BW: All Net New Jobs Since ’01 Are in Health Care
Posted by Eddy Elfenbein on September 18th, 2006 at 6:19 am

According to the latest Business Week, the health-care industry has added 1.7 million jobs since 2001. The rest of the private sector, none.

For years, everyone from politicians on both sides of the aisle to corporate execs to your Aunt Tilly have justifiably bemoaned American health care — the out-of-control costs, the vast inefficiencies, the lack of access, and the often inexplicable blunders.
But the very real problems with the health-care system mask a simple fact: Without it the nation’s labor market would be in a deep coma. Since 2001, 1.7 million new jobs have been added in the health-care sector, which includes related industries such as pharmaceuticals and health insurance. Meanwhile, the number of private-sector jobs outside of health care is no higher than it was five years ago.

This is a good example of an accurate but misleading statistic. Always be wary of the numbers that talk about “all of the increase” coming from this or that. For example, since the beginning of 1999, the entire gain of the S&P 500 has come on just two days. That’s true, but it’s not the whole story.
You can select crucial dates, then discount certain factors and presto, you’ve got a scary headline. The key to remember is that this stat talks about net new jobs. Sure, lots of folks were hired as Web developers and laid off six months later. I think I knew most of them. If you want to be even scarier, the U.S. economy destroys millions of jobs every year. But it usually creates even more.
The interesting thing isn’t the sluggish job growth, but the fact that corporate profits have climbed so much despite the sluggish job growth. That’s productivity. The average worker is doing far more than he or she was five years ago.

Stocks Heart CPI
Posted by Eddy Elfenbein on September 15th, 2006 at 4:25 pm

Larry Kudlow likes to quote the famous adage, “buy on the cannons, sell on the trumpets.”
But Rothschild had it wrong. It should be “buy on the May CPI, and then on the August CPI…keep buying.” OK, it doesn’t have the same poetic ring, but it’s sure been working for us.
On May 5, despite a sluggish jobs report, the S&P 500 rallied to close at a five-year high of 1.325.76. A few days later, the Fed raised rates to 5% (its second-to-last hike), and the market started its downturn.
On June 13, the S&P 500 made its closing low of 1223.69. That day, gold had its biggest drop in 15 years. At the time I noted that energy, tech and materials made up one-quarter of the index but half of the losses. The next day, the May CPI report showed 0.4% headline and 0.3% core inflation. The market rallied and except for a July retest, it hasn’t looked back.
Today the market stuck its head above 1,324 before closing at 1,319.87. In four months, we’ve almost erased all our losses. Because the recent rally has been skewed to large-cap stocks, broader indexes like the Wilshire 5000 (^DWC) have slightly more room to go.
The Wilshire 5000 Total Return Index (^DWCT) is now just a little over 1% from an all-time high. Think about that for a moment. This means that the overall return of stocks including dividends is close to being positive, even measuring from the March 2000 high. It takes some patience, but the markets work!
This was another good day for our Buy List. Sysco (SYY) and Fiserv (FISV) both hit new highs. Plus, Harley (HOG), SEIC (SEIC), Donaldson (DCI) and FactSet (FDS) aren’t far away from new highs. How about Bed Bath & Beyond (BBBY)? The shares rose for the seventh straight session. Boo-Yah!
Next week we’ll have earnings reports from Bed Bath & Beyond, FactSet and Biomet (BMET).

The Big Ripoff
Posted by Eddy Elfenbein on September 15th, 2006 at 12:27 pm

I just finished reading “The Big Ripoff: How Big Business and Big Government Steal Your Money” by Tim Carney. I highly recommend it, but be warned, the book will seriously ratchet up your cynicism.
Carney takes on Corporate America but his argument is very different from your typical corporate bashing. Instead, he blames companies for using the government to enact regulations which help them and hurt consumers.
Did you know that Enron supported the Kyoto Treaty? I sure didn’t. Or that Warren Buffett benefits from the estate tax he supports. How about this factoid: In 2000, self-identified “Upper Class” voters went for Gore over Bush by a 56-39 margin.
The piece I found most disturbing was the War on Tobacco. In recent years, more and more government functions have been outsourced to employers. I’m not sure how wise this is. The problem is that corporations are actually far more fragile than most people realize.
The Master Tobacco Settlement Agreement is a good example. First, it effectively creates a cartel. But now, state governments are so dependent on the revenue from the tobacco companies that they’re too big to fail. What if one of the companies goes under? The state would have too much to lose, and it might be forced to bail out the the company. Here’s a good article on the mess the settlement has become.
By the way, Tim Carney is the brother of DealBreaker‘s John Carney. (Hey John, would it kill you to plug the book a little?)

Fiserv Hits All-Time High
Posted by Eddy Elfenbein on September 15th, 2006 at 10:45 am

Finally! Fiserv (FISV) took out its March 2002 high this morning. The stock had been locked in a tight trading range for over a year despite very good earnings. Shares of Fiserv woke up last week on an upgrade from Prudential.
Check out the plunging P/E ratio:

Today’s CPI Report
Posted by Eddy Elfenbein on September 15th, 2006 at 8:42 am

The CPI report for August was just released. Both core and headline inflation increased by 0.2%. On a trailing 12-month basis, the headline number fell to 3.82%, and the core rate increased to 2.84%. This is the first time in over a year that the figures are within 1% of each other.

BBBY Breaks $37
Posted by Eddy Elfenbein on September 14th, 2006 at 1:16 pm

Bed Bath & Beyond (BBBY) plunged in June after Wall Street hated its first-quarter earnings report. Shares of BBBY got all the way down to $31. The earnings report, however, wasn’t that bad. Sure, it could have been better, but the company earned 35 cents a share, which was in line with estimates.
BBBY will report earnings again next Wednesday. In June, the company said it will earn 51 cents a share for the quarter which was six cents more than Wall Street was expecting. I wouldn’t be surprised if they were lowballing us. For the full year, BBBY expects earnings of $2.17 a share. This means the stock is trading at 17 times this year’s earnings.

Pinch Gets Squeezed
Posted by Eddy Elfenbein on September 14th, 2006 at 12:02 pm

Arthur Sulzberger Jr. is giving up stock compensation for this year.

Sulzberger and Michael Golden told employees in a letter that their plan to forego stock-based compensation for two years — which they described as a personal decision — would result in about $2 million becoming available for payments to reward exceptional performance by staff who don’t participate in the Times’ annual bonus plan.

Just so we have this straight: They’re giving up shares that are down by half in the past two years, and the family still owns 91% of the Class B shares.

Foreign iShares Since 2003
Posted by Eddy Elfenbein on September 14th, 2006 at 11:37 am

Here’s an update of a chart I ran a few months ago. This is how several foreign iShares have performed since the beginning of 2003:
Brazil (EWZ)…………………………..414.99%
Austria (EWO)………………………..267.78%
Mexico (EWW)………………………..261.76%
Sweden (EWD)……………………….198.24%
Belgium (EWK)………………………..168.89%
Spain (EWP)……………………………166.29%
Australia (EWA)………………………162.52%
Canada (EWC)…………………………160.92%
South Korea (EWY)………………….155.33%
Germany (EWG)………………………148.22%
Italy (EWI)……………………………..128.20%
France (EWQ)…………………………118.44%
Hong Kong (EWH)……………………107.14%
Switzerland (EWL)…………………..103.75%
Netherlands (EWN)……………………99.92%
U.K. (EWU)……………………………….97.64%
Japan (EWJ)……………………………..94.92%
Malaysia (EWM)…………………………68.93%
Taiwan (EWT)……………………………59.07%
By comparison, the U.S. market as measured by the S&P 500 Spyders ETF (SPY), is up 59.04%.

Bear Stearns Beats Expectations
Posted by Eddy Elfenbein on September 14th, 2006 at 10:18 am

A friend of mine recently asked me what’s the best way to invest in a hedge fund. I said to buy shares of Goldman Sachs (GS). Not only does it get a piece of most hedge funds, but it’ll probably make more money than most of them. The company has already broken its yearly profit record, and there’s still another quarter left to go.
Since April, investors have been selling off shares of brokerage stocks due to concerns about a slowdown in the investment banking business. Some of the stocks now have single-digit P/E ratios. It’s true, there has been a slowdown, but it’s far less than initially feared.
This morning, Bear Stearns (BSC) became the latest Wall Street firm to beat expectations. And unlike Goldman Sachs and Lehman Brothers (LEH), Bear Stearns reported a profit increase instead of a better-than-expected decline.
For the third quarter, Bear earned $3.02 a share which was 15 cents more than Wall Street’s consensus. The company’s largest business segment, fixed income, jumped 18.8% from last year’s third quarter which more than made up for the 22.6% slide in investment banking revenue. The most impressive growth came from the firm’s equities trading business which rose by 30.6%. Clearly, trading is where the action is.
Since many investment banks begin their fiscal year on December 1, we’re getting third-quarter earnings reports now. Yesterday, Lehman Brothers reported earnings of $1.57 a share, which topped Wall Street’s forecast by eight cents a share. On Tuesday, Goldman jump-started the rally for the sector by announcing earnings $3.26 a share compared with analysts’ forecast of $2.97 a share. Interestingly, Lloyd Blankfein, the new CEO, has a background in trading, not investment banking.
Next week, Morgan Stanley (MS) will be the next bank to report its earnings. The current consensus estimate is for $1.37 a share.
Here’s how the five major brokerage stocks have done over the past four years:

Russian Central Banker Assassinated
Posted by Eddy Elfenbein on September 14th, 2006 at 9:01 am

From Bloomberg:

Russian central banker Andrei Kozlov, who led a fight against corruption in the nation’s banking industry, was assassinated outside a sports stadium in Moscow.
Kozlov, a 41-year-old deputy chairman of the central bank, was shot in the head and neck by two gunmen last night, said Svetlana Petrenko, a spokeswoman at the Moscow prosecutor’s office. He died in hospital No. 33 in Moscow this morning.
The murder may be linked to Kozlov’s job leading the central bank’s fight against money laundering, Russian Prosecutor General Yuri Chaika, the highest-ranking law enforcement official, said in a statement on his Web site today. Kozlov was instrumental in pushing measures to regulate a banking system that almost collapsed after the government defaulted on $40 billion of debt in 1998.
“There are people in Russia who do not want the transparent, law-abiding and rational system he was creating,” said Richard Hainsworth, chief executive officer of RusRating, an independent bank rating company in Moscow. “His reforms have pushed up the price of black money, of giving bribes.”