Friday, October 29, 2010

Am I too cynical?

This is a very local issue so to my readers outside of NNY, I'll apologize in advance.

Yesterday there was a bright spot highlighted for the local economy as a Canadian paper company announced plans to re-open a shuttered paper plant in the North Country creating up to 75 new jobs.

I'm hopeful that this works out but before everyone goes around celebrating this success I have some questions...

1) Who or what is Florelle Tissue? They have no website and there is no information on the web about this company that isn't related to their purchase of the local plant. Admittedly, many companies fly under the radar but when the only mention of your company seems to be related to a purchase of a plant it raises a red flag. There was an old Canadian tissue brand called Florelle from about 20 years ago that offered a low-end two-ply tissue. Is this the same company or is it a new company that just bought the old tradename?

2) What background does the company have in the paper industry? This is a difficult industry occupied by huge corporations and there are reasons why small operators can't compete. In particular, I'd love to see more on the top management team. Again, just google "Minas" (their CEO) and "Florelle Tissue" and the only results on the web are related to the purchase of the plant in Brownville. It may not mean anything but in this age of shameless self-promotion it's hard to imagine a CEO not being on the web somewhere.

3) How does the US dollar/Canadian dollar exchange rate effect this deal? I suspect that the driving force behind a Canadian firm investing in a plant near the border is to take advantage of the weak US dollar. Build it in cheap greenbacks and sell your products for valuable Canadian monopoly money, that seems to be the model. What happens if that trend reverses? Can they still be profitable at an exchange rate of $.85 to Can $1?

4) Why do they need all of these government supports? In my past life, I helped fund start-ups at a venture capital firm. During my 2 years with the firm we invested nearly $100 million in a variety of start-ups most of which were utter failures. However, the one thing I've learned is that if a business plan is well designed there are plenty of investors willing to take a chance on new firm (I'm assuming that Florelle's US operations are like a start-up). However, in order to be talked into this deal NYS had to offer:

* a $250,000 loan from the Jefferson County Industrial Development Authority

* $250,000 in financing from the State Office of Community Renewal through the Community Development Block Grant program;

* a $200,000 loan from the Development Authority of the North Country

* a $100,000 grant from the Jefferson County Local Development Corporation.

* 75% property tax rebates

* Empire State Development will provide the paper manufacturer with a $250,000 grant toward reimbursement for a portion of the cost of new machinery and equipment.

* New York Power Authority (NYPA), announced the Canadian producer of paper products will allocate 1,300 kilowatts of hydroelectric power “in return for the investment and maintaining job commitments.”

source

5) Finally, I found it interesting that the number of jobs proposed suddenly grew by 50% as we're approaching the election next week. As recently as September, the news articles discussing this project said that it could bring "up to 50 jobs". Yesterday, the number of jobs suddenly jumped to "up to 75 jobs".

I really hope this group delivers on their plans to bring quality manufacturing jobs back to the North Country and taking advantage of the US/Canadian exchange rate could really prove to be a model for growth in NNY. Stay tuned.

Cheers!

Oh, GDP number was pretty weak. Mostly inventory building, weak final sales. It doesn't matter to the stock market because the market is focused entirely on the Fed's announcement next week.

Thursday, October 28, 2010

Economy and politics

The initial claims data was a little better than expected at 434k while the previous week was revised upward. This is modestly positive that the claims fell but they remain elevated so it's kind of like saying that your bookie is only going to break 2 of your fingers instead of 3 if you don't pay up for Pittsburgh not covering last week.

There was further evidence that the government's HAMP (mortgage modification) program still leaves up to half of the participants redefaulting under the new terms. It depends if you are a glass half full or half empty person to determine if you think the program is a success or failure.

"Half of the so far nearly 500,000 permanent modifications completed by servicers participating in the Home Affordable Modification Program will redefault, Sen. Ted Kaufman (D-Del.), chairman of the Congressional Oversight Panel said Wednesday."

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Well, we're less than a week away from the mid-term elections and no matter what your political leanings, I think we can all agree that the entire process stinks. Mudslinging and constantly distorting the facts makes the electorate tune out all political discourse.

"A well-known political fact-checking group has pored over the 2010 election and come up with a rating for the year: “barely true.”

PolitiFact, a product of The St. Petersburg Times that is rapidly expanding into local precincts, said Wednesday that a majority of the claims by candidates that it has checked out this fall have been, well, murky.


In most of them “we found a grain of truth, but it was exaggerated, twisted or distorted,” the Web site’s editor."

You can checkout Politifact's survey of the ads online here. They don't cover NYS yet, so it seems our candidates are safe.

The scary thing is that if you're turned off by the political carpet bombing this year, wait until 2012. This year might look like a town council race by the time we get to 2012. So, now that we've let the genie out of the bottle is there any way to turn back the clock to a more civil time? It's not likely, but I do like this proposal put forth by the British press. In the UK (and many other European countries) paid political ads on TV and radio are banned because they are viewed as unfair (there isn't an opportunity for your opponent to respond). Most western European countries allocate free air time to political parties during election campaigns. Britain also has rules that outlaw the attack ads.

Wouldn't that be refreshing? No attack ads, no ads at all, just a weekly discussion about the issues hosted by the local media (of course, you'd have to ban robo-calls, emails, tweets, websites, flyers and planes towing banners, as well).

However, when there are bored people with huge piles of cash (Meg Whitman is probably going to spend $140 million in California and LOSE!) the political industry - consultants, tv stations, newspapers, etc. - would never let it happen.

Maybe we could talk a mid-size state like, PA or OH into being a testing ground in 2012 for new "ad-free" election cycle. Someone should start working on that :)

Cheers!

Separating you from your cash

Well, it's almost Halloween which can only mean one thing: It's going to be BLACK FRIDAY SOON!

Before you fall prey to the steady stream of news reports showing people lining up for hours in the freezing cold to buy some ZXIANG PANG 42" LCD for $399 consider these "Black Friday MYTHS" exposed by Dealnews.com

MYTH: The deals are so good on Black Friday, they're worth sleeping overnight on a curb for, right? Italic

Nope, most of the "deals" will be met or beaten by prices later during the holiday season. For any consumer product prices are going to be falling for the foreseeable future. Anything made out of cotton however, is likely to get meaningfully more expensive as Cotton has hit a 145 year high recently (but remember there is no inflation). Also, in their Black Friday ads, retailers often mix in their everyday prices with their steeper discounts, hoping that a shopper will bite on a high-profit item.


MYTH: Black Friday is the busiest shopping day of the year. The Saturday before December 25 is actually the busiest shopping day of the year.

MYTH: Black Friday prices are always sale prices. Not only are some deals matched later on, some prices were better before Black Friday. In the past several years, retailers have been caught red-handed jacking up prices before Black Friday, then lowering them with supposed discounts that leave the price higher than it was before.

This is very prevalent in many of the large department stores. They'll take an item that's $80 and jack the price to $120 and then offer a 30% discount (down to $84) on Black Friday. You think you're getting a deal and you just got taken for an extra $4 and robbed of 3 hours of sleep.

MYTH: Leaked Black Friday ads are accurate. In fact, they are often inaccurate. See last year's leaked OfficeMax flyer. It was 100% inaccurate. This year has already had its first failure, as two conflicting Harbor Freight ads have been released (hopefully one of those is right).

MYTH: Black Friday is the best day to buy a new TV. For the last three years, the best time to buy a good TV wasn't on Black Friday; it was either in December (2007 & 2008) or January (2009). The rule is that Black Friday is the best time of the year to buy no-name TVs, and the weeks following are the best time to buy high-end TVs.

I'd actually disagree with Dealnews a bit here. Yes, the best time to buy a name brand (Sony, Samsung, Toshiba) TV with a traditional sales price might be December however, stores always overstock TVs heading into Christmas and the Superbowl. If you can wait them out, you'll see massive clearances of the existing stock of TVs in June-September because stores will be building inventory of new TV's heading into the holidays. I waited about 14 years between TV purchases and when I finally broke down this summer it was for a TV that was priced at 25% of it's current online price.

The best advice is to assume that every Black Friday ad is trying to separate you from your hard earned cash and you'll look at them with a more critical eye. This should not be your mantra : when they say jump, you say how high? (Bonus points if you can id the RATM song with that quote).

Cheers!

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The highlight of the President's interview with John Stewart last night had to be this little exchange:

President Obama: "In fairness, Larry (Summers) did a heck of a job"
Stewart: "You don't want to use that phrase, dude."

I'm not entirely sure the President understood why it was so funny (remember "Heckuva job Brownie" from Katrina?), but he did follow it up with "pun intended" so it felt like he was in on the joke.

Tuesday, October 26, 2010

Stat of the day

Well, it's actually "stats" of the day dealing with those individuals breathing the rarefied air at the tippy top of our income pyramid in the US. We're talking about people making over $50 million/year. I assume this includes Spielberg, Howard Stern, Oprah, Tiger and a bunch of guys on Wall Street you've never heard of (sadly for yours truly, many of them were former colleagues and competitors. Wall Street has been berry, berry good to them). Courtesy of tax.com:

"The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year."

The first thing that strikes me there is that only 74 people in the entire US make over $50 million. I know many people take equity as pay instead of a salary so it's hard to actually cross that threshold after deductions, but still $50 million seems like it would be doable for more than 74 people, but I digress.

"But that’s only part of the story. The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009.

That’s nearly $10 million in weekly pay!

You read that right. In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43 percent, this group’s total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6 percent of all pay.

These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers."

I applaud the success of these individuals that can pull down $500 million in the midst of the Great Recession (remember while Wall Street has been basically flat for a decade it's been very volatile for the past 2 years so active traders are getting paid. Active hedge fund managers probably dominate this list in my opinion - the top hedge fund man pulled down a cool $4 BILLION in 2009), but the fact that 74 people earned more than the 19 million lowest paid individuals in the US is a shocking statistic.

Again, keep in mind this is really who we are talking about when you hear candidates bickering about extending all or part of the Bush tax cuts - these 74 people making $500 million/year, not the family farmer or the local dry cleaner.

If you feel they reaped some benefits during the past decade under the "temporary" Bush tax cuts and they could pay another 3% of their income (a significant $15 million average in this case) then you might want to consider voting for a Democrat.

If you feel that these people are already taxed excessively - despite the fact that they employ legions of minions from the Big 4 accounting firms to minimize their tax burden - and you'd like to see them continue to pay 36% of their income in tax, then you probably should vote for a Republican.

It's almost election day!

Cheers!

Monday, October 25, 2010

An honest discussion about our future

Okay, so the election is about a week away and we've still not heard a substantive commentary from any candidate on their vision for the future. It's all

"I'll create jobs (but I don't have a plan, just a catch phrase)"
"I'll save jobs (even though, those jobs were state jobs that will probably be cut next year)"
"I'll cut your taxes (not really, but it sounds good)"
"He gets his hair cut in the same town that NANCY PELOSI once visited on vacation (anything to get Nancy Pelosi in the ad)", etc..

Here's the real deal.

1) We have to raise some taxes on some people. Income taxes need to go up for the wealthiest 300,000 people in the US. The other 306,700,000 of us should have our income taxes held flat. That's the long and the short of it. Are you for or against higher taxes on the richest 300,000 people? The other 307 million of us will not be impacted.

2) We'll need some more consumption taxes (namely on fuel). Add an extra dollar to every gallon and that funds investment in batteries or other technologies.

3) Spending. Yes, it's out of control. No, it's not all President Obama's fault. Here's the analogy that I like to use: The US economy was a heavy social drinker in the late 90's. Post 9/11 we became a paranoid drunk that had to down a case of Natty Lights every day just to "maintain". After the financial crisis we switched to downing a bottle of Jack every day. Now, we've suddenly realized that we have a little "spending" problem. Do you want to quit cold turkey (which may be violent and painful) or ease off the sauce (which may or may not work)? While it would have been easier to cut spending 10 years ago, that's water under the bridge, we have to deal with the situation at hand. I think a goal of reducing the Federal Budget by 10% in 2011 would be a great start but it would be very, very painful. Many people would lose their jobs and many are never going to be employable again (last night's 60 minutes episode made that very clear). This is the sad, painful truth.

4) We need to figure out a way to make our citizens valuable. Tom Friedman made the point over the weekend that we need to figure out a way to make 1 US employee more valuable than the 10 or 20 Chinese or Indian workers that you can employ for the same cost. This is very challenging because many companies only see the bottom line and lose sight of the quality of the product produced. This is probably one of our top 5 greatest challenges over the next 20 years.

5) No amount of stimulus can change the fact that businesses will only expand when they see an opportunity to gain additional customers. There isn't sufficient demand to expand at this point. Until demand returns we are likely to continue on our current path.

Okay, I'll offer up one freebie to the politicians running for office. Do you want a cheap and easy way to stimulate activity in corporate America? Repatriation.

Allow me to explain. Let's imagine a large US based multinational named MBI. They earn billions of dollars around the world but the profits earned overseas aren't taxed by the US as long as the money stays overseas. So MBI builds another data center in Bangalore or Shanghai instead of expanding in NYS. It has been estimated that there is nearly $1 TRILLION of US profits located overseas. Again, we're never going to get to tax this money because it was earned overseas and it will stay there as long as there is a prospect of taxing that money.

However, if we offered a 1 year, tax free repatriation of profits, companies like MBI could bring that money back to the US without fear of the taxman. This is a way to stimulate the economy without spending a dime. Yes, it would be derided as siding with big business, but if MBI builds a new research location in NYS and hires 200 new engineers I think we'd all be happy we sided with big business.

Cheers!

Cheers!

Everything is heading to the moon (except us).

First, a little sad commentary on the trajectory of the US. While sitting in a planetarium yesterday with my oldest daughter, we were pondering the size of the Andromeda galaxy when we started talking about the end of the US space shuttle program. I mentioned how we'd still be going into space just on Russian rockets to which my daughter responded "I guess if you want to be an astronaut you'll have to learn Russian."

It's stunning to me that the country that won the race to the moon has been reduced to outsourcing our leaps forward in just 2 short generations.

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Markets are heading back up on the back of a weaker dollar. The talk on Wall Street seems to be that the Fed could have to inject up to $4 TRILLION in it's next round of easing in order to jack up the economy. I'm not convinced that this will work to save the economy, but that is the plan so you need to be prepared for it.

The biggest impact however, will likely be on your wallet. Remember two weeks ago when the government said there would be no cost of living adjustments for Social Security recipients because prices aren't rising? Oops. It seems that prices are rising just in "volatile" items like food and energy. Consider these price moves SINCE LAST NIGHT :

Oil, up 1%.
Wheat, up 1.49%.
Corn, up 2.05%.
Soy, up 1.5%.
Rough Rice, up 1.51%.
Oats, up a stunning 4.27%
Cotton is lock-limit up 5%

As long as you don't have to eat, drive, heat your house or buy clothes you should be fine. Again, these aren't annual price increases, that is what happened to those commodities in the last 6 hours!!

Remember the equation: Fed easing = Lower US Dollar = Higher Stock Prices = Higher prices for everything you buy.

The only thing that could hurt this plan is the market's expectation that the FED is going to come into the market in a huge way next week (up to $4 Trillion). What happens if they ease into the market with "just" $100 billion? The "sell the news" event could be substantial (however, for the conspiracy theorists out there, note that event will occur after the elections next week).

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I'll offer up this story without commentary - the key to a long lasting marriage appears to be ignorance of you spouses likes and dislikes.

"Long-lasting marriages may thrive on love, compromise and increasing ignorance about one another. Couples married for an average of 40 years know less about one another’s food, movie and kitchen-design preferences than do partners who have been married or in committed relationships for a year or two, a new study finds."

Okay, I promised no commentary, but I actually think that this is pretty easy to explain. Newlyweds haven't changed their tastes. If you're a 25 year old couple that likes cheesy romantic comedies, you'll still like them a year later. However a 68 year old couple probably has seen their tastes evolve so that one person might be into science fiction while his wife might have found an appreciate for dark, sarcastic comedies.

Cheers!

Tuesday, October 19, 2010

Topic 2: Spending



If my inbox is any indication taxes were a bit of a hot button issue, so why not dive into the latest hot topic of campaigns around the country - spending.

For what it's worth, we should note that CONGRESS, not the President, controls spending but it's easier to blame (or on those rare, rare occasions credit) the President when it comes to spending.

The above chart looks at the spending patterns of the Federal Government and resets the spending at 100 with each new administration. The key take-aways?

1) EVERY President increases spending. Although, Clinton and the Republican Congress of the early 90's really kept a lid on things.

2) For all of the vilification of President Obama consider the rate of increase of these 5 Presidents over the first 15 months of their administrations:

Bush Sr. — 115.6
Bush Jr. — 115.1
Obama — 109.5
Reagan -- 100.9
Clinton -- 100.2

Again, these numbers exclude defense spending which makes the Bush numbers even more surprising.


President Obama has been hit with a double whammy. Falling tax revenues coupled with rising spending and that has sent the Tea Partiers into the street. However, I don't remember them complaining this much about out of control spending under Bush 1 or Bush 2. Could there be another rationale for their anger? I'll let the talking heads figure that out on their own.

Oh, boy. I'm really hesitant to hit the publish button on this one because I'm afraid it might blow up my email server, but here goes....

Cheers!

Tuesday Funnies...


As a monopoly fan that gets consistently throttled by my 7 yr old the real estate tycoon, this cartoon struck a chord.

Monday, October 18, 2010

Negative ads seem to be as American as AAPL Pie

I'll get to the negative ads in a second. Remember that Apple (AAPL) represents about 20% of the Nasdaq these days and for the first time in recent memory they served up a clunker of an earnings report. Lighter iPad sales and supply constraints seem to be taking the wind out of their sails right now. The stock closed around $318 today and is down about $20 after hours (however, that could reverse by the time the silicon traders get going in the morning). It's worth watching.

** Wow, they really can't keep Apple down. The trading has been a slow and steady march back from down over $20 last night to down just $6. It has all of the markings of the computers handing shares back and forth for a penny here or there. The last hour or so of trading in Apple today could get wild (they might ramp it hard or sell it off, no clear indication yet, but I wouldn't bet that things will just sit flat from here until 4pm).

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We are clearly entering the final stretch in all political races as the ads have become more negative and continue to play fast and loose with the facts.

Over the coming weeks I'll try to peel back some of the layers of the major issues facing the country today and offer my version of the truth as I see it on those issues.

Taxes - I don't think there is a more divisive issue. Everyone thinks their over taxed and they get nothing in return for those taxes. I even saw a former partial-term governor of a tiny state complaining about Federal taxes on TV today (I find this particularly ironic consider her former state is the biggest beneficiary of Federal Government pork).

However, the big issue on taxes today centers on extending the Bush tax cuts. By now you should know that we're really talking about a small difference between the democratic and republican proposals. If you are a couple earning under $250k (after deductions) you're tax bill would not likely change under either the democrats or republicans.

If you are fortunate enough to make between $250k and $1 million, the Democrats (sarcasm on) would tax the heck out of you (sarcasm off) to the tune of an extra $988/year. The Republicans feel that you will not just put that $988 in the bank but instead you will stimulate the economy by hiring extra employees (for three days?!?!?).

So again, if you make under a million/year in taxable income there really isn't that big of a difference between the two plans. Despite all of the charges flying across the screen if you make less than a million it really doesn't matter that much. So why all of the controversy?

The real change occurs for the top 0.1%, those making over $8.4 million. First a little context: $8.4 million isn't sales or net income. We're talking $8.4 million in taxable income. This isn't Joe the dry cleaner money (unless he has a huge grow shop in his basement), this is big boy income and while I don't have any tax data to back it up I'd bet there are fewer than a handful of individuals who live in NY-23 making that kind of income.

In the entire US we're talking about less than 300,000 people filing tax returns with this kind of income.

However, the annual tax hit for these people would be substantial under the Democratic plan. Their average tax bill would jump by more than $310k per year. The Republicans would like these top earners to keep this extra income in their pocket and hopefully hire an extra worker or two.

The flaw in the Republican argument is that it's just not true. Study after study has shown that for every dollar you sacrifice in tax cuts you are never able to recover a like amount in future tax revenues. If you take a person making $10 million and cut their taxes from $4 million to $3.6 million. They still have about $6 million in free cash flow so an extra $400k isn't going to change their life. If they chose to reinvest that $400k in their business you may eventually see some additional jobs but it takes too long to turn that money into tax revenue (many of the jobs they create tend to be low wage entry level jobs with limited tax obligations).

However, as we've seen a million times before we can't let facts get in the way of a good story.

Before you assume that I'm Nancy Pelosi in sheep's clothing, know that I think that the Democratic plan is too costly as well. When the Bush "TEMPORARY" tax cuts were enacted it was assumed that they would expire or else our budgets in the next decade would be screwed. Well, now the Democrats want to extend most of these TEMPORARY tax cuts costing us about $2 trillion in lost revenues. The Republicans want to extend them all costing us $2.7 trillion.

I'm okay with that as long as we offset that cost with other spending cuts. Where do you want to start? Defense, Social Security, Medicare? Those are the only real options for the kind of numbers we're talking about. Cut defense spending in half next year, close 3/4ths of our military bases and you can have all of the tax cuts you want.

You can see why no one is beating down my door to run for office :)

I'm an equal opportunity offender.

Sunday, October 17, 2010

Fun with numbers...

So McDonald's is back promoting their notoriously terrible "Monopoly" game because people continue to fall for the hope of easy money while ingesting their weeks worth of sodium.

Thankfully, someone has gone through and crunched the numbers to show everyone how ridiculous the odds are on this game. Over at Eat with a Spork they've created a calculator to show you the number of Big Mac's you'd have to purchase in order to guarantee that you'd win the prize of your choice.

Let's say you want to win a $10 Walmart gift card. That seems like a reasonable goal, right?

You'd have to buy 3,323 Big Macs to guarantee a winning ticket of $10!

Along the way you will have ingested 1,794,420 calories. Inhaled 96,367 grams of fat and 3,455,920 milligrams of sodium.

And you probably tacked on 512.69 pounds.

Finally, because you are financial wizard, you spent $12,394.79 trying to win a $10 prize.

It's really funny to start looking at the higher value prizes. If you want a $500 Walmart card you'd have to eat over 108,000 Big Macs costing over $400,000.

Cheers!

Thursday, October 14, 2010

It's the "la-la-la-la-la-la" market

Have you ever seen a 3 year old standing next to his mother with his fingers in his ears singing "la-la-la-la-la-la" while his mom tries to explain why he can't go around smashing every glass in the china shop? Well, that's the stock market right now. The parallels to 2008 seem to be growing every day as the market shrugs of every bit of bad news and roars back (yeah, I know the market was down a bit today but it was down about 1% at 3pm when the HAL9000 decided he wanted to be flat and stocks roared back to even in the last hour).

Google continues to blow away their numbers because people continue to click on those "MAKE $73/hour at home!!" ads. For 8 years, I've watch in amazement as google has built a global empire off a business model that preys on our inability to tell the difference between "sponsored results" (ie, ads) and actual search results. I also love the fact that they have convinced everyone to exclude "traffic acquisition costs" from their expense items. That's like McDonald's excluding the cost of advertising, but Google is rocking after hours so ignore things like riots in Europe, the falling dollar, $3.10 gas (and rising), higher than expected unemployment claims, widening trade gap and widening CDS spreads on the banks (this is very, very much like 2008).

Tomorrow is an extremely heavy data day with Bernanke speaking, CPI, Retail Sales, Empire Manufacturing, and Consumer Sentiment. The market could swing pretty wildly in the first 2 hours or it could go straight up or straight down :)

Cheers!

Wednesday, October 13, 2010

Melt up, up and away

We're still in the same mode on the market. The dollar falls and commodities like stocks and oil rise. You can see this in real time as the gas prices jump 4 cents every day. It will take a bit longer to show up on the shelves but you can also expect jumps in wheat, sugar, coffee, poultry, beef, and pork. When coupled with the new ethanol ruling today (nothing like clamoring for a few farm votes before a critical election) corn might get very pricey in the next year.

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Trivia question of the night: What was the best performing stock market in the world over the past 5 years?

Answer: Zimbabwe. Now, I'm not implying that our situation is like Zimbabwe but in a country where the currency plummets in value their stock market went from 1,420 to 5,418,000,000,000. Yeah, that's a 5 Trillion! Unfortunately, their dollars aren't worth anything so it's meaningless.

I read a good explanation of how to picture the big numbers we toss around so casually today.

If you want to have a million dollars just put $500 in a box every week for 40 years.

If you want a billion dollars make it $500,000 every week for 40 years.

If you want a trillion dollars you need to put $500,000,000 in a box every week for 40 years. $500 million every week for 40 years. Yikes.

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Not that anyone seems to care about the real economy anymore it's all about Facebook and iCrap, but out in the real world the UCLA Pulse of the Economy Index "fell .5 percent in September after falling 1.0 percent in August, which is the first time the index has experienced a consecutive monthly decline since January 2009."

The money quote from the report "Our economy’s loss in traction is alarming."

Cheers!

Tuesday, October 12, 2010

Making a little Applesauce...

It's been a few weeks since I've complained about Apple so here goes....

"According to the Q2 update global smart phone update, Apple saw a -4.0% sequential change in market share growth, while HTC was the big winner at +63.1%. From iSuppli: "In a sign of the growing momentum behind Google Corp.’s Android, makers of handsets utilizing the operating system represented the majority of the fastest-growing firms among the Top 10 smart phone brands in the second quarter, according to the mobile and wireless research firm iSuppli Corp."

I think Android faces an uphill climb because their Apps aren't as robust and the developers can't get paid the same rate as they do on an iphone, but there are some definite cracks in the iphone armor. Remember Apple is the stock market so it's worth watching what happens here. Speaking of cracks in the armor....

"Warranty firm SqaureTrade claims that the iPhone 4 screen is 82% more likely to break than the screen on an iPhone 3GS.

"SquareTrade said in its analysis that it examined 20,000 iPhone 4 models covered under its SquareTrade Care Plans.

Among the conclusions of the study were:

iPhone 4 owners reported 82% more damaged screens in the first 4 months compared to iPhone 3gs owners.

Overall, the reported accident rate for iPhone 4s was 68% higher than for the iPhone 3gs.

An estimated 15.5% of iPhone 4 owners will have an accident within a year of buying their phone."

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Intel has sent global stock markets up in Asia overnight as it beat it's lowered expectations. In August, Intel lowered their guidance and said there was weaker consumer demand. Today, they announced results that cleared this lowered bar and it's RALLY ON!!!

Cheers!

Monday, October 11, 2010

Postal workers delay vote because ballots are "lost in the mail"?

From my "so crazy it has to be true" file....

"Members of the American Postal Workers Union, for obvious reason, elect their national officers via mail ballot. Most postal clerks, who sort the mail, belong to the union. Their union brothers with the National Association of Letter Carriers deliver the mail. And their track record, considering the massive daily mail volume, is very good.

Most of the time.

Normally the APWU election committee would be counting ballots this week, at the Four Points by Sheraton Hotel downtown. But there has been a problem. So far only 39,071 ballots have been received which is only a small percentage of the union's membership and a much lower total than in past elections.

So what happened to all those mail ballots?

You got it!

They seem to be lost in the mail."

To quote one of my favorite Seinfeld lines "That's gold, Jerry, gold!"


According to the union a lot of members say they haven't received their ballots. So...

They've extended the voting deadline to Oct. 14. "

A couple of points to share with a teen...

I think we can all agree that teenagers aren't the sharpest tools in the drawer. However, these two data points might get their attention.

From Calculated risk we get this chart on unemployment....



While it's a little hard to read you can see that the difference between the red line - less than high school diploma and the blue line - bachelor's degree is huge and growing. In 2007 the unemployment rate for those with less than a high school diploma was 8% while the unemployment rate for those with a bachelor's degree was around 2%. Today the unemployment rate for those with out a high school degree is pushing 16% (roughly 1 in 6) compared to just 4% for those with a bachelor's degree (roughly 1 in 25). I'm the first to point out the flaws in the college system in the US, but this should convince anyone on to buckle down when in high school.

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What if the cost of a pack of cigarettes wasn't $9 but rather $150? This is the contention of researchers that added the cost of premature death to determine the "true cost" of smoking.

"Researchers from the Polytechnic University of Cartagena (UPCT) estimate that each pack of cigarettes really costs €107 ($150 US) for men and €75 ($105 US) for women, when premature death is taken into account. These figures confirm previous studies, and are of key importance in the cost-benefit analysis of smoking-prevention policies."

One of the conclusions of the article is that the price one pays for each pack of cigarettes at a newsstand is only a very small price of the true price that smokers pay for their habit", Ángel López Nicolás, co-author of the study.

Imagine telling a group of teenagers they could have 2 packs of cigarettes or an Iphone 4. It might sway some teens that are on the fence.



Cheers!

Friday, October 08, 2010

Interesting jobs report

I'm breaking down the data right now, but while the headline was terrible - 95,000 jobs lost, U6 back over 17% - but the details are more mixed.

* The private payrolls rose 64k which was within range of expectations of +75k.

* The census job losses of -77k was almost spot on with expectations of -78k.

* The outlier was losses from local/state governments of -76k. I've said before that state and local governments will lag the private sector and could cause problems for the recovery crowd.

This is the problem for the markets with this report - it's not bad enough to guarantee full steam ahead for the Fed's quantitative easing program (which the market assumes is going to happen) but it's certainly not a "good" report that would indicate any sort of turn around in the economy.

I'll update with more info when I get a chance.

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So after looking at the data, I think this is a fairly weak report and I think the stock market is reflecting that -- again in bizarro world that is our stock market, bad news equals more fed efforts to undermine the US Dollar which will prop up stocks and commodities (as a side note, while the stock market is up over a 1.5% in the last week did you know that you still lost money even if you were fully invested? Yup, because the US dollar has fallen close to 2% your purchasing power continues to fall despite rising stock prices. Yippee!)

* This is a particularly troubling trend - "The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose by 612,000 over the month to 9.5 million. Over the past 2 months, the number of such workers has increased by 943,000. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job." Almost 10% of the part-time individuals have become part-time in the past 2 months?!?!

* The previous high for U-6 (unemployment + under employment + part-time) peaked at 17.4% back in October and we're back at 17.1% now.

* Hours worked was flat again.

I think as people have digested this information they've become more comfortable with the fact that the Fed is going to push $2 -$3 trillion into the market come November. Thus, stocks are up in nominal terms (though down in real terms) for the time being.

Thursday, October 07, 2010

September Jobs Report

So, the day will be ruled by the September jobs report. Here is my sense right now - I expect the private job losses to be worse than expected (maybe minus 50k) but the census job losses, seasonality and various other factors could make this another confusing report.

The second question is: what will be the market's reaction to the news? In the past, job losses were bad, job gains were good and the market reacted accordingly. However, we could have job losses, but smaller than expected job losses. This might cause the market to question it's theory that the Fed is going forward with it's plan to buy every piece of debt under the sun and thus, stocks could fall. Or if we lose more jobs than expected it could reinforce their idea that the Fed will ride to the rescue and stocks could rally hard.

I'm sitting this one out because there is too much white noise around this report.

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I know in the past I've promised to point out good websites when I see them, well this site is a winner: betterbidding.com

You've probably heard of sites like Priceline.com or Hotwire.com where you can get deeply discounted rates on hotel rooms. The problem with these sites is that you end up paying for a hotel room without knowing the name or location of the hotel. It might work out or you might end up sleeping next to the airport. Enter betterbidding. On Betterbidding people offer details on what Hotwire or Priceline told them before they paid (4 stars, 95% approval, pool, restaurant, etc, etc)and then they disclose what hotel they ultimate won.

Today, I researched a hotel in Toronto and identified a property that I felt comfortable with. I went to betterbidding and within about 5 minutes I felt like I knew which hotel I was looking at on Hotwire. The hotel's price on their website was $249 but on hotwire it was $129. I booked through Hotwire and was notified 10 seconds later that my hotel was indeed the one which I expected but just $120 Canadian cheaper (and we all know that $120 Canadian is like $1,334 US now).

It's not for everyone, but for my more frugal readers this is a great way to save a couple of loonies that you can later use to buy some Tim Horton's coffee.

Wednesday, October 06, 2010

Information overload

* The IMF cut their forecast for the US growth in 2010 but reiterated there will be no double dip. I'd argue that ex-stimulus spending we'd be pretty close to flat lining right now, but it should make for an interesting fall election cycle.

* Goldman only sees two outcomes for the US economy: a fairly bad one where the economy limps along at 1 1/2% and a very bad one where the economy slips back into recession. What concerns me is that we will need a great deal of cooperation in Washington to pull us up off the mat in 2011 and I don't see anyone in Washington that has any appetite for cooperating.

* Repeat after me -- we're out of the recession, we're out of the recession. Please ignore the quote behind the curtain "July foodstamp usage rose 1.4% from June, hitting a new record of 41.8 million, and 17.5% higher than the 35.6 million on assistance from a year ago. Participation has set records for 20 straight months."

* I keep data like this in my "Uh-oh" file -- the Federal Reserve will be the largest holder of US Treasuries in the world before the midterm elections. The Fed might own close to $850 billion in US Treasuries in early November. Holy.....That's like buying every house in town with no money down and borrowing the money from your wife. That might not end well.

* The money quote from the NY Fed yesterday basically sums up what I've been saying for 2 years -- "Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be.” Again, it adds to wealth by keeping asset prices (stocks and home prices) higher than they otherwise would be. Basically, he admits that we're artificially supporting asset prices. At some point someone has to realize that artificial price supports are not in the best interest of everyone including the holders of the inflated assets.

* I knew the for-profit college industry was taking advantage of students, but I thought it was harmless profiteering until I realized that the students in these schools are eating up a huge and growing chunk of student federal aid.

"the number of students enrolled at for-profit colleges from 2003-08 has jumped from 1 million to 1.8 million but the amount of federal student aid distributed to these schools has tripled from $8 billion to $24 billion. By comparison, federal student aid to not-for-profit and public schools only increased about 69% during the same time period.


Additionally, while for-profit schools only account for about 8% of total student enrollment, they accounted for 23% of federal student aid in 2008."

Cheers!

Tuesday, October 05, 2010

Japan throws in the towel and it's rally on!

The Bank of Japan cut interest rates to zero and pledged to keep them there as long as it takes to fix things -- which might take a long, long time.

"the central bank also decided to set up, as a temporary measure, a 35 trillion yen ($419 billion) pool of funds to buy or accept as collateral assets such as government bonds, commercial paper and asset-backed securities."

I think this is going to kick off another round of global quantitative easing with the Fed Reserve joining the party soon. Remember here is the equation, quantitative easing weakens your currency and pushes prices of EVERYTHING priced in those currencies - stocks, bonds, commodities - up. At the end of the day if you have $100 invested in a stock and easing pushes it up to $125 you might think you're ahead 25% until you go to spend that $125 and realize that it now only buys $85 of goods. Good times.

So, much like April/May 2009 when the war on currencies began we may experience another round melt up in stocks while the dollar marches lower.

However, I'm very concerned by the fact that EVERYONE is on the same page with this theory. Typically, when that happens we get surprised by something that no one sees coming.

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The service ISM was better than expectations and seems to have given the market another leg up. This is another result of weaker US dollars, our services become cheaper to foreign buyers when the greenback is crushed by currency traders. A big component of the jump was in the employment index and that just doesn't pass the sniff test. There is very little growth in services employment at the moment but facts tend to be considered disposable when it comes to government data.

Oh, and factory orders fell for the third time in the last 4 months, but let's ignore that today because it doesn't fit with the script for today.

Cheers!

Monday, October 04, 2010

Personal Income

One of the big stories last week was the news that personal incomes had jumped in August. This seems to fly in the face of everything we hear about a stagnant job market and flat wages.

"Personal income increased $59.3 billion, or 0.5 percent.

Personal consumption expenditures (PCE) increased $41.3 billion, or 0.4 percent.

Real PCE increased 0.2 percent, the same increase as in July."

However, with any good data point there is always a component that really jumps out at us. Jed Graham at investors.com helps to clarify this data with a great graph.






This shows that for all of the complaints about "big government" the proportion of personal income generated by government wages has been roughly flat for the past 30 years. However, in the past year, the proportion of personal income that is comprised of transfer payments (including: Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Food Stamps - now called Supplemental Nutrition Assistance Program (SNAP) , medical insurance (Medicaid and Medicare), and housing assistance.) has soared. Now government payments - wages and transfers - represents 30% of US personal income.

This isn't a political commentary on the state of our country, you can insert your own flawed political beliefs here, but I think it is important to read beneath the headlines. If you think the jump in personal income in August suggests a healthy, robust economy, you might want to wait until the September data comes out.

Cheers!

Mmmm, tasty.

Since everyone was so enthralled by the "mouse in the bread" photo, I thought I'd share my favorite food related stories and images of the weekend.
So, what's your best guess for this beautiful product made in the heartland of the US?



A) Strawberry Yogurt?
B) Cherry Vanilla Ice Cream? or
C) Mechanically Separated Chicken?
Before you SNAP into your next SLIM JIM remember this image of mechanically separated chicken which is defined as "a paste-like poultry product produced by forcing crushed bone and tissue through a sieve or similar device to separate bone from tissue."
Yummy.
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Since the corn lobby is tired of getting a bad rap for creating a national obesity epidemic by flooding the market with "high fructose corn syrup", they are considering a name change to the much more innocent sounding "corn sugar".
"The name is confusing, and consumers don’t understand that it has the same calories as sugar,” said Ms. Erickson, of the Corn Refiners Association. “They also think it’s sweeter tasting. That’s why the alternate name provides clarity for consumers when it comes to the ingredient composition and helps them better understand what’s in their foods.”
While I try to avoid HFCS, I agree that scientifically, it's not that different from the other sugar alternatives. HFCS is more dangerous because of the substantial corn subsidies offered by the government which makes HFCS extremely cheap relative to other sugars. The low cost of HFCS has led to it's excessive use in a variety of foods, particularly low cost foods that have limited nutritional value.
Cheers and enjoy those chicken patties!