retirement interruptus: That Was The Week That Was-3rd Week May

It’s always something. –If it ain’t one thing, it’s another. In the news: World markets shaken on Monday as Strauss-Kahn ex-head of the IMF was on his way to put finishing touches on Greek bailout before being tossed into the can by NY city police. The French think we’re barbarians the way we do the public perp walk. They also adore Jerry Lewis as a comedic genius. So there you have it…
The week was one bit of bad news after another with the exception of the pop on share price IPO LinkedIn. Noah Weisberger, head of macro equity strategy at Goldman Sachs, is confident that the past three weeks are but a temporary speed bump and is bullish for the remainder of the year. He points to the relatively tame downturn in stocks versus other investments.
Tech & Consumer Discretionary sectors led stocks lower on Monday last. Jay Suskind, senior VP at Duncan-Williams said, ‘…we’ve seen over the last few weeks…a sedated economy. It’s less robust.’ That was the bad news the good news was that volume was light. Weakness in tech will continue if investors see an economic soft patch. Could be a long summer. Greek economic bailout concerns were in the background.
According to the smart folks at CNBC Chinese businesspeople have been using copper as collateral for loans. Which may explain the run-up in the price of the metal. It’s not the construction use but using it for cheaper loans that has run up the price.
Fifth 3rd Bank upgraded to Buy from Hold by Sandler O’Neill analyst at R. Scott Siefers. Finally a bit of good news for the lower tier banks.
Citi analyst Itay Michaeli thinks that Ford should command a premium as he increased the company stock to a Buy from hold. He slapped a price of $18 a share writing that an upgrade to investment grade appears likely late-2011 or early-2012. So far the stock has shown no inkling of breaking out.
Google bellied up to the lending window and Monday sold its FIRST bonds. The cash rich company borrowed because the handwriting is on the wall that sooner before later borrowing costs will escalate. Google issued one-year, three-year and 10-year bonds for a total of $3 billion. Other tech companies that have issued bonds have been Dell, Cisco and IBM, according to Thomson Reuters. Someone certainly knows something…
Not just tech but Investment Grade Companies are filling their tanks with cheap money before the Fed puts the kibosh on the party. Bond sales in May- so far- have totaled $56.7 billion.
TiVo hooking up as it is distancing itself from Dish. New alliances with Charter and Comcast. According to BusinessWeek this is some serious development.
How has the choo-choo business worked for Warren Buffett? Berkshire Hathaway bought 77% of Burlington Northern Santa Fe for $26.5 billion. In the first 13 months Burlington has paid out $2.25 billion in dividends and another $1 billion is slated for May, 2011. Burlington is increasing capital spending by 31%, triple the increase of other major rails.
Social Security, according to the Trustees, expects to run out of money by 2038.
Markets mixed Tuesday. Watch IBM a former trader once told me. It’ll give you market direction. It was up almost a full point to close over $170.
A tale of two tech companies. One (HP) fired their President and their stock went sledding almost immediately. Dell CEO bought lots more shares in what some thought a dying company only to see shares pop with improved profits. Experts contend that HP can get cheaper.
It’s true- It’s not what you know but who you know. Ask investors in LinkedIn, Twitter and Facebook. Ten years earlier rich folk couldn’t get a piece of a hot company before it went public. Today deals are cut where rich and connected investors are able to buy shares in hot tech companies before they go public. LinkedIn goes public and raises their price which only the founders and friends benefit. The S.E.C. is supposed to crack down on this little charade but given their history with Bernie Madoff affair it may be years. Watch for my blog on Private Company Stock Rules.
David Weidner writes that this stock market is a shell game. He states that most investors believe we are in the early stages of an economic recovery and brushing off bad news like bed bugs. This year has seen a panic a minute and the rally continues. His fear is that traders and investors will go off their meds and see the market for what it is. He cites slumping global demand, a debt-ridden Europe, loan happy Chinese plus lousy domestic housing and job reports as prime examples of what ails us. Still profits keep piling up at major multi-national corporations.
From The Department of Who’s Buying What But You’re Too Late To Tail-Gate: George Soros cut his gold and silver along with Bank of America and boosted his AT&T and Citi holdings. Carl Ichahn added Amgen (the biotech), Southern Union and Clorox. Warren Buffett sold more ConocoPhillips and bought MasterCard. These be 3 of the brightest, richest investors in the world.
Wednesday last stocks up while gold and oil down slightly. Richard Bernstein, Wall Street veteran, his firm manages assets for institutions, chirped in with the following predictions: Chinese stocks will underperform; Commodity prices will fall; Gold (I guess a different commodity for Bernstein) will also fall; U.S. Small caps will outperform whatever comes next; and finally Europe will exceed Investor Expectation. (Thank you, we’ll be here all week!)
Wheat futures on the Chicago Board of Trade jumped 17% due to wet weather in the U.S. and dryness in Western Europe. Consumers around the world will have economic issues with the pricing of wheat, especially folks in the Middle-East. Tunisians buy more than half what they need from other countries and consume more wheat than anyone else; up to 478 pounds per year per person. Yes, that’s over a pound a day of wheat!
If anyone asks, and they haven’t, we haven’t seen anything like what’ll happen with the markets if and when the yahoos in Washington don’t get their act together.
Story-time, dear reader. One one side you have the biggest U.S. Initial Public Offering of an Internet stock since Google (LinkedIn) and across the oceans another IPO for the ‘perhaps’ world’s largest commodity firm- Glencore International will begin trading on the London exchange. LinkedIn has only made $15.4 million in 2010 but values itself at $4.25 Billion! Shares are pricing at $45 while Glencore is smartly keeping share price low to keep a loyal and supportive shareholder base for acquisitions and other expansion projects. Shares are being offered around $8.60 a share. Both stories unfold Thursday and go forward.
Thursday the BIIIIG story was LinkedIn the Initial Public Offering as the stock posted bubble numbers. Asking price $45 and when shares opened on the NYSE they had been bid up to $83 and closed at $94.25, making a lot of people very rich indeed. Smart folk at Minyanville attest to the quality of the offering and say in 5 years LinkedIn will be a $25 billion dollar company. This is all the social media craze because Facebook and Twitter are the next private companies that will be going public. Everyone who missed Google wants a piece of what’s happening now.
Jimmy Cramer in his Street Rant explained why he thinks LinkedIn is a bubble and said he’d be shorting the stock and recommends everyone to do so. Morningstar wrote that they think the current value of shares in LinkedIn is $27. and not a penny more; unless additional information is forthcoming.
The International Energy Agency (I don’t know who they are either) said the world markets urgently need extra oil to prevent the huge price spikes we saw the first quarter of 2011. The reason they gave is that price increases in oil derail whatever economic recovery is going on. So far OPEC and others have been accommodating as the above chart shows. Jim Rogers on PBS radio Friday morning said that Oil will go higher. Expect bumps in the road but price increases are inevitable. Am I the only one that remembers oil around $75 a year earlier?
Oh, my. Goldman Sachs is again in the bulls- eye as the Justice Department is reviewing data related to credit default swaps and fee arrangements, including anticompetitive practices. European regulators are nosing around, too. Plus the Commodities Futures Trading Commission’s staff has ‘orally advised’ that it attends to recommend… aiding and abetting, civil fraud and supervision related charges…against the trade-clearing unit at Goldman. The stock has been aimless with one analyst recommending sell.
Tokyo Electric Power posted a $15 billion loss. Whispers suggesting the Japanese economy tossed back into recession.
Markets finished up Thursday on good news from Am Express and the LinkedIn IPO. Gold up, oil also a smidge but closed under $100.
Wha’s a matter with Bank of America? From a high of $40 to close a tad over $11 the major has serious issues. Since the beginning of 2011 BAC has been on a straight line downward spiral. We know the problem with Goldman is Goldman. We just can’t get a handle around the problems at BAC even though Morningstar reports its the mortgage losses there has to be more to the story. Doesn’t seem to be confidence in any of the financials.
Friday Greece was downgraded by ratings firm Fitch (Big surprise, huh?). To give you an idea the Greek bonds maturing in 2012 are selling at a 25% discount. In other words, you can buy the bond and clip the interest coupon plus earn a hefty profit if Greece pays its bills in 2012. Chances are Greece will simply restructure- pushing maturities out- and you don’t want to be there for that.
But…Fitch did report it expects the European Union and IMF to provide ‘substantial’ new money and there will be no ‘reprofiling’ of Greek debt. (Is there a gambler in the house?)
News of Greece, which started the week, trickled down into our domestic markets and the Dow sold off and so did every index as oil closed $100 and gold up $16.50 on Friday.
Looking at what happened elsewhere: Jobs increased for the second week in a row; revisionists were at work updating first quarter GDP numbers upward from 1.8% to 2.3% ( wow! and I mean that); manufacturing was down in great part because of an auto parts shortage from Japan; and housing was no peach as weak numbers came in and experts were expecting an increase in existing home sales.
Fortune Brands sells venerated golf unit to Korea. Yes, dear duffer, the Korean’s known for their outstanding auto manufacturing (I am a huge fan of their cars.) now own, or will soon, Acushnet Company which makes FootJoy as well as Titleist. Fila Korea Ltd said they believe the brand will do well in emerging markets. The price $1.23 billion, which is about how many balls I lose in a normal season. (I keep that extra shift working!)
This the beginning of the summer doldrums? According to Mark Hulbert the Bulls may indeed be packing and getting ready to head for the exits.
Finally, momentum, dear reader. It is all about momentum and ever since LinkedIn graduated to a public company with a huge valuation investors on both sides have spent more time than necessary arguing if the company is worth the current price, worth more or is a sell off in the cards. In the short-term even Jimmy (The Mouth) Cramer acquiesced and said ‘don’t fight short-term momentum’. The WSJ on Friday welcomed everyone in their LinkedIn essay to, ‘dot-com mania part two’.