• Today’s GDP Report
    Posted by on January 30th, 2009 at 12:21 pm

    The GDP report for the fourth quarter was pretty ugly, though not as ugly as it could have been. Let’s also wait for the subsequent revisions, and revisions of those revisions. The initial report showed real growth of -3.8%.
    Since inflation has been so tame, I was curious to look at nominal growth which was -4.05%. That’s the first down quarter in 25 years and the worst quarter in 50 years.
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  • Poll: Super Bowl XLIII
    Posted by on January 29th, 2009 at 6:26 pm


    Let’s see how good my readers are.

  • Oh Charlie You Can’t Say That
    Posted by on January 29th, 2009 at 3:38 pm

    35 second mark.

  • Davos Love Fest
    Posted by on January 29th, 2009 at 3:30 pm

    Michael Dell asked Putin how we can help Russia expand its IT.
    Putin: “We don’t need help. We are not invalids.”
    Alrighty then….

  • The Case for Profits
    Posted by on January 29th, 2009 at 3:23 pm

    Arnold Kling argues that what really need right now is profits:

    A stimulus will work if and when it serves to increase profits, because profits are at the core of a free market system. The economy will recover if and when profits recover.
    Wages and salaries rose by 3%, while corporate profits fell by 9%, from the third quarter of 2007 through the third quarter of 2008, according to Commerce Department data. Fourth-quarter figures, which will be available in late February, are expected to show weakening in both types of income, with wages and salaries showing almost no increase, and profits falling by more than 15% relative to last year’s fourth quarter.
    The economy is in trouble today because of, pardon the pun, false profits. The financial sector reported as much as 40% of all profits in recent years. However, the reported profits on instruments such as mortgage-backed securities and the sale of credit default swaps did not reflect the long-term risks of those instruments. That is, the return on capital in the financial sector was artificially high because the amount of capital used to protect against risk was artificially low. Losses at many financial firms are inevitable. It is the market’s way of telling the bloated industry to contract, releasing capital and talent for use elsewhere in the economy.

  • Nicholas Financial’s Q3 Earnings
    Posted by on January 29th, 2009 at 3:20 pm

    NICK just came out with its third-quarter earnings and I thought they were pretty good. Or rather, not nearly as horrible as they could have been. For the last three months of 2008, NICK earned $1,266,809 or 12 cents a share. That’s way down from the 22 cents they made a year ago, but it’s an increase from the 8 cents it made in the second quarter. Bottom line, you’re not going out of business when you’re making money.
    There are a few items to highlight. First, the company changed its financing option which altered how they account for their use of interest rate swaps. This means that that swaps are now recorded on the income statement. For the third quarter, that’s about $1 million or 10 cents a share. As I see, this is merely an accounting issue and it doesn’t impact the company’s business.
    Well, there is one important impact on NICK’s business and that is they were able to cut their financing expenses in the third quarter. Interest expense dropped to $1.27 million from $1.43 million in the second quarter. Under the company’s line for “Average Cost of Borrowed Funds,” the decrease is from 5.45% to 4.87%. That’s good to see. Personally, I hate dealing in GAAP/non-GAAP jazz, but I’ll do it if there’s a real benefit.

    According to Peter L. Vosotas, Chairman and CEO, “the business climate remains challenging, auto sales are still well below historical levels and the employment outlook continues to weaken. We expect to see some seasonal improvement in our business during the fourth quarter but remain very cautious about the coming year, as we believe the recessionary pressures embedded in the economy will not subside in the near-term. During the last two quarters we have been tightening our credit underwriting guidelines in response to market conditions. We continue to evaluate markets in which we operate in and we do not anticipate any significant change from our branch-based methodology. Due to a combination of tighter underwriting guidelines and a significant slow down in auto sales during the three months ended December 31, 2008, we have reduced the size of our loan portfolio by approximately $2.6 million and also decreased our credit line outstanding by approximately $4.6 million.”

    The key line to watch is provision for credit losses. That dropped from $5.1 million last quarter to 4.6 million this quarter. That’s high but moving in the right direction. As a percentage of “average finance receivables, net of unearned interest” credit losses dropped from 9.66% last quarter to 8.77% in the third quarter.
    This was a decent quarter and if NICK keeps it up, they could be in great shape by next year.

  • The Stimulus Bill Clears the House
    Posted by on January 28th, 2009 at 6:43 pm

    The vote was 244 to 188. Eleven Democrats crossed the aisle. No Republicans crossed.
    So much for the president’s urge for bi-partisan support.
    The Democrats voted 244 to 11. The GOP voted 0 to 177. One GOP member didn’t vote.
    The “nay” Democrats were:
    Bright (AL)
    Griffith (AL)
    Taylor (MS)
    Shuler (NC)
    Cooper (TN)
    Boyd (FL)
    Ellsworth (IN)
    Kanjorski (PA)
    Kratovil (MD)
    Minnick (ID)
    Peterson (MN)
    Now…it’s off to the Senate. (Here’s some help if you need a reminder of how the system works).

  • The Stimlus Bill Nears $900 Billion
    Posted by on January 28th, 2009 at 4:48 pm

    If you’re interested, here’s all 647 pages of the bill. Honestly, some parts of it are a bit dull.
    The WSJ has a nice graphic on who gets what.
    A vote should come later this evening.

    “I would love to not have to spend this money,” Mr. Obama said, according to individuals familiar with the president’s meetings with Republicans. Mr. Obama defended the plan, they said, but suggested he’d be open to new ideas to help small businesses, and that changes could come after the House vote.
    “We’re not going to get 100% agreement, and we might not even get 50% agreement,” Mr. Obama told reporters after he left the Senate Republican lunch. “But I do think that people appreciate me walking them through my thought processes on this.”

  • Becton, Dickinson’s Earnings Report
    Posted by on January 28th, 2009 at 3:55 pm

    Today is another good day for our Buy List. I have one earnings report to pass along. Becton, Dickinson (BDX) earned $1.26 a share for its first quarter which is a nice increase from the $1.07 a share it made for last year’s first quarter. The Street was expecting $1.16 a share.

    In the biosciences segment, sales rose 11% on demand for clinical and research instruments. Sales were down in the medical segment by 2% as strong sales of insulin delivery products were more than offset by a drop in surgical systems products and an expected decline in prefillable devices in the U.S.
    Becton Dickinson Chief Executive Edward Ludwig said earlier this month that the company hasn’t felt the economic squeeze thus far, though he did note concern that hospital budget constraints will slow device makers. While acknowledging these strains, he also noted many of Becton’s medical products are very basic items – like surgical blades or catheters. Though no primary demand disruptions have been seen, the company is carefully controlling costs.
    Analysts are also keeping a keen eye on resin prices for signs of a possible retreat. High oil prices last summer boosted the cost of resins, which are used to make plastic syringes, as well as plastic dishes used in diagnostic tests and other laboratory equipment. The company spent about $230 million in resins in the last fiscal year, which was up $30 million from the prior year.

    The company also said it expects growth this year from 9% to 11%. That seems like a nice increase to me, but I think the Street was expecting more so the shares are down today.

  • The Fed: More of the Same
    Posted by on January 28th, 2009 at 2:57 pm

    Odd isn’t it that the Fed used to rule the world, now the central bank seems to be fighting to stay relevant. You really can’t cut rates when they’re at zero or next to zero. Sure they can print money, just ask Zimbabwe, but that’s pretty much all they can do. The problem is getting the banks to do something with that money.
    Here’s the Fed’s statement:

    The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
    Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.
    In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
    The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve’s balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.
    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Dennis P. Lockhart; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs.

    It’s the usual five-paragraph statement:
    1. What they did
    2. The economy
    3. Inflation
    4. Monetary policy
    5. The vote
    Some initial thoughts. The line is the second paragraph about “gradual recovery in economic activity will begin later this year” is a bit surprising. I can’t say I’m so optimistic.
    The fourth paragraph is the key because it describes what they’re doing which is basically continuing some of their earlier efforts. I’d like to see the Fed buying 10-year notes, and Jeffery Lacker apparently agrees.
    Well get a feel for how the market is responding this week when some commercial paper from companies like GE comes due. If they go back to the Fed, it’s not a good sign. If they don’t need to, then these programs might be working.
    I think the Fed is trying to convince the Street that it’s not out of ammo. This new programs seems to be having an effect. How much it’s doing or is it worth it, is debatable.