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Archive for October, 2009

Pay and Benefits Rise by Smallest Amount Ever

Friday, October 30th, 2009

In an interesting and obviously slightly discouraging study released today the Labor Department said that pay and benefits rose by the smallest amount ever since the beginning of their tracking, which was 1982. In the past year ending in September pay and benefits rose by a meager 1.5%, which is definitely a testament to how difficult the labor market has been in the past year and how much the recession hurt corporations as well as their employees. These numbers are from the Employment Cost Index, which is calculated by using a formula of 70% wages and salaries and 30% benefits. Benefits included are: vacation time, holidays, overtime pay, some bonuses, and health and life insurance.

AFL CIO chief economist said it well when he said quite simply “Employers….are negotiating hard on wages and benefit cuts.” Quite simply the average employee doesn’t have a whole lot of negotiating power right now. The average employee is simply glad to have a job in this market, so they certainly won’t be expecting a major raise or do too much complaining about a reduction in some of their benefits. Corporations have had to make cuts in every place possible just to get back to profitability, and some of these cuts have come in the form of pay and benefits reductions.

The difficult conditions for workers, which are noted in this Employment Cost Index report, is one of the main reasons that the Federal Reserve expects the recovery from this recession to be very slow and steady. Keep that in mind over the next few months as there will certainly be bumps in the road, even if we are on the correct path. The bottom line is now is the most important time ever to take good care of the money that you have and make wise investment decisions for your future.

Recession ends in U.S.

Thursday, October 29th, 2009

It’s official now — Recession ended in U.S. Government’s first estimate showed third-quarter GDP rose at a higher-than-expected seasonally adjusted 3.5% annual rate in July through September. Economists surveyed by Dow Jones Newswires had forecast 3.2% GDP growth during the summer. The GDP rise was driven by consumer spending, which rose 3.4% in the third quarter, compared with a 0.9% drop in the April-to-June period. Consumer spending contributed 2.36 percentange points to GDP growth.

“The data is suggesting that the economy does have some strength behind it, and that growth itself is going to be on the higher end of expectations,” said Kent Engelke, chief economic strategist at Capitol Securities Management.” That’s a good news. But, don’t be too hyped up about the GDP report. Some of the gains in GDP came thru excessive inventory liquidation by companies. That may not last. GDP is also boosted by the tax credit for first-time home buyers.

On the negative side, Job market is still lousy. Consumer confidence is going down. Consumers still have debt loads near record highs. All these may slow down the recovery. As always invest and/or trade wisely.

Another Roller Coaster Ride in Stock Market

Wednesday, October 28th, 2009

Well, just when you think that stock market is the goose that laid the golden eggs, it shows the cruel face. Market is screwed up. Everything is down. Fear and panic everywhere now.

Goldman Sachs Group Inc. reduced its expectation for the nation’s economic output for the July-September period from 3% to 2.7%. The government’s report on third-quarter GDP is due tomorrow. Economists are looking for growth at an annual rate of 3.3 percent after a record four straight quarters of contraction. Goldman Sachs’s prediction and weaker home sales report today contributed to big decline in Dow Jones today.

I am not surprised. Most of the big companies reported earnings. Many companies beat the market expectations. There is a lot of money on the table. Traders need to take profits to protect their capital. You will see similar corrections, October is notorious for that. Just put your stop losses tight and choose your investments wisely. As for as I am concerned, I have my shopping list ready. I will buy more quality stocks when the market goes even lower.

Consumer Confidence Unexpectedly Plunges

Tuesday, October 27th, 2009

Those who are counting on the consumer to bounce back in a nice way in the near future got a pretty disappointing surprise today. The Conference Board reported today that the consumer confidence gauge plunged to 47.7 in the month October from 53.4 a month ago. Economists were expecting the index to stay at about 53, so clearly this wasn’t expected by Wall Street or the analysts. Breaking down it down even further, the current picture as shown by the present situation index fell to 20.7, the lowest level in 26 years.

What’s behind the big drop in consumer confidence? It’s pretty much all about the current job picture. Consumers who had started to become more encouraged in recent months seem to be saying “Where are the jobs?” Pointing out the weakness of the labor market is the number of people saying that jobs are hard to get is now at 49.6%, the highest level since May of 1983. The recent unemployment reports have shown a bit of a slowing in the cuts of jobs, but there has been no recovery at all in the employment market, and that seems to really be putting a damper on consumer sentiments.

The size of the drop in consumer confidence is what is so surprising about this report. It will be interesting to see if this is a trend or an aberration. The truth is, until consumers start to have some confidence about their own job and the labor market overall it will be hard for this economy to get into a prolonged recovery. The good news is, often the labor market is the last thing to turn, so there is still a possibility that it could happen. Let’s hope the labor market starts to get things going, because the consumer accounts for 70% of the U.S. GDP and right now they aren’t feeling very good about the situation.

Homebuyer tax credit questions raised

Monday, October 26th, 2009

The current system of the $8,000 new homebuyer tax credit is set to expire on November 30th of this month. There are a whole lot of questions left to be answered as to exactly what will happen with this popular homebuyer tax credit. Mortgage brokers, homebuilders, and real estate agents are pushing hard for the tax credit to be extended, but recent reports of first-time home buyer tax credit fraud have created a fairly big controversy surrounding the program.

Today it was reported that Senate leaders are in talks to possibly extend the homebuyer tax credit program, but also gradually phase out the program over time. The stock market responded very negatively today to a report that the new home buyer credit simply expire when November 30th rolls around, so clearly the marketplace is hoping for an extension of the plan.

The aim of the tax credit program is to ease the horrific housing slump, which has been the worst seen since the Great Depression. The Senate is now quickly working toward finding a resolution to help the economy going forward. The plan that is said to be under review would give home buyers $8,000 if they close by the end of the 1st quarter in 2010, $6,000 in the 2nd quarter, $4,000 in the 3rd quarter, and $2,000 in the 4th quarter of 2010.

Most people agree that the new homebuyer tax credit has helped spur a rebound in home sales over recent months as well as a raise in the prices of homes. While the housing market is still in a terrible downturn, things aren’t nearly as bad as they were a year ago. The hope here is that the Senate passes legislation that cracks down on the tax credit fraud, but continues to allow new home buyers benefit and the economy get back to a more normal level.

Earnings Season Review Thus Far=Very Positive

Friday, October 23rd, 2009

Since this week alone 138 of the S&P 500 companies reported their earnings I thought today would be a suitable day to take a look at where we stand on corporate earnings thus far from the third quarter. Keep in mind the third quarter was still a recessionary period for the overall economy, and businesses were still under a great deal of pressure.

Does it seem like there have been a lot of high-profile big earnings beats to you? It does to me. Intel, Apple, Google, Amazon, Caterpillar, and others have absolutely knocked the ball out of the ballpark. Looking at the data from this week shows us that it isn’t just the most talked about companies that have done well, rather it has been extremely broad based. This week only 20 of the 138 companies in the s&P 500 that have released earnings failed to beat analysts expectations. For this week alone, over 85% of the S&P 500 have beaten the estimates. Since the beginning of the third quarter reporting period over 80% of companies have beaten expectations, which according to Bloomberg data, is the first time this has happened since 1993.

Interestingly despite the fact that earnings have blown away the estimates the S&P 500 as a whole has gone nowhere since the beginning of the earnings season. What are the reasons for this? The primary reason is probably the fact that the market has run up more than 60% from March through October, anticipating a big bounce back in earnings. Secondarily, some investors are still cautious because they believe that too much of the earnings are coming from cost cuts and not long-term solutions.

Regardless of the way the stock market has performed, one has to be pleased that earnings are proving to be this successful. Since the economy has shown definitely signs of improvement I would have to believe that fourth quarter earnings should be better than that of the third quarter.

The stock market is on shaky footing right now

Wednesday, October 21st, 2009

Today’s stock market and its last hour major sell off proved that the stock market is indeed on very shaky footing, at least in the short run. The stock market was cruising along at all time highs today, when Dick Bove downgraded Wells Fargo to a “sell” rating and the market fell off a shelf in the final hour of trading. Granted, Dick Bove is a very well thought of financial analyst, but for any single call to cause a market movement of about 125 or 130 points in one hour is quite unusual.

An event like this should help the common investor to sit back and realize that there are going to be traders looking to take profits. After all we have run up more than 60% on the S&P 500 from the March lows, so some selling pressure should not be unexpected.

Corporate earnings have also been largely quite successful so far this quarter, but this kind of market has very high expectations and the first sniff of major disappointment could cause a sector, and eventually the whole market to tumble. You have to wonder right now if it wouldn’t be healthy for the market to take a pause and correct itself a little bit in the short run.

As an investor take a look at your portfolio. Are you comfortable with your investments over the long run no matter what the short-term may hold? If you are then you are probably fine just holding on, but if you’d like to protect short-term gains you might consider lightening up on certain stocks that have really moved substantially higher in the last 6 or 7 months. The longer term picture is unclear right now, but it is definitely improved from what it was just a few short months ago. The shorter term picture is that stocks seemed to be pricing in everything going just right, which could lead to disappointment in coming weeks and maybe even months.

Would a “Stealth Stimulus” help the economy?

Tuesday, October 20th, 2009

President Obama and the current administration have quietly come up with a stealth stimulus that is proposed to help senior citizens, who will be hurt by the fact that there will be no boost in social security benefits this coming year for the first time in 30 years. The stealth stimulus, as it now commonly being called by many political observers, would provide senior citizens all with a $250 check. The program would cost an estimated $13 billion.

It hasn’t really hit the mainstream news that much yet, but it does seem as if this stealth stimulus is likely to get passed through the congress and signed by the President. The democrats seem to be on board with the President on this issue, and they do control both the house and senate.

The primary reason this is being called the stealth stimulus is that it seems the administration does not want to have any kind of legislation passed that is actually labeled as a stimulus package, since tax payers are worried about the debt of our country. The bill would provide incentive for seniors, but wouldn’t take on near as much criticism as a full-blown stimulus package likely would.

In the short run it is unlikely that a stealth stimulus that sends money to senior citizens would have much of an effect either way on the economy of the United States. The one problem that President Obama and the rest of congress both need to be very careful of though is the huge deficits that the country is running up. Stimulus packages may be needed and Americans appreciate benefits from those, but more of a long-term look at the fiscal health of the country is going to have to take the front seat very soon or there will be even bigger problems on the horizon!

Apple Profit Surges!

Tuesday, October 20th, 2009

Apple announced earnings yesterday after-hours and blows past estimates. Apple sold 7.4 million iPhones in the quarter ended Sept. 26, up 7% from a year ago and 41% more than the previous quarter. Apple also sold 3.1 million Macintosh computers in the quarter, up 17% from a year earlier, as it continued to gain ground on Windows-based machines. Wall Street Journal reports that Apple’s earnings results exceeded even the most optimistic expectations.

apple-tim-cookApple reported a fiscal fourth-quarter profit of $1.67 billion, or $1.82 a share, compared with $1.14 billion, or $1.26 a share, a year earlier. Its gross profit margin rose to 36.6% from 34.7% a year ago. Revenue increased 24% to $9.87 billion from $7.9 billion a year earlier.

When I wrote about Apple on September 16th, the stock was at $182. Now, it rammed thru $200 level. I believe that Apple will gain even more in the coming holiday season. Tim Cook, COO of Apple, did a fantastic job even when Apple’s iconic CEO Steve Jobs was out ill. There were doubts of Apple’s survival without Steve Jobs. Tim Cook proved that Apple can not only survive but also kill the competition with or without Steve Jobs. Thank you Tim!

Related Link: Sweet Apple | Apple’s Insanely Great Quarter

Disclaimer: I own Apple shares, options, iPhone, iPod Touch and anything that has the name “Apple” on it.

Keep strict money management habits

Monday, October 19th, 2009

During the severe economic recession over the past year or year and a half, the majority of consumers around the world have tightened up their wallets and adhered to a more strict guideline when it comes to money management. That is definitely a good idea, but the thing I think that we should all make a strong effort to do is continue those very same guidelines even when the economy recovers.

During an economic recovery and a period where jobs are abundant and wages go higher by large amounts it is easy to become complacent about saving money and keeping expenses to a minimum, but you must avoid doing this. Complacency is the last thing any working class individual or family should ever have when it comes to money management.

Why is it so important to keep such strict habits even when things are going better? The primary reason is that no one ever knows when things could turn for the worst again. If things do take a bad turn and you have kept your strict money management guidelines then you will be much more prepared than you were the first time. If you go back to spending freely and living above what should be your boundaries, you are just asking to get hurt even more badly the next time things turn for the bad.

What are the basics of strict money management? Always remember to keep all unnecessary spending to an extreme minimum. Do not let your money sit earning nothing, but rather find a solid money market or even a safe mutual fund where you can earn on the money you already have. Also, always have a backup plan and a safety net financially. This means having something such as a savings account you never touch unless worst comes to worst is a very good idea.

Don’t get rid of the solid and strict money management habits you have learned during the recession! Continue to embrace them even as things improve!

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