Archive for August, 2009
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Outlook for Q3 Improves
Eddy Elfenbein, August 11th, 2009 at 10:29 amHere’s an interesting chart. This shows the Intrade contract betting that third-quarter GDP will be positive.
When the market was at its low in March, it was widely assumed that Q3 would be another bad quarter. Since then, the outlook has steadily improved and now it’s assumed that GDP will be positive. (Don’t read too much into that last downward data point, it seems to be a trade going off at the bid.)
One positive quarter doesn’t mean the recession is over. Also, it’s possible to see the numbers jump thanks to inventory rebuilding which may not mean that the underlying economy is improving. Still, the Intrade contract seems to match the resurgence of stock prices. We won’t get our first report on Q3 until late October. -
Productivity Surges
Eddy Elfenbein, August 11th, 2009 at 8:51 amPeople were complaining that Q2 earnings reports were good simply due to cost-cutting. That’s true, but they said it as if it doesn’t count. Improving productivity is crucial for an expanding economy:
The productivity of U.S. workers grew in the second quarter at the fastest pace in almost six years as employers squeezed more out of remaining staff to bolster profits.
Productivity, a measure of how much an employee produces for each hour worked, rose at an annual 6.4 percent pace, more than forecast, after a 0.3 percent gain the prior three months, Labor Department data showed today in Washington. Labor costs fell by the most in eight years.
Lower expenses mean companies may need to fire fewer workers as sales stabilize, the first step toward ending the worst employment slump in the post World War II era. Efficiency gains also help curb inflation, giving Federal Reserve policy makers, meeting today and tomorrow, extra time to remove stimulus. -
Local currencies cash in on recession
Eddy Elfenbein, August 11th, 2009 at 8:47 amBe the Greenspan of your community:
The stimulus for this mill town turned artist’s colony arrived in the form of green bills bearing sketches of herons, turtles and trees.
A few dozen local businesses banded together this spring to distribute the Plenty — a local currency intended to replace the dollar. Now 15,000 Plenties are in circulation here, used everywhere from the organic food co-op to the feed store to, starting this month, the Piggly Wiggly supermarket.
Last popularized during the Great Depression, scrip, or locally created stand-ins for U.S. currency, is making a comeback. Pittsboro, population 2,500, is one of a handful of communities that launched its own money in recent months. It reports an avalanche of calls from other communities that have lost faith in the global financial system.
“The Plenty is not going to get siphoned off to Wall Street, or Washington, or make a stop in Bentonville on its way to China,” said B.J. Lawson, a software entrepreneur who is president of the board of the Plenty cooperative. “It gives us self-reliance.”I think Mr. Lawson is a bit confused on the self-reliance concept.
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Someone Saw this Coming
Eddy Elfenbein, August 11th, 2009 at 12:43 amGM is now selling its cars…on eBay.
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Singapore’s GDP +20.7%
Eddy Elfenbein, August 11th, 2009 at 12:38 amSingapore’s economy expanded by a seasonally adjusted 20.7 per cent in second quarter, underpinned by strong gains in the manufacturing sector.
This represents a significant improvement from the 12.2 per cent contraction in the first quarter, said the Ministry of Trade and Industry in a statement on Monday morning.
Compared to a year ago, GDP contracted by 3.5 per cent in the second quarter. As a result, the Singapore economy contracted by 6.5 per cent in the first half of the year.
MTI said it would maintain the GDP growth forecast for this year at -4 to -6 per cent.
Manufacturing output increased by 49.5 per cent, compared to the previous quarter’s contraction of 18.5 per cent. This was largely due to a surge in the production of active pharmaceutical ingredients in the biomedical manufacturing cluster and an increase in inventory restocking in the electronics sector. -
Dow Theory Says Buy
Eddy Elfenbein, August 10th, 2009 at 1:27 pmDow Theory, one of the oldest stock market forecasting methods, has shown a new buy signal: the Dow Jones Transportation Average joined the Dow Jones Industrial Average to close above January highs, according to Bank of America Merrill Lynch.
However, the bank’s analysts said on Monday that a momentum indicator known as breadth thrust, which focuses on the proportion of advancing to declining stocks, shows a pull-back of 15 to 20 percent this fall when combined with the Dow Theory buy signal. -
Wall Street Bum
Eddy Elfenbein, August 10th, 2009 at 12:00 pm -
Sysco Drops on Earnings
Eddy Elfenbein, August 10th, 2009 at 10:46 amShares of Buy List member Sysco (SYY) are down this morning after the company reported fiscal fourth-quarter earnings of 53 cents a share. That was four cents better than Wall Street’s consensus although it was down from 55 cents a year ago.
The company is the nation’s largest foodservice distributor. Revenues are down about 7% but Sysco has been aggressively cutting costs—operating expenses declined to $1.22 billion from $1.34 billion, which helps during a recession.
For the full year, Sysco earned $1.77 per share which was down from $1.81 per share last year. The company should earn about the same this year which makes the stock reasonably priced. The dividend yields close to 4% which is also nice. -
Banks on Track to Make $38 Billion in Overdraft Fees
Eddy Elfenbein, August 10th, 2009 at 9:14 amBanks are making loads of money, just not in banking.
Overdraft fees accounted for more than three-quarters of service fees charged on customer deposits, he said.
The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores, Moebs discovered.
Banks say that the fees compensate for the risk they incur when they pay on behalf of customers who do not have enough money in their accounts. “Overdraft fees are there for a reason, we take on a lot of risk,” a senior banker said. “It’s a service to our customers, they want us to pay their overdrafts.”
The highest overdraft fees were charged by the largest banks, said Mr Moebs. At banks with assets greater than $50bn – a group including Citigroup, Bank of America, JPMorgan Chase and Wells Fargo – the median overdraft fee is set at $33.
At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realise they have a negative balance and continue spending, they could incur that fee as many as 10 times in a single day, for a total of $350. Failing to repay the overdraft within a few days results in an additional $35 penalty.So what do banks pay when they overdraft?
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If You Test Every Correlation Possible, You’ll Eventually Find Something
Eddy Elfenbein, August 10th, 2009 at 9:05 amExact Prediction of S&P 500 Returns
A linear link between S&P 500 return and the change rate of the number of nine-year-olds in the USA has been found. The return is represented by a sum of monthly returns during previous twelve months. The change rate of the specific age population is represented by moving averages. The period between January 1990 and December 2003 is described by monthly population intercensal estimates as provided by the US Census Bureau. Four years before 1990 are described using the estimates of the number of 17 year-olds shifted 8 years back. The prediction of S&P 500 returns for the months after 2003, including those beyond 2007, are obtained using the number of 3 year-olds between 1990 and 2003 shifted by 6 years ahead and quarterly estimates of real GDP per capita. A prediction is available for the period beyond 2007. There are two sharp drops in the predicted returns – in 2007 and 2009, and one strong rally in 2008. Equivalently, S&P 500 index should drop in 2007 and 2009 to the level observed one year before.
Potential link between S&P 500 returns and 9-year-old population is tested for cointegration. The Engle-Granger and Johansen tests demonstrate the presence of a long-term equilibrium (cointegrating) relation between these variables. This makes valid standard statistical estimates. Correlation between the predicted and observed indices, including RMS difference, linear regression, and VAR demonstrate good prediction accuracy at two-year horizon, when the prediction uses 7-year-olds instead of 9-year-olds. The RMS difference between the observed and predicted returns for the period between 1992 and 2003 is only 0.09 with standard deviation of the observed series for the same period of 0.12 and the naïve (random walk) RMS deference of 0.18.
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