• Business Activity in U.S. Grows at Fastest Pace in Two Decades
    Posted by on December 30th, 2010 at 1:43 pm

    More good economic news:

    Businesses in the U.S. expanded in December at the fastest pace in two decades, adding to evidence the world’s largest economy is accelerating heading into 2011.

    The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 68.6 this month, exceeding the most optimistic forecast of economists surveyed by Bloomberg News and the highest level since July 1988. Figures greater than 50 signal expansion.

    Gains in business investment on new equipment and growing exports to emerging economies will keep factories churning out goods in the coming year, contributing to the recovery. Reports showing consumer spending is also picking up mean retailers will need to restock shelves, giving manufacturing a further lift.

    “The economy is gathering momentum,” John Silvia, chief economist at Wells Fargo Securities Inc. in Charlotte, North Carolina, said in an interview on Bloomberg Television. “New orders will follow the better business confidence that is showing up. Once the American consumer starts kicking in, we will see stronger orders data.”

    The median forecast of 49 economists surveyed by Bloomberg News projected the gauge would fall to 61. Estimates ranged from 59 to 63.7.

    I’m starting to think that the Q4 GDP growth number is going to come in very strong, possibly 5% or more.

  • Jobless Claims at Two-Year Low
    Posted by on December 30th, 2010 at 11:08 am

    More good news for the economy: the number of Americans who filed for their first week of jobless claims fell below 400,000 for the first time in over two years.

    For the week that ended on December 25, 388,000 thousand Americans filed first-time claims. That’s down by 34,000 from the week before. This is very good news, but I’m not ready celebrate just yet. We’ll get more information with next Friday’s employment report.

    While the economy has definitely pulled out of recession, the growth hasn’t filtered down much to the employment sector. For businesses to continue to see improvement in profits, sales need to start growing and that means more jobs. Today’s news is good, but we need to see a lot more of this.

  • Morning News: December 30, 2010
    Posted by on December 30th, 2010 at 7:52 am

    World Stocks Eye Two-year High

    M&A Bankers Forecast India Deal Volumes to Surpass Record 2010

    Chinese PMI Drops But Shanghai Composite Keeps Rolling

    Pope Benedict Binds Vatican to European Money-Laundering Laws

    Natural Gas Boom Coming—But So Are Major Obstacles

    Three Hedge Funds Got Inside Data From Consultant, U.S. Says

    U.S. Snowstorm Cost Retailers $1 Billion

    Groupon Draws New Investors and Works on an I.P.O.

    GE Leads $3 Trillion in Company Bond Sales as Yields Fall

    PAA Natural Gas Storage to Buy Mississippi Facility for $750 Million

    Paul Kedrosky: Scientists are Now Cornucopian Economists?

    Howard Lindzon: My 2011 Predictions…

  • Motricity Under $20
    Posted by on December 29th, 2010 at 2:18 pm

    I’ve wanted to post more this week, but honestly, nothing is happening. This market is about as dull as it can be.

    I’ve had my eye on Motricity (MOTR) which is an interesting stock. It’s a bit too speculative to put on the Buy List, but it’s recently fallen under $20 per share. I think that’s a good price for more aggressive investors.

    The company IPO’d in June at $10. Actually, the IPO was severely cut back. The company originally wanted a much larger offering. Still, the stock struck a chord on Wall Street and by November it was over $30 per share. Now it’s back below $20. Wall Street currently expects earnings next year of 80 cents per share.

  • Reminder: The 2011 Buy List
    Posted by on December 29th, 2010 at 1:02 pm

    With half a week to go in 2010, here again is the 2011 Buy List. The new list will take effect starting on Monday:

    Abbott Laboratories (ABT)
    AFLAC (AFL)
    Becton, Dickinson & Co. (BDX)
    Bed Bath & Beyond (BBBY)
    Deluxe Corp. (DLX)
    Fiserv (FISV)
    Ford Motor Company (F)
    Gilead Sciences (GILD)
    Johnson & Johnson (JNJ)
    Jos. A Bank Clothiers (JOSB)
    JPMorgan Chase (JPM)
    Leucadia National (LUK)
    Medtronic (MDT)
    Moog (MOG-A)
    Nicholas Financial (NICK)
    Oracle (ORCL)
    Reynolds American (RAI)
    Stryker (SYK)
    Sysco (SYY)
    Wright Express (WXS)

  • Keeping Tabs on Economic Bets
    Posted by on December 29th, 2010 at 9:48 am

    Thirty years ago, Julian Simon and Paul Erlich made a famous bet on the direction of commodity prices. Erlich was one of those “gloom and doom” writers who said that we’re living in an age of scarcity.

    Simon asked Erlich to choose any five commodities and averred that the prices would decrease over the next decade. Erlich avowed that they would increase. Erlich chose copper, chromium, nickel, tin, and tungsten. All five went down and in 1990, Erlich paid up.

    Now John Tierney and Matthew R. Simmons have just settled a five-year-old $5,000 bet over whether or not oil would average $200 in 2010.

    The bet was occasioned by a cover article in August 2005 in The New York Times Magazine titled “The Breaking Point.” It featured predictions of soaring oil prices from Mr. Simmons, who was a member of the Council on Foreign Relations, the head of a Houston investment bank specializing in the energy industry, and the author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.”

    I called Mr. Simmons to discuss a bet. To his credit — and unlike some other Malthusians — he was eager to back his predictions with cash. He expected the price of oil, then about $65 a barrel, to more than triple in the next five years, even after adjusting for inflation. He offered to bet $5,000 that the average price of oil over the course of 2010 would be at least $200 a barrel in 2005 dollars.

    I took him up on it, not because I knew much about Saudi oil production or the other “peak oil” arguments that global production was headed downward. I was just following a rule learned from a mentor and a friend, the economist Julian L. Simon.

    As the leader of the Cornucopians, the optimists who believed there would always be abundant supplies of energy and other resources, Julian figured that betting was the best way to make his argument. Optimism, he found, didn’t make for cover stories and front-page headlines.

    So how did oil prices do? At first, things were going in Mr. Simmons’ direction. Oil hit $145 per barrel by 2008. Then the recession came and oil dropped to $50. For 2010, oil has averaged $80. Adjusted for inflation that’s about $71 per barrel which isn’t too far from the $65 when the bet was made in 2005.

    It’s true that the real price of oil is slightly higher now than it was in 2005, and it’s always possible that oil prices will spike again in the future. But the overall energy situation today looks a lot like a Cornucopian feast, as my colleagues Matt Wald and Cliff Krauss have recently reported. Giant new oil fields have been discovered off the coasts of Africa and Brazil. The new oil sands projects in Canada now supply more oil to the United States than Saudi Arabia does. Oil production in the United States increased last year, and the Department of Energy projects further increases over the next two decades.

    The really good news is the discovery of vast quantities of natural gas. It’s now selling for less than half of what it was five years ago. There’s so much available that the Energy Department is predicting low prices for gas and electricity for the next quarter-century. Lobbyists for wind farms, once again, have been telling Washington that the “sustainable energy” industry can’t sustain itself without further subsidies.

    As gas replaces dirtier fossil fuels, the rise in greenhouse gas emissions will be tempered, according to the Department of Energy. It projects that no new coal power plants will be built, and that the level of carbon dioxide emissions in the United States will remain below the rate of 2005 for the next 15 years even if no new restrictions are imposed.

    Maybe something unexpected will change these happy trends, but for now I’d say that Julian Simon’s advice remains as good as ever. You can always make news with doomsday predictions, but you can usually make money betting against them.

    In April 2008, Prieur du Plessis and Barry Ritholtz highlighted a $1 million bet from Jim Sinclair that gold would hit $1,650 per ounce by the second week of January 2011.

    I don’t know if anyone took him up on his offer. There are only a few days left and unless gold stages a big rally, it looks like Sinclair will have lost.

  • Morning News: December 29, 2010
    Posted by on December 29th, 2010 at 7:45 am

    In the Rearview, a Year That Fizzled

    Sweden Shows Central Bankers How to Fight Next Asset Bubble

    Consumer Confidence Dips on Worries

    Oil Steadies Above $91 Ahead of U.S. Inventory Data

    Copper Climbs to Record in London on Speculation of More Growth

    Washington Region Posts Gains as Home Prices Still Falling in Most U.S. Cities

    Derivatives Clearing Group Decides Against Registration

    Hot Trade in Private Shares of Facebook

    Groupon Files for $950 Million Equity Financing Round

    GM Stock Hits $35.32 Per Share

    Citi Short Interest Jumps 12%

    The Shanghai Divergence (a Low-Probability Bet on Repatriation)

  • Snore!
    Posted by on December 28th, 2010 at 11:26 am

    OMG, this is a dull trading day. Dull, dull, dull.

    Of the 100 stocks in the S&P 100, 91 are up or down less than 0.9%.

    Only nine are up or down by more than 1%. Not one currently has a swing of more than 1.5%.

  • Happy 100th Birthday Ronald Coase
    Posted by on December 28th, 2010 at 10:11 am

    Here are some questions to ponder: Why are there are companies? Why doesn’t everyone work for themselves as independent contractors? Why is it necessary for people to congregate into companies, some small and some very large?

    In 1937, Ronald Coase had an answer:

    His central insight was that firms exist because going to the market all the time can impose heavy transaction costs. You need to hire workers, negotiate prices and enforce contracts, to name but three time-consuming activities. A firm is essentially a device for creating long-term contracts when short-term contracts are too bothersome. But if markets are so inefficient, why don’t firms go on getting bigger for ever? Mr Coase also pointed out that these little planned societies impose transaction costs of their own, which tend to rise as they grow bigger. The proper balance between hierarchies and markets is constantly recalibrated by the forces of competition: entrepreneurs may choose to lower transaction costs by forming firms but giant firms eventually become sluggish and uncompetitive.

    Dr. Coase turns 100 tomorrow. He’s also said that he’s been working on his next book.

    Here’s a lecture he gave at the University of Chicago Law School in 2003:

  • Ugly Case Shiller Report
    Posted by on December 28th, 2010 at 9:46 am

    There’s still not much strength in housing. Today’s Case Shiller report showed that home prices actually fell last month.

    The Case Shiller Index tracks a 20-city index and a 10-city index. Both indexes peaked in April 2006 and hit bottom in May 2009. Both indexes dropped by roughly one-third over that 37-month period.

    The year-to-year increases were seen in Los Angeles, San Diego, San Francisco and Washington. While composite prices remain above their spring 2009 lows, six markets hit their lowest levels since home prices began dropping in 2006 and 2007: Atlanta, Charlotte, N.C., Portland, Ore., Miami, Seattle and Tampa, Fla.

    David Blitzer, chairman of S&P’s index committee, said “The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October’s report. Home prices across the country continue to fall.”

    The indexes, based on the three-month averages of home prices, turned lower in August for the first time in four months, a delayed response to the housing-market weakness after federal home-buyer tax credits expired in April. Prices declined again in September, with the rate of decline showing signs of accelerating.

    However, recent data show home sales are recovering a bit despite high unemployment, a sluggish economy and worries about flaws in foreclosure documents. The National Association of Realtors said last week that sales of previously occupied homes increased a less-than-expected 5.6% in November after falling 2.2% in October. Prices for existing homes edged up for the first time since August, rising 0.4% from a year earlier but little changed from October.

    The Case-Shiller index of 10 major metropolitan areas declined 1.2% from September, while the 20-city index fell 1.3%. However, they were up 0.2% and down 0.8%, respectively, from a year earlier. Adjusted for seasonal factors, the sequential declines were 0.9% and 1%, respectively.

    In October, prices in every metropolitan statistical area covered by the index fell from September. Month-to-month decliners were led by Atlanta and Detroit, which were down 2.9% and 2.5%, respectively.