What's Important in the Financial World (2/17/2012) ECB Bond Swap, Baidu Rules China

Research firm Gartner has released its fourth-quarter China smartphone market share data. It shows that Apple (NASDAQ: AAPL) has fallen behind. Apple now stands fifth in share at 7.5%, down from 10.4% in the previous quarter. Arch rival Samsung saw a sharp lift in sales, as did Chinese companies Huawei and ZTE. Gartner blames some of Apple’s problems on the relationship local manufacturers have with the wireless carriers in the People’s Republic. Whatever the reason, Apple knows it has to have substantial success in China to continue growth of iPad and iPhone sales. And there is no obvious path to a solution of Apple’s problems.

The Greek Bailout

The Greek bailout seems to be moving toward a positive resolution, at least for Greece. Germany has backed down on an idea for sharp restrictions on Greek spending that would be overseen by the European Union. And the European Central Bank has set a deal to exchange its current Greek bonds for new ones. The ECB bought these bonds at sharp discounts two years ago. It would trade them for Greek paper, which is more likely to be paid off if the bailout works. The ECB bond swap would not be a part of a larger deal set between private shareholders and Greece. Although the terms appear to be different for each, the International Monetary Fund, ECB, private bondholders and eurozone ministers are ready to close on a hybrid bailout that would give some holders new debt on better terms than others.

$120 a Barrel Oil

The price of Brent crude is now above $120. That raises the question of whether oil and gas prices will derail the improvement in consumer spending, particularly in the U.S. Americans now pay, on average, $3.5o for a gallon of regular gas. The figure is higher in some large states, based on population, like California. A similar problem occurred when oil spiked in the summer of 2008. The difference between now and then was that the U.S. economy was entering a recession then and not a recovery. If households with commuters have gasoline costs that rise by hundreds of dollars compared to last year, GDP could start to contract again.

Baidu’s Explosive Growth

It is evident that China’s huge internet user base has become wildly profitable for large local web sites. Baidu (NASDAQ: BIDU), the nation’s largest search engine, reported that in its last quarter, revenue rose by more than 80% to $710 million. Earnings were up 77%. Baidu is now nearly as large as Yahoo! (NASDAQ: YHOO) in sales, and at its current growth rate will be larger next year. And Baidu continues to crush Google’s (NASDAQ: GOOG) market share in China, leaving the U.S. search company without strong prospects in the world’s largest internet market.

Douglas A. McIntyre