1. Americans spend $36,000,000 at Wal-Mart Every hour of every day.

2. This works out to $20,928 profit every minute!

3. Wal-Mart will sell more from January 1 to St. Patrick’s Day (March 17th) than Target sells all year.

4. Wal-Mart is bigger than Home Depot + Kroger + Target +Sears + Costco + K-Mart combined.

5. Wal-Mart employs 1.6 million people, is the world’s largest private employer, and most speak English.

6. Wal-Mart is the largest company in the history of the world.

7. Wal-Mart now sells more food than Kroger and Safeway combined, and keep in mind they did this In only fifteen years.

8. During this same period, 31 big supermarket chains sought bankruptcy.

9. Wal-Mart now sells more food than any other store in the world.

10. Wal-Mart has approx 3,900 stores in the USA of which 1,906 are Super Centers; this is 1,000 more than it had five years ago.

11. This year 7.2 billion different purchasing experiences will occur at Wal-Mart stores. (Earth’s population is approximately 6.5 Billion.)

12. 90% of all Americans live within fifteen miles of a Wal-Mart.

You may think that I am complaining, but I am really laying the ground work for suggesting that MAYBE we should hire the guys who run Wal-Mart to fix the economy.

This should be read and understood by all Americans… Democrats, Republicans. To President Obama and all 535 voting members of the Legislature.

A. The U.S.Postal Service was established in 1775. You have had 234 years To get it right and it is broke.

B. Social Security was established in 1935. You have had 74 years to get it right and it is broke.

C. Fannie Mae was established in 1938. You have had 71 years to get it right
And it is broke.

D. War on Poverty started in 1964. You have had 45 years to get it right; $1 trillion of our money is confiscated each year and transferred to “the Poor” and they only want more..

E. Medicare and Medicaid were established in 1965. You have had 44 years To get it right and they are broke.

F. Freddie Mac was established in 1970. You have had 39 years to get it right And it is broke.

G. The Department of Energy was created in 1977 to lessen our dependence On foreign oil. It has ballooned to 16,000 employees with a budget of $24 billion A year and we import more oil than ever before. You had 32 years to get it right And it is an abysmal failure.

You have FAILED in every “government service” you have shoved down our Throats while overspending our tax dollars.

AND YOU WANT AMERICANS TO BELIEVE YOU CAN BE TRUSTED WITH A GOVERNMENT-RUN HEALTH CARE SYSTEM

Our retired seniors living on a ‘fixed income’ receive no aid nor do they get any breaks…

AMERICA: a country where we have homeless without shelter, children going to bed hungry. elderly going without ‘needed’ meds, and mentally ill without treatment -etc,etc.

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All key indicators of China’s money supply are flashing warning signs. The broader measures have slumped to stagnation levels not seen since the late 1990s.

By Ambrose Evans-Pritchard, International business editor

6:32PM BST 13 May 2012

Narrow M1 data for April is the weakest since modern records began. Real M1 deposits – a leading indicator of economic growth six months or so ahead – have contracted since November. They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors. If China were a normal country, it would be hurtling into a brick wall. A “hard-landing” later this year would already be baked into the pie. Whether this hybrid system of market Leninism – with banks run by Party bosses – conforms to Western monetary theory is a hotly contested point. The issue will be settled one way or the other soon.

What seems clear is that China’s economy did not bottom out as expected in the first quarter. It is flirting with real trouble. Yao Wei from Societe Generale says a blizzard of awful data “screams out for easing”.

China’s electricity output – watched religiously by bears – slumped in April. It is up just 0.7pc over the last year. State investment in railways has fallen 44pc, with an accelerating downward lurch over recent months. Highway construction has dropped 2.7pc. “The data shows extreme weakness in the Chinese economy,” said Alistair Thornton from IHS Global Insight in Beijing.
The Yangtze shipyards tell the tale. Caixin magazine said eight of the 10 largest builders in the country have not received a single new order this year. “A wave of closures in the shipbuilding industry has yet to begin. A hurricane is approaching,” said one official.

Housing sales slumped 25pc in the first quarter, testimony to the zeal of regulators. This has since fed into a drastic fall in new building. Mr Thornton said floor place under construction fell 28.3pc in April. This is hardly a sideshow. The sector employs 10pc of the Chinese work-force, and a further 20pc indirectly. Land sales provide 70pc of tax revenue to local authorities and 30pc to the central government. It is the “fair weather” financing illusion, as we saw in Ireland. China’s scope for fiscal stimulus may be constrained if property goes into a long slump.

The property correction is deemed benign because it is planned. Premier Wen Jiabao wishes to forces down prices as a social welfare policy. Yet did the Fed not slam on the brakes in 1928 to choke an asset boom? Did the Bank of Japan not do likewise in 1990, only to find that boom-bust deflation has its own fiendish momentum? Once you let credit rise by 100pc of GDP in five years – as China has, more than in those US or Japanese episodes – you are at the mercy of powerful forces.

Something odd is now happening. The People’s Bank said new loans fell from $160bn (£99.5bn) in March to $108bn in April. Non-conventional lending seized up altogether. Trust lending fell by 96pc, bankers’ acceptance bills by 90pc. This is astonishing data. It may not be as easy for Beijing to turn the tap back on again. Loan demand has been falling for months. Banks are offering credit. Companies are refusing to take it. This is the old Japanese story of pushing on a string, or the European story today.

“China is in deflation,” says Charles Dumas from Lombard Street Research. Yes, consumer price inflation is 3.4pc – though falling – but consumption is a third of GDP. Fixed investment is 46pc, and here prices have dropped 3.5pc in six months. Export prices have dropped 6.6pc. The authorities have belatedly responded, cutting the reserve ratio by 50 points to 20pc over the weekend. It is thin gruel. Are we to conclude that the People’s Bank is bent on breaking excess capacity in a cathartic Schumpeterian purge, or that leadership battles have paralysed the Party? Hard to tell.

All the BRICs need watching. India’s industrial output fell 3.5pc in March. The country seems caught in a 1970s stagflation vice. Brazil has softened too, with car sales down 15pc and industrial production contracting in March. The bad loans of the banks have reached 10.3pc, higher than post-Lehman. The bubble has probably popped already, but hoteliers in Rio are hanging on. The European Parliament has pulled out of the UN’s Rio forum on sustainable development in June because the rooms are exorbitant. “We are short the vastly over-vaunted and over-owned BRICs,” says hedge fund contrarian Hugh Hendry.

My fear has always been that the credit cycle in the Rising World would blow itself out before the Old World has safely recovered, or reached “escape velocity” to use the term in vogue.

Europe will slide further into 1930s self-destruction until it equips itself with a lender of last resort and takes all risk of EMU sovereign default off the table, though that may come too late. The US has functioning institutions at least but growth is barely above stall speed. Ben Bernanke’s “massive fiscal cliff” looms this autumn. The Economic Cycle Research Institute (ECRI) has not yet withdrawn its US recession call.

The BRICS helped save us in 2008-2009. If we now face a global crisis on all fronts – and such an outcome can still be avoided – it will test the mettle of world leaders. Interest rates in the G10 are mostly zero already, and budgets are frighteningly stretched.

Sensing what is coming, Citigroup’s chief economist Willem Buiter says global central banks have not yet exhausted their arsenal. They can “and should” crank up quantitative easing (QE), buy everything under the sun, and do “helicopter money drops”.

I would go even further. sovereign central banks have the means to defeat any depression thrown at them by launching mass purchases of assets outside the banking system, working through the classic Hawtrey-Cassel quantity of money mechanism until nominal GDP is restored to its trend line.

The problem is not scientific. A world slump is preventable if leaders act with enough panache. The hindrance is that the Euro Tower still haunted by Hayekians, and most G10 citizens – and Telegraph readers from my painful experience – view such notions as Weimar debauchery, or plain Devil worship. Economists cannot command a democratic consent for monetary stimulus any more easily today than in 1932.

One can only pray that helicopter drops do not become necessary in the chilly winter of 2012-2013.

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In our memo last week we discussed the recent three-month trading range between Dow 13,300 and 12,700. On Tuesday the Dow made a 54-month intraday high above 13,300 before reversing. However, the Dow was the only index that made a new high. This set up a negative divergent pattern and the likelihood that the lower end on the trading range would be tested or penetrated. After the Tuesday divergence, the market as seemed likely sold down for the remainder of the week to Dow 13,088. The pattern is essentially the reverse of last fall when we turned very bullish. In early October, Volume had decreased as the market approached 10,000, new daily lows lessened, and breadth indicators improved setting the basis for the sharp 25% rally to last week’s peak.

Compounding the short term technical weakness is the election in France with Socialist Hollende being elected, and the election in Greece, events likely to challenge a conservatively led Germany. Further, we would refer back to last week’s memo when we outlined 5 major factors the Interrelationships of which could possibly have a tempering or negative effect on the market in the months ahead.

Positively, the market is not overvalued at 14 times earnings vs. about 27 times earnings in 2007 tempering overall vulnerability. Furthermore, huge amounts of cash are on the sidelines awaiting equity investment. However, given the prevailing technical and fundamental uncertainties, would be somewhat cautious for the time being until there is clarification on the aforementioned variables and or discounted..

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The major measures of activity all increased in April and most remain well above 50, signaling growth. The production index rose to 61.0 from 58.3 and the employment index increased to 57.3 from 56.1. The new orders index also gained to 58.2 from 54.5. The supplier deliveries index rose to 49.2 from 48.0.

The prices paid index was unchanged at 61.0 in April.

Implications: Manufacturing was much stronger than expected in April, with the ISM report beating the estimate of every single one of the 79 forecasting groups polled by Bloomberg. At 54.8, April’s reading was the highest in ten months and has now remained above 50 for 33 straight months. And just in case you still think a double-dip is possible, the new orders index, came in at a stellar 58.2, the highest in a year, suggesting more growth in production ahead. The employment index rose to 57.3, the highest level since June last year, and is consistent with our view of private payrolls rising 175,000 in April. The index level for inventories dropped to 48.5 and is once again contracting. The reluctance of manufacturers to accumulate inventories may hold back GDP in the short term, but we view this reluctance as temporary and indicative of better future growth. On the inflation front, the prices paid index remained at an elevated 61.0 in April. Given the loose stance of monetary policy, this index should move higher in the year ahead. In other news this morning, the Census Bureau reported that construction spending increased 0.1% in March, although it dipped 0.1% including revisions to prior months. The slight increase in March itself was a combination of a 0.7% increase in private construction, while government projects fell 1.1%. The rise in private construction was a due to single-family homes and office buildings; the drop in government projects was led by public colleges.

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The market,as measured by the Dow Industrial Average, has traded between 12,700 and 13,300 since early February. During this three-month period we have seen significant strength in many of our growth stock favorites. Reciprocally, many stocks have been weak or relatively weak including drillers, and virtually all commodity stocks. Selectivity has certainly been the key to achieving reasonable short term capital gains.

In our last memo in late March we conservatively recommended using spike moves above 13,000 to accept some profits given the probability of some short tern corrective action. However we remained bullish with 1550 our S&P 500 target by year end.

Part of our short term hesitation is the fact that April has proven to be a top area in each of the past two years. Last year the April peak was the forerunner of a 20% correction into early October reflecting:

1. The budget crisis.

2. The downgrade of the US debt.

3. The European debt crisis.

4. Widespread talk of a double dip recession.

At that point we turned very bullish with support from technical analysis. Selling volume dried up noticeably supported by a decline in new lows as the market approached Dow 10,000, effectively setting the basis for the 30% rally. Most investors stayed cautious to bearish during the major part of the rally into February. The rally heavily reflected an earnings resurgence due to heavy cost cutting and sharply increased productivity and not to significant economic strength. The GDP in the first quarter was a disappointing 2.2% with only modest improvement in sight for the balance of the year.

As we approach the second half of the year, investors face significant headwinds. The more prominent Include:

1. The Presidential election and its consequential ramifications-a need for leadership,

5. The effectiveness Fed policy has been questioned by many analysts. To our way of thinking, hundreds of millions have been taken away from savers as well as pension funds.These factors must be watched carefully in the months ahead due to the obvious negative implications.

Overall we remain positive with our long standing target of 1550 for the S&P 500.This index is currently selling at a reasonable 14 times estimated earnings Huge amount of cash are available for equity investment. However, we are certainly less bullish than we were six months ago and want to remain alert to the interrelationships of the aforementioned variables

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The European Central Bank will make its rate decision on Thursday, with economists expecting no change in the benchmark interest rate. However, there is chatter that the head of the ECB Mario Draghi may introduce new non-standard measures to keep liquidity in European credit markets.

Key earnings reports include McKesson (MCK), Pfizer (PFE), BP (BP), Valero Energy (VLO), and Broadcom (BRCM).

Monday, April 30

US Economics (Time Zone: EDT)

08:30 Personal Income – consensus 0.3%
08:30 Personal Spending – consensus 0.4%
08:30 PCE Deflator – consensus 0.3%
08:30 PCE Core – consensus 0.2%
09:45 Chicago PMI – consensus 60.5
10:00 NAPM Milwaukee – consensus 53.0
10:30 Dallas Fed – consensus 8.0
11:00 Fed buying $1.5b-$2b notes in 25 to 30-year range
11:30 Treasury selling $30b 3-month notes, $28b 6-month note

Global Economics (Time Zone: GMT)

01:30 AUD Private Sector Credit
09:00 EUR Euro-zone CPI
12:30 CAD GDP

Earnings

Before: ALR, AHGP, ARLP, AWI, BWP, CYOU, CNA, CPO, DRH, DSPG, FVE, HAE, HAR, HEP, HUM, LDK, L, LPLA, LYB, MCY, NYX, ONB, SNH, SOHU, TEN, TNB, UDR, UNS, WDR, WSO, WPI
After: AEIS, ADVS, AFG, APC, ARRY, BALT, DVR, CATM, CBL, CIM, CLD, CGNX, CRK, DAC, DENN, DLLR, EEP, EXR, FLS, FMC, FST, GNK, BGC, HLF, HOLX, IDTI, IVAC, JEC, KAMN, KRC, KONA, KRA, LMNX, MAS, MCK, MDU, MIG, MERU, MOH, MPWR, EGOV, NUVA, PRXL, PKY, PRE, PLXT, PMCS, PSB, KWR, QNST, RGA, RTEC, SBAC, SREV, SHOR, SFLY, FIRE, SPF, STXS, SU, TXRH, UAM, VHS, VECO, VVUS, WMS

Tuesday, May 1

US Economics (Time Zone: EDT)

10:00 Construction Spending – consensus 0.5%
10:00 ISM Manufacturing – consensus 53.0
10:00 ISM Prices Paid – consensus 58.5
5:00 Total Vehicle Sales – consensus 14.45M
5:00 Domestic Vehicle Sales – consensus 11.15M
11:00 Fed to purchase $4.25b-$5b in 6 to 8-year notes
11:30 Treasury selling 4-week bills
1:00 US selling $35b 2-year notes

Global Economics (Time Zone: GMT)

EUR German Retail Sales
01:30 AUD House Price Index
04:30 AUD Reserve Bank of Australia Rate Decision
08:30 GBP PMI

Earnings

Before: CAS, AMG, AGCO, GAS, ALLT, ECOL, ACI, ADM, ARW, ATRO, ADP, AVP, BDX, BIIB, BP, BPI, BRKR, CZR, CCC, CCJ, CIE, CMI, CYNO, XRAY, DIN, DPZ, DORM, DST, ECL, EMR, ENDP, EXAS, FCH, FE, FWLT, FDP, GKSR, GWR, GLT, GOV, HRS, HCP, HPY, HSP, HUN, IPXL, IPGP, JKS, KNOL, KLIC, FSTR, LM, MMC, MLM, MDSO, TYPE, NI, ODP, OSG, PFCB, PFE, PNK, POZN, PLD, RDN, RDWR, ABH, RIGL, SIRI, SPAR, SAVE, SRI, SXC, TLM, TECH, TFX, TRI, TRW, VLO, VQ, VPHM, WRES, WLK, WEC
After: ALSK, ARE, ALNY, AMAG, DOX, ACAS, ANAD, AJG, AZPN, ATW, RATE, BGFV, BIO, BMR, BXP, BRE, BRCM, BTUI, CBT, CALX, CECO, CHSI, CAVM, CBOE, CBS, CHMT, CHK, CNW, CGX, CSGS, CW, CVI, UAN, DVA, DDR, DGI, DEI, BOOM, EXAC, XCO, FEIC, FISV, FBC, FLEX, FORM, GGP, GHDX, GNW, GEVO, HR, HT, ONE, HIW, IPHS, IN, JKHY, JAZZ, JLL, KNXA, KEYN, KFRC, KND, MMI, MOTR, MWA, MYGN, NBIX, NTRI, OCZ, OKE, OKS, OTEX, OPEN, PZZA, PEET, PSEM, PLT, PRI, QSFT, QUIK, RAH, RLOC, RGC, RBC, ROG, SIMG, STRI, RGR, TMH, TE, TTEC, THOR, TWTC, TNS, TRIP, TRLG, TTMI, UBNT, UTI, UNM, VRSK, VOCS, WTS, WWWW, WBMD, INT, WMGI, AUY, ZIPR

Wednesday, May 2

US Economics (Time Zone: EDT)

07:00 MBA Mortgage Purchase Index
08:15 ADP Employment Change – consensus 175K
09:45 ISM New York
10:00 Factory Orders – consensus -1.5%
1:00 US to sell $35b 5-year notes

Global Economics (Time Zone: GMT)

01:30 JPY Labor Cash Earnings
07:15 CHF Retail Sales
07:55 EUR German Unemployment Change
07:55 EUR German PMI
08:30 GBP Net Consumer Credit
09:00 EUR Euro-Zone Unemployment Rate
22:45 NZD Unemployment Rate

Earnings

Before: AMRI, AGN, ALE ,AB, AFAM, AGP, ASCA, AVA, ABX, BZH, CLDX, CEVA, CLH, CLX, CMCSA, CBE, CTB, COT, CVS, DWSN, DVN, EE, END, ENR, EPD, FELE, BEN, GRMN, GEO, GTN, WOLF, HSC, HSNI, IACI, ICE, KCP, MAC, MMP, MPC, MSO, MA, MTRO, MDS, MSCI, NICE, NVMI, OIIM, OZM, OHI, PKD, PCG, PNX, PEG, RDC, RRD, SEIC, SBGI, SKYW, SPW, SMP, SRZ, TWX, GTS, UBS, VNR, VSH, VC, VG, WCG, WXS
After: APKT, AEA, ABCO, AWH, ALL, AGNC, AEL, AWK, ANDE, NLY, ARTC, ATML, ATO, AVNW, AXTI, SAM, BKD, CACI, CALD, CBEY, CENT, CRL, CNL, FIX, SCOR, CXO, CNQR, CLR, EXBD, CXW, CVD, DCT, DK, DWRE, DXCM, DHT, DRWI, DWA, DXPE, DX, EIX, EDMC, ELLI, ENH, ERII, ETP, ETE, EXXI, ENSG, EQY, ERT, ESS, EXM, EXL, EXLS, EXPD, EXTR, FARO, GGC, GERN, GLUU, GMXR, GBCD, GMCR, GLF, HGR, NSN, HIG, HTZ, ICFI, NSIT, TEG, IPI, IO, JDSU, KS, KERX, KIM, LGCY, LHCG, LBTYA, LNC, MMLP, MASI, MTRX, MXL, MDAS, MELI, MTD, MUR, NATL, NRP, NCIT, NKTR, NGD, NEWP, NVTL, NVEC, OMCL, ONNN, ONXX, OSUR, PDLI, PVA, PMC, PXD, PPO, PRU, QLTY, RNWK, REG, RNR, RRTS, SGMO, SGK, SWM, SKH, SKUL, SM, SMSI, SCCO, STAA, SUN, SXL, SPRT, SRDX, SYMC, TSO, TTEK, RIG, TCAP, TGI, UDRL, UNTD, VCLK, VVC, V, VOLC, WLT, WTW, WES, WGL, WFM, XNPT, YELP, Z

Thursday, May 3

US Economics (Time Zone: EDT)

08:30 Initial Jobless Claims – consensus 380K
08:30 Continuing Claims – consensus 3312K
08:30 Nonfarm Productivity – consensus -0.5%
10:00 ISM Non-manufacturing Composite – consensus 50.5
11:00 Fed to purchase $1.5b-$2b notes in 25 to 30-year range
1:00 Treasury selling $29b 7-year notes

Global Economics (Time Zone: GMT)

08:30 GBP PMI
09:00 EUR Euro-zone PPI
11:45 EUR ECB Rate Decision

Earnings

Before: FLWS, AAON, ACIW, ACOR, ACM, AYR, ARG, ATK, ANR, AEE, AMT, ANAC, ANSS, APA, ARQL, AAWW, ATRC, AVEO, BCE, BEAM, BGCP, BBG, BLT, BBW, CVC, LSE, CAH, FUN, CNP, CKP, CI, XEC, CNK, CIR, CCOI, CFX, CWH, CNSL, COCO, CUB, DPM, DNR, DXS, DW, DUSA, EP, EPB, RDEN, NPO, ESV, EXH, FLY, FIG, FSYS, FBN, FSIN, IT, GM, GTIV, ROCK, GIL GLCH, GPX, HEES, HCA, HNT, HOS, HWCC, H, ICGE, IDA, IPCC, IRC, SNAK, ITG, IRDM, JRCC, KSWS, KNSY, LAMR, LEA, LPS, LVLT, LXP, TVL, LINC, LQDT, LFUS, LMIA, MFC, VAC, MMS, MDC, MPW, MD, MEA, MFA, MGM, BKR, MNTA, MWIV, NNN, NUR, NRF, NPSP, NRG, OCN, OGE, ZEUS, OMG, OWW, ORN, OXF, PCX, PMT, PRFT, PQ, PNW, PXP, POL, POR, PPL, PGN, PRLB, QLTI, PWR, GOLD, RNO, RBA, RSTI, RGLD, RTI, SBH, SLE, SCG, SNI, SEE, SSW, SRE, SMBL, SPR, STFC, SHOO, SPH, SNSS, SFY, SXCI, SMA, NGLS, TDC, TGH, TICC, TIE, TMS, TOWR, TRCR, USPH, UPL, ULBI, VRX, VTG, VIAB, VICL, WNR, FUR, WWE, XYL, ZIOP
After: JOBS, ACTV, BIRT, ADUS, AFFX, AIRM, ALIM, AIQ, ANV, ALJ, AIG, AHS, ARI, AIV, ALC, AUTH, ACLS, BONE, BEBE, BLKB, BODY, BCOV, CBM, CNQ, CFN, CBOU, CEC, CF, CBB, CDXS, COGO, CCIX, COMV, ED, CPNO, CUBE, CPIX, DEPO, DGIT, DRIV, DLB, DOLE, DRC, BAGL, EGO, EBS, ESC, EXAR, EXEL, FALC, FFG, FSLR, FLR, GPRO, GXP, GSIT, GUID, HAIN, HAYN, HME, INWK, IRF, INVN, ISIS, ISTA, JCOM, KEYW, KRG, KOG, KFT, KTOS, LF, LLNW, LNKD, MTW, MNKD, MANT, MCHX, MKL, MTZ, MGRC, MCHP, MSTR, MAA, MHK, MOVE, MTSC, MFLX, NCMI, NFG, NAVG, NTSP, OMPI, ONTY, OPWV, OPLK, PCC, PRAA, POWI, PWER, POWR, PSA, QLGC, RP, RWT, ROVI, RBCN, SABA, SB, SD, SAPE, SQI, SEM, SQNM, SWIR, SWN, SPRD, JOE, SPWR, SHO, TRGT, TESO, TRMB, UEIC, VISN, WRC, WAIR, WYNN, XOXO, YOKU, ZAGG, ZOLL, ZOLT

Friday, May 4

US Economics (Time Zone: EDT)

08:30 Nonfarm Payrolls – consensus 168K
08:30 Private Payrolls – consensus 173K
08:30 Manufacturing Payrolls – consesus 21K
08:30 Unemployment Rate – consensus 8.2%
08:30 Avg Hourly Earnings – consensus 0.2%
08:30 Avg Weekly Hours – consensus 34.5
11:00 Fed selling $8b-$8.75b notes in 2 to 3-year range

Global Economics (Time Zone: GMT)

01:30 AUD Reserve Bank Board
07:55 EUR German PMI
09:00 EUR Euro-Zone Retail Sales

Earnings

Before: AES, LNT, ARGN, AON, ARCO, BPO, BPL, CHD, CCO, DUK, ELT, EL, EXC, FSS, HALO, ZINC, ITT, KOP, MINI, NVAX, NWN, POM, PNM, SNMX, SIRO, SE, SEP , TDS, USM, WCRX
After:

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Among all the problems the European debt crisis pose to the global economy comes one possible benefit: A much-needed lift for American manufacturers. Earnings for large companies like 3M and United Technologies glistened in the first quarter, thanks in good part to bustling domestic business and some shield from the foreign turmoil. The growth in manufacturing, in turn, could help keep gross domestic product from plummeting to the recession levels being seen in Europe. U.S. companies are far less dependent on trade for GDP growth, so a downtrodden European consumer isn’t as vital to American expansion. The U.S. government releases its initial GDP estimate for the first quarter Friday morning, with economists expecting a gain of about 2.6 percent.

Key Points

Manufacturing is making a comeback thanks to European slowness. Recent coroporate earnings from large companies in the field have been stellar. “The net effect is a growth cycle that is likely to favor U.S. sectors such as manufacturing,” strategists at Bank of America Merrill Lynch said in a research note. “The US manufacturing sector may benefit from the wage constraint, cheap resources and inexpensive working capital that the post-credit crunch world provides.” For investors, the trend is worth watching particularly as industrials and materials both have been solid performers in this year’s strong stock market gains, but have underperformed slightly overall. The industrial sector ranks fourth of the Standard & Poor’s 500′s 10 sectors, slightly beneath the index’s 10.5 percent rise in 2012, while materials have performed slightly better but still below the index’s returns.

“Stocks can perform well in this environment but US manufacturing and (emerging market) consumer will likely outperform commodity and infrastructure theme,” BofA said.

To be sure, there are impediments to manufacturing growth.

Britain’s ‘Double-Dip’, Winners Biggest Oil Producers Recession-Proof Industries Car Redesign Failures.

The latest reading on durable goods orders registered a 4.2 percent drop, weighed particularly by a drop in volatile aircraft orders as well as metals, computers a host of other important goods. However, economists cautioned that revisions and se asonal distortions affected the numbers. In addition, manufacturing reports have showed somewhat decreasing activity in the U.S., but much sharper downturns in Europe, where the Purchasing Managers Indexes showed clearly recessionary readings. “We’re continually decoupling from Europe,” said Nadav Baum, executive vice president at BPU Investment Management in Pittsburgh. “The manufacturing side is really starting to bring things to light.” Baum said he is adding positions in General Electric a minority owner in CNBC.com-parent NBC Universal — for the first time since the financial crisis began. “The Wall Street pundits are always looking for leadership. Technology has been a leader for a long time, but if you’re looking for a sector, I like the rolling up the sleeves and going back to work theme,” he said.

Playing the Europe-U.S. economic dichotomy as a zero-sum game, in which one gains at the other’s expense, is tricky given how interconnectedness between the two country’s financial systems. However, some, including banking analyst Dick Bove, think the business the European banks lose as they need to recapitalize their losses during the debt crisis will help American institutions. Neil Prothero, economist at the Economist Intelligence Unit, also sees the willingness of U.S. banks to provide credit to business as an important catalyst. “One of the main differences between the U.S. and Europe is the whole sentiment toward the banking sector,” Prothero said. “Good or bad, the U.S. financial sector is a bit more stabilized and a bit more open to growing in terms of providing credit.” European GDP is likely to contract by 0.7 percent this year, posing further risks and making the U.S. economy, at least by comparison, seem strong, he added. “I’m not quite as bullish on the US. But we’re more bullish on the U.S. than the European economy,” he said. “The risks (in Europe) are severely on the down side as far as we can see.” In the U.S., that could mean opportunity for investors who believe in the manufacturing theme. “We’re starting to retool, we’re getting back to the basics and the U.S. is starting to do more manufacturing,” Baum said. “That’s going to be a continuing theme.”

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Operator

Good day, everyone, and welcome to this Apple Incorporated Second Quarter Fiscal Year 2012 Earnings Release Conference Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead, ma’am.

Nancy Paxton

Thank you. Good afternoon, and thanks to everyone for joining us. Speaking today is Apple CFO, Peter Oppenheimer; and he’ll be joined by Apple CEO, Tim Cook; and Treasurer, Gary Wipfler for the Q&A session with analysts.

Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, stock-based compensation expense, taxes, earnings per share and future products. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in Apple’s Form 10-K for 2011, the Form 10-Q for the first quarter of fiscal 2012 and the Form 8-K filed with the SEC today along with the attached press release. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

I’d now like to turn the call over to Peter Oppenheimer for introductory remarks.

Peter Oppenheimer

Thank you, Nancy. We’re very pleased to report the results of our outstanding second fiscal quarter. We established new March quarter records for iPhone, iPad and Mac sales, leading to our highest March quarter revenue and earnings ever.

Revenue for the quarter was $39.2 billion, representing year-over-year growth of 59%. That’s a new record for a March quarter and is second only to the all-time record revenue we reported in the most recent December quarter. The year-over-year increase in March quarter revenue was fueled primarily by very strong growth in iPhone and iPad sales.

Operating margin was $15.4 billion, representing 39.3% of revenue. Net income was $11.6 billion, increasing 94% over the prior March quarter’s result. The quarter’s net income translated to earnings per share of $12.30.

Turning to the details of the quarter, I’d like to begin with our Mac products and services. We established new March quarter records for both desktops and portables, combining for a total of 4 million Macs sold. This represents growth of 7% year-over-year compared to IDC’s latest published forecast of 2% growth for the global personal computer market in the March quarter. We began and ended the quarter with between 3 and 4 weeks of Mac channel inventory, which is below our target range of 4 to 5 weeks.

In February, we released the developer preview of Mountain Lion, the ninth major release of Mac OS X. Mountain Lion will bring popular apps and features from iPad to the Mac, including Messages, Notes, Reminders, Game Center, Notification Center, Share Sheets, Twitter integration and AirPlay Mirroring. We expect Mountain Lion to be available from the Mac App Store in late summer this year.

Moving to our music products. We sold 7.7 million iPods compared to 9 million in the year ago quarter. Total iPod sales were ahead of our expectations, and iPod touch continued to account for over half of all iPods sold. iPod’s share of the U.S. market for MP3 players remains at over 70% based on the latest monthly data published by MPD, and iPod continued to be the top-selling MP3 player in most countries we track based on the latest data published by GFK.

We ended the quarter within our target range of 4 to 6 weeks of iPod channel inventory.

The iTunes Store generated all-time record results with revenue of almost $1.9 billion in the March quarter, an increase of 35% year-over-year, thanks to continued strong sales of music, video and apps. We now have a catalog of over 28 million songs and 45,000 movies.

I’d now like to turn to iPhone. We were thrilled to sell 35.1 million iPhones compared to 18.6 million in the previous March quarter. That represents 88% year-over-year growth compared to 42% growth for the smartphone market overall in the March quarter based on the latest published estimate from IDC. We experienced very strong iPhone sales growth in all of our segments, led by our Asia Pacific and Japan segments where sales more than doubled year-over-year. We continue to see tremendous momentum in Greater China, where iPhone sales were 5x the level of the year ago quarter, aided by the launch of the iPhone 4S in China in January and the addition of China Telecom as an iPhone carrier in March. IPhone 4S is now available in over 100 countries and is sold through over 230 carriers.

We ended the quarter with about 8.6 million iPhones in channel inventory, a sequential increase of about 2.6 million units, which placed us within our target range of 4 to 6 weeks of iPhone channel inventory.

Recognized revenue from iPhone handset and accessory sales was $22.7 billion during the quarter compared to $12.3 billion in the year ago quarter, an increase of 85%.

iPhone momentum in the enterprise has evolved beyond email, calendar and contacts. IT and business line managers across industries see the opportunity to leverage both company and employee-owned devices to improve productivity and efficiencies through iOS in-house app development. In fact, the majority of the Fortune 500 companies who have approved iPhone on their networks are members of the iOS Developer Enterprise Program and are actively deploying in-house applications to their employee base.

Turning to iPad. We were very pleased with sales of 11.8 million iPads during the March quarter compared to 4.7 million in the year ago quarter, an increase of 151%. Customers are loving the new iPad with its stunning Retina display, A5X chip with Quad-core graphics and the 5-megapixel iSight camera. The new iPad is now available in over 40 countries, and we saw a very strong growth in iPad sales around the world with sales more than doubling in each of our segments.

Recognized revenue from sales of iPad and iPad accessories during the quarter was $6.6 billion compared to $2.8 billion in the year ago quarter, an increase of 132%. We ended the quarter with about 2 million iPads in channel inventory, a sequential decrease of about 300,000 units, which placed us below our target range of 4 to 6 weeks of iPad channel inventory.

The education market’s interest in iPad continues to grow. In the March quarter, we sold more than 2 iPads for every Mac to our U.S. K-12 customers while also generating a record quarter for Mac sales. The San Diego School District purchased 10,000 iPads in the March quarter and plans to purchase over 15,000 more in the June quarter for middle school and high school programs.

iPad continues to open doors to new customers with whom Apple previously had no relationship. As we enter the K-12 institution buying season, we’re hopeful that iPad will be a popular choice.

iPad’s momentum in business and government also continues to build. The United States Air Force Air Mobility Command is deploying thousands of iPads to serve as electronic flight bags, storing technical publications and operations information for flight crew members and trainers. Companies such as Bechtel and Bellflower Beatty [ph] are using iPads in the field for project management and viewing blueprints. And thousands of iPads are being deployed as mobile sales tools by companies such as Roche, Amgen, Bayer and Daiichi Sankyo. Combining iPhone, iPad and iPod touch, we surpassed 365 cumulative iOS device sales, selling more than 50 million in the March quarter. The iOS ecosystem continues to expand and thrive with stores in more than 120 countries.

The App Store now offers more than 600,000 apps, including over 200,000 apps specifically for iPad. We were very excited to announce the download of the 25th billionth app in March less than 4 years after the launch of the App Store.

And iCloud is off to an incredible start, currently with more than 125 million customers signed up since its launch in October.

I’d now like to turn to the Apple retail stores, which also generated record March quarter results. Revenue was $4.4 billion, an increase of 38% over the year ago quarter and was second only to the record quarterly revenue generated in the December quarter. The stores experienced very strong year-over-year growth in iPad and iPhone sales, and they sold 826,000 Macs compared to 797,000 in the year ago quarter. And about half the Macs sold in our stores during the March quarter were to customers who had never owned a Mac before.

We opened 2 new stores in the quarter, including our first Netherlands store in Amsterdam and a beautiful new store in Houston. We exited the quarter with 363 stores, nearly 1/3 of which are outside the United States. With an average of 361 stores open, average revenue per store was $12.2 million compared to $9.9 million in the year ago quarter, an increase of 23%. Segment margin reached a new March quarter record of over $1.1 billion, which was 26.1% of retail revenue. We welcomed 85 million visitors to our stores during the quarter compared to 71 million visitors in the year ago quarter, an increase of 19%. That translates to an average of 18,000 visitors per store per week.

Total company gross margin was 47.4%, which was 540 basis points higher than our guidance. About half this difference was driven by lower-than-expected commodity and other costs; about 1/4 was due to stronger-than-expected revenue and product mix, including 35 million iPhones; and the remainder was due to some onetime items that we don’t expect to recur in the June quarter.

Operating expenses were $3.2 billion and included $361 million in stock-based compensation expense. OI&E was $148 million.

Turning to cash. Our cash for short-term and long-term marketable securities totaled $110.2 billion at the end of the March quarter compared to $97.6 billion at the end of the December quarter, a sequential increase of $12.6 billion. And about $74 billion of the cash was offshore at the end of the March quarter. Cash flow from operations was $14 billion.

As we indicated last month, subject to board declaration, we expect to announce a dividend of $2.65 [ph] per share when we report our third quarter results in July. And we will provide information on the record and payment dates at that time.

As we move ahead into the June quarter, I’d like to review our outlook, which includes the types of forward-looking information that Nancy referred to at the beginning of the call. We expect revenue to be about $34 billion compared to $28.6 billion in the June quarter last year. We expect gross margin to be about 41.5%, reflecting approximately $70 million related to stock-based compensation expense. We expect OpEx to be about $3.3 billion, including about $385 million related to stock-based compensation. We expect OI&E to be about $175 million. And we expect the tax rate to be about 25.25%. We are targeting EPS of about $8.68.

In closing, we’re extremely pleased with our record March quarter performance with earnings nearly doubling year-over-year. The new iPad is off to a tremendous start and is our fastest iPad rollout ever. We’re thrilled with the global success of the iPhone 4S, which is now available in more than 100 countries, including China.

We remain very confident in our strategy, and we’re very excited about the fabulous new products in our pipeline. With that, I’d like to open the call to questions.

Nancy Paxton

Thank you, Peter. [Operator Instructions] Operator, may we have the first question?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question will come from Katy Huberty with Morgan Stanley.

Katy Huberty – Morgan Stanley, Research Division

As it relates to the June quarter revenue guidance, it implies a sequential downtick that is worse than the guidance message you provided over the last 3 years. So can you just talk about some of the headwinds sequentially you see on the top line in the June quarter relative to March?

Peter Oppenheimer

Sure, Katy. It’s Peter. The manufacturing ramps for the iPhone 4S and the new iPad were extremely successful for us. They yielded the highest launch supply and the fastest country rollouts for these product families that we’ve ever had. As a result, we were able to fulfill demand in the March quarter rather than the June quarter this year, and that generated revenue of over $39 billion. Therefore, unlike last year, we expect a sequential decline in revenue this year. I’d highlight 5 primary factors that have influenced our thinking:

The first, the iPhone channel inventory changes. As I discussed in my prepared remarks, we increased our iPhone channel inventory by about 2.6 million units in the March quarter this year, and we exited within our target inventory range of about 4 to 6 weeks. Last year, we continued to add new countries into the June quarter, and we built an additional 700,000 units of iPhone channel inventory last year in the June quarter. So the combination of these channel builds in the March quarter of this year and the June quarter of last year will impact the sequential comparisons from this year to last.

The second factor: fabulous iPhone 4S execution. As we told you in January, we exited December with significant iPhone 4S backlog, which led to a huge January. We launched China and 20 other countries also in January, which completed the rollout of the iPhone 4S into all the countries where iPhone is currently shipping. And as I said before, we exited the quarter within a supply and demand balance.

The third factor: our new iPad execution was also fabulous. We had an incredible start with the new iPad. We launched with significant supply, leading to sales of 3 million units in the first couple of days, which was the — and also the fastest country rollout ever. We therefore were able to satisfy much more of the demand for the new iPad in the March quarter this year compared to the iPad 2 in the March quarter of last year. This resulted in a shift of iPad volume into March this year versus last, and it will also affect the sequential compares this year to the last.

Fourth, we decreased the entry price of the entry iPad to $399.

And finally, the last factor to point out, the U.S. dollar has strengthened recently, and we expect this to have an impact on the sequential compare, especially versus last year when the dollar weakened against most currencies over the comparable time periods.

We — look, we’ve just reported the most amazing March quarter Apple has ever had. We feel very, very good about our business and our new product pipeline.

Katy Huberty – Morgan Stanley, Research Division

Just as a quick follow-up to number 4, the decrease in iPad price. You already saw a 7% sequential decline in March, which suggests that the uptake of the lower-priced iPad 2 was pretty phenomenal in March. Is that the right way to read it? And what does that demand tell you about the potential to move to lower price points on the iPad over time and see significant incremental demand?

Peter Oppenheimer

Look, Katy, we’re just learning about be the elasticity of demand and the $399 price point. It’s doing well. But I have to tell you, the new iPad is on fire, and we’re selling them as fast as we can make them. So we’ll learn more over this quarter especially as we get through the education buying season, which looks terrific for us especially on the iPad.

Operator

From Citigroup, we’ll go to Richard Gardner.

Richard Gardner – Citigroup Inc, Research Division

I recognize that you outgrew the market in Macs yet again. But I did want to get your views on the slowdown in year-over-year growth rate within the category and what factors you would attribute that to. Are we — is it product transition related? Were the inventories down quarter-over-quarter? iPad cannibalization? Any other color that you can provide would be helpful.

Timothy D. Cook

Yes, Rich, it’s Tim. As you said, we did outgrow the market. Macs grew at about 7% where the market grew about 2%. And so this is the 24th straight quarter that we’ve outgrown the market, and so we’re extremely pleased with that. The compare to last year is largely affected by the fact that we changed the bulk of our portable line, or the MacBook Pros, in the February time frame of 2011. And so it’s a very tough compare. Specifically, the portables last year were up 53% year-on-year. And obviously, that — so that compare was very difficult. If you look at it sequentially, you also have to factor in that we had 14 weeks in the December quarter. And so the 26% year-over-year growth in December quarter is probably more like 17% when you factor out that 14th week. And so yes, I think there was some cannibalization from iPad and the market is slow. But the much, much larger factor and in fact, in — it might be the vast majority of the difference is the compare to a year ago.

Operator

We’ll go to — [indiscernible] we’ll go to Tony Sacconaghi with Sanford Bernstein.

A.M. Sacconaghi – Sanford C. Bernstein & Co., LLC., Research Division

I was wondering if you could talk more broadly just about what you might be learning about lower priced — price points on both the iPhone and iPad. I know it was asked earlier. But was the decrease in iPad price exclusively mix related? Or are there — or is it a further broadening of your channel to indirect partners? But more broadly, Tim, maybe you could talk about elasticity, what you’re learning about customer preferences for lower-priced offerings on both the iPhone and iPad. And I do have a follow-up, please.

Timothy D. Cook

Sure. Tony, on iPad 2, we’re — with the change in the entry price to $399, we’re actually thrilled with the results that we’ve seen, although, as Peter said, it’s only been a few weeks. And so it’s too early to make a — come to a clear conclusion. But from what we are seeing, this unlocks some education demand that is probably a more price-sensitive customer. Also, in several other countries, there was a marked change in demand at that price point. And so on the early going, we feel great about it. But I’d also point out that the new iPad is — was current — was supply constrained last quarter for the full 3 weeks or so it was shipping and is actually still constrained. And so the mix of the new iPad to the iPad 2, we’re not certain of what that is yet. But we are certain, with what we’ve seen so far, that the absolute sales of iPad 2, at least in the early going, is very exciting. On the iPhone, we continue to be very happy with the moves that we made in pricing just a few months ago on the iPhone 3GS and the iPhone 4. And both of them contributed to our ability to achieve $35 million in sales, which is our second highest quarter of all time.

A.M. Sacconaghi – Sanford C. Bernstein & Co., LLC., Research Division

The — as a second question, I was wondering if you can talk about how you think about the markets for tablet and PC devices going forward. I think you’ve been fairly clear about saying that you believe that tablets will eclipse PCs in volume at some point. And I think you’ve also said they’re somewhat discrete markets. There seems to be a lot of work, particularly on PC-based platforms, towards trying to combine the PC and tablet experience going forward in part because Windows 8 will be able to — is a touch-based operating system as well. Can you comment about why you don’t believe the PC or the Ultrabook and tablet markets or your MacBook Air and tablet markets won’t converge? Isn’t it realistic to think in a couple of years we’re going to have a device that’s under 2 pounds with great battery life that we can all carry around and open as a notebook or close up in a clever way and use as a tablet? Can you comment on why you don’t think that product might not come or why you believe these markets are separate?

Timothy D. Cook

I think, Tony, anything can be forced to converge. But the problem is that products are about trade-offs, and you begin to make trade-offs to the point where what you have left at the end of the day doesn’t please anyone. You can converge a toaster and a refrigerator, but those things are probably not going to be pleasing to the user. And so our view is that the tablet market is huge. And we’ve said that since day one. We didn’t wait until we had a lot of results. We were using them here, and it was already clear to us that there was so much you could do and that the reasons that people would use those would be so broad. And that’s precisely what we’ve seen. We — the iPad has taken off not only in consumer in a meaningful way but in education and in enterprise, and it’s sort of everywhere you look now. And the applications are so easy to make very meaningful for someone, and there — the — there’s such an abundance of those that — and as the ecosystem gets better and better and as we continue to double down on making great products, I think that the limit here is nowhere in sight. We’ve now — through the last quarter, I should say, which is just 2 years after we shipped the initial iPad, we’ve sold 67 million. And to put that in some context, it took us 24 years to sell that many Macs and 5 years for that many iPods and over 3 years for that many iPhones. And we were extremely happy with the trajectory on all of those products. And so I think iPad, it’s a profound product. It — the breadth of it is incredible, and the appeal of it is universal. And so I am — I could not be happier with being in the market, and the level at which we’re innovating in both the product and the ecosystem here is incredible. Now in terms of the market itself, IDC and Gartner and Forrester had some numbers out there. I think Gartner is saying there’s somewhere around 375 or so by 2015. Forrester is 375, somewhere around there. And so basically, the — they’re in the mid-300s, which is about where the PC market is today. And 2015 is only 3 years from now. And so I think even the more formal predictors outside of us are beginning to see these lines cross. And so I strongly believe that they will. Now having said that, I also believe that there is a very good market for the MacBook Air, and we continue to innovate in that product. And — but I do think that it appeals to somewhat — someone that has a little bit different requirements. And you wouldn’t want to put these things together because you wind up compromising in both and not pleasing either user. Some people will prefer to own both, and that’s great, too. But I think to make the compromises of convergence, so — we’re not going to that party. Others might. Others might from a defensive point of view, particularly. But we’re going to play in both.

Operator

We’ll go to Bill Shope at Goldman Sachs.

Bill C. Shope – Goldman Sachs Group Inc., Research Division

Tim, there’s been quite a bit of concern both in the press and within the investment community around carrier subsidies. And I think the concerns are generally twofold: First, that carriers will attempt to stretch out the replacement cycle. And second, that over time, carriers across the globe will attempt to reduce subsidies significantly. I mean, how do you think about this risk? And do you think there are factors that could pressure subsidies going forward? And how would that impact Apple?

Timothy D. Cook

Well, Bill, our focus is on making the very best smartphone in the world. And a phone that delivers a — just an off-the-charts user experience that customers want to use every day of their lives. And at the end of the day, I think that carriers, the vast majority of carriers, or maybe even all carriers, want to provide what their customers want to buy. And that’s what they’re motivated for. And so the most important thing by far is for Apple to continue making great products that customers want. And we are deeply committed to doing this and are innovating at a rate and pace that’s unbelievable in this area. For — from a carrier’s perspective, I think it’s important to remember that the subsidy is not large relative to the sum of the monthly payments across a 24-month contract period. And any delta between iPhone and maybe another phone is a — an even smaller level of difference. And the iPhone has some distinct advantages for the carrier over competing smartphones. For example, many of the carrier executives have told me that churn from iPhone customers is the lowest of any phone they sell in their whole — in all of the phones they carry. And that has a significant direct financial benefit to the carrier. Also, our engineering teams work extremely hard to be efficient with data and differently than some others. And we believe that as a result of this, that iPhone has far better data efficiency compared to other smartphones that are using sort of an app-rich ecosystem. Finally, we think that the — and this is the most important, is that iPhone is the best smartphone on the planet to entice a customer who is currently using a traditional mobile phone to upgrade to a smartphone. This is by far the largest opportunity for Apple, for our carrier partners and is a great, fantastic experience to the customer. And so there’s a win-win-win there. And so I think all of these factors are — some of these factors are missed in this general discussion of subsidy.

Bill C. Shope – Goldman Sachs Group Inc., Research Division

That’s helpful. I had one other follow-up question, if I could. I appreciate the user stats you gave us on iCloud. But can you give us any color, now it’s been out for a few months, on how consumers are actually using iCloud? And in particular, are you seeing a big uptake in iTunes Match and paid storage additions? And how should we think about that?

Peter Oppenheimer

Bill, it’s Peter. Customers are using all the features of iCloud. Response has been terrific. Feedback has been terrific. Pickup on storage is occurring, but it’s growing because we’ve just launched iCloud in October. And we’ve now got over 125 million users that have come on to the service since then and they’re building up documents in music and other things that they want to store. And so I think storage growth will come more over time. Our real desire here was not about selling more storage. We think Match is a great product, and we recommend that everybody use it. But it’s a paid for service. We just really wanted to increase the customer delight from the entire ecosystem and platform of our iOS devices and the Mac, and that’s why we’ve done iCloud. And we just — we couldn’t be happier that just a couple months into this, there’s more than 125 million users around the world on iCloud.

Operator

From Piper Jaffray, we’ll hear from Gene Munster.

Charles Eugene Munster – Piper Jaffray Companies, Research Division

If you could dig a little bit more into what’s going on in China. I know you gave some high-level numbers. But is this increased distribution points, is it just price elasticity of lower-priced 3GS? Is it more people in China having money? All of the above? Anything that you can tell us to explain this vertical growth?

Timothy D. Cook

Gene, it was an incredible quarter in China. We — the revenue was record — was a record at $7.9 billion in Greater China, which is up over 3x year-over-year and brings the first half revenue for Greater China to $12.4 billion. That compares to a full year last year of $13.3 billion. So it is mind-boggling that we can do this well. A part of this was the pent-up demand for iPhone 4S. As you know, we launched mainland China in January of this year, and so China was not able to get into the Q1 period. So all of that is in Q2. We also have very strong demand for iPad 2. We have not shipped in mainland China yet the new iPad, although we are shipping in Hong Kong. And so it’s a combination of these things. And the halo that both of these products have produced for the Mac is also incredible. Mac was up over 60% year-over-year. And that compares to a market rate of growth of about 6%. We have expanded point of sales. On a year-over-year basis, Mac is up 70% but still only 1,800 for all of Greater China. And so there’s obviously a lot more opportunity there. iPhone, we’re up over 11,000, which is 138%. But 11,000 is a much smaller number than we have in the U.S., and obviously, China will, in the next few years, be a bigger opportunity. iPad is only in 2,500 points of sale. And so yes, we’ve expanded. We’ve expanded a lot. However, there’s a lot of headroom here in our view.

Charles Eugene Munster – Piper Jaffray Companies, Research Division

Was the iPhone mix in China different than the rest of the world? Or how was it different?

Timothy D. Cook

I don’t have that in front of me, but my recollection is that it wasn’t materially different. But keep in mind that iPhone 4S just launched in — within the quarter. And so usually, when a new product launches within the quarter, you would expect it to mix fairly much toward the new product.

Charles Eugene Munster – Piper Jaffray Companies, Research Division

And just one final quick question on iTunes content. It seems that there’s kind of this logjam to getting more TV shows and movies and the rentals, and it’s been a little bit of a slow pace of improvement. How important is getting better content on iTunes? And what’s going to break that logjam?

Peter Oppenheimer

Gene, it’s Peter. We’re actually thrilled with the rate that we’re adding content into iTunes. This is something that we have to do country by country, so it takes a bit of time to put in place. We have the largest catalog of songs and movies available anywhere, over 28 million songs. And this led to almost $1.9 billion of revenue in the March quarter, which was up 35% year-over-year. So we’re thrilled with the progress that we’re making in iTunes and customers love it.

Operator

And that will come from Ben Reitzes with Barclays.

Benjamin A. Reitzes – Barclays Capital, Research Division

Tim, the other big issue outside of the subsidy question that you just answered a couple of calls ago was regarding shortages. There’s talk about potential Qualcomm shortages into the next couple of quarters and potential constraints even at year end for some pretty neat products that might be good for you to have in some products down the road. I know you don’t comment on future products, but this is a big concern. And I guess can you just talk directionally about whether you expect long term to get your — more than your fair share of product and what you need? And do you see any bottlenecks on the horizon that are major in that department or in any component down the line over the long term?

Timothy D. Cook

Tough question to answer, Ben. Obviously, we’re aware of the lithography transition issue that you mentioned with 28 nanometer. We currently do not use 28-nanometer parts. But as you also know, we don’t comment about future products, and so I can’t talk about the future part. Generally, outside of this, we work very closely with our supplier partners and do everything that we can do to get supply. And sometimes, we’re successful with that, and sometimes we’re not. And so you can bet that we are focused on anything that we think may impact us and trying to push every button within our disposal to work on it.

Benjamin A. Reitzes – Barclays Capital, Research Division

Okay. Well, I appreciate that. And then my follow-up is regarding Walmart. They were actually just in our building in a conference here talking about how they’re moving from one store in Arkansas now to 25 stores. And they seem really pleased with the “store within a store” concept. How is it going? And when can you be in all 10,000 stores?

Timothy D. Cook

There’s no plan to be in 10,000. And so we’re trying some things. And as you know, that doesn’t include the Mac. And so we’re trying some things and seeing how it goes. And they’ve been a very good partner for us on iPod and have been selling iPods for a while and are an increasingly more substantial partner in the iPad space as well and an evolving partner on iPhone. And so we’re working with them and enjoy working with them and hope to continue expanding.

Operator

That will come from Keith Bachman with Bank of Montréal.

Keith F. Bachman – BMO Capital Markets U.S.

Tim, for you, I think. Could you add some more specifics on iPhones in Asia Pacific, including China? Is supply-demand in balance there? Or that — can that be a help? And then more broadly, with iPhones getting increased inventory of 2.6 million units, will that be a — will that, in fact, go down in the June quarter? Is there any comments, you could provide there? And then I have a follow-up, please.

Timothy D. Cook

Yes, let me start with the — your last question. On the 2.6 million, our desire, just to be very clear on this, our desire was to increase inventory — channel inventory across the quarter. As you might recall, we ended with only 6 million units in the channel coming out of December because we were extremely backlogged. And this is on particularly — this is on 4S specifically. Our target is to be between 4 million and 6 million. The addition of the 2.6 million allowed us to get within that range by the end of the quarter. And so we feel that we exited the quarter as supply and demand balanced. Because our execution, the ops team was so good, the vast majority of the supply-demand in the different countries was reached by the end of January. And so we had the mother of all Januarys with the — with really getting out of the vast majority of the iPhone 4S backlog and launching China as well. And so it was an incredible, incredible start of the quarter for us. Your other question was?

Keith F. Bachman – BMO Capital Markets U.S.

On China specifically. It sounds like China can still be a help. Or it sounds like China is still supply-demand imbalanced. But I wanted to see if you could add some thoughts [ph] there in terms of iPhones.

Timothy D. Cook

No. China is not supply-demand imbalanced on iPhone. On iPad, worldwide, we’re supply constrained on the new iPad, both coming out of last quarter. And to give you a current view, we’re still supply constrained on the new iPad. Demand has been incredibly robust, and we are selling them as fast as we can make them, as Peter mentioned earlier. In China, I believe on a macro basis, China has an enormous number of people moving into the higher income groups, middle class, if you will. And this is creating a demand for goods, not just Apple’s but other companies’ goods as well. And so I think there’s a tremendous opportunity for companies that understand China, and we’re doing everything we can to understand it and serve the market as good as we can.

Keith F. Bachman – BMO Capital Markets U.S.

It certainly seems so. Tim, for my follow-up from Bill Shope’s question, there have been some changes in Spain in particular on the behavior of their carriers and the economics. And Vodafone has actually changed some of their subsidy levels. It’s only been about 30 days or 35 days, but have you seen any changes in demand levels in the Spanish market as a consequence of some of the activities of the carriers? And that’s it for me.

Timothy D. Cook

Yes. Keith, Spain has been weak for us and probably more broadly for many companies. We — our revenues grew in Spain last quarter but materially less than we grew in Europe or worldwide. However, that wasn’t cause and effect related to the issue you’re on, that Spain is just in a, I think, terrible economic situation. And so I sort of look at that as an unusual case. To be clear about what was done, is that — I think there’s also some noise in the pike on this one. What the carriers did was they still have subsidies for their existing customers. And I don’t want to talk about what the — their existing customer-to-new customer ratio is, but you can find out numbers from different parts of the world and model that. They pulled subsidies on new customers. And so it wasn’t a pull of all subsidies, it was a pull of subsidies from new. And it — all carriers in that market did not do that. A couple of the carriers did. So I wouldn’t necessarily use that as a proxy for the world, I guess, is my point.

Operator

From JPMorgan, we’ll go to Mark Moskowitz.

Mark A Moskowitz – JP Morgan Chase & Co, Research Division

A question for Peter. Peter, can you provide a little more framework or context for us in terms of understanding how the segments dovetail with the 13% sequential revenue decline in the guidance? In terms of that bogey, what product segments could be higher in terms of decline or less than the decline?

Peter Oppenheimer

Go ahead, Tim.

Mark A Moskowitz – JP Morgan Chase & Co, Research Division

Oh, sorry. Go ahead.

Peter Oppenheimer

Sure. iPhone, well, we would expect to have a year-over-year increase and a sequential decrease for the reasons that both Tim and I discussed. We built channel inventory in the March quarter, and we are exiting March in supply and demand balance. And we had a huge January. And for iPad, we would have a significant — expect to have a significant year-over-year and sequential increase in sales. And I’ve got a — I want to put something out just so it gets out on the call in case it’s not asked and talk a little bit about the gross margin guidance that we provided for the June quarter. We’re pleased to be providing a gross margin guidance of 41.5% for the quarter. We expect about 2/3 of the sequential decline to be primarily driven by a higher mix of iPads and Macs, a full quarter of selling the current iPad lineup and lots of leverage on the sequentially lower revenue. And we would expect the remainder of the difference to be primarily driven by the items benefiting the March quarter gross margin that we don’t expect to recur in June.

Nancy Paxton

And Mark, did you have a second question?

Mark A Moskowitz – JP Morgan Chase & Co, Research Division

Yes. Tim, Tim, can you hear me?

Timothy D. Cook

Yes, I can now.

Mark A Moskowitz – JP Morgan Chase & Co, Research Division

Okay, great. Sorry about that. So just in terms of the — your flexibility or versatility, you’ve been flexible here recently in terms of your cash usage as well as just providing more color or commentary during your earnings call. I was just wondering how we should think about opportunities for incremental flexibility as it relates to patent disputes. Is there a point where Apple maybe feels it reasonable to settle and just continue out-innovating and outgunning the competition rather than wage an ongoing litigation? Are there opportunities for that?

Timothy D. Cook

I’ve always hated litigation, and I continue to hate it. We just want people to invent their own stuff. And so if we could get to some kind of arrangement where we could be assured that’s the case and a fair settlement on the stuff that’s occurred, I would highly prefer to settle versus battle. But it — the key thing is that it’s very important that Apple not become the developer for the world. We need people to invent their own stuff.

Operator

Next, we’ll go to Shannon Cross with Cross Research Group.

Shannon S. Cross – Cross Research LLC

My first question is just going back to iCloud. Perhaps Tim, if you can talk a little bit more about feedback from customers? Curious sort of average number of devices of customers that customers are putting up or maybe percent of users attaching more than one device. Just sort of what’s the initial feedback? And then I have a follow-up.

Peter Oppenheimer

Shannon, it’s Peter. I don’t want to frustrate you, but, well, we have, of course, the data that you’re asking for, but we don’t want to help our competitors. And so it’s not something that we’re going to provide probably. The feedback that we’re getting from customers on iCloud is just it’s off the charts. They’re loving it. And the fact that we could be here on the conference call with you in April just 5 or 6 months after introducing the service and have 125 million people around the world using it every day, I think, speaks for itself.

Shannon S. Cross – Cross Research LLC

Okay. And then my follow-up question is just on R&D. I mean, it was up 45%. It’s over $800 million now. I’m curious. So was a chunk of the growth from the acquisitions you’ve made? Or is there anything you can tell us in terms of your thoughts on R&D and investment levels? Because it’s definitely been ramping, which, I guess, bodes for good products coming for — in the future.

Peter Oppenheimer

Well, we view this as a good thing. We are investing in engineering to continue to bring out the most innovative products in the world to delight customers. We are making investments in our hardware and software engineering teams. We’re shipping the best products that Apple has ever shipped today. And we’ve got some fabulous new products in the pipeline. So I’m very confident in the return that we’re going to see on these investments.

Shannon S. Cross – Cross Research LLC

You used to give sort of an idea of percentage to software, percentage of hardware. Is there anything you can give there?

Peter Oppenheimer

Shannon, I’m sorry. I don’t have that in front of me.

Operator

From Sterne Agee, we’ll go to Shaw Wu.

Shaw Wu – Sterne Agee & Leach Inc., Research Division

Just a quick clarification. I understand you disclosed China in terms of the 4S shipping along with 21 countries early in January. What about China Telecom specifically? When did that launch?

Timothy D. Cook

Shaw, it’s Tim. We launched with China Telecom in March. And in early part of March, we were at a supply-demand balance with them prior to the end of the quarter. We’re very happy to be working with them.

Operator

From Bank of America Merrill Lynch, we’ll go to Scott Craig.

Scott D. Craig – BofA Merrill Lynch, Research Division

Peter, on the OpEx side, that’s an area where you guys have been getting a fair amount of leverage. If you look year-over-year, it’s down pretty significantly as a percentage of sales. So I’m just curious on your thoughts going forward, maybe not just next quarter but sort of how do you think about the OpEx leverage longer term? And then, Tim, can you just kind of take us through the components like you do on most quarter calls and where you’re seeing some pricing better than expected and maybe worse than expected and put that in the context of going forward as well?

Peter Oppenheimer

Yes, Scott, it’s Peter. We are, as I discussed in Shannon’s question, investing in R&D to introduce the most innovative products in the market. We are also spending on marketing, advertising, opening more of our own retail stores and expanding our indirect channels around the world to increase sales. And we’re investing in infrastructure to support our growth and also stock-based comp for our employees. We are very confident in the investments that we’re making. We’re thinking about the long term, and we’re confident in the returns that we’re going to get in — on these investments.

Timothy D. Cook

Scott, in terms of component costs for the quarter we just finished, Q2 component costs were better than we had planned, and this assisted us in exceeding our gross margin guidance, as Peter talked about earlier. Displays and NAND flash drove the majority of the favorable commodity cost benefit. In terms of the June quarter and the — what we factored into our guidance, NAND and mobile DRAM supply continued to exceed demand. And because of that, we expect pricing will continue to be favorable. For most LCDs, we expect pricing to stabilize as the market moves to a supply-demand balance. The hard drive market has moved to a supply-demand balance, and we expect marketing — market pricing to decline but will still be higher than the pre-flood level from the tragedy in Thailand. Most other components are expected to fall in line with or somewhat faster than historical trends.

Operator

And we’ll go to Kulbinder Garcha with Credit Suisse.

Kulbinder Garcha – Crédit Suisse AG, Research Division

Just a clarification, Pete. Did you say that 2/3 of the sequential gross margin decline was basically due to products? And did I hear that right? Can you clarify that? Because it seems like quite a rapid drop, and I’m just wondering how much conservatism is in your gross margin guidance. And then I have a follow-up for Tim afterwards.

Peter Oppenheimer

Sure, Kulbinder, the 2/3 that I talked about, the sequential decline, we see as being driven by a higher mix of iPads and Macs, a full quarter of selling the current lineup of the iPad or the current iPad lineup, and then a loss of leverage on the sequentially lower revenue. So those 3 factors we see driving 2/3 of the sequential decline.

Kulbinder Garcha – Crédit Suisse AG, Research Division

Okay, great. And then, Tim, just a question on the enterprise side. You mentioned a couple of times how the iPad is being taken into new markets, new verticals, whether it’s because of the price point of the innovation. I’m just wondering specifically what resources is Apple dedicating to have a much more direct relationship with the enterprise? Can you speak on what’s changed in the last 6 or 12 months and what you think you need to do to become a more credible or significant enterprise player?

Timothy D. Cook

Initially, our focus was on working with the Fortune 500 and the Global 500 to get the iPad certified for their particular enterprise. And I’m pleased to report that 94% of the Fortune 500 are testing or deploying iPads and 75% of the Global 500 are testing or deploying the iPad. So these numbers are just off the charts for a product that’s only 24 months old. And so we are moving our focus away from this and focusing on penetration within these accounts. Peter alluded to some of the wins that we have had in the — his opening comments. The incredible things about these are that they span across many verticals, through government, through education, and many different functions within the enterprise. It’s absolutely the most broad-based product I have ever seen in my whole career in terms of adoption rate into the enterprise. And so yes, this means that we’re applying more resources in Fes [ph] and salespeople to interact directly with these customers. We also work with our carrier partners and our reseller partners in delivering both the products and services that are wrapped around that to these customers.

Operator

We’ll go to Chris Whitmore with Deutsche Bank.

Nancy Paxton

Chris, are you there?

Chris Whitmore – Deutsche Bank AG, Research Division

Hello? Can you hear me?

Nancy Paxton

Yes, we can.

Chris Whitmore – Deutsche Bank AG, Research Division

Okay, sorry about that. If I take your revenue guidance and the comments you made around gross margin at face value, it seems to imply that you expect iPhone unit sales to be down about 10 million units quarter-on-quarter. First, is that in the right ballpark? And secondly, are you just being conservative with respect to the outlook? Or have you seen a change in the end demand environment for the phone?

Peter Oppenheimer

Chris, let me sort of go in reverse order. We are incredibly confident in our business, our strategy and what we’re doing. When we give you guidance, we give you guidance that we have reasonable confidence in achieving. And finally, we do expect a sequential decline in iPhone sales driven by the fact that we built 2.6 million units of channel inventory in the March quarter, which we needed to do. We’re now within our target range of 4 to 6 weeks, and we entered the March quarter with significant backlog, as we talked about, in January. And we’re able to fulfill that and launch 20 countries in the month of January. So –- we have immense confidence in what we’re doing and are very pleased with the way our business is performing.

Chris Whitmore – Deutsche Bank AG, Research Division

A follow-up, if I could, on iPad. It is supply constrained across many geos, as you talked about. Is there a specific component issue? Do you have visibility on resolution? When do you expect to be able to meet demand in the iPad?

Timothy D. Cook

It’s hard to answer meet the demand. What I’m confident about, however, is that we will be able to supply a significant number of iPads during the quarter, and I feel very, very confident about that. It’s tough to know precisely that it will balance until you get there, but I’m very confident with the improving supply and that the total number will be very significant.

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GDP will come in on Friday, and after a dismal nonfarm-payrolls report earlier this month, it seems likely that we may see a lower number. However, the IMF raised its growth estimates for the US last week from 1.8% to 2.1%, signaling that the slowdown may have been due to the seasonally warm weather this year.

The FOMC decision will take place over two days this coming week, starting on Tuesday and ending on Wednesday, and will be followed by a press conference from Chairman Bernanke. This is largely expected to be a non-event, with the Federal Reserve reiterating its low interest rates, although we may see some discussion of an extension to Operation Twist, which is scheduled to end in June.

Monday, April 23

US Economics (Time Zone: EDT)
 
No major reports scheduled
11:00 Fed buying $1.5b-$2b notes in 25 to 30-year range
11:30 Treasury selling $30b 3-month notes, $28b 6-month note

Global Economics (Time Zone: GMT)

05:00 JPY Leading Index
07:30 EUR German PMI
08:00 EUR Euro-Zone PMI
 
Earnings
 
Before: BOH, BEAV, EAT, CHKP, COP, DHI, ETN, HAS, HLX, KNL, MTG, OFG, PCH, ROP, STBA, SAH, STI, TNC, WWW, XRX  
After: ALGN, AFOP, AGNC, AMP, BXS, BCCN, CNI, CR, CTGS, ETH, FNB, FFIN, HMA, HSTM, HTLF, HXL, IEX, ILMN, JJSF, NFLX, OMI, RCII, SANM, SFG, STM, TXN, TUES, UCTT, USTR, VLTR, WRB, WIBC, WWD, ZION

Tuesday, April 24

US Economics (Time Zone: EDT)

09:00 S&P/Case Schiller Composite – consensus -3.45%
09:00 S&P/Case Schiller 20 City – consensus 0.10%
10:00 Consumer Confidence – consensus 69.6
10:00 Richmond Fed – consensus 6
10:00 House Price Index – consensus 0.1%
10:00 New Home Sales – consensus 319K
11:00 Fed to purchase $4.25b-$5b in 6 to 8-year notes
11:30 Treasury selling 4-week bills
1:00 US selling $35b 2-year notes

Global Economics (Time Zone: GMT)

01:30 AUD CPI
03:00 NZD Credit Card Spending
06:00 CHF Trade Balance
06:00 CHF UBS Consumption Indicator
08:30 GBP Public Finances
12:30 CAD Retail Sales

Earnings

Before: MMM, AMG, APD, AKS, ALXN, AXE, ARMH, ASH, ASTE, T, BHI, BYD, CPLA, CSL, CE, CLS, CNC, CRDN, CIT, COH, DLPH, DHT, FDML, FCF, FMER, HSII, HSY, ICLR, IIVI, ITW, IMN, JNS, KSU, LCAV, LII, LXK, LRY, LECO, MHP, MLI, NVS, OSIS, PCAR, PH, PEI, PNR, PVTB, RSH, RYN, RF, RAI, R, SIAL, SBNY, STL, SNV, TROW, TWIN, X, UMBF, UTX, WAB, WAT, WFT, WU
After: ACE, ACPW, AEGN, AFL, ACC, AMGN, AMSG, ANEN, AAPL, BIDU, BKI, BWLD, CHRW, BCR, CBG, CBI, CGI, CENX, CVTI, CTS, CYMI, DDIC, DV, DUF, DRCO, EW, ENTR, EEFT, FBC, FTI, HLIT, HTS, HA, HWAY, AWAY, HTCH, IPHI, IGT, IPCM, IRBT, ITC, JNPR, LIFE, MANH, MRCY, MMSI, NBR, NFX, NSC, PNRA, QEP, STP, QCOR, RSYS, RNST, RFMD, RHI, RUSHA, SGMO, SMCI, SKT, TMK, TSS, CLUB, TRMK, ULTI, UIS, USNA, VASC, VTNC, VOCS, WBSN, WIT, ZIXI

Wednesday, April 25

US Economics (Time Zone: EDT)

07:00 MBA Mortgage Purchase Index
08:30 Durable Goods – consensus -1.6%
08:30 Durable Goods ex Transport – consensus
08:30 Cap Goods Nondef Ex – consensus 0.9%
12:30 FOMC Rate Decision
1:00 US to sell $35b 5-year notes

Global Economics (Time Zone: GMT)

06:00 JPY Machine Tool Orders
08:30 GBP GDP
21:00 NZD Reserve Bank of New Zealand Rate Decision

Earnings

Before: ABB, ALR, ATI, ATMI, AUO, AN, AVY, AVX, BA, CRS, CAT, CBZ, CVE, GIB, CWEI, CNH, GLW, CFR, DAN, DAL, DEST, DHX, DBD, DPS, LLY, ECA, EGN, ENR, FMBI, FSRV, GD, GSK, GNC, HOG, HES, HST, HCBK, ICON, KFN, LCRY, LAD, LIZ, ERIC, LO, LL, MKTX, MNI, MWV, MDP, MSA, MOLX, MSI, NDAQ, NOV, NMM, NEE, NLSN, NOR, NOC, NEW, NS, OC, PAG, PX, ROK, ROC, RES, SAP, ST, SLAB, SIX, SO, S, XRS, TEL, TDY, TX, JNY, MDCO, TMO, TKR, TUP, UMC, LCC, VMED, WPI, WLP, WYN, ZIP
After: AEA, AKAM, ALGT, ARII, ACOM, ATR, ACGL, ARRS, AHT, AHL, AIZ, AVB, BDN, CDNS, CMO, CAKE, CIM, CRUS, CTXS, CLW, CLF, COHU, CLGX, CSGP, CROX, CCI, DTLK, DRWI, DRE, DFT, ELX, ECPG, WIRE, EXXI, EFX, EQIX, EQR, RE, DAVE, FOE, FICO, FNF, FFBC, FTNT, GG, GGG, GPRE, GLF, HRC, HMN, HURN, INFN, INSP, ISSI, ININ, IDCC, IFSIA, ISIL, ITRI, JAH, KAI, KALU, KBR, KND, KEX, KNX, LVS, LEAP, LOGI, LOGM, LOOP, LSI, MX, MTSN, MERU, MSCC, MKSI, MRH, NKTR, NTGR, NEU, ORLY, OLL, OIS, OI, PMTC, PDLI, QGEN, QDEL, RA, RRC, RJF, RJET, RKT, RYL, SIGI, SCI, SKX, SLG, STMP, STNR, SRCL, SRDX, SUSQ, SYA, SYMM, SYNC, TER, TEX, TCBI, TWI, TSCO, TRN, TQNT, TBI, TYL, VAR, WCN, WLL, WMB, WPX, XLNX

Thursday, April 26

US Economics (Time Zone: EDT)
 
08:30 Initial Jobless Claims – consensus 368K
08:30 Continuing Claims – consensus 3285K
10:00 Pending Home Sales – consensus 1.3%
11:00 Kansas City Fed
11:00 Fed to purchase $1.5b-$2b notes in 25 to 30-year range
1:00 Treasury selling $29b 7-year notes

Global Economics (Time Zone: GMT)

04:30 JPY All Industry Activity Index
09:00 EUR Euro-Zone Consumer Confidence
09:00 EUR Euro-Zone Business Climate Indicator
12:00 EUR German CPI
23:30 JPY Jobless Rate
23:30 Household Spending

Earnings

Before: DDD, AET, AIXG, ALU, AFAM, MO, AM, APU, ARGN, ABC, AME, AMLN, AIT, ART, ABG, AME, AMLN, AIT, ART, ABG, AZN, AVEO, AVT, BLL, BDC, BLC, BMS, BHE, BRY,  BWA, BGG, BCO, BMY BRKR, BC, BG, CAB, CCMP, CAM CRR, CRI, CSH, CELG, GTLS, CME, CMS, CCE, CL, CLP, CNMD, CNX, COR, OFC, CRY, DLX, DB, DLR, D, UFS, DOW, DNKN, ELNK, ELN, EME, ETR, EQT, EVR, XOM, FSS, FIS, FAF, FVE, F, FORR, GMT, GEL, GR, GTI, GPK, GPI, HHS, HW, HP, HERO, INCY, IART, IPG, IVC, IVZ, IRM, ESI, JBLU, JRN, KBW, K, KMT, LLL, LANC, LSTR, LAZ, TVL, LINE, LKQX, LMT, LYTS, MHO, CLI, MTRN, MJN, VIVO, MTH, MEA, PCS, MGI, MCO, MYL, BABY, NCI, NTCT, NEI, NIHD, NBL, NUS, OXY, ODFL, ORI, OCR, OSK, PACR, PMTI, PCX, PTEN, PEP, PNK, POT, PDS, PROV, PHM, RTN, REGN, O, REGN, RGS, RS, SOL, RTIX, SFE, SWY, SNH, SQNS, SHPGY, SLGN, SWI, SPNC, SAVE, HOT, STEL, STC, SWC, STRA, TSM, TASR, TLAB, TS, TWC, TRS, TYC, UGI, UBSI, UCBI, UAL, UTHR, USAP, UPS, VCI, VNTV, VDSI, VSI, VMC, WBC, WM,WST, WHR, WRLD, XEL, YNDX, ZMH
After: AAN, ABAX, AEM, AIQ, AMZN, DOX, AMKR, ANGI, ANH, AMCC, ARBA, ASIA, AACC ,ATHN, AVID, AXS, BYI, BMRN, BJRI, EPAY, BBRG, CELL, CAP, CAMP, ELY, CPT, CERN, CHH, CINF, CRBC, CLWR, COHR, CSTR, COLM, CYH, CMP, CPSI, CPTS, CTCT, DECK, PROJ, DGII, DRC, DNB, EMN, ECHO, EDR, EHTH, ELGX, EPIQ, EXPE, EXTR, FII, FR, FBHS, FIO, GERN, GFIG, GILD, GDOT, HBHC, HLS, HITT, HGSI, INFA, IM, IMI, ITMN, INAP, INVN, KERX, KEG, KLAC, LEG, MTW, MXIM, MXWL, MBLX, MCRL, MCRS, MTX, MIPS, MWW, NANO, NATI, N, NSR, NR, NTRI, NXPI, OCLR, OLN, ASGN, OPWV, OFIX, PCTI, PKI, PFG, QLIK, KWR, RSG, RMD, SABA, SCSC, SBCF, SGEN, SIMO, SSD, SWKS, SONS, SPSC, SBUX, SPN, SIVB, SYNA, TAL, TNGO, TCO, TSYS, TNAV, TSRA, THRX, TPCG, UHS, UACL, WOOF, VRSN, VRTX, VPRT, WTI, WRE, WAIR, WDC, WSH, GB, WYNN, ZOLL, ZNGA

Friday, April 27
 
US Economics (Time Zone: EDT)

08:30 Employment Cost Index – consensus 0.5%
08:30 GDP QoQ – consensus 2.5%
08:30 Personal Consumption – consensus 2.3%
08:30 GDP Price Index – consensus 2.1%
08:30 Core PCE – consensus 2.1%
09:55 University of Michigan Confidence – consensus 75.7
11:00 Fed selling $8b-$8.75b notes in 2 to 3-year range

Global Economics (Time Zone: GMT)

JPY Bank of Japan Rate Decision
01:30 CNY Industrial Profits
05:00 JPY Housing Starts
06:00 EUR German Gfk Consumer Confidence
07:00 CHF KOF Swiss Leading Indicator
 
Earnings

Before: AIMC, ACO, AXL, ABFS, ALV, B, CPN, CVX, CVH, COV, DTE, FLIR, GT, HELE, HMSY, IMAX, IMGN, IP, KKR, KVHI, LBY, LPNT, MGLN, HZO, MRK, MOG.A, NAFC, NWL, NEM, PPC, PG, PB, PFS, RUTH, SAIA, SNMX, SPG, TOT, VFC, VTR, WY, ZBRA
After: PVR,

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As the recovery in the U.S. economy approaches its third full year, there are millions of people that continue to deny its very existence. It seems like every spring and summer, the media and Wall Street are filled with predictions about how the economy is about to turn lower. Back in 2009, as the economy was stabilizing, many people said that it was all just a mirage. The vast majority of the analysts and commentators that entered 2009 bearish on America and its stock market stuck with their bleak outlooks – even as a plethora of evidence suggested that the financial system had already left the worst conditions in the rearview mirror. During 2010, the term “double dip” was all the rage. I have a vivid memory of hearing one commentator on the radio during the early summer of 2010 – declaring that the economy was already back in a recession. As I recall, a number of weaker than expected economic reports had just been released and the skeptics that had been waiting for things to turn their way jumped the gun and said that the economy was already in the midst of a nosedive – and would soon take the stock market along for the ride. Instead, the first half of 2010 saw some of the strongest GDP growth of the recovery to date. That was a major disappointment to the bears.

And of course last year saw a burst of negative sentiment regarding the economy, as GDP growth and manufacturing activity both slowed during the spring and summer. As I pointed out at the time though, much of that weakness was driven by near-term catalysts (such as the triple disasters in Japan). I urged you to keep your sights set on the big picture. Instead of a new recession taking control of the economy by late 2011 (as so many analysts guaranteed), economic growth actually improved with every passing quarter last year (+0.4%, +1.3%, +1.8% and +3.0%). That growth finally reached something of a tipping point when it came to employment – and the economy began to generate more new jobs as the year developed. That growth has been extended into 2012. Not so long ago, many analysts were talking about GDP growing at an annual rate of only 2.0% during the first quarter. However, as various snapshots of economic conditions have come in during the past few months, the risks to growth have moved higher – not lower. Some firms have moved their respective first quarter GDP growth estimate up into the area near 3.0%. While the year as a whole is likely to come in below that pace, we are looking at far stronger conditions than many experts were predicting six months ago. No wonder the stock market recently hit a four year high.

I know that many of the skeptics have been rejoicing at the recent “correction” in stocks. However, a drop of a few percentage points right on the heels of a bull market high does not come close to justifying the entrenched bearishness displayed by many analysts, commentators and investors. They are trying to cover themselves with talk of how the market’s gains have been 100 percent caused by the Federal Reserve’s quantitative easing. As far as I am concerned, taking such a stance on the bull market in U.S. stocks is a recipe for still more frustration and financial pain. Some investors have been trying to get in front of the surging stock market by placing short bets against stocks. They keep hearing analysts say how the stock market’s gains are just a mirage and that it will soon suffer a collapse. People like to make money. Therefore, the idea of easy gains shorting the market has been quite appealing – especially to people that have largely missed out on the bull market gains of the past 37 months (with the broad market up by 109 percent during that time – and only 10 percent below its all-time high). Some people might think it is sensible to ignore or completely downplay the strength of the stock market. However, the simple fact is that millions of U.S. households have exposure to U.S. stocks – whether through shares of individual corporations or through mutual funds, etc. That is helping to repair household wealth.

The strength of the stock market during the past three-plus years has been largely triggered by the improvement in the U.S. economy. Corporations spent the recession cutting costs to the bone. That is one of the reasons that so many jobs were lost during 2008 and 2009. As the economy has rebounded, revenues have grown and those gains have been leveraged into higher corporate profits. I keep coming across commentaries in which analysts claim that the economy is on shaky ground and that businesses will soon be pushed to the brink – meaning new waves of layoffs. In reality though, corporate America looks to be in good shape. According to data released by the Federal Reserve, the ratio of liquid assets to short-term liabilities recently hit its lowest level since 1954 – nearly 60 years ago! The banking industry has also come a long way from the overleveraged conditions that preceded the recession and crisis. According to the American Bankers Association, the total debt held by financial institutions compared to the size of the U.S. economy recently fell to its lowest level in a decade. If you think that the economic recovery has only helped big companies and has left households in the dust – keep in mind that the delinquency rate for consumer loans actually declined during the fourth quarter. That was the first such decline in eight years.

Earlier today, the retail sales report for March was released. Given the “weak” employment report that was released earlier this month, I assume that many people were expecting to see evidence of a retreat in consumer spending. Most estimates leading up to the retail sales report were looking for something in the area of +0.1% to +0.3%. Instead though, the economy once again double-crossed the skeptics. The broad measure of retail sales surged by 0.8% – following a gain of 1.0% the previous month (and up by a strong 6.5% from total retail sales in March 2011). Even when the red hot sales pace of autos is removed from the total, the remaining retail sales still surged by 0.8% last month. Some of the improvement in retail sales came from higher gas prices. Sales at gasoline stations reported grew by 1.1% during March and by a total of 7.6% year-over-year. As you know, the jump in the price of gasoline has become one of the favorite talking points of the bears this year. They have been blocked at so many turns (as the economy has displayed remarkable resilience) – anything that comes along that might support their “recession now” stance is always embraced without hesitation.

The American consumer was supposed to be hamstrung by the recent jump in gas prices. However, the improvement in employment has helped to counter that negative force. The rally in crude oil was stopped dead in its tracks about six weeks ago. The price has fallen by about seven percent since the late February peak. As for gas prices, they have continued to drift higher – despite the recent decline in oil. The good news is that the action in crude oil is finally starting to impact gas prices. The average price for gasoline in America today is about $3.89 per gallon. It was at $3.81 a year ago – putting the year-over-year gain at about two percent. Gas has made little headway during the past three weeks. As almost always happens during near-term spikes in gas prices, the media was recently filled with talk about how gas would continue to surge for many months to come. However, with oil trending lower – not higher – the mechanisms of the marketplace are beginning to bend gas prices lower as well. That means consumers, businesses and governments could all see some relief with gas prices soon. Once again, that would be a complete shock to the skeptical crowd. They have been running out of real world catalysts to justify their predictions of doom for the economy, employment and housing. If gas prices move lower during the months ahead (as happened following the spring tops in gasoline during 2009, 2010 and 2011), it would leave the bears scrambling to find new negative catalysts. I have no doubt that they will soon be obsessively turning their attention to debt problems in Spain and the other European nations. I am focused on the longer-term trend. As things stand now, I see no reason to turn away from my bullish stance regarding the U.S. economy. More on Friday.

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Unfortunately, there’s another precipice looming – a Monetary Cliff that is even steeper and more hazardous. By the fall of this year, it will become very evident that the U.S. is living beyond its means and that there is an entitlements deficit of truly mountainous proportions. By December of this year, we will be bumping up against the national debt ceiling and a possible downgrade of our sovereign debt. The budget and the deficit are out of control. Just as serious is the enormous liability America has created in the last ten years of unfunded promises to pay to our people when they retire and for their medical expenses. Investors, businessmen, and the people themselves sense these lethal imbalances, and if they are not addressed, they eventually will erode confidence, consumer and capital spending, and will drastically affect valuations. This is the Entitlements Cancer.

In my opinion, although the Monetary Cliff is more long-term dangerous, the proximity of the Fiscal Cliff, if not dealt with, will trigger the dreaded double-dip recession we are all terrified of and bring on another financial crisis. Congress could deal with this issue over the course of this year, but is that a realistic hope with a cantankerous, highly partisan Congress while an election is going on? Is a Lame Duck Congress likely to get anything done (supposing Obama is re-elected and the House and Senate are Republican)? Of course, the other alternative is that Congress defers the issue, in effect kicking the can down the road again, but the tolerance of the equity and fixed income vigilantes has been stretched thin. And make no mistake; the vigilantes are international, cold-blooded and very powerful, and they are like wolves attacking a weak and wounded buffalo.

The debt extension is no minor event. Here are some nasty facts. The average maturity of the U.S. Treasury debt is five years, and the average interest rate is 2.2%, so the interest expense last year was about $450 billion. Since inflation is running close to three percent, in total, the owners of Treasuries have a negative real return. $5.9 trillion or about 70% of the total is the amount of debt coming due in the next five years. Unless an economic miracle occurs, additional Treasuries will have to be sold in the years to come to fund the budget deficit. This year, according to Caroline Baum, a 100 basis point increase in the average interest rate will add $88 billion of interest expense. Last year, the Federal Reserve bought 61% of the new debt issuance and foreigners (probably most of the central banks, particularly of China) purchased about 20%.
Thus, we are very dependent on the Fed and the kindness of strangers for the rollover of our national debt. One of those strangers, China, is already choking on T-bonds and has expressed its reluctance to increase its holdings. Japan is transitioning to its own quantitative easing. Suppose China and Japan not only stopped buying but actually tried to sell. Baum puts it succinctly: “The U.S. is more dependent on short-term funding than many of Europe’s most indebted countries, including Greece and Spain.”
I recently attended a breakfast with former Senator Alan Simpson, Erskine Bowles, and Mayor Bloomberg. I think the Simpson Bowles Committee (SBC), appointed by the President (which incidentally

was truly bi-partisan), came up with reasonable, compromise solutions to these big issues, but which do require a pound of flesh from everyone. Subsequently, the President and the Majority Leader dropped it like a hot potato. Everyone got fat in the last ten to fifteen years and now Mr. Everyone is going to have to lose some weight. Since we are an equal society, the top echelons are going to have to give up the most. A few weeks ago, the SBC was summarily dismissed by the House. We are a nation of totally self- centered special interest groups that terrorize our politicians. Our politicians are scared to death of them. As Senator Simpson, a life-long Republican and one-time Minority Leader of the Senate, put it, “if President Obama had endorsed our proposals they would have torn him limb from limb”.

The “they” whom he was talking about principally is the American Association of Retired People (AARP) which has 45 million members and is growing by 10,000 new members a day. The AARP is a single issue voting bloc, and on Election Day it can turn out its members, most of whom have not much else to do. Social Security is their beta noire. In the late 1930s, when FDR created Social Security, the average life expectancy of Americans was around 60 and there were 33 workers for every beneficiary. The retirement age was set at 65 and benefits were later indexed to inflation. Today, the life expectancy is close to 80 and there are 3 workers on the way to 2 for each beneficiary. The retirement age is still 65. The Social Security System is bankrupt with an unfunded liability in the trillions that is rising every day. The SBC recommended that the retirement age be gradually raised over 20 years to 70, and that the Social Security payroll tax assessment be raised from the first $110,000 to $175,000. Of course, the other AARP (The American Association of Rich People) screamed bloody murder as they do about any tax rate increase on higher income payers.

The same dynamics apply to Medicare, and here the SBC suggested maintaining the Medicare cost controls associated with the recent healthcare reform legislation and increasing the authority of the Independent Payment Advisory Board. Again, the AARP went nuts, screaming about “death panels”. The issue is that at a huge expense, modern medicine can prolong hopelessly dying peoples’ lives until they are virtually vegetables. End of life care is a major reason health insurance is insolvent.

The SBC also proposed a $200 billion reduction in discretionary spending with proposed cuts including reducing defense procurement by 15%, closing one third of overseas bases, eliminating “earmarks”, and cutting the federal work force by 10%. In addition, it suggested $100 billion in increased tax revenues through reforms such as introducing a 15% gasoline tax and eliminating or restricting a number of exemptions, such as the home mortgage interest deduction on expensive homes and the deduction for employer-provided healthcare benefits. Another proposal was a reduction in entitlements including farm subsidies, federal pension service reform, and student loan subsidies. Senator Simpson points out that last year we spent $740 billion on defense; the next 14 biggest spending countries combined spent $560 billion. The tax reform proposed by the SBC is staggering in its dimensions. Almost all deductions are eliminated, capital gains and dividends are taxed as income, and we go to three brackets (12%, 20%, and 27%). All corporate and individual deductions and exemptions including mortgages, ear marks, and charitable contributions are gone, as is the Alternative Minimum Tax. A federal excise tax on gasoline goes into effect in 2015. However, all this is another, very complex subject. All manner of fiscal experts have objected, showing disastrous consequences. Senator Simpson just smiles: “Torture statistics long enough and they will confess to anything.”

Alan Simpson and Erskine Bowles are great Americans and their program needs serious consideration. At the breakfast, Bowles said he had just spent time with the President and that Obama had told him after the election he thought progress would occur. Someone then asked Simpson, Bowles, and Bloomberg whether they thought these issues could be dealt with without another financial crisis occurring first. All three regretfully said they did NOT think so. Depressing! As for the markets short-term, my guess is that we are about half way through a correction slash pullback whatever. The U.S. market for the next month will be data and European dependent. The American economy is looking a little soggy here, but I think the 2% momentum is still up. Europe seems stuck again. That the ECB and EFSF are already talking about spending their precious firewall funds that are supposed to last for three years is not cheery. Italy today sold one year paper at 2.84% whereas a month ago it financed at 1.40%. Germany’s financing stumbled too. It’s clear Europe is in a recession that is affecting everyone, including former stalwarts like the Netherlands. I’m out of Italy and have sold short some French and German equities.

Barton M. Biggs

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In US economics, we’ll be seeing a variety of numbers that will show how well the US government is getting along, such as the trade balance and monthly budget deficit. There will also be $66 billion in Treasury auctions including 10- and 30-year sales. Last week, Treasuries had the largest decline since 2010 and continue to show signs of weakness.

Alcoa (AA) will officially kick off earnings next week, as well as notables like Google (GOOG), JPMorgan (JPM), and Wells Fargo (WFC)

Monday, April 9

US Economics
11:00 Fed to sell $1b-$1.5b TIPS in 1 to 3-year range
11:30 U.S. to sell $31b 3-month, $29b in 6-month bills

Global Economics
01:30 CNY Producer Price Index
04:30 JPY Bankruptcies
14:30 CAD Business Outlook

Earnings
Before: GBX
After: CIM, SABA

Tuesday, April 10

US Economics
07:30 NFIB Small Business Optimism – consensus 95
10:00 IBD/TIPP Economic Optimism
10:00 JOLTs Job Openings
10:00 Wholesale Inventories – consensus 0.5%
11:00 Fed to purchase $1.5b-$2b notes in 25 to 30-year range
11:30 U.S. to sell 4-week bills
1:00 U.S. to sell $32b 3-year notes
2:00 Fed to purchase $4.25b-$5b notes in 6 to 8-year range

Global Economics
JPY Bank of Japan Rate Decision
01:30 AUD NAB Business Confidence
05:45 CHF Unemployment Rate
06:00 EUR German Trade Balance
23:50 JPY Machine Orders
9:00 France to sell bills

Earnings
Before: SVU
After: ADTN, AA, HCSG, MFRM, SMSC

Wednesday, April 11

US Economics
07:00 MBA Mortgage Purchase Index
08:30 Import Price Index – consensus 1.0%
2:00 Fed’s Beige Book
2:00 Treasury Monthly Budget Statement – consensus -$203.0B
11:00 Fed to sell $8b-$8.75b notes in 1 to 2-year range
1:00 U.S. to sell $21b in 10-yr notes

Global Economics
12:15 CAD Housing Starts
22:45 NZD NZ Card Spending
5:00 Italy to sell €3b 91-day, €8b 361-day bills
5:30 U.K. to sell £4.5b 1% 2017 bonds
5:30 Germany to sell €5b 10-yr notes

Earnings
Before: PGR, TITN, CFNL
After: APOG, DRWI

Thursday, April 12

US Economics
08:30 Trade Balance – consensus -$52.0B
08:30 Initial Jobless Claims – consensus 355K
08:30 Continuing Claims – consensus 3338K
08:30 Producer Price Index – consensus 0.3%
08:30 PPI Ex Food & Energy – consensus 0.2%
11:00 Fed to purchase $4.25b-$5b notes in 8 to 10-year range
1:00 U.S. to sell $13b in 30-yr bonds

Global Economics
01:30 AUD Employment Change
08:00 EUR ECB Publishes Monthly Report
08:30 GBP Visible Trade Balance
5:00 France to sell 4.25% 2017, 3% 2022, 3.5% 2026, 4.5% 2041 bonds

Earnings
Before: CBSH, FCS, FAST, LAYN, LDK, MTOX, RAD
After: GOOG, INDB, JBHT

Friday, April 13

US Economics
No major reports

Global Economics
02:00 CNY Industrial Production
02:00 CNY Real GDP
02:00 CNY Retail Sales
06:00 EUR German CPI
08:30 GBP PPI

Earnings
Before: IGTE, INFY, JPM, SJR, WFC
After:

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Subject: Piper: Why We Believe Apple will be World’s First Trillion Dollar
Company

We believe shares of AAPL will reach $1,000 in CY14, which would imply a
roughly $1 trillion dollar market cap, the first in history. While some investors
believe the biggest issue for AAPL to get to $1,000 is the market cap along with
excessive investor exuberance, which we address in this note, we believe the real
story is earnings growth.

Fundamentally, we believe shares can reach $1,000 based on
our belief Apple will continue to win in global mobile devices. As a result, we
remain confident in our $80.18 CY15 estimate. A 12x multiple (stock’s current out
year EPS multiple) on our CY15 EPS of $80.18 yields $960; however,
this excludes an Apple Television, which we believe could add more than $4 in EPS (5%) by CY15, which would yield over a $1,000 share price (12 * ~$84).

Below more details from the Piper Jaffray analyst, Gene Munster, one of the top analysts on Apple:

Apple Will Become First Trillion-Dollar Company by 2014: Analyst
Published: Tuesday, 3 Apr 2012 | 5:32 PM ET
By: Regina Hing

There’s a lot of excitement as top analysts continue to forecast when Apple will hit $1,000 a share and becomes the first trillion-dollar company.

For Gene Munster, managing director and senior research analyst at Piper Jaffray, that day will come sometime in 2014. “I know that when you look at the $1,000 price tag, it looks like a big number. But when you look back and do the math … it’s not that hard to get there,” Munster told CNBC Tuesday, referring to how Apple shares have nearly doubled in the past year alone. Munster attributes his very bullish outlook to opportunities in the mobile device space: Out of 1.6 billion total units to be made available in the market in the next couple of years, Piper Jaffray expects Apple to corner at least 400 million of the market, “a very achievable target.” This, despite stirring concerns that the new generation of products will be more “evolutionary” rather than revolutionary.

But Munster said that in a survey his firm conducted of iPhone users across the U.S., up to 94 percent claim they will buy another iPhone, meaning the company can count on at least 35 percent to 45 percent of sales from upgrades every year. The highly anticipated Apple television, which is expected to launch next year, adds more upside to its prospects.

What will the world with Apple is $1,000 a share look like? The tech goliath alone would represent 26 percent of total U.S. technology market cap , Research in Motion would be “out of business,” and the other manufacturers such as Nokia and Microsoft will end up “virtually nothing over time,” according to the long-time tech analyst.

“It’s going to be a two-horse race between Apple and Android phones built on Samsung,” said Munster, who raised his current target on the iPad maker from $718 to $910. Apple is “going to go and rip market share right out of [its competitors] and put that into [its] market cap.”

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BYRON WIEN

One of my Ten Surprises was that the Standard & Poor’s 500 would reach 1400 sometime during 2012, and here we are at the beginning of the second quarter and it’s already there. When I wrote that, my objective was to have the most optimistic estimate among Wall Street strategists. I actually thought the S&P 500 could reach 1500 based on the generally achieved (but not last year) multiple of 15 times and operating earnings of $100. Estimates have been trimmed somewhat, but, at this point, I still think 1500 is likely. The real question is, “Why are investors so skeptical?”

There are plenty of reasons to be negative. West Texas Intermediate crude oil is over $100 and gasoline costs more than $4.00 a gallon at many American pumps. Israel might strike Iran’s nuclear facilities, causing turbulence and instability in the Middle East. The 10-year U.S. Treasury note has risen suddenly to 2.3% and the long era of depressed intermediate-term interest rates may be over. Next January a major fiscal drag will begin: the Bush tax cuts will expire, the automatic sequestering of funds for defense and health care resulting from the failure of the Congressional Super Committee to come up with $1.2 trillion in budget cuts over ten years will take place, the payroll tax holiday will end and the Obama universal health care program will start. And there are other fiscal changes of lesser importance that will be implemented.

For the last two years the United States equity market has done well at the beginning of the year but has begun to run into trouble after March. The age-old mantra of “sell in May and go away” has served investors well. Why should this year be any different with the above negatives staring it in the face? Some bears would argue that the only reason the indexes are where they are is because of the liquidity being poured into the market by central banks around the world. In the United States, M2 has been rising exponentially and is up 10% year-to-date. The European Central Bank has put over a trillion euros into the European economy to shore up the banking system there and to prevent a serious recession from taking place. While much of this money has been absorbed into the real economy, clearly some of it has found its way into financial assets, driving stock prices higher. Good weather has probably also been a factor, helping the troubled housing industry in the U.S. to stabilize and enabling retail sales to strengthen. Quarter to quarter retail sales are up 5%. Household net worth has increased 30% since last October, which has clearly helped both of these sectors.

Over the past few years the work of the Economic Cycle Research Institute has gained some respect. Its index peaked in April 2010 and April 2011 warning of slower economic activity to follow. The S&P 500 subsequently declined 15% in both of those years. The index is currently rising and there are enough positive economic factors influencing it to believe that it won’t peak soon. Of the 15 indicators tracked by International Strategy & Investment (ISI), 12 are gaining strength. Let’s see if they continue their uptrends beyond next month.

At the beginning of the year most investors were cautious about the outlook. The economic data was mixed week after week and the failure of the Congressional Super Committee to come up with a program to reduce the United States budget deficit underscored the perceived dysfunctionality of our political system. The Republican primaries had not yet started but none of the many contenders for the nomination then was inspiring enthusiasm, and many Democrats were discouraged by President Barack Obama’s lack of leadership and his performance during his first term. Measures of investor sentiment revealed that a pessimistic mood prevailed.

The economic news began to improve as we moved into the new year. Initial unemployment claims moved lower almost every week and the unemployment rate declined as a result. First quarter industrial production was up 9.5%, the strongest gain in 15 years. Capital spending remained robust, with first quarter purchases of business equipment up 15%. Much of this was for labor-saving devices; with operating rates below 80%, not a lot of new plants were being built. In spite of this, manufacturing employment is increasing faster than service sector employment for the first time in 35 years. Small business optimism levels, a previous problem, have increased. There is evidence that banks are lending again. Job openings are up 17% from their level 2½ years ago. Consumer confidence, another past problem, has improved considerably although it is still a long way from the pervasive optimism that existed prior to 2008.

At the beginning of the year, investors were also worried about a “hard landing” in China. Unsold high-end apartments and non-performing loans on the books of the banks would cause the economy to slow. While China has lowered its GDP growth forecast to 7.5% for 2012, this is still well above recessionary concerns. Other emerging markets are also off their peak pace, but they will still have growth rates substantially greater than those of Europe or the United States. Among the developed markets the U.S., growing at better than 2% (I think 3% is possible), will perform better than Europe or Japan. This is one reason the dollar is strong.

At the beginning of the year Europe was the big uncertainty. Investors were concerned that the European Union would break apart and that Europe would enter a deep and prolonged recession that was sure to have a negative impact on economic growth in the United States. There were new people in critical roles on the Continent and it was too early to assess their competence or how successful they were likely to be. Mario Draghi as head of the European Central Bank has elected to provide substantial liquidity to strengthen the banking system and to offset the impact of the various austerity programs being implemented throughout the region. In Italy, Mario Monti has proven effective in enlisting the support of former followers of Silvio Berlusconi and has introduced reforms that should prove positive for that economy going forward. Italy and Spain have improved their economic prospects in the past several months, and this is an important positive change.

It now appears that the European Union will hold together at least for a year or more. Greece remains a problem but its sovereign debt holders have agreed to a severe restructuring of their holdings and the liquidity being provided by the European Central Bank should soften the impact of declining government expenditures. Whether Greece will be able to meet its deficit and debt-to-GDP targets remains unclear. Draghi seems to be emulating the United States decision made during the sub-prime real estate crisis of 2008, namely to provide the funds necessary to keep the system from melting down. This represents a total reversal from the previous policy of the Bank, which was to focus on controlling the rise in inflation through a restrictive monetary policy.

The combination of generally better economic data and an improved outlook for Europe has reassured investors. Over the past three months the pessimistic mood has changed to optimism. Most investors have been slow to put their money to work and, as a result, many hedge funds and long only investors are lagging behind the performance of the major indexes. Ordinarily, optimistic sentiment readings presage a market correction, but there are so many investors looking for an opportunity to increase their exposure that even a minor downdraft gets cut short by a flood of buyers. This could continue for a while.

That is not to say that the market outlook is devoid of problems. The price of oil at over $100 a barrel is one of them. That does not seem to be hampering consumer spending, however, indicating that perhaps people have resigned themselves to driving less and paying more to do it. In the past President Obama’s approval rating has tracked the price of oil pretty closely, but over the past several months his approval rating has risen while the price of oil has moved higher. The economy was improving during that period and the adversarial Republican primaries were taking place, and that may have had more to do with how those polled felt about the President.

Another factor investors are concerned about is the possibility that Israel will conduct an air strike against Iran. The view is that Iran will soon be at a “zone of immunity” which means that they will be so far along in the development of a nuclear weapon that no effort to stop them will be possible. That point will, according to various projections, occur later this year so, in this view, Israel must strike soon. I believe that President Obama assured Israel’s Prime Minister Benjamin Netanyahu on his recent trip to the United States that we would support Israel in preventing Iran from having a nuclear weapon, but wanted to be patient to see if sanctions and other forms of intervention worked. If Iran was attacked and the price of oil moved into the $150–$200 range, that obviously would be an important market impediment. I remain of the view that the weapons program in Iran has already been weakened by assassinations and sabotage, and that while the rhetoric of the clerics is fierce, their willingness to engage in conflict is less threatening. The people of Iran want economic opportunity and the sanctions are holding them back. Most of them don’t understand why the country is pursuing a nuclear weapon. I don’t think we’ll see an attack on Iran this year.

The recent increase in the yield on the 10-year U.S. Treasury note may be the beginning of something important. Intermediate term interest rates historically have reflected the nominal growth rate of the U.S. economy which today is about 4.5%, so the current level of 2.3% still remains a bargain rate for the Treasury to pay to borrow to finance our deficit. The low rate results from so many investors around the world seeking a safe place to park their money and the United States, with a strong military and the ability to print money, meets their test. Now, however, as the positive performance of equities everywhere continues, the appetite for taking on additional risk is increasing. The movement away from defensive assets has caused the price of gold to decline. I continue to view gold as a kind of insurance policy against a calamity in financial assets. Because of that I would maintain positions even as the price of equities moves higher.

The intermediate-term Treasury yields could “normalize” to the nominal growth rate. How long this will take is hard to estimate. I have been forecasting higher rates for some time and been wrong. I do believe that we have reached an inflection point and that 10-year Treasury rates will move higher between now and year-end, perhaps reaching 3%. The question is what impact that will have on the equity market. For a good part of my career I maintained a “dividend discount model” similar to the so-called Fed Model (mine came first) that related the fair value for the S&P 500 to the 10-year Treasury yield. The model served me well into the late 1990s when it showed the market to be egregiously overvalued. In the new millennium, however, when fear around the world drove the 10-year yield to what I considered aberrationally low levels, the model broke down. Whether it ever becomes operative again is uncertain. Based on the principle that stocks compete with bonds, it would argue that today the S&P 500 should be over 2000. There is an overarching view among investors that the market is mean-reverting, so perhaps the model will someday work again, but I am skeptical. I think the future will be different than the past and that we are in for a prolonged period of slow growth and deleveraging while the federal deficit is brought down. That may mean more modest returns for equities in future years, but for 2012, I still believe we have higher highs ahead of us. Apple paving the way for a greater focus on dividends will help the indexes move ahead.

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WABR

Not-So-Smooth Operator
Obama increasingly comes across as devious and dishonest.
By PEGGY NOONAN

Something’s happening to President Obama’s relationship with those who are inclined not to like his policies. They are now inclined not to like him. His supporters would say, “Nothing new there,” but actually I think there is. I’m referring to the broad, stable, nonradical, non-birther right. Among them the level of dislike for the president has ratcheted up sharply the past few months.

It’s not due to the election, and it’s not because the Republican candidates are so compelling and making such brilliant cases against him. That, actually, isn’t happening.

What is happening is that the president is coming across more and more as a trimmer, as an operator who’s not operating in good faith. This is hardening positions and leading to increased political bitterness. And it’s his fault, too. As an increase in polarization is a bad thing, it’s a big fault.

The shift started on Jan. 20, with the mandate that agencies of the Catholic Church would have to provide birth-control services the church finds morally repugnant. The public reaction? “You’re kidding me. That’s not just bad judgment and a lack of civic tact, it’s not even constitutional!” Faced with the blowback, the president offered a so-called accommodation that even its supporters recognized as devious. Not ill-advised, devious. Then his operatives flooded the airwaves with dishonest—not wrongheaded, dishonest—charges that those who defend the church’s religious liberties are trying to take away your contraceptives.

What a sour taste this all left. How shocking it was, including for those in the church who’d been in touch with the administration and were murmuring about having been misled.

Events of just the past 10 days have contributed to the shift. There was the open-mic conversation with Russian President Dmitry Medvedev in which Mr. Obama pleaded for “space” and said he will have “more flexibility” in his negotiations once the election is over and those pesky voters have done their thing. On tape it looked so bush-league, so faux-sophisticated. When he knew he’d been caught, the president tried to laugh it off by comically covering a mic in a following meeting. It was all so . . . creepy.

Next, a boy of 17 is shot and killed under disputed and unclear circumstances. The whole issue is racially charged, emotions are high, and the only memorable words from the president’s response were, “If I had a son he’d look like Trayvon.” At first it seemed OK—not great, but all right—but as the story continued and suddenly there were death threats and tweeted addresses and congressmen in hoodies, it seemed insufficient to the moment. At the end of the day, the public reaction seemed to be: “Hey buddy, we don’t need you to personalize what is already too dramatic, it’s not about you.”

Now this week the Supreme Court arguments on ObamaCare, which have made that law look so hollow, so careless, that it amounts to a characterological indictment of the administration. The constitutional law professor from the University of Chicago didn’t notice the centerpiece of his agenda was not constitutional? How did that happen?

Maybe a stinging decision is coming, maybe not, but in a purely political sense this is how it looks: We were in crisis in 2009—we still are—and instead of doing something strong and pertinent about our economic woes, the president wasted history’s time. He wasted time that was precious—the debt clock is still ticking!—by following an imaginary bunny that disappeared down a rabbit hole.

The high court’s hearings gave off an overall air not of political misfeasance but malfeasance.

All these things have hardened lines of opposition, and left opponents with an aversion that will not go away.

I am not saying that the president has a terrible relationship with the American people. I’m only saying he’s made his relationship with those who oppose him worse.

In terms of the broad electorate, I’m not sure he really has a relationship. A president only gets a year or two to forge real bonds with the American people. In that time a crucial thing he must establish is that what is on his mind is what is on their mind. This is especially true during a crisis.

From the day Mr. Obama was sworn in, what was on the mind of the American people was financial calamity—unemployment, declining home values, foreclosures. These issues came within a context of some overarching questions: Can America survive its spending, its taxing, its regulating, is America over, can we turn it around?

That’s what the American people were thinking about.

But the new president wasn’t thinking about that. All the books written about the creation of economic policy within his administration make clear the president and his aides didn’t know it was so bad, didn’t understand the depth of the crisis, didn’t have a sense of how long it would last. They didn’t have their mind on what the American people had their mind on.

The president had his mind on health care. And, to be fair-minded, health care was part of the economic story. But only a part! And not the most urgent part. Not the most frightening, distressing, immediate part. Not the “Is America over?” part.

And so the relationship the president wanted never really knitted together. Health care was like the birth-control mandate: It came from his hermetically sealed inner circle, which operates with what seems an almost entirely abstract sense of America. They know Chicago, the machine, the ethnic realities. They know Democratic Party politics. They know the books they’ve read, largely written by people like them—bright, credentialed, intellectually cloistered. But there always seems a lack of lived experience among them, which is why they were so surprised by the town hall uprisings of August 2009 and the 2010 midterm elections.

If you jumped into a time machine to the day after the election, in November, 2012, and saw a headline saying “Obama Loses,” do you imagine that would be followed by widespread sadness, pain and a rending of garments? You do not. Even his own supporters will not be that sad. It’s hard to imagine people running around in 2014 saying, “If only Obama were president!” Including Mr. Obama, who is said by all who know him to be deeply competitive, but who doesn’t seem to like his job that much. As a former president he’d be quiet, detached, aloof. He’d make speeches and write a memoir laced with a certain high-toned bitterness. It was the Republicans’ fault. They didn’t want to work with him.

He will likely not see even then that an American president has to make the other side work with him. You think Tip O’Neill liked Ronald Reagan? You think he wanted to give him the gift of compromise? He was a mean, tough partisan who went to work every day to defeat Ronald Reagan. But forced by facts and numbers to deal, he dealt. So did Reagan.

An American president has to make cooperation happen.

But we’ve strayed from the point. Mr. Obama has a largely nonexistent relationship with many, and a worsening relationship with some.

Really, he cannot win the coming election. But the Republicans, still, can lose it. At this point in the column we usually sigh.

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Even though the markets are closed on Friday, the government will release the latest jobs numbers. Markets rose more than 12% in the first quarter of this year on increasing growth in US employment and the economy.

Over the weekend European finance ministers will vote to finalize a deal with eurozone countries to raise the size of the European firewall facilities, the EFSF and ESM. Earlier today the Austrian finance minister leaked that the final size will be 800 billion euros.

The Fed released its Permanent Open Market Operations (POMO) for the month of April. The Fed plans to purchase $44 billion in longer maturity Treasuries and sell $43 billion in short-term Treasuries, heavy in the 7-year sector.

Important earnings include Monsanto (MON), Bed Bath & Beyond (BBBY), and CarMax (KMX).

Monday, April 2

US Economics
10:00 Construction Spending – consensus 0.7%
10:00 ISM Manufacturing – consensus 53.1
10:30 ISM Prices Paid – consensus 62.3
11:00 Fed to purchase $4.25b-$5b notes in 5/15/2020 to 2/15/2022 range
11:30 U.S. to sell $31b 3-mo., $29b 6-mo. bills

Global Economics
07:15 CHF Retail Sales
08:00 Euro-Zone PMI
08:30 GBP PMI
5:30 Germany to sell €4b 6-mo. bills
9:00 France to sell up to €4b 91-day, €1.4b 140-day, €2b 364-Day bills

No earnings

Tuesday, April 3

US Economics
09:45 NY ISM
10:00 Factory Orders – consensus 1.5%
10:00 Total Vehicle Sales – consensus 14.50M
10:00 Domestic Vehicle Sales – consensus 11.35M
11:00 Fed to purchase $1b-$1.5b TIPS in 6 to 30-year range
11:30 U.S. to sell 4-week bills, $26b 52-week bills

Global Economics
01:00 CNY China Non-Manf PMI
04:30 AUD Reserve Bank of Australia
09:00 EUR Euro-Zone PPI
4:00 EFSF to sell up to €2b 91-day bills

Earnings
Before: CONN, ISCA
After: MIND, SABA, TISI

Wednesday, April 4

US Economics
07:00 MBA Mortgage Purchase Index
08:15 ADP Employment Change – consensus 205K
10:00 ISM Non-Manufacturing Composite – consensus 56.6
11:00 Fed to purchase $4.5b-$5.25b notes in 8 to 10-year range
11:00 Fed to purchase $1.5b-$2b notes in 25 to 30-year range

Global Economics
01:30 AUD Trade Balance
08:00 EUR Euro-Zone PMI
09:00 EUR Euro-Zone Retail Sales
10:00 EUR German Factory Orders
11:45 EUR ECB Rate Decision
4:30 Spain to sell 4.85% 2020, 4.4% 2015, 4.25% 2016 bonds
5:30 Germany to sell add’l €4b 5-yr notes
5:30 Portugal to sell 192-day, 556-day bills

Earnings
Before: AYI, MON, MSM
After: SHLM, ANGO, BBBY, GPN, HWD, MFRM, MG, PBY, PSMT, RELL, RT, SMSC

Thursday, April 5

US Economics
07:30 Challenger Job Cuts
08:30 Initial Jobless Claims – consensus 356K
08:30 Continuing Claims – consensus 3340K

Global Economics
02:30 CNY China HSBC Services PMI
07:45 CHF CPI
08:30 GBP Industrial Production
11:00 GBP BoE Rate Decision
12:30 CAD Unemployment Rate
14:00 GBP NIESR GDP Estimate
5:00 France to sell 4.25% 2017, 3% 2022, 3.5% 2026, 4.5% 2041 bonds

Earnings
Before: KMX, CHOP, STZ, PIR, PNCL, RPM, SCHN, LEDS
After: AZZ, CIM, WDFC

Friday, April 6

US Markets are closed, but the BIS will release this data anyways

US Economics
08:30 Change in Nonfarm Payrolls – consensus 210K
08:30 Change in Private Payrolls – consensus 225K
08:30 Change in Manufacturing Payrolls – consensus 20K
08:30 Unemployment Rate – consensus 8.3%
08:30 Avg Weekly Hours – consensus 34.5
3:00 Consumer Credit – consensus $12.00B

Global Economics
05:00 JPY Leading Index

No earnings

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Personal spending and income — crucial parts of a growing US economy — are expected to show minimal growth on Friday. Durable goods orders, another key part of the US economy, are expected to grow at 3% after falling over 4.0% last month.

Also note that Europe will move to Daylight Savings Time over the weekend, the United States having done so two weeks ago.

In political news, the Supreme Court is expected to start three days of deliberations over whether ObamaCare is legal.

Key earnings reports include Apollo (APOL), Research in Motion (RIMM), Walgreens (WAG), Mosaic (MOS), and Best Buy (BBY).

Monday, March 26

US Economics
08:30 Chicago Fed National Activity Index
10:00 Pending Home Sales – consensus 1.0%
10:30 Dallas Fed Manufacturing Activity – consensus 15.5
11:00 Fed to sell $8b-$8.75b notes in 1-year range
11:30 U.S. to sell $30b 3-month, $29b in 6-month bills

Global Economics
09:00 EUR German IFO – Business Climate/Expectations
05:30 Germany to sell €3b 12-mo. bills
9:00 France to sell up to €4b 84-day, €1.4b 161-day, €1.5b 343-day bill

Earnings
Before: CALM, IVN
After: APOL, KIOR, LNDC, MBND

Tuesday, March 27

US Economics
09:00 S&P/CS 20 City Price Index – consensus -0.30%
09:00 S&P/CS Home Price Index – consensus 135.80
10:00 Consumer Confidence – consensus 70.0
10:00 Richmond Fed – consensus 18
11:00 Fed to purchase $1.75b-$2.25b notes in 25 to 30-year range
11:30 U.S. to sell 4-week bills

Global Economics
01:30 CNY Industrial Profits
06:00 CHF UBS Consumption Indicator
07:00 EUR German GFK Consumer Confidence
4:30 Spain to sell 3-mo, 6-mo. bills
6:00 Italy to sell 2.1% I/L 2021 bonds, up to €3b zero 2014 bonds, 2.35% I/L 2019 bond

Earnings
Before: CHRS, LEN, MKC, MUX, NEOG, WAG
After: CBK, EXFO, FFN, OXM, PVH, RBN, ZZ, SNX

Wednesday, March 28

US Economics
07:00 MBA Mortgage Purchase Index
08:30 Durable Goods – consensus 3.0%
08:30 Durable Goods Ex Transportation – consensus 1.5%
08:30 Cap Goods Orders Nondef Ex-Air – consensus 1.3%
11:00 Fed to purchase $4.5b-$5.25b notes in 8 to 10-year range
11:30 U.S. to sell $35b in 5-yr notes

Global Economics
05:30 EUR French GDP
08:30 GBP GDP
08:30 GBP Total Business Investment
12:00 EUR German CPI
23:50 JPY Retail Trade
5:00 Italy to sell €8.5b 182-day bills

Earnings
Before: AUQ, CMC, FDO, HII, JOSB, LNN, PRGS, TEA, UNF
After: FUL, MOS, PAYX, RHT, RECN, TXI

Thursday, March 29

US Economics
08:30 Initial Jobless Claims – consensus 351K
08:30 Continuing Claims – consensus 3395K
08:30 GDP QoQ – consensus 3.0%
08:30 Personal Consumption – consensus 2.1%
08:30 GDP Price Index – consensus 0.9%
08:30 Core PCE – consensus 1.3%
11:00 Kansas City Fed
11:00 Fed to sell $8b-$8.75b in 2 to 3-year notes
1:00 U.S. to sell $29b in 7-yr notes

Global Economics
00:00 NZD NBNZ Business Confidence
07:55 EUR German Unemployment Change
08:30 GBP Net Consumer Credit
09:00 EUR Euro-Zone Business Climate Indicator
23:30 JPY Jobless Rate
23:30 JPY CPI
23:50 JPY Industrial Production
5:00 Italy to sell bonds/FRN

Earnings
Before: BBY, CACH, MY, CTFO, KID, JADE, SEAC, SHAW, SORL, WOR
After: CIM, RIMM, SABA, TIBX, XRTX

Friday, March 30

US Economics
08:30 Personal Income – consensus 0.4%
08:30 Personal Spending – consensus 0.6%
08:30 PCE Deflator Y/Y – consensus 2.3%
08:30 PCE Core Y/Y – consensus 1.9%
09:45 Chicago PMI – consensus 63
09:55 University of Michigan Confidence Statement – consensus 74.6
10:00 NAPM-Milwaukee – consensus 58.0
11:00 Fed to purchase $1.75b-$2.25b notes in 25 to 30-year range

Global Economics
00:30 AUD Private Sector Credit
05:00 JPY Housing Starts
06:00 EUR German Retail Sales
07:00 CHF KOF Swiss Leading Indicator
12:30 CAD GDP

Earnings
Before: ENG, FINL, PNCL
After: AOB, ADY, GOK

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By Paul Burkhardt

March 22 (Bloomberg) — The biggest wave of refinery closures on the U.S. East coast is raising the specter of gasoline shortages during the peak-demand driving season. The region will have lost almost half of its refining capacity in six months by July, according to data compiled by Bloomberg based on Energy Department statistics. Requests to send gasoline on Colonial Pipeline Co.’s link from the Gulf Coast to the eastern U.S. have exceeded capacity since August, company data show.

Gasoline futures have risen 23 percent this year, the most of any of the 24 commodities in the Standard & Poor’s GSCI index, on speculation that the closures will crimp supply in New York Harbor, the benchmark contract’s delivery point, just as improving U.S. economic growth and job hiring spurs demand. At the same time, shipping rules limit the availability of tankers to supply the region from the Gulf, while European refiners reduce exports in the face of lower profit margins. “Domestic infrastructure remains extremely constrained and there is not enough time for that to be resolved by summer,” Amrita Sen, a London-based analyst at Barclays Plc, said yesterday in an e-mail. “Gasoline supplies will be highly constricted as a result and prices will have to rise to attract more imports.” Gasoline for April delivery fell 1.5 percent to $3.3065 a gallon today on the New York Mercantile Exchange. Spot prices for reformulated fuel in the U.S. Gulf Coast were 5.38 cents a gallon above Nymex futures yesterday, according to Bloomberg data. Regular gasoline at the pump in the East Coast was $3.811 a gallon as of March 19, 7.7 percent higher than a year earlier, Energy Department data show.

Pump Prices

The risk of shortages increases the prospect of record costs for motorists during a U.S. presidential campaign. Pump prices may reach an average of $4 a gallon this summer and might climb to near $5 in some areas of the East Coast, Stephen Schork, president of the Schork Group, an energy-consulting firm in Villanova, Pennsylvania, said in an interview with Bloomberg Radio March 5. Sunoco Inc. and ConocoPhillips have shut two plants in Pennsylvania and plan to idle a third that together could process more than 700,000 barrels a day of oil. Hovensa LLC closed a plant in the U.S. Virgin Islands that was the largest offshore shipper to the region.

Colonial Expansion

Colonial will expand a line supplying fuel to New York Harbor by 125,000 barrels a day by 2014, the company announced at a San Diego conference March 12. Cargoes arriving from abroad may account for 36 percent of Northeast gasoline consumption this year, the Energy Department said Feb. 27.
The closures reduce the capacity to produce summer-grade reformulated gasoline, or RBOB, the fuel on which Nymex futures are based, with the approach of the peak driving season between the Memorial Day weekend in late May and Labor Day in early September. “It’s more difficult to make than winter grade and you’ve got a lot of major producers out of the market,” Edward L. Morse, the global head of commodities research at Citigroup Inc. in New York, said yesterday in telephone interview. “I don’t know where the material is going to come from.” Gasoline demand in Northeast and Mid-Atlantic states has fallen 5.4 percent from a year ago, according to MasterCard Inc.’s SpendingPulse report yesterday.

Unemployment Rate

The unemployment rate may decline to 8.2 percent in the third quarter of the year from 10 percent in the October 2009, the median of 71 economists surveyed by Bloomberg News. U.S. gross domestic product may increase to 2.5 percent, according to a separate survey. Gasoline shipments from Europe across the Atlantic Ocean are set to fall to the lowest level since August over the next week. Traders and oil companies booked or probably will hire 16 ships up to March 29, according to the median estimate in a March 14 survey of seven shipbrokers, traders and owners who specialize in transporting the auto fuel. “Europe margins are low, refiners are still in cash-flow- challenging territory and the arbitrage has been shut for moving product across the Atlantic,” Morse said.

Refinery Margins

Profits from processing Brent crude into fuels in northwest Europe “deteriorated sharply” in February and early March on higher oil costs and on news that operations would resume from two Petroplus Holdings AG refineries, the International Energy Agency said in a March 14 report. Margins fell more than 50 percent in January and were in “negative territory” in early March, wrote Toril Bosoni, the IEA’s refining analyst Petroplus had five operating refineries in Europe and only its Coryton plant in the U.K. is running after Morgan Stanley, KKR & Co. and AtlasInvest agreed in mid-February to supply crude to the facility for three months. “While we don’t think a lot of Petroplus-like issues may necessarily take place, margins will remain under pressure” in Europe, Sen said. The Northeast may receive more shipments from the Gulf Coast, which has 49 percent of total U.S. capacity, according to Energy Department data. Output will rise as Motiva Enterprises LLC starts operations at a 300,000-barrel-a-day expansion of its Port Arthur refinery that will double the size of the plant.

Jones Act

The ability to move the additional fuel north by tanker is restricted by the Jones Act, a 1920 law requiring the use of American-built and flagged vessels, which are in short supply, to transport goods between U.S. ports. Shippers can also use barges, which typically have smaller capacity than tankers. Transporting fuel from Houston to New York on a Jones Act tanker would cost about $4 a barrel (9.5 cents a gallon), double the cost of shipping on Colonial pipeline, Benjamin Schrader, a Houston-based consultant at Baker & O’Brien, said in a note March 1. The premium of New York Harbor spot prices over the Gulf has averaged 3.1 cents a gallon during the past two years, according to data compiled by Bloomberg. Without a significant strengthening of New York Harbor prices relative the Gulf, Jones Act vessels aren’t likely to become the incremental source of supply, he said. Waivers to the act were granted by the Department of Homeland Security’s U.S. Customs and Border Protection division to shippers when crude oil was released from the U.S. Strategic Petroleum Reserve last year, an option that may be too late to lower prices this summer, according to Morse. “Time is running out on taking administrative action that could impact gasoline supply available on the East Coast in May and June,” including the granting of waivers, Morse said. “The market is making a lot of gasoline available in the U.S. market, but the market is not being allowed to work because of inefficiencies like the Jones Act,” he said.

For Related News and Information:
Stories on refinery disruptions: NI REFOUT Stories on oil markets: NI OILMARKET Top oil stories: OTOP

–With assistance from Rob Sheridan and Nidaa Bakhsh in London.
Editors: David Marino, Dan Stets

To contact the reporter on this story:
Paul Burkhardt in New York at +1-212-617-7858 or pburkhardt@bloomberg.net

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Jim Cramer: Economy Set for a Long-Term Bull Run
Published: Wednesday, 21 Mar 2012 | 6:29 PM ET Text Size
By: Bruno J. Navarro

If you have a sense that retail investing is making a comeback, you’re not alone.

“Right now I’m seeing a lot of things in this market that remind me of what this business was like when I got into it 30 years ago, right about the time when the great bull market began,” Jim Cramer said Wednesday.

The “Mad Money” host said that was the moment individual investors began to realize that the market was worth a look again, which it was.

This time, the signs are all around, he said.

People are lining up to pay more than $600 for an Apple [AAPL 602.50 -3.46 (-0.57%) ] iPad, eating at Panera [PNRA 162.58 0.84 (+0.52%) ] and crowding Bed Bath & Beyond [BBBY 66.24 0.42 (+0.64%) ]. They’re buying Lululemon [LULU 74.07 1.18 (+1.62%) ] yoga gear, sprucing up their homes with Home Depot [HD 49.79 0.41 (+0.83%) ] supplies and searching for everything under the sun via Google [GOOG 639.98 6.49 (+1.02%) ].

Just like in the early 1980s, when investors made money by watching what was popular: Nike [NKE 110.44 -1.30 (-1.16%) ], Gap [GPS 26.06 -0.07 (-0.27%) ] and Merck [MRK 37.70 -0.06 (-0.16%) ], to name a few.

“That’s the way it worked,” Cramer said. “And I think it’s happening again.”

Of course, it’s still necessary to do the requisite homework and check any company’s financials before investing.

Cramer also suggested making sure the timing in any investment is right – that is, the stock hasn’t topped out and still has room to grow. If you don’t know, maybe it’s best to stay away.

Lastly, never buy all at once. Buying on a dip remains a good idea. So is holding off on a spike.

But Cramer agreed that economic activity is indeed picking up and it might be time to move out of bonds and into stocks.

“Just be sure that the stock you buy to place your bet on America is one that’s a real company, with real prospects, and a real history,” he said.

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Goldman Sachs Group Inc. said stocks will probably begin a “steady upward trajectory” over the next few years as any declines in economic growth are already reflected in share prices.

“Given current valuations, we think it’s time to say a ‘long good-bye’ to bonds, and embrace the ‘long good buy’ for equities as we expect them to embark on an upward trend over the next few years,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs in London, wrote in a report today.

The prospects for returns in equities versus bonds “are as good as they have been in a generation,” he wrote.

The Stoxx Europe 600 Index (SXXP) is trading at 11.2 times estimated earnings, compared with an average of 11.8 over the past five years, according to data compiled by Bloomberg. The index dropped 11 percent last year as policy makers tried to stop Greece’s sovereign-debt crisis from spreading.

“Periods of sustained falls in the market are typically better times to buy for the long run,” Oppenheimer wrote. “Partly, of course, this is also a function of valuations typically improving after a period of sustained losses in the market. Nonetheless, the key point is that in particularly bad economic periods, once the news is fully priced, investment outcomes tend to improve.”

Bond Yields

The economy in the euro region will contract 0.1 percent this year, the European Central Bank’s projections show, down from the previous forecast for 0.3 percent growth. At least six of the 17 euro nations are in recession. The ECB left its benchmark rate at 1 percent earlier this month. The central bank also said this month that inflation in the euro area will probably exceed the bank’s 2 percent limit this year.

Gains in bond yields also can support equities, according to Goldman. Ten-year yields have climbed from a record low of 1.67 percent set Sept. 23, Bloomberg data show. U.S. 10-year yields were little changed at 2.37 percent at 9:30 a.m. in London, near their highest in almost five months.

“We would expect the early rises in bond yields to be positive for equity prices as they both become a reflection of rising growth and inflationary expectations, and could expect some equity re-rating in the initial stages of rising yields,” Oppenheimer wrote.

Equities offer an opportunity now, the strategist wrote, saying some risks to future growth are exaggerated, and emerging markets may offset fiscal policy tightening in some developed markets.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

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