Monday, July 11, 2011

Facebook Facing a Threat from Google+ (GOOG) ?

While sure to be the biggest IPO of 2012, if not the decade, Facebook best think of coming public while it is still in hyper growth mode.  Already in the U.S., the company has begun to shrunk as 1 in 2 humanoids is already on the service (saturation) but of course there are many opportunities to monetize these clients further, plus many opportunities continue abroad.
  • One research firm, Inside Network, recently reported that Facebook's U.S. users dropped six million to 149 million during May.

That said Google+ has just launched, and the author of this article in the WSJ believes Google+ could be a credible threat.  This is course does not mean toppling the empire, but for Wall Street purposes a lower trajectory of growth eventually means lower valuations.

Here are the reasons (disclosure - I dont do social networking on either platform)

  • In what appeared to be a hasty response to the launch of Google's rival social-networking product, called Google+, Mr. Zuckerberg on Wednesday unveiled Facebook's new video-chatting feature. He called it "super awesome." Too bad Google made the same feature available in 2008. Indeed, Facebook suddenly looks vulnerable. This could be bad news for investors who have recently paid top dollar for stock in Facebook in private sales.
  • Rule No. 1 when launching a social network: Make everyone wait in line. Exclusivity was how, in its early days, Facebook built buzz. For more than two years, you couldn't get in unless you had an email address ending in .edu. Google is using a similar strategy with Google+. 
  • Facebook should take note that Google used the strategy before to kneecap Yahoo in all-important email, a key driver of Yahoo's traffic. Then Google rolled out Gmail—but only by invitation at first
  • Rule No. 2 is to deliver a better service. Adopting a new social network could prove similar to adopting a new email address: Many will try it out, but to keep using it, they have got to be given good reason. That Gmail offered significantly more storage space than typical Web mail meant millions were willing to make the switch. Similarly, Google+ offers upgrades on what many perceive to be Facebook's shortcomings.
  • For starters, Google+ gives users a handy way to organize their social contacts into different "circles"—friends, relatives, colleagues, etc.—with which they can share appropriate things. Though Facebook now offers the option to create "Groups," users broadcast their information to everyone by default.
  • Google+ also offers group video chats. That is why Facebook's announcement of one-on-one video on Wednesday seemed to fall short. Facebook has yet to introduce group video chat.
  • The biggest hurdle for Google+ is getting users, of course. But it is integrating the service with Gmail, which already has 240 million unique users world-wide, according to comScore. Meanwhile, the user experience on Facebook is a victim of the site's success. Users have accumulated so many online "friends" it can be difficult to organize them. And users often feel assaulted by too much or irrelevant social information, like Zynga game updates. Ultimately, Google+ is a chance for social networkers to start over.
  • This doesn't mean people will drop out of Facebook overnight. Gmail users didn't necessarily drop their Yahoo email addresses. Indeed, Yahoo Mail still has more unique visitors, but its growth has been stagnant, whereas Gmail continues to expand quickly.

[Video] PIMCO's Mohamed El-Erian on the European Debt Situation

El-Erian chimes in his views on the whack a mole that is the burgeoning debt situation.

6 minute video - email readers will need to come to site to view

Zachary Karabell Gets It - Jobs Aren't Coming Back

An excellent piece by one of my favorites Zachary Karabell in The Daily Beast on the employment issue.  To even begin to fix a problem (that is in part 'unfixable') one must acknowledge it exists.  The United States (and many developed countries) [Feb 7, 2011: The Youth Unemployment Bomb] remain in denial about what has been happening the past 10-12 years, hence are relying on 'solutions' that are not solutions.  Instead we remain in an environment dominated by easy to print out talking points that work great for cable TV, but are useless in the real world.

This chart is about 2 years old but it showcases the 'job creation' of the past 10-12 years has been almost solely government or pseudo government created - healthcare and education largely funded via taxes and deficit spending... and government obviously being government.  Of course as pointed out 3 years ago, any real large scale cost efficiencies to health care - will be reducing jobs from the one place the bevy of net job creation has come from the past decade+.  Hence, a conundrum - continue a ponzi that is the only huge source of job creation, or actually try to limit costs, but lose jobs.

Meanwhile the 'rest of the economy' aka private sector? Buffeted by a housing bubble (jobs ballooned, than eliminated) as real jobs moved offshored or eliminated via technology.  [Mar 28, 2011: Productivity - (Wo)man Versus Machine]  A big problem - with no easy solutions.

This also has implications for the market - increasingly the U.S. economy can disassociate from the prospects of the S&P 500 companies as long as foreign growth - especially of the Asian kind - remains solid.  Handing these companies ever more tax cuts in a desperate ideology to 'create jobs' is useless other than on the margin.  One also must look at the chart above, and ask what the Bush tax cuts of 2001 and 2003 accomplished for employment.  Supposedly these reduction were to unleash a great wave of capitalism and job creation...  (not that I want higher taxes, but let's be honest on whom these policies help)

Glad to see some few in the mainstream spreading the message to help fight the denial, as opposed to some of us two bit bloggers.  More from Zach

  • Americans remain in denial. Economists rely on models that correlate GDP growth and other indicators with past patterns of employment and assume that because GDP is expanding 2 to 3 percent this year, job creation will follow. The political class continues to treat employment as a product of the recession and sees government policy as either helpful to future job growth (Democrats) or harmful (Republicans). 
  • We are stuck in a framework that treats unemployment today as a cyclical phenomenon, and assumes that employment will return as the overall economy recovers. The truth, it is becoming clear, is that unemployment is a structural issue, and that the tools being used are based on the wrong analysis and will therefore continue to fall short.
  • In fact, there has been almost no net job creation in the past year, according to the Bureau of Labor Statistics, with about 139 million people employed in June 2010 and about the same now. There are, by the way, many issues with how these numbers are compiled (based on telephone surveys and adjusted by statisticians with complicated formulas meant to compensate for seasonality and other factors). But they do provide an indication of overall patterns of employment, and those patterns are clear: job creation is not happening, and there is little indication that it will. 
  • To be fair, this is a new problem for the United States in the modern era. Everyone now alive has only a memory of employment being a cyclical issue, and with every downturn since the middle of the 20th century, unemployment spiked with recession and then recovered as growth resumed. No longer
  • First of all, it’s clear that companies can make a lot of money with no need for extra bodies. Corporate profits continue to rise at a double-digit rate, and as the companies of the S&P 500 report their financial results in the coming weeks, that reality will stand in stark contrast to employment and wages that remain stagnant. Even when companies do open factories in the United States, they need hundreds of highly skilled workers to manage factory floors that are increasingly sophisticated and mechanized where they might have needed thousands upon thousands decades ago. Lowering tax rates, and thereby increasing the amount of cash in individual and institutional hands, won’t help. There is no dearth of cash on hand for many companies and many wealthy individuals; yet they aren’t using that cash to hire.
  • Second, we don’t live in a simple economic system. We live in a multifaceted one, where people with a bachelor’s degree or above are almost fully employed (with a 4.4 percent unemployment rate, according to the latest report) and people without a high-school degree or minimal college and people of color have unemployment rates in the high teens. Some regions are booming (oil states, agricultural states); some are still mired in structural challenges (manufacturing states like Ohio, real-estate bust states like Arizona). And some are both booming and busting, such as the wide gulf between Silicon Valley and the Central Valley in California. There is no one-size-fits-all employment policy that will magically create employment across the country.
  • Finally, our policies assume cyclical patterns. We have spent more than $300 billion on unemployment benefits since the recession began because we think that jobs will magically appear as activity picks up and all we have to do is get people through the rough patch. It only makes sense to spend that much on unemployment insurance if it is perceived as temporary or cyclical. If the issue is structural, that money only subsidizes unemployment and low-level consumption and does nothing to create jobs. It is right not to let those out of work suffer profoundly in a society as wealthy as ours, but we are fooling ourselves if we think that money will help change the employment picture.
  • Indeed, with that $300 billion, it would have been more cost-effective (and probably better for collective morale) to hire millions of people on government payrolls and have them do some sort of productive work à la New Deal–era programs. But government would only do that if we collectively reached a point where we admitted that we didn’t know what to do about long-term unemployment, which is essentially what happened in the mid-1930s. It wasn’t a solution to the problem, but it was at least recognition that it was a problem for which we didn’t have a solution.
  • Today, there is little willingness to confront a changed economy that is not following past patterns. ..... avoids consideration that the United States is embedded in a global economy fueled by information technology on one end of the spectrum and commodities on the other—both of which put pressure on the living standards of 20th century–style high-wage earners that typified the middle-class society of the United States.
  • This time, it’s different.

[May 11, 2010: The World's Dollar Drug]
[Oct 14, 2009: Zachary Karabell - Deficits and the Chinese Challenge]

USA Today: Fewer Temp Workers May Signal Dim Hiring Outlook

Remember all the pundits and economists who promised us that the uptick in temporary hires ALWAYS leads to a surge of hiring afterwards?  Meanwhile, some of us said 'this time it is different' and the U.S. is slowly moving to a disposable workforce (easy on, easy off) [Feb 16, 2010: USA Today - Use of Temps to Fill Jobs May No Longer Signal Permanent Hiring]

What I wrote in Feb 2010

The theme of this USA Today story is a concept I've been debating mentally the past few months; for many years in the manufacturing field there has been something called 'just in time' inventory to promote efficiency.  Now we might be moving to an era of 'just in time' labor - easily hired, easily fired.  Or in 1980s lingo - wax on, wax off!  The implications for the society are profound, but for economic reasons it might make one of the commonly used 'old school' barometers of economic recovery less useful - that is "temporary hiring surges before full time employment recovers".    Let's keep this in the back of our cranium as we watch the employment data over the next year.

With the United States being the only major Western country that requires its companies, large or small, to foot the bill for employee healthcare - my only surprise is that this trend has not happened earlier.  The longer healthcare costs go unchecked in this country, the higher the marginal cost will be to hire each employee - which will be a drag on full time employment.  Another conundrum for America. 

Lost in the discussion Friday in the horror filled employment data was the loss of 12,000 temporary jobs.  So if the bulls claim a spike in temporary hiring should be the precursor to great full time job gains (which never happened) while should they say about the fall in temporary hiring?

Via USA Today:

  • The total number of temporary employees placed by staffing agencies dipped by 12,000 last month and is down 19,000 the past three months, the Bureau of Labor Statistics reported Friday.  That doesn't bode well for a rapid turnaround in the broader job market because employers typically hire temporary workers to meet increased demand, then convert them to permanent positions when they're confident growth will be sustained.
  • Friday's job report wasn't heartening. The average workweek edged down to 34.3 hours from 34.4 hours in May. Employers typically increase the hours of existing employees before bringing on new workers.
  • Temporary workers, however, could be the most telling signal. The number of contingent workers started growing in fall 2009, about six months before the broader job market began to emerge from the recession. From September 2009 to March, employers added nearly 500,000 temporary workers.
  • Roy Krause, CEO of Spherion, a top staffing agency, says temporary placements for white-collar jobs in accounting, computers and legal remain strong. But those for lower-skilled light industrial, clerical and certain call-center jobs — which accounted for most of last year's growth — have slowed. "They tend to be more sensitive to economic conditions," he says.

Another Week, Another Emergency European Meeting - This Time Target is Italy

Looks like we've skipped over Spain and headed straight to Italy for the never ending "it's a crisis until we hand people in debt with more debt, so that German and French banks never lose a dime".  Not sure why something that has been simmering for months on end, suddenly matters in the past few days but that's the issue when you never truly take care of a problem and simply kick the can(s) in every direction.

To solve the problem of too much debt, Italy has declared short sellers must be watched ever closer! (taking a page from the U.S. book circa 2008)  Because short sellers are of course is the nexus of all the world's ills.

I'm just waiting for someone to notice France has a massive debt load itself... and its supposed to be the one bailing everyone else out.

Via AP
  • Europe's finance ministers are meeting in Brussels today to seek ways to shore up Greece and defend the region’s other heavily indebted nations. The premium investors demand to hold Italy’s debt over German bunds hit a euro-era high of 267 basis points today
  • ....the yield on Italian 10-year bonds meanwhile increased to 5.4 percent from 5.3 percent, following sharp rises on Thursday and Friday.  "The fact that contagion is spreading marks the failure of politicians to draw a line under the Euro-crisis to date," Rabobank analyst Jane Foley said. "As yields rise and debt financing costs become even more exaggerated the difficulties of containing the crisis become even bigger."

Via Bloomberg:
  • Italy’s market regulator moved to curb short selling after the country’s benchmark stock index fell the most in almost five months and bonds tumbled on investor concern the nation may be the next crisis victim. Consob ordered yesterday that short sellers must reveal their positions when they reach 0.2 percent or more of a company’s capital and then make new filings for each additional 0.1 percent. 
  • Italian politicians including Paolo Bonaiuti, an aide to Prime Minister Silvio Berlusconi, blamed the market slide on “speculators” and pledged action to rein in investors perceived to be attacking Italy. Bonaiuti said Italy would be united “in blocking the effort of speculators.” 

Friday, July 8, 2011

Big Win for Bulls Today

I tweeted this morning around 10 AM that if the market was not so overbought (+7% in a week and a half) that the indexes would have a good chance of going green today. 

fundmyfund: Mild selloff. If the market had not come in so overbought I'd think we could go green by end of day as 2nd half recovery meme dominates. $$

No one was selling the Apples or Netflixes and really less workers = more corporate profits (woo hoo).  Just remember Main Street = Wall Street only when Wall Street needs a bailout from Main Street - otherwise increasingly there is less and less connection, especially in the multinational group.

I'd consider today a huge win for the bulls as this selloff was barely a glancing blow, considering how pathetic the employment report was.  When markets shrug off bad news, that is very bullish.  Wall Street is anticipating another "better than expected" (wink wink) earnings season and it appears the macro is just details for now.

Scary stat of the day: Canada, 1/10th the size of Cramerica, added more jobs in June than we did.  And I don't believe Canada has the birth death model to boost their figure by a 100-175K here or there (or nearly every month).

David Einhorn Greenlight's Capital Q2 Letter

One of the newer hedge fund industry's shining lights David Einhorn's Q2 letter below.  He is of course having a relatively tough 2011.  Ironically he threw in the towel on his shorts at maximum pain level in May 2011, just as the market was soon to have a 7 week correction.

Hit full screen for the easy read  (the embed seems to be hit or miss so here is a link to the letter)


[May 2, 2011: David Einhorn Throws in the Towel on Many Short Positions as Ben Bernanke Squashes Him]
[Dec 6, 2010: [Video] The Always Eloquent David Einhorn]
[May 27, 2010: David Einhorn Op-Ed: Easy Money, Hard Truths]
[Oct 19, 2009: David Einhorn's Speech at Value Investing Congress]
[Jan 5, 2009: New York Times Opinion Piece by Lewis and Einhorn]

Marketwatch: 10 Reasons We are Doomed to Repeat 2008

A reader pointed out this article in comments section a few days ago, and I thought it worthwhile to bring over.  It repeats quite a few themes long time readers of FMMF will be familiar with but ties them up together nicely.  The author, Brett Arends might be considered one of the more realistic financial journalists around.

I'm just going to list the 10 reasons, head over to Marketwatch for the extrapolation of each.

1. We are learning the wrong lessons from the last one. 
2. No one has been punished. 
3. The incentives remain crooked.
4. The referees are corrupt.
5. Stocks are skyrocketing again. 
6. The derivatives time bomb is bigger than ever — and ticking away.
7. The ancient regime is in the saddle.
8. Ben Bernanke doesn’t understand his job. (I disagree with this one - his job is to serve and protect the banking class - he has done a marvelous jobOh yeah there is some boiler plate about price stability and employment but judging from the value of the dollar and the 'real' employment rate - he has a F on those counts)
9. We are levering up like crazy.
10. The real economy remains in the tank.

[Video] Goldman's Jan Hatzius Upgrades Chance of U.S. Recession in 2012 to 1 out of 5

While a technical recession in the U.S. is two quarters of negative GDP, for many there has never been an exit from recession.  Polls show this - often broadcasting that 60%ish of Americans believe we are still in a recession.  [Feb 17, 2011: 57% of Americans Still Think We are in Recession] A lot depends on where you are on the income totem pole.  Further, a lot depends on if you believe the government inflation figures.  Within GDP another inflation gauge is used (called a deflator) which is even lower than CPI most of the time.  [May 1, 2008: Is it an Official Recession?]  As inflation rises, GDP falls... so if you believe government is understating inflation by 2% or more, we've been in a recession the past 2 quarters.  The fact that government uses one type of  inflation for X reports, and another type for Y reports is just all part of living in the Matrix.

Whatever the case, even using the lenient government statistics for GDP, Goldman's Jan Hatzius has moved up the chances of a recession in 2012 to 15-20%.  While he has been as wrong as just about everyone on Wall Street with the talks of 4%+ GDP in 2011, he is still the most widely followed economist amongst the major banks due to a quite good track record. (relatively speaking)

Please note this video is BEFORE today's employment report

21 minute video

Some highlights:

  • Jan Hatzius, the chief U.S. economist of Goldman Sachs, started out the year among the most bullish economists on Wall Street about 2011 economic growth. Six months later, after a disappointing first half, he’s less optimistic and growing a little antsy about the risk of renewed recession.
  • In an interview with The Wall Street Journal, Mr. Hatzius said he saw a 15% to 20% chance of renewed recession next year. His baseline forecast is still for a resumption of stronger growth in the second half of 2011 and into 2012, but he has taken down his 3.5% to 4% forecast by a half percentage point and increased his unemployment rate forecast to 8.25% from 8% by the end of 2012.
  • If you were to see, over the next three months, an increase in the unemployment rate by say a half a percentage point or so, I would be pretty nervous about a renewed recession,” Mr. Hatzius said. “It is not our expectation, but that would that would make me fairly nervous.”
  • Goldman has been noting recently its “three-tenths rule.” Since World War II, an increase in the three-month moving average of the U.S. unemployment rate by more than 0.3 of a percentage point has always led to a much bigger increases in the unemployment rate and recession. The three-month average rate has increased by 0.07 percentage point since April. It would need to be sustained around 9.2% for several months for the rule to apply now.
  • Goldman economists were bullish early in the year because they believed that households had been making good progress in paying down their debts and were in a better position to resume spending. Mr. Hatzius said a combination of shocks from abroad and a softer underlying growth led its forecast astray for the first half of the year. But he said households are still making progress repairing their balance sheets, and therefore, he expects growth to pick up speed in the months ahead. “The progress that was evident six months ago is still visible,” he said.
  • On the policy front, Mr. Hatzius said he didn’t see the Federal Reserve raising interest rates until early 2013, and he doesn’t think it will restart its asset purchase program unless inflation slows and the economy fails to regain momentum. 


Have You Heard of the Chained Consumer Price Index? Time to Learn as Social Security Benefits May be Altered

Some interesting leakage on on a proposal to slow the growth of social security benefits as part of the debt ceiling negotiations.  It appears the idea being floated is to use an inflation gauge that is counts even less of real inflation than the consumer price index (CPI).  For those of us who already think the CPI (which has been adjusted in myriad ways since the 1980s) undercounts inflation [Dec 16, 2010: - Consumer Inflation as Measured in 1980 Would be 8%+, as Measured in 1990 4%]- a move to an even more skimpy way to count inflation would be incredibly bemusing if not for the fact it is going to impose serious hardship on those at the lower end of the economic scale.  Of course in our political system, those are the folk who do not have a lobbyist group nor offer much in terms of monetary contributions to campaign funds, so their interest are not really relevant to the powers that be.

Frankly I had never heard of the 'chained consumer price index' until yesterday.  If you have not - it's probably time to learn.  By using this measure the politicos can 'cut' social security benefits, without actually technically using the word 'cut'.  Genius.

Larger picture - the U.S. plan to deal with the massive deficits is to devalue the dollar ... which will create ever more inflation as the year pass.  That increased inflation can be under reported even further [May 22, 2008: Bill Gross - Inflation Underplayed] using such snazzy measures as the 'chained consumer price index'.  Which will allow the powers that be to claim there is little to no inflation (hence you get no COLA adjustment) as they devalue the country's currency to pay off our debt.  I love it when a plan comes together.

Did I mention it's genius?


Via AP:

  • Once considered untouchable, Social Security is now in play in the debt-ceiling negotiations. And that could mean higher income taxes for many U.S. families in addition to shaved benefits for tens of millions of retirees as they age.  Low- and middle-income families could be hit.
  • Adopting a new inflation measure would allow policymakers to gradually cut benefits and increase taxes in a way that might not be readily apparent to most Americans. The inflation measure under consideration is called the Chained Consumer Price Index. On average, the measure shows a lower level of inflation than the more widely used CPI.
  • A Chained CPI assumes that as prices increase, consumers buy lower cost alternatives, reducing the amount of inflation they experience. (so does CPI) For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents mockingly argue, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters
  • The change would mean smaller annual increases in Social Security payments, government pensions and veterans' benefits. Current payments would not be affected, but recipients would get smaller increases in the future.
  • Overall, the proposal would cut Social Security benefits by $112 billion over the next decade, according to the nonpartisan Congressional Budget Office. It would cut government pensions and veterans' benefits by $24 billion over the same time period if adopted for them as well.
  • In most years, Social Security payments are increased based on a measure of inflation called the Consumer Price Index for Urban Wage Earners and Clerical Workers. If Social Security adopted the new measure, annual increases would be 0.3 percentage points smaller, according to the program's actuaries.  (doesn't seem like much but this compounds over time... )
  • That could be a tough hit for seniors who have gone two years without a cost-of-living adjustment. 
  • As the possible cuts are phased in, a typical 65-year-old who started receiving Social Security benefits at age 62 would get an annual reduction of about $130, according to an analysis of data produced by the Social Security actuaries. By the time that retiree reached 75, the annual cut would be $560. At 85, the cut would be $984 a year.
  • Average Social Security benefits are about $1,100 a month, or about $13,000 a year.
  • Adopting the Chained CPI would mean smaller adjustments to the tax brackets, leading to higher taxes for people at just about every income level.  Low-wage workers would eventually see the biggest increases, while high-income taxpayers would see only small changes.  For example, by 2021, taxpayers making between $10,000 and $20,000 would see a 14.5 percent increase in their income taxes with a Chained CPI, according to an analysis by the Joint Committee on Taxation. Taxpayers making more than $500,000 would get a tax increase of 0.3 percent, while those making more than $1 million would get a tax increase of 0.1 percent.

 [Apr 23, 2008: Barry Ritholtz on Disappearing Economic Indicators]
[May 10, 2008: Finally Some Mainstream Reports are Figuring Out the Spin from Government]

Yikes, Government Reports 18,000 Jobs Created

Houston we have a problem.

+18,000 jobs versus the 110,000 or so expected.
57,000 in private sector versus 39,000 jobs lost in government.

Unemployment rate 9.2%

Obviously in sharp contrast to ADP yesterday.  I wouldn't read too much into any one number, but this is 2 months back to back where the government data is very poor.

Hourly wages were essentially stagnant (down 1 cent)

Average workweek fell from 34.4 to 34.3 (this is the equivalent of losing a couple hundred thousand additional jobs)

May's already paltry 54,000 figure was also revised down to 25,000.

Birth death model 'created' 131,000 jobs in June .... so those of you in the know, realize how bad the data 'really' is. [Jan 27, 2008: Monthly Jobs Report & Birth Death Model]  Birth death created 205,000 jobs in May as well.... I guess small businesses are booming across America again (at least per government statisticians)

All in all it looks like the summer of recovery 2.0 is well on it's way.  On the other hand less jobs = more corporate profits so it's not really that bad of news for Wall Street.  Just a disappointment for the day in a very overbought market.

EDIT 8:45 AM: Thinking out loud - McDonald's hired about 60,000 workers in May.  With the revision down in May's figures, McDonald's essentially created all the net hiring in the U.S. in May + June.  A pretty good statement on life for Main Street outside of Manhattan, Washington D.C. and some of the booming agriculture, great plains states.

EDIT 10:00 AM: More ugly numbers.  U-6 (broad unemployment including those marginally attached to the workforce) jumped from 15.8 to 16.2% - a huge one month spike. 

And somehow the labor force participation rate dropped another 0.1% to 64.1%.  If this rate had held steady from the beginning of the 'recovery' in June 2009 at 65.7%, the unemployment rate would be 11%.  All these dropouts from the labor force are masking a world of hurt below the surface.

Thursday, July 7, 2011

WSJ: 2006 401K Law Supresses Saving for Retirement

Hmmm, some interesting unintended consequences of a law passed in 2006 which one would think would have increased savings. 

The study shows while more people are participating, those who are automatically enrolled due so at the company set rate, which is below what people who enroll on their own normally do.  Hence inertia is an issue.    I'd also argue one potential issue is the timing of the law - it happened just before the beginning of the Great Recession so far fewer people have jobs (and hence 401ks), and those who do retain employment don't have the house ATM to utilize as their secondary piggy bank - hence have less for retirement savings.  But plain inertia might be the primary cause.

Via WSJ:

  • A 2006 law designed to boost employees' retirement-savings is having the opposite effect for some people.   Under the law, companies are allowed to automatically enroll workers in their 401(k) plans, rather than require employees to sign up on their own. The measure was intended to encourage more people to bulk up their retirement nest eggs—a key goal in a country where millions of people aren't saving enough.
  • But an analysis done for The Wall Street Journal shows about 40% of new hires at companies with automatic enrollments are socking away less money than they would if left to enroll voluntarily, the Employee Benefit Research Institute found. The nonprofit performed a complex computer simulation of savings patterns drawing on data from more than 20 million 401(k) participants.
  • The problem: More than two-thirds of companies set contribution rates at 3% of salary or less, unless an employee chooses otherwise. That's far below the 5% to 10% rates participants typically elect when left to their own devices, the researchers said.
  • "Automatic enrollment is a double-edged sword," said Brigitte Madrian, a professor at Harvard University who is an expert on 401(k)s. "On the one hand, there's more participation. On the other hand, lots of employees are stuck at whatever default the employer selects." 
  • The total annual amount being put into 401(k) plans has increased by 13% since 2006, to an estimated $284.5 billion this year, according to consulting firm Cerulli Associates. That is largely because the rule has successfully prodded millions of people who wouldn't have saved a penny for retirement to start saving something. 
[click to enlarge]

  • EBRI evaluated the contribution rates of people of similar ages and salary levels eligible for 401(k) plans with automatic enrollment versus those in plans that require workers to join voluntarily, examining data stretching back 11 years. To project future savings patterns among auto-enrolled participants, EBRI ran a computer simulation based on a variety of scenarios concerning wage growth and the adoption of higher contribution rates over time.
  • Simple inertia takes over for many workers, said Kristi Mitchem, head of the global defined-contribution business at State Street Global Advisors, which manages more than $297 billion in 401(k) plans.
  • The Pension Protection Act of 2006, which was designed to shore up the pension system, also encouraged wider adoption of auto-enrollment in 401(k) plans. It removed obstacles such as state laws that restricted the practice and shielded employers who use certain types of investments from liability for losses suffered by participants who are auto-enrolled.
  • The law has boosted auto-enrollment and participation rates dramatically. About 57% of large companies now automatically enroll new employees in 401(k) plans, up from 24% in 2006, according to Aon Hewitt. While employees are free to opt out, companies report average participation rates above 85%, compared with 67% for those without auto-enrollment, Aon Hewitt says.
  • Yet 401(k) participants' average savings rates have fallen in recent years. Among plans Aon Hewitt administers, the average contribution rate declined to 7.3% in 2010, from 7.9% in 2006. The Vanguard Group Inc. says average contribution rates at its plans fell to 6.8% in 2010, from 7.3% in 2006. Over the same period, the average for Fidelity Investments' defined contribution plans decreased to 8.2%, from 8.9%.  Vanguard estimates about half the decline "was attributable to increased adoption of auto-enrollment."
  • Many companies said they selected a 3% default contribution rate in part out of concern that a higher rate could prompt employees to drop out of these plans.  
  • Another factor may be pushing down default rates: Some companies that match some employee contributions can save money with a lower default rate. According to a 2011 Aon Hewitt survey, 73% of employers without auto-enrollment cite "the increased cost of the employer match as a primary barrier" to adopting it this year.

Getting Feverish

Again - astounding change in market psychology in just a week and a half.  This is yet another V shape bounce and we now have to consider if this is the new market behavior.  With HFT trading and momo actors dominating the market, it seems once we take off in 1 direction there is really no relent.  V shape has been almost the only shape since early 2009...

As a few people have noted in comments, the saying used to be a stairway up, and elevator down in markets.  But the past few few years it is elevator up action as well.

That said, we're getting to overbought conditions and any sort of gap up tomorrow morning into the labor report would present a juicy opportunity for a (very) short term pullback.   The S&P 500 is up some 85 points in a week and a half (nearly 7%), and stands 3.2% over the 20 day moving average.  That's usually a level the rubber band tends to snap back.  Hence a gap up tomorrow morning of 0.5%+ish would be prone for selling into/shorting.  Plus we have yearly highs at 1370.

A lot of individual names (we all know the symbols of these 20-25 stocks by now) are well into overbought but you just cant stand in front of momo trains once everyone piles into because overbought is simply a state of mind once the lemmings are unleashed.

A premarket selloff on tomorrow's employment data would be more tricky in the near term.

Obama to Extend Forebearance for Unemployed in HAMP Program from Minimum of 3 Months to a Minimum of Year

I think this is the fourth year of special programs to 'fix' the housing issue.... the latest being leaked this morning per HousingWire.

  • The Federal Housing Administration and the Treasury Department will require mortgage servicers to extend the forbearance period for unemployed homeowners to one full year.  The Treasury will require servicers participating in the Home Affordable Modification Program's unemployment initiative to extend the minimum forbearance period from three months to of 12.  (please note these are minimums)
  • The Obama administration also said Thursday it would remove "upfront hurdles" to the FHA Special Forbearance Program, which previously provided a four-month forbearance, to make it easier for unemployed borrowers to qualify.  Borrowers participating in the HAMP Unemployment Program, or UP, will be able to obtain a forbearance if they are seriously delinquent.
  • "The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers," said Department of Housing and Urban Development Secretary Shaun Donovan. "Today, 60% of the unemployed have been out of work for more than three months and 45% have been out of work for more than six. Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home." 
The majority of these programs are simply extending and pretending, kick the can policies which seem to be the answer to every major global financial problem.

On that note, the ECB announced this morning that Portugal could dump whatever grade of debt onto the bank - just as it had done with Greece.  Ireland cannot be far behind.  They have finally learned from the US Fed - if no one else will buy the crap, take it inside the central bank.

    [Video] ECRI's Achuthan Sticking to Script that Economic Slowdown is not Transitory

    I mentioned in mid June how the ECRI had turned bearish on economic prospects in the intermediate to longer term [Jun 14, 2011: [Video] ECRI's Achuthan - Prolonged US Slowdown Underway] and this morning on CNBC co-founder Lakshman Achuthan is sticking to his guns despite an 'uptick' in economic data the past week or so.  Indeed, he is calling for the slowdown to continue through 'at least' the end of the year, if not longer.  This now puts him in the minority, as the opposing guest in the segment below now portrays the growing consensus on Wall Street.  (and what Mr. Zandi was offering yesterday)  One key point Achuthan makes, which I pointed out as well, was all the manufacturing economic data released globally last week was degrading except for the ISM in the U.S. - but markets only focused on that one figure and ignored everything else. 

    It will be very interesting to see how this call works out, because the ECRI has been probably the best caller of economic turns the past few years, if not longer.

    9 minute video but for the most part just focus on Achuthan since the other guest is repeating what 99 out of 100 guests are saying on CNBC.

    ADP Surprises to the Upside at 157,000 Offsetting Previous Month's Dreary Data

    The ADP report came in at 157,000 this morning, ahead of expectations.  Averaging this data with the really weak May data (a revised +36,000) and you get just under 100,000 private sector jobs created on average the past two months.  Not enough to bring down the unemployment rate, but in the very short term focused world of the stock market every data point is celebrated or booed in a vacuum.  This should raise expectations slightly for tomorrow's government data.

    Goods producing came in at +27,000; service producing +130,000.

    [full report here]

    In central bank news the ECB raises rated a quarter  point as expected while BOE kept rates flat as expected.

    We remain in party on mode in the market.

    Wednesday, July 6, 2011

    [Video] Mark Zandi - 'We're Going to Reaccelerate'

    Economist Mark Zandi is definitely in the Wall Street crowd with the belief the worst is behind us, and we soon have the second half bounce, due to supply chain fixes in Japan and a generally better environment.  That said the consensus was calling for 4%+ type of GDP in Q1 and Q2, due to the Bush tax extensions and 2% payroll tax holiday, so we'll see if they get it correct this time around.

    5 minute video

    "We've seen the bulk of the slowdown….I think we're going to reaccelerate," he says.  Whereas most economists, including at the Fed and IMF, now expect second half growth below 3%, Zandi predicts the U.S. economy will rebound to close to 3% growth in the third quarter and approach 4% in the fourth.

    Zandi's optimism is based on a view that the first half slowdown was due mainly to rising energy prices and the dramatic downturn in Japan's economy following the devastating earthquake and Tsunami last March.  "Those weights are lifting," he says. "The Japanese economy seems to be gaining traction, [that] augurs well for our manufacturing" sector.

    To be sure, Zandi is predicting a robust, V-shaped rebound and predicts the job market will remain soft, predicting "another month or two of soft payrolls, around 100,000." (The consensus for Friday's June payroll report is 110,000.)  Zandi predicts the headline non-farm payroll figure will start to hit 200,000 per month later this year and the unemployment rate will "head toward" 8% by the end of 2012.

    First Trust Launches Cloud Computing ETF (SKYY)

    It is always interesting to see if new ETFs, in a very highly saturated marketplace, catch any attention or more importantly a sizable amount of assets.  First Trust is trying to catch the cloud computing angle, with a new ETF: First Trust ISE Cloud Computing Index Fund (SKYY).  As long time readers know, a lot of companies we've been interested have seen a premium attached to them over the past 24 months or so once they become 'cloud' plays.  [Feb 11, 2010: WSJ - What the Heck is this Cloud Computing Thing?]  But they do tend to move in a group once heralded as a 'cloud' company.  More importantly, one wonders in a market with ADD if cloud matters anymore, as the lemmings have moved on to 'social media' as the new hot thing.

    Anyhow here is a link to the ETF's webpage, and some description below.  Looks to be 40 companies, with no one-two positions dominating the holdings as many top heavy ETFs have.  A 0.6% expense ratio. I also have a video below with one of the salesmen from First Trust on the launch and product.

  • The index is a modified equal dollar weighted index designed to track the performance of companies actively involved in the cloud computing industry. To be included in the index, a security must be engaged in a business activity supporting or utilizing the cloud computing space, listed on an index-eligible global stock exchange and have a market capitalization of at least $100 million.

  • All securities are then classified according to the following three business segments:
    • Pure Play Cloud Computing Companies: Companies that are direct service providers for “the cloud” (network hardware/software, storage, cloud computing services) or companies that deliver goods and services that utilize cloud computing technology.
    • Non Pure Play Cloud Computing Companies: Companies that focus outside the cloud computing space but provide goods and services in support of the cloud computing space.
    • Technology Conglomerate Cloud Computing Companies: Large broad-based companies that indirectly utilize or support the use of cloud computing technology. 
    Here are the positions over 1% exposure.
    Aruba Networks, Inc. ARUN 3.78 %
    TIBCO Software Inc. TIBX 3.77 %
    Teradata Corporation TDC 3.67 %, Inc. AMZN 3.62 %
    Informatica Corporation INFA 3.54 %
    Netflix Inc. NFLX 3.53 %
    Blackboard Inc. BBBB 3.49 %, Inc. CRM 3.47 %
    NetApp Inc. NTAP 3.47 %
    Open Text Corporation OTEX 3.47 %
    Rackspace Hosting, Inc. RAX 3.46 %
    Acme Packet, Inc. APKT 3.46 %
    VMware, Inc. VMW 3.43 %
    F5 Networks, Inc. FFIV 3.40 %
    Oracle Corporation ORCL 3.35 %
    Equinix, Inc. EQIX 3.35 %
    EMC Corporation EMC 3.34 %
    Akamai Technologies, Inc. AKAM 3.34 %
    Rightnow Technologies, Inc. RNOW 3.31 %
    Cisco Systems, Inc. CSCO 3.27 %
    Google Inc. GOOG 3.27 %
    Juniper Networks, Inc. JNPR 3.26 %
    SAP AG (ADR) SAP 3.22 %
    Microsoft Corporation MSFT 2.54 %
    International Business Machines Corporation IBM 2.49 %
    Apple Inc. AAPL 2.46 %
    Hewlett-Packard Company HPQ 2.39 %

    4 minute video

    No position

  • ISM Non Manufacutiring Slightly Below Expectation at 53.3

    While the ISM Manufacturing seems to get all the attention, we've shrunk that part of the economy to a quite small proportion of activity.  Most of the action nowadays is in the services sector, and hence today's ISM number is more applicable to the broader economy.  The reading of 53.3 is still expansionary but the second worst reading in 2011.  A bit below consensus as well, but thus far the market doesn't care as it continues to look forward to the Japan supply chain rebuild and hopes for 3%+ type of GDP in Q3/Q4.  As well as the very healthy outlook for corporations, especially the multinational kind which have increasingly less need for a healthy U.S. economy.

    Specific to the ISM report, new orders shrunk relatively dramatically, and employment was flattish.  As with ISM Manufacturing the bright spot is a large drop in prices.

    • "Business is still up, although some softening seen over last month." (Wholesale Trade)
    • "Orders are remaining steady, and outlook for this year is positive." (Professional, Scientific & Technical Services)
    • "Economic activity continues to be sluggish." (Management of Companies & Support Services)
    • "Have yet to see a real spark that ignites new and invigorated business — still seems lethargic and mired in recession-related preventative moves, and no one sees a real improvement ahead." (Public Administration)
    • "Commodities coming down in price, which should help stabilize inflation." (Retail Trade)
    JUNE 2011
      Non-Manufacturing Manufacturing
    Index Series
    Direction Rate
    NMI/PMI 53.3 54.6 -1.3 Growing Slower 19 55.3 53.5 +1.8
    Business Activity/Production 53.4 53.6 -0.2 Growing Slower 23 54.5 54.0 +0.5
    New Orders 53.6 56.8 -3.2 Growing Slower 23 51.6 51.0 +0.6
    Employment 54.1 54.0 +0.1 Growing Faster 10 59.9 58.2 +1.7
    Supplier Deliveries 52.0 54.0 -2.0 Slowing Slower 15 56.3 55.7 +0.6
    Inventories 53.5 55.0 -1.5 Growing Slower 5 54.1 48.7 +5.4
    Prices 60.9 69.6 -8.7 Increasing Slower 23 68.0 76.5 -8.5
    Backlog of Orders 48.5 55.0 -6.5 Contracting From Growing 1 49.0 50.5 -1.5
    New Export Orders 57.0 57.0 0.0 Growing Same 10 53.5 55.0 -1.5
    Imports 46.5 50.5 -4.0 Contracting From Growing 1 51.0 54.5 -3.5
    Inventory Sentiment 58.5 55.0 +3.5 Too High Faster 169 N/A N/A N/A
    Customers' Inventories N/A N/A N/A N/A N/A N/A 47.0 39.5 +7.5
    * Non-Manufacturing ISM Report On Business® data is seasonally adjus

    Average Hedge Fund Down on Year

    Some interesting data in this Reuters report - most notably that the average hedge fund (via data from Hedge Fund Research) is down 2.1%, trailing the S&P 500 by some 8%. If not for the furious rally in the closing 4 sessions of June, I would imagine that gulf would be much smaller.

    • The first half of 2011 has been humbling for many of the $2 trillion hedge fund industry's biggest stars, with the likes of John Paulson, David Einhorn, and Louis Bacon losing money for their investors' money while underperforming the major U.S. stock market indexes.
    • At the year's half-way point, the average hedge fund was off 2.12 percent, preliminary data from Hedge Fund Research show. By contrast, the Standard & Poor's 500 gained 6 percent. 
    • Only six months ago, few investors would have forecast that as of June 30, Paulson's flagship Advantage Fund would have lost 15 percent, or Einhorn's Greenlight Capital would be down 5 percent. Even Louis Bacon's flagship Moore Global fund, which has boasted average annual returns of 19 percent for more than two decades, was down 5 percent for the year through June 16.
    • The lackluster performances from so many top managers come at a time when the hedge fund industry is perceived to be roaring back to life following the financial crisis.  In the first quarter of 2011 alone, hedge funds took in $32 billion in new money from pension funds and other institutional investors, more than half the amount added during the entire year of 2010. Thanks to fresh demand, especially from pension funds, the industry now manages more money than it did before the beginning of the crisis during the summer of 2007.
    • "The glory boys have had a tough time lately," said Charles Gradante, co-founder of Hennessee Group, which invests with funds and tracks industry performance.  Poor performance is sparking worry that unless these managers turn things around soon, some of the industry's biggest names will be hit with redemption notices in the second half of the year. A wave of requests from investors to get some, if not all, of their money back could force some managers to quickly liquidate positions to return cash fast.
    • William Ackman, whose Pershing Square Capital has delivered an average annual gain of 19 percent until now and is often down early in the year, was off 2.27 percent during the first first 5-1/2 months of the year. 
    • Digging into the mid-year numbers, it appears many funds were fairing poorly thanks to one brutal month. Overall, funds were down 2.09 percent in June, marking their biggest decline this year, data from Bank of America Merrill Lynch analysts show. 
    • The bulk of hedge funds pursue an equity long/short strategy and these funds, on average, lost 3.07 percent in June, the analysts said, noting that only equity market neutral funds, as a group, posted positive returns in June.
    • For many managers, the hardest thing to gauge correctly this year has been the roller-coaster nature of the global economic recovery. Funds positioned to profit from an economic rebound by betting heavily on bank stocks and consumer products manufacturers were whipsawed by global events.

    Tuesday, July 5, 2011

    10% of Russell 1000 Already at 52 Week Highs

    No matter how long you do this, it still amazes at how quickly the mood changes 180 degrees.  A week ago Friday markets were a disaster and a plunge through the 200 day moving average looked like the eventual outcome.  A week later, the S&P 500 was up 5.5% and scores of stocks are breaking out.  Indeed, 1/10th of the Russell 1000 is already at 52 week highs reports Bespoke Investments.  What correction?

    As for today's action, it is exactly the type of movement the bulls want - churning action with a slight pullback.

    Yandex (YNDX) - After Silent Period, Every Analyst is Uber Bullish but Goldman

    On the topic of the incestual relationship between companies and analysts, a funny situation happened last week.  After taking LinkedIn (LNKD) public in the mid $40s the stock shot up well over $100 before 'coming back to earth' in the $70s-$90s.  Despite a roughly doubling of valuation the investment bankers deemed 'fair value' a month earlier, the analysts from these same sordid banks were jumping over each other last week to throw 'buy' recommendations on the stock.  So apparently the the intrinsic value of LinkedIn changed by a factor of 100% or so within 30 days.  Reading some of the valuation metrics for how they justified the buy rating and new price targets for LNKD last week, made for some entertaining fiction.  Just another day on Wall Street.

    Speaking of recommendations after the IPO, today we have the crew coming out supporting Yandex (YNDX).  As you can imagine, despite a valuation 50% higher than the investment banks brought it public [May 24, 2010: Yandex Up Nearly 60%] at a mere 30 (business) days ago, almost everyone is throwing the 'buy buy buy' flag in the air.  Well one exception... Goldman Sachs.

    Via Forbes:

    • Five investment firms picked up coverage of the Russian Internet search giant Yandex this morning, mostly with a positive spin. Note that all five the firms were underwriters for the firm’s initial offering. (this is where you wink and nod...)
    • Goldman analyst Alexander Balakhnin starts the company with a Neutral rating and $36.10 price target. “We expect Russian Internet penetration to grow by 71% through 2010-15, and believe the Russian Internet advertising market will expand at a 35% CAGR [compound annual growth rate] over the same period. Thanks to first-mover advantage, dedication to product development and dominance in its market, we see Yandex as well-positioned to capture internet growth; we forecast a 2010-15 EPS CAGR of 33%,” he writes. But the Goldman analyst also notes that the stock trades at 39.5x expected 2012 EPS, “a premium to the Chinese Internet stocks.” The analyst adds that “as Chinese peers benefit from regulatory protection, this premium is unlikely to widen, in our view.”
    • Pacific Crest analyst Steve Weinstein launches with an Outperform rating and $45 target price. “We like YNDX because the company has a commanding market position, excellent technology and operates in a large market, which is being driven by strong secular trends,” he writes.
    • Piper Jaffray analyst Gene Munster sets an Overweight rating and $40 target. “We believe YNDX deserves to trade at a premium to the group given higher top-line growth and a proven business model,” he writes. “Long term, we believe the Russian Internet opportunity compares well to the open-ended opportunities in China and Latin America and expect Yandex to be the biggest beneficiary of growing Internet usage in Russia.”
    • Morgan Stanley analyst Joseph Okleberry starts the company with an Overweight rating and $42 target. “Yandex is the leading Internet company in Russia, a country poised for robust growth in Internet usage and advertising spend,” he writes. “Yandex’s record of innovation and execution should drive annual revenue and EPS growth of 40% through calendar 2015.”
    • Deutsche Bank analyst Jeetil Patel launches with a Buy rating and $40 target. “Yandex is the leader in search in Russia (with an est. 65% share), but the company’s dominant position in other Internet categories (maps, news, mail, shopping, payments to name a few) hold long term upside from a usage, and a business model innovation standpoint,” he writes.

    [May 22, 2010: Yandex - the "Russian Google" - Next Week's Hot IPO?]

    No position

    Netflix (NFLX) Surges Again on Deal to Serve Latin America and Caribbean

    One had a rare chance to get onto the Netflix (NFLX) train during the mid month swoon in June, but as a leadership stock - once the market turned, Netflix gallops.  This morning's news about a 43 country expansion has the shorts on fire again in this name - as an infamous commentator on financial infotainment TV likes to say "It's been a house of pain".

    • Netflix Inc is expanding its online video service to 43 countries in Latin America and the Caribbean.  This is Netflix's second foray outside the United States. It began offering its services in Canada last year. 
    • Netflix said on Tuesday that subscribers in Mexico, Central America, South America and the Caribbean will be able to access shows and movies in Spanish, Portuguese or English later this year. 
    • Netflix has more than 23 million subscribers. By contrast, Comcast, the No. 1 U.S. cable operator, has 22.8 million subscribers as of March 31.
    No position

    WSJ: Why You Shouldn't Buy Those Quarterly Earnings Surprises

    Good article in the WSJ for those newer to 'the game' that is earnings report season.  Almost every quarter 70%+ish of companies "surprise", and investors lap it up as if its never happened before.  This is a good companion piece from a blog entry from 2007 titled [Dec 5, 2007: The Games Analysts Play... Why No One Ever Says Sell]

    • Everyone loves surprises. But perhaps you shouldn't get too excited over them. This month, market strategists, television commentators and other investing pundits will bombard you with breathless updates on the percentage of companies in the Standard & Poor's 500-stock index that have reported profits even higher than what analysts expected—in Wall Street lingo, a "positive earnings surprise."
    • The percentage of companies that have beaten expectations often is cited as a barometer of corporate profitability, an indicator of how well the economy as a whole is doing or a predictor of where the stock market is going.
    • What goes unsaid, however, is that these positive surprises are becoming so common they are nearly universal. They are predetermined in a cynical tango-clinch between companies and the analysts who cover them.  
    • In the first quarter of 2011, according to Bianco Research, 68% of the companies in the S&P 500 earned more than the consensus, or median, forecast by analysts. What's more, that quarter was the ninth in a row when at least two-thirds of the companies in the S&P generated positive surprises—and the 50th consecutive quarter in which at least half of the companies surpassed the consensus forecast of their earnings.
    • Even in the depths of the financial crisis, from the third quarter of 2008 through the first quarter of 2009, between 59% and 66% of companies beat expectations, according to Wharton Research Data Services, or WRDS.
    • In short, there isn't anything surprising about earnings surprises. They aren't the exception; they are the rule. "All the numbers are gamed at this point," says James A. Bianco, president of Bianco Research.

    • What's going on here? In what used to be called "lowballing" but now goes by the euphemism of "guidance," an analyst will guesstimate what a company will earn over the next year or calendar quarter. Then the company "walks down" the analyst's forecast by providing a series of progressively lower targets until the analyst's prediction falls slightly below where the actual number is likely to come out. 
    Then CNBC trumpets the beat, and the stock surges and we all clap like seals.

    • Voila: The company gets to announce earnings that are better than expected, while the analyst gets to tell his investing clients that his estimate was pretty accurate and conservative to boot.

    And if you peeve off the CEO by not lowballing you tend to get shut out in the future.  All part of the 'game'.

    • With analysts playing the guidance game more than ever, their forecasts tell us less than ever about where the stock market is going. So over the next few weeks, don't be fooled into thinking that there is anything surprising about the flood of positive earnings surprises.

    Another Important Week of Data, and the Remarkable Bounce from Oversold to Overbought

    Obviously last week was one of those you will remember for a long time, as the scope and ferocity of the bounce - light volume or not - was quite remarkable.  While the front end of the week was a predictable oversold bounce on light volume heading to the end of the quarter, the action at the end of the week was more surprising.  Friday struck me the most as almost all global economic data points were poor, including those in the U.S.  Except for ISM Manufacturing.  I had thought a better than expected data point had been built into the market by that point, especially in light of the Chicago PMI figure (heavily auto related) the previous day, but that assumption was incorrect.

    So with that, the huge rally pushed indexes through every major (and minor) resistance level.  The high at the beginning of June is the next level to test, around 1345.

    And in a snap of a finger this market went from oversold to overbought.  One indicator (among many) is the % of stocks over the 50 day moving average.  Aside from one episode last July, the amount of real estate this measure covered to the upside has rarely been faster.  Similar violent moves can be seen in quite a few other secondary technical indicators.

    After such a move, even sideways action without much of a giveback would be a victory for the bulls.  Bears have a ton of work ahead and may require very poor economic data to make progress, as the macro data pushes away after this week and earning reports take over. 

    As for this week, due to the holiday we have some of the key economic reports spread over a 2 week period rather than bundled in week one of the month.  Chief among them are ISM Non Manufacturing Wednesday and the monthly employment data Friday.  The former has a consensus of 54.0 vs prior month's 54.6, while the latter shows a quite weak 110,000 jobs created and 9.1% unemployment rate.

    Best Performers Last Week

    Last week was the best performance in roughly 2 years, so it's an interesting week to run screens on.  Below I've listed the best performing stocks of the week, with the normal caveats (volume >100K, stock price >$10, market cap >$300M).  There were over 250 stocks/ETFs which returned at least 10%, so I limited it to 14%+ to keep the list manageable at 75 names.

    This is the type of list that will showcase a few things - stocks that had been beaten down the most during the selloff, potential new leadership stocks, and stocks reacting to news from last week.

    Ticker Company Return  Mkt Cap  Industry
    LNKD LinkedIn Corporation Class A Co 35.2%              8,934 Internet Information Providers
    CCSC Country Style Cooking Restaurant Chain 30.7%                  370 Restaurants
    YOKU Inc 30.5%              4,149 Internet Information Providers
    P Pandora Media, Inc. Common Stoc 30.4%              3,201 Internet Information Providers
    QIHU Qihoo 360 Technology Co. Ltd. A 30.2%              2,441 Internet Service Providers
    SODA SodaStream International Ltd. 26.8%              1,357 Packaging & Containers
    HSTM Healthstream Inc. 24.5%                  313 Internet Information Providers
    SPRD Spreadtrum Communications Inc. 23.7%                  842 Semiconductor - Broad Line
    SFUN SouFun Holdings Ltd. 22.9%              1,611 Internet Information Providers
    IDCC InterDigital, Inc. 22.6%              2,126 Wireless Communications
    SSRX 3SBio Inc. 22.1%                  410 Biotechnology
    NOAH Noah Holdings Limited 21.8%                  696 Asset Management
    SINA Sina Corp. 21.7%              7,164 Internet Software & Services
    LONG eLong Inc. 20.6%                  566 Personal Services
    INTX Intersections Inc. 20.4%                  314 Consumer Services
    V Visa, Inc. 19.9%            73,021 Business Services
    WAC Walter Investment Management Corp. 19.5%                  589 Asset Management
    CRUS Cirrus Logic Inc. 19.1%              1,102 Semiconductor - Specialized
    SHS Sauer-Danfoss Inc. 19.0%              2,560 Diversified Machinery
    WOR Worthington Industries, Inc. 18.8%              1,736 Steel & Iron
    OSK Oshkosh Corporation 18.7%              3,001 Trucks & Other Vehicles
    MPEL Melco Crown Entertainment Ltd. 18.7%              7,274 Resorts & Casinos
    NANO Nanometrics Incorporated 18.7%                  455 Scientific & Technical Instruments
    ASCMA Ascent Media Corporation 18.6%                  812 CATV Systems
    USNA USANA Health Sciences Inc. 18.6%                  528 Drug Related Products
    FAS Direxion Daily Financial Bull 3X Shares 18.4%              1,796 Exchange Traded Fund
    HSFT hiSoft Technology International Ltd. 18.3%                  465 Business Software & Services
    ARII American Railcar Industries 18.1%                  524 Railroads
    AH Accretive Health, Inc. 17.6%              2,781 Management Services
    END Endeavour International Corporation 17.4%                  567 Independent Oil & Gas
    AZZ AZZ Incorporated 17.3%                  640 Industrial Electrical Equipment
    NXPI NXP Semiconductors NV 17.3%              6,889 Semiconductor - Broad Line
    FNSR Finisar Corp. 17.3%              1,694 Networking & Communication Devices
    FSL Freescale Semiconductor Inc. 17.1%              8,012 Semiconductor - Broad Line
    WPRT Westport Innovations Inc. 16.6%              1,181 Pollution & Treatment Controls
    VIT VanceInfo Technologies Inc. 16.5%              1,043 Information Technology Services
    SPWRA SunPower Corporation 16.3%              1,930 Semiconductor - Specialized
    URI United Rentals, Inc. 16.3%              1,630 Rental & Leasing Services
    ISS Isoftstone Holdings Limited 16.2%                  850 Information Technology Services
    ASIA AsiaInfo-Linkage,Inc. 16.1%              1,246 Security Software & Services
    BAS Basic Energy Services, Inc. 16.1%              1,372 Oil & Gas Equipment & Services
    PDC Pioneer Drilling Co. 15.8%                  849 Oil & Gas Drilling & Exploration
    NXY Nexen Inc. 15.8%            12,053 Independent Oil & Gas
    SMSC Standard Microsystems Corp. 15.7%                  628 Semiconductor - Integrated Circuits
    JOBS 51job Inc. 15.7%              1,617 Staffing & Outsourcing Services
    LINC Lincoln Educational Services  15.6%                  420 Education & Training Services
    EBAY eBay Inc. 15.5%            42,493 Catalog & Mail Order Houses
    SZYM Solazyme, Inc. 15.4%              1,369 Chemicals - Major Diversified
    GTLS Chart Industries Inc. 15.4%              1,691 Metal Fabrication
    KRO Kronos Worldwide Inc. 15.4%              3,754 Specialty Chemicals
    CYD China Yuchai International Limited 15.3%                  833 Diversified Machinery
    CYOU Limited 15.2%              2,379 Multimedia & Graphics Software
    CRZO Carrizo Oil & Gas Inc. 15.2%              1,636 Independent Oil & Gas
    BID Sotheby's 15.1%              3,136 Specialty Retail, Other
    WNR Western Refining Inc. 15.1%              1,697 Oil & Gas Refining & Marketing
    MMR McMoRan Exploration Co. 15.1%              2,939 Independent Oil & Gas
    SFY Swift Energy Co. 14.9%              1,638 Independent Oil & Gas
    RVBD Riverbed Technology, Inc. 14.9%              6,152 Networking & Communication Devices
    UNF UniFirst Corp. 14.8%              1,161 Consumer Services
    MA Mastercard Incorporated 14.7%            37,947 Business Services
    GIB CGI Group, Inc. 14.5%              6,892 Internet Software & Services
    GPOR Gulfport Energy Corp. 14.5%              1,437 Independent Oil & Gas
    AMLN Amylin Pharmaceuticals, Inc. 14.5%              1,975 Biotechnology
    VELT Velti Plc 14.4%              1,020 Business Software & Services
    GSM Globe Specialty Metals, Inc. 14.3%              1,770 Industrial Metals & Minerals
    CBI Chicago Bridge & Iron Company N.V. 14.3%              3,978 General Contractors
    ARW Arrow Electronics, Inc. 14.2%              4,839 Electronics Wholesale
    BBVA Banco Bilbao Vizcaya Argentaria, S.A. 14.2%            55,211 Foreign Regional Banks
    MTW Manitowoc Co. Inc. 14.2%              2,309 Farm & Construction Machinery
    HEES H&E Equipment Services Inc. 14.2%                  510 Industrial Equipment & Components
    ALLT Allot Communications Ltd. 14.2%                  431 Technical & System Software
    FSLR First Solar, Inc. 14.2%            11,464 Semiconductor - Specialized
    RRR RSC Holdings, Inc. 14.1%              1,290 Rental & Leasing Services
    SXCI SXC Health Solutions, Corp. 14.1%              3,924 Application Software
    TEX Terex Corp. 14.0%              3,258 Farm & Construction Machinery

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