By Money Matters Editors
Right now, average U.S. gasoline prices are at an inflection point: move any higher and there’s real trouble up ahead for the U.S. economy.
Conversely, a drop from current levels – about $2.63 per gallon for unleaded regular – and the U.S. economic recovery could get a tail wind.
Here’s the bleaker scenario: something happens to Americans as they see the price of gas top $3 per gallon. (It’s already above $3 for super unleaded in higher-costs areas like Los Angeles, New York, and San Francisco.) Americans cut back discretionary purchases in order to be able to fill their gas tanks with the gas they need, without breaking their budget. And that cutback in discretionary purchases shaves growth off U.S. GDP. Further, if the price remains over $3, it also convinces more Americans to choose a more fuel-efficient vehicle. And we know the impact higher gasoline and diesel prices have across the U.S. economy: it increases costs at just about every stage of production.
Monday, November 30, 2009
Wednesday, November 25, 2009
Go nukes! Nuclear power gains support in U.S., abroad
By Money Matters Editors
Finally, the United States appears to be heading in the correct direction, from a nuclear power for electricity standpoint.
And there’s even better news: environmentalists, in an impressive switch, are starting to side with nuclear power, too, so says The Washington Post. Here’s why:
Environmentalists now realize that nuclear power represents ‘the lesser of two evils’ versus coal-fired electric power generation plants. When faced with a choice of processing nuclear waste or seeing soot and other carbon emissions spew into the atmosphere – heating up the atmosphere to irreversible levels – the choice is clear: nuclear power wins, easy.
Finally, the United States appears to be heading in the correct direction, from a nuclear power for electricity standpoint.
And there’s even better news: environmentalists, in an impressive switch, are starting to side with nuclear power, too, so says The Washington Post. Here’s why:
Environmentalists now realize that nuclear power represents ‘the lesser of two evils’ versus coal-fired electric power generation plants. When faced with a choice of processing nuclear waste or seeing soot and other carbon emissions spew into the atmosphere – heating up the atmosphere to irreversible levels – the choice is clear: nuclear power wins, easy.
Tuesday, November 24, 2009
Memo to Congress: Pass a $200 billion jobs bill
By Money Matters Editors
Memo to Congress: What would be the best Christmas/ Hannukah present for the American people? Oh, 15 million or so new jobs.
U.S. House Majority Leader Steny Hoyer, D-Maryland, said he expects the U.S. House of Representatives to vote on legislation that would create more jobs by the year-end holiday recess.
“Clearly 10.2 percent unemployment is unacceptable and is causing great pain to literally millions of people around the country.” U.S. Rep. Hoyer said, CNN reported.
Memo to Congress: What would be the best Christmas/ Hannukah present for the American people? Oh, 15 million or so new jobs.
U.S. House Majority Leader Steny Hoyer, D-Maryland, said he expects the U.S. House of Representatives to vote on legislation that would create more jobs by the year-end holiday recess.
“Clearly 10.2 percent unemployment is unacceptable and is causing great pain to literally millions of people around the country.” U.S. Rep. Hoyer said, CNN reported.
Monday, November 23, 2009
CVS and Walgreen: A drug store dynamic duo
By Money Matters Editors
You’ve heard of the Dynamic Duo – Batman and Robin. Well, consider owning shares in the Dynamic Duo of U.S. drug store chains: CVS-Caremark (CVS) and Walgreen (WAG).
Short-term, each is likely to benefit from increased store traffic, due to the H1N1 flu virus. Long-term, each is destined to increase their market share.
CVS is renowned for its highly effective new store location formula. Meanwhile, Walgreen is ‘the defensive’s defensive’ because it’s not only in a conservative sector (drug stores), it’s resisted the urge to grow by acquisition, instead focusing on the old-fashioned method of growth by opening new stores, and other methods (large penetrations into new markets, relocating stores, expanding 24-hour service to more stores).
You’ve heard of the Dynamic Duo – Batman and Robin. Well, consider owning shares in the Dynamic Duo of U.S. drug store chains: CVS-Caremark (CVS) and Walgreen (WAG).
Short-term, each is likely to benefit from increased store traffic, due to the H1N1 flu virus. Long-term, each is destined to increase their market share.
CVS is renowned for its highly effective new store location formula. Meanwhile, Walgreen is ‘the defensive’s defensive’ because it’s not only in a conservative sector (drug stores), it’s resisted the urge to grow by acquisition, instead focusing on the old-fashioned method of growth by opening new stores, and other methods (large penetrations into new markets, relocating stores, expanding 24-hour service to more stores).
Friday, November 20, 2009
For the good of the global economy, China must end its fixed-rate currency policy
By Money Matters Editors
Memo to China: let your currency, the yuan, float, or be determined by market forces, in stages.
If you undertake the above measure, you’ll help your economy, and the global economy.
If you don’t, difficult conditions are up ahead for your economy, and the world’s, as well. Here’s why:
Keeping the yuan fixed at roughly 6.83 yuan to the U.S. dollar is only hastening the day when China will have to transition to a more domestic-consumption-based economy. That’s because China’s artificially-cheap international products that stem from that fixed-rate are increasing protectionist sentiment in the United States, a key customer nation. Conversely, allowing the yuan to appreciate, in stages, may quell protectionist sentiment that’s building in Congress, enabling China to transition to a consumer economy more gradually. Failing to do so may result in Congressional tariff on China.
Memo to China: let your currency, the yuan, float, or be determined by market forces, in stages.
If you undertake the above measure, you’ll help your economy, and the global economy.
If you don’t, difficult conditions are up ahead for your economy, and the world’s, as well. Here’s why:
Keeping the yuan fixed at roughly 6.83 yuan to the U.S. dollar is only hastening the day when China will have to transition to a more domestic-consumption-based economy. That’s because China’s artificially-cheap international products that stem from that fixed-rate are increasing protectionist sentiment in the United States, a key customer nation. Conversely, allowing the yuan to appreciate, in stages, may quell protectionist sentiment that’s building in Congress, enabling China to transition to a consumer economy more gradually. Failing to do so may result in Congressional tariff on China.
Thursday, November 19, 2009
Home Depot: Considerable upside exists
By Money Matters Editors
The Home Depot’s (HD) Q3 earnings report is an example of what ails Wall Street right now: an expectations game that’s slightly unrealistic.
Home Deport reported Q3 EPS of 41 cents per share Tuesday, well above the First Call EPS consensus of 36 cents, and what did Wall Street do? Of course it sold the stock, with shares closing down about 30 cents to $26.99.
Home Depot even offered decent Q4 earnings guidance of 13 cents per share, compared to the First Call EPS of 16 cents. True, same store sales are decelerating, but that’s no surprise, given the housing sector’s contraction and the ‘frugal consumer’ era. In any event, the company still expects FY2009 EPS of $1.55 – in-line with the First Call FY2009 EPS estimate of $1.55.
The Home Depot’s (HD) Q3 earnings report is an example of what ails Wall Street right now: an expectations game that’s slightly unrealistic.
Home Deport reported Q3 EPS of 41 cents per share Tuesday, well above the First Call EPS consensus of 36 cents, and what did Wall Street do? Of course it sold the stock, with shares closing down about 30 cents to $26.99.
Home Depot even offered decent Q4 earnings guidance of 13 cents per share, compared to the First Call EPS of 16 cents. True, same store sales are decelerating, but that’s no surprise, given the housing sector’s contraction and the ‘frugal consumer’ era. In any event, the company still expects FY2009 EPS of $1.55 – in-line with the First Call FY2009 EPS estimate of $1.55.
Wednesday, November 18, 2009
Mutual funds fees: It's time to shift to pay-for-performance
By Money Matters Editors
A trading colleague known by Money Matters Editors had a phrase that he used to cite when he heard a trading idea that was curious, at best.
He would say, “That makes no sense, whatsoever.” And the idea was usually subsequently tossed in the trash can.
The same can be said about guaranteed fees in the mutual fund industry, including management fees and load fees. Note that we said mutual funds, not hedge funds. Today, we’re addressing those funds that typical Americans have invested trillions of dollars in: mutual funds.
Simply, guaranteed fees for mutual funds must stop. They’re part of a pre-financial crisis era culture that lavished large salaries and bonuses on financial professionals….for non-performance – in other words guaranteed pay. That model has been discredited and that era is over.
A trading colleague known by Money Matters Editors had a phrase that he used to cite when he heard a trading idea that was curious, at best.
He would say, “That makes no sense, whatsoever.” And the idea was usually subsequently tossed in the trash can.
The same can be said about guaranteed fees in the mutual fund industry, including management fees and load fees. Note that we said mutual funds, not hedge funds. Today, we’re addressing those funds that typical Americans have invested trillions of dollars in: mutual funds.
Simply, guaranteed fees for mutual funds must stop. They’re part of a pre-financial crisis era culture that lavished large salaries and bonuses on financial professionals….for non-performance – in other words guaranteed pay. That model has been discredited and that era is over.
Tuesday, November 17, 2009
Better late than never: In the future, in the U.S. too big to fail will be too big
By Money Matters Editors
Perhaps the wind is starting to change in Washington, and logic guided by prudence is starting to prevail.
U.S. Federal Reserve Chairman Ben Bernanke, in a question and answer session after a speech before the Economic Club of New York, said Monday regulators should have the power to shrink or downsize banks that pose risk to the markets.
“The supervisors should be allowed by law to insist that the company divest itself or shrink its activities,” Bernanke said in response to a question.
And to that, Money Matters Editors say, “High time!”
Perhaps the wind is starting to change in Washington, and logic guided by prudence is starting to prevail.
U.S. Federal Reserve Chairman Ben Bernanke, in a question and answer session after a speech before the Economic Club of New York, said Monday regulators should have the power to shrink or downsize banks that pose risk to the markets.
“The supervisors should be allowed by law to insist that the company divest itself or shrink its activities,” Bernanke said in response to a question.
And to that, Money Matters Editors say, “High time!”
Monday, November 16, 2009
Boeing, Airbus see blue skies in 2010
By Money Matters Editors
Finally, some really good economic news. Airbus (EADS) and Boeing (BA) are both confirming that airlines have stopped pushing-back, or deferring deliveries of commercial airlines, Bloomberg News reported Sunday.
The significance for investors? When airlines end deferrals that means they’re confident about an upturn in air travel – something that usually heralds the start of an economic rebound.
Randy Tinseth, Boeing’s (BA) head of marketing for commercial planes, said as much.
Finally, some really good economic news. Airbus (EADS) and Boeing (BA) are both confirming that airlines have stopped pushing-back, or deferring deliveries of commercial airlines, Bloomberg News reported Sunday.
The significance for investors? When airlines end deferrals that means they’re confident about an upturn in air travel – something that usually heralds the start of an economic rebound.
Randy Tinseth, Boeing’s (BA) head of marketing for commercial planes, said as much.
Friday, November 13, 2009
'Big bet' banking has to go
By Money Matters Editors
What’s another aspect of banking that has to change? Banker attitudes toward banking.
Earlier, Money Matters wrote about how the ‘heads the banks win, tails the taxpayer pays’ philosophy has to end. That has to be accompanied by an end to another problematic industry practice: excessive risk.
Here’s how banking stands now. Banks encourage trading and loan officers to take excessive risk. For example, bank professionals will design complicated, derivative-based trading programs designed to take high risks: if the risks pay off, the bank wins and racks-up huge profits. If the derivative fails, the bank professionals are fired. Then they find another job with another bank, doing the same thing, doing the same thing, and the whole process starts over again.
What’s another aspect of banking that has to change? Banker attitudes toward banking.
Earlier, Money Matters wrote about how the ‘heads the banks win, tails the taxpayer pays’ philosophy has to end. That has to be accompanied by an end to another problematic industry practice: excessive risk.
Here’s how banking stands now. Banks encourage trading and loan officers to take excessive risk. For example, bank professionals will design complicated, derivative-based trading programs designed to take high risks: if the risks pay off, the bank wins and racks-up huge profits. If the derivative fails, the bank professionals are fired. Then they find another job with another bank, doing the same thing, doing the same thing, and the whole process starts over again.
Thursday, November 12, 2009
Balancing the U.S. budget: pay up now, or pay a lot more, later
By Money Matters Editors
Most Americans, perhaps even most U.S. investors, are not aware of the seriousness of the U.S. budget deficit situation.
They’ve been lulled into a sort of trance – encouraged by one political party – that a simple cut in federal spending will get the budget back in balance.
Nothing could be further from the truth. In fact, unless the conservatives want to abolish Social Security (not a politically smart move) or turn both Medicaid and Medicare entirely over to the states, no amount of nip-and-tuck spending cuts will balance the budget.
Most Americans, perhaps even most U.S. investors, are not aware of the seriousness of the U.S. budget deficit situation.
They’ve been lulled into a sort of trance – encouraged by one political party – that a simple cut in federal spending will get the budget back in balance.
Nothing could be further from the truth. In fact, unless the conservatives want to abolish Social Security (not a politically smart move) or turn both Medicaid and Medicare entirely over to the states, no amount of nip-and-tuck spending cuts will balance the budget.
Wednesday, November 11, 2009
It's time for two-tier banking
By Money Matters Editors
U.S. Sen. Banking Committee Chairman Chris Dodd’s plan to rein-in bank executive compensation and bonuses is barely a week old and already it’s being called ineffectual.
“For the most part it’s pretty hollow, a toothless tiger,” said Paul Dorf, managing director of Compensation Resources Inc., a pay consultant based in Upper Saddle River, New Jersey, told Bloomberg News Tuesday. He added that the legislation needs more penalties if the rules aren’t followed.
Perhaps the problem is not so much Sen. Dodd’s revision but the U.S. government’s philosophical stance toward banking. The government wants to weed-out bank and financial institution practices that create incentives for risky/reckless practices that brought the financial system close to a collapse a year ago.
U.S. Sen. Banking Committee Chairman Chris Dodd’s plan to rein-in bank executive compensation and bonuses is barely a week old and already it’s being called ineffectual.
“For the most part it’s pretty hollow, a toothless tiger,” said Paul Dorf, managing director of Compensation Resources Inc., a pay consultant based in Upper Saddle River, New Jersey, told Bloomberg News Tuesday. He added that the legislation needs more penalties if the rules aren’t followed.
Perhaps the problem is not so much Sen. Dodd’s revision but the U.S. government’s philosophical stance toward banking. The government wants to weed-out bank and financial institution practices that create incentives for risky/reckless practices that brought the financial system close to a collapse a year ago.
Tuesday, November 10, 2009
MM Factoid: U.S. temp hiring increased in October
By Money Matters Editors
In this economy, you take the good news where you can get it, and one such ‘factoid’ of good news was buried deep in the U.S. Labor Department’s most-recent monthly report on the job market, the October report.
The good news? The hiring of temporary workers increased considerably in October to 34,000, with 44,000 temporary jobs having been added to the U.S. economy since July, according to Labor Department data.
In this economy, you take the good news where you can get it, and one such ‘factoid’ of good news was buried deep in the U.S. Labor Department’s most-recent monthly report on the job market, the October report.
The good news? The hiring of temporary workers increased considerably in October to 34,000, with 44,000 temporary jobs having been added to the U.S. economy since July, according to Labor Department data.
Monday, November 9, 2009
Is oil the new gold?
By Money Matters Editors
Is oil the new gold? Perhaps, or at least temporarily, institutional investors (IIs) are making it the new global reserve currency.
The reason? It’s primarily due to the weak dollar, and IIs’ concerns about further depreciation of the buck in the quarters ahead. IIs have bid-up commodities, including gold and oil, on concern the dollar will continue to weaken against the world’s other, major currencies (particularly the euro, British pound, yen, and Swiss franc) due to the large U.S. budget deficit.
Is oil the new gold? Perhaps, or at least temporarily, institutional investors (IIs) are making it the new global reserve currency.
The reason? It’s primarily due to the weak dollar, and IIs’ concerns about further depreciation of the buck in the quarters ahead. IIs have bid-up commodities, including gold and oil, on concern the dollar will continue to weaken against the world’s other, major currencies (particularly the euro, British pound, yen, and Swiss franc) due to the large U.S. budget deficit.
Friday, November 6, 2009
Is it time to take a sip of Starbucks stock?
By Money Matters Editors
Starbucks (SBUX) posted a decent Q4 EPS result of 20 cents, compared to the First Call EPS estimate of 21 cents per share, or 24 cents excluding restructuring charges, but were the results good enough to warrant a Buy rating? In other words, is it appropriate for investors to resume taking a sip of that Starbucks’ ‘stock coffee?’
Starbucks’ Q4 revenue declined 4 percent to $2.42 billion compared to the First Call EPS estimate of $2.39 billion. For FY2009, SBUX earned 80 cents compared to the First Call estimate of 76 cents. The performance will likely please most institutional investors (IIs), who may bid-up the Starbucks’ shares on Friday.
Starbucks (SBUX) posted a decent Q4 EPS result of 20 cents, compared to the First Call EPS estimate of 21 cents per share, or 24 cents excluding restructuring charges, but were the results good enough to warrant a Buy rating? In other words, is it appropriate for investors to resume taking a sip of that Starbucks’ ‘stock coffee?’
Starbucks’ Q4 revenue declined 4 percent to $2.42 billion compared to the First Call EPS estimate of $2.39 billion. For FY2009, SBUX earned 80 cents compared to the First Call estimate of 76 cents. The performance will likely please most institutional investors (IIs), who may bid-up the Starbucks’ shares on Friday.
Thursday, November 5, 2009
Is it o.k. to like Apple here?
By Money Matters Editors
Is it o.k. to like Apple (AAPL) at these price levels? Sure. Here’s why:
Is it o.k. to like Apple (AAPL) at these price levels? Sure. Here’s why:
Look for FY2010 revenue growth of about 12-14%, slightly higher than FY2009 results, on increasing demand for Apple’s impressive suite of products.
The iPod should remain the U.S.
Wednesday, November 4, 2009
Buffett's workin' on the railroad – buys Burlington North Santa Fe
By Money Matters Editors
It’s November, and suddenly deals are popping up all over.
First New Britain, Conn.-based tool maker the Stanley Works (SWK) announced it would buy power tool expert Black and Decker (BDK), in an all-stock deal for $4.5 billion.
Stanley sees the deal as $1 accretive to earnings per share within three years.
Meanwhile, Black & Decker shareholders will receive a 22.1% premium to BDK’s closing price as of Friday, October 30, 2009 of $47.22, or roughly $57.65 per share.
It’s November, and suddenly deals are popping up all over.
First New Britain, Conn.-based tool maker the Stanley Works (SWK) announced it would buy power tool expert Black and Decker (BDK), in an all-stock deal for $4.5 billion.
Stanley sees the deal as $1 accretive to earnings per share within three years.
Meanwhile, Black & Decker shareholders will receive a 22.1% premium to BDK’s closing price as of Friday, October 30, 2009 of $47.22, or roughly $57.65 per share.
Tuesday, November 3, 2009
Is it time to test-drive Ford’s stock?
By Money Matters Editors
The lowdown on Ford (F): Ford said it earned 29 cents per share in Q3, which beat the First Call EPS consensus estimate of a loss of 12 cents per share.
However, Ford said continuing revenue gains in its North American unit would be offset by an expected revenue slide in it European division.
Ford also raised its 2011 guidance from its North American operations to “solidly profitable” on a pre-tax basis, from “breakeven or better.” The change means Ford expects to meet its financial goal of registering a full-year profit in 2011. The First Call FY2009/FY2010 EPS estimates are a loss of $1.35 and a profit of 15 cents.
The lowdown on Ford (F): Ford said it earned 29 cents per share in Q3, which beat the First Call EPS consensus estimate of a loss of 12 cents per share.
However, Ford said continuing revenue gains in its North American unit would be offset by an expected revenue slide in it European division.
Ford also raised its 2011 guidance from its North American operations to “solidly profitable” on a pre-tax basis, from “breakeven or better.” The change means Ford expects to meet its financial goal of registering a full-year profit in 2011. The First Call FY2009/FY2010 EPS estimates are a loss of $1.35 and a profit of 15 cents.
Monday, November 2, 2009
Here we go again: $100 oil
By Money Matters Editors
The U.S./global economic recoveries are underway, that we know. What economists and sector analysts don’t know is the whether this recovery has legs, i.e. whether it is sustainable.
Regarding the United States, the world’s largest economy, the upturn in U.S. manufacturing is one of four, key economic expansion/contraction indicators and the main reason most economists believe the economy is expanding.
However, the other four – sales (sluggish), incomes (stagnant), and payrolls (still declining), do not point to a recovery. If the three aforementioned don’t begin to trend higher, the sustainability of the rebound will come under serious questioning, as opposed to just muttering and ‘devil’s advocate’ critiques one hears now.
What’s another factor that could stop the recovery in its tracks? You guessed it: the price of oil. Institutional investors (IIs) have bid-up the price of oil to about $80 per barrel, partly as an asset play and partly due to fears about inflation. Oil is serving as a ‘temporary surrogate currency’ or ‘surrogate gold’ right now. But oil also is rising due to projected increasing demand in emerging markets – where the economic recovery appears to be on sounder footing. Given the latter, OPEC needs to increase production at its next meeting: if it doesn’t, $100 per barrel oil seems to be a certainty in 2010, and that would be counter-productive.
The U.S./global economic recoveries are underway, that we know. What economists and sector analysts don’t know is the whether this recovery has legs, i.e. whether it is sustainable.
Regarding the United States, the world’s largest economy, the upturn in U.S. manufacturing is one of four, key economic expansion/contraction indicators and the main reason most economists believe the economy is expanding.
However, the other four – sales (sluggish), incomes (stagnant), and payrolls (still declining), do not point to a recovery. If the three aforementioned don’t begin to trend higher, the sustainability of the rebound will come under serious questioning, as opposed to just muttering and ‘devil’s advocate’ critiques one hears now.
What’s another factor that could stop the recovery in its tracks? You guessed it: the price of oil. Institutional investors (IIs) have bid-up the price of oil to about $80 per barrel, partly as an asset play and partly due to fears about inflation. Oil is serving as a ‘temporary surrogate currency’ or ‘surrogate gold’ right now. But oil also is rising due to projected increasing demand in emerging markets – where the economic recovery appears to be on sounder footing. Given the latter, OPEC needs to increase production at its next meeting: if it doesn’t, $100 per barrel oil seems to be a certainty in 2010, and that would be counter-productive.
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