Friday, April 30, 2010

GDP analysis

Well, the GDP numbers are out and they were pretty much right inline with expectations. I really love how we can blame the calendar when things go against the "bullish" story but ignore it when it helps the story. Take Easter for example - when jobless claims jumped around Easter we blamed an early Easter. However, when consumer spending spikes in Q1 we fail to mention that Easter probably helped.

Residential investment fell 10.9% and that's considered a leading indicator so I'm troubled by that number. Equipment and software jumped another 13% but this was down from Q4's 19%+.

Again, I really dispute this claim when the best software guy I know offer up quotes like "I can't close a barn door right now". Someone is buying but I suspect that much of this is stimulus funding working it's magic. We've spent trillions trying to save the economy and ex-government spending there is an argument that the US economy is contracting at a rate north of 10% which would be depression-like levels. I don't think we feel it yet because the government is cushioning the blow. However, there is no appetite for added stimulus or increased spending in Washington right now and states are drastically cutting back, so that puts the "recovery" on shaky ground in my opinion.

Locally, you'll think I'm crazy b/c the malls will be packed every weekend but remember the Loonie is driving all of that foot traffic. It's like everything is 1/2 off in the US for Canadians and this should prove to be a positive surprise for local sales tax receipts. A Tim Horton's in Watertown would be mobbed 24/7.

However, keep in mind that the Canadian bubble is being blown with Chinese helium which might go away without notice overnight.

* Finally, the Greek story will continue over the weekend, but keep in mind the numbers coming out of Greece are scary. They don't need $30 billion, it's more like $120 billion+. The total debt and deficits of the PIIGS is almost $2 trillion. No one has the capacity for that kind of bailout. This won't end quickly.

Cheers!

Thursday, April 29, 2010

"

So, the Greek's are back in business - until the rug is pulled out from under them - and oil companies are making big bucks again thanks to $85 oil so it's off to the races in the markets :)

I'll just caution that the Eurozone is not out of the woods just yet. Spain seems to have a little problem with the under 25 crowd - "the unemployment rate for those under 25 years in the first quarter of 2010 was 40.93%!!!" What h%#@? It's hard to buy the latest ithingy when 41% of people under 25 are unemployed. Oh and Portugal, the UK and France have people making some substantial bets against them.

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Ban the bailouts...

One the problems that "old-timers' like myself have with analyzing the current economic situation is that we assume a failure to meet your financial obligations leads to default and an eventual workout of your debt. Whether you are a country like Greece, a company like AIG or a homeowner in South Florida, when you can't make your payments you default and move on. However, we've somehow determined that there can never be another default and everyone needs a bailout.

The latest round of bailouts are governments bailing out other governments and some countries like Spain borrowing to bailout their buddies in Greece. Nothing to see here, move along sir.

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Keep in mind that many of the long-term unemployed (those that have seen benefits extended up to 99 weeks) are going to start exhausting their benefits.

"Interviews with state officials found that in New York, 57,000 people have received their last check. In Florida, 130,000 are no longer eligible as are about 30,000 Ohioans."


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FYI - It's totally anecdotal, but the humming Canadian economy is clearly evidenced by the meaningful uptick in ships passing through the Seaway. I don't have any hard data, but I'd guess ship traffic is up substantially - 50%+ from last year at this time.

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I'm doing my part to stimulate the economy by picking up a couple of extra bikes for the kids. Oh, and I needed a cyclocross bike. Oh, and I needed a tandem for rides with the wife. Oh, and the price of that timetrial bike was too good to pass up. I can only keep this going for so long, we're going to need another tax credit or stimulus if I'm going to keep up my impulsive purchases.

Wednesday, April 28, 2010

What are the odds another stimulus in 2010?

The peak of the US stimulus package is hitting the US economy right now and begins to trail off as we enter the summer. Couple this with temporary hiring this quarter for the census and you're priming the engine of the US economy at full choke. Hopefully, it fires and takes off on it's own.

However, while there has been very little talk of another round of stimulus, I think that has to be in the back of everyone's mind particularly going into the fall election season. Right now, probably 1/2 of Congress would get voted out just because they are incumbents. They need to stem the anti-Congress feeling in the country and what better way to accomplish that then to grease your palm with another $500.

China has made their economy bubblicious (and pulled along commodity heavy economies like Canada and Australia) through massive stimulus spending on infrastructure and as that money is starting to run out they are now rumored to be considering another $600 billion stimulus. Clearly, the global economy is still staggering and China can't come to grips with the reality of a US consumer that has tired of buying their junk so they might just blow some more of their massive reserves on building empty cities, malls and train lines.

"China will announce in August a new stimulus package of possibly 4 trillion yuan ($586 billion), the China Business newspaper reported on its Web site, citing unidentified sources. The plan, from China’s National Development and Reform Commission, will likely cover nine industries including information technology and new energy, the report said."

This is just a rumor today, but we need to be wary of China's investments in new energy. They continue to tie up all of the old energy - coal/gas/oil - and if they really learn to innovate we could be in trouble. Another summer stimulus from China would make the concept suddenly seem more palatable to US lawmakers. We've already stimulated the two biggest consumer markets - housing and autos - so I'm not sure where the stimulus would be targeted (perhaps funds directed straight to states to fill their budget gaps, but that wouldn't buy many votes) but I won't be surprised if this idea picks up steam this summer.

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I'll save you the pain of sifting through a pile of consumer data but I read a pretty interesting article yesterday that indicated that based on real-time web traffic consumer activity peaked in Aug 2009 and has been declining ever since.

The authors of the study describe the US consumer as experiencing a walking pneumonia type of contraction.

"Web based consumer “demand” that we measure actually peaked in August 2009 and have been declining ever since."

"In summary, our data is telling us that US consumers are very reluctant to take on the kind of debt that they have traditionally assumed when pulling the economy out of previous recessions. Even a recent upturn in our retail index faded once the seasonal impact of the forward shifted Easter holiday had passed. Furthermore, even during the Easter retail up-tick the quality of the transactions was not very high. Big ticket items requiring longer term financial commitments were relatively scarce."

Interesting stuff...

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Yeah, we can now add phosphorus to the list of "things we're running out of...".

"From Kansas to China's Sichuan province, farmers treat their fields with phosphorus-rich fertilizer to increase the yield of their crops. What happens next, however, receives relatively little attention. Large amounts of this resource are lost from farm fields, through soil erosion and runoff, and down swirling toilets, through our urine and feces. Although seemingly mundane, this process cannot continue indefinitely. Our dwindling supply of phosphorus, a primary component underlying the growth of global agricultural production, threatens to disrupt food security across the planet during the coming century. This is the gravest natural resource shortage you've never heard of.

By 2008, industrial farmers were applying an annual 17 million metric tons of mined phosphorus on their fields. Demand is expanding at around 3 percent a year -- a rate that is likely to accelerate due to rising prosperity in the developing world (richer people consume more meat).

Our supply of mined phosphorus is running out. Many mines used to meet this growing demand are degrading, as they are increasingly forced to access deeper layers and extract a lower quality of phosphate-bearing rock (phosphate is the chemical form in which nearly all phosphorus is found). Some initial analyses from scientists with the Global Phosphorus Research Initiative estimate that there will not be sufficient phosphorus supplies from mining to meet agricultural demand within 30 to 40 years."

I imagine we'll discover additional reserves - deep sea mining anyone? - before we actually start to run out of phosphorus, but it makes for an interesting topic of conversation.

Cheers!

Tuesday, April 27, 2010

HAHA!

I think I've mentioned before the good work that the Peter Peterson Foundation does when it comes to tackling big picture issues. They recently commissioned a survey of past elected officials and economic advisers to both parties to gauge what experienced politicians think about our current situation when they are no longer running for office. It's amazing how partisan differences suddenly fade when there is no longer another election cycle facing you.

"Two-thirds of Republicans (68%) and more than eight in ten (88%) Democrats believe that solving the country's long terms structural deficits will include both spending cuts and tax increases." What's that??? A majority of former politicians say that we should CUT SPENDING AND INCREASE TAXES???

"Democrats and Republicans share an open-minded approach.- Practically all Democrats believe entitlement reform (100%), overall spending cuts (100%) and significant decreases in discretionary spending (94%) should be seriously considered.- 72% of Republicans believe tax increases should be seriously considered in addition to 56% who believe significant decreases in defense spending should be seriously considered."

Democrats for entitlement reform and spending cuts? Republicans for tax increases and defense spending cuts? What is this bizarro world? No, it's just the truth that can be told when you no longer have to pander to your political base in an effort to be reelected. I bet an anonymous poll of current members of Congress would likely deliver similar results.

Too bad none of these ideas will ever see the light of day...

The whole press release and PDF are worth reading.

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Markets took it on the chin and there was no rush to buy at 2pm. Asian markets fell 2 percent last night and are down another 2 percent right now. We'll see if this gains any traction...

Are you ready to get crowd sourced?

Uh oh, here comes the next great consulting trend to crush the soul of the American worker - crowd sourcing. According to Personnel Today, IBM thinks that they could cut their payroll from about 400k to 100k employees by 2017 via crowd sourcing.

"Tim Ringo, head of IBM Human Capital Management, the consultancy arm of the IT conglomerate, said the firm would re-hire the workers as contractors for specific projects as and when necessary, a concept dubbed 'crowd sourcing'.

"There would be no buildings costs, no pensions and no healthcare costs, making huge savings," he said.

Outsourcing experts said employers from both the private and public sector were increasingly using the model as they looked to squeeze people costs post-recession."

In my opinion, this is one of those ideas that looks great on paper - like Time Warner buying AOL - because of the cost savings, but the long-term impact on your business can be awful. Consider this simplified example: McDonald's hires a guy to flip burgers or microwave them or dip them in a vat of Uranium 232 however they cook those things. It's not complicated, but he's good at flipping burgers. Well, in order to save costs McDonald's decides to outsource this function to the crowd. The low-bidder wins the contract to flip the burgers today. McDonald's has lowered their cost but they start delivering an inconsistent product because one day they have the world's best burger flipper and the next they have Peter Griffin - and yes I know that's a photoshopped picture but it doesn't make it any less funny :)

Pretty soon you start to question whether or not you should go to McDonald's for a burger because you are not sure if you're getting a great burger or a PeterBurger.

Now imagine this is a giant software implementation worth $1 billion. Do you feel comfortable gambling that IBM will assemble the right team for you implementation? I wouldn't. Hopefully, this is just a trial balloon being floated to gauge the market's response and saner minds will prevail at IBM.

If this does catch on though look for more US jobs to require more work, for less pay and fewer benefits. Yummy, it's gruel for breakfast, lunch and dinner!

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Crazy news of the day:

This story is a couple of months old, but I just came across it today.... 74 yr old Canadian busted on 30 year old pot charge.

"A 74-year-old woman from Hamilton, Ont., who attempted to cross the border into New York state earlier this week learned the hard way that the United States does not take kindly to drug charges — no matter how old.

"She said she wanted a waiver to enter the U.S., which is not uncommon," said CBP spokesman Kevin Corsaro.

A routine criminal record check revealed that Cole was the subject of active felony warrant issued on April 1, 1980 by the New York City Police Department.

Cole was arrested on the outstanding warrant and was extradited to New York City, where the senior citizen will face the charge of possession with the intent to distribute marijuana."

Well, I know I'll sleep better tonight knowing that Grandma is off the streets.

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Just a quick note on Ford. Clearly, they are the best positioned of the US carmakers and they - along with GM, Toyota, Hyundai/Kia - are drinking Chrysler's milkshake. However, despite Ford's most recent profit note that almost half of the profit came from their financing arm (a volatile business) and while generating a profit their debt continues to grow. Any uptick in interest rates or downturn in business will make that debt load seem unbearable.

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Cheers!

MMA + Cheap suits = Ukrainian politics



Do you think the budget in NYS would get passed if we let our legislators go at it? This is one of the many images of the violence that erupted in Ukraine over a vote to extend a Russian lease of a naval base in Ukraine.

Cheers!

Monday, April 26, 2010

Why do public officials struggle with the truth?

If there is a singular problem with our global society today it is that we're all liars. There is no honor in telling the truth because it simply gets you voted out of office. A-Rod lied, Tiger lied, Wall Street lied, the college kids on 60 minutes last night taking Adderall to enhance their test taking, etc, etc.

The problems in Europe are far from over as rioting continued to spread in Greece and their politicians stated that debt restructuring was off the table. Of course, it's not off the table but that would be stating the truth and we can't have that.

Consider the case of the first-time home buyer tax credit. We've been flooded with stories about how everyone is knocking down Realtors' doors to sign a contract before Friday to get their $8k rebate from the government. However, the truth is a little less buzzworthy - according to the NY Times -

"Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.

For every home buyer like the Greens, real estate agents say there are at least three others who collected the credit even though they would have bought without it. That means for each new buyer who was truly lured into the market by the credit, the federal government paid more than $30,000."

But let's not let the facts get in the way of a good story.

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Now for the downside of telling the truth... Consider Gov. Paterson's op-ed "Borrowing Our Way to Failure".

"NEW YORK’S financial problems are not overly complicated. The state is on track to spend a staggering $60 billion more than it receives in recurring revenues over the next four years. Simple arithmetic explains how we got to this point: Our expenses are consistently exceeding our income. We are headed off a financial cliff.

Borrowing may make the lives of Albany politicians easier. It may delay our inevitable day of fiscal reckoning past one more November election. But borrowing to help close our budget deficit, by itself, does not do a single thing to help improve our long-term fiscal condition. In fact, it makes an already bad situation worse.

Those of us in Albany were elected to make difficult decisions. This may be hard in the short term, but it is the only responsible path forward if we want to emerge from this crisis and build toward a strong fiscal and economic recovery."

Gov. Paterson is a flawed politician and he has very little chance of receiving the Democratic nomination but he has demonstrated a great deal of honesty in dealing with our budget crisis. I'd bet he'd be headed for re-election if he authorized a $10 billion bond to fund the budget gap and increase spending for 1/2 filled prisons.

More politicians would probably be "one and done" if they followed my golden rule

"Tell the Truth --- All of the time".

Cheers!

Sunday, April 25, 2010

Greek Bailouts For Everyone...

Well, this will be an interesting week as we'll hear that the bailout is on then we'll hear that the Germans are getting cold feet, then it will bailout booyah!, then we'll hear that the Germans are looking to buy Mexico as a way of getting out of the Euro, blah, blah.

The Greeks have been told to offer a real look at their budget cuts, but I suspect that the cuts will be less than impressive. Also, consider that the size of the bailout might need to be doubled. Should be fun to watch.

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The relaxing of long-held accounting standards has given us all a well-deserved reprieve from the gloom and doom of 2008 but here's the thing what if it's all just a fantasy...

"The SEC also ought to consider pursuing the Financial Accounting Standards Board for helping denigrate accounting standards to the point that so much smoke and mirrors could pass for legitimacy.

Had real accounting standards been at work, they likely would have prevented the banksters from walking away with fortunes while they built financial instruments of mass destruction."

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I spent some time reading some old mainstream magazines from the past month and I was stunned by the spin in magazines like Fortune/Money/Time, etc. It was as if there has been an industry wide decision to focus on rainbows and unicorns because advertisers don't like to buy ads in a magazine full of "real news stories".

There was article after article written with an upbeat slant and often supported with charts or graphs that told the exact opposite story. I felt like I could have changed the date on the magazine to March 2000 and it would have read exactly the same. Happy times are here again.

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Final note: congrats to my fellow Clayton runners Brian J. and Diane L. for completing the Kingston half-marathon. My aging body chose not to cooperate fully so my time was disappointing but I finished and I'll live to run another day --- maybe not tomorrow or any time this week, but some day :)

Cheers!

Friday, April 23, 2010

Well, Bank Failure Friday seems to have morphed into Nation Failure Friday as Greece has decided that this time it really, really needs a bailout.

"Describing his country’s economy as “a sinking ship,” the Greek prime minister formally requested an international bailout on Friday, an unprecedented step that will test the bonds of the European Union."

The German response will be interesting. I expect they'll offer up more verbal support while quietly waiting for Greece to go under so they can buy some Greek Islands on the cheap :)

"Greece’s deficit crisis is pushing its bond yields closer to those of Pakistan, a junk-rated nation that is battling the Taliban.Two-year Greek note yields soared to more than 11 percent after Moody’s Investors Service cut the nation’s credit rating yesterday and the European Union said the country’s budget deficit was worse than previously forecast.

Similar-maturity securities from Pakistan, which turned to the International Monetary Fund for a bailout in 2008, yield 12.2 percent."

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The real estate data this week was pretty much inline and the question remains what the impact of the expiring tax credit will be. I'm hearing of bidding wars in upper middle class areas of MA/NJ again - nice houses in the $550-$750k range and the low end of the market is still pretty strong nationally due to distressed sales, investors paying cash, and the tax credit. The high end of the market ($800k+) and the exburbs still seem to be stuck in the mud.

I caution that even the data providers though are starting to back off their analysis of the housing market.

"Even the exalted S&P/Case-Shiller Home Price Index folks—who had been pushed to report monthly price numbers with seasonal adjustments, even though year over year is far more accurate—put out a note this week saying that even their monthly seasonal adjustments were no good."

All of the seasonal adjustments have been tied to normal housing markets. People buy in April/May/June so their kids can start in a new school in the fall, no one buys around Christmas, etc, etc. The first time homebuyer credit - both version 1 and version 2 - coupled with all of the distressed sales have really skewed the data to make it possibly look stronger that it really is because the published data are seasonally adjusted.

It's also interesting to note that housing inventory is starting to build pretty substantially. This might be something to watch throughout the year.

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Fact of the Day: The number 1 downloaded app from the Apple App Store for the REVOLUTIONARY iPAD???

Scrabble.

A giant $700 scrabble machine. Where do I sign up?

Cheers!

Thursday, April 22, 2010

The best definition of Twitter yet...




Twitter - "Never before have so many people with so little to say said so much to so few". Brilliant!



FYI - despair.com is full of fun stuff for the pessimistic/snarky/sarcastic members of your family like this gem....

Wednesday, April 21, 2010

Asian markets are taking a pretty good hit tonight as the yen has strengthened. The pattern lately has been a big drop in Asia, smaller drops in Europe and then flat markets in the US. We'll see if the pattern holds....

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So the financial reform train is heading to a town near you. Let's be clear - if you thought the healthcare debate was excessively complicated (and it was) any legislation crafted by a bunch of lawyers trying to understand the rules of the game on Wall Street is destined to be convoluted, complex and full of loopholes. Since it is clearly too hard to write legislation like "LEVERAGE SHALL NOT EXCEED 5 times ASSETS", it's time to bring in the lobbyists.

I don't buy into this author's Dem vs. Republican arguments but he does a good job of surmising Wall Street's goals and why they are spending up to $400million on the lobbying effort.

"Wall Street's goals are simple: Water down the Dodd reforms enough so that Wall Street can continue to:

(1) evade securities laws
(2) avoid taxes
(3) minimize capital requirements
(4) increase leverage
(5) hide speculative risks
(6) maximize short-term profits
(7) avoid stockholder disclosures
(8) manipulate regulators.

Expect surface change, but little of substantive. Why? Wall Street needs to continue running the same scam on taxpayers in order to get their mega-bonuses."

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In other news that no one seems to care about anymore...

The yield on Portugal’s 10-year bond jumped 11 basis points to 4.80 percent ... That left the difference in yield, or spread, with bunds 11 basis points wider at 166 basis points, after earlier reaching 172 basis points, the most since March 10, 2009. Greek 10-year bonds dropped ... sending the yield up 20 basis points to 8.17 percent.

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Thankfully, someone has actually done the math on THE DOUBLE DOWN from KFC because KFC felt we couldn't handle the truth.

KFC says the Double Down is 540 calories and just 32 grams of fat. However as some have pointed out that a single fried chicken breast has 360 calories and 21 grams of fat.

Add in ....

2 x 1 oz slice of “Monterey Jack and pepper jack cheese” at 100 calories, 9 grams of fat each, comes to 200 calories and 18 grams fat…

1 squirt of sauce 100 calories and 10 grams of fat (even by KFC’s calculations) and the Double Down is hit twice as you can see in the picture, comes to 200 calories and 20 grams fat…

2 strips bacon, equals 70 calories and 6 grams of fat…

For a grand total of 1190 calories and 86 grams of fat!"

Sweet!

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BTW: It's getting warmer again and my road bike is back off the wall. Just a reminder to share the road and keep an eye open for cyclists on rt 12. If you see someone sporting some sick new blue tires that's probably me (fwiw -- I bought the blue tires not as a fashion statement but b/c they were on clearance :)

Tuesday, April 20, 2010

An Apple a day...

So I'm apparently the only person left in the Western world that didn't buy more Apple products in the most recent quarter and people are jumping back into the stock with two feet after their earnings -- there are some concerns about guidance and the impact that favorable tax treatments may have had on results (their tax rate fell from 32% to 23.7%) -- but we'll have to see how it plays out tomorrow.

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The Consumer Comfort Index is not a number I follow too closely because it tends to bounce around, but it did provide some interesting feedback when it hit an all-time low in Jan 2009 just as the economy was really hitting the bottom. Well, the April numbers came out yesterday and the reported number dropped back to -50 just 4 points from its all-time low last January. Also, a surprising 92% of those polled said the national economy’s in bad shape.

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I don't know how we mesh our stated policy of improving education in the US with plans to cut between 100k and 300k teaching positions this year.

"Districts in California have given pink slips to 22,000 teachers. Illinois authorities are predicting 17,000 job cuts in the public schools. And New York has warned nearly 15,000 teachers that their jobs could disappear in June.

Secretary of Education Arne Duncan estimated that state budget cuts imperiled 100,000 to 300,000 public school jobs. In an interview on Monday, he said the nation was flirting with “education catastrophe,” and urged Congress to approve additional stimulus funds to save school
jobs.

“We absolutely see this as an emergency,” Mr. Duncan said."

I suspect that the "RACE TO THE TOP" funding will eventually come through to save many of these jobs.

On a related subject, I read this today and realized only our best students could come close to matching these academic standards:

Fourth graders in Hong Kong visit an artist’s studio, study Picasso’s Guernica, and analyze the works of modernist sculptor Henry Moore.

Finnish 5th and 6th graders study how the invention of writing changed human life and the impacts of the French Revolution; they trace a topic such as the evolution of trade from prehistory until the 19th century.

Seventh graders in Korea are expected to know not just about supply and demand, but about equilibrium price theories, property rights, and ways to improve market function.
Japanese 7th to 9th graders “conduct experiments regarding pressure to discover that pressure is related to the magnitude of a force and the area.”

Eighth graders from Ontario are expected to create musical compositions, conduct, and know musical terms in Italian.

Dutch 12th graders must know enough about seven events connected to the Crimean War to be able to put them in chronological order.

Canadian 12th graders in British Columbia are expected to identify the author of the words: “Thou art slave to fate, chance, kings, and desperate men” and to what Admiral Nimitz was referring when he said: “Pearl Harbor has now been partially avenged.”

On a Swiss examination 12th graders write an essay analyzing JFK’s October 1962 proclamation that led to the Cuban Missile Crisis.

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Weird news of the day: Woman tragically loses arm in accident and someone in the hospital manages to help themselves to her wedding ring that was on the severed arm before sending it to the incinerator. Stay classy, Bristol.

Monday, April 19, 2010

SEC votes 3-2 and it's off to the races!!

When news broke that the SEC had only voted 3-2 to go after Goldman the market lemmings jumped back in with both feet pushing Goldman and the markets into positive territory. As others have noted though, this move happened despite the fact that credit default swaps on Goldman - basically insurance on Goldman's future ability to survive became more expensive.

The Citigroup profit certainly didn't hurt the momentum game, but again, the story at Citigroup is not about profits and losses it's about the accounting games that can be played now that losses can be ignored indefinitely. I'd expect some more rational thinking on Citigroup to make its way onto the Street over the coming days (ironically, Goldman is still negative on Citi and has them rated underperform :)

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On a related topic Greece continues to teeter on the brink and no one seems to be watching. I found it very interesting that some of the big boys that made some serious ducats off the Greek and Dubai mini-debt panics are rolling the dice on ........ France! It seems like a stretch to me, but frankly about 3 yrs ago - Lehman, Merrill, Bear Sterns, and AIG all going POOF! seemed pretty improbable.

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Well, at least Europe will reopen for business tomorrow. I've found the whole "closing of airspace" to be a bit drastic since it seems to be based on a single event back in 1982. I imagine there will be some sleepless nights for airline CEOs until all of those European flights are back on the ground.

However, it's interesting to see that Europeans still have a healthy perspective of what you have to do to earn a vacation.....Brussels declares holidays are a human right.

"An overseas holiday used to be thought of as a reward for a year’s hard work. Now Brussels has declared that tourism is a human right and pensioners, youths and those too poor to afford it should have their travel subsidised by the taxpayer.

Tajani, who unveiled his plan last week at a ministerial conference in Madrid, believes the days when holidays were a luxury have gone. “Travelling for tourism today is a right. The way we spend our holidays is a formidable indicator of our quality of life,” he said.

Tajani, who used to be transport commissioner, said he had been able to “affirm the rights of passengers” in his previous office and the next step was to ensure people’s “right to be tourists”.

Tajani’s programme will be piloted until 2013 and then put into full operation. It will be open to pensioners and anyone over 65, young people between 18 and 25, families facing “difficult social, financial or personal” circumstances and disabled people. The disabled and the elderly can be accompanied by one person.
In the initial phase, northern Europeans will be encouraged to visit southern Europe and vice versa. Details of how participants are chosen have not yet been finalised, but it is expected the EU will subsidise about 30% of the cost.

Tajani’s spokesman said: “Why should someone from the Mediterranean not be able to travel to Edinburgh in summer for a breath of cool, fresh air; why should someone from Edinburgh not be able to travel to Greece in winter?”

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Stat of the day: India's mobile subscribers totalled 563.73 million at the last count, enough to serve nearly half of the country's 1.2 billion population.

But just 366 million people - around a third of the population - had access to proper sanitation in 2008, said the study published by the United Nations University, a UN think-tank.

"It is a tragic irony to think in India, a country now wealthy enough that roughly half of the people own phones," so many people "cannot afford the basic necessity and dignity of a toilet," said Zafar Adeel, the UN University director.

Cheers!

Sunday, April 18, 2010

Goldman cracks?

The Goldman news that broke last Friday is BIG news. In essence they are accused of letting a client that was short CDOs help select the underlying securities. This is like letting a lotto addict pull the winning numbers.

There are lots of good insights around the web on what this means for the markets and the financial industry, but I'd expect to see:

1) More lawsuits coming against Goldman and other firms.

2) A strong push from lawmakers to tie this story in with Financial Reform legislation. The timing of this story breaking as Sen. Dodd rolls out Financial Reform has not gone unnoticed.

3) 1-800-HELP-LAW infomercials looking to file lawsuits on behalf of "investors that bought CDOs from Goldman or ever looked at a Prius"

Again, this story coupled with the Iceland volcanic activity might dominate the headlines tomorrow.
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Friday's Consumer Confidence numbers got lost in the Goldman/Volcano stories but it's worth noting that the numbers were took a turn for the worse.

Confidence fell to 69.5 from 73.6 and hit it's lowest point in 6 mths. What really surprised me was that the Economic Outlook fell sharply to 62.3 which is the lowest level since March 2009 - remember that was when it looked like the world was falling apart at the seams. Gas prices probably played a major role in this move as gas has run up toward $3.00/gallon again.

Another disappointing stat last week was when Unemployment Insurance claims which jumped to 484k vs. expectations of 440k. However, the line that truly jumps off the page is when the Labor Dept blames "holidays" including Cesar Chavez Day for the jump.

"A Labor Department economist said this latest rise can be pegged to lag effects from the spring holidays, including Easter and Cesar Chavez Day, which is celebrated in worker-heavy California." Either economists making the forecasts are unaware of the holidays or their forecasts should have reflected those holidays and the jump has to be attributed to something other than a date on the calendar.

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I'm a big fan of solar power efforts particularly efforts to lower costs and increase manufacturing capacity, but this story is beyond comical - bear with the rough Google translation.

"After press reports, it was established during inspections that several solar power plants were generating current and feeding it into the net at night. To simulate a larger installation capacity, the operators connected diesel generators.

“This is just the tip of the iceberg,” said one industry expert to the newspaper “El Mundo”, which brought the scandal to light. If solar systems apparently produce current in the dark, the will be noticed sooner or later. However, if electricity generators were connected during daytime, the swindle would hardly be noticed."

The subsidies are so substantial for solar power generation in Spain that companies were running diesel generators and pushing that electricity into the grid and pocketing the difference. Brilliant!

Cheers!

Monday, April 12, 2010

The Dow is back over 11k, Newsweek proclaims America is Back, all is well....

The best stuff out there that I've seen tonight...

John Hussman on the market --

As of last week, the S&P 500 remained strenuously overvalued on the basis of normalized fundamentals. From that perspective, even if the trough we observed in March 2009 was the ultimate price low of the secular bear market since 2000, it's not likely to represent the ultimate valuation trough.

As for policy efforts to reduce delinquencies, I've long argued that it is a bad idea for policy makers to announce delinquency prevention plans that have, as their centerpiece, publicly subsidized reductions in mortgage principal. It's one thing to extend the loan in a way that preserves its present value, by swapping a claim on future appreciation in return for principal reduction, but it's quite another to offer to cut the principal outright. The reason is that instead of confining the assistance to presently troubled borrowers, you create a whole new set of borrowers who then choose to be troubled in order to get the assistance. According to a University of Chicago study, "strategic defaults" - where people choose to default on their mortgages even though they can afford to pay - accounted for 35% of all residential defaults in December 2009, up from 23% in March 2009. Offering public subsidies for this behavior, when too many homeowners are already legitimately struggling, does not smack of a bright idea."

On this second point, I think this might be a small contributor to the recent boomlet in consumer spending (if you believe the data). There is some anecdotal evidence that people are electing to skip paying their mortgage. These previously struggling consumers suddenly find themselves flush with an extra $1,000-$2,000/mth that they can blow on more junk to fill their underwater house.

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Wow - This is a great interactive chart highlighting the individual state pension obligations. Illinois is in serious trouble, but you can click on the state of your choice to see the underfunded pension liability (NY State's Teacher Liability is particularly eye opening).

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I really rely on locals on the ground to provide prospective regarding the Chinese property bubble. Andy Xie's latest comments are pretty telling and might make me nervous if my economy was buzzing because of China -- hint: you recently hosted the Olympics and your name rhymes with Sanada.

"China's property market is a massive bubble. The stock of residential properties, developers' inventories, and land that local governments have pledged to banks may exceed by three times the gross domestic product. Rental yields in most cities are too low to cover depreciation costs. In major cities, the price-to-income ratio, a measure of housing affordability, is routinely above 20, which means that it would take an average mainlander 20 years to buy the average property using their total income. The bubble can still continue because China's banking system has plenty of liquidity – thanks partly to hot money and because local governments have many levers to channel bank liquidity into the market. But the longer the bubble lasts, the more damage it will do to the economy.

The stability of a modern society depends on its middle class being in the majority and content with its situation. The high land-price policy is a form of tax on the middle class, which will slow its growth. China may become a country with a small group of the super-rich, a vast lower class with no property, and a small middle class. Such a social structure would not be good for long-term stability."

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I love this photo of a remarkably resourceful professor.....




Cheers!

Sunday, April 11, 2010

Just to complete the Anti-Apple thoughts...



Cheers!

Greek Bailout Rally #63

So last week when the bailout fell apart the US markets didn't drop, but now that a bailout appears at hand - again - we're all rallying again.

I meant to talk about the retail sales figures last week, but I didn't get to it. The markets and media loved the same store sales numbers but there is something bad with that data. The number of retailers that have gone under or closed stores in the past couple of years is substantial and that impacts same store sales.

You have to look no further than NNY to see this in action. When P&C went belly up not all of their stores closed (but some did), but the constant parade of news stories probably made everyone think twice about shopping there. Since, people still have to buy groceries, the person that used to spend $100/week at P&C in Canton, now spends that at Walmart or PriceChopper. To Walmart or PriceChopper this is found money and it will boost their same store sales. However, in reality, sales haven't increased, they've just been spread around to the survivors.

That being said, I see anecdotal evidence that people are spending.

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Ok - so I'm officially back in the Apple-hater camp. I splurged on one of their toys and it crapped out after 2 months. I took it back to an Apple store and was told that I could make an appointment to talk to someone in about 2 hours. A quick survey of the 45 people in the store showed almost 1/2 had problems with their equipment. It's not a scientific survey, but that's Walmart level quality issues. People pay a premium for Apple products for their perceived quality. Count me out of that group.

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Expect light posting this week due to Spring Break :)

Thursday, April 08, 2010

This should scare us straight

This chart shows the rate of interest payments relative to projected GDP for major Western nations for the next 30 years. While Greece is facing a crisis today, the people in the know - like you my loyal readers - should be really worried about the countries in the chart on the right -- the UK and the USA. Interest costs representing over 20% of our GDP? Imagine if your annual interest costs in your house (mortgage, credit card or car financing) totaled 20% of your gross income -- how long would you be able to keep your head above water?



Cheers!

I've officially run out of Greek puns...

Greece has disrupted the global equity party today over speculation that the latest bailout was starting to unravel. I found this story particularly comical - Greek to seek $10 billion from US investors. Do you think they'd take monopoly money?

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This blog post in California has been generating a good deal of buzz because it projects that Bank of America is now projecting a 600% increase in foreclosure activity by the end of the year!!

"The west coast manager of real estate owned, Senior Vice President Ken Gaitan, stated that Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010."

In a related story, I think I now understand why Nicholas Cage has made so many terrible movies lately. He's been stressing about his $17 million mortgage (the house - with six loans outstanding - just went into foreclosure with no bidders).

Nick Cage Foreclosure Auction a Flop

To put it mildly, the house, though impressive, was not to everyone's taste. Real estate agent Bret Parsons, who toured it most recently in October, described the interiors as "fascinating and bizarre."

"The design was 'frat house bordello,' " Parsons said. "There must have been 300 comic book covers elaborately framed and hanging on the walls."Model train sets on raised tracks a couple feet below the ceiling circled the inside of the breakfast room and two bedrooms.

There were also no takers in the courthouse sale, and in less than a minute the auction closed, with ownership reverting to the foreclosing lender -- just one of six holding a total of $18 million in loans on the property.

The pattern of repeated borrowing against equity is familiar to Bob Baker, sales manager of County Records Research, a Huntington Beach-based company that supplies information about foreclosure properties.

"This is a microcosm of what's going on in our state," Baker said. "We've seen as many as 13 loans on a house."When people keep borrowing, he said, it has "a snowball effect." The final loans often are taken out to meet expenses, he said. "It's a survival tactic."

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You see the thing about those pesky mortgages is that some banks actually want to get paid back...

MSD Capital LP, the private investment firm of Dell Inc. founder Michael Dell and his family, skipped the February payment on the debt as it seeks to restructure the loan, according to credit-rating company Realpoint LLC. The 380-room hotel’s debt is split between two securitized mortgages, one of $250 million and one of $175 million.

The Four Seasons Maui has struggled in the past year along with most luxury hotels in Hawaii. Its occupancy fell to 60% in last year’s third quarter from 79% a year earlier, according to Realpoint.

Meanwhile, Beanie Baby tycoon Ty Warner’s Ty Warner Hotels and Resorts reached a deal last week to extend by two years its mortgage on several resorts, including the 368-room Four Seasons New York, according to a person familiar with the talks. The mortgage had come due last January, but the four resorts pledged as collateral for the loan weren’t generating enough cash flow to qualify for an extension."

Talk about sweet irony. The guy that got rich off the Beanie Baby craze leveraged himself to the eyeballs during the real estate craze. I hear he's investing in tulips and Chinese condos right now...

Wednesday, April 07, 2010

Off topic...

This is a really cool photo taken in Mexico last week right after the earthquake out West. You can see the dust that has been shaken off the hillside by the quake.



Oh, the humanity! More Easter brawls over candy....

"Police aren't sure whether Walmart's prices were so good or if there was a shortage of chocolate rabbits. Whatever the reason, seven women ended up in a brawl in the Easter basket aisle Saturday evening. Candy eggs, rabbits and Peeps flew through the air in an unlikely Easter exchange. Property damage, primarily to candy and Easter decorations, totalled nearly $800."

Cheers!

Quote of the day...

Wow, this really sums up my observations....

"At the heart of America’s problems is an economic policy which is designed to keep wages down but consumption up. That necessarily means more bubbles, more debt, more wealth and income inequality, and consequently more strife and social unrest when the gravy train ends.

You cannot expect to hollow out a country’s manufacturing base, set up a bunch of McJobs to replace it, and still have consumers spend to support the economy. This is what we are now starting to realize.” - Dr. Roubini

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This is a great visualization from flowing data on the growth of Walmart across the US now updated to include Sam's Club openings. It looks like a cancer cluster growing across the US.

Do you think there is a correlation between Walmart's growth and this chart?

Table 2. Age-adjusted* prevalence of overweight, obesity and extreme obesity among U.S. adults.

1960 1990 2006
BMI 25-30 31.5 32.7 32.2

BMI +30 13.4 23.2 35.5

BMI +40 0.9 3.0 6.2

Of course, Walmart isn't the sole cause, but I'd argue they've been a contributing factor to the rising rate of obesity in the US.

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Cheers!

Tuesday, April 06, 2010

Oh, SNAP!

SNAP - Supplemental Nutrition Assistance Program - is the new name for the Food Stamp program and I was surprised by some of the data out of that program today.

The total number of participants has jumped 22% since last year to over 39.4 million people enrolled. While that is a sobering statistic what caught my eye was that the jump in participants was dwarfed by the 42% increase in the total cost of the program year over year. Why was there such a large jump in the budget? A little digging reveals that the average monthly benefit also increased from $101/mth to $124/mth in the last year.

In FY 2005 the average monthly benefit was $92 and the average monthly benefit increased $3/year from 2005-2008. Until 2009 when the avg benefit jumped $23 in a year.

This is a critical program that needs max funding to ensure adequate nutrition for our citizens during difficult economic times. However, we are being told repeatedly how there is no inflation in the US, yet the average benefit payout spiked 22% at a time when participation is at an all-time high. What budget item did we cut to fund this increase? Medicare? Social Security? Defense? Oh, that's right.... kick the can down the road.

* Hey, first thunderstorm of the season rolling through!! That's a sign that the end of the heating season is upon us :)

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Cheers!

Unemployment and Easter Eggs

This is a great visualization of the changing labor market in the US over the past 3 years as the unemployment rate has gone from 4.7% to 9.7%.




It was pretty clear in the parking lots in Watertown this weekend that the Canadian dollar must be rallying. My daughters and I did an unscientific poll of the parking lot in one large retailer parking lot and found 32 out of 104 cars had Ontario license plates.

I think this might provide a small boost to local legislators that may be pleasantly surprised by sales tax data that rebounds this year. However, I'd caution that this is not principally due to local consumers but rather Canadians leveraging the strong loonie. Thus, these dollars could disappear just as quickly if the exchange rate reverses course.

"The Canadian dollar rose to one-for-one footing with the U.S. currency on Tuesday, hitting its strongest level since July 2008, boosted by rising commodity prices and expectations for higher domestic interest rates.

"It's been heading toward parity for weeks and it was inevitable. There's no surprise," said Jon Gencher, director of foreign exchange sales at BMO Capital Markets. Canada’s dollar, dubbed the loonie for the aquatic bird on the C$1 coin, last traded at par with the greenback on July 22, 2008, 11 days after crude, the country’s biggest export, reached a record $147.27 a barrel."

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Hmmm, think this system might get abused?

"The U.S. Office of Personnel Management (OPM) will soon implement a pilot that moves 400 agency employees into a Results-Only Work Environment (ROWE) -- where employees can work when and where they want, as long as they're meeting their predetermined goals and results.
ROWE is a management strategy in which employees are evaluated on performance, not presence."


I'd caution the employees to be careful what you wish for -- your employer might realize that you can do your job in 4 hours/day. Match your job with another person that can do their job in 4 hours and poof, one job goes bye-bye.

On a separate note: how does the US Office of Personnel Mgt even HAVE 400 employees?

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Weird news of the day: 10,000 trample one another for plastic Easter eggs in New Hampshire.

"A Seacoast-area church held an Easter egg hunt Saturday in Rochester unlike any other, dropping 60,000 eggs from the sky with big prizes on the line.

Nearly 10,000 people showed up for the event, surprising organizers. The event began with the best of intentions, but huge crowds created a scramble that no one anticipated.

Thousands of children and their parents made a mad dash for Easter eggs dropped from a helicopter Saturday, turning the Rochester Fairgrounds into a free-for-all.

"I think it was like chaos," said Sarah Gallo, of Stratham. "I saw some people kneeing people, and it was really, really dangerous, I thought."

"I started getting elbowed in the head and stuff. So, I just started diving over moms," said Johnnie Plaisted, of Rochester.

"As soon as they said go, we were all in the front going 'whoomp,' getting trampled on top of each other," said Deborah Savage, of Rochester."

I don't blame the kids - word leaked that they were offering prizes like flat screen TVs and that probably led to a larger than usual response from the public. Easter in America - trampling kids to collect Chinese made plastic eggs for a chance at a Chinese flat screen so you can watch "Dancing With The Stars" in all it's glory :)

Cheers!

Monday, April 05, 2010

Truth or Dare...

I've been on the web fairly consistently for the better part of the past 14 years. During that time I've seen what the NY Times called "a staggering amount of untruths". I've been a snopes user for the past decade and I assume every one else is using their page to fact check the latest email from wacky Uncle Bill in Montana or Grandma's latest you'll get Swine Flu from Bacon email. Apparently, I was mistaken.

So while this is not related to the financial markets, I'd ask that everyone bookmark www.snopes.com and please consult it the next time you get an email about the Olive Garden offering $500 gift certificates if you friend them on Facebook (however, the finely tuned skeptic would have been tipped off by the fact that the Olive Garden and not the Four Season Nevis was offering a gift card).

PS - once we get going in the election cycle consider bookmarking www.factcheck.org - they offer a balanced review of most claims by politicians in speeches and their ads. It's a little slow for them now with no elections on the horizon, but this fall they will be worth a visit every week.

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Remember when I first mentioned the iPad and said that you have to be careful where the reviews are coming from because the old media (newspapers) see this as their last chance at redemption.

Well, to date the print reviews have been glowing, but there is a fairly strong online sentiment that can be best summed up with a yawn. Consider boingboing.net's "Why I won't buy an iPad and you shouldn't either".

Also, I beg the TV news crews out covering the lines of people waiting to get their iPad to just once ask them what they plan on using it for? I guarantee you that you'll get blank stares. Almost all of those first day early adopters seem to be trying to sell them on eBay or craigslist.

A quick look at craigslist shows - 600 iPads for sale in NYC, 500 in LA, 480 in SF, even 74 in Tampa. EBay has almost 9,000 iPad listings right now and while some listing are for accessories, a good chunk of the listings are iPads bought today.

When you're collecting 99 weeks of unemployment you have lots of time to stand in line for an iPod on steroids.

Cheers!

Dow 11k on the horizon?

The rally continues unabated today as positive news from the ISM service report and Housing sales kept the computers happy enough to push up for another day.


* The ISM data was positive today and showed particular strength in new orders. I'd guess that the weak US dollar is having some impact here. Of note, the employment component contracted again in March.


* Shocker! People have figured out how to abuse the Massachusetts health care system. I'm sure we'll figure out a way to have the TSA and Border Patrol preventing abuse of the federal system.


"Thousands of consumers are gaming Massachusetts’ 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.


The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month. The previous year, the company’s data show it had even more high-spending, short-term members. Over those two years, the figures suggest the price tag ran into the millions.

The problem is, it is less expensive for consumers — especially young and healthy people — to pay the monthly penalty of as much as $93 imposed under the state law for not having insurance, than to buy the coverage year-round. This is also the case under the federal health care overhaul legislation signed by the president, insurers say."



* Seattle's garbage men are feeling pretty confident. The contractor - Waste Management - has offered a 3.7% raise which has been rejected by the union.

"By the last year of the contract, the average driver's annual compensation will reach $109,553, Waste Management said, and the company will contribute more than $15,000 per year to each employee's pension fund."

A couple of observations: Is this really the cheapest option? Wouldn't it be cheaper for the city of Seattle to hire their own drivers? Waste Management has threatened to hire replacements and 1,600 applicants applied for fewer than 100 jobs.

Oh, and btw oil is making a push for $90. That's going to mean $3.15 or more at the pumps in the next couple of weeks locally, but driving is clearly overrated :)

Sunday, April 04, 2010

Weekend reading

I know I promised a final follow-up to the jobs report on Friday, but frankly, it was 72 degrees in NNY so I was officially offline for most of the weekend.
1) The jobs report - While most were tripping over themselves to praise the jobs report, I'll offer you some objective observations.
The payroll number looked good on the surface - +162,000. Adjusting for census jobs you get 114k still good. The positives: the unemployment rate was steady, the employment-population ratio ticked up slightly. The negatives: a near record number of part time workers (for economic reasons), a record number of unemployed for more than 26 weeks, and a decline in average hourly wages.
There were also the typical gains in the birth/death model which is pure fantasy, but why mess with a good story, right?
All in all, I think the BLS got a great deal of positive press out of this release b/c the markets were closed on Friday.
2) A couple of examples of mortgage fraud that have come to light post-bubble bursting...
"There is, for example, the woman who bought a $600,000 house, claiming she worked as an account exec at a California investment firm, earned $13,494.03 (nice touch that three cents) a month, had a $45,000 bank account at Wells Fargo and, according to the insurance application, made a $30,000 down payment.
When MGIC nosed around, it discovered the investment firm she supposedly worked for didn’t exist, neither did the bank account, she hadn’t made a down payment and she actually earned $3,901.58 a month as a janitor at a medical facility.
In another instance, a $350,000 loan was extended by Countrywide to a fellow who wanted to buy a home valued at that amount and claimed he was a dairy foreman earning $10,5000 a month. Again, the snoops at MGIC discovered the guy was a milker at the dairy who earned $1,100 a month and signed the documents where he was told to — even though he couldn’t read English."
3) Since we all have healthcare now (without any of those unsightly taxes to pay for it) it's time to get down to business and really starting clogging our arteries like we mean it.
KFC is launching the "DOUBLE DOWN" on 4/12. Two pieces of fried chicken which act as the "bread" and a lovely filling of cheese and mmmmmmmm, Bacon. The name of the "sandwich" - Double Down is very funny. If you're 44 with a BMI of 38 and tired of all that "healthy eating talk", why not just double down.
Finally, I'm not normally a shopper. In fact, I hate shopping so much I've been known to do my grocery shopping at 10pm on a Sunday night to avoid the crowds. However, this Saturday the stores I visited were absolutely mobbed. Old Navy was selling their disposable polos for $5(I defy anyone to wash one of those shirts and try to wear it out in public a second time). This was down from $9 and still about 300% overpriced, but each of 4 registers in Watertown had at least 10 customers lined up.
I might end up being pleasantly surprised by the American consumer again.
Sorry about the format - The double down photo messed up the post and I'm too lazy to fix it :)

Friday, April 02, 2010

March Jobs Numbers...

This is going to be a weird jobs report even by BLS standards. Expectations are for 140k-190k jobs added in March. Great news right? Well, the ADP survey - which is clearly flawed - showed private employers cut jobs last month so we have reasons to be concerned.

There was also some good payroll analysis that showed there was a huge jump in payroll taxes paid in March so there could have been as many as 300k jobs added in March.

Also, consider that we have no idea what % of new jobs will be temporary Census workers. The Census department is adding over a million jobs in the next few months and frankly should be broken out of the BLS survey but that won't happen.

Just beware of all the happy talk headlines today if there is a big jump in the jobs number - it may take a couple of minutes to get a handle on what the "real" jobs number was for March.

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Update - 162k jobs added which seems a little light. The census department only added 48k jobs in March so the bulk of the jobs added for the census are still coming. Of the 114k "real" jobs added ---

40k were temporary help --- "we're all temporary now"

27k were in health care --- no wonder the health care industry is so happy with health care reform

The average workweek for all employees on private nonfarm payrolls was up by 0.1 hour to 34.0 hours in March which is a positive and data for Jan and February were revised upward. I continue to be surprised by their data compilations which seem to fly in the face of jobs websites that are reporting fewer openings but all together from what I see in the report this is pretty much inline.

I'll update some other points when the Birth/Death model is released (interestingly for the second month in a row, the support data has lagged the initial report).