Thursday, May 29, 2014

The economy shrinks 1% in Q1 2014 and BOOM STOCKS SOAR TO NEW RECORDS!

This won't come as news to regular readers but the "bad news is good news" crowd was running wild today.  I've watched a series of data come in over the past 2 months which seemed to me to indicate that the Q1 GDP for the US would be lower than the initial number and probably fall to -1% to -1.2%.  When the final number came in at -1% today it was easily explained to those of us in the Northeast with a simple "but remember the snow!!!".  Conveniently, this ignores the fact that California where 12% of America lives/works was warmer and drier than normal, but why get hung up on facts.

So, the question remains, even if the GDP number was old and influenced by snow, it can't be good for stocks that our economy shrank, can it?  Well, this is where it gets interesting.  There is a small percentage of the public that still buys the "hey, if things get bad, the Fed will step in again and again and AGAIN".  I do not believe this to be the case but there are some that buy that message.  However, this market continues to be driven by computers which are buying based on currency moves which are far to complex to cover in a blog.  Interestingly, interest rates continue to fall which means bond prices are rising which is generally a sign of fear of weakening in the economy.  So should we believe the stock market or the bond market?  Time will tell.

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In a related story, I read last week that state income tax receipts fell on average about 10% from 2013 in the first quarter.  This is a really troubling trend because 1) states are spending like they have access to unlimited cash and 2) income tax receipts are a pretty good predictor of economic activity.

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Finally, I'd note that there is another data point measuring the movement of money - a general gauge of economic activity - slowed dramatically in April (after all of the snowstorms) to 1.6% from 6% 2013.  Hmm, something is going on here beneath the surface of our bubbly stock market.

Cheers!


Wednesday, May 28, 2014

Momma, let your kids grow up to play in the NFL, NBA, or NHL....

I think I've mentioned before that my kids tell me that I'm the cloud on their sunny day, because I have to inject a dose of realism into every conversation.  It's fine to have hopes, dreams and goals, but hard work and determination are keys to making those hopes and dreams a reality.

However, their is one hurdle that no amount of determination can overcome (yet).  While I'm sure there is some pharma company somewhere working on the next super drug that will add 8" to your child's max height and 35lbs of muscle mass but as of right now you're genes are pretty much your genes.

This chart was posted by deadspin......



 That little black dot on the lower left hand side of the chart?  That's the average 20 year old male - 5'9" and 195lbs.

The next time you're watching an NFL game and you see the "little guys" running 4.2 second 40 yd dashes remember that those little running backs average 6' and 225lbs.   It is interesting that baseball and hockey players are all clustered around 6'-6'2" and 200-220lbs which while big is not all that unusual. However, if you have any basketball dreams look at that chart and think about how many people do you know that are really 6'5" (shooting guards) or 6'8" (SMALL forwards)?

Well, I guess there is always soccer. :)

Cheers!

Wednesday, May 21, 2014

A bill rate only an accountant or lawyer could love.....

Northrup Grumman might be in a bit of hot water over some questionable billings they submitted to the Federal Government. *

Apparently the company billed a little over $100 million in questionable costs related to a "counter narcoterrorism" contract and....... WAIT, A WHAT CONTRACT?

According to Northrup Grumman's website they provide a convenient definition of this term they apparently made up -

"Northrop Grumman has organized a team to support the U.S. Government in their efforts to counter narcoterrorism worldwide. This team offers the breadth of 52 companies led by the full enterprise and resources of Northrop Grumman. With capabilities that span a multitude of functional areas (see reverse) this team is providing technology, training, logistics, and operational support to forward deployed military and host nation/ government personnel today.

Whether it is mentoring law enforcement personnel in Afghanistan, training Mexican helicopter pilots, tracking terrorist finances, operating Russian helicopters, integrating airborne ISR platforms, or procuring and maintaining equipment for Afghanistan, Pakistan, Kyrgyzstan, Latvia, and Central and South America, Team CNGS works hand-in-hand with our customers to ensure they receive the best value and highest quality products and services available."

So I could go into a long discussion on the pointless nature of this kind of spending, but instead, I'll focus on this little nugget hidden in the Inspector General's report:

"The IG found $21.7 million in “potentially excessive payments” for overtime, including one employee who billed $176,900 for 1,208 hours in a 12-day period. 

That caught investigators’ attention, since the employee was billing for more than 100 hours a day.

Well, I'm glad that it caught someones attention when a contractor billed for 100 hours in a day, but it really makes you wonder how many of these slip through the cracks.  No wonder the holy grail for every consultant/software company, etc, is a big contract with the government.

* Ha, we all know that nothing will come of this, but it's fun to dream.

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I always find this data amazing and I know it's hard to believe when it's cold outside but there is a reason that it is not called Watertown NY Climate Change, but rather Global Climate Change.

If you are under the age of 29 you have never experienced a month that was cooler than normal globally.  Look at this map, yes, the Northeast and Canada were cooler than normal in April and yes, that is where a lot of western media is based so guess what they covered "is Spring ever coming?", etc.  However look at the rest of the planet - 70% of Africa, All of Europe, Asia, Australia, most of South America, Northern Russia, etc - all experienced another above average month.  On a global scale the last month that was below normal was in 1985 or 350 months in a row above average.

So, yes, it might be cold and wet here in the Northeast this summer (due in part to a warming of the Pacific Ocean) but the point is that you can't judge the global climate by looking out of your window.  I know this won't stop the people in the grocery store from asking me "Where's all this global warming I keep hearing about?" but perhaps it will lead to a more rationale discussion of temperatures globally.



Cheers!

Sunday, May 18, 2014

A national ad campaign targeting 0.03% of the population?

If you listen to AM radio or watch shows like 60 minutes or Sunday Morning w/Charles Osgood (yes, I know I'm 142 yrs old) you have probably heard or seen this new drug which is being advertised to treat a serious condition called non24.

Apparently, this something that is a real challenge for fully blind people because their eyes are unable to process the light around them so their bodies have a difficult time telling day from night and it can interrupt their sleep patterns.  Obviously, this is serious condition.

However, the more I thought about it I realized that this is targeting a very small addressable market.  Most estimates say there are roughly 80,000 fully blind people in the US or roughly 2.6 people out of every 10,000.  However, according to some ad spending websites, the company behind this drug is running this commercial nationally almost 1,000 times/week to target 56,000 potential customers (the company's own statistics say that about 70% of those suffering from total blindness also deal with non24)??

So, what gives?

I'm guessing Off-Label Use.  When listening to the commercial the company clearly identifies that this is for people that are totally blind, but they linger over words like "difficultly sleeping", "I was groggy", "sluggishness", "forgetfulness", etc., and ends with an appeal to a website to see if you have non24.  Off-label marketing is illegal, but off-label use is not necessarily illegal.  The skeptic in me thinks that this company would like to plant the seed in the minds of millions of Americans with sleep issues that "hey, maybe I have that non24 thing" because sometimes I'm tired.  Hopefully, I'm wrong but I won't be surprised if this company is trying to broaden it's user base with a little slick marketing.

Cheers!

Friday, May 16, 2014

Cruisin' for a Bruisin'

As anyone that knows me can attest, we don't watch a lot of regular TV in our house.  The fact that I still have the $10 basic, BASIC cable plan probably says I prioritize TV somewhere between fertilizing my lawn and finally finishing all of the Canterbury Tales (however, Netflix & Amazon Prime do get a good workout in our house).

Having said this, it's hard to miss the large person yelling at me to buy a car in May so that I can be held captive on a floating Norovirus breeding ground..... I mean receive a cruise for 2 this December.  If you are not in NY or Florida this won't make a lot of sense, but basically one large car dealer in NY/FL buys 1 out of every 4 spots on local media (maybe that's a slight exaggeration) and he is offering a deal - buy a car get a cruise for 2.

1) At first a little light bulb went off when I heard this because to me that sounds like a something the taxman might be interested in.  Generally, when a benefit is derived even if no cash changes a hands, a 1099 will be issued to the recipient (in this case the car buyer) for the "value received" (here the value of a cruise) and the buyer would have to pay tax on this benefit in 2015.

However, it sounds like they found a way around this issue.  While you can't find an of the fine print online, if you pause their commercials it says "Cruise for 2 INCLUDED with the purchase of a new or pre-owned vehicle.......".  There is the key distinction -- they are not GIVING you a cruise, they are merely including it in the purchase price so that it is not a taxable event.

2) Then the question becomes well, wouldn't people notice thousands of dollars being added to the price of their car?  Well, again here is where a little slight of hand takes place.  This cruise is taking a very short loop of a little used route (Tampa, Key West, Cozumel, Tampa) in early December which, as any Disney family can tell you, is the absolute bottom of the Florida tourist market.  You can book basically this same cruise today for $239/per person.  What would be really interesting to see is to find out if I bought a car for x in April (with no incentive) would that same car be x + $478 this month?  Since pricing data is so hard to gather in the auto industry it is impossible to know, but if anyone has any real-time stats I'd be happy review them.

3) Okay, but still that's a $478 cruise for "free"....well, I guess I paid for it, but they are covering the departure fees!!  True, but take note of where the cruise departs - Tampa, FL.  If you live or winter in Tampa -- awesome for you.  If not, they've conveniently arranged to offer a flights from upstate NY & hotel for $590/person.  So now your "free" cruise (that you paid for) is going to cost you another $1,280.

I'm not trying to rain on anyone's parade - most of the people that went on this cruise last year when it was offered to Florida residents seemed to enjoy it.  They knew they were paying for it but they liked the feeling of getting something for free.  It's the same thought process as going to Friendly's for the "Free sundae".  Yes, it's free but you just paid $13.95 for a terrible burger so was it really free?

I just hope that we'll one day reach a point in the next generation or two where people become so immune to these type of advertising gimmicks that they no longer work.

Now go buy a Kia okay!!!


Wednesday, May 14, 2014

Small commercial...

Okay, I don't promote anything here but if you're looking for some interesting reading some night it's harder to find a better collection of random facts than www.mentalfloss.com.

For example, consider this map that was compiled by Ben Blatt at Slate but I would have missed it if not for Mental Floss.  This shows the most common language spoken in each state other than Spanish or English.


I'm a little embarrassed to admit I had to google Tagalog considering my first college roommate was from the Philippines (well, actually Staten Island and I think he spoke more fluent Italian than Tagalog).

Cheers!

Monday, May 12, 2014

Stocks hit record highs because........

Well, that's the $64k question tonight.  My favorite explanation of the day was from one of the talking heads on CNBC who said stocks are up because the Dow hit a new high --- ugh.

Anyway, here's what I saw and bear with me because this is not your father's stock market.

There has been a large, persistent seller of the Volatility Index or VIX in the market for the past few months. This measure traditionally measures fear in the market but you can easily influence computer trading platforms that use VIX as a component of their trading formulas.  In a simplified model, assume that you had an auto order system that said buy the S&P 500 in $10 mil increments every time the VIX falls 0.25 pts. Well, if someone forces the VIX down in the premarket, it triggers buying, which in turn pushes down the VIX, which in turn triggers buying and so on.

Remember the good old days when you bought a stock because you thought they could sell a product for more than it cost to make it?  Yeah, those days are long gone.

The second factor that triggered today's melt-up was some panic buying to cover short positions.  Again, many computerized trading platforms have triggers that are fairly well known.  Many of the high-flying dotcoms of the latest bubble were absolutely crushed last week.  This led some late short-sellers to join the fun hoping to make a quick buck.  However, they have tight trading collars on those positions and if stocks start to move up the programs buy immediately.  Thus, when the market opened up a little today, the programs went to work buying more (to cover the short positions), this created more buying and more short covering and before you blinked the market was off to the races.

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In perhaps the most troubling news for the US tech industry in recent memory, Reporter Glenn Greenwald will apparently publish evidence tomorrow that is worth noting.  Mr. Greenwald alleges that the NSA intercepts routers and servers being shipped from US companies, "compromises them" (which I read as they install some form of spyware) and then allows them to be shipped to the customer.  At this point few things the NSA does surprise me but if you are buyer of large hardware would you think twice about using anything sourced in the US.

Cheers!

Sunday, May 11, 2014

Expect the Unexpected

I was tipped off to this interesting data at the Calculated Risk Blog.  The topic was a wonky set of tables on exciting topics like life expectancy (hey, if you come for the financial commentary, I throw in the sarcasm for free).

Anyway, there are some data points in this report which are really amazing.

1) Life expectancy in the US

"The most frequently used life table statistic is life expectancy (ex), which is the average number of years of life remaining for persons who have attained a given age (x). To illustrate, 56,572 persons out of the original 2009 hypothetical life table cohort of 100,000 (or 56.6%) were alive at exact age 80. In other words, the probability that a person will survive from birth to age 80, given 2009 age-specific mortality, is 56.6%." 

So this says that a child born 2009 has a better than 50/50 chance of living to 80 years old in the US.  

2) Odds of getting to 100

However, this is the knock your socks off stat.  In 1900 for every 100,000 children born just 13 made it to see the year 2000 (lived to 100) or a roughly a 1 in 10,000 chance of getting to 100.  However, by 2009 for every 100,000 children born an amazing 2,056 are expected to hit triple digits or 2.06% of all births!  That's a 1 in 50 chance of getting to 100!

That is unreal!  

If you have 50 preschool kids born in 2009 you could expect 1 of those kids to live to 100!  

As my astute math freak kids pointed out - this seems counter-intuitive if you look around the US.  However, as I pointed out, we're talking about the outliers here.  A person in great health, that exercises, and eats right and utilizes modern medicine to their benefit should be expected to do better than average.  

While I could get really worried about what the US of the future looks like with an aging, increasingly retired population, low immigration rates, low birth rates, etc, tonight I think I'll just be amazed by the increase in the odds of getting to the ripe old (or not so old) age of 100 in the US in just over a century.

Cheers!

PS - Mkts seem to be shrugging off another overwhelming Pro-Russian vote in Eastern Ukraine.  Putin is likely to bide his time here until his meetings with China later this month but so far nothing in this crisis has gone according to plan.

Friday, May 09, 2014

Take 20 minutes to read this article...

This is way off topic but this article appeared in this week's issue of New York Magazine and it is a worthwhile read.

The topics are broad - do we over-treat symptoms and treat to the test rather than dealing with the patient as a whole? - but it is written from the unique perspective of a husband of a patient.  The husband also happens to be a cancer doctor.

When you're bored this weekend and you can't take hearing about how Dr. Dre is going to spend his billion dollars (a topic for another day) take the time to read - The Day I Started Lying to Ruth.

Cheers.

Tuesday, May 06, 2014

Ugly day

Just when the market felt like they'd found a trading pattern that was reliable - buy on Tuesday - the market couldn't get out if its own way today.  The market had been up on ever Tuesday this year.  This is just a crazy coincidence, but in the current computer driven markets it has been a reliable trading indicator.

Unfortunately, today was the exception that proved the rule.  That momentum names in the tech sector were very heavily influenced by the fall of Twitter which hit a new all-time low today.  Today was the first day that the stock could be sold by insiders and despite assurances that they would not be selling, nearly 20% of all of the stock in the company traded today which meant someone was lying and plenty of people were selling.
Well, maybe the computers will decide they like buying on Wednesday :)

Friday, May 02, 2014

Jobs report looks great

From the BLS...

Total nonfarm payroll employment rose by 288,000, and the unemployment rate fell by 0.4 percentage point to 6.3 percent in April, the U.S. Bureau of Labor Statistics reported today.

The change in total nonfarm payroll employment for February was revised from +197,000 to +222,000, and the change for March was revised from +192,000 to +203,000. With these revisions, employment gains in February and March were 36,000 higher than previously reported.

All of the data looks great from the BLS.  The concern I think for the stock market is that bad data has been boosting stocks for the past 2 weeks.  As things have looked worse, people have assumed the Fed support would stabilize or maybe even grow.  This, in turn, has pushed stocks back to record highs.  However, if the economy is improving (which I'll get to in a second) the risk for stocks is that the Fed support could be pulled faster than expected.

Re: the jobs recovery - consider the following:

The local small business development corporation receives their funding from state and federal sources and their funding levels are supported by small business formations.  To be frank, few of these "businesses" ever launch but the government still assumes that not only are they operating but they are employing people. These phantom employees often make their way into the government jobs data.  Consider this sampling of some of the new "businesses" which filed in the past month in Jefferson county.

thrift shop
sewing and crafts
spa products, consulting
dog walking and pet sitting
crafts
lawn care and snow plowing
lawn care, snow plowing
dog training
photography
a paintball league
event planning

Not exactly a lot of Apples, Microsofts, or Intels in that group.


Thursday, May 01, 2014

File under unintended consequences

According to Bloomberg it seems that the Pentagon has discovered a bit of a problem with our tough stance on the Russian/Ukrainian situation. *

The Pentagon has no “great solution” to reduce its dependence on a Russian-made engine that powers the rocket used to launch U.S. military satellites, the Defense Department’s top weapons buyer said.

Ooops.



* Side note, it's only 5:30am over there but there are rumors of firing in a Ukrainian city this morning.

Drill, baby, drill!

One of the most common refrains from 6 yrs ago (actually started by a Maryland politician but uttered repeatedly by Former Governor Sarah Palin) has started to pop up again as we approach another round of elections.

While this approaches a couple of third rail issues - politics and oil - I thought it's worth revisiting.  The initial push to increase drilling in the US was tied to high gasoline prices for consumers at the pump.  While politicians were very clever to never say "we need to get this oil to lower the cost to fill your tank" they would dance around the subject by saying "You're paying $4/gallon and we're sitting on billions of barrels of oil".  It would be your job as the voter to incorrectly connect those dots.

Well, it's probably worth noting then that the Bakken Oil Fields in North Dakota/Montana produced it's billionth barrel of oil in earlier this week.  Wow, a billion barrels of oil! What's the price of a gallon of gas in NY like $1.25?  Nope, it's still $3.95.

Wait, but they're pulling all of that oil from North Dakota!  Well, yes that is a lot of oil, but the US uses almost 7 million barrels/day so the entire production in the Bakken Field would last the US roughly 4 1/2 months.

Then there is the issue of who's oil is it? We sometimes confuse our oil companies for national oil companies like those in Saudi Arabia, Russia and Iran.  Exxon Mobil, Chevron, etc are US based corporation with facilities around the world, but they are not state-owned.  In fact, if you look at the list of 20 largest oil companies, most are state-run.  Those countries are able to use their resources to influence local gas prices.  Our corporations sell their oil into the global market and despite slack in the economy everywhere (0.1% GDP growth anyone?) the oil prices remain stubbornly high at around $100/barrel.

The second issue is very specific to the shale oil in the US.  This oil is very expensive to retrieve and while we've known about this oil for decades it was never feasible because the cost to recover the fracked oil was thought to be around $70/barrel.  Well, at $50/barrel you don't bother to drill but at $100/barrel you drill all day long. Since, oil seems to have reached a permanently high plateau above $90 there is a great deal of demand to drill, but if prices ever fall the economics will lead to many rusting wellheads in N. Dakota.

The final point on the US oil renaissance is that the fracked wells tend to dry up VERY quickly.  I've seen some scary predictions of just how fast this boom could go bust.  Some of these wells see their production fall 60-70% after the first year.  This is why the oil companies are always looking for new sources of shale to drill -- Well, hello there Marcellus Shale :)

Like every story that is distilled into a 30 second sound bite for CNN there is more to the oil boom story than meets the eye.

Cheers!