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Blog Spotlight: Global Economic Analysis

Posted By Barry Ritholtz On October 24, 2006 @ 7:00 pm In Blog Spotlight | Comments Disabled

Another edition of our new series:  Blog Spotlight.

We put together a short list of excellent but somewhat overlooked
blog that deserves a greater audience. Expect to see a post from a
different featured blogger here every Tuesday and Thursday evening,
around 7pm.

Up next in our Blogger Spotlight:  Michael Shedlock and Mish’s Global Economic Trend Analysis [1]. Mike is one of the editors of The Survival Report, covering stocks and the economy. He also writes for the Daily Reckoning, and co-edits Whiskey & Gunpowder. He also runs stock boards on the Motley Fool, Silicon Investor, and TheMarketTraders. He is an avid photographer, when not writing about stocks or the economy, with over 80 magazine and book covers to his credit.

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Mish_geta [2]

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Earnings,  Confidence, and Boxes

Countrywide
reported
third-quarter profit rose 2
percent, less than analysts expected, as demand for home loans slumped. The
company’s shares surged higher on plans to lay off more than 2,500 employees
and buy back up to $2.5 billion of stock, and as higher profits in other units,
including Countrywide Bank, cushioned the mortgage decline.

It seems the street just can’t get enough bad news. CFC
rallied 5% as investors warmly welcomed news of more layoffs. CFC is already
talking about the 2008
recovery
. It’s never too early to do that. “By 2008, surviving players will be positioned for ‘one hell of a year’”
said CEO Angelo Mozilo.

Ford lost $5.8 billion, or $3.08 per share, during the 3rd
quarter this year. Sales fell 10% to $36.7 billion. Excluding special charges,
Ford posted a loss from continuing operations of $1.2 billion or 62 cents per
share. Last year during the same period, Ford posted a net loss of $284
million, or 15 cents per share. Ford has now lost $7.2 billion for the year. 3Q
output was down 11% vs. 17% drop in overall North American sales and a 25% drop
in F-series pickups. The company plans
4Q North American output cuts of 21%.

Ford called those results “clearly
unacceptable”
. Shares of Ford are also up since the announcement. Yes those
results are “unacceptable” but what is Ford doing about it? Ford’s “Way
Forward” plan, calls for eliminating 44,000 hourly and salaried jobs, closing 16 factories and making other
changes by 2012. Part of the “Way Forward” is to Kill Taurus [3]and
along with it a lot of jobs at US assembly plants.

To be sure there have been some earnings successes with
Apple and Google and others, but in the end how many jobs are those companies
going to be able to provide to make up for housing and manufacturing related
losses?  People need jobs to be able to
afford their McMansions, not just any jobs but good jobs.

Is tech the savior? I think not.

A Challenger Report shows IT
job cuts up sharply in Q3
.

Just three months after U.S. IT job
cuts reached their lowest levels since 2000, a new study has found that planned
workforce cuts are again heading upward as recent corporate restructuring,
mergers and other events are reducing the number of available jobs.

The study, released today by
Chicago-based global outplacement consultancy Challenger, Gray & Christmas
Inc., found that planned IT job cuts increased 74% in the third quarter to
50,957, up from 29,226 this past June 30, when the number of IT job cuts had
dropped to its lowest level since the third quarter of 2000.

The seven-page study, "Tech
Spending Slowdown on the Horizon?" concludes that the third-quarter job
cuts are attributable mostly to cost-cutting and restructuring, which accounted
for 33,373, or 65%, of the cuts in the quarter that ended Sept. 30. Overall for
the year, corporate mergers have been cited for 29% of the tech job cuts
through September, according to the study. Also affecting job cut levels are
business competition, reduced sales and product demand, company closings and
outsourcing.

Other related data from Challenger
shows that technology companies have announced plans to hire just 5,764 new
workers in the third quarter, down from 14,090 in the second quarter, according
to the study.

In the Box

Still more evidence is piling up that suggests the current
slowdown will go far beyond a housing bust. I received an email just yesterday
from the CFO of a major North American cardboard box manufacturer. He wished to
remain anonymous so I will honor that request. Here goes from “Mr. Jack I.
Box”:

Mish, please do not use the name of
my company but I thought you might be interested in this letter. I have
received four other letters in the last 6 weeks that indicate pricing stress
and volume stress from major OEM’s. Some fault the housing market and others
don’t know who to fault for the fall off of business.

I am a CFO for a box
manufacturer. Our business, in my opinion, is a very good barometer of all
business. Everything comes in a box. Tomatoes, 3COM Switches,
television sets, hot water heaters, and everything from hot sauce to game
boys.  If these companies are feeling the stress with cheap foreign
labor I see a major problem in the future.

The following letter was from ****
Water Heaters. We have receive similar letters from Sanyo (Energy divisions),
Panasonic (Power tool division) and Sony (Television ). All of
our furniture accounts are gone except for Douglas Furniture.

~~~~

Dear Supplier:

I regret to inform you that there
is a strong likelihood that beginning Wednesday October 18th we will
be asking you to reduce or stop shipments on all products associated with The
Home Depot. This could represent up to 50-60% of your supplied parts
volume.  The details will be communicated to you through each of the
Planners at the three plants.

This action was necessary due to
the large number of increases that we incurred from our supply base.

I understand that this will have a
profound impact on your business.

Please bear with us as we work
through this.

Sincerely,

“John 
Doe” Purchasing Manager

 

Mr. Box’s company not only makes custom and generic boxes
but on occasion also boxes up stuff for clients and ships them out. As far as
Home Depot goes the problem can be on either end so do not assume there is any
problem with Home Depot itself. I had a followup question to Mr. Box about the
Home Depot situation and here was his reply:

More than likely Home Depot and ****
Water Heaters came to a standoff on price increases. What I am not sure of yet
is whether this is being forced due to a reduction in **** Water Heaters sales
volume with Home Depot.

We have also had a major brand TV
manufacturer (Not Sony) reduce all open PO’s
by 50%. I must assume this is a lack of demand for their product as we have not
lost any of this business to a competitor.

 

CEO Confidence Survey

The Conference Board is reporting The
Chief Executives’ Confidence Measure Fell to 44 in the Third Quarter

The Chief Executives’ Confidence Measure, which had
fallen to 50 in the second quarter of 2006, fell to 44 in the third quarter,
The Conference Board reports in its latest survey of CEOs. A reading of more
than 50 points reflects more positive than negative responses. The survey includes
about 100 business leaders in a wide range of industries. This is the first
time the Measure has dipped below 50 in nearly five years, when it was at 40 in
the final quarter of 2001.

Says Lynn Franco, Director of The Conference Board
Consumer Research Center: "The lack of confidence expressed by CEOs is a
result of the recent slowdown in economic growth, combined with expectations
that this lackluster pace of growth will carry over into the beginning months
of 2007."

CEOs’ assessment of current conditions weakened
further in the third quarter. Now, only 16 percent of CEOs claim the current
economic environment is better, down from about 27 percent in the second
quarter. In assessing their own industries, business leaders were less upbeat.
Approximately 28 percent say conditions are better, compared to 40 percent in
the last quarter.

CEOs are also less optimistic about the short-term
outlook. Now, only 16 percent of business leaders expect economic conditions to
improve in the coming months, down from 21 percent last quarter. Expectations
for their own industries were also less positive, with 20 percent anticipating
an improvement, down from 31 percent last quarter.

Of Boxes and
Confidence

Given this is just one box manufacturer’s story it may not
be possible to draw conclusive proof but once again the anecdotal evidence is
piling up. Mr. Box’s story is consistent with what CEOs have been saying in the
Confidence Survey. I never thought about it much before today but boxes simply
have to be a leading indicator, and that leading indicator along with CEO
confidence is pointing South.

-Mike Shedlock/Mish, Global Economic Analysis [1]


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

URL to article: http://www.ritholtz.com/blog/2006/10/blog-spotlight-global-economic-analysis/

URLs in this post:

[1] Mish’s Global Economic Trend Analysis: http://globaleconomicanalysis.blogspot.com/

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/mish_geta.png

[3] Kill Taurus : http://www.foxnews.com/story/0,2933,223177,00.html

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