Apple's Golden Quarter
In a closely watched earnings season, Apple (AAPL) could hardly have delivered better news to investors eager for evidence of real consumer demand to justify the recent bull market. The company topped forecasts with a 47% profit leap and 12% revenue growth in the quarter ended Sept. 30, thanks to record sales of both Macs and iPhones. Better yet, COO Tim Cook says the company could have sold far more had it had more inventory in place. That sent Apple shares to an all-time high of 205 on Oct. 21 and left analysts scrambling to lift their target prices to as much as 280. And Apple was hardly alone in the good-tidings department. Other tech outfits such as Google (GOOG), SanDisk (SNDK), and Yahoo! (YHOO) blew past estimates, as did banks including U.S. Bancorp (USB) and Morgan Stanley (MS), and the earnings picture generally looked sunnier than predicted. One big exception: Boeing (BA), which lost $1.6 billion.
More Signs of Recovery
That low hum you hear out the window could be the sound of assembly lines starting up again.The Fed said on Oct. 16 that industrial output jumped 0.7% in September, and the 0.8% increase reported in August was revised up to a smart 1.2% gain. Aside from automakers, which enjoyed an 8.1% boost in September, manufacturing rose 0.4%. Meanwhile, inflation stayed cool as consumer prices ticked up 0.2% after August's 0.4% gain, thanks to lower food prices and slower growth in energy costs. Overall producer prices fell 0.6% in September, sending them down 4.8% on a yearly basis—though if you leave out the volatile costs of food and energy, the monthly drop came to just 0.1%, and wholesale prices rose 1.8% for the year.
Are health insurance companies covered for shooting themselves in the foot? They have been making nice with the White House and Congress for months in order to ensure that any reform bill would give them access to some 30 million uninsured Americans without demanding too much in return. But the industry released two high-profile reports on Oct. 11 and 14 attacking the Senate Finance Committee version. President Barack Obama quickly returned fire in his weekly radio address, charging insurers with lying. The Senate Judiciary Committee followed up on Oct. 21 with proposed legislation that would end a 60-year-old exemption of health insurers from federal antitrust laws.
Profiting from insider info has plagued stock markets from time immemorial. But the bust of Raj Rajaratnam, billionaire founder of hedge fund Galleon Group, for allegedly trafficking in ill-gotten information, harks back to what might be called the Golden Age of insider trading, when Ivan Boesky stalked the Street in the 1980s. Rajaratnam and five others, including executives at IBM (IBM), Intel, and McKinsey, were arrested on Oct. 16. Four were charged with securities fraud and conspiracy, and two with conspiracy. The SEC also filed civil charges of insider trading against the six, and on Oct. 21, Galleon said that it will shut down its hedge funds.
CIT: Icahn Weighs In
Add Carl Icahn to the cast of the CIT Group (CIT) soap opera. The billionaire on Oct. 19 inveighed against the commercial lender's debt-restructuring plan, declaring it "incompetent and unconscionable" in a letter to the board. Under the deal, CIT shortened the maturity of new notes by six months, raised the amount of equity slated for holders of junior debt, and added long-term debtholders to the mix of creditors who can participate. It also forced bondholders to accept a prepackaged bankruptcy plan. Icahn, who calls himself CIT's largest shareholder, is grumpy that the deal offers large unsecured bondholders the chance to buy $6 billion in secured loans at below-market prices. As an alternative he offered to loan the company $6 billion for a much smaller fee. CIT said it "remains open to securing financing on the most beneficial terms."
Pay Czar Crackdown
Nearly everyone but bankers is complaining about bankers' pay, and now various parties appear to be doing something about it. On Oct. 21, The New York Times reported that Kenneth Feinberg, special master at the Treasury in charge of compensation issues, will issue an order "in the next few days" slashing the pay of top brass at U.S. companies that received the biggest bailouts. Firms will have to cut cash payouts to their 25 best-paid executives by an average of 90% from last year. For all executives, total pay including bonuses will sink by 50%. Meanwhile, Swiss bank Credit Suisse (CS) on Oct. 20 announced a new bonus scheme for top employees that would link compensation more closely to earnings and the stock price—and discourage taking wild risks to boost short-term returns.
If the Mexican Senate has its way, Citigroup (C) may have to say goodbye to one of its richest units: Banamex, Mexico's second-largest bank, which kicks in some 15% of Citi's worldwide profits. Concerned that the U.S. Treasury's 34% stake in the troubled American bank violates a constitutional ban on foreign government ownership of Mexican banks, a Senate committee agreed on Oct. 15 to ask the Supreme Court for a ruling, which could take months to materialize. Citi paid $12.5 billion for Banamex in 2002, and analysts figure it might fetch $15 billion to $20 billion now.
Green Light for Opel?
General Motors may have passed the last stop sign in its drive to sell its sputtering European Opel unit. GM on Sept. 10 agreed to offload 55% of Opel to Canadian auto-parts maker Magna International (MGA) and its partner, Russia's Sberbank. But at the last moment the European Union questioned whether the German government strong-armed GM into picking Magna. After talks between Berlin, the EU, and Opel's labor union, the regulators backed off, so the deal may actually close this week.
Jerry Brown's Crusade
Back in the day, Jerry Brown was known as "Governor Moonbeam" for his New-Age ways, but he was always hard-nosed when the occasion required. On Oct. 20, in his present incarnation as California Attorney General, he said he had filed suit against State Street Bank & Trust (STT) for allegedly overcharging the state's two big pension funds, CalPERS and CalSTRS, in foreign currency transactions. Brown claims that for eight years the bank charged the funds the highest exchange rate on the day of a trade rather than the market rate at the time trades were done. Brown is asking for damages equal to three times the $56 million in supposedly fraudulent charges. A spokeswoman for State Street said the bank denies the allegations and will defend itself against any litigation.