Tuesday, July 30, 2013

'No mas' stock suggestions, but our macro thoughts will continue ...

No more opinions on individual stocks

We will continue to post our thoughts from a macro standpoint.  However, we can no longer provide 'suggestions' regarding individual stocks, for a variety of reasons.  With FB skyrocketing the last few trading days, our batting average went from a nice 0.750 to a much less respectable 0.500. 

We cannot and will not provide our opinion regarding those names.  We do note that two of those companies reported Q2 numbers and both beat the Street's top and bottom-line estimates.  FB reported last week; and IACI posted its numbers on Tuesday afternoon.  BCOR is scheduled to report Q2 results on Thursday after the close. 

As usual, we are not aware if or when AVID will report or file its financial reports.  However, based on an 8-K filed by AVID on July 19, a few things have taken place: 

  • Karl Johnsen will no longer be AVID's VP of Finance, Chief Accounting Officer and Controller.  John Frederick, AVID's CFO, will take over as AVID's interim Principal Accounting Officer.
  • AVID also adopted the "Remediation Bonus Plan" which it hopes creates additional incentive for its employees to stay onboard as the Company tries to address its revenue recognition and quarterly and annual statement filing issues.
  • AVID also stated that as of the end of Jun '13, it has $56.1MM in cash and cash equivalents.  This is only slightly below the Jun '12 balance of $59.4MM, but much lower than $71.4MM in Sept. '12.  Then again, with revenue recognition being disputed, the Company's AR balance of previous years and quarters will likely be changed, impacting cash balances reported in those quarters and years.  As a reminder, the Company has stated that the timing of revenue recognition is in dispute, not the amount. 

ISM manufacturing and NFP estimates

In terms of macro indicators, first Q2 GDP growth estimate, ADP employment, initial jobless claims, ISM manufacturing, BLS' July employment report (which includes net change in NFP), and the personal income and outlays report for June will be released this week.

As usual, we have estimates for ISM manufacturing and July NFP.  We think July ISM manufacturing index will come in at 52.2, higher than June's 50.9, but below the 53.1 consensus.  For net change in July NFP, we estimate 110K; lower than the Street's 175K. 

Monday, July 22, 2013

Performance Update for Week of 7/15 - 7/19

It had been two weeks since we last provided an update, so we thought it is not good to continue such irresponsibility.  The update is below ...

Friday, July 5, 2013

Jun '13 Employment Report Blew Away Estimates!

Well, we were certainly wrong regarding the BLS employment report.  As it is now widely known, June NFP increased by 195K, significantly above the consensus, and certainly much higher than our pessimistic outlook of a mere 125K.  In addition, the May number was actually revised higher.  The unemployment rate remained unchanged as the participation moved up 10bps from May, but remained 30bps below last year.  

Construction, retail, business services, and leisure & hospitality jobs led the way, while government jobs along with jobs in manufacturing and transportation & warehousing showed weakness.  The continuing increase in health care and social assistance jobs, more than offset the seasonal decline in education jobs.  Leisure & hospitality jobs continued to increase significantly, driven mainly by seasonal factors, in our opinion.

Overall average working hours did not change; however, average hourly earnings jumped up 0.4%.  We note that working hours have not changed for a while, but at the same time, earnings have gone up a bit.  This could be one of the reasons why the Fed has begun to seriously consider tapering in Q4.  

Some negative things did stand out.  They include the U-6 unemployment rate which jumped 50bps to 14.3% for the first time since February.  Some may claim that this is due to the higher participation rate, but then again, that rate increased merely 10bps.  We also noticed the significant jump in number of people working part-time for economic reasons.  While those that cited slack work or business conditions as reasons why they were part-time increased significantly, the ones that could only find part-time work declined.  All of this appears to be somewhat of a mix of good and bad.  Lastly, even though the participation rate moved up a bit, number of discouraged workers (of those not in the labor force) jumped to over one million, 200K+ above the May level and last year.  

The equity market has responded nicely, up nearly 1%.  But we note that the 10-year rate is now above 2.7%, up more than 20bps.  These higher risk-free rate are pushing up the costs for equities, at least theoretically (CAPM).  As rates continue to move higher, we think the QE premium will begin to be discounted.  As usual, we think the fundamental value of the equity market is below the levels that we are seeing right now. We wish everyone a happy and safe 4th of July weekend.  

Monday, July 1, 2013

Mfr. ISM Beats Street Expectations

Although the manufacturing ISM index came in above the consensus, as we had expected, it was below our own projection.  The June figure of 50.9 was higher than the Street's 50.5 estimate, and below our 51.6.  

This bounce was not surprising given the very disappointing results of the previous month.  New orders, production, and inventories sub-indexes are now above 50.0, indicating some growth.  However, the customers' inventories sub-index contracted further to 45.0 (from 46.0), indicating that customers are not very optimistic regarding future demand.  In addition, it validates the thought that inventory replenishment on the manufacturers' side is not driven by growth in demand, but by lack of inventory replenishment in prior months.  This is supported by the further decline in backlog of orders.  

The employment sub-index and its 2.8% decline (48.7 from 50.1) certainly stood out for us in this report.  Although manufacturing jobs are no longer a big chunk of total jobs in the US, the fact that this survey shows job losses, as opposed to decline in job growth, is alarming.  We think it provides some support for what we posted regarding this Friday's upcoming BLS employment report: we expect a miss.  We will see if this can be backed up by the ADP report and the employment sub-index of non-manufacturing ISM; both reports will be released on Wednesday.  As a reminder, we expect a +125K change in NFP for June, lower than the Street's 161K estimate.  The BLS employment report will be released on Friday. 

It appears that the equity market is embracing the disappointing employment sub-index figure today, as the S&P 500 is up more than 1%.  As mentioned before, these days (well, the last few years), bad news is good news because it verifies that the Fed's QE policy will continue, even though the economic benefits from QE have come in far short of expectations.  The artificial inflation of financial assets, with the never-ending hope of some 'trickle-down' effect, continues.