Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five. This is our look back at some notable headlines for investors. Joining me as always with the Friday Five is Morningstar markets editor Jeremy Glaser. Jeremy, welcome back from Vegas and thanks for being here.
Jeremy Glaser: Thanks, Jason. Good to be back in Chicago.
Stipp: So what do you have for the Five this week?
Glaser: Well we saw Google decide that they might pull out of China; retail sales disappointed a little bit; Alcoa also had disappointing results; we saw a new bank tax being proposed by President Obama; and finally, we'll see if the Chevy Volt is actually going to be revolting.
Stipp: Well it sounds like a good lineup so let's go to China for number one.
Glaser: Google posted on their blog this week that they're reconsidering their business operations in China. They've decided to uncensor their Web site, which is something they had agreed to do when they entered the market just a few years ago. And I think this is a move that the Chinese government is not going to take very kindly. I think it's likely that Google will have to pull out of China.
So what's the impact of this? I think for Google it's probably pretty minor. Their China business is certainly growing but they're definitely a clear number two to Baidu which is the locally grown search engine, and it doesn't make up a huge amount of the revenue or a huge amount of their profit.
Could there be greater political implications or greater implications down the road? Possibly, but I think for now it's certainly an interesting event but not something that's really going to drive the investment story at Google.Read Full Transcript
Stipp: So in other news this week, retail sales came out. Were they as negative as they looked?
Glaser: Retail sales when they came in this month were down 0.3 percent in December, which showed that consumers were really showing some restraint during the Christmas shopping season. But some individual retailers, like Tiffany, reported that they had much better than expected holiday sales.
So I think it's clear that consumer spending has really hit the bottom but we've yet to see a bounce. Certain sectors are going to be doing better, certain companies that have desirable products are doing better, but we haven't seen a wholesale, gung-ho consumer attitude, people out there willing to buy lots of things.
And the consumer is going to be a big part of the recovery, so definitely something we want to keep our eye on.
Stipp: Also this week we're looking at Alcoa, which released its earnings, and it was disappointing on the market side but the report didn't seem that bad. So what was the story there?
Glaser: I was somewhat surprised how badly Alcoa stock did after their earnings release. Certainly they missed the estimates that Wall Street had put out, but the quarter was not all that bad.
They had demand come back from a lot of different sectors. Aerospace was still weak and construction was still weak, but generally demand is getting better, prices are getting better. They were able to cut a lot of costs. They faced higher energy costs, which hurt their margins, and there were other issues in the quarter for sure. But I think that overall it was pretty good. It was not a disaster.
And I'm afraid that if Wall Street is expecting just absolutely perfect sterling quarters from all companies and that's what's priced into the stock market right now, there's going to be a lot of disappointment because although the economy has certainly bottomed, things aren't getting a lot better, a lot faster like we saw with the retail numbers, and it could be awhile before we get back to those peak earnings.
So it could say something about the current valuation.
Stipp: So once again, back to that expectations game in earnings season.
Glaser: Yeah, absolutely.
Stipp: On the regulatory front, Obama announced a new bank tax. Tell us about that.
Glaser: Yeah, the bank tax--oh no, wait, I'm sorry, the "fiscal crisis responsibility fee" that the Obama...
Stipp: Oh yes, a correction on that. [laughs]
Glaser: Yes, exactly--that the Obama administration wants to levy on 50 institutions that really benefited the most from the bailouts and from the other extraordinary government support. They want to raise about $90 billion over a 10-year period, which will probably pay back for some of the TARP money but is not an incredibly large sum.
I think what concerns me the most about this tax is that it doesn't seem to be linked to any long-term structural reforms that will keep this from happening again. It's purely a punitive measure just to repay.
So should the banks have to repay this? I think absolutely. It's the sort of the thing that they got themselves into this mess, and I think that it makes sense that they should have to pay for the aftermath.
But at the same time we also need to see some more forward looking thinking and forward looking regulatory changes, and I think that's something that we hope is forthcoming in the future.
Stipp: It is interesting that there are no more bailout hugs. It's sort of a little bit of a change of perspective then from how the government is treating banks. So it could be a sign of more focus on that area and things.
Glaser: Yeah, I hope so.
Stipp: So for number five, the electric car. Is it plugged in still?
Glaser: Apparently. The Chevy Volt is about to release sometime in 2010. Nissan has their own electric vehicle that should be coming out in 2010 as well. But there already starting to play down expectations of what the range of these cars is going to be, what consumer expectations are going to be.
They seem to say that, "Well we're going to say it's going to go 40 miles on the battery, but if it's too cold out or if it's rainy or someone doesn't feel well that day, the battery life could be way worse than that, and you're going to end up using the gasoline engine more than you thought."
I don't think it's going to be a particularly practical car. I'm sure they will sell some. At $32,000, which is the rumored price, it's going to be pretty expensive. I think it's more of a PR move, it's more of trying to green GM and make people feel a little bit better about the company because there's a lot of negative sentiment after the big bailout.
So I think it's a great technological advance and I think it's something that people might want but not something that really is going to be the future anytime soon.
Stipp: So still potentially some potholes in that road in the future of the electric car.
Glaser: [laughing] Yeah, I think so.
Stipp: Well thanks for joining me, Jeremy.
Glaser: You're welcome.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.