesters were bringing swastikas and other ill-advised symbols to the meetings, while Illinois Senator Dick Durbin called the protesters "tea baggers" and "birthers" and denounced any suggestions that Americans are against health care reform. According to a recent CBS/ NY Times poll, however, Americans are very concerned that a government health care plan would lead to job cuts, quality and access to care and that it would require them to change doctors, although most agree that reform is needed. According to a report in the Wall Street Journal, doctors are now seeking upfront payments from patients after their visits.

Ironically, France is struggling to maintain its universal health care costs and is looking to the current U.S. system of co-pays for help in cutting expenses.

Not widely reported is the fact that many of President Obama's appointed secretaries and "czars" have many nontraditional views concerning health care, which should also concern Americans. One must question why these views are so prevalent among leading White House officials and how they will affect the administration's health care reform policies. In an upcoming article on my personal blog, I will dive into the their backgrounds and pose the question, "will their pasts dictate the future of health care?" I will allow you, the reader, to decide for yourself the answer to this important question. (Note: Although I believe this issue is very important, I would like this blog to remain related to business and investing and, therefore, will not publish anything politically-based on this website.)

Wall St. banks and lawyers could collect more than $1 billion in fees from the Federal Reserve Bank of New York and AIG to help manage and break apart the troubled insurer, according to a Wall St. Journal analysis. AIG reported its first quarterly profit since 2007, largely as a result of changes in how its assets are valued and improvements in the market.

Goldman Sachs reported on Wednesday that the company made at least $50 million per day during their latest quarter and only had two days of trading losses. The firm disclosed on the same day that the government has launched investigations into pay practices and credit-derivatives trading.

Morgan Stanley agreed to pay $950 million to buy back warrants issued to the federal government as part of its bailout plan. The warrants would have allowed the government to purchase MS's shares. According to John Mack, the firm's CEO, the government's stake in the company returned an annualized 20% to taxpayers.

According to company e-mails, Bank of America's loss projections for Merrill Lynch swelled to nearly $2 billion just two days before shareholders approved the merger. However, bank officials saw the losses as being not material enough to disclose to its shareholders prior to its merger vote with the Merrill. BOA also agreed to pay a $33 million fine in an SEC in a suit that alleged the company misled shareholders about billions of dollars in bonuses that it had promised Merrill Lynch employees when BOA bought the firm in 2008.

Retailers are bracing for a very week back-to-school season, as sales at stores open more than a year fell 5.1% last month, according to a survey of 30 major retailers by Thomson Reuters Inc. Among the hardest hit were teen retailers, whose sales fell 12.1% in July.

President Obama will meet with Mexican and Canadian leaders early next week to discuss the U.S.'s trade disputes with the nations concerning its "Buy American" policy.

The Treasury Department will sell more Treasury Inflation-Protected Securities (TIPS) to ensure demand from China and other investors. The central bank stated this week that it expects to borrow less money than previously expected during the third quarter, in part because banks have repaid their loans under the TARP.

The Bank of England has expanded its bond-buying program by $85 billion, creating doubt over the country's recent economic gains. The program is not unlike that instituted by the Federal Reserve, which I outlined in my latest article on gold and silver.

The European Central Bank kept its borrowing rate at 1%, and stated that Europe's economic outlook remains weak. Both the BOE and ECB are attempting to decipher recent data suggesting that Europe's economy may be on the mend, although both central banks remain extremely cautious.

China intends to continue its stimulus policy, bringing a sense of relief to those who feared the nation would cut some of its stimulus programs. According to the Financial Times, however, China's recent GDP growth doesn't add up.

Amid outrage by politicians, bankers are starting to pay their employees bonuses using toxic bonds and corporate loans. The plan, which was instituted by Credit Suisse, has returned 17% for the year, a far cry from most financial stock returns. The strong performance may trigger political pressure for firms to follow Credit Suisse's approach.

The head of the House Oversight and Government Reform Committee, Representative Edolphus Towns (D-New York), who has rejected a Republican call to subpoena records of a VIP program at Countrywide Financial Corp., which offered lower interest rate loans or lower origination fees than available to the public, has received two loans under the program, according to the Wall Street Journal.

Senators Christopher Dodd (D-CT) and Kent Conrad (D-ND) were cleared by the bipartisan Senate Select Committee on Ethics of improprieties in regards to VIP loans received from Countrywide Financial Corp. The committee said that it found "no credible evidence” that either senator knowingly sought out a special loan or treatment because of their standing.

Sonia Sotomayor was sworn in as the first Hispanic Supreme Court Justice this week.

Frank DiPascali, Bernie Madoff's CFO, is expected to plead guilty of fraud charges next week.

California is struggling with a federal order to release 40,000 inmates to reduce prison overcrowding.


Africa:

Violence in Northern Nigeria has spurred concern that a religious fundamentalist group there might represent a larger threat to the continent's most populous nation.


The Americas:

GE agreed to pay $50 million for fraudulent accounting activities between 2002-3.

News Corp, which reported a loss in its latest quarter, stated that it intends to start charging for on-line content.

Proctor and Gamble and Dutch consumer goods giant Unilever are taking aim at private labels as both firms struggle for growth amid the recession.

Berkshire Hathaway reported profitability during the second quarter amid an uptick in the markets.

Google Chief Executive, Eric Schmidt, resigned from Apple's board of directors this week, as both firms find themselves increasingly competing with each other. Google is starting to take on Apple in China and just acquired video compression software manufacturer On2 in order to take on Microsoft's operating system.

Target said that it plans to build its own website, ending a long time partnership with Amazon.com, as the firm struggles to find growth amid the recession.

Whole Foods said that it is returning to its original emphasis on organic foods, as the high-end grocer attempts to re-orient shoppers with healthy eating. Critics argue that the firm is picking the wrong time to wage such a commitment.

MGM reported a $212 million loss this week but says that it is seeing a pick up in bookings ahead of its massive City Center opening. The COO of Wynn Resorts sold more than $7 million in stock this week in a reversal of insider sentiment for the casino firm.

Pepsi has agreed to buyout terms with its bottlers after months of bargaining.

Morningstar launched its Indian subsidiary last week, as the investment research company expands into the global marketplace.

Former AIG CEO Hank Greenberg has agreed to pay $15 million in an SEC case alleging that the long-time boss knew of fraudulent accounting standards during his tenure.

Two University of Illinois trustees have resigned and a commission appointed by Illinois Governor Pat Quinn is expected to recommend that the remaining trustees step down, following charges that trustees relaxed admissions for hundreds of politically connected students.

Homeowners dealing with the negative effect of Chinese produced drywall, which has caused health concerns for many, are awaiting for government reports that could determine their fate.

High-end homes are not participating in the recent rebound in U.S. home sales.


Asia:

Chinese officials said that the general manager of the state-run China National Nuclear Corp. (CNNC) is under investigation for "alleged grave violations of discipline." The company, which is expanding its nuclear power, has attracted intense foreign interest.

Chinese e-commerce company Alibaba.com is planning to push its way into the U.S. market. The firm is considering a joint venture in India as well.

Rising real estate prices in China are generating concern that the nation might have another bubble on its hands.

Macau tycoon Stanley Ho's ailing health has caused concern over who will take over his stronghold on the Chinese gambling community.

Taiwan is set to unveil a plan to stabilize its struggling financial situation. The island nation stated that it could include more Chinese Renminbi in its currency reserves as it moves at a rapid pace to expand its ties to mainland China.

North Delhi Power Ltd., an Indian utility company, is having success in combating the nation's long-time tradition of power theft. The company credits insulated wires and neighborhood informants to its success in cutting theft rates from over 50% seven years ago to 15% today.


Europe:


A Russian judge blocked a probe into the 2006 murder of Russian investigative journalist, Anna Politkovskaya, who was a staunch critic of then president and current Prime Minister Vladimir Putin. Politkovskaya exposed human-rights abuses in Chechnya, accusing the region's Kremlin-backed president Ramzan Kadyrov of numerous crimes. The investigation into the reporter's death is a test for president Medvedev's vow to restore rule of law to the former communist nation.

Royal Bank of Scotland posted a $1.7 billion loss for the 1st half of 2009 and the firm's CEO stated that the state-controlled bank might not see an improvement in its results until 2011.

"Solar thermal" technology is heating up Spain's renewable energy market.


Middle East:


Unpopular Afghan President Hamid Karzai's penchant for deal making and conciliation is likely to win him another 5-year term.

Mahmoud Ahmadinejad was endorsed by Iran's Supreme Leader Ayatollah Ali Khamenei for a second four-year term as the country's president this week. Ahmadinejad's formal swearing in was snubbed by many political officials. Challengers to Ahmadinejad demanded that officials seek punishment for those accused of killing protesters.


Oceania:

Australia is attempting to fend off a housing bubble. The country's central bank said that it is no longer considering lower rates and has adopted a neutral stance amid a stronger-than-expected economy.


Commodities:

Chevron stated that has found a "significant" oilfield off the coast of Angola. The firm plans to start pumping crude from an earlier find in the Angolan waters within days.

The world's largest cotton trader by volume, Allenberg Cotton, is in talks to merge with rival Dunavant Enterprises.

India bought a record amount of wheat from farmers in the latest procurement season ending July 31.

Brazil plans to control its oil finds going-forward, a move that could have mixed results for state-controlled Petrobras, as the country abandons its policy of competitive bidding for projects.


Et Cetera:

This week's Barron's "Up & Down Wall Street" by Alan Albelson.

Barron's review of last week's market news and its preview of next week's market events.

Famous Executive Chef Gordon Ramsay is facing tough times during the recession, which has forced the celebrity chef to the brink of bankruptcy.

The Financial Times wrote an interesting article this week on how the wealth of one Chinese village transformed their community virtually overnight and the inner-workings of the aftermath.

Scientists are looking to the Zebrafish to rejuvenate hearing cells.

No comments: