James Gorman, the CEO of Morgan Stanley (NYSE: MS), went on the record to say his firm’s behavior was perfect as it led the initial public offering of Facebook (NASDAQ: FB). Morgan Stanley followed all of the rules set out by the government and Wall St. traditions about IPOs. Many experts believe that there are several things he cannot dodge. Evidence suggests that his research operation changed its forecasts for Facebook’s earnings during the IPO roadshow. This is rarely done, so why was it done this time? The number of shares for the IPO was increased at the last moment. How could Morgan Stanley have so badly forecast demand? Or, was the bank pressed by Facebook to push the count higher? The one thing he can fairly blame on outsiders is the choppy trading of Facebook shares on Nasdaq the first day. No matter what Gorman says, Morgan Stanley will have to answer for the rest.
Praise for Steve Jobs
The deification of Apple (NASDAQ: AAPL) founder Steve Jobs continued at the D: All Things Digital conference. Oracle(NASDAQ: ORCL) CEO Larry Ellison, nearly a Silicon Valley god himself, compared Jobs to Pablo Picasso, Albert Einstein and car maker Henry Ford. Historians will consider those comparisons a stretch. The theory of relativity is probably more important than the iPhone. Aaron Sorkin, who is writing a biopic about Jobs for Sony Pictures, sounded like a man promoting a new movie. He called Jobs a hero, though he was unclear about how that heroism manifested itself. One genuine memory of Jobs came from current Apple CEO Tim Cook, who said the day his friend Jobs died was one of the saddest days of his life.
Brent Crude at $104
Brent crude traded as low as $104, down from near $120 just three months ago. The drop should continue, based on data about the faltering economies of India and Brazil. U.S. stockpiles are at multiyear highs, and OPEC says that its production is close to maximum capacity. The fall in Brent means that its May drop will be the sharpest in two years. The sell-off has started to look like the one in the second half of 2008 after crude reached an all-time top just above $140. The blooming recession pulled crude prices down and kept them down for more than two years. The new recession, which has started to grip Europe, is not nearly as bad as the one in 2008. But more and more forecasts suggest Europe will pull the U.S. economy at least partially under and add to the deceleration of emerging country growth.
Costco Sales
Costco Wholesale (NASDAQ: COST) continues to be the cream of big-box retailers. May sales were up 7% to $7.67 billion. Same-store sales were 6% higher. Costco is not as large as either Walmart (NYSE: WMT) or Target (NYSE: TGT). It has 602 warehouses, with 435 in the United States and Puerto Rico. Still, its sales improvement is uncanny, whether compared to other big-box operations or department stores like Macy’s (NYSE: M) or JCPenney (NYSE: JCP). Usually there are two explanations for Costco’s success. The first is its membership model. Customers pay a fee for access to its discounted merchandise. In theory, once the membership is paid, people do not want to “waste” that money by shopping somewhere else. The other possibility is that the bulk of most Costco merchandise is so great that customers believe that the discounts are deeper than at other retailers, and that the size of cereal containers, which are as large as cars, will cut down the number of store visits.
Douglas A. McIntyre
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