Source: Investment News Briefs Thursday, August 13, 2009

And although you hear about layoffs, most people simply don’t understand the scope of these layoffs. That is until now…

This is a chart of Initial and Continued Employment Claims which I grabbed from www.calculatedriskblog.com.

As you can see, continued jobless claims have now eclipsed the peaks we saw during the mid-70’s and early-80’s recessions. Yet we are still expected to continue seeing heavy job losses throughout the remainder of the year.

There’s no way you can expect consumer spending (which makes up 70% of GDP) to rebound until jobs start being created again. That means high-end retailers like Macy’s (NYSE:M) which used to see a lot of sales from the middle-class over the past few years, should continue to see shares slide as the middle class tightens up and starts shopping at places like Wal-Mart (NYSE:WMT) instead.

• Manufacturing in the U.S. shrank again last month and consumer spending recorded an unprecedented sixth monthly decline in January. The Institute for Supply Management’s factory index was 35.6 in January; readings of less than 50 signal a contraction. Meanwhile, the Commerce Department said personal spending fell 1% in December, offering no sign the economy has hit bottom.

• Macy’s Inc. (M), the second-largest U.S. department-store company, said it is cutting 7,000 jobs, or 3.9% of its workforce after slashing prices failed to lure shoppers during the worst holiday season in 40 years, Bloomberg reported.  The retailer also cut its quarterly dividend to 5 cents a share from 13.25 cents.  Sales at stores open at least a year have dropped in 10 of the past 11 months.

• A majority of U.S. and foreign banks tightened lending standards to businesses and households over the past three months, despite government efforts to spur banks to increase lending, Reuters reported.  In its January senior loan officers report, a closely watched quarterly survey of lending conditions, the U.S. Federal Reserve said the number of banks that tightened lending remains “elevated.” The central bank also said demand for loans from both businesses and households continued to weaken.

• Renew Energy LLC, a closely held ethanol producer based in Jefferson, Wisconsin, filed for bankruptcy amid falling prices for the grain-based fuel and rising costs for corn, Bloomberg reported. Ethanol producers have idled about 1.8 billion gallons, or 16%, of total U.S. production capacity, according to the Renewable Fuels Association in Washington.  Ethanol plants were forced to reduce capacity in January as volatile corn prices hit profits.

• Morgan Stanley (MS) will cut about three to four percent of its work force, up to 1,880 people, Reuters reported, citing an anonymous source.  Most of the cuts will be in back-office jobs where trades are processed.  The broker has been struggling with spiraling costs and slowing business as stock market volatility has whipsawed investors since the Dow Jones Industrial Average peaked at over 14,000 in October 2007.

• Oil prices fell nearly 4% Monday as gloomy U.S. economic data darkened projections for energy demand. U.S. light crude for March delivery fell $1.60 to settle at $40.08 a barrel on the New York Mercantile Exchange. London Brent crude shed $2.06 to $43.82 a barrel, Reuters reported. News that union and oil industry negotiators in the United States averted a strike that would have cut fuel production put added pressure on oil prices.

• Steelcase Inc. (SCS), the world’s largest office furniture maker, said it will cut base salaries of its North American salaried workforce by about 5% and suspend matching contributions to its retirement plan for 2010, Reuters reported.  The company also will cut the annual salaries of its chief executive and chief financial officer, and its board members will take a voluntary salary reduction of 15% for one year.

Source: Global Investment News Briefs Tuesday, February 3rd, 2009

U.S. stocks tumbled on Monday as signs of further deterioration in the economy around the world punctured last week’s market enthusiasm, with financial services companies and retailers among Wall Street’s biggest drags.

Major industrial companies also contributed to losses on signs global demand is faltering, leading investors to pare back risk in favor of safe-haven government debt.

With the holiday shopping season under way, investors feared that retailers may turn in their bleakest sales in many years. The S&P retail index declined 4.4 percent.

Department store Macy’s Inc tumbled 9.6 percent.

Consumers made repeat trips to stores and spent more on bargains this weekend, but analysts said the rush is unlikely to translate into a much-needed boost in profit.

“Things are looking quite bleak. Everyone acknowledges that,” said Brian Gendreau, investment strategist at ING Investment Management in New York. “The question is to what extent is that already priced into the markets. Apparently, not entirely.”

The Dow Jones industrial average slid 383.26 points, or 4.34 percent, to 8,445.78. The Standard & Poor’s 500 Index shed 45.94 points, or 5.13 percent, to 850.30. The Nasdaq Composite Index plunged 82.09 points, or 5.35 percent, to 1,453.48.

In the United States, factory activity fell in November to its weakest since 1982, according to the Institute for Supply Management. The data jolted investors who earlier got news of weaker Chinese and European manufacturing activity.

Top drags included financials, with Citigroup down nearly 9 percent, after an influential analyst forecast more losses for the major U.S. bank. A slide in commodity prices pinned resource stocks in the red, with aluminum producer Alcoa tumbling almost 9 percent.

Among big manufacturers, Caterpillar Inc plunged 8.6 percent, as General Electric slid more than 7 percent.

The market’s slide extended a global equity rout that hurt stocks in Asia and sent European indexes sliding 4 percent or more.

A lower close on Monday would snap a 5-day streak of gains for the S&P 500 stock index. Yields on benchmark 10-year Treasury notes sagged to five-decade lows and prices rose as investors sought the safety of government debt.

Citigroup shares fell to $7.49 on the New York Stock Exchange, while Bank of America slid 8.7 percent to $14.82. The S&P financial index plunged 7.1 percent.

Shares of Caterpillar, a maker of bulldozers and excavators, dropped to $37.33.

Among retailers, shares of department store operator Macy’s Inc tumbled 9.6 percent to $6.71, as those of Wal-Mart Stores , the world’s biggest retailer, shed 3.3 percent to $54.04.

One analyst expected the U.S. credit-card industry to cut $2 trillion in credit lines over 18 months, which would be a severe blow to spending for cash-strapped consumers.

Shares of Alcoa fell to $9.78. Shares of energy companies were another drag as oil prices fell on concerns that the economic slump will hurt energy demand. U.S. front-month crude fell about 8 percent to $49 a barrel.

On Nasdaq, chipmaker Qualcomm Inc was the top drag, falling 6.3 percent to $31.44.

Ellis Mnyandu
NEW YORK, Dec 1 (Reuters)

• General Growth Properties Inc. (GGP) warned it is on the brink of bankruptcy, as slow retail sales have forced many of its mall vendors to close their doors, CNNMoney.com reported. The nation’s second-largest shopping mall operator said in a SEC filing that it has more than $950 million in property and corporate debt, and is facing another $3.07 billion in debt that matures in 2009.

• Sales fell 7% in the third quarter for Macy’s Inc. (M), leading to a $44 million loss, or 10 cents a share. As a result, the Cincinnati-based retailer said it is cutting capital spending by as much as 45% in 2009, MarketWatch reported.

• Oil continued falling faster than it rose, as December futures for light sweet crude slid $3.08 overnight to $59.01 a barrel in electronic trading on the New York Mercantile Exchange. The sharp fall is blamed on concerns that global growth next year will clock in slower than expected, the Associated Press reported.

• October retail sales in China rose a robust 22%, sending a strong signal that its powerhouse economy could stand tall amidst global recession. The sales growth is nearly its fastest pace in nine years, Bloomberg reported.

• Yum Brands Inc. (YUM) said yesterday (Wednesday) that it would cut “several hundred” jobs as it restructures its U.S. business. The company plans to reduce the percentage of Pizza Hut and KFC restaurants it owns to from 20% to 10% by selling units to franchisees. The company will continue to own 20% of all Taco Bell restaurants.

• Anheuser-Busch Cos Inc. (BUD) shareholders yesterday (Wednesday) approved the $52 billion takeover offer from Belgian rival InBev NV. More than two-thirds of the Budweiser brewer’s shareholders voted, with 96% voting in favor of the deal. Anheuser-Busch and InBev will form the world’s largest brewer if and when federal regulators clear the deal.

Source: Global Investing Roundups Thursday, November 13th, 2008

• October sales dropped for big-name retailers Macy’s Inc. (M), Target Corp. (TGT) and Gap Inc. (GPS) a result of continuing job losses and widespread credit drought that took the spirit out of consumer spending. Same-store sales climbed 2.4% at Wal-Mart Stores Inc. (WMT), as tight-budget shoppers searched for cheaper prices, Bloomberg reported.

• A day after forecasting a 5% to 10% annual revenue drop, Cisco Systems Inc. (CSCO) said it will invest $100 million sales to small businesses, Reuters reported. Despite a weaker global economy, Cisco said it sees a window to expand sales of routers, switches and other equipment.

• Blackstone Group LP (BX) posted its biggest quarterly loss, shedding $502.5 million in the third quarter, or 44 cents a share, Bloomberg reported. Blackstone is the world’s largest private-equity firm who went public 18 months ago, right before the credit crisis depleted the value of its holdings and made acquiring financing more difficult.

• The International Energy Agency said that import prices for crude oil will “likely” average $100 a barrel from 2008 to 2015, MarketWatch reported. The opposite happened Thursday, as December crude futures fell $3.51 to $61.77 a barrel. The official IEA 2008 Energy Outlook will be released on Nov. 12.

• Mattel Inc. (MAT) said yesterday (Thursday) it is cutting about 1,000 jobs worldwide. The maker of Barbie and Fisher Price products said the positions equate to 3% of its global work force and will reduce its professional and management staff by 8%. Mattel last month reported fiscal third-quarter profit rose less than 1% to $238.1 million.

• DirecTV Group Inc. (DTV), the nation’s largest satellite TV operator, yesterday (Thursday) announced third-quarter earnings rose 14%. The company reported net income of $363 million, or 33 cents per share, up from $319 million, or 27 cents per share, a year ago. Revenue rose 15% to $4.98 billion. Revenue in Latin America jumped 49% to $658 million.

• Fidelity Investments said yesterday (Thursday) it is cutting nearly 1,300 jobs this month, with more layoffs coming early next year. The layoff notices, set to go out later this month, amount to about 2.9% of Fidelity’s total work force of 44,400. A second round of cuts is planned for the first three months of 2009.

• The number of U.S. workers filing new claims for jobless benefits fell by 4,000 last week to 481,000, the Labor Department reported yesterday (Thursday). The department revised up its estimate for jobless claims the week prior to 485,000. The four-week moving average of claims, a less volatile measure, was unchanged at 477,000 last week.

Source: Global Investing Roundups Friday, November 7th, 2008

Companies with large distribution networks have redesigned their shipping schedules, crafting more efficient routes that accommodated larger truckloads.

The upshot: Gasoline sales tumbled during the first half of the year as domestic demand fell to its lowest level in five years.  In fact, the U.S. Department of Transportation reported that Americans drove almost 5% less in June than a year ago, and also said that the buses, subways and light-rail systems that make up the nation’s public/mass-transit systems climbed by 3.4% in the first quarter of the year.

Lately, U.S. gasoline stations have been forced to adjust their prices (again) after prices at the pump dropped below $3.80 a gallon – a hefty decline from the prices of $4 a gallon and higher that motorists were forced to deal with as the summer driving season began.

Even in China, oil imports dropped substantially in July on shrinking global demand. (It will be interesting to see if – and by how much – the Summer Olympic Games affect these numbers. And even if the games prompt a spike in demand, some analysts are now predicting that a post-Olympic economic “lull” will afflict Mainland China – watch for our analysis of that theory in an upcoming issue of Money Morning).

This energy-price conundrum doesn’t stop there, either, as such geopolitical “wild cards” as the Russian invasion of Georgia continue to whipsaw prices. Even with such tensions, however, energy traders brushed aside concerns about major supply disruptions – not the response we would’ve seen just a few months back. Late last week, in fact, oil prices took cues from the newfound strength in the dollar and dropped below $112 a barrel, a number not even imaginable in mid-July, when crude-oil prices reached a record level of $147.

All’s well on the Energy Front, it seems.

Don’t you believe it (as we’ve said on more than one occasion during the past year).  In the near term, crude-oil prices could well keep declining … but it’s only going to take one “real” scare – a terrorist attack, or some sort of event that creates protracted supply worries – to cause oil prices to spike in a big way.

And in the long run, demand is going to keep rising in such emerging-market countries as China and India. That can only send oil prices higher. [For a related story on oil prices in today’s issue of Money Morning, please click here].

On the Horizon

The July inflation report (Part II) will be reported tomorrow (Tuesday), with the release of the wholesale price gauge, the Producer Price Index (PPI).  Since energy prices have declined in recent weeks, analysts should take these numbers with a grain of salt, as the July data still will reflect the previously higher levels.

Of greater relevance, perhaps, is the Index of Leading Economic Indicators, due out Thursday. The leading indicators often serve as a foreshadowing of future activity so U.S. Federal Reserve Chairman Ben S. Bernanke and friends should take note of that report.

More retailers post earnings this week, including Limited Brands Inc. (LTD), The Gap Inc. (GPS), AnnTaylor Stores Corp. (ANN), and The Home Depot Inc. (HD). By now, however, most investors realize that consumers remain cautious about the economy, and that most related companies (other than discounters) have continued to struggle.  Maybe the lower gas prices will help turn things around for these and other businesses in the coming months – that is, as long as the current trend in energy remains “friendly.” [For a related story on consumer sentiment in today’s issue of Money Morning, please click here.]

We’ve all watched as the once-pristine reputation of former Fed Chairman Alan Greenspan has been tarnished by the credit crisis, and by some of his recent public pronouncements that were aimed at putting the blame on others (possibly impacting book sales). But that’s okay, as investors are now eagerly awaiting the authorized biography of the “real” market maestro – Berkshire Hathaway Inc. (BRK.A, BRK.B) Chairman Warren Buffett. The book, “The Snowball: Warren Buffett and the Business of Life,” published by Bantam Dell Publishing Group, is due on bookstore shelves Sept. 29.

Market Matters

While certain optimistic analysts claimed that the worst of the credit crisis had ended, the latest news from the financial front indicated otherwise.  Swiss banking giant UBS AG (UBS), fresh off $5 billion in new mortgage write-downs, will divide its investment banking and wealth management operations into two separate units – and some analysts believe it may look to sell off the banking arm over the next few years.

I heard that statement when I was watching Fox business news on Friday. I waited to hear the name of the company, but it didn’t come up again. The broadcast moved on to another topic and my attention was diverted.

Was it Macy’s (M)? Exxon (XOM)? GM? Sears (SHLD)? All those companies slumped while making news on Friday.

With the market down, a lot of companies are sporting attractive price-to-earnings. The Dow’s forward P/E is only 12.5. The S&P 500’s is only 14.6.

Why not invest in some upscale names going for downscale prices? If you do, be careful. Sure, the market drags down the good companies along with the bad. But the cheapest buys may be basement bargains for a reason.

Take Sears, for example. The company has a proud tradition and a famous name, but the retailer is only a shadow of its former self. It was for several decades the mega-store of its day. The famous Sears catalog – as big as a phonebook – clued America in to the latest gadgets, fashions, tools, appliances, toys, and everything in between. America trusted the “solid as Sears” brand and flocked to its stores.

Seems like ancient history, doesn’t it? Sears lost its way but, it didn’t happen overnight. It took years. And during this period, many investors bought Sears for its cheap price and famous name. But the name couldn’t revive the price. Now both are diminished and will probably remain so.

Did it have to turn out that way? I don’t think so. With smarter management, Sears could have done much better.

But some sectors have no choice but to wither away. Their time has simply come and gone.

Take newspapers, for example. I loved reading newspapers when I was growing up in Salem, Massachusetts. My favorite journalist? It was William F. Buckley Jr. He was always spouting off.

I always had a dictionary beside me when I turned to the editorial pages to find his column. It was great. I picked up at least 3-4 new words every time I read his articles. (When I went to university in London, a highlight was watching Mr. Buckley debate the highly respected leftist intellectual and renowned orator, Mr. Tony Benn. Buckley held his own, but so did Benn.)

So, a few years ago, when a search engine (using some of my favorite value ratios) popped out the names of the New York Times, Washington Post, and the USA TODAY, I was more than intrigued. I was kicking myself with delight. With P/E ratios under 10, how could I not invest in them?

Of course, I checked them out but (in hindsight) with perhaps a little less rigor than usual. I ended up going with USA TODAY. It wasn’t one of my best decisions. The newspaper industry had changed. I knew that, of course. But I had underestimated by how much.

It was no longer the newspaper business I had grown up with. That was easy money. In his 2007 “Letter to Shareholders,” Warren Buffet explains it best:

“…the newspaper business was as easy a way to make huge returns as existed in America. As one not-too-bright publisher famously said, “I owe my fortune to two great American institutions: monopoly and nepotism.” No paper in a one-paper city, however bad the product or however inept the management, could avoid gushing profits.”

The Internet took all of that away. Newspapers lost their exclusivity, seemingly overnight. An almost infinite choice of media outlets on the Internet were vying with newspapers for a finite set of eyeballs. The newspaper business as we knew it faded away and bad management had nothing to do with it.

Newspapers were a trap for investors. Here are some other traps you should avoid:

• Banks. Do you think the sovereign wealth funds regret pouring billions into America’s biggest banks? They should. Slicing and dicing mortgage securities into so-called high-quality derivative instruments and then selling them throughout the world didn’t work out so well, did it? And right now, there’s nothing to replace this formerly lucrative practice that brought in trillions of dollars to the banks.

• Oil majors. Do they have a plan for the future? Exxon’s capital expenditures budget is smaller than the money it uses to buy back shares. Falling future production plus falling futures prices (2015 oil futures are lower than today’s prices for the first time in over a year) add up to falling profits. Big oil’s business model is broken.

• Any sector that depends on cheap oil is in trouble. Airlines? Their problems extend way beyond expensive jet fuel. But putting 2,000 airplanes out to pasture isn’t a sign of a healthy sector. Petrochemical companies? Trucking? Fertilizer companies (that use natural gas as their main raw material)? They’re all getting killed.

But not the auto sector. This sector isn’t broken. Even GM with its billions of losses isn’t broken. Auto companies have to give consumers what they want. That’s all. And what they want is smaller, gas-sipping cars.

Auto companies should be among the first group of companies to blast out of the recession and lead the market to higher ground. The real bargains will be the companies that give drivers what they want. And you can find them in the U.S., Japan, Korea and India.

Invest well,

Andrew Gordon

Source: The Business Behind the Big Name is What Counts