This from Penny Sleuth:

What do frozen desserts, designer handbags, and underwear have in common? Two of the best investment opportunities this decade. Allow me to explain…

A single company – one you’re probably familiar with – sold all three seemingly unrelated products. A few years ago, Sara Lee Corp (NYSE:SLE) – maker of frozen (yet tasty) pies and cakes – owned hundreds of brands, many of which made no sense.

For instance, the frozen cheesecake manufacturer was the sole owner of Coach handbags and Hanes underwear. These two subsidiaries obviously didn’t make much sense to the company. That’s why – during two separate transactions – Sara Lee’s management and board of directors divested them through a process known as a spinoff.

Spinoffs are common in the business world. They can present smart investors with huge opportunities and sometimes, less fortunate investors with even larger losses. Spinoffs are usually as simple as they sound – a parent company decides it can do without one of its business. So, the subsidiary is spun off onto its own.

There are four basic reasons for a parent to spinoff one of its “children”:

• Unrelated Businesses – many times, companies like Sara Lee own certain subsidiaries – like Coach and Hanes – they have no business owning. This happens often in conglomerates when a certain product takes off and is held back by the organization of the parent company.

• Tax Benefits – taxes can be burdensome and confusing. But every once in a while, the mathematicians and financial wizards find a loophole to save on taxes and preserve shareholder value. Occasionally, it takes a spinoff to do it.

• Refocusing – oftentimes, a large company will take a look at its operations and find one of its businesses lagging behind, which inevitably puts a strain on management to fix the problem. The best solution is to spinoff this business so management of the parent company can get back to growing profitable businesses. This often benefits both the parent and “child” company.

• Pinching Off Debt – some spinoffs are created to unload debt and other burdensome liabilities. This is where many unfortunate investors take enormous losses. As you can imagine, a company created out of a need to unload debt is doomed from the start.

It’s important to decipher between the four reasons because if you find the right one, you stand to make colossal gains. Let’s look back at our top example…

As we noted, Sara Lee’s situation fits the first mold – unrelated businesses. Spinning off a perfectly capable business creates earning potential neither the parent nor the “child” even realized.

Sara Lee first spun off Coach in 2000. Almost immediately, the newly formed Coach Inc (NYSE:COH) began its own marketing program. This turned into an enormous success and unrealized profit potential came to light, which shot shares straight up over the next six years. As you can see in the chart below, Coach outperformed its former parent by more than 2,000% to negative 15%.

The same thing happen in round two, when Sara Lee spun off Hanesbrand Inc (NYSE:HBI) in 2006. Although the gains were not as fantastic, Hanes shareholders watch their shares double as Sara Lee shares stayed flat:

Of course, not all spinoffs work this way. It takes serious studying and an ear to the ground to find out exactly what’s going on.

Many times, when parents spinoff businesses, they keep it quiet. If the media gets a hold of it, shares can crash artificially, or spike prematurely. And, as we mentioned, many spinoffs negatively affect shareholders.

One recent example is InterActiveCorp’s (Nasdaq:IACI) spinoff of Ticketmaster Entertainment Inc (Nasdaq:TKTM) . When Ticketmaster was sent on its way, InterActiveCorp left it with a parting gift of about $750 million in debt, just as the credit crisis began to peak this summer. Shares of Ticketmaster, inevitably collapsed under this weight, falling more than 80 %:

Of course, you have to use your best judgment when you discover a spinoff. You’ll have to make the decision on why you think the parent company spun it off.

More than not, however, buying spinoffs when they’re fresh is a pretty good idea. According to Chris Mayer of Mayer’s Special Situations – a newsletter focused on spinoffs and other unique investments – “spinoffs beat their industry peers and outperformed the S&P 500 Index by about 10% per year in their first three years of existence.”

Those numbers account for both spin offs that lead to gains and those that lead to losses. Obviously, this is something to look into.

If you are lucky enough, and have the right inside knowledge, you can easily take advantage of the next Coach spinoff and leave the next Ticketmaster alone.

Source: Spinoff Stocks: Quick, Proven Way to Grab Easy Gains

Initial applications for jobless benefits climbed by 58,000 to 573,000 in the week ended Dec. 6, upwardly revised from 515,000 the previous week, the U.S. Labor Department reported yesterday (Thursday).  The figure was the highest since 1982, and far exceeded the median projection of 525,000 put forth by 39 economists surveyed by Bloomberg News.

The increase was due, in part, to a bounce from the week before, which was shorter because it included the Thanksgiving holiday. Government offices were open only four days that week.

Nevertheless, the four-week average, which smooths out fluctuations, stood at 540,500.  That’s the biggest number of jobless claims filed since December 1982, when the economy was also mired in a deep recession. By comparison, there were 337,000 initial claims last year.

Workers claiming continuing jobless benefits also blew through economists’ projections, jumping by 338,000 to 4.4 million, the Labor Department said. Economists had expected 4.1 million. Continuing claims lag initial claims by one week.

“Stepping back from the short-term noise … it is very clear that the underlying trend in claims is still rocketing, as companies throw in the towel and prepare for a long, deep recession,” Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a research note to clients, MSNBC News reported.

Jobless claims are considered by economists to be a snapshot of the health of the labor markets and broader economy.

The U.S. economy has shed 1.9 million jobs so far this year, with payrolls having now dropped for 11 straight months. U.S. companies slashed 533,000 jobs in November, and the unemployment rate grew to 6.7% , the highest since 1974, the government said last week.

“The labor market is facing its worst crisis since 1982, and it is certainly not over yet,” said Harm Banholtz, a U.S. economist at UniCredit Markets and Investment Banking in New York, told Bloomberg News. “One of the most important tasks of the newly elected government is, therefore, to help distressed homeowners and to stimulate the labor market.”

More companies added to the malaise  yesterday as additional layoffs were announced. New Britain, Conn.-based toolmaker Stanley Works (SWK) plans to lay off 2,000 workers and close three manufacturing plants.  Illinois-based foodmaker Sara Lee Corp. (SLE), said it had outsourced 700 jobs overseas, and Office Depot Inc. (ODP) is adding 2,200 cuts of its own over the next three months. The office-products firm is closing 112 stores – about 9% of those in the North American market – and six of its 33 distribution centers.

Looming over the jobless picture is the uncertainty surrounding the $14 billion automakers bailout bill, currently being mulled in the Senate.  But even with a bailout, one – or even all three – of America’s “Big Three” carmakers may fail.
If a bailout doesn’t materialize – or fails to have the desired impact – the results will be catastrophic, according to the Center for Automotive Research.  The Ann Arbor, Mich.- based nonprofit told The Associated Press that if Detroit’s Big Three stopped making cars today and returned to 50% production in 2010 and 2011, it would still wipe out nearly 2.5 million jobs next year.
Job losses of that magnitude would have a profoundly negative impact on the U.S. economy – with horrid ripple effects worldwide – because of the plunge in consumer confidence the resultant job losses and loss of confidence that would result. Fully 70% of all domestic economic activity is powered by consumer spending.  And with the cutbacks some doomsayers foresee, even exporters in developing markets as far away as China and India would feel the squeeze.

Here at home, the mere threat of job losses is being felt on Main Street. According to an Associated Press-GfK poll released Wednesday, 53% of shoppers say they expect to spend less on holiday gifts than they did last year, while 40% will spend the same.

In other words, more than 90% of American shoppers are resisting the urge to splurge and spend more this year than last on friends and family during the holiday period, a time retailers depend on for  as much as 40% of their revenue for the year. That spells big trouble for retailers nationwide, with the possible exception of Wal-Mart Stores Inc. (WMT) , and other large discounters.

Also buttressing the curtailed spending argument is a new poll that says just 20% of shoppers plan to use credit cards for holiday purchases.  That’s down a whopping 33% from 2004. And two-thirds of the consumer surveyed said they would pay off the full balance owed when the bills come due in January, the poll found.

Source: U.S. Companies “Throw in the Towel” – Pushing Jobless Claims to a 26-Year High

Consumer spending has remained strong in recent months, even jumping 0.8% in the month of May. But that boost was largely inflated by the $50 billion in government rebate checks that were cashed and put to use in the month.

The stimulus will total $107 billion this fiscal year, but that may not be enough, as consumer prices are rising across the board. The consumer price index (CPI) increased 1.1% in June, driving the rate of inflation over the past 12 months to 5%, and it looks as though prices will continue to rise as many businesses grapple with higher raw material costs.

Sara Lee Corp. (SLE), the maker of many American food products, such as Jimmy Dean sausages, said yesterday (Monday) that it would be forced to boost the prices of its meat products by one-fifth this year.

“Price increases vary a lot by type of products but the increases will be as low as zero and some products we will decrease on and other increases [will be] in excess of 20%,” C.J. Fraleigh, Sara Lee’s chief operating officer for North America told the Financial Times.

Kraft Foods Inc. (KFT) said prices for its products will jump by 12%-13% this year, and even as much as 25% in some of its cheese categories. Kellogg Co. (K), ConAgra Foods Inc. (CAG) and Tyson Foods Inc. (TSN) are some of the food companies also planning price increases that will invariably contribute to inflationary pressures in the United States.

Meanwhile, the high price of oil has contributed to a sharp escalation in the price of gasoline and many other consumer products. For instance, global chemical producer Dow Chemical Co. (DOW) recently raised prices on all 3,200 of its products, some by as much as 20%, in the single-biggest price increase in the Michigan-based company’s 111-year history.

The problem is going to get worse in the months ahead, as a survey by the National Association for Business Economics (NABE) has found that almost four times as many businesses plan to charge more for their goods and services next quarter than expect to reduce prices.

The poll of the 101 NABE members was taken between June 19 and July 10, and found that a record 75% paid more for materials last quarter and expected to pay more this quarter as well. A net 28% of respondents said they were forced to increase prices from April through June as a result.

Worse, only 20% of the businesses surveyed said salaries increased in that time, the lowest number in four years and an 11% drop from the group’s previous survey in April. Only 9% of the respondents said they would increase payrolls over the next six months, the fewest in five years.

The information corroborates a separate report from the Department of Labor last week, which said wages, adjusted for inflation, were down 2.4% in the 12 months ended in June.

Employers have cut jobs each month in 2008, with payrolls tumbling for the sixth consecutive month in June. The total number of job losses in the first half of the year was 438,000.

The national unemployment rate has gone up by a full percentage point in the past year, to 5.5%.

Source: Consumer Spending Threatened by High Prices and Lower Wages