Wednesday, June 25, 2014

GCI, IACI: The Supreme Court rules against Aereo ...

The Supreme Court ruled against Aereo and in favor of ABC this morning.  We expected such a ruling and we also agree with it.  In terms of how some stocks are reacting, GCI, which we have been viewing as a 'buy' and value at approx. $40/sh, is up 4%+.  IACI, one of the biggest investors in Aereo and a stock that we value at only $60/sh, is down approx. 1%.  Other stocks impacted by this ruling include: MEG (+10%), SBGI (+14%), and CBS (+5%). 

The Court's ruling was based on a few things that we have discussed before: 1) Aereo is actually distributing content and not merely storing the content, nor just providing the hardware, as it claimed; 2) based on (1), Aereo is transmitting "a performance ... of the work ... to the public" (as stated in the Copyright Act of 1976; and 3) given (1) and (2) and the fact that it has not attained nor paid for any right to distribute (or "transmit") the content, Aereo is committing copyright infringement.  Simply put: content remains king and any distribution of it must be paid for.  

What does this ruling mean for GCI?

The Supremem Court's decision means GCI will continue to receive retransmission fees from distributors; whether the distribution is in real-time or delayed, or via cable, satellite or OTT.  The retrans fees basically go straight to the bottom-line, and based on some industry studies such as one conducted by SNL Kagan, we think those revenues could grow at a 16% 5-year CAGR through 2019, possibly expanding GCI's Broadcast segment EBITDA margin to 54%+.  

What does this ruling mean for Aereo?

The CEO of Aereo has been quoted saying that the company does not have a "plan B" if the Court rules against it.  After this morning's news, we will see if Aereo, along with the $90MM+ invested in it, will disappear.  The other option may be that Aereo begins paying broadcasters.    

Other news ...

In other news, the latest Q1 GDP figure was released by the BEA which showed real GDP declined at a 2.9% annualized rate compared with a 1.9% decline expected by those expert economists.  Durable goods orders for the month of May also came in below expectations, -1% compared with the 0% consensus.  PMI services for June beat expectations, 61.2 vs 58.0 consensus.  But we note that deceleration in the outstanding business, business expectations, and prices charged (or revenues) sub-indexes, combined with acceleration in employment and input price sub-indexes, do not sound that great.  But who cares, the equity market continues to go up and up; S&P500 is up 0.23% at 1954.  

Lastly, we are a bit relieved as the Supreme Court also ruled that law enforcement officials need warrants to have access to any data on cell-phones.  Then again, as we have seen in the past, no laws are really applicable to the NSA.  But we continue to hope for change.  

Friday, June 6, 2014

May '14 NFP increased by 217K; our guesstimate was off significantly ...

Well, our accuracy trend of estimating monthly net change in NFP ended abruptly today as May NFP increased 217K, slightly higher than the 213K estimate, and significantly above our 129K guesstimate.  Official unemployment rate remained at 6.3% with no change in labor force participation rate.  The U-6 rate dipped to 12.2% from 12.3% in April.  In terms of revisions, April NFP change was lowered by 6K to 282K while the March figure was unchanged at 203K.  Overall, the numbers were pretty much in-line with what the market expected, but we will see what happens next month, in terms of revisions.  We must say thank Goodness for those ever-increasing health services jobs as they increased by nearly 55K!  
  • Private NFP increased by 216K
  • On the production side (goods-producing), the biggest gainers were manufacturing (+10K) and construction (+6K)
  • Within manufacturing, strength in durable goods was offset partially by decline in non-durable goods, especially in food manufacturing
  • On the services side (private service-producing), led by education and health services (+63K), professional and business services (+55K), and leisure and hospitality (+39K). 
  • Health-services jobs jumped by 54.9K.  We are guessing that Americans aren't getting any healthier as jobs in this space continue to increase.  Or the Obamacare is actually creating the jobs, for good and bad reasons.
  • Professional and business services increased due to strength in technical services and those administrative employment services jobs.  Temp-help jobs continue to grow; whether that is good news or not, remains to be seen.
  • Wholesale trade jobs increased by 9.9K with strength in durable goods trade jobs partially offset by decline in nondurable goods.
  • Increase in retail trade jobs was helped by a 6.8K increase in car dealer related jobs but jobs in electronics and appliance stores declined by 5.1K
  • Information related jobs declined mainly due to another decline in motion picture and sound recording industries jobs.  
  • Average weekly hours remained unchanged while hourly earnings went up by a nickel or 0.2% from April; and by 2.05% from last year.   

S&P 500 futures are up 0.2% indicating possibly another record close for the equity market today.  Gold is up 0.14%, which is a bit surprising given the solid jobs report.  Front-month oil futures up 0.44%, maybe a bit more due to the good durables-related jobs numbers rather than the usual geopolitical factors. 

Wednesday, June 4, 2014

May '14 NFP guesstimate of only 129K ...

BLS employment report will be released this Friday, 6/6.  Our model spit out an NFP increase of approx. 129K, significantly below the 213K Street consensus.  While initial jobless claims have been declining consistently, we note that such trend does not necessarily indicate acceleration of job growth, but rather a deceleration of job loss.  In addition, the ISM manufacturing and services employment sub-indexes were mixed in May, while the ADP report missed big.  Lastly, the latest online job postings, both total and new ones for May, declined slightly.  For these reasons we think the NFP net change in May employment report may turn out to be a big miss.

Monday, June 2, 2014

Disappointing May ISM manufacturing ... or not?!? (part II)

This is amazing!  ISM appears to have corrected its mistake TWICE, and only on its homepage and on a correction *.pdf report , not within the published report on its website .  So the 'final' May ISM manufacturing index stands at 55.4, slightly below our estimate and the consensus.  By now, we think the overall consensus is that ISM may have needed a 3-day weekend to get this right. 

The main differences between the original report and the double-revised one are: growth in new orders and production accelerated, while deceleration in employment was a bit lower. 

We're wondering if Vegas is taking any bets on whether or not ISM will revise the revised version of the first revised version!

Disappointing May ISM manufacturing ... or not!?!

May ISM manufacturing may not have been as bad as initially reported by ... yes, by ISM!  There are some reports out there saying that ISM used the wrong seasonal factor to adjust its results, and because of that it spit out the disappointing 53.2 that we discussed earlier today.

Some reports have said the number is actually 56.0, which, if true, is closer to our 55.8 estimate and above the 55.5 consensus.  It remains to be seen, as the last time that we checked the ISM website, no changes were made to the report.  We called ISM's Kristina Cahill and left a message.  We also emailed her.  Hopefully we will get a response.  Below are links to various reports stating the correction (or no correction ... or too many corrections) associated with ISM's May manufacturing data.  

GCI: Positive article on Gannett in Barron's

We wanted to highlight a positive piece on Gannett (GCI) published in Barron's last weekend (5/31).  Pretty much everything we said about GCI in Jan. '14 was supported in that Barron's article.  Most of the buy-side guys that Barron's quoted also value GCI around $40/sh.  Link to the article: Gannett Could Rise 40%.  

GCI has reacted well to the story as it is up 3% on high volume; it is up only 4.2% since we published our opinion on it in late Jan. '14, compared to a 7.5% increase in the S&P 500 during the same period.    

Related AMBlog posts:

Disappointing May ISM manufacturing ...

ISM manufacturing for May came in at 53.2, below our 55.8 estimate and the Street's 55.5.  Data show that growth slowed across most sub-indexes.  In our opinion, deceleration in new orders, production, employment, backlog, exports, and imports, accompanied by no change in inventories, continuing weakness in customer inventories, and overall prices surging higher, isn't a very good sign.  

Construction spending for April came in below expectations, but the miss was mostly due to an upward revision of the March data.  

Equity market's reaction to all of this has been pretty modest, with S&P500 down only 0.08%, as many await release of the May employment report this Friday.

Related posts:

Sunday, June 1, 2014

May ISM manufacturing guesstimate and more ...

This week will be somewhat busy when it comes to market-moving macro indicators.  Along with the weekly initial jobless claims, ISM manufacturing and the BLS employment report for May will be released.  

We will publish our NFP (employment) estimate on Wednesday, 6/4.  Regarding the ISM manufacturing (to be released on Monday, 6/2), based on the regional surveys, we expect the overall index to come in at 55.8, slightly above the latest 55.5 consensus.  

In terms of how the equity market may react to any big surprises, that question has become more difficult to answer.  It used to be that bad news was good news as it increased chances of further QE policies, which would likely push asset prices higher.  However, tapering talk began putting at risk some of that hefty 'QE premium' that is still priced into the equity market, in our opinion.  

Then came the 'tapering of the taper-talk', which diluted impact of actual tapering, at least psychologically.  But with continuing tapering, many believed the economy will soon be back at full-speed, or 4.5%+ growth rate.  Then the 'weather factor' popped up which did impact economic growth negatively.  And that diluted the impact of the very disappointing Q1 GDP growth (on the equity market), which turned out to be a 1% decline, at least based on the second estimate released by BEA last week.  April's durable goods numbers offset the weakness we saw in Q1 GDP inventories and may indicate that Q2 has gotten off to a better start.  

However, with personal savings having declined to a mere 4% of disposable income in Q1, even with the bad weather impacting personal consumption negatively, overall PCE in Q2 may not jump as high as some economists expect.  With continuing slow growth in wages, it is more likely that consumers will bump up their personal savings to 5%+ in Q2.  The April personal income and consumer spending numbers indicate a not-so-great start to Q2 as they grew only 0.3% and -0.1% m/m respectively, both below expectations.  And consumer confidence hasn't been as strong, with the latest Reuters/UMich consumer sentiment index coming in below expectations.  

We think higher savings and stagnation in wage growth could slow down growth in the real estate market, especially among the first-time buyers that may not be able to handle  continuing increase in home prices.

Those housing numbers have been mixed lately with prices rising, although at much lower rates, but pending home sales in the very important West region declining slightly.  Then again, new home sales, housing starts, and permits for April came in better than expected.    

Simply put, there are still many questions about whether or not the economy will get up to full-speed; however, the equity market continues to hit new highs, while US treasury yields get lower.  The only consistency we have been seeing in these markets is: confusion.