Month: March 2012

First quarter on track to be best in 14 years

Stocks enter the final week of what’s shaping up to be the best first quarter in 14 years, with little hope the second quarter can match its gains.

The focus in the coming week will be on the US economy and whether the improvement seen in employment will show up in other data. There are reports on consumer sentiment and personal income and spending, as well as durable goods and Chicago purchasing managers data.

“I think the economic data has been starting to disappoint a little bit,” after this past week’s string of housing reports, said Gina Martin Adams, Wells Fargo Securities institutional equities strategist. “That’s a bit of a key as to why the market is correcting here. Whether that continues is what we’re looking for next week.”

The Federal Reserve could also be an influence as more than a half dozen speeches are expected from Fed officials, the most important of which comes Monday morning at 8 a.m. ET, when Fed Chairman Ben Bernanke speaks to the National Association for Business Economics. Bernanke has seemed less dovish, or less certain about another round of quantitative easing in recent comments, so markets will be watching this speech closely.

“He got what he wanted last week, which was to refocus the market on this message – that while the economy has improved slightly, the US recovery still faces significant challenges and we`re not out of the woods yet,” said CRT Capital senior Treasury strategist Ian Lyngen. “We’ll probably hear a solid repeat of what he’s had to say.”

By the end of the week, Europe could once more be a concern as European finance ministers meet Friday to hash out the structure and size of its bailout funds. Traders have been watching Spanish and Italian bond yields rising in recent sessions. Spain is expected to have budget news on Friday, and that is being monitored since Spain recently said it needed to run a bigger than expected deficit.

The euro in the past week gained 0.7%, and was at 1.327 Friday. Treasury bond yields meanwhile were lower on the week, with the 10-year at 2.23% Friday.

“The backdrop for next week is likely to be euro negative, probably a couple days in advance of that,” meeting, said Robert Sinche, head of global currency strategy at RBS. “There`s going to be a reaction to it, and my guess is it`s going to be negative. The question is whether all of Europe comes together and increases the fire power or somehow upsizes the fire power of the EFSF or ESM (bailout mechanisms)”

What Else to Watch

Another big factor in the coming week will be how oil behaves. On Friday, Nymex WTI crude and Brent were both more than a percent higher on reports that 300,000 barrels a day of Iranian oil is now off the market, and rumors of increased military readiness by Israel, which an Israeli official denied.

Brent was down slightly on the week at USD 125.13 per barrel, while WTI was off 0.7% for the week at USD 106.87 per barrel.

“Oil prices can be a threat,” said Adams. “A few weeks ago we identified a level for WTI of USD 112, as potentially problematic. You have to get there and stay there for four weeks before it becomes a problem. At that level, consumers are spending 13% of their disposable income on a combination of food and energy. That’s the place where consumers say `enough is enough, I have to cut back,` and that becomes a problem.”

Gasoline continued to climb at the pump – to a national average of USD 3.889 per gallon – and in the futures market.

RBOB futures rose 0.8% to USD 3.385. The CFTC reported Friday that there was all-time high open interest in RBOB gasoline futures in the week ended March 20. According to Citi Futures analyst Tim Evans, overall managed money net long positions in US petroleum markets declined by 15,814 contracts, but exposures remain in overbought territory, with net long positions of 405,190 contracts, the equivalent of 405.2 million barrels.

There are also a few earnings in the coming week as Total and Walgreen report Tuesday, and Best Buy and Research In Motion report Thursday.

Health care stocks could also be a focus as the Supreme Court hears a challenge to the health care reform legislation, championed by President Obama. The court will hear three days of arguments and a decision comes later.

Whither Stocks

The Dow was down 1.2% for the week to 13,080, its worst week since Dec. 16, but it is still up 7% for the quarter. The S&P 500 lost 0.5% for the week to 1397, but it is up 11% since the start of the year. Both the Dow and S&P are on track for their best first quarter since 1998.

The Nasdaq, up 17% for the quarter, was up 0.4% for the week, ending at 3067. The Nasdaq 100 was up 0.6% this past week to 2728, higher for a twelfth week and its longest winning streak since 1999.

“You can’t expect the second quarter to be like this first quarter,” said T3live.com’s Scott Redler, who follows short term technical moves. “If we`re flat in the second quarter, it’s going to be a win, and that would set us up for a nice second-half move.”

Redler said he expects traders to watch the market’s moves over the next several days to see how the second quarter is setting up. “This really feels like a run of the mill constructive correction … It could be within the same 2 to 5% pullback we’ve seen since the rally ignited back in December. Money keeps rotating and leadership keeps changing. It`s really been a follow the money, stock picker’s rally,” said Redler.

Financials, up 20%, and the S&P tech sector, up 19%, are the best-performing sectors for the quarter. Utilities were down more than 3% and were the worst performers, while energy and materials were both up more than 3%, also underperformers.

“I still like traditionally cyclical sectors that trade defensively, like tech,” said Adams. She said she does not like energy since is more high beta and influenced more by the global economy.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

An early read on 2011’s top 5 paid CEOs

Financial firms continue to take flack for what many see as the outsized compensation they pay, but an early look at CEO pay for 2011 shows the biggest paychecks were doled out to the top executives at entertainment firms.

Pay consultant Steven Hall and Partners examined the first 100 proxies filed by firms with over USD 1 billion in revenue. The proxies were filed between January 1, 2012 and March 7, 2012, and the study included only those companies whose CEOs had been in the job for at least two years.

These rankings are likely to change given hundreds of more large companies will be filing their proxies in the coming weeks, but in this first pass, Viacom’s  Philipe Dauman comes out on top when it comes to 2011 pay. The entertainment giant paid Dauman USD 43.1 million total compensation, a 49% decrease from 2010 when a huge retention grant pushed his total pay above USD 80 million. Dauman’s pay fell even as Viacom delivered a 22.5% increase in total shareholder return for 2011.

Second on the top paid list, Disney’s CEO Bob Iger.

Hit total compensation jumped 12% to USD 31.3 million dollars even as total shareholder return for investors in the operator of theme parks and movie studios dropped eight percent last year.

Chipmaker Qualcomm doubled the stock awards granted to CEO Paul Jacobs in 2011, bringing his total pay to USD 21.7 million.

Jacob’s 17% increase in pay coming for a year in which Qualcomm’s total shareholder return, or stock price appreciation and dividend payouts, rose 14.7%.

Number four on the list is Nicholas Howley, CEO of TransDigm.

The maker of aircraft components doling out nearly USD 18 million in stock options to its CEO last year, bringing Howley’s total compensation to USD 21.7 million, an 89% increase in a year total shareholder return rose a healthy 31.6%.

The fifth highest paid CEO on the list, Randall Stephenson of ATandT.

The USD 18.7 million paid by the telecom giant, a 9% increase from Stephenson compensation in 2010, even as investors saw an 8% decline in total shareholder return last year.

As for median CEO pay, this early look at the numbers suggests pay in the C-suite jumped for the second year in a row. Median total compensation for the 100 CEOs reviewed by Steven Hall and Partners rising 7% to USD 6.1 million.

Follow Mary Thompson on Twitter: @MThompsonCNBC

*All numbers courtesy of Steven Hall and Partners.

Copyright 2011 cnbc.com

‘Bernanke right to be worried about false dawn’

Fed Chairman Ben Bernanke is right to be worried about a false dawn for the US economy, Randall S. Kroszner, a former governor of the Federal Reserve told CNBC on Friday.

Earlier this week, Bernanke told CNBC the economy remained challenging despite signs of improvement in the economy and the rise in yields on Treasurys.

“I would agree with Chairman Bernanke that we don`t want to start popping the champagne corks yet,” said Kroszner, who`s now Professor of Economics at the University of Chicago Booth School of Business.

“We`ve seen some very important false dawns in the US labor market. In early 2010, we created more than 800,000 jobs in one month alone, then, it started to fall to a contraction. In early 2011, we started to see very strong job creation, more than 200,000 a month, for three months, then things fell again.”

Kroszner, who served as a member of the Federal Reserve Board between March 2006 and January 2009, said the central bank needs to see a couple of more months of positive data before it can be confident of the recovery.

One potential problem facing the Fed is that investors no longer believe the Fed will keep interest rates unchanged until late 2014. A number of Fed officials have also been warning that rates may have to rise earlier.

According to Kroszner, the problem the Fed faces is trying to forecast the economy too far out in the future, when the “crystal ball gets really cloudy.”

He cited Fed`s decision in January to keep rates at exceptionally low levels until at least late 2014. Yields on Treasurys haven`t fallen in response. In fact, the reverse happened last week: the unconvinced markets, faced with improving economic data and the prospect of higher inflation, drove 10-year Treasury yields to around 2.4%, though yields have fallen in recent days.

Kroszner said the Fed had more success in guiding the market last summer, when the forecast for rates was over a shorter time period.

“They achieved a lot of over the summertime when they said they were going to hold interest rates low until mid 2013, markets moved exactly there. When you try to put the horizon out that long until late 2014, three years, it`s a little bit tougher.”

Copyright 2011 cnbc.com

Why slowdown in China could actually help US economy

A contraction in Chinese manufacturing has sparked fears of a hard landing in that country and an overall global slowdown. But that could actually prove a positive for US economic growth.

Stock and commodity markets stumbled Thursday on news that a key Chinese factory index hit a four-month low, showing the sector is contracting. US equities shed nearly 1% at their lows, while oil and metals also both suffered sharp losses on fears that a China slowdown will reverberate across the globe.

But experts on the world`s second-largest economy see the drop as signaling only a cooling off, not a plunge.

Moreover, they say, the US could benefit from a China slowdown that could slow escalating energy costs as well as provide an opening on the world manufacturing stage.

“I don`t think anybody could have expected that China was going to grow (gross domestic product) at 8 percent into perpetuity,” says Barry M. Sine, director of research at Drexel Hamilton, a New York-based broker-dealer. “The growth had to slow down. But it`s still just an incredible growth rate.”

Sine does not expect China to see the hard-landing scenario generating market apprehension over the past several weeks.

“Here`s a country with USD 2 trillion in cash sitting in reserves. They can do an awful lot in terms of stimulating any weak segment in the economy, whether it`s real estate, bank balance sheets, state-owned industrial companies,” he says. “It`s like the lottery question: What could you do with a million dollars? What could you do with USD 2 trillion?”

Moreover, if Chinese manufacturing should stay in contraction mode – the HSBC Purchasing Managers Index registered a 48.1, below the 50 that indicates expansion – American businesses could end up the beneficiary.

The HSBC survey found that Chinese export orders were “sluggish” while domestic demand was “still softening.”

“One of the fundamental stories in the US economy is we`re seeing manufacturing come back,” Sine says. “Companies like Caterpillar are bringing jobs back. GM is hiring again, and even the Japanese auto companies, they`re starting to produce in the US and use that as an export base.”

Another way the slowdown could work in favor of the global economy is the likelihood of more stimulus from the Peoples Bank of China.

While the PBOC had been tightening policy to quell inflation fears, an economic slowdown likely would give the central bank the impetus it needs to enact more aggressive easing. That comes at an important time given that the Federal Reserve has been ambiguous about its plans for a third round of quantitative easing

“When you have these weaker-than-expected PMI numbers that come out of China, that in itself provides an easier backdrop for the government as well as the PBOC to stimulate through policy easing,” says Joseph Tanious, global market strategist at JPMorgan Asset Management. “Now that inflation numbers in China have begun to roll over, we think the PBOC can shift its gears and try to focus on economic growth.”

The probability of policy easing “bodes well for a soft-landing story” while a likely decrease in energy prices represents “a net positive as far as the U.S. economy is concerned,” Tanious adds.

Yet investors are unlikely to be as dismissive about China concerns.

Some big market names, most notably hedge fund titan Jim Chanos at Kynikos Associates, have turned bearish on the country in part due to a weakened real estate market and because the country has instituted more than 350 deals over the past five years worth about $400 billion, many of which appear shaky.

Shelly Goldberg, director of global resources and commodities strategy at Roubini Global Economics, helmed by the famed “Dr. Doom” Nouriel Roubini, cites “wasted, unproductive investments” that “at the end of the day are going to result in a choke on growth in the coming years, and there`s really no offset.”

The most likely economic outcome for China, Goldberg says, is a hard landing that likely will not be felt completely for a few years.

“We do expect some easing toward the property markets in 2012 and a partial bailout of local government banks and developers in 2013,” she says. “It`s really a longer-term issue and there`s a number of things they need to do which they`re not really doing.”

In the commodity markets, industrial metals are likely to suffer the most, followed by energy and then grains, Goldberg says.

In stocks, though, strategists expect that the recent slowing in the US market rally is as much about a natural pause than it is about larger concerns. After all, American stocks have rallied more than 30% since October, so a correction here likely would be positive and provide a better entry point for investors on the sidelines – another, if coincidental, benefit from China slowing.

“People are on pins and needles waiting for the next correction,” says Drexel`s Sims. “They want to book those gains before they lose them.”

Tanious says JPMorgan remains positive overall about the stocks outlook, despite the questions over China`s growth.

“You had a tremendous rally in the markets year to date. Investors are looking for opportunities to take some gains,” he says. “So long as the global economy continues to pick up steam, which we think it will, equities will head higher from here. The pace of the rally you`ve seen is unsustainable.”

Copyright 2011 cnbc.com

Investors to focus Thursday on jobless claims, earnings

Weekly jobless claims is the number to watch Thursday for clues about the already much-anticipated March jobs report.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow