Author Archive

  • Today’s Jobs Report
    , February 1st, 2008 at 9:40 am

    The government just reported that the economy lost 17,000 jobs last month. This was the first decline in employment since 2003. The unemployment rate ticked down to 4.9% from 5.0%, but looking at the raw numbers, it really only dropped from 4.75% to 4.25%.
    It also looks like the BLS undated all the non-farm payroll numbers going back to 1990. I get a little annoyed seeing the government completely revised numbers from nearly 20 years ago. This revision could have happen earlier but it’s the first I’ve seen of it. Not surprisingly, payrolls weren’t as strong as previously believed. Here’s a look at the old and new numbers:
    image600.png
    On the chart, the gaps looks small, but don’t let that fool you. There are about 400,000 jobs less than previously thought.
    Here’s a look at the number of jobs as a percent of the population. The regular unemployment rate only counts people in the labor force.
    image601.png

  • The Risk Cycle
    , February 1st, 2008 at 9:05 am

    AEI recently published an interesting report on the economy. It’s a bit long, but here’s a sample:

    The temptation during the last half of 2007 was to view the problems tied to falling house prices as contained and manageable. At first, it was just a subprime crisis, but by the end of 2007, it had become clear that the subprime crisis was expanding into a real-estate sector crisis that, in turn, had been magnified by the securitization of claims on real estate whose value was falling. Every financial statement by a bank or investment bank that failed to specify underlying assumptions about the path of real-estate prices was and is subject to constant revision. Fourth-quarter reports by U.S. commercial and investment banks all reflect the sharply elevated losses attributed to worsening conditions in the real-estate market that, in turn, reduced the value of derivative securities on the balance sheets of U.S. financial institutions.
    The negative interaction between the real economy and the financial sector has been exaggerated in this cycle. House prices stopped rising in 2006 because they had exceeded affordability levels for most potential buyers. As house prices leveled off, the initial wave of problems emerged in the subprime sector late in 2006 and early in 2007. The hope of containment of the subprime problem evaporated in the summer of 2007 as leveraged investment funds like the Bear Stearns Asset-Backed Securities Fund collapsed. Unfortunately, in terms of providing a timely response to the rapidly deteriorating financial conditions tied to falling real-estate prices, the real economy grew strongly in the third quarter with substantial help–since reversed–from inventory accumulation and strong net exports. The real economy slowed during the fourth quarter, and the economy probably entered recession at year’s end. Substantial damage to the balance sheets of U.S. banks and investment houses had occurred that added to the negative pressure on the real economy.

  • The Surge in Tobacco Stocks
    , February 1st, 2008 at 9:01 am

    This November will mark the 10th anniversary of the Master Tobacco Settlement. The settlement was an outrageous agreement between the four largest tobacco companies on several state governments. The tobacco companies have to make huge payments to state governments. As a result, their business has to be protected. The government’s revenues are too dependent on them. Now cigarette prices are kept artificially high and the industry is well-protected.
    As you can see, the major tobacco stocks have done very well since the settlement was signed.
    tobacco%20stocks.gif

  • Microsoft Bids for Yahoo
    , February 1st, 2008 at 8:38 am

    I’ve made of this story for months and now it’s coming true. Microsoft (MSFT) is offering $44 billion for Yahoo (YHOO). This comes out to $31 a share. I honestly don’t see how this makes sense at all.
    Before taking a detailed look at the businesses, just look at the numbers. For the last three years, Yahoo’s earnings-per-share have dropped from 58 cents to 52 cents to 47 cents. This year, the consensus is for 45 cents. I just don’t get how that equals $31.
    Years from now, business students will study how Yahoo was in perfect position to dominate the Internet, but they lost. Google didn’t have to win. The future was in Yahoo’s lap, but they went for Hollywood instead.
    Two earnings reports to pass along. AFLAC (AFL) earned 78 cents a share, two cents below estimates. Still, that’s a nice jump over the 66 cents they made last year. The company said that it’s looking to grow EPS by 13% to 15% this year, which works out to EPS of $3.70 to $3.76.
    Yesterday, SEI Investments (SEIC) reported earnings of 35 cents a share. That was inline with forecasts. The stock responded by dropping 80 cents a share.
    Also, Leucadia (LUK) is buying a large stake in AmeriCredit (ACF) which is an auto finance firm. Leucadia is a shrewd investor and I note this because ACF is in the same industry as our own Nicholas Financial (NICK). NICK will release its earnings on Tuesday.

  • Worst January Ever
    , January 31st, 2008 at 9:37 am

    With one day left, this could be the worst January ever. Through yesterday’s close, the Dow is down -6.2%. The record is -8.6% from 1916. The S%P 500 is down 7.7% which edges out the -7.6% from 1970. The Nasdaq is down -11.4% which easily beats the -8.6% from 1990.

  • The Fed Cuts Again
    , January 30th, 2008 at 2:17 pm

    Fifty points this time. Here’s the statement:

    The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.
    Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.
    The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.
    Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.
    In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

    I’m glad they did. The central bank has been way behind on this.

  • Thoughts on the Economic Stimulus Package
    , January 28th, 2008 at 4:03 pm

    From the Onion:

    Congress agreed on an economic stimulus package that would give individual taxpayers a rebate of up to $600. What do you think?
    Tom Nagle,
    Systems Analyst
    “Perfect. That should cover my moving costs to Toronto.”

  • Sysco’s Earnings
    , January 28th, 2008 at 12:15 pm

    I’m on the road this week, so posting will be on the light side. There are a few things to mention. First, Sysco (SYY) reported earnings before the bell this morning. For their second-quarter, SYY earned 43 cents a share which was inline with forecasts. The stock is currently up a bit. For the most part, Sysco’s earnings are about as stable as they come. The longer I invest, the more I come to appreciate that.
    I’m not a big fan of this stimulus package. I doubt it will do much good, and I really don’t see the need for it. This also helps explain why I’ve never been elected to anything.
    I just finished The Misbehavior of Markets by Benoit Mandelbrot. It’s an interesting book. Mandelbrot asserts that much of the conventional understanding of the stock (EMH, CAPM) is completely and totally wrong. I think he’s right, although I’m a bit skeptical of any type of “fractal market analysis.” If I have time, I’ll go into it more detail.
    And finally, meet Dirk Mueller, the new face of the stock market.

  • Donaldson Increases Dividend 10%
    , January 25th, 2008 at 1:09 pm

    Good news from Donaldson (DCI). The company raised its per-share dividend to 11 cents from 10 cents. This is the 22nd straight year that DCI has increased its dividend. The company has also increased its earnings for 18 straight years.

  • Harley’s Earnings
    , January 25th, 2008 at 12:27 pm

    Harley-Davidson (HOG) reported Q4 earnings of 78 cents a share, four cents below estimates. Last year, HOG made 97 cents for the fourth quarter. The numbers are ugly:

    Worldwide retail sales of Harley-Davidson motorcycles were down 6.1 percent in the quarter, and 14.2 percent in the U.S. The company said the domestic heavyweight motorcycle market was down 9 percent in the quarter. Overseas, Harley’s sales were up 17.4 percent.
    Harley’s shipments were down 12.5 percent to 81,206 units, a drop of 11,642 units.
    For the year, profit fell to $933.8 million, or $3.74 a share, from $1.04 billion, or $3.93 a share, in 2006. Revenue slipped 1.3 percent to $5.73 billion from $5.8 billion in 2006.
    Worldwide sales fell 1.8 percent in 2007, while U.S. sales were down 6.2 percent. The overall heavyweight market was down 5 percent for the year, Harley said. Internationally, Harley’s sales finished the year up 13.7 percent.
    Shipments for the year were down 5.3 percent to 330,619 motorcycle units, from 349,196 bikes in 2006. Harley-Davidson cut its bike shipments in the wake of expected falling sales and even idled its plants for a week in November.

    HOG expects EPS growth of 4% to 7% this year which is more optimistic than analysts.