Feb 3, 2012

Super Friday!

February 3, 2012

The market is poised to end the week with a jump after a better than expected payroll report this morning. Nonfarm payrolls, expected to climb by 140K, instead increased by 243K in January. Private payrolls jumped by 257K vs. the 160K consensus, and manufacturing payrolls rose by 50K vs. a 12K estimate. The unemployment rate dropped from 8.5% to 8.3% due to a combination of the better than expected employment numbers and the continued decline of people officially looking for work (the numerator in the unemployment calculation). Some are attributing the bump in employment to busier than normal activity at golf courses and other outdoor establishments that are benefiting from the unusually warm winter.

After the weaker than expected Q4 GDP report, Bank of America wrote “there is a non-trivial chance that first quarter GDP growth prints with a “one-handle.” They viewed the Q4 data more granularly and found that economic activity waned in November and December after a stronger than expected October. Weakness was noted in nondurable goods, and a significant part of the growth in Q4 came from an increase in inventory, which could put a drag on Q1 as businesses allow that inventory to bleed down.

Fed Chairman Ben Bernanke was on the Hill yesterday testifying before Congress. One observation is that Mr. Bernanke is finally getting better at defending his actions, a stance that I’m sure is bolstered by the fact that Congress is one of the few government agencies with a lower approval rating than the Fed. The Chairman reiterated his stance that the economy is weaker than the Fed would like and further stimulus is still probable.

So, a weak Q1, slowing corporate earnings, a better employment picture, and a Fed (and ECB) ready to step on the gas again-sounds like the makings of a good market to me.

Retail comps came out yesterday for January, and a mere 10 of the 23 companies we follow beat. Better than expected comps were posted by Zumiez, Limited, Saks, TJX, Target, and Costco with misses by Cato, Bon-Ton Stores, Dillard’s, Stage Stores, and Wet Seal.

Not that this is a big surprise, but the CBO announced that this year’s federal budget deficit will top $1 trillion for the 4th consecutive year. How much is $1trillion? Check out the picture below. Those are double stacked pallets of $100 bills, $100 million on each pallet. The truck and driver are for perspective (or he’s there to steal a few pallets).

Much has been made about Mitt Romney’s inability to explain his 14% tax rate. Larry Elder comments “How about ‘Well, because my accountants couldn’t figure out how to get them any lower’”?

Chinese Premier Wen Jiabao said his government could increase its participation in the EFSF and is reviewing ways to help support the EU. The EU is a significant trading partner for China.

I wrote on Wednesday about the fiscal problems in California, but rest assured, all is well. It seems that Governor Brown’s office, like much of the country, is anticipating the Facebook IPO. Mr. Brown’s anticipation is based upon his office’s belief that proceeds from the IPO’s selling shareholders will generate a tax windfall for the state, helping to close the budget gap. I have so many comments here I think I’ll just let it stand on its own.

Politicians are politicians, regardless of the country. Every problem is the fault of the last guy, every silver lining due to the incumbent. After Spain reported a 4% jump in claims for unemployment benefits, Engracia Hidalgo, the deputy labor minister, said “This is evidence of the country’s deep economic crisis, and the fact that labor reforms implemented by the previous government haven’t stopped he practice of laying off employees as a way to adjust to lower demand.”

The Chrysler Group posted its first profit in 14 years, earning $183 million on sales of $55 billion, a 31% increase from 2010. For those of you wondering about the math, that’s a 0.3% profit margin.

Speaking of Facebook, the chart below is from a WSJ survey about the site’s usage. It seems some of the fervor has come out of the usage, although the sample size is quite small. One interesting item I noted in the S-1 is that while users of 845 million were close to the estimate we made in late 2010 of 900 million, revenues were well short ($3.7 bil vs. our estimate of $5.0 billion). That places revenues per user in the $4.40 range, below our estimate of $5.50. While I believe there are massive monetization opportunities for Facebook, I also believe they are walking a fine line with consumers and really need to work on the trust factor, which they have violated a number of times. When people go to a Google (GOOG) site, they don’t feel like the site is their own, whereas people have an “ownership” feeling of their Facebook site. This creates an antagonist/partner relationship between the user and Facebook, which will be a barrier for the company as they try to increase their revenue per user.

This weekend’s Super Bowl between New England and New York is a rematch of the Giant’s victory four years ago, when they ruined the Patriot’s bid to become the first team since the 1972 Dolphins to finish the season undefeated and then win the Super Bowl. As we all know, the Super Bowl is the biggest TV event in the world, with over 1 billion viewers. The commercials are often the best part of the game as companies tend to launch new products and innovative advertising campaigns during the broadcast (remember Apple’s 1984?). I heard a report Wednesday that the number one food consumption day in the US is Thanksgiving, but is closely followed by the Super Bowl. I’ve long been a proponent of ditching one of our annual Monday holidays in favor of a “Super Monday” to let everyone recover from the game. In my opinion it is the least productive working day of the year after Christmas Eve, and Challenger reports that more people call in sick on Super Monday than any other day of the year.

Have a great weekend, enjoy the game. I’ll be going through football withdrawals for the next six months, so I hope this is a good one.



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