Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
If Congress can
take two weeks off for the Holidays we feel that we should too. This will be our
last post until Tuesday January 4. 2011.
December 31, 2010
December 30, 2010
December 29, 2010
December 28, 2010
December 27, 2010
December 23, 2010
December 22, 2010
December 21, 2010
December 20, 2010
December 17, 2010
December 16, 2010
Asia and Europe were mildly lower
overnight. Gold is $1383 and Oil has an $88 handle as the trading day begins.
In the week ending Dec. 11, the
advance figure for seasonally adjusted initial claims was 420,000, a decrease
of 3,000 from the previous week's revised figure of 423,000. The 4-week moving
average was 422,750, a decrease of 5,250 from the previous week's revised
average of 428,000.
Why are banksters so rich? http://motherjones.com/kevin-drum/2010/12/why-are-bankers-so-rich
Europe closed mixed. Gold was down $18 to $1367 and Oil ended at
The major market
measures closed higher on the day. Breadth was positive and volume light. Happy
December 15, 2010
Asian markets were mildly mixed
overnight as are European bourses at midday. Oil has an $87 handle and Gold is
under $14000 as the trading day begins. U.S stocks are going to open slightly
(Reuters) - General Electric Co Chief Executive Jeffrey Immelt's problems
have changed an awful lot in the past two years.
In March 2009, GE officials took
to the stage where the company's NBC television network films "Saturday
Night Live" to assure investors there was no time bomb hidden in its
finance arm that would take down the largest U.S. conglomerate. On Tuesday,
Immelt faced the same room, this time full of investors who were worried he
would let the world's top maker of jet engines and electric turbines build up
too much cash. GE expects to end the year with $20 billion in cash on hand and
within the next few years could have $30 billion to deploy on takeovers, share
buybacks and further dividend hikes. "I don't want to be arrogant about
it. It's not Jeff Immelt's cash. It's investors' cash," said the CEO.
"I want to deploy it in an investor-friendly way."
Immelt has three plans for the
money: Further hikes to the dividend -- which GE has raised twice this year --
more share buybacks and small-scale takeovers.
He took pains to explain to
shareholders that GE did not plan to amass the entire $30 billion reserve
before it began spending it.
"It was meant to be a
conceptual chart," Immelt said of the potential war chest discussed at
Tuesday's meeting where he also told investors that profit would be up "strongly"
in 2011. "It's more conceptual to let you dream: 'Look at all that cash,
No Big Deals
The Fairfield, Connecticut-based
company, which on Monday said it would acquire U.K. oil equipment company
Wellstream Holdings for $1.3 billion, plans to keep its takeover focus on deals
valued from $1 billion to $3 billion, Immelt said. Deals of that size, while
small in the context of a company with a $188.48 billion market capitalization,
provide the best payoff, he said. "You could do a $15 billion deal if you
wanted to," Immelt said. "I don't want to. Because you don't make
money on the integration." Some investors agreed smaller deals have a
better payoff than blockbusters valued at tens of billions of dollars.
"The big deals can be the tough ones," said Mike McGarr, a portfolio
manager at Becker Capital Management in Portland, Oregon, who holds GE shares
in his funds. "It will take a lot of small ones to move the needle, but it
can be done." McGarr cited Illinois Tool Works (ITW.N) as an example of a
company that has grown successfully through small deals. Investors also said
that carefully priced takeovers offered better long-term growth potential,
particularly in an uncertain economic environment where organic growth is
harder to find. If there's a good deal to do, in terms of fit where you can
make the numbers work, that's always plan A. Plan B is returning cash to
shareholders," said Brian Langenberg of Langenberg & Co. Still, having
seen GE's shares plumb 18-year lows in the past two years and endured a chop of
the dividend from 31 cents per quarter to 10 cents, shareholders want more.
This year's two-step hike of the dividend by 37 percent is just the beginning,
in some shareholders' minds.
(CNBC) Industrial output rose 0.4 percent in November, according to
Federal Reserve data. That's above an expected gain of 0.3 percent, according
to economists surveyed by Reuters. In October, industrial product fell 0.2
percent from a previously reported flat reading. The November reading was the
biggest gain since July.
Capacity utilization rose to 75.2 in November, from a revised 74.9
in October, still far below its long-term average. Capacity utilization
measures how fully firms are using resources.
The Consumer Price Index rose 0.1 percent in November, the Labor
Department reported. Excluding volatile food and energy prices, the core CPI
also rose 0.1 percent. Economists surveyed by Reuters had expected the CPI to
rise by 0.2 percent.
Also, The New York Fed's "Empire State" general
business conditions index gained 22 points to 10.57 in December from a drop of
11.14 in November. The index was boosted by growth in new orders and
shipments, the New York Federal Reserve said....In other economic news, the
Mortgage Bankers Association said applications for home loans fell last week as
mortgage rates hit a seven-month high.
Best Buy is down $8 to $34 and change in
the last two days and we added a few
shares to our large accounts. BBY lowered earnings estimates for the year
to a 3% year over year gain from a projected 10% plus year over year gain. We also added a bit of GE to larger accounts
and halved our Dell position at a 30
Europe closed lower while Oil gained to $88.53 on a greater than
expected inventory drawdown. Gold ended down $20 at $1383.
The major market
measures opened slightly higher then moved slightly lower at midday and mildly
lower on the day. Breadth was negative
and volume light.
December 14, 2010
Retail Sales were up for the 5th month in a row. Countering the good retail sales news, Producer Prices were up 0.3% in
November when a negative number was expected. Bears, of course, will annualize
it while bulls will say the number is an anomaly. Asian markets were higher
overnight while European bourses are mixed at midday. Gold is back above $1400
and Oil has an $88 handle.
(Forbes) Like many PC stalwarts, Nvdia wants to branch into the fast-growing mobile devices
market. The California-based maker of high-end graphics processors may be on
the verge of a breakthrough. Ambrish Srivastava, a semiconductors analyst with BMO Capital Markets, says
he expects Nvidia chips to show up in a number of tablet PCs next year.
Srivastava’s remarks came from a
Dec. 13 call with investors that summarized findings from a recent BMO trip to
East Asia. A group of analysts, including Srivastava, spent a week
visiting more than 30 tech companies in Japan, South Korea, Taiwan, China and
The meetings led Srivastava to
believe that “a lot” of PC makers will use NVIDIA’s Tegra chips in upcoming
tablets. The Tegra line, which NVIDIA first introduced in 2008, is designed to
be particularly power efficient and thus a good fit for mobile devices. “NVIDIA
is clearly emerging as one of the top design wins [in the tablet space],” said
Srivastava during the call.
That would be welcome progress
for NVIDIA, whose highest-profile mobile device launch this year was
Microsoft’s ill-fated KIN phone line. Microsoft folded the
KIN project in late June following weak sales.
Next year looks to be much more
productive in terms of mobile devices. Tegra chips have already been spotted in
several soon-to-launch, highly anticipated gadgets, including Motorola’s first
tablet and LG’s Android-based “Star” phone.
NVIDIA may have picked up another,
more surprising customer recently: Samsung. Srivastava said he thinks the next Samsung
Galaxy tablet will be based on an NVIDIA chip. Up to now, Samsung
has relied on its own processors, which it calls Hummingbird, to power its Galaxy line
of smartphones and tablets.
(Barron’s, December 9) Following
on the item a short
while ago about Barclays
Capital’s reaction to rumors of Nvidia losing the graphics
processing slot in Apple’s
MacBook laptops, Rajvindra Gill with Needham & Co.
remarks this afternoon that the whole matter is basically a dead horse.
“This is not news,” Gill tells me
this afternoon by phone. “The fate of the chipset business has been telegraphed for some time now
by management and by the Street.” Chipsets are a business Nvidia is exiting, so
it’s really all about the pace of the run-off of that business.
Gill estimates that of Nvidia’s
$150 million per quarter in chipset revenue, $100 million comes from Apple. He
sees sales at Apple falling to $50 million in Q1 of next year, as MacBooks are
released with Intel’s
processor. However, Nvidia will still get about $50 million per quarter from
the MacBook Air, which was released this past fall and which likely wouldn’t
have a major redesign before next fall.
As for the rumor Nvidia may also
lose the slot for its discrete graphics chips in the higher-end MacBook Pro 15-inch and 13-inch
models, that’s actually not such a bad thing, Gill opines. That business, which
is in much lower volume than the MacBooks, is perhaps $30 million or so of
revenue per year for Nvidia, but at a much lower margin. The price on a
discrete graphics processor for MacBook Pro is probably about $25, estimates
Gill, versus $35 for the company’s chipsets. So the loss of that low-margin
business might be a good thing in the end.
More important, Gill, like
Barclays’s Tim Luke, is enthusiastic about Nvidia’s “Tegra” processor for tablet
computers; its “Quadro”
chip for high-end graphics processing, which is aimed at CAD/CAM workstation
applications, oil drilling, and the like; and Nvidia’s “Tesla” chip for the data center.
(Bloomberg) -- Voyager 1, the
unmanned space craft launched by the U.S. National Space and Aeronautics
Administration when Jimmy Carter was president, is on the verge of leaving the
solar system, over 10 billion miles from earth, the British Broadcasting Corp.
said, citing mission officials. Voyager, launched in September 1977, is
signaling through its radioactive power pack that there is a distinct change in
the direction of the flow of particles from the sun, which are no longer
traveling outwards but sideways, the broadcaster said. This means Voyager is on
the verge of making the jump into interstellar space, probably within the next
five years, the BBC said.
Radio signals from Voyager are
now taking 16 hours to arrive on earth, the BBC reported.
Diane Swonk, Chief Economist, Mesirow Financial
Retail Sales and Producer
Prices Hotter than Expected
Retail sales surged 0.8% in November, almost double what most market
participants were expecting. The government also revised up what were already
strong numbers for October. Sales excluding vehicles were up a more substantial
1.2%, supported by earlier-than-usual Black Friday promotions. Gains were
fairly broad -based across big-box retailers, apparel stores and online
vendors. We also saw more spending at the gas pump as energy prices picked up.
The weak spots were electronic store sales and restaurant tabs. Middle and
lower income households, in particular, tend to make trade-offs and eat out
less when prices at the pump rise.
Separately, the producer price index rose 0.8% in November, slightly
higher than expected on the heels of higher energy prices. The index excluding
food and energy rose 0.3%, which was also slightly hotter than expected.
Year-over-year gains in the overall index, however, moderated slightly.
Moreover, little if any of those increases have made it into consumer prices.
If anything, consumers have shown a proclivity to shop for deals and discounts
as much as ever this holiday season.
The Bottom Line: Retail sales suggest that the economy is in
fact reaccelerating, which is welcome news ahead of the Christmas holiday.
Nothing in today's data, however, will stop the Federal Reserve from moving
forward with plans to ease further with large scale asset purchases. One could
only hope that the economy is strong enough in the first half of the year for
the Fed to cut short its efforts to stimulate. We have a long way to go from
here, however, to get there. Inflation is still too low and unemployment too
high for the Fed to declare victory.
(WSJ) Federal Reserve officials
stuck to their easy-money policy of buying U.S. Treasury bonds and keeping
short-term interest rates near zero. The Fed was restrained in its assessment
of the economy. The recovery is continuing, "though at a rate that has
been insufficient to bring down unemployment," the central bank said in a
statement at the end of the meeting. Fed officials also reaffirmed that their
plan to buy $600 billion in U.S. Treasury debt through June would be subject to
regular reviews and may be adjusted depending on how the economy fares. Many
Fed officials believe the policy is working, though results have been mixed at
best. Bond yields and the dollar fell in anticipation of the Nov. 3 decision to
initiate the program, but both have jumped as stronger economic data and the tax-cut
deal led investors to expect more growth and inflation -- and to worry about
European bourses were mildly higher at their close. Oil ended at $88.31 and gold at $1396.50.
The Major Market
Measures were higher all day but as yesterday lost the gain in the last hour of
trading. The DJIA, NAZZ, and S&P closed higher. Breadth was flat and volume
light. Cyclicals were strong for the second day while financials were flat.
Drug stocks also saw some buying.
December 13, 2010
We have returned having survived
a Saturday night blizzard. Stocks are going to open slightly higher as
economists now predict growth for next year and an S&P 500 that will close
11% higher than it closes this year. Since we don’t know what the close this
year will be and we also don’t know what will occur in between the beginning
and end of next year the prediction of 11% growth has not much value except for
investors who are immune to 20% up and down moves. We aren’t in that category.
Asian markets were higher
overnight as is Europe at midday. GE
is buying a gas pipe manufacturing company and Dell and Compellent have
a definitive merger agreement.
We repurchased GE
and Ford on Friday and also added the Financial ETF (XLF) to accounts.
(NYT) Huntington Bancshares, a Columbus, Ohio-based regional bank, on
Monday announced that it had commenced a $900 million offering of its common
shares. The bank also said it would sell $300 million in an offering of
subordinated debt. Huntington said it would use the proceeds of the offerings
to help buy back $1.4 billion of the preferred shares it had issued to the
Treasury Department under the Troubled Asset Relief Program, or TARP. In a note
this morning, Miller Tabak + Company said it estimated that the equity offering
would increase the bank’s outstanding common shares by 18 percent. “We see it
as providing a solid equity base for business growth in 2011-2012.” Goldman Sachs will act as sole bookrunner
and Sandler O’Neill will act as co-manager for the proposed equity offering.
Notice that Goldman is running
the books, more fees for the wealthy. Other regional banks will be selling
shares to raise capital now that the appetite for banks has revived.
Another icon of the past bites the dust:
(Bloomberg) Great Atlantic & Pacific Tea Co., which operates almost 400
supermarkets under the Waldbaum’s, The Food Emporium and Pathmark names, sought
bankruptcy protection after failing to successfully compete with wholesale
clubs and drugstores. The retailer
had $8.8 billion in sales for the year ended in February, according to its
website. Yesterday, it listed assets of $2.5 billion and debt of $3.2 billion
in a Chapter 11 filing in U.S. Bankruptcy Court in White Plains, New York.
We repurchased KBE
accounts. We also repurchased Fifth
Third in accounts in which we sold last week. The share price is down 3%
today although higher than the price at which we sold. The drop today relates
to the Huntington Banks stock offering (see above) and the logical surmise by
traders that Fifth Third will be doing the same. We agree although our guess is
that any offering awaits a higher stock price.
A Secretive Banking Elite Rules Trading in Derivatives: http://www.nytimes.com/2010/12/12/business/12advantage.html
Merry Christmas for the Banksters:
(Hullabaloo) Incoming Republican Chairman of the House
Banking Committee Spencer Bachus from Alabama:
“In Washington, the view is that
the banks are to be regulated, and my
view is that Washington and the regulators are there to serve the banks,”
We added to our
Talbots warrants in accounts and repurchased Nvdia in some accounts.
Oil ended at $88.46 and Gold gained $11 to $1396. European bourses
closed mildly higher.
The major market
measures were higher all day but in the reverse of last week’s action they
weakened near the close the DJIA and S&P closed higher while the NAZZ ended
lower. Cyclicals were up and financials down. Breadth was negative and volume
December 10, 2010
December 9, 2010
We will be taking tomorrow off. We are
going to visit an exhibit where a quilt of the old stockbroker’s ties is being exhibited. Below is a picture of
the quilt plus a short description of how it was created.
Traditional Pineapple Pattern
When Chicago stock analyst Harry
A. Baum died, his many silk neckties were passed on to his stepson, Bud
Lemley. Several years later, Bud's wife,
Katie, asked fiber artist Diane Craig to transform the neckties into a quilt
In the past, Craig had designed
and stitched quilts with pictorial appliqué centers framed by pieced borders. But this time she chose a traditional
pineapple pattern because it required long narrow pieces of cloth.
To actually work with the
neckties, they had to first be taken apart, linings removed, sometimes washed,
and then ironed. Then Craig separated them into light and dark piles. One of
the concerns with the neckties was that the fabrics were often very delicate.
Since this quilt was intended to hang on a wall, it needed to be well
stabilized. Craig cut a 12-inch piece of cotton muslin as a backing for each
block. Then, starting with a blue center square, she worked around and around
the square, stitching each strip over first the exposed raw edge of the blue
square and pressing with an iron up toward the outer edges of the block where
the exposed raw edge would be stitched down
by the next round.
The necktie Baum wore to his
office for his 79th birthday party, where the photograph was made, has found
its way into nine of the quilt's squares. The bottom edge of the quilt includes one of his bowties.
Asian and European markets were
higher overnight. Oil has an $88 handle and Gold is flat as the trading day
Jobless claims were 421,000.
Yankees offer baseball pitcher
Cliff Lee $140 million over 6 years. Jeter got $51 million for three years.
Nice work if you can get it.
(NYT) Dell, thwarted this summer in an effort to acquire 3Par, said on
Thursday that it was in advanced discussions to buy another data storage
company. Dell has an exclusive agreement to negotiate a deal for Compellent Technologies for $28.50 a
share in cash. That is a discount of nearly 19 percent from Compellent’s
closing stock price on Wednesday. But shares of Compellent have had a huge
run-up in the last two months on speculation of a takeover. More fuel was added
on Tuesday, when the company’s chief financial officer canceled an appearance
at a Barclays’ technology conference scheduled for the next day. Dell’s offer
would value Compellent, based in Eden Prairie, Minn., at $876 million.
After 40 years in
the business we aren’t immune to hubris- which swiftly disappears when we
suffer a loss for violating one of our rules. After we made the nice trade in
Barnes & Noble over the weekend we were overly aggressive in purchasing
Talbots over the past few days. We are cutting the position in half today.
With a small portion of the money we are buying Talbot warrants at $1.25 equal
to the Number of shares we sold. Talbots has warrants to buy shares at $14.85 through April 2015. We are
going to be adding them to accounts as we can as long term calls on the stock. Each warrant
entitles the holder to purchase One (1) New share of Common Stock (NYSE Symbol
"TLB") at an exercise price of $14.85 per share. The Talbots Warrants
commenced trading on the NYSE Amex on April 21, 2010, under the ticker symbol
“TLB.WS.” There are 17.2 million warrants outstanding with an expiration date
of April 6, 2015. Beginning after one year from the date of issuance, Talbots will have
the right to accelerate the expiration of the warrants under certain
conditions, including if the trading price of shares of Talbots common stock
exceeds $19.98 for any 20 trading days within a 30 day trading period.
Europe ended mostly higher. Oil
closed at $88.36 and Gold finished at $1387.
The major market measures
closed mixed again today. Volume was light and Breadth flat. We’ll be back on
December 8, 2010
Asian and European markets were
mildly lower overnight and Gold is under $1400 while Oil has an $88 handle.
U.S. futures indicate a slightly lower opening.
Property Bubble Redux?
(China Daily) China's banking
regulator has ordered lenders to tighten controls on their loans to property
developers, its national television reported on Tuesday. It ordered banks to
reinforce investigations before extending the loans and strengthen oversight
after the loans are made," the television said. In September, the China
Banking Regulatory Commission (CBRC) sent a list of property developers under
the central government to lenders, it said without elaborating. Domestic media
reported earlier this week that CBRC ordered banks to confine their new loans
to 16 developers on the list. China ordered State-owned firms to divest from
the real estate industry, except those with property development as their core
businesses. In addition, Beijing has issued a slew of measures in recent months
to cool the red-hot property market, including raising mortgage rates and down
Who would have thunk it?
(WSJ) Roughly one in three
Medicare beneficiaries diagnosed with prostate cancer today gets a
sophisticated form of radiation therapy called IMRT. Eight years ago, virtually
no patients received the treatment. The story behind the sharp rise in the use
of IMRT—which stands for intensity-modulated radiation therapy—is about more
than just the rapid adoption of a new medical technology. It's also about
financial incentives. Taking advantage of an exemption in a federal law
governing patient referrals, groups of urologists across the country have
teamed up with radiation oncologists to capture the lucrative reimbursements
IMRT commands from Medicare.... treatment options range from IMRT, which costs
Medicare as much as $40,000 for a full course of radiation in places such as
New York, to a cheap approach known as "watchful waiting," which
means simply monitoring the cancer with regular office visits and tests.
Medicare pays up to $16,000 for a prostatectomy—surgery to remove the
prostate—and as much as $19,000 to implant radioactive seeds to kill cancerous
cells.... New York is home to the largest urology self-referral group in the
nation, Long Island-based Integrated Medical Professionals PLLC. Created in
July 2006, Integrated Medical has grown to 103 doctors across six counties and
owns 11 linear accelerators, the massive machines used to deliver radiation. Integrated Medical is headed by a urologist
named Deepak Kapoor. "Is radiation a line of business for us? Yes,"
Dr. Kapoor said in a July interview at the group's main radiation facility.
But, he added, IMRT wasn't the practice's most profitable activity, and use of
the treatment was driven by patients, not by the practice's doctors. Asked
during the interview what proportion of its prostate-cancer patients Integrated
Medical treats with IMRT, Dr. Kapoor said he didn't track such data closely,
but said he would be "comfortable" with an estimate of "one out
of six," or 17%. An analysis of Integrated Medical's Medicare claims later
performed for the Journal suggested a much higher rate. Between its launch in
mid-2006 and the end of 2008, Integrated Medical administered IMRT to 601, or
53%, of 1,132 Medicare patients recently diagnosed with prostate cancer, the
Journal analysis found..... Integrated Medical received $26.7 million
from Medicare for the care of those 601 patients, according to the Journal's
calculations. If Integrated Medical's urologists hadn't owned radiation
equipment and had referred these patients for radiation treatment outside of
their practice, Medicare would have paid them only $2.6 million.
For more http://online.wsj.com/article/
had 56% Bulls, 21% Bears.
Treasuries have been dropping in
price this week as yields rise. We noticed last night while watching the local
news that the local credit union’s 30 year mortgage rates had climbed back to
5% after being as low as 4.5% a few months ago.
The sale of the government stake
in Citi yesterday required a
re-weighting of the S&P 500 index with corresponding sale of the other 499
issue in the Index. That was one and maybe the main reason for the late day
sells off. If it was today’s first hour of trading should recapture most of the
We have a higher cost on Talbots in some of our large accounts and so we added shares on today’s further drop.
We also added shares of CWTR to many accounts as it dropped to
a new yearly low priced at less than one half sales and right at book value. With the Investors Intelligence Bull/Bear
ration so bearish (because the number of Bulls approach 60% and the number of
Bears will soon drop below 20%) we don’t want to commit new funds to the
fray. And so we sold Medtronic in our large accounts a
slight gain and Chesapeake Corp and Fifth Third in all accounts for a 6% profit.
European bourse indexes closed mixed. Oil ended at $88.44 and Gold at
The major market
measures closed slightly better on the day in light trading. Cyclicals were
lower as it looked as if money was flowing from them into financials which were
higher. Breadth was negative on the day.
December 7, 2010
The tax bill is
settled, millionaires keep their money to spend and the unemployed get their
pittance for another year. All is well is in LaLa Land and the markets in the U.S. are celebrating.
payroll tax relief is a nice addition.
Asia was mildly higher overnight
and European bourses are up 1% and more at midday. Gold is up $10 at $1427
while Oil has a $90 handle.
No credit card companies or banks
or hosting websites said they would refuse Wikileaks before the government
But last week, when Wikileaks said it was going after the banks, we
suggested that there would be hell to pay. Since then Assange has been
arrested and held without bail and--
and Visa have announced they will stop processing payments to Wikileaks,
following similar moves by Amazon.com, PayPal and other businesses who are
cutting ties to the organization. MasterCard Worldwide "is taking action
to ensure that Wikileaks can no longer accept MasterCard-branded
products," a spokesman told CNET
late yesterday. "MasterCard rules prohibit customers from directly or
indirectly engaging in or facilitating any action that is illegal," the
spokesman said. Today, Visa Europe announced it is also beginning the process
to stop payments to Wikileaks. Visa didn't go as far to say Wikileaks is
engaging in illegal activity; instead, Visa said the suspension is pending an
investigation. A spokeswoman told BBC that the investigation
will examine Wikileaks' business and whether it violates Visa rules.
Talbots beat on
earnings but disappointed on revenues and reduced fourth quarter expectations
and is down $2.50 per share. We are adding to accounts. Talbots has reduced
debt by $400 million and is a great speculation at present levels.
12/6 (MarketWatch) Women’s
apparel retailer Talbots (TLB)
is poised to beat the Street, but only slightly, when it reports fiscal
third-quarter earnings tomorrow, according to a note out today by Janney
Montgomery Scott analyst Adrienne Tennant is projecting EPS of 25 cents,
slightly above the consensus view of 24 cents. Management had initially guided
to a range of 22 cent to 28 cents, but they lowered the total sales forecast to
a small decrease from a small increase. Tennant reiterated a long-term Buy
rating and $14 price target for the stock, but expressed concerns that the
current macroeconomic environment and the “growing pains of revolutionizing a
brand” would hinder its growth in the near term. “We expect shares to trade
relatively range bound until there is greater evidence that comps can turn
positive,” she wrote. “We continue to point out a favorable risk/reward over
the longer term, but believe investors may wait to see top-line results before
returning to the story in the near-term.”
12/7 (thestreet.com) ...Despite
... disappointing earnings report, UBS
analyst Roxanne Meyer said she would be a buyer of the stock on today's
weakness. Shares are currently down 22.8% to $8.77 in early morning
trading. "While patience is required as the second half of 2010 turned out
not to be inflection quarters, we continue to view the company as well
positioned for a turnaround in 2011, given product improvement and given the
company is still in very early innings of increased marketing, catalog
prospecting, store-level product allocation and store renovations," Meyer
wrote in a note.
On the earnings front, The Talbots Inc. (TLB)
reported that third-quarter earnings from continuing operations were $17
million, or 24 cents per share, up from $15.5 million, or 28 cents per share, a
year earlier. Sales for the period fell 3.2%, and Talbots said that it sees
fourth-quarter sales to hold flat or fall in the low single-digit percentage
range. For the fourth quarter, Talbots forecast a loss of 5 cents a share to a
profit of 3 cents per share.
Keying off the poor guidance,
investors have sent TLB roughly 22% lower today. In fact, TLB has gapped well
below former support at the $9.50 level, with the shares trading south of the
$9 level - territory the stock has not explored since the first week of 2010.
Sentiment, meanwhile, is mixed on TLB. The stock's Schaeffer's put/call open
interest ratio (SOIR) of 0.51 arrives near the midpoint of its annual range,
while eight of the 11 analysts following the shares rate them a "buy"
or better. Finally, more than 29% of TLB's float has been sold short.
12/7 This is the business wire
release from the company:
The Treasury Department said it
has priced a public offering of around 2.4 billion shares of Citigroup common stock at $4.35 per share. The proceeds amount to $10.5
billion. Citigroup shares were up 2.9% premarket. The Government is out of
Citigroup with a $12 (?) billion profit.
Diane Swonk, Chief Economist, Mesirow Financial
Deal Struck on Tax Cuts & Unemployment Benefits - Welcome News to
President Obama took to the
airwaves last night to announce that his administration has come to an
agreement with Republican leaders in Congress regarding the extension of almost
all of the Bush-era tax cuts for two years. Even the exemption on estate taxes
is to be extended, with the exception of individual estates worth more than $5
million, which will owe 35%. The deal also includes administration-backed cuts
to payroll taxes, 100% deductions for research and development (R&D)
investment and extensions of R&D credits already in place from the stimulus
package. In return, Republicans agreed to extend unemployment insurance for the
long-term unemployed for a full 13 months. This is not only an acknowledgement
that the unemployment situation isn't going away any time soon, but that it
will soon be the Republicans' burden to bear when they assume the majority in
the House next year.
The resolution, which seems
likely to be passed, despite some pushback from liberals on the tax cuts for
the wealthiest families, will provide a much needed backstop for an economic
recovery that remains extremely fragile. It will also bring some relief to the
Federal Reserve, which has been forced to carry the burden of recovery on its
shoulders in recent months, even though it didn't have the necessary tools to
do so. Federal Reserve Chairman Ben Bernanke seemed almost to be begging for
some sort of fiscal stimulus when he defended the need for QE2 (additional
quantitative easing) in recent weeks.
Nothing, however, is free and
one can only hope that now that we have moved beyond the cyclical debate on
fiscal policy, we will find some grownups in Congress to embrace a more
meaningful discussion about reining in the structural budget deficit. We have
just bought ourselves two years (likely less given the 2012 election cycle) to
come up with meaningful revenue and spending reforms that phase in gradually
over the next five-to-ten years or longer. The President's bipartisan budget
commission recommended that an increase in the retirement age to 68 be phased
in over 40 years. If our 28-year-olds can't figure out how to save a little
more, to work a few more years, forty years from now, then we as a nation are
even more childish than I believed.
The Bottom Line: Tax cuts and extensions to unemployment insurance
are essential, along with efforts by the Fed to further stimulate to get the
economy out of a "stall zone" on growth. That said, there are no
guarantees, and the road ahead is still rocky. Moreover, the hard debate on the
deficit, which I have always argued should not have been lumped in with the
cyclical debate on stimulus, needs to get underway.
We added Fifth
Third Bank to accounts that own Dell.
Aéropostale is up the past two days after
Goldman placed a sell on the shares. The rumor is that private equity firms are
interested. We are selling for a $1 two
day profit because we placed a large chunk of funds in Talbots this morning
and the discipline is to maintain a semblance of balance in portfolios by
industry. There are ten takeover rumors for every on that occurs and with the
recent executive shakeup at the company –and insiders not owning any stock- we
wonder how those folks who are left would benefit. Anyway, thanks to the rumor
mongers for the two day 5% profit.
continuation of the 100% deduction for businesses for capital expenditures for
the next year –it just went into effect a month ago- we added to our Dell and
Hewlett Packard positions.
Gold reversed and closed down $4 at $1411. Oil ended at $88.58.
European stocks closed at their highs.
The major market
measures were higher all day but lost ground in the final hour and finished
mildly mixed on the day. Volume was moderate and Breadth flat
December 6, 2010
Asia and Europe were lower
overnight with Oil close to $89 and Gold at $1415. U.S. futures indicate a
slightly down opening.
We are watching CNBC learning
that a nonprofit organization (a/k/a- a charity) is co-sponsoring a race car
driver on the NASCAR circuit. The Drive
to End Hunger will sponsor the car of Jeff Jordan in 2011, 2012, and 2013.
Call us crazy but that’s nuts.
(WSJ) ... In a Sunday interview
on CBS News's "60 Minutes," Mr. Bernanke said the Fed could commit
more money to boost the economy after last month announcing $600 billion of
asset purchases. He said any decision would depend on inflation and the
efficacy of the existing program, as well as how the economy looks overall.
Still, he said he doesn't think a double-dip recession in the U.S. is likely.
Across the Atlantic, European
Union leaders were due to meet in Brussels Monday to discuss whether their €750
billion euro ($1.01 trillion) rescue fund might need to be increased. Bank
stocks were weaker after Moody's cut Hungary's credit rating... for more go to:
(AP) -- Activist investor William
Ackman on Monday offered to finance a
$16 per share Borders-led takeover bid for rival bookseller Barnes & Noble
Ackman and his Pershing Square
Capital Management in a regulatory filing that they would be willing to fund an
offer of $16 per share in cash for Barnes & Noble.
With about 60.2 million shares
outstanding, that would value Barnes & Noble at about $963.2 million.
That is nearly 21 percent more
than Barnes & Noble's closing price Friday of $13.38 a share. Barnes &
Noble shares rose $2.31, or 17.4 percent, to $15.59 in pre-market trading.
In the filing, Ackman disclosed a
37 percent stake in Borders, up from 31.5 percent in May.
As an alternative to the $16 per
share cash offer for Barnes & Noble, Ackman said in the filing he would
finance a combined stock and cash offer.
Goldman Sachs lowered its price
target on Barnes & Noble to $12 last week reinforcing existing price
weakness and adding the drop in the share price. With the closing price on the
shares Friday at $13, a $16 price offer seems reasonable. Just saying.
By the by, Borders is in worse
financial straits than BKS.
(Bloomberg) Aéropostale.... was cut to “sell” from “neutral” by Goldman Sachs; American Eagle Outfitters.... was raised to “buy” from “neutral”
by Goldman Sachs.
(AP) -- Teen retailers
Abercrombie & Fitch Co. and American
Eagle Outfitters Inc. may see their businesses improve next year, helped by
better economic conditions and "favorable fashion trends, a Goldman Sachs
analyst said Monday. The analyst, Michelle Tan, raised both retailers' ratings,
adding Abercrombie & Fitch to Goldman's "Conviction Buy" list
from "Buy" and boosting American Eagle to "Buy" from
"Neutral." She said teen unemployment may be waning, with
improvements seen in each of the past three months. More teens working could
mean more money for retailers that target the demographic. Tan also said in a
client note that Pittsburgh-based American Eagle and Abercrombie & Fitch,
which is based in New Albany, Ohio, could also capitalize if there is a shift
to more classic, casual teen clothes. "After 3.5 years where edgier trends
like dresses and skinny jeans hurt Abercrombie & Fitch and American Eagle,
we see early signs that the cycle may move back in their favor," she said.
Shares of Abercrombie & Fitch
gained 15 cents to $56.30 in afternoon trading. The stock hit a 52-week high of
$57.06 earlier in the session. American Eagle's stock climbed 23 cents to
(TheStreet) – Cisco, which is facing
questions about its long-term
growth potential, has joined forces with BMC in an attempt to beef
up its cloud
strategy.The venture offers service providers and enterprises a
prepackaged bundle of Cisco hardware and BMC software. This includes Cisco's UCS servers,
Nexus switches, firewalls and routers and BMC's management software. More at http://finance.yahoo.com/news/Cisco-and-BMC-Software-iw-777437460.html?x=0&.v=1
We sold BKS for a
one week $2 (15%) per share profit.
(Barron’s.com) Oppenheimer & Co.’s Ittai
Kidron this morning raised his rating on Cisco to Outperform with a $23 price target, writing that sentiment
is so bad on the company; it’s a good time to consider owning the shares.
Kidron cut his estimate for the fiscal year ending next July to $43.1 billion
from a prior $44.2 billion, below Street consensus of $43.67 billion. His EPS
estimate, at $1.60, is down from a prior $1.67 and below the Street’s $1.61.
Those numbers “appropriately reflect concerns of share losses and margin
pressure,” writes Kidron. Though things could be “bumpy” for the stock, Kidron
argues his reduced view, and the negative sentiment on the company, both
capture the prospect of further erosion by competitors. Kidron’s gone through
the product line, trimming estimates in areas such as the set top box business
(housing woes), while taking a bullish view of things such as the Unified
Compute Server, the core of Cisco’s push into data center computing.
He notes that that business is on a half-a-billion-dollar run rate, as of the
first quarter of this fiscal year, with 2,800 customers.
And the beat goes on:
(Bloomberg) -- A crackdown on
financial frauds including Ponzi schemes and stock market manipulation has
resulted in U.S. enforcement actions against 343 criminal defendants and 189
civil defendants since August, the Justice Department said. The cases involved
more than $8.3 billion in estimated losses in the criminal cases and $2.1
billion in the civil cases, Attorney General Eric Holder said at a news
conference in Washington today. More at:
We traded out of
Goodyear for a 3% to 5% gain. We have been trading GT because it has 5% moves
almost weekly. We also added to our CSCO (at a 15 month low) holdings on the
Oppenheimer upgrade and the “cloud” computing (very hot right now) news.
Oil ended flat at $89.06 and Gold gained $10 to $1416. European bourses
closed mildly lower.
The major market
measures closed mixed small. Breadth was negative and volume light.
December 3, 2010
improved by 39,000 which was less than expected and markets are lower on that
news. Private sector jobs grew by 50,000. European and Asian markets were
We added shares on Medtronic to larger
accounts; below is a short blip on the
Concerns of new taxes and tougher product safety reviews have added to the
woes of medical device companies that are already intensely battling each other
amidst a slowdown in sales. My top pick in this industry is Medtronic (MDT)
whose shares are down 24%. The company’s sales have come under pressure as high
unemployment and rising insurance costs have caused patients to cut down on
doctor's visits. Meanwhile, Medtronic is looking to both in-house R&D and
acquisitions to diversify its product base. Medtronic shares are a good bet if
you believe patients cannot postpone the usage of medical devices forever.
Increasing accessibility of more Americans to medical care is likely to
increase demand for Medtronic’s devices over time. The company is also seeing
growth opportunities in emerging markets where it plans to triple its revenue
in the next five years.
shares trade at a relatively modest 9.3 forward P/E. They offer a meaningful
2.7% dividend yield that can compensate
investors a bit while waiting for the business environment to improve.
statistics from today's jobs report:
- The jobless rate: for adult men (10 percent); for adult women (8.4 percent); for
teenagers (24.6 percent); for whites (8.9 percent), blacks (16 percent);
Latinos (13.2 percent); Asians (7.6 percent). Rates for American Indians are
larger than all these but not included because the government's survey sample
is too small.
- The number of people employed part-time because they can't find a full-time
position fell from 9.2 million to 9 million.
- The average workweek for all employees on private nonfarm payrolls held at 34.3
- In professional and business services, employment in temporary help services was
- Health care gained 19,000.
- Mining added 6,000 jobs.
- Retail trade fell by 28,000.
- Manufacturing fell 13,000.
Coldwater Creek announced a loss for the
quarter and was gloomy for the Christmas quarter also. We are adding shares now
that the news is out of the way, below are comments by the CEO who is also a
30% owner of the company.
third quarter operating results were in line with the revised outlook we
provided in mid October. This was a disappointing quarter for us as our fall
merchandise assortment was not well received by our customers," stated Dennis Pence, Chairman and Chief Executive Officer of
Coldwater Creek. "On a positive note, we continued to tightly manage
expenses with SG&A for the quarter down approximately $23
million from the third fiscal quarter last year."
Pence continued, "We expect the challenges we experienced in fall to
continue during the fourth quarter. As we move forward, our highest
priority is to continue to reposition the Coldwater Creek brand to better
address the needs of our target demographic. We are focused on improving
our collections to offer a more compelling fashion sensibility and while we
recognize that the transition will take some time, our April deliveries will
begin to reflect our new design aesthetic being led by Jerome
Jessup and his new design team."
Gun to our head our guess is that markets
rally into the New Year and then correct.
The markets are hesitant this morning and given
the rally of this week we sold KBE and Ford for plus scratches and GE
for a 5% two week gain with the hopes of reinvesting at lower levels.
stocks fell for the first time in three sessions following a disappointing U.S.
jobs report. The Stoxx Europe 600 index ended down 0.2% at 270.94, leaving it
with a gain of 1.6% for the week, its best weekly showing in a month. Oil
closed at $89.18 up $1.20 and Gold at $1416 up $29.
The major market measures closed higher on
the day with a rally in the last half hour. Breadth was 3/2 positive and volume
December 2, 2010
Markets around the world were
higher overnight in response to yesterday’s large percentage gain in the U.S.
Markets in the U.S. look to open mildly higher this morning and then we will
see how much strength remains. Gold is $1391 and Oil as an $86 handle as the
trading day begins.
Jobless claims were up 26,000 to 436,000. The Monthly Employment Report
is released tomorrow morning.
(WSJ) A mystery buyer is
apparently holding more than half of the copper stocks at the London Metal
Exchange's warehouses, the latest revelation of how a single trader can roil an
entire commodities market. That trader, whom the exchange hasn't identified,
owns between 50% and 80% of the 355,750 metric tons held in LME-listed
Worth the read:
McSurance on Trial: A Senate committee puts the spotlight on the crap
health insurance given fast-food workers.
(WSJ) The European Central Bank will continue to offer special longer-term
liquidity measures in 2011, ECB President Jean-Claude Trichet said. The
extra liquidity measures were due to be phased out early next year, so the new
decision should offer some relief to the euro-zone's troubled debt markets. After
Trichet's remarks, the euro edged down against the dollar to $1.3061, while key
euro-zone government bond yields were broadly stable. Earlier in the day, the
ECB left its main interest rate unchanged at 1.0%, with Trichet saying the rate
was "appropriate" given "contained" inflationary pressures.
Buy on bad news:
we added shares of American Eagle (see bad news/ good news below same store
sales flat/ 50 cents special dividend) and also initiated a new position in Aéropostale
at $23.40 down $3.40 on the day.
An analyst downgraded shares of Aéropostale Inc. on Thursday while
others said they see continued problems for the teen retailer, a day after the
company said its co-CEO is stepping down and it reported its third-quarter
profit 1ell below expectations. The company also said revenue at stores open at
least a year fell last month and it issued a disappointing fourth-quarter
The stock fell nearly 11 percent
in early trading, losing $2.90 to hit $23.90. The stock has traded between
$19.10 and $32.24 in the past year. In a note to clients, Wedbush analyst Betty
Chen cut shares to "Neutral" from "Outperform." Chen said
the disappointing fourth-quarter "highlight the challenges of delivering
sales on top of difficult comparisons and corresponding margin declines." The
analyst thinks the need for deep discounts to move merchandise will continue to
hurt margins through next year. Also, she believes the departure of co-CEO
Mindy Meads, who spearheaded the merchandising effort, "product mishaps
may materialize." KeyBanc Capital Markets analyst Edward Yruma, who
already has an "Underweight" rating on the stock, says he sees
continued potential for the stock to lose value. He thinks Mead's departure
"points to a company struggling to regain its footing." He lowered
his earnings estimates on the company for the fourth-quarter and full-year and
maintained his $20 price target.
(Yahoo) Aéropostale, Inc. operates as a mall-based specialty retailer of
casual apparel and accessories. It designs, markets, and sells merchandise
principally targeting 14 to 17 year-old young women and men. The company offers
a collection of apparel, including graphic t-shirts, tops, bottoms, sweaters,
jeans, and outerwear, as well as accessories, including sunglasses, belts,
socks, and hats. It also offers casual clothing and accessories focusing on
elementary school children between the ages of 7 and 12. In addition, the
company sells its products through its e-commerce Website, aeropostale.com. As
of March 15, 2010, it operated 895 Aéropostale stores in 49 states and Puerto
Rico; 44 Aéropostale stores in Canada; and 15 P.S. from Aéropostale stores in 6
states. The company was formerly known as MSS-Delaware, Inc. and changed its
name to Aéropostale, Inc. in February 2000. Aéropostale, Inc. was founded in
1987 and is headquartered in New York, New York.
Rebound in Pending Home Sales (NAR)
The Pending Home Sales Index,* a
forward-looking indicator, rose 10.4 percent to 89.3 based on contracts signed
in October from 80.9 in September. The index remains 20.5 percent below a surge
to a cyclical peak of 112.4 in October 2009 ... The data reflects contracts and
not closings, which normally occur with a lag time of one or two months.
European bourses ended up 2% and
more. Gold finished at $1389 and Oil was $87.79 up $1 and change.
The major market
measures gained 1% in light trading. Breadth was 2/1 to the good.
American Eagle Outfitters, Inc. announced the following:
November sales increase of 2% to
$272 million, with comparable store sales flat for the month.
Fourth quarter earnings guidance
of $0.43 to $0.46 per diluted share.
A $0.50 per share special cash
A regular quarterly cash dividend
of $0.11 per share with accelerated payment into December.
Extension of the company’s 16
million share repurchase authorization, through February 2, 2013.
November and Year-to-Date
Total sales for the four weeks
ended November 27, 2010 increased 2% to $272 million, compared to $266 million
for the four weeks ended November 28, 2009. Comparable store sales were flat
for the month, compared to a 2% decrease for the same period last year.
Jim O’Donnell, chief executive
officer, commented, “November sales reflected a strong performance over
Thanksgiving weekend, offsetting some weakness during non-peak periods earlier
in the month. Customers are responding to our merchandise offering, and we are
well-positioned from an inventory perspective as we enter December.”
Total sales for the year-to-date
period ended November 27, 2010 increased 3% to $2.32 billion, compared to $2.25
billion for the same period last year. Comparable store sales increased 1% for
the year-to-date period, compared to a 7% decrease for the same period last
The company completed the closure
of MARTIN+OSA during the second quarter of 2010. Accordingly, MARTIN+OSA’s
total sales for the current year-to-date period and all prior periods have been
reclassified as discontinued operations and are not included in the results
from continuing operations above.
To access the company’s recorded
monthly sales commentary, please dial (866) 514-0390, or internationally dial
Fourth Quarter EPS Guidance
The company is providing fourth
quarter 2010 earnings guidance from continuing operations of $0.43 to $0.46 per
diluted share. Fourth quarter guidance compares to earnings from continuing
operations of $0.38 per diluted share last year.
Special Dividend and
Accelerated Regular Quarterly Dividend
The company’s board of directors
declared a $0.50 per share special cash dividend. In addition, the board
declared a regular quarterly cash dividend of $0.11 per share, payment of which
will be accelerated into December. As such, a cash dividend of $0.61 per share
will be payable on December 27, 2010 to stockholders of record at the close of
business on December 13, 2010.
Extended Share Repurchase
The board of directors also voted
to extend the company’s current repurchase authorization of 16 million shares
through February 2, 2013. Since 2005, the company has repurchased a total of
48.5 million shares for $938 million, which includes 14 million shares
repurchased in 2010.
Mr. O’Donnell stated, “The
payment of a special cash dividend primarily reflects the successful
liquidation of auction rate securities, which resulted in proceeds of $150
million during the third quarter and brought our cash position at quarter-end
to $631 million. The use of this cash in no way impedes our ongoing investments
in strategic growth. Indeed, we are highly confident that our current
initiatives will lead to further improvements in profitability and cash flow.
At the same time, today’s announcement demonstrates our commitment to enhance
shareholder value through execution of our business plan, cash dividends and
December 1, 2010
Stocks are higher around the
world as the Holiday season spreads its glow to bourses and banks. The reason
given is that there is good economic data being released in various countries.
Also stocks have been in a funk for a week and the attention span on the
negative side for the past few months has been limited.
Intelligence has 55% Bulls and 21% Bears. That is not good news for contrarians
who are long stocks (us). With any significant pop we may be quick on the
downgraded American Eagle Outfitters (NYSE: AEO)
from Buy to Hold. The firm states, "AEO has run up 40% since August 12 and
is fairly valued at 9X peak earnings from 2006-2008, 18X trailing twelve months
earnings and 15X (rising) estimates for next year. The shares have
out-performed the S&P-500 by more than 2000 bps since mid-August and will
be challenged to out-perform the Index going forward..."For more ratings
news on American Eagle Outfitters click here
and for the rating history of American Eagle Outfitters click here.
We added Dell
and Barnes & Noble to accounts.
Diane Swonk, Chief Economist, Mesirow Financial
Preliminary Report on Employment Good, but Not Good Enough
The ADP employment report
showed that private sector job creation picked up from an upwardly revised
82,000 in October to 93,000 in November. This is the largest gain in private
sector hiring in three years and suggests that payroll employment, which will
be released by the government on Friday, could exceed the consensus of about
150,000 jobs created in November. Our own estimate is for about 170,000 payroll
jobs in the month of November. According to ADP's data, hiring in the service
sector was strongest, as retailers and restaurants hired more than we have seen
in recent years to staff up for the holiday season. It also appears that large
firms may be outsourcing again to small businesses, which in turn is lifting
employment for consulting. Manufacturing employment expanded modestly, while
construction continued to decline.
Gains in employment occurred
across firm size, including small businesses. This is perhaps the most
encouraging part of the report with respect to future employment gains because
small business hiring is the backbone of job creation in the U.S.
The bad news, of course, is
that gains of this magnitude are still not enough to measurably reduce the
unemployment rate, an issue that Federal Reserve Chairman Ben Bernanke
underscored in comments on a panel at Ohio State University yesterday. More
disturbing is the failure of Congress to extend unemployment benefits for the
long-term unemployed. Some two million workers could lose roughly $300 a week
in benefits by the end of the year, if some sort of extension is not passed.
Another 2.7 million are at risk in early 2011, which would be a major blow to
the economy given the extraordinary multipliers associated with unemployment
insurance. The Congressional Budget Office estimates that we get back $1.90 in
economic stimulus (spending) for every dollar spent on unemployment insurance.
The Bottom Line: The economy
appears to be gradually reaccelerating. Those gains will not be enough,
however, to absorb the masses that have been unemployed for more than 26 weeks
and could falter if Congress fails to extend benefits soon along with the
Bush tax cuts, which are also up for extension. The tax cuts are more
costly, in terms of the federal budget deficit than unemployment insurance
extensions, but compensate with fewer multipliers for the economy.
Toyotas, soon for sale in the
(Reuters) - General Motors Co's U.S. sales rose 11 percent overall in November, in line with gains projected for
the industry amid a slow but steady return in consumer demand from the
depressed levels a year earlier.
Sales in GM's four remaining U.S.
brands following its restructuring rose 21 percent in November from a year
earlier, said GM, which completed the largest-ever IPO in November to return to
the U.S. stock market.
Analysts overall expect automakers
to report sales at slightly above a 12 million annualized rate for light
vehicles, driven by discounting aimed to counter a slow return in consumer
(MarketWatch) -- Ford Motor Co on Wednesday posted a 24.3% jump in November U.S. car sales
to 147,338 vehicles. Ford unit sales have surged 21% so far this year compared
with 2009 to easily outpace the broader industry's growth rate. Car sales in
November rose 24.7%, sport utilities gained 13.1% and trucks surged 34%. Ford
also said it plans to build 635,000 vehicles in the first quarter of 2011, up
11% from the prior year.
Ford outsold Toyota (overall sales down 3%) for the month of November
to take over the #2 spot behind GM.
High gasoline prices continue even though inventories rose when a drop
was expected. It’s called commodity speculation.
(MarketWatch) -- Crude-oil
futures slightly pared their gains Wednesday after the Department of Energy
reported an unexpected increase in inventories. Crude for January delivery
added $1.29, or 1.5%, to $85.41 a barrel on the New York Mercantile Exchange,
slightly lower than earlier. Gasoline and heating oil futures prices were
unchanged. The Energy Information Administration said crude-oil supplies rose
1.1 million barrels for the week ended Nov. 26, which contrasts with
expectations of a draw around 1 million barrels. Gasoline inventories added
600,000 barrels, while supplies of distillates rose 200,000 barrels.
The list of Banks and brokers who
borrowed from the Fed during the rescue: http://www.federalreserve.gov/newsevents/reform_transaction.htm
Oil ended at $88.66 up $2.55 and
Gold gained $3 to $1390. Many European bourses gained 2% on the day.
The major market
measures closed 2% higher in moderate trading. Breadth was 3/1 positive.
At noon when the DJIA popped 100 points on top of a 125 gain earlier Goldman
Sachs sent an e-mail to clients suggesting that its outlook on the US economy
had shifted form from bearish to bullish. From http://www.zerohedge.com/
Goldman Sachs speaks, market listen- for a few minutes at least.
The US growth outlook has brightened significantly in recent weeks.
As a result, we have raised our sights for 2011, calling for real GDP growth to
average 2.7% for the year versus 2.0% previously. We expect growth
to pick up further in 2012—to 3.6% on average for the year—though judgments that
far out are clearly tentative.
The main reason: recent data reveal a firmer trend in domestic final
demand and suggest that it will be sustained via improvements in net hiring and
credit availability. Meanwhile, the downside risk of a material
tightening in federal fiscal policy—i.e., failure to extend expiring tax
cuts—has diminished significantly.
Although our revised outlook implies a meaningful drop in the jobless
rate, it will remain high by historical standards, ending 2012 at about
8½%. With other measures of utilization also likely to show significant
excess capacity, we expect core inflation to remain at the ½% year-to-year rate
in 2012 that we have been forecasting for year-end 2011.
In turn, this means that the Federal Open Market Committee (FOMC) is
unlikely to increase the federal funds rate in 2011 and will probably stay on
hold in 2012 as well. The future of unconventional easing is a much
closer call. On balance, we think that Fed officials will buy more assets
after the $600bn already committed. But we have scaled back our
cumulative expectation for QE2 to $1trn from $2trn, and it is also possible
that the program will end at $600bn.
Risks exist on both sides. On the downside, we worry most that
renewed home price declines—now expected to fall 5% or a bit more over the next
year—will cause another round of consumer retrenchment; risks of a financial
spillover from European debt woes and of significant fiscal tightening at home
also lurk. On the upside: cash-rich companies may be more willing to
spend on capital equipment or to expand payrolls than we now anticipate.
The US growth outlook has brightened significantly in recent
weeks. As a result, in conjunction with revisions and extensions of our
global outlook into 2012 being published today, we have upgraded our US view,
as detailed in Exhibit 1 below. In particular:
raised our sights for US growth in 2011 and expect further acceleration in real
GDP in 2012. Specifically, our revised view calls for growth to remain at
last quarter’s 2.5% annual rate through early 2011 and then increase over the
next year to a 4% annual rate. On an annual average basis, we now expect
real GDP to increase 2.7% (annual average basis) in 2011, versus 2.0%
previously, and to increase 3.6% in 2012. These changes put us slightly
above the latest Blue Chip median for 2011 (2.5% in early November) and—we
suspect—above the median for 2012, to be published in January.
As a result,
we now expect the jobless rate to fall to about 8½% by year-end 2012. This
is implied by Okun’s law on the assumption that potential growth is currently
about 2½%. (Okun’s law—which is really a rule of thumb that fits the data
quite well—states that the unemployment rate will fall by half the difference
between actual and potential growth over a one-year period.). Most of
this decline occurs in 2012; over the four quarters of 2011 we expect only a
marginal reduction from the current 9.6% rate, to about 9¼%.
inflation should remain low, at about ½% (year-to-year), through 2012. At
0.6% as of October, the CPI core inflation rate has nearly reached this point
already, well ahead of schedule. The core price index for personal
consumption expenditures (core PCE index) has a bit more to go, but is also clearly
decelerating. Although we expect growth to rise materially above its
potential rate over the next two years, the US economy will still be operating
with considerable slack throughout the period—in the labor market and in other
productive resources. This should keep core inflation from rising, while
stable expectations of inflation keep it from falling below zero.
policy will remain highly accommodative. With the unemployment and core
inflation rates continuing to run much weaker than their “mandate-consistent”
levels (5%-6% for the jobless rate; just under 2% for inflation) throughout the
forecast period, increases in interest rates are highly unlikely in 2011 and,
we think, also in 2012. The outlook for LSAPs is less clear, as strong growth
will stiffen the resistance from some members of the FOMC to extend this policy
while large shortfalls vis-à-vis the committee’s employment and inflation
objectives prompt others to press for more. On balance, we expect more
LSAPs, but cumulating only to $1trn (versus $2trn previously), and we are not
very confident of this call.
This outlook represents a fundamental shift in the thinking that has
governed our forecast for at least the last five years. Accordingly, a
short review of the evolution of that thinking will help set the stage for what
has now changed:
Five years ago, we became very pessimistic about the US economic
outlook. This was because we expected downturns in the housing and
mortgage markets to trigger a substantial increase in the private sector
financial balance—the gap between the total income and total spending of US
households and businesses. In turn, we thought this weakening in
private-sector demand would cause an economic slowdown as the government and
foreign sectors failed to take up the slack
(As a matter of accounting, the financial balances of the private,
public, and foreign sectors must sum to zero, as all spending generates an
equivalent amount of income. However, as a matter of intention this
identity need not hold. In the short run, differences between intentions
and actual outcomes are resolved by unintended movements in inventory
investment, one component of private-sector spending. Over time, the
differences are resolved by shifts in production—up if intended spending
exceeds income, thereby causing inventory investment to fall short of the
desired rate, and down in the opposite situation.)
Over the following three years, the private-sector balance rose
sharply, as shown in Exhibit 2. The 12.5-point move from -3.9% of GDP in
mid-2006 to +8.6% in mid-2009 triggered the deepest recession in post World War
II US history.
In 2009, the private-sector surplus began to shrink. However, we
maintained a below-consensus view, predicting that real GDP growth would slow
to a below-trend pace during 2010. We reasoned that the incipient
reversal in the private-sector balance and the upswing in GDP it produced were
due to temporary factors—namely, the fiscal stimulus enacted in February 2009
and the positive inventory cycle, which probably would not have kicked in
without the strong growth support from fiscal (and monetary) stimulus.
With underlying final demand—i.e., the growth in GDP less the fiscal and
inventory effects—still stagnant, we thought the US economy would slow during
2010, as indeed it did
So why do we now expect growth to pick up? In a nutshell,
it is because underlying demand has strengthened significantly, as shown in
Exhibit 3. This chart plots the growth rate of real GDP (dark line)
alongside the growth rate of underlying demand (light line).
After a deep downturn from 2007 to mid-2009 and near-stagnation from mid-2009
to mid-2010, underlying demand is now accelerating sharply. Currently, it
is on track for a 5% (annualized) growth rate in the fourth quarter.
Why such a sharp acceleration? Our explanation is that the pace
of private-sector deleveraging is slowing in an environment of somewhat lower
debt/income ratios, improving credit quality, and moderating lending
standards. In turn, the rise in spending relative to income is starting
to generate positive multiplier effects via a stronger labor market, and this
is feeding back into stronger income growth. Thus, we have also seen a
notable improvement in jobless claims and (at least through October) in nonfarm
At the same time, one downside risk has diminished significantly.
Although Congress has yet to enact a formal extension of the tax cuts scheduled
to expire at the end of this month, both parties seem anxious to avoid the
renewed downturn in economic activity that would likely occur if most of these
cuts were not extended. Meanwhile, state income and sales tax revenues
are now on the rise; this may reduce the fiscal restraint imposed by this
sector as it begins its next budget round in the spring.
In short, the improved tone of the US economic data has convinced us
that the partial reversal of the 2006-2009 private-sector retrenchment that
began in 2009 has evolved into a more durable trend. To borrow
Chairman Bernanke’s metaphor, the hand-off from policy stimulus to private
demand—which seemed elusive just a couple of months ago—now appears to be
developing. Over the next two years we now expect the
private-sector balance to fall from +6.5% in the third quarter of 2010 to 4.5%
in the fourth quarter of 2012.
As we adopt a more constructive view of US growth prospects, it is
important to emphasize what we are not saying:
We are not
saying the US economy is about to embark on a V-shaped recovery.
For one thing, it’s a bit late for that, given that recovery is more than a
year old. More importantly, we believe that the drags from reduced
inventory investment and fiscal tightening will keep real GDP growth at a
moderate pace of 2½% in the next couple of quarters. And even the 4%
growth pace that we expect for much of 2012 is quite moderate relative to
typical postwar recoveries
We are not
saying that deleveraging is over. We still expect private-sector
debt/income ratios to decline further. But it is the pace of deleveraging—which
corresponds to the level of the private sector balance—that matters for
GDP. As the pace of deleveraging slows, the private sector balance falls,
and this implies a positive impulse to GDP growth.
We are not
saying that US housing prospects have improved materially. The
residential real estate market still sits under an enormous overhang of
unoccupied units. As a result, home prices have weakened after the
temporary lift provided by the homebuyer tax credit, and sales of new units remain
depressed. Under these circumstances, builders are apt to see only tepid
growth in activity
We are not
saying that the economy will feel good from a “Main Street” perspective.
As already noted, we only expect a gradual decline in unemployment as growth
moves above trend, to 9¼% by the end of 2011 and 8½% by the end of 2012.
This is still very high by any absolute standard and far above our 5½% estimate
of the structural unemployment rate.
With so much
slack in the system, inflation is likely to stay well below the Fed’s
“mandate-consistent” level of just under 2%, as noted above. This implies
that Fed officials will continue to miss both parts of their dual mandate by
large margins, and are apt to keep monetary policy very accommodative as a
result. Even with our new forecasts, and even if we take into account the
quantitative and fiscal policy easing that has already occurred, our analysis
of the Fed’s reaction function implies that rate hikes are very unlikely in
2011 and—based on our economic forecasts—will probably not occur in 2012
The future of
LSAPs is a much closer call. Barring very large surprises in the economic
data, we are convinced that Fed officials will complete their $600bn purchase
program. But the pickup in growth and the backlash against this program,
both at home and abroad have made us more uncertain about further purchases
beyond June. On balance, we think that Fed officials will still buy more,
pushing the total amount up to perhaps $1 trillion. But it is also
possible that LSAPs will end at $600bn.
Like any forecast, this one has risks on
both sides. On the downside, the risk that worries us most is the
potential for a significant renewed drop in home prices to trigger another
round of consumer retrenchment. We have been estimating that prices would
drop only 2½%-3½% over the next couple of years, but as the passage of time
allows us to pin down the effects of the homebuyer tax credit more precisely,
we now estimate that prices could drop 5% or a bit more over the next
year. This still looks manageable, but sharper declines could change the
picture fairly quickly.
The risk that currently worries markets the
most is the potential for contagion from the European debt crisis. We
agree that the US economy is vulnerable to these events, but probably only if
it affects financial conditions via a materially stronger dollar, lower equity
prices, and/or renewed stress in the interbank lending market. Finally,
although prospects of a fiscal accident at home have diminished significantly,
they have not disappeared altogether. Stalemate in Washington would pose
an obvious, and large, risk to the near-term growth outlook.
On the upside, the main risk is that we have
misjudged companies’ willingness to spend, either on physical capital or to
expand their workforces. In terms of capital spending, outlays for
equipment and software have risen much more over the past year than we had
anticipated. Much of this appears to be a short replacement cycle for
high-tech equipment, and we therefore expect some slowing in the near term as
the replacement cycle winds down and utilization rates for other equipment and
for structures remain low. But with private demand now picking up steam,
cash-rich companies may surprise us by expanding or modernizing productive
capacity more aggressively. They could also hire more permanent workers
than we now expect.
It is also conceivable that the fiscal
negotiations currently underway between the Obama administration and the
Republican congressional leadership produce unexpected growth-positive
outcomes. A payroll tax holiday is one commonly mentioned measure, and
unemployment benefits could also be extended for longer than the three months
we now anticipate.
is best dedicated e-reader
Peter Svensson, AP Technology
Writer, On Wednesday December 1, 2010, 2:03 pm EST
NEW YORK (AP) -- When Barnes
& Noble Inc. began to sell its first electronic reading device, the Nook, a
year ago, I found it as welcome as a bookcase landing on my toe. It was a
terrible design -- slow, confusing and buggy.
The successor, the Nookcolor, is
a huge improvement and the best dedicated e-reader on the market this holiday
The new color touch screen makes
navigation and reading much easier. At $249, it is great for consumers who are
not yet willing to spring for a pricier tablet computer such as the iPad.
The original Nook had two
screens: one big, Kindle-like gray-scale "electronic ink" display for
reading and one small touch-enabled color display for navigation. It was like
an unholy marriage between a Kindle and an iPod Touch, worse than either
product on its own.
The Nookcolor, which went on sale
two weeks ago, dispenses with the e-ink screen. The color screen has swelled to
7 inches diagonally, taking over the whole surface and making the Nookcolor
look like the mid-sized product of a happy union between an iPhone and an iPad.
Other color e-book readers have
hit the market this year from smaller names, including Sharper Image with its
Literati. They've been hampered by poor screens that make the text shimmer
uncomfortably. Barnes & Noble's screen uses the same technology as Apple
Inc. does for its iPad, and it's wonderfully crisp.
E-ink readers such as the Kindle
do have one selling point: They provide a more paper-like reading experience,
which sounds attractive to people who find that staring at a computer screen
for hours on end is uncomfortable. However, I believe most of this discomfort
derives from screens that are set to shine too brightly. I found the Nookcolor
quite comfortable to read on, partly because it's easy to adjust the brightness
of the backlight for pretty much any reading environment. Blazing sunshine will
still wash the screen out, though.
Most importantly, the
touch-sensitive color screen makes navigation much easier. The Nook's software
isn't exemplary in its clarity and I did experience a few glitches, but it's
not hard to get the hang of it.
Here's how the Nook stacks up
with the competition:
-- Amazon.com Inc.'s Kindle has
stuck to e-ink technology, which has been the norm for e-readers so far. It has
only one virtue: It's easy to read in broad daylight. In all other ways, e-ink
is a disastrous technology and makes navigation a chore. The Kindle can't show
color, scroll or zoom images, and the text is dark grey on a light grey
background. It doesn't come with its own light source.
In the Kindle's favor, the reader
is cheaper, available for as low as $139. There's also a $189 version that
comes with free access to AT&T Inc.'s cellular broadband network. (The
first Nook was cellular too, but the current version relies solely on Wi-Fi
hotspots.) The Kindle is about the same size as the Nookcolor, but weighs half
The Kindle doesn't accept e-books
from public libraries. The Nook does, though it treats them as second-class
citizens. They can't been pinned to the "home" reading screen, so
firing them up takes more time than with other titles.
-- Apple Inc.'s iPad does far,
far more than the Nook, and it is much better at presenting magazines and
newspapers, thanks to a screen that's twice as big. Magazines, in particular,
are terribly clumsy to navigate on the Nook. The Nookcolor is more portable and
cheaper, and its screen brightness can be turned up higher, so it's a better
choice if you plan to mainly use the tablet for reading novels. The iPad is
better in every other way, so buy one if you can afford the $499 starting
Apple's iPod Touch is a viable
e-book reader as well and starts at $229, making it slightly cheaper than the
Nook. The screen is a third of the size of the Nook's. Like the iPad, the iPod
Touch can access not just Barnes & Noble's e-book store, but scores of
others, including Amazon's Kindle store. However, the small screen means that
it's best bought as a general entertainment device. If you really want
something to read books on, the Nook is a better choice.
Both the iPad and the Kindle beat
the Nookcolor in terms of battery life, but at eight hours, the Nook is good
enough. Expect to charge it every three or four days.
The Nook is based on Google
Inc.'s smart-phone operating system, Android, but it doesn't run any of the
tens of thousands of third-party Android programs, or apps, that are available
for phones. Barnes & Noble plans to launch its own app store early next
year. In the meantime, the Nook does come with a Web browser and a couple of
apps, including Sudoku and Pandora's Internet music service.
Barnes & Noble is taking
advantage of the color touch screen by selling children's books with built-in
narration tracks. It's a fine idea, and my 3-year-old daughter soon got the
hang of starting up the device, navigating to a book, and following along by
swiping the screen to go from page to page. But the books cost $8 each, while
iPhone and iPad apps that are more engaging and animated, such as a version of
"Dr. Seuss "Green Eggs and Ham," cost just $2 each.
I don't think dedicated e-readers
are going to get much better than the Nook, at least not when it comes to the
hardware. Maybe they'll become a bit slimmer and lighter and have
longer-lasting batteries, but there won't be much time for big improvements,
because within a few years, general-purpose tablets such as the iPad and
Samsung Galaxy Tab will have taken over this niche. Though it may get some more
apps next year, the Nook won't be able to match the versatility of a
The Nookcolor could use one
immediate improvement: a space between "Nook" and "color."
As it is, the name sounds too much like a mispronunciation of
"nuclear" when you say it too fast, and that's not a word you want to
stumble into when you're at an airport security checkpoint.
But other than that, it's a good choice for someone who doesn't want to
spring for an iPad. Welcome to adulthood, e-readers.
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Summary of Business Continuity Plan