German and French leaders meet this week to map out a revised plan for the euro as the Group of Eight exposed disagreement on a rescue strategy, Greece lurched toward a possible exit and Spain
JPMorgan’s surprise $2 billion trading loss prompted a sell-off in financial stocks Friday, but the broader market rose as investors decided this was a problem for investment banks and not other industries.
The Dow Jones industrial average rose 31 points in morning trading after bouncing back from a 76-point decline. The Standard & Poor’s 500 index rose four points to 1,362. The Nasdaq composite index, which is heavily weighted with technology stocks, was up 20 points at 2,954.
Financial stocks in the S&P fell 1 percent, while the other nine industry groups rose. For that, the other investment banks could thank JPMorgan, America’s biggest bank. The stock plunged 8 percent, dragging other banks with big Wall Street operations down with it. Morgan Stanley fell 4.3 percent and Goldman Sachs fell 3 percent.
Retail-focused banks fared better. Bank of America and Wells Fargo each declined just 0.3 percent.
JPMorgan’s blunder comes in the midst of a political battle over how closely to regulate banks, though JP Morgan’s CEO Jamie Dimon said the trades would not have been affected by the so-called Volcker rule, expected to take effect this summer. Still, the $2 billion loss is sure to be used as ammunition by those pushing for tighter regulation of investment banks.
Tech stocks did well. Intel rose 1.8 percent after it told analysts that it is on track to meet sales expectations. Tech investors were relieved to hear that one day after Cisco Systems prompted selling in tech shares by being pessimistic about sales. Microsoft shares rose 2 percent. Semiconductor maker Nvidia jumped 8.6 percent, the most in the S&P 500, after reporting revenue that was higher than analysts were expecting.
Consumer discretionary stocks were also up. Retailer Bed Bath & Beyond jumped 4.5 percent, one of the biggest gains in the S&P 500 index, and video streaming and DVD-by-mail company Netflix rose 6.6 percent.
Also Friday, the Labor Department said that the producer price index, which measures price changes before they reach the consumer, dropped 0.2 percent last month. It was the first decline since December and the biggest drop since October. Declines were driven by gas and energy prices. That’s good news for consumer spending.
Separately, a closely watched measure of consumer confidence from the University of Michigan released Friday morning was better than analysts had expected. The index was at its highest level since January 2008.
Crude and gasoline futures slid again. Oil fell 44 cents to $96.64 per barrel. Gold prices fell a half-percent to $1,587.70 per ounce.
European stocks were mixed. France’s CAC 40 index fell 0.3 percent, but Britain’s FTSE 100 rose by the same percentage and Germany’s DAX rose 0.7 percent. Borrowing costs for Germany and France fell, while costs for Italy and Spain rose as investors remain focused on Greece, where another general election is expected for next month following the failure of attempts to form a government.
Voters in Greece and France challenged austerity as Europe
For the past two years, Muddy Waters has been the ultimate whistle blower of questionable accounting practices by Chinese companies trading on U.S. and Canadian stock exchanges. Now, the research firm says investors need to beware of Chinese companies trading in Hong Kong.
"There was a propensity for fraudulent Chinese companies to list their shares in the West, but I think that trend has slowed down quite a bit ever since short sellers like Muddy Waters have come onto the scene," Muddy Waters founder Carson Block told CNNMoney during an interview at the Council of Institutional Investors spring conference in Washington, D.C.
"Now we’re starting to hear rumblings out of Hong Kong," Block said. "Could Hong Kong be the next bastion of fraudulent revelations? It’s difficult to say. But investors need to be wary."
He noted that in the last month, Deloitte — one of the Big Four accounting firms — quit as auditor of two Hong Kong-listed Chinese companies.
Boshiwa International, a maker of children’s clothing, and milk formula producer Daqing Dairy Holdings both announced Deloitte’s resignations and said they are looking for replacement firms. Both companies’ shares have been suspended from trading in Hong Kong since mid March, when the accounting firm stepped down.
Deloitte China confirmed it resigned from both firms, but declined further comment.
Sino-Forest sues Muddy Waters for defamation
Meanwhile, Moody’s Investor Services withdrew its rating on Daqing Dairy last week, and issued a negative outlook amid concerns about the company’s financial reporting after Deloitte’s resignation paydayloans.
Block told CNNMoney that his firm will issue a report and a "sell rating" on a Chinese company within a few weeks, but declined to disclose any further details.
Block also said that Muddy Waters has been probing companies "outside the China realm" and will likely take a short position on a non-Chinese company sometime this year. A short position is essentially a bet that a stock will decline.
Muddy Waters made a name for itself last year, after the company accused Chinese timber company Sino-Forest of fraud. The scathing report triggered a massive sell-off in shares of Toronto-listed Sino-Forest before they were eventually suspended, and forced hedge fund high roller John Paulson to book deep losses.
Reports out of Muddy Waters have brought down several other companies including Rino International () and China MediaExpress ().
Muddy Waters’ most recent fraud allegations against Chinese digital market firm Focus Media () initially sparked a sharp sell of in the company’s stock. But shares of Focus Media have recovered since the November report.
They are sentries at the stock market’s wall of worry, warning investors to prepare for another epic crash for debt-laden economies.
But with U.S. equity markets on a tear since early October, hitting levels not touched in several years, most of Wall Street isn’t seeing much cause for alarm.
Instead, increasingly optimistic buyers have pushed the Dow Jones industrial average above 13,000; the Nasdaq composite index over 3,000, and the Standard & Poor’s 500 index past 1,400.
The gains extend beyond stocks. Gold may be off its September 2011 high of $1,907 an ounce, but is still in the respectable mid $1,600s, and oil remains above $100 a barrel. Meanwhile, yields on both the 10-year Treasury note and the 30-year bond are around a percentage point lower from a year ago, boosting bond values.
Also, the greenback is rising. The U.S. Dollar Index, a measure of the dollar against six other major currencies, is up sharply over the past 12 months.
It’s enough to make a confirmed pessimist downright gloomy.
After all, what’s a doomsayer to do when it seems everything — even Europe — is rallying? Do you stand your ground in cash, or join the crowd and closely eye the exit?
Of the five market skeptics interviewed for this article, four are reluctantly going along for the ride.
The consensus among this group is that the rally is not sustainable — just another big party before an even bigger hangover. They see stock prices as being artificially inflated by Federal Reserve policies of quantitative easing and low interest rates, and that to put out the fires in Europe, the European Central Bank has gotten in on the act.
But, these strategists say, while these monetary drugs are palliative to markets, they require bigger doses for progressively dwindling results and will eventually fail.
FIVE SHADES OF GRAY
1. Peter Schiff • Peter Schiff, chief executive of Euro Pacific Capital, said the worst investment now is bonds, because it’s the one asset that hasn’t been crushed. The second-worst is cash, because the Fed insists inflation isn’t a threat, he said.
Schiff said the Fed can be in denial about inflation for only so long and eventually will have to raise interest rates.
“They’ll keep (rates) low until the market forces them,” Schiff said guaranteed pay day loans. “It’s like trying to hide it when you’re pregnant, you can only do it for so long.”
2. Harry Dent Jr. • Harry Dent Jr., head of research and forecasting firm HS Dent, said the recovery is “artificial” in that it’s being fueled by quantitative easing measures in the U.S. and Europe.
Aging baby boomers are no longer fueling U.S. economic growth, he said, and younger generations can’t keep the momentum going. “The government and most economists are in denial when the largest generation is spending less and paying down their debt,” he said.
3. A. Gary Shilling • Economic consultant A. Gary Shilling said stocks are vulnerable because the consumer is worn out, and that puts businesses, and the broader economy, on weak footing.
Shilling has long predicted that Fed measures to stimulate the economy will fall short and believes the global economy is in a long period of deleveraging marked by anemic growth.
“If the consumer pulls back, there’s nothing else in the economy that can sustain growth, and if the consumer retrenches, we have a recession,” Shilling said.
4. Charles Biderman • Charles Biderman, who heads TrimTabs Investment Research, said he’s bullish on stocks given that the Fed’s cheap money is levitating prices. But, he added, at some point stocks are going to drop.
A day will come, Biderman said, when the Fed will pull the plug on cheap money. Then he sees the Dow tumbling to financial crisis lows in the 6,000 range. For clues, watch what companies are doing with their cash, he said. “If buybacks slow,” he said, “that would be the time to start getting out.”
5. Robert Prechter • Robert Prechter, head of market forecasting firm Elliott Wave International and the most bearish of the five, said investors should shun every asset class popular now, including stocks, commodities, metals and bonds.
“Hold cash, and keep it safe,” Prechter said. “There will be another buying opportunity, probably about four years from now.”
He added: “When investors are afraid again, and when stocks are cheap again, that will be the time to buy.”
The Reserve Bank of India
PepsiCo Inc. revamped its management structure Monday in a move intended to strengthen its lineup of potential successors to CEO Indra Nooyi and leverage its scale as a global company.
The management restructuring puts John Compton, who heads the company’s Americas foods division, in charge of all the company’s global groups in the newly created role of president.
PepsiCo said Compton will also work with its regional groups for Europe, Asia, the Middle East and Africa to build brands, develop new products and cut costs. Compton, who is 52, started his career with PepsiCo when he was 22 and has been there ever since.
Brian Cornell, who was president and CEO of Wal-Mart Stores Inc.’s Sam’s Club division, will take over for Compton as CEO of PepsiCo Americas Foods. The unit includes the Purchase, N.Y.-based company’s Frito-Lay and Quaker foods and snacks businesses.
Cornell, who is 50, previously held management positions at Pepsi, including president of its Tropicana brand and its Europe and Africa beverage businesses, before leaving the company in 2004.
PepsiCo said the appointments are effective immediately.
John Sicher, editor of Beverage Digest, said the appointments were in line with PepsiCo’s focus on transforming into a more international company like its rival The Coca-Cola Co.
“They want to extract all the benefits they can from being as big and global a company as they are,” Sicher said.
The focus on international markets has become increasingly critical for beverage and snack food companies, given the flat growth at home in recent years.
PepsiCo in the past few years even created three new groups _ global beverages, global snacks and global nutrition. The company said the heads of each of those groups will now report to Compton.
The new management structure comes as PepsiCo, the nation’s No. 2 cola company, has lost ground in recent years to Coca-Cola and faced speculation that Nooyi would step down amid investor dissatisfaction.
In a note to investors, Stifel, Nicolaus & Co. analyst Mark Swartzberg said he considered the appointments positive for the company’s long-term fundamentals. Although he said he no inside knowledge of the situation, he said it was a “reasonable outcome” that Nooyi would soon leave her post as CEO, paving the way for Compton or another senior PepsiCo executive.
At its annual investor meeting last month, PepsiCo said it plans to focus on regaining market share in North America by rolling out new products and significantly boosting its ad spending. The company also said it would cut 8,700 jobs, or about 3 percent of its work force.
While PepsiCo is clearly focused on identifying its business fundamentals and identifying ways to strengthen its advantages, Citi analyst Wendy Nicholson also noted last month that it would be “a mistake to underestimate the chaos factor” at PepsiCo.
She cited the high level of turnover during the past year, including the company’s announcement that Massimo d’Amore, the president of its global beverages group, would retire early next year.
“While we believe change is good, especially for an organization that has underperformed, we also wonder how much more shifting of responsibilities is yet to come,” she wrote.
Shares of PepsiCo gained 32 cents to $63.47 in morning trading.
The new fund designed to spur science startups in Missouri has been declared unconstitutional by a judge in Cole County.
Circuit Judge Dan Green tossed out the Missouri Science and Innovation Reinvestment Act (MOSIRA) in a ruling Tuesday morning, saying that the way it was approved by lawmakers in last fall’s special legislative session violated the state constitution.
The measure would have dedicated some new tax revenue from science and technology companies in the state for a fund to help launch startups in those industries. Gov. Jay Nixon had proposed putting $4 million into the fund in his next budget.
But Green ruled that the bill approving it violated state law because it included a “contingency clause” saying it couldn’t go into effect unless a separate tax credit reform bill was also passed. That bill died in the General Assembly.
Right-to-Life groups that have long opposed MOSIRA over concerns that it could fund stem cell or human cloning research filed suit in December, and Green sided with them.
“Missouri Roundtable For Life is gratified that Judge Green has upheld the rule of law and protected the taxpayers and citizens of Missouri from state officials implementing an unconstitutional law,” said Fred Sauer of Missouri Roundtable For Life. “We are dedicated to ensuring that Missouri citizens understand all the details of the MOSIRA scheme, so that politicians and their special interest cronies will never try this again.”
MOSIRA has long been a top priority of the state’s high-tech and biotech industries, who say Missouri needs funds to invest in startups to compete with other states and grow jobs here. They have pushed the bill for several years now and won votes in both houses, only to see it die.
“It’s disappointing,” said Donn Rubin, president of the St. Louis biotech trade group BioSTL. “What’s frustrating is that something that is so broadly supported gets caught up in unrelated struggles over other issues like tax credit reform.”
While the ruling puts MOSIRA on ice for this year, it’s not clear what will happen next.
State officials could appeal the ruling - a spokesman for Gov. Jay Nixon did not immediately return calls seeking comment. Or a new version of the bill could be filed in the General Assembly. If passed on its own, it would not include the “contingency clause” that Green struck down.
But Senate Pro Tem Rob Mayer (R-Dexter) told the Kansas City Star that a new bill was unlikely to succeed without broader tax credit reform.
“That was true during the special session and that’s true now,” he said.
Read more here: http://midwestdemocracy.com/articles/missouri-judge-rules-mosira-unconstitutional/#storylink=cpy
Drug maker AstraZeneca PLC said it will cut another 7,300 jobs as it warned Thursday of a tough year ahead, due to government spending cuts on healthcare and stiff competition, even as it reported a 24 percent increase in 2011 profits.
The Anglo-Swedish company said its full-year profit was $10 billion, up from $8.1 billion a year earlier. The profit advance was helped heavily by a $1.5 billion gain from the sale of its dental subsidiary, Astra Tech.
The company said revenue this year will be hit by government interventions on prices, generic competition and the loss of exclusivity for Seroquel IR, a drug for the treatment of depression, and hypertension drug Atacand in global markets.
Job cuts and restructuring are expected to save $1.6 billion a year by 2014, the company said. AstraZeneca said it would shortly begin consultations with affected employees.
AstraZeneca shares were down 4.2 percent at 2,960 pence just before noon in London.
Generic competition cut revenue by $2 billion in 2011 while price interventions cost another $1 billion, AstraZeneca said.
Despite its concerns over the year ahead, AstraZeneca raised its full-year dividend by 10 percent to $2.80 a share10 percent, and announced a $4.5 billion share buyback program.
The company reported double-digit sales gains for cholesterol drug Crestor, Symbicort for asthma and Seroquel XR freecreditscore.
U.S. revenues were up 5 percent despite the negative impact of health care reform, while revenue in the rest of the world was down 3 percent, including a 15 percent slide in Europe.
AstraZeneca said it was reshaping its research and development activity to focus on neuroscience, employing 40 to 50 scientists in a new Innovative Medicines unit based in Boston in the United States and Cambridge in England.
The company will close its facility in Montreal and lay off some staff in Soedertaelje in Sweden.
“We’ve made an active choice to stay in neuroscience though we will work very differently to share cost, risk and reward with partners,” said Martin Mackay, the company’s president of research and development.
Linda McCulloch, a national officer for Britain’s Unite union, said the cuts were a blow to the research and development base.
“If the company can afford a 10 percent hike in its dividends, then it can afford to retain these roles,” McCulloch said.
Republican Senators Orrin Hatch of Utah and Bob Corker of Tennessee criticized the Federal Reserve for overstepping its role by making policy recommendations on how the U.S. government should try new ways to spur the housing market.
Hatch, the top-ranking Republican on the Senate Finance Committee, said the housing study sent by Chairman Ben S. Bernanke to Congress last week, along with recent Fed speeches,
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