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Mid-Week Update 03-10-10

Jobs continue to be front and center of economists’ and Americans’ minds alike as the Labor Department released a highly anticipated February employment report last week. The report was mixed. On the positive side, the 36,000 job losses during the month were less than the expected 68,000, helping the unemployment rate stay steady at 9.7 percent, rather than rise to an expected 9.8 percent. A 48,000 increase in temp jobs (including 15,000 for the 2010 Census) was a major reason for the better-than-expected reading; some of the luster was taken off January’s numbers as job losses were revised from 20,000 to 26,000.
 
While the headline numbers seem to be better than expected, delving deeper into the underlying situation, things are so “rosy.” Today, the Labor Department released some underlying data showing the unevenness of the recovery. In January, only nine states saw unemployment decrease, including Michigan, whose 14.3 percent rate (down from 14.5 percent in December) is still the worst in the country. New York and New Jersey were among the other eight states, all of which saw unemployment fall by a tenth of a percentage point.
 
And while unemployment held steady, the number of underemployed workers unfortunately rose during the month of February.
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Mid-Week Update 03-03-10

Qualcomm (QCOM), the newest addition to the Growth Portfolio and a part of our FundFinds Portfolio, is a tech franchise whose business revolves around wireless technology, in particular, CDMA, the heart of the new generation of cell phones. After posting disappointing earnings guidance in January, the company had some goods news this week.
 
The semiconductor company announced that its board authorized the new buyback worth $3 billion. This replaces the $2-billion buyback plan, $1.7 billion worth of shares from which have already been repurchased by the company. In addition, Qualcomm will increase its quarterly dividend by 12 percent to $0.19. Investors, as a result, will be receiving $134.4 million more per year from the company.
 
Moreover, the company provided a more optimistic business outlook. While back in January, Qualcomm’s CEO, Paul Jacobs, offered a fairly pessimistic view of the company’s prospects for the year, it seems conditions may be improving. Now, the company expects both the revenues and profit for the second quarter to approach the higher end of the earlier forecasts.
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Mid-Week Update 02-24-10

Despite some positive economic news that has come out in recent weeks, one area of the economy that has yet to show real signs of improvement is retail spending. American consumers are still reeling from the near collapse of the U.S. economy, and nearly 10 percent of them don’t have a job (many more if you count partially employed). This raises doubts about the sustainability of the recovery, given that personal consumption accounts for roughly 70 percent of U.S. GDP.
 
Consumer sentiment is still not back to normal. Yesterday the Conference Board announced that its consumer confidence index had fallen from an upward-revised 56.5 to 46.0. The historic average of the index is 95.6, which means that the recovery, from the consumer’s perspective, has a long way to go. When consumers were asked to assess the current-day conditions, the relevant index fell 5.8 points to 19.4 – its lowest level since 1983. Perhaps even more worrisome, the Expectations Index, which measures the six-month outlook, also declined, dropping 13.5 points to 63.8.
 
The main factor contributing to these declines was, not surprisingly, the dismal job climate.
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Mid-Week Update 01-06-10

The much ballyhooed healthcare legislation continues to meander its way through Washington, seemingly getting watered down at every turn. As the House and Senate versions are reconciled, investors are getting a better idea of what kind of changes to expect in the final package. We will try to steer clear of political arguments in this column, and focus more on investment implications.
 
Clearly there will be some changes throughout the industry, including coverage for many of those currently uninsured and no more insurance exclusions based on pre-existing conditions. However, it looks like the reforms in the final bill will be a far cry from the hard-hitting measures that many expected at the outset.
 
For investment purposes, we’ll continue to avoid those companies that could be negatively impacted (even if by only a small measure), while advocating what we see as surefire winners – specifically those companies that benefit from longer-term demographic trends.
 
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Market Update 11-17-09

Investors’ appetite for risk just keeps getting stronger. Unfortunately, that’s not necessarily a good thing. And while this trend may continue through the upcoming holiday season, the risk of a major setback remains quite high.
 
The economic and survey data continue to point to a less-than-rosy outlook. Yesterday investors cheered the October retail sales headline, which was up 1.4 percent for the month. But the breakdown numbers were far less encouraging. Autos and auto parts were the big contributor in the latest period, something we don’t foresee happening going forward. Manufacturers have since scaled back production (as seen in this morning’s Industrial Production reading for October) as the government’s Cash for Clunkers program merely just robbed future months’ sales rather than kicking off a bull market for car sales.
 
Excluding autos and auto parts, retail sales fell short of expectations in the month, rising just 0.2 percent vs. a consensus view of a 0.4 percent rise. You may recall that we had a similarly misleading top-line retail sales number last month as a result of rising gasoline prices.
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Mid-Week Update 11-11-09

Earnings season marches on, with over 90 percent of S&P 500 companies having reported. Over 80 percent of those reported have had positive earnings surprises, but we can attribute much of that to the same cost-cutting measures we’ve seen over the last few quarters. What has been somewhat surprising is that almost half those reporting have also beat estimates with their top-line or revenue numbers, while only 30 percent have fallen short of estimates. 
 
Two of our health care picks recently also reported earnings, however, their stocks displayed distinctly different trading after their releases. 
 
Teva Pharmaceutical Industries (TEVA), the Israel-based generic drug company, saw its profits rise 28 percent in the 3rd quarter versus the year-earlier period. Excluding one-time items, net income rose to $806 million, or 89 cents a share, from $630 million or 77 cents, in the year-earlier period. Revenue, which increased 25 percent to $3.55 billion, actually fell slightly short of analysts’ expectations, but the earnings per share did beat those expectations by a penny.
 
The company’s third quarter operations were helped by sales of the company’s most important name-brand drug, Copaxone, which is used to treat multiple sclerosis. In addition, savings relating to last year’s $7.4 billion acquisition of Barr Pharmaceuticals were also a factor.
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Weekly Update 11-09-09

Three seemingly disparate news items last week strongly suggest that the investment world is bifurcating into commodity and non-commodity investments – or if you will long-term winners and long-term losers.

First, India's central bank announced that it had bought 200 tons of gold from the International Monetary Fund. That's half of the total amount the IMF had planned on selling. For a relatively small central bank to buy that much in one fell swoop is a big deal. It promotes gold from the status of a “barbaric relic” to that of an alternative reserve currency. Moreover, it leaves China – and other Central Banks – with egg on their face.

If India does not buy the rest (and they have not ruled that out) it is almost certain other Central Banks, Sovereign Wealth funds, all those who are underinvested in precious metals to join a prospective scramble for gold et al. that far exceeds what the IMF is willing to sell. No wonder. Money supply in so-called non-inflationary countries have climbed 15 fold in the past generation or so while the total value of all above-ground gold has only doubled.

But we are not just bullish on precious metals. The second announcement was Warren Buffett's biggest investment of his career...Read more...

Mid-Week Update 10-07-09

With the market’s attention focused on the minute details of economic readings, the recovery of the fragile banking sector, and gold hitting all-time highs, some of the most stable companies have been left out of the headlines. However, that recently changed in regards to two Income Portfolio members over the last couple days, as both AT&T (T) and Verizon (VZ) made announcements that could shake-up the mobile phone industry.
 
In a policy reversal, AT&T announced that it would now allow internet phone service providers to use its 3G data network. This means that companies like Skype could use a smartphone’s data connection to provide phone service, essentially bypassing AT&T’s own mobile phone service. This marks a shift from only being able to use wifi (wireless) internet connections with these applications. While the move gives more freedom to subscribers to use their phone and data connections as they wish, it does raise a few questions.
 
The first question is how much the move will cannibalize AT&T’s own mobile phone plans, i.e. whether its customers will downgrade to the cheapest plan and simply use their unlimited data packages in conjunction with their internet phone service? The second, and possibly more important, question is what effect the move will have on AT&T’s data network.
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Market Update 10-06-09

For every piece of data that comes out offering a glimmer of hope for the expansion, such as yesterday’s ISM non-manufacturing index, investors are being bombarded with a slew of data of late that points to the recovery being quite weak. The latest piece to fit this bill was the employment report out last Friday, which not only was worse than expected, the numbers were worse than the previous month’s figures.
 
While unemployment is often viewed as a lagging indictor (which is perhaps why the stock market shrugged off the latest reading), in the case of credit driven contractions such as we’ve experienced) it’s much more of a leading indicator. And the numbers behind the headline 9.8 percent jobless rate suggest we’re in for more pain in the months ahead.
 
As of last count, 5.4 million people have officially been out of work for more than half a year now. We say officially because if you include those who have simply given up looking for work, the unemployment rate would stand at 10.3 percent. The official rate is also skewed by the Bureau of Labor Statistics birth/death adjustment, which is essentially just a wild guess (not actual survey data) of the number of people who have joined newly formed businesses. Excluding this guess the unemployment rate jumps to 10.5 percent.
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