Archive for February, 2008

  • Today’s Jobs Report
    , February 1st, 2008 at 9:40 am

    The government just reported that the economy lost 17,000 jobs last month. This was the first decline in employment since 2003. The unemployment rate ticked down to 4.9% from 5.0%, but looking at the raw numbers, it really only dropped from 4.75% to 4.25%.
    It also looks like the BLS undated all the non-farm payroll numbers going back to 1990. I get a little annoyed seeing the government completely revised numbers from nearly 20 years ago. This revision could have happen earlier but it’s the first I’ve seen of it. Not surprisingly, payrolls weren’t as strong as previously believed. Here’s a look at the old and new numbers:
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    On the chart, the gaps looks small, but don’t let that fool you. There are about 400,000 jobs less than previously thought.
    Here’s a look at the number of jobs as a percent of the population. The regular unemployment rate only counts people in the labor force.
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  • The Risk Cycle
    , February 1st, 2008 at 9:05 am

    AEI recently published an interesting report on the economy. It’s a bit long, but here’s a sample:

    The temptation during the last half of 2007 was to view the problems tied to falling house prices as contained and manageable. At first, it was just a subprime crisis, but by the end of 2007, it had become clear that the subprime crisis was expanding into a real-estate sector crisis that, in turn, had been magnified by the securitization of claims on real estate whose value was falling. Every financial statement by a bank or investment bank that failed to specify underlying assumptions about the path of real-estate prices was and is subject to constant revision. Fourth-quarter reports by U.S. commercial and investment banks all reflect the sharply elevated losses attributed to worsening conditions in the real-estate market that, in turn, reduced the value of derivative securities on the balance sheets of U.S. financial institutions.
    The negative interaction between the real economy and the financial sector has been exaggerated in this cycle. House prices stopped rising in 2006 because they had exceeded affordability levels for most potential buyers. As house prices leveled off, the initial wave of problems emerged in the subprime sector late in 2006 and early in 2007. The hope of containment of the subprime problem evaporated in the summer of 2007 as leveraged investment funds like the Bear Stearns Asset-Backed Securities Fund collapsed. Unfortunately, in terms of providing a timely response to the rapidly deteriorating financial conditions tied to falling real-estate prices, the real economy grew strongly in the third quarter with substantial help–since reversed–from inventory accumulation and strong net exports. The real economy slowed during the fourth quarter, and the economy probably entered recession at year’s end. Substantial damage to the balance sheets of U.S. banks and investment houses had occurred that added to the negative pressure on the real economy.

  • The Surge in Tobacco Stocks
    , February 1st, 2008 at 9:01 am

    This November will mark the 10th anniversary of the Master Tobacco Settlement. The settlement was an outrageous agreement between the four largest tobacco companies on several state governments. The tobacco companies have to make huge payments to state governments. As a result, their business has to be protected. The government’s revenues are too dependent on them. Now cigarette prices are kept artificially high and the industry is well-protected.
    As you can see, the major tobacco stocks have done very well since the settlement was signed.
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  • Microsoft Bids for Yahoo
    , February 1st, 2008 at 8:38 am

    I’ve made of this story for months and now it’s coming true. Microsoft (MSFT) is offering $44 billion for Yahoo (YHOO). This comes out to $31 a share. I honestly don’t see how this makes sense at all.
    Before taking a detailed look at the businesses, just look at the numbers. For the last three years, Yahoo’s earnings-per-share have dropped from 58 cents to 52 cents to 47 cents. This year, the consensus is for 45 cents. I just don’t get how that equals $31.
    Years from now, business students will study how Yahoo was in perfect position to dominate the Internet, but they lost. Google didn’t have to win. The future was in Yahoo’s lap, but they went for Hollywood instead.
    Two earnings reports to pass along. AFLAC (AFL) earned 78 cents a share, two cents below estimates. Still, that’s a nice jump over the 66 cents they made last year. The company said that it’s looking to grow EPS by 13% to 15% this year, which works out to EPS of $3.70 to $3.76.
    Yesterday, SEI Investments (SEIC) reported earnings of 35 cents a share. That was inline with forecasts. The stock responded by dropping 80 cents a share.
    Also, Leucadia (LUK) is buying a large stake in AmeriCredit (ACF) which is an auto finance firm. Leucadia is a shrewd investor and I note this because ACF is in the same industry as our own Nicholas Financial (NICK). NICK will release its earnings on Tuesday.