This Week In Business and Politics

1. The United States and China agree to coordinate a response if North Korea moves forward with a proposed rocket launch.



2. The United States paid the Afghanistan government $50,000 for every person murdered in the Kandahar Massacre.


3. The Republican Party ramped up efforts to overturn Barack Obama's health-care reform bill on its second anniversary.  The Supreme Court will begin to hear argument for and against the bill today.


4. The African Union deployed 5,000 soldiers to capture or kill head of the a Ugandan guerrilla group Joseph Kony.  His Lord's Resistance Army abducts children and has been accused of murder, mutilation, and crimes against humanity.



5. The Financial Services Committee of the US House of Representatives received a memo quoting the former treasurer of defunct broker MF Global.  The memo stated that Jon Corzine personally ordered the transfer of customer's money to a brokerage account with JP Morgan Chase.



6. President Barack Obama nominated current President of Dartmouth College Jim Yong Kim to be the head of the World Bank.


7. The United Nations appoints Richard Bennett to advocate for the interests of Tibetan citizens  The appointment ended a one-month hunger strike by three Tibetans in the shadow of the UN headquarters in New York City.


8. A tax plan put forth by President Obama will raise $47 billion over ten years according to an analysis conducted by the Joint Committee on Taxation.  The so-called "Buffett Rule" will ensure that millionaires pay more taxes to make up for abolishing the alternative minimum tax on middle-income earners.


9. Apple announced it will return $45 billion of cash to shareholders over the next three years.  The company will tentatively pay a quarterly dividend in the amount of $2.65 per share.  While the yield is a modest 1.8% of the stock price, it will mark the first time Apple has ever paid a dividend.



10. UPS agrees to purchase competitor TNT Express for $6.8 billion.  The next large business opportunity for UPS lies in delivering drugs and medical devices to patients' doors.



11. India's government proposed a retroactive tax on foreign takeovers of Indian assets.  The measure is aimed at Britain's Vodafone, which has been in dispute with the Indian government over billions of dollars in capital-gains tax on its 2007 acquisition of an Indian mobile-phone company.    

Why I Am Leaving Goldman Sachs Op-Ed

Yesterday, Goldman Sachs executive director Greg Smith resigned from his position and wrote an op-ed in the New York Times to let the world know the reasons for his decision.  Despite the immediate satirical response by comedians, Smith's opinion piece shed light on Goldman Sachs descent from the perspective of an executive.  Here is a selection of quotes that might catch your attention.  

"TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.  To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.

I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer." 


Even though only a select few individuals have access to the inner workings of investment banks, many Americans assume greed and manipulation are pervasive on Wall Street.  Why, then, did Smith's public resignation garner great levels of attention?  Smith has nothing to gain from rebuking Goldman Sachs.  He's already a mid-level executive who left his position of Goldman's US derivatives trading for Europe, the Middle East, and Africa.  His intention appears to be a sincere desire to confirm the widely held perception that the financial industry prioritizes profits ahead of customer satisfaction.  


Not surprisingly, a number of parody articles have been written overnight.  The most popular satire thus far is a piece from The Daily Mash titled "Why I Am Leaving the Empire".  In the article, a disgruntled Darth Vader expresses disgust with his employer:


“The Empire is one of the galaxy’s largest and most important oppressive regimes and it is too integral to galactic murder to continue to act this way. The firm has veered so far from the place I joined right out of Yoda College that I can no longer in good conscience point menacingly and say that I identify with what it stands for.”    


Minyanville writer Michael Comeau has also penned a letter to Goldman CEO Lloyd Blankfein called, "Why I Am Applying for an Executive Director Position at Goldman Sachs".


"Ultimately, however, I believe I have the right attitude for the job.

First of all, I am an awesome dude.

My proudest moments in life -- getting accepted to Brooklyn College, passing Intro to Chemistry, and competing in countless Wiffle-ball and roller-hockey games, known as the Brooklyn Olympics -- were achieved through pure awesomeness, with no shortcuts.

And more importantly, Lloyd, I know how to keep my mouth shut."

This Week in Politics and Business

The world has been a busy place in the past week.  Here's what you need to know to stay informed on current affairs.

1. The nationwide average for gasoline prices rose for the 26th straight day Sunday.

2. Vladimir Putin claims a victory in Russia's presidential election despite allegations of widespread fraud.  In an article for a Russian newspaper, president-elect Putin called for former Soviet states to form a "Eurasian Union" for economic purposes, but denied the move as an attempt to rebuild the Soviet Union.

3. The cleanup in the aftermath of tornadoes that claimed 37 lives continues.  On Friday, a total of 90 tornadoes were reported across Kentucky, Indiana, Alabama, Georgia, and Ohio. 

4. North Korea agreed to suspend its uranium-enrichment in Yongbyon and further testing of weapons and long-range missiles.  The agreement mark a breakthrough between America and North Korea.  In exchange, the US will provide at least 240,000 tons of food to the impoverished country.  

5. Australian prime minister Julia Gillard easily defeated Kevin Rudd in a Labor Party ballot that contested her leadership. The party has been torn by in-fighting since Ms Gillard’s ousting of Mr Rudd as prime minister in 2010.

6. Egypt will hold presidential elections following pressure from citizens.  The first round will be held on May 23rd and 24th, with run-offs scheduled for mid-June. Final results are expected on June 21st. The election will probably mark the end of military rule.

7. Republican candidate Mitt Romney won the Michigan and Arizona primaries.  Although the margin of victory was narrow over Rick Santorum in Michigan, Romney managed to win his home state.  On March 6th, 10 primaries will be held in what has become known as Super Tuesday. 

8. American's GDP growth rate was revised to 3% for the last three months of 2011, up from an initial estimate of 2.8%. Banks in America expanded their lending by $130 billion in the period, the biggest quarterly increase in four years, while losses from loans fell to their lowest since the start of 2008. The data were taken as more evidence that the American economy is on the rebound.

9. The Dow Jones Industrial Average closed above 13,000 for the first time since May 2008 and the NASDAQ reached a new 11-year high.

10. In his annual letter to shareholders, Warren Buffett answered some questions about who would succeed him as boss of Berkshire Hathaway. The 81-year-old investor suggested that a successor has been chosen, as Berkshire-Hathaway's board was “enthusiastic” about “an individual to whom they have had a great deal of exposure”.  He didn’t name the person, keeping people guessing about the candidates.

11.  In the last quarter of 2011, India's economy grew 6.1%.  It was the slowest rate of growth in three years, and put pressure on the Indian Central Bank to lower interest rates.

S&P Best and Worst Stocks

In 2012, Standard and Poor's 500 index has approached a three-year high, closing at 1,361.23 last Friday. The Dow Jones Industrial Average reached 12,949.87, its highest closing level since May 2008.  Optimism over a second bailout of Greece and higher than expected corporate earnings are likely the dual causes of investor confidence.  In earnings season, 60% of companies that have reported have beaten analyst's estimates.  Among S&P 500 stocks, 63% have beaten estimates.  

Below are the 30 best and 30 worst performing S&P 500 stocks on their earnings report days.  Netflix skyrocketed by 22.06% following its report on January 25th. 

 

Charts courtesy of Think BIG

This Week In Business and Politics

1. Commodity trader Glencore and mining company Xstrata announced the details of a proposed $90 billion merger.  The announcement came after Xstrata revealed a 20% increase in profits in 2011.  The newly formed company will be the world's largest exporter of coal for power plants and the largest producer of zinc.  Tentatively, Glencore would own 55% of the new enterprise.

2. Multinational natural resource corporation Rio Tinto announced a record annual profit of $15.5 billion.  However, the company also booked an $8.9 billion expense related to the falling value of aluminum.

3. BP posted a 38% spike in quarterly profit at $7.7 billion and increased its shareholder dividend for the first time since the 2010 oil well disaster in the Gulf of Mexico.  However, the company is preparing for oil spill lawsuits, which are expected to start later this month.  CEO Bob Dudley said on Tuesday that the company is ready to settle approximately 600 civil lawsuits.

4. Online coupon company Groupon announced its first set of public quarterly earnings after its initial public offering.  Instead of netting a profit, the company revealed it suffered a $43 million loss.  The markets reacted to the negative news by sending the price of Groupon shares downward.

5. China and Russia blocked a UN Security Council resolution that condemned the violence in Syria and called for President Bashar Assad to step down.  The government crackdown on protestors has become increasingly bloodier over the past 2 weeks, leaving thousands dead in the rebel-held area of Homs.  The United States has closed its embassy and several European countries have withdrew their ambassadors from the country.

6. Egyptian officials announced that 43 charity workers, including 19 Americans will be put on trial for illegally receiving foreign funds.  The capital city Cairo continued to experience protests between police and demonstrators following the deaths of 74 people in clashes at a soccer game in Port Said.

7. Republican presidential candidate Rick Santorum won party caucuses in Colorado, Minnesota, and Missouri while Mitt Romney easily defeated challengers in Nevada.

HHS Ruling on Contraceptive Coverage

Two weeks ago, President Obama signed off on Health and Human Services ruling that could cost him the election.  In a move that has Catholics outraged across America, President Obama consented to a mandate that states under the new healthcare system, Catholic institutions will be required to provide and pay for abortificients, contraception, and sterilization.  

We’re all wondering to ourselves why the President would agree to a decision that blatantly violates Church teaching, and arguably the First Amendment.  Reelection is the first priority in his mind, but his actions indicate otherwise.  In 2008, President Obama won the Catholic vote 54% to 45%.  More significantly, there are 77.7 million Catholics in the United States, a number that comprises 27% of the electorate.  

The Affordable Care Act, popularized as Obamacare, would not exist without Catholic Health Association President Sister Carol Keehan.  She endured criticisms from hundreds of bishops for supporting the legislation when it was passed in 2010.  She maintained, correctly at the time, that the bill would not fund abortions or contraceptions of any kind because this is what the President of the United States told her.  It turns out she was wrong.

There are 620 Catholic hospitals across the country, an amount that accounts for 12.4% of America’s 5,010 hospitals.  They provide 15% of hospital beds in the country, and handle 15.7% of total patient visits.  There are 6,980 Catholic elementary and secondary schools in America.  Catholic social services serve the poor and those in needs, strengthen individuals and families, and are a strong advocate for social justice in communities.  Without question, Catholic institutions matter to the health, education, and well-being of Americans.

So why would the Department of Health and Human Services and President Obama force 27% of the electorate to go against their beliefs?  Is it secularist arrogance or mere political ineptness?  Churches are exempt from this ruling, but church-run schools, hospitals, and social service agencies are not.

Again, Mr. Obama should not expect to win the Catholic vote in November after this decision.  New York Cardinal-elect Timothy Dolan and Cardinal Daniel DiNardo have spearheaded an effort to oppose the ruling at Catholic Churches across the country.  The timing of the ruling makes you wonder as well--the Obama administration announced its decision just three days before the annual March for Life in Washington D.C.  

Facebook IPO

News broke yesterday that Facebook filed for an initial public offering that could value the popular social networking site between $75 and $100 billion.  These astronomical valuation statistics make Facebook the biggest Internet/technology IPO ever witnessed.  The 150 page S-1 filing with the Securities and Exchange Commission (SEC) details Facebook as a company with 85% of revenues coming from advertising.  Facebook's revenue was $3.7 billion last year, an 88% increase over 2010.  Profits were reported as $1 billion.

Founder Mark Zuckerberg stands to benefit immensely from the unprecedented IPO.  He owns 28% of the company, but Zuckerberg plans to take a $1 per year salary beginning in 2013, similar to what Steve Jobs did while calling the shots at Apple.  Now 27, Zuckerberg started Facebook from his dorm room at Harvard University in 2004, a story which was popularized in the movie "The Social Network".  Today, Facebook has over 845 million users.

Several bulge bracket investment banks are involved in the IPO, although Morgan Stanley took the lead underwriting role.  Goldman Sachs, Bank of America, Barclays Capital, and JP Morgan also added consulting and valuation services.

Investing in Facebook presents both risks and potential gains.  Relative to other tech company IPOs, the magnitude of Facebook is unheard of.  2011 saw the IPOs of LinkedIn, Pandora, Groupon, and Zynga, all of which leveled off after the first day of trading.  If the Facebook stock has a chance of doing as well as Google, it must produce higher profits and margins.  Several questions still should keep investors skeptical:

-What will the IPO offer price be?
-What are Facebook's future growth rate?  Already at 845 million users, when does the growth begin to level off?
-How does Facebook plan to enter the Chinese market?

Reports indicate that Zuckerberg will retain control over the company after it goes public.  He has proposed to go public with a dual-class share structure.  Public shareholders will have the option to purchase Class A shares that have one vote each.  Zuckerberg and current Facebook employees and investors will hold Class B shares that have ten votes apiece.  His control over Facebook could increase in the future as other Class B shareholders sell their stake in the company.  Zuckerberg isn't the first tech company CEO to use this structure to retain control over the business.  Google founders Larry Page and Sergey Brin implemented a similar share structure when the tech giant went public in 2004.

Zuckerberg hopes to attain the best of both worlds.  He wants to be free of shareholder influence while still receiving the benefits of equity and capital that go along with being a publicly traded company.  In addition, Zuckerberg appears to more concerned about the future well being of the company than the stock price.  In a letter to potential investors, Zuckerberg wrote:

"Facebook was not originally created to be a company.  It was built to accomplish a social mission-to make the world more open and connected.  Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries.  We don't build services to make money; we make money to build better services."  

Homilies of Cardinal DiNardo and Archbishop Dolan

Earlier this week, I returned from the March for Life in Washington D.C. where, in addition to the March itself, I had the opportunity to listen to Cardinal DiNardo deliver an awe-inspiring homily to over 20,000 Catholic pilgrims in the Basilica of the National Shrine of the Immaculate Conception.  His words resonated with me primarily because he stood strong against the blatant anti-life efforts of Health and Human Services and the Obama Administration.  Last week, the President Obama restated that many religious institutions would be required to fund contraception including abortifacient birth control pills as part of their health insurance coverage.  

“We are nearing the 40th anniversary of Roe versus Wade,” Cardinal DiNardo preached.  “53 million children have lost their lives since then; millions of men and women have lives that will never be the same because of their tragic choices.  Our embrace of life must be clear...Disturbing news came to us Friday from HHS and the Obama Administration: it fundamentally repeated the mandate that sterilization and contraception must be included in virtually all health plans.  Never before in our US history has the federal government forces citizens to directly purchase what violates our beliefs.”

Archbishop and Cardinal-elect Timothy Dolan added another point that hits all pro-lifers hard: 

“From a human point of view, we may be tempted to surrender, when our government places conception, pregnancy, and birth under the ‘Center for Disease Control,’ when chemically blocking conception or aborting the baby in the womb is considered a ‘right’ to be subsidized by others who abhor it.”

Pictures from Washington D.C.

I've just returned from the annual March for Life in Washington D.C.  Powerful, awe-inspiring, uplifting, and positive.  These are the words fellow students at the St. Lawrence Center used to describe the experience.  We attended masses at the Basilica of the National Shrine of the Immaculate Conception and St. Matthews Cathedral.  The March itself consisted of approximately 250,000 individuals all united for the common purpose of protesting abortion.  In between mass and the march, we had free time to explore our nation's capital.  I took the opportunity to visit the Holocaust Museum, the American History Museum, the Museum of Natural History, and the National Archives.   

St. Matthews Cathedral

"Any country that accepts abortion is not teaching the people to love, but to use any violence to get what they want. That is why the greatest destroyer of love and peace is abortion." Mother Teresa

A timeline of natural history.  Near the very top is man.

Teddy Roosevelt's pants

Ronald Reagan campaign materials.

Bakery in international food court.

The Basilica

Tesla

Sign from the Holocaust Museum.

This Week In Finance

1. Asset management firm The Carlyle Group revealed the salaries of its executives in a regulatory filing.  The private equity company's three founders each earned about $3.8 million in salary and bonuses last year.  Carlyle also disclosed its planned stock ticker--CG.  The firm plans to list on the Nasdaq Stock Market due to lower registration and listing fees and better familiarity with the exchange.

2. Online health company WebMD took itself off the auction block after it failed to attract satisfactory offers from potential buyers.  Shares in WebMD plummeted almost 28% in premarket trading last Tuesday.

3. Former hedge fund manager Drew Brownstein was sentenced to a year and a day in prison after pleading guilty to insider trading accusations.  Mr. Brownstein admitted to buying stock in Mariner Energy after receiving information that the company was about to be acquired.

4. Hostess Brands, best known for products such as Twinkies and Ding Dongs, filed for Chapter 11 bankruptcy last Wednesday.  The company has amassed $860 million in debt and suffers from rising expenses from its workforce.  Hostess said its return to bankruptcy will not affect the company's sale of tasty treats.

5. Goldman Sachs lost a total of 50 senior partners in 2011.  Edward Eisler and David Heller, the co-directors of Goldman's securities division were among the more prominent retirements.  There are just 33 partners today who were partners when Goldman went public in 1999.

6. JP Morgan Chase announced its quarterly profit dropped 23 percent.  The bank made $19 billion in 2011, up 9 percent from the $17.4 billion total in 2010.  However, JP Morgan earned $3.7 billion in the fourth quarter of 2011, down 23% from the same quarter a year before.

7. Co-founder of Yahoo Jerry Yang announced he will step down from the board of directors.  In a letter to Yahoo's chairman, Yang wrote, "The time has come for me to pursue other interests outside of Yahoo."

8. The Senate Agriculture Committee is considering new policies to prevent a repeat of the MF Global bankruptcy.  MF Global reportedly misused $1.2 billion in customer money invested in futures and options.

9. Film and camera company Eastman Kodak announced it will file for bankruptcy.  The company has only reported one profitable year since 2004, and its short supply of cash finally caused it to filed for Chapter 11.  Citigroup loaned Kodak $950 million in financing to allow operations to continue.

10. Bank of America reported a fourth-quarter profit of $2 billion compared with a loss of $1.2 billion in the same period a year ago.  The profit was buffered by a $2.9 billion gain on sale of a stake in China Construction Bank.  However, BofA is still in the hole.  Its disastrous acquisition of Countrywide Financial in 2008 saddled the bank with more than $30 billion in losses.

This Week In Finance

Despite many individuals taking time off to be with their family and friends during the holiday season, the markets still were open last week.  Here's a brief review of the highlights in the financial realm:

1. AT&T elected not to purchase German-based telecommunications company T-Mobile.  The initial plan was to purchase T-Mobile for $39 billion,  but the acquisition was scrapped after resistance from regulators and rivals.  The proposed deal would have made AT&T the world's largest wireless service provider.  AT&T now must pay a $4 billion breakup fee to Deutsche Telekom, T-Mobile's parent company. 

2. Internet corporation Yahoo! is considering selling its ownership positions in Asian subsidiaries.  Yahoo's combined stake in Chinese e-commerce firm Alibaba and Yahoo Japan is valued at $17-18 billion.  Despite being a recognized company, Yahoo! has struggled to compete with tech giants Google, Facebook, and Microsoft.  In October 2007, the company's stock price was $33.63, but it has hovered around $16 for most of 2011, even dropping as low as $11.74 in August.

 

3. A digital media focused company called Wrapports agreed to purchase The Chicago Sun-Times from Sun Times Media Holdings.  The Sun-Times is Chicago's second-largest newspaper according to the Audit Bureau of Circulations.  Wrapports issued a statement indicating the transaction will take place before the end of the 2011. 

4. Stock prices of several banks plummeted in a down week of trading.  Bank of America's shares fell below $5 for the first time since March 2009. 








5. Saudi Arabian prince Aiwaleed bin Talal has bought $300 million of Twitter stock, adding to his estimated assets of $21 billion.  The move is a curious one considering that Twitter has been instrumental in organizing protests across the Arab world.  His investment represents a 3.5% stake in company.  

6.  The Federal Reserve stated that the largest US banks and financial institutions should carry more cash to protect themselves against recessions and crises.  The proposed legislation will affect banks with over $50 billion in assets.  The rules will be even tougher on institutions with assets that exceed $500 billion.