Tuesday, November 30, 2010

A little good news

Some of this data is a bit old but when looking for glimmers of hope in the US economy consider the following info:

* Travel on all roads and streets changed by +1.5% (3.7 billion vehicle miles) for September 2010 as compared with September 2009. This was before the latest spike in gas prices which might impact travel in Nov/Dec.

* The National Restaurant Association’s Restaurant Performance Index in October reached 100.7. This is the highest level for the index in over three years, since September 2007. This is really surprising to me and this is a volatile data series but people appear to be eating out with increasing frequency.

* Other trucking and rail traffic info has looked up recently however diesel deliveries have dipped which seems to conflict with this data.

Ah, the joys of being in Congress. Eighty percent of Americans say cut spending, just don't touch Social Security or Medicare. I think the President needs to pull a Ross Perot with some pie charts to show that you could cut spending all you want but if you don't raise some taxes and go after SS, Medicare and defense spending you're just shuffling the chairs on the deck of the Titanic.

A list of the best and worst of Black Friday courtesy of dealnews.com

Jeers: To Crucial.com, for wonderful Black Friday specials that you couldn't buy because its site went down. The same jeers for Victoria's Secret, which was down for at least an hour. Kohl's and Fry's also had short outages.

Jeers: To Amazon waitlists, Amazon's $89 Kindle 2 (yeah right), Amazon Lightning Deals selling out in literally less than 30 seconds. Newegg.com and Walmart also had deals that were so "temporary," we wonder, what's the point? On Black Friday, these deals were a bigger tease than Justin Bieber walking by a barber shop.

Jeers: To stores that advertised sales starting online at midnight that didn't start until well after. We'll name Toys "R" Us and Walmart among the culprits.

Cheers: To the refurbished iPhone 4 for $99 from AT&T Wireless. Apple's refurbs are of the highest quality — usually indistinguishable from new — making this an unexpected stunner.
Cheers: To Apple, for putting the iPad on sale at 10% off. We predicted that the iPad would not be on sale, and boy, we loved being wrong.

Cheers: To 6pm.com for offering its first coupon discount ever on Black Friday.

Jeers: To sites that didn't live up to their advertised discounts and for discounts that didn't turn out to be worth very much. Like MacMall.com, for claiming up to $400 off Macs, yet the highest discount we could find was $200 off one particular system. Most deals were just $20 to $40 off. DeepDiscount.com was another offender, advertising a 25% off site-wide sale that quit working. iNetVideo.com offered 50% off shipping on orders over $45, which amounts to a massive savings of $1.50 on single item orders! And our least favorite offender: MegaMacs, which had 10% off shipping for every $100 spend, up to free shipping for orders over $1,000. Plus you got one featured item free with every purchase (one of the items was a single AAA battery).

Cheers: To Dell, for having the most HDTV deals on the planet (at least, the most we marked "Editors' Choice") on Thanksgiving and Black Friday.

Jeers: To Staples, for its handling of its $35 coupon snafu. A coupon code took $35 off everything on Staples.com costing $35 or more. Not surprisingly, this wasn't intended, and Staples canceled all orders "misusing" the coupon. That's understandable, but Staples deserves our jeers for its handling of the incident. First, Staples made the error on Black Friday, of all days. Second, Staples canceled the orders with a rote email and didn't offer any kind of make-good to the affected shoppers, many of whom passed on other Black Friday deals to buy from Staples.


Oh, the horror.....

Your panicky "What spice in your cabinet will kill your precious snowflake today?!?!?" story is brought to you by the letter N.

If you had Nutmeg in the office pool, step forward and claim your prize.

"Nutmeg is a commonly used spice in cooking. But while you use it to bake, your kids might be using it to get baked.

The director for the Georgia Poison Center said they are starting to receive more and more calls of people getting sick off of nutmeg.

Gaylord Lopez said if kids consume 1 tablespoon or more in a short amount of time they can have serious health risks, even death."

The full story is here with bonus video of the future leaders of the free world snorting nutmeg.

*** FYI - you'll probably go into toxic shock long before getting "high" off nutmeg so don't be an idiot and try this at home. The irony of these "awareness" news stories is that it spreads a terrible idea faster than ever before in the age of the Internet.


Europe remains on edge

While it seems to have faded from the headlines in the wake of the Wikileaks news and "OMG it's CYBERMONDAY YOU HAVE TO GO BUY SOME PLASTIC BAUBLES ONLINE TODAY!!!" stories, Europe continues to stumble along and the big money keeps moving on from target to target - Ireland to Portugal to Italy, to Belgium to Spain, etc. are all in the cross hairs now.

I think 2011 is shaping up to be the greatest test of the EU we've seen to date. On the upside, System of a Down announced a series of European concert dates next summer (their first shows in 5 years) so I'll be supporting the EU economy backpacking across Europe following the band -- as soon as I get the okay from the missus.

Is that okay, honey? Sweet!! You'll notice a bunch of charges in Euros on our next credit card statement - just ignore them :)

BTW: Did you hear that Wikileaks next target will be a BIG US BANK? Oh boy, lots of people are going to be purging their email inboxes this week and hoping that the IT guy they fired last week to outsource his job to Vietnam didn't walk out the door with every email ever sent by the company :)
The Case Shiller index came in weaker than expected and shows continued deterioration in the housing market. Here's the main take away from the report.

"Additionally, there is a large supply of houses on the market and further, hidden, supply due to delinquent mortgages, pending foreclosures or vacant homes. New construction is running at less than half the pace needed to meet normal demand, so a sustained recovery could be a ways off."

Markets are off to a shaky start after this news but much like yesterday watch for a late bid from the banks to make a stick save around 3:30pm :)

Sunday, November 28, 2010

The Black Friday Bust?

Well, despite the claims from the National Retail Federation that Black Friday sales were up 9%, other data shows that sales were up a mere 0.3% on Black Friday despite the constant news coverage of fools lined up outside of Target to score a TV that was cheaper online in October :)

Here's what we do know - it really doesn't matter. Incremental holiday shopping is a blip on the radar in our $14 trillion economy. Holiday sales have been within a few billion dollars of $500 for the last three years. They go up some years and down the next but the change doesn't really have an impact on our economy. This however, won't stop the steady flow of stories on the strength or weakness of the holiday season.

I'll offer my take on the holiday season - so far the deals have been really underwhelming and that's keeping many shoppers on the sideline (Canadians excluded). Due to the late Thanksgiving, we really only have 3 shopping weekends (as opposed to the normal 4 weekends) to go until Xmas so we should have seen a much stronger Black Friday than last year.

A final note on Cybermonday - Apparently retailers think it is still 1995 because they are holding off their "best online deals" until Monday when we all go back to work where we have high speed internet. Back in realityville, we all have high speed internet at home these days and if CyberMonday was anything other than a marketing gimmick the real deals would have shown up this weekend (I've seen most of the "deals" previewed online and they are even more underwhelming than the Black Friday ads).

For upcoming week there are plenty of interesting story lines to capture the market's attention - the Irish bailout (The Irish citizens are getting raked over the coals to bailout their banks and the banks' investors), the Korean skirmish (my take: this was N. Korea's way of saying "it's winter and we need food" while S. Korea's response will be "How much would you like?"), and some wacky end of week trading last week that might cause some issues this week.


Thursday, November 18, 2010

GM is now the computers' favorite name

The computer traders went nuts on GM today trading nearly 500 million shares in the stock (that's basically the entire number of shares outstanding). The defense of the $34 line in GM was funny to watch at the end of the day. Every time someone stepped up to buy a little stock to support the price they were hammered with sell orders. I spent a number of sleepless nights dealing with IPOs that bounced around their IPO price. If they break the IPO price - GM's line in the sand will be $33 - there will be plenty of bankers sweating into their stuffing next week.

While it is interesting to see the scale of the GM IPO - north of $20 billion - it's worth noting that GM received none of the proceeds. A normal company goes public to allow it's investors a way to cash out and raise money for the company to fund its expansion. The bulk of the proceeds from this IPO go to repaying the US Treasury, to reserve for UAW healthcare costs, to fund the pension liability and to fund retiree benefits of non-UAW workers.

Boy, if we could just IPO the US Postal Service we'd be golden!

All I want for Christmas

Okay, I don't really need anything for Christmas but when I heard that this was coming up for sale, I thought I'd throw it out there for any benefactors looking to make my year :)

"Looking to buy a new vehicle at a bargain price?

Well, if you're interested in orbiting the Earth or buying the world's most expensive lawn ornament, NASA may just have a deal for you.

The space agency announced late last week it has dropped the sale price of a used space shuttle from $42 million to the bargain-basement price of $28.8 million. With NASA moving to retire the space shuttle fleet this fall, the agency is looking to move a few shuttles and bring in some much-needed cash."

Okay, so $29 million might be a little steep for my readers but how about a replica for $2 million?

"These are incredible 1 to 1 Space Shuttle Orbiter replicas. These replicas are incredible. Made to close exact dimensions of the original Space Shuttle Orbiters. The price does not reflect an interior but a full interior is available. Please call for more information. This replica will not fly. Shipping will be the responsibility of the purchaser and setup or the replica is extra. Please call!!!!"

My favorite piece of the superstar GM IPO document is on page 30 of their "risk factors"

"At December 31, 2009, because of the inability to sufficiently test the effectiveness of remediated internal controls, we concluded that our internal control over financial reporting was not effective. At September 30, 2010 we concluded that our disclosure controls and procedures were not effective at a reasonable assurance level because of the material weakness in our internal control over financial reporting that continued to exist. Until we have been able to test the operating effectiveness of remediated internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner."

So, as of 6 weeks ago, they didn't have enough internal controls to determine if the quality of their financials were any good. Good luck with that.

Ireland: "We don't need no stinkin' bailout, but we'll take one anyway"

Global markets are surging on word that the Irish are set to take another bailout from the EU. It's remarkable how similar this is to what the banks said back in 2008. Remember the "we're well capitalized" stories until they went belly up or were bailed out? As late as this week the Irish were adamant that they were not in need of a bailout but now there is a bailout on the way to the tune of "tens of billions" of Euros.

GM will clearly benefit from pricing it's IPO into the face of a global rally. Virtually no stock made it's way into retail hands so I expect a pretty solid demand after the IPO, but I also expect a fair amount of selling because GM is basically the same company that went bust last year with less debt. The company rocked the first 3 quarters of 2010 due in large part to fleet sales (rental companies, state/federal government purchases) but they have already said that Q4 will be substantially weaker. The smartest car guys I know seem to think GM still has huge hurdles in front of it, but today it will be all about the GM success story (even though we're still losing money on the stock the Treasury is selling today).

The sentiment in the market has swung dangerously high. The percentage of investors that are bullish is at it's highest level since Dec 2007 when the market was still just 2 months removed from it's all-time peak. Since investors are usually wrong, the high percentage of bullish investors is a warning flag for many market followers.


Tuesday, November 16, 2010

Can't we all just get along?

The Europeans seem to be struggling over what to do with their PIIGS in a blanket again. Ireland is at the front of every financial mind right now and they seem to be close to announcing some sort of bailout to the tune of $80-$100 billion but it's a very fluid situation. Portugal, Italy, Greece and Spain (the rest of the PIIGS) are all next on deck and the other countries - France, Austria, Germany - seem to balking at the idea of fronting more money for their weaker brethren. Ultimately because the French banks own so much Greek debt and the German's own in excess of a hundred billion of Irish debt, I expect another bailout but this seems to be really rattling the foundation of the EU.

How does this impact us? Well, remember we're in the midst of QE2 which, despite the Fed's claims to the contrary, is designed to weaken the dollar and improve the prospects for our exports. When the rest of the world starts panicking - China's stock market is down 9% in the last 3 days btw - the money flows to the US dollar. Thus, our dollar has strengthened substantially in the last couple of days which could limit the effectiveness of the Fed plan.

The entire financial system is starting to tremble right now. Hopefully, we'll get back on course quickly.


Monday, November 15, 2010

Empire Manufacturing, GM and the US

Well, there was plenty of divergent data out today so I'll try to cover the highlights:

* The Empire Manufacturing Index fell off a cliff. Again, this is a very volatile index that doesn't represent a wide cross section of industries, but the magnitude of the move is worth noting.

"The Empire State Manufacturing Survey indicates that conditions deteriorated in November for New York State manufacturers. For the first time since mid-2009, the general business conditions index fell below zero, declining 27 points to -11.1. The new orders index plummeted 37 points to -24.4, and the shipments index also fell below zero. The indexes for both prices paid and prices received declined, with the latter falling into negative territory. The index for number of employees remained above zero but was well below its October level, and the average workweek index dropped to -13.0."

* The GM IPO is still coming this week and there seems to be plenty of investor appetite despite some concerns that GM is still losing market share. I think it's important to separate the stock from the company. The majority of "investors" I've heard discussing the GM deal seem to be excited about the prospect that the US Gov't doesn't want to lose money on it's investment and since the government's break-even is much, much higher than the IPO price, there will be implied support for the stock. That's a dangerous game to play.

* Moody's apparently spooked the markets today by indicating that extension of all of the Bush era tax cuts could lead to a downgrade of the US credit rating. I think Moody's is right to try and be proactive on this front because it seems like they've been late on every other market event over the past 10 years.

* According to the NY Times these are the top 10 apps that you MUST have on your iPhone.


SOUNDHOUND (hear a song and don't know the name - soundhound helps figure it out. Yeah, that was my reaction as well, meh).

HIPSTAMATIC (a filter to blur your photos to make them artsy)

EVERNOTE (traveling notepad)

ANGRY BIRDS (launch flightless birds by catapult - this is constantly the number 1 app in the app store)

URBANSPOON (restaurant listings)

STAR WALK (a constellation map or maybe you should have paid attention in 9th grade earth science class)


QUICKOFFICE MOBILE SUITE (allows you to edit MS Office documents)

REDLASER (barcode scanner)

Wow, that's the best they can come up with? This is the technology that supposed to pull us out of our economic malaise? Video games, restaurant listings?

Anyone with a stake in our future as a nation should really consider reading this article on the state of cheating at institutions of higher "learning".

"The request came in by e-mail around 2 in the afternoon. It was from a previous customer, and she had urgent business. I quote her message here verbatim (if I had to put up with it, so should you): "You did me business ethics propsal for me I need propsal got approved pls can you will write me paper?"

The 75-page paper on business ethics ultimately expanded into a 160-page graduate thesis, every word of which was written by me. I can't remember the name of my client, but it's her name on my work. We collaborated for months. As with so many other topics I tackle, the connection between unethical business practices and trade liberalization became a subtext to my everyday life.

So, of course, you can imagine my excitement when I received the good news:

"thanx so much for uhelp ican going to graduate to now".

As the author of the article states, his clients tend to fall into three categories - the lazy rich kid, the English as a Second Language student and the deficient. I really hope the client referenced in the article was an ESL student :(

Sunday, November 14, 2010

Weekend linkfest

1. Chinese build a hotel in 6 days?

It's a bit of an overstatement to imply that these construction workers built a 15 story hotel in 6 days because there was obvious site work done in advance and there is no indication that the interior was finished. However, it's still pretty amazing to watch a hotel go up that fast. It's not clear if they used tainted sheet rock in the construction :) Watch for a story next week "Hotel built in six days felled by 12km/h winds".

2) Okay smartypants if you think the deficit/debt situation in the US is an easy fix go ahead and do it yourself. The NY Times put up a great interactive tool to show the cuts needed and/or taxes to be added.

You can check out the tool here.

The funny thing is that all of these issues that you hear about (earmarks, federal employees)
they have almost no impact on the deficit. The big items are Medicare, Defense spending and taxes. Without touching those sacred cows all of the bluster in Washington is just hot air.


* Note if you receive the blog via email, the video embed won't show up. Visit www.grindstonefinancial.com to get the link.

Friday, November 12, 2010

Yikes! I might need to reinforce my roof.

When I first heard about the failed UPS package bomb plot out of Yemen, I wondered about the flight path of the plane because I know some European flights cross Canada and Upstate NY before heading south. Today the Washington Post put the actual flight path online and shows that the bomb was set to detonate in over Canada.


Wednesday, November 10, 2010

Just 10% of contributions in the race for NY-23 came from NY-23?

I read an article yesterday about the wealth of data available on the Federal Election Commission's website - http://www.fec.gov/ - and after spending a couple of minutes on that site I can say it is a thing of beauty for a data junkie like myself. Since, the race for NY-23 is fresh in our mind, I thought it might make some sense to look back at that race and I think you'll see some eye opening data.

I'll save you the trouble of searching for the candidate's filings. You can find

all of the data for NY-23 here. It's worth noting that because of our special election in 2009-10 some of the data is probably screwy. I excluded Mr. Hoffman's fundraising to ease the comparison (but it's clear that Mr. Hoffman had a passionate base of individual contributors).

The first thing that jumps off the page is that the combined receipts of the two campaigns exceeds $5.2 million. That seems like an awfully large sum of money to be contributed from NNY so it makes sense to start drilling down into the data. If you click on the "individuals" or PAC lists you'll get a detailed file of every contribution to the campaigns.

By exporting the data to excel and sorting by zip code I found that of the $5.2 million of receipts raised by the two candidates just $495,967 came from individuals in what would be considered residents of NY-23. So less than 10% of campaign receipts came from within the district? Even if we back out the candidates substantial individual contributions to their own campaigns (which totaled $1.87 million) we get a new "in district" contribution rate of only 14.5%.

If $86 of every $100 raised in the NY-23 race comes from outside the district it really begs the question: Who does a Congressman answer to? Will it be the farmer in Hammond, the small business owner in Plattsburg or the contributor from Old Greenwich or Palo Alto? I was clearly naive to the amount of "out of district" fundraising that occurs. This provides further evidence that we need to scrap the entire campaign finance system and start over in my opinion.

* For the record both candidates were roughly the same in their ratio of "outside of the district" donations. Congressman Owens did have a higher percentage of individual "in district" contributions - 28% of his individual donations coming from the district vs 10% for Mr. Doheny - but when you add in the substantial PAC donations to Congressman Owens ($996k vs $36k) his ratio of "in district contributions" falls to just 16.6%. While you could argue that some of the PAC donations may have come from "in district" donors, I think that the bulk of them appear to be outside of the district.

** Also, if my 10 year old can spot flaws in the campaign finance system we have a problem. While looking at the data with me this morning she saw one family name listed a number of times. I told her that it's okay because each member of a family can donate to each campaign. However, that made me wonder about the number of people double dipping - donating for themselves and their spouse (and in at least one case a child whose occupation was listed as University Student). After sorting the data again by occupation, it's clear that homemaker is apparently a very lucrative position in some parts of the country as "homemakers" contributed over $120k to one candidate in NY-23 while another candidate did not fair as well with the stay at home crowd only taking in $9k from homemakers. However, don't despair because this candidate was able to take in roughly $60k from people listed as unemployed or listed their job as "none".

I can definitely see myself wasting lots of time reviewing the contributions of other hotly contested races around the US.


Tuesday, November 09, 2010

I told you it's a weather balloon

I find the snarky chart very funny.

For the record, the military and FAA have really bungled this news story out of California about a "missile" launch. I seen some fairly convincing evidence that this was just a plane viewed from a unique angle and it seems like the FAA should be able to prove this fairly quickly with radar data. However, they've wasted a day debating this while it's dominated the web news cycle for the past 12 hours.

Data check:

Diesel shipments dipped in October and that seems to indicate that truckload shipments have fallen heading into the holiday season. This could indicate a weaker than expected holiday season.

Gallup’s Economic Confidence Index averaged -22 over the first week of November — an improvement from the monthly readings of -29 in October and -33 in September — and tying the best monthly reading of 2010. A surprising 55% of consumers still say the economy is getting worse, but the cumulative index has clearly improved as the stock market has shot up over the past 2 months - maybe the Fed is onto something with their "QE2 = higher stock prices" plan.


Has anyone seen Mortimer or Randolph Duke?

I don't think they are cornering the market in Frozen OJ concentrate but just in case you need to eat in the next six months you might want to take note of some of the price movements in food commodities lately (oh, and regular unleaded crossed $3.14 today at a local station).

Repeat after me: "There is no inflation. There is no inflation".

Monday, November 08, 2010

Are we playing Russian Roulette?

So, the Fed's big move last week has been discussed at length but I'm not sure that everyone understands what the end game is for the Fed and why they are making the moves they have made.

1) The Fed's easing will weaken the US dollar as a currency which will increase asset prices including stock prices. It seems that the Fed is hopeful that if the stock market rises another 20-40% consumers will gain a renewed sense of confidence and will begin spending again. This can work but consumer participation in the stock market has fallen steadily since 2008 so I'm not sure they will get the biggest bang for the buck.

2) The other side of this equation is that the Fed assumes a weaker dollar will make our goods more marketable globally which will increase our competitiveness. For a San Jose software company selling in Toronto this works, but our ability to export has fallen so substantially over the past 30 years that I'm not sure we'll realize a significant boost from the weaker dollar.

There is another wild card that seems to be playing out - the other major nations seem not be on the same page as us. China, Germany, etc. are all fighting their own currency appreciation and if they are successful we will have painted ourselves into a corner. If the dollar holds steady relative to other currencies and we flood the market with dollars get ready for $6 gas and unemployment over 10%. This has less than a 20% chance of happening at this point, but I'll be watching this fairly closely over the next 12 months.

You may have seen this over the weekend on the NY Times website. This is one of those articles that makes me look for a large cinder block to smash my head against.

"Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting."

So the Department of Agriculture is promoting more ingestion of saturated fat and calories while funding anti-obesity campaigns. Open palm, insert face.....

What would you pay for first run movies? Time Warner apparently thinks you'd pay $30-$50/movie. At a time when people are starting to cut the cable cord (see news that the cable companies lost a combined 500,000 customer last quarter) this seems like a bit of a stretch, but I'm sure the cable co's know what their doing.

I'm sure the consultants for Time Warner have crunched the numbers and determined that "well, it costs $10/ticket to go to the movies so I'm sure a family of four would be happy to spend $40 to watch the latest Transformer 23: The Final Battle (until Transformers 24) in their pajamas". By that logic then Time Warner should renegotiate with the NFL and start charging $480/game because the average ticket is over $100 and wouldn't you rather watch a game at home?

Hopefully, some non-MBA consultants will get the ear of Time Warner and tell them that they need to pay attention to the way 18-25 year olds are getting their video and stop trying to kill the golden goose with $50 movies on demand.


Sunday, November 07, 2010

Happy Days

Just a quick follow-up to Friday's jobs commentary. In many ways, the Friday jobs report reminded me of the "strong" jobs reports we used to get in the 2005-2006 period. Back then we'd see job losses in manufacturing and high service but huge adds in retail and food service. To the BLS all jobs are created equal, but we all know an IT job at Biogen is a good deal better than a server at Olive Garden.

However, that's what we got this month - more losses in manufacturing, but we added Temp Help, retail, food service and health care. A couple of other data points jumped out for the pessimists in the crowd - 1) Employment-Population ratio fell to 58.3% in October which doesn't suggest a turnaround; 2) Labor Force Participation Rate fell again to 64.5% in October from 64.7% in September. This has historically averaged in the 66-67% so we're well below those levels.

This is a particularly disturbing look at the 1,000 people living in the tunnels beneath Las Vegas. I guess I won't complain too much about our little snowstorms in NNY this winter.


Friday, November 05, 2010

Jobs report - Looks good

Given all of the wild moves in the market this week, it's hard to believe that the jobs report has arrived.

On the surface this is a strong report. 151k new jobs in October vs. expectations of just 60k. Average workweek and average hourly earnings were up slightly and the previous months data was revised upward. Unemployment was basically unchanged.

I'll have to get into the report a little further though because it seems to fly in the face of every survey going which suggests weakening in the economy. In fact, the Fed just sited a "weakening recovery" as their primary reason for pumping $600 billion into the market. This jobs report doesn't seem to show a weakening economy. So who is right? The Fed or the BLS?

On the surface this should drive stocks higher, but in today's bizarro world of Wall Street where bad news is good for stocks and good news is bad, who knows.

I'll update with more info as I get through the report.

Update: after going through the report I'll stick with my initial take that this was a good jobs number with a couple of caveats.

* 14.8 million people remain unemployed basically the same as last month.
* Temporary help services added 35,000 jobs.

Individual segments of the economy are the real issue:
* health care added another 24k jobs
* retail added 28k
* food services and drinking places added 24k
* manufacturing lost 7k

BTW: the headlines showing "The economy added jobs for the first time since May" are either disingenuous or ignorant. The Census jobs were falling sharply all summer so that dramatically impacted the headline data during the summer.

This is much like the old 2005 jobs reports as we saw manufacturing and high end service jobs disappear, while we add healthcare, Walmart clerks and waitresses. Not all jobs are created equal and I don't believe that you can build a robust economy on the back of temp jobs and Olive Garden waiters, job creation is still better than job destruction :)

Wednesday, November 03, 2010

Fed Reserve: "We'll buy $600 billion in Treasuries", Mr. Market: "Meh."

It's a convoluted statement from the Fed, but the bottom line is that this was roughly what the market expected and much of this has been baked into the market in recent months as the dollar has collapsed and the market has risen. There were some thoughts that the Fed might do something extraordinary but didn't materialize.

My observation is that we don't have a supply problem, we have a demand problem. There is plenty of liquidity in the market from what I've seen, but there is little demand for money and I'm not sure pumping more money into the system will achieve their goal.

The stock market has reacted with a collective yawn to this announcement as it is basically unchanged with 15 minutes to go in the trading day (however, it could ramp or fall 2% in 15 minutes if history is any guide). I mentioned earlier that expectations were so high that this event would cause huge volatility this week. When everyone seems to have the same opinion the opposite outcome usually occurs and that appears to be the case here.


Update: The US markets definitely had a muted reaction to the Fed announcement, but the Asian markets have roared higher overnight - opening about 2% higher. We'll have to watch for carry over into the US markets tomorrow morning.

There was some relatively positive data out today on the jobs market from ADP (but they've become so unreliable, it's hard to decide how valuable this data is) and the ISM service data beat expectations.

Perhaps the most surprising news today is that some of the world's most influential money managers have already claimed QE2 is destined to fail and we'll need QE3 soon. We're on a slippery slope but stocks will probably higher tomorrow so Yippee!

Tuesday, November 02, 2010

Tomorrow should be interesting

As I write this the polls have just closed in much of the US, but it will be late into the night before we have a clear indication of the direction of Congress. I'm going to say 53 seats in the House go Republican and the Republicans will pick up 8 seats in the Senate but given my fantasy football record this year, I think you should expect any of my predictions to be wildly off the mark.

The markets are expecting some big news out of the Fed tomorrow that could significantly impact the US dollar (and ultimate all assets including stocks). I'm still thinking that the Fed might surprise us on the low side and that might cause some wild movements in the currency markets tomorrow.

Second, I need to offer up a little Mea Culpa - well, it wasn't really my mistake, but I passed along bad data without sufficiently parsing the data and for that I'm sorry. About 2 weeks ago, I mentioned that income for the very HIGHEST earners has risen substantially as reported by the Social Security Administration to an average of $519 million up substantially from the $91 million in 2008. This was clearly a shocking stat and really should have warranted further investigation. However, given the spike in hedge fund payouts, I found the data to be believable. Apparently someone pulled a joke (or there may have been some malicious intent) on the Social Security Administration because 2 people apparently filed multiple W-2's that resulted in them reporting $32 billion in income in 2009. Since, this is 8 times higher than the highest paid individual in 2009 it clearly should have raised red flags, but it didn't and the Social Security Admin put out the data that was skewed by the "fake $32 billion W-2's".

Two people out of 74 filed W-2's reporting $32 billion in income and it didn't catch someone's attention? I'm sure that you can trust with complete confidence any other piece of data coming from the government (sarcasm off).

Finally, a comment on candy inflation post Halloween. Remember, there is no inflation so there will be no cost of living adjustments for retirees on Social Security this year. However, when I picked up one of the "snack size" candy bars that my daughter received while trick or treating I was surprised by how light it felt. Was it my imagination or did the chocolate shrink while the packaging remained the same?

An old Kit Kat Snack size was effectively a 1/2 of a Kit Kat bar or 2 wafers. Since a Kit Kat weighs 1.61 ounces this put the snack size at 0.805 ounces. However, imagine my surprise when I read the back of a "new" kit kat bag that says the individual size is now 14 grams or 0.494 ounces. That's roughly a 39% reduction in the size of the snack size candy bar.

The good news: it now takes 6 snack size Kit Kat wafers to equal a "serving size".

The bad news: while I can't confirm it with a package of snack size Kit Kats from the past, I'd suspect that the candy makers have reduced the size of the bars, held the number of bars in a bag constant and kept the price the same. Effectively rasing the price of the Kit Kat's without "actually raising the price".


Monday, November 01, 2010

All aboard the QE2

This is likely to be the most volatile week in the markets in recent memory, but with everyone expecting volatility we might just get the opposite effect :)

The markets are poised to benefit from the perception that a Republican sweep of the House and/or Senate will mean a stalemate in Washington and that will be good for the economy (again, this is the conventional wisdom but I couldn't disagree more. We are facing once in a century challenges and gridlock in Washington likely seals our fate).

The Fed apparently went to the banks last week and quietly asked "Well, WE know how much easing would be the right number, but just for our own information what are you guys expecting us to say?". The banks apparently replied --- $1 Trillion. So, while I've seen numbers ranging from $100 billion to $4.5 Trillion, I think the number on Thursday will probably be in the billions with an open-ended guarantee that the Fed will do more. This could lead to a sell the news moment, but it's going to be hard to fight all of that extra cash sloshing around the world. Again, easing from the Fed weakens your dollars and makes everything more expensive - stocks, grains, oil, copper, gold, etc.

Check out this chart plotting the Dow vs. the US Dollar (or proxies of each). They are mirror images of one another and if the Dollar keeps falling you can expect the Dow to keep rising.

Election day is tomorrow and if the robo calls, attack ads and constant mailers haven't turned you off totally, please go out and exercise your right to vote.

One of the most interesting phenomena I've seen in recent years is the rush of people that seem to want vote against their own self-interest. People that are increasingly on the public dole (food stamps or unemployment insurance) seem to be the first in line talking about cutting spending. Well, someone finally put some data behind my anecdotal observations and it's really eye opening.

According to the Big Picture the states with the highest Tea Party affiliations - CO, KY, AL, AZ and GA - have seen higher than average growth rates in numerous government programs like SNAP (food stamps), medicare, family assistance and unemployment benefits. They even broke down some of the data by county to reveal even more surprising voting trends.

" And the winner — giving astounding 93% of its vote to Bush in 2004 and 85% to McCain in 2008 — is Madison, ID. These counties would seem to be the poster children for COPB — Cutting Other People’s Benefits — because the numbers clearly indicate that they’re sure not cutting their own.

I hope to spend a bit more time analyzing the seeming hypocrisy of voting for small government, cutbacks, deficit reductions, “personal responsibility,” etc., while simultaneously milking the very system against which one rails."

Consider for example that growth in Medicare payments in Jefferson and Lewis county were in among the highest 20% of counties in the US from 2007-2008. Will the people of NNY vote against their own self-interest and try to shrink Medicare? Maybe.

Just another note on polling data - I think we saw during the last election cycle just how flawed the data can be because the polling techniques can't keep up with the new ways we communicate. Traditional polling uses landline phone polling but since the percentage of voters age 18-30 with a landline is probably under 20% there is a meaningful flaw in the data. I've read that in some parts of the country the swing in the polls can be as much as 5-10 percent because we fail to poll youth properly (I'm a dinosaur that still has a landline and I've received calls from both Siena and Quinnipiac in recent weeks. I hung up on both :). This is a particularly large problem in the Northeast population centers.

Just keep in mind that if an election doesn't go the way it was polling there isn't some insidious plot to "steal an election", it's much more likely that the polls were never accurate to begin with.