Chain Bridge Investing: Financial and Stock Investing News 11-6-09
November 6, 2009 by cb · Leave a Comment
Good morning, investors and traders! You are reading the Daily Download (”Daily DL”), which includes summaries and links to the day’s selected economic and stock investing news. The Daily DL is maintained by Chain Bridge Investing, which is a financial blog at www.chainbridgeinvesting.com. Chain Bridge Investing is constantly improving and adding new financial and investing content to the website. Please let us know if you have any suggestions at the following email address: 
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Besides a flood of company earnings and other company specific data, today was a rather slow investing news day. As many of you know, there was considerable coverage on the additional arrests related to the continuing inside-trading probe. While this is an interesting topic, CB did not feel that it provides a material benefit to investors’ market operations. Nevertheless, CB hopes everyone enjoys Friday and the weekend. The Daily DL will return on Monday morning.
Upcoming Economic Data for the Day (all times EST)
8:30 AM Employment Situation
10:00 AM Wholesale Trade
3:00 PM Consumer Credit
Initial Public Offerings for the Week of November 2 -6, 2009
11-03-09 Aviv REIT – REIT for healthcare properties (”AVI”)
11-04-09 Ancestry.com – Online services for genealogy. (”ACOM”)
11-05-09 Plains Capital – Banking services (”PCB”).
11-05-09 Duoyan Printing – Provides printing equipment (”DYP”)
11-05-09 STR Holdings – Solar power module manufacturer (”STRI”)
Source: WSJ Market Data Group.
For Daily Market Performance Data, Please Visit the Daily Market Sheet
List of Selected Companies with Third-Quarter Earnings for 11-6-09
News
Productivity Soared in Third Quarter – The Wall Street Journal
Summary: On Thursday, the Labor Department reported that nonfarm productivity has increased at an annual rate of 9.5% in the third-quarter. Combined with the 6.9% annual rate increase in second-quarter, these two quarters have produced the strongest productivity growth rate in a two-quarter span since 1961. This productivity increase is primarily driven by a decreasing workforce that has to produce more as the economy begins to recover. Observers believe that as output increases, unemployment will decline and the productivity rate will decrease. Separately, the Labor Department reported that initial claims for unemployment benefits decreased by 20,000 to 512,000 for the week ended October 31, 2009.
CB: These productivity numbers do not tell the whole story. While CB cannot argue with the data that productivity is currently recovering, CB can argue that the measurement of productivity is deceiving. Currently, productivity does not measure intangibles such as research and development and the loss of intellectual capital. Many companies, in order to make profits in the near term, have reduced their research and development staff and significantly reduced job-training expenditures. At present, investors do not notice these changes because gross domestic product (or output) does not measure intangibles. However, it would be nice to have an idea regarding how much the productivity and output of these intangibles has changed during the last year. If the U.S. were a pure manufacturing economy, then this factor would not matter as much. Yet, our economy’s ability to continue to grow is dependent on an innovative and talented workforce. If innovation is sacrificed for current profits, then future growth may be significantly constrained – especially, since innovations allow the work force to be more productive.
Related Reading: Labor Report Sends Wall St. Higher – The Associated Press, Upbeat Economic Reports Lift Stocks – The Washington Post
Asian Banks Wary of Property Bubbles – Financial Times
Summary: As a result of rising property prices across much of Asia, some Asian countries are implementing steps to reduce property-related stimulus in order to prevent bubbles. For example, in Singapore, the government has closed lending programs that allow property purchasers to defer mortgage payments on uncompleted projects. Furthermore, South Korea has increased the strength of lending requirements, while in Hong Kong the down payment on homes purchases of greater than HK$20m has been increased to 40%. Yet, Australia is the only country that has raised its benchmark interest rates to reduce demand. Many Asian countries appear to be avoiding this tactic due to (1) uncertainty that bubbles are actually forming or (2) the possibility that higher interest rates will strengthen their currencies against the U.S. dollar and reduce trade. At present, famed investor Jim Rogers believes that some areas have bubbles, but there is not a region-wide bubble forming at this time. Many of the large price increases in property have been limited to luxury real estate, while the rest of the residential real estate increases are much more moderate.
Retailers Report Sales Increases – The New York Times
Summary: On Thursday, Thomson Reuters reported that the overall retail industry reported a 1.8% same-store sales increased, the largest increase since June 2008. In October many of the retail sectors reported sales gains with the exception of teenage-clothing retailers and department stores. The top performing sector consisted of clothing retailers that sell designer names at discounts, which includes retailers like TJ Maxx and Ross Stores. Meanwhile, the general-discount retail sector, which includes Costco and Kohls, showed increases in same-store sales. Furthermore, the luxury retail sector showed its first sales gain since May 2008 driven by the improving stock market and more discounted items. Yet, readers should remember that retail sales levels are still near 2005 levels and these increases in year-on-year comparisons are derived from a dreadful October 2008 performance.
CB: If peoples return to the luxury retail sector results from a wealth effect driven by the stronger stock market, then these increased retail sales may be short lived if the market witnesses a pullback. Retail sales have been a focus throughout the week the following are CB’s general thoughts from previous Daily DLs:
CB: The data tells part of the story. The categories mentioned in the article are only a small sampling of total retail and actually raise more questions. For instance, what drove the department store sales to drop? More important, why is the U.S. witnessing these increases in sales? Given the current economic environment with unemployment and the tightening of consumer credit, one would not expect these increases. Was last year’s spending freeze so bad that it represented a decrease in spending that would occur in much worst times than those currently being experienced? Are consumers not adjusting to the current economic situation? Or are these consumers shifting their spending to retail items by forgoing other larger purchases? Regarding the holiday season, it is hard to tell what will happen without some insight to the questions just listed. The projections that expect increases this year will be constrained by (1) fewer retailers than in previous years as well as (2) the limited inventory the retailers have decided to stock for the holiday season.
CB: With unemployment and underemployment continuing to increase from this time last year, one must wonder what forces account for the increase in retail sales that were reported for last week and are estimated for the month of October. Are the retail sales increases primarily driven from the unemployed individuals continuing to spend or greater spending by the employed? Or was last year’s drop in retail sales more a result of panic and less the result of actual employment and credit fundamentals? Since this topic seems to be recurring, perhaps CB will conduct some additional research on this topic.
Related Reading: Retailers Post Best Month Since July ‘08 – The Washington Post, October Sales Improve Slightly – The Wall Street Journal
Worries as Rush Into Commodities Slows – The Wall Street Journal
Summary: At present, investors have placed a record $50 billion into commodities for the year to date. This flood of cash has helped to increase the prices of oil and gold 79% and 23%, respectively. Yet, according to the quarterly flow numbers, cash flow into the commodity markets has been decreasing as the year progresses. For instance, cash flows for the first quarter were nearly $22 billion, then decreased in the second and third quarter to $17 billion and $11 billion, respectively. This decline in cash flow to the commodity markets may result from the following: (1) a fear that the rally is over; (2) a fear that the weakness in the U.S. dollar will not continue; (3) the commodities have performed in line with the stock market and not outperformed as expected; and (4) many exchange-traded funds (”ETFs”) meant to track commodity performance have failed to reliably do so.
CB: CB recommends that if an ETF appeals to an investor, that investor should take the time to understand the technical aspects of its operations, especially if the ETF claims to leverage returns.
IPOs of Hyatt and Ancestry.com Both Rally – The Wall Street Journal
Summary: On Thursday, the IPOs of Hyatt and Ancestry.com rose 12% and 5%, respectively, demonstrating the first healthy demand for new offerings in a couple of weeks. In regards to Hyatt, many industry analysts believed that it was priced at a value even with the low occupancy rates the hotel industry currently faces. Unlike many of its competitors, Hyatt possess relatively little debt and a significant amount of cash. As a result, Hyatt has options regarding its next course of action and could be in a position to expand. Regarding Ancestry.com, the company has witnessed both its revenue and profits increase during the economic downturn. Furthermore, the company has a chance of increasing its subscriber base in 2010 if a new TV show called “Who Do You Think You Are?” is aired.
More Links of Note
How to Fill the Gaps Left by Dollar Decline – Mohamed El-Erian and Ramin Toloui
The Dollar as a Funding Currency
China Faces a Dollar Shortage – The Money Game
Is the Market Worried about the Wrong Deficit – ZeroHedge
