132,000 New Jobs In November Beat Analyst Estimates
Today's much awaited non-farms payrolls number came in substantially higher than estimated -- adding 132,000 jobs, compared to 92,000 in October, and in-line with the six month average of 135,000. Estimates had been for 112,000 new jobs in November. Unemployment was up 0.1% to 4.5%, in-line with analyst expectations; October's 4.4% was a five-year low. The Fed Open Market Committee is expected to keep its target federal funds rate at 5.25% at its meeting next Tuesday. Payroll growth for September/October were revised by a net +42,000 jobs. Average hourly earnings were up $0.03 (0.2%) to $16.94. Private sector hiring was up to 114,000 in November from 51,000 in October, while factory employment fell by 15,000 jobs. Retail employment was up 20,000, its biggest gain of the year. Construction jobs were down 29,000 for a second sharp drop.
• Sources: MarketWatch
• Related commentary: Is the Economy Stronger Than Expected? Stay Tuned for Friday's Report, Is It Really 'Raining Jobs'?!
• Potentially impacted stocks and ETFs: S&P 500 Index (SPY) • NASDAQ 100 Trust Shares ETF (QQQQ) • iShares Russell 2000 Index ETF (IWM) • iShares Lehman 1-3 Year Treasury Bond ETF (SHY) • iShares Lehman 7-10 Yr Treasury Bond ETF (IEF) • iShares Lehman 20+ Year Treasury Bond ETF (TLT)
Despite Fall in New Jobless Claims, Indications Are For a Worsening Employment Market
U.S. first time jobless claims fell by 34,000 last week to 324,000 after jumping the previous week. None-the-less, the four-week average of first-time claims, considered a more significant indicator since it accounts for weekly fluctuations, rose by 3,500 to 328,750 - its highest level since May. In another indication of the job markets weakness, the number continuing unemployment insurance claims rose 57,000 to 2.52 million in the week ending November 25 - its highest level since January. The four-week average of continuing claims rose to 2.47 million, the highest level since early September. According to Ian Shepherdson, chief U.S. economist at High Frequency Economics, "There is at least a suggestion in the numbers that the trend in layoffs might be starting to rise."
• Sources: Forbes, Reuters, New York Times
• Related commentary: Is the Economy Stronger Than Expected? Stay Tuned for Friday's Report, Is It Really 'Raining Jobs'?!
U.S. Opens Criminal Probe into Municipal Bond Market
The U.S. Justice Department has subpoenaed a host of banks and insurers, including JPMorgan Chase, American International Group and Financial Security Assurance Holdings, in the first-ever antitrust investigation of the $2 trillion municipal bond market. Documents have been seized from three brokers in an attempt to locate evidence of bid rigging. The investigation was sparked by an IRS review that uncovered dozens of muni deals that appear to have robbed taxpayers of over $100 million. Prosecutors allege that the banks involved conspired to fix the fees at which they sold guaranteed investment contracts [GICs]. Local governments are obligated to solicit bids for GICs, for which they rely on brokers. Contracts were allegedly sold by some brokers at below-market rates, implying lower returns for municipalities and less tax revenue for the government. The bid rigging is reminiscent of the yield burning scandals of the 1990s, when Wall Street banks raised the price on Treasuries sold to local governments to avoid restrictions on how much they could earn. The SEC's investigation of that practice ultimately cost those banks more than $170 million.
• Source: Bloomberg
• Related commentary: UBS, Credit Suisse Under SEC Investigation for Bonds Trading Irregularities
• Potentially impacted stocks and ETFs: JPMorgan Chase & Co. (JPM), American International Group Inc. (AIG), Financial Security Assurance Holdings Ltd. (FSF), iShares Lehman 1 - 3 Year Treasury Bond Fund (SHY), iShares Lehman 20+ Year Treasury Bond Fund (TLT), iShares Lehman 7 - 10 Year Treasury Bond Fund (IEF), iShares Lehman Aggregate Bond Fund (AGG)
TECHNOLOGY AND INTERNET
National Semi's Weak Q2 In-line, But Warns of Lower Q3 Sales
National Semiconductor reported lower Q2 revenue and net income that was in-line with analyst expectations following its preannouncement last month. More disturbingly, it issued weaker Q3 guidance. Q2 net income dropped 20% to $91.4m, or $0.27/share, vs $114.7m, or $.032/share last year, on a revenue decline of 8% to $501.6m vs $544m. Current quarter, Q3, sales are seen coming in 8%-11% lower between $446.3m and $461.3m. A poll by Thomson shows analysts had expected Q3 sales to be off by 1% at $495m. Gross margin fell to 58.9%, compared to 61.7% in Q1, and is expected to be slightly lower in Q3. National Semi's CEO commented, "While customer end demand did not demonstrate the seasonal uptick we usually see this time of year, the revenue decline this quarter was driven by inventory reductions at our distributors and some of our customers." Notable Calls blog posted reaction by Wachovia, which sees greater risk of an economic downturn affecting National Semi, as compared to the down cycle in '04, and expects there will be better entry points for the stock in coming months.
• Sources: Press release, Notable Calls, TheStreet.com, Conference call transcripts: National Semiconductor F2Q07
• Related commentary: National Semi Gives Weak Guidance, Weak Handset Demand Causes Lowered Guidance at National Semi, Merrill Ups Handset Sales Forecasts Believing '06 Could Be Peak Year for Global Sales
• Potentially impacted stocks and ETFs: National Semiconductor (NSM). Competitors: Analog Devices (ADI), Texas Instruments (TXN). ETFs: Semiconductor HOLDRs (SMH), PowerShares Dynamic Semiconductors (PSI)
Sony PS3 Misses Sales Target, Xbox 360 and Wii May Beat Targets
Market research by NPD Group shows Sony missed its U.S. November launch month PlayStation 3 sales target by more than half at 197,000 units, versus 400,000. An analyst cited supply constraints and commented, "There's no way that Sony will make its forecast for 1 million units in the U.S. this calendar year." Sony plans to sell 2m units worldwide by the end of '06, compared to Microsoft's Xbox 360 at 10m and Nintendo's Wii at 4m, with the latter two saying they may exceed original '06 estimates. In the U.S. in Nov., NPD estimates sales at 511,000 for the Xbox 360 and 476,000 for the Wii. Note on Nov. 27, Nintendo said it sold 600,000+ Wii's in the first eight days following its launch "in the Americas." Enterbrain, a Japanese gaming magazine, estimates 372,000 Wii's were sold in the first two days of its Japan launch. The Wii launches in Europe today. Reuters reports Microsoft's CFO said the Xbox 360 has out-shipped its predecessor by more than 1m units in its first three quarters post-launch, at 5.7m units.
• Sources: Bloomberg, News.com-Reuters, Nintendo press release
• Related commentary: Game On: Game Console and Software Stock Update, Heads Roll At Sony On PlayStation Delays, Sony: Holiday Sales Look Strong, Nintendo's Wii Setting the Pace for Next-Gen Game Consoles this Christmas
• Potentially impacted stocks and ETFs: Sony (SNE), Microsoft (MSFT), Nintendo (OTCPK:NTDOY). Gaming software publishers: Electronic Arts (ERTS), Activision (ATVI), Konami (KNM), Take Two (TTWO), THQ (THQI)
ENERGY AND MATERIALS
Chevron, ConocoPhillips Going Opposite Directions With CapEx in 2007
Chevron plans to raise its capital spending by 20% in 2007 - from $16 billion in 2006 to nearly $20 billion in 2007 while ConocoPhillips plans to lower its own spending from $15.5 billion to $13.5 billion. Said Oppenheimer & Co. analyst Fadel Gheit, "Chevron and ConocoPhillips are completely different animals," with completely different needs. Chevron has had many exploration successes of late and is ready to increase spending to begin to turn its big oil finds into big oil profits. ConocoPhillips, on the other hand, has completed some large acquisitions, including a $35 billion purchase of Burlington Resources in March, forcing it to cut back on spending somewhat. Chevron also announced its board has approved a plan to buy back up to $5 billion in common stock over a period of up to three years. Shares of Chevron fell slightly yesterday, down a third of a percent, while Conoco shares were up nicely, by $1.16.
• Sources: Chevron Press Release, ConocoPhillips Press Release, WSJ, Bloomberg, Reuters. Conference call transcripts: Chevron Q3 2006
• Related commentary: 3 Reasons Why I Bought ConocoPhillips, Fuel For Thought: Which Integrated Oil Company Should You Own?, Cramer's Take on CVX, Cramer's Take on COP
• Potentially impacted stocks and ETFs: Chevron (CVX), ConocoPhilips (COP). Competitors: Exxon Mobil (XOM), Royal Dutch Shell (RDS.A), BP (BP), Sunoco (SUN). ETFs: Vanguard Energy (VDE), Energy Select Sector SPDR (XLE), iShares Dow Jones US Energy Sector
Whirlpool Sells Hoover for $107 Million
Whirlpool Corp announced that it will sell the Hoover to Hong Kong-based Techtronic for $107 million. Whirlpool acquired the nearly century-old producer of vacuum cleaners as part of its Maytag purchase earlier this year, and is selling Hoover to concentrate on its core business, because it faces fierce competition overseas. Since the Maytag purchase, Whirlpool has cut 4,500 jobs, shut down plants, and is selling off some of its divisions. There is still uncertainty whether current Hoover plants in America will stay open, since the majority of Techtronic's labor force is in China. Techtronic is currently improving its hand-held dirt devil vacuum brand and plans to develop innovations for Hoover products. Shares of Whirlpool fell 24 cents to $86.13 while Techronic's shares gained 14 cents to $10.20 in Hong Kong.
• Sources: Bloomberg, Reuters, USAToday, Press Release
• Related commentary: Jim Cramer's Take on WHR, Barron's: Time to Buy Housing Stocks
• Potentially impacted stocks and ETFs: Whirlpool (WHR). Competitors: General Electric (GE)
Wall Street Unhappy With Eli Lilly's Forecast for 2007
After meeting with analysts in New York yesterday to describe its forward strategy and forecasts, shares of drugmaker Eli Lilly dropped 1.6%. Analysts looking at the short-term projection laid out were unhappy to discover the company's pending acquisition of biotech drugmaker ICOS Corp. (producer of Cialis) would shave a greater-than-expected 10 cents off of earnings in 2007. Expected earnings-per-share were are the $3.25-$3.35 range - a gain of just 5%; Thomson Financial had the consensus for 2007 at $3.39 while UBS analyst Roopesh Patel viewed the guidance as "a bit disappointing,'' after predicting the ICOS acquisition would lower EPS by just three cents. Going forward, Lilly expects to introduce at least one major drug a year through 2010 and two a year after that. The company also expects earnings growth of high single to low upper digits growth after FY 2007.
• Sources: Bloomberg, Business Week, MSNBC, Washington Post
• Related commentary: Searching for Value Investments in the Drug Stock Universe, Eli Lilly ICOS Buyout Is Not Arm's Length, ICOS Shareholders to Board: Eli Lilly Bid Is at a Discount, Not a Premium
• Potentially impacted stocks and ETFs: Eli Lilly (LLY), ICOS Corp. (ICOS). Competitors: Merck & Co. (MRK), Pfizer (PFE), GlaxoSmithKline (GSK), Bristol Myers Squibb (BMY), Wyeth (WYE), Schering-Plough Corporation (SGP), ETFs: iShares Dow Jones US Pharmaceutical Indx (IHE), Pharmaceutical HOLDRS (PPH), SPDR Pharmaceuticals (XPH), Vanguard Health Care (VHT)
JNJ, Boston Scientific Heart Stents Are Safe, Says FDA
An FDA advisory panel determined that Johnson & Johnson and Boston Scientific's drug-coated heart stents are safe for the approved patient population, despite recent concerns about increased risk of blood clots. Doctors have been questioning the accelerated adoption of these stents after a rise in blood clotting was seen in a limited number of patients. Three years ago, drug-eluting stents were deemed a major advance when it was determined that the drugs reduced the chances that the treated artery would re-close. There is a question as to whether safety concerns apply to both Johnson & Johnson and Boston Scientific products equally. Analysts estimate that this market is worth $6 billion a year and 6 million patients have been implanted with the product worldwide. Abbott Laboratories and Medtronic Inc. sell versions of drug-coated stents internationally and plan to enter the U.S. market in mid-2007.
• Sources: Press Release, Scientific American, Reuters, TheStreet.com, MarketWatch.com.
• Related commentary: Wall Street Cautious Over Drug-Coated Stent Risks, Heartening Test Results May Pump ICD Makers -- Barron's, JNJ: A Healthy Blue-Chip Opportunity, Johnson & Johnson: Stock Climbs While Valuation Falls, Heartening Test Results May Pump ICD Makers.
• Potentially impacted stocks and ETFs: Johnson & Johnson (JNJ), Boston Scientific (BSX), Medtronic Inc. (MDT), Abbott Laboratories (ABT). ETFs: iShares Dow Jones US Pharmaceutical Indx (IHE), iShares Dow Jones US Healthcare (IYH), Pharmaceutical HOLDRS (PPH).
Japan: No "Soft Patch" Despite Weaker Economic Data
As widely expected, Japan's Q3 GDP was downward revised to 0.8% on an annualized basis, vs a 2.0% preliminary estimate, due to slower consumer spending and corporate investment. Also, October machinery orders were lower-than-expected at +2.8%. Analysts forecasted a 6.2% increase in orders, after a 7.4% decline in Sept. Stocks, although ending lower, did not face heavy downward pressure, and both the yen and bond yields were stable. The head of forex at HSBC-Tokyo commented, "The market can't decide if the BOJ will raise rates this month or not by just looking at GDP figures. Today's figure won't have much impact on the yen." Cabinet Office officials maintained their view the economy is in good shape -- one commented there's no indication of a "soft patch." The main focus continues to be the Bank of Japan's quarterly tankan (short-term economic investment survey) due out the 15th. Two BoJ hawks have made the case that weak data, and even a lack of investor consensus over the timing of a follow-on rate hike would not impact a decision to hike rates at the central bank's next meeting on the 19th.
• Sources: Bloomberg [I, II]
• Related commentary: UBS: "We Are Very Bullish on Japan", Data Dependent Japanese Investors Have Eyes On BoJ, Bears Already Hibernating in Asia?
• Potentially impacted stocks and ETFs: Mitsubishi UFJ Financial Group (MTU), Mizuho Financial Group (MFG). ETFs: iShares MSCI Japan Index (EWJ), iShares S&P/TOPIX 150 (ITF), BLDRS Asia 50 ADR Index (ADRA)
European Central Bank Raises Key Interest Rate
The European Central Bank raised its key interest rate a quarter of a point to 3.5%, its sixth quarter-point increase in a year. The move was somewhat surprising in view of the euro's position near a 20-month high against the dollar, as some fear the currency's strength could stunt economic expansion. A strong euro can ease inflation and relieve pressure on the central bank to raise interest rates, but it can also hurt exports and cancel out European wage gains. The euro rose to $1.3367 this week, its highest since March 2005. Inflation may range between 1.5% and 2.5% next year, down from 2.1-2.3% this year. Meanwhile, the dollar remained flat ahead of a U.S. report on nonfarm payrolls expected this morning. State unemployment benefit filings declined this week, erasing a sharp increase last week. That movement, coupled with a higher-than-expected increase in private-sector hires last month, might imply resilient economic growth that could counter fears of a coming recession.
• Sources: Newsday, Bloomberg, Business Week, Marketwatch, Forbes
• Related commentary: Is the Economy Stronger Than Expected? Stay Tuned for Friday's Report, The Dollar's Decline: Quite a Spectacle, High Stock Prices, Lower Bond Yields and the Declining Dollar, Dollar Decline? What Dollar Decline?! It's Arbitrage.
• Potentially impacted ETFs: SPDRs (SPY), iShares Lehman 1 - 3 Year Treasury Bond Fund (SHY), iShares Lehman 20+ Year Treasury Bond Fund (TLT), iShares Lehman 7 - 10 Year Treasury Bond Fund (IEF)
U.S. Markets: Stocks and Bonds Both Trading Near 52-Week Highs. Can They Both Be Right?
Housing: Assessing The Homebuilder Stocks
Long Idea: Under Armour Fits My Mold Of An Excellent Investment
Short Idea: Pair Trade: Long Capital One, Short American Express
Internet: Online Traffic Trends: Monster and Expedia Falling
Telecom: Westell: A Good Call
Hardware: National Semi Gives Weak Guidance
Software: Survey Finds Red Hat Customers Willing To Stay With Company if it Cuts Prices
Consumer Electronics: Fred Hickey Remains Bearish On Tech End Demand
Media: Yahoo Should Buy Dow Jones, Says JupiterMedia's Meckler
Healthcare: Sanofi-Aventis Investors Take Note: Senate Confirms Von Eschenbach as FDA Commissioner
Gold: U.S. Gold Moving To AMEX - I'm Staying Long
Energy: 3 Reasons Why I Bought ConocoPhillips
Financial: Treading Carefully In Exchange Stocks
Asia: Nikkei Rallies in Late Trading -- ADR Watch List
ETFs: WisdomTree: Riding the ETF Wave
Small-Caps: Fuel Tech on Fire
IPO Analysis: Heely's Rolls Into a Faddish Footware Market
Sound Money Tips: Use Your Cell Phone to Get in Shape
Jim Cramer: Latest stock picks
Earnings Conference Call Transcripts: National Semiconductor
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