Annualgain

U.S. Economic Recovery and the Housing Sector Mirage

"During the Great Depression it would have been plausible for the economy to “recover” even if employment, housing and consumer spending were all still in decline (as they are in the United States, today). However, the current U.S. economy is built entirely atop a housing-bubble, and a level of consumption which can only be maintained by ever-increasing consumer debt."

Mr. Nielsen:
The last time I commented on one of your articles, you responded and I think the tone between us became contentious. That is not my intention here, I really just want to learn from you and others. So here's my comment:

How is the recent housing bubble so different from the credit bubble that brought on the great depression? Whether the borrowing was backed by houses or stocks, when the assets declined in value, all the loans were under water. Right?

Now, here's where I think you and I might really differ in our views, i.e. the consumer debt vs. spending balance. Not only is consumer revolving debt down recently, total consumer borrowings are down in aggregate. At the same time consumer spending is increasing, albeit at an anemic rate.

How can consumers pay down debt and increase spending at the same time? Well, despite the fact that the U.S. has more unemployment, personal income is increasing in aggregate. The reason we are going to have very very muted recovery in the U.S. is that consumers are putting some their income increase towards spending and some towards debt reduction.
Consumer Loans: research.stlouisfed.or...
Personal Income: research.stlouisfed.or...
Personal Consumption Expenditures: research.stlouisfed.or...

I don't disagree with the housing stats you provide in your article. I guess I just disagree with the interpretation.

AG

Apollo Group (APOL) up 8.1% as its University of Phoenix was recertified to participate in financial aid programs - which wasn't a sure thing after news broke of an SEC probe into its revenue booking methods.

I don't want to make this a contentious conversation, MarketGuy, but it will be interesting to see what the eventual SEC decision is regarding revenue recognition. Let's revisit this article when the decision comes out.

Cloud Peak IPO Piques Our Interest

The end market is weak - other than telecom, utilities are the worst performing S&P group YTD.

The Decade's Top 25 Stocks

7 or 8 of these names are commodity/energy names that were WAY out of favor at the start of the decade. It makes sense that this list in 10 years will be dominated by names in areas that are WAY out of favor now - financials, housing, etc. (feel free to add to the list).

Not one is from the hottest group at the start of the decade - internet technology/telecom. (unless you want to count Quality Systems, which certainly was not considered an internet stock at the time.) I would expect to see no names from the hottest groups right now - tech advertising, rechargeable batteries, smart phones. (feel free to add to the list).

Apollo Group (APOL) up 8.1% as its University of Phoenix was recertified to participate in financial aid programs - which wasn't a sure thing after news broke of an SEC probe into its revenue booking methods.

The DOE recertification and the SEC inquiry do not go hand in hand. Just because the DOE went ahead with the recert has no impact whatsoever on the SEC investigation.

Dow Jones (NWS) CEO Les Hinton has reportedly told Wall Street Journal employees that the paper is considering adding local coverage in Los Angeles and Chicago, as well as a New York edition. Last week it rolled out a weekly San Francisco Bay-area edition.

With Bloomberg buying Business Week, they have the opportunity to take a lot of share from the WSJ by poaching alienated customers who don't like the fact that the WSJ is slowly migrating into the USA Today.

Forest Laboratories: Steady Growth in Sales and Earnings

It's hard to see how any analysis of FRX is complete without some discussion of Lexapro and Namenda patent expirations. The best endorsement of this stock I've ever seen was when it was at $20 earlier this year. The analysis showed that FRX should have roughly $18 per share in cash and no debt on the balance sheet by the time the two big drugs go off-patent in 2012-2013. Now THAT'S what I call value.

Wall Street Breakfast: Must-Know News

With BRK.B getting split, could Berkshire finally be added to the S&P 500?

Finding Opportunity in Buffett's Burlington Northern Buy

I agree with PON. Rail has its advantages, but only for certain kinds of goods. Rail has always been cheaper when measuring cost per mile, but its on-time performance has been lousy compared to trucks and airfreight. If a manufacturer has to idle its plant or a retailer has to leave shelves empty because of the poor service that rail has always provided, saving a few cents per mile is just not worth it.

Since 1910 market share has gone to the highway and away from the railway. Airfreight has also taken share as manufacturers get better at using just-in-time inventory.

However, the more commodity-like a good is, the more it make sense to use rail. That's why coal represents about 25% of rail volumes, and grains/ag are another large chunk. These goods will never leave the railways.

High value, high margin goods are just the opposite. You don't see many MacBooks delivered via rail.

Good luck with your market share play, Mr. Kaminis.

Black & Decker (BDK) up 21.2% AH as rival Stanley Works (SWK) says it will pay $4.5B to buy the company in a stock deal. Stanley would own just over 50% of the combined firm. [[SWK]] up 3.9% AH.

So much for SWK trying to reduce its exposure to Home Depot.

Blackstone (BX) CEO Steven Schwarzman says he's seeing "more than green shoots" in the economy, and that private equity is in a "radically different place" than a year ago. "We do not expect the U.S. economy to slip back into recession," he said this morning, but weak consumer spending and continued constraints on bank lending could dampen the recovery.

I hope that the RailAmerica (RA) deal shows BX and the rest of private equity that they may have to temper their expectations for the multiples at which they hope to exit some of their holdings.

Wall Street Breakfast: Must-Know News

Don't look at everything in a vacuum. RailAmerica's IPO was a flop, but not because the economy isn't recovering. It was a flop because it was priced at an EV/EBITDA multiple of 11.8x (EBITDA is $130 million derived from 1H09 x 2). I would pay maybe 7x for a rail company and sell at 10x. That would mean buying at $3.60 and selling at $11, but this dog priced at $15. I mean, sheesh, even a quality name like BNI trades at less than 7x. Private equity is deluded if they think the stock investors will fix their problems by buying their over-priced deals once again. It's a new world, baby.

Japanese Banks: It Ain't So If You Say It Ain't So

This proposal from the Japanese finance minister makes a mockery of the capitalist banking system. Who is this guy, Kamei? His lack of responsibility is astounding.

If this isn't a reason to short the yen, I don't know what is.

Doug McIntyre wonders if Costco's (COST +3.7%) FQ4 beat is good news for retail: "The company is known for offering value prices to customers who are willing to buy items in volume. There are not many firms in the industry that fall into that category."

McIntyre's analysis is too superficial for two reasons. 1) When he says "The company is known for offering value to customers who are willing to buy items in volume" he misses the point that Costco is also known for selling high priced items like flat screen TV's that have been particularly hard hit. Any good news from this store is still good news.
2) The report, in addition to reporting sales for the year and quarter ended August also indicates that September sales have accelerated to +3% in the U.S. (excluding gasoline) from -1% in the August quarter. So even if this is a store benefiting from customers seeking value, it is still doing better than it did in the prior period. That too is good news.

An Obituary for the Paper Industry

i second what windsun has to say. There is no "paper industry" per se, but rather there's a dozen sub industries making free sheet, corrugated, wall board, newsprint, etc. Each has its own set of dynamics - newsprint is by far the hardest hit by secular trends away from paper. Check out abwtq.pk.