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Wall Street

ExxonMobil (NYSE: XOM) Earnings Miss – But Investors Should Stay Put

ExxonMobil (NYSE: XOM) earnings came up short this morning. The oil giant missed analysts' expectations by about 9 cents.

Steve Schaefer at Forbes runs down the numbers:

"The energy giant recorded earnings of $9.5 billion, or $2.00 per share. Those figures were down 11% and 7%, respectively, from the first quarter of 2011, and earnings per share were below the $2.09 analyst consensus. Revenue of $124.1 billion was up 8.8% from a year ago, but just shy of the $124.8 billion expected.

Earnings in Exxon's upstream, or exploration and production, fell 10.1% from a year ago, to $7.8 billion, while downstream earning, which include refining, were up 44% from the prior year to $1.6 billion, thanks largely to gains from asset sales and improvements in volume and mix."

This earnings miss is the least of Exxon's short-term worries as we head into the summer months and the election heats up. There are a lot of problems for the company to overcome all at once – but it shouldn't send ExxonMobil investors headed for the exits.

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Earnings Fuel Stock Market Gains – Dow Jones Soared More than 100 Points Midday

Yes, Friday was all about the earnings.

The stock market rallied Friday thanks to a roaring round of positive earnings reports – with a little help from positive news out of Europe.

Just after noon, the Dow Jones Industrial Average climbed 113 points, the Standard & Poor's 500 jumped 9 points and the Nasdaq gained 22.

With little on the economic calendar to close out the week, and no major reports due, market participants focused on encouraging first-quarter results from a spate of several large and market-influencing firms.

"There's been a wrestling match all week long between strong earnings and weak economic data. At the moment earnings are winning," Lawrence Centura, portfolio manager at Federated Investors told the Associated Press.

Strong Earnings Push Stock Market Gains

To date, quarterly earning has been pleasantly strong.

"The number of companies reporting positive surprises is much higher than it typically is at this stage in the game," Fred Dickson, chief market strategist of D.A. Davidson & Co. told CNN Money. "They're only beating by a little, but it's still a significant number of companies and that's the wow factor."

Of the 212 companies in the S&P 500 that have reported, better than 80% have exceeded expectations, according to Thomson Reuters. During a typical quarter, the percentage of companies that top forecasts is 60%.

Here are some recent highlights:

  • Tech giant Microsoft (Nasdaq: MSFT) lead Friday's gains in the broad-based rally after beating expectations late Thursday, reporting sales growth of 6% thanks to its Window and Office products. MSFT gained 4.55% Friday to close at $32.42.
  • Investors also ate up better-than-expected numbers from fast-food king McDonald's Corp. (NYSE: MCD), which ended the day up. The company proved it remained a worldwide favorite with same-store sales up 8.9% in the U.S., 5% in Europe and 5.5% in Asia-Pacific, Middle East and Africa. Revenue rose 8% (excluding currency fluctuations).
  • Robust earnings from General Electric (NYSE: GE) pushed its stock up 1.15% to $19.36. GE narrowly beat expectations with quarterly profit of 34 cents a share, a penny higher than expected, and revenue of $35.18 billion compared to a forecast $34.7 billion.
  • Meanwhile, traders traded E*Trade (Nasdaq: ETFC) up some 6% on better-than-expected first-quarter results. E*Trade's first-quarter profit rose 38% from a year earlier.
  • Technology manufacturer Honeywell (NYSE: HON) beat on both earnings and revenue, sending the honey pot buzzing. First-quarter income climbed 17% from a year earlier, and the company raised its 2012 forecast.

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Why Wall Street Can't Escape the Eurozone

Despite all of its best hopes, Wall Street will never escape what's happening in the Eurozone.

The 1 trillion euro ($1.3 trillion) slush fund created to keep the chaos at bay is not big enough. And it never was.

Spanish banks are now up to their proverbial eyeballs in debt and the austerity everybody thinks is working so great in Greece will eventually push Spain over the edge.

Spanish unemployment is already at 23% and climbing while the official Spanish government projections call for an economic contraction of 1.7% this year. Spain appears to be falling into its second recession in three years.

I'm not trying to ruin your day with this. But ignore what is going on in Spain at your own risk.

Or else you could go buy a bridge from the parade of Spanish officials being trotted out to assure the world that the markets somehow have it all wrong.

But the truth is they don't.

EU banks are more vulnerable now than they were at the beginning of this crisis and risks are tremendously concentrated rather than diffused.

You will hear more about this in the weeks to come as the mainstream media begins to focus on what I am sharing with you today.

The Tyranny of Numbers in the Eurozone

Here is the cold hard truth about the Eurozone.

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2012 Financial Crisis: Wall Street's Latest Scheme Uses Your Bank Account to Create the Next Crash

In 2008, reckless credit default swaps nearly obliterated the global economy. Now comes the next crisis – rehypothecated assets.

It's a complicated, fancy term in the global banking complex. Yet it's one you need to know.

And if you understand it, you will get the scope of the risks we currently face – and it's way bigger than just Greece.

So follow with me on this one. I guarantee that you'll be outraged and amazed – and better educated. You'll also be in a better position to protect your assets at the end of this article, where I'll give you three important action steps to take. So follow along…

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Why the Volcker Rule is a Cop-Out and a Joke

Right now everyone's talking about the Volcker Rule.

For heaven's sake! What's the big deal? After all is said and done, there is only one real problem with it (and I'll get to that in a minute)…

The 300-page draft Rule, named after its champion architect, former Federal Reserve chairman and inflation-fighting icon Paul A. Volcker, is an addition to the ever-evolving masterpiece of legislation (yes, I'm being sarcastic) known as the Dodd-Frank Act.

Now, draft SEC rulemaking and regulatory actions are first submitted to the public for "comment." The SEC collects all comment letters and posts them on their website.

Well, wouldn't you know it, this draft (some might call it "daft") Volcker Rule has caused a flurry of letter writing; letters were due to the SEC by no later than this past Monday evening.

All in all, this august (not the month) regulatory body received 241 detailed comment letters (that's a lot of comment letters) and an astounding 14,479 mostly form letters, as well.

Almost all of the form letters to the SEC, many of which were "personalized" by submitters, were strongly in favor of the Volcker Rule and called for strengthening it and not watering it down by allowing any exemptions.

How do I know that? (No, I didn't read them all.) They resulted from an e-alert campaign to activist supporters of the Americans for Financial Reform group and Public Citizens, who posted appeals on their websites.

Other notable comments in favor of the Rule, and weighing-in in more detail, came from Paul Volcker himself and Senators Carl Levin (D-MI) and Jeff Merkley (D-OR), who championed the Volcker Rule in the Dodd-Frank legislation and in their comments called the draft too "tepid."

The lengthiest comment letter in favor of the Rule (and of tightening it significantly) came in the form of a 325-page love letter from the Occupy Wall Street movement.

However, of those 241 detailed comment letters, most of them came from detractors.

Detractors like individual banks (who normally let their dogs and lobbyists do their biting) and industry groups, such as the Securities Industry and Financial Markets Association (Sifma) and the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce.

Powerhouse law firm Davis Polk was itself drafted by several banks and Sifma to help draft at least 10 letters on behalf of the cause ("cause" banks want to keep making big bonuses).

Detractors of the Volcker Rule warned of dire consequences for American capital markets, American corporations, the American economy, the world, and the universe beyond even our own little constellation, if the Rule is allowed to curtail their most coveted and conscientious shepherding of their clients' best interests.

Prop Trading, Market Making and the Volcker Rule

The Volcker Rule comes down to this:

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The Real Reason Mark Zuckerberg is Paying $2 Billion in Taxes on the Facebook IPO

As the much-ballyhooed Facebook IPO looms closer, there's a mountain being made out of a molehill.

Turns out 27-year-old founder and CEO Mark Zuckerberg may have a $2 billion tax bill that, according to a variety of sources, he intends to pay in full.

He seems like a regular guy…or is he?

To say I'm skeptical of his intentions would be an insult to actual skeptics. I think the "Zuck" is a great guy, but a regular guy? No way.

He didn't build from scratch a business that has 845 million customers by being stupid.

Zuckerberg goes to great lengths to project an aw-shucks kind of image. But in reality, this move is about as down-to-earth as Kim Kardashian's wedding. And it's every bit as sophisticated a play as I would have expected out of Larry Ellison or the late Steve Jobs.

Zuckerberg (and presumably his advisors) knows that the stakes couldn't be higher than they are at the moment, which is why he wants to pay this tax bill and reinforce the illusion that Facebook is part of Middle America – instead of being built upon its back.

He knows that successfully doing so will help him monetize your information when Facebook goes public.

I say this because it's important to remember the only reason Facebook is worth anything is because users – people like you – have voluntarily, with no compensation whatsoever, assembled the greatest single collection of marketing data in recorded history. That's right. Your data is going to make him rich.

So where are all the privacy advocates now?

I'd love to see what Facebook's proposed valuation would be if 845 million people suddenly decided they really don't want to share their most intimate moments with friends or decide they don't really want to "like" anything.

And why hasn't the Occupy Wall Street crowd or the Tax the Rich bunch latched onto this?

Because evidently none of them can spell h-y-p-o-c-r-i-s-y. And many are probably too busy using Facebook to "meme" about their activities to pay attention anyway.

But that's really beside the point.

A Zuckerberg Tax? …Give me a Break

There should be a huge amount of backlash, but there isn't. Well, unless you count any number of proposals like the "Zuckerberg Tax" advanced last Tuesday in a New York Times OpEd piece by tax lawyer David Miller.

Miller advocates allowing the government to claw back money from the ultra-wealthy. He believes that individuals earning more than $2.2 million in income or having more than $5.7 million in securities should have their stocks marked to market and taxed even if they haven't sold their investments.

That's asinine.

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Bankers Committed Fraud to Get Bigger Bonuses

In case you didn't catch the article titled "Guilty Pleas Hit the 'Mark'" in the Wall Street Journal, I'm here to make sure you don't miss it.

This is too good.

Three former employees of Credit Suisse Group AG (NYSE: CS) were charged with conspiracy to falsify books and records and wire fraud. They were accused of mismarking prices on bonds in their trading books by soliciting trumped-up prices for their withering securities from friends in the business.

By posting higher "marks" for their bonds in late 2007, they earned big year-end bonuses.

What a shock!

What's not a shock is that, after a bang-up 2007, Credit Suisse had to take a $2.85 billion write-down in the first quarter of 2008. No one knows how much of that loss was attributable to the three co-conspirators who were fired over their "wrongdoing."

Two of the three accused pled guilty. Also not shocking is the reason David Higgs – one who pled guilty – gave for his actions. He said he did it "to remain in good favor" with bosses, who determined his bonus and who profited handsomely themselves from his profitable trading and inventory marks.

As for Salmaan Siddiqui, the other trader who pleaded guilty? His attorney Ira Sorkin, the former Securities and Exchange Commission (SEC) enforcement chief, said of his client: "What he did was the result of his boss and his boss' boss directing him to do it."

You know what else is shocking?

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Buy Timber Stocks and Watch Your Money Grow on Trees

Chances are you've never considered timber stocks in your investing strategy.

But if that's the case, then you've been missing out.

Timber is a long-term investment that can reward your portfolio in good times, and protect it in bad.

In fact, investing in timber has proven to be more profitable – and less risky – than any other asset class for almost 100 years. Investing in timber stacks up well against stocks, bonds, oil and other commodities-even gold.

Here's why…

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High-Frequency Trading Could Cause Another Flash Crash

The threat of another flash crash caused by high-frequency trading is as great as ever.

And the next flash crash could be much worse than the one that shocked investors in May 2010.

Although the Securities and Exchange Commission (SEC) has taken some steps to prevent another flash crash caused by high-frequency trading (HFT), some experts question whether the additional disclosure and "circuit-breakers" designed to prevent big, sudden price moves will make a difference.

"Those things won't prevent another flash crash – they can't," said Money Morning Capital Waves Strategist Shah Gilani. "All they will do is soften the move."

The real issue, Gilani said, lies with the computers that execute the trades – thousands of them in milliseconds.

HFT has changed the nature of the stock market since these trades now account for between 60% and 70% of the transactions on the U.S. stock exchanges.

"You can't stop a flash crash unless you stop the computers from doing what they're programmed to do. And that's not being addressed," Gilani said. "The SEC is looking at keeping the ship from sinking, not stopping it from hitting icebergs."

HFT's heavy volume and high speed made it the prime suspect in the flash crash of 2010, when the Dow Jones Industrial Average plunged more than 600 points in five minutes, before recovering almost as quickly.

Mini Flash Crashes

Since then, the frequent occurrence of mini flash crashes – when a single stock or exchange-traded fund experiences a steep and rapid drop in price that quickly reverses – have served as nagging reminders of the vulnerability of the system to such events.

"It's like seeing cracks in a dam," James J. Angel, professor at the McDonough School of Business atGeorgetown University told The New York Times. "One day, I don't know when, there will be another earthquake."

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Three Luxury Companies That Can Bring You Closer to the Good Life

A lot of consumers are hurting right now, but you wouldn't know that looking at the earnings of major luxury companies.

Many luxury companies like LVMH Moet Hennessey Louis Vuitton SA (PINK: LVMHF), Burberry Group PLC (PINK: BURBY), Hermes International SCA (PINK: HESAF), and Coach Inc. (NYSE: COH) had a stronger-than-expected 2011 campaign.

Better still, they're set to expand on that success this year.

U.S. sales are regaining momentum and emerging markets – led by China – have been an outright boon for luxury companies.

Although you may not have realized it, China is now the world's second-largest market for luxury goods, behind Japan. And it could become the largest as soon as this year.

China's National Statistics Bureau says that there are now more people living in the country's towns and cities than in the countryside – making China a predominantly urban nation for the first time in history.

Worker pay is rapidly rising in China, with officially mandated base wage minimums up an average of 22% in 2011. And a new class of workers as well as a wealthy elite are driving luxury sales globally.

Two good examples of this are Burberry and Compagnie Financiere Richemont (PINK: CFRUY).

Luxuriating in Success

Burberry, the U.K's largest luxury-goods maker, reported third-quarter sales that beat analysts' estimates, and said it sees no reason to change full-year forecasts even in light of a "challenging" economy.

Burberry's revenue in the three months ended Dec. 31 climbed 22% to $882 million (574 million pounds). Asia-Pacific sales climbed 36%, while sales in Europe surged 20%. Sales rose 4% in the Americas and 31% in the rest of the world.

The company said it can weather any fallout from Europe's sovereign-debt crisis because Chinese consumers will help offset losses.

Chinese customers alone account for 10% of Burberry's total sales.

Swiss-based luxury goods group Compagnie Financiere Richemont also has benefited from China.

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