Reffing the Recovery
Despite many signs that the U.S. economy is back in growth mode, the committee with the official power to declare the recession over said on Apr. 12 that, based on current data, doing so "would be premature." The National Bureau of Economic Research's Business Cycle Dating Committee typically waits until it can precisely date the start or end of a contraction, a process that lags the actual peak and trough dates by about 6 to 18 months. The current recession officially began in December 2007—though it wasn't technically declared until a year later. While the committee may hesitate to call a bottom, investors have not.
On Apr. 12, the Dow Jones industrial average closed above 11,000 for the first time since September 2008. U.S. stocks continued their ascent as the week moved forward, buoyed by better-than-expected earnings from industry bellwethers such as Intel (INTC) and JPMorgan Chase (JPM). An Apr. 14 Commerce Dept. report showed retail sales rose 1.6% in March, the biggest advance in four months. A Bloomberg News survey of economists in March pegged growth in the first quarter of 2010 at 2.9%, following the fourth quarter's 5.6%.
A Bulwark for Greece
After months of talk, European leaders on Apr. 11 finally offered debt-ridden Greece a rescue package worth up to $61 billion contingent on need. Two-thirds of that could come from the euro zone's 16 countries, with the International Monetary Fund kicking in the rest. The assistance could come in the form of three-year loans with a 5% interest rate, well below the current yield on Greek debt. The news helped the euro rebound to a two-month high against the dollar, though Greece still needs to slash government spending to win back investor confidence.
China Digs Canada
China Petrochemical, better known as Sinopec, will pay $4.65 billion for ConocoPhillips' (COP) stake in oil-sands producer Syncrude Canada, according to an Apr. 12 announcement. China is on a global quest for resources to power the world's fastest-growing economy. Mainland companies plowed a record $32 billion into mining and energy acquisitions last year. State-controlled PetroChina (PTR) won approval from the Canadian government in December to buy a stake in Athabasca Oil Sands' MacKay River and Dover projects for $1.9 billion. China relied on imports to meet half of its oil needs last year.
Cerberus Capital Management, the private equity firm whose takeover of Chrysler ended in the carmaker's bankruptcy, agreed to buy defense contractor DynCorp International (DCP) on Apr. 12 for about $1 billion. That amounts to a 49% premium over the Apr. 9 closing price of DynCorp's shares. DynCorp, which helps train Iraqi police and supports the U.S.'s operation of military bases, is at least the fifth government-services investment that Cerberus has made since 2000.
Another Ding for Toyota
Toyota (TM) asked its Lexus dealers on Apr. 14 to stop selling the Lexus GX 460 SUV after Consumer Reports called the vehicle a safety risk. On Apr. 13, CR said that when it tested the GX 460 on a serpentine safety course, the stability control system did not kick in quickly enough. CR's engineers detected the alleged flaw when they eased off the accelerator in a tight turn, causing the SUV's back end to slide outward. CR tagged the nearly $53,000 vehicle a rollover risk and gave it a "Don't Buy" recommendation. Toyota responded by taking the GX460 off the market while its own engineers inspect it. In January it yanked eight models from dealer lots amid claims that a sticky gas pedal caused sudden, unintended acceleration.
Coco Pulls a Stunner
In a move that surprised network executives, jilted Tonight Show host Conan O'Brien jumped from broadcast TV to the TBS (TWX) cable network for a late-night show that will launch in November. O'Brien, who left NBC in June after the network replaced him with Jay Leno, had been locked in negotiations with the Fox Network (NWS). Fox executives had been struggling to persuade its 217 affiliates to air Conan in place of lucrative late-night reruns. TBS lured O'Brien with a five-year deal that will enable him to own the show. It expects the red-haired comedian to bring a mostly younger audience that appeals to advertisers.
New Boss at MasterCard
MasterCard (MA) on Apr. 12 announced that Ajay Banga will be promoted to chief executive officer effective July 1, succeeding Robert Selander. Banga, 50, was Citigroup's head for Asia-Pacific before joining MasterCard last August as president and chief operating officer. The card industry no. 2 is battling Visa (V) for a bigger share of electronic payments, which are expected to account for 63% of a projected $9 trillion in U.S. consumer expenditures by 2013.
Palm Needs a Hand
Bloomberg broke the news on Apr. 12 that Palm (PALM) is shopping itself around. The company that helped pioneer the market for personal digital assistants is working with Goldman Sachs (GS) and Qatalyst Partners to find a buyer. Industry experts say Palm's most valuable assets are its WebOS software, which competes against mobile operating systems from Apple (AAPL) and Google (GOOG), along with patents it holds. Potential bidders could include Taiwanese mobile handset maker HTC and Chinese computer maker Lenovo (LNVGY). Nokia (NOK), Motorola (MOT), and Research In Motion (RIMM) might also derive a strategic benefit from a Palm acquisition. For Elevation Partners, the investment firm that owns about 30% of Palm, a sale would end the volatility associated with a stock that surged more than tenfold since December 2008 before erasing most of its gain.
A-Twitter Over Ads
Four years into its bid to upend social media, Twitter finally has a business model. On Apr. 13 the online service for sharing messages of 140-characters or fewer said it will start carrying "promoted tweets" from advertisers including Best Buy (BBY) and Starbucks. (SBUX) The ads will appear at the top of search pages at the outset and will eventually be incorporated in Twitter posts more broadly.
An Investment Worth Toasting
For the ultimate in liquid investments, try top-quality wine, which has outperformed one benchmark U.S. stock index for 13 years. That's the conclusion of Philippe Masset and Jean-Philippe Weisskopf, two Switzerland-based economists who compared wine prices with the Russell 3000 Index between January 1996 and January 2009. The researchers tracked prices from 144 wine auctions with a combined value of $237 million. They used vintages from 1981 to 2005.
Masset and Weisskopf's index beat the Russell 3000 over the period, largely because wines held their value better than equities over the most recent market downturn. Since mid-2008 the wine gauge fell 17%, while stocks declined 47%. A sub-index of highest-quality wines did even better, delivering fivefold returns over the 13-year period, vs. a 50% gain for the Russell 3000.
Demand for alternative investments such as wine and artwork has grown as investors seek refuge from inflation and look for asset classes in which to store wealth beyond the traditional choices of stocks, bonds and gold. "My wine cellars have probably appreciated better than any other investment I have made personally," says Drew Nieporent, owner of New York restaurants Corton, Nobu, and Tribeca Grill. (Raise Your Glass: Wine Invesment and the Financial Crisis)
The Optimism Meter: Holding Steady
The Meter clocked in at 55 on Apr. 13, the same level as one week earlier, as a slight improvement in the outlook for housing made up for a drop in stock market enthusiasm. Some 19% of Americans believe the stock market will decline in value over the next 12 months. Developed by Bloomberg BusinessWeek using data from pollster YouGov, the Meter is a proprietary measure of sentiment and expectations, economic statistics, and market forecasts. It evaluates shifts in outlook among individuals, professional investors, and economists in the areas of U.S. economic growth, jobs, equity markets, and real estate. (Calculated using consumer polling, economic forecasts, and financial markets data; 0=lowest and 100=highest)
Data: YouGov, Bloomberg BusinessWeek