Saturday, July 3, 2010

The Economist - 3 July 2010

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Government for Sale: How Lobbyists Shaped the Financial Reform Bill

Two weeks ago, along a marble corridor in the Rayburn House Office Building in Washington, I watched about 40 well-dressed men (and two women) delivering huge value for their employers. Except that we, the taxpayers, weren't employing them. The nation's banks, mortgage lenders, stockbrokers, private-equity funds and derivatives traders were.

They were lobbyists — the best bargain in Washington. Capitol Tax Partners, for example, is one of 1,900 firms that house more than 11,000 lobbyists registered to operate in Washington. Last year, according to the Center for Responsive Politics (CRP), firms like Capitol Tax were paid a total of $3.49 billion for unraveling the mysteries of the tax code for a variety of businesses. According to Capitol Tax co-founder Lindsay Hooper, his firm provided "input and technical advice on various tax matters" to such clients as Morgan Stanley, 3M, Goldman Sachs, Chanel, Ford and the Private Equity Council, which is a trade group trying to head off a plan to increase taxes on what's called carried interest, a form of income enjoyed by the heavy hitters who run venture-capital and other types of private-equity funds. (Time Warner, the parent company of TIME magazine, is also a client of Capitol Tax Partners.) (more)

We’re Going Broke

We're Going Broke9.3103

Let's see...what's in the news today?

Stocks went down again yesterday. The Dow got trimmed by 96 points.

Gold, on the other hand, went up $3 to $1,245.

The first half of the year came to a close with the S&P 500 down 6%, global stocks down 10%, oil down 5%, Chinese stocks down 27%, the euro down 14%.

What was up? Gold. Plus 13%.

There are two major pieces of unfinished business in the markets. Stocks have still not completed their bear market drop. Gold has not fully realized its bull market either. (more)

World Financial Report, July 2, 1020

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3 Beaten-Down Stocks With Huge Reserves

S&P 500 companies have never held more cash than they do today. Microsoft (MSFT: 23.27, +0.11, +0.47%), Cisco Systems (CSCO: 21.13, -0.13, -0.61%), Google (GOOG: 436.55, -2.94, -0.66%) and Apple (AAPL: 246.94, -1.54, -0.61%) together sit on more than $128 billion in cash and short-term investments. More than two-thirds of countries don't make that much in a year, counting wages and profits for all of their citizens and companies.

Such hoarding generally serves stock investors poorly. They should receive larger dividends, but instead they are left to hope that before the money is wasted it's spent on something that results in a higher share price. However, at the moment, mountains of cash might give confidence to investors who fear another sharp market decline. In a downturn, companies can use cash reserves to snap up struggling competitors on the cheap, or to repurchase their own shares.

The three companies below aren't nearly as dominant as the aforementioned ones, and two are struggling to compete with them. What they have going for them is that their cash reserves are huge when calculated as a percentage of their stock market values, and that they're adding to them by generating abundant free cash from operations. Whether all that financial firepower will be put to good use is unknown, but turnarounds are surely easier when companies can fund them properly without taking on excessive debt. (more)

Bears Should Beware

I'm going to go through some signs that rabid bears might do well to pay attention to because I think the market is very close to a major bottom. (That doesn't mean we are guaranteed to make new highs, although we might. Just that we can probably expect an explosive rally soon, even if it ultimately turns out to be a counter trend rally in an ongoing bear market).

First off, way too many people are counting on the head and shoulders pattern taking the market directly down to 850. Folks, historically these head and shoulder patterns have a success rate of about 50%. A coin toss, in other words. Didn't we learn that lesson last July?

Let’s go now to the charts. We have a large momentum divergence that has developed on the daily charts. (more)

Bond rally reflects gloom - but don't bet on it lasting

NEW YORK (MarketWatch) -- The recent steep rally in U.S. Treasury bonds, helped by investor jitters over European debt and weakening U.S. economic data, isn't likely to last, say some bond investors and strategists.

They expect longer-term rates to rise in coming months as investors pull back from bonds -- whose prices rise when their yields fall -- because growth turns out to be better than markets anticipate. This shift should support the stock market.

Short-term Treasury yields dropped to a new record low in recent sessions as bad news piled up about consumer confidence, manufacturing and the job market. In the six months ended Wednesday, an index of Treasury debt had the biggest half-year gains since 1995.

And with investors leaning toward longer-duration Treasurys, the yield curve flattened; in severe cases, the shrinking between short and long-term yields has been a harbinger of recession. (more)

The Homeless Recovery?

No, this does refer to some type of improvement in the homeless problem domestically. Unfortunately with what is happening both in residential real estate and labor markets, that problem probably gets worse before it gets better. It has been some time since I have looked at the National Association of Home Builders housing index numbers, but believe it's important to do so now. Especially given the ECRI message of the moment showing us the potential for a proverbial double dip in the macro economy itself. You already know the recent NAHB monthly reading in the now absence of the homebuyer tax credit was not good at all. Same deal with month over month new and existing home sales. But as I have done in the past, looking at the NAHB numbers in isolation is not the key issue. As I have shown you in prior discussions and is important now, the NAHB data has shown us its own leading tendencies historically that have proven to be important watch points. Will it be so again? (more)

Seven Reasons the S&P 500 Is Going to 1500

The S&P 500 may be headed downward right now, but here are seven reasons to believe it will go up. Way up.

One: International Paper and Georgia Pacific just raised prices on containerboard. Forget about all government data for a second. Why would the two companies involved in every shipment made around the world increase prices? Because demand is there.

Two: Consensus among analysts for S&P earnings for 2011 is $94. With the S&P near 1050 that puts us barely above a multiple of 11 times earnings with the historical average somewhere near 15.

Three: We are still in the middle of an inventory rebuild after the Great Liquidation that wiped out all inventories in 2009. And corporate profits are still near all-time highs, in part due to the enormously slack labor market created by 10% unemployment. In fact, corporate profits at their highest levels ever: (more)

7.9 million jobs lost - many forever

The recession killed off 7.9 million jobs. It's increasingly likely that many will never come back.

The government jobs report issued Friday shows that businesses have slowed their pace of hiring to a relative trickle.

"The job losses during the Great Recession were so off the chart, that even though we've gained about 600,000 private sector jobs back, we've got nearly 8 million jobs to go," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

Excluding temporary Census workers, the economy has added fewer than 100,000 jobs a month this year -- a much faster and stronger jobs recovery than occurred following the last two recessions in 2001 and 1991. (more)

Bloomberg Businessweek - 05-11 July 2010

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Chart of the Day