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It was a news-filled week for the markets and the business world in general; major deals, wild gyrations, price slides and some major worries. But some fun things happened, too. Click ahead to see what we believe are the more significant business events of the past week.
By Allen Wastler
Posted 13 April 2012
There was a lot of gloom going into the week about earnings season. And Alcoa was supposed to kick off the economic dirge. But guess what? The metal company turned a profit, even though no one thought it would.
Now, when a company surprises Wall Street like that, business folks start asking if it was something specific to the company or something bigger that a lot of companies can benefit from. In Alcoa’s case, analysts noted it made about the same amount of revenue as last year, even though aluminum prices declined … so worldwide demand must be up and things in general might be turning around.
But Alcoa’s bright spot was also due to some company-specific moves as well. As its CEO noted on CNBC, it’s been focusing on keeping costs in line.
Is it a good omen for the rest of earnings season? We'll find out next week, when a dozen Dow components and nearly a fifth of the S&P 500 report.
On Wednesday, natural gas futures broke the psychologically significant $2 level for the first time since January 2002.
“I think that obviously the price collapse here is reflective of just a perfect alignment of the stars in terms of the above-normal winter temperatures and the tremendous increase in production and overall storage capacity,” John Kilduff of Again Capital said.
So will the price collapse continue? Some analysts thought so, but not all.
In fact, legendary oil driller T. Boone Pickens told CNBC he thinks the slide is pretty much over.
"I have to think you're close to a bottom," the oil and gas driller and head of BP Capital Management told Street Signs before natural gas settled at $1.984. "You’ve got the rig count going down. That’s what you want to watch."
Ten to 15 rigs were closed last week, he said, and more will be closed this week.
"As the rig count goes off it’s gonna cause supply to shorten up. It’ll take a little while for it to happen," he said.
The market had a real case of China growth whiplash this week in anticipation of its quarterly GDP number. The country, after all, has been credited with keeping the global economic machine chugging…or a least from sputtering out. So its growth prospects matter to the investment world at large.
The expectation was the number would be somewhat softer, as the Chinese government has indicated it wants to keep its economy from overheating. But on Thursday a rumor made the rounds that the number would come in slightly better than expected. Some believed that helped jolt the market Thursday.
Then the number came, showing that China’s economy grew at its weakest pace in nearly three years. Oh well. Still, at 8.1 percent, it seems the China growth engine is still idling well.
Advice for investors? Hedge fund titan George Chanos suggests shorting Chinese banks.
Okay, not a straightforward business development, we admit, but much of the business world is linked (get it?) through golf. So when a guy with a pink driver wins it, you note it.
And he visited our studios….and photo bombed the set.
When asked what will be served at his Champions Dinner at the Masters next year, Watson deadpanned that he had narrowed it down to: “Waffle House, Chipotle, Lexington Barbecue or In-N-Out.”
And lest you think we are just sports star struck, there are business tie-ins. For example his club sponsor, PING, was pushed to make pink drivers after so many had asked for them following Watson’s Masters performance using the odd shade.
Can you spell V-O-L-A-T-I-L-I-T-Y?
Here are this week's numbers for the Dow:
Monday down 130.55 points (1.00%) at 12,929.59
Tuesday down 213.66 points (1.65%) at 12,715.93 (Biggest one-day drop this year)
Wednesday up 89.46 points (0.70%) at 12,805.39
Thursday up 181.19 points (1.41%) at 12,986.58
Friday down 136.99 points (1.05%) at 12,849.59
Traders are beginning to ask: Is the market starting to crack?
The week started out with a deal that made a lot of folks go “huh?”
Facebook announced it would take over Instagram, a social photo-sharing outfit, for $1 billion. The San Francisco-based Instagram has about 30 million subscribers. But still, the deal raised eyebrows. The photo site had just received a round of VC financing the week before that valued it at $500 million. And some folks thought even that number was drastic.
Although Lou Kerner, The Social Internet Fund's founder, called the deal's valuation "astronomical," he said "the valuation may not look so rich down the line." Buying Instagram also keeps the company "out of the hands of competitors," he added.
Still, analysts saw a lot of offensive and defensive meaning in the move, especially as Facebook’s IPO draws nearer.
Investors were suddenly watching yield spreads again, as Spain, Italy and Germany went to market to sell bonds. Spain and Italy had to offer higher interest rates than expected to get investors to lend them money, leading many to wonder if their plans to get their financial houses in order weren’t living up to expectations. While the levels were well below the marks set in previous crisis times, there was still some concern.
"We were never out of the woods and we won't be until the economy turns around," an Italian bond trader told Reuters.
Germany had a different problem. Its finances are so solid that some of its bonds have practically no risk and therefore very little return, making lenders uninterested.
Monday was the second-lowest volume day of the year for U.S. stock markets. In fact, volume was already hitting a four-year low, according to statistics released this past week.
During March, average daily volume in equity shares was at its lowest level since December 2007, according to new data from Credit Suisse. This is the same month that marked the three-year anniversary of the bull market that caused the Standard & Poor's 500 to double from its March 2009 credit-crisis low.
Why? More money going to alternatives like options and commodities? Hypertrading? Or maybe the retail investor is just scared to play?
“Why should we be surprised the retail investor is not there? ” said Doug Kass of Seabreeze Partners. “We’ve had two huge drawdowns in stocks since 2000, a flash crash two years ago and real incomes are stagnating.” (Read more here)
Funny thing happened while Google announced its earnings. It also announced that it would create a new class of stock…one that would be doled out to current stockholders but wouldn’t have voting rights. This move would essentially meet shareholder demands for a stock split while keeping control of the company firmly in the hands of its founders.
That struck some on the Street as a bit unfair. As CNBC stock commentator Herb Greenberg noted: “For all of the good Silicon Valley does in creating new technology, jobs, excitement and wealth, it also does so using an 'our way or the highway' approach to Wall Street.”
Sure, there were plenty of other events in the week. The Indonesian earthquake and tsunami scare. Rick Santorum dropped out of the GOP race. North Korea blew its rocket launch. They didn’t affect the business world so much, though.
Oh yeah. The Stanley Cup paid a visit to CNBC. Go Devils!