Bloomberg Quote of the Day: “It is better to know some of the questions, than all of the answers.” – James Thurber
TB’s Song of the Day:
Them that’s got shall get
Them that’s not shall lose
So the Bible said and it still is news
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own
Yes, the strong gets more
While the weak ones fade
Empty pockets don’t ever make the grade
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own
Money, you’ve got lots of friends
Crowding round the door
When you’re gone, spending ends
They don’t come no more
Rich relations give
Crust of bread and such
You can help yourself
But don’t take too much
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own
-Lyrics by Billie Holiday, Music Arthur Herzog Jr.
…when is a recovery not a recovery? When it is a jobless one. That point was driven home by Friday’s payrolls report…especially the Household Survey where unemployment surged to 10.2%…unexplicably, 589,000 household jobs vaporized. Also, unexplicably in the Establishment Survey, there was again NO government hiring…zip! Also, how about the two lowered job losses in August and September resulting in 97k fewer layoffs? Does this make sense to you? Another caveat: IF as expected the House Bill extending benefits is passed by the Senate and signed into law…there will be another surge in continuing claims. So we are in a recovery but without inventory building and sans consumption growth except from weak levels…in the right direction but futile.
Actually, the payrolls were worse than they appeared. First, there was a seasonally adjusted loss of 190k jobs but hey…that’s better than 200k or more, right? Also we had revisions reducing job losses in August and September by 97k…so why not rally stocks?
Because…the unadjusted figures show a loss of 641k jobs! Also, the seasonally adjusted numbers include 86k ‘phantom’ jobs creasted by the Birth/Death Census of Business which has been wrong for months as the benchmarks cannot handle a decline of this proportion. As for that horrible 10.2% if you add in discouraged workers (those who have not looked for a job in the past four weeks…how many doors can you knock on anyway?) and those working part-time but want to work full-time it is 17.5% unemployed. Figures lie and liars figure.
TB heard an interview with Jared Bernstein, Chief Economist and Economic Advisor to ‘Tail-Gunner Joe’ Biden (sorry that was Joe McCarthy but it fits). He said “there is no such thing as a jobless economy.” Hmmm….and HE is an economist that even Larry Kudlow admires. So somebody is funnin’ us only it ain’t funny! Do you feel better knowing that we are in a recovery even as unemployment increases? Do you really feel that companies are ‘just around the corner’ from rehiring…and increasing wages? Hell, they don’t even want to increase their inventories even though they are at just 1.19x sales, a low since records began being kept…in 1945?
Then there was the release of Consumer Credit for September which declined by $14.8 billion which was worse than consensus for a $10 billion decline. What’s wrong with this picture? For one thing people are saving again (or paying down debt which is not only the same but better given the usurious rates the banks are charging…and the way they raised them just ahead of Congress changing the law…but Congress outfoxed them despite all their bribes and made it retroactive!).
But wait TB you are forgetting about all those productivity gains…that is good for stocks! But is it? That was for Q3 and what did we have there? Cash for clunkers, new home buying, etc. (and that will continue now until the end of April and now expanded to include those who already own a home…can you figure the logic in that one?). If you lay off people at a faster rate than you slow production, ergo productivity increases and they were laying them off awfully fast…and lowering the workweek simultaneously. Boy would we have a laugh if the Frog’s (French) did that? No, they hire people and reduce the workweek. But look where the 9.5% growth in productivity came from: Unit Labor Costs -5.2%, Hours Worked -5%; Non-Labor Costs +10%; Output +4%…but the one that boggles the mind is Compensation: +3.8% (while Real Compensation was up just 0.2%. Could that ‘compensation’ be management bonuses – for all that great productivity???
When I die let my ashes float down the green river
Let my soul roll on up to the Rochester Dam
I’ll be halfway to heaven with Paradise waitin’
Just 5 miles away from wherever I am
Ohhh… and daddy won’t ya take me back to Mulingburg County
Down by the green river where Paradise lay
He said I’m sorry my son but yer too late in askin’
Mr. Buffett’s coal train has hauled it away
- Dwight Yoakum, ‘Paradise
TB couldn’t let a song like that go to waste…no sir, not when Warren Buffett is making the biggest bet of his entire career on a railroad…and since Warren is doing it, he must know something so let’ all go buy up the rest of the railroads…but while he already owns 20% of BNI he is buying up the rest at a premium of 31% over market…that’s $34 billion in stock and cash plus assuming debt totaling $13.5 billion…$100 a share, 60% cash/40% BRK/B stock which is undergoing a 50-for-1 split to make it work (from a guy who hates stock splits…loves to collect dividends but hates to pay them…in fact doesn’t…you are either with him or again’ him. So wouldn’t you think everyone would be thrilled to peaches? Chomping on See’s Candy? Nope, they are suing him on a possible ‘winking’ board and that too little information was disclosed. Meanwhile, Barron’s says he must be looking way, way out in the future to pay 20 times expected earnings (the p/e to growth rate is a rich 1.77x), for a railroad…well run as it may be…that has a lot of capital expenditures to get the profitability he seeks.
As for you true believers in Berkshire…they are still primarily a casualty insurer so because it was a mild hurricane season, etc. as well as insuring muni bond deals, their profits tripled….perhaps this is why he was so keen to buy something…hoarding cash makes shareholders (although he owns 33% of the ‘A’ shares so he can pretty much do as he pleases) scream for dividends. But where did most of the gain come from? Unrealized gains in DERIVATIVES including interest rate swaps as well as some tied to equities. Isn’t this the same guy who screamed that derivatives could only mean trouble??? Wonder what Ben Graham would think of today’s Warren Buffett? Moody’s has warned them that their Aaa rating may be in jeopardy…wasn’t AIG rated Aaa too??? I’m just sayin’…oh and Barron’s suggests that BRK/B may go into the S&P 500 to replace Burlington as that has been the history of mergers…buy the rumor…sell the news…on the day the funds are rebalancing…
Hallelujah! Buffett says the credit crisis ‘has abated’ – guess he hasn’t gone to a bank lately and as for Berkshire, like him it is ‘AAA’ (but that may end with the BNI buyout). As for you and I…as well as the small banks, it is no where near over, abated, etc.
Stocks are rallying overnight…who cares about jobs. Well we should be concerned because if people are increasing their savings rate, that isn’t going to help consumption
Here is a simple exercise….if you save $1 a year, compound quarterly at 10% at the end of five years you will have earned $2.02, but at 5% just 92 cents, and at 1% just 17 cents. That should go a long ways towards future consumption, right? Also, without the consumer…who shot his was last quarter by the way on a new car and home…those third quarter earnings may be more quirky than sustainable…but the estimates are already being raised as we speak…albeit from very low levels.
____________________________________________________________________________
Isn’t there one person in Washington who cares….really cares about the state of our government’s pledge to the ‘too big to fail banks’? Well it isn’t Obama who is refusing to acknowledge Paul Volcker’s recommendation to split up the big banks…and it isn’t your Congressman. But it is Elizabeth Warren who chairs the Congressional Oversight Panel on the financial bailout. She says the stimulus and the TARP money is peanuts…it is the $4.3 TRILLION in guarantees that were given to the banks under the TLGP program as well as the recently expired guarantees on money market funds. She is screaming for more transaparency…here is a link…listen to her calm 8 minute explanation of the trouble we are in http://cop.senate.gov/ …this from a woman who reminds one of June Cleaver…looks can be deceiving.
Good ole Pfizer (PFE) gets another record fine for promoting their drugs for the wrong uses…
Lloyd Blankfein: front and center! He told the London Times over the weekend that as head of Goldman Sachs he is “doing God’s work.” Yessir…he is providing the capital for the rest of the world to grow…ain’t that special. Wonder what God thought of him buying all those credit default swaps on the mortgage paper they were dumping in 2007?
Jamie Dimon…your next. Doesn’t JPM have a policy on nepotism…especially when it is the CEO’s dad? He resigned from Merrill with his team of financial advisors and is headed for Bear Stearns as part of Dimon’s plan to get 1,000 of the ‘top, top, top’ brokers. How would you like to supervise the CEO’s (actually Chairman/President/CEO) dad….how do we know he is the best? How do we know his accounts will come with him? How do we know JPM didn’t overpay for Da-Da. This is nepotism at its worst!
Have a great day….you may need to relish it!
TB
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 9, 2009.
