2011 Has Not Been Kind to BRIC Nations

Interesting day - as I type this the S&P 500 has just about given up the entire gap up rally....

While the U.S. market (with the help of the orphaned dollar) has already hit most Wall Street strategists' year end price targets (1350-1375), the story has not been so good for the much loved BRIC nations.  India started the year in horrible fashion, has rebounded somewhat, but is straining under a series of interest rate hikes to contain rampant inflation.  China is more or less where it started - it fumbled to start the year, rallied sharply for a few months, but has been busy giving that all back the past 3 weeks.   Russia was the star of the group as its a de facto "oil trade" for HAL9000.... until the past month.  While still up for the year, it's given back much of its gains.  Brazil?  Pretty horrid - just broke a double bottom.  Not sure if this is an implication of a slowdown in exports to China or what is going on, but it's not pretty.  It sure looks like institutions also are treating Brazil as nothing but another de facto commodity trade.

India

China

Russia

Brazil

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On the other hand, while not part of the BRICs, my little gem Indonesia has had a stellar 2011 after faltering late in 2010.  I'll repeat it again - it's time for iBRIC.

Indonesia

No positions

Rumor of the Day: Greece Wants to Leave EU

The euro is being pressured by a rumor placed in Der Spiegel about Greece potentially leaving the EU.   While I don't think this carries much water because too many players have too much invested in keeping the EU together, it most likely would be the best way for Greece to resolve its issues.  It could then turn into a mini US, print money to its heart's content and devalue the currency.  Greece is no stranger to defaulting on its debts so nothing new there.  

At this point all the periphery countries simply are uncompetitive with the euro at these levels, so they are facing years upon years of issues.  Of course all these bailouts for Greece, Ireland, and Portugal are truly bailouts for the banks of Germany, France, and UK.  This rumor has strengthened the dollar, weakened the euro, and of course if the dollar rallies everything else must be sold.  We are back the "stupid" market where everything is a binary trade.

Ironically a year ago today we had the flash crash - if you remember, the market was down significantly early in the day due to (wait for it)..... the Greek debt crisis.

Via Der Spiegel

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

Greece's economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.

Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany's behalf.

'Considerable Devaluation'
Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.
"It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro," the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble's staff have calculated that Greece's national deficit would rise to 200 percent of gross domestic product after such a devaluation. "A debt restructuring would be inevitable," his experts warn in the paper. In other words: Greece would go bankrupt.

It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.

What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy.

"The currency conversion would lead to capital flight," they write. And Greece might see itself as forced to implement controls on the transfer of capital to stop the flight of funds out of the country. "This could not be reconciled with the fundamental freedoms instilled in the European internal market," the paper states. In addition, the country would also be cut off from capital markets for years to come.

In addition, the withdrawal of a country from the common currency union would "seriously damage faith in the functioning of the euro zone," the document continues. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. "That would lead to contagion in the euro zone," the paper continues.

Banks at Risk
Moreover, should Athens turn its back on the common currency zone, it would have serious implications for the already wobbly banking sector, particularly in Greece itself. The change in currency "would consume the entire capital base of the banking system and the country's banks would be abruptly insolvent." Banks outside of Greece would suffer as well. "Credit institutions in Germany and elsewhere would be confronted with considerable losses on their outstanding debts," the paper reads.

The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to "write down a significant portion of its claims as irrecoverable." In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds,  which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion) "Given its 27 percent share of ECB capital, Germany would bear the majority of the losses," the paper reads. In short, a Greek withdrawal from the euro zone and an ensuing national default would be expensive for euro-zone countries and their taxpayers. Together with the International Monetary Fund, the EU member states have already pledged €110 billion ($159.5 billion) in aid to Athens -- half of which has already been paid out.

USA Today: U.S. Tax Burden at Lowest Level Since 1958

We can have our cake and eat it too.  Despite an explosion of services and federal spending, individual taxpayers are paying the lower level of taxes as % of income since 1958.  Combined with corporate taxes that are at the lowest level as a % of GDP in generations, it's good times in America.  I will be very interested if the 2% payroll tax holiday instituted at the end of 20101 will be allowed to vaporize Dec 31st, or if we throw this one under the barrel of "can't raise taxes in this environment!" as well.

Via USA Today:

• Americans are paying the smallest share of their income for taxes since 1958, a reflection of tax cuts and a weak economy, a USA TODAY analysis finds.  The total tax burden — for all federal, state and local taxes — dropped to 23.6% of income in the first quarter, according to Bureau of Economic Analysis data.
• By contrast, individuals spent roughly 27% of income on taxes in the 1970s, 1980s and the 1990s — a rate that would mean $500 billion of extra taxes annually today, one-third of the estimated $1.5 trillion federal deficit this year.
• The latest dip in the tax burden came from a Social Security tax cut included in a December budget deal between Democrats and Republicans. It will reduce taxes $100 billion this year.
• "We have a 1950s level of taxation and a 21st-century-sized government," says Robert Bixby, executive director of the Concord Coalition, a deficit-reduction advocacy group.

• Federal, state and local government spending hit a $5.6 trillion annual rate in the first quarter. That's the highest ever.
• USA TODAY examined the full range of taxes that individuals pay to all levels of government. That includes income taxes for Medicare, property taxes for schools and gas taxes for roads.
• At the national average, a person with an income of $100,000 would pay $23,600 in taxes today vs. $28,700 in 2000 and $27,300 in 1990. 
• The recession of 2001 and tax cuts championed by President Bush started a decade-long trend of taxing less income. The 2007-09 recession and new tax cuts in Obama's stimulus effort accelerated the change.  The one-year Social Security tax cut reduces the worker's rate from 6.2% to 4.2% — or $2,000 a year on a $100,000 income.

Other findings:

•Taxes per person. Individuals paid taxes at an annual rate of $10,549 per person in the first quarter — about the same as individuals have paid since 1990 when adjusted for inflation. Incomes have grown; tax payments haven't.

•Spending per person. Government spent at an annual rate of $18,086 per person in the first quarter. That's up from $13,552 in 2001, adjusted for inflation.

Goldman Sachs (GS) Lobbying Hard to Weaken Volcker Rule

With Paul Volcker having given up and riding off into the sunset, Goldman Sachs (GS) and its army of lobbyists is busy doing "God's work" in weakening any impact he might have, according to this Reuters report.   Again, in America the BEST return on investment for large corporations is lobbying - it makes the ROI on their actual businesses look like peanuts.  For a relatively few millions, oodles of tax breaks, protections, or new contracts can be secured.  For an investment bank the sums to buy up politicians direct policy is relatively tiny - effectively for the salary of a handful of vice presidents per quarter, the world is their oyster. $5M annually for Goldman is not even a rounding error.  I am pleased to report the more things change, the more they remain the same.

• Goldman Sachs Group Inc has just a few more months to put its stamp on the Volcker rule, and it is not wasting any time.  The rule, designed to limit banks from speculating with their own money, will cost Goldman at least $3.7 billion in annual revenue, by one estimate. And billions more could be at stake if regulations now being drawn up are extra-tough. 
• The Volcker rule was one of the main topics on the agenda when Chief Executive Lloyd Blankfein met recently with U.S. Securities and Exchange Commission Chairman Mary Schapiro.  Wall Street chiefs do not often lobby top regulators directly, but this issue is unusually important to Goldman. 
• "They're totally freaked out about Volcker," said a Goldman lobbyist who declined to speak on the record for fear of losing the contract. "People are working on that a lot, with agency staff, with lawmakers, you name it."  Indeed, lobbying disclosures show Goldman representatives have been working both sides of the political aisle and meeting with top officials in the White House and regulatory agencies.  
• One big area of concern for Goldman is that regulators who are interpreting the Volcker rule will severely limit the amount of time a bank can hold a security or derivative. Positions held long term can be backstairs bets on markets.
• The Volcker rule is not the only element of financial reform that Goldman is resisting. Important issues on its lobbying docket also include derivatives reform, capital requirements and bonus restrictions. 
• Other bank heads, including Morgan Stanley's James Gorman, have met Schapiro about the Volcker rule. But the provision is most important for Goldman, whose business is far more weighted towards trading, three lobbying sources said.

• Goldman has hired an all-star team of lobbyists and former government officials, leveraging powerful connections to get its message across to regulatory and political leaders.  Michael Paese, former deputy staff director for the U.S. House Financial Services Committee, heads its internal lobbying group. His team includes former staffers from the U.S. Senate Banking Committee, the White House and regulatory agencies.
• Outside of its own payroll, Goldman also has several high-profile legislative veterans working on its behalf in Washington, hailing from both sides of the political aisle. Among them are former Republican lawmakers Trent Lott and John Breaux and former Democratic House Majority Leader Dick Gephardt.
• "....Goldman is everywhere." 
• Under last year's Dodd-Frank law, regulators have until July to come up with specific rules for implementing the Volcker provision, meaning banks have limited time to try to shape the regulations.  Adding to the complexity of lobbying efforts is the number of parties involved.  The SEC and four other regulators are in the process of writing separate versions of the Volcker rule, which must then be reconciled and shaped into a single set of regulations.
• "Volcker is the subject of a very quiet, closed-door battle right now, not just between us and Wall Street, but among the agencies as well," said Bart Naylor, who has lobbied regulators for consumer-rights coalition Americans for Financial Reform.

• Lawmakers say the Volcker rule will ensure that big banks are not gambling in markets, and that taxpayers will not be left on the hook when their bets backfire.  Implementing the Volcker rule will be tricky, though. When a bank buys a security from a client, it is difficult for a regulator to determine whether the bank is serving the client or betting on the market itself.  Limiting holding periods could be a simple way to ensure that banks are not making secret bets under the guise of helping clients 
• Goldman argues that holding on to securities for a long period of time can be a crucial part of trading on behalf of customers because assets trade infrequently in some markets.  A substantial amount of the securities that Goldman trades seems to fall into the longer-term category. In a February presentation, Goldman said it held about a third of the securities and listed derivatives on its trading books for three months or more, and 8 percent for more than a year.  The bank did not disclose how long it holds unlisted derivatives positions, where it also has significant exposure.

• The intensity of its efforts is evident in at least one concrete way: the amount of money it is spending on lobbying. That figure totaled $1.32 million in the first quarter of 2011. That's 15 percent higher than the same period a year ago, putting the bank on course to break its annual record for lobbying expenditure of $4.61 million, set in 2010. 
• For Wall Street, where a bank can earn billions of dollars a year, a $5 million lobbying budget may seem paltry.  But in Washington it's a lot of money. And relative to revenue, Goldman's spending is exponentially higher than that of its competitors.
• It is common for large companies to seek influence in government, but old hands in Washington say Goldman stands out both in its wide network of high-level contacts and its ability to leverage those relationships to its advantage.
• "The individuals at Goldman have been incredibly powerful over time," says Hillary Sale, a law professor at Washington University in St. Louis who specializes in Wall Street regulation. "When you're a consumer, it gives you the creeps thinking about that kind of influence over regulation. But from the bank's side, it's a perfectly smart strategy."

April Employment +244K, Unemployment Rate Ticks Up to 9% Despite No Change to Participation Rate

Sorry for the delay this morning...

April employment data out this morning is more in line with what has been expected the past few months - but did not come to pass - as the BLS tells us +244K jobs were created with +268K in the private sector.   For those of you keeping track at home, the birth death adjustment was +175K, a quite massive figure.  (as always this number cannot be directly subtracted from the total but obviously helps to influence the final figure)  [Jan 27, 2008: Monthly Jobs Report & Birth Death Model]

Whatever the case, this number seems more in line with the economic data from February and March, but in those months the monthly employment data from the government was not as strong as expectations.  This month, expectations had been lowered the past 48 hours as the ISM non manufacturing and weekly claims this week showed weakness, so we have a case of 'better than expected'.  

The labor force participation rate remained stuck at 64.2%, hence the increase in the unemployment rate to 9% from 8.8% is interesting.  Usually you'd expect in recovery for more people to flood back into the job market seeking work, which is why the unemployment rate rising would not necessarily be a bad thing.  However that was not the case in April.  A more typical 66-67% labor force participation rate would add a few % to the unemployment rate.

U16 - the broader measure of unemployment including those marginally attached, jumped back 0.2% to 15.9% from 15.7%.

Hourly wages rose 0.1%.  Average workweek was flat at 34.3 hours.

The market seems to be grabbing strictly on the +244K total (and +268K private sector) and is content with the figures, despite some underlying weakness in the supporting data.

p.s. I am unclear if the much heralded 50,000 McDonald's hires would hit in April's data or May's.  

Here is everyone's favorite chart showing the huge hole we must dig ourselves out of via Calculated Risk blog.

Priceline.com (PCLN) Continues to Awe and Impress

One of my worst blunders of 2010 was selling Priceline.com (PCLN) in the low $200s after booking a very nice gain.  In the 15 or so months since, it has rallied another 150%ish.  As Homer S would say "DOH!".  I would think at some point the expectations would be too high for this company to continue to beat, but that day has yet to come.  The company just reported a $2.66 v $2.45 expectation on a 38.5% year over year revenue growth rate.   International sales, which are now almost half of the business, were blockbuster! (+80%)  They just moved guidance well over analysts $4.40 for next quarter as well.  

Via earnings report:

• The Group had revenues in the 1st quarter of $809.3 million, a 38.5% increase over a year ago. The Group's international operations contributed revenues in the 1st quarter of $389.1 million, an 80% increase versus a year ago (approximately 79% on a local currency basis). 
• The Group's gross profit for the 1st quarter was $505.8 million, a 58.5% increase from the prior year. International operations contributed gross profit in the 1st quarter of $388.2 million, an 81% increase versus a year ago (approximately 79% growth on a local currency basis).
• Non-GAAP net income in the 1st quarter was $137.0 million, a 57.1% increase versus the prior year.  Non-GAAP net income was $2.66 per diluted share, compared to $1.70 per diluted share a year ago. First Call analyst consensus for the 1st quarter 2011 was $2.44 per diluted share. 
• "In the 1st quarter, the Group benefitted from strong growth in our global hotel business, particularly at Booking.com and Agoda," said Jeffery H. Boyd, Priceline President and Chief Executive Officer.  "Room nights booked grew by 55.8% and our international gross bookings grew by 79% compared to prior year first quarter.  The Group's hotel business continues to benefit from improving ADRs, a continuing shift from offline to online bookings, increased penetration of core European and North American markets and outstanding growth in new markets throughout the Asia-Pacific region and South America."
• "The Group's global rental car operations grew rental car days booked by 64.7% in the 1st quarter 2011 as compared to the prior year.  A significant portion of this growth can be attributed to the Group's acquisition of TravelJigsaw and its international car hire operations, which continues to grow at impressive rates.  Priceline.com's airline ticketing business returned to positive growth in the 1st quarter, with a 2.1% gain in ticket sales and improving growth in opaque ticket sales."

Guidance

The Priceline Group said it was targeting the following for 2nd quarter 2011:

• Year-over-year increase in total gross travel bookings of approximately 53% - 58%.
• Year-over-year increase in international gross travel bookings of approximately 76% - 81% (an increase of approximately 53% - 58% on a local currency basis).
• Year-over-year increase in domestic gross travel bookings of approximately 8% to 13%.
• Year-over-year increase in revenue of approximately 36% to 41%.
• Year-over-year increase in gross profit of approximately 57% to 62%.
• Non-GAAP EBITDA of approximately $310 million to $320 million.
• Non-GAAP net income of between $4.70 and $4.90 per diluted share.

[Feb 24, 2011: Priceline.com Delivers Again]
[Aug 3, 2010: Priceline Rides Foreign Markets for Huge Earnings Beat]
[Feb 23, 2010: IBD - Could Priceline.com and Expedia Hit Headwinds?]
[Feb 18, 2010: Priceline.com - Another Stellar Earnings Report]
[Nov 10, 2009: Priceline.com Hits an Earnings Home Run]
[Aug 10, 2009: Priceline.com - Recession Recsmession! Continued Impressive Results]
[May 14, 2009: Priceline.com in Investors Business Daily]
[May 11, 2009: Priceline.com Continues to Execute Well]
[Feb 19, 2009: Priceline.com Impresses on Earnings]
[Aug 6, 2008: Priceline.com - Down 17% on Good Earnings?]
[May 8, 2008: 2 Earnings Reports of Note: AIG (AIG) and Priceline (PCLN)]

No position

Polypore (PPO) - Star of the Day

For the second consecutive earnings season, our old friend Polypore International (PPO) popped significantly on earnings day.

I am surprised by the magnitude (16 cents) of the beat since the one segment of the business that has investors excited (lithium) is relatively small, but the entire battery segment (i.e. energy storage) was strong this quarter. Lead acid battery separators was the line item out of left field, with a 33% year over year gain.  The less exciting separations media business only grew 12%, but is now approaching only 25% of quarterly revenue.

From the earnings report

In the quarter, sales for the Energy Storage segment were $136.6 million, an increase of $35.2 million, or 35%, compared with the prior-year period.

• Sales of lead-acid battery separators were $94.5 million, an increase of $23.5 million, or 33%, compared with the prior-year period, with strength demonstrated across all geographic regions.
• Lithium battery separator sales were $42.1 million, an increase of $11.7 million, or 39%. The increase reflects strong demand in consumer electronics, growing demand in Electric Drive Vehicles (EDVs) and the incremental benefit of new capacity during the quarter. 

----

Via AP:

• Polypore International Inc. said Wednesday that its profit climbed 47 percent in the first quarter, aided by higher revenue.   The company, which makes membranes for a variety of industrial uses including electronics, reported net income of $25.7 million, or 55 cents a share, for the three months ended April 2. That compares with net income of $17.5 million, or 38 cents a share, in the same quarter last year.
• Revenue grew to $185.7 million, up from $145.3 million.
• The results trumped analysts' consensus forecast for earnings of 39 cents a share on $165.2 million in revenue, according to FactSet.
• Management said demand trends remain very positive.

[Feb 24, 2011: Polypore Impresses the Street]
[Dec 7, 2010: Polypore Surges Higher on Upgrade]
[Nov 4, 2010: Earnings Report Swamps Polypore]
[Aug 26, 2010: Polypore Introduced to Cramer Nation]

[Aug 5, 2010: Polypore International with Impressive Beat on Q2 Earnings]
[July 1, 2010: Beginning Polypore]

No position

[Videos] Barry Ritholtz on Outlook for the Stock Market, Housing Market, and Discussing if the Market is "Rigged"

Barry Ritholtz is among a small group of folks who appear in financial media who are neither perma bull (the majority of Wall Street, because after all they want your money and must sell sunshine), or perma bear.  He also happens to be what I call the "godfather" of financial blogging, as The Big Picture was the first blog to hit the stratosphere and reach critical mass - a place I was a regular reader in simpler days when I had more time.

Below we have a series of 3 videos with Yahoo's Daily Ticker.  In a broad sense I agree with him on all three topics discussed.  In the past few weeks, Barry has recently lowered his cash stake from 50%ish to 10%ish as the market made another of its improbable V shaped low volume bounces.  Email readers will need to come to site to view the videos.  (each video is about 5 minutes long)

Despite Selloff, Ritholtz Remains - Cautiously - Bullish

The Daily Ticker's Aaron Task and Daniel Gross spoke about the market with Barry Ritholtz, money manager at FusionIQ and author of The Big Picture blog. Despite the recent weakness, Ritholtz remains cautiously optimistic, because that's been the willing trade since March 2009.  "If every time the market twitched 100 points you headed for the hills, you left a lot of money on the table," he says.

However, for a guy who remains 90% long, he listed a lot of reasons for concern on his blog this morning:

-- Hot money seems to be rotating from speculation to speculation, rather than inflows accumulating longer-term holdings.
-- Traditional measures of stocks (P/E, return on capital) suggest stocks are no longer cheap. Longer-term measures of valuation -- Q ratio, Shiller's 10 year P/E -- show stocks are actually pricey.
-- China is on the verge of rolling over, falling nearly 8% in a single session. That wiped out three months of gains.
-- Defensive sectors -- especially health care, but also staples, telecom and utilities -- have found a bid. Often telegraphing a reduction of buying by fund managers.
-- Way too much cap weight is tied up in a handful of stocks. Apple (AAPL) is responsible for far too much of the Nasdaq gains than is healthy.
-- The rally that began March 2009 -- now well over two years old -- may have gotten ahead of itself.
-- The rampant speculation in silver and its collapse is a reminder that money that piles into a sector very quickly heads out the door even faster.
-- Assumptions about earnings seem to project double-digit gains forever.
-- The end of QE2 removes a significant bid under equities and bonds. It also will allow the dollar to rally, potentially punishing commodity traders.
-- While earnings have been good, future guidance from companies is starting to moderate. This does not bode well for earnings supporting S&P 500 1400-1500 future levels.
-- Speaking very generally, the low volume markets just feel tired here.

Housing Could Struggle for Another 5-10 Years

"Subpar GDP, very anemic job creation, slow deleveraging on both the governmental and consumer basis," is typical of a post-credit crisis recovery, he says, citing the work of Carmen Reinhardt and Ken Rogoff. "The only silver lining on that is corporate America is fairly deleveraged, and what debt they are carrying is at very, very low rates."


The biggest overhang for the economy remains a sluggish housing market, Ritholtz contends. "It's not going to be a bright spot in the economy and probably not for five to 10 years," he tells Aaron Task and Daniel Gross in the accompanying video.

Why? We still have millions of Americans who remain in homes they couldn't afford to buy. Ritholtz suggests half of the lot has already defaulted, but there's still a long way to go. Plus, housing prices are still too high.
Until these issues are worked out, the economy won't truly return to previous productivity levels, he argues.

Is the Market Rigged? Survey Says Yes!

It's back to square one for the jurors in the insider trading case of hedge fund billionaire Raj Rajaratnam. Jurors will have top start the process all over again starting today after a juror was dismissed for "medical" reasons.

Meanwhile, more evidence the stock market is not a level playing field: 47% of respondents in a survey of 400 investors from across the world found one-on-one meetings with companies regularly lead to price sensitive information being divulged, according to the Rotterdam School of Management.


Surveys like this, along with the Rajaratnam trial, the saga over David Sokol's Lubrizoil trades and a overwhelming sense the market is stacked against them helps explain why mom & pop haven't piled back into stocks even after a more-than 2-year bull market.

In the accompanying interview The Daily Ticker's Aaron Task and Daniel Gross discuss just how prevalent insider trading is on Wall Street with Barry Ritholtz director of research at FusionIQ.

"It may not be completely and totally rigged but damn if the odds aren't against the average investor," exclaims Ritholtz. That does not however mean the pros are trading secrets amongst themselves. "Real inside information is actually surprisingly rare [but] I wouldn't be surprised if it's traded on pretty actively," he says.

In Ritholtz's experience what separates the successful professionals from the average individual investor is an information edge, in terms of research and analysis, not privileged information. Most of the rumors whispered around trading floors simply don't hold water, he says.

Even if professionals are getting illegal tips from their one-on-one meetings, as the survey suggests, Ritholtz says there are few slam dunks, outside of inside information about pending mergers. Either way, it's not the way you want the markets to function.

Gas Prices Better Drop this Weekend

I know "refined product" is the not the same as "crude oil" but I'll be darned if every time crude oil pops 70 cents, that the price of gas doesn't jump $0.03.  In that case, I better be able to buy some gas for a discount tomorrow.

Run Forrest Run!

It looks like Mr. Trichet did the U.S. peso a favor by sounding dovish in today's ECB speech.... we finally got that long awaited oversold bounce.

No positions

Will QE Ultimately Lead to Weaker Labor Markets?

The Fed has a dual mandate of price stability and full employment.  They are failing miserably at both, although I really don't think it makes any sense that a central bank is responsible for employment.  A country's fiscal policies, tax laws, educational system, incentives, and the like are the backbone for job creation - not where the Fed's interest rates are.  But I digress.

If you listen to the propaganda from the Fed they believe they have created 3M jobs via QE's.   [Jan 11, 2011:  Federal Reserve's Yellen: Q1 + Q2 to Create 3M Jobs]  (If true - why don't they just 'print' another $10 trillion and then every American will have a job.)

They also believe (or at least say in public) QE has nothing to do with the price increases in commodities; even though the stated intention of QE2 (via editorial by the Bubble Blower in Chief) was "an increase in asset prices".  (i.e. manipulation)  Only in their convenient world does QE increase asset prices in the stock market BUT NOT commodities.  Living in ivory towers is an awesome experience.

Now while the unemployment rate has dropped the past few months (sharply in fact) much of this is due to the fact the labor force participation rate has dropped.  We've lost a few million Americans, who have simply gone missing.  It appears some of them (1M or so) have enrolled into disability the past 2 years - which is helping the unemployment rate drop, but has nothing to do with job creation.  So the unemployment rate falling has been happening mostly for the wrong reasons... sorry Ms. Yellen.

-----------------------------------------

I cannot find the original post but back in the fall of 2010, as I thought how this would work out, I opined it would very plausible than as QE plays out, it could actually hurt the job market rather than help it.  In this piece from October 2010 I wrote:

Profit margins are going to be squeezed as this (price increases) begins to filter through the system - the Chicago PMI is already showing it.  (remember, my outlandish theory is as corporations work to protect profit margins, as input prices surge they will begin a new round of labor cuts - thanks Ben!) 

Again this February:

If job cuts (to protect margins) are the ultimate outcome of central banking easy money policies, the irony will be fantastical....

Again in March:

Ironically the more QE to come, the more speculators will drive up commodities.... which will impair corporations (who might cut jobs to preserve profit margins) and consumers... which (in the Fed's mind) will require more QE.  Circular logic anyone?  But in The Bernank's view his actions only make the stock market go up and not other assets (read: commodities) so he won't make the connection.  

I keep using the word irony because this band of economists seems to be lost.  While they chant for higher inflation as official policy goal, they are simply imposing a tax on countless people who cannot afford these pricing pressures.  The reality is they are aiming for a misguided "wealth effect" mantra that helps the top 10% (and especially top 1%) which is simply a corrupted offshoot of "trickle down economics" dogma (clearly a massive failure for anyone in the bottom 2/3rds of this country the past two decades).

This "tax" they are creating, has the potential to cause corporations to pull back on hiring as Wall Street pressures them to hit earnings targets and protect margins.  Obviously this is inverse of what the Fed mandate is.  Let us see how the hiring picture plays out in the next 3-6 months to see if my theory is playing out.

In my opinion the best thing the Fed could do is state to the world there is zero chance of QE3.  The dollar would rally, commodities would be crushed, and Main Street would benefit.  But that action might hurt Wall Street and since the country is run for the select few, I expect Fed policy to continue down the same road.  We've had 2 middling quarters of growth during QE2, so as we all know.... if it doesn't work the first or second time, just keep repeating it.  Surely the third (or fourth, fifth, nth) time will be the charm.

Time to Panic About Employment (Again)?

Initial claims had jumped over the 400K level the past few weeks, after 2 months of mostly staying below that level.  This morning's 474K figure was from out of left field vs expectations of 410K.  Time to panic?  Too early to tell - some of this could be due to the tornado situation in the southeast last week.  There also appear to be "one time adjustments".

• A Labor Department analyst attributed the surprising increase to one-time administrative factors, including additional layoffs in New York state due to spring break, which doubled the number of claims in the state. Other reasons cited were a new emergency benefit program in Oregon, and additional automobile industry claims. 

But it seems clear the economy has taken a turn downward the past 8 weeks - in perfect relation to the spike in gasoline prices over the $3.75ish level.

These claims figures won't impact tomorrow's numbers.... but the clouds should be forming over next month's report.

Ironically all those economists calling for 3.5-4.0% GDP in Q1 (which instead came in at 1.8%), now have to look deep into their souls at the Kool Aid they have been drinking about Q2 and full year 2011.  Especially with the ISM Non Manufacturing figure we saw yesterday.  The Bernank's QE programs continue to harm the REAL economy even as it creates new misallocations of capital on Wall Street.

Now as always the economy is NOT Wall Street - remember usually when a company chops 40,000 workers, the stock surges!  Dan Gross of Yahoo Finance wrote an awesome piece on why it's a great time to be a Fortune 500 company (horrible U.S. labor market, weak private sector labor unions, cheap money, friendly government, lobbyists running the country, and big overseas markets to exploit) - nothing new to long time readers of FMMF but I like to see these type of articles in more mainstream media.

(h/t for chart to ZH)

HAL9000 Taking a Break?

According to the WSJ, the lack of volume in the market signals HAL9000 and his merry band are not finding as many opportunities as in the good ole days.  While a contributing reason, I also believe a lot of people in their 40s and 50s, burnt twice by double bear markets the past decade, have simply thrown in the towel on equities.  The flash crash a year ago probably chased out quite a few as well.  Whatever the case, a lot of old adages in the technical analysis arena that are related to volume have had to be ignored to participate in the almost non stop rally.

• When stocks collapsed in a free fall last May, the fear was that the market had been taken over by high-speed computers that had run amok.  A year after the "flash crash," which saw the Dow Jones Industrial Average plunge 600 points in less than 10 minutes, the stock market is a much quieter place.
• Companies that use fast-trading, computer-driven strategies, which were painted by some as culprits of the collapse, have curtailed trading. So, too, have many long-term investors, for whom the trauma of that May 6 afternoon was the final straw after a decade of stock-market turmoil. 
• In their absence, trading volume and volatility have plunged, further deterring high-frequency traders.  High-frequency strategies "have less to work with, so they don't participate, which creates less volume," said Will Mechem, a managing partner at high-frequency trading firm Pan Alpha Trading. "This would seem to be a vicious cycle."

• In the first four months of this year, average daily trading volume of stocks listed on the New York Stock Exchange and Nasdaq Stock Market is down 15% from 2010's pace, running at an average rate of 6.3 billion shares a day. Volume has been edging lower throughout the year, with April's daily average of 5.8 billion shares marking the slowest month since May 2008.
• Volume had marched higher for most of the last decade, escalating during the financial crisis. It doubled between 2006 and March 2009, when an average of nine billion shares changed hands every day.
• The declines in volatility and volume have been bad news for high-frequency traders, whose strategies generally rely on squeezing profits out of the tiny differences between the buy and sell orders of stocks within a fraction of a second.
• Rosenblatt Securities Inc. estimates that high-frequency traders would have made, on average, five cents to 7.5 cents per 100 shares traded in the U.S. stock market in 2010. That is down from 10 cents to 15 cents per 100 shares in 2008.
• Also contributing to lower volume, traders said, is a number of hedge funds that use computer-driven strategies known as statistical arbitrage have scaled back trading or shut down altogether as poor returns in recent years sent investors fleeing.
• Some observers said those lofty levels of trading activity were never an accurate picture of demand among investors to buy or sell stocks.  Rather, it was a reflection of computer-driven traders passing securities back and forth between day-trading hedge funds.  This phantom liquidity, they said, was unmasked during the flash crash.
• "Retail investors returning to the market would help," said Pan Alpha's Mr. Mechem. "Also, there has been a recent increase in cash flowing into hedge funds, so we would expect that to drive volume as capital is deployed."

Travelzoo (TZOO) Fills the Gap

Speaking of filling gaps, I mentioned a week ago Monday that Travelzoo (TZOO) looked poised to short for those who were nimble as the stock was extremely extended over any major support level.  [Apr 25, 2011: Travelzoo Now 36% Over the 20 Day Moving Average]

For the very nimble there might be a shorting opportunity here... as they say, it is a bit "extended".  Usually when a name moves this far away from any form of support, it comes in.... err, unless it is silver.

When I wrote that the stock was just under $103.  The next day it opened at a similar price and proceeded to implode down to the mid $80s.  It has been down each and every session since then (6 days) and now trades in the $73s.  Now to be fair, if I had listened to my own advice and put on any puts or shorted the stock (if I could locate it), I would have covered well in advance of today.  Heck a small portion of a portfolio (1%) allocated to puts on a stock that falls from $103 to $85 in one session would bring a wonderful amount of return for very little risk capital offered up for the trade. 

Bigger picture it is interesting to see a whole host of the "momo" trades falling apart the past 1-1.5 weeks.  One wonders if that is signaling something else, as the general indexes hold up quite well.

No positions

S&P 500 Continues to Rest at Primary Support

As mentioned of late, the 10 and/or 13 day moving averages have been the primary supports since the run up from late August 2010.  Once again today we see this as the S&P 500 has been sitting on or near the 13 day moving average (1344ish) much of the day.  If the normal pattern continues, this is more or less the bottom of the move down.  If there is a change in pattern, we'll see these levels broken and then a move further downward.  That would be a key turning point because it would be the first time this has happened since August 2010 that did not have to do with a geopolitical event (i.e. Ireland - November 2010, Japan - March 2011).

There is a yawning gap asking to be filled in the mid 1310s from about three weeks ago, but we'll know if it's too soon for that to happen in a few days.

Big Miss in ISM Non-Manufacturing at 52.8

Wow, quite a doozy this morning from the ISM Non-Manufacturing figure - 52.8.  This is a huge drop from 57.3 in March, and way below expectations of 57.8.  While Monday's ISM Manufacturing gets all the press, that is only 11% of the economy, whereas the service sector dominates.  We will have to see in 30 days if this was an anomaly of some sort.  New orders were obliterated.  Prices paid dropped from 72.1 to 70.1 - interesting how this report is the polar opposite of manufacturing.

(for those new to these reports, above 50 = expansion, below 50 = contraction)

On the plus side... the slowdown in many economic figures the past 8 weeks sets us up well for QE3! Booyah!

Full report here.

WHAT RESPONDENTS ARE SAYING ...

• "Business conditions [remain] unchanged. No supply impact from the Japan earthquake/tsunami, but continue to track with the supply base." (Management of Companies & Support Services)
• "Revenues are picking up slowly, but the growth is positive as compared to last month and the same month last year." (Real Estate, Rental & Leasing)
• "Looking forward with reserved caution. Cost of goods by this fall are a big worry." (Accommodation & Food Services)
• "Continuing economic uncertainty will curtail or delay project spending for the immediate future." (Educational Services)
• "Fuel prices continue to be challenging and in addition to shipping, are influencing the cost of materials." (Public Administration)
• "We are seeing price increases in many areas, and the lead times are stretching out. Our business activities are improving at a moderate rate." (Wholesale Trade)

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS* APRIL 2011
	Non-Manufacturing						Manufacturing
Index	Series Index Apr.	Series Index Mar.	Percent Point Change	Direction	Rate of Change	Trend** (Months)	Series Index Apr.	Series Index Mar.	Percent Point Change
NMI/PMI	52.8	57.3	-4.5	Growing	Slower	17	60.4	61.2	-0.8
Business Activity/Production	53.7	59.7	-6.0	Growing	Slower	21	63.8	69.0	-5.2
New Orders	52.7	64.1	-11.4	Growing	Slower	21	61.7	63.3	-1.6
Employment	51.9	53.7	-1.8	Growing	Slower	8	62.7	63.0	-0.3
Supplier Deliveries	53.0	51.5	+1.5	Slowing	Faster	13	60.2	63.1	-2.9
Inventories	55.5	55.5	0.0	Growing	Same	3	53.6	47.4	+6.2
Prices	70.1	72.1	-2.0	Increasing	Slower	21	85.5	85.0	+0.5
Backlog of Orders	55.5	56.0	-0.5	Growing	Slower	4	61.0	52.5	+8.5
New Export Orders	53.5	59.0	-5.5	Growing	Slower	8	62.0	56.0	+6.0
Imports	57.0	50.0	+7.0	Growing	From Unchanged	1	55.5	56.5	-1.0
Inventory Sentiment	57.5	67.0	-9.5	Too High	Slower	167	N/A	N/A	N/A
Customers' Inventories	N/A	N/A	N/A	N/A	N/A	N/A	40.5	39.5	+1.0

RenRen (RENN) at $20

From the offering price of $14 (which valued RenRen at just under 70 price to sales), the IPO of RenRen (RENN) opened at $19.50 and now sits at $20.  I won't bother with the exact math but clearly it is cool to pay 100 price to sales ratio in internet bubble 2.0.  (again that is not price to earnings, that is price to SALES)

EDIT 9:53 AM: Institutions are laughing to the bank as they dump this on the retail class - 6 minutes later RENN is down to low $18s.   Oops, as I typed this already back to $18.70 - "bargain hunters" out in force.

No position

Are George Soros and Other Prominent Hedgies Selling Silver?

It's been a horrid week for silver as three margin requirement increases in just over a week, along with the bursting of the speculative fervor seen last week, looks to have pushed silver over the edge (for now).  The WSJ is reporting this morning, that some prominent hedge fund managers - led by George Soros - have been dumping the metal.  Recall Soros said "gold is the ultimate bubble" in January 2010.... only to have it be revealed in his next fund disclosure that gold was amongst his largest positions.  [Feb 17, 2010: George Soros Calls Gold a Bubble, than Stocks Up On It]  Not a coincidence as money managers now have to expect Fed induced bubbles, and play them - with everyone assuming they can get out at the door, once the music stops.   It appears the parabolic move that silver enjoyed the past few weeks - after a steady climb from August 2010 when Bubble Bernanke declared he is adding inflating asset values as the Fed's third mandate - Soros (and a few others) decided the music was stopping.  At least for now.

For silver and gold bulls the news is still positive.  Infamous John Paulson says gold is headed to $4000 ....

Via WSJ

• Silver prices plunged, suffering their worst one-day drop in dollar terms in three decades, as investors fretted that rising trading costs could cripple a market exhibiting signs of froth. Silver's fall of $3.50, or 7.6%, and a 1% drop in gold prices Tuesday came as some major investors have been selling. George Soros's big hedge fund, a firm operated by high-profile investor John Burbank and some other leading firms have been selling gold and silver, according to people close to the matter, after furiously accumulating precious metals for much of the past two years.
• Their selling suggested the sharp, nine-month run-up for precious metals could be entering more dangerous territory.  Many investors have turned to gold, silver and platinum as the U.S. dollar has weakened. Precious metals often serve as an alternative to paper currencies. The dollar is down 8% so far this year against a basket of other currencies.
• Silver futures settled in New York Tuesday at $42.58 an ounce, after having flirted with $50 a few days ago. The metal now is down 12.4% over two days. Tuesday's fall was the worst one-day percentage drop since December 2008. Yet silver, which has had a huge run, remains up nearly 38% in 2011. It rose 84% last year.
• And some prominent investment pros continue to favor precious metals, among them hedge-fund manager John Paulson.  Last week an exchange-traded fund, or ETF, that owns silver bullion—the iShares Silver Trust—was the most active ETF on the U.S. market on some days, a sign of the rabid recent interest in silver.
• Interest in holding the silver ETF grew so intense it became hard to borrow shares to sell, as bearish traders need to do if they want to sell the metal short and bet on a decline.
• All this helped set up the tumble, which started late Sunday, catching many by surprise. As sell orders flooded the market in Asia, brokers sought more collateral from investors who had bought on margin, even as they fielded calls from anxious investors who wanted to sell. "Everybody wanted to get out," said Richard Digenan, an executive at R.J. O'Brien, a brokerage firm in Chicago.
• For those who invest in silver via the futures market rather than an ETF, exchanges and brokers have been raising margin requirements, the amount of collateral investors must leave with their broker to back a position. CME Group, a commodity-exchange operator, has raised margin requirements three times in a week. It announced the latest increase Tuesday.
• Many investors in silver futures make heavy use of borrowed money and were faced with either sending more collateral to their brokers or selling some contracts.
• For nearly two years, Mr. Soros's hedge-fund firm bought gold and silver, becoming the seventh-largest holder of the biggest gold ETF, the SPDR Gold Shares. Some others with stellar records—including Mr. Burbank, of Passport Capital, and Alan Fournier, of Pennant Capital—also have been passionate about precious metals, giving encouragement to individual investors to follow. Now they are selling, in each case for distinct reasons.
• While many who buy gold do so to protect against future inflation, Soros Fund Management bought gold to protect against the possibility of the opposite—debilitating deflation, or a sustained drop in consumer prices.  But now the $28 billion Soros firm, which is run by Keith Anderson, believes chances of deflation are reduced, eliminating the need to hold as much gold, according to people close to the matter.  People familiar with Mr. Anderson's thinking said he believes the Federal Reserve's continuing to pump money into the system has reduced the likelihood of deflation. The Soros fund has sold much of its gold and silver investments over the past month or so, according to this person.
• Mr. Fournier of Pennant also has sold gold because deflation appears less likely, say people close to the matter. In his view, the markets will force the Fed to end its easy monetary policy and start raising interest rates.
• Mr. Burbank, a longtime gold supporter who predicts growing worries about the creditworthiness of the U.S. and some other nations, has trimmed some of his investments to lock in profits, according to someone close to the firm. This person added that Mr. Burbank remains a long-term gold bull and expects to buy more gold-mining shares after a decline.
• A number of high-profile investors remain huge holders of gold and silver, amid continuing concern about inflation and the dollar. Mr. Paulson, known for his lucrative bet against mortgages a few years ago, told investors he still has most of his personal money in gold-denominated funds operated by Paulson & Co.  Mr. Paulson told investors Tuesday morning that gold prices could go as high as $4,000 an ounce over the next three to five years, as the U.S. and U.K. flood the money supply.

Las Vegas Sands (LVS) Kicked in Teeth on Earnings

Las Vegas Sands (LVS) is having the exact opposite experience that Wynn Resorts (WYNN) enjoyed during this earnings season.  As I type it is enjoying a 16% kick to the teeth in the after hours session.  This is the second quarter in a row expectations were too high, so I think management needs to do a better job setting the bar low so LVS can enjoy the "better than expected" Wall Street earnings game.

On a purely technical basis, the stock is going to be hurt by this gap down but for those with quite long term time horizons, the move to the 200 day moving average provides an attractive long term area to make a stand.  The next area of support is $36ish, which are the mid March lows; as long as the stock did not break below that it would seem attractive to me "long term".

As for the report, LVS reported 37 cents vs 44 cent expectation.  Revenue was more or less in line.  A big drag seemed to be occupancy rates, but on the positive side the revenue from each room increased substantially - much like Wynn.

On a full year basis the $1.80 EPS expected could be dropped to say $1.75, and at $40, the stock is much more attractive at about 22x forward estimates than when it trades at $50+.  Asia continues to grow like gangbusters.  Their tax rate is a concern - only 11% across the globe (17% in Singapore), I would assume at some point forward that has to increase. :)

• Net revenue for the first quarter of 2011 was a record $2.11 billion, an increase of 58.2% compared to $1.33 billion in the first quarter of 2010.
• We set quarterly records for net revenue and adjusted property EBITDA during the quarter. Strong revenue growth and margin expansion in Macau, together with the continuing ramp of growth in all areas at Marina Bay Sands in Singapore contributed to a strong financial performance overall.
• In Macau, we experienced stronger gaming volumes at each of our Sands China properties, The Venetian Macao, the Sands Macao and the Plaza Casino at the Four Seasons Hotel Macao, while adjusted property EBITDA margin expanded across the Sands China property portfolio to reach a market-leading 33.4%
• In Singapore, Marina Bay Sands produced $284.5 million of adjusted property EBITDA during the quarter and an EBITDA margin of 48.6%, although low hold on rolling play impacted our results by approximately $30 million in revenue. Record mass gaming and slot volumes coupled with steady growth in non-gaming revenue streams including hotel, food and beverage, retail and entertainment reflect the broad appeal of the property to Singapore's visitors from across the Asian region.

Full report here.

[Feb 4, 2011: Las Vegas Sands Struggles vs Expectations]
[Jul 29, 2010: Las Vegas Sands Wins Bet on Asia in Q2]
[May 7, 2010: Las Vegas Sands Narrows Loss]
[Feb 24, 2010:  First Phase of Singapore Casino for Las Vegas Sands to Launch in April]
[Nov 9, 2009: Las Vegas Sands Sets Hong Kong Macau IPO Range of $2.5B to $3.3B]
[Sep 3, 2009: Las Vegas Sands - Too Big to Fail?] 

No position

Raymond James, Commonwealth to Give Financial Advisors Free Reign on Social Media

I am, for very obvious reasons, watching the push and pull between regulators and the financial community in regards to social media very closely.  The regulatory framework is essentially something from the 1980s, whereas the real world has sprinted forward a few decades.  That said, it is an extremely tricky environment and I hope 'evolving' as it is a major impediment to be in the one sector of the business world which is still operating as if it's 1989.

We have news out that a couple larger firms in the broker dealer space are trying to push the rock.... it will be interesting to see the push back.  Making things even more complicated is we have different regulators issuing different rules based on if you are a broker dealer or a RIA (registered investment advisor) - FINRA for the former, the SEC for the latter.

Via Registered Rep:

• In a revolutionary step forward, Raymond James Financial and Commonwealth Financial are putting the “social” back into social media—they will soon begin allowing their advisors to interact with and engage in conversations with others on Facebook, Twitter, LinkedIn and blogs. 
• In other words, they will be able to post tweets, updates and comments in real-time that have not been pre-approved. Today, advisors at Commonwealth and Raymond James are only allowed to post “static” updates—all posts have to be pre-approved and commenting is turned off.
• At least one other independent b/d already allows its advisors to use social media on an interactive basis: Cambridge Investment Research. Last September, the firm began using Socialware to track and archive its advisors’ posts, updates, comments and tweets on LinkedIn, Facebook and Twitter. About 10 percent of Cambridge’s 2,000 advisors are signed up for Socialware and the firm is working with these advisors to help them set up a social media presence, says Cambridge President Amy Webber.
• But most of the other 50 or so independent b/ds that allow advisors to use social media at all permit only static updates. Industry executives and consultants predict that a number of independent b/ds will make the switch to interactive updates in the next couple of months.
• “It’s an evolving process,” said Francois Cooke, a consultant in the broker/dealer division at ACA Compliance Group. “The first stage is to prohibit, and then firms go to the second stage, which is to allow limited use, with trials, a template and training. The third stage is when they start to allow more interactive use.” 
• The move from static to interactive use of social media marks a major shift. “The way regulations work is this is viewed as a live appearance because it is conversational and can’t be pre-approved,” said Commmonwealth Chief Marketing Officer Todd Estabrook. “I think it will allow them to do exactly what they do in live interactions with clients and prospects, which is to engage in conversations, or invite conversations, talking about the kinds of things they might talk about in a seminar about retirement income. It’s better than a letter because the recipient can actually ask a follow up question and have an answer back from the FA,” he said.
• Until recently, the problem for firms was finding a way to track and archive these online conversations in order to comply with FINRA rules. Commonwealth announced late last month it had cut a deal with Erado, a software company that will do just that. 
• FINRA issued social media guidance in early 2010 that says all broker/dealer member firms should have social media policies and procedures and have a system in place for tracking and archiving all social media communications, among other things. 
• For RIA firms, the rules are less clear. Early this year, the SEC issued a sweep letter to a number of firms regarding their social media practices, but it has yet to issue specific rules on the subject.
• Under the new Commonwealth program, its FAs will be able to comment, post, respond, like and retweet on facebook, twitter, linkedIn and company blogs. The firm will offer a how-to guide on establishing a social media presence as well as best practices ideas and compliance guidelines. “It demonstrates how important we think social media will be as part of an integrated marketing strategy,” said Estabrook. About 400-500 of the 1400 financial advisors at Commonwealth use social media today, but Estabrook expects that number to jump in June, when the firm starts to allow interactivity. 
• Raymond James CEO Dick Averitt announced Monday morning at the firm’s annual conference in Las Vegas that the firm is on the cusp of signing a contract with an outside vendor to retain and track all of its advisors online communications. He said the firm hopes to have a deal by the end of the month. “The deal will allow FAs to actively participate in conversations on these websites just as your 10-year-old does. At Raymond James we fully intend to participate in the technological advances that benefit you and your clients.”
• Erado CEO Craig Brauff, who could not be reached for confirmation, has reportedly said that there will be a number of similar announcements in the next month and a half involving around 25 of the top independent broker/dealers. 
• There are at least four firms that track and archive social media interactions, according to Tim Welsh, president of consulting firm Nexus Strategy: Erado; Arkovi (BMRW) and Message Watcher LLC (Joint venture); Socialite by Actiance; and Socialware’s Risk Manager and Social Marketer.
• One reason Commonwealth chose Erado is because it allows the firm to capture activity from a single-user login, instead of an entire machine, so that if a financial advisor shares a computer with other family members at home, their privacy is not disturbed. “So if I am an advisor working at home in the den at the house, and I want to tweet about something and update my Facebook page with a thought, I can do that because I will have appropriately signed up, and my kids’ postings will not be tracked,” said Estabrook.
• ...........he expects social media regulations and tools to evolve over time. “This is it as we understand FINRA regulations to be now but that’s always changing as FINRA responds to what is happening in the marketplace,” he said. “But we are following all of that and we are working to keep them safe in this space. I think it’s going to keep evolving and our regulators will react accordingly.”

[Feb 16, 2011: SEC Begins Sweep on Social Media and Networking]
[Feb 7, 2011: Video - WSJ: Mutual Funds Get Hip to Social Media, Sort Of]
[Dec 3, 2010: Bloomberg- Tweeting Restrictions Risk Leaving Brokers Without Saying Much]

Bloomberg: Household Formation Begins to Pick Up, as Young Men Don't Want to be Tagged Losers - Look for an Increase in Divorce Rate as a Positive Sign!

Back in the depths of the Great Recession we often wrote about the atypical issues hitting the economy such as people renting out rooms in their homes at a much higher rate than normal, couples who wanted a divorce but could not afford to live on their own staying together, and the huge bracket of young adults who were stuck living with their parents rather than going out on their own.  [Apr 8, 2009: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces. Housing Bubble 2.0? (Not)]  Bloomberg reports that household formation is now at a level not seen since 2007 - granted that is a low bar as 2008 and 2009 were horried, but it's a start.  Much of this is young adults who are itching to fly out of the nest, lest they be tagged "losers" (especially men).  Obviously the culture here is very different than parts of Europe where many men live with parents until they get married.   Quite shockingly (to me at least), 20 MILLION American adults live with their parents - I assume by adult this means anyone over the age of 18.   Another sign of "progress" will be if the divorce rate goes back to a normal level ... irony at its best.

All in all most of these folks will probably be renters, especially the young adults - which should continue to lend strength to apartment REITs.  [Apr 8, 2011: Apartment Vacancies Drop to 3 Year Low as Rents Rise - Apartment REITs Benefit]  But some will also go and rent houses, which should at least partially help to offset the massive inventory (shadow or otherwise) issue we have in the country.


Via Bloomberg:

• Millions of young adults like Webb are starting to leave their parents’ homes, creating households at the fastest rate since 2007. They’re helping to provide a so-called shadow supply that may boost U.S. housing starts more than 50 percent by next year and spur consumption at a rate almost double that of the past two years.  “I love my parents but I didn’t want to live with them anymore,” said Webb, a Spanish major at the University of Tennessee, who had been forced to share their home in Milan, Tennessee, after her job search stalled last year. “It was tough. I know students across the board who were in the same boat.”
• Between 750,000 and 1 million new households will be created in 2011, predict UBS Securities LLC’s Maury Harris and IHS Global Insight’s Patrick Newport. That compares with just 357,000 added in the year ended March 2010, the lowest on record, according to the Census Bureau. As employment picks up, new households are likely to rise above the past decade’s average of 1.3 million a year, according to Newport.
• “The moving-back-in-with-Mom-and-Dad phenomenon is creating a growing backlog of pent-up households,” ..
• U.S. household formation in the three years ended March 2010 was about 2.3 million short of the long-term average, according to Census data.  Increasing demand for homes should help offset the so- called shadow inventory of vacant properties, Hunter said. 
• Households form when young people move away from their parents or siblings, marriages break up into separate living quarters and immigrants find new homes.   “Once job growth improves a bit, formations will pick up strongly,” said Mark Zandi, chief economist in West Chester, Pennsylvania, at Moody’s Analytics Inc. He says 1.25 million is a normal annual rate.
• Some adults who want to move aren’t able to yet, which contributes to the shadow demand. Jesse Hipp, 24, who graduated from the University of Arkansas in 2009, still lives with his parents in Fayetteville, Arkansas, while he works an overnight- shift with varying hours at discount retailer Target (TGT). He would like to find a job that makes use of his major in international relations and his ability to speak Chinese.  (good to see the U.S. job market for a BA international relations with ability to speak Chinese leads to work at Target - I assume that is a step up from being a barista?)  “On the personal ego thing, you don’t want to be 24 and living in your parents’ house,” said Hipp.
• About 20 million adult children live with their parents, and most are eager to move, said demographic-trends analyst Peter Francese in Exeter, New Hampshire, of advertising agency Ogilvy & Mather.
• “In America, the extended family is a very unstable household,” he said. “Most guys who live at home beyond some young age walk around with a great big L on their forehead. It is just not acceptable. As soon as these young adults get a job and keep it for some reasonable period, they are gone. As more young people feel they will be able to keep a job, bingo, they are gone.”
• Some households may be created by people who have delayed divorces for economic reasons, Francese said.  “There is a pent-up demand for divorces,” which are usually “a matter of convenience or discretion,” said Joseph Cordell, principal partner of St. Louis-based law firm Cordell & Cordell, which specializes in representing men in domestic litigation. His firm’s customer count rose by about 20 percent in the first quarter, and that is likely to continue in the next few quarters, he said.
• The number of divorces dropped to 6.8 per 1,000 people in 2009 from 7.4 in 2006 prior to the recession. In a 2011 survey by the National Marriage Project at the University of Virginia, 38 percent of people considering a divorce or separation said the recession caused them to put aside their plans.