Tuesday, November 15, 2011

Ezra Klein: Who Has the Better Central Bank? The U.S. or Europe?

This is of course a topic I bring up at every cocktail party.... hah.  But it's an interesting topic... moral hazard has been breached years ago in the States, starting with Long Term Capital Management in the 90s, to the point Lehman Brothers was sitting there expecting rescue from "someone" (federal govt and/or central bank) for all their errors and ills.  It's progressed far worse since even 2008 due to QE - we are now at the ridiculous point every time the S&P 500 falls 10% the speculator class demands the Federal Reserve come to the rescue - as if stock market valuations are a third mandate.  (of course Bernanke does nothing to extinguish this as he has stated the wealth effect is something he cares about - not sure how that fits in the mandates of inflation or employment, but let's not worry about details such as that.)  Meanwhile, MF Global has recently gone down in flames as its leader expected "Fed like" action out of the European Central Bank.  If the ECB was like the Fed, Greek's leadership would still be there, as would Italy's.... the rescues would have came years ago. Instead the ECB puts most of the hardest fixes back on the political leadership .... something far more complicated in a 17 country organization than what we have to deal with here.  Of course, both have pros and cons - Ezra Klein (who from this article seems to lean Krugman... or Charles Evans) of the Washington Post takes a closer look.

  • Who has the better central bank, Europe or the United States? It’s not exactly water-cooler conversation. But in April, when European Central Bank president Jean-Claude Trichet announced he would hike interest rates even as the euro zone was sputtering — in essence, opting to choke off economic growth to avert an uptick in inflation — the comparisons with Ben Bernanke quickly flared.
  • Inflation hawks hailed Trichet’s vigilance: “Yes, Americans are now being schooled by the French on how to run a sound monetary policy,” wrote economist Michael Pento. On the other hand, those worried about the euro zone’s sluggish growth argued that the ECB was being run by maniacs. “[T]he ECB makes Ben Bernanke look like William Jennings Bryan,”wrote Paul Krugman. Even if Bernanke wasn’t doing enough to jolt the U.S. economy, Krugman argued, at least he wasn’t as fanatical about stifling growth as Trichet was.
  • This split view has persisted, even after Mario Draghi replaced Trichet as ECB president in November. The Europeans are seen as overly cautious in the face of crises, obsessed with inflation and willing to tolerate weak growth in the name of austerity. Bernanke, by contrast, has earned a reputation as someone willing to throw the kitchen sink at a financial crisis — even if many economists think he could go much, much further in helping the recovery along. “The Fed has been vastly more aggressive in just about everything,” says Alan Blinder, an economist at Princeton University.
  • Yet a closer comparison reveals some subtle differences between the world’s two most powerful central banks. Bernanke has been willing to test the boundaries of what the Fed can do in order to preserve financial stability at a time when U.S. political institutions are failing. Europe’s central bankers, by contrast, have been more focused on pressuring Europe’s failing institutions to reform themselves, rather than on circumventing them to save the economy. Here’s a look at the strengths and weaknesses of each approach:

1) Balancing growth and inflation.

  • The Fed has been far more fervent than its European counterpart about slashing interest rates to boost the economy. This partly stems from a difference in the banks’ mandates. The ECB’s main task is to keep inflation low, whereas the Fed, in theory, has a “dual mandate” to fight inflation and unemployment. What’s more, the ECB targets “headline” inflation — a broader price index that includes things the Fed doesn’t fret as much about, like the Libya-related oil spike this year — which leads Europe’s bank to hit the brakes more often.
  • At the moment, the U.S. economy has recovered to the point where it’s about 0.6 percent bigger than it was before the crash. The euro zone, by contrast, is still 0.3 percent smaller than it was pre-crisis. That’s partly due to the ECB hiking interest rates at a couple of key points during the downturn, including twice this year, even as the Fed is pledging to keep rates near zero for the foreseeable future. (Under Draghi, the ECB has reversed course and cut rates slightly, but analysts don’t expect him to go as low as the Fed has.)
  • Now that the euro zone is likely to enter yet another recession, the ECB’s tight-fisted approach doesn’t look too good. That said, Bernanke doesn’t get off easy, either. A number of prominent economists have argued that even the Fed has also been too timid and too inflation-averse, leaving millions of Americans out of work unnecessarily.

2) Pumping money into the market during crises. 

  • During the worst of the financial crisis in 2008, the Fed began an emergency lending program to keep money flowing through the economy. All told, the bank loaned out some $3.3 trillion to anyone and everyone: U.S. banks, European banks, General Electric, McDonald’s… The Fed also engaged in two rounds of quantitative easing to boost the economy, buying up more than $2 trillion of mortgage-backed securities and other bonds.
  • Clearly, Bernanke wasn’t above taking unprecedented — and sometimes legally murky — steps to avert a meltdown. “In many cases, the Fed was stretching the law like mad,” says Blinder. (The one big exception was when the Fed concluded that it had no authority to save Lehman Brothers in the fall of 2008.) Even though Europe’s bank often has a lot more flexibility to get involved in open-market operations, Blinder adds, “they’ve been a lot more worried about stretching the law.”
  • That said, Blinder adds that the ECB also has good reason to be wary of un­or­tho­dox actions like quantitative easing. If the Fed loses money on its purchases, it has the U.S. Treasury to back it up. It’s not clear who would backstop Europe’s bank.

3) Getting involved in politics. 

  • Rick Perry and other Republicans have slyly hinted that Ben Bernanke has tried to goose the economy to help Barack Obama. The evidence for this is pretty thin. The Fed has generally acted as a lender of last resort — backstopping the economy — with seemingly little regard for politics. By contrast, the ECB has been muchmore selective in shoring up the euro zone’s troubled states — and, in the process, it has become quite active in E.U. politics, to the point where it has ousted elected leaders.
  • Consider the ECB’s position in Europe’s debt crisis. There are several countries, Italy and Spain especially, that would benefit greatly if the central bank loaned them money so that they didn’t have to face high borrowing costs on the open market. And, while the ECB has bought up some sovereign bonds — about 185 billion euros worth — it hasn’t been willing to unconditionally backstop the debts of European countries. If it did, it would lose its leverage to push the sorts of austerity measures it openly favors. “If the ECB had gone in two weeks ago and declared openly that we stand behind Italian debt,” says Kirkegaard, “then Silvio Berlusconi would still be in office.”
  • The defense of the ECB is that it’s probably the only institution in Europe that actually can force structural reforms. But, Kirkegaard notes, the bank is playing “a very clear game of chicken.” By refusing to extend an unconditional helping hand, the central bank can force countries like Italy to rein in their debts. But the ECB is also running the risk of a full-blown financial crisis that brings down the Euro zone.

S&P Up About 11 Points Since Federal Reserve's Charles Evans Took to the CNBC Airwaves Talking Up More Easing

The one dissent at the last Fed easing was Charles Evans.  His dissent was of the very rare kind - it was a dissent against current policy because it was not easy enough!  This in a world of multiple QEs, Operation Twist, 0% Fed Fund rates (til at least mid 2013) etc.

Mr. Evans took to the airwaves at CNBC this morning in the 11 AM hour - while the market did not immediately react, the S&P 500 has since surged 11 points or 0.9% as Pavlov dogs react in glee to the groundwork being laid for more easing.

While I agree with Evans with the concept of lack of wage/price spiral due to WAGES, as the U.S. in the 1970s was more of a contained economy, and now we have a global labor force, the damage done by ANY inflation in the modern era are going to be far more dangerous.  While 30-40 years ago employees could actually go to employers and ask for wage hikes to some degree, and the power of unions were far stronger, now when inflation hits, employees will be laughed at if they ask for wage hikes to compete.  Then again, there is little to no inflation in a world where food, energy are excluded and tuition, healthcare premiums, et al are just rounding errors.

There is a lot of talk of the Fed now following the British model, where official inflation has been far in excess of the official target due to the dual mandate.  Somehow the Fed believes more and more easy money create jobs... despite the failure of the past three years.  So if they will just continue to make money ever easier until the unemployment rate gets back to 5% we have years upon years of the spigot turned to high ahead.  [May 19, 2011: Prepare for a Fed Hike... in 2018?  So Says Goldman Sachs]

  • "I’m advocating a more aggressive stance of monetary policy," he told CNBC. "I think we should be more aggressive and that frankly makes a lot of people nervous."
  • "I just think that this is the time to stretch the boundaries a little bit more and take a few chances," he said.
  • "The economy needs more accommodation. I think the unemploymentt rate at 9 percent is unacceptably high," he said, noting that the jobless rate should be at 6 percent or less. "I think we should be doing as much as we can."
  • Evans said he was more worried that the U.S. central bank could repeat the errors of the 1930s than those of the 1970s.  "In the 1970s you had a wage growth. You had the wage/price spiral where prices would go up, workers would demand that wages go up to keep up, and it would keep spiraling upwards," Evans said. "I don’t know if anybody expects wages are going to go up to that extent that it’s gonna propel inflation higher."
  • If anything, Evans said, there is more downward pressure on wages, and he doesn't see that pushing inflation  higher.  "It’s a different time period. You’re always tempted to fight the last war," he said. "The 1970s are the last war. I’m much more worried about the 30s experience in Japan the last 15 years."

Three Charles Evans videos below if interested

Vid 1 - 8 minutes

Vid 2 - 8 minutes

Vid 3 - 3 minutes

Morningstar Makes Move to Rate Mutual Funds Like Stocks

A sea change at Morningstar, as it is adding a brand new analyst rating (more subjective) to it's now infamous 5 star rating system.  It appears the human element will be added to try to guestimate how funds will do in the future, as the star rating system is based on past performance.

I was startled the past few years to read what % of money goes into 4 and 5 star rated funds (I don't remember the figure but it's something north of 70%), so it will be interesting to see if this new analyst rating system has such an impact.

Here is a video discussion of the topic (7 minutes) - email readers will need to come to site to view

Here are the pillars that the new analyst ratings will be based on.  (the link does an in depth discussion of the 5 pillars - people, process, parent, performance, and price.  Looks like 300 funds already are rated, with the goal to get to 1500 (out of about 8000 funds).

  • In the past, we've used a four-person Picks committee to vet each fund nominated to be an Analyst Pick. Now, we have three separate ratings committees based on asset class, and we've spent the past five months vetting ratings.
  • As with our picks and pans, we are rating funds based on their long-term potential for superior risk-adjusted performance. We judge each fund's competitive advantages and disadvantages to come up with an overall rating.
  • Our ratings have five levels: Gold, Silver, Bronze, Neutral, and Negative. We're not imposing a bell curve on the ratings but you'll see funds spread throughout that spectrum. Even some big funds will be in the Negative and Neutral camps.
  • The ratings reflect a synthesis of each fund's fundamentals. We break those fundamentals down into five pillars: People, Process, Parent, Performance, and Price. These are the big, fundamental areas that are vital to a fund's long-term success. 
  • However, we don't simply tally up the pillars, as each one has some overlap with the others. It's really about how they work together, and that varies from fund to fund. For example, an index fund's price matters a heck of a lot more than its people. A focused stock fund, however, is mostly dependent on people and process, so we would weight those more heavily.

Long form (4 pages) methodology paper here.

Remember in 2009 When the FHA Was Doing "Stoopid" Things and Claimed They Would Not Need a Bailout? Err...

Back in 2007/2008 I was harping on the disaster that was Fannie and Freddie - as they took step after step that pushed them into more risk.  [Feb 27, 2008: OFHEO Increases Allowance for Fannie Mae] [Mar 19, 2008: Fannie, Freddie Layered with MORE Risk]   We know how that turned out.  [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Now Owned by You]

I then turned to the FHA - which I frankly have not written a piece about in at least 18 months.  Once a bit player in the mortgage market, this organization began doing a lot of "stoopid" things as well.  I had a litany of warning posts throughout 2009:

  1. Warning: [May 6, 2009: FHA - The Next Housing Bust]
  2. Warning: [May 8, 2009: Minyanville - Subprime Lending is Back with a Vengeance]
  3. Warning: [May 13, 2009: Tax Credit as Mortgage Down Payment Now Official Federal Government Policy]
  4. Warning: [Jul 6, 2009: WSJ - No Money Down or Negative Equity Top Source of Foreclosures]
  5. Warning: [Aug 12, 2009: WSJ - The Next Fannie Mae - FHA/Ginnie Mae]
  6. Warning: [Aug 14, 2009: Ginnie Mae CEO Resigns After 1 Year on the Job]
  7. Warning [Sep 18, 2009: Washington Post - FHA's Cash Reserves Will Drop Below Requirement]
  8. Warning [Oct 14, 2009: NYT - FHA Problems Raising Concerns of Policy Makers]
  9. Warning [Nov 18, 2009: Toll Brothers CEO: "Yesterday's Subprime is Today's FHA"]
  10. Warning [Nov 20, 2009: NYT - With FHA Help, Easy Loans in Expensive Areas - Barney Frank Pushes for Permanent Higher Limits, Approaching 1 Million]

The problems were very evident in 2009 - consider how loans the FHA were making that were 1 to 2 years old had already began defaulting at a rate of 1+ in 5!!:

  • A year after Fannie Mae and Freddie Mac teetered, industry executives and Washington policy makers are worrying that another government mortgage giant could be the next housing domino. Problems at the Federal Housing Administration, which guarantees mortgages with low down payments, are becoming so acute that some experts warn the agency might need a federal bailout.
  • (this was from a 2009 piece)  But he acknowledged that some 20 percent of F.H.A. loans insured last year (2008) — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure, offering a preview of a forthcoming audit of the agency’s finances.

Why so bad?  Same issue as the subprime, alt A, blah blah culture.  Our oligarchs in the banking industry  [Sep 18, 2009: 3 Oligarchs Now Dominate Mortgage Market - All Backstopped by You]  originate the loan but have NO SKIN in the game as FHA is on the hook if things go bad (as insurer).
  • (from 2009) The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago.

I wrote this in November 2009:

Replace the words 2006 with 2009, and banks with US taxpayer. We not only have forgotten the lessons of 20, 50, 80 years ago. We've forgotten the lessons of 1 year ago. But not to worry, I'm sure it will work out better this time around. I just want you to remember these people when you are asked to pony up taxdollars to fund FHA (although it won't be a bailout since they can borrow money directly from the US Treasury Dept without asking Congress)

Good timing from this gentleman, again from late 2009:
  • “It appears destined for a taxpayer bailout in the next 24 to 36 months,” Edward Pinto, a former Fannie Mae executive, said in testimony prepared for the hearing.

Checking in with Barney....

  • Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.  “I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

Here are some quotes from a 2009 story from the borrowers themselves - note how some are amazed the government even loaned them money.

Borrower #1
  • Is Ms. Shimon a good bet? Even she has no easy answer. Her mortgage payment, $1,100, is half of what she takes home every month. It is not easy to make ends meet. Teachers can get laid off like everyone else. 
Love this quote from Ms. Shimon, I did not know it was government's obligation to take risk on people.....
  •  “The government,” she said, “is doing what it needed to do — taking a risk on people.

Borrower #2

  • Chaz Fullenkamp, an automotive technician in Columbus, Ohio, got an F.H.A. loan even though he was living on the financial edge. “If I got unemployed, I’d be wiped out in a month or two,” he says. 

Borrower #3
  • “I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22.  “I thought, ‘Wow, I’m surprised I pulled that off.’

And we're surprised these defaulted at a rate of 1+ in 5, within 1-2 years of origination?  But again, if you can shovel of all the risk to the government and collect fees at go as an originating too big to fail bank - why not! It's 2005 all over again - woo hoo!

I could go on .... but what's the point.


Anyhow, this morning the WSJ reports that FHA's cash reserves have fallen so low there is a "close to 50% chance" the agency could run out of money and require a taxpayer bailout in the next year.   But the FHA does not even need to go through Congress so I guess it won't really be a bailout if no one hears the tree falling.
  • The Federal Housing Administration's cash reserves have fallen so low that there is a "close to 50%" chance the agency could run out of money and require a taxpayer bailout in the next year, according to the annual independent audit of the FHA's finances.
  • The audit, to be released Tuesday by the FHA, estimated that the value of the agency's reserves stood at $2.6 billion as of Sept. 30, down 45% from an already low $4.7 billion last year. The drop reflects the impact of rising home-loan defaults amid falling home prices, which together generate greater losses on the sale of foreclosed homes.

[click to enlarge]

  • The FHA's perilous state underscores one of the hidden costs of the U.S. government's extraordinary efforts to rescue the housing market. In the past four years, as private lenders have pulled back from the mortgage market, the FHA's market share has swollen. It backed one third of mortgages used to finance home purchases last year, up from around 5% in 2006. The FHA doesn't make loans but insures lenders against defaults on mortgages that meet its standards.
  • The report comes even as Congress considers returning the maximum FHA loan limits to higher levels. The limits fell modestly in about 600 counties on Oct 1.
  • The outsize role the FHA has played in the mortgage market has depleted its resources. Every year, independent auditors use a complex formula to determine the so-called economic value of the agency's reserves by making estimates about future losses and then subtracting that amount from existing reserves.
  • Using that measure, the FHA's projected reserves, which are set aside to cover future loan losses, accounted for just 0.24% of all $1.1 trillion in mortgages insured, as of Sept. 30. That is down from a 0.5% reserve ratio last year
  • Federal law requires the agency to stay above a 2% level, which it breached two years ago
  • Still, so far the FHA hasn't run out of money and hasn't needed any Treasury funds. That is in part because the FHA has repeatedly increased homeowners' insurance premiums to raise cash and enforced tighter risk controls.

So here is the "good news".
  • The report assumes that home prices will fall 5.6% this year before hitting bottom and then rising by 1.2% in 2012. Under that scenario, the FHA would avoid a taxpayer bailout and the agency's reserves would rise back to the 2% level required by law by 2014.
If that wonderful scenario does not play out?
  • However, there is close to a 50% chance that home prices could suffer greater declines, according to the report, generating larger losses and wiping out the FHA's reserves, forcing the agency to seek government funds for the first time in its 77-year history

But then here is more "good news" - no need to go through Congress!  Tim can write a check, and the taxpayer has no say.
  • Because the FHA has "permanent and indefinite" budget authority, it wouldn't need to ask Congress for money and could simply go to the Treasury.

  • Under a more pessimistic scenario that assumes a further 9% drop in prices in the coming year, the FHA would require a $13 billion bailout from the Treasury, according to the report.
  • Price declines of 16% and 20% would trigger infusions of $29 billion and $43 billion, respectively. "Just how much assistance might be requested would principally be a function of how much home prices fall in the near future," said the report.

And here is the catch 22 - Fannie, Freddie FHA are >90%+ of the mortgage market.  There have been no real steps to wean the housing market off the government teat and let the 'private market' take over - whatever that means in this day and age.  So the big dance is this.... without the FHA involved prices would fall farther.... and as you see above, if prices fall farther, the losses to FHA grow bigger.  So... it's all a big mess:
  • Without FHA financing, "we would have seen a much bigger downward spiral in house prices," said Peter P. Swire, who served as a top White House housing adviser until last year. "More people would be underwater."
  • Still, because many FHA borrowers have minimal equity to begin with (3.5% down is typical), they have little protection if home prices fall and they lose their jobs or run into trouble making payments. 
  • One worrying sign is that mortgage delinquencies remain high on FHA loans, even as they decline among most others. Around 630,000 loans backed by the agency were three or more months past due on their mortgages at the end of September.
  • Many of today's losses are coming from loans made in 2007, 2008 and early 2009. (Mark's note - give it time on the latter 2009/2010 vintage - it really requires some skill to start defaulting on a 30 year mortgage within the first 12-18 months.)   

Correction - Buy Everything

Italian bond yields are so two hours ago...

Italian Ten Year Yields Back Over 7%, So Everything Must be Sold

We've seen a lot of mass correlations over the past few years - the most prevalent was 'anti dollar'.  When the dollar fell, you bought anything...when it gained, you sold everything.  Lately that trade has been replaced with "the European situation" in general, and "Italian ten year yields" in specific.  After last Wednesday's rout in markets finally forced out Berlusconi, the market rejoiced as if all the region's problems went away Thursday and Friday.  Ten year yields fell, under suspicion of ECB buying (we still don't have confirmation of what happened Thursday and Friday as yesterday's weekly ECB purchase tally goes only thru Wednesday).  Markets rallied.  All the debt suddenly didn't matter because one politician was removed.

And now we are back to reality - frankly, it's like that pop a mole game, we just wonder which country will pop up next (i.e. which leader we need to remove I suppose!) - Belgium, Spain, France, et al.  Until the ECB turns into Ben Bernanke, we will continue to have this randomness it appears.  Bouts of euphoria versus swoon days.  This morning is shaping up to be a swoon day.
  • Prime Minister-designate Mario Monti is meeting the leaders of Italy's biggest two parties to discuss the "many sacrifices" needed to reverse a collapse in market confidence as the yield on Italy's 10-year benchmark bond leaped above 7 percent.

European GDP figures out this morning show growth near stall speed in all the countries that matter.  Won't bother to detail it, because it's all about bond yields...

As for the market, we have incredibly obvious levels of support, which the S&P 500 bounced off of last week, and once again sets the floor.  I will note - we now have a series of 2 lower highs, which is usually bearish.  But this market is driven by headlines more than technicals right now.

Monday, November 14, 2011

Five Best Performing Stocks by Various Market Cap Ranges

I don't think many people came back from the weekend as it feels deathly quiet out there...

Thought I'd run some screens in the meantime to look at what stocks are the best performing for the year to date, but segregate it by market cap ranges to make a fair comparison (i.e. the best mega cap is not going to perform like the best small cap)  Some minimum volume requirement was also necessary to keep out the names that trade 16,000 shares a day.

Congrats to you if you had any of these....

(please note the ranges are completely up to my discretion)

"Mega Cap" - $100B+  [going to include McDonald's in here as it is over $95B]

IBM (IBM) +29.8%
Philip Morris (PM) +26.3%
McDonald's (MCD) +26.2%
Fomento Economico (FMX)  [Latin American beverage distributor] +22.6% (reader says incorrect market cap, only $25B)
Intel (INTC) +22.4%

"Large Cap" - $10B to $100B

El Paso (EP) [buyout] +80.4%
Intuitive Surgical (ISRG) +70.7%
Biogen (BIIB) +69.1%
Mastercard (MA) +65.5%
Range Resources (RRC) +62.5%

"Mid Cap" - $2B to $10B

Pharmasset (VRUS) +211.2%
Questor Pharma (QCOR) +192.8%
Golar (GLNG) +181.3%
Cabot Oil & Gas (COG) +133.2%
Ulta Salon, Cosmetics, Fragrance (ULTA) +112.8%

"Small Cap" - $300M to $2B

Medivation (MDVN) +170.4%
Richmont Mines (RIC) +140.7%
Conns (CONN) +137.8%
Select Comfort (SCSS) +130.1%
Mako Surgical (MAKO) 115.9%

[Video] Uber Bear David Rosenberg with Consuelo Mack

Aside from some commodities and bonds, I believe Gluskin Sheff's David Rosenberg has been bearish on most everything for the past half decade.  Of course, after being 'correct' for about a year from mid 2008 thru early 2009, equities have moved against him for the most part - but Rosenberg is probably better looked at as an economist than a market strategist (at least in my eyes).

Below we have an extended interview with Consuelo Mack, 27 minutes in duration.  Remove sharp objects from your vicinity... Rosenberg calls this a depression as regular readers of his work know.  And we're about halfway through it.

An Eerie Quiet...

Usually this time slot is reserved for fanning the flames of imminent European disaster (risk off!) or celebrating the rumor, fact, or innuendo of rescue, relief, or intervention (risk on!).  But with no hijinks of note this morning, one feels empty... rudderless...

Truly, what are we without European drama?

Europe.... you complete me.

U.S. Corporate Buybacks Making a Comeback, Best Levels in 4 Years

Back in the earliest days of the website, I noted how impactful stock buybacks has become [Sept 30, 2007: Buybacks are all the Rage] [Oct 13, 2007: Buybacks Continue at Record Pace]  From 2007....

let's look at the supply of US stock. Do you realize the level of buybacks that have been going on? Not announced buybacks but tried and true "after the fact" reporting of buybacks is >$100 BILLION for 8 quarters in a row. It has accelerated lately...$118 Billion in Q1 2007, and $158 BILLION in Q2 2008.

Even if we drop back to low $100s for Q3 and Q4 2007 that is anannual buyback bing of just under $500 Billion. On top of that is 6 previous quarters (back half of 2005 and 2006) of another $600 Billion+. So this is $1.1 Trillion of stock value that will be taken out of circulation by year end 2007.

So if we retired on average say $110 Billion a quarter, that is essentially saying we are eliminating 10 huge companies the size of 200th largest stock in the US (market cap $11.8 Billion) ... or 40 a year. Or if we move down the scale a bit to the 500th largest company size, which is $5.75 Billion, we are eliminating 20 of those companies a quarter; or 100 a year. These are not tiny fish, these are companies at the bottom end of the SP500...

Of course, two years later in the depths of the financial crisis the story was a tad bit different  [Sep 16, 2009: Stock Buybacks Down 72% Year over Year, and at Lowest Levels Since at Least 1998]

But now, four years after the record setting pace we saw in 07, the buyback spree is back at full spigot.  Of course, this is an excellent way to boost earnings PER share, especially for slower growth companies who don't have many other uses for the excess cash and hence are 'growing' via this method rather than operationally.  Also, corporations can use buybacks to offset the large option offerings executed each quarter (and accounted for on Wall Street as one time events - wink wink).  Further, money is so cheap for our largest corporations (thanks Ben!) that some are borrowing simply to retire shares.

Net net, when buybacks start reaching these levels, it does have an impact on the greater market as sizeable chunks of shares are retired.  Bloomberg looks at the most recent data:

  • U.S. companies are buying back the most stock in four years, taking advantage of record-high cash levels and low interest rates to purchase equities at valuations 15 percent cheaper than when the credit crisis began.
  • Corporations have authorized more than $453 billion in repurchases this year, putting 2011 on track for the third- highest annual total behind 2006 and 2007, data compiled by Birinyi Associates Inc. show. Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) bought shares for the first time, and Amgen Inc. (AMGN) sold debt to fund its buyback. 
  • U.S. companies spent 70 percent more on their stock last quarter than a year ago, according to financial filings as of Nov. 11.
  • While the Standard & Poor’s 500 Index peaked the last time buybacks were this high, companies in the gauge are generating three times as much cash, price-earnings ratios are lower and 10-year Treasury yields are around 2 percent, data compiled by Bloomberg show. 
  • U.S. companies spent $376.5 billion on repurchases in the first three quarters of 2011.
  • Investors benefit more when executives spend money on equipment to fuel corporate growth or pay out dividends, according to Gregor Smith, a London-based fund manager at Daiwa Asset Management, which oversees $111.3 billion worldwide.  “I’d rather see cash used for investment,” he said. “At the end of the day, there is a short-term illusory benefit from having fewer shares in issue.”
  • Executives are funding purchases with debt after yields on investment-grade corporate bonds reached a record low of 3.45 percent on Aug. 4, according to Bank of America Merrill Lynch indexes. Borrowing costs have since risen to 3.69 percent.
  • Walt Disney Co. (DIS) began the biggest U.S. plan this year, announcing a $16 billion buyback in May, or 20 percent of its market capitalization, according to Birinyi data. 
  • Buyback announcements reached $119.8 billion in the third quarter, up 67 percent from a year earlier, as the S&P 500 slumped 14 percent in the biggest drop since the end of 2008, according to data compiled by Birinyi and Bloomberg. Companies spent at least $150.6 billion on their own stock in the three months ending Sept. 30, more than any quarter since the final period in 2007, the data show.

Sunday, November 13, 2011

[Video] 60 Minutes - Trading Stock on Inside Information? It's Cool if You are in Congress

"Listen everyone, tomorrow we should be receiving a lot of calls from voters who listened to that wholly unfair piece by 60 Minutes.  Just make sure to agree with the caller how wrong it is, and this should all blow over in a week or two and we can go back to business as usual.  As always thank you for serving your country."

15 minutes of fun and games...

S&P Sector Performance 1 Month v 6 Month

I've remarked how it's quite impressive how this market is holding up in light of a bevy of the momentum stocks (generally 'leadership' stocks) falling to the wayside the past 60 days.  Further, many of the 'growthy' type stocks  in my watch lists are more or less doing nothing of late - a few days up, a few days down, but mostly churning or slightly upwards after the big run in October.  Wednesday of last week, these stocks were getting hammered much harder than the general market - a lot took 6 to 8% hits.

Hence I thought it would be interesting to take a look at the SPDR ETFs to see what has been acting well over the past month.  This clearly displays where the money has been flowing - energy stocks.  Further note, of the 9 broad sectors, 5 are negative and financials barely positive.  It's a narrow market, with many rallies on light volume to boot - once again confounding old school technicians.

[click to enlarge]

But taking a step back, I have noted Walmart (WMT) - which is defensive - has been breaking out like an internet stock circa 1999.  Further, we are once again seeing the auto retail stocks (Autozone, O'Reilly's, et al) showing a lot of strength of late - this 'do it yourself' strength is again usually a sign of weakness on Main Street.  Further as we take a look at what has been the strongest acting over the past 6 months we see utilities leading the tape - another defensive sector.

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This indicates a market that can't make up it's mind - and/or a very weird era where we are celebrating strength but going into energy stocks at the same time consumer staples and utilities are being bought.

[Video] CNBC Delves Deeper into the Fact Congress Can Legally Inside Trade

Good news - I just checked the 60 Minutes website to see what is on top tonight, and they move fast.  The topic of insider trading by Congress is on the docket - so instead of the CNBC audience of 300,000 realizing it, it's going to hit the mainstream in hours.

Until then, it is hard to make a jaded person's jaw hit the floor, but these revelations are a shock even to someone like me.  It appears even respected long time host Bill Griffin feels the same.  Late Friday there was a much more extensive discussion on the topic on CNBC which included an ex SEC lawyer.  It was quite fascinating while also disgusting.  Apparently it's not just Senators and folks in Congress, but their staffers in on the game.  And it's not just hearings - these people in D.C. can trade in between the time a whistleblower reports something, and the time it comes public.  Bam.

What I didn't know is either we have a bunch of investors in the Senate who are as (or more) talented than Warren Buffet.... or we have something that stinks to high heaven.  The average Senator in the market beats the index by 12% over the long run.  That's a record you'd gladly pay 2 and 20 in the hedge fund world for.  And they can do it part time, while focusing on their other job - what skill!  Even lowly folks in the lower house beat the averages by 6% over the long run - also, quite 'skillful'.

Gordon Gekko: The most valuable commodity I know of is information.

A reader sent along this article from earlier in the year if you are a Barron's subscriber - Fire Your Hedge Fund, Hire Your Congressman.

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

Preview of the 60 Minutes piece tonight

Martha Stewart went to jail for it. Hedge fund honcho Raj Rajaratnam was fined $92 million and will go to jail for years for it. But members of Congress can do the same thing -use non-public information to make stock trades -- and there's no law against it. Steve Kroft reports on how America's lawmakers can legally make tidy profits on information only they know, simply because they won't pass a law against themselves. 

Among the revelations in Kroft's report:

* Members of Congress have bought stock in companies while laws that could affect those companies were being debated in the House or Senate.

* At least one representative made significant stock purchases the day after he and other members of Congress attended a secret meeting in September 2008, where the Fed chair and the treasury secretary informed them of the imminent global economic meltdown. The meeting was so confidential that cell phones and other digital devices were confiscated before it began.

If senators and representatives are using non-public information to win in the market, it's all legal says Peter Schweizer, who works for the Hoover Institute, a conservative think tank. He has been examining these issues for some time and has written about them in a book, "Throw them All Out." "[Insider trading laws] apply to corporate executives, to Americans...If you are a member of Congress, those laws are deemed not to apply," he tells Kroft. "It's really the way the rules have been defined...[lawmakers]have conveniently written them in such a way as they don't apply to themselves," says Schweizer.

Efforts to make such insider trading off limits to Washington's lawmakers have never been able to get traction.

Former Rep. Brian Baird says he spent half of his 12 years in Congress trying to get co-sponsors for a bill that would ban insider trading in Congress and also set some rules up to govern conflicts of interest. In 2004, he and Rep. Louise Slaughter introduced the "Stock Act" to stop the insider trading. How far did they get? "We didn't get anywhere. Just flat died," he tells Kroft. He managed to get just six co-sponsors from a membership of over 400 representatives. "It doesn't sound like a lot," says Kroft. "It's not Steve. You could have Cherry Pie Week and get 100 co-sponsors," says Baird.

Friday, November 11, 2011

The Economist Makes a (Somewhat) Bullish Case for a Housing Recovery

I just had someone email me yesterday on the prospects for a recovery in the housing market by 2013/2014, so the timing of this story from The Economist is good.  Generally these mega busts in real estate take around 7 years to play out from peak, so if your peak was 2006 you are looking at 2013... and if your peak was 2007, then 2014.  If all goes according to schedule.  Of course in the U.S. we have mega structural changes happening in the job market due to globalization and automation, a Federal Reserve which punishes savers (but worships borrowers), and an army of underwater homeowners.  All things equal, the prospects in the job market are the most daunting as many in the bottom 40-50% have seen their jobs go overseas, and not much hope for something similar (or dare we hope... better!) to replace them.  Indeed, most of the jobs being created nowadays are worse paying than what was lost. [Feb 3, 2011: Jobs Coming Back, but the Pay Stinks!  [Sep 2, 2010: NYT- New Jobs Mean Lower Wages for Many
  • Bernhardt's analysis of the first seven months of 2010 found that 76% of jobs created were in low- to mid-wage industries -- those earning between $8.92 to $15 an hour, well below the national average hourly wage of $22.60.
  • High-wage sectors -- made up of jobs that pay between $17.43 and $31 an hour -- accounted for nearly half the jobs lost during the recession, but have produced only 5% of the new jobs since hiring resumed, Bernhardt's study showed.

If not for that factor, I'd be more bullish on a recovery in the 2013-2014 time frame.  We also have the small matter of a recession that should be hitting sometime in 2012-2014, if for nothing else other than "we'll be due".

That said, the rental market has been booming [May 24, 2011: Troubled Home Market Creates Generation of Renters[Apr 8, 2011:  Apartment Vacancies Drop to 3 Year Low, as Rents Riseas displaced homeowners (many of which should never have been homeowners) flee to apartments, condos, and investor owned houses.  The Economist takes an in depth look at the U.S. housing market, and makes the case that the strength in the rental market is laying the framework for an eventual recovery.  The question of course is... what does 'eventual' entail?

  • THERE are two things everyone knows about American economic recoveries. The first is that the housing sector traditionally leads the economy out of recession. The second is that there is no chance of the housing sector leading the present economy anywhere, except deeper into the mire. 
  • In the two years after the recession of the early 1980s housing investment rose 56%; it is down 6.3% in the present recovery. America is saddled with a debilitating overhang of excess housing, the thinking goes, and as a result is doomed to years of slow growth and underemployment.
  • The economic landscape is unquestionably littered with the wreckage of the crash. Home prices languish near post-bubble lows, over 30% below peak. The plunge in prices has left nearly a quarter of all mortgage borrowers owing more than the value of their homes; nearly 10m are seriously delinquent on their loans or in foreclosure. 
  • Housing markets are far from healthy. Yet current pessimism seems overdone. A turnaround in sales, prices and construction may be closer than many imagine.
  • The potential for a strong housing recovery lies in the depths of the bust. America’s housing boom was remarkable for its impact on prices and for the flow of new households into the market, which pushed the home-ownership rate above 69%, the highest on record. Construction also boomed, but less wildly. Housing completions were above average during the boom, but not unusually so, particularly in light of the relatively restrained growth in housing supply during the 1990s. The bust, by contrast, dragged new construction to unprecedented depths. At the current rate, fewer homes will be added to the housing stock this year than in any year since records began in 1968.
  • America therefore has only a minor problem of excess housing supply. Under normal conditions, that small glut would quickly have disappeared. But America is now adding new households at a rate well below normal—not because the population is growing more slowly, but because, for example, young people are opting to stay longer in their parents’ home. [Sep 16, 2011: 7.5M More Americans Living in "Double Up" Situation Versus 2007]  [Apr 8, 2009: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces. Housing Bubble 2.0? (Not)]  According to one analysis, there are now 1.5m more young adults (aged 18 to 34) living at home than would be expected, given long-term trends.Better prospects for young adults would encourage the forming of new households, buoying the demand for new homes.
  • Although total housing supply is not far out of line, the distribution of supply between the rental and owner-occupied markets remains distorted. In September the inventory of newly built houses for sale fell to its lowest level since record-keeping began. But the inventory of existing houses, while falling, remains high. In September the figure dipped below 3.5m, down from over 4.5m in 2008 but still above the 2.5m registered early in the last decade. The total number of vacant homes for sale has steadily declined and is at the lowest level since 2006. But the pace of sales remains extraordinarily low, and foreclosures will continue to prevent a faster decline in inventory.

  • Rental markets, by contrast, look far stronger. America’s rental vacancy rate stood at 9.8% in the third quarter of 2011, down from a high above 11% in 2009. Vacancy rates in some cities are strikingly low—2.4% in New York City, for instance, and 3.6% in San Francisco—which translates into rising rents. Nationally, rents rose 2.1% in the year to August, in stark contrast to house prices (see chart 2).
  • Strength in the market for rentals is beginning to seep into the more troubled owner-occupied sector. Rising rents help housing markets heal on both the supply and demand side, by encouraging renters to consider buying and through the movement of supply into the rental market, easing the glut of houses for sale. 
  • The Obama administration hopes to take advantage of better rental conditions to unload some of the more than 200,000 foreclosed-on homes held by the two government-sponsored mortgage giants, Fannie Mae and Freddie Mac, and the Federal Housing Administration (which account for roughly half of all such inventory), on to investors who may rent the properties out.
  • The convalescence, however, may be complicated. Housing recoveries have seemed imminent before, only to peter out when the economic outlook weakened. Foreclosures are falling, but they continue to place downward pressure on prices. 
  • The macroeconomic environment, too, remains troublesome. Housing markets could lurch sharply downwards if a new shock, perhaps from Europe, disturbed the global economy. A new financial shock could rattle confidence and send buyers fleeing, while the flow of mortgage credit from exposed banks would dry up. Lenders carry the scars of the housing crash. Cautious banks are reluctant to lend. Housing-finance institutions, having kept credit standards too loose during the bubble, now seem to be setting them too tight, preventing rising demand and low rates from translating into new sales.
  • Yet once the housing sector finds its footing it may quickly gain momentum. A switch from falling to rising prices should encourage banks to make more loans. Higher house values would chip away at negative equity, stanching the flow of defaults and foreclosures.
  • Such hopes for housing would smack of an effort to reanimate a corpse, had the bust not so far outpaced the boom. But a turnaround now seems probable on many measures. If it happens, the recovery should become much more vigorous.

[Sep 22, 2011: Interesting Statistic of the Rental Market  - Over 27% Pay Half their Income in Rent!]

[Video] CNBC - More Jack Abramoff: He Claims Various Congress Members Took Part in Insider Trading...

Hmmm, Jack.... name names.

  • As many as a dozen members of Congress and their aides took part in insider trading based on foreknowledge of market moving information on Capitol Hill, disgraced Washington lobbyist Jack Abramoff told CNBC in an interview.
  • Abramoff, who was once one of the wealthiest and most powerful lobbyists in Washington before a corruption scandal sent him to federal prison for more than three years, said that many of those members of Congress bragged to him about their stock trading prowess while dining at the exclusive restaurant he owned on Pennsylvania Avenue.
  • But Abramoff, whose black trench coat and fedora became one of the most notorious images in recent Washington history after his fall from grace, said he didn't play the stock market himself — he considered it an inherently unfair "casino" in which the house had far more information than the players. Abramoff made most of his fortune representing — and, as it turned out, duping — Native American tribes rich with cash from casino operations.
  • The former lobbyist said the amounts members of Congress earned trading off their inside knowledge ranged from as little as $2,000 to, as much as "several hundred thousand dollars," that was claimed by one member of Congress.
  • Abramoff declined to name the members of Congress.  "It was more, 'Look at me, I'm a real great stock trader,'" Abramoff told CNBC of the congressional bragging. "All of a sudden somebody from a background maybe in law, maybe in some other unrelated business area, all of a sudden is picking winners and losers in the market."
  • At the time, Abramoff, who was involved in an extensive corruption ring, didn't think much of it. But after years in prison to reflect on the culture of corruption in Washington, Abramoff says he thinks trading based on inside Congressional knowledge is wrong.  "These people should not be using whatever information they gain as public servants to benefit themselves, any more than they should be taking bribes," he said.
  • Generally, however, legal analysts say that Wall Street insider trading laws do not apply to Congress. As an open and public institution, the legal assumption has long been that any member of the public can have access to information about how Congress works. In practice, though, that's simply not true, as powerful members of Congress come into contact daily with market-moving tidbits. That gap between the law and the reality has made Capitol Hill a virtual free-fire zone for insider trading. Over the years, academic studies have found that members of the House of Representatives beat the market by as much as six percent per year and members of the Senate do even better than that.
  • And Abramoff says everybody on the inside knew it. "I think it was pretty widely known and it is pretty widely known that it is going on," he said.  
  • Abramoff said that the most valuable type of information for Congressional insider trading is held by congressional investigators who pry deeply into corporate goings on. A particularly easy target is advance knowledge of the announcement of an investigative hearing into a company.  "Hearings under almost every circumstance are going to have a bad impact on a company," Abramoff said. "And so some staffers I've seen in the past talking about the fact that, 'Oh, I'm gonna go out and short that company.'"

"Risk On" in Case You Haven't Noticed

Aside from the small matter of Wednesday, the market has been 4 of the 5 days this week.  Much of the gains of course coming overnight as we follow Europe.  It appears as long as the ECB can hold Italian yields down we're all happy, and most anything that moves must be purchased.  This would actually have been a monster week upward, if not for Wednesday. ;)

Looking at the chart, we do have (thus far) a series of lower highs of late - which could be fixed later today or on a gap up Monday morning.   Not really much to analyze with this market nowadays - you just have to wait for a headline to break, or ask what the ECB is doing, and we're back to the everything is correlated trade.

Since breaking back over the 200 day exponential moving average a month ago, we've had some serious head fakes, breaking back below it on 3 occasions .... but it has not led to any additional selling.  A bit tricky.  I don't have the 200 day simple moving average on the chart above but it is up there around 1272 which is where the market stalled earlier this week.

The Horror Show in Momentum Stocks - Netflix (NFLX), Green Mountain Roasters (GMCR), OpenTable (OPEN), Travelzoo (TZOO), Sina (SINA), et al

I can't recall another period I've been around where so many momentum stocks (i.e. market darlings) have been taken out behind the barn and shot, while the broader market is relatively neutral or positive.  In fact, much of the damage was done in October which was one of the best months in market history.  I've compiled a list of names below, and their performance during the last 90 days - it is staggering to see the damage in these once high fliers.

Netflix (NFLX) -65%
Green Mountain Roasters (GMCR) -60%
First Solar (FSLR) -57%
OpenTable (OPEN) -41%
Travelzoo (TZOO) -37%
Molycorp (MCP) -34%
Sina (SINA) -26%

In the survivor camp we have names like Chipotle Mexican Grill (CMG), lululemon (LULU), Whole Food Markets (WMM), Mastercard (MA), and Priceline (PCLN).  Intuitive Surgical (ISRG) - which is either hated or loved, depending on the quarter, is back in the loved seat.

Baidu (BIDU), Amazon (AMZN), and Apple (AAPL) took some hits this quarter as well, but are sort of just meandering sideways.

It has definitely been slim pickings for those who have been hiding out in the 'usual suspects'.

No position

Nouriel Roubini's Solutions for Europe - Essentially Weak Countries Must Leave so They can Debase Currency Or the ECB Turns into the Fed

Now famous economist Nouriel Roubini offers his prescription for Europe in the Financial Times, and it essentially sounds the same for what we've been offering.  But when he says it, a lot more people listen. ;)  In the meantime Italian yields have improved over the past 48 hours so market watchers are going to be watching closely to see how much of that is due to ECB purchases... we will know soon.

  • Italy may need to exit the euro zone and revert to its own national currency to resolve its debt crisis, thereby forcing the break-up of the euro zone, Nouriel Roubini wrote in an opinion piece in the Financial Times on Friday.
  • Roubini argued that with yields on its sovereign debt hovering around the 7 percent mark, market access may become limited for Italy. A forced restructuring of its debt could help solve some of its issues, but it would not address other issues that hamper the Italian economy such as a lack of competitiveness, a large current account deficit and lower gross domestic product, he wrote.
  • Unless a lender of last resort for “stressed” countries within the euro zone can buy the sovereign debt, the higher yields would reach unsustainable levels, Roubini argued in the FT.  However, to date the European Central Bank has underlined its independence by stating it would not act as the lender of last resort for the euro zone economies.
  • Eurobonds had already been dismissed by Germany, he noted, and warned that an increase in the size of the European Financial Stability Facility (EFSF), which in its leveraged form he describes as a “turkey that will not fly”, would not be accepted by the German electorate. In any case, it would be deemed illegal under the no bailout clause of the existing treaty, Roubini said.
  • The leveraged EFSF, he said, was a giant CDO that would not work as it would not reduce spreads to sustainable levels. Suggestions that the EFSF could be turned into a vehicle for reserves of central banks to become the equity tranche for sovereign wealth funds and emerging economies - notably the BRIC countries – to turn it into a 'Triple-A senior tranche' sounded like a giant sub-prime CDO scam, he wrote.
  • This coupled with limited IMF capacity to bailout the larger economies means that spreads on Italian debt has reached a point of no return, according to Roubini.  He said no political change could alter the fact that its debt to GDP ratio of 120 percent meant it would need a primary surplus of 5 percent just to keep a lid on its debt.
  • Roubini wrote that Italy faced a worsening recession as austerity measures took their toll. He argued that it was this recessionary deflation which would ensure the debt would become unsustainable. None of this, he argued, would bring growth and competitiveness back to the Italian economy.  This would leave no option but to leave the euro and reintroduce the lira. The exit of an economy the size of Italy would lead to a break-up of the euro zone and is now increasingly likely, Roubini wrote.
  • He argued the only way to avoid a breakup of the euro zone would be for the ECB to become a lender of last resort, for a fall in the euro's value in line with the dollar and for fiscal stimulus for the "core" euro zone and austerity in the periphery to take place.

Thursday, November 10, 2011

BusinessWeek Looks at Why Americans Won't Take Dirty Jobs

Many eyes, including my pair, have been watching the developments in Alabama, where recent laws on immigration have pushed out many undocumented visitors.  The theory is, as those folks leave, countless unemployed Americans will swarm in to take the jobs left behind.  The only problem is... that hasn't happened.  The work is very hard, and low paying - Americans seemingly won't do that work.  The easy answer why is "unemployment benefits" but cmon in a country of 300 million, 99.8% of people won't be saying I refuse to do that because my $300/week is too cushy.  Alabama legislators say not to worry - once the farmers (and other employers) raise the pay for these jobs, Americans will flock to it - thus far the market has not adjusted like that.  Farmers (and other employers) want to make money too.  So what's going on in the country, even in an era of high unemployment?  BusinessWeek takes an extensive look....

  • Skinning, gutting, and cutting up catfish is not easy or pleasant work. No one knows this better than Randy Rhodes, president of Harvest Select, which has a processing plant in impoverished Uniontown, Ala. For years, Rhodes has had trouble finding Americans willing to grab a knife and stand 10 or more hours a day in a cold, wet room for minimum wage and skimpy benefits.
  • Most of his employees are Guatemalan. Or they were, until Alabama enacted an immigration law in September that requires police to question people they suspect might be in the U.S. illegally and punish businesses that hire them. The law, known as HB56, is intended to scare off undocumented workers, and in that regard it’s been a success. It’s also driven away legal immigrants who feared being harassed.
  • His ex-employees joined an exodus of thousands of immigrant field hands, hotel housekeepers, dishwashers, chicken plant employees, and construction workers who have fled Alabama for other states. Like Rhodes, many employers who lost workers followed federal requirements—some even used the E-Verify system—and only found out their workers were illegal when they disappeared. 
  • In their wake are thousands of vacant positions and hundreds of angry business owners staring at unpicked tomatoes, uncleaned fish, and unmade beds. “Somebody has to figure this out. The immigrants aren’t coming back to Alabama—they’re gone,” Rhodes says. “I have 158 jobs, and I need to give them to somebody.” 
  • There’s no shortage of people he could give those jobs to. In Alabama, some 211,000 people are out of work. In rural Perry County, where Harvest Select is located, the unemployment rate is 18.2 percent, twice the national average. 
  • One of the big selling points of the immigration law was that it would free up jobs that Republican Governor Robert Bentley said immigrants had stolen from recession-battered Americans. Yet native Alabamians have not come running to fill these newly liberated positions. Many employers think the law is ludicrous and fought to stop it. Immigrants aren’t stealing anything from anyone, they say. Businesses turned to foreign labor only because they couldn’t find enough Americans to take the work they were offering

It's a lengthy article from there - some interesting stuff in it.  

    Bespoke: The Most Heavily Shorted Stocks

    Bespoke Invest blog has the list of stocks in the S&P 500 with at least 25% of their shares sold short.  Interestingly, in a 'flattish' market for 2011, these named have declined on average by a quarter of their value.   Only 5 are positive for the year. Of course, that is not to infer investors made all those gains - many people (hand raised) like to jump on weak stocks.  Usually a body in motion, remains in motion.

    [click to enlarge]

    Speaking of bears, Bespoke also reports that the AAII bear reading is at the lowest levels since January. Remarkable considering the events in Europe - I guess moral hazard is now built in every fiber of our souls. "They'll come to the rescue - they always do"

    Second Day of "Slowdown" News for Apple (AAPL) - Stock Taking Some Hits

    Apple (AAPL) is one of the downside anomalies in this generally upward session - this is the second day in a row of reports of slowdowns seen in the Apple food chain.  Normally a teflon stock, Apple is taking a bit of damage here.

    Today's news is from firm Ticonderoga, where analyst Brian White says his "Apple Barometer," which tracks the sales data of the company's contract manufacturers, turned up weak readings for September and October.  Via Barron's:

    • The barometer, which White created to track Apple’s progress indirectly, is a collection of sales data that come from companies that contract to Apple, mostly out of Asia-Pacific, including Hon Hai Precision , the Taiwan-based firm whose Foxconn division assembles some of Apple’s product, though it also builds stuff for innumerable other companies as well.
    • White, who rates Apple shares a Buy, writes that October sales for this basket of suppliers dropped to just 16% year-over-year growth in October, a marked deceleration from their collective sales growth in September of 62%.
    • September was likely inflated by the prep for the introduction of Apple’s iPhone 4S in October, he muses.

    That said, when we tally up the combined September and October sales versus historical averages, the Apple Barometer still fell well short (~12% below) of what has been reported in the past. Although it is difficult for us to get our head around this weakness given what seems to have been a well received iPhone 4S launch so far and our expectations for a robust holiday season for Apple with the iPad 2 and MacBook Air, this report is too negative to ignore and we must carefully monitor the Apple supply chain over the next few weeks.


    This follows yesterday's report from Digitimes saying Apple is slashing parts and component orders for the fourth quarter... hmmmm.

    • Apple has informed upstream suppliers of parts and components for iPhone 4S to delay part of their shipments for the fourth quarter of 2011 to the first quarter of 2012 as sales of the iPhone 4S have not been as strong as those concluded in the pre-sales period and also due to shortages in the supply of some key components, according to sources at the iPhone 4 supply chain.
    • According to a Chinese-language Commercial Times report, Apple is likely to adjust downward its shipments of iPhones and iPads from related suppliers by 10-15% in the fourth quarter.
    • Related iPhone 4S suppliers including cases and camera lens makers as well as ODM assemblers have received notice from Apple to reduce their shipments for the fourth quarter, but none of them has confirmed the report, the paper said.
    • Some international IC players have also indicated that their revenues are likely to slide by 10-15% in the fourth quarter due to the shipment adjustments for iPhone 4S.
    • Additionally, October revenues of some Taiwan-based parts and components makers in the iPhone 4S supply chain were lower than those posted in September, indicating the growing effect of reduced shipments from Apple, the sources revealed.

    No position

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