Thursday, August 26, 2010

Someone at National Grid knows how to party

This story relates to National Grid's rate increase request for natural gas delivery in NYS and MA, so it doesn't direct impact many NNY residents that live off the natural gas grid, but it does speak to the sloppy accounting and arrogance of a firm that asks for 4-11% rate hike in this economic climate.

"regulators reviewing a proposed rate hike there found the utility essentially passed dozens of questionable employee expenses on to consumers during 2008-09, including:

$35,700 to send a senior vice president’s two daughters to the private British School of Boston;
$30,000 for an executive’s personal medical bills;
$4,363 for an employee’s trip to President Obama’s inauguration;
$4,000 for company Christmas cards;
$1,602 to matte and frame pictures for Grid President Tom King’s office;
$1,433 for Rubik’s Cubes used in a team-building exercise; and
$1,254 to ship a wine collection across the ocean for a British employee who transferred stateside.

No employee expense was too small, with National Grid even passing on costs for $2 coat-check fees and $3.50 bottled waters."

These are all legitimate business expenses but it's clear that they shouldn't be the basis for another rate hike from National Grid. In their defense, they did eliminate these costs once they were made aware of the issue but the fact that the costs made it to the regulator would cause me to question every filing from National Grid.

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FACT of the DAY: Over the past 2 months there have been between 0 and 500 new construction homes sold in the US for over $750k and only 1,000 units were sold nationally over $500,000. I think local real estate appraisers might want to consider that fact before encouraging homeowners to list their shack for $1 million in our little slice of heaven.

* note this is for new construction, not existing home sales over $750k.

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Cheers!

Wednesday, August 25, 2010

Ok, the new home sales data was not pretty

The new home sales data was shockingly bad, but if you've been paying attention you should know that the new home buyer tax credit pulled forward demand into April that would have normally existed in May, June, July, etc.
"Sales of new single-family houses in July 2010 were at a seasonally adjusted annual rate of 276,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.4 percent (±10.8%) below the revised June rate of 315,000 and is 32.4 percent (±8.7%) below the July 2009 estimate of 408,000."
More troubling might be the HUGE plunge from July of '09. This is likely going depressed Q3 GDP and I'd expect we'll see another round of GDP estimate cuts in the coming weeks from the most consistently surprised people in America - economists.
On a related note, I searched "unexpected" in google trends and the result was not unexpected.

Clearly, there have been many more unexpected events in 2010 :)

QOTD from the American Trucking Association's economist "The economy is slowing and truck freight tonnage has essentially gone sideways since April 2010.”

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Google launched their version of Skype today without video chat. It seems pretty simple to use, but unfortunately the service has been down all day. Not very google-like to offer a service that isn't ready for primetime, but we'll see how this plays out.

Cheers!

Off topic post

New Jersey missed out on it's share of "Race to the Top" education funding because they provided 2011-11 budget data instead of 2008-9. That misstep cost them roughly 5 points on the 500 point grading system (only in Washington would you have a test graded from 0-500). Ohio was the lowest ranked state to win grants from the Race to the Top and they beat out NJ by.....3 points!

Obviously, this is silly, but frankly the concept of Race to the Top is misguided. States promise to make improvements to gain access to additional funds. Those funds will then be sent to districts that will use the money to rehire previously laid off teachers. These teachers will come back for a year until this second round of stimulus expires. Net/net the kids won't be any better off and we will have spent more money that we don't have.

I'd argue that any Race to the Top funds should go to new ideas only. The current public education system is failing if 25% of NY graduates require remedial math when they arrive in college. In NNY we should start in-house programs for the gifted and talented. Pull the top 10% of kids from each grade and spend the morning teaching them accelerated math, science, history, philosophy, etc. Group the k-2 and 3-6th grade kids together in a one room school house style of classroom. These kids would also convert to a modified Australian schedule - divide the school year into 1/3rds and take 3 weeks off at Christmas, 3 weeks in March and 5 weeks in the summer. Small districts could pool their resources and their kids to lower the total cost and improve the outcome.

This is a plan that would enhance our competitive status in the world, but this is a plan that would be frowned upon by every special interest that tells us they are looking out for my precious snowflake when they are really just concerned with protecting the status quo.

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Ah, Texas. In an effort to catch Louisiana and Mississippi as our beefiest state I give you the highlights of the Texas State Fair eating venues.

Wait, does that really say FRIED BEER?!?! If they can figure out a way to get some chocolate covered bacon in there, I might have to make a trip to the Texas State Fair.

"Deep Fried S’mores Pop•Tart – Pop•Tart with a sensational chocolate, peanut butter, s’mores flavor is lightly battered and deep fried. Hot out of the fryer, the sinfully diet-busting treat is drizzled with chocolate syrup and topped with whipped cream.

Deep Fried Frozen Margarita - Sweet and creamy funnel cake batter is deliciously coupled with margarita ingredients. Fried, dusted with a tangy lemon/lime mixture and lightly spritzed with south of the border flavor, it’s served in a salt rimmed glass. 21 and over, ID required.

Fernie’s Fried Club Salad – Super colossal 12” spinach wrap surrounds generous layers of juicy diced ham & chicken, shredded iceberg, crunchy carrot strips, ripe cherry tomatoes, shredded sharp cheddar and hickory smoked bacon. Deep fried until lightly crispy; topped with deep-fried sour dough croutons on a stick and served on a bed of shredded romaine lettuce. Choice of creamy Ranch, Thousand Island, or Caesar dressing.

Fried Beer - Beer-filled pretzel pocket is deep-fried to a golden brown. One bite and the escaping beer serves as a dipping sauce. 21 and over, ID required.

Fried Chocolate – A white chocolate mini candy bar + a cherry are stuffed into a mouth-watering brownie, dipped into delicious chocolate cake batter and deep fried to perfection. The finished product has a warm just-out-of-the-oven taste! Topped with powdered sugar and a rich cherry sauce and served with chocolate flavored whip cream.

Fried Lemonade – Lemon flavored pastry is made from Country Time® lemonade. First baked, then fried, this taste tempting treat is glazed with a mix of lemonade, powdered sugar, and lemon zest.

Texas Fried Caviar – Texas version of a southern good luck staple. Black-eyed peas are fried and laced with special spices blended with Old Bay® Seasoning and are available in regular or spicy. Find them in Cotton Bowl Plaza (next to Cotton Bowl steps), inside the Auto Building, near Big Tex, and on the Thrillway.

Cheers!

Tuesday, August 24, 2010

Hmmm, was the housing data really that bad?

Well, yes and no. Yes, existing home sales did plummet, plunge or cliff dive 27% in July vs. July of 2009, but keep in mind that volume doesn't always influence price.

We saw a very similar effect in the auto market in the months after the cash for clunkers expiration. Car sales plunged because people that had been on the fence decided to take advantage of the program. Home sales surged in April as people rushed to get their latest sugar high... I mean tax credit.

What is much more discouraging for the rebound crowd is the huge jump in inventory with over 12 months of housing supply now on the market. This eventually will lead to lower prices unless many, many homes are taken off the market in the next couple of months.

I think the markets are in continuous feedback loop where traders keep reading about technical signals that are being triggered daily because the market keeps falling. However, the main stream media's breathless coverage of the drop back to Dow 10,000 might actually be a contrary indicator so it's important to be nimble.

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Two crazy data points out tonight. The CBO updated their estimate of economic activity from the American Recovery and Reinvestment Act. The CBO now estimates that ARRA added between 1.7% and 4.5% to second quarter GDP. The mid-point of this range would be 2.8% in the second quarter when GDP was reported at 2.4%. So under this set of data it's clear that economic activity would have been negative in Q2 if not for the stimulus.

Also keep in mind that the BEA will be updating it's Q2 GDP estimate this week and the estimated revision is expected to take GDP down to 1.3%. With this set of data it would mean that Q2 GDP was somewhere between -0.4% and -3.2% ex-stimulus or solidly within "recessionary range".

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Oh boy, some people are extremely inventive when it comes to figuring out new ways to screw Joe or Jane consumer.

"But in some new developments, homebuilders are including in contracts a 1% fee to be paid to them every time the house is sold -- for 99 years. And the money doesn't go for improvements or upkeep: It's just money in the builders' pockets."

A 1% fee every time the house sells for the next 100 years, now that takes guts. I bet I know a few architects that would like to get in on that action.

Cheers.

Monday, August 23, 2010

Light Postings

Sorry for the slow pace of postings lately. The markets have been a little bit more interesting as of late so they are occupying a larger percentage of my free time.

A couple of technical quotes as of today:

1) The creator of the "Hindenburg Omen" says that it's flashing warning signs.

"The latest trigger has prompted the Omen’s creator, Jim Miekka, to exit the market. “I’m taking it seriously and I’m fully out of the market now,” Miekka, a blind mathematician, said in a telephone interview from his home in Surry, Maine. “I would’ve probably stayed in until the beginning of September,” depending on how the indicators varied. “That was my basic plan, until the Hindenburg came along.”The Omen has been behind every market crash since 1987, but significant stock-market declines have followed only 25% of the time. So there’s a high likelihood that the Omen could be nothing more than a false signal.But that isn’t stopping Miekka from taking any chances, especially as September, typically the market’s worst-performing month, sits only one week away.”

2) Another respected technician said today "The stock market is on a knife’s edge at the moment."

Like I've said many times before, I don't buy into the premise of technical analysis, but you have to be aware that many, many managers are deeply tied to technical analysis.

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Another perspective on the pending expiring 2001-2003 Tax Cuts from Paul Krugman.

"According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years.

In fairness, there is some selective reporting there. The Republican plan will cost the government $3.7 trillion in lost tax revenue and the President's proposal would cost the government $3 trillion in lost tax revenue. The implication that the President's proposal is revenue neutral is incorrect and probably not an accident.

And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few — the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year — would be $3 million over the course of the next decade."

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This is a bit of an old data point but it's interesting to see that

"Travel on all roads and streets changed by +1.3% (3.4 billion vehicle miles) for June 2010 as compared with June 2009."

I think it will be interesting to see how this data trends in July and August as the economy seems to have hit an air pocket.

Thursday, August 19, 2010

Initial Claims and Philly Fed

The initial claims data was surprisingly weak and included a revision downward of last week's data. As everyone has heard by now this was the worst week for claims since November of last year and the four week moving average - a better indicator of the trend in claims -has turned up sharply after holding steady for most of the year.

It's interesting to note that the current 4 week moving average of initial jobless claims -482k - is roughly inline with where it was at the PEAK of the 2001-2002 recession. This might explain why our "recovery" still feels like a recession to so many.

The Philly Fed survey (a widely watched measure of economic activity) turned negative in July.

"The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading of 5.1 in July to ‐7.7 in August. The index turned negative, marking a period of declining monthly activity for the first time since July 2009. Indexes for new orders and shipments also suggest a slowing this month."

Obviously, these two factors have weighed heavily on the markets today but there is plenty of time for the 3pm auto-pilot to come to the rescue.

Cheers.

Slow week

There is a remarkably informative graphic over at The Washington Post that highlights the differences in the 3 ways of dealing with the expiring tax cuts of 2001-2003.

The first tab show what happens to taxes if the tax cuts aren't extended. Clearly taxes will go up for everyone under this plan (which no one seems to be advocating) but the biggest hit will be on those making over $600k and over $2.7 million. One important side note that I don't think anyone has mentioned is that all budgetary forecasts that have been made assume these tax cuts will expire so the forecasts assume that the government is about to get a $3.7 trillion windfall in the coming years. To all of the "Deficit Hawks" out there it's important to note that reducing revenues by $3.7 trillion is going to have a pretty severe impact on that deficit you seem to be so worried about.

The second tab is President Obama's proposal. His proposal hits those making over $600k and over $2.7 million but leaves everyone else relatively unscathed. This soak the rich proposal plays to some of the Democrats base (I think you'd be surprise by the number of people making over $2.7 million/year that are Democrats) but it would cost the US Treasury $3 trillion in lost revenue.

The final tab is the Republican solution which is to leave everything as it is and extend the cuts for all taxpayers. This costs us $3.7 trillion in lost revenue.

So for all of the fighting you will hear coming out of Washington about the tax cuts keep in mind that the two plans are actually very similar. Both plans will cost us over $3 trillion and will not impact the majority of Americans. The only real difference is

* do you think people earning over $600k should pay another $53k in taxes?
* do you think people earning over $2.7 million should pay another $310k in taxes?

This is going to be a political hot potato in the fall, but I think it's important to know that for most Americans neither the Obama plan nor the Republican plan would affect their bottom line but both plans will add a subBoldstantial amount to our national debt over the next 10 years.

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There is clearly a risk that is run when a country strives to cut its spending -- See Greece. Greece has faded from the headlines, but life on the ground seems to be getting much worse for the average citizen.

"Stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places."

70% unemployment?!?! Nothing to see here, move along folks....

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Ah, the joys of flying through Philadelphia. This story of how one woman was selected for additional screening by TSA because she was a) carrying a box cutter? b) lighting her shoe or c) had several checks made out to herself in her purse?

I think you know the answer before even clicking the link.

In a related air travel story, American Airlines is now charging a $19-39 fee for sitting in the first few rows of coach. Just file this away in your memory bank when the airlines come begging for another bailout in 2011.

* Triathlon Update - Again 8/29 is the day and the number of participants has swelled to over 100!! Thanks for signing up! Registration is still open for those of you sitting on the fence.

Cheers!

Monday, August 16, 2010

Monday Morning update

The markets tried to bounce a bit after the release of the Empire Manufacturing survey that showed some improvement over July but seems to be short of expectations.

However, I think that people have read through the details and seen the most important quote

"The new orders index fell below zero for the first time in over a year, dropping 13 points to -2.7—an indication that, on balance, manufacturers saw orders decline slightly."

The decline in new orders was pretty sharp and probably caught most economists off guard.

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Today's best data tidbit comes from The Big Picture

"During the session, Norris-who is considered to be a top authority on the Southern California real estate market-shared some intriguing insights. He believes the region is in an artificial market and is concerned about the shadow inventory that could flood the market, forcing prices even lower. However, this isn’t the shadow inventory of bank-owned homes you may have heard about; he refers to all the houses that may yet go into foreclosure. The problem will vary by region, but referring to Riverside County in Southern California, Norris presented some pretty alarming statistics:

• 23% of prime borrowers are not making payments
• 47% of non-prime borrowers are not making payments
• 90% of properties are upside down on value-to-loan (60% owe more than150% of value)

Many borrowers haven’t made a payment in more than two years and have yet to receive a Notice of Default."

1/4th of prime borrowers and 1/2 of subprime borrowers aren't paying? Nothing to see hear, move along....

Sunday, August 15, 2010

Blatant self-promotion

Many Clayton residents have spent countless hours locked in strange town basements during the long, dark winters hours with visions of a wonderful new athletic event to be hosted in Clayton during the summer.

Well, the finish line is now in sight and the River Rat Triathlon is nearly upon us. Here is what you my loyal readers can do to help make this an overwhelming success:

RACE DATE: 8/29
Time: 9am
Place: Centennial Park (Basically head into Clayton and head toward Riverside Drive)

1) Sign up! If you're feeling feisty the triathlon ironperson is the best bet. Just swim 600m, bike 18 miles and run a 5k. It's 2 hours of pain for the average Joe or Jane. We've even added a Kayak (3 miles)/Bike/Run division for the aquatically challenged - present company included :).

If that seems like too much to bite off for your first race consider signing up as a TEAM. Recruit a kayaker or swimmer, a biker and a runner and off you go. So what are you waiting for Sign UP!

2) Volunteer! We are going to need lots of help directing traffic, filling water cups, handing out timing chips, etc. You can contact me at blantier@twcny.rr.com or TIYLO@live.com with VOLUNTEER in the subject line. Just give us your contact info and we'll put you on the list!

3) Cheer on the participants! Some of the best races I've participated in have great local support. Grab your best cow bell and line the route to cheer on the bikers and runners or come down to the finish line on Riverside Drive.

This event would not have come off with out the support of our sponsors

Aubertine & Currier
Phinney's Foundation
Lofink
Haylor, Freyer & Coon
Caskinette Throttle

and of course the driving forces behind the event: Alicia Dewey of TIYLO, Brian Jones of Aubertine and Currier, Diane Leonard (a tireless volunteer for what seems like every major non-profit in NNY), and Jan Brabant of TI Adventures.

Cheers and just TRI it!
The week ahead...

Mon:

Empire Manufacturing - expectations for a slight increase. Seems like a stretch but this is a very volatile number with a relatively small sample size.

Home Builder Survey - again expectations for a slight increase but the index remains very low compared to historical results.

Tues:

Housing starts - expectations of 565k which would be a slight increase from June. Again this seems like a stretch, but a small uptick during the summer wouldn't be surprising.

Wed:

Architecture Billings - The oversupply of commercial real estate is still depressing large commercial projects.

Thurs:

Initial claims - watch for revisions to past weeks.

Leading Indicators - This could move the market and the expectation is for a slight improvement.

Philly Fed - The consensus is for a print of 7 but there is a wide range even into negative territory. Another potential market mover.

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Boy, I feel like an idiot sometimes for having played by the rules when I read stories like this...

" The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”

Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.
“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.

That's a terribly profound and depressing statement.

Cheers!

Chart of the weekend

Courtesy of the Washington Post....



I'm not saying that one plan is better than the other but I think it's important to consider that the bulk of the tax cuts under the Republican plan go to those making over $1 mil/year. Now, put yourself in their shoes. If you made $1 mil and saw your tax bill fall by $100k would you treat yourself to a new M5 or reinvest in your business and hire a few new employees. It's not a black and white issue, but this chart is pretty informative.

Where do our potential congressional candidates stand on this issue? What percent of NY-23 residents have taxable income of over $1 million?

Cheers!

Thursday, August 12, 2010

QOTD

Well, actually it was from yesterday, but it sums up the state of our economy in pharmaceuticals so everyone with a cabinet full of meds can understand it....

“What we had was a government-prescribed course of amphetamines (to keep it up), antibiotics (to prevent infection) and antidepressants (to make it feel better). It endured regular steroid injections from both monetary and fiscal authorities. And it still has no real muscle.”

In second place for quote of the day would have to be Sen. John Boehner who offered up this gem

"The only way we're going to get our economy going again and solve our budget problems is to get the economy moving."

Now, that's some powerful analysis.

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Markets around the globe have stabilized after yesterday's sell-off. Trading can get a bit dicey at this time of the year because most of the big boys will take the last 2 to 3 weeks of August off to hit the links on Nantucket. That leaves last year's starting goalie from Princeton's Lacrosse team running the trading ops and screwy things can happen with rookies at the helm.

** Update: the initial claims data has whacked the markets a bit here we'll see if it picks up any steam.

Wednesday, August 11, 2010

On second thought the Fed crashed the market...

As I hinted yesterday, I thought that when people had a full night to digest what the Fed actually said we could have a pretty severe reaction. Lately, the opening moves downward have been met with steady computer bids to pull the market back from the brink. Today was the first time in about a month that there was no real bounce. The major markets either broke or are on the verge of breaking their 200 day moving averages again so thing could get interesting.

Cisco is going to put a damper on things tomorrow unless something changes overnight. The key points to take away from the tech giant were that business slowed materially in June and July and that customers have slowed their payments.

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Light reading:

More than a little fear mongering in this article on Russia's burning wheat fields, but I expect we'll start seeing higher prices at the retail level within 3 mths.

Okay, I don't know about you but after seeing this article, I think my weekend plans will include multiple "hopsicles".

Finally, a broker that stole money from his clients to fund his gambling habit has been ordered to serve 12 years in prison. No, criminals only do time in movies. Instead he's been ordered to enter poker tournaments in an effort to win back enough of his clients money. Seriously? What if he had gambled the money away on scratch offs, would he get the same deal?

Cheers!

Tuesday, August 10, 2010

The Fed saves the day...

So, the computers seemed to be happy with the Fed's decision to do another round of asset purchases (the term Quantitative Easing Lite seems to be the most popular on the web right now). Roughly, $200 billion will be pumped into the system in the hopes of increasing the flow of capital. As another person commented, when the only tool you have is a hammer every problem looks like a nail. The Fed's only tool is more QE so that's what they are going to do.

There had been talk that this program would be substantially larger - numbers that started with T had been floated - so I'll be interested to see what Wall Street's reaction will be.

However, here's what keeps me up late at night.... When someone needs to sell some US debt (maybe China, maybe Japan). Remember the Fed has been buying up piles of mortgage debt from the banks to keep them afloat. The banks then take that cash to buy US Treasuries so the government can keep financing it's stimulus efforts. I know it sounds like a pyramid scheme but trust me this is legit ;) If someone start selling US Treasuries, well Houston we have a problem. Someone will have to buy those Treasuries to prop up their value - now the Fed can step in and buy up Treasuries. Wash, Rinse, Repeat.

If people are paying attention this could be the Holy S^#^! moment for the markets when people all race to the exits from US Treasuries. This is still a low probability event, but it should be on your radar.

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Today's headlines:

* Index of Small Business Optimism lost 0.9 points in July following a sharp decline in June. The persistence of Index readings below 90 is unprecedented in survey history. The frequency of reported capital outlays over the past six months fell one point to 45 percent of all firms, one point above the 35 year record low.

* Container shipping volumes dipped and could signal a retail slowdown.

*Congress authorized $26 billion to states to soften the blow of falling state revenues. This will offset a portion of the second half slowdown that I was expecting.

* For all of the good Google does, their CEO scares me sometimes. Today's comments won't change my opinion.

"No anonymity is the future of web in the opinion of Google's CEO Eric Schmidt. Schmidt's message was that anonymity is a dangerous thing and governments will demand an end to it."

Cheers!

Monday, August 09, 2010

Where would NNY fall in this survey?

Gallup put together an interesting survey to determine the states with the highest concentration of government employees. Not surprisingly, DC topped the list with 38% of respondents working for Federal, State or Local governments. Other states in the DC metro area - VA and MD - were near the top of the list, but I think some might find the balance of the survey interesting.

For all of the talk about Reagan Republicans in the South, red states seem to be pretty dependent on Uncle Sam for their economic health. Mississippi, Louisiana, North and South Carolina all cracked the top 10 for the highest percentage of gov't employees (all north of 20%) and a red state WAY, WAY up north - Alaska - had a whopping 31% of respondents say they were employed by the government.

I found it interesting that New York didn't show up on either list, but I think NNY would have probably made the list. Our reliance on jobs related to the prison industry, postal services, Ft. Drum, education, law enforcement, etc., would probably push the % of our population working for the government above 20%. These numbers matter because a large proportion of these employers have substantial pension obligations that will be crushing them soon.

On a related subject, it seems that there is some serious debate finally beginning on the issue of the retirement age in the US. This is about 5 years too late, but I assume that it was a calculated move to wait for the last of the Baby Boomers to clear some magical age. I'd assume that by 2014 we'll have a modified Social Security system that will allow those that are 50 in 2014 to retire under the current rules. Everyone else will see their minimum retirement age jump to 70. Since, Gen X and Y are not a huge voting block it will be easy to punish them for not having enough children to pay for the medicated baby boomers that will live for ever.

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One of the better quotes of the day comes from an analyst in Canada

"The University of Michigan consumer sentiment index — currently at 67.8 in July — is the lowest since November 2009.

What is the average during recessions? 73.8.

What does it average in economic expansions? Try 90.9.

So you tell us where we are in the cycle.

Ditto for the Conference Board consumer confidence survey. It was 50.4 in July — a five month low.

The average during recessions is 70.4, and 102 in expansions. In other words, it is still 20 points below the recession averages.

The National Federation of Independent Business small business optimism sentiment was 89.0 in June — a three month low. The average during recessions is 91.9. The average during expansions is 100.2. Again, you be the judge."

Cheers.

Sunday, August 08, 2010

Jobs and the economy

It's obviously old news in the 24/7 media cycle but I thought I'd offer up some thoughts on the jobs report that came out on Friday. Excluding the crazy swings in census jobs, the economy created a very modest 12k jobs in July. This was below expectations and in general it was a very weak report but I saw the revision to June's number (which subtracted roughly another 100k jobs) very troubling.

Labor force participation fell again to just 64.6% and is the only thing keeping the unemployment rate from climbing. The stock market initially took this data on the chin and fell hard, but some of the computers wanted to have a good weekend living it up in the Hamptons so they flipped the 3pm switch and rallied the market back to almost unchanged.

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I won't bog you down with the details, but there is a great deal of forward looking data that seems to be indicating that the "recovery" has either stalled or we're on the verge of sinking back into recession. That idea leads directly into today's FT story indicating Fed might shift their view of the economy. It's important to remember that a big part of the stock market's recovery in 2009 was driven not by economic conditions or the bailouts, but rather the Fed's qualitative easing. They seem to be hinting in this article that the Fed is looking at further liquidity injections (Goldman said it could be up to $1 Trillion) to boost bank profi...... I mean, the economy.

"The Federal Reserve is set to downgrade its assessment of US economic prospects when it meets on Tuesday to discuss ways to reboot the flagging recovery. ...[The Fed might make] ... a decision to reinvest proceeds from maturing mortgage-backed securities held by the US central bank ... most economists believe that it would take several more months of poor data for the Fed to actually begin a new round of [large scale] asset purchases."

The Fed has long since abandoned their role as a central bank and they are now active cheerleaders of the stock market.

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In a timely article, the NY Times covers the growing use of attorneys in India by US law firms to lower costs and increase profits. This is classic mismanagement over the long run as law firms will generate increasing profits for their partners (who may chose to retire sooner) but without a new crop of young legal eagles working their way through the trenches there will be no one to run the show in 5-10 years. At some point, I expect there will be a bit of an outsourcing backlash and companies will demand to know what percentage of their work is being handled by overseas firms.

"Thanks to India’s low wages and costs and a big pool of young, English-speaking lawyers, outsourcing firms charge from one-tenth to one-third what a Western law firm bills an hour."

Do you think the law firms pass along those costs savings or keep it for themselves?

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Favorite stories of the weekend....

* The doughnut burger and "FRIED BUTTER" were the big hits at the Indiana State Fair. Fried butter?!?!? If this keeps up we might really need food police to protect people from themselves.

* OSHA fines a Boston Post Office location for violations including --- and I'm not kidding --- "workers using bar-code readers and elevator-control panels without proper training."

Hey, I'm all for worker safety but what kind of training is needed to operate a bar code reader? My kids have been handling bar code readers at self-checkout lines for 5 years without incident. What type of training is needed for an "elevator control panel"?

Step 1) Enter elevator
Step 2) Press a button
Step 3) Take a 15 minute coffee break

Cheers!

Thursday, August 05, 2010

A couple of observations from the road...

Hopefully, I'll get back on schedule next week, but I'll try to get something posted re: the unemployment numbers tomorrow afternoon (the new claims data was surprisingly bad today).

I just returned from a few days mired in that tourist trap.... I mean our nation's capital, Washington, D.C. and thought I'd offer some observations.

*** I've seen the occasional road project going on in the North Country - two random country bridges in particular seem to come to mind - but you really need to drive the I-95 corridor to grasp the level of construction going on. NJ is basically one long construction zone. I can't verify it but it looks like the Turnpike is getting it's own Great Adventure lane (for my non-Jersey based readers Great Adventure is a huge Six Flags park that has notoriously caused summer delays on the Turnpike). The Turnpike seems to be undergoing an expansion from the north to exit 6 and from the south around exit 6 northbound. Conveniently, Great Adventure is located at exit 7A.

While I'm on the subject of NJ traffic, I'll mention my favorite sign "recovery and renewal" sign that is posted 1 mile from my in-law's home. A new on ramp is being built at the dangerous Rt 1&9/Pulaski/440 intersection. It will clearly help traffic and is long overdue for such a busy area. The total cost -$200 million: $199,400,000 from the Federal Gov't and $600,000 from NJ. Like I said, this is a worthwhile project, but for NJ to even put their name on the sign is just comical when they are only kicking in less than 0.5% of the total cost. In the back of my mind though I wonder how much bang for our buck we are getting. What would $200 million buy us in India or China? Maybe 20 miles of a new seven lane highway? In NJ we get 1/4 mile of on ramp for $200 million.

Maryland is undergoing a similar level of construction along their section of 95. If you ever wondered where all of the cranes from Dubai have gone now that Dubai has gone belly-up look no further than Maryland.

*** DC tourism seemed to be down a bit. Admittedly, it's nearing the end of the summer and it was pleasantly warm but we saw the Jefferson and FDR memorials by ourselves and there was plenty of free downtown parking to be had.

*** DC itself seems to be the city than never saw the recession. Law firms, consultants, lobbyists, Defense dept, NSA, etc., all seem to be hiring so housing remains relatively strong and the city still has a good vibe.

*** To my biking readers: take your bike to DC. I made the mistake of leaving mine at home because I was afraid that the "Ride in DC" program was just hype. From what I saw, it's a bike crazy city with far more cyclists than I've ever seen in NYC, Boston or Philly and many people commuting by bike.

Finally, Lemonade Wars..... Health Inspectors shutdown 7 yr-old's Lemonade stand without the "proper" $120 permit.

Cheers!

Monday, August 02, 2010

Monday linkfest....

* Open sourced FREE TEXTBOOKS. Sign me up! Unfortunately, my kids will be teaching physics in Dehli by the time this becomes a reality in our schools.

* Is Disney World quieter than normal this summer?

* Trash volume up - does that signal a turn around coming? (Maybe, unless it's actually down).

I'm stunned by the the writing of this headline "Trash volume UP!", but "The volume is still down slightly so far this year, about 3 percent, but "it's coming back," he said." Huh, so volume is still falling, but the headline is that volume is up.... Open palm, insert face.

Chinese Monday

This shouldn't come as a surprise to readers here, but it appears as though China's property bubble is getting pumped up by state-owned companies. That will end well I'm sure.

"The Anhui Salt Industry Corporation is a state-owned company that has 11,000 employees, access to government salt mines and a Communist Party boss.

Now it has swaggered into a new line of business: real estate.

The company is developing a complex of luxury high-rises here called Platinum Bay on a parcel it acquired last year by outbidding two other developers to win a local government land auction.

Anhui Salt is hardly Likewise, the China Ordnance Group, a state-led military manufacturer best known for amphibious assault weapons, paid $260 million for Beijing property where it plans to build luxury residences and retail outlets.

And in one of China’s biggest land deals yet, the state-run shipbuilder Sino Ocean paid $1.3 billion last December and March to buy two giant tracts from Beijing’s municipal government to develop residential communities.

All around the nation, giant state-owned oil, chemical, military, telecom and highway groups are bidding up prices on sprawling plots of land for big real estate projects unrelated to their core businesses."

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Ok, fake Prada and Fendi bags seemed to be a harmless little trademark infringement by the Chinese, but fake toilet paper? I know many members of my family that might be willing to draw a line in the sand over that issue.

"After years of knocking off luxury products like $2,800 Louis Vuitton handbags, criminals are discovering there is money to be made in faking the more ordinary — like $295 Kooba bags and $140 Ugg boots. In California, the authorities recently seized a shipment of counterfeit Angel Soft toilet paper."

This might sum up the perverse US Consumer/Chinese relationship better than any other statement I've seen recently -

"And, bizarrely, imitations that are more expensive than the real ones: In 2007, Anya Hindmarch sold canvas totes that said “I’m Not a Plastic Bag” for $15. Now fakes are available on the Web for $99."

Only in America would you pay 6 times retail for a fake.

Oh, and the growth of Chinese manufacturing slowed to a 17-month low in June so expect more empty factories in China looking to find something to manufacturer.

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Markets are en fuego based on European bank "earnings". We'll see how long it continues.

Sunday, August 01, 2010

Random Thoughts

From the Office of Captain Obvious: The FTC's "Do Not Call" List now has 200 million numbers but telemarketers still ignore it.

One woman's story "I had a telemarketer for Sears call me repeatedly over and over despite my request to stop calling. To make a long story short, I filed a small claims suit after writing to the company, and they continued to call. In fact, the last call they placed to my home, I grabbed a tape recorder and I taped it and I wrote the company, I told them, I said, look, you know, you keep calling, I can prove it, I’ve got the proof.

I filed a small claims suit, and the next thing I knew, Sears’ lawyers turned around and countersued me for $10,000 saying I violated state and federal wiretap statutes — and by the way, it is legal in my state to tape my own calls. They also threatened punitive damages."

"Since the list went into effect, the FTC has gone after more than 60 companies alleged to have violated the law. Most recently, in May 2010, it targeted three companies that were robocalling consumers with “urgent-sounding messages from ‘Card Services’ or ‘Financial Services,’ stating that consumers needed to ‘press one’ to speak to a representative about their credit card interest rates. Many consumers believed the calls were from their credit card issuers.”
In reality, the calls were from some companies who thought it would be a nice business to charge in-debt consumers $500 to $1,500 in return for bringing down the interest rate on their credit cards. When the people paid up, the companies “sent consumers instructions to pay down their credit card debts early, thus saving money on interest. Consumers who complained and demanded refunds allegedly were denied outright, got the run-around, or had a $199 ‘nonrefundable fee’ deducted from their refund.”


* There was a great - if detailed - analysis of the impact of the High Frequency Traders on the markets today at ZeroHedge.

"analysis by Nanex in which the market trading analytics firm presented irrefutable evidence of quote stuffing by HFT algorithms in tens of stocks, in which thousands of cancelled quotes would reappear each second with a definitive periodicity and regularity. Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT repeaters in specific "shapes" as it actually moves the price higher or lower, in cases pushing the bid/offer range up to 10% higher without even one trade ever having occurred, simply by masking a big block order which other computers interpret as bid interest."

The week ahead...

* Auto sales are expected to be between 11.6 and 11.8 mil units on Tuesday. This would be the highest rate since cash for clunkers. I don't have an answer for how this is happening in the face of a weakening consumer. I don't watch much TV, but I've noticed a huge increase in auto advertising in the past couple of months. My current favorite is an Audi ad that preaches the way Audi's retain their value but then wraps up the ad with monthly lease rates.

* ADP data will move the markets on Thursday and the monthly jobs report will be the focus on Friday. The expectations are for a creation of 75k jobs ex-census jobs lost. This might be another confusing report but I think it's hard to imagine the unemployment rate declining unless another 250k people gave up looking for work last month.


A variety of data that hit the wire last week...

* The Census Bureau reported the homeownership and vacancy rates for Q2 2010 this week. The homeownership rate declined to 66.9%. This is the lowest level since 1999.

* Durable Goods orders fall 1% in June

* Truck tonnage fell 1.4% in June

Cheers!