Push and Pull

May 4, 2012

Equity markets are soft this morning, bond markets are rising, oil and the dollar are both falling as the push pull battle between central banks and a softening global economy continues.   The key employment reports for April came in this morning, much weaker than anticipated.  The change in nonfarm payrolls was an increase of 115K vs. the consensus of 160K.  The March result was revised upwards from 120K to 154K, probably contributing to the more modest decline in markets than would otherwise be justified by the April results.  The change in private payrolls and manufacturing employment also showed comparable misses for April, with similar upward revisions for March.  Average hourly earnings also were softer than expectations, rising 1.8% vs. the 2.0% consensus.  Despite all the data coming in less than consensus, the unemployment rate managed to fall once again, this time to 8.1% from 8.2% the prior month. 

Same store sales for April were reported this week, and a mere nine of the 21 retailers we closely follow reported better than expected comps, the weakest level since early 2009.  Zumiez (ZUMZ) once again led the way, posting a 10.1% comp against a 6.7% estimate.  Cato (CATO), Limited (LTD), Nordstrom (JWN), Ross Stores (ROST), and TJX (TJX) also posted strong comps which beat consensus.  Weaker than expected comps were posted by Walgreen (WAG), Wet Seal (WTSLA), Bon-Ton Stores (BONT), Kohls (KSS), and Costco (COST).  Major chain store comps rose 0.8% in April, vs. an expected increase of 1.5%.  Thompson is reporting that 53% of retailers missed their comps last month.

Recoveries in the Bernie Madoff case are a mere $330 million so far, well below the $91 billion in lawsuits filed by trustee Irving Pacard.  Unfortunately, the creditors have seen very little, if any of what has been recovered since the trustee has spent $554 million in his attempts to recover the missing money.  I used to do restructuring work, and can tell you that the attorneys and trustees make out the best in these deals. 

This guy just doesn’t seem to go away in spite of his continuous stream of comments that miss the mark.  Earlier in the week Alan Greenspan said that stocks are cheap.  Now, I’m not making judgments on this particular comment because valuations are certainly not high on present earnings, however, given this man’s record of bad predictions and contributions to the financial downfall of this country, it might be a good idea for him to retire from the speaking circuit.  I did see a headline in the blogosphere with an unconfirmed report that the former chairman had undergone an experimental lobotomy in 1969, which if true would explain a lot. 

The much awaited Facebook IPO is expected to price May 19, with a range of $28-$35.  At close to $100 billion, the deal will be a technology IPO record. 

Goldman Sachs (GS) has announced plans for a new electronic trading platform for corporate bonds later this month.  The platform, GSessions, is being released in response to Aladdin, Black Rock’s yet to be released platform that is designed to bypass the major investment banks.  Better price discovery and liquidity in this market should be helpful to investors. 

A CFA Institute poll of financial professionals found an astounding 60% feel that the impact of hedge funds on the financial system can best be characterized as “destabilizing”.  The poll’s respondents other options were “immaterial” (21%) and “stabilizing” (19%). 

With another debt ceiling impacting the US Government’s ability to borrow coming up around year end, the Treasury hasn’t taken advantage of the low rates to lock in long term.  The continual roll into shorter term securities has saved the country money on interest payments, however, it also pushes up the short term issuance needs.  The Treasury was looking at selling floating-rate notes, however, they are delaying that plan in spite of strong investor interest due to questions about which index to use for determining interest-rate adjustments. 

The Lakers take a 2-0 lead into Denver tonight, while the Clippers play at home tomorrow against the Grizzlies, their series tied at 1-1.  BTW, in case you weren’t watching, Jarred Weaver tossed a no-hitter to make sure the light hitting Angels were able to win on Wednesday. 

A reminder to check out the link to our sponsor Falcon Point Capital in the right hand column.  Solid, smart investment managers. 

Have a great weekend

Ned