Hong Kong Chief Executive candidate Henry Tang pledged to boost government spending to tackle a widening wealth gap as he sought to reverse a slump in public support ahead of this month
U.S. stocks recovered quite a bit of lost ground but still finished in the red Monday, following the path of world markets, after China lowered its annual growth target.
The Dow Jones industrial average () lost 15 points, or 0.1%, the S&P 500 () slipped 5 points, or 0.4%, and the Nasdaq composite () decreased 26 points, or 0.9%.
World markets fell Monday, after Chinese Premier Wen Jiabao set a lower target for China’s economic growth, underscoring the need to make the country’s breakneck development more sustainable.
The government is aiming for economic growth of 7.5% in 2012, Wen said — lower than the 2011 goal of about 8%. The Chinese economy often exceeds the official objective; last year it grew 9.2%.
"Even though China only lowered its target by half a percentage point, it’s a telegraph to the rest of the world that the second largest economy is slowing," said Tom Schrader, managing director at Stifel Nicolaus.
American manufacturers importing workers
China’s lower forecast also suggests that the country’s recent steps to ease monetary policy — in an effort to maintain strong economic growth while getting inflation under control — may not be working, said Schrader.
Aluminum-maker Alcoa (, Fortune 500) and Caterpillar (, Fortune 500), which makes construction equipment, were the biggest laggards in the Dow amid worries that slower growth in China could pressure demand for their products.
Trading could be choppy this week, leading up to a big news day on Friday. On the domestic front, investors will get the latest snapshot of the U.S. labor market, with the release of the February jobs report.
In Europe, Friday marks the deadline for private creditors to sign off on Greece’s debt write-down. Greece needs the debt deal to secure its €130 billion rescue package from the eurozone and avoid default.
Lehman Brothers to boost the market?
Stocks closed modestly lower last Friday, with the Dow snapping a two-week winning streak.
World markets: European stocks closed lower. Britain’s FTSE 100 () lost 0.6%, while the DAX () in Germany dropped 0.9% and France’s CAC 40 () shed 0.3%.
Asian markets ended lower. The Shanghai Composite () closed down 0.6%, while the Hang Seng () in Hong Kong lost 1 payday advances.4% and Japan’s Nikkei () dropped 0.8%.
Economy: The February ISM services index rose to 57.3, up from 56.8, which beat expectations.
Washington’s $5 trillion interest bill
Last week, the ISM manufacturing index for February slipped to 52.4, from 54.1 in January, indicating a slowdown in the sector’s expansion.
Meanwhile, factory orders in January decreased 1% — less than the 1.9% decline analysts were expecting. Factory orders rose 1.4% in December.
Companies: IBM (, Fortune 500) shares hit all-time high above $200 share. Citigroup (, Fortune 500) announced that it is exploring possible uses for Watson, IBM’s supercomputer that was famous for beating two human contestants on the game show "Jeopardy" last year.
Online reviews site Yelp () retreated, falling more than 14% after spiking 64% to top $24 a share in their debut on the New York Stock Exchange Friday.
AOL () became the latest advertiser to pull advertising from Rush Limbaugh’s radio show in response to his comments about a Georgetown law student who advocated healthcare coverage for contraception. AOL shares were flat Monday.
BP () shares were higher Monday, after the British oil giant and plaintiffs involved in the legal battle over the Gulf of Mexico oil spill said Friday they reached an agreement. BP estimated it would have to pay about $7.8 billion in the Deepwater Horizon disaster settlement.
Apple (, Fortune 500) said in a post on its website that the tech company has "created or supported" some 514,000 jobs in the United States, either through direct employment, the "App economy" or other means. Shares were down more than 2%, however, ahead of the company’s highly-anticipated iPad announcement Wednesday.
Currencies and commodities: The dollar lost ground against the British pound, the euro and the Japanese yen.
Take advantage of rising gas prices
Oil for April delivery rose 6 cents to settle at $106.75 a barrel.
Gold futures for April delivery fell $5.90 to settle at $1,703.90 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, with the yield rising to 2% from 1.99% late Friday.
Throughout the extraordinary surge in Apple Inc.’s share price, a persistent question has lingered:
Why is the stock still so cheap? One overlooked answer may be that Apple’s accounting isn’t as conservative as it used to be.
After topping $500 a share last week, the iPhone and iPad maker now has a $468 billion market capitalization. Yet Apple trades for only 14.3 times its earnings for the previous four quarters — about the same as the Standard & Poor’s 500 index’s price-earnings ratio — in spite of growth that’s far above average. Revenue last quarter rose 73 percent to $46.3 billion, while earnings more than doubled to $13.1 billion.
Many theories have been floated for why such a rapidly expanding company with such loyal customers would trade for so little. Perhaps investors believe Apple will cling to its $97.6 billion hoard of cash and marketable securities, rather than pay a fat dividend. Others have suggested a lack of confidence about the future. It’s a consumer electronics company, after all, and competition is brutal.
While each of those points has merit, here’s an explanation that hasn’t gotten enough attention: Thanks to an accounting rule change for which it lobbied, Apple gets to book revenue from sales of bundled products such as iPhones — which include hardware, software, services and upgrade rights — more quickly than it used to.
The easiest way to see the rule change’s impact is to look back at the two sets of numbers Apple reported for fiscal 2009.
Originally, the company said it had $5.7 billion of net income for the year on $36.5 billion of revenue. Then in January 2010 Apple retroactively adopted the new accounting principles and restated its previous numbers. The restatement boosted Apple’s fiscal 2009 net income 44 percent to $8.2 billion. Revenue was revised to $42.9 billion, 17 percent higher than originally reported.
Nothing changed economically, of course. Only the accounting did. On the surface, though, Apple’s valuation looked cheaper under the new reporting regime.
On Dec. 31, 2009, for instance, Apple had a market capitalization of about $191 billion low fee pay day loans. Using the fiscal 2009 earnings that Apple initially reported, its price-earnings ratio that day was about 33. Using its restated numbers, the ratio would have been about 23.
“It would appear that the market continues to consider a significant component of Apple’s revenues and gross profit to be presently unearned and not deserving of a normal market multiple,” said Charles Mulford, an accounting professor and director of the Financial Reporting and Analysis Lab at Georgia Institute of Technology in Atlanta.
Apple was one of a handful of companies that lobbied the Financial Accounting Standards Board for the new rules in 2009.
The impact for Apple seems to have been greater than for most others, probably because of the nature of its products. Dell Inc. said the rule switch had no material impact on its results.
Microsoft Corp. and Oracle Corp. said the same. Hewlett-Packard Co.’s earnings got a slight boost.
The FASB rule change had two main parts. One related to so-called multiple-deliverable arrangements, while another covered software sales. When Apple sells an iPhone, for example, the hardware and software are delivered at the time of sale. Other deliverables include the rights to future software upgrades and other features.
The old accounting rules required Apple to defer large chunks of its revenue and recognize the amounts gradually over each product’s economic life. While the details are complicated, the gist under the new rules is that Apple is allowed to record more revenue upfront.
Let me be clear: I’m not opining on whether Apple is overvalued or undervalued, and I’m certainly not making any predictions about its stock price. The point here is that it makes sense for Apple’s earnings multiple to have declined significantly once you consider how the company’s accounting has changed.
The bottom line: Not all iEarnings are created equal.
Chinese Premier Wen Jiabao said the nation should take preemptive measures and start
The Bank of Korea held off raising borrowing costs for an eighth straight month as the economy slowed and exports declined due to the European debt crisis.
Governor Kim Choong Soo and his board kept the benchmark seven-day repurchase rate unchanged at 3.25 percent, the central bank said in a statement in Seoul today. The unanimous decision was predicted by 18 of 19 economists surveyed by Bloomberg News.
Policy makers in export-driven Asian countries have relied on monetary or fiscal stimulus to weather the European debt crisis. Australia unexpectedly held off cutting interest rates this week on signs of improvements in the U.S. and Europe. Kim has signaled that rates will have to rise at some point and said today that inflation expectations are high and the central bank is
India
The era of falling food prices has come to an end with the world population set to add another 2 billion people, according to Cargill Inc., the U.S. farm commodities trader.
The United Nations
Haiti’s biggest employer has named a new chief executive to run Digicel, the mobile phone company announced Wednesday.
The Jamaica-based private company is bringing in Damian Blackburn to replace Maarten Boute, who will be leaving in March to spend more time with his family, Digicel spokeswoman Antonia Graham said.
Boute added in an email message that he was going “to do a deep recharge of (his) batteries” as he and his wife await the birth of their second child.
The new head, Blackburn, recently CEO for Digicel Honduras, has more than 14 years of experience in the telecommunications industry. He will oversee operations for the company’s largest market, Haiti, which accounts for about a quarter of its 11.1 million subscribers.
Digicel, whose Irish CEO Denis O’Brien promoted development in Haiti before the 2010 quake, has invested $600 million in the impoverished Caribbean nation since it began work in 2006 short term personal loan. The company’s foundation has also done charitable work such as building schools and helping with other infrastructure projects.
In recent months, the company erected street signs in the capital and road signs in the countryside and last year spent $18 million to renovate the historic Iron Market damaged in the quake.
In November, Digicel and Marriott International announced plans to build a $45 million, 173-room hotel in Port-au-Prince. The hotel is slated to open in 2014.
Digicel’s competitors include Voila and Natcom, a joint venture created last year between Vietnam’s Viettel and the Haitian government to replace the state-run Teleco.
The addition of 200,000 new jobs in December shows that the economy is strengthening, Labor Secretary Hilda Solis said on Friday.
“We have seen a steady firming up of our economy” in recent months with two million jobs created in the private sector of the past year, she told CNBC television.
“Now we are seeing a better trajectory, we are moving in the right direction.”
“In the last few months, on the whole I have seen good incremental increase in the private sector jobs, so on that side of the factor I would say, ‘Hey, that is not a bad thing at all,” she said free business cards.
But she urged the extension of the payroll tax cut and further measures to support continued improvement in the jobs market.
House Republican leaders previewed legislation to extend Social Security payroll tax cuts and long-term unemployment benefits at a meeting of the rank and file Thursday, aiming for a vote next week.
One official who attended the closed-door meeting said lawmakers responded particularly favorably to a provision that would assure construction of an oil pipeline from Canada to Texas, despite a veto threat from President Barack Obama.
The measure has been in the drafting stage for more than a week as House Speaker John Boehner and other leaders try to coax lawmakers to support a payroll tax cut extension that critics say has not contributed to job creation.
Boehner said Thursday he believed he had enough support to start pushing a payroll tax cut through the House next week.
In addition to extending the Social Security payroll tax cut and benefits for the long-term unemployed, the measure has been broadened to avert a threatened 27 percent cut in payments to doctors who treat Medicare patients. All three items carry a Dec. 31 deadline for action.
The House measure varies on several points from legislation that Obama and congressional Democrats want, but the president seemed eager on Wednesday to draw a line at items he described as extraneous.
His veto threat was specifically linked to any requirement for the construction of the Keystone XL oil pipeline, a project that he recently put on hold until after the 2012 election.
“Efforts to tie a whole bunch of other issues to what’s something that they should be doing anyway will be rejected by me,” he said.
Obama did not say which other items he had in mind.
Republicans said they welcomed a fight over the pipeline, which they have described as shovel-ready and promising 20,000 new jobs at a time of high unemployment.
“We are working on a bill to stop a tax hike, protect Social Security, reform unemploym
ent insurance and create jobs,” said Michael Steel, spokesman for House Speaker John Boehner, R-Ohio. “If President Obama threatens to veto it over a provision that creates American jobs, that’s a fight we’re ready to have.”
Obama would lower the 6.2 percent payroll tax that workers normally pay to 3.1 percent next year, part of his effort to breathe life into the country’s ailing job market. He also wants to trim the payroll taxes that employers pay to give them an incentive to hire people.
The House bill would drop next year’s payroll tax to 4.2 percent, the same as this year’s level, with no tax breaks for companies. It would be financed by extending the current pay freeze on federal workers through 2015 and a host of smaller savings, including charging higher Medicare premiums to higher-earning seniors.
A 2 percentage point reduction in the payroll tax means a tax cut of $1,000 to an earner making $50,000 a year.
A similar battle is brewing in the Democratic-run Senate, where leaders plan a symbolic vote as early as Thursday that is designed for political purposes.
That Democratic-written bill would lower next year’s payroll tax to 3.1 percent. It is financed chiefly by a 1.9 percent surtax on income over $1 million, a proposal that is almost universally opposed by Republicans, who say it would discourage business owners from hiring.
GOP senators are expected to easily kill the measure, but Democrats hope the roll call will produce fodder for campaign ads against Republicans.
Asked Wednesday by reporters whether he might eventually accept spending cuts to pay for the bill, Reid showed some flexibility.
“We’re ruling nothing out, OK?” Reid said, other than budget cuts to federal agencies, which have already been sliced twice this year.