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A New Leaf

Posted By Barry Ritholtz On September 2, 2003 @ 12:26 pm In Finance | Comments Disabled

A New Leaf [1]: Welcome back to the red and green seas. We trust you had a relaxing summer. While you were away, quite a few things have moved up on our course list; Let’s begin the new school year with a list of the subjects we will be watching and studying. Each of these may be on the final exam:

Economic recovery continues: Data points show a gradually recovering economy. GDP, ISM and even CapEx have all gotten better over the Summer. Productivity remains high, interest rates are low, and economic stimulus is at historic levels. Yet all this is happening:

Without any job creation: Productivity gains are allowing companies to increase production yet still not add jobs; (See chart nearby) Overseas hiring of white collar (middle class) workers allows for the GDP to grow yet still not add jobs domestically; Post bubble, excess capacity allows for an increase in demand and/or revenues, even while additional layoffs are ongoing, just as:

Corporate Earnings generally improve: but are doing so mostly through cost cutting (including layoffs). Top end revenue numbers are only modestly increasing. The good news is that firms are running so lean that any revenue increases will fall mostly to the bottom line; The bad news is that a pick up in end user has yet to aggressively show itself; This is especially true regarding:

Corporate Capital Expeditures: have started to show signs of improvement. It’s been a very gradual series of increases. CapEx showing the greatest sales gains are those hardware / software products which result in hard dollar cost savings. This is because:

Focus on making the quarter’s numbers has never been more intense for public companies; While layoffs and outsourcing are increasingly the methods already lean firms are using to hit their targets. These improved fundamentals have led to:

Short Interest dropping for the 2nd straight month: the Nasdaq showed a 6.2% decrease, while the NYSE saw its short interest drop 4.2%. Open shorts are a source of market fuel, as short covering helps to propel the initial stages of the market’s rally. That buying has led to:

Valuation issues: The Nasdaq remains pricey, trading above 44 X earnings. Some sectors, like internet and semis, have become increasingly expensive when measured by traditional metrics. How they trade, along with:

Financials are the key to the next two months; Without their leadership, further market gains will be difficult.

Chart(s) of the Week:
Employment remains the biggest sore spot in this economy. Outsourcing, globalization, improving productivity, and declining manufacturing base continue to pressure employment numbers. When manufacturing jobs moved overseas, workers were able to retrain in new economy/service jobs. As those jobs migrate to the lowest cost provider, it’s not yet apparent what new sector will step up to absorb these newly idled workers.
the_worst_labor_market2.gif [2]
Source: CNN/Money [2]

NYT noted that the continued lack of new job creation makes the present era “Look Like a Recovery, but Feel Like a Recession.”
wage_and_salary.gif [2]
Source: CNN/Money [2]

The New York Times noted that the continued lack of new job creation makes the present era “Look Like a Recovery, but Feel Like a Recession [3].”

Random Items:
The Almighty Dollar? [4]
China Seen Ready to Conciliate U.S. on Trade and Jobs [5]
Taped at the BBC [6]
Indonesian School Has Chilling Roster of Terrorist Alumni [7]
Study: Americans Most Productive Workers [8]
The Business Of Football [9]

Quote: “To be able to fill leisure intelligently is the last product of civilization.”
-Arnold Toynbee
, (1852-1883)

Thanks to Business Pundit [10] for the Forbes Football pointer . . .


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2003/09/a-new-leaf/

URLs in this post:

[1] A New Leaf: http://www.imdb.com/title/tt0067482/

[2] Image: http://money.cnn.com/2003/08/29/news/economy/wages/index.htm

[3] Look Like a Recovery, but Feel Like a Recession: http://www.nytimes.com/2003/09/01/national/01LABO.html

[4] The Almighty Dollar? : http://www.scoop.co.nz/mason/stories/HL0308/S00223.htm

[5] China Seen Ready to Conciliate U.S. on Trade and Jobs: http://www.nytimes.com/2003/09/02/business/02CHIN.html

[6] Taped at the BBC: http://slate.msn.com/id/2087512/

[7] Indonesian School Has Chilling Roster of Terrorist Alumni: http://online.wsj.com/article/0,,SB106245231511800900,00.html

[8] Study: Americans Most Productive Workers: http://www.washingtonpost.com/wp-dyn/articles/A9340-2003Sep1.html

[9] The Business Of Football: http://www.forbes.com/home/2003/08/27/nfland.html

[10] Business Pundit: http://www.businesspundit.com/archives/000567.html

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