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Monthly Archives: April 2012

Social Security Revenue Unexpectedly Jumps Past Pre-Recession Levels

Source

“Social Security (SS) has released estimates for both payroll tax revenues and benefits paid for April. The results are adjusted for the 2% payroll tax reduction.  (The Treasury pays SS monthly for the shortfall.) The numbers tell an interesting story.
Revenues from FICA and SECA taxes are up significantly in the first four months of 2012.

A look at the actual income and the percentage change:

chart

chart

I’m surprised by the extent of this improvement. These numbers appear to be too good. The Jan. – Apr. results suggest that total employment has now exceeded the levels that prevailed in 2008. But that is not the case based on other information.

According to the BLS data, the number of people who are employed rose from 139.6m to 142.1m from Feb. 2011 – Feb. 2012. The increase of 2.5m workers translates into $5B of additional revenues at SS for the Jan. – Apr. 2012 period. (This assumes average annual income of $50,000) The $19B YoY improvement at SS suggests that there are many more people now working then the reported BLS data. There are some reasons why this discrepancy is so large:

-Annual adjustments to SS’s reported income. 


-Quarterly adjustments to SS’s reported income. 


-Many workers received bonus payments in Jan. and Feb. 2012. Therefore they have already maxed out their annual SS contributions. (The max = $110,500 of income.)


-SS data covers all workers; BLS data only covers Non Farm workers. It’s possible that more people are finding employment outside of the areas that the BLS covers.

I think that taken together these factors can only account for half of the increase in payroll tax revenue. The other half is a function of more people working. The data suggests there are 1-2 million more people working than the BLS is reporting.

Is this possible? “Yes”, is the answer. The BLS puts the work force at 142m. Could its numbers be wrong by 1%? Sure they could. The BLS conducts its surveys by land-line phone. It does not attempt to contact households that exclusively use cell phones. In 2010, 27% of all households exclusively used cell phones. The exclusion of a quarter of all households makes the BLS numbers very suspect.

Note: The observation that there may be 1-2 million more people working (including part time) runs counter to other information that I look at, so I’m a bit confused by the result. The data can be found here. I’d be interested in any alternative theories as to why the numbers appear so strong.
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The Bad News
The double whammy of inflation and 10,000 new people a day getting SS checks is causing costs to soar at SS. The payout has been averaging $4B a month higher than a year ago:

 

Krasting 4212b

Bruce Krasting

 

 

Krasting 4212c

Bruce Krasting

 

A basic metric for measuring SS is payroll tax income minus benefit payments. This chart looks at the results for the Jan. – Apr. periods: “

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Gapping Up and Down This Morning

Gapping up

AVP +25.6%,  HIG +1.3%, TWER +23.2%, BONA+18%, RIO +1%, RNDY +10.3%,  HIG +1.3%,  NURO +5.4% ,

VICL +2.6% , ARMH +1.8% ,  FTR +2.2%, CXO +2.7% , KSS +0.9%, ANF +1.6%,

Gapping down

AMZN -2.2%, TXN -1.1% , PNCL -18.5%, NBG -4.9%, GOLD -4.1%, ILMN -2.1%, MT -1.6%, SINA -6.3% ,

AEZS -56.1% , KERX -53.4% ,  THLD -2.2%, SCEI -14.1%, GRPN -10.2%, ILMN -1.4%,

NBG -4.9%, ING -3.4%, BCS -2.6%, BBVA -2.0%, STD -2.0%, HBC -1.7%, UBS -1.6%, CS -1.0%.

 

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Upgrades and Downgrades This Morning

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Amazon.com, Inc. (NASDAQ: AMZN) Raised to Buy at BofA/ML.

Brookfield Infrastructure Partners L.P. (NYSE: BIP) Cut to Neutral at BofA/ML.

Exelis, Inc. (NYSE: XLS) Cut to Neutral at JPMorgan.

General Motors Company (NYSE: GM) Started as Overweight at Morgan Stanley.

Groupon, Inc. (NASDAQ: GRPN) Cut to Neutral with $20 target at BofA/ML; Cut to Sell at Stifel Nicolaus.

IntercontinentalExchange, Inc. (NYSE: ICE) named as Bull of the Day at Zacks.

Linear Technology Corporation (NASDAQ: LLTC) Cut to Neutral at UBS.

PAREXEL International Corporation (NASDAQ: PRXL) Cut to Neutral at Stern Agee.

Parker Drilling Company (NYSE: PKD) named as Value stock of the day at Zacks.

PVH Corporation (NYSE: PVH) Raised to Outperform at Credit Suisse.

Rangold Resources Limited (NASDAQ: GOLD) Cut to Neutral at Nomura.

Rio Tinto PLC (NYSE: RIO) Raised to Overweight at Barclays.

Southwest Airlines Co. (NYSE: LUV) named as Bear of the Day at Zacks.

The Sherwin-Williams Company (NYSE: SHW) Cut to Neutral at BofA/ML.

Texas Instruments Inc. (NASDAQ: TXN) Cut to Neutral at UBS.

 

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U.S. Equity Preview: UNP, TWER, THLD, SBUX, MDT, IBM, GRPN, FTR, BEN, AVP, ADI, & AMZN

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Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 7:45 a.m. in New York.

Amazon.com Inc. (AMZN) fell 1.8 percent to $198.95. The largest Internet retailer was cut to neutral from buy at Bank of America Corp.

Analog Devices Inc. (ADI) : The maker of chips used in cars, consumer electronics and phone networks acquired Multigig Inc. to enhance the company’s clocking capabilities. Terms of the transaction weren’t disclosed.

Avon Products Inc. (AVP) surged 23 percent to $23.80. Coty Inc. offered to buy the door-to-door cosmetics seller conducting an internal bribery probe, for about $10 billion. The cash proposal of $23.25 a share is 20 percent higher than Avon’s closing price on March 30. Coty has said it has held “extensive discussions” about financing a deal.

Finish Line Inc. (FINL) : The athletic apparel retailer was cut to neutral from positive at Susquehanna Financial Group.

Franklin Resources Inc. (BEN) : The manager of the Franklin and Templeton mutual funds may rise to mid-$140 over the next year as its diversified assets help earnings growth to accelerate, Barron’s reported.

Frontier Communications Corp. (FTR) rose 1.9 percent to $4.25. The phone company serving rural U.S. markets was raised to buy from neutral by Nomura Holdings Inc.’s Michael McCormack, who also raised his 12-month price estimate to $5 from $4.

Groupon Inc. (GRPN) (GRPN US) plunged 11 percent to $16.31. The largest provider of daily deals online reported a “material weakness” in its financial controls and said fourth-quarter results were worse than previously stated because of higher refunds to merchants. That cut revenue in the period by $14.3 million to $492.2 million. Groupon was also downgraded to neutral from buy at Bank of America Corp.

International Business Machines Corp. (IBM) : The world’s biggest computer-services provider is buying a 20 percent stake in SIX, the technology unit of Brazilian billionaire Eike Batista, Veja reported in its Radar online column, without saying where it obtained the information. IBM has agreed on a contract worth $1 billion to provide services to Batista’s company for 10 years, Veja said.

Medtronic Inc. (MDT) : The world’s biggest maker of heart-rhythm devices said it reached an agreement to pay an $85 million settlement to resolve a previously disclosed federal securities class action suit filed in 2008 by the Minneapolis Firefighters Relief Association.

Starbucks Corp. (SBUX) : The world’s largest coffee-shop operator said it’s planning a bigger push into smaller cities in China in an effort to triple stores in the country that will become its second-biggest market by 2014.

Threshold Pharmaceuticals Inc. (THLD) declined 2.3 percent to $8.60. The biotechnology company said that a Phase 2b trial for its TH-302 pancreatic cancer drug met its primary efficacy endpoint.

Towerstream Corp. (TWER) gained 18 percent to $5.62. The Middletown, Rhode Island-based wireless broadband provider has signed a Wi-Fi agreement with a national wireless carrier that uses its current and future rooftop assets, the company said in filing.

Union Pacific Corp. (UNP) : The biggest U.S. railroad is poised to rise as an economic recovery boosts traffic, offsetting a slowdown in demand from the coal industry, Barron’s reported in its “The Trader” column.

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BRICs to Create a Rival for World Bank and IMF; Challenging the Dollar as The World’s Fiat Currency

“From GoldCore

BRICs Bank To Rival World Bank And IMF And Challenge Dollar Dominance

Gold’s London AM fix this morning was USD 1,664.00, EUR 1,246.16, and GBP 1,037.54 per ounce. Friday’s AM fix was USD 1,655.75, EUR 1,245.86 and GBP 1,041.22 per ounce.

Silver is trading at $32.41/oz, €24.29/oz and £20.21/oz. Platinum is trading at $1,634.50/oz, palladium at $651.96/oz and rhodium at $1,350/oz.


Cross Currency Table – (Bloomberg)

Gold rose $8.10 or 0.49% in New York on Friday and closed at $1,668.20/oz. Gold traded volatile in Asia with quick gains seen at the open prior to determined selling which saw a drop to $1,663.77/oz in late Asian trading and European trading saw further weakness.

Gold climbed towards $1,700 last week after the U.S. Federal Reserve Chairman Ben Bernanke alluded to the possibility of more QE.

Gold continues to be guided by the currency markets.  The dollar index hit near a 1 month low last Friday and this plus weakness in all major currencies is seeing gold supported close to the 200 day moving averages.


Gold 1 Year – (Bloomberg)

Gold’s short term technicals remain poor after a lower monthly close in March (-6.4%) and the weekly close below the 200 day moving average.

However, the technicals are not uniformly bad as gold had a higher weekly close last week – rising 0.33% for the week.

The higher quarterly close of a 6.7% gain in Q1, 2012 and 11 consecutive years of annual gains mean that the long term technicals remain favourable.

Gold’s still strong long term supply demand fundamentals and the long term trend of rising gold prices remain a gold buyer’s friend.

Jewellers in India, plan to suspend the longest nationwide strike after the government said that it will delay the implementation of an increase in excise duty on non-branded ornaments.

India’s gold imports will drop near 59% to about 125 tonnes in the 3 months through March as the tax increases boost retail prices by more than 6%, Prithviraj Kothari, president of the Bombay Bullion Association, said. That compares with 306 tonnes imported a year earlier, according to data from the World Gold Council.

The lack of Indian demand has almost certainly contributed to recent weakness and the renewal of India demand in the coming days should provide further support to gold.

BRICs Bank To Rival World Bank and IMF and Challenge Dollar Dominance

Outgoing President of the World Bank, Robert Zoellick, after just three days ago dismissing the idea of a BRICs created, new global multi lateral bank, has come around and endorsed a BRICs bank in an interview with the FT.

Zoellick had initially said that a BRICs bank and potential rival to the western and U.S. dominated IMF and World Bank, would be difficult to implement given competing BRIC interests.

He acknowledged that a BRICs bank was being created and said that the World Bank supported such a bank. He said that not having Russia and China as part of “the World Bank system” would be a “mistake of historic proportions”.

Leaders of the BRICS nations meeting in India appear to have made much progress in creating a new global bank as the emerging economies seek to convert their growing economic might into collective diplomatic influence.

The five countries now account for nearly 28% of the global economy, a figure that is expected to continue to grow.

On Thursday morning, President Hu Jintao of China, President Dmitry Medvedev of Russia , President Dilma Rousseff of Brazil, President Jacob Zuma of South Africa and Prime Minister Manmohan Singh of India shook hands at the start of the one day meeting in New Delhi.

BRICS leaders, from left, Brazil’s President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma. Photo: AP

Top of the agenda was the creation of the grouping’s first institution, a so-called “BRICS Bank” that would fund development projects and infrastructure in developing nations.

The initiative would allow the countries to pool resources for infrastructure improvements, and could also be used in the longer term as a vehicle for lending during global financial crises such as the one in Europe, officials said….”

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KKR to Buy Natural-Gas Fields From WPX Energy

KKR KKR +0.47% & Co. has agreed to buy natural-gas fields in Texas and Oklahoma for $306 million as the private-equity firm continues an energy patch spending spree that has seen it commit billions of dollars to oil and gas producing properties.

KKR said Monday that it is acquiring 93,000 gas-producing fields from WPX Energy Inc.WPX -0.83% About a third of the properties are in the Barnett Shale beneath Fort Worth, Texas while the rest is in the Arkoma Basin, which underlies swaths of Oklahoma and Arkansas.

KKR has been among the most aggressive buyers in a surge of private-equity investment in U.S. energy production. In November it led a $7.2-billion acquisition of closely held Tulsa, Okla., explorer Samson Investment Co. And last month it struck a $250-million pact with Chesapeake Energy Inc. CHK -0.17% to invest in oil and gas properties….”

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HUSSMAN: This Chart Guarantees A Profit Margin Collapse

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“The question of profit margins, and whether they’re sustainable continues to be a hot topic.

A couple weeks ago, GMO’s James Montier made a big contribution to this discussion, drawing the line between high corporate margins and big government deficits.

IIn his latest weekly note, John Hussman builds on Montier’s work with this chart.

 

margins

John Hussman

 

It’s pretty clever, as it spells out the link between the lack of savings (which Hussman represents as the inverse of government and household savings) and corporate profits as a percentage of GDP.

Furthermore, the red line is 4 quarters ahead, with the point being that where it goes, the blue line shall soon follow.

And so we’re already seeing a downturn in the red line (meaning savings are increasing), which should suggest margin shrinkage.

Of course, this isn’t the whole story.

We’ve argued here why profits could still rise if top-line growth is strong, or if other sources of income, such as private investment revert upwards to their historical mean.”

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Eurozone PMI Flirts With Recession

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“The economy is getting worse.

We just got a big slew of PMI numbers, and a few things are clear in Europe.

  • The periphery is hurting badly. What countries like Spain, Italy, and Greece so desperately need is growth, and they’re not getting any of it. This not only is bad from a societal standpoint (as the jobs picture gets worse and worse) but it makes sovereign debt dynamics worse, as the GDP part of debt-to-GDP shrinks.
  • Core is not doing so hot either. The French number showed a particularly steep drop. Germany has dropped below 50 as well.
  • Surprisingly, the only real “bright spot” was Ireland, which saw a big pickup in New Orders and exports. Somehow it continues to avoid the curse of the rest of the PIIGS.

This chart from Markit summarizes the situation up nicely, as it shows the core of Europe rapidly meeting the periphery in the recession zone.

 

PMI

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Wells Fargo Opens a New Unit to Attract The Uber Wealthy

“(Reuters) – Wells Fargo & Co opened its new Abbot Downing business on Monday, officially merging two of its wealth management units under a new brand it hopes will expand its market share of America’s richest families.

The new business, catering to ultra-high-net-worth individuals and families with $50 million or more in investable assets, resulted from the combination of Wells’s Family Wealth unit and its Lowry Hill subsidiary. The name Abbot Downing comes from the 19th-century New Hampshire builder of the stagecoaches that have come to represent Wells Fargo.

Since Wells first publicly announced the planned merger in November, the combined business has grown roughly 20 percent to $32.9 billion in client assets under management. In those five months, Steiner said the group had added five billionaires and 13 individuals with $100 million or more in investable assets to its client base.

“We’ve had new success in bringing in new foundation assets,” said Jim Steiner, Abbot Downing’s president. “People are leaving more money to foundations and endowments.”

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Cody Bids $10 Billion for Avon Products

Source

"(Reuters) - Beauty company Coty Inc said on Monday it had offered to buy cosmetics direct seller Avon Products Inc for $10 billion.
Coty, known for fragrances for such celebrities as Beyonce and Lady Gaga, said it has been "unsuccessful" in getting Avon to talk about its offer, but said it had no plans to make a hostile bid.
Coty was offering $23.25 per Avon share, or a 20 percent premium over Friday's closing price of $19.36 on the New York Stock Exchange."

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Global Payments Shunned by Customers as Data Breach May Affect 1.5 Million Users

“ATLANTA (AP) — A recent data breach may affect less than 1.5 million credit cards in North America, according to the card processor involved.

Visa and Mastercard announced Friday that they had notified their card holders of the potential for identity theft and illicit charges because of the breach. The card processor, Global Payments, put a number on those who could be affected late Sunday.

Global Payments said that credit card data may have been stolen, but that cardholder names, addresses and social security numbers were not obtained. Both Visa and Mastercard said Friday that their own systems had not been compromised.

Global payments said that, based on forensic analysis to date, network monitoring and added security measures, it believes the incident has been contained.

“We are open for business and continue to process transactions for all of the card brands,” Global Payments Chairman and CEO Paul Garcia said…”

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Euro Zone Unemployment Hits a 15 Year High

“BRUSSELS (Reuters) – Unemployment in the euro zone reached its highest level in almost 15 years in February, with more than 17 million people out of work, and economists said they expected job office queues to grow even longer later this year.

Joblessness in the 17-nation currency zone rose to 10.8 percent – in line with a Reuters poll of economists – and 0.1 points worse than in January, Eurostat said on Monday.

“We expect it to go higher, to reach 11 percent by the end of the year,” said Raphael Brun-Aguerre, aneconomist at JP Morgan in London. “You have public sector job cuts, income going down, weak consumption. The economic growth outlook is negative and is going to worsen unemployment.”

February’s level – last hit in June 1997 – marked the 10th straight monthly rise and contrasts sharply with the United States where the economy has been adding jobs since late last year….”

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Oil Had Gains on China’s PMI Data

“Oil advanced for a second day in New York on signs that the economy is improving in China, the world’s second-biggest consumer of crude.

Futures rose as much as 0.5 percent after a purchasing managers’ index climbed to a one-year high in March. Oil capped a 4.2 percent gain in the first quarter as President Barack Obamasaid March 30 that world supplies are sufficient to proceed with new sanctions against Iran.

“The firmer tone relates to the official Chinese PMI reading, and that reverses the negative sentiment we’ve seen around China,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “That speaks well to demand. The Middle East seems to be quietly boiling away without any signs at this stage of a blow-up.”

Oil for May delivery gained as much as 56 cents to $103.58 a barrel in electronic trading on theNew York Mercantile Exchange and was at $103.12 at 3:05 p.m. Singapore time. Prices fell 3.8 percent in March, narrowing the first-quarter gain.

Brent oil for May settlement increased 26 cents, or 0.2 percent, to $123.14 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $20, up from $19.86 on March 30, the most since Oct. 24….”

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Spain’s Home Prices Expected to Drop 12-14% This Year

“Spanish home prices are poised to fall the most on record this year, leaving one in four homeowners owing more than their properties are worth, as the government forces banks to sell real-estate holdings.

Home prices will decline 12 percent to 14 percent, according to research and advisory company R.R. de Acuna & Asociados, after Economy Minister Luis de Guindos in February gave lenders two years to make 50 billion euros ($67 billion) of additional provisions and capital charges for losses linked to real estate. That’s the most since the National Statistics Institute started tracking values in 2007. Standard & Poor’s forecasts borrowers with negative equity may rise to 25 percent this year from 8 percent in 2010, based on an analysis of 800,000 mortgages….”

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Europe Adds to Their Firewall, But Still Would Like Additional Assistance From the World

“Efforts to resolve the two-year-old European debt crisis swung back to world leaders after euro-area officials boosted a firewall designed to overcome doubts about their crisis response and to lure additional emergency aid.

Finance ministers from the 17-member monetary union unveiled a package over the weekend that included 500 billion euros ($667 billion) in fresh bailout funds on top of 300 billion euros already committed to rescue programs, which together topped the symbolic $1 trillion mark. The total doubles when more than 1 trillion euros lent by the European Central Bank to aid the region’s banks is included.

“The political commitment to the euro zone is increasingly clear, and the ECB has shown that, in the final analysis, they’ll do what they have to do,” Erik Nielsen, chief global economist at UniCredit SpA (UCG), wrote in a note yesterday.

Group of 20 nations that rebuffed German-led pleas for more aid in February will be asked to decide this month whether European leaders have done enough to warrant increased resources from the International Monetary Fund. Euro-area finance ministers insisted at a meeting that ended March 31 in Copenhagen that they’ve fulfilled their side of the bargain.

“Europe has done its part” and that augurs well for talks at the IMF spring meeting on April 20, French Finance MinisterFrancois Baroin said at the meeting in the Danish capital.

‘Strengthen Confidence’…”

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